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OI S.A. - In Judicial Reorganization (OIBRQ)

Filed: 15 Aug 21, 8:00pm

 

 

 

Oi S.A. – under Judicial Reorganization and Subsidiaries

 

Financial Statements for the Quarters

Ended June 30, 2021

 

 

 

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

 

 

Contents

 

 

Company Data 
Capital Breakdown1
Individual Financial Statements
Balance Sheets, Assets2
Balance Sheets, Liabilities and Equity4
Statements of Profit or Loss6
Statements of Comprehensive Income7
Statements of Cash Flows8
Statements of Changes in Equity 
Statement of Changes in Equity - 1/1/2021 to 6/30/202110
Statement of Changes in Equity - 1/1/2020 to 6/30/202011
Statements of Value Added12
Consolidated Financial Statements 
Balance Sheets, Assets13
Balance Sheets, Liabilities and Equity15
Statements of Profit or Loss17
Statements of Comprehensive Income19
Statements of Cash Flows20
Statements of Changes in Equity 
Statement of Changes in Equity - 1/1/2021 to 6/30/202122
Statement of Changes in Equity - 1/1/2020 to 6/30/202023
Statements of Value Added24
  

 

 

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Company Data / Capital Breakdown

 

 

Number of Shares

(thousand)

Current Quarter
06/30/2021
 
Paid-in Capital  
Common shares6,440,497 
Preferred shares157,727
Total6,598,224 
In Treasury  
Common shares644,020 
Preferred shares1,812
Total645,832 

 

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Individual Balance Sheets as at June 30, 2021
Assets

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

1Total assets58,281,74238,525,202
1.01Current assets18,354,1876,017,124
1.01.01Cash and cash equivalents603,2781,952,680
1.01.02Cash investments191,471184,682
1.01.02.01Cash investments measured at fair value through profit or loss191,471184,682
1.01.02.01.01Held-for-trading securities191,471184,682
1.01.03Accounts receivable4,685,8561,400,570
1.01.03.01Trade receivables4,685,8561,400,570
1.01.04Inventories217,71666,033
1.01.06Recoverable taxes152,14945,159
1.01.06.01Current recoverable taxes152,14945,159
1.01.07Prepaid expenses545,647233,952
1.01.08Other current assets11,958,0702,134,048
1.01.08.03Other11,958,0702,134,048
1.01.08.03.01Due from subsidiaries31,81533,912
1.01.08.03.02Derivative financial instruments4870
1.01.08.03.03Other taxes775,593929,572
1.01.08.03.04Judicial deposits1,086,537716,047
1.01.08.03.05Dividends and interest on capital2,448,6202,466
1.01.08.03.06Pension plan assets2,8344,984
1.01.08.03.07Held-for-sale assets6,652,288100,622
1.01.08.03.08Other assets959,896346,445
1.02Non-current assets39,927,55532,508,078
1.02.01Long-term receivables17,212,04515,160,428
1.02.01.01Cash investments measured at fair value through profit or loss2,7653,174
1.02.01.01.01Securities at fair value2,7653,174
1.02.01.07Deferred taxes3,724,3983,724,398
1.02.01.07.01Deferred income tax and social contribution3,724,3983,724,398
1.02.01.08Prepaid expenses158,73976,087
1.02.01.09Due from related parties7,786,8317,587,660
1.02.01.09.02Due from subsidiaries7,786,8317,587,660
1.02.01.10Other non-current assets5,539,3123,769,109
1.02.01.10.03Other taxes642,018445,187
1.02.01.10.04Judicial deposits4,375,4413,220,445
1.02.01.10.05Pension plan assets38,43836,917
1.02.01.10.06Other assets483,41566,560
1.02.02Investments4,918,0097,353,440
1.02.02.01Equity interests4,918,0097,353,440
1.02.02.01.01Investments in associates51,8710
1.02.02.01.02Investments in subsidiaries4,825,4777,339,368
1.02.02.01.03Interests in joint ventures24,2980
1.02.02.01.04Other investments16,36314,072
1.02.03Property, plant and equipment15,003,2986,948,832
1.02.03.01Property, plant and equipment in service10,869,0666,022,330
1.02.03.02Right of use in a lease2,571,268679,405
1.02.03.03Property, plant and equipment in progress1,562,964247,097
1.02.04Intangible assets2,794,2033,045,378

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Individual Balance Sheets as at June 30, 2021
Assets

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

1.02.04.01Intangible assets2,794,2033,045,378
1.02.04.01.02Regulatory licenses2,688,2972,986,914
1.02.04.01.03Software43,0795,710
1.02.04.01.04Intangibles in progress9484
1.02.04.01.05Other62,73352,670

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Individual Balance Sheets as at June 30, 2021
Liabilities and Equity

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

2Total liabilities and shareholdersequity58,281,74238,525,202
2.01Current liabilities7,351,6753,044,306
2.01.01Payroll and related taxes261,226284,171
2.01.01.02Mandatory benefits261,226284,171
2.01.02Trade payables3,264,495970,071
2.01.02.01Domestic suppliers3,264,495970,071
2.01.02.01.01Trade payables2,497,743820,488
2.01.02.01.02Trade payables subject to the Judicial Reorganization766,752149,583
2.01.04Borrowings and financing395,840408,027
2.01.04.01Borrowings and financing395,840408,027
2.01.04.01.01In local currency9302,226
2.01.04.01.02In foreign currency394,910405,801
2.01.05Other payables3,020,515910,170
2.01.05.02Other3,020,515910,170
2.01.05.02.01Dividends and interest on capital payable825,3304,775
2.01.05.02.04Other taxes350,887174,097
2.01.05.02.05Tax refinancing program83,72355,784
2.01.05.02.06Derivative financial instruments37,42410,967
2.01.05.02.07Licenses and concessions payable017,828
2.01.05.02.08Leases payable510,872146,415
2.01.05.02.09Assignment of receivables196,72041,268
2.01.05.02.10Other payables1,015,559459,036
2.01.06Provisions409,599471,867
2.01.06.01Tax, social security, labor, and civil provisions409,599471,867
2.01.06.01.01Tax provisions9,7124,247
2.01.06.01.02Social security and labor provisions38,49258,888
2.01.06.01.04Civil provisions361,395408,732
2.02Non-current liabilities45,069,04427,729,404
2.02.01Borrowings and financing20,591,20512,935,035
2.02.01.01Borrowings and financing20,591,20512,935,035
2.02.01.01.01In local currency8,480,1124,039,068
2.02.01.01.02In foreign currency12,111,0938,895,967
2.02.02Other payables20,076,68812,679,013
2.02.02.01Due to related parties1,682,9601,591,964
2.02.02.01.02Payables to subsidiaries1,682,9601,591,964
2.02.02.02Other18,393,72811,087,049
2.02.02.02.03Trade payables subject to the Judicial Reorganization3,201,1601,444,477
2.02.02.02.04Tax refinancing program195,638156,845
2.02.02.02.05Other taxes934,104549,829
2.02.02.02.06Provision for negative shareholders’ equity6,409,5546,017,583
2.02.02.02.07Leases payable2,129,410541,805
2.02.02.02.08Assignment of receivables81,96737,829
2.02.02.02.09Other payables5,441,8952,338,681
2.02.04Provisions4,401,1512,115,356
2.02.04.01Tax, social security, labor, and civil provisions4,401,1512,115,356
2.02.04.01.01Tax provisions938,902232,770

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Individual Balance Sheets as at June 30, 2021
Liabilities and Equity

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

2.02.04.01.02Social security and labor provisions1,005,419602,176
2.02.04.01.03Accrued employee benefits752,152702,058
2.02.04.01.04Civil provisions1,704,678578,352
2.03Shareholders’ equity5,861,0237,751,492
2.03.01Realized capital32,538,93732,538,937
2.03.02Capital reserves3,886,8613,873,456
2.03.02.02Special merger goodwill reserve1,750,4941,750,494
2.03.02.05Treasury shares-33,315-33,315
2.03.02.08Other capital reserves1,379,2341,379,234
2.03.02.10Interest on construction in progress745,756745,756
2.03.02.11Law 8200/91 inflation adjustment31,28731,287
2.03.02.13Share-based compensation13,4050
2.03.05Retained earnings/accumulated losses-30,156,502-28,257,917
2.03.06Valuation adjustments to equity-801,073-801,073
2.03.08Other comprehensive income392,800398,089

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Individual Statements of Profit or Loss for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

4/1/2021 to 6/30/2021

YTD

1/1/2021 to 6/30/2021

Same Quarter Prior Year

4/1/2020 to 6/30/2020

Prior YTD

1/1/2020 to 6/30/2020

3.01Net operating revenue1,708,7152,638,986772,4701,579,128
3.02Cost of sales and/or services-1,474,194-2,265,506-669,788-1,350,764
3.03Gross profit234,521373,480102,682228,364
3.04Operating expenses/revenue974,156-1,753,302-2,242,751-7,195,505
3.04.01Selling expenses-238,119-393,262-125,922-266,668
3.04.02General and administrative expenses-275,680-489,837-206,232-423,780
3.04.04Other operating income181,027411,003129,977281,274
3.04.05Other operating expenses-121,709-162,592-34-66,021
3.04.06Share of results of investees1,428,637-1,118,614-2,040,540-6,720,310
3.05Profit (loss) before financial income (expenses) and taxes1,208,677-1,379,822-2,140,069-6,967,141
3.06Financial income (expenses)-40,886-886,022-917,768-2,186,050
3.06.01Financial income-840,197260,508623,7482,899,202
3.06.02Financial expenses799,311-1,146,530-1,541,516-5,085,252
3.07Profit (loss) before taxes on income1,167,791-2,265,844-3,057,837-9,153,191
3.08Income tax and social contribution00012,085
3.08.02Deferred00012,085
3.09Profit (loss) for the period from continuing operations1,167,791-2,265,844-3,057,837-9,141,106
3.10Profit (loss) for the period from discontinued operations-28,838367,259-351,547-548,343
3.10.01Profit/loss from discontinued operations-28,838367,259-351,547-548,343
3.11Profit/loss for the period1,138,953-1,898,585-3,409,384-9,689,449
3.99Earnings per share - (R$ per share)    
3.99.01Basic earnings per share    
3.99.01.01Common shares (ON)0.19000-0.32000-0.57000-1.63000
3.99.01.02Preferred shares (PN)0.19000-0.32000-0.57000-1.63000
3.99.02Diluted earnings per share    
3.99.02.01Common shares (ON)0.19000-0.32000-0.57000-1.63000
3.99.02.02Preferred shares (PN)0.19000-0.32000-0.57000-1.63000

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

 

Individual Statements of Comprehensive Income for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

4/1/2021 to 6/30/2021

YTD

1/1/2021 to 6/30/2021

Same Quarter Prior Year

4/1/2020 to 6/30/2020

Prior YTD

1/1/2020 to 6/30/2020

4.01Profit for the period1,138,953-1,898,585-3,409,384-9,689,449
4.02Other comprehensive income-10,808-5,28956,645108,619
4.02.01Hedge accounting gain-9,977-4,45301,152
4.02.02Actuarial gain316355,74755,747
4.02.03Exchange losses on investment abroad-862-89989851,720
4.03Comprehensive income for the period1,128,145-1,903,874-3,352,739-9,580,830

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Individual Statements of Cash Flows - Indirect Method
for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais – R$)

 

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

6.01Net cash from operating activities-971,687-624,370
6.01.01Cash generated by operations967,918385,722
6.01.01.01Pre-tax loss-2,265,844-9,153,191
6.01.01.02Charges, interest income, inflation adjustment, and exchange differences-1,411,5348,155,999
6.01.01.03Debt discount amortization and inflation adjustments and exchange differences2,285,713-6,431,898
6.01.01.04Adjustment of trade payables to fair value147,10943,349
6.01.01.05Derivative transactions23,672127,581
6.01.01.06Depreciation and amortization1,111,183760,600
6.01.01.07Expected losses on trade receivables2,34025,381
6.01.01.08Provisions/(reversals)-24,2223,500
6.01.01.09Equity in investees1,118,6146,720,310
6.01.01.10Gain (loss) on disposals and write-offs of assets-115,45624,663
6.01.01.11Concession Agreement Extension Fee - ANATEL35,02729,669
6.01.01.12Employee and management profit sharing20,5315,977
6.01.01.13Tax recovery-5,649-74,458
6.01.01.14Inflation adjustment to provisions/(reversals)34,926181,387
6.01.01.15Inflation adjustment to tax refinancing program1,3772,433
6.01.01.16Other10,131-35,580
6.01.02Changes in assets and liabilities-1,432,206-646,396
6.01.02.01Accounts receivable-490,653-416,121
6.01.02.02Inventories-16,4474,216
6.01.02.03Taxes392,154130,225
6.01.02.04Increases/decreases of cash investments1,371921
6.01.02.05Trade payables-611,306-300,940
6.01.02.06Payroll, related taxes and benefits-93,848-26,862
6.01.02.07Licenses and concessions-34,5570
6.01.02.08Provisions-128,874-88,005
6.01.02.09Other assets and liabilities-450,04650,170
6.01.03Other-507,399-363,696
6.01.03.01Financial charges paid - debt-443,702-351,358
6.01.03.02Financial charges paid - leases-63,697-12,338
6.02Net cash from investing activities-951,3011,979,221
6.02.01Purchases of tangibles and intangibles-717,214-449,458
6.02.02Due from related parties – receipts/releases-22,546365,292
6.02.03Proceeds from the sale of investments and capital assets332,6410
6.02.04Cash received due to capital reduction in subsidiary - PT Participações02,933,982
6.02.05Judicial deposits-45,671-39,690
6.02.06Redemptions of judicial deposits185,579248,727

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Individual Statements of Cash Flows - Indirect Method
for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais – R$)

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

6.02.07Capital increase in subsidiaries-684,090-179,632
6.02.08Advance for future capital increase in subsidiary0-900,000
6.03Net cash from financing activities574,824-209,004
6.03.01Repayment of principal of borrowings and financing-1,326-1,824
6.03.02Proceeds from/(repayments of) derivative financial instrument transactions-4,073-128,733
6.03.03Tax refinancing program-30,404-18,994
6.03.04Leases-114,457-59,453
6.03.05Cash and cash equivalents acquired by merger725,0840
6.04Exchange differences on cash and cash equivalents-1,238160,093
6.05Increase (decrease) in cash and cash equivalents-1,349,4021,305,940
6.05.01Cash and cash equivalents at the beginning of the period1,952,680949,967
6.05.02Cash and cash equivalents at the end of the period603,2782,255,907

 

 

 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Individual Statement of Changes in Equity for the Period January 1, 2021 to June 30, 2021

(In thousands of Brazilian reais - R$)

CodeLine ItemPaid-in capitalCapital reserves, stock options granted and treasury shares Profit reservesRetained earnings or accumulated lossesOther comprehensive incomeEquity
5.01Opening balances32,538,9373,873,4560-28,257,917-402,9847,751,492
5.03Adjusted opening balances32,538,9373,873,4560-28,257,917-402,9847,751,492
5.04Capital transactions with shareholders013,40500013,405
5.04.08Share-based compensation013,40500013,405
5.05Total comprehensive income000-1,898,585-5,289-1,903,874
5.05.01Profit for the period000-1,898,5850-1,898,585
5.05.02Other comprehensive income0000-5,289-5,289
5.05.02.06Other comprehensive income0000-5,289-5,289
5.07Closing balances32,538,9373,886,8610-30,156,502-408,2735,861,023

 

10 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Individual Statement of Changes in Equity for the Period January 1, 2020 to June 30, 2020

(In thousands of Brazilian reais - R$)

CodeLine ItemPaid-in capitalCapital reserves, stock options granted and treasury shares Profit reservesRetained earnings or accumulated lossesOther comprehensive incomeEquity
5.01Opening balances32,538,9373,873,4560-17,727,954-1,034,11317,650,326
5.03Adjusted opening balances32,538,9373,873,4560-17,727,954-1,034,11317,650,326
5.04Capital transactions with shareholders05,9770005,977
5.04.08Share-based compensation05,9770005,977
5.05Total comprehensive income000-9,689,449108,619-9,580,830
5.05.01Profit for the period000-9,689,4490-9,689,449
5.05.02Other comprehensive income0000108,619108,619
5.05.02.06Other comprehensive income0000108,619108,619
5.07Closing balances32,538,9373,879,4330-27,417,403-925,4948,075,473

 

11 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Individual Statements of Value Added

for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

7.01Revenue3,655,5362,330,584
7.01.01Sales of goods and services3,263,0382,075,064
7.01.02Other income394,838280,901
7.01.04Allowance for/reversal of doubtful accounts-2,340-25,381
7.02Inputs purchased from third parties-1,382,251-947,998
7.02.01Cost of sales and services-57,630-34,034
7.02.02Supplies, power, outside services, and other inputs-1,286,846-882,058
7.02.04Other-37,775-31,906
7.03Gross value added2,273,2851,382,586
7.04Retentions-908,238-1,522,754
7.04.01Depreciation, amortization and depletion-1,111,183-760,600
7.04.02Other202,945-762,154
7.04.02.01Provisions (including inflation adjustment)-10,704-184,887
7.04.02.02Loss for the year of discontinued operations367,259-548,343
7.04.02.03Other expenses-153,610-28,924
7.05Wealth created1,365,047-140,168
7.06Value added received as transfer-858,106-3,821,108
7.06.01Share of results of investees-1,118,614-6,720,310
7.06.02Financial income260,5082,899,202
7.07Wealth for distribution506,941-3,961,276
7.08Wealth distributed506,941-3,961,276
7.08.01Personnel268,312158,274
7.08.01.01Salaries and wages197,750108,646
7.08.01.02Benefits47,79936,921
7.08.01.03Severance pay fund (FGTS)16,36910,241
7.08.01.04Other6,3942,466
7.08.02Taxes and fees510,967385,149
7.08.02.01Federal29,117-28,513
7.08.02.02State459,554403,051
7.08.02.03Municipal22,29610,611
7.08.03Lenders and lessors1,626,2475,184,750
7.08.03.01Interest1,140,1124,947,915
7.08.03.02Rentals486,135236,835
7.08.04Shareholders-1,898,585-9,689,449
7.08.04.03Retained earnings/Accumulated losses for the period-1,898,585-9,689,449

 

 

12 

Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Consolidated Balance Sheets as at June 30, 2021
Assets

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

1Total assets74,894,12273,839,787
1.01Current assets43,849,48333,795,738
1.01.01Cash and cash equivalents1,430,2384,107,941
1.01.02Cash investments194,939193,715
1.01.02.01Cash investments measured at fair value through profit or loss194,939193,715
1.01.02.01.01Held-for-trading securities194,939193,715
1.01.03Accounts receivable3,894,6873,974,238
1.01.03.01Trade receivables3,894,6873,974,238
1.01.04Inventories430,223378,462
1.01.06Recoverable taxes361,917358,121
1.01.06.01Current recoverable taxes361,917358,121
1.01.07Prepaid expenses712,581330,131
1.01.08Other current assets36,824,89824,453,130
1.01.08.03Other36,824,89824,453,130
1.01.08.03.01Derivative financial instruments4870
1.01.08.03.02Other taxes1,172,3901,823,451
1.01.08.03.03Judicial deposits1,164,3681,095,827
1.01.08.03.04Dividends250
1.01.08.03.05Pension plan assets5,2867,618
1.01.08.03.06Held-for-sale assets33,627,96120,771,942
1.01.08.03.07Other assets854,381754,292
1.02Non-current assets31,044,63940,044,049
1.02.01Long-term receivables10,405,33812,087,591
1.02.01.01Cash investments measured at fair value through profit or loss9,77410,341
1.02.01.01.01Securities at fair value9,77410,341
1.02.01.07Deferred taxes3,671,0703,671,070
1.02.01.07.01Deferred income tax and social contribution3,671,0703,671,070
1.02.01.08Prepaid expenses147,152128,385
1.02.01.10Other non-current assets6,577,3428,277,795
1.02.01.10.03Other taxes1,198,6621,447,166
1.02.01.10.04Judicial deposits4,768,6706,198,008
1.02.01.10.05Pension plan assets38,43836,917
1.02.01.10.06Other assets571,572595,704
1.02.02Investments113,159123,579
1.02.02.01Equity interests113,159123,579
1.02.02.01.01Investments in associates51,87150,799
1.02.02.01.04Interests in joint ventures24,29825,081
1.02.02.01.05Other investments36,99047,699
1.02.03Property, Plant And Equipment17,160,98124,135,058
1.02.03.01Property, plant and equipment in service11,908,97619,273,642
1.02.03.02Right of use in a lease3,077,7822,908,501
1.02.03.03Property, plant and equipment in progress2,174,2231,952,915
1.02.04Intangible assets3,365,1613,697,821
1.02.04.01Intangible assets3,365,1613,697,821

 

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Balance Sheets as at June 30, 2021
Assets

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

1.02.04.01.02Regulatory licenses2,680,6792,979,314
1.02.04.01.03Software497,618517,023
1.02.04.01.04Intangibles in progress2,0459,111
1.02.04.01.05Other184,819192,373

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Balance Sheets as at June 30, 2021
Liabilities and Equity

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

2Total liabilities and shareholdersequity74,894,12273,839,787
2.01Current liabilities26,321,96918,013,108
2.01.01Payroll and related taxes569,712742,378
2.01.01.02Mandatory benefits569,712742,378
2.01.02Trade payables3,906,6583,275,919
2.01.02.01Domestic suppliers3,906,6583,275,919
2.01.02.01.01Trade payables3,113,8412,742,395
2.01.02.01.02Trade payables subject to the Judicial Reorganization792,817533,524
2.01.03Taxes payable10,65912,382
2.01.03.01Federal taxes payable10,65912,382
2.01.03.01.01Income tax and social contribution payable10,65912,382
2.01.04Borrowings and financing3,840,659424,957
2.01.04.01Borrowings and financing3,840,659424,957
2.01.04.01.01In local currency3,445,74919,156
2.01.04.01.02In foreign currency394,910405,801
2.01.05Other payables17,448,73112,775,530
2.01.05.02Other17,448,73112,775,530
2.01.05.02.01Dividends and interest on capital payable19,75018,094
2.01.05.02.04Derivative financial instruments37,42410,967
2.01.05.02.05Other taxes1,649,5171,189,145
2.01.05.02.06Tax refinancing program94,43393,715
2.01.05.02.07Licenses and concessions payable043,415
2.01.05.02.08Leases payable715,886654,662
2.01.05.02.09Liabilities associated to held-for-sale assets13,146,2859,195,376
2.01.05.02.10Assignment of receivables196,720196,720
2.01.05.02.11Other payables1,588,7161,373,436
2.01.06Provisions545,550781,942
2.01.06.01Tax, social security, labor, and civil provisions545,550781,942
2.01.06.01.01Tax provisions26,53042,576
2.01.06.01.02Social security and labor provisions58,564138,409
2.01.06.01.03Accrued employee benefits460,4560
2.01.06.01.04Civil provisions0600,957
2.02Non-current liabilities42,696,40948,056,769
2.02.01Borrowings and financing22,715,36625,918,777
2.02.01.01Borrowings and financing22,715,36625,918,777
2.02.01.01.01In local currency9,891,70813,052,638
2.02.01.01.02In foreign currency12,823,65812,866,139
2.02.02Other payables14,387,82516,407,413
2.02.02.02Other14,387,82516,407,413
2.02.02.02.03Trade payables subject to the Judicial Reorganization3,452,7645,020,972
2.02.02.02.04Other taxes1,314,7161,324,000
2.02.02.02.05Leases payable2,456,0522,327,016
2.02.02.02.06Tax refinancing program212,364252,502
2.02.02.02.07Assignment of receivables81,967180,327
2.02.02.02.08Other payables6,869,9627,302,596
2.02.04Provisions5,593,2185,730,579

 

 

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Version: 1

 

 

Consolidated Balance Sheets as at June 30, 2021
Liabilities and Equity

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

06/30/2021

Prior Year

12/31/2020

2.02.04.01Tax, social security, labor, and civil provisions5,593,2185,730,579
2.02.04.01.01Tax provisions1,124,2951,182,841
2.02.04.01.02Social security and labor provisions1,585,1621,658,211
2.02.04.01.03Accrued employee benefits752,152702,058
2.02.04.01.04Civil provisions2,131,6092,187,469
2.03Consolidated shareholders’ equity5,875,7447,769,910
2.03.01Realized capital32,538,93732,538,937
2.03.02Capital reserves3,886,8613,873,456
2.03.02.02Special merger goodwill reserve1,750,4941,750,494
2.03.02.05Treasury shares-33,315-33,315
2.03.02.08Other capital reserves1,379,2341,379,234
2.03.02.10Interest on construction in progress745,756745,756
2.03.02.11Law 8200/91 inflation adjustment31,28731,287
2.03.02.13Share-based compensation13,4050
2.03.05Retained earnings/accumulated losses-30,156,502-28,257,917
2.03.06Valuation adjustments to equity-801,073-801,073
2.03.08Other comprehensive income392,800398,089
2.03.09Non-controlling interests14,72118,418

 

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

Consolidated Statements of Profit or Loss for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

4/1/2021 to 6/30/2021

YTD

1/1/2021 to 6/30/2021

Same Quarter Prior Year

4/1/2020 to 6/30/2020

Prior YTD

1/1/2020 to 6/30/2020

3.01Net operating revenue2,234,7614,473,1012,301,3814,716,730
3.02Cost of sales and/or services-1,424,732-3,311,071-1,429,461-3,280,720
3.03Gross profit810,0291,162,030871,9201,436,010
3.04Operating expenses/revenue-987,424-1,196,178-1,158,976-1,903,385
3.04.01Selling expenses-570,294-1,131,473-486,432-995,657
3.04.02General and administrative expenses-543,084-1,119,366-675,114-1,388,375
3.04.04Other operating income575,5941,824,197432,7801,206,435
3.04.05Other operating expenses-450,608-770,701-430,693-756,533
3.04.06Share of results of investees9681,16548330,745
3.05Profit (loss) before financial income (expenses) and taxes-177,395-34,148-287,056-467,375
3.06Financial income (expenses)1,346,319-2,226,048-2,854,206-8,765,246
3.06.01Financial income30,583209,924102,768680,768
3.06.02Financial expenses1,315,736-2,435,972-2,956,974-9,446,014
3.07Profit (loss) before taxes on income1,168,924-2,260,196-3,141,262-9,232,621
3.08Income tax and social contribution-881-9,406-59133,774
3.08.01Current-881-9,406-5919,960
3.08.02Deferred00023,814
3.09Profit (loss) for the period from continuing operations1,168,043-2,269,602-3,141,853-9,198,847
3.10Profit (loss) for the period from discontinued operations-28,838367,259-351,547-548,343
3.10.01Profit/loss from discontinued operations-28,838367,259-351,547-548,343
3.11Consolidated profit/loss for the period1,139,205-1,902,343-3,493,400-9,747,190
3.11.01Attributable to the Company owner1,138,953-1,898,585-3,409,384-9,689,449
3.11.02Attributable to non-controlling interests252-3,758-84,016-57,741
3.99Earnings per share - (R$ per share)    
3.99.01Basic earnings per share    
3.99.01.01Common shares (ON)0.19000-0.32000-0.57000-1.63000
3.99.01.02Preferred shares (PN)0.19000-0.32000-0.57000-1.63000
3.99.02Diluted earnings per share    

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Statements of Profit or Loss for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

4/1/2021 to 6/30/2021

YTD

1/1/2021 to 6/30/2021

Same Quarter Prior Year

4/1/2020 to 6/30/2020

Prior YTD

1/1/2020 to 6/30/2020

3.99.02.01Common shares (ON)0.19000-0.32000-0.57000-1.63000
3.99.02.02Preferred shares (PN)0.19000-0.32000-0.57000-1.63000

 

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

 

Consolidated Statements of Comprehensive Income for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

Current Quarter

4/1/2021 to 6/30/2021

YTD

1/1/2021 to 6/30/2021

Same Quarter Prior Year

4/1/2020 to 6/30/2020

Prior YTD

1/1/2020 to 6/30/2020

4.01Consolidated profit for the period1,139,205-1,902,343-3,493,400-9,747,190
4.02Other comprehensive income-12,647-5,22856,645108,619
4.02.01Hedge accounting gain-9,977-4,45301,152
4.02.02Actuarial gain316355,74755,747
4.02.03Exchange losses on investment abroad-2,701-83889851,720
4.03Consolidated comprehensive income for the period1,126,558-1,907,571-3,436,755-9,638,571
4.03.01Attributable to the Company owner1,128,145-1,903,874-3,352,739-9,580,830
4.03.02Attributable to non-controlling interests-1,587-3,697-84,016-57,741

 

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Statements of Cash Flows - Indirect Method
for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais – R$)

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

6.01Net cash from operating activities-2,428,1541,704,392
6.01.01Cash generated by operations1,500,0392,277,924
6.01.01.01Pre-tax loss-2,260,196-9,232,621
6.01.01.02Charges, interest income, inflation adjustment, and exchange differences858,73110,329,895
6.01.01.03Debt discount amortization and inflation adjustments and exchange differences1,027,190-2,598,494
6.01.01.04Adjustment of trade payables to fair value64,564131,252
6.01.01.05Derivative transactions23,672127,581
6.01.01.06Depreciation and amortization1,891,6291,792,392
6.01.01.07Expected losses on trade receivables51,28182,562
6.01.01.08Provisions/(reversals)78,93063,042
6.01.01.09Equity in investees-1,165-30,745
6.01.01.10Loss on disposals and write-offs of assets-1,008,827-103,929
6.01.01.12Concession Agreement Extension Fee - ANATEL52,048193,476
6.01.01.13Employee and management profit sharing63,46734,760
6.01.01.14Tax recovery-16,849-273,113
6.01.01.15Inflation adjustment to provisions/(reversals)151,518377,374
6.01.01.16Inflation adjustment to tax refinancing program2,3094,452
6.01.01.17Other-5,005-71,164
6.01.01.18Cash flows from discontinued operations526,7421,451,204
6.01.02Changes in assets and liabilities-3,138,126-75,267
6.01.02.01Accounts receivable28,733-367,696
6.01.02.02Inventories-52,77233,592
6.01.02.03Taxes759,770656,470
6.01.02.04Increases/decreases of cash investments3,154974
6.01.02.05Trade payables-953,189-493,949
6.01.02.06Payroll, related taxes and benefits-221,862-71,686
6.01.02.07Licenses and concessions-83,673-41,209
6.01.02.08Provisions-299,000-218,601
6.01.02.09Changes in assets and liabilities held for sale-1,901,524210,896
6.01.02.10Other assets and liabilities-417,763215,942
6.01.03Other-790,067-498,265
6.01.03.01Financial charges paid - debt-654,306-352,074
6.01.03.02Financial charges paid - leases-76,566-66,292
6.01.03.03Income tax and social contribution paid - Company-5,813-33,430
6.01.03.04Income tax and social contribution paid - third parties-53,382-46,469
6.02Net cash from investing activities-1,937,852283,819
6.02.01Purchases of tangibles and intangibles-1,160,661-1,137,323
6.02.02Proceeds from the sale of investments and capital assets1,057,846129,984
6.02.03Cash received on the sale of investments - PT Ventures03,912,601
6.02.04Judicial deposits-164,082-155,580
6.02.05Redemptions of judicial deposits263,162349,234

