Tevecap S.A.
Financial Statements Together with
Report of Independent Public Accountants
December 31, 1999 and 1998
Report of Independent Public Accountants
(Translation of the report originally issued in Portuguese.
See Note 27 to the financial statements.)
To the Management and Stockholders of
Tevecap S.A.:
(1) We have audited the individual (Company) and consolidated balance sheets of
TEVECAP S.A.(a Brazilian corporation) and subsidiaries as of December 31, 1999
and 1998, presented under the caption "Corporate law", and the related
statements of income, changes in stockholders' equity, and changes in financial
position for the years then ended, prepared under the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements. The financial statements as of December 31, 1999 of the
affiliated company Canbras TVA Cabo Ltda., the investment in which represents
approximately 13% of the Company's stockholders' equity, were audited by other
independent public accountants who issued an unqualified opinion dated January
19, 2000. This investment generated an equity loss in the affiliate in the
amount of R$7,927,322 for the year ended December 31, 1999. Accordingly, our
opinion as regards the amounts of the investment and equity results in this
affiliated company in 1999 is based upon the report of those accountants.
(2) Our audits were conducted in accordance with auditing standards in Brazil
and comprised: (a) planning of the work, taking into consideration the
significance of the balances, volume of transactions, and the accounting and
internal control systems of the Company and its subsidiaries, (b) checking, on a
test basis, the evidence and records that support the amounts and accounting
information disclosed, and (c) evaluating the significant accounting practices
and estimates adopted by management, as well as the presentation of the
financial statements taken as a whole.
(3) In our opinion, based on our audits and on the report of the other
independent public accountants referred to above, the financial statements
referred to in paragraph (1) present fairly, in all material respects, the
individual and consolidated financial positions of Tevecap S.A. and subsidiaries
as of December 31, 1999 and its 1998, and the results of their operations, the
changes in stockholders' equity, and the changes in their financial positions
for the years then ended in accordance with accounting practices emanating from
Brazilian corporate law.
(4) We have also audited the consolidated balance sheet of Tevecap S.A. and
subsidiaries as of December 31, 1999, presented under the caption "Constant
purchasing power", and the related consolidated statements of income, changes in
stockholders' equity, and changes in financial position for the year then ended,
prepared under the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements. Our audit
was conducted in accordance with the auditing standards mentioned in paragraph
(2). Additionally, regarding affiliated company Canbras TVA Cabo Ltda., we have
audited the adjustments required to conform the amounts of the investment and
equity in the results of the affiliate to accounting principles generally
accepted in Brazil, originally recorded in
accordance with accounting practices emanating from Brazilian corporate law. As
mentioned in Note 2.3., the Company is presenting, for comparison purposes,
unaudited pro forma financial statements in constant purchasing power, for the
year ended December 31, 1998. In our opinion, the consolidated financial
statements in "Constant purchasing power" present fairly, in all material
respects, the consolidated financial position of Tevecap S.A. and subsidiaries
as of December 31, 1999, and the results of their operations, the changes in
stockholders' equity, and the changes in their financial position for the year
then ended in accordance with accounting principles generally accepted in
Brazil.
Sao Paulo, March 21, 2000 (except for the matter discussed in Note 26, as to
which the date is April 10, 2000)
ARTHUR ANDERSEN S/C
Marco Antonio Brandao Simurro
Engagement Partner
TEVECAP S.A.
BALANCE SHEETS--DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais)
(Translation of the original in Portuguese)
A S S E T S
Constant purchasing
Corporate law power
-------------------------------------------------- --------------------------
Company Consolidated Consolidated
------- ------------ ------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
CURRENT ASSETS:
Cash and banks 20 47 3,481 3,628 3,481 2,027
Accounts receivable - - 13,528 49,485 13,528 28,954
Inventories - - 13,117 16,480 15,732 21,629
Film exhibition rights - - 2,286 3,236 2,286 2,277
Accounts receivable -
affiliated companies 4,880 1,069 5,096 11,908 5,096 1,871
Offsettable taxes 670 1,479 2,229 2,269 2,229 2,526
Prepaid expenses 2,254 2,786 3,802 5,463 3,802 6,382
Escrow deposits - - 1,488 - 1,488 -
Other receivables 198 946 4,791 4,717 4,791 4,258
-------------- ----------- ----------- ----------- ----------- -----------
Total current assets 8,022 6,327 49,818 97,186 52,433 69,924
-------------- ----------- ----------- ----------- ----------- -----------
NONCURRENT ASSETS:
Loans to subsidiaries and
affiliated companies 94,963 611,533 36,786 58,555 36,786 70,664
Advances for future capital
increase in affiliated
companies and
subsidiaries 596,013 2 2 2 2 2
Escrow deposits - 95 3,726 2,916 3,726 3,001
Prepaid expenses 905 7,570 905 7,570 905 9,092
Dividends receivable 160,000 - - - - -
Notes receivable 45,621 - 45,621 - 45,621 -
-------------- ----------- ----------- ----------- ----------- -----------
Total noncurrent assets 897,502 619,200 87,040 69,043 87,040 82,759
-------------- ----------- ----------- ----------- ----------- -----------
PERMANENT ASSETS:
Property and equipment 7 9 284,898 522,751 378,979 422,973
Investments 181,756 5,858 3,866 53,521 3,869 72,614
Goodwill on investments - 1 27,846 32,583 38,780 44,475
Deferred charges - - 72,784 88,947 108,702 124,823
-------------- ----------- ----------- ----------- ----------- -----------
Total permanent assets 181,763 5,868 389,394 697,802 530,330 664,885
-------------- ----------- ----------- ----------- ----------- -----------
Total assets 1,087,287 631,395 526,252 864,031 669,803 817,568
============== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these balance sheets.
TEVECAP S.A.
