SECURITIES AND EXCHANGE COMMISSION
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _______ No ___X____(Convenience Translation into English from the Original Previously Issued in Portuguese)
Financial Statements
for the Six-month Period Ended June 30, 2005 and Independent Auditors' Review Report
Deloitte Touche Tohmatsu Auditores Independentes
(Convenience Translation into English from the Original Previously Issued in Portuguese)
INDEPENDENT AUDITORS' REVIEW REPORT
To the Management and Shareholders of
Tele Centro Oeste Celular Participações S.A.
Brasília - DF
1. We have performed a special review of the Quarterly Information of Tele Centro Oeste Celular Participações S.A. and subsidiaries referring to the quarter and six-month period ended June 30, 2005, prepared under the responsibility of management and according to Brazilian accounting practices, consisting of the balance sheets, individual and consolidated, the related statements of income and the performance report.
2. We conducted our review in accordance with the specific standards established by Brazilian Institute of Independent Auditors (IBRACON), together with the Federal Accounting Council, and consisted principally of: (a) inquiries of and discussions with the persons responsible for the accounting, financial and operating areas of the Company and its subsidiaries as to the criteria adopted in preparing the Quarterly Information; and (b) review of the information and subsequent events that had or might have had material effects on the financial position and results of operations of the Company and its subsidiaries.
3. Based on our special review, we are not aware of any material modifications that should be made to the above-mentioned Quarterly Information for it to be in conformity with Brazilian accounting practices and standards established by the Brazilian Securities Commission, specifically applicable to the preparation of the mandatory Quarterly Information.
4. We had previously reviewed the individual and consolidated balance sheets as of March 31, 2005 and the individual and consolidated statements of income for the quarter and six-
-month period ended June 30, 2004, presented for comparative purposes , on which we issued unqualified special review reports, dated April 25, 2005 and July 21, 2004, respectively .
5. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil .
São Paulo , July 25, 2005
DELOITTE TOUCHE TOHMATSU |
José Domingos do Prado |
Auditores Independentes |
Engagement Partner |
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A. | |||
BALANCE SHEETS AS OF JUNE 30 AND MARCH 31, 2005 | |||
(In thousands of Brazilian reais - R$) |
ASSETS | Company | Consolidated | ||||||
06.30.05 | 03.31.05 | 06.30.05 | 03.31.05 | |||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | 2,731 |
2,923 |
25,438 |
11,208 |
||||
Financial investments | 82,592 |
50,756 |
979,768 |
889,946 |
||||
Trade accounts receivable, net | 124,802 |
93,826 |
524,677 |
422,676 |
||||
Inventories | 12,352 |
34,033 |
90,687 |
155,234 |
||||
Advances to suppliers | 3,399 |
241 |
3,979 |
839 |
||||
Interest on capital and dividends | 103,800 |
103,032 |
- |
- |
||||
Deferred on recoverable taxes | 105,800 |
92,150 |
322,804 |
285,221 |
||||
Prepaid expenses | 18,378 |
28,697 |
81,322 |
99,673 |
||||
Other assets | 21,415 |
17,484 |
27,416 |
23,703 |
||||
475,269 |
423,142 |
2,056,091 |
1,888,500 |
|||||
NONCURRENT ASSETS | ||||||||
Deferred and recoverable taxes | 172,863 |
182,970 |
375,631 |
400,620 |
||||
Loans and financing | 36,851 |
31,043 |
- |
- |
||||
Prepaid expenses | 1,204 |
821 |
9,772 |
9,046 |
||||
Other assets | 28,074 |
28,054 |
30,214 |
29,794 |
||||
238,992 |
242,888 |
415,617 |
439,460 |
|||||
PERMANENT ASSETS | ||||||||
Investments | 2,089,126 |
2,021,471 |
3,415 |
3,805 |
||||
Property, plant and equipment | 284,315 |
282,033 |
1,150,789 |
1,128,497 |
||||
Deferred charges, net | - |
- |
19,729 |
20,788 |
||||
2,373,441 |
2,303,504 |
1,173,933 |
1,153,090 |
|||||
TOTAL ASSETS | 3,087,702 |
2,969,534 |
3,645,641 |
3,481,050 |
LIABILITIES AND SHAREHOLDERS' EQUITY | Company | Consolidated | ||||||
06.30.05 | 03.31.05 | 06.30.05 | 03.31.05 | |||||
CURRENT LIABILITIES | ||||||||
Payroll and related accruals | 7,489 |
7,733 |
16,996 |
16,600 |
||||
Trade payables and accounts payable | 67,802 |
50,533 |
338,828 |
261,252 |
||||
Taxes payable | 17,798 |
18,306 |
79,933 |
87,861 |
||||
Loans and financing | 19,105 |
26,184 |
85,147 |
103,102 |
||||
Interest on capital and dividends | 137,762 |
138,278 |
143,342 |
144,394 |
||||
Reserve for contingencies | 1,769 |
1,492 |
8,772 |
6,182 |
||||
Derivative contracts | 6,940 |
5,500 |
17,196 |
14,631 |
||||
Other liabilities | 63,205 |
12,330 |
94,271 |
23,593 |
||||
321,870 |
260,356 |
784,485 |
657,615 |
|||||
LONG-TERM LIABILITIES | ||||||||
Loans and financing | 6,072 |
13,775 |
85,805 |
111,843 |
||||
Reserve for contingencies | 130,372 |
126,982 |
135,254 |
132,187 |
||||
Derivative contracts | 2,339 |
2,827 |
5,999 |
6,672 |
||||
Other liabilities | 1,748 |
1,828 |
8,797 |
8,967 |
||||
140,531 |
145,412 |
235,855 |
259,669 |
|||||
SHAREHOLDERS' EQUITY | ||||||||
Capital | 957,844 |
957,844 |
957,844 |
957,844 |
||||
Treasury stock | (49,092) |
(49,109) |
(49,092) |
(49,109) |
||||
Capital reserves | 575,170 |
575,148 |
575,170 |
575,148 |
||||
Revenue reserves | 692,645 |
692,645 |
692,645 |
692,645 |
||||
Retained earnings | 448,608 |
387,112 |
448,608 |
387,112 |
||||
2,625,175 |
2,563,640 |
2,625,175 |
2,563,640 |
|||||
FUNDS FOR CAPITALIZATION | 126 |
126 |
126 |
126 |
||||
TOTAL LIABILITIES AND | ||||||||
SHAREHOLDERS' EQUITY | 3,087,702 |
2,969,534 |
3,645,641 |
3,481,050 |
The accompanying notes are an integral part of these financial statements.
