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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For August 23, 2006

(Commission File No. 1-31317)
 

 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
 
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
 


Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)



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

Form 20-F ___X___ Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.

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

Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):


PUBLIC FEDERAL SERVICE         
CVM – SECURITIES AND EXCHANGE COMMISSION     
ITR – QUARTERLY INFORMATION    Base Date - 06/30/2006   Corporate Legislation 
COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES     

REGISTRATION WITH THE CVM DOES NOT IMPLY ANY ANALYSIS OF THE COMPANY. COMPANY MANAGEMENT IS RESPONSIBLE FOR THE ACCURACY OF THE INFORMATION PROVIDED. 

01.01 - IDENTIFICATION

1 - CVM CODE 
01444-3 
2 - COMPANY'S NAME 
CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO 
3 -CNPJ 
43.776.517/0001-80 
4 - NIRE 
35300016831 

01.02 - HEAD-OFFICE

1 - FULL ADDRESS 
Rua Costa Carvalho, 300 
2 - NEIGHBORHOOD OR DISTRICT 
Pinheiros 
3 - ZIP CODE 
05429-900 
4 - CITY 
São Paulo 
5 - STATE
SP 
6 - AREA CODE 
11 
7 - TELEPHONE 
3388-8000 
8 - TELEPHONE 
3388-8200
9 - TELEPHONE 
3388-8201  
10 - TELEX 
11 - AREA CODE 
11 
12 - FAX 
3813-0254 
13 - FAX 
14 - FAX 
 
15 - E-MAIL 
sabesp@sabesp.com.br 

01.03 - INVESTOR RELATIONS OFFICER (Company's Mail Address)

1 – NAME 
Rui de Britto Álvares Affonso 
2 - FULL ADDRESS 
Rua Costa Carvalho, 300 
3 - NEIGHBORHOOD OR DISTRICT 
Pinheiros 
4 - ZIP CODE 
05429-900 
5 - CITY 
São Paulo 
6 - STATE
SP 
7 - AREA CODE 
11 
8 - TELEPHONE 
3388-8247 

9 - TELEPHONE
 -

10 - TELEPHONE 
 - 
11 - TELEX 
12 - AREA CODE 
11 
13 - FAX 
3815-4465
14 - FAX
 - 
15 - FAX 
 - 
 
16 - E-MAIL 
raffonso@sabesp.com.br 

01.04 - REFERENCE / INDEPENDENT AUDITOR

CURRENT FISCAL YEAR  CURRENT QUARTER  PRIOR QUARTER 
1 - BEGINNING  2 – END  3 - NUMBER  4 - BEGINNING 5 - END  6 - NUMBER  7 - BEGINNING 8 - END 
01/01/2006 12/31/2006  2 04/01/2006 06/30/2006  01/01/2006  03/31/2006 
9 – NAME/CORPORATE NAME OF THE AUDITOR  
Deloitte Touche Tohmatsu Auditores Independentes 
10 - CVM CODE 
00385-9
11 – NAME OF RESPONSIBLE TECHNICIAN
Marco Antonio Brandão Simurro 
12 – TAXPAYER ID OF
RESP.TECH.
755.400.708-44 

01.05 - CAPITAL COMPOSITION

NUMBER OF SHARES  
(thousand)
1 - CURRENT QUARTER 
06/30/2006
  
2 - PRIOR QUARTER 
03/31/2006 
3 - SAME QUARTER PRIOR YEAR 
06/30/2005 
Paid-up Capital 
1 - Common  28,479,577  28,479,577  28,479,577 
2 - Preferred 
3 – Total  28,479,577  28,479,577  28,479,577 
Treasury Stock 
4 - Common 
5 - Preferred 
6 – Total 

01.06 - CHARACTERISTICS OF THE COMPANY

1 - TYPE OF COMPANY 
Commercial, Industrial and Other Companies 
2 - SITUATION 
Operating 
3 - NATURE OF OWNERSHIP 
State-owned 
4 - ACTIVITY CODE 
1160 – Sanitation, Water and Gas Services 
5 - MAIN ACTIVITY 
Capture, Treatment, Water Distribution; Collection, Treatment of Sewage
6 - TYPE OF CONSOLIDATION 
Not Submitted 
7 - TYPE OF REPORT OF THE INDEPENDENT ACCOUNTANT 
Unqualified 

01.07 - COMPANIES EXCLUDED FROM THE CONSOLIDATED FINANCIAL STATEMENTS

1 – ITEM  2 – CNPJ  3 – NAME 

01.08 - DIVIDENDS APPROVED AND/OR PAID DURING AND AFTER THE QUARTER

1 - ITEM  2 - EVENT  3 – DATE 
APPROVED 
4 – AMOUNT  5 – DATE OF
PAYMENT 
6 – TYPE OF 
SHARE 
7 - AMOUNT PER SHARE 
01  RCA  04/20/2006  Interests on capital    ON               0.0045500000 
02  RCA  04/28/2005  Interests on capital  06/27/2006  ON               0.0013413120 
03  RCA  06/23/2005  Interests on capital  06/27/2006  ON               0.0023455404 
04  RCA  10/20/2005  Interests on capital  06/27/2006  ON               0.0029900000 
05  RCA  12/15/2005  Interests on capital  06/27/2006  ON               0.0055500000 

01.09 - SUBSCRIBED CAPITAL AND CHANGES IN THE CURRENT YEAR

1 -
ITEM 
2 – DATE OF 
CHANGE 
3 - CAPITAL STOCK
AMOUNT
(In thousand reais)
4 - AMOUNT OF THE
 CHANGE
(In thousand reais)
5 – NATURE OF 
THE CHANGE 
6 - NUMBER OF SHARES
      ISSUED
(Thousand)
7 - SHARE PRICE ON ISSUE DATE 
(Reais)

01.10 - INVESTOR RELATIONS OFFICER

1 - DATE 
08/14/2006 
2 – SIGNATURE 

02.01 - BALANCE SHEET - ASSETS (In thousands of reais)

1 - Code  2 - Description  3 - 06/30/2006  4 - 03/31/2006 
Total assets  17,716,234  17,875,727 
1.01  Current assets  1,874,372  2,137,990 
1.01.01  Cash  336,012  644,140 
1.01.01.01  Cash, Banks and Fin. Invest.  335,997  644,111 
1.01.01.02  Other cash items  15  29 
1.01.02  Credits  1,214,648  1,227,224 
1.01.02.01  Customers  1,214,648  1,227,224 
1.01.03  Inventories  32,035  30,733 
1.01.03.01  Storage Items for Operation  32,035  30,733 
1.01.04  Others  291,677  235,893 
1.01.04.01  Accounts receivable from shareholders  225,612  185,701 
1.01.04.02  Taxes and contributions to be deducted  319  3,156 
1.01.04.03  Deferred taxes and contributions  22,161  12,990 
1.01.04.04  Other accounts receivable  43,585  34,046 
1.02  Long term assets  1,660,031  1,621,367 
1.02.01  Sundry credits  1,660,031  1,621,367 
1.02.01.01  Customers  297,250  271,220 
1.02.01.02  Compensation for concession termination  148,794  148,794 
1.02.01.03  Court deposits  30,723  33,555 
1.02.01.04  Accounts receivable from shareholders  823,558  813,015 
1.02.01.05  Deferred taxes and contributions  310,827  307,549 
1.02.01.06  Other accounts receivable  48,879  47,234 
1.02.02  Receivables from related parties 
1.02.02.01  From associated companies 
1.02.02.02  From controlled companies 
1.02.02.03  From other related parties 
1.02.03  Others 
1.03  Permanent assets  14,181,831  14,116,370 
1.03.01  Investments  740  740 
1.03.01.01  Interest in associated companies 
1.03.01.02  Interest in controlled companies 
1.03.01.03  Other investments  740  740 
1.03.01.03.01  Shares in other companies  718  718 
1.03.01.03.02  Compulsory deposits - Eletrobrás  22  22 
1.03.02  Property, plant & equipment  14,165,702  14,097,316 
1.03.02.01  Property, plant & equipment  11,871,236  11,904,656 
1.03.02.02  Work in progress  2,294,466  2,192,660 
1.03.03  Deferred assets  15,389  18,314 
1.03.03.01  Organizational and reorganization expenses  15,389  18,314 

02.02 - BALANCE SHEET - LIABILITIES (In thousands of reais)

1 - Code  2 – Description  3- 06/30/2006  4 - 03/31/2006 
Total liabilities  17,716,234  17,875,727 
2.01  Current liabilities  1,662,890  1,807,491 
2.01.01  Loans and credit facilities  476,890  461,852 
2.01.02  Debentures  165,571  326,695 
2.01.02.01  4th issue debentures  49,998  74,998 
2.01.02.02  5th issue debentures  44,955  149,229 
2.01.02.03  Interest on debentures  70,618  102,468 
2.01.03  Suppliers  88,032  39,011 
2.01.04  Taxes, fees and contributions  145,150  116,179 
2.01.04.01  Paes Program  40,760  40,114 
2.01.04.02  Cofins and Pasep  34,499  37,197 
2.01.04.03  Corporate Income Tax  33,856  6,719 
2.01.04.04  Social Contribution  12,908  1,341 
2.01.04.05  I.N.S.S. (Social Security) 18,591  17,090 
2.01.04.06  Withholding Tax  498  9,929 
2.01.04.07  Others  4,038  3,789 
2.01.05  Dividends payable 
2.01.06  Provisions  10,921  27,288 
2.01.06.01  For contingencies with suppliers  1,028  9,646 
2.01.06.02  For contingencies with customers  9,893  17,642 
2.01.07  Debt with related companies 
2.01.08  Others  776,326  836,466 
2.01.08.01  Salaries and payroll charges  224,208  142,105 
2.01.08.02  Services  85,436  81,832 
2.01.08.03  Interest on own capital payable  381,158  529,921 
2.01.08.04  Deferred taxes and contributions  72,348  70,015 
2.01.08.05  Amounts refundable  11,595  10,875 
2.01.08.06  Other liabilities  1,581  1,718 
2.02  Long-term liabilities  7,174,956  7,373,431 
2.02.01  Loans and credit facilities  4,155,231  4,229,147 
2.02.02  Debentures  1,622,845  1,766,581 
2.02.02.01  5th issue debentures  149,229 
2.02.02.02  6th issue debentures  619,618  617,085 
2.02.02.03  7th issue debentures  301,891  301,226 
2.02.02.04  8th issue debentures  701,336  699,041 
2.02.03  Provisions  602,964  593,771 
2.02.03.01  For labor claims  30,170  29,752 
2.02.03.02  For civil and tax claims  93,624  89,716 
2.02.03.03  For suppliers  186,113  185,660 
2.02.03.04  For customers  269,800  266,255 
2.02.03.05  For environmental matters  23,257  22,388 

02.02 - BALANCE SHEET - LIABILITIES (Thousand Reais)

1 – Code  2 - Description  3 - 06/30/2006   4 - 03/31/2006 
2.02.04  Debts with related companies 
2.02.05  Others  793,916  783,932 
2.02.05.01  Deferred taxes and contributions  139,454  135,752 
2.02.05.02  Paes Program  244,567  250,721 
2.02.05.03  Social security liabilities  299,118  287,824 
2.02.05.04  Refundable amounts  73,829  73,829 
2.02.05.05  Other accounts payable  36,948  35,806 
2.03  Deferred income 
2.05  Shareholders' equity  8,878,388  8,694,805 
2.05.01  Paid-up capital  3,403,688  3,403,688 
2.05.02  Capital reserves  100,760  92,743 
2.05.02.01  Support for projects reserve  84,980  76,963 
2.05.02.02  Incentive reserves  15,780  15,780 
2.05.03  Revaluation Reserves  2,483,566  2,506,024 
2.05.03.01  Own assets  2,483,566  2,506,024 
2.05.03.02  Controlled/Associated companies 
2.05.04  Profit reserves  2,470,269  2,470,269 
2.05.04.01  Legal  215,273  215,273 
2.05.04.02  Statutory 
2.05.04.03  For contingencies 
2.05.04.04  Unrealized profits 
2.05.04.05  Retained earnings 
2.05.04.06  Special for undistributed dividends 
2.05.04.07  Other profit reserves  2,254,996  2,254,996 
2.05.04.07.01  Reserve for investments  2,254,996  2,254,996 
2.05.05  Retained earnings/accumulated losses  420,105  222,081 

03.01 - INCOME STATEMENT (Thousand Reais)

