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TIMB TIM

Filed: 26 Oct 21, 6:18am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 6-K


REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: October 26, 2021

Commission File Number: 001-39570


TIM S.A.
(Exact name of Registrant as specified in its Charter)


João Cabral de Melo Neto Avenue, 850 – North Tower – 12th floor
22775-057 Rio de Janeiro, RJ, Brazil
(Address of principal executive office)


Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  Form 40-F 

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

Yes  No 

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

Yes  No 

 

 

 

  

 

TIM S.A. and TIM S.A. and subsidiary

 

QUARTERLY INFORMATION on

September 30, 2021

 

 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

QUARTERLY INFORMATION

 

September 30, 2021

 

 

 

Index

 

Independent auditors’ report on quarterly information1
Quarterly information 
Balance sheets3
Statements of income5

Statements of comprehensive income

 

7
Statements of changes in shareholders' equity9
Statements of cash flows11
Statements of value added13
Performance comment14
Notes to the quarterly information35
Fiscal Council’s Opinion109
Directors' statement on independent auditors' report110
Statement of the Executive Officers on the Independent auditors' report111

 

 

 

 

INDEPENDENT AUDITOR’S REVIEW REPORT ON QUARTERLY INFORMATION

 

 

The shareholders, board of directors and officers

TIM S.A.

Rio de Janeiro - RJ

 

Introduction

 

We have reviewed the accompanying individual and consolidated interim financial information, contained in the Quarterly Information Form (ITR) of TIM S.A. (“Company”) for the quarter ended September 30, 2021, comprising the balance sheet as of September 30, 2021 and the statements of income and of comprehensive income for the three and nine-month periods then ended, and the statements of changes in shareholders’ equity and of cash flows for the nine month period then ended, including the explanatory notes.

 

Management is responsible for preparation of the individual and consolidated interim financial information in accordance with NBC TG 21 – Demonstração Intermediária, and IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of the Quarterly Information Form (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and international standards on review engagements (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

 

 

Conclusion on the individual and consolidated interim financial information

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above are not prepared, in all material respects, in accordance with NBC TG 21 and IAS 34 applicable to the preparation of Quarterly Information Form (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission (CVM).

 

Other matters

 

Statements of value added

 

The quarterly information referred to above includes the individual and consolidated statements of value added (DVA) for the nine-month period ended September 30, 2021, prepared under the responsibility of the Company's management and presented as supplementary information for IAS 34 purposes. These statements have been subject to review procedures performed in conjunction with the review of quarterly information to conclude that they are reconciled with interim financial information and accounting records, as applicable, and if their form and content are consistent with the criteria defined in NBC TG 09 “Statement of Added Value”. Based on our review, we are not aware of any fact that leads us to believe that these statements of value added were not prepared, in all material respects, in accordance with the criteria established in the Technical Pronouncement and is consistent with respect to the individual interim financial information and consolidated taken as whole.

 

 

Rio de Janeiro, October 25, 2021.

 

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

 

 

 

Fernando Alberto S. Magalhães

Accountant CRC-1SP133169/O-0

 

 

 

 

 

TIM S.A.
BALANCE SHEETS
September 30, 2021 and December 31, 2020

(In thousands of reais)

 

  Parent company Consolidated
 NoteSeptember 2021 December 2020 September 2021 December 2020
         
Assets 43,978,705 41,654,417 43,978,480 41,654,417
         
Current assets 12,611,308 10,411,555 12,611,083 10,411,556
Cash and cash equivalents44,067,610 2,575,290 4,067,611 2,575,291
Marketable securities53,304,797 2,070,438 3,304,797 2,070,438
Trade accounts receivable62,708,603 3,051,834 2,708,603 3,051,834
Inventories7231,139 246,602 231,139 246,602
Recoverable indirect taxes, fees and contributions8375,487 374,015 375,487 374,015
Recoverable direct taxes, fees and contributions91,264,888 1,421,112 1,264,888 1,421,112
Prepaid expenses11263,890 149,796 263,890 149,796
Derivative financial instruments3768,896 262,666 68,896 262,666
Leases1729,191 5,357 29,191 5,357
Other amounts recoverable1837,467 43,906 37,467 43,906
Other assets 259,340 210,539 259,114 210,539
         
 Assets held for sale162,234,781 - 2,234,781 -
         
Non-current assets 29,132,616 31,242,862 29,132,616 31,242,861
Long-term receivables 4,434,625 4,115,088 4,434,625 4,115,088
Marketable securities58,908 7,061 8,908 7,061
Trade accounts receivable6133,001 128,827 133,001 128,827
Recoverable indirect taxes, fees and contributions8875,158 856,786 875,158 856,786
Recoverable direct taxes, fees and contributions91,026,402 1,277,127 1,026,402 1,277,127
Deferred income tax and social contribution10874,897 550,646 874,897 550,646
Judicial deposits12726,742 794,755 726,742 794,755
Prepaid expenses1182,125 73,598 82,125 73,598
Derivative financial instruments37478,206 239,423 478,206 239,423
Leases17211,585 156,841 211,585 156,841
Other assets 17,601 30,024 17,601 30,024
         
         
Investment13- 1 - -
Property, plant and equipment1417,452,838 18,100,698 17,452,838 18,100,698
Intangible assets157,245,153 9,027,075 7,245,153 9,027,075

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
BALANCE SHEETS
September 30, 2021 and December 31, 2020
(In thousands of reais)
  Parent company Consolidated
 NoteSeptember 2021 December 2020 September 2021 December 2020
Total liabilities and shareholders' equity 43,978,705 41,654,417 43,978,480 41,654,417
         
Total liabilities 19,336,926 18,471,672 19,336,701 18,471,672
         
Current liabilities 6,829,877 8,301,956 6,829,881 8,301,956
Suppliers192,653,218 3,128,732 2,653,218 3,128,732
Loans and financing21533,992 1,689,385 533,992 1,689,385
Leases171,248,577 1,054,709 1,248,577 1,054,709
Derivative financial instruments37139,892 7,273 139,892 7,273
Payroll and related charges 325,545 272,635 325,545 272,635
Indirect taxes, fees and contributions payable221,288,229 935,778 1,288,229 935,778
Recoverable direct taxes, fees and contributions23118,814 296,299 118,818 296,299
Dividends and interest on shareholders’ equity payable26176,147 538,576 176,147 538,576
Authorizations payable20131,968 102,507 131,968 102,507
Deferred revenues24198,137 266,436 198,137 266,436
Other liabilities 15,358 9,626 15,358 9,626
         
Liabilities related to assets held for sale16365,867 - 365,867 -
         
Non-current liabilities 12,141,182 10,169,716 12,140,953 10,169,716
Loans and financing212,880,674 655,647 2,880,674 655,647
Derivative financial instruments3728,060 28,893 28,060 28,893
Leases177,263,671 7,324,126 7,263,671 7,324,126
Indirect taxes, fees and contributions payable223,200 3,102 3,200 3,102
Recoverable direct taxes, fees and contributions2314,082 212,444 14,082 212,444
Provision for legal and administrative proceedings25959,118 886,947 959,118 886,947
Pension plan and other post-employment benefits387,346 7,346 7,346 7,346
Authorizations payable20215,513 232,940 215,513 232,940
Deferred revenues24705,315 755,488 705,315 755,488
Other liabilities 64,203 62,783 63,974 62,783
         
Shareholders' equity2624,641,779 23,182,745 24,641,779 23,182,745
Share capital 13,477,891 13,477,891 13,477,891 13,477,891
Capital reserves 402,448 397,183 402,448 397,183
Profit reserves 9,317,356 9,317,356 9,317,356 9,317,356
Equity valuation adjustments (4,848) (4,848) (4,848) (4,848)
Treasury shares (5,443) (4,837) (5,443) (4,837)
Profit for the period 1,454,375 - 1,454,375 -

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENTS OF INCOME
Periods ended September 30, 2021 and 2020
(In thousands of reais, except as otherwise stated)
          
   Parent company
 Notes 3Q21 September 2021 3Q20 September 2020
          
Net revenue28 4,511,814 13,258,577 4,387,369 12,589,783
          
          
Costs of services provided and goods sold29 (2,092,528) (6,281,442) (2,051,150) (5,879,700)
Gross income  2,419,286 6,977,135 2,336,219 6,710,083
          
Operating revenues (expenses):         
    Selling expenses29 (1,199,670) (3,495,043) (1,133,255) (3,347,862)
General and administrative expenses29 (407,633) (1,249,962) (412,194) (1,238,982)
    Equity in earnings13 (77) (231) - -
Other revenues (expenses), net30 (56,628) (220,830) (107,873) (282,736)
   (1,664,008) (4,966,066) (1,653,322) (4,869,580)
          
Operating profit  755,278 2,011,069 682,897 1,840,503
          
Financial revenues (expenses):         
   Financial revenues31 572,647 1,227,542 181,049 725,170
   Financial expenses32 (783,749) (1,700,162) (424,743) (1,488,082)
   (211,102) (472,620) (243,694) (762,912)
Profit before income tax and social contribution  544,176 1,538,449 439,203 1,077,591
          
Income tax and social contribution33 448,593 403,426 (49,165) (247,322)
          
Net profit for the period  992,769 1,941,875 390,038 830,269
          
Earnings per share attributable to the Company’s shareholders (expressed in R$ per share)         
          
Basic earnings per share34 0.41 0.80 0.16 0.34
          
Diluted earnings per share34 0.41 0.80 0.16 0.34

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENTS OF INCOME
Periods ended September 30, 2021 and 2020
(In thousands of reais, except as otherwise stated)
      
   Consolidated
 Notes 3Q21 September 2021
      
Net revenue28 4,511,814 13,258,577
      
      
Costs of services provided and goods sold29 (2,092,528) (6,281,442)
Gross income  2,419,286 6,977,135
      
Operating revenues (expenses):     
Selling expenses29 (1,199,670) (3,495,043)
General and administrative expenses29 (407,645) (1,249,998)
Other revenues (expenses), net30 (56,693) (221,025)
   (1,664,008) (4,966,066)
      
Operating profit  755,278 2,011,069
      
Financial revenues (expenses):     
   Financial revenues31 572,647 1,227,542
   Financial expenses32 (783,749) (1,700,162)
   (211,102) (472,620)
      
Profit before income tax and social contribution- 544,176 1,538,449
      
Income tax and social contribution33 448,593 403,426
      
Net profit for the period  992,769 1,941,875
      
Earnings per share attributable to the Company’s shareholders (expressed in R$ per share)     
      
Basic earnings per share34 0.41 0.80
      
Diluted earnings per share34 0.41 0.80

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

 

 

         
TIM S.A.
STATEMENT OF COMPREHENSIVE INCOME
Periods ended September 30, 2021 and 2020
(In thousands of reais)
         
  Parent company
  3Q21 September 2021 3Q20 September 2020
         
Net profit for the period 992,769 1,941,875 390,038 830,269
         
Other items in comprehensive income        
Total comprehensive income for the period 992,769 1,941,875 390,038 830,269

 

 

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF COMPREHENSIVE INCOME
Periods ended September 30, 2021
(In thousands of reais)
     
  Consolidated
  3Q21 September 2021
     
Net profit for the period 992,769 1,941,875
     
Other items in comprehensive income    
Total comprehensive income for the period 992,769 1,941,875

 

 

 

 

See the accompanying notes to the individual and consolidated quarterly information.

 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Periods ended September 30                  
(In thousands of reais)                  
                Profit reserves         
  Share capital Capital reserve Legal reserve Reserve for expansion Tax incentive reserve Treasury shares Equity valuation adjustments Retained earnings Total
Balances at December 31, 202013,477,891 397,183 1,036,194 6,499,602 1,781,560 (4,837) (4,848) - 23,182,745
                   
Total comprehensive income for the period                  
      Net profit for the period - - - - - - - 1,941,875 1,941,875
Total shareholder contributions and distributions to shareholders - - - - - - - - -
Total comprehensive income for the period - - - - - - - 1,941,875 1,941,875
Total shareholder contributions and distributions to shareholders                  
       Long-term incentive plan (note 26.b) - 5,265 - -     - - 5,265
      Purchase of treasury shares, net of disposals - - - -   (606) - - (606)
      Interest on Shareholders’ Equity (note 26) - - - -       (487,500) (487,500)
Total shareholder contributions and distributions to shareholders - 5,265 - - - (606) - (487,500) (482,841)
Balances at September 30, 202113,477,891 402,448 1,036,194 6,499,602 1,781,560 (5,443) (4,848) 1,454,375 24,641,779

 

 

 

See the accompanying notes to the individual and consolidated quarterly information. 

 

 

 

 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Period ended 30 September                
(In thousands of reais)                
                Profit reserves       
  Share capital Capital reserve Legal reserve Reserve for expansion Tax incentive Reserve Equity valuation adjustments Retained earnings Total
Balances at January 01, 202013,476,172 36,154 952,486 5,985,793 1,612,019 (3,817) - 22,058,807
                 
Total comprehensive income for the period                
    Net profit for the period - - - - - - 830,269 830,269
Total comprehensive income for the period - - - - - - 830,269 830,269
Total shareholder contributions and distributions to shareholders                
    Incorporation of a company from TIM Group (note 1) 1,719 353,604 - -       355,323
   Stock options - 4,828 - -   - - 4,828
Total shareholder contributions and distributions to shareholders 1,719 358,432-----------360,151
Balances at September 30, 202013,477,891 394,586 952,486 5,985,793 1,612,019 (3,817) 830,269 23,249,227

 

 

 

See the accompanying notes to the individual quarterly information.

 

10 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF CASH FLOW       
Periods ended September 30       
(In thousands of reais)
        
   Parent company Consolidated
 Note September 2021 September 2020 September 2021
Operating activities       
Profit before income tax and social contribution  1,538,449 1,077,591 1,538,449
 Adjustments to reconcile income to net cash generated by operating activities:       
Depreciation and amortization29 4,255,769 4,148,184 4,255,769
Equity in earnings13 231 - -
Residual value of property, plant and equipment and intangible written off  9,934 14,389 9.934
Interest on asset retirement obligation  714 (217) 714
Provision for legal and administrative proceedings25 223,473 257,190 223,473
Inflation adjustment on judicial deposits and legal and administrative proceedings  (24,002) 104,256 (24,002)
Interest, monetary and foreign exchange variations on loans and other financial adjustments  38,453 147,722 38,453
Interest on leases payable37 612,077 604,119 612,077
Interest on leases receivable  (3,153) 572 (3.153)
Provision for expected credit losses29 427,582 455,357 427,582
Stock options  15,893 4,829 15,893
   7,095,420 6,813,992 7,095,189
Reduction (increase) in operating assets       
Trade accounts receivable  (61,878) (225,583) (61,878)
Taxes, fees and contributions to be recovered  395,735 1,180,796 395,735
Inventories  15,464 (3,584) 15,464
Prepaid expenses  (122,620) (95,353) (122,620)
Dividends and interest on shareholders’ equity received  - - -
Judicial deposits  196,594 132,850 196,594
Other assets  (29,868) (40,870) (29,637)
Increase (decrease) in operating liabilities       
Payroll and related charges  57,288 68,021 57,288
Suppliers  (457,945) (1,773,769) (457,945)
Taxes, fees and contributions to be collected  376,776 (465,972) 376,776
Authorizations payable  (7,452) (19,208) (7,452)
Payments for legal and administrative proceedings  25 (255,881) (309,865) (255,881)
Deferred revenues  (118,472) (118,528) (118,472)
Other liabilities  (82,819) (100,751) (82,819)
Cash generated by operations  7,000,342 5,042,176 7,000,342
Income tax and social contribution paid   (45,475)  (66,890)  (45,475)
Net cash generated by operating activities  6,954,867 4,975,286 6,954,867

 

11 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY 
STATEMENT OF CASH FLOW         
Periods ended September 30         
(In thousands of reais) 
          
   Parent company Consolidated 
 Note September 2021 September 2020 September 2021  
Investment activities        
Marketable securities  (1,236,207) (871,039) (1,236,207) 
Cash from the incorporation of TIM Participações  - 21,959 - 
Additions to property, plant and equipment and intangible  (3,126,281) (2,427,392) (3,126,281) 
Receipt of leases  4,532 3,605 4,532 
Net cash used in investment activities  (4,357,956) (3,272,867) (4,357,956) 
         
Financing activities        
New loans  2,672,000 1,800,000 2,672,000 
Amortization of loans   (1,663,049)  (1,737,010)  (1,663,049) 
Interest paid- Loans   (34,894)  (62,695)  (34,894) 
Lease payment   (861,021)  (679,786)  (861,021) 
Interest paid on leases   (613,985)  (597,845)  (613,985) 
Derivative financial instruments   238,784  13,130  238,784 
Purchase of treasury shares, net of disposals  (11,234) - (11,234) 
Dividends and interest on shareholders’ equity paid  (831,192) (597,555) (831,192) 
Net cash used in financing activities  (1,104,591) (1,861,761) (1,104,591) 
         
Increase (decrease) in cash and cash equivalents  1,492,320 (159,342) 1,492,320 
         
Cash and cash equivalents at the beginning of the period  2,575,290 2,284,048 2,575,291 
Cash and cash equivalents at the end of the period  4,067,610 2,124,706 4,067,611 
                  

 

 

See the accompanying notes to the individual and consolidated quarterly information.

12 
 

 

TIM S.A. and TIM S.A. and SUBSIDIARY
STATEMENT OF VALUE ADDED
Periods ended September 30, 2021 and 2020
(In thousands of reais)
 Parent company Consolidated
 September 2021 September 2020 September 2021
Revenues     
Gross operating revenue18,649,199 17,891,710 18,649,199
Losses on doubtful accounts receivable(427,582) (455,357) (427,582)
Discounts granted, returns and others(1,889,099) (1,892,087) (1,889,099)
 16,332,518 15,544,266 16,332,518
Supplies acquired from third parties     
Costs of services provided and goods sold(1,977,892) (1,872,486) (1,977,892)
Materials, energy, third-party services and others(2,323,011) (2,187,597) (2,323,242)
 (4,300,903) (4,060,083) (4,301,134)
Retentions     
Depreciation and amortization(4,255,769) (4,148,184) (4,255,769)
Net added value generated7,775,846 7,335,999 7,775,615
Value added received in transfer     
Equity in earnings(231) - -
Financial revenues1,227,542 725,170 1,227,542
 1,227,312 725,170 1,227,542
Total added value to be distributed9,003,157 8,061,169 9,003,157
      
Added value distribution     
Personnel and expenses     
      Direct remuneration443,876 392,274 443,876
      Benefit144,529 147,775 144,529
      FGTS47,953 43,728 47,953
      Other40,833 32,710 40,833
 677,191 616,487 677,191
Taxes, fees and contributions     
     Federal1,051,489 1,618,441 1,051,489
     State2,833,990 2,791,312 2,833,990
     Municipal95,236 88,447 95,236
 3,980,715 4,498,200 3,980,715
Third-party Capital Remuneration     
   Interest1,698,446 1,486,522 1,698,446
   Rentals697,819 626,968 697,819
 2,396,265 2,113,490 2,396,265
Other     
   Social investment7,111 2,723 7,111
 7,111 2,723 7,111
Shareholder's Equity Remuneration     
   Dividends and interest on shareholders’ equity487,500 - 487,500
   Retained earnings1,454,375 830,269 1,454,375
 1,941,875 830,269 1,941,875

 

See the accompanying notes to the individual and consolidated quarterly information.


13 

2021 THIRD QUARTER RESULTS

 

2021 Third Quarter Results (Including the effects of IFRS 9, 15 and 16)

From Volume to Value: continuously transforming the customer base profile

·Mobile ARPU grew of 4.4% YoY in 3Q21, reaching R$26.5;
·Postpaid share in the customer base reached over 43%, and more than 56% over revenue;
·TIM Live’s UBB customer base was up by 7.7% YoY, totaling 675k connections;
·High value offers (>100Mbps) penetration over TIM Live's customer base reached 59%.

Continuous infrastructure development for the best customer experience

·Leader in 4G coverage, reaching 4,420 cities, with emphasis also on 700MHz frequency expansion, now serving 3,744 cities;
·Expansion of 4.5G coverage to 1,595 cities in 3Q21;
·Pioneer in tests with 5G standalone in large markets (SP and RJ), with a combination of Release 16 + Carrier Aggregation to expand coverage;
·FTTH expansion with presence in around 4.0 million homes passed in 28 cities plus 7 administrative regions in the Federal District by the end of September.

Consistent Revenue and EBITDA, confirming the positive trend of 1H21

·Solid growth of Total Service Revenue by 4.2% YoY in 3Q21 and 5.3% YoY in 9M21;
·Continuous evolution of the Mobile Service Revenue, up by 4.1% YoY in the quarter and by 5.1% YoY year to date;
·Postpaid Revenue with consistent improvement of 5.3% YoY in 3Q21 and +6.0% YoY in 9M21;
·Customer Platform Revenue totaled R$ 38 million in 3Q21, with another subscription bonus tranche in the partnership with C6 being achieved;
·Normalized EBITDA* reached R$ 2.2 billion in the third quarter, up by 4.5% YoY, and totaled R$ 6.3 billion in the year, up by 5.0% YoY;
·Normalized EBITDA Margin* reached 48.0% in 3Q21 (47.4% in 9M21), mainly due to the continuous revenue improvement;
·Normalized Net Income* with robust improvement of +21.4% YoY and totaling R$ 474 million in 3Q21. In 9M21, the line totaled R$ 1.4 billion, growing 71.9% YoY;
·Investments totaled R$ 897 million, with the network expansion and the preparation to receive Oi Mobile assets.

 

*EBITDA normalized according to the items in the Costs section (+R$ 7.7 million in 3Q21, +R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20). Net Income normalized by tax credits and other effects (-R$ 526.8 million in 3Q21 and -R$ 4.6 million in 2Q21).

**3Q21 and 9M21 numbers as of July 2021.

 

 

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2021 THIRD QUARTER RESULTS

 

 

Financial Performance (Including the effects of IFRS 9, 15 and 16)

 

OPERATING REVENUE

*The Customer Platform includes revenues from new initiatives, such as Financial and Educational Services, and Mobile Advertising. Relocation of taxes between the Client Generated and Customer Platform Revenues lines, impacting these breakdowns since the beginning of 2021.

 

 

 

 

 

 

  

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2021 THIRD QUARTER RESULTS

 

 

 

On the other hand, Net Product Revenues fell by 28.3% YoY in 3Q21, affected by a deterioration of macroeconomic indicators in the period and supply issues on some equipment. However, the performance was positive in 9M21, up by 4.3% YoY.

 

Breakdown of Mobile Segment (net of taxes and deductions):

Mobile Service Revenue (MSR) totaled R$ 4,096 million, up by 4.1% YoY compared to the same period of 2020 and +2.8% vs. 2Q21. This result is mainly explained by Mobile ARPU (Average Monthly Revenue Per User) dynamics, up by 4.4% YoY, reaching R$ 26.5, reflecting the ongoing success of Company’s strategy to monetize its customer base through migrations to higher-value plans, amidst a relevant performance of the postpaid segment. Year to date, MSR continued its consistent evolution, reaching +5.1% YoY.

 

In the quarter, the segments’ ARPUs, excluding Other Mobile Revenues and Customer Platform, presented growth in human postpaid (ex-M2M), up by 0.8% YoY, and decrease in prepaid, by -1.0% YoY. In a QoQ perspective, both ARPUs grew sequentially.

 

 

Breaking down of each mobile segment in the third quarter:

 

(i)Throughout the year, the prepaid segment’s performance had been continuously recovering supported by commercial activities return and improved operating indicators. In 3Q21, the segment’s revenue grew by 2.7% QoQ. Even so, revenue fell by 4.2% YoY due to: (i) worsening macroeconomic scenario; and (ii) the lower emergency aid from the government compared to the same period last year. In 9M21, the line is down by 1.2% YoY.
(ii)In the postpaid segment, we remain focused on the value approach, giving emphasis to churn management and to an offer portfolio that aims the ARPU growth. In this quarter, the main drivers for this line were: (i) the partial price adjustment of TIM Black plans, with a positive impact; and (ii) a higher sales volume from reopening stores and opening new sales points. As a result, Revenue from Postpaid Customers grew 5.3% YoY in the quarter. In 9M21, Revenue from Postpaid Customers grew 6.0% YoY.

 

Interconnection Revenue (ITX) fell by 7.9% YoY in 3Q21, due to lower incoming traffic in the period, also affected by an unfavorable comparison base (as traffic had a sharp growth from 2Q20 onwards, partly due to social restriction measures related to the Coronavirus pandemic), but gradually returning to pre-pandemic levels. The incidence of MTR (Mobile Termination Revenue) on the Net Service Revenue reached 2.4% in the quarter. In 9M21, this line grew by 1.3% YoY, mainly due to the higher MTR rate at the beginning of the year.

 

Customer Platform Revenue totaled R$ 38 million in 3Q21, with R$ 26 million from Financial Services and R$ 11 million from Mobile Advertising. This quarter also had the first revenues from Educational Services (R$ 117k in September), still in early stages. Year to date, Customer Platform Revenue totaled R$ 83 million, with R$ 57 million from Financial Services and R$ 26 million from Mobile Advertising.

 

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2021 THIRD QUARTER RESULTS

 

 

Other Revenues line grew 14.6% YoY in 3Q21, mainly due to the higher revenue from network sharing and swap contracts, in line with the Company’s strategy to expand the fiber optic transport infrastructure (backbone and backhaul), allocating resources (Capex and Opex) more efficiently. In 9M21, this line grew by 13.9% YoY.

 

Breakdown of Fixed Segment (net of taxes and deductions):

 

Fixed Service Revenue totaled R$ 287 million this quarter, up by 5.5% over 3Q20. TIM Live remains the main performance driver, growing 9.5% YoY in the period, accounting nearly 63% of fixed service revenue. Other fixed segment services, on the other hand, fell by 0.6% YoY.

 

 

 

The slowdown in TIM Live's performance is explained by a combination of (i) a price adjustment approach more balanced throughout 2021, instead of a more concentrated application in 2020; (ii) a higher focus on preparing FiberCo setting up and consequent assets split, which caused a slowdown in new markets entry; and (iii) an increase in competition in some areas of operation. These elements also reflected in TIM Live's ARPU performance which decelerated its growth, which was up by 0.9% YoY. The expectation is that the impacts generated by the elements (i) and (ii) will start to disappear and revenue will return to double-digit levels.

 

In 9M21, Fixed Service Revenue totaled R$ 851 million, up by 9.5% YoY. TIM Live revenues grew by 16.7% YoY, less impacted by the concentrated 3rd quarter elements.

