FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of June 2003
Commission File Number 1-15224
Energy Company of Minas Gerais
--------------------------------------------------------
(Translation of registrant's name into English)
Avenida Barbacena, 1200
30190-131 Belo Horizonte, Minas Gerais, Brazil
--------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
----------- -----------
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1): _____
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7): _____
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant 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
----------- -----------
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A
Index
Item Description of Item
---- -------------------
1. Unaudited financial statements as of and for the three-month
period ended March 31, 2002, prepared in accordance with
accounting practices adopted in Brazil, in Brazilian reais of
filing with the Brazilian Comissao Nacional de Valores.
2. Management's discussion and analysis of results of operations
relating to financial statements prepared under accounting
practices adopted in Brazil for the three-month period ended
March 31, 2002 compared to the three-month period ended
March 31, 2001 in Brazilian reais. (English translation of
filing with the Brazilian Comissao Nacional de Valores)
3. Unaudited financial statements as of and for the three-month
period ended March 31, 2002, prepared in accordance with U.S.
GAAP, in Brazilian reais.
4. Management's discussion and analysis of results of operations
relating to financial statements prepared under U.S. GAAP for
the three-month period ended March 31, 2002 compared to the
three-month period ended March 31, 2001, in Brazilian reais.
5. Unaudited financial statements as of and for the six-month
period ended June 30, 2002, prepared in accordance with
accounting practices adopted in Brazil, in Brazilian reais
of filing with the Brazilian Comissao Nacional de Valores.
i
6. Management's discussion and analysis of results of operations
according to accounting practices adopted in Brazil for the
three-month period ended June 30, 2002 compared to the three-
month period ended June 30, 2001, in Brazilian reais. (English
translation of filing with the Brazilian Comissao Nacional de
Valores)
7. Unaudited financial statements as of and for the six-month
period ended June 30, 2002, prepared in accordance with U.S.
GAAP, in Brazilian reais.
8. Management's discussion and analysis of results of operations
relating to financial statements prepared under U.S. GAAP for
the six-month period ended June 30, 2002 compared to the six-
month period ended June 30, 2001, in Brazilian reais.
9. Unaudited financial statements as of and for the nine-month
period ended September 30, 2002, prepared in accordance with
accounting practices adopted in Brazil, in Brazilian reais
of filing with the Brazilian Comissao Nacional de Valores.
10. Management's discussion and analysis of results of operations
according to accounting practices adopted in Brazil for the
three-month period ended September 30, 2002 compared to the
three month period ended September 30, 2001, in Brazilian reais.
(English translation of filing with the Brazilian Comissao
Nacional de Valores)
11. Unaudited financial statements as of and for the nine-month
period ended September 30, 2002, prepared in accordance with
U.S. GAAP, in Brazilian reais.
12. Management's discussion and analysis of results of operations
relating to financial statements prepared under U.S. GAAP for
the nine-month period ended September 30, 2002 compared to the
nine-month period ended September 30, 2001, in Brazilian reais.
ii
Item 1
Companhia Energetica de Minas Gerais - CEMIG
Interim Financial Statements
Together with Independent Public Accountants Report of Special Review
(Translated from the Original in Portuguese)
March 31, 2002
Report of Special Review
(Translation of the report originally issued in Portuguese)
To the Board of Directors of
Companhia Energetica de Minas Gerais - CEMIG
(1) We have performed a special review of the quarterly information of
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG (a Brazilian corporation),
comprising the individual and consolidated balance sheets as of March 31,
2002, the individual and consolidated statements of income for the quarter
then ended, and relevant information.
(2) We conducted our review in accordance with specific standards established
by the Brazilian Institute of Independent Public Accountants - IBRACON,
together with the Federal Accounting Council and consisted principally of: (a)
inquiries and discussions with management responsible for the accounting,
financial and operating areas of the Company as to the principal criteria
adopted in the preparation of the quarterly information; and (b) review of the
information and subsequent events that had or may have significant effects on
the Company's financial position and results of operations.
(3) Based on our special review, we are not aware of any material modification
that should be made to the quarterly information referred to in paragraph (1)
above, for it to be in conformity with the accounting practices set forth by
the Brazilian corporate law and with the accounting standards established by
the CVM - Comissao de Valores Mobiliarios (Brazilian Securities Commission),
specifically applicable to the preparation of quarterly financial information.
(4) The individual (Company) and consolidated balance sheets as of December
31, 2001, presented for comparative purposes, were audited by us, and we
issued an unqualified report thereon dated March 25, 2002. The individual
(Company) and consolidated statement of income for the quarter ended March 31,
2001, also presented for comparative purposes, was reviewed by us, and we
issued an unqualified special review report thereon dated on May 15, 2001.
(5) As mentioned in notes 3 and 7 to the quarterly information, the Company
has recorded, as of March 31, 2002: (i) assets and liabilities related to the
trading of electric energy in the spot market (Mercado Atacadista de Energia
Eletrica - MAE), based on the preliminary information made available by the
Administradora do Mercado Atacadista de Energia - ASMAE (the spot market
association) on March 13, 2002, and for those amounts related to the first
quarter of 2002 based on management's estimates; (ii) accounts receivable
related to the recovery of reduction of sales during the rationing period and;
(iii) prepaid expenses related to the tariff recomposition and Parcel "A"
(CVA) (non-controlled costs) variations. Those amounts result from the
application of Law No. 10,438 of April 26, 2002, Portaria Interministerial No.
25 of January 24, 2002 (an administrative measure from the Brazilian Federal
Government) and resolutions from Camara de Gestao da Crise de Energia Eletrica
(the Brazilian Federal Government electric energy crisis committee) and
Agencia Nacional de Energia Eletrica - ANEEL (the Brazilian Federal Government
electric energy regulatory agency). The realization of those assets, commenced
on January 2002, will occur through billings to consumers, by applying an
extraordinary tariff increase approved by ANEEL in December 2001, as well as
through future tariff adjustments. Those amounts are still pending of ANEEL
revision and final approval.
(6) As mentioned in note 8 to the quarterly information, the Company's
management is negotiating with the Minas Gerais State Government the payment
of the past due amounts included in the rate shortfall receivable. The
Company's management believes that the outcome of this negotiation will not
result in a loss to the Company.
Belo Horizonte, May 15, 2002
ARTHUR ANDERSEN S/C
Jose Carlos Amadi
Engagement Partner (Convenience Translation into English from the Original
Previously Issued in Portuguese)
1
Item 1
(Convenience Translation into English from the Original
Previously Issued in Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Expressed in thousands of Brazilian reais - R$)
------------------------------------------------------------------------------
Consolidated Company
--------------------------------------- -------------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
--------------- ------------------ --------------- -------------------
CURRENT ASSETS:
Cash and cash equivalents 605,800 696,088 548,764 642,492
Accounts receivable 546,447 485,300 537,620 471,627
Consumers - Special rate adjustment 234,708 258,855 234,708 258,855
Concessionaires - Energy transportation 16,776 18,274 16,776 18,274
Recoverable taxes 32,044 89,317 28,471 85,566
Materials and supplies 12,788 11,599 11,318 11,524
Prepaid expenses - CVA 68,588 41,032 68,588 41,032
Other 89,195 90,109 99,736 100,945
--------------- ------------------ --------------- -------------------
1,606,346 1,690,574 1,545,981 1,630,315
--------------- ------------------ --------------- -------------------
NONCURRENT ASSETS:
Receivable from Minas Gerais State Government 1,533,943 1,492,105 1,533,943 1,492,105
Consumers - Special rate adjustment 1,420,549 1,071,788 1,420,549 1,071,788
Prepaid expenses - CVA 120,305 106,080 120,305 106,080
Tax credits 400,261 435,981 397,756 435,189
Marketable securities 75,622 70,107 75,622 70,107
Electricity Rationing Plan - Bonus paid to
consumers and adoption costs incurred 201,589 122,634 201,589 122,634
Distributors - Energy supply 115,788 80,140 115,788 80,140
Project studies based on service rendered 25,999 25,999 25,999 25,999
Other 139,363 121,092 118,191 99,577
--------------- ------------------ --------------- -------------------
4,033,419 3,525,926 4,009,742 3,503,619
--------------- ------------------ --------------- -------------------
PERMANENT ASSETS:
Investments 405,452 356,272 730,609 671,271
Property, plant and equipment 7,550,371 7,633,115 7,235,221 7,316,610
Deferred charges 11,107 9,584 1,719 1,962
--------------- ------------------ --------------- -------------------
7,966,930 7,998,971 7,967,549 7,989,843
--------------- ------------------ --------------- -------------------
Total assets 13,606,695 13,215,471 13,523,272 13,123,777
=============== ================== =============== ===================
The accompanying condensed notes are an integral part of these balance sheets.
2
Item 1
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Expressed in thousands of Brazilian reais - R$)
------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Consolidated Company
--------------------------------------- -------------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
--------------- ------------------ --------------- -------------------
SHORT-TERM LIABILITIES:
Suppliers 614,158 550,520 602,471 533,959
Taxes payable 334,693 213,378 331,639 209,318
Advance billings of electric power 26,880 42,596 26,880 42,596
Loans and financing 370,574 332,317 358,312 317,342
Payroll and related charges 83,289 96,861 82,840 96,419
Dividends and interest on capital 206,263 216,894 206,066 216,697
Employee post-retirement benefits 152,530 151,870 152,530 151,870
Regulatory charges 50,270 51,696 50,085 51,378
Other 108,937 120,018 108,626 119,760
----------------- ------------------- ----------------- --------------------
1,947,594 1,776,150 1,919,449 1,739,339
----------------- ------------------- ----------------- --------------------
LONG-TERM LIABILITIES:
Loans and financing 1,324,312 1,416,378 1,285,416 1,377,547
Debentures 636,515 633,228 636,515 633,228
Employee post-retirement benefits 1,714,412 1,701,868 1,714,412 1,701,868
Suppliers 431,634 372,939 431,634 372,939
Electricity Rationing Plan - Surcharge
applied to consumers 25,716 25,541 25,716 25,541
Reserve for contingencies 329,396 319,230 329,396 319,230
Other 59,559 52,764 58,731 52,029
----------------- ------------------- ----------------- --------------------
4,521,544 4,521,948 4,481,820 4,482,382
----------------- ------------------- ----------------- --------------------
MINORITY INTEREST 15,554 15,317 - -
SHAREHOLDERS' EQUITY:
Capital 1,589,995 1,589,995 1,589,995 1,589,995
Capital reserves 4,106,492 4,106,492 4,106,492 4,106,492
Income reserves 1,153,476 1,153,476 1,153,476 1,153,476
Accumulated earnings 244,917 24,970 244,917 24,970
----------------- ------------------- ----------------- --------------------
7,094,880 6,874,933 7,094,880 6,874,933
Funds for future capital increase 27,123 27,123 27,123 27,123
----------------- ------------------- ----------------- --------------------
7,122,003 6,902,056 7,122,003 6,902,056
----------------- ------------------- ----------------- --------------------
Total liabilities and shareholders equity 13,606,695 13,215,471 13,523,272 13,123,777
================= =================== ================= ====================
The accompanying condensed notes are an integral part of these balance sheets.
3
Item 1
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001 (Expressed in
thousands of Brazilian reais - R$, except for per share data)
------------------------------------------------------------------------------
Consolidated Company
------------------------------------------ -------------------------------------
Three months period Three months period
Ended March 31, ended March 31,
------------------------------------------ -------------------------------------
2001 2001
2002 reclassified 2002 reclassified
-------------------- ------------------ ---------------- -----------------
OPERATING REVENUES:
Electricity sales 1,179,895 1,201,801 1,173,369 1,193,555
Special rate adjustment 315,164 - 315,164 -
Other operating revenues 80,968 86,263 56,293 61,260
-------------------- ------------------ ---------------- -----------------
1,576,027 1,288,064 1,544,826 1,254,815
DEDUCTIONS FROM OPERATING REVENUES: (337,223) (327,996) (334,629) (325,432)
-------------------- ------------------ ---------------- -----------------
Net operating revenues 1,238,804 960,068 1,210,197 929,383
-------------------- ------------------ ---------------- -----------------
OPERATING EXPENSES:
Personnel (133,275) (166,911) (132,178) (166,589)
Materials and supplies (15,971) (17,109) (15,902) (17,027)
Outside services (51,503) (47,055) (49,939) (45,827)
Charges for use of water resources (8,673) (11,179) (8,444) (10,963)
Electricity purchased for resale (359,974) (232,357) (359,974) (232,357)
Use of basic transmission network (64,891) (66,035) (64,891) (66,035)
Depreciation and amortization (132,423) (126,098) (128,502) (123,233)
Employee post-retirement benefits (54,250) (50,264) (54,250) (50,264)
Operating provisions (14,245) (3,497) (14,245) (3,497)
Fuel consumption quota - CCC (69,537) (71,416) (69,537) (71,416)
Gas purchased for resale (17,915) (18,029) - -
Other (36,190) (39,797) (35,128) (39,374)
-------------------- ------------------ ---------------- -----------------
(958,847) (849,747) (932,990) (826,582)
-------------------- ------------------ ---------------- -----------------
Income from operations before equity in
subsidiaries and financial income (expenses) 279,957 110,321 277,207 102,801
-------------------- ------------------ ---------------- -----------------
EQUITY IN SUBSIDIARIES - - 1,450 4,367
-------------------- ------------------ ---------------- -----------------
FINANCIAL INCOME (EXPENSES):
Financial income 150,764 92,220 148,978 91,883
Financial expenses (84,260) (192,838) (82,123) (192,336)
-------------------- ------------------ ---------------- -----------------
66,504 (100,618) 66,855 (100,453)
-------------------- ------------------ ---------------- -----------------
Income from operations 346,461 9,703 345,512 6,715
-------------------- ------------------ ---------------- -----------------
NON-OPERATING EXPENSES, NET (6,977) (22,734) (6,977) (22,734)
-------------------- ------------------ ---------------- -----------------
Income (loss) before taxes on income and
employee profit sharing 339,484 (13,031) 338,535 (16,019)
-------------------- ------------------ ---------------- -----------------
Income and social contribution tax
(expense) credits (115,280) 6,349 (114,463) 9,198
Employee profit sharing (4,125) (5,689) (4,125) (5,689)
-------------------- ------------------ ---------------- -----------------
Income (loss) before minority interest 220,079 (12,371) 219,947 (12,510)
MINORITY INTEREST (132) (139) - -
-------------------- ------------------ ---------------- -----------------
NET INCOME (LOSS) FOR THE PERIOD 219,947 (12,510) 219,947 (12,510)
-------------------- ------------------ ---------------- -----------------
NUMBER OF THOUSAND OF SHARES 158.931.714 158.931.714 158.931.714 158.931.714
EARNINGS (LOSSES) PER SHARE - R$ 0.00138 (0.00008) 0.00138 (0.00008)
==================== ================== ================ =================
The accompanying condensed notes are an integral part of these interim statements.
4
Item 1
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(Amounts expressed in thousands of Brazilian reais - R$, unless otherwise
indicated)
------------------------------------------------------------------------------
1) THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG ("CEMIG" or the "Company"), a
company organized under the laws of the Federative Republic of Brazil, is an
electric power concessionaire and public utility controlled by the Government
of the State of Minas Gerais, Brazil (the "State Government"). Its principal
activities are the construction and operation of systems used in the
generation, transmission, distribution and sale of electric energy, as well as
certain related business activities.
The Company has equity interests in the following companies:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest) - Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest) - Its
principal activities are the production and sale of electric energy, as
an independent power producer, at the Ipatinga thermoelectric power plant
located at the facilities of Usinas Siderurgicas de Minas Gerais -
USIMINAS;
o Companhia de Gas de Minas Gerais - GASMIG ("GASMIG") (95.17% interest) -
Its principal activities are the operation, production, acquisition,
storage, transportation and distribution of natural gas and related
products. GASMIG was granted a concession by the State Government to
perform these activities and,
o Empresa de Infovias S.A. ("Infovias") (a 49.44% joint venture) - Its
principal activities are rendering telecommunications services and
developing activities related thereto, through integrated systems using
optical fiber cable, coaxial cable, electronic equipment and other
(multiservice networks). Infovias owns 51% of the capital stock of Way TV
Belo Horizonte S.A., a cable TV and internet services provider in certain
cities in the State of Minas Gerais.
5
Item 1
2) PRESENTATION OF THE FINANCIAL STATEMENTS
The accounting practices, methods and criteria followed by the Company in the
preparation of these quarterly financial statements are consistent with those
applied in the financial statements as of and for the year ended December 31,
2001.
In order to conform to the current presentation, the Company has reclassified
certain 2001 expenses, as follows:
Original Account Reclassified Account Consolidated Company
--------------------------------------- ---------------------------------------------------- ------------------------ --------------
Employee post-retirement benefits
Financial expenses - FORLUZ debt Operating expenses-Employee post-retirement benefits 40,573 40,573
Operational provisions Operating expenses-Employee post-retirement benefits 9,691 9,691
PASEP and COFINS on financial income:
Financial expenses Financial income 3,498 3,471
CEMIG has reclassified R$103,400 and R$67,171 originally recorded under Assets
- Cash and cash equivalents to Liabilities - Loans and financing as of March
31, 2001 and December 31, 2000, respectively, related to escrow accounts in
order to prepare the individual and consolidated statements of cash flows for
the three-month period ended March 31, 2002 and March 31, 2001.
3) CONSUMERS - SPECIAL RATE ADJUSTMENT
In December 2001, the Federal Government, through the Camara de Gestao da
Crise de Energia Eletrica (the Federal Government's Electric Energy Crisis
Committee or the "Energy Crisis Committee"), and the electricity distribution
and generation concessionaires entered into an agreement entitle the Acordo
Geral do Setor Eletrico ( "General Agreement of the Electricity Sector"). This
agreement defines criteria to ensure the economic and financial equilibrium of
the concession contracts and to reimburse such concessionaires for lost
revenues related to the period when the Electricity Rationing Plan was in
force, through a special rate adjustment.
According to Temporary Executive Act No. 14, which was later converted into
Law No. 10,438 of April 26, 2002 and the Energy Crisis Committee's Resolution
No. 91 of December 21, 2001, billing losses, the purchases of energy traded in
the spot market during the period of the Electricity Rationing Plan and losses
relating to the variation of Parcel "A" items (uncontrolled costs as
established by the energy distribution concession contracts) related to the
period between January 1, 2001 to October 25, 2001, will be recovered through
the following special rate adjustments applicable beginning from December 27,
2001 during the period necessary to achieve total compensation of the
above-mentioned items, limited to the weighted average term of the Brazilian
electric sector of 6 years:
o an increase of 2.90% for rural and residential consumers, excluding
low-income consumers; and
o an increase of 7.90% for all other consumers.
The amounts related to the revenue losses and compensation of variations of
the Parcel "A" uncontrolled items, described under ("a") and ("b") below, will
be submitted to ANEEL for validation and approval, in accordance with
legislation in force. ANEEL's review may result in changes to the values used
in preparation of the financial statements as of March 31, 2002, impacting the
Company's future financial results.
6
Item 1
The recorded amounts, which will be realized through the special rate
adjustments, described in items ("a"), ("b"), and ("c") related to the 2001
period have been restated based on SELIC (Brazilian Central Bank overnight
interest rate) from January 1, 2002 to the month of their effective recovery.
The amounts related to year 2002 will be updated after ANEEL's approval.
The State VAT related to the special rate adjustment for future billings,
which is estimated to be R$343,217, only becomes an obligation once the
customers are billed. In this context, the Company's only responsibility is to
transfer the tax collected from consumers to State tax authorities.
ANEEL's Resolution No. 72 of February 7, 2002 established uniform procedures
to be followed by electric power utilities to account for the effects of the
adhesion to the General Agreement of the Electricity Sector. The main
provisions of the General Agreement of the Electricity Sector are described
below:
(a) Recovery of billing losses during the Electricity Rationing Plan
The amount of the billing losses included in the special rate adjustment will
correspond to the difference between the Company's estimated revenue, assuming
that the Electricity Rationing Plan had not been implemented, and the actual
revenue earned during the rationing period, from June 1, 2001 to February 28,
2002, according to the criteria published by ANEEL.
CEMIG's billing losses during the Electricity Rationing Plan, excluding State
VAT and overdue payment losses, were recorded on the Balance Sheet under
Consumers - Special rate adjustment under Current and Noncurrent assets,
counterbalanced by the entry Special rate adjustment under Operating revenues
in the 2002 and 2001 statements of income.
The Company reviewed its billing losses estimate for the period from June to
December 2001, due to ANEEL's revision of the procedures and assumptions
adopted in prior year to determining such amounts.
The billing losses during the Electricity Rationing Plan are as follows:
Consolidated and Company
-------------------- --------------------
March 31, December 31,
2002 2001
-------------------- --------------------
Billing losses from June through December 2001
Provision in 2001 656,679 656,679
Revision adjustment in first quarter of 2002 146,478 -
Monetary variance 33,829 -
-------------------- --------------------
836,986 656,679
Billing losses from January and February, 2002 122,462 -
-------------------- --------------------
959,448 656,679
Amounts collected on the three-month period ended March 31, 2002 (53,672) -
-------------------- --------------------
905,776 656,679
==================== ====================
Short-term 234,708 258,855
Long-term 671,068 397,824
==================== ====================
The amounts billed during the first quarter of 2002 corresponding to the
extraordinary tariff increases related to the Electricity Rationing Plan, as
approved by Temporary Executive Act No. 14 that was converted into Law No.
10,438 of April 26, 2002 were allocated as a reduction of the asset related to
billing losses, according to ANEEL instructions.
7
Item 1
(b) Compensation of uncontrollable cost variation relating to the Parcel "A"
items
ANEEL Resolution No. 90 of February 18, 2002, has established procedures for
the compensation of the variation of some Parcel "A" items for the period from
January 1, 2001 to October 25, 2001.
The amount to be reimbursed is equal to the difference between the Parcel "A"
costs effectively paid and the estimated Parcel "A" costs used for purposes of
computing the most recent annual rate adjustment prior to the rationing
period.
The amounts to be reimbursed were recorded under Noncurrent assets, where they
were originally allocated, taking into account the expected realization, in
counterbalance of the Statement of Income, as follows:
Consolidated and Company
-------------------------------------------
March 31, December 31,
2002 2001
-------------------- --------------------
Losses of "A" parcel items from January 1, 2001 to October 25, 2001 247,943 247,161
Monetary variance 37,399 25,779
-------------------- --------------------
285,342 272,940
==================== ====================
Procedures for reimbursing Parcel "A" costs related to the period after
October 26, 2001 and comments concerning applicable rules and respective
accounting procedures are set forth in Note 7.
(c) Recording of energy transactions on the Mercado Atacadista de Energia
(Wholesale Electricity Spot Market or "MAE")
This relates to costs arising from contractual exposures, energy traded on the
MAE (energy not traded pursuant to contracts during the rationing period), the
Mecanismo de Realocacao de Energia (Energy Reallocation Mechanism, or "MRE"),
system service charges and financial excess allocation.
Costs relating to energy traded on the MAE will be prorated among consumers
supplied by the Brazilian Interconnected Electric System through the special
rate adjustment. The related criteria and procedures for this recovery are
still pending.
The amount to be passed along to consumers is calculated based on the amount
of energy purchased on the MAE during the period from May 1, 2001 until the
end of the rationing period, and equals the difference between the energy
purchase price on the MAE and R$49.26/MWh (which is the initial contract
average cost for the period). Generators will not be reimbursed with respect
to MAE energy purchases up to R$49.26/MWh.
8
Item 1
CEMIG recorded the 2001 transactions based on preliminary information (that
will not be used for the financial settlement among electric sector
participants) provided by MAE on March 13, 2002, related to MAE transactions
in 2001. The 2002 transactions were recorded based on the Company's estimates
and internal controls. Therefore, the amounts described below are subject to
changes, which could impact the Company's future results. The disclosed
results did not include the parcel corresponding to the Itaipu Binacional's
energy production surplus. The transactions are as follows:
o The amounts to be paid to Generators for the energy purchased on the
MAE, applying the above criteria, from June 1, 2001 to December 31,
2001 and from January 1, 2002 to February 28, 2002, with a price
exceeding R$49.26/MWh, are R$372,939 and R$42,987, respectively. These
amounts were accounted for as a charge to Electricity purchased for
resale on the Statement of Income, counterbalanced by an entry under
Long-term liabilities. However, the amounts to be reimbursed to CEMIG
through the special rate adjustment are R$401,024 and R$46,224,
respectively (which were calculated adding the amount to be paid to
generators, PASEP, COFINS and RGR). These amounts were recorded as a
Noncurrent asset, with its counterpart recorded as revenue in the 2001
and 2002 Statement of Income.
o The costs of energy purchased on the MAE and other MAE transactions in
2001 and 2002, corresponding to R$177,164 and R$61,018 respectively,
were recorded as a debit to Electricity purchased for resale in the
Statement of Income, having as a counterpart a credit to Accounts
payable to suppliers under Current liabilities.
o The reimbursable portion of CEMIG's MAE revenues from June 1, 2001 to
December 31, 2001 and from January 1, 2002 to February 28, 2002
relating to transactions between concessionaires (which are not subject
to State VAT) were R$80,140 and R$32,272, respectively, and were
calculated based on the difference between the MAE price and
R$49.26/MWh. These amounts were recorded as Electricity sales to final
customers - Supply in the 2001 and 2002 Statements of Income having its
counterpart Dealership - Energy supply under Noncurrent assets.
On March 22, 2002, the MAE disclosed the possibility of an additional supply
revenue amounting to R$30,000. This amount was submitted to the Energy Crisis
Committee for validation and approval and its conclusions are expected at the
end of the second quarter of 2002. Since this information is preliminary, the
Company did not record the above mentioned revenue in its financial
statements.
The composition of the amounts recorded as special rate adjustment to be paid
to Generators for the energy purchased on the MAE during the period of the
Electricity Rationing Plan are as follows:
Consolidated and Company
-------------------------------------------
March 31, December 31,
2002 2001
-------------------- --------------------
Special rate adjustment
Energy traded on spot market in 2001 401,024 401,024
Monetary variance 16,891 -
-------------------- --------------------
417,915 401,024
Energy traded on spot market in January and February, 2002 46,224 -
-------------------- --------------------
464,139 401,024
==================== ====================
Suppliers - amounts to be paid to generators
Energy traded on spot market in 2001 372,939 372,939
Monetary variance 15,708 -
-------------------- --------------------
388,647 372,939
Energy traded on spot market in January and February of 2002 42,987 -
-------------------- --------------------
431,634 372,939
==================== ====================
9
Item 1
(d) Loan from Banco Nacional de Desenvolvimento Economico e Social -BNDES
and Federal Government to Electric Energy Concessionaires
The Company has been negotiating with the National Treasury Department and
BNDES (the Brazilian Economic and Social Development Bank), in order to obtain
resources through a funding program or other equivalent financing operation as
an anticipation of part of the resources to be obtained through the special
rate adjustments. These negotiations are expected to conclude by the end of
the second quarter of 2002.
