| RECONCILIATION BETWEEN U.S. GAAP AND IFRS | 34. RECONCILIATION BETWEEN U.S. GAAP AND IFRS The Company prepares its local financial statements in accordance with IFRS, and the pronouncements, guidelines and interpretations issued by the International Accounting Standards Board (IASB). As the company is presenting its financial statements under IFRS for SEC reporting purposes after several years of presenting them under US GAAP, it is providing a reconciliation of its 2018 and 2017 US GAAP financial statements to IFRS. ACCOUNTING DIFFERENCES BETWEEN U.S. GAAP AND IFRS The financial statements of the Company were prepared in accordance with accounting policies generally accepted in the United States of America (“U.S. GAAP”). Differences between these accounting policies and practices adopted in International Financial Reporting Standard—IFRS, where applicable to Oi, are summarized below: (a) Impairment of long-lived assets In accordance with FASB ASC 360, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In accordance with IAS 36 Impairment of assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to the fair value of the asset or group of assets. Therefore, regarding impairment of long-lived assets there is an accounting difference between U.S. GAAP and IFRS namely the recognition of impairment under IFRS. On December 31, 2018, under U.S. GAAP, no impairment losses were recognized and under IFRS an accumulated provision for impairment losses, amounting to R$1,226,125, were recorded in the balance sheet as a result of the difference on the impairment methodology between the two standards. The net effect on net income, as of December 31, 2018, was R$141,418, which includes the accounting differences related to the provision for impairment recorded under IFRS in amounting to R$291,807 compared no impairment losses recorded under USGAAP, and the effects of depreciation and amortization related to the acumulated effects of no recorded impairment losses under USGAAP, in amounting to R$150,389. (b) Business combinations prior to January 1, 2009 Under U.S. GAAP, for the acquisitions of interests in Pegasus, Way-TV, Since IFRS 3 Business Combinations Therefore, regarding the business combinations prior to January 1, 2009 there is an accounting difference between U.S. GAAP and IFRS namely the computation of goodwill, recognition of intangible assets and amortization of goodwill. (c) Pension plans and other post-retirement benefits The Company applies FASB ASC 715—Retirement Benefits, which requires an employer to recognize the overfunded status or funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The overfunded status of the pension plans is presented as a prepaid asset. Unrecognized net gain or losses are recognized following the “10% corridor approach”. Deferred actuarial gains and losses outside the 10% corridor are amortized over the average remaining service period of active employees or, when all or almost all participants are inactive, over the average remaining life expectancy of those participants. Under IFRS, if a plan has an overfunded status, which is not expected to generate future benefits, the company does not recognize the funded status, unless in case of express authorization for offsetting with future employer contribution. Remeasurement of gains and losses, including actuarial gains and losses, must be recognized immediately in OCI and are not subsequently recognized (or recycled) into net income. Therefore, regarding pension plans and other post-retirement benefits there is an accounting difference between U.S. GAAP and IFRS namely: (i) the recognized overfunded status under U.S. GAAP, and (ii) the result from the use of the “10% corridor approach” which is not applicable under IFRS. (d) Capitalization of interest, net of amortization Under U.S. GAAP, capitalized interest is added