<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13A-16 OR 15D-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE MONTH OF SEPTEMBER 1998
(Commission File No. 1-14032)
TELECOMUNICACOES BRASILEIRAS S.A.--TELEBRAS
(Exact name of registrant as specified in its charter)
BRAZILIAN TELECOMMUNICATIONS CORPORATION--TELEBRAS
(Translation of registrant's name in English)
SAS--QUADRA 6, BLOCO E
70313-900 BRASILIA--DF
THE FEDERATIVE REPUBLIC OF BRAZIL
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F ____
---
(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
---
<PAGE>
TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS
--------------------------------------------
Interim Financial Information for the
Three and Six Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Telecomunicacoes Brasileiras S.A. - Telebras
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of Telecomunicacoes Brasileiras S.A. - Telebras as of and
for the three-month period ended June 30, 1998, which comprises the balance
sheet, statements of income for the three- and six-month periods ending on
June 30, 1998, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998,
which is presented for comparative purposes, was not reviewed by
independent auditors.
Rio de Janeiro, August 14, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS
- --------------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
<TABLE>
<CAPTION> March 31,
June 30, 1998 1998
-------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents 291,324 793,644
Recoverable taxes 50,234 23,166
Accounts receivable 2,091 2,371
Other current assets 30,637 394,803
------- ---------
Total current assets 374,286 1,213,984
------- ---------
Long-term assets - Recoverable taxes 2,175 2,276
------- ---------
Permanent - Fixed assets 70,763 70,043
------- ---------
TOTAL ASSETS 447,224 1,288,303
======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Suppliers 18,333 11,399
Payroll and related accruals 20,875 16,365
Dividends payable 90,856 708,445
Other 66,310 91,036
------- ---------
Total current liabilities 196,374 827,245
------- ---------
Long-term liabilities - Taxes and contributions 676 20,523
------- ---------
Shareholders' equity:
Share capital 207,329 145,228
Legal reserve 9,574 9,574
Capital reserves 35,933 39,545
Retained earnings (10,291) 168,936
------- ---------
Total shareholders'' equity 242,545 363,283
------- ---------
Other capitalizable funds 7,629 77,252
------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 447,224 1,288,303
======= =========
</TABLE>
See notes to quarterly information.
- -------------------------------------------------------------------------------
<PAGE>
TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS
- --------------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
<TABLE>
<CAPTION>
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
OPERATING EXPENSES (66,833) (76,336)
NON OPERATING INCOME(EXPENSES) 73 (1,033)
----------- -----------
LOSS BEFORE INCOME AND SOCIAL CONTRIBUITION TAXES (66,760) (77,369)
AND EMPLOYEE PROFIT SHARING ----------- -----------
INCOME AND SOCIAL CONTRIBUTION TAXES 18,836 611
PROFIT SHARING - EMPLOYEES 308 0
----------- -----------
NET LOSS (47,616) (76,758)
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET LOSS PER THOUSAND SHARES (0.00014) (0.00023)
=========== ===========
</TABLE>
See notes to quarterly information.
- -------------------------------------------------------------------------------
<PAGE>
TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS
- --------------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- ----------------------------------------------
1. TELEBRAS SPLIT-OFF
A partial split-off of TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS was approved
at a Meeting of Shareholders on 5/22/98, resulting in the formation of 12
(twelve) new holding companies.
The split-off was carried out on the basis of an APPRAISAL REPORT prepared by
KPMG Peat Marwick, with the following book values for the portions of net assets
transferred to the 12 (twelve) new holding companies, with a value date of
2/28/.98:
<TABLE>
<CAPTION>
COMPANIES FUNDS FOR NET WORTH TOTAL NET
CAPITALIZATION ASSETS
<S> <C> <C> <C>
TELE NORTE LESTE PARTICIPACOES S.A. 319,920 9,262,317 9,582,237
TELE CENTRO SUL PARTICIPACOES S.A. 170,502 4,789,877 4,960,379
TELESP PARTICIPACOES S.A. 501,666 7,792,925 8,294,591
EMBRATEL PARTICIPACOES S.A. 915 5,466,009 5,466,924
TELESP CELULAR PARTICIPACOES S.A. 152 910,096 910,248
TELE SUDESTE CELULAR PARTICIPACOES S.A. 132 784,801 784,933
TELEMIG CELULAR PARTICIPACOES S.A. 67 398,352 398,419
TELE CELULAR SUL PARTICIPACOES S.A 75 450,388 450,463
TELE CELULAR CENTRO PARTICIPACOES S.A. 82 491,855 491,937
TELE NORTE CELULAR PARTICIPACOES S.A. 25 147,888 147,913
TELE LESTE CELULAR PARTICIPACOES S.A. 37 223,208 223,245
TELE NORDESTE CELULAR PARTICIPACOES S.A. 47 278,988 279,035
TOTAL 993,620 30,996,704 31,990,324
</TABLE>
The same Special Meeting of Shareholders approved the establishment of a private
foundation, with a grant of the assets associated with the TELEBRAS Research and
Development Center - CPqD (note 9a).
2. DISCONTINUATION OF OPERATIONS
TELEBRAS is discontinuing its operations and, as provided in Law N 9,472/97,
the Minister of State for Communications may, after the privatization of the
companies that have been spun off from Telebras, authorize the company's
dissolution, to be considered by a new specially-convened special meeting of
shareholders.
<PAGE>
3. PRESENTATION OF FINANCIAL STATEMENTS
3.1. Financial Statement
-------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and, where applicable, the rules
applicable to telecommunication public service concessionaires.
a) These statements result from the simple accumulation of nominal amounts.
b) The balance sheets are presented net of the amounts transferred to the 12
(twelve) new holding companies. Thus, the balance sheet for the first quarter
of 1998 shows balances remaining
after the split-off and the transactions of March/98.
c) The income statements reflect only transaction that took place during the
period from March 1 through June 30, 1998, as a result of the split-off
effective 2/28/98. Thus, the Income Statement for the first quarter/98 shows
only transactions between March 1 and 31 of 98.
d) Net income for the January-February period of 1998 in the amount of R$98,469
thousand (excluding equity method gains and losses), recorded in the Retained
Earnings account at 2/28/98, was transferred in part to the new holding
companies, and will be included in the adjusted net income of those companies at
12/31 for dividend calculation purposes. The amounts allocated to each company
are as follows:
NET
COMPANIES INCOME
TELE NORTE LESTE PARTICIPACOES S.A. 34,098
TELE CENTRO SUL PARTICIPACOES S.A. 15,040
TELESP PARTICIPACOES S.A. 18,326
EMBRATEL PARTICIPACOES S.A. 14,088
TELESP CELULAR PARTICIPACOES S.A. 3,090
TELE SUDESTE CELULAR PARTICIPACOES S.A. 4,365
TELEMIG CELULAR PARTICIPACOES S.A. 1,459
TELE CELULAR SUL PARTICIPACOES S.A 1,690
TELE CELULAR CENTRO PARTICIPACOES S.A. 1,348
TELE NORTE CELULAR PARTICIPACOES S.A. 388
TELE LESTE CELULAR PARTICIPACOES S.A. 915
TELE NORDESTE CELULAR PARTICIPACOES
S.A. 844
TELECOMUNICACOES BRASILEIRAS S.A. - 2,818
TELEBRAS
TOTAL 98,469
3.2. Special Review by Independent Auditors
--------------------------------------
The balance sheets and the statements of income were subject of special review
procedures
<PAGE>
performed by independent auditors.
3.3. Consolidation
-------------
As a result of the split-off, TELEBRAS no longer hold shares in any
telecommunications company, so that the financial statements are no longer
presented on a consolidated basis.
3.4 Comparative Periods
-------------------
TELEBRAS is not presenting figures comparing the second quarter of 1998 with the
second quarter of 1997, because of the partial split-off authorized by the
Special Meeting of Shareholders of 5/22/98, on the basis of the balance sheet as
at 2/28/98.
4. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are consistent with those adopted for preparing the
financial statements of prior periods. The main points of this quarterly
information are summarized as follows:
4.1. Accounts receivable and payable are stated at historical value,
discounted to present value by the interest rate published by the
National Association of Investment Banks and Dealers (ANBID). Amounts
subject to monetary correction have been adjusted to the balance sheet
date.
4.2. Inventory is classified as a current asset and is to be used for
maintenance.
4.3. TELEBRAS sponsors a defined benefit pension plan that is managed by
Sistel. The determination of contributions to the plan are based on
actuarial studies prepared by independent actuaries, in accordance with
rules in effect in Brazil. The actuarial studies are reviewed on a
periodic basis so as to determine whether the contributions need to be
adjusted. From the financial standpoint, Sistel has experienced no
shortage of funds per the last valuation approved and accounted for in
December/97. On account of the kind of sponsorship and benefits, the
split-off did not cause any change in the pension plans.
5. CAPITAL STOCK
The subscribed and paid-in capital as of June 30, 1998 was R$207,329 thousand,
represented by 334,399,027 shares with no par value, as follows:
Type of Shares In thousands of shares
Common 124,369,030
Preferred 210,029,997
Shares in treasury, amounting to 23,006 shares, were as follows:
Common 16,200
Preferred 6,806
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of 6% non-cumulative minimum dividends. As of June 30, 1998, the
book value per share was R$0.000725.
6. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Limitations
Market values are computed at a specific time, based on relevant market data and
information on
<PAGE>
financial instruments. Changes in premises can affect significantly the
estimates.
Cash and cash equivalents, current receivables and payables
Book balances approximate market values because of the short-term maturity of
the instruments.
Deferred taxes - assets and liabilities
Market values are computed on the basis of the present value of the future cash
flows associated with each instrument, using current interest rates for similar
instruments with similar maturities.
Derivatives
It has not been a common practice for the company to use derivatives.
Financial instruments, including the short-term portion, whose accounting and
market values differ, are summarized as follows:
Accounts 6/30/98 Book Value 6/30/98 Market Value
ASSETS
Recoverable taxes 52,409 51,669
LIABILITIES
Indirect taxes 723 723
Direct taxes 990 982
7. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
MOVEMENT VALUE
Balance at 12/31/97 31,294,755
Income for January and February 98,469
Split-off Amounts - Split-Off (30,996,704)
Appraisal Report
Transfers of Funds for (5,434)
Capitalization
Adjustments to investments (31)
Increase in capital - TRF Decision* 62,101
Grants and Investment Subsidies 1,381
Share purchases (842)
Premiums of share purchases (3,623)
Dividends (Increase in capital - (130,769)
TRF Decision**)
Loss from 3/1 to 6/30 (76,758)
Balance at 6/30/98 242,545
* Amounts received from subscribers who exercised their preferential rights at
the time of the increase in capital of 7/7/90, challenged in the federal courts,
ratified by the Special Meeting of Shareholders of April 14, 1998, in accordance
with the decisions of the Federal Regional Tribunal for the 1st Region and the
Tribunal of Justice.
** Rights (dividends) resulting from the increase in capital of 4/14/98.
8. CHANGES IN THE SYSTEMS FOR YEAR 2000 ( MILLENNIUM BUG)
The operations of TELEBRAS are being discontinued, but the administrative system
are going to be evaluated. Management believes that the effects will not be
material.
<PAGE>
9. SUBSEQUENT EVENTS
a) Fundacao CPqD - Research and development Center was established on July
24, 1998. The value of the assets to be granted by TELEBRAS is R$115,089
thousand, in accordance with the APPRAISAL REPORT prepared by ARTHUR ANDERSEN
S/C, with a value date of March 31, 1998.
b) A proposal was made to the Ministry of Communications and approved by
SEST to establish a program known as ADDITIONAL BONUS FOR SERVICES RENDERED for
the benefit of the employees who have participated with dedication and
professionalism in the transition to the privatization and are now assisting
with the process of discontinuation of operations and dissolution of TELEBRAS.
A study is being made of the target group, and actual dates of termination of
employment are being defined, so that the related costs can be measured and
quantified.
COMMENT ON PERFORMANCE OF TELEBRAS
As a result of the split-off, TELEBRAS no longer controls any telecommunications
company and is discontinuing its operations. As provided in Law N 9,472/97, the
Minister of State for Communications may, after the privatization of the
companies that have been spun off from Telebras, authorize the company's
dissolution, to be considered by a specially-convened special meeting of
shareholders.
Thus, since the periods are not comparable, it is not possible to comment on the
performance of TELEBRAS.
CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURE ISSUES
Number of order of issue 3rd issue 4th issue 5th issue
Number of CVM registration GERER/DERER/ SEP/GERER/ SEP/GERER/
DEB/92/023 DEB/93/030 DEB/93/117
Date of CVM registration 10.13.92 9.3.93 12.22.93
Series issued Three Four Five
Type Simple Simple Simple
Nature Public Public Public
Date of issue 9.1.92 7.1.93 12.1.93
Date of maturity 9.1.04 7.1.05 12.1.05
Type of debenture Subordinated Floating Subordinated
Interest rate ANBID ANBID ANBID
Premium/discount
Nominal value (R$) 1,737.61 3,395.21 1,661.85
Amount issued 188,531 6,076 17,773
(thousand of R$)
Quantity of
securities issued 103.692 167.100 200.000
Destination of
securities issued -
in treasury 103.692 167.100 200.000
Date of last 1/2/98 4/5/98 3/3/97
renewal/rollover
Date of next event 1/4/99 4/5/99 9/1/98
<PAGE>
EMBRATEL PARTICIPACOES S.A.
---------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
EMBRATEL Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of EMBRATEL Participacoes S.A. as of and for the three-
month period ended June 30, 1998, which comprises the balance sheet of the
Parent company, statement of income, Parent company and Consolidated, notes
to quarterly information and performance report, prepared in accordance
with accounting principles established by the Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
EMBRATEL PARTICIPACOES S.A.
- ---------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 March 31,1998
------------- -------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Recoverable taxes 151
Other receivables 34,355 32,914
--------- ---------
Total current assets 34,506 32,914
--------- ---------
Permanent assets:
Investments in subsidiaries 5,725,328 5,567,984
--------- ---------
Total permanent assets 5,725,328 5,567,984
--------- ---------
TOTAL ASSETS 5,759,834 5,600,898
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Taxes and contributions 732 213
--------- ---------
Total current liabilities 732 213
--------- ---------
Long-term liabilities:
Other 915 915
--------- ---------
Total long-term liabilities 915 915
--------- ---------
Shareholders' equity:
Share capital 2,134,427 2,134,427
Legal reserve 129,640 129,640
Realizable profit reserve 2,207,348 2,207,348
Retained earnings 1,286,772 1,128,355
--------- ---------
Total shareholders' equity 5,758,187 5,599,770
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,759,834 5,600,898
========= =========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
2
<PAGE>
EMBRATEL PARTICIPACOES S.A.
- ---------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- --------------
<S> <C> <C>
OPERATING INCOME (EXPENSES):
Income from investments in subsidiaries 157,344 290,667
Financial income 1,592 2,243
----------- -----------
OPERATING INCOME, NET 158,936 292,910
NON-OPERATING INCOME ----------- -----------
INCOME BEFORE TAXES AND PROFIT SHARING 158,936 292,910
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (519) (732)
PROFIT SHARING - EMPLOYEES ----------- -----------
NET INCOME FOR THE PERIOD 158,417 292,178
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00047 0.00087
======= =======
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
EMBRATEL PARTICIPACOES S.A.
- ---------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No.
9472/97 (General Telecommunication Law) and Decree No. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders'
general meeting that approved the register/justification was held on May
22, 1998 and the valuation report was prepared with a date of February
28, 1998.
The Company will operate as a holding of the Telecommunications area in
the long distance, data transmission, tele-informatic, video text,
telex, television and radio transmission, and sea communications
covering region IV, so far served by Embratel S.A..
As a result of the split-off of TELEBRAS, common and preferred
shareholders of TELEBRAS will have the right to receive, besides the
said shares, a common or preferred share in every new holding company
for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government
will sell the new companies at a public bid scheduled for July 29, 1998.
Only pre-qualified bidders can participate in the bid.
The split-off parts that remained with this company, in accordance with
the valuation report are as follows:
SPLIT-OFF PARTS
---------------
CURRENT ASSETS 32,263
Cash and equivalents 32,263
PERMANENT ASSET 5,434,661
Investments 5,434,661
NET EQUITY AND
CAPITALIZABLE RESOURCES 5,466,924
Share capital 2,134,427
Legal reserve 129,640
Realizable profit reserves 2,207,348
Retained earnings 994,594
Capitalizable resources 915
4
<PAGE>
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statements
--------------------
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires. These
statements result from the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
---------------------------------
The income statement is presented on the Parent company and Consolidated
basis. As the parent company was incorporated at 5/22/98, the March
balance sheet was prepared "pro-forma" in order to meet the market's
need for information. The criteria used in preparing this balance sheet
take into consideration the movement in the transition period, which
occurred from February 28 through March 31, 1998.
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income were reviewed on
a quarterly basis by independent auditors.
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the predecessor (split company). The main points of
this quarterly information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at
the year-end. On February 28, 1998, there was a transfer to Embratel
Participacoes S.A. in the amount of R$14.088, which was recorded in the
retained earnings account as part of the Telebras's profit for January
and February 1998 and shall be included in the calculation of the
adjusted net income as of December 31, 1998 for purposes of dividend
calculation.
3.2 Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3 Inventories are set apart for expansion and maintenance: Those destined
-------------------------------------------------------
for expansion are classified as permanent (assets and installations in
process), and destined for maintenance, are classified as current
assets.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure N 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution N 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employee's share in the
subsidiaries' profits is provided monthly. The accrued amount, at the
rate of 1/12% per month of the employee's monthly remuneration, is
subject to the approval from CCE and the shareholders at the general
meeting when surplus appropriation is approved.
5
<PAGE>
3.5 Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on works in progress at the rate of 12% p.a. on total capital
invested in works in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the non-
operating financial expenses generated by loans obtained to finance the
work. The amount exceeding non-operating financial expenses is recorded
in the capital reserve. The Parent company records such operations using
the equity method and the interest amount is charged to operations in
the income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans
-------------
that are managed by Telos. The determination of contributions to the
plans are based on actuarial studies prepared by independent actuaries,
in accordance with rules in effect in Brazil. The actuarial studies are
reviewed on a periodic basis so as to determine whether the
contributions need to be adjusted.
3.7 Interest on Shareholders' Equity: In accordance with Company's by-laws,
--------------------------------
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders, up to the limit of the
dividends calculated based on Article 202 of Law 6404/76. This interest
on shareholders' equity has not been accrued monthly because the
decision to pay or credit is made at the time of the annual balance
sheet closing, through management's proposal.
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES - FROM
APRIL 1, 1998 TO JUNE 30, 1998
<TABLE>
<CAPTION>
From April 1, 1998
to June 30, 1998 %
------------------ -
<S> <C> <C>
GROSS OPERATING INCOME 749,574 100.00
NATIONAL/INTERNATIONAL 749,574 100.00
Voice area 486,385 64.89
Text area 6,236 0.83
Data area 201,003 26.82
Others 55,950 7.46
GROSS INCOME DEDUCTIONS (146,051) (19.48)
National ICMS (123,507) (16.48)
PASEP (4,847) (0.65)
ISS (2,785) (0.37)
COFINS (14,912) (1.99)
NET OPERATING INCOME 603,523 80.52
</TABLE>
5. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
<TABLE>
<CAPTION>
From April 1, 1998 to June 30, 1998 Subsidiaries Parent Company
----------------------------------- ------------ --------------
<S> <C> <C>
FINANCIAL INCOME 48,463 1,592
Nominal financial income 33,369 1,592
Monetary/exchange variation assets 15,094
FINANCIAL EXPENSES (37,651)
Nominal financial expenses (20,138)
Monetary/exchange variations liabilities (17,513)
</TABLE>
6
<PAGE>
6. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
From April 1, 1998
to June 30, 1998
----------------
<S> <C>
INCOME 9,242
Interest on work in progress 278
Write-off of permanent assets 505
International joint-ventures 4,110
Stores income 4,163
Others 186
EXPENSES (71,995)
Non-operating financial expenses (278)
Write-off of permanent assets (65,529)
Sponsorship (3,961)
Other non-operating income (2,227)
-------
Total (62,753)
=======
</TABLE>
7. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution
monthly on an accrual basis, even paying the taxes on a monthly estimated
basis. Taxes on income are recorded in liabilities or assets, where
applicable. Prepaid income tax and social contribution amounts are recorded
in carry-forward taxes and, for checking purposes, are compared with the
accrued amounts. Tax expenses (income) are composed of the following:
From April 1, 1998 to June 30, 1998 Subsidiary Company Parent Company
- ----------------------------------- ------------------ --------------
Social contribution on income (9,249) (127)
Income tax (9,701) (392)
-------
Total tax expense (18,950) (519)
8. CAPITAL STOCK
The subscribed and paid-in capital as of June 30, 1998 is R$2,134,427,
represented by 334,399,028 common shares with no par value, being
124,369,030 ordinary nominal shares and 210,029,997 preferred nominal
shares. Preferred shares are non-voting but have priority in the capital
reimbursement and payment of non-cumulative minimum dividends. As of June
30, 1998, the book value per share of the holding was R$0.000000087.
9. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time, based on relevant market data
and information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity
of the instruments. There exists no material difference between the book
balances and the market values and so they are not stated in this quarterly
information.
7
<PAGE>
10. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (SIMPLIFIED)
Value
-----
BALANCE AT DECEMBER 31, 1997
Stock capital - split-off 2,134,427
Legal reserve - split-off 129,640
Income to realize reserve - split-off 2,207,348
Accumulated income - split-off 994,594
Income accumulated during the year 292,178
BALANCE AT JUNE 30, 1998 5,758,187
11. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
Reconciliation between the consolidated Parent company's and the subsidiary's
net income at June 30, 1998 is as follows:
Net income of Parent company 292,178
Interest on work in progress, donations and other 40,417
Others 2,528
CONSOLIDATED NET INCOME 249,233
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent company, upon
valuation of its investments by the equity method.
12. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed that they will make all adjustments in time.
Regarding the administrative systems, an evaluation should still be made but, in
any case, the effects on the financial statements should not be material.
13. SUBSEQUENT EVENT
In May 1998 Management started a negotiation with the Secretary of Complementary
(Social) Security and with the Secretary of State-owned companies aiming at the
payment of approximately R$105,000 to TELOS - Embratel Social Security
Foundation, as additional resources, to be paid in 20 years as from 1998.
<PAGE>
COMMENT ON CONSOLIDADED PERFORMANCE FOR THE PERIOD
The net operating income for the second quarter 1998 was R$603,500, 8.4% higher
than the same period in the previous year R$556,900, showing a growth of
R$46,700. Such growth was basically due to the Data area, R$32,000 especially
due the services of MEGADATA and TOPNET - 77.6%, DATASAT - 41.5%, INTERNET -
42.1%, EILD - 59% and the Sound and Image area that grew R$12,800 in the period,
reinforced by the Digital TV service 130%, due to the conquest of new contracts.
Cost of services, R$257,500, which represent 42.7% of the Net Operating Income
for the period grew 18.7% in relation to the same period in the previous quarter
R$216,800, showing a growth of R$40,700, being the main reasons the increase of
depreciation, around R$17,500, because of new investments in fixed assets,
especially due Brasilsat satellite, Optical Fiber System and Digital Radio;
Personnel, approximately R$4,300 mainly because of promotions given to periods
retroactive to March, around R$1,800, and also to the accounting for of labour
indemnities, Law 8036/90 around R$1,300. Third party services, showing a growth
of around R$7,700, basically because of the increase of approximately R$2,700 in
promotion and publicity , Brasil Direto by Manchete Network, being the remaining
distributed to other Health services - R$1,300, Regular Services - R$1,500;
facilities, increased by around R$2,.500, because of DATASAT service - via
Nahuelsat.
Expenses with Sales represent 8.0% of the Net Operating Income for the period,
showing an amount of R$48,100 for the quarter, 14.7% higher to the same period
in the previous year, R$41,900, because of Facilities, showing an increase of
R$8,800.
General and Management Income/Expenses, represented 19.6% of the Net Operating
Income for the quarter, with an amount of R$118,100, 16.7% higher than the same
quarter in the previous year, R$101,200. The growth for the period was basically
because of Third Party services, basically Promotion and Publicity R$5,400
because of advertisement in Brasilsat B3 services, INTERNET, RENPAC, 30'
advertisement in the Manchete Network during the World Cup; and other Operating
Expenses increased approximately R$17,000 due to new accruals.; as a
counterpart, we verified a decrease of approximately R$1,200 in expenses with
the Satellite insurance; depreciation also presented a decrease of approximately
R$2,300 (write-off of new investments in fixed assets), and regular services
decreased R$1,500.
Financial results represented 1.8% of Net Operating Income for the period, had a
positive balance of R$13,000, being 42.6% hover in relation to the same period
in the previous year, R$18.800 also positive, being that R$8,000 of the decrease
results from the receipt, in the previous period, of accounts payable from
Radiobras to the amount of R$6,600.
Non-operating result (expense) of R$62,700, showed an income of R$1,800 for the
same quarter in the previous year, representing a decrease of R$64,500,
basically influenced by the write-offs of Assets which occurred in the period,
being the most relevant the write off of Atlantis Cape, around R$37,100.
Net income for the quarter R$100,400 represents 16.6% of Net Operating Income
and is 37.0% lower than in the same quarter in the previous year, R$159,100;
such decrease is basically due to the accounting of the Accrual for Doubtful
Accounts and Labour Contingencies and write-offs occurred in the quarter.
<PAGE>
EMBRATEL PARTICIPACOES S.A.
- ---------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- --------------
<S> <C> <C>
NET OPERATING REVENUE FROM TELECOMMUNICATION
SERVICES 603,523 1,182,375
COST OF SERVICES (257,488) (501,261)
----------- -----------
GROSS REVENUE 346,035 681,114
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (48,110) (90,801)
General and administrative expenses (118,108) (204,304)
Financial expenses (37,651) (76,131)
Financial income 50,706 105,358
Other (2,718) (8,046)
OPERATING INCOME 190,154 407,190
----------- -----------
NON-OPERATING INCOME (EXPENSE) (62,753) (82,048)
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 127,401 325,142
----------- -----------
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (19,682) (60,773)
PROFIT SHARING - EMPLOYEES (6,000) (12,000)
MINORITY INTERESTS (1,253) (3,136)
----------- -----------
NET INCOME FOR THE PERIOD 100,466 249,233
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00030 0.00075
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
TELESP PARTICIPACOES S.A.