(e) Accounting effects
The effects in the three-month period ended March 31, 2002 of the transactions
mentioned in ("a"), ("b") and ("c"), are as follows:
-----------------------------------------------------------------------------------------
Revenue Compensation of MAE
Losses "A" Parcel Transactions Tax Effects Total
----------------------------------------------------------------------------------------
ASSETS
Current
Consumers - Special rate adjustment 10,903 - - - 10,903
Noncurrent
Consumers - Special rate adjustment 291,866 12,402 63,115 - 367,383
Tax credits - - - (27,329) (27,329)
Dealership - Energy Supply - - 35,648 - 35,648
------------------ ----------------- ---------------- --------------- --------------
302,769 12,402 98,763 (27,329) 386,605
================== ================= ================ =============== ==============
LIABILITIES
Current
Accounts payable to suppliers - - 61,018 - 61,018
Taxes Payable and Social Contribution - - - 89,537 89,537
Long-term liabilities
Accounts payable to suppliers - - 58,695 - 58,695
Stockholders' equity
Retained earnings 302,769 12,402 (20,950) (116,866) 177,355
------------------ ----------------- ---------------- --------------- --------------
302,769 12,402 98,763 (27,329) 386,605
================== ================= ================ =============== ==============
INCOME STATEMENT - THREE MONTH PERIOD ENDED MARCH 31, 2002
Special rate adjustment 268,940 - 46,224 - 315,164
Electricity sales to the interconnected
power system - - 32,272 - 32,272
Deductions from operating revenues - - - (23,104) (23,104)
Operating expenses - 782 (104,005) - (103,223)
Financial revenue 33,829 11,620 20,267 (2,398) 63,318
Financial expenses - - (15,708) - (15,708)
Income and social contribution taxes - - - (91,364) (91,364)
------------------ ----------------- ---------------- --------------- --------------
302,769 12,402 (20,950) (116,866) 177,355
================== ================= ================ =============== ==============
The Company has been analyzing with its tax and legal advisors how the taxes
related to the General Agreement of the Electricity Industry should be paid.
10
Item 1
4) CASH AND CASH EQUIVALENTS
The composition of the balance is as follows:
Consolidated Company
--------------------------------------- ------------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
------------------ -------------------- ---------------- ------------------
Banks 79,035 68,408 75,516 63,125
Short Term Investments 526,765 627,680 473,248 579,367
------------------ -------------------- ---------------- ------------------
605,800 696,088 548,764 642,492
================== ==================== ================ ==================
Approximately R$438,124 of the short-term investments refers to funds obtained
from the issuance of debentures. These funds were obtained to be used in the
investment plan related to expansion of the Company's energy generation,
transmission and distribution operations.
5) ACCOUNTS RECEIVABLE
Consolidated
---------------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - up accounts - March 31, December 31,
Consumers Class Current to 90 days over 90 days 2002 2001
------------------------------------------------- -------------- -------------- --------------- ------------- --------------
Residential 140,832 71,569 8,610 221,011 175,966
Industrial 112,407 40,174 33,052 185,633 180,858
Commercial 47,427 33,021 6,732 87,180 77,611
Rural 15,086 8,305 2,056 25,447 23,962
Public authorities 12,863 8,127 4,542 25,532 23,087
Public lighting 11,209 5,246 4,290 20,745 14,097
Public services 37,324 1,403 736 39,463 37,845
-------------- -------------- --------------- ------------- --------------
Subtotal - Consumers 377,148 167,845 60,018 605,011 533,426
Supply 1,470 - 1,653 3,123 5,665
Allowance for doubtful accounts - - - (61,687) (53,791)
-------------- -------------- --------------- ------------- --------------
378,618 167,845 61,671 546,447 485,300
============== ============== =============== ============= ==============
Company
---------------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - up accounts - March 31, December 31,
Consumers Class Current to 90 days over 90 days 2002 2001
------------------------------------------------- -------------- -------------- --------------- ------------- --------------
Residential 140,832 71,569 8,610 221,011 175,966
Industrial 104,592 40,174 33,052 177,818 168,499
Commercial 46,415 33,021 6,732 86,168 76,297
Rural 15,086 8,305 2,056 25,447 23,962
Public authorities 12,863 8,127 4,542 25,532 23,087
Public lighting 11,209 5,246 4,290 20,745 14,097
Public services 37,324 1,403 736 39,463 37,845
-------------- -------------- --------------- ------------- --------------
Subtotal - Consumers 368,321 167,845 60,018 596,184 519,753
Supply 1,470 - 1,653 3,123 5,665
Allowance for doubtful accounts - - - (61,687) (53,791)
-------------- -------------- --------------- ------------- --------------
369,791 167,845 61,671 537,620 471,627
============== ============== =============== ============= ==============
11
Item 1
6) RECOVERABLE TAXES
Consolidated Company
------------------------------- --------------------------------
March 31, December 31 March 31, December 31,
2002 2001 2002 2001
-------------- --------------- -------------- ----------------
State VAT - ICMS 25,443 19,222 22,483 16,306
Income and social contribution tax 6,548 69,940 5,935 69,105
Others 53 155 53 155
-------------- --------------- -------------- ----------------
32,044 89,317 28,471 85,566
============== =============== ============== ================
The State VAT assets of the Company and its subsidiaries are recoverable
through offset against State VAT liabilities. The balance recorded as non
current assets - other, in the amount of R$18,843, refers to tax credits of
the Company for which such offset is under negotiation with the State
Government.
7) PREPAID EXPENSES - CVA
The balance of the recoverable variation account of Parcel "A" items - CVA
refers to the variation of determined uncontrollable Parcel "A" costs which
began on October 26, 2001 and will be recovered in the subsequent annual rate
adjustments as follows:
Consolidated and Company
---------------------------------------------------------------------------
Base
Reimbursement
Amount Monetary Variance Total
----------------------- -------------------------- ------------------
System service charges - ESS 102,086 - 102,086
Itaipu Binacional electricity purchase tariff 58,467 1,858 60,325
Itaipu Binacional electricity transport tariff 2,181 60 2,241
Fuel usage quota - CCC 7,086 160 7,246
Tariff for use of basic transmission network 15,035 416 15,451
Charges for use of water resources 1,542 2 1,544
----------------------- -------------------------- ------------------
186,397 2,496 188,893
======================= ========================== ==================
Current 68,588
Noncurrent 120,305
==================
The above-mentioned amounts are updated based on the SELIC rate from the
payment date to effective recovery through annual rate readjustments.
The System service charges - ESS for the period from September 2000 to March
2002 were accrued based on preliminary information provided by ASMAE and based
on the Company's estimates. Such amounts will be monetarily restated by SELIC
beginning on the effective payment date.
According to legislation in force, these amounts will be submitted to ANEEL
for validation and approval and, therefore, may impact the Company's future
financial results.
12
Item 1
8) RECEIVABLE FROM MINAS GERAIS STATE GOVERNMENT
The remaining balance of the CRC Account (Recoverable Rate Deficit), was
transferred to the State Government in 1995 through a credit assignment
contract pursuant to Law No. 8,724/93. This balance is payable monthly over 17
years beginning June 1, 1998, and accrues annual interest of 6% and is subject
to updating based on the IGP-DI (General Price Index). This receivable is
secured by the State Government's share of taxes collected by the Federal
Government entitled Fundo de Participacao do Estados - FPE.
As of March 31, 2002, the total account receivable balance was R$1,533,943,
including related charges, as established by the credit assignment contract.
The installments with maturity from April 1, 1999 to December 1, 1999 and
March 1, 2000 to March 1, 2002 are in arrears, totaling R$ 441,398, including
monetary restatement and related late payment charges.
The Company is negotiating the payment of the aforementioned past due amounts
with the State Government. The Company believes that the State Government
intends to make payment prior to the end of its present term, and intends to
enter into a payment schedule for future installments. The Company does not
believe that there will be any loss on the realization of this asset.
9) INCOME AND SOCIAL CONTRIBUTION TAXES
a) Tax credits
The Company and its subsidiaries have tax credits recorded as Noncurrent
assets. The income tax credits are recorded at a 25% rate and social
contribution tax credits are recorded at an 8% rate, (considering realization
of assets in 2003). The composition of the balances is as follows:
Consolidated Company
------------------------------- --------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
------------- --------------- -------------- -----------------
Tax credit on:
Tax loss carryforwards 159,617 188,983 157,182 188,253
Employee post retirement benefits 149,501 146,382 149,501 146,382
Reserve for contingencies 56,391 55,760 56,391 55,760
Allowance for doubtful accounts 20,393 17,788 20,393 17,788
Allowance for decrease in market value of marketable
securities 2,861 4,643 2,861 4,643
Accrual for voluntary termination program - PDV 8,507 8,438 8,507 8,438
Others 2,991 13,987 2,921 13,925
------------- --------------- -------------- -----------------
400,261 435,981 397,756 435,189
============= =============== ============== =================
The income and social contribution tax credits on tax loss carryforwards arise
primarily from the recognition of the obligations due to FORLUZ in compliance
with CVM Resolution No. 371 (see Note 15), considering, for calculation
purposes, the probable expected future profitability of CEMIG on subsequent
fiscal years.
13
Item 1
b) Reconciliation of income tax and social contribution tax expenses
The reconciliation between the nominal expense of income tax (25% rate) and
social contribution tax (9% rate) and the effective expense presented in the
statement of income is as follows:
Consolidated Company
--------------------------- ---------------------------
Three months ended Three months ended
March 31, March 31,
--------------------------- ---------------------------
2002 2001 2002 2001
-------------- ----------- ----------- -------------
Income (loss) before taxes on income and employee profit sharing 339,484 (13,031) 338,535 (16,019)
Income and social contribution taxes - nominal (115,425) 4,431 (115,102) 5,446
Tax effects on:
Employee profit sharing 1,238 1,934 1,238 1,934
Reversal of social contribution tax on additional monetary restatement (1,605) (1,734) (1,605) (1,734)
Equity pick-up in subsidiaries - - 202 1,485
Contributions and grants not deductible (749) (1,017) (749) (1,017)
Other 1,261 2,735 1,553 3,084
-------------- ------------ -------------- ----------
Income (loss) and social contribution tax in income statement (115,280) 6,349 (114,463) 9,198
============== ============ ============== ==========
10) BONUS, NET OF SURCHARGE, AND COSTS TO BE REIMBURSED AS A RESULT OF THE
ELECTRICITY RATIONING PROGRAM
Through the Energy Crisis Committee, the Federal Government established
electric energy consumption targets for all consumers affected by the
Electricity Rationing Plan in force during the period from June 2001 to
February 2002. A financial bonus was established for residential consumers
whose electric energy consumption was lower than the target, and surcharges
were established for all consumers whose consumption exceeded the target,
calculated based on the effective consumption in excess of such target, as
established by the Energy Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Electricity Rationing Program involving the bonus, surcharge and related
costs. The related effects are as follow:
Noncurrent Assets
Bonus paid to consumers that consumed less than the target consumption. 181,797
Costs incurred related to the adoption of the Electricity Rationing Program in excess of the 2.00% surcharge on consumer
tariffs. 19,792
----------
201,589
Long-term Liabilities
Surcharge applied to consumers that consumed more than the target consumption. (25,716)
----------
Net Disbursements
Net bonus paid to consumers and related costs in excess of the surcharge applied to consumers. 175,873
==========
In conformity with Federal Government Executive Act No. 4, dated October 17,
2001, the Federal Government, acting through its Ministry of Mines and Energy,
will reimburse electric utilities, including CEMIG, for costs associated with
the payment of bonuses to consumers and other related operating costs that
exceeded the surcharge on tariffs. This reimbursement will be subject to
ANEEL's review. The Energy Crisis Committee will establish the procedures and
deadlines relating to such reimbursement.
ANEEL has approved, through its Resolutions issued on March 14, 2002 and April
25, 2002, the net amount of R$132,630 to be reimbursed by Federal Government.
The remaining balance of R$43,243, which refers to
14
Item 1
costs related to the adoption of the Electricity Rationing Plan in excess of
the 2.00% surcharge on consumers and the parcel of surcharges which were not
billed and collected from the consumers since they are under judicial dispute,
is being discussed between CEMIG and ANEEL. The Company's management does not
expect losses on the realization of this asset.
11) INVESTMENTS
Consolidated Company
------------------------------- ----------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
------------- ---------------- ------------- ------------------
Equity in subsidiaries -
Sa Carvalho S.A. - - 94,304 92,411
Usina Termica Ipatinga S.A. - - 85,449 85,162
Companhia de Gas de Minas Gerais - GASMIG - - 64,847 63,107
------------- ---------------- ------------- ------------------
- - 244,600 240,680
Equity in joint-venture -
Empresa de Infovias S.A. - - 84,172 76,208
In consortia for power plant construction 308,390 281,117 308,390 281,117
Other investments 97,062 75,155 93,447 73,266
------------- ---------------- ------------- ------------------
405,452 356,272 730,609 671,271
============= ================ ============= ==================
(a) The principal information related to affiliated companies is as follows:
Joint
Controlled Companies Venture
---------------------------------------------------- --------------
GASMIG UT Ipatinga Sa Carvalho Infovias
------------- ----------------- ----------------- -------------
CEMIG's interest 95.17 100.00 100.00 49.44
Paid in capital 38,624 84,584 86,833 179,798
Shareholders' equity as of February 28, 2002 67,986 85,449 94,304 -
Shareholders' equity as of March 31, 2002 - - - 170,239
Net income (loss) for the two-month period ended
February 28, 2002 2,710 287 1,893 -
Net income (loss) for the three-month period ended
March 31, 2002 - - - (6,693)
(b) CEMIG is a partner in certain consortia for electricity generation
projects. The consortia, which are not legal entities, were created to
manage certain concession contracts. The Company maintains accounting
records of its share of the consortia assets which are jointly managed
as follows:
Company and Consolidated
--------------------- ----------------------
CEMIG's March 31, December 31,
Participation 2002 2001
---------------- --------------------- ----------------------
In Operation -
Porto Estrela Hydroelectric Power Plant 33.33% 37,365 56,823
Igarapava Hydroelectric Power Plant 14.50% 51,376 51,741
Under Construction -
Queimado Hydroelectric Power Plant 82.50% 84,612 73,490
Funil Hydroelectric Power Plant 49.00% 63,218 52,071
Aimores Hydroelectric Power Plant 49.00% 71,819 46,992
--------------------- ----------------------
308,390 281,117
===================== ======================
(c) Other investments
Other investments refer mostly to generation plants related to the Company's
expansion program, which were originally recorded as property, plant and
equipment. These power plants will be transferred to subsidiaries, which will
be created specifically for the purpose of holding certain assets and
investments. These transfers will be made only upon the approval of ANEEL.
15
Item 1
The composition of other investments balance is as follows:
Company
------------------------------------------
March 31, December 31,
2002 2001
Project --------------------- --------------------
Machado Mineiro Hydroelectric Power Plant 40,768 40,768
Salto Voltao Hydroelectric Power Plant 8,935 8,935
Salto do Paraopeba Hydroelectric Power Plant 8,123 8,123
Salto do Passo Velho Hydroelectric Power Plant 4,172 4,172
Capim Branco 1 Hydroelectric Power Plant 5,712 -
Capim Branco 2 Hydroelectric Power Plant 5,716 -
Pai Joaquim Hydroelectric Power Plant 7,379 -
Barreiro Thermoelectric Power Plant 1,055 -
-------------------- --------------------
81,860 61,998
Others 11,587 11,268
-------------------- --------------------
93,447 73,266
==================== ====================
12) PROPERTY, PLANT AND EQUIPMENT
Annual Consolidated Company
average ---------------------------- ---------------------------
Depreciation March 31, December 31, March 31, December 31,
rate % 2002 2001 2002 2001
-------------- ------------ ------------- ------------- -------------
In service
Generation-
Hydroelectric 2.51 5,431,441 5,431,934 5,346,725 5,347,218
Thermoelectric 1.79 216,534 216,445 131,949 131,861
Transmission 3.08 1,010,784 1,009,853 1,010,784 1,009,853
Distribution 5.10 6,485,056 6,429,285 6,485,056 6,429,285
Administration 9.63 269,576 262,541 269,575 262,541
Other 152,492 139,422 - -
---------------- -------------- ----------- ------------
13,565,883 13,489,480 13,244,089 13,180,758
---------------- -------------- ----------- ------------
Accumulated depreciation and amortization
Generation (2,022,326) (1,988,210) (2,011,475) (1,978,741)
Transmission (442,553) (435,169) (442,553) (435,169)
Distribution (2,454,373) (2,383,268) (2,454,373) (2,383,268)
Administration (119,358) (110,279) (119,357) (110,279)
Other (15,334) (11,980) - -
---------------- -------------- ----------- ------------
(5,053,944) (4,928,906) (5,027,758) (4,907,457)
---------------- -------------- ----------- ------------
Total in service 8,511,939 8,560,574 8,216,331 8,273,301
---------------- -------------- ----------- ------------
Construction in progress-
Generation 41,784 33,149 41,784 33,149
Transmission 67,972 61,801 67,972 61,801
Distribution 341,537 347,643 341,537 347,643
Administration 24,150 29,056 24,150 29,056
Other 19,542 29,232 - -
---------------- -------------- ----------- ------------
Total construction in progress 494,985 500,881 475,443 471,649
---------------- -------------- ----------- ------------
Total 9,006,924 9,061,455 8,691,774 8,744,950
---------------- -------------- ----------- ------------
Special liabilities (1,456,553) (1,428,340) (1,456,553) (1,428,340)
---------------- -------------- ----------- ------------
Total, net 7,550,371 7,633,115 7,235,221 7,316,610
================ ============== =========== ============
Special liabilities refer primarily to consumers' contributions to support
construction necessary to meet energy supply orders. The eventual liquidation
of this obligation depends on ANEEL's disposition at the end of the
16
Item 1
distribution concessions. According to accounting principles and electric
energy sector legislation in force in Brazil, these amounts are not subject to
updating, amortization or depreciation.
13) LOANS, FINANCING AND DEBENTURES
Composition of financing by currency and domestic currency by index is as
follows:
Consolidated Company
-------------------------- ------------------------------
March 31, December 31, March 31, December 31,
2002 2001 2002 2001
---------- -------------- -------------- -------------
Currency -
U.S. dollar 1,269,904 1,301,424 1,223,649 1,255,220
German Marks - 20,422 - 20,422
EURO 38,209 14,730 38,209 14,730
Swiss Francs 1,825 1,808 1,825 1,808
Unit of account (basket of currencies) 33,868 41,673 33,868 41,673
Others 1,090 1,076 1,090 1,076
---------- --------------- ------------ --------------
1,344,896 1,381,133 1,298,641 1,334,929
Indexes -
Indice Geral de Precos - IGP-M (General Price Index) 888,469 865,957 888,469 865,957
Indice Interno da Eletrobras - FINEL (Eletrobras Internal Index) 165,849 174,001 165,849 174,001
UFIR (Tax Reference Unit) 95,430 88,679 95,430 88,679
Other 20,346 24,267 15,443 16,665
----------- --------------- ------------ -------------
1,170,094 1,152,904 1,165,191 1,145,302
Escrow accounts (1)
Income based on CDI (interbank deposit) rates (14,068) (19,425) (14,068) (19,425)
Short-term investment - Income based on U.S. dollar variation (169,521) (132,689) (169,521) (132,689)
----------- -------------- ----------- ------------
(183,589) (152,114) (183,589) (152,114)
----------- -------------- ----------- ------------
2,331,401 2,381,923 2,280,243 2,328,117
=========== ============== =========== ============
(1) Refers to restricted use funds for payment of foreign
currency-denominated financing, in compliance with Banco Central do
Brasil - BACEN (Brazilian Central Bank) Resolution No. 2,515 of June
29, 1998.
The variations in the principal currencies and indexes used to restate the
loans and financing are as follows:
Variation Variation
Currency % Indexes %
--------------------------------------- --------- --------------------------------------------------------------- --------
U.S. dollar 0.14 Indice Geral de Precos - IGP-M (General Price Index) 0.51
EURO (1.82) Indice Interno da Eletrobras - FINEL (Eletrobras Internal Index) 0.03
Swiss Franc (0.84)
Unit of account (Basket of currencies) (2.01)
17
Item 1
14) RESERVE FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
Based on information provided by its internal and external legal counsel, the
Company believes that any loss in excess of the amounts provided for in
respect of such contingencies will not have a material adverse effect on the
Company's results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable
by the Company's legal counsel, the Company has recognized reserves for losses
as follows:
Consolidated and Company
--------------------------------------------
March 31, December 31,
2002 2001
------------------ -------------------
Labor claims 55,180 54,270
Civil lawsuits - Consumers 77,793 74,378
Social contribution tax 128,322 125,454
Finsocial (tax on revenue) 18,963 18,876
Civil lawsuits - Others 14,584 21,541
Others 34,554 24,711
------------------ -------------------
329,396 319,230
================== ===================
Certain details relating to such reserves are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be R$68,975
as of March 31, 2002 (R$67,838 as of December 31, 2001). The Company recorded
a year to date provision in the amount of R$910 in 2002 (R$20 of reversion
provision in 2001). CEMIG determines the amounts to be reserved based on
advice from its legal counsel, the nature of the group of claims and the most
recent court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought legal action against the Company
seeking refunds of amounts paid to CEMIG as a result of a tariff increase that
became effective during the Brazilian government's economic stabilization
"Cruzado Plan" in 1986, alleging that such increases violated the price
controls instituted as part of that plan. CEMIG determines the amounts to be
reserved based on the amount billed subject to consumers' claims and recent
court decisions.
The total estimated exposure to the Company for those claims, fully provided
for, was R$77,793 as of March 31, 2002 (R$74,378 as of December 31, 2001).
(c) Social contribution tax
The Company is deducting the amounts of depreciation, amortization and
disposals of the supplementary monetary restatement of property, plant and
equipment, for purposes of computation of social contribution tax. The Company
estimates that its potential exposure in this matter is approximately
R$128,322 as of March 31, 2002 (R$125,454 as of December 31, 2001). The amount
is fully provided for.
(d) Finsocial
In 1994, CEMIG was fined by the Federal Tax Authorities due to the exclusion
of State VAT in the Finsocial calculation, a tax on billing extinguished in
1992. The Company estimates that the remaining amount still
18
Item 1
pending is approximately R$18,963 as of March 31, 2001 (R$18,876 as of
December 31, 2001). The amount is fully provided for.
(e) Other
Other reserves are related to a number of lawsuits involving the Federal
Government, pursuant to which the Company is disputing the constitutionality
of certain federal taxes that have been assessed against it and other general
claims arising in the ordinary course of business.
CEMIG has other relevant legal proceedings with respect to which the Company
has been advised by its internal and external legal counsel that a favorable
outcome is probable. Certain details relating to such matters are as follows:
(i) Litigation involving FORLUZ with possible financial effects for CEMIG
The Company is defending, together with FORLUZ, a claim brought by its
employees' labor union ("Sindieletro") contesting the suspension of increases
in the Company's required contribution to the pension fund pursuant to
periodic monetary restatements. The total amount sought in this claim is
R$538,724. No reserve has been recorded for this claim, since the Company
believes, based on advice from its legal counsel, that it has a meritorious
defense to such claim and, consequently, does not expect to incur losses
related thereto.
Sindieletro has sued FORLUZ to contest changes made to the pension fund's
contributions adjustment index. The total amount sought in this claim is
R$233,522. If Sindieletro is successful in this lawsuit, the Company expects
FORLUZ to make a claim against it seeking reimbursement for the amount payable
to retired employees. No reserve has been recorded for this claim, as the
Company believes, based on advice from its legal counselors, that it has a
meritorious defense to this potential claim and, consequently, does not expect
to incur losses related to such claim.
(ii) Income and social contribution taxes on post retirement benefits
On October 11, 2001, the Brazilian Federal Tax Authorities (Secretaria da
Receita Federal) issued an assessment notice relating to a R$215,257
discrepancy with respect to tax credits recorded by CEMIG in 2001 that had
been partially recovered during the year. These credits result from the change
in accounting method for recording post-retirement benefit liabilities, as
required by CVM Deliberation No. 371/00. No reserve has been recorded as a
result of this notice as the Company, based on advice from its legal
counselors, believes that the procedures, which generated the tax credits, are
legally sound. CEMIG is defending the tax assessment notice administratively
against the Secretaria da Receita Federal.
(iii) COFINS
The Company began contesting the payment of COFINS (tax on revenue) beginning
in 1992. As a result of an unfavorable court ruling, the Company paid
R$239,266 of COFINS tax on July 30, 1999. The Federal Government is claiming
that the Company owes approximately R$112,701 in additional fines and interest
relating to the non-payment of COFINS. The Company is contesting such claims.
No reserve has been recorded for this claim, since the Company believes, based
on advice from its legal counsel, that it has a meritorious defense against
such claim and, consequently, does not expect to incur losses related thereto.
(iv) Regulatory agency acts
ANEEL has a regulatory proceeding pending against CEMIG claiming that CEMIG
owes the Federal Government R$350,322, subject to updating based on SELIC to
March 31, 2002, because of a miscalculation of credits in the amount of
cumulative rate deficit (CRC) applied to reduce amounts owed to the Federal
Government. On August 8, 2001, ANEEL determined that CEMIG must pay the above
amount, restated based on SELIC since January 1, 1997. The Company, based on
the opinion of legal counselors, believes that it has a meritorious defense to
such claim and has therefore recorded no provision in respect of such claim.
19
Item 1
15) EMPLOYEE POST-RETIREMENT BENEFITS
Since 1973, the Company has been the sponsor of Fundacao Forluminas de
Seguridade Social - FORLUZ, a non-profit entity with the purpose of providing
its associates, participants and their dependants with additional income to
supplement the government pension, in accordance with the pension plan to
which they are linked.
FORLUZ offers its associates the following supplementary pension plans:
Mixed Benefit Plan - A defined contribution plan for normal retirement and a
defined benefit plan for coverage of active participant's disability and
death. The Company's contribution is equivalent to the associate's monthly
basic contributions and is the only plan available for new participants.
Settled Benefit Plan - Includes all retired participants who opted for this
plan and the balances, at the option date, of active participants who opted
for migrating from the Defined Benefit Plan to the above-mentioned Mixed
Benefit Plan.
Defined Benefit Plan - Benefit plan adopted by FORLUZ up to 1998, in which the
Federal Government Social Security benefit is supplemented in relation to the
actual average salary of the employee's final years of service in the Company.
In addition to the pension plans provided by FORLUZ, the Company also pays
part of the life insurance premium for its retirees and of the health care
plan for employees, retirees and their dependants. These plans are also
managed by FORLUZ.
The changes in net post-retirement liabilities recorded in accordance with CVM
Deliberation No. 371 are as follows:
Other post-retirement
Pension plans benefits
----------------------- -------------------------------
Net liabilities as of December 31, 2001 1,393,903 459,835
Net periodic cost recorded in the income statement 37,239 17,010
Contributions paid (37,964) (3,081)
----------------------- -------------------------------
Net liabilities as of March 31, 2002 1,393,178 473,764
======================= ===============================
Part of the deficit in FORLUZ's actuarial reserves, in the amount of R$
1,416,244 as of March 31, 2002 (R$ 1,410,160 as of December 31, 2001), was
recognized as obligations payable by the Company. These obligations are being
amortized through monthly installments, through June 2024, calculated under
the fixed-installment system ("Price Table"), subject to annual restatement in
accordance with the salary correction index for the Company's employees (not
including productivity) included in the defined benefit plan and subject to
IPCA - IPEAD (indices) for other plans, plus a 6% per year.
