Slide 1: Assets
Assets Current assets Cash and cash equivalents Trade accounts receivable, net Deferred and recoverable taxes Inventories Other Noncurrent assets Deferred and recoverable taxes Advance for future share acquisition Escrow deposits Other Investments Property, plant and equipment, net Intangible assets
Slide 2: Statements of Income
STATEMENTS OF INCOME Years ended December 31, 2006 and 2005 (In thousands of reais, except earnings per share)
Slide 3: Statements of Shareholders' Equity
STATEMENTS OF SHAREHOLDERS’ EQUITY Years ended December 31, 2007 and 2006
Slide 4: Statements of Changes in Financial Position
STATEMENTS OF CHANGES IN FINANCIAL POSITION Years ended December 31, 2007 and 2006
Slide 5: Statements of Changes in Financial Position (Continued)
STATEMENTS OF CHANGES IN FINANCIAL POSITION (Continued) Years ended December 31, 2007 and 2006
Slide 6: Supplementary Statements of Cash Flows
TELECOMUNICAÇÕES DE SÃO PAULO S.A. - TELESP SUPPLEMENTARY STATEMENTS OF CASH FLOWS Years ended December 31, 2007 and 2006
Slide 7: Supplementary Statements of Added Value
TELECOMUNICAÇÕES DE SÃO PAULO S.A. - TELESP SUPPLEMENTARY STATEMENTS OF ADDED VALUE Years ended December 31, 2007 and 2006
Slide 8: Notes to the Financial Statements
NOTES TO THE FINANCIAL STATEMENTS 1. Operations and Background a) Controlling shareholders Telecomunicações de São Paulo S.A. - Telesp (formerly Telesp Participações S.A. - TelespPar - “TelespPar”), hereafter referred to as the “Company” or “Telesp”, was formed pursuant to Article 189 of Law No. 9,4
Slide 9: Deferred and Recoverable Taxes (Continued)
7. Deferred and Recoverable Taxes (Continued) (*) Refers to credits on the acquisition of property, plant and equipment items which are available to offset State VAT (ICMS) taxes payable generated from service revenues. The utilization of these credits, however, is generally limited to 1/48 of the c
Slide 10: Deferred taxes and merged tax credit
The recoverable amounts above are based on projections subject to changes in the future. Wholly-owned subsidiary Telefonica Empresas S.A. posted tax losses in 2007 in the amount of R$124,753 (R$68,838 in 2006), on which deferred tax assets of R$42,416 in 2007 (R$23,405 in 2006) were not recorded. 7.
Slide 11: Tax credits from acquisition
For calculation of the tax credits resulting from acquisition, income and social contribution tax rates are 25% and 9%, respectively. As shown above, goodwill amortization, net of provision reversal and of the corresponding tax credit, had no impact on P&L for the period ended December 31, 2007. For
Slide 12: Inventories and Other Assets
3. Inventories Company Consolidated 2007 2006 2007 2006 Consumption materials TISO1T 35,790 TIS217 ors Resale items 59,078 ns 87.786 T3285 Publie telephone prepaid cards BAHT 13.068 1BAdT 13.063, Seraps 22 351 222 351 Allowance for reduetion to market value and obsolescence (88.068) (99,792) (01.668
Slide 13: Escrow deposits
The amounts presented above refer to escrow deposits for those cases in which an unfavorable outcome is considered possible or remote.
Slide 14: Investments (Continued)
11. Investments (Continued) Breakdown of goodwill (negative goodwill) on investment acquisition is as follows:
Slide 15: Goodwill on acquisitions
(a) Negative goodwill on the acquisition of shares of Companhia AIX de Participações, recorded by the Company, was allocated to Deferred Income in the consolidated, as prescribed by Article 26 of CVM Ruling No. 247/96. Amortization will be made until 2009, based on projected future results. (b) TS T
Slide 16: Investments in subsidiaries and affiliates
On July 13, 2007, the Company’s Board of Directors Meeting approved capital contribution to wholly-owned subsidiary A. Telecom S.A. in the amount of R$144,000 being approved by the Extraordinary General Meeting of December 11, 2007. Investments in affiliated companies posted by the equity methods re
Slide 17: Investments (Continued)
11. Investments (Continued) The Company’s equity in subsidiaries is as follows:
Slide 18: Equity pick-up note
(a) Refers to equity pick-up on shareholders’ equity’s monetary exchange variation.