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
STATEMENTS OF INCOME FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
(In thousands of Brazilian reais - R$, except for earnings per thousand shares)
Company | Consolidated | |||||||
06.30.05 | 06.30.04 | 06.30.05 | 06.30.04 | |||||
GROSS OPERATING REVENUE | ||||||||
Telecommunications services | 263,691 |
275,133 |
1,279,405 |
1,148,670 |
||||
Sale of products | 41,346 |
46,239 |
228,981 |
211,515 |
||||
305,037 |
321,372 |
1,508,386 |
1,360,185 |
|||||
Deductions from gross revenue | (73,242) |
(73,145) |
(385,923) |
(336,621) |
||||
NET OPERATING REVENUE | 231,795 |
248,227 |
1,122,463 |
1,023,564 |
||||
Cost of services provided | (53,230) |
(42,574) |
(239,879) |
(175,935) |
||||
Cost of products sold | (49,475) |
(54,330) |
(280,615) |
(222,854) |
||||
GROSS PROFIT | 129,090 |
151,323 |
601,969 |
624,775 |
||||
OPERATING REVENUES (EXPENSES) | ||||||||
Selling expenses | (98,792) |
(54,423) |
(299,681) |
(211,445) |
||||
General and administrative expenses | (22,748) |
(33,802) |
(83,696) |
(73,174) |
||||
Other operating expenses | (10,964) |
(7,173) |
(36,514) |
(27,850) |
||||
Other operating revenue | 15,846 |
26,841 |
43,293 |
25,162 |
||||
Equity pick-up | 178,463 |
181,547 |
- |
- |
||||
61,805 |
112,990 |
(376,598) |
(287,307) |
|||||
OPERATING INCOME BEFORE FINANCIAL EXPENSES | 190,895 |
264,313 |
225,371 |
337,468 |
||||
Financial expenses | (15,845) |
(19,399) |
(46,938) |
(53,247) |
||||
Financial income | 12,123 |
11,954 |
100,775 |
81,743 |
||||
INCOME FROM OPERATIONS | 187,173 |
256,868 |
279,208 |
365,964 |
||||
Nonoperating income (expenses), net | (21) |
188 |
2,958 |
(2,243) |
||||
INCOME BEFORE TAXES AND MINORITY INTERESTS | 187,152 |
257,056 |
282,166 |
363,721 |
||||
Income and social contribution taxes | (3,743) |
(20,557) |
(98,757) |
(124,015) |
||||
Minority interests | - |
- |
- |
(3,207) |
||||
NET INCOME FOR THE PERIOD | 183,409 |
236,499 |
183,409 |
236,499 |
||||
EARNINGS PER THOUSAND SHARES - R$ | 1.4446 |
1.8628 |
||||||
The accompanying notes are an integral part of these financial statements. |
(Convenience Translation into English from the Original Previously Issued in Portuguese)
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005
(In thousands of Brazilian reais - R$, unless otherwise indicated)
1. OPERATIONS
Tele Centro Oeste Celular Participações S.A. ("TCO" or the "Company") is a publicly-
-traded company which, as of June 30, 2005, is controlled by Telesp Celular Participações S.A. ("TCP") (86.19% of the voting capital and 50.65% of total capital).
The Company is the controlling company of the operators Telegoiás Celular S.A. ("Telegoiás"), Telemat Celular S.A. ("Telemat"), Telems Celular S.A. ("Telems"), Teleron Celular S.A. ("Teleron"), Teleacre Celular S.A. ("Teleacre") and Norte Brasil Telecom S.A. ("NBT").
The Company provides mobile telephone services, including activities necessary or useful to providing the services, through the license granted, operating in the Federal District with a license up to July 24, 2006. The subsidiaries also provide mobile telephone services, as described below:
Subsidiary |
Operating area |
License |
||
|
||||
Telegoiás |
Goiás and Tocantins |
10.29.08 |
||
Telemat |
Mato Grosso |
03.30.09 |
||
Telems |
Mato Grosso do Sul |
09.28.09 |
||
Teleron |
Rondônia |
07.21.09 |
||
Teleacre |
Acre |
07.15.09 |
||
NBT |
Amazonas, Roraima, Amapá, Pará and Maranhão |
11.29.13 |
The above licenses are renewable once only for a 15-year period, by means of the payment of charges equivalent to approximately 1% of the annual operating revenues.
The Company's business and that of its subsidiaries, of providing mobile telephone services and other additional services, is regulated by the National Telecommunications Agency (ANATEL), the telecommunications regulatory agency, according to Law No. 9,472, of July 16, 1997, and respective regulations, decrees, rulings and plans.
On March 28, 2005, TCO's Board approved the corporate restructuring of Teleacre, Telegoiás, Teleron e Telems, through a merger with the Parent Company, and of Telemat, through a merger with the subsidiary TCO IP S.A. ("TCO IP").
These mergers still depend on final approval by ANATEL.
The purpose of this operation is to obtain financial and operational benefits, among others, through reductions in administrative costs, the costs of audits and publications, together with rationalization of the accounting procedures.
Increase in TCP's interest in TCO
On October 8, 2004, the Voluntary Public Stock Offer ("OPA") was completed for the acquisition of the Company's preferred shares by its Parent Company, TCP. The number of shares offered in OPA auction exceeded the maximum number to be acquired by TCP (84,252,534,000 shares). Considering this fact, each shareholder that adhered to the OPA had, as a result of the apportionment, for each share offered, 0.5547 preferred shares issued by the Company acquired by TCP. After the OPA, TCP held 32.76% of the total number of TCO preferred shares.
2. PRESENTATION OF FINANCIAL STATEMENTS
The individual (Company) and consolidated quarterly information ("ITR") is presented in thousands of Brazilian reais and was prepared in accordance with Brazilian accounting practices, which include the accounting practices derived from Brazilian corporate law, regulations applicable to the public telecommunications services concessionaries and accounting regulations and procedures established by the Brazilian Securities Commission (CVM).
The consolidated ITR include, in addition to the Company's balances and transactions, the balances and transactions of its subsidiaries described above. In the consolidation, all the balances and transactions between the companies stated above were eliminated.
These ITR were prepared according to principles, practices and criteria consistent with those adopted in preparing the financial statements of the last fiscal year and should be analyzed together with those statements.
The financial statements referring to March 31, 2005 and June 30, 2004 were reclassified, where applicable, for comparison purposes.
3. FINANCIAL INVESTMENTS
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Financial investments |
82,592 |
50,756 |
979,768 |
889,946 |
The financial investments refer to fixed-income investments, indexed to variations in interbank deposit (CDI) with immediate liquidity.
As of June 30, 2005, the Company and its subsidiaries held financial investments given in guarantee of lawsuits in the amount of R$124,848.
4. TRADE ACCOUNTS RECEIVABLE, NET
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Unbilled amounts |
19,536 |
16,840 |
57,769 |
55,181 |
|||
Billed amounts |
67,471 |
43,519 |
254,817 |
179,075 |
|||
Interconnection |
30,340 |
27,604 |
145,573 |
138,679 |
|||
Products sold |
16,004 |
12,721 |
103,764 |
79,803 |
|||
Allowance for doubtful accounts |
(8,549 ) |
(6,858 ) |
(37,246 ) |
(30,062 ) |
|||
Total | 124,802 |
93,826 |
524,677 |
422,676 |
No customers have contributed with more than 10% of the net accounts receivable as of June 30 and March 31, 2005, except for the amounts receivable from Brasil Telecom S.A. (BrT), which represent approximately 12% and 13% of the net consolidated accounts receivable, respectively.