-------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
TELESP Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of TELESP Participacoes S.A. as of and for the three-
month period ended June 30, 1998, which comprises the balance sheet of the
Parent company, statement of income, Parent company and Consolidated, notes
to quarterly information and performance report, prepared in accordance
with accounting principles established by the Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELESP PARTICIPACOES S.A.
- -------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
June 30, March 31,
1998 1998
---------- ----------
ASSETS
Current assets:
Accounts receivable from related parties 136,359 188,661
Other 671,283 552,119
Recoverable taxes 111,980 105,151
Other receivables 559,303 446,968
--------- ---------
Total current assets 807,642 740,780
--------- ---------
Long-term assets:
Capitalizable applications 2 413,447
Receivables from related parties:
Affiliates 516 9,704
Subsidiaries 13,366 13,351
Tax incentives 4,475 4,287
Judicial deposits 6,717 6,495
--------- ---------
Total long-term assets 25,076 447,284
--------- ---------
Permanent assets:
Investments 8,016,542 7,813,170
In affiliates 298,507 286,942
In subsidiaries 7,628,576 7,436,769
Other 89,459 89,459
Property, plant and equipment 14,512 14,512
--------- ---------
Total permanent assets 8,031,054 7,827,682
--------- ---------
TOTAL ASSETS 8,863,772 9,015,746
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Financing 503,010 352,640
Taxes and contributions 1,616 812
--------- ---------
Total current liabilities 504,626 353,452
--------- ---------
Long-term liabilities:
Loans and financing 127,700 135,783
Capitalizable funds 1,389 501,666
--------- ---------
Total long-term liabilities 129,089 637,449
--------- ---------
Shareholders' equity:
Share capital 3,238,421 3,238,421
Capital reserves 188
Legal reserve 180,884 180,884
Realizable profit reserve 3,079,882 3,079,882
Retained earnings 1,730,682 1,525,658
--------- ---------
Total shareholders' equity 8,230,057 8,024,845
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8,863,772 9,015,746
========= =========
See notes to quarterly information.
- -----------------------------------
2
<PAGE>
TELESP PARTICIPACOES S.A.
- -------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended ended
June 30, June 30,
1998 1998
-------- --------
OPERATING INCOME (EXPENSES):
Income from investments in subsidiaries 203,373 433,637
Financial expenses (23,725) (31,767)
Financial income 24,849 35,358
Other operating income 1,332 1,332
OPERATING INCOME 205,829 438,560
NON-OPERATING INCOME
INCOME BEFORE TAXES AND PROFIT SHARING 205,829 438,560
PROVISION FOR INCOME TAX AND SOCIAL (805) (1,617)
CONTRIBUTION
PROFIT SHARING - EMPLOYEES - -
----------- -----------
NET INCOME FOR THE PERIOD 205,024 436,943
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00061 0.00131
=========== ===========
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELESP PARTICIPACOES S.A.
- -------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- ----------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No. 9472/97
(General Telecommunication Law) and Decree No. 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The shareholders' general meeting that
approved the register/justification was held on May 22, 1998 and the valuation
report was prepared with a date of February 28, 1998.
The Company will operate as a holding of the area 1 in the fixed public
telephone business, covering regions served by the following companies:
Telecomunicacoes de Sao Paulo S.A. - TELESP and Companhia TelefOnica da Borda do
Campo - CTBC.
As a result of the split-off of TELEBRAS, common and preferred shareholders' of
TELEBRAS will have the right to receive, besides the said shares, a common or
preferred share in every new holding company for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government will sell
the new companies at a public bid scheduled for July 29, 1998. Only prequalified
bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statement
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result from
the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
The income statement is presented on the Parent company and Consolidated basis.
The balance sheet is presented on an individual basis (Parent company).
2.3. Special Review by Independent Auditors
The balance sheets and the related statements of income of the subsidiary
companies were reviewed on a quarterly basis by independent auditors.
4
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the financial
statements of the predecessor (split company). The main points of this quarterly
information are summarized as follows:
3.1. The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at the
year-end. On February 28, 1998, there was a transfer to TELESP Participacoes
S.A. in the amount of R$ 18,325, which was recorded in the retained earnings
account as part of the Telebras's profit for January and February 1998 and shall
be included in the calculation of the adjusted net income as of December 31,
1998 for purposes of dividend calculation.
3.2. Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted to present value by the interest rate published by
the National Association of Investment Banks and Dealers (ANBID). Amounts
subject to monetary correction, exchange variation or interest have been
adjusted to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable that have been overdue
-------------------------------
for more than 180 days at the subsidiaries were written off as losses for the
period. Other receivables of unlikely realization were analyzed considering
their maturity date and an allowance was recorded.
3.4. Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and Control
of State-Owned Companies), the employees' share in the subsidiaries' profits is
provided monthly. The accrued amount, at the rate of 8.33% per month of the
employee's monthly remuneration, is subject to the approval from CCE and the
shareholders' at the general meeting when surplus appropriation is approved.
3.5. Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on works in progress at the rate of 12% p.a. on total capital invested
in work in progress, which is included in the cost of construction, against non-
operating income, up to the limit of the non-operating financial expenses
generated by loans obtained to finance the work. The amount exceeding non-
operating financial expenses is recorded in the capital reserve. The Parent
company records such operations using the equity method and the interest amount
is charged to operations in the income statement.
3.6. Pension Plans: The companies sponsor defined benefit pension plans that are
-------------
managed by Sistel. The determination of contributions to the plans is based on
actuarial studies prepared by independent actuaries, in accordance with rules in
effect in Brazil. The actuarial studies are reviewed on a periodic basis so as
to determine whether the contributions need to be adjusted. From the financial
standpoint, Sistel has experienced no shortage of funds per the last valuation
approved and accounted for in December 1997. On account of the kind of
sponsorship and benefits, the split-off did not cause any change in the pension
plans.
3.7. Interest on shareholders' Equity: in accordance with Company's bylaw,
--------------------------------
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders', up to the limit of the dividends
calculated based on Article 202 of Law 6404/76. This interest on shareholders'
equity has not been accrued monthly because the decision to pay or credit is
made at the time of the annual balance sheet closing, through management's
proposal.
3.8. Equity Method: the income for the period includes the equity method
-------------
valuation result for January and February 1998 relating to the period prior to
the split-off.
5
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30,
1998 %
----------- ---------
DOMESTIC 2,645,532 92.38
Local 1,859,669 64.94
Long-distance 785,863 27.44
INTERNATIONAL 91,054 3.18
National origin 91,054 3.18
DATA TRANSMISSION 89,232 3.12
OTHER 37,902 1.32
GROSS OPERATING INCOME 2,863,720 100.00
TAXES ON GROSS INCOME (686,248) (23.96)
OTHER DEDUCTIONS (25,414) (0.89)
NET OPERATING INCOME 2,152,058 75.15
4.1. Net Operating Income per Subsidiary Company
June 30, 1998
-------------
TELESP 1,958,173
CTBC 193,885
---------
Total 2,152,058
=========
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Taxes (except for income tax and social (3,366)
contribution)
Technical and administrative services 22,771
Provision for contingencies (20,745)
Fines 15,888
Recovered expenses 7,512
Dividends 1,332
Other income (expenses) 32,997
-------
Total 56,389
=======
6
<PAGE>
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30, 1998
-------------
FINANCIAL INCOME
Nominal financial income 162,009
Monetary/exchange variation assets 3,984
-------
Total 165,993
-------
FINANCIAL EXPENSES
Nominal financial expenses (56,869)
Monetary/exchange variation liabilities (26,789)
-------
Total (83,658)
-------
Total 82,335
=======
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Interest on work in progress 39
Non-operating financial expenses (39)
Loss on write-off of permanent assets (6,752)
Other non-operating income 7,618
------
Total 866
======
1. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carryforward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
Parent
company Consolidated
June 30, June 30,
1998 1998
--------- ------------
Social contribution on net income 394 54,999
Income tax 1,223 166,590
----- -------
Total tax expense 1,617 221,589
===== =======
7
<PAGE>
9. RELATED-PARTY TRANSACTIONS
Related-party transactions at the balance sheet date consist of:
ASSETS
CURRENT ASSETS
Loans and financial applications 136,359
---------
Total 136,359
=========
LONG-TERM ASSETS
Loans and financial applications 868
Applications with own resources 13,014
---------
Total 436,498
=========
INVESTMENTS
Telesp 7,628,577
CTBC 298,507
---------
Total 7,927,084
=========
RESULT
INCOME
Monetary and exchange variation assets 3,373
Investment gain 433,637
---------
Total 437,010
=========
10. CAPITAL STOCK AND CAPITALIZABLE FUNDS
The subscribed capital as of June 30, 1998 is R$3,238,421. The subscribed and
paid-in capital is represented by 334,399,027 shares with no par value, as
follows:
Lot of
1,000 shares
------------
Common shares 124,369,030
Preferred shares 210,029,997
-----------
Total 334,399,027
===========
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per thousand shares of the holding was MR$0,024.
CAPITALIZABLE FUNDS
In June 1998, it was determined that the capitalization of the self-financing
funds in favor of the future subscribers would be made directly by the
subsidiaries and so related assets and liabilities were written off the Parent
company's balance sheet.
8
<PAGE>
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time, based on relevant market data and
information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
BALANCE AT DECEMBER 31, 1997
Merger by split-off of Telecomunicacoes Brasileira 7,792,926
S.A. - Telebras (2/28/98)
Tax incentives 188
Income for the period 436,943
BALANCE AT JUNE 30, 1998 8,230,057
13. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
Net income of Parent company 436,943
Interest on work in progress, donations and other (114,044)
CONSOLIDATED NET INCOME 322,899
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent company, upon
valuation of its investments by the equity method.
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed that they will make all adjustments in time.
Regarding the administrative systems, a valuation should still be made but, in
any case, the effects on the financial statements must not be material.
15. LOANS AND FINANCING
Certain loans and financing of the Telebras System, transferred upon split-off
to Telesp Participacoes S.A., are subject to earlier payment dates due to the
split-off and privatization process.
Management has been negotiating the due dates with the creditors and, at June
30, 1998, no creditor had requested earlier payment dates for any contract.
9
<PAGE>
16. COMPENSATION FOR USE OF THE SWITCHED FIXED TELEPHONE SERVICE NETWORKS
On July 13, 1998, under Resolution No. 33, ANATEL approved Regulation
"Compensation for use of the switched fixed telephone service networks" that
establishes tariff criteria for compensation of the switched fixed
telecommunication service networks, when interconnected with networks of other
providers of public telecommunication services, thus revoking Ruling No. 392 of
August 8, 1997 that set percentages of share in mutual traffic income, according
to which the income from long-distance and international services was divided
among the operators.
Such Resolution determines also that the provisions of that Regulation be
applicable to calls processed as from April 1, 1998.
Considering the operational difficulties in reprocessing calls interconnected
with networks of other providers, beginning April 1, 1998, these effects will be
recognized in the quarterly information for the 3rd quarter.
Considering further that the Resolution referred to above stipulates the
"Additional Transition Amount (PAT)", with decreasing amounts for the effective
period from April 1, 1998 to June 30, 2001, so that the concessionaires can
adapt to the new compensation criteria, the above-mentioned reprocessing should
not produce significant effects on the results stated in the quarterly
information for the 2nd half-year.
17. INVESTMENTS IN SUBSIDIARY AND AFFILIATED COMPANIES
<TABLE>
<CAPTION>
No. of No. of
shares in shares in
the the prior
Capital Kind of quarter quarter
Company CGC Classification % Ownership %company (thousand) (thousand)
- ----------- ------------------ -------------- -------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Telecomunic-
acoes de
Sao Paulo 43.642.727/0001-85 1 71.40 92.67 1 40,926,516 40,926,516
S.A.
Companhia
Telefonica
da Borda
do Campo 57.486.177/0001-67 2 29.64 3.58 1 537,677 537,677
</TABLE>
10
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of Telesp
Participacoes S.A. and its subsidiary Telecomunicacoes de Sao Paulo S.A. -
Telesp and affiliate Cia. TelefOnica da Borda do Campo - CTBC.
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
1 st half of 1998 (in thousands)
--------------------------------------
Pulses registered Minutes charged
- subscribers + Manual
------------------- -----------------
TELESP 9,978,985 5,417,190
CTBC 1,244,550 269,320
Since the holding Telesp Participacoes S.A. was incorporated on May 22, 1998 by
the split-off of Telebras, comparative data with the period of the previous year
are not being presented.
Installed Plant
In the period, the consolidated companies had the following installed plant:
Telephone accesses (in thousands) - Accumulated until June 30, 1998
Companies Installed In operation
- --------- --------- ------------
TELESP 5,587 5,272
CTBC 631 587
Total 6,218 5,859
Locations Served
No. Of
Companies municipalities
- --------- --------------
TELESP 602
CTBC 18
Total 620
11
<PAGE>
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and Decree
NO. 2546/98. In this restructuring, employees have been transferred from one
company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
Authorized Effective
---------- ----------
TELESP 22,300 20,309
CTBC 2,020 1,970
------ ------
Total 24,320 22,279
====== ======
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
Consolidated
------------------------
R$ 000 %
----------- -----------
INCOME 3,127,889 121.79
Material, outsourced services and other
Supplies (559,713) (21.79)
ADDED VALUE 2,568,176 100.00
Salaries, charges and other (392,891) (15.30)
Government (taxes) (934,443) (36.38)
Third-parties (246,309) (9.59)
Retained surplus (994,533) (38.73)
- --------------------------------------------------------------------------------
12
<PAGE>
TELESP PARTICIPACOES S.A.
- -------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais- R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended ended
June 30, June 30,
1998 1998
------------ -----------
NET OPERATING REVENUE FROM
TELECOMMUNICATION 1,113,217 2,152,058
SERVICES
COST OF SERVICES (580,649) (1,162,001)
----------- -----------
GROSS REVENUE 532,568 990,057
OTHER OPERATING INCOME (EXPENSES): (170,862) (281,512)
Selling expenses (84,339) (155,818)
General and administrative expenses (134,585) (264,418)
Financial expenses (55,877) (83,658)
Financial income 79,826 165,993
Other operating income (expenses) 24,113 56,389
----------- -----------
OPERATING INCOME 361,706 708,545
NON OPERATING INCOME (1,877) 866
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 359,829 709,411
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (112,532) (221,589)
PROFIT SHARING - EMPLOYEES (10,108) (21,863)
MINORITY INTERESTS (69,728) (143,060)
----------- -----------
NET INCOME FOR THE PERIOD 167,461 322,899
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00050 0.00097
=========== ===========
- --------------------------------------------------------------------------------
13
<PAGE>
TELE CENTRO SUL PARTICIPACOES S.A.
----------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Board of Directors and Shareholders
Tele Centro Sul Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the quarterly financial information
(ITR) of Tele Centro Sul Participacoes S.A. as of and for the three-month
period ended June 30, 1998, which comprises the balance sheet of the Parent
company, statement of income, Parent company and Consolidated, notes to
quarterly information and performance report, prepared in accordance with
accounting principles established by the Corporate Law.
2. We conducted our review in accordance with standards established by the
Brazilian Institute of Accountants (IBRACON) and the Federal Accounting
Council which consisted principally of: (a) inquiries of and discussions
with management responsible for the accounting, financial and operational
areas of the Company, as to the principle criteria adopted in preparing the
Quarterly Information; and (b) a review of information and subsequent
events that have or could have material effects on the financial position
and operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the Quarterly Information referred to in paragraph 1
in order for it to be in accordance with accounting principles required by
Corporation Law and in accordance with standards issued by the Brazilian
Securities Commission (CVM) applicable to the preparation of required
quarterly financial information.
4. The quarterly information as of March 31, 1998 was reviewed by other
independent auditors, who issued a special review report, dated July
24,1998.
Rio de Janeiro, July 24 , 1998
DELOITTE TOUCHE TOHMATSU Antonio C. Carmona Correa
Independent Auditors Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE CENTRO SUL PARTICIPACOES S.A.
- ----------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Accounts receivable from related parties 234,231 169,581
Accounts receivable - Other 5,295 9,418
Recoverable taxes 4,218 1,197
Other receivables - Other 19,970 82,074
Other receivables - Related parties 13 140,297
--------- ---------
Total current assets 263,727 402,567
--------- ---------
Long-term assets:
Recoverable taxes 4,590 4,590
Receivables from subsidiaries 313,609 326,966
Other 30,550 29,855
--------- ---------
Total long-term assets 348,749 361,411
--------- ---------
Permanent assets:
Investments in subsidiaries 4,291,898 4,223,381
Other 56,523 56,523
Property, plant and equipment 38,972 39,195
--------- ---------
Total permanent assets 4,387,393 4,319,099
--------- ---------
TOTAL ASSETS 4,999,869 5,083,077
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 3,017 2,886
Other 1,192 -
--------- ---------
Total current liabilities 4,209 2,886
--------- ---------
Long-term liabilities:
Capitalizable funds 830 170,502
--------- ---------
Total long-term liabilities 830 170,502
--------- ---------
Shareholders' equity:
Share capital 1,936,659 1,936,659
Legal reserve 99,375 99,375
Realizable profit reserve 1,692,048 1,692,048
Retained earnings 1,266,748 1,181,607
--------- ---------
Total shareholders' equity 4,994,830 4,909,689
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,999,869 5,083,077
========= =========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
2
<PAGE>
TELE CENTRO SUL PARTICIPACOES S.A.
- ----------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months 6 months
ended ended
June 30, June 30,
1998 1998
------------ ------------
OPERATING INCOME (EXPENSES):
<S> <C> <C>
Income from investments in subsidiaries 69,140 183,092
General and administrative expenses (1,070) (1,395)
Financial income 25,260 34,331
----------- -----------
OPERATING INCOME, NET 93,330 216,028
NON OPERATING INCOME (321) (321)
----------- -----------
INCOME BEFORE TAXES AND PROFIT SHARING 93,009 215,707
PROVISION FOR INCOME TAX AND SOCIAL (7,868) (10,754)
CONTRIBUTION
PROFIT SHARING - EMPLOYEES
----------- -----------
NET INCOME FOR THE PERIOD 85,141 204,953
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00025 0.00061
=========== ===========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELE CENTRO SUL PARTICIPACOES S.A.
- ----------------------------------
NOTES TO THE QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of Brazilian Reais - R$)
- --------------------------------------------------------
1. COMPANY'S OPERATIONS
The company was incorporated in accordance with article 189 of Law No.
9.472/97- (General Telecommunications Law) and Decree No. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders general
meeting that approved the register/justification was held on May 22, 1998
and the valuation report was prepared with a date of February 28, 1998.
The company will operate as a holding of the area 3 in the fixed public
telephone business, covering the regions served by the following companies:
Companhia Telefonica Melhoramento e Resistencia - CTMR, Telecomunicacoes de
Santa Catarina S.A. - TELESC, Telecomunicacoes do Parana S.A. - TELEPAR ,
Telecomunicacoes do Mato Grosso do Sul S.A. - TELEMS, Telecomunicacoes de
Brasilia S.A. - TELEBRASILIA, Telecomunicacoes de Rondonia S.A. - TELERON,
Telecomunicacoes de Goias S.A. - TELEGOIAS e Telecomunicacoes do Acre S.A.
-TELEACRE.
As result of the split-off of TELEBRAS, common and preferred shareholders
of TELEBRAS will have the right to receive, besides the said shares, a
common or preferred share in every new holding company of each share in
TELEBRAS.
The Ministry of Communications announced that the Federal Government will
sell the new companies at a public bid scheduled for July 29, 1998. Only
the pre-qualified bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statements
--------------------
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires. These
statements result from the simple accumulation of nominal amounts.
2.2. Consolidated financial Statements
---------------------------------
The consolidated financial statements of results are presented
considering the holding company's and consolidated results. The balance
sheet presented is that of the holding company. As the holding company
was constituted on May 22, 1998, the financial statements were drawn up
to meet the need of informing the market. The criteria which were
utilized in preparing these financial statements considered the movement
of the transition period which occurred between February 28 and March
31, 1998.
2.3. Special Review by Independent auditors
--------------------------------------
The balance sheets and the statements of income of the subsidiary
companies were reviewed on a quarterly basis by independent auditors.
4
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the parent company and the
subsidiaries and are consistent with those adopted for preparing the financial
statements of the predecessor (split company). The main points of this quarterly
information are summarized as follows:
3.1. The reserves set forth in articles 193 to 197 of law 6.404/76, as well
as the provision for minimum statutory dividends, will be constituted
only at the end of the fiscal year. On February 28, 1998 the amount of
R$15.040 was transferred to TELE CENTRO SUL PARTICIPACOES S.A., which
was recorded in the Retained Earnings account as part of TELEBRAS profit
for January and February, 1998 and shall be included in the calculation
of the adjusted net income as of December 31, 1998 for purposes of
dividend calculation.
3.2. Accounts receivable and payable are stated at historical value and
discounted to present value by the interest rate published by the
National Association of Investment Bankers (ANBID). Amounts subject to
monetary correction, exchange variation or interest have been adjusted
to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable that have been
-------------------------------
overdue for more than 180 days at the subsidiaries were written off as
losses for the period. Other receivables of unlikely realization were
analysed considering their maturity date and an allowance was recorded.
3.4. Employees' Profit Sharing: Tele Centro Sul is making monthly accruals
-------------------------
related to employee profit sharing, according to Article 5 of
Provisional Measure N 980 of April 25, 1995 and subsequent re-editions,
and to Resolution 10, of May 30, 1995 of the Coordination and Control of
State Company Council (CCE). The amount accrued each month represents
one twelfth of one nominal payroll and is subject to approval by CCE and
shareholders at year end.
3.5. Interest on construction in progress: The operating companies
------------------------------------
calculate interest monthly on construction in progress at a rate of 12%
per annum on the total amount of capital invested in construction in
progress, which is incorporated into the development cost of the related
construction project with a contra entry to non-operating income, up to
the limit of non-operating expenses resulting from the financial
liabilities related to these construction projects. The amount that
exceeds financial charges is credited to capital reserves. The holding
company records such operations using the equity method, and the
interest amount is charged to operations in the income statement.
3.6. Pension Plans
-------------
3.6.1. Social Security Sistel Foundation - SISTEL: The companies sponsor a
private defined-benefit social security plan, which is administrated
by Sistel. The plan's contributions are determined based on actuarial
studies prepared by independent actuaries in accordance with the
standards accepted in Brazil. The actuarial studies are revised
periodically to determine required adjustments to contributions. From
an equity point of view SISTEL did not present any insufficiency of
resources in the last assessment approved and accounted for in
December, 1997. Due to the sponsorship and benefit model, the split
did not produce any change in the pension plan.
5
<PAGE>
3.6.2. Retirement Complementation: Retirement complementation is an advantage
instituted in the Telecomunicacoes do Parana S.A. - TELEPAR on June 26,
1970 by Term of Collective Agreement and ratified by the Term of
Atypical Contractual Relation, signed by the company and representatives
of the professional categories existing unions and covers employees
admitted until December 31, 1982. The provision is accounted for based
on actuarial calculation made by independent actuaries.
A negotiation was made in June 1998 between the company and its
employees covered by the Term of Atypical Contractual Relation, aiming
at the elimination of such obligation.
The company proposed as a counterpart of the abdication of such right,
an amount as an indemnization or inclusion in the special Sistel Social
Security Foundation retirement plan.
The remaining balance refers to employees who opted to remain under the
conditions of the term of Atypical Contractual Relation.
3.7. Interest on Shareholders' Equity: In accordance with the company's
--------------------------------
bylaw, management can propose at the General Meeting the payment of interest on
shareholders' equity to the shareholders, up to the limit of the dividends
calculated based on Article 202 of Law 6.404/76. This interest on shareholders'
equity has not been accrued monthly because the decision to pay or credit is
made at the time of the annual balance sheet closing, through management's
proposal. The subsidiaries CTMR, TELESC, TELEMS,TELEMAT and TELEBRASILIA,
credited interest referring to year 1997, which was deducted from dividends in
accordance with Law n 9.249/95.
3.8. Equity Method: The income for the period includes the result of the
-------------
equity method valuation result for January and February 1998, relating to the
period prior to the split-off.