Slide 19: Property, Plant and Equipment, Net
. Property, Plant and quipment, Net ss6iost _GLIITH 934433921310 _ 97110} _ 77532 1250102000 “17986187 “(L4S19685)—"2866802 “Ioso1227 (S817) 2.982.350 1000 12389385 9639,136) 271999 12101416 LHL. 890) 2.962.535, 2000and 25001069276 (795646) 736) OTSTS (326.810) 170989 sonw.667 411939 @HSS6) 663 40,1
Slide 20: Property, Plant and Equipment, Net (Continued)
. Property, Plant and Equipment, Net (Continued) Consolidated aur emma Annes depreciation “Accumulated Netbook “Accumulated Net book te cos depreciation value cot depreciation ___ value rope, plat end sient MASEL _GISITSSS __9921,6 30471309 __ 29085089) _10.380310 ching tse gst 125002000 RTGS —C4SeR
Slide 21: Goodwill on IP network and TDBH acquisition
(a) The goodwill on acquisition of the IP network in December 2002 refers to the acquisition of the assets for the Switched IP and Speedy Link services of Telefônica Empresas S.A. The portion regarded as goodwill and recorded in deferred charges corresponds to the customer portfolio of the business.
Slide 22: Loans and Financing (Continued)
Loans and financing with Mediocrédito are guaranteed by the Federal Government. 15. Loans and Financing (Continued) The loan from Japan Bank for International Cooperation - JBIC includes restrictive covenants related to the maintenance of certain financial indices, which to date have been met. Conso
Slide 23: Debentures
Debenture conditions were renegotiated on September 1, 2007, date of end of the first Remuneration period and beginning of the second Remuneration period. This period ends on the debentures maturity date; namely September 1, 2010. Debentures are entitled to interest yield, payable on a quarterly bas
Slide 24: Taxes payable notes
(a) Income and social contribution taxes payable are presented net of payments on an estimate basis (Note 7). (b) Legal obligations account records tax liabilities, net of judicial deposits, which are being questioned in court, as prescribed by CVM Resolution No. 489/2005. (c) The item “Others” incl
Slide 25: Restructuring program
(a) Refers to the Company’s organizational restructuring program, which is being analyzed by the Telecommunication Workers Labor Union in the State of São Paulo – Sintetel, which is scheduled to be implemented in the first 2008 quarter.
Slide 26: Dividends payable and reserve for contingencies
(a) The balance refers to remaining net income for 2007, after allocation of net income provided for by Law No 6,404/76. Most of the interest on shareholders’ equity and total dividends payable to minority shareholders refer to available amounts declared, but not claimed yet. 20. Reserve for conting
Slide 27: Reserve for contingencies, net (Continued)
20. Reserve for contingencies, net (Continued) 20.1. Labor contingencies and reserves The Company has various reserves related to labor claims, amounting to R$456,188, consolidated, to cover probable losses. The amounts involved and respective risk levels are as follows:
Slide 28: Tax contingencies and reserves
The Company based on the assessment of the Company’s legal counsel and management, a reserve for tax contingencies amounting to R$232,152 was recorded on December 31, 2007. The principal tax contingencies, assessed as remote, possible and probable risk, are as follows: Claims by the National Insti
Slide 29: Shareholders' Equity: Capital
(a) The amount due referring to the concession renewal was paid in April 2007. (b) Amounts resulting from the auction of share fractions after the reverse spin-off process in 2005, and TDBH acquisition process in 2006. (c) The amount to be paid on December 31, 2007 to the Grupo Abril for the Navytre
Slide 30: Shareholders' Equity: Authorized capital and reserves
The Company is authorized to increase its capital up to the limit of 700,000,000 (seven hundred million) shares, common or preferred. The capital increase and consequent issue of new shares are to be approved by the Board of Directors, with observance of the authorized capital limit. Capital increas
Slide 31: Shareholders' Equity: Dividends
22. Shareholders’ Equity (Continued) e) Dividends (Continued)
Slide 32: Interest on shareholders' equity and dividend payments
