Exhibit 3
TEVECAP S.A.
REPORT ON
FINANCIAL STATEMENTS
December 31, 1996 and 1995
(Free translation from the
original in Portuguese)
TEVECAP S.A.
REPORT ON
FINANCIAL STATEMENTS
December 31, 1996 and 1995
(Free translation from the
Portuguese language original)
----
CONTENTS
eport of Independent Accountants 1
Balance Sheets 3
Statements of Operations 5
Statements of Changes in Shareholders' Equity 6
Statements of Changes in Financial Position 8
Notes to the Financial Statements 9
[Coopers & Lybrand Logo]
REPORT OF INDEPENDENT ACCOUNTANTS
(Free translation from the Portuguese language original)
To the
Shareholders and Directors of
Tevecap S.A.
1 We have examined the balance sheets of TEVECAP S.A. (Parent Company) and
subsidiaries (Consolidated) as of December 31, 1996 and 1995, presented as
per Corporation Law, and the Consolidated balance sheet as of December 31,
1996, presented in constant purchasing power, and the related statements of
operations, changes in shareholders' equity and changes in financial
position for the years then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express
an opinion on these financial statements based on our audits.
2 We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we: a) plan our work, considering
the materiality of balances, volume of transactions and the Company's system
of internal accounting control; b) examine, on a test basis, evidence
supporting the amounts and disclosures in the financial statements; and c)
assess the accounting principles used and significant estimates made by
Management, as well as evaluate the overall financial statement
presentation.
3 In our opinion, the financial statements referred to in paragraph 1,
presented as per Corporation Law, present fairly, in all material respects,
the financial position of Tevecap S.A. (Parent Company) and subsidiaries
(Consolidated) as of December 31, 1996 and 1995, and the results of their
operations, changes in their shareholders' equity and changes in their
financial position for the years then ended, in accordance with the
accounting methodology required by the Brazilian Corporation Law (Law No.
6.404/76) which does not provide for inflation accounting, as is required by
accounting principles generally accepted in Brazil.
4 In our opinion, the financial statements referred to in paragraph 1,
presented in constant purchasing power, present fairly, in all material
respects, the financial position of Tevecap S.A. and subsidiaries
(Consolidated) as of December 31, 1996, and the results of their
operations, changes in their shareholders' equity and changes in their
financial position for the year then ended, in accordance with accounting
principles generally accepted in Brazil.
1
5 As more fully described in Note 4, during the year, the Company and its
subsidiaries changed the method of accounting for costs related to reception
equipment installed at their subscribers' households.
6 As a result of the changes in consolidation procedures introduced by
Instruction No. 247/96 from CVM (Brazilian Securities and Exchange
Commission), more fully described in Note 2.2, Tevecap S.A. prepared pro
forma financial statements as of and for the year ended December 31, 1995,
including the proportional consolidation of the subsidiaries mentioned in
Note 9.5, in order to provide better comparability between 1996 and 1995.
The financial statements of Tevecap S.A. (parent company) and subsidiaries
(consolidated) as of and for the year ended December 31, 1995, presented in
constant purchasing power, were examined by us, and our report thereon did
not contain qualifications.
Sao Paulo, Brazil
April 11, 1997
(Portuguese language original signed by Marco Antonio Brandao Simurro,
Accountant registered with the Rio de Janeiro Chapter of the Brazilian
Regional Accounting Council--CRC/RJ--under No. 52000 "S" SP 2061 and partner of
Coopers & Lybrand, Biedermann, Bordasch Auditores Independentes, an audit firm
registered with the Sao Paulo Chapter of the CRC under No. SP 8599.)
2
TEVECAP S.A.
BALANCE SHEETS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
-----
ASSETS
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------------------- --------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
Current assets
Cash and cash equivalents........................ 107,310 22,813 108,886 23,623 108,886 25,717
Accounts receivable (Note 5)..................... -- -- 34,119 14,502 34,119 12,889
Inventories (Note 6)............................. -- -- 12,858 12,570 13,634 15,455
Film exhibition rights (Note 7).................. -- -- 1,905 1,585 1,905 881
Accounts receivable from affiliated companies
(Note 11)...................................... -- -- 579 -- 579 --
Offsettable taxes................................ -- -- 246 22 246 24
Advances to employees and other.................. -- -- 3,704 2,345 3,704 2,561
Prepaid expenses................................. 1,200 -- 2,213 894 2,213 911
Other accounts receivable........................ 1,069 2 611 813 611 302
------- ------ ------- ------ ------- ------
Total current assets........................... 109,579 22,815 165,121 56,354 165,897 58,740
------- ------ ------- ------ ------- ------
Long-term assets
Loans and other receivables from affiliated
companies (Note 11)............................ 65,685 100,803 39,814 32,015 39,814 37,077
Advances for future capital increase in affiliated
companies and subsidiaries (Note 11)........... 278,851 183,644 3,468 -- 3,468 506
Legal and compulsory deposits (Note 8)........... -- -- 1,133 883 1,133 964
Prepaid expenses................................. 8,301 -- 8,301 -- 8,301 --
Other accounts receivable........................ -- -- 21 495 21 541
------- ------ ------- ------ ------- ------
Total long-term assets......................... 352,837 284,447 52,737 33,393 52,737 39,088
------- ------ ------- ------ ------- ------
Permanent assets
Property, plant and equipment (Note 12).......... -- -- 219,711 122,747 234,511 118,934
Deferred charges (Note 13)....................... -- -- 115,721 125,388 118,970 127,200
Investments (Note 9)............................. 75,466 6,577 24,188 14,792 25,888 18,110
Goodwill on investments (Note 10)................ 30,580 34,178 39,892 34,178 39,198 33,070
------- ------ ------- ------- ------- -------
Total permanent assets......................... 106,046 40,755 399,512 297,105 418,567 297,314
------- ------ ------- ------- ------- -------
Total assets................................... 568,462 348,017 617,370 386,852 63,720 395,142
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
The accompanying notes are an integral part of the
financial statements.
3
TEVECAP S.A.
