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____
TIM PARTICIPAÇÕES S.A.
A listed Company
CNPJ / MF nº 02.558.115/0001-21
NIRE 41 3 0001760 3
Dear Shareholders
The directors of TIM Participações S.A (TIM Participaçõesl or Company) submit for your approval the Management Report and the Company and Consolidated Financial Statements, together with the independent auditors report for the year ending on December 31, 2004.
TIM Participações S.A. is the holding company of TIM Sul S.A. and TIM Nordeste Telecomunicações S.A., the leading mobile telecommunication operators in the South and Northern Regions of Brazil, respectively.
The new holding Company resulted from the merger of, in August 2004, Tele Nordeste Celular Participações S.A. (TND) with Tele Celular Sul Participações S.A. (TSU), which then changed its name to TIM Participações S.A.
TIM Participações is controlled by TIM Brasil Serviços e Participações S.A., a company belonging to Telecom Italia Mobile Group, the only group authorized to provide cellular telecommunications services across Brazil.
TIM Participações covers an area containing 44.2 million inhabitants. The two subsidiaries cover 5.7 million customers in 8 Brazilian states - Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Paraná and Santa Catarina in addition to the region of Pelotas in the state of Rio Grande do Sul. In 2004, their combined penetration reached 28% and their combined market share totaled 45.1%.
The company closed the year with a market value of about R$ 2.8 billion, ranking 3rd among the mobile telephone operators listed on Bovespa.
We started 2004 with confidence yet fully aware of the challenges we faced, certain that we would progress in the deployment of our GSM network, enhancing the quality of our customer relations, pursuing new operating efficiency levels, and contributing to the development of our region.
We also planned to keep the focus on tapping group synergies be they in knowledge, corporate processes, technology or cost optimization.
All the commitments made for 2004 were entirely fulfilled and even surpassed.
The corporate strategy enabled the full payment of the GSM network overlay on the existing TDMA network with our own capital. We achieved a solid, balanced and self-sustaining financial position that led us to launch the overlay with the cash in hand. And even after investing R$ 675.0 million during the year, TIM Participações enjoys one of the lowest indebtedness rates in the industry as well as a strong cash position.
The GSM overlay was accomplished in record time and already represents 36% of the customer base. The migration from one technology to the other has been a success as it has gained a large level of approval from users. We continued boasting the highest customer satisfaction ratings in our operating regions, according to market polls. Our brand is still Top of Mind as we have been since we started operating.
The synergy between TIM Group enables the development of products and services using the same technological platform, creating a TIM Group competitive edge: products developed in Italy are adapted to the Brazilian market in record time and at low cost. One example of that is the cell phone TV, already available to TIM Participações customers.
Cost reduction is another advantage obtained from the integration. Best practices are continually shared among the groups operating subsidiaries, enabling the achievement of low cost levels. Negotiations with suppliers are made jointly throughout the country.
In 2004 we achieved significant growth, adding 1.4 million customers to our base, maintaining the ARPU above the Brazilian average.
We faced accelerated growth and fierce competition in both regions. Nevertheless, we remained the leader in our regions, as a result of our segmented, personalized customer relations strategy. Our monthly churn, 1.9%, is below the Brazilian average.
This scenario affected all operators, however. In line with the market, our SAC (Subscriber Acquisition Cost), which had been consistently decreasing over the past years, went up 14%, reaching R$ 124.4, It is important to note that the SAC is still within levels considered profitable by the Company.
These conditions also enabled us to grow with profitability: our gross revenue grew by 26%, to R$ 3.4 billion and our EBITDA went up 10%, totaling R$ 886.2 million. The EBITDA margin over net revenue was 34.6% for the year.
Our income totaled R$ 265.9 million, and was affected by the strong growth of the customer base and the competitive environment, leading to an increase in variable costs related to gross customer additions such as taxes, commissions, etc.
Simultaneously, we proceeded with our corporate restructuring. The merger of TND into TSU was approved by the Shareholders Meetings in August, 2004. The operation was conducted with the utmost transparency and a minimum use of exercising the right to withdraw by shareholders, similar to which happened in previous procedures carried out by the Company.
Since they started being traded in October 2004, the new TSU shares have increased in liquidity. The average daily volume traded on the Bovespa grew by 30%, while the amount traded had risen by 24% by years end. This was one of the objectives of the merger that we successfully achieved.
Another example of good corporate governance practices are the advances made by TIM Participações in complying with the Sarbanes-Oxley Act, proceeding at a fast, groundbreaking pace in the Brazilian telecommunications industry. Our Statutory Audit Committee (Formal Fiscal Council) complies with the Sarbanes-Oxley Act, and has been a benchmark for publicly held Brazilian companies.
The Company also maintained its participation in social development projects in the regions where it operates. TIM Participações sponsored many programs and events throughout the year, especially in the areas of Education, Health, Culture and Sports.
2004 was, thus, a year of strong results that we were able to achieve with our extremely motivated and talented team. The human factor played a definitive role in our success.
We started 2005 with demanding goals and renewed energy. We still have a lot of work ahead of us in migrating TDMA customers, and our GSM structure must be ready to absorb those customers. We will proceed with care and continuously strive for cost efficiency in our customized offers, respecting the different profiles of our customers while at the same time minimizing migration costs. There is a lot to be done, but we trust our strategy and our commitment to further generate value in the Company on behalf of all stakeholders.
We learned that keeping the loyalty of the existing customers is as important as acquiring new ones. This has been our strategy, and we will keep expanding on it. The Company will continue evolving, in tandem with the technology and the market. New offers, new services and new sources of income will be developed continually. Our focus will continue being growth with profitability.
The Brazilian economy grew vigorously in 2004, closing the year with a 5.3% GDP growth, a significant increase over the -0.1% recorded in 2003. The dollar was kept below R$ 3.00 for most of the year, being quoted on December 31 at R$ 2.6544, an 8.1% drop for the year. The Central Bank lowered the interest rates from February to September, but concerned with the inflation, gradually increased the Selic rate again, which closed the year at 17.75%. The Ibovespa grew by 17.8%, having been the most profitable financial investment in the year.
That environment was extremely favorable for the mobile communications industry, which continued with the strong growth rhythm it has enjoyed since 2003, when the total number of cell phones surpassed the number of landlines in the country. The year ended with a total of 65.6 million cell phones operating in Brazil, according to Anatel Agência Nacional de Telecomunicações, the industry regulator industry. This figure represents approximately 1.7 times the total number of fixed lines. The prepaid and postpaid ratio in the country is already 80/20, showing the growth of the system not only in the low-income strata but also, and mainly, amongst young people.
Source: Anatel
Also
according to Anatel, Brazil is currently the sixth largest mobile communications
market in the world, right behind the most developed and densely populated countries,
such as The United States and China. All the same, the teledensity, i.e., number
of telephones per 100 people, still is 36.6%, showing that there is still a lot of room
for growth.
Six years after the privatization of the Telebrás system which created 12 separate telecommunications companies in the country(of which 8 are mobile telecommunications operators ), and the privatization auctions of Bands B, D and E, the competitive environment in Brazil at the end of 2004 was dominated by five major corporate groups, operating in distinct fields, regions, bands and technologies.
According to the rules issued by Anatel, each region can have a maximum of four competing companies. TIM Participações market in the South Region currently has the 4 competitors allowed by law, while in the Northeast region there are three operators.
To be able to offer the GSM technology to their customers, TIM Participações operating subsidiaries adopted the PCS (Personal Communications Services) in the 2nd half of 2002. In addition, to enable access to the 1,800 and 900 MHz frequencies, the PCS also enabled operators to offer domestic and international long-distance services through the Carrier Selection Code (CSC).
o Since the licenses granted to us by Anatel overlapped with others already held by another TIM Group company in Brasil, TIM Participações will waive its long-distance service in 2005. Our customers can make long-distance calls by selecting the code of any one of the carriers qualified to provide such service. With that, TIM Participações will cease receiving long-distance revenue, and consequently will no longer incur the costs of providing such services. In turn, the Company will start collecting interconnection charges (VU-M), received from other long-distance operators for the calls completed in our network. Although we except our overall net revenues to decline, we do not believe that such decline will have an adverse material effect on our business.
In 2005, the discussions on the free negotiation of VU-M fees, and the adoption of the Total Bill & Keep.
Under the current interconnection system, a mobile telecommunications operator pays the other when the traffic originated from its network destined to the other operator's network - with the same area code, and exceeds 55% of the total traffic between the two companies. With the adoption of the Total Bill & Keep, operators will not pay nor receive the respective VUM fees within the same area code.
TIM Participações has been participating actively in the negotiations concerning the proposed regulatory changes, in order to minimize the impact on its operations.
The GSM, Global System for Mobile Communications, the most widely used technology in the world, started being offered in the 2nd half of 2003 to the customers of TIM Participações subsidiaries, which formerly operated solely with TDMA.
Thanks to careful planning, successful execution and, above all, our commitment to our customers, the GSM implementation was well-done and speedy. By the end of 2004, the new network covered 599 cities, surpassing the 564 cities covered by the TDMA, and serves 91.1% and 82.4% of the urban population in the South and Northeast regions, respectively.
The success of this operation was made possible by the successful site sharing structure of the TDMA network, as well as the other carriers networks, requiring investments below forecast.
In addition to all of the advantages (the use of SIM cards, national plan integration, security against cloning, international roaming and more value-added services, among others), cities covered by the GSM network also have access to the GPRS and EDGE technologies, innovations that facilitate the use of data and multimedia services across the country. Additionally, TIM is the first Brazilian mobile communications operator to enter into data and multimedia roaming agreements abroad.
TIM enjoys one of the largest mobile data transmission networks in Latin America, using GPRS (General Packet Radio Service), a technology enabling any mobile device (laptop, PDA or cell phone) to connect to the Internet without a modem, at any time and from any place covered by the TIM GSM network, at speeds of up to 40 kbps. Furthermore, it provides access to online information, such as e-mail, personal calendar and the latest news via WAP (Wireless Application Protocol).
EDGE (Enhanced Data rates for Global Evolution) is a technological evolution of GPRS, providing high-speed (up to 200 kbps) data transmission and Internet access. The EDGE technology is the cell phone broadband, making the idea of the mobile office into a reality. Fast access to corporate and personal e-mails; swift file download and upload; agile Internet navigation, long-distance video monitoring and remote access to corporate applications (SAP, Intranet etc.) are some of the advantages available.
Those two technologies made it possible for the Company to launch the cell phone TV in October, TIM TV Access, which provides access to television programs.
Customer loyalty continues to be the strategy which TIM Participações will follow in order to keep its leadership position in its markets. The Company closed 2004 as the leader in its operating regions, both in total market share and gross sales.
TIM Participações customers are served by 2.030 points of sales, of which 32 are Company-owned shops. This figure is 30% greater than in 2003.
The Company was quite active in 2004 in securing customer loyalty and expanding its base. Constant media presence, promotions on commemorative dates and sponsoring events for young audiences were some of the most outstanding marketing actions the Company took during the year.
One of the innovations launched this year was the Nosso Grupo postpaid plan, catering to individual and corporate customers families or groups of people that have more than one postpaid telephone and make many calls to one another. The Company also offered several recharge bonuses throughout the year to prepaid plan customers, in order to maintain their loyalty and ensure a monthly recharge.
The highlight was the VAS (Value-Added Services) growth revenue, which jumped by 110.1%, to R$ 118.4 million for the year. TIM Participações expanded its portfolio, opening room for the development of new applications. VAS complements the plans already offered and are an important source of additional revenue, representing 4.3% of our gross revenue in 2004, versus 2.0% in 2003 and just 1.6% in 2002. The flagship service is still the SMS Short Message Service: the number of messages between cell phones increased 147%, from 199,4 million in 2003 to 492,9 million in 2004.
Customer Base Growth The GSM offer and the arrival of new competitors drove our customer base growth, which was above the growth rate of the past years.
The Company closed the year with 5.7 million customers, 34% above the 2003 figure. The most significant growth continues to be in the prepaid customer base, totaling 4,319 thousand customers 44% more than in the preceding year. The prepaid base for 2004 is bigger than the total base reported in 2003. The postpaid base encompasses 1,337 thousand subscribers, an 8% increase over 2003.
Corporate customers, a priority for TIM Participações, have accounted for the postpaid base growth, representing about 50% of the total sales in this segment in 2004. The availability of the GSM network enabled access to several services of interest to such customers, such as national plans allowing travel at no extra call rates, in addition to the Message Transport Network (MTN), a service rendering it possible for companies to talk to their customers, partners and employees using our message service at a lower fee due to the higher quantity of messages. Over the past 4 years, the corporate customer base has quadrupled.
Of the total customer base, 76% are prepaid and 24% are postpaid customers, specifically 78/22 in the South region and 76/24 in the Northeast. As for the technology used, out of the total customer base by year end, 36% used GSM, of which 46% were in the South and 25% were in the Northeast.
Even in the most competitive scenario ever faced, TIM Participações achieved record net addition levels, totaling 1.4 million new customers, more than doubling the 2003 figure. In the South region, this number virtually tripled. SM was the technology chosen by 71% of new customers (gross additions) in the South region and by 56% in the Northeast region during the year.
The total combined penetration in the South and Northeast regions was 29%, versus 19% in 2003 and below the national average penetration of 36.6%. Customer Relation TIM Participações understands that its success resides in the importance it gives to customers. Our philosophy of putting our users first by making sure that they are always satisfied permeates the organization as a whole and is an integral part of staff assessment.
TIM Participações has implemented several ways in which customers can contact the Company: the CRC (Customer Relations Center), the Customer Council, the Ombudsman and the hotline Fale com o Presidente being the most important. More than acting as just relations centers, these channels provide the inspiration to define the Company priorities: through them operators obtain the feedback necessary to correct any flaws in the strategy or expand the highly praised services.