20
Item 1
16) SHAREHOLDERS' EQUITY
The Change in shareholders' equity is as follows:
Balance as of December 31, 2001 6,902,056
Net income for the three month period ended March 31, 2002 219,947
----------------------
Balance as of March 31, 2002 7,122,003
======================
In September 1999, the State of Minas Gerais filed a lawsuit seeking to
nullify the shareholders' agreement signed in 1997 with Southern Electric
Brasil Participacoes Ltda.. On August 7, 2001, the Minas Gerais State Court of
Appeals upheld the lower court ruling, declaring the shareholders' agreement
null and void. Southern Electric Brasil Participacoes Ltda. appealed the
decision, which appeal was rejected by the Minas Gerais State Court of Appeals
on October 9, 2001. Southern Electric Brasil Participacoes Ltda. has appealed
the Court's latest decision.
17) ELECTRICITY SALES
The composition of electricity sales to final customers is as follows:
Consolidated
----------------------------------------------------------------- -----------------------------
(Not reviewed)
----------------------------------------------------------------- -----------------------------
No. of consumers MWh R$
---------------------------- ---------------------------- ------------------------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
------------------------------ ---------------------------- ----------------------------
2002 2001 2002 2001 2002 2001
----------------- ----------- ------------ ----------- ------------- ------------
Residential 4,517,756 4,284,283 1,500,186 1,921,725 381,126 449,121
Industrial 68,087 64,355 5,196,928 5,727,672 452,737 426,345
Commercial 506,064 479,483 808,195 972,484 175,706 178,907
Rural 326,009 305,416 298,132 370,788 44,851 45,663
Public authorities 42,055 41,376 96,120 129,497 20,131 22,681
Public lighting 2,713 2,998 173,569 242,736 23,540 28,095
Public services 6,591 6,190 221,824 237,040 26,328 24,450
Own consumption 1,377 1,439 11,302 14,426 - -
Unbilled, net - - - - 16,321 18,217
----------------- ----------- ------------ ----------- ------------- ------------
5,470,652 5,185,540 8,306,256 9,616,368 1,140,740 1,193,479
Billed supply 4 12 89,633 152,576 39,155 8,322
----------------- ----------- ------------ ----------- ------------- ------------
Total 5,470,656 5,185,552 8,395,889 9,768,944 1,179,895 1,201,801
================= =========== ============ =========== ============= ============
21
Item 1
Company
---------------------------------------------------------------- -------------------------------
(Not reviewed)
---------------------------------------------------------------- -------------------------------
No. of consumers MWh R$
------------------------------- ------------------------------ -----------------------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
------------------------------- ------------------------------ -----------------------------
2002 2001 2002 2002 2002 2001
---------------- ------------ -------------- ------------- ------------- -------------
Residential 4,517,756 4,284,283 1,500,186 1,921,725 381,126 449,121
Industrial 68,085 64,353 4,965,690 5,528,143 446,211 418,099
Commercial 506,064 479,483 808,195 972,484 175,706 178,907
Rural 326,009 305,416 298,132 370,788 44,851 45,663
Public authorities 42,055 41,376 96,120 129,497 20,131 22,681
Public lighting 2,713 2,998 173,569 242,736 23,540 28,095
Public services 6,591 6,190 221,824 237,040 26,328 24,450
Own consumption 1,377 1,439 11,302 14,426 - -
Unbilled, net - - - - 16,321 18,217
---------------- ------------ -------------- ------------- ------------- -------------
5,470,650 5,185,538 8,705,018 9,416,839 1,134,214 1,185,233
Billed supply 4 12 89,633 152,576 39,155 8,322
---------------- ------------ -------------- ------------- ------------- -------------
Total 5,470,654 5,185,550 8,164,651 9,569,415 1,173,369 1,193,555
================ ============ ============== ============= ============= =============
18) OTHER OPERATING REVENUES
Consolidated Company
------------------------------ ------------------------------
Three months ended Three months ended
March 31, March 31,
------------------------------ ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
Use of basic transmission network 38,070 36,371 38,070 36,371
Gas sales 24,059 24,870 - -
Fuel consumption quota 8,543 16,425 8,543 16,425
Regulated services 1,545 1,993 1,545 1,993
Services rendered 3,658 3,744 3,658 3,744
Rent and leasing 3,648 2,634 3,648 2,634
Other 1,445 226 829 93
-------------- -------------- -------------- --------------
80,968 86,263 56,293 61,260
============== ============== ============== ==============
19) DEDUCTIONS FROM OPERATING REVENUES
Consolidated Company
------------------------------ ------------------------------
Three months ended Three months ended
March 31, March 31,
------------------------------ ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
State VAT (ICMS) on sales to final consumers 241,891 255,410 240,592 254,224
Tax on billing - COFINS 45,256 37,913 44,279 36,898
Global reserve for reversion quota - RGR 35,768 26,403 35,667 26,261
Tax on billing - PASEP 9,805 8,215 9,594 7,995
Other 4,503 55 4,497 54
-------------- -------------- -------------- --------------
337,223 327,996 334,629 325,432
============== ============== ============== ==============
22
Item 1
20) ELECTRICITY PURCHASED FOR RESALE
Consolidated and Company
------------------------------------
Three months ended
March 31,
------------------ ----------------
2002 2001
------------------ ----------------
Itaipu Binacional (through FURNAS) 223,764 213,968
Energy traded on spot market - MAE 104,005 -
Initial contracts 30,086 17,701
Other 2,119 688
------------------ ----------------
359,974 232,357
================== ================
The electricity purchased from ITAIPU is denominated in US dollars and the
prices are defined by ANEEL.
The energy traded on the spot market in 2001 was accrued only in the fourth
quarter of 2001, since information from the MAE necessary to record the
estimates only became available at that time.
21) OTHER EXPENSES
Consolidated Company
------------------------------ ------------------------------
Three months ended Three months ended
March 31, March 31,
------------------------------ ------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Fuel consumption quota 8,543 16,537 8,543 16,537
Rentals and leasing 3,926 3,256 3,902 3,080
Labor indemnity 360 749 360 749
Grants and donations 2,960 3,061 2,960 3,061
Advertising 3,436 4,499 3,432 4,499
ANEEL inspection fee 2,880 3,277 2,855 3,277
Own consumption - Electric energy 2,307 2,201 2,212 2,201
Insurance 104 1,302 98 1,302
MAE Contribution 2,109 2,314 2,109 2,314
Technological and scientific national fund 2,616 - 2,574 -
Other taxes (real state, vehicle, etc.) 2,276 2,132 2,257 2,132
General expenses 4,673 469 3,826 222
-------------- -------------- -------------- --------------
36,190 39,797 35,128 39,374
============== ============== ============== ==============
The fuel costs incurred for the purpose of electricity generation are
reimbursed by Centrais Eletricas Brasileiras S.A. - ELETROBRAS and are
recorded as other operating revenues.
23
Item 1
22) FINANCIAL INCOME (EXPENSES)
Consolidated Company
---------------------------- -------------------------
Three months ended Three months ended
March 31, March 31,
---------------------------- -------------------------
2002 2001 2002 2001
-------------- ------------- ------------ -----------
Financial income:
Investment income earned 30,149 13,848 28,367 12,937
Late charges on past-due electricity bills 7,835 9,126 7,835 9,126
Interest on receivable from Minas Gerais State Government 35,078 25,317 35,078 25,317
Monetary restatement on receivable from Minas Gerais State Government 6,760 17,444 6,760 17,444
Renegotiation of industrial consumer debt - 11,924 - 11,924
Monetary restatement on recoverable taxes 1,129 4,427 1,129 4,427
Monetary restatement of special rate adjustment 62,340 - 62,340 -
Foreign exchange gains 5,857 7,485 5,856 7,485
Taxes on financial income (PASEP and COFINS) (5,687) (3,498) (5,687) (3,471)
Other 7,303 6,147 7,300 6,694
-------------- ------------- ------------ -----------
150,764 92,220 148,978 91,883
-------------- ------------- ------------ -----------
Financial expenses:
Interest on loans and financing (56,513) (44,872) (54,697) (44,872)
Monetary restatement - electricity suppliers (15,708) - (15,708) -
Foreign exchange losses (1,976) 131,106) (2,131) (130,387)
Monetary restatement on loans and financing (4,056) (2,920) (4,056) (2,920)
Financial transaction tax ("CPMF") (5,134) (5,088) (4,902) (4,891)
Interest and fines on taxes (5,298) (4,046) (5,298) (4,033)
Provision for valuation of marketable securities 5,400 5,063 5,400 5,063
Advance billings of electric power (318) (9,341) (318) (9,341)
Other (657) (528) (413) (955)
-------------- ------------- ------------ -----------
(84,260) (192,838) (82,123) (192,336)
-------------- ------------- ------------ -----------
66,504 (100,618) 66,855 (100,453)
============== ============= ============ ===========
24
Item 1
23) PRINCIPAL TRANSACTIONS WITH RELATED PARTIES
March 31, 2002 December 31, 2001
------------------------------ --------------------------------
Minas Gerais Minas Gerais
State State
Government FORLUZ Government FORLUZ
----------------- ---------- ------------------ -----------
ASSETS
Current assets
Accounts receivable 4,455 - 3,353 -
Recoverable taxes
State VAT - ICMS 22,483 - 16,306 -
Other
Advances on welfare benefits - 13,109 - 19,517
Noncurrent assets
Receivable from Minas Gerais State Government 1,533,943 - 1,492,105 -
Other
State VAT recoverable 18,843 - 18,843 -
State VAT recoverable - Complementary Law No.102 36,447 - 29,457 -
LIABILITIES
Current liabilities
Taxes payable-
State VAT - ICMS 101,679 - 29,314 -
Dividends and interest on capital 49,129 - 49,129 -
Employee post-retirement benefits - 152,530 - 151,870
Other
Transfer of contributions - 11,047 - 19,915
Long-term liabilities
Employee post-retirement benefits - 1,714,412 - 1,701,868
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------------------ --------------------------------
INCOME STATEMENT
Electricity sales to final customers 4,489 - 6,544 -
Deductions from operating revenues - State VAT (ICMS) (240,592) - (254,244) -
Employee post-retirement benefits - (54,250) - (50,264)
Personnel expenses - (7,160) - (7,068)
Financial income-
Monetary restatement and interest on receivable from Minas
Gerais State Government 41,838 - 42,761 -
The Company believes that its transactions with related parties are made on an
arm's length basis.
25
Item 1
24) FINANCIAL INSTRUMENTS
a) The financial instruments used by CEMIG and its subsidiaries, all
recorded on the financial statements, are managed through monitoring
policies and operational strategies focused on liquidity, profitability
and safety. The Company operates with banks, which meet financial
strength and trustworthiness guidelines. The Company's control policy
includes continually comparing rates contracted with market rates. The
Company's short term investments related to marketable securities issued
by third parties are as follows:
I. CEMIG and its subsidiaries have debentures issued by financial
institutions, in the amount of R$102,840. These securities have
immediate call clauses exercisable by the Company. These securities
have interest rates based on the interbank deposit - CDI rates.
II. The swap transactions, in the amount of R$14,068, are purchased from
financial institutions through the transfer of public or private
securities issued by third parties. These securities have repurchase
clauses. The interest rate is based on CDI. CEMIG has the right to
call for early redemption of these securities without penalty or loss.
b) As of March 31, 2002, the present value of the account receivable from
the Minas Gerais State Government recorded as a long-term asset,
calculated in accordance with CVM Instruction No. 235 of March 23, 1995
and based on the discounted cash flow method and a discount rate of 12%
per annum, is R$1,248,541.
c) The Company has Brazilian National Treasury Notes acquired from the State
Government of Minas Gerais, with final maturity on April 15, 2024,
subject to restatement based on the U.S. dollar exchange variation and
interest on the restated face value of 5.50% ( April 14, 1998), 5.75%
(from April 15, 1998 to April 14, 2000) and 6.00% per year (from April
15, 2000 to maturity),
March 31, 2002
----------------------
Face value 140,488
Restated cost 84,292
Allowance for decrease in market value (8,670)
----------------------
75,622
======================
These securities are recorded at market value, determined based on a quotation
from ANDIMA (National Association of Open Market Institutions). This asset is
recorded under Marketable securities in noncurrent assets.
25) SUBSEQUENT EVENTS
a) Rate readjustment:
ANEEL, through Resolution No. 176 of April 4, 2002, conceded an
average 10.51% rate increase on electric energy tariffs to be in
force commencing April 8, 2002.
ANEEL, through Resolution No. 130 of May 2, 2002, has decreased
from 7.90% to 2.90% the special rate adjustment related to the
Electricity Rationing Plan period losses (note 3) for supply for
lighting streets and high tension industrial customers whose costs
related to electric energy represent at least 18.00% of average
production cost and other specific items related to charge and
demand energy factors which were determined by the above-mentioned
Resolution.
26
Item 1
b) On the Shareholders` meeting held on April 30, 2002 the following issues
were approved:
I. Acquisition of the control of Empresa de Infovias S.A.
Acquisition by CEMIG of the 50.44% interest of AES Forca
Empreendimentos Ltda. in Empresa de Infovias S.A. - INFOVIAS for
US$32,000,000 (thirty two million dollars), converted into reais
based on the Central Bank of Brazil average selling rate as of the
contract execution date. After this acquisition, CEMIG's interest
on INFOVIAS will increase from 49.44% to 99.88%.
II. Capital Increase
Capital increase from R$1,589,995 to R$1,621,538 through the
issuance of new shares with capitalization of part of the capital
reserve from the CRC account. The shareholders will receive a 1.98%
bonus in new shares.
III. Change in minimum dividend criteria for the preferred shares
The Company's Bylaws, Article 5, were changed and the preferred
shares will be entitled to a minimum annual dividend equal to the
greater of: (i) 10% of the preferred capital according to the
Brazilian corporate law or (ii) 3% of the book value of the
preferred shares.
IV. Issuance of debentures in the amount of R$90,000
Issuance of CEMIG debentures (securities not convertible into
shares of CEMIG and without any preference or guarantee), with
final maturity in 25 years after issuance date and updated based on
the IGP-M, in the total amount of R$90,000, for annual issuance of
R$22,500 commencing in 2002. The funds to be obtained from this
issuance must be deposited directly by CEMIG in a specific escrow
account for Irape Power Plant construction on the specific dates
for the payment of dividends and/or capital interest to Minas
Gerais State Government.
27
Item 1
26) STATEMENT OF CASH FLOWS
The individual (Company) and consolidated statements of cash flow are
presented for additional analysis and are not required as part of the interim
financial statements. The statements of cash flow are as follows:
Consolidated Company
------------------------------------- --------------------------------
Three months period Three months period
Ended March 31, ended March 31,
------------------------------------- --------------------------------
2001 2001
2002 Reclassified 2002 Reclassified
--------------- ----------------- ------------ ---------------
CASH FLOWS FROM OPERATIONS:
Net income (loss) for the period 219,947 (12,510) 219,947 (12,510)
Items no affecting cash -
Depreciation and amortization 132,423 126,098 128,502 123,233
Special rate adjustment (315,164) - (315,164) -
Purchase energy from MAE - suppliers 42,986 - 42,986 -
Electricity supply - long-term (32,272) - (32,272) -
Disposals of property, plant and equipment, net 6,464 29,833 6,464 29,693
Equity in subsidiaries - - (1,450) (4,367)
Interest and monetary variations, net (78,657) 9,908 (78,794) 9,908
Deferred income and social contribution taxes 35,720 (13,348) 37,433 (13,296)
Operational provisions 12,662 (31,658) 12,662 (31,658)
Employee post-retirement benefits 54,250 50,264 54,250 50,264
--------------- ----------------- ------------ --------------
78,359 158,587 74,564 151,267
--------------- ----------------- ------------ --------------
(Increase) Decrease in assets -
Accounts receivable (69,043) 10,494 (73,889) 11,512
Consumers - Special rate adjustment 42,769 - 42.769 -
Recoverable taxes 57,273 (42,875) 57,095 (38,296)
Other current assets (6,017) (20,229) (4,327) (19,466)
Prepaid expenses - CVA (29,709) - (29,709) -
Other noncurrent assets (11,031) (5,748) (11,374) (4,246)
--------------- ----------------- ------------ --------------
(15,758) (58,358) (19,435) (50,496)
--------------- ----------------- ------------ --------------
Increase (Decrease) in liabilities -
Suppliers 53,405 (18,616) 58,279 (21,388)
Taxes payable 111,105 101,414 112,111 96,790
Payroll and related charges (13,572) 30,355 (13,579) 30,275
Regulatory charges (1,426) (10,064) (1,293) (10,214)
Loans and financing 27,353 78,027 30,066 78,027
Employee post-retirement benefits (41,046) (33,984) (41,046) (33,984)
Electricity Rationing Plan - Bonus paid to consumers
and certain adoption costs incurred in excess of
surcharge consumers (78,780) - (78,780) -
Other (5,740) 19,179 (5,212) 19,140
--------------- ----------------- ------------ --------------
51,299 166,311 60,546 158,646
--------------- ----------------- ------------ --------------
CASH PROVIDED BY OPERATING ACTIVITIES
113,900 266,540 115,675 259,417
--------------- ----------------- ------------ --------------
28
Item 1
Consolidated Company
------------------------------------- --------------------------------
Three months period Three months period
Ended March 31, ended March 31,
------------------------------------- --------------------------------
2001 2001
2002 Reclassified 2002 reclassified
--------------- ----------------- ------------ ---------------
CASH FLOW FROM FINANCING ACTIVITY
Proceeds from long-term financing 18,445 52,271 18,445 52,271
Payments on loans and financing (100,489) (43,174) (100,489) (43,174)
Special liabilities 28,213 67,598 28,213 67,598
Advanced billings of electric power (15,716) (14,178) (15,716) (14,178)
Dividends and interest on capital (421) (49) (421) (49)
--------------- ----------------- ------------ ---------------
(69,968) 62,468 (69,968) 62,468
--------------- ----------------- ------------ ---------------
TOTAL CASH PROVIDED 43,932 329,008 45,707 321,885
--------------- ----------------- ------------ ---------------
CASH USED IN INVESTING ACTIVITIES
Additions to investments (48,803) (5,129) (58,350) (10,955)
Increase in property, plant and equipment (83,440) (150,080) (81,085) (139,123)
Increase in deferred charges (1,977) (201) - -
--------------- ----------------- ------------ ---------------
(134,220) (155,410) (139,435) (150,078)
--------------- ----------------- ------------ ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(90,288) 173,598 (93,728) 171,807
================ ================= ============= ===============
CHANGES IN CASH AND CASH EQUIVALENTS
At beginning of the period 696,088 245,108 642,492 219,281
At end of the period 605,800 418,706 548,764 391,088
--------------- ----------------- ------------ ---------------
(90,288) 173,598 (93,728) 171,807
================ ================= ============= ===============
***********
29
Item 2
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS -- CEMIG
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF COMPANY OPERATIONS: FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THE THREE-MONTH PERIOD
ENDED MARCH 31, 2001
(Amounts expressed in thousands of Brazilian reais, unless otherwise indicated)
Net Income (Loss)
The Company had net income of R$219,947 in the three-month period ended March
31, 2002, equivalent to earnings of R$1.38 per thousand shares, compared to a
net loss of R$12,510 in the three-month period ended March 31, 2001,
equivalent to a loss of R$0.08 per thousand shares.
Change in accumulated results
(in thousands of Brazilian reais)
[OBJECT OMITTED]
[Comparison of the Company's change in accumulated results (in thousands of
Brazilian reais) for the three-month period ended March 31, 2002 compared to
the three-month period ended March 31, 2001.]
Electricity sales to final customers
Electricity sales to final customers decreased 1.69% in the three-month period
ended March 31, 2002 compared to the three-month period ended March 31, 2001.
This was the result of the 14.24% reduction in the volume of electricity sales
to final customers, due primarily to sales decreases of 10.17%; 21.94% and
16.89% in the industrial, residential and commercial markets, respectively,
reflecting the Electricity Rationing Plan in force in January and February of
2002. The decrease in the volume of sales was partially offset by a rate
increase of 16.50% starting on April 8, 2001.
Special rate adjustment
In accordance with the General Agreement of the Electricity Sector, the
Company recorded in the three-month period ended March 31, 2002, additional
revenue for the special rate adjustment for billing losses from January and
February, 2002 and the spot market (MAE) transactions in the amounts of
R$122,462 and R$46,224 respectively. Additionally, the Company recorded
additional income in the three-month period ended March 31, 2002, related to
the 2001 billing losses revision made by ANEEL, in the amount of R$146,478.
The total effect in the 2002 statement of income due to the recording of above
mentioned amounts was R$ 315,164.
Item 2
Operating costs and expenses
Since October 26, 2001, the differences between the sum of the uncontrollable
costs (Parcel "A") considered in the computation for regular rate adjustment
and the actual disbursements made by the Company will be compensated in
subsequent regular rate adjustments and are recorded in current and noncurrent
assets as prepaid expenses. Therefore, those expenses, in the amount of
R$39,943, were excluded from the 2002 statement of income. They will be
compensated in the April 2002 regular rate adjustment and in the subsequent
regular rate adjustments.
Operating expenses increased 12.87% compared to the same period of the prior
year, in the amount of R$106,408, principally as a result of increases in
electricity purchased for resale and partially offset by a decrease in
personnel expenses.
Personnel
Personnel expense decreased 20.66% in the three-month period ended March 31,
2002 compared with the three-month period ended March 31, 2001. This was the
result of the recording of the Company's Voluntary Termination Program cost
accrual, in the amount of R$30,015, in the income statement for the
three-month period ended March 31, 2001. This expense did not occur in 2002.
Three month period ended March 31,
------------------------------------------
2002 2001 %
---------------------- --------------- --------------
Salary and related charges 133,633 127,814 4.55
Post retirement benefits 7,160 7,068 1.30
Welfare benefits 13,777 19,084 (27.81)
------------------ ------------- --------------
154,570 153,966 0.39
Amounts transferred to construction costs (24,145) (17,392) 38.83
------------------ ------------- --------------
130,425 136,574 (4.50)
Voluntary Termination Program 1,753 30,015 (94.16)
------------------ ------------- --------------
132,178 166,589 (20.66)
================== ============= ==============
Electricity purchased for resale
Electricity purchased for resale increased 54.92% due basically to the
increase of expenses for energy purchased in the spot market (MAE), accrued
for the three-month period ended March 31, 2002, in the amount of R$104,005.
In the prior year period, since the information related to spot market (MAE)
transactions was not available, the expenses relating to energy traded on the
spot market were recorded only on December 31, 2001.
Outside services
These expenses increased 8.97% mainly due to the adjustment of the price index
of service contracts, related to meter reading, delivery of bills to consumers
and collection services.
Employee post-retirement benefits
Employee post-retirement benefit expenses refer basically to the accrual of
the net periodic cost, defined by an independent actuarial computation.
Financial income (expenses)
The main factors that impacted the financial items are as follows:
o Significant decrease in exchange variation expense due to a lower
devaluation of the Real against the U.S. dollar. In the three-month
period ended March 31, 2002, the Brazilian real devaluated 0.14%,
compared to 10.55% devaluation in the same period of 2001.
o An increase in the financial income as a result of the monetary updating
on the special rate adjustment, based on the SELIC (Central Bank
overnight rate), in the amount of R$62.340.
o An increase in income from temporary cash investments due to higher cash
volume in 2002.
Item 2
Other non-operating expenses, net
The non-operating expense decrease due to higher losses related to economic
feasibility studies and projects in the three-month period ended in March 31,
2001.
Three month period ended March 31,
---------------------------------------------
2002 2001 %
---------------------- -------------------- --------------
Net losses on deactivation and disposal of assets (3,373) (4,919) (31.43)
FORLUZ - Administrative costs (2,198) (2,224) (1.17)
Losses on projects, studies and other (1,406) (15,591) (90.98)
---------------------- -------------------- --------------
(6,977) (22,734) (69.31)
====================== ==================== ==============
Income and social contribution taxes
In the three-month period ended March 31, 2002, CEMIG recorded income taxes
expenses of R$114,463, representing 33.81% on pre-tax income compared to
credit of R$9,198 representing 57.42% of pre-tax loss in the three-month
period ended March 31, 2001.
Employee profit sharing
The employees' share in 2002 profits will be defined by a specific labor
agreement. The estimate reserve recorded in this period was based on the
minimal profit sharing recorded in prior years.
Item 2
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS of Results of consolidated Operations:
FOR THE three-Month Period Ended march 31, 2002 Compared to THE three-Month
Period Ended MARCH 31, 2001
Management's discussion and analysis of results of the Company operations also
substantially covers the results of consolidated operations for the periods
presented.