The movements of the allowance for doubtful accounts are as follows:
Company |
Consolidated |
||||||
2005 |
2004 |
2005 |
2004 |
||||
|
|
|
|
||||
Balance at the beginning of the year |
7,478 |
8,425 |
33,758 |
33,828 |
|||
Additions in the 1 st quarter |
4,127 |
3,189 |
18,052 |
16,737 |
|||
Write-offs in the 1 st quarter |
(4,747) |
(3,339) |
(21,748) |
(13,726) |
|||
|
|
|
|
||||
Balances as of March 31 |
6,858 |
8,275 |
30,062 |
36,839 |
|||
|
|
|
|
||||
Additions in the 2 nd quarter |
11,013 |
2,451 |
37,388 |
9,383 |
|||
Write-offs in the 2 nd quarter |
(9,322) |
(2,777) |
(30,204) |
(12,320) |
|||
|
|
|
|
||||
Balances as of June 30 |
8,549 |
7,949 |
37,246 |
33,902 |
5. INVENTORIES
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Cellular handsets |
13,763 |
28,546 |
100,966 |
146,440 |
|||
Accessories and others |
310 |
6,664 |
2,017 |
19,519 |
|||
(-) Allowance for obsolescence |
(1,721 ) |
(1,177 ) |
( 12,296 ) |
(10,725 ) |
|||
Total | 12,352 |
34,033 |
90,687 |
155,234 |
6. DEFERRED AND RECOVERABLE TAXES
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Social contribution and prepaid income tax |
9,346 |
9,089 |
12,093 |
17,346 |
|||
Withholding tax |
10,620 |
9,976 |
63,967 |
54,621 |
|||
Recoverable ICMS |
17,806 |
17,983 |
85,035 |
84,413 |
|||
Recoverable PIS and COFINS |
983 |
1,526 |
25,136 |
22,803 |
|||
Other |
915 |
926 |
1,655 |
1,578 |
|||
Total recoverable taxes |
39,670 |
39,500 |
187,886 |
180,761 |
|||
Deferred income and social contribution taxes |
237,671 |
234,494 |
492,224 |
497,922 |
|||
ICMS to be appropriated |
1,322 |
1,126 |
18,325 |
7,158 |
|||
Total |
278,663 |
275,120 |
698,435 |
685,841 |
|||
|
|
|
|
||||
Current |
105,800 |
92,150 |
322,804 |
285,221 |
|||
Noncurrent |
172,863 |
182,970 |
375,631 |
400.620 |
Deferred income and social contribution taxes are comprised as follows:
Company |
Consolidated |
|||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
|||
|
|
|
|
|||
Merged tax credit (corporate restructuring) |
175,868 |
187,093 |
400,331 |
425,885 |
||
Tax credits on: |
|
|
|
|
||
Obsolescence |
585 |
400 |
4,181 |
3,647 |
||
Contingencies |
33,442 |
32,195 |
37,483 |
35,560 |
||
Doubtful accounts |
2,907 |
2,332 |
12,664 |
10,221 |
||
Suppliers |
4,462 |
3,971 |
14,500 |
11,914 |
||
Other amounts |
1,393 |
1,600 |
4,051 |
3,792 |
||
Tax loss carryforwards |
19,014 |
6,903 |
19,014 |
6,903 |
||
Total |
237,671 |
234,494 |
492,224 |
497,922 |
||
|
|
|
|
|||
Current |
73,865 |
60,615 |
159,604 |
140,776 |
||
Noncurrent |
163,806 |
173,879 |
332,620 |
357.146 |
Deferred taxes have been recorded based on the assumption of their future realization, as follows:
a) Merged tax credit : consists of the net balance of goodwill and reserve for maintaining the integrity of shareholders' equity (Note 29); it is realized proportionally to the amortization of the goodwill on TCO and its subsidiaries, the term of which ends on June 30, 2009.
b) Temporary differences : will be realized upon payments of the accruals, effective losses on bad debts or realization of inventories.
At the end of the 2004 fiscal year, the Company and its subsidiaries prepared technical feasibility studies, approved by the Board of Directors, which indicated full recovery of the deferred taxes recognized as determined by CVM Resolution No. 371. Management did not identify any change that could affect the conclusion of these studies on June 30, 2005.
The subsidiary TCO IP did not recognize deferred income and social contribution taxes on tax losses and temporary differences, due to the lack of projections of taxable income in the short term.
7. PREPAID EXPENSES
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
FISTEL fees |
12,398 |
15,283 |
78,123 |
93,388 |
|||
Advertising |
5,879 |
13,502 |
5,879 |
13,502 |
|||
Financial charges |
217 |
259 |
461 |
557 |
|||
Insurance premiums |
34 |
11 |
56 |
46 |
|||
Other |
1,054 |
463 |
6,575 |
1,226 |
|||
Total | 19,582 |
29,518 |
91,094 |
108,719 |
|||
|
|
|
|
||||
Current |
18,378 |
28,697 |
81,322 |
99,673 |
|||
Noncurrent |
1,204 |
821 |
9,772 |
9,046 |
8. OTHER ASSETS
Company |
|
Consolidated |
|||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Escrow deposits |
12,525 |
12,492 |
14,981 |
14,494 |
|||
Advance for purchase of shares |
15,584 |
15,584 |
15,584 |
15,584 |
|||
Advances to employees |
1,228 |
2,033 |
2,755 |
4,379 |
|||
Receivable from Group companies |
7,898 |
7,080 |
977 |
448 |
|||
Credits with suppliers |
8,287 |
6,096 |
8,640 |
6,282 |
|||
Subsidies in sale of terminals |
3,762 |
2,056 |
14,484 |
10,851 |
|||
Other assets |
205 |
197 |
209 |
1,459 |
|||
Total | 49,489 |
45,538 |
57,630 |
53,497 |
|||
|
|
|
|
||||
Current |
21,415 |
17,484 |
27,416 |
23,703 |
|||
Noncurrent |
28,074 |
28,054 |
30,214 |
29,794 |
9. INVESTMENTS
a) Participation in subsidiaries
Investees |
Total |
Total shares |
Shareholders' equity |
Net income |
||||||
|
|
|
06.30.05 |
03.31.05 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
|
|
|||||
Telegoiás |
100,00 |
6,735 |
823,186 |
790,266 |
76,147 |
69,896 |
||||
Telemat |
100,00 |
711 |
501,006 |
481,184 |
49,651 |
48,302 |
||||
Telems |
100,00 |
1,266 |
352,368 |
346,514 |
23,851 |
37,376 |
||||
Teleron |
100,00 |
727 |
115,766 |
110,041 |
11,973 |
9,573 |
||||
Teleacre |
100,00 |
1,987 |
58,916 |
57,529 |
4,552 |
5,170 |
||||
NBT |
100,00 |
72,000 |
235,451 |
233,621 |
12,427 |
16,256 |
||||
TCO IP (1) |
100,00 |
999 |
357 |
(150) |
(138) |
(1,815) |
(1) TCO IP operated telecommunications services, Internet access services, solutions development and others. On August 16, 2004, through ANATEL Act No. 45,941, the license for multimedia communications services was revoked. The revocation of the license did not relieve TCO IP of its liabilities to third parties.