The Customer Council, for instance, was a successful initiative in assembling opinion leaders and involving them in the most important Company processes. The Council is composed of representatives from institutions located in each one of the Companys operating regions, which include business and industrial associations, local administrations, universities, Procons (Consumer Protection Agencies), Anatel and representatives of the community. With the Customer Council, TIM Participações has been achieving increased customer loyalty and appreciation, since they understand that their rights as consumers are respected. Its scope has been expanded and strengthened along the years, and now there are Councils acting in 10 regions.
Another effort we are making it satisfying our customers is the Customer Satisfaction Committee, made up of the Companys top management from all areas within TIM Participações having direct with customers. This committee meets every two months to monitor all the processes involving customers and their respective quality indicators.
Care for our relationships, transparent communication and focusing on customer satisfaction have caused the users migration from one technology to another to take place very transparently. The Company tried to optimize the cost of migration with customized offers, analyzing variables such as relationship duration, bill values, use of services, among others, to suggest the best option which, in some cases, could be to wait a little longer to migrate.
The human factor is what distinguishes the Company from its competitors. The Company closed the year with 2,189 employees, 10% more than in 2003. This was due mainly to the increase in the customer base.
In 2004, R$ 2.3 million were invested in professional training programs, resulting in 262.5 thousand hours of training for 33.9 thousand people. The courses offered were concentrated on customer satisfaction and aimed especially at training employees in customized service.
Another focus of the Human Resources Department in 2004 was the implementation of projects aimed at in-house improvement to enhance customer relations. A highlight from this is the project deployed at the Customer Relations Center (CRC) that was enlarged and restructured. Also, manager and team training programs and improvements in operational training processes were carried out in order to address the motivational aspect of the operation.
All TIM Participações employees had their performance assessed and commented on by their managers. The in-house satisfaction and motivation levels were gauged by a corporate climate poll, called Foto di Gruppo, which is in its second phase and is applied to all TIM operators around the world. At TIM Participações, the poll showed a 3% improvement in the average satisfaction rate over 2003.
As a consequence of the corporate restructuring and for the purposes of making the analyses of TIM Participações S.A economic and financial performances easier, pro forma statements were prepared for 2003, as if the merger had taken place on January 01, 2003, mirroring the combined TSU and TND results.
Operating Revenues The gross service revenue was R$ 2,782.4 million, 18% above 2003. This increase is mainly derived from the 34% expansion of the customer base and the 110% increase in the value-added services (VAS revenue), as well as the 29% increase in use, both driven by the new services offered to GSM customers.
TIM Participações average revenue per user (ARPU) was R$ 35.03, versus R$38.09 in 2003, representing an 8% reduction. The marked growth in the total customer base, in particular the 44% increase in the prepaid customer base, resulted in that decline.
The gross handset revenue for the period was R$ 646.8 million, a 71% increase over 2003, because of the greater growth of mobile communications in 2004.
Operating Costs and Expenses The cost of services reached the amount of R$ 784.2 million, 6% above 2003, indicating cost efficiency in view of the expansion of the customer base and the consequent increase in the interconnection costs with the other carrier networks.
The handset sales costs for the year were R$ 508.8 million, 61% greater than the R$ 316.7 million posted in 2003, because of the greater number of handsets sold, which more than doubled the amount recorded in 2003.
As a consequence, selling expenses were R$ 647.3 million, 40% higher than in 2003. The marked growth in sales was the main cause behind the increased selling expenses related to commissions and the FISTEL tax placed on every handset activation.
General and administrative expenses, including personnel expenses, totaled R$ 182.4 million, versus R$ 193.8 million in 2003, representing a 6% reduction. This result mirrors the enhanced cost reduction practices among the operating companies.
EBITDA TIM Participações had a 10% growth in EBITDA earnings before interest, tax, depreciation and amortization R$ 886.2 million in 2004 compared to R$ 805.5 million registered in 2003. The EBITDA margin was 34.6%, 3.6p.p. below the 38.2% margin recorded in 2003, as a result of the increase in the handset sales costs and sales expenses, derived from the higher volume of gross customer additions and from the efforts to expand the GSM network during the period. The EBITDA margin on services, excluding handset revenues and expenses, was 44.9%, versus 45.7% in 2003.
Depreciation and Amortization Depreciation and amortization totaled R$ 498.1 million in the period, versus R$ 439.7 million in 2003, a 13% increase resulting from a boost in investment during the period. In 2004, the Depreciation of the TDMA-related assets were accelerated, in order for them to be fully depreciated by 2008.
Net Financial Income Our net financial income for the quarter was R$ 60.6 million in 2004, versus R$ R$ 79.1 million in 2003, In 2004, the average amount of cash available for financial investment. The average cash allotted to financial investment for the year decreased by 19.7%, and the interest rate (CDI) declined 7.1p.p. when compared to 2003.
Net Income The consolidated net income was R$ 265.9 million, 4.3% below 2003, mainly because of the increment in variable costs (as a consequence of the increase in gross customer additions). In 2003, income included the non-operating revenue, amounting to R$ 25.1 million, related to gain from the sale of the interest in Blah. The net income per 1,000 shares was R$ 0.41, and R$ 4.10 per 10,000 shares (1 ADR).
Indebtedness The gross indebtedness on December 31, 2004 was significantly lower than in 2003: R$ 104.1million, of which 60 % were short-term debts. The Company ended the year with R$ 752.2 million in cash.
Investments Investments totaled R$ 675.0 million at the end of December 2004, mostly directed to the implementation of the GSM network.
TIM Participações continued with the projects carried out by TIM Sul and TIM Nordeste individually, and went even further in Social Accountability.
Active in several areas, such as fostering volunteerism, educational initiatives, environmental education and environment preservation, support and incentives for sports and cultural programs, the Company continues to carry out important social programs wherever it operates.
The company is ever-present in the community and strives to perform its role an agent of change. Two new projects which were started in 2004 are examples of that: Ligando Vidas and Arte Urbana. The first, developed in a partnership with the Hospital Pequeno Príncipe, in Curitiba (PR), in which the Company distributes 50 cell phones among the hospital and patients waiting for organ transplants, in order to improves the quality of life of low income patients and their families, ensuring prompt contact in transplant cases.
The second is related to TIM Participações social inclusion initiatives. The Arte Urbana project, in place in the South region in a partnership with the NGO Cidade Escola Aprendiz, works on promoting citizenship for public school students, teaching them to make glass mosaic panels to replace the vandalized walls in the city. In the Northeast, the TIM Música nas Escolas project is one of the key social inclusion initiatives, taking music education to public school students. In the last year alone, 1,680 Recife (PE) public school children attended this program.
As for education, a four-year old partnership with Pastoral da Criança develops adult literacy and community leader training programs. In 2004, leader training programs were offered in 56 communities while the adult literacy program assisted 1,025 individuals in the states of Santa Catarina, Paraná and in the region of Pelotas (RS). In the Northeast, one of the highlights of the Companys social accountability programs is the support it gives to the Associação Padre Enzo program, Creche Solidariedade, which assists 240 needy children per day. The program also includes assistance to their families in the form of visits by employees to the childrens homes.
In terms of the environment, the Company develops the Recicla TIM project in the Northeast, an in-house waste management program promoting separate collection, selection, re-use of recyclables and social inclusion by income generation. It is carried out in partnership with Coopagres, the Recife recyclable waste collectors organization and with the NGO Instituto Severino Bernardino Gomes de Artes Visuais. In the South region, we maintain the Programa de Recolhimento de Baterias de Celulares, that has collected over 220,000 cellular batteries since 1999 one of our most important activities in the area of environment preservation, because it protects the environment and also raises awareness.
we have also played an important role in fostering and promoting cultural programs throughout the country, highlighting local talents, organizing large shows and festivals, in addition to efforts fostering culture in the community. Among the several cultural activities sponsored in the states where we operate are: FILO (Festival Internacional de Londrina), an important theater festival in Brazil which brings groups and plays from the world over to Londrina (PR); the Mais MPB project in Recife (PE), that periodically sponsors shows with top Brazilian pop musicians and also provides opportunities for local talents to show their work to a high-quality audience; the Curitiba POP Festival in Paraná; the Festival de Blues de Guaramiranga (CE); sponsorship of traditional Christmas celebrations, such as the Giramundo in Teresina (PI); and Estação TIM, shows with major Brazilian musicians held in the states of Paraná and Santa Catarina, fully organized by the Company.TIM Participações is also present in sports, sponsoring the Londrina Basketball time in the South and the Surf Championship in the Northeast.
The best corporate governance practices have been adopted by TIM Participações, in compliance with the Sarbanes-Oxley (SoX) Act, a US law aimed at ensuring greater transparency and reliability in the information provided by the financial statements of publicly-held companies.
The efforts to comply with the SoX Act at TIM Participações are well under way. One of the first actions was restructuring the Statutory Audit Committee. By the end of 2004, it was already operating in accordance with the Sox definition of an Audit Committee, with independent by-laws, totally independent members along with adopting pre-approval procedures when retaining audit and consultancy services. The Company ranks alongside Brazils leading companies with the best corporate governance practices, according to the research conducted by University of São Paulo (USP),
In 2003, TIM Participações adopted the Code of Ethics developed by TIM in Italy, which is based on the UN Global Compact, including principles concerning human rights, labor, environment and the corruption prevention. The Code is available for consultation on our website as well as on the Intranet.
TIM is among the leading companies in corporate governance in Italy, according to a survey Conducted made by the ISS Institutional Shareholder Services, in May 2004.
TIM Participações S.A. shares started trading on the Bovespa on October 11, 2004, with the ticker name TIM PART S/A, under the trading codes TCSL3 for common shares and TCSL4 for preferred shares. The ADRs started trading on the New York Stock Exchange (NYSE) on October 15, 2004, under the TSU code; each ADR represents 10,000 preferred shares.
The swap ratio in the Tele Nordeste Celular Participações (TND) merger was 0.9261 TSU share for each TND common or preferred share, and 1.8522 TSU ADSs for each TND ADS.
The performance of TIM Participações shares was not consistent with its operating performance. The industry as a whole increased in value, with the Telecommunications Index (Itel index) showing a 72.7% increase.
The Company ended the year with its lots of 1,000 common and preferred shares being quoted on the Bovespa at R$ 3.87 and R$ 4.05, having been valued at27.7% and devalued 1.9% in the year, respectively. Ibovespa had a 17.8% increase during the period. On the New York Stock Exchange (NYSE), our ADRs (American Depositary Receipt), representing 10,000 preferred shares, reached US$ 14.45 on the last trading day of the year, with a positive variation of 7.5%.
TIM Participações Directors are proposing the payment of R$ 68.1 million to shareholders, as dividends and interest on capital, net of income tax, equivalent to R$ 0.0970 per lot of 1,000 ordinary and preferred shares. Additionally, the special dividend reserve is being paid in amounting to R$ 2.3 million, corresponding to R$0.0033 to be paid to the shares owners in April 5, 2002.
Pursuant to Instrução CVM nº 381/03, art. 2, we inform that for the fiscal year ended on December 31, 2004, Ernst & Young Auditores Independentes S.S., or any other related party thereto, did not provide any services except the independent audit of TIM Participações S.A. and its subsidiaries TIM Sul S.A. and TIM Nordeste Telecomunicações S.A.
TIM Participações, permanently striving to maintain continuous and balanced growth, thanks clients for their loyalty and reaffirms the commitment to seek ways to repay this preference with special service and quality. Our gratitude extends also to our business partners, suppliers and financial institutions, for their support and trust, and in particular to our employees and collaborators, without whom we would not have achieved our objectives, and finally to our shareholders, for their trust in and support of our management.
The Directors
Parent Company and Consolidated Financial Statements | |
TIM Participações S.A. | |
December 31, 2004 and 2003 | |
with Report of Independent Auditors |
TIM PARTICIPAÇÕES S.A.
FINANCIAL STATEMENTS
December 31, 2004 and 2003
Contents
Report of Independent Auditors | 1 |
Audited Financial Statements: | |
Balance Sheets | 2 |
Income Statements | 4 |
Statements of Shareholders' Equity | 5 |
Statements of Changes in Financial Position | 6 |
Notes to Financial Statements | 7 |
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
and Shareholders
TIM PARTICIPAÇÕES S.A.
We have audited the accompanying balance sheets (parent company and consolidated) of TIM Participações S.A. (former Tele Celular Sul Participações S.A.) and its subsidiaries as of December 31, 2004 and 2003, and the related statements of income, of shareholdersequity and of changes in financial position for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements.
We conducted our audits in accordance with generally accepted auditing standards in Brazil which comprised: (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 its subsidiaries, (b) the examination, on a test basis, of the 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 the Companys and subsidiaries 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 TIM Participações S.A. (parent company and consolidated) and its subsidiaries at December 31, 2004 and 2003, and the results of their operations, changes in their shareholders equity and changes in their financial position for the years then ended, in conformity with the accounting practices adopted in Brazil.
Curitiba, January 20, 2005
ERNST & YOUNG
Auditores
Independentes S.S.
CRC - 2SP
015.199/O-6 - F - PR
Mauro Moreira
Accountant
CRC-1RJ 072.056/O 0 S PR
TIM PARTICIPAÇÕES S.A.
