<PAGE>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a or 15d - 16 of
the Securities Exchange Act of 1934
For the month of April 1997
Tevecap S.A.
(Exact Name as Specified in its Charter)
TEVECAP INC.
(Translation of Name into English)
SEC FILE NUMBER: 0-22267
Rua do Rocio, 313
Sao Paulo, SP Brazil
04552-904
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--------- -------
Indicate by check mark 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 Securities Exchange Act of 1934.
Yes No X
--------- -------
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with rule 12g3-2(b):82 N/A
<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 authorized.
TEVECAP S.A.
By: /s/ Jose Augusto P. Moreira
---------------------------
Jose Augusto P. Moreira
Officer
By: /s/ Claudio Cesar D'Emilio
---------------------------
Claudio Cesar D'Emilio
Officer
Date: April 30, 1997
<PAGE>
EXHIBIT LIST
1. One copy of the press release published on April 29, 1997, containing
relevant information on Tevecap S.A. for the year ended December 31, 1996,
with financial information prepared in accordance with Brazilian GAAP.
2. One copy of the Operating Report of Tevecap S.A. with financial
information for the year ended December 31, 1996 prepared in accordance
with Brazilian GAAP, presented on April 29, 1997, to certain rating agency
analysts of Tevecap S.A.'s 12 5/8% Senior Notes, due 2004.
3. One copy of the unaudited financial statements of Tevecap S.A. prepared in
accordance with Brazilian GAAP for the year ended December 31, 1996,
published on April 30, 1997, in Brazil, pursuant to certain requirements of
Brazilian law.
<PAGE>
Exhibit 1
Contact: Douglas Duran Marina Echavarria/Ashley Chapman
Tevecap Ludgate Communications
(011 55 11) 821-8554 (212) 688-5144
TEVECAP ANNOUNCES FOURTH QUARTER AND YEAR-END
---------------------------------------------
1996 RESULTS
------------
Sao Paulo, April 29, 1997-TEVECAP, S.A., (TVA) Brazil's leading pay
television operator and programming distributor, today announced results for
the twelve months ended December 31, 1996.
1996 Highlights
- - - Consolidated net revenues for twelve months ended December 31, 1996 reached
US$198.1 million, an increase of 110% versus US$94.5 million in 1995.
- - - Net loss for year end 1996 was US$48.2 million compared to a loss of
US$41.1 million during 1995.
- - - Subscription revenue, 62% of net revenues, amounted to US$123.0 million in
1996, up 97% from 1995.
- - - Installation revenue, 31% of net revenues, reached US$61.7 million in 1996,
137% more than in 1995.
- - - Direct operating expenses increased to US$110.1 million from US$62.0
million, a growth of 78% as a result of the increasing number of subscribers.
- - - Selling, general and administrative expenses for 1996 reached US$83.6
million, up 78% compared with US$46.9 million during the same period in
1995. Selling, general and administrative expenses, as a percentage of
revenues, decreased from 50% to 42%.
- - - Capital expenditures amounted to US$151.3 million for year end 1996, up
193% from US$51.7 million during 1995.
- - - EBITDA reached US$4.3 million in 1996, a turnaround over negative EBITDA of
US$14.4 million in 1995.
- - - Consolidated net revenues for fourth quarter 1996 reached US$66.3 million,
representing an increase of 117% compared to US$30.6 million during the same
quarter in 1995.
- - - Total Operating Expenses for the fourth quarter 1996 increased by 84% from
US$40.3 million to US$73.9 million.
- - - Net Loss for the quarter decreased 18 percent to US$11.2 million compared
to US$13.7 for the same period a year ago.
- - - EBITDA for the quarter increased 135% to US$1.9 million from a loss of
US$5.3 million last year.
<PAGE>
Tevecap, S.A.
CONSOLIDATED RESULTS
Consolidated net revenues for the twelve months ended December 31, 1996
reached US$198.1, a 110% growth over 1995. The Company has more than doubled
its revenues every year for the last three years. Revenues consist primarily
of subscription, installation, advertising, indirect programming and other
revenues, excluding taxes.
Subscription revenue contributed to 62% of net revenues, and amounted to
US$123.0 million in 1996, up 97% from US$62.5 million in 1995. It can be broken
down by distribution technology into MMDS (82%), cable (5%), C-band (11%) and
Ku-band (2%). Revenue increased as a result of an expanded subscriber base
and a higher average fee for MMDS, which improved 32%, from US$30.65 in 1995
to US$40.33 in 1996. Revenues increased because of an improvement in signal
transmission enabling the Company to offer premium packages to all
subscribers.
Subscription Revenue ($000)
Technology 1996 1996% 1995 1995% Change%
- - ---------- ---- ----- ---- ----- -------
MMDS 100,830 82.0% 58,163 93.1% 73%
Cable 6,855 5.6% 2,378 3.8% 188%
C-band 13,069 10.6% 1,955 3.1% 568%
Ku-band 2,266 1.8% -- 0.0% n/c
Total 123,020 100% 62,496 100% 97%
Installation revenue contributed to 31% of net revenues, reaching US$61.7
million in 1996, 137% more than in 1995. This increase is attributed to:
subscriber growth, expansion of C-Band service and higher installation fees
due to the operation of DirecTV in the second half of 1996.
Advertising revenue amounted to US$7.5 million in 1996, a decline of 10%
versus 1995. This was primarily a result of a shift in ESPN International's
advertising sales from Tevecap to ESPN Brasil.
Indirect programming revenue amounted to US$11.4 million in 1996, a 297%
growth over 1995 due to the expansion of the indirect subscriber base. This
revenue consists of payments made to the Company for the sale of its
programming to affiliated companies and independent operators.
Other revenues increased 268% to US$8.2 million. They include the ESPN
commission, magazine sales and equipment rental, among others. Revenue taxes
increased 83% to US$13.7 million.
Direct operating expenses amounted to US$110.1 million from US$62.0 million,
or a rise of 78%, due to subscription growth. Direct operating expenses as a
percentage of revenues dropped from 66% in 1995 to 56% in 1996.
2
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Tevecap, S.A.
Selling, general and administrative expenses reached US$83.6 million, a 78%
growth versus US$46.9 million in 1995 due to the expansion of the Company's
activities and their associated costs. As a percentage of revenues, selling,
general and administrative expenses decreased from 50% to 42% as a result of
fixed expense dilution of payroll and benefits which increased only by 37%.
As a result, EBITDA reached US$4.3 million, a turnaround over the negative
EBITDA of US$14.4 million in 1995.
Depreciation and amortization was US$28.2 million as compared with US$13.3
million in 1995, a 113% increase. This includes depreciation of systems,
equipment, installation materials, installation personnel and amortization of
organizational costs and concessions. Allowance for inventory obsolescence
reached US$2.3 million in 1996 from US$0.0 million in 1995. It represents
changes for obsolescence of certain equipment and material.
Operating loss during 1996 was US$26.1 million, 6% less than the loss of
US$27.7 million reported in 1995, despite the Galaxy operation, which is
still in the early stage of growth.
Interest income was US$6.0 million, a 91% growth versus US$3.1 million in
1995. Interest expense was US$17.669 million, a flat variation from US$17.745
million in 1995. The improvement in the net interest expenses of US$11.7
million in 1996 from US$14.6 million in 1995 is attributed to the capital
injection in the second half of 1995 and the securities issue in 1996,
proceeds of which were used in part to repay higher cost debt.
Equity in losses (income) of affiliates amounted to a loss of US$8.5 million
in 1996 versus a loss of US$3.7 million in the previous year. That loss
resulted from ESPN Brasil (US$5.6 million), HBO (US$1.2 million) and Canbras
(US$2.1 million), and was offset by income from TV Filme (US$300,000).
Other non-operating expenses reached US$3.7 million versus income of US$4.4
million in 1995. The 1996 expenses consisted primarily of fees paid for the
investment of Falcon International and Hearst/ABC.
Minority interest amounted to US$1.8 million, representing the minority
shareholder's portion of the US$14.0 million aggregate losses of TVA Sul.
As a result, net loss for the twelve months ended December 31, 1996 was
US$48.2 versus a net loss of US$41.1 million reported in 1995.
Capital expenditures (cash basis) for 1996 amounted to US$151.2 million, a
193% increase from US$51.7 million in 1995. Funds were directed mainly to:
purchase decoders for all distribution systems; implement internal networks
for MMDS and cable; purchase Ku-band equipment and installation for the
Uplink Center in Tambore (greater Sao Paulo) used to uplink programming to
the Galaxy III-R satellite and customer
3
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TEVECAP, S.A.
services for Galaxy Brasil; acquisition of cable companies in southern Brazil
and cable network build-out, mainly in Sao Paulo and Curitiba.
SUBSCRIBER PERFORMANCE
Total subscriber base for 1996 totalled 999,266, a 68% growth over 596,419 in
1995. To be considered a subscriber by TVA, the customer must be installed
and paying on a current basis. Uninstalled backlog and disconnected
subscribers are not included in TVA's subscriber base.
Owned systems, or proprietary systems, grew to 349,511 subscribers due to the
less mature systems of cable and DBS in opposition to the traditional MMDS
system. The Company emphasized the strategic development of cable service,
reaching 1,139 kilometers of cable, and started the Ku-band service.
Through independent operators, Tevecap reached 564,499 subscribers as of
December 31, 1996, a growth of 65% over 1995, representing an additional
222,800 households during the year.
The table below outlines the number of subscribers at December 31, 1995 and
December 31, 1996 for owned systems according to different distribution
technologies as well as the number of households which receive TVA
programming through operating ventures and independent operators:
SUBSCRIBER BASE--TOTAL
1996 1995 Change %
MMDS 230.320 188.893 22%
Cable 46.011 15.129 204%
Digital C-band 49.858 15.126 230%
Ku-band 23.322 0 n/c
TOTAL OWNED SYSTEMS 349.511 219.148 59%
Operating Ventures* 85.256 35.572 140%
Independent Operators 564.499 341.699 65%
HOUSEHOLDS RECEIVING
TVA PROGRAMMING 999.266 596,419 68%
*REPRESENTS 100% OF SUBSCRIBERS; ON AN EQUITY SUBSCRIBER BASIS THERE WERE
7,050 SUBSCRIBERS AT DECEMBER 31, 1995 AND 13,955 SUBSCRIBERS AT DECEMBER 31,
1996.
The company intensified the disconnection of delinquent subscribers during
1996. Since its decoders are fully addressable, they can be disconnected
easily and immediately by computer from the base without the extra costs of
sending a team to the subscriber's location. Additionally, a special effort
was made to clean-up the system by either
4
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Tevecap, S.A.
reactivating disconnected subscriber accounts or eventually retrieving their
decoders. Thus, the Company could regain revenues and reduce the purchase of
new equipment.
REVENUES BY OPERATION
The table below outlines consolidated net revenue for the year ended December
31, 1996 and December 31, 1995 for owned systems according to different
operations:
Consolidated Net Revenue by Operation
1996 1995 Change %
TVA Sao Paulo 69,829 48,809 43%
TVA Rio de Janeiro 35,466 16,716 112%
TVA Sul 14,061 5,993 135%
Digital C-band 36,800 10,129 263%
Ku-band 16,530 0 n/c
Total 172,686 81,647 112%
TVA Sao Paulo: Net revenues amounted to US$69.8 million in 1996, up 43% due
to price and volume increases. There was an improvement in average monthly
fee since more subscribers chose the premium package. At the end of 1996,
the subscriber base totalled 148,149, comprising both MMDS and cable systems,
a 9% growth over 1995. The performance in Sao Paulo was partially affected by
disconnection of delinquent subscribers and a delay in the company's cable
construction which will be intensified in 1997. At the end of 1996, the cable
network extended approximately 642 Km, connecting approximately 238,000 homes.
TVA Rio: Net revenues amounted to US$35.5 million, 112% more than in 1995. At
the end of 1996, the subscriber base was 79,928, a 55% growth over 1995. This
good performance was achieved despite the growing cable competition.
TVA Sul: Net revenues amounted to US$14.1 million, 135% higher than in 1995.
At the end of 1996, subscriber base was 48,254, a 192% growth over 1995, due
to the business expansion and the purchase of new operations. The MMDS system
in Curitiba, increased 55% to 23,595 subscribers. During 1996, Tevecap
acquired two cable operations in Curitiba, one in Foz do Iguacu and one in
Camboriu, in addition to a cable license for Florianopolis. The four newly
acquired systems are being upgraded to 550 MHz bandwidth capacity while the
system in Florianopolis is being constructed for the same capacity. TVA Sul
ended 1996 with a cable network of 497 kilometers, connecting 127,000 homes.
Curitiba, in particular, had a cable network of 180 kilometers, equivalent
to 53,000 homes. As in the case of TVA Sao Paulo, cable construction will be
intensified in 1997.
C Band: Net revenues amounted to US$36.8 million, a 263% growth versus
US$10.1 million in 1995. The subscriber base increased by 230% from 15,126 to
49,858 subscribers and there were price improvements in both monthly and
hook-up fees.
5
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Tevecap, S.A.
