FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the month of February 2003
(Commission File No. 001-14489)
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
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(Exact name of registrant as specified in its charter)
Tele Centro Oeste Cellular Holding Company
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(Translation of registrant's name in English)
SCS-Quadra 2, Bloco C, Edificio Anexo-Telebrasilia Celular
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-7 andar, Brasilia, D.F.
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Federative Republic of Brazil
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(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
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(Indicate by check mark whether the registrant by
furnishing the information contained in this form
is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes No X
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RELACOES COM INVESTIDORES:
ARTHUR FONSECA
TELEFONE: 55 61 313 7765
arthur.fonseca@tco.net.br
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WEB SITE
Http://www.tco.net.br
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TCO Celular's accrued profit in 2002 grows 58.2% compared to the previous
year
Introduction Brasilia, February 27, 2003 - Tele Centro Oeste Celular
Participacoes S.A. - TCO Celular (NYSE: TRO; IBOVESPA: TCOC3 /
TCOC4) today discloses its results relative to the fourth
quarter of 2002 and accrued results of 2002. TCOC3: R$ 11.90 /
1,000 shares. TCOC4: R$ 4.13 / 1,000 shares. TRO: US$ 3.51 /
ADR (1 ADR = 3,000 shares).
HIGHLIGHTS TCO Celular ended 2002 with 3.07 million clients, the largest
coverage, and the best service network in the region. In 2002,
the Company obtained a consolidated net profit of R$ 329
million, which represents a 58.2% growth compared to the
previous year, and its profit before interest, tax,
depreciation, and amortization (EBITDA) was R$ 615 million,
representing a 33.7% growth compared to 2001. NBT has been
developing spectacularly throughout the region, and closed
2002 with an estimated market share of 35.0%, above the
Brazilian Band "B" average, which was 31.6%. NBT was the first
Band B carrier to generate a Net Profit, which amounted to R$
12.5 million at the end of 2002. The company recorded a R$
75.3 million EBITDA in the same period. NBT has operated with
a positive EBITDA since March, 2000.
OPERATING PERFORMANCE
The Region TCO Celular operates in the Central-Western and in the
Northern region of Brazil, as well as in the state of
Maranhao, both directly and through its controlled companies.
According to the Regional Accounts for the year 2000 disclosed
by the Brazilian Institute of Geography and Statistics
(Instituto Brasileiro de Geografia e Estatistica - IBGE), the
two Brazilian states of Amazonas and Mato Grosso, where TCO
Celular maintains operations, presented the highest GDP growth
rates in 2000, which were also well above the national
average: 8.7% and 7.8% respectively, whereas the Brazilian
Gross Domestic Product rose only 4.3%. The growth observed in
the state of Amazonas reflects the performance of the
industries installed at the Manaus Industrial Pole, which in
2000 produced 13% more than in the previous year. One of the
segments that hoisted this growth rate was the electronics
sector, which according to the IBGE, includes cellular
handsets. As to the state of Mato Grosso, the 7.8% growth rate
is the result of the performance of farming activities, which
increased production by 16% in the year 2000, basically
regarding soy and cotton crops, which increased by 17% and
60%, respectively .
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HIGHLIGHT According to data provided by the Brazilian National
Telecommunications Agency - ANATEL - the number of operational
cellular handsets in Brazil showed a total of 34.9 million
users at the end of 2002, more than the 28.7 Chameleon users
at the end of 2001. Of this total, TCO Celular closed 2002
with an 8.8% participation. During the year 2002, TCO Celular
achieved the mark of 3.07 million clients, of which 28.1% were
postpaid clients. TCO Celular's client base has grown
continuously in both operation areas. Compared to the previous
year, in 2002 the Company's client base increased by 23.8
percent in Area 7, whereas in Area eight the client base
increased by 43.4%.
Growth in TCO Celular's postpaid client base has recorded growth of 8.9%
postpaid client in the fourth quarter of 2002 compared to the third quarter of
base 2002, owing mainly to the campaigns conducted before Christmas
and to the introduction of new services. Area seven presented
an incredible growth rate of 9.0% in the number of postpaid
clients during the fourth quarter of 2002, compared to that of
the previous quarter. In Area eight, the number of clients
using the postpaid service increased by 8.5% compared to the
same period in the previous year.
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TCO Celular Consolidated
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4Q 02 3Q 02 Var. 4Q 01 Var.
Clients 3,066,704 2,851,296 7.6% 2,411,480 27.2%
Postpaid 860,279 790,020 8.9% 695,082 23.8%
Prepaid 2,206,425 2,061,276 7.0% 1,716,398 28.5%
ARPU 42.10 42.56 -1.1% 40.66 3.5%
Churn rate in
the quarter (%) 5.47 4.80 0.7% 4.32 1.2%
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Churn rate The churn rate reached 5.47% in the fourth quarter of 2002,
which represents a 0.7% increase over the value obtained in
the previous quarter. The accrued churn rate in 2002 was
15.50%, denoting a 1.8% increase over the accrued 2001 rate.
Average net TCO Celular's accrued ARPU in 2002 was R$ 41.45, presenting an
revenue per user increase of 3.6% over the accrued average in 2001. The accrued
ARPU in Area 7 was R$ 41.75, and R$ 40.33 in Area 8. TCO
Celular's accrued prepaid ARPU was R$ 23.60 and the accrued
postpaid ARPU was R$ 87.71 at the end of the quarter.
Minutes of use TCO Celular's accrued incoming MOU reached 66.38 minutes at
per user the end of 2002, an 11.4% decrease compared to the value
registered in the previous year. The accrued outgoing MOU in
2002 was 42.75 minutes, which represents a decrease of 2.02%
compared to the accrued value in 2001.
Market Share At the end of 2002, TCO Celular maintained its market
leadership in Area 7, with an estimated market share of 73.0%,
well above the Brazilian Band A average, which was 63.6%. In
Area 8, TCO Celular grew sharply during the fourth quarter and
increased its estimated market share to 35.0%, compared to the
31.5% mark obtained in 2001, and also above the Brazilian Band
B average of 31.6%.
Cellular TCO Celular has been granted a license to provide cellular
penetration telecommunication services in 11 Brazilian states and in the
Federal District of Brazil, which altogether comprise an area
of 5.8 million square kilometers, with 31.2 million people.
The low rate of cellular penetration inside TCO Celular's
areas of operation - 22.4 per 100 residents in Area 7, where
three cellular carriers operate, and 10.6 per 100 residents in
Area 8, where four cellular carriers operate - shows that
wireless cellular telecommunications still have plenty of room
to grow in these areas, specially considering that the two
regions in which the Company operates have recently had
spectacular economic growth rates. This is particularly true
regarding the Manaus Industrial Pole, where the mining
activities in the states of Para and Amapa and farming
activities in the Central-Western region have thrived.
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TCO Celular Consolidated - Operating Data
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4Q 02 3Q 02 Var. 4Q 01 Var.
Estimated Population (Million) 31.2 31.2 0.0% 30.7 1.6%
Estimated Penetration Rate - TCO (%) 9.8 9.1 0.7% 7.9 1.9%
Municipalities and Locations serviced 492 473 4.0% 366 34.4%
Permanent Employees 1,575 1,487 5.9% 1,461 7.8%
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Municipalities In 2002, TCO Celular expanded its coverage and was present in
and Locations a total of 492 municipalities and locations. At the end of
serviced 2002, a total of 352 municipalities and locations were
serviced by TCO Celular in Area 7, and 140 municipalities and
locations were serviced in Area 8.
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Network At the end of 2002, Area 7 presented a handset digitization
Structure rate of 97.65%, whereas NBT has operated with 100% digital
technology since its implementation. Currently, TCO Celular
uses the TDMA technology for providing its wireless
telephoning services.
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TCO Celular Consolidated - Network Structure
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4Q 02 4Q 01
Radio Base StationS (RBS)and
cell enhancers 927 846
Commuting Switches (CS's) 25 23
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Client Service During 2002, TCO Celular continued investing in excellence
regarding client services. The Company's Call Center, which
started operations in 2001, is still something to be proud of.
It has centralized client service in the different areas of
coverage, so as to reduce costs, standardize the information
provided, and improve telephone-based client service. At the
end of December 2002, Area 7 had 39 proprietary retail stores,
as well as 1,206 accredited cellular handset retailers and
14.5 thousand direct and indirect phone card retailers. At the
end of the quarter, TCO Celular had in Area 8 a total of 18
proprietary retail stores, 402 accredited cellular handset
retailers and 6.4 thousand direct and indirect phone card
retailers.
NAINET With the purpose of adding more responsiveness and
effectiveness to its client services, TCO Celular launched in
2002 its Integrated Client Service Center (Nucleo de
Atendimento Integrado - NAINET). It is a web-based tool
developed specifically for TCO Celular retailers, which
materializes the Company's new commercial policy for its
points of sale. Basically, the objective was to improve both
the speed and the simplicity of all transactions conducted
with TCO Celular. By using this system, the points of sale
essentially become telecommunication service providers and can
therefore offer services which were once a privilege of
proprietary stores.
Human The workforce in the carriers operating in Area 7 increased by
Resources 6.1%, from 2,368 in December 2001 to 2,512 in December 2002.
Of this total, 51.1% are permanent employees, and the
remaining are interns and outsourced third-parties. The
Permanent Employees per 1,000 Service Accesses indicator was
0.51 in December 2002. The workforce in the Area 8 carrier was
reduced by 4.2% in the period, going down from 499 in December
2001 to 478 in December 2002. Of this total, 60.5% are
permanent employees and the remaining are interns and
outsourced third-parties. NBT's Permanent Employees per 1,000
Service Accesses indicator was 0.48 in December 2002.
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AREA 7 - Operating Data
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4Q 02 3Q 02 Var. 4Q 01 Var.
Clients 2,468,948 2,301,747 7.3% 1,994,720 23.8%
Postpaid 711,795 653,179 9.0% 582,877 22.1%
Prepaid 1,757,153 1,648,568 6.6% 1,411,843 24.5%
ARPU 41.84 42.95 -2.6% 40.88 2.3%
Churn Rate in
the Quarter (%) 5.38 4.68 0.7% 4.09 1.3%
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Estimated Market
Share (%) 73.0 75.3 -2.3% 76.9 -3.9%
Estimated Population
(Million) 15.2 15.2 0.0% 14.9 2.0%
Estimated Penetration
Rate - TCO (%) 16.3 15.2 1.1% 13.4 2.9%
Access Digitization
Rate (%) 97.7 97.2 0.5% 95.7 2.0%
Municipalities and
Locations Serviced 352 342 2.9% 283 24.4%
Permanent Employees 1,286 1,233 4,3% 1,202 7.0%
Radio Base Stations
(RBSs) and Cell
Enhancers 748 733 2.0% 683 9.5%
Commuting Switches
(CSs) 13 13 0.0% 12 8.3%
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AREA 8 - Operating Data
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4Q 02 3Q 02 Var. 4Q 01 Var.
Clients 597,756 549,549 8.8% 416,760 43.4%
Postpaid 148,484 136,841 8.5% 112,205 32.3%
Prepaid 449,272 412,708 8.9% 304,555 47.5%
ARPU 43.15 40.96 5.3% 39.56 9.1%
Churn Rate in
the Quarter (%) 5.85 5.29 0.6% 5.43 0.4%
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Estimated Market
Share (%) 35.0 36.6 -1.6% 31.5 3.5%
Estimated Population
(Million) 16.1 16.1 0.0% 15.8 1.9%
Estimated Penetration
Rate - NBT (%) 3.7 3.4 0.3% 2.6 1.1%
Access Digitization
Rate (%) 100 100 0.0% 100 0.0%
Municipalities and
Locations serviced 140 131 6.9% 83 68.7%
Permanent Employees
Radio Base Stations 289 254 13.8% 259 11.6%
(RBSs) and Cell
Enhancers 179 172 4.1% 163 9.8%
Commuting Switches
(CSs) 12 12 0.0% 11 9.1%
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FINANCIAL PERFORMANCE
TCO CELULAR CONSOLIDATED
R$ thousand
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Economic and Financial Result 2002 2001 Var.
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Gross Operating Income (1) 1,982 1,573 26.0%
Net Operating Income 1,561 1,248 25.1%
Net Operating Income from Services 1,343 1,064 26.2%
Net Operating Income from Merchandise 218 184 18.5%
Cost of Services (2) (3) 293 229 27.9%
Cost of Merchandise Sold (4) 320 273 17.2%
Commercial and Administrative Expenses (3) 333 281 18.5%
Depreciation and Amortization 157 138 13.8%
EBITDA (5) 615 460 33.7%
Net Profit 329 208 58.2%
Investment in Property, Plant and Equipment 171 191 -10.5%
Total Assets 2,364 2,052 15.2%
Permanent Assets 931 934 -0.3%
Net Equity 1,219 1,010 20.7%
Capital Stock 534 505 5.7%
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Indicators 2002 2001 Var.