b) Breakdown and changes
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Investments in subsidiaries |
1,813,573 |
1,717,023 |
- |
- |
|||
Goodwill paid on investment acquisition |
19,920 |
20,310 |
4,336 |
4,726 |
|||
Goodwill on spin-off for operators |
257,893 |
286,548 |
- |
- |
|||
Negative goodwill in acquisition of |
(2,282) |
(2,282) |
(2,282) |
(2,282) |
|||
Provision for losses on investments - |
- |
(150) |
- |
- |
|||
Other investments |
22 |
22 |
1,361 |
1,361 |
|||
Balance of investments |
2,089,126 |
2,021,471 |
3,415 |
3,805 |
The movements of investments by the Parent Company for the six-month periods ended June 30, 2005 and June 30, 2004 are as follows:
Investments in subsidiaries |
2005 |
2004 |
|
|
|
||
Initial balance for investments |
1,596,505 |
1,229,199 |
|
Equity pick-up in the 1 st quarter |
110,718 |
80,577 |
|
Investment in subsidiaries |
- |
59 |
|
Increase of capital in subsidiaries |
10,160 |
31,168 |
|
Capitalization of advance for future capital increase - TCO IP |
(510) |
- |
|
Balance of investment as of March 31 |
1,716,873 |
1,341,003 |
|
|
|
||
Increase in interest of TCO in subsidiaries |
- |
28,555 |
|
Equity pick-up in the 2 nd quarter |
67,745 |
100,970 |
|
Investment in subsidiaries |
- |
180 |
|
Increase of capital in subsidiaries |
28,955 |
- |
|
Dividends and interest on capital |
- |
705 |
|
Negative goodwill on purchase of investments |
- |
(431 ) |
|
Balance of investment as of June 30 |
1,813,573 |
1,470,982 |
The movement of balance of net goodwill in consolidated for the six-month periods ended June 30, 2005 and June 30, 2004 is as follows:
06.30.05 |
06.30.04 |
||
|
|
||
Other investments |
22 |
22 |
|
|
|
||
Goodwill/negative goodwill: |
|
|
|
Initial balance |
2,835 |
4,396 |
|
Amortization of goodwill on the acquisition of investments |
(391 ) |
(390 ) |
|
Balance as of March 31 |
2,444 |
4,006 |
|
|
|
||
Amortization of goodwill on the acquisition of investments |
(390 ) |
(391 ) |
|
Balance as of June 30 |
2,054 |
3,615 |
|
|
|
||
Special goodwill reserve: |
|
|
|
Initial balance |
286,548 |
- |
|
Balance as of March 31 |
286,548 |
- |
|
|
|
||
Tax benefit transferred to subsidiaries (Note 29) |
- |
286,548 |
|
Increase in capital of subsidiaries |
(28,655 ) |
- |
|
Balance as of June 30 |
257,893 |
286,548 |
|
|
|
||
Advance for future capital increase: |
|
|
|
Initial balance |
15,584 |
46,752 |
|
Capitalization of subsidiaries |
- |
(31,168 ) |
|
Balance as of March 31 and June 30 |
15,584 |
15,584 |
10. PROPERTY, PLANT AND EQUIPMENT
|
Company |
||||||||
Annual |
06.30.05 |
03.31.05 |
|||||||
depreciation |
Cost |
Accumulated |
Net book |
Net book |
|||||
Transmission equipment |
14.29 |
339,957 |
(252,568) |
87,389 |
90,154 |
||||
Switching equipment |
10 |
112,167 |
(48,089) |
64,078 |
65,817 |
||||
Infrastructure |
5 to 10 |
71,673 |
(48,399) |
23,274 |
23,960 |
||||
Land |
- |
2,185 |
- |
2,185 |
2,185 |
||||
Software rights |
20 |
84,436 |
(39,787) |
44,649 |
41,105 |
||||
Buildings |
4 |
13,590 |
(6,383) |
7,207 |
7,051 |
||||
Terminal equipment |
66.67 |
28,222 |
(22,272) |
5,950 |
5,360 |
||||
Other assets |
5 to 20 |
45,860 |
(23,210) |
22,650 |
23,996 |
||||
Assets and construction |
- |
26,933 |
- |
26,933 |
22,405 |
||||
Total |
|
725,023 |
( 440,708 ) |
284,315 |
282,033 |
|
Consolidated |
||||||||
Annual |
06.30.05 |
03.31.05 |
|||||||
depreciation |
Cost |
Accumulated |
Net book |
Net book |
|||||
Transmission equipment |
14.29 |
1,015,576 |
(619,397) |
396,179 |
398,845 |
||||
Switching equipment |
10 |
375,690 |
(144,835) |
230,855 |
232,130 |
||||
Infrastructure |
5 to 10 |
204,160 |
(89,622) |
114,538 |
110,906 |
||||
Land |
- |
7,861 |
- |
7,861 |
7,859 |
||||
Software rights |
20 |
251,399 |
(105,005) |
146,394 |
144,944 |
||||
Buildings |
4 |
42,136 |
(9,901) |
32,235 |
28,894 |
||||
Terminal equipment |
66.67 |
81,479 |
(53,051) |
28,428 |
24,483 |
||||
Concession license |
7.23 |
60,550 |
(24,074) |
36,476 |
37,569 |
||||
Other assets |
5 to 20 |
100,721 |
(43,323) |
57,398 |
59,808 |
||||
Assets and construction |
- |
100,425 |
- |
100,425 |
83,059 |
||||
Total |
|
2,239,997 |
( 1,089,208 ) |
1,150,789 |
1,128,497 |
11. DEFERRED CHARGES
Annual rate of |
Consolidated |
||||
amortization - % |
06.30.05 |
03.31.05 |
|||
|
|
||||
Pre-operating expenses: |
|
|
|||
Financial expenses |
10 |
16,701 |
16,701 |
||
General and administrative expenses |
10 |
27,991 |
27,991 |
||
Goodwill |
20 |
154 |
154 |
||
|
44,846 |
44,846 |
|||
Accumulated amortization |
|
( 25,117 ) |
( 24,058 ) |
||
Total |
|
19,729 |
20,788 |
12. TRADE ACCOUNTS PAYABLE
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Suppliers |
30,168 |
38,082 |
172,880 |
198,293 |
|||
Interconnections |
10,893 |
5,232 |
67,572 |
21,147 |
|||
Transfer of SMP |
23,974 |
4,302 |
91,069 |
33,842 |
|||
Other |
2,767 |
2,917 |
7,307 |
7,970 |
|||
Total |
67,802 |
50,533 |
338,828 |
261,252 |
Transfer of SMP refers to the so called international VC2 and VC3, diverts which are billed to our customers and transferred to the long-distance operators.
13. TAXES AND CONTRIBUTIONS PAYABLE
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
State VAT (ICMS) |
13,174 |
14,581 |
54,113 |
59,382 |
|||
Income and social contribution taxes |
- |
- |
6,597 |
11,148 |
|||
PIS and COFINS |
2,844 |
2,285 |
13,085 |
11,218 |
|||
FISTEL fees |
464 |
244 |
2,612 |
2,938 |
|||
FUST and FUNTTEL |
408 |
280 |
1,567 |
1,332 |
|||
Other taxes |
908 |
916 |
1,959 |
1,843 |
|||
Total |
17,798 |
18,306 |
79,933 |
87,861 |
14. LOANS AND FINANCING
a) Debt composition
|
|
|
Company |
Consolidated |
||||||||||
Description |
Currency | Charges |
Maturity |
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
|||||||
|
|
|
|
|
|
|
||||||||
BNDES |
R$ |
TJLP + interest 3.5% to 4% p.a. |
01.15.06 to |
4,106 |
5,427 |
101,913 |
114,051 |
|||||||
Export Development Canada - EDC |
US$ |
Libor 6m + interest of 3.9% to 5% p.a. |
11.22.05 to |
20,883 |
33,602 |
43,375 |
71,473 |
|||||||
Teleproduzir (i) |
R$ |
Interest of 0.2% p.m. |
07.31.12 |
- |
- |
15,108 |
15,159 |
|||||||
BNDES - Basket of currencies |
UMBNDES |
Variation basket UMBNDES + 3.5% p.a. |
01.15.08 |
- |
- |
8,233 |
10,349 |
|||||||
Other |
R$ |
Column 20 FGV |
10.31.08 |
- |
- |
1,521 |
1,424 |
|||||||
Interest |
|
|
188 |
930 |
802 |
2,489 |
||||||||
Total |
|
|
25,177 |
39,959 |
170,952 |
214,945 |
||||||||
|
|
|
|
|
|
|||||||||
Current |
|
|
19,105 |
26,184 |
85,147 |
103,102 |
||||||||
Noncurrent |
|
|
6,072 |
13,775 |
85,805 |
111,843 |
(i) Refers to the long-term portion of the benefit of the Teleproduzir Program, that refers to an agreement with the Goiás State Government for deferral of ICMS payments. Pursuant to this agreement, the ICMS due will be paid in 84 monthly installments, with a grace period of 12 months from the end of date of utilization of the benefit, which was in July 2004.
b) Repayment schedule
The long-term portion of loans and financing matures as follows:
Year |
Company |
Consolidated |
|
|
|
||
2006 (from July on) |
6,072 |
33,137 |
|
2007 |
- |
40,234 |
|
2008 |
- |
5,632 |
|
2009 |
- |
2,158 |
|
2010 |
- |
2,158 |
|
2011 |
- |
2,158 |
|
2012 |
- |
328 |
|
Total |
6,072 |
85,805 |
c) Restrictive covenants
The Company and its subsidiaries have loans and financing from the National Bank for Economic and Social Development (BNDES) and Export Development Canada - EDC, the consolidated balances of principal of which, as of June 30, 2005, are R$110,146 and R$43,375 (R$124,400 and R$71,473 as of March 31, 2005), respectively. As of that date, the various contractual economic and financial indices were complied with by the Company and its subsidiaries.
d) Guarantees
Banks |
Guarantees |
|
BNDES Operators TCO |
15% of the receivables and CDB pledged to an amount equivalent to the next installment coming due. |
|
BNDES NBT |
100% of the receivables and CDB pledged to an amount equivalent to the next two installments. |
e) Derivatives - consolidated
As of June 30, 2005, the Company and its subsidiaries had exchange rate swap contracts of US$22,447 thousand (US$32,134 thousand as of March 31, 2005), to hedge all its foreign-exchange liabilities. Up to that date, the Company and its subsidiaries had recorded an accumulated and unrealized net loss of R$23,195 (R$21,303 as of March 31, 2005) on these derivatives, represented by a current liability balance of R$17,196 (R$14,631 as of March 31, 2005), and a balance in long-term liabilities of R$5,999 (R$6,672 as of March 31, 2005).