TVA is the only pay television operator to deliver a digital C-band signal in
Brazil, offering 26 channels (including nine second audio programming "SAP"
channels) to the whole country. By comparison, TVA's only significant C-band
competitor offers six analog channels.
DirecTV: Net revenues amounted to US$16.5 million in 1996, while the
subscriber base reached 23,322. TVA, through Galaxy Brasil, launched
Brazil's first Ku-band service in July 1996 in a limited regional roll-out in
the Sao Paulo area. The company became fully operational in November 1996
when it began a nationwide publicity campaign supported by a network of
trained installers.
OPERATING VENTURES
Through the operating ventures, TVA has minority interests in two pay
television operators, Canbras and TV Filme, which served 85,256 subscribers
as of December 31, 1996, as outlined in the table below:
Subscribers Base - Ventures
1996 1995 Change %
Canbras 8,126 ------ n/c
- - --Brasilia 50,602 24,791 104%
- - --Goiania 10,426 4,775 118%
- - --Belem 16,102 6,006 168%
- - --TV Filme 77,130 35,572 117%
Total 85,256 35,572 140%
TVA holds a 14.3% equity interest in TV Filme which operates MMDS in
Brasilia, Goiania and Belem. The 1996 subscriber base more than doubled in
each city, increasing by 117% in total from 35,572 to 77,130. In order to
fund its expansion and bid for new licenses, TV Filme raised US$28 million
through an IPO in July 1996 followed by a US$140 million Sr. Note issue last
December. TV Filme's shares are listed on the Nasdaq Stock Market.
TVA holds a 36% equity interest in Canbras which obtained a base of 8,126
subscribers at year end 1996. This operating venture has constructed cable
networks in ten cities in greater Sao Paulo extending approximately 176
kilometers.
In 1996, two exclusive channels were launched, combining international and
Brazilian programming: Bravo Brasil, based on Bravo Channel, offers arts and
movies; and CMT Brasil, based on Country Music Television, provides country
music.
TVA has three joint ventures in programming, ESPN Brasil is a 50-50
association with ESPN International, which offers sports and has exclusive
distribution rights to Brazil's most important soccer championships. HBO
Brasil offers films through an association
6
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Page 8
Tevecap, S.A.
with Time Warner and Sony, in which TVA had a 33.3% equity interest (reduced
to 24% after an interest acquired by Disney, as discussed later). A third
venture has been formed between TVA (66.6%) and CMT International (33.3%),
which provides Brazilian and American country music.
FINANCIAL SITUATION
TVA issued US$250 million in debt securities last November, US$25 million
more than originally planned due to oversubscription. The Company was the
first in Brazil to issue securities without put or call options. The 8 year
12 5/8% Senior Notes were placed under the Rule 144A to qualified
institutional buyers from about 60 institutions in over 30 cities in the
United States. Subsequently, TVA proposed to exchange the notes for new notes
registered under the Securities Act of 1933 in order they may be publicly
tradable.
Net proceeds after fees and expenses of approximately US$241.2 million were
used to repay short term loans from affiliated companies (US$107.9 million)
and banks (US$5.4 million) as well as to fund capital expenditures in 1996
and 1997, mainly the extension of cable networks in Sao Paulo and Curitiba.
Total debt reached US$267.8 million as of December 31, 1996, 6% of which was
due in short term representing the refinancing of certain supplier payables
(US$14.7 million) and the accrued interest on the High Yield (US$3.2
million). The remaining US$250 million was the principal amount of the High
Yield.
###
TVA is Brazil's largest and fastest growing pay-TV operator with over 335,000
subscribers. TVA's current owners are Abril, 56.5%; Falcon International,
14.2%; Hearst, 10%; ABC, 10%; and CMIF, 9.3%. The company uses five
technologies: MMDS, cable, digital KU band, digital C-band and UHF. TVA is
also the country's largest Pay-TV programming distributor, reaching over
955,000 households. In conjunction with Abril, TVA has formed strategic
alliances and programming partnerships to deliver Brazil's branded versions
of channels ESPN, HBO, MTV, CMT and BRAVO in Portuguese. TVA's partners
include Falcon International Communications, Disney/ABC, The Hearst
Corporation, The Chase Manhattan Bank, US West and Hughes Communications.
Abril Group is Latin America's largest publishing and printing company. Of
the 10 highest circulating magazines in Brazil, nine are published by Editora
Abril, the company's publishing division. The company publishes 200 magazines
in Brazil, nine in Portugal and four in Argentina. It pioneered the
development of electronic media in Brazil with the launch of TVA, Brazil's
first subscription television operation. It is the leader in the Brazilian
home video market and is the largest publisher of telephone directories in
Latin America.
(Tables Follow)
7
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TEVECAP, S.A.
Consolidated Balance Sheet
For the Year Ended
December 31, 1996 and 1995
(in thousands of US dollars)
- - --------------------------------------------------------------------------------
Dec. 31 Dec. 31 %
1996 1995* Change
------- -------
Cash and cash equivalents 104,801 24,201 333%
Accounts receivable, net 32,296 11,253 187%
Inventories 13,095 13,076 0%
Film exhibition rights 1,061 30 3437%
Prepaid and other assets 1,914 2,968 (36%)
Other accounts receivable 5,105 985 418%
------- ------- ------
Total current assets 158,272 52,513 201%
------- ------- ------
Property, plant and equipment 233,612 131,266 78%
Investments
- Equity affiliates 9,227 3,462 167%
- Cost basis investees 14,766 11,240 31%
- Concessions, net 17,574 7,978 120%
Loans to related companies 15,308 6,732 127%
Prepaid expenses 7,990 - n/c
Other 2,422 3,657 (34%)
------- ------- ------
Total assets 459,171 216,848 112%
------- ------- ------
------- ------- ------
- - --------------------------------------------------------------------------------
Short-term bank loans 17,361 - n/c
Film suppliers 7,012 5,892 19%
Other suppliers 52,932 52,078 2%
Taxes payable other than income taxes 6,485 6,171 5%
Accrued payroll and related liabilities 6,141 4,571 34%
Advances payments received from subscribers 6,782 3,986 70%
Other accounts payable 8,952 3,272 174%
------- ------- ------
Total current liabilities 105,665 75,970 39%
------- ------- ------
Long-term bank loans 250,464 - n/c
Loans from related companies 4,610 586 687%
Loans from shareholders 23 3,086 (99%)
Provision for claims 4,309 3,763 15%
Liability to fund joint venture and equity
investee 1,107 2,169 (49%)
Deferred hook up fee revenue 4,883 - n/c
Other 3,244 - n/c
------- ------- ------
Total long-term liabilities 268,640 9,604 2697%
------- ------- ------
Minority interest 1,779 - n/c
Paid-in capital 287,962 292,029 (1%)
Accumulated deficit (204,875) (160,755) 27%
------- ------- ------
Total shareholder's equity 83,087 131,274 (37%)
------- ------- ------
Total liabilities and shareholder's equity 459,171 216,848 112%
------- ------- ------
------- ------- ------
8
<PAGE>
TEVECAP, S.A
Consolidated Statement of Income
For the Year Ended
December 31, 1996 and 1995
(in thousands of US dollars)
<TABLE>
<CAPTION>
Year % Net Year % Net %
1996 revenue 1995* revenue Change
<S> <C> <C> <C> <C> <C>
Monthly subscriptions 123,020 62% 62,496 66% 97%
Installation 61,717 31% 26,045 28% 137%
Advertising 7,532 4% 8,377 9% (10%)
Indirect programming 11,377 6% 2,866 3% 297%
Other 8,195 4% 2,226 2% 268%
--------- ------ --------- ------ ------
Gross revenues 211,841 107% 102,010 108% 108%
Revenue taxes (13,747) (7%) (7,506) (8%) 83%
--------- ------ --------- ------ ------
Net revenue 198,094 100% 94,504 100% 110%
Direct operating expenses 110,124 56% 62,026 66% 78%
Selling, general and
administrative expenses 83,629 42% 46,902 50% 78%
--------- ------ --------- ------ ------
EBITDA 4,341 2% (14,424) (15%) (130%)
Allowance for inventory
and obsolescence 2,250 1% -- -- n/c
Depreciation and amortization 28,216 14% 13,268 14% 113%
--------- ------ --------- ------ ------
Operating loss (26,125) (13%) (27,692) (29%) (6%)
Interest income 5,962 3% 3,118 3% 91%
Interest expenses (17,669) (9%) (17,745) (19%) (0%)
Translation (loss) gain 179 0% (339) (0%) (153%)
Equity in income (losses)
of affiliates (8,532) (4%) (3,672) (4%) 132%
Other nonoperating (expenses)
income, net 3,692 2% 4,389 5% 184%
--------- ------ --------- ------ ------
Loss before income taxes and
minority interest (49,877) (25%) (41,941) (44%) 19%
Income taxes (156) 0% -- 0% n/c
Minority interest 1,849 1% 871 1% 112%
--------- ------ --------- ------ ------
Net income (loss) (48,184) (24%) (41,070) (43%) 17%
--------- ------ --------- ------ ------
--------- ------ --------- ------ ------
</TABLE>
*1995 results have been restated to account for HBO Brasil which was 33.33%
owned by TVA, on an equity basis.
9
<PAGE>
TEVECAP, S.A
Fourth Quarter Consolidated Statement of Operations
Ended March 31, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
% Net % Net %
4Q96 revenue 4Q95 revenue Change
<S> <C> <C> <C> <C> <C>
Monthly subscriptions 37,719 57% 21,200 69% 78%
Installation 22,321 34% 8,050 26% 177%
Advertising 2,170 3% 2,872 9% (24%)
Indirect programming 6,099 9% 752 2% 711%
Other 2,900 4% 32 0% 8963%
-------- ------ --------- ------ -------
Gross revenues 71,209 107% 32,906 108% 116%
Revenue taxes (4,866) (7%) (2,335) (8%) 108%
-------- ------ --------- ------ -------
Net revenue 66,343 100% 30,571 100% 117%
Direct operating expenses 34,567 52% 19,747 65% 75%
Selling, general and
administrative expenses 29,919 45% 16,115 53% 86%
-------- ------ --------- ------ -------
EBITDA 1,857 3% (5,291) (17%) (135%)
Allowance for inventory
and obsolescence (243) 0% -- -- n/c
Depreciation and amortization 9,669 15% 4,403 14% 120%
-------- ------ --------- ------ -------
Operating loss (7,569) (11%) (9,694) (32%) (22%)
Interest income 2,312 3% 1,758 6% 32%
Interest expenses (7,544) (11%) (5,252) (17%) 44%
Translation (loss) gain (64) (0%) (298) (1%) (79%)
Equity in income (losses)
of affiliates (1,890) (3%) (1,588) (5%) 19%
Other nonoperating (expenses)
income, net 3,326 5% 1,122 4% 196%
-------- ------ --------- ------ -------
Loss before income taxes and
minority interest (11,429) 17% (13,952) (46%) (18%)
Income taxes (51) 0% -- n/c
Minority interest 316 0% 299 1% 6%
-------- ------ --------- ------ -------
Net income (loss) (11,164) (17%) (13,653) (45%) (18%)
-------- ------ --------- ------ -------
-------- ------ --------- ------ -------
</TABLE>
10
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Exhibit 2
[LOGO]
OPERATING REPORT
FOR RESEARCH ANALYSTS
April 25, 1996
<PAGE>
2
1. OVERVIEW
Tevecap is a leading pay television operator and programming distributor
in Brazil. By the year end of 1996, subscribers through owned systems,
operating ventures and independent operators were slightly below 1 million,
an increase of 68% over the previous year. Tevecap is the only company in
Brazil to offer four different distribution technologies: MMDS, cable,
digital C-band and digital Ku-band.
For the year ended December 31, 1996, consolidated net revenue was $198
million, more than twice the net revenues of the previous year. As a result
of the expansion and improvement of operations, EBITDA increased to $4.3
million, a significant improvement over the negative EBITDA of $14.4 million
in 1995.
2. MARKET ANALYSIS
Brazil is the largest television and video market in Latin America with
an estimated 33.9 million TV homes, including 19.6 million ABC households.
During 1996, 8.6 million television sets were sold, making Brazil the third
largest market for new televisions in the world, after the United States and
Japan. In addition, 2.7 million VCRs were purchased by Brazilians during
1996. Those figures represent a growth of 42% compared to the previous year
and such growth was primarily driven by an increase of disposable income of
the lower middle class consumers.
In this context, the pay-television industry operates in a booming market
that is still in the early stage of growth. As of December 31, 1996, there
were an estimated 1.8 million subscribers, compared to 1.1 million in 1995,
according to ABTA1. The 1.8 million subscribers represent
approximately a 5% penetration rate, compared to a 51% penetration rate in
Argentina and 13% in Mexico. The Ministry of Communications estimates that
Brazil will have 16.5 million subscribers by 2003 which illustrates the
potential size of the pay-TV market.
The lack of new licenses for cable and MMDS services since 1991 has led to
growing competition in some areas, resulting in the reduction of hook-up
fees. However, the Ministry of Communications will start the public bidding
process for new licenses in the first semester of 1997 which may accelerate
pay-television growth. Additionally, the introduction of a new distribution
technology, Ku-band, offered first by Tevecap, increased market coverage. The
DIRECTV system delivers video channels with laser-disk picture quality to be
received through a 60 centimeter parabolic antenna.