BALANCE SHEETS--DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais)
(Translation of the original in Portuguese)
LIABILITIES AND STOCKHOLDERS' EQUITY
Constant purchasing
Corporate law power
-------------------------------------------------- --------------------------
Company Consolidated Consolidated
------- ------------ ------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
CURRENT LIABILITIES:
Loans and financing 29,853 3,603 15,074 52,494 15,074 59,558
Lease obligations - - - 40,471 - -
Trade accounts payable - films
and licensing - - 15,584 66,926 15,584 25,503
Other trade accounts payable 1,444 947 15,503 127,888 15,503 37,331
Salaries and payroll charges - - 4,258 6,988 4,258 5,728
Taxes payable 2,830 5 10,669 28,403 10,669 19,191
Advances - - 1,678 6,208 1,678 2,907
Other accounts payable 235 210 3,549 8,414 3,549 7,828
------------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 34,362 4,765 66,315 337,792 66,315 158,046
------------- ----------- ----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Loans from subsidiaries and
affiliated companies 242,407 104,258 243,614 176,948 243,614 125,836
Loans and financing 447,250 302,175 102,846 317,393 102,846 380,844
Reserve for losses on
subsidiaries' operations 288,082 197,421 8,468 541 6,877 24,137
Taxes 11,268 - 40,744 1,214 40,744 1,461
Reserve for contingencies - - 4,325 8,999 4,325 9,320
------------- ----------- ----------- ----------- ----------- -----------
Total long-term liabilities 989,007 603,854 399,997 505,095 398,406 541,598
------------- ----------- ----------- ----------- ----------- -----------
MINORITY INTEREST - - (3,978) (1,632) (3,484) (1,019)
------------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Capital 478,741 478,741 478,741 478,741 662,956 662,956
Revaluation reserve 35,689 - 35,689 - 35,689 -
Accumulated deficit (450,512) (455,965) (450,512) (455,965) (490,079) (544,013)
------------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity 63,918 22,776 63,918 22,776 208,566 118,943
------------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity 1,087,287 631,395 526,252 864,031 669,803 817,568
============= =========== =========== =========== =========== ===========
The accompanying notes are an integral
part of these balance sheets.
TEVECAP S.A.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais, except for per share data)
(Translation of the original in Portuguese)
Constant purchasing
Corporate law power
-------------------------------------------------- --------------------------
Company Consolidated Consolidated
------- ------------ ------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
GROSS REVENUE - - 219,652 438,499 235,139 282,044
Taxes - - (22,973) (31,220) (19,380) (19,780)
------------- ----------- ----------- ----------- ----------- -----------
- - 196,679 407,279 215,759 262,264
COST OF SERVICES - - (154,751) (328,159) (165,574) (205,065)
------------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT - - 41,928 79,120 50,185 57,199
OPERATING EXPENSES:
Selling - - 21,093 70,623 19,702 37,294
Administrative 2,037 3,127 42,066 87,937 48,430 61,197
Goodwill amortization - - 4,737 4,711 6,051 6,019
EQUITY IN RESULTS OF
SUBSIDIARIES AND AFFILIATED
COMPANIES 308,323 (95,935) (988) (1,106) (988) (17,923)
PROVISION FOR LOSSES ON
SUBSIDIARIES' OPERATIONS (259,596) (102,877) (138,030) (2,406) (123,426) (88,826)
------------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS
BEFORE NET FINANCIAL
EXPENSES 46,690 (201,939) (164,986) (87,663) (148,412) (154,060)
FINANCIAL EXPENSES, NET (251,427) (16,958) (215,266) (125,791) (155,915) (92,383)
------------- ----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (204,737) (218,897) (380,252) (213,454) (304,327) (246,443)
NONOPERATING INCOME
(EXPENSES), NET 210,190 (2,439) 382,826 (11,463) 355,263 (9,552)
------------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAX 5,453 (221,336) 2,574 (224,917) 50,936 (255,995)
Provision for income tax - - (195) (29) (195) (35)
------------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST 5,453 (221,336) 2,379 (224,946) 50,741 (256,030)
Minority interest - - 3,074 3,610 3,193 4,176
------------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 5,453 (221,336) 5,453 (221,336) 53,934 (251,854)
============= =========== =========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE - R$ 0.0241 (0.9779)
============= ===========
BOOK VALUE PER SHARE - R$ 0.2824 0.1006
============= ===========
The accompanying notes are an integral
part of these statements.
TEVECAP S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais)
(Translation of the original in Portuguese)
Corporate law
--------------------------------------------------------------
Revaluation Total
reserve Accumulated stockholders'
Capital in subsidiary deficit equity
------------ ------------- ----------- -------------
BALANCES DECEMBER 31, 1997 366,000 - (234,629) 131,371
Capital increase - February 17, 1998 112,741 - - 112,741
Net loss - - (221,336) (221,336)
----------- --------- ----------- -----------
BALANCES DECEMBER 31, 1998 478,741 - (455,965) 22,776
Net income - - 5,453 5,453
Revaluation reserve in subsidiary - 35,689 - 35,689
----------- --------- ----------- -----------
BALANCES DECEMBER 31, 1999 478,741 35,689 (450,512) 63,918
=========== ========= =========== ===========
The accompanying notes are an integral part of these statements.
TEVECAP S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais)
(Translation of the original in Portuguese)
Constant purchasing power
-----------------------------------------------------------------------
Revaluation Total
reserve Accumulated stockholders'
Capital in subsidiary deficit equity
-------------- ------------- ------------- -------------
BALANCES DECEMBER 31, 1997 526,454 - (292,159) 234,295
Capital increase - February 17, 1998 136,502 - - 136,502
Net loss - - (251,854) (251,854)
----------- --------- ----------- -----------
BALANCES DECEMBER 31, 1998 662,956 - (544,013) 118,943
Net income - - 53,934 53,934
Revaluation reserve in subsidiary - 35,689 - 35,689
----------- --------- ----------- -----------
BALANCES DECEMBER 31, 1999 662,956 35,689 (490,079) 208,566
=========== ========= =========== ===========
The accompanying notes are an integral part of these statements.