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Statements of Cash Flows - Indirect Method
for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais – R$)

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

6.02.06Cash flows from discontinued operations-1,934,117-2,815,097
6.03Net cash from financing activities1,689,8211,566,000
6.03.01Borrowings net of costs02,473,319
6.03.02Repayment of principal of borrowings and financing-2,056-4,919
6.03.03Proceeds from/(repayments of) derivative financial instrument transactions-4,073-128,733
6.03.04Tax refinancing program-40,313-28,135
6.03.05Leases-293,707-305,703
6.03.06Cash flows from discontinued operations2,029,970-439,829
6.04Exchange differences on cash and cash equivalents-1,518214,497
6.05Increase (decrease) in cash and cash equivalents-2,677,7033,768,708
6.05.01Cash and cash equivalents at the beginning of the period4,107,9412,081,945
6.05.02Cash and cash equivalents at the end of the period1,430,2385,850,653

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Statement of Changes in Equity for the Period January 1, 2021 to June 30, 2021

(In thousands of Brazilian reais - R$)

CodeLine ItemPaid-in capitalCapital reserves, stock options granted and treasury shares Profit reservesRetained earnings or accumulated lossesOther comprehensive incomeEquityNon-controlling interestsConsolidated equity
5.01Opening balances32,538,9373,873,4560-28,257,917-402,9847,751,49218,4187,769,910
5.03Adjusted opening balances32,538,9373,873,4560-28,257,917-402,9847,751,49218,4187,769,910
5.04Capital transactions with shareholders013,40500013,405013,405
5.04.08Share-based compensation013,40500013,405013,405
5.05Total comprehensive income000-1,898,585-5,289-1,903,874-3,697-1,907,571
5.05.01Profit for the period000-1,898,5850-1,898,585-3,758-1,902,343
5.05.02Other comprehensive income0000-5,289-5,28961-5,228
5.05.02.06Other comprehensive income0000-5,289-5,28961-5,228
5.07Closing balances32,538,9373,886,8610-30,156,502-408,2735,861,02314,7215,875,744

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

Consolidated Statement of Changes in Equity for the Period January 1, 2020 to June 30, 2020

(In thousands of Brazilian reais - R$)

CodeLine ItemPaid-in capitalCapital reserves, stock options granted and treasury shares Profit reservesRetained earnings or accumulated lossesOther comprehensive incomeEquityNon-controlling interestsConsolidated equity
5.01Opening balances32,538,9373,873,4560-17,727,954-1,034,11317,650,326146,18017,796,506
5.03Adjusted opening balances32,538,9373,873,4560-17,727,954-1,034,11317,650,326146,18017,796,506
5.04Capital transactions with shareholders05,9770005,97705,977
5.04.08Share-based compensation05,9770005,97705,977
5.05Total comprehensive income000-9,689,449108,619-9,580,830-57,741-9,638,571
5.05.01Profit for the period000-9,689,4490-9,689,449-57,741-9,747,190
5.05.02Other comprehensive income0000108,619108,6190108,619
5.05.02.06Other comprehensive income0000108,619108,6190108,619
5.07Closing balances32,538,9373,879,4330-27,417,403-925,4948,075,47388,4398,163,912

 

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Interim Financial Information (ITR) - June 30, 2021 - OI S.A. – under Judicial Reorganization  

Version: 1

 

 

 

Consolidated Statements of Value Added

for the Periods Ended June 30, 2021 and 2020

(In thousands of Brazilian reais - R$)

CodeLine Item

YTD

1/1/2021 to 6/30/2021

Prior YTD

1/1/2020 to 6/30/2020

7.01Revenue7,515,2867,160,210
7.01.01Sales of goods and services5,773,6716,083,816
7.01.02Other income1,792,8961,158,956
7.01.04Allowance for/reversal of doubtful accounts-51,281-82,562
7.02Inputs purchased from third parties-2,339,158-2,576,444
7.02.01Cost of sales and services-76,816-84,236
7.02.02Supplies, power, outside services, and other inputs-2,193,278-2,391,499
7.02.04Other-69,064-100,709
7.03Gross value added5,176,1284,583,766
7.04Retentions-2,055,831-3,009,531
7.04.01Depreciation, amortization and depletion-1,891,629-1,792,392
7.04.02Other-164,202-1,217,139
7.04.02.01Provisions (including inflation adjustment)-230,448-428,647
7.04.02.02Loss for the year of discontinued operations367,259-548,343
7.04.02.03Other expenses-301,013-240,149
7.05Wealth created3,120,2971,574,235
7.06Value added received as transfer211,089711,513
7.06.01Share of results of investees1,16530,745
7.06.02Financial income209,924680,768
7.07Wealth for distribution3,331,3862,285,748
7.08Wealth distributed3,331,3862,285,748
7.08.01Personnel763,264780,149
7.08.01.01Salaries and wages562,360549,889
7.08.01.02Benefits136,519152,693
7.08.01.03Severance pay fund (FGTS)45,21453,679
7.08.01.04Other19,17123,888
7.08.02Taxes and fees1,445,5881,438,687
7.08.02.01Federal250,661176,398
7.08.02.02State1,063,4431,138,764
7.08.02.03Municipal131,484123,525
7.08.03Lenders and lessors3,024,8779,814,102
7.08.03.01Interest2,328,6629,132,913
7.08.03.02Rentals696,215681,189
7.08.04Shareholders-1,902,343-9,747,190
7.08.04.03Retained earnings/Accumulated losses for the period-1,898,585-9,689,449
7.08.04.04Non-controlling interests in retained earnings-3,758-57,741

 

 

 

 

 

24 

 

Additional Disclosures Relating to the Statement of Cash Flows

 

a)Non-cash transactions

 

 COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Variance between economic and financial investment (acquisition of PP&E and intangible assets)268,36549,884230,163(254,510)
Offset of judicial deposits against provisions28,571117,570132,395248,610
Offset of recoverable taxes against taxes payable719,499510,0901,724,9292,005,109
Fistel fee918368244,037302,551

 

Reconciliation of liabilities resulting from financing activities

 

The changes in financial charges and the settlement of the debt resulting from financing activities are presented in Note 19.

 

b)Merger of Telemar Norte Leste S.A. – Under Judicial Reorganization (“Telemar”)

 

The assets acquired and liabilities assumed arising from the merger of Telemar on May 3, 2021 are presented in Note 1.

 

25 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

1.               GENERAL INFORMATION

 

Oi S.A. – under Judicial Reorganization (“Company” or “Oi”), is a Switched Fixed-line Telephony Services (“STFC”) concessionaire, operating since July 1998 in Region II of the General Concession Plan (“PGO”), which covers the Brazilian states of Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Goiás, Paraná, Santa Catarina and Rio Grande do Sul, and the Federal District, in the provision of STFC as a local and intraregional long-distance carrier. The Company also provides domestic and international long-distance services in all Regions under licenses granted by Agência Nacional de Telecomunicações - ANATEL (National Telecommunications Agency), the regulator of the Brazilian telecommunications industry (“ANATEL” or “Agency”).

 

The Company is headquartered in Brazil, in the city of Rio de Janeiro, at Rua do Lavradio, 71 – 2º andar.

 

The Company also holds: (i) a concession to provide fixed local and interregional long-distance telephone services in Region I and nationwide a license to provide International Long-distance services (as a result of the merger of Telemar); and (ii) through its subsidiary Oi Móvel S.A. – under Judicial Reorganization (“Oi Móvel”) a license to provide mobile telephony services in Regions I, II and III.

 

In Africa, the Company provides fixed and mobile telecommunications services through own subsidiaries and the subsidiaries of Africatel Holdings B.V. (“Africatel”), and in Asia the Company provides fixed, mobile, and other telecommunications services basically related through its subsidiary Timor Telecom (Note 30).

 

The Company is registered with the Brazilian Securities and Exchange Commission (“CVM”) and the U.S. Securities and Exchange Commission (“SEC”). Its shares are traded on B3 S.A. – Brasil, Stock Exchange, OTC (“B3”) and its American Depositary Receipts (“ADRs”) representing Oi common shares are traded on the New York Stock Exchange (“NYSE”).

 

Concession agreements

 

The local and nationwide STFC long-distance concession agreements entered into by the Company and Telemar with ANATEL are effective until December 31, 2025. These concession agreements provide for reviews on a five-year basis and in general have a higher degree of intervention in the management of the business than the licenses to provide private services. At the end of 2018, ANATEL published Public Hearing No. 51/2018 to address the revision of the Concession Agreements for the concession’s last five-year period (2021-2025) and the new General Universal Service Targets Plan (PGMU V).

 

The contribution period to the Public Hearing ended on March 26, 2019 and after being processed by ANATEL, it was approved under Decision 619/2020, PGMU amendment proposal, sent to the Ministry of Communications (Official Letter 478/2020/GPR-ANATEL, of December 1, 2020), in addition to the new wording of the Concession Agreements (Resolution 737/2020).

 

 

26 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

In December 2020, Oi filed a Cancellation Request against Ruling No. 619/2020 and Resolution No. 737/2020, which jointly approved the PGMU V proposal and the draft Concession Agreements for the Switched Fixed-line Telephony Service (“STFC”) for 2021-2025, as stated in case file No. 53500.040174/2018-78. The drafts of the Concession Agreements were not executed by Oi, as in the case of the 2011Agreement revision.

 

On January 28, 2021, the Government enacted Decree 10610/2021, which repeals Decree 9619/2018 and approves the PGMU V, applicable to 2021-2025. Among the provisions of the new PGMU we highlight the introduction of the backhaul obligation, under which carriers may use the balance resulting from the changes in targets of the previous PGMU. The PGMU V also provides for the end of the obligation to build fixed wireless new access facilities required by PGMU VI and the infrastructure already in place shall be maintained.

 

It is worth noting that Law 13879/2019 opens the legal possibility of changing the provision of STFC services from public utility regime to the private law regime at the time the radiofrequency permits, telecommunications service concessions, and satellite exploitation rights are extended. On June 17, 2020, the authorities enacted Decree 10402, which regulates Law 13879/2019 and sets the deadline for ANATEL to issue the rules that will govern changing from concessions to permits.

 

As a result, ANATEL issued Resolution 741/2021, which approves the Regulation for the Adaptation of the Concessions of the Fixed Commuted Telephone Service (STFC) as Licenses of the same service. This regulation sets the rules for the migration from the concession regime to a licensing regime, pending, however, the definition of the Migration Balance Calculation Methodology and its quantification, on a case-by-case basis, by concessionaire (the work is being conducted by a consulting firm engaged by ANATEL/UIT and is expected to be approved by the Agency’s Board of Directors by the end of the second half of 2021).

 

On December 30, 2020, Oi filed a Request for Arbitration Proceedings with ANATEL for the discussion of issues regarding our Concession Agreements. This request is currently under review by ANATEL.

 

With the approval of the Judicial Reorganization Plan (“JRP”, “Plan” or “Original Plan”), ANATEL initiated some procedures aiming at monitoring the Company’s financial situation, as well as to assess its Company’s ability to discharge its obligations arising from the terms of the concession agreements. In March 2019, ANATEL decided, among other issues, to maintain the special monitoring of the provision of telecommunications services of the Oi Group companies in 2019 by imposing actions related to transparency, corporate governance, and corporate control, financial and operating performance, and asset and credit management, as informed in the Notice to the Market disclosed by the Company on May 8, 2019.

 

On February 10, 2020, as reported in the Notice to the Market released by the Company, ANATEL’s Board of Directors concluded there was no longer the need for special monitoring based on the decision issued in May 2019 as it considers that the Company’s and its subsidiaries’ short-term liquidity risk has been extinguished and revoked the obligations previously imposed on the Oi Group companies.

 

27 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

On May 3, 2021, ANATEL’s Act No. 2875/2021 was published on the Federal Official Gazette. This Act transfers to Oi the concessions held by its wholly-owned subsidiary Telemar for the provision of STFC services both under public and private law, in all their modalities, and SCM services, including the associated licenses for the right to use radiofrequencies. As a result of the transfer of the concessions, Telemar’s merger with and into Oi became effective on that date, under the terms approved at the Company’s Extraordinary Shareholders' Meeting of April 30, 2021. After the merger of Telemar into Oi, Telemar ceased to exist.

Corporate Authorization

 

The Executive Committee authorized the completion of this quarterly information at the meeting held on August 11, 2021, after being reviewed at the Board of Directors’ meeting held on the same daily.

 

Judicial Reorganization

 

On June 20, 2016, the Company and its direct and indirect wholly owned subsidiaries Oi Móvel, Telemar (merged with and into the Company in May 2021), Copart 4 Participações S.A. – under Judicial Reorganization (“Copart 4), Copart 5 Participações S.A. – under Judicial Reorganization (“Copart 5”, merged with and into the Company in March 2019), Portugal Telecom International Finance B.V. - under Judicial Reorganization (“PTIF”), and Oi Brasil Holdings Coöperatief U.A. - under Judicial Reorganization (“Oi Holanda”) (collectively with the Company, the “Oi Companies”, or “Debtors”) filed a petition for judicial reorganization with the Court of the State of Rio de Janeiro (“Judicial Reorganization Proceeding”).

 

On December 19, 2017, after confirming that the required quorum of classes I, II, III, and IV creditors was in attendance, the General Creditors’ Meeting was held and the Oi Companies’ judicial reorganization plan (“Plan” or “JRP”) was approved by a vast majority of creditors on December 20, 2017.

 

On January 8, 2018, the judicial reorganization court (“Judicial Reorganization Court”) issued a decision that ratified the JRP and granted the judicial reorganization to the Oi Companies, which was published on February 5, 2018.

On July 31, 2018, the restructuring of the Oi Companies’ financial debt was completed with the implementation of the applicable terms and conditions provided for in the JRP, including the completion of the first capital increase provided for in the JRP, Capital Increase – Claim Capitalization.

On January 25, 2019 the Company completed the second capital increase provided for in the JRP (“Capital Increase - New Funds”), with the issue of 3,225,806,451 book-entry, registered common shares, without par value, including new common shares represented by ADSs, pursuant to the JRP and the subscription and commitment agreement entered into by the Company, its subsidiaries, and the Backstop Investors.

 

28 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  


Capital Increase – New Funds

 

Exercise of Subscription Warrants and American Depositary Warrants (“ADWs”)

 

On October 28, 2018, the Company commenced the issuance and delivery of all warrants and ADWs exercised by their holders. The process was completed on January 4, 2019. All Warrants that were not exercised on or prior to January 2, 2019 have been cancelled.

Preferential offer and completion of the Capital Increase – New Funds, pursuant to the commitment agreement terms

As contemplated by Section 6 of the JRP, on November 13, 2018 the Company commenced a preemptive offering of common shares that was registered with the SEC under the Securities Act under which holders of common shares and preferred shares, including the ADS Depositary and The Bank of New York Mellon, as depositary of the Preferred ADS program, received transferable rights for each common share or preferred share held as of November 19, 2018, which refers to as subscription rights.

The subscription rights expired on January 4, 2019. On January 16, 2019, the Company issued 1,530,457,356 common shares to holders of subscription rights that had exercised those subscription rights with respect to the initial common shares. On January 21, 2019, the Company issued 91,080,933 common shares to holders of subscription rights that had requested subscriptions for excess common shares. The proceeds of these subscriptions totaled R$2,011 million.

On January 25, 2019, the Company issued 1,604,268,162 common shares, representing the total number of common shares that were offered in the preemptive offering less the total number of initial common shares and excess common shares, to the Backstop Investors in a private placement under the terms of the commitment agreement for the aggregate amount of R$1,989 million (“Share Balance”). Because of the subscription and payment of the Share Balance, the Company completed, on this date, the Capital Increase – New Funds, through the subscription and payment of all 3,225,806,451 New Common Shares issued as part of the Capital Increase – New Funds, representing a contribution of new funds for the Company totaling R$4.0 billion. In addition, under the terms of the commitment agreement, on that date the Company issued, as compensation for their commitments under the commitment agreement, 272,148,705 common shares in a private placement to the Backstop Investors and paid US$13 million to the Backstop Investors. As a result of the outcome of the subscription and payment of the Capital Increase – New Funds and the Commitment Shares, the Company’s share capital increased to R$32,538,937,370.00, represented by 5,954,205,001 shares, divided into 5,796,477,760 registered common shares and 157,727,241 registered preferred shares, without par value.

 

29 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Default Payment Method provided for by Clause 4.3.6 of the Original Plan - Bondholders

 

On May 20, 2019, in strict compliance with the decision issued under Chapter 15 that determined that the cancelation of the notes regulated by New York Law should take place on June 14, 2019, the Company announced that it started the procedure so that the holders of the notes (a) Portugal Telecom International Finance B.V.’s €500,000,000 in 4.375% notes maturing in 2017 (ISIN No.: XS0215828913); (b) Portugal Telecom International Finance B.V.’s €750,000,000 in 5.875% notes maturing in 2018 (ISIN No.: XS0843939918); (c) Portugal Telecom International Finance B.V.’s €750,000,000 in 5.00% notes maturing in 2019 (ISIN No.: XS0462994343); (d) Portugal Telecom International Finance B.V.’s €1,000,000,000 in 4.625% notes maturing in 2020 (ISIN No.: XS0927581842); (e) Portugal Telecom International Finance B.V.’s €500,000,000 in 4.5% notes maturing in 2025 (ISIN No.: XS0221854200); (f) Oi Brasil Holdings Coöperatief U.A.’s €600,000,000 in 5.625% notes maturing in 2021 (ISIN No.: XS1245245045); (g) Oi Brasil Holdings Coöperatief U.A.’s US$1,500,000,000 in 5.75% notes maturing in 2022 (ISIN No.: US10553MAD39); (h) Oi S.A.’s €750,000,000 in 5.125% notes maturing in 2017 (ISIN No.: XS0569301327); (i) Oi S.A.’s US$750,000,000 9.500% maturing in 2019 (ISIN No.: 87944LAD1); (j) Oi S.A.’s BRL1,100,000,000 in 9.75% maturing in 2016 (ISIN No. US10553MAC55); and (k) Oi S.A.’s US$1,000,000,000 in 5.500% maturing in 2020 (ISIN No. 144A: US87944LAE92) (the “Legacy Notes”) are able to support their claims to receive on a future date or on the Company’s payment dates pursuant to Clause 4.3.6 of the Original Plan. On June 14, 2019, the Legacy Notes were duly cancelled.

 

The procedure detailed above is not applicable for the holders of the 6.25% Notes issued by Portugal Telecom International Finance B.V. – in Judicial Reorganization maturing in 2016 (ISIN No.: PTPTCYOM0008). The Company will provide at the appropriate time the information on the procedure to register the beneficiaries of the Default Payment Method provided for by Clause 4.3.6 of the Original Plan with regard to such series.

 

Post-petition Financing

 

1st Issue of Oi Móvel Debentures – Clause 5.3 of the Original Plan

 

On December 23, 2019, the Company disclosed a Material Fact Notice informing that its subsidiary Oi Móvel entered into a 1st issue indenture of collateralized, simple, nonconvertible debentures, with additional trust security, in a single series, for private placement, in the total amount of up to R$2,500,000,000.00 (“Oi Móvel 1st Issue Debentures”, “Oi Móvel 1st Issue”, and “Oi Móvel 1st Issue Indenture”, respectively).

 

The main features of the Oi Móvel 1st Issue and the Oi Móvel 1st Issue Debentures are as follows: (i) Term and Maturity Date: twenty-four (24) months from the issue date, except in the case of early redemption and early maturity of the Oi Móvel 1st Issue Debentures set forth in the 1st Issue Indenture; (ii) Payout: U.S. dollar foreign exchange fluctuation plus interest of (i) twelve point sixty-six percent (12.66%) per year (PIK) for the first twelve months after the first repayment is made; (ii) thirteen point sixty-one percent (13.61%) per year thereafter; and (iii) Guarantees: the Oi Móvel 1st Issue Debentures are fully backed by collaterals and trust guarantees provided by Oi Móvel, Oi, and the Company (on its behalf and as successor as a result of the merger of Telemar).

 

The Oi Móvel 1st Issue was approved based on the provisions of Clause 5.3 of the Original Plan and is part of the context of post-petition financing, in the Debtor in Possession Financing (“DIP Financing”) modality.

 

30 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Subsequently to the Material Fact Notice disclosed on December 23, 2019, the Company disclosed a Notice to the Market on February 4, 2020 informing shareholders and the general market that the subscription and payment of the Oi Móvel 1st Issue had been completed for private placement in the amount of R$2,500,000,000.00. On July 30, 2021, the Oi Móvel 1st Issue Debentures were prepaid with funds derived from the Oi Móvel Notes Issue (as defined below).

 

2nd Issue of Oi Móvel Debentures – Clause 5.5.2 of the Amendment to the Plan (as defined below)

On June 21, 2021, the Company disclosed a Material Fact Notice informing that its direct subsidiary Oi Móvel, responsible for contributing the mobile telephony assets to the capital stock of UPI Mobile Assets, in accordance with the Amendment to the Plan (as defined below), entered into a 2nd issue indenture of collateralized, simple, nonconvertible debentures, with additional trust security, in a single series, for private placement, in the total amount of up to R$2,500,000,000.00 (“Oi Móvel 2nd Issue Debentures”, “Oi Móvel 2nd Issue”, and “Oi Móvel 2nd Issue Indenture”, respectively).

 

The Oi Móvel 2nd Issue Debentures shall be subscribed and paid in by an investment fund managed by a subsidiary of Banco BTG Pactual S.A.

 

Pursuant to the relevant corporate resolutions of the Company and Oi Móvel, the Oi Móvel 2nd Issue and the Oi Móvel 2nd Issue Debentures: (i) shall have an issue date equal to the payment date “Issue Date”); (ii) shall mature within 16 months from the Issue Date, except if any of the early redemption and accelerated maturity events of the Debentures set forth in the Oi Móvel 2nd Issue Indenture materializes; (iii) shall not be convertible into Oi Móvel shares; (iv) shall not have their unit par value adjusted; (v) the Debentures shall bear interest on the unit par value equivalent to the accumulated fluctuation of one hundred percent (100%) of the extra-group, overnight average daily interbank deposit rates (DI), expressed as a yearly percentage, for a 252-business-day baseline, calculated and disclosed daily by B3, in the daily bulletin available on its website (http: //www. b3.com.br), exponentially increased by a surcharge equivalent to 8.00% per year; and (vii) shall be backed by collaterals and trust security to be provided both by Oi Móvel and the Company.

 

The Oi Móvel 2nd Issue was approved pursuant to Clause 5.5.2 of the Amendment to the Plan (as defined below) and is part of the post-petition financing, under the Debtor in Possession Financing (“DIP Financing”) modality, for the purpose of financing the operating activities and general and administrative expenses of Oi and its subsidiaries under judicial reorganization, until the date of financial settlement of the sale of the UPI Mobile Assets.

 

As at July 30, 2021, the Company disclosed a Notice to the Market informing shareholders and the market in general that the subscription and payment of the Oi Móvel 2nd Issue had been completed for private placement in the amount of R$2,000,000,000.00.

 

 

31 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Issue of Oi Móvel Notes – Clause 5.5.4 of the Amendment to the Plan (as defined below)

 

On July 27, 2021, the Company released a Material Fact Notice informing that it had priced an offering in the international market of note units, comprised of senior notes to be issued by its direct subsidiary Oi Móvel, backed by collateral and a fiduciary guarantee provided by Oi Móvel and the Company (“Notes”), in line with the provisions of Clause 5.5.4 of the Amendment to the Plan (as defined below).

On July 30, 2021, the Notes issue was completed in the total amount of US$880,000,000.00, maturing on July 30, 2026 and bearing semiannual interest of 8,750% per annum. On the same date, the principal of R$2,500,000,000.00 (including interest and charges) of Oi Móvel 1st Issue Debentures, maturing in January 2022, with was fully repaid with part of the net proceeds from the Notes issue.

 

Non-termination of the Judicial Reorganization

 

On December 6, 2019, the Company released a Material Fact Notice informing that the Oi Companies had filed a petition with the Judicial Reorganization Court requesting that the court oversight of the Oi Companies not to terminated on February 4, 2020, the date when the Plan’s homologation would complete two (2) years.

 

The non-termination of the judicial oversight did not introduce any changes to the current position of the Oi Companies and had no impact on the compliance with the Plan in force or on current receivables, or any other new funds that were obtained by the Oi Companies. It is worth noting that the continuity of court oversight at the end of the two-year period is a natural measure that has been applied in most judicial reorganization proceedings.

 

Notwithstanding the good progress of the Plan implementation, which has already concluded most of the steps provided for in the proceeding, which were important for the Company’s recovery, said petition presented the Judicial Reorganization Court with circumstances related to the complexity inherent to the Judicial Reorganization Proceeding’s magnitude and to the reforms underway in the legal and regulatory environment, and which would require actions still to be implemented as part of the Judicial Reorganization Proceeding.

 

On February 28, 2020, the Company released a Material Fact Notice informing its shareholders and the general market that on February 28, 2020 the Oi Companies filed with the Judicial Reorganization Court a petition exposing its interest in submitting for deliberation to a new general creditors’ meeting (“New GCM”) an amendment to the Plan (“Amendment to Plan” or “amendment to the JRP”) aimed at achieving greater operating and financial flexibility to continue its investment project and the compliance with its strategic transformation plan (“Strategic Plan”), both broadly disclosed to the market.

 

In line with the foregoing, on March 6, 2020, the Company disclosed a Material Fact Notice informing that the Judicial Reorganization Court awarded a decision, on the same date, granting the Company’s request for a New General Creditors’ Meeting to deliberate on an amendment to the Plan, prescribing that:

 

 

32 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  
(i)the Oi Companies filed with the court, within 180 days from the decision’s issue date, the draft amendment to the JRP; and

 

(ii)the Trustee organized the New General Creditors’ Meeting, which shall be held within 60 days from the submission of the draft amendment to the JRP.

 

 

33 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Amendment to the Judicial Reorganization Plan and Strategic Plan

 

On June 15, 2020, the Oi Companies filed with the Judicial Reorganization Court the draft Amendment to the JRP for the purposes of increasing the flexibility of the Original JRP by creating a more efficient corporate and operating structure, aiming at maximizing the Company’s value to the benefit of all its stakeholders. This initiative was fully aligned with the Strategic Plan, which is being transparently implemented.

 

On August 13, 2020, the Oi Companies filed with the Judicial Reorganization Court an updated draft of the Amendment to the JRP that adjusts certain terms and conditions. This proposal reflected the several discussions with creditors, potential investors, and other stakeholders, including discussions held with the mediator appointed by the Judicial Reorganization Court, for the purpose of discussing improvements to the Amendment to the JRP.

 

The Amendment to the JRP was submitted to a vote by the Creditors and approved at the New GCM held on September 8, 2020, the date of the first notice to convene, at the SulAmérica, Convention Center, and was confirmed by the Judicial Reorganization Court on October 5, 2020, in a decision issued on October 8, 2020 that rejected all the allegations of procedural nullity of the New GCM, ruling out the allegation of unequal treatment among creditors and rejecting the requests for nullity of the voting and approval quorum of the Amendment to the JRP because it did not include any drafting and unresolved issues and, among other measures, has set a twelve-month period for ending the Debtors’ judicial reorganization, beginning on the date of said decision issue date, which may be extended, should there be a need to complete the acts relating to the disposals provided for in the Amendment to the JRP.

 

On July 19, 2021, the Company released a Material Fact Notice to its shareholders and to the market in general presenting its Strategic Plan for the three-year period 2022-24, focused on the transformation of the “New Oi”, after the confirmation of the winning bids in the bidding processes for the sale of the main IPUs (as defined below), and considering the structural separation set forth in the Amendment to the JRP. Using the drivers of its Strategic Plan, the Company intends to pursue a sustainable business model by (i) accelerating revenue generation from its core businesses, with respect to the connectivity platform and digital services focused on clients, notably: (i) B2C and SME Fiber customers, in the copper, TV, digital services segments; (ii) B2B customers (Oi Soluções) with regard to connectivity and IT solutions; and (iii) Infrastructure in the Digital, IPTV, DTH, copper segments), and implementing new revenue sources; (ii) restructuring its cost structure; (iii) resolving the concession issues; and (iv) developing InfraCo (as defined below), with the goal of becoming a digital solutions and fiber optic connections leader to improve the people’s lives and businesses across Brazil. For more information, see paragraph 5 below.

 

1.       Purposes of the Amendment to the JRP

 

The Amendment to the JRP, approved by the creditors and ratified by the Judicial Reorganization Court, as referred to above, aims at allowing the Oi Companies and their subsidiaries (“Oi Group”) to implement their long-term plan, with the necessary resolution of their debt, in the current context, and their continuity as going concerns by following said JRP and their Strategic Plan. The main purpose of the Oi Group’s strategy is transforming its business model by focusing on the use and rapid expansion of its extensive fiber optics infrastructure as a competitive edge, including its transportation networks (backbone, backhaul and data network), and primary and secondary access networks (dedicated links, metropolitan rings, and FTTH access networks), enabling and supporting the high-speed connection and service provision needs of its residential, business, corporate, and government customers, and the provision of infrastructure services for other telecommunication service providers in the country, including the facilitation of connections for the new 5G technology.

 

34 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

This strategy will be implemented by proceeding with the asset divestiture process, the possibility of taking part of moves toward consolidation in the industry and divesting its mobile communications operation and adopting of the model known as structural separation, which allows incorporating separate entities dedicated to investing, the operation and the maintenance of the telecommunications infrastructure and the provision of services to its end customers, including the product development, marketing, sales and customer service activities. This aims at making the Oi Group’s business model more sustainable, focused on its main competitive advantages, structured in an efficient and focused manner, and ensuring the continuity of the Oi Group and the consequent compliance with the means of recovery and payment of all prepetition claims.

 

The Amendment to the JRP aims at introducing flexibility in meeting the Company’s strategic goals described above and its main purposes include:

 

(i)providing for the possibility of forming isolated production units (“UPIs”) through the segregation of certain businesses and/or isolated assets of Oi Group and the disposal thereof under the security and benefits ensured by Law 11101/2005 (Business Recovery and Bankruptcy Law, or LRF), so as to maximize their worth and provide the resources necessary to pay prepetition creditors and discharge the Debtors’ obligations;

 

(ii)improve the payment terms and conditions for a significant portion of small creditors as a way of reducing litigation and expediting up the settlement of these claims, as required by the Judicial Reorganization Court;

 

(iii)allow the Debtors to raise additional financing and other funding to allow them to maintain the necessary investments and pay their creditors; and

 

(iv)allow the segregation, using an Oi Group company, of some fiber optics assets and infrastructure to create a more flexible and efficient corporate structure to accelerate investments in the expansion of the fiber optics network. Such company may have access to financial and capital markets and raise additional funds at lower costs, thus ensuring the funds generated by the Debtors’ operations are used exclusively in such operations, thus, strengthening their operating structure.

 

 

35 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

2.       UPIs provided for in the Amendment to the JRP

 

The Amendment to the JRP provides for the creation of five (5) UPIs separated from the assets, liabilities and rights of the Debtors and associated with (a) telephony and data operation in the mobile communications market (“UPI Mobile Assets”); (b) passive infrastructure (“UPI Towers” and “UPI Datacenter”); (c) telecommunications network operation (“UPI InfraCo”); and (d) the TV business (“UPI TVCo”).