In order to fund the expansion of the service to new subscribers, companies
in the industry have issued securities or raised loans in the international
capital markets, where costs and maturity are more attractive than in the
local market. Tevecap, for example, issued $250 million of Senior Notes while
its affiliate TV Filme completed a $28 million initial public equity
offering, followed by a High Yield debt issue of $140 million.
- - ------------
1 Associacao Brasileira de Televisao por Assinatura (Brazilian Association of
Pay-TV)
<PAGE>
3
3. COMPANY PROFILE
TVA is the only pay-TV operator deploying four distribution technologies:
MMDS, cable, digital C-band and digital Ku-band (DIRECTV). This range of
distribution technologies provides a significant competitive advantage in
reaching the huge potential market in Brazil, including the ability to
rapidly enter new markets, maximize penetration of existing markets and
deliver service in the most cost effective manner. In addition, the company
offers high quality programming, based on owned channels (Bravo Brasil,
Eurochannel), ventures (HBO Brasil, ESPN Brasil and CMT Brasil) and
agreements with international programmers, which represent a critical factor
in attracting and retaining subscribers as pay television industry grows.
The Company is also positioning itself to provide high speed data
transmission, interactive and other telecommunications services over its
system and to take advantage of possible deregulation and the growing demand
for these services in Brazil. Tevecap's cable systems are being expanded with
fiber optic and coaxial cable capable of being upgraded to provide such
enhanced services. The use of addressable decoders allows the company to
offer pay-per view services and upgrade, downgrade or disconnect a
subscriber's service from the headend at short notice. In addition, the
company continues to follow the development of digital compression of MMDS
signals, so as to provide an enhanced channel offering utilizing this
distribution channel in the future.
PERFORMANCE IN 1996:
For the year ended 1996, Tevecap had approximately 1 million direct and
indirect subscribers, an increase of 68% over the previous year. TVA accounts
for subscribers by utilizing the method employed in the United States, which
is different from the method used by other pay TV companies in Brazil. To be
considered a subscriber by TVA, the customer must be installed and paying on
a current basis. Non-installed backlog and disconnected subscribers are not
included in TVA's subscriber base.
Tevecap's subscribers of owned systems improved approximately 60% from
219,148 to 349,511 subscribers which can be attributed to the less mature
systems of cable and DBS. Furthermore, the company has recently emphasized
the strategic deployment of cable service (1,139 kilometers of cable for
owned systems) and initiated its Ku-band service under the DIRECTV brand name.
The table below sets forth the number of subscribers as of December 31,
1995 and December 31, 1996 for owned systems according to different
distribution technologies as well as the number of households that receive
TVA's programming through operating ventures and independent operators:
<PAGE>
4
- - -----------------------------------------------------------------
SUBSCRIBERS BASE[cad 228]TOTAL
- - -----------------------------------------------------------------
1995 1996 Chg %
- - -----------------------------------------------------------------
MMDS 188.893 230.320 22%
Cable 15.129 46.011 204%
Digital C-Band 15.126 49.858 230%
DIRECTV 0 23.322 n/a
- - -----------------------------------------------------------------
Total owned systems 219.148 349.511 59%
- - -----------------------------------------------------------------
Operating Ventures2 35.572 85.256 140%
Independent Operators 341.699 564.499 65%
- - -----------------------------------------------------------------
Households Receiving
TVA Programming 596.419 999.266 68%
- - -----------------------------------------------------------------
The following table sets forth the number of subscribers as of December
31, 1995 and December 31, 1996 for the owned MMDS and cable systems within
six markets :
- - -----------------------------------------------------------------
Subscribers Base[cad 228]Owned MMDS & Cable Systems
- - -----------------------------------------------------------------
1995 1996 Chg %
- - -----------------------------------------------------------------
- - --Sao Paulo--MMDS 121.969 126.797 4%
- - --Sao Paulo--Cable 13.885 21.352 54%
----------------------------
TVA Sao Paulo 135.854 148.149 9%
- - -----------------------------------------------------------------
TVA Rio de Janeiro 51.664 79.928 55%
- - -----------------------------------------------------------------
- - --Curitiba--MMDS 15.260 23.595 55%
- - --Curitiba--Cable 1.244 10.377 734%
- - --Foz do Iguacu 0 7.157 n/a
- - --Florianopois 0 1.916 n/a
- - --Camboriu 0 5.209 n/a
----------------------------
TVA Sul 16.504 48.254 192%
- - -----------------------------------------------------------------
Total 204.022 276.331 35%
- - -----------------------------------------------------------------
The company intensified the disconnection of non-paying subscribers
during 1996. Since its decoders are fully addressable, delinquent subscribers
can be disconnected easily and immediately by computer from the headend
without incurring the extra costs associated with sending a team to the
subscriber's location. Additionally, a special effort has been made to
clean-up the system by either rehabilitating disconnected subscribers or
eventually retrieving their decoders. Thus, the company could hereby regain
revenues and reduce the purchase of new equipment.
The use of addressable decoders by Tevecap avoids not only the need for
physical disconnection but the piracy problem as well which is very common in
competitors' cable systems where signals are not scrambled. Moreover,
subscriber base figures are rapidly adjusted and not inflated by those who
don't generate revenues, which occurs in competitor's systems that take a
long time to disconnect such customers .
The table below sets forth consolidated net revenue for the year ended
December 31, 1995 and December 31, 1996 for owned systems according to
different operations:
- - -------------------
2 Represents 100% of subscribers; on an equity subscriber basis there were
7,050 subscribers at December 31, 1995 and 13,955 subscribers at
December 31, 1996.
<PAGE>
5
- - --------------------------------------------------
Consolidated Net Revenue by Operation (US$000)
- - --------------------------------------------------
1995 1996 Chg%
- - --------------------------------------------------
TVA Sao Paulo 48.809 69.829 43%
TVA Rio de Janiero 16.716 35.466 112%
TVA Sul 5.993 14.061 135%
Digital C-Band 10.129 36.800 263%
Ku-Band 0 16.530 n/c
- - --------------------------------------------------
TOTAL 81.647 172.686 112%
- - --------------------------------------------------
TVA SAO PAULO
Net revenues amounted to $69,829 in 1996, up 43% from the previous year
due to price and volume increase. There was an improvement in average monthly
fee since more subscribers have chosen the premium package. The subscriber
base as of December 31, 1996 was 148,149 subscribers, comprising both MMDS
and cable systems, a 9% increase over 1995. The performance in Sao Paulo was
partially affected by the disconnection of non-pay subscribers and a delay in
the Company's cable construction. As of December 31, 1996 the cable network
of approximately 642 Kms passed approximately 238,000 homes.
TVA RIO
Net revenues amounted to $35,466, 112% more than the total in 1995. The
subscriber base as of December 31, 1996 was 79,928 subscribers, a 55% growth
over 1995. This strong performance was achieved despite growing cable
competition.
TVA SUL
Net revenues amounted to $14,061, 135% higher than in 1995. The
subscriber base as of December 31, 1996 was 48,254 subscribers, a 192% growth
over a year earlier, due not only to the business expansion but also to the
purchase of new operations. In addition to the MMDS system in Curitiba, which
increased 55% to 23,595 subscribers, an operating entity was formed, called
TVA Sul. During 1996, Tevecap acquired two cable operations in Curitiba, one
in Foz do Igua, one in Camboriu and a cable license for Florianopolis. The
four newly acquired systems are being upgraded to 550 MHz bandwidth capacity
while the system in Florianopolis is being constructed to the same capacity.
TVA Sul ended 1996 with a cable network of 497 kilometers and 127,000 homes
passed. Curitiba had a cable network of 180 kilometers and 53,000 homes
passed. As in the case of Sao Paulo, cable construction will be intensified
in 1997.
C BAND
TVA is the only pay television operator to deliver a digital C-band
signal in Brazil, offering 26 channels (including nine second audio
programming "SAP" channels) to the whole country. By comparison, TVA's only
significant C-band competitor offers six analog channels. As a consequence,
net sales amounted to $36,800, a 263% over 1995. The subscriber base
increased 230% from 15,126 to 49,858 subscribers and there were price
improvements in both monthly and hook-up fees.
<PAGE>
6
DIRECTV
TVA, through Galaxy Brasil, launched Brazil's first digital Ku-band
service in July 1996 in a limited regional roll-out in the Sao Paulo area.
The company became fully operational in November 1996 when it started a
nationwide publicity campaign supported by a network of trained installers.
Net revenues amounted to $16,530 in 1996 and 23,322 subscribers were added.
The service currently provides 56 channels of video programming
(including 19 pay-per-view channels), with the capacity to provide up to 70
channels of video programming. 30 channels of audio programming will be
offered as soon as the Ministry of Communications delivers authorization for
this enhanced service. The only competitor currently offers 26 channels of
programming (including four pay-per-view channels), as the satellite
originally planned for use was destroyed upon launch and the company is
operating on a limited basis.
OPERATING VENTURES
Through the operating ventures, TVA has minority interests in two pay
television operators, Canbras and TV Filme, which served 85,256 subscribers
as of December 31, 1996, according to the table below:
--------------------------------------------------
Subscribers Base--Ventures
--------------------------------------------------
1995 1996 Chg%
--------------------------------------------------
Canbras * 8.126 n/a
--------------------------------------------------
-Brasilia 24.791 50.602 104%
-Golania 4.775 10.426 118%
-Belem 6.006 16.102 168%
------------------------------------
TV Filme 35.572 77.130 117%
--------------------------------------------------
TOTAL 35.572 85.256 140%
--------------------------------------------------
- TV FILME
TVA holds a 14.3% equity interest in TV Filme which operates MMDS in the
cities of Brasilia, Goiania and Belem. The subscriber base more than doubled
in each city, increasing 117% from 35,572 to 77,130. In order to fund its
expansion, and bid for new licenses, the company raised US$28 million through
the sale of equity in the United States in July 1996 followed by a $140
million Sr. Note issue last December. TV Filme's shares are listed on the
Nasdaq Stock Market.
- CANBRAS
TVA holds a 36% equity interest in Canbras which ended 1996 with a base
of 8,126 subscribers. This operating venture has constructed cable networks
in ten cities in the greater Sao Paulo area with approximately 176 kilometers
of cable network in place.
- PROGRAMMING AND TVA NETWORK
TVA continues to invest in programming in order to provide the highest
quality programming to its subscribers. In 1996, two exclusive channels were
launched, combining international and Brazilian programming: Bravo Brasil,
<PAGE>
7
based on Bravo Channel, offers arts and movies; and CMT Brasil, based on
Country Music Television, provides country music.
TVA has three programming joint ventures. TVA has a 50% equity interest
in ESPN Brasil which offers sports and has exclusive distribution rights to
Brazil's most important soccer championships. TVA has a 33.3% equity interest
(reduced to 24% after an interest acquired by Disney) in HBO Brasil which
offers films through an association with Time Warner and Sony. A third
venture is being formed between Tevecap (75%) and CMT International (25%),
which provides Brazilian and American country music.
Through independent operators, TVA programming reached 564,499
subscribers as of December 31, 1996, a growth of 65% from 341,699 in 1995,
which represented an additional 222,800 households during the year.
4. CONSOLIDATED RESULTS ANALYSIS
Consolidated net revenues for the twelve months ended December 31, 1996
were $198,094, a 110% growth over the same period in 1995. Tevecap has more
than doubled its revenues every year for the last three years. Revenues
consist primarily of subscription, installation, advertising, indirect
programming and other revenues, minus taxes.
[Graph]
Subscription revenue which contributed 62% of net revenues amounted to
$123,020 in 1996, up 97% from 1995. It can be broken down by distribution
technology into MMDS (82%), cable (5%), C-band (11%) and DIRECTV (2%).
Revenues increased not only due to the subscriber base expansion but also the
higher average monthly fee for MMDS, which improved 32%, from $30.65 in 1995
to 40.33 in 1996. This fee increase was a result of the offering of premium
packages to new and old subscribers, which was made possible after an
improvement in signal transmission.
<PAGE>
8
----------------------------------------------------
Subscription Revenue ($000)
----------------------------------------------------
Technology 1995 % 1996 % Chg %
----------------------------------------------------
MMDS 58,163 93.1% 100,830 82.0% 73%
Cable 2,378 3.8% 6,855 5.6% 188%
C-band 1,955 3.1% 13,069 10.6% 568%
Ku-band -- 0.0% 2,266 1.8% n/c
----------------------------------------------------
TOTAL 62,496 100% 123,020 100% 97%
----------------------------------------------------
INSTALLATION REVENUE which contributed 31% of net revenues was $61,717 in
1996, 137% more than in 1995 due to the growth in the number of new
subscribers, expansion of the C-Band service, and the beginning of DIRECTV
operation in the second semester 1996, which collects higher hook-up fees.
ADVERTISING REVENUE decreased to $7,532 in 1996, a decline of 10% when
compared to the previous year. This was primarily due to a shift in
advertising sales in connection with the ESPN International channel from
Tevecap to the ESPN Brasil venture, which started operating in July 1995 and
is recognized as an equity investment.