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
INCOME June 30,
1998 %
---------- -------
<S> <C> <C>
DOMESTIC 1,509,983 93.5
---------
Local 1,007,499 62.4
Long-distance 502,484 31.1
---------
INTERNATIONAL 32,451 2.0
---------
National origin 31,375 1.9
International origin 1,076 0.1
---------
DATA TRANSMISSION 56,056 3.6
OTHER 16,149 1.0
---------
GROSS OPERATING INCOME 1,614,639 100.0
TAXES ON GROSS INCOME (392,506)
OTHER GROSS INCOME DEDUCTIONS (3,900)
---------
NET OPERATING INCOME 1,218,233
=========
</TABLE>
6
<PAGE>
4.1. Net Operating Income per Subsidiary Company
<TABLE>
<CAPTION>
Companies June 30,
- --------- 1998
<S> <C>
CTMR 16,441
TELESC 223,224
TELEPAR 394,637
TELEMS 83,016
TELEMAT 79,153
TELEBRASILIA 203,023
TELERON 29,112
TELEGOIAS 179,292
TELEACRE 10,335
---------
Total 1,218,233
=========
</TABLE>
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30,
1998
----------
<S> <C>
Research and Development (9,579)
Provision for contingencies (10,976)
Payed contingencies (1,329)
Technical and administrative services 13,779
Return of provision 5,365
Fines 14,643
Other income (expenses) 39,800
-------
Total 51,703
=======
</TABLE>
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30,
1998
----------
<S> <C>
FINANCIAL INCOME 60,118
-------
Nominal financial income 40,497
Monetary/exchange variation assets 19,621
FINANCIAL EXPENSES (33,512)
Nominal financial expenses (29,139)
Monetary/exchange variation liabilities (4,373)
-------
Total 26,606
=======
</TABLE>
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30,
1998
----------
<S> <C>
Interest on construction in progress 19,658
Non-operating financial expenses (19,658)
Loss on write-off of permanent assets (36,930)
Other non-operating income 3,071
-------
Total (33,859)
</TABLE>
7
<PAGE>
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carry forward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
<TABLE>
<CAPTION>
June 30,
1998
---------
<S> <C>
Social contribution on income 23,716
Income tax 65,220
------
Total tax expense 88,936
======
</TABLE>
9. RELATED-PARTY TRANSACTIONS
Related-party transactions at the balance sheet date consist
of:
<TABLE>
<CAPTION>
June 30,
1998
--------
CURRENT ASSETS
<S> <C>
Financing and loans 234,231
Others 13
-------
Total 234,244
=======
LONG-TERM ASSETS
Financing and loans 311,929
Others 1,680
-------
Total 313,609
=======
EXPENSES
Financial expenses and monetary/exchange variation 2,136
liabilities =======
</TABLE>
The credits of obligations remaining from transactions with companies which were
part of the old Telebras system and which are not part of TELE CENTRO SUL
PARTICIPACOES S.A. are recognized as other values. The balance of such loans as
at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Companies June 30,
- --------- 1998
--------
<S> <C>
TELEGOIAS CELULAR S.A. 13,293
TELEBRASILIA CELULAR 22,552
S.A. ------
Total 35,845
======
</TABLE>
8
<PAGE>
10. CAPITAL AND CAPITALIZABLE FUNDS
10.1. Capital
The subscribed capital - Parent Company and subsidiaries, subscribed and paid in
as of June 30, 1998, is represented by shares with no par value, as follows:
<TABLE>
<CAPTION>
Common Preferred
Companies Capital Shares Shares
- --------- ------- ------------ ------------
<S> <C> <C> <C>
Tele Centro Sul
Participacao S.A. 1,936,659 124,369,031 210,029,997
CTMR 27,314 94,191 112,554
TELESC 231,142 950,989 1,473,153
TELEPAR 1,018,622 1,460,956 1,852,807
TELEMS 97,935 347,441 667,676
TELEMAT 118,574 212,122 362,243
TELEBRASILIA 261,549 922,003 1,111,454
TELERON 61,206 229,927 453,813
TELEGOIAS 331,198 1,630,199 3,188,989
TELEACRE 31,158 439,271 923,197
</TABLE>
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding was R$0,0000149.
10.2.Capitalizable Funds: In June 1998, it was determined that the
capitalization of the self-financing funds in favour of the future
subscribers would be made directley by the subsidiaries and so related
assets and liabilities were written-off the Parent company's balance
sheet.
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time, based on relevant market data and
information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
BALANCE AT DECEMBER 31, 1997 0
Merger by split-off of Telecomunicacoes Brasileira
S.A. - Telebras (2/28/98) 4,789,877
Income for the period 204,953
BALANCE AT JUNE 30, 1998 4,994,830
</TABLE>
13. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At March 30, 1998 the reconciliation between Parent Company Net Income
and Consolidated was as follows:
<TABLE>
<S> <C>
Net income of Parent company 204,953
Interest on construction in progress (31,240)
Fiscal Incentives and others (13,569)
CONSOLIDATED NET INCOME 160,144
</TABLE>
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses at the
9
<PAGE>
Parent company, upon valuation of its investments by the equity method.
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed that they will make all adjustments in time.
Regarding the administrative systems, a valuation should still be made but, in
any case, the effects on the financial statements must not be material.
15. LOANS AND FINANCING
Certain loans and financing of the Telebras System, transferred upon split-off
to Tele Norte Leste Participacoes S.A., are subject to earlier payment dates due
to the split-off and privatization process.
Management has been negotiating the due dates with the creditors and, at June
30, 1998, no creditor had requested earlier payment dates for any contract.
16. COMPENSATION FOR USE OF THE SWITCHED FIXED TELEPHONE SERVICE NETWORKS
On July 13, 1998, under Resolution No. 33, ANATEL approved Regulation
"Compensation for use of the switched fixed telephone service networks" that
establishes tariff criteria for compensation of the switched fixed
telecommunication service networks, when interconnected with networks of other
providers of public telecommunication services, thus revoking Ruling No. 392 of
August 8, 1997 that set percentages of share in mutual traffic income, according
to which the income from long-distance and international services was divided
among the operators.
Such Resolution determines also that the provisions of that Regulation be
applicable to calls processed as from April 1, 1998.
Considering the operational difficulties in reprocessing calls interconnected
with networks of other providers, beginning April 1, 1998, these effects will be
recognized in the quarterly information for the 3rd quarter.
Considering further that the Resolution referred to above stipulates the
"Additional Transition Amount (PAT)", with decreasing amounts for the effective
period from April 1, 1998 to June 30, 2001, so that the concessionaires can
adapt to the new compensation criteria, the above-mentioned reprocessing should
not produce significant effects on the results stated in the quarterly
information for the 2nd half-year.
10
<PAGE>
COMPLEMENTARIES INFORMATIONS
SHAREHOLDING IN CONTROLLED COMPANIES
<TABLE>
<CAPTION>
Share Net Participation
Net book Profit in total
Companies Capital Equity value 30/06/98 capital
- --------- -------- ------ ----- -------- -------
R$ %
-------- -
<S> <C> <C> <C> <C> <C>
CTMR 27,314 73,161 0.353871 27,156 78.5551
TELESC 231,142 920,258 0.379622 378,964 82.9123
TELEPAR 1,018,622 1,753,136 0.529047 405,357 67.3072
TELEMS 97,935 338,805 0.333760 164,839 96.0111
TELEMAT 118,574 440,246 0.766492 166,045 91.8702
TELEBRASILIA 261,549 832,506 0.409404 358,141 81.4044
TELERON 61,206 138,501 0.202564 24,395 91.3050
TELEGOIAS 331,198 852,587 0.176915 295,393 83.7720
TELEACRE 31,158 46,077 0.033819 5,582 93.9802
</TABLE>
11
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
This performance report contains the consolidated figures of Companhia
Telefonica Melhoramento e Resistencia - CTMR, Telecomunicacoes do Parana S.A. -
TELEPAR, Telecomunicacoes do Mato Grosso do Sul S.A. - TELEMS, Telecomunicacoes
do Mato Grosso S.A. - TELEMAT, Telecomunicacoes de Brasilia S.A. - TELEBRASILIA,
Telecomunicacoes de Rondonia - TELERON, Telecomunicacoes de Goias S.A. -
TELEGOIAS e Telecomunicacoes do Acre S.A. - TELEACRE. It does not include the
figures for Tele Centro Sul Participacoes S/A which was incorporated with the
split-off of TELEBRAS at May 22, 1998.
2. OPERATING INCOME
The operating income for the period was the following:
2.1. Physical Data
<TABLE>
<CAPTION>
1st half of 1998 (in thousands)
-------------------------------
Pulses registered Minutes charged
COMPANY - subscribers + Manual
----------------- ---------------
<S> <C> <C>
CTMR 102,543 30,256
TELESC 811,952 544,154
TELEPAR 1,788,386 916,094
TELEMS 424,979 180,830
TELEMAT 325,729 179,256
TELEBRASILIA 994,567 395,410
TELERON 117,198 79,726
TELEGOIAS 799,517 384,257
TELEACRE 51,470 20,136
Total 5,416,341 2,730,119
</TABLE>
Since the holding Tele Centro Sul Participacoes S.A. was incorporated on May 22,
1998 by the split-off of Telebras, comparative data with the period of the
previous year are not being presented.
INSTALLED PLANT
In the period, the consolidated companies had the following installed plant:
Telephone accesses (in thousands) - Accumulated until June 30, 1998
<TABLE>
<CAPTION> In
Companies Installed operation
- --------- --------- ---------
<S> <C> <C>
CTMR 88,174 78,751
TELESC 685,654 592,608
TELEPAR 1,140,672 1,013,757
TELEMS 249,404 225,300
TELEMAT 255,061 230,657
TELEBRASILIA 667,132 631,800
TELERON 88,786 77,935
TELEGOIAS 563,564 534,923
TELEACRE 52,078 34,388
Total 3,790,525 3,420,119
</TABLE>
12
<PAGE>
Locations served
<TABLE>
<CAPTION> Number of
Companies Municipalities
- --------- --------------
<S> <C>
CTMR 4
TELESC 215
TELEPAR 384
TELEMS 78
TELEMAT 116
TELEBRASILIA 46
TELERON 52
TELEGOIAS 339
TELEACRE 20
Total 1,254
</TABLE>
2.2. Economic Data
<TABLE>
<CAPTION>
Net Operating
Company Income Result
- ------- ------ ---------
<S> <C> <C>
CTMR 16,441 2,598
TELESC 223,224 53,683
TELEPAR 394,637 103,563
TELEMS 83,016 20,099
TELEMAT 79,153 24,766
TELEBRASILIA 203,023 54,495
TELERON 29,112 (2,315)
TELEGOIAS 179,292 38,036
TELEACRE 10,335 1,342
Total 1,218,233 296,267
</TABLE>
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and Decree
No. 2546/98. In this restructuring, employees have been transferred from one
company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
<TABLE>
<CAPTION>
Authorized Effective
---------- ---------
<S> <C> <C>
CTMR 430 371
TELESC 2,380 2,083
TELEPAR 4,743 4,533
TELEMS 962 882
TELEMAT 921 787
TELEBRASILIA 2,660 2,459
TELERON 425 408
TELEGOIAS 1,928 1,603
TELEACRE 213 190
Total 14,662 13,316
</TABLE>
13
<PAGE>
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic
destination. This model considers the concept of income.
<TABLE>
<CAPTION>
Company CTMR % TELESC % TELEPAR %
- ------- --------- ------ --------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
INCOME 25,255 139.6 325,971 131.1 595,195 120.1
Material,
outsourced services
and other supplies (7,169) (39.6) (77,277) (31.1) (99,745) (20.1)
ADDED VALUE 18,086 100.0 248,694 100.0 495,450 100.0
Salaries and charges (3,924) (21.7) (38,028) (15.2) (83,526) (16.9)
Government (taxes) (6,871) (38.0) (95,319) (38.3) (155,833) (31.4)
Third parties (874) (4.8) (18,761) (7.5) (39,181) (7.9)
Retained surplus (6,417) (35.5) (96,586) (38.8) (216,910) (43.8)
</TABLE>
<TABLE>
<CAPTION>
Company TELEMS % TELEMAT % TELEBRASILIA %
- ------- --------- ------ --------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
INCOME 118,765 128.9 121,168 131.3 292,460 133.4
Material,
outsourced services
and other supplies (26,597) (28.9) (28,911) (31.3) (73,221) (33.4)
ADDED VALUE 92,168 100.0 92,257 100.0 219,239 100.0
Salaries and charges (13,908) (15.1) (9,063) (9.8) (43,595) (19.9)
Government (taxes) (37,651) (40.9) (37,164) (40.3) (83,267) (38.0)
Third parties (3,451) (3.7) (4,863) (5.3) (3,849) (1.7)
Retained surplus (37,158) (40.3) (41,167) (44.6) (88,528) (40.4)
</TABLE>
<TABLE>
<CAPTION>
Company TELERON % TELEGOIAS % TELEACRE %
- ------- --------- ------ ---------- ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
INCOME 40,723 139.0 258,517 136.6 13,326 138.2
Material,
outsourced services
and other supplies (11,424) (39.0) (69,269) (36.6) (3,683) (38.2)
ADDED VALUE 29,299 100.0 189,248 100.0 9,643 100.0
Salaries and charges (5,332) (18.2) (24,849) (13.1) (2,541) (26.4)
Government (taxes) (10,012) (34.2) (74,769) (39.5) (2,994) (31.0)
Third parties (5,461) (18.6) (14,150) (7.5) (512) (5.3)
Retained surplus (8,494) (29.0) (75,480) (39.9) (3,596) (37.3)
</TABLE>
5. EVALUATION INDICATORS AT JUNE 30, 1998
<TABLE>
<CAPTION>
Net Assets Current
Company Indebtedness Profitability Net Margin Marketability
------- ------------- -------------- ------------ --------------
% % % %
- - - -
<S> <C> <C> <C> <C>
CTMR 19.5 2.5 11.7 1.3
TELESC 20.3 3.1 18.1 1.1
TELEPAR 33.3 3.2 19.9 0.5
TELEMS 19.6 3.8 18.1 1.6
TELEMAT 19.2 3.5 23.4 3.4
TELEBRASILIA 14.6 4.4 20.2 1.4
TELERON 55.3 -1.2 -5.9 0.6
TELEGOIAS 26.0 2.8 16.0 0.8
TELEACRE 17.0 - 10.9 0.9
</TABLE>
14
<PAGE>
TELE CENTRO SUL PARTICIPACOES S.A.
- ----------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- --------------
<S> <C> <C>
NET OPERATING REVENUE FROM TELECOMMUNICATION
SERVICES 628,152 1,218,233
COST OF SERVICES (337,590) (649,917)
----------- -----------
GROSS REVENUE 290,562 568,316
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (65,656) (118,559)
General and administrative expenses (98,486) (198,863)
Financial expenses (14,526) (33,512)
Financial income 34,436 60,118
Other operating income (expenses) 9,695 51,703
----------- -----------
OPERATING INCOME 156,025 329,203
NON-OPERATING INCOME (35,234) (33,859)
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 120,791 295,344
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (37,023) (88,936)
PROFIT SHARING - EMPLOYEES (5,245) (10,386)
MINORITY INTERESTS (13,089) (35,878)
----------- -----------
NET INCOME FOR THE PERIOD 65,434 160,144
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
NET INCOME PER SHARES 0.00020 0.00048
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
TELE NORTE LESTE PARTICIPACOES
------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders' and Management
Tele Norte Leste Participacoes S.A.
Brasilia - DF
- -------------
1. We have performed a special review of the accompanying quarterly
information (ITR) of Tele Norte Leste Participacoes S.A. as of and for the
three-month period ended June 30, 1998, which comprises the balance sheet
of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE NORTE LESTE PARTICIPACOES S.A.
- -----------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
June 30, March 31,
1998 1998
---------- ----------
ASSETS
Current assets:
Short term deposits 65,943 137,520
Accounts receivable from related parties 1,001,676 1,042,504
Recoverable taxes 1,277
Other receivables 428 106
--------- ---------
Total current assets 1,069,324 1,180,130
--------- ---------
Long-term assets:
Receivables from subsidiaries 996,713 869,456
Other 32,777 308,319
--------- ---------
Total long-term assets 1,029,490 1,177,775
--------- ---------
Permanent assets:
Investments in subsidiaries 7,549,889 7,368,889
Property, plant and equipment 18,144 18,445
--------- ---------
Total permanent assets 7,568,033 7,387,334
--------- ---------
TOTAL ASSETS 9,666,847 9,745,239
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 10,237 11,734
--------- ---------
Total current liabilities 10,237 11,734
--------- ---------
Long-term liabilities:
Capitalizable funds 318,316
Other 1,604 1,604
--------- ---------
Total long-term liabilities 1,604 319,920
--------- ---------
Shareholders' equity:
Share capital 3,741,151 3,741,151
Legal reserve 172,739 172,739
Realizable profit reserve 2,941,193 2,941,193
Retained earnings 2,799,923 2,558,502
--------- ---------
Total shareholders' equity 9,655,006 9,413,585
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,666,847 9,745,239
========= =========
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE NORTE LESTE PARTICIPACOES S.A.
- -----------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended ended
June 30, June 30,
1998 1998
------------ ------------
OPERATING INCOME (EXPENSES):
Income from investments in subsidiaries 182,655 310,100
General and administrative expenses (1,400) (1,493)
Financial income 87,409 123,059
Other operating income 1,515 1,515
----------- -----------
OPERATING INCOME, NET 270,179 433,181
NON OPERATING INCOME (21) (21)
----------- -----------
INCOME BEFORE TAXES AND PROFIT SHARING 270,158 433,160
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION (28,737) (40,471)
PROFIT SHARING - EMPLOYEES - -
----------- -----------
NET INCOME FOR THE PERIOD 241,421 392,689
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00072 0.00117
======= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE NORTE LESTE PARTICIPACOES S.A.
- -----------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- ----------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No. 9472/97
(General Telecommunication Law) and Decree No. 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The shareholders' general meeting that
approved the register/justification was held on May 22, 1998 and the valuation
report was prepared with a date of February 28, 1998.
The Company will operate in the fixed telephone business area, and will include
the following companies: TELEAMAPA, TELEASA, TELAMAZON, TELAIMA, TELEPISA,
TELERJ, TELEBAHIA, TELERGIPE, TELPE, TELEST, TELERN, TELPA, TELECEARA, TELMA,
TELEPARA.
As a result of the split-off of Telebras, common and preferred shareholders' of
Telebras will have the right to receive, besides the said shares, a common or
preferred share in every new holding company for each share in Telebras.
The Ministry of Communications announced that the Federal government will sell
the new companies at a public bid scheduled for July 29, 1998. Only prequalified
bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statements
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires. These
statements result from the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
The income statement is presented on a Consolidated basis, disclosing
the situation of the subsidiaries and Parent company.
2.3. Special Review by Independent Auditors
The balance sheets and the related statements of income were reviewed
on a quarterly basis by the independent auditors.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the predecessor (split company). The main points of
this quarterly information are summarized as follows:
3.1. The reserves set forth in Articles 193 to 197 of Law 6404/76, as well
as the provision for minimum obligatory dividend, will be recorded
only at the year-end. On February 28, 1998, there was a transfer to
TELE NORTE LESTE PARTICIPACOES S.A. in the amount of R$34,098, which
was recorded in the retained earnings account as part of the
Telebras's profit for January and February 1998 and shall be included
in the calculation of the adjusted net income as of December 31, 1998
for purposes of dividend calculation.
3.2. Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation
or interest have been adjusted to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable that have been
overdue for more than 180 days at the subsidiaries were written off
as losses for the period. Other receivables of unlikely realization
were analyzed considering their maturity date and an allowance was
recorded.
3.4. Employees' Profit Sharing: in conformity with Article 5 of
Provisional Measure No. 980 of April 25, 1995 and subsequent reissues
thereof, and Resolution No. 10 of May 30, 1995 of CCE (Council for
Coordination and Control of State-Owned Companies), the employees'
share in the profits is provided monthly. The accrued amount, at the
rate of one twelfth of the employee's monthly remuneration, is
subject to the approval from CCE and the shareholders at the general
meeting when the surplus appropriation is approved.
3.5. Interest on Work in Progress: The operating companies compute monthly
interest on work in progress at the rate of 12% p.a. on total capital
invested in work in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the
non-operating financial expenses generated by loans obtained to
finance the work. The amount exceeding non-operating financial
expenses is recorded in the capital reserve. The Parent company
records such operations using the equity method and the interest
amount is charged to operations in the income statement.
3.6. Pension Plans: The companies sponsor defined benefit pension plans
that are managed by Sistel. The determination of contributions to the
plans are based on actuarial studies prepared by independent
actuaries, in accordance with rules in effect in Brazil. The
actuarial studies are reviewed on a periodic basis so as to determine
whether the contributions need to be adjusted. From the financial
standpoint, Sistel has experienced no shortage of funds per the last
valuation approved and accounted for in December 1997. On account of
the kind of sponsorship and benefits, the split-off did not cause any
change in the pension plans.
3.7. Interest on Shareholders' Equity: In accordance with Company's bylaw,
management can propose at the general meeting the payment of interest
on shareholders' equity to the shareholders', up to the limit of the
dividends calculated based on Article 202 of Law 6404/76. This
interest on shareholders' equity has not been accrued monthly because
the decision to pay or credit is made at the time of the annual
balance sheet closing, through management's proposal.
<PAGE>
3.8. Equity Method: the income for the period for the six-months ended
June 30, 1998 includes the equity method valuation result for January
and February 1998 relating to the period prior to the split-off.
3.9. The matters mentioned in the balance sheet as of December 31, 1997
regarding subsidiaries' contingencies did not suffer any substantial
changes when compared to the closing of the second quarter of 1998,
despite the unfavorable decision for the subscribers, recently given
by the High Court of Justice regarding the application of Law
8200/91.
4. NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30,
1998 %
---- ------
DOMESTIC 3,231,057 94
Local 2,374,288 69
Long-distance 856,769 25
INTERNATIONAL 75,844 2
DATA TRANSMISSION 98,880 3
OTHER 21,809 1
GROSS OPERATING INCOME 3,427,591 100
TAXES ON GROSS INCOME (914,213) (27)
OTHER DEDUCTIONS (11,932)
NET OPERATING INCOME 2,501,445 73
4.1. Net Operating Income per Company
COMPANY June 30,
1998
---------
TELEAMAPA 12,718
TELASA 46,937
TELAMAZON 53,249
TELAIMA 8,252
TELEPISA 39,641
TELERJ 685,904
TELEMIG 609,141
TELEBAHIA 300,367
TELERGIPE 33,361
TELPE 165,864
TELEST 114,544
TELERN 55,302
TELPA 57,973
TELECEARA 159,493
TELMA 62,178
TELEPARA 96,521
TOTAL 2,501,445
<PAGE>
5. OTHER NET OPERATING INCOME (EXPENSES)
June 30,
1998
-------
Taxes (except for income tax and social (6,022)
contribution)
Technical and administrative services 32,976
Provision for contingencies (22,875)
Fines 31,556
Reversal of provisions 19,473
Other income (expenses) 47,982
-------
Total 103,090
=======
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30,
1998
----------
FINANCIAL INCOME 63,551
Nominal financial income 52,333
Monetary variation 11,218
FINANCIAL EXPENSES 65,531
Nominal financial expenses 52,148
Monetary/exchange variation liabilities 13,383
------
Total (1,980)
======
7. CONSOLIDATED NON-OPERATING INCOME (EXPENSES)
June 30,
1998
----------
Interest on work in progress 59,246
Non-operating financial expenses (59,246)
Loss on write-off of permanent assets (21,517)
Other non-operating income/expenses (4,118)
-------
Total (25,635)
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carryforward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
Consolidated
June 30, 1998
-------------
Social contribution on income (26,854)
Income tax (54,207)
Total tax expense (81,061)
<PAGE>
9. CAPITAL AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30, 1998 is represented by
the following shares without nominal value:
Company Capital Common Preferred
- ------- ------- ------ ---------
TELEAMAPA 26,511 323,460 586,962
TELASA 133,823 2,482,209 3,645,994
TELAMAZON 115,969 306,150 427,915
TELEPISA 117,822 731,089 1,503,177
TELERJ 2,393,865 12,088,916 18,353,367
TELEMIG 673,502 8,912,418 14,897,424
TELEBAHIA 744,141 3,496,618 5,921,088
TELERGIPE 55,285 300,525 707,313
TELPE 325,209 3,216,051 4,251,157
TELEST 125,599 752,895 1,284,973
TELERN 82,351 341,205 745,667
TELPA 97,471 420,358 937,816
TELECEARA 202,340 706,043 1,346,618
TELMA 206,984 1,087,440 2,095,478
TELEPARA 139,125 769,232 1,253,126
TELAIMA 16,877 180,954 339,165
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per thousand shares of the holding was R$0,02887.
CAPITALIZABLE FUNDS
In June 1998, it was determined that the capitalization of the self-financing
funds in favor of the future subscribers would be made directly by the
subsidiaries and so related assets and liabilities were written off the Parent
company's balance sheet.
10. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
There exists no material difference between the book balances and the market
values and so they are not stated in this quarterly information.
11. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
HOLDING
Amount received - split-off of Telebras 9,262,317
Income for the six-months 392,689
BALANCE AT JUNE 30, 1998 9,655,006
<PAGE>
12. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At June 30, 1998, the reconciliation of net income, Parent Company and
consolidated, was as follows:
Net income of Parent company 392,689
Interest on work in progress (60,927)
Tax incentives and other (18,391)
NET INCOME 313,371
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent Company, upon
valuation of its investments by the equity method.
INTEREST IN SUBSIDIARY COMPANIES
Book Net
value per income Total
Shareholders' share in June 30, capital
Company Capital equity R$ 1998 ownership %
- ------- --------- ------------- --------- ---------- -----------
TELEAMAZON 115,969 226,957 0,30917 (1,614) 80.2592400
TELAIMA 16,877 27,192 0,05228 1,073 86.9121072
TELEPARA 139,125 413,335 0,20438 8,373 69.0411756
TELEAMAPA 26,511 50,188 0,05513 1,034 90.6439395
TELMA 206,984 318,640 0,10011 7,259 66.7911336
TELEPISA 117,821 186,508 0,08348 6,330 78.4751013
TELECEARA 202,340 632,936 0,30835 16,259 79.3079763
TELERN 82,351 228,576 0,21031 1,961 75.4191430
TELPA 97,471 218,527 0,16090 5,573 71.4990195
TELPE 325,309 715,308 0,09579 16,886 77.2199157
TELASA 133,823 169,675 0,02769 (8,612) 77.6030038
TELERGIPE 55,285 119,315 0,11839 5,938 73.6141121
TELEBAHIA 744,141 1,230,523 0,13066 37,199 89.1423498
TELEMIG 673,502 1,830,812 0,07689 92,998 82.9433066
TELEST 125,599 394,396 0,19353 13,819 85.2308852
TELERJ 2,393,865 2,970,146 0,09757 89,707 70.7030076
13. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems. The
Parent company and its subsidiaries operate their own or leased systems.
Whichever the case, management believes that there exists no risk that can
affect the business because the Companies suppliers are large international and
multinational manufacturers that also serve practically all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed the companies that they will make all the adjustments
in time. Regarding the administrative systems, an evaluation will still be made
but, whatever the situation, the effects on the financial statements will not be
material.
<PAGE>
14. LOANS AND FINANCING
Certain loans and financing of the Telebras System, transferred upon split-off
to Tele Norte Leste Participacoes S.A., are subject to earlier payment dates due
to the split-off and privatization process.
Management has been negotiating the due dates with the creditors and, at June
30, 1998, no creditor had requested earlier payment dates for any contract.