 

The UPIs are established as special purpose corporations (“SPCs”) and may be sold, under different models for each type of UPI described above, to ensure the debt payment and generate the funds necessary for the expansion of its fiber infrastructure and associated services, which are the key focus of Oi Group’s strategy. The divestment of the UPIs would allow Oi to maximize the business value of its investments by expanding its residential and business access services nationwide, exploit more efficiently its network components, and create new business opportunities for the exploitation of these networks by offering them to other carriers and service providers in the telecommunications industry, in light with the governing laws, regulations and the required permits from competent authorities, where applicable.

 

The Amendment to the JRP contains detailed information on the composition of each UPI and the terms and conditions applicable to their disposal, including information on their structure and minimum price, available at www.recjud.com.br, for consultation purposes.

 

2.1.       UPI InfraCo

 

InfraCo SPC will concentrate infrastructure and fiber assets related to the Oi Group’s access and transportation networks already contributed to its capital, whether when they are directly assigned or even when they are temporarily assigned as right of use, in the form of Indefeasible Rights of Use (IRUs), until they are effectively contributed to the capital of SPE InfraCo, as well as new infrastructure investments to be made in the future for the purpose of accelerating investments in the expansion of its fiber optics networks, based on a more flexible and efficient capital structure and greater possibility of attracting and using new funds. InfraCo SPC is seeking in the market the necessary funds to finance its investments in order to expand Oi Group’s operations in fiber optics and serve a larger number of customers from these segments nationwide.

 

The Amendment to the JRP establishes that Oi shall retain a material interest in the capital of InfraCo SPC through measures to ensure its active participation in the creation and expansion of a local leader in fiber optics infrastructure. As in other countries, the creation of InfraCo SPC followed a logic of structural separation between the services company and the infrastructure company for the purpose of maximizing business value through greater efficiency and innovation, with clear strategies focused on customer experience and product and service innovation on one hand and mass access to fiber infrastructures and optimization of its technical operation on the other.

 

The UPI InfraCo consists of 100% of the SPC shares, which concentrates the assets and liabilities related to the fiber optics and infrastructure activities described in Annex 5.3.4 to the Amendment to the JRP. Clause 5.3.9.4 of the Amendment to the JRP provides for the partial divestiture of the UPI InfraCo through a bidding process, under the terms of the LFR, by submitting sealed bids for the disposal of the majority of the voting shares of InfraCo SPC, representing its shareholding control. This bid should ensure the Company the payment of at least R$6.5 billion, in addition to the guarantee from the acquirer that there will be adequate funds for the payment of possible remaining debts of InfraCo SPC, including the full payment of InfraCo’s debt outlined in Clause 5.3.8.1 to the Amendment to the JRP and the compliance with its investment plan, according to certain parameters to be established in the related UPI InfraCo Invitation to Bid Notice. At the completion of the partial sale of the UPI InfraCo, the buyer will be assured an interest equivalent to 51.0% of the total capital stock, not exceeding 51.0% of the economic capital of InfraCo SPC, and the Debtors are reserved the right to, at their sole discretion, determine the division of the capital stock of InfraCo SPC into common and preferred shares of InfraCo in the sale, within the limits established by law, thus guaranteeing that the Company shall retain a significant equity interest in SPC InfraCo, which might be possibly liable for the Debtors’ obligations to JRP creditors.

 

36 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

As a result of the large demand for the asset during the preliminary market sounding conducted by a financial advisor, the minimum economic value (EV) of InfraCo SPC (as at December 31, 2021) to be considered in the proposals will be R$20 billion, within the previous reference range of 25.5% to 51% of the economic value, in order to ensure an active bid dispute among the different stakeholders for the control of InfraCo (51% of the voting capital of InfraCo SPC) until the auction. The interested parties must also assume the commitment to pay a secondary installment of the acquisition price of not less than R$6.5 billion and a primary installment of the acquisition price amounting up to R$5 billion, to guarantee the payment of any remaining debts of InfraCo SPC, including the payment of the amount of InfraCo SPC’s debt provided for in Clause 5.3.8.1 of the Amendment to the JRP and the implementation of the planned investment plan, in exchange for receiving new common shares issued by InfraCo SPC, at the price per share paid in the partial sale of UPI InfraCo, adjusted as provided for in the Amendment to the JRP.

 

The Oi Group may, by the date of publication of the UPI InfraCo Notice, accept the binding bid with the highest economic value (EV) assigned to InfraCo SPC for the partial acquisition of UPI InfraCo, pursuant to the terms of the Amendment to the JRP, undertaking to grant such bidder the right to top, at its sole discretion, any offer per share issued by InfraCo SPC above its own biding bid, provided it submits an offer for an amount higher than at least 1% of the price per share issued by InfraCo SPC set in the best offer made during the bidding process for partial sale of the UPI InfraCo. The Amendment to the JRP also provides for mechanisms for evaluating binding bids for the partial acquisition of the UPI InfraCo that take into consideration not only the price per share offered and its minimum price of the economic value (EV) of InfraCo SPC, but also the possibility of evaluating better conditions for determining the best bid to be taken into consideration as the preferential bid for the judicial bidding process.

 

On January 25, 2021, Oi released a Material Fact Notice informing its shareholders and the market in general that on January 22, 2021 it had received binding proposals from third parties for the partial acquisition of the UPI InfraCo, all above the minimum price set in the Amendment to the JRP and that the proposals received are under analysis by the Company, which may engage in negotiations with the bidder of the best offer, on an exclusive basis, for the purpose of negotiating the final agreements that will be disclosed during the bidding process, by means of the corresponding Invitation to Bid Notice to be published in due course.

 

37 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

On February 4, 2021, Oi released a Material Fact Notice informing its shareholders and the market in general that, in view of the binding offer terms and conditions for partial acquisition of the UPI InfraCo jointly submitted by Globenet Cabos Submarinos S.A., BTG Pactual Economia Real Fundo de Investimento em Participações Multiestratégia, and other investment funds managed or controlled by companies belonging to the BTG Group (the “Biding Proposal” and the “Bidders”), on this same date entered into an Exclusivity Agreement (“Agreement”) with the Bidders, for a limited period of time, for the purpose of negotiating exclusively with the Bidders the sale terms and conditions, as well as the documentation and appendices relating to the Offer. The purpose of the Agreement was to grant the negotiations underway between the parties the necessary security and agility, and, if the negotiations between the parties regarding the terms and documentation are satisfactorily concluded, allow that Oi is in a position to grant the Bidders the right to top other bids received in the course of the bidding process for the sale of the UPI InfraCo, pursuant to Clause 5.3.9.4.6 of the Amendment to the JRP confirmed by the JRP. The initial effective date of the Agreement was March 6, 2021, which was automatically renewed for another thirty-day period, to become effective until April 5, 2021, as reported by Oi in a Notice to the Market disclosed on March 5, 2021, and subsequently it was extended to 10:00 am of April 9, 2021, as reported by Oi in a Notice to the Market disclosed on April 6, 2021.

On April 12, 2021, Oi released a Material Fact Notice informing its shareholders and the market in general that, in the context of the negotiations held with the Bidders, the Company accepted, on this date, the revised binding proposal submitted jointly by the Proponents (the "Binding Proposal") for the acquisition of a portion of the interest held by the Company in Brasil Telecom Comunicação Multimídia S.A., the isolated production unit which owns the Company's fiber optic infrastructure assets (Special Purpose Company, or “InfraCo SPC”, and the "Transaction"), pursuant to Clause 5.3.9.4 of the Amendment to the JRP.

Notwithstanding the other terms and conditions provided therein, the Binding Proposal, pursuant to Clause 5.3.9.4 of the Amendment to the JRP, provided for the firm economic value (EV) of InfraCo SPC of twenty billion and twenty million Brazilian reais (R$20,020,000,000.00) on December 31, 2021, taking into account a net debt of four billion, one hundred and seven million, three hundred and fifty-three thousand, five hundred and ninety-eight Brazilian reais and fifty-nine centavos (R$4,107,353,598.59), as provided in Clause 5.3.8.1 of the Amendment to the JRP, fully due to the Company and to be paid within ninety (90) days from the closing of the Transaction. The Binding Proposal contemplates the contribution of a Primary Tranche to InfraCo SPC, the payment of a Secondary Tranche to the Company and the contribution of an Additional Primary Tranche to InfraCo SPC, in addition to the Globenet Merger.

The Binding Proposal and related instruments further contemplate the execution of capacity and other operating agreements between InfraCo SPC and Oi and/or its associates, as well as an InfraCo SPC shareholders’ agreement between the Proponents and the Company, pursuant to Section 5 combined with Clause 5.3. 9.4.4, of the Amendment to the JRP.

 

38 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The transaction price, considering the sum of the Primary Tranche; the Secondary Tranche; the Additional Primary Tranche; and the price of the Globenet merger, pursuant to the Binding Proposal, totals twelve billion, nine hundred twenty-three million, three hundred thirty-eight thousand, two hundred ninety reais and sixty-eight centavos (R$12,923,338,290.68), which will be subject to adjustment mechanisms based on certain performance, financial and operational metrics of SPC InfraCo, in accordance with its business plan (such as indebtedness, working capital, number of HPs and HCs, OPEX and CAPEX, among others), as agreed between Oi and the Bidders.

By accepting the Binding Offer, the Bidders were granted the right, at their sole discretion, to top the highest bid that may be submitted in the competitive process for the partial disposal of the UPI InfraCo, pursuant to Section 5.3.9.4.6 of the Amendment to the JRP.

On July 7, 2021, the Company released a Material Fact Notice informing its shareholders and the market in general that on the same date a hearing was held in the Judicial Reorganization Court for opening the sealed bids submitted as part of the bidding process for the disposal of the UPI InfraCo, in the manner and terms provided for in the Amendment to the JRP and in the UPI InfraCo Bid Notice.

Accordingly, only one sealed bid was submitted at the hearing for the partial acquisition of the UPI InfraCo, jointly by Globenet Cabos Submarinos S.A. and BTG Pactual Economia Real Fundo de Investimento em Participações Multiestratégia (the “Bidders”), in the precise terms and conditions of the Binding Proposal for the acquisition of the UPI InfraCo, and within the terms set forth in the respective Share Purchase and Sale Agreement contained in the UPI InfraCo Bid Notice. The Bidders were declared the winners of the competitive procedure for the partial sale of the UPI InfraCo, in a decision confirmed by the Judicial Reorganization Court, after the submission of the favorable opinions of the Public Prosecution Office of the State of Rio de Janeiro and the Trustee.

As provided for by the Bid Notice of the UPI InfraCo, the related Share Purchase and Sale Agreement will be entered into with the Bidders and the actual completion of InfraCo SPC shares’ transfer will be subject to compliance with the terms and conditions set forth in such agreement, including the prior consent of ANATEL and the approval of the partial sale of the UPI InfraCo by the Administrative Economic Defense Council (“CADE”).

The transaction described above is in line with the implementation of the Strategic Plan for the transformation of the operations of the Oi Companies, which provides for the partial sale of the UPI InfraCo in a bidding proceeding pursuant to the LFR.

InfraCo SPC Debentures based on Section 5 of the Amendment to the JRP

On February 18, 2021, Oi disclosed a Material Fact Notice informing that its subsidiary BrT Multimídia had entered into an indenture for the issue of collateralized, simple, nonconvertible debentures, backed by collaterals, for private placement, in the total amount of up to 2,500,000,000.00 (“InfraCo Debentures”, “InfraCo Issue”, and “InfraCo Issue Indenture”, respectively).

 

 

39 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The main features of the InfraCo Issue and the InfraCo Debentures are as follows: (i) Term and Maturity Date: twenty-four (24) months from the issue date, except in the case of early redemption and early maturity of the InfraCo Debentures set forth in the InfraCo Debenture Indenture; (ii) Interest: unit par value adjusted using the accumulated National Broad Consumer Price Index (IPCA) variance, plus interest of 11% per year; (iii) Guarantees: the InfraCo Debentures shall be backed by collateral and a trust security provided by InfraCo SPC; (iv) Conversion: the InfraCo Debentures shall be convertible into redeemable preferred shares representing the majority of InfraCo SPC’s voting shares; and (v) Subscription: the InfraCo Debentures must be subscribed and paid-in by May 27, 2021, as agreed by the parties (“Subscription and Payment Deadline”).

 

The InfraCo Issue was approved pursuant to the provisions of Section 5 of the Amendment to the JRP. As provided for by the Amendment to the JRP and the InfraCo Issue indenture, Oi, through its subsidiary Oi Móvel, shall hold a call option on all the preferred shares held by the Debentureholders as a result of the Conversion. Alternatively, and at the sole discretion of Oi (on its behalf or as successor by merger of Telemar) and Oi Móvel, InfraCo SPC may redeem all of the preferred shares held by the Debentureholders as a result of Conversion. The actual InfraCo Issue is subject to the authorizations and compliance with certain conditions precedent set forth in the InfraCo Issue indenture.

On May 26, 2021, the Company released a Notice to the Market informing shareholders and the market in general that the subscription and full payment of the private placement of the InfraCo Issue, totaling R$2,500,000,000.00, had been completed.

2.2.       UPI Mobile Assets

 

The Amendment to the JRP provides for the sale of UPI Mobile Assets in a bidding process, under the terms of the LRF, by submitting sealed bids for the acquisition of 100% of the shares of Mobile SPC, with payment of at least R$15.7 billion in cash.

 

On November 10, 2020, the Bid Notice (“UPI Mobile Assets Bid Notice”) submitted by the Debtors was published for the sale of the UPI Mobile Assets, which consisted of (i) 100% of the shares of Cozani RJ Infraestrutura e Redes de Telecomunicações S.A., a joint stock company with corporate taxpayer identification number (CNPJ/ME) 36.012.579/0001-50 and registered with the Rio de Janeiro State Division of Corporations under NIRE 33.300.333.291, with registered head offices at Rua do Lavradio, 71, sala 201/801, Centro, CEP 20230-070, in the City of Rio de Janeiro, State of Rio de Janeiro; (ii) 100% of the shares of Garliava RJ Infraestrutura e Redes de Telecomunicações S.A., a joint stock company with CNPJ/ME number 37.178.485/0001-18 and registered with the Rio de Janeiro State Division of Corporations under 33.300.334.441, with registered head offices at Lavradio, 71, sala 201/801, Centro, CEP 20230-070, in the City of Rio de Janeiro, State of Rio de Janeiro; and (iii) 100% of the shares of Jonava RJ Infraestrutura e Redes de Telecomunicações S.A., a joint stock company with CNPJ/ME number 37.185.266/0001-66 and registered with the Rio de Janeiro State Division of Corporations under NIRE 33.300.334.467, with registered head offices at Rua do Lavradio, 71, sala 201/801, Centro, CEP 20230-070, in the City of Rio de Janeiro, State of Rio de Janeiro (“Mobile SPCs”) wholly owned by Oi Móvel, free and clear of any liens or encumbrances (“Mobile SPC Shares”), to the capital of which Oi Móvel will contribute, through one or more corporate transactions, the Assets, Liabilities and Rights of the UPI Mobile Assets described in Appendix 5.3.1 to the Amendment to the JRP and in the UPI Mobile Assets Bid Notice.

 

40 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

On December 14, 2020, the Company released a Material Fact Notice informing its shareholders and the market in general that a hearing was held in the Judicial Reorganization Court for opening the sealed bids submitted as part of the bidding process for the disposal of the UPI Mobile Assets, in the manner and terms provided for in the Amendment to the JRP and in the UPI Mobile Assets Bid Notice. During said hearing, it was verified that there was only one bid for the acquisition of the UPI Mobile Assets, which was submitted jointly by Telefonica Brasil S.A., TIM S.A., and Claro S.A. (the “Bidders”) pursuant to the precise terms and conditions of the binding proposal for the acquisition of the UPI Mobile Assets submitted by the Bidders, amounting to R$16.5 billion, of which R$756 million relates to transition services to be provided by Oi to the Bidders for up to 12 months, plus a commitment to enter into long-term take-or-pay agreements for transmission capacity services with Oi, whose net present value (NPV), calculated for purposes and in the manner provided in the Amendment to the JRP, is R$819 million, which shall be paid in cash, subject to the terms and conditions provided for in the related binding proposal and the related Share Purchase Agreement set forth in Annex 5.3.9.1 to the Amendment to the JRP.

 

Due to the submission of a single sealed bid for the acquisition of the UPI Mobile Assets, the Judicial Reorganization Court confirmed the Bidders’ proposal as the winning bid of the bidding process for the sale of the UPI Mobile Assets, after securing the favorable opinions of the State of Rio de Janeiro Public Prosecution Office and the Trustee.

 

On January 29, 2021, the Company released a Notice to the Market informing its shareholders and the market in general that on January 28, 2021, the Company, Telemar and Oi Móvel entered into with the Bidders the Purchase and Sale of Shares and Other Covenants (“Agreement”) for the purpose of selling Mobile Assets SPC, under the terms and conditions set forth in the proposal of the Bidders confirmed by the Judicial Reorganization Court, as described earlier in this section. The actual completion of the Transaction, with the transfer of the Mobile Assets SPCs’ shares to the Buyers, is subject to the approval of the CADE (Brazilian antitrust agency) and preapproval by ANATEL, as well as compliance of conditions precedent usual for this type of transaction, as provided for in the Agreement.

 

2.3.       UPI Towers

 

The Amendment to the JRP provides for the sale of the UPI Towers in a bidding process, under the terms of the LRF, by submitting sealed bids for the acquisition of 100% of the shares of Towers SPC held by the Debtors.

 

On October 19, 2020, the Bid Notice (“UPI Towers Bid Notice”) submitted by the Debtors was published for the sale of the UPI Towers, which consisted of 100% of the shares issued by special purpose corporation Calitéia RJ Infraestrutura e Redes de Telecomunicações S.A., a joint stock company with CNPJ/ME 35.978.982/0001-75 and registered with the Rio de Janeiro State Division of Corporations under NIRE 33.300.333.215, with registered head offices at Rua do Lavradio, 71, sl. 201/801, Centro, CEP 20230-070, in the City of Rio de Janeiro, State of Rio de Janeiro (“Towers SPC”), wholly owned by Telemar and Oi Móvel, specifically incorporated for being sold as a UPI as part of the Judicial Reorganization Proceeding, and with share capital paid in by the Assets, Liabilities and Rights of the UPI Towers, described in Annex 5.3.2 to the Amendment to the JRP and in the UPI Towers Bid Notice.

 

41 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

On November 26, 2020, the Company released a Material Fact Notice informing its shareholders and the market in general that a hearing was held in the Judicial Reorganization Court for opening the sealed bids submitted as part of the bidding process for the disposal of the UPI Towers, in the manner and terms provided for in the Amendment to the JRP and in the UPI Towers Bid Notice. During the hearing, it was verified that there was only one sealed bid for the acquisition of the UPI Towers, which was submitted by Highline do Brasil II Infraestrutura de Telecomunicações S.A. (“Highline”) pursuant to the precise terms and conditions of the binding proposal for the acquisition of the UPI Towers submitted by the latter, amounting to one billion, sixty-six million, nine hundred and two thousand, eight hundred and twenty-seven Brazilian reais (R$1,066,902,827.00) to be paid in cash, as described in the Material Fact Notice released on August 13, 2020, subject to the terms and conditions provided for in the related binding proposal and the related Stock Purchase Agreement set forth in Annex 5.3.9.2 to the Amendment to the JRP.

 

Due to the submission of a single sealed bid for the acquisition of the UPI Towers, the Judicial Reorganization Court confirmed Highline’s proposal as the winning bid of the bidding process for the sale of the UPI Towers, after securing the favorable opinions of the State of Rio de Janeiro Public Prosecution Office and the Trustee.

 

On December 23, 2020, the Company released a Notice to the Market informing its shareholders and the market in general that the Company, Telemar and Oi Móvel entered into the Share Purchase and Sale Agreement Through a UPI and Other Covenants (“Agreement”) with Highline for the sale of the UPI Towers to Highline and that the actual completion of the transaction with the transfer of Towers SPC’s shares to Highline is subject to the compliance with the conditions precedent usual for this type of transaction, as provided for in the Agreement.

 

Against this background, on March 30, 2021, the Company disclosed a Material Fact Notice informing that, after compliance with all previous contractual obligations, the sale of UPI Towers to Highline was completed on the same date, with the transfer of all Towers SPC shares o Highline, which, in turn, paid the cash portion. On June 25, 2021, the remaining balance was paid by Highline after the usual calculations and adjustments for this type of transaction, pursuant to the Agreement and the Amendment to the JRP.

 

The completion of the Transaction represents the implementation of yet another stage of the JRP and Strategic Plan, aimed at granting the Company greater financial flexibility and efficiency, and the long-term sustainability of the Company by its market repositioning and its conversion into the largest telecommunications infrastructure provider in Brazil, based on the massification of fiber optics and high-speed internet, the provision of corporate solutions, and the preparation for the evolution to 5G, focused on business lines with higher added value and good growth prospects and forward looking.

 

42 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

2.4.       UPI Datacenter

 

The Amendment to the JRP provides for the sale of UPI Datacenter in a bidding process, under the terms of the LRF, by submitting sealed bids for the acquisition of 100% of the shares of Datacenter SPC held by the Debtors.

 

On October 19, 2020, the Bid Notice (“UPI Datacenter Bid Notice”) submitted by the Debtors was published for the sale of the UPI Datacenter, which consisted of 100% of the shares issued by special purpose corporation Drammen RJ Infraestrutura e Redes de Telecomunicações S.A., a joint stock company with CNPJ/ME 35.980.592/0001-30 and registered with the Rio de Janeiro State Division of Corporations under NIRE 33.300.333.231, with registered head offices at Rua do Lavradio, 71, sl. 201/801, Centro, CEP 20230-070, in the City of Rio de Janeiro, State of Rio de Janeiro (“Datacenter SPC”), the shares of which will be held by Oi, Telemar and Oi Móvel, specifically incorporated to be sold as a UPI as part of the Judicial Reorganization Proceeding, and with capital stock paid in exclusively and necessarily by the Assets, Liabilities and Rights of the UPI Datacenter, described in Annex 5.3.3 to the Amendment to the JRP and in the UPI Datacenter Bid Notice.

 

On November 26, 2020, the Company released a Material Fact Notice informing its shareholders and the market in general that a hearing was held in the Judicial Reorganization Court to open the sealed bids submitted as part of the bidding process for the disposal of the UPI Datacenter, in the manner and terms provided for in the Amendment to the JRP and in the UPI Datacenter Bid Notice. During the hearing, it was verified that there was only one sealed bid for the acquisition of the UPI Datacenter, which was submitted by Titan Venture Capital e Investimentos Ltda. (“Titan”) pursuant to the precise terms and conditions of the binding proposal for acquisition of UPI Datacenter submitted by the latter, as described in the Material Fact Notice dated June 15, 2020, amounting to three hundred and twenty-five million Brazilian reais (R$325,000,000.00) to be paid as follows: (i) a cash installment in the amount of two hundred and fifty million Brazilian reais (R$250,000,000.00); and (ii) the remaining amount of seventy-five million Brazilian reais (R$75,000,000.00) in installments to be paid in the manner and within the deadline set forth in the related binding proposal and the related Share Purchase and Sale Agreement contained in Exhibit 5.3.9.3 to the Amendment to the JRP.

 

Due to the submission of a single sealed bid for the acquisition of the UPI Datacenter, the Judicial Reorganization Court confirmed Titan’s proposal as the winning bid of the bidding process for the sale of the UPI Datacenter, after securing the favorable opinions of the State of Rio de Janeiro Public Prosecution Office and the Trustee.

 

On December 14, 2020, the Company released a Notice to the Market informing that on December 11, 2020 the Company, Telemar, and Oi Móvel had entered into the Agreement for the Purchase and Sale of Shares Through a UPI and Other Covenants (“Agreement”) with Titan, for the purpose of selling the UPI Datacenter to Titan for the total amount R$325,000,000.00, which will be paid after the compliance with certain conditions precedent, as follows: (i) a cash installment of R$250,000,000.00 (“Cash Installment”) paid at sight; and (ii) R$75,000,000.00 (“Remaining Amount”), in installments to be paid in the manner and maturity set forth in the Agreement.

 

43 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Accordingly, on March 15, 2021, the Company released a Material Fact Notice informing that, after compliance with all the contractual conditions precedent on March 12, 2021, it sold the UPI Data Center to Titan and transferred all the shares issued by Datacenter SPC to Titan, which, in turn, paid the Cash Installment, with the Remaining Amount to be paid in installments, in the manner and timeframe set forth in the agreement.

The completion of the sale of the UPI Datacenter represents the implementation of yet another stage of the JRP and Strategic Plan, aimed at ensuring greater financial flexibility and efficiency, and the long-term sustainability of the Company by its market repositioning and its conversion into the largest telecommunications infrastructure provider in Brazil, based on the massification of fiber optics and high-speed internet, the provision of corporate solutions, and the preparation for the evolution to 5G, focused on business lines with higher added value and good growth prospects and forward looking.

 

2.5.       UPI TVCo

 

UPI TVCo will consist of 100% of TVCo SPC shares which will concentrate the assets, liabilities, and rights related to the pay TV business, described in Annex 5.3.5 to the Amendment to the JRP, which provides for the disposal of the UPI TVCo in a bidding process, under the terms of the LRF, by submitting sealed bids for the acquisition of 100% of TVCo SPC shares held by the Debtors, considering that the acquisition of the UPI TVCo will involve (i) the payment, in a single cash installment, of a minimum amount of R$20 million and (ii) the obligation of the corresponding acquirer to share with the Debtors and/or their associates 50% of the net revenue of the IPTV service to be offered to TVCo SPC customers using the FTTH network, under the terms and conditions to be established in the Bidding Notice for the disposal of the UPI TVCo. The Company has been in contact with potential buyers of this UPI.

 

3.       Payment of Creditors

 

The Amendment to the JRP provides for the possibility of making adjustments to the payment terms and conditions of the prepetition creditors and also mechanisms that would allow or require the Company to pay certain claims subject to the Plan within a term shorter than the term provided for in the ratified Plan.

 

The Amendment to the JRP contains detailed information on the payment proposals for each class of creditors.

 

3.1       Labor Claims

 

The Amendment to the JRP also prescribes that labor creditors whose claims had not been fully settled by the date of the New GCM would have their claims up to a total of R$50,000 paid within 30 days of ratification of the Amendment to the JRP, provided that said labor claims (i) were listed in the trustee’s list of creditors; (ii) were the subject of a final and unappealable court decision that terminated the underlying lawsuit and ratified the amount due to the related creditor; or (iii) in the case of creditors entitled to recover lawyers’ fee, a decision was rendered in the event of claim qualification or challenge filed by the date of the New GCM, provided that they elect this form of payment.

 

44 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

3.2       Collateralized claims

 

The Amendment to the JRP prescribes that, in the event of the disposal of the UPI Mobile Assets, part of the funds to be paid by the winning bidder of the related bidding process and the buyer of the UPI Mobile Assets will, at the risk and expense of the Debtors and using the Debtors’ full instructions on the amount due to each Creditor with collateralized claims and the related data for payment, directly assigned by the buyer to the Creditors with collateralized claims for the prepayment of 100.0% of the remaining amount of Collateralized Claims (as defined in the Amendment to the JRP).

 

3.3       Regulatory agencies’ claims

 

In light of the Amendment to the JRP, approved at the GCM held on September 8, 2020 and ratified by a court decision issued on October 5, 2020, the claims of Regulatory Agencies are being paid as provided for by Law 13988. This law allows the negotiation of all amounts established under Noncompliance Investigation Proceedings (PADOS) registered as enforceable debt, payable in 84 installments, after a 50% discount on the consolidated claim limited to the principal, a six-month grace period, and with the possible use of judicial deposits made as guarantee of the processed claims, fully transferable to ANATEL for the early settlement of as many initial installments as possible to be paid with the total amount of the deposits. As a result, the Company is paying the claims in installments, as established in the Amendment to the JRP, and transferred the judicial deposits to settle the first installments, beginning December 2020 (Notes 12 and 18).

3.4       Unsecured Claims

 

3.4.1       Class III Unsecured Creditors.

 

3.4.1.1       Straight-line payment option

 

Pursuant to the Amendment to the JRP, Class III Unsecured Creditors (as defined in the Plan), with claims of up to R$3,000 that have not yet been fully settled by the date of the New GCM and that have filed a claim qualification or challenge by the date of the New GCM, may elect to receive the full claim, via the on-line platform to be made available by the Oi Group www.credor.oi.com.br within 45 days after the New GCM. The option to receive R$3,000 may be exercised, within the same term, by the Class III Unsecured Creditors with claims higher than R$3,000 provided that (i) the claims had not yet been fully paid by the date of the New GCM; (ii) they had already filed a claim qualification or challenge by the date of the New GCM; and (iii) at the time the option is exercised, such creditors granted the Debtors, on the same platform, a receipt of full payment of their claims.

 

 

45 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The Amendment to the JRP prescribes that the payment of the related claims is made through a deposit, in Brazilian legal tender, in a bank account in Brazil to be indicated by the corresponding Class III Unsecured Creditors, within no more than ninety (90) calendar days beginning on (a) the date of the Court Ratification of the Amendment to the JRP; or (b) the issue date of the final decision that, in the event the claim in not claimed or is disputed, determined the inclusion of their related Unsecured Claims in the General List of Creditors.

 

3.4.1.2       Repurchase Obligation in Liquidity Events

 

The Amendment to the JRP includes an amendment to Clause 5.2 of the Original Plan to provide for the obligation of prepayment at a discount, by the Debtors, of the Unsecured Creditors that have elected Restructuring Options I or II, pursuant to Clauses 4.3.1.2 or 4.3.1.3 of the Original Plan, respectively, also when there is one or more Liquidity Events (notably meaning, collectively, the First Round Purchase Obligation Liquidity Event, the Second Round Purchase Obligation Liquidity Event, and the Third Round Purchase Obligation Liquidity Event, accordingly, the Amendment to the JRP) that establishes that the Oi Group shall allocate 100.0% of the Net Revenue from Liquidity Events (as defined in the Amendment to the JRP) exceeding R$6.5 billion to, in up to the payment rounds, anticipate the payment of the claims held by the Unsecured Creditors provide for in said Clause, at a discount of fifty-five percent (55%) on the related Total Balance of the Unsecured Claims, as described in Clause 5.4 of the Amendment to the JRP.

 

3.4.1.3       Reverse Auction

 

The Amendment to the JRP allows the Debtors, at any time, during the five-years period after the ratification of the Amendment to the JRP, to hold one or more prepayment rounds to the Unsecured Creditors that offer the highest discount rate of their claims in each round held (“Reverse Auction”). In each Reverse Auction, the winning bidder shall be the Unsecured Creditors that successively offer the lowest amount novated unsecured claims under the terms of the Plan in each round, under the terms provided for in Clause 4.7.1 of the Amendment to the JRP.