INDIRECT PROGRAMMING REVENUE which consists of payments made to the
Company for the sale of its programming to independent operators, was $11,377
in 1996, a 297% growth over 1995 due to the expansion of the indirect
subscriber base.
OTHER REVENUES including the ESPN commission, magazine sales and
equipment rental, among others increased 268% to $8,195.
DIRECT OPERATING EXPENSES amounted to $110,124 from $62,026, equivalent
to a rise of 78% as a consequence of the increasing number of subscribers.
Variable expenses such as payroll and benefits, programming and TVA magazine
have grown consistent with the growth in revenues. Transponder lease costs
increased 43%, as a result of leasing a third transponder in 1996 while other
expenses such as technical assistance and vehicle rental had small growth due
to operational efficiencies. As a consequence, direct operating expenses as a
percentage of revenues decreased from 66% in 1995 to 56% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $83,629 from
$46,902, 78% higher than the previous year due to the expansion of the
company's activities. As a percentage of revenues, SG&A expenses decreased
from 50% to 42% due to lower fixed expenses.
As a result, EBITDA increased to $4,341, a significant improvement over
the negative EBITDA of $14,424 in 1995.
<PAGE>
9
[Graph]
DEPRECIATION AND AMORTIZATION was $28,216 as compared to $13,268 in 1995,
a 113% increase. This includes depreciation of systems, equipment,
installation materials, installation personnel and amortization of
organizational costs and concessions.
ALLOWANCE FOR INVENTORY OBSOLESCENCE reached $2,250 in 1996 from $0 in
1995. It represents charges for the obsolescence of certain equipment and
material
OPERATING LOSS of $26,125 was favorable by 6% when compared to the loss
of $27,692 in 1995, despite the inclusion of the Galaxy operation, which is
still in the early stage of growth.
INTEREST INCOME was $5,962, against $3,118 in 1995, a 91% improvement.
INTEREST EXPENSE was $17,669, a flat variation from $17,745 in 1995. The
improvement in the net interest expenses of $11,707 in 1996 from $14,627 was
a consequence of the capital injection which occurred in the second half of
1995 as well as the securities issue in 1996, whose funds were used in part
to repay higher cost debt.
EQUITY IN LOSSES (INCOME) OF AFFILIATES amounted to a loss of $8,532 in
1996 against a loss of $3,672 in the previous year. That loss resulted from
ESPN Brasil ($5,572), which was formed on June 1995, as well as from HBO
($1,220) and Canbras ($2,039), offset by income from TV Filme ($300).
OTHER NON-OPERATING EXPENSES reached $3,692 as compared to income of
$4,389 in the previous year. The expenses in 1996 consisted primarily of fees
paid in connection with the investments by Falcon International and
Hearst/ABC. The income in 1995 consisted primarily of income from the sale of
movie inventory and other assets.
MINORITY INTEREST was $1,849, representing the minority shareholder's
portion of the $13,969 in aggregate losses of TVA Sul.
As a result, NET LOSS for the twelve months ended December 31, 1996 was
$48,184 as compared to $41,070 for the same period in 1995. There was a
significant decline in the loss as percentage of revenues to 24% from 43%.
5. CAPITAL EXPENDITURES IN 1996
Tevecap has continued investing heavily in the expansion of its
operations. Capital expenditures (cash basis) for 1996 amounted to $151,256
from $51,700 in 1995, a 193% increase. Funds were directed principally to:
-purchase of decoders for all distribution systems;
<PAGE>
10
- implementation of internal networks for MMDS and cable;
- Ku-band equipment and installation for the DIRECTV Uplink Center in
Tambore (greater Sao Paulo), used to uplink programming to the Galaxy
III-R satellite and for customer services for Galaxy Brasil;
- acquisition of cable companies in southern Brazil;
- cable network buildout, mainly in Sao Paulo and Curitiba.
6. FINANCIAL SITUATION
Tevecap issued $250 million in 12 5/8 Senior Notes in November 1996, $25
million more than originally planned due to oversubscription. It was the
first Brazilian company to raise 8 year straight debt without put options.
The 8 year 12 5/8% Senior Notes were placed under Rule 144A to qualified
institutional buyers. Subsequently, Tevecap proposed to exchange and register
the Notes so that they may be publicly traded.
Net proceeds after fees and expenses of approximately $241.2 million were
used to repay short term loans from affiliated companies ($107.9 million) and
banks ($5.4 million) as well as to fund capital expenditures in 1996 and
1997, mainly the extension of cable networks in Sao Paulo and Curitiba.
On December 31, 1996, Tevecap had total debt of $267,825 of which 6% was
short term in nature, representing the refinancing of certain supplier
payables ($14,659) and the accrued interest on the 12 5/8 Senior Notes
($3,166). The remaining $250,000 refers to the principal amount of the 12 5/8
Senior Notes.
In order to fund its 1997 capital expenditures, the company will use
several financing sources as described below:
- cash and cash equivalents which amounted to $104,801 on December 31,
1996;
- Eximbank financing for C-band decoders and other related equipment. The
principal amount of the loan will be $29,359, which will be dispersed in
two tranches: the first in the principal amount of $11,400 with a term
of five years and the second in the principal amount of $17,950 with a
term of 4.5 years;
- Citibank leaseback facility for acquiring dish antennae, decoder boxes
and other equipment for Ku-band service. Its a five-year $49,900
contract; and
- supplier credit.
7. OUTLOOK AND DISCUSSION OF RECENT EVENTS
Tevecap expects to continue achieving accelerated growth and reaching new
households through its different systems of distribution. At the same time,
the company will focus on consolidating its business, through reinforced
organization structure, continued improvements in customer service and
greater profitability from economy of scale gains.
In order to keep up with the company's expansion, a new organization
structure is being implemented, considering different businesses and
technologies. The structure is divided into four independent business units
as follows:
<PAGE>
11
- Programming: responsible for programming joint ventures, TVA channels,
acquired channels, advertising sales for all channels and engineering;
- Cable & MMDS: in charge of all owned operations, the TVA Network of
ventures, affiliates and franchisees, the distribution of channels and
the management of special projects affecting all systems;
- Digisat: C-band; and
- DIRECTV: Ku-band.
[Graphic]
The number of channels for MMDS, which currently varies from 15 to 18,
will be increased to 31 in Sao Paulo and Rio de Janeiro after the Ministry of
Communications grants additional channel rights as allowed under recently
passed regulations. Moreover, Tevecap was permitted to extend the range
covered by its service from 25 to 35 km in Sao Paulo, Rio de Janeiro and
Curitiba. Through the installation of beam benders, the service will be
expanded into new areas and the signal improved with minimal additional
capital spending. In such areas, cable service will not be available or will
take a very long time to be builtout.
Tevecap expects to increase its cable service market share in Sao Paulo
and Curitiba through deployment of 2,200 km of cable in Sao Paulo and 430 km
in Curitiba. Since most of the Company's systems are constructed with either
750 MHz or 550 MHz (upgradable) bandwidth, the company will be able to
provide interactive services, including telecommunications, in the future.
The use of addressable converters will allow the provision of pay-per-view
services in 1997.
Tevecap intends to raise sales of its C-band service through marketing
and promotional initiatives. There exists in Brazil an installed base of
about 3.7 million parabolic C-band antennas (about a 6 million home
<PAGE>
12
potential, due to multidwelling units), most of which receive only off-air
channels.
Substantial growth is expected in the DIRECTV service because of not only
the quality of programming, image and sound, but also its nationwide
coverage, reaching territories where MMDS and cable services are not
available. The current number of channels will increase to approximately 70
video channels and 30 audio channels during 1997. Currently, the company
offers better financial terms to subscribers for the leasing of its decoders
and antenna than its competitors.
In Programming, new channels will be launched: Canal de Historia
(exclusive), based on the History Channel, and Cinemax, which will be
offered by DIRECTV service. The film channel, HBO Brasil, will benefit from
the recent investment by Disney's Buena Vista International, in that it will
be able to exclusively offer Disney programming.
TVA has submitted proposals to the Ministry of Communications for
concessions to provide service in numerous locations, including 15 state
capitals which don't receive either MMDS or cable services. New licenses are
to be tendered in the first semester of 1997. The company will also offer
its programming to new participants in the market.
<TABLE>
<CAPTION>
Consolidated Statements of Operations Year % Net Year % Net %
(in thousands of U.S. dollars) 1995* Revenue 1996 Revenue Change
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Monthly subscriptions 62.496 66% 123.020 62% 97%
Installation 26.045 28% 61.717 31% 137%
Advertising 8.377 9% 7.532 4% (10%)
Indirect programming 2.866 3% 11.377 6% 297%
Other 2.226 2% 8.195 4% 268%
-------- -------- -------- -------- -------
Gross revenues 102.010 108% 211.841 107% 108%
Revenue Taxes (7.506) (8%) (13.747) (7%) 83%
-------- -------- -------- -------- -------
Net revenue 94.504 100% 198.094 100% 110%
Direct operating expenses 62.026 66% 110.124 56% 78%
Selling, general and administrative expenses 46.902 50% 83.629 42% 78%
-------- -------- -------- -------- -------
EBITDA (14.424) (15%) 4.341 2% (130%)
Allowance for inventory obsolescence -- 0% 2.250 1% N/C
Depreciation and amortization 13.268 14% 28.216 14% 113%
-------- -------- -------- -------- -------
Operating loss (27.692) (29%) (26.125) (13%) (6%)
Interest income 3.118 3% 5.962 3% 91%
Interest expenses (17.745) (19%) (17.669) (9%) (0%)
Translation (loss) gain (339) (0%) 179 0% (153%)
Equity in income (losses) of affiliates (3.672) (4%) (8.532) (4%) 132%
Other nonoperating (expenses) income, net 4.389 5% (3.692) (2%) (184%)
-------- -------- -------- -------- -------
Loss before income taxes and minority interest (41.941) (44%) (49.877) (25%) 19%
Income taxes -- 0% (156) (0%) N/C
Minority interest 871 1% 1.849 1% 112%
-------- -------- -------- -------- -------
Net income (loss) (41.070) (43%) (48.184) (24%) 17%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
<PAGE>
13
* 1995 results have been restated to account for HBO Brasil, which was 33.33%
owned by TVA, on an equity basis.
<PAGE>
14
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consolidated Balance Sheets Dec 31 Dec 31 %
(in thousands of U.S. dollars) 1995* 1996 Change
-------- --------- ---------
Cash and cash equivalents 24.201 104.801 333%
Accounts receivable, net 11.253 32.296 187%
Inventories 13.076 13.095 0%
Film exhibition rights 30 1.061 3437%
Prepaid and other assets 2.968 1.914 (36%)
Other account receivable 985 5.105 418%
-------- --------- ---------
TOTAL CURRENT ASSETS 52.513 158.272 201%
-------- --------- ---------
Property, plant and equipment 131.266 233.612 78%
Investments
- - - Equity affiliates 3.462 9.227 167%
- - - Cost basis investees 11.240 14.766 31%
- - - Concessions, net 7.978 17.574 120%
Loans to related companies 6.732 15.308 127%
Prepaid expenses -- 7.990 N/C
Other 3.657 2.422 (34%)
-------- --------- ---------
TOTAL ASSETS 216.848 459.171 112%
-------- --------- ---------
- - -------------------------------------------------------------------------------------------
Short-term bank loans -- 17.361 N/C
Film suppliers 5.892 7.012 19%
Other suppliers 52.078 52.932 2%
Taxes payable other than income taxes 6.171 6.485 5%
Accrued payroll and related liabilities 4.571 6.141 34%
Advances payments received from subscribers 3.986 6.782 70%
Other accounts payable 3.272 8.952 174%
-------- --------- ---------
TOTAL CURRENT LIABILITIES 75.970 105.665 39%
-------- --------- ---------
Long-term bank loans -- 250.464 N/C
Loans from related companies 586 4.610 687%
Loans from shareholders 3.086 23 (99%)
Provision for claims 3.763 4.309 15%
Liability to fund joint venture and equity investee 2.169 1.107 (49%)
Deferred hook up fee revenue -- 4.883 N/C
Other -- 3.244 N/C
-------- --------- ---------
TOTAL LONG-TERM LIABILITIES 9.604 268.640 2697%
-------- --------- ---------
Minority Interest -- 1.779 N/C
Paid-in capital 292.029 287.962 (1%)
Accumulated deficit (160.755) (204.875) 27%
-------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 131.274 83.087 (37%)
-------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 216.848 459.171 112%
</TABLE>
* same as previous page
<PAGE>
Exhibit 3
TEVECAP S.A.
REPORT ON
FINANCIAL STATEMENTS
December 31, 1996 and 1995
(Free translation from the
original in Portuguese)
<PAGE>
TEVECAP S.A.