15. COMPENSATION FOR USE OF THE SWITCHED FIXED TELEPHONE SERVICE NETWORKS
On July 13, 1998, under Resolution No. 33, ANATEL approved Regulation
"Compensation for use of the switched fixed telephone service networks" that
establishes tariff criteria for compensation of the switched fixed
telecommunication service networks, when interconnected with networks of other
providers of public telecommunication services, thus revoking Ruling No. 392 of
August 8, 1997 that set percentages of share in mutual traffic income, according
to which the income from long-distance and international services was divided
among the operators.
Such Resolution determines also that the provisions of that Regulation be
applicable to calls processed as from April 1, 1998.
Considering the operational difficulties in reprocessing calls interconnected
with networks of other providers, beginning April 1, 1998, these effects will be
recognized in the quarterly information for the 3rd quarter.
Considering further that the Resolution referred to above stipulates the
"Additional Transition Amount (PAT)", with decreasing amounts for the effective
period from April 1, 1998 to June 30, 2001, so that the concessionaires can
adapt to the new compensation criteria, the above-mentioned reprocessing should
not produce significant effects on the results stated in the quarterly
information for the 2nd half-year.
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------
1. SCOPE
This performance report contains the consolidated figures of the following
companies: TELERJ, TELEMIG, TELEBAHIA, TELPE, TELECEARA, TELEST, TELEPARA,
TELAMAZON, TELMA, TELERN, TELPA, TELASA, TELEPISA, TELERGIPE, TELEAMAPA,
TELAIMA. It does not contain the figures of the Parent company, TELE NORTE
LESTE PARTICIPACOES S.A., that was incorporated as a result of the split-off of
TELEBRAS on May 22, 1998.
2. OPERATING INCOME
The operating income for the period was the following:
2.1. Physical Data
2nd quarter of 1998
-------------------------
Pulses Minutes
registered charged +
Company - subscribers Manual
- ------- ------------- ------------
TELERJ 3,837,732 704,091
TELEMIG 2,800,250 1,424,894
TELEBAHIA 1,151,670 650,670
TELPE 1,002,134 351,369
TELECEARA 1,036,816 284,939
TELEST 680,140 243,758
TELEPARA 378,308 236,250
TELAMAZON 324,421 103,693
TELMA 325,214 131,597
TELERN 441,522 213,425
TELPA 327,606 176,327
TELASA 194,516 91,167
TELEPISA 250,314 58,875
TELERGIPE 132,714 61,799
TELEAMAPA 55,145 26,967
TELAIMA 34,929 24,040
Since the holding TELE NORTE LESTE PARTICIPACOES S.A. was incorporated on May
22, 1998 by the split-off of TELEBRAS, comparative data with the same quarter of
the previous year are not being presented.
<PAGE>
Installed Plant
In the period, the consolidated companies registered the following performance
regarding installed plant:
Telephone accesses (10 to the third power) - Accumulated until June 30, 1998
In
Companies Installed operation
- --------- ---------- ----------
TELERJ 2,185,480 1,906,797
TELEMIG 1,928,025 1,794,909
TELEBAHIA 847,972 805,496
TELPE 443,543 391,770
TELECEARA 613,314 529,809
TELEST 302,596 287,064
TELEPARA 302,334 262,511
TELAMAZON 173,071 156,746
TELMA 199,038 180,836
TELERN 184,343 168,935
TELPA 217,692 198,653
TELASA 155,180 133,600
TELEPISA 150,597 132,512
TELERGIPE 96,761 92,316
TELEAMAPA 44,663 40,005
TELAIMA 35,225 28,113
--------- ---------
TOTAL 7,879,834 7,110,092
========= =========
Locations Served
No, of
Companies States municipalities
- --------- ------ --------------
TELERJ Rio de Janeiro 723
TELEMIG Minas Gerais 3,143
TELEBAHIA Bahia 2,164
TELPE Pernambuco 1,120
TELECEARA Ceara 1,117
TELEST Espirito Santo 431
TELEPARA Para 361
TELAMAZON Amazonas 324
TELMA Maranhao 559
TELERN Rio Grande do 620
Norte
TELPA Paraiba 1,066
TELASA Alagoas 415
TELEPISA Piaui 416
TELERGIPE Sergipe 471
TELEAMAPA Amapa 72
TELAIMA Roraima 54
------
TOTAL 13,056
======
<PAGE>
2.2. Economic Data
Net
Operating Net
Company Income Income
- ------- --------- ---------
TELERJ 685,904 89,707
TELEMIG 609,141 92,998
TELEBAHIA 300,367 37,199
TELPE 165,864 16,886
TELECEARA 159,493 16,259
TELEST 114,544 13,819
TELEPARA 96,521 8,373
TELAMAZON 53,249 (1,614)
TELMA 62,178 7,259
TELERN 55,302 1,961
TELPA 57,973 5,573
TELASA 46,937 (8,612)
TELEPISA 39,641 6,330
TELERGIPE 33,361 5,938
TELEAMAPA 12,718 1,034
TELAIMA 8,252 1,073
--------- -------
TOTAL 2,501,445 294,183
========= =======
The amounts represent the sum of the nominal values and do not consider the
elimination of operations between group companies.
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and Decree
No. 2546/98. In this restructuring, employees have been transferred from one
company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
Company Authorized Effective
- ------- ---------- ---------
TELERJ 10,880 10,049
TELEMIG 6,739 6,889
TELEBAHIA 3,887 3,448
TELPE 1,963 1,788
TELECEARA 2,216 1,944
TELEST 1,500 1,367
TELEPARA 1,389 1,389
TELAMAZON 913 913
TELMA 904 859
TELERN 708 708
TELPA 1,087 993
TELASA 750 574
TELEPISA 667 667
TELERGIPE 549 547
TELEAMAPA 164 150
TELAIMA 170 155
------ ------
TOTAL 34,486 32,440
====== ======
<PAGE>
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
<TABLE>
<CAPTION>
TELERJ % TELEMIG % TELEBAHIA % TELPE %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME 1,112,936 131 884,357 127 418,417 128 241,997 149
Material,
outsourced
services and
other
supplies (264,281) (31) (186,019) (27) (92,373) (28) (79,015) (49)
ADDED VALUE 848,655 100 698,338 100 326,044 100 162,982 100
Salaries and
social (154,556) (18) (111,474) (16) (41,980) (13) (26,850) (17)
charges
Government (297,948) (35) (263,866) (38) (120,377) (37) (59,296) (36)
(taxes)
Third-parties (98,938) (12) (75,051) (11) (35,002) (11) (17,186) (11)
Retained (297,213) (35) (247,947) (35) (128,685) (39) (59,650) (35)
surplus
<CAPTION>
TELECEARA % TELEST % TELEPARA % TELAMAZON %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME 225,130 140 160,712 132 127,086 151 81,397 135
Material,
outsourced
services
and other
supplies (64,447) (40) (38,737) (32) (42,902) (51) (21,717) (36)
ADDED VALUE 160,683 100 121,975 100 84,184 100 59,680 100
Salaries, (31,538) (20) (26,007) (21) (19,571) (23) (13,838) (28)
charges
Government (61,147) (38) (45,964) (38) (26,863) (32) (20,022) (34)
(taxes)
Third-partie (11,048) (7) (7,012) (6) (4,325) (5) (9,310) (16)
Retained (56,950) (35) (42,992) (35) (33,425) (40) (16,510) (28)
surplus
<CAPTION>
TELMA % TELERN % TELPA % TELASA %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME 90,414 137 79,045 148 (82,397) 138 66,855 175
Material,
outsourced
services
and other
supplies (24,584) (37) (25,644) (48) (22,575) (38) (28,611) (75)
ADDED VALUE 65,830 100 53,401 100 59,822 100 38,244 100
Salaries, (9,626) (15) (10,540) (20) (13,212) (22) (8,689) (23)
charges
Government (26,438) (40) (20,688) (39) (19,389) (32) (14,953) (39)
(taxes)
Third-partie (3,141) (5) (3,746) (7) (5,351) (9) (8,081) (21)
Retained (26,625) (40) (18,427) (34) (21,870) (37) (6,521) (17)
surplus
<CAPTION>
TELEPISA % TELERGIPE % TELEAMAPA % TELAIMA %
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME 52,133 125 49,428 129 16,459 159 12,402 131
Material,
outsourced
services
and other
supplies (10,460) (25) (11,176) (29) (6,078) (59) (2,930) (31)
ADDED VALUE 41,673 100 38,252 100 10,381 100 9,472 100
Salaries, (7,025) (17) (5,756) (15) (2,595) (25) (2,512) (27)
charges
Government (14,342) (34) (15,560) (41) (3,369) (33) (3,511) (37)
(taxes)
Third-partie (2,034) (5) (1,500) (4) (740) (7) (415) (4)
Retained (18,272) (44) (15,436) (40) (3,677) (35) (3,034) (32)
surplus
</TABLE>
<PAGE>
TELESP CELULAR PARTICIPACOES S.A.
---------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
TELESP Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly information
(ITR) of TELESP Celular Participacoes S.A. as of and for the three-month
period ended June 30, 1998, which comprises the balance sheet of the Parent
company, statement of income, Parent company and Consolidated, notes to
quarterly information and performance report, prepared in accordance with
accounting principles established by the Corporate Law.
2. We conducted our review in accordance with specific standards established by
the Brazilian Accountants' Institute - IBRACON and the Federal Accounting
Council, which consisted principally of (a) inquiries and discussion with
the persons responsible for the accounting, financial and operating areas
about criteria adopted in preparing the quarterly information; and (b)
review of the information and subsequent events that have or could have
material effects on the financial position and operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELESP CELULAR PARTICIPACOES S.A.
- ---------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
June 30, 1998 March 31, 1998
------------- --------------
ASSETS
Current assets:
Loans 134,963 126,867
Other credits 466 2,040
--------- -------
Total current assets 135,429 128,907
--------- -------
Long-term assets:
Credits 202 406
--------- -------
Total long-term assets 202 406
--------- -------
Permanent assets:
Investments in subsidiaries 941,413 866,268
--------- -------
Total permanent assets 941,413 866,268
--------- -------
TOTAL ASSETS 1,077,044 995,581
========= =======
LIABILITIES
Current liabilities:
Taxes and contributions 1,548 589
--------- -------
Total current liabilities 1,548 589
--------- -------
Long-term liabilities:
Other 152 152
--------- -------
Total long-term liabilities 152 152
--------- -------
Shareholders' equity:
Share capital 355,384 355,384
Legal reserve 18,671 18,671
Realizable profit reserve 317,913 317,913
Retained earnings 383,376 302,872
--------- -------
Total shareholders' equity 1,075,344 994,840
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,077,044 995,581
========= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELESP CELULAR PARTICIPACOES S.A.
- ---------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- ---------------
OPERATING INCOME (EXPENSES):
<S> <C> <C>
Income from investments in subsidiaries 75,144 158,687
Financial income 7,989 9,780
----------- -----------
OPERATING INCOME 83,133 168,467
NON OPERATING INCOME
INCOME BEFORE TAXES AND PROFIT SHARING 83,133 168,467
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (2,630) (3,219)
PROFIT SHARING - EMPLOYEES
------------- --------------
NET INCOME FOR THE PERIOD 80,503 165,248
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00024 0.00049
=========== ===========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELESP CELULAR PARTICIPACOES S.A.
- ---------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law N.
9472/97 (General Telecommunication Law) and Decree N. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders'
general meeting that approved the register/justification was held on May
22, 1998 and the valuation report was prepared with a date of February
28, 1998.
The Company will operate as a holding of the Sao Paulo State area in the
mobile cellular telephone business, covering the region served by Telesp
Celular S.A.
As a result of the split-off of TELEBRAS, common and preferred
shareholders' of TELEBRAS will have the right to receive, besides the
said shares, a common or preferred share in every new holding company
for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government
will sell the new companies at a public bid scheduled for July 29, 1998.
Only prequalified bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statement
-------------------
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires. These
statements result from the simple accumulation of nominal amounts.
2.2 Consolidated Financial Statements
---------------------------------
The statements of income include the Parent company and Consolidated
income.
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income of the
subsidiary company were reviewed on a quarterly basis by independent
auditors.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiary and are consistent with those adopted in prior periods. The main
points of this quarterly information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at
the year-end. On February 28, 1998, there was a transfer to TELESP
CELULAR PARTICIPACOES S.A. in the amount of R$3,090, which was recorded
in the retained earnings account as part of the Telebras's profit for
January and February 1998 and shall be included in the calculation of
the adjusted net income as of December 31, 1998 for purposes of dividend
calculation.
3.2 Accounts receivable and payable at the subsidiary are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3 Allowance for Doubtful Accounts: An allowance was recorded for credits
of unlikely recovery.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employees' share of profits is
provided monthly. The accrued amount, at the rate of 8.33% per month of
the employee's monthly remuneration, is subject to the approval from CCE
and the shareholders' at the general meeting when surplus appropriation
is approved.
3.5 Interest on Work in Progress: The operating company computes monthly
interest on work in progress at the rate of 12% p.a. on total capital
invested in works in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the non-
operating financial expenses generated by loans obtained to finance the
work. The amount exceeding non-operating financial expenses is recorded
in the capital reserve. The Parent company records such operations using
the equity method and the interest amount is charged to operations in
the income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans that
are managed by Sistel. The determination of contributions to the plans
is based on actuarial studies prepared by independent actuaries, in
accordance with rules in effect in Brazil. The actuarial studies are
reviewed on a periodic basis so as to determine whether the
contributions need to be adjusted. From the financial standpoint, Sistel
has experienced no shortage of funds per the last valuation approved and
accounted for in December 1997. On account of the kind of sponsorship
and benefits, the split-off did not cause any change in the pension
plans.
3.7 Interest on Shareholders' Equity: in accordance with Company's bylaw,
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders', up to the limit of the
dividends calculated based on Article 202 of Law 6404/76. This interest
on shareholders' equity has not been accrued monthly because the
decision to pay or credit is made at the time of the annual balance
sheet closing, through management's proposal.
3.8 Equity Method: The income for the period includes the equity method
valuation result for January and February 1998, relating to the period
prior to the split-off.
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30, 1998 %
------------- -----------
Subscription 304,162 30.92
Rent 228 0.02
Use 476,969 48.48
-------- ------
Domestic 407,552 41.43
International 13,608 1.38
Shift 34,752 3.53
Call additional charge 21,057 2.14
-------- ------
Use of network 129,403 13.15
Additional services 73,031 7.43
-------- ------
License 54,665 5.56
Other 18,366 1.87
-------- ------
GROSS OPERATING INCOME 983,793 100.00
TAXES ON GROSS INCOME (215,553) (21.91)
------
NET OPERATING INCOME 768,240 78.09
======== ======
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Taxes (except for corporate income tax and social (174)
contribution)
Technical and administrative services
Provision for contingencies (2)
Fines 5,845
Recovered expenses 82
Other expenses 713
-----
Total 6,464
=====
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30,
1998
------------
FINANCIAL INCOME
Nominal financial income 13,058
Monetary/exchange variation assets 3,331
-------
Total 16,389
-------
FINANCIAL EXPENSES
Nominal financial expenses (52,001)
Monetary/exchange variation liabilities (16,756)
-------
Total (68,757)
-------
Total (52,368)
=======
<PAGE>
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
June 30,
1998
------------
Interest on works in progress 12,935
Non-operating financial expenses (12,935)
Loss on write-off of permanent assets -
Other non-operating income 227
-------
Total 227
=======
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary company accrues for income tax and social contribution
monthly on an accrual basis, in spite of paying the taxes on a monthly
estimated basis. Taxes on income are recorded in liabilities or assets,
where applicable. Prepaid income tax and social contribution amounts are
recorded in carryforward taxes and, for checking purposes, are compared
with the accrued amounts. Tax expenses are composed of the following:
June 30, 1998
-------------
Social contribution on net income 26,124
Income tax 78,404
Prior year losses recorded -
Deferred taxes, net -
-------
Total tax expense 104,528
-------
9. CAPITAL STOCK AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30, 1998 was represented
by the following shares with no par value:
Capital Common shares Preferred shares
----------- -------------- ----------------
Telesp Celular 355,384 124,369,030 210,029,997
Participacoes S.A.
Telesp Celular S.A. 1,096,287 29,662,619 27,659,106
Preferred shares are non-voting but have priority in the capital
reimbursement and payment of noncumulative minimum dividends. As of June
30, 1998, the book value per share of the holding was R$0.00000321.
10. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time, based on relevant market
data and information on financial instruments. Changes in premises can
affect significantly the estimates.
Book balances approximate market values because of the short-term
maturity of the instruments. There exists no material difference between
the book balances and the market values and so they are not stated in
this quarterly information.
<PAGE>
11. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Holding)
Merger of net assets - split-off of Telebras 910,096
Interest on work in progress -
Other -
Income for the period 165,248
BALANCE AT JUNE 30, 1998 1,075,344
12. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At June 30, 1998, the reconciliation of Parent company's net income with
Consolidated net income is as follows:
Net income of Parent company 165,248
Interest on works in progress (5,802)
Tax incentives and other -
CONSOLIDATED NET INCOME 159,446
Reconciliation items are increases in equity at the subsidiary, which
were recorded directly in the shareholders' equity of that company;
therefore, they are considered as gains or losses at the Parent company,
upon valuation of its investments by the equity method.
INVESTMENT IN SUBSIDIARY
Book value
Shareholders' per share Net income at Ownership
Capital Equity R$ June 30, 1998 %
--------- ------------- ---------- ------------- ----------
Telesp Celular
S.A. 1,096,287 1,318,544 0.02300 214,131 71.39
13. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000
bug, for the purpose of assessing, planning and executing actions to
adapt systems to each other. The Parent company and its subsidiary
operate own or leased systems. In any case, management believes that
there exists no risk that can affect the business because Company's
suppliers are large international and multinational manufacturers that
also serve nearly all telecommunication companies of the world.
Additionally, the majority of the telecommunication equipment vendors
informed that they will make all adjustments in time. Regarding the
administrative systems, a valuation should still be made but, in any
case, the effects on the financial statements must not be material.
<PAGE>
INVESTMENTS IN SUBSIDIARIES AND/OR AFFILIATES
<TABLE>
<CAPTION>
N of N of shares
Capital Investor Kind of shares in in prior
C.G.C. Classification % % company the quarter quarter
------------------ -------------- -------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Telesp
Celular S.A. 319.126/0001-59 1 71.40 87.55 1 40,926,517 40,926,517
</TABLE>
Classification Kind of company
- -------------- -------------------------
1 Open subsidiary 1 Industrial, commercia and other
2 Open affiliate 2 Financial institution
3 Closed subsidiary 3 Insurance firm
4 Closed affiliate
5 Subsidiary/affiliate's invested
- --------------------------------------------------------------------------------
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of Telesp
Celular Participacoes S.A., that was incorporated by the split-off of
Telecomunicacoes Brasileiras S.A. on May 22, 1998, including the figures
of the subsidiary Telesp Celular S.A.
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
- Minutes charged until June 30, 1998 - thousands
-------------------------------------------------
Local 781,291
National 181,280
International 13,870
- Plant
-----
Accesses in service 1,420,033
Since holding Telesp Celular Participacoes S.A. was incorporated on May
22, 1998 by the split-off of Telebras, comparative data with the same
period of the previous year are not being presented.
Locations Served
Telesp Celular S.A. operates in 412 municipalities of the State of Sao
Paulo.
2.2 Economic Data - CONSOLIDATED
----------------------------
Net Operating Net
revenue Income income
---------- ---------- ---------
Telesp Celular Participacoes 768,240 326,331 159,446
S.A.
Amounts are a result of the consolidated figures of Telesp Celular S.A.
and Telesp Celular Participacoes S.A., excluding intercompany
transactions.
<PAGE>
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first,
with the split-off of the cellular business segment and, later, with the
regrouping of the operating companies in holdings in accordance with Law
9472/97 and Decree N 2546/98. In this restructuring, employees have been
transferred from one company to the other in order to meet the operating
requirements.
Personnel as of June 30, 1998 was the following:
Authorized 1,800
Effective 1,520
4. STATEMENT OF ADDED VALUE - CONSOLIDATED
Evidences the wealth generated by the company and the economic destination.
This model considers the concept of income.
INCOME 1,020,025
Material, outsourced services and other supplies (266,595)
---------
ADDED VALUE 753,430
Salaries and charges (27,489)
Government (taxes) (338,562)
Third-parties (96,286)
---------
RETAINED SURPLUS 291,093
- --------------------------------------------------------------------------------
<PAGE>
TELESP CELULAR PARTICIPACOES S.A.
- ---------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- --------------
NET OPERATING REVENUE FROM
TELECOMMUNICATION 381,967 768,240
SERVICES
COST OF SERVICES (152,355) (289,266)
----------- -----------
GROSS REVENUE 229,612 478,974
OTHER OPERATING INCOME (EXPENSES): (72,953) (152,643)
----------- -----------
Selling expenses (44,561) (75,475)
General and administrative expenses (11,313) (31,264)
Financial expenses (33,619) (68,757)
Financial income 13,020 16,389
Other operating income (expenses) 3,520 6,464
----------- -----------
OPERATING INCOME 156,659 326,331
NON OPERATING INCOME 243 227
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION
AND PROFIT SHARING 156,902 326,558
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION (49,822) (104,528)
AND ADDITIONAL STATE TAX
PROFIT SHARING - EMPLOYEES (691) (1,338)
MINORITY INTERESTS (28,896) (61,246)
----------- -----------
NET INCOME FOR THE PERIOD 77,493 159,446
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00023 0.00048
=========== ===========
- --------------------------------------------------------------------------------
<PAGE>
TELE SUDESTE CELULAR PARTICIPACOES S.A.
---------------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Tele Sudeste Celular Participacoes S.A.
Brasilia - DF
- -------------
1. We have performed a special review of the accompanying quarterly
information (ITR) of Tele Sudeste Celular Participacoes S.A. as of and for
the three-month period ended June 30, 1998, which comprises the balance
sheet of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE SUDESTE CELULAR PARTICIPACOES S.A.
- ---------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Recoverable taxes 5,798
Other credits 270,936 264,640
Other receivables 52,109 28,638
------- -------
Total current assets 328,843 293,278
------- -------
Long-term assets:
Receivables from subsidiaries 87,573 104,149
------- -------
Total long-term assets 87,573 104,149
------- -------
Permanent assets:
Investments in subsidiaries 492,643 452,720
------- -------
Total permanent assets 492,643 452,720
------- -------
TOTAL ASSETS 909,059 850,147
======= =======
LIABILITIES
Current liabilities:
Taxes and contributions 8,978 2,718
------- -------
Total current liabilities 8,978 2,718
------- -------
Long-term liabilities:
Other 131 131
------- -------
Total long-term liabilities 131 131
------- -------
Shareholders' equity:
Share capital 306,458 306,458
Legal reserve 9,440 9,440
Realizable profit reserve 160,736 160,736
Retained earnings 423,316 370,664
------- -------
Total shareholders' equity 899,950 847,298
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 909,059 850,147
======= =======
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE SUDESTE CELULAR PARTICIPACOES S.A.
- ---------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
--------------- ---------------
OPERATING INCOME (EXPENSES):
<S> <C> <C>
Income from investments in subsidiaries 39,920 96,897
Financial income 18,991 27,228
=========== ===========
OPERATING INCOME 58,911 124,125
NON-OPERATING INCOME -------------- --------------
INCOME BEFORE TAXES AND PROFIT SHARING 58,911 124,125
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (6,259) (8,977)
----------- -----------
NET INCOME FOR THE PERIOD 52,652 115,148
=========== ===========
NUMBER OF SHARES (THOUSAND) 334.399.028 334.399.028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00016 0.00034
=========== ===========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE SUDESTE CELULAR PARTICIPACOES S.A.
- ----------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No.
9472/97 (General Telecommunication Law) and Decree No. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders'
general meeting that approved the register/justification was held on May
22, 1998 and the valuation report was prepared with the date of February
28, 1998.
The Company will operate in Area 3 of the cellular telephone business
segment, covering the regions of Rio de Janeiro and Espirito Santo, that
are served by the following companies: Telerj Celular S.A. and Telest
Celular S.A.
As a result of the split-off of Telebras, common and preferred
shareholders of Telebras will have the right to receive, besides the
said shares, a common or preferred share in every new holding company
for each share in Telebras.
The Ministry of Communications announced that the Federal government
will sell the new companies at a public auction scheduled for July 29,
1998. Only prequalified bidders can participate in the auction.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statements
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires. These
statements result from the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
The financial statement is presented on a Consolidated basis, disclosing
the situation of the subsidiaries and Parent company. The balance sheet
shown is that of the Parent company.
2.3. Special Review by Independent Auditors
The balance sheets and the related statements of income were reviewed on
a quarterly basis by independent auditors.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the predecessor (split company). The main points
of this quarterly information are summarized as follows:
3.1. The reserves set forth in Articles 193 to 197 of Law 6404/76, as
well as the provision for minimum obligatory dividend, will be
recorded only at the year-end. On February 28, 1998, there was a
transfer to TELE SUDESTE CELULAR PARTICIPACOES S.A. in the amount
of R$4,365, which was recorded in the retained earnings account as
part of the Telebras's profit for January and February 1998 and
shall be included in the calculation of the adjusted net income as
of December 31, 1998 for purposes of dividend calculation.
3.2. Accounts receivable and payable in the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and
Dealers (ANBID). Amounts subject to monetary correction, exchange
variation or interest have been adjusted to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable that have been
-------------------------------
overdue for more than 180 days in the subsidiaries were written off
as losses for the period. Other receivables of unlikely realization
were analyzed considering their maturity date and an allowance was
recorded.
3.4. Employees' Profit Sharing: in conformity with Article 5 of
-------------------------
Provisional Measure No. 980 of April 25, 1995 and subsequent
reissues thereof, and Resolution No. 10 of May 30, 1995 of CCE
(Council for Coordination and Control of State-Owned Companies),
the employees' share in the profits is provided monthly. The
accrued amount, at the rate of 8.33% per month of the employee's
monthly remuneration, is subject to the approval from CCE and the
shareholders at the general meeting when surplus appropriation is
approved.