BALANCE SHEETS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
-----
LIABILITIES AND SHAREHOLDERS' EQUITY
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------------------- --------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
Current liabilities
Bank loans (Note 14)............................. 3,189 -- 18,420 -- 18,420 --
Film suppliers and licensing..................... -- -- 8,030 10,174 8,030 10,608
Other suppliers.................................. -- -- 55,211 58,275 55,211 55,862
Accrued payroll and related liabilities.......... -- -- 6,429 5,485 6,429 4,864
Taxes payable other than income taxes............ -- 8,477 6,888 8,477 7,325
Advance payments received from subscribers....... -- -- 11,177 4,127 11,177 4,266
Other accounts payable........................... 349 165 5,753 4,753 5,753 3,927
------- ------ ------- ------- ------- -------
Total current liabilities...................... 3,538 165 113,497 89,702 113,497 86,852
------- ------ ------- ------- ------- -------
Long-term liabilities
Loans from affiliated companies (Note 11)........ 6 569 190 2,248 190 632
Bank loans (Note 14)............................. 259,850 -- 259,850 -- 259,850 --
Loans from shareholders.......................... -- -- 1,670 175 1,670 191
Provision for losses on subsidiaries' operations
(Note 9.2)..................................... 69,726 57,717 -- -- -- --
Advance for future capital increase.............. -- -- -- 820 -- --
Provision for tax and labor contingencies
(Note 8)....................................... -- -- 5,113 1,423 5,113 1,555
Other accounts payable........................... -- -- 1,115 1,558 1,115 1,701
------- ------ ------- ------- ------- -------
Total long-term liabilities.................... 329,582 58,286 267,938 6,224 267,938 4,079
------- ------ ------- ------- ------- -------
Minority interest.................................. -- -- 593 1,360 613 (3,540)
------- ------ ------- ------- ------- -------
Shareholders' equity
Paid-in capital (Note 15)........................ 366,000 314,707 366,000 314,707 399,655 399,655
Capital reserves................................. -- 51,293 -- 51,293 -- --
Accumulated deficit.............................. (130,658) (76,434) (130,658) (76,434) (144,502) (91,904)
------- ------ ------- ------- ------- -------
Total shareholders' equity..................... 235,342 289,566 235,342 289,566 255,153 307,751
------- ------- ------- ------- ------- -------
Total liabilities and shareholders' equity..... 568,462 348,017 617,370 386,852 637,201 395,142
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
The accompanying notes are an integral part of the
financial statements.
4
TEVECAP S.A.
STATEMENTS OF INCOME
December 31, 1996 and 1995
(in thousands of reais, except for per share data)
(Free translation from the Portuguese language original)
-----
CONSTANT
CORPORATION LAW PURCHASING POWER
------------------------------------- ----------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
---------------- ---------------- ----------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
Revenues from services sold..................... -- -- 226,929 121,631 232,119 123,084
Less-taxes thereon........................... -- -- (14,230) (7,018) (14,636) (7,712)
------- ------- --------- --------- --------- --------
-- -- 212,699 114,613 217,483 115,372
Cost of services sold........................... -- -- (137,901) (105,106) (142,694) (110,164)
------- ------- --------- ---------- --------- ---------
Gross profit.................................... -- -- 74,798 9,507 74,789 5,208
Operating expenses
Selling....................................... -- -- 42,783 22,782 42,847 26,796
Administrative................................ 625 189 55,768 35,709 57,572 31,575
Goodwill amortization......................... 3,598 1,684 4,250 1,684 4,133 1,741
Interest expenses............................. 16,330 18,077 27,830 22,379 24,867 20,734
Interest income................................. 4,246 4,915 7,820 6,011 6,769 5,632
Equity in income of affiliates (Note 9)......... (47,714) (48,329) (2,950) (2,394) (2,973) (977)
------- ------- --------- ---------- --------- ---------
Operating loss.................................. (64,021) (63,364) (50,963) (69,430) (50,834) (70,983)
Nonoperating income (expenses), net (Note 17)... 9,797 362 (5,698) 245 (4,191) 235
Balance sheet monetary restatement.............. -- 232 -- (569) -- --
------- ------- --------- --------- --------- ---------
Loss before income taxes................... (54,224) (62,770) (56,661) (69,754) (55,025) (70,748)
Provision for income taxes...................... -- (6) (186) (517) (186) (569)
------- ------- --------- ---------- --------- ---------
Loss before minority interest.............. (54,224) (62,776) (56,847) (70,271) (55,211) (71,317)
Minority interest............................... -- -- 2,623 7,495 2,613 2,035
------- ------- --------- ---------- --------- ---------
Net loss (Note 18)......................... (54,224) (62,776) (54,224) (62,776) (52,598) (69,282)
------- ------- --------- ---------- --------- ---------
------- ------- --------- ---------- --------- ---------
Loss per share in R$(Note 3.1.13)............... (0.2756) (0.3191)
------- -------
------- -------
Book value per share in R$(Note 3.1.13)......... 1.1964 1.4720
------- -------
------- -------
The accompanying notes are an integral part of the
financial statements.
5
TEVECAP S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
CORPORATION LAW
------------------------------------------------
TOTAL
PAID-IN CAPITAL ACCUMULATED SHAREHOLDERS'
CAPITAL RESERVES DEFICIT EQUITY
--------- --------- ------------ ------------
Balances at December 31, 1994................................... 129,565 64,884 (11,154) 183,295
Capital increase with reserves April 27, 1995................... 64,884 (64,884) -- --
Capital contributed on:
September 22, 1995............................................ 1,903 -- -- 1,903
September 25, 1995............................................ 7,626 -- -- 7,626
September 26, 1995............................................ 38,181 -- -- 38,181
December 8, 1995.............................................. 72,548 -- -- 72,548
Monetary restatement............................................ -- 51,293 (2,504) 48,789
Net loss for the year........................................... -- -- (62,776) (62,776)
--------- --------- ------------ ------------
Balances at December 31, 1995................................... 314,707 51,293 (76,434) 289,566
Capital increase with reserves April 30, 1996................... 51,293 (51,293) -- --
Net loss for the year........................................... -- -- (54,224) (54,224)
--------- --------- ------------ ------------
Balances at December 31, 1996................................... 366,000 -- (130,658) 235,342
--------- --------- ------------ ------------
--------- --------- ------------ ------------
The accompanying notes are an integral part of the
financial statements.
6
TEVECAP S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
Constant purchasing power
------------------------------------------
Total
Paid-in Accumulated Shareholders'
Capital Deficit Equity
--------- ------------ -----------------
Balances at December 31, 1994........................................ 260,022 (22,622) 237,400
Capital contributed on:
September 22, 1995.................................................. 2,277 -- 2,277
September 25, 1995.................................................. 9,123 -- 9,123
September 26, 1995.................................................. 45,677 -- 45,677
December 8, 1995.................................................... 82,556 -- 82,556
Net loss for the year................................................ -- (69,282) (69,282)
--------- ------------ -------
Balances at December 31, 1995........................................ 399,655 (91,904) 307,751
Net loss for the year................................................ -- (52,598) (52,598)
--------- ------------ -------
Balances at December 31, 1996........................................ 399,655 (144,502) 255,153
--------- ------------ -------
--------- ------------ -------
The accompanying notes are an integral part of the
financial statements.