1 of 2
TEVECAP S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands of Brazilian reais)
(Translation of the original in Portuguese)
Constant purchasing
Corporate law power
----------------------------------------------- -----------------------
Company Consolidated Consolidated
------- ------------ ------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
SOURCE OF FUNDS:
Provided by operations 7,730 - 418,439 - 501,058 -
Capital increase - 112,741 - 112,741 - 136,502
Long-term loans and financing - - - 3,328 - 4,007
Loans from affiliated companies 119,852 149,362 109,744 163,915 122,612 180,989
Decrease in noncurrent assets 50,583 49,422 27,280 2,050 30,275 58,734
Write-off of noncurrent prepaid expenses 6,665 1,475 6,665 1,475 6,962 1,780
Transfer of taxes from current to long term - - 21,915 - 21,915 -
Transfer from noncurrent to current assets - - 1,488 - 1,488 -
------- ------- ------- ------- ------- -------
Total sources 184,830 313,000 585,531 283,509 684,310 382,012
======= ======= ======= ======= ======= =======
USE OF FUNDS:
Used in operations - 42,794 - 70,176 - 27,789
Additions-
Property and equipment - - 38,096 193,937 54,692 99,976
Deferred charges - - 524 343 1,839 3,488
Investments 10,343 8,533 4,245 14,651 4,552 52,591
Noncurrent assets 172,229 144,495 50,024 12,389 53,319 67,261
Payment of loans from parent company 30,160 116,540 20,146 119,989 21,439 141,226
Payment of loans and financing - - 242,855 155 269,261 -
Decrease in long-term reserves - - 132 - 150 446
Transfer of loans and financing from long term
to current - - 5,400 19,302 6,033 23,273
Long-term prepaid expenses - 323 - 323 - 390
------- ------- ------- ------- ------- -------
Total uses 212,732 312,685 361,422 431,265 411,285 416,440
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN WORKING CAPITAL (27,902) 315 224,109 (147,756) 273,025 (34,428)
======= ======= ======= ======= ======= =======
REPRESENTED BY:
Current assets-
At end of year 8,022 6,327 49,818 97,186 52,433 69,924
At beginning of year 6,327 4,575 97,186 97,109 118,784 85,806
------- ------- ------- ------- ------- -------
1,695 1,752 (47,368) 77 (66,351) (15,882)
------- ------- ------- ------- ------- -------
Current liabilities-
At end of year 34,362 4,765 66,315 337,792 66,315 158,046
At beginning of year 4,765 3,328 337,792 189,959 405,691 139,500
------- ------- ------- ------- ------- -------
29,597 1,437 (271,477) 147,833 (339,376) 18,546
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN WORKING CAPITAL (27,902) 315 224,109 (147,756) 273,025 (34,428)
======= ======= ======= ======= ======= =======
2 of 2
Constant purchasing
Corporate law power
----------------------------------------------- -----------------------
Company Consolidated Consolidated
------- ------------ ------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
FUNDS PROVIDED BY (USED IN) OPERATIONS:
Net income (loss) 5,453 (221,336) 5,453 (221,336) 53,934 (251,854)
Items not affecting working capital-
Depreciation and amortization 3 4 65,550 88,005 84,668 74,390
Disposal of permanent assets, net - - 106,105 667 138,845 2,348
Goodwill amortization - - 4,737 4,711 6,051 6,019
Equity in results of subsidiaries and
affiliated companies (308,323) 95,935 988 1,106 988 17,923
Provision for losses on subsidiaries'
operations 259,596 102,877 138,030 2,406 123,426 88,826
Capital gains in subsidiaries and affiliated
companies - - - 1,411 - 1,695
Net monetary variations applicable to
long-term items 191,461 (20,274) 79,513 52,916 19,235 33,461
Increase in long-term reserves 10,021 - 12,955 3,548 15,725 3,579
Reversal through write-off of provision for
losses on subsidiaries'
operations/disposal
of investments (150,481) - 8,182 - 61,379 -
Minority interest - - (3,074) (3,610) (3,193) (4,176)
------- ------- ------- ------- ------- -------
Funds provided by (used in) operations 7,730 (42,794) 418,439 (70,176) 501,058 (27,789)
======= ======= ======= ======= ======= =======
The accompanying notes are an integral
part of these statements.
TEVECAP S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
(Amounts in thousands of Brazilian reais, unless otherwise indicated)
(Translation of the original in Portuguese)
1. OPERATIONS
Tevecap S.A. and its subsidiaries are principally engaged in the production,
purchase, licensing, distribution, import and export of our own or third-party
television programs; providing other services related to systems for
transmission, reception and distribution of signals and television programs;
advertising and publicity; and equity in the capital of other companies,
especially those related to the communications area.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Corporate Law
The financial statements (Company and consolidated) were prepared on the basis
of accounting practices emanating from corporate law in Brazil and supplementary
provisions, as described in Note 3.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities as of the financial statement
dates, and the reported amounts of revenues and expenses during the reporting
periods. Since management's judgement involves making estimates concerning the
likelihood of future events, actual results could differ from the estimates.
2.2. Constant Purchasing Power
The Company is including consolidated supplementary financial statements in
constant purchasing power prepared in accordance with corporate law, adjusted
for inflation based on the criteria used for preparing financial statements in
constant purchasing power currency, in conformity with applicable instructions
of the CVM (Brazilian Securities Commission). Reconciliations of income and
stockholders' equity between corporate law and constant purchasing power are
presented in Note 19.
1
2.3. Pro Forma Financial Statements (Unaudited)
Due to the corporate changes described in Notes 7.c. and 7.e., the Company is
presenting pro forma financial statements in constant purchasing power for the
year ended December 31, 1998, based on the premise that the negotiations for
sales of subsidiaries and other investments had been concluded on December 31,
1997. The Company's decision to present these pro forma financial statements
seeks at providing the users with comparative information, to permit an analysis
of financial position and results of operations for the years.
