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Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Index

Company Information

 

Capital

 

Approval of Dividends

 

Parent Company Financial Statements

Balance Sheet Assets

 

Balance Sheet Liabilities and Shareholders' Equity

 

Statements of Income

 

Statements of Comprehensive Income

 

Statements of Cash Flow

 

Statements of Changes in Shareholders' Equity

01/01/2015 to 06/30/2015

 

01/01/2014 to 06/30/2014

 

Statements of Added Value

 

Consolidated Company Financial Statements

Balance Sheet Assets

 

Balance Sheet Liabilities and Shareholders' Equity

 

Statements of Income

 

Statements of Comprehensive Income

 

Statements of Cash Flow

 

Statements of Changes in Shareholders' Equity

01/01/2015 to 06/30/2015

 

01/01/2014 to 06/30/2014

 

Statements of Added Value

Earnings release

Notes to quarterly information

Opinions and Statements

Report of Independent Registered Public Accounting Firm - Unqualified

Fiscal's Council Opinion or Equivalent Board

Directors’ Statement on the Financial Statements

 

Director’s Statement on the Auditor’s Report on Special Review

Company name:	TIM PARTICIPAÇÕES SA
Last change in the Company Name:	08/30/2004	Prior Company Name:	Tele Celular Sul Participações S.A.
Record date:	05/22/1998	C.N.P.J.:	02.558.115/0001-21
CVM Code:	01763-9	CVM incorporation date:	08/19/1998
Situação do Registro na CVM:	Active	Inicial date of record date at CVM:	09/10/1998
Country of origin:	Brazil	Contry of securities registration:	Brazil
Issuer's page in Internet:	www.tim.com.br/ri
Type of participant:	Listed Company
Record category at CVM:	Categoria A	Current category registration date:	01/01/2010
Issuer's situation:	Operational	Inicial date:	10/09/1998
Type of Control:	Private	Last change in control:
Last change in accounting period		Accounting period:	Day: 30  Month: 06
Activity:	Telecommunication
Activity description:
Journal name	Journal State
Jornal do Commercio	RJ
Valor Econômico	SP
Country	Incorporation date
United States of America	12/16/1998

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Information - Capital

Number of Shares	Current Quarter
(units)	06/30/2015
Paid up Capital
Common	2,421,032,479
Preferred	-
Total	2,421,032,479
Treasury Stock
Common	795,889
Preferred	-
Total	795,889

 

Event	Approval	Proceeds	First Payment	Especie	Class	Dividends per Stock (Reais / Stock)
Annual and Extraorinary General Meeting ("AGOE")	04/14/2015	Dividends	06/16/2015	Ordinary	-	0,15175

 

Account Code	Account Description	06/30/2015	12/31/2014
1	Total Assets	16,670,167	15,787,526
1.01	Current Assets	95,548	463,010
1.01.01	Cash and Cash Equivalents	61,936	43,455
1.01.03	Trade Accounts Receivable	329	329
1.01.03.02	Other Accounts Receivable	329	329
1.01.06	Taxes and Contributions Recoverable	21,142	20,648
1.01.06.01	Current Taxes and Contributions Recoverable	21,142	20,648
1.01.08	Other Current Assets	12,141	398,578
1.01.08.03	Other Assets	12,141	398,578
1.01.08.03.01	Dividends and interests on own capital receivable	0	385,835
1.01.08.03.03	Other Assets	12,141	12,743
1.02	Non-Current Assets	16,574,619	15,324,516
1.02.01	Long-Term Assets	67,735	65,729
1.02.01.01	Financial assets at fair value through profit or loss	111	98
1.02.01.01.02	Available for Sale	111	98
1.02.01.09	Other Non-Current Assets	67,624	65,631
1.02.01.09.05	Escrow Deposits	67,624	65,631
1.02.02	Investments	16,349,328	15,101,231
1.02.02.01	Investments on Subsidiaries	16,349,328	15,101,231
1.02.02.01.02	Subsidiaries	16,349,328	15,101,231
1.02.04	Intangible	157,556	157,556
1.02.04.01	Intangible Assets	157,556	157,556

 

Account Code	Account Description	06/30/2015	12/31/2014
2	Total Liabilities	16,670,167	15,787,526
2.01	Current Liabilities	73,475	432,125
2.01.01	Social and Labor Obligations	1,517	2,119
2.01.01.02	Labor Obligations	1,517	2,119
2.01.02	Suppliers - Trade Payable	3,544	1,218
2.01.02.01	Domestic Suppliers	3,270	1,218
2.01.02.02	Foreign suppliers	274	-
2.01.03	Taxes, rates and contributions	246	239
2.01.03.01	Federal Obligations	148	204
2.01.03.01.02	Other Fiscal Taxes	148	204
2.01.03.03	Municipal Obligations	98	35
2.01.03.03.01	ISS payable	98	35
2.01.05	Other Obligations	68,168	428,549
2.01.05.02	Others	68,168	428,549
2.01.05.02.01	Dividends payable	60,597	421,002
2.01.05.02.04	Other Current Liabilities	7,571	7,547
2.02	Non-Current Liabilities	33,461	33,367
2.02.02	Long-Term Liabilities	29,763	29,764
2.02.02.02	Others	29,763	29,764
2.02.02.02.03	Other Liabilities	29,763	29,764
2.02.04	Provisions	3,698	3,603
2.02.04.01	Tax, Labor and Civil Provisions	3,698	3,603
2.02.04.01.01	Fiscal Provisions	-	-
2.02.04.01.02	Civil and Labor Provisions	3,698	3,103
2.02.04.01.05	Regulatory Provisions	-	500
2.03	Shareholders' Equity	16,563,231	15,322,034
2.03.01	Paid up Capital	9,866,298	9,866,298
2.03.02	Capital Reserves	1,343,203	1,341,101
2.03.02.01	Offering's Goodwill	380,560	380,560
2.03.02.04	Stock Option	18,474	16,372
2.03.02.05	Treasury Stock	(3,369)	(3,369)
2.03.02.07	Reserve for Tax Benefits	947,538	947,538
2.03.04	Revenue Reserves	4,112,332	4,112,332
2.03.04.01	Legal Reserve	515,956	515,956
2.03.04.10	Reserve for expansion	3,596,376	3,596,376
2.03.05	Retained earnings	1,239,095	-
2.03.08	Other comprehensive income	2,303	2,303

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Statements of Income (in thousands of Reais)

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Statements of Comprehensive Income (in thousands of Reais)

Account Code	Account Description	Quarter - current year 04/01/2015 to 06/30/2015	Year-to-date - current year 01/01/2015 to 06/30/2015	Quarter – prior year 04/01/2014 to 06/30/2014	Year-to-date - prior year 01/01/2014 to 06/30/2014
4.01	Profit for the period	926,394	1,239,095	365,614	737,746
4.02	Other comprehensive income	-	-	-	-
4.03	Comprehensive Income for the period	926,394	1,239,095	365,614	737,746

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Statements of Cash Flow – Indirect Method (in thousands of Reais)

Account Code	Account Description	Year-to-date - current year 01/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
6.01	Net cash and cash equivalents generated by operating activities	378,899	414,841
6.01.01	Cash and cash equivalents generated by operating activities	(6,940)	(12,352)
6.01.01.01	Earning before income tax (EBIT)	1,239,095	737,746
6.01.01.02	Equity Pick Up	(1,246,262)	(750,370)
6.01.01.04	Provision for legal and administrative proceedings	294	2
6.01.01.05	Monetary fluctuation on escrow deposits and provision for legal and administrative proceedings	(334)	(195)
6.01.01.06	Monetary fluctuation on dividends	-	(91)
6.01.01.07	Stock options	267	556
6.01.02	Variations in assets and liabilities	385,839	427,193
6.01.02.01	Taxes and contributions recoverable	(494)	518
6.01.02.02	Dividends received	385,835	431,650
6.01.02.03	Escrow deposits	(1,518)	(7,878)
6.01.02.04	Other assets	602	(1,157)
6.01.02.05	Labor obligations	(602)	300
6.01.02.06	Suppliers	2,326	3,765
6.01.02.07	Taxes and contributions	7	(2)
6.01.02.08	Payment of legal and administrative proceedings	(341)	(9)
6.01.02.09	Other current and non-current liabilites	24	6
6.02	Net cash and cash equivalents generated (used) by investment activities	(13)	8
6.02.02	Financial assets valued through profit or loss	(13)	8
6.03	Net cash and cash equivalents used by financing activities	(360,405)	(413,697)
6.03.01	Dividends paid	(360,405)	(413,697)
6.05	Increase on cash and cash equivalents	18,481	1,152
6.05.01	Beginning cash and cash equivalents balance	43,455	19,112
6.05.02	Ending cash and cash equivalents balance	61,936	20,264

 

Account Code	Account Description	Capital	Capital Reserves	Revenues Reserves	Retained Earnings	Other Comprehensive Income	TOTAL SHAREHOLDERS' EQUITY
5.01	Beginning balance	9,866,298	1,341,101	4,112,332	-	2,303	15,322,034
5.03	Adjusted Beginning balance	9,866,298	1,341,101	4,112,332	-	2,303	15,322,034
5.04	Shareholder´s Transactions	-	2,102	-	-	-	2,102
5.04.03	Stock option	-	2,102	-	-	-	2,102
5.04.06	Dividends	-	-	-	-	-	-
5.05	Total Comprehensive Income	-	-	-	1,239,095	-	1,239,095
5.05.01	Profit  for the Period	-	-	-	1,239,095	-	1,239,095
5.06	Internal changes in shareholders´ equity	-	-	-	-	-	-
5.06.01	Reserves constitution	-	-	-	-	-	-
5.07	Ending balance	9,866,298	1,343,203	4,112,332	1,239,095	2,303	16,563,231

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Statements of Changes in Shareholders´ Equity from 01/01/2014 to 06/30/2014 (in thousands of Reais)

Account Code	Account Description	Capital	Capital Reserves	Revenues Reserves	Retained Earnings	Other Comprehensive Income	TOTAL SHAREHOLDERS' EQUITY
5.01	Beginning balance	9,839,770	1,214,271	3,538,586	-	2,013	14,594,640
5.03	Ajusted Beginning balance	9,839,770	1,214,271	3,538,586	-	2,013	14,594,640
5.04	Shareholder´s Transactions	-	3,178	(485,722)	-	-	(482,544)
5.04.03	Stock option	-	3,178	-	-	-	3,178
5.04.06	Dividends	-	-	(485,722)	-	-	(485,722)
5.05	Total Comprehensive Income	-	-	-	737,746	-	737,746
5.05.01	Profit for the Period	-	-	-	737,746	-	737,746
5.06	Internal changes in shareholders´equity	-	881	(881)	-	-	-
5.06.04	Fiscal benefit reserve constitution	-	881	(881)	-	-	-
5.07	Ending balance	9,839,770	1,218,330	3,051,983	737,746	2,013	14,849,842

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Parent Company Statements of Added Value (in thousands of Reais)

Account Code	Account Description	Year-to-date - current year 01/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
7.02	Raw Material Acquired from Third Parties	(3,244)	(7,570)
7.02.02	Material, Energy, Services and Others	(3,244)	(7,570)
7.03	Gross Added Value	(3,244)	(7,570)
7.05	Net Added Value Produced	(3,244)	(7,570)
7.06	Added Value Received from Transfers	1,249,315	753,568
7.06.01	Equity Pick Up	1,246,262	750,370
7.06.02	Financial Revenues	3,053	3,198
7.07	Total Added Value to Share	1,246,071	745,998
7.08	Sharing Added Value	1,246,071	745,998
7.08.01	Labor	5,006	4,811
7.08.01.01	Cost of Working	4,392	4,206
7.08.01.02	Benefits	492	519
7.08.01.03	F.G.T.S	99	86
7.08.01.04	Others	23	-
7.08.02	Taxes, Fees and Contributions	1,512	1,107
7.08.02.01	Federal	1,498	1,092
7.08.02.02	State	-	-
7.08.02.03	Municipal	14	15
7.08.03	Earnings - Borrowed Capital	458	2,334
7.08.03.01	Interest	353	2,237
7.08.03.02	Rentals	105	97
7.08.04	Earnings - Owned Capital	1,239,095	737,746
7.08.04.03	Retained Earnings	1,239,095	737,746

 