7
TEVECAP S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
Constant
Corporation Law purchasing power
--------------------------------------- ------------------
Parent company Consolidated Consolidated
------------------- ----------------- -------------------
1996 1995 1996 1995 1996 1995
--------- --------- -------- ------- -------- -------
Pro Forma
(Note 2.2)
Sources of funds
Total funds from operations............ -- 465 -- -- -- --
Capital increase....................... -- 120,258 -- 120,258 -- 139,632
Bank loans, long-term.................. 259,850 -- 259,850 -- 259,850 --
Loans from affiliated companies........ 167,136 124,142 151,046 122,993 155,531 147,781
Loans from shareholders ............... -- -- 1,670 -- 1,670 --
Decrease in long-term assets of
related companies..................... 142,316 32,939 7,357 5,553 9,921 7,558
Adjustment to beginning balance as
per CVM Regulatory Instruction
No.247/96............................. -- -- 10,958 -- -- --
Other ................................. -- (6) 5,142 5,110 10,250 1,991
------- ------- ------- ------- ------- -------
Total sources of funds.............. 569,302 277,798 436,023 253,914 437,222 296,962
------- ------- ------- ------- ------- -------
Uses of funds
Total funds used in operations......... 3,526 -- 5,195 40,512 1,904 40,068
Additions
Property, plant and equipment......... -- -- 129,437 73,330 136,045 77,459
Deferred charges...................... -- -- 5,609 2,619 5,643 1,381
Investments........................... 94,798 2,585 11,858 12,749 11,993 16,626
Goodwill.............................. -- 5,779 9,964 5,780 10,261 7,412
Long-term assets...................... 200,496 108,095 18,273 8,098 18,273 12,395
Repayment of loans from affiliated
companies............................. 178,790 138,548 162,414 137,031 164,290 161,192
Prepaid expenses....................... 8,301 -- 8,301 -- 8,301 --
------- ------- ------- ------- ------- -------
Total uses of funds................. 485,911 255,007 351,051 280,119 356,710 316,533
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital............................... 83,391 22,791 84,972 (26,205) 80,512 (19,571)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital represented by:
Current assets:
At end of year........................ 109,579 22,815 165,121 56,354 165,897 58,740
At beginning of year.................. 22,815 1 56,354 18,732 58,740 24,335
------- ------- ------- ------- ------- -------
86,764 22,814 108,767 37,622 107,157 34,405
------- ------- ------- ------- ------- -------
Current liabilities:
At end of year........................ 3,538 165 113,497 89,702 113,497 86,852
At beginning of year.................. 165 142 89,702 25,875 86,852 32,876
------- ------- ------- ------- ------- -------
3,373 23 23,795 63,827 26,645 53,976
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital............................... 83,391 22,791 84,972 (26,205) 80,512 (19,571)
------ ------- ------- ------- ------- --------
------ ------- ------- ------- ------- --------
Statement of funds from (used in)
operating activities
Net loss for the year.................. (54,224) (62,776) (54,224) (62,776) (52,598) (69,282)
Items not requiring outlay of net
working capital
Depreciation and amortization......... -- -- 32,318 14,930 34,342 16,293
Write-offs of permanent assets,
net.................................. -- -- -- 144 -- 189
Goodwill amortization................. 3,598 1,684 4,250 1,684 4,133 1,741
Equity in income of subsidiaries...... 23,766 1,160 2,950 -- 2,973 977
Provision for losses on
subsidiaries' operations............. 23,948 47,169 -- 2,394 -- --
Balance sheet monetary
restatement.......................... -- (232) -- 569 -- --
Capital gains in subsidiaries and
affiliates........................... (9,797) (369) 1,397 (362) 1,351 (235)
Monetary variations/net losses
applicable to long-term.............. 9,183 13,823 10,551 9,883 10,322 11,715
Increase in long-term provisions....... -- 6 186 517 186 569
Minority interest...................... -- -- (2,623) (7,495) (2,613) (2,035)
------ ------ ------- ------- ------- -------
Total (used in) from operations..... (3,526) 465 (5,195) (40,512) (1,904) (40,068)
------ ------ ------- ------- ------- -------
------ ------ ------- ------- ------- -------
The accompanying notes are an integral part of the
financial statements.
8
TEVECAP S.A.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
1 Business Segment
Tevecap S.A. and subsidiaries provide services related to wireless,
cable and parabolic antenna television systems, including marketing and
advertising, production, licensing, distribution, import and export of
domestic and foreign television programs, under licensing agreements,
and hold interests in other companies, particularly those engaged in the
communications sector.
2 Presentation of the Financial Statements
2.1 Basis of Presentation
a) Financial Statements as per Corporation Law
The financial statements (parent company and consolidated) were prepared
in accordance with the accounting methodology required by the Brazilian
Corporation Law (Law No. 6.404/76 and supplementary provisions). The
amounts recorded in the parent company financial statements do not
reflect the effects of inflation in accordance with accounting principles
generally accepted in Brazil applied in the preparation of financial
statements in constant purchasing power. Such effects are presented in
Note 18.
b) Financial statements in constant purchasing power
The consolidated financial statements in constant purchasing power were
prepared in accordance with the Corporation Law, adjusted for inflation
following the criteria for preparation of financial statements in
constant purchasing power, as required by CVM
9
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
Instruction No. 191/92, and monetarily restated through December 31, 1996,
based on the monthly variation in the Market General Price Index (IGP-M)
published by Getulio Vargas Foundation (FGV). The Company opted to use
this index as recommended by the Brazilian Association of Listed Companies
(ABRASCA) to maintain consistency with those required by CVM Circular No.
03/95, of September 1, 1995.
2.2 Pro forma financial statements
As more fully described in Note 9.5, the Company has included pro forma
consolidated financial statements as of and for the year ended December
31, 1995 which reflect the changes in accounting for investments in
subsidiaries and affiliated companies.
3 Summary of significant accounting policies
3.1 Financial statements as per Corporation Law
a) Inflation accounting
Effects of inflation are recognized in the financial statements by
monetary restatement of permanent assets and shareholders' equity through
December 31, 1995, based on the variation in the Ufir (Fiscal Reference
Unit). Law No. 9.249/95, of December 26, 1995, abolished the balance sheet
monetary restatement effective January 1, 1996 for tax and corporate
purposes. Other assets and liabilities subject to indexation or exchange
rate change continue to be monetarily restated.
10
NOTES TO THE FINANCIAL STATEMENTS, Continued
b) Cash and cash equivalents are stated at acquisition cost, plus income
earned through the balance sheet dates.
c) Accounts receivable include revenues from subscriptions, hook-up fee,
advertising, and sale of programming.
d) An allowance for doubtful accounts is established on the basis of an
analysis of accounts receivable, considering the risks involved, and is
considered sufficient to cover any losses incurred in realization of such
receivables.
e) Inventories are stated at average acquisition cost, which is lower than
market value.
f) Film exhibition rights are stated at acquisition cost of the respective
contracts, net of the provision for loss. Films exhibition rights and
programming licensing are recognized as the films and/or programs are
shown.
g) Legal and compulsory deposits, as well as provisions for taxes and
contributions, are monetarily restated based on the official indices
established for this purpose.
h) Property, plant and equipment are stated at cost, monetarily restated
through December 31, 1995, less depreciation calculated using the
straight-line method at the rates stated in Note 12, over the remaining
useful lives of the assets.
i) Investments in subsidiaries and significant investments in affiliates
greater than 10% are accounted for by the equity method. Other investments
are presented at acquisition cost, monetarily restated through December
31, 1995, net of a provision for unrealizable investments, if applicable.
j) Goodwill on investments represents the excess amount paid over the fair
market price of the underlying net assets acquired. Amortization is
computed by the straight-line method over periods not exceeding ten years.