3. SIGNIFICANT ACCOUNTING PRACTICES
3.1. Corporate Law Financial Statements
a. Temporary cash investments are stated at cost, plus income earned to the
balance sheet date.
b. Accounts receivable from customers are represented by billings for
subscriptions, connection fees, advertising and sale of programming.
c. Allowance for doubtful accounts is established on the basis of receivables
pastdue for over 90 days and upon cancellation of subscriptions, and is
considered sufficient to cover losses incurred in the realization of such
receivables.
d. Inventories are stated at average cost and, when applicable, net of a
reserve to reflect replacement cost or net realizable value.
e. Film exhibition rights are stated at acquisition cost of the respective
contracts. Costs of contracts with film producers and programming licensing
are recorded in income when the films and/or programs are exhibited.
f. Escrow deposits, as well as taxes payable and reserves for contingencies
mentioned in Notes 13 and 14 are monetarily restated based on official
indices, established for this purpose.
g. Property and equipment are stated at cost, monetarily restated through
December 31, 1995, plus a partial revaluation, less depreciation calculated
using the straight-line method at the rates indicated in Note 10, based on
the useful lives of the assets and, when applicable, net of reserve for
equipment losses.
h. Investments in subsidiaries are carried under the equity method.
i. Goodwill on investments represents the excess amount paid over the book
value of the net assets on the date of their acquisition. Amortization is
computed by the straight-line method, principally based on the estimated
future profitability of the investments, over periods not exceeding ten
years.
2
j. Deferred costs consist primarily of costs of films, depreciation of
equipment and financial expenses, deferred based on the proportion, in
percentage terms, of the actual number of subscribers to the estimated
number of subscribers for determining the break-even point of the
operation. Once the break-even point was reached, costs and expenses are
amortized on the straight-line method, based on the same period used to
depreciate transmission equipment, estimated at ten years, and charged to
income.
k. Other balance sheet accounts are monetarily restated when subject to
indexation or exchange rate variation.
l. Earnings/Loss and book value per share are calculated on the basis of the
number of shares outstanding at yearend.
m. Statements of income:
o Revenues from advertising and costs of commercial production and
programming are recognized in income upon the broadcasting of the
commercials.
o Revenues from pay television subscriptions are accounted for on the
accrual basis. Costs of films and licensing are recognized in income
based on the related revenues.
o Revenues from hook up fees are recorded on the date the equipment is
installed at the subscribers' household. Direct selling expenses are
recorded in income when incurred and installation costs are
capitalized and amortized over the average period the Company
estimates the subscribers will remain connected.
3.2. Financial Statements in Constant Purchasing Power Currency
a. Inflation accounting - the consolidated financial statements for the years
ended December 31, 1999 and 1998 (pro forma) were prepared in constant
purchasing power currency updated to December 31, 1999, based on the
General Market Price Index (IGP-M) published by the Getulio Vargas
Foundation.
b. Inventories are stated at average cost, monetarily restated and, when
applicable, net of a reserve to reflect replacement cost or net realizable
value.
c. Property and equipment are stated at monetarily restated cost, plus a
partial revaluation, less depreciation calculated under the straight-line
method at the rates indicated in Note 10, based on the useful lives of the
assets and, when applicable, net of allowance for losses on equipment
considered unrealizable.
d. Significant investments in subsidiaries are carried under the equity
method.
e. Other components of the balance sheet are recorded at their original
amounts since they are expressed in constant currency as of December 31,
1999.
3
f. Statements of income - components of the statements of income are updated
as indicated in Note 3.2.a.:
o The cost of services rendered, recorded in subsidiary ledgers, is
restated to reflect constant currency at the balance sheet date.
o Prepaid expenses and advances from customers are controlled in
subsidiary ledgers, and the effects of monetary restatement are
included in the respective statement of income components.
o Equity in results of the subsidiaries and affiliated companies,
determined on the basis of those companies' stockholders' equity, is
restated to the balance sheet date.
3.3. Consolidated Financial Statements
The consolidated financial statements, prepared in conformity with CVM
Instruction No. 247/96 of March 27, 1996, include Tevecap S.A. and the following
subsidiaries:
Ownership interest
(%)
----------------------------
1999 1998
---- ----
TVA Communications Ltd. 100.00 100.00 (f)
TVA Communications Aruba N.V. 100.00 100.00 (d)
Ype Radio e Televisao Ltda. 100.00 100.00 (c)
Galaxy Brasil Ltda. - 100.00 (b)
TVA Sistema de Televisao S.A. 98.00 98.00 (c)
TVA Sistema de Televisao de Porto Alegre S.A. 100.00 100.00 (c)
Rede Ajato Ltda. 100.00 - (f)
Comercial Cabo TV Sao Paulo Ltda. 100.00 100.00 (c)
TVAPar S.A. 100.00 100.00
ESPN do Brasil Ltda. - 50.00 (b)
TVA Banda C Ltda. - 100.00 (b)
TVA Channels Ltda. 100.00 100.00 (d)
TVA Satelite Ltda. - 100.00 (e)
TVA Programadora Ltda. 100.00 100.00 (f)
TVA Distribuidora S.A. 100.00 100.00 (f)
CCS Camboriu Cable System de
Telecomunicacoes Ltda. 51.60 51.60 (a)
TVA Sul Parana Ltda. 86.00 86.00 (c)
(a) Indirect interest through TVA Sul Parana Ltda.
(b) Sold in 1999.
(c) Indirect interest through TVA Distribuidora S.A.
(d) Indirect interest through TVA Programadora Ltda.
(e) Merged into Tevecap S.A. on March 31, 1999.
(f) Directly owned by Tevecap S.A. (see Note 7).
4
Investments in subsidiaries, equity method results, reserve for losses on
subsidiaries' operations, and receivables and payables related to intercompany
transactions are eliminated either totally or in proportional to the Company's
interest, when applicable.