Account Code	Account Description	06/30/2015	12/31/2014
1	Total assets	33,596,262	32,695,111
1.01	Current Assets	10,897,865	11,174,415
1.01.01	Cash and Cash Equivalents	4,842,123	5,232,992
1.01.03	Accounts Receivable	3,146,115	3,537,417
1.01.03.01	Clients	3,146,115	3,537,417
1.01.04	Inventories	327,609	264,033
1.01.06	Taxes and Contributions Recoverable	1,620,896	1,642,625
1.01.06.01	Current Taxes and Contributions Recoverable	1,620,896	1,642,625
1.01.06.01.01	Indirect Taxes and Contributions Recoverable	1,202,048	1,285,143
1.01.06.01.02	Direct Taxes and Contributions Recoverable	418,848	357,482
1.01.07	Prepaid Expenses	670,782	266,264
1.01.08	Other Current Assets	290,340	231,084
1.01.08.03	Others	290,340	231,084
1.01.08.03.01	Operations with derivatives	113,884	47,541
1.01.08.03.02	Other assets	174,664	182,018
1.01.08.03.03	Financial leasing	1,792	1,525
1.02	Non-Current Assets	22,698,397	21,520,696
1.02.01	Long-Term Assets	3,240,915	3,283,133
1.02.01.01	Financial assets at fair value through profit or loss	45,339	41,149
1.02.01.01.01	Available for Sale	45,339	41,149
1.02.01.03	Accounts Receivable	27,561	29,886
1.02.01.03.01	Clients	27,561	29,886
1.02.01.06	Deferred Taxes	720,289	889,064
1.02.01.06.01	Deferred Income Tax and Social Contribution	720,289	889,064
1.02.01.07	Prepaid Expenses	59,369	70,587
1.02.01.09	Other Non-Current Assets	2,388,357	2,252,447
1.02.01.09.03	Operations with derivatives	472,286	463,157
1.02.01.09.04	Other Non-Current Assets	12,009	11,926
1.02.01.09.05	Escrow Deposits	1,028,339	986,017
1.02.01.09.06	Indirect Taxes and Contributions Recoverable	655,897	574,490
1.02.01.09.07	Direct Taxes and Contributions Recoverable	23,998	23,346
1.02.01.09.08	Financial leasing	195,828	193,511
1.02.03	Property, Plant and Equipment	9,675,429	8,914,929
1.02.03.01	Property, Plant and Equipment in Operation	9,205,205	8,243,084
1.02.03.03	Construction work in progress	470,224	671,845
1.02.04	Intangible	9,782,053	9,322,634
1.02.04.01	Intangibles	8,254,834	7,795,415
1.02.04.01.02	Software rights	3,267,219	3,025,260
1.02.04.01.03	Authorizations	1,346,454	1,463,353
1.02.04.01.04	Other Intangibles	3,641,161	3,306,802
1.02.04.02	Goodwill	1,527,219	1,527,219

 

Account Code	Account Description	06/30/2015	12/31/2014
2	Total liabilities	33,596,262	32,695,111
2.01	Current Liabilities	7,304,588	9,123,256
2.01.01	Social and Labor Obligations	233,938	208,629
2.01.01.02	Labor Obligations	233,938	208,629
2.01.02	Suppliers - Trade Payable	3,975,840	5,402,204
2.01.02.01	Domestic Suppliers	3,878,092	5,295,382
2.01.02.02	Foreign suppliers	97,748	106,822
2.01.03	Taxes, rates and contributions	813,262	808,207
2.01.03.01	Federal Obligations	338,114	207,586
2.01.03.01.01	Income Tax and Social Contribution Payable	233,086	74,891
2.01.03.01.02	Other Taxes	105,028	132,695
2.01.03.02	State Obligations	428,232	561,845
2.01.03.02.01	ICMS	428,232	561,845
2.01.03.03	Municipal Obligations	46,916	38,776
2.01.03.03.01	ISS	46,916	38,776
2.01.04	Loans and Financing	1,254,951	1,281,554
2.01.04.01	Loans and Financing	1,254,951	1,281,554
2.01.04.01.01	Domestic Currency	886,429	966,039
2.01.04.01.02	Foreign Currency	368,522	315,515
2.01.05	Other Obligations	1,026,597	1,422,662
2.01.05.02	Others	1,026,597	1,422,662
2.01.05.02.01	Dividends payable	60,597	421,002
2.01.05.02.04	Operations with derivatives	50,226	67,044
2.01.05.02.05	Authorizations Payable	434,671	493,169
2.01.05.02.06	Deferred revenues	440,566	427,862
2.01.05.02.07	Financial leasing	18,000	3,642
2.01.05.02.08	Other liabilities	22,537	9,943
2.02	Non-Current Liabilities	9,728,443	8,249,821
2.02.01	Loans and Financing	5,539,029	5,472,865
2.02.01.01	Loans and Financing	5,539,029	5,472,865
2.02.01.01.01	Domestic Currency	3,190,932	3,374,733
2.02.01.01.02	Foreign Currency	2,348,097	2,098,132
2.02.02	Other Obligations	3,110,475	1,602,354
2.02.02.02	Others	3,110,475	1,602,354
2.02.02.02.03	Operations with derivatives	38,943	-
2.02.02.02.04	Indirect Taxes and Contributions Payable	98	94
2.02.02.02.05	Direct Taxes and Contributions Payable	235,421	229,027
2.02.02.02.06	Authorizations Payable	616,620	879,012
2.02.02.02.07	Other liabilities	30,595	30,609
2.02.02.02.08	Financial leasing	1,307,261	326,027
2.02.02.02.09	Deferred revenues	881,537	137,585
2.02.03	Deferred Taxes	567,860	481,173
2.02.03.01	Deferred Income Tax and Social Contribution	567,860	481,173
2.02.04	Provisions	511,079	693,429
2.02.04.01	Tax, Labor and Civil Provisions	412,321	407,154
2.02.04.01.01	Tax Provisions	207,658	194,845
2.02.04.01.02	Labor Provisions	66,357	62,947
2.02.04.01.03	Benefits Provisions	643	645
2.02.04.01.04	Civil Provisions	106,553	103,303
2.02.04.01.05	Regulatory Provisions	31,110	45,414
2.02.04.02	Other Provisions	98,758	286,275
2.02.04.02.03	Asset Retirement Obligation	98,758	286,275
2.03	Shareholders' Equity	16,563,231	15,322,034
2.03.01	Paid up Capital	9,866,298	9,866,298
2.03.02	Capital Reserves	1,343,203	1,341,101
2.03.02.01	Offering's Goodwill	380,560	380,560
2.03.02.04	Stock Option	18,474	16,372
2.03.02.05	Treasury stock	(3,369)	(3,369)
2.03.02.07	Tax benefit reserve	947,538	947,538
2.03.04	Revenue Reserves	4,112,332	4,112,332
2.03.04.01	Legal Reserve	515,956	515,956
2.03.04.10	Reserve for expansion	3,596,376	3,596,376
2.03.05	Retained earnings	1,239,095	-
2.03.08	Other Comprehensive Income	2,303	2,303

 

Account Code	Account Description	Quarter - current year 04/01/2015 to 06/30/2015	Year-to-date - current year 01/01/2015 to 06/30/2015	Quarter – prior year 04/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
3.01	Net Operating Revenues from Goods Sold and/or Services Rendered	4,353,037	8,899,749	4,774,733	9,476,957
3.02	Cost of Goods Sold and/or Services Rendered	(2,223,461)	(4,538,314)	(2,426,928)	(4,856,702)
3.03	Gross Income	2,129,576	4,361,435	2,347,805	4,620,255
3.04	Operating Revenues (Expenses)	(772,707)	(2,476,365)	(1,773,982)	(3,459,457)
3.04.01	Sales	(1,236,726)	(2,480,056)	(1,291,568)	(2,536,641)
3.04.02	General and Administrative	(273,493)	(551,620)	(287,358)	(538,655)
3.04.04	Other Operating Revenues	946,175	966,255	13,539	22,994
3.04.05	Other Operating Expenses	(208,663)	(410,944)	(208,595)	(407,155)
3.04.05.01	Authorizations' Amortization	(91,729)	(175,734)	(100,882)	(179,292)
3.04.05.02	Other Operating Expenses	(116,934)	(235,210)	(107,713)	(227,863)
3.05	Operating Income	1,356,869	1,885,070	573,823	1,160,798
3.06	Financial	(38,229)	(115,967)	(72,705)	(108,540)
3.06.01	Financial Revenues	159,748	851,110	287,542	445,823
3.06.02	Financial Expenses	(197,977)	(967,077)	(360,247)	(554,363)
3.07	Income Before Taxes	1,318,640	1,769,103	501,118	1,052,258
3.08	Income Tax and Social Contribution	(392,246)	(530,008)	(135,504)	(314,512)
3.08.01	Current	(237,184)	(274,547)	(82,805)	(214,631)
3.08.02	Deferred	(155,062)	(255,461)	(52,699)	(99,881)
3.09	Profit for the Period on continued operations	926,394	1,239,095	365,614	737,746
3.11	Consolidated Profit for the Period	926,394	1,239,095	365,614	737,746
3.11.01	Atributted to shareholders	926,394	1,239,095	365,614	737,746
3.99.01.01	Earnings per share basic	0.3828	0.5120	0.1513	0.3053
3.99.02.01	Earnings per share diluted	0.3828	0.5119	0.1512	0.3050

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Consolidated Company Statements of Comprehensive Income (in thousands of Reais)

Account Code	Account Description	Quarter - current year 04/01/2015 to 06/30/2015	Year-to-date - current year 01/01/2015 to 06/30/2015	Quarter – prior year 04/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
4.01	Profit for the period	926,394	1,239,095	365,614	737,746
4.03	Comprehensive income for the period	926,394	1,239,095	365,614	737,746
4.03.01	Atributted to shareholder's	926,394	1,239,095	365,614	737,746

 

Accont Code	Account description	Year-to-date - current year 01/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
6.01	Net cash and cash equivalents generated by operating activities	535,029	664,265
6.01.01	Cash and cash equivalents generated by operating activities	3,138,655	3,148,085
6.01.01.01	Earnings before income tax (EBIT)	1,769,104	1,052,258
6.01.01.02	Depreciation and amortization	1,643,891	1,487,386
6.01.01.03	Gain on sale of fixed assets disposed - Towers	(917,548)	-
6.01.01.04	Monetary variation on ARO provision	2,725	2,644
6.01.01.05	Provision for legal and administrative proceedings	152,283	118,586
6.01.01.06	Monetary fluctuation on escrow deposits and provision for legal and administrative proceedings	11,034	29,066
6.01.01.07	Interest and monetary and exchange variation on loans and other financial adjustments	324,501	294,354
6.01.01.08	Monetary fluctuation on dividends	-	2,064
6.01.01.09	Gain/(loss) disposal of fixed assets	1,463	4,057
6.01.01.10	Allowance for doubtful accounts	116,064	153,256
6.01.01.11	Stock options	2,103	3,179
6.01.01.12	Interests on leasing asset	(11,803)	(20,571)
6.01.01.13	Interests on leasing liability	44,838	21,806
6.01.02	Variations in assets and liabilities	(2,603,626)	(2,483,820)
6.01.02.01	Trade Accounts receivable	314,959	(241,903)
6.01.02.02	Taxes and contributions recoverable	(59,913)	(261,003)
6.01.02.03	Inventories	(63,575)	(69,033)
6.01.02.04	Prepaid expenses	(393,300)	(446,130)
6.01.02.05	Escrow deposits	(19,683)	(113,831)
6.01.02.06	Other current and non-current assets	11,539	(28,443)
6.01.02.07	Labor obligations	25,309	30,767
6.01.02.08	Suppliers	(1,526,933)	(1,091,876)
6.01.02.09	Taxes, fees and contributions payable	(279,135)	(194,305)
6.01.02.10	Payment of legal and administrative proceedings	(180,787)	(116,101)
6.01.02.11	Authorizations payable	(338,796)	31,747
6.01.02.12	Deferred revenues	(51,929)	44,496
6.01.02.13	Other current and non-current liabilities	(41,382)	(28,205)
6.02	Net cash and cash equivalents used by investing activities	(215,227)	(1,665,564)
6.02.01	Financial assets valued through profit or loss	(4,190)	(11,626)
6.02.02	Additions to property plant and equipment and intangibles	(2,071,602)	(1,647,837)
6.02.03	ARO obligation	(36,712)	(6,101)
6.02.04	Cash received on fixed assets solds	1,897,277	-
6.03	Net cash and cash equivalents generated (used) by financing activities	(710,671)	1,038,311
6.03.01	New loans	-	1,925,191
6.03.02	Loans amortization	(608,164)	(390,145)
6.03.03	Dividends paid	(360,405)	(413,697)
6.03.04	Operations with derivatives	274,467	(61,432)
6.03.05	Payment of leasing liabilities	(25,788)	(21,606)
6.03.06	Receipts of leasing assets	9,219	-
6.05	Increase (decrease) on cash and cash equivalents	(390,869)	37,012
6.05.01	Beginning cash and cash equivalents balance	5,232,992	5,287,642
6.05.02	Ending cash and cash equivalents balance	4,842,123	5,324,654

 

Account Code	Account Description	Capital	Capital Reserves	Revenues Reserves	Retained Earnings	Other Comprehensive Income	TOTAL SHAREHOLDERS' EQUITY	Minority Interest	Consolidated SHAREHOLDERS' EQUITY
5.01	Beginning balance	9,866,298	1,341,101	4,112,332	-	2,303	15,322,034	-	15,322,034
5.03	Prior year adjusted	9,866,298	1,341,101	4,112,332	-	2,303	15,322,034	-	15,322,034
5.04	Shareholder´s Transactions	-	2,102	-	-	-	2,102	-	2,102
5.04.03	Options granted	-	2,102	-	-	-	2,102	-	2,102
5.05	Comprehensive income statement	-	-	-	1,239,095	-	1,239,095	-	1,239,095
5.05.01	Net income for the period	-	-	-	1,239,095	-	1,239,095	-	1,239,095
5.07	Ending balance	9,866,298	1,343,203	4,112,332	1,239,095	2,303	16,563,231	-	16,563,231