Item 2
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
FINANCIAL DRIVERS
(Unaudited Information)
SHARE VALUE
(Expressed in Brazilian reais per thousand shares)
----------------------- --------------- ------------------------------ ----------------------------- ----------------------------
Item Unit March 31, 2002 December 31, 2001 March 31, 2001
----------------------- --------------- ------------------------------ ----------------------------- ----------------------------
Book value 44.81 43.43 41.73
----------------------- --------------- ------------------------------ ----------------------------- ----------------------------
Market value Common 32.11 31.50 26.00
Preferred 34.60 33.00 27.40
----------------------- --------------- ------------------------------ ----------------------------- ----------------------------
LIQUIDITY (excluding special liabilities)
--------------------------- ----------- ------------------------------ ----------------------------- ----------------------------
Item Unit March 31, 2002 December 31, 2001 March 31, 2001
--------------------------- ----------- ------------------------------ ----------------------------- ----------------------------
Current ratio Ratio 0.80 0.94 0.78
--------------------------- ----------- ------------------------------ ----------------------------- ----------------------------
Overall liquidity Ratio 0.87 0.83 0.71
--------------------------- ----------- ------------------------------ ----------------------------- ----------------------------
DEBT LEVEL (excluding special liabilities)
--------------------------------- ---------- ------------------------- ----------------------------- ----------------------------
Item Unit March 31, 2002 December 31, 2001 March 31, 2001
--------------------------------- ---------- ------------------------- ----------------------------- ----------------------------
Total assets(1) % 42.73 42.75 37.87
--------------------------------- ---------- ------------------------- ----------------------------- ----------------------------
Shareholders' equity % 89.88 90.14 73.10
--------------------------------- ---------- ------------------------- ----------------------------- ----------------------------
Permanent assets % 67.92 66.06 51.77
--------------------------------- ---------- ------------------------- ----------------------------- ----------------------------
PROFITABILITY (excluding special liabilities)
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
Item Unit March 31, 2002 December 31, 2001 March 31, 2001
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
Shareholders' equity % 3.09 6.92 (0.19)
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
Operating margin % 22.91 19.29 15.43
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
Net margin % 18.17 10.14 (1.35)
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
Return on property, plant and
equipment % 2.53 5.47 (0.14)
------------------------------------- ---------- --------------------------- ----------------------------- ------------------------
OPERATIONAL INDICES
INSTALLED CAPACITY
------------------------------------------ ----------------------------------- --------------------------------------------------
March 31, 2002 March 31, 2001
------------------------------------------ ----------------------------------- --------------------------------------------------
Installed capacity (in MW) 5,675 5,632
------------------------------------------ ----------------------------------- --------------------------------------------------
EFFICIENCY
------------------------------------------ ------------- ------------------------------------------------------------------------
For the three-month period ended
------------------------------------------ ------------- ------------------------------------------------------------------------
Item Unit March 31, 2002 March 31, 2001
------------------------------------------ ------------- ----------------------------------- ------------------------------------
MWh per employee MWh 718 816
------------------------------------------ ------------- ----------------------------------- ------------------------------------
Consumers per employee No. 482 443
------------------------------------------ ------------- ----------------------------------- ------------------------------------
Item 2
SERVICE QUALITY
---------------------------------------------------------- ----------- ------------------------------------------------------------
For the three-month period ended
---------------------------------------------------------- ----------- ------------------------------------------------------------
Item Unit March 31, 2002 March 31, 2001
---------------------------------------------------------- ----------- ----------------------------- ------------------------------
Average time needed to restore electricity Hours 4.97 4.40
---------------------------------------------------------- ----------- ----------------------------- ------------------------------
Electricity outage time - average per consumer
Hours 4.09 3.60
---------------------------------------------------------- ----------- ----------------------------- ------------------------------
Outages experienced - average per consumer
No. 2.35 2.13
---------------------------------------------------------- ----------- ----------------------------- ------------------------------
AVERAGE RATE
(Expressed in Brazilian reais per MWh)
------------------------------------------ --------------------------------------------------------------------------------------
For the three-month period ended
------------------------------------------ ------------------------------------------- ------------------------------------------
Description March 31, 2002 March 31, 2001
------------------------------------------ ------------------------------------------- ------------------------------------------
Industrial 89.86 75.63
------------------------------------------ ------------------------------------------- ------------------------------------------
Residential 254.13 233.71
------------------------------------------ ------------------------------------------- ------------------------------------------
Commercial 217.41 183.97
------------------------------------------ ------------------------------------------- ------------------------------------------
Rural 150.44 123.15
------------------------------------------ ------------------------------------------- ------------------------------------------
Others 142.18 123.47
------------------------------------------ ------------------------------------------- ------------------------------------------
Final Consumers 138.63 124.12
------------------------------------------ ------------------------------------------- ------------------------------------------
SHAREHOLDERS WHICH OWN MORE THAN 5% OF VOTING CAPITAL AS OF MARCH 31, 2002
---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS
------------------------------------------------------------------------------------------------------
Minas Gerais
Number of shares State Government % Southern Electric Brasil Part. Ltda. %
---------------------------------------------------------------------------------------------------------------------------------
Common 35,413,734,262 50.96 22,908,484,893 32.96
---------------------------------------------------------------------------------------------------------------------------------
Preferred 1,850,550,863 2.07 - -
---------------------------------------------------------------------------------------------------------------------------------
TOTAL 37,264,285,125 23.44 22,908,484,893 14.41
---------------------------------------------------------------------------------------------------------------------------------
SOUTHERN ELECTRIC BRASIL PARTICIPACOES LTDA. OWNERS AS OF MARCH 31, 2002
-------------------------------------------------------------------------------------------------------
Item Name Number of Quotas %
-------------------------------------------------------------------------------------------------------
1 Cayman Energy Traders 321,480,876 91.75
-------------------------------------------------------------------------------------------------------
2 524 Participacoes S/A 28,913,419 8.25
-------------------------------------------------------------------------------------------------------
1 - Foreign Company
2 - Registered Company. Fundo Opportunity Alfa FIA has 99.99% of the 8.25%.
Item 2
CONTROLLING SHAREHOLDER, BOARD OF DIRECTORS, EXECUTIVE OFFICERS
AND FISCAL COUNCIL MEMBERS INTEREST AS OF MARCH 31, 2002
--------------------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF SHARES
--------------------------------------------------------------------------------------------------------------------------------
Common Preferred
--------------------------------------------------------------------------------------------------------------------------------
CONTROLLING SHAREHOLDER
--------------------------------------------------------------------------------------------------------------------------------
Minas Gerais State Government 35,416,837,353 2,971,417,216
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS
--------------------------------------------------------------------------------------------------------------------------------
Djalma Bastos de Morais - 13,140
--------------------------------------------------------------------------------------------------------------------------------
Geraldo de Oliveira Faria - 5,752
--------------------------------------------------------------------------------------------------------------------------------
Alexandre de Paula Dupeyrat Martins 10,000 1
--------------------------------------------------------------------------------------------------------------------------------
Antonio Adriano Silva - 1
--------------------------------------------------------------------------------------------------------------------------------
Ayres Augusto Alvares da Silva Mascarenhas 10,000 1,400,000
--------------------------------------------------------------------------------------------------------------------------------
Claudio Jose Dias Sales 1 -
--------------------------------------------------------------------------------------------------------------------------------
Oderval Esteves Duarte Filho 5,000 -
--------------------------------------------------------------------------------------------------------------------------------
Nelcy Pereira Pena - -
--------------------------------------------------------------------------------------------------------------------------------
Sergio Lustosa Botelho Martins 5,000 -
--------------------------------------------------------------------------------------------------------------------------------
David Travesso Neto 1 -
--------------------------------------------------------------------------------------------------------------------------------
Ataide Vilela - 1
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS
--------------------------------------------------------------------------------------------------------------------------------
Djalma Bastos de Morais - 13,140
--------------------------------------------------------------------------------------------------------------------------------
Guy Maria Villela Paschoal 2,799 -
--------------------------------------------------------------------------------------------------------------------------------
Aloisio Marcos Vasconcelos Novais - -
--------------------------------------------------------------------------------------------------------------------------------
Stalin Amorim Duarte - 104,472
--------------------------------------------------------------------------------------------------------------------------------
Cristiano Correa de Barros 1 1,300,000
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
FISCAL COUNCIL
--------------------------------------------------------------------------------------------------------------------------------
Joao Pedrosa Castello - 12,399
--------------------------------------------------------------------------------------------------------------------------------
Aristoteles Luiz Menezes Vasconcellos Drummond - -
--------------------------------------------------------------------------------------------------------------------------------
Luiz Otavio Nunes West - -
--------------------------------------------------------------------------------------------------------------------------------
Jorge Michel Lepeltier - -
--------------------------------------------------------------------------------------------------------------------------------
Ronald Gastao Andrade Reis - -
--------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES AVAILABLE ON MARKET AS OF MARCH 31,2002
-------------------------------------------------------------------------------------------------------------------
Common % Preferred % Total %
-------------------------------------------------------------------------------------------------------------------
34,078,640,578 49 86,464,819,612 97 120,543,460,190 76
-------------------------------------------------------------------------------------------------------------------
Item 3
Companhia Energetica de Minas Gerais - CEMIG
Consolidated Financial Statements
March 31, 2002
Item 3
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais)
A S S E T S
December 31,
March 31, 2001
2002 (Audited)
-------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents (note 6) 161 218
Restricted investments (note 7) 628 602
Accounts receivable, net (note 8) 546 485
Accounts receivable - Use of basic transmission network 17 18
Deferred regulatory assets (note 3) 297 259
Recoverable taxes 29 86
Other 65 84
------ ------
1,743 1,752
------ ------
INVESTMENTS (note 10) 492 437
------ ------
PROPERTY, PLANT AND EQUIPMENT, NET (note 11) 9,727 9,841
------ ------
OTHER ASSETS:
Marketable securities - Available for sale 75 70
Restricted investments (note 7) 18 18
Deferred regulatory assets (note 3) 1,434 1,245
Receivable from Federal Government in respect of bonus paid and
rationing adoption costs incurred (note 4) 202 123
Deferred income taxes, net (note 5) 15 -
Account receivable from State Government (note 9) 489 451
Other 144 125
------ ------
2,377 2,032
------ ------
Total assets 14,339 14,062
-===== -=====
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 2
Item 3
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais, unless otherwise indicated)
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
December 31,
March 31, 2001
2002 (Audited)
---------- -------------
CURRENT LIABILITIES:
Accounts payable to suppliers (note 12) 1,080 945
Payroll and related charges 83 97
Taxes payable (note 13) 203 219
Dividends and interest on capital 95 105
Current portion of long-term financing (note 14) 524 451
Regulatory charges payable 50 52
Advanced billings of electric power 27 42
Employee profit sharing 42 35
Other 56 65
--------- ---------
2,160 2,012
--------- ---------
LONG-TERM LIABILITIES:
Long-term financing (note 14) 1,940 2,029
Taxes payable (note 13) 129 -
Employee post-retirement benefits (note 15) 1,644 1,627
Deferred income taxes, net (note 5) - 46
Accrued liability for contingencies (note 16) 329 319
Accounts payable to suppliers (note 12) 418 364
Surcharge applied to consumers (note 4) 26 26
Other 103 93
--------- -------
4,589 4,504
--------- -------
MINORITY INTEREST 3 3
--------- -------
SHAREHOLDERS' EQUITY:
Capital stock
Preferred - 89,436,237 thousand shares authorized, issued and
outstanding as of March 31, 2002 and December 31, 2001 786 786
Common - 69,495,478 thousand shares authorized, issued and
outstanding as of March 31, 2002 and December 31, 2001 610 610
--------- -------
1,396 1,396
Additional paid-in capital 3,170 3,170
Appropriated retained earnings 3,133 3,133
Unappropriated retained earnings 120 79
Accumulated other comprehensive loss (232) (235)
-------- ------
7,587 7,543
-------- ------
Total liabilities and shareholders' equity 14,339 14,062
======== ======
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 3
Item 3
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Expressed in millions of reais, except share and per share amounts)
Three months ended
March 31,
-----------------------------------------
2002 2001
----------------- ------------------
NET OPERATING REVENUES:
Electricity sales to final customers (note 18) 1,141 1,194
Regulatory extraordinary rate adjustment (note 3) 115 -
Electricity sales to the interconnected power system (note 18) 100 8
Use of basic transmission network 38 37
Other operating revenues 34 33
Taxes on revenues (note 18) (295) (302)
----------------- ------------------
Total net operating revenues 1,133 970
----------------- ------------------
OPERATING COSTS AND EXPENSES:
Electricity purchased for resale (note 19) (433) (232)
Natural gas purchased for resale (18) (18)
Use of basic transmission network (65) (66)
Depreciation and amortization (165) (158)
Personnel (126) (160)
Regulatory charges (note 19) (117) (112)
Third-party services (50) (47)
Employee post-retirement benefits (note 15) (66) (75)
Materials and supplies (16) (17)
Other (note 19) (55) (52)
----------------- ------------------
Total operating costs and expenses (1,111) (937)
----------------- ------------------
Operating income 22 33
----------------- ------------------
FINANCIAL INCOME (EXPENSES), NET (note 20): 35 (92)
----------------- ------------------
Income (loss) before income taxes 57 (59)
INCOME TAXES - benefit (expense) (note 5)
Current (77) 34
Deferred 61 13
----------------- ------------------
(16) 47
----------------- ------------------
NET INCOME (LOSS) 41 (12)
OTHER COMPREHENSIVE INCOME
Unrealized gains on available-for-sale security 5 13
Income taxes (2) (4)
----------------- ------------------
3 9
----------------- ------------------
COMPREHENSIVE INCOME (LOSS) 44 (3)
=========== ============
Weighted average number of common and preferred shares outstanding during the
period (thousands) for basic earnings (loss) per thousand shares 158,931,715 158,931,715
=========== ===========
Basic earnings (loss) per thousand common and preferred shares - In reais 0.26 (0.08)
=========== ===========
Weighted average number of common and preferred shares outstanding during the
period (thousand) for diluted earnings (loss) per thousand shares 159,090,872 158,931,715
=========== ============
Diluted earnings (loss) per thousand common and preferred shares - In reais 0.26 (0.08)
=========== ===========
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 4
Item 3
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Expressed in millions of reais)
Three months ended
March 31,
--------------------------
2002 2001
---------- ----------
CAPITAL STOCK:
Preferred shares 786 786
Common shares 610 610
---------- ----------
1,396 1,396
---------- ----------
ADDITIONAL PAID-IN CAPITAL 3,170 3,170
---------- ----------
APPROPRIATED RETAINED EARNINGS:
Fiscal incentive investment reserve-
Balance 45 41
---------- ----------
Rate shortfall reserve-
Balance 2,680 2,680
---------- ----------
Unrealized income reserve-
Balance 314 484
---------- ----------
Legal reserve-
Balance 94 94
---------- ----------
3,133 3,299
---------- ----------
UNAPPROPRIATED RETAINED EARNINGS:
Balance, beginning of the period 79 735
Net income (loss) 41 (12)
---------- ----------
Balance, end of the period 120 723
---------- ----------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance, beginning of the period (235) (438)
Other comprehensive income 3 9
---------- ----------
Balance, end of the period (232) (429)
---------- ----------
Shareholders' equity at end of the period 7,587 8,159
========== ===========
The accompanying condensed notes are an integral part of these consolidated
financial statements.
F - 5
Item 3
Page 1 of 2
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Expressed in millions of reais)
Three months ended
March 31,
-----------------------------------
2002 2001
-------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 41 (12)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 165 158
Deferred regulatory assets (170) -
Monetary variation and exchange rate variation loss
(gain) (51) 16
Loss on disposal of property, plant and equipment 6 29
Employee post-retirement benefits 17 34
Provision for contingencies and doubtful accounts
receivable 24 (19)
Deferred income taxes (61) (13)
Other 6 3
Decrease (increase) in operating assets-
Accounts receivable (69) 9
Recoverable taxes 57 (43)
Receivable from Federal Government in respect of bonus
paid and rationing adoption costs incurred, net of
surchage applied to consumers 79 -
Deferred regulatory assets 29 -
Other (3) 12
Increase (decrease) in operating liabilities-
Accounts payable to suppliers 117 (22)
Payroll and related charges (14) 31
Taxes payable 103 57
Regulatory charges payable (2) (11)
Advanced billings of electric power (15) (15)
Accrued interest on long-term financing 30 76
Receivable from Federal Government in respect of bonus
paid and rationing adoption costs incurred, net of
surcharge applied to consumers (79) -
Other - 9
--------- ---------
Net cash provided by operating activities 131 299
========= =========
F - 6
Item 3
Page 2 of 2
Three months ended
March 31,
----------------------------------
2002 2001
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted short-term investments (26) (36)
Acquisition of new investments (55) (10)
Acquisition of property, plant and equipment (57) (85)
-------------- -------------
Net cash used in investing activities (138) (131)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term financing 18 89
Repayment of long-term financing (68) (43)
Dividends and interest paid on capital - (1)
-------------- -------------
Net cash provided by (used in) financing activities (50) 45
-------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (57) 213
============== =============
CASH AND CASH EQUIVALENTS:
Beginning of the period 218 236
End of the period 161 449
------------- -------------
(57) 213
============= =============
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Taxes paid - income and social contribution taxes 31 15
Interest paid, net of interest capitalized 26 12
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 7
Item 3
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Amounts expressed in millions of reais, unless otherwise indicated)
1. THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG ("CEMIG" or the "Company") is a
partly state-owned company (sociedade de economia mista), organized under the
laws of the Federative Republic of Brazil ("Brazil") and controlled by the
government of the State of Minas Gerais (the "State Government"). The
Company's principal business activities are the construction and operation of
systems used in the generation, transmission, distribution and sale of
electric energy. The Company also conducts business in certain related
activities.
As a concessionaire of electric utility services, the Company is subject to
regulations set by the Agencia Nacional de Energia Eletrica (the Brazilian
National Electric Energy Agency or "ANEEL"), an agency of the Brazilian
Federal Government (the "Federal Government").
The following are the Company's operational subsidiaries as of March 31, 2002:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest) - Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest) - Its principal
activities are the production and sale of electric energy, as an
independent power producer, at the Ipatinga thermoelectric power plant
located on the premises of Usinas Siderurgicas de Minas Gerais - USIMINAS,
a large steel manufacturer;
o Companhia de Gas de Minas Gerais - GASMIG ("GASMIG") (95.17% interest) -
Its principal activities are the operation, production, acquisition,
storage, transportation and distribution of natural gas and related
products. In 1993, GASMIG was granted a 30-year concession by the State
Government to perform these activities; and
o Empresa de Infovias S.A. ("Infovias") (49.44% interest) - Its principal
activities are rendering telecommunications services and developing related
activities through integrated systems using optical fiber cable, coaxial
cable, electronic equipment and other items. The Company acquired Infovias'
control in June, 2002, through the acquisition of shares from AES Forca e
Empreendimentos Ltda.
Additionally, the Company has a 100% interest in each of the following
pre-operational subsidiaries:
o Horizontes Energia S.A. - Its principal activities will be the production
and sale of electric energy, as an independent power producer, at the
Machado Mineiro and Salto do Paraopeba hydroelectric power plants, both
located in the State of Minas Gerais, and Salto Voltao and Salto do Passo
Velho hydroelectric power plants, both located in the State of Santa
Catarina. These plants were transferred to, and recorded as paid in capital
of, Horizontes Energia S.A. during the third quarter of 2002.
F - 8
Item 3
o Cemig PCH S.A., Cemig Capim Branco Energia S.A. and UTE Barreiro S.A. -
Their principal activities will be the production and sale of electric
energy, as independent power producers.
o Efficientia S.A. - Its principal activities will be rendering efficiency,
optimization and energy solutions services, and rendering operation and
management services in energy supply facilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"), management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from these estimates. The Company's financial statements therefore include
various estimates concerning (i) the recoverability of deferred regulatory
assets, (ii) valuation allowances for accounts receivable, deferred tax assets
and account receivable from State Government, (iii) the useful lives of
property, plant and equipment, (iv) provisions necessary for contingent
losses, (v) estimates of employee post-retirement benefit obligations and
other similar evaluations.
The interim financial statements as of and for the three months ended March
31, 2002 and 2001 have been prepared in accordance with U.S. GAAP, which
differ in certain respects from the Brazilian accounting practices applied by
CEMIG in its statutory financial statements that are prepared and filed in
accordance with the rules of the Brazilian Securities Commission (the "CVM").
The interim financial statements were prepared on a basis consistent with the
financial statements as of and for the year ended December 31, 2001.
The interim financial statements included in this report have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary for a fair presentation are reflected in these interim financial
statements. Such adjustments are of a normal and recurring nature. The results
of operations for the three months ended March 31, 2002 are not necessarily
indicative of the operating results for the full year. The interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto as of and for each
of the years in the three-year period ended December 31, 2001 contained in
CEMIG's Annual Report on Form 20-F, as filed with the United States Securities
and Exchange Commission on March 26, 2003 (Registration No. 1-15224).
The consolidated financial statements for the year ended December 31, 2001 and
for the three-month period ended March 31, 2002 includes the accounts of CEMIG
and its subsidiaries Sa Carvalho S.A., Usina Termica Ipatinga S.A. and
Companhia de Gas de Minas Gerais - GASMIG.
3. DEFERRED REGULATORY ASSETS
An emergency energy-rationing program (the "Energy Rationing Plan") was
created by the Federal Government's Executive Order No. 2148, of May 22, 2001,
to reduce energy consumption and avoid unplanned interruption in power supply.
Average reduction in monthly consumption of electricity during the rationing
period was estimated at 20% of the actual consumption for the months of May,
June and July 2000. The energy rationing became effective on June 1, 2001 and
ended February 28, 2002, when the Federal Government determined that the water
levels in the reservoirs serving Brazil's hydroelectric facilities had
returned to normal.
As a result of the Energy Rationing Plan, many electric generation and
distribution companies in Brazil, including CEMIG, experienced a reduction in
their profit margins, as their physical and personnel structures could not be
reduced in line with the consumption reduction quotas imposed. Thus, they
continued incurring fixed costs without earning corresponding revenue.
F - 9
Item 3
In December 2001, the Federal Government and the electric utilities in Brazil
affected by the Energy Rationing Plan signed an industry-wide agreement (the
General Agreement of the Electricity Sector or the "General Agreement" or the
"Agreement") to regain the financial-economic equilibrium of the existing
concession contracts and recover revenues relating to the period during which
the Energy Rationing Plan was in effect.
The Agreement addressed margin losses incurred by the electric distribution
and generation companies during the period that the Energy Rationing Plan was
effective, additional Parcel "A" costs for the period from January 1, 2001 to
October 25, 2001 and costs of energy purchased in the spot market through the
Mercado Atacadista de Energia (the Wholesale Energy Market or "MAE") up to
December 2002. These items will be recovered by an extraordinary rate
adjustment as follows:
I. an increase of 2.90% for rural and residential consumers (excluding
low-income consumers), lighting streets and high-tension industrial
consumers whose costs related to electric energy represent at least
18.00% of average production cost and fulfill certain criteria,
related to charge and demand energy factors which were determined by
ANEEL's Resolution No. 130, dated April 30, 2002.
II. an increase of 7.90% for all other consumers.
According to ANEEL's Resolution No. 484, of August 29, 2002, the extraordinary
rate adjustment for CEMIG is to be in force for a maximum period of 82 months,
as from January 2002 and bearing interest equivalent to the SELIC interest
rate (Brazilian benchmark interest rate). The Company recorded a provision for
loss on deferred regulatory assets, in the amount of R$156 as of March 31,
2002, considering its recoverability projections for the 82-month recovery
period allowed to the Company by ANEEL. The deferred regulatory assets are
periodically compared with the Company's recoverability projections, which are
constantly reviewed by Management, according to market conditions, changes in
regulation and other similar events. The balance of the provision is adjusted
accordingly.
The special rate adjustment mentioned will be used in the compensation of the
following items:
December 31,
March 31. 2001
2002 (Audited)
----------- -------------
Revenue losses (expected to be recovered within 24 months)
incurred during the rationing period 418 398
Additional Parcel "A" costs:
- Period from January 1, 2001 to October 25, 2001 285 273
- Period from October 26, 2001 and thereafter 189 139
Recording of energy transactions on the MAE 995 844
------ -------
1,887 1,654
( - ) Provision for loss on deferred regulatory assets
(computed based on an 82-month period) (156) (150)
====== =======
1,731 1,504
Current assets 297 259
Other assets 1,434 1,245
During the three-month period ended March 31, 2002, the Company collected R$53
as a result of application of the extraordinary rate adjustment.
The VAT related to the rationing program revenue, amounting to R$297 as of
March 31, 2002 (R$301 as of December 31, 2001), only becomes an obligation to
be recorded in the financial statements once the customers are billed;
therefore, no provision related to this tax was recorded. The Company passes
all VAT amounts received from customers on to the State Government.
F - 10
Item 3
a) Recovery of revenue losses incurred during the Energy Rationing Plan
Although CEMIG's total revenue losses were R$877 as of March 31, 2002 (R$724
as of December 31, 2001), CEMIG recorded a regulatory asset on a U.S. GAAP
basis in the amount of R$418 as of March 31, 2002 (R$398 as of December 31,
2001), in accordance with consensus described on Emerging Issues Task Force -
EITF 92-07, "Accounting by Rate-Regulated Utilities for the Effects of Certain
Alternative Revenue Programs", which establishes a 24 month period limit for
collection of the asset.
The accrued amount related to this asset, which will be reimbursed through the
special rate adjustment is monetarily restated based on SELIC from January 1,
2002 until collection.
b) Recovery of additional Parcel "A" costs
ANEEL Resolution No. 90, dated February 18, 2002, established procedures for
the compensation of some Parcel "A" costs for the period from January 1, 2001
to October 25, 2001. The base amount to be reimbursed is equal to the
difference between the Parcel "A" costs actually incurred and the estimated
Parcel "A" costs used for purposes of computing the most recent annual rate
adjustment prior to the Energy Rationing Plan. This amount will bear interest
at the SELIC rate from the day that the actual cost was paid until the date of
compensation.
On October 25, 2001, the Federal Government, through Executive Act No. 296,
created a tracking account mechanism to control the variation of Parcel "A"
costs for rate adjustment calculation purposes. This account is comprised of
the amounts resulting from the difference between the Parcel "A" costs
actually incurred, from October 26, 2001 and thereafter, and the estimated
Parcel "A" costs used for purposes of computing the annual rate adjustment as
from April 8, 2001.
The amounts determined for the period from October 26, 2001 and thereafter are
recorded as a deferred regulatory asset, as follows:
Values to be Values to be Total
compensated compensated Total December 31,
Parcel "A" Items until April, after April, March 31, 2001
2003 2004 2002 (Audited)
------------ ------------ --------- -------------
System service charges - 102 102 84
Itaipu Binacional electricity purchase rate 61 - 61 35
Itaipu Binacional electricity transport rate 2 - 2 1
Fuel usage quota - CCC 7 - 7 11
Rate for use of basic transmission
netowrk 15 - 15 8
Charges for use of water resources 2 - 2 -
----- ----- ----- -----
87 102 189 139
==== ===== ===== =====
The Company recorded System service charges related to the period from
September 2000 to March 2002, which are expected to be paid in 2003, in
accordance with information provided by the MAE.
c) Energy transactions on the MAE and other
(c.1) Recording of energy transactions on the MAE and other
During the period of the Energy Rationing Plan in Brazil, electricity
utilities, including CEMIG, made a substantial number of energy purchases on
the spot market through the MAE in order to supply their customers. During
this period, the prices for spot market energy were often significantly higher
than the prices set forth in initial energy purchase contracts.
F - 11
Item 3
Costs related to energy sold on the MAE are being prorated among consumers
supplied by the Brazilian interconnected power system through an extraordinary
rate adjustment, as from January 2002. The amount to be passed along to
consumers through the rate adjustment is calculated based on the amount of
energy purchased on the MAE during the period from May 1, 2001 until the end
of the rationing period, and equals the difference between the energy purchase
price on the MAE and R$49.26/MWh (which is the initial contract average cost
for the period). Generators will not be reimbursed with respect to MAE energy
purchases at a price less than or equal to R$49.26/MWh.
(c.2) Financial settlement of the MAE transactions
On February 18, 2003, CEMIG settled 50% of its outstanding obligations
relating to MAE transactions. In connection with this settlement, CEMIG
disbursed R$335 to the MAE agents.
The funds required for this settlement were obtained through a loan agreement
dated February 7, 2003 between the Company and BNDES.
CEMIG is required to settle the additional outstanding MAE amounts after the
completion of a review that will be performed by independent auditors on data
provided by MAE to the concessionaires. Under the General Agreement, BNDES
must provide additional financing in connection with such additional
settlement.
This independent review, as well as the outcome of certain judicial claims
brought by market participants (including CEMIG) concerning the interpretation
of the market rules in force, may result in the recalculation of the
transaction data figures previously provided by MAE. Such a recalculation may
impact the Company's future results of operations and cash flows.
4. BONUS PAID, SURCHARGES AND RATIONING ADOPTION COSTS INCURRED
Through Federal Government Executive Act No. 2,152-2, dated June 1, 2001, the
Federal Government determined that residential consumers whose electric energy
consumption was lower than the target consumption levels during the period of
the Energy Rationing Plan would be entitled to receive a bonus, limited to
their electric energy invoice amount, and that all consumers whose consumption
exceeded the target would be subject to surcharges, calculated based on the
effective consumption in excess of such target, as established by the Energy
Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Rationing Program involving the bonus, surcharge and related costs. The
related balances as of March 31, 2002 are as follows:
Other Assets
Receivable from Federal Government in respect of bonus paid to consumers
that consumed less than the target consumption 182
Receivable from Federal Government in respect of costs related to the
adoption of the Energy Rationing Plan in excess of the 2.00% surcharge on
consumer rates 20
-----
202
Long-term Liabilities
Surcharge applied to consumers that consumed more than the target
consumption (26)
-----
Net receivable from Federal Government in respect of bonus paid to
consumers and related costs in excess of the surcharge applied to
consumers 176
=====
In 2002, the Company recorded additional reimbursable bonuses and costs
related to the Energy Rationing Plan of R$74 and R$13, respectively.