to the individual assets and is amortized over their estimated useful lives. The Company capitalizes only interest expenses to the extent that borrowings do not exceed the balances of construction in-progress, Under IFRS, financial charges on obligations financing assets and construction works in progress are capitalized, including interest expenses and certain foreign exchange differences. Therefore, regarding capitalization of interest, net of amortization, there is an accounting difference between U.S. GAAP and IFRS namely the impact of capitalization of foreign exchange under IFRS. (e) Provision for onerous contracts Under U.S. GAAP, future losses on firmly committed executory contracts (onerous contracts) typically are not recognized. Losses are recognized only when incurred. Under IFRSs, an entity is required to recognize and measure the present obligation under an onerous contract as a provision. An onerous contract is one “in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it”. The Company is party to a telecommunications signals transmission capacity supply agreement using submarine cables that connect North America and South America. Since the agreement’s obligations exceed the economic benefits that are expected to be received throughout the agreement and the costs are unavoidable, the Company recognized in 2018, pursuant to IAS 37, an onerous obligation measured at the lowest of net output cost of the agreement brought to present value, in the amount of R$ 4,493,894. Therefore, regarding provision for onerous contracts there is an accounting difference between U.S. GAAP and IFRS namely the recognition of a provision that does not exist under U.S. GAAP. (f) Settlement of Judicial Reorganization U.S. GAAP Under U.S. GAAP, the company has applied the FASB Accounting Standards Codification (“ASC”) 852 Reorganizations in preparing its consolidated financial statements. Under ASC 852, the company adopted the following accounting procedures: • Prepetition obligations impacted by the judicial reorganization proceedings had been classified on the balance sheet as liabilities subject to compromise in 2017. These liabilities were reported as the amounts expected to be allowed by the Judicial Reorganization Court, even if they were settled for lesser amounts; • Interest accruing on unsecured debt subsequent to the date of petition is not an allowed claim and therefore has not been accrued; • Foreign currency denominated liabilities in Reais using the applicable foreign currency translation rate as of the petition date. As a result there is no foreign currency translation adjustments recorded after the petition date related to prepetition liabilities under U.S. GAAP; and Liabilities subject to compromise and other impacts from ASC 852 reorganizations As a result of the filing of the Bankruptcy Petitions, the company has applied the FASB Accounting Standards Codification (“ASC”) 852 Reorganizations The amounts initially recorded as liabilities subject to compromise were subsequently adjusted and reclassified to reflect the new legal terms and conditions established by the JRP Court and as of December 31, 2018 there are no outstanding liabilities subject to compromise. On December 31, 2018, the Company did not emerge from bankruptcy, due to certain material unsatisfied conditions, which relates to additional capital increase that occurred on January 25, 2019. As a result of the judicial reorganization proceedings in Brazil and other international jurisdictions (which are considered to be similar in all substantive respects to Chapter 11) prepetition liabilities, as shown below were classified as subject to compromise based on the assessment of these obligations following the guidance of ASC 852 Reorganizations December 31, 2018 December 31, 2017 Borrowings and financing — 49,129,547 Derivative