11
NOTES TO THE FINANCIAL STATEMENTS, Continued
k) Deferred charges consist primarily of film costs, equipment depreciation
and interest expense which were deferred based on the proportion, in
percentage terms, of actual number of subscribers to estimated number of
subscribers for determining the break-even point of the operation. Once
the break-even point was reached, costs and expenses have been amortized
based on the same period (ten years) used to depreciate transmission/
reception equipment. Costs and expenses incurred after the break-even
point is reached are charged to expense as incurred.
l) The Company analyzed the realization of assets as of December 31, 1996 and
concluded that book values are lower than realizable values.
m) Loss and book value per share are calculated on the basis of the number of
outstanding shares at the balance sheet dates.
n) Statement of income
n.1) -- Advertising revenues and production costs of advertisement and
programming are recognized in income when ads are aired.
n.2) -- Subscription revenues are recorded on an accrual basis. Film and
licensing costs are recorded in income according to the respective
revenues.
n.3) -- Hook-up fees are recorded on the date the equipment is installed at the
subscriber's household. Direct selling expenses are charged to expense
as incurred and installation costs are capitalized and amortized over
the average period that the Company estimates subscribers will remain
connected.
12
NOTES TO THE FINANCIAL STATEMENTS, Continued
3.2 Financial Statements in Constant Purchasing Power
a) Inflation Accounting
The financial statements for the year ended December 31, 1996 were
prepared in constant purchasing power, based on the Market General Price
Index (IGP-M) published by Getulio Vargas Foundation (FGV). The financial
statements for the year ended December 31, 1995 were restated using the
IGP-M. Fixed interest rate receivables and payables with future maturities
were discounted to present value based on the variation in daily rates,
which approximate the rate set by the Brazilian Investment Bank
Association (Anbid). The effects of these adjustments are included in the
respective income statement accounts.
b) Inventories are stated at their monetarily restated average acquisition
cost, which is lower than replacement cost or net realizable value.
c) Property, plant and equipment are stated at monetarily restated cost, less
depreciation which is calculated under the straight-line method at the
rates stated in Note 12, over the remaining useful lives of the assets.
d) Investments in subsidiaries and significant investments in affiliates
greater than 10% are accounted for by the equity method. Other investments
are presented at monetarily restated acquisition cost, net of a provision
for unrealizable investments, if applicable.
e) Advances from customers are stated at their original amounts, monetarily
restated by reference to the IGP-M variation.
f) Other balance sheet accounts are recorded at their original amounts since
they are expressed in constant currency of December 31, 1996.
13
NOTES TO THE FINANCIAL STATEMENTS, Continued
g) Statement of operations
The statement of operations accounts are monetarily restated, as
indicated in item 3.2.1:
g.1) -- Cost of services sold is restated through the balance sheet date.
g.2) -- Deferred expenses and advances from customers are monetarily restated,
the effects of which are included in the respective statement of
operations accounts.
g.3) -- Equity in income/(losses) of subsidiaries and affiliated companies is
restated through the balance sheet dates.
g.4) -- Fixed interest rate receivables and payables are recorded at present
value in the income or expense accounts, based on the variation in the
daily rates which approximate the Anbid rate prevailing on the
transaction date. Accretion of the related amounts are recorded as
income or expenses in subsequent months, and offset against inflation
gains or losses generated by beginning balances of receivables and
payables in the same period, calculated by reference to the IGP-M
variation.
14
NOTES TO THE FINANCIAL STATEMENTS, Continued
3.3 CONSOLIDATED FINANCIAL STATEMENTS
THE CONSOLIDATED FINANCIAL STATEMENTS COMPRISE TEVECAP S.A. AND THE FOLLOWING
SUBSIDIARIES:
TEVECAP S.A. INTEREST %
-----------------------
1996 1995
TVA Communications Ltd.................................. 100.00 100.00
TVA Communications Aruba N.V............................ 100.00 100.00 (a.1)
Ype Radio e Televisao Ltda.............................. 48.90 48.90
Galaxy Brasil S.A....................................... 100.00 100.00
TVA Sistema de Televisao S.A............................ 98.00 98.00
TVA TCG Sistema de Televisao de Porto Alegre S.A........ 100.00 100.00
ESPN do Brasil Ltda..................................... 50.00 50.00 (b)
ITSA Intercontinental Telecomunicacoes S.A.............. -- 19.82
Canbras TVA Cabo Ltda................................... -- 36.00
TVA Curitiba Servicos de Telecomunicacoes Ltda.......... -- 80.00
TVA Sul Participacoes S.A............................... 87.00 --
TV Alfa Cabo Ltda....................................... 87.00 -- (a.2)
TCC TV a Cabo Ltda...................................... 87.00 -- (a.2)
CCS Camboriu Cable System de Telecomunicacoes S.A....... 52.00 -- (a.2)
TVA Sul Parana Ltda..................................... 87.00 -- (a.2)
TVA Sul Santa Catarina Ltda............................. 87.00 -- (a.2)
TVA Sul Foz do Iguacu Ltda.............................. 87.00 -- (a.2)
- - ------------------------
(a) Indirect investment through the following subsidiaries:
a.1) TVA Communications Ltd.
a.2) TVA Sul Participacoes S.A.
(b) Company proportionally consolidated.
(c) Investments in subsidiaries, equity in income/(losses) of subsidiaries
and affiliated companies, provision for losses on subsidiaries'
operations, receivables and payables related to intercompany transactions
are eliminated, either totally or proportionally to the parent company
interest, whenever applicable.
15
NOTES TO THE FINANCIAL STATEMENTS, Continued
(d) Minority interest is calculated based on the proportion of minority
interest percentage in the net equity of the respective company.
4 ACCOUNTING CHANGE
During 1996, Tevecap S.A. and subsidiaries changed the accounting method
for costs related to reception equipment installed at their subscribers'
households to capitalize such costs and amortize over the expected period of
service. Previously, such costs were expensed as incurred. As a consequence
of this change, consolidated shareholders' equity was increased and net loss
for the year was decreased by R$24,587 as per Corporation Law, and R$26,661
in constant purchasing power. Prior years' financial statements have not been
restated to reflect the effects of this accounting change.