F - 12
Item 3
In the second half of 2002, upon ANEEL approval, CEMIG received approximately
R$132 in reimbursement for consumer bonuses paid.
The remaining net amount to be received by CEMIG, of approximately R$24, is
under negotiation with ANEEL. The surcharges represented by this amount were
not billed or collected from the consumers as they are currently the subject
of a judicial dispute. Management does not expect losses relating to the
realization of this outstanding amount.
According to ANEEL Resolution No. 600, dated October 31, 2002, operational
costs of approximately R$32 related to the adoption of the Energy Rationing
Plan in excess of the 2.00% surcharge on consumer tariffs will be reimbursed
upon approval by ANEEL.
5. DEFERRED INCOME TAXES
Income taxes in Brazil include federal income tax and social contribution on
income (which is an additional federal income tax). For U.S. GAAP purposes,
the statutory annual rates applicable are 25% for federal income tax and 8%
for social contribution tax at March 31, 2002 and 2001. On December 30, 2002,
the Federal Government issued Law No. 10,637 that determines the increase on
the social contribution tax rate from 8% to 9%, beginning on January 1, 2003.
(a) Income tax reconciliation
The amounts reported as income tax (expense) benefit in the financial
statements are reconciled to the statutory rates as follows:
Three months ended
March 31,
----------------------------------------------
2002 2001
------------------- ----------------------
Income (loss) before income taxes 57 (59)
==== ====
Income taxes - 33% rate (19) 19
Effects of:
Special liabilities amortization 8 7
Social contribution on depreciation (2) 20
Rate difference (1) 1
Others (2) -
---- ----
Tax (expense) benefit in the statement of operations (16) 47
==== ====
F - 13
Item 3
(b) Analysis of deferred tax balances
Tax rate changes are enacted in the year prior to the year in which they
become effective. As of March 31, 2002 and December 31, 2001, the deferred tax
balances have been computed using a 34% rate, which is the rate expected to be
in force upon realization. The major components of the deferred income taxes
account in the balance sheet are as follows:
December 31,
March 31, 2001
2002 (Audited)
---------------- --------------------
Other assets-
Employee post-retirement benefits 74 74
Tax loss carryforwards 157 192
Temporary difference on regulatory assets 232 151
Other temporary differences 102 105
------- -------
565 522
------- -------
Long-term liabilities-
Effects of differences between tax basis of non-monetary
assets relating to property, plant and equipment and amounts
reported for U.S. GAAP (550) (568)
------- -------
(550) (568)
======= =======
Net 15 (46)
======= =======
In the three-month period ended March 31, 2002 and 2001, deferred tax expense
of R$2 and R$4, respectively, related to unrealized gains on
available-for-sale securities were recorded directly to shareholders' equity
as other comprehensive loss.
During 2001, the Company amended its income tax return for the year ended
December 31, 1997 to claim deductibility of pension costs accrued in its
Brazilian Corporate Law financial statements. This amendment resulted in (i)
the recognition of prepaid income and social contribution taxes in the amount
of R$161, which was reclassified from Deferred income taxes to Recoverable
taxes, classified as current assets, (ii) a reduction of Taxes payable in the
amount of R$49, and (iii) the recognition of tax loss carryforwards, recorded
considering the probable expected future profitability of CEMIG in subsequent
fiscal years. The Company has been offsetting this prepaid income tax with
federal tax liabilities.
6. CASH AND CASH EQUIVALENTS
The following table sets forth amounts of cash and cash equivalents for the
dates indicated:
December 31,
March 31, 2001
2002 (Audited)
------------- ---------------
Cash on hand and in banks 79 66
Short-term investments, with original maturity of three
months or less, mainly bank certificates of deposit
and investment funds at fair value 82 152
----- -----
161 218
===== =====
F - 14
Item 3
CEMIG has short-term investments with interest income calculated based on the
Brazilian Interbank Certificates of Deposit - CDI rate.
7. RESTRICTED INVESTMENTS
The following table sets forth amounts of restricted investments for the dates
indicated:
December 31,
March 31, 2001
2002 (Audited)
------------- ---------------
Investments to be used in investment plan 462 468
Investments to be used in settlement of financing 184 152
----- -----
646 620
===== ===
Short-term 628 602
Long-term 18 18
On March 31, 2002 and December 31, 2001, the balances of R$462 and R$468,
respectively, refer to short-term investments, acquired with resources
obtained from the issuance of debentures (note 17), with interest income
calculated based on the variation of Brazilian Interbank Certificates of
Deposit - CDI and maturity dates that do not exceed 30 days.
These resources were used for the portion of the investment plan related to
the expansion of the Company's energy generation, transmission and
distribution operations, executed in 2002.
In compliance with Resolution No. 2,515 dated June 29, 1998 issued by the
Brazilian Central Bank, when CEMIG extends the maturity of any foreign
currency-denominated financing, it must make deposits in respect of the
principal amount of such extended financing into a short-term investment
escrow account so that at the final maturity date of the financing, such
escrow account contains an amount equal to the entire principal amount due
under the financing. The interest income is calculated based on the variation
of Brazilian Interbank Certificates of Deposit - CDI and U.S. dollar and
maturity dates that do not exceed 30 days. The restricted investments to be
used in the investment plan are classified as current and other according to
the maturity date of the respective financing.
F - 15
Item 3
8. ACCOUNTS RECEIVABLE
The following table sets forth information concerning accounts receivable by
type of consumers for the dates indicated.
Past due
-------------------------
Total
Total December 31,
Up to 90 Over 90 March 31, 2001
Current days days 2002 (Audited)
----------- ----------- ----------- ------------ ---------------
Residential 141 72 8 221 176
Industrial 113 40 33 186 181
Commercial 47 33 7 87 77
Rural 15 8 2 25 24
Governmental entities 24 13 9 46 37
Public services 37 2 1 40 38
----- ----- ----- ----- -----
Subtotal 377 168 60 605 533
Distributors 1 - 2 3 6
----- ----- ----- ----- -----
378 168 62 608 539
===== ===== ===== ===== =====
Allowance for doubtful accounts - - (62) (62) (54)
----- ----- ----- ----- -----
378 168 - 546 485
===== ===== ===== ===== =====
No single customer represented more than 10% of total receivables as of March
31, 2002 and December 31, 2001 and electricity sales to final customers for
the three months ended in March 31, 2002 and 2001.
In April 2002, our largest industrial client became a self power producer and
as such ceased to purchase energy from the Company.
9. ACCOUNT RECEIVABLE FROM STATE GOVERNMENT
On May 2, 1995, the obligation to pay the remaining balance of the CRC account
receivable, then R$867, was transferred from the Federal Government to the
State Government through a credit assignment contract. In connection with this
assignment, the State Government agreed to pay the amount due to the Company
over 20 years, with an initial three-year grace period, as restated based on
the UFIR (Tax Reference Unit Index) and accruing interest at 6% per year.
In the event that the Company receives any payments or retains declared
dividends to offset amounts not paid by the State Government, the Company is
obligated to issue shares to all shareholders in proportion to their
shareholding, transferring the principal amount of installments, from the
Appropriated retained earnings - Rate shortfall reserve to Capital Stock.
Since May 1995, the credit assignment contract has been amended as follows:
a) First Amendment, signed on January 24, 2001:
In October 2000, the UFIR index was eliminated by the Federal Government. As a
result, CEMIG negotiated and signed an amendment to the contract with the
State Government to change the index used from the UFIR index to Indice Geral
de Precos - Disponibilidade Interna - IGP-DI (General market price index -
internal availability), as from November 1, 2000.
F - 16
Item 3
b) Second Amendment, signed on October 14, 2002 (the "Second Amendment"):
The Second Amendment refers to 149 monthly installment payments, with
maturities from January 1, 2003 through May 1, 2015, in the total amount of
R$754, adjusted to present value, as of March 31, 2002. These installments
continued subject to an annual interest rate of 6%, and restated based on the
IGP-DI variation.
The Second Amendment was signed in accordance with Law No. 14,384, dated
October 11, 2002, issued by the Minas Gerais State Legislature. CEMIG's Board
of Directors ratified this amendment on October 23, 2002.
b.1) No payments made to date in 2003:
The State Government did not pay the first five installments due under the
Second Amendment, due from January 1 to May 1, 2003, totaling R$69 in the
aggregate. Management is currently negotiating the collection of the
aforementioned past due amounts with the State Government.
b.2) Provision for loss:
Since the Second Amendment did not include any guarantees that would assure
the realization of the CRC receivable, CEMIG recorded a provision for loss in
the amount of R$754 for this asset as of December 31, 2001 which corresponds
to the total amount of the Second Amendment. On January 21, 2003 the Company's
Board of Directors ratified such provision.
For income tax purposes, such provision is considered a permanent difference,
since it involves a related party non-deductible loss and, therefore, did not
impact the deferred income and social contribution taxes.
CEMIG continues to negotiate the payment of the balance due to it under the
Second Amendment, including the possibility of transfer of this obligation
back to the Federal Government.
On January 29, 2003, the Company's Board of Directors authorized management to
initiate judicial proceedings against the State Government in order to collect
the past due installments.
c) Third Amendment, signed on October 24, 2002 (the "Third Amendment"):
The Third Amendment covers installments originally due but unpaid under the
credit assignment contract from April 1, 1999 through December 1, 1999 and
from March 1, 2000 through December 1, 2002. Under the Third Amendment, these
unpaid installments, which totaled R$489 as of March 31, 2002 (R$451 as of
December 31, 2001), are subject to annual interest of 12.00% and are
monetarily restated based on the IGP-DI variation. The Third Amendment
requires repayment of these amounts over 149 monthly installments from January
2003 to May 2015. The Third Amendment allows CEMIG to retain annual dividends
and interest on capital due to the State Government as a Company shareholder
as an offset against any amounts not paid by the State Government.
The Third Amendment was signed under authorization granted by Law No. 14,384,
dated October 11, 2002, issued by the Minas Gerais State Legislature. The
Company's Board of Directors ratified the Third Amendment on October 23, 2002.
c.1)No payments made to date in 2003:
The State Government did not pay the first five installments under the Third
Amendment, due from January 1 to May 1, 2003, totaling R$52 in the aggregate.
Management is negotiating the collection of the aforementioned past due
amounts with the State Government.
F - 17
Item 3
The projection of the Company's future operations indicates that the
offsetting of the dividends and interest on capital corresponding to the State
Government's share equity in the Company will be sufficient in the long term
to assure the realization of the entire outstanding receivable covered by the
Third Amendment, should the State Government continue in default. Management
will monitor future events, which could impact the Company's dividend payment
projections, in order to conclude whether an allowance relating to the Third
Amendment is necessary.
10. INVESTMENTS
The following table describes the Company's investments:
December 31
March 31, 2001
2002 (Audited)
------------- ---------------
Consortia 325 297
Empresa de Infovias S.A. 71 65
Hydroelectric plants to be transferred to a subsidiary 62 62
Other investments 34 13
----- -----
492 437
===== =====
(a) Investments in other companies
In 2002, the Company acquired shares from AES Forca Empreendimentos Ltda.
("AES"), corresponding to 50.48% of Infovias' capital, of which 45.45% and
5.03% were acquired during the second and fourth quarters, respectively. The
aggregate purchase price paid was R$87. These transactions increased CEMIG's
interest in Infovias' capital from 49.44% to 99.92%. Therefore, as from June
30, 2002, CEMIG's consolidated financial statements include Infovias
operations. The Company is assessing the effects arising from the application
of SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other
Intangible Assets" to its 2002 financial statements as a result of this
acquisition.
The Company's Board of Directors authorized CEMIG to provide a guarantee
relating to a loan obtained by Infovias in the amount of US$40 million, which
began amortizing in May 2002. Any installment paid by CEMIG in case of
non-payment by Infovias will be repaid to CEMIG in the form of preferred
shares issued in connection with a capital increase of Infovias.
The independent auditor's report on the Infovias' financial statements as of
December 31, 2002 has comments about (i) the deferred income and social
contribution taxes and maintenance of VAT credits, which realization is based
on future profit projections that depend on the execution of contracts that
are still being negotiated; (ii) the dependence on additional funds, provided
either by shareholders or third parties, in order to finance Infovias'
operations as well as to guarantee the realization of the assets recorded in
its financial statements until the operating revenues are sufficient to do so.
F - 18
(b) Hydroelectric power plants to be transferred to a subsidiary
The Company transferred R$62 to Investments from Property, plant and
equipment, after recognizing an impairment charge of R$33, of the Machado
Mineiro and Salto do Paraopeba hydroelectric plants, both located in the State
of Minas Gerais, and the Salto Voltao and Salto do Passo Velho hydroelectric
plants, both located in the State of Santa Catarina. These plants were
transferred to, and recorded as paid in capital of, a subsidiary, Horizontes
Energia S.A., in the third quarter.
(c) Consortia
CEMIG is a partner in certain consortia for electricity generation projects.
Each partner of each consortium has the right to take energy generated by the
applicable power plant in an amount proportionate to the partner's investment.
CEMIG's participation in consortia, represented by the amounts already
invested in the projects, is described as follows:
Annual
average December 31,
CEMIG's rate of March 31, 2001
participation depreciation 2002 (Audited)
----------------- ----------------- ------------ --------------
In service-
Porto Estrela Hydroelectric Power Plant 33.33% 2.51% 54 72
Igarapava Hydroelectric Power Plant 14.50% 2.51% 51 52
Construction in progress-
Queimado Hydroelectric Power Plant 82.50% 85 74
Funil Hydroelectric Power Plant 49.00% 63 52
Aimores Hydroelectric Power Plant 49.00% 72 47
----- -----
325 297
===== =====
F - 19
Item 3
11. PROPERTY, PLANT AND EQUIPMENT
The following table describes the consolidated property, plant and equipment:
Annual average December 31,
rate of March 31, 2001
depreciation 2002 (Audited)
----------------------- -------------------- ---------------------
In service
Generation-
Hydroelectric 2.51% 7,692 7,629
Thermoelectric 1.79% 261 261
Transmission 3.08% 1,408 1,403
Distribution 5.10% 7,130 7,075
Administration 9.63% 463 447
Other 5.20% 55 48
--------- ---------
17,009 16,863
--------- ---------
Accumulated depreciation and amortization-
Generation (3,646) (3,595)
Transmission (724) (714)
Distribution (3,049) (2,966)
Administration (266) (252)
Other (13) (11)
--------- ---------
(7,698) (7,538)
--------- ---------
Total in service 9,311 9,325
--------- ---------
Construction in progress-
Generation 22 82
Transmission 60 58
Distribution 306 346
Administration 21 20
Other 7 10
--------- ---------
Total in construction in progress 416 516
--------- ---------
Total 9,727 9,841
========= =========
Interest cost and monetary variation capitalized during the three months ended
in March 31, 2002 and 2001 was R$5 and R$12, respectively.
12. ACCOUNTS PAYABLE TO SUPPLIERS
The following table describes the Company's accrued taxes payable:
Item 3
December 31,
March 31, 2001
2002 (Audited)
------------- ------------
Electricity suppliers-
Furnas Centrais Eletricas S.A. (indexed to US dollar) 229 213
Spot market - MAE 785 644
Payments to generators for energy purchased on MAE 418 364
Others 20 22
----- -----
1,452 1,243
Supplies and services 46 66
----- -----
1,498 1,309
===== =====
Current liabilities 1,080 945
Long-term liabilities 418 364
The Spot market - MAE liability includes the energy purchased on the wholesale
spot market during the period from September 2000 to March 2002, based on
information provided by MAE, the spot market administrator. The definitive
amounts and effective payment of this liability depends on the resolution of
judicial claims currently pending brought by market agents, including the
Company, related to the interpretation of the market rules in force, as well
as in obtaining the necessary financing, as more fully set forth in note 3.
13. TAXES PAYABLE
The following table describes the Company's accrued taxes payable:
December 31,
March 31, 2001
2002 (Audited)
------------- ------------
Short-term
Income tax 57 72
Social Contribution tax 21 36
Value-added tax - ICMS 102 30
Tax on billing - COFINS 7 52
Others 16 29
----- -----
203 219
Long term
Income tax 41 -
Social Contribution tax 28 -
Tax on billing - COFINS 51 -
Tax on billing - PASEP 9 -
----- -----
129 -
----- -----
332 219
===== =====
F-21
The Spot market - MAE liability includes the energy purchased on the wholesale
spot market during the period from September 2000 to March 2002, based on
information provided by MAE, the spot market administrator. The definitive
amounts and effective payment of this liability depends on the resolution of
judicial claims currently pending brought by market agents, including the
Company, related to the interpretation of the market rules in force, as well
as in obtaining the necessary financing, as more fully set forth in note 3.
13. TAXES PAYABLE
The following table describes the Company's accrued taxes payable:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Short-term
Income tax 57 72
Social Contribution tax 21 36
Value-added tax - ICMS 102 30
Tax on billing - COFINS 7 52
Others 16 29
----- -----
203 219
Long term
Income tax 41 -
Social Contribution tax 28 -
Tax on billing - COFINS 51 -
Tax on billing - PASEP 9 -
----- -----
129 -
----- -----
332 219
=== ===
F-21
Item 3
CEMIG transferred to long-term liabilities the income tax, social contribution
tax, COFINS and PASEP on special rate adjustment revenue, recorded in 2001 and
2002. This transfer was conducted in accordance with the Resolution of the
Brazilian Federal Tax Authority (Secretaria da Receita Federal), issued in the
third quarter of 2002, which allowed the payment of the mentioned obligations
proportionally to the consumers' billing.
14. FINANCINGS
Composition of the Company's foreign loan and financing by currency and
domestic currency indices is as follows:
December 31,
March 31, 2001
2002 (Audited)
------------ --------------
Currency -
United States Dollars 1,224 1,255
Euro 38 15
Units of accounts (basket of currencies) 34 42
Swiss Francs 2 2
Others 1 1
German Marks - 20
------- -------
1,299 1,335
Indices -
Indice Geral de Precos de Mercado - "IGP-M"
(General Market Price Index) 888 866
Indice Interno da Eletrobras - "FINEL"
(Eletrobras Internal Index) 166 174
Unidade Fiscal de Referencia - "UFIR"
(Tax Reference Unit) 95 89
Others 16 16
------- -------
1,165 1,145
------- -------
2,464 2,480
===== =====
Current 524 451
Long-term 1,940 2,029
The following table sets forth the increases for the periods indicated in the
indices and in the foreign currency / Brazilian real exchange rates for the
principal foreign currencies used in the Company's loan and financing,
expressed as a percentage:
Three months ended March 31,
-----------------------------
2002 2001
-------------- -------------
Currency-
United States Dollars 0.14 10.55
Euro (1.82) 3.25
Units of accounts (basket of currencies) (2.01) 6.95
Indices
IGP-M 0.51 1.42
FINEL 0.03 0.28
F-22
Item 3
15. EMPLOYEE POST-RETIREMENT BENEFITS
The Company sponsors a pension plan, administered by Fundacao Forluminas de
Seguridade Social - FORLUZ (Forluminas Social Security Foundation, or
"FORLUZ") covering substantially all of its employees. With respect to such
plan, SFAS 87 "Employers' Accounting for Pensions" has been applied from and
after January 1, 1995. However, amortization of the net transition obligation
existing at January 1, 1995 has been computed retroactively as if it had been
established on January 1, 1989, which is the date that SFAS 87 first became
applicable for non-U.S. pension funds.
Until October 1997, the Company sponsored only a defined benefit pension plan.
From September 29, 1997 to May 1, 1998, participants were permitted to elect
to migrate to a new defined contribution plan. Those participants who elected
to join the new plan had two options. The first was to maintain the benefit
earned up to the date of migration in the defined benefit plan, with no
further increases for salary increases or future services, and future
contributions would be made to the new plan to the individual account. The
second option for those participants who migrated to the defined contribution
plan was to transfer the accumulated benefit as of that date to their
individual account in the defined contribution plan. In both alternatives, the
participants became fully vested in the benefits accumulated as of the
migration date.
CEMIG has also established post-retirement health care plans and pays life
insurance premiums for retirees. The accounting for these benefits is in
accordance with SFAS 106 "Employers' Accounting for Post-retirement Benefits
other than Pensions".
CEMIG has offered to its employees an incentive for early retirement, which
consists of an additional amount, paid when the employee retires, of 10% of
the employees' salary for each year worked for the Company. To obtain this
benefit the employee must opt in writing indicating his intention to retire
early. Accordingly, the costs of this incentive are recognized as individual
employees opt for this benefit. CEMIG may withdraw this additional benefit at
any time.
In the third quarter of 2002, CEMIG and its employees' labor unions, mainly
represented by SINDIELETRO, agreed on changes to the existing employee health
care plans, which altered the contribution criteria that CEMIG, its employees
and its retirees are responsible for and the types of benefits covered in each
plan. Under this agreement, CEMIG is responsible for making annual payments up
to the maximum amount of R$33, as adjusted according to the IGP-M index, to
cover health expenses of employees and retirees. The implementation of these
changes took place as of January 1, 2003. The effects arising from these
changes cannot be estimated at this time. The respective actuarial assessment
is currently in progress.
The changes in net liabilities for the three months ended March 31, 2002 are
as follows:
Post-retirement
Defined benefit health care and
pension plan insurance
---------------- ----------------
Net liabilities as of December 31, 2001 1,307 320
Net periodic cost recorded on the statement of operations 39 19
Contribution paid (38) (3)
--------- --------
Net liabilities as of March 31, 2002 1,308 336
========= ========
Additionally, the Company recorded contributions expenses to the defined
contribution plan for the three months ended March 31, 2002 in the amount of
R$8.
F-23
Item 3
16. ACCRUED LIABILITY FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
The Company believes that any loss in excess of the amounts provided for in
respect of such contingencies will not have a material adverse effect on the
Company's results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable,
the Company has made provisions for losses as follows:
December 31,
March 31, 2001
2002 (Audited)
------------ --------------
Labor claims 55 54
Civil lawsuits - Consumers 78 74
Social contribution tax 128 125
Finsocial 19 19
Civil lawsuits - Others 15 22
Others 34 25
----- -----
329 319
===== =====
Certain details relating to such provisions are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be R$69 as
of March 31, 2002 (R$68 as of December 31, 2001). CEMIG determined the amounts
to be accrued based on the nature of the group of claims and the most recent
court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought suits against the Company
seeking refunds of amounts paid to CEMIG as a result of a rate increase that
became effective during the Brazilian government's "Cruzado Plan" in 1986,
alleging that such increases violated the price controls instituted as part of
that economic stabilization plan. CEMIG determined the amounts to be accrued
based on recent court decisions.
The total anticipated exposure to the Company for those suits, fully provided
for, was R$78 as of March 31, 2002 (R$74 as of December 31, 2001).
(c) Social contribution tax
On June 28, 1991, the Federal Government enacted Law No. 8,200, regulating the
monetary restatement for purposes of Brazilian Corporate Law financial
statements and tax liability. Under this law, the Company was required to
record complementary monetary restatement that was considered, through
depreciation, amortization and write-offs of fixed assets, a deductible
expense for income tax calculation. Such law did not clarify the proceedings
regarding the deductibility of the complementary monetary restatement charged
to income for social contribution tax purposes.
F-24
Item 3
The Company is deducting the amounts of depreciation, amortization and
write-off relating to the complementary monetary restatement of Property,
plant and equipment, for purposes of computation of social contribution tax on
income. The Company believes that such deduction is in accordance with the
provisions of Law No. 8,200. The Company estimates that its potential exposure
in this matter is approximately R$128 as of March 31, 2002 (R$125 as of
December 31, 2001) for which a provision has been recorded.
(d) Finsocial
In 1994, CEMIG was fined by the Secretaria da Receita Federal (the tax
authority of the Federal Government) due to the Company's exclusion of State
VAT in the Finsocial calculation, a social contribution tax on billing
extinguished in 1992. The Company estimates that its potential exposure in
this matter is approximately R$19 as of March 31, 2002 (R$19 as of December
31, 2001). This amount is fully provisioned.
(e) Others
Other accrued liabilities are related to a number of lawsuits involving the
Federal Government, pursuant to which the Company is disputing the
constitutionality of certain federal taxes that have been assessed against it
and other general claims arising in the ordinary course of business.
(f) Contingencies for which a favorable outcome has been deemed probable
CEMIG has other relevant legal proceedings with respect to which the Company
believes that a favorable outcome is probable, and therefore the Company has
not recorded a provision for such claims. Certain details relating to these
matters are as follows:
(i) Litigation involving FORLUZ with possible financial effect upon CEMIG
The Company is defending, with FORLUZ, a claim brought by SINDIELETRO
that asserts that CEMIG failed to make certain allegedly obligatory
cost-of-living increases in contributions to employee pension funds. The
total amount sought in this claim is R$539. No reserve has been recorded
for this claim because the Company believes that it has a meritorious
defense to such claim and, consequently, does not expect to incur losses
related to such claim.
In addition, SINDILETRO has sued FORLUZ for R$234 relating to changes
made to the pension fund's contribution adjustment index. No reserve has
been recorded for this potential claim because the Company believes that
it has a meritorious defense to such claim and consequently, does not
expect to incur losses related to such claim.
(ii) Income and social contribution taxes on post retirement benefits
On October 11, 2001, the Federal Government's tax authority issued a
deficiency notice in the amount of R$215 arising from the utilization of
tax credits that resulted from the amendment of the Company's 1997, 1998,
1999 and 2000 tax returns, to reduce taxable income. The tax returns were
amended as a result of a change in accounting method for recording
post-retirement benefit liabilities, as required by Brazilian accounting
practices. The additional liability that resulted from the accounting
change was attributed to the tax year that was amended, resulting in net
operating tax loss and social contribution negative basis carryforwards.
CEMIG is defending itself on the tax assessment notice in an
administrative proceeding with the Federal Government. No reserve has
been recorded as a result of this notice, as the Company believes that it
has a meritorious defense and, consequently, does not expect to incur
losses related to such claim.
F-25
Item 3
The credits mentioned in the prior paragraph were offset by CEMIG from its
federal tax obligations in 2001 and 2002. Due to this offset, CEMIG is
exposed to additional penalties in the amount of R$112. No reserve has
been recorded for this claim, as the Company believes that it has a
meritorious defense and, consequently, does not expect to incur losses
related to such claim.
(iii) COFINS
The Company began contesting the payment of COFINS contributions
beginning in 1992. As a result of a judicial ruling, the Company paid
R$239 of accrued COFINS contribution on July 30, 1999. The Federal
Government is claiming that the Company owes approximately R$113 in fines
and interest relating to its non-payment of COFINS contributions. The
Company is contesting such claims. No reserve has been recorded for this
claim, as the Company believes that it has a meritorious defense and,
consequently, does not expect to incur losses related to such claim.
(iv) Regulatory agency acts
ANEEL has brought an administrative proceeding against the Company,
contesting a R$169 refund issued in 1995 by the Brazilian National
Treasury. ANEEL alleges that this refund originated from a miscalculation
of credits in the amount of rate shortfall receivable that was applied to
reduce amounts owed to the Federal Government. On October 31, 2002, ANEEL
issued a final administrative decision against the Company. The Company
intends to appeal this decision in court. The Company believes that it
has a meritorious defense and has therefore recorded no provision in
respect of such claim.