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EBITDA / Net Operating Income 39.42% 36.88% 2.5%
Return on Net Equity (6) 27.00% 20.60% 6.4%
Return on Assets (7) 19.60% 15.80% 3.8%
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(1) Income including Taxes (ICMS, Cofins, and PIS)
(2) Not including Cost of Merchandise Sold
(3) Not including Depreciation
(4) Including Cost of Prepaid Cards Sold
(5) Operating Result + Amortizations + Financial Result
(6) Net Profit / Net Equity
(7) Operating Income + Interest on Own Capital / Total Assets
Operating TCO Celular's Net Operating Income reached R$ 1.56 billion at the
Income end of 2002, which represents an increase of 25.1% compared to
the same period in the previous year. During the year 2002, TCO
Celular's Net Operating Income from services reached R$ 1.34
billion and the Company's Net Operating Income from sales of
merchandise was R$ 218.2 million.
Acquisition The cost of merchandise sold by TCO Celular reached R$ 320
Cost million at the end of 2002, which represents a 17.2% growth
compared to 2001. The subscriber acquisition cost (SAC) was R$
156 in 2002.
EBITDA The accrued EBITDA in 2002 was R$ 615.4 million, which proved
that the Company was more efficient in generating cash by means
of its operating assets. The EBITDA in the fourth quarter of 2002
was R$ 134.0 million.
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EBITDA Margin TCO Celular discloses its EBITDA margin in consonance with the
market, which includes the operations with sales of merchandise.
The EBITDA margin accrued in 2002 was 39.42%, whereas the EBITDA
margin in the fourth quarter of 2002 was 30.16%. For a possible
comparison, the accrued EBITDA, not including operations with the
sales of Merchandise, was R$ 713.4 million, which raised the
margin to 53.12%. The EBITDA not including operations with the
sales of merchandise was then R$ 181.2 million in the fourth
quarter, and the margin was 48.92%.
Depreciation Accrued Expenses with Depreciation and Amortization totaled R$
156.8 million, R$ 43.6 million of which pertaining to the fourth
quarter. Depreciation is calculated using the linear method,
considering the goods' estimated useful life.
EBIT The accrued EBIT in 2002 was R$ 458.6 million, and the
accumulated EBIT margin including operations with sales of
merchandise in the period was 29.37%. The EBIT in the fourth
quarter of 2002 was R$ 90.5 million, and the EBIT margin was
20.36%.
Provisions The accrued Provision for Doubtful Debtors / Losses in 2002 was
for Doubtful R$ 33.1 million, which corresponds to 1.7% of the Gross Operating
Debtors/ Income. In the fourth quarter, the PDD / Losses was R$ 8.3
Losses million, representing 1.4% of the Gross Operating Income. The
charts below shows how much TCO Celular has evolved concerning
the PDD / Losses over Gross Operating Income.
Net Financial Net financial expenses totaled R$ 91 million in 2002, which
represented an increase of 75% compared to 2001, and resulted
from exchange devaluation. In the fourth quarter, net financial
expenses added up to R$ 27 million.
In R$ millions
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4Q 02 Accrued 2002
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Financial Income 19 230
Hedge gain (39) 68
Exchange rate 1 3
Other Financial Revenues 58 169
(-) PIS / Cofins tax on Financial Income (1) (9)
Financial Expenses (46) (321)
Exchange Rate * 40 (136)
Interest on Own Capital (54) (95)
Other Financial Expenses (32) (90)
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Net Financial Income (expenses) (27) (91)
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* Reflects the exchange devaluation against the debts contracted in
foreign currency, which include operations with the Brazilian
Development Bank (BNDES) linked to the basket of currencies -
UMBNDES.
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Net Debt On December 31, 2002, TCO Celular's total debt mounted up to R$
627.8 million, of which 67.18% was denominated in foreign
currency (63.53% in North American Dollars and 3.65% in a basket
of currencies - an index used by the Brazilian Development Bank
- BNDES). Of the portion denominated in North American Dollars,
85.75% was protected by hedge operations at the close of the
year. Additionally, of the total amount denominated in foreign
currency 81.09% was also protected by hedge operations. This
indebtedness was counterbalanced by resources available in cash
(R$ 158.5 million), as well as by the Company's investments in
securities and bonds (R$ 712.1 million) and by the accounts
payable relative to the hedge operations (R$ 51.4 million),
which resulted in a negative net debt of R$ 294.3 million.
Net Profit TCO Celular's Net Profit increased by 58.2% in 2002 compared to
the same period in the previous year, whereas its client base
increased 27.2%. The ACCRUED NET PROFIT GENERATED BY TCO CELULAR
WAS R$ 329 MILLION IN 2002 AND R$ 99 MILLION IN THE FOURTH
QUARTER.
Investments During the year 2002, R$ 170.6 million were invested in
Property, Plant & Equipment, mainly in projects to expand the
Company's wireless telephoning network, as well as to improve
telecommunication services and to develop proprietary
transmission routes.
Social Bringing people together is part of the mission stated by TCO
Responsibility Celular. Bridging distances and taking the smile conveyed by a
voice to every corner of Brazil is our very job. As an effect of
this commitment, the Company has since the very start of its
operations deployed efforts and resources to provide the
population in the region it operates with education, art,
culture, health, and access to sports. In the last three years
alone, TCO Celular invested nearly R$ 20 million in more than
1,400 actions within its coverage area, the largest in Brazil.
In 2002, R$ 9.4 million were invested in the social / cultural
sphere, of which R$ 5.3 million resulted from the Company's own
resources and R$ 4.1 million were invested by means of federal
fiscal incentives laws (the Rouanet Law, the Audiovisual Law and
the Fund for Childhood and Adolescence - FIA) as well as state
fiscal incentives laws (ICMS). In the cultural area, one
significant investment is the promotion of music projects such
as the Art Project (Projeto Arte), the Brazil Stage (Palco
Brasil) and the Shopping Show TCO, as well as the support given
to regional groups such as the Mapa'Ti Theater, the Barrica
Bicho da Terra Theater Company and the Canarinhos da Amazonia
Cultural Association. In the social sphere, our main focus lies
on providing education and health to children and youngsters
living in situations of social risk, and on eradicating hunger
among thousands of needy families in the region. In this
context, one important step has been the strategic alliance
formed with the Ayrton Senna Institute, which until the end of
2002 had assisted nearly 300 thousand children and youngsters
throughout 256 Brazilian municipalities, in actions that
involved over 2,500 qualified educators in four programs: Your
School at 2000 an Hour (Sua Escola a 2000 Por Hora), Speed Up
Goias (Acelera Goias), Start-up 2000 (Largada 2000) and The
Champ School (Escola Campea). Other large programs in which TCO
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Social Celular is present are the Mc. Happy Day (McDia Feliz), an event
Responsibility coordinated in Brazil by the Ronald Mc Donald Institute,
-- Continued... consisting in the main source of funds used to fight child and
young-adult cancer in Brazil, as well as the Citizen Motion
Against Hunger, Poverty and For Life (Acao da Cidadania Contra a
Fome, a Miseria e Pela Vida), a movement which has won the Top
Social 2002 Award from the Brazilian Sales & Marketing
Association (Associacao de Vendas e Marketing do Brasil - ADVB).
Subsequent On January 16, 2003, TCO Celular announced to its shareholders
Events and to the public in general, according to CVM instruction
number 358/02, that the Company has been informed by its
controlling shareholder of the signing of a Preliminary Stock
Purchase and Sale Agreement between its controlling shareholder
and Brasilcel N.V., for the transfer of control of the Company
to Telesp Celular Participacoes S.A. or to another corporation
belonging to the Brasilcel N.V. economic group. Brasilcel N.V.
is a Joint Venture between Portugal Telecom, SGPS, S.A., PT
Moveis, SGPS, S.A., and Telefonica Moviles, S.A.
Perspectives The cell phone market is preparing itself for a new scenario, in
for 2003 which new technologies, new competitors, and changes in
telecommunication services regulations shall mark the new year.
Evolution towards third-generation services (3G) has become the
natural route for every cellular phone carrier. Japan is a
pioneer in this field and has been operating with
third-generation (3G) technology since October 2001. In Brazil,
complementary systems to the current cellular voice networks,
called 2.5G, are being installed. These use 1xRTT and GPRS
technologies, which not only allow faster data transmission, but
make it possible to send data packages, considered far more
efficient. Company management has been permanently analyzing
these transformations and believes it will need technological
complementation in order to go on with the expansion of its
telecommunications network, so as to be prepared for the demand
for new cellular services and thus offer better service to its
clients. In this context, TCO Celular, which throughout the year
2002 had been conducting tests with two technologies - GSM/GPRS
and CDMA/1xRTT - should opt for offering data transmission
services with 2.5G systems using 1xRTT technology, if the
ongoing negotiations with Brasilcel N.V, - a joint venture
formed by Portugal Telecom, SGPS S.A., PT Moveis, SGPS, S.A.,
and Telefonica Moviles, S.A., which has already been operating
with this technology - are put into effect. TCO Celular also
invests in social causes and in 2003 will maintain its support
to the ongoing programs and to all initiatives that allow the
participation of other sectors of society, promoting public
knowledge and contact with Company values, and expanding
results. Throughout 2003, we shall meet new and bigger
challenges, but with the support of all who are directly and
indirectly involved, TCO Celular hopes to strengthen its image,
ensuring the success the Company has been obtaining year after
year.
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**FINANCIAL STATEMENTS TO FOLLOW **
FINANCIAL STATEMENTS
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
AND ITS SUBSIDIARIES
December 31, 2002 and 2001
with Report of Independent Auditors
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
FINANCIAL STATEMENTS
December 31, 2002 and 2001
CONTENTS
Report of Independent Auditors...............................................12
Balance Sheets...............................................................13
Statements of Income.........................................................15
EBITDA Statements............................................................16
Statements of Shareholders' Equity...........................................17
Statements of Changes in Financial Position..................................18
Notes to Financial Statements................................................19
A free translation from Portuguese into English of Report of Independent
Auditors on financial statements prepared in Brazilian currency in accordance
with the accounting practices adopted in Brazil.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Tele Centro Oeste Celular Participacoes S.A.
We have audited the accompanying balance sheets of Tele Centro Oeste Celular
Participacoes S.A. and consolidated balance sheets of Tele Centro Oeste Celular
Participacoes S.A. and subsidiaries as of December 31, 2002 and 2001, and the
related statements of income, 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.
We conducted our in accordance with generally accepted auditing standards in
Brazil, which included: (a) the planning of our work, taking into consideration
the materiality of balances, the volume of transactions and the accounting and
internal control systems of the Company and subsidiaries; (b) the examination,
on a test basis, of documentary evidence and accounting records supporting the
amounts and disclosures in the financial statements; and (c) an assessment of
the accounting practices used and significant estimates made by management, as
well as an evaluation of the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tele Centro Oeste Celular
Participacoes S.A., as well as the consolidated financial position of Tele
Centro Oeste Celular Participacoes S.A. and subsidiaries at December 31, 2002
and 2001, 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 practices adopted in Brazil.
Brasilia, February 14, 2003
ERNST & YOUNG
Auditores Independentes S.C.
CRC 2SP015199/O-6-S-DF
Luiz Carlos Nannini
Accountant CRC 1SP171638/O-7-S-DF
A free translation from Portuguese into English of financial statements prepared
in Brazilian currency in accordance with the accounting practices adopted in
Brazil.