1 - Code  2 – Description  3 -
04/01/2006 
to 06/30/2006 
4 -
01/01/2006 
to 06/30/2006 
5 -
04/01/2005 
to 06/30/2005 
6 -
01/01/2005 
to 06/30/2005 
3.01  Gross sales and/or services revenue  1,422,064  2,878,821  1,330,236  2,582,244 
3.01.01  Water supply - Retail  733,278  1,493,763  685,134  1,337,211 
3.01.02  Water supply - Wholesale  64,204  128,339  58,434  116,164 
3.01.03  Sewage collection and treatment  601,902  1,211,018  563,505  1,085,137 
3.01.04  Other services rendered  22,680  45,701  23,163  43,732 
3.02  Gross revenue deductions  (108,656) (220,819) (98,891) (192,230)
3.02.01  Tax on Revenues (COFINS) (89,274) (181,429) (81,036) (157,725)
3.02.02  Tax on Revenues (PASEP) (19,382) (39,390) (17,855) (34,505)
3.03  Net sales and/or services revenue  1,313,408  2,658,002  1,231,345  2,390,014 
3.04  Cost of sales and/or services sold  (666,685) (1,266,150) (594,793) (1,152,098)
3.05  Gross profit  646,723  1,391,852  636,552  1,237,916 
3.06  Operating expenses/revenue  (354,087) (641,302) (141,639) (512,193)
3.06.01  Selling  (132,177) (267,920) (131,550) (244,561)
3.06.02  General and administrative  (74,472) (135,200) (94,352) (168,916)
3.06.03  Financial  (147,438) (238,182) 84,263  (98,716)
3.06.03.01  Financial income  40,474  70,344  24,992  49,515 
3.06.03.01.01  Financial income  40,474  70,344  24,992  49,515 
3.06.03.01.02  Tax on Revenues (COFINS/PASEP)
3.06.03.02  Financial expenses  (187,912) (308,526) 59,271  (148,231)
3.06.03.02.01  Financial expenses  (187,912) (308,526) 59,271  (148,231)
3.06.04  Other operating revenue 
3.06.05  Other operating expenses 
3.06.06  Equity result 
3.07  Operating income  292,636  750,550  494,913  725,723 
3.08  Non-operating income  (557) 46  1,428  910 
3.08.01  Revenues  387  2,434  3,023  3,641 
3.08.01.01  Revenues  1,207  4,136  3,492  4,328 
3.08.01.02  Tax on Revenues (COFINS/PASEP) (820) (1,702) (469) (687)
3.08.02  Expenses  (944) (2,388) (1,595) (2,731)
3.08.02.01  Loss on disposal of fixed assets  (956) (2,321) (1,448) (2,332)
3.08.02.02  Provision for Lost Tax Incentives 
3.08.02.03  Tax Incentives 
3.08.02.04  Others  12  (67) (147) (399)
3.09  Income before taxes/interests  292,079  750,596  496,341  726,633 
3.10  Provision for Income Tax and Social  (114,639) (230,963) (155,144) (233,733)
  Contribution         
3.10.01  Provision for Income Tax  (86,094) (178,866) (123,316) (185,785)
3.10.02  Provision for Social Contribution  (28,545) (52,097) (31,828) (47,948)
3.11  Deferred income tax  6,907  1,410  3,325  11,772 
3.11.01  Deferred income tax  7,048  10,380  12,475  24,875 
3.11.02  Deferred social contribution  (141) (8,970) (9,150) (13,103)
3.11.03  Reversal of deferred income tax 
3.12  Statutory corporate interests/contributions  (8,781) (17,561) (8,781) (17,561)
3.12.01  Corporate interests 
3.12.02  Contributions  (8,781) (17,561) (8,781) (17,561)
3.12.02.01  Extraordinary item  (8,781) (17,561) (8,781) (17,561)
3.13  Reversal of interest on own capital 
3.15  Profit/Loss for the Year  175,566  503,482  335,741  487,111 
  Number of Shares, Ex-Treasury Shares (Thou) 28,479,577  28,479,577  28,479,577  28,479,577 
  PROFIT PER SHARE  0.00616  0.01768  0.01179  0.01710 
  LOSS PER SHARE         

04.01 - EXPLANATORY NOTES

(Amounts in thousands of Brazilian reais-R$ , unless otherwise stated)

1. OPERATIONS

Companhia de Saneamento Básico do Estado de São Paulo (“SABESP” or the “Company”) is engaged in the operation of public water and sewage systems in the State of São Paulo, providing water and sewage services to a broad range of residential, commercial, industrial and government customers. The Company also provides water on a wholesale basis to certain municipalities in the São Paulo Metropolitan Region that do not have water production systems.

As of the Law 12,292, enacted on March 2, 2006, the Company may provide water and sewage services outside the State of São Paulo, including in other countries, either directly or through national or international consortia, may have equity participation in other state or mixed-capital companies, as well as to establish subsidiaries, to relate itself or participate in a private company connected to the sanitation industry.

The Company provides water and sewage services in 367 municipalities in the State of São Paulo, nearly all of which are through concessions granted by the municipalities and most of them with 30-year term. The 17 (seventeen) concession contracts that expired in 2005 have been extended or are under negotiation. Up to December 31, 2006, 135 contracts are going to expire and the rest between 2007 and 2034. Management expects that the referred concessions will be renewed or extended, thus there will not be a discontinuity of the water supply and sewage collection. Up to June 30, 2006, the net book value of property, plant and equipment items relating to the municipalities where the concessions are under negotiation or will expire in 2006 totals R$ 1,62 billion, and net revenue totals R$ 358 million related to these concessions.

The Company does not hold a formal concession to provide water and sewage services in the City of São Paulo, which accounts for a substantial portion of the sales and services rendered. In Santos, a municipality located in the Santos Coastal Area, which also has a large population, the Company operates under a public deed of authorization, like in some other municipalities in the Santos Coastal Area and in the Ribeira Valley, where the Company started operating after the merger of the companies that formed SABESP. Management believes that the Company has a vested right to provide water and sewage services to these municipalities based upon, among other things, its ownership of the related water and sewage systems serving the City of São Paulo and these other municipalities and certain succession rights resulting from the merger which formed the Company.

In general, the Company does not face any competition in the municipalities in which it provides water and sewage services, and management understands that in those municipalities the Company has an exclusive right to provide such services.

All information regarding concession areas, number of municipalities, volumes of water and sewage and other related data disclosed in this report that do not arise from the accounting and/or financial statements are unaudited.

2. PRESENTATION OF FINANCIAL STATEMENTS

The Company’s financial statements, which are used as the basis for determining income taxes and mandatory minimum dividends calculations, have been prepared in accordance with accounting practices adopted in Brazil, which are based on the Brazilian Corporate Law (Law No. 6,404/76 and amendments), the rules and regulations of the Brazilian Securities Commission - CVM and the accounting standards issued by the Brazilian Institute of Independent Auditors – IBRACON.

3. SIGNIFICANT ACCOUNTING PRACTICES

(a) Determination of results of operations

(i) Revenues from sales and services

Revenues for water supply and sewage collection services are recognized as water is consumed or as services are provided. Revenues from water supply and sewage collection services rendered but not billed are recognized as unbilled customer accounts receivable based on monthly estimates, in order to match such revenues with costs incurred.

(ii) Financial income and expenses

Primarily comprised of interest and monetary and exchange variations on loans and financing and financial investments, calculated and reported on the accrual basis of accounting.

(iii) Income and social contribution taxes

Income and social contribution taxes are calculated based on taxable results.

Income tax is calculated at the rate of 15%, plus a 10% surtax, and social contribution is calculated at the rate of 9%. These taxes are reported on an accrual basis.

Deferred taxes related to tax loss carryforwards and temporary differences are calculated and recorded based on future taxable or deductible amounts and are recognized to the extent that their realization is believed to be probable.

As permitted by the CVM, the Company opted not to recognize the deferred tax liability (non-cash) on the revaluation reserve of property, plant and equipment recorded up to 1991.

(iv) Other income and expenses

Other income and expenses are recorded on an accrual basis.

(b) Cash and Cash Equivalents

Cash and cash equivalents are comprised mainly of bank deposits and financial investments and are carried at cost, plus accrued interest, if applicable. Financial investments denominated in reais have a ready market and an original maturity after 30 days from the date of investment, and are comprised mainly of Bank Deposit Certificates – CDB’s. Foreign currency deposits, if any, are translated at balance sheets date exchange rates. The Company is required by law to invest excess cash with financial institutions controlled by the State Government (Note 5).

(c) Customer accounts receivable and allowance for doubtful accounts

Customer accounts receivable generally do not accrue interest or indexation charges or penalties, except for refinanced agreements.

The Company records an allowance for doubtful accounts for receivable balances in an amount that is deemed by the Management to be sufficient to cover probable losses in accounts receivable, based on an aging analysis of receipts, taking into consideration the expected recovery in the different categories of customers accounts. Amounts in excess of R$ 5 and overdue for more than 360 days and in excess of R$ 30 and overdue for more than 360 days, which are under judicial collection proceedings, are provisioned. Accounts receivable balances under R$ 5 and overdue for more than 180 days are written off through a direct charge to income.

(d) Inventories

Inventories of materials used in operations and in the maintenance of the Company’s water and sewage systems are stated at the lower of average acquisition cost or realizable value and are classified in current assets.

Inventories for capital projects are classified under property, plant and equipment and are stated at the average acquisition cost.

(e) Other current assets and long-term receivables

Other current assets and long-term receivables are stated at the lower of acquisition cost or realization value, plus accrued interest, when applicable.

(f) Property, plant and equipment

Demonstrated at cost restated up to December 31, 1995, combined with the following aspects:

Depreciation of property, plant and equipment – calculated at the straight-line method, at the annual rates mentioned in note 6.a.

Revaluation of fixed asset items, carried out in two separate stages in 1990 and 1991, was based on an appraisal report issued by independent experts, recorded with a corresponding credit to the “Revaluation Reserve” account in the Shareholders’ Equity, and is realized through depreciation, sale and disposal of the respective items, with a corresponding entry to “Retained Earnings” account.

Contributions of property, plant and equipment by third parties and from government entities to allow the Company to supply water and sewage services are recorded as a capital reserve.

Construction-in-progress is recorded at cost and is primarily related to construction projects under contract with third parties.

Capitalization of interest

Interest charges on loans and financing for construction-in-progress are capitalized as part of the cost of assets.

Interests capitalized are depreciated with the cost of the asset, once the related asset becomes operational.

Repairs and Maintenance

Improvements to existing property are capitalized, while costs of general maintenance and repairs are expensed as incurred. Materials allocated to specific projects are added to construction-in-progress.

Impairment

The Company reviews long-lived assets, primarily buildings and water and sewage systems, including property, plant and equipment and concession assets, to be held and used in the business, for the purpose of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. The Company assesses impairment on the basis of the projected recovery of depreciation charges through results of operations. The carrying value of assets or group of assets is written down to realizable amount if and when appropriate.

(g) Deferred Assets

The deferred assets are comprised of deferred project costs and technical studies, which are being amortized using the straight-line method over 5 years from the date when benefits start to be generated.

(h) Loans and Financing

Loans and financing are adjusted by indexation charges and foreign exchange variations, and include accruals for related interest expense. Loans and financing denominated in foreign currencies are translated to reais at the balance sheet date. The resulting foreign currency exchange adjustments are recognized as incurred, in the “financial income (expense), net” account.

(i) Salaries and payroll charges

Salaries and other payroll charges, including provision for vacation pay, 13th salary and complementary payments agreed upon through collective bargaining agreements, added by the corresponding payroll charges, are recorded on an accrual basis.

(j) Provision for contingencies

Provision for contingencies is recorded at the estimated amounts to cover potential losses related to labor, tax, civil, commercial, environmental and other claims and lawsuits, at administrative and court levels, when such losses are considered probable. Provision for contingencies balances are being disclosed net of the related escrow deposits.

(k) Environmental costs

Expenditures relating to ongoing environmental programs are expensed as incurred. Ongoing programs are designed and performed with a view to minimize the environmental impact of the operations and to manage the environmental risks inherent to the Company’s activities. Provisions for contingent losses related to environmental claims are recorded when they are considered to be probable and reasonably estimable by Management.

(l) Pension and Postretirement Benefits

The Company sponsors a private defined benefit pension plan, which is operated and administered by Fundação Sabesp de Seguridade Social (“SABESPREV”). CVM resolution 371 of December 13, 2000 determines the recognition of the actuarial liabilities in excess to the plan assets. The Company has elected to recognize the transition obligation as of the date of adoption in earnings on a straight-line basis over five years beginning January 1, 2002.

(m) Other current and long-term liabilities

Other current and long-term liabilities are stated at their known or estimated amounts, including related charges and monetary and foreign exchange adjustments, when applicable.

