-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S0mSzLqOFLG1F9t+c8AmD/CitxeuBzKd0KSbn6RyoUR1lwA77sRtYwoNT6w0hqQh oWnZ/2dIwNr+97rgG03scg== /in/edgar/work/20000619/0000902561-00-000304/0000902561-00-000304.txt : 20000920 0000902561-00-000304.hdr.sgml : 20000919 ACCESSION NUMBER: 0000902561-00-000304 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEVECAP S A CENTRAL INDEX KEY: 0001034029 STANDARD INDUSTRIAL CLASSIFICATION: [4841 ] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 333-22267 FILM NUMBER: 657123 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 BUSINESS PHONE: 2126641666 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 6-K 1 0001.txt TEVECAP S.A. - FORM 6-K 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 June 2000 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 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/ Marcelo Vaz Bonini ---------------------- Marcelo Vaz Bonini Chief Financial Officer By: /s/Mauricio Dias ---------------------- Mauricio Dias Treasurer Date: June 20, 2000 EXHIBIT LIST ------------ 1. One copy of a free translation of the Tevecap S.A. financial statements, together with the relevant report of independent public accountants, as of and for the years ended December 31, 1999 and 1998, prepared in accordance with Brazilian GAAP. EX-99 2 0002.txt FINANCIAL STATEMENTS/REPORT Tevecap S.A. Financial Statements Together with Report of Independent Public Accountants December 31, 1999 and 1998 Report of Independent Public Accountants (Translation of the report originally issued in Portuguese. See Note 27 to the financial statements.) To the Management and Stockholders of Tevecap S.A.: (1) We have audited the individual (Company) and consolidated balance sheets of TEVECAP S.A.(a Brazilian corporation) and subsidiaries as of December 31, 1999 and 1998, presented under the caption "Corporate law", and the related statements of income, changes in stockholders' equity, and changes in financial position for the years then ended, prepared under the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements. The financial statements as of December 31, 1999 of the affiliated company Canbras TVA Cabo Ltda., the investment in which represents approximately 13% of the Company's stockholders' equity, were audited by other independent public accountants who issued an unqualified opinion dated January 19, 2000. This investment generated an equity loss in the affiliate in the amount of R$7,927,322 for the year ended December 31, 1999. Accordingly, our opinion as regards the amounts of the investment and equity results in this affiliated company in 1999 is based upon the report of those accountants. (2) Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Company and its subsidiaries, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of the financial statements taken as a whole. (3) In our opinion, based on our audits and on the report of the other independent public accountants referred to above, the financial statements referred to in paragraph (1) present fairly, in all material respects, the individual and consolidated financial positions of Tevecap S.A. and subsidiaries as of December 31, 1999 and its 1998, and the results of their operations, the changes in stockholders' equity, and the changes in their financial positions for the years then ended in accordance with accounting practices emanating from Brazilian corporate law. (4) We have also audited the consolidated balance sheet of Tevecap S.A. and subsidiaries as of December 31, 1999, presented under the caption "Constant purchasing power", and the related consolidated statements of income, changes in stockholders' equity, and changes in financial position for the year then ended, prepared under the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements. Our audit was conducted in accordance with the auditing standards mentioned in paragraph (2). Additionally, regarding affiliated company Canbras TVA Cabo Ltda., we have audited the adjustments required to conform the amounts of the investment and equity in the results of the affiliate to accounting principles generally accepted in Brazil, originally recorded in accordance with accounting practices emanating from Brazilian corporate law. As mentioned in Note 2.3., the Company is presenting, for comparison purposes, unaudited pro forma financial statements in constant purchasing power, for the year ended December 31, 1998. In our opinion, the consolidated financial statements in "Constant purchasing power" present fairly, in all material respects, the consolidated financial position of Tevecap S.A. and subsidiaries as of December 31, 1999, and the results of their operations, the changes in stockholders' equity, and the changes in their financial position for the year then ended in accordance with accounting principles generally accepted in Brazil. Sao Paulo, March 21, 2000 (except for the matter discussed in Note 26, as to which the date is April 10, 2000) ARTHUR ANDERSEN S/C Marco Antonio Brandao Simurro Engagement Partner TEVECAP S.A. BALANCE SHEETS--DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais) (Translation of the original in Portuguese) A S S E T S
Constant purchasing Corporate law power -------------------------------------------------- -------------------------- Company Consolidated Consolidated ------- ------------ ------------ 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) CURRENT ASSETS: Cash and banks 20 47 3,481 3,628 3,481 2,027 Accounts receivable - - 13,528 49,485 13,528 28,954 Inventories - - 13,117 16,480 15,732 21,629 Film exhibition rights - - 2,286 3,236 2,286 2,277 Accounts receivable - affiliated companies 4,880 1,069 5,096 11,908 5,096 1,871 Offsettable taxes 670 1,479 2,229 2,269 2,229 2,526 Prepaid expenses 2,254 2,786 3,802 5,463 3,802 6,382 Escrow deposits - - 1,488 - 1,488 - Other receivables 198 946 4,791 4,717 4,791 4,258 -------------- ----------- ----------- ----------- ----------- ----------- Total current assets 8,022 6,327 49,818 97,186 52,433 69,924 -------------- ----------- ----------- ----------- ----------- ----------- NONCURRENT ASSETS: Loans to subsidiaries and affiliated companies 94,963 611,533 