 

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2021 THIRD QUARTER RESULTS

 

 

OPERATING COSTS AND EXPENSES

 

*Operating Costs normalized by specialized legal and administrative services (+R$ 7.7 million in 3Q21 and +R$ 13.7 million in 2Q21) and adjustments to the sale-leaseback agreement of the towers (+R$ 2.6 million in 1Q20).

 

Reported Operating Costs and Expenses totaled R$ 2,353 million in 3Q21 (+1.7% YoY). In the quarter, this line was affected by non-recurring expenses – totaling R$ 7.7 million related to specialized administrative services associated to acquisition/restructuring projects of Oi’s and FiberCo’s assets. In 9M21, this line totaled R$ 6,992 million (+5.9% YoY), also impacted by non-recurring expenses of the same nature in 2Q21 in the amount of R$ 13.7 million, and, in the annual comparison, by non-recurring expenses in the amount of R$ 2.6 million in 1Q20, related to adjustment to towers’ sale-leaseback contract.

 

 

 

 

Breakdown of Costs and Expenses Performance:

Personnel Costs grew by 11.4% YoY in 3Q21. Such performance was driven by: (i) the inflation effect on wages, bonuses and incentives, although below the country's inflation levels; (ii) higher provision employee’s bonuses in 2021; and (iii) the conclusion of government's labor contract suspension program. In 9M21, the line grew 9.8% YoY, also affected by the elements described above and by the higher expenses related to labor contingencies in social security proceedings.

 

Selling and Marketing Expenses grew by 1.4% YoY in the quarter, mainly due to the more intense commercial activity compared to 2020. The main impacts were: (i) higher expenses with sales commissions, explained by a better intra-segment migration mix; (ii) higher Fistel expenses; and (iii) lower costs related to marketing and advertising. Year to date, the line grew 5.9% YoY, mainly due to the increased media exposure in the first half of 2021 – with expenses on campaigns such as those for Mother’s Day, prepaid and Brazilian Olympic Committee.

 

Network and Interconnection grew by 6.8% YoY in 3Q21, due to (i) higher costs in interconnection subgroup (ITX), mainly from mobile termination rate (MTR) increase since February 2021; (ii) higher costs with content providers; and (iii) higher expenses related to network maintenance services. In 9M21, Network and Interconnection grew by 7.8%, mainly due to a higher MTR rate and higher costs related to infrastructure sharing and maintenance agreements.

 

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2021 THIRD QUARTER RESULTS

 

 

Normalized General and Administrative[1] (G&A) Expenses were up by 4.4% YoY in the quarter. This increase is mostly explained by: (i) higher expenses with maintenance services due to IT infrastructure migration to the Cloud; and (ii) by specialized consulting services for ongoing projects. Nonetheless, G&A fell by 9.3% QoQ due to sequentially lower expenses with the specialized services previously described. In 9M21, G&A grew by 13.3% YoY due to the same factors presented above.

 

Cost of Goods Sold (COGS) fell by -21.4% YoY in 3Q21, following the Product Revenues decrease, related to lower handsets volume sold despite an increase higher value product mix. Year to date, COGS grew by 8.8% YoY due to increased handset sales in 2Q21, partially benefited by a favorable YoY comparison.

 

In 3Q21, Provisions for Doubtful Accounts (Bad Debt) grew by 33.0% YoY due to a more challenging comparison basis, since the 2H20 collection curves presented exceptional levels. Despite this increase, Bad Debt maintains a healthy level with a drop of almost 11% QoQ, totaling R$ 143 million and representing 2.3% of TIM’s Gross Revenue. In 9M21, Bad Debt reduced by 6.1% YoY, reaching 2.3% over Gross Revenue (vs. 2.5% in 9M20).

 

Other Operating Expenses fell by 47.5% YoY in 3Q21 due to: (i) lower expenses with tax and consumer contingencies; and (ii) resources inflow to reimburse contingencies costs. This line’s share over total normalized Opex was 2.4% (vs. 4.7% in 3Q20). Year to date, this line fell by 21.2% YoY, mainly due to the first factor previously described.

 

Subscriber Acquisition Costs (SAC = subsidy + commissioning + advertising expenses) totaled R$ 63.4 per gross addition in 3Q21, up by 50.9% YoY, due to higher expenses with commissions related to a positive net additions in postpaid segment and by customer base migration to higher value plans.

 

2.4

Months payback

The SAC/ARPU ratio (payback per client) grew YoY, reaching 2.4 months vs. 1.7 months in 3Q20.

 

 

 


[1] General and Administrative Expenses were positively impacted by non-recurring items in the amount of R$ 7.7 million in 3Q21 and R$ 13.7 million in 2Q21 related to specialized legal and administrative services.

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2021 THIRD QUARTER RESULTS

 

 

 

FROM EBITDA TO NET INCOME

 

*EBITDA normalized according to the items in the Costs section (+R$ 7.7 million in 3Q21, +R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20). Net Income normalized by tax credits and other effects (-R$ 526.8 million in 3Q21 and -R$ 4.6 million in 2Q21).

 

 

EBITDA[2] (Earnings before Interest, Taxes, Depreciation and Amortization)

 

 

 

DEPRECIATION AND AMORTIZATION (D&A) / EBIT

D&A grew by 1.0% YoY, explained by increased Depreciation of 4G equipment and of the rights of use, even though it was partially offset by lower software Amortization. In 9M21, D&A grew by 2.6% YoY, totaling R$ 4,256 million.

 

3Q21 Normalized EBIT grew by 11.7% YoY, reflecting the EBITDA growth. In 9M21, Normalized EBIT totaled R$ 2,032 million, up by 10.3% YoY.

 


[2] EBITDA normalized according to items in the Operating Costs and Expenses section.

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2021 THIRD QUARTER RESULTS

 

 

 

NET FINANCIAL RESULTS

Net Financial Results in 3Q21 were negative by R$ 211 million, an improvement of R$ 33 million compared to 3Q20, mainly due to the net result from:

(i)Higher financial revenues from: (1) interest on financial investment increased, reflecting a higher interest rate in the period and a higher cash level; and (2) positive impact from the accounting of mark-to-market of the 3rd vesting reached by TIM, which gives the Company rights in the share subscription of C6 Bank’s capital (Financial Statements, Note 31).

 

(ii)Higher financial expenses due to addition of new financial debt during the first half to finance future obligations related to Oi acquisition, in addition to higher interest rates.

 

INCOME TAX AND SOCIAL CONTRIBUTION

In 3Q21, Reported Income Tax and Social Contribution totaled R$ 449 million compared to -R$ 49 million in 3Q20, this improvement is mainly explained by tax credits related to non-incidence of Income Taxes (IRPJ and CSLL) on the SELIC adjustment in cases of undue payment – ​​understanding established by the Supreme Federal Court (“STF”) with wide repercussion (Financial Statements, Note 9). On a Normalized basis, IR/CSLL totaled -R$ 78 million vs. the amount of -R$ 49 million recorded in the same period last year – an increase mainly explained by better operating performance and lower use of tax incentives in the third quarter.

 

In 3Q21, the effective rate was -14.2% vs. -11.2% in 3Q20 (on a Normalized basis). In 9M21, the effective rate was -8.2% vs. -22.9% in 9M20, on a Normalized basis, explained by the higher distribution of Interest on Equity (IoE) and the increased use of tax benefits during the nine months of 2021.

 

 

NET INCOME[3]

 

 

 


[3] Net Income normalized according to items in the “From EBITDA to Net Income” sections.

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2021 THIRD QUARTER RESULTS

 

 

CASH FLOW, DEBT AND CAPEX

 

*EBITDA normalized according to the items in the Costs section (+R$ 7.7 million in 3Q21, +R$ 13.7 million in 2Q21 and +R$ 2.6 million in 1Q20).

 

 

 

 

 

In 3Q21, EBITDA-Capex reached R$ 1,270 million, up by 3.9% YoY, taking EBITDA-Capex over Net Revenue to 28.2% (vs. 27.9% in 3Q20).

 

In an exercise to exclude the financial lease effects from these indicators, 3Q21 EBITDA was recalculated considering these lease agreements on operating expenses. Therefore, EBITDA-AL (After Lease) for the quarter would be R$ 1,666 million (+0.7% YoY), and EBITDA-AL minus Capex would sum up to R$ 770 million (-4.4% YoY).

 

CAPEX

 

Capex totaled R$ 897 million in 3Q21, up by 5.5% over 3Q20, mainly due to the advance in the preparation of Company’s infrastructure to integrate Oi’s mobile assets. In 9M21, Capex totaled R$ 3,126 million, up by 28.8% YoY, largely due to a year-on-year comparative basis in the first half of the year, which was impacted by the revaluation of the Company’s projects, despite social distance measures during the pandemic in 2020.

 

CHANGE IN WORKING CAPITAL

The Change in Working Capital was positive by R$ 520 million, compared to a positive result of R$ 125 million in 3Q20, in part benefited by a favorable annual comparative basis due to the partial payment of regulatory fees related to CFRP and Condecine in the first half of 2021, compared to the 2020 annual payment, made in 3Q20.

 

The total remaining amount, of approximately R$ 1 billion (including default interest), related to Fistel (TFF) of 2020 and 2021, is still suspended without a defined payment date (Financial Statements, Note 22).

 

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2021 THIRD QUARTER RESULTS

 

 


DEBT AND CASH

 

Debt Profile

 

 

 

At the end of 3Q21, financing (after-hedge) totaled R$ 3,439 million. The average cost of debt excluding leases was 6.3% p.y. in the quarter, an increase when compared to 2.6% p.y. in 3Q20, impacted by CDI increased in the period

 

Throughout 2021, the Company raised R$ 2.6 billion in new debt:

 

(i)In April 2021, the Company signed two agreements with foreign banks, totaling R$ 1,072 billion;

 

(ii)In June 2021, the Company completed the settlement of the 2nd debenture issuance totaling R$ 1.6 billion, maturing in June 2028. This is the Company’s first debentures offer to consider ESG aspects in its issuance, bringing benefits to both society and the environment, thus endorsing the goals of the Company’s Strategic Plan.

 

At the end of the quarter, Cash and Securities totaled R$ 7,372 million, up by R$ 3,735 million YoY. The average cash yield reached 5.8% p.y. in 3Q21, up by 2.2% p.y. over 3Q20, due to better fund allocation and the latest increases observed in basic interest rate.

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2021 THIRD QUARTER RESULTS

 

 

 

QUARTERLY EVENTS AND SUBSEQUENT EVENTS

 

PAYMENT OF INTEREST ON SHAREHOLDER’S EQUITY

On September 24, 2021, TIM S.A. announced that its Board of Directors approved the distribution of R$ 137.5 million as Interest on Equity (IoE). The payment will occur on October 27, 2021, being September 29, 2021 the date to identify the shareholders entitled to receive such values. Thus, the shares acquired after that date will be ex-date on Shareholders’ Equity rights. Until the 3Q21 closing, TIM declared the total amount of R$ 487.5 million.

 

TIM OBTAINS RIGHT TO EXERCISE THE 3RD AND 4TH TRANCHES OF SUBSCRIPTION BONUSES AT BANK C6

In July 2021, within the scope of the strategic partnership ("Partnership") signed with Banco C6 SA ("C6" or "Bank"), TIM obtained the right to exercise the 3rd tranche of the Subscription Bonus of C6's capital stock, as a result of the achievement of the 3rd level of the agreed targets. A bonus equivalent to approximately 0.7% of the bank's capital stock, totaling 3.6%, were recorded in the Company's balance sheet (Financial Statements, Note 37).

 

In October 2021, TIM also obtained the right to exercise the 4th tranche of the Subscription Bonus for indirect equity participation in C6’s capital stock, as a result of the achievement of the 4th level of the agreed targets, which means the achievement equivalent to accumulated indirect equity participation of approximately 4.08%.

 

As described in Note 28 of the Financial Statements, Arbitration Procedure No. 28/2021/SEC8 was instituted before the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce ("CCBC" and "Arbitral Procedure", respectively), by TIM against Banco C6 S.A., Carbon Holding Financeira S.A. and Carbon Holding S.A. (jointly, “Defendants”), through which the interpretation of certain clauses of the contracts governing the partnership between the parties will be discussed. In case of loss, the partnership may be terminated.

 

NEW CFO/ IRO

In August 2021, TIM announced Ms. Camille Loyo Faria to the positions of Chief Financial Officer (CFO) and Investor Relations Officer (IRO). Camille arrives at TIM with extensive experience in executive roles in the telecommunications and infrastructure sector, having worked for several companies in the industry. In her career, she also accumulates important roles in the Investment Banking and energy sector.

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2021 THIRD QUARTER RESULTS

 

 

Operating and Marketing Performance

 

 

*3Q21 and 9M21 numbers as of July 2021.

 

MOBILE SEGMENT:

GENERAL MARKET[4]

The mobile market grew by 9.3% YoY in 3Q21, reinforcing the positive base expansion observed for the first time since 2015 in the last quarter. In the past 12 months, postpaid net additions reached 16.9 million users, being 66% from human postpaid lines. Prepaid reached 4.0 million new users.

 

TIM

TIM closed 3Q21 totaling 51.6 million users, reporting a slight 0.9% increase in the period.

  

In 3Q21, the postpaid base reported 22.3 million lines (+2.9% YoY). This segment’s mix over total base reached 43.4%, +0.9 p.p. YoY. Additions in the last 12 months accumulated a positive balance of 639k users.

 

At the end of the quarter, human postpaid reached 18.3 million lines (+4.0% YoY), with net additions of 702k lines in the last 12 months. The monthly churn rate remained at the lowest levels (3.0% in 3Q21), as recorded in the last quarters.

 

M2M base reached 4.1 million users in 3Q21, down by 1.5% YoY.

 

In 3Q21, the prepaid base reached 29.2 million lines, slightly down by 0.6% YoY. The segment’s base posted churn volume lower than previous periods, 184k in the last 12 months. The segment is the most impacted by the economic slowdown.

 

The 4G base4 ended the quarter with 44.7 million users, once again accelerating and resuming a double-digit growth (+11.3% YoY).

 

 


[4] 3Q21 numbers as of July 2021.

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2021 THIRD QUARTER RESULTS

 

 

 

 

  

 

FIXED SEGMENT:

 

 

TIM Live had a base of 675k connections in 3Q21, maintaining the accelerated growth pace (+7.7% YoY). In the last 12 months, net additions reached 48k lines, and above 200 Mpbs speed plans were again responsible for the period’s expansion dynamics. Higher-value plans, with speed above 100 Mpbs, continue to gain more relevance, reaching a 59% share of the total base in the quarter.

 

Even with restriction to entry into new markets, FTTH network coverage expansion continued to accelerate, prioritizing the consolidation of already active clusters. Thus, total fiber homes passed grew by 29.9% YoY, operating in 28 cities and 7 administrative regions of the Federal District.

 

 

 

 

 

 

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2021 THIRD QUARTER RESULTS

 

 

 

Customer Platform and Mobile Advertising

 

Since last year, TIM has been developing an innovative strategy to the Customer Platform aiming to monetize the company's customer base. This initiative is enabled by 2 business models:

 

(i)Commercial Partnerships with the direct remuneration on advertising and data intelligence sale – serving brands that are seeking to increase awareness and consideration, lead generation, apps install, product sales, account opening, service subscription, consumer surveys and 1st party data enrichment. The main tools used are TIM Ads and TIM Insights.

 

(ii)Strategic Partnerships to achieve the same goals above, exponentially and in record time. In this model, in addition to TIM Ads and TIM Insights, we use TIM brand to endorse the partner’s brand (e.g. “TIM’s Official Bank”, “TIM’s Official Digital Graduation”) and encourage consumers to join the partner brand with an exclusive GB bonus offer. We communicate in all touch points, including Meu TIM, Stories, In App Push Notification, and include the partnership within TIM's core commercial offers for the market and release it on TV, OOH and Internet. We also engage TIM's commercial capillarity in its points of sale in the 1,000 best commercial locations in Brazil, 200,000 non-exclusive points of sale and, finally, we remunerate 8,000 sellers on partnership success. In this model, TIM's remuneration is linked to the partnership success and is composed of a CAC fee in R$ and an equity stake.

Within this strategy, some verticals were ranked as great opportunities for having a more direct connection with mobile services and for having a higher valuation than telecom companies. Below are details of the verticals in which we are already operating.

 

 

TIM ADS AND TIM INSIGHTS

 

With more than 500 datapoints per user, TIM Insights has proven to be a powerful tool to identify the clusters concerned on digital services in various industries, such as Financial Services, Education, Social Networks, Food & Beverage, Retail, Consumer Goods, etc.

 

With more than 20 million customers with OptIns, TIM Ads provides advertising awareness and performance in several forms such as text, image, gif and, mainly, video in TIM's traditional channels, as well as in applications such as Meu TIM, TIM +Vantagens, TIM Fun and TIM News. In addition, it works as a platform for app installing, generating qualified leads, consumer surveys, 1st party data enrichment and brand lift measurement.

 

In the third quarter of 2021, the average number of active users per month on TIM's apps and advertising platforms surpassed 20 million and the number of impressions in all formats surpassed 1.2 billion.

 

 

FINANCIAL SERVICES

 

In March 2020, the Company concluded the negotiation with C6 and, as of April 2020, launched exclusive offers for TIM customers who opened C6’s bank accounts. As compensation in this contract, TIM gets a commission per activated account and the option to obtain an interest in the bank as we reach active account targets. The percentage of shares received for each target achieved varies throughout the contract, with the initial slots being more advantageous for TIM due to the greater effort required to take off a new digital company.

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2021 THIRD QUARTER RESULTS

 

 

 

The partnership with C6 ended 3Q21 with a record number of active accounts, reaching the next level of equity interest, 3.6%, corresponding to R$ 403.5 million in the Balance Sheet as Operations with Derivatives (Financial Statements, Note 37).

 

Despite project's success, due to divergences between the partners, an Arbitration Procedure was instituted, as described in the Main Quarterly Events and Subsequent Events Section.

 

 

DIGITAL EDUCATIONAL SERVICES

 

In July 2021, following the strategy adopted with C6, the Company concluded the negotiation with Anhanguera Educacional Participações S.A. (“AESAPAR”), a subsidiary of Cogna Educação S.A (“Cogna”), establishing a strategic partnership to develop offers with special benefits for distance learning through the Ampli platform.

 

Besides the partnership announced, the Company launched exclusive offers for customers enrolled in the platform’s courses, and TIM customers begin to get discounts on selected courses.

 

As in the partnership with C6, TIM is paid through a commission and interest in AmpliCo., which may reach up to 30% of its capital – the subscription of shares was approved by Cade in September 2021. It should also be noted that the calculation of subscription rights will take place annually. 

 

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2021 THIRD QUARTER RESULTS

 

 

 

Infrastructure

 

For another quarter, the TIM reinforces its commitment to the enhancement of its services and continuous quality improvement to ensure the best user experience for its customers. Focus on the expansion and improvement of its network infrastructure remains a pivotal pillar in our business plan.

 

The main highlights of this quarter were:

 

(i)Maintaining growth pace of 4G coverage, which is Company's strategic objective, as part of its commitments with Anatel (TAC) and ESG debenture issued in the 2nd quarter;

 

(ii)5G tests carried out in SP and RJ, with expressive speed gain and latency results in the standalone technology. Also proving the technical feasibility of combining Release 16 with Carrier Aggregation to expand coverage by more than 65%;

 

(iii)The evolution of our IT platform with the migration of our CRM to the cloud within the Journey to Cloud project.

 

Below are details of the evolution of our mobile and fixed networks:

 

*Includes the following locations: Rio de Janeiro (RJ), São Gonçalo (RJ), Nilópolis (RJ), Nova Iguaçu (RJ), São João do Meriti (RJ), Duque de Caxias (RJ), São Paulo (SP), Mauá (SP), Poá (SP), Suzano (SP), Francisco Morato (SP), Franco da Rocha (SP), Diadema (SP), Guarulhos (SP), Taboão da Serra (SP), Salvador (BA), Lauro de Freitas (BA), Camaçari (BA), Feira de Santana (BA), Recife (PE), Olinda (PE), Jaboatão dos Guararapes (PE), Paulista (PE), Goiânia (GO), Aparecida de Goiânia (GO), Anápolis (GO), Manaus (AM), Belo Horizonte (MG), Betim (MG), Contagem (MG), Taguatinga (DF), Samambaia (DF), Ceilândia (DF), Águas Claras (DF), Guará (DF), Candangolândia (DF) and Gama (DF).

 

 

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2021 THIRD QUARTER RESULTS

 

 

 

Environmental, Social & Governance

 

3Q21 ESG HIGHLIGHTS

TIM has established a new and more ambitious plan named ESG Plan, for the 2021-23 three-year period. Based on the ambitions laid down in the previous Industrial Plan (2020-2022), the Company presented new objectives related to a set of initiatives, which are part of its strategy, contributing to a consistent inter-relation between ESG topics, business operation and organizational accountability.

 

7 new goals were added to the 8 previously created and improved:

 

*Base year 2019.

 

ENVIRONMENTAL

oIn July, The TIM Group joined the Science Based Target (SBTi) initiative, created by the coalition between CDP, the United Nations Global Compact, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). The objective of SBTi is to promote best practices in the reduction and neutralization of GHG emissions in line with climate science, engaging companies through a public commitment to submit their emissions reduction targets, so that they can be validated through scientific method.
oAt the end of the third quarter, 77% of TIM's average electricity consumption came from renewable sources. In September, this mark reached 80%, anticipating the percentage expected to be reached by the end of 2021.
oTIM created the SkyCoverage project that aims to prioritize the use of simplified structures and renewable energy, such as solar panels, to connect towers and antennas in remote areas of the country. The initiative contributes to the company’s goal of being carbon neutral by 2030.
o1,746 biosites are active in TIM’s network. Besides being a solution to reduce the number of antennas and towers, reducing the visual and urbanistic impact, these structures can add other functions, such as public lighting and security cameras.
oSince 2010, the Company has recorded its emissions in the Public Emission Record of the Brazilian GHG Protocol Program.
oThe Company is part of the B3’s Carbon Efficiency Index, a portfolio of companies that release greenhouse gas inventories and are committed to fighting the climate change cause. TIM is also part of the ICDPR-70 and the CDP Brazil’s Climate Resilience Index.
oTIM is certified by ISO 9001 standard, since 2000, and ISO 14001, since 2010.

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2021 THIRD QUARTER RESULTS

 

 

SOCIAL

oTIM donated half a million reais to the National Bank for Economic and Social Development's (BNDES) “Salvando Vidas” campaign to fight COVID-19. The resources will be used in the acquisition of about 450 thousand pieces of Personal Protective Equipment (PPE), benefiting 25 philanthropic hospitals in 20 municipalities in 14 states of the country.
oFirst Brazilian telecom operator to be part of the 2021 Refinitiv Diversity & Inclusion Index ranking, which measures the performance of more than 11,000 companies based on diversity, inclusion and career development initiatives. Among telecom companies worldwide, TIM ranks 19th in the ranking and also leads the benchmark in Brazil, considering all sectors.
oTIM joined the Business Network for Social Inclusion (REIS). Created in 2012, the group brings together more than a hundred companies around the Pact for Inclusion - endorsed by the International Labor Organization (ILO) - and is committed to the inclusion of people with disabilities in the labor market.
oIn an unprecedented partnership, TIM and Kroton, Cogna Educação's B2C vertical for higher education, an industry leader, created the Ampli platform, focused on offering 100% digital courses (distance learning). There are more than 400 free course options and over 250 undergraduate and graduate courses related to future professions, reaching a base of more than 50 million people.
oThe TIM Institute completed eight years of existence in August. Throughout its trajectory, its projects, actions and partnerships have reached more than 500 cities, in 26 states and the Federal District, benefiting more than 700 thousand people.
oTIM's Young Apprentice Program has 50% of vacancies for young black people between 16 and 21 years old. The opportunities are for the company's stores and administrative areas in 11 Brazilian states.
oFor the second year, TIM participated in the AfroPresence virtual conference held in September by the Labor Prosecutor's Office and the UN Global Compact, with the aim of fighting against racism in labor relations and promoting racial diversity in business spaces.
oThe Company is a signatory to the UN Women's Empowerment Principles (WEP).
oTIM joined the Business Coalition for Racial and Gender Equity, an initiative promoted by Instituto Ethos, the Center for the Study of Labor Relations and Inequalities (Ceert) and the Institute for Human Rights and Business (IHRB).

GOVERNANCE

oTIM won the Prêmio Cliente S/A for improving the customer service experience. Winner in the "Leader in customer management project" category with a case created to manage customer expectation in the service channels, increase satisfaction and reduce the time for handling demands;
oSince 2011, the Company is listed in Novo Mercado segment, B3’s highest governance level;
oIt has been the first and so far the only telecommunications company to receive the Pró-Ética Seal of the Brazilian Office of the Comptroller General (“CGU”);
oFirst telecom operator to achieve ISO 37001 certification, which attests to the safety and effectiveness of the anti-bribery management system.

 

To have access to the Environmental, Social & Governance quarterly Report, go to: http://www.tim.com.br/ri/ESG Quarterly Report.

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2021 THIRD QUARTER RESULTS

 

 

 

Disclaimer

 

The consolidated financial and operating information disclosed in this document, except where otherwise indicated, is presented in accordance with the International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), in compliance with the Brazilian Corporate Law (Law 6,404/76). Comparisons refer to the third quarter of 2021 (“3Q21”), except when otherwise indicated.

 

This document may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of the Company's management. The words "anticipates,” "believes,” "estimates,” "expects,” "forecasts,” "plans,” "predicts,” "projects,” "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties foreseen, or not, by the Company. Therefore, the Company’s future operating results may differ from current expectations and readers of this report should not base their assumptions exclusively on the information given herein. Forward-looking statements only reflect opinions on the date on which they are made and the Company is not obliged to update them in light of new information or future developments.

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2021 THIRD QUARTER RESULTS

 

 

  

Attachments

Attachment 1: Operating Indicators

 

 

 

 

33 

2021 THIRD QUARTER RESULTS

 

 

 

Attachment 1

TIM S.A.

Operating Ratios

 

*3Q21 and 9M21 numbers as of July 2021.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

1.Operations

 

Corporate structure

 

TIM S.A. (“TIM” “Company” and/or “Enterprise”) is a public limited company with Registered office in the city of Rio de Janeiro, RJ, and a subsidiary of TIM Brasil Serviços e Participações S.A. (“TIM Brasil”). TIM Brasil is a subsidiary of the Telecom Italia Group and held 66.65% of the share capital of TIM S.A on September 30, 2021 (66.58% on December 31, 2020).

 

The Company provides Landline Switched Telephone Service (”STFC“) in Local, National Long-Distance and International Long-Distance modes, as well as Personal Mobile Service (”SMP“) and Multimedia Communication Service (”SCM"), in all Brazilian states and in the Federal District.