5 ACCOUNTS RECEIVABLE
CONSOLIDATED
-----------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Subscriptions.............................................................. 9,143 7,322 9,143 6,004
Hook-up fees............................................................... 20,443 5,152 20,443 4,892
Advertising and programming................................................ 4,210 2,365 4,210 2,252
Barters.................................................................... 5,827 3,047 5,827 3,252
Other accounts receivable.................................................. 479 130 479 108
--------- --------- --------- ---------
40,102 18,016 40,102 16,508
Allowance for doubtful accounts............................................ (5,983) (3,514) (5,983) (3,619)
--------- --------- --------- ---------
34,119 14,502 34,119 12,889
--------- --------- --------- ---------
--------- --------- --------- ---------
16
NOTES TO THE FINANCIAL STATEMENTS, Continued
6 INVENTORIES
CONSOLIDATED
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Installation materials and supplies........................................ 13,190 10,465 14,928 13,156
Imports in transit......................................................... 1,044 2,105 1,044 2,299
--------- --------- --------- ---------
14,234 12,570 15,972 15,455
--------- --------- --------- ---------
Allowance for obsolescence................................................. (1,376) -- (2,338) --
--------- --------- --------- ---------
12,858 12,570 13,634 15,455
--------- --------- --------- ---------
--------- --------- --------- ---------
7 FILM EXHIBITION RIGHTS
CONSOLIDATED
-----------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Exhibition rights.............................................................. 2,042 2,715 2,042 2,115
Allowance for exhibition expiration (137)...................................... (137) (1,130) (137) (1,234)
--------- --------- --------- ---------
1,905 1,585 1,905 881
--------- --------- --------- ---------
--------- --------- --------- ---------
17
NOTES TO THE FINANCIAL STATEMENTS, Continued
8 Legal and compulsory deposits and taxes and contributions payable
Tevecap S.A. and subsidiaries have deposits referring to lawsuits filed
against tax authorities challenging imposition of certain taxes. The
deposits, made compulsorily in view of law or negotiation, can be shown as
follows:
CONSOLIDATED
------------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
---------------------- ----------------------
1996 1995 1996 1995
------ ------ ------ ------
Cofins........................................................................... 897 818 897 893
PIS.............................................................................. 114 -- 114 --
Other............................................................................ 122 65 122 71
----- --- ----- ---
1,133 883 1,133 964
----- --- ----- ---
----- --- ----- ---
Based on its legal counsel's opinion, the Company and its subsidiaries
have accrued the following amounts relating to the above-mentioned lawsuits,
and others:
CONSOLIDATED
----------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
---------------------- ----------------------
1996 1995 1996 1995
------ ------ ------ ------
Cofins........................................................................ 821 82 821 90
Finsocial..................................................................... 27 -- 27 --
Labor claims.................................................................. 1,921 1,262 1,921 1,378
IPI........................................................................... 94 79 94 87
Ecad.......................................................................... 800 -- 800 --
ICMS.......................................................................... 1,450 -- 1,450 --
----- ----- ----- -----
5,113 1,423 5,113 1,555
----- ----- ----- -----
----- ----- ----- -----
18
NOTES TO THE FINANCIAL STATEMENTS, Continued
9 INVESTMENTS
The following table shows the direct investment held by Tevecap S.A.,
parent company, in its subsidiaries and affiliated companies as of December
31, 1996:
CORPORATION LAW
----------------------------------------------------------------------------------------
NUMBER PROVISION
(IN FOR LOSSES
INCOME/ THOUSANDS) EQUITY IN ON
INTEREST NET (LOSS) FOR COMMON STOCK INCOME SUBSIDIARIES'
SUBSIDIARIES AND AFFILIATES CAPITAL % EQUITY THE YEAR OR QUOTAS (LOSS) OPERATIONS
- - -------------------------------------- --------- --------- ----------- ------------- ------------ ----------- -------------
TVA Sistema de Televisao S.A.......... 23,868 98.00 (71,148) (24,437) 6,840,764 -- (23,948)
TV Filme Inc.......................... 44,622 14.33 50,498 10,761 1,456,760 1,542 --
Canbras TVA Cabo Ltda................. 4,169 36.00 647 (3,519) 77,773 (1,267) --
Comercial Cabo TV Sao Paulo Ltda...... 4,996 100.00 4,674 (63) 1,139,685 (63) --
TV Cabo Santa Branca Comercio Ltda.... 8 36.00 8 -- 377 -- --
Galaxy Brasil S.A..................... 31,702 100.00 31,376 (326) 3,170,199 (326) --
ESPN do Brasil Ltda................... 16,774 50.00 1,700 (11,188) 8,386,770 (5,594) --
Ype Radio e Televisao Ltda............ 112 48.90 53 -- 132 -- --
TVA Communications Ltd................ 36,871 100.00 28,524 (4,494) -- (4,494) --
TVA Sul Participacoes S.A............. 18,471 87.00 2,877 (15,593) 16,069,617 (13,564) --
TVA TCG Sistema de Porto Alegre
S.A................................. 12 100.00 12 -- 9,999 -- --
----------- -----------
----------- -----------
(23,766) (23,948)
----------- -----------
----------- -----------
9.1 THE INVESTMENTS OF TEVECAP S.A., parent company, are adjusted
according to the interest in the net equity of its subsidiaries and
affiliated companies based on the financial statements in accordance
with the accounting methodology required by the Brazilian
Corporation Law.
9.2 The provision for losses on subsidiaries' operations, in long-term
liabilities, represents cumulative losses on operations of
subsidiaries and affiliated companies in excess of contributed
capital.
9.3 On March 28, 1996, the Company made a capital contribution of
R$16,070 to TVA Sul Participacoes S.A.
9.4 During the year, with the objective of increasing its share in the
paid television market in the South of Brazil, the Company acquired,
through its subsidiary, TVA Sul Participacoes S.A., the ownership
control of TVA Sul Santa Catarina Ltda., TV Alfa Cabo Ltda., TCC TVA
Cabo Ltda., TV Cabo Iguacu Ltda., and CCS Camboriu Cable
19
NOTES TO THE FINANCIAL STATEMENTS, Continued
System de Telecomunicacoes Ltda. These transactions resulted in
goodwill of R$9,964 as per Corporation Law, and R$10,261 in constant
purchasing power.
9.5 The Brazilian Securities and Exchange Commission (CVM) introduced
changes in the method of accounting for investments in subsidiaries
and affiliated companies and for balance sheet consolidation by
issuing CVM Instruction No. 247/96, of March 27, 1996, subsequently
amended by CVM Circular No. 04, of December 27, 1996. Among the
changes required, those which had significant impact on the Company
and its subsidiaries were the determination of proportional
consolidation of the financial statements of subsidiaries in which
interest held represents 50% of the voting capital or in which
voting rights are equal to that of other controlling companies, and
the definition of subsidiaries for consolidation purposes.