On January 16, 2003, ANEEL sent a notice alleging that the Company had
failed to obtain necessary ANEEL authorization relating to the Company's
5-year contract with Infovias, which relates to furnishing data and
rendering services related to geo technology matters. ANEEL may seek to
impose a fine upon the Company relating to this claim. The maximum
penalty applicable in respect of this claim is a fine in an amount equal
to up to 2% of CEMIG's revenues during the 12-month period immediately
prior to the imposition of the fine. The Company believes that it has a
meritorious defense and has therefore recorded no provision in respect of
such claim.
(v) Civil lawsuits - Consumers
Some consumers have brought civil claims against CEMIG contesting rate
readjustments applied in prior years, including the special rate
adjustment and Encargo de Capacidade Emergencial (the Emergency Capacity
Charge) applied since 2002. The Company believes that it has a
meritorious defense and has therefore recorded no provision in respect of
such claims.
In addition to the matters described above, CEMIG and its subsidiaries are
involved as a plaintiff or defendant in a variety of routine litigation
incidental to the normal course of business. Management believes that it has
adequate defense in respect of such litigation and that any losses therefrom
would not have a material adverse effect on the consolidated financial
position or results of operation of the Company.
17. SHAREHOLDERS' EQUITY
On April 30, 2002, at the shareholders' meeting, the following matters were
approved:
o Capital increase in the amount of R$32 through the issuance of 3,154,321
new shares, as a result of the capitalization of the rate shortfall
reserve. The new shares were distributed
F-26
Item 3
among the shareholders as a proportion of their participation on the
capital prior to the issuance. As a result, the interest of the
shareholders and the par value per share did not change. The change in
the number of shares is as follows:
o
o
As of
December 31,
2001 Issuance of As of April 30,
Thousands of shares (Audited) new shares 2002
------------------- ------------- --------------- ---------------
Preferred shares 89,504,020 1,775,631 91,279,651
Common shares 69,495,478 1,378,690 70,874,168
------------- --------------- ---------------
Total shares authorized and issued 158,999,498 3,154,321 162,153,819
Treasury stock (67,783) (1,345) (69,128)
------------- --------------- ---------------
Total shares outstanding 158,931,715 3,152,976 162,084,691
============= =============== ===============
o Change in the Company's by-laws to establish new minimum dividend
criteria, in accordance with changes in local corporate legislation. The
preferred shares have priority in the repayment of capital and are
entitled to a minimum dividend of at least the highest amount between 10%
of the preferred capital on the Brazilian corporate law financial
statements or 3% of participation of the preferred shares on the total
shareholders equity on Brazilian Corporate Law financial statements.
18. NET OPERATING REVENUES
(a) The composition of electric energy supplied by consumer class is as
follows:
No. of consumers GWh R$
--------------------------- ------------------------- -------------------------
Three months ended Three months ended Three months ended
March 31, March 31, March 31,
--------------------------- ------------------------- -------------------------
2002 2001 2002 2001 2002 2001
---------- ---------- ---------- --------- --------- --------
Residential 4,517,756 4,284,283 1,500 1,922 381 449
Industrial 68,087 64,355 5,197 5,728 453 426
Commercial 506,064 479,483 808 972 176 179
Rural 326,009 305,416 298 371 45 46
Governmental Entities 44,768 44,374 270 372 44 51
Public services 6,591 6,190 222 237 26 25
Own consumption 1,377 1,439 11 14 - -
Unbilled, net - - - - 16 18
---------- ---------- ---------- --------- --------- --------
5,470,652 5,185,540 8,306 9,616 1,141 1,194
Supply 4 12 90 153 7 8
Energy Transactions on
MAE - - - - 93 -
---------- ---------- ---------- --------- --------- --------
Total 5,470,656 5,185,552 8,396 9,769 1,241 1,202
========== ========== ========== ========= ========= ========
F-27
Item 3
(b) The composition of taxes on revenues is as follows:
Three months ended March 31,
-----------------------------
2002 2001
-------------- ------------
VAT 242 257
COFINS 40 37
PIS-PASEP social contribution 9 8
Emergency capacity charge 4 -
----- -----
295 302
===== =====
19. OPERATING COSTS AND EXPENSES
Some of the operating costs and expenses consist of the following:
(a) Electricity purchased for resale
Three months ended March 31,
-----------------------------
2002 2001
------------- -----------
Itaipu Binacional (through FURNAS) 224 214
From suppliers trough MAE 177 -
Initial contracts 30 17
From Other 2 1
------- --------
433 232
======= ========
ANEEL has reduced the price of energy acquired from Itaipu by 13.18%, from US$
20.1988 to US$ 17.5374 per kW, since October 23, 2002.
The energy traded on spot market in 2001 was accrued only in the fourth
quarter of 2001, since MAE information necessary to record the estimates only
became available at that time.
F-28
Item 3
(b) Regulatory charges
Three months ended March 31,
-----------------------------
2002 2001
------------- -----------
Global reserve for reversion quota 36 26
Fuel usage quota 70 72
Charges for use of water resources 8 11
ANEEL inspection fee 3 3
----- -----
117 112
===== =====
(c) Other
Three months ended March 31,
-----------------------------
2002 2001
------------- -----------
Insurance - 1
Consumption - electric energy 2 2
Labor indemnity - 1
Disposal of fixed assets, net 7 23
Grants and donations 3 3
Provisions for contingencies-
Labor claims 1 (12)
Civil lawsuits - Consumers 4 1
Civil lawsuits - Other (1) 13
Provision for doubtful accounts 11 1
Provision for loss on deferred regulatory assets 6 -
Rentals 4 3
Advertising 3 4
Employees profit sharing 4 6
MAE Contribution 2 2
Technological and Scientific National Fund 3 3
General expenses 6 1
------ ------
55 52
====== ======
F-29
Item 3
20. FINANCIAL INCOME (EXPENSES), NET
Financial income (expenses) consists of the following:
Three months ended March 31,
-----------------------------
2002 2001
------------- -----------
Financial income:
Investment income earned 30 13
Late charges on overdue electricity bills,
recorded on cash basis 8 9
Interest and monetary restatement of account receivable from
State Government 38 42
Reversal of interest and fines on taxes - 11
Monetary restatement on recoverable tax 1 15
Monetary restatement on deferred regulatory assets 23 -
Foreign exchange gains 6 -
Taxes on financial income (PASEP and COFINS) (6) (3)
Other income 7 8
-------- --------
107 95
Financial expenses:
Interest on financings (51) (33)
Foreign exchange losses (2) (131)
Monetary restatement on financing (4) (3)
Financial transaction tax ("CPMF") (5) (5)
Advance billings of electric power - (9)
Other expenses (10) (6)
-------- --------
(72) (187)
-------- --------
Financial income (expenses), net 35 (92)
======== ========
21. RELATED PARTY TRANSACTIONS
The Company enters into a variety of related party transactions, the main
transactions are as follows:
(a) State Government
Account receivable and related financial income Note 9 and 20
VAT - Liabilities Note 13
VAT - Expense Note 18
(b) FORLUZ
Employee post-retirement benefits related balances Note 15
Other related party transactions are not material.
F-30
Item 3
22. FINANCIAL INSTRUMENTS
The Company manages its financial instruments through periodic monitoring of
positions, diversification of counterparties and establishment of credit
limits by counterparty.
Financial instruments, which potentially subject CEMIG to concentrations of
credit risk, are cash and cash equivalents, restricted investments and
accounts receivable. CEMIG limits its credit risk associated with cash and
cash equivalents and restricted investments by placing its investments with
highly rated financial institutions generally in short-term securities. The
credit risk associated with accounts receivable from residential consumers is
limited by CEMIG's policy of interrupting the supply of electricity if payment
becomes in arrears. With respect to larger industrial and commercial consumers
CEMIG limits its credit risk by performing ongoing credit evaluations and, in
certain cases, obtaining guarantees or collateral for impaired receivables.
The Company's customers are primarily located in the State of Minas Gerais,
although distributed among a wide variety of economic sectors.
The Company's short term investments related to marketable securities issued
by third parties are as follows:
I. CEMIG has debentures issued by financial institutions, in the amount
of R$103. These securities have immediate call clauses exercisable
by the Company and its subsidiaries, without penalty or loss. These
securities have interest rates based on the variation of Brazilian
Interbank Certificate of Deposit - CDI rate.
II. The swap transactions of CEMIG's subsidiaries, in the amount of
R$14, are purchased from financial institutions through the transfer
of public or private securities issued by third parties. These
securities have repurchase clauses. The interest rate is based on
the CDI. CEMIG has the right to call for early redemption of these
securities without any penalty or loss.
(a) Exposure to foreign exchange losses
The Company's exposure to exchange rate risks is as follows:
December 31,
March 31, 2001
2002 (Audited)
------------ --------------
US Dollar
Financings 1,224 1,255
Advanced sale of electric energy 27 42
(-) Escrow deposit related to loans and financing (170) (133)
-------- --------
1,081 1,164
======== ========
Other Currencies
Financings 75 80
-------- --------
Net liabilities exposed to exchange rate risk 1,156 1,244
======== ========
After 2001, the effects of the exchange rate variation on the liabilities
related to the energy purchase from Itaipu Binacional are included on the
Parcel "A" costs and will be considered in the subsequent rate adjustments.
F-31
Item 3
23. INSURANCE
The Company's insurance policies covering damages to its power plants caused
by fire and operational risks such as equipment failures expired on December
31, 2001. The Company is soliciting bids from insurance carriers for new
insurance policies to cover these risks.
CEMIG does not have general third party liability insurance covering accidents
and has not solicited bids relating to this type of insurance. In addition,
the Company has not solicited bids for, nor does it carry, insurance coverage
for major catastrophes affecting its facilities such as earthquakes and
floods, for business interruption risk or systemic failures.
The Company has not experienced significant losses arising from the
aforementioned risks.
24. SHAREHOLDERS' AGREEMENT
In 1997, the State of Minas Gerais sold approximately 33% of the Company's
common shares to a group of investors led by Southern Electric Brasil
Participacoes Ltda. ("Southern"). As part of this sale, the State of Minas
Gerais and Southern entered into a shareholders' agreement that provided for,
among other matters, special quorum requirements to approve significant
corporate actions, certain amendments to CEMIG's by-laws, the issuance of
convertible debentures and warrants, changes to the Company's corporate
structure and any distribution of dividends other than that required by the
by-laws. This agreement granted Southern a veto right over certain important
corporate decisions.
On September 13, 1999, the State of Minas Gerais filed a lawsuit to nullify
this shareholders' agreement on the grounds that it violated the state and
federal constitutions because the special quorum provisions would constitute
an unlawful transfer of the control of CEMIG to Southern.
On September 27, 1999, the Minas Gerais State Court of Appeals granted a legal
injunction suspending the effects of the special quorum provisions, pending
the outcome of the lawsuit.
In March 2000, the lower court rendered a decision declaring the shareholders'
agreement null and void.
On August 7, 2001, the Minas Gerais State Court of Appeals upheld the March
2000 lower court ruling declaring the shareholders' agreement null and void.
Southern has appealed the Court's decision and their appeal is still pending.
25. CORPORATE REORGANIZATION
Currently, CEMIG's electricity generation, transmission and distribution
operations are vertically integrated into and directly operated by CEMIG.
However, pursuant to CEMIG's main concession agreements and in accordance with
certain changes in the regulatory framework of the Brazilian electricity
sector, CEMIG has to restructure its business, resulting in the "unbundling"
of its generation, transmission and distribution operations into separate
subsidiaries, each wholly owned by CEMIG. According with the concession
agreements, CEMIG had to complete the reorganization process by December 31,
2000.
ANEEL granted the Company an extension until September 21, 2002 to complete
the unbundling process.
The State Government, the controlling shareholder, assuming that the
"unbundling" must be previously approved by Minas Gerais State Legislature,
submitted to the Legislature, on March 2,
F-32
Item 3
2001, a bill proposing the restructuring of the Company into three companies.
This legislation has not yet been approved and the reorganization process has
not yet been completed. Additionally, the Company has submitted an extension
date request to ANEEL, which has not yet been answered.
On November 11, 2002, ANEEL fined the Company in the amount of R$6, because
CEMIG had not concluded the "unbundling". No reserve has been recorded for
this claim, as the Company believes it has a meritorious defense against the
fine and any other possible penalties that may be imposed regarding this
matter.
26. SUBSEQUENT EVENTS
(a) 2002 dividend declared
On May 20, 2002 and December 19, 2002, the Board of Directors approved
interest on capital in lieu of dividend for 2002 in the amount of R$120 and
R$100, respectively. The Board of directors did not establish a payment date
for these dividends yet.
(b) Loan obtained from BNDES for settlement of MAE transactions
On February 7, 2003, CEMIG obtained a loan from BNDES, in the amount of R$335.
The loan bears interest of 1% per year and monetary variation based on SELIC.
It will be paid through 60 monthly installments from March 15, 2003 to
February 15, 2008 and is guaranteed by 3.27% of the Company's monthly
electricity sales to final customers.
(c) Periodic Rate Review
The Periodic Rate Review represents the revision of the rates granted to the
distribution electricity concessionaires to assure the financial-economic
equilibrium of the existing concession contracts. The Period Rate Review
occurs every 4 or 5 years, depending on each concession contract (5 years for
CEMIG). In the rate definition, ANEEL considers the Company's structural
changes occurred in its costs and its market and the desirable return on its
investments.
CEMIG's energy rates increased by an average of 31.5% on April 8, 2003 as a
result of the Company's Periodic Rate Review.
(d) Temporary Executive Act No. 14 converted into law
On April 26, 2002, Temporary Executive Act No. 14 (regulating the effects of
the General Agreement) was converted into Law No. 10,438.
(e) Other matters approved at the shareholders' meeting held on April 30, 2002
On April 30, 2002, at the shareholders' meeting, the following matters were
approved:
o Payment of additional dividends in the amount of R$112 based on the
Company's 2001 Brazilian Corporate Law financial statements. The
dividends declared in 2001, as interest on capital, in the amount of
R$103 and the additional dividends, in the amount of R$112, totaling
R$215, were paid on September 30, 2002.
o Issuance of CEMIG debentures (securities not convertible into shares
of CEMIG and without any preference or guarantee) in the amount of
R$90. The funds to be obtained from this issuance must be used in
the construction of the Irape Power Plant. As of September 30, 2002,
the Company issued the first series, in the amount of R$23.
F-33
Item 3
(f) Financial covenants
As of March 31, 2003, some of the Company's loan, financing and debentures
contracts, in the total amount of R$511, of which R$329 are classified as
long-term liabilities, contain covenants that, in case of noncompliance, may
cause amounts due under the contracts to become immediately due. In addition,
the Company also has financing contracts that contain cross-default clauses.
The Company has obtained waivers from the creditors that are parties to
contracts that contain covenants with respect to which the Company is not in
compliance, which waivers assert that such creditors will not exercise their
rights to demand either anticipated or immediate payment of the total amounts
due. The waivers are in force as of December 31, 2002, March 31, 2003 and, for
most contracts, June 30, 2003. The Company believes that the noncompliance
with the covenants was eventual and that its 2003 operation will lead to their
compliance. Loans, financings and debentures are classified as current and
long-term liabilities according to the original contract terms, in compliance
with the waivers obtained.
Additionally, the Company is performing analysis regarding the covenants
compliance of the Infovias financing, in the total amount of R$125 of which
R$101 are classified as long-term liabilities as of March 31, 2003, and has
not yet reached a final conclusion. The financing is classified as current and
long-term liabilities according to the original contract terms.
(g) Significant exchange variation after March 31, 2002
From March 31, 2002 to December 31, 2002, the real depreciated significantly
against the US dollar, which has had a negative effect on the Company's net
earnings in 2002. The Company recorded exchange losses of approximately R$700
in the nine-month period from March 31, 2002 to December 31, 2002, as the
depreciation resulted in a decrease in financial income. From March 31, 2002
to December 31, 2002 the real depreciated 52.06% as compared to the U.S.
dollar.
After December 31, 2002, the real appreciated significantly against the US
dollar, which has had a positive effect on the Company's net earnings in 2003.
The Company recorded exchange gains of approximately R$356 in the four-month
period ended April 30, 2003, as the appreciation resulted in an increase in
financial income. From December 31, 2002 to April 30, 2003, the real
appreciated 18.21% as compared to the U.S. dollar.
(h) Recovery of additional Parcel "A" costs from April 8, 2003 to April 7,
2004
The Federal Government, through Executive Act No. 116, issued on April 4,
2003, postponed for 12 months reimbursement of the Parcel "A" costs relating
to the period from April 8, 2002 to April 7, 2003, initially scheduled to be
received on April 8, 2003. Additionally, the same Executive Act established
that the Parcel "A" costs with respect to which reimbursement was postponed,
in addition to the Parcel "A" costs to be recorded the appreciation resulted
the 12-month period beginning April 8, 2003, will be reimbursed through an
increase in the electric energy rate for 24 months, starting with the rate
adjustment that will be in force as from April 8, 2004. Therefore, the Parcel
"A" costs balances, recorded as Deferred regulatory assets as of March 31,
2002, were classified as current and other assets considering the new expected
realization period.
27. RECENTLY ISSUED U. S. GAAP PRONOUNCEMENTS
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Under SFAS 143,
the liability for an asset retirement obligation is discounted and accretion
expense is recognized using the credit-adjusted risk-free interest rate in
effect when the liability was initially recognized. In addition, disclosure
requirements contained in SFAS 143 will provide more information about asset
retirement obligations. SFAS 143 is effective for financial statements issued
for fiscal years
F-34
Item 3
beginning after June 15, 2002 with earlier application encouraged. The
implementation of this statement did not result in a significant impact to the
Company's consolidated financial statements.
In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of
Debt," which required that all gains and losses from extinguishment of debt to
be aggregated and classified as an extraordinary item if material. SFAS 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary only if they meet criteria in APB 30, thus distinguishing
transactions that are part of recurring operations from those that are unusual
or infrequent, or that meet the criteria for classification as an
extraordinary item. SFAS 145 amends SFAS 13, "Accounting for Leases", to
require that lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS 145 rescinds SFAS 44,
"Accounting for Intangible Assets of Motor Carriers," and SFAS 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which are
not currently applicable to the Company. The provisions of SFAS 145 as they
relate to the rescission of SFAS 4 shall be applied in fiscal year 2003.
Certain provisions related to SFAS 13 are effective for transactions occurring
after May 15, 2002. The implementation of this statement did not result in a
significant impact to the Company's consolidated financial statements.
In June 2002, FASB issued SFAS 146 "Accounting for costs associated with Exit
or Disposal Activities". This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The principal
difference between this Statement and EITF 94-3 relates to its requirements
for recognition of a liability for a cost associated with an exit or disposal
activity. This Statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the
Board in this Statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. This Statement also establishes that fair value is the objective
for initial measurement of the liability. This Statement improves financial
reporting by requiring that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The accounting for similar events and circumstances
will be the same, thereby improving the comparability and representational
faithfulness of reported financial information. The provisions of this
Statement are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. The Company does
not expect that the adoption of SFAS 146 will have a significant impact on its
consolidated results of operations, financial position or cash flows.
* * * * * * * * * * *
F-35
Item 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 2002 (THE "2002 INTERIM PERIOD") COMPARED
TO THE THREE-MONTH PERIOD ENDED MARCH 31, 2001 (THE "2001 INTERIM PERIOD").
Net operating revenues
Net operating revenues increased 16.8% to R$1,133 million in the 2002
Interim Period from R$970 million in the 2001 Interim Period due primarily to
the recording of additional revenue from the regulatory extraordinary rate
adjustment, which is intended to reimburse revenue losses incurred as a result
of the Electricity Rationing Plan and related spot market transactions,
partially offset by a 13.6% decrease in the volume of electricity sales to
final customers.
In the 2002 Interim Period, we recorded revenue relating to the
regulatory extraordinary rate adjustment in the amount of R$115 million, in
accordance with the terms of the General Agreement of the Electricity Sector,
which provides for reimbursement of revenue losses incurred during the period
of the Electricity Rationing Plan and related spot market transactions,
through special rate increases to be billed to final customers, and in
accordance with consensus described on Emerging Issues Task Force - EITF
92-07, "Accounting by Rate-Regulated Utilities for the Effects of Certain
Alternative Revenue Programs", which establishes a 24 month period limit for
collection of the recovery of revenue losses incurred during the Energy
Rationing Plan. See Note 3 to our interim financial statements.
Electricity sales to final customers were R$1,141 million in the 2002
Interim Period representing a 4.4% decrease compared to R$1,194 million in the
2001 Interim Period. This decrease resulted from the net effect of a decrease
in the volume of electricity sales to final customers, partially offset by an
increase in the average energy rate. There was a 13.6% decline in volume of
electricity sales to final customers due to the Electricity Rationing Plan in
force until February of 2002. Our industrial, residential, and commercial
consumers reduced consumption in the 2002 Interim Period by 9.3%, 22.0% and
16.9%, respectively, compared to the 2001 Interim Period. The negative effect
of the decrease in the volume of electricity sale was partially offset by a
10.6% increase in the average rate in the 2002 Interim Period to R$137.37 per
MWh compared to R$124.17 per MWh in the 2001 Interim Period as a result of the
rate increase of 16.5% in April 2001. See Note 18 to our interim financial
statements.
Electricity sales to the interconnected power system were R$100 million
in the 2002 Interim Period compared to R$8 million in the 2001 Interim Period.
This increase resulted from higher rates associated with energy transactions
on the Mercado Atacadista de Energia (Wholesale Eletricity Spot Market), or
MAE during the period in which the Electricity Rationing Plan was in force as
well as the absence of a method to account for electricity sales to the
interconnected power system in the first quarter of 2001, since MAE
information necessary to record the estimates only became available in the
fourth quarter of 2001.
Revenues from the use of the Basic Transmission Network by other
concessionaires increased 2.7% to R$38 million in the 2002 Interim Period from
R$37 million in the 2001 Interim Period. This increase was due primarily to an
11.6% rate increase in July 2001.
Other operating revenues were R$34 million in the 2002 Interim Period
compared to R$33 million in the 2001 Interim Period. The major components of
this item are gas sales from GASMIG, our subsidiary, and services relating to
our distribution business, including inspection, connection, meter reading and
others.
Taxes on revenues decreased 2.3% to R$295 million in the 2002 Interim
Period from R$302 million in the 2001 Interim Period as a result of the
decrease in our electricity sales to final customers in the 2002 Interim
Period as compared to the 2001 Interim Period and as a result of the VAT
billed to the customers related to the billed extraordinary rate adjustment.
Taxes on revenues consist of: (i) VAT, assessed at an average rate of 21% on
electricity sales to final customers, and VAT billed to customers related to
the deferred regulatory assets; (ii) COFINS, assessed at a rate of
Item 4
3%; (iii) PASEP, assessed at a rate of 0.65% and; (iv) emergency capacity
charge, a new charge established in 2002 which is prorated among final
consumers of electric energy and which relates to the acquisition of energy
and contracted generation capacity by CBEE (The Brazilian Emergency Energy
Trader). See Notes 3 and 18 to our interim financial statements.
Operating costs and expenses
Operating costs and expenses increased 18.6% to R$1,111 million in the
2002 Interim Period from R$937 million in the 2001 Interim Period, principally
as a result of increases in electricity purchased for resale, depreciation and
amortization and regulatory charges, partially offset by decreases in
personnel and employee post-retirement benefits.
Electricity purchased for resale consists primarily of purchases from
Itaipu through Furnas Centrais Eletricas S.A., or Furnas. We are required
under applicable regulations to purchase 17.0% of Itaipu's capacity at U.S.
dollar-denominated prices. We also purchase electricity from the MAE and
Furnas itself. Electricity purchased for resale increased 86.6% to R$433
million in the 2002 Interim Period from R$232 million in 2001 Interim Period
due mainly to the R$177 million provision related to energy purchased from the
MAE during the 2002 Interim Period. The energy purchased on the MAE in the
2001 Interim Period was accrued only in the fourth quarter of 2001, since the
MAE information necessary to record the estimates only became available at
that time. See Note 19 to our interim financial statements.
Charges for use of the Basic Transmission Network mainly correspond to
the cost of transporting electricity purchased from Itaipu and decreased 1.5%
to R$65 million in the 2002 Interim Period compared to R$66 million in the
2001 Interim Period principally as a result a decline in the volume of energy
transported through the network due to the Electricity Rationing Plan that was
in force in January and February 2002, partially offset by a rate increase in
July 2001.
Depreciation and amortization increased 4.4% to R$165 million in the 2002
Interim Period from R$158 million in the 2000 Interim Period as a result of
the entry into service of additional distribution and transmission networks
and lines.
Personnel expense decreased 21.3% to R$126 million in the 2002 Interim
Period compared to R$160 million in the 2001 Interim Period as a result of the
R$30 million provision recorded relating to our Voluntary Resignation Program
in March 2001 and an increase in amounts transferred to the Property, Plant
and Equipment under Construction in Progress in the 2002 Interim Period.
Regulatory charges increased 4.5% to R$117 million in the 2002 Interim
Period from R$112 million in the 2001 Interim Period due primarily to an
increase of R$10 million in required contributions to the RGR Fund (a reserve
fund created by the Brazilian Congress that provides compensation to
electricity companies for certain assets used in connection with their
concessions if their concessions are revoked or not renewed) to R$36 million
in the 2002 Interim Period compared to R$26 million in the 2001 Interim
Period. The increase in RGR contributions was partially offset by a decrease
of R$3 million in compensation charges for use of water resources due to lower
operations of CEMIG's hydroelectric plants in the 2002 Interim Period in
connection with the Electricity Rationing Plan in force. See Note 19 to our
interim financial statements.
Third-party services expense increased 6.4% to R$50 million in the 2002
Interim Period compared to R$47 million in the 2001 Interim Period primarily
due to the increase in expenses relating to bill collection services as a
result of readjustments to contracts based on inflationary indices.
Employee post-retirement benefits decreased 12.0% to R$66 million in the
2002 Interim Period compared to R$75 million in the 2001 Interim Period as a
consequence of a lower projected net periodic cost for 2002 as a result of a
higher expected return on plan assets. See Note 15 to our interim financial
statements.
Other expenses increased 5.8% to R$55 million in the 2002 Interim Period
from R$52 million in the 2001 Interim Period due mainly to a provision of R$11
million in the 2002 Interim
F-36
Item 4
Period for doubtful accounts compared with a provision of R$1 million in the
2001 Interim Period and a provision of R$6 million in the 2002 Interim Period
related to the expected loss on deferred regulatory assets, partially offset
by net losses of R$7 million in the 2002 Interim Period relating to the
disposal of fixed assets compared to a R$23 million provision for the disposal
of fixed assets in the 2001 Interim Period. See Note 19 to our interim
financial statements.
Operating income (loss)
As a result of the foregoing, there was operating income of R$22 million
in the 2002 Interim Period compared to operating income of R$33 million in the
2001 Interim Period.
Financial income (expenses), net
Financial income (expenses) includes (i) financial income, which is
mainly comprised of interest and monetary restatement of our account
receivable from the State Government, investment income, late charges on
overdue electricity bills, monetary restatement of recoverable tax, reversals
of interest and fines on taxes, foreign exchange gains, monetary restatement
of deferred regulatory assets, and (ii) financial expense, which is mainly
comprised of interest expense on loans and financing, the Contribuicao
Provisoria sobre a Movimentacao ou Transmissao de Valores e de Creditos e
Direitos de Natureza Financeira (a financial transaction tax), or CPMF,
foreign exchange losses, monetary restatement losses and other expenses.