REPORT ON
FINANCIAL STATEMENTS
December 31, 1996 and 1995
(Free translation from the
Portuguese language original)
----
CONTENTS
<TABLE>
<S> <C>
eport of Independent Accountants 1
Balance Sheets 3
Statements of Operations 5
Statements of Changes in Shareholders' Equity 6
Statements of Changes in Financial Position 8
Notes to the Financial Statements 9
</TABLE>
<PAGE>
[Coopers & Lybrand Logo]
REPORT OF INDEPENDENT ACCOUNTANTS
(Free translation from the Portuguese language original)
To the
Shareholders and Directors of
Tevecap S.A.
1 We have examined the balance sheets of TEVECAP S.A. (Parent Company) and
subsidiaries (Consolidated) as of December 31, 1996 and 1995, presented as
per Corporation Law, and the Consolidated balance sheet as of December 31,
1996, presented in constant purchasing power, and the related statements of
operations, changes in shareholders' equity and changes in financial
position for the years then ended. These financial statements are the
responsibility of the Company's Management. Our responsibility is to express
an opinion on these financial statements based on our audits.
2 We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we: a) plan our work, considering
the materiality of balances, volume of transactions and the Company's system
of internal accounting control; b) examine, on a test basis, evidence
supporting the amounts and disclosures in the financial statements; and c)
assess the accounting principles used and significant estimates made by
Management, as well as evaluate the overall financial statement
presentation.
3 In our opinion, the financial statements referred to in paragraph 1,
presented as per Corporation Law, present fairly, in all material respects,
the financial position of Tevecap S.A. (Parent Company) and subsidiaries
(Consolidated) as of December 31, 1996 and 1995, and the results of their
operations, changes in their shareholders' equity and changes in their
financial position for the years then ended, in accordance with the
accounting methodology required by the Brazilian Corporation Law (Law No.
6.404/76) which does not provide for inflation accounting, as is required by
accounting principles generally accepted in Brazil.
4 In our opinion, the financial statements referred to in paragraph 1,
presented in constant purchasing power, present fairly, in all material
respects, the financial position of Tevecap S.A. and subsidiaries
(Consolidated) as of December 31, 1996, and the results of their
operations, changes in their shareholders' equity and changes in their
financial position for the year then ended, in accordance with accounting
principles generally accepted in Brazil.
1
<PAGE>
5 As more fully described in Note 4, during the year, the Company and its
subsidiaries changed the method of accounting for costs related to reception
equipment installed at their subscribers' households.
6 As a result of the changes in consolidation procedures introduced by
Instruction No. 247/96 from CVM (Brazilian Securities and Exchange
Commission), more fully described in Note 2.2, Tevecap S.A. prepared pro
forma financial statements as of and for the year ended December 31, 1995,
including the proportional consolidation of the subsidiaries mentioned in
Note 9.5, in order to provide better comparability between 1996 and 1995.
The financial statements of Tevecap S.A. (parent company) and subsidiaries
(consolidated) as of and for the year ended December 31, 1995, presented in
constant purchasing power, were examined by us, and our report thereon did
not contain qualifications.
Sao Paulo, Brazil
April 11, 1997
(Portuguese language original signed by Marco Antonio Brandao Simurro,
Accountant registered with the Rio de Janeiro Chapter of the Brazilian
Regional Accounting Council--CRC/RJ--under No. 52000 "S" SP 2061 and partner of
Coopers & Lybrand, Biedermann, Bordasch Auditores Independentes, an audit firm
registered with the Sao Paulo Chapter of the CRC under No. SP 8599.)
2
<PAGE>
TEVECAP S.A.
BALANCE SHEETS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
-----
ASSETS
<TABLE>
<CAPTION>
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------------------- --------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents........................ 107,310 22,813 108,886 23,623 108,886 25,717
Accounts receivable (Note 5)..................... -- -- 34,119 14,502 34,119 12,889
Inventories (Note 6)............................. -- -- 12,858 12,570 13,634 15,455
Film exhibition rights (Note 7).................. -- -- 1,905 1,585 1,905 881
Accounts receivable from affiliated companies
(Note 11)...................................... -- -- 579 -- 579 --
Offsettable taxes................................ -- -- 246 22 246 24
Advances to employees and other.................. -- -- 3,704 2,345 3,704 2,561
Prepaid expenses................................. 1,200 -- 2,213 894 2,213 911
Other accounts receivable........................ 1,069 2 611 813 611 302
------- ------ ------- ------ ------- ------
Total current assets........................... 109,579 22,815 165,121 56,354 165,897 58,740
------- ------ ------- ------ ------- ------
Long-term assets
Loans and other receivables from affiliated
companies (Note 11)............................ 65,685 100,803 39,814 32,015 39,814 37,077
Advances for future capital increase in affiliated
companies and subsidiaries (Note 11)........... 278,851 183,644 3,468 -- 3,468 506
Legal and compulsory deposits (Note 8)........... -- -- 1,133 883 1,133 964
Prepaid expenses................................. 8,301 -- 8,301 -- 8,301 --
Other accounts receivable........................ -- -- 21 495 21 541
------- ------ ------- ------ ------- ------
Total long-term assets......................... 352,837 284,447 52,737 33,393 52,737 39,088
------- ------ ------- ------ ------- ------
Permanent assets
Property, plant and equipment (Note 12).......... -- -- 219,711 122,747 234,511 118,934
Deferred charges (Note 13)....................... -- -- 115,721 125,388 118,970 127,200
Investments (Note 9)............................. 75,466 6,577 24,188 14,792 25,888 18,110
Goodwill on investments (Note 10)................ 30,580 34,178 39,892 34,178 39,198 33,070
------- ------ ------- ------- ------- -------
Total permanent assets......................... 106,046 40,755 399,512 297,105 418,567 297,314
------- ------ ------- ------- ------- -------
Total assets................................... 568,462 348,017 617,370 386,852 63,720 395,142
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
3
<PAGE>
TEVECAP S.A.
BALANCE SHEETS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
-----
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------------------- --------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
-------------- -------------- --------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
<S> <C> <C> <C> <C> <C> <C>
Current liabilities
Bank loans (Note 14)............................. 3,189 -- 18,420 -- 18,420 --
Film suppliers and licensing..................... -- -- 8,030 10,174 8,030 10,608
Other suppliers.................................. -- -- 55,211 58,275 55,211 55,862
Accrued payroll and related liabilities.......... -- -- 6,429 5,485 6,429 4,864
Taxes payable other than income taxes............ -- 8,477 6,888 8,477 7,325
Advance payments received from subscribers....... -- -- 11,177 4,127 11,177 4,266
Other accounts payable........................... 349 165 5,753 4,753 5,753 3,927
------- ------ ------- ------- ------- -------
Total current liabilities...................... 3,538 165 113,497 89,702 113,497 86,852
------- ------ ------- ------- ------- -------
Long-term liabilities
Loans from affiliated companies (Note 11)........ 6 569 190 2,248 190 632
Bank loans (Note 14)............................. 259,850 -- 259,850 -- 259,850 --
Loans from shareholders.......................... -- -- 1,670 175 1,670 191
Provision for losses on subsidiaries' operations
(Note 9.2)..................................... 69,726 57,717 -- -- -- --
Advance for future capital increase.............. -- -- -- 820 -- --
Provision for tax and labor contingencies
(Note 8)....................................... -- -- 5,113 1,423 5,113 1,555
Other accounts payable........................... -- -- 1,115 1,558 1,115 1,701
------- ------ ------- ------- ------- -------
Total long-term liabilities.................... 329,582 58,286 267,938 6,224 267,938 4,079
------- ------ ------- ------- ------- -------
Minority interest.................................. -- -- 593 1,360 613 (3,540)
------- ------ ------- ------- ------- -------
Shareholders' equity
Paid-in capital (Note 15)........................ 366,000 314,707 366,000 314,707 399,655 399,655
Capital reserves................................. -- 51,293 -- 51,293 -- --
Accumulated deficit.............................. (130,658) (76,434) (130,658) (76,434) (144,502) (91,904)
------- ------ ------- ------- ------- -------
Total shareholders' equity..................... 235,342 289,566 235,342 289,566 255,153 307,751
------- ------- ------- ------- ------- -------
Total liabilities and shareholders' equity..... 568,462 348,017 617,370 386,852 637,201 395,142
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
4
<PAGE>
TEVECAP S.A.
STATEMENTS OF INCOME
December 31, 1996 and 1995
(in thousands of reais, except for per share data)
(Free translation from the Portuguese language original)
-----
<TABLE>
<CAPTION>
CONSTANT
CORPORATION LAW PURCHASING POWER
------------------------------------- ----------------
PARENT COMPANY CONSOLIDATED CONSOLIDATED
---------------- ---------------- ----------------
1996 1995 1996 1995 1996 1995
PRO FORMA
(Note 2.2)
<S> <C> <C> <C> <C> <C> <C>
Revenues from services sold..................... -- -- 226,929 121,631 232,119 123,084
Less-taxes thereon........................... -- -- (14,230) (7,018) (14,636) (7,712)
------- ------- --------- --------- --------- --------
-- -- 212,699 114,613 217,483 115,372
Cost of services sold........................... -- -- (137,901) (105,106) (142,694) (110,164)
------- ------- --------- ---------- --------- ---------
Gross profit.................................... -- -- 74,798 9,507 74,789 5,208
Operating expenses
Selling....................................... -- -- 42,783 22,782 42,847 26,796
Administrative................................ 625 189 55,768 35,709 57,572 31,575
Goodwill amortization......................... 3,598 1,684 4,250 1,684 4,133 1,741
Interest expenses............................. 16,330 18,077 27,830 22,379 24,867 20,734
Interest income................................. 4,246 4,915 7,820 6,011 6,769 5,632
Equity in income of affiliates (Note 9)......... (47,714) (48,329) (2,950) (2,394) (2,973) (977)
------- ------- --------- ---------- --------- ---------
Operating loss.................................. (64,021) (63,364) (50,963) (69,430) (50,834) (70,983)
Nonoperating income (expenses), net (Note 17)... 9,797 362 (5,698) 245 (4,191) 235
Balance sheet monetary restatement.............. -- 232 -- (569) -- --
------- ------- --------- --------- --------- ---------
Loss before income taxes................... (54,224) (62,770) (56,661) (69,754) (55,025) (70,748)
Provision for income taxes...................... -- (6) (186) (517) (186) (569)
------- ------- --------- ---------- --------- ---------
Loss before minority interest.............. (54,224) (62,776) (56,847) (70,271) (55,211) (71,317)
Minority interest............................... -- -- 2,623 7,495 2,613 2,035
------- ------- --------- ---------- --------- ---------
Net loss (Note 18)......................... (54,224) (62,776) (54,224) (62,776) (52,598) (69,282)
------- ------- --------- ---------- --------- ---------
------- ------- --------- ---------- --------- ---------
Loss per share in R$(Note 3.1.13)............... (0.2756) (0.3191)
------- -------
------- -------
Book value per share in R$(Note 3.1.13)......... 1.1964 1.4720
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
5
<PAGE>
TEVECAP S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
<TABLE>
<CAPTION>
CORPORATION LAW
------------------------------------------------
TOTAL
PAID-IN CAPITAL ACCUMULATED SHAREHOLDERS'
CAPITAL RESERVES DEFICIT EQUITY
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994................................... 129,565 64,884 (11,154) 183,295
Capital increase with reserves April 27, 1995................... 64,884 (64,884) -- --
Capital contributed on:
September 22, 1995............................................ 1,903 -- -- 1,903
September 25, 1995............................................ 7,626 -- -- 7,626
September 26, 1995............................................ 38,181 -- -- 38,181
December 8, 1995.............................................. 72,548 -- -- 72,548
Monetary restatement............................................ -- 51,293 (2,504) 48,789
Net loss for the year........................................... -- -- (62,776) (62,776)
--------- --------- ------------ ------------
Balances at December 31, 1995................................... 314,707 51,293 (76,434) 289,566
Capital increase with reserves April 30, 1996................... 51,293 (51,293) -- --
Net loss for the year........................................... -- -- (54,224) (54,224)
--------- --------- ------------ ------------
Balances at December 31, 1996................................... 366,000 -- (130,658) 235,342
--------- --------- ------------ ------------
--------- --------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
6
<PAGE>
TEVECAP S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
<TABLE>
<CAPTION>
Constant purchasing power
------------------------------------------
Total
Paid-in Accumulated Shareholders'
Capital Deficit Equity
--------- ------------ -----------------
<S> <C> <C> <C>
Balances at December 31, 1994........................................ 260,022 (22,622) 237,400
Capital contributed on:
September 22, 1995.................................................. 2,277 -- 2,277
September 25, 1995.................................................. 9,123 -- 9,123
September 26, 1995.................................................. 45,677 -- 45,677
December 8, 1995.................................................... 82,556 -- 82,556
Net loss for the year................................................ -- (69,282) (69,282)
--------- ------------ -------
Balances at December 31, 1995........................................ 399,655 (91,904) 307,751
Net loss for the year................................................ -- (52,598) (52,598)
--------- ------------ -------
Balances at December 31, 1996........................................ 399,655 (144,502) 255,153
--------- ------------ -------
--------- ------------ -------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
7
<PAGE>
TEVECAP S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
for the years ended December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
<TABLE>
<CAPTION>
Constant
Corporation Law purchasing power