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Consolidated Company Statements of Changes in Shareholders´ Equity from 01/01/2014 to 06/30/2014 (in thousands of Reais)

Account Code	Account Description	Capital	Capital Reserves	Revenues Reserves	Retained Earnings	Other Comprehensive Income	TOTAL SHAREHOLDERS' EQUITY	Minority Interest	Consolidated SHAREHOLDERS' EQUITY
5.01	Beginning balance	9,839,770	1,214,271	3,538,586	-	2,013	14,594,640	-	14,594,640
5.03	Prior year adjusted	9,839,770	1,214,271	3,538,586	-	2,013	14,594,640	-	14,594,640
5.04	Shareholder´s Transactions	-	3,178	(485,722)	-	-	(482,544)	-	(482,544)
5.04.03	Options granted	-	3,178	-	-	-	3,178	-	3,178
5.04.06	Dividends	-	-	(485,722)	-	-	(485,722)	-	(485,722)
5.05	Comprehensive income statement	-	-	-	737,746	-	737,746	-	737,746
5.05.01	Net income for the period	-	-	-	737,746	-	737,746	-	737,746
5.06	Internal changes in shareholders´equity	-	881	(881)	-	-	-	-	-
5.06.04	Fiscal benefit reserve constitution	-	881	(881)	-	-	-	-	-
5.07	Ending balance	9,839,770	1,218,330	3,051,983	737,746	2,013	14,849,842	-	14,849,842

 

Free Translation into English of Quarterly Information (ITR)Originally Issued in Portuguese Consolidated Company Statements of Added Value (in thousands of Reais)

Account code	Account description	Year-to-date - current year 01/01/2015 to 06/30/2015	Year-to-date - prior year 01/01/2014 to 06/30/2014
7.01	Revenues	12,025,482	12,615,959
7.01.01	Net Operating Revenues from Goods Sold and/or Services Rendered	12,141,546	12,769,215
7.01.04	Allowance for doubtful accounts	(116,064)	(153,256)
7.02	Raw Material Acquired from Third Parties	(3,819,098)	(5,297,639)
7.02.01	Cost of Goods Sold and/or Services Rendered	(2,996,667)	(3,464,909)
7.02.02	Material, Energy, Services and Others	(822,431)	(1,832,730)
7.03	Gross Added Value	8,206,384	7,318,320
7.04	Retentions	(1,643,891)	(1,487,386)
7.04.01	Depreciation and Amortization	(1,643,891)	(1,487,386)
7.05	Net Added Value Produced	6,562,493	5,830,934
7.06	Added Value Received from Transfers	851,111	445,822
7.06.02	Financial Revenues	851,111	445,822
7.07	Total Added Value to Share	7,413,604	6,276,756
7.08	Sharing Added Value	7,413,604	6,276,756
7.08.01	Labor	419,996	371,855
7.08.01.01	Cost of Working	298,405	265,342
7.08.01.02	Benefits	85,955	74,794
7.08.01.03	F.G.T.S.	28,149	24,923
7.08.01.04	Others	7,487	6,796
7.08.02	Taxes, Fees and Contributions	4,479,897	4,334,979
7.08.02.01	Federal	1,765,551	1,612,023
7.08.02.02	State	2,703,460	2,713,986
7.08.02.03	Municipal	10,886	8,970
7.08.03	Earnings - Borrowed Capital	1,274,616	832,176
7.08.03.01	Interest	965,429	552,234
7.08.03.02	Rentals	309,187	279,942
7.08.04	Earnings - Owned Capital	1,239,095	737,746
7.08.04.03	Retained Earnings	1,239,095	737,746

 

TIM PARTICIPAÇÕES S.A. Announces its Consolidated Results for the Second Quarter of 2015

Operational Highlights

·

Postpaid at strong pace of +11% YoY in 2Q15, and reaching 18% of our customer base. In the first half, we added more than 1 mln users;

·

4G clients reached 3.8 mln users (+3.9x YoY)

·

Penetration of smartphones over total base reached ~60%, driven by smartphone sales mix of 93%, in 2Q15;

·

Innovative ARPU grew 42% YoY in 2Q15, faster than data user base (+7% YoY);

·

Infrastructure remais a top priority, investments amounted R$1.2 bln in 2Q15;

·

Live TIM reached 166k users in 2Q15, leading Ultra BB net addition with 34% share;

Financial Highlights

·

Innovative Mobile Services (data net revenues ex-SMS) continue their strong pace with +44% YoY. In 1H15, growth stood at 45% YoY;

·

Fixed net revenues accelerating to +15% YoY in 2Q15, bringing first half pace to ~14% YoY;

·

Costs control initiatives in play: organic opex decreased 11% YoY in the quarter and 8% in 1H15;

·

Organic EBITDA margin continues to expand on a yearly basis, reaching 29.2% in 2Q15. EBITDA service margin (excluding the handset business) reached 35.4% in 2Q15.

 

Conference Call in English:

Conference Call in Portugueses:

Aug 5^th, 2015, at:

Aug 5^th, 2015, at:

11:00 AM Brasília time

09:00 Brasília time

10:00 AM US EST

08:00 AM US EST

Tel.: +1 888 700-0802 (USA)

Tel.: +55 11 3193-1001 or +55 11 2820-4001 (Brazil)

  

       +55 11 3193-1001 or +55 11 2820-4001 (Brazil)

Code: TIM

   

       +1 786 924-6977 (other countries)

Code: TIM

MESSAGE FROM CEO

Dear Shareholders, Analysts and Stakeholders,

During the second quarter of 2015 we could continue to observe what we had highlighted at the beginning of the year, which is a tough macroeconomic environment, with a scenario of high inflation and contraction of the economy, which is expected to present negative growth during the year, reverting the projections of moderate growth developed at the end of 2014.

We had also highlighted in our first quarter message the significant transformation of the mobile industry towards a data world, and during this second quarter not only this trend continued, but was greatly accelerated by the effects of the macroeconomic scenario on consumer confidence, leading to a faster decline of voice revenues and a sharper transition to data usage than previously forecasted, as customers maximize usage of data services as a way to optimize overall spending.

This trend of faster voice substitution by data, while expected, comes at a pace which if on one had confirms our strategy of becoming a data centric company - with the corresponding investments in infrastructure and data offer innovation - on the other hand also accelerates the speed at which voice revenues are impacted in the short term, in particular on the prepaid segment, where spending optimization leads to a reduction in voice usage and revenues and the start of a trend of consolidation in multiple SIM cards, potentially anticipating the effects of a reduction of the community effect. We could observe the confirmation of this trend by the industry wide reduction of MOUs (Minutes of Use) and voice revenues for all players, and by the reduction of the overall prepaid customer base in the country in the last month of Q2.

While those short term trends are significant and could prove challenging especially to the Revenue and EBITDA growth in the next few quarters, we firmly believe that our long term industrial strategy remains absolutely solid: sustaining an accelerated investment plan for building a very robust data strategy centered on 4G, continuing to innovate on innovative data centric service offerings and preparing to deliver a unique and differentiated customer experience as a hallmark of TIM’s evolution towards a data centric industry future.

In the middle of this scenario, TIM delivered in the second quarter a solid set of results in its most strategic KPIs for the future, including a very solid pace on data services, which grew 44% YoY in Q2, boosted by an increase in smartphone penetration, data ARPU and 4G users. This performance was also helped by the continuation of the solid growth of our postpaid base, which has been growing above the market average during 2015, and reached 11% YoY growth in Q2. Another positive indicator was the return of the strong growth of our fixed operations, which presented a +15.1% YoY growth in Revenues in Q2.

Even though overall revenue growth has been impacted by a sharp reduction of device sales as we approach a scenario in which smartphone penetration grows at a more moderate pace, and mobile service revenues and EBITDA have been still impacted by the reduction of the MTR (mobile termination rates), during the second quarter the company was able to continue improving overall EBITDA margins, which in Q2 grew almost 2 percentage points when compared to Q2 2014, reaching 29.2%, amongst the best EBITDA margins in the industry in Brazil.

Sustaining accelerated infrastructure investments

In line with our strategy of building a very robust data infrastructure now and for the long-term, the company was able to deliver in the 2Q yet another solid period of infrastructure deployment, reaching almost R$ 1.2 billion, mostly focused on expanding its 3G, 4G and fiber transmission infrastructure.

During Q2 our flagship Mobile Broadband Project reached the mark of covering over 157 cities, or 45% of the country’s urban population, with the required access and transmission infrastructure to provide very high quality and high-speed data services, and positioning TIM to be at the forefront of data adoption in the most important cities in the country. Q2 also saw a significant advancement of our 4G deployments, with an increase of over 25% in the number of 4G sites, maintaining TIM as the operator with the largest number of 4G sites in the state capitals in Brazil. In line with the network expansion, our quality indicators also continue to demonstrate a very significant improvement, and during the quarter we could reach another increase in the average throughput of our data services which reached speeds above market average, in addition to mentioning an excellent performance in all of Anatel’s key quality indicators, leading to an improvement not only in hard metrics, but also customer perception.

Another solid quarter for data growth

As highlighted, data and innovative services grew 44% YoY in revenues during Q2 2015, sustained by an increase in data traffic of over 30% and in data ARPU of close to 42%. Smartphone penetration over the user base reached 59% in the quarter, positioning the base for future growth, and 4G users, which consume on average over three times as much data as 3G users, reached a customer base of almost 4 million users. With this performance, Mobile VAS revenues reached a penetration of 35% of overall service revenues, up from 27% the year prior. On Generated Revenues, the mobile data performance compensated for the decline in voice revenues, leading to a small positive growth in what we call “outgoing revenues”, which are the revenues effectively generated by our customer base and which does not depend on interconnection revenues. This performance is key to leading to future revenue growth, as when data becomes a larger part of the overall revenues, mobile service revenues naturally come back to positive growth as data continues to make its way as our main revenue driver.

Offers and Customer Base: Protecting the value of the customer base while increasing the base of value customers

As it recognizes the acceleration of the industry trends in Brazil, TIM has been adjusting its offer portfolio and focus on subscriber acquisition to “protect the value of its customer base while increasing its base of value customers”. TIM’s focus on the “Big Middle” of Brazilian consumers relies on its volume and relevance to future growth, as more and more Brazilians start to consume mobile data services. With the current scenario, TIM has been promoting offer adjustments to protect the value of its prepaid base by increasing its quality – including looking to position more attractive offers for consumers impacted by our current economic situation, as well as on the higher end of these prospects – elevating our positioning to be able to play not only in the Postpaid Control plans but also on the pure Postpaid subscribers, with innovative and bundled high value offers.  The recent performance of our Postpaid share of net adds indicate we are in the right direction, with our Postpaid subscriber base growing double digits and reaching 11% YoY in Q2.

Efficient operation increasing EBITDA margins and preserving solid financials

The disciplined approach to operational efficiency and cost control continued and was even intensified during the second quarter, as we work to mitigate the short-term impact of a more challenging revenue growth period. With the intensification of the focus on transforming the operation and many of its processes, the company was able in Q2 to obtain a 10.5% reduction in Operating Expenses, with reduction in pretty much all of its key components except personnel, given the impact of internalizing some functions when compared to last year as well as the effect of inflation on salaries. As a result of all of these efforts, we reached an EBITDA margin of 29.2%, a substantial growth when compared to the same period last year. Overall EBITDA performance was impacted by the revenue slowdown and also by the significant impact of MTR reductions, in addition to a few non-recurring effects on interconnection, leading to a contraction of EBITDA of -4.4%. It is important also to consider that in the second quarter the non-recurring reported results carry the effect of our Tower Sale transaction, which helped to boost total non-recurring EBITDA by over R$900 million, and non-recurring Net Income by over R$600 million, leading to a significant growth both in reported EBITDA as well as reported Net Income. The Net Financial Position of the company continues to be very solid at R$ 2.6 billion, or a net debt/EBITDA ratio of just 0.48x, allowing the company full flexibility in its financial management.

Conclusion and Perspectives

In closing, we acknowledge the more challenging short-term period for revenues and eventually EBITDA growth, but reinforce our message about the very strong confidence in the strategic direction of the company and the solid execution that comes with it. By sustaining its investments in a robust future-proof data infrastructure, continuing to adjust its innovative offers to allow for growth in data and in the quality of its user base and developing the conditions to differentiate on customer experience, we firmly believe the company will position itself to succeed during this period of accelerated industry transition, and strategic, operational and financial results will naturally follow. As usual I would like to highlight the incredible commitment of the entire team in making this vision a reality and in delivering the successful repositioning of TIM as a leading mobile data player in Brazil.

Rodrigo Abreu

CEO

FINANCIAL PERFORMANCE

OPERATING REVENUES

Gross revenues totaled R$13,455 million in the first half (-5.3% YoY), still impacted by a stronger MTR decline and tougher macro-economic environment, partially off-set by a strong data revenue growth. As for the 2Q15, gross revenues totaled R$6,635 million (-7.4% YoY), mainly impacted by the 40.7% drop in interconnection revenues.

Worth noting that Bussiness Generated (voice+data) gross revenues stood flat versus 1H14, even in an environment of acceleration of the industry transition from voice to data and greater macro economic headwinds.

