Business Context and Reporting Period
Company: Companhia de Saneamento Básico do Estado de São Paulo - SABESP
Filing Type: Form 6-K (Report of Foreign Issuer)
Date of Filing: March 9, 2010
Subject: Republication of 2008 Financial Statements and related quarterly reports (ITR) due to a change in accounting treatment regarding a dispute with the São Paulo State Government over retirement and pension supplementary benefits.
Key Financial Metrics and Adjustments
The filing details significant adjustments to the originally published 2008 Net Income under Brazilian GAAP (BR GAAP). US GAAP financial statements were not affected as these provisions were already recorded.
| Item | Amount (R$ Million) |
|---|---|
| Net Income Originally Published (2008) | 1,008 |
| Less: Provision for losses on disputed receivable | (409) |
| Less: Actuarial provision for future benefit payments | (535) |
| Net Income Adjusted (Republished) | 64 |
Receivables Context:
- Undisputed Amount: R$915 million (State government assumes responsibility; payment via reservoirs and installments).
- Disputed Amount: R$409 million (Historical amount paid by SABESP up to Dec 31, 2008, now provisioned for loss).
Material Changes Versus Prior Period
The primary material change is the restatement of 2008 results, reducing reported Net Income by approximately 94% (from R$1,008 million to R$64 million). This change was triggered by the State Office of the Attorney General (PGE) denying SABESP's right to reimbursement for most of the "Disputed Amount" in 2010. Previously, management believed a provision was unnecessary, resulting in a qualified audit opinion for 2008. The new provision converts this to an unqualified opinion.
Guidance, Outlook, and Risks
Management Commentary:
- SABESP maintains that it will not waive credits it deems legitimate and will pursue technical and court-level settlements.
- The provision is recorded as a loss allowance, not a definitive write-off, reflecting continued efforts to recover the credit.
- Dividends declared or to be declared related to 2009 profits are unaffected by this republication.
- Operating cash flow, investment plans, and the company's capacity to generate results remain supported and unchanged.
Risks and Contingencies:
- Legal/Regulatory Risk: Ongoing dispute with the São Paulo State Government regarding the calculation and eligibility criteria for pension benefits.
- Accounting Risk: Future results may be impacted if the disputed amount is not recovered, though the actuarial provision for future payments is now fully recognized.
Investor Verification Checklist
- Verify the status of the legal proceedings regarding the R$409 million disputed receivable.
- Confirm the impact of the R$535 million actuarial provision on future liability obligations.
- Review the updated 2008 and 2009 quarterly reports (ITR) for consistency with the republished figures.
- Assess the company's liquidity position given the reduction in reported equity from the 2008 restatement.
- Monitor communications regarding the "Undisputed Amount" payment schedule (reservoirs and installments).