36,786 58,555 36,786 70,664 Advances for future capital increase in affiliated companies and subsidiaries 596,013 2 2 2 2 2 Escrow deposits - 95 3,726 2,916 3,726 3,001 Prepaid expenses 905 7,570 905 7,570 905 9,092 Dividends receivable 160,000 - - - - - Notes receivable 45,621 - 45,621 - 45,621 - -------------- ----------- ----------- ----------- ----------- ----------- Total noncurrent assets 897,502 619,200 87,040 69,043 87,040 82,759 -------------- ----------- ----------- ----------- ----------- ----------- PERMANENT ASSETS: Property and equipment 7 9 284,898 522,751 378,979 422,973 Investments 181,756 5,858 3,866 53,521 3,869 72,614 Goodwill on investments - 1 27,846 32,583 38,780 44,475 Deferred charges - - 72,784 88,947 108,702 124,823 -------------- ----------- ----------- ----------- ----------- ----------- Total permanent assets 181,763 5,868 389,394 697,802 530,330 664,885 -------------- ----------- ----------- ----------- ----------- ----------- Total assets 1,087,287 631,395 526,252 864,031 669,803 817,568 ============== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these balance sheets. TEVECAP S.A. BALANCE SHEETS--DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais) (Translation of the original in Portuguese) LIABILITIES AND STOCKHOLDERS' EQUITY
Constant purchasing Corporate law power -------------------------------------------------- -------------------------- Company Consolidated Consolidated ------- ------------ ------------ 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) CURRENT LIABILITIES: Loans and financing 29,853 3,603 15,074 52,494 15,074 59,558 Lease obligations - - - 40,471 - - Trade accounts payable - films and licensing - - 15,584 66,926 15,584 25,503 Other trade accounts payable 1,444 947 15,503 127,888 15,503 37,331 Salaries and payroll charges - - 4,258 6,988 4,258 5,728 Taxes payable 2,830 5 10,669 28,403 10,669 19,191 Advances - - 1,678 6,208 1,678 2,907 Other accounts payable 235 210 3,549 8,414 3,549 7,828 ------------- ----------- ----------- ----------- ----------- ----------- Total current liabilities 34,362 4,765 66,315 337,792 66,315 158,046 ------------- ----------- ----------- ----------- ----------- ----------- LONG-TERM LIABILITIES: Loans from subsidiaries and affiliated companies 242,407 104,258 243,614 176,948 243,614 125,836 Loans and financing 447,250 302,175 102,846 317,393 102,846 380,844 Reserve for losses on subsidiaries' operations 288,082 197,421 8,468 541 6,877 24,137 Taxes 11,268 - 40,744 1,214 40,744 1,461 Reserve for contingencies - - 4,325 8,999 4,325 9,320 ------------- ----------- ----------- ----------- ----------- ----------- Total long-term liabilities 989,007 603,854 399,997 505,095 398,406 541,598 ------------- ----------- ----------- ----------- ----------- ----------- MINORITY INTEREST - - (3,978) (1,632) (3,484) (1,019) ------------- ----------- ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY: Capital 478,741 478,741 478,741 478,741 662,956 662,956 Revaluation reserve 35,689 - 35,689 - 35,689 - Accumulated deficit (450,512) (455,965) (450,512) (455,965) (490,079) (544,013) ------------- ----------- ----------- ----------- ----------- ----------- Total stockholders' equity 63,918 22,776 63,918 22,776 208,566 118,943 ------------- ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity 1,087,287 631,395 526,252 864,031 669,803 817,568 ============= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these balance sheets. TEVECAP S.A. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais, except for per share data) (Translation of the original in Portuguese)
Constant purchasing Corporate law power -------------------------------------------------- -------------------------- Company Consolidated Consolidated ------- ------------ ------------ 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) GROSS REVENUE - - 219,652 438,499 235,139 282,044 Taxes - - (22,973) (31,220) (19,380) (19,780) ------------- ----------- ----------- ----------- ----------- ----------- - - 196,679 407,279 215,759 262,264 COST OF SERVICES - - (154,751) (328,159) (165,574) (205,065) ------------- ----------- ----------- ----------- ----------- ----------- GROSS PROFIT - - 41,928 79,120 50,185 57,199 OPERATING EXPENSES: Selling - - 21,093 70,623 19,702 37,294 Administrative 2,037 3,127 42,066 87,937 48,430 61,197 Goodwill amortization - - 4,737 4,711 6,051 6,019 EQUITY IN RESULTS OF SUBSIDIARIES AND AFFILIATED COMPANIES 308,323 (95,935) (988) (1,106) (988) (17,923) PROVISION FOR LOSSES ON SUBSIDIARIES' OPERATIONS (259,596) (102,877) (138,030) (2,406) (123,426) (88,826) ------------- ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS BEFORE NET FINANCIAL EXPENSES 46,690 (201,939) (164,986) (87,663) (148,412) (154,060) FINANCIAL EXPENSES, NET (251,427) (16,958) (215,266) (125,791) (155,915) (92,383) ------------- ----------- ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (204,737) (218,897) (380,252) (213,454) (304,327) (246,443) NONOPERATING INCOME (EXPENSES), NET 210,190 (2,439) 382,826 (11,463) 355,263 (9,552) ------------- ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX 5,453 (221,336) 2,574 (224,917) 50,936 (255,995) Provision for income tax - - (195) (29) (195) (35) ------------- ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE MINORITY INTEREST 5,453 (221,336) 2,379 (224,946) 50,741 (256,030) Minority interest - - 3,074 3,610 3,193 4,176 ------------- ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) 5,453 (221,336) 5,453 (221,336) 53,934 (251,854) ============= =========== =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE - R$ 0.0241 (0.9779) ============= =========== BOOK VALUE PER SHARE - R$ 0.2824 0.1006 ============= ===========
The accompanying notes are an integral part of these statements. TEVECAP S.A. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais) (Translation of the original in Portuguese)