--------------------------------------- ------------------
Parent company Consolidated Consolidated
------------------- ----------------- -------------------
1996 1995 1996 1995 1996 1995
--------- --------- -------- ------- -------- -------
Pro Forma
(Note 2.2)
<S> <C> <C> <C> <C> <C> <C>
Sources of funds
Total funds from operations............ -- 465 -- -- -- --
Capital increase....................... -- 120,258 -- 120,258 -- 139,632
Bank loans, long-term.................. 259,850 -- 259,850 -- 259,850 --
Loans from affiliated companies........ 167,136 124,142 151,046 122,993 155,531 147,781
Loans from shareholders ............... -- -- 1,670 -- 1,670 --
Decrease in long-term assets of
related companies..................... 142,316 32,939 7,357 5,553 9,921 7,558
Adjustment to beginning balance as
per CVM Regulatory Instruction
No.247/96............................. -- -- 10,958 -- -- --
Other ................................. -- (6) 5,142 5,110 10,250 1,991
------- ------- ------- ------- ------- -------
Total sources of funds.............. 569,302 277,798 436,023 253,914 437,222 296,962
------- ------- ------- ------- ------- -------
Uses of funds
Total funds used in operations......... 3,526 -- 5,195 40,512 1,904 40,068
Additions
Property, plant and equipment......... -- -- 129,437 73,330 136,045 77,459
Deferred charges...................... -- -- 5,609 2,619 5,643 1,381
Investments........................... 94,798 2,585 11,858 12,749 11,993 16,626
Goodwill.............................. -- 5,779 9,964 5,780 10,261 7,412
Long-term assets...................... 200,496 108,095 18,273 8,098 18,273 12,395
Repayment of loans from affiliated
companies............................. 178,790 138,548 162,414 137,031 164,290 161,192
Prepaid expenses....................... 8,301 -- 8,301 -- 8,301 --
------- ------- ------- ------- ------- -------
Total uses of funds................. 485,911 255,007 351,051 280,119 356,710 316,533
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital............................... 83,391 22,791 84,972 (26,205) 80,512 (19,571)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital represented by:
Current assets:
At end of year........................ 109,579 22,815 165,121 56,354 165,897 58,740
At beginning of year.................. 22,815 1 56,354 18,732 58,740 24,335
------- ------- ------- ------- ------- -------
86,764 22,814 108,767 37,622 107,157 34,405
------- ------- ------- ------- ------- -------
Current liabilities:
At end of year........................ 3,538 165 113,497 89,702 113,497 86,852
At beginning of year.................. 165 142 89,702 25,875 86,852 32,876
------- ------- ------- ------- ------- -------
3,373 23 23,795 63,827 26,645 53,976
------- ------- ------- ------- ------- -------
Increase (Decrease) in net working
capital............................... 83,391 22,791 84,972 (26,205) 80,512 (19,571)
------ ------- ------- ------- ------- --------
------ ------- ------- ------- ------- --------
Statement of funds from (used in)
operating activities
Net loss for the year.................. (54,224) (62,776) (54,224) (62,776) (52,598) (69,282)
Items not requiring outlay of net
working capital
Depreciation and amortization......... -- -- 32,318 14,930 34,342 16,293
Write-offs of permanent assets,
net.................................. -- -- -- 144 -- 189
Goodwill amortization................. 3,598 1,684 4,250 1,684 4,133 1,741
Equity in income of subsidiaries...... 23,766 1,160 2,950 -- 2,973 977
Provision for losses on
subsidiaries' operations............. 23,948 47,169 -- 2,394 -- --
Balance sheet monetary
restatement.......................... -- (232) -- 569 -- --
Capital gains in subsidiaries and
affiliates........................... (9,797) (369) 1,397 (362) 1,351 (235)
Monetary variations/net losses
applicable to long-term.............. 9,183 13,823 10,551 9,883 10,322 11,715
Increase in long-term provisions....... -- 6 186 517 186 569
Minority interest...................... -- -- (2,623) (7,495) (2,613) (2,035)
------ ------ ------- ------- ------- -------
Total (used in) from operations..... (3,526) 465 (5,195) (40,512) (1,904) (40,068)
------ ------ ------- ------- ------- -------
------ ------ ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
8
<PAGE>
TEVECAP S.A.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
(in thousands of reais)
(Free translation from the Portuguese language original)
1 Business Segment
Tevecap S.A. and subsidiaries provide services related to wireless,
cable and parabolic antenna television systems, including marketing and
advertising, production, licensing, distribution, import and export of
domestic and foreign television programs, under licensing agreements,
and hold interests in other companies, particularly those engaged in the
communications sector.
2 Presentation of the Financial Statements
2.1 Basis of Presentation
a) Financial Statements as per Corporation Law
The financial statements (parent company and consolidated) were prepared
in accordance with the accounting methodology required by the Brazilian
Corporation Law (Law No. 6.404/76 and supplementary provisions). The
amounts recorded in the parent company financial statements do not
reflect the effects of inflation in accordance with accounting principles
generally accepted in Brazil applied in the preparation of financial
statements in constant purchasing power. Such effects are presented in
Note 18.
b) Financial statements in constant purchasing power
The consolidated financial statements in constant purchasing power were
prepared in accordance with the Corporation Law, adjusted for inflation
following the criteria for preparation of financial statements in
constant purchasing power, as required by CVM
9
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
Instruction No. 191/92, and monetarily restated through December 31, 1996,
based on the monthly variation in the Market General Price Index (IGP-M)
published by Getulio Vargas Foundation (FGV). The Company opted to use
this index as recommended by the Brazilian Association of Listed Companies
(ABRASCA) to maintain consistency with those required by CVM Circular No.
03/95, of September 1, 1995.
2.2 Pro forma financial statements
As more fully described in Note 9.5, the Company has included pro forma
consolidated financial statements as of and for the year ended December
31, 1995 which reflect the changes in accounting for investments in
subsidiaries and affiliated companies.
3 Summary of significant accounting policies
3.1 Financial statements as per Corporation Law
a) Inflation accounting
Effects of inflation are recognized in the financial statements by
monetary restatement of permanent assets and shareholders' equity through
December 31, 1995, based on the variation in the Ufir (Fiscal Reference
Unit). Law No. 9.249/95, of December 26, 1995, abolished the balance sheet
monetary restatement effective January 1, 1996 for tax and corporate
purposes. Other assets and liabilities subject to indexation or exchange
rate change continue to be monetarily restated.
10
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
b) Cash and cash equivalents are stated at acquisition cost, plus income
earned through the balance sheet dates.
c) Accounts receivable include revenues from subscriptions, hook-up fee,
advertising, and sale of programming.
d) An allowance for doubtful accounts is established on the basis of an
analysis of accounts receivable, considering the risks involved, and is
considered sufficient to cover any losses incurred in realization of such
receivables.
e) Inventories are stated at average acquisition cost, which is lower than
market value.
f) Film exhibition rights are stated at acquisition cost of the respective
contracts, net of the provision for loss. Films exhibition rights and
programming licensing are recognized as the films and/or programs are
shown.
g) Legal and compulsory deposits, as well as provisions for taxes and
contributions, are monetarily restated based on the official indices
established for this purpose.
h) Property, plant and equipment are stated at cost, monetarily restated
through December 31, 1995, less depreciation calculated using the
straight-line method at the rates stated in Note 12, over the remaining
useful lives of the assets.
i) Investments in subsidiaries and significant investments in affiliates
greater than 10% are accounted for by the equity method. Other investments
are presented at acquisition cost, monetarily restated through December
31, 1995, net of a provision for unrealizable investments, if applicable.
j) Goodwill on investments represents the excess amount paid over the fair
market price of the underlying net assets acquired. Amortization is
computed by the straight-line method over periods not exceeding ten years.
11
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
k) Deferred charges consist primarily of film costs, equipment depreciation
and interest expense which were deferred based on the proportion, in
percentage terms, of actual number of subscribers to estimated number of
subscribers for determining the break-even point of the operation. Once
the break-even point was reached, costs and expenses have been amortized
based on the same period (ten years) used to depreciate transmission/
reception equipment. Costs and expenses incurred after the break-even
point is reached are charged to expense as incurred.
l) The Company analyzed the realization of assets as of December 31, 1996 and
concluded that book values are lower than realizable values.
m) Loss and book value per share are calculated on the basis of the number of
outstanding shares at the balance sheet dates.
n) Statement of income
n.1) -- Advertising revenues and production costs of advertisement and
programming are recognized in income when ads are aired.
n.2) -- Subscription revenues are recorded on an accrual basis. Film and
licensing costs are recorded in income according to the respective
revenues.
n.3) -- Hook-up fees are recorded on the date the equipment is installed at the
subscriber's household. Direct selling expenses are charged to expense
as incurred and installation costs are capitalized and amortized over
the average period that the Company estimates subscribers will remain
connected.
12
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
3.2 Financial Statements in Constant Purchasing Power
a) Inflation Accounting
The financial statements for the year ended December 31, 1996 were
prepared in constant purchasing power, based on the Market General Price
Index (IGP-M) published by Getulio Vargas Foundation (FGV). The financial
statements for the year ended December 31, 1995 were restated using the
IGP-M. Fixed interest rate receivables and payables with future maturities
were discounted to present value based on the variation in daily rates,
which approximate the rate set by the Brazilian Investment Bank
Association (Anbid). The effects of these adjustments are included in the
respective income statement accounts.
b) Inventories are stated at their monetarily restated average acquisition
cost, which is lower than replacement cost or net realizable value.
c) Property, plant and equipment are stated at monetarily restated cost, less
depreciation which is calculated under the straight-line method at the
rates stated in Note 12, over the remaining useful lives of the assets.
d) Investments in subsidiaries and significant investments in affiliates
greater than 10% are accounted for by the equity method. Other investments
are presented at monetarily restated acquisition cost, net of a provision
for unrealizable investments, if applicable.
e) Advances from customers are stated at their original amounts, monetarily
restated by reference to the IGP-M variation.
f) Other balance sheet accounts are recorded at their original amounts since
they are expressed in constant currency of December 31, 1996.
13
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
g) Statement of operations
The statement of operations accounts are monetarily restated, as
indicated in item 3.2.1:
g.1) -- Cost of services sold is restated through the balance sheet date.
g.2) -- Deferred expenses and advances from customers are monetarily restated,
the effects of which are included in the respective statement of
operations accounts.
g.3) -- Equity in income/(losses) of subsidiaries and affiliated companies is
restated through the balance sheet dates.
g.4) -- Fixed interest rate receivables and payables are recorded at present
value in the income or expense accounts, based on the variation in the
daily rates which approximate the Anbid rate prevailing on the
transaction date. Accretion of the related amounts are recorded as
income or expenses in subsequent months, and offset against inflation
gains or losses generated by beginning balances of receivables and
payables in the same period, calculated by reference to the IGP-M
variation.
14
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
3.3 CONSOLIDATED FINANCIAL STATEMENTS
THE CONSOLIDATED FINANCIAL STATEMENTS COMPRISE TEVECAP S.A. AND THE FOLLOWING
SUBSIDIARIES:
<TABLE>
<CAPTION>
TEVECAP S.A. INTEREST %
-----------------------
1996 1995
<S> <C> <C>
TVA Communications Ltd.................................. 100.00 100.00
TVA Communications Aruba N.V............................ 100.00 100.00 (a.1)
Ype Radio e Televisao Ltda.............................. 48.90 48.90
Galaxy Brasil S.A....................................... 100.00 100.00
TVA Sistema de Televisao S.A............................ 98.00 98.00
TVA TCG Sistema de Televisao de Porto Alegre S.A........ 100.00 100.00
ESPN do Brasil Ltda..................................... 50.00 50.00 (b)
ITSA Intercontinental Telecomunicacoes S.A.............. -- 19.82
Canbras TVA Cabo Ltda................................... -- 36.00
TVA Curitiba Servicos de Telecomunicacoes Ltda.......... -- 80.00
TVA Sul Participacoes S.A............................... 87.00 --
TV Alfa Cabo Ltda....................................... 87.00 -- (a.2)
TCC TV a Cabo Ltda...................................... 87.00 -- (a.2)
CCS Camboriu Cable System de Telecomunicacoes S.A....... 52.00 -- (a.2)
TVA Sul Parana Ltda..................................... 87.00 -- (a.2)
TVA Sul Santa Catarina Ltda............................. 87.00 -- (a.2)
TVA Sul Foz do Iguacu Ltda.............................. 87.00 -- (a.2)
</TABLE>
- - ------------------------
(a) Indirect investment through the following subsidiaries:
a.1) TVA Communications Ltd.
a.2) TVA Sul Participacoes S.A.
(b) Company proportionally consolidated.
(c) Investments in subsidiaries, equity in income/(losses) of subsidiaries
and affiliated companies, provision for losses on subsidiaries'
operations, receivables and payables related to intercompany transactions
are eliminated, either totally or proportionally to the parent company
interest, whenever applicable.
15
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
(d) Minority interest is calculated based on the proportion of minority
interest percentage in the net equity of the respective company.