15. INTEREST ON CAPITAL AND DIVIDENDS PAYABLE
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Interest on capital TCP |
35,838 |
35,838 |
35,838 |
35,838 |
|||
Interest on capital minority interest |
45,353 |
45,869 |
49,386 |
50,438 |
|||
Dividends TCP |
26,276 |
26,276 |
26,276 |
26,276 |
|||
Dividends minority interest |
30,295 |
30,295 |
31,842 |
31,842 |
|||
Total |
137,762 |
138,278 |
143,342 |
144,394 |
16. OTHER LIABILITIES
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Services to be provided - prepaid |
4,751 |
3,947 |
35,762 |
13,701 |
|||
Provision for loyalty program (a) |
2,000 |
1,583 |
4,423 |
3,395 |
|||
Liabilities with associated companies |
14,631 |
6,802 |
12,358 |
6,416 |
|||
Provision for pension plan |
84 |
84 |
167 |
167 |
|||
Equivalent share grouping (b) |
41,829 |
- |
41,829 |
- |
|||
Others |
1,658 |
1,742 |
8,529 |
8,881 |
|||
Total |
64,953 |
14,158 |
103,068 |
32,560 |
|||
|
|
|
|
|
|||
Current |
63,205 |
12,330 |
94,271 |
23,593 |
|||
Noncurrent |
1,748 |
1,828 |
8,797 |
8,967 |
(a) The Company and its subsidiaries have customer loyalty programs, in which connections are transformed into points for future exchange for handsets. The accumulated points, net of redemption, are provisioned, considering historic redemption data, points generated and the average cost of a point.
(b) Refers to credit made available to the shareholders who benefit from the remainder of the shares arising from the grouping of the Company's share capital (Note 19).
17. RESERVE FOR CONTINGENCIES
The Company and its subsidiaries are parties to certain lawsuits involving labor, tax and civil matters. A reserve was recorded in the accounts related with the claims whose probability of an unsuccessful outcome was classified as probable.
The composition of the reserves are as follows:
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
|
|
|
|
||||
Telebrás |
119,176 |
116,487 |
119,176 |
116,487 |
|||
Labor |
71 |
21 |
888 |
845 |
|||
Civil |
3,305 |
2,378 |
14,111 |
9,830 |
|||
Tax |
9,589 |
9,588 |
9,851 |
11,207 |
|||
Total |
132,141 |
128,474 |
144,026 |
138,369 |
|||
|
|
|
|
||||
Current |
1,769 |
1,492 |
8,772 |
6,182 |
|||
Noncurrent |
130,372 |
126,982 |
135,254 |
132,187 |
The changes in the reserve for contingencies in the six-month period ended June 30, 2005 are as follows:
Company |
Consolidated |
||
|
|
||
Balance as of December 31, 2004 |
124,812 |
134,117 |
|
Reserves, net of reversals |
1,552 |
5,064 |
|
Monetary variations |
5,417 |
5,417 |
|
Payments, net of reclassifications |
360 |
(572 ) |
|
Balance as of June 30, 2005 |
132,141 |
144,026 |
17.1. Telebrás
Correspond to the original loans from Telecomunicações Brasileiras S.A. - Telebrás, which, according to Appendix 2 of the Split-up Report dated February 28, 1998, approved by the Shareholders' General Meeting of May 1998, should be attributed to the corresponding holding company of Telegoiás and Telebrasília Celular S.A.
Considering that there was a failure in the allocation of these loans at the time of the split-up, the Company suspended the flow of payments and began to restate the debt according to the variation in the IGP-M plus 6% interest per annum.
In June 1999, the Company filed a suit requesting a statement that the assets corresponding to these liabilities are its property, plus accessories of these assets, also claiming compensation for the installments paid.
On August 1, 2001, a decision was handed down ruling the requests made by the Company in the declaratory action to be without grounds, but on October 8, 2001 the Company filed an appeal, which was ruled without grounds, upholding the first level court decision. The Company filed a new appeal that is awaiting judgment by the Supreme Court (STJ).
In the opinion of the Company's legal advisers, the chances of an unsuccessful outcome are considered probable as regards the merit and possible as regards the restatement factor. The unrecorded difference as of June 30, 2005 between the original rates of contracts and the restatement described above is estimated at R$(18,280) (R$(4,007) as of March 31, 2005).
17.2. Tax litigation
17.2.1. Probable loss
Includes several tax claims, a provision having been posted as demonstrated previously, which is considered sufficient to cover the probable losses in these cases.
17.2.2. Possible loss
No new significant claims classified as having a "possible" loss incurred in this first semester. No significant alterations occurred in the claims indicated in this report since the last financial year.
17.3. Labor and civil suits
Include several labor and civil claims, and a reserve was posted as demonstrated previously, which is considered sufficient to cover possible losses in these cases.
In relation to claims whose probability of loss is classified as possible, the amount involved is R$19,166 (R$16,573 as of March 31, 2005) for civil claims and R$3,967 (R$3,275 as of March 31, 2005) for labor claims.
18. LEASING (CONSOLIDATED)
The Company and its subsidiaries have leasing contracts, which were liquidated in June 2005. Expenses recorded in the first semester of 2005 totaled R$461 (R$2,032 in the first semester of 2004).
19. SHAREHOLDERS' EQUITY
a) Capital
On March 31, 2005 Company's capital was increased by R$164,878, without issuing new shares, by means of capitalization of part of the surplus revenue reserves into capital as of December 31, 2004.
In the General and Extraordinary Shareholders' Meetings held on March 31, 2005, a reverse split of 386,664,974,968 nominative book-entry shares, without par value, was approved, of which 129,458,666,783 common shares and 257,206,308,185 preferred shares, representing capital, in the proportion of 3,000 (three thousand) shares to 1 (one) share of the same species, the capital becoming represented by 128,888,325 nominative book-entry shares, without par value, of which 43,152,889 common shares and 85,735,436 preferred shares.
As a result of the reverse share split, the authorized capital limit changed from up to 700,000,000,000 shares to up to 234,000,000 shares.
Consequently the capital as of June 30 and March 31, 2005, consists of shares with no par value, distributed as follows:
Thousands |
|
|
|
Common shares |
43,153 |
Preferred shares |
85,735 |
Shares held in treasury |
(1,928 ) |
Total |
126,960 |
b) Special goodwill reserve
This reserve represents the formation of a special goodwill reserve as a result of the Company's corporate restructuring, which will be capitalized in favor of the controlling shareholder at the time of effective realization of the tax benefit.
c) Revenue reserve
(i) Statutory reserve
The statutory reserve is calculated based on 5% of net annual income until the reserve reaches 20% of paid-up capital or 30% of capital plus capital reserves; from then on, appropriations to this reserve are no longer compulsory. The purpose of this reserve is to ensure the integrity of capital and may only be used to compensate losses or increase capital. The reserve is made at the end of the financial year.
(ii) Special reserve for expansion
The special reserve for expansion and modernization is based on the capital expenditure budget prepared by management, which demonstrates the need for funds for investment projects for the coming financial year.
d) Dividends
The preferred shares do not have voting rights, except in the cases stipulated in the bylaws, but they are assured priority in the reimbursement of capital, without premium, the right to participate in the dividend to be distributed, corresponding to not less than 25% of net income for the financial year, calculated in the form of article 202 of corporate law, with priority in the receipt of minimum noncumulative dividends equivalent to the larger of the following values:
(i) 6% per annum on the amount resulting from dividing the subscribed capital by the total number of Company's shares.