22. Shareholders’ Equity (Continued) f) Interest on shareholders’ equity (Continued) Tax-exempt shareholders received interest on shareholders’ equity in full, not subject to withholding tax. g) Payment of dividends and interest on shareholders’ equity On March 29, 2007, the General Shareholders’ Me
Slide 33: Net Operating Revenue and tariff adjustments
(i) For the better presentation of Operating Revenue to the market and regulatory agency, ANATEL, the Company made reclassifications to the amounts as of December 2006. The main reclassifications were made between the items “Interconnections services”, “Public telephones”, “Network access” and “Othe
Slide 34: Cost of services and selling expenses
26, ices Provided Depreciation and amortization Persor Organizacional Restructuration Program Materials Network intereonnection ‘Outside services Other Total - Selling Expenses Depreciation and amortization Personnel Organacional Restructuration Pro. Materials Outside services Allowance for doubtful
Slide 35: Financial Income (Expenses)
27. Financial Income (Expenses) Income from short-term investments, Gains on derivative transactions Interest receivable Moni receivable Other iary/exchane variations. nancial exps Interest on shareholders’ e 2 Interest payable Losses on d guity (Note Expenses on financial transactions Monetary exch
Slide 36: Provision reversals
(*) In 2006, the Company made a reversal of provision concerning the claim of COFINS and PIS tax basis with the inclusion of financial, securitization and monetary exchange income, amounting to R$274,277, of which R$16,654 was reversed in the financial results of 2006. In 2007, the Company partially
Slide 37: Income and Social Contribution Taxes
(a) Gains on permanent assets disposals in 2007 mainly refers to sale of real property located in Barra Funda district for R$134,555, with residual value of R$46,044. 30. Income and Social Contribution Taxes The Company recognizes income tax and social contribution monthly on the accrual basis and p
Slide 38: Deferred tax components
The components of deferred income and social contribution tax assets and liabilities on temporary differences are shown in Notes 7 and 17 respectively. Total current income and social contribution taxes consolidated payable at December 31, 2007 amounts to R$924,196 (R$1,134,489 as of December 31, 20
Slide 39: Transactions with Related Parties
31. Transac jons with Related Parties The principal balances with related parties are as follows Carrnt at tei 120 isis ows 0 sow Tota Aste a ie sae i a = = = Caretta asi __ssisrr 195306 suis ital 01 a8 amt and expenses pu ene __ (seo 130 ins ssn
Slide 40: Transactions with Related Parties (Continued)
31. Transactions with Related Parties (Continued) Trade accounts receivable include receivables for telecommunications services. principally Vivo S.A., Atento Brasil S.A., Terra Networks Brasil S.A. and Telefónica de España S.A., particularly for long-distance services and Tiws Brasil Ltda, due the
Slide 41: Post-Retirement Benefit Plans: reconciliation
32. Post-Retirement Benefit Plans (Continued) a) Reconciliation of assets and liabilities
Slide 42: Multiemployer plans notes
(i) Refers to the proportional share of Telesp in the assets and liabilities of the PAMA and PBS-A multiemployer plans. (ii) Despite the surplus of PBS-A as of December 31, 2007 and 2006 no asset was recognized by the sponsor in view of the legal impossibility of reimbursement of such surplus in add
Slide 43: Post-Retirement Benefit Plans: expenses
32. Post-Retirement Benefit Plans (Continued) b) Total expenses recognized in income (Continued)
Slide 44: Change in plan assets
32. Post-Retirement Benefit Plans (Continued) d) Change in plan assets
Slide 45: Expenses estimated for 2008
32. Post-Retirement Benefit Plans (Continued) f) Expenses estimated for 2008
Slide 46: Actuarial assumptions
32. Post-Retirement Benefit Plans (Continued) f) Actuarial assumptions (Continued)
Slide 47: Insurance (Unaudited)
33. Insurance (Unaudited) The Company and its subsidiaries’ polices as well as that of the Telefónica Group includes the maintenance of insurance coverage for all assets and liabilities involving significant amounts and high risks based on management’s judgment and following Telefónica S.A.’s corpor
Slide 48: Financial Instruments (Continued)