 

The specific terms of each Reverse Auction, including the rules, the net present value (NPV) of the future payment flows of the related unsecured claims, as provided for in the Plan, to be taken into consideration, which cannot be lower than one hundred percent (100%) of the NPV of the related unsecured claims at any Reverse Auction, and the maximum amount of the related unsecured claims to be paid by the Debtors, including possible restrictions, will be detailed in the related notice to be disclosed prior to the Reverse Auction, at www.recjud.com.br, and subsequently sent to the interested Unsecured Creditors that complete their registration, as provided for in Clause 4.7.4 of the Amendment to the JRP.

 

3.4.1.4       Bank guarantees

 

The Amendment to the JRP allows the Debtors to seek in the market a credit limit for hiring bank guarantees to be provided to the Unsecured Creditors. Clause 5.6.6 and following of the Amendment to the JRP provides for the possibility of the Unsecured Creditors to offer bank guarantee lines to the benefit of the Debtors, within the limit of their restructured claims, to be drawn on the condition that the Debtors reduce their exposure under guarantee in relation to the position as at December 31, 2017, while guaranteeing the reduction of the prepayment discount from 55% to 50%, to be applied at each Exercise Round of the Purchase Obligation, to volumes equivalent to those offered in new guarantee lines, as provided for in the Plan.

 

46 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

3.4.2       Unsecured Claims of Small Businesses, listed in Class IV

 

Pursuant to the Amendment to the JRP, Small Businesses with Unsecured Claims listed in Class IV (as defined in the Plan), with claims of up to R$150,000 that have not yet been fully settled by the date of the New GCM and that have filed have filed a claim qualification or challenge by the date of the New GCM, may elect to receive the full claim, via the on-line platform to be made available by the Oi Group www.credor.oi.com.br, within 45 days after the New GCM. The option to receive R$150,000 may be exercised, within the same term, by the Small Businesses with Unsecured Claims listed in Class IV with claims higher than R$150,000 provided that (i) the claims have not yet been fully paid by the date of the New GCM; (ii) they have already filed a claim qualification or challenge by the date of the New GCM; and (iii) at the time the option is exercised, such creditors grant the Debtors, on the same platform, a receipt of full payment of their claims.

 

The Amendment to the JRP prescribes that the payment of the related claims to be made through a deposit, in Brazilian legal tender, in a bank account in Brazil to be indicated by the corresponding Unsecured Small Business Creditor, within no more than ninety (90) calendar days beginning on (a) the date of the Court Ratification of the Amendment to the JRP; or (b) the issue date of the final decision that, in the event the claim in not claimed or is disputed, determined the inclusion of their related Unsecured Small Business Claims in the General List of Creditors.

 

4.       Termination of the Judicial Reorganization

 

The decision to ratify the Amendment to the JRP set a twelve-month period to terminate the judicial reorganization, beginning on the issue date of such decision, i.e., October 8, 2020, and may be extended if there is a need to finalize the acts related to the disposals of the assets provided for in the Amendment to the JRP. The Debtors have filed an appeal against this part of the Amendment to the JRP ratification decision, requesting that the termination date of the proceeding be the one set forth in the Amendment to the JRP, i.e., May 30, 2022. The appeal is still pending a final decision.

 

 

5.Oi’s activities once the measures provided for in the Amendment to the JRP are implemented

 

If the corporate restructuring carried out to segregate the UPIs and the sale of these UPIs as provided for by the Amendment to the JRP is implemented, the Company will retain all activities, assets, rights and obligations not expressly transferred to the UPIs, including certain fiber optics, fiber backbone and copper backhaul assets related to the Oi Group’s transportation network, residential, business, and corporate customers (including utility assets), in addition to the Digital and IT services (Oi Soluções), as well as the field maintenance and installation operations at Serede - Serviços de Rede S.A. (“Serede”) and customer service operations at Brasil Telecom Call Center S.A. (“BrT Call Center”).

 

47 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

With these measures, the goal is to ensure that this set of assets is sufficient to guarantee the continuity of the Company as a going concern and the payment of its debts under the terms of the Amendment to the JRP.

 

For more information regarding the Amendment to the JRP and the implementation of the measures set forth therein refer to the documents disclosed on this date by the Company and available on its website (www.oi.com.br/ri or www.recjud.com.br) and on CVM’s Empresas.NET System (www.cvm.gov.br).

 

 

48 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

6.       Full Content of the Amendment to the JRP

 

The full Amendment to the JRP is available to the Company’s shareholders at the Company’s headquarters and on its website (www.oi.com.br/ri or www.recjud.com.br), CVM’s Empresas.NET System (www.cvm.gov.br), and the website of B3 S.A. - Brasil, Bolsa, Balcão (www.b3.com.br).

 

Merger of Telemar with and into the Company

 

On May 3, 2021, the concessions granted to the Company’s wholly-owned subsidiary Telemar for the provision of STFC services, under both the public and private regimes, in all their modalities, and the SCM, including the associated licenses for the use of radiofrequencies, were transferred to the Company.

 

As a result of this transfer of concessions and licenses, the merger of Telemar with and into the Company implemented, in connection with the Judicial Reorganization Plan. After the merger of Telemar into Oi, Telemar ceased to exist.

 

The assets acquired and liabilities assumed from Telemar on May 3, 2021 arising from the merger are summarized below:

 

 
Cash and cash equivalents725,084
Cash investments4,295
Accounts receivable1,819,296
Inventories135,203
Recoverable taxes627,239
Dividends and interest on capital1,622,606
Judicial deposits2,342,486
Prepaid expenses393,229
Investments3,231,218
Property, plant and equipment14,801,995
Intangible assets20,536
Borrowings and financing(7,715,041)
Trade payables(4,534,031)
Assignment of receivables(246,133)
Taxes payable(647,980)
Leases payable(1,901,424)
Provisions(2,274,944)
Other assets and liabilities(2,241,617)
Merged net assets6,162,017

 

The upstream merger of Telemar does not affect the Company's consolidated financial statements.

 

 

49 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Going concern

 

The interim financial information for the period ended June 30, 2021, has been prepared assuming that the Company will continue as a going concern and in compliance with the legal requirements applicable to a judicial reorganization. The judicial reorganization is aimed at ensuring the continuation of the Oi Companies as going concerns. The continuity of the Company as a going concern was strengthen with the approval of the Amendment to the JRP (Nota 1) and ultimately depends on the successful outcome of the judicial reorganization and the realization of other forecasts of the Oi Companies.

 

The Company has been successfully discharging the obligations set forth in the judicial reorganization proceedings and even though there are no indications in this regard, we emphasize that the conditions and circumstances point to material uncertainties because of their own nature that may affect the success of the judicial reorganization and cast significant doubts as to the Oi Companies’ ability to continue as going concerns. As at June 30, 2021 and after the implementation of the JRP, total shareholders’ equity was R$5,875,744 (R$5,861,023 in the Company), consolidated loss for the period then ended was R$1,902,343 (R$1,898,585 in the Company), and working capital totaled R$17,527,514 (R$11,002,512 in the Company). As at December 31, 2020 and after the implementation of the JRP, total shareholders’ equity was R$7,769,910 (R$7,751,492 in the Company), consolidated loss for the year then ended was R$10,528,499 (R$10,529,963 in the Company), and working capital totaled R$15,782,630 (R$2,972,818 in the Company).

 

On January 31, 2020, the World Health Organization announced that COVID-19 was a global health emergency and on March 3, 2020, the World Health Organization categorized COVID-19 as a pandemic.

 

By the closing date of this Interim Financial information, we had no indications of material deviations in our operations and results due to COVID-19, even though the scenario is adverse and there are still uncertainties regarding the duration and effects of the pandemic. In addition, the Company has intensified the digitalization of processes, sales and services, telemarketing and teleagent channels, which has allowed a rapid and growing recovery and resumption of pre-COVID levels.

 

 

2.       SIGNIFICANT ACCOUNTING POLICIES

 

Statement of compliance

 

The Company’s individual and consolidated interim financial information has been prepared and is being presented in accordance with the pronouncements, guidelines and interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM), which are consistent with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). All relevant information part of the interim financial information, and only this information, corresponds to the information the Company’s management uses while managing the Company.

 

50 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

(a)Reporting basis

 

The Company’s interim financial information has been prepared for the period ended June 30, 2021 and in accordance with IAS 34 and CPC 21 (R1) issued by the Accounting Pronouncements Committee (“CPC”), which address interim financial reporting.

 

CPC 21 (R1)/IAS 34 requires that management use certain accounting estimates. The quarterly information has been prepared based on the historical cost, except for certain financial assets and financial liabilities measured at their fair values.

 

This quarterly information does not include all the information and disclosures required in annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and the accounting practices adopted in Brazil. There were no changes in the accounting policies adopted in the period ended June 30, 2021 as compared to those applicable in the year ended December 31, 2020, besides the new pronouncements, interpretations, and changes that became effective after December 31, 2020, as described in item (b) of this note.

 

Restatement of the comparative balances of discontinued operation

 

The Company restated the comparative balances of the statement of profit or loss, statement of comprehensive income, statement of cash flows and statement of value added, in accordance with CPC 31/IFRS 5, which requires that an entity reclassifies the disclosures related to all operations that have been discontinued at the balance sheet date of the last reporting period presented. The effects of the reclassification are disclosed in Note 30.

 

Estimates and critical accounting judgments

 

The Company’s management uses estimates and assumptions based on historical experience and other factors, including expected future events, which are considered reasonable and relevant, and also requires judgments related to these matters. Actual results of operations and the financial position may differ from these estimates. The estimates and critical accounting judgments that represent a significant risk of causing material adjustments to the carrying amounts of assets and liabilities are related to: (i) the recognition of revenue and trade receivables; (ii) expected credit losses on doubtful accounts; (iii) depreciation and amortization of assets with finite useful lives; (iv) impairment of long-lived assets; (v) leases; (vi) fair value of financial liabilities; (vii) provisions; (viii) fair value of financial assets; (ix) deferred income tax and social contribution; and (x) noncurrent assets held for sale and discontinued operations.

 

 

51 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Functional and presentation currency

 

The Company and its subsidiaries operate mainly as telecommunications industry operators in Brazil, Africa, and Asia, and engage in activities typical of this industry. The items included in the financial statements of each group company are measured using the currency of the main economic environment where it operates (“functional currency”). The individual and consolidated financial statements are presented in Brazilian reais (R$), which is the Company’s functional and presentation currency.

 

Transactions and balances

 

Foreign currency-denominated transactions are translated into the functional currency using the exchange rates prevailing on the transaction dates. Foreign exchange gains and losses arising on the settlement of the transaction and the translation at the exchange rates prevailing at period-end, related foreign currency-denominated monetary assets and liabilities are recognized in the income statement, except when qualified as hedge accounting and, therefore, deferred in equity as cash flow hedges.

 

Group companies with a different functional currency

 

The profit or loss and the financial position of all Group entities, none of which uses a currency from a hyperinflationary economy, whose functional currency is different from the presentation currency are translated into the presentation currency as follows:

 

·assets and liabilities are translating at the rate prevailing at the end of the reporting period;

 

·revenue and expenses disclosed in the statement of profit or loss are translated using the average exchange rate;

 

·all the resulting foreign exchange differences are recognized as a separate component of equity in other comprehensive income; and

 

·goodwill and fair value adjustments, arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

 

 

52 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

As at June 30, 2021 and December 31, 2020, the foreign currency-denominated assets and liabilities were translated into Brazilian reais using mainly the following foreign exchange rates:

 

 Closing rateAverage rate
Currency06/30/202112/31/202006/30/202106/30/2020
Euro5.92766.37796.49025.4211
US dollar5.00225.19675.38624.9218
Cape Verdean escudo0.05380.05780.05890.0492
Sao Tomean dobra0.24200.2603000.26520.000234
Kenyan shilling0.04640.04760.04960.0472
Namibian dollar0.35000.35400.37060.3139
Mozambican metical0.07960.07000.08190.0734

 

Reclassifications of the comparative period’s accounting balances

 

The Company made some reclassifications in the note to financial income (expenses) for the period ended June 30, 2020 for better comparability with and understanding of the transactions and balances in the individual and consolidated accounting information for the period ended June 30, 2021. These reclassifications do not affect the Company’s or equity as at June 30, 2019 and profit or loss for the period then ended. We highlight below the stated reclassifications:

 Three-month period ended<0}
COMPANYCONSOLIDATED
06/30/202006/30/2020
Originally statedReclassificationCurrently statedOriginally statedReclassificationCurrently stated
Inflation adjustment and exchange differences on third-party debt discount201,220(201,220) 745,884(745,884) 
Inflation adjustment and exchange differences on related-party debt discount1,601,354(1,601,354)    
Total reclassifications of financial income1,802,574(1,802,574) 745,884(745,884) 
Total financial income2,426,322(1,802,574)623,748848,652(745,884)102,768
Inflation adjustment and exchange differences on third-party debt discount 201,220201,220 745,884745,884
Inflation adjustment and exchange differences on related-party debt discount 1,601,3541,601,354   
Total reclassifications of financial expenses 1,802,5741,802,574 745,884745,884
Total financial expenses(3,344,090)1,802,574(1,541,516)(3,702,858)745,884(2,956,974)
Financial income (expenses)(917,768) (917,768)(2,854,206) (2,854,206)

 

 

53 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202006/30/2020
Originally statedReclassificationCurrently statedOriginally statedReclassificationCurrently stated
Inflation adjustment and exchange differences on third-party debt discount1,025,072(1,025,072) 3,540,698(3,540,698) 
Inflation adjustment and exchange differences on related-party debt discount6,621,656(6,621,656)    
Total reclassifications of financial income7,646,728(7,646,728) 3,540,698(3,540,698) 
Total financial income10,545,930(7,646,728)2,899,2024,221,466(3,540,698)680,768
Inflation adjustment and exchange differences on third-party debt discount 1,025,0721,025,072 3,540,6983,540,698
Inflation adjustment and exchange differences on related-party debt discount 6,621,6566,621,656   
Total reclassifications of financial expenses 7,646,7287,646,728 3,540,6983,540,698
Total financial expenses(12,731,980)7,646,728(5,085,252)(12,986,712)3,540,698(9,446,014)
Financial income (expenses)(2,186,050) (2,186,050)(8,765,246) (8,765,246)

 

(b)       New and revised standards and interpretations

 

b.1) New standards adopted as at January 1, 2020:

 

New and revised standards

Effective beginning on or after:
Standard enhancementSetting benchmark interest rates for application pf IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16January 1, 2021
   

 

The amendments to the mentioned standards had no impacts on the Company’s Interim Financial Information.

 

b.2) The new and revised standards and interpretations issued by the IASB that are effective in future reporting periods and that the Company decided not to early adopt are the following, effective for periods beginning on or after January 1, 2021:

 

New and revised standards

Effective beginning on or after:
IAS 37Onerous contract – classification of the cost of fulfilling an onerous contract.January 1, 2022
IAS 16Property, plant and equipment - classification of property, plant and equipment items before being ready for their intended useJanuary 1, 2022
IFRS 3Conceptual frameworkJanuary 1, 2022
Standard enhancementIFRS 1 – aspects of first-time adoption in a subsidiary; IFRS 9 - ‘10 percent’ test criterion to reverse financial liabilities; IFRS 16 - illustrative examples of leases; and IAS 41 – fair value measurement aspectsJanuary 1, 2022
IAS 1Classification of liabilities wither as current or non-current.January 1, 2023
IFRS 4Insurance contract – temporary exemptions to the application of IFRS 9 for insurersJanuary 1, 2023
IFRS 17New Insurance Contracts standard superseding IFRS 4January 1, 2023

 

The Company does not anticipate any impact from these amounts to accounting standards.

 

 

54 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

3.        FINANCIAL INSTRUMENTS AND RISK ANALYSIS

 

3.1.       Financial Instruments

 

The carrying amounts and the estimated fair values of our main financial assets and financial liabilities as at June 30, 2021 and December 31, 2020 are summarized as follows:

 

 Accounting measurementCOMPANYCONSOLIDATED
06/30/2021
Carrying
amount
Fair valueCarrying
amount
Fair value
Assets     
Cash and banksFair value149,832149,832636,245636,245
Cash equivalentsFair value453,446453,446793,993793,993
Cash investmentsFair value194,236194,236204,713204,713
Derivative financial instrumentsFair value487487487487
Due from related partiesAmortized cost7,818,6467,818,646  
Accounts receivable (i)Amortized cost4,685,8564,685,8563,894,6873,894,687
Dividends and interest on capitalAmortized cost2,448,6202,448,6202525
Financial asset at fair valueFair value53,90853,90853,90853,908
      
Liabilities     
Trade payables (i)Amortized cost6,465,6556,465,6557,359,4227,359,422
Borrowings and financing (ii)     
     Borrowings and financingAmortized cost8,795,5638,795,56310,920,40610,920,406
     Due to related partiesAmortized cost1,681,8311,681,831  
     Public debenturesAmortized cost4,218,6594,218,6594,218,6594,218,659
     Private debentures   3,443,0083,443,008
     Senior NotesAmortized cost7,973,9529,182,1937,973,9529,182,193
Derivative financial instrumentsFair value37,42437,42437,42437,424
Dividends and interest on capitalAmortized cost825,330825,33019,75019,750
Tax refinancing program (iii)Amortized cost279,361279,361306,797306,797
Leases payable (iv)Amortized cost2,640,2822,640,2823,171,9383,171,938
      

 

 

 

 

 

55 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Accounting measurementCOMPANYCONSOLIDATED
12/31/2020
Carrying
amount
Fair valueCarrying
amount
Fair value
Assets     
Cash and banksFair value174,952174,952692,742692,742
Cash equivalentsFair value1,777,7281,777,7283,415,1993,415,199
Cash investmentsFair value187,856187,856204,056204,056
Due from related partiesAmortized cost7,621,5727,621,572  
Accounts receivable (i)Amortized cost1,400,5701,400,5703,974,2383,974,238
Dividends and interest on capitalAmortized cost1,4661,466  
Financial asset at fair valueFair value71,59471,59471,59471,594
      
Liabilities     
Trade payables (i)Amortized cost2,414,5482,414,5488,296,8918,296,891
Borrowings and financing (ii)     
     Borrowings and financingAmortized cost2,556,1442,556,14410,542,77710,542,777
     Due to related partiesAmortized cost1,591,9641,591,964  
     Public debenturesAmortized cost2,590,3692,590,3694,034,6034,034,603
     Private debentures   3,569,8053,569,805
     Senior NotesAmortized cost8,196,5499,821,2848,196,5499,821,284
Derivative financial instrumentsFair value10,96710,96710,96710,967
Dividends and interest on capitalAmortized cost4,7754,77518,09418,094
Licenses and concessions payable (iii)Amortized cost17,82817,82843,41543,415
Tax refinancing program (iii)Amortized cost212,629212,629346,217346,217
Leases payable (iv)Amortized cost688,220688,2202,981,6782,981,678
      

 

 

56 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

For the closing of the period ended June 30, 2021:

 

(i) The balances of accounts receivable have near terms and, therefore, they are not adjusted to fair value. The balances of trade payables subject to the judicial reorganization were adjusted to fair value at the date of novation of the liabilities and are represented by the amounts expected to be settled (Note 18).

 

(ii) The balance of the borrowings and financing with the BNDES, Local Banks, and ECAs correspond to exclusive markets, and the fair value of these instruments is similar to their carrying amounts. The balances of borrowings and financing refers to the bonds issued in the international market, for which is there is a secondary market, and their fair values differ from their carrying amounts.

 

(iii) The licenses and concessions payable and the tax refinancing program are stated at the amounts that these obligations are expected to be discharged and are not adjusted to fair value.

 

(iv) The leases payable are represented by the amounts that the obligations are expected to be settled, adjusted at present value.

 

The levels of the financial assets, cash and cash equivalents, cash investments, and derivative financial instruments at fair value as at June 30, 2021 and December 31, 2020 are as follows:

 

 Fair value measurement hierarchyCOMPANYCONSOLIDATED
Fair valueFair valueFair valueFair value
06/30/202112/31/202006/30/202112/31/2020
Assets     
Cash and banksLevel 1149,832174,952636,245692,742
Cash equivalentsLevel 1453,4461,777,728793,9933,415,199
Cash investmentsLevel 1194,236187,856204,713204,056
Derivative financial instrumentsLevel 2487 487 
Liabilities     
Derivative financial instrumentsLevel 237,42410,96737,42410,967

 

There were no transfers between levels in the periods ended June 30, 2021 and December 31, 2018.

 

The Company and its subsidiaries have measured their financial assets and financial liabilities at their market or actual realizable values (fair value) using available market inputs and valuation techniques appropriate for each situation, as follows:

 

(a)       Cash, cash equivalents and cash investments

 

Foreign currency-denominated cash equivalents and cash investments are basically kept in checking deposits denominated in euro and US dollars.

 

57 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The fair value of securities traded in active markets is equivalent to the amount of the last closing quotation available at the end of the reporting period, multiplied by the number of outstanding securities.

 

For the remaining contracts, the Company carries out an analysis comparing the current contractual terms and conditions with the terms and conditions effective for the contract when they were originated. When terms and conditions are dissimilar, fair value is calculated by discounting future cash flows at the market rates prevailing at the end of the period, and when similar, fair value is similar to the carrying amount on the reporting date.

 

(b)       Derivative financial instruments

 

The Company conducts derivative transactions to manage certain market risks, mainly the foreign exchange risk. At the closing date of the period ended June 30, 2021, these instruments include Non-deliverable Forward (NDF) contracts.

 

It is worth noting that the Company does not use derivatives for purposes other than the hedging these risks and the method used to calculate the fair value of the derivative instruments contracted throughout the year was the future cash flows method associated to each contracted instrument, discounted using the market rates prevailing at the reporting date.

 

3.2.       Financial risk management

 

The Company’s and its subsidiaries’ activities expose them to several financial risks, such as: market risk (including currency fluctuation risk, interest rate risk on fair value, interest rate risk on cash flows), credit risk, and liquidity risk. According to their nature, financial instruments may involve known or unknown risks, and it is important to assess to the best judgment the potential of these risks. The Company and its subsidiaries may use derivative financial instruments to mitigate certain exposures to these risks.

 

The Company’s risk management process is a three-step process, taking into account its consolidated structure: strategic, tactical, and operational. At the strategic level, the Company’s executive committee agrees with the Board of Directors the risk guidelines to be followed each financial year. A Financial Risk Management Committee is responsible for overseeing and ensuring that Oi comply with the existing policies. At the operating level, risk management is carried out by the Company’s treasury officer, in accordance with the policies approved by the Board of Directors.

 

The Financial Risk Management Committee meets on a monthly basis and currently consists of the Chief Finance and Investor Relations Officer, Chief Governance, Risks and Compliance Officer, the Chief Treasurer and Performance Analysis Officer, and no more than other two officers from the finance department and at least one former finance officer.

 

58 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The Hedging and Cash Investments Policies, approved by the Board of Directors, document the management of exposures to market risk factors generated by the financial transactions of the Oi Group companies. In line with the Hedging Policy pillars, the strategy is focused on the preservation of the Company’s cash flows, maintaining its liquidity, and complying with the financial covenants, if applicable.

 

3.2.1.       Market risk

 

(a)       Foreign exchange risk

 

Financial assets

 

The Company is not exposed to any material foreign exchange risk involving foreign currency-denominated financial assets as at June 30, 2021 for which the Company does not enter into any currency hedging transaction.

 

Financial liabilities

 

The Company and its subsidiaries have foreign currency-denominated or foreign currency-indexed borrowings and financing. The risk associated with these liabilities is related to the possibility of fluctuations in foreign exchange rates that could increase the balance of such liabilities. The Company’s and its subsidiaries’ borrowings and financing exposed to this risk represent approximately 62.9% of total liabilities from borrowings and financing (64.0% at December 31, 2020), less the contracted currency hedging transactions.

 

To minimize this type of risk, after the sale of PT Ventures was completed in 2020, the Company elected to keep part of the funds received with this sale in offshore cash, as a natural hedge both to cover the payment of foreign currency-denominated interest to be made in 2020 and the portion of the Company’s US dollar-denominated operating expenses. Additionally, in the same year the Company also hedged part of the Company’s US dollar-denominated operating expenses. Throughout the quarter ended June 30, 2020, the Company maintained the contracting of short-term currency forward hedging transactions to hedge the interest on the qualified bonds maturing in August 2021, as well as US dollar-denominated expenses until May of the current year.

 

The currency hedging percentage for purposes of covenant compliance and the financial expenses of the existing borrowings and financing, including the impacts of changes in foreign exchange rates on the fair value adjustment gain, is 38.9%.

 

59 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Foreign currency-denominated financial assets and financial liabilities are presented in the balance sheet as follows (includes intragroup balances transferred to Company amounts):

 

 COMPANY
06/30/202112/31/2020
Carrying
amount
Fair valueCarrying
amount
Fair value
Financial assets    
Cash and banks121,110121,110148,750148,750
Due from related parties7,818,1337,818,1337,621,1687,621,168
Derivative financial instruments487487  
Financial liabilities    
Borrowings and financing (Note 19)14,187,83414,187,83410,833,84310,833,843
Derivative financial instruments37,42437,42410,96710,967

 

 

 CONSOLIDATED
06/30/202112/31/2020
Carrying
amount
Fair valueCarrying
amount
Fair value
Financial assets    
Cash and banks463,341463,341526,133526,133
Cash equivalents441,4101,410
Derivative financial instruments487487  
Financial liabilities    
Borrowings and financing (Note 19)16,661,57716,661,57716,841,74516,841,745
Derivative financial instruments37,42437,42410,96710,967

 

The amounts of the derivative financial instruments as at June 30, 2021 and December 31, 2019 are summarized as follows:

 

 Derivatives designated for hedge accounting
  COMPANYCONSOLIDATED
Notional (US$)Maturity (years)Fair valueFair value
Amounts (payable)/receivableAmounts (payable)/receivable
06/30/202112/31/202006/30/202112/31/2020
USD/R$ Non-deliverable forwards (NDFs)22,908< 1 year(8,014)(3,561)(8,014)(3,561)

 

 

 Derivatives not designated for hedge accounting
  COMPANYCONSOLIDATED
Notional (US$)Maturity (years)Fair valueFair value
Amounts (payable)/receivableAmounts (payable)/receivable
06/30/202112/31/202006/30/202112/31/2020
USD/R$ Non-deliverable forwards (NDFs)82,677< 1 year(28,923)(7,406)(28,923)(7,406)

 

 

60 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

As at June 30, 2021 and December 31, 2020, the main hedging transactions conducted with financial institutions with the objective minimizing the foreign exchange risk were as follows:

 

Non-deliverable Forward (NDF) contracts

 

US$/R$: Refer to future dollar purchase transactions using NDFs to hedge against the depreciation of the Brazilian real against the US dollar. The key strategy for these contracts is to eliminate foreign exchange differences during the contract period, mitigating unfavorable changes in foreign exchange rates on dollar-denominated debts or operating expenses.

 

As at June 30, 2021, the Company recognized as result of derivative transactions the amounts shown below:

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Forward currency transaction – financial results(59,027) (59,027) 
Forward currency transaction – operating results(6,377) (6,377) 
Total(65,404) (65,404) 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Forward currency transaction – financial results(23,672)127,581(23,672)127,581
Forward currency transaction – operating results(1,919)1,152(1,919)1,152
Total(25,591)128,733(25,591)128,733

 

And the movements in foreign exchange hedges designated for hedge accounting were recognized in other comprehensive income.

 

Table of movements in hedge accounting effects in other comprehensive income
 COMPANYCONSOLIDATED
Balance at December 31, 2020(3,561)(3,561)
Amortization of hedges to profit or loss(4,453)(4,453)

Balance at June 30, 2021

(8,014)(8,014)

 

 

 

Foreign exchange risk sensitivity analysis

 

Pursuant to CPC 40 (R1)/IFRS 7, as at June 30, 2021, management estimated the depreciation scenarios of the Brazilian real in relation to other currencies, at the end of the reporting period.

 

The foreign exchange rates used for the probable scenario are the closing rates prevailing in June 2021. The probable rates were then depreciated by 25% and 50% and used as benchmark for the possible and remote scenarios, respectively.

 

61 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 Rate
Description06/30/2021Depreciation
Probable scenario  
U.S. dollar5.00220%
Euro5.92760%
Possible scenario  
U.S. dollar6.252825%
Euro7.409525%
Remote scenario  
U.S. dollar7.503350%
Euro8.891450%

 

The impacts of foreign exchange exposure on the foreign currency-denominated debt with third parties, taking into consideration derivatives and offshore cash, in the sensitivity scenarios estimated by the Company, are shown in the table below (excludes intragroup balances):

 

 06/30/2021
COMPANYCONSOLIDATED
DescriptionIndividual
risk
Probable scenarioPossible scenarioRemote scenarioProbable scenarioPossible scenarioRemote scenario
US dollar debtsDollar appreciation18,845,11923,556,39928,267,67923,072,65828,840,82334,608,988
Derivatives (net position - USD)Dollar depreciation28,92374,034176,99128,92374,034176,991
US dollar cashDollar depreciation(66,590)(83,238)(99,885)(123,476)(154,344)(185,213)
Euro debtEuro appreciation242,360302,950363,5403,543,9284,429,9105,315,892
Euro cashEuro depreciation(54,348)(67,935)(81,522)(321,545)(401,931)(482,317)
Fair value adjustmentDollar/euro depreciation(6,570,592)(8,213,240)(9,855,888)(9,936,532)(12,420,665)(14,904,798)
Total assets/ liabilities indexed to exchange fluctuation 12,424,87215,568,97018,770,91516,263,95620,367,82724,529,543
Total (gain) loss  3,144,0986,346,043 4,103,8718,265,587

 

(b)       Interest rate risk

 

Financial assets

 

Cash equivalents and cash investments in local currency are substantially maintained in financial investment funds exclusively managed for the Company and its subsidiaries, and investments in private securities issued by prime financial institutions. Most of the portfolio of exclusive funds consists of repurchase agreements pegged to the SELIC rate (Central Bank’s policy rate).

 

The interest rate risk linked to these assets arises from the possibility of decreases in these rates and consequent decrease in the return on these assets.

 

 

62 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Financial liabilities

 

The Company and its subsidiaries have borrowings and financing subject to floating interest rates, based on the Long-term Interest Rate (TJLP), the CDI, the Benchmark Rate, and more recently the Broad Consumer Price Index (IPCA) in the case of real-denominated debt as at June 30, 2021. After the approval of the JRP, the Company does not have borrowings and financing subject to the foreign currency-denominated floating interest rate.

 

As at June 30, 2021, approximately 37.1% (35.9% at December 31, 2020) of the incurred debt was subject to floating interest rates. The most material exposure of Company’s and its subsidiaries’ debt after is to CDI.  Therefore, a continued increase in this interest rate would have an adverse impact on future interest payments.  