Minority interest is calculated based on the proportion of the minority interest
percentage in stockholders' equity of the respective company and disclosed
separately in the consolidated financial statements.
4. ACCOUNTS RECEIVABLE
Consolidated
---------------------------------------------
Corporate law Constant purchasing power
------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma-
unaudited)
Subscription and hook up fees 25,717 64,055 25,717 30,070
Advertising and programming 3,646 5,916 3,646 8,434
Barters 3,391 5,481 3,391 6,583
Other accounts receivable 1,115 1,955 1,115 523
--------- --------- --------- ---------
33,869 77,407 33,869 45,610
Allowance for doubtful accounts (20,341) (27,922) (20,341) (16,656)
--------- --------- --------- ---------
13,528 49,485 13,528 28,954
========= ========= ========= =========
5. INVENTORIES
Consolidated
---------------------------------------------
Corporate law Constant purchasing power
------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma-
unaudited)
Consumable material 13,741 16,752 16,704 23,855
Imports in transit 1,103 1,947 1,103 2,318
--------- --------- --------- ---------
14,844 18,699 17,807 26,173
Reserve for obsolescence and
reduction to market value (1,727) (2,219) (2,075) (4,544)
--------- --------- --------- ---------
13,117 16,480 15,732 21,629
========= ========= ========= =========
5
6. NOTES RECEIVABLE
As part of the payment for the sale of the Company's interest in Galaxy Brasil
Ltda. and TVA Banda C Ltda., the Company received a promissory note issued by
Galaxy Latin America L.L.C., in the amount of R$45,621, equivalent to
US$25,500,000, maturing on July 28, 2001, subject to interest at LIBID, plus
exchange variation.
7. INVESTMENTS
The direct investments of Tevecap S.A. in subsidiaries as of December 31, 1999
are presented as follows:
Corporate law
--------------------------------------------------------------------------------------------
Number (in
Stockholders' thousands) Provision
Ownership equity Net income of common Equity in for losses on
Capital interest (deficiency in (loss) for shares or income subsidiaries'
Subsidiaries stock (%) net assets) the period quotas (loss) operations
------------ ----- --- ----------- ---------- ------ ------ ----------
TVA Distribuidora S.A. 71,768 100 (280,654) (118,921) 71,768 - (118,921)
TVA Communications Ltd. 36,871 100 181,756 308,323 36,871 308,323 -
TVA Programadora Ltda. 12,117 100 (5,969) (7,155) 12,117 - (7,155)
Rede Ajato Ltda. 1,958 100 (1,459) (3,417) 1,958 - (3,417)
Galaxy Brasil Ltda. - - - - - - (119,325)
TVA Banda C Ltda. - - - - - - (2,607)
ESPN do Brasil Ltda. - - - - - - (8,171)
----------- -----------
308,323 (259,596)
=========== ===========
a. The Company's investments are adjusted according to the interest in
stockholders' equity of its subsidiaries based on their financial
statements prepared in accordance with accounting practices emanating from
Brazilian corporate law, consistently applied.
b. The "Reserve for losses on subsidiaries' operations", under long-term
liabilities, represents losses on operations of subsidiaries with negative
equity.
c. On July 28, 1999, the Company and its subsidiary TVA Communications Ltd.
(TVAICO), after approval of ANATEL - National Telecommunications Authority,
concluded the sales agreement dated May 18, 1999, related to its total
interest in Galaxy Brasil Ltda., TVA Banda C Ltda., Galaxy Latin America
L.L.C. and Surfin Ltd. These transactions generated a gain of R$338,948,
recorded as nonoperating income.
Additionally, as part of the sales agreement of these investments, with the
funds arising from these operations, on July 28, 1999, TVAICO made
investments in the international market in the amount of US$131,201,000,
equivalent to R$238,379, in senior notes issued by the Company. This
investment was made at a discount of 35% from the face value of the notes,
amounting to US$70,647,000, equivalent to R$118,408, recorded as
nonoperating income. As a result of this transaction, of the total amount
of US$250 million of senior notes issued, US$201,848,000 is held in
treasury for future placement in the secondary market.
6
d. On August 1, 1999, Rede Ajato Ltda. was formed to operate in the high speed
Internet market.
e. On November 3, 1999, the Company concluded the sale of ESPN do Brasil Ltda.
This transaction generated a gain of R$5,729, recorded as nonoperating
income.
f. On December 31, 1999, TVA Communications Ltd. declared dividends payable to
the Company in the amount of R$160,000, generated principally from the sale
of investments.