3.5. Interest on Work in Progress: The operating companies compute
----------------------------
monthly interest on work in progress at the rate of 12% p.a. on
total capital invested in work in progress, which is included in
the cost of construction, against non-operating income, up to the
limit of the non-operating financial expenses generated by loans
obtained to finance the work. The amount exceeding non-operating
financial expenses is recorded in the capital reserve. The Parent
company records such operations using the equity method and the
interest amount is charged to operations in the income statement.
3.6. Pension Plans: The companies sponsor defined benefit pension plans
-------------
that are managed by Sistel. The determination of contributions to
the plans are based on actuarial studies prepared by independent
actuaries, in accordance with rules in effect in Brazil. The
actuarial studies are reviewed on a periodic basis so as to
determine whether the contributions need to be adjusted. From the
financial standpoint, Sistel has experienced no shortage of funds
per the last valuation approved and accounted for in December 1997.
On account of the kind of sponsorship and benefits, the split-off
did not cause any change in the pension plans.
3.7. Interest on Shareholders' Equity: In accordance with Company's
--------------------------------
bylaw, management can propose at the general meeting the payment of
interest on shareholders' equity to the shareholders, up to the
limit of the dividends calculated based on Article 202 of Law
6404/76. This interest on shareholders' equity has not been accrued
monthly because the decision to pay or credit is made at the time
of the annual balance sheet closing, on the basis of management's
proposal.
3.8. Equity Method: The income for the period includes the equity method
-------------
valuation result for January and February 1998 relating to the
period prior to the split-off.
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATION'S SERVICES
<TABLE>
<CAPTION>
INCOME June 30, 1998 %
------------- -----
<S> <C> <C>
Subscription 157,474 25.62
Domestic 243,702 39.65
International 20,024 3.26
Shift 16,257 2.65
Call additional charge 52,642 8.57
Use of network 94,616 15.39
Additional services 30,792 5.01
Other 779 0.13
Elimination from consolidated (1,686) (0.27)
-------- ------
GROSS OPERATING INCOME 614,600 100.00
TAXES ON GROSS INCOME (159,836) (26.01)
Adjustment to present value (669) (0.11)
-------- ------
NET OPERATING INCOME 454,095 73.88
======== ======
</TABLE>
4.1. Net Operating Income per Company
<TABLE>
<CAPTION>
Company June 30, 1998
- ------------------ -------------
<S> <C>
Telerj Celular S.A. 384,415
Telest Celular S.A. 71,367
-------
Total 455,782
=======
</TABLE>
5. OTHER NET OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
--------------
<S> <C>
Provision for contingencies (324)
Fines 2,812
Research and development (2,611)
Other income (expenses) 54
------
Total (69)
======
</TABLE>
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
--------------
FINANCIAL INCOME
<S> <C>
Nominal financial income 4,036
-------
FINANCIAL EXPENSES
Nominal financial expenses (16,432)
Monetary/exchange variation on liabilities (740)
-------
(17,172)
-------
Total (13,136)
=======
</TABLE>
<PAGE>
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Interest on work in progress 4,092
Non-operating financial expenses (7,387)
Other non-operating income/expenses
Total (3,295)
</TABLE>
8. INCOME TAX AND SOCIAL CONTRIBUTION ON INCOME
The subsidiary companies accrue for income tax and social contribution
monthly on an accrual basis, in spite of paying the taxes on a monthly
estimated basis. Taxes on income are recorded in liabilities or assets
where applicable. Prepaid income tax and social contribution amounts are
recorded in carry forward taxes and, for checking purpose, are compared
with the accrued amounts. Tax expenses are composed of the following:
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Social contribution on income 15,763
Income tax 53,921
------
Total tax expense 69,684
======
</TABLE>
9. RELATED PARTY TRANSACTIONS
Related party transactions at the balance sheet date consist
of:
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
CURRENT ASSETS 328,843
Loans and financing 270,936
LONG-TERM ASSET 87,573
Loans and financing 87,573
INCOME 124,125
Financial income 24,956
</TABLE>
10. CAPITAL STOCK
<TABLE>
<S> <C>
The subscribed and paid-in capital as of June 30, 1998 is represented by the following shares without nominal
value:
</TABLE>
<TABLE>
<CAPTION>
Common Preferred
Company Capital stock in thousands in thousands
--------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Tele Sudeste Celular Participacoes S.A. 306,458 124.369.030 210.029.997
Telerj Celular S.A. 394,326 12.088.916 18.535.367
Telest Celular S.A. 137,209 752.896 1.284.974
</TABLE>
Preferred shares are non-voting but have priority in the capital
reimbursement and payment of non-cumulative minimum dividends. As of June
30, 1998, the book value of each was:
<TABLE>
<CAPTION>
Company Book value
--------------------------------- -----------
<S> <C>
Tele Sudeste Participacoes S.A. 0.002691246
</TABLE>
<PAGE>
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time based on relevant market
data and information on financial instruments. Changes in assumptions can
significantly affect the estimates.
Book balances approximate the market values because of the short-term
maturity of the instruments. There exists no material difference between
these book balances and the market values and so they are not stated in
this quarterly information.
12. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BALANCE AS OF DECEMBER 31, 1997
Split-off of cellular telephone 784,802
Income as of June 30, 1998 115,148
BALANCE AT JUNE 30, 1998 899,850
13. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At June 30, 1998, the reconciliation of net income, Parent company and
consolidated, was as follows:
Net income of Parent company 115,148
Interest on work in progress (1,508)
Tax incentives and other (19)
Consolidated net income 113,621
Reconciliation items are increases in equity in the subsidiary company,
which were recorded directly in the shareholders' equity of that company;
therefore, they are considered as gains or losses in the Parent company,
upon valuation of its investments by the equity method.
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000
bug, for the purpose of assessing, planning and executing actions to
adapt systems to each other. The Parent company and its subsidiaries
operate own or leased systems. Whichever the case, management believes
that there exists no risk that can affect the business because the
Company's suppliers are large international and multinational
manufacturers that also serve practically all telecommunication companies
of the world. Additionally, the majority of the telecommunication
equipment vendors have informed that they will make all adjustments in
time. Regarding the administrative systems, an evaluation is still to be
made but, however any possible effects on the financial statements should
not be material.
INTEREST IN SUBSIDIARY COMPANIES
Company Telerj Celular Telest Celular
------- -------------- --------------
Capital 394,326 137,209
Shareholders' equity 500,292 162,994
Book value of the asset in R$ 0.016434 0.079982
Net income as of 6/30/98 105,966 23,993
Ownership % 70.7030 85.2309
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE QUARTER
- --------------------------------------------------------------------------------
1. SCOPE
This performance report contains the consolidated figures of the
following companies: Telerj Celular S.A. and Telest Celular S.A. It does
not contain the figures of the Parent company, Tele Sudeste Celular
Participacoes S.A., that was incorporated as a result of the split-off
of TELEBRAS on May 22, 1998.
2. OPERATING INCOME
The operating income for the period was the following:
2.1. Physical Data
-------------
Since the holding Tele Sudeste Participacoes S.A. was incorporated on
May 22, 1998 by the split-off of TELEBRAS, comparative data with the
same quarter of the previous year are not being presented.
Plant
- -----
In the period, the consolidated companies registered the following
performance regarding the plants:
Telephone accesses (10/3/) - Accumulated until June 30, 1998
Companies Installed In operation
--------- -----------------------
Telerj Celular S.A. 507 527
Telest Celular S.A. 109 109
Total 616 616
Locations Served
- ----------------
Companies States N of municipalities
--------- ------ -------------------
Telerj Celular S.A. 1 65
Telest Celular S.A. 1 52
Total 2 117
The amounts represent the sum of the nominal values and do not consider
the elimination of operations between group companies.
<PAGE>
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first,
with the split-off of the cellular business segment and, later, with the
regrouping of the operating companies into holding companies in
accordance with Law 9472/97 and Decree No. 2546/98. In this
restructuring, employees have been transferred from one company to the
other in order to meet the operating requirements.
Personnel as of June 30, 1998 was as follows:
Company Authorized Effective
------- ---------- ---------
Telest Celular 80 73
Telerj Celular 557 538
--- ---
Total 637 611
=== ===
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic
destination. This model considers the concept of income.
<TABLE>
<CAPTION>
Telerj Celular % Telest Celular %
-------------- ---- --------------- ----
<S> <C> <C> <C> <C>
INCOME 531,077 131 92,430 141
Material, outsourced services and other supplies (124,189) (31) (26,855) (41)
-------- -------
ADDED VALUE 406,888 100 65,575 100
Salaries, charges (8,582) (1,350)
Government (taxes) (190,439) (33,712)
Third-parties (55,564) (1,635)
-------- -------
Retained surplus 152,303 28,878
======== =======
</TABLE>
5. VALUATION INDICATORS AS OF JUNE 30, 1998
Return Current
Companies Debt on Equity Profit margin ratio
--------- ---- --------- ------------- -------
Telerj Celular 1,03 0,21 0,43 0,49
Telest Celular 0,02 0,15 0,28 2,32
Total 1,05 0,36 0,71 2,81
Note 2: The following formula should be used in the calculation of
the indicators:
- Indebtedness = (Total long term liabilities/stockholders'
equity)
- Return on Net Equity = (Net income/Average stockholders'
equity)
- Margin of profit = (Net profit/net income)
- Current marketability (Current Assets/Current Liabilities)
<PAGE>
TELE SUDESTE PARTICIPACOES S.A.
- -------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
--------------- ---------------
<S> <C> <C>
NET OPERATING REVENUE FROM TELECOMMUNICATION
SERVICES 216,056 454,095
COST OF SERVICES (73,421) (152,057)
----------- -----------
GROSS REVENUE 142,635 302,038
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (19,339) (26,367)
General and administrative expenses (27,439) (40,772)
Financial expenses 113 (17,172)
Financial income 3,640 4,036
Other operating income (expenses) 1,140 (69)
----------- -----------
OPERATING INCOME 100,750 221,694
NON-OPERATING EXPENSE (1,781) (3,295)
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION
AND PROFIT SHARING 98,969 218,399
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION
AND ADDITIONAL STATE TAX (32,682) (69,684)
PROFIT SHARING - EMPLOYEES (251) (505)
MINORITY INTERESTS (14,221) (34,589)
----------- -----------
NET INCOME FOR THE PERIOD 51,815 113,621
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00015 0.00034
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
TELEMIG CELULAR PARTICIPACOES S.A.
----------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
The Shareholders and Management
TELEMIG Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of TELEMIG Celular Participacoes S.A. as of and for the
three-month period ended June 30, 1998, which comprises the balance sheet
of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued a qualified special
review report dated July 24, 1998, with the observation as to the recording
as at March 31, 1998, of R$14.097, regarding an accrual for doubtful
accounts referring to accounts receivable accounted for in 1997.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELEMIG CELULAR PARTICIPACOES S.A.
- ----------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Accounts receivable from related parties 44,266 56,098
Loans and Financing - Other 2,677
Recoverable taxes 2,004
Other receivables 31,417 18,962
------- -------
Total current assets 80,364 75,060
------- -------
Long-term assets:
Receivables from subsidiaries 1,236 554
------- -------
Total long-term assets 1,236 554
------- -------
Permanent assets:
Investments in subsidiaries 371,883 345,210
------- -------
Total permanent assets 371,883 345,210
------- -------
TOTAL ASSETS 453,483 420,824
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 2,729 760
------- -------
Total current liabilities 2,729 760
------- -------
Long-term liabilities:
Other 67 67
------- -------
Total long-term liabilities 67 67
------- -------
Shareholders' equity:
Share capital 155,553 155,553
Legal reserve 7,755 7,755
Realizable profit reserve 132,048 132,048
Retained earnings 155,331 124,641
Total shareholders' equity 450,687 419,997
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 453,483 420,824
======= =======
</TABLE>
See notes to quarterly information.
2
<PAGE>
TELEMIG CELULAR PARTICIPACOES S.A.
- ----------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
-------------- --------------
OPERATING EXPENSES/INCOME
<S> <C> <C>
Income from investments in subsidiaries 26,672 46,770
Financial income 5,986 8,294
----------- -----------
OPERATING INCOME 32,658 55,064
NON-OPERATING INCOME
----------- ------------
INCOME BEFORE TAXES AND PROFIT SHARING 32,658 55,064
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION (1,969) (2,729)
PROFIT SHARING - EMPLOYEES ----------- ------------
NET INCOME FOR THE PERIOD 30,689 52,335
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00009 0.00016
=========== ===========
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELEMIG CELULAR PARTICIPACOES S.A.
- ----------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No.
9472/97 (General Telecommunication Law) and Decree No. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders'
general meeting that approved the register/justification was held on May
22, 1998 and the valuation report was prepared with a date of February
28, 1998.
The Company will operate as a holding in the State of Minas Gerais in
the mobile public telephone business, covering regions served by TELEMIG
CELULAR S.A.
As a result of the split-off of TELEBRAS, common and preferred
shareholders of TELEBRAS will have the right to receive, besides the
said shares, a common or preferred share in every new holding company
for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government
will sell the new companies at a public bid scheduled for July 29, 1998.
Only prequalified bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statements
--------------------
These financial statements have been prepared in accordance with
accounting principles established by the Corporate Law and rules
applicable to telecommunication public service concessionaires.
These statements result from the simple accumulation of nominal
amounts.
2.2 Consolidated Financial Statements
---------------------------------
The income statement is presented on the Parent company and
Consolidated basis. The balance sheet is presented on an individual
basis (Parent company).
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income of the
subsidiary companies were reviewed on a quarterly basis by other
independent auditors.
2
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the predecessor (split company). The main points of
this quarterly information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at
the year-end. On February 28, 1998, there was a transfer to TELEMIG
Celular Participacoes S.A. in the amount of R$1.459, which was recorded
in the retained earnings account as part of the Telebras's profit for
January and February 1998 and shall be included in the calculation of
the adjusted net income as of December 31, 1998 for purposes of dividend
calculation.
3.2 Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted at present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3 Allowance for Doubtful Accounts: Accounts receivable overdue for more
-------------------------------
than one hundred and eighty days at the subsidiaries were written-off as
losses in the period. Accounts receivable of unlikely realization were
analyzed considering their maturity date and an allowance was recorded
for 100% of the accounts receivable overdue for 90 and 180 days.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure N 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employees' share in the
subsidiaries' profits is provided monthly. The accrued amount, at the
rate of 1/12% per month of the employee's monthly remuneration, is
subject to the approval from CCE and the shareholders at the general
meeting when surplus appropriation is approved.
3.5 Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on work in progress at the rate of 12% p.a. on total capital
invested in work in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the non-
operating financial expenses generated by loans obtained to finance the
work. The amount exceeding non-operating financial expenses is recorded
in the capital reserve. The Parent company records such operations using
the equity method and the interest amount is charged to operations in
the income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans that
-------------
are managed by Sistel. The determination of contributions to the plans
are based on actuarial studies prepared by independent actuaries, in
accordance with rules in effect in Brazil. The actuarial studies are
reviewed on a periodic basis so as to determine whether the
contributions need to be adjusted. From the financial standpoint, Sistel
has experienced no shortage of funds per the last valuation approved and
accounted for in December 1997. On account of the kind of sponsorship
and benefits, the split-off did not cause any change in the pension
plans.
3.7 Interest on Shareholders' Equity: in accordance with Company's by-law,
--------------------------------
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders, up to the limit of the
dividends calculated based on Article 202 of Law 6404/76. This interest
on shareholders' equity has not been accrued monthly because the
decision to pay or credit is made at the time of the annual balance
sheet closing, through management's proposal.
3.8 Equity Method: the income for the period includes the equity method
-------------
valuation result for January and February 1998 relating to the period
prior to the split-off.
3
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
INCOME June 30, 1998 %
------------- ---------
<S> <C> <C>
Subscription 81,363 26.95
Line rental 18,676 6.18
Use 131,752 43.63
Use of Network 58,796 19.47
Additional Services 2,668 0.88
Qualification 8,720 2.89
Others (12) 0.00
-------
GROSS OPERATING INCOME 301,963 100.00
TAXES ON GROSS INCOME (56,307) (18.64)
OTHER DEDUCTIONS FROM GROSS INCOME (286) (0.10)
-------
NET OPERATING INCOME 245,370 81.26
=======
</TABLE>
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
-------------
Taxes (except for income tax and social
contribution)
<S> <C>
Technical and administrative services 272
Provision for contingencies (*) 0
Fines 2,133
Recovered expenses 32
Amortization of deferred assets (188)
Other income (expenses) (26)
-----
TOTAL 2,223
=====
</TABLE>
The events reported in the balance sheet as at December 31, 1997 have
not suffered any significant change at the closing of the second quarter
1998.
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
FINANCIAL INCOME 5,739
------
Nominal financial income 4,995
Monetary/exchange variation assets 744
------
FINANCIAL EXPENSES (3,597)
Nominal financial expenses (2,033)
Monetary/exchange variation liabilities (1,564)
------
TOTAL 2,142
======
</TABLE>
4
<PAGE>
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Interest on work in progress 2,626
Non-operating financial expenses (2,626)
Income (loss) on write-off of permanent assets
Other non-operating income (expense) 22
------
TOTAL 22
======
</TABLE>
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution
monthly on an accrual basis, in spite of paying the taxes on a monthly
estimated basis. Taxes on income are recorded in liabilities or assets,
where applicable. Prepaid income tax and social contribution amounts are
recorded in carry-forward taxes and, for checking purposes, are compared
with the accrued amounts. Tax expenses are composed of the following:
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Social contribution on income 7,310
Income tax 22,053
Recorded prior years' loss 0
Net deferred taxes
Total tax expense (income) 29,365
======
</TABLE>
9. RELATED PARTY TRANSACTIONS
Related party transactions at the balance sheet date consist
of:
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
CURRENT ASSETS 44,266
------
Loans and financing 44,266
Other Assets
LONG-TERM ASSETS
Loans And financing
INCOME 5,107
------
Financial income and monetary/exchange variation 5,107
assets ======
</TABLE>
Accounts receivable or accounts payable remaining from transactions with
ex-companies of the Telebras system which do not belong to TELEMIG
CELULAR PARTICIPACOES S.A. are recognized with different values. The
balances of such loans on June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Company Value
------- -----
<S> <C>
Tele Norte-Leste Participacoes S.A 2,677
</TABLE>
5
<PAGE>
10. CAPITAL STOCK AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30 is composed of shares
with no par value, as follows:
<TABLE>
<CAPTION>
Company Capital Common Shares Preferred Shares
------------------- ------- ------------- ----------------
<S> <C> <C> <C>
Telemig Celular 155,553 124,369,030 210,029,997
Participacoes S.A
Telemig Celular S.A 391,970 8,912,419 14,897,425
</TABLE>
Preferred shares are non-voting but have priority in the capital
reimbursement and payment of non cumulative minimum dividends. As of
June 30, 1998, the book value per share of the holding was R$0,00000134.
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL NSTRUMENTS)
Market values are computed at a specific time, based on relevant market
data and information on financial instruments. Changes in premises can
affect significantly the estimates.
Book balances approximate market values because of the short-term
maturity of the instruments. There exists no material difference between
the book balances and the market values and so they are not stated in
this quarterly information.
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (HOLDING)
<TABLE>
<CAPTION>
Movement Value
-------------------------------------------------- -----
BALANCE AS DECEMBER 31, 1997
<S> <C>
Merger by split-off of Telecomunicacoes Brasileira 398,352
S.A. - Telebras (February 28, 1998)
Interest on work in progress
Other carry-forward
Income for the period 52,335
BALANCE AT JUNE 30, 1998 450,687
</TABLE>
13. RECONCILIATION OF PARENT COMPANY AND CONSOLIDATED NET INCOME
At June 30, 1998 the reconciliation of parent company and consolidated
net income was as follows:
<TABLE>
<CAPTION>
Value
----------
<S> <C>
Net income of Parent company 52,335
Interest on work in progress (532)
Fiscal incentives and others
CONSOLIDATED NET INCOME 51,803
</TABLE>
Reconciliation items are increases in equity at the subsidiary
companies, which were recorded directly in the shareholders' equity of
those companies; therefore, they are considered as gains or losses at
the Parent company, upon valuation of its investments by the equity
method.
6
<PAGE>
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000
bug, for the purpose of assessing, planning and executing actions to
adapt systems to each other. The Parent company and its subsidiaries
operate own or leased systems. In any case, management believes that
there exists no risk that can affect the business because the Company's
suppliers are large international and multinational manufacturers that
also serve nearly all telecommunication companies of the world.
Additionally, the majority of the telecommunication equipment vendors
informed that they will make all adjustments in time. Regarding the
administrative systems, an evaluation should still be made but, in any
case, the effects on the financial statements must not be material.
15. LOANS AND FINANCING
Certain loans and financing of the Telebras System, transferred upon
split-off to TELEMIG CELULAR PARTICIPACOES S.A, are subject to
anticipation of due dates due to the split-off and privatization
process.
Management has been negotiating the contracts with some creditors and,
until June 30, 1998, no creditor had requested anticipation of due dates
of any contract.
7
<PAGE>
ATTACHMENT TO NOTES TO QUARTERLY INFORMATION
- --------------------------------------------
SHAREHOLDING IN SUBSIDIARIES
- ----------------------------
<TABLE>
<CAPTION>
Net Share Net Profit Shareholding in
Company Capital Assets book value June 30,1998 total capital
- -------------- --------- --------- ---------- ------------ -------------
R$ R$ %
-- -- -
<S> <C> <C> <C> <C> <C>
Telemig
Celular S.A 391,970 448,358 0.01883 55,746 82.94
</TABLE>
8
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE QUARTER
- ---------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of Telemig
Celular Participacoes S.A., including the figures of the Parent company
Telemig Celular S.A
Due to the telecommunication sector privatization program, Telemig
Celular Participacoes S.A, one of the 12 companies resulting from the
split-off of the holding TELEBRAS, which occurred on May 22, 1998,
became the Parent company of Telemig Celular S.A, as a result of the
auction expected to be held on July 29, 1998.
Telemig Celular S.A.'s shares are already being negotiated on the
stockmarkets, since May 18, 1998, in accordance with the expected
chronogram. --------
-----------
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
Minutes charged until June, 1998
Local National International
----- -------- -------------
164,659 22,513 1,310
Plant
-----
Accesses in 430,893
operation
Since holding Telemig Celular Participacoes S.A. was incorporated on May
22, 1998 by the split-off of Telebras, comparative data with the quarter
of the last year are not being presented.
Locations Served
- ----------------
In June 1997, Telemig Celular S.A. had an accumulated portfolio of 432
thousand clients and served 132 municipalities, what represents 64% of
Minas Gerais' GPD, considering the area covered by the company.
With a view to having sustained growth with quality, during this quarter
the company concentrated its efforts on the digitalization of its plant.
Such choice, results in the need to reduce the rhythm of sales growth
during the period of transition from analogycal to digital technology.
The first phase of such process, including the metropolitan area of Belo
Horizonte has its conclusion scheduled for September this year, when
sales will be directed to the new accesses already digitalized.
9
<PAGE>
On the other hand, the company has improved its processes with a view to
more selective credit policies, and a firmer attitude regarding internal
procedures for a definitive split-off.
The performance of the tariffed telephone traffic, measured by minutes,
corresponded to the growth in clients' portfolio, showing in the 2/nd/
semester 1998, an increase of 43.1% in relation to the same period in
the previous year and of 2.2% in relation to the 1/st/ quarter of 1998.
FINANCIAL-ECONOMIC PERFORMANCE
At the end of the 1/st/ semester of 1998, Telemig Celular S.A showed
R$499 million of fixed assets and R$448 million of net equity,
reflecting a solid equity structure.
With an accumulated net income of R$245 million at the end of the 1/st/
semester of 1998 and a net income of R$56 million, Telemig Celular S.A
showed a net margin of 23% (net profit/net income), profitability of 14%
on Net Equity (net income/net initial equity) and a rate of debt/equity
of 22%.
In the 2/nd/ trimester /98 it should be highlighted that there was a
significant reduction in costs of inter-connection (rent of transmission
lines) as a result of TELEBRAS discount policy and of the optimization
of the network topology significantly contributing to the results.
Investments made in the 1/st/ semester 1998 reached R$77 million, 70% of
which applied in improving the quality of the installed plant and in the
digitalization of the celular network in the metropolitan area of Belo
Horizonte. The new billing system is already at conclusion phase and the
work for the digitalization of the plant in 1998 in Juiz de Fora has
already begun.
2.2 Economic Data
-------------
<TABLE>
<CAPTION> Operating
Company Net Income Income Net Income
------- ---------- ------ ----------
<S> <C> <C> <C>
Telemig Celular S.A 245,370 82,828 55,746
Telemig Celular
Participacoes S/A 0 55,064 52,335
Elimination of group
operations 0 (51,877) (56,278)
CONSOLIDATED RESULTS 245,370 91,124 51,803
</TABLE>
3. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic
destination. This model considers the concept of income.
<TABLE>
<CAPTION>
R$ %
-- -
<S> <C> <C>
INCOME 312,626 159.98
Material, outsourced services and other
supplies (117,213) (59.98)
ADDED VALUE 195,413 100.00
Salaries and charges (8,335) (4.27)
Government (taxes) (90,700) (46.41)
Third parties (9,738) (4.98)
RETAINED SURPLUS (86,640) (44.34)
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
TELEMIG PARTICIPACOES S.A.
- --------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
NET OPERATING REVENUE FROM
TELECOMMUNICATION 120,370 245,370
SERVICES
COST OF SERVICES (31,197) (81,988)
----------- -----------
GROSS REVENUE 89,173 163,382
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (32,926) (61,233)
General and administrative expenses (8,840) (15,390)
Financial expenses (232) (3,597)
Financial income 4,018 5,739
Other operating income (expenses) 1,321 2,223
----------- -----------
OPERATING INCOME 52,514 91,124
NON-OPERATING INCOME 114 22
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 52,628 91,146
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (16,813) (29,365)
PROFIT SHARING - EMPLOYEES (282) (470)
MINORITY INTERESTS (5,375) (9,508)
----------- -----------
NET INCOME FOR THE PERIOD 30,158 51,803
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00009 0.00015
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
TELE CELULAR SUL PARTICIPACOES S.A.