 

These assets and liabilities are presented in the balance sheet as follows:

 

 COMPANY
06/30/202112/31/2020
Carrying
amount
Market valueCarrying
amount
Market value
Financial assets    
Cash equivalents453,446453,4461,777,7281,777,728
Cash investments194,236194,236187,856187,856
Due from related parties513513404404
Financial liabilities    
Borrowings and financing (Note 19)8,475,3898,475,3894,092,9584,101,183

 

 CONSOLIDATED
06/30/202112/31/2020
Carrying
amount
Market valueCarrying
amount
Market value
Financial assets    
Cash equivalents793,989793,9893,413,7893,413,789
Cash investments204,713204,713204,056204,056
Financial liabilities    
Borrowings and financing (Note 19)9,865,9939,865,9939,501,9889,501,988

 

 

63 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Interest rate fluctuation risk sensitivity analysis

 

Management believes that the most material risk related to interest rate fluctuations arises from its liabilities pegged to the CDI, the TJLP, and the IPCA. This risk is associated to an increase in those rates. The TJLP has been successively cut since January 2020, when it was set at 5.09% per year. Beginning April 2020, the TJLP was cut again to 4.94% p.a. and subsequently to 4.91% p.a. for July-September 2020, to 4.55% p.a. for October-December 2020, and 4.39% p.a. for January-March 2021. Beginning April 2021, after successive cuts, o National Monetary Council decided to increase this rate to 4.61% p.a. And before the end of the quarter, the was a new increase to 4.88% p.a. that tracked the increase of the Selic (Central Bank’s policy rate), effective for July-September 2021.

 

Pursuant to CPC 40 (R1)/IFRS 7, Management estimated the fluctuation scenarios of the rates CDI and TJLP as at June 30, 2021. The rates used for the probable scenario were the rates prevailing at the end of the reporting period.

 

These rates have been stressed by 25% and 50%, and used as benchmark for the possible and remote scenarios.

 

06/30/2021
Interest rate scenarios
Probable scenarioPossible scenarioRemote scenario
CDITJLPCDITJLPCDITJLP
4.15%4.61%5.19%5.76%6.23%6.92%

 

Such sensitivity analysis considers outflows for the repayment of debts to third parties in future dates. Thus, the aggregate of the amounts for each scenario is not equivalent to the fair values, or even the fair values of these liabilities.

 

The impacts of exposure to interest rates, in the sensitivity scenarios estimated by the Company, are shown in the table below:

 

 06/30/2021
COMPANYCONSOLIDATED
DescriptionIndividual
risk
Probable scenarioPossible scenarioRemote scenarioProbable scenarioPossible scenarioRemote scenario
Debt pegged to CDICDI increase2,486,7373,135,3963,794,4792,529,9043,189,8223,860,346
Debt pegged to TJLPTJLP increase2,139,8572,483,5682,828,9542,914,0773,381,1193,850,170
Total assets/liabilities pegged to the interest rate 4,626,5945,618,9646,623,4335,443,9816,570,9417,710,516
Total (gain) loss  992,3701,996,839 1,126,9602,266,535

 

 

64 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

3.2.2.       Credit risk

 

The concentration of credit risk associated to trade receivables is immaterial due to the diversification of the portfolio. The expected losses on trade receivables are adequately covered by an allowance intended to cover possible losses on their realization.

 

Transactions with financial institutions (cash investments and borrowings and financing) are made with prime entities, avoiding the concentration risk. The credit risk of financial investments is assessed by setting caps for investment in the counterparts, taking into consideration the ratings released by the main international risk rating agencies for each one of such counterparts. As at June 30, 2021, approximately 87.7% of the consolidated cash investments were made with counterparties with an AAA, AA, A, and or sovereign risk rating.

 

3.2.3.       Liquidity risk

 

The liquidity risk also arises from the possibility of the Company being unable to discharge its liabilities on maturity dates and obtain cash due to market liquidity restrictions. Management uses its resources mainly to fund capital expenditures incurred on the expansion and upgrading of the network, invest in new businesses.

 

The Company’s management monitors the continual forecasts of the liquidity requirements to ensure that the company has sufficient cash to meet its operating needs and fund capital expenditure to modernize and expand its network.

 

In May 2021, Oi completed the subscription and payment of the R$2,500 million convertible debentures issued by Brasil Telecom Comunicação Multimídia S.A. The funds disbursed through these debentures are being used to support the subsidiary's CAPEX, focused on the expansion of the fiber-to-the-home (FTTH) network. This is yet another step in the judicial reorganization proceeding, in line with the Company's Strategic Transformation Plan.

 

Capital management

 

The Company seeks to manage its equity structure according to best market practices.

 

The objective of the Company’s capital management strategy is to ensure that liquidity levels and financial leverage allow the sustained growth of the Group, the compliance with the strategic investment plan, and generation of returns to our shareholders.

 

We may change our capital structure, according to existing economic and financial conditions, to optimize our financial leverage and debt management.

 

 

65 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The indicators used to measure capital structure management are: gross debt to accumulated twelve-month EBITDA (earnings before interest (financial income and expenses), taxes, depreciation, and amortization), and the interest coverage ratio, as shown below:

 

Gross debt-to-EBITDA between 2x and 4.0x
Interest coverage ratio (*) higher than 1.75

(*) Measures the Company’s capacity to cover its future interest obligations.

 

3.2.4.       Risk of accelerated maturity of borrowings and financing

 

At the end of June 30, 2021 there was no risk of accelerated maturity of the Company’s debt.

 

It is worth emphasizing that, in line with the provisions of the Plan, as amended, BNDES (Brazilian development bank) agrees that, as of the Court Ratification of the Amendment to the JRP (October 8, 2020) and until the first of the financial settlement of the disposal of the UPI Mobile Assets or by May 30, 2022, the obligation to comply with the financial ratios set forth in the agreement will be temporarily stayed by BNDES and, therefore, during such period, its noncompliance will not imply a possible breach of the agreement, as reported in Note 19, ‘Covenants’ section.

 

 

4.       NET OPERATING REVENUE

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/2021

06/30/2020

Restated

     
Gross operating revenue2,128,7541,017,6122,994,8613,037,498
     
Deductions from gross revenue(420,039)(245,142)(760,100)(736,117)
  Taxes(414,606)(242,610)(653,553)(675,204)
  Other deductions(5,433)(2,532)(106,547)(60,913)
     
Net operating revenue1,708,715772,4702,234,7612,301,381

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/2021

06/30/2020

Restated

     
Gross operating revenue3,270,3872,079,9415,980,5216,193,028
     
Deductions from gross revenue(631,401)(500,813)(1,507,420)(1,476,298)
  Taxes(624,052)(495,936)(1,300,570)(1,367,086)
  Other deductions(7,349)(4,877)(206,850)(109,212)
     
Net operating revenue2,638,9861,579,1284,473,1014,716,730

 

 

 

66 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

5.       REVENUE AND EXPENSES BY NATURE

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Net operating revenue1,708,715772,4702,234,7612,301,381
Operating income (expenses):    
Interconnection(45,594)(17,568)(40,107)(45,966)
Personnel(201,689)(90,375)(402,741)(400,378)
Third-party services(413,092)(223,075)(690,021)(784,999)
Grid maintenance service(276,583)(121,103)(105,740)(113,448)
Handset and other costs  (259)(3,635)
Advertising and publicity(10,244)(11,210)(125,813)(62,726)
Rentals and insurance(310,630)(116,904)(327,773)(309,218)
(Provisions)/reversals25,07239,490(30,840)(43,411)
Expected losses on trade receivables(39)(10,009)(21,268)(42,382)
Taxes and other income (expenses)1,420,518(1,983,109)65,395(78,711)
Other operating income (expenses), net(11,870) (13,356) 
Operating expenses excluding depreciation and amortization175,849(2,533,863)(1,692,523)(1,884,874)
Depreciation and amortization(675,887)(378,676)(719,633)(703,563)
Total operating expenses(500,038)(2,912,539)(2,412,156)(2,588,437)
Profit (loss) before financial income (expenses) and taxes1,208,677(2,140,069)(177,395)(287,056)
Financial income (expenses):    
Financial income(840,197)623,74830,583102,768
Financial expenses799,311(1,541,516)1,315,736(2,956,974)
Total financial income (expenses)(40,886)(917,768)1,346,319(2,854,206)
Pretax profit (loss)1,167,791(3,057,837)1,168,924(3,141,262)
Income tax and social contribution  (881)(591)
Profit (loss) for the period from discontinued operations1,167,791(3,057,837)1,168,043(3,141,853)
Discontinued operations    
Profit for the year from discontinued operations (net of taxes) (Nota 30)(28,838)(351,547)(28,838)(351,547)
Profit (loss) for the period1,138,953(3,409,384)1,139,205(3,493,400)
Profit (loss) attributable to the Company’s owners1,138,953(3,409,384)1,138,953(3,409,384)
Profit (loss) attributable to non-controlling interests  252(84,016)
     
Operating expenses by function:    
     
Cost of sales and/or services(1,474,194)(669,788)(1,424,732)(1,429,461)
Selling expenses(238,119)(125,922)(570,294)(486,432)
General and administrative expenses(275,680)(206,232)(543,084)(675,114)
Other operating income181,027129,977575,594432,780
Other operating expenses(121,709)(34)(450,608)(430,693)
Share of results of investees1,428,637(2,040,540)968483
Total operating expenses(500,038)(2,912,539)(2,412,156)(2,588,437)

 

 

 

67 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Net operating revenue2,638,9861,579,1284,473,1014,716,730
Operating income (expenses):    
Interconnection(57,630)(34,034)(73,344)(78,900)
Personnel(311,790)(182,909)(846,255)(866,279)
Third-party services(678,087)(468,419)(1,387,478)(1,608,002)
Grid maintenance service(394,327)(249,978)(202,233)(241,702)
Handset and other costs  (3,055)(4,696)
Advertising and publicity(19,527)(26,028)(215,241)(119,452)
Rentals and insurance(486,135)(236,835)(696,215)(681,189)
(Provisions)/reversals24,222(3,500)(78,930)(63,042)
Expected losses on trade receivables(2,340)(25,381)(51,281)(82,562)
Taxes and other income (expenses) (i)(1,088,023)(6,558,585)(32,770)(12,447)
Other operating income (expenses), net (ii)106,012 971,182366,558
Operating expenses excluding depreciation and amortization(2,907,625)(7,785,669)(2,615,620)(3,391,713)
Depreciation and amortization(1,111,183)(760,600)(1,891,629)(1,792,392)
Total operating expenses(4,018,808)(8,546,269)(4,507,249)(5,184,105)
Loss before financial income (expenses) and taxes(1,379,822)(6,967,141)(34,148)(467,375)
Financial income (expenses):    
Financial income260,5082,899,202209,924680,768
Financial expenses(1,146,530)(5,085,252)(2,435,972)(9,446,014)
Total financial income (expenses)(886,022)(2,186,050)(2,226,048)(8,765,246)
Pre-tax loss(2,265,844)(9,153,191)(2,260,196)(9,232,621)
Income tax and social contribution 12,085(9,406)33,774
Loss for the period from discontinued operations(2,265,844)(9,141,106)(2,269,602)(9,198,847)
Discontinued operations    
Profit for the year from discontinued operations (net of taxes) (Nota 30)367,259(548,343)367,259(548,343)
Loss for the period(1,898,585)(9,689,449)(1,902,343)(9,747,190)
Loss attributable to Company owners(1,898,585)(9,689,449)(1,898,585)(9,689,449)
Loss attributable to non-controlling interests  (3,758)(57,741)
     
Operating expenses by function:    
     
Cost of sales and/or services(2,265,506)(1,350,764)(3,311,071)(3,280,720)
Selling expenses(393,262)(266,668)(1,131,473)(995,657)
General and administrative expenses(489,837)(423,780)(1,119,366)(1,388,375)
Other operating income411,003281,2741,824,1971,206,435
Other operating expenses(162,592)(66,021)(770,701)(756,533)
Share of results of investees(1,118,614)(6,720,310)1,16530,745
Total operating expenses(4,018,808)(8,546,269)(4,507,249)(5,184,105)
(i)Includes the share of results of investees.

 

(ii)In the first half of 2021, represented primarily by the gain on the sale of UPI Towers amounting to R$1,008,683 (Note 1). In the first half of 2020, represented primarily by the gain on the sale of a property amounting to R$84,920 and the gain on the sale of the investment held in PT Ventures amounting to R$79,114.

 

68 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

6.       FINANCIAL INCOME (EXPENSES)

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/2021

06/30/2020

Restated

Financial income    
Interest, inflation adjustment, and  exchange differences on other assets109,923(24,732)87,269(1,617)
Income from cash investments5,64519,53712,41133,667
Interest and exchange differences on intragroup loans(939,644)610,580  
Exchange differences on translating foreign cash investments(17,401)17,271(66,962)72,189
Other income1,2801,092(2,135)(1,471)
Total(840,197)623,74830,583102,768
     
Financial expenses and other charges    
a)      Borrowing and financing costs    
Amortization of third-party debt discount16,139(152,765)57,903(364,475)
Amortization of related-party debt discount223,774(260,167)  
Inflation adjustment and exchange losses on third-party2,154,723(628,703)3,683,050(1,487,357)
Inflation adjustment and exchange differences on third-party debt discount(890,300)201,220(1,692,735)745,884
Inflation adjustment and exchange differences on related-party debt discount(3,096,122)1,601,354  
Interest on borrowings from third parties(304,327)(313,005)(349,759)(415,652)
Interest on debentures(41,274)(27,250)(166,923)(152,979)
Interest and exchange differences on intragroup loans3,076,808(1,553,009)  
    Subtotal:1,139,421(1,132,325)1,531,536(1,674,579)
b)      Other charges    
Interest on leases(76,784)(21,268)(88,783)(93,216)
Gain (loss) on cash investments classified as held for sale(35,179)41,565(10,487)(70,751)
Tax on transactions and bank fees(21,097)(20,936)(34,799)(46,973)
Interest on, inflation adjustment to, and foreign exchange differences on other liabilities181,592(278,167)392,718(790,465)
Inflation adjustment to (provisions)/reversals(6,073)(86,555)(55,890)(196,513)
Interest on taxes in installments - tax financing program(921)(1,071)(1,325)(1,974)
Derivative transactions(59,027) (59,027) 
Other expenses(322,621)(42,759)(358,207)(82,503)
     Subtotal:(340,110)(409,191)(215,800)(1,282,395)
Total799,311(1,541,516)1,315,736(2,956,974)
Financial income (expenses)(40,886)(917,768)1,346,319(2,854,206)

 

 

 

69 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/2021

06/30/2020

Restated

Financial income    
Interest, inflation adjustment, and  exchange differences on other assets159,411164,331210,892

 

157,558

Income from cash investments12,83735,74225,80771,626
Interest and exchange differences on intragroup loans85,1242,496,364  
Exchange differences on translating foreign cash investments(5,882)199,917(31,377)455,368
Other income9,0182,8484,602(3,784)
Total260,5082,899,202209,924680,768
     
Financial expenses and other charges    
a)      Borrowing and financing costs    
Amortization of third-party debt discount(186,471)(391,367)(417,924)(942,205)
Amortization of related-party debt discount(118,136)(823,462)  
Inflation adjustment and exchange losses on third-party1,033,635(3,252,102)1,188,953(7,322,628)
Inflation adjustment and exchange differences on third-party debt discount(544,975)1,025,072(609,266)3,540,698
Inflation adjustment and exchange differences on related-party debt discount(1,436,131)6,621,656  
Interest on borrowings from third parties(626,193)(601,909)(767,406)(805,288)
Interest on debentures(59,293)(64,283)(326,048)(294,225)
Interest and exchange differences on intragroup loans1,488,295(6,490,475)  
    Subtotal:(449,269)(3,976,870)(931,691)(5,823,648)
b)      Other charges    
Interest on leases(96,963)(41,880)(173,430)(184,357)
Gain on cash investments classified as held for sale3,519418,69415,541133,022
Tax on transactions and bank fees(42,310)(58,620)(87,088)(112,007)
Interest, inflation adjustment, and exchange differences on other liabilities (i)

 

(141,548)

(1,033,781)(626,235)(2,794,998)
Inflation adjustment to (provisions)/reversals(34,926)(181,387)(151,518)(365,605)
Interest on taxes in installments - tax financing program(1,377)(2,433)(2,309)(4,446)
Derivative transactions(23,672)(127,581)(23,672)(127,581)
Other expenses (ii)(359,984)(81,394)(455,570)(166,394)
     Subtotal:(697,261)(1,108,382)(1,504,281)(3,622,366)
Total(1,146,530)(5,085,252)(2,435,972)(9,446,014)
Financial income (expenses)(886,022)(2,186,050)(2,226,048)(8,765,246)

 

(i)This line item includes interest related to the present value adjustment associated with the liabilities of onerous contracts and trade payables subject to the Judicial Reorganization, and related exchange differences and adjustment for inflation.
(ii)Represented mainly by financial banking fees and commissions.

 

 

 

70 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

7.       INCOME TAX AND SOCIAL CONTRIBUTION

 

Income taxes encompass the income tax and the social contribution. The income tax rate is 25% and the social contribution rate is 9%, generating aggregate nominal tax rate of 34%.

 

The provision for income tax and social contribution is broken down as follows:

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Income tax and social contribution    
   Current taxes  (881)(591)
   Deferred taxes (Note 10)    
Total  (881)(591)

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Pre-tax profit (loss)1,167,791(3,057,837)1,168,924(3,141,262)
Income tax and social contribution    
Income tax and social contribution on taxed income(397,049)1,039,664(397,434)1,068,029
Equity in investees485,737(693,783)329164
Tax incentives  3516
Permanent deductions (add-backs)(2,003,483)464,485(7,167,091)256,798
Reversal of (Allowance for) impairment losses on deferred tax assets1,914,795(810,366)7,314,305(1,119,726)
Tax effects of deferred tax assets of foreign subsidiaries  248,975(205,872)
Income tax and social contribution effect on profit or loss  (881)(591)

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Income tax and social contribution    
   Current taxes  (9,406)9,960
   Deferred taxes (Note 10) 12,085 23,814
Total 12,085(9,406)33,774

 

 

71 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

Pre-tax loss(2,265,844)(9,153,191)(2,260,196)(9,232,621)
Income tax and social contribution    
Income tax and social contribution on taxed income770,3873,112,085768,4673,139,091
Equity in investees(380,329)(2,284,906)39610,453
Tax incentives (i)  8134
Permanent deductions (add-backs) (ii)(1,513,829)2,248,202(6,815,998)1,210,262
Reversal of (Allowance for) impairment losses on deferred tax assets (iii)1,123,771(3,063,296)6,052,602(3,753,764)
Tax effects of deferred tax assets of foreign subsidiaries (iv)  (14,954)(572,302)
Income tax and social contribution effect on profit or loss 12,085(9,406)33,774

 

(i)Refer basically to the income surtax (10%) payable by subsidiaries.

 

(ii)The tax effects from permanent add-backs are represented mainly by the write-off of deferred tax credits, totaling R$6,520,403, corresponding to the tax loss carryforwards of subsidiary Telemar, merged with and into the Company on May 3, 2021, and the effects of the foreign exchange differences on fair value adjustments to the restructured liabilities included in the JRP.

 

(iii)The reversal in the period corresponds mainly to the effects of the reversals of the provisions to the realizable value of deferred tax credits on tax loss carryforwards derecognized from Telemar, as commented in the previous paragraph and referred to in Note 10.

 

(iv)Effects of unrecognized deferred tax assets held by foreign subsidiaries that do not have a history of profitability and/or an expectation to generate taxable income.

 

 

8.       CASH, CASH EQUIVALENTS AND CASH INVESTMENTS

 

Cash investments and cash investments made by the Company and its subsidiaries in the periods ended June 30, 2021 and December 31, 2020 are measured at their fair values.

 

(a)Cash and cash equivalents

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Cash and banks149,832             174,952636,245692,742
Cash equivalents453,446          1,777,728793,9933,415,199
Total603,278          1,952,6801,430,2384,107,941

 

 

72 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Repurchase agreements (i)293,3121,518,113607,8422,919,122
Certificated of Bank Deposit (CDB)150,754185,564151,958343,084
Private securities (ii)6,47871,25430,407134,411
Time deposits  41,407
Other2,9022,7973,78217,175
Cash equivalents453,4461,777,728793,9933,415,199

 

(b)Short- and long-term cash investments

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Private securities (iii)173,138170,660180,147177,827
Government securities21,09817,19624,56626,229
Total194,236187,856204,713204,056
Current191,471184,682194,939193,715
Non-current2,7653,1749,77410,341

 

(i)Represented, mainly, by exclusive investment funds, most the portfolio of which consists of government securities with yields pegged to SELIC (Central Bank’s policy rate). The portfolio is preferably allocated to highly liquid spot market instruments for all investments.

 

(ii)Represented primarily by highly liquid treasury financial bills of private banks pegged to CDI.

 

(iii)Represented mainly by investments whose yields are pegged to SELIC and CDB rates.

 

The Company and its subsidiaries hold cash investments in Brazil and abroad for the purpose of earning interest on cash, benchmarked to CDI in Brazil, LIBOR for the US dollar-denominated portion, and EURIBOR for the euro-denominated portion.

 

9.       ACCOUNTS RECEIVABLE

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Billed services4,837,0491,471,9723,982,8313,984,006
Unbilled services591,393378,225881,2781,024,380
Subtotal5,428,4421,850,1974,864,1095,008,386
Expected losses on trade receivables(742,586)(449,627)(969,422)(1,034,148)
Total4,685,8561,400,5703,894,6873,974,238

1 These amounts include the related-party balances, as shown in Note 29 and include the balances merged from Telemar (Note 1).

 

 

73 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The aging list of trade receivables is as follows:

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Current4,531,8971,469,9353,224,6333,650,943
Past-due up to 60 days269,670120,279665,857564,145
Past-due from 61 to 90 days56,08614,665121,96688,377
Past-due from 91 to 120 days42,50211,89890,09976,252
    Past-due from 121 to 150 days45,38312,366166,34078,409
Over 150 days past-due482,904221,054595,214550,260
Total5,428,4421,850,1974,864,1095,008,386

 

The movements in the expected credit losses on trade receivables are as follows:

 

 COMPANYCONSOLIDATED
Balance at January 1, 2021(449,627)(1,034,148)
Telemar merger (Note 1)(287,300) 
Expected losses on trade receivables(2,340)(50,817)
Trade receivables written off as uncollectible(3,319)115,543
Balance at June 30, 2021(742,586)(969,422)

 

 

10.        CURRENT AND DEFERRED INCOME TAXES

 

 ASSETS
COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Current recoverable taxes    
Recoverable income tax (IRPJ) (i)80,64710,466172,239179,780
Recoverable social contribution (CSLL) (i)4,823384,98873,435
IRRF/CSLL - withholding income taxes (ii)66,67934,690104,690104,906
Total current152,14945,159361,917358,121
     
Deferred recoverable taxes    
Income tax and social contribution on temporary differences13,724,3983,724,3983,671,0703,671,070
Total non-current3,724,3983,724,3983,671,0703,671,070

1 See movements table below.

 

 

 

 

 LIABILITIES
COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Current taxes payable    
Income tax payable  10,30611,752
Social contribution payable  353630
Total current  10,65912,382

 

 

74 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  
(i)Refer mainly to prepaid income tax and social contribution that will be offset against federal taxes payable in the future.

 

(ii)Withholding income tax (IRRF) credits on cash investments, derivatives, intragroup loans, government entities, and other amounts that are used as deductions from income tax payable for the years, and social contribution withheld at source on services provided to government agencies.

 

Movements in deferred income tax and social contribution

 

 COMPANY
Balance at 12/31/2020Recognized in deferred tax benefit/ expensesTelemar merger
(Note 1)
Balance at 06/30/2021

 

Deferred tax assets arising on:

    
Temporary differences    
Provisions421,463(45,452)540,864916,875
Provisions for suspended taxes125,4952,226 127,721
Provisions for pension funds(50,806)104(159,690)(210,392)
Expected losses on trade receivables167,165(1,410)256,907422,662
Profit sharing30,252(28,443)3,4105,219
Foreign exchange differences3,548,033(729,062)1,184,5594,003,530
Merged goodwill (i)1,131,992(140,553) 991,439
Onerous obligation536,237(112,467)961,6721,385,442
Leases13,7484,33739,80257,887
ORA - MTM - Derivatives1,2111,514 2,725
Other temporary add-backs and deductions217,9679,807510,414738,188
Deferred taxes on temporary differences6,142,757(1,039,399)3,337,9388,441,296
CSLL tax loss carryforwards (iii)4,991,972376,368 5,368,340
Total deferred tax assets11,134,729(663,031)3,337,93813,809,636
Deferred tax liabilities    
Temporary differences and income tax and social contribution of goodwill (ii)(1,467,357)(460,740)313,425(1,614,672)
Allowance for impairment loss (iii)(5,942,974)1,123,771(3,651,363)(8,470,566)
Total deferred tax assets (liabilities)3,724,398  3,724,398

 

 

75 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 CONSOLIDATED
Balance at 12/31/2020Recognized in deferred tax benefit/ expensesBalance at 06/30/2021
Deferred tax assets arising on:   
Temporary differences   
Provisions1,223,404(117,063)1,106,341
Provisions for suspended taxes169,5394,193173,732
Provisions for pension funds(211,187)104(211,083)
Expected losses on trade receivables487,03338,423525,456
Profit sharing133,156(93,412)39,744
Foreign exchange differences3,442,455(297,295)3,145,160
Merged goodwill (i)1,131,992(140,553)991,439
Onerous obligation2,438,425(165,220)2,273,205
Leases196,33245,591241,923

ORA - MTM - Derivatives

 

1,2111,5142,725
Other temporary add-backs and deductions1,127,49263,5331,191,025
Deferred taxes on temporary differences10,139,852(660,185)9,479,667
CSLL tax loss carryforwards (iii)16,561,970(5,612,716)10,949,254
Total deferred tax assets26,701,822(6,272,901)20,428,921
Deferred tax liabilities   
Temporary differences and income tax and social contribution of goodwill (ii)(2,423,808)220,299(2,203,509)
Allowance for impairment loss (iii)(20,606,944)6,052,602(14,554,342)
Total deferred tax assets (liabilities)3,671,070 3,671,070

 

(i)Refer to: (i) deferred income tax and social contribution assets calculated as tax benefit originating from the goodwill paid on acquisition of the Company and recognized by the merged companies in the course of 2009. The realization of the tax credit arises from the amortization of the goodwill balance based on the STFC license and in the appreciation of property, plant and equipment, the utilization of which is estimated to occur through 2025, and (ii) deferred income tax and social contribution assets originating from the goodwill paid on the acquisition of interests in the Company in 2008-2011, recognized by the companies merged with and into Telemar Participações S.A. (“TmarPart”) and by TmarPart merged with and into the Company on September 1, 2015, which was based on the Company’s expected future profitability and the amortization of which is estimated to occur through 2025.

 

(ii)Refers basically to the tax effects on the appreciation of property, plant and equipment and intangible assets, merged from TmarPart.

 

(iii)The Company regularly tests deferred tax assets for impairment and recognizes an allowance for impairment losses of deferred tax assets when it is probable that these assets will not be realized, based on a statement of expected generation of future taxable income, supported by a technical feasibility study and the matching the estimated annual realization portion of the asset and liability temporary differences. The allowance for impairment losses is reversed as it becomes probable that taxable income will be available.

 

Throughout the period, at the time of the merger of Telemar (Note 1), the Company derecognized deferred tax credits on tax loss carryforwards to profit or loss and the corresponding provisions were reversed at the realizable value of these credits, totaling R$6,520,403.

 

76 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The stock of tax loss carryforwards in Brazil and foreign subsidiaries is approximately R$21,591,645 and R$14,432,380, and corresponds to R$7,341,159 and R$3,608,095 in deferred tax assets, respectively, which can be carried forward indefinitely and offset against taxes payable in the future.

 

 

11.       OTHER TAXES

 

 ASSETS
COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Recoverable State VAT (ICMS) (i)535,254221,582756,7601,056,583
PIS and COFINS (ii)845,2941,153,1031,503,3952,115,486
Other37,06374110,89798,548
Total1,417,6111,374,7592,371,0523,270,617
Current775,593929,5721,172,3901,823,451
Non-current642,018445,1871,198,6621,447,166

 

 LIABILITIES
COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
State VAT (ICMS)233,277129,638394,817389,852
ICMS Convention No. 69/199864,22647,476137,263136,462
PIS and COFINS (iii)359,392274,605560,845560,554
FUST/FUNTTEL/broadcasting fees (iv)570,103258,245668,177665,169
Telecom Inspection Fund (FISTEL) fee (v)2,883654974,374488,538
Other (vi)55,11013,308228,757272,570
Total1,284,991723,9262,964,2332,513,145
Current350,887174,0971,649,5171,189,145
Non-current934,104549,8291,314,7161,324,000

 

(i) Recoverable ICMS arises mostly from prepaid taxes and credits claimed on purchases of property, plant and equipment, which can be offset against ICMS payable within 48 months, pursuant to Supplementary Law 102/2000.

 

(ii) The Company and its subsidiaries filed legal proceedings to claim the right to deduct ICMS from the PIS and COFINS tax bases and the recovery of past unduly paid amounts, within the relevant statute of limitations.

 

In 2019, the 1st and 2nd Region Federal Courts (Brasília and Rio de Janeiro) issued final and unappealable decisions favorable to the Company on two of the three main lawsuits of the Company relating to the discussion about the non-levy of PIS and COFINS on ICMS.

 

These credits were cleared for offset by the Federal Revenue Service between May and October 2019 so that the Company has been using them to pay federal taxes due since June 2019. The total amount of the credit was approximately R$3 billion, added to the three lawsuits.

 

 

77 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

(iii) Represented primarily by the Social Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS) on revenue, financial income, and other income.

 

(iv) The Company, Telemar, and Oi Móvel filed lawsuits to discuss the correct calculation of the contribution to the FUST and in the course of the lawsuits made escrow deposits to suspend its collection. These discussions are also being judged by higher courts and a possible transformation of the deposited amounts into definitive payments should not occur within two (2) years.

 

(v) The Company, Telemar, and Oi Móvel, together with other industry companies, filed a lawsuit aiming at removing the obligation to pay the Installation Inspection Fee (TFI) and the Operation Fee (TFF). The court awarded a sentence rejecting the claims, which led to the filing of an appeal, which is still awaiting judgment. As the 2020 TFF payment deadline is about to expire and the appeal is pending judgment, the companies filed a request for an early appeal, granted on March 18, 2020, to suspend the payment of the 2020 TFF until the appeal is judged, and this request was renewed for 2021, also granted by a decision issued in March 2021, to maintain the collection suspension until the judgment of the appeal.

 

(vi) Represented primarily by inflation adjustment to suspended taxes and withholding tax on intragroup loans and interest on capital.

 

 

12.       JUDICIAL DEPOSITS

 

In some situations, the Company makes, as ordered by courts or even at its own discretion to provide guarantees, judicial deposits to ensure the continuity of ongoing lawsuits. These judicial deposits can be required for lawsuits with a likelihood of loss, as assessed by the Company based on the opinion of its legal counselors, as probable, possible, or remote. The Company recognizes in current assets that amount it expects to withdraw from escrow deposits or the amount of escrow deposits it expects to offset against provisions in the coming twelve months.

 

As set forth by relevant legislation, judicial deposits are adjusted for inflation.