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TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
BALANCE SHEETS
December 31, 2002 and 2001
(In thousands of reais)
Company Consolidated
------------------------ ---------------------------
ASSETS 2002 2001 2002 2001
----------- ----------- ------------- ------------
Current assets:
Cash and banks 3,936 378 37,141 45,907
Short-term investments 7,884 - 121,362 280,730
Marketable securities 224,254 - 712,135 362,310
Trade accounts receivable 61,489 6 227,881 186,762
Inventories 11,318 - 48,369 29,399
Deferred and recoverable taxes 57,307 47,476 111,242 120,222
Interest on shareholders' equity and
dividends receivable 50,486 141,788 - -
Credits derived from swap contracts 34,057 813 38,441 2,446
Other assets 4,146 9,274 16,865 30,678
----------- ----------- ------------- ------------
Total current assets 454,877 199,735 1,313,436 1,058,454
Noncurrent assets:
Loans to related parties 10,617 8,052 - -
Deferred and recoverable taxes 11,667 5 48,459 55,616
Judicial deposits 12,156 - 12,472 -
Credits derived from swap contracts 5,709 - 14,863 -
Advances for acquisition of shares 40,226 - 40,226 -
Other assets 1,312 10 3,922 3,922
----------- ----------- ------------- ------------
Total noncurrent assets 81,687 8,067 119,942 59,538
Permanent assets
Investments 1,061,288 1,078,217 8,430 9,992
Property, plant and equipment 236,584 2,734 891,418 888,039
Deferred charges - - 31,520 36,113
----------- ----------- ------------- ------------
Total permanent assets 1,297,872 1,080,951 931,368 934,144
----------- ----------- ------------- ------------
Total assets 1,834,436 1,288,753 2,364,746 2,052,136
=========== =========== ============= ============
A free translation from Portuguese into English of financial statements prepared
in Brazilian currency in accordance with the accounting practices adopted in
Brazil.
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TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
BALANCE SHEETS
December 31, 2002 and 2001
(In thousands of reais)
Company Consolidated
-------------------------- ---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001 2002 2001
------------ ------------ ------------ -------------
Current liabilities:
Payroll and related accruals 5,182 1,541 9,388 6,849
Suppliers 30,391 1,692 154,390 152,524
Indirect taxes 26,961 658 104,295 79,869
Participation in results of operation 94,828 82,643 102,832 109,092
Loans and financing 246,555 91,003 324,980 279,507
Other payables 6,287 10,541 19,419 40,612
------------ ------------ ------------ -------------
Total current liabilities 410,204 188,078 715,304 668,453
Noncurrent liabilities:
Provision for contingencies 94,639 71,862 99,104 76,476
Loans from related parties 31,410 2,907 - -
Loans and financing 78,715 15,605 302,800 237,477
Other payables 819 - 4,960 1,790
------------ ------------ ------------ -------------
Total noncurrent liabilities 205,583 90,374 406,864 315,743
Minority interests - - 23,929 57,639
Shareholders' equity and capitalizable funds
Capital 534,046 505,000 534,046 505,000
Capital reserves 114,380 87,825 114,380 87,825
Income reserves 322,165 40,567 322,165 40,567
Retained earnings 297,094 383,609 297,094 383,609
Treasury stock (49,162) (6,826) (49,162) (6,826)
------------ ------------ ------------ -------------
Total shareholders' equity 1,218,523 1,010,175 1,218,523 1,010,175
Capitalizable funds 126 126 126 126
------------ ------------ ------------ -------------
Total liabilities and shareholders' equity 1,834,436 1,288,753 2,364,746 2,052,136
============ ============ ============ =============
See accompanying notes.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
STATEMENTS OF INCOME
Years ended December 31, 2002 and 2001
(In thousands of reais)
Company Consolidated
----------------------------- --------------------------
2002 2001 2002 2001
-------------- ------------- ----------- -------------
Gross operating revenue 545,155 - 1,982,289 1,573,414
Gross revenue deductions (111,055) - (420,981) (325,283)
-------------- ------------- ----------- -------------
Net operating revenue 434,100 - 1,561,308 1,248,131
Costs of services rendered and costs of products sold (201,745) - (741,785) (620,728)
-------------- ------------- ----------- -------------
Gross profit 232,355 - 819,523 627,403
Operating income (expenses):
Selling expenses (46,217) - (215,257) (194,505)
General and administrative expenses (81,497) (27,822) (141,871) (108,309)
Financial result, net (124,112) (73,872) (90,669) (51,759)
Equity pickup 242,391 245,369 - -
Other operating income (expenses) 30,361 26,324 (3,828) 3,775
-------------- ------------- ----------- -------------
Operating income 253,281 169,999 367,898 276,605
Nonoperating income (2,217) (9) (17,650) (21,650)
-------------- ------------- ----------- -------------
Income before income taxes and participation 251,064 169,990 350,248 254,955
Income and social contribution taxes (15,380) (1,886) (109,570) (73,933)
Minority interest - - (6,131) (18,215)
-------------- ------------- ----------- -------------
Net income before reversal of interest on shareholders' equity 235,684 168,104 234,547 162,807
Reversal of interest on shareholders' equity 93,499 40,000 94,636 45,297
-------------- ------------- ----------- -------------
Net income 329,183 208,104 329,183 208,104
============== ============= ============ =============
Outstanding shares at the balance sheet date (thousands) 373,408,643 365,379,257
Net income per lot of thousand shares (R$) 0.88 0.57
See accompanying notes.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
EBITDA STATEMENTS
Years ended December 31, 2002 and 2001
(In thousands of reais)
------------------------------------------------------------------------------------------------------
CONSOLIDATED 1st Q 01 1st Q 02 2nd Q 01 2nd Q 02 3rd Q 01 3rd Q 02
------------------------------------------------------------------------------------------------------
Gross Operating Revenue 346.539 441.674 384.821 455.178 406.470 515.610
Deductions from gross revenue (68.932) (86.716) (80.427) (98.638) (83.324) (110.309)
Net Operating Revenue 277.607 354.959 304.394 356.541 323.146 405.301
Cost of services rendered (104.265) (132.406) (122.115) (125.411) (117.500) (150.156)
and merchandise sold *
Gross profit 173.342 222.553 182.279 231.130 205.646 255.145
Operating revenues/expenses
Services commercialized * (47.677) (45.963) (48.626) (48.277) (47.819) (45.364)
General and administrative (24.772) (28.006) (22.151) (26.296) (19.460) (31.489)
expenses *
Other net revenues/expenses * 194 (140) (3.783) (1.970) (1.744) 63
Profit before depreciation 101.087 148.444 107.719 154.587 136.623 178.355
and financial revenues/
expenses - EBITDA
Depreciation (31.148) (37.522) (32.718) (37.972) (35.301) (37.791)
Profit after depreciation 69.939 110.922 75.001 116.615 101.322 140.564
before financial revenue
and expenses - EBIT
Financial revenue/expenses (11.197) 7.210 (16.165) (43.878) (6.576) (27.260)
Operating Profit 58.742 118.131 58.836 72.737 94.746 113.304
Non-operating revenue/expense (5.304) (5.871) (4.378) (5.168) (5.484) (5.399)
Profit before taxes, minor 53.438 112.260 54.458 67.569 89.262 107.905
Income tax and social (14.680) (34.899) (14.992) (19.389) (27.221) (35.878)
contribution
Employee participation (527) (813) (589) (1.370) (621) (1.525)
Participation of minority (3.329) (4.799) (4.675) 1.822 (4.659) (1.524)
shareholders
Profit before reversal of 34.902 71.750 34.202 48.631 56.761 68.978
interestnon owned capital
Reversal of interest on - 138 17.254 40.703 111 (30)
owned capital
Net Profit in the Period 34.902 71.888 51.456 89.334 56.872 68.948
------------------------------------------------------------------------------------------------------
EBITDA margin 36,41% 45,30% 35,39% 40,27% 42,28% 44,01%
EBIT margin 25,19% 33,85% 24,64% 30,38% 31,35% 34,68%
------------------------------------------------------------------------------------------------------
* without depreciation.
EBITDA STATEMENTS Continued
-------------------------------------------------------------------------------
CONSOLIDATED 4th Q 01 4th Q 02 FY 2001 FY 2002
-------------------------------------------------------------------------------
Gross Operating Revenue 435.584 569.826 1.573.414 1.982.289
Deductions from gross revenue (92.600) (125.444) (325.283) (421.107)
Net Operating Revenue 342.984 444.382 1.248.131 1.561.182
Cost of services rendered (158.392) (205.048) (502.272) (613.020)
and merchandise sold *
Gross profit 184.592 239.334 745.859 948.162
Operating revenues/expenses
Services commercialized * (46.450) (65.514) (190.572) (205.118)
General and administrative (24.052) (38.136) (90.435) (123.927)
expenses *
Other net revenues/expenses * 820 (1.654) (4.513) (3.701)
Profit before depreciation 114.910 134.031 460.339 615.416
and financial revenues/
expenses - EBITDA
Depreciation (38.751) (43.560) (137.918) (156.845)
Profit after depreciation 76.159 90.471 322.421 458.571
before financial revenue
and expenses - EBIT
Financial revenue/expenses (9.533) (26.738) (43.471) (90.665)
Operating Profit 66.626 63.733 278.950 367.905
Non-operating revenue/expense (6.484) (1.217) (21.650) (17.655)
Profit before taxes, minor 60.142 62.516 257.300 350.250
Income tax and social (17.040) (19.405) (73.933) (109.571)
contribution
Employee participation (609) 3.708 (2.346) -
Participation of minority (5.552) (1.630) (18.215) (6.131)
shareholders
Profit before reversal of 36.941 45.188 162.806 234.548
interestnon owned capital
Reversal of interest on 27.932 53.825 45.297 94.636
owned capital
Net Profit in the Period 64.873 99.013 208.103 329.184
------------------------------------------------------------------------------
EBITDA margin 33,50% 30,16% 36,88% 39,42%
EBIT margin 22,20% 20,36% 25,83% 29,37%
------------------------------------------------------------------------------
* without depreciation.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2002 and 2001
(In thousands of reais)
CAPITAL RESERVES
--------------------------------------
SPECIAL
PREMIUM Premium
CAPITAL RESERVE Reserve
--------------------------------------
Balances at December 31, 2000 303,000 109,860 68
Capitalization of the offset tax 16,618 (16,618) -
credit
Capital increase with retained 185,382 - -
earnings
Reserve of premium merged at - (5,485) -
subsidiaries
Treasury stock - - -
Adjustment of stock dividends at - - -
subsidiaries
Reversal of reserves - - -
Net income - - -
Income appropriation proposal:
Transfer to reserves - - -
Interest on shareholders' equity - - -
Dividends - - -
--------------------------------------
Balances at December 31, 2001 505,000 87,757 68
Merger of the minority interest at 29,046 - 38,313
Telebrasilia Celular S.A
Reserve of premium merged at - (15,584) -
subsidiaries
Net income - - -
Stock treasury:
Purchase of common shares - - -
Purchase of preferred shares - - -
Disposal of preferred shares - - 3,826
Cancellation of shares - - -
Income appropriation proposal:
Transfer to reserves - - -
Income retained for prior year - - -
expansion
Income retained for current - - -
year expansion
Interest on shareholders' equity - - -
--------------------------------------
BALANCES AT DECEMBER 31, 2002 534,046 72,173 42,207
======================================
See accompanying notes.
STATEMENTS OF SHAREHOLDERS' EQUITY Continued
INCOME RESERVES
--------------------------------------
Income
retained for
Unearned expansion
Legal Income Article 196 of Retained Treasury
reserve reserve Law 6,404/76 earnings Stock Total
--------------------------------------------------------------------------------
Balances at December 31, 2000 30,162 97,675 - 355,633 - 896,398
Capitalization of the offset tax - - - - - -
credit
Capital increase with retained - - - (185,382) - -
earnings
Reserve of premium merged at - - - - - (5,485)
subsidiaries
Treasury stock - - - - (6,826) (6,826)
Adjustment of stock dividends at - - - (1,516) - (1,516)
subsidiaries
Reversal of reserves - (97,675) - 97,675 - -
Net income - - - 208,104 - 208,104
Income appropriation proposal:
Transfer to reserves 10,405 - - (10,405) - -
Interest on shareholders' equity - - - (40,000) - (40,000)
Dividends - - - (40,500) - (40,500)
--------------------------------------------------------------------------------
Balances at December 31, 2001 40,567 - - 383,609 (6,826) 1,010,175
Merger of the minority interest at 1,662 - - (31,476) - 37,545
Telebrasilia Celular S.A
Reserve of premium merged at - - - - - (15,584)
subsidiaries
Net income - - - 329,183 - 329,183
Stock treasury:
Purchase of common shares - - - - (43,975) (43,975)
Purchase of preferred shares - - - - (18,938) (18,938)
Disposal of preferred shares - - - - 9,790 13,616
Cancellation of shares - - - (10,787) 10,787 -
Income appropriation proposal:
Transfer to reserves 16,459 - - (16,459) - -
Income retained for prior year - - 44,252 (44,252) - -
expansion
Income retained for current - - 219,225 (219,225) - -
year expansion
Interest on shareholders' equity - - - (93,499) - (93,499)
--------------------------------------------------------------------------------
Balances at December 31, 2002 58,688 - 263,477 297,094 (49,162) 1,218,523
================================================================================
See accompanying notes.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years ended December 31, 2002 and 2001
(In thousands of reais)
Company Consolidated
------------------------------ ------------------------------
2002 2001 2002 2001
------------------------------ ------------------------------
SOURCES OF WORKING CAPITAL
From operations
Net income 329,183 208,104 329,183 208,104
Minority interests - - 6,131 18,215
Expenses (income) not affecting working capital
Depreciation and amortization 60,677 1,134 158,750 138,585
Equity pickup (242,391) (245,369) - -
Monetary variation on noncurrent assets and liabilities 36,313 9,864 38,458 12,952
Book value of permanent asset write-offs 1,068 5 14,647 10,262
-------------------------------------------------------------
Funds generated (consumed) by economic activity 184,850 (26,262) 547,169 388,118
From shareholders
Merger of the minority interest at Telebrasilia Celular 37,545 - - -
S.A.