Gross revenues breakdown and other highlights are presented as follows:

Usage and monthly fee gross revenues reached R$5,040 million in 1H15 (-9.2% YoY),  and R$2,457 million in the 2Q15 (-10.7% YoY). This line was mostly impacted by a tougher macroeconomic scenario and the continued migration towards data usage.

Value Added Services (VAS) gross revenues totaled R$3,739 million in the first half of 2015, a solid double digit growth of 21.5%. This result is mainly due to the massive increase of 45.3% YoY in innovative revenues, partially offset by the continuous decrease in SMS, which fell by 31.6% YoY. In the second quarter of 2015, VAS revenues reached R$1,913 million an increase of 21.3% YoY, again boosted by increase of 48.7% YoY in innovative revenues. All of this supported by our level of investment and innovative offers.

As for the first half of 2015, VAS reached 33.4% of total mobile gross service revenues from 26.2% in 1H14. In 2Q15, VAS represented almost 35% (up 800 bps from 27% in 2Q14).

Long distance gross revenues came at R$1,406 million in 1H15, and R$684 million in the 2Q15, both periods with a drop of 11.4% versus a year ago. Such performance is mainly explained by a commoditization process of this service and the switch from voice to data usage pattern.

Interconnection gross revenues in 1H15 dropped 39.6% YoY to R$848 million, due to the impact of the MTR cut of 33%, coupled with the intensification of the SMS substitution to messaging applications. For 2Q15, Interconnection gross revenues totaled R$372 million, a drop of 40.7% YoY.

 

 

Fixed business gross revenues, including “TIM Soluções Corporativas”, “TIM Fixo” and  “Live TIM”, totaled R$243 million this quarter, a solid double digit increase of 10.0% when compared to the same period of last year. This performance proves the success of the ultra broadband business and the strategy to restructure TIM Soluções Corporativas (former Intelig). In the first half of 2015, fixed revenues reached R$479 million, up 8.3% YoY.

Other Mobile Revenues reached R$170 million in 1H15, an increase of 27.5% YoY, mainly driven by the growth of revenues related to the sharing of infrastructure. As for 2Q15, the growth reached  8.4% YoY, due to the negative impact of the towers sale.

Product sales gross revenues decreased by 11.8% YoY, reaching R$1,773 million in the first half of the year. For the 2Q15, revenues decreased by 22.0% YoY, reaching R$895 million. Products’ performance is being driven by a reduction in devices unit sales (-48.2% YoY in 2Q15 and -38.2% in 1H15), due to a thougher macroeconomic environment. An increase average price (47.9% YoY in 2Q15 and 41.0 YoY in 1H15) as a consequence of a better sales mix (smartphones) helped to partially compensate that decline.

 

As a result, Total Net Revenues reached R$8,900 million (-6.1% YoY) in 1H15 and Net Services Revenues at R$7,724 million (-4.5% YoY). Business Generated net revenues grew by 2.1% YoY in the same period. As for 2Q15, total net revenues totaled R$4,353 million (-8.8% YoY).

ARPU (average revenue per user) reached R$16.1 in 2Q15, down -7.2% YoY, largely impacted by the aforesaid MTR cut and macroeconomic slowdown, while Data ARPU posted a significant increase of 19.0% YoY.

Starting in 2Q15, we begin to present a new net revenue line, called “Innovative” revenues to better indicate business trend. Innovative consists in VAS revenues excluding SMS revenues.

Innovative Mobile Net Revenues came at R$2,194 million in 1H15, a sound increase of 44.8% YoY. As for the second quarter, Innovative revenues totaled R$1,150 million (+44.0% YoY). Both performances were driven by a continuous growth of data customers, reaching 41.4% of total customer base (up from 38.8% in 2Q14), while usage (bytes of use) rose by 31.8% in comparison to 2Q14. Also, smartphones penetration reached 59.5% of the customer base (38.6% in 2Q14).

 

 

As a consequence of consecutive MTR cuts and increasing importance of Innovative revenues, the magnitude of MTR incidence on net service revenues have been decreasing significantly, achieving its lowest level at approximately 8%.

MOU (minutes of use) reached 119 minutes in 2Q15, down 13.6% when compared to 2Q14, mainly due to the migration usage intensification of new technologies related to data and the consequent lower use of traditional voice services.

OPERATING COSTS AND EXPENSES

In the first half of 2015, Total Organic Opex amounted to R$6,288 million, a decrease of 7.9% YoY while in 2Q15 it reached R$3,081 million (-10.5% YoY). Total organic opex excludes the towers sale gain of R$917.5 million. Organic opex decrease is still being driven by strong savings in network & interconnection costs (-11.5% YoY), decline in volume of handsets sold and thus a decline in cost of goods sold (-12.2% YoY). Those effects more than compensated higher personal expenses (+13.0% YoY) in the period.

Operating expenses breakdown in 2Q15 is presented as follows:

Personnel Expenses totaled R$517 million in the 1H15, up by 13.0% YoY due to an increase in the total number of employees and the adjustment of salaries slightly above inflation on top of other benefits. The number of employees reached 12,930 people in the period, up 3.6% or 447 people when compared to last year. This increase was mostly driven by own stores expansion (to 179 in 2Q15 from 166 in 2Q14). In 2Q15, personnel expenses reached R$263 million, up by 14.6% YoY as a result of the trend described above and by the impact of a 25% price increase in healthcare plans after a ruling by the sector’s regulatory agency (ANS).

Selling & Marketing expenses came at R$1,950 million in 1H15 (-2.8% YoY) and R$966 million in 2Q15 (-5.8% YoY), driven by a reduction in commissioning expenses and advertising, following macro slowdown and advertising efficiency on marketing campaigns, together with fewer sponsored events.

 

Network & Interconnection costs totaled R$1,952 million in 1H15, a decline of 11.5% YoY. The performance was heavly impacted by MTR cut, voice and SMS off-net traffic reduction together with leased lines costs drop. In 2Q15, network & interconnection reached R$938 million, down by 7.2% YoY, due to the aforesaid reasons and partially offset by new property rentals for site deployment following network expansion and incremental electricity costs.

 

General & Administrative expenses (G&A) amounted to R$272 million, a sound decrease of 17.1% YoY and in 2Q15 G&A reached 129 million (-27.8% YoY). Both periods performance was driven by a reduction in legal advisory services expenses related to the towers sale process and savings generated by a cost efficiency plan put in place this year.

Cost of Goods Sold reached R$1,295 million in 1H15, down 12.2% when compared to the same period of last year following the decline in handsets units sold (-38.2% YoY), due to a tougher macroeconomic environment. In 2Q15, cost of goods sold dropped to R$637 million (-23.0% YoY), also impacted by the volume mentioned above. However, handset average price have increased by 41.0% in the 1H15 due to a better sales mix.

Bad debt came at R$116 million in 1H15 and as percentage of gross revenues it reached 0.86% in the period (vs. 1.08% in 1H14), maintaining a resilient performance even in a tougher macroeconomic scenario. In 2Q15, bad debt totaled R$60 million or 0.90% as a percentage of gross revenues.

Other organic operating expenses totaled R$187 million in 1H15, down by 9.0% YoY mainly due to lower contingencies. Other organic operating expenses exclude the R$917.5 million impact of towers sale.

Subscriber Acquisition Costs (where SAC = subsidy + commissioning + total advertising expenses) came at R$31 per gross add in 2Q15, an increase of 6.8% YoY, while SAC/ARPU ratio (indicating the payback per customer) reached 2.3x in 2Q15, a 16.8% increase when compared to 2Q14 due to the new approach on postpaid customers. Postpaid segment increased 10.6% YoY, specially on hybrid plan (“Plano Controle”) with +31.3% YoY.

FROM EBITDA TO NET INCOME

EBITDA

In the first half of 2015, Organic EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) totaled R$2,611 million, 1.4% lower when compared to R$2,648 million in 1H14. This performance was mainly due to a tougher macroeconomic environment, MTR cut impact and transition from voice to data. As for the second quarter of 2015, Organic EBITDA amounted to R$1,272 million, a decrease of 4.4% YoY.

Organic EBITDA margin showed once again a significant improvement of 140bps, reaching historical level for a first semester at 29.3% vs. 27.9% in the same period of last year. For 2Q15, EBITDA margin improved 135 bps, reaching 29.2% (vs. 27.9% in 2Q14).

 

Organic EBITDA margin on services (excluding handset revenues and costs) came at 35.3% in 1H15, up by 225bps when compared to 33.1% in the same period of last year. For this quarter, margin on services reached 35.4%, an yearly expansion of 107bps.

Following a similar trajectory as revenues exposure, MTR incidence on organic EBITDA has been falling significantly, reaching its lowest levels at ~13%, in 2Q15.

 

 

Reported EBITDA totaled R$3,529 million in 1H15, an increase of 33.3% when compared to the same period of last year. This is a consequence of the first tranche of towers being transfered in april-15 (net effect of R$917.5 million), which is detailed later in this document. For the quarter, reported EBITDA amounted to R$2,189 million.

 

EBIT

In 1H15, Depreciation and Amortization totaled R$1,644 million, up 10.5% YoY when  compared to the same period of last year due to an increase in network equipment following our Industrial Plan’s CAPEX increase. In the quarter, Depreciation and Amortization amounted to R$833 million and 10% YoY increase due to the same reason cited above.

Following the increase in depreciation and amortization, Organic EBIT (earnings before interest and taxes) totaled R$968 million in 1H15, representing a decrease of 16.7% YoY. EBIT margin came at 10.9% (vs. 12.2% in 1H14). For the second quarter of 2015 Organic EBIT amounted to R$439 million, a decrease of 23.4% YoY.

NET FINANCIAL RESULT

In 1H15, Net financial result came at -R$116 million, a small increase vs. -R$109 million in the same period of last year, with financial expenses at R$504 million (up 16.0% YoY) and financial revenues at R$387 million (up 18.1% YoY) following the increase on interest rates.

As for the 2Q15, net financial result totaled -R$38 million (-47.8% YoY). The increase in financial expenses that reached R$257 million in 2Q15 (+0.2% YoY) was more than offset by higher financial revenues, which amounted R$220 million (+19.2% YoY), largely impacted by higher interest on cash and positive hedge effects.

INCOME AND SOCIAL CONTRIBUTION TAXES

In 1H15, Organic Income and Social Contribution taxes came at R$248 million, representing a decrease of 21.1% when compared to R$315 million in the same period of last year due to a reduction in the tax base for income tax and social contribution (earnings before tax decreased 19.1% YoY). Effective tax rate decreased to 29.1% in 1H15 from 29.9% in 1H14.

NET INCOME

In 1H15, Organic Net Income totaled R$603 million, a decrease of 18.2% YoY. EPS (Earnings per Share) reached R$0.25 in 1H15 (vs. R$0.30 in 1H14). As for the second quarter of 2015 Organic Net Income totaled R$291 million, a decrease of 20.5% YoY, with EPS reaching R$0.12 (vs. 0.15 in 2Q14).

In 2Q15, Reported Net Income totaled R$926 million, an increase of 153.4% YoY. Reported EPS (Earnings per Share) reached R$0.38.

CAPEX

In 1H15, Capex amounted to R$2,108 million, an increase of 27.2% when compared to 1H14, following the Turbo Project that is fastly expanding our infraestructure.

It’s worth highlighting that ~90% of the total Capex in 1H was dedicated to infrastructure, largely related to 3G and 4G technologies.

DEBT, CASH AND FREE CASH FLOW

Gross Debt reached R$7,494 million in the end of june/15, including the leasing recognition in a total value of R$977 million from the leaseback of the towers sold.

Company's debt is concentrated in long-term contracts (84% of the total) composed mainly by financing from BNDES (Brazilian Economic and Social Development Bank) and EIB (European Investment Bank), as well as borrowings from other top local and international financial institutions.

Approximately 34% of total debt is denominated in foreign currency (USD), and it is 100% hedged in local currency. In 2Q15, average cost of debt was 11.56% compared to 9.74% in 2Q14. Nevertheless, the increase in cost of debt was more than offsetted by a higher cash yield.

Cash and Cash equivalents totaled R$4,842 million by the end of june/15, a decrease vs. R$5,325 in june/14. While the proceeds from the aforesaid towers sale, which totaled R$1,897 million, helped increase cash, this account was negatively impacted by:

i)

R$1,678 million payment of the 700MHz frequency acquisition made in Dec/14;

ii)

R$1,025 million of FISTEL payment made in march/15;

iii)

R$370 million spectrum clean-up payment made in april/15 and

iv)

R$360 million dividends payment made in june/15.

Average cash yield reached 13.25% in 2Q15 compared to 10.92% in 2Q14.

Considering the last 12 months EBITDA, Net Debt/EBITDA ratio reached 0.48x in 2Q15 compared to 0.19x in 2Q14. Due to the above mentioned payments, net debt increased from R$1,031 million in 2Q14 to R$2,652 million by the end of 2Q15.

Organic Operating Free Cash Flow came negative at R$1,146 million in 1H15, (+44.8% vs. 1H14), adversely impacted by an increase of 27.2% on Capex, that was partially compensated by a better performance in working capital compared to 1H14. In the quarter, Organic Operating Free Cash Flow totaled R$431 million, vs. R$779 million in 2Q14.