Corporate law -------------------------------------------------------------- Revaluation Total reserve Accumulated stockholders' Capital in subsidiary deficit equity ------------ ------------- ----------- ------------- BALANCES DECEMBER 31, 1997 366,000 - (234,629) 131,371 Capital increase - February 17, 1998 112,741 - - 112,741 Net loss - - (221,336) (221,336) ----------- --------- ----------- ----------- BALANCES DECEMBER 31, 1998 478,741 - (455,965) 22,776 Net income - - 5,453 5,453 Revaluation reserve in subsidiary - 35,689 - 35,689 ----------- --------- ----------- ----------- BALANCES DECEMBER 31, 1999 478,741 35,689 (450,512) 63,918 =========== ========= =========== ===========
The accompanying notes are an integral part of these statements. TEVECAP S.A. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais) (Translation of the original in Portuguese)
Constant purchasing power ----------------------------------------------------------------------- Revaluation Total reserve Accumulated stockholders' Capital in subsidiary deficit equity -------------- ------------- ------------- ------------- BALANCES DECEMBER 31, 1997 526,454 - (292,159) 234,295 Capital increase - February 17, 1998 136,502 - - 136,502 Net loss - - (251,854) (251,854) ----------- --------- ----------- ----------- BALANCES DECEMBER 31, 1998 662,956 - (544,013) 118,943 Net income - - 53,934 53,934 Revaluation reserve in subsidiary - 35,689 - 35,689 ----------- --------- ----------- ----------- BALANCES DECEMBER 31, 1999 662,956 35,689 (490,079) 208,566 =========== ========= =========== ===========
The accompanying notes are an integral part of these statements. 1 of 2 TEVECAP S.A. STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (In thousands of Brazilian reais) (Translation of the original in Portuguese)
Constant purchasing Corporate law power ----------------------------------------------- ----------------------- Company Consolidated Consolidated ------- ------------ ------------ 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) SOURCE OF FUNDS: Provided by operations 7,730 - 418,439 - 501,058 - Capital increase - 112,741 - 112,741 - 136,502 Long-term loans and financing - - - 3,328 - 4,007 Loans from affiliated companies 119,852 149,362 109,744 163,915 122,612 180,989 Decrease in noncurrent assets 50,583 49,422 27,280 2,050 30,275 58,734 Write-off of noncurrent prepaid expenses 6,665 1,475 6,665 1,475 6,962 1,780 Transfer of taxes from current to long term - - 21,915 - 21,915 - Transfer from noncurrent to current assets - - 1,488 - 1,488 - ------- ------- ------- ------- ------- ------- Total sources 184,830 313,000 585,531 283,509 684,310 382,012 ======= ======= ======= ======= ======= ======= USE OF FUNDS: Used in operations - 42,794 - 70,176 - 27,789 Additions- Property and equipment - - 38,096 193,937 54,692 99,976 Deferred charges - - 524 343 1,839 3,488 Investments 10,343 8,533 4,245 14,651 4,552 52,591 Noncurrent assets 172,229 144,495 50,024 12,389 53,319 67,261 Payment of loans from parent company 30,160 116,540 20,146 119,989 21,439 141,226 Payment of loans and financing - - 242,855 155 269,261 - Decrease in long-term reserves - - 132 - 150 446 Transfer of loans and financing from long term to current - - 5,400 19,302 6,033 23,273 Long-term prepaid expenses - 323 - 323 - 390 ------- ------- ------- ------- ------- ------- Total uses 212,732 312,685 361,422 431,265 411,285 416,440 ------- ------- ------- ------- ------- ------- INCREASE (DECREASE) IN WORKING CAPITAL (27,902) 315 224,109 (147,756) 273,025 (34,428) ======= ======= ======= ======= ======= ======= REPRESENTED BY: Current assets- At end of year 8,022 6,327 49,818 97,186 52,433 69,924 At beginning of year 6,327 4,575 97,186 97,109 118,784 85,806 ------- ------- ------- ------- ------- ------- 1,695 1,752 (47,368) 77 (66,351) (15,882) ------- ------- ------- ------- ------- ------- Current liabilities- At end of year 34,362 4,765 66,315 337,792 66,315 158,046 At beginning of year 4,765 3,328 337,792 189,959 405,691 139,500 ------- ------- ------- ------- ------- ------- 29,597 1,437 (271,477) 147,833 (339,376) 18,546 ------- ------- ------- ------- ------- ------- INCREASE (DECREASE) IN WORKING CAPITAL (27,902) 315 224,109 (147,756) 273,025 (34,428) ======= ======= ======= ======= ======= =======
2 of 2
Constant purchasing Corporate law power ----------------------------------------------- ----------------------- Company Consolidated Consolidated ------- ------------ ------------ 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) FUNDS PROVIDED BY (USED IN) OPERATIONS: Net income (loss) 5,453 (221,336) 5,453 (221,336) 53,934 (251,854) Items not affecting working capital- Depreciation and amortization 3 4 65,550 88,005 84,668 74,390 Disposal of permanent assets, net - - 106,105 667 138,845 2,348 Goodwill amortization - - 4,737 4,711 6,051 6,019 Equity in results of subsidiaries and affiliated companies (308,323) 95,935 988 1,106 988 17,923 Provision for losses on subsidiaries' operations 259,596 102,877 138,030 2,406 123,426 88,826 Capital gains in subsidiaries and affiliated companies - - - 1,411 - 1,695 Net monetary variations applicable to long-term items 191,461 (20,274) 79,513 52,916 19,235 33,461 Increase in long-term reserves 10,021 - 12,955 3,548 15,725 3,579 Reversal through write-off of provision for losses on subsidiaries' operations/disposal of investments (150,481) - 8,182 - 61,379 - Minority interest - - (3,074) (3,610) (3,193) (4,176) ------- ------- ------- ------- ------- ------- Funds provided by (used in) operations 7,730 (42,794) 418,439 (70,176) 501,058 (27,789) ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements. TEVECAP S.A. NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 (Amounts in thousands of Brazilian reais, unless otherwise indicated) (Translation of the original in Portuguese) 1. OPERATIONS Tevecap S.A. and its subsidiaries are principally engaged in the production, purchase, licensing, distribution, import and export of our own or third-party television programs; providing other services related to systems for transmission, reception and distribution of signals and television programs; advertising and publicity; and equity in the capital of other companies, especially those related to the communications area. 2. PRESENTATION OF FINANCIAL STATEMENTS 2.1. Corporate Law The financial statements (Company and consolidated) were prepared on the basis of accounting practices emanating from corporate law in Brazil and supplementary provisions, as described in Note 3. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities as of the financial statement dates, and the reported amounts of revenues and expenses during the reporting periods. Since management's judgement involves making estimates concerning the likelihood of future events, actual results could differ from the estimates. 2.2. Constant Purchasing Power The Company is including consolidated supplementary financial statements in constant purchasing power prepared in accordance with corporate law, adjusted for inflation based on the criteria used for preparing financial statements in constant purchasing power currency, in conformity with applicable instructions of the CVM (Brazilian Securities Commission). Reconciliations of income and stockholders' equity between corporate law and constant purchasing power are presented in Note 19. 1 2.3. Pro Forma Financial Statements (Unaudited) Due to the corporate changes described in Notes 7.c. and 7.e., the Company is presenting pro forma financial statements in constant purchasing power for the year ended December 31, 1998, based on the premise that the negotiations for sales of subsidiaries and other investments had been concluded on December 31, 1997. The Company's decision to present these pro forma financial statements seeks at providing the users with comparative information, to permit an analysis of financial position and results of operations for the years. 3. SIGNIFICANT ACCOUNTING PRACTICES 3.1. Corporate Law Financial Statements a. Temporary cash investments are stated at cost, plus income earned to the balance sheet date. b. Accounts receivable from customers are represented by billings for subscriptions, connection fees, advertising and sale of programming. c. Allowance for doubtful accounts is established on the basis of receivables pastdue for over 90 days and upon cancellation of subscriptions, and is considered sufficient to cover losses incurred in the realization of such receivables. d. Inventories are stated at average cost and, when applicable, net of a reserve to reflect replacement cost or net realizable value. e. Film exhibition rights are stated at acquisition cost of the respective contracts. Costs of contracts with film producers and programming licensing are recorded in income when the films and/or programs are exhibited. f. Escrow deposits, as well as taxes payable and reserves for contingencies mentioned in Notes 13 and 14 are monetarily restated based on official indices, established for this purpose. g. Property and equipment are stated at cost, monetarily restated through December 31, 1995, plus a partial revaluation, less depreciation calculated using the straight-line method at the rates indicated in Note 10, based on the useful lives of the assets and, when applicable, net of reserve for equipment losses. h. Investments in subsidiaries are carried under the equity method. i. Goodwill on investments represents the excess amount paid over the book value of the net assets on the date of their acquisition. Amortization is computed by the straight-line method, principally based on the estimated future profitability of the investments, over periods not exceeding ten years. 2 j. Deferred costs consist primarily of costs of films, depreciation of equipment and financial expenses, deferred based on the proportion, in percentage terms, of the actual number of subscribers to the estimated number of subscribers for determining the break-even point of the operation. Once the break-even point was reached, costs and expenses are amortized on the straight-line method, based on the same period used to depreciate transmission equipment, estimated at ten years, and charged to income. k. Other balance sheet accounts are monetarily restated when subject to indexation or exchange rate variation. l. Earnings/Loss and book value per share are calculated on the basis of the number of shares outstanding at yearend. m. Statements of income: o Revenues from advertising and costs of commercial production and programming are recognized in income upon the broadcasting of the commercials. o Revenues from pay television subscriptions are accounted for on the accrual basis. Costs of films and licensing are recognized in income based on the related revenues. o Revenues from hook up fees are recorded on the date the equipment is installed at the subscribers' household. Direct selling expenses are recorded in income when incurred and installation costs are capitalized and amortized over the average period the Company estimates the subscribers will remain connected. 3.2. Financial Statements in Constant Purchasing Power Currency a. Inflation accounting - the consolidated financial statements for the years ended December 31, 1999 and 1998 (pro forma) were prepared in constant purchasing power currency updated to December 31, 1999, based on the General Market Price Index (IGP-M) published by the Getulio Vargas Foundation. b. Inventories are stated at average cost, monetarily restated and, when applicable, net of a reserve to reflect replacement cost or net realizable value. c. Property and equipment are stated at monetarily restated cost, plus a partial revaluation, less depreciation calculated under the straight-line method at the rates indicated in Note 10, based on the useful lives of the assets and, when applicable, net of allowance for losses on equipment considered unrealizable. d. Significant investments in subsidiaries are carried under the equity method. e. Other components of the balance sheet are recorded at their original amounts since they are expressed in constant currency as of December 31, 1999. 