Investment reduction 307,524 54,317 - -
Interest on shareholders' equity, dividends and others 61,267 200,385 - -
-------------------------------------------------------------
406,336 254,702 - -
From third parties
Decrease in noncurrent assets - - - 3,560
Transfer from noncurrent to current assets - - - 21,947
Transfer from current to noncurrent liabilities 9,088 - 6,240 -
Increase in noncurrent liabilities 27,886 22,536 39,628 222,847
-------------------------------------------------------------
36,974 22,536 45,868 248,354
Merger of Telebrasilia
Noncurrent liabilities 41,724 - - -
-------------------------------------------------------------
41,724 - - -
-------------------------------------------------------------
Total sources of working capital 669,884 250,976 593,037 636,472
=============================================================
APPLICATIONS OF WORKING CAPITAL
Increase in noncurrent assets 45,397 5,767 43,755 -
Additions to investment 729 - - 5,597
Additions to property, plant and equipment 33,317 25 170,622 190,521
Additions to deferred charges - - - 1,722
Merger of Telebrasilia
Noncurrent assets 16,518 - - -
Property, plant and equipment 260,717 - - -
Investment 110,303 - - -
Transfer from noncurrent to current liabilities - 1,557 - 15,082
Transfer from current to noncurrent assets 11,507 - 9,853 -
Interest on shareholders' equity 93,499 40,000 94,636 45,297
Dividends - 40,500 430 53,671
Adjustment of stock dividends at subsidiaries - 1,516 - 1,516
Capitalization of offset tax credits 15,584 5,485 15,584 5,485
Treasury stock 49,297 6,826 49,297 6,826
Minority interests - - 729 12,228
-------------------------------------------------------------
Total applications of working capital 636,868 101,676 384,906 337,945
-------------------------------------------------------------
Increase in net working capital 33,016 149,300 208,131 298,527
=============================================================
VARIATION IN NET WORKING CAPITAL
Current assets:
At beginning of year 199,735 100,017 1,058,454 957,579
At year-end 454,877 199,735 1,313,436 1,058,454
-------------------------------------------------------------
255,142 99,718 254,982 100,875
Current liabilities:
At beginning of year 188,078 237,660 668,453 866,105
At year-end 410,204 188,078 715,304 668,453
-------------------------------------------------------------
222,126 (49,582) 46,851 (197,652)
-------------------------------------------------------------
Increase in net working capital 33,016 149,300 208,131 298,527
=============================================================
See accompanying notes.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
1. Operations
Tele Centro Oeste Celular Participacoes S.A. is a publicly traded company
directly controlled by Fixcel S.A., company controlled by Splice Group, who
acquired 53.23% of the voting capital and 17.75% of the total capital.
The Company controls the following companies: Telegoias Celular S.A., Telemat
Celular S.A., Telems Celular S.A., Teleron Celular S.A. and Teleacre Celular
S.A. The subsidiaries are responsible for providing cellular telephone services
- Band A throughout the Middle West region of the country including the States
of Rondonia and Acre, according to the concession terms signed by the Federal
Government which should expire on August 5, 2008 but could be extended for
another 15 years.
On May 24, 1999 Norte Brasil Telecom S.A. - NBT was constituted, as a private
company, with the objective of exploring cellular telephone services as well as
all necessary and useful activities for delivering these services within area 8
- Band B which comprises the States of Amazonas, Roraima, Amapa, Para and
Maranhao. Norte Brasil Telecom S.A. started-up its activities in 1999, serving
11 of the 97 cities comprising the respective operating area. The expenses
incurred to December 31, 1999 were considered as pre-operating expenses and
amortized as from January 2000 when the company became operational and the
respective expenses started being amortized.
The business of Tele Centro Oeste Celular Participacoes S.A., including the
services provided by its subsidiairies and respective charges are controlled by
ANATEL (National Agency of Telecommunications), the entity responsible for
regulating telecommunications in Brazil in accordance with Law No. 9,472 of July
16, 1997 and respective regulations.
On November 21, 2000 TCO IP S.A. was constituted, a private company, with the
objective of rendering telecommunications and internet access services,
developing solutions and others.
On April 26, 2002, Tele Centro Oeste Celular Participacoes S.A. merged the
subsidiary Telebrasilia Celular S.A., based on the evaluation of the latter's
shareholders' equity at December 31, 2001, with the aim of rationalizing the
corporate structure of the Company and subsidiaries so that the existing
administrative and commercial synergies are used, as well as concentrating the
liquidity of the private companies' shares in one company only, thus reducing
the capital cost. Please note that this merger operation was authorized by the
National Agency of Telecommunications - ANATEL.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
2. Presentation of the financial statements
The Company's balances at December 31, 2001, presented herein for comparison
purposes, represent exclusively the operations of Tele Centro Oeste Celular
Participacoes (holding) at that date. At December 31, 2002, the Company's
balances also include the operations of the merged company Telebrasilia Celular
S.A..
The Company's financial statements and the consolidated financial statements
were prepared in conformity with accounting practices adopted in Brazil and
accounting norms and procedures established by the CVM.
Some accounts for 2001 were reclassified so that they are consistent with the
current year.
3. Summary of the principal accounting practices
a. Short-term investments
Refers to temporary investments of high liquidity falling due within less than
three months, stated at cost plus income earned to the balance sheet date.
b. Marketable securities
Refers to investments to be maintained up to the respective maturity, which
should not exceed 12 months, and are recorded at cost plus interest earned to
the balance sheet date.
c. Credits and obligations
Credits and obligations are stated at their historical value. The amounts
subject to monetary correction, foreign exchange variation and interest are
adjusted to the balance sheet date
d. Allowance for doubtful accounts
This provision was constituted to cover accounts receivable unlikely to be
collected. The methodology comprises the recording of a provision to cover 100%
of accounts overdue more than 90 days. Additionally, for the accounts not yet
billed, not yet due and overdue more than 90 days, the percentages historically
obtained from write-offs are applied on the respective gross revenues computed
within the last 12 months.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
3. Summary of principal accounting practices--Continued
e. Inventories
The inventories classified in current assets comprise cellular telephones stated
at the average acquisition cost, to be sold to own shops and authorized, as well
as materials applied to the plant maintenance. The inventories to be applied in
expansion activities are classified in construction and installations in
progress under property, plant and equipment.
f. Investments
Refers to permanent participation in the capital of subsidiaries which are
recorded according to the equity pickup method. The accounting practices adopted
by subsidiaries are consistent to those adopted by the Company. Other
investments are stated at cost not exceeding market value.
g. Property, plant and equipment
Property, plant and equipment is stated at acquisition and/or construction cost,
monetarily corrected to December 31, 1995 less accumulated depreciation.
The operation right (concession area 8) of cellular services - Band B relating
to the subsidiary Norte Brasil Telecom S.A. was stated at the respective
acquisition cost and is being amortized in accordance to concession terms.
Materials related to the plant expansion are stated at average acquisition
cost.
The maintenance and repair expenses representing improvements (increase of
installed capacity or useful life) are capitalized while the remaining expenses
are charged to operating results following the accrual method.
Depreciation is calculated by the straight-line method considering the useful
life of the assets at rates shown in Note 9.
h. Deferred charges
The income and expenses computed during the pre-operating phase of subsidiaries
Norte Brasil Telecom S.A. and TCO IP S.A. are charged to deferred charges and
amortized by the straight-line method over a period of 10 years.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
3. Summary of principal accounting practices--Continued
i. Income and social contribution taxes
Income and social contribution taxes are recorded on the accrual basis,
calculated in accordance with the current tax legislation. Deferred taxes are
recorded over temporary differences, calculated based on the rates applicable at
the respective realization or liquidation.
j. Provision for contingencies
The provision for contingencies was recorded based on an analysis of the
Company's lawyers regarding all existing legal actions.
k. Income and expenses
Income and expenses are charged to the year's operating result on the accrual
basis. The revenues derived from sales of prepaid recharging cellular telephone
cards are deferred and charged to the operating result as the cards are used.
Billings are computed monthly and the revenues not billed between the billings
date and the end of the respective period are estimated and recognized as
revenue in the month that the service was rendered.
l. Financial result - net
The financial result net is represented by interest and monetary correction on
short-term investments and loans obtained and granted. In compliance with the
current tax legislation, the interest on shareholders' equity was recorded as
financial expenses and considered as destination of result for financial
statement purposes, according to Deliberation No. 207 of December 12, 1996 of
the CVM (Brazilian Securities Commission).
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
3. Summary of principal accounting practices--Continued
m. Pension plan
Tele Centro Oeste Celular Participacoes S.A. and subsidiaries sponsor a private
social security plan, which is managed by SISTEL. According to the CVM
Resolution No. 371 of December 13, 2000, the Company conducted studies on future
benefits to employees which are presented in Note 23. However, the Company opted
to record the adjustment to actuarial liabilities directly in the year's
operating result as of 2002 for a period of five years, or if lower, for the
period of the service or remaining life of the employees.
n. Employees' income participation
Tele Centro Oeste Celular Participacoes S.A. and subsidiaries provide for
employees' income participation based on Article 5 of Provisional Measure No.
980 of April 25, 1995 and subsequent publications.
The amount provided for is equivalent to a monthly salary subject to approval of
the Shareholders Meeting. In 2002 these expenses were classified as operating
expenses.
o. Profit per share
Profit per share was calculated based on the number of outstanding shares at the
balance sheet date.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
4. Consolidation of the financial statements
The consolidated financial statements were prepared in accordance with
consolidation basic principles established by Brazil's Corporation Law and norms
of the CVM (Brazilian Securities Commission).
We present below the main consolidation procedures:
a) Elimination of assets and liability account balances held between the
consolidated companies;
b) Elimination of capital participation, reserves and retained earnings of the
consolidated companies;
c) Elimination of revenues and expenses derived from business held between the
consolidated companies;
d) Highlighting the amounts of participation by minority interest on the
consolidated financial statements.