 

The Company's shares are traded on B3 (formerly BM&F/Bovespa). Additionally, TIM S.A. has American Depositary Receipts (ADRs), Level II, traded on the New York Stock Exchange (NYSE) – USA. As a result, the company is subject to the rules of the Securities and Exchange Commission (“CVM”) and the Securities and Exchange Commission (“SEC”). In order to comply with good market practices, the company adopts as a principle the simultaneous disclosure of its financial information in both markets, in reais, in Portuguese and English.

 

In December 2020, TIM’s Board of Directors, after analyzing the studies prepared and the non-binding proposals received, approved, in a meeting held on December 10, 2020, the incorporation of a company, as preparation for future segregation of assets and provision of infrastructure services for residential fiber optic of TIM S.A., called FiberCo Soluções de Infraestrutura Ltda.

 

In May 2021, FiberCo Soluções de Infraestrutura Ltda. had its corporate name changed to FiberCo Soluções de Infraestrutura S.A. (“FiberCo”).

 

 

Corporate Reorganization

 

On July 29, 2020, the Board of Directors of the Company approved the submission to the Extraordinary General Meeting of the proposed merger of TIM Participações by TIM S.A.

 

The Extraordinary General Meeting was held on August 31, 2020, and approved, by a majority of votes, the incorporation of TIM Participações by TIM S. A, in accordance with the protocol and justification of Incorporation concluded between the administrations of the Companies on July 29, 2020.

 

As a result the Company’s Management proceeded with the merger on August 31, 2020, based on the net book assets of TIM Participações, in the amount of R$ 355,323.

 

The changes in TIM Participações’s shareholders' equity between the date of the report (March 31, 2020) and the merger (August 31, 2020) were transferred, absorbed and incorporated into the operating income of TIM Participações S.A. (incorporated), as set forth in the protocol of incorporation. As a result of the merger, all operations of TIM Participações were transferred to TIM S.A., which succeeded it in all its assets, rights and obligations, universally and for all purposes of law. This transaction had no economic or tax impact and the incorporated goodwill will not be used for the purposes of any tax offsets.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

This corporate reorganization aimed to provide greater efficiency and simplification of the organizational structure of the TIM Group, making the structure of internal controls more efficient. In addition, the corporate reorganization provides a better tax efficiency in future distributions of Interest on Shareholders’ Equity, and also, greater integration of administrative and financial unities allowing a cut-off in operational costs and expenses, as well as improvement of synergies, which shall result in a more efficient operation. As a result from this transaction, there was no impact on the controlling and non-controlling shareholders.

 

After the merger, TIM S.A. started to be traded with the codes TIMS3 on B3 and TIMB on the NYSE.

 

For the purposes of presenting the comparative balance, TIM S.A.’s asset and financial information remains unchanged, meeting the concept of legal entity for the presentation of the individual and consolidated quarterly information.

 

Net assets on merger date on September 01, 2020 are summarized as follows:

 

 

   09/01/2020    09/01/2020
Assets    Liabilities   
         
Current assets    Current liabilities   
Cash and cash equivalents  21,959 Taxes, fees and contributions to be collected  368
Taxes, fees and contributions to be recovered  28,515 Other liabilities  10,708
Other assets  166 Total current liabilities  11,076
Total current assets  50,640     
     Non-current liabilities   
Non-current assets    Provision for legal and administrative proceedings  36,850
Judicial deposits  72,346 Other liabilities  29,752
Other assets  1,254 Total non-current liabilities  66,602
         
     Shareholders' equity   
Goodwill (i)  308,761 Share Capital  1,719
Total non-current assets  382,361 Reserves  353,604
     Total shareholders' equity  355,323
         
Total assets  433,001 Total liabilities and shareholders' equity  433,001

 

(i) The Incorporated goodwill has the following composition:

 

Goodwill - Future profitability  367,571
Surplus of liabilities (provision for lawsuits) in business combination  (89,106)
Deferred income tax on surplus  30,296
   308,761
2.Preparation basis and presentation of individual and consolidated quarterly information

 

The individual and consolidated quarterly information was prepared in accordance with accounting practices adopted in Brazil, which comprise the resolutions issued by the CVM and the pronouncements, guidelines and

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

interpretations issued by Accounting Pronouncement Committee (CPC) and the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and show all relevant information specific to the quarterly information, and only this information, which is consistent with that used by management in its management. Additionally, the Company considered the guidelines provided for in Technical Guideline OCPC 07 - Evidencing upon Disclosure of General Purpose Financial-Accounting Reports in the preparation of its quarterly information. In this way, the relevant information specific to the quarterly information is being evidenced and correspond to those used by the management in its duties.

 

The main accounting policies applied in the preparation of this quarterly information are defined below and / or presented in their respective notes. Those policies were consistently applied in the years presented.

 

a.General criteria for preparation and disclosure

 

 The individual and consolidated quarterly information was prepared considering the historical cost as value basis and financial assets and liabilities (including derivative financial instruments) measured at fair value.

 

Assets and liabilities are classified according to their degree of liquidity and collectability. They are reported as current when they are likely to be realized or settled over the next 12 months. Otherwise, they are recorded as non-current. The exception to this procedure involves deferred income tax and social contribution balances (assets and liabilities) and Provision for lawsuits and administrative proceedings that are fully classified as long-term.

 

The presentation of Statements of Value Added (DVA) is required by the Brazilian Corporate Legislation and accounting practices adopted in Brazil applicable to listed companies. The DVA was prepared according to the criteria set forth in CPC Technical Pronouncement No. 09 - “Statement of Value Added”. IFRS does not require the presentation of this statement. Therefore, according to the IFRS, this statement is presented as supplementary information, without affecting the quarterly information.

 

Interests paid are classified as financing cash flow in the statement of cash flow as it represents costs of obtaining financial resources.

 

b.Functional currency and presentation currency

 

The currency of presentation of the quarterly information is the Real (R$), which is also the Company’s functional currency.

 

Transactions in foreign currency are recognized by the exchange rate on the date of transaction. Monetary items in foreign currency are translated into Brazilian reais at the foreign exchange rate prevailing on the balance sheet date, informed by the Central Bank of Brazil. Foreign exchange gains and losses linked to these items are recorded in the statement of income. 

 

c.Segment information

 

Operating segments are components of the entity that carry out business activities from which revenues can be obtained and expenses incurred. Its operating results are regularly reviewed by the entity's main operations manager, who makes decisions on resource allocation and evaluates segment performance. For the segment to exist, individualized financial information is required.

 

The main operational decision maker in the Company, responsible for the allocation of resources and periodically evaluating performance, is the Executive Board, which, along with the Board of Directors, are responsible for making the strategic decisions of the company and its management.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

The Group's strategy is focused on optimizing results, and from the corporate reorganization mentioned in note 1, all the operating activities of the group are concentrated exclusively in TIM S.A. Although there are diverse activities, decision makers understand that the company represents only one business segment and do not contemplate specific strategies focused only on one service line. All decisions regarding strategic, financial planning, purchases, investments and investment of resources are made on a consolidated basis. The aim is to maximize the consolidated result obtained by operating the SMP, STFC and SCM licenses.

 

d.Consolidation procedures

 

Subsidiaries are all the entities in which the Group retains control. The Group controls an entity when it is exposed to, or has a right over the variable returns arising from its involvement with the entity and has the ability to interfere in those returns due to its power over the entity. The subsidiaries are fully consolidated as of the date control is transferred to the Group. Consolidation is interrupted beginning as of the date in which the Group no longer holds control.

 

The purchase accounting method is used to record the acquisition of subsidiaries by the Group. The acquisition cost is measured as the fair value of the assets acquired, equity instruments (i.e.: shares) and liabilities incurred or assumed by the acquirer on the date of the change of control. Identifiable assets acquired, contingencies and liabilities assumed in a business combination are initially measured at fair value on the date of acquisition, regardless of the proportion of any minority interest. The portion exceeding the acquisition cost of the Group's interest in the acquired identifiable net assets, is recorded as goodwill. Should the acquisition cost be less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in the statement of income as a revenue, once concepts and calculations applied are reviewed.

 

Intercompany transactions, as well as the balances and unrealized gains and losses in those transactions, are eliminated. The base date of the financial information used for consolidation purposes is the same for all the companies in the Group.

 

The comparative consolidated balances for September 2020 have not been presented, since the subsidiary FiberCo was only incorporated in December 2020. Thus, there are no consolidated balances in September 2020.

 

e.Approval of quarterly information

 

This quarterly information was approved by the Company's Board of Directors on October 25, 2021.

 

f.New standards, amendments and interpretations of standards

 

The following new standards/amendments were issued by the Accounting Pronouncement Committee (CPC) and International Accounting Standards Board (IASB), are effective for the year ended September 30, 2021.

 

 

·         Changes to CPC 15 (R1): Definition of business

 

The amendments to CPC 15 (R1) clarify that, to be considered a business, an integrated set of activities and assets must include, at least, an inflow of funds and a substantive process that together contribute significantly to the capacity to generate the outflow of funds. Moreover, it clarified that a business can exist without including all the inflows of funds and processes necessary to create outflows of funds. These amendments had no impact on the Company’s individual and consolidated quarterly information, but may impact future periods if the Group enters into any business combination.

 

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

·         Changes in CPC 38, CPC 40 (R1) and CPC 48: Benchmark Interest Rate Reform

 

The amendments to Pronouncements CPC 38, CPC 48 and CPC 40 provide exemptions that apply to all hedge relationships directly affected by the benchmark interest rate reform. A hedge relationship is directly affected if the reform raises uncertainties about the period or the value of cash flows based on the benchmark interest rate of the hedged item or hedging instrument. These changes have no impact on the Company’s individual and consolidated quarterly information, as it does not have interest rate hedging relationships.

 

 

·Changes in CPC 26 (R1) and CPC 23: Definition of material

 

The amendments provide a new definition of material, stating that: “information is material if its omission, distortion or obfuscation can reasonably influence decisions that the main users of the general purpose quarterly information make based on this quarterly information, which provide financial information on entity’s specific report”. The amendments clarify that the materiality will depend on the nature or magnitude of the information, individually or in combination with other information, in the context of the financial statements. A distorted information is material if it could reasonably be expected to influence decisions made by primary users. These amendments had no impact on the individual and consolidated quarterly information, nor is it expected that there will be any future impact for the Company.

 

 

·Review in CPC 00 (R2): Conceptual Framework for Financial Reporting

 

The revised pronouncement provides some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These changes did not affect the individual and consolidated quarterly information of the Company.

 

·Changes in CPC 06 (R2): COVID-19 related benefits granted to leaseholders in lease agreements.

 

The amendments provide for the granting of benefits to lessees upon adoption of the guidelines of CPC 06 (R2) on the modification of the lease agreement, when accounting for the related benefits as a direct consequence of the Covid-19 pandemic.

 

As a practical expedient, a lessee may choose not to assess whether a benefit related to Covid-19 granted by the lessor is a modification of the lease agreement. The lessee who makes this option must account for any change in the lease payment resulting from the benefit granted in the lease agreement related to Covid-19 in the same way that it would account for the change by adopting CPC 06 (R2) if the change was not a modification of the lease agreement.

 

 

The following new standards were issued by Accounting Pronouncements Committee (CPC) and the International Accounting Standards Board (IASB) but are not in effect for the period ended on September 30, 2021.

 

·CPC 11- Insurance Contracts

 

In May 2017, the IASB issued IFRS 17 - Insurance Contracts (a standard not yet issued by CPC in Brazil, but which will be codified as CPC 50 - Insurance Contracts and will replace CPC 11 - Insurance Contracts), a new comprehensive accounting standard for insurance contracts that includes recognition and measurement, presentation and disclosure. As soon as it comes into force, IFRS 17 (CPC 50) will replace IFRS 4 - Insurance Contracts (CPC 11), issued in 2005. IFRS 17 applies to all types of insurance contracts (such as life, non-life, direct insurance and reinsurance), regardless of the type of entity that issues them, as well as certain guarantees and financial instruments with discretionary participation characteristics. Some scope exceptions apply. The overall

39 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements of IFRS 4, which are largely based on local accounting policies in force in previous periods, IFRS 17 provides for a comprehensive model for insurance contracts, covering all relevant accounting aspects. The focus of IFRS 17 is the general model, covering the following:

 

• A specific adaptation for contracts with direct participation characteristics (variable rate approach).

 

• A simplified approach (premium allocation approach), mainly for short-term contracts. IFRS 17 is effective for periods beginning on or after January 1, 2023, requiring the presentation of comparative amounts. Early adoption is allowed if the entity also adopts IFRS 9 and IFRS 15 on the same date or before the first-time adoption of IFRS 17.

 

This standard does not apply to the Company.

 

·         Amendments to IAS 1: Classification of liabilities as current or non-current

 

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, related to CPC 26, aiming to specify the requirements for classifying the liabilities as current or non-current. The amendments clarify the following:

 

• What a right to postpone settlement means;

• That the right to postpone settlement must exist on the base date of the report;

• That this classification is not affected by the likelihood that an entity will exercise its right to postpone settlement;

• That only if a derivative embedded in a convertible liability is itself an equity instrument would the terms of a liability not affect its classification. Amendments are valid for periods started on January 1, 2023 and must be applied on a retrospective basis.

 

The Company currently assesses the impact that the changes will have on current practice and whether existing loan agreements may require renegotiation.

 

 

COVID-19 impacts

 

Since March 2020 a pandemic was declared by the World Health Organization due to the outbreak of the new Coronavirus (COVID-19). The main impacts and first cases were recorded in Brazil and in the world also in the first quarter of 2020.

 

The outbreak of COVID-19 developed rapidly in 2020 and continues until 2021. The measures taken to contain the virus greatly affected economic activity, including some impacts on the operating results and cash flows of the Companies in Brazil. Throughout 2020, lockdowns were decreed in several states in Brazil, lasting from March to June 2020.

 

In 2020, the Company has a robust infrastructure and is part of an extremely important segment in this period of crisis, essential for the population, government and health system.  After an internal analysis, there was no indication of impairment of assets or risks associated with the fulfillment of obligations, since the Company is not highly leveraged and still has credit lines available to be used in the event of a significant reduction in cash volume. 

 

In 2021, the crisis worsened with an increase in the number of cases. Consequently, there was a need for new restrictive measures, including the closing of the trade, impacting the operation of stores. Said restrictions were implemented mainly in March in different cities in Brazil.

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

In September 2021, the country showed a significant evolution in vaccination levels, with a reduction in the transmission rate and number of cases. Thus, there was a slight improvement in economic activities. We have not suffered any material impact on our operations so far. The Company continues to present positive results, and the main impact of the restriction measures was verified in the product sales line due to the closing of stores in the first quarter, an effect already normalized in the second and third quarter of 2021.

 

3.Estimates and areas where judgment is significant in the application of the Company's accounting policies

 

Accounting estimates and judgments are continuously assessed. They are based on the Company's historical experience and on other factors, such as expectations of future events, considering the circumstances present on the base date of quarterly information.

 

By definition, the resulting accounting estimates will rarely be the same as the actual results. The estimates and assumptions that present a significant risk, with the probability of causing a material adjustment to the book values of assets and liabilities for the fiscal period, are covered below.

 

 

(a)       Impairment loss on non-financial assets

 

Impairment losses occur when book value of an asset or cash generating unit exceeds its recoverable value, which is the highest of fair value less selling costs and value in use. Calculation of fair value less selling costs is based on information available on similar assets’ selling transactions or market prices less additional costs to dispose of the asset. The calculation of value in use is based on the discounted cash flow model.

 

Any reorganization activities with which the Company is not committed to on the reporting date of the quarterly information or significant future investments that could improve the asset base of the cash generating unit under test are excluded for impairment testing purposes.

 

The main non-financial assets for which this assessment was made are goodwill recorded by the Company (note 15) and its tangible and intangible assets.

 

(b)       Income tax and social contribution (current and deferred)

 

Income tax and social contribution (current and deferred) are calculated according to interpretations of current legislation and CPC 32 / IAS 12. This process typically involves complex estimates to determine taxable income and temporary differences. In particular, the deferred assets on tax losses, negative basis of social contribution and temporary differences is recognized in proportion to the probability that future taxable income is available and can be used. The measurement of the recoverability of deferred income tax on tax losses, negative basis of social contribution and temporary differences takes the history of taxable income into account, as well as the estimate of future taxable income (note 10).

 

 

(c)       Provision for legal and administrative proceedings

 

The legal and administrative proceedings are analyzed by the Management along with its legal advisors (internal and external). The Company considers factors in its analysis such as hierarchy of laws, precedents available, recent court judgments, their relevance in the legal system and payment history. These assessments involve Management’s judgment (note 25).

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 

(d)       Fair value of derivatives and other financial instruments

 

The financial instruments presented in the balance sheet at fair value are measured using valuation techniques that consider observable data or observable data derived from market (note 37).

 

(e)       Unbilled revenues

 

Since some cut dates for billing occur at intermediate dates within the months of the year, as the end of each month there are revenues earned by the Company, but not actually invoiced to its customers. These unbilled revenues are recorded based on estimate that takes into consideration historical consumption data, number of days elapsed since the last billing date, among others (note 28).

 

(f)       Leases

 

The Company has a significant number of the lease contracts in which it acts a lessee (note 17), and with the adoption of the accounting standard IFRS 16 / CPC 06 (R2) – Lease, on 01/01/2019, certain judgments were exercised by Company’s management in measuring lease liabilities and right-of-use assets, such as: (i) estimate of the lease term, considering non-cancellable period and the period covered by options to extend the contract term, when the exercise depends only from the Company, and this exercise is reasonably certain; and (ii) using certain assumptions to calculate the discount rate.

 

The company is not able to readily determine the interest rate implicit on the lease and, therefore, considers its incremental rate on loans to measure lease liabilities. Incremental rate on the lessee’s loan is the interest rate that the lessee would have to pay when borrowing, for a similar term and with a similar guarantee, the resources necessary to obtain the asset with a value similar to the right of use asset in a similar economic environment. The company estimates the incremental rate using observable data (such as market interest rates) when available and considers aspects that are specific to the Company (such as the cost of debt) in this estimate.

 

(g)       Assets classified as held for sale (and related liabilities)

 

On May 5, 2021, TIM S.A. informed its shareholders and the market in general that, at a meeting of the Company’s Board of Directors held on the same day, an agreement between TIM S.A. and IHS Fiber Brasil - Cessão of Infrastructures Ltd. (“IHS”) was approved for the acquisition, by IHS, of an equity interest in FiberCo Soluções de Infraestrutura S.A. (“FiberCo”), an entity incorporated by the Company to segregate network assets and provide infrastructure services. Thus, the Company identified the assets and liabilities within the scope of the transaction that guarantee the sale of 51% of the infrastructure operation and the classification of these assets and liabilities in the “held for sale” group.

 

The Board of Directors considered that said business met the criteria to be classified as held for sale at that date for the following reasons:

 

• FiberCo and the set of assets and liabilities that will be transferred to it as a prerequisite for the transaction are available for immediate sale and may be sold to a potential buyer at its current state;

• The measures required to complete the sale have started and are expected to be completed within one year as of the classification date;

• Preliminary negotiations with a potential buyer have already been carried out and the agreement was signed. The Company and IHS are currently only waiting approval from regulatory bodies, and said approval is expected to take place in the coming months.

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

For further details on the operation, see note 16.

 

 

4.Cash and cash equivalents

 

These are financial assets measured at amortized cost through the effective interest rate method.

 

The Company’s Management determines the classification of its financial assets upon initial recognition.

 

 

  Parent company Consolidated
  September 2021 December 2020 September 2021 December 2020
         
  Cash and banks 35,656 100,008 35,657 100,009
  Free availability financial investments:        
     CDB’s / Repurchases 4,031,954 2,475,282 4,031,954 2,475,282
         
  4,067,610 2,575,290 4,067,611 2,575,291

 

 

Bank certificates of deposit (“CDBs”) and committed transactions are nominative securities issued by banks and sold to the public as a form of fund raising. Such marketable securities may be traded during the contracted term, at any time, without significant loss in their value and are used for the fulfillment of short-term obligations by the company.

 

The annual average return of the Company’s applications related to CBDs and Committed Operations is 101.48% (101.24% as of December 31, 2020) of the variation of the Interbank Deposit Certificate–CDI.

 

5.Marketable securities

 

 

Comprise financial assets measured at fair value through profit or loss.

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

  September 2021 December 2020
     
FUNCINE (i) 8,908 7,061
Fundo Soberano (ii) 7,645 5,220
FIC: (iii)    
   Government bonds (iv) 2,081,290 1,345,797
   CDB (v) 25,868 17,370
   Financial bills (vi) 540,745 292,500
   Other (vii) 649,249 409,551
  3,313,705 2,077,499
     

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Current portion (3,304,797) (2,070,438)
Non-current portion 8,908 7,061
     

 

(i)On December 2017, the Company, with the aim of using tax deductibility benefit for income tax and social contribution purposes, started investing in the National Film Industry Financing Fund (FUNCINE). The average remuneration in 2021 is -0.24% p.a. (-3.34% p.a. on December 31, 2020).

 

(ii) Fundo Soberano is composed only of federal government bonds. The average remuneration in 2021 is 93.25% (87.71% on December 31, 2020) of the variation of the interbank deposit certificate – CDI.

 

(iii) In August 2017, the Company invested in open FICs (Quota Investment Fund). Funds are mostly made up of federal government bonds and papers from top-tier financial institutions. The average remuneration in 2021 of the FIC's was 125.56% (112.72% on December 31, 2020) of the variation of the Interbank Deposit Certificate – CDI.

 

(iv) Government bonds are fixed income financial instruments issued by the National Treasury to finance the activities of the Federal Government.

 

 

(v) The CDB operations are emitted by the banks with the commitment of stock buyback by the bank itself and with predetermined taxes.

 

(vi) The Financial bills is a fix income tittle emitted by financial institutions with the objective of a long-term fund raising.

 

(vii) Is represented by: Debentures, FIDC, commercial notes, promissory notes, bank credit note. 

6.Trade accounts receivable

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

These are financial assets measured at amortized cost, and refer to accounts receivable from users of telecommunications services, from network use (interconnection) and from sales of handsets and accessories. Accounts receivable are recorded at the price charged at the time of the transaction. The balances of accounts receivable also include services provided and not billed (“unbilled”) up to the balance sheet date. Accounts receivable from clients are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method less the provision for expected credit losses ("impairment").

 

The provision for expected credit losses was recognized as a reduction in accounts receivable based on the profile of the subscriber portfolio, the aging of overdue accounts receivable, the economic situation, the risks involved in each case and the collection curve, at an amount deemed sufficient by Management, as adjusted to reflect current and prospective information on macroeconomic factors that affect the customers’ ability to settle the receivables.

 

The fair value of trade accounts receivable equals the book value recorded as at September 30, 2021 and December 31, 2020.

 

44 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The average rate considered in calculating the present value of accounts receivable recorded in the long term is 0.19% (0.22% on December 31, 2020).

 

 September 2021 December 2020
Trade accounts receivable2,841,604 3,180,661
    
Gross accounts receivables3,600,935 3,831,921
    
Billed services1,880,187 2,039,403
Unbilled services821,391 817,669
Network use481,776 399,083
Goods sold397,541 552,962
Contractual assets (note 24)12,151 14,914
Other accounts receivable7,889 7,890
    
Provision for expected credit losses(759,331) (651,260)
    
Current portion(2,708,603) (3,051,834)
Non-current portion133,001 128,827

 

The movement of the provision for loss on expected settlement credits, accounted for as an asset reduction account, was as follows:

 

 September 2021 December 2020
 (9 months) (12 months)
    
Opening balance651,260 774,077
Supplement to expected losses427,582 552,817
Write-off of provision(319,511) (675,634)
    
Closing balance759,331 651,260

 

The aging of accounts receivable is as follows:

 

 September 2021 December 2020
    
Total3,600,935 3,831,921
    
Undue2,482,843 2,785,469
Overdue (days):   
 up to 30244,008 248,955
 up to 60101,315 84,218
 up to 90100,821 71,635
        >90671,948 641,644

 

7.Inventories

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Inventories are presented at the average acquisition cost. A loss is recognized to adjust the cost of Handsets and accessories to the net realizable value (selling price), when this value is less than the average acquisition cost.

45 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 September 2021 December 2020
    
Total Inventories231,139 246,602
    
Inventories242,883 257,477
Mobile handsets and tablets163,822 186,961
Accessories and prepaid cards59,127 55,558
TIM chips19,934 14,958
    
Losses on adjustment to realizable amount(11,744) (10,875)

  

8.Recoverable indirect taxes, fees and contributions

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

.

 

 September 2021 December 2020
    
Recoverable indirect taxes, fees and contributions1,250,645 1,230,801
    
ICMS1,207,730 1,188,018
Other42,915 42,783
    
Current portion(375,487) (374,015)
Non-current portion875,158 856,786

 

 

The amounts of recoverable ICMS (state VAT) are mainly comprised by:

 

 

(i) credits on the acquisition of property, plant and equipment directly related to the provision of telecommunication services (credits divided over 48 months).

 

(ii) ICMS amounts paid under the tax substitution regime from goods acquired for resale, mainly mobile handsets, chips, tablets and modems sold by TIM.

 

(iii) In May 2021, ICMS credits from the final and unappealable decision for a lawsuit involving the repetition of prepaid telephone services in Santa Catarina, in the amount of R$ 52 million.

 

46 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

9.Recoverable direct taxes, fees and contributions

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

 September 2021 December 2020
    
Recoverable direct taxes, fees and contributions2,291,290 2,698,239
    
Income tax (IR) and social contribution (CS) (i)794,911 381,905
PIS / COFINS (ii)1,443,272 2,253,545
Other53,107 62,789
    
Current portion(1,264,888) (1,421,112)
Non-current portion1,026,402 1,277,127

 

(i) Income tax and social contribution amounts are mainly related to other income tax and social contribution credits from previous years, whose current estimated term for use is later than 12 months.

 

In September 2021, the Federal Supreme Court (STF), with general repercussions, established an understanding for the non-levy of Corporate Income Tax (IRPJ) and Social Contribution (CSLL) on the monetary restatement using the SELIC rate in cases of undue payment. Although the aforementioned decision is still pending publication, as well as the specific TIM lawsuit is still pending judgment, TIM recorded its best estimate to date, in the amount of R$ 534 million, since the likelihood of a favorable outcome for the Company becomes probable.

(ii) The Recoverable PIS/COFINS amounts mainly refer to credits from a legal proceeding filed by TIM Celular S.A. (ultimately merged into TIM S.A., as well as TIM S.A. itself), with a favorable final decision in Higher Courts which discussed the exclusion of the ICMS from the PIS and COFINS calculation bases. According to the Company’s internal assessment, we expect to use these credits by the end of the year 2022.