BALANCE SHEETS
December
31, 2004 and 2003
(In
thousands of reais)
Parent company | Consolidated | |||
ASSETS | 2004 | 2003 | 2004 | 2003 |
Current assets | ||||
Cash and cash equivalents | 1,299 | 10,213 | 856,332 | 418,722 |
Accounts receivable | - | - | 595,935 | 230,469 |
Inventories | - | - | 47,200 | 16,241 |
Taxes and contributions recoverable | 13,587 | 3,293 | 91,154 | 29,816 |
Deferred income and social contribution taxes | 1,512 | 3,543 | 108,706 | 52,974 |
Dividends and interest on shareholders' equity recoverable |
126,037 | 30,109 | - | - |
Other current assets | 474 | 62 | 17,020 | 4,473 |
142,909 | 47,220 | 1,716,347 | 752,695 | |
Noncurrent assets | ||||
Taxes and contributions recoverable | - | - | 46,750 | 6,200 |
Deferred income and social contribution taxes | 2,156 | 1,355 | 163,114 | 139,041 |
Related parties | 108 | 7,472 | 397 | 355 |
Judicial deposits | 341 | - | 30,291 | 14,939 |
Other noncurrent assets | - | 37 | 1,505 | 363 |
2,605 | 8,864 | 242,057 | 160,898 | |
Permanent assets | ||||
Investments | 2,012,656 | 932,786 | 9,890 | 11,470 |
Property, plant and equipment | - | 65 | 1,627,862 | 711,650 |
2,012,656 | 932,851 | 1,637,752 | 723,120 | |
2,158,170 | 988,935 | 3,596,156 | 1,636,713 | |
Parent company | Consolidated | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | 2004 | 2003 | 2004 | 2003 |
Current liabilities | ||||
Suppliers | 797 | 738 | 691,022 | 206,940 |
Loans and financing | - | - | 62,872 | 42,751 |
Salaries and related charges | 755 | 10,935 | 20,842 | 13,487 |
Taxes, charges and contributions | 15,806 | 5,890 | 161,648 | 77,835 |
Concessions payable | - | - | 11,361 | 16,728 |
Dividends and interest on shareholders' | ||||
equity payable | 79,017 | 40,401 | 114,678 | 48,809 |
Related parties | 34,948 | - | 2,944 | 6,767 |
Other current liabilities | - | - | 21,238 | 5,032 |
131,323 | 57,964 | 1,086,605 | 418,349 | |
Noncurrent liabilities | ||||
Loans and financing | - | - | 41,220 | 39,432 |
Taxes, charges and contributions | - | - | 26,005 | 58,837 |
Provision for contingencies | 2,643 | 252 | 24,517 | 11,863 |
Supplementary pension plan | 3,697 | 3,733 | 3,697 | 3,733 |
6,340 | 3,985 | 95,439 | 113,865 | |
Minority interests | - | - | 393,605 | 177,513 |
Shareholders' equity | ||||
Capital | 884,504 | 369,163 | 884,504 | 369,163 |
Capital reserve | 240,634 | 148,565 | 240,634 | 148,565 |
Income reserve | 895,369 | 409,258 | 895,369 | 409,258 |
2,020,507 | 926,986 | 2,020,507 | 926,986 | |
2,158,170 | 988,935 | 3,596,156 | 1,636,713 | |
See accompanying notes.
TIM PARTICIPAÇÕES S.A.
INCOME STATEMENTS
Years
ended December 31, 2004 and 2003
(In thousands of
reais, except for earnings per share, expressed in reais)
Parent company | Consolidated | |||
2004 | 2003 | 2004 | 2003 | |
Gross revenues | ||||
Telecommunications services | - | 2,782,403 | 1,159,472 | |
Sale of goods | - | 646,772 | 255,716 | |
- | - | 3,429,175 | 1,415,188 | |
Deductions from gross revenues | (864,543) | (326,906) | ||
Net revenues | - | - | 2,564,632 | 1,088,282 |
Costs of services rendered | (784,233) | (355,192) | ||
Costs of goods sold | (508,837) | (221,722) | ||
Gross profit | - | - | 1,271,562 | 511,368 |
Operating income (expenses): | ||||
Selling | - | (647,277) | (230,488) | |
General and administrative | (20,764) | (4,105) | (182,442) | (94,877) |
Equity pickup | 334,788 | 128,487 | - | (3,250) |
Amortization of premium on privatization | - | - | (50,450) | (25,288) |
Amortization of concession | - | - | (8,626) | (1,889) |
Other operating income (expenses) | (4,182) | (512) | 5,339 | (1,245) |
309,842 | 123,870 | (883,456) | (357,037) | |
Income before financial results | 309,842 | 123,870 | 388,106 | 154,331 |
Financial income (expenses): | ||||
Financial income | 1,938 | 3,020 | 133,613 | 111,766 |
Financial expenses | (10,130) | (3,914) | (68,801) | (81,276) |
Foreign exchange variance, net | - | (4) | (4,241) | (4,681) |
(8,192) | (898) | 60,571 | 25,809 | |
Operating income | 301,650 | 122,972 | 448,677 | 180,140 |
Non-operating income (loss) | (4,997) | 9,321 | (4,592) | 12,842 |
Income before income and social contribution taxes and minority interests | 296,653 | 132,293 | 444,085 | 192,982 |
Provision for income and social contribution taxes | (9,781) | (11,491) | (108,037) | (42,423) |
Income before minority interests | 286,872 | 120,802 | 336,048 | 150,559 |
Minority interests | - | - | (70,113) | (29,757) |
Net income for the year | 286,872 | 120,802 | 265,935 | 120,802 |
Earnings per thousand shares outstanding at year-end (R$) | 0.41 | 0.34 | ||
See accompanying notes.
TIM PARTICIPAÇÕES S.A.
STATEMENTS OF
SHAREHOLDERS EQUITY
Years
ended December 31, 2004 and 2003
(In
thousands of reais)
Capital reserve | Income Reserves | |||||||
Capital | Special goodwill reserver |
Legal reserve |
Dividends payable |
Unearned income reserve |
Expansion reserve |
Retained earnings |
Total | |
Balances at December 31, 2002 | 324,666 | 178,062 | 23,795 | 8,655 | - | 310,152 | - | 845,330 |
Capital increase with transfer of reserve | 44,497 | (29,497) | - | - | - | (15,000) | - | - |
Net income for the year | - | - | - | - | - | - | 120,802 | 120,802 |
Realization of special dividends reserve | - | - | - | (8,655) | - | - | - | (8,655) |
Allocation of net income for the year : | ||||||||
Legal reserve | - | - | 6,040 | - | - | - | (6,040) | - |
Interest on shareholders' equity | - | - | - | - | - | - | (12,000) | (12,000) |
Dividends | - | - | - | - | - | - | (18,491) | (18,491) |
Expansion reserve | - | - | - | - | - | 84,271 | (84,271) | - |
Balances at December 31, 2003 | 369,163 | 148,565 | 29,835 | - | - | 379,423 | - | 926,986 |
Capital increase with transfer of reserve | 87,102 | (27,102) | - | - | - | (60,000) | - | - |
Capital increase with incorporation of net assets: | ||||||||
Tele Nordeste Celular Participações S.A. | 428,239 | 119,171 | 32,839 | 2,300 | 18,838 | 280,194 | - | 881,581 |
Realization of special dividend reserve | - | - | - | (2,300) | - | - | - | (2,300) |
Net income for the year | - | - | - | - | - | - | 286,872 | 286,872 |
Allocation of net income for the year: | ||||||||
Legal reserve | - | - | 14,343 | - | - | - | (14,343) | - |
Interest on shareholders' equity | - | - | - | - | - | - | (30,000) | (30,000) |
Dividends | - | - | - | - | - | - | (42,632) | (42,632) |
Expansion reserve | - | - | - | - | - | 199,897 | (199,897) | - |
Balances at December 31, 2004 | 884,504 | 240,634 | 77,017 | - | 18,838 | 799,514 | - | 2,020,507 |
TIM PARTICIPAÇÕES S.A.
STATEMENTS OF CHANGES
IN FINANCIAL POSITION
Years
ended December 31, 2004 and 2003
(In
thousands of reais)
Company | Consolidated | |||
2004 | 2003 | 2004 | 2003 | |
SOURCES OF WORKING CAPITAL: | ||||
Net income for the year | 286,872 | 120,802 | 265,935 | 120,802 |
Amounts which do not affect working capital: | ||||
Exchange and monetary variance and interest | 2,640 | (86) | 9,038 | 12,067 |
Provision for contingencies | 2,589 | 117 | 3,593 | 2,912 |
Equity pickup | (334,788) | (128,487) | - | - |
Depreciation and amortization | 891 | 1,596 | 330,953 | 211,798 |
Investment write-off | - | 6,929 | - | 6,929 |
Goodwill amortization | 1,581 | - | 1,581 | - |
Residual value of fixed asset disposals | 1,794 | - | 1,643 | 921 |
Gain on investments | 5,950 | 3,250 | 3,250 | |
Minority interests | - | - | 45,526 | 17,924 |
Pension supplementation | (36) | 900 | (36) | 900 |
Total from operations | (32,507) | 5,021 | 658,233 | 377,503 |
From shareholders: | ||||
Dividends receivable | 65,591 | 18,703 | - | - |
Interest on shareholders' equity receivable | 71,112 | 37,407 | - | - |
Effect of merger with Tele Nordeste Celular Participações S.A.: | ||||
Noncurrect assets | (884) | - | (101,958) | - |
Investment | (889,316) | - | - | - |
Property, plant and equipment | (2,621) | - | (662,453) | - |
Noncurrent liabilities | 18,604 | - | 53,195 | - |
Minority interests | - | - | 165,891 | - |
Net assets | 881,581 | - | 881,579 | - |
144,067 | 56,110 | 336,254 | - | |
From third parties: | ||||
Decrease in noncurrent assets | 23,066 | 3,275 | 156,445 | 61,140 |
Increase in noncurrent liabilities | 24,511 | - | 26,665 | - |
Tax incentive - ADENE | - | - | 25,611 | - |
47,577 | 3,275 | 208,721 | 61,140 | |
Total sources | 159,137 | 64,406 | 1,203,208 | 438,643 |
APPLICATION OF WORKING CAPITAL: | ||||
Acquisition of fixed assets | - | - | 586,355 | 212,891 |
Increase in noncurrent assets | 15,925 | 7,858 | 135,646 | 13,071 |
Decrease in noncurrent liabilities | 45,950 | - | 110,879 | 60,910 |
Dividends | 44,932 | 27,146 | 44,932 | 27,146 |
Interest on shareholders' equity | 30,000 | 12,000 | 30,000 | 12,000 |
Total applications | 136,807 | 47,004 | 907,812 | 326,018 |
Increase in working capital | 22,330 | 17,402 | 295,396 | 112,625 |
Changes in working capital: | ||||
Current assets | ||||
At end of year | 142,909 | 47,220 | 1,716,347 | 752,695 |
At beginning of year | 47,220 | 18,859 | 752,695 | 705,791 |
95,689 | 28,361 | 963,652 | 46,904 | |
Current liabilities | ||||
At end of year | 131,323 | 57,964 | 1,086,605 | 418,349 |
At beginning of year | 57,964 | 47,005 | 418,349 | 484,070 |
73,359 | 10,959 | 668,256 | (65,721) | |
Increase in working capital | 22,330 | 17,402 | 295,396 | 112,625 |
See accompanying notes.
TIM PARTICIPAÇÕES S.A.
NOTES TO FINANCIAL
STATEMENTS
December 31,
2004 and 2003
(In
thousands of reais)
1. Operations
TIM Participações S.A. (former Tele Celular Sul Participações S.A.) is a listed entity directly controlled by TIM Brasil Serviços e Participações S.A. which has a shareholding of 53.23% of the voting capital and 23.73% of the total capital.
The Company has the controlling ownership of TIM Sul S.A. and TIM Nordeste Telecomunicações S.A. (former Telpe Celular S.A.). TIM Sul S.A. provides mobile telephony services in the states of Paraná (except for the cities of Londrina and Tamarana), Santa Catarina and in the cities of Pelotas, Capão do Leão, Morro Redondo and Turuçu, in the state of Rio Grande do Sul. TIM Nordeste Telecomunicações S.A. provides mobile telephony services in the states of Alagoas, Ceará, Piauí, Rio Grande do Norte, Paraíba and Pernambuco.
2. Corporate Reorganization
a. Corporate Merger
On June 1, 2004, Tele Celular Sul Participações S.A. and Tele Nordeste Celular Participações S.A., subsidiaries of TIM Brasil Serviços e Participações S.A., released significant information stating that their Boards of Directors authorized the Protocol and Justification of Merger, which proposed the merger of Tele Nordeste Celular Participações S.A. by Tele Celular Sul Participações S.A.
On August 30, 2004, with ANATEL approval, the Shareholders General Meeting of Tele Celular Sul Participações S.A. approved the proposal of the Board of Directors for the merger of net assets of Tele Nordeste Celular Participações S.A. at book value. In such meeting Tele Celular Sul Participações S.A. was renamed TIM Participações S.A.
Net assets were included in the merging companys equity through the transfer of credit and debit balances on a line by line basis. Accordingly, the merging companys results include the revenues and expenses of the merged company until the base date of the merger (June 30, 2004).
b. Merger of Operating Companies - South Brazil
On July 31, 2003, with ANATEL approval, the Shareholders' General Meeting of Telepar Celular S.A. and its wholly-owned subsidiaries Telesc Celular S.A. and CTMR Celular S.A. approved the proposal of the Board of Directors for the merger of Telesc Celular S.A. and CTMR Celular S.A. into Telepar Celular S.A. In that meeting, Telepar Celular S.A. was renamed TIM Sul S.A.
Because Telepar Celular S.A. was the sole shareholder of Telesc Celular S.A. and of CTMR Celular S.A., capital was not increased and eventually no new shares were issued, since the net assets of Telesc Celular S.A. and of CTMR Celular S.A. were already reflected on balance sheet on the equity method. Due to the merger, shares held by Telepar Celular S.A. in Telesc Celular S.A. and in CTMR Celular S.A. were canceled.
c. Merger of Operating Companies Northeast
The corporate reorganization consisted, basically, in the merger of Telesa Celular SA., Teleceará Celular S.A., Telepisa Celular S.A., Telern Celular S.A., Telpa Celular S.A. into Telpe Celular S.A. (current TIM Nordeste Telecomunicações S.A.). In December 2003, the operating companies controlled by Tele Nordeste Celular Participações S.A. submitted to the ANATEL pre-approval the implementation of the reorganization, considering the migration from SMC Serviço Móvel Celular (Mobile Cellular Service) to SMP Serviço Móvel Pessoal (Personal Mobile Service).