34. Financial Instruments (Continued) The discounted cash flow method was used to determine the market value of loans financings debentures and derivatives (exchange and interest rate swap) considering expected settlement of liabilities or realization of assets at the market rates prevailing at bala
Slide 49: Market risk factors: exchange rate risk
The principal market risk factors that affect the Company’s business are detailed below: a) Exchange rate risk This risk arises from the possibility that the Company may incur losses due to exchange rate fluctuations which would increase the balances of loans financing and purchase commitments denom
Slide 50: Hedges and interest rate risk
Due to the complexity of the process and of the non-significance of the results, the Company decided not to renew the non-financial liabilities hedges denominated in foreign currency. However, it is still monitoring the results of such non-financial liabilities and may decide to contract new hedges
Slide 51: Management Report: Shareholding Structure
MANAGEMENT REPORT (Continued) 4.1 Shareholding Structure Shareholding structure of the controlling Group remained unaltered in 2007. At the end of 2007, Telefónica Internacional S.A. – TISA, held 34.87% of common and 80.53% of preferred shares and SP Telecomunicações Holding Ltda., 49.19% of common
Slide 52: Operating Performance: Competitive Environment
5. Operating Performance 5.1 Competitive Environment In 2007, the Brazilian telecommunications market experienced an increase in competition level as compared to that prevailing in prior year. The increase in the offer of integrated telecommunication services intensified competition among players of
Slide 53: Business Performance: Evolution of ADSL Customers
.3 Business Performance Evolution of ADSL Customers (Thousand) 2.200 2.053 2.000 1.800 1.607 1.600 1.400 a : 2 ml = 3 a ee 2006 42-2007
Slide 54: Management Report (Continued)
MANAGEMENT REPORT (Continued)
Slide 55: Prospects
5.4 Prospects One of the most important aspects to telecommunications industry development in the next years is the technologic convergence, represented by integration of networks and services, about which discussions have been promoted in relation to technologic, legal, regulatory and marketing asp
Slide 56: Indebtedness, financial result and net income
At the end of 2007, the Company had indebtedness of R$3,309.2 million (R$2,338.1 million in 2006) or 33.4% of its shareholders’ equity (22.0% in 2006). Loans raised are 28.5% denominated in foreign currency and 24.5% in national currency with BNDES. In the 2007 – 2006 comparison, financial result, e
Slide 57: Capital Market
(*) Include supporting systems, power and energy equipment and those destined to general support. MANAGEMENT REPORT (Continued) 7. Capital Market The Company has common shares (ON) and preferred shares (PN) traded on the São Paulo State Stock Exchange (BOVESPA) under the symbols TLPP3 and TLPP4, res
Slide 58: Bovespa performance and shareholders' compensation policy
The São Paulo Stock Exchange (Bovespa) reached at the end of 2007 a new historic record (63,886.1 points), as a consequence of the improvement in rules regulating the market, the stability prevailing in the Brazilian economy and favorable foreign environment. Following the market trend in previous y
Slide 59: Corporate Governance
MANAGEMENT REPORT (Continued) 9. Corporate Governance In order to promote good corporate governance, increase quality of information disclosures and reduce uncertainties surrounding investments, the Company has introduced internal rules and policies to render its practices clear and objective. The C
Slide 60: Distribution by Age Bracket
Distribution by Age Bracket 21,4% 17.3% 15.1% 15.41% 149% | 116% (“4 || | = 04% = Upta 230-8 to -33t0 BLO BtoB a ne Distribution hy Length of Service (in years) 28.4% aay 13.6% 88% gy, 20% 5310 Above 7 88 7,0% | es =, Upto2 30S B10 111015 161020 211025 26te30 Above a
Slide 61: Management Report (Continued)
MANAGEMENT REPORT (Continued)
Slide 62: Social Responsibility
11. Social Responsibility Telefônica Group believes that corporate social responsibility corresponds to a business management style that takes into consideration the public with which it interrelates. The Group believes that it will be able to ensure its sustainability if it is able to generate a po