In order to meet the above requirements, proportional consolidation
was adopted in the financial statements of ESPN do Brasil Ltda. and
ITSA Intercontinental Telecomunicacoes Ltda. is no longer
consolidated, but is being accounted for under the equity method.
The effects of this change in the form of presentation of financial
statements as per Corporation Law caused decreases (increases) in
the following balance sheet and statement of operations accounts:
ASSETS LIABILITIES
------------------------------------- --------------------------------------
Current assets................. Current liabilities
Cash and cash equivalents.... 120,868 Suppliers................. 10,889
Accounts receivable.......... 4,605 Advance payments.......... 394
Inventories.................. 3,630 Other accounts payable.... 5,112
Other accounts receivable.... 1,370
Long-term assets............... 35,571 Long-term liabilities....... 146,240
Permanent assets............... 40,831 Minority interest........... 44,240
-------- -------
Total assets................. 206,875 Total liabilities........ 206,875
--------- -------
--------- -------
20
NOTES TO THE FINANCIAL STATEMENTS, Continued
STATEMENT OF OPERATIONS
Revenues from services sold........................................ 44,488
Net operating income............................................... 40,789
Gross profit....................................................... 22,430
Operating expenses................................................. (15,124)
Minority interest.................................................. 3,624
9.6 Summarized financial data of the jointly controlled company ESPN do
Brasil Ltda., as mentioned in Note 3.3.b. are as follows:
ASSETS LIABILITIES
---------------------------------- ---------------------------------------
Current assets............... Current liabilities
Cash and cash equivalents.... 4 Suppliers................. 1,923
Accounts receivable.......... 1,924 Advance payments.......... 524
Film exhibition rights....... 1,604 Other accounts payable.... 1,803
Other accounts receivable.... 250
Long-term assets............. 1,590
Permanent assets............. 578 Shareholders'equity......... 1,700
----- ------
Total assets.............. 5,950 Total liabilities........ 5,950
----- ------
----- ------
STATEMENT OF OPERATIONS
Revenues from services sold........................................ 12,436
Net operating income............................................... 11,690
Gross loss......................................................... (9,760)
Operating expenses................................................. 1,428
Loss for the year.................................................. (11,188)
21
NOTES TO THE FINANCIAL STATEMENTS, Continued
-----------
10 GOODWILL ON INVESTMENTS
Tevecap S.A. and subsidiaries have recorded goodwill on investments as
follows:
PARENT COMPANY CONSOLIDATED
-------------------- ------------------------------------------
CONSTANT
CORPORATION LAW CORPORATION LAW PURCHASING POWER
-------------------- -------------------- --------------------
SUBSIDIARIES AND AFFILIATED COMPANIES 1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
ESPN do Brasil Ltda............................................. 1 1 1 1 1 1
Coml. Cabo TV SP Ltda........................................... 2,020 2,258 2,020 2,258 2,206 2,466
TVA Sistema de Televisao S.A.................................... 22,728 25,402 22,728 25,402 21,015 23,487
Ype Radio e Televisao Ltda...................................... 5,768 6,447 5,768 6,447 6,299 7,040
Canbras TVA Cabo................................................ 63 70 63 70 69 76
TV Alfa Cabo Ltda............................................... -- -- 1,678 -- 1,776 --
TCC TVA Cabo Ltda............................................... -- -- 2,240 -- 2,371 --
CCS Camboriu Cable System de Telecomunicacoes Ltda.............. -- -- 314 -- 317 --
TVA Sul Foz do Iguacu Ltda...................................... -- -- 5,065 -- 5,128 --
TVA Sul Santa Catarina Ltda..................................... -- -- 15 -- 16 --
------ ------ ------ ------ ------ ------
30,580 34,178 39,892 34,178 39,198 33,070
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
a) Goodwill on the investment in TVA Sistema de Televisao S.A., attributed to
the expected future profitability of its operations, has been amortized over
ten years since June 1995, when the break-even point was reached.
b) Goodwill on the investment in Ype Radio e Televisao Ltda. has been amortized
over ten years since June 1995, when the break-even point was reached.
c) Goodwill on investments of direct subsidiary TVA Sul Participacoes S.A. in
its subsidiaries TVA Sul Foz do Iguacu Ltda., TV Alfa Cabo Ltda., TCC TV a
Cabo Ltda. and TVA Sul Santa Catarina Ltda. has been amortized over ten
years from their acquisition dates.
22
NOTES TO THE FINANCIAL STATEMENTS, Continued
-----------
11 RELATED-PARTY TRANSACTIONS
The following table summarizes the transactions between Tevecap S.A. and
related companies during the year ended December 31, 1996:
PARENT COMPANY
-----------------------------------------------------
CORPORATION LAW
-----------------------------------------------------
BALANCE SHEET ACCOUNTS
---------------------------------------
ADVANCES INTEREST
FOR FUTURE INCOME
LOANS LOANS CAPITAL (EXPENSE),
GRANTED OBTAINED INCREASE NET
--------- --------------- ----------- -----------
TVA Sistema de Televisao S.A........................................... 264,264
Abril S.A.............................................................. (10,864)
Canbras TVA Cabo Ltda.................................................. 3,461 (193)
Canbras Participacoes Ltda............................................. 311
Galaxy Brasil S.A...................................................... 17,005 48 510
TV Cabo Santa Branca Comercio Ltda..................................... 2
TVA Comunicacoes S.A................................................... 5
ESPN do Brasil Ltda.................................................... (88)
TVA Brasil Radioenlaces Ltda........................................... 26,629
TVA Sul Participacoes S.A.............................................. 8,654 11,071 277
Comercial Cabo TV Sao Paulo Ltda....................................... 196 51
Ype Radio e Televisao Ltda............................................. 5
SMC Marketing Promocional Ltda......................................... 12,790 633
TV Alfa Cabo Ltda...................................................... 6
TVA TCG Sistema de Televisao de Porto Alegre S.A....................... 95 10
--------- -- ----------- -----------
65,685 6 278,851 (9,664)
--------- -- ----------- -----------
--------- -- ----------- -----------
23
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
CONSOLIDATED
-------------------------------------------------------------
CORPORATION LAW
-------------------------------------------------------------
BALANCE SHEET ACCOUNTS
-----------------------------------
ADVANCES INTEREST
FOR FUTURE INCOME SALES
LOANS LOANS CAPITAL (EXPENSE), AND COSTS,
GRANTED OBTAINED INCREASE NET NET
--------- ----------- ----------- ----------- -----------
Televisao Abril Ltda....................................... 141 132
Abril S.A.................................................. 791 (10,864) (4,683)
ITSA Intercontinental Telecomunicacoes S.A................. 25 3,818
Televisao Show Time Ltda................................... 135
Canbras TVA Cabo Ltda...................................... 120 3,461 (195) 284