On January 30, 2004, the Protocol and Justification of Merger of the companies Telasa Celular S.A., Teleceará Celular S.A., Telepisa Celular S.A., Telern Celular S.A. and Telpa Celular S.A. by Telpe Celular S.A. (current TIM Nordeste Telecomunicações S.A.) was approved.
This corporate reorganization aims at integrating the activities of these operating companies that belong to the same economic group, to allow increased synergy, expansion of the Companys operations, reduction of expenses related to maintenance of six individual companies and concentration of liquidity of shares of Tele Nordeste Celular Participacoes S.A.'s subsidiaries.
3. Presentation of the Financial Statements
a. Basis of Presentation
The parent company and consolidated financial statements were prepared in accordance with the accounting practices adopted in Brazil and the rules applicable to concessionaires of public telecommunications services.
TIM Participações S.A. is a publicly-traded company, with American Depositary Receipts being traded on the New York stock exchange USA. Based on that, the Company is subject to the rules of the Security Exchange Commission (SEC) and, aiming to meet market needs, the Company adopts the procedure to disclose information simultaneously to both markets in Brazilian reais, in Portuguese and English.
b. Consolidated Financial Statements
The consolidated financial statements include assets, liabilities and the result of operations of the Company and its subsidiaries, which are as follows:
Participation % | ||
2004 | 2003 | |
TIM Sul S.A. | 81.73 | 81.32 |
TIM Nordeste Telecomunicações S.A. | 81.75 | - |
The main consolidation procedures are as follows:
I. Elimination of
asset and liability accounts among the consolidated companies;
II.
Elimination of the participation in capital, reserves and retained earnings of the
subsidiaries;
III. Elimination of revenues and expenses generated by
transactions among the consolidated companies;
IV. Separate disclosure
of the minority interest participation in the consolidated financial statements.
Reconciliation of the results of operations is set out below:
2004 | 2003 Pro forma | |
Parent company | 286,872 | 328,347 |
ADENE tax incentive directly recorded in shareholders' equity | ||
of the subsidiary TIM Nordeste Telecomunicações S.A. | (20,937) | (50,520) |
Consolidated | 265,935 | 277,827 |
c. Comparability of the Financial Statements
Reclassifications in the financial statements for 2003
To allow better comparison with the financial statements for the current year, certain reclassifications were made in the financial statements for 2003. However, the amount of said reclassifications is not material in relation to the financial statements, as such, are not being disclosed.
Pro forma information
To allow comparison of these financial statements with those for the prior year, the pro forma balance sheet and income statement are being set out as if the merger process mentioned in Note 2 had occurred on January 1, 2003.
2003 Pro-forma | ||
ASSETS | Company | Consolidated |
Current assets | ||
Cash and cash equivalents | 10,412 | 756,833 |
Accounts receivable | - | 438,802 |
Inventories | - | 28,621 |
Recoverable taxes | 14,841 | 136,808 |
Deferred income and social contribution taxes | 4,480 | 105,383 |
Dividends and interest on shareholders' equity | 60,855 | - |
Other assets | 1,003 | 9,536 |
91,591 | 1,475,983 | |
Noncurrent Assets | ||
Recoverable taxes | - | 21,731 |
Deferred income and social contribution taxes | 4,079 | 231,996 |
Related parties | 9,551 | 638 |
Judicial deposits | 29 | 18,003 |
Other assets | 37 | 690 |
13,696 | 273,058 | |
Permanent Assets | ||
Investments | 1,822,103 | 11,470 |
Property, plant and equipment | 2,644 | 1,400,893 |
1,824,747 | 1,412,363 | |
1,930,034 | 3,161,404 | |
2003 Pro-forma | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | Company | Consolidated |
Current liabilities | ||
Suppliers | 2,407 | 410,408 |
Loans and financing | - | 83,650 |
Salaries and related charges | 15,735 | 23,510 |
Taxes, charges and contributions | 15,318 | 130,480 |
Concessions payable | - | 38,808 |
Dividends and interest on shareholders' | ||
equity payable | 84,272 | 105,092 |
Related parties | 4,241 | 13,335 |
Other liabilities | - | 13,926 |
121,973 | 819,209 | |
Noncurrent liabilities | ||
Loans and financing | - | 79,232 |
Taxes, charges and contributions | - | 58,837 |
Provision for contingencies | 300 | 21,478 |
Pension supplementation | 3,733 | 3,733 |
4,033 | 163,280 | |
Minority interests | - | 374,887 |
Shareholders' equity | ||
Capital | 687,411 | 687,411 |
Unpaid capital | (4,539) | (4,539) |
Special reserves | 292,918 | 292,918 |
Income reserves | 410,749 | 410,749 |
Retained earnings | 417,489 | 417,489 |
1,804,028 | 1,804,028 | |
1,930,034 | 3,161,404 | |
Gross revenue from goods sold and services rendered | ||
Telecommunication services | - | 2,351,545 |
Goods sold | - | 379,261 |
- | 2,730,806 | |
Deductions from gross revenues | - | (620,543) |
Net revenue from goods sold and servivces rendered | - | 2,110,263 |
Cost of services rendered | - | (741,799) |
Cost of goods sold | - | (316,694) |
Gross profit | - | 1,051,770 |
Operating income (expenses): | ||
Selling | - | (461,562) |
General and administrative | (13,574) | (193,802) |
Equity pick-up | 346,297 | (6,500) |
Amortização of goodwill on privatization | - | (50,469) |
Amortization of concession | - | (4,210) |
Other operating income | 363 | 24,075 |
333,086 | (692,468) | |
Income before financial expenses | 333,086 | 359,302 |
Financial income (expenses): | ||
Financial income | 5,751 | 238,388 |
Financial expenses | (12,134) | (151,281) |
Exchange gain (loss) | 361 | (8,037) |
(6,022) | 79,070 | |
Operating income | 327,064 | 438,372 |
Non-operating result | 23,999 | 26,661 |
Income before taxes and minority interests | 351,063 | 465,033 |
Provision for income and social contribution taxes | (22,716) | (111,813) |
Income before minority interests | 328,347 | 353,220 |
Minority interests | - | (75,393) |
Net income for the year | 328,347 | 277,827 |
4. Summary of Accounting Practices
a. Cash and cash equivalents
These represent cash and bank balances and marketable securities, recorded at cost, plus interest accrued up to the balance sheet date.
b. Accounts receivable
Accounts receivable from mobile telephone subscribers are calculated at the tariff rate on the date the services were rendered. Accounts receivable also include services provided to customers up to the balance sheet date but not yet invoiced and receivables from sales of handsets and accessories.
c. Allowance for doubtful accounts
The allowance for doubtful accounts is recorded based on the customer base profile, the aging of overdue accounts, the economic scenario and the risks involved in each case. The allowance amount is considered sufficient to cover possible losses on the receivables.
d. Inventories
Refer to cellular handsets and accessories, which are stated at average acquisition cost. A provision to adjust the slow-moving items balance to the related realization value was set up.
e. Investments
Investments in subsidiaries are carried under the equity method based on the subsidiaries equity at the balance sheet date and consistent with the accounting practices adopted by the Company.
Other investments are stated at acquisition cost, reduced to their realization value, when applicable.
f. Property, plant and equipment
Property, plant and equipment is stated at acquisition and/or construction cost, less accumulated depreciation calculated based on the straight-line method at rates that take into consideration the estimated useful lives of the assets. Repair and maintenance costs which extend the useful lives of the related assets are capitalized, while other routine costs are charged to the result of operations.
Interest computed on debts that finance the construction of property, plant and equipment, is capitalized until the related assets become operational. Repair and maintenance costs which represent increase in capacity or useful lives are capitalized.
Noncurrent assets, mainly property, plant and equipment, are periodically reviewed for possible impairment.
The useful lives of all property, plant and equipment items are regularly reviewed to reflect any technological changes.
g. Income tax and social contribution
Income tax is calculated based on the taxable income for the period, as determined by current legislation. Social contribution is calculated based on prevailing tax rates, considering pretax income.
The subsidiary TIM Nordeste Telecomunicações S.A., through Certificates (Laudos Constitutivos) No. 0144/2003 and No. 0232/2003, issued on March 31, 2003 by the Agency for Development of the Northeast Region of Brazil - ADENE, became eligible to the following tax incentives: (i) 75% reduction in income tax and non-refundable surtaxes, for 10 (ten) years, from 2002 to 2011, calculated on profit from tax incentive activities ("lucro da exploração") resulting from implementation of their installed capacity to render digital mobile telephony services; and (ii) reduction by 37.5%, 25% and 12.5% in income tax and refundable surtaxes, for fiscal years 2003, 2004 to 2008 and 2009 to 2013, respectively, calculated on profit from tax incentive activities resulting from the installed capacity for rendering analogical mobile telephony services.
Taxes are calculated and recorded based on the rates in force at the balance sheet date, and in accordance with the accrual method of accounting. The effect of the aforementioned tax benefit is recorded as a reduction in the income tax payable against the constitution of a Capital Reserve Fiscal Incentive, under shareholders equity of the subsidiary TIM Nordeste Telecomunicações S.A.
Deferred taxes related to temporary differences and tax losses are recorded as current and noncurrent assets, based on the expected realization thereof, which is reviewed every year.
h. Loans and financing
Loans and financing include accrued interest to the balance sheet date. The Companys subsidiaries are party to certain derivative instruments, related to its US dollar denominated liabilities with the objective of hedging itself against risks associated with unexpected real/US dollar exchange rates. Gains and losses from such operations are recognized in the income statement under the accrual method, based on the rates established in the contracts.
i. Provision for contingencies
The provision for contingencies is recorded based on estimates which take into consideration the opinion of the Company and its subsidiaries managements and of its legal advisers, and is restated to the balance sheet date based on the probable losses at the end of the claims.
j. Revenue recognition
Service revenues are recognized as the services are provided. Billings are monthly recorded. Unbilled revenues from the billing date to the month end are measured and recognized during the month in which the service was provided. Revenues from pre-paid telecommunication services are recognized on the accrual basis in the period in which they are utilized. Revenues from the sale of handsets and accessories are recognized as the products are delivered to end consumers or distributors.
k. Financial income (expenses)
It represents interest and exchange and monetary variations related to marketable securities, hedge contracts, loans and financing received and granted.
l. Pension plan
The Companys subsidiaries record the adjustments related to the obligations of the employees pension plan in the income for the period, over a 5-year period or the remaining expected service life of employees, whichever is less.
m. Minority interests
Minority interests correspond to the interest of the minority shareholders in the subsidiaries.
n. Derivatives
Based on available relevant market information or other evaluation techniques, the Company and its subsidiaries calculate the market value of the financial instruments, including hedge, at the balance sheet date.
o. Use of estimates
The preparation of financial statements in conformity with accounting practices requires management to make estimates and assumptions concerning the amounts of recorded assets and liabilities and the disclosure of contingent assets and liabilities at the Financial Statements date, as well as the estimation of revenues and expenses for the period. The actual results may differ from those estimates.
p. Foreign currency transactions
Transactions in foreign currency are recorded at the rate of exchange prevailing at the transaction date. Foreign currency denominated assets and liabilities are translated into reais using the exchange rate at the balance sheet date, which is reported by the Central Bank of Brazil. Exchange gains and losses are recognized in the statement of income as they occur.
q. Employee profit sharing
The Company and its subsidiaries record a provision for employee profit sharing, based on the targets disclosed to its employees and approved by the Board of Directors. The related amounts are recorded as personnel expenses and allocated to profit and loss accounts considering each employees cost center.
r. Interest on shareholders equity
Interest on shareholders equity paid and/or payable are recorded against financial expenses, which, for financial reporting the purposes, are reclassified and disclosed as appropriation of net income for the year, in the statement of shareholders equity. Interest on shareholders equity received and/or receivable are recorded against financial income, which are reclassified and disclosed as equity pick up.
5. Cash and cash equivalents
Company | |||
2004 | 2003 | 2003 Pro forma | |
Cash and banks | 1,033 | 2,805 | 3,004 |
Short-term investments | 266 | 7,408 | 7,408 |
1,299 | 10,213 | 10,412 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Cash and banks | 89,873 | 20,682 | 37,673 |
Short-term investments | 766,459 | 398,040 | 719,160 |
856,332 | 418,722 | 756,833 | |
The balance of short-term investments is backed by government securities (LFTs and NTNs) and Bank Deposit Certificates (CDB) issued by first tier banks, subject to 104% of Interbank Deposit Certificates CDI.
These investments can be redeemed at any time, with no impact on recorded yield.
6. Accounts Receivable
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Services billed | 218,021 | 47,622 | 158,282 |
Unbilled services | 95,922 | 46,878 | 83,543 |
Network use | 129,393 | 63,292 | 122,044 |
Sales of handsets | 216,906 | 91,832 | 129,622 |
660,242 | 249,624 | 493,491 | |
Allowance for doubtful accounts | (64,307) | (19,155) | (54,689) |
595,935 | 230,469 | 438,802 | |
7. Inventories
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Cellular handsets | 47,424 | 16,048 | 26,876 |
Accessories and kits for prepaid cards | 1,885 | 354 | 1,477 |
TIM chips | 3,373 | 693 | 1,613 |
52,682 | 17,095 | 29,966 | |
Provision for adjustment to realizable value | (5,482) | (854) | (1,345) |
47,200 | 16,241 | 28,621 | |
8. Recoverable Taxes
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Income tax | 2,771 | - | 8,428 |
Social contribution tax | 9 | - | - |
Withholding income tax (IRRF) | 10,807 | 3,293 | 6,413 |
13,587 | 3,293 | 14,841 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Income tax | 12,335 | 180 | 64,630 |
Social contribution tax | 2,883 | 77 | 244 |
State VAT (ICMS) | 84,854 | 11,673 | 46,178 |
Federal turnover taxes (PIS / COFINS) | 17,907 | 542 | 3 |
IRRF recoverable | 19,011 | 23,544 | 46,768 |
Other | 914 | - | 716 |
137,904 | 36,016 | 158,539 | |
Current | (91,154) | (29,816) | (136,808) |
Noncurrent | 46,750 | 6,200 | 21,731 |
The noncurrent portion refers to ICMS on acquisitions of property items.