In March 2017, the Federal Supreme Court (“STF”) recognized the unconstitutionality of including ICMS amounts in the calculation base of PIS and COFINS contributions.  TIM S.A. (previously named “Intelig Telecomunicações Ltda.”), as the surviving company from the merger of TIM Celular S.A. and other entities existing in the Group in the past, which had filed proceedings of the same nature, has been challenging this issue in court since 2006, with effects retroactive to five years, as permitted by the legislation. The total amount recorded in 2019 related to these credits was R$ 3,023 million, of which R$ 1,795 million relates to principal and R$ 1,228 million was inflation adjustment.

 

The amount recorded are updated monthly at the interest rate equivalent to the reference rate of the Special Settlement and Custody System (Selic), available on the website of the Brazilian Federal Revenue.

In 2020, TIM had utilized credits arising from the process of exclusion of ICMS from the calculation bases of PIS and COFINS, for payments of federal taxes, in the total amount of R$ 1,516 million. In the first, second and third quarter of 2021, total offsetting of R$ 744 million was made for said PIS and COFINS credits.

In May 2021, the Brazilian Supreme Court (STF) ended the discussion regarding the credit rights of the companies, defining in the judgment of Motions for Clarification that the exclusion of ICMS from the PIS and COFINS calculation basis is valid as of March 15, 2017, when the general repercussion thesis (Topic 69) was established, in the judgment of Special Appeal (RE) No. 574706.

47 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

Considering that the judges ratified that the ICMS not included in the PIS/COFINS calculation basis is highlighted in the invoice, we confirm that the procedures adopted by TIM S.A., when providing for PIS/COFINS credits, are adequate. 

 

10.Deferred income tax and social contribution

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Deferred income tax and social contribution are recognized regarding the (1) accumulated tax losses and negative bases of social contribution and (2) temporary differences arising from differences between the tax basis of assets and liabilities and their book values in the quarterly information. Deferred income tax is determined using the tax rates (and tax laws) enacted, or substantially enacted, up to the balance sheet date. Subsequent changes in tax rates or tax legislation may modify the deferred tax credit and debit balances.

 

Deferred tax assets on income tax and social contribution are recognized only in the event of a profitable track record and/or when the annual forecasts prepared by the Company, examined by the Tax Council and Statutory Audit Committee and approved by other Management bodies, indicate the likelihood of the future realization of those tax credits.

 

The balances of deferred income tax assets and liabilities are presented at net value in balance sheet when there is the legal right and the intention of offsetting them upon calculation of current taxes, in general related to the same legal entity and the same tax authority. Thus, deferred tax assets and liabilities belonging to different entities are in general shown separately, not at their net amounts.

 

On September 30, 2021 and December 31, 2020, the prevailing tax rates were 25% for income tax and 9% for social contribution. In addition, there is no statute of limitation in regard to the income tax and social contribution carried forward losses, which it can be offset by up to 30% of the taxable profit reached at each fiscal year, according to the current tax legislation.

 

The amounts recorded are as follows:

 September 2021 December 2020
    
Losses carried forward – income tax and social contribution327,349 475,128
Temporary differences:   
Provision for legal and administrative proceedings328,004 303,948
Provision for expected credit losses262,750 224,459
Adjustments to present value – 3G license3,783 5,240
Lease of LT Amazonas infrastructure31,779 29,971
Profit sharing25,557 36,915
Taxes with enforceability suspended (i)426,702 258,246
Amortized Goodwill – TIM Fiber (ii)(35,996) (370,494)
Derivative financial instruments(121,535) (154,718)
Capitalized interest on 4G authorization(240,726) (262,608)
Deemed costs – TIM S.A(45,388) (53,792)

48 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

IFRS16 Lease339,208 303,833
Accelerated depreciation (iii)(443,965) (266,464)
Other17,375 20,982
 874,897 550,646
Deferred active tax portion874,897 550,646

 

(i) Mainly represented by the Fistel fee for the financial years 2020 and 2021. The Operating Inspection Fee (TFF) for the years 2020 and 2021 had its payments suspended by virtue of an injunction and, therefore, still do not have a specific date for payment. See Note 22 for details.

 

 

 

(ii) Represented by the goodwill on the business combination of companies TIM Fiber RJ and SP acquired by TIM in 2012. In June 2021, we had the reclassification of a portion of this goodwill and related deferred taxes to the held-for-sale group in the amount of R$ 334,498 due to the sale transaction described in Note 16.

 

(iii) As of the 1Q20, TIM S.A. excludes the portion of acceleration of depreciation of movable assets belonging to property, plant and equipment from the calculation basis of the IRPJ and CSLL, due to their uninterrupted use in three operating shifts, supported by technical expert report, as provided for in Article 323 of the RIR/2018, or by the adequacy to the tax depreciation provided for in IN 1700/2017. Such tax adjustment generated a deferred liability of R$ 444 million until September 30, 2021 (R$ 266.5 million up to December 31, 2020) and applied as of January 1, 2020.

 

 

Expectation of recovery of tax credits

 

The estimates of recoverability of tax credits were calculated taking into consideration financial and business assumptions available on September 30, 2021.

 

Based on these projections, the company has the following expectation of recovery of credits:

 

 

 

Deferred income tax and social contribution

 

Tax losses and negative basis

 

 

Temporary differences

  
2021142,068 748,971  
2022185,281 (186,532)  
2023- (110,420)  
2024 onwards- 95,529  

 

Total

327,349 547,548 

 

874,897

 

The company based on a history of profitability and based on projections of future taxable results, constitutes deferred income tax credits and social contribution on all of its tax losses, negative social contribution basis and temporary differences.

 

The Company used credits from tax losses and the negative basis of social contribution in the amount of R$ 147,779 during the year up to September 30, 2021 (R$ 325,583 on December 31, 2020, including tax losses).

 

 

49 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

11.Prepaid expenses

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

 September 2021 December 2020
    
 346,015 223,394
Fistel (i)74,492 -
Advertisements not released7,314 1,679
Rentals and insurance67,844 69,208
Incremental costs for obtaining customer contracts (ii)143,870 125,114
Other52,495 27,393
    
Current portion(263,890) (149,796)
Non-current portion82,125 73,598

 

 

(i) In March 2021, there was a payment of R$ 73 million referring to the Contribution for the Promotion of Public Radio Broadcasting (CFRP), and, in April 2021, R$ 226 million related to Condecine. The amounts related to these rates are monthly appropriated to income. For further details on amounts related to Fistel - TFF pending payment, see note 22.

 

(ii) It is substantially represented by incremental costs related to sales commissions paid to partners for obtaining customer contracts arising from the adoption of IFRS 15/ CPC 47, which are deferred to the result in accordance with the term of the contract and/or economic benefit, usually from 1 to 2 years.

 

12.Judicial deposits

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

They are recorded at historical cost and updated according to current legislation:

 

 

 September 2021 December 2020
    
 726,742 794,755
    
Civil279,465 315,312
Labor132,021 149,390
Tax179,004 181,670
Regulatory111 111

50 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Online attachment (i)136,141 148,272

 

(i) Refer to legal blockages directly in the company's current accounts and financial investments linked to certain legal proceedings. This amount is periodically analyzed and when identified, reclassification is made to one of the other specific accounts of the legal deposit item.

 

 

 

Civil

 

These are court deposits to guarantee the execution of civil proceedings where the Company is challenging the amounts involved. Most of these proceedings refer to lawsuits filed by customers, involving issues of consumer rights, among others.

 

There are some processes with differentiated matters, for instance, in which the value set by ANATEL for vacating certain transmission sub-bands is discussed, enabling the implementation of 4G technology. In this case, the amount deposited in court under discussion is R$ 71,694 (R$ 70,560 on December 31, 2020).

 

 

Labor

 

These are amounts deposited in court as guarantees for the execution and the filing of appropriate appeals, where the relevant matters or amounts involved are still being discussed. The total amount has been allocated between the various claims filed by registered employees and third-party service providers.

 

 

 

Tax

 

The company has legal deposits, relating to tax matters, made to support several ongoing legal discussions. Such deposits mainly relate to the following discussions:

 

 

(a)Use of credit in the acquisition of electricity directly employed in the production process of companies, matter with positive bias in the judiciary. The current value of the deposits referring to this discussion is R$ 33,953 (R$ 34,544 as of December 31, 2020).

 

 

(b)CPMF levy on loan conversion operations into the Company’s equity; recognition of the right not to collect the contribution allegedly levied on the simple change of ownership of current accounts due to merger. The current value of the deposits referring to this discussion is R$ 8,983 (R$ 8,862 as of December 31, 2020).

 

(c)Constitutionality of the collection of the functioning supervision fee (TFF - Taxa de Fiscalização do Funcionamento) by municipal authorities of different localities. The current value of the deposits referring to this discussion is R$ 19,540 (R$ 18,883 as of December 31, 2020).

 

(d)Non-homologation of compensation of federal debts withholding income tax credits (IRRF) for the alleged insufficiency of credits, as well as the deposit made for the purposes of release of negative Certificate of debts. The current value of the deposits related to this discussion is R$ 11,157 (R$ 11,317 as of December 31, 2020).

 

51 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

(e)Incidence of ISS on import services and third parties; alleged lack of collection in relation to ground cleaning and maintenance service of BRS (Base Radio Station), the ISS itself, the ISS incident on co-billing services and software licensing (blackberry). Guarantee of the right to take advantage of the benefit of spontaneous denunciation and search for the removal of confiscatory fines in the case of late payment. The current value of the deposits related to this discussion is R$ 7,961 (R$ 7,843 as of December 31, 2020).

 

(f)Accessory services provided for in the agreement 69/98 ICMS incident on the provision of communication services of the amounts charged for ACCESS, Membership, Activation, qualification, availability, subscription and use of the services, among others. The current value of the deposits related to this discussion is R$ 3,360 (R$ 3,329 as of December 31, 2020).

 

(g)Requirement by ANATEL of the public price for the administration of numbering resources. The current value of the deposits related to this discussion is R$ 3,553 (R$ 3,514 as of December 31, 2020).

 

(h)Deposit made by TIM S. A – unconstitutionality and illegality of the collection of FUST (Fund for Universalisation of Telecommunications Services). The right not to collect FUST, failing to include in its calculation base the revenues transferred by way of interconnection and EILD (Industrial Exploitation of Dedicated Line), as well as the right not to suffer the retroactive collection of the differences determined in function of not observing sum 7/2005 of ANATEL. The current value of the deposits referring to this discussion is R$ 61,132 (R$ 58,664 as of December 31, 2020).

 

(i)ICMS - Miscellaneous. Deposits made in several processes that discuss ICMS charges, mainly related to discussions on loan, DIFAL, exempt and non-taxed services, ICAP and Covenant 39. The current value of the deposits referring to this discussion is R$ 12,848 (R$ 14,505 as of December 31, 2020).

 

(j)CSLL - charges related to cases of Jornal do Brasil that were directed to the company, as well as charges related to successful Negative BC Compensation/Tax Loss. The current value of the deposits referring to this discussion is R$ 11,670 (R$ 9,739 as of December 31, 2020).

 

 

13.Investment

 

The ownership interest in subsidiary is valued using the equity accounting method.

 

TIM’s Board of Directors, after analyzing the studies prepared and the non-binding proposals received, approved, in a meeting held on December 10, 2020, the incorporation of FiberCo Soluções de Infraestrutura Ltda. (“FiberCo”), a limited liability company, in preparation for a possible (or eventual) segregation of assets and provision of residential fiber optic infrastructure services. The Company was organized on December 16, 2020 and transformed on a limited liability corporation in May 2021.

 

This process is one of the intermediate steps in the transformation of TIM in a provider of broadband services, and aims to create an open fiber optic infrastructure vehicle (“FiberCo”) with the acquisition of a strategic partner that will become a partner of FiberCo. FiberCo will operate in the wholesale market and can provide last-mile fiber connectivity and transportation services to market operators, with TIM as the client (see note 16).

 

TIM S.A. holds 100% (100% on December 31, 2020) of FiberCo’s equity interest.

 

 

52 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

(a)Interest in subsidiary:
    
   September 2021 December 2020
   FiberCo FiberCo
      
Number of quotas/shares held  1,000 1,000
      
Interest in total capital  100% 100%
      
Shareholders' equity/loss  (230) 1
      
Net profit for the period  (231) -
      
Equity in earnings  (231) -
      
      
Investment amount  (230) 1

 

 

Pursuant to IAS 28/CPC 18, the loss exceeding the amount invested was reclassified to “Other liabilities” caption in non-current liabilities and later classified as Liabilities related to assets held for sale, in the amount of R$ 230. 

 

14.Property, plant and equipment

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Property, plant and equipment are stated at acquisition and/or construction cost, less accumulated depreciation and impairment losses (the latter only if applicable). Depreciation is calculated based on the straight-line method over terms that take into account the expected useful lives of the assets and their residual values. As of September 30, 2021, and December 31, 2020, the Company has no indication of impairment in its property, plant and equipment.

 

The estimated costs of dismantling towers and equipment on rented properties are capitalized and depreciated over the estimated useful lives of these assets. The Company recognizes the present value of these costs in property, plant and equipment with a counter-entry to the liability “provision for future asset retirement”. Interest incurred on updating the provision is classified within financial expenses.

 

Gains and losses on disposal are determined by comparing the amounts of these disposals with the book value at the time of the transaction and are recognized in “other operating expenses (revenues), net” in the statement of income.

 

·Changes in property, plant and equipment

 

53 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  
 Balance in December 2020AdditionsWrite-offs (i)TransfersAssets held for sale (ii)Balance in September 2021
 
Total cost of property, plant and equipment, gross47,429,1673,619,235(2,001,140)-(1,712,349)47,334,913
Commutation/transmission equipment25,875,9166,264(1,663,576)2,259,839(1,172,650)25,305,793
Fiber optic cables878,100--18,876(123,567)773,409
Leased handsets2,643,336586(11,007)136,728-2,769,643
Infrastructure6,436,572-(102,101)185,431(402,358)6,117,544
Informatics assets1,770,386-(35,915)19,502(2,937)1,751,036
General use assets902,287-(31,687)38,057(10,837)897,820
Right of use in leases8,367,895992,709(156,019)--9,204,585
Land40,794----40,794
Construction in progress513,8812,619,676(835)(2,658,433)-474,289
       
Total Accumulated Depreciation(29,328,469)(2,938,250)1,835,178-549,466(29,882,075)
Commutation/transmission equipment(18,130,526)(1,494,304)1,658,183-238,595(17,728,052)
Fiber optic cables(482,613)(50,347)--26,092(506,868)
Leased handsets(2,398,217)(108,444)7,715--(2,498,946)
Infrastructure(4,018,854)(292,861)101,883-277,439(3,932,393)
Informatics assets(1,617,970)(44,340)35,960-2,774(1,623,576)
General use assets(637,903)(36,025)31,437-4,566(637,925)
Right of use in leases(2,042,386)(911,929)---(2,954,315)
       
Total property, plant and equipment, net18,100,698680,985(165,962)-(1,162,883)17,452,838
Commutation/transmission equipment7,745,390(1,488,040)(5,393)2,259,839(934,055)7,577,741
Fiber optic cables395,487(50,347)-18,876(97,475)266,541
Leased handsets245,119(107,858)(3,292)136,728-270,697
Infrastructure2,417,718(292,861)(218)185,431(124,919)2,185,151
Informatics assets152,416(44,340)4519,502(163)127,460
General use assets264,384(36,025)(250)38,057(6,271)259,895
Right of use in leases6,325,50980,780(156,019)--6,250,270
Land40,794----40,794
Construction in progress513,8812,619,676(835)(2,658,433)-474,289

 

 

(i) The amount of R$ 156 million in right of use in leases is represented by remeasurement of contracts and includes changes in the term and scope of rentals. Moreover, the write-offs of other tangible assets include inventory adjustments for assets that were fully depreciated, with a net impact of R$ 3 million.

 

(ii) Due to the sale transaction described in note 16, we reclassified the items related to property, plant and equipment to the group of assets held for sale.

  
 Balance in December 2019AdditionsWrite-offsTransfersBalance in September 2020
 
Total cost of property, plant and equipment, gross43,358,7512,864,982(624,500)-45,599,233

54 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Commutation/transmission equipment22,817,6816,650(172,680)2,459,97725,111,628
Fiber optic cables813,589--54,219867,808
Leased handsets2,489,995641(5,348)120,5242,605,812
Infrastructure6,096,847-(6,267)174,2186,264,798
Informatics assets1,721,2511(7,470)50,7891,764,571
General use assets859,5051(1,101)36,426894,831
Right of use in leases (i)6,933,4161,127,616(431,230)-7,629,802
Land40,794---40,794
Construction in progress1,585,6731,730,073(404)(2,896,153)419,189
     -
Total accumulated depreciation(25,746,587)(2,760,067)264,751-(28,241,903)
Commutation/transmission equipment(16,389,213)(1,370,218)163,726-(17,595,705)
Fiber optic cables(410,567)(54,194)--(464,761)
Leased handsets(2,256,863)(106,895)1,139-(2,362,619)
Infrastructure(3,593,833)(324,915)5,770-(3,912,978)
Informatics assets(1,565,309)(47,093)7,462-(1,604,940)
General use assets(590,658)(36,064)784-(625,938)
Right of use in leases(940,144)(820,688)85,870-(1,674,962)
      
Total property, plant and equipment, net17,612,164104,915(359,749)-17,357,330
Commutation/transmission equipment6,428,468(1,363,568)(8,954)2,459,9777,515,923
Fiber optic cables403,022(54,194)-54,219403,047
Leased handsets233,132(106,254)(4,209)120,524243,193
Infrastructure2,503,014(324,915)(497)174,2182,351,820
Informatics assets155,942(47,092)(8)50,789159,631
General use assets268,847(36,063)(317)36,426268,893
Right of use in leases5,993,272306,928(345,360)-5,954,840
Land40,794---40,794
Construction in progress1,585,6731,730,073(404)(2,896,153)419,189
      

 

The construction in progress represents the cost of projects in progress related to the construction of networks and/or other tangible assets in the period of their construction and installation, until the moment they come into operation, when they will be transferred to the corresponding accounts of these assets.

 

The lease rights of use are represented by leased agreements of identifiable assets within the scope of IFRS16 / CPC 06 (R2) standard. These rights refer to leases of network infrastructure, stores and kiosks, real estate, land (Network) and fiber, as below:

 

Right-of-use in leaseNetwork infrastructureShops & kiosks & real estateLand (Network)FiberTotal
Balances at December 31, 20203,019,900400,2621,500,9091,404,4386,325,509
        Additions379,649207,703123,303282,054992,709
 Remeasurement(68,335)(39,684)(20,816)(27,184)(156,019)
 Depreciation(383,991)(80,544)(155,291)(292,103)(911,929)

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Balances at September 30, 20212,947,223487,7371,448,1051,367,2056,250,270
      
Useful life - %9.15%9.59%10.29%6.51% 

 

·Depreciation rates

 

  Annual fee %
Commutation/transmission equipment 8–14.29
Fiber optic cables 4–10
Leased handsets 14.28–50
Infrastructure 4–20
Informatics assets 10–20
General use assets 10–20

 

In 2020, pursuant to IAS 16 / CPC 27, approved by a CVM Deliberation, the Company assessed the useful life estimates for their property, plant and equipment, and concluded that there were no significant changes or alterations to the circumstances on which the estimates were based that would justify changes to the useful lives currently in use.

 

 

15.Intangible assets

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Intangible assets are measured at historical cost less accumulated amortization and impairment losses (if applicable) and reflect: (i) the purchase of authorizations and rights to use radio frequency bands, and (ii) software in use and/or development. Intangible assets also include: (i) infrastructure right-of-use of other companies, and (ii) goodwill on expectation of future profits in purchases of companies.

 

Amortization charges are calculated using the straight-line method over the estimated useful life of the assets contracted and over the terms of the authorizations. The useful life estimates of intangible assets are reviewed regularly.

 

Any financial charges on funds raised (that is, without a specific destination) and used to obtain a qualifying asset, meaning an asset that requires a significant time to be ready for use, are capitalized as a portion of the cost of the asset when it is likely to bring future economic benefits to the entity and such costs can be accurately measured. These costs are amortized throughout the estimated useful lives of the assets. Within this concept, we had the capitalization of charges for the acquisition of the 4G license and cleaning of the frequency of the 700 MHZ band acquired until September 2019, when the asset was considered in operation by the administration and from this date, being classified in the authorizations subgroup, the capitalization of interest and charges on this asset was terminated. These costs are amortized over the estimated useful lives.

 

As of September 30, 2021, and December 31, 2020, the company does not present indications of impairment in its intangible assets of defined and indefinite useful life.

 

The values of permits for the operation of SMP and rights to use radio frequencies, as well as software, goodwill and others are demonstrated as follows:

 

 

(a) Changes in intangible

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  
 Balance in December 2020Additions/ AmortizationWrite-offsTransfersAssets held for sale (i)Balance in September 2021
 
Total cost of intangible assets, gross31,444,050585,493--(1,161,312)30,868,231
Right to use software19,117,515--678,817(112,593)19,683,739
Authorizations9,931,24815,469-4,575(1,737)9,949,555
Goodwill1,527,220---(1,046,982)480,238
Right to use infrastructure - LT Amazonas177,866--8,355-186,221
Other assets329,626--1,558-331,184
Intangible assets under development360,575570,024-(693,305)-237,294
       
Total Accumulated Amortization(22,416,975)(1,317,519)9-111,407(23,623,078)
Right to use software(16,378,487)(885,873)9-110,636(17,153,715)
Authorizations(5,816,241)(406,660)--771(6,222,130)
Right to use infrastructure - LT Amazonas(67,966)(6,479)---(74,445)
Other assets(154,281)(18,507)-  (172,788)
       
Total intangible assets, net9,027,075(732,026)9-(1,049,905)7,245,153
Right to use software (c)2,739,028(885,873)9678,817(1,957)2,530,024
Authorizations (f)4,115,007(391,191)-4,575(966)3,727,425
Goodwill (d)1,527,220---(1,046,982)480,238
Right to use infrastructure-LT Amazonas (e)109,900(6,479)-8,355-111,776
Other assets175,345(18,507)-1,558-158,396
Intangible assets under development360,575570,024-(693,305)-237,294

 

 

(i) Due to the sale transaction described in note 16, we had the reclassification of items related to property, plant and equipment to the group of assets held for sale. 

 

  
 Balance in December 2019Balance of merged companyAdditions/ AmortizationWrite-offsTransfersBalance in September 2020
 
Total cost of intangible assets, gross29,861,788367,571748,822(974)-30,977,207
Right to use software18,184,382--(974)662,06118,845,469
Authorizations9,811,794-22,623-83,6019,918,018
Goodwill1,159,649 367,571---1,527,220

57 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Right to use infrastructure - LT Amazonas169,327----169,327
Other assets327,361---1,475328,836
Intangible assets under development209,275-726,199-(747,137)188,337
       
Total Accumulated Amortization(20,561,032) (1,404,876)974-(21,964,934)
Right to use software (15,093,166)- (978,030)974- (16,070,222)
Authorizations (5,278,413)- (402,215)-- (5,680,628)
Right to use infrastructure - LT Amazonas (60,204)- (5,822)-- (66,026)
Other assets (129,249)- (18,809)--(148,058)
       
Total intangible assets, net9,300,756367,571 (656,054)-- 9,012,273
Right to use software (c) 3,091,216- (978,030)-662,061 2,775,247
Authorizations (f) 4,533,381- (379,592)- 83,601 4,237,390
Goodwill (d) 1,159,649367,571--- 1,527,220
Right to use infrastructure-LT Amazonas (e) 109,123- (5,822)-- 103,301
Other assets 198,112- (18,809)- 1,475 180,778
Intangible assets under development 209,275- 726,199- (747,137) 188,337

 

 

The intangible assets in progress represent the cost of projects in progress related to the intangible assets in the period of their construction and installation, until the moment they come into operation, when they will be transferred to the corresponding accounts of these assets.

 

 

 

(b) Amortization rates

 

 Annual fee %
  
Software licenses20
Authorizations5–50
Right to use infrastructure5
Other assets7–10

 

 

(c) Right to use software

 

The costs associated with maintaining software are recognized as expense, as incurred. Development costs that are directly attributable to software product design and testing, and are identifiable and exclusive, controlled by the Group, are recognized as intangible assets when the capitalization criteria are met.

 

Directly attributable costs that are capitalized as part of the software product are related to employee costs directly allocated in its development.

 

(d) Goodwill registered in previous years

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The company has the following goodwill based on expectation of future profitability at September 30, 2021 and December 31, 2020:

Goodwill from TIM Fiber SP and TIM Fiber RJ acquisitions - TIM Celular S.A (merged by Intelig, current TIM S.A) acquired, at the end of 2011, the companies Eletropaulo Telecomunicações Ltda. (which subsequently had its trade name changed to TIM Fiber SP Ltda. – “TIM Fiber SP”) and AES Communications Rio de Janeiro S.A. (which subsequently had its trade name changed to TIM Fiber RJ S.A. – “TIM Fiber RJ”). These companies were SCM providers in the main municipalities of the Greater São Paulo and Greater Rio de Janeiro areas, respectively.

TIM Fiber SP Ltda. and TIM Fiber RJ. S.A. were merged into TIM Celular S.A. on August 29, 2012.

TIM Celular S.A. recorded the goodwill allocation related to the purchase of the companies TIM Fiber SP and TIM Fiber RJ, at the end of the purchase price allocation process, in the amount of R$ 1,159,649.

 

Due to the sale transaction described in note 16, we had the reclassification of part of this goodwill to the held-for-sale group.

On August 31, 2020, with the merger of TIM Participações S.A. by TIM S.A, the Company recorded the goodwill arising from the merger of the net assets of TIM Participações, which were originated in acquisition transactions as described below:

Goodwill acquisition of "Intelig" by TIM Participações – the goodwill arising from the acquisition of TIM S.A. (formerly ”Intelig") in December 2009 in the amount of R$ 210,015 is represented/based on the expectation of future profitability of the Company. Its recoverability is tested annually, through the impairment testing.

Goodwill from the acquisition of minority interests in TIM Sul and TIM Nordeste – TIM Participações S.A. (merged by TIM S.A. in August 2020) acquired in 2005, all the shares of the minority shareholders of TIM Sul and TIM Nordeste, in exchange for shares issued by TIM Participações, converting these companies into full subsidiaries. The goodwill resulting from this transaction amounted to R$ 157,556.

 

 

Impairment test

 

As required by the accounting standard, the Company tests goodwill on business combinations involving TIM Group companies annually for impairment, and the methods and assumptions used by Management in the impairment testing of goodwill mentioned above are summarized below:

 

The management of the Company understands that the smallest unit generating cash for impairment testing of goodwill in the acquisition of the companies previously described covers the business at the consolidated level, therefore it covers the consolidated group. This methodology is aligned with the company's strategic direction. It is important to note that the results of the group are essentially represented by TIM S.A. Thus, the results of TIM S.A. are the main cash generator of the TIM Group, since the only operating company operating in Brazil is TIM S.A., and thus the Company represents a single cash-generating unit for the purpose of impairment test of assets with indefinite useful lives, pursuant to IAS 36 / CPC 01.