Abril Investments Corporation.............................. 1,101
Canbras Participacoes Ltda................................. 311
ESPN Brazil Inc............................................ 1
HBO Partners............................................... 1,743
Surfin Ltd................................................. 1,705
Galaxy Latin America....................................... 7,380 (651)
TV Cabo Santa Branca Comercio Ltda......................... 2
TVA Comunicacoes S.A....................................... 5
TVA Brasil Radioenlaces Ltda............................... 26,629 190
SMC Marketing Promocional Ltda............................. 282 633
ESPN do Brasil Ltda........................................ 28 (836)
TVA TCG Sistema de Televisao Porto Alegre S.A.............. 10
TV Paga Parana Ltda........................................ 1
------ --- ----- ------- ------
40,393 190 3,468 (10,416) (1,936)
------ --- ----- ------- ------
------ --- ----- ------- ------
24
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
CONSOLIDATED
------------------------------------------------------------
CONSTANT PURCHASING POWER
------------------------------------------------------------
BALANCE SHEET ACCOUNTS
-----------------------------------
ADVANCES INTEREST SALES
FOR FUTURE INCOME AND
LOANS LOANS CAPITAL (EXPENSE), COSTS,
RELATED COMPANIES GRANTED OBTAINED INCREASE NET NET
- - ------------------------------------------------------------- --------- ----------- ----------- ----------- ---------
Televisao Abril Ltda......................................... 141 132
Abril S.A.................................................... 791 (11,027) (4,685)
ITSA Intercontinental Telecomu-nicacoes S.A.................. 25 3,858
Televisao Show Time Ltda..................................... 135 (11)
Canbras TVA Cabo Ltda........................................ 120 3,461 (123) 286
Abril Investments Corporation................................ 1,101
Canbras Participacoes Ltda................................... 311 (29)
ESPN Brazil Inc.............................................. 1
HBO Partners................................................. 1,743
Surfin Ltd................................................... 1,705
Galaxy Latin America......................................... 7,380 (657)
TV Cabo Santa Branca Comercio Ltda........................... 2
TVA Comunicacoes S.A......................................... 5
TVA Brasil Radioenlaces Ltda................................. 190
SMC Marketing Promocional Ltda............................... 282 (108)
ESPN do Brasil Ltda.......................................... 28 (194) (836)
TVA Brasil Radioenlaces Ltda................................. 26,629 (2,449)
TV Paga Parana Ltda.......................................... 1
------ --- ----- ------ ------
40,393 190 3,468 (13,941) (2,062)
------ --- ----- ------- ------
------ --- ----- ------- ------
11.1 Loans granted to or obtained from related companies, under loan
agreements, are subject to variable interest of 1.80% to 2.50% per month,
except for the loan with TVA Brasil Radioenlaces Ltda., which was
monetarily restated through December 31, 1995 based on the Ufir (Fiscal
Reference Unit) variation.
11.2 Related-party transactions relating to programming sales and costs and
printing services costs were carried out at usual market rates and terms.
11.3 TEVECAP S.A. and subsidiaries were given debt guarantees by Abril S.A.,
their parent company, by way of collateral and letters of credit in the
amount of R$60,620.
25
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
12 PROPERTY, PLANT AND EQUIPMENT
CONSOLIDATED
ANNUAL ------------------------------------------
DEPRECIATION CONSTANT
RATES CORPORATION LAW PURCHASING POWER
-------------------------------------------
% 1996 1995 1996 1995
----------- --------- --------- --------- ---------
Buildings................................................ 4 11,899 472 12,631 451
Machinery and equipment.................................. 10 47,085 43,083 51,194 43,360
Converters............................................... 10 106,362 48,870 111,602 44,939
Reception equipment...................................... 20 27,234 -- 29,550 --
Furniture and fixtures................................... 10 2,180 1,912 2,348 1,635
Vehicles................................................. 20 1,397 546 1,511 568
Premises................................................. 10 2,542 1,329 2,743 1,259
Telephone sets........................................... 10 1,683 911 1,829 917
Leasehold improvements................................... 20 2,157 2,452 2,351 2,042
Cable plant.............................................. 10 24,552 8,764 26,048 9,194
EDP equipment............................................ 10 8,729 4,188 9,353 4,103
Tools.................................................... 50 890 1,048 965 854
------- ------- ------- -------
236,710 113,575 252,125 109,322
Accumulated depreciation................................. (32,690) (14,889) (35,644) (15,176)
Telephone line use rights................................ 1,162 1,008 1,264 1,022
Trademarks and patents................................... 217 215 237 235
Fixed assets in transit.................................. 10,293 19,256 12,154 20,711
Other.................................................... 4,019 3,582 4,375 2,820
------- ------- ------- -------
219,711 122,747 234,511 118,934
------- ------- ------- -------
------- ------- ------- -------
13 DEFERRED CHARGES
On December 31, 1996 and 1995, deferred charges comprised:
CONSOLIDATED
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Film costs............................................................. 22,593 22,593 24,670 24,670
Capitalized interest................................................... 94,526 94,526 94,920 94,920
Capitalized depreciation............................................... 4,736 4,736 5,171 5,171
Other.................................................................. 15,081 11,215 15,870 10,226
Accumulated amortization............................................... (21,215) (7,682) (21,661) (7,787)
------- ------- ------- -------
115,721 125,388 118,970 127,200
------- ------- ------- -------
------- ------- ------- -------
26
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
14 BANK LOANS
CONSOLIDATED
------------------------------------------
1996
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
SHORT- LONG- SHORT- LONG-
TERM TERM TERM TERM
--------- --------- --------- ---------
Working capital, foreign currency denominated:.......................... 3,189 259,850 3,189 259,850
Local currency financings............................................... 15,231 -- 15,231 --
------ ------- ------ -------
18,420 259,850 18,420 259,850
------ ------- ------ -------
------ ------- ------ -------
14.1 On November 26, 1996, Tevecap S.A. raised funds in foreign markets
amounting to R$259,850, equivalent to US$250,000, at the exchange rate of
December 31, 1996. These loans mature on November 26, 2004 and are
guaranteed by Tevecap S.A. and subsidiaries. Interest thereon is at
12.625% p.a. above exchange rate change and is payable May 25 and
November 25, commencing on May 25, 1997.
14.2 Short-term financings in local currency are secured by promissory notes
and chattel mortgages, and bear interest at rates varying from 8% to 9%
per year.
15 CAPITAL STOCK
On December 31, 1996 and 1995, the parent company's capital is represented
by 196,712,855 registered common shares without par value.