9. Income and Social Contribution Taxes
The Company and its consolidated subsidiaries, based on the expectation of future taxable profit generation, recognize tax credits arising from tax loss related to income and social contribution taxes carried forward from prior years, which have no expiration date. The use of these tax credits is limited to 30% of the annual taxable income.
The deferred income and social contribution taxes are comprised as follows:
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Tax loss carryforwards - income tax | 1,009 | 2,557 | 4,560 |
Tax loss carryforwards - social contribution tax | 363 | 921 | 1,642 |
Provision for pension plan | 1,257 | 1,270 | 1,270 |
Provision for contingencies | 899 | 85 | 101 |
Other provisions | 140 | 65 | 986 |
3,668 | 4,898 | 8,559 | |
Current | (1,512) | (3,543) | (4,480) |
Noncurrent | 2,156 | 1,355 | 4,079 |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Goodwill paid on privatization | 531,704 | 340,642 | 680,087 |
Reversal of the provision for integrity of equity | (350,924) | (224,824) | (448,857) |
Tax credit from merger | 180,780 | 115,818 | 231,230 |
Tax loss carryforwards - income tax | 25,639 | 38,517 | 41,210 |
Tax loss carryforwards - social contribution tax | 9,250 | 13,895 | 14,421 |
Allowance for doubtful accounts | 8,067 | 6,513 | 19,451 |
Depreciation of free lease handsets | 16,192 | 4,655 | 13,293 |
Amortization of goodwill paid on privatization | - | 4,504 | 4,504 |
Provision for pension plan | 1,257 | 1,270 | 1,270 |
Provision for contingencies | 21,865 | 4,033 | 7,302 |
Other provisions | 8,770 | 2,810 | 4,698 |
271,820 | 192,015 | 337,379 | |
Current | (108,706) | (52,974) | (105,383) |
Noncurrent | 163,114 | 139,041 | 231,996 |
The deferred tax asset related to goodwill paid on privatization is related to the future tax benefit, as a consequence of the restructuring plan started in 2000. The matching account of the referred tax benefit is a special reserve for goodwill in shareholders equity and is realized based on the estimated future profitability and the time of the concession, which is expected to terminate in 2008. The goodwill amortization is recorded in the statement of income.
In year 2004, R$50,450 (R$25,288 in 2003) related to such goodwill were realized. Also under the terms of the restructuring plan, the effective tax benefit for each fiscal year will be subsequently capitalized in the name of the controlling shareholder. The minority shareholders are ensured preemptive right on acquisition of an amount proportional to the new capital of the controlling shareholder. The special reserve for goodwill recorded by the Companys subsidiary represents the parent companys right on future capitalization (see Note 20-b)
In accordance with projections made by the subsidiaries management, the noncurrent portion of deferred taxes will be realized as follows:
Consolidated | |
2006 | 81,977 |
2007 | 50,450 |
2008 | 30,687 |
163,114 | |
Income and social contribution tax expenses are as follows:
Parent company | Consolidated | |||||
2004 | 2003 | 2003 Pro forma |
2004 | 2003 | 2003 Pro forma | |
Current income tax | (3,589) | (7,863) | (13,476) | (68,648) | (30,387) | (80,022) |
Current social contribution tax | (1,301) | (2,861) | (4,891) | (25,189) | (11,001) | (28,978) |
(4,890) | (10,724) | (18,367) | (93,837) | (41,388) | (109,000) | |
Deferred income tax | (3,596) | (564) | (3,198) | (10,762) | (759) | (2,062) |
Deferred social contribution tax | (1,295) | (203) | (1,151) | (3,438) | (276) | (751) |
(4,891) | (767) | (4,349) | (14,200) | (1,035) | (2,813) | |
(9,781) | (11,491) | (22,716) | (108,037) | (42,423) | (111,813) | |
The reconciliation between income and social contribution tax expenses, tax expense calculated based on combined statutory rates, and the amount recorded in the income statement is as follows:
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Income before income and social contribution taxes | 296,653 | 132,293 | 351,063 |
Combined statutory rate | 34% | 34% | 34% |
Income and social contribution taxes at combined statutory rate | (100,862) | (44,980) | (119,361) |
Exclusions: | |||
Equity pick-up (net of interest on shareholders' equity) | 89,650 | 42,580 | 105,574 |
Amortization of goodwill reserve | (537) | (403) | (403) |
Other | 1,968 | (8,688) | (8,526) |
91,081 | 33,489 | 96,645 | |
Income and social contribution taxes debited to income for the year | (9,781) | (11,491) | (22,716) |
Effective tax rate | 3.30% | 8.69% | 6.47% |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Income before income and social contribution taxes | 444,085 | 192,982 | 465,033 |
Combined statutory rate | 34% | 34% | 34% |
Income and social contribution taxes at combined statutory rate | (150,989) | (65,614) | (158,111) |
Exclusions: | |||
Provision for integrity of equity | 33,297 | 16,132 | 32,750 |
Amortization of goodwill reserve | (537) | (403) | (403) |
Other | 10,192 | 7,462 | 13,951 |
42,952 | 23,191 | 46,298 | |
Income and social contribution taxes debited to income for the year | (108,037) | (42,423) | (111,813) |
Effective tax rate | 24.33% | 21.98% | 24.04% |
10. Related Party Transactions
The related party transactions are carried out, as considered by management, under normal market conditions. The balances of the related party transactions of the parent company are as follows:
Parent Company | |||||
Assets | Liabilities | Income | Expenses | ||
Receivables | Loan agreement |
Financial | Shared administrative services |
Financial | |
TIM Nordeste Telecom. S.A. | - | 17,265 | 250 | 15,505 | 1,381 |
TIM Sul S.A. | 108 | 17,683 | - | 1,071 | 991 |
Total 2004 | 108 | 34,948 | 250 | 16,576 | 2,372 |
Total 2003 | 7,472 | - | 2,582 | 37,497 | 1,083 |
Loan agreements with TIM Sul S.A. and TIM Nordeste Telecomunicações S.A. provide for charges equivalent to 104.22% and 104.5% per annum, respectively, of the monthly variation of the Interbank Deposit Certificates (CDI).
The Company operates in an integrated manner with its subsidiaries TIM Sul S.A. and TIM Nordeste Telecomunicações S.A., and the costs relating to their common operating and administrative framework were ratably allocated to TIM Sul up to December 2003 and to TIM Nordeste up to May 2004, based on benefits generated, stated as shared administrative costs. In the parent companys statement of income, these amounts are mainly stated as a reduction of general and administrative expenses. After the periods referred to above, each company has defined its own specific framework, and the apportionment of administrative costs became no longer applicable.
At December 31, 2004 the consolidated balances of related party transactions are as follows:
Consolidated | ||||
Assets | Liabilities | Income/Expenses | ||
Receivables | Payables | Revenues | Selling costs | |
Maxitel S.A. | 11 | - | 2,504 | 2,784 |
TIM Celular S.A. | 386 | 253 | 386 | 9,302 |
Blah! S.A. de Serviços e Comércio | - | 2,691 | - | 13,824 |
Total 2004 | 397 | 2,944 | 2,890 | 25,910 |
Total 2003 | 355 | 6,767 | 384 | 4,559 |
11. Judicial Deposits
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
ICMS - Agreement 69/98 | 11,830 | 11,460 | 11,460 |
Civil and labor claims | 3,305 | 645 | 1,845 |
ICMS 5% tax rate difference | 8,085 | - | - |
Tax claims | 7,071 | - | 1,191 |
Other | - | 2,834 | 3,507 |
30,291 | 14,939 | 18,003 | |
For the judicial deposit related to the ICMS Agreement 69/98 claim, subsidiary TIM Sul S.A., based on the opinion of its external legal advisors, believes that the likelihood of prevailing at trial is rated as probable and therefore, no provision for contingency was recorded in relation to these issues.
12. Investments
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Investments | |||
Subsidiaries | 2,002,786 | 921,336 | 1,810,653 |
Other | 9,870 | 11,450 | 11,450 |
2,012,656 | 932,786 | 1,822,103 | |
(a) Equity interest in subsidiaries:
2004 | 2003 | |||
TIM Nordeste Telecomunicações S.A. |
TIM Sul S.A. |
Total | TIM Sul S.A. | |
Capital | 508,799 | 971,470 | 944,367 | |
Number of shares held - thousands | 23,779,645 | 12,529,890 | 12,193,262 | |
Total equity interest held | 81.75% | 81.73% | 81.32% | |
Voting capital held | 94.09% | 90.65% | 90.44% | |
Adjusted shareholders' equity | 1,186,139 | 1,210,253 | 1,098,849 | |
Net income for the year | 184,766 | 199,197 | 159,301 | |
Equity pickup | 171,984 | 162,804 | 334,788 | 128,487 |
Investment | 872,072 | 889,866 | 1,761,938 | 772,769 |
Special reserve for goodwill | 119,384 | 121,464 | 240,848 | 148,567 |
Investment value | 991,456 | 1,011,330 | 2,002,786 | 921,336 |
Goodwill cost | - | 16,918 | 16,918 | 16,918 |
Goodwill - accumulated amortization | - | (7,048) | (7,048) | (5,468) |
- | 9,870 | 9,870 | 11,450 | |
2003 Pro forma | |||
TIM Nordeste Telecomunicações S.A. |
Tim Sul S.A. |
Total | |
Capital | 482,726 | 944,368 | |
Number of shares held thousands | 23,779,645 | 12,193,262 | |
Total equity interest held | 81.82% | 81.32% | |
Voting capital held | 94.11% | 90.44% | |
Adjusted shareholders' equity | 1,086,691 | 1,098,849 | |
Net income for the year | 217,435 | 159,301 | |
Equity pickup | 185,261 | 161,036 | 346,297 |
Investment | 744,753 | 772,771 | 1,517,524 |
Special reserve for goodwill | 144,564 | 148,565 | 293,129 |
Investment value | 889,317 | 921,336 | 1,810,653 |
Goodwill cost | - | 16,918 | 16,918 |
Goodwill - accumulated amortization | - | (5,468) | (5,468) |
- | 11,450 | 11,450 | |
Goodwill on Tele Nordeste Celular Participações S.A. (TNC) and Tele Celular Sul Participações S.A. (TCS), merged into TIM Participações S.A. beginning August 2004 (Note 2), was recorded based on future profitability and will be amortized over ten years. In view of projected results for the investees, for the first two years goodwill was amortized at a rate of 4% per annum and the remaining balance is being amortized on a straight line basis over the remaining eight years to 2008.
The special reserve for goodwill recorded at TNC and TCS, merged into TIM Participações S.A. beginning August 2004, represents the parent companys right on future capitalization. The matching account of the referred tax benefit, related to goodwill paid on TNC and TCS privatization process, is a special reserve for goodwill in shareholders equity, which is realized based on the estimated future profitability and the time of the concession, which is expected to terminate in 2008.
(b) Changes in investments in subsidiaries:
TIM Sul | TIM Nordeste | Total | |
Balance of investment at December 31, 2002 | 848,960 | - | 848,960 |
Dividends and interest on shareholders' equity received | (56,111) | - | (56,111) |
Equity pickup | 129,544 | - | 129,544 |
Loss on capitalization of goodwill | (1,057) | - | (1,057) |
Balance of investment at December 31, 2003 | 921,336 | - | 921,336 |
Net assets of merged company at 12/31/03 | - | 889,316 | 889,316 |
Dividends and interest on shareholders' equity received | (71,754) | (64,950) | (136,703) |
Equity pickup | 162,803 | 171,985 | 334,788 |
Loss on capitalization of goodwill | (1,055) | (4,895) | (5,950) |
Balance of investment at December 31, 2004 | 1,011,330 | 991,456 | 2,002,786 |
13. Property, Plant and Equipment
Annual depreciation rate % |
Consolidated | |||||
2004 | 2003 | 2003 Pro forma | ||||
Cost | Accumulated depreciation | Net balance | Net balance | Net balance | ||
SMP exploration rights | 20 | 43,527 | (12,837) | 30,690 | 15,668 | 36,558 |
Switching/transmission equipment | 14.29 | 2,395,998 | (1,569,455) | 826,543 | 436,665 | 699,598 |
Leased handsets | 50 | 158,568 | (106,763) | 51,805 | 6,760 | 24,689 |
Network infrastructure | 33.33 | 303,237 | (125,847) | 177,390 | 95,956 | 140,012 |
Software and hardware | 20 | 113,413 | (68,765) | 44,648 | 20,207 | 36,557 |
Assets for general use | 10 | 31,727 | (15,160) | 16,567 | 4,121 | 13,813 |
Intangible assets | 20 | 461,128 | (222,643) | 238,485 | 73,947 | 150,654 |
Assets and installations in service | 3,507,598 | (2,121,470) | 1,386,128 | 653,324 | 1,101,881 | |
Land | 6,241 | - | 6,241 | 4,724 | 6,043 | |
Construction in progress | 235,493 | - | 235,493 | 53,602 | 292,969 | |
3,749,332 | (2,121,470) | 1,627,862 | 711,650 | 1,400,893 | ||
New technology implementation
The subsidiaries of TIM Participações S.A. began, in the second six-month period of 2003, introducing GSM technology into their service network, as a complement to current TDMA technology. At December 31, 2004 no adjustment to the property, plant and equipment account was considered to be necessary, as a result of the new GSM technology implementation, as both technologies are to remain in operation at the companies to 2008, at least. The assets related to TDMA technology have been subject to accelerated depreciation and must be 100% depreciated by 2008.