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Civil (i)2,907,8302,718,7353,091,5114,433,968
Tax1,848,476888,0001,922,8911,985,621
Labor725,336344,990944,462902,294
Subtotal:5,481,6423,951,7255,958,8647,321,883
Estimated loss(19,664)(15,233)(25,826)(28,048)
Total5,461,9783,936,4925,933,0387,293,835
Current1,086,537716,0471,164,3681,095,827
Non-current4,375,4413,220,4454,768,6706,198,008

1 The parent company's balances as at June 30, 2021, include the judicial deposits of Telemar merged in May 2021 (Note 1).

 

(i) The reduction made in the period results mainly from the transfer of judicial deposits to the regulatory agency ANATEL, in accordance with the provisions of the Amendment to the JRP and the transaction agreement signed, based on the provisions of Law 13988/2020 (Notes 1 and 18).

 

78 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

13.       PREPAID EXPENSES

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Costs incurred on the performance of a contract (IFRS 15) (i)403,580187,927310,100255,407
Telecom Inspection Fund (FISTEL) fee931 269,142 
Advertising and publicity9,77451116,78320,928
Insurance40,66612,24554,00946,357
Bank guarantee25,9265,86033,73224,956
Other223,509103,496175,967110,868
Total704,386310,039859,733458,516
Current545,647233,952712,581330,131
Non-current158,73976,087147,152128,385

 

(i) Represented by commission costs incurred in the compliance with agreements. The movements in the period are as follows:

 

 COMPANYCONSOLIDATED
Balance at January 1, 2021187,927255,407
Telemar merger (Note 1)251,837 
Incurred costs66,308491,739
Allocation to profit or loss(102,492)(437,046)
Balance at June 30, 2021403,580310,100

 

 

14.       OTHER ASSETS

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Sureties from related parties 60,340  
Receivables (i)315,76389,620316,005427,451
Advances to and amounts recoverable from suppliers317,10869,480261,061294,553
Amounts receivable from the sale of property, plant and equipment items223,29984,031226,023308,806
Amounts receivable (ii)430,91454,145485,005177,626
Advances to employees31,67416,80240,87748,257
Other124,55338,58796,98293,303
Total1,443,311413,0051,425,9531,349,996
Current959,896346,445854,381754,292
Non-current483,41566,560571,572595,704

1 The balances as at June 30, 2021 include the balances merged from Telemar (Note 1).

 

(i)The receivables from Fundação Sistel arise from the Company’s interest in the distribution of the PBS-A plan surplus, duly approved by the National Pension Plan Authority (PREVIC). As at June 30, 2021, the Company had claim to seventeen (17) installments of receivables that are adjustable according to the Plan’s profitability.

 

(ii)As at June 30, 2021, includes R$81,961 related to the amounts receivables arising from the sale of the UPI Datacenter (Note 1).

 

 

79 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

15.       INVESTMENTS

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Investment in subsidiaries4,825,4777,339,368  
Joint arrangements24,298 24,29825,081
Investments in associates51,871 51,87150,799
Tax incentives, net of allowances for losses16,36110,27331,60631,876
Other investments23,7995,38415,823
Total4,918,0097,353,440113,159123,579

 

Summary of the movements in investment balances

 

 COMPANYCONSOLIDATED
Balance at January 1, 20217,353,440123,579
Equity in investees (*)(645,121)202
Investment – BrT Multimídia (**)7,068,701 
Disposal of investment (Drammen)(36,774) 
BrT Multimídia spin-off(12,362) 
Telemar merger (***)(2,246,707) 
Dividends(6,431) 
Write-off of investments(10,623)(10,623)
Reclassification to held-for-sale assets (****)(6,546,114) 
Balance at June 30, 20214,918,009113,159

(*) Breakdown shown below.

(**)       On May 1, 2021 the Company (Assignor) and BrT Multimídia (Assignee) entered into Indefeasible Rights of Use (IRU) agreements, which establishes the conditions for the onerous and permanent assignment, by the Assignor to the Assignee, of the exclusive, indefeasible, and unalterable right of use of the assets that are the subject matter of the agreements (transmission of telecommunication signals capacity, underground network, and fiber optics). Certain assets subject matter of these agreements are reversible assets and after the enactment of ANATEL Resolution 744, on April 8, 2021, Management concluded for the transfer contractual assets from Oi to BrT Multimídia in the form of a capital contribution (Note 16).

(***) On May 3, 2021, Telemar was merged with and into the Company (Note 1).

(****) Reclassification of held-for-sale assets from international operations and assets held in UPI InfraCo (at 57.9%, as per the binding offer accepted by Oi in April 2021), UPI Mobile Assets, and UPI TVCo, through the direct investment in Oi Móvel, as well as international operations, due to the fulfillment of the recognition criteria as held-for-sale assets (Note 31), after the merger of Telemar with and into Oi on May 3, 2021.

 

 

80 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The main data related to direct equity interests in subsidiaries, for equity accounting purposes, are as follows:

 

 COMPANY
06/30/2021
In thousands of sharesPrivate equityEquity interests - % 
Subsidiaries and joint venturesShareholders’ equityProfit (loss) for the periodCommonPreferredTotal capitalVoting capital
Telemar (1,666,575)     
Rio Alto3,93142215,538,129215,538,129 100100
Oi Holanda(2,040,857)5,031100  100100
Oi Serviços Financeiros1,3371,336799  100100
PTIF(3,969,149)(44,773)0.042  100100
CVTEL(3,178)11518  100100
Carrigans139 0.100  100100
Serede(349,213)(97,802)24,431,651  99.1299.12
PT Participações (*)237,052(2,179)1,000,000  100100
Drammen 3,601     
Oi Móvel4,198,843(980,859)14,209,581  100100
BrT Serviços Financeiros6594  7,499,999100100
BrT Call Center(50,230)(7,913) 22,370 100100
Hispamar272,43111,599113,213  19.0419.04
AIX19,3982,120298,563  5050

(*) The interest in the equity and the share of results of PT Participações are represented by: (i) investment of R$190,828 and share of profits of R$239, classified in investments; and (ii) investments of R$46,224 and share of losses of R$2,419, classified in investments held-for-sale assets.

 

 

81 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Equity in investeesInvestment valueProvision for negative shareholders’ equity
Three-month periods endedSix-month period ended
Subsidiaries and joint ventures06/30/2021

06/30/2020

Restated

06/30/2021

06/30/2020

Restated

06/30/202112/31/202006/30/202112/31/2020
Telemar757,701(1,879,362)(618,122)(5,653,147) 7,156,690  
Rio Alto271342173,9313,908  
Oi Holanda249,251(136,471)5,031(606,454)  2,040,8572,045,888
Oi Serviços Financeiros7001,0141,3362,0181,3372,970  
PTIF482,637(253,985)(44,773)(1,171,383)  3,969,1493,924,376
CVTEL(68)(154)(129)(233)  3,1783,297
Carrigans    139147  
Serede(49,616)4,778(54,835)3,197  346,14044,022
PT Participações(635)(132,792)(2,179)150,410237,052229,466  
Drammen  1,742  38,466  
BrT Serviços Financeiros2 2 659   
BrT Call Center(5,265) (5,265)   50,230 
Oi Móvel(40,032) (40,032) 4,198,843   
Investment – BrT Multimídia    7,068,701   
Hispamar1,148 1,148 51,871   
AIX(95) (95) 24,298   
Unrealized profits or losses with investees4,0444,8724,7746,922(79,449)(35,075)  
Loss for the year of discontinued operations28,838351,547(367,259)548,343    
Share of results of continuing operation in profit or loss (Note 5)1,428,637(2,040,540)(1,118,614)(6,720,310)    
Exchange differences on share of results of investees(28,932) 9,765     
Reclassification of equity in investees to the provision for equity deficiency (i)(676,939)385,83399,9711,774,873    
Investees’ share of other comprehensive income(1,241)10(1,083)37    
Loss for the year of discontinued operations(28,838)(351,547)367,259(548,343)    
Reclassified from held-for-sale assets2,046132,792(2,419)(150,410)(6,605,735)(57,204)  
Total694,733(1,873,452)(645,121)(5,644,153)4,901,6477,339,3686,409,5546,017,583

 

(i)Represented by the share of results of subsidiaries Oi Holanda, PTIF, CVTEL, and Serede.

 

82 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
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COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Summarized financial information

 

 06/30/2021
Subsidiaries and joint venturesAssetsLiabilitiesRevenue
Telemar (1)  1,402,121
Oi Holanda (1)2,411,0624,451,919 
PTIF (1)1,812,4535,781,602 
Rio Alto5,4331,502 
Oi Serviços Financeiros13,66012,323226
CVTEL 3,178 
Serede1,161,7101,510,923974,896
PT Participações700,615463,563113,936
Drammen  18,348
Oi Móvel26,561,49122,362,6485,032,728
Oi Serviços Financeiros67213 
BrT Call Center153,794204,024202,300
Hispamar400,552128,121177,773
AIX46,19726,80027,807

(1) Amounts adjusted for consolidation and equity accounting purposes.

 

 12/31/202006/30/2020
SubsidiariesAssetsLiabilitiesRevenue
Telemar (1)30,029,23922,872,5492,632,986
Oi Holanda (1)2,208,0274,253,915 
PTIF (1)1,665,1445,589,520 
Rio Alto5,3861,478 
Oi Serviços Financeiros14,30311,333268
CVTEL 3,297 
Serede1,305,3451,556,7561,151,720
PT Participações716,476487,010103,044
Drammen107,55828,034 

(1) Amounts adjusted for consolidation and equity accounting purposes.

 

 

83 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
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COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

16.       PROPERTY, PLANT AND EQUIPMENT

 

 COMPANY
Works in progressAutomatic switching equipmentTransmission and other equipment(1)InfrastructureBuildingsRight of use - leasesOther assetsTotal

Cost of PP&E (gross amount) 

Balance at December 31, 2020247,0976,543,01926,556,4286,530,2931,746,607794,5021,649,99144,067,937
Telemar merger (Note 1)924,91710,309,85738,837,6509,711,6582,221,0122,225,1602,409,44966,639,703
Corporate restructuring  66,2662,576  65,978134,820
Contractual changes     17,551 17,551
Additions775,099 34,78626,9143,459131,253116,8901,088,401
Write-offs (i)(3,074) (10,460,938)(11,048,773)(5,015)(19,178)(11,404)(21,548,382)
Transfers(381,075)10,189307,11458,208(2,713) 8,277 
Balance at June 30, 20211,562,96416,863,06555,341,3065,280,8763,963,3503,149,2884,239,18190,400,030
Accumulated depreciation
Balance at December 31, 2020 (6,478,456)(22,234,444)(5,336,279)(1,530,157)(115,097)(1,424,672)(37,119,105)
Telemar merger (Note 1) (10,129,808)(30,309,241)(7,112,428)(1,889,348)(371,179)(2,025,704)(51,837,708)
Corporate restructuring  (46,846)(2,217)  (55,113)(104,176)
Depreciation expenses (17,070)(542,786)(100,398)(16,130)(93,946)(36,828)(807,158)
Write-offs (i)  7,184,2117,281,5659452,2022,49214,471,415
Balance at June 30, 2021 (16,625,334)(45,949,106)(5,269,757)(3,434,690)(578,020)(3,539,825)(75,396,732)
PP&E, net        
Balance at December 31, 2020247,09764,5634,321,9841,194,014216,450679,405225,3196,948,832
Balance at June 30, 20211,562,964237,7319,392,20011,119528,6602,571,268699,35615,003,298
Annual depreciation rate (average) 10%12%10%9%8%15% 
(1)Transmission and other equipment include transmission and data communication equipment.

 

(i)As mentioned in Note 15, the transfer to held-for-sale assets refers basically to the recognition of Assignment of Indefeasible Rights of Use (IRU) agreements, entered into by the Company and BrT Multimídia (UPI InfraCo), recognized in the amount of R$21,047 million in cost of property, plant and equipment and R$14,233 million in accumulated depreciation, in the net amount of R$6,814 million.

 

 

84 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 CONSOLIDATED
Works in progressAutomatic switching equipmentTransmission and other equipment(1)InfrastructureBuildingsRight of use - leasesOther assetsTotal
Cost of PP&E (gross amount)
Balance at December 31, 20201,952,91517,205,77251,441,01130,715,0324,116,1963,587,0314,869,248113,887,205
Contractual changes     62,373 62,373
Additions1,072,095 51,041113,3803,526427,84432,4561,700,342
Write-offs (i)(11,019)(7,284)(151,309)(34,765)(1,608)(213,642)(3,179)(422,806)
Transfers(847,657)28,479679,503109,733613 29,329 
Transfer to held-for-sale assets (ii)7,88952,723(14,158,582)(6,592,279)(18,580) 9,851(20,698,978)
Balance at June 30, 20212,174,22317,279,69037,861,66424,311,1014,100,1473,863,6064,937,70594,528,136
Accumulated depreciation
Balance at December 31, 2020 (16,903,988)(41,522,059)(23,308,511)(2,767,697)(678,530)(4,571,362)(89,752,147)
Depreciation expenses (iii) (47,987)(1,154,637)(153,356)(41,810)(220,690)(117,869)(1,736,349)
Write-offs 7,284132,50233,763931113,3961,976289,852
Transfers  (447)431(7) 23 
Transfer to held-for-sale assets (ii) (10,926)9,158,4794,674,97311,545 (2,582)13,831,489
Balance at June 30, 2021 (16,955,617)(33,386,162)(18,752,700)(2,797,038)(785,824)(4,689,814)(77,367,155)
PP&E, net        
Balance at December 31, 20201,952,915301,7849,918,9527,406,5211,348,4992,908,501297,88624,135,058
Balance at June 30, 20212,174,223324,0734,475,5025,558,4011,303,1093,077,782247,89117,160,981
Annual depreciation rate (average) 10%12%10%9%11%15% 
(1)Transmission and other equipment include transmission and data communication equipment.

 

(i)Refer basically to the impacts arising from the divestment of the UPI Towers.

 

(ii)Represented basically by assets of the UPIs transferred to held-for-sale assets (Note 30 (a.1)).

 

(iii)Considers the amount R$295,537 reclassified to profit or loss of discontinued operation (Note 30 (a.2)).

 

Additional disclosures

 

Pursuant to ANATEL’s concession agreements, the property, plant and equipment items of the Concessionaires that are indispensable for the provision of the Switched Fixed-line Telephony Services (“STFC”) provided for in said agreements are considered returnable assets.

 

As at June 30, 2021, the residual balance of the Company’s returnable assets is R$6,487,606 (R$2,970,354 at December 31, 2020) and consists of assets and installations in progress, switching and transmission equipment, payphones, outside network equipment, power equipment, and systems and operation support equipment. On a consolidated basis, this balance amounts to R$8,673,090 (R$9,095,320 at December 31, 2020).

 

 

85 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

In the period ended June 30, 2021, financial charges and transaction costs incurred on works in progress were capitalized at the average rate of 8% per year.

 

Movements in the rights of use - leases

 

 COMPANY
TowersPhysical spaceVehiclesPropertiesPower distributedTotal
Lease cost (gross amount)
Balance at December 31, 2020677,01162,49353,6901,308 794,502
   Telemar merger (Note 1)1,921,298254,857 24,06124,9442,225,160
   Contractual changes11,7236,046 (218) 17,551
   Additions1,340129,751162  131,253
   Write-offs(2,627)(4,829)(1,197) (10,525)(19,178)
Balance at June 30, 20212,608,745448,31852,65525,15114,4193,149,288
Accumulated depreciation
Balance at December 31, 2020(88,359)(12,514)(13,832)(392) (115,097)
   Telemar merger (Note 1)(272,020)(86,539) (11,355)(1,265)(371,179)
   Depreciation expenses(57,839)(19,643)(14,777)(1,442)(245)(93,946)
   Write-offs495980427 3002,202
Balance at June 30, 2021(417,723)(117,716)(28,182)(13,189)(1,210)(578,020)
Right of use, net      
Balance at December 31, 2020588,65249,97939,858916 679,405
Balance at June 30, 20212,191,022330,60224,47311,96213,2092,571,268

 

 

 CONSOLIDATED
TowersPhysical spaceStoresVehiclesPropertiesPower distributedTotal
Lease cost (gross amount)
Balance at December 31, 20202,577,359472,644148,596266,44297,04624,9443,587,031
   Contractual changes33,85021,8334,7111821,797 62,373
   Additions1,340290,144 93,35732,59110,412427,844
   Write-offs(3,804)(10,855)(1)(177,593)(10,864)(10,525)(213,642)
Balance at June 30, 20212,608,745773,766153,306182,388120,57024,8313,863,606
Accumulated depreciation
Balance at December 31, 2020(328,199)(122,671)(61,764)(126,200)(38,797)(899)(678,530)
   Depreciation expenses(90,381)(50,209)(17,362)(52,840)(9,041)(857)(220,690)
   Write-offs8571,963 102,0168,259301113,396
Balance at June 30, 2021(417,723)(170,917)(79,126)(77,024)(39,579)(1,455)(785,824)
Right of use, net       
Balance at December 31, 20202,249,160349,97386,832140,24258,24924,0452,908,501
Balance at June 30, 20212,191,022602,84974,180105,36480,99123,3763,077,782

 

 

 

 

86 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

17.        INTANGIBLE ASSETS

 

 COMPANY
Intangibles in progressData processing systemsRegulatory licensesOtherTotal
Cost of intangible assets (gross amount)
Balance at December 31, 2020842,565,40414,478,133518,13317,561,754
Telemar merger (Note 1)102,694,123 379,1413,073,274
Additions 32,275 3932,314
Balance at June 30, 2021945,291,80214,478,133897,31320,667,342
Accumulated amortization
Balance at December 31, 2020 (2,559,694)(11,491,219)(465,463)(14,516,376)
Telemar merger (Note 1) (2,685,038) (367,700)(3,052,738)
Amortization expenses (3,991)(298,617)(1,417)(304,025)
Balance at June 30, 2021 (5,248,723)(11,789,836)(834,580)(17,873,139)
Intangible assets, net     
Balance at December 31, 2020845,7102,986,91452,6703,045,378
Balance at June 30, 20219443,0792,688,29762,7332,794,203
Annual amortization rate (average) 20%20%23% 

 

 

 CONSOLIDATED
Intangibles in progressData processing systemsRegulatory licensesOtherTotal
Cost of intangible assets (gross amount)
Balance at December 31, 20209,1117,468,36114,672,8931,020,83223,171,197
Additions58,36462,174 7,026127,564
Write-offs (50,486)(17)(12,225)(62,728)
Transfers(65,346)65,346   
Transfer to held-for-sale assets (i)(84)(19,157)  (19,241)
Balance at June 30, 20212,0457,526,23814,672,8761,015,63323,216,792
Accumulated amortization
Balance at December 31, 2020 (6,951,338)(11,693,579)(828,459)(19,473,376)
Amortization expenses (126,653)(298,618)(12,592)(437,863)
Write-offs 44,814 10,23755,051
Transfer to held-for-sale assets (i) 4,557  4,557
Balance at June 30, 2021 (7,028,620)(11,992,197)(830,814)(19,851,631)
Intangible assets, net     
Balance at December 31, 20209,111517,0232,979,314192,3733,697,821
Balance at June 30, 20212,045497,6182,680,679184,8193,365,161
Annual amortization rate (average) 20%20%23% 

 

(i)Represented basically by assets of the UPIs transferred to held-for-sale assets (Note 30).

 

 

 

 

87 
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BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

18.       TRADE PAYABLES

 

 

 

COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
ANATEL (*)5,681,3432,253,5715,948,1877,054,295
Services2,513,196589,7891,410,2101,476,270
Infrastructure, network and plant maintenance materials746,626455,7872,461,7792,459,582
Rental of polls and rights-of-way110,04385,504153,861115,154
Other57,10727,464256,253314,279
Adjustment to present value (**)(2,642,660)(997,567)(2,870,868)(3,122,689)
Total6,465,6552,414,5487,359,4228,296,891
Current3,264,495970,0713,906,6583,275,919
Non-current3,201,1601,444,4773,452,7645,020,972
     
Trade payables subject to the Judicial Reorganization3,967,9121,594,0604,245,5815,554,496
Trade payables not subject to the Judicial Reorganization2,497,743820,4883,113,8412,742,395
Total6,465,6552,414,5487,359,4228,296,891

1 These amounts include the related-party balances, as shown in Note 29 and merger of subsidiary Telemar in May 2021 (Note 1).

(*) Regulatory Agency’s claim pursuant to the Amendment to the JRP, the amount of which recognized as enforceable debt was the subject matter of the Transaction Agreement entered into pursuant to Law 13988/2020 (Note 1, 3.3).

(**) The calculation takes into consideration the contractual flows provided for in the JRP and the Transaction Agreement entered into with ANATEL, discounted using rates that range from 14.9% per year to 17.2% per year considering the maturities of each liability (ANATEL and other payables).

 

Aging list of non-current trade payables

 

 COMPANYCONSOLIDATED
20225,028 5,028
202337,704 41,401
2024 1,300,4141,362,180
2025 1,311,4391,364,270
2026 to 2030 2,687,4342,796,408
2031 and thereafter440,724 604,330
Adjustment to present value (**)(2,581,583)(2,720,853)
Total non-current 3,201,1603,452,764

 

 

 

88 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

19. BORROWINGS AND FINANCING

 

Borrowings and financing by type

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020Contractual maturity
PrincipalInterest
Foreign currency Senior Notes8,663,3699,000,2268,663,3699,000,226Jul 2025Semiannual
Debentures      
   Public7,341,4334,666,0437,341,4337,267,752Aug 2023 to Feb 2035Semiannual
   Private  3,450,6013,583,906Jan 2022Monthly
Financial institutions      
   Local currency      
       BNDES3,109,0061,089,1954,411,0514,256,709Mar 2024 to Feb 2033Monthly
       Other1,942,150604,6412,120,7702,102,188Apr 2021 to Feb 2035Monthly and semiannual
   Foreign currency8,571,6981,256,6368,571,6988,825,443Aug 2023 to Feb 2035Semiannual
Foreign currency multilateral financing491,065492,674491,065492,674Aug 2024 to Feb 2030Semiannual
Default payment      
   Local currency207,006151,988207,035207,035Feb 2038 to Feb 2042Single installment
   Foreign currency1,361,3471,423,2685,439,8535,782,888Feb 2038 to Feb 2042 
Loan from subsidiaries (Note 29)23,284,23525,751,080    
Subtotal54,971,30944,435,75140,696,87541,518,821  
Incurred debt issuance cost(11,946)(11,217)(20,056)(27,103)  
Debt discount (*)(32,289,358)(29,489,508)(14,120,794)(15,147,984)  
Total22,670,00514,935,02626,556,02526,343,734  
Current395,840408,0273,840,659424,957  
Non-current22,274,16514,526,99922,715,36625,918,777  

1 The parent company's balances as at June 30, 2021, include the borrowings and financing of Telemar merged in May 2021 (Note 1).

(*) The calculation takes into consideration the contractual flows provided for in the JRP, discounted using rates that range from 12.6% per year to 16.4% per year, depending on the maturities and currency of each instrument.

 

Debt issuance costs by type

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Financial institutions11,40110,92711,91712,437
Debentures5452908,13914,666
Total11,94611,21720,05627,103
Current1,3861,3858,97914,402
Non-current10,5609,83211,07712,701

 

 

89 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Debt breakdown by currency

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Euro1,177,9221,086,527619,168590,083
US dollar (*)13,009,9129,747,31616,042,40916,251,663
Brazilian reais8,482,1714,101,1839,894,4489,501,988
Total22,670,00514,935,02626,556,02526,343,734

(*) Considers Oi Móvel’s First Issue Private Debenture. Even though this is a local debt, denominated in Brazilian reais, it is compounded on a daily basis based on the US dollar foreign exchange rate.

 

Debt breakdown by index

 

 Index/rateCOMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Fixed rate1.75% p.a. – 13.61% p.a.12,277,7429,092,61715,742,42415,980,649
CDI80% CDI5,330,9432,921,5115,421,1425,184,615
TJLP2.95% p.a. + TJLP3,108,4891,088,9264,410,0184,255,632
TR0% p.a.34,82822,63334,83230,830
Other0% p.a.1,918,0031,809,339947,609892,008
Total 22,670,00514,935,02626,556,02526,343,734

 

Maturity schedule of the long-term debt and debt issuance costs allocation schedule

 

 Long-term debtDebt issuance costsDebt discount
COMPANYCONSOLIDATEDCOMPANYCONSOLIDATEDCOMPANYCONSOLIDATED
06/30/2021
2022734719159371,352,4311,036,555
2023355,930361,6381,8301,8741,350,0981,034,184
2024839,597891,3361,8301,8741,355,9291,040,111
20259,190,3389,255,4751,2531,2971,284,991969,155
2026 and thereafter44,188,14526,338,3174,7325,09526,945,90910,040,789
Total54,574,08336,847,23710,56011,07732,289,35814,120,794

 

Guarantees

 

BNDES financing facilities are originally collateralized by receivables of the Company and its subsidiaries Telemar, merged with and into the Company on May 3, 2021, and Oi Móvel. The private debentures issued by Oi Móvel are collateralized by receivables of the Company and its subsidiaries Telemar, merged with and into the Company on May 3, 2021, and Oi Móvel, in addition to pledging its radiofrequency use rights, in the pledge of the right of use of radiofrequencies, which will only be realized in the event of default. The Company provided a guarantee for this instrument. The total amount of the guarantees is R$4,752,646.

 

Covenants

 

Pursuant to a Clause 17 of Appendix 4.2.4 to the Judicial Reorganization Plan (“Plan”), the Company and its subsidiaries are subject to certain covenants existing in some loan and financing agreements, based on certain financial ratios, which are monitored on a quarterly basis.

 

90 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
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COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

In line with the provisions of the Plan, as amended (“Amendment to the JRP”), BNDES (Brazilian development bank) agreed that, as of the Court Ratification of the Amendment to the JRP, issued on October 8, 2020, and until the first of the financial settlement of the disposal of the UPI Mobile Assets or by May 30, 2022, the obligation to comply with the financial ratios set forth in the BNDES financing agreement will be temporarily stayed by BNDES and, therefore, during such period, its noncompliance will not cause, among other contractually prescribed consequences, the accelerated maturity of the outstanding balance of the Company’s debt.

 

Changes in borrowings and financing

 

 

 

 

 

12/31/2020Interest, inflation adjustment, and exchange differencesAmortization of debt discountPrincipal and interest paymentTax and other paymentsTransfers and other06/30/2021
Borrowings and financing41,518,820(95,511) (655,976)(79,674)9,21640,696,875
Debt discount(15,147,984)609,266417,924   (14,120,794)
Debt issuance costs(27,102)    7,046(20,056)
Total borrowings and financing26,343,734513,755417,924

(655,976)

(79,674)16,26226,556,025

 

The Company paid interest on Qualified Bonds in February 2021.

 

20.       ASSIGNMENT OF RECEIVABLES

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Assignment of receivables278,68779,097278,687377,047
Total278,68779,097278,687377,047
Current196,72041,268196,720196,720
Non-current81,96737,82981,967180,327

 

This assignment of receivables refers to an advance received from a financial institution of cash flows receivable from Fundação Sistel, as described in Note 14. On August 14, 2020, the Company received R$459,014, of which R$362,722 is recognized at subsidiary Telemar, merged with and into the Company on May 3, 2021, related to the early settlement of 28 monthly, successive installments, corresponding to the period August 2020-November de 2022, discounted at the rate of 11.35% per year.

 

21.       LICENSES AND CONCESSIONS PAYABLE

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
STFC concessions 17,828 43,415
Total 17,828 43,415
Current 17,828 43,415

 

 

91 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

Correspond to the amounts payable to ANATEL as fees for the concessions of STFC services.

 

22.       LEASES PAYABLE

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Towers2,239,545593,6652,239,5452,280,952
Physical space347,78052,736630,286371,240
Stores  82,06494,121
Properties13,3381,02087,20163,793
Vehicles25,68440,799108,590146,974
Power distributed13,935 24,25224,598
Total2,640,282688,2203,171,9382,981,678
Current510,872146,415715,886654,662
Non-current2,129,410541,8052,456,0522,327,016

 

Movements in leases payable

 

 COMPANYCONSOLIDATED
Balance at December 31, 2020688,2202,981,678
   Telemar merger (Note 1)1,901,424 
   New contracts131,253427,844
   Cancellations(17,480)(106,481)
   Interest97,468176,756
   Payments(178,154)(370,273)
   Contractual changes17,55162,414
Balance at June 30, 20212,640,2823,171,938

 

Aging list of long-term lease payments

 

 COMPANYCONSOLIDATED
2022256,739331,239
2023481,713600,202
2024465,412558,016
2025451,083529,761
2026 to 20301,307,5961,397,377
2031 and thereafter2,014,3532,053,365
Total4,976,8965,469,960
Interest(2,847,486)(3,013,908)
Non-current2,129,4102,456,052

 

The present value of leases payable was calculated based on a projection of future fixed payments, which do not take into consideration the projected inflation, discounted using discount rates that range from 10.79% to 12.75% p.a. 

 

92 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Contracts not recognized as leases payable

The Company elected not to recognize a lease liability for short-term leases (leases with expected period of 12 months or less) or leases of low value assets. As at June 30, 2021, these leases, totaling de R$1,422 (R$382 at June 30, 2020), were recognized in profit or loss in the Company, and R$14,470 (R$20,561 at June 30, 2020) on a consolidated basis. Additionally, the Company also recognized in profit or loss the amount R$12,481, in the Company, and R$44,390, on a consolidated basis, related to variable lease payments. In the period ended June 30, 2020 there were no variable lease payments.

 

Supplemental information

 

In compliance with Circular/CVM/SNC/SEP/No. 02/2019, of December 18, 2019 and Circular SNC/SEP01/20, of February 5, 2020, the table below shows required supplemental information:

 

COMPANY
MaturityAverage discount rate20222023202420252026 to
2030
After
2031
Up to 202310.79%21,66511,566    
2024 to 203012.27%41,76083,52178,78564,45661,809 
2031 to 203412.58%145,903291,804291,805291,805771,679360,119
2035 onwards12.75%47,41194,82294,82294,822474,1081,654,234
Total256,739481,713465,412451,0831,307,5962,014,353
Projected inflation¹4.78%4.21%4.45%4.80%5.50%5.50%

 

CONSOLIDATED
MaturityAverage discount rate20222023202420252026 to
2030
After
2031
Up to 202310.79%43,72225,169    
2024 to 203012.27%91,162182,322165,304137,051121,168 
2031 to 203412.58%146,982293,963293,964293,963782,472365,794
2035 onwards12.75%49,37398,74898,74898,748493,7371,687,570
Total331,239600,202558,016529,7621,397,3772,053,364
Projected inflation¹4.78%4.21%4.45%4.80%5.50%5.50%

¹Source: Anbima

 

 

23.TAX REFINANCING PROGRAM

 

The outstanding balance of the Tax Debt Refinancing Program is broken down as follows:

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Law 11941/09 and Law 12865/2013 tax financing program278,934212,202306,370345,790
PERT (Law 13496/2017) (i)427427427427
Total279,361212,629306,797346,217
Current83,72355,78494,43393,715
Non-current195,638156,845212,364252,502

 

93 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The amounts of the tax refinancing program created under Law 11941/2009, Provisional Act (MP) 766/2017, and Law 13469/2017, divided into principal, fine and interest, which include the debt declared at the time the deadline to join the program (Law 11941/2009 installment plan) was reopened as provided for by Law 12865/2013 and Law 12996/2014, are broken down as follows:

 

 CONSOLIDATED
06/30/202112/31/2020
PrincipalFinesInterestTotalTotal
Tax on revenue (COFINS)2,138 105,251107,389121,184
Income tax1,021 26,67427,69531,261
Tax on revenue (PIS)27,934 26,84754,78161,822
INSS – SAT4542411,3922,0872,356
Social contribution429178,0638,5099,603
Tax on banking transactions (CPMF)15,2541,72223,30940,28545,459
PERT – Other payables - RFB240 187427427
Other6,5563,42055,64865,62474,105
Total54,0265,400247,371306,797346,217

 

The payment schedule is as follows:

 

 COMPANYCONSOLIDATED
202142,26749,393
202283,68090,848
202383,68090,848
202469,73475,708
Total279,361306,797

 

The tax debts, as is the case of the debts included in tax refinancing programs, are not subject to the terms of the judicial reorganization terms.