Financial income was R$35 million in the 2002 Interim Period compared to
financial expense of R$92 million in the 2001 Interim Period. The main changes
were a decrease of R$129 million in foreign exchange net losses resulting from
the 0.1% devaluation of the real against the U.S. dollar in the three-month
period ended March 31, 2002 compared to a 10.6% devaluation of the real
against the U.S. dollar in the 2001 Interim Period and financial income in the
amount of R$23 million as a result of the monetary restatement on deferred
regulatory assets offset by an increase of R$19 million in the interest and
monetary restatement on loans and financing. See Notes 3, 14, 19 and 20 to our
interim financial statements.
Income taxes
Income taxes were expenses of R$16 million on pre-tax income of R$57
million in the 2002 Interim Period compared to benefit of R$47 million on
pre-tax loss of R$59 million in the 2001 Interim Period. See Note 5 to our
interim financial statements.
Net income (loss)
As a result of the foregoing, we had net income of R$41 million in the
2002 Interim Period compared to net loss of R$12 million in the 2001 Interim
Period.
Other comprehensive income
Other comprehensive income was R$3 million in the 2002 Interim Period
compared to income of R$9 million in the 2001 Interim Period as a result of
the change in the fair value (unrealized gain / losses) of the available for
sale securities recognized in shareholders' equity.
Comprehensive income (loss)
As a result of the factors stated above, comprehensive income was R$44
million in the 2002 Interim Period compared to comprehensive loss of R$3
million in the 2001 Interim Period.
**********
Item 5
Companhia Energetica de Minas Gerais - CEMIG
Refiled Interim Financial Statements
Together with Independent Public Accountants Report of Special Review
(Translated from the Original in Portuguese)
June 30, 2002
Item 5
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
INDEPENDENT ACCOUNTANTS REPORT ON SPECIAL REVIEW
------------------------------------------------
To the Shareholders and the Board of Directors of
Companhia Energetica de Minas Gerais - CEMIG
Belo Horizonte - MG
-------------------
1. We have performed a special review of the quarterly information,
presented in Brazilian reais - R$, of Companhia Energetica de Minas
Gerais - CEMIG and subsidiaries, as of June 30, 2002, and for the six
months and quarter then ended, prepared under responsibility of the
Company's management, in accordance with accounting practices established
by Brazilian corporate law, comprising the individual (Company) and
consolidated balance sheets, the individual (Company) and consolidated
statements of income, management's discussion and analysis and relevant
information.
2. We conducted our review in accordance with specific standards established
by the Brazilian Institute of Independent Accountants (IBRACON), together
with the Federal Accounting Council, which consisted principally of: (a)
inquiries of and discussions with management responsible for the
accounting, financial and operating areas of the Company and its
subsidiaries as to the principal criteria adopted in the preparation of
the quarterly information, and (b) review of the information and
subsequent events that had or might have had significant effects on the
Company's and its subsidiaries' financial positions and results of
operations.
3. In our special review report originally issued on August 14, 2002, on the
Company's quarterly information as of June 30, 2002, we mentioned that it
was impossible to conclude on the realization of accounts receivable from
the Government of the State of Minas Gerais, arising from the remaining
credit balance of the recoverable deficit account - CRC. As mentioned in
Note 8, the Company renegotiated this credit with the Minas Gerais State
Government, including receiving a guarantee represented by dividends to
which the State Government is entitled as a shareholder, for part of the
credit, and recognized an allowance for losses on the remaining portion,
in the amount of R$1,045,325,000. As mentioned in Note 2, as a result of
the recognition of this allowance, the quarterly information as of June
30, 2002 is being presented on a revised basis by the Company. As a
result, this report on our special review differs from that originally
issued on August 14, 2002.
4. Based on our special review, we are not aware of any material
modifications that should be made to the quarterly information referred
to in paragraph 1 above, for it to be in conformity with accounting
practices established by Brazilian corporate law and accounting standards
issued by the Brazilian Securities Commission (CVM), specifically
applicable to the preparation of mandatory quarterly financial
information.
1
Item 5
5. As mentioned in Notes 3 and 7 to the quarterly information, the Company
has recorded, as of June 30, 2002: (i) assets and liabilities related to
energy trade in the spot market recorded based on information made
available by Wholesale Energy Market Administrator in March 13, 2002 and
July 31, 2002, covering preliminary amounts for the period from April to
December 2001 and for the amounts covering the first semester of 2002
based on estimates developed by the management; (ii) accounts receivable
referring to special rate adjustment occurring to compensate losses of
revenue from the Emergency Electricity Rationing Plan; and (iii) prepaid
expenses related to the tariff adjustments and compensation of "Parcel A"
cost variations (CVA). These amounts result form the application of Law
10.438 issued on April 26, 2002, Executive Act No. 25 of January 24,
2002, and Energy Crisis Committee and ANEEL resolutions. The realization
of the balances recorded is occurring through billings to consumers
beginning January 2002, by applying an extraordinary tariff increase,
approved by the granting authority in December 2001, as well as through
future tariff revisions.
6. The individual (Company) and consolidated balance sheets as of March 31,
2002, presented for comparative purposes, were reviewed by other
independent accountants whose report thereon dated May 15, 2002, without
qualification and with emphasis of (i) assets and liabilities mentioned
in paragraph 5 above which were pending revision and confirmation by
ANEEL; (ii) ongoing negotiations at the time between the company
management and the Minas Gerais State Government in order to resolve the
payment delay of the recoverable deficit account - CRC. The individual
(Company) and consolidated statements of income for the quarter and
six-month period ended June 30, 2001, presented for comparative purpose,
were reviewed by other independent accountants whose report thereon dated
July 31, 2001, without qualification and with emphasis of (i) unrecorded
trade of energy on MAE - Wholesale Energy Market, which effect were
estimated as irrelevant by the company management; and (ii) the early
adoption, effective January 1, 2001, of the accounting method for
employee post-retirement benefit obligations related to supplementary
pension plans, life insurance are health plans, in conformity with CVM
Deliberation No. 371/2000.
7. The translation of this quarterly information into English has been made
solely for the convenience of readers outside Brazil.
Belo Horizonte, August 14, 2002
(except for the matters discussed in Notes 2 and 8 and in paragraph 3
above, as to which the date is January 21, 2003)
DELOITTE TOUCHE TOHMATSU Jose Carlos Amadi
Independent Accountants Engagement Partner
2
Item 5
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED BALANCE SHEETS
JUNE 30, 2002 AND MARCH 31, 2002
(Expressed in thousands of Brazilian reais - R$)
------------------------------------------------------------------------------
A S S E T S
----------------
Consolidated Company
-------------------------------------- ------------------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
-------------- --------------- -------------- --------------
CURRENT ASSETS:
Cash and cash equivalents 424,313 605,800 368,463 548,764
Accounts receivable 704,922 546,447 696,347 537,620
Consumers - Special rate adjustment 248,751 234,708 248,751 234,708
Concessionaires - Energy transportation 16,844 16,776 16,844 16,776
Recoverable taxes 127,772 32,044 106,469 28,471
Materials and supplies 14,559 12,788 11,514 11,318
Prepaid expenses - CVA 65,805 68,588 65,805 68,588
Other 114,702 89,195 118,242 99,736
-------------- --------------- -------------- --------------
1,717,668 1,606,346 1,632,435 1,545,981
-------------- --------------- -------------- --------------
NONCURRENT ASSETS:
Receivable from Minas Gerais State Government 544,106 1,533,943 544,106 1,533,943
Consumers - Special rate adjustment 1,353,340 1,420,549 1,353,340 1,420,549
Prepaid expenses - CVA 148,165 120,305 148,165 120,305
Tax credits 536,132 400,261 521,969 397,756
Marketable securities 68,287 75,622 68,287 75,622
Electricity Rationing Plan - Bonus paid to
consumers and adoption costs incurred 209,660 201,589 209,660 201,589
Distributors - Energy supply 121,215 115,788 121,215 115,788
Project studies based on service rendered 25,999 25,999 25,999 25,999
Others 188,399 139,363 177,574 118,191
-------------- --------------- -------------- --------------
3,195,303 4,033,419 3,170,315 4,009,742
PERMANENT ASSETS:
Investments 456,597 405,452 884,694 730,609
Property, plant and equipment 7,725,293 7,550,371 7,231,974 7,235,221
Deferred charges 19,870 11,107 1,487 1,719
8,201,760 7,966,930 8,118,155 7,967,549
--------------- --------------- -------------- --------------
Total assets 13,114,731 13,606,695 12,920,905 13,523,272
=============== =============== ============== ==============
The accompanying condensed notes are an integral part of these balance sheets.
3
Item 5
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED BALANCE SHEETS
JUNE 30, 2002 AND MARCH 31, 2002
(Expressed in thousands of Brazilian reais - R$)
------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Consolidated Company
-------------------------------- -----------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
-------------- -------------- ------------- ------------
SHORT-TERM LIABILITIES:
Suppliers 684,159 614,158 662,524 602,471
Taxes payable 428,418 334,693 410,982 331,639
Advance billings of electric power 12,226 26,880 12,226 26,880
Loans and financing 437,927 370,574 413,882 358,312
Payroll and related charges 98,936 83,289 97,664 82,840
Dividends and interest on capital 315,437 206,263 315,240 206,066
Employee post-retirement benefits 167,015 152,530 167,015 152,530
Regulatory charges 49,235 50,270 49,175 50,085
Other 83,233 108,937 80,254 108,626
-------------- -------------- ------------- ------------
2,276,586 1,947,594 2,208,962 1,919,449
-------------- -------------- ------------- ------------
LONG-TERM LIABILITIES:
Loans and financing 2,324,465 1,960,827 1,580,688 1,285,416
Debentures - - 654,984 636,515
Employee post-retirement benefits 1,726,721 1,714,412 1,726,721 1,714,412
Suppliers 450,761 431,634 450,761 431,634
Electricity Rationing Plan - Surcharge applied to
consumers 25,002 25,716 25,002 25,716
Reserve for contingencies 321,409 329,396 321,409 329,396
Other 65,831 59,559 64,858 58,731
-------------- -------------- ------------- -------------
4,914,189 4,521,544 4,824,423 4,481,820
-------------- -------------- ------------- -------------
MINORITY INTEREST 36,436 15,554 - -
SHAREHOLDERS' EQUITY:
Capital 1,621,538 1,589,995 1,621,538 1,589,995
Capital reserves 4,074,949 4,106,492 4,074,949 4,106,492
Income reserves 1,153,736 1,153,476 1,153,736 1,153,476
Accumulated (deficit) earnings (989,826) 244,917 (989,826) 244,917
-------------- -------------- ------------- --------------
5,860,397 7,094,880 5,860,397 7,094,880
Funds for future capital increase 27,123 27,123 27,123 27,123
-------------- -------------- ------------- --------------
5,887,520 7,122,003 5,887,520 7,122,003
-------------- -------------- ------------- --------------
Total liabilities and shareholders equity 13,114,731 13,606,695 12,920,905 13,523,272
============== ============== ============= ==============
The accompanying condensed notes are an integral part of these balance sheets.
4
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED STATEMENTS OF INCOME
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
(Expressed in thousands of Brazilian reais - R$, except for per share data)
------------------------------------------------------------------------------
Consolidated Company
------------ -------
Six months period Six months period
ended June 30, ended June 30,
--------------------------------------- ------------------------------------
2001 2001
2002 reclassified 2002 reclassified
---------------- ----------------- -------------- ----------------
OPERATING REVENUES:
Electricity sales 2,592,824 2,500,654 2,572,982 2,484,146
Special rate adjustment 261,425 - 261,425 -
Other operating revenues 183,004 179,324 117,205 126,438
----------------- ------------------ --------------- -----------------
3,037,253 2,679,978 2,951,612 2,610,584
DEDUCTIONS FROM OPERATING REVENUES: (755,903) (682,682) (748,092) (677,454)
----------------- ------------------ --------------- -----------------
Net operating revenues 2,281,350 1,997,296 2,203,520 1,933,130
----------------- ------------------ --------------- -----------------
OPERATING EXPENSES:
Personnel (265,182) (303,064) (261,689) (302,387)
Materials and supplies (34,163) (33,365) (33,474) (33,139)
Outside services (111,736) (104,991) (107,694) (101,964)
Charges for use of water resources (22,176) (21,081) (21,631) (20,753)
Electricity purchased for resale (662,237) (512,081) (662,237) (512,081)
Use of basic transmission network (142,208) (131,826) (142,208) (131,826)
Depreciation and amortization (270,843) (253,544) (257,729) (247,729)
Employee post-retirement benefits (108,499) (100,530) (108,499) (100,530)
Operating provisions (8,419) (13,976) (8,419) (13,976)
Fuel consumption quota - CCC (160,004) (156,259) (160,004) (156,259)
Gas purchased for resale (45,059) (38,366) - -
Other (75,259) (93,862) (71,819) (92,706)
----------------- ------------------ --------------- -----------------
(1,905,785) (1,762,945) (1,835,403) (1,713,350)
----------------- ------------------ --------------- -----------------
Income from operations before equity in subsidiaries 375,565 234,351 368,117 219,780
financial income (expense)
----------------- ------------------ --------------- -----------------
EQUITY IN SUBSIDIARIES - - (280) 9,180
----------------- ------------------ --------------- -----------------
FINANCIAL INCOME (EXPENSES):
Financial income 380,302 190,035 375,159 187,569
Financial expenses (687,132) (359,037) (659,824) (356,378)
----------------- ------------------ --------------- -----------------
(306,830) (169,002) (284,665) (168,809)
----------------- ------------------ --------------- -----------------
Income from operations 68,735 65,349 83,172 60,151
----------------- ------------------ --------------- -----------------
NON-OPERATING EXPENSES, NET (1,059,172) (26,481) (1,059,172) (26,482)
----------------- ------------------ --------------- -----------------
(Loss) income before taxes on income and employee (990,437) 38,868 (976,000) 33,669
profit sharing
----------------- ------------------ --------------- -----------------
Income and social contribution tax expenses (22,360) (14,898) (28,142) (9,991)
Employee profit sharing (10,654) (9,526) (10,654) (9,526)
Reversion of interest on capital 120,000 - 120,000 -
----------------- ------------------ --------------- -----------------
(Loss) income before minority interest (903,451) 14,444 (894,796) 14,152
MINORITY INTEREST 8,655 (292) - -
----------------- ------------------ --------------- -----------------
NET (LOSS) INCOME FOR THE PERIOD (894,796) 14,152 (894,796) 14,152
================= ================== =============== =================
NUMBER OF THOUSAND SHARES 162,084,691 158,931,714 162,084,691 158,931,714
================= ================== =============== =================
(LOSSES) EARNINGS PER SHARE - R$ (0,00552) 0.00009 (0,00552) 0.00009
================= ================== =============== =================
The accompanying condensed notes are an integral part of these interim statements.
5
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(Expressed in thousands of Brazilian reais - R$, except for per share data)
------------------------------------------------------------------------------
Consolidated Company
----------------------------------- --------------------------------
Quarter Quarter
ended June 30, ended June 30,
----------------------------------- --------------------------------
2001 2001
2002 (reclassified) 2002 (reclassified)
--------------- --------------- ------------ ---------------
OPERATING REVENUES:
Electricity sales 1,412,929 1,298,853 1,399,613 1,290,591
Special rate adjustment (53,739) - (53,739) -
Other operating revenues 102,036 93,061 60,912 65,179
---------------- ---------------- ------------- ---------------
1,461,226 1,391,914 1,406,786 1,355,770
DEDUCTIONS FROM OPERATING REVENUES: (418,680) (354,686) (413,463) (352,022)
---------------- ---------------- ------------- ---------------
Net operating revenues 1,042,546 1,037,228 993,323 1,003,748
---------------- ---------------- ------------- ---------------
OPERATING EXPENSES:
Personnel (131,907) (136,153) (129,511) (135,798)
Materials and supplies (18,192) (16,256) (17,572) (16,112)
Outside services (60,233) (57,936) (57,755) (56,137)
Charges for use of water resources (13,503) (9,902) (13,187) (9,790)
Electricity purchased for resale (302,263) (279,724) (302,263) (279,724)
Use of basic transmission network (77,317) (65,791) (77,317) (65,791)
Depreciation and amortization (138,420) (127,446) (129,227) (124,496)
Employee post-retirement benefits (54,249) (50,266) (54,249) (50,266)
Operational provisions 5,826 (10,479) 5,826 (10,479)
Fuel consumption quota - CCC (90,467) (84,843) (90,467) (84,843)
Gas purchased for resale (27,144) (20,337) - -
Other (39,069) (54,065) (36,691) (53,332)
---------------- ---------------- ------------- ---------------
(946,938) (913,198) (902,413) (886,768)
---------------- ---------------- ------------- ---------------
Income from operations before equity in
subsidiaries and financial income (expenses) 95,608 124,030 90,910 116,980
---------------- ---------------- ------------- ---------------
EQUITY IN SUBSIDIARIES - - (1,730) 4,813
---------------- ---------------- ------------- ---------------
FINANCIAL INCOME (EXPENSES)
Financial income 229,538 97,815 226,181 95,686
Financial expenses (602,872) (166,199) (577,701) (164,042)
---------------- ---------------- ------------- ---------------
(373,334) (68,384) (351,520) (68,356)
---------------- ---------------- ------------- ---------------
(Loss) income from operations (277,726) 55,646 (262,340) 53,437
---------------- ---------------- ------------- ---------------
NON-OPERATING EXPENSES, NET (1,052,195) (3,747) (1,052,195) (3,748)
---------------- ---------------- ------------- ---------------
(Loss) income before taxes on income and
employee profit sharing (1,329,921) 51,899 (1,314,535) 49,689
---------------- ---------------- ------------- ---------------
Income and social contribution tax credit (expense) 92,920 (21,247) 86,321 (19,189)
Employee profit sharing (6,529) (3,837) (6,529) (3,837)
Reversion of interest on Shareholders' Equity 120,000 - 120,000 -
---------------- ---------------- ------------- ---------------
(Loss) income before minority interest (1,123,530) 26,815 (1,114,743) 26,663
MINORITY INTEREST 8,787 (152) - -
---------------- ---------------- ------------- ---------------
NET (LOSS) INCOME FOR THE PERIOD (1,114,743) 26,663 (1,114,743) 26,663
================ ================ ============= ===============
NUMBER OF THOUSAND OF SHARES 162,084,691 162,084,691 158,931,714 158,931,714
================ ================ ============= ===============
LOSSES (INCOME) PER SHARE - R$ (0,00688) 0.00017 (0,00688) 0.00017
================ ================ ============= ===============
The accompanying condensed notes are an integral part of these interim unaudited statements.
6
Item 5
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
(Amounts expressed in thousands of Brazilian reais - R$, unless otherwise
indicated)
------------------------------------------------------------------------------
1) THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG ("CEMIG" or the "Company"), a
company organized under the laws of the Federative Republic of Brazil, is an
electric power concessionaire are public utility controlled by the Government
of the State of Minas Gerais, Brazil (the "State Government"). Its principal
activities are the construction and operation of systems used in the
generation, transmission, distribution and sale of electric energy, as well as
certain related business activities.
The Company has equity interests in the following companies:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest) - Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest) - Its
principal activities are the production and sale of electric energy, as
an independent power producer, at the Ipatinga thermoelectric power plant
located at the facilities of Usinas Siderurgicas de Minas Gerais -
USIMINAS;
o Companhia de Gas de Minas Gerais - GASMIG ("GASMIG") (95.17% interest) -
Its principal activities are the operation, production, acquisition,
storage, transportation and distribution of natural gas and related
products. GASMIG was granted a concession by the State Government to
perform these activities;
o Empresa de Infovias S.A. ("Infovias") (94.89% interest) - Its principal
activities are rendering telecommunications services and developing
activities related thereto, through integrated systems using optical
fiber cable, coaxial cable, electronic equipment and other (multiservice
networks). Infovias owns 51% of the capital stock of Way TV Belo
Horizonte S.A., a cable TV and internet services provider in certain
cities in the State of Minas Gerais. In June of 2002 CEMIG acquired
45.44% of the share equity of Infovias (See more information Note 11)
and,
o Additionally, the Company has a 100% interest in each of the following
companies: Cemig PCH S.A., Cemig Capim Branco Energia S.A. and UTE
Barreiro S.A. The principal activities of these Companies are the
production and sale of electric energy, as independent power producers
and they are still pre-operational.
7
Item 5
2) PRESENTATION OF THE FINANCIAL STATEMENTS
(a) Basis of consolidation
The financial statements of Infovias were fully consolidated in this quarter
using the proportionate consolidation method, due to the purchase of 45.55% of
the Infovias capital by CEMIG. Therefore, CEMIG became the majority
shareholder of Infovias with a 94.89% in Infovias' capital (see further
information on Note 11).
In the current period, the consolidated financial statements include the
financial statements of Cemig PCH S.A., Cemig Capim Branco S.A. and UTE
Barreiro S.A., as a result of the payment of capital by CEMIG, in the second
quarter of 2002, through the transfer of fixed assets.
The accounting practices, methods and criteria used by the Company in the
preparation of these quarterly financial statements are consistent with those
applied in the financial statements as of and for the year ended December 31,
2001.
(b) Reclassification of account balances
In order to conform to the current presentation, the Company reclassified
certain 2001 balances, as follows:
Original Account Reclassified Account Consolidated Company
----------------------------------- ---------------------------------------------------- ------------- ------------
Employee post-retirement benefits
Financial expenses - FORLUZ debt Operating expenses-Employee post-retirement benefits 91,910 91,910
Operational provisions Operating expenses-Employee post-retirement benefits 8,620 8,620
PASEP and COFINS on financial
income:
Financial expenses Financial income 7,024 7,024
Other Operating Income and Expense
Other operating income Operating Revenues 53,675 53,673
Other operating expense General operational and administrative expense 87,485 86,465
In order to prepare the individual and consolidated statements of cash flows
presented in Note 27, CEMIG reclassified escrow accounts in the amount of
R$157,295 and R$67,171 as of June 30, 2001 and December 31, 2000,
respectively, originally recorded under Assets - Cash and cash equivalents, to
Liabilities as a reduction of loans and financing.
(c) Revision of interim financial statements
CVM (Brazilian Securities Commission) letter, of January 7, 2003, required the
Company to refile its quarterly information as of June 30, 2002 to include an
allowance for losses on receivables from the Minas Gerais State Government, as
described in Note 8. Therefore, the Company refiled its new quarterly
information as of June 30, 2002, including the mentioned allowance. Other
subsequent events that may impact the interim financial information as of June
30, 2002 were not considered as the same are being presented in the interim
financial statement of September 30, 2002 filed on the same date.
The new quarterly information as of June 30, 2002, now being presented,
differs from that originally filed on August 19, 2002, with respect to the
allowance for losses and additional information included in Note 8 and the
corresponding effects on financial income, extraordinary losses and income
taxes.
8
Item 5
3) CONSUMERS - SPECIAL RATE ADJUSTMENT
In December 2001, the Federal Government, through the Camara de Gestao da
Crise de Energia Eletrica (the Federal Government's Electric Energy Crisis
Committee or the "Energy Crisis Committee"), and the electricity distribution
and generation concessionaires entered into the Acordo Geral do Setor Eletrico
("General Agreement of the Electricity Sector"). This agreement defines
criteria to ensure the economic and financial equilibrium of the concession
contracts and to reimburse such concessionaires for lost revenues related to
the period when the Electricity Rationing Plan was in force, through a special
rate adjustment.
Law No. 10,438 of April 26, 2002 and the Energy Crisis Committee's Resolution
No. 91 of December 21, 2001, established a special rate adjustment beginning
December 27, 2001. The rate increases were defined through the Energy Crisis
Committee's Resolution No. 130 of April 30, 2002, as follows:
o an increase of 2.90% for rural and residential consumers (excluding
low-income consumers), street lighting and high tension industrial
consumers whose costs related to electric energy represent at least
18.00% of average production cost and meet certain criteria, related
to charge and demand energy factors which were determined in the
Resolution.
o an increase of 7.90% for all other consumers.
The special rate adjustment mentioned will be used in the recovery of the
following items:
a) Billing losses in the period from June 1, 2001 to February 28, 2002,
representing the difference between the Company's estimated revenue,
assuming that the Electricity Rationing Plan had not been
implemented, and the actual revenue earned during the rationing
period, as established by ANEEL (National Energy Authority). The
computation does not include State VAT and overdue payment losses
which the Company does not expect will be material.
b) Variation in Parcel "A" Items (uncontrolled costs as established by
the concession contracts) related to the period between January 1,
2001 to October 25, 2001. The amount to be reimbursed is equal to
the difference between the Parcel "A" costs effectively paid and the
estimated Parcel "A" costs used for purposes of computing the most
recent annual rate adjustment.
c) Amounts to be transferred to generators for the energy purchased on
the MAE, from June 1, 2001 to February 28, 2002, at a price
exceeding R$49.26/MWh. This includes the taxes and charges on
revenue (PASEP, COFINS, RGR and CPMF) since the Company is only
responsible to transfer these amounts to generators.
The amounts related to the billing losses and compensation of variations in
Parcel "A" uncontrolled costs Items, further described in ("a") and ("b"),
have been submitted to ANEEL for validation and approval, in accordance with
legislation in force. The amounts to be paid to generators, described in ("c")
were accrued based on preliminary information provided by MAE. MAE's and
ANEEL's review may result in changes in the Company's future financial
results.
The amounts related to 2001, which will be realized through the special rate
adjustment, described in items ("a"), ("b") and ("c") have been restated based
on SELIC (Brazilian Central Bank overnight interest rate) from January 1, 2002
to the month of their effective recovery. The amounts in items ("a") and ("c")
related to 2002 have been updated from March 1, 2002 using the same criteria.
ANEEL's review changed certain assumptions adopted to estimate the billing
losses during the Electricity Rationing Plan. Therefore, the Company made, in
the second quarter of 2002, a reversion of R$53,739 in the amounts to be
realized through the special rate adjustment mentioned in item ("a").
The State VAT related to the special rate adjustment, related to future
billings, which is estimated to be R$400,523, only becomes an obligation once
the customers are billed. In this context, the Company's only responsibility
is to transfer this tax from consumers to State tax authorities.
9
Item 5
The amounts to be recovered through the special rate adjustments mentioned in
items "a", "b", and "c" are as follows:
Company and consolidated
June 30, 2002 March 31, 2002
Principal SELIC
Billing losses during the Electricity
Rationing Plan 871,880 71,334 943,214 959,448
Amounts collected in the six-month period
ended June 30, 2002 755,205 67,583 822,788 905,776
Recovery of uncontrollable cost variations
relating to Parcel "A" 447,248 37,458 484,706 464,139
Recovery of spot market amounts by generators 1,447,570 154,521 1,602,091 1,655,257
Current 248,751 234,708
Noncurrent 1,353,340 1,420,549
In counterpart to the amounts to be collected through the special rate
adjustment, CEMIG has recorded a long-term liability in the amount of
R$450,761, related to reimbursement to generators for energy purchased on the
MAE, described in item ("c").