During 2004, the amount of R$ 6,476 (R$ 5,128 in 2003), R$ 1,607 of which relating to TIM Nordeste Telecomunicações S.A. and R$ 4,869 relating to TIM Sul S.A., were added to property, plant and equipment. This amount refers to charges on financing for the construction of the related assets.
14. Suppliers
Parent Company | Consolidated | |||||
2004 | 2003 | 2003 Pro forma |
2004 | 2003 | 2003 Pro forma | |
Suppliers | 797 | 738 | 2,407 | 655,686 | 192,395 | 387,044 |
Network use services | - | - | - | 35,336 | 14,545 | 23,364 |
797 | 738 | 2,407 | 691,022 | 206,940 | 410,408 | |
The balance payable for network use services comprises: (i) use of the network of other fixed and mobile cell telephone operators, where calls are initiated in TIM network and end in the network of other operators (detraf); (ii) calls made when customers are outside their registration area, and are therefore considered a visitor in the other network (roaming); and (iii) calls made by customers when they choose another long-distance call operator CSP (cobilling).
15. Loans and Financing
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Foreign currency United States dollar | |||
Suppliers: bearing exchange rate variation and interest of 7.3% p.a.. Subject matter of a swap to CDI operation. | 705 | 1,613 | 1,613 |
Eximbank: refers to direct financing with the Export and Import Bank of the United States (EXIMBANK), bearing exchange rate variation and interest of 7.03% p.a., subject matter of a swap to CDI operation. | - | 22,344 | 22,344 |
European Bank of Investment: financing in the amount of US$ 50,000,000, bearing interest based on the Libor rate for 3-month deposits + 1.625% p.a., subject matter of a hedging operation for which the rate is 100% of the CDI monthly variation to final maturity. | 41,912 | - | 80,699 |
Local currency | |||
Banco do Nordeste - financing in the amount of R$ 20,000, subject to pre-fixed interest of 14% p.a. | 20,018 | - | - |
BNDES - National Bank for Economic and Social Development: this financing bears interest of 4% p.a., plus variation of the TJLP (long-term interest rate) as disclosed by the Central Bank of Brazil, or of the "UMBNDES" of the Basket of Currencies. The Basket of Currencies financing was the subject matter of a swap to CDI operation. | 41,457 | 58,226 | 58,226 |
104,092 | 82,183 | 162,882 | |
Current | (62,872) | (42,751) | (83,650) |
Noncurrent | 41,220 | 39,432 | 79,232 |
The BNDES loans are subject to certain covenants covering specific ratios. The Company complies with these covenants as of December 31, 2004.
Guarantees for these financing operations are as follows: European Bank of Investment parent companys guarantee, Banco do Nordeste bank guarantee by Banco Bradesco S.A., and BNDES installment income from mobile cell telephone service.
Subsidiaries enter into hedging transactions to protect against devaluation of the Brazilian currency (real) in relation to U.S. dollar. The hedge contract amount outstanding at the balance sheet date is R$ 6,092 (R$ 15,280 in 2003), and the contractual term is the same as that stipulated in the financing agreement.
The noncurrent portion of loans and financings matures, as follows:
Consolidated | |
2006 | 22,337 |
2007 | 3,883 |
2008 | 3,333 |
2009 | 3,333 |
2010 | 3,333 |
2011 | 3,333 |
2012 | 1,668 |
41,220 | |
16. Salaries and related charges
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Salaries and fees | 41 | 1,339 | 1,339 |
Social charges | 102 | 2,135 | 2,718 |
Labor provisions | 571 | 7,018 | 11,103 |
Employees retention | 41 | 443 | 575 |
755 | 10,935 | 15,735 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Salaries and fees | 2,067 | 1,820 | 1,820 |
Social charges | 3,582 | 2,672 | 4,207 |
Labor provisions | 14,312 | 8,476 | 16,733 |
Employees retention | 881 | 519 | 750 |
20,842 | 13,487 | 23,510 | |
17. Taxes, Charges and Contributions
Parent Company | |||
2004 | 2003 | 2003 Pro forma | |
IRPJ and CSL | 4,890 | 2,896 | 10,538 |
COFINS | 5,406 | 405 | 1,093 |
PIS | 1,174 | 544 | 1,244 |
IRRF | 4,336 | 2,033 | 2,034 |
Others | - | 12 | 409 |
15,806 | 5,890 | 15,318 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
IRPJ and CSL | 4,890 | 3,116 | 11,248 |
ICMS | 137,617 | 118,114 | 150,644 |
COFINS | 13,538 | 5,324 | 9,897 |
PIS | 2,936 | 1,263 | 2,837 |
FISTEL | 7,528 | 3,084 | 3,696 |
FUST | 1,247 | 492 | 1,001 |
FUNTTEL | 624 | 246 | 500 |
IRRF | 17,730 | 4,563 | 8,693 |
Others | 1,543 | 470 | 801 |
187,653 | 136,672 | 189,317 | |
Current | (161,648) | (77,835) | (130,480) |
Noncurrent | 26,005 | 58,837 | 58,837 |
The subsidiary TIM Sul S.A., entered into an agreement with the Paraná State to defer ICMS tax to be paid in 48 months after the respective triggering event restated by FCA/PR. This benefit was granted by the State of Paraná under Programa Paraná Mais Emprego.
18. Concession Payable
Consolidated | |||||
TIM Nordeste Telecomunicações S.A. |
TIM Sul S.A. | 2004 | 2003 | 2003 Pro forma | |
SMP exploration rights | |||||
Authorizations acquired | 25,970 | 17,557 | 43,527 | 17,557 | 40,768 |
Payments | (23,486) | (17,557) | (41,043) | (1,755) | (4,076) |
Monetary adjustment | 5,100 | 3,777 | 8,877 | 926 | 2,116 |
Balance payable | 7,584 | 3,777 | 11,361 | 16,728 | 38,808 |
Monetary adjustment of balances payable is based on the General Price Index Internal Availability (IGP-DI) variation, plus interest of 1% per month.
19. Provision for Contingencies
The Company and its subsidiaries are party to certain legal proceedings (labor, fiscal and civil) arising in the normal course of their business, and have recorded provisions when management believes that it can reasonably estimate probable losses, based on the opinion of their legal advisors.
The provision for contingencies is comprised as follows:
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Civil | 192 | 68 | 68 |
Labor | 2,451 | 184 | 232 |
2,643 | 252 | 300 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Civil | 11,356 | 2,570 | 12,743 |
Tax | 5,616 | 1,529 | 5,012 |
Labor | 7,545 | 7,764 | 3,723 |
24,517 | 11,863 | 21,478 | |
Civil and labor contingencies
Civil contingencies refer to claims filed by former customers in connection with billing disputes, as well as claims for moral damages and other civil damages, while labor contingencies refer to claims filed by former employees.
Tax contingencies
The subsidiary TIM Sul S.A. was served delinquency notices by the Santa Catarina State tax authorities, amounting to R$ 99,321, mainly related to disputes concerning applicability of ICMS taxation on certain services provided by the subsidiary. The subsidiary is currently discussing these notices with the tax authorities and, based on the opinion of both internal and external lawyers, management concluded that probable losses to be incurred in these proceedings amount to R$ 3,853.
20. Shareholders Equity
a. Capital
At December 31, 2004, the subscribed and paid up capital was represented by no par value shares as follows:
2004 | 2003 | |
Number of commom shares | 264,793,296,882 | 134,452,841,454 |
Number of preferred shares | 437,711,795,252 | 222,025,630,268 |
702,505,092,134 | 356,478,471,722 | |
b. Capital reserve special goodwill reserve
This reserve was set up during the corporate reorganization process in 2000. The portion of the special reserve corresponding to the tax benefit obtained may be capitalized at the end of each fiscal year for the benefit of the controlling shareholder, with new issue of shares. The respective capital increase will be subject to preemptive rights of the minority shareholders, in proportion to their shareholdings, by kind and class, at the time of new issue, and the amounts payable during the year in connection with this right must be delivered directly to the controlling shareholder, in accordance with Instruction No. 319/99 of the Brazilian Securities Commission (CVM).
c. Income reserve
Legal reserve
This refers to the 5% (five percent) of net income for every year ended December 31 to be applied to the legal reserve, which should not exceed 20% (twenty percent) of capital. Also, the Company may not set up the legal reserve when it exceeds 30% (thirty percent) of capital plus capital reserves. This reserve can be used only for capital increase or compensation of accumulated deficit.
Unearned income reserve
At December 31, 2003, the Company set up an unearned income reserve originating from the portion of equity pickup to be financially realized, substantially represented by the capital reserve from income tax incentive set up by the subsidiary, which does not allow distribution by it, in the amount of R$ 49,807. Such reserve will be reversed by the Company when effectively earned or upon capitalization of the tax incentive reserve by the subsidiary.
In conformity with Law No. 10303/01, the reserve, amounting to R$ 18,838, was set up for the amount of compulsory dividends, which exceeded the realized portion of net income for the year.
Dividends payable reserve
The Shareholders General Meeting of April 4, 2002 approved the proposal made by management for the establishment of a reserve for dividends payable, referring to the portion of declared dividends based on the December 31, 2001 balance sheet, with the objective of preserving the economic and financial equilibrium of the Company and concurrently satisfying the needs of relevant investments to meet demand. Such reserve had been fully realized at December 31, 2004.
Reserve for expansion
The remaining balance of net income for the year ended December 31, 2004, adjusted as required by Law No. 6404/76, article 202, in the amount of R$ 199,897, comprises the balance of the income reserve for expansion account, as determined by CVM Instruction (IN) No. 59/86, and will be used in the expansion of the Companys network and of its IT environment as well as of its subsidiaries. The retention is supported by a capital budget submitted by management for approval at a General Meeting.
Excess income reserve
At December 31, 2004, the Companys accumulated income reserve, considering managements proposal for the appropriation of net income for the year, exceeds total capital and the reserve for expansion exceeds the statutory limit of 80% of total capital. In conformity with article 199 of Law No. 6404/76 and with statutory provisions, the Companys management will propose a capitalization of R$ 115,000 at the General Meeting, arising from excess income reserve in relation to capital.
d. Dividends
Dividends are calculated in accordance with the Bylaws and Brazilian Corporation Law (Lei das Sociedades por Ações).
Based on its Bylaws, the Company shall distribute an amount equivalent to 25% of adjusted net income as minimum dividend every year ended December 31, provided there are funds available for distribution.
Preferred shares are nonvoting and enjoy priority on (i) the payment of capital at no premium, and (ii) payment of a minimum noncumulative dividend of 6% p.a., calculated on the result of the division of the capital stock represented by the total number of the same class of shares issued by the Company.
In order to comply with the New Corporation Law, the Companys bylaws were amended, including the First Paragraph of Section 10, which ensures the holders of preferred shares, every year, the right to receive stock dividends, corresponding to 3% (three percent) of net earnings per share, based on the balance sheet most recently approved, whenever the dividend established according to this criterion exceeds the dividend calculated according to the criteria previously established, described in the preceding paragraph.
Dividends, which correspond to the greater of values determined within the minimum set by each of the methods provided for by the Bylaws, were calculated as follows:
2004 | 2003 | |
Net income for the year | 286,872 | 120,802 |
(-) Setup of legal reserve | (14,343) | (6,040) |
Adjusted net income | 272,529 | 114,762 |
Compulsory dividends: 25% | 68,132 | 28,691 |
Inteterest on shareholders' equity, net of withholding income tax | 25,500 | 10,200 |
Suplementary dividends | 42,632 | 18,491 |
68,132 | 28,691 | |
Realization of special dividends reserve | 2,300 | 8,655 |
Total proposed dividends and interest on shareholders' equity | 70,432 | 37,346 |
The merged company Tele Nordeste Celular Participações S.A. paid dividends of R$ 30,454 for year 2003.
The dividends for year 2004, amounting to R$ 68,132, will be paid to shareholders at the date of the Shareholders General Meeting which approves net income for the current year.
2004 | 2003 | |
Dividends and interest on shareholders' equity per 1,000 shares (in reais) | ||
Common shares | 0.0970 | 0.1047 |
Preferred shares | 0.0970 | 0.1047 |
Realized portion of the special reserve for dividends payable for shareholders at April 5, 2002.
2004 | 2003 | |
Dividends and interest on shareholders' equity per 1,000 shares (in reais) | ||
Common shares | 0.0033 | 0.0286 |
Preferred shares | 0.0033 | 0.0286 |
e. Stock option plan
On May 2, 2001, the Companys shareholders approved a stock option plan with the following objectives:
(i) retain the services and opinions of key employees on which the Company depends respecting their judgment, initiatives and efforts;
(ii) provide key employees with a certain combination of compensation based on the Companys market value increase; and
(iii) have general interests of key employees in line with the shareholders interests.
The Board of Directors can authorize future capital increases, with issue of preferred shares on behalf of key directors and executives who participate in the plan. The maximum capital increase through issue of shares by the exercise of stock options granted to the executives is limited to 1.5% of the Companys capital as of May 2001. Total shares granted under this stock option plan amount to 4,073,000 shares.
The strike price of the stock option per 1,000 preferred shares was set at R$ 4.27, corresponding to the closing price per 1,000 shares at the São Paulo Stock Exchange (BOVESPA) on May 2, 2001. The stock option plan is valid for four years to 2005. No option can be exercised after four years, beginning on the plan approval date.