(ii) 3% per annum on the amount resulting from division of the shareholders' equity by the total number of Company's shares, plus the right to participate in distributed income under equal conditions to the common shares, after the latter have been assured a dividend equal to the minimum priority dividend established for the preferred shares.
e) Treasury shares
The shares held in treasury as of June 30, 2005 totaled 1,929 thousand shares, of which 1,728 common shares (1,928 thousand common shares and 1 thousand preferred shares as of March 31, 2005).
20. NET OPERATING REVENUE
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Monthly subscriptions |
18,667 |
25,457 |
60,463 |
79,429 |
|||
Use of network |
136,099 |
131,971 |
670,127 |
555,997 |
|||
Additional call charges |
5,154 |
3,998 |
26,666 |
12,510 |
|||
Interconnection |
85,576 |
97,670 |
415,190 |
419,825 |
|||
Data services |
10,073 |
9,890 |
67,596 |
54,280 |
|||
Additional services |
6,096 |
4,944 |
30,243 |
20,729 |
|||
Other services |
2,026 |
1,203 |
9,120 |
5,900 |
|||
Gross revenue from services |
263,691 |
275,133 |
1,279,405 |
1,148,670 |
|||
|
|
|
|
||||
State VAT (ICMS) |
(43,424) |
(40,504) |
(220,366) |
(183,747) |
|||
PIS and COFINS |
(9,073) |
(9,671) |
(43,810) |
(39,902) |
|||
ISS - service tax |
(97) |
(60) |
(346) |
(323) |
|||
Discounts granted |
(8,529 ) |
(8,766 ) |
(51,433 ) |
(47,649 ) |
|||
Net operating revenue from services |
202,568 |
216,132 |
963,450 |
877,049 |
|||
|
|
|
|
||||
Gross revenue from handsets |
41,346 |
46,239 |
228,981 |
211,515 |
|||
|
|
|
|
||||
ICMS |
(6,043) |
(7,531) |
(36,881) |
(35,639) |
|||
PIS and COFINS |
(3,595) |
(3,934) |
(19,968) |
(20,258) |
|||
Discounts granted |
(1) |
(1) |
- |
(75) |
|||
Returned sales |
(2,480) |
(2,678) |
(13,119) |
(9,028) |
|||
Net operating revenue from the sale |
29,227 |
32,095 |
159,013 |
146,515 |
|||
|
|
|
|
||||
Total net operating revenue |
231,795 |
248,227 |
1,122,463 |
1,023,564 |
No clients have contributed with more than 10% of gross operating revenue in the six-
-month periods ended June 30, 2005 and June 30, 2004, except for Brasil Telecom S.A., a fixed-telephone operator, which contributed with approximately 20% and 22%, respectively, in relation to interconnection revenues.
21. COST OF SERVICES PROVIDED AND PRODUCTS SOLD
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Personnel | (3,413) |
(3,103) |
(11,861) |
(10,354) |
|||
Materials | (707) |
(474) |
(2,448) |
(2,167) |
|||
Outsourced services |
(6,349) |
(4,618) |
(28,521) |
(17,914) |
|||
Connections |
(687) |
(2,196) |
(17,140) |
(14,463) |
|||
Rents, insurance and condominium fees |
(1,463) |
(3,012) |
(5,154) |
(8,469) |
|||
Interconnection |
(4,161) |
(4,829) |
(28,613) |
(42,826) |
|||
Taxes and contributions |
(9,463) |
(630) |
(53,601) |
(3,340) |
|||
Depreciation and amortization |
(26,987) |
(23,711) |
(92,533) |
(76,401) |
|||
Other |
- |
(1 ) |
(8 ) |
(1 ) |
|||
Cost of services provided | (53,230) |
(42,574) |
(239,879) |
(175,935) |
|||
|
|
|
|
||||
Cost of products sold |
(49,475 ) |
( 54,330 ) |
( 280,615 ) |
( 222,854 ) |
|||
Total |
( 102,705 ) |
( 96,904 ) |
( 520,494 ) |
( 398,789 ) |
22. SELLING EXPENSES
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Personnel |
(12,343) |
(9,287) |
(39,338) |
(31,120) |
|||
Materials |
(881) |
(1,211) |
(2,616) |
(3,785) |
|||
Outsourced services |
(34,446) |
(23,256) |
(131,094) |
(119,992) |
|||
Publicity |
(27,149) |
(10,816) |
(39,863) |
(15,667) |
|||
Rents, insurance and condominium fees |
(1,316) |
(1,513) |
(4,078) |
(4,089) |
|||
Taxes and contributions |
(53) |
(113) |
(353) |
(420) |
|||
Depreciation and amortization |
(4,489) |
(2,145) |
(17,472) |
(8,800) |
|||
Allowance for doubtful accounts |
(15,140) |
(5,640) |
(55,440) |
(26,120) |
|||
Other |
(2,975 ) |
(442 ) |
(9,427 ) |
(1,452 ) |
|||
Total |
( 98,792 ) |
( 54,423 ) |
( 299,681 ) |
( 211,445 ) |
23. GENERAL AND ADMINISTRATIVE EXPENSES
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Personnel |
(5,891) |
(12,490) |
(24,504) |
(25,178) |
|||
Materials |
(635) |
(538) |
(2,508) |
(1,268) |
|||
Outsourced services |
(10,631) |
(11,513) |
(33,449) |
(27,344) |
|||
Rents, insurance and condominium fees |
(1,640) |
(1,048) |
(7,542) |
(3,593) |
|||
Taxes and contributions |
(135) |
(1,241) |
(800) |
(2,118) |
|||
Depreciation and amortization |
(3,751) |
(5,714) |
(11,702) |
(10,582) |
|||
Other |
(65 ) |
(1,258 ) |
(3,191 ) |
(3,091 ) |
|||
Total |
( 22,748 ) |
( 33,802 ) |
( 83,696 ) |
( 73,174 ) |
24. OTHER OPERATING REVENUES (EXPENSES)
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Revenue: |
|
||||||
Fines |
2,303 |
4,158 |
10,452 |
15,313 |
|||
Recovered expenses |
714 |
450 |
5,766 |
1,018 |
|||
Reversal of reserves |
10 |
7 |
3,666 |
2,659 |
|||
Shared infrastructure |
2,582 |
21,045 |
6,680 |
2,590 |
|||
Sales incentives |
8,563 |
1,093 |
13,682 |
3,475 |
|||
Other |
1,674 |
88 |
3,047 |
107 |
|||
Total |
15,846 |
26,841 |
43,293 |
25,162 |
|||
|
|
|
|
||||
Expenses: |
|
|
|
|
|||
FUST fees |
(1,095) |
(1,151) |
(5,116) |
(4,455) |
|||
FUNTTEL |
(547) |
(554) |
(2,558) |
(2,205) |
|||
ICMS on other expenses |
(1,727) |
(2,350) |
(4,578) |
(8,456) |
|||
PIS and COFINS on other revenue |
(2,329) |
(1,460) |
(6,611) |
(2,477) |
|||
Other taxes and contributions |
(125) |
(14) |
(170) |
(346) |
|||
Provision for contingencies |
(1,562) |
(567) |
(8,730) |
(4,000) |
|||
Amortization of deferred charges |
- |
- |
(2,119) |
(4,459) |
|||
Amortization of Telegoiás and |
(781) |
(781) |
(781) |
(781) |
|||
Other |
(2,798 ) |
(296 ) |
(5,851 ) |
(671 ) |
|||
Total |
( 10,964 ) |
( 7,173 ) |
( 36,514 ) |
( 27,850 ) |
25. FINANCIAL INCOME (EXPENSES)
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Financial income: |
|
|
|
||||
Income from financial operations |
8,790 |
12,017 |
92,448 |
85,763 |
|||
Monetary/exchange variations |
3,365 |
30 |
8,368 |
125 |
|||
Hedge operations, net |
- |
2,255 |
- |
6,255 |
|||
PIS/COFINS on financial operations |
(32) |
(2,348 ) |
(41 ) |
( 10,400 ) |
|||
Total |
12,123 |
11,954 |
100,775 |
81,743 |
|||
|
|
|
|
||||
Financial expenses: |
|
|
|
|
|||
Expenses with financial operations |
(3,899) |
(5,083) |
(24,500) |
(26,777) |
|||
Monetary/exchange variations | (6,204) |
(14,316) |
(8,109) |
(26,470) |
|||
Hedge operations, net |
(5,742 ) |
- |
( 14,329 ) |
- |
|||
Total |
( 15,845 ) |
( 19,399 ) |
( 46,938 ) |
( 53,247 ) |
26. INCOME AND SOCIAL CONTRIBUTION TAXES
The Company and its subsidiaries estimate monthly the amounts of income and social contribution taxes on the accrual basis, paying the taxes based on a monthly estimate. The subsidiary TCO IP returned a tax loss; however, the tax credits were not recognized due to the lack of projections of taxable income to be generated in the short term. Deferred taxes are recognized on temporary differences, as shown in Note 6. The composition of expenses on income and social contribution taxes is given below:
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Income tax |
(16,534) |
(14,085) |
(89,366) |