(n) Interest on shareholder’s equity

Recorded in accordance with Law 9,249/95, for tax deductibility purposes, limited to the daily pro-rata variation of the Long-Term Interest Rate (“TJLP”) and disclosed in accordance with CVM Deliberation 207/96.

(o) Earnings per share

Earning per share is calculated based on the number of shares outstanding at the balance sheet date.

(p) Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from those estimates.

4. CUSTOMERS ACCOUNTS RECEIVABLE

(a) Summary of customer accounts receivable

    06/30/2006    03/31/2006 
       
Private-sector customers:    821,779    841,856 
General customers and special customers (i) (ii)   165,267    153,777 
       
     Agreements (iii)   987,046    995,633 
 
Government Entities:    418,327    393,134 
     Municipal    21,885    20,999 
     Federal    73,818    66,087 
       
Agreements    514,030    480,220 
 
Wholesale customers - municipal authorities: (iv)        
Guarulhos    316,116    304,536 
Mauá    102,079    97,867 
Mogi das Cruzes    4,127    4,058 
Santo André    273,224    265,051 
São Caetano do Sul    2,761    2,706 
Diadema    77,854    76,937 
       
    776,161    751,155 
       
         
Unbilled amounts    226,539    233,993 
       
Subtotal    2,503,776    2,461,001 
Allowance for doubtful accounts    (991,878)   (962,557)
       
Total    1,511,898    1,498,444 
 
Current portion    1,214,648    1,227,224 
Long-term portion (v)   297,250    271,220 

(i) General customers – residential and small and medium-sized businesses.

(ii) Special customers – large consumers, commercial industries, plants, condominiums and special billing consumers (industrial waste, wells, etc.).

(iii) Agreements – renegotiation of past-due balances (from non-government controlled companies). The amounts under agreements are generally due in approximately 6 – 12 months, except for certain amounts due from municipalities that are receivable through 2011.

(iv) Wholesale customers – municipal authorities – Accounts receivable from wholesale customers relate to the wholesale of treated water to certain municipalities, which are responsible for distribution, billing and collection with the final customers, as follows:

    June/06    March/06 
     
Balance at beginning of period    751,155    727,892 
Billings for services provided    64,204    64,135 
Collections - current year services    (36,666)   (27,731)
Collections - prior year services    (2,532)   (13,141)
     
Balance at end of period    776,161    751,155 
     
Current portion    14,421    13,108 
Long term portion    761,740    738,047 

(v) Long-term receivables – The long-term portion of customer accounts receivable consists of the long-term portion of renegotiated past-due private sector customer accounts receivable and past-due balances of wholesale customers-municipal authorities. It is recorded net of an allowance for doubtful accounts of R$ 561,582 at June 30, 2006 (March/2006 - R$ 545,675).

(b) Customer accounts receivable aging summary

    June/06    March/06 
     
Current (including unbilled amounts)   754,595    729,555 
Past due:         
Up to 30 days    195,571    171,569 
From 31 to 60 days    76,042    81,808 
From 61 to 90 days    59,566    61,006 
From 91 to 120 days    49,718    60,151 
From 121 to 180 days    99,976    105,703 
From 181 to 360 days    195,703    157,958 
For more than 360 days    1,072,605    1,093,251 
     
Total    2,503,776    2,461,001 
     
(c)Allowance for doubtful accounts 

(i) The amount of the supplement to the provision may be presented as follows: 

    2nd Qtr/06    1st Qtr/06 
     
Balance at beginning of period    962,557    920,736 
 
Private-sector customers/government entities    3,077    15,777 
Wholesale customers    26,244    26,044 
     
 
Bad-debt expense in the period (net of recoveries)   29,321    41,821 
     
Balance    991,878    962,557 
     
 
Current portion    430,296    416,882 
Long-term portion    561,582    545,675 

(ii) Income statement

The Company recorded bad-debt expenses for probable losses in the accounts receivable in the second quarter of 2006 in the amount of R$ 55,896 (net of recoveries of R$ 26,575 for amounts under R$ 5 and R$ 29,321 for amounts in excess of R$ 5), directly to the period’s income, as determined by Law nº 9,430/96, in the “selling expenses” account. In the second quarter of 2005 these losses amounted to R$ 60,395.

    2nd Qtr/06    2nd Qtr/05 
     
Provisions (over five thousand reais)   (48,118)   (50,271)
Recoveries (over five thousand reais)   18,797    12,915 
Direct write-offs (less than five thousand reais)   (44,946)   (41,752)
Recoveries (less than five thousand reais)   18,371    18,713 
     
Expenses (note 15)   (55,896)   (60,395)
     

Management believes that the allowance for doubtful accounts is sufficient to absorb probable losses in customer accounts receivable.

(d) Unbilled amounts

Unbilled amounts represent water and sewage services provided but not yet billed, which are estimated from the last measurement date to month end based on prior month’s billings.

5. RELATED-PARTY TRANSACTIONS

The Company is a party to a number of transactions with its majority shareholder, the State Government, and its related agencies.

(a) Accounts receivable from the State Government

    June/06    March/06 
     
Current:         
Water and sewage services (i)   168,626    129,357 
GESP Agreement (iii) and (iv)   56,986    56,344 
     
Total current    225,612    185,701 
     
 
Long-term:         
Water and sewage services - GESP Agreement (iii) and  (iv)   104,601    117,385 
Reimbursement for pension benefits paid (ii)   718,957    695,630 
     
Total long-term    823,558    813,015 
     
Total receivable from shareholder    1,049,170    998,716 
     
 
Water and sewage services    330,213    303,086 
Reimbursement for pension benefits    718,957    695,630 
    1,049,170    998,716 
 
(b) Interest on shareholders’ equity    325,366    325,366 
     
 
(c) Operating Revenues         
 
Gross revenue from sales and services    2nd Qtr/06    2nd Qtr/05 
     
Water sales    44,780    43,314 
Sewage services    36,912    36,428 
Collections    (42,423)   (22,748)

The Company does not record an allowance for doubtful accounts for any amounts due from the State Government or entities controlled by the State Government, since it does not expect losses on such receivables.

(i) Water and sewage services

The Company provides water and sewage services to the State Government and its related agencies under terms and conditions that management believes are equal to those with third parties, except for the settlement of amounts outstanding, as described further below in items (iii) and (iv).

(ii) Reimbursement for pension and benefits paid.

Reimbursement for pension and benefits paid represents supplementary pension and leave benefit paid by the Company on behalf of the State Government to former employees of State Government-owned companies which merged to form SABESP. The amounts should be reimbursed to the Company by the Government, as the primary obligor, in conformity with Law No. 200/74. On June 30, 2006 and March 31, 2006, 2,699 and 2,761 retirees, respectively, received supplementary pension payments, for which the Company paid R$ 23,327 and R$ 22,915 in the periods ended June 30, 2006 and March 31, 2006, respectively. There were 182 active employees at June 30, 2006, who will be entitled to these benefits once they retire, as compared to 188 at March 31, 2006.

(iii) GESP Agreement

On December 11, 2001, the Company entered into an agreement with the State of São Paulo Government, through the State Department of Finance and the State Department of Water and Energy - “DAEE”, having the State Department of Water Resources, Sanitation and Works as intervening party, under which the State Government, by force of Law No. 200/74, acknowledged to be responsible for the supplemental retirement and pension benefits and acknowledged the existence of debts in respect of water and sewage services. The total Agreement value was R$ 678,830, of which R$ 320,623 refered to supplemental retirement and pension benefits in the period from March 1986 until November 2001, and R$ 358,207 refered to water supply and sewage collection services invoiced and due from 1985 until December 1, 2001.

Considering the strategic importance of Taiacupeba, Jundiaí, Biritiba, Paraitinga and Ponte Nova reservoirs, for ensuring the volume of water of the Alto Tietê System to be maintained, the Department of Water and Energy - DAEE will transfer these properties to the Company as partial amortization, by means of credit assignment, of the amount owed by the State. The reservoirs evaluation works has been completed and approved by the Company’s Board of Directors, indicating an amount of R$ 300,880 (base date – June, 2002), as shown in the related report.

Based on Official Notice No. 53/2005 of the State Capital Defense Council – CODEC, dated March 21, 2005, negotiations were restarted between the Company and the State Government with a view to restatement of the debt under the terms defined in the GESP agreement, including amounts due after November, 2001. These negotiations shall be consolidated in a second amendment to the Agreement between the State Government and SABESP. The Company has retained Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras, USP – FIPECAFI to validate the actual values to be reimbursed by the State Government, taking into account the legal advice provided by the General Office of the State Attorney.

Once the amounts and the monetary adjustment criterion are defined, SABESP will be able to take applicable actions with DAEE in order to transfer the ownership rights to the Alto Tietê System reservoirs, since no legal restraint exists, once the State Government has timely filed an appeal against the decision that had granted the public civil action and managed to obtain the suspension of the effects thereof.

This second amendment shall also include the criteria for monthly recovery of the future amounts to be disbursed by SABESP.

It is not possible to determine the net effects on the balance sheet resulting from such negotiation. Management does not expect to incur significant losses relating to any differences between the amounts recorded as due from the State Government and the amounts actually paid by SABESP.

The balances for water and sewage services were included in the 1st amendment, as described below (iv).

(iv) First Amendment to GESP Agreement

On March 22, 2004, the Company and the State Government amended the terms of the original GESP Agreement, thereby (1) consolidating and acknowledging amounts due from the State Government for water and sewage services through February 2004, monetarily adjusted through February 2004; (2) formally providing for the offset of amounts due from the State Government against interest on shareholder’s equity declared by the Company and any other debt owed to the State Government at December 31, 2003, which were monetarily adjusted through February 2004; and (3) defining the payment terms of the remaining obligations of the State Government for water and sewage services.

Under the terms of the Amendment, the State Government acknowledged amounts due to the Company for water and sewage services provided through February 2004, in the amount of R$ 581,779, including monetary adjustments based on the Referential Rate (“TR”) at the end of each fiscal year through February 2004. The Company acknowledged amounts due to the State Government with respect to interest on shareholders’ equity of R$ 518,732, including (1) amounts declared and payable relating to years prior to 2003 (R$ 126,967), (2) monetary adjustments on these amounts based on the annual change in the Consumer Prices Index (IPC/FIPE) through February 2004 (R$ 31,098); and (3) amounts declared and payable relating to 2003 (R$ 360,667).

The Company and the State Government agreed to the reciprocal offset of R$ 404,889 (monetarily adjusted through February 2004). The remaining obligation of R$ 176,890 at February 29, 2004 is being paid in monthly installments from May 2005 through April 2009, which is subject to monthly monetary adjustment at the Expanded Consumer Price Index (IPCA/IBGE), plus 0.5% .

The Amendment to the GESP Agreement does not provide for amounts owed by the State Government for supplementary retirement and pension plan benefits, paid by the Company on behalf of the State Government. Such amounts continue to be subject to the terms of the original GESP Agreement. Part of such amounts may be netted upon the transfer of the reservoirs that make up the Alto Tietê System. The Company and the State Government are negotiating the transfer and netting of the additional amounts owed.

Management believes that the amounts owed by the State Government shall be received and it is not estimated that losses will be incurred with such accounts receivable.

(d) Cash and cash equivalents

The Company’s balance of cash and financial investments accounts with financial institutions controlled by the State Government was R$ 303,758 at June 30, 2006 (R$ 44,145 at March 31, 2006). The financial income from such investments was R$ 27,645 and R$ 15,466 in the semesters ended June 30, 2006 and 2005, respectively.

(c) Arrangements to use certain reservoirs

The Company uses the Guarapiranga and Billings reservoirs and a portion of some of the reservoirs of the Alto Tietê System, which are owned by other State of São Paulo-owned companies and it does not pay any fees for their usage.

The Company has the right to use water and to explore the reservoirs of the Alto Tietê System during a 30-year period, beginning in 1997.