The stock options cannot be exercised either before a year from the date on which they have been granted. The stock purchase options can be exercised in the fourth year, counting from the date on which they were granted, however, their exercise can be accelerated depending on certain target-based results such as EBIT, or Earnings Before Interest and Tax.
No stock option granted to key employees of the Company had been exercised to December 31, 2004. At December 31, 2004, the closing price per 1,000 shares was R$ 4.05 (R$ 4.13 in 2003) at BOVESPA, which is lower than the strike price per 1,000 shares set on the plan approval date. When the stock options are exercised by the employees, the Board of Directors will approve the respective capital increase which, after the capital inflow, is required to be accounted for.
On May 4, 2001 the shareholders of merged company Tele Nordeste Celular Participações S.A. also approved the creation of stock option plan. In December 2003, all its beneficiaries exercised 2/3 of total stock options they were entitled to, which corresponds to 1,440,754 lots of 1,000 shares, referring to targets attained in 2001 and 2002, for a price of R$ 3.21 per 1,000 shares.
In December 2004, there were 1,382,164 lots of 1,000 shares available to be purchased. The Board of Directors approved the exchange of stock purchase options of Tele Nordeste Celular Participações S.A. for Tim Participações S.A., on a 1: 0.9261 basis, to be exercised in April 2005 at a strike price of R$ 3.37.
21. Net Operating Income
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Revenues from telecommunications services | |||
Subscription charges | 358,178 | 224,178 | 358,347 |
Use charges | 1,246,666 | 448,349 | 1,048,746 |
Network use | 822,576 | 397,107 | 783,473 |
Long distance charges | 202,963 | 39,331 | 79,278 |
Value Added Services - VAS | 118,396 | 34,621 | 56,362 |
Other | 33,624 | 15,886 | 25,339 |
2,782,403 | 1,159,472 | 2,351,545 | |
Sales of products | 646,772 | 255,716 | 379,261 |
Deductions | |||
Taxes | (723,716) | (266,119) | (554,265) |
Discounts | (134,253) | (60,732) | (60,819) |
Other | (6,574) | (55) | (5,459) |
(864,543) | (326,906) | (620,543) | |
2,564,632 | 1,088,282 | 2,110,263 | |
22. Cost of Services Rendered and Goods Sold
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Personnel | (23,158) | (10,111) | (18,869) |
Third-party services | (54,800) | (26,398) | (43,141) |
Interconnection charges | (334,630) | (143,362) | (353,653) |
Depreciation and amortization | (351,018) | (169,454) | (310,973) |
Telecommunications supervision fund | (2,987) | (1,522) | (2,629) |
Other | (17,640) | (4,345) | (12,534) |
Cost of services rendered | (784,233) | (355,192) | (741,799) |
Cost of goods sold | (508,837) | (221,722) | (316,694) |
23. Selling Expenses
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Personnel | (55,152) | (26,421) | (40,535) |
Third-party services | (318,778) | (124,259) | (224,512) |
Allowance for doubtful accounts | (112,605) | (30,044) | (87,456) |
Telecommunications supervision fund | (95,624) | (32,137) | (64,281) |
Depreciation and amortization | (46,103) | (13,189) | (36,825) |
Other | (19,015) | (4,438) | (7,953) |
(647,277) | (230,488) | (461,562) | |
24. General and Administrative Expenses
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Personnel | (12,475) | (2,205) | (13,206) |
Third-party services | (5,735) | (1,764) | (2,417) |
Depreciation and amortization | (892) | (15) | (1,111) |
Other | (1,662) | (121) | 3,160 |
(20,764) | (4,105) | (13,574) | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Personnel | (37,349) | (19,633) | (50,353) |
Third-party services | (91,392) | (43,355) | (89,111) |
Depreciation and amortization | (40,133) | (24,364) | (41,463) |
Other | (13,568) | (7,525) | (12,875) |
(182,442) | (94,877) | (193,802) | |
25. Other Operating Income (Expenses)
Parent company | |||
2004 | 2003 | 2003 Pro forma | |
Income | |||
Prescribed dividends | 662 | 787 | 1,317 |
Other operating income | 765 | 450 | 853 |
1,427 | 1,237 | 2,170 | |
Expenses | |||
Taxes | (992) | (29) | (54) |
Goodwill amortization | (1,581) | (1,581) | (1,581) |
Provision for contingencies | (2,345) | (117) | (118) |
Other | (691) | (22) | (54) |
(5,609) | (1,749) | (1,807) | |
Other operating income (expenses), net | (4,182) | (512) | 363 |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Income | |||
Telecommunication service fines | 10,993 | 3,553 | 8,396 |
Prescribed dividends | 1,069 | 1,317 | 2,986 |
Reversal of provision for contingencies | 3,223 | - | 7,349 |
Reversal of provision for market value adjustment of inventories | - | 1,784 | 1,784 |
Reversal of allowance for doubtful accounts | 10,000 | - | - |
Other | 6,687 | 2,620 | 17,259 |
31,972 | 9,274 | 37,774 | |
Expenses | |||
Taxes | (5,907) | (472) | (956) |
Goodwill amortization | (1,581) | (2,671) | (2,671) |
Provision for contingencies | (13,654) | (4,024) | (5,319) |
Other | (5,491) | (3,352) | (4,753) |
(26,633) | (10,519) | (13,699) | |
Other operating income (expenses), net | 5,339 | (1,245) | 24,075 |
26. Financial income
Company | |||
2004 | 2003 | 2003 Pro forma | |
Interest accrued on short-term investments | 731 | 307 | 307 |
Monetary adjustment | 450 | 93 | 2,810 |
Collateral rate | 651 | 2,512 | 2,512 |
Other | 106 | 108 | 122 |
1,938 | 3,020 | 5,751 | |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Interest accrued on short-term investments | 103,567 | 100,936 | 187,822 |
Monetary adjustment | 7,313 | 4,221 | 19,791 |
Interest accrued on lendings to related parties | - | - | 14,628 |
Interest from customers | 17,520 | 5,793 | 10,560 |
Other | 5,213 | 816 | 5,587 |
133,613 | 111,766 | 238,388 | |
27. Financial Expenses
Company | |||
2004 | 2003 | 2003 Pro forma | |
Interest on borrowings from related parties | (2,372) | (1,162) | (6,694) |
PIS/COFINS on financial income | (5,608) | (2,220) | (4,178) |
Monetary adjustment | - | - | (534) |
CPMF | (656) | (341) | (523) |
Other | (1,494) | (191) | (205) |
(10,130) | (3,914) | (12,134) |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Interest on loans and financing | (2,224) | (41,958) | (79,399) |
PIS/COFINS on financial income | (15,957) | (12,260) | (21,349) |
Monetary adjustment | (5,540) | (2,288) | (15,571) |
Interest on taxes and charges | (4,597) | (12,125) | (12,209) |
CPMF | (13,636) | (7,091) | (12,880) |
Other | (26,847) | (5,554) | (9,873) |
(68,801) | (81,276) | (151,281) | |
28. Non-Operating Result
Company | |||
2004 | 2003 | 2003 Pro forma | |
Income | |||
Investment disposals | 898 | 19,500 | 39,000 |
Fixed asset disposals | 1,769 | - | 57 |
Other non-operating income | - | - | 2,156 |
2,667 | 19,500 | 41,213 | |
Expenses | |||
Cost of investments disposed of | - | (6,929) | (13,858) |
Loss on change in shareholding percentage | (5,951) | (3,250) | (3,319) |
Cost of fixed assets disposed of | (1,713) | - | (37) |
(7,664) | (10,179) | (17,214) | |
Non-operating result | (4,997) | 9,321 | 23,999 |
Consolidated | |||
2004 | 2003 | 2003 Pro forma | |
Income | |||
Investment disposals | 898 | 19,500 | 39,000 |
Fixed asset disposals | 1,977 | 1,193 | 2,351 |
Other non-operating income | - | - | 2,155 |
2,875 | 20,693 | 43,506 | |
Expenses | |||
Cost of investments disposed of | - | (6,929) | (13,858) |
Loss on change in shareholding percentage | (5,950) | - | - |
Cost of fixed asset disposals | (1,517) | (921) | (1,673) |
Other non-operating expenses | - | (1) | (1,314) |
(7,467) | (7,851) | (16,845) | |
Non-operating result | (4,592) | 12,842 | 26,661 |
On December 18, 2003, the Company and the merged company sold their participation in Blah! Sociedade Anônima de Serviços e Comércio, resulting in a pro forma gain of R$ 12,571 for the Company and a consolidated pro forma gain of R$ 25,142.
29. Financial Instruments
The Company and its subsidiaries carry out transactions involving financial instruments with the purpose of reducing risks related to market, exchange rates and interest. Such risks are controlled by specific policies, the establishment of operating limits and strategies, and other techniques for the monitoring of the positions.
The estimated market value of financial instruments, mainly cash and cash equivalents, accounts receivable and short-term financial instruments approximates the accounting value because of the short maturity of such instruments.
At December 31, 2004, the Company and its subsidiaries invested their financial resources mainly in Interbank Deposit Certificates (CDI). There are no financial assets linked to foreign currency.
Loans and financing
The fair values of loans and financing, determined through future cash flows and use of interest rate applicable to instruments with a similar nature, involve the same conditions and risks or are based on market quotations for these securities.
Limitations
The market values were estimated for a certain period, based on significant market information. Changes in assumptions may affect significantly the estimates presented.
Risk factors
The risk factors affecting the Company and its subsidiaries instruments are the following:
(i) Exchange and interest rates risk
The exchange and interest rates risk relates to the possibility of the Company and its subsidiaries computing losses resulting from fluctuations in exchange and interest rates, thus increasing debt balances of loans obtained in the market and the corresponding financial charges. In order to mitigate this kind of risk, the Company carries out hedge contracts with financial institutions.
At December 31, 2004, a portion of Company loans and financing was denominated in U.S. dollars or indexed to the UMBNDES exchange variance of a basket of currencies and 100% of the loans and financing were covered by hedge contracts. The income or loss resulting from these hedge contracts is charged to operating results.
(ii) Credit operating risk
The risk is related to the possibility of the Company and its subsidiaries computing losses originating from the difficulty in collecting the amounts billed to customers, which are represented by traders of prepaid telephone cards and distributors of cellular equipment. In order to have this risk reduced, the Company and its subsidiaries perform credit analyses to assist the risk management in respect to collection problems and monitors the accounts receivable from subscribers, blocking the telephony ability in case customers do not pay their bills. With respect to distributors, the Company maintains individual credit limits, based on potential sales analyses, risk history and risk with collection problems.
(iii)Credit risk related to the sale of telephone sets
The policy adopted by the Companys subsidiaries for the sale of telephone sets and distribution of prepaid telephone cards is directly related to the risk of credit levels accepted during the normal course of business. The selection of partners, the diversification of the accounts payable portfolio, the monitoring of loan conditions, the positions and limits of requests established for traders, the constitution of security interests are procedures adopted by the subsidiaries to minimize possible collection problems with its commercial partners.
(iv) Financial credit risk
This risk relates to the possibility of the Company and its subsidiaries computing losses originating from the difficulty in realizing its short-term investments and hedge contracts. The Company and its subsidiaries minimize the risk associated to these financial instruments by investing in well-reputed financial institutions.
There is no concentration of available resources of work, service, concessions or rights that have not been mentioned above that could, if eliminated suddenly, severely impact the operations of the Company and its subsidiaries.
30. Pension Plan - TIMPREV
Tele Nordeste Celular Participações S.A. (TNC) and Tele Celular Sul Participações S.A. (TCS), as from August 2004 merged into TIM Participações S.A., and the corresponding subsidiaries, have been sponsoring a private pension plan for defined benefits for a group of employees of the former TELEBRÁS system, which is managed by Fundação Sistel de Seguridade Social SISTEL, as a consequence of the legal provisions applicable to the privatization process of these companies in July 1998.
Considering that in 1999 and 2000 the sponsors of the pension plans managed by SISTEL had already negotiated conditions for the creation of individual pension plans by sponsoring company and maintenance of joint liability only in relation to the participants already assisted on January 31, 2000, the Companies and their subsidiaries in 2002, alike other companies resulting from the former TELEBRÁS system, started the creation of a pension plan for defined contributions meeting the most modern social security standards adopted by private companies and allowing the possibility of migration to this plan of the group of employees linked to SISTEL.
On November 13, 2002, the Brazilian Secretariat for Supplemental Pension Plans, through official ruling No. 1917 CGAJ/SPC, approved the statutes of the new pension plan, denominated Statutes of the TIMPREV Benefits Plan, for defined contributions, which provide for new conditions for benefits granting and maintenance, as well as the rights and obligations of the Plan Managing Entity, the sponsoring companies, participants and the beneficiaries thereof.
Under the new plan, the contribution on the part of the sponsoring company shall be of 100% of the amount of the basic contribution on the part of participants, and the managing entity of TIMPREV shall ensure, on the terms and conditions of the approved plan statutes, the benefits listed below, not being held liable for granting any other, even if the government official social security adventitiously starts granting them to beneficiaries:
Normal pension
Advance pension
Disability pension
Deferred proportional benefit
Death pension
However, as not all employees of the controlled companies and their subsidiaries have migrated to TIMPREV plan, the pension and health plans deriving from the TELEBRÁS system continue existing and are briefly set out below:
PBS: benefits plan of SISTEL, for defined benefits which includes the employees paying contributions to the plan (active) who participated in the plans sponsored by the companies of the former TELEBRÁS system;
PBS Assistidos: private pension plan for employees receiving benefits (inactive), for multi-sponsored benefits;
Convênio de Administração: covenant for managing pension payment to pensioners of the predecessors of the controlled companies;
PAMEC: health plan granted to pensioners of the predecessors of the controlled companies;
PBT: plan for defined benefits for pensioners of the predecessors of the companies and their subsidiaries;
PAMA: health plan for retired employees and their dependents, on a shared cost basis.