financial instrument — 104,694 Trade payables — 2,139,312 Provision for civil contingencies—Anatel — 9,333,795 Provision for pension plan — 560,046 Other — 43,333 Provision for labor contingencies — 899,226 Provision for civil—other claims — 2,929,275 Liabilities subject to compromise (*) — 65,139,228 Reorganization items, net Transactions and events directly associated with the reorganization were required, under the guidance of ASC 852 Reorganizations, to separate disclosed and distinguished from those of the ongoing operations of the business. Under U.S. GAAP purposes the Company used the classification “Reorganization items, net” on the consolidated statements of operations to reflect expenses, gains and losses that were the direct result of the reorganization of its business. December 31, 2018 December 31, 2017 Gain on restructuring of Qualified Bonds 12,881,478 Adjustment to fair value—Borrowings and financing 13,928,661 Adjustment to present value—Anatel (AGU) and other payables 5,577,234 Anatel provision for contingencies (1,568,798 ) Other provision for contingencies (a) (347,437 ) (1,146,458 ) Income from short-term investments 174,281 713,276 Professional fees (b) (633,676 ) (369,938 ) Total reorganization items, net 31,580,541 (2,371,918 ) Recognition of the effects of the ratification of the Judicial Reorganization Plan under U.S. GAAP Under U.S. GAAP, as a result of the approval of JRP at the GCM meeting held on December 19 and 20, 2017 and its subsequent ratification by the Judicial Reorganization Court on January 8, 2018, and published on the Official Gazette on February 5, 2018, the Company’s management, based on the terms and conditions of the JRP, recorded the effects caused by the restructuring/novation of the prepetition liabilities subject to the Judicial Reorganization in the consolidated financial statements for year ended December 31, 2018. The movements in the restructured prepetition liabilities and the accounting adjustments made for initial recognition of the terms and conditions set forth by the approved and ratified JRP, including the effects on the fair value of these liabilities pursuant to the criteria of ASC 820, and applicable GAAP, are as follow: December 31, U.S. GAAP Reclassifications Mediations Haircut (i) Equity (ii) Fair value / Financial December 31, U.S. GAAP Liabilities subject to compromise Bondholders 32,314,638 (32,314,638 ) — — — — — — BNDES 3,326,952 (3,326,952 ) — — — — — — Other Borrowings and financing 13,487,957 (13,487,957 ) — — — — — — Derivative financial instrument 104,694 (104,694 ) — — — — — — Trade payables 2,139,312 (2,139,312 ) — — — — — — Provision for civil contingencies—Anatel 9,333,795 (9,333,795 ) — — — — — — Provision for pension plan 560,046 (560,046 ) — — — — — — Other 43,333 (43,333 ) — — — — — — Provision for labor contingencies 899,226 (1,036,172 ) 136,946 — — — — — Provision for civil—other claims 2,929,275 (2,218,538 ) (710,737 ) — — — — — Total—Liabilities subject to compromise 65,139,228 (64,565,437 ) (573,791 ) — — — — — Bondholders — 32,314,638 (161,600 ) (11,054,800 ) (11,613,980 ) (4,807,262 ) 2,035,699 6,712,695 BNDES – Borrowings and financing — 3,326,952 — — — — 289,122 3,616,074 Other Borrowings and financing — 13,592,651 50,375 — — (9,121,399 ) 1,599,510 6,121,137 Anatel (AGU) and other trade payables — 10,588,661 445,077 (1,826,678 ) — (5,577,234 ) 164,784 3,794,610 Provision for labor, civil and Anatel contingencies — 4,182,489 56,975 — — — 149,173 4,388,637 Provision for pension plan — 560,046 — — — — 14,679 574,725 Total—Liabilities not subject to compromise — 64,565,437 390,827 (12,881,478 ) (11,613,980 ) (19,505,895 ) 4,252,967 25,207,878 (i) Represent gains on restructuring of borrowings and financings, trade payables owing to ANATEL-AGU (ii) Represent the fair value of shares issued in partial settlement of the