6. PROPERTY, PLANT & EQUIPMENT

     
     June/06   March/06
     
        Accumulated        
        Depreciation/        
    Cost   Amortization   Net   Net
 
In use                 
 Water systems:                 
     Land    941,584      941,584    937,416 
     Buildings    2,678,453    (1,367,884)   1,310,569    1,325,158 
     Connections    808,106    (333,465)   474,641    476,587 
     Water meters    272,786    (138,347)   134,439    135,653 
     Networks    3,256,376    (978,556)   2,277,820    2,284,608 
     Equipment    251,150    (164,160)   86,990    90,401 
     Others    520,125    (227,908)   292,217    286,052 
             
Sub total    8,728,580    (3,210,320)   5,518,260    5,535,875 
 
 Sewage system:                 
     Land    354,114      354,114    352,114 
     Buildings    1,485,318    (545,692)   939,626    934,341 
     Connections    858,397    (336,397)   522,000    522,318 
     Networks    4,680,432    (1,082,986)   3,597,446    3,611,064 
     Equipment    501,676    (374,366)   127,310    139,229 
     Others    27,263    (2,172)   25,091    14,553 
             
Sub total    7,907,200    (2,341,613)   5,565,587    5,573,619 
 
 General use:                 
       Land    107,707      107,707    107,707 
       Buildings    122,529    (67,792)   54,737    55,265 
       Transportation equipment    134,103    (126,125)   7,978    9,391 
       Furniture, fixtures and equipment    278,608    (187,397)   91,211    96,314 
       Loan for use of land    20,556      20,556    20,556 
       Loan for use of assets    8,462    (2,536)   5,926    5,926 
             
Sub total    671,965    (383,850)   288,115    295,159 
             
 
Total in use    17,307,745    (5,935,783)   11,371,962    11,404,653 
             
 
Construction in progress:                 
 Water systems    745,328      745,328    720,940 
 Sewage systems    1,529,090      1,529,090    1,451,516 
 Others    20,048      20,048    20,204 
 
Total construction in progress    2,294,466      2,294,466    2,192,660 
             
 
Intangible assets    589,678    (90,404)   499,274    500,003 
             
 
Total    20,191,889    (6,026,187)   14,165,702    14,097,316 
             


(a) Depreciation:

Depreciation is calculated at the following annual rates: buildings – 4%; networks – 2%; equipment – 10%; water meters – 10%; transportation equipment – 20%; IT equipment – 20%; building connections – 5% furniture, fixtures and equipment – 10%. When applicable, depreciation rates are adjusted to take into account the changes in the estimated remaining economic lives as assets are replaced.

Amortization of intangible assets is performed during the term of the concession agreements entered into with the municipalities

(b) Construction in progress

Disbursements from the third quarter of 2006 to 2011, related to construction works already contracted are estimated to be approximately R$ 976,000 (unaudited).

(c) Disposals of property, plant and equipment

In the second quarter of 2006 and 2005 the Company wrote-off property, plant and equipment in the amounts of R$ 956 and R$ 1,448, respectively, related to assets in use, due to obsolescence, thefts and disposal.

Studies supporting the write-offs for obsolescence were concluded by the Company in the accounting period of the write-off, based on undiscounted cash flow projections, and have been approved by Management. The carrying value of property, plant and equipment is monitored on an on-going basis and is adjusted, when appropriate, to assure future projected operating revenue is sufficient to recover the carrying value of the assets.

(d) Expropriations

As a result of the implementation of priority projects related to the water and sewage systems it was necessary to expropriate or establish rights of way through third-party properties, all in conformity with the relevant legislation. The owner’s of these properties will be compensated either through negotiated settlements or judicial arbitration. Disbursements to be effected as from the third quarter of 2006 are estimated to be approximately R$ 280,245 (unaudited), which will be paid out of Company funds. The related assets acquired as a result of these negotiations are recorded as property, plant and equipment when the expropriation is complete. The total amount paid relating to expropriations of property, plant and equipment in the second quarter of 2006 was R$ 1,829 (in the second quarter of 2005 - R$ 4,028).

(e) Tax effects on revaluation of assets

Property, plant and equipment items were revaluated in 1990 and 1991 and have been depreciated at annual rates which take into consideration the estimated remaining economic useful lives of the assets as determined in the respective valuation reports that, as a rule, fall within the ranges of the above presented rates.

As permitted by CVM Instruction 197/93, the Company did not record the deferred tax effects on the surplus of the revaluation of property, plant and equipment carried out in 1990 and 1991. Had the income tax and social contribution on revaluation reserve been accounted for, the unrealized amount at June 30, 2006 would be R$ 445,755 (R$ 476,314 up to June 30, 2005). The amount of R$ 46,205 was realized in the period from January to June, 2006 (January to June, 2005 – R$ 44,626).

(f) Concessions

(i) Intangible Assets

Beginning in 1999, negotiations and acquisitions of new concessions considers the financial economic value of the business, defined in an appraisal report, issued by independent experts.

The terms of these concessions are generally for a period of 30 years and generally include the corresponding right to operate the related concession assets for which the Company does not have title. The purchase price for these concessions is generally the fair value of the concession, based on appraisal reports which take into consideration the projected cash flows and the remaining concession period at the date of acquisition. The cost of the concession assets acquired is amortized over the concession period using the straight-line method.

In the second quarter of 2006 and 2005 the amortization expenses related to intangible concession rights were R$ 4,989 and R$ 4,900, respectively. The amortization expense for the next five years is estimated to be approximately R$ 20,000 per year.

(ii) Fixed Assets in operation

The fixed assets in operation represent the assets involved in the services providing of supply of water and collection of sewage in 352 municipalities. At the end of the concession, assets shall be transferred to the conceding power, by means of indemnification. The other municipalities have been negotiated by financial economic appraisal, as described in the above item.

(g) Capitalization of interest and financial charges

In the second quarter of 2006 and 2005, the Company capitalized to property, plant and equipment interests and monetary variation, including exchange variation, in the amount of R$ 6,284 and R$ (23.210) respectively, during the period in which the related assets were under construction.

(h) Assets in guarantee

At June 30 and March 31, 2006, the Company had assets in the amount of R$ 249,034 provided as guarantee under the Special Tax Debt Refinancing Program – PAES (Note 9).

Three of the Company’s properties in the amount of R$ 60,539 were pledged as collateral for financing with the International Bank for Reconstruction and Development – BIRD.

(i) Non-operating assets

The Company had R$ 26,482 at June 30 and March 31, 2006 referring to other non-operating assets, comprised primarily of land surrounding reservoirs.

(j) Totally depreciated assets

On June 30 and March 31, 2006 the gross accounting value of the totally depreciated assets which are still in use is R$ 347,234 and R$ 342,243, respectively.

7 - LOANS AND FINANCING 

(i) Loans and financing balances 

   
June/06 
March/06 
                                       
   
Short 
 Long 
Short 
 Long 
Final 
Annual Interest 
Adjustment to
   
Term 
Term 
Total 
Term 
Term 
Total 
Maturity 
Rate 
Inflation 
Guarantees 
                                       
 
Local currency                                         
   
 
                                        State of S.Paulo 
União Federal /                                         Government and 
Banco do Brasil    204,639    1,943,908    2,148,547    199,415    1,987,390    2,186,805    2014    8.5%    UPR    Own Funds 
                                         
Debentures 4th Issue    49,998      49,998    74,998      74,998    2006    CDI+1.2%     
                                         
Debentures 5th Issue    44,955      44,955    149,229    149,229    298,458    2007    10.65%    IGP-M   
                                CDI+1.75% and         
Debentures 6th Issue      619,618    619,618      617,085    617,085    2010    11%    IGP-M   
                                CDI+1.5% and         
Debentures 7th Issue      301,891    301,891      301,226    301,226    2010    10.8%    IGP-M   
                                CDI+1.5% and         
Debentures 8 h Issue      701,336    701,336      699,041    699,041    2011    10.75%    IGP-M   
                                         
CEF    45,601    458,124    503,725    44,141    463,050    507,191    2007/2022    5 % to 9.5%    UPR    Own Funds 
                                         
FIDC - SABESP I    41,667    208,333    250,000    27,778    222,222    250,000    2011    CDI+0.7%      Own Funds 
                                3% + TJLP         
BNDES    31,107    169,156    200,263    29,688    177,357    207,045    2013    Limit 6%      Own Funds 
                                12% / CDI /         
Others    2,706    23,496    26,202    2,566    23,907    26,473    2009/2011    TJLP+6%    UPR   
Accrued interest and                                         
financial charges    102,028      102,028    124,732      124,732                 
                         
 
Total local currency    522,701    4,425,862    4,948,563    652,547    4,640,507    5,293,054                 
                         
 
Foreign currency                                         
 
BIRD                                    Currency basket var    Federal 
US$ 4,391 thousand    9,503      9,503    9,340    4,671    14,011    2007    4.84%    + US$    Government 
Soc.Génerale                                        Federal 
EUR 524 thousand    1,449      1,449    2,684      2,684    2006    4.04%    EUR    Government 
BID                                    Currency basket var    Federal 
US$ 440,674 thousand    97,317    856,434    953,751    94,198    857,069    951,267    2007/2025    3 % to 7.7%    + US$    Government 
Eurobonds                                         
US$ 225,000 thousand      486,968    486,968      488,790    488,790    2008    12%    US$   
JBIC                                        Federal 
Yen 465,726 thousand      8,812    8,812      4,691    4,691    2029    1.8% and 2.5%    Yene    Government 
Accrued interests and                                         
financial charges    11,491      11,491    29,778      29,778                 
                         
 
Total foreign currency    119,760    1,352,214    1,471,974    136,000    1,355,221    1,491,221                 
                         
 
Total    642,461    5,778,076    6,420,537    788,547    5,995,728    6,784,275                 
                         

As of June 30, 2006 the Company did not have balances of short-term loans and financing.

Exchange rate as June 30, 2006: USD 2.1643; EUR 2.76814; Yen 0.018920

UPR: Standard Reference Unit - TJLP : Long Term Interest Rate
CURRENCY BASKET VARIATION:: Value referring to the BID and BIRD account - EUR: Euro
CDI: Interbanking Deposit Certificate - IGP-M: General Market Prices Index

(ii) 5th Issue of debentures

On April 19, 2006 the Company anticipated the settlement of the 1st series of the 5th issue of debentures, which final maturity was March, 2007, by using part of the funds obtained from the Credit Rights Investment Fund SABESP I – FIDC, in the amount of R$ 106,373.

(iii) Settlement schedule of loans and financing

Total debt to be paid until the end of 2006 is R$ 351,515, being the amount denominated in United States dollars and in Euro of R$ 66,351, and the amount of R$ 285,164 refers to interest and principal of loans denominated in Brazilian reais.

INSTITUTION  2006  2007  2008  2009  2010  2011  2012
onwards  
TOTAL
Local currency 
União Federal/Banco do Brasil 
Caixa Econômica Federal - CEF 
Debentures 
FIDC – SABESP I 
BNDES 
Others 
Accrued interest and financial charges 
100,152 
22,199 
49,998 
13,889 
15,676 
1,338 

81,912 
213,496 
48,030 
276,768 
55,556 
31,351 
4,136 

20,116 
232,377 
52,042 

55,556 
31,351 
5,457 

252,927 
55,232 
748,298 
55,556 
31,351 
5,299 

275,294 
59,301 
291,398 
55,556 
31,351 
5,202 

299,639 
64,231 
351,336 
13,887 
31,351 
4,770 

774,662 
202,690 


27,832 


2,148,547
503,725 
1,717,798 
250,000 
200,263 
26,202 

102,028 
Total Domestic  285,164  649,453  376,783  1,148,663  718,102  765,214  1,005,184  4,948,563 
Foreign currency 
BIRD 
Société Génerale 
BID 
Euro Bonds 
JBIC 
Accrued interest and financial 
charges 

4,752 
1,449 
48,659 

-
 
11,491 

4,751 

97,317 






68,749 
486,968 





68,749 






68,749 






68,749 

464 




532,779 

8,348 


9,503 
1,449 
953,751 
486,968 
8,812 

11,491 
Total Foreign  66,351  102,068  555,717  68,749  68,749  69,213  541,127  1,471,974 
Grand Total  351,515  751,521  932,500  1,217,412  786,851  834,427  1,546,311  6,420,537 

(iv) Short-term debt structure

One of the Company’s main goals is to reduce its foreign currency debt exposure, therefore minimizing costs and volatility over income.

(v) Covenants

At June 30, 2006 the Company was in compliance with all financial covenants.

8. TAXES AND CONTRIBUTIONS

Income tax and social contribution are accrued on taxable results at the applicable tax rates, generally 25% for income tax and 9% for social contribution tax (34% composite rate).

(a) Balance sheet accounts

    June/06    March/06 
       
In current assets ((b)(i))        
Deferred income tax    16,295    7,593 
Deferred social contribution    5,866    5,397 
       
    22,161    12,990 
       
In long-term assets ((b)(ii))        
Deferred income tax    227,048    224,475 
Deferred social contribution    83,779    83,074 
       
    310,827    307,549 
       
In current liabilities ((b)(iii))        
Deferred PASEP    21,886    21,580 
Deferred COFINS    50,462    48,435 
       
    72,348    70,015 
       
In long-term liabilities ((b)(iv))        
Deferred income tax    62,298    61,558 
Deferred social contribution    17,917    17,652 
Deferred PASEP    16,019    15,538 
Deferred COFINS    43,220    41,004 
       
    139,454    135,752 
       

    2nd Qtr/06    1st Sem/06    2nd Qtr/05    1st Sem/05 
In income                 
Income tax    (86,094)   (178,866)   (123,316)   (185,785)
Deferred income tax    7,048    10,380    12,475    24,875 
             
    (79,046)   (168,486)   (110,841)   (160,910)
             
In income                 
Social contribution    (28,545)   (52,097)   (31,828)   (47,948)
Deferred social contribution    (141)   (8,970)   (9,150)   (13,103)
             
    (28,686)   (61,067)   (40,978)   (61,051)
             

(b) Deferred taxes and social contributions

(i) In Current Assets

Mainly calculated on temporary differences in the amount of R$ 65,180 (March/2006 – R$ 30,371). The tax loss carryforwards basis of social contribution in June 30, 2006 has been totally realized and in March 31, 2006 amounted to R$ 29,597.