The consolidated companies comprise the following:
Total capital participation (%)
---------------------------------
2002 2001
---------------------------------
Telebrasilia Celular S.A. - 88.25
Telegoias Celular S.A. 97.07 96.81
Telemat Celular S.A. 97.57 97.49
Telems Celular S.A. 98.45 98.39
Teleron Celular S.A. 97.21 97.12
Teleacre Celular S.A. 98.35 98.31
Norte Brasil Telecom S.A. - NBT 98.33 98.33
TCO IP S.A. 99.99 99.99
5. Marketable securities
Company Consolidated
---------------------------------------------
Interest Due date 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
Commercial Paper-Splice Prefixed annual rate of 24% and 25% 7/5/2002 - - - 362,310
do Brasil S.A. with Swap of 100% over the CDI plus and
1.5% p.a. 9/30/2002
6/27/2003
and
8/8/2003
Debentures - FIXCEL 100% over CDI plus 2% p.a. 224,254 - 712,135 -
--------------------------------------------
224,254 - 712,135 362,310
============================================
Tele Centro Oeste Celular Participacoes S.A., directly and through its
subsidiaries, acquired a total of R$ 660,000 in debentures issued by Fixcel
S.A.: R$ 470,000 on July 2, 2002 and R$ 190,000 on August 13, 2002. The
debentures are supported by floating guarantees over Fixcel S.A.'s assets and
surety from Splice do Brasil Telecomunicacoes and Eletronica S.A.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
6. Accounts receivable
Company Consolidated
---------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------
Amounts invoiced 19,711 - 76,156 64,975
Amounts to be invoiced 15,758 - 47,390 47,193
Network use rate 13,396 - 53,678 52,849
Sale of cellular telephones and cards 8,974 - 46,202 36,736
Credit cards 4,171 - 14,069 12,345
Allowance for doubtful accounts (4,734) - (26,595) (40,781)
Others 4,213 - 16,981 13,445
---------------------------------------------------------
61,489 - 227,881 186,762
=========================================================
Services invoiced
Not yet due 8,463 - 32,807 24,903
Overdue - from 1 to 30 days 5,570 - 20,463 16,291
Overdue - from 31 to 60 days 1,670 - 6,878 5,972
Overdue - from 61 to 90 days 1,195 - 4,961 4,779
Overdue - more than 90 days 2,813 - 11,047 13,030
---------------------------------------------------------
Total services invoiced 19,711 - 76,156 64,975
=========================================================
Statement of the allowance for doubtful
accounts movement:
Initial balance - - 40,781 25,826
Complement to the year's allowance 15,157 - 35,918 60,479
Losses (10,423) - (50,104) (45,524)
---------------------------------------------------------
Final balance 4,734 - 26,595 40,781
=========================================================
Losses recovery 3,470 - 12,439 12,178
---------------------------------------------------------
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
7. Deferred and recoverable taxes
Company Consolidated
-----------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------
Withholding tax 16,994 10,628 36,935 25,767
Recoverable income tax 8,525 19,638 12,773 26,401
Recoverable social contribution tax 3,555 4,441 3,850 6,374
Recoverable income tax - premium (CVM
Instruction No. 349) 9,352 - 32,269 48,403
Recoverable social contribution tax -
premium (CVM Instruction No. 349) 3,366 - 11,618 17,427
Deferred income and social contribution taxes 23,118 12,586 36,443 36,771
Recoverable ICMS (State VAT) 3,871 - 25,267 13,355
Other recoverable taxes 193 188 546 1,340
-----------------------------------------------------------
68,974 47,481 159,701 175,838
Current (57,307) (47,476) (111,242) (120,222)
-----------------------------------------------------------
Noncurrent 11,667 5 48,459 55,616
===========================================================
The recoverable amounts relating to income and social contribution taxes on
premium refer to the tax benefit to be computed through the amortization of the
premium merged by the operators of Tele Centro Oeste Celular, with respective
realization to be concluded by 2004.
Company Consolidated
-----------------------------------------------------
Deferred
income and social 2002 2001 2002 2001
contribution taxes
-----------------------------------------------------
Income and social contribution tax
loss carryforwards - - 3,764 6,216
Contingencies 20,698 12,460 22,090 16,013
Allowance for doubtful accounts 1,610 - 9,042 13,958
Other temporary additions 810 126 1,547 584
-----------------------------------------------------
Total 23,118 12,586 36,443 36,771
=====================================================
According to the Company's budget forecast, the deferred income and social
contribution taxes on NBT's tax losses (R$ 3,764) should be compensated in the
calendar years 2003 and 2004.
The credits derived from nondeductible provisions, mainly for tax contingencies
and doubtful accounts, will be realized as the corresponding matters are
concluded.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
8. Investments
Company Consolidated
--------------------------------------------------------------
2002 2001 2002 2001
--------------------------------------------------------------
Participation stated by the equity pickup method 1,053,027 1,068,410 - -
Premium - Norte Brasil Telecom S.A. 4,579 5,185 4,579 5,185
Premium - Telegoias Celular S.A. 3,660 4,616 3,660 4,616
Other investments 22 6 191 191
--------------------------------------------------------------
1,061,288 1,078,217 8,430 9,992
==============================================================
The significant information between subsidiaries is summarized as follows:
Norte
Telebrasilia Telegoias Telemat Telems Teleron Teleacre Brasil
Celular Celular Celular Celular Celular Celular Telecom Tco IP
S.A. S.A. S.A S.A. S.A. S.A. S.A. S.A. Consolidated
-------------------------------------------------------------------------------------------
Investments at December 31, 2001 307,525 300,446 185,071 154,543 43,121 24,067 52,388 1,249 1,068,410
Equity pickup - 99,008 59,499 47,443 16,453 8,605 12,312 (929) 242,391
Purchase of shares - 890 22 13 10 - - - 935
Gain/loss on purchase of shares - (209) 7 5 - - - - (197)
Capital increase - 4,419 4,417 5,064 1,060 624 - - 15,584
Gain/loss on capital increase - 1 (4) (5) - - - - (8)
Investment reduction - merged premium (25,436) (4,419) (4,417) (5,064) (1,060) (624) - - (41,020)
Interest on shareholders' equity - (24,639) (8,227) (6,626) (1,913) (1,062) - - (42,467)
Dividends - (2,591) (7,148) (5,637) (2,282) (1,141) - - (18,799)
Addition/write-off of investment
due to the merger of subsidiary
Telebrasilia Celular S.A. (282,089) - - - - - 110,287 - (171,802)
-------------------------------------------------------------------------------------------
Investments at December 31, 2002 - 372,906 229,220 189,736 55,389 30,469 174,987 320 1,053,027
===========================================================================================
Shareholders' equity not
including the merger premium - 370,555 221,399 177,280 53,706 29,080 177,998 (190) 1,029,828
Company's participation - 97.07% 97.57% 98.45% 97.21% 98.35% 98.33% 99.99% -
Investment not including merged
premium - 359,648 215,969 174,543 52,209 28,599 174,987 (190) 1,005,765
Investment not including premium - 13,258 13,251 15,193 3,180 1,870 - - 46,752
Advance for future capital
increase - AFAC - - - - - - - 510 510
-------------------------------------------------------------------------------------------
Investments at December 31, 2002 - 372,906 229,220 189,736 55,389 30,469 174,987 320 1,053,027
===========================================================================================
The reductions of R$ 25,436 and R$ 282,089 refer to the merger of Telebrasilia
Celular S.A. carried out on April 26, 2002 by Tele Centro Oeste Celular
Participacoes S.A. and the addition of R$110,287 refers to the investment held
by Telebrasilia Celular S.A. in Norte Brasil Telecom S.A. which was transferred
to Tele Centro Oeste Celular Participacoes S.A after the referred merger.
The premiums of R$ 4,579 and R$ 3,660 at December 31, 2002 refer to the
acquisition of 45% participation in the capital of Norte Brasil Telecom S.A.
from Inepar S.A. in May 1999 and the acquisition of the shares of Telegoias
Celular S.A. from the market in November 2001, respectively. These premiums are
being amortized over a period of 5 and 10 years, respectively.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
9. Property, plant and equipment
Company
----------------------------------------------------
2002 2001
----------------------------------------------------
Annual Cost
depreciation monetarily Accumulated Net book Net book
rate (%) corrected depreciation value value
--------------------------------------------------------------------
Assets and service installations
Switching equipment 10 85,743 (25,677) 60,066 -
Transmission equipment 14.29 281,339 (189,539) 91,800 -
Infra-structure
Land - 2,962 - 2,962 -
Buildings 4 17,415 (8,408) 9,007 1,455
Supporters and protectors 5 20,846 (6,382) 14,464 -
Energy equipment 10 35,052 (25,956) 9,096 -
Improvements to third party properties 10 3,651 (1,526) 2,125 -
Computer equipment 20 19,280 (7,585) 11,695 455
Vehicles 20 784 (618) 166 -
Other assets 5 to 20 40,513 (14,306) 26,207 824
Assets for future use
Assets and construction in progress - 7,207 - 7,207 -
Construction material - 1,789 - 1,789 -
----------------------------------------------------
516,581 (279,997) 236,584 2,734
====================================================
Consolidated
----------------------------------------------------
2002 2001
----------------------------------------------------
Annual Cost
depreciation monetarily Accumulated Net book Net book
rate (%) corrected depreciation value value
--------------------------------------------------------------------
Assets and service installations
Switching equipment 10 268,109 (73,549) 194,560 176,768
Transmission equipment 14.29 743,757 (412,646) 331,111 327,349
Infra-structure
Land - 5,830 - 5,830 4,817
Buildings 4 38,524 (12,994) 25,530 22,762
Supporters and protectors 5 67,385 (10,775) 56,610 36,786
Energy equipment 10 69,802 (40,665) 29,137 28,482
Improvements to third party properties 10 4,590 (1,822) 2,768 2,515
Computer equipment 20 36,798 (14,446) 22,352 21,967
Vehicles 20 1,813 (1,366) 447 534
Other assets 5 to 20 109,176 (32,236) 76,940 44,434
Assets for future use
Assets and construction in progress - 79,910 - 79,910 152,749
Construction material - 16,051 - 16,051 14,523
Exploration right (concession) 6.90 60,550 (10,378) 50,172 54,353
----------------------------------------------------
1,502,295 (610,877) 891,418 888,039
====================================================
The balances for cellular telephones granted to customers on a free lease basis
prior to 2001 have been fully depreciated so that the respective depreciation
conforms with the respective contract average terms.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
10. Deferred charges
Consolidated
--------------------------
2002 2001
--------------------------
Preoperating expenses 44,692 44,692
Others 69 69
Accumulated amortization (13,241) (8,648)
--------------------------
31,520 36,113
==========================
11. Suppliers
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Suppliers 29,157 1,645 146,012 132,399
Consignment on behalf of third parties 376 47 3,065 9,275
Accounts payable for interconnection services 858 - 5,313 10,850
----------------------------------------------
30,391 1,692 154,390 152,524
==============================================
12. Indirect taxes
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
ICMS tax 10,796 - 44,485 35,205
Fistel tax 10,813 - 46,827 37,770
Taxes on revenues (COFINS, PIS and others) 5,352 658 12,983 6,894
----------------------------------------------
26,961 658 104,295 79,869
==============================================
13. Income participation
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Interest on shareholders' equity for the year 93,499 40,000 105,416 57,288
Interest on shareholders' equity for the prior year 8,204 7,365 7,950 15,664
IRRF tax on interest on shareholders' equity (14,025) (6,000) (20,565) (18,828)
Current year dividends - - 430 -
Prior year dividends 5,601 40,500 6,498 52,599
Employees' income participation 1,549 778 3,103 2,369
----------------------------------------------
94,828 82,643 102,832 109,092
==============================================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
14. Loans and financing
Company Consolidated
------------------------------------------
Interest and monetary correction Due date 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
National currency
-----------------
BNDES T.J.L.P. plus annual interest from
3.5% to 4% 1/15/2008 16,356 - 204,479 192,030
Brasil Telecom S.A. - 5/21/2002 - - - 2,917
Others Industrial Products Column 20 - FGV 2003 to 2008 - - 1,587 1,707
Foreign currency
----------------
From
Finimp Exchange variation based on the U.S. 5/19/2003
dollar plus Libor and annual interest to
from 2% to 7% 12/12/2003 170,054 41,398 174,752 128,937
From
Resolution 2770(a) Exchange variation based on the U.S. 5/12/2003
dollar plus the average interest rate to
of 7.41% p.a. 11/29/2004 48,842 2,733 60,707 18,863
Prepayment Exchange variation based on the U.S.
dollar plus Libor and annual interest
from 1.75% to 1.90%, plus performance
premium ranging from 1.20% to 1.30% 8/15/2002 - 41,537 - 98,174
Export Exchange variation based on the U.S.
Development dollar plus semiannual Libor and
Corporation - EDC interest ranging from 3.90% 5% 12/14/2006 90,018 20,940 163,358 61,708
BNDES - Currency UMBNDES plus loan interest rate
basket charged by BNDES, plus annual interest
of 3.5% 1/15/2008 - - 22,897 12,648
------------------------------------------
325,270 106,608 627,780 516,984
Current (246,555) (91,003) (324,980) (279,507)
------------------------------------------
Noncurrent 78,715 15,605 302,800 237,477
==========================================
(a) The amounts presented at December 31, 2001 as compror and loan from
supplier were reclassified as Resolution 2770.
The amounts falling due on a long-term basis are as follows:
Consolidated
----------------
Due date 2002 2001
----------------------------
2003 - 55,320
2004 89,461 66,735
2005 89,461 66,735
2006 82,414 25,402
2007 38,086 21,176
2008 3,378 2,109
----------------
302,800 237,477
================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
14. Loans and financing--Continued
Guarantees:
Banks Guarantees
--------------------------------------------- -----------------------------------------------------------
BNDES - TCO operators 15% of receivables and CDB pledged in the amount of the
next installment due
BNDES NBT 100% of receivables and CDB pledged in the amount of the
next installment due during the first year and CDB
pledged in the amount equivalent to two installments due
in the remaining period
EDC Guarantee from TCO and other subsidiaries
Other loans and financing Guarantee from TCO
The contracts with BNDES and EDC include several restrictive clauses denominated
covenants. At December 31, 2002, the Company does not present problems relating
to the compliance with contract conditions.