 

On December 31, 2020, the impairment test was performed by comparing the book value with the fair value minus the disposal costs of the asset, as foreseen in IAS 36 / CPC 01.

 

For the calculation of fair value, the level of hierarchy within which the measurement of the fair value of the asset (cash generating unit) is classified was considered. For the company, as there is only one CGU this was classified in its entirety as Level 1, for the disposal costs we consider that it is irrelevant considering the variation between the fair value level 1 and the book value of the cash generating unit.

59 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

The fair value of Level 1 financial instruments comprises the instruments traded in active markets and based on quoted market prices on the balance sheet date. A market is considered active when the quoted prices are readily and regularly available from an Exchange, distributor, broker, industry group, pricing service or regulatory agency, and these prices represent actual market transactions which occur regularly on a purely commercial basis.

 

Its securities are traded on BOVESPA with code (TIMS3) and have a regular trading volume that allows the measurement (Level 1) as the product between the quoted price for the individual asset or liability and the amount held by the entity.

 

The measurement was made based on the value of the share at the balance sheet closing date and sensitivity tests were also performed and in none of the scenarios was identified any indication of impairment, being the fair value determined higher than the book value. Therefore, being the fair value higher than the book value, it is not necessary to calculate the value in use. The effects of TIM Participações holding (incorporated by TIM S.A) on the value of the book value in 2020 were irrelevant and also its effects on the result of the Consolidated Group. Therefore, the calculations carried out at the consolidated level essentially contemplate the results and accounting balances of TIM S.A., so the management of the Company concludes that the use of the fair value less of cost of sales methodology is adequate to conclude that there is no provision for impairment since the fair value less the cost of sales is higher than the total book value of the cash generating unit.

 

On September 30, 2021, the Company carried out the analysis of all tangible and intangible assets and did not identify any impairment indicators and, therefore, there was no need to review the impairment test in the period.

 

 

(e) Right to use infrastructure - LT Amazonas

 

The company has signed infrastructure rights agreements with companies that operate electricity transmission lines in the Northern Region of Brazil. These contracts fall within the scope of IFRIC 4 / ICPC 3 as financial commercial leases.

 

Additionally, the Company has signed network infrastructure sharing agreements with Telefónica Brasil S.A., also in the North Region. In these, the two operators optimize resources and reduce their respective operating costs (note 17).

(f) Authorizations

In this item are recorded the values related to the acquisition of Lot 2 in the auction of the 700 MHz band in the amount of R$ 1,739 million, in addition to the costs related to the cleaning of the frequency of the 700 MHZ band acquired, which totaled R$ 1,199 million, in nominal values. As it is a long-term obligation, the amount payable of R$ 1,199 million was reduced by R$ 47 million by applying the concept of adjustment to present value (“AVP”).

The aforementioned license falls under the concept of qualifying asset. Consequently, the financial charges on resources raised without a specific destination, used for the purpose of obtaining a qualifying asset, were capitalized between the years 2014 to 2019.

16.Assets classified as held for sale and liabilities related to assets held for sale

 

60 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The Company classifies an asset as held for sale when its book value will be recovered primarily through a sale transaction, rather than continuous use. These assets held for sale are stated at the lowest value between their book value and the fair value less sales expenses

 

The criteria for classification of assets held for sale are met when the sale is highly likely and the asset or group of assets held for sale is available for immediate sale in its current condition, subject only to the terms that are customary for the sale of such assets held for sale. The Company’s appropriate hierarchical level of management is committed to the asset's sale plan, having approved the agreement with IHS on May 5, 2021.

 

Property, plant and equipment and intangible assets are not depreciated or amortized when classified as held for sale.

 

Assets and liabilities classified as held for sale are presented separately.

 

All other notes to the quarterly information include amounts for continuing operations.

 

As mentioned in note 3.g, on May 5, 2021, the Company disclosed the decision of its Board of Directors on the sale by TIM of 51% of the share capital of FiberCo to IHS, with the remaining 49% remaining under the control of the Company upon closing of the transaction. The relationship between the partners will be regulated by a shareholders' agreement, to be entered into upon closing the transaction. Between the date of the agreement entered into between the parties and the closing of the transaction, all assets and liabilities related to the transaction were allocated to this group.

FiberCo was established by the Company to segregate network assets and provide infrastructure services. FiberCo was born to implement, operate and maintain last-mile infrastructure for broadband access to be offered in the wholesale market. Nevertheless, the terms of the Agreement define TIM as an anchor customer, having the prerogative of 6 months of exclusivity after entering new areas.

On September 30, 2021, the group of assets held for sale is presented at their book value and comprises the following assets and their related liabilities:

 

 

   September 2021 
Assets    
   Recoverable taxes    21,570 
     
   Property, plant and equipment  1,162,883 
   Intangible assets  1,049,905 
        Goodwill  1,046,982 
        Other  2,923 
   Other  423 
Non-current assets held for sale  2,234,781 
     
Liabilities    

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

   Suppliers  (26,762) 
   Payroll and related charges  (4,377) 
   Deferred income tax and social contribution  (334,498) 
    Other  (230) 
Liabilities related to assets held for sale  (365,867) 
     

Net assets directly associated with the held-for-sale group

 

  1,868,914 

 

There is no accumulated gain or losses included in other comprehensive income related to this group held for sale.

 

During the period ended September 30, 2021, no impairment losses on assets held for sale were recognized.

 

 

17.Leases

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Leases that the Company, as a lessee, holds substantially all the risks and rewards of ownership are classified as finance leases. They are capitalized at the lease's commencement at the lower of the fair value of the leased asset and the present value of payments provided for in contract, and lease liability as a counterparty. Interest related to the leases is taken to income as financial costs over the term of the contract.

 

Leases in which the Company, as a lessor, transfers substantially all the risks and rewards of ownership to the other party (lessee) are classified as finance leases. These lease values are transferred from the intangible assets of the Company and are recognized as a lease receivable at the lower of the fair value of the leased item and/or the present value of the receipts provided for in the agreement. Interest related to the lease is taken to income as financial revenue over the contractual term.

 

Asset leases are financial assets or liabilities classified and/or measured at amortized cost.

 

 

Assets

 

  September 2021 December 2020
LT Amazonas 168,589 162,198
Subleases - Stores – IFRS 16 72,187 -
  240,776 162,198
     
Current portion (29,191) (5,357)
Non-current portion 211,585 156,841

 

LT Amazonas

 

As a result of the contract signed with LT Amazonas, the Company signed network infrastructure sharing agreements with Telefónica Brasil S.A. In these agreements, the company and Telefónica Brasil S.A. share investments made in the Northern Region of Brazil. The company has monthly amounts receivable from Telefónica Brasil S.A. for a period of 20 years, adjusted annually by the IPC-A. The discount rate used to calculate the present value of the installments due is 12.56% per annum, considering the date of signing the agreement.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

       

The table below presents the schedule of cash receipts for the agreement currently in force, representing the estimated receipts (nominal values) in the signed agreements. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

  Nominal values Present value
     
Until September 2022 26,124 6,387
October 2022 to September 2026 106,491 37,345
October 2026 onwards 183,551 124,857
  316,166 168,589

Subleases - Stores - IFRS 16

 

The Company, due to sublease agreements for third parties in some of its stores, recognized the present value of short and long term receivables, which are equal in value and term to the liability cash flows of the contracts called “resale stores”. The impact on lease liabilities is reflected in “Leases - Stores & Kiosks”.

 

The table below presents the schedule of cash receipts for the agreement currently in force, representing the estimated receipts (nominal values) in the signed agreements. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

 

  Nominal values Present value
     
Until September 2022 27,888 22,804
October 2022 to September 2026 55,417 49,383
October 2026 onwards - -
  83,305 72,187

Liabilities

 

  September 2021 December 2020
     
LT Amazonas (i) 304,224 290,385
Sale of Towers (leaseback) (ii) 1,265,022 1,256,410
Other (iv) 117,771 115,027
Sub-total 1,687,017 1,661,822
     
Other leases (iii):    
   Lease – Network infrastructure 3,223,637 3,252,463
  Lease - Shops & kiosks & real estate 600,293 434,990
   Lease - Land (Network) 1,588,752 1,606,567
   Lease - Fiber   1,412,549 1,422,993
Subtotal lease IFRS 16 / CPC 06 (R2) 6,825,231 6,717,013
Total 8,512,248 8,378,835
     
Current portion (1,248,577) (1,054,709)
Non-current portion 7,263,671 7,324,126

 

The amount of interest paid in the period ended September 30, 2021 related to IFRS 16 / CPC 06 (R2) is R$ 440,981 (R$ 434,365 in the period ended on September 30, 2020).

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Changes to the lease liabilities are shown in note 37.

 

 

i) LT Amazonas

 

The Company executed agreements for the right to use the infrastructure of companies that operate electric power transmission lines in Northern Brazil (“LT Amazonas”). The terms of these agreements are for 20 years, counted from the date on which the assets are ready to operate. The contracts provide for monthly payments to the electric power transmission companies, restated annually at the IPCA.

 

The discount rate used to calculate the present value of the installments due is 14.44% per annum, considering the signing date of agreements with transmission companies.

 

The table below presents the future payment schedule for the agreements in force, representing the estimated disbursements (nominal values) in the signed agreements. These nominal balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

  Nominal values Present value
     
Until September 2022 56,913 17,164
October 2022 to September 2026 202,271 61,324
October 2026 onwards 348,780 225,736
  607,964 304,224

  

ii) Sale and leaseback of Towers

 

The Company entered into two Sales Agreements with American Tower do Brasil Cessão de Infraestruturas Ltda. (“ATC”) in November 2014 and January 2015 for up to 6,481 telecommunications towers then owned by TIM Celular, for an amount of approximately R$ 3 billion, and a Master Lease Agreement (“MLA”) for part of the space on these towers for a period of 20 years from the date of transfer of each tower, under a sale and leaseback transaction, with a provision for monthly rental amounts depending on the type of tower (greenfield or rooftop). The sales agreements provided for the towers to be transferred in tranches to ATC, due to the need to meet certain conditions precedent.

 

In total, 5,873 transfers of towers occurred, being 54, 336 and 5,483 in the years 2017, 2016 and 2015, respectively. This transaction resulted in a sales amount of R$ 2,651,247, of which R$ 1,088,390 was booked as deferred revenue and will be amortized over the period of the contract (note 22).

 

The discount rates used at the date of the transactions, ranging from 11.01% to 17.08% per annum, were determined based on observable market transactions that the company (the lessee) would have to pay on a similar lease and/or loan.

 

The table below presents the future payment schedule for the agreements in force, representing the estimated disbursements (nominal values) in the agreement entered into. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

64 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  Nominal values Present value
     
Until September 2022 186,138 8,686
October 2022 to September 2026 842,253 189,069
October 2026 onwards 1,865,647 1,067,267
  2,894,038 1,265,022

 

(iii) Other leases:

 

In addition to the lease operations mentioned above, the Company also has lease agreements that qualify within the scope of IFRS16 / CPC 06 (R2).

 

The table below presents the future payment schedule for the agreements in force, representing the estimated disbursements (nominal values) in the signed agreements. These balances differ from those shown in the books since, in the case of the latter, the amounts are shown at present value:

 

 

 

 

Until September 2022October 2022 to September 2026October 2026 onwardsNominal valuesPresent value
Total other leases1,750,4134,820,4092,894,1159,464,9376,825,231
Lease – Network infrastructure767,7152,268,6901,461,6184,498,0233,223,638
Lease - Shops & kiosks & real estate171,073397,031293,284861,388600,293
Lease - Land (Network)328,6141,057,9791,139,2132,525,8061,588,752
Lease - Fiber  483,0111,096,709-1,579,7201,412,548

 

The present value, principal and interest value as of September 30, 2021 for the above contracts was estimated month-to-month, based on the average incremental rate of the Company’s loans, namely 8.70% (9.21% in 2020).

 

The lease amounts considered low value or lower in the 12-month period recognized as rental expense on September 30, 2021 is R$ 26,526 (R$ 28,523 on December 31, 2020).

 

(iv) it is substantially represented by commercial leasing transactions in transmission towers.

 

18.Other amounts recoverable

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

These refer to Fistel credit amounts arising from the reduction of the client base, which may be offset by future changes in the base, or used to reduce future obligations, and are expected to be used in the reduction of the TFF contribution (operating supervision fee) due to Fistel.

 

As of September 30, 2021, this credit is R$ 37,467 (R$ 43,906 as of December 31, 2020).

 

19.Suppliers

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Accounts payable to suppliers are obligations payable for goods or services that were acquired in the usual course of business. They are initially recognized by fair value and subsequently measured by amortized cost using the effective interest rate method. Given the short maturity of these obligations, in practical terms, they are usually recognized at the value of the corresponding invoice.

 

 

 September 2021 December 2020
    
 2,653,218 3,128,732
    
Domestic currency2,505,797 2,932,486
Suppliers of materials and services (i)2,372,850 2,839,547
Interconnection (ii)101,979 64,066
Roaming (iii)219 212
Co-billing (iv)30,749 28,661
    
Foreign currency147,421 196,246
Suppliers of materials and services (i)112,958 148,888
Roaming (iii)34,463 47,358
    
Current portion2,653,218 3,128,732

 

 

(i) Represents the amount to be paid to suppliers in the acquisition of materials and in the provision of services applied to the tangible and intangible asset or for consumption in the operation, maintenance and administration, in accordance with the terms of the contract between the parties.

 

(ii) Refers to as the use of the network of other fixed and mobile operators such cases where calls are initiated on the TIM network and terminated on the other operators.

 

(iii) Refers to calls made when the customer is outside their registration area and is considered a visitor on the other network.

 

(vi) Refers to calls made by the customer when choosing another long-distance operator.

 

20.Authorizations payable

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts of commitments with ANATEL:

 

 September 2021 December 2020
    
Renewal of authorizations (i)183,253 188,498
Updated ANATEL liability (ii)164,228 146,949
 347,481 335,447
    
Current portion(131,968) (102,507)
Non-current portion215,513 232,940

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 

 

(i)To provide the SMP, the Company obtained authorizations of the right to use radio frequency for a fixed term, renewable for another 15 (fifteen) years. In the option for the extension of the right of this use, it is due the payment of the amount of 2% on the net revenue of the region covered by the authorization that ends each biennium. As of September 30, 2021, the Company had outstanding balances relating to the renewal of Authorizations in the amount of R$ 183,253 (R$ 188,498 as of December 31, 2020).

 

(ii)On December 5, 2014, the company signed the authorization term of the 700 MHz band and paid the equivalent of R$ 1,678 million, recording the remaining balance in the amount of R$ 61 million as commercial liability, according to the payment method provided for in the notice.

 

On June 30, 2015, the company filed a lawsuit questioning the collection of the excess nominal value of R$ 61 million (R$ 164 million on September 30, 2021) which is still pending trial.

 

 

 

The primary authorizations held by TIM S.A. on September 30, 2021, as well as their expiration dates, are shown in the table below:

 

 Maturity date
Terms of authorization450 MHz

800 MHz,

900 MHz and

1,800 MHz

Additional frequencies

1800 MHz

1900 MHz and

2100 MHz

(3G)

2500 MHz

V1 band

(4G)

2500 MHz

(P band**)

(4G)

700 MHz

(4G)

Amapá, Roraima, Pará, Amazonas and Maranhão-Mar 2031*Apr 2023Apr 2023Oct 2027Part of AR92 (PA), Feb 2024*Dec 2029
Rio de Janeiro and Espírito SantoOct 2027Mar 2031*ES, Apr 2023Apr 2023Oct 2027Part of AR21 (RJ), Feb 2024*Dec 2029
Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Distrito Federal, Goiás, Rio Grande do Sul (except for the municipality of Pelotas and region) and municipalities of Londrina and Tamarana in ParanáPR, Oct 2027Mar 2031*Apr 2023Apr 2023Oct 2027Part of AR61 (DF), Feb 2024*Dec 2029
São Paulo-Mar 2031*Countryside, Apr 2023Apr 2023Oct 2027-Dec 2029

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Paraná (except counties of Londrina and Tamarana)Oct 2027Sep 2022*Apr 2023Apr 2023Oct 2027

AR41, except Curitiba and the Metropolitan Region, Feb 2024*

AR41, Curitiba and Metropolitan Region, July 2031

Dec 2029
Santa CatarinaOct 2027Sep 2023*Apr 2023Apr 2023Oct 2027-Dec 2029
Municipality and region of Pelotas, in the state of Rio Grande do Sul-Apr 2024*-Apr 2023Oct 2027-Dec 2029
Pernambuco-May 2024*-Apr 2023Oct 2027Part of AR81, July 2031Dec 2029
Ceará-Nov 2023*-Apr 2023Oct 2027-Dec 2029
Paraíba-Dec 2023*-Apr 2023Oct 2027-Dec 2029
Rio Grande do Norte-Dec 2023*-Apr 2023Oct 2027-Dec 2029
Alagoas-Dec 2023*-Apr 2023Oct 2027-Dec 2029
Piauí-Mar 2024*-Apr 2023Oct 2027-Dec 2029
Minas Gerais (except the municipalities of Sector 3 of the PGO for 3G radio frequencies and leftovers)-Apr 2028*Apr 2023Apr 2023Oct 2027Part of AR31, Feb 2030*Dec 2029
Bahia and Sergipe-Aug 2027*-Apr 2023Oct 2027-Dec 2029

 

* Terms already renewed for 15 years.

** Only complementary areas in specific states.

 

21.Loans and financing

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

They are classified as financial liabilities measured at amortized cost, being represented by non-derivative financial liabilities that are not usually traded before maturity.

 

At the initial recognition they are recorded by their fair value, and after initial recognition, they are measured by the effective interest rate method. Appropriations of financial expenses according to the effective interest rate method are recognized in income, under financial expenses.

 

 

DescriptionCurrencyChargesMaturitySeptember 2021December 2020
KFW Finnvera (ii)USDLibor 6M+ 0.75% p.a.Jan 2024–Dec 2025316,609344,125
BAML (ii)EUR0.279% p.a.Aug 2021-570,844
Scotland (ii)USD1.4748% p.a.Apr 2024547,5281,030,761
BNP Paribas (ii)USD2.8220% p.a.Jan 2022417,951399,302
BNP Paribas (ii)BRL7.0907% p.a.Jan 2024506,106-
Debentures (ii)BRLIPCA + 4.1682% (i)June 20281,626,472-
Total   3,414,6662,345,032
Current   (533,992)(1,689,385)
Non-current   2,880,674655,647

 

(i) The automatic decrease of up to 0.25bps in remunerative interest will comply with sustainable targets established in the indenture.

 

Guarantees

 

(ii)Do not have a guarantee.

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

The Company's financing, contracted with BNDES, was obtained for the expansion of the mobile telephone network and had restrictive contractual clauses that provide for the fulfilment of certain financial and non-financial rates calculated every six months. In February 2020 the company made the full prepayment of financing obtained from BNDES, however there are still contracts in effect with the bank regulating the lines of credit available for withdrawal that are shown in the table below: Financial indices are: (i) Shareholders' equity over total assets; (ii) EBITDA on net financial expenses; (iii) Total financial debt on EBITDA and (iv) Short-term net financial debt to EBITDA. The Company has been complying with all the established financial ratios.

 

In April 2021, the Company contracted a new loan with The Bank of Nova Scotia, in the amount of R$ 572 million, at the cost of CDI + 1.05% p.a. and a 3-year term. The operation aimed to strengthen the Company's cash for working capital.

 

In April 2021, the Company contracted a new loan with BNP Paribas, in the amount of R$ 500 million, at the cost of CDI + 1.07% p.a. and a 2.9-year term. The operation aimed to strengthen the Company's cash for working capital.

 

In June 2021, the Company carried out the second issue of simple, non-convertible, unsecured debentures, carried out pursuant to CVM Instruction No. 476, in the amount of R$ 1,600 million. The debentures have a sustainable component that allows them to be qualified as sustainability-linked and, in case of compliance with the sustainable targets established in the indenture, the remunerative interest of IPCA + 4.1682% p.a. can be automatically reduced by up to 0.25bps. The debentures will bear semiannual interest and amortization will take place, respectively, in the 5th, 6th and 7th year. The issue was aimed at financing projects for the implementation, expansion and modernization of fixed and mobile networks in different technologies, including 5G, and falls within the provisions of Law No. 12431 of June 24, 2011. Within the scope of this operation, the Company elected to sign an interest rate swap contract for hedging purposes, at the cost of CDI + 0.95% per annum. During the term of the operation, compliance with the financial ratio of Net debt to EBITDA, an indicator that has been met to date, must also be observed.

 

The table below shows the position of financing and available lines of credit:

     Remaining amount 
TypeCurrencyTermTermRemaining ValueAmount used until September 30, 2021
BNDES (i)TJLPMay 2018Mar 20221,090,0001,090,000-
BNDES (ii)TJLPMay 2018Mar 202220,00020,000-
FINAME (iii)IPCAMar 2019Mar 2022390,000390,000-
BNB (iv)IPCAJan 2020June 2023752,479752,479-
Total R$:   2,252,4792,252,479-

 

Objective:

(i)Support to TIM's investment plan for the years 2017 to 2019 including, but not limited to, the acquisition of National equipment
(ii)Investments in social projects within the community
(iii)Exclusive application in the acquisition of machinery and equipment, industrial systems and/or other components of national manufacture.
(iv)Support to TIM's investment plan for the years 2020 to 2022 in the region of operation of Banco do Nordeste do Brasil

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

Loans and financing as of September 30, 2021 due in long-term is in accordance with the following schedule:

   
2022 42,918
2023 86,399
2024 1,100,447
2025 24,245
2026 541,462
2027 541,462
2028 543,741
  2,880,674

 

The nominal value of the loans and financing is consistent with their respective payment schedule.

 

 

 

 

  Nominal value
   
2021 75,807
2022 501,103
2023 86,399
2024 1,100,447
2025 24,245
2026 541,462
2027 541,462
2028 543,741
  3,414,666

 

Fair value of loans

 

In Brazil, there is no consolidated long-term debt market with the characteristics verified in the financing obtained from KFW Finnvera, which has the Finnish development agency Finnvera as guarantor. Both are financing for the purchase of equipment and, therefore, have a character of subsidy and promotion of commercial activity between the company and certain suppliers. For the purposes of fair value analysis, considering the characteristics of this transaction, the company understands that its fair value is equal to that recorded on the balance sheet.

 

With respect to proceeds contracted with the Bank of Nova Scotia, BNP Paribas and Debentures, the fair value of these loans is considered to be the present value of the active tip of the swap contracts that protect the company from changes in exchange rates and interest. The fair value of the operations on September 30, 2021 is, respectively, R$ 556,098, R$ 516,049 and R$ 1,640,756.

 

22.Indirect taxes, fees and contributions payable

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 September 2021 December 2020
    
Indirect taxes, fees and contributions payable1,291,429 938,880
    
Value added tax on goods and services - ICMS321,230 359,498
ANATEL’s taxes and fees (i)905,315 509,087
Service Tax - ISS61,115 66,082
Other3,769 4,213
    
Current portion(1,288,229) (935,778)
Non-current portion3,200 3,102

 

 

(i) The Fistel fee, in the approximate amount of R$ 790 million for the period of 2020 has been initially deferred from the start of its payment, on the basis of provisional act 952 of April 15, 2020 for August 31, 2020. In the third quarter of 2020, the Company made a partial payment in the amount of R$ 300 million and the remaining, related to Fistel (TFF), amount remains outstanding, based on an injunction issued by the Regional Court of the 1st Region.

 

In 2021, there was the partial payment of fees of approximately R$ 300 million related to CFRP and Condecine and the remaining amount of R$ 480 million related to 2021 Fistel (TFF) remains suspended, with no defined date for payment based on injunction also issued by the Regional Court of the 1st Region.

 

In the 2nd quarter of 2021, there was the recognition of R$42.5 million in default interest on Fistel (TFF) amounts related to fiscal years 2020 and 2021 with suspended payment.

 

23.Direct taxes, fees and contributions payable

 

 

Current income tax and social contribution charges are calculated on the basis of the tax laws enacted, or substantially enacted, up to the balance sheet date.

 

The legislation allows companies to opt for quarterly or monthly payment of income tax and social contribution. In 2021, the Company has chosen to make the quarterly payment of income tax and social contribution.

 

Parent company Consolidated

 September 2021 December 2020 September 2020 December 2020
        
Direct taxes, fees and contributions payable132,896 508,743 132,900 508,743
        
Income tax (IR) and social contribution (CS) (i)46,990 313,145 46,990 313,145
PIS/COFINS40,799 154,353 40,799 154,353
Other (ii)45,107 41,245 45,111 41,245
        
Current portion(118,814) (296,299) (118,818) (296,299)
Non-current portion14,082 212,444 14,082 212,444

 

 

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

(i) The substantial variation is related to the changes in the calculation of the Annual Taxable Income by the Quarterly Taxable Income. Thus, the amount presented in December 2020 comprised the IRPJ and CSLL due between January and December of that year, while in 2021 the liabilities presented represent only the amount due in the third quarter.

 

(ii) The breakdown of this account mainly refers to the company's adhesion to the Tax Recovery Program - REFIS from 2009 for payment of installments of the outstanding debts of federal taxes (PIS – Social Integration Program, COFINS – Contribution to Social Security Financing, IRPJ – Corporate Income Tax and CSLL – social contribution on Net Income), whose final maturity will be on October 31, 2024.

 

 

 

24.Deferred revenues

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

 September 2021 December 2020
    
Deferred revenues903,452 1,021,924
    
Prepaid services (i)121,410 189,482
Government grants (ii)13,765 24,732
Anticipated revenues9,179 11,163
Deferred revenues on sale of towers (iii)748,350 788,921
Contractual liabilities (iv)10,748 7,626
    
Current portion(198,137) (266,436)
Non-current portion705,315 755,488

 

(i) Referring to the recharge of voice credits and data not yet used by customers relating to prepaid system services that are appropriate to the result when the actual use of these services by clients.

 

(ii) Referring to the release of resources related to the financing line with BNDES (Investment Support Program-BNDES PSI). The sum of the grants granted by BNDES until September 30, 2021 is R$ 203 million and the amount outstanding as of September 30, 2021 and of R$ 13,765 (R$ 24,732 as of December 31, 2020). This amount is being amortized by the lifespan of the asset being financed and appropriated in the group of “other revenues (expenses), net” (note 30).

 

(iii) Referring to the amount of revenue to be appropriated by the sale of the towers (note 17).