 

(i)Special Tax Compliance Program (PERT)

The Company elected to include in and settle through PERT only tax debts that in aggregate do not exceed the fifteen million Brazilian reais (R$15,000,000.00) ceiling set by Article 3 of Law 13496/2017.

 

The tax debts included in said program were those being disputed at the administrative level in proceedings classified with a low likelihood of the Company winning and which, in the event of an unfavorable outcome, would result in a lawsuit—and entail all the associated costs—, the reason why the cost effectiveness of joining the program was quite positive, because of the benefits offered by PERT (especially the payment of just 5% of the debt in cash).

 

 

 

 

94 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
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COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

24.       PROVISIONS

 

Balance breakdown

 

TypeCOMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Labor    
Overtime401,393275,929608,864659,318
Sundry premiums132,58348,522248,607253,173
Indemnities117,75662,217198,068222,153
Stability/reintegration122,34777,217189,306194,122
Additional post-retirement benefits70,26553,31094,490103,274
Salary differences and related effects50,90040,55572,24188,102
Lawyer/expert fees44,61042,55559,56787,143
Severance pay17,1228,15231,75431,394
Labor fines14,6275,44428,26428,420
Employment relationship9,8262621,29120,636
Severance Pay Fund (FGTS)6,9824,53811,68015,977
Joint liability7921811,5185,465
Other claims54,70842,41878,07687,443
Total1,043,911661,0641,643,7261,796,620
     
Tax    
State VAT (ICMS)568,720161,300724,017781,249
Tax on services (ISS)70,157772,23471,394
INSS (joint liability, fees, and severance pay)20,66645937,12836,927
Real Estate Tax (IPTU)116,12658,541116,126150,223
Other claims172,94516,710201,320185,624
Total948,614237,0171,150,8251,225,417
     
Civil    
ANATEL989,449271,7661,302,6251,264,321
Corporate320,548338,932320,548338,932
Small claims courts58,80636,38498,38397,973
    Other claims697,270340,002870,5091,087,200
Total2,066,073987,0842,592,0652,788,426
     
Total provisions4,058,5981,885,1655,386,6165,810,463
Current409,599471,867545,550781,942
Non-current3,648,9991,413,2984,841,0665,028,521

 

Pursuant to the laws applicable to labor, tax, and civil lawsuits, amounts disputed in lawsuits are adjusted for inflation on a monthly basis using the relevant adjustment indices, including the General Market Price Index (IGPM), Benchmark Rate (TR) and SELIC.

 

 

95 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Summary of movements in provision balances

 

 COMPANY
LaborTaxCivilTotal
Balance at December 31, 2020661,064237,017987,0841,885,165
     Telemar merger (Note 1)457,671736,7661,080,5072,274,944
    Inflation adjustment(23,773)6,36152,33834,926
    Additions/(reversals)(25,517)(22,253)23,548(24,222)
    Write-offs for payment/terminations  (25,534)(9,277)(77,404)(112,215)
Balance at June 30, 20211,043,911948,6142,066,0734,058,598

 

 CONSOLIDATED
LaborTaxCivilTotal
Balance at December 31, 20201,796,6201,225,4172,788,4265,810,463
    Inflation adjustment(5,717)6,176151,059151,518
    Additions/(reversals)(4,264)(5,823)89,01778,930
    Write-offs for payment/terminations(142,913)(74,945)(436,437)(654,295)
Balance at June 30, 20211,643,7261,150,8252,592,0655,386,616

 

Breakdown of contingent liabilities, per nature

 

The breakdown of contingent liabilities with a possible unfavorable outcome and, therefore, not recognized in accounting, is as follows:

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Labor258,739108,379309,151299,178
Tax20,145,2075,633,77028,416,12628,419,340
Civil1,990,8941,415,7872,452,2932,464,987
Total22,394,8407,157,93631,177,57031,183,505

1 The parent company's balances as at June 30, 2021, include the contingent liabilities of Telemar merged in May 2021 (Note 1).

 

Guarantees

 

The Company has bank guarantee letters and guarantee insurance granted by several financial institutions and insurers to guarantee commitments arising from lawsuits, contractual obligations, and biddings with ANATEL. The adjusted amount of contracted bonds and guarantee insurances, effective at June 30, 2021 corresponds to R$9,109,796 (R$4,571,603 at December 31, 2020) in the Company and R$11,382,140 (R$11,705,924 at December 31, 2020) on a consolidated basis. The commission charges on these contracts are based on market rates.

 

96 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

25.       OTHER PAYABLES

 

 COMPANY1CONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Onerous obligation (i)4,074,8311,577,1705,418,6575,777,175
Unearned revenues (ii)1,466,828431,4271,495,1281,524,112
Provisions for indemnities payable496,829532,000496,829532,000
Advances from customers61,20140,776437,483231,838
Consignment to third parties23,33013,05632,69137,303
Provision for asset decommissioning19,2157,41319,21318,836
Other315,220195,875558,677554,768
Total6,457,4542,797,7178,458,6788,676,032
Current1,015,559459,0361,588,7161,373,436
Non-current5,441,8952,338,6816,869,9627,302,596

1 The parent company's balances as at June 30, 2021, include the liabilities of Telemar merged in May 2021 (Note 1).

 

(i)The Company and its subsidiaries are parties to a telecommunications signals transmission capacity supply agreement using submarine cables that connect North America and South America. Since (a) the agreement obligations exceed the economic benefits that are expected to be received throughout the agreement and (b) the costs are unavoidable, the Company and its subsidiaries recognized, pursuant to CPC 25/IAS 37, an onerous obligation measured at the lowest of net output cost of the agreement brought to present value.

 

(ii)Amounts received a prepayment for the assignment of the commercial operation and the use of infrastructure assets that are recognized in revenue for the agreements’ effective period. Include also certification/installation rates of the service that are recognized in the revenue pursuant to the period that the services are used by the customers.

 

 

 

97 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

26.       SHAREHOLDERS’ EQUITY

 

(a)       Issued capital

 

Subscribed and paid-in capital is R$32,538,937 (R$21,438,374 at December 31, 2020), represented by the following shares, without par value:

 

 Number of shares (in thousands)
06/30/202112/31/2020
Total capital in shares  
Common shares6,440,4975,796,478
Preferred shares157,727157,727
Total6,598,2245,954,205
Treasury shares  
Common shares644,02030
Preferred shares1,8121,812
Total645,8321,842
Outstanding shares  
Common shares5,796,4775,796,448
Preferred shares155,915155,915
Total outstanding shares5,952,3925,952,363

 

At the Company’s Annual Shareholders’ Meeting held on April 30, 2021, it was approved the allocation of the loss for the year 2020, amounting to R$10,529,963, recognized in accumulated losses.

 

(b)       Treasury shares

 

As at June 30, 2021, the Company keeps all its treasury preferred shares pledged as collateral in lawsuits.

 

(c)       Capital reserves

 

The capital reserves consist mainly of the reserves described below and according to the following practices:

 

Special merger goodwill reserve: represents the net amount of the balancing item to the tax credit amount. 

 

Special merger reserve - net assets: represented by: (i) the net assets merged by the Company under the Corporate Reorganization approved on February 27, 2012; and (ii) the net assets merged with and into the Company upon the merger of TmarPart approved on September 1, 2015.

 

Other capital reserves: represented mainly by: (i) R$1,933,200 arising from the capitalization of the earnings reserves in February 2015; (ii) R$3,837,009 related to the capital increase with new funds in January 2019; and (iii) R$2,462,799 related to the absorption of capital reserves, due to the delivery of treasury shares to Bratel in April 2019.

 

98 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

(d)       Other comprehensive income

 

For purposes presentation of CVM’s Empresas.Net form, were included in other comprehensive income and are stated below:

 

 Other comprehensive incomeShare issue costsValuation adjustments to equityTotal
Balance at December 31, 2020539,960(801,073)(141,871)(402,984)
Hedge accounting loss(4,453)  (4,453)
Actuarial gain63  63
Exchange losses on investment abroad(899)  (899)
Balance at June 30, 2021534,671(801,073)(141,871)(408,273)

 

(e)Basic and diluted earnings (losses) per share

 

The common and preferred shareholders have different rights in terms of dividends, voting rights, and liquidation, as prescribed by the Company’s bylaws. Accordingly, basic and diluted earnings (losses) per share were calculated based on profit (loss) for the period available to the common and preferred shareholders.

 

Basic

Basic earnings (losses) per share are calculated by dividing the profit attributable to the owners of the Company, available to common and preferred shareholders, by the weighted average number of common and preferred shares outstanding during the period.

 

Diluted

Diluted earnings (loss) per share are calculated by adjusting the weighted average number of outstanding common and preferred shares, to estimate the dilutive effect of all convertible securities.

 

 

99 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The table below shows the calculations of basic and diluted earnings per share:

 

 Three-month period ended 06/30/2021Six-month period ended 06/30/2021

Three-month period ended 06/30/2020

Restated

Six-month period ended 06/30/2020

Restated

Profit (loss) from continuing operations1,167,791(2,265,844)(3,057,837)(9,141,106)
Profit (loss) from discontinued operations (net of taxes)(28,838)367,259(351,547)(548,343)
Profit (loss) attributable to owners of the Company1,138,953(1,898,585)(3,409,384)(9,689,449)
     
Profit (loss) allocated to common shares - basic and diluted1,109,119(1,848,854)(3,320,079)(9,435,645)
Profit (loss) allocated to preferred shares – basic and diluted29,834(49,731)(89,305)(253,804)
     

Weighted average number of outstanding shares

(in thousands of shares)

    
   Common shares - basic and diluted5,796,4675,796,4585,796,4485,796,448
   Preferred shares – basic and diluted155,915155,915155,915155,915
     
Profit (loss) per share (in reais):    
   Common shares - basic and diluted0.19(0.32)(0.57)(1.63)
   Preferred shares – basic and diluted0.19(0.32)(0.57)(1.63)
     
Profit (loss) per share from continuing operations (in reais):    
   Common shares - basic and diluted0.20(0.38)(0.51)(1.54)
   Preferred shares – basic and diluted0.20(0.38)(0.51)(1.54)
     
Profit (loss) per share from discontinued operations (in reais):    
   Common shares - basic and diluted(0.00)0.06(0.06)(0.09)
   Preferred shares – basic and diluted(0.00)0.06(0.06)(0.09)

 

Preferred shares will become voting shares if the Company does not pay minimum dividends to which preferred shares are entitled under the Company’s Bylaws during three consecutive years.

 

 

 

100 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

27.        EMPLOYEE BENEFITS

 

As at June 30, 2021, the liabilities referring to retirement benefits recognized in the balance sheet are as follows:

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Actuarial assets    
TCSPREV Plan41,27241,90141,37742,233
CELPREV Plan  158160
PBS-TNC Plan  2,1892,142
Total41,27241,90143,72444,535
Current2,8344,9845,2867,618
Non-current38,43836,91738,43836,917

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Actuarial liabilities    
Financial obligations - BrTPREV plan (i)743,850694,063743,850694,063
PAMEC Plan8,3027,9958,3027,995
Total752,152702,058752,152702,058
Non-current752,152702,058752,152702,058

 

(i)The Company had a financial obligations agreement entered into with Fundação Atlântico intended for the payment of the mathematical provision without coverage by the plan’s assets. With the approval and ratification of the JRP, the related claim of Fundação Atlântico against Oi is subject to the terms and conditions of the JRP.

 

PENSION FUNDS

 

The Company and its subsidiaries sponsor retirement benefit plans (“Pension Funds”) for their employees, provided that they elect to be part of such plan, and current beneficiaries.

 

The sponsored plans are valued by independent actuaries at the end of the annual reporting period.

 

The obligations in the balance as at June 30, 2021 were recognized based on the actuarial studies for base date December 31, 2016, prepared using the “Projected Unit Credit Method”. The main actuarial assumptions taken into consideration in the actuarial studies as at June 30, 2021 and December 31, 2020 after the revision of the discount rates are as follows:

 

 

 

 

101 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 CONSOLIDATED
PENSION FUNDSMEDICAL CARE PLANS
TCSPREVPBS-TelemarTelemarPrevPBS-APBS-TNCCELPREVPAMECPAMA
Nominal discount rate of actuarial liability7.38%7.38%7.38%7.07%7.38%6.35%7.59%7.59%
Estimated inflation rate3.50%3.50%3.50%3.50%3.50%3.50%3.50%3.50%
Estimated nominal salary increase indexPer sponsor0.00%Per sponsorN.A.4.84%3.59%N.A.N.A.
Estimated rate of the nominal benefit increase3.50%3.50%3.50%3.50%3.50%3.50%N.A.N.A.
Total expected rate of return on plan assets7.38%7.38%7.38%7.07%7.38%6.35%7.59%7.59%
General mortality biometric tableAT-2000 Basic
eased by 15%, segregated by gender
AT-2000 Basic
eased by 25%, segregated by gender
AT-2000 Basic
eased by 25%, segregated by gender
AT-2000 Basic
eased by 15%, segregated by gender
AT-2000 Basic
eased by 15%, segregated by gender
N.A.AT-2000 Basic
eased by 15%, segregated by gender
AT-2000 Basic
eased by 15%, segregated by gender
Biometric disability tableÁlvaro Vindas, increased by100%Álvaro VindasÁlvaro VindasN.A.Álvaro VindasN.A.N.A.Álvaro Vindas
Biometric disabled mortality tableAT-49, segregated by genderAT-49, segregated by genderAT-49, segregated by genderAT-49, segregated by genderAT-49, segregated by genderN.A.AT-49, segregated by genderAT-49, segregated by gender
Turnover ratePer sponsorPer sponsorPer sponsor, null starting at 50 years old and null for Settled BenefitNilNil2%NilNil
Benefit starting age57 years old57 years old55 years oldN.A.57 years old55 years oldN.A.57 years old
Nominal medical costs growth rateN.A.N.A.N.A.N.A.N.A.N.A.6.61%6.61%

N.A. = Not applicable.

 

The main movements in the actuarial assets related to the pension plans in the period ended June 30, 2021 were as follows:

 

 COMPANYCONSOLIDATED
Balance at December 31, 202041,90144,535
Pension plan income, net1,6011,644
Payments, contributions and reimbursements(2,230)(2,455)
Balance at June 30, 202141,27243,724

 

The main movements in the actuarial liabilities related to pension plans in the period ended June 30, 2021 were as follows:

 

 COMPANYCONSOLIDATED
Balance at December 31, 2020702,058702,058
Pension plan costs, net307307
Interest on actuarial liabilities49,78749,787
Balance at June 30, 2021752,152752,152

 

 

 

 

102 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Share-based compensation

 

The Company's compensation strategy since 2019, when the Long-Term Incentive Plans (ILP) were approved at a Shareholders’ Meeting, is to focus most of the compensation packages on components subject to achievement of performance targets and the smallest part on fixed compensation. Most of the performance-linked components are focused on the share-based program, which has medium- and long-term scope. Both variable components have targets that are in line with Oi’s strategy and are intended to align officers’ interests with Oi’s mission, strategy and shareholders’ interests in the short, medium and long terms. The compensation strategy definitions and implementation adopted by the Company are monitored and supervised by the Board of Directors, through its People, Appointments and Corporate Governance Committee.

 

Board of Directors Stock Option Plan

 

The members of the Board of Directors and the Board’s committees receive fixed monthly fees. In addition, in order to align the Board members’ interests with the interests of the Company’s shareholders, in addition to bringing the compensation of Oi’s Board closer to comparable market compensation, the Company set a long-term share-based incentive plan for the Board of Directors (Board of Directors Stock Option Plan), which was submitted to and approved at an Extraordinary Shareholders’ Meeting held on April 26, 2019.

The plan provides for granting annual shares over a three-year period that shall not exceed 0.40% of the Company’s share capital.

 

The implementation of the plan approved by the Shareholders’ Meeting is suspended, by court decision, until the judicial reorganization of the Company is terminated, when then shares will be granted to the members of the Board of Directors holding these rights, respectively, on the grant dates in 2019, 2020 and 2021.

In view of the prospect, with reasonable probability, of concluding the Judicial Reorganization Plan before the end of 2021, in 2020 it was necessary to accrue the amounts according to the terms originally provided for in the Plan.

As a result, the Company recognizes the obligation related to the long-term incentive plan, according to the rules approved in the Shareholders’ Meeting, amounting to R$7,847 as at June 30, 2021 (R$4,893 at December 31, 2020).

The number of shares in each grant is calculated individually for the Board of Directors’ members according to their role and will be delivered to them, provided that the performance condition of the plan is met.

 

 

103 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Executives’ Stock Option Plan

A long-term incentives plan based on shares granted the Executives (Executives’ Stock Option Plan) was submitted to and approved at the Extraordinary Shareholders’ Meeting held on April 26, 2019, together with the Board of Directors Stock Option Plan, described above. The Executives’ Stock Option Plan, like the Board of Directors Stock Option Plan, in addition to the targets already set out above, allows at the same time for making executive compensation more competitive compared to market compensation.

The plan provides for granting annual shares over a three-year period that shall not exceed 1.5% of the Company’s share capital.

 

The number of shares per grant is calculated individually for the purpose of maintaining the competitiveness of the executives with regard to the performance of their duties and shall be delivered to them provided that the plan’s performance condition is met.

 

The information used in the executives’ stock option plan’s assessment is as follows:

 

Grant dateStock dilution percentageNumber of shares grantedVesting portionsVesting datesAverage share value at the grant dateEstimated fair value at the vesting date (i)
12/30/20190.57%33,704,9371/312/30/20200.9534,406
1/312/30/2021
1/312/30/2022
12/30/20200.36%21,549,6871/312/30/20212.0247,079
1/312/30/2022
1/312/30/2023

 

(i) The estimated fair value at the vesting date was measured taking into account the price of the shares granted on December 30, 2019 and December 30, 2020, adjusted by the weighted average cost of capital of 10.98% and 9.34%, respectively, estimated for the three-year period of the program, brought to present value at the period’s opportunity cost of 14.67% and 10.55%, respectively, which corresponds to the fair value of the share.

 

Changes in the stock option balance are summarized below:

 

 06/30/2021
SharesAverage Share Price (R$)
Granted shares at December 31, 202041,126,2182.02
Increase of shares granted (i)429,7052.02
Granted shares at June 30, 202141,555,9232.02

(i) Stock options granted to an executive hired in 1st quarter of 2021.

 

The fair value of the granted stock options is determined based on the vesting period and recognized as the services are provided. The expense recognized in the period ended June 30, 2021 was R$19,744.

 

 

104 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

28.        SEGMENT REPORTING

 

The Company’s Board of Directors uses operating segment information for decision-making. The Company identified only one operating segment that excludes discontinued operations and corresponds to the telecommunications business in Brazil.

 

In addition to the telecommunications business in Brazil, the Company conducts other businesses that individually or in aggregate do not meet any of the quantitative indicators that would require their disclosure as reportable business segments. These businesses refer basically to the companies Companhia Santomense de Telecomunicações, S.A.R.L. (“CSTT”) and Timor Telecom S.A., which provide fixed and mobile telecommunications services.

 

The revenue generation is assessed by the Board of Directors based on a view segmented by customer, into the following categories:

 

·Residential Services, focused on the sale of fixed telephony services, including voice services, data communication services (broadband); and
·SMEs/Corporate, which includes corporate solutions for our small, medium-sized, and large corporate customers, as well as Digital and IT services (Oi Soluções).

 

 

 

 

105 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Telecommunications in Brazil

 

In preparing the financial information for this reportable segment, the transactions between the companies included in the segment have been eliminated. The financial information of this reportable segment for the periods ended June 30, 2021 and 2020 is as follows:

 

 Three-month period ended
06/30/2021

06/30/2020

Restated

Residential1,273,6491,241,197
   Fixed-line services528,922719,557
   Broadband737,598512,550
   Interconnection7.1299,090
SMEs/Corporate (B2B services)880,111982,478
Other services and businesses25,80823,623
Net operating revenue2,179,5682,247,298
Operating expenses  
Depreciation and amortization(706,107)(686,822)
Interconnection(39,307)(45,032)
Personnel (388,860)(387,711)
Third-party services(675,015)(769,387)
Grid maintenance services (105,179)(113,130)
Handset and other costs2,567718
Advertising and publicity(125,049)(61,916)
Rentals and insurance(322,047)(304,048)
Provisions/reversals(30,778)(44,154)
Expected losses on trade receivables(21,000)(42,003)
Taxes and other expenses67,35941.645
Other operating income (expenses), net(13.358) 
Operating income before financial income (expenses) and taxes(177,206)(164,542)
   
Financial income (expenses)  
     Financial income76,18149,935
     Financial expenses1,282,749(2,820,061)
   
Pre-tax loss1,181,724(2,934.668)
   
Income tax and social contribution(146)1,505
   
Loss of continuing operations1,181,578(2,933.163)
   
Discontinued operations  
Profit for the year from discontinued operations (net of taxes) (Nota 30)(28,838)(351,547)
Loss for the period1,152,740(3,284,710)

 

 

 

106 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
06/30/2021

06/30/2020

Restated

Residential2,551,6022,530,538
   Fixed-line services1,111,9741,484,360
   Broadband1,415,9211,027,779
   Interconnection23,70718,399
SMEs/Corporate (B2B services)1,757,5902,032,995
Other services and businesses49,97350,154
Net operating revenue4,359,1654,613,687
Operating expenses  
Depreciation and amortization(1,863,463)(1,760,209)
Interconnection(71,544)(77,149)
Personnel (820,456)(842,139)
Third-party services(1,357,961)(1,576,999)
Grid maintenance services (201,291)(241,085)
Handset and other costs2,5672,526
Advertising and publicity(213,693)(118,022)
Rentals and insurance(686,450)(672,693)
Provisions/reversals(78,868)(66,531)
Expected losses on trade receivables(50,817)(82,163)
Taxes and other expenses(18,654)73,296
Other operating income (expenses), net971.18084.918
Operating income before financial income (expenses) and taxes(30,285)(662,563)
   
Financial income (expenses)  
     Financial income232,673426,344
     Financial expenses(2,457,043)(9,138,167)
   
Pre-tax loss(2,254,655)(9,374.386)
   
Income tax and social contribution(7,612)35,916
   
Loss of continuing operations(2,262,267)(9,338.470)
   
Discontinued operations  
Profit for the year from discontinued operations (net of taxes) (Nota 30)367,259(548,343)
Loss for the period(1,895,008)(9,886,813)

 

 

 

 

 

107 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Reconciliation of revenue and profit (loss) for the quarter and information per geographic market

 

In the periods ended June 30, 2021 and 2020, the reconciliation of the revenue from the segment telecommunications in Brazil and total consolidated revenue is as follows:

 

 Three-month period ended
06/30/2021

06/30/2020

Restated

Net operating revenue  
Revenue related to the reportable segment2,179,5682,247,298
Revenue related to other businesses55,19354,083
Consolidated net operating revenue (Note 5)2,234,7612,301,381

 

 Six-month period ended
06/30/2021

06/30/2020

Restated

Net operating revenue  
Revenue related to the reportable segment4,359,1654,613,687
Revenue related to other businesses113,936103,043
Consolidated net operating revenue (Note 5)4,473,1014,716,730

 

In the periods ended June 30, 2021 and 2020, the reconciliation between the profit (loss) before financial income (expenses) and taxes of the segment telecommunications in Brazil and the consolidated profit (loss) before financial income (expenses) and taxes is as follows:

 

 Three-month period ended
06/30/2021

06/30/2020

Restated

Profit (loss) before financial income (expenses) and taxes  
Telecommunications in Brazil(177,206)(164,542)
Other businesses(189)(122,514)
Loss before financial income (expenses) and taxes from continuing operations (Note 5)(177,395)(287,056)

 

 Six-month period ended
06/30/2021

06/30/2020

Restated

Profit (loss) before financial income (expenses) and taxes  
Telecommunications in Brazil(30,285)(662,563)
Other businesses(3,863)195,188
Loss before financial income (expenses) and taxes from continuing operations (Note 5)(34,148)(467,375)

 

 

 

108 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Total assets, liabilities and tangible and intangible assets per geographic market as at June 30, 2021 are as follows:

 

 06/30/2021
Total assetsTotal liabilitiesTangible assetsIntangible assetsInvestment in tangible and intangible assets
Brazil74,217,57068,668,29417,095,0823,355,7233,344,287
Other, primarily Africa676,552350,08465,8999,43816,752

 

 

29.       RELATED-PARTY TRANSACTIONS

 

Transactions with consolidated related parties

 

 COMPANY
06/30/202112/31/2020
Assets  
Accounts receivable3,355,640988,346
BrT Call Center52,35552,163
BrT Multimídia126,1642,657
Oi Móvel3,170,293804,891
Telemar 123,318
Serede6,7883,970
Paggo Administradora40 
Drammen 1,270
Calitéia 77
Receivables from related parties (current and non-current)7,818,6467,621,572
PTIF5,189,2115,049,527
Oi Holanda2,628,9222,571,641
Pointer513404
Dividends and interest on capital receivable2,448,5952,466
Oi Serviços Financeiros3,958990
Rio Alto1,4961,476
BrT Multimídia2,426,474 
Oi Serviços Financeiros12 
Oi Móvel16,655 
Other245,217155,978
Telemar 63,671
Oi Móvel15,74013,202
Oi Holanda17,92717,836
PTIF676309
CVTEL1,3811,485
Serede200,45739,248
BrT Multimídia9,03617,039
Drammen 3,188

 

 

 

 

 

 

109 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 

COMPANY
06/30/202112/31/2020
Liabilities  
Trade payables392,260132,127
BrT Call Center45,77152,880
BrT Multimídia101,80929,031
Oi Móvel202,77133,654
Telemar 11,492
     Paggo Administradora10247
     Serede41,807 
     Drammen 5,023
Borrowings and financing (i)1,682,9601,591,964
Telemar 59,889
Oi Móvel1,129 
     Oi Holanda1,681,8311,532,075
Dividends (ii)819,571 
    Oi Móvel819,571 
Other payables57,18331,690
Telemar 3,393
Oi Móvel27,062 
Rio Alto975975
BrT Multimídia6,083717
Oi Investimentos11,88611,972
PT Participações11,17714,633
(i)The Company conducted loans with and acquires debentures from its subsidiaries under market terms and conditions to finance its operations or repay its debt. The amounts stated are net of FVA.
(ii)Dividends due after the merger of Telemar with and into the Company on May 3, 2021.

 

 

 

 Three-month period ended
COMPANY
06/30/202106/30/2020
Revenue  
Revenue from services rendered295,55615,087
BrT Multimídia168,5893,658
Oi Móvel125,7547,926
Telemar1,0513,433
Serede16170
Paggo Administradora1 
Other operating income20,39911,151
BrT Multimídia8,1231,595
Oi Móvel11,8249,550
Serede4526
Financial income(4,035,767)2,212,555
Telemar294893
Oi Holanda(3,392,348)1,771,722
PTIF(643,718)439,939
Pointer51

 

 

 

 

110 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANY
06/30/202106/30/2020
Revenue  
Revenue from services rendered305,76826,226
BrT Multimídia168,7233,793
Oi Móvel132,23515,773
Telemar4,3716,502
Serede219158
Paggo Administradora1 
Drammen219 
Other operating income35,97321,931
BrT Multimídia13,4382,825
Oi Móvel21,37419,100
Serede4576
Drammen472 
Calitéia232 
Financial income(1,350,584)9,120,318
Telemar1,1771,785
Oi Holanda(1,440,825)7,357,754
PTIF89,0571,752,673
PT Participações 8,105
Pointer71

 

 

 Three-month period ended
COMPANY
06/30/202106/30/2020
Operating costs and expenses(353,664)(186,765)
BrT Multimídia(98,787)(342)
Oi Móvel(14,830)(6,867)
Telemar(765)(2,629)
Paggo Administradora (17)
BrT Call Center(91,312)(102,197)
Serede(147,970)(74,713)
Financial expenses3,292,603(1,816,176)
Telemar(1,697)(5,091)
Oi Móvel(7) 
Serede(3,330)(983)
BrT Call Center(399)(401)
BrT Multimídia(1,802)(1,615)
Oi Holanda3,200,395(1,767,905)
PTIF100,673(40,181)
PT Participações(1,230) 

 

 

 

111 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANY
06/30/202106/30/2020
Operating costs and expenses(564,210)(390,540)
BrT Multimídia(138,244)(684)
Oi Móvel(20,086)(14,776)
Telemar(3,195)(5,527)
Paggo Administradora (237)
BrT Call Center(189,808)(221,320)
Serede(209,654)(147,996)
Drammen(3,223) 
Financial expenses1,359,148(7,320,014)
Telemar(6,788)(10,182)
Oi Móvel(7) 
Serede(4,314)(1,973)
BrT Call Center(805)(817)
BrT Multimídia(3,413)(3,287)
Oi Holanda1,347,570(7,094,331)
PTIF28,135(209,424)
PT Participações(1,230) 

 

Credit facilities

 

The Company may grant credit facilities to its subsidiaries for the purpose of providing working capital for their operating activities. In these cases, maturities can be rescheduled based on these companies’ projected cash flows and these facilities bear interest equivalent to 115% of CDI (115% of CDI at December 31, 2020). In the period ended June 30, 2021 there are no outstanding balances between group companies for this purpose since, as approved in the JRP, real-denominated intercompany claims for working capital purposes were extinguished by netting payables and receivables between the Brazilian RJ Debtors.

 

The intercompany credit facilities effective at June 30, 2021 are in accordance with the approved JRP. The intercompany claims not covered by said netting as provided for in the JRP were restructured and will be paid 20 years after the end of the settlement of all the claims paid under the terms and conditions of the Default Payment Method, adjusted using the TR for real-denominated credit facilities and changes in foreign exchange rates for international credit facilities. Additionally, credit facilities between the Company, a PTIF, and Oi Holanda were created since that in the context of the implementation of the JRP, the financial debt of the RJ Debtors were substantially consolidated in the Company, which issued financial and equity instruments to settle these debts originally recognized by said subsidiaries. Finally, in the quarter ended June 30, 2021, Oi and PTIF entered into a loan agreement amounting to US$4.15 million to complement the payment of a fee by this (non-operating) company, due in connection with the amendment to the documentation required from the approval of the Amendment to the JRP.