Accounting Effects
The effects in the six-month period ended June 30, 2002 resulting from the
operations mentioned in items ("a"), ("b") and ("c"), were the follows:
Transfer of
Recovery of values to
Billing losses Parcel "A" Generators Tax effects Total
-------------- ---------- ---------- ----------- -----
Revenue from special rate adjustments 215,201 -- 46,224 -- 261,425
Electricity Sales to the interconnected power system -- -- 32,272 -- 32,272
Deductions from operating revenues -- -- -- (19,531) (19,531)
Operating expenses -- 2,044 (42,987) -- (40,943)
Financial income 67,583 23,701 46,262 (5,020) (132,526)
Financial expenses -- -- (34,834) -- (34,834)
Income and social contribution tax -- -- -- (112,511) (112,511)
-------- -------- -------- --------- ---------
282,784 25,745 46,937 (137,062) 218,404
======== ======== ======== ========= =========
10
Item 5
4) CASH AND CASH EQUIVALENTS
The composition of the balance is as follows:
Consolidated Company
----------------------------------------------------------------------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
------------------- ------------------- ------------------- -----------------
Banks 94,106 79,035 87,798 75,516
Short term investments 330,207 526,765 280,665 473,248
------------------- ------------------- ------------------- -----------------
424,313 605,800 368,463 548,764
=================== =================== =================== =================
Approximately R$248,062 of the short-term investments refers to funds obtained
from the issuance of debentures. These funds were obtained to be used in the
investment plan related to expansion of the Company's energy generation,
transmission and distribution operations.
5) ACCOUNTS RECEIVABLE
Consolidated
----------------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - up accounts - June 30, March 31,
Consumers Class Current to 90 days over 90 days 2002 2002
--------------------------------------------------- ----------- -------------- ------------- ----------- ------------
Residential 177,953 81,707 9,510 269,170 221,011
Industrial 141,111 44,552 33,421 219,084 185,633
Commercial 63,441 37,189 7,671 108,301 87,180
Rural 21,720 9,296 2,434 33,450 25,447
Public authorities 11,202 15,324 7,719 34,245 25,532
Public lighting 7,252 19,536 2,706 29,494 20,745
Public services 46,264 2,023 789 49,076 39,463
----------- -------------- ------------- ----------- ------------
Subtotal - Consumers 469,033 209,627 64,250 742,820 605,011
Supply 5,572 - 2,117 7,689 3,123
Allowance for doubtful accounts - - (45,587) (45,587) (61,687)
----------- -------------- ------------- ----------- ------------
474,515 209,627 20,780 704,922 546,447
=========== ============== ============= =========== ============
Company
-----------------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - up accounts - June 30, March 31,
Consumers Class Current to 90 days over 90 days 2002 2002
--------------------------------------------------- ----------- -------------- ------------- ----------- ------------
Residential 177,953 81,707 9,510 269,170 221,011
Industrial 139,382 44,552 33,421 217,355 177,818
Commercial 56,595 37,189 7,671 101,455 86,168
Rural 21,720 9,296 2,434 33,450 25,447
Public authorities 11,202 15,324 7,719 34,245 25,532
Public lighting 7,252 19,536 2,706 29,494 20,745
Public services 46,264 2,023 789 49,076 39,463
----------- -------------- ------------- ----------- ------------
Subtotal - Consumers 460,368 209,627 64,340 734,245 596,184
Supply 5,572 - 2,117 7,689 3,123
Allowance for doubtful accounts - - (45,587) (45,587) (61,687)
----------- -------------- ------------- ----------- ------------
465,940 209,627 20,780 696,347 537,620
=========== ============== ============= =========== ============
The allowance for doubtful accounts reduction is due to credits in arrears to
be collected from an industrial consumer.
11
Item 5
6) RECOVERABLE TAXES
Consolidated Company
------------------------------- --------------------------------
June 30, 2002 March 31 2002 June 30, 2002 March 30, 2002
-------------- --------------- -------------- ----------------
State VAT - ICMS 27,701 25,443 22,958 22,483
Income and social contribution tax 98,972 6,548 83,153 5,935
Others 1,099 53 358 53
-------------- --------------- -------------- ----------------
127,772 32,044 106,469 28,471
============== =============== ============== ================
The balances of income and social contribution tax are basically related to
the amendment of CEMIG's income tax and social contribution tax obligations
for the year ended December 31, 1997, pleading the deductibility of costs
related to returns from post-retirement benefits obligations in compliance
with CVM Resolution No, 371/00. This amendment resulted in prepaid income and
social contribution taxes in the amount of R$160,804 which have been
offsetting by the Company.
The recoverable State VAT credits are being offset by the Company and its
subsidiaries with the State VAT to be paid. The amount of R$18,843, referring
to tax credits for which such offset is under negotiation with the State
Government, is recorded under Noncurrent Assets - Other.
7) PREPAID EXPENSES - CVA
The balance of the recoverable variation account of Parcel "A" items - "CVA",
monetarily restated by SELIC, refers to the variation, which began on October
26, 2001, between the estimated Parcel "A" costs of the Company and payments
effectively made. The variations will be recovered in subsequent annual rate
adjustments as follows:
Consolidated and Company
----------------------------------------------------------------------------
Amount to be Amount to be Total
compensated until compensated after Total June March 31,
April, 2003 April, 2003 30, 2002 2002
-------------------- ------------------- --------------- -----------------
System service charges - ESS - 109,074 109,074 102,086
Itaipu Binacional electricity purchase tariff 34,341 75,455 109,796 60,325
Itaipu Binacional electricity transport tariff 1,245 787 2,032 2,241
Fuel usage quota - CCC 9,922 (32,243) (22,321) 7,246
Tariff for use of basic transmission network 8,583 5,135 13,718 15,451
Charges for use of water recourses - 1,671 1,671 1,544
-------------------- ------------------- --------------- -----------------
54,091 159,879 213,970 188,893
==================== =================== =============== =================
The above-mentioned amounts are updated based on the SELIC rate from the
payment date to effective recovery through annual rate adjustments.
The amounts to be compensated by April 2003 refer to variation of
uncontrollable costs that were included in the annual rate adjustment on April
8, 2002 and are being transferred monthly to operating expenses on a linear
basis.
12
Item 5
The System service charges - ESS for the period from September 2000 to March
2001 were accrued based on definitive information provided by MAE on July 25,
2002. The amounts relating to the period from April 2001 to December 2001 were
accrued based on the preliminary information provided by MAE on March 13,
2002. The values for the period from January to June 2002 were accrued based
on Company estimates and are subject to change. Such amounts will be
monetarily restated by SELIC beginning on the effective payment date.
Part of the amounts will be submitted to ANEEL for validation and approval
and, therefore, may alter the recorded amounts and may impact the Company's
future financial results.
8) RECEIVABLE FROM MINAS GERAIS STATE GOVERNMENT
The remaining balance of the CRC Account (Recoverable Rate Deficit) was
transferred to the State Government in 1995, through a credit assignment
contract, pursuant to Law No. 8,724/93. This balance is payable monthly over
17 years beginning June 1, 1998, and accrues annual interest of 6% and is
subject to updating based on the IGP-DI (General Price Index).
As of June 30, 2002, the total account receivable balance was R$1,626,874,
including monetary restatement, as established by the credit assignment
contract.
Also as of June 30, 2002, the installments with maturity from April 1, 1999 to
December 1, 1999 and March 1, 2000 to March 1, 2002 are in arrears, totaling
R$ 509,589, including monetary restatement and related late payment charges.
Subsequent events
In October 2002, negotiations between CEMIG and the Minas Gerais State
Government, related to the CRC receivable, were concluded, as described below:
(a) Second Amendment of Credit Assignment Contract for CRC, signed on October
14, 2002
This Amendment refers to 149 installments, maturing from January 1, 2003 to
May 1, 2015, in the total amount of R$1,082,768, as of June 30, 2002. These
installments are subject to annual interest of 6% and are updated based on the
IGP-DI. The Minas Gerais State Government and CEMIG have decided to sign this
Amendment in order to preserve the terms and conditions of the original
contract and to allow a transfer of this asset to BNDES (Brazilian Economic
and Social Development Bank). This Amendment was signed pursuant to Law No.
10,438/02 which guarantees to CEMIG the recovery of its credits that arose
from the General Agreement of the Electricity Sector.
This Amendment was signed based on Law No. 14,384 of October 11, 2002, enacted
by the Minas Gerais State Legislature, which granted guarantees to BNDES
regarding the revenues from taxes and other revenues as established by the
Brazilian Constitution, through Articles 155, 157 and 159. The Board of
Directors of CEMIG approved this Amendment on October 23, 2002.
The Minas Gerais State Government did not pay the installment maturing on
January 1, 2003, in the amount of R$12,104. Company management is negotiating
the collection of the aforementioned past due amount with the Minas Gerais
State Government, under the conditions established by the contract.
Transfer to BNDES
The transfer of the asset mentioned above is linked to the General Agreement
of the Electricity Sector which established that the Company would be entitled
to a BNDES funding program, or an equivalent transaction, in order to
anticipate the effective recovery of a significant part (approximately 90%) of
its rights that arose from the Electric Rationing Program. The funds from such
transaction would be used to settle the MAE transactions
13
Item 5
and reimburse the billing losses and additional costs incurred during the
period in which the Electricity Rationing Program was in force in 2001 and
2002.
The National Treasury Secretary - STN, responsible for implementation of the
funding program, suggested the transfer of the CRC asset to the Federal
Government in order to solve the restrictions applicable to CEMIG for being a
partially state-owned company. Such transaction would be equivalent to the
BNDES funding program, and would provide the Company with necessary resources
to settle the obligations and rights mentioned above.
Allowance for losses
Due to the fact that negotiations with the STN are still in progress at the
present date, and the non-inclusion in the Second Amendment of additional
guarantees that would assure the realization of the aforementioned asset,
CEMIG recorded an allowance for losses in the amount of R$1,045,325. This
allowance represents the total amount of the referred amendment as of March
31, 2002 (original contract installments with maturities from January 1, 2003
to May 1, 2015). Thus, the effect of updating the balance, from March 31, 2002
to June 30, 2002, in the amount of R$37,443, was excluded from the statement
of income for the six-month period ended June 30, 2002. On January 21, 2003,
the Board of Directors approved recognition of the allowance.
The allowance for losses on this asset was recorded in the statement of income
as an extraordinary loss in non-operating expense, since it does not result
from the Company's operations during the period, and has an abnormal nature.
Such allowance did not impact deferred income and social contribution taxes,
since it represents a permanent difference to be included in the taxable
income calculation.
(b) Third Amendment of Credit Assignment Contract for CRC, signed on October
24, 2002
CEMIG and the Minas Gerais State Government signed this Amendment in order to
reschedule the payment of installments originally due from April 1, 1999 to
December 1, 1999 and from March 1, 2000 to December 1, 2002. These
installments, in the total amount of R$544,106, as of June 30, 2002, are
subject to annual interest rate of 12.00% and are updated based on the IGP-DI.
They will be paid in 149 monthly installments from January 2003 to May 2015.
The original contract included the guarantee of the State Government's share
of taxes collected by the Federal Government entitled Fundo de Participacao
dos Estados - FPE. This Amendment established an additional guarantee which
now allows the Company to retain dividends and interest on capital to be paid
to the Minas Gerais State Government, as a Company shareholder.
This Amendment was signed based on Law No.14,384 of October 11, 2002, enacted
by the Minas Gerais State Legislature. The Board of Directors of CEMIG
approved this Amendment on October 23, 2002.
The Minas Gerais State Government did not pay the installment of the third
amendment due on January 1, 2003, in the amount of R$9,150. Company management
is negotiating the collection of the aforementioned past due amount with the
Minas Gerais State Government.
The projection of the Company's future operations indicates that the dividends
attributable to the Minas Gerais State Government will be sufficient to assure
the full realization of the asset, in case of default by the State.
Management will monitor future events which may impact the Company's dividend
payment projection, in order to conclude if the above-mentioned guarantee is
still effective or an additional allowance under this amendment is necessary.
14
Item 5
9) INCOME AND SOCIAL CONTRIBUTION TAXES
a) Tax credits
The Company and its subsidiaries have tax credits recorded as noncurrent
assets. The income tax credits are recorded at a 25% rate and social
contribution tax credits are recorded at an 8% rate (considering the expected
realization after 2003), The composition of the balances is as follows:
Consolidated Company
------------------------------- --------------------------------
June 30, 2002 March 31 2002 June 30, 2002 March 31, 2002
-------------- --------------- -------------- ----------------
Tax credit on:
Tax loss carryforwards 266,959 159,617 252,869 157,182
Employee post retirement benefits 153,155 149,501 153,155 149,501
Reserve for contingencies 58,352 56,391 58,352 56,391
Accrual for voluntary termination program - PDV 8,943 8,507 8,943 8,507
Allowance for doubtful accounts 15,080 20,393 15,080 20,393
Allowance for decrease in market value of marketable
securities 11,517 2,861 11,517 2,861
Reserve for PASEP/COFINS - Special Rate Adjustment 17,209 - 17,209 -
Others 4,917 2,991 4,844 2,921
-------------- --------------- -------------- ----------------
536,132 400,261 521,969 397,756
============== =============== ============== ================
The income and social contribution tax credits on tax loss carryforwards were
recorded as a result of the recognition of the obligations due to FORLUZ in
compliance with CVM Resolution No. 371.
In accordance with the CVM Instruction No. 371, date August 1, 2002, the
realization of the tax credits was based in the future results of the Company
and its subsidiaries, as follows:
---------------------- ---------------------
Consolidated Company
---------------------- ---------------------
2003 854 -
2004 79,727 78,969
2005 120,622 116,557
2006 132,074 127,611
2007 100,779 96,756
2008 a 2010 65,759 65,759
2011 a 2012 36,317 36,317
---------------------- ---------------------
536,132 521,969
====================== =====================
The Company expects to fully comply with the dispositions of CVM Instruction
No. 371 by the end of the third quarter of 2002.
15
Item 5
b) Reconciliation of income tax and social contribution tax expenses
The reconciliation between the nominal expense/credit of income tax (25% rate)
and social contribution tax (9% rate) and the effective expense presented in
the statement of income is as follows:
Consolidated Company
----------------------------------- --------------------------------
Six months ended Six months ended
June 30, June 30,
----------------------------------- --------------------------------
2002 2001 2002 2001
--------------- --------------- ------------ ---------------
(Loss) Income before taxes on income and
employee profit sharing (990,437) 38,868 (976,000) 33,669
Income and social contribution taxes - nominal 336,748 (13,215) 331,840 (11,447)
Tax effects on:
Allowance for losses on receivable from Minas
Gerais State Government (355,411) - (355,411) -
Employee profit sharing 3,485 3,239 3,485 3,239
Reversal of social contribution tax on
additional monetary restatement (4,677) (4,867) (4,677) (4,867)
Equity pick-up in subsidiaries - - (1,374) 3,121
Contributions and grants not deductible (1,682) (1,823) (1,682) (1,823)
Other (823) 1,768 (323) 1,786
---------------- --------------- -------------- ---------------
Income and social contribution tax in income
statement - expense (22,360) (14,898) (28,142) (9,991)
================ =============== ============== ==============
10) BONUS, NET OF SURCHARGE, AND COSTS TO BE REIMBURSED AS A RESULT OF THE
ELECTRICITY RATIONING PROGRAM
Through the Energy Crisis Committee, the Federal Government established
electric energy consumer targets for all consumers affected by the Electricity
Rationing Plan in force during the period from June 2001 to February 2002. A
financial bonus was established for residential consumers whose electric
energy consumption was lower than the target, and surcharges were established
for all consumers whose consumption exceeded the target, calculated based on
the effective consumption in excess of such target, as established by the
Energy Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Electricity Rationing Program involving the bonus, surcharge and related
costs. The related effects are as follow :
June 30, March 31,
2002 2002
------------------ -----------------
Noncurrent Assets
Bonus paid to consumers that consumed less than the target consumption 181,794 181,797
Costs incurred related to the adoption of the Electricity Rationing
Program in excess of the 2.00% surcharge on consumer tariffs. 27,866 19,792
------------------ -----------------
209,660 201,589
Long-term Liabilities
Surcharge applied to consumers that consumed more than the target consumption (25,002) (25,716)
------------------ -----------------
Net Disbursements
Net bonus paid to consumers and related costs in excess of the
surcharge applied to consumers 184,658 175,873
================== =================
In conformity with Federal Government Executive Act No. 4, dated October 17,
2001, the Federal Government, acting through its Ministry of Mines and Energy,
will reimburse electric utilities, including CEMIG, for costs associated with
the payment of bonuses to consumers and other related operating costs that
exceeded the
16
Item 5
surcharge on tariffs. This reimbursement will be subject to ANEEL's review.
The Energy Crisis Committee will establish the procedures and deadlines
relating to such reimbursement.
ANEEL has approved, through its Resolutions issued on March 14, 2002 and April
25, 2002, the net amount of R$132,630 to be reimbursed by Federal Government.
The remaining balance of R$52,028, which refers to costs related to the
adoption of the Electricity Rationing Plan in excess of the 2.00% surcharge on
consumers and the parcel of surcharges which were not billed and collected
from the consumers since they are under judicial dispute, is being discussed
between CEMIG and ANEEL. The Company's management does not expect losses on
the realization of this asset.
As of June 16, 2002, ANEEL reimbursed part of the bonus given to the
consumers, in the amount of R$88,087.
11) INVESTMENTS
Consolidated Company
-------------------------------------- --------------------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
------------------- ------------------ ------------------- -------------------
Equity in subsidiaries
Empresa de Infovias S.A. - - 168,379 84,172
Companhia de Gas de Minas Gerais - GASMIG - - 70,409 64,847
Usina Termica Ipatinga S.A. - - 85,672 85,449
Sa Carvalho S.A. - - 96,817 94,304
Cemig Capim Branco S.A. - 1 11,600 1
UTE Barreiro S.A. - 1 2,928 1
Cemig PCH S.A. - 1 7,698 1
---------------- -------------------- ---------------- ---------------------
- 3 443,503 328,775
In consortia for power plant construction 376,490 308,390 364,895 308,390
Goodwill on purchase of Infovias 8,457 - 8,457 -
Other investments 71,650 97,059 67,839 93,444
---------------- -------------------- ---------------- ---------------------
456,597 405,452 884,694 730,609
================= ==================== ================ =====================
a) Purchase of Infovias shares
The Company acquired from AES Forca Empreendimentos Ltda. ("AES"), on June 20,
2002, 81,700,210 common shares with no par value of Infovias, corresponding to
45.44% of the capital of Infovias . The purchase price paid was R$81,090.
Therefore, CEMIG's interest in Infovias' capital increased from 49.44% to
94.89%. In accordance with the related acquisition agreement, the Company will
acquire the remaining 5.00% stake in Infovias, held by AES, for R$5,406,
restated in accordance with IGP-M from June 20, 2002 until the date of
effective payment, subject to authorization by the Agencia Nacional de
Telecomunicacoes - ANATEL, as required by applicable regulation.
The purchase price was defined by a finance consulting company using the
discounted cash flow method, considering a discount rate of 19.5% per year.
The operation generated R$8,457 of goodwill, based on Infovias' future
profitability and will be amortized in future years, according to income
earned by Infovias.
The Special Review report of interim financial statements from Infovias'
Independent Public Accountants as of June 30, 2002, dated August 14, 2002,
includes comments regarding (i) deferred income and social contribution tax ,
in the amount of R$14,270, the realization of which is based on management
profit projections and depends on contracts which are under negotiations; (ii)
dependence on additional resources from shareholders or third-parties to fund
its operations, as well to insure the recoverability of its assets at the
amounts recorded in its financial statements, until Infovias' own operating
revenues are sufficient to absorb this amount.
17
Item 5
b) The main information related to controlled companies as of June 30, 2002,
is as follows:
Controlled Companies
-------------------------------------------------------------------------------------------
UT Sa Caprim Cemig
Infovias Gasmig Ipatinga Carvalho Branco Barreiro PCH
--------------- ------------ ------------ ------------- ---------- ----------- ------
CEMIG's interest (%) 94.88 95.17 100.00 100.00 100.00 100.00 100.00
Paid in Capital 179,798 41,913 84,584 86,833 1 1 1
Shareholders' equity as of May 31,
2002 - 73,983 - - - - -
Shareholders' equity as of June 30,
2002 151,481 - 85,672 96,817 11,600 2,928 7,698
Interest on shareholders' equity
related to the 2002 net income - - 389 2,789 - - -
Net income for the five-months period
ended May 31, 2002 - 8,416 - - - - -
Net income (loss) for the six-months
period ended June 30, 2002 (25,450) - 510 4,406 - - -
c) Consortia
CEMIG is a partner in certain consortia for electricity generation projects.
The consortia, which are not legal entities, were created to manage the
concession contracts. The Company maintains accounting records of its share of
the consortia assets which are jointly managed with the other consortia
partners, as follows:
Company and Consolidated
CMIG's ----------------------------------------------
Participation June 30, March 31,
% 2002 2002
----------------- ---------------------- ----------------------
In Operation
Porto Estrela Hydroelectric Power Plant 33.33 37,365 37,365
Igarapava Hydroelectric Power Plant 14.50 51,133 51,376
Under Construction
Queimado Hydroelectric Power Plant 82.50 94,354 84,612
Funil Hydroelectric Power Plant 49.00 76,719 63,218
Aimores Hydroelectric Power Plant 49.00 105,324 71,819
--------------------- ---------------------
Total Company 364,895 308,390
Cemig Capim Branco S.A.
Capim Branco Hydroelectric Power Plant I and II 20.00 11,595 -
-------------------- ---------------------
Total Consolidated 376,490 308,390
===================== ======================
d) Other investments
The other investments refer mostly to generation power plants related to the
Company's expansion program, which were originally recorded as property, plant
and equipment. These power plants will be transferred to subsidiaries, which
will be created specifically for the purpose of holding certain assets and
investments. These transfers will be made only upon the approval of ANEEL.
18
Item 5
The composition of other investments balance is as follows:
Consolidated Company
---------------------------------- --------------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
----------------- -------------- ----------------- --------------
Project
Machado Mineiro Hydroelectric Power Plant 40,768 40,768 40,768 40,768
Salto Voltao Hydroelectric Power Plant 8,935 8,935 8,935 8,935
Salto do Paraopeba Hydroelectric Power Plant 8,123 8,123 8,123 8,123
Salto do Passo Velho Hydroelectric Power Plant 4,172 4,172 4,172 4,172
Capim Branco 1 Hydroelectric Power Plant - 5,712 - 5,712
Capim Branco 2 Hydroelectric Power Plant - 5,715 - 5,715
Pai Joaquim Hydroelectric Power Plant - 7,378 - 7,378
Barreiro Thermoelectric Power Plant - 1,054 - 1,054
-------------- ------------ ----------- ----------
61,998 81,857 61,998 81,857
Others 9,652 15,202 5,841 11,587
-------------- ------------ ------------ ----------
71,650 97,059 67,839 93,444
============== ============ ============ ==========
19
The amounts recorded as of March 31, 2002, related to investments in the Capim
Branco I and II, Pai Joaquim and Barreiro plants were transferred, in the
second quarter of 2002, to the fully controlled subsidiaries constituted for
that purpose and were accounted for using the equity method.
Item 5
12) PROPERTY, PLANT AND EQUIPMENT
Consolidated Company
--------------------------- -----------------------------
Annual average March 31, June 30, March 31,
Depreciation June 30, ------------ ------------ ------------
rate % 2002 2002 2002 2002
------------ -------- ------------- ------------ ------------
In service-
Generation-
Hydroelectric 2.51 5,436,366 5,431,441 5,351,782 5,346,725
Thermoelectric 1.79 216,726 216,534 131,981 131,949
Transmission 3.08 1,012,574 1,010,784 1,012,574 1,010,784
Distribution 5.10 6,553,605 6,485,056 6,553,605 6,485,056
Administration 9.63 266,641 269,576 266,641 269,575
Other 243,352 152,492 - -
---------------
13,729,264 13,565,883 13,316,583 13,244,089
---------------
Accumulated depreciation and
amortization
Generation (2,060,061) (2,022,326) (2,046,447) (2,011,475)
Transmission (449,874) (442,553) (449,874) (442,553)
Distribution (2,531,104) (2,454,373) (2,531,104) (2,454,373)
Administration (122,660) (119,358) (122,660) (119,357)
Other (23,992) (15,334) - -
---------------
(5,187,691) (5,053,944) (5,150,085) (5,027,758)
---------------
Total in service 8,541,573 8,511,939 8,166,498 8,216,331
---------------
Construction in progress-
Generation 110,894 41,784 100,051 41,784
Transmission 77,149 67,972 77,149 67,972
Distribution 359,197 341,537 359,197 341,537
Administration 24,829 24,150 24,829 24,150
Other 107,401 19,542 - -
---------------
Total construction in progress 679,470 494,985 561,226 475,443
---------------
Total 9,221,043 9,006,924 8,727,724 8,691,774
---------------
Special liabilities (1,495,750) (1,456,553) (1,495,750) (1,456,553)
---------------
Total, net 7,725,293 7,550,371 7,231,974 7,235,221
===============
Special liabilities refer primarily to consumers' contributions to support
construction necessary to meet energy supply orders. The eventual liquidation
of this obligation depends on ANEEL's disposition at the end of the
distribution concessions. According to accounting principles and electric
energy sector legislation in force in Brazil, these amounts are not subject to
updating, amortization or depreciation.
20
Item 5
13) SUPPLIERS
Consolidated Company
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
------------------- ----------------- -------------------- --------------------
Electricity suppliers - Furnas 273,874 229,276 273,874 229,276
Wholesale Energy Market - MAE
Energy purchased on spot market 211,274 211,973 211,274 211,973
System Service Charges - ESS 109,074 102,086 109,074 102,086
Others 28,987 21,353 28,987 21,353
------------------- ----------------- -------------------- --------------------
623,209 564,688 623,209 564,688
Supplies and services 60,950 49,470 39,315 37,783
------------------- ----------------- -------------------- --------------------
684,159 614,158 662,524 602,471
=================== ================= ==================== ====================
The amounts to be paid for energy purchase on the spot market and System
service charges - ESS from September 2000 to March 2001 were recorded based on
definitive information provided by MAE on July 25, 2002. The amounts related
to the period from April 2001 to December 2001 were accrued based on the
preliminary information provided by the MAE on March 13, 2002. The values
referred to the period from January 2002 to June 2002 were accrued based on
Company's estimates.
14) TAXES PAYABLE
The balance of taxes payable is as follow:
Consolidated Company
------------------------------------------------------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
------------- ------------- -------------- --------------
Income Tax 191,489 98,022 180,849 97,481
Social Contribution Tax 69,531 49,835 65,105 49,390
ICMS (State VAT) 81,191 102,511 80,361 101,679
COFINS (tax on revenue) 60,359 58,420 59,777 57,934
PASEP(tax on revenue) 13,083 12,659 12,956 12,553
INSS (social security) 7,227 7,904 7,218 7,806
Others 5,538 5,342 4,716 4,796
----------- ----------- ------------- ------------
428,418 334,693 410,982 331,639
=========== =========== ============ ============
The balances of income and social contribution tax refer primarily to
provision of taxes on special rate adjustment revenue, recorded in the
statement of income in 2001 and 2002 pending ANEEL's review (see Note 3).
21
15) LOANS, FINANCING AND DEBENTURES
Composition of financing by currency and local currency by index is as
follows:
Consolidated Company
------------------------------------ ----------------------------
June 