Organic Net Cash Flow in 1H totaled -R$1,928 million compared to -R$1,634 million in the same period of last year. In the quarter, Organic Net Cash Flow totaled –R$83 million, vs. positive R$101 million in 2Q14.

TOWERS SALE IMPACTS

This quarter, TIM concluded the first closing under the Tower Sale agreement signed in November 2014 with American Tower do Brasil (ATC) that comprised sale of 6,481 towers by ~R$3 billion cash. In April 29, 2015, TIM transferred 4,176 towers to ATC and received ~R$1.9 billion cash. The Master lease agreement (MLA) defines the leaseback of the transferred towers for a 20 years period. According to IAS17, this transaction should be registered as (1) sale and (2) leaseback and following its requirements, the leaseback was booked as a financial leasing.

Please find below the Financial Statements impacts conciliation and the related notes for further details:

 

       

Finantial Statments´notes		Purchase price
Note 1		Cash in	1,897,277
Note 17		Net book value of the transferred towers	-306,656
		(1) Gain related to sold components
Note 34		Part of purchase price allocated to sold component	920,733
		Net book value and other costs	-157,482
Note 27		Write down ARO provision	154,297
Note 1 and 34		Gain on sold component	917,548
		Tax	-281,903
		Gain on sold component net of tax	635,645
		(2) Gain related to leaseback component
Note 34		Part of purchase price related to leaseback component	976,544
		Net book value and other costs	-167,960
Note 25 and 34		Deferred gain	808,584
Note 19		Financial Leasing on Liabilities	976,544
Note 17		Tangible asset	976,544
		NFP Effect		920,733
*Values in R$ thousand

 

OPERATIONAL PERFORMANCE

BRAZILIAN MOBILE MARKET OVERVIEW

Brazilian mobile market reached 282.5 million lines by the end of 2Q15, representing a yearly growth of 2.4%, to a penetration rate of 138.2%, up from 135.3% in 2Q14. Overall subscriber base has reduced the pace versus previous quarters, mainly due to high penetrated market, with customers using multiple SIM-cards, macroeconomic slowdown and more austhere disconnection policies. Nonetheless, some segments are still experiencing double digit growth, such as the hybrid plans (aka “Controle”) and data plans.

 

 

·

Postpaid segment reached 71.0 million lines in June (+12.0% versus June/14) with net adds reaching 1.5 million lines (vs. 2.1 million in the same period of last year).

·

Prepaid segment reached 211.4 million lines (virtually flat YoY), accounting for 74.9% of total Brazilian market (vs. 77.0% in 2Q14). Net adds for prepaid reached -2.5 million lines (vs. 62.1k in the same period of last year).

TIM has maintained its market share position versus the 2Q14, as described below:

TIM’s PERFORMANCE

TIM’s subscriber base reached 74.6 million lines at the end of 2Q15, up 0.5% when compared to the same period of last year.

In the 3G technology, total subscriber base ended 2Q15 with 43.2 million users, an increase of 42.8% against 2Q14, proving the success of the company’s strategy of equipping its customers with smartphones in order to stimulate data services penetration among its users.

As for the 4G, subscriber base reached 3.8 million users by the end of June/15, an increase of 25.4% over March/15, or +773.1k new users in this quarter, and a support evidence that the Company’s strategy on 4G is paying off.

Net additions totaled -1.1 million lines (vs.  286.1 thousand in the same period of last year), as a result of lower gross addition (8.8 million lines and down 6.5% vs. 2Q14) and higher disconnections (9.9 million lines in the period and up 9.0% YoY), following a new guideline to try to reduce the “washing machine effect”. Consequently churn rate in 2Q15 came at 13.2% and up from 12.3% in the same period of last year.

 

 

Postpaid customer base reached 13.5 million users in June/15, +10.6% yearly growth. During 2Q15, TIM added 525 thousand users in the postpaid segment (vs. 10 thousand net adds in the same period of last year).

As for prepaid segment, 2Q15 ended with 61.1 million users, down 1.5% YoY. “Infinity Pré” accounted for 58.2 million users or 95.4% of the prepaid customer base. TIM maintained the leadership in the prepaid market, with 29% market share, thanks to its pioneering position, simplicity and transparent concepts.

 

QUALITY AND NETWORK

QUALITY DEVELOPMENTS

This quarter, TIM is proud to announce that it has achieved an important milestone in terms of network quality. From April to May (least data available), the Company has met all Anatel’s targets for both Voice and Data services (3G/4G), in every single state. This achievement is a result of strong commitment to quality and our goal to accelerate infrastructure development, specially to support data expansion delivering a better usage experience for our customers. Network quality KPI’s described below are based on the number of states that met the agency’s target and are the official figures disclosed by Anatel.

 

 

Following the results of the 2-year Quality Plan (Aug/12 to Jul/14) released by Anatel in February/2015, the Company has updated the “metrics within target index” using the agency’s methodology and official data for May/15 (least available). Such metric is based on Anatel’s network indicators (accessibility and drop) in both voice and data over 26 states and the federal district, their capitals and cities over 300,000 inhabitants. In May/15, TIM posted another significant performance reaching 95.1% of all metrics within Anatel’s target (versus 90.1% in Feb/15 and 86.1% in Jul/14).

 

Regarding quality indicators related to data usage, particularly on Speed Test (measured by Ookla¹), TIM is pleased to announce that it has been continuously improving its performance in Throughput and Latency metrics. Average throughput (downlink) in 2G/3G network posted a substancial increase of 128% YoY in 2Q15, widening the gap and staying above market average for two consecutive quarters. As for latency, TIM stood as the company with the lowest latency levels, being 23% below market average.

 

As for caring indicators, TIM’s group (mobile and fixed) kept its position of being the least demanded economic group at the consumer’s protection agencies (PROCON - SINDEC²) in 2Q15, with a volume of demands 58% lower than the market’s average in the quarter.

 

NETWORK EVOLUTION

As for network evolution, coverage and capacity continue to be the infrastructure central point and TIM is dedicating great effort (financial and operational) to maintain the solid expansion path. In  2Q15, 5.4 thousand km of optical fiber were implemented along with other network projects roll out, such as sites densification, Wi-Fi and small cell expansion, backhauling infrastructure development, cell-site fine tuning and others. These iniciatives are allowing the Company to keep improving its network quality. Find below our Capex’s distribution for 1H15.

TIM Wi-Fi project sped up in the second quarter, and added 192 new hotspots, totaling more than 1.7 thousand in the whole country. Comparing to the same period of 2014, number of hotspots increased by 71%.

In 1H15, the Mobile BroadBand Project (MBB) added 32 new cities to the project roll out. Besides the new cities, the Company also focused its efforts on the coverage densification of more than 40 cities that were already included in 2014 and are the pillar of the mobile VAS revenue growth. In 2Q15, the MBB project reached 157 cities and the plan is to complete 195 until the end of 2015.

The average throughput gain for the cities that have completed the MBB is remarkable, proving the efficiency approach used by the project, tackling Access (HSPA+ and dual carrier), Transport (backhaul and backbone using FTTS and high capacity microwave links) and IP-Core (caching, peering and transit).

In addition to infrastructure development, the Company is also focused on expanding the 4G coverage through refarming. The project consists in coverage optimization and the amplification in the number of locations with 4G technology, mostly by using the 1,800MHz band and reorganizing the frequency usage according to the spectrum availability.

Almost 95% of urban population have GSM coverage. In the 2Q15, 3G coverage expanded to 209 new cities, reaching 1,623 or 81.1% of urban population. As for the 4G services, TIM finished the first half of 2015 with 39.3% of the Brazilian urban population covered, +370 bps when compared to the the same period of 2014.

MARKETING PROGRESS

WhatsApp offer extended to all segments in 2Q15

 

Following the great success in recent quarters, the Company has extended the WhatsApp offer to all segments, including the main prepaid plan, Infinity. Liberty, Liberty Controle and Liberty Controle Express customers are also able to send unlimited messages, share photos and videos through the app without consuming from their data allowance.

This benefit is associated with Infinity Web+Torpedo offer without any increase in the daily charge. By paying R$0.99/day, in addition to unlimited SMS to any operator and 10MB of data cap, customers have also unlimited WhatsApp messages.

Infinity Web+Torpedo is also available with 30MB (R$1.25/day), 100MB (R$2.29/day) and 200MB (R$3.29/day) data caps. The 100 and 200MB offers were launched in 2Q15, seeking to meet customers’ increasing data consumption.

Corporate Segment

Seeking innovation in the B2B segment, TIM launched in 2Q15 the ‘TIM Empresa Tarifa Flat’ plan, with a unique concept. The customer hires a 100, 400 or 800 minutes package with a flat rate of R$0,29 per minute, regardless if the call is local/long distance, on-net/off-net and bundle/off-bundle. The customer has also unlimited local calls between the enterprise’s employees (using TIM numbers) and a data packages of 100MB and 1GB. Price is set at R$16.90/month + chosen voice package.

Handset Business

 

Galaxy S6

In 2Q15, TIM launched the expected Galaxy S6, known as Samsung’s most powerful smartphone. TIM is offering special discounts for customers that upgrade the Samsung Galaxy S4 or S5 for the new Galaxy S6, and contract the Liberty 6GB+800 minutes plan. Discounting prices start at R$499. All devices sold by TIM are unlocked and can be paid in up to 12 installments using a credit card.

 

Despite a tougher macroeconomic environment, where handset market shrunk in the first five months of the year (-3.9% YoY), TIM maintained the leadership position in smartphones sales among operators in May, increasing its market share from 48% in 1Q15 to 51% in May.

Other Marketing Initiatives

 

Opening Blue Doors – This quarter, TIM launched a new institutional campaign called "Opening Blue Doors", where are highlighted unique experiences in which mobile connection made all the difference. The Company presented real stories of its customers and invited the audience to be inspired and also tell their stories.

 

‘Non-stop WhatsApp’ – To enhance the successful partnership between TIM and WhatsApp, the Company launched a humorous digital campaign, mixing real life situations with "comic exaggerations" that illustrate how the Brazilians use the messaging application for everything.

 

‘Open Doors’ App – To reinforce its commitment to quality and service improvement, TIM renewed the ‘Open Doors’ (Portas Abertas) app, launched in 2013. The app is part of the operator's transparency platform and allows customers to monitor the expansion of the Company's network, query coverage data and report possible faults. Among the application's new features are tools offering more alternatives to report problems and search of incidents in the network or scheduled maintenance by city. The app already has 86,000 volunteer downloads and receives more than 25 thousand collaborations per month.

Live TIM: resilient growth with continous innovation

 

Live TIM ended 2Q15 with more than 165 thousand ultra broadband customers, a strong growth of 74% when compared to the same period of 2014, adding 16 thousand new clients in the quarter. Most customers choose the 35Mbps offer, nevertheless, as the portfolio grows, customers are adhering to higher speeds plans.

At the end of 2Q15, Live TIM had 27.9 thousand buildings connected (vs. 14.3 thousand in 2Q14), and an addressable market of over 1.8 million households in São Paulo and Rio de Janeiro regions. Prospect clients registered in Live TIM’s website reached 1.05 million (vs. 691k in 2Q14).

 

2Q15 was also marked by the official launch of Live TIM Blue Box. This entertainment center integrates OTTs YouTube and Netflix with free to air and traditional pay TV channels (the latter offered through a partnership with a pay TV operator TV Alphaville). Blue Box comes with a feature that recognizes users’ preferences and habits and suggests specific content according to their profile. Additionally, it allows to pause live shows, record content and offers parental control. The service is available for Live TIM customers and has a promotional price of R$9.90/month until the end of 2015. Paid content is subscribed directly from Netflix and TV Alphaville.

CORPORATE SOCIAL RESPONSIBILITY

TIM Institute, whose mission is to create and enhance resources for the democratization of science, technology, and innovation in Brazil, continues, in 2015, with many initiatives underway, all guided by four principles: education, technology applications, inclusion, and work.

In June of this year, TIM Institute joined UNICEF in the “Fora da Escola Não Pode” Project, an UNICEF’s initiative to revert children’s school exclusion. The new partnership plans the development of a technological solution that will enable municipalities to identify, in a quicker and easier way, which children and adolescents are not attending school. The project will initially be implemented in a pilot format in a municipality to be set. Later it will be held in 19 other municipalities of different sizes, located in vulnerable areas that have high rates of children and adolescents out of school.

Also, this quarter TIM Institute launched the “Academic Working Capital” (AWC), a new project that will support innovative technology-based business with the creation of a product. The goal is to offer financial support to young entrepreneurs - students of the finals graduation – so that they may create companies from their Grauation Projects. In 2015, the TIM Institute will invest R$ 400 thousand in up to 40 projects.

 

Additionally, TIM Institute released the annual evaluation of its project called “O Círculo da Matemática”. Brought to Brazil two years ago by TIM Institute, the project is intended to encourage the learning of math through a participative manner and it is already showing results. Students who have participated on the project had a performance 7.3% higher in the Mathematics Skills Index compared to students who did not attend the project last year. In 2014, attended the Project about 8,000 students from 67 schools in São Paulo (SP), Rio de Janeiro (RJ), Duque de Caxias (RJ), Brasilia (DF), Porto Alegre (RS), Salvador (BA ), Fortaleza (CE), Aracaju (SE), Belem (PA) and Porto Velho (RO).