TCS is the succeeding sponsoring company arising from the partial spin-off of Telecomunicações do Paraná S.A - TELEPAR, of the private pension supplementation plans introduced in 1970 under a Collective Agreement, approved by the Atypical Contractual Agreement entered into by said company and the Unions representing the professional categories then existing.
In the year ended December 31, 2004, the contributions to TIMPREV totaled R$ 538, namely R$ 340 by Tim Nordeste Telecomunicações S.A. and R$ 198 by Tim Sul S.A. (R$ 140 by Tele Nordeste Celular and subsidiaries and R$ 188 by Tele Celular Sul and subsidiaries in 2003).
The actuarial position of assets and liabilities related to pension and health care plans as of December 31, 2004 is shown below, considering the rules defined in IBRACON NPC-26, as approved by CVM Instruction 371 for the plans existing prior to TIMPREV, and which still have active members.
The reconciliation of assets and liabilities as of December 31, 2004 is as follows:
Parent company | ||||
Plans | Total | |||
PBS | PAMA | 2004 | 2003 | |
Present value of actuarial liabilities on benefits | 5,969 | 386 | 6,355 | 8,596 |
Present value of actuarial liabilities | 5,969 | 386 | 6,355 | 8,596 |
Fair value of plan assets | (8,711) | (289) | (9,000) | (10,950) |
Present value of liabilities in excess of fair value of plan assets | (2,742) | 97 | (2,645) | (2,354) |
Net actuarial liabilities (assets) | (2,742) | 97 | (2,645) | (2,354) |
a) Effects as of December 31, 2004:
Consolidated | ||||||||
Plans | Total | |||||||
PBS | PBS Assistidos |
Convênio de Administração |
PAMEC | PBT | PAMA | 2004 | 2003 | |
Reconciliation between assets and liabilities at 12/31/04 | ||||||||
Present value of actuarial liabilities on benefits | 20,762 | 4,149 | 764 | 64 | 1,267 | 1,846 | 28,852 | 28,336 |
Present value of actuarial liabilities | 20,762 | 4,149 | 764 | 64 | 1,267 | 1,846 | 28,852 | 28,336 |
Fair value of plan assets | (30,163) | (5,396) | (1,578) | (160) | (1,657) | (1,383) | (40,337) | (35,974) |
Present value of liabilities in excess of fair value of plan assets | (9,401) | (1,247) | (814) | (96) | (390) | 463 | (11,485) | (7,638) |
Net actuarial liabilities (assets) | (9,401) | (1,247) | (814) | (96) | (390) | 463 | (i) (11.485) | (7,638) |
(i) No assets have been recognized by the parent company as this surplus cannot be recovered, in addition to the fact that the amount of sponsors contributions will not decrease in the future.
b) Changes in net acturial liabilities (assets)
Plans | ||||||
PBS | PBS Assistidos | Convênio de Administração |
PAMEC | PBT | PAMA | |
Acturial liabilities (assets) as of 12/31/03 | (6,969) | (777) | (733) | 37 | (307) | 1,109 |
Expenses (income) recognized in the prior year | (803) | (89) | (90) | 4 | (42) | 149 |
Sponsors contributions | (82) | (20) | ||||
Recognized actuarial (gains) losses | (1,547) | (381) | 9 | (137) | (41) | (775) |
Net acturial liabilities (assets) as of 12/31/04 | (9,401) | (1,247) | (814) | (96) | (390) | 463 |
c) Statement of losses (gains)
Plans | ||||||
PBS | PBS Assistidos | Convênio de Administração |
PAMEC | PBT | PAMA | |
(Gain) Loss on actuarial liabilities | 163 | 52 | (47) | (133) | (96) | (913) |
(Gain) Loss on plan assets | (1,744) | (433) | 56 | (4) | 55 | 138 |
(Gain) Loss on employees contributions | 34 | - | - | - | - | - |
(Gain) Loss as of 12/31/04 | (1,547) | (381) | 9 | (137) | (41) | (775) |
Corridor calculation (10% of equity and liabilities) | 3,016 | 539 | 158 | 16 | 166 | 185 |
d) Reconciliation of present value of liabilities
Plans | ||||||
PBS | PBS Assistidos | Convênio de Administração |
PAMEC | PBT | PAMA | |
Value of liabilities as of 12/31/03 | 19,516 | 3,987 | 789 | 177 | 1,322 | 2,545 |
Cost of current service | 242 | - | - | 2 | - | 26 |
Interest on actuarial liabilities | 2,137 | 433 | 85 | 20 | 143 | 283 |
Benefits paid during the year | (1,296) | (323) | (62) | - | (102) | (93) |
Liabilities | 163 | 52 | (48) | (135) | (96) | (915) |
Value of liabilities as of 12/31/04 | 20,762 | 4,149 | 764 | 64 | 1,267 | 1,846 |
e) Reconciliation of fair value of assets
Plans | ||||||
PBS | PBS Assistidos | Convênio de Administração |
PAMEC | PBT | PAMA | |
Fair value of assets as of 12/31/03 | 26,485 | 4,764 | 1,522 | 140 | 1,629 | 1,436 |
Benefits paid during the year | (1,296) | (323) | (62) | (102) | (92) | |
Participants contributions | 72 | - | - | - | - | - |
Sponsors contributions | 83 | - | - | - | - | 20 |
Actual yield of plan assets in the year | 4,819 | 955 | 118 | 20 | 130 | 19 |
Value of liabilities as of 12/31/04 | 30,163 | 5,396 | 1,578 | 160 | 1,657 | 1,383 |
f) Expenses expected for 2005
Plans | ||||||
PBS | PBS Assistidos | Convênio de Administração |
PAMEC | PBT | PAMA | |
Cost of current service (plus interest) | 207 | - | - | - | - | 24 |
Interest on actuarial liabilities | 2,271 | 449 | 83 | 7 | 137 | 206 |
Expected yield of plan assets | (5,388) | (636) | (254) | (26) | (263) | (222) |
Total expenses recognized | (2,910) | (187) | (171) | (19) | (126) | 8 |
Estimated employees contributions for the next years | (34) | - | - | - | - | - |
Total net expenses (income) to be recognized | (2,944) | (187) | (171) | (19) | (126) | 8 |
Actuarial assumptions adopted in the calculation
The main actuarial assumptions adopted in the calculation were as follows:
Nominal discount rate of actuarial liabilities: | 11.30% p.a. |
Estimated nominal yield rate of plan assets: | 18.20% p.a. |
Estimated nominal rate of salary increase: | 7.10% p.a. |
Estimated nominal rate of benefit increase: | 5.00% p.a. |
Biometric general mortality table: | UP84 UP84 with a 1 year complexity segregated by sex |
Biometric disability table: | Mercer Disability Table |
Estimated turnover rate: | Nil |
Retirement likelihood: | 100% upon first eligibility to a plan benefit |
Estimated long-term inflation rate | 5.00 |
Computation method | Projected Credit Unit Method |
31. Managements Fees
Amounts paid to management in 2004 totaled R$ 1,127, less than the amount approved at the Ordinary Shareholders Meeting held in April 2004.
32. Insurance (unaudited)
As of December 31, 2004, the Company and its subsidiaries have insurance cover against fire and sundry perils for inventories and fixed assets. Management considers the amounts sufficient to cover any losses, based on the risks and amounts involved.
33. Commitments (unaudited)
On the terms of the
Authorization for Mobile Personal Service (SMP) Exploitation, the controlled
companies committed themselves to implement mobile personal
telecommunications cover for the assigned area, on a phased basis, within the quality
standards established by said authorization.
Should said terms not
be met, the controlled companies will be subject to penalties, the main being: (i)
failure to pay the remaining portion in connection with the authorization on
the stipulated maturity shall be subject to penalty of 0.33% per day of delay, up to the
limit of 10%, plus SELIC rate for federal securities, to be calculated on
the amount of debt considering all the days of delay; (ii) failure to pay the
stipulated amount shall entail forfeiture of the authorization, irrespective of other
penalties provided for ANATEL regulations; (iii) unjustified failure to use
the radiofrequency blocks shall entail the applicable penalties provided for by
SMP regulations (warning, penalty, temporary suspension or forfeiture).
At December 31, 2004, the controlled companies did not present any departure from the commitments assumed in the Authorization for Mobile Personal Service Exploitation.
34. Supplementary Information (unaudited)
STATEMENTS OF CASH FLOW
December 31, 2004 and 2003
In thousands of reais
Parent company | Consolidated | |||
2004 | 2003 | 2004 | 2003 | |
Operating activities | ||||
Net income for the year | 286,872 | 120,802 | 265,935 | 120,802 |
Adjustments to reconcile net income to cash | ||||
Depreciaton and amortization | 2,472 | 1,596 | 332,534 | 211,798 |
Losses on nonoperating investments | 5,950 | 3,250 | - | - |
Equity pickup | (334,788) | (128,487) | - | 3,250 |
Book value of investment disposal | 6,929 | - | 6,929 | |
Book value of permanent asset disposal | 1,794 | - | 1,643 | 921 |
Interest on shareholders' equity received | 136,703 | 56,110 | - | - |
Minority interests | - | - | 45,526 | 17,924 |
Monetary and exchange variations on loans | - | - | (167) | (11,839) |
Effect of mergers: | ||||
Current assets | - | - | (395,379) | - |
Current liabilities | - | - | 340,797 | - |
Noncurrent assets | (884) | - | (101,958) | - |
Investment | (889,316) | - | - | - |
Property, plant and equipment | (2,621) | - | (662,453) | - |
Noncurrent liabilities | 18,604 | - | 53,195 | - |
Minority interests | - | - | 165,891 | - |
Net assets | 881,581 | - | 881,579 | - |
Decrease (increase) of operating assets | ||||
Trade receivables | - | (157,133) | (65,023) | |
Taxes recoverable | (10,294) | (1,879) | 20,635 | 11,037 |
Deferred taxes | 1,230 | 3,985 | 65,559 | 37,248 |
Inventories | - | (18,579) | (668) | |
Interest on shareholders'equity | (95,928) | (30,109) | - | |
Other current assets | (412) | 78 | (7,484) | 134 |
Other noncurrent assets | 7,944 | (3,818) | (12,862) | 4,325 |
Increase (decrease) of operating liabilities | ||||
Labor charges | (10,180) | (1,008) | (2,668) | (628) |
Suppliers | 59 | (2,039) | 280,614 | 73,557 |
Taxes payable | 9,916 | 3,829 | (1,664) | 14,502 |
Accrued interest | - | - | 15,300 | 18,961 |
Provision for contingencies | 2,391 | 117 | 3,039 | 2,912 |
Suplementary pension | (36) | 900 | (36) | 900 |
Other current liabilities | 16,344 | (3,505) | (3,079) | 10,697 |
Net cah generated by operating activities | 27,401 | 26,751 | 1,108,785 | 457,739 |
Investing activities | ||||
Property, plant and equipment acquisitions | - | - | (586,355) | (212,891) |
- | - | (586,355) | (212,891) | |
Financing activities | ||||
New loans | - | - | 20,000 | - |
Loan repayments | - | - | (102,552) | (246,853) |
Financing for usage rights | - | - | (18,816) | 17,557 |
Fiscal incentive - ADENE | - | - | 25,611 | - |
Dividends and interest on shareholders' equity | (36,315) | (25,464) | (9,063) | (29,664) |
(36,315) | (25,464) | (84,820) | (258,960) | |
Increase (decrease) in cash and cash equivalents | (8,914) | 1,287 | 437,610 | (14,112) |
STATEMENTS OF VALUE
ADDED
December 31, 2004 and 2003
In thousands of reais
Parent company | Consolidated | |||
2004 | 2003 | 2004 | 2003 | |
Income | ||||
Gross operating revenue | - | - | 3,429,175 | 1,414,900 |
Losses and allowance for doubtful accounts | - | - | (112,605) | (30,044) |
Discounts | - | - | (140,827) | (60,787) |
Net nonoperating income (expenses) | (4,997) | 12,571 | (4,592) | 12,842 |
(4,997) | 12,571 | 3,171,151 | 1,336,911 | |
Consumables from third parties | ||||
Cost os services rendered and goods sold | - | - | (903,873) | (393,437) |
Materials, energy, third party services and others | (8,929) | (787) | (786,846) | (263,281) |
(8,929) | (787) | (1,690,719) | (656,718) | |
Retentions | ||||
Depreciation and amortization | (2,472) | (1,596) | (332,534) | (211,798) |
Net added value generated | (16,398) | 10,188 | 1,147,898 | 468,395 |
Added value received in transfer | ||||
Gain (loss) on investments | 334,788 | 125,237 | - | (4,307) |
Financial income | 1,938 | 3,017 | 157,569 | 111,766 |
336,726 | 128,254 | 157,569 | 107,459 | |
Total added value available for distribution | 320,328 | 138,442 | 1,305,467 | 575,854 |
Distribution of added value | ||||
Payroll and related charges | 10,427 | 1,919 | 80,851 | 48,951 |
Taxes and contributions | 19,163 | 14,457 | 876,255 | 335,691 |
Interest and rentals | 3,866 | 1,264 | 82,426 | 70,410 |
Dividends and interest on shareholders' equity | 72,632 | 30,491 | 72,632 | 30,491 |
Retained earnings | 214,240 | 90,311 | 193,303 | 90,311 |
320,328 | 138,442 | 1,305,467 | 575,854 | |
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.
TIM PARTICIPAÇÕES S.A. | ||
Date: February 2, 2005 | By: | /s/ Paulo Roberto Cruz Cozza |
Name: Paulo Roberto Cruz Cozza | ||
Title: Chief Financial Officer |