At December 31, 2002, the total debt amounted to R$ 627,780 of which 67.18% is
in foreign currency (63.53% adjusted by the U.S. dollar and 3.65% denominated in
a currency bask - BNDES index). From the portion denominated in U.S. dollars,
85.75% was protected by hedge operations at year-end. From the total denominated
in foreign currency, 81.09% was protected by hedge operation.
15. Provision for contingencies
Based on the lawyers' opinion, the Company recorded a provision for
contingencies in amounts considered necessary to cover possible losses derived
from the outcome of ongoing processes, as follows:
Company Consolidated
------------------------------------------
2002 2001 2002 2001
------------------------------------------
Tax 12,199 9,735 16,404 14,148
Labor 9 - 269 201
Others (a) 82,431 62,127 82,431 62,127
------------------------------------------
94,639 71,862 99,104 76,476
==========================================
(a) Corresponding to the original loans from Telecomunicacoes Brasileiras S.A. -
TELEBRAS, which according to Attachment II of the Spin-Off Report of February
28, 1998, approved by the General Shareholders Meeting of May 1998, and
according to Company management, should be charged to the respective holding
controlled by Telegoias Celular S.A. and Telebrasilia Celular S.A..
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
15. Provision for contingencies - Continued
Local management, based on the understanding that the respective loans were
wrongly allocated at the time of the spin-off, suspended the payments flow
subsequent to the changes in Company's controls. These loans are being indexed
by the IGP-M (Market General Price Index) plus 6% annual interest.
In June 1999, Tele Centro Oeste Celular Participacoes S.A. (parent company)
filed a legal action claiming that the assets related to these obligations -
loans and financing - belong to the Company as well as the respective
accessories, plus compensations for the installments paid.
In November 1999, Company management decided to transfer to the actual holding -
Tele Centro Oeste Celular Participacoes S.A., the liability derived from the
loan originally due to Telecomunicacoes Brasileiras S/A - TELEBRAS and absorbed
during the spin-off process.
On August 1, 2001, a sentence was handed down denying the action filed by Tele
Centro Oeste Celular Participacoes S.A., however, on October 8, 2001 Tele Centro
Oeste Celular Participacoes S.A. filed an appeal awaiting decision to date.
According to the opinion of the Company's lawyers, they consider the chances of
unfavorable outcome for these contingencies as probable with regard to merit,
and possible with regard to the adjustment factor. The difference between the
original contract charges and the above mentioned monetary correction, which has
not been recorded, is estimated to be R$ 68,780.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
16. Related party transactions
Company
The amounts receivable from related parties refer to the transfer of
administrative expenses from the Company to its subsidiaries.
The amounts payable by related parties refer to the loan operations carried out
between the Company and its subsidiaries.
Consolidated
2002 2001
--------------------------------------------------------------------------------------
Splice do CSM
Fixcel Brasil Banco SPL Construtora e Cartoes
S.A. S.A. Credibel Pavimentadora S.A. Total Total
--------------------------------------------------------------------------------------
Assets
------
Short-term investments - - 6,463 - - 6,463 17,353
Debentures 712,135 - - - - 712,135 -
Commercial paper - - - - - - 362,310
Other rights 40,226 - - - - 40,226 -
Liabilities
-----------
Suppliers - 3,215 49 - 819 4,083 1,241
Interest on shareholders' equity 14,104 - - - - 14,104 6,671
Dividends - - - - - - 7,505
Transactions
------------
Revenues from short-term
investments 65,169 44,173 2,615 - - 111,957 41,038
Financial income from premium
prepayment 5,967 - - - - 5,967 -
Financial expenses 16,596 7,393 - - - 23,989 7,850
General and administrative
expenses - 12,532 - - - 12,532 1,968
Other materials - - - - - - 10
Acquisition of telephone cards - - - - 5,854 5,854 920
Acquisition of property, plant
and equipment - 4,236 - 3,458 - 7,694 11,795
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
16. Related party transactions --Continued
According to a contract entered into between Splice do Brasil S.A. and Tele
Centro Oeste Celular Participacoes S.A., Telems Celular S.A., Telemat Celular
S.A., Teleron Celular S.A., Teleacre Celular S.A. and Telegoias Celular S.A.,
technical assistance services are payable to Splice do Brasil S.A. corresponding
to 1% of the net operating income. For the year ended December 31, 2002 the
amount of R$ 12,532 (R$ 1,932 at December 31, 2001) was charged to general and
administrative expenses. In the prior year, the contract was drawn up only
between Telems Celular S.A., Telemat Celular S.A., Teleron Celular S.A. and
Teleacre Celular S.A.
In January 2002 the Company, through a contract with BID S.A., made an advance
payment for the acquisition of shares corresponding to the present value of the
tax benefit on the merged premium in the amount of R$ 34,259 which was increased
by R$ 5,967 due to the financial pro-rata discount at December 31, 2002,
according to the discount rate practiced in the financial market.
All related party transactions have been carried out in accordance with the
Company's Articles of Incorporation and under normal market conditions.
17. Net operating result
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Subscription 43,387 - 114,955 121,486
Use
National 192,483 - 636,091 491,894
Displacement/additional per calls and others 15,286 - 42,258 38,268
Use of network 175,886 - 649,270 526,846
Additional services 5,700 - 14,579 7,647
Resale of cellular equipment 70,025 - 276,879 235,010
Resale of cards 42,144 - 246,876 151,655
Internet services - - 1,132 327
Others 244 - 249 281
----------------------------------------------
Gross operating income 545,155 - 1,982,289 1,573,414
Taxes on gross income (111,055) - (420,981) (325,283)
----------------------------------------------
Net operating income 434,100 - 1,561,308 1,248,131
==============================================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
18. Operating costs and expenses
Company - 2002
--------------------------------------------------------------------
Costs of
services General and
rendered/ cost Selling administrative
of products sold expenses expenses Total
--------------------------------------------------------------------
Personnel 6,780 5,955 28,579 41,314
Administration fees - - 2,951 2,951
Material 1,765 548 1,183 3,496
Third party services 43,764 24,465 34,563 102,792
Rental/leasing/insurance 7,403 1,380 2,262 11,045
Depreciation and amortization 46,806 2,445 9,865 59,116
Taxes and contributions 12,356 12 1,908 14,276
Allowance for doubtful accounts - (1,522) - (1,522)
Net losses - 6,953 - 6,953
Losses, theft and damages - 2,720 - 2,720
Customer loyalty build-up - 3,029 - 3,029
Cost of products sold 82,675 - - 82,675
Other materials 196 232 186 614
--------------------------------------------------------------------
201,745 46,217 81,497 329,459
====================================================================
Company - 2001
--------------------------------------------------------------------
Costs of
services General and
rendered/ cost Selling administrative
of products sold expenses expenses Total
--------------------------------------------------------------------
Personnel - - 16,370 16,370
Administration fees - - 1,914 1,914
Material - - 106 106
Third party services - - 7,906 7,906
Rental/leasing/insurance - - 274 274
Depreciation and amortization - - 466 466
Taxes and contributions - - 746 746
Other materials - - 40 40
--------------------------------------------------------------------
- - 27,822 27,822
====================================================================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
18. Operating costs and expenses --Continued
Consolidated - 2002
--------------------------------------------------------------------
Costs of
services General and
rendered/ cost Selling administrative
of products sold expenses expenses Total
--------------------------------------------------------------------
Personnel 15,581 22,325 37,890 75,796
Administration fees - - 4,229 4,229
Material 3,423 4,306 3,225 10,954
Third party services 171,498 128,071 71,392 370,961
Rental/leasing/insurance 42,434 5,260 4,823 52,517
Depreciation and amortization 128,748 10,164 17,932 156,844
Taxes and contributions 60,178 77 2,051 62,306
Allowance for doubtful accounts - (4,604) - (4,604)
Net losses - 37,665 - 37,665
Losses, theft and damages - 4,286 - 4,286
Customer loyalty build-up - 7,430 - 7,430
Cost of products sold 319,653 - - 319,653
Other materials 270 277 329 876
--------------------------------------------------------------------
741,785 215,257 141,871 1,098,913
====================================================================
Consolidated - 2001
--------------------------------------------------------------------
Costs of
services General and
rendered/ cost Selling administrative
of products sold expenses expenses Total
--------------------------------------------------------------------
Personnel 12,051 20,303 32,179 64,533
Administration fees - - 2,500 2,500
Material 4,956 5,000 2,883 12,839
Third party services 121,016 113,251 47,653 281,920
Rental/leasing/insurance 37,669 4,074 4,533 46,276
Depreciation and amortization 118,035 3,222 16,661 137,918
Taxes and contributions 53,173 62 1,196 54,431
Allowance for doubtful accounts - 14,955 - 14,955
Net losses - 33,346 - 33,346
Cost of products sold 273,299 - - 273,299
Other materials 529 292 704 1,525
--------------------------------------------------------------------
620,728 194,505 108,309 923,542
====================================================================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
19. Other operating income (expense)
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Taxes (except income taxes) (5,550) (2,702) (9,632) (5,534)
Research and development - - - (436)
Technical and administrative services 516 - 526 436
Donations and sponsorships (2,411) - (9,535) (7,330)
Recovered expenses 243 185 252 348
Reversal of provisions 61 - 394 627
Premium amortization (1,561) - (1,561) -
Penalties 4,070 - 16,994 12,921
Recovery of expenses with subsidiaries 35,949 29,298 - -
Other operating income (expenses) (956) (457) (1,266) 2,743
----------------------------------------------
30,361 26,324 (3,828) 3,775
=================================================
20. Financial result, net
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Taxes (except income taxes) (5,550) (2,702) (9,632) (5,534)
Financial income 98,780 29,846 239,627 134,703
Financial expenses (219,270) (99,701) (321,070) (178,174)
(-) PIS and COFINS on financial income (3,622) (4,017) (9,226) (8,288)
----------------------------------------------
(124,112) (73,872) (90,669) (51,759)
==============================================
Financial expenses include interest on shareholders' equity at December 31, 2002
in the amounts of R$ 93,499 (R$ 40,000 in 2001) and R$ 94,636 (R$ 45,297 in
2001) charged to the Company and consolidated, respectively.
These amounts were reversed against shareholders' equity in accordance with
Resolution No. 207/96 of the CVM (Brazilian Securities Commission).
In September 2002, the Company reclassified the PIS (Social Integration Program)
and COFINS (Social Security Funding) taxes on financial income to "Other
Operating Expenses" under the account group "Financial Income" in order to
present the net financial result, including tax results.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
21. Nonoperating result
Basically refers to amortization of deferred assets and the provision for
maintenance of shareholders' equity completeness (premium computed at the merger
of Coverage Participacoes S.A.).
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Amortization of merged premium (6,359) - (21,946) (21,946)
Interest on shareholders' equity (connected
with dividends), prescribed 4,494 - 5,418 -
Other nonoperating income / (expenses) (352) (9) (1,122) 296
----------------------------------------------
(2,217) (9) (17,650) (21,650)
==============================================
22. Income and social contribution taxes
Company Consolidated
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
Social contribution tax expense (3,859) (495) (28,965) (19,711)
Income tax expense (11,521) (1,391) (80,605) (54,222)
----------------------------------------------
(15,380) (1,886) (109,570) (73,933)
==============================================
----------------------------------------------
Calculation base 251,064 169,990 350,248 254,955
----------------------------------------------
Social contribution tax (22,596) (15,299) (31,522) (22,946)
Social contribution tax on permanent additions (4,403) (7,286) (1,649) (666)
Social contribution tax on permanent exclusions 22,960 22,083 3,868 3,859
Others 180 7 338 42
----------------------------------------------
Social contribution tax (3,859) (495) (28,965) (19,711)
==============================================
Income tax (62,766) (42,498) (87,562) (63,739)
Income tax on permanent additions (12,381) (20,380) (4,735) (2,035)
Income tax on permanent exclusions 63,778 61,342 10,742 10,685
Tax incentives/others (152) 145 950 867
----------------------------------------------
Income tax (11,521) (1,391) 80,605) (54,222)
==============================================
Effective rate (income and social contribution 6% 1% 30% 29%
taxes)
In 2002 and 2001, tax expenses were calculated based on the current rate of 34%
(25% for income tax and 9% for social contribution tax).