27
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
16 INCOME TAX
As of December 31, 1996, Tevecap S.A. had accumulated tax losses in the
amount of R$30,172 and its subsidiaries and affiliated companies in the amount
of R$120,365, to be offset against future taxable income, as follows:
TVA Sistema de Televisao S.A....................................... 80,191
TVA Sul Participacoes S.A.......................................... 13,659
ESPN do Brasil Ltda................................................ 14,966
Comercial Cabo TV Sao Paulo Ltda................................... 312
Galaxy Brasil S.A.................................................. 280
ITSA Intercontinental Telecomunicacoes S.A......................... 10,957
---------
120,365
---------
---------
17 NONOPERATING INCOME (LOSS)
PARENT COMPANY CONSOLIDATED
---------------------- ----------------------------------------
CONSTANT
CORPORATION LAW CORPORATION LAW PURCHASING POWER
---------------------- -------------------- ------------------
1996 1995 1996 1995 1996 1995
------- -------- --------- --------- --------- ------
Capital gain on sale of interest in TVA
Curitiba Servicos de Telecom. Ltda.......................... 8,916 -- -- -- -- --
Capital gain on sale on interest in TV Film Inc............... 2,383 369 2,383 362 2,445 399
Capital loss on acquisition of
TVA Sul Participacoes S.A................................... (1,502) -- (1,502) -- (1,512) --
Capital losses on acquisition of companies from
the South region, purchased through
TVA Sul Participacoes Ltda.................................. -- -- (2,278) -- (2,283) --
Capital losses on acquisition of
TVA Communications Ltd...................................... -- -- -- -- -- (164)
Provision for loss on converters.............................. -- -- (1,380) -- (1,323) --
Allowance for inventory obsolescence.......................... -- -- (1,376) -- (1,431) --
Commissions................................................... -- -- (1,268) -- (257) --
Other......................................................... -- (7) (277) (117) 170 --
--------- --- --------- --- --------- ---
9,797 362 (5,698) 245 (4,191) 235
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
28
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
18 CONSTANT PURCHASING POWER AND CORPORATION LAW
Reconciliations between net loss and shareholders' equity as per Corporation
Law and in constant purchasing power are as follows:
PARENT COMPANY CONSOLIDATED
------------------------------------ ------------------------
SHAREHOLDERS' SHAREHOLDERS'
NET LOSS EQUITY NET LOSS EQUITY
------------ ----------------- --------- -------------
Balances as per Corporation Law.................. (54,224) 235,342 (54,224) 235,342
Gains on monetary items.......................... 1,253 1,253 7,436 7,436
Gains on shareholders' equity.................... -- 26,626 -- 26,626
Restatement of inventories....................... -- -- 775 775
Goodwill adjustment in subsidiaries.............. (3,802) (3,802) (3,802) (3,802)
Equity in income/(losses) of subsidiaries........ (57) (57) (22) (22)
Provision for losses on subsidiaries'
operations..................................... (4,209) (4,209) (4,209) (4,209)
Allocation of gains/(losses) on deferred
expenses....................................... -- -- (6,983) (6,983)
Reversal of prior-year adjustments............... 8,441 -- 8,441 --
Minority interest................................ -- -- (10) (10)
------- ------- -------- -------
Balances in constant purchasing power............ (52,598) 255,153 (52,598) 255,153
------- ------- -------- -------
------- ------- -------- -------
19 FINANCIAL INSTRUMENTS
For purposes of protecting its available funds and financing its operations,
the Company has the following financial instruments:
19.1 SHORT-TERM INVESTMENTS
Short-term investments approximate market value, by determined comparison of
the contractual interest rates with the market interest rates in similar
operations on the same date.
29
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
19.2 BANK LOANS
For detailed information about loans and financings, see Note 14.
19.3 LOANS WITH RELATED COMPANIES
The estimated market value of loan agreements with related parties, net as
of December 31, 1996, determined by reference to the Company's weighted average
funding cost, approximates R$71,010 (parent company) and R$45,718
(consolidated).
The market values of other financial instruments receivable and payable as
of December 31, 1996 do not differ from those recorded in the financial
statements.
20 GUARANTEES
The Company has given guarantees and letters of credit on behalf of its
related companies in the amount of R$3,324.
21 INSURANCE
The policy of the parent company and its subsidiaries and affiliated
companies is to maintain insurance coverage for property, plant and equipment
and inventories in an amount considered sufficient to cover the risks involved.
On December 31, 1996, insurance coverage amounted to R$86,937 (consolidated).
22 PENSION PLAN
Tevecap S.A. and subsidiaries and certain affiliated companies are
co-sponsors of a private pension entity, Abrilprev Sociedade de Previdencia
Privada, the primary
30
NOTES TO THE FINANCIAL STATEMENTS, Continued
------------
objective of which is to provide employee benefits other than those provided by
Social Security. The plan is available to all employees of the sponsoring
entities. Abrilprev operates as a Defined Contribution Plan, and the main
actuarial method used to determine the contribution level is the capitalization
method. The plan costs, borne by both employees and sponsoring entities, are
actuarially determined annually expressed in a fixed percentage of payroll of
the sponsoring entities. Retirement supplements granted are based on employees'
years of service, contribution to Social Security, minimum age, and termination
of employment relationship. During 1996, contributions made by Tevecap S.A. and
subsidiaries and certain affiliated companies amounted to R$382.
23 ABRIL HEALTH CARE PLAN
In February 1996, the Abril Health Care Plan was created to provide health
care to Abril companies' employees and their dependents. Both companies and
employees contribute monthly to Associacao Abril de Beneficios, the company
responsible for the plan management. In 1996, contributions made by Tevecap S.A.
subsidiaries and certain affiliated companies amounted to R$2,086.
24 COMMITMENTS
24.1 Tevecap S.A. and subsidiaries have entered into film distribution
contracts and licensing agreements with film producers for programming in future
periods. Such contracts and agreements, which range in life from one to nine
years, with the exception of a specific contract with ESPN Internacional, which
has a life of 50 years, require a per-subscriber fee to be paid by the Company
on a monthly basis.
24.2 On December 31, 1996, contractual commitments with Embratel, assumed by
Tevecap S.A. and subsidiaries for satellite use from 1997 through 2003,
amounted to R$74,656.
31
NOTES TO THE FINANCIAL STATEMENTS, Concluded
----------
24.3 Through its subsidiary, Galaxy Brasil S.A., the Company has a licensing
agreement with Galaxy Latin America for the use of the trademark, DirecTV,
satellite and programming which requires a per-subscriber fee to be paid by the
Company on a monthly basis for an indefinite period, calculated based on the
number of subscribers.
25 SUBSEQUENT EVENTS
In 1997, the negotiation of a lease contract between the subsidiary, Galaxy
Brasil S.A., and Citibank N.A. in the amount of US$49,900, equivalent to
R$51,846 at the exchange rate of December 31, 1996, was concluded. Such contract
has a five-year term with interest at 12.5% per year above exchange rate change
variation. The contract is guaranteed by Tevecap S.A. and TVA Sistema de
Televisao S.A.
32