 

(iv) Contracts with customers. The balance of contractual assets and liabilities is as follows:

The table below presents information on the portion of trade accounts receivable, from which contractual assets and liabilities originate.

 

 September 2021 December 2020
    
Accounts receivable included in trade accounts1,939,745 2,000,764
Contractual assets (note 6)12,151 14,914
Contractual liabilities(10,748) (7,626)

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The contracts with customers gave rise to the allocation of discounts under combined loyalty offers, where the discount may be given on equipment and / or service, generating a contractual asset or liability, respectively, depending on the nature of the offer in question.

 

Summary of the main variations in the period.

 

 Contractual assets (liabilities)
  
Balance at January 1, 20217,288
Additions4,835
Write-offs(10,720)
Balance at September 30, 20211,403

 

The balances of contractual assets and liabilities are expected to be realized according to the table below:

 

 

 202120222023
Contractual assets (liabilities)796961(354)
    
    

The Company in line with paragraph 121 of IFRS 15, is not presenting the effects of information on customer contracts with terms of duration of less than 1 year.

 

25.Provision for judicial and administrative proceedings

 

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

The company is an integral part in judicial and administrative proceedings in the civil, labor, tax and regulatory spheres, which arise in the normal course of its business.

 

The provision is constituted based on the opinions of the company's legal advisors and management, for amounts considered sufficient and adequate to cover losses and risks considered probable. Situations where losses are considered probable and possible are recorded and disclosure, respectively, by their updated values, and those in which losses are considered remote are not disclosed.

 

The provision for judicial and administrative proceedings constituted, updated, is composed as follows:

 

 September 2021 December 2020
    
Provision for judicial and administrative proceedings959,118 886,947
    
Civil (a)280,485 245,432
Labor (b)204,001 213,026
Tax (c)445,098 399,288
Regulatory (d)29,534 29,201

 

 

 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The changes in the provision for judicial and administrative proceedings are summarized below:

 

 

 

 December 2020 Additions, net of reversals Payments Inflation adjustment September 2021
          
 886,947 223,473 (255,881) 104,579 959,118
          
Civil (a)245,432 134,376 (164,145) 64,822 280,485
Labor (b)213,026 59,660 (79,976) 11,291 204,001
Tax (c)399,288 29,404 (11,728) 28,134 445,098
Regulatory (d)29,201 33 (32) 332 29,534

 

The company is subject to several legal actions and administrative procedures proposed by consumers, suppliers, service providers and consumer protection agencies and treasury agencies, which deal with various matters that arise in the normal course of the entities' business. The main processes are summarized below:

 

 

a. Civil proceedings

 

a. 1 Consumer lawsuits

 

The company is a party in lawsuits related to various claims filed by consumers, in the judicial and administrative spheres. The aforementioned actions in the amount of R$ 152,200 (R$ 139,429 on December 31, 2020) refer mainly to alleged improper collection, cancellation of contract, quality of services, defects and failures in the delivery of handsets and improper inclusion in debtors lists.

 

a.2 Consumer Protection Agencies

 

TIM is a party to legal and administrative lawsuits filed by the Public Prosecutor's Office, Procon and other consumer protection agencies, arising from consumer complaints, in which, and among other topics, discusses: (i) alleged failures in the provision of network services; (ii) quality of service; (iii) alleged violations of the SAC (customer service hotline) decree; (iv) alleged contractual violations; (v) alleged misleading advertising and; (vi) collection of loyalty fines, in cases of theft and theft of the device. The amounts involved are equivalent to R$ 88,926 (R$ 51,713 on December 31, 2020).

 

a.3 Former trading partners

 

TIM is a defendant in lawsuits proposed by former trade partners claiming, among others, amounts on the basis of alleged non-compliance with agreements. The amounts involved are equivalent to R$ 12,764 (R$ 18,634 on December 31, 2020).

 

a.4 Other

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

TIM is a defendant in other actions of essentially non-consumer objects proposed by the most diverse agents from those described above, in which, among other topics, it is discussed: (i) renewal of lease agreements; (ii) indemnity lawsuits; (iii) alleged breach of contract and; (iv) collection lawsuits. The amounts involved are equivalent to R$ 24,325 (R$ 33,682 on December 31, 2020). 

 

 

a.5 Social and environmental and infrastructure

 

The Company is a party to lawsuits involving various agents who discuss aspects related to licensing, among which environmental licensing and structure licensing (installation/operation). The amounts involved are equivalent to R$ 727 (R$ 610 on December 31, 2020).

 

 

a.6 ANATEL

 

The Company is a party to lawsuits in front of ANATEL, in which it is discussed, among other topics: (i) debit related to the collection of 2% of revenues from Value - Added Services–VAS and interconnection; (ii) pro-rata inflation adjustment applied to the price proposal defined in the notice for the use of 4G frequencies and (iii) fines imposed in PADOs for alleged non-compliance with service quality targets. The amounts involved are equivalent to R$ 1,543 (R$ 1,364 on December 31, 2020).

 

 

b. Labor lawsuits

 

These are processes involving several labor claims filed by both former employees, in relation to matters such as salary differences, leveling, payments of variable compensation, additional legal and working hours, as well as by former employees of service providers, all of whom, taking advantage of the labor laws in force require it to keep the Company in compliance with labor obligations does not abide by contractors hired for that purpose.

 

From the total of 1,291 Labor claims as of September 30, 2021 (1,873 as of December 31, 2020) filed against the company, the majority relate to claims involving former employees of service providers followed by lawsuits from employees of their own. The provisioning of these claims totals R$ 204,001 updated monetarily (R$ 213,026 as of December 31, 2020).

 

 

c. Tax proceedings

 

  September 2021 December 2020

 

Federal Taxes

 

195,537

 

 

182,146

State taxes167,869 135,891
Municipal taxes7,546 5,633
TIM S.A. processes (Purchase price allocation)74,146 75,618
 445,098 399,288
      

 

The total recorded provision is substantially composed of the following processes whose indicated values are estimated by the indices established by the federal government for late taxes, being linked to the variation in the SELIC rate:

 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

Federal taxes

 

The provision is substantially composed of the following processes:

 

(i)The provision for TIM S.A. supports sixty-four proceedings, relating to questions involving the impact on operations of CIDE, CPMF, CSLL, IRRF, spontaneous denunciation of the fine in the payment of FUST and ancillary obligations. Of this total, the amounts involved in the legal proceedings that seek recognition of the right not to collect the CPMF allegedly incident on simultaneous transactions of purchase and sale of foreign currency and exchange of account ownership arising from corporate incorporation, whose provisioned values, updated, equal to R$ 8,444 (R$ 8,355 on December 31, 2020), as well as the amount related to the fine and interest 2009, where the benefit of spontaneous denunciation is not being recognized, whose provisioned and updated value is R$ 14,988 (R$ 14,771 on December 31, 2020).

 

(ii)The company constituted a provision for a process aimed to collecting the pension contribution withheld at the rate of 11% to which, allegedly, payments made by the company to other legal entities should have been submitted as remuneration for various activities, whose provisioned and updated value is R$ 39,141 (R$ 38,584 on December 31, 2020).

 

(iii)Additionally, in the second quarter of 2019, the company constituted the provision for the FUST process, which seeks the unconstitutionality and illegality of the collection of FUST (Telecommunications Services Universalization Fund). Lawsuit for the recognition of the right not to collect Fust, failing to include in its calculation base the revenues transferred by way of interconnection and EILD (Dedicated Line Industrial Exploitation), as well as the right not to suffer the retroactive collection of the differences determined due to not observing sum 7/2005 of ANATEL, in the amount of R$ 59,789 (R$ 58,988 on December 31, 2020).

 

(iv)In June, 2020, the Company recorded a provision for federal compensation processes arising from a repurchase carried out in 2006, for which the documentary support was not robust enough after appraisals carried out. The provisioned and updated value is R$ 13,417 (R$ 5,313 on December 31, 2020).

 

State Taxes

 

The provision is substantially composed of the following processes:

 

The provision of the TIM S.A. in support of eighty-nine cases (seventy-five cases on December 31, 2020), among which the following stand out: (i) the amounts involved in the proceedings, that the question of the reversal of the amounts payable for the ICMS tax, as well as the supporting documentation for the verification of the loan are appropriate for a Company whose values are recorded up-to-date, amounting to R$ 38,846 (R$ 36,491 on December 31, 2020), (ii) the amount to be offered to tax for the provision of telecommunications services, which is up-to-date, equal to R$ 5,224 (R$ 5,135 on December 31, 2020), as well as (ii) the charges on the grounds of supposed differences in both the inputs as the output of goods in the process of the withdrawal amount of the inventory, whose values are updated to the equivalent of R$ 25,435 (R$ 15,751 on December 31, 2020); (iv) the launching of credits related to the return of cellular phones assigned under gratuitous loan, whose updated amounts are equivalent to R$ 7,217 (R$ 11,125 on December 31, 2020); (v) subsidies for mobile handsets, whose values are updated to the equivalent of R$ 8,881 (R$ 8,767 on December 31, 2020), (vi) amounts allegedly improperly credited relating to CIAP credits, whose updated amounts are equivalent to R$ 16,116 (R$ 14,912 on December 31, 2020) and (vii) credits related to tax substitution operations, whose updated amounts are equivalent to R$ 21,806 (without equivalence on December 31, 2020).

 

 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Municipal taxes

 

It is also worth noting the amounts involved in the assessments that questions the withholding and collection of the ISS-source of third-party services without employment relationship, as well as the collection of its own ISS corresponding to services provided in co-billing.

 

PPA TIM S.A.

 

There are tax lawsuits arising from the acquisition of former Intelig (current TIM S.A.) due to the former parent company of the TIM Participações group, which comprise the process of allocating the acquisition price of the former Intelig and amount to R$ 74,146 (R$ 75,618 as of December 31, 2020).

 

d. Regulatory processes

 

ANATEL initiated administrative proceedings against the company for: (i) non-compliance with certain quality indicators; (ii) non-compliance with other obligations derived from the terms of authorization and (iii) non-compliance with the SMP and STFC regulations, among others.

 

As of September 30, 2021, the amount indicated for the procedures for the determination of non-compliance with obligations (“PADOs”), considering the monetary update, classified with risk of probable loss is R$ 29,534 (R$ 29,201 as of December 31, 2020).

 

e. Judicial and administrative proceedings whose losses are assessed as possible

 

The Company has actions of a civil, labor, tax and regulatory nature involving risks of loss classified by its legal advisors and the administration as possible, for which there is no provision for legal and administrative proceedings constituted, and no adverse material effects are expected in the quarterly information, according to the values presented below:

  
 September 2021 December 2020
    
 18,019,173 18,147,562
    
Civil (e. 1)1,509,865 1,101,332
Labor and Social Security (e. 2)400,020 340,801
Tax (e. 3)15,989,070 16,586,353
Regulatory (e. 4)120,218 119,076

 

Legal and administrative proceedings whose losses are assessed as possible and monitored by Management are disclosed at their updated values.

 

The main actions with risk of loss classified as possible are described below:

 

 

e.1. Civil

 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  September 2021 December 2020
Consumer actions (e. 1. 1)170,945          220,347
ANATEL (e.1.2)252,415 223,066
Consumer protection bodies (e.1.3)606,651 160,279
Former trading partners (e.1.4)234,228 193,529
Socio-environmental and infrastructure (e.1.5)181,047 154,187
Other (e.1.6)64,579 149,924
 1,509,865 1,101,332
      

 

e. 1. 1 Actions filed by consumers

 

They mainly refer to actions for alleged improper collection, cancellation of contract, quality of services, defects, unilateral contract amendment and undue negative entry.

 

 

e.1.2 ANATEL

 

The Company is a party to lawsuits in front of ANATEL, in which it is discussed: (i) debit related to the collection of 2% of revenues from Value - Added Services–VAS and interconnection; (ii) pro-rata inflation adjustment applied to the price proposal defined in the notice for the use of 4G frequencies and (iii) alleged non-compliance with service quality targets.

 

 

e.1.3 Consumer protection agencies

 

TIM is a party to legal and administrative lawsuits filed by the Public Prosecutor's Office, Procon and other consumer protection agencies, arising from consumer complaints, in which, it is discussed: (i) alleged failures in the provision of network services; (i) alleged failure in the delivery of handsets; (iii) alleged non-compliance with state laws; (iv) hiring model and alleged improper charges of Value-Added Services-VAS; (v) alleged violations of the SAC decree; (vi) alleged contractual violations; and (vii) blocking of data.

 

 

e.1.4 Former Trading Partners

 

TIM is a defendant in actions proposed by several former trading partners in which are claimed, among others, values based on alleged contractual defaults.

 

 

1. 5 Social and environmental and infrastructure

 

The Company is a party to lawsuits involving various agents that discuss aspects related to (1) environmental licensing and structure licensing (installation/operation) and (2) (i) electromagnetic radiation emitted by Telecom structures; (ii) renewal of land leases for site installation; (iii) dumping on leased land for site installation; (iv) presentation of registering data, among others.

 

 

 

 

e.1.6 Other

 

78 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

TIM is a defendant in other actions of essentially non-consumer objects proposed by the most diverse agents from those described above, in which, among others, it is discussed: (I) renewal of lease agreements; (ii) shareholding subscription shares; (iii) indemnity actions; (iv) alleged breach of contract and; (v) collection lawsuits.

 

 

e.2. Labor and Social Security

 

e.2.1. Social Security

 

TIM S.A received a Tax Notice for the Release of the Debt relating to the alleged irregularity in the payment of social security contributions relating to the payment of Profit Sharing, in the likely amount of R$ 23,780 (R$ 10,467 on December 31, 2020). Moreover, it received Tax Notifications of Release of Debts, referring to the alleged irregularity in the collection of Social Security contributions on installments received as indemnity allowances, unadjusted bonuses, hiring bonuses and incentives, in the total possible amount of R$ 80,431, updated (R$ 22,829 updated on December 31, 2020).

 

 

e.2.2. Labor

 

There are 3,176 Labor claims as of September 30, 2021 (3,038 as of December 31, 2020) filed against the company and with possible risk, concerning claims involving former employees and employees of service providers in the amount of updated R$ 319,589 (R$ 317,971 as of December 31, 2020).

 

The other values are related to labor processes of various requests filed by former employees of their own and third-party companies.

 

 

e.3. Tax

 

 September 2021 December 2020
    
 15,989,070 16,586,353
    
Federal taxes (e. 3.1)3,008,395 

4,268,212 

State taxes (e. 3. 2)8,979,329 8,562,352
Municipal taxes (e. 3. 3)756,539 740,813
FUST, FUNTTEL and EBC (e.3.4)3,244,807 3,014,976

 

 

The values presented are corrected, in an estimated way, based on the SELIC index. The historical amount involved is R$ 11,929,135 (R$ 11,976,959 on December 31, 2020).

 

 

e.3.1. Federal taxes

 

The total amount assessed against the TIM Group in relation to federal taxes is R$ 3,008,395 on September 30, 2021 (R$ 4,268,212 on December 31, 2020). Of this value, the following discussions stand out mainly:

 

a.Allegation of alleged incorrect use of tax credits for carrying out a reverse merger, amortization of goodwill paid on the acquisition of cell phone companies, deduction of goodwill amortization expenses, exclusion of goodwill reversal, other reflections and disallowances of compensations and deductions paid by estimate, allegedly improper use of the SUDENE benefit due to lack of formalization of the benefit at the Internal Revenue Service (RFB), and failure to pay IRPJ and CSLL due by estimate. The amount involved is R$ 1,449,769 (R$ 2,715,670 on December 31, 2020). The Company was notified of the decision on 04/28/2021 and, as a result, the partial payment of R$1.4 billion was confirmed.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

b.Compensation method for tax losses and negative bases. The amount involved is R$ 238,659 (R$ 193,181 on December 31, 2020).

 

c.Collection of CSLL on currency changes arising from swap transactions accounted for by the cash regime. The amount involved is R$ 68,464 (R$ 67,572 on December 31, 2020).

 

d.Collection of IRRF (withholding income tax) on income of residents abroad, including those remitted by way of international roaming and payment to unidentified beneficiaries, as well as the collection of CIDE on payment of royalties on remittances abroad, including remittances by way of international roaming. The amount involved is R$ 264,308 (R$ 259,088 on December 31, 2020).

 

e.Collection of IRPJ, PIS/COFINS and CSLL debits arising from non-homologation or partial homologation of compensations made by the company from credits of withholding taxes on financial investments and negative balance of IRPJ. The amount involved is R$ 405,557 (R$ 399,691 on December 31, 2020).

 

 

e.3.2. State taxes

 

The total amount charged against the TIM Group in respect of state taxes on September 30, 2021 is R$ 8,979,329 (R$ 8,562,352 on December 31, 2020). Of this value, the following discussions stand out mainly:

 

a.Non-inclusion in the ICMS calculation basis of unconditional discounts offered to customers, as well as a fine for the alleged failure to comply with a related accessory obligation, including for the failure to present the 60i record of the SINTEGRA file. The amount involved is R$ 1,125,420 (R$ 1,128,741 on December 31, 2020).

 

b.Use of tax benefit (program for the promotion of integrated and sustainable economic development of the Federal District - PRÓ-DF) granted by the taxing entity itself, but later declared unconstitutional, as well as alleged improper credit of ICMS arising from the interstate purchase of goods with tax benefit granted in the state of origin. The amount involved is R$ 594,975 (R$ 492,935 on December 31, 2020).

 

c.Credit reversal and extemporaneous credit related to acquisitions of permanent assets. The amount involved for TIM S.A. is R$ 629,525 (R$ 608,316 on December 31, 2020).

 

d.Credits and chargebacks of ICMS, as well as the identification and documentary support of values and information released in customer accounts, such as tax rates and credits granted in anticipation of future surcharges (special credit), as well as credits related to tax substitution operations and exempt and untaxed operations. As of September 30, 2021, the amount involved is R$ 3,400,610 (R$ 3,356,501 as of December 31, 2020).

 

e.Use of credit in the acquisition of electricity directly employed in the production process of companies. The amount involved is R$ 135,404 (R$ 136,286 as of December 31, 2020).

 

80 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

f.Alleged conflict between the information contained in ancillary obligations and the collection of the tax, as well as specific questioning of fine for non-compliance with ancillary obligations. The amount involved is R$ 714,941 (R$ 698,673 as of December 31, 2020).

 

g.Alleged lack of collection of ICMS due to the gloss of chargebacks related to the prepaid service, improper credit of ICMS in the outputs of goods allegedly benefited with reduction of the calculation base, as well as an allegation of improper non-inclusion of Value-Added Services (VAS) of the ICMS calculation base. The amount involved is R$ 539,336 (R$ 249,271 as of December 31, 2020).

 

h.Launch of credits related to the return of mobile devices lent on loan. The amount involved is R$ 121,350 (R$ 197,521 on December 31, 2020).

 

i.Collection of ICMS related to subscription services and their alleged improper non-inclusion in the ICMS calculation base due to their nature. The amount involved is R$ 288,021 (R$ 260,447 on December 31, 2020).

 

 

e.3.3. Municipal taxes

 

The total assessed amount against TIM Group regarding municipal taxes with possible risk is R$ 756,539 on September 30, 2021 (R$ 740,813 on December 31, 2020). Of this value, the following discussions stand out mainly:

 

a.Collection of ISS, as well as the punitive fine for the absence of the supposed tax due, on several revenue accounts of the company. The amount involved is R$ 152,276 (R$ 150,023 on December 31, 2020).

 

b.Collection of ISS on importation of services or services performed in other municipalities. The amount involved is R$ 393,355 (R$ 385,536 on December 31, 2020).

 

c.Constitutionality of the collection of the functioning supervision fee (TFF - Taxa de Fiscalização do Funcionamento) by municipal authorities of different localities. The amount involved is R$ 132,281 (R$ 126,159 on December 31, 2020).

 

e.3.4. FUST and FUNTTEL

 

The total amount charged against the TIM Group in relation to the contributions to FUST and FUNTTEL with a possible risk rating is R$ 3,244,807 (R$ 3,014,976 on December 31, 2020). The main discussion involves the collection of the contribution to FUST and FUNTTEL (Fund for the technological development of Telecommunications) from the issuance by ANATEL of Sum no. 07/2005, aiming, among others, and mainly, the collection of the contribution to FUST and FUNTTEL on interconnection revenues earned by mobile telecommunications service providers, from the validity of Law 9998/2000.

 

e.4. Regulatory

 

ANATEL filed administrative proceedings against the Company for: (i) non-compliance with certain quality indicators; (ii) non-compliance with other obligations derived from the terms of authorization and (iii) non-compliance with the SMP and STFC regulations, among others.

 

On September 30, 2021, the value indicated for the PADOs (procedure for determining non-compliance with obligations), considering the monetary update, classified with possible risk was R$ 120,218 (R$ 119,076 on December 31, 2020). The variation was mainly due to monetary adjustment for the period.

81 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

On August 22, 2019, ANATEL's Board of Directors unanimously approved TIM's conduct adjustment term (TAC), which had been negotiated since June 2018 with the regulator. The agreement covers a sanctions reference value of R$ 627 million. The commitment includes actions to improve three pillars of action-customer experience, quality and infrastructure - through initiatives associated with improvements in the licensing process of stations, efficient use of numbering resources, evolution of digital service channels, reduction of complaint rates, repair of users and strengthening of transport and access networks. In addition, it contemplates the additional commitment to bring mobile broadband, through the 4G network, to 366 municipalities with less than 30 thousand inhabitants thus reaching more than 3.4 million people. The new infrastructure will be implemented in three years - more than 80% in the first two years – being guaranteed by the company the sharing regime with the other providers.

 

On June 19, 2020 the Board of Directors of the company approved the said TAC after final deliberation of the regulator and the signing of the term took place on June 25. The agreement covers sanctions totaling a value of approximately R$ 639 million, updated, which will be filed according to commitments represented in actions to improve quality and customer experience as well as increase network infrastructure in more than 2,000 locations.

 

During the third quarter of 2021, the Company carried out all the activities planned for the strict compliance with the Conduct Adjustment Instrument (TAC) 001/2020 entered into with Anatel, aiming at achieving the goals associated with the TAC for the first year. With the closing of the 1st TAC Year, inspection activities by the Agency are taking place in relation to commitments due and they were recognized as met by Anatel: Additional commitments; Internal controls; Complaints Index; General quality index; Numbering; Interconnection and; Impediment. The Company will continue fully implementing the internal monitoring mechanisms through the quarterly report on the evolution of the schedules by the Governance Office in Management and Board of Directors.

 

By obtaining the extension of the term of the authorizations to use the radio frequencies associated with the SMP, TIM S.A. becomes liable for the contractual burden on the net revenue arising from the service plans marketed under each authorization. However, since 2011 ANATEL began to include in the basis of calculation of said burden also the revenues obtained with interconnection, and from 2012, the revenues obtained with Value-Added Services. In the company's opinion, the inclusion of such revenues is improper because it is not expressly provided for in the terms of original authorizations, so the collections received are discussed in the administrative and/or judicial sphere.

 

26.Shareholders' equity

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

a. Share Capital

 

The share capital is recorded by the amount effectively raised from the shareholders, net of the costs directly linked to the funding process.

 

The subscribed and paid-in share capital on September 30, 2021, is represented by 2,420,804,398 common shares (2,420,804,398 common shares on December 31, 2020).

 

The Company is authorized to increase its share capital up to the limit of 4,450,000,000 common shares, by resolution of Board of Directors, regardless of any amendment to its bylaws.

 

82 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

On July 2, 2020, the Board of Directors of the Company approved the reverse split of all of the 42,296,789,606 of common shares without par value issued by the Company pursuant to the terms of Art. 12 of Law 6404/76, with no change in the share capital, at a ratio of 100 shares to form 1 common share, through the capital, to be represented by the 422,967,896 common shares, with no par value, while preserving all of the rights and privileges of those shares are common shares. The proposed grouping did not result in fractions of shares. The incorporation resulted in the cancellation of all the shares issued by the company, which were owned by TIM Participações.

 

Following the merger mentioned in note 1, is checked for the condition precedent, the shareholders of TIM Participações received 1 common share issued by the TIM S.A. for each 1 common share issued by TIM Participações, of ownership, and that, assuming the maintenance of the number of shares issued by TIM Participações, ex-treasury shares, resulting in the issuance of a 2,420,447,019 the common shares by the management of TIM S.A., all nominative, book-entry and with no par value.

 

On August 31, 2020, the increase in the share capital of the company in the amount of R$ 1,719 defined in the incorporation protocol was approved at an ordinary and Extraordinary General Meeting, which was represented by R$ 13,477,891.

 

On September 28, 2020, at a meeting of the Board of directors, and the directors of the Company has become aware of the payments relating to the awards of the 2018 and 2019, based on the transfer of shares held in treasury stock to the beneficiaries as provided for in the Plans and pursuant to the terms of the share buy-back Programme as approved by the Board of Directors of TIM Participações S.A. (merged into TIM S.A.) in the meeting held on the 29th of July 2020, in the amount of 357,379 shares (note 1).

 

 

b. Capital reserves

 

The use of capital reserves complies with the precepts of art. 200 of Law 6404/76, which provides for Joint-Stock Companies. This reserve is composed as follows:

 

 September 2021 December 2020
    
 402,448 397,183
    
Special Reserve of goodwill353,604 353,604
Long-term incentive plan48,844  43,579

 

 

 

b.1 Special Reserve of goodwill

 

The special reserve of goodwill was constituted from the incorporation of the net assets of the former parent company Tim Participações S.A. (note 1)

 

b.2 Long-term incentive plan

 

The balances recorded under these items represent the Company's expenses related to the long-term incentive program granted to employees (note 27).

 

 

c. Profit reserves

 

c.1 Legal reserve

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

It refers to the allocation of 5% of the net profit for the year ended December 31 of each year, until the Reserve equals 20% of the share capital, excluding from 2018 the balance allocated to the reserve of tax incentives. In addition, the company may cease to constitute the legal reserve when this, added to the capital reserves, exceeds 30% of the share capital.

 

This Reserve may only be used to increase capital or offset accumulated losses.

 

 

c. 2 Statutory reserve for expansion

 

The formation of this reserve is foreseen in Paragraph 2 of art. 46 of the bylaws of the company and is aimed at the expansion of social business.

 

The balance of profit that is not compulsorily allocated to other reserves and is not intended for the payment of dividends is allocated to this reserve, which may not exceed 80% of the share capital. Reaching this limit, it will be up to the General Meeting to decide on the balance, distributing it to shareholders or increasing capital.