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
23. Pension plan
Tele Centro Oeste Celular Participacoes S.A., together with other companies of
the former Telebras System, make payments towards private pension plans and of
medical assistance for retired employees, controlled by Sistel Social Security
Foundation - SISTEL. Up until December 1999, all sponsors of the plans
controlled by SISTEL showed solidarity towards the Benefits Plan existing at
that time. On December 28, 1999, the sponsors of the plans controlled by SISTEL
negotiated conditions for the creation of individual pension plans per sponsor
(PBS-TCO), maintaining the solidarity only for the participants already assisted
by the plan and under such conditions at January 31, 2000 (PBS-A), resulting in
a restructuring proposal on the Sistel Statute and Regulation which was approved
by the Complementary Pension Department on January 13, 2000.
Due to the discontinuation of the solidarity concept occurred in December 1999,
Tele Centro Oeste Celular Participacoes S.A. individually sponsors a Defined
Benefits Retirement Plan PBS-TCO, which covers approximately 1% of the employees
working for this Company. Apart from the supplementation benefit, the Company is
participant of a multi-sponsored plan of medical assistance for retired
employees and dependents at a shared cost (PAMA). The contributions towards plan
PBS-TCO are determined based on actuarial studies prepared by independent
actuaries in accordance with current norms established in Brazil. The cost
determination regime is based on capitalization and the contribution due by the
sponsor is 13.5% on payroll covering the employees who are participating in the
plan, from which 12% is allocated to the costing for plan PBS-TCO and 1.5% for
plan PAMA.
For the other 99% of employees from Tele Centro Oeste Celular Participacoes
S.A., there is an individual defined contribution plan - Benefits Plan TCOPREV,
instituted by Sistel in August 2000. The Plan TCOPREV is supported by
contributions made by participants (employees) and by the sponsor which are
credited to individual accounts on behalf of the participants. Tele Centro Oeste
Celular Participacoes S.A. is responsible for the costs relating to all
administrative and maintenance expenses of the plan, including death and
invalidity risks. The employees taking part of the Defined Benefits Plan
(PBS-TCO) were given the option to joint plan TCOPREV, which was also offered to
the employees not taking part of plan PBS-TCO, as well as to all newly hired
employees. The Company's contributions towards plan TCOPREV are equal to those
made by the participants, up to 8% of the participation salary, according to the
percentage chosen by the participant.
We present below the consolidated position of the provision for the defined
benefits pension plan and medical assistance for retired employees at December
31, 2002, as well as other information required by the CVM Instruction No. 371,
of December 13, 2000 on such plans. The actuarial liability will be recorded in
the operating result within 05 years.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
23. Pension plan--Continued
Reconciliation of assets and liabilities at December 31, 2002
PBS - TCO Company Consolidated
--------- ----------------------------------------------
2002 2001 2002 2001
----------------------------------------------
1. Present value of actuarial obligations 355 501 3,350 3,184
2. Fair market value of the plan assets (1,143) (762) (5,813) (4,685)
----------------------------------------------
3. Present value of obligations (1 + 2) (788) (261) (2,463) (1,501)
4. Actuarial (gains) or losses not recorded 652 - - -
----------------------------------------------
5. Net actuarial liabilities / (assets) (136) (261) (2,463) (1,501)
==============================================
TCO PREV Company Consolidated
-------- ----------------------------------------------
2002 2001 2002 (a) 2001
----------------------------------------------
1. Present value of actuarial obligations 27,078 5,993 39,580 33,373
2. Fair market value of the plan assets (23,193) (5,311) (33,949) (29,564)
----------------------------------------------
3. Present value of obligations (1 + 2) 3,885 682 5,631 3,809
4. Actuarial (gains) or losses not recorded (1,817) - (2,479) -
----------------------------------------------
5. Net actuarial liabilities / (assets) 2,068 682 3,152 3,809
6. Actuarial liability not recorded due to the
deferment allowed (1,792) - (2,758) -
==============================================
7. Net liabilities recorded in the balance sheet 276 - 394 -
==============================================
(a) At the reconciliation as of December 31, 2002 for TCO PREV
Consolidated, the surplus positions were eliminated as no actuarial assets
were recorded by the sponsor.
PAMA Company Consolidated
---- --------------------------
2002 2002
--------------------------
1. Present value of actuarial obligations 352 623
2. Fair market value of the plan assets (156) (277)
--------------------------
3. Present value of obligations (1 + 2) 196 346
4. Actuarial (gains) losses - -
5. Net actuarial liabilities / (assets) 196 346
6. Actuarial liability not recorded due to the
deferment allowed (157) (277)
==========================
7. Net liabilities recorded in the balance sheet 39 69
==========================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
23. Pension plan--Continued
The amounts to be recorded in the statements of income for 2003 and 2002 are
stated as follows:
Plan PBS - TCO (b) Company Consolidated
-------------- ---------------------------------------------
2003 2002 2003 2002
----------------------------------------------
1. Cost of current services (including interest) 64 71 66 74
2. Participant contributions expected for the year 10 22 10 23
3. Interest on actuarial obligations 40 38 366 349
4. Expected income on assets 166 120 827 665
5. Amortization costs
a) Actuarial (gains) or losses not recorded (27) - (37) -
b) Cost of past services not recorded - - - -
c) Increase in liabilities (assets) not recorded (96) (96) (300) (300)
----------------------------------------------
d) Total (a+b+c) (123) (96) (337) (300)
----------------------------------------------
6. Total net expense (income) to be recorded in
relation to installment BD of the plan (1-2+3-4+5d) (195) (129) (742) (565)
===============================================
(b)As the PBS-TCO presents a surplus at December 31, 2002, no income was
recorded by the sponsor due to the legal impossibility of refunding this
surplus, apart from the fact that this plan is not contributive and, as
such, it does not allow the reduction to the sponsor contributions in
future.
Plan TCO PREV Company Consolidated
-------------- ---------------------------------------------
2003 2002 2003 2002
----------------------------------------------
1. Cost of current services (including interest) 827 2,246 1,343 4,172
2. Participant contributions expected for the year - 849 - 1,616
3. Interest on actuarial obligations 2,188 1,774 3,536 2,995
4. Expected income on assets 2,283 1,976 3,702 3,342
5. Amortization costs
a) Actuarial (gains) or losses not recorded - - 2 -
b) Cost of past services not recorded - - - -
c) Increase in liabilities (assets) not recorded 448 448 762 761
----------------------------------------------
d) Total (a+b+c) 448 448 764 761
----------------------------------------------
6. Total net expense (income) to be recorded in
relation to installment BD of the plan (1-2+3-4+5d) 1,180 1,643 1,941 2,970
==============================================
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
23. Pension plan--Continued
Plan PAMA Company Consolidate
--------- --------------------------
2003 2003
--------------------------
1. Cost of current services (including interest) 3 5
2. Participant contributions expected for the year - -
3. Interest on actuarial obligations 39 69
4. Expected income on assets 22 39
5. Increase in liabilities (assets) not recorded 39 69
--------------------------
6. Total net expense (income) to be recorded in
relation to installment BD of the plan (1-2+3-4+5d) 59 104
===========================
Actuarial assumptions adopted in the calculations: PBS - TCO TCO PREV
--------- --------
Discount rate for actuarial obligation: 6.0% 6.0%
Income rate expected on the plan assets: 9.0% 9.0%
Estimated rate for salary increase: 3.0% 3.0%
Estimated rate for benefits increase: 0.0% 0.0%
Estimated long-term inflation rate: 5,0% 5,0%
Biometric table of general mortality: UP84 with 1 year UP84 with 1 year
aggravation aggravation
Biometric table of invalidity onset: Mercer Disability Mercer Disability
Expected rotation rate: Null 0,15 / (Service period + 1)
First eligibility 100% at the first
Probability of retirement: for a retirement eligibility for a Plan
benefit benefit
The above mentioned rates do not include inflation.
The Company and subsidiaries have recognized the adjustments resulting from the
application of CVM Resolution No. 371 in the financial statements as of December
31, 2002, in accordance with NPC 26 of the IBRACON (Brazilian Institute of
Independent Auditors), in the amounts of R$ 315 (Company) and R$ 463
(consolidated).
During 2002, the Company made contributions to the plans PBS-TCO and TCO Prev
amounting to R$ 1,792 (R$ 552 in 2001), and R$ 3,229 on a consolidated level (R$
2,561 in 2001).
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity
a) Capital
The authorized capital at December 31, 2002 and 2001 corresponds to
700,000,000,000 shares.
The subscribed and paid-in capital at December 31, 2002 corresponds to R$
534,046 (R$ 505,000 in 2001), represented by 379,200,036,000 shares
(366,463,335,000 shares in 2001) with no par value, distributed as follows (in
thousands of shares):
2002 2001
-------------------------
Common shares 126,433,338 126,433,338
Preferred shares 252,766,698 240,029,997
-------------------------
379,200,036 366,463,335
=========================
Book value per lot of thousand shares (in R$) 3,213404 2,756551
The preferred shares of Tele Centro Oeste Celular Participacoes S. are nonvoting
and have priority of reimbursement and payment of noncumulative minimum
dividends. These shares will become voting if the Company, for a period of three
consecutive years, stops paying the minimum dividends established on the
Articles of Incorporation.
On April 26, 2002, the minority shareholders of Telebrasilia Celular S.A
transferred their shares according to the merger agreement to Tele Centro Oeste
Celular Participacoes S.A., thus increasing the latter's capital.
b) Special premium reserve
This reserve was constituted as a result of the Company's partial spin-off and
refers to the premium paid for the acquisition of BID S.A. (subsequently
recorded at Coverage Participacoes S.A., a company merged by Tele Centro Oeste
Celular Participacoes S.A.). This operation was recorded in a specific permanent
assets account against the capital reserve account recorded in shareholders'
equity. This reserve is reduced by the provision for maintaining shareholders'
equity completeness.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity --Continued
c) Income reserves
Legal reserve
Constituted in accordance with the corporate legislation based on the
appropriation of 5% of the net income, observing the limit of 20% of the paid-in
capital or 30% of the capital plus capital reserves. After these figures are
met, the appropriations to this legal reserve are no longer required. The legal
reserve may only be used for capital increase purposes or absorption of losses.
Unearned income reserve
At December 31, 2002, the Company did not constitute unearned income reserves as
the compulsory dividends portion did not exceed the realized income, considering
that the constitution of this reserve has the objective of delaying the payment
of minimum compulsory dividends to the year in which the unearned income,
deriving from the investment adjustments valued by the equity pickup method, are
financially realized.
Retained income reserve for expansion - Article 196 of Law No. 6,404/76
In accordance with Article 196 of Law No. 6,404/76, management will propose at
the general shareholders meeting the constitution of a retained income reserve
in the amount of R$ 219,225 relating to the remaining net income balance for the
year, after the allocation of the legal reserve and dividends, to be used for
future investment purposes and based on the capital budget to be approved by the
general shareholders meeting.
Additionally, they will submit for approval and propose to the ordinary
shareholders meeting that the remaining retained income balance for 2001 in the
amount of R$ 44,252, which has not been used in investments mainly due to the
non implantation of "Overlay" as estimated by the 2002 capital budget, be
transferred to the income retained for expansion which will be applied according
to the 2003 capital budget under the terms of the Company's Articles of
Incorporation. The decision of postponing the "Overlay" was based on market
conditions, regulations and perspectives of consolidation of the cellular
telephone companies, which should be favorable for making such an investment
only by the beginning of 2003.
d) Dividends/interest on shareholders' equity
On December 20, 2002, considering the publication of Article 17 of Law No.
6,404/76 and according to alterations introduced by Law No. 10,303/2001, the
General Shareholders Meeting approved changes to the rules for paying dividends
on the Company's preferred shares, ensuring the respective priority of capital
reimbursement, without premium, and in relation to the payment of minimum
dividends, noncumulative, corresponding to or exceeding the following amounts:
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity --Continued
d) Dividends/interest on shareholders' equity --Continued
I - 6% per year on the amount resulting from the division of the subscribed
capital by the total number of Company shares; and
1 = Capital 534,046
2 = Common shares (Quantity) 126,433,338
3 = Preferred shares (Quantity) 252,766,698
4 = Treasury stock (Quantity) (5,791,394)
Common shares (5,791,394)
Preferred shares -
5 = 2 + 3 - 4 (net number of shares) 373,408,643
6 = 1 / 5 > basic amount 0,001430
7 = 6 * 6% 0,000086
8 = 6 * 3 (net preferred treasury stock) 21,690
9 = 6 * 2 (net common stock treasury) 10,352
-----------
Total to be distributed 32,042
Distributed interest on shareholders' equity,
net of income tax (79,474)
-----------
Exceeding amount (47,431)
===========
II - 3% of the Shareholders' Equity value of the share
1 = Shareholders' equity (without special
premium reserve and treasury stock) 1,197,329
2 = Common shares (Quantity) 126,433,338
3 = Preferred shares (Quantity) 252,766,698
4 = Treasury stock (Quantity) (5,791,394)
Common shares (5,791,394)
Preferred shares -
5 = 2 + 3 - 4 (net number of shares) 373,408,643
6 = Net book value of shares 0,003206
7 = 6 * 3% 0,000096
8 = 6 * 3 (net preferred treasury stock) 24,315
9 = 6 * 2 (net common treasury stock) 11,605
-----------
Total to be distributed 35,920
Distributed interest on shareholders' equity,
net of income tax (79,474)
-----------
Exceeding amount (43,554)
===========
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity --Continued
d) Dividends/interest on shareholders' equity --Continued
III - Minimum compulsory dividends of 25%.