8. GOODWILL ON INVESTMENTS
The Company and its subsidiaries have recorded goodwill on investments, as
follows:
Company Consolidated
------- ------------
Corporate law Corporate law Constant purchasing power
Subsidiaries and affiliated ------------- ------------- -------------------------
companies 1999 1998 1999 1998 1999 1998
--------------------------- ---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
ESPN do Brasil Ltda. - 1 - 1 - 1
Comercial Cabo TV SP Ltda. - - 1,307 1,545 1,880 2,222
TVA Sistema de Televisao S.A. - - 14,706 17,380 20,832 23,733
Ype Radio e Televisao Ltda. - - 3,732 4,411 5,369 6,345
Canbras TVA Cabo Ltda. - - 41 48 58 68
TVTel Ltda. - - 1 - 1 -
TVA Communications Aruba N.V. - - 2,627 2,952 3,501 3,895
TCC TVA Cabo Ltda. - - 1,756 1,998 2,237 2,545
CCS Camboriu Cable System
de Telecomunicacoes Ltda. - - 214 247 285 329
TVA Sul Parana Ltda. - - 3,462 4,001 4,617 5,337
--------- --------- --------- --------- --------- ---------
- 1 27,846 32,583 38,780 44,475
========= ========= ========= ========= ========= =========
7
9. RELATED-PARTY TRANSACTIONS
The following table summarizes the transactions between Tevecap S.A., its
subsidiaries and affiliated companies during the year ended December 31, 1999:
Company
Corporate law
Balance sheet accounts
Advance
for future Financial
Loans Loans Accounts capital expenses,
Subsidiaries and affiliated companies receivable payable receivable increase net
---------- --------- ---------- -------- ---------
TVA Sistema de Televisao S.A. - 7 703 - -
Abril S.A. - 242,393 75 - (47,982)
Canbras TVA Cabo Ltda. 10,312 - - - 3,988
Canbras Participacoes Ltda. 311 - - - -
Galaxy Brasil Ltda. - - 3,578 - (46)
TV Cabo Santa Branca Comercio Ltda. - - - 2 -
TVA Communications Ltd. 58,239 7 - - -
TVA Brasil Radioenlaces Ltda. 26,101 - - - -
ESPN do Brasil Ltda. - - - - 19
TVA Banda C Ltda. - - 93 - (139)
TVA Channels Ltda. - - 1 - 39
Comercial Cabo TV Sao Paulo Ltda. - - 11 - -
Ype Radio e Televisao Ltda. - - 51 - -
TVA Distribuidora S.A. - - 26 590,079 -
TVAPar S.A. - - 17 - -
TVA Programadora Ltda. - - 3 1,962 -
Rede Ajato Ltda. - - - 3,970 -
TVA Sistema de Televisao de - - - -
Porto Alegre S.A. - - 322 - -
---------- --------- ---------- -------- ---------
94,963 242,407 4,880 596,013 (44,121)
========== ========= ========== ======== =========
Consolidated
Balance sheet accounts
Advance
for future
Loans Loans Accounts capital
Subsidiaries and affiliated companies receivable payable receivable increase
------------------------------------- ---------- ------- ---------- --------
Televisao Abril Ltda. - 10 - -
Abril S.A. - 242,913 8 -
ITSA Intercontinental Telecomunicacoes Ltda. - - 144 -
Televisao Show Time Ltda. - 66 104 -
Canbras TVA Cabo Ltda. 10,374 - 20 -
Canbras Participacoes Ltda. 311 - - -
Galaxy Brasil Ltda. - - 3,605 -
TVA Banda C Ltda. - 585 842 -
TV Cabo Santa Branca Comercio Ltda. - - - 2
TVA Brasil Radioenlaces Ltda. 26,101 - 8 -
SMC Marketing Promocional Ltda. - - 79 -
ESPN do Brasil Ltda. - 21 260 -
TVA Network Participacoes S.A. - 19 26 -
---------- ------- ---------- --------
36,786 243,614 5,096 2
========== ======= ========== ========
8
Consolidated
------------
Corporate law Constant purchasing power
------------- -------------------------
Financial Sales Financial Sales
Subsidiaries and affiliated companies expenses, net and costs expenses, net and costs
------------------------------------- ------------- --------- ------------- ---------
Abril S.A. (47,982) (2,562) (15,093) (2,627)
Canbras TVA Cabo Ltda. 3,987 160 2,651 179
Canbras Participacoes Ltda. - - (62) -
California Broadcast Center 360 - (262) -
Galaxy Brasil Ltda. (46) - (111) -
TVA Banda C Ltda. (135) - (68) -
TVA Brasil Radioenlaces Ltda. - - (5,246) -
ESPN do Brasil Ltda. 19 - 35 -
--------- --------- --------- ---------
(43,797) (2,402) (18,156) (2,448)
========= ========= ========= =========
Except for the loan to TVA Brasil Radioenlaces Ltda., which is not subject to
interest, other loans with subsidiaries and affiliated companies are subject to
market interest rates.
Related-party transactions relating to programming sales and costs and printing
services costs were carried out at amounts and under terms usual in the market.
The Company and its subsidiaries have guarantees from the parent company Abril
S.A., including letters of credit, in the amount of R$35,727.
9
10. PROPERTY AND EQUIPMENT
Consolidated
Annual ------------
depreciation Corporate law Constant purchasing power
rates ------------- -------------------------
(%) 1999 1998 1999 1998
--- ---- ---- ---- ----
(Pro forma -
unaudited)
Buildings 4 4,112 13,909 5,579 5,663
Machinery and equipment 10 47,942 100,052 66,403 29,846
Decoders 10 80,497 260,230 115,768 197,381
Reception equipment 20 93,175 111,333 120,000 143,994
Cable installations 10 131,521 101,707 161,933 129,855
Furniture and fixtures 10 2,261 2,992 3,108 3,045
Vehicles 20 3,484 3,385 4,612 4,140
Installations 10 2,427 3,498 3,273 3,223
Telephone sets 10 1,606 2,085 2,215 2,119
Leasehold improvements 20 4,441 4,334 5,920 5,783
EDP equipment 10 9,327 12,925 11,855 17,040
Rights to use software 20 12,615 8,879 16,586 11,285
Tools 50 1,047 1,088 1,463 1,505
---------- ---------- ---------- ----------
394,455 626,417 518,715 554,879
Accumulated depreciation (113,739) (145,492) (144,994) (132,867)
Allowance for equipment losses - (10,181) - (6,055)
Leased assets - 40,471 - -
Telephone lines 1,208 1,225 1,703 1,678
Trademarks and patents 241 230 341 339
Construction in progress 998 6,663 1,244 3,978
Advances to suppliers 1,032 2,714 1,033 82
Other 703 704 937 939
----------- ---------- ----------- ----------
284,898 522,751 378,979 422,973
=========== ========== =========== ==========
As of December 30, 1999, TVA Sistema de Televisao S.A. carried out a revaluation
of its coaxial cable and optical fiber for transmission, including connectors,
terminals, derivation equipment and projects, totaling 3,124 kilometers of
installed cables. As a result, R$36,418 was credited to a revaluation reserve in
stockholders' equity. The subsidiary did not record the tax effects of this
revaluation as it has tax losses not recorded in the accounting records, which
are higher than the tax effects of the revaluation.