 

c. 3 Tax benefit reserve

 

The company enjoys tax benefits that provide for restrictions on the distribution of profits. According to the legislation that establishes these tax benefits, the amount of tax that is no longer paid due to exemptions and reductions in the tax burden may not be distributed to members and will constitute a reserve of tax incentive of the legal entity. Such a reserve may only be used to absorb losses or increase the share capital. As of September 30, 2021, the cumulative value of the benefits enjoyed by the Company amounts to R$ 1,781,560 (R$ 1,781,560 as of December 31, 2020).

 

The said tax benefit basically corresponds to the reduction of the Corporate Income Tax (IRPJ) incident on the profit of the exploitation calculated in the units encouraged. The Company operates in the area of the defunct Superintendence of development of the Amazon (SUDENE / SUDAM), being the tax incentive awards granted by state of the Federation, for a period of 10 years, subject to renewal.

 

d. Dividends

 

Dividends are calculated in conformity with the bylaws and the Brazilian Corporate Law.

 

According to its latest bylaws, approved on August 31, 2020, the company must distribute as a mandatory dividend each year ending December 31, provided that there are amounts available for distribution, an amount equivalent to 25% of Adjusted Net Income.

 

As provided in the company's bylaws, unclaimed dividends within 3 years will revert to the company.

 

As of December 31, 2020, dividends and Interest on Equity were calculated as follows:

 

 2020
  
Net income for the year1,843,690
(-) non-distributable tax incentives(169,540)
(-) Constitution of legal reserve(83,707)
Adjusted net profit1,590,443
  
Minimum dividends calculated on the basis of 25% of adjusted profit397,611

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  
Breakdown of dividends payable interest on equity: 
 Interest on shareholders´ equity1,083,000
Total dividends and interest on shareholders´ equity distributed and proposed1,083,000
Income tax withheld (IRRF) on shareholders´ equity(162,450)
Total dividends and interest on shareholders´ equity, net920,550
 

 

Interest on shareholders' equity paid and/or payable is accounted for against financial expenses which, for the purposes of presenting the quarterly information, are reclassified and disclosed as allocation of net income for the year, in changes in shareholders' equity. The total interest on shareholders' equity approved in 2020 was R$ 1,083,000. As of January 22, 2021, the Company paid the amount of R$ 583 million, referring to the last tranche of interest on shareholders' equity referring to the year 2020. During 2020, the total amount paid was R$ 1,153,054 (R$ 500 million referring to the year 2020 and R$ 653 million referring to the year 2019).

 

The balance on September 30, 2021 of the item “dividends and interest on shareholders’ equity payable” totaling R$ 176,147 is composed of the outstanding amounts of previous years in the amount of R$ 49,606 (R$ 43,026 on December 31, 2020) in addition to the unpaid total amount of interest on shareholders’ equity approved by the Board of Directors on June 9, 2021 and September 24, 2021, in the amount of R$ 350,000 (net amount of R$ 302,135) and R$ 137,500 (net amount of R$ 118,763), respectively. As of July 20, 2021, the Company paid R$ 294,357 referring to the last tranche of interest on shareholders' equity.

 

As set forth in the Law 6404/76 and the Bylaws of the Company, unclaimed dividends - as established in the Joint Stock Company Law, dividends and Interest on Shareholders’ Equity declared and unclaimed by shareholders within 3 years, are reverted to shareholders' equity at the time of its prescription and allocated to a supplementary reserve to expand businesses.

 

For the statement of cash flow, Interest on Shareholders’ Equity and dividends paid to its shareholders are being allocated in the group of “financing activities”.

 

85 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

27.Long-Term Incentive Plan

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

 

2011-2013 Plan, 2014-2016 Plan, 2018-2020 Plan and 2021-2023 Plan

 

On August 5, 2011, April 10, 2014, April 19, 2018 and March 30, 2021, the long-term incentive plans were approved by the General Meeting of shareholders of TIM S.A. (TIM Participações S.A. before the incorporation by TIM S.A. on August 31, 2020); “2011-2013 Plan”, “2014-2016 Plan”, “2018-2020 Plan” and “2021-2023 Plan” respectively, granted to senior directors and to those who occupy the position of key positions in the Company.

 

The 2011-2013 and 2014-2016 Plans addresses the granting of stock options, while the 2018-2020 and 2021-2023 Plans provides for the granting of shares (performance shares and/or restricted shares).

 

The exercise of the options of the 2011-2013 Plan is conditioned on the achievement of specific performance targets that could prevent the exercise of options, while when in the exercise of the options of the 2014-2016 Plan, the achievement of goals may affect only the acquisition price of the shares. The strike price is calculated by applying a plus or minus adjustment to the Base price of the share as a result of shareholder performance, taking into account the criteria provided for in each plan.

 

The 2018-2020 and 2021-2023 Plans propose to grant participants shares issued by the Company, subject to the participant’s permanence in the Company (achievement of specific goals). The number of shares may vary, for more or for less, as a result of the performance and possibly of the dividend award, considering the criteria provided for in each Grant.

 

The term of validity of the options of the 2011-2013 and 2014-2016 plans is 6 years and TIM S.A. has no legal or non-formalized obligation to repurchase or settle the options in cash. For the 2018-2020 and 2021-2023 plan, the term of validity has the same periodicity of 3 years related to its vesting. In turn, the new Plans, in addition to considering the transfer of shares, also provides for the possibility of making payment to participants of the equivalent amount in cash.

 

The total amount of the expense was calculated considering the fair value of the options and the value of the shares and is recognized in the results over the vesting period.

 

 

86 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

Stock Options Program Table

 

         
Grant dateOptions grantedExpiry dateBase PriceBalance at the beginning of the yearGranted during the yearExercise during exerciseExpired during exerciseOverdue during the yearBalance at the end of the year 
           
2014-2016 Plan – 3rd Grant3,922,204Nov 2022R$ 8.10295,063-(182,511)--112,552 
2014-2016 Plan – 2nd Grant3,355,229Oct 2021R$ 8.4521,771----21,771 
2014-2016 Plan – 1st Grant1,687,686Sep 2020R$ 13.42------ 
2011-2013 Plan – 3rd Grant3,072,418July 2019R$ 8.13------ 
2011-2013 Plan – 2nd Grant2,661,752Sep 2018R$ 8.96------ 
2011-2013 Plan – 1st Grant2,833,595Aug 2017R$ 8.84------ 
Total17,532,884  316,834-(182,511)--134,323 
Weighted average price of the balance of grantsR$ 8.16      
            

 

 

Stock Program Table (Performance Shares and Restricted Shares)

 

             
Identification of grant:Shares grantedExpiry dateGrant PriceBalance at the beginning of the yearGranted during the yearTransferred during the year*Paid in cash*Canceled during the yearBalance at the end of the year 
Volume VestedPerformance changeAdditional
Dividends
Volume VestedPerformance changeAdditional
dividends
 
               
2021-2023 Plan
2021 Grant(s)
2,921,676May 2024R$ 12.95-2,921,676-------2,921,676 
2018-2020 Plan
2020 Grant(s)
796,054Apr 2023R$ 14.40796,054-(206,578)(51,634)(8,933)----589,476 
2018-2020 Plan
2019 Grant(s)
930,662July 2022R$ 11.28687,895-(190,152)(70,908)(21,167)----497,743 
2018-2020 Plan
2018 Grant*
849,932Apr 2021R$ 14.41199,594-(187,039)(42,854)(22,250)(9,101)(2,183)(1,094)(3,454)- 
Total5,498,324  1,683,5432,921,676(583,769)(165,396)(52,350)(9,101)(2,183)(1,094)(3,454)4,008,895 
Weighted average price of the balance of grantsR$ 12.96           
                           

 

 

87 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

The significant data included in the model, for the Stock Option Grants, was as follows:

 

Grant dateBase price - weighted average share in the period of measurement of the grantVolatilityExpected option lifeAnnual interest rate without risk
2011 GrantR$ 8.8451.73% p.a.6 years11.94% p.a.
2012 GrantR$ 8.9650.46% p.a.6 years8.89% p.a.
2013 GrantR$ 8.1348.45% p.a.6 years10.66% p.a.
2014 GrantR$ 13.4244.60% p.a.6 years10.66% p.a.
2015 GrantR$ 8.4535.50% p.a.6 years16.10% p.a.
2016 GrantR$ 8.1036.70% p.a.6 years11.73% p.a.

 

Note: Significant data is characteristic of an option-based plan, considering the use of fair value as the appropriate method for calculating expenses with option remuneration.

 

The base price of the share of each share was calculated using the weighted averages of TIM S.A.’s share price. (TIM Participações S.A. before the merger by TIM S.A. on August 31, 2020), considering the following periods:

 

·2011-2013 Plan - 1st Grant-traded volume and trading price of TIM Participações shares in the period of 30 days prior to the date of 07/20/2011 (date on which the Board of Directors of TIM Participações approved the benefit).

 

·2011–2013 Plan – 2nd Grant – traded volume and trading price of shares of TIM Participações for the period 07/01/2012–08/31/2012.

 

·2011–2013 Plan – 3rd Grant-traded volume and trading price of TIM Participações shares for the period of 30 days prior to 07/20/2013.

 

·2014-2016 Plan – 1st Grant-traded volume and trading price of TIM Participações in the 30 days prior to the date defined by the Board of Directors of TIM Participações (September 29, 2014).

 

·2014-2016 Plan – 2nd Grant-traded volume and trading price of TIM Participações in the 30 days prior to the date defined by the Board of Directors of TIM Participações (September 29, 2015).

 

·2014-2016 Plan – 3rd Grant-traded volume and trading price of TIM Participações in the 30 days prior to the date defined by the Board of Directors of TIM Participações (September 29, 2016).

 

·2018-2020 Plan – 1st Grant-traded volume and trading price of TIM Participações shares for the period 03/01/2018–03/31/2018.

 

·2018-2020 Plan – 2nd Grant-traded volume and trading price of TIM Participações shares for the period 06/01/2019–06/30/2019.

 

·2018-2020 Plan – 3rd Grant-traded volume and trading price of TIM Participações shares for the period 03/01/2020–03/31/2020.

 

·2021-2023 Plan - 1st Grant - traded volume and trading price of TIM S.A. shares in the period from March 01, 2021 to March 31, 2021.

 

 

As of September 30, 2021, expenses related to said long-term benefit plans totaled R$ 16,283 (R$ 7,403 as of September 30, 2020).

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

28.Net operating revenue

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

 

Revenue from services rendered

 

The principal service revenue derives from monthly subscription, the provision of separate voice, SMS and data services, and user packages combining these services, roaming charges and interconnection revenue. The revenue is recognized as the services are used, net of sales taxes and discounts granted on services. This revenue is recognized only when the amount of services rendered can be estimated reliably.

 

Revenues are recognized monthly, through billing, and revenues to be billed between the billing date and the end of the month (unbilled) are identified, processed, and recognized in the month in which the service was provided. These non-billed revenues are recorded on an estimated basis, which takes into account consumption data, number of days elapsed since the last billing date.

 

Interconnection traffic and roaming revenue are recorded separately, without offsetting the amounts owed to other telecom operators (the latter are accounted for as operating costs).

 

The minutes not used by customers and/or reload credits in the possession of commercial partners regarding the prepaid service system are recorded as deferred revenue and allocated to income when these services are actually used by customers.

 

The service net revenue item also includes revenue from financial partnership agreements and, as provided for in the agreement, the amounts of revenues recognized that, in the nine-month period ended September 30, 2021, since TIM customers opened accounts with our financial partner C6, which was approximately R$ 57 million (note 37).

 

Arbitration Procedure No. 28/2021/SEC8 was filed before the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce (“CCBC” and “Arbitration Procedure”, respectively), by TIM against Banco C6 S.A., Carbon Holding Financeira S.A. and Carbon Holding S.A (together, “Defendants”), through which the interpretation of certain clauses in the contracts that rule the partnership between the parties will be discussed. In case of loss, the partnership may be terminated.

 

 

Revenues from sales of goods

 

Revenues from sales of goods (telephones, mini-modems, tablets and other equipment) are recognized when the performance obligations associated with the contract are transferred to the buyer. Revenues from sales of devices to trading partners are accounted for at the time of their physical delivery to the partner, net of discounts, and not at the time of sale to the end customer, since the Company has no control over the good sold.

 

 

Contract identification 

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The Company monitors commercial contracts in order to identify the main contractual clauses and other elements present in the contracts that could be relevant in the application of the accounting rule IFRS 15 / CPC47 – Revenue from Contracts with Customers.

 

 

Identification of the performance obligation 

 

Based on the review of its contracts, the Company verified the existence of two performance obligations:

 

 

(i) sale of equipment; e

(ii) provision of mobile, fixed and internet telephony services.

 

Thus, the Company started to recognize revenues when (or as) the Company meets the performance obligation by transferring the asset or service promised to the client; and the asset is considered transferred when (or as) the client obtains control of that asset. 

 

 Determining and Allocating the Transaction Price to the Performance Obligation 

 

The Company understands that its commercial packages that combine services and sale of cellular handsets with discounts. In accordance with IFRS 15 / CPC 47, the Company is required to perform the discount allocation and recognize revenues related to each performance obligation based on their standalone selling prices. 

  

Cost to obtain contract 

 

All incremental costs related to obtaining a contract (sales commissions and other costs of acquisition from third parties) are recorded as prepaid expenses and (as described in note 11) amortized over the same period as the revenue associated with this asset. Similarly, certain contract compliance costs are also deferred to the extent that they relate to performance obligations under the customer agreement, i.e. when the customer obtains control over the asset. 

 

 

 September 2021 September 2020
    
Net operating revenue13,258,577 12,589,783
    
Gross operating revenue18,649,199 17,891,710
    
Service revenue17,909,828 17,247,287
Revenue from services – Mobile16,538,413 15,948,908
Service revenue – Landline1,371,415 1,298,379
    
Goods sold739,371 644,423
    
Deductions from gross revenue(5,390,622) (5,301,927)
Taxes incidents(3,501,524) (3,409,841)
Discounts granted(1,881,579) (1,883,754)
Returns and other(7,519) (8,332)

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

29.Operating costs and expenses

 

 Parent company
 September 2021 September 2020
 Cost of services provided and goods soldSelling expensesGeneral and administrative expensesTotal Cost of services provided and goods soldSelling expenses  General and administrative expensesTotal
          
 (6,281,442)(3,495,043)(1,249,962)(11,026,447) (5,879,700)(3,347,862)(1,238,982)(10,466,544)
          
Personal(48,078)(494,996)(285,104)(828,178) (40,857)(458,786)(254,683)(754,326)
Third party services(431,919)(1,344,497)(455,022)(2,231,438) (445,570)(1,298,759)(369,744)(2,114,073)
Interconnection and means of connection(1,371,560)--(1,371,560) (1,241,954)--(1,241,954)
Depreciation and amortization(3,615,219)(195,509)(445,041)(4,255,769) (3,414,012)(189,808)(544,364)(4,148,184)
Taxes, fees and contributions(25,852)(578,875)(18,391)(623,118) (21,133)(554,394)(16,711)(592,238)
Rentals and insurance(283,762)(76,120)(14,440)(374,322) (249,310)(92,168)(10,248)(351,726)
Cost of goods sold(502,471)--(502,471) (461,664)--(461,664)
Advertising and advertising-(363,410)-(363,410) -(284,263)-(284,263)
Provision for expected credit losses-(427,582)-(427,582) -(455,357)-(455,357)
Other(2,581)(14,054)(31,964)(48,599) (5,200)(14,327)(43,232)(62,759)

 

 

 

Consolidated

 September 2021
 Cost of services provided and goods soldSelling expensesGeneral and administrative expensesTotal
     
 (6,281,442)(3,495,043)(1,249,998)(11,026,483)
     
Personal(48,078)(494,996)(285,104)(828,178)
Third party services(431,919)(1,344,497)(455,058)(2,231,474)
Interconnection and means of connection(1,371,560)--(1,371,560)
Depreciation and amortization(3,615,219)(195,509)(445,041)(4,255,769)
Taxes, fees and contributions(25,852)(578,875)(18,391)(623,118)
Rentals and insurance(283,762)(76,120)(14,440)(374,322)
Cost of goods sold(502,471)--(502,471)
Advertising and advertising-(363,410)-(363,410)
Provision for expected credit losses-(427,582)-(427,582)
Other(2,581)(14,054)(31,964)(48,599)

 

 

The company makes contributions to public or private pension insurance plans on a mandatory, contractual or voluntary basis while the employee is on the staff of the company. Such plans do not bring any additional obligations to the company. If the employee ceases to be part of the company's staff in the period necessary to have the right to withdraw contributions made by sponsors, the amounts to which the employee is no longer entitled and which

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

may represent a reduction in the company's future contributions to active employees, or a cash refund of these amounts, are released as assets.

 

30.Other net revenue (expense)

 

 Parent company Consolidated
 September 2021 September 2020 September 2021
Revenues     
   Subsidy revenue, net10,967 13,342 10,967
   Fines on telecommunications services42,591 25,132 42,591
   Revenue on disposal of assets1,663 1,346 1,663
   Other revenue51,037 44,949 50,842
 106,258 84,769 106,063
Expenses     
FUST/FUNTTEL (i)(102,027) (99,004) (102,027)
Taxes, fees and contributions(1,473) (9,058) (1,473)
Provision for legal and administrative proceedings, net of reversal     
(198,176) (220,053) (198,176)
Expenses on disposal of assets(7,421) (12,880) (7,421)
Other expenses(17,991) (26,510) (17,991)
 (327,088) (367,505) (327,088)
      
Other revenues (expenses), net(220,830) (282,736) (221,025)

 

(i) Representing the expenses incurred with contributions on the various telecommunications revenues due to ANATEL, according to current legislation.

 

31.Financial revenues

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

 

 September 2021 September 2020
    
Financial revenues1,227,542  725,170
Interest on financial investments169,020  55,914
Interest received from clients22,071  20,532
Swap interest105,955  22,666
Lease interest17,948  14,998
Inflation adjustment (i)165,629  76,073
Other derivatives (ii)  232,748 -
Foreign exchange variation (iii)255,221  49,047
Foreign exchange swap (iv)258,455  483,833
Other revenue495  2,107

 

 

(i) A substantial part is related to the monetary restatement on judicial and administrative proceedings and judicial deposits.

 

(ii) It is the difference between the market cost and value of the share subscription option related to Banco C6 partnership; therefore, the mark-to-market value of these derivatives includes a gain of R$ 233 million referring to the company’s stock option obtained through achievement of contractual target defined in an operational

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

partnership started in 2020. The market value was calculated based on information available in the last investment transaction carried out by the partner and disclosed in the market. The disclosures of this derivative financial instrument are detailed in note 37, which was measured at fair value, and will subsequently be measured in the Company’s income, also considering the risks related to arbitration disclosed in note 28.

 

(iii) In 2021, it mainly refers to foreign exchange variation on loans and financing in foreign currency.

 

(iv) Refers mainly to derivative financial instruments to mitigate risks of foreign exchange variations related to foreign currency debts (note 37).

 

 

32.Financial expenses

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

 

 September 2021 September 2020
Financial expenses(1,700,162) (1,488,082)
Interest on loans and financing (62,872)  (60,538)
Interest on taxes and fees (40,339)  (31,108)
Swap interest (213,503)  (38,759)
Lease interest (600,384)  (580,959)
Inflation adjustment (i) (167,736)  (120,875)
Discounts granted (40,721)  (22,047)
Foreign exchange variation (ii) (283,055)  (535,281)
Exchange rate swap (iii)(231,644) -
Other expenses (59,908)  (98,515)

 

 

(i)Substantial portion related to the monetary restatement of lawsuits, in the amount of R$ 104,579 - see note 25 (R$ 108,830 as of September 30, 2020).
(ii)It mainly refers to foreign exchange variation on loans and financing in foreign currency.
(iii)Refers mainly to derivative financial instruments to mitigate risks of foreign exchange variations related to foreign currency debts (note 37).

 

 

33.Income tax and social contribution

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 September 2021 September 2020
Income tax and social contribution, current   
Income tax for the period182,629 (649,013)
Social contribution for the period92,919 (237,965)
Tax incentive – SUDENE/SUDAM (i)138,127 118,348
 413,675 (768,630)
Deferred income tax and social contribution   
Deferred income tax(6,594) 389,855
Deferred social contribution(3,655) 140,348
 (10,249) 530,203
Provision for income tax and social contribution contingencies   
-(8,895)
 (10,249) 521,308
 403,426 (247,322)

 

The reconciliation of income tax expense and social contribution calculated by applying the combined tax rates with the values reflected in the result is shown below:

 

 September 2021 September 2020
    
Income before income tax and social contribution1,538,449 1,077,591
Combined tax rate34% 34%
Combined tax rate on income tax and social contribution   
(523,073)(366,381)
(Additions) / deletions:   
Permanent additions and exclusions:   
    Non-deductible expenses for tax purposes(9,530) (18,703)
Tax incentive – SUDENE/SUDAM (i)138,127 118,348
Tax benefit related to interest on shareholders’ equity165,750 -
Other amounts (ii)632,152 19,414
 926,499 119,059
Income tax and social contribution recorded in the income (loss) for the period   
403,426(247,322)
Effective rate-26.22% 22.95%

 

(i) As mentioned in note 26 c.3, in order for investment grants not to be computed in taxable income, they must be recorded as a tax incentive reserve, which can only be used to absorb losses or be incorporated into the share capital. TIM S.A. has tax benefits that fall under these rules.

 

(ii) In the second quarter of 2021, there was a positive impact of R$ 87 million arising from the write-off of assets and reversal of the provision for income tax and social contribution, set up in 2009, due to the partial success in an administrative proceeding related to the merger of the company TIM Nordeste by TIM Celular.

 

As mentioned in note 9, in September 2021, the Federal Supreme Court (STF), with general repercussions, established an understanding for the non-levy of Corporate Income Tax (IRPJ) and Social Contribution (CSLL) on the monetary restatement using the SELIC rate in cases of undue payment. Although the aforementioned decision is still pending publication, as well as the specific TIM lawsuit is still pending judgment, TIM recorded its best estimate to date, in the amount of R$ 534 million, since the likelihood of a favorable outcome for the Company becomes probable.

34.Earnings per share

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The number of TIM.SA shares before the corporate reorganization was 2,420,447,019, equivalent to the number of TIM Participações common shares on the merger date. Consequently, basic and diluted earnings per share were calculated considering the retrospective impact of the change in the number of shares, pursuant to IAS 33/CPC 41.

 

 

(a)       Basic

 

Basic profit per share is calculated by dividing the profit attributable to the shareholders of the company by the weighted average amount of shares issued during the period.

 

  September 2021 September 2020
     
Income attributable to the shareholders of the company 1,941,875 830,269
     
Weighted average number of common shares issued (thousands) 2,420,382 2,420,804
     
Basic earnings per share (expressed in R$) 0.80 0.34

 

(b)       Diluted

 

Diluted earnings per share are calculated by adjusting the weighted average amount of shares outstanding to assume the conversion of all potential dilutive shares.

 

  September 2021 September 2020
     
Income attributable to the shareholders of the company 1,941,875 830,269
     
Weighted average number of common shares issued (thousands) 2,420,682 2,420,960
     
Diluted earnings per share (in R$) 0.80 0.34

 

The calculation of diluted earnings per share considered 300,000 (156 thousands on September 30, 2020) shares related to the long-term, as mentioned in note 27.

 

35.Balances and transactions with related parties

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

The balances of transactions with Telecom Italia Group companies are as follows:

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

  Assets
  September 2021 December 2020
     
Telecom Italia Sparkle (i) 1,331 1,630
Gruppo Havas (vi) 5,655 -
TI Sparkle (iii) 4,260 1,915
TIM Brasil (vii) 23,054 6,129
Telecom Italia S.p.A. (ii) 1,102 370
Other 674 674
Total 36,076 10,718

 

  Liabilities
  September 2021 December 2020
     
Telecom Italia S.p.A. (ii) 58,723 75,317
Telecom Italia Sparkle (i) 7,194 10,576
TI Sparkle (iii) 8,611 7,333
TIM Brasil (iv) 6,558 6,145
Vivendi Group (v) 1,160 1,150
Gruppo Havas (vi) 44,267 24,068
Other 9,998 2,797
     

Total

 136,511 127,386
     
  Revenue
  September 2021 September 2020
     
Telecom Italia S.p.A. (ii) 877 955
Telecom Italia Sparkle (i) 242 2,939
TI Sparkle (iii) 2,507 2,871
Total 3,626 6,765

 

  Cost / Expense
  September 2021 September 2020
     
Telecom Italia S.p.A. (ii) 74,278 84,132
Telecom Italia Sparkle (i) 17,607 18,566
TI Sparkle (iii) 12,939 15,247
Vivendi Group (v) 1,185 1,191
Gruppo Havas (vi) 167,497 136,941
Other 18,393 17,229
Total 291,899 273,306

 

 

(i) Values refer to roaming, Value-Added Services – VAS, transfer of means and international voice-wholesale.

 

(ii) The amounts refer to international roaming, technical assistance and value added services – VAS and licensing for the use of a registered trademark, granting TIM. S.A. the right to use the “TIM” brand upon payment of royalties in the amount of 0, 5% of the company’s net revenue, with payment made on a quarterly basis.

 

96 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

(iii) Values refer to link rental, EILD rental, media rental (submarine cable) and signaling service.

 

(iv) Mainly refer to judicial deposits made on account of labor causes and transfers of employees.

 

(v) The values refer to Value Added Services - VAS.

 

(vi) From the values described above, in the result, it refers to advertising services, of which, R$ 138,545 (R$ 126,990 as of September 30, 2020), are related to media transfers.

 

(vii) Refer to judicial deposits made on account of labor claims.

 

 

The company has social investment actions that include donations, projects developed by the Tim Institute and sponsorships. On September 30, 2021, the Company invested R$ 7,111 (R$ 2,723 on September 30, 2020).

 

Balances on equity accounts are recorded in the groups: trade accounts receivable, prepaid expenses, suppliers and other current assets and liabilities.

 

36.Management remuneration

 

The balances on September 30, 2021 and 2020, presented below, represent the individual and consolidated amounts.

 

The key management personnel includes: statutory directors and the Board of Directors. The payment of key management personnel for the provision of their services is presented below:

 

 September 2021 September 2020
    
Short-term benefits22,854 15,267
Other long-term benefits1,052 2,045
Share-based payments remuneration10,172 4,720
 34,078 22,032
37.Financial instruments and risk management

 

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

Among the financial instruments registered in the Company, there are derivatives that are financial assets or liabilities measured at fair value through the result. At each balance sheet date such assets/liabilities are measured at their fair value. Interest, monetary correction, foreign exchange variation and variations arising from the fair value measurement, where applicable, shall be recognized in the result when incurred, under the line of financial revenues or expenses.

 

Initially, derivatives are recognized at fair value on the date a derivative contract is concluded and are subsequently remeasured at fair value. The company does not apply “hedge accounting”.