3 f. Statements of income - components of the statements of income are updated as indicated in Note 3.2.a.: o The cost of services rendered, recorded in subsidiary ledgers, is restated to reflect constant currency at the balance sheet date. o Prepaid expenses and advances from customers are controlled in subsidiary ledgers, and the effects of monetary restatement are included in the respective statement of income components. o Equity in results of the subsidiaries and affiliated companies, determined on the basis of those companies' stockholders' equity, is restated to the balance sheet date. 3.3. Consolidated Financial Statements The consolidated financial statements, prepared in conformity with CVM Instruction No. 247/96 of March 27, 1996, include Tevecap S.A. and the following subsidiaries: Ownership interest (%) ---------------------------- 1999 1998 ---- ---- TVA Communications Ltd. 100.00 100.00 (f) TVA Communications Aruba N.V. 100.00 100.00 (d) Ype Radio e Televisao Ltda. 100.00 100.00 (c) Galaxy Brasil Ltda. - 100.00 (b) TVA Sistema de Televisao S.A. 98.00 98.00 (c) TVA Sistema de Televisao de Porto Alegre S.A. 100.00 100.00 (c) Rede Ajato Ltda. 100.00 - (f) Comercial Cabo TV Sao Paulo Ltda. 100.00 100.00 (c) TVAPar S.A. 100.00 100.00 ESPN do Brasil Ltda. - 50.00 (b) TVA Banda C Ltda. - 100.00 (b) TVA Channels Ltda. 100.00 100.00 (d) TVA Satelite Ltda. - 100.00 (e) TVA Programadora Ltda. 100.00 100.00 (f) TVA Distribuidora S.A. 100.00 100.00 (f) CCS Camboriu Cable System de Telecomunicacoes Ltda. 51.60 51.60 (a) TVA Sul Parana Ltda. 86.00 86.00 (c) (a) Indirect interest through TVA Sul Parana Ltda. (b) Sold in 1999. (c) Indirect interest through TVA Distribuidora S.A. (d) Indirect interest through TVA Programadora Ltda. (e) Merged into Tevecap S.A. on March 31, 1999. (f) Directly owned by Tevecap S.A. (see Note 7). 4 Investments in subsidiaries, equity method results, reserve for losses on subsidiaries' operations, and receivables and payables related to intercompany transactions are eliminated either totally or in proportional to the Company's interest, when applicable. Minority interest is calculated based on the proportion of the minority interest percentage in stockholders' equity of the respective company and disclosed separately in the consolidated financial statements. 4. ACCOUNTS RECEIVABLE Consolidated --------------------------------------------- Corporate law Constant purchasing power ------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma- unaudited) Subscription and hook up fees 25,717 64,055 25,717 30,070 Advertising and programming 3,646 5,916 3,646 8,434 Barters 3,391 5,481 3,391 6,583 Other accounts receivable 1,115 1,955 1,115 523 --------- --------- --------- --------- 33,869 77,407 33,869 45,610 Allowance for doubtful accounts (20,341) (27,922) (20,341) (16,656) --------- --------- --------- --------- 13,528 49,485 13,528 28,954 ========= ========= ========= ========= 5. INVENTORIES Consolidated --------------------------------------------- Corporate law Constant purchasing power ------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma- unaudited) Consumable material 13,741 16,752 16,704 23,855 Imports in transit 1,103 1,947 1,103 2,318 --------- --------- --------- --------- 14,844 18,699 17,807 26,173 Reserve for obsolescence and reduction to market value (1,727) (2,219) (2,075) (4,544) --------- --------- --------- --------- 13,117 16,480 15,732 21,629 ========= ========= ========= ========= 5 6. NOTES RECEIVABLE As part of the payment for the sale of the Company's interest in Galaxy Brasil Ltda. and TVA Banda C Ltda., the Company received a promissory note issued by Galaxy Latin America L.L.C., in the amount of R$45,621, equivalent to US$25,500,000, maturing on July 28, 2001, subject to interest at LIBID, plus exchange variation. 7. INVESTMENTS The direct investments of Tevecap S.A. in subsidiaries as of December 31, 1999 are presented as follows:
Corporate law -------------------------------------------------------------------------------------------- Number (in Stockholders' thousands) Provision Ownership equity Net income of common Equity in for losses on Capital interest (deficiency in (loss) for shares or income subsidiaries' Subsidiaries stock (%) net assets) the period quotas (loss) operations ------------ ----- --- ----------- ---------- ------ ------ ---------- TVA Distribuidora S.A. 71,768 100 (280,654) (118,921) 71,768 - (118,921) TVA Communications Ltd. 36,871 100 181,756 308,323 36,871 308,323 - TVA Programadora Ltda. 12,117 100 (5,969) (7,155) 12,117 - (7,155) Rede Ajato Ltda. 1,958 100 (1,459) (3,417) 1,958 - (3,417) Galaxy Brasil Ltda. - - - - - - (119,325) TVA Banda C Ltda. - - - - - - (2,607) ESPN do Brasil Ltda. - - - - - - (8,171) ----------- ----------- 308,323 (259,596) =========== ===========
a. The Company's investments are adjusted according to the interest in stockholders' equity of its subsidiaries based on their financial statements prepared in accordance with accounting practices emanating from Brazilian corporate law, consistently applied. b. The "Reserve for losses on subsidiaries' operations", under long-term liabilities, represents losses on operations of subsidiaries with negative equity. c. On July 28, 1999, the Company and its subsidiary TVA Communications Ltd. (TVAICO), after approval of ANATEL - National Telecommunications Authority, concluded the sales agreement dated May 18, 1999, related to its total interest in Galaxy Brasil Ltda., TVA Banda C Ltda., Galaxy Latin America L.L.C. and Surfin Ltd. These transactions generated a gain of R$338,948, recorded as nonoperating income. Additionally, as part of the sales agreement of these investments, with the funds arising from these operations, on July 28, 1999, TVAICO made investments in the international market in the amount of US$131,201,000, equivalent to R$238,379, in senior notes issued by the Company. This investment was made at a discount of 35% from the face value of the notes, amounting to US$70,647,000, equivalent to R$118,408, recorded as nonoperating income. As a result of this transaction, of the total amount of US$250 million of senior notes issued, US$201,848,000 is held in treasury for future placement in the secondary market. 6 d. On August 1, 1999, Rede Ajato Ltda. was formed to operate in the high speed Internet market. e. On November 3, 1999, the Company concluded the sale of ESPN do Brasil Ltda. This transaction generated a gain of R$5,729, recorded as nonoperating income. f. On December 31, 1999, TVA Communications Ltd. declared dividends payable to the Company in the amount of R$160,000, generated principally from the sale of investments. 8. GOODWILL ON INVESTMENTS The Company and its subsidiaries have recorded goodwill on investments, as follows:
Company Consolidated ------- ------------ Corporate law Corporate law Constant purchasing power Subsidiaries and affiliated ------------- ------------- ------------------------- companies 1999 1998 1999 1998 1999 1998 --------------------------- ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) ESPN do Brasil Ltda. - 1 - 1 - 1 Comercial Cabo TV SP Ltda. - - 1,307 1,545 1,880 2,222 TVA Sistema de Televisao S.A. - - 14,706 17,380 20,832 23,733 Ype Radio e Televisao Ltda. - - 3,732 4,411 5,369 6,345 Canbras TVA Cabo Ltda. - - 41 48 58 68 TVTel Ltda. - - 1 - 1 - TVA Communications Aruba N.V. - - 2,627 2,952 3,501 3,895 TCC TVA Cabo Ltda. - - 1,756 1,998 2,237 2,545 CCS Camboriu Cable System de Telecomunicacoes Ltda. - - 214 247 285 329 TVA Sul Parana Ltda. - - 3,462 4,001 4,617 5,337 --------- --------- --------- --------- --------- --------- - 1 27,846 32,583 38,780 44,475 ========= ========= ========= ========= ========= =========
7 9. RELATED-PARTY TRANSACTIONS The following table summarizes the transactions between Tevecap S.A., its subsidiaries and affiliated companies during the year ended December 31, 1999: Company Corporate law Balance sheet accounts
Advance for future Financial Loans Loans Accounts capital expenses, Subsidiaries and affiliated companies receivable payable receivable increase net ---------- --------- ---------- -------- --------- TVA Sistema de Televisao S.A. - 7 703 - - Abril S.A. - 242,393 75 - (47,982) Canbras TVA Cabo Ltda. 10,312 - - - 3,988 Canbras Participacoes Ltda. 311 - - - - Galaxy Brasil Ltda. - - 3,578 - (46) TV Cabo Santa Branca Comercio Ltda. - - - 2 - TVA Communications Ltd. 58,239 7 - - - TVA Brasil Radioenlaces Ltda. 26,101 - - - - ESPN do Brasil Ltda. - - - - 19 TVA Banda C Ltda. - - 93 - (139) TVA Channels Ltda. - - 1 - 39 Comercial Cabo TV Sao Paulo Ltda. - - 11 - - Ype Radio e Televisao Ltda. - - 51 - - TVA Distribuidora S.A. - - 26 590,079 - TVAPar S.A. - - 17 - - TVA Programadora Ltda. - - 3 1,962 - Rede Ajato Ltda. - - - 3,970 - TVA Sistema de Televisao de - - - - Porto Alegre S.A. - - 322 - - ---------- --------- ---------- -------- --------- 94,963 242,407 4,880 596,013 (44,121) ========== ========= ========== ======== =========
Consolidated Balance sheet accounts
Advance for future Loans Loans Accounts capital Subsidiaries and affiliated companies receivable payable receivable increase ------------------------------------- ---------- ------- ---------- -------- Televisao Abril Ltda. - 10 - - Abril S.A. - 242,913 8 - ITSA Intercontinental Telecomunicacoes Ltda. - - 144 - Televisao Show Time Ltda. - 66 104 - Canbras TVA Cabo Ltda. 10,374 - 20 - Canbras Participacoes Ltda. 311 - - - Galaxy Brasil Ltda. - - 3,605 - TVA Banda C Ltda. - 585 842 - TV Cabo Santa Branca Comercio Ltda. - - - 2 TVA Brasil Radioenlaces Ltda. 26,101 - 8 - SMC Marketing Promocional Ltda. - - 79 - ESPN do Brasil Ltda. - 21 260 - TVA Network Participacoes S.A. - 19 26 - ---------- ------- ---------- -------- 36,786 243,614 5,096 2 ========== ======= ========== ========
8
Consolidated ------------ Corporate law Constant purchasing power ------------- ------------------------- Financial Sales Financial Sales Subsidiaries and affiliated companies expenses, net and costs expenses, net and costs ------------------------------------- ------------- --------- ------------- --------- Abril S.A. (47,982) (2,562) (15,093) (2,627) Canbras TVA Cabo Ltda. 3,987 160 2,651 179 Canbras Participacoes Ltda. - - (62) - California Broadcast Center 360 - (262) - Galaxy Brasil Ltda. (46) - (111) - TVA Banda C Ltda. (135) - (68) - TVA Brasil Radioenlaces Ltda. - - (5,246) - ESPN do Brasil Ltda. 19 - 35 - --------- --------- --------- --------- (43,797) (2,402) (18,156) (2,448) ========= ========= ========= =========
Except for the loan to TVA Brasil Radioenlaces Ltda., which is not subject to interest, other loans with subsidiaries and affiliated companies are subject to market interest rates. Related-party transactions relating to programming sales and costs and printing services costs were carried out at amounts and under terms usual in the market. The Company and its subsidiaries have guarantees from the parent company Abril S.A., including letters of credit, in the amount of R$35,727. 9 10. PROPERTY AND EQUIPMENT
Consolidated Annual ------------ depreciation Corporate law Constant purchasing power rates ------------- ------------------------- (%) 1999 1998 1999 1998 --- ---- ---- ---- ---- (Pro forma - unaudited) Buildings 4 4,112 13,909 5,579 5,663 Machinery and equipment 10 47,942 100,052 66,403 29,846 Decoders 10 80,497 260,230 115,768 197,381 Reception equipment 20 93,175 111,333 120,000 143,994 Cable installations 10 131,521 101,707 161,933 129,855 Furniture and fixtures 10 2,261 2,992 3,108 3,045 Vehicles 20 3,484 3,385 4,612 4,140 Installations 10 2,427 3,498 3,273 3,223 Telephone sets 10 1,606 2,085 2,215 2,119 Leasehold improvements 20 4,441 4,334 5,920 5,783 EDP equipment 10 9,327 12,925 11,855 17,040 Rights to use software 20 12,615 8,879 16,586 11,285 Tools 50 1,047 1,088 1,463 1,505 ---------- ---------- ---------- ---------- 394,455 626,417 518,715 554,879 Accumulated depreciation (113,739) (145,492) (144,994) (132,867) Allowance for equipment losses - (10,181) - (6,055) Leased assets - 40,471 - - Telephone lines 1,208 1,225 1,703 1,678 Trademarks and patents 241 230 341 339 Construction in progress 998 6,663 1,244 3,978 Advances to suppliers 1,032 2,714 1,033 82 Other 703 704 937 939 ----------- ---------- ----------- ---------- 284,898 522,751 378,979 422,973 =========== ========== =========== ==========