10
11. DEFERRED CHARGES
As of December 31, 1999 and 1998, deferred charges are represented by:
Consolidated
-----------------------------------------------------
Corporate law Constant purchasing power
------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma -
unaudited)
Cost of films 22,593 22,593 32,497 32,497
Financial expenses 94,526 94,526 129,463 128,121
Depreciation 4,736 4,736 6,812 6,813
Other 11,379 17,363 15,499 14,991
Accumulated amortization (60,450) (50,271) (75,569) (57,599)
--------- --------- ----------- -----------
72,784 88,947 108,702 124,823
========= ========= =========== ===========
12. LOANS AND FINANCING
1999
Consolidated
------------
Corporate law Constant purchasing power
------------- -------------------------
Long Long
Current term Current term
------- ---- ------- ----
Financing in foreign
currency - senior notes 906 85,987 906 85,987
Financing in local currency 14,168 16,859 14,168 16,859
--------- --------- --------- ---------
15,074 102,846 15,074 102,846
========= ========= ========= =========
On November 26, 1996, the Company obtained funds in the international market in
the amount of US$250 million, equivalent to R$447,250, at the exchange rate on
December 31, 1999. The principal matures on November 26, 2004. Interest thereon
is at 12.625% per year, plus exchange rate variation and is payable May 25 and
November 25 of each year, having started on May 25, 1997. On July 28, 1999, the
subsidiary TVAICO acquired 80.7% of the senior notes, as described in Note 7.c.
Local currency short-term financing is secured by promissory notes and statutory
liens on the financed assets, subject to interest rates varying from 8% to 10%
per year.
11
13. TAXES PAYABLE
The Company and its subsidiaries maintain accruals for the following amounts
related to taxes payable, which include the effects of the option under the Tax
Recovery Program - REFIS, as mentioned in Note 26.
Consolidated
------------
Constant
Corporate law purchasing power
------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma -
unaudited)
COFINS (tax on revenue) 19,792 20,899 19,762 16,412
ICMS (State VAT) 11,905 8,071 11,905 3,677
PIS (tax on revenue) 5,712 246 5,712 60
Other 527 401 557 503
--------- --------- --------- ---------
37,936 29,617 37,936 20,652
--------- --------- --------- ---------
Accruals - Galaxy Brasil Ltda.
and TVA Banda C Ltda.:
ICMS 11,515 - 11,515 -
PIS 1,962 - 1,962 -
--------- --------- --------- ---------
13,477 - 13,477 -
--------- --------- --------- ---------
Total 51,413 29,617 51,413 20,652
Current portion (10,669) (28,403) (10,669) (19,191)
--------- --------- --------- ---------
Long term 40,744 1,214 40,744 1,461
========= ========= ========= =========
As a result of the sales agreement for 100% of the interest in Galaxy Brasil
Ltda. and TVA Banda C Ltda. (see Note 7.c.), the Company assumed liabilities as
of the negotiation date, related to ICMS and PIS, which were accrued and charged
against the gain on sale of the investments in these companies.
The Company has escrow deposits amounting to R$4,164 which will be used to
settle a portion of these liabilities.
12
14. RESERVE FOR CONTINGENCIES
Consolidated
-------------------------------------------------------
Corporate law Constant purchasing power
------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma -
unaudited)
Labor claims 4,325 4,807 4,325 5,459
ECAD - 4,192 - 3,861
-------- -------- -------- --------
4,325 8,999 4,325 9,320
==== ==== ==== ====
The Company has contingencies referring principally to labor claims which are
not accrued in the financial statements. Amounts for the accrued lawsuits are
considered sufficient by management, based on several factors, including (but
not limited to) legal counsels' opinion, the nature of the lawsuit and
historical experience.
In management's opinion, all lawsuits were properly accrued and in the case of
those for which no accrual was made, management believes that the chances of
loss are remote.
Additionally, for certain accrued lawsuits, the Company has escrow deposits
amounting to R$1,050.
15. CAPITAL STOCK
The capital stock of the Company as of December 31, 1999 is represented by
226,338,285 registered common shares without par value.
16. FINANCIAL EXPENSES, NET
Consolidated
------------
Corporate law Constant purchasing power
------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Pro forma -
unaudited)
Financial expenses:
Interest (83,680) (81,553) (59,872) (72,415)
Exchange variations (185,669) (42,544) (146,026) (28,110)
Other (4,615) (11,855) (6,873) (5,506)
----------- ----------- ----------- -----------
(273,964) (135,952) (212,771) (106,031)
----------- ----------- ----------- -----------
Financial income:
Interest 5,071 7,279 3,221 11,212
Exchange variations 51,064 968 51,132 232
Other 2,563 1,914 2,503 2,204
----------- ----------- ----------- -----------
58,698 10,161 56,856 13,648
----------- ----------- ----------- -----------
Financial expenses, net (215,266) (125,791) (155,915) (92,383)
=========== =========== =========== ===========
17. INCOME TAX
As of December 31, 1999, the Company had tax loss carryforwards of R$49,853, and
its subsidiaries and affiliated companies had R$339,072, as follows:
TVA Sistema de Televisao S.A. 290,205
TVA Sul Parana Ltda. 32,398
Rede Ajato Ltda. 3,409
Comercial Cabo TV Sao Paulo Ltda. 453
TVA Distribuidora S.A. 27
TVA Channels Ltda. 11,198
TVA Programadora Ltda. 1,382
----------
339,072
==========
The effects of these tax losses have not been recognized in the accompanying
financial statements.