(85,664) |
|||
Social contribution |
(5,952) |
(5,356) |
(32,198) |
(31,151) |
|||
Deferred income tax |
13,789 |
(820) |
16,777 |
(5,294) |
|||
Deferred social contribution |
4,954 |
(296 ) |
6,030 |
(1,906 ) |
|||
Total |
( 3,743 ) |
( 20,557 ) |
( 98,757 ) |
( 124,015 ) |
A reconciliation of the taxes on income disclosed, eliminating the effects of the goodwill fiscal benefit, and the amounts calculated at the combined statutory rate of 34% are as follows:
Company |
Consolidated |
||||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
|
|
|
|
||||
Income before taxes |
187,152 |
257,056 |
282,166 |
363,721 |
|||
Income and social contribution taxes at statutory rate |
(63,632) |
(87,399) |
(95,936) |
(123,665) |
|||
Permanent additions: |
|
|
|
|
|||
Donations and sponsorships |
- |
(59) |
(2,330) |
(281) |
|||
Other |
(788) |
(396) |
(153) |
(611) |
|||
Permanent exclusions: |
|
|
|
|
|||
Equity pick-up |
60,677 |
61,726 |
- |
- |
|||
Reserve for maintenance of integrity of shareholders' equity |
- |
4,775 |
- |
- |
|||
Difference additional income tax |
- |
12 |
(338) |
84 |
|||
Other exclusions |
- |
784 |
- |
458 |
|||
Tax expense |
(3,743 ) |
( 20,557 ) |
( 98,757 ) |
( 124,015 ) |
27. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONSOLIDATED)
a) Risk considerations
The Company and its subsidiaries operate the mobile telephone service in the States of Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul, Rondônia, Acre, Amazonas, Roraima, Amapá, Pará, Maranhão and the Federal District, according to the terms of the license granted by the Federal Government. The operators also exploit the business of purchasing and distributing handsets through their own channels and distributional network to stimulate their core business.
The major market risks to which the Company and its subsidiaries are exposed in conducting business are:
Credit risk : derived from the possible difficulty in collecting amounts of telecommunications services provided to customers, and the sales of handsets by the distribution network, together with the risks related with investments and swap operations.
Interest rate risk : derived from the portion of the debt and liability positions in derivatives contracted at floating rates and involves the risk of financial expenses rising due to an unfavorable movement in interest rates (principally Libor and CDI).
Currency risk : the possibility of the Company incurring losses on account of fluctuations in interest rates that increase the balances of foreign currency denominated loan and financing liabilities.
The Company and its subsidiaries take a positive attitude towards the management of the various risks to which they are subject, by means of a wide-ranging set of operational initiatives, procedures and policies that enable the risks inherent in their businesses to be mitigated.
Credit risk
The credit risk from providing telecommunications services is minimized by a strict control of the customer base and active management of default by means of clear policies related with selling postpaid sets. The Company and its subsidiaries have 85% (84% as of March 31, 2005) of the customer base under the prepaid system, which requires prepaid loading and, therefore, does not represent any credit risk.
The credit risk on the sale of handsets is managed by means of a conservative credit policy, using modern management methods that involve applying credit scoring techniques, balance sheet analysis and consulting commercial databases, together with the automatic control of sales release integrated with the Company's ERP distribution module.
The Company and its subsidiaries are also subject to credit risk derived from the short-term financial investment and amounts receivable from swap operations. The Company and its subsidiaries operate in such a way as to diversify this exposure among first rate financial institutions.
Interest rate risk
The Company and its subsidiaries are exposed to fluctuations in the TJLP (local index), on financing from BNDES. As of June 30, 2005, the restated balances of the principal for these operations amounted to R$101,913 (R$114,051 as of March 31, 2005).
The Company and its subsidiaries are also exposed to the risk of local interest rates due to the liability portion of derivative operations (exchange hedge) with exchange rates associated with the CDI. However, the short-term financial investments, also indexed to the CDI, partially neutralize this effect.
Foreign currency-denominated loans are also exposed to interest risk associated with foreign loans. As of June 30, 2005, these operations amounted to principal values of US$ 18,454 thousand (US$26,807 thousand as of March 31, 2005).
Currency/Exchange rate risk
The Company and its subsidiaries utilize derivative instruments to protect currency risk on foreign currency-denominated loans. The instruments normally used are swap contracts.
The following table summarizes the net exposure of the Company and its subsidiaries to the exchange rate factor as of June 30, 2005:
In thousands |
|
|
|
Loans and financing - US$ |
(18,454) |
Loans and financing - UMBNDES (i) |
(3,503) |
Suppliers |
(391) |
Hedge instruments |
22,447 |
Total |
99 |
(i) UMBNDES is a monetary unit calculated by the BNDES, composed of a basket of foreign currencies, the principal being the U.S. dollar, for which reason the Company and its subsidiaries considered it as the U.S. dollar in analyzing the risk coverage related with exchange-rate fluctuations.
b) Derivative instruments
The Company and its subsidiaries record derivative gains and losses as a component of net financial expenses or income.
Book and market values of loans and financing and derivative instruments are estimated as follows:
Book |
Market |
Unrealized |
|||
|
|
|
|||
Loans and financing |
(170,952) |
(169,036) |
1,916 |
||
Derivative instruments |
(23,195 ) |
(22,245 ) |
950 |
||
Total |
( 194,147 ) |
( 191,281 ) |
2,866 |
c) Market value of financial instruments
The market value of the loans and financing, together with the swap contracts, was established based on the discounted cash flow method, using available projections of interest rates.
The market values are calculated at a specific time based on information available and in-house valuation methodologies, and, therefore, the estimates indicated do not necessarily represent market realization values. The use of different assumptions could significantly affect the estimates.
28. POST-RETIREMENT BENEFIT PLANS
The subsidiaries, together with the other companies of the former Telebrás system and their successors, sponsor private pension and healthcare plans for retired employees, managed by Fundação Sistel de Seguridade Social - SISTEL, as follows:
a) PBS-A - defined-benefit multi-sponsor plan, for participants that were previously assisted and had such status on January 31, 2000.
b) PBS-TCO - defined-benefit retirement plan sponsored individually by the Company.
c) PAMA - multi-sponsor healthcare plan for retired employees and their dependents, on a shared cost basis.