 

Guarantees

 

The Company and the other RJ Debtors are jointly and severally liable for the compliance of all obligations set forth by the JRP, as provided therefor.

 

112 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

Oi Futuro

Since 2001, Oi has been reinforcing its commitment to building a more diverse and inclusive society through projects and programs developed by Oi Futuro, our social impact innovation and creativity institute. Legally established as an OSCIP (Civil Society Organization of Public Interest), Oi Futuro has a nationwide presence to promote activities in Culture, Education and Social Innovation areas, thus contributing to the ESG (Environmental Social Governance) agenda and the Sustainable Development Goals (SDGs). Through subsidiary Oi Móvel, contributions to Oi Futuro were made totaling R$7,214 (R$8,181 at June 30, 2020).

Transactions with jointly controlled entities, associates, and unconsolidated entities

 

 

 

COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Dividends receivable25 25 
Other entities25 25 

 

 

 

COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Accounts payable and other liabilities20,53852023,12066,021
Hispamar20,12752020,12761,078
Other entities411 2,9934,943

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Revenue    
Revenue from services rendered12263123179
    Hispamar12259123120
Other entities 4 59
Other income 1 6,117
Hispamar 1 1
Other entities   6,116
Financial income   40
Other entities   40

 

 

 

113 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Revenue    
Revenue from services rendered202121203296
    Hispamar202117203237
Other entities 4 59
Other income 2 6,118
Hispamar 2 2
Other entities   6,116
Financial income   120
Other entities   120

 

 Three-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Costs/expenses    
Operating costs and expenses(25,473)(4)(47,170)(64,674)
Hispamar(25,473) (38,903)(58,009)
Other entities (4)(8,267)(6,665)
Financial expenses(6) (10)(19)
Hispamar(6) (9)(18)
Other entities  (1)(1)

 

 Six-month period ended
COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
Costs/expenses    
Operating costs and expenses(25,734)(307)(88,768)(111,326)
Hispamar(25,734)(303)(74,315)(98,152)
Other entities (4)(14,453)(13,174)
Financial expenses(6) (23)(42)
Hispamar(6) (22)(40)
Other entities  (1)(2)

 

The balances and transactions with jointly controlled entities, associates, and unconsolidated entities result from business transactions carried out in the normal course of operations, namely the provision of telecommunications services by the Company to these entities and the acquisition of these entities’ contents and the lease of their infrastructure.

 

Compensation of key management personnel

 

As at June 30, 2021, the compensation of the officers responsible for planning, managing and controlling the Company's activities, including the compensation of the directors and executive officers, totaled R$24,608 (R$33,700 at June 30, 2020), as shown in the table below:

 

 

 

114 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 Three-month period ended
06/30/202106/30/2020
Compensation of key management personnel1  
   Short-term benefits paid to officers (i)28,4545,226
   Share-based compensation2,8391,313
Total11,2936,539

 

 Six-month period ended
06/30/202106/30/2020
Compensation of key management personnel1  
   Short-term benefits paid to officers (i)217,92331,073
   Share-based compensation6,6852,627
Total24,60833,700

1 The amounts shown above refer to the parent company and consolidated since key management personnel is allocated to the Company.

2 The amounts shown do not take into consideration the impacts related to payroll taxes pursuant to a decision issued by the CVM Board on December 8, 2020 (CVM Proceeding No. 19957.007457/2018-10) and communicated by Official Letter in January 2021.

(i) Wages, salaries, fees, paid leave and paid sick leave, profit sharing and bonuses, and noncash benefits (such as medical care, housing, cars, and free or subsidized goods or services).

 

 

30.       HELD-FOR-SALE ASSETS AND DISCONTINUED OPERATIONS

The information on held-for-sale assets should be read together with the financial statements for the year ended December 31, 2020.

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Assets    
Sale of UPIs (a) (*)6,559,512 33,505,56320,625,007
International operations (b)46,22457,20475,84699,633
Sale of properties46,55243,41846,55247,302
Total6,652,288100,62233,627,96120,771,942

(*) In the Company, refers to the equity interests in investments held for sale.

 

 COMPANYCONSOLIDATED
06/30/202112/31/202006/30/202112/31/2020
Liabilities    
Sale of UPIs (a)  13,116,6639,152,947
International operations (b)  29,62242,429
Total  13,146,2859,195,376

 

 

 

 

115 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  
(a)Sale of UPIs

 

Information regarding the stage of the disposal of each of the UPIs is described in detail in Note 1 - General Information, subparagraphs 2.1 to 2.5 for each UPI.

 

The assets and liabilities related to the UPI Mobile Assets, UPI InfraCo, and UPI TVCo are classified as held for sale since their carrying amounts are being recovered primarily through sale transactions rather than through continuous use. The Company considers that the sale of these assets is highly probable, considering how the divestment plan of these assets is unfolding. The group of assets and liabilities of the UPIs are stated at the lower of carrying amounts and fair values less selling expenses.

 

 

116 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

(a.1)       Held-for-sale assets

 

The main components of the assets held sale and liabilities associated to assets held for sale of the UPIs, net of intragroup transactions, are as follows:

 

 06/30/202112/31/2020
Held-for-sale assets33,505,56320,625,007
Current assets3,956,6701,935,564
Cash and cash equivalents531,058207,925
Cash investments1,240,456 
Accounts receivable1,363,6781,075,583
Inventories13,43111,932
Current recoverable taxes4,4636,412
Other taxes79,25558,834
Judicial deposits321383
Pension plan assets20127
Prepaid expenses678,499513,609
Other assets45,48960,759
Non-current assets29,548,89318,689,443
Deferred taxes (47,740)
Other taxes142,051171,373
Judicial deposits38,39734,621
Prepaid expenses437,233440,290
Other assets6,89835,748
Property, plant and equipment (i)28,121,91217,297,887
Intangible assets802,402757,264
Liabilities associated to held-for-sale assets13,116,6639,152,947
Current liabilities5,670,6503,189,571
Payroll, related taxes and benefits139,162208,563
Trade payables1,204,2681,267,096
Borrowings and financing (ii)2,531,367 
Current taxes payable 3,866
Other taxes179,600222,195
Licenses and concessions payable53,58944,502
Tax refinancing program149145
Provisions494161
Leases payable (iii)1,224,8211,034,467
Other payables337,200408,576
Non-current liabilities7,446,0135,963,376
Deferred and payable taxes587,852 
Other taxes3,6964,086
Tax refinancing program336410
Provisions63,38563,772
Leases payable (iii)5,625,0844,601,655
Other payables1,165,6601,293,453

 

 

117 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

(i)       Changes in held-for-sale property, plant and equipment items

 

 Works in progressAutomatic switching equipmentTransmission and other equipmentInfrastructureBuildingsRight of use - leasesOther assetsTotal
PP&E, net  
Balance at Dec 31, 2020624,911585,97610,148,731491,49560,3875,224,465161,92217,297,887
   Contractual changes     424,914 424,914
   Additions (*)2,292,505 14,8952,007 1,159,842297,2733,766,522
   Write-offs  (9,707)(56,963)(17,391)(137,346)(7,403)(228,810)
   Transfer from/to held-for-sale assets (**) (41,913)4,994,8231,907,091(192) 1,5906,861,399
   Transfers(1,689,018)32,6801,543,398108,3802,607 1,953 
Balance at Jun 30, 20211,228,398576,74316,692,1402,452,01045,4116,671,875455,33528,121,912
         

 

(*) The additions to line item ‘Rights of use – leases’ result primarily from the recognition of the tower lease contracts entered into with Highline, the company that acquired the UPI Towers.

 

(**) The transfers to held-for-sale assets arise mainly from the assets subject to the Indefeasible Rights of Use (IRU) agreements, between the Company (Assignor) and the UPI InfraCo (Assignee), totaling R$6,814 million (Note 16 (ii)).

 

(ii)The increase in borrowings and financing is represented by the private placement of convertible debentures of the UPI InfraCo, pursuant to the terms of the Amendment to the JRP. The debentures bear monthly compound interest equivalent to the IPCA variance + 11% p.a., and principal is repayable in a bullet payment on the issue’s maturity, on May 26, 2023, fully collateralized by claims, including present and future receivables, not limited to the revenue flow of BrT Multimídia, and its operating assets, except for the wholesale contracts, as well as the amounts to be paid by the potential acquirer of the shares of the UPI InfraCo under the final documentation relating to this sale transaction, except for the funds paid as consideration for the acquisition of the shares of the UPI InfraCo itself. The Company provided a guarantee for this instrument. The total amount of the guarantees is R$2,565,631. For additional information see Note 1, InfraCo SPC Debentures based on Section 5 of the Amendment to the JRP.

 

(iii)Increase arising from the lease contracts entered into with Highline (see (i) above).

 

(a.2)       Discontinued operations

 

The operations related to the UPI Mobile Assets, the UPI InfraCo, and UPI TVCo are classified as discontinued operations as they are an integral part of coordinated divestment plan.

 

The table below shows the main revenue and expenses components related to profit (loss) from discontinued operations of the UPIs, as well as the revenue and expenses related to the Company’s continuing operations, net of intragroup transactions:

 

 

118 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 COMPANYCONSOLIDATED
06/30/202106/30/202006/30/202106/30/2020
DISCONTINUED OPERATION
NET OPERATING REVENUE  4,368,9044,575,543
Operating income (expenses):    
Interconnection  (121,580)(152,749)
Personnel  (289,396)(289,450)
Third-party services  (1,266,859)(1,155,058)
Grid maintenance service  (204,930)(211,633)
Handset and other costs  (35,058)(35,572)
Advertising and publicity  (25,189)(18,725)
Rentals and insurance  (623,349)(480,136)
(Provisions)/reversals  3522
Expected losses on trade receivables  (77,649)(183,492)
Taxes and other income (expenses)  (187,732)(115,865)
Other operating income (expenses), net367,259(548,343)244,447 
Operating expenses excluding depreciation and amortization367,259(548,343)(2,587,260)(2,642,658)
Depreciation and amortization (i)  (295,537)(1,643,571)
Total operating expenses367,259(548,343)(2,882,797)(4,286,229)
Profit (loss) before financial income (expenses) and taxes367,259(548,343)1,486,107289,314
Financial income (expenses):    
Financial income  15,09819,447
Financial expenses  (534,900)(856,782)
Total financial income (expenses)  (519,802)(837,335)
Pretax profit (loss)367,259(548,343)966,305(548,021)
Income tax and social contribution  (599,046)(322)
Profit (loss) for the period367,259(548,343)367,259(548,343)

 

(i)The depreciation expenses from discontinued operations result from the classification to held-for-sale assets, as at May 1, 2021, consisting of assets subject to the IRU agreements between Oi and the UPI InfraCo, of which R$216,948 from the first quarter of 2021 and R$78,589 from April 2021. Pursuant to CPC 31/IFRS 5, the related depreciation expenses are presented comparatively to prior periods, which required the reclassification of the depreciation expense previously presented in continued operations to discontinued operation, in the prior three- and six-month periods ended June 30, 2020 and the three-month period ended March 31, 2021.

 

119 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

(a.2.1)       Restatement of the comparative balances of discontinued operation

 

Statement of Profit or Loss

 

 

 

COMPANYCONSOLIDATED
06/30/202006/30/2020
Previously statedDiscontinued operationsContinuing operationsPreviously statedDiscontinued operationsContinuing operations
NET OPERATING REVENUE1,579,128 1,579,1289,292,2734,575,5434,716,730
Cost of sales and/or services(1,350,764) (1,350,764)(7,288,378)(4,007,658)(3,280,720)
Gross profit228,364 228,3642,003,895567,8851,436,010
Operating income (expenses)      
    Share of results of investees(7,268,653)(548,343)(6,720,310)30,745 30,745
    Selling expenses(266,668) (266,668)(1,483,929)(488,272)(995,657)
    General and administrative expenses(423,780) (423,780)(1,389,115)(740)(1,388,375)
    Other operating income281,274 281,2741,439,181232,7461,206,435
    Other operating expenses(66,021) (66,021)(778,838)(22,305)(756,533)
Loss before financial income (expenses) and taxes(7,515,484)(548,343)(6,967,141)(178,061)289,314(467,375)
Financial income2,899,202 2,899,202700,21519,447680,768
Financial expenses(5,085,252) (5,085,252)(10,302,796)(856,782)(9,446,014)
FINANCIAL INCOME (EXPENSES)(2,186,050) (2,186,050)(9,602,581)(837,335)(8,765,246)
Pre-tax loss(9,701,534)(548,343)(9,153,191)(9,780,642)(548,021)(9,232,621)
Income tax and social contribution      
     Current   9,638(322)9,960
     Deferred12,085 12,08523,814 23,814
Loss of continuing operations(9,689,449)(548,343)(9,141,106)(9,747,190)(548,343)(9,198,847)
Discontinued operations      
Profit (loss) for the year of discontinued operations (net of taxes) 548,343(548,343) 548,343(548,343)
Loss for the period(9,689,449) (9,689,449)(9,747,190) (9,747,190)

 

 

120 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Statement of cash flows

 

 COMPANYCONSOLIDATED
06/30/202006/30/2020
Previously statedDiscontinued operationsContinuing operationsPreviously statedDiscontinued operationsContinuing operations
Cash flows from operating activities      
   Pretax profit (loss)(9,701,534)(548,343)(9,153,191)(9,780,642)(548,021)(9,232,621)
Non-cash items      
   Charges, interest income, inflation adjustment, and exchange differences8,155,999 8,155,99910,594,189264,29410,329,895
   Fair value adjustment to borrowings and financing(6,431,898) (6,431,898)(2,598,494) (2,598,494)
   Adjustment of trade payables to present value43,349 43,349131,252 131,252
   Transaction with derivative financial instruments (Note 6)127,581 127,581127,581 127,581
   Depreciation and amortization (Note 5)760,600 760,6003,435,9631,643,5711,792,392
   Gain (loss) on disposals and write-offs of assets24,663 24,663(103,929) (103,929)
   Estimated loss on doubtful debts (Note 5)25,381 25,381266,054183,49282,562
   Provisions/(reversals) (Note 5)3,500 3,50075,97712,93563,042
   Share of results of investees (Note 5)7,268,653548,3436,720,310(30,745) (30,745)
   Concession Agreement Extension Fee - ANATEL29,669 29,669158,349(35,127)193,476
   Employee and management profit sharing5,977 5,97734,760 34,760
Tax recovery(74,458) (74,458)(273,113) (273,113)
   Inflation adjustment to provisions/(reversals) (Note 6)181,387 181,387377,374 377,374
   Inflation adjustment to tax refinancing program (Note 6)2,433 2,4334,452 4,452
   Other(35,580) (35,580)(71,164) (71,164)
       
Changes in assets and liabilities      
Accounts receivable(416,121) (416,121)(367,696) (367,696)
Inventories4,216 4,21633,592 33,592
Taxes130,961 130,9611,196,610 1,196,610
    Increases/decreases of cash investments921 921974 974
    Trade payables(301,308) (301,308)(731,537) (731,537)
    Payroll, related taxes and benefits(26,862) (26,862)(71,686) (71,686)
    Licenses and concessions   (41,209) (41,209)
    Provisions(88,005) (88,005)(218,601) (218,601)
    Changes in assets and liabilities held for sale   210,896 210,896
Other assets and liabilities49,802 49,802(86,610) (86,610)
Financial charges paid - debt(351,358) (351,358)(352,074) (352,074)
Financial charges paid - leases(12,337) (12,337)(136,231)(69,940)(66,291)
Income tax and social contribution paid - Company   (33,430) (33,430)
Income tax and social contribution paid - third parties   (46,469) (46,469)
Cash flows generated by (used in) operating activities - continuing operations  (624,369)  253,189
Cash flows generated by (used in) operating activities – discontinued operations    (1,451,204)1,451,204
Cash flows generated by (used in) operating activities(624,369) (624,369)1,704,393 1,704,393
Cash flows from investing activities      
    Purchases of tangibles and intangibles(449,458) (449,458)(3,949,574)(2,812,251)(1,137,323)
Due from related parties and debentures - receipts365,292 365,292   
    Proceeds from the sale of investments and capital assets   129,984 129,984
Cash received due to capital reduction in subsidiary - PT Participações2,933,982 2,933,982   
    Cash received on the sale of investments - PT Ventures   3,912,601 3,912,601

 

121 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

 

 COMPANYCONSOLIDATED
06/30/202006/30/2020
Previously statedDiscontinued operationsContinuing operationsPreviously statedDiscontinued operationsContinuing operations
    Judicial deposits(39,690) (39,690)(158,426)(2,846)(155,580)
    Redemptions of judicial deposits248,727 248,727349,234 349,234
    Capital increase in subsidiaries(179,632) (179,632)   
    Advance for future capital increase in subsidiary(900,000) (900,000)   
Cash flows used in investing activities - continuing operations  1,979,221  3,098,916
Cash flows used in investing activities – discontinued operations    2,815,097(2,815,097)
Cash flows used in investing activities1,979,221 1,979,221283,819 283,819
Cash flows from financing activities      
     Borrowings net of costs   2,473,319 2,473,319
     Repayment of principal of borrowings, financing, and derivatives(1,824) (1,824)(4,919) (4,919)
     Proceeds from (repayments of) derivative financial instrument transactions(128,733) (128,733)(128,733) (128,733)
     Tax refinancing program(18,994) (18,994)(28,135) (28,135)
    Lease payment(59,454) (59,454)(745,533)(439,829)(305,704)
Cash flows generated by financing activities - continuing operations  (209,005)  2,005,828
Cash flows generated by financing activities - discontinued operations    439,829(439,829)
Cash flows generated by financing activities(209,005) (209,005)1,565,999 1,565,999
Foreign exchange differences on cash equivalents160,093 160,093214,497 214,497
Cash flows for the period1,305,940 1,305,9403,768,708 3,768,708
Cash and cash equivalents      
     Closing balance2,255,907 2,255,9075,850,653 5,850,653
     Opening balance949,967 949,9672,081,945 2,081,945
Changes in the period1,305,940 1,305,9403,768,708 3,768,708

 

 

 

122 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

Statement of Value Added

 

 COMPANYCONSOLIDATED
06/30/202006/30/2020
Previously statedDiscontinued operationsContinuing operationsPreviously statedDiscontinued operationsContinuing operations
Revenue2,330,584 2,330,58412,973,5595,813,3497,160,210
Inputs purchased from third parties(947,998) (947,998)(4,666,512)(2,090,068)(2,576,444)
Gross value added1,382,586 1,382,5868,307,0473,723,2814,583,766
Retentions(974,411)548,343(1,522,754)(4,140,413)(1,130,882)(3,009,531)
Wealth created by the Company408,175548,343(140,168)4,166,6342,592,3991,574,235
Value added received as transfer3,277,2777,098,385(3,821,108)4,271,6583,560,145711,513
Wealth for distribution3,685,4527,646,728(3,961,276)8,438,2926,152,5442,285,748
Wealth distributed      
Personnel(158,274) (158,274)(1,029,995)(249,846)(780,149)
Taxes and fees(385,149) (385,149)(2,474,670)(1,035,983)(1,438,687)
Lenders and lessors(12,831,478)(7,646,728)(5,184,750)(14,680,817)(4,866,715)(9,814,102)
Shareholders9,689,449 9,689,4499,747,190 9,747,190
Wealth distributed(3,685,452)(7,646,728)3,961,276(8,438,292)(6,152,544)(2,285,748)
(b)International operations

 

Oi’s management was authorized to take all the necessary steps to sell the investments in Africa and in Asia.

 

The Company maintained in the group of international assets held for sale the investments in Companhia Santomense de Telecomunicações, S.A.R.L. (“CST”), since, on October 20, 2020, Africatel signed a Share Purchase and Assignment Agreement for the sale of its shares in CST, having submitted to the governmental bodies of São Tomé and Príncipe the request for approval to complete the transaction.

 

The Company remains committed to disposing of the operating assets related to the operations in Africa and Asia, including its investments in Timor Telecom S.A. and in telephone directory companies in Africa, and has been assessing a project to decommission the companies that remain after the sale of foreign companies is completed.

 

The group of assets and liabilities of the African operations are stated at the lower of their carrying amounts and their fair values less costs to sell, and are consolidated in the Company’s statement of profit or loss.

 

 

 

123 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

The main components of the assets held sale and liabilities associated to assets held for sale of the African operations are as follows:

 

 Operations in Africa
06/30/202112/31/2020
Held-for-sale assets75,84699,633
Cash, cash equivalents and cash investments14,48433,752
Accounts receivable39,11241,609
Other assets9,7607,172
Investments178191
Property, plant and equipment9,47413,659
Intangible assets2,8383,250
   
Liabilities directly associated to assets held for sale29,62242,429
Borrowings and financing 10,406
Trade payables14,91511,223
Other liabilities14,70720,800
   
Total held-for-sale assets, net of the corresponding liabilities – consolidated46,22457,204
Total assets held for sale – parent company46,22457,204
Investments in Africa46,22457,204

 

The companies that are not expected to be sold in the short term started to be consolidated in the balance sheet.

 

 

31.       OTHER INFORMATION

 

(a)       Operation: Mapa da Mina

 

On December 10, 2019, the Brazilian Federal Police launched the 69th phase of Operation: Lava Jato (Car Wash), named “Operation: Mapa da Mina” (Mine Plan) (Criminal Search and Seizure Order No. 5024872-64.2018.4.04.7000/PR - 13th Federal Criminal Court of Curitiba), one of the main targets of which was Fábio da Silva, son of former president Luiz Inácio Lula da Silva. The investigation, which has neither the Company nor any of its current officers as defendants, is based on a suspected transfer of several companies to Gamecorp and Grupo Gol, in exchange for alleged benefits from the Federal Government. As a result of such investigation, Company buildings in the States of São Paulo and Rio de Janeiro, and in Brasília were searched and documented were seized. Since then, the Company has cooperated with the investigations by making all the clarifications and delivering all the documents requested. On March 12, 2020, the 4th Region Federal Court granted an habeas corpus (Habeas Corpus No. 5052647-8.2019.4.04.000/PR) was granted, requiring that the records of said Operation be sent to the São Paulo Judiciary Section, after concluding that there was no connection between the facts reported in the investigation and those verified in Operation: “Lava Jato”. On December 7, 2020, the 10th Criminal Court of São Paulo declined on its jurisdiction to process the case and required that the court records be sent to one of the Rio de Janeiro, RJ Judiciary Subsection.

 

 

124 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

Because of this decision, the defense attorneys of the individuals involved have filed requests for reconsideration and a strict appeal so that the investigation remains under the jurisdiction of the 10th Federal Court of São Paulo.

 

Among the initiatives undertaken, the Company engaged an independent external auditor to conduct a forensic investigation to cover all the allegations made in the case record and created a Multidisciplinary Committee consisting of members from different departments, such as the legal, compliance, internal audit and accounting department, to determine the main procedures to be performed, and set a schedule of relevant activities in response to the allegations of said investigation involving the Company and its subsidiaries. In this regard, the Multidisciplinary Committee determined the following procedures: (i) retain a renowned, specialized law firm, independent from the Company and its subsidiaries, to conduct an internal investigation on the allegations made in the Federal Public Prosecution Office (MPF) and the Brazilian Federal Police (PF) investigations; (ii) request an assessment by the outside legal counsel of the results of said internal investigation to be conducted by the specialized law firm, if applicable; (iii) request an assessment by the outside legal counsel of possible legal and regulatory impacts in Brazil and in the United States, regarding all allegations made in the investigation, considering the applicable anticorruption legislation and/or illegal activities; (iv) request an assessment by the compliance department to determine whether any material weaknesses in the internal control environment existing at the time covered by the investigations still persist in the current Company governance and internal control scenario; (v) conduct periodic meetings to follow up on the status of the assessments to be carried out; and (vi) submit of the results of all assessments to be carried out to the members of the Audit, Risk and Controls Committee (“CARC”), which reports to the Company’s Board of Directors. In this context, the specialized law firm completed its internal independent investigation in February 2020, based on interviews, information, and documentation submitted by the Company’s management and taking into consideration the constraints imposed by the time period covered by said investigation (2003-2019), and did not identify any indications of illegalities committed by the Company linked to the allegations made by the MPF and the PF in the “Operation: Mine Plan” investigation. This internal use report was extensively discussed and presented to the members of the Multidisciplinary Committee, as well as to the members of the CARC.

 

(b)       Potential effects of the COVID-19 pandemic

 

On January 31, 2020, the World Health Organization announced that COVID-19 was a global health emergency and in March the World Health Organization categorized COVID-19 as a pandemic that has caused death and the imposition of measures that have caused unprecedented social and economic impacts in Brazil and the world.

 

The Company understands the key role of telecommunications for society, is complying with the health and safety recommendations issued by the authorities, and has been monitoring the situation and how it unfolds and its possible impacts. For this reason, since March 2020, the Company has maintained a multidisciplinary crisis response team focused on ensuring the continuity of its operation and services to customers, the health of its employees, and monitoring actions to fight the impacts of the pandemic.

 

125 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

The main measures adopted and maintained by the Company since the beginning of the pandemic include:

 

·home office: approximately 78% of the workforce is working remotely and have been able to perform their duties without any interruption;
·safe fieldwork protocol: employees whose activities are not compatible with the home office work, such as outside service technicians (classified by the authorities as an essential workers), follow health and preventive protocols, including the use of PPE (personal protection equipment), tests, and the timely isolation of any suspected or confirmed cases;
·stock coverage: we maintain regular communications with our suppliers and service providers in order to ensure timely delivery of inputs and equipment and prevent disruptions in our logistics and supply chain;
·strengthening the network: the Company responded quickly to the increased demand for telecom services and activated new circuits in its backbone infrastructure that did not suffer any significant decline even with the increase in traffic.
·digitalization: the Company has intensified and maintains the digitalization of processes, sales and customer service channels, telemarketing and teleagents, providing alternatives for its customers and minimizing the possible impact of restrictions to face-to-face activities.

 

Regarding the second quarter of 2021, because of the new wave of the pandemic, stronger in April 2021, local and regional authorities promoted and implemented social distancing and lockdown measures and issued decrees limiting noncore business operations, which resulted in the shutdown of the Company’s retail stores and distribution channels of its mobile service. In contrast, follows an increase in demand for our broadband services, specifically FTTH services, from both residential and B2B customers. On the operations side, there were no significant impacts, since the provision of telecom services is classified as an essential activity and continues to operate normally.

Throughout the second quarter, with the gradual progress of vaccination and the reduction of bed occupancy rates, many states and municipalities began the introduce a gradual reopening and easing of restrictive measures. Thus, the Company has gradually resumed the activities of its own stores, pursuant to all established protocols, even though the situations in each location will continue to be monitored in case of any change.

Even though the scenario is adverse and that there are still uncertainties regarding the duration and effects of the pandemic, to date we have no records of material disruptions in our operations and results and all mitigation actions already adopted are being preventively maintained for an indefinite period.

 

126 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  

 

(c)       Corporate restructuring to form the UPI InfraCo

 

The Extraordinary Shareholders’ Meeting of indirect subsidiary BrT Multimídia held on June 8, 2020 approved its capital increase in the amount of R$822,673,091.98, without the issuance of new shares, which was fully subscribed and paid in by Oi Móvel, also an indirect subsidiary of the Company, through the assignment of net assets comprised of (i) property, plant and equipment and intangible assets of Oi Móvel, the Fiber-to-the-Home (“FTTH”) class; (ii) part of the usage and consumption supplies acquired for use in the expansion of FTTH; and (iii) the balance of dividends payable.

 

Subsequently, at the Extraordinary Shareholders’ Meeting of BrT Multimídia held on October 13, 2020, a new capital increase was approved, totaling R$1,673,412,964.45, through the issuance, by BrT Multimídia, of 52,700 registered common shares without par value, of which R$173,485,677.43 was allocated to the issued capital line item and R$1,499,927,287.02 was allocated to the recognition of a capital reserve. Oi Móvel subscribed all of the shares issued in connection with the aforementioned capital increase, which were paid in through the contribution of FTTH fiber assets, recorded as property, plant and equipment and intangible assets of Oi Móvel, to the assets of BrT Multimídia.

 

In addition, at the Extraordinary Shareholders’ Meeting of BrT Multimídia held on December 30, 2020, the capitalization of an Advance for Future Capital Increase (“AFAC”) amounting to R$700,000,000.00, which had been granted by Oi Móvel to BrT Multimídia, was approved. As a result of this capital increase, BrT Multimídia issued 212,640 registered common shares without par value, which were fully subscribed and paid in by Oi Móvel through the capitalization of the granted AFAC.

 

BrT Multimídia’s Extraordinary Shareholders’ Meeting held on January 1, 2021 approved its partial spin-off, with the segregation and removal from its assets of elements not related to the core business of UPI InfraCo, which were merged with and into Oi Móvel. As a result of the partial spin-off, the capital of BrT Multimídia was reduced by R$17,698,607.37, without the cancellation of shares, from R$2,013,309,621.84 to R$1,995,611,014.47, divided into 611,586 registered common shares and without nominal amount.

BrT Multimídia’s Annual and Extraordinary Shareholders’ Meeting held on April 30, 2021 approved a new partial spin-off, with the segregation and removal from its assets elements not related to the core business of UPI InfraCo, which were merged with and into Oi. Given that the assets spun-off from BrT Multimídia were valued at R$0.00 (zero Brazilian reais), BrT Multimídia’s share capital did not change as a result of the transaction.

Both partial spin-off transactions were approved without joint and several liability, so that Oi Móvel and Oi became liable only for the obligations that were transferred to Oi Móvel and Oi as a result of the partial spin-offs and it did not assume any liability, either individually or jointly, for any debts, obligations or liabilities of BrT Multimídia that had not been transferred as part of the partial spin-off in question, regardless of their nature and if they are present, contingent, past and/or future.

 

 

127 
FEDERAL PUBLIC SERVICE 
BRAZILIAN SECURITIES AND EXCHANGE COMMISSION (CVM) 
Quarterly Financial Information (ITR)Corporate Legislation
COMMERCIAL, INDUSTRIAL AND OTHER COMPANYBase Date – 06/30/2021
  
01131-2 Oi S.A. – UNDER JUDICIAL REORGANIZATION76.535.764/0001-43
  
NOTES TO THE FINANCIAL STATEMENTS(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
  


The capital increases and partial spin-offs of BrT Multimídia are in line with the terms of the Strategic Plan and the JRP, as amended, and are steps in the corporate and asset restructuring process of the Oi Companies described in the JRP, aimed at optimizing their operations, assets and liabilities and, more specifically, the formation of the UPI InfraCo.

 

32.       EVENTS AFTER THE REPORTING PERIOD

 

(a)2nd Issue of Oi Móvel Debentures

On July 30, 2021, the Company completed the issue of and payment of the 2nd Issue of Oi Móvel Debentures for private placement, amounting to R$2,000,000,000.00 (Note 1).

 

(a)Issue of Notes by Oi Móvel

 

On July 30, 2021, the issue of Notes totaling US$880,000,000.00 was completed. On the same date, the 1st Issue Oi Móvel Debentures, maturing in January 2022, with principal of R$2,500,000,000.00 (Note 1), were fully settled with part of the net proceeds of this issue.

 

 

 

 

128