-----------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Tele Celular Sul Participacoes S.A.
Brasilia - DF
- -------------
1. We have performed a special review of the accompanying quarterly
information (ITR) of Tele Celular Sul Participacoes S.A. as of and for the
three-month period ended June 30, 1998, which comprises the balance sheet
of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE CELULAR SUL PARTICIPACOES S.A.
- -----------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- ---------------------------------------------------------------------------
June 30, 1998 March 31, 1998
------------- --------------
ASSETS
Current assets:
Receivables from subsidiaries 80,151 74,426
Other receivables 6,645 16,631
------- -------
Total current assets 86,796 91,057
------- -------
Long-term assets:
Receivables from subsidiaries 8,497 247
------- -------
Total long-term assets 8,497 247
------- -------
Permanent assets:
Investments in subsidiaries 427,601 389,665
------- -------
Total permanent assets 427,601 389,665
------- -------
TOTAL ASSETS 522,894 480,969
======= =======
LIABILITIES
Current liabilities:
Taxes and contributions 677 611
------- -------
Total current liabilities 677 611
------- -------
Long-term liabilities:
Other 75 75
------- -------
Total long-term liabilities 75 75
------- -------
Shareholders' equity:
Share capital 175,872 175,872
Legal reserve 8,612 8,612
Realizable profit reserve 146,627 146,627
Retained earnings 191,031 149,172
------- -------
Total shareholders' equity 522,142 480,283
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 522,894 480,969
======= =======
See notes to quarterly information.
- ---------------------------------------------------------------------------
2
<PAGE>
TELE CELULAR SUL PARTICIPACOES S.A.
- -----------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
--------------- ---------------
OPERATING INCOME (EXPENSES):
<S> <C> <C>
Income from investments in subsidiaries 38,114 66,769
Financial income 5,576 7,428
----------- -----------
OPERATING INCOME 43,690 74,197
NON-OPERATING INCOME 9 8
----------- -----------
INCOME BEFORE TAXES AND PROFIT SHARING 43,699 74,205
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (1,839) (2,450)
NET INCOME FOR THE PERIOD 41,860 71,755
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00013 0.00021
=========== ===========
</TABLE>
See notes to quarterly information.
- ---------------------------------------------------------------------------
3
<PAGE>
TELE CELULAR SUL PARTICIPACOES S.A.
- -----------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- ---------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No.
9472/97 (General Telecommunication Law) and Decree No. 2546 of April 14,
1998, as a result of the split-off of TELEBRAS. The shareholders' general
meeting that approved the register/justification was held on May 22, 1998
and the valuation report was prepared with the date of February 28, 1998.
The Company will operate as a holding company in areas 5 and 6 of the
cellular telephone business, covering the regions served by the following
companies: TELEPAR CELULAR S.A., TELESC CELULAR S.A. and CTMR CELULAR S.A.
As a result of the split-off of TELEBRAS, common and preferred shareholders
of TELEBRAS will have the right to receive, besides the said shares, a
common or preferred share in every new holding company for each share in
TELEBRAS.
The Ministry of Communications announced that the Federal government will
sell the new companies at a public auction scheduled for July 29, 1998. Only
prequalified bidders can participate in the auction.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statement
-------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result
from the simple accumulation of nominal amounts.
2.2 Consolidated Financial Statements
---------------------------------
The financial statements are presented on a consolidated basis, disclosing
the situation of the Parent and subsidiary companies.
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income were reviewed by
independent auditors.
4
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted in prior periods. The main
points of this quarterly information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at the
year-end. On February 28, 1998, there was a transfer to TELE CELULAR SUL
PARTICIPACOES S.A. in the amount of R$1,690, which was recorded in the retained
earnings account as part of the Telebras's profit for January and February 1998
----------
and shall be included in the calculation of the adjusted net income as of
December 31, 1997 for purposes of dividend calculation.
3.2 Accounts receivable and payable in the subsidiaries are stated at
historical value, discounted to present value by the interest rate published by
the National Association of Investment Banks and Dealers (ANBID). Amounts
subject to monetary correction, exchange variation or interest have been
adjusted to the balance sheet date.
3.3 Allowance for Doubtful Accounts: Accounts receivable that have been overdue
-------------------------------
for more than 180 days in the subsidiaries were written off as losses for the
period. Other receivables of unlikely realization were analyzed considering
their maturity date and an allowance was recorded.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and Control
of State-Owned Companies), the employees' share of profits is provided monthly.
The accrued amount, at the rate of 8.33% per month of the employee's monthly
remuneration, is subject to the approval from CCE and the shareholders at the
general meeting when surplus appropriation is approved.
3.5 Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on work in progress at the rate of 12% p.a. on total capital invested
in work in progress, which is included in the cost of construction, against non-
operating income, up to the limit of the non-operating financial expenses
generated by loans obtained to finance the work. The amount exceeding non-
operating financial expenses is recorded in the capital reserve. The Parent
company records such operations using the equity method and the interest amount
is charged to operations in the income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans that are
-------------
managed by Sistel. The determination of contributions to the plans are based on
actuarial studies prepared by independent actuaries, in accordance with rules in
effect in Brazil. The actuarial studies are reviewed on a periodic basis so as
to determine whether the contributions need to be adjusted. From the financial
standpoint, Sistel has experienced no shortage of funds per the last valuation
approved and accounted for in December 1997. On account of the kind of
sponsorship and benefits, the split-off did not cause any change in the pension
plans.
3.7 Interest on Shareholders' Equity: in accordance with Company's bylaw,
--------------------------------
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders, up to the limit of the dividends
calculated based on Article 202 of Law 6404/76. This interest on shareholders
equity has not been accrued monthly because the decision to pay or credit is
made at the time of the annual balance sheet closing, on the base of
management's proposal.
5
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS' SERVICES
INCOME June 30, 198 %
------------ ---
Subscription 80,906 24.9
Live rental 22,347 6.9
Use 159,884 49.1
Use of network 47,095 14.5
License 12,068 3.7
Additional services 3,337 1.0
Present value adjustment (295) (0.1)
------- -----
GROSS OPERATING INCOME 325,342 100.0
------- -----
TAXES ON GROSS INCOME (69,559) (21.4)
OTHER DEDUCTIONS (5) -
------- -----
NET OPERATING INCOME 255,778 78.6
======= =====
4.1 Net Operating Income per Subsidiary Company
---------------------------------------------
COMPANY June 30, 1998
------- -------------
TELEPAR CELULAR S.A. 122,245
TELESC CELULAR S.A. 126,586
CTMR CELULAR S.A. 7,998
-------
Total 256,829
=======
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
Lease of equipment 2,022
Taxes (except for corporate income tax and social contribution) (1,049)
Technical and administrative services 42
Provision for contingencies (*) (216)
Fines 2,416
Recovered expenses 971
Other expenses (333)
------
Total 3,853
======
</TABLE>
(*) In the period there were neither significant changes in the balances shown
in this quarterly information nor legal or economic facts that might justify
change in estimate of provisions or other legal situation.
6
<PAGE>
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30, 1998
-------------
FINANCIAL INCOME
Nominal financial income 9,150
Monetary/exchange variation or assets 3,064
------
Total 12,214
------
FINANCIAL EXPENSES
Nominal financial expenses (6,585)
Monetary/exchange variation or liabilities (450)
------
Total (7,035)
Total 5,179
======
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Interest on work in progress 2,407
Non-operating financial expenses (2,047)
Loss on write-off of permanent assets (3)
Other non-operating income 19
------
Total 16
======
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carryforward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
June 30, 1998
-------------
Social contribution on net income 10,053
Income tax 30,546
------
Total tax expense 40,599
======
7
<PAGE>
9. RELATED-PARTY TRANSACTIONS
Related-party transactions at the balance sheet date consist of:
June 30, 1998
-------------
CURRENT ASSETS
Loans and financing 80,151
------
Total 80,151
======
LONG-TERM ASSETS
Loans and financing 8,497
------
Total 8,497
======
INCOME
Financial income and monetary/exchange variation or assets 4,922
------
Total 4,922
======
10. CAPITAL STOCK
The subscribed and paid-in capital as of June 30, 1998 was represented by the
following shares without par value as follow:
<TABLE>
<CAPTION>
Capital stock Common shares Preferred shares
------------- ------------- ----------------
<S> <C> <C> <C>
Tele Celular Sul Participacoes S.A. 175,872 124,369,030 210,029,997
Telepar Celular S.A. 214,880 1,460,956 1,852,808
Telesc Celular S.A. 240,626 950,990 1,473,155
CTMR Celular S.A. 21,252 94,192 112,556
</TABLE>
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding company was R$0.000001561.
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time based on relevant market data and
information on financial instruments. Changes in assumptions can significantly
affect the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
<PAGE>
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Holding Company)
Amount received - split-off of Telebras 450,387
Income for the period 71,755
-------
BALANCE AT JUNE 30, 1998 522,142
=======
13. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At June 30, 1998, the reconciliation of Parent company and Consolidated
net income was as follows:
Net income of Parent company 71,755
Interest on work in progress (2,476)
Tax incentives and other (11)
------
CONSOLIDATED NET INCOME 69,268
======
Reconciliation items are increases in equity in the subsidiary companies, which
were recorded directly in the shareholders equity of those companies; therefore,
they are considered as gains or losses in the Parent company, upon valuation of
its investments by the equity method.
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because the Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors have informed that they will make all adjustments in time.
Regarding the administrative systems, an evaluation is still to be made but;
however, any possible effects on the financial statements should not be
material.
INVESTMENT IN SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
Capital Shareholders' Book value per Net income at Ownership
stock Equity share in R$ June 30, 1998 %
------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Telepar Celular 214,880 262,034 0.079 44,269 67.3072
Telesc Celular 240,626 281,053 0.116 39,754 82.9123
CTMR Celular 21,252 23,177 0.112 1,894 78.5552
</TABLE>
9
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE QUARTER
- ---------------------------------------------------
1. SCOPE
This performance report contains the consolidated figures of Tele Celular Sul
Participacoes S.A., Telepar Celular S.A., Telesc Celular S.A., and CTMR
Celular S.A..
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
2nd quarter of 1998 (thousands)
-----------------------------------------------------------
Minutes Minutes charged
Companies charged Local Minutes charged state International
- -------------------- ------------- --------------------- ---------------
Telepar Celular S.A. 90,702 25,352 894
Telesc Celular S.A. 100,935 23,075 468
CTMR Celular S.A. 11,771 3,338 41
------- ------ -----
Total 203,408 51,765 1,403
======= ====== =====
Since the holding company Tele Celular Sul Participacoes S.A. was incorporated
on May 22, 1998 by the split-off of Telebras, comparative data with the same
quarter of the previous year are not presented.
Installed Plant
- ---------------
In the period, the consolidated companies had the following installed plant:
Telephone accesses - Accumulated until June 30, 1998
Companies In service
- ------------------ ----------
Telepar Celular S.A. 257,584
Telesc Celular S.A. 245,171
CTMR Celular S.A. 19,408
-------
Total 522,163
=======
Locations Served
Companies States Municipalities
- ------------------- ------ --------------
Telepar Celular S.A. 1 62
Telesc Celular S.A. 1 92
CTMR Celular S.A. 1 4
- ---
Total 3 158
= ===
10
<PAGE>
2.2 Economic Data
-------------
Net Operating Net
Companies revenue income profit
- ---------------------- ------- --------- ------
Telepar Celular S.A. 126,586 62,507 44,269
Telesc Celular S.A. 122,245 59,289 39,754
CTMR Celular S.A. 7,998 2,596 1,894
------- ------- ------
Total 256,829 124,392 85,917
======= ======= ======
The amounts represent the sum of nominal values, excluding the elimination of
intercompany transactions.
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies into holding companies in accordance with Law 9472/97
and Decree n 2546/98. In this restructuring, employees have been transferred
from one company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was as follow:
Companies Authorized Effective
- -------------------- ---------- ---------
Telepar Celular S.A. 307 220
Telesc Celular S.A. 120 113
CTMR Celular S.A. 30 17
--- ---
Total 457 350
=== ===
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
<TABLE>
<CAPTION>
Telesc Telepar CTMR
Celular % Celular % Celular %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
INCOME 167,815 139.2 166,439 132.4 11,140 164.6
Materials, outsourced services
(47,258) (39.2) (40,734) (32.4) (4,374) (64.6)
and other supplies ------- ----- ------- ----- ------ -----
ADDED VALUE 120,557 100.0 125,705 100.0 6,766 100.0
Salaries and charges (2,006) (1.7) (4,166) (3.3) (251) (3.7)
Government (taxes) (61,410) (50.9) (52,673) (41.9) (3,442) (50.9)
Third parties (6,634) (5.5) (13,021) (10.4) (227) (3.4)
------- ----- ------- ----- ------ -----
Retained surplus 50,507 41.9 55,845 44.4 2,846 42.0
======= ===== ======= ===== ====== =====
</TABLE>
11
<PAGE>
5. VALUATION INDICATORS AS OF JUNE 30, 1998
Return on Profit Current
Companies Debt Equity margin ratio
- ------------------- ---- --------- -------- -------
Telepar Celular S.A. 58.0 16.9 35.0 0.78
Telesc Celular S.A. 16.3 14.1 32.5 6.10
CTMR Celular S.A. 33.6 8.2 23.7 1.73
CONSOLIDATED 22.4 13.3 27.1 3.82
- ----------------------------------------------------------------
12
<PAGE>
TELE CELULAR SUL PARTICIPACOES S.A.
- -----------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
NET OPERATING REVENUE FROM TELECOMMUNICATION SERVICES
125,045 255,778
COST OF SERVICES (44,486) (89,358)
----------- -----------
GROSS REVENUE 80,559 166,420
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (1,520) (9,774)
General and administrative expenses (9,950) (33,858)
Financial expenses (3,779) (7,035)
Financial income 9,310 12,214
Other operating income (expenses) 1,839 3,853
----------- -----------
OPERATING INCOME 76,459 131,820
NON-OPERATING (EXPENSE) INCOME (2) 16
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 76,457 131,836
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (22,103) (40,599)
PROFIT SHARING - EMPLOYEES (177) (334)
MINORITY INTERESTS (13,028) (21,635)
----------- -----------
NET INCOME FOR THE PERIOD 41,149 69,268
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00012 0.00021
=========== ===========
</TABLE>
- ---------------------------------------------------------------------------
2
<PAGE>
TELE NORDESTE CELULAR PARTICIPACOES S.A.
----------------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Tele Nordeste Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly information
(ITR) of Tele Norte Celular Participacoes S.A. as of and for the three-month
period ended June 30, 1998, which comprises the balance sheet of the Parent
company, statement of income, Parent company and Consolidated, notes to
quarterly information and performance report, prepared in accordance with
accounting principles established by the Corporate Law.
2. We conducted our review in accordance with specific standards established by
the Brazilian Accountants' Institute - IBRACON and the Federal Accounting
Council, which consisted principally of (a) inquiries and discussion with
the persons responsible for the accounting, financial and operating areas
about criteria adopted in preparing the quarterly information; and (b)
review of the information and subsequent events that have or could have
material effects on the financial position and operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE NORDESTE CELULAR PARTICIPACOES S.A.
- ----------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
June 30, March 31,
1998 1998
---- ----
ASSETS
Current assets:
Accounts receivable from related parties 12,007 14,470
Other receivables 8,778 3,783
------- -------
Total current assets 20,785 18,253
------- -------
Long-term assets:
Receivables from subsidiaries 2,599 4,412
------- -------
Total long-term assets 2,599 4,412
------- -------
Permanent assets:
Investments in subsidiaries 304,847 282,754
------- -------
Total permanent assets 304,847 282,754
------- -------
TOTAL ASSETS 328,231 305,419
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 83 155
------- -------
Total current liabilities 83 155
------- -------
Long-term liabilities:
Other 46 46
------- -------
Total long-term liabilities 46 46
------- -------
Shareholders' equity:
Share capital 108,943 108,943
Legal reserve 6,127 6,127
Realizable profit reserve 104,315 104,315
Retained earnings 108,717 85,833
------- -------
Total shareholders' equity 328,102 305,218
======= =======
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 328,231 305,419
======= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
2
<PAGE>
TELE NORDESTE CELULAR PARTICIPACOES S.A.
- ----------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
OPERATING INCOME (EXPENSES):
Income from investments in subsidiaries 22,093 48,010
Financial income 1,093 1,562
----------- -----------
OPERATING INCOME 23,186 49,572
NON OPERATING EXPENSES (1) (2)
-----------
INCOME BEFORE TAXES AND PROFIT SHARING 23,185 49,570
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION (302) (457)
PROFIT SHARING - EMPLOYEES
------------ ------------
NET INCOME FOR THE PERIOD 22,883 49,113
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00007 0.00015
======= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELE NORDESTE CELULAR PARTICIPACOES S.A.
- ----------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No. 9472/97
(General Telecommunication Law) and Decree No. 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The shareholders' general meeting that
approved the register/justification was held on May 22, 1998 and the
valuation report was prepared with a date of February 28, 1998.
The Company will operate as a holding of the area 10 (ten) in the mobile public
telephone business, covering the States of Pernambuco, Ceara, Paraiba, Rio
Grande do Norte, Alagoas e Piaui, served by the following companies: Telpe
Celular S.A., Teleceara Celular S.A, Telern Celular S.A, Telasa Celular S.A
e Telepisa Celular S.A.
As a result of the split-off of TELEBRAS, common and preferred Shareholders' of
TELEBRAS will have the right to receive, besides the said shares, a common
or preferred share in every new holding company for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government will sell
the new companies at a public bid scheduled for July 29, 1998. Only pre-
qualified bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statement
-------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result
from the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
---------------------------------
The income statement is presented on the Parent company and Consolidated
basis. The balance sheet is presented on an individual basis (Parent
company).
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income of the subsidiary
companies were reviewed on a quarterly basis by independent auditors.
2
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the predecessor (split company). The main points of
this quarterly information are summarized as follows:
3.1. The reserves set forth in Articles 193 to 197 of Law 6404/76, as well
as the provision for minimum obligatory dividend, will be recorded only
at the year-end. On February 28, 1998, there was a transfer to Tele
Nordeste Celular Participacoes S.A. in the amount of R$844, which was
recorded in the retained earnings account as part of the Telebras's
profit for January and February 1998 and shall be included in the
calculation of the adjusted net income as of December 31, 1998 for
purposes of dividend calculation.
3.2. Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable overdue for
-------------------------------
more than 180 days were written-off . All other accounts receivable of
unlikely realization were analyzed considering their maturity date and
an allowance was recorded.
Accounts Receivable overdue for more than: % of Loss
----------------------------------------- ---------
150 days 100%
120 days 80%
90 days 60%
60 days 40%
3.4. Employees' Profit Sharing: in conformity with Article 5 of Provisional
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employees' share in the
subsidiaries' profits is accrued monthly. The accrued amount, at the
rate of 1/12% per month of employee's monthly remuneration, is subject
to the approval from CCE and the Shareholders at the general meeting
when surplus appropriation is approved.
3.5. Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on works in progress at the rate of 12% p.a. on total capital
invested in work in progress, which is included in the cost of
construction, against non operating income, up to the limit of the non-
operating financial expenses generated by loans obtained to finance the
work. The amount exceeding non-operating financial expenses is recorded
in the capital reserve. The Parent company records such operations
using the equity method and the interest amount is charged to
operations in the income statement.
3
<PAGE>
3.6. Pension Plans: The companies sponsor defined benefit pension plans
-------------
that are managed by Sistel. The determination of contributions to the
plans are based on actuarial studies prepared by independent actuaries,
in accordance with rules in effect in Brazil. The actuarial studies are
reviewed on a periodic basis so as to determine whether the
contributions need to be adjusted. From the financial standpoint,
Sistel has experienced no shortage of funds per the last valuation
approved and accounted for in December 1997. On account of the kind of
sponsorship and benefits, the split-off did not cause any change in the
pension plans.
3.7. Interest on Shareholders' Equity: in accordance with the Company's
bylaw, management can propose at the general meeting the payment of
interest on Shareholders' equity to the Shareholders', up to the limit
of the dividends calculated based on Article 202 of Law 6404/76. This
interest on Shareholders' equity has not been accrued monthly because
the decision to pay or credit is made at the time of the annual balance
sheet closing, through management's proposal.
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30, 1998 %
------ ------------- ---
Subscription 74,184 25
National
Local 90,066 31
Long distance 28,109 10
International 8,805 3
Shift 8,494 3
Additional per call 16,240 6
Use of Network 59,771 20
Additional Services 6,715 2
Adjustment to actual value (2,301)
-------
Gross Operating Income 290,083 100
TAXES ON GROSS INCOME (60,072) (21)
-------
NET OPERATING INCOME 230,011
=======
4.1 Net Operating Income per Subsidiary Company
Company June 30, 1998
- ------------- -------------
Telpe Celular 90,362
Teleceara Celular 59,946
Telpa Celular 22,817
Telern Celular 23,821
Telasa Celular 25,074
Telepisa Celular 7,991
-------
TOTAL 230,011
=======
4
<PAGE>
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Taxes (except for income tax and social (49)
contribution)
Technical and administrative services 77
Fines 2,274
Recovered expenses 20,566
Other income (expenses) 112
Contingency accrual (22)
------
TOTAL 22,958
======
6. NET FINANCIAL INCOME (EXPENSES)
June 30,
1998
----
FINANCIAL INCOME
Nominal financial income 4,109
FINANCIAL EXPENSES
Nominal financial expenses (8,271)
Monetary/exchange variation liabilities (10,111)
TOTAL (14,273)
7. CONSOLIDATED NET NON-OPERATING INCOME
June 30, 1998
-------------
Interest on work in progress 1,105
Non operating financial expenses (1,105)
TOTAL
------
-
======
8. INCOME TAX AND SOCIAL CONTRIBUTION ON INCOME
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carry forward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
June 30,
1998
--------
Social contribution on income 7,049
Income tax 20,566
------
Total tax expense (income) 27,615
======
5
<PAGE>
9. RELATED PARTY TRANSACTIONS
Related party transactions at the balance sheet date consist of:
June 30,
1998
----
CURRENT ASSETS
Loans and financial applications 12,007
LONG-TERM ASSETS
Loans and financial applications 2,599
INCOME
Financial income and monetary/exchange variation 1,562
10. CAPITAL AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30 is composed of shares with no
par value, as follows:
Preferred
Company Capital Common Shares Shares
------- ------- ------------- ------
R$
--
Tele Nordeste Celular 108,943 124,369,030 210,029,997
Telpe Celular 108,688 3,216,050 4,251,157
Teleceara Celular 87,050 706,043 1,346,619
Telpa Celular 42,269 420,358 937,816
Telern Celular 42,824 341,205 745,668
Telasa Celular 30,255 2,482,210 3,645,994
Telepisa Celular 22,775 731,090 1,503,177
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding was R$0,0000009813444.
10.1 SHAREHOLDERS' EQUITY IN SUBSIDIARIES
Stockholding
in total
Net Equity Net capital
Company Capital Equity Value Income %
- ---------- ------- ------ ----- ------ -------
Telpe Celular 108,688 129,477 0,017339391 20,789 77.2
Teleceara Celular 87,050 106,533 0,051900038 19,200 79.3
Telpa Celular 42,269 52,341 0,038537734 10,059 71.5
Telern Celular 42,824 49,191 0,045259004 6,137 75.4
Telasa Celular 30,255 32,628 0,005324216 2,315 77.6
Telepisa Celular 22,775 26,165 0,011710886 3,252 78.5
6
<PAGE>
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL NSTRUMENTS)
Market values are computed at a specific time, based on relevant market data and
information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity
of the instruments. There exists no material difference between the book
balances and the market values and so they are not stated in this
quarterly information.
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (HOLDING)
R$
----
BALANCE AT FEBRUARY 28, 1998 (SPLIT-OFF) 278.989
Income for the period 49.113
-------
BALANCE AT JUNE 30, 1998 328.102
=======
13. RECONCILIATION OF PARENT COMPANY AND CONSOLIDATED NET INCOME
At June 30, 1998 the reconciliation of parent company and consolidated net
income was as follows:
Value
-----
Net income of Parent company 49,113
Interest on work in progress (436)
Fiscal incentives and others (125)
------
CONSOLIDATED NET INCOME 48,552
======
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the Shareholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent company, upon
valuation of its investments by the equity method.
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed that they will make all adjustments in time.
Regarding the administrative systems, an evaluation should still be made, but in
any case, the effects on the financial statements should not be material.
15. LOANS AND FINANCING
Certain loans and financing of Telebras System, transferred upon split-off to
TELE NORDESTE CELULAR PARTICIPACOES S.A, are subject to acceleration due to the
split-off and privatization process.
Management has been negotiating a waiver with some creditors and, until June 30,
1998, no creditor has requested acceleration of any contract.
- --------------------------------------------------------------------------------
7
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE QUARTER
- ---------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of Telpa Celular
S.A, Telpe Celular S.A., Telern Celular S.A., Telasa Celular S.A, Teleceara
Celular S.A, Telepisa Celular S.A.. It does not include the figures of the
parent company TELE NORDESTE CELULAR PARTICIPACOES S.A, which was
incorporated at 5/22/98.
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
2/nd/qtr 1998
Company MN. IU TARIFF
- ------------- -------------
Telpe Celular 21.804
Telepisa Celular 4.057
Telpa Celular 7.385
Teleceara Celular 6.944
Telern Celular 9.276
Telasa Celular 10.874
------
TOTAL 60.340
======
Since holding Tele Nordeste Celular Participacoes S.A. was incorporated on May
22, 1998 by the split-off of Telebras, comparative data with the same period of
the last previous are not being presented.