 

The Company carries out transactions with derivative financial instruments, without speculative purposes, only with the aim of i) reducing risks related to foreign exchange variation and ii) managing interest rate exposure. The Company's derivative financial instruments are specifically represented by swap contracts.

 

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The company's financial instruments are being presented in compliance with IFRS 9 / CPC 48.

 

The main risk factors that the company is exposed to are as follows:

 

 

(i) Exchange rate risks

 

The risks of foreign exchange variations relate to the possibility of the Company computing i) losses derived from fluctuations in exchange rates by increasing the balances of debt with loans and financing obtained in the market and the corresponding financial expenses or ii) increase in cost in commercial contracts that have some type of link to foreign exchange variation. In order for these types of risks to be mitigated, the company performs: swap contracts with financial institutions with the aim of canceling the impacts arising from the fluctuation of exchange rates on the balance sheet and financial result and commercial contracts with foreign exchange band clauses with the aim of partially mitigating foreign exchange risks or derivative financial instruments to reduce the remaining risks of foreign exchange exposure in commercial contracts.

 

As of September 30, 2021, the company's loans and financings indexed to the variation of foreign currencies are fully protected, both in terms and in value, by swap contracts. Gains or losses on these swap contracts are recorded in the company's earnings.

 

In addition to the risks mentioned above, there are no other financial assets and liabilities in significant amounts that are indexed to foreign currencies.

 

(ii) Interest rate risks

 

Interest rate risks relate to:

 

The possibility of variations in the fair value of the loans obtained by the company indexed to TJLP, IPCA, fixed rate and/or TLP, when such rates pose a risk to the company’s perspective of not corresponding proportionally to the rates relating to Interbank Certificates of Deposit (CDI). The Company opted to hedge the exposure linked to the IPCA arising from the issuance of debentures and the exposure to a rate linked to the debt with BNP Paribas, both until maturity.

 

The possibility of an unfavorable movement in interest rates would cause an increase in the financial expenses of the Company, as a result of the share of the debt and the passive positions that the Company has in swap contracts linked to floating interest rates (percentage of the CDI). However, as of September 30, 2021, the Company maintains its financial resources applied to Interbank Certificates of Deposit (CDI), which substantially reduces this risk.

 

(iii) Credit risk inherent in the provision of services

 

The risk is related to the possibility of the company computing losses derived from the inability of the subscribers to honor the payments of the invoiced amounts. To minimize this risk, the company preventively performs credit analysis of all orders imputed by the sales areas and monitors the accounts receivable of subscribers, blocking the ability to use services, among other actions, if customers do not pay their debts. There are no customers who have contributed more than 10% of net accounts receivable on September 30, 2021 and December 31, 2020 or revenues from services rendered during the period ended September 30, 2021 and 2020.

 

 

(iv) Credit risk inherent in the sale of telephone sets and prepaid telephone cards

 

The group's policy for the sale of telephone devices and the distribution of prepaid telephone cards is directly related to the credit risk levels accepted during the normal course of business. The selection of partners, the diversification of the portfolio of accounts receivable, the monitoring of loan conditions, the positions and limits of orders established for traders, the formation of collateral are procedures adopted by the company to minimize possible

98 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

collection problems with its trading partners. There are no customers who contributed more than 10% of merchandise sales revenue during the period ended September 30, 2021 and 2020. There are no customers who contributed more than 10% of the net receivables from the sale of goods as of September 30, 2021 and December 31, 2020.

 

 

(v)       Liquidity risk

 

- Liquidity risk arises from the need for cash before the obligations assumed. The company structures the maturities of its non-derivative financial instruments and their respective derivative financial instruments so as not to affect liquidity.

 

- The management of liquidity and cash flow of the Company are performed on a daily basis to ensure that cash operating generation and previous fund raising, as necessary, are sufficient to maintain the schedule of operating and financial commitments.

 

- All financial investments of the Company have daily liquidity and the Management may, even in specific cases: i) revise the dividend payment policy; ii) issue new shares; and/or, iii) sell assets to increase liquidity.

 

(vi) Financial credit risk

 

The cash flow forecast is performed by the Finance Executive Board, which monitors the continuous forecasts of the liquidity requirements to ensure that the Company has enough cash to satisfy its operating needs. This forecast takes into account investment plans, debt financing, compliance with contractual clauses, compliance with internal goals and, if applicable, external regulatory or legal requirements.

 

The risk is related to the possibility of the Company posting losses resulting from difficulties in the redemption of short-term interest earning bank deposits and swap contracts, due to possible insolvency of counterparties. The company minimizes the risk associated with these financial instruments by maintaining operations only with financial institutions of recognized market strength, in addition to following a policy that establishes maximum levels of risk concentration per financial institution.

 

 

Fair value of derivative financial instruments:

 

The consolidated derivative financial instruments are presented below:

 

  September 2021 December 2020
  AssetsLiabilities AssetsLiabilities
       
Derivative transactions 143,529167,952 340,66036,166
Other derivatives (i) 403,573- 161,429-
  547,102167,952 502,08936,166
Current portion (68,896)(139,892) (262,666)(7,273)
Non-current portion 478,20628,060 239,42328,893

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

 

(i) Other derivatives are instruments of share subscription options represent the option of the Company to subscribe 3.6% of the shares of C6 capital, where the Group/Company paid a share subscription premium in the amount of R$ 15.7 million. As required by IFRS 9, the financial instrument must be valued at its fair value that on September 30, 2021 and December 31, 2020 corresponds to R$ 404 million and R$ 161 million, respectively. The impact of the mark-to-market of the stock conversion option calculated, of R$ 388.3 million, represents the difference in the fair value of the option less the amount paid for the share subscription premium. This financial instrument was measured at fair value and will be subsequently verified in the company’s results for the year, also considering the arbitration risks disclosed in note 28.

 

The long-term derivative financial instruments consolidated at September 30, 2021 are due in accordance with the following schedule:

 

  Assets
   
  2022 15,646
  2023 15,646
  2024 onwards 446,914
  478,206

 

Non-derivative financial liabilities are substantially composed of accounts payable with suppliers, dividends payable and other obligations, the maturity of which will occur in the next 12 months, except for loans and financing and lease, the nominal flows of payments of which are disclosed in notes 21 and 17.

 

 

 

Consolidated financial instruments measured at fair value:

 September 2021
 Level 1 Level 2 TOTAL
      
Total assets3,313,705 547,102 3,860,807
      
Financial assets at fair value through profit or loss3,313,705 547,102 3,860,807
      
Derivative financial instruments- 143,529 143,529
Other derivatives- 403,573 403,573
Marketable securities3,313,705 - 3,313,705
      

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TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Total liabilities- 167,952 167,952
      
Financial liabilities at fair value through result- 167,952 167,952
      
Derivative financial instruments- 167,952 167,952

 

 

     
      
 December 2020
 Level 1 Level 2 TOTAL
      
Total assets2,077,499 502,089 2,579,588
      
Financial assets at fair value through profit or loss2,077,499 502,089 2,579,588
      
Derivative financial instruments- 340,660 340,660
Other derivatives- 161,429 161,429
Marketable securities2,077,499 - 2,077,499
      
Total liabilities- 36,166 36,166
      
Financial liabilities at fair value through result- 36,166 36,166
      
Derivative financial instruments- 36,166 36,166

 

 

 

 

 

 

 

 

     

 

The fair value of financial instruments traded on active markets is based on market prices quoted on the balance sheet date. A market is seen as active if quoted prices are ready and regularly available from a Stock Exchange, distributor, broker, industry group, pricing service, or regulatory agency, and those prices represent real market transactions and that occur regularly on purely commercial basis. These instruments are included in Level 1. The instruments included in Level 1 mainly comprise the equity investments of bank certificates of deposit (CDB) and committed classified as securities for trading.

 

The fair value of financial instruments that are not traded on active markets (e.g. over-the-counter derivatives) is determined through the use of valuation techniques. These valuation techniques maximize the use of data adopted by the market where it is available and rely as little as possible on entity-specific estimates. If all relevant information required for the fair value of an instrument is adopted by the market, the instrument is included in Level 2.

If one or more relevant information is not based on data adopted by the market, the instrument shall be included in Level 3.

 

Specific valuation techniques used to value financial instruments include:

·Quoted market prices or quotes of financial institutions or brokers for similar instruments.
·The fair value of interest rate swaps is calculated by the present value of estimated future cash flows based on the yield curves adopted by the market.
·Other techniques, such as analysis of discounted cash flows, available data of the last relevant transaction and analysis of results based on multiples of similar companies, are used to determine the fair value of the remaining financial instruments.

 

101 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

The fair values of currency derivative financial instruments and interest rates of the Company were determined by means of future cash flows (active and passive position) using the contracted conditions and bringing these flows to present value through discounts for the use of future interest rate disclosed by market sources. Fair values were estimated at a specific time, based on available information and own evaluation methodologies.

 

 

Financial assets and liabilities by Category

 

The financial instruments of the company by category can be summarized as follows:

 

 

September 30, 2021

 Measured at amortized cost Fair value through profit or loss Total 
       
Assets, as per balance sheet7,914,199 3,860,807 11,775,006 
       
Derivative financial instruments- 143,529 143,529 
Other derivatives- 403,573 403,573 
Trade accounts receivable and other accounts receivable, excluding prepayments2,841,604 - 2,841,604 
Marketable securities- 3,313,705 3,313,705 
Cash and cash equivalents4,067,610 - 4,067,610 
Leases240,776 - 240,776 
Judicial deposits726,742 - 726,742 
     Other amounts recoverable37,467 - 37,467 

 

      
       
 Measured at amortized cost Fair value through profit or loss Total 
       
       
Liabilities, as per balance sheet14,756,279 167,952 14,924,231 
       
       
Loans and financing3,414,666 - 3,414,666 
Derivative financial instruments- 167,952 167,952 
Suppliers and other obligations, excluding legal obligations2,653,218 - 2,653,218 
Leases8,512,248 - 8,512,248 
Dividends and interest on shareholders' equity payable176,147 - 176,147 

  

 

102 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

December 31, 2020

 

 Measured at amortized cost Fair value through profit or loss Total
      
Assets, as per balance sheet6,756,810 2,579,588 9,336,398
      
Derivative financial instruments- 340,660 340,660
Other derivatives  161,429 161,429
Trade accounts receivable and other accounts receivable, excluding prepayments3,180,661 - 3,180,661
Marketable securities- 2,077,499 2,077,499
Cash and cash equivalents2,575,290 - 2,575,290
Leases162,198 - 162,198
Judicial deposits794,755 - 794,755
     Other amounts recoverable43,906 - 43,906
 Measured at amortized cost Fair value through profit or loss Total
      
      
Liabilities, as per balance sheet14,391,175 36,166 14,427,341
      
      
Loans and financing2,345,032 - 2,345,032
Derivative financial instruments- 36,166 36,166
Suppliers and other obligations, excluding legal obligations3,128,732 - 3,128,732
Leases8,378,835 - 8,378,835
Dividends and interest on shareholders' equity payable538,576 - 538,576
          

 

Regular purchases and sales of financial assets are recognized on the trading date - the date on which the Company undertakes to buy or sell the asset. Investments are initially recognized at fair value. After initial recognition, changes in fair value are recorded in the profit and loss for the year, in the financial revenues and expenses’ group.

 

 

Financial risk hedge policy adopted by the Company

 

The Company's policy establishes that mechanisms must be adopted to protect against financial risks arising from the contracting of financing in foreign currency or indexed to the interest rate, in order to manage said exposure.

 

The contracting of derivative financial instruments against foreign exchange exposure shall occur simultaneously with the contracting of the debt that gave rise to such exposure. The level of coverage to be contracted for such foreign exchange exposures shall be 100% of the risk, both in terms and in value. To cover interest rates, it is up to the Company to elect or not to contract a hedging mechanism, as provided for in the internal policies.

 

As of September 30, 2021, there are no types of margins or guarantees applied to the company's derivative transactions.

 

Criteria for selection of financial institutions obey parameters that take into consideration rating made available by renowned agencies of analysis of risk, shareholders' equity and transactions, and resources’ concentration levels.

 

The operations with derivative financial instruments contracted by the company and in force on September 30, 2021 and December 31, 2020 are shown in the following table:

 

103 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

September 30, 2021

 

                COUNTERPARTY                   % Coverage                      AVERAGE SWAP RATES                   
CurrencySWAP type

 

Debt

SWAPTotal DebtTotal swap
(Long position)¹
 Active TipShort position
USDLIBOR x CDI

KFW/

Finnvera

JP Morgan and Bank of America322,228322,228100%LIBOR 6M + 0.75% p.a.85.41% CDI
USDPRE x DIBNP ParibasBNP Paribas417,951418,393100%3.32% p.a.155% CDI
USDPRE x DIThe Bank of Nova ScotiaScotiabank547,528548,161100%1.73% p.a.CDI + 1.05%
BRLPRE x DIBNP ParibasBNP Paribas506,106507,183100%8.34% p.a.CDI + 1.07%
BRLIPCA x DIDEBENTUREITAU1,658,3481,658,348100%IPCA + 4.17% p.a.CDI + 0.95%
                       

 

1 In certain swap contracts, active tip includes the cost of income tax (15%). After related taxes, coverage remains at 100%.

 

 

 

December 31, 2020

 

                COUNTERPARTY                   % Coverage                      AVERAGE SWAP RATES                   
CurrencySWAP type

 

Debt

SWAPTotal DebtTotal swap
(Long position)¹
 Active TipShort position
USDLIBOR x CDI

KFW/

Finnvera

JP Morgan and Bank of America351,233351,233100%LIBOR 6M + 0.75% p.a.85.25% CDI
EURPRE x DIBank of AmericaBank of America570,878570,878100%0.33% p.a.108.05% CDI
USDPRE x DIThe Bank of Nova Scotia.Scotiabank1,031,5261,031,526100%1.72% p.a.134.43% CDI
USDPRE x DIBNP ParibasBNP Paribas399,725399,725100%3.32% p.a.155% CDI
                       

 

 

Position showing the sensitivity analysis – effect of variations in the fair value of the swaps

 

For the purpose of identifying possible distortions arising from operations with consolidated derivative financial instruments currently in force, a sensitivity analysis was performed considering the variables CDI, US dollar (USD), Euro (EUR), Libor and IPCA, individually, in three distinct scenarios (probable, possible and remote), and their respective impacts on the results obtained.

 

Our assumptions basically observed the individual effect of the CDI, USD, EUR, Libor and IPCA variation used in the transactions as the case may be, and for each scenario the following percentages and quotes were used:

 

 

104 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

Sensitivity scenarioFair value in USD, EUR, BRL and IPCA (i)A) ∆ Accumulated variation in debtFair value of the active tip of the swap (+)Fair value of the passive tip of the swap (-)Swap resultB) ∆ Accumulated variation in swapC) Final Result (B-A)
         
 Sep 2021 3,035,695 - 3,035,695(3,060,395) (24,700) - -
         
CDIprobable 3,035,695 - 3,035,695(3,060,395) (24,700) - -
possible 3,033,285 (2,410) 3,033,285(3,081,188) (47,903) (23,203)(20,793)
remote3,031,029 (4,666)3,031,029(3,100,883) (69,854)(45,155)(40,489)
USDprobable 3,035,695 - 3,035,695(3,060,395) (24,700) - -
possible3,360,860325,1653,360,860(3,060,395) 300,465325,165 -
remote3,686,025 650,3293,686,025(3,060,395) 625,630 650,329 -
Liborprobable 3,035,695 - 3,035,695(3,060,395) (24,700) - -
possible3,036,5028073,036,502(3,060,395)(23,893) 807 -
remote3,037,310 1,6153,037,310(3,060,395)(23,085) 1,615 -
IPCAprobable 3,035,695 - 3,035,695(3,060,395) (24,700) - -
possible 2,953,268(82,427) 2,953,268(3,060,395) (107,127) (82,427)-
remote 2,876,270(159,426) 2,876,270(3,060,395)(184,125)(159,426) -

 

(i) (KFW Finnvera, Scotia, BofA, BNP, Debenture)

 

Risk variableSensitivity scenarioCDIUSDLiborIPCA
      
      
CDIprobable6.15%5.43940.1585%10.25%
possible7.69%5.43940.1585%10.25%
remote9.23%5.43940.1585%10.25%
USDprobable6.15%5.43940.1585%10.25%
possible6.15%6.79930.1585%10.25%
remote6.15%8.15910.1585%10.25%
Liborprobable6.15%5.43940.1585%10.25%
possible6.15%5.43940.1981%10.25%
remote6.15%5.43940.2378%10.25%
IPCAprobable6.15%5.43940.1585%10.25%
possible6.15%5.43940.1585%12.81%
remote6.15%5.43940.1585%15.38%

 

 

As the Company has derivative financial instruments for the purposes of protection of its respective financial liabilities, the changes in the scenarios are accompanied by the respective object of protection, thus showing that the effects related to the exposure generated in the swaps will have their counterpart reflected in the debt. For these transactions, the Company discloses the fair value of the object (debt) and the protective derivative financial instrument on separate lines, as demonstrated above in the sensitivity analysis demonstration table, in order to report the company's net exposure in each of the scenarios mentioned.

 

It is noteworthy that the operations with derivative financial instruments contracted by the company have as sole objective the patrimonial protection. In this way, an improvement or worsening in their respective market values

105 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

will be equivalent to an inverse movement in the corresponding portions of the value of the financial debt contracted, object of the derivative financial instruments of the company.

 

The sensitivity analyses for derivative financial instruments in force on September 30, 2021 were carried out considering, basically, the assumptions related to changes in market interest rates and the variation in the US dollar used in swap contracts. The use of these assumptions in the analysis is due exclusively to the characteristics of derivative financial instruments, which have exposure only to changes in interest and exchange rates.

 

 

Table with gains and losses on derivatives in the period

 

  

September 

2021

 

September 

2020

Net income from derivative operations 80,737 (467,661)
Income (loss) from operations with other derivatives 232,748 -

 

 

Capital Management

 

The group's objectives in managing its capital are to safeguard the group's ability to continue to deliver return to shareholders and benefits to other stakeholders, as well as maintain a capital structure to reduce this cost. To maintain or adjust the group's capital structure, management may review the dividend payment policy, return capital to shareholders, or issue new shares or sell assets to reduce, for example, the level of debt.

 

 

Changes in financial liabilities

 

Changes in liabilities arising from financing activities such as loans and financings, lease and financial instruments are presented below:

 

 Loans and financing Leases Derivative financial instruments (assets) liabilities
      
December 31, 20202,345,032 8,378,835 (465,923)
   Inflows2,672,000 1,168,948 (242,143)
  Remeasurement- (172,606) -
  Financial expenses68,878 612,077 107,547
   Foreign exchange variations, net26,699 - (26,811)
   Payments(1,697,943) (1,475,006) 248,180
      
September 30, 20213,414,666 8,512,248 (379,150)

106 

TIM S.A. and TIM S.A. and SUBSIDIARY

 

NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

 

38.Defined benefit pension plans and other post-employment benefits

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

  

September 

2021

 

December 

2020

     
PAMEC/asset policy and medical plan 7,346 7,346

 

ICATU, SISTEL and FUNCESP

 

The Company has been sponsoring defined benefit private pension plans for a group of employees from the former TELEBRÁS system, which are currently under the administration of the Sistel Foundation for Social Security and the ICATU multi-sponsor fund. In addition to the plans coming from the TELEBRÁS system, there is also the plan administered by the CESP foundation resulting from the incorporation of AES Atimus.

 

 

Such pension plans, as well as medical plans, are briefly explained below:

 

PBS assisted (PBS-Tele Celular Sul and PBS-Tele Nordeste Celular): SISTEL's benefit plan, which has a defined benefit characteristic and includes inactive employees who were part of the plans sponsored by the companies of the old TELEBRÁS system;

 

PBS (PBS Tele Celular Sul and PBS Tele Nordeste Celular): pension plan for inactive employees, being such a multi-sponsored benefits plan under the administration of ICATU MULTI-SPONSORED Fund;

 

Administration agreement: administration agreement for retirement payment to retirees and pensioners, for the retirees of the company's predecessors under the management of ICATU MULTI-SPONSORED Fund;

 

PAMEC/Asset Policy: complementary health care plan for retirees of the Company's predecessors;

 

AES Telecom: Supplementary pension and pension plan's installment, administered by the CESP Foundation, which is the responsibility of the company, with a view to the acquisition of Eletropaulo Telecomunicações Ltda (AES Atimus), succeeded by TIM Fiber SP LTDA, later incorporated into TIM Celular which was incorporated by the Company.

 

Medical care plan Fiber: Provision for maintenance of health plan as post-employment benefit to former employees of AES Atimus (as established in law 9656/98, articles 30 and 31), which was acquired and incorporated by TIM Celular and which was subsequently incorporated by the Company.

 

39.       Insurance

 

The balances on September 30, 2021 and December 31, 2020, presented below, represent the individual and consolidated amounts.

 

107 

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NOTES TO THE QUARTERLY INFORMATION

September 30, 2021

(In thousands of Reais, except as otherwise stated)

 

The Company maintains a policy of monitoring the risks inherent in its operations. As a result, as of September 30, 2021, the company had insurance contracts in force to cover operational risks, civil liability, cyber risks, health, among others. The management of the company understands that the policies represent sufficient amounts to cover any losses. The main assets, liabilities or interests covered by insurance and their maximum indemnity limits are as follows:

 

 

Modalities Maximum indemnity limits
Operational risks R$ 1,182,032
General Civil Liability - RCG     R$ 80,000
Cyber risks R$ 29,233
Automobile (executive and operational fleet) R$ 1,000 for optional civil liability (property damage and bodily harm) and R$ 100 for pain and suffering.

 

 

40. Supplementary information to the cash flow

 

 Parent company   Consolidated
 

September 

2021

 September 2020 

September 

2021

Non-cash transactions     
Additions to property, plant and equipment and intangible assets - with no effect on cash   (1,071,593) (693,865) (1,071,593)
Increase in lease liabilities - no effect on cash   1,071,593 693,865 1,071,593
            

41.       Subsequent events

 

TIM obtains the right to exercise subscription bonus from Banco C6

In October 2021, TIM obtained the right to the 4th tranche of the Subscription Bonus to indirectly take part to the C6 share capital as due to the achievement of 4th level of goals agreed, which represents the accumulated indirect interest of roughly 4.08%.

 

It is important highlighting that the aforementioned Subscription Bonus will grant TIM, when exercised, a minority position and without a control or significant influence over the management of C6.

As described in note 28, the Arbitration Procedure No. 28/2021/SEC8 was filed before the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce (“CCBC” and “Arbitration Procedure”, respectively), by TIM against Banco C6 S.A., Carbon Holding Financeira S.A. and Carbon Holding S.A (together, “Defendants”), through which the interpretation of certain clauses in the contracts that rule the partnership between the parties will be discussed. In case of loss, the partnership may be terminated.

108 

 

 

FISCAL COUNCIL’S OPINION

 

The Members of the Fiscal Council of TIM S.A. ("Company"), in the exercise of their attributions and legal duties, as provided in Article 163 of the Brazilian Corporate Law, conducted a review and analysis of the quarterly financial statements, along with the limited review report of Ernst & Young Auditores Independentes S/S (“EY”), for the period that ended on September 30th, 2021, and taking into account the information provided by the Company's management and the Independent Auditors, consider the information appropriate for presentation to the Board of Directors of the Company, in accordance to the Brazilian Corporate Law.

 

 

Rio de Janeiro, October 25th, 2021.

 

 

WALMIR KESSELI

Chairman of the Fiscal Council

 

JARBAS T. BARSANTI RIBEIRO

Member of the Fiscal Council

  

JOSINO DE ALMEIDA FONSECA

Member of the Fiscal Council

 

109 

 

STATUTORY OFFICERS’ STATEMENT

 

Pietro Labriola (Chief Executive Officer), Camille Loyo Faria (Chief Financial Officer and Investor Relations Officer), Bruno Mutzenbecher Gentil (Business Support Officer), Maria Antonietta Russo (Human Resources & Organization Officer), Mario Girasole (Regulatory and Institutional Affairs Officer), Leonardo de Carvalho Capdeville (Chief Technology Information Officer), Jaques Horn (Legal Officer) and Alberto Mario Griselli (Chief Revenue Officer), as Statutory Officers of TIM S.A., declare, in accordance with article 25, paragraph 1, item VI of CVM Instruction Nr. 480 of December 7th, 2009, that they have reviewed, discussed and agreed with the Company’s Financial Statements for the period ended September 30th, 2021.

 

Rio de Janeiro, October 25th, 2021.

 

PIETRO LABRIOLA

Chief Executive Officer

CAMILLE LOYO FARIA

Chief Financial Officer and Investor Relations Officer

MARIO GIRASOLE

Regulatory and Institutional Affairs Officer

LEONARDO DE CARVALHO CAPDEVILLE

Chief Technology Information Officer

 

BRUNO MUTZENBECHER GENTIL

Business Support Officer

 

ALBERTO MARIO GRISELLI

Chief Revenue Officer

 

 

MARIA ANTONIETTA RUSSO

Human Resources & Organization Officer

JAQUES HORN

Legal Officer

  

 

 

110 

 

STATUTORY OFFICERS’ STATEMENT

 

 

Pietro Labriola (Chief Executive Officer), Camille Loyo Faria (Chief Financial Officer and Investor Relations Officer), Bruno Mutzenbecher Gentil (Business Support Officer), Maria Antonietta Russo (Human Resources & Organization Officer), Mario Girasole (Regulatory and Institutional Affairs Officer), Leonardo de Carvalho Capdeville (Chief Technology Information Officer), Jaques Horn (Legal Officer) and Alberto Mario Griselli (Chief Revenue Officer), as Statutory Officers of TIM S.A., declare, in accordance with Section 25, paragraph 1, item V of CVM Instruction Nr. 480 of December 7th, 2009, that they have reviewed, discussed and agreed with the opinion expressed on the Company’s Independent Auditors’ Report regarding the Company’s Financial Statements for the period ended September 30th, 2021.

 

Rio de Janeiro, October 25th, 2021.

 

 

PIETRO LABRIOLA

Chief Executive Officer

CAMILLE LOYO FARIA

Chief Financial Officer and Investor Relations Officer

MARIO GIRASOLE

Regulatory and Institutional Affairs Officer

LEONARDO DE CARVALHO CAPDEVILLE

Chief Technology Information Officer

BRUNO MUTZENBECHER GENTIL

Business Support Officer

ALBERTO MARIO GRISELLI

Chief Revenue Officer

MARIA ANTONIETTA RUSSO

Human Resources & Organization Officer

JAQUES HORN

Legal Officer

   

 

111 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  TIM S.A.
Date: October 26, 2021 By:/s/ Camille Loyo Faria
   Camille Loyo Faria
   Chief Financial Officer and Investor Relations Officer