4 ACCOUNTING CHANGE
During 1996, Tevecap S.A. and subsidiaries changed the accounting method
for costs related to reception equipment installed at their subscribers'
households to capitalize such costs and amortize over the expected period of
service. Previously, such costs were expensed as incurred. As a consequence
of this change, consolidated shareholders' equity was increased and net loss
for the year was decreased by R$24,587 as per Corporation Law, and R$26,661
in constant purchasing power. Prior years' financial statements have not been
restated to reflect the effects of this accounting change.
5 ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
CONSOLIDATED
-----------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Subscriptions.............................................................. 9,143 7,322 9,143 6,004
Hook-up fees............................................................... 20,443 5,152 20,443 4,892
Advertising and programming................................................ 4,210 2,365 4,210 2,252
Barters.................................................................... 5,827 3,047 5,827 3,252
Other accounts receivable.................................................. 479 130 479 108
--------- --------- --------- ---------
40,102 18,016 40,102 16,508
Allowance for doubtful accounts............................................ (5,983) (3,514) (5,983) (3,619)
--------- --------- --------- ---------
34,119 14,502 34,119 12,889
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
16
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
6 INVENTORIES
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Installation materials and supplies........................................ 13,190 10,465 14,928 13,156
Imports in transit......................................................... 1,044 2,105 1,044 2,299
--------- --------- --------- ---------
14,234 12,570 15,972 15,455
--------- --------- --------- ---------
Allowance for obsolescence................................................. (1,376) -- (2,338) --
--------- --------- --------- ---------
12,858 12,570 13,634 15,455
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
7 FILM EXHIBITION RIGHTS
<TABLE>
<CAPTION>
CONSOLIDATED
-----------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Exhibition rights.............................................................. 2,042 2,715 2,042 2,115
Allowance for exhibition expiration (137)...................................... (137) (1,130) (137) (1,234)
--------- --------- --------- ---------
1,905 1,585 1,905 881
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
17
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
8 Legal and compulsory deposits and taxes and contributions payable
Tevecap S.A. and subsidiaries have deposits referring to lawsuits filed
against tax authorities challenging imposition of certain taxes. The
deposits, made compulsorily in view of law or negotiation, can be shown as
follows:
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
---------------------- ----------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cofins........................................................................... 897 818 897 893
PIS.............................................................................. 114 -- 114 --
Other............................................................................ 122 65 122 71
----- --- ----- ---
1,133 883 1,133 964
----- --- ----- ---
----- --- ----- ---
</TABLE>
Based on its legal counsel's opinion, the Company and its subsidiaries
have accrued the following amounts relating to the above-mentioned lawsuits,
and others:
<TABLE>
<CAPTION>
CONSOLIDATED
----------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
---------------------- ----------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cofins........................................................................ 821 82 821 90
Finsocial..................................................................... 27 -- 27 --
Labor claims.................................................................. 1,921 1,262 1,921 1,378
IPI........................................................................... 94 79 94 87
Ecad.......................................................................... 800 -- 800 --
ICMS.......................................................................... 1,450 -- 1,450 --
----- ----- ----- -----
5,113 1,423 5,113 1,555
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
18
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
9 INVESTMENTS
The following table shows the direct investment held by Tevecap S.A.,
parent company, in its subsidiaries and affiliated companies as of December
31, 1996:
<TABLE>
<CAPTION>
CORPORATION LAW
----------------------------------------------------------------------------------------
NUMBER PROVISION
(IN FOR LOSSES
INCOME/ THOUSANDS) EQUITY IN ON
INTEREST NET (LOSS) FOR COMMON STOCK INCOME SUBSIDIARIES'
SUBSIDIARIES AND AFFILIATES CAPITAL % EQUITY THE YEAR OR QUOTAS (LOSS) OPERATIONS
- - -------------------------------------- --------- --------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
TVA Sistema de Televisao S.A.......... 23,868 98.00 (71,148) (24,437) 6,840,764 -- (23,948)
TV Filme Inc.......................... 44,622 14.33 50,498 10,761 1,456,760 1,542 --
Canbras TVA Cabo Ltda................. 4,169 36.00 647 (3,519) 77,773 (1,267) --
Comercial Cabo TV Sao Paulo Ltda...... 4,996 100.00 4,674 (63) 1,139,685 (63) --
TV Cabo Santa Branca Comercio Ltda.... 8 36.00 8 -- 377 -- --
Galaxy Brasil S.A..................... 31,702 100.00 31,376 (326) 3,170,199 (326) --
ESPN do Brasil Ltda................... 16,774 50.00 1,700 (11,188) 8,386,770 (5,594) --
Ype Radio e Televisao Ltda............ 112 48.90 53 -- 132 -- --
TVA Communications Ltd................ 36,871 100.00 28,524 (4,494) -- (4,494) --
TVA Sul Participacoes S.A............. 18,471 87.00 2,877 (15,593) 16,069,617 (13,564) --
TVA TCG Sistema de Porto Alegre
S.A................................. 12 100.00 12 -- 9,999 -- --
----------- -----------
----------- -----------
(23,766) (23,948)
----------- -----------
----------- -----------
</TABLE>
9.1 THE INVESTMENTS OF TEVECAP S.A., parent company, are adjusted
according to the interest in the net equity of its subsidiaries and
affiliated companies based on the financial statements in accordance
with the accounting methodology required by the Brazilian
Corporation Law.
9.2 The provision for losses on subsidiaries' operations, in long-term
liabilities, represents cumulative losses on operations of
subsidiaries and affiliated companies in excess of contributed
capital.
9.3 On March 28, 1996, the Company made a capital contribution of
R$16,070 to TVA Sul Participacoes S.A.
9.4 During the year, with the objective of increasing its share in the
paid television market in the South of Brazil, the Company acquired,
through its subsidiary, TVA Sul Participacoes S.A., the ownership
control of TVA Sul Santa Catarina Ltda., TV Alfa Cabo Ltda., TCC TVA
Cabo Ltda., TV Cabo Iguacu Ltda., and CCS Camboriu Cable
19
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
System de Telecomunicacoes Ltda. These transactions resulted in
goodwill of R$9,964 as per Corporation Law, and R$10,261 in constant
purchasing power.
9.5 The Brazilian Securities and Exchange Commission (CVM) introduced
changes in the method of accounting for investments in subsidiaries
and affiliated companies and for balance sheet consolidation by
issuing CVM Instruction No. 247/96, of March 27, 1996, subsequently
amended by CVM Circular No. 04, of December 27, 1996. Among the
changes required, those which had significant impact on the Company
and its subsidiaries were the determination of proportional
consolidation of the financial statements of subsidiaries in which
interest held represents 50% of the voting capital or in which
voting rights are equal to that of other controlling companies, and
the definition of subsidiaries for consolidation purposes.
In order to meet the above requirements, proportional consolidation
was adopted in the financial statements of ESPN do Brasil Ltda. and
ITSA Intercontinental Telecomunicacoes Ltda. is no longer
consolidated, but is being accounted for under the equity method.
The effects of this change in the form of presentation of financial
statements as per Corporation Law caused decreases (increases) in
the following balance sheet and statement of operations accounts:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
------------------------------------- --------------------------------------
<S> <C> <C> <C>
Current assets................. Current liabilities
Cash and cash equivalents.... 120,868 Suppliers................. 10,889
Accounts receivable.......... 4,605 Advance payments.......... 394
Inventories.................. 3,630 Other accounts payable.... 5,112
Other accounts receivable.... 1,370
Long-term assets............... 35,571 Long-term liabilities....... 146,240
Permanent assets............... 40,831 Minority interest........... 44,240
-------- -------
Total assets................. 206,875 Total liabilities........ 206,875
--------- -------
--------- -------
</TABLE>
20
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
Revenues from services sold........................................ 44,488
Net operating income............................................... 40,789
Gross profit....................................................... 22,430
Operating expenses................................................. (15,124)
Minority interest.................................................. 3,624
</TABLE>
9.6 Summarized financial data of the jointly controlled company ESPN do
Brasil Ltda., as mentioned in Note 3.3.b. are as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
---------------------------------- ---------------------------------------
<S> <C> <C> <C>
Current assets............... Current liabilities
Cash and cash equivalents.... 4 Suppliers................. 1,923
Accounts receivable.......... 1,924 Advance payments.......... 524
Film exhibition rights....... 1,604 Other accounts payable.... 1,803
Other accounts receivable.... 250
Long-term assets............. 1,590
Permanent assets............. 578 Shareholders'equity......... 1,700
----- ------
Total assets.............. 5,950 Total liabilities........ 5,950
----- ------
----- ------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
Revenues from services sold........................................ 12,436
Net operating income............................................... 11,690
Gross loss......................................................... (9,760)
Operating expenses................................................. 1,428
Loss for the year.................................................. (11,188)
</TABLE>
21
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
-----------
10 GOODWILL ON INVESTMENTS
Tevecap S.A. and subsidiaries have recorded goodwill on investments as
follows:
<TABLE>
<CAPTION>
PARENT COMPANY CONSOLIDATED
-------------------- ------------------------------------------
CONSTANT
CORPORATION LAW CORPORATION LAW PURCHASING POWER
-------------------- -------------------- --------------------
SUBSIDIARIES AND AFFILIATED COMPANIES 1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ESPN do Brasil Ltda............................................. 1 1 1 1 1 1
Coml. Cabo TV SP Ltda........................................... 2,020 2,258 2,020 2,258 2,206 2,466
TVA Sistema de Televisao S.A.................................... 22,728 25,402 22,728 25,402 21,015 23,487
Ype Radio e Televisao Ltda...................................... 5,768 6,447 5,768 6,447 6,299 7,040
Canbras TVA Cabo................................................ 63 70 63 70 69 76
TV Alfa Cabo Ltda............................................... -- -- 1,678 -- 1,776 --
TCC TVA Cabo Ltda............................................... -- -- 2,240 -- 2,371 --
CCS Camboriu Cable System de Telecomunicacoes Ltda.............. -- -- 314 -- 317 --
TVA Sul Foz do Iguacu Ltda...................................... -- -- 5,065 -- 5,128 --
TVA Sul Santa Catarina Ltda..................................... -- -- 15 -- 16 --
------ ------ ------ ------ ------ ------
30,580 34,178 39,892 34,178 39,198 33,070
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
a) Goodwill on the investment in TVA Sistema de Televisao S.A., attributed to
the expected future profitability of its operations, has been amortized over
ten years since June 1995, when the break-even point was reached.
b) Goodwill on the investment in Ype Radio e Televisao Ltda. has been amortized
over ten years since June 1995, when the break-even point was reached.
c) Goodwill on investments of direct subsidiary TVA Sul Participacoes S.A. in
its subsidiaries TVA Sul Foz do Iguacu Ltda., TV Alfa Cabo Ltda., TCC TV a
Cabo Ltda. and TVA Sul Santa Catarina Ltda. has been amortized over ten
years from their acquisition dates.