Installed Plant
- ---------------
In the period, the consolidated companies had the following installed plant:
Telephone accesses (in thousands) - Accumulated until June 30, 1998
Companies Installed In operation
------------ --------- ------------
Telpe Celular 197,000 157,958
Telepisa Celular 26,666 22,727
Telpa Celular 62,130 53,310
Teleceara Celular 180,880 124,557
Telern Celular 65,500 55,674
Telasa Celular 57,400 52,783
------- -------
TOTAL 589,576 467,009
======= =======
8
<PAGE>
Locations Served
Company States N of municipalities
----------- ---------- -------------------
Telpe Celular Pernambuco 75
Telepisa Celular Piaui 34
Telpa Celular Paraiba 18
Teleceara Celular Ceara 87
Telern Celular Rio Grande do 72
Norte
Telasa Celular Alagoas 52
---
TOTAL 338
===
2.2 Economic Data
---------------
Operating
Company Net Income Income Net Profit
----------- ---------- ------ ----------
Telpe Celular 90,362 30,717 20,789
Telepisa Celular 7,991 4,000 3,252
Telpa Celular 22,817 14,934 10,059
Teleceara Celular 59,946 28,672 19,200
Telern Celular 23,821 6,885 6,137
Telasa Celular 25,074 3,918 2,315
------- ------ ------
TOTAL 230,011 89,126 61,752
======= ====== ======
The figures are the result of the summation of book values and do not consider
the elimination of related-party transactions.
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and
Decree No. 2546/98. In this restructuring, employees have been transferred
from one company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
Company Authorized Effective
- ------------ ---------- ---------
Telpe Celular 297 111
Telepisa Celular 33 19
Telpa Celular 63 57
Teleceara Celular 164 58
Telern Celular 74 23
Telasa Celular 60 27
--- ---
TOTAL 691 295
=== ===
9
<PAGE>
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
TELPE % TELPA % TELASA %
----- ---- ----- ---- ------ ----
INCOME 124,924 152 34,013 139 33,713 191
Material,
outsourced ------- (52) (9,583) (39) (16,074) (91)
(42,862) -------
services and -------
other
supplies
ADDED VALUE 82,062 100 24,430 100 17,639 100
Salaries and (2,095) (3) (917) (4) (540) (3)
charges
Government (34,818) (42) (10,684) (44) (8,949) (51)
(taxes)
Third-parties (16,652) (20) (753) (3) (2,900) (16)
------- -------
Retained surplus (28,497) (35) (12,076) (49) (5,250) (30)
=======
TELECEARA % TELERN % TELEPISA %
INCOME 78,253 145 35,912 175 13,045 150
Material,
outsourced (24,193) (45) (15,375) (75) (4,348) (50)
services and ------
other
supplies
ADDED VALUE 54,060 100 20,537 100 8,697 100
Salaries and (1,045) (2) (462) (2) (325) (4)
charges
Government (26,104) (48) (8,381) (41) (3,070) (35)
(taxes)
Third-parties (1,565) (3) (2,472) (12) (913) (10)
------- ------ ------
Retained surplus (25,346) (47) (9,222) (45) (4,389) (50)
======= ====== ======
5. EVALUATION INDICATORS AT JUNE 30, 1998
Return on Margin of Current
Indebtedness Net Equity Profit Marketability
------------- ---------- ------ -------------
Company % % % %
- -------------------- ------------- ----------- ------------- --------------
Telpe Celular 83.95 16.06 23.01 2.42
Telepisa Celular 25.15 12.43 40.70 2.27
Telpa Celular 23.11 19.22 44.09 2.46
Teleceara Celular 39.14 18.02 32.03 1.68
Telern Celular 65.01 12.48 25.76 1.36
Telasa Celular 79.99 7.10 9.23 0.37
Note 02: The following formula should be used in the calculation of the
indicators:
Indebtedness = (Total Long term Liability / Net Asset)
Net Assets Profitability = (Net Profit / Average Net Equity)
profitability = (Net Profit / Net Income)
Current Marketability = (Current Assets / Current Liability)
- --------------------------------------------------------------------------------
10
<PAGE>
TELE NORDESTE PARTICIPACOES S.A.
- --------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended June ended June
30, 1998 30, 1998
-------- --------
NET OPERATING REVENUE FROM
TELECOMMUNICATION 107,208 230,011
SERVICES
COST OF SERVICES (45,748) (93,828)
----------- -----------
GROSS REVENUE 61,460 136,183
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (11,133) (14,592)
General and administrative expenses (29,541) (39,589)
Financial expenses (7,938) (18,382)
Financial income 3,028 4,109
Other operating income (expenses) 23,031 22,958
----------- -----------
OPERATING INCOME 38,907 90,687
NON OPERATING INCOME 1
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 38,908 90,687
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (9,642) (27,615)
PROFIT SHARING - EMPLOYEES (113) (217)
MINORITY INTERESTS (6,528) (14,303)
----------- -----------
NET INCOME FOR THE PERIOD 22,625 48,552
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00007 0.00015
======= =======
11
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
-------------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Tele Leste Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of Tele Leste Celular Participacoes S.A. as of and for
the three-month period ended June 30, 1998, which comprises the balance
sheet of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
June 30, March 31,
1998 1998
----------- -----------
ASSETS
- ------
Current assets:
Loans and deposits 10,095
Recoverable taxes 331
Other receivables 50,817 58,151
------- -------
Total current assets 61,243 58,151
------- -------
Permanent assets:
Investments in subsidiaries 185,768 175,801
------- -------
Total permanent assets 185,768 175,801
------- -------
TOTAL ASSETS 247,011 233,952
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 392 378
------- -------
Total current liabilities 392 378
------- -------
Long-term liabilities: 37
Provisions for contingencies 37
-------
Total long-term liabilities 37
-------
Shareholders' equity:
Share capital 87,161 87,161
Legal reserve 3,966 3,966
Realizable profit reserve 67,522 67,522
Retained earnings 87,933 74,888
------- -------
Total shareholders' equity 246,582 233,537
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 247,011 233,952
======= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
2
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
OPERATING INCOME:
Income from investments in subsidiaries 10,185 19,741
Financial income 2,863 4,014
----------- -----------
OPERATING INCOME 13,048 23,755
NON-OPERATING INCOME 11 11
----------- -----------
INCOME BEFORE TAXES AND PROFIT SHARING 13,059 23,766
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION (14) (392)
----------- -----------
NET INCOME FOR THE PERIOD 13,045 23,374
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00004 0.00007
=========== ===========
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
- --------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- ----------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No. 9472/97
(General Telecommunication Law) and Decree No. 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The shareholders' general meeting that
approved the register/justification was held on May 22, 1998 and the valuation
report was prepared with the date of February 28, 1998.
The Company will operate as a holding company in area 9 of the cellular
telephone business, covering the regions served by the following companies:
Telebahia Celular and Telergipe Celular.
As a result of the split-off of TELEBRAS, common and preferred shareholders of
TELEBRAS will have the right to receive, besides the said shares, a common or
preferred share in every new holding company for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government will sell
the new companies at a public auction scheduled for July 29, 1998. Only pre-
qualified bidders can participate in the auction.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statements
--------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result from
the simple accumulation of nominal amounts.
2.2 Consolidated Financial Statements
---------------------------------
The income statement is presented on the Parent company and Consolidated basis.
The balance sheet is presented on an individual basis (Parent company).
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income were reviewed by
independent auditors.
2
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted in prior periods. The main
points of this quarterly information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as
the provision for minimum obligatory dividend, will be recorded only at the
year-end. On February 28, 1998, there was a transfer to Tele Leste Celular
Participacoes S.A. in the amount of R$914, which was recorded in the
retained earnings account as part of the Telebras's profit for January and
February 1998 and shall be included in the calculation of the adjusted net
income as of December 31, 1998 for purposes of dividend calculation.
3.2 Accounts receivable and payable in the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3 Allowance for Doubtful Accounts: Accounts receivable that have been overdue
-------------------------------
for more than 180 days in the subsidiaries were written-off as losses in
the period. Other receivables of unlikely realization were analyzed
considering their maturity date and an allowance was recorded.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employees' share in the
subsidiaries' profits is accrued monthly. The accrued amount, at the rate
of 8.33% per month of the employee's monthly remuneration, is subject to
the approval from CCE and the shareholders at the general meeting when
surplus appropriation is approved.
3.5 Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on work in progress at the rate of 12% p.a. on total capital
invested in work in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the non-
operating financial expenses generated by loans obtained to finance the
work. The amount exceeding non-operating financial expenses is recorded in
the capital reserve. The Parent company records such operations using the
equity method and the interest amount is charged to operations in the
income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans that are
-------------
managed by Sistel. The determination of contributions to the plans are
based on actuarial studies prepared by independent actuaries, in accordance
with rules in effect in Brazil. The actuarial studies are reviewed on a
periodic basis so as to determine whether the contributions need to be
adjusted. From the financial standpoint, Sistel has experienced no shortage
of funds per the last valuation approved and accounted for in December
1997. On account of the kind of sponsorship and benefits, the split-off did
not cause any change in the pension plans.
3.7 Interest on Shareholders' Equity: in accordance with Company's bylaw,
--------------------------------
management can propose at the general meeting the payment of interest on
shareholders' equity to the shareholders, up to the limit of the dividends
calculated based on Article 202 of Law 6404/76. This interest on
shareholders' equity has not been accrued monthly because the decision to
pay or credit is made at the time of the annual balance sheet closing, on
the basis of management's proposal.
3
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS' SERVICES
INCOME June 30, 1998
-------------
Subscription 43,042
Line rental 403
Use
National 53,259
International 83
Shift 4,961
Additional for call 7,727
Use of Network 34,994
Additional Services
Qualification 6,402
Others 730
-------
GROSS OPERATING INCOME 151,601
Taxes on Gross Income (32,228)
-------
119,373
=======
4.1. Net Operating Income per Subsidiary Company
---------------------------------------------
Company June 30, 1998
-------------
Telebahia Celular 100,087
Telergipe Celular 19,286
-------
TOTAL 119,373
=======
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30, 1998
------------
Taxes (except for income tax and social (75)
contribution)
Technical and administrative services 25
Fines 1,1017
Recovered expenses 2,496
Other income (expenses) (392)
------
TOTAL 3,071
======
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30, 1998
-------------
FINANCIAL INCOME
Nominal financial income 4,848
FINANCIAL EXPENSES
Nominal financial expenses (12,611)
TOTAL (7,836)
=======
4
<PAGE>
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Interest on work in progress 844
Non-operating financial expenses (844)
Loss on write-off of permanent assets (84)
----
TOTAL (84)
====
8. INCOME TAX AND SOCIAL CONTRIBUTION ON INCOME - CONSOLIDATED
The subsidiary companies accrue for income tax and social contribution
monthly on an accrual basis, in spite of paying the taxes on a monthly
estimated basis. Taxes on income are recorded in liabilities or assets,
where applicable. Prepaid income tax and social contribution amounts are
recorded in carry forward taxes and, for checking purposes, are compared
with the accrued amounts. Tax expenses are composed of the following:
June 30, 1998
-------------
Social contribution on income 2,683
Income tax 8,330
------
TOTAL 11,013
======
9. CAPITAL STOCK
The subscribed and paid-in capital as of June 30, 1998 is composed by
shares without par value, as follows:
Capital Common Preferred
Company Stock Shares Shares
- ------- ------- ------ ---------
Telebahia Celular 157,719 3,496,618 5,921,089
Telergipe Celular 34,549 300,525 707,314
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding was R$0.000001.
10. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time based on relevant market data and
information on financial instruments. Changes in assumptions can significantly
affect the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
11. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY)
Incorporation by split -off of - Telebras (2/28/98) 223.208
Income for the period 23.374
-------
BALANCE AT JUNE 30, 1998 246.582
=======
5
<PAGE>
12. RECONCILIATION OF PARENT COMPANY AND CONSOLIDATED NET INCOME
At June 30, 1998 the reconciliation of parent company and consolidated net
income was as follows:
Net income of Parent company 23,374
Interest on work in progress (631)
Tax incentives and others (694)
------
CONSOLIDATED NET INCOME 22,049
======
Reconciliation items are increases in equity in the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses in the Parent company, upon
valuation of its investments by the equity method.
13. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because the Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors have informed that they will make all adjustments in time.
Regarding the administrative systems, an evaluation is still to be made; however
any possible effects on the financial statements should not be material.
14. STOCKHOLDING IN SUBSIDIARIES
Telebahia Telergipe
Celular Celular
---------- ----------
Capital stock 157,719 34,549
Net Equity 176,889 38,153
Book value of each share 0.000018783 0.000037856
Net profit as of June 30, 1998 17,834 3,421
Ownership % 89.1423 73.6174
- -------------------------------------------------------------------------------
6
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE QUARTER
- ---------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of: Tele Leste Celular
Participacoes, Telebahia Celular e Telergipe Celular.
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
Since the holding company TELE LESTE was incorporated on May 22, 1998 by the
split-off of Telebras, comparative data with the same quarter of the previous
year are not presented.
Installed Plant
In the period, the consolidated companies had the following installed plant:
Telephone accesses (in thousands) - Accumulated until June 30, 1998
Companies Installed In service
- --------- --------- ----------
Telebahia Celular 226 189
Telergipe Celular 48
---
TOTAL 274 189
=== ===
Localities Served
Companies States Municipalities
- --------- ------ --------------
Telebahia Celular 1 75
Telergipe Celular 1 21
- --
TOTAL 2 96
= ==
2.2 Economic Data
-------------
Operating
Companies Net Revenue Income Net Profit
- --------- ------------- ------------- -----------
Telebahia Celular 100,087 26,503 17,834
Telergipe Celular 19,286 5,634 3,421
------- ------ ------
TOTAL 119,373 32,137 21,255
======= ====== ======
The amounts represent the sum of nominal values and do not consider the
elimination of intercompany transactions.
7
<PAGE>
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies into holding companies in accordance with Law 9472/97
and Decree No. 2546/98. In this restructuring, employees have been transferred
from one company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was as follows:
Companies Authorized Effective
- --------- ---------- ---------
Telebahia Celular 243 192
Telergipe Celular 48 36
--- ---
TOTAL 291 228
=== ===
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
Telebahia Telergipe
Company Celular % Celular %
- ------- ------------- ------- -------------- ----------
INCOME 130,924 149.64 26,707 171.37
Material, outsourced
services (42,434) (49.64) (11,123) (71.37)
and other supplies ------- ------ ------
ADDED VALUE 87,490 100.00 15,584 100.00
Salaries and charges (3,372) (599)
Government (taxes) (38,875) (7,755)
Capital pay (13,056) (1,641)
------- -------
RETAINED SURPLUS (32,187) (5,589)
======= =======
5. EVALUATION INDICATORS AT MARCH 30, 1998
Return on Current
Debt Equity Profit margin Ratio
Companies % % % %
- ------------- ------------- -------------- -------------- ------------
Telebahia 96.72 10.08 17.82 0.65
Telergipe 59.31 8.97 17.74 1.91
Celular ------ ----- ----- ----
TOTAL 156.03 19.05 35.56 2.56
====== ===== ===== ====
- --------------------------------------------------------------------------------
8
<PAGE>
TELE LESTE PARTICIPACOES S.A.
- -----------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
NET OPERATING REVENUE FROM
TELECOMMUNICATION 57,605 119,373
SERVICES
COST OF SERVICES (30,076) (49,448)
----------- -----------
GROSS REVENUE 27,529 69,925
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (2,983) (15,438)
General and administrative expenses (5,700) (13,595)
Financial expenses (7,202) (12,611)
Financial income 3,449 4,848
Other operating income (expenses) 3,250 3,071
----------- -----------
OPERATING INCOME 18,343 36,200
NON-OPERATING INCOME (34) (84)
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 18,309 36,116
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (5,551) (11,013)
PROFIT SHARING - EMPLOYEES 367 (215)
MINORITY INTERESTS (1,309) (2,839)
----------- -----------
NET INCOME FOR THE PERIOD 11,816 22,049
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,027 334,399,027
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00004 0.00007
=========== ===========
- --------------------------------------------------------------------------------
9
<PAGE>
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
--------------------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Shareholders and Management
Tele Centro Oeste Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly information
(ITR) of Tele Centro Oeste Celular Participacoes S.A. as of and for the
three-month period ended June 30, 1998, which comprises the balance sheet of
the Parent company, statement of income, Parent company and Consolidated,
notes to quarterly information and performance report, prepared in
accordance with accounting principles established by the Corporate Law.
2. We conducted our review in accordance with specific standards established by
the Brazilian Accountants' Institute - IBRACON and the Federal Accounting
Council, which consisted principally of (a) inquiries and discussion with
the persons responsible for the accounting, financial and operating areas
about criteria adopted in preparing the quarterly information; and (b)
review of the information and subsequent events that have or could have
material effects on the financial position and operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
- --------------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> March 31,
June 30, 1998 1998
------------- ------------
ASSETS
Current assets:
<S> <C> <C>
Loans and Financing - Other 331 692
Recoverable taxes 771
Other receivables 15,845 15,861
------- -------
Total current assets 16,947 16,553
------- -------
Long-term assets:
Loans and Financing - Other 182 368
------- -------
Total long-term assets 182 368
------- -------
Permanent assets:
Investments in subsidiaries 526,457 499,086
------- -------
Total permanent assets 526,457 499,086
------- -------
TOTAL ASSETS 543,586 516,007
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Taxes and contributions 349 286
------- -------
Total current liabilities 349 286
------- -------
Long-term liabilities:
Other 82 82
------- -------
Total long-term liabilities 82 82
------- -------
Shareholders'' equity:
Share capital 192,065 192,065
Legal reserve 11,352 11,352
Realizable profit reserve 193,285 193,285
Retained earnings 146,453 118,937
------- -------
Total shareholders'' equity 543,155 515,639
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 543,586 516,007
======= =======
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
- --------------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months 6 months
ended ended
June 30, 1998 June 30, 1998
------------- -------------
OPERATING INCOME (EXPENSES):
<S> <C> <C>
Income from investments in subsidiaries 27,371 50,569
Financial income 207 1,080
OPERATING INCOME 27,578 51,649
NON OPERATING INCOME
INCOME BEFORE TAXES AND PROFIT SHARING 27,578 51,648
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (62) (348)
PROFIT SHARING - EMPLOYEES
------------ ------------
NET INCOME FOR THE PERIOD 27,516 51,300
============ ============
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
============ ============
NET INCOME PER THOUSAND SHARES 0.00008 0.00015
======= =======
</TABLE>
See notes to quarterly information.
- --------------------------------------------------------------------------------
<PAGE>
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
- --------------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law N 9472/97
(General Telecommunication Law) and Decree N 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The shareholders' general meeting that
approved the register/justification was held on May 22, 1998 and the
valuation report was prepared with a date of February 28, 1998.
The Company will operate as a holding of the area 7 in the cellular
business, covering regions served by the following companies: Telebrasilia
S.A., Telegoias S.A., Telemat S.A., Telems S.A., Teleron S.A., Teleacre S.A.
As a result of the split-off of TELEBRAS, common and preferred shareholders'
of TELEBRAS will have the right to receive, besides the said shares, a
common or preferred share in every new holding company for each share in
TELEBRAS.
The Ministry of Communications announced that the Federal government will
sell the new companies at a public bid scheduled for July 29, 1998. Only
prequalified bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1. Financial Statement
-------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result
from the simple accumulation of nominal amounts.
2.2. Consolidated Financial Statements
---------------------------------
The financial statements are presented on a consolidated basis, evidencing
the condition of the Parent and subsidiary companies.
2.3. Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income of the subsidiary
companies were reviewed on a quarterly basis by independent auditors.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the
financial statements of the split company. The main points of this quarterly
information are summarized as follows:
3.1. The reserves set forth in Articles 193 to 197 of Law 6404/76, as well
as the provision for minimum obligatory dividend, will be recorded
only at the year-end. On February 28, 1998, there was a transfer to
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A. in the amount of R$1,348,
which was recorded in the retained earnings account as part of the
Telebras's profit for January and February 1998 and shall be included
in the calculation of the adjusted net income as of December 31, 1998
for purposes of dividend calculation.
3.2. Accounts receivable and payable at the subsidiaries are stated at
historical value, discounted to present value by the interest rate
published by the National Association of Investment Banks and Dealers
(ANBID). Amounts subject to monetary correction, exchange variation or
interest have been adjusted to the balance sheet date.
3.3. Allowance for Doubtful Accounts: Accounts receivable of unlikely
realization were analyzed considering their maturity date and an
allowance was recorded.
3.4. Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure N 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution N 10 of May 30, 1995 of CCE (Council for Coordination and
Control of State-Owned Companies), the employees' share of profits is
provided monthly. The accrued amount, at the rate of 8.33% per month
of the employee's monthly remuneration, is subject to the approval
from CCE and the shareholders' at the general meeting when the surplus
appropriation is approved.
3.5. Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on work in progress at the rate of 12% p.a. on total capital
invested in works in progress, which is included in the cost of
construction, against non-operating income, up to the limit of the
non-operating financial expenses generated by loans obtained to
finance the works. The amount exceeding non-operating financial
expenses is recorded in the capital reserve. The Parent company
records such operations using the equity method and the interest
amount is charged to operations in the income statement.
3.6. Pension Plans: The companies sponsor defined benefit pension plans
-------------
that are managed by Sistel. The determination of contributions to the
plans are based on actuarial studies prepared by independent
actuaries, in accordance with rules in effect in Brazil. The actuarial
studies are reviewed on a periodic basis so as to determine whether
the contributions need to be adjusted. From the financial standpoint,
Sistel has experienced no shortage of funds per the last valuation
approved and accounted for in December 1997. On account of the kind of
sponsorship and benefits, the split-off did not cause any change in
the pension plans.
3.7. Interest on Shareholders' Equity: in accordance with Company's bylaw,
--------------------------------
management can propose at the general meeting the payment of interest
on shareholders' equity to the shareholders', up to the limit of the
dividends calculated based on Article 202 of Law 6404/76. This
interest on shareholders' equity has not been accrued monthly because
the decision to pay or credit is made at the time of the annual
balance sheet closing, through management's proposal.
3.8. Equity Method: The income for the period includes the equity method
-------------
valuation result for January and February 1998, relating to the period
prior to the split-off.
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30,
1998 %
---- ---
Subscription 67,663 25.02
Rent 33 0.01
Use 128,095 47.37
-------
National 106,135 39.25
International 1,468 0.54
Other 20,492 7.58
Use of network 63,262 23.39
Elimination - consolidated (497) (0.18)
-------
GROSS OPERATING INCOME 270,420 100.00
-------
TAXES ON GROSS INCOME (56,291) (20.82)
-------
NET OPERATING INCOME 214,129 79.18
=======
4.1. Net Operating Income per Subsidiary Company
June 30,
1998
----
Telebrasilia Celular S.A. 85,204
Telegoias Celular S.A. 47,851
Telemat Celular S.A. 33,259
Telems Celular S.A. 34,405
Teleron Celular S.A. 9,336
Teleacre Celular S.A. 4,571
Elimination - consolidated (497)
-------
Total 214,129
=======
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30,
1998
----
Taxes (except for corporate income tax and social
contribution) (387)
Research and development (1,287)
Provision for contingencies (17)
Technical and administrative services 91
Reversal of provision 11,879
Fines 1,882
Recovered expenses 1
Other income/expenses 146
------
Total 12,308
======
<PAGE>
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30,
1998
----
FINANCIAL INCOME
Nominal financial income 6,035
Monetary/exchange variation assets 3
------
Total 6,038
------
FINANCIAL EXPENSES
Nominal financial expenses (3,199)
Monetary/exchange variation liabilities (762)
------
Total (3,961)
Total 2,077
======
7. CONSOLIDATED NET NON-OPERATING INCOME (EXPENSES)
June 30,
1998
----
Interest on work in progress 399
Non-operating financial expenses (399)
Loss on write-off of permanent assets (749)
Other non-operating income 1
----
Total (748)
====
8. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carryforward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
June 30,
1998
----
Social contribution on net income 6,512
Income tax 20,169
------
Total tax expense 26,681
======
9. RELATED-PARTY TRANSACTIONS
Related-party transactions at the balance sheet date consist of:
June 30,
1998
----
ASSETS
CURRENT ASSETS
Loans and financing 331
---
Total 331
===
LONG-TERM ASSETS
Loans and financing 182
---
Total 182
===
<PAGE>
10. CAPITAL STOCK AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30, 1998 was represented by the
following shares with no par value:
Common Preferred
Capital shares shares
------- ------ ------
Tele Centro Oeste Celular 192,065 124,369,031 210,029,997
Telebrasilia Celular S.A. 245,691 922,003 1,111,455
Telegoias Celular S.A. 141,367 1,630,200 3,188,989
Telemat Celular S.A. 84,828 212,123 362,243
Telems Celular S.A. 55,183 347,441 667,676
Teleron Celular S.A. 19,965 229,927 453,813
Teleacre Celular S.A. 8,850 439,271 923,198
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding was R$0.000001624.
CAPITALIZABLE FUNDS
Represent funds arising from the split-off of Telebras.
11. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL INSTRUMENTS)
Market values are computed at a specific time, based on relevant market data and
information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
12. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Holding)
Balance at December 31, 1997
Split-off of Telebras on February 28, 1998 491,855
Income for the six months 51,300
Balance at June 30, 1998 543,155
13. RECONCILIATION OF NET INCOME (PARENT COMPANY AND CONSOLIDATED)
At June 30, 1998, the reconciliation of Parent company's net income with
Consolidated net income is as follows:
Net income of Parent company 51,300
Interest on work in progress (4,367)
Tax incentives and other (5)
CONSOLIDATED NET INCOME 46,928
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the shareholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent company, upon
valuation of its investments by the equity method.
<PAGE>
14. CHANGES IN THE SYSTEMS FOR YEAR 2000 (BUG)
The Companies are already working to find a solution for the Year 2000 bug, for
the purpose of assessing, planning and executing actions to adapt systems to
each other. The Parent company and its subsidiaries operate own or leased
systems. In any case, management believes that there exists no risk that can
affect the business because Company's suppliers are large international and
multinational manufacturers that also serve nearly all telecommunication
companies of the world. Additionally, the majority of the telecommunication
equipment vendors informed that they will make all adjustments in time.
Regarding the administrative systems, a valuation should still be made but, in
any case, the effects on the financial statements must not be material.