ENERGY CONSUMPTION

In line with its Environmental Policy principles, TIM considers energy consumption as one of its challenges, that evolves according to the table below.

 

Energy efficiency is carried out through some actions such as Swap Project (replacing access equipment with more modern and efficient models) and the RAN Sharing agreement (sharing model of network infrastructure with other telecom operators). In environmental terms, the RAN Sharing agreement reduces electricity consumption and also has a positive urban impact as it implies in reducing the number of new RadioBase Stations (RBS), minimizing the impact to the population (EN5 indicator, GRI1 3.1).

Biosites implementation project continued in the second quarter of 2015, reaching a total of 80 activated Biosites by the end of June, a considerable increase compared with 23 activated Biosites in December 2014. Biosites represent structures that allow a specific network coverage with higher efficiency in the use of energy and space, contributing also to reduce visual impact and employing in their attachment structure 99% less steel than traditional structure of RadioBase Station.

Moreover, TIM’s Sustainability Report was published in June, a document with the main objective to communicate with transparency and ethics, achievements and challenges related to the company's commitment to sustainable development, including governance, economic, social and environmental information. The report follows, for the seventh consecutive year, the Global Reporting Iniatitive (GRI), reaching the application level B +, self-declared with assurance from an independent third party. Learn more about the Sustainability Report 2014 TIM clicking Here.

STOCK PERFORMANCE

TIMP3 ended the second quarter of 2015 at R$10.24, down by 24.5% in the last 12 months, while the Bovespa Index (Ibovespa) was down 0.8% over the same period. The Company's ADRs closed 2Q15 at US$16.36, a decrease of 47.5% in the last 12 months (Brazilian reais depreciated by

41% in relation to the american dollar in 2Q15 vs. 2Q14).

 

OWNERSHIP BREAKDOWN

ABOUT TIM PARTICIPAçõES S.A.

TIM is one of the largest telecommunications companies in Brazil.  With a focus on investing in innovation and in the quality of its network, services and customer service, TIM fulfills its mission of connecting and caring for everyone so that everyone can do more.

As the first operator in Brazil to have a nationwide presence, TIM has innovation in its DNA and seeks to enhance its users' lives through its technology. Therefore, in addition to constantly working on expanding and improving its network, the company has amassed a complete portfolio, offering mobile and fixed telephony and access to the Internet.  With TIM, individual and corporate customers can always be connected.

 

The company's infrastructure is one of its strategic priorities. Over the past few years, TIM has upgraded its equipment and made acquisitions - such as Intelig, in 2009, and AES Atimus, in 2011 - reinforcing its commitment to quality and accessibility. From 2015 to 2017, the Company will invest R$14 billion in its operations, and most of that amount will be earmarked to expand 4G and 3G coverage throughout the country, in line with the company’s growth expectations in demand for data traffic.

 

Transparency is also one of the company's pillars. TIM is a publicly-held company, whose shares are listed on São Paulo’s BM&FBOVESPA under the ticker symbol TIMP3,  and ADRs (American Depositary Receipts), listed on the NYSE (New York Stock Exchange) under the ticker symbol TSU. TIM is also the only company in the telecommunications industry listed on BM&FBOVESPA's "Novo Mercado," recognized for requiring the maximum level of corporate governance, and is also part of the Corporate Sustainability Index (ISE), and the Carbon Efficient Index (ICO2).  One of its key initiatives is the Open Doors project, which allows consumers to monitor network enhancement and improvement actions, in addition to get to know the true picture of TIM's coverage. Also worthy of note are the TIM Institute initiatives, which seek to create and maximize strategic resources to make science education and innovation available to everyone in Brazil.  

You, your home and your business

Mobile and fixed telephony and access to the Internet via modems, tablets, and mobile phones running on the 3G and 4G technologies, in addition to the ultra broadband Internet, are the services that are part of TIM's innovative portfolio. The operator was the first on the market to invest in offering new formats, such as charging for the use of voice and mobile Internet per day or through monthly billing plans paid via credit card. And it continues revolutionizing the market, delivering more benefits and providing more accessible rates to its consumers.

The company also has ideal solutions for small, medium and large businesses. The Corporate Solutions area offers fixed voice and advanced data services to the corporate segment, understanding the corporations' profiles and needs and enhancing its customers' productivity and competitiveness while yet decreasing their costs.

In the fixed ultra-Internet segment, Live TIM is a quality benchmark, with the most satisfied customer base in the country. The carrier introduced on the market navigation plans that are about ten times faster than the average Brazilian broadband, thus allowing much faster file downloads and uploads, crash-free gaming, and high-definition, real-time video streaming. Live TIM offers 35 MB to 1 GB plans and is available to residential and business customers in São Paulo, Rio de Janeiro, Duque de Caxias, and Nova Iguaçu. The company also offers Live TIM Blue Box, an entertainment center that integrates - in a single system - free high-definition digital TV, Netflix and YouTube content, and pay TV through an exclusive collaboration with TV Alphaville.

DISCLAIMER

The financial and operating consolidated information disclosed in this document, except where otherwise indicated, is presented according to IFRS (International Financial Reporting Standards) and in Brazilian Reais (R$), pursuant to Brazilian Corporate Law. All comparisons refer to the second quarter of 2014 (2Q14), first semester of 2014 (1H14) and first quarter of 2015 (1Q15), 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 release 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.

INVESTOR RELATION CONTACTS

Telephones: (+55 21) 4109-3360 / 4109-4017 / 4109-3751 / 4109-3446

E-mail: [email protected]

Investor Relations Website: www.tim.com.br/ir

Twitter: @TIM_RI

TIM IR App:

 

 

ATTACHMENTS

 

Operational Indicators

  

 

TIM PARTICIPAÇÕES S.A. AND
TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

NOTES TO QUARTERLY INFORMATION
At June 30, 2015

(In thousands of Reais, unless otherwise indicated)

1.

Operations

TIM Participações S.A. (“TIM Participações” or “Company”) is a publicly-held corporation based in the city of Rio de Janeiro and is a subsidiary of TIM Brasil Serviços e Participações S.A. (“TIM Brasil”). TIM Brasil is a subsidiary of the Telecom Italia Group and holds 66.58% of the capital of TIM Participações as at June 30, 2015, (66.58% in 2014). The Company’s and its subsidiaries (“Group”) main purpose is to control companies providing telecommunications services, including personal mobile telecom services in their licensed areas. The services provided by TIM Participações’ subsidiaries are regulated by the Agência Nacional de Telecomunicações (“Anatel”).

The Company’s shares are traded on the BM&F/Bovespa. Additionally, TIM Participações trades its Level II American Depositary Receipts (ADRs) on the New York Stock Exchange. Accordingly, the Company is subject to the rules of the Brazilian Securities Commission (Comissão de Valores Mobiliários or “CVM”) and the U.S. Securities and Exchange Commission (“SEC”). In accordance with best market practices, TIM Participações adopts the practice of simultaneously releasing its financial information in Real in both markets, in Portuguese and English.

Direct subsidiaries

(a)

TIM Celular S.A. (“TIM Celular”)

The Company holds 100% of TIM Celular´s shares. This subsidiary provides Landline Telephone Services (“STFC”) - Domestic Long Distance and International Long Distance voice services, Personal Mobile Service (“SMP”) and Multimedia Communication Service (“SCM”) in all Brazilian states and in the Federal District.

(b)

Intelig Telecomunicações Ltda. (“Intelig”)

The Company also holds 100% of Intelig’s shares. This company provides STFC – Local voices services and SCM services in all Brazilian states and in the Federal District (DF).

Sale of towers

In November 2014, the subsidiary TIM Celular signed with American Tower do Brasil Cessão de Infraestruturas Ltda. (“ATC”) a Sales Agreement for up to 6,481 telecommunication towers of its own property for around R$3 billion and a Master Lease Agreement (“MLA”) for these towers for the term of 20 years.

In April 2015, TIM entered into an infrastructure lease agreement (MLA) for part of the space existing on the same towers sold. The lease agreement will be effective for 20 years from the date of transfer of each tower and contemplates monthly lease amounts depending on the type of tower (greenfield or rooftop).

The sales and lease agreements are part of a larger agreement and constitute a single transaction between the companies. Therefore, this is a sale and leaseback transaction. This transaction will bring benefits to the Company’s operational and financial capabilities in favor of its investments in expansion and quality.

As at April 29, 2015, the Company transferred 4,176 towers or 64% of the total covered by the agreement. The sales value for the first part of the transaction was approximately R$1.9 billion, and

 

TIM PARTICIPAÇÕES S.A. AND
TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

NOTES TO QUARTERLY INFORMATION - Continued
At June 30, 2015

(In thousands of Reais, unless otherwise indicated)

the net balance of the residual value of assets recorded was R$0.9 billion. The agreement also provides for the transfer of the remainder of the towers in future tranches, the next tranche being estimated to be transferred in the second half of 2015. For further details regarding the financial impacts on the quarterly financial statements see note 19.

2.

Licenses for the use of radio frequencies

In order to provide SMP services, the subsidiary TIM Celular obtained radio frequency authorizations for a fixed period and renewable for a further fifteen (15) years. The extension of the right of use includes the payment of an amount equal to two percent (2%) of the net revenues recorded in the regions covered by the Authorization that ends each biannual period. As at June 30, 2015, TIM Celular had accounts past due related to the renewal of Authorizations in the amount of R$120,274 (December 31, 2014 – R$124,394).

As at March 31, 2014, Anatel granted to the subsidiary TIM Celular the right to use sub-bands of radio frequency from 912.5 MHz to 915 MHz and from 957.5 MHz to 960 MHz for 18 (eighteen) months, on a secondary basis, restricted to the Provision Area corresponding to AR11 (Greater São Paulo). The extension of this authorization, for an equal period, was subjected to the request presented as at April 2, 2015 and is under evaluation by Anatel.

At December 5, 2014, the subsidiary TIM Celular signed the Instrument of Authorization regarding the 700 MHz band (extract published in the Federal Official Gazette – “D.O.U.” – on December 8, 2014). The subsidiary paid the amount equivalent to R$1,678 million, recording the remaining balance of R$61 million as a liability, as provided for in the call notice. With no bids for some lots in the Call Notice for the 700 MHZ band, TIM, along with other bidders, will have to bear part of the costs of constituting the EAD for these lots, and will be entitled to a discount on the final amount to be paid. However, the methodology used by the Agency to calculate this amount was not included in the Call Notice, and so TIM filed an administrative appeal, which was heard and denied in December 2014 (as were the appeals of the other Winning Bidders). On March 31, 2015, TIM filed a lawsuit questioning a surplus charge of R$61 million, which is pending trial.

Moreover, the Company assumed an additional commitment to cleaning the 700 MHz frequency band through a payment of R$1,199 million (see note 18.e), R$370,379 of which was paid as at April 9, 2015, to the managing entity organized to clean the band (“EAD”).

On March 4, 2015, under Decision No. 66/2015-CD, Anatel: (i) accepted the request for withdrawal of the application to extend the period of radio frequency use for lot 208 (AR 92) of Authorization Instrument No. 523/2012 (P-Band); (ii) granted the application to extend the authorization for radio frequency use for lot 222 (AR 31) of Authorization Instrument No. 523/2012 (P-Band); and (iii) granted the application for extension of the period of authorization for radio frequency use in Bands D and E .

 

TIM PARTICIPAÇÕES S.A. AND
TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

NOTES TO QUARTERLY INFORMATION - Continued
At June 30, 2015

(In thousands of Reais, unless otherwise indicated)

At June 30, 2015, the Company and its subsidiaries have the following commitments with ANATEL:

	Consolidated
	06/2015		12/2014
700 Mhz frequency band cleaning, net of adjustments to present value	849,230		1,164,666
Anatel Debt updated	69,056		61,860
Guarantee insurance on authorizations	12,731		20,013
Authorizations renewal	120,274		124,394
Authorizations payable	-		1,248
	1,051,291		1,372,181
Current portion	( 434,671 )		(493,169)
Non current portion	616,620		879,012

The Authorizations held by TIM Celular as at June 30, 2015, as well as their maturity dates, are detailed below:

*Agreements already renewed for 15 years; therefore, TIM is not entitled to a new renewal period.

** Only complementary areas in the relevant States.

*** Under renewal process, pending the execution of the Extension Instrument

3.

Basis for preparation and disclosure of the quarterly information

The significant accounting policies applied to the preparation of the quarterly information are described below. These policies were consistently applied in the periods presented, unless otherwise indicated.

a.

General preparation and disclosure criteria

The quarterly information was prepared taking into account the historical cost as the base value and financial assets and liabilities (including derivative instruments) evaluated at fair value.

The consolidated quarterly information was prepared according to CPC 21 / IAS 34 – “Interim Financial Statements”. Without disagreement as to the application of CPC 21 / IAS 34, the Company adopts accounting practices based on the Brazilian Corporate Law and Specific Rules issued by CVM and Anatel.