The contributions to the PBS-TCO Plan are determined based on actuarial studies prepared by independent actuaries, according to the regulations in effect in Brazil . The system of establishing the cost is the capitalization method and the contribution payable by the sponsor is 13.5% of the payroll of its employees participating in the Plan, of which 12% is allocated to costing the PBS-TCO Plan and 1.5% to the PAMA Plan.
d) TCOPREV - individual defined contribution plan - the TCOPREV benefits plan, introduced by SISTEL in August 2000.
The Company's contributions to the TCOPREV Plan are equal to those of the participants, varying up to 8% of the participation salary, as a function of the percentage selected by the participant. In the second semester of 2005, the contributions to these Plans were R$1,867 (R$1,956 in 2004).
Up to June 30, 2005, the Company and its subsidiaries recognized proportionally the actuarial cost foreseen for the 2005 financial year, recording the amount of R$167 relative to these costs, in an administrative expense account.
29. CORPORATE RESTRUCTURING
On May 13, 2004, the Boards of the Company and its Parent Company approved a corporate restructuring for the purpose of transferring to the Company and its subsidiaries the goodwill paid by TCP in the acquisition of TCO, whose balances as of May 31, 2004 were R$1,503,121.
Prior to the merger of goodwill by the Company, a reserve was constituted to maintain the merger's shareholders' equity at R$992,060. Thus, net assets merged by the Company amounted to R$511,061, which, in essence, represent the tax benefit derived from the deductibility of the mentioned goodwill when merged by the Company and its subsidiaries.
The merged net assets will be amortized over approximately five years and the balancing item was a special goodwill reserve to be transferred to the capital account in favor of the Parent Company at the time of effective realization of the tax benefit. The remaining shareholders are assured the right to participate in these capital increases, in which case the funds raised will be paid to TCP.
As of June 30, 2004, the transfer of part of the net assets to the subsidiaries was approved, based on appraisal reports prepared by independent specialists, as described below:
Company |
Goodwill |
Reserve |
Net |
||
|
|
|
|||
Telemat |
248,558 |
(164,048) |
84,510 |
||
Telegoiás |
352,025 |
(232,336) |
119,689 |
||
Telems |
144,078 |
(95,092) |
48,986 |
||
Teleron |
68,775 |
(45,392) |
23,383 |
||
Teleacre |
29,353 |
(19,373 ) |
9,980 |
||
Total split-up |
842,789 |
(556,241) |
286,548 |
||
|
|
|
|||
Balance TCO |
660,332 |
( 435,819 ) |
224,513 |
||
Total |
1,503,121 |
( 992,060 ) |
511,061 |
Concurrently with the transfer of a portion of the net assets to the subsidiaries, the proposal has been approved to merge the shares of the subsidiaries' minority shareholders, who received the Company's shares in a proportion established by a market evaluation appraisal prepared by independent experts. The transfer of the interests in the subsidiaries resulted in a capital increase of R$28,555.
The accounting records of the Company and its subsidiaries maintained for corporate and tax purposes have specific accounts related with the premium and provision merged and corresponding amortization, reversal and tax credit, the balances of which as of June 30, 2005 are as follows:
Company |
Consolidated |
||||||
06.30.05 |
03.31.05 |
06.30.05 |
03.31.05 |
||||
Balance sheets: |
|
|
|
|
|||
Merged goodwill |
517,260 |
550,276 |
1,177,444 |
1,252,600 |
|||
Merged reserve |
( 341,392 ) |
( 363,183 ) |
(777,113 ) |
(826,715 ) |
|||
Balance |
175,868 |
187,093 |
400,331 |
425,885 |
|||
|
|
|
|
||||
06.30.05 |
06.30.04 |
06.30.05 |
06.30.04 |
||||
Statement of income: |
|
|
|
|
|||
Amortization of goodwill |
(66,033) |
(20,357) |
(150,312) |
(57,321) |
|||
Reversal of reserve |
43,582 |
13,436 |
99,206 |
37,832 |
|||
Tax credit |
22,451 |
6,921 |
51,106 |
19,489 |
|||
Effect on income |
- |
- |
- |
- |
As demonstrated, the goodwill amortization, net of the reversal of the reserve and corresponding tax credit, results in a null effect on income and, consequently, on the calculation base of the statutory minimum dividends. To ensure a better presentation of the Companies' financial and equity situation in the financial statements, the net amount of R$400,331, as of June 30, 2005 (R$425,885 as of March 31, 2004), which, in essence, represents the tax credit merged, was classified in the balance sheet under current and noncurrent assets as deferred taxes (Note 6).
30. RELATED-PARTY TRANSACTIONS
The principal transactions with unconsolidated related parties are:
a) Use of network and long-distance (roaming) cellular communication: These transactions involve companies owned by the same controlling group: Telecomunicações de São Paulo S.A., Telerj Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Telesp Celular S.A., Global Telecom S.A. and Celular CRT S.A. Part of these transactions was established based on contracts signed by Telebrás with the concessionaire operators during the period prior to privatization, and the conditions were regulated by ANATEL.
b) Corporate services: These are passed on to the companies under the same controlling group at the cost effectively incurred of the services.
c) Payable to related companies: Refers to loan operations between the Company and the subsidiaries.
A summary of the unconsolidated balances and transactions with unconsolidated related parties is as follows:
Consolidated |
|||
|
06.30.05 |
03.31.05 |
|
Assets: |
|
|
|
Trade accounts receivable, net |
5,230 |
9,509 |
|
Credits with Group companies |
977 |
448 |
|
|
|
||
Liabilities: |
|
|
|
Trade accounts payable |
16,807 |
18,069 |
|
Liabilities with Group companies |
12,358 |
6,416 |
Consolidated |
|||
|
06.30.05 |
06.30.04 |
|
Statement of income: |
|
|
|
Cost of services provided |
(1,567) |
(2,862) |
|
Selling expenses |
(5,838) |
(9,159) |
|
General and administrative expenses |
(9,244) |
(15,799) |
31. INSURANCE (CONSOLIDATED)
The Company and its subsidiaries have a policy of monitoring the risks inherent in their operations. As of June 30, 2005, the Companies had insurance policies in effect to cover operating risks, third-party liability, health, etc. Management of the Company and its subsidiaries considers that the amounts are sufficient to cover possible losses. The principal assets, liabilities or interests covered by insurance are as follows:
Types |
Amounts insured |
|
|
|
|
Operating risks |
R$940,160,000.00 |
|
General third-party liability - RCG |
R$7,559,750.00 |
|
Auto (fleet of executive vehicles) |
Fipe Table and R$250,000.00 for DC/DM |
|
Auto (fleet of operational vehicles) |
R$250,000.00 for DC/DM |
32. AMERICAN DEPOSITARY RECEIPTS ("ADRs") PROGRAM
On November 16, 1998, the Company began trading ADRs with the following characteristics on the New York Stock Exchange - NYSE:
Type of shares: preferred.
Each ADR represents 1 (one) preferred share.
Shares are traded as ADRs with the code "TRO", on the New York Stock Exchange - NYSE.
Foreign depositary bank: The Bank of New York.
Custodian bank in Brazil : Banco Itaú S.A.
33. SUBSEQUENT EVENTS
The General Meeting of the Board of Directors of Tele Centro Oeste Celular Participações S.A. held on June 28, 2005 approved a proposal to increase the capital to capitalize the tax benefits arising from the corporate restructuring in the amount of R$63,893, by issuing 3,107,645 common book-entry shares, without par value. Each share will be negotiated at R$20.56, assuring the right to preference established in article 171 of Law No. 6,404/76, and funds arising from any exercise of the preference rights should be credited to the controlling shareholder. The term for exercising the right of preference is from June 29 to July 28, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 11, 2005
TELE CENTRO OESTE CELLULAR HOLDING COMPANY |
||
By: |
/S/ Arcadio Luis Martinez Garcia
|
|
Arcadio Luis Martinez Garcia
Investor Relations Officer |
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.