The shareholders are entitled to minimum dividends of 25% of the adjusted net
income computed each year, in accordance with Brazil's Corporation Law and the
Company's Articles of Incorporation, which should be increased by the amount
necessary to meet the payment of priority dividends on preferred shares. We
present below details on the dividends calculation:
2002 2001
-------------------------
Net income for the year 329,183 208,104
(+) Reversal of the unearned income reserve - 97,675
(-) Legal reserve (16,459) (10,405)
-------------------------
(=) Net income for the year, adjusted 312,724 295,374
Minimum compulsory dividends (25%) 78,181 73,844
Common shares 26,068 25,477
Preferred shares 52,113 48,367
Dividends value per lot of thousand shares - R$ 0,206 0,202
As determined by management, in 2002 interest on shareholder' equity was
credited to shareholders in the amount of R$ 93,499 (R$ 0.246569 per lot of
thousand shares) with retention of 15% withholding tax, resulting in R$ 79,474
(R$ 0.209584 per lot of thousand shares). It was proposed at the Shareholders
Meeting that the referred interest, net of income tax, be compensated in the
same amount as that of minimum compulsory dividends, as follows:
2002 2001
-------------------------
Common shares 30,208 13,775
Preferred shares 63,291 26,225
Withholding tax (14,025) (6,000)
-------------------------
79,474 34,000
=========================
In 2002 no dividends were proposed as the amount of distributed interest on
shareholders' equity was higher than the minimum required, as follows:
2002 2001
-------------------------
Common shares - 13,932
Preferred shares - 26,568
-------------------------
- 40,500
=========================
The treasury stocks are not included in the calculations of dividends and
interest on shareholders' equity.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity --Continued
e) Treasury stock
At a meeting held on November 8, 2002, the Board of Directors of Tele
Centro Oeste Celular Participacoes S.A., in continuation of the decisions
made on June 22, 2001, September 25, 2001 and December 26, 2001,
respectively, approved the acquisition at market value of up to
23,334,500,000 shares of the Company issuance, from which 1,670,000,000
are common shares and 21,664.500,000 are preferred shares, representing up
to 10% of the outstanding preferred shares, to be cancelled or kept in
treasury for subsequent disposal, without capital reduction.
The treasury stocks at December 31, 2002 amount to 5,791,394,000 common
shares. At December 31, 2001 treasury stocks amounted to 336,900,000
preferred shares and 747,178,000 common shares.
The market value of common shares at December 31, 2002 was R$ 9.15 per lot
of thousand shares.
Common shares were acquired at a cost ranging from R$ 4.20 to R$ 9.01 per
lot of thousand shares, based on the weighted average cost of R$8.29.
Preferred shares were acquired at a cost ranging from R$ 2.26 to R$ 5.86
per lot of thousand shares, based on the weighted average cost of R$ 4.20.
During 2002, the Company sold 3,610,300,000 preferred shares amounting to
R$ 13,616 at the average cost of R$ 2.7117 and average sales price of R$
3.7715, per lot of thousand shares, resulting in a premium of R$ 3,826
which was recorded as capital reserve.
f) Retained earnings
Management will propose at the extraordinary shareholders meeting that the
remaining balance for the 2002 net income of R$ 219,225 be transferred to
retained income for expansion which should be invested according to the
capital budget under the terms of the Company's Articles of Incorporation.
The retention of the remaining balance for the 2001 net income of R$
214,874 was approved at the ordinary shareholders meeting of April 2002
based on the capital budget.
The remaining balance for the 2001 retained income of R$ 44,252 will be
submitted for appreciation at the ordinary shareholders meeting as
previously mentioned in item c above (Retained income reserve for
expansion - Article 196 of Law No. 6,404/76).
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
24. Shareholders' equity --Continued
According to Article 199 of Law No. 6,404/76, management will propose at the
ordinary shareholders meeting the capitalization of R$ 36,051 linked to the
excess income reserve balance in relation to capital.
25. Financial instruments
Considering the terms of Normative Instruction of CVM No. 235/95, Tele Centro
Oeste Celular Participacoes S.A. and subsidiaries performed an evaluation of the
book value of their assets and liabilities in relation to market value based on
available information and appropriate evaluation methodologies. However, the
interpretation of market information as well as the selection of evaluation
methods require considerable judgment and reasonable estimates in order to
conclude on the most adequate realization value. Consequently, the estimates
presented do not necessarily indicate the amounts that could be realized in the
current market. The application of different market hypothesis and /or estimate
methodologies could have a material effect on the estimated realization values.
The Company's investments are recorded by the equity pickup method. These
investments comprise subsidiaries of strategic interest to the Company.
Therefore, market value considerations are not applicable. The accounts
receivable and accounts payable recorded in current assets and liabilities
approximate market value due to their short-term maturity.
The main market risk factors affecting the Company's business comprise the
following:
a) Exchange rate risk
This risk relates to the possibility of the Company computing losses derived
from foreign exchange rate fluctuations, increasing the debt balance derived
from foreign currency loans obtained in the market and financial expenses. In
order to reduce this type of risk, the Company enters into hedge contracts
(swaps of CDI) with financial institutions.
At December 31, 2002, the total debt amounted to R$ 627,780 of which 67.18% is
in foreign currency (63.53% adjusted by the U.S. dollar and 3.65% denominated in
a currency basket of BNDES). From the U.S. dollar portion, 85.75% is protected
by hedge operations at the end of the quarter. From the total in foreign
currency, 81.09% was protected by hedge operation. The hedge operations were
carried out in order to partially cover the future maturity of debts in U.S.
dollars, with fixed or variable interest. The gains or losses from such
operations are recorded in the statement of operations.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
25. Financial instruments --Continued
The Company's net exposure to the foreign exchange rate risk, at book and market
value, at December 31, 2002 corresponds to the following:
Book Market
value value
----------- ------------
Loans in U.S. dollars 398,819 398,819
Hedge 341,984 303,772
----------- ------------
Net exposure 56,835 95,047
=========== ============
The valuation method used for calculating the market value of loans, financing
and swap contracts was based on discounted cash flow, considering the
expectations of liquidation or realization of liabilities and assets at market
rates in effect at the balance sheet date. The Company intends to keep the hedge
operations up to the respective maturity.
b) Interest rate risk
The risk relates to the possibility of the Company computing losses resulting
from interest rate fluctuations, increasing the debt balances of loans obtained
in the market and the financial expenses. The Company has not entered into hedge
contracts against this risk. However, the Company constantly monitors the market
interest rates in order to assess the need for contracting derivatives and
obtain protection against the risk of interest rates volatility.
At December 31, 2002, the Company presents the amount of R$ 206,066 (R$ 196,654
at December 31, 2001) in loans and financing in national currency obtained at
various fluctuating rates (as explained in Note 14) as well as short-term
investments in the amount of R$ 121,362 (R$ 280,730 at December 31, 2001) and
investments in marketable securities of R$ 712,135 (R$ 362,310 at December 31,
2001) based on the CDI variation.
At December 31, 2002, the Company presents R$ 163,358 (R$ 61,708 at December 31
2001) in loans and financing in foreign currency at variable interest rates
(Libor renegotiated on a semiannual basis) and hedge contracts for these
operations amounting to R$ 106,930 (R$ 27,374 at December 31, 2001) at fixed
interest rates plus the exchange variation.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
25. Financial instruments --Continued
Another risk to which Tele Centro Oeste Celular Participacoes S.A. and
subsidiaries are exposed is the noncorrelation between the monetary correction
indices on their debts and accounts receivable. The telephone charge adjustments
do not necessarily correspond to the local interest rates rise affecting the
Company's debts.
c) Operating credit risk
The risk relates to the possibility of the Company computing losses derived from
difficulties in collecting the amounts billed to customers, represented by
cellular equipment dealers and distributors of prepaid telephone cards. In order
to reduce this type of risk, the Company performs credit analyses supporting the
risk management over collection problems and monitors the accounts receivable
from subscribers, blocking the calling capacity in case customers fail to pay
their debts. With respect to shops and distributors, the Company maintains
individual credit limits based on the analysis of sales potential, risk history
and collection problem risks.
Credit risk linked to rendering of services
The credit risk in relation to accounts receivable from cellular telephone
services is diversified.
Credit risk linked to the sale of equipment
The Company's policy for selling equipment and distributing prepaid telephone
cards is closely related to the credit risk levels accepted during the normal
course of business. The selection of partners, the diversification of
receivables portfolio, the monitoring of loan terms, position and request limits
established for dealers, obtaining guarantees are procedures adopted by the
Company in order to minimize possible collection problems with its trading
partners.
d) Financial credit risk
The risk relates to the possibility of the Company computing losses derived from
difficulties in the realization of short-term investments and hedge contracts.
The Company and subsidiaries minimize the risks associated with these financial
instruments by investing with good rating financial institutions.
TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
(In thousands of reais)
26. Insurance (unaudited)
Tele Centro Oeste Celular Participacoes S.A. and subsidiaries have a policy for
assessing possible risks to their operations. Accordingly, at December 31, 2002
the Companies present insurance contracts to cover operating risks, civil
responsibility, theft of assets, health, life, etc. Management understands that
the existing insurance premiums are sufficient to cover possible casualties.
27 - Subsequent events
On January 16, 2003, Tele Centro Oeste Celular Participacoes S.A. published a
Relevant Fact communicating its shareholders and the public in general, under
the terms of CVM Instruction No. 358/02 and according to information provided by
the controlling shareholder, that a Preliminary Shares Purchase/Sale Contract
was entered into between the controlling shareholder and Brasilcel N.V for
transferring the Company's shareholding control to Telesp Celular Participacoes
S.A. or other company belonging to the economic group of Brasilcel N.V. However,
the effective transfer of the Company's shareholding control is subject to the
implementation of certain preceding conditions.
As informed by the controlling shareholder, as of the effective transfer of the
Company's shareholding control, Telesp Celular Participacoes S.A. will guarantee
the liquidation of debentures issued by the parent company Fixcel S.A. which are
owned by the Company.
--------------------------------------------------------------------------------
The above press release contains forward-looking statements which are not
historical in nature and merely reflect expectations and assumptions by the
company's management. Terms such as "anticipates", "believes", "estimates",
"hopes", "forecasts", "intends to", "plans", "predicts", "aims", "expects",
"likely", "may", "should", as well as other similar terminology seek to identify
such forward-looking statements, which entail risks or uncertainties that may or
may not have been foreseen by the company. Therefore, future results of company
operations may differ materially from current expectations, and the reader
should not base decisions or conclusions exclusively on the positions expressed
herein. These projections reflect opinions valid only on the dates in which they
are made and the company undertakes no obligation to update them in light of new
information or of future developments.
--------------------------------------------------------------------------------
This release may contain forward-looking statements. Statements that are not
statements of historical fact, including statements about the beliefs and
expectations of the Company's management, are forward-looking statements. The
words "anticipates," "believes," "estimates," "expects," "forecasts," "intends,"
"plans," "predicts," "projects" and "targets" and similar words are intended to
identify these statements, which necessarily involve known and unknown risks and
uncertainties. Accordingly, the actual results of operations of the Company may
be different from the Company's current expectations, and the reader should not
place undue reliance on these forward-looking statements. Forward-looking
statements speak only as of the date they are made, and the Company does not
undertake any obligation to update them in light of new information or future
developments.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tele Centro Oeste Cellular Holding Company
Date: February 28, 2003 By: /s/ Sergio Assenco Tavares dos Santos
-----------------------------------------
Name: Sergio Assenco Tavares dos Santos
Title: President