As of December 30, 1999, TVA Sistema de Televisao S.A. carried out a revaluation of its coaxial cable and optical fiber for transmission, including connectors, terminals, derivation equipment and projects, totaling 3,124 kilometers of installed cables. As a result, R$36,418 was credited to a revaluation reserve in stockholders' equity. The subsidiary did not record the tax effects of this revaluation as it has tax losses not recorded in the accounting records, which are higher than the tax effects of the revaluation. 10 11. DEFERRED CHARGES As of December 31, 1999 and 1998, deferred charges are represented by: Consolidated ----------------------------------------------------- Corporate law Constant purchasing power ------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma - unaudited) Cost of films 22,593 22,593 32,497 32,497 Financial expenses 94,526 94,526 129,463 128,121 Depreciation 4,736 4,736 6,812 6,813 Other 11,379 17,363 15,499 14,991 Accumulated amortization (60,450) (50,271) (75,569) (57,599) --------- --------- ----------- ----------- 72,784 88,947 108,702 124,823 ========= ========= =========== =========== 12. LOANS AND FINANCING 1999 Consolidated ------------ Corporate law Constant purchasing power ------------- ------------------------- Long Long Current term Current term ------- ---- ------- ---- Financing in foreign currency - senior notes 906 85,987 906 85,987 Financing in local currency 14,168 16,859 14,168 16,859 --------- --------- --------- --------- 15,074 102,846 15,074 102,846 ========= ========= ========= ========= On November 26, 1996, the Company obtained funds in the international market in the amount of US$250 million, equivalent to R$447,250, at the exchange rate on December 31, 1999. The principal matures on November 26, 2004. Interest thereon is at 12.625% per year, plus exchange rate variation and is payable May 25 and November 25 of each year, having started on May 25, 1997. On July 28, 1999, the subsidiary TVAICO acquired 80.7% of the senior notes, as described in Note 7.c. Local currency short-term financing is secured by promissory notes and statutory liens on the financed assets, subject to interest rates varying from 8% to 10% per year. 11 13. TAXES PAYABLE The Company and its subsidiaries maintain accruals for the following amounts related to taxes payable, which include the effects of the option under the Tax Recovery Program - REFIS, as mentioned in Note 26. Consolidated ------------ Constant Corporate law purchasing power ------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma - unaudited) COFINS (tax on revenue) 19,792 20,899 19,762 16,412 ICMS (State VAT) 11,905 8,071 11,905 3,677 PIS (tax on revenue) 5,712 246 5,712 60 Other 527 401 557 503 --------- --------- --------- --------- 37,936 29,617 37,936 20,652 --------- --------- --------- --------- Accruals - Galaxy Brasil Ltda. and TVA Banda C Ltda.: ICMS 11,515 - 11,515 - PIS 1,962 - 1,962 - --------- --------- --------- --------- 13,477 - 13,477 - --------- --------- --------- --------- Total 51,413 29,617 51,413 20,652 Current portion (10,669) (28,403) (10,669) (19,191) --------- --------- --------- --------- Long term 40,744 1,214 40,744 1,461 ========= ========= ========= ========= As a result of the sales agreement for 100% of the interest in Galaxy Brasil Ltda. and TVA Banda C Ltda. (see Note 7.c.), the Company assumed liabilities as of the negotiation date, related to ICMS and PIS, which were accrued and charged against the gain on sale of the investments in these companies. The Company has escrow deposits amounting to R$4,164 which will be used to settle a portion of these liabilities. 12 14. RESERVE FOR CONTINGENCIES Consolidated ------------------------------------------------------- Corporate law Constant purchasing power ------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma - unaudited) Labor claims 4,325 4,807 4,325 5,459 ECAD - 4,192 - 3,861 -------- -------- -------- -------- 4,325 8,999 4,325 9,320 ==== ==== ==== ==== The Company has contingencies referring principally to labor claims which are not accrued in the financial statements. Amounts for the accrued lawsuits are considered sufficient by management, based on several factors, including (but not limited to) legal counsels' opinion, the nature of the lawsuit and historical experience. In management's opinion, all lawsuits were properly accrued and in the case of those for which no accrual was made, management believes that the chances of loss are remote. Additionally, for certain accrued lawsuits, the Company has escrow deposits amounting to R$1,050. 15. CAPITAL STOCK The capital stock of the Company as of December 31, 1999 is represented by 226,338,285 registered common shares without par value. 16. FINANCIAL EXPENSES, NET Consolidated ------------ Corporate law Constant purchasing power ------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Pro forma - unaudited) Financial expenses: Interest (83,680) (81,553) (59,872) (72,415) Exchange variations (185,669) (42,544) (146,026) (28,110) Other (4,615) (11,855) (6,873) (5,506) ----------- ----------- ----------- ----------- (273,964) (135,952) (212,771) (106,031) ----------- ----------- ----------- ----------- Financial income: Interest 5,071 7,279 3,221 11,212 Exchange variations 51,064 968 51,132 232 Other 2,563 1,914 2,503 2,204 ----------- ----------- ----------- ----------- 58,698 10,161 56,856 13,648 ----------- ----------- ----------- ----------- Financial expenses, net (215,266) (125,791) (155,915) (92,383) =========== =========== =========== =========== 17. INCOME TAX As of December 31, 1999, the Company had tax loss carryforwards of R$49,853, and its subsidiaries and affiliated companies had R$339,072, as follows: TVA Sistema de Televisao S.A. 290,205 TVA Sul Parana Ltda. 32,398 Rede Ajato Ltda. 3,409 Comercial Cabo TV Sao Paulo Ltda. 453 TVA Distribuidora S.A. 27 TVA Channels Ltda. 11,198 TVA Programadora Ltda. 1,382 ---------- 339,072 ========== The effects of these tax losses have not been recognized in the accompanying financial statements. 14 18. NONOPERATING INCOME (EXPENSES)
Company Consolidated ------- ------------ Corporate law Corporate law Constant purchasing power ------------- ------------- ------------------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- (Pro forma - unaudited) Capital gain (loss): On sale of DTH 220,558 -- 338,948 -- 330,134 -- On sale of ESPN do Brasil Ltda 5,729 -- 5,729 -- 5,729 -- TVA Communications Aruba N.V. for its affiliate HBO Brasil Partners -- -- -- (3,094) -- (3,716) Write-off of investment in TV Filme Inc. -- -- (7,236) -- (9,710) -- Gain on repurchase of senior notes -- -- 113,641 -- 113,641 -- Advisory fees related to repurchase of senior notes (15,321) -- (14,210) -- (15,621) -- Allowance for equipment loss -- -- 208 (4,883) 272 (3,088) Extraordinary losses on transmission rights -- (2,439) -- (2,439) -- (2,935) Write-off of assets related to cancellations of subscriptions -- -- (19,306) -- (24,803) -- Write-off of decoders - Digisat operations -- -- (33,669) -- (43,052) -- Other (776) -- (1,279) (1,047) (1,327) 187 -------- -------- -------- -------- -------- -------- 210,190 (2,439) 382,826 (11,463) 355,263 (9,552) ======== ======== ======== ======== ======== ========