Senior Notes. (iii) The financial liabilities have been adjusted to fair value according to the criteria of ASC 852 as of the time at which it has reclassified each of the financial liabilities that were legally affected by the JRP from liabilities subject to compromise to borrowings and financings or trade payables. It was calculated taking into consideration the contractual flows provided for in the JRP, discounted using rates that range from 12.6% per year to 16.4% per year, depending on the maturities and currency of each instrument. (iv) Represent the contractual interest and foreign currency fluctuation calculated after completed the financial debt restructuring and other claims restructuring in the terms and conditions provided in the JRP. IFRS Under IFRS, there is no specific guidance for accounting Bankruptcy Petitions as there is under U.S. GAAP. Financial liabilities were recorded as before the Bankruptcy Petition, including the accrual of interest based on the contracts, the recognition of foreign currency translation and the recognition of provisions based on expected payment cash outflow (IAS 37 for liability provisions). Liabilities subject to compromise were classified on the balance sheet as Current Liabilities. Any differences between the settlement of the liability and its carrying amount were reorganized upon settlement of the JRP and recorded in the Consolidated Income Statement at such time. Because all liabilities subject to compromise were settled in 2018 under the conditions of the JRP, no GAAP differences compared to IFRS exist for the balances of liabilities after the settlement date. Therefore, regarding settlement of judicial reorganization the only accounting difference between U.S. GAAP and IFRS are namely: (i) the impacts of settlement and fair value of liabilities for adopting ASC 852 under U.S. GAAP that needs to be excluded under IFRS; and (ii) the gain recognition on reversal of interest and foreign currency on loans and financings under IFRS. The following is a summary of the Judicial Reorganization adjustments to net income for the year ended December 31, 2018 and 2017: Judicial reorganization December 31, December 31, Settlement for lesser amounts of prepetition obligations and fair value recognition under U.S. GAAP (6,527,238 ) 73,135 Gain on reversal of interest and foreign currency on loans and financings under IFRS 5,196,222 6,429,611 (1,331,016 ) (6,502,746 ) (g) Deferred income tax This relates to the impact of recalculation of the deferred tax assets and liabilities considering the adjusted balances of accounts and related impacts on net income and the revised valuation allowance based on the reassessed schedule of expected generation of future taxable income under IFRS. SUMARY OF ACCOUNTING DIFFERENCES BETWEEN U.S. GAAP AND IFRS The reconciliations below quantify the effect of the U.S. GAAP to IFRS on the indicated dates: Reconciliation Equity Net income December 31, December 31, December 31, December 31, Under U.S.GAAP 29,199,496 (9,684,061 ) 27,393,837 (4,027,661 ) Impairment of long-lived assets (a ) (1,226,125 ) (1,084,707 ) (141,418 ) 5,526,563 Business combinations prior to January 1, 2009 (b ) 44,981 40,859 4,122 4,313 Pension plans and other post-retirement benefits (c ) (689,574 ) (1,598,792 ) (115,080 ) (197,700 ) Capitalization of interest, net of amortization (d ) 60,928 62,711 (1,780 ) (9,322 ) Provision for onerous contracts (e ) (4,493,895 ) (4,493,895 ) Settlement of judicial reorganization (f ) 1,331,016 (1,331,016 ) (6,502,746 ) Deferred income tax (g ) (2,579,548 ) 3,300,785 (1,449,609 ) Under IFRS 22,895,811 (13,512,522 ) 24,615,555 (6,656,162 ) Reconciliation of balance sheet as at December 31, 2018 USGAAP Impairment (a) Business (b) Pension plans (c) Capitalization Provision for (e) Settlement of (f) Deferred (g) Reclassifications