INVESTMENT IN SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
Net
Book value income at
Shareholders' per June 30, Ownership
Capital equity share in R$ 1998 %
------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Telebrasilia Celular S.A. 245,691 267,865 0.131728 19,275 81.4044
Telegoias Celular S.A. 141,368 149,603 0.031043 7,817 83.7720
Telemat Celular S.A. 84,828 98,901 0.172191 13,233 91.8702
Telems Celular S.A. 55,183 64,579 0.063917 9,131 96.0111
Teleron Celular S.A. 19,965 22,821 0.033376 2,249 91.3050
Teleacre Celular S.A. 8,850 9,979 0.007324 1,044 93.9802
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
1. SCOPE
This performance report contains the consolidated figures of the following
companies: Telebrasilia Celular S.A., Telegoias Celular S.A., Telems Celular
S.A., Telemat Celular S.A., Teleron Celular S.A., Teleacre Celular S.A. It does
not contain the figures of Parent company TELE CENTRO OESTE CELULAR
PARTICIPACOES that was incorporated by the split-off of Telebras on May 22,
1998.
2. OPERATING INCOME
The operating income for the period was the following:
2.1. Physical Data
-------------
1st half of 1998
---------------------
Accesses - Minutes
Subscribers charged
----------- -------
Telebrasilia Celular S.A. 65,000 94,102
Telegoias Celular S.A. 25,500 57,243
Telemat Celular S.A. 10,992 81,784
Telems Celular S.A. 13,166 37,013
Teleron Celular S.A. - 15,823
Teleacre Celular S.A. 4,000 9,864
------- -------
Total 118,658 295,829
======= =======
Since holding TELE CENTRO OESTE CELULAR PARTICIPACOES S.A. was incorporated on
May 22, 1998 by the split-off of Telebras, comparative data with the same period
of the previous year are not being presented.
Installed Plant
---------------
In the period, the consolidated companies had the following installed plant:
Telephone accesses (10 to the third power) - Accumulated until June 30, 1998
Installed In service
--------- ----------
Telebrasilia Celular S.A. 180,000 171,102
Telegoias Celular S.A. 125,900 96,322
Telemat Celular S.A. 98,556 68,596
Telems Celular S.A. 71,328 61,319
Teleron Celular S.A. 43,916 20,447
Teleacre Celular S.A. 10,200 9,023
------- -------
Total 529,900 426,809
======= =======
<PAGE>
Locations Served
----------------
States Municipalities
------ --------------
Telebrasilia Celular S.A. Distrito Federal, Goias, Minas Gerais 55
Telegoias Celular S.A. Goias 58
Telemat Celular S.A. Mato Grosso 50
Telems Celular S.A. Mato Grosso do Sul 42
Teleron Celular S.A. Rondonia 12
Teleacre Celular S.A. Acre 4
---
Total 221
===
2.2. Economic Data
-------------
Net Operating Net
revenue income income
------- ------ ------
Telebrasilia Celular S.A. 85,204 28,804 19,275
Telegoias Celular S.A. 47,851 11,829 7,817
Telemat Celular S.A. 33,259 19,787 13,233
Telems Celular S.A. 34,405 14,768 9,131
Teleron Celular S.A. 9,336 3,355 2,249
Teleacre Celular S.A. 4,571 1,706 1,044
------- ------ ------
Total 214,626 80,249 52,749
======= ====== ======
Amounts are a result of the sum of nominal values, excluding the elimination of
intercompany transactions.
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and Decree
N 2546/98. In this restructuring, employees have been transferred from one
company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
Authorized Effective
---------- ---------
Telebrasilia Celular S.A. 300 172
Telegoias Celular S.A. 122 100
Telemat Celular S.A. 79 74
Telems Celular S.A. 68 62
Teleron Celular S.A. 35 32
Teleacre Celular S.A. 17 17
--- ---
Total 621 457
=== ===
<PAGE>
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
<TABLE>
<CAPTION>
Telebrasilia % Telegoias % Telemat %
------------ ----- --------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
INCOME 110,273 146 69,333 180 48,409 141
Materials, outsourced
services and other (34,807) (46) (30,814) (80) (14,118) (41)
supplies
ADDED VALUE 75,466 100 38,519 100 34,291 100
Salaries and charges (4,510) (6) (1,906) (5) (855) (2)
Government (taxes) (33,188) (44) (18,837) (49) (16,406) (48)
Third parties (4,716) (6) (2,428) (6) (1,146) (3)
Retained surplus 33,052 44 15,348 40 15,884 47
Telems % Teleron % Teleacre %
------ --- ------- --- -------- ---
INCOME 44,626 148 12,562 164 5,638 156
Materials, outsourced
services and other (14,423) (48) (4,903) (64) (2,042) (56)
supplies
ADDED VALUE 30,203 100 7,659 100 3,596 100
Salaries and charges (1,258) (4) (506) (7) (245) (7)
Government (taxes) (16,180) (54) (3,908) (51) (1,808) (50)
Third parties (999) (3) (256) (3) (194) (5)
Retained surplus 11,766 39 2,989 39 1,349 38
</TABLE>
5. VALUATION INDICATORS AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Return on
shareholders' Net Current
Debt equity margin ratio
---- ----------- ------ -----
% % % %
--- --- --- ---
<S> <C> <C> <C> <C>
Telebrasilia Celular S.A. 21.78 7.19 22.62 1.34
Telegoias Celular S.A. 33.82 5.23 16.33 1.76
Telemat Celular S.A. 31.34 13.38 39.79 2.22
Telems Celular S.A. 14.96 14.14 26.54 2.00
Teleron Celular S.A. 64.60 9.85 24.09 0.64
Telacre Celular S.A. 25.75 10.46 22.84 3.16
Consolidated 26.19 7.44 21.92 1.78
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
- --------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended ended
June 30, June 30,
1998 1998
-------- -------
NET OPERATING REVENUE FROM TELECOMMUNICATION
SERVICES 109,864 214,129
COST OF SERVICES (46,761) (96,878)
----------- -----------
GROSS REVENUE 63,103 117,251
OPERATING INCOME (EXPENSES):
Selling expenses (21,271) (28,701)
General and administrative expenses (9,742) (21,606)
Financial expenses (2,892) (3,961)
Financial income 3,867 6,038
Other operating income (expenses) 11,016 12,308
----------- -----------
OPERATING INCOME 44,081 81,329
NON OPERATING INCOME (2) (748)
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 44,079 80,581
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (14,983) (26,681)
PROFIT SHARING - EMPLOYEES (248) (420)
MINORITY INTERESTS (3,745) (6,552)
----------- -----------
NET INCOME FOR THE PERIOD 25,103 46,928
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00008 0.00014
======= =======
- --------------------------------------------------------------------------------
<PAGE>
TELE NORTE CELULAR PARTICIPACOES S.A.
-------------------------------------
Interim Financial Information for the
Three Months Ended June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' SPECIAL REVIEW REPORT
- -------------------------------------------
The Sharesholders and Management
Tele Norte Celular Participacoes S.A.
Brasilia - DF
1. We have performed a special review of the accompanying quarterly
information (ITR) of Tele Norte Celular Participacoes S.A. as of and for
the three-month period ended June 30, 1998, which comprises the balance
sheet of the Parent company, statement of income, Parent company and
Consolidated, notes to quarterly information and performance report,
prepared in accordance with accounting principles established by the
Corporate Law.
2. We conducted our review in accordance with specific standards established
by the Brazilian Accountants' Institute - IBRACON and the Federal
Accounting Council, which consisted principally of (a) inquiries and
discussion with the persons responsible for the accounting, financial and
operating areas about criteria adopted in preparing the quarterly
information; and (b) review of the information and subsequent events that
have or could have material effects on the financial position and
operations of the Company.
3. Based on our special review, we are not aware of any material modifications
that should be made to the quarterly information referred to in the first
paragraph in order for it to be in accordance with accounting principles
established by the Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM), which specifically apply to the
preparation of the required quarterly information.
4. The quarterly information for the three-month period ended March 31, 1998
was reviewed by other independent auditors, who issued an unqualified
special review report dated July 24, 1998.
Rio de Janeiro, July 24, 1998
DELOITTE TOUCHE TOHMATSU ANTONIO C. CARMONA CORREA
Auditores Independentes Accountant
CRC-SP 11.609 S/RJ CRC-SP 96.269 S/RJ
<PAGE>
TELE NORTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
BALANCE SHEET AS OF JUNE 30, 1998
(In thousands of reais - R$)
- ----------------------------
June 30, 1998 March 31, 1998
------------ --------------
ASSETS
Current assets:
Recoverable taxes 131
Other receivables 2,002 2,128
------- -------
Total current assets 2,133 2,128
------- -------
Permanent assets:
Investments in subsidiaries 169,332 160,306
------- -------
Total permanent assets 169,332 160,306
------- -------
TOTAL ASSETS 171,465 162,434
======= =======
LIABILITIES
Current liabilities:
Taxes and contributions 137 35
------- -------
Total current liabilities 137 35
------- -------
Long-term liabilities:
Other 25 25
------- -------
Total long-term liabilities 25 25
------- -------
Shareholders' equity:
Share capital 57,749 57,749
Legal reserve 3,481 3,481
Realizable profit reserve 59,264 59,264
Retained earnings 50,809 41,880
------- -------
Total shareholders' equity 171,303 162,374
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 171,465 162,434
======= =======
See notes to quarterly information.
- --------------------------------------------------------------------------------
2
<PAGE>
TELE NORTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months
ended 6 months ended
June 30, 1998 June 30, 1998
------------- ---------------
OPERATING INCOME (EXPENSES):
Income from investments in subsidiaries 9,021 23,414
Financial income 11 139
OPERATING INCOME 9,032 23,553
NON OPERATING INCOME
INCOME BEFORE TAXES AND PROFIT SHARING 9,031 23,552
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION (103) (138)
PROFIT SHARING - EMPLOYEES
------------ --------------
NET INCOME FOR THE PERIOD 8,928 23,414
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00003 0.00007
=========== ===========
See notes to quarterly information.
- --------------------------------------------------------------------------------
3
<PAGE>
TELE NORTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
NOTES TO QUARTERLY INFORMATION
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Amounts expressed in thousands of reais - R$)
- --------------------------------------------------------------------------------
1. COMPANY'S OPERATIONS
The Company was incorporated in accordance with Article 189 of Law No. 9472/97
(General Telecommunication Law) and Decree No. 2546 of April 14, 1998, as a
result of the split-off of TELEBRAS. The sharesholders' general meeting that
approved the register/justification was held on May 22, 1998 and the valuation
report was prepared with a date of February 28, 1998.
The Company will operate as a holding of the area 8 (eight) in the mobile public
telephone business, covering regions served by the following companies: TELEPARA
CELULAR S.A, TELAMAZON CELULAR S.A, TELAIMA CELULAR S.A, TELMA CELULAR S.A e
TELELAMAPA CELULAR S.A
As a result of the split-off of TELEBRAS, common and preferred sharesholders of
TELEBRAS will have the right to receive, besides the said shares, a common or
preferred share in every new holding company for each share in TELEBRAS.
The Ministry of Communications announced that the Federal government will sell
the new companies at a public bid scheduled for July 29, 1998. Only prequalified
bidders can participate in the bid.
2. PRESENTATION OF FINANCIAL STATEMENTS
2.1 Financial Statement
-------------------
These financial statements have been prepared in accordance with accounting
principles established by the Corporate Law and rules applicable to
telecommunication public service concessionaires. These statements result from
the simple accumulation of nominal amounts.
2.2 Consolidated Financial Statements
---------------------------------
The income statement is presented on the Parent company and Consolidated basis.
The balance sheet is presented on an individual basis (Parent company).
2.3 Special Review by Independent Auditors
--------------------------------------
The balance sheets and the related statements of income of the subsidiary
companies were reviewed on a quarterly basis by independent auditors.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accounting practices are the same for the Parent company and the
subsidiaries and are consistent with those adopted for preparing the financial
statements of the predecessor (split company). The main points of this quarterly
information are summarized as follows:
3.1 The reserves set forth in Articles 193 to 197 of Law 6404/76, as well as the
provision for minimum obligatory dividend, will be recorded only at the year-
end. On February 28, 1998, there was a transfer to Tele Norte Celular
Participacoes S.A. in the amount of R$388, which was recorded in the retained
earnings account as part of the Telebras's profit for January and February 1998
and shall be included in the calculation of the adjusted net income as of
December 31, 1998 for purposes of dividend calculation.
3.2 Accounts receivable and payable at the subsidiaries are stated at historical
value, discounted to present value by the interest rate published by the
National Association of Investment Banks and Dealers (ANBID). Amounts subject to
monetary correction, exchange variation or interest have been adjusted to the
balance sheet date.
3.3 Allowance for Doubtful Accounts: Accounts receivable of unlikely realization
-------------------------------
were analyzed considering their maturity date and an allowance was recorded.
3.4 Employees' Profit Sharing: in conformity with Article 5 of Provisional
-------------------------
Measure No. 980 of April 25, 1995 and subsequent reissues thereof, and
Resolution No. 10 of May 30, 1995 of CCE (Council for Coordination and Control
of State-Owned Companies), the employees' share in the subsidiaries' profits is
provided monthly. The accrued amount, at the rate of 1/12% per month of the
employee's monthly remuneration , is subject to the approval from CCE and the
sharesholders at the general meeting when surplus appropriation is approved.
3.5 Interest on Work in Progress: The operating companies compute monthly
----------------------------
interest on work in progress at the rate of 12% p.a. on total capital invested
in works in progress, which is included in the cost of construction, against non
operating income, up to the limit of the non-operating financial expenses
generated by loans obtained to finance the work. The amount exceeding non-
operating financial expenses is recorded in the capital reserve. The Parent
company records such operations using the equity method and the interest amount
is charged to operations in the income statement.
3.6 Pension Plans: The companies sponsor defined benefit pension plans that are
-------------
managed by Sistel. The determination of contributions to the plans are based on
actuarial studies prepared by independent actuaries, in accordance with rules in
effect in Brazil. The actuarial studies are reviewed on a periodic basis so as
to determine whether the contributions need to be adjusted. From the financial
standpoint, Sistel has experienced no shortage of funds per the last valuation
approved and accounted for in December 1997. On account of the kind of
sponsorship and benefits, the split-off did not cause any change in the pension
plans.
3.7 Interest on Shareholders' Equity: in accordance with Company's bylaw,
--------------------------------
management can propose at the general meeting the payment of interest on
sharesholders' equity to the sharesholders, up to the limit of the dividends
calculated based on Article 202 of Law 6404/76. This interest on sharesholders'
equity has not been accrued monthly because the decision to pay or credit is
made at the time of the annual balance sheet closing, through management's
proposal.
3.8 Equity Method: the income for the period includes the equity method
-------------
valuation result for January and February 1998 relating to the period prior to
the split-off.
<PAGE>
4. CONSOLIDATED NET OPERATING INCOME FROM TELECOMMUNICATIONS SERVICES
INCOME June 30, %
1998
--------- -------
Subscription 42,769 31.07
NATIONAL 59,810 43.45
INTERNATIONAL 673 0.49
OTHER 34,400 24.99
------- ------
GROSS OPERATING INCOME 137,652 100.00
TAXES ON GROSS INCOME (31,277) (22.72)
------- ------
NET OPERATING INCOME 106,375 77.28
======= ======
4.1. Net Operating Income per Subsidiary Company
June 30,
1998
------------
TELEPARA CELULAR S.A 38,023
TELMA CELULAR S.A 21,954
TELAMAZON CELULAR S.A 38,069
TELAIMA CELULAR S.A 3,775
TELEAMAPA CELULAR S.A 4,554
-------
Total 106,375
=======
5. OTHER CONSOLIDATED NET OPERATING INCOME (EXPENSES)
June 30, 1998
-------------
Taxes (except for income tax and social (443)
contribution)
Technical and administrative services 173
Research and development (495)
Provision for contingencies (469)
Fines 1,592
Other income (expenses) (309)
-----
Total 49
=====
6. CONSOLIDATED NET FINANCIAL INCOME (EXPENSES)
June 30, 1998
-------------
FINANCIAL INCOME 2,406
------
Nominal financial income 2,353
Monetary/exchange variation assets 53
FINANCIAL EXPENSES (4,400)
Nominal financial expenses (2,033)
Monetary/exchange variation liabilities (2,367)
TOTAL (1,994)
<PAGE>
7. CONSOLIDATED INCOME TAX AND SOCIAL CONTRIBUTION
The subsidiary companies accrue for income tax and social contribution monthly
on an accrual basis, in spite of paying the taxes on a monthly estimated basis.
Taxes on income are recorded in liabilities or assets, where applicable. Prepaid
income tax and social contribution amounts are recorded in carry forward taxes
and, for checking purposes, are compared with the accrued amounts. Tax expenses
are composed of the following:
June 30
1998
------------
Social contribution on income (4,651)
Income tax (14,458)
Total tax expense (19,109)
8. CAPITAL AND CAPITALIZABLE FUNDS
The subscribed and paid-in capital as of June 30 is composed of shares
with no par value, as follows:
Common Preferred
Company Capital Shares Shares
- -------------------- ---------- ---------- -----------
TELEPARA CELULAR S.A 96,530 769,232 1,253,127
TELMA CELULAR S.A 37,245 1,087,440 2,095,479
TELAMAZON CELULAR S.A 49,494 306,150 427,915
TELEAMAPA CELULAR S.A 9,086 323,460 586,962
TELAIMA CELULAR S.A 7,405 180,954 339,166
Preferred shares are non-voting but have priority in the capital reimbursement
and payment of non-cumulative minimum dividends. As of June 30, 1998, the book
value per share of the holding was R$0,0005.
9. MARKET VALUE OF FINANCIAL ASSETS AND LIABILITIES (FINANCIAL NSTRUMENTS)
Market values are computed at a specific time, based on relevant market data and
information on financial instruments. Changes in premises can affect
significantly the estimates.
Book balances approximate market values because of the short-term maturity of
the instruments. There exists no material difference between the book balances
and the market values and so they are not stated in this quarterly information.
10. STATEMENT OF CHANGES IN SHARESHOLDERS' EQUITY (HOLDING)
MOVEMENT VALUE
- -------------------------------------------------- -----
Merger by split-off of Telecomunicacoes Brasileira 147,889
S.A. - Telebras (2/28/98)
Income for the period 23,414
BALANCE AT JUNE 30, 1998 171,303
7
<PAGE>
11. RECONCILIATION OF PARENT COMPANY AND CONSOLIDATED NET INCOME
At June 30, 1998 the reconciliation of parent company and consolidated net
income was as follows:
VALUE
-----
Net income of Parent company 23,414
Interest on work in progress (2,071)
CONSOLIDATED NET INCOME 21,343
Reconciliation items are increases in equity at the subsidiary companies, which
were recorded directly in the sharesholders' equity of those companies;
therefore, they are considered as gains or losses at the Parent company, upon
valuation of its investments by the equity method.
11. SHARESHOLDERS' EQUITY IN SUBSIDIARIES
Net Shareholding
Share Income at in
Net Book June 30, total
Company Capital Equity Value 1998 capital %
- -------------- -------- ------- ------ --------- -------------
Telepara 96,530 102,747 0.0508 4,939 69.04
Telma 37,245 44,270 0.0139 6,504 66.79
Telamazon 9,494 62,758 0.0854 12,321 80.26
Telaima 7,405 9,142 0.0176 1,724 86.91
Teleamapa 9,086 11,596 0.0127 2,429 90.64
------- ------- ------
TOTAL 199,760 230,513 27,917
======= ======= ======
- --------------------------------------------------------------------------------
8
<PAGE>
COMMENT ON CONSOLIDATED PERFORMANCE FOR THE PERIOD
- --------------------------------------------------
FINANCIAL-ECONOMIC PERFORMANCE
- ------------------------------
1. SCOPE
This performance report contains the consolidated figures of TELEPARA CELULAR
S.A, TELAIMA CELULAR S.A, TELEAMAPA CELULAR S.A e TELEAMAZON CELULAR S.A. It
does not include the figures of the parent company TELE NORTE CELULAR
PARTICIPACOES S.A, which was incorporated at 5/22/98.
2. OPERATING INCOME
The operating income for the period was the following:
2.1 Physical Data
-------------
2nd qtr 1998
accumulated
30, June 1998
-------------
TELEPARA CELULAR 6,420
TELMA CELULAR 7,690
TELAIMA CELULAR 1,615
TELAMAZON CELULAR 6,880
TELEAMAPA CELULAR 1,413
Since holding Tele Norte Celular Participacoes S.A. was incorporated on May 22,
1998 by the split-off of Telebras, comparative data with the period of the
period year are not being presented.
Installed Plant
In the period, the consolidated companies had the following installed plant:
Telephone accesses (in thousands) - Accumulated until June 30, 1998
Companies Installed In operation
- -------------------- --------- ------------
TELEPARA CELULAR 114,131 79,542
TELMA CELULAR 46,141 37,740
TELAIMA CELULAR 7,300 6,976
TELAMAZON CELULAR 67,853 76,032
TELEAMAPA CELULAR 12,000 12,465
9
<PAGE>
Localities Served
Company States No. of municipalities
- ----------------- ---------- -----------------------
TELEPARA CELULAR PARA 35
TELMA CELULAR MARANHAO 33
TELAMAZON CELULAR AMAZONAS 03
TELAIMA CELULAR RORAIMA 03
TELEAMAPA CELULAR AMAPA 02
--
TOTAL 76
==
2.2 Economic Data
-------------
Operating
Company Net Income Income Net Income
- ------------------ ---------- --------- ----------
TELEPARA CELULAR 38,023 9,735 4,939
TELMA CELULAR 21,954 9,764 6,504
TELEAMAZON CELULAR 38,069 21,230 12,321
TELAIMA CELULAR 3,775 2,561 1,724
TELEAMAPA CELULAR 4,554 3,658 2,429
------- ------ ------
Total 106,375 46,948 27,917
======= ====== ======
The figures are the result of the summation of book values and do not consider
the elimination of related-party transactions.
3. HUMAN RESOURCES
Telebras System companies are undergoing a restructuring process: first, with
the split-off of the cellular business segment and, later, with the regrouping
of the operating companies in holdings in accordance with Law 9472/97 and Decree
No. 2546/98. In this restructuring, employees have been transferred from one
company to the other in order to meet the operating requirements.
Personnel as of June 30, 1998 was the following:
Company Authorized Effective
- ----------------- ---------- ---------
TELEPARA CELULAR 151 119
TELMA CELULAR 48 32
TELAMAZON CELULAR 79 67
TELEAMAPA CELULAR 13 13
TELAIMA CELULAR 12 12
--- ---
Total 303 243
=== ===
10
<PAGE>
4. STATEMENT OF ADDED VALUE AS OF JUNE 30, 1998
Evidences the wealth generated by the company and the economic destination. This
model considers the concept of income.
TELMA % TLEPARA % TELAIMA %
-------- --------- --------- -------- ---------- --------
INCOME 28,686 151.55 50,899 157.61 4,945 118.67
Material,
outsourced
services and
other supplies (9,757) (51.55) (18,604) (57.61) (778) (18.67)
------- ------ ------ ------ ------
ADDED VALUE 18,929 100.00 32,295 100.00 4,167 100.00
Salaries and
charges (396) (2.09) (3,173) (9.83) (180) (4.32)
Government
(taxes) (10,038) (53.03) (17,734) (54.91) (1,941) (46.58)
Third-parties (505) (2.67) (2,639) (8.17) (112) (2.69)
------- ------ ------- ------ ------ ------
RETAINED SURPLUS 7,990 42.21 8,749 27.09 1,934 46.41
TELEAMAZON % TELEAMAPA %
------------ ----------- ------------ -----------
INCOME 51,383 128.69 5,821 109.23
Material,
outsourced services
and other
supplies (11,456) (28.69) (482) (9.03)
------ ------ ------
ADDED VALUE 39,927 100.00 5,339 100.00
Salaries and charges (1,249) (3.13) (162) (3.03)
Government (taxes) (21,358) (53.49) (2,452) (45.93)
Third-parties (2,684) (6.72) (12) 0.22
------- ------ ------ ------
RETAINED SURPLUS 14,636 36.66 2,713 50.82
5. EVALUATION INDICATORS AT MARCH 30, 1998
Return on Margin of
Indebtedness Income Profit Current
Company % % % Marketability
- ------------- ------------- ------------- ------------- -------------
TELEPARA 25 5 13 2.00
TELAMAZON 123 20 32 1.05
TELAIMA 22 19 46 3.51
TELEAMAPA 57 21 53 1.31
TELMA 11 15 30 4.12
11
<PAGE>
TELE NORTE CELULAR PARTICIPACOES S.A.
- -------------------------------------
CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(In thousands of reais - R$)
- --------------------------------------------------------------------------------
3 months 6 months
ended June ended
30, 1998 June 30, 19
---------- -------------
NET OPERATING REVENUE FROM
TELECOMMUNICATION 55,490 106,375
SERVICES
COST OF SERVICES (14,686) (29,476)
----------- -----------
GROSS REVENUE 40,804 76,899
OTHER OPERATING INCOME (EXPENSES):
Selling expenses (16,827) (21,010)
General and administrative expenses (3,154) (6,857)
Financial expenses (2,758) (4,400)
Financial income 1,569 2,406
Other operating income (expenses) (568) 49
----------- -----------
OPERATING INCOME 19,066 47,087
NON OPERATING INCOME 120 125
----------- -----------
INCOME BEFORE INCOME TAX AND SOCIAL
CONTRIBUTION AND PROFIT SHARING 19,186 47,212
PROVISION FOR INCOME TAX AND SOCIAL
CONTRIBUTION AND ADDITIONAL STATE TAX (9,017) (19,109)
PROFIT SHARING - EMPLOYEES (97) (186)
MINORITY INTERESTS (2,442) (6,574)
----------- -----------
NET INCOME FOR THE PERIOD 7,630 21,343
=========== ===========
NUMBER OF SHARES (THOUSAND) 334,399,028 334,399,028
=========== ===========
NET INCOME PER THOUSAND SHARES 0.00002 0.00006
=========== ===========
- --------------------------------------------------------------------------------
12
<PAGE>
SIGNATURES
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 autorized.
TELECOMUNICACOES BRASILEIRAS S.A. - TELEBRAS
Date: September 21, 1998
By: /s/ Jonas de Oliveira Jr.
----------------------------
Name: Jonas de Oliveira Jr.
Title: Director of Finance and Investor Relations