The individual quarterly information of the holding company was prepared according to CPC 21, submitted along with consolidated quarterly information, investments in subsidiaries are accounted by the equity method. Identical adjustments are made in individual quarterly information and consolidated quarterly information to reach the same result and shareholders’ equity attributable to the shareholders of parent company TIM Brasil. As the Brazilian accounting practices applicable to the individual financial statements, since 2014, do not differ from the IFRS applicable to the separate financial statements, as now IFRS permits the application of the equity method in subsidiaries on separate financial statements, they are also in accordance with IFRSs, issued by IASB . These individual financial statements are presented along with the consolidated quarterly information.

Assets and liabilities are reported 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 twelve months. Otherwise, they are recorded as non-current. The only exception to this procedure involves deferred income tax and social contribution balances, both assets and liabilities, which must always be recorded as non-current, in accordance with the provisions of pronouncement IAS 1 (CPC 26).

The preparation of the quarterly information requires the use of certain critical accounting estimates and the exercise of judgment by the Company’s Management in the process of applying the Group’s accounting policies. Those areas requiring a greater level of judgment and with greater complexity, as well as the areas in which assumptions and estimates are material for the consolidated and individual quarterly information, are described in Note 5.

The presentation of Statement of Value Added (Demonstração do Valor Adicionado – “DVA”), individual and consolidated, is required by the Brazilian Corporate Law and accounting practices adopted in Brazil applicable to the publicly held companies. The IFRS do not require the presentation of this statement. As a consequence, regarding IFRS, this statement is presented as supplementary information, without affecting the understanding of quarterly information as a whole.

Individual and consolidated quarterly information should be read together with financial statements for the year ended December 31, 2014.

b.

Approval of the quarterly information

This quarterly information was approved by the Board of Directors of the Company as at August 4, 2015.

4.

Summary of significant accounting practices

The following accounting practices are adopted in preparing the parent company’s quarterly information and the consolidated quarterly information.

a.

Functional currency and presentation currency

The presentation currency for the quarterly information is the Brazilian Real (R$), which is also the functional currency for all the companies consolidated in this quarterly information.

Transactions in foreign currency are recognized at the exchange rate on the date of the transaction. Except for assets and liabilities recorded at fair value, monetary items denominated in foreign currency are converted into Real at the exchange rate on the date of the balance sheet as informed by the Central Bank of Brazil. Exchange gains and losses linked to these items are recorded in the statement of income.

b.

Consolidation procedures

Subsidiaries are entities (including structured entities) in which the Group holds control. The Group controls an entity when it is liable or has rights to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Consolidation is discontinued from the date the Group loses control over that entity.

The following companies are consolidated in the quarterly information:

We use acquisition method to record the acquisition of subsidiaries by the Group. The acquisition cost is measured as the fair value of assets offered, equity instruments (e.g. shares) issued and liabilities incurred or assumed by the acquirer at the date when control is exchanged. Identifiable assets acquired, contingencies and liabilities assumed in a business combination are initially measured at their fair value at the acquisition date, irrespective of the proportion of any minority interest. The excess of the acquisition cost over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognized directly in the statement of income as revenue.

 

Transactions between Group companies, as well as balances and unrealized gains and losses in these transactions, are eliminated. Accounting policies of subsidiaries have been adjusted to ensure consistency with the accounting policies adopted by TIM Participações. The date of the financial statements used in the consolidation is the same for all Group companies.

c.

Segment information

Operating segments are the entity’s components that develop business activities from which revenues can be obtained and expenses incurred. Their operating results are regularly reviewed by the entity’s chief operating decision maker, in order to make decisions on the allocation of resources and to assess the performance of each segment. For a segment to exist, it must have separate financial information available.

The Company’s chief operating decision maker, responsible for allocating resources and for periodic performance evaluation, is the Executive Board. The Executive Board and the Board of Directors are jointly responsible for making strategic decisions and for managing the Group.

The Group’s strategy is to maximize the consolidated results of TIM Participações. This strategy includes optimizing the operations of each group company, in addition to taking advantage of the synergies generated among them. Notwithstanding the various business activities, the decision makers see the Group as a single business segment and do not take into account specific strategies intended for a particular service line. All decisions on strategic, financial, purchasing, investment and allocation of resources planning are made on a consolidated basis . The aim is to maximize the consolidated result obtained by exploring the SMP, STFC and SCM licenses.

d.

Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits and other short-term highly liquid investments, with an insignificant risk of change in value. Withdrawals can be done at any time without risk of losing the income earned and these amounts are used to pay short term obligations of the Company.

e.

Financial assets and liabilities

e .1

Financial assets

e .1.1

Classification

The Group classifies its financial assets in the following categories: (1) valued at fair value through profit or loss and (2) borrowings and receivables, on all dates shown in this quarterly information. Management determines the classification of its financial assets at initial recognition.

(a)

Financial assets valued at fair value through profit or loss

A financial asset is classified in this category if it was acquired primarily for sale in the short term. For this reason these assets are usually classified under current assets. However, when these assets are given in guarantee or other restrictions exist on their short-term use, they may be classified as non-current assets.

The derivatives held by the Company have also been classified in this category, given their nature. The Company does not have speculative derivatives and does not apply hedge accounting.

(b)

Borrowings and receivables

These are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market. In the quarterly information they are classified as trade “trade accounts receivable”, “cash and cash equivalents”, “leasing” and “other assets”.

e.1.2

Recognition and measurement

The regular purchases and sales of financial assets are recognized on the trade date - the date on which the Company undertakes to buy or sell the asset. Investments are initially recognized at fair value. The transaction costs incurred in acquiring investments valued at fair value through profit or loss are charged to the income statement as expenses on the transaction date. After initial recognition, changes in the fair value are booked in income for the year as finance income and expenses. Such assets are written off when the rights to receive cash flows from the asset have expired or when the Company has transferred substantially all risks and benefits of ownership them. Loans and receivables are recorded at amortized cost, using the effective interest rate method.

The fair values of investments with publicly quoted prices are based on their purchase price at each disclosure date. If the market for a financial asset is not active, the Company establishes fair value by using valuation techniques. These techniques include the analysis of recent transactions with third parties, reference to other instruments that are substantially similar, analysis of discounted cash flow models and option pricing models which make maximum use of information generated by the market and minimum use of possible information generated by Management.

e.1.3

Offsetting financial instruments

Financial assets and liabilities are reported at their net amount when there is a legal right and an intention to offset them on a net basis, or to realize the asset and liquidate the liability simultaneously.

e.1.4

Impairment of financial assets

At the end of each reporting period the Company evaluates whether there is objective evidence of the impairment of financial assets. An asset or group of financial assets is impaired and losses are recognized only if there is objective evidence of impairment. Such evidence would be the result of one or more events occurring after the initial recognition of the assets, and that loss event (or events) would have an impact on the estimated future cash flows of the financial asset (or group of financial assets) which can be reliably estimated.

The criteria which the Company uses to determine whether there is objective evidence of impairment include verification as to real situations involving:

·

material financial difficulties of the issuer or borrower;

·

a breach of contract, such as default or late payment of interest or principal;

·

the Company, for economic or legal reasons relating to the financial difficulty of the borrower, provides a concession to the latter that a lender would not normally consider;

·

it is likely that the borrower will declare bankruptcy or other financial reorganization that generates losses for lenders;

·

the disappearance of an active market for that financial asset because of financial difficulties; or

·

observable data indicating that there has been a measurable reduction in the estimated future cash flows of a portfolio of financial assets, although the decrease cannot yet be identified through individual analysis financial assets in the portfolio. These data include:

(i)

adverse changes in the payment status of borrowers in the portfolio; and

(ii)

national or local economic conditions that correlate with defaults on assets in the portfolio.

The amount of the impairment loss is measured as the difference between the book value of the assets and the present value of the estimated future cash flows discounted by the original interest rate to the financial assets in force. Where impairment losses are identified, they are recognized directly in the profit or loss for the year. If, in a subsequent period, the value of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment being recognized, the reversal of the impairment loss is also recognized in the statement of income for the year.

e.2

Financial liabilities

The main financial liabilities recognized by the Company and its subsidiaries are: supplier accounts payable, unrealized losses on derivative transactions, borrowings and financing and leasing. They are classified into the categories below according to their nature:

Financial liabilities valued at fair value through profit or loss: At each balance sheet date, these liabilities are measured at fair value. Interest, monetary restatement, exchange rate variations and variations arising from measurement at fair value, if any, are recognized in profit or loss as incurred, as finance income or expenses. On the disclosure date of this quarterly information, this category is composed basically of derivative financial instruments.

Financial liabilities measured at amortized cost: are basically non-derivative financial liabilities that are not usually traded before maturity. At the initial recognition, such liabilities are recorded at their fair value. After initial recognition, they are measured using the effective interest rate method. Under this method, transaction costs impact the liability initial amount, affecting the determination of the effective interest rate . This rate is the one that discounts exactly all the cash flows from the financial instrument. The allocation of finance costs, according to the effective interest rate method, is recognized in the income statement under finance costs. On disclosure date of this quarterly information, this category includes mainly borrowings and financing and suppliers accounts payable.

f.

Trade accounts receivable

Trade accounts receivable from users of telecommunications services, from network use (interconnection) and from sales of handsets and accessories are recorded at the price charged at the time of the transaction. The balances of accounts receivable also include services provided and not billed until the balance sheet date. Accounts receivable from clients are initially recognized at fair value and are subsequently measured at amortized cost using the effective interest rate method less the allowance for doubtful accounts (“impairment”) .

The allowance for doubtful accounts is disclosed as a reduction at accounts receivable and is recorded based on the profile of the subscriber portfolio, the overdue aging of accounts receivable, the economic situation, the risks involved in each case and the collection curve at an amount that covers any losses from the realization of such credits.

g.

Inventories

Inventories are stated at average acquisition cost. A provision is recognized to adjust the cost of handsets and accessories to net realizable value (selling price) when this amount is less than the average acquisition cost.

h.

Indirect and direct taxes and contributions recoverable

These are stated at historical cost and, if applicable, adjusted according to the legislation in force.

i.

Prepaid expenses

These are initially stated at actual amounts disbursed and are allocated to income according to the accrual method as they are incurred.

j.

Judicial deposits

These are stated at historical cost and adjusted according to the legislation in force.

k.

Investments

Equity interests in subsidiaries are valued using the equity method only in the individual quarterly information.

l.

Property, plant and equipment

Property, plant and equipment are stated at acquisition and/or construction cost, less accumulated depreciation and the provision for impairment (the latter, only if applicable). Depreciation is calculated on the straight-line method over terms that take into account the expected useful lives of the assets and their residual values (Note 17). The Company recognizes its assets by individual component.

The estimated costs of dismantling towers and equipment on rented properties are capitalized and depreciated over the useful life 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 as finance costs. The accounting for this obligation is made according to ICPC 12 (IFRIC 1), approved by CVM Deliberation.

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

On January 1^st, 2009, Intelig on its first adoption of IFRS / CPCs, used deemed cost to measure its property, plant and equipment assets, according to ICPC 10, approved by CVM Deliberation. After initial measurement, its property, plant and equipment is stated at acquisition and / or construction historical cost. Both (deemed cost and historical cost) are decreased by the accumulated depreciation and from the impairment losses (this one, if applicable).

As the Group does not build assets requiring long periods of time for their completion, the Company does not capitalize interest on borrowings and financing.

m.

Intangible assets

Intangible assets are measured at historical cost less accumulated amortization and impairment losses (if applicable), and comprise: (i) licenses and rights to use radio frequency bands and (ii) software in use and/or development. Intangibles also include (i) right to use the infrastructure of other companies, (ii) customer lists, and (iii) goodwill on business combinations.

Amortization charges are calculated on 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 (note 18).

Any financial charges on funds generically raised (that is, without a specific destination) and used for obtaining qualified assets, which are assets that necessarily require a significant time to be ready for use, are capitalized as part of the cost of the asset when it is likely to bring future economic benefits for the entity and such costs can be accurately measured. These costs are amortized throughout the estimated useful life of assets.

Goodwill

Goodwill is the positive difference between the amount paid and/or payable for an entity acquired and its net assets fair value on acquisition date. These net assets are the difference between the net fair value of assets and liabilities of the acquired entity. If the purchaser identifies a negative difference between the amount paid and/or payable for the entity acquired and its net assets (“bargain purchase”), this amount should be recorded as a gain in the statement of income for the period on acquisition date.

The goodwill is not amortized but must be tested annually to identify probable impairment in its value. The carrying amount of the goodwill is its cost amount less these losses (if any).

For the purposes of impairment test, the goodwill is allocated to Cash Generating Units (“CGUs”). The allocation is made to the CGUs or groups of CGUs that benefit from the business combination from which the goodwill arose.

Gains and losses arising from the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Software

The costs associated with maintaining software are recognized as expenses as incurred. Identifiable and unique development costs that are directly attributable to the design and testing of software products, controlled by the Group, are recognized as intangible assets when the following criteria are met:

·

it is technically feasible to complete the software to make it available for use;

·

Management plans to complete the software and use it or sell it;

·

the software will generate probable future economic benefits that can be demonstrated;

·

technical, financial and other resources are available to conclude development and use or sell the software; and

·

the expenditure attributable to the software during its development can be measured reliably.

Directly attributable costs, which are capitalized as part of the software product, include costs with employees directly allocated to its development.