IFRS Cash and cash equivalents 4,385,329 4,385,329 Short-term investments 201,975 201,975 Accounts receivable 6,516,555 6,516,555 Recoverable income taxes 621,246 621,246 Other taxes 803,252 803,252 Judicial Deposits 1,715,934 1,715,934 Inventories 317,503 317,503 Prepaid expenses 743,953 743,953 Pension plan assets 4,880 4,880 Held-for-sale 4,923,187 4,923,187 Other assets 1,079,670 1,079,670 Total current assets 21,313,484 — — — — — — — 21,313,484 Long-term investments 36,987 36,987 Other taxes 715,976 715,976 Deferred tax assets 23,050 23,050 Judicial Deposits 7,018,786 7,018,786 Investments 117,840 117,840 Property, plant and equipment, net 28,468,798 (228,244 ) 124,081 60,928 28,425,563 Intangible assets 8,025,442 (997,881 ) (79,115) 6,948,446 Pension plan assets 753,827 (689,574) 64,253 Prepaid expenses 522,550 522,550 Other assets 773,411 (522,549) 250,862 Total non-current 45,934,117 (1,226,125 ) 44,966 (689,574) 60,928 — — — 1 44,124,313 Total assets 67,247,601 (1,226,125 ) 44,966 (689,574) 60,928 — — — 1 65,437,797 Trade payables 5,225,862 (201,602) 5,024,260 Trade payables – Subject to the JRP 201,602 201,602 Borrowings and financing 672,894 672,894 Payroll, related taxes and benefits 906,655 906,655 Income taxes payable 27,026 27,026 Other taxes 1,033,868 1,033,868 Tax financing program 142,036 142,036 Dividends and interest on capital 6,168 6,168 Provision 680,542 680,542 Unearned revenues 229,497 (229,497) Advances from customers 73,094 (73,094) Licenses and concessions payable 85,619 85,619 Liabilities associated to held-for-sale 526,870 526,870 Other payables 629,939 449,389 302,591 1,381,919 Total current liabilities 10,240,070 — — — — 449,389 — — 10,689,459 Trade payables – Subject to the JRP 3,593,008 3,593,008 Borrowings and financing 15,777,012 15,777,012 Other taxes 628,716 628,716 Tax financing program 411,170 411,170 Provision 4,358,178 4,358,178 Provision for pension plans 579,122 579,122 Unearned revenues 1,687,073 (1,687,073) Advances from customers 142,134 (142,134) Other payables 631,622 (13) 4,044,505 1,829,207 6,505,321 Total non-current 27,808,035 — — 13 — — 4,044,505 — — 31,852,527 Total liabilities 38,048,105 — (13) — — 4,493,894 — — 42,541,986 Shareholders’ equity attributable to the Company and subsidiaries 28,956,006 (1,226,125 ) 44,979 (689,574) 60,928 (4,493,894) — — 22,652,320 Non-controlling 243,490 1 243,491 Total shareholders’ equity 29,199,496 (1,226,125 ) 44,979 (689,574) 60,928 (4,493,894) — — 1 22,895,811 Total liabilities and shareholders’ equity 67,247,601 (1,226,125 ) 44,966 (689,574) 60,928 — — — 1 65,437,797 Reconciliation of net income for the year ended December 31, 2018 USGAAP Impairment of long-lived Business Pension Capitalization Provision Settlement of Deferred Reclassification IFRS Net operating revenue 22,060,014 22,060,014 Cost of sales and services (15,822,732 ) 150,389 4,121 (45,457 ) (12,729 ) 141,758 (594,450 ) (16,179,100 ) Gross profit 6,237,282 150,389 4,121 (45,457 ) (12,729 ) 141,758 — — (594,450 ) 5,880,914 Operating (expenses) income Selling expenses (4,478,352 ) (28,655 ) 372,977 281,028 (3,853,002 ) General and administrative expenses (2,697,865 ) (40,853 ) (2,738,718 ) Other operating income 2,204,134 2,204,134 Other operating expenses 417,159 (291,807 ) (115 ) (4,883,620 ) (112,491 ) (1,890,712 ) 6,761,586 Reorganization items, net 31,580,541 (31,580,541 ) Loss before financial income (expenses) and taxes 31,058,765 (141,418 ) 4,121 (115,080 ) (12,729 ) (4,741,862 ) (31,693,032 ) 372,977 (5,268,258 ) Financial income (expenses), net (4,012,067 ) 10,949 247,968 30,362,016 26,608,866 Profit (loss) before taxes 27,046,698 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 372,977 21,340,608 Current income tax 115,706 115,706 Income tax expense (current and deferred) 347,139 2,927,808 (115,706 ) 3,159,241 Profit (loss) for