22
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
-----------
11 RELATED-PARTY TRANSACTIONS
The following table summarizes the transactions between Tevecap S.A. and
related companies during the year ended December 31, 1996:
<TABLE>
<CAPTION>
PARENT COMPANY
-----------------------------------------------------
CORPORATION LAW
-----------------------------------------------------
BALANCE SHEET ACCOUNTS
---------------------------------------
ADVANCES INTEREST
FOR FUTURE INCOME
LOANS LOANS CAPITAL (EXPENSE),
GRANTED OBTAINED INCREASE NET
--------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
TVA Sistema de Televisao S.A........................................... 264,264
Abril S.A.............................................................. (10,864)
Canbras TVA Cabo Ltda.................................................. 3,461 (193)
Canbras Participacoes Ltda............................................. 311
Galaxy Brasil S.A...................................................... 17,005 48 510
TV Cabo Santa Branca Comercio Ltda..................................... 2
TVA Comunicacoes S.A................................................... 5
ESPN do Brasil Ltda.................................................... (88)
TVA Brasil Radioenlaces Ltda........................................... 26,629
TVA Sul Participacoes S.A.............................................. 8,654 11,071 277
Comercial Cabo TV Sao Paulo Ltda....................................... 196 51
Ype Radio e Televisao Ltda............................................. 5
SMC Marketing Promocional Ltda......................................... 12,790 633
TV Alfa Cabo Ltda...................................................... 6
TVA TCG Sistema de Televisao de Porto Alegre S.A....................... 95 10
--------- -- ----------- -----------
65,685 6 278,851 (9,664)
--------- -- ----------- -----------
--------- -- ----------- -----------
</TABLE>
23
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
<TABLE>
<CAPTION>
CONSOLIDATED
-------------------------------------------------------------
CORPORATION LAW
-------------------------------------------------------------
BALANCE SHEET ACCOUNTS
-----------------------------------
ADVANCES INTEREST
FOR FUTURE INCOME SALES
LOANS LOANS CAPITAL (EXPENSE), AND COSTS,
GRANTED OBTAINED INCREASE NET NET
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Televisao Abril Ltda....................................... 141 132
Abril S.A.................................................. 791 (10,864) (4,683)
ITSA Intercontinental Telecomunicacoes S.A................. 25 3,818
Televisao Show Time Ltda................................... 135
Canbras TVA Cabo Ltda...................................... 120 3,461 (195) 284
Abril Investments Corporation.............................. 1,101
Canbras Participacoes Ltda................................. 311
ESPN Brazil Inc............................................ 1
HBO Partners............................................... 1,743
Surfin Ltd................................................. 1,705
Galaxy Latin America....................................... 7,380 (651)
TV Cabo Santa Branca Comercio Ltda......................... 2
TVA Comunicacoes S.A....................................... 5
TVA Brasil Radioenlaces Ltda............................... 26,629 190
SMC Marketing Promocional Ltda............................. 282 633
ESPN do Brasil Ltda........................................ 28 (836)
TVA TCG Sistema de Televisao Porto Alegre S.A.............. 10
TV Paga Parana Ltda........................................ 1
------ --- ----- ------- ------
40,393 190 3,468 (10,416) (1,936)
------ --- ----- ------- ------
------ --- ----- ------- ------
</TABLE>
24
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------------------------------------
CONSTANT PURCHASING POWER
------------------------------------------------------------
BALANCE SHEET ACCOUNTS
-----------------------------------
ADVANCES INTEREST SALES
FOR FUTURE INCOME AND
LOANS LOANS CAPITAL (EXPENSE), COSTS,
RELATED COMPANIES GRANTED OBTAINED INCREASE NET NET
- - ------------------------------------------------------------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Televisao Abril Ltda......................................... 141 132
Abril S.A.................................................... 791 (11,027) (4,685)
ITSA Intercontinental Telecomu-nicacoes S.A.................. 25 3,858
Televisao Show Time Ltda..................................... 135 (11)
Canbras TVA Cabo Ltda........................................ 120 3,461 (123) 286
Abril Investments Corporation................................ 1,101
Canbras Participacoes Ltda................................... 311 (29)
ESPN Brazil Inc.............................................. 1
HBO Partners................................................. 1,743
Surfin Ltd................................................... 1,705
Galaxy Latin America......................................... 7,380 (657)
TV Cabo Santa Branca Comercio Ltda........................... 2
TVA Comunicacoes S.A......................................... 5
TVA Brasil Radioenlaces Ltda................................. 190
SMC Marketing Promocional Ltda............................... 282 (108)
ESPN do Brasil Ltda.......................................... 28 (194) (836)
TVA Brasil Radioenlaces Ltda................................. 26,629 (2,449)
TV Paga Parana Ltda.......................................... 1
------ --- ----- ------ ------
40,393 190 3,468 (13,941) (2,062)
------ --- ----- ------- ------
------ --- ----- ------- ------
</TABLE>
11.1 Loans granted to or obtained from related companies, under loan
agreements, are subject to variable interest of 1.80% to 2.50% per month,
except for the loan with TVA Brasil Radioenlaces Ltda., which was
monetarily restated through December 31, 1995 based on the Ufir (Fiscal
Reference Unit) variation.
11.2 Related-party transactions relating to programming sales and costs and
printing services costs were carried out at usual market rates and terms.
11.3 TEVECAP S.A. and subsidiaries were given debt guarantees by Abril S.A.,
their parent company, by way of collateral and letters of credit in the
amount of R$60,620.
25
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
12 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
CONSOLIDATED
ANNUAL ------------------------------------------
DEPRECIATION CONSTANT
RATES CORPORATION LAW PURCHASING POWER
-------------------------------------------
% 1996 1995 1996 1995
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Buildings................................................ 4 11,899 472 12,631 451
Machinery and equipment.................................. 10 47,085 43,083 51,194 43,360
Converters............................................... 10 106,362 48,870 111,602 44,939
Reception equipment...................................... 20 27,234 -- 29,550 --
Furniture and fixtures................................... 10 2,180 1,912 2,348 1,635
Vehicles................................................. 20 1,397 546 1,511 568
Premises................................................. 10 2,542 1,329 2,743 1,259
Telephone sets........................................... 10 1,683 911 1,829 917
Leasehold improvements................................... 20 2,157 2,452 2,351 2,042
Cable plant.............................................. 10 24,552 8,764 26,048 9,194
EDP equipment............................................ 10 8,729 4,188 9,353 4,103
Tools.................................................... 50 890 1,048 965 854
------- ------- ------- -------
236,710 113,575 252,125 109,322
Accumulated depreciation................................. (32,690) (14,889) (35,644) (15,176)
Telephone line use rights................................ 1,162 1,008 1,264 1,022
Trademarks and patents................................... 217 215 237 235
Fixed assets in transit.................................. 10,293 19,256 12,154 20,711
Other.................................................... 4,019 3,582 4,375 2,820
------- ------- ------- -------
219,711 122,747 234,511 118,934
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
13 DEFERRED CHARGES
On December 31, 1996 and 1995, deferred charges comprised:
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Film costs............................................................. 22,593 22,593 24,670 24,670
Capitalized interest................................................... 94,526 94,526 94,920 94,920
Capitalized depreciation............................................... 4,736 4,736 5,171 5,171
Other.................................................................. 15,081 11,215 15,870 10,226
Accumulated amortization............................................... (21,215) (7,682) (21,661) (7,787)
------- ------- ------- -------
115,721 125,388 118,970 127,200
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
26
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
14 BANK LOANS
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------------------
1996
------------------------------------------
CONSTANT
CORPORATION LAW PURCHASING POWER
-------------------- --------------------
SHORT- LONG- SHORT- LONG-
TERM TERM TERM TERM
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Working capital, foreign currency denominated:.......................... 3,189 259,850 3,189 259,850
Local currency financings............................................... 15,231 -- 15,231 --
------ ------- ------ -------
18,420 259,850 18,420 259,850
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
14.1 On November 26, 1996, Tevecap S.A. raised funds in foreign markets
amounting to R$259,850, equivalent to US$250,000, at the exchange rate of
December 31, 1996. These loans mature on November 26, 2004 and are
guaranteed by Tevecap S.A. and subsidiaries. Interest thereon is at
12.625% p.a. above exchange rate change and is payable May 25 and
November 25, commencing on May 25, 1997.
14.2 Short-term financings in local currency are secured by promissory notes
and chattel mortgages, and bear interest at rates varying from 8% to 9%
per year.
15 CAPITAL STOCK
On December 31, 1996 and 1995, the parent company's capital is represented
by 196,712,855 registered common shares without par value.
27
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
16 INCOME TAX
As of December 31, 1996, Tevecap S.A. had accumulated tax losses in the
amount of R$30,172 and its subsidiaries and affiliated companies in the amount
of R$120,365, to be offset against future taxable income, as follows:
TVA Sistema de Televisao S.A....................................... 80,191
TVA Sul Participacoes S.A.......................................... 13,659
ESPN do Brasil Ltda................................................ 14,966
Comercial Cabo TV Sao Paulo Ltda................................... 312
Galaxy Brasil S.A.................................................. 280
ITSA Intercontinental Telecomunicacoes S.A......................... 10,957
---------
120,365
---------
---------
17 NONOPERATING INCOME (LOSS)
<TABLE>
<CAPTION>
PARENT COMPANY CONSOLIDATED
---------------------- ----------------------------------------
CONSTANT
CORPORATION LAW CORPORATION LAW PURCHASING POWER
---------------------- -------------------- ------------------
1996 1995 1996 1995 1996 1995
------- -------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Capital gain on sale of interest in TVA
Curitiba Servicos de Telecom. Ltda.......................... 8,916 -- -- -- -- --
Capital gain on sale on interest in TV Film Inc............... 2,383 369 2,383 362 2,445 399
Capital loss on acquisition of
TVA Sul Participacoes S.A................................... (1,502) -- (1,502) -- (1,512) --
Capital losses on acquisition of companies from
the South region, purchased through
TVA Sul Participacoes Ltda.................................. -- -- (2,278) -- (2,283) --
Capital losses on acquisition of
TVA Communications Ltd...................................... -- -- -- -- -- (164)
Provision for loss on converters.............................. -- -- (1,380) -- (1,323) --
Allowance for inventory obsolescence.......................... -- -- (1,376) -- (1,431) --
Commissions................................................... -- -- (1,268) -- (257) --
Other......................................................... -- (7) (277) (117) 170 --
--------- --- --------- --- --------- ---
9,797 362 (5,698) 245 (4,191) 235
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
</TABLE>
28
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
18 CONSTANT PURCHASING POWER AND CORPORATION LAW
Reconciliations between net loss and shareholders' equity as per Corporation
Law and in constant purchasing power are as follows:
<TABLE>
<CAPTION>
PARENT COMPANY CONSOLIDATED
------------------------------------ ------------------------
SHAREHOLDERS' SHAREHOLDERS'
NET LOSS EQUITY NET LOSS EQUITY
------------ ----------------- --------- -------------
<S> <C> <C> <C> <C>
Balances as per Corporation Law.................. (54,224) 235,342 (54,224) 235,342
Gains on monetary items.......................... 1,253 1,253 7,436 7,436
Gains on shareholders' equity.................... -- 26,626 -- 26,626
Restatement of inventories....................... -- -- 775 775
Goodwill adjustment in subsidiaries.............. (3,802) (3,802) (3,802) (3,802)
Equity in income/(losses) of subsidiaries........ (57) (57) (22) (22)
Provision for losses on subsidiaries'
operations..................................... (4,209) (4,209) (4,209) (4,209)
Allocation of gains/(losses) on deferred
expenses....................................... -- -- (6,983) (6,983)
Reversal of prior-year adjustments............... 8,441 -- 8,441 --
Minority interest................................ -- -- (10) (10)
------- ------- -------- -------
Balances in constant purchasing power............ (52,598) 255,153 (52,598) 255,153
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
19 FINANCIAL INSTRUMENTS
For purposes of protecting its available funds and financing its operations,
the Company has the following financial instruments:
19.1 SHORT-TERM INVESTMENTS
Short-term investments approximate market value, by determined comparison of
the contractual interest rates with the market interest rates in similar
operations on the same date.
29
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
----------
19.2 BANK LOANS
For detailed information about loans and financings, see Note 14.
19.3 LOANS WITH RELATED COMPANIES
The estimated market value of loan agreements with related parties, net as
of December 31, 1996, determined by reference to the Company's weighted average
funding cost, approximates R$71,010 (parent company) and R$45,718
(consolidated).
The market values of other financial instruments receivable and payable as
of December 31, 1996 do not differ from those recorded in the financial
statements.
20 GUARANTEES
The Company has given guarantees and letters of credit on behalf of its
related companies in the amount of R$3,324.
21 INSURANCE
The policy of the parent company and its subsidiaries and affiliated
companies is to maintain insurance coverage for property, plant and equipment
and inventories in an amount considered sufficient to cover the risks involved.
On December 31, 1996, insurance coverage amounted to R$86,937 (consolidated).
22 PENSION PLAN
Tevecap S.A. and subsidiaries and certain affiliated companies are
co-sponsors of a private pension entity, Abrilprev Sociedade de Previdencia
Privada, the primary
30
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Continued
------------
objective of which is to provide employee benefits other than those provided by
Social Security. The plan is available to all employees of the sponsoring
entities. Abrilprev operates as a Defined Contribution Plan, and the main
actuarial method used to determine the contribution level is the capitalization
method. The plan costs, borne by both employees and sponsoring entities, are
actuarially determined annually expressed in a fixed percentage of payroll of
the sponsoring entities. Retirement supplements granted are based on employees'
years of service, contribution to Social Security, minimum age, and termination
of employment relationship. During 1996, contributions made by Tevecap S.A. and
subsidiaries and certain affiliated companies amounted to R$382.
23 ABRIL HEALTH CARE PLAN
In February 1996, the Abril Health Care Plan was created to provide health
care to Abril companies' employees and their dependents. Both companies and
employees contribute monthly to Associacao Abril de Beneficios, the company
responsible for the plan management. In 1996, contributions made by Tevecap S.A.
subsidiaries and certain affiliated companies amounted to R$2,086.
24 COMMITMENTS
24.1 Tevecap S.A. and subsidiaries have entered into film distribution
contracts and licensing agreements with film producers for programming in future
periods. Such contracts and agreements, which range in life from one to nine
years, with the exception of a specific contract with ESPN Internacional, which
has a life of 50 years, require a per-subscriber fee to be paid by the Company
on a monthly basis.
24.2 On December 31, 1996, contractual commitments with Embratel, assumed by
Tevecap S.A. and subsidiaries for satellite use from 1997 through 2003,
amounted to R$74,656.
31
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS, Concluded
----------
24.3 Through its subsidiary, Galaxy Brasil S.A., the Company has a licensing
agreement with Galaxy Latin America for the use of the trademark, DirecTV,
satellite and programming which requires a per-subscriber fee to be paid by the
Company on a monthly basis for an indefinite period, calculated based on the
number of subscribers.
25 SUBSEQUENT EVENTS
In 1997, the negotiation of a lease contract between the subsidiary, Galaxy
Brasil S.A., and Citibank N.A. in the amount of US$49,900, equivalent to
R$51,846 at the exchange rate of December 31, 1996, was concluded. Such contract
has a five-year term with interest at 12.5% per year above exchange rate change
variation. The contract is guaranteed by Tevecap S.A. and TVA Sistema de
Televisao S.A.
32