Other development expenditures that do not meet these criteria are recognized as expense as incurred.

n.

Impairment of non-financial assets

Goodwill is tested for impairment annually. For other assets, impairment analysis is made whenever events or changes in circumstances indicate that the carrying value of the asset may exceed its recoverable value. The latter is the higher between the fair value of an asset less costs to sell and the value in use. For purposes of impairment test, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating Units – “CGUs”). The discount of expected cash flows is made by taking into account the time value of money and the specific risks related to the asset being analyzed.

The impairment provisions (or part of them) on these assets, except goodwill, may be reversed in case the reasons (or part of them) that gave rise to the provisions no longer exist on the quarterly information reporting date.

o.

Provisions

Provisions are recognized in the balance sheet when the Company has a legal obligation or an obligation resulting from a past event, and it is probable that an outflow of funds will be required to settle it, and due date and/or estimated amount of which are undetermined, but capable of being estimated on a reliable basis.

p.

Suppliers accounts payable

Suppliers accounts payable are obligations to pay for goods or services that were purchased in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Given the short maturity term of these obligations, in practical terms, they are usually recognized at invoice value.

q.

Employee benefits

Profit sharing

The Company and its subsidiaries record a provision on a monthly basis for the estimated amount of employee profit sharing, with a counter-entry to income. The provision calculation takes into account the targets disclosed to its employees and approved by the Board of Directors. Such amounts are recorded as personnel expenses and allocated to the statement of income in accordance with the employee’s cost center.

Pension plans and other post-employment benefits

The Company and its subsidiaries have in place defined contribution and defined benefit plans. In general, defined benefit plans establish a specific retirement benefit amount that an employee will receive upon retirement, usually dependent on one or more factors such as age, length of service and remuneration.

The liability recognized in the balance sheet with respect to defined benefit pension plans is the present value of the defined benefit liability at the balance sheet date, less the fair value of plan assets, with adjustments for unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries, using the projected unit credit method. The present value of defined benefit obligations is determined by discounting estimated future cash outflows, using interest rates consistent with market yields, which are denominated in the currency in which benefits will be paid and which have maturities close to those of the respective pension plan liability.

 

Past service costs are recognized immediately as expenses. Actuarial gains and losses arising from adjustments based on past experience and changes in the actuarial assumptions are recorded in the shareholders’ equity, as other comprehensive income, as incurred.

Regarding defined contribution plans, the Company makes contributions to public and private pension insurance plans obligatorily, contractually or voluntarily. The defined contribution plans carry no additional obligation for the Company over and above the monthly contributions mentioned, for as long as the employee is a member of the staff of the Company or its subsidiaries. If the employee leaves the Company and its subsidiaries within the vesting period, the amounts to which the employee is no longer entitled, and which may represent a reduction in the future contributions by the Company and its subsidiaries to active employees or a reimbursement in cash of these values to the Company, are recorded as assets.

Stock options

The Company operates share-based compensation plans, which are settled with shares, for which the entity receives the services of certain employees in consideration for equity instruments (options) granted. The Company calculates and records the effects of the stock options in accordance with CPC 10 (R1) (IFRS 2), approved by CVM Deliberation. The fair value of employee services is recognized as an expense with a counter-entry to capital reserve, and is determined by reference to the fair value of the options granted.

Social contributions payable in connection with the granting of share options are deemed an integral part of the grant itself and the payment is treated as a transaction settled in cash.

r.

Income tax and social contribution

Includes current and deferred income tax and social contribution which are taken to income. Amount related to income tax and social contribution was recognized on statement of comprehensive income. Income and social contribution tax credit and debit balances are stated at their net amount only when there is both a right and the intention to offset them upon settlement .

Current balances

The current income tax and social contribution charges are calculated based on the tax laws enacted or substantially enacted up to the balance sheet date. Management periodically reviews the positions taken by the Company in its income tax returns with respect to tax regulations subject to interpretation.

Brazilian tax legislation allows companies to opt for quarterly or monthly payments of income tax and social contribution. The Company and its subsidiaries opted to pay income tax and social contribution quarterly.

Deferred balances

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

Deferred income and social contribution tax credits are recognized only in the event of a profitable track record and/or when the annual forecast prepared by the Company, examined by the Fiscal Council and approved by Management, indicates the likelihood of future offset of those tax credits.

Deferred income and social contribution tax credits and debits are shown in the balance sheet at the net amount, when there is both a legal right and the intention to offset them exist at the time when current taxes are ascertained, usually in relation to the same legal entity and the same tax authority. Thus deferred tax credits and debits in different entities are in general shown separately, not at their net amount.

s.

Provision for legal and administrative proceedings

This is set up at an amount deemed sufficient to cover losses and risks considered probable, based on analysis by the Company’s internal and external legal consultants and by Management. Situations where losses are considered possible are subject to disclosure considering their historical values and those where losses are considered remote are not disclosed.

t.

Leases

Leases where a significant portion of the risks and benefits is retained by the lessor are classified as operating leases and their effects are recognized in the statement of income as financial expense for the year over the lease period.

Leases in which the Company, as lessee, substantially holds the risks and benefits of ownership are classified as financial leases, which are capitalized at the beginning of the lease at the lower of the fair value of the leased item and the present value of the payments provided for in the agreement. Interest related to the lease are taken to income over the contractual term.

The subsidiary TIM Celular entered into tower lease agreements, as a lessee, arising from a sale and financial leaseback operation involving the sale of an asset and the concomitant lease of this asset by the purchaser to the seller.

The subsidiary TIM Celular recognized a liability corresponding to the present value of the compulsory minimum installments of the agreement.

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

u.

Shareholders’ equity

The principal items which affect the Company’s shareholders’ equity are subject to the following accounting practices:

Paid-in capital

It is stated at the amount effectively raised from shareholders, net of the costs directly linked to the issuance process.

When a company within the Group purchases the Company’s shares, aiming to hold them as treasury shares, the amount paid, including any directly attributable additional costs, is deducted from the Company’s shareholders’ equity until the shares are cancelled or reissued. When these shares are reissued subsequently, any amount received, net of additional costs directly attributable to the transaction, is included in shareholders’ equity.

Reserves

These are constituted and utilized according to the Corporate Law and the Company’s By-laws.

Distribution of dividends

The distribution of minimum compulsory dividends, calculated pursuant to the By-laws, is recognized as a liability at the end of each fiscal year. Any other amount to be distributed as interim dividends or payment of dividends exceeding the minimum compulsory amount is provided for only on the date when the additional distribution is approved by the shareholders in a General Meeting .

v.

Revenue recognition

As a rule, revenues are only recognized to the extent that it is probable that the economic benefits from the transactions will flow to the Company and that their values can be measured reliably.

Revenues from services rendered

The principal service revenues 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 revenues are recognized as the services are used, net of sales taxes and discounts granted on services. These revenues are recognized only when the amount of services rendered can be estimated reliably.

The revenues are recognized monthly via invoicing, and billable revenues between the billing date and the end of the month (unbilled) are identified, processed and recognized in the month in which the service was rendered. Calculations of unbilled revenues from the previous month are reversed out and unbilled provisions are calculated at each month end.

Interconnection traffic and roaming revenues 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 in the prepaid service system are recorded as deferred revenues and allocated to income when these services are actually used by customers.

 

Revenues from product sales

Revenues from product sales (telephones, mini-modems, tablets and other equipment) are recognized when the significant risks and benefits of the ownership of such products are transferred to the buyer.

w.

New standards, changes and interpretations of standards not yet in force

The following new standards were issued by the IASB, but they are not in force for the year 2015. The early adoption of these standards, although encouraged by IASB, was not allowed in Brazil by CVM, based on CPC pronouncements.

IFRS 9	“Financial Instruments” deals with the classification, measurement and recognition of financial assets and liabilities. IFRS 9 was issued in November 2009 and October 2010 and replaces the parts of IAS 39 relating to the classification and measurement of financial instruments. IFRS 9 requires the classification of financial assets in two categories: (i) measured at fair value and (ii) measured at amortized cost. The determination is made at the initial recognition. The classification basis depends on the entity’s business model and on the contractual characteristics of the financial instruments’ cash flow. Regarding financial liabilities, the standard maintains the majority of the requirements set forth in IAS 39. The main change is that, in cases where the fair value option is adopted for financial liabilities, the portion of the change in fair value which is due to the entity’s own credit risk is recorded in other comprehensive income, not in the income statement, except when this would result in an accounting mismatch. The Group is assessing the overall impact of IFRS 9, which comes into force on January 1st, 2018 .
IFRS 15	This new standard determines the concepts that an entity has to apply in revenue measurement and when it must be recognized. It was initially issued to come into effect on January 1st, 2017 and replace IAS 11 – “Construction Contracts”, IAS 18 – “Revenues” and related interpretations. The Management is assessing the impacts of its adoption and has not yet defined the transition method to be used. At July 22, 2015, IASB confirmed the postponement of the date of effectiveness of the new standard to January 1st, 2018. The official amendment to the standard specifying the new date of effectiveness should be issued in September 2015.

There are no other IFRS standards or IFRIC interpretations not yet in force that could have a significant impact to the Group.

5

Critical judgment in the application of accounting policies

Accounting estimates and judgments are continuously reassessed. They are based on our historical experience and other factors such as expectations of future events considering the circumstances presented as at the base date of the quarterly information.

By definition, the accounting estimates resulting from such assumptions rarely equal the actual outcome. The estimates and assumptions that present significant risk to cause relevant adjustments in the book values of assets and liabilities for the next fiscal year, are shown below:

 

 

TIM PARTICIPAÇÕES S.A. AND
TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

NOTES TO QUARTERLY INFORMATION - Continued
At June 30, 2015

(In thousands of Reais, unless otherwise indicated)

(a)

Loss on impairment of non-financial assets

Losses from impairment take place when the book value of assets or cash generation units exceeds their recoverable value, which is considered as the fair value less costs to sell, or the value in use, whichever is greater. The calculation of the fair value less costs to sell is based on the information available from sale transactions involving similar assets or market prices, less the additional costs incurred to dispose of those assets. The value in use is based on the discounted cash flow model. Cash flows derive from the Company’s business plan for a period equivalent to the useful life of the asset being analyzed. Any reorganization activities to which the Company has not committed itself on the date on which the quarterly information is reported or any material future investments aimed at improving the asset base of the cash generation unit being tested is excluded for the purposes of the impairment test.

The recoverable value is sensitive to the discount rates used in the discounted cash flow method, as well as to the expected future cash receivables and the growth rate of revenue and expenses used for extrapolation purposes. Adverse economic conditions may lead to significant changes in these assumptions.

At December 31, 2014 and 2013, the main non-financial assets for which this assessment was made are property, plant and equipment, intangible assets, and the goodwill in the Company and its subsidiaries (see Notes 17 and 18).

As at the semester ended June 30, 2015, there were no changes in estimates and premises presenting a significant risk, with the probability of causing a relevant adjustment in the accounting values of property, plant and equipment and intangible assets during this period.

(b)

 Asset retirement obligation (see Note 27)

 

The estimated costs of dismantling towers and equipment on rented property are capitalized and depreciated over the useful life of the assets. The Company recognizes through estimates the present value of these costs and their depreciation period. These estimates involve projected dismantling costs, the average duration of the lease agreements and the discount rate to determine their present value. This estimate is sensible to a variety of economic conditions that may not be confirmed when the assets are actually dismantled.

(c)

Income tax and social contribution (current and deferred)

Income tax and social contribution (current and deferred) are calculated in accordance with prudent interpretations of the legislation currently in force. This process normally includes complex estimates in order to define the taxable income and deductible or taxable temporary differences. In particular, deferred tax assets on income tax and social contribution losses and temporary differences are recognized to the extent that it is probable that future taxable income will be available and can be offset. The recoverability of the deferred income tax on tax losses and temporary differences takes into account estimates of future taxable income and is based on conservative tax assumptions (see Note 12).

 

TIM PARTICIPAÇÕES S.A. AND
TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

NOTES TO QUARTERLY INFORMATION - Continued
At June 30, 2015

(In thousands of Reais, unless otherwise indicated)

(d)

Allowance for doubtful accounts

The allowance for doubtful accounts is shown as a reduction from trade accounts receivable and is recorded based on the customer portfolio profile, the aging of past due accounts, the economic scenario, collection curve and the risks involved in each case, in an amount considered sufficient to reflect cover any possible losses on receivables (see Note 8).

(e)

Provision for legal and administrative proceedings

Legal and administrative proceedings are analyzed by the Company’s management and internal and external legal advisors. The Company’s reviews take into account factors such as the hierarchy of laws, case law available, recent court decisions and their relevance in the legal order. Such reviews involve management’s judgment (see Note 26).

(f)

Fair value of derivatives and other financial instruments (see Note 42)

Financial instruments presented at fair value in the balance sheet are measured using evaluation techniques that considers observable data or observable data derived from the market.

(g)

Unbilled revenues

Considering that some billing cut-off dates occur at intermediate dates within the months, at the end of each month there are revenues already incurred by the Company but not effectively billed to the customers. These unbilled revenues are recorded based on estimates which take into account historical data of usage, number of days since the last billing date, among other factors.

6

Cash and cash equivalents