the year 27,393,837 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,615,555 Profit (loss) attributable to owners of the Company 27,369,422 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,591,140 Profit (loss) attributable to non-controlling 24,415 24,415 Reconciliation of net income for the year ended December 31, 2017 USGAAP Impairment of long-lived Business Pension Capitalization Provision Settlement of Deferred Reclassification IFRS Net operating revenue 23,789,654 23,789,654 Cost of sales and services (15,676,216 ) 779,368 4,313 (82,045 ) (11,670 ) (682,403 ) (15,668,653 ) Gross profit 8,113,438 779,368 4,313 (82,045 ) (11,670 ) — — — (682,403 ) 8,121,001 Operating (expenses) income Selling expenses (4,399,936 ) (42,901 ) 340,281 (4,102,556 ) General and administrative expenses (3,064,252 ) (72,556 ) (3,136,808 ) Other operating income 1,985,101 1,985,101 Other operating expenses (1,043,922 ) 4,747,195 (198 ) (7,287,862 ) (1,642,979 ) (5,227,766 ) Reorganization items, net (2,371,918 ) 2,371,918 Loss before financial and taxes (2,766,590 ) 5,526,563 4,313 (197,700 ) (11,670 ) — (4,915,944 ) — (2,361,028 ) Financial expenses, net (1,612,058 ) 2,348 (1,586,802 ) (3,196,512 ) Profit (loss) before taxes (4,378,648 ) 5,526,563 4,313 (197,700 ) (9,322 ) — (6,502,746 ) — (5,557,540 ) Current income tax (906,080 ) (906,080 ) Income tax expense (current and deferred) 350,987 (1,449,609 ) 906,080 (192,542 ) Loss for the year (4,027,661 ) 5,526,563 4,313 (197,700 ) (9,322 ) — (6,502,746 ) (1,449,609 ) (6,656,162 ) Loss attributable to owners of the Company (3,736,518 ) 5,526,563 4,313 (197,700 ) (9,322 ) 0 (6,502,746 ) (1,449,609 ) (6,365,019 ) Loss attributable to non-controlling (291,143 ) (291,143 ) Reconciliation of comprehensive income for the year ended December 31, 2018 USGAAP Impairment (a) Business (b) Pension (c) Capitalization (d) Provision (e) Settlement of (f) Deferred (g) IFRS Profit (loss) for the year 27,393,837 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,615,555 Other comprehensive income (loss) Foreign currency translation adjustments (110,098 ) (110,098 ) (110,098) — — — — — — — (110,098) Pension and other postretirement benefit plans: Net actuarial loss from continuing operations (918,782 ) 1,024,297 105,515 Pension and other postretirement benefit plans (918,782 ) — — 1,024,297 — — — — 105,515 — — — — — — — — — Income tax effect on other comprehensive income (loss): Pension and other postretirement benefit plans 312,386 (348,261 ) (35,875 ) 312,386 — — (348,261) — — — — (35,875) Total comprehensive income (loss) for the year 26,677,343 (141,418 ) 4,121 560,956 (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,575,097 Comprehensive loss attributable to non-controlling (49,966 ) (49,966 ) Comprehensive income (loss) attributable to controlling shareholders 26,727,309 (141,418 ) 4,121 560,956 (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,625,063 Reconciliation of comprehensive income for the year ended December 31, 2017 USGAAP Impairment (a) Business (b) Pension (c) Capitalization (d) Provision (e) Settlement of (f) Deferred (g) IFRS December 31, Loss for the year (4,027,661 ) 5,526,563 4,313 (197,700 ) (9,322 ) — (6,502,746 ) (1,449,609 ) (6,656,162 ) Other comprehensive income (loss) Foreign currency translation adjustments 165,713 (1,943 ) 163,770 Decrease of interest shares in subsidiary (374,130 ) 374,130 — (208,417) — — — — — — 372,187 163,770 Pension and other postretirement benefit plans: Net actuarial loss from continuing operations (130,846 ) 161,099 30,253 Pension and other postretirement benefit plans (130,846 ) — — 161,099 — — — — 30,253 Income tax effect on other comprehensive income (loss): Pension and other postretirement benefit plans 32,157 (42,528 ) (10,371 ) 32,157 — — (42,528) — — — — (10,371) Total comprehensive (loss) for the year (4,334,767 ) 5,526,563 4,313 (79,129 ) (9,322 ) — (6,502,746 ) (1,077,422 ) (6,472,510 ) Comprehensive loss attributable to non-controlling (64,153 ) (205,044 ) (269,197 ) Comprehensive loss attributable to controlling shareholders (4,270,614 ) 5,526,563 4,313 (79,129 ) (9,322 ) — (6,502,746 ) (872,378 ) (6,203,313 ) Reconciliation of cash flow for the year ended December 31, 2018 USGAAP Impairment (a) Business (b) Pension (c) Capitalization (d) Provision (e) Settlement of (f) Deferred (g) Reclassification IFRS Operating activities Profit (loss) for the year 27,393,837 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 3,300,785 24,615,555 Income tax expenses (347,139 ) — — — — — — (2,927,808 ) (3,274,947 ) Profit (loss) before income taxes 27,046,698 (141,418 ) 4,121 (115,080 ) (1,780 ) (4,493,894 ) (1,331,016 ) 372,977 21,340,608 Income tax reclassification 347,139 (347,139 ) — Adjustments to reconcile net income (loss) to cash provided by operating activities Loss (gain) on financial instruments 3,415,354 (10,949 ) (389,726 ) (5,080,135 ) 22,099 (2,043,357 ) Gains of restructuring of third-party borrowings — (11,054,800 ) (11,054,800 ) Fair value adjustment to borrowings and financing — (13,928,659 ) (13,928,659 ) Present value adjustment to other liabilities — (1,167,043 ) (1,167,043 ) Depreciation and amortization 5,952,905 (150,389 ) (4,121 ) 12,729 (1 ) 5,811,123 Onerous obligation 4,883,620 4,883,620 Impairment of held-for-sale (292,799 ) 292,799 Estimated loss on doubtful debts 1,224,248 (372,977 ) 851,271 Provisions (reversals) (19,465 ) 112,491 93,026 Provision for pension plans (114,813 ) 115,080 267 Impairment losses — 291,807 (49 ) 291,758 Deferred tax expense (benefit) (231,433 ) 231,433 — Reorganization items, net (31,580,541 ) 31,580,541 — Equity in investees 13,492 13,492 Loss on disposal of capital assets 215,398 215,398 Concession Agreement Extension Fee—ANATEL 68,333 68,333 Employee and management profit sharing 237,253 237,253 Monetary correction to provisions/(reversals) 226,870 226,870 Monetary correction to tax refinancing program 28,079 28,079 Other (637,518 ) (637,518 ) Changes in assets and liabilities Accounts receivable (365,771 ) (365,771 ) Inventories (48,280 ) (48,280 ) Taxes 121,951 121,951 Held-for-trading financial assets (1,191,664 ) (1,191,664 ) Redemption of held-for-trading financial assets 1,103,920 1,103,920 Trade payables (860,900 ) (860,900 ) Payroll, related taxes and benefits (253,902 ) (253,902 ) Provisions (434,974 ) (434,974 ) Net increase in income taxes refundable and payable (799,189 ) 115,706 683,483 Employee and management profit sharing 237,253 (237,253 ) Changes in assets and liabilities held for sale (257,643 ) (257,643 ) Other assets and liabilities (183,838 ) 868,621 (159,123 ) 525,660 Financial charges paid - debt (19,215 ) (19,215 ) Financial charges paid - other (2,884 ) (2,884 ) Income tax and social contribution paid—Company (495,038 ) (495,038 ) Income tax and social contribution paid—third parties (188,445 ) (188,445 ) Net cash provided by (used in) operating activities 2,862,536 — — — — — — — — 2,862,536 Investing activities Capital expenditures (5,246,241 ) (5,246,241 ) Proceeds from the sale of investments, tangibles and intangibles 22,276 22,276 Judicial deposits (775,953 ) (775,953 ) Redemption of judicial deposits 1,083,043 1,083,043 Net cash used in by in investing activities (4,916,875 ) — — — — — — — — (4,916,875 ) Financing activities Repayment of principal of borrowings, financing and derivatives (161,884 ) (161,884 ) Payments of obligation for licenses and concessions (1,491 ) (1,491 ) Payments of obligation for tax refinancing program (265,495 ) (265,495 ) Payment of dividends and interest on capital (54 ) (54 ) Exercise of warrants 4,580 4,580 Net cash used in financing activities (424,344 ) — — — — — — — — (424,344 ) Foreign exchange differences on cash and cash equivalents 1,328 1,328 Cash flows for the year (2,477,355 ) — — — — — — — — (2,477,355 ) Cash and cash equivalents beginning of year 6,862,684 6,862,684 Cash and cash equivalents end of year 4,385,329 — — — — — — — — 4,385,329 Reconciliation of cash flow for the year ended December 31, 2017 USGAAP Impairment (a) Business (b) Pension (c) Capitalization (d) Provision (e) Settlement of (f) Deferred (g) Reclassification IFRS December 31, Operating activities Loss for the year (4,027,661 ) 5,526,563 4,313 (197,700 ) (9,322 ) — (6,502,746 ) (1,449,609 ) (6,656,162 ) Income tax (350,987 ) — — — — — — 1,449,609 1,098,622 Loss before income taxes (4,378,648 ) 5,526,563 4,313 (197,700 ) (9,322 ) — (6,502,746 ) — (5,557,540 ) Income tax reclassification 350,987 (350,987 ) — Adjustments to reconcile net income (loss) to cash provided by operating activities Loss (gain) on financial instruments (1,115,823 ) (2,348 ) 6,234,447 3,927 5,120,203 Present value adjustment to other liabilities (4,873,000 ) (4,873,000 ) Depreciation and amortization 5,881,302 (779,368 ) (4,313 ) 11,670 1 5,109,292 Impairment (reversal) of held-for-sale 267,008 (267,008 ) — Estimated loss on doubtful debts 784,403 784,403 Provisions 143,517 7,218,787 7,362,304 Provision for pension plans (197,141 ) 197,700 559 Impairment losses (reversal) 46,534 (4,747,195 ) (46,480 ) (4,747,141 ) Deferred tax expense (benefit) (1,257,068 ) 1,257,068 — Reorganization items, net 2,371,918 (2,371,918 ) Equity in investees 433 433 Loss on disposal of capital assets 211,735 211,735 Concession Agreement Extension Fee—ANATEL 88,658 88,658 Employee and management profit sharing 298,789 298,789 Monetary correction to provisions/(reversals) 674,668 674,668 Monetary correction to tax refinancing program 27,294 27,294 Other 449,722 449,722 Changes assets and liabilities Accounts receivable (253,469 ) (253,469 ) Inventories 173,283 173,283 Taxes 477,164 477,164 Held-for-trading financial assets (601,200 ) (601,200 ) Redemption of held-for-trading financial assets 775,456 775,456 Trade payables (374,003 ) (374,003 ) Payroll, related taxes and benefits (42,727 ) (42,727 ) Provision for contingencies (114,336 ) (312,313 ) (426,649 ) Net increase in income taxes refundable and payable 399,182 (906,081 ) 506,899 — Provision for pension plans 54 (54 ) — Employee and management profit sharing 298,789 (298,789 ) — Changes in assets and liabilities held for sale 701,416 701,416 Other 238,443 606,743 (1,312,253 ) (467,067 ) Financial charges paid - debt (1,412 ) (1,412 ) Financial charges paid - other (2,515 ) (2,515 ) Income tax and social contribution paid—Company (314,162 ) (314,162 ) Income tax and social contribution paid—third parties (192,736 ) (192,736 ) Net cash provided by operating activities 4,401,758 — — — — — — — — 4,401,758 — Investing activities Capital expenditures (4,344,238 ) (4,344,238 ) Proceeds from the sale of property, plant and equipment 5,016 5,016 Judicial deposits (425,563 ) (425,563 ) Redemption of judicial deposits 343,129 343,129 Other Net cash used in by in investing activities (4,421,656 ) — — — — — — — — (4,421,656 ) Financing activities Repayment of principal of borrowings, financing (659 ) (659 ) Payments of obligation for licenses and concessions (104,449 ) (104,449 ) Payments of obligation for tax refinancing program (226,776 ) (226,776 ) Share buyback (300,429 ) (300,429 ) Payment of dividends and interest on capital (59,462 ) (59,462 ) Net cash used in financing activities (691,775 ) — — — — — — — — (691,775 ) Foreign exchange differences on cash and cash equivalents 11,106 (1 ) 11,105 Cash flows for the year (700,568 ) — — — — — — — (1 ) (700,568 ) Cash and cash equivalents beginning of year 7,563,251 1 7,563,252 Cash and cash equivalents end of year 6,862,684 — — — — — — — — 6,862,684 |