19. CONSTANT PURCHASING POWER AND CORPORATE LAW The reconciliation of income and stockholders' equity between corporate law and constant purchasing power as of December 31, 1999 and for the year then ended is as follows:
Company Consolidated ------- ------------ Net Stockholders' Net Stockholders' income equity income equity -------- -------- -------- -------- Amounts per corporate law 5,453 63,918 5,453 63,918 Restatement of permanent assets and stockholders' equity 72,378 167,722 69,202 150,254 Restatement of inventories - - 551 2,614 Goodwill adjustment in subsidiaries 589 (3,240) 589 (3,240) Equity in results of subsidiaries (15,823) (8,715) - - Allowance for equipment losses (8,663) (11,119) (23,400) 941 Allocation of gains and losses on deferred charges - - 1,092 (5,921) Minority interest - - 447 - -------- -------- -------- -------- Amounts in constant purchasing power 53,934 208,566 53,934 208,566 ======== ======== ======== ========
15 20. FINANCIAL INSTRUMENTS The Company and its subsidiaries have transactions involving financial instruments as a hedge against fluctuations in international interest rates and in the valuation of certain financial assets. Temporary cash investments are usually held for periods less than three months, and the agreed rates reflect normal market conditions as of December 31, 1999. Note 12 includes detailed information on loans and financing. The securities issued in the international market are quoted at 59% of face value as of December 31, 1999, representing US$119,090,000, equivalent to R$213,052, for the securities held by TVAICO. As of December 31, 1999, these securities were recorded by this subsidiary at US$201,848,000, equivalent to R$361,106. Except for the loans granted to an affiliate, TVA Brasil Radioenlaces Ltda., which are not subject to interest, other loans granted under agreements with subsidiaries and affiliated companies are subject to market interest rates. The market values of other financial instruments for assets and liabilities as of December 31, 1999 do not differ from the amounts recorded in the financial statements. Such operations are performed and controlled based on criteria periodically reviewed considering financial soundness, reliability and market profile of the entity with which they are conducted. 21. GUARANTEES The Company has provided guarantees and letters of credit on behalf of its subsidiaries and affiliated companies in the amount of R$21,926. 22. INSURANCE The policy of the Company and its subsidiaries and affiliated companies is to maintain insurance coverage for property and equipment and inventories in amounts considered sufficient to cover the risks involved. As of December 31, 1999, insurance coverage amounted to R$82,441 (consolidated). 23. PENSION PLAN The Company and its subsidiaries are sponsors of the private pension entity, Abrilprev Sociedade de Previdencia Privada, the primary objective of which is to grant employees benefits to supplement those provided by Government Social Security. The plan is optional to all employees of the sponsoring entities. Abrilprev is a defined contribution plan, and the principal actuarial method used to determine contribution levels is the capitalization method. 16 The plan costs, borne by both employees and the sponsoring entities, are actuarially determined on an annual basis as a fixed percentage of payroll of the sponsoring entities. Retirement benefits granted are based on employees' length of service, time of contribution to Social Security, minimum age, and termination of the employment relationship. In 1999, certain affiliates made contributions amounting to R$360, in the value of the currency as of December 31, 1999. The net asset position of Abrilprev as of December 31, 1999 is sufficient to cover vested and nonvested benefits. 24. ABRIL HEALTH CARE PLAN Abril Health Care Plan has been in operation since February 1996. This plan was created to provide health care to employees, and their dependents, of Abril S.A., its subsidiaries and certain affiliated companies. Both the companies forming part of the Abril Group and employees thereof contribute monthly to Associacao Abril de Beneficios, the company responsible for the management of the plan. In 1999, contributions made by certain subsidiaries amounted to R$1,670. 25. COMMITMENTS As of December 31, 1999, contractual commitments with Embratel (Brazilian telecommunications company) assumed by Tevecap S.A. and its subsidiaries for satellite use from 2000 through September 2003 amounted to R$35,404. 26. SUBSEQUENT EVENT On April 5, 2000, the Company opted for the Government's Tax Recovery Program - REFIS, implemented by Decree No. 3,342/00 of January 25, 2000, later converted into Law No. 9,964/00 of April 10, 2000. With the option for REFIS, the Company will regularize its tax debts with the Federal Government for taxable events through February 29, 2000, settling these debts through this financing. The Company has 60 days, from the formalization of the option, to present the calculation of debts related to taxes to be paid in installments. Restatement of tax debts included in REFIS is based on TJLP (long-term interest rate). 27. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH The accompanying financial statements are presented on the basis of accounting practices emanating from corporate law in Brazil. Certain accounting practices applied by the Company and its subsidiaries that conform with those accounting practices in Brazil may not conform with accounting principles generally accepted in the countries where these financial statements may be used. * * * * * * * * * * * * 17 -----END PRIVACY-ENHANCED MESSAGE-----