14
18. NONOPERATING INCOME (EXPENSES)
Company Consolidated
------- ------------
Corporate law Corporate law Constant purchasing power
------------- ------------- -------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(Pro forma -
unaudited)
Capital gain (loss):
On sale of DTH 220,558 -- 338,948 -- 330,134 --
On sale of ESPN do Brasil Ltda 5,729 -- 5,729 -- 5,729 --
TVA Communications Aruba N.V. for its
affiliate HBO Brasil Partners -- -- -- (3,094) -- (3,716)
Write-off of investment in TV Filme Inc. -- -- (7,236) -- (9,710) --
Gain on repurchase of senior notes -- -- 113,641 -- 113,641 --
Advisory fees related to repurchase
of senior notes (15,321) -- (14,210) -- (15,621) --
Allowance for equipment loss -- -- 208 (4,883) 272 (3,088)
Extraordinary losses on transmission rights -- (2,439) -- (2,439) -- (2,935)
Write-off of assets related to cancellations of
subscriptions -- -- (19,306) -- (24,803) --
Write-off of decoders - Digisat operations -- -- (33,669) -- (43,052) --
Other (776) -- (1,279) (1,047) (1,327) 187
-------- -------- -------- -------- -------- --------
210,190 (2,439) 382,826 (11,463) 355,263 (9,552)
======== ======== ======== ======== ======== ========
19. CONSTANT PURCHASING POWER AND CORPORATE LAW
The reconciliation of income and stockholders' equity between corporate law and
constant purchasing power as of December 31, 1999 and for the year then ended is
as follows:
Company Consolidated
------- ------------
Net Stockholders' Net Stockholders'
income equity income equity
-------- -------- -------- --------
Amounts per corporate law 5,453 63,918 5,453 63,918
Restatement of permanent assets and
stockholders' equity 72,378 167,722 69,202 150,254
Restatement of inventories - - 551 2,614
Goodwill adjustment in subsidiaries 589 (3,240) 589 (3,240)
Equity in results of subsidiaries (15,823) (8,715) - -
Allowance for equipment losses (8,663) (11,119) (23,400) 941
Allocation of gains and losses on
deferred charges - - 1,092 (5,921)
Minority interest - - 447 -
-------- -------- -------- --------
Amounts in constant purchasing power 53,934 208,566 53,934 208,566
======== ======== ======== ========
15
20. FINANCIAL INSTRUMENTS
The Company and its subsidiaries have transactions involving financial
instruments as a hedge against fluctuations in international interest rates and
in the valuation of certain financial assets.
Temporary cash investments are usually held for periods less than three months,
and the agreed rates reflect normal market conditions as of December 31, 1999.
Note 12 includes detailed information on loans and financing. The securities
issued in the international market are quoted at 59% of face value as of
December 31, 1999, representing US$119,090,000, equivalent to R$213,052, for the
securities held by TVAICO. As of December 31, 1999, these securities were
recorded by this subsidiary at US$201,848,000, equivalent to R$361,106.
Except for the loans granted to an affiliate, TVA Brasil Radioenlaces Ltda.,
which are not subject to interest, other loans granted under agreements with
subsidiaries and affiliated companies are subject to market interest rates.
The market values of other financial instruments for assets and liabilities as
of December 31, 1999 do not differ from the amounts recorded in the financial
statements.
Such operations are performed and controlled based on criteria periodically
reviewed considering financial soundness, reliability and market profile of the
entity with which they are conducted.
21. GUARANTEES
The Company has provided guarantees and letters of credit on behalf of its
subsidiaries and affiliated companies in the amount of R$21,926.
22. INSURANCE
The policy of the Company and its subsidiaries and affiliated companies is to
maintain insurance coverage for property and equipment and inventories in
amounts considered sufficient to cover the risks involved. As of December 31,
1999, insurance coverage amounted to R$82,441 (consolidated).
23. PENSION PLAN
The Company and its subsidiaries are sponsors of the private pension entity,
Abrilprev Sociedade de Previdencia Privada, the primary objective of which is to
grant employees benefits to supplement those provided by Government Social
Security. The plan is optional to all employees of the sponsoring entities.
Abrilprev is a defined contribution plan, and the principal actuarial method
used to determine contribution levels is the capitalization method.
16
The plan costs, borne by both employees and the sponsoring entities, are
actuarially determined on an annual basis as a fixed percentage of payroll of
the sponsoring entities. Retirement benefits granted are based on employees'
length of service, time of contribution to Social Security, minimum age, and
termination of the employment relationship. In 1999, certain affiliates made
contributions amounting to R$360, in the value of the currency as of December
31, 1999. The net asset position of Abrilprev as of December 31, 1999 is
sufficient to cover vested and nonvested benefits.
24. ABRIL HEALTH CARE PLAN
Abril Health Care Plan has been in operation since February 1996. This plan was
created to provide health care to employees, and their dependents, of Abril
S.A., its subsidiaries and certain affiliated companies. Both the companies
forming part of the Abril Group and employees thereof contribute monthly to
Associacao Abril de Beneficios, the company responsible for the management of
the plan. In 1999, contributions made by certain subsidiaries amounted to
R$1,670.
25. COMMITMENTS
As of December 31, 1999, contractual commitments with Embratel (Brazilian
telecommunications company) assumed by Tevecap S.A. and its subsidiaries for
satellite use from 2000 through September 2003 amounted to R$35,404.
26. SUBSEQUENT EVENT
On April 5, 2000, the Company opted for the Government's Tax Recovery Program -
REFIS, implemented by Decree No. 3,342/00 of January 25, 2000, later converted
into Law No. 9,964/00 of April 10, 2000.
With the option for REFIS, the Company will regularize its tax debts with the
Federal Government for taxable events through February 29, 2000, settling these
debts through this financing. The Company has 60 days, from the formalization of
the option, to present the calculation of debts related to taxes to be paid in
installments. Restatement of tax debts included in REFIS is based on TJLP
(long-term interest rate).
27. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH
The accompanying financial statements are presented on the basis of accounting
practices emanating from corporate law in Brazil. Certain accounting practices
applied by the Company and its subsidiaries that conform with those accounting
practices in Brazil may not conform with accounting principles generally
accepted in the countries where these financial statements may be used.
* * * * * * * * * * * *
17