(ii) In Long-Term Assets

Mainly calculated on temporary differences in the amount of R$ 908,193 (March/2006 - R$ 897,899) related to income tax and R$ 930,874 (March/2006 - R$ 923,043) related to social contribution.

(iii) In current liabilities

Substantially calculated on amounts invoiced to government agencies, with taxes being deducted upon receipt of the invoices.

(iv) In long-term liabilities

- Income tax and social contribution

Substantially calculated based on temporary differences in the amount of R$ 249,189 (March/2006 - R$ 246,233) relating to income tax and R$ 199,083 (March/2006 - R$ 196,127) relating to social contribution.

- PASEP and COFINS

Substantially calculated on amounts invoiced to government agencies, with taxes being deducted upon receipt of the invoices.

(c) Reconciliation of the effective tax rate

The amount recorded as income tax and social contribution expenses in the quarterly information is reconciled from the nominal rates provided by law, as shown below:

    2nd Qtr/06    1st Sem/06    2nd Qtr/05    1st Sem/05 
 
Income before taxes on income    292,079    750,596    496,341    726,633 
Statutory rate    34%    34%    34%    34% 
             
Tax expense at statutory rate    (99,307)   (255,203)   (168,756)   (247,055)
Permanent differences                 
Realization of revaluation reserve    (7,636)   (15,710)   (7,589)   (15,173)
Interest on shareholders’ equity      44,058    22,712    35,700 
Other differences    (789)   (2,698)   1,814    4,567 
             
Income and social contribution taxes    (107,732)   (229,553)   (151,819)   (221,961)
             
 
Current income tax and social contribution    (114,639)   (230,963)   (155,144)   (233,733)
Deferred income tax and social contribution    6,907    1,410    3,325    11,772 
Effective rate    37%    31%    31%    31% 

9. PAES – Special Tax Debt Refinancing Program

The Company applied for enrollment in the Special Tax Debt Refinancing Program – “PAES”, on July 15, 2003, in accordance with Law No. 10,684, of May 30, 2003, including certain tax liabilities related to COFINS and PASEP subject of a legal action challenging the application of Law No. 9,718/98, and consolidated the previously outstanding balance of the Tax Recovery Program – “REFIS”, in the amount of R$ 316,953. The debt is being paid in 120 months, added by interests at the TJLP rate, the amount thereof being subject to homologation by the Federal Revenue Service.

The amount paid in the 2nd quarter of 2006 was R$ 10,136 (R$ 9,400 in the 2nd quarter of 2005), and R$ 4,628 was accrued in the 2nd quarter of 2006 (R$ 6,309 in the 2nd quarter 2005) relating to financial charges.

Assets pledged as guarantee under the REFIS program, in the amount of R$ 249,034, continue to secure amounts under the PAES program.

10. PROVISIONS FOR CONTINGENCIES
   
Mar/06 
Additions 
Exclusions 
Financial 
June/06 
   
Expenses
                   
Customer claims (i)   296,842    3,801    (4,677)   (12,750)   283,216 
Contractor claims (ii)   197,585        493    198,078 
Civil and tax claims (iii)   89,716    7,391    (4,341)   858    93,624 
Labor claims (iv)   29,752    823    (645)   240    30,170 
Environmental claims (v)   22,388    1,609    (287)   (453)   23,257 
                   
Total    636,283    13,624    (9,950)   (11,612)   628,345 
 
Escrow Deposits    (15,224)   (11,341)   12,105      (14,460)
 
                   
Total    621,059    2,283    2,155    (11,612)   613,885 
                   

The Company has recorded in current liabilities, under the caption “Provisions”, amounts related to judicial lawsuits in process, in phase of sentence. The presented balance of R$ 10,921 (Mach/2006 - R$ 27,288) is net of escrow deposits totaling R$ 13,428 (March/2006 – R$ 3,083).

The Company, based on a joint analysis together with its legal counselors, recorded provisions in an amount considered sufficient to cover probable losses arising from judicial lawsuits, recorded in long term liabilities, under the caption “Provisions”, in the amount of R$ 602,964 (March/2006 – R$ 593,771), presented net of escrow deposits totaling R$ 1,032 (March/2006 – R$ 12,141).

(i) Customer claims – approximately 960 claims from customers have been filed by commercial customers claiming that their tariffs should be equal to those of other categories of consumers and, consequently, claim the refund of amounts imposed and charged by the Company. The Company has obtained final decisions, both favorable and adverse, in several different court levels, and has recorded provisions for cases whose risk of loss has been assessed as probable.

(ii) Contractor claims – Filed by certain construction service contractors alleging underpayment of monetary adjustments, withholding of amounts relating to the effects of the Real Plan and monetary losses from economic-financial unbalance in the applicable contract. These lawsuits are in progress in several different court levels, and provisions are recorded for cases with probable chance of loss.

(iii) Civil and tax claims – Refer to claims for indemnifications for material damages, pain and suffering and loss of profits caused to third parties, in several different court levels, provisioned when classified as of probable loss.

(iv) Labor claims – the Company is party to several labor claims, related to overtime pay, health hazard and risk, prior notice period, job deviation, salary parity and others, most of the amounts involved being under provisional or definite execution, in several court levels, thus being classified as of probable loss and, consequently, duly provisioned.

(v) Environmental claims – refer to several administrative proceedings brought by public agencies, including Companhia de Tecnologia de Saneamento Ambiental – CETESB (Environment Sanitation Technology Company), seeking to impose fine for environmental damages allegedly caused by the Company.

Lawsuits with possible risk of loss

The Company is a party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor matters, which are assessed by its legal advisors to be of possible likelihood of loss and which are not provisioned. The aggregate amount referring to such proceedings is approximately R$ 1,876,000 as of June 30, 2006 (March/06 – R$ 1,935,000).

11. PENSION AND HEALTH BENEFIT PLANS

The Company sponsors the Fundação SABESP de Seguridade Social - SABESPREV, an entity organized in August 1990 with the main purpose of managing SABESP’s complementary pension and health benefit plans.

The monthly contribution to the retirement plan – defined benefit corresponds to 2.10% from the Company and 2.27% from the participating employees.

The contributions made by participating employees presented above is an average, as discount amount depends on salary level, between 1% and 8.5% .

The health benefit program, which is comprised of optional health benefit plans, free-election, is also funded by contributions from the sponsor and the participating employers, which were the following in the period:

Company: average of 6.96% on the payroll;

Participating employees: 3.21% of base salary and bonus, corresponding to 2.31% of the gross payroll, on average.

12. BENEFITS TO EMPLOYEES

In order to meet the provisions of CVM Resolution No. 371, of December 13, 2000, below is a description of the amounts of pension and retirement benefits granted and payable to which the employees will be entitled after service time.

At December 31, 2005, based on independent actuarial reports, SABESP had a net actuarial liability of R$ 329,772, representing the difference between the present value of the Company’s benefit obligations to the participating employees, retired employees and pensioners, and the assets in guarantee.

The Company has elected to recognize the liability over five years beginning in 2002. The actuarial liability as of June 30, 2006, in the amount of R$ 299,118 (March/2006 – R$ 287,824), has been recorded in long-term liabilities.

For the fiscal year 2006 the expense estimate is R$ 56,045, and it has been charged to income in the period from January to June, 2006, as follows:

    2nd Qtr/06    1st Sem/06    2nd Qtr/05    1st Sem/05 
         
Transfer to Sabesprev    3,692    7,416    3,357    6,695 
Actuarial liability recorded    11,294    22,560    13,773    27,560 
         
Total recorded    14,986    29,976    17,130    34,255 

The amount related to past service cost is recorded as an “extraordinary item”, net of tax effects, in the statement of income.

13. PROFIT SHARING

Based on negotiations held by the Company with the entities representing the employees, a Profit Sharing Program was implemented with the payment of an amount corresponding to up to one month’s payroll.

In the semesters ended June 30, 2006 and 2005 the amounts of R$ 24,951 and R$ 24,913, respectively, have been accrued.

On December 2005 an advance payment of R$ 22,906 was made, equivalent to 50% of one month’s payroll, and the remainder payment is estimated to be paid at the end of August 2006.

14. FINANCIAL INSTRUMENTS

(a) Market value of financial instruments

The determination of the market value of financial instruments is performed on an annual by basis Company Management.

(b) Credit risk concentration

A significant portion of sales is made to a geographically dispersed customer base. In relation to those clients, credit risk is mitigated due to the large portfolio and to the control procedures which monitor this risk.

The allowance for doubtful accounts is sufficient to cover eventual losses.

(c) Foreign Currency

Transactions in foreign currency consist of borrowings to specific improvement works and expansion of the Company’s water supply and sewage collection and treatment services.

15. OPERATING COSTS AND EXPENSES

    2nd Qtr/06    1st sem/06    2nd Qtr/05    1st sem/05 
         
1. Cost of Goods and Services Sold                 
Payroll and related charges    263,710    478,343    214,047    409,728 
General supplies    27,899    53,706    25,671    47,304 
Treatment supplies    26,657    59,230    26,078    57,111 
Services    70,721    139,281    68,045    130,546 
Electric power    109,077    213,930    108,527    205,950 
General Expenses    22,119    33,256    8,387    16,211 
Depreciation and Amortization    146,502    288,404    144,038    285,248 
         
    666,685    1,266,150    594,793    1,152,098 
2. Selling Expenses                 
Payroll and related charges    43,655    78,988    35,810    68,924 
Supplies    1,395    2,685    1,511    3,188 

    2nd Qtr/06    1st sem/06    2nd Qtr/05    1st sem/05 
         
Services    18,412    37,064    20,829    40,579 
Electric power    194    401    247    474 
General Expenses    11,931    23,270    11,822    23,426 
Depreciation and Amortization    694    1,394    936    1,713 
Bad debt expenses    55,896    124,118    60,395    106,257 
         
    132,177    267,920    131,550    244,561 
3. General and Administrative Expenses                 
Payroll and related charges    35,915    63,806    28,096    53,375 
Supplies    1,004    2,099    1,036    1,964 
Services    16,810    36,900    28,063    47,448 
Electric power    275    552    382    685 
General Expenses    7,471    6,858    25,155    43,939 
Depreciation and Amortization    3,936    8,048    4,565    8,038 
Tax Expenses    9,061    16,937    7,055    13,467 
         
    74,472    135,200    94,352    168,916 
4. Costs, Selling Expenses, G & A Expenses (1+2+3)                
Payroll and related charges    343,280    621,137    277,953    532,027 
Supplies    30,298    58,490    28,218    52,456 
Treatment supplies    26,657    59,230    26,078    57,111 
Services    105,943    213,245    116,937    218,573 
Electric power    109,546    214,883    109,156    207,109 
General Expenses    41,521    63,384    45,364    83,576 
Depreciation and Amortization    151,132    297,846    149,539    294,999 
Tax Expenses    9,061    16,937    7,055    13,467 
Bad debt expenses    55,896    124,118    60,395    106,257 
         
    873,334    1,669,270    820,695    1,565,575 
5. Financial (Income) Expenses                 
Interests and Charges on local currency Loans and Financing    131,068    269,485    126,889    242,791 
Interests and Charges on foreign currency Loans and Financing    25,419    47,432    38,529    86,994 
Interests on shareholders’ equity      129,582    66,800    105,000 
Interests on shareholders’ equity (reversal)     (129,582)   (66,800)   (105,000)
Other Expenses on Loans and Financing        10    1,817 
Income Tax on Remittances Abroad    2,375    4,452    2,167    4,952 
Other Financial Expenses    11,273    18,452    8,513    17,791 
Monetary Variations on Loans and Financing    18,098    38,231    22,391    44,795 
Exchange Variations on Loans and Financing    11,234    (78,020)   (278,037)   (289,340)
Other Exchange/Monetary Variations    55    545    115    607 
Provisions    (11,612)   7,944    20,152    37,824 
         
    187,912    308,526    (59,271)   148,231 
6. Financial Income                 
Monetary Variations    9,732    17,116    6,776    15,911 
Income from Financial Investments    14,931    27,645    11,828    15,466 
Interest    15,807    25,577    6,388    18,138 
Others         
         
Total Financial Income    40,474    70,344    24,992    49,515 
         
Financial Expenses (Income), net    147,438    238,182    (84,263)   98,716 
         

16. INDEMNITIES RECEIVABLE

Indemnifications receivable is a long term asset representing amounts receivable from the municipalities of Diadema and Mauá as indemnification for the unilateral withdraw of the Company’s water and sewage services concessions in 1995. At June 30, 2006 this asset amounted to R$ 148,794.

Under these concession agreements, the Company invested in the construction of water and sewage systems in these municipalities to meet its concession service commitments. Upon the unilateral termination of the Diadema and Mauá concessions, the municipalities took on the responsibility of providing water and sewage services in these areas. At that time, the Company reclassified from property, plant and equipment balances relating to the impounded assets to long-term assets (indemnities receivable) and recorded impairment charges to reduce the carrying value of the assets to the estimated recoverable amounts for which the Company had contractually agreed as fair compensation with the relevant authorities. The net book value of property, plant and equipment items relating to the municipality of Diadema, written-off in December 1996, was R$ 75,231, and the balance of indemnity and other receivables from this municipality was R$ 62,876 at June 30, 2006. The net book value of the property, plant and equipment items relating to the municipality of Mauá, written-off in fiscal year 1999, was R$ 103,763, and the balance of indemnity receivable from the municipality was R$ 85,918 at June 30, 2006

The Company’s rights to the recovery of these amounts are being disputed by the municipalities and no amount has been received to date.

In December 1996, SABESP filed a claim seeking compensation for the amounts due by the municipality of Diadema. In the first instance the judge pronounced a sentence against SABESP. The Company filed an appeal in November 2000 and on December 1, 2005, it was given partial acceptance to the appeal in order to void the sentence and determine the performance of a new first instance judgment.

With respect to Mauá, a decision has been issued by the lower court requiring Mauá to pay an amount of R$ 153,2 million as compensation for the loss of profits. This decision was appealed by Mauá and is pending appeal court decision.

Based on the advice of legal counsel, management continues to affirm that the Company has the legal right to receive such amounts and it continues to monitor the status of the legal

proceedings. However, the ultimate amounts to be received, if any, will most likely be subject to a final court decision. As such, actual amounts received could differ from those recorded.

17. SHAREHOLDERS’ EQUITY

(a) Authorized Capital

The Company is authorized to increase its capital stock up to a maximum of R$ 4,100,000, corresponding to 40,000,000,000 book-entry common shares without par value.

(b) Subscribed and paid-up capital

Subscribed and paid-up capital is represented by 28,479,577,827 registered common shares, without par value, as follows:

    June/06    March/06 
     
Shareholders    Number of shares      Number of shares   
         
 
State of São Paulo Department of Finance    14,313,511,867    50.26    14,313,511,871    50.26 
Companhia Brasileira de Liquidação e Custódia    7,376,565,344    25.90    7,680,673,428    26.97 
The Bank Of New York ADR                 
Department (Equivalent to stock) (*)   6,761,267,000    23.74    6,457,204,500    22.67 
Other    28,233,616    0.10    28,188,028    0.10 
         
 
    28,479,577,827    100    28,479,577,827    100 
         

(*) Each ADR equals 250 shares

(c) Distribution of earnings

Shareholders are entitled to a mandatory minimum dividend distribution of 25% of adjusted net income, calculated in conformity with Brazilian Corporate Law.

Interest on shareholders’ equity declared in 2005, in the amount of R$ 348,216, was partially paid (R$ 148,769) on June 27, 2006.

Interest on shareholders’ equity declared on April 20, 2006, in the amount of R$ 129,582, will be paid up to 60 days after 2007 Shareholders´ Meeting, net of withholding tax.

(d) Capital reserve

Capital reserve comprises fiscal incentives and donations from governmental entities and private entities.

(e) Revaluation reserve

As provided by CVM Instruction No. 197/93, the Company elected not to recognize income tax and social contribution on the revaluation reserve of property, plant and equipment carried out until 1991.

The reserve has been realized with a corresponding entry to “retained earnings”, to the same proportion of the depreciation and write-off of the assets to which it is related.

(f) Changes in Retained Earnings Account

    June/06    March/06 
     
Balance at beginning of period    222,081   
Realization of revaluation reserve    22,458    23,747 
Current year’s earnings    175,566    327,916 
Interest on shareholders’ equity      (129,582)
     
Balance at end of period    420,105    222,081 
     

18. CASH FLOW

In order to improved information to the market and in conformity with the New Market regulation, the Company is presenting statements of cash flow prepared in accordance with the NPC-20 of the IBRACON.

Description    2nd Qtr/06    1st sem/06    2nd Qtr/05    1st sem/05 
                 
 
Cash flow from operating activities                 
Net income for the period    175,566    503,482    335,741    487,111 
Adjustments to reconcile net income:                 
Deferred taxes and contributions    (6,414)   (3,187)   (5,002)   (15,590)
Provisions for contingencies    10,119    25,556    36,679    68,015 
Pension Obligation    14,986    29,977    17,130    34,255 
Residual cost of property, plant and equipment written-off    956    2,321    1,448    2,332 
Deferred asset write-off    863    863     
Gain on sale of property, plant and equipment      (1,007)    
Depreciation and amortization    151,132    297,846    149,539    294,999 
Interests calculated on loans and financing payable    158,862    321,369    167,611    334,763 
Monetary and exchange variation on loans and financing    29,333    (39,789)   (275,152)   (264,052)
Monetary variation on interest on shareholders’ equity          715 
Interests and monetary variation expense    4,628    9,917    6,309    12,812 
Income from interests and monetary variation    (2,032)   (6,911)   3,918    (2,479)
Allowance for doubtful accounts    55,896    124,118    60,395    106,257 
 
Variation in current assets:                 
 Accounts receivable    (17,075)   (91,228)   (99,256)   (212,297)
 Accounts receivable from shareholder    (25,097)   (29,067)   (107,968)   (95,155)
 Inventories    (1,302)   4,035    (500)   4,564 
 Other accounts receivable    (6,696)   (19,875)   (668)   (14,542)
Variation in long-term assets                 
 Accounts receivable    (52,275)   (86,182)   (26,376)   (60,233)
 Accounts receivable from shareholder    (23,326)   (46,243)   41,706    (13,608)
 Escrow deposits    2,832    (6,866)   773    794 
 Other accounts receivable    (1,645)   (15,959)   (2,193)   (3,088)
                 
Total Variation in current assets    (124,584)   (291,385)   (194,482)   (393,565)
 
Variation in current liabilities                 
 Suppliers and contractors    49,021    10,251    10,654    (5,025)
 Payroll and related charges    82,103    106,919    37,421    62,351 
 Taxes and contributions payable    18,189    17,555    6,981    (6,157)
 Other accounts payable    4,187    (20,965)   3,160    2,308 
 Contingencies    (17,293)   (20,000)   444    444 

Description    2nd Qtr/06    1st sem/06    2nd Qtr/05    1st sem/05 
                 
 
Variation in long-term liabilities                 
 Pension plan    (3,692)   (7,416)   (3,357)   (6,695)
 Other accounts payable 
  1,142    2,288    9,547    10,674 
                 
Total Variation in current liabilities    133,657    88,632    64,850    57,900 
 
Net cash provided by the operating activities    602,968    1,061,802    368,984    723,473 
 
Cash flow from investing activities:                 
Purchase of property, plant and equipment    (204,082)   (331,506)   (139,532)   (240,663)
Sale of property, plant and equipment      2,188     
Increase in deferred assets    (28)   (55)   (28)   (53)
 
Net cash used in investing activities    (204,110)   (329,373)   (139,560)   (240,716)
 
Cash flow from financing activities:                 
Loans and financing – long term:                 
Funds raised    29,265    320,528    713,843    1,061,414 
Repayments    (587,482)   (838,963)   (454,515)   (706,227)
 
Payment of interest on shareholders’ equity    (148,769)   (158,155)   (63,025)   (65,552)
 
Net cash (used in) provided by financing activities    (706,986)   (676,590)   196,303    289,635 
                 
 
Increase (decrease) in cash/cash equivalents    (308,128)   55,839    425,727    772,392 
                 
 
Cash/cash equivalents at the beginning of the period    644,140    280,173    452,222    105,557 
Cash/cash equivalents at the end of the period    336,012    336,012    877,949    877,949 
 
Change in cash/cash equivalents    (308,128)   55,839    425,727    772,392 
                 
 
Supplementary cash flow information:                 
Interests and fees paid on loans and financing    206,085    346,245    163,375    320,422 
Capitalized interests and financial charges    6,284    (6,829)   (23,210)   (14,411)
Income tax and social contribution paid    100,509    221,150    130,774    183,405 
Property, plant and equipment received as donations    8,018    21,940    5,527    7,533 
COFINS and PASEP paid    106,746    219,429    100,229    184,130 
Structuring of accounts          (715)

 
05.01 – COMMENTS ON THE COMPANY’S PERFORMANCE IN THE QUARTER 
 

In the first semester of 2006 Sabesp achieved a gross operating revenue of R$ 2,878.8 million, a 11.5% growth in relation to the same period of 2005. EBITDA reached R$ 1,286.5 million and margin achieved 48.4% . Net income, on its turn, reached R$ 503,5 million.

    in millions of R$ 
 
    1st Qtr/05    1st Qtr/06    Variation   
 
(+) Gross operating revenues    2,582.2    2,878.8    296.6    11.5 
(-) COFINS e PASEP    192.2    220.8    28.6    14.9 
(+) Net operating revenues    2,390.0    2,658.0    268.0    11.2 
(-) Costs and expenses    1,565.6    1,669.3    103.7    6.6 
(=) Income before financial expenses (EBIT*)   824.4    988.7    164.3    19.9 
(+) Depreciation and amortization    295.0    297.8    2.8    0.9 
(=) EBITDA**    1,119.4    1,286.5    167.1    14.9 
EBITDA Margin %    46.8    48.4         
 
Net income    487.1    503.5    16.4    3.4 
Net income per one thousand shares in R$    17.10    14.47         
 

   
in millions of R$ 
 
    2nd Qtr/05    2nd Qtr/06    Variation   
 
(+) Gross operating revenues    1,330.2    1,422.0    91.8    6.9 
(-) COFINS e PASEP    98.9    108.6    9.7    9.8 
(+) Net operating revenues    1,231.3    1,313.4    82.1    6.7 
(-) Costs and expenses    820.6    873.3    52.7    6.4 
(=) Income before financial expenses (EBIT*)   410.7    440.1    29.4    7.2 
(+) Depreciation and amortization    149.5    151.1    1.6    1.1 
(=) EBITDA**   560.2    591.2    31.0    5.5 
EBITDA Margin %    45.5    45.0         
 
Net income    335.7    175.6    (160.1)   (47.7)
Net income per one thousand shares in R$    11.79    6.16         
 
(*) Income before interests and taxes 
(**) Income before interests, taxes, depreciation and amortization. 

1. Operating revenue

SABESP obtained gross operating revenues of R$ 1,422.0 million and EBITDA of R$ 591,2 million in 2Q06. The 6.9% growth in gross operating revenues derives, mainly:

• From the 2.4% increase in the volume of water and sewage billed.
• From the 9.0% adjustment to tariff rates from August 2005 on, partially offset by a concentration of customers whose consumptions were billed in the intermediate tariff rate ranges. The 2% reduction in measurement intervals, in addition to lower temperatures, has caused the retraction to average tariff rate.

In the first semester of 2006, Sabesp achieved gross operating revenue of R$ 2,878.8 million, an 11.5% growth in relation to the same period of the previous year. The EBITDA reached R$ 1,286.5 million and margin reached 48.4% . Net profit, in turn, reached R$ 503.5 million.

2. Invoiced volume

The invoiced volumes of water and sewage by category of use and region in 2Q05 and 2Q06 are demonstrated in the tables below.

INVOICED VOLUME ** OF WATER AND SEWAGE IN RETAIL AND WHOLESALE – in millions of cubic meters 
 
By Category 
 
Water 
  Var. %   
Sewage 
  Var. %   
Water + Sewage 
  Var. % 
     
  2Q05    2Q06      2Q05    2Q06      2Q05    2Q06   
 
Residential    315.7    323.7    2.5    247.4    255.2    3.2    563.1    578.9    2.8 
 
Commercial    36.5    36.7    0.5    33.2    33.7    1.5    69.7    70.4    1.0 
 
Industrial    8.2    8.6    4.9    8.0    8.2    2.5    16.2    16.8    3.7 
 
Public    12.0    12.2    1.7    9.6    9.7    1.0    21.6    21.9    1.4 
 
Total retail    372.4    381.2    2.4    298.2    306.8    2.9    670.6    688.0    2.6 
 
Wholesale    64.6    65.2    0.9                64.6    65.2    0.9 
 
Grand Total    437.0    446.4    2.2    298.2    306.8    2.9    735.2    753.2    2.4 
 
 
 
INVOICED VOLUME ** OF WATER AND SEWAGE IN RETAIL AND WHOLESALE – in millions of cubic meters 
 
By Region 
 
Water 
  Var. %   
Sewage 
  Var. %   
Water + Sewage 
  Var. % 
     
                             
 
Metropolitan    248,0    255,8    3.1    202,4    209,4    3.5    450,4    465,2    3.3 
 
Regional (*)   124,4    125,4    0.8    95,8    97,4    1.7    220,2    222,8    1.2 
 
Total retail    372,4    381,2    2.4    298,2    306,8    2.9    670,6    688,0    2.6 
 
Wholesale    64,6    65,2    0.9                64,6    65,2    0.9 
 
Grand Total    437,0    446,4    2.2    298,2    306,8    2.9    735,2    753,2    2.4 
 
* Comprised by coastal and interior regions
** Unaudited

3. Costs, selling and administrative expenses

In the period from January to June, 2006, cost of goods and services sold, administrative and selling expenses presented an R$ 103.7 million increase, or 6.6%, when compared to the same period in 2005.

 
    1Q05    1Q06    Variation   
 
Payroll and related charges    532.0    621.1    89.1    16.7 
Supplies    52.4    58.5    6.1    11.6 
Treatment supplies    57.1    59.2    2.1    3.7 
Services    218.6    213.2    (5.4)   (2.5)
Electric power    207.1    214.9    7.8    3.8 
General expenses    83.6    63.4    (20.2)   (24.2)
Depreciation and amortization    295.0    297.8    2.8    0.9 
Bad debt expenses    106.3    124.2    17.9    16.8 
Tax expenses    13.5    17.0    3.5    25.9 
Costs, selling and administrative expenses    1,565.6    1,669.3    103.7    6.6 
 

 
    2Q05    2Q06    Variation   
 
Payroll and related charges    278.0    343.3    65.3    23.5 
Supplies    28.2    30.3    2.1    7.4 
Treatment supplies    26.1    26.7    0,6    2.3 
Services    116.9    105.9    (11.0)   (9.4)
Electric power    109.1    109.5    0.4    0.4 
General expenses    45.4    41.5    (3.9)   (8.6)
Depreciation and amortization    149.5    151.1    1.6    1.1 
Bad debt expenses    60.4    55.9    (4.5)   (7.5)
Tax expenses    7.0    9.1    2.1    30.0 
Costs, selling and administrative expenses    820.6    873.3    52.7    6.4 
 

In 2Q06, cost of goods and services sold, selling and administrative expenses had an increase of R$ 52,7 million, or 6.4% .

The main changes identified in the period were:

3.1. Payroll and related charges

In the 2Q06 the Company increased productivity per employee in 3.8% . The number of connections per employee increased from 640 in 2Q05 to 664 in 2Q06, and the number of employees increased from 17,577 to 17,289, respectively.

There has been an increase of R$ 65,3 million, or 23.5%, related to the following factors:

• 4.63% compensation increase, from May 2006 on, affecting salaries, social charges, benefits and provisions, with a reflex of approximately R$ 25,4 million;

• Integral provision of bonus referring to performance evaluation in the amount of R$ 40,8 million in 2Q06, non recurring.

3.2. Supplies

In 2Q06, presented a growth of R$ 2.1 million, or 7.4%, with highlights to the following changes:

• Fuels and vehicle lubricants in the amount of R$ 0.9 million, or 16.1% mostly due to price adjustment;

 
    Alcohol    Gasoline    Diesel    GMV    Accumulated 
 
Average adjustment (%)   35.3    12.7    10.6    5.2     
 
SABESP Average consumption (%)   17    43    38       
 
Average impact on expenses    6.00    5.46    4.03    0.10    15.59 
 

• Increase of R$ 0.7 million in network maintenance, and
• Increase of R$ 0.3 million in repair and maintenance of vehicles.

3.3. Treatment supplies

Presented a R$ 0.6 million increase, or 2.3%, due mainly to increase in average price of supplies, compensated by a reduction in consumption, with highlights to chlorine.

3.4. Services

In 2Q06, services presented a decrease of R$ 11.0 million, or 9.4%, in relation to 2Q05, from R$ 116.9 million to R$ 105.9 million, due mostly to:

• Reduction in technical professional services in the amount of R$ 9.4 million, with emphasis to costs related to the restructuring of an operation in the capital market, occurred in June 2005, in the amount of R$ 7.7 million, non recurring;

• Reduction in specific softwares expenses in the amount of R$ 2.5 million, related to the installation of SIGNOS system (geographic information system) occurred in April 2005, non recurring;

• Reduction in residential connections maintenance expenses in the amount of R$ 1.9 million, in sidewalks paving and restoring in the amount of R$ 1.8 million occurred in the Metropolitan Region of São Paulo, originating mostly from the termination of some contracts related to Global Sourcing.

These decreases have partially been compensated by the following increases:

• R$ 1.7 million increase in vigilance, due to new contracts and pricing adjustment of the existing contracts;

• R$ 1.2 million increase in telephone services;

• Increase in maintenance of operating systems of the Metropolitan Region of São Paulo, in the amount of R$ 0.9 million, and

• R$ 0.6 million increase, mainly by the contracting of leakage detection engineering services.

3.5. Electric power

In the 2Q06 presented a R$ 0.4 million increase, or 0.4%, in relation to 2Q05, from R$ 109.1 million to R$ 109.5 million, despite average adjustment and the increase in produced volume.

3.6. General expenses

In the 2Q06, general expenses presented a R$ 3.9 million decrease, or 8.6%, in relation to 2Q05, from R$ 45.4 million to R$ 41.5 million, due mostly to the lower provision for contingencies.

3.7. Bad debt expenses

Presented a R$ 4.5 million decrease, or 7.5%, caused mainly by the better performance in the recovery losses through the collection of debts accrued as uncollectible.

3.8. Tax expenses

In the 2Q06, tax expenses presented a R$ 2.1 million increase, or 30.0%, in relation to the 2Q05, from R$ 7.0 million to R$ 9.0 million, due mostly to the CPMF, in the amount of R$ 1.2 million, as a result of the repayment of debts in the capital market.

4. Financial and monetary variation expenses

4.1 Financial expenses

In the 2Q06, presented a decrease of R$ 50.3 million, or 28.2%, arising from:

       
in millions of R$ 
 
    2Q05    2Q06    Variation   
 
Financial expenses                 
 
Interests and charges on local currency loans and financing    126.9    131.1    4.2    3.3 
 
Interests and charges on foreign currency loans and financing    38.5    25.4    (13.1)   (34.0)
 
Income tax on remittances abroad    2.2    2.4    0.2    9.1 
 
Other financial expenses    8.5    11.3    2.8    32.9 
 
Provisions    20.2    (11.7)   (31.9)   (157.9)
 
Total financial expenses    196.3    158.5    (37.8)   (19.3)
 
                 
 
Financial income    18.2    30.7    12.5    (68.7)
 
 
 
Financial expenses, net of financial income    178.1    127.8    (50.3)   (28.2)
 

• Increase in interests on local currency loans and financing of R$ 4.2 million related to the 8th issue of debentures on June 2005 and to the FDIC on March 2006;

• Interests on foreign currency loans and financing, with a R$ 13.1 million decrease due mostly to the amortization of Eurobonds matured in July 2005;

• R$ 31.9 million decrease in provision of interests on judicial contingencies due to the lower provision in this quarter.

Financial income presented a R$ 12.5 million growth, or 68.7%, resulting mainly from interests on renegotiated installments and interests of financial investments.

4.2. Monetary variation expenses

Monetary variation expenses presented a R$ 284,9 million increase, arising mostly from the lower appreciation of the real in relation to the US dollar, of 0.4% in the 2Q06, as compared to the appreciation occurred in the 2Q05, of 11.8%

            in millions of R$ 
 
    2Q05    2Q06    Variation   
 
Monetary variation on loans and financing    22.4    18.1    (4.3)   (19.2)
 
Exchange variation on loans and financing    (278.0)   11.2    289.2    (104.0)
 
 
 
    (255.6)   29.3    284.9    (111.5)
 

5. Operating Indicators (*)

As shown in the following table, the Company keeps increasing its services:

    2Q05    2Q06    Var. % 
 
Water connections (1)   6,431    6,538    1.7 
 
Sewage connections (1)   4,817    4,938    2.5 
 
Population directly served with water (2)   22.5    22.6    0.4 
 
Population served with sewage collection (2) (4)   18.2    18.4    1.1 
 
Number of employees    17,577    17,289    (1.6)
 
Operating productivity (3)   640    664    3.8 
 

(1) In thousands of units at the end of the period
(2) In millions of inhabitants at the end of the period. It does not include wholesale supply.
(3) Number of water and sewage connections per employee
(*) Unaudited

10.01 - CHARACTERISTICS OF THE PUBLIC OR PRIVATE ISSUE OF DEBENTURES

1 - ITEM  01 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2001-022 
4 - DATE OF REGISTRATION WITH CVM  06/04/2001 
5 - ISSUED SERIES  ONE 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  04/01/2001 
9 - DUE DATE  12/15/2006 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  CDI + 1.2% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,676.74 
14 - AMOUNT ISSUED (Thousand of reais) 50,302 
15 - DEBENTURES ISSUED (Units) 30,000 
16 - OUTSTANDING SECURITIES (Units) 30,000 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  09/15/2006 

1 - ITEM  02 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2002-014 
4 - DATE OF REGISTRATION WITH CVM  05/14/2002 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  04/01/2002 
9 - DUE DATE  03/01/2007 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  IGPM + 10.65% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 5,337.45 
14 - AMOUNT ISSUED (Thousand of reais) 46,051 
15 - DEBENTURES ISSUED (Units) 8,628 
16 - OUTSTANDING SECURITIES (Units) 8,628 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION  04/01/2005 
22 - DATE OF NEXT EVENT  03/01/2007 

1 - ITEM  03 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2004/031 
4 - DATE OF REGISTRATION WITH CVM  09/17/2004 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  09/01/2004 
9 - DUE DATE  09/01/2007 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  DI + 1.75% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,055.89 
14 - AMOUNT ISSUED (Thousand of reais) 244,769 
15 - DEBENTURES ISSUED (Units) 231,813 
16 - OUTSTANDING SECURITIES (Units) 231,813 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  09/01/2006 

1 - ITEM  04 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2004/032 
4 - DATE OF REGISTRATION WITH CVM  09/17/2004 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  09/01/2004 
9 - DUE DATE  09/01/2009 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  IGPM + 11% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,147.08 
14 - AMOUNT ISSUED (Thousand of reais) 215,957 
15 - DEBENTURES ISSUED (Units) 188,267 
16 - OUTSTANDING SECURITIES (Units) 188,267 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  09/01/2006 

1 - ITEM  05 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2004/033 
4 - DATE OF REGISTRATION WITH CVM  09/17/2004 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  09/01/2004 
9 - DUE DATE  09/01/2010 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  IGPM + 11% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,147.08 
14 - AMOUNT ISSUED (Thousand of reais) 206,382 
15 - DEBENTURES ISSUED (Units) 179,920 
16 - OUTSTANDING SECURITIES (Units) 179,920 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  09/01/2006 

1 - ITEM  06 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2005/006 
4 - DATE OF REGISTRATION WITH CVM  03/10/2005 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  03/01/2005 
9 - DUE DATE  03/01/2009 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  DI + 1.5% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,055.03 
14 - AMOUNT ISSUED (Thousand of reais) 211,006 
15 - DEBENTURES ISSUED (Units) 200,000 
16 - OUTSTANDING SECURITIES (Units) 200,000 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  09/01/2006 

1 - ITEM  07 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2005/007 
4 - DATE OF REGISTRATION WITH CVM  03/10/2005 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  03/01/2005 
9 - DUE DATE  03/01/2010 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  IGPM + 10.8% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,053.91 
14 - AMOUNT ISSUED (Thousand of reais) 105,391 
15 - DEBENTURES ISSUED (Units) 100,000 
16 - OUTSTANDING SECURITIES (Units) 100,000 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  03/01/2007 

1 - ITEM  08 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2005/032 
4 - DATE OF REGISTRATION WITH CVM  06/22/2005 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  06/01/2005 
9 - DUE DATE  06/01/2009 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  DI + 1.5% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,012.45 
14 - AMOUNT ISSUED (Thousand of reais) 354,357 
15 - DEBENTURES ISSUED (Units) 350,000 
16 - OUTSTANDING SECURITIES (Units) 350,000 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  12/01/2006 

1 - ITEM  09 
2 - ORDER NUMBER 
3 - CVM REGISTRATION NUMBER  CVM/SRE/DEB/2005/033 
4 - DATE OF REGISTRATION WITH CVM  06/22/2005 
5 - ISSUED SERIES 
6 - TYPE OF ISSUE  SIMPLE 
7 - NATURE OF ISSUE  PUBLIC 
8 - ISSUE DATE  06/01/2005 
9 - DUE DATE  06/01/2011 
10 - TYPE OF DEBENTURE  WITHOUT PREFERENCE 
11 - REMUNERATION CONDITIONS  IGPM + 10.75% 
12 - PREMIUM/DISCOUNT   
13 - NOMINAL VALUE (reais) 1,011.98 
14 - AMOUNT ISSUED (Thousand of reais) 354,193 
15 - DEBENTURES ISSUED (Units) 350,000 
16 - OUTSTANDING SECURITIES (Units) 350,000 
17 - TREASURY DEBENTURES (Units)
18 - SURRENDERED DEBENTURES (Units)
19 - CONVERTED DEBENTURES (Number)
20 - DEBENTURES TO PLACE (Number)
21 - DATE OF LAST NEGOTIATION   
22 - DATE OF NEXT EVENT  06/01/2007 

16.01 - OTHER INFORMATION DEEMED BY THE COMPANY TO BE RELEVANT SUPPLEMENTARY 
 

Supplementary information

In order to improve the information provided to the market, the Company presents, as supplementary information, the financial statements in the constant currency method.

1. SUPPLEMENTARY INFORMATION IN “CONSTANT CURRENCY METHOD”

(a) Restatement index

The monetary adjustment of the operations relating to permanent assets, shareholder’s equity, income statement accounts and the calculation of gains and losses in monetary items have been measured based on the variation of the Accounting Monetary Unit - UMC, taking as basis the variation of the General Prices Index - Market - IGP-M in the second quarter of 2006, of 0.71%, and of 1,41% accumulated in the year.

(b) Balance sheet accounts

Amounts related to monetary assets and liabilities presented in “constant currency method” are similar to those presented by “corporate legislation”, except for accounts receivable from customers, accounts payable to suppliers and contractors, deferred income tax and social contribution in long-term liabilities, which are adjusted to reflect purchasing power or currency realization as of June 30, 2006, taking as basis the rate published by the National Association of Investment Banks - ANBID.

Permanent assets and shareholders’ equity were adjusted based on the monthly variation of the UMC, updated by the IGP-M until June 30, 2006.

(c) Income statement accounts

All accounts have been monetarily restated based on the variation of the UMC, beginning on the month of recording, adjusted for inflationary gains and losses calculated on each month’s beginning and ending balances of monetary assets and liabilities, and that generated financial or inflationary nominal income and expenses, which have been considered as reductions to the income statement accounts to which they are related.

(d) Deferred taxes and contributions

Deferred income tax and social contribution have been calculated based on the rates of 15%, plus an additional 10%, and 9%, respectively, on the surplus of property, plant and equipment generated by its monetary variation, in accordance with the instructions of CVM, consolidated in IBRACON – Brazilian Institute of the Independent Auditors of Statement No. 006/99.

The amounts presented are in constant currency method as of June 30, 2006.

        In thousands of R$ 
       
Balance Sheet    Nominal    Constant 
    Currency    Currency 
        Method 
     
 
Total Assets    17,716,234    34,886,021 
 
Current Assets    1,874,372    1,871,692 
 
Long-term assets    1,660,031    1,660,031 
 
Permanent assets    14,181,831    31,354,298 
Investments    740    1,989 
Property, plant and equipment    14,165,702    31,324,326 
Deferred assets    15,389    27,983 
     
 
Total liabilities    17,716,234    34,886,021 
 
Current liabilities    1,662,890    1,662,507 
 
Long-term liabilities    7,174,956    12,189,491 
 
Shareholders’ equity    8,878,388    21,034,023 
Capital    3,403,688    9,253,458 
Capital reserves    100,760    157,548 
Revaluation reserve    2,483,566    6,811,150 
Profit reserves    2,470,269    4,596,165 
Retained earnings    420,105    215,702 
     

    In thousands of R$ 
       
    January to June, 2006 
   
Income statement    Nominal    Constant 
    Currency    Currency 
        Method 
     
Net revenue from sales and services rendered    2,658,002    2,658,845 
 
Cost of goods and services sold    (1,266,150)   (1,715,581)
     
 
Gross income    1,391,852    943,264 
         
Selling expenses    (267,920)   (271,426)
Administrative expenses    (135,200)   (144,063)
     
         
Income before net financial expenses    988,732    527,775 
         
Net financial expenses    (238,182)   (151,892)
     
         
Operating income    750,550    375,883 
         
Non-operating income    46    (3,980)
     
         
Income before taxes and profit sharing    750,596    371,903 
     
         
Provision for income tax and social contribution    (230,963)   (232,144)
         
Deferred income tax and social contribution    1,410    102,872 
         
Extraordinary item net of income tax and social contribution    (17,561)   (17,695)
     
         
Net income for the period    503,482    224,936 
     
         
Profit per share    0,01768    0,00790 
     


Conciliation of net income of the period and the shareholders’ equity

    In thousands of R$ 
       
    Net Income of the    Shareholders’ 
Description    Period    Equity 
     
 
Corporate law    503,482    8,878,388 
 
Monetary indexation on         
Permanent assets    (19,509)   17,172,467 
Shareholders’ equity    (361,434)  
Present value adjustment, net    935    (2,297)
 
Reversal (provision) for taxes         
Income tax    74,604    (3,687,158)
Social contribution    26,858    (1,327,377)
     
 
In constant currency method    224,936    21,034,023 
     

2. EVOLUTION OF SHAREHOLDING BY THE CONTROLLING SHAREHOLDER, DIRECTORS AND EXECUTIVE OFFICER FROM 06/30/2005 TO 06/30/2006

  Position as of 03/31/2005 New members  Changes in Common Shares  Left the
 Company 
Position as of 03/31/2006 
Shareholders  Number of Shares  ON Shares  Number of
Shares 
Controlling 
shareholder 
14,313,511,871  50.3        14,313,511,867*  50.3 
Directors  90,016  0.0                 5  668,469**  (3) 758,485  0.0 
Executive Officers               
Members of the Audit        1***    0.0 
Committee               
Outstanding shares  14,165,975,940  49.7        14,165,307,474  49.7 
Total shares  28,479,577,827  100.0                 5  668,470  (3) 28,479,577,827  100.0 

*Difference arising from the entrance and exit of Board Members
** Difference arising from the change in Board of Directors, from the transaction of 110,000 shares from one Board Member and in function of the entrance of a Board Member who possesses 558,468 shares.
*** There has been an acquisition of only 1 share by a member of the Fiscal Council.

3. SHARE POSITION AS OF 06/30/2006

Shareholders holding more than 5% of shares  Common Shares   % 
State of São Paulo Department of Finance  14,313,511,867  50.3 

Shareholders  Common Shares   % 
CONTROLLING SHAREHOLDER

MANAGEMENT
Board of Directors
Board of Executive Officers
Statutory Audit Committee

TREASURY SHARES

TOTAL

OUTSTANDING SHARES 
14,313,511,867


 758,485
 -
 -

 -

 28,479,577,827

 14,165,307,474
50.3








100.0

49.7 

4. SABESP AND THE NEW MARKET

SABESP, at the time of its adhesion to the New Market segment of BOVESPA, which congregates the Brazilian companies whose corporate governance practices are considered the best in Brazil, has incorporated to its By-Laws an Arbitrage Clause. This clause provides that “The Company, its shareholders, Managers and members of the Fiscal Council undertake to resolve, by means of arbitrage, any and all dispute or controversy that may arise among them, related to or resulting from, in special, the application, validity, effectiveness, interpretation, violation and its effects, of the provisions contained in Law No. 6,404/76, in these By-Laws, in the norms enacted by the National Monetary Council, by the Central Bank of Brazil and by CVM, as well as to those rules applicable to the operation of the capital markets in general, in addition to those contained in the New Market Listing Regulation, of the Contract of Participation in the New Market, to be conducted together with the Arbitrage Chamber of the Market set up by BOVESPA, in compliance with the Regulation of the referred Chamber, observed the exception applicable to the unavailable rights”.

17.01 - SPECIAL REVIEW REPORT - UNQUALIFIED 
 

(Convenience Translation into English from the Original Previously Issued in Portuguese)

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
To the Shareholders and Management of
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
São Paulo – SP

1. We have performed a special review of the accompanying interim financial statements of Companhia de Saneamento Básico do Estado de São Paulo - SABESP (the “Company”), consisting of the balance sheet as of June 30, 2006, and the related statement of operations for the quarter then ended and the performance report, all expressed in Brazilian reais and prepared in conformity with Brazilian accounting practices under the responsibility of the Company’s management.

2. We conducted our review in accordance with specific standards established by the Brazilian Institute of Independent Auditors (IBRACON), together with the Federal Accounting Council, which consisted principally of: (a) inquiries of and discussions with persons responsible for the accounting, financial and operating areas as to the criteria adopted in preparing the interim financial statements, and (b) review of the information and subsequent events that had or might have had material effects on the financial position and results of operations of the Company.

3. Based on our special review, we are not aware of any material modifications that should be made to the interim financial statements referred to in paragraph 1 for them to be in conformity with Brazilian accounting practices and standards established by the Brazilian Securities Commission (CVM), specifically applicable to the preparation of mandatory interim financial statements.

4. The supplementary information for the quarter ended June 30, 2006, referring to the financial statements in constant purchasing power, and the statement of cash flows are presented for purposes of additional analysis and are not a required part of the basic financial statements. This supplementary information was reviewed by us in accordance with the auditing procedures mentioned in paragraph 2 and, based on our review, we are not aware of any material modifications that should be made for it to be fairly presented, in all material respects, in relation to the interim financial statements referred to in paragraph 1 taken as a whole.

5. As mentioned in Note 5 to the interim financial statements, the Company is negotiating with the State of São Paulo Government the reimbursement of the amounts for supplementary retirement and pensions paid by the Company and the future flow of these payments to be reimbursed by the State of São Paulo Government.

6. We had previously audited the balance sheet as of March 31, 2006, and reviewed the statements of operations for the quarter and semester ended June 30, 2005, the supplementary information in constant purchasing power, and the statement of cash flows for the quarter ended March 31, 2005, presented for comparative purposes, and issued an unqualified opinion thereon and unqualified review report thereon, dated May 15, 2006 and August 11, 2005, respectively. In addition, our report, dated May 15, 2006, contains a comment similar to the one described in paragraph 5.

7. The accompanying interim financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, August 14, 2006

DELOITTE TOUCHE TOHMATSU    Marco Antonio Brandão Simurro 
Auditores Independentes    Engagement Partner 

INDEX

Group  Table  Description  Page 
01  01  IDENTIFICATION 
01  02  HEAD QUARTER 
01  03  INVESTOR RELATIONS OFFICER (Company’s Mail Address)
01  04  ITR REFERENCE 
01  05  BREAK-DOWN OF CAPITAL STOCK 
01  06  CHARACTERISTICS OF THE COMPANY 
01  07  COMPANIES NOT INCLUDED IN THE CONSOLIDATED  FINANCIAL STATEMENTS 
01  08  PROCEEDS IN CASH 
01  09  AUTHORIZED CAPITAL STOCK AND CHANGES IN THE  CURRENT FISCAL YEAR 
01  10  DIRECTOR OF INVESTOR RELATIONS 
02  01  BALANCE SHEET – ASSETS 
02  02  BALANCE SHEET – LIABILITIES 
03  01  PROFIT & LOSS STATEMENT 
04  01  EXPLANATORY NOTES 
05  01  COMMENTS ON THE COMPANY’S PERFORMANCE IN THE  QUARTER  40 
10  01  CHARACTERISTICS OF THE PRIVATE AND PUBLIC ISSUE OF  DEBENTURES  47 
16  01  OTHER INFORMATION THAT THE COMPANY DEEMS  RELEVANT  56 
17  01  REPORT ON THE SPECIAL REVIEW  61/62 


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

Date: August 23, 2006

 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
By:
/S/ Rui de Britto Álvares Affonso 

 
Name: Rui de Britto Álvares Affonso
Title: Chief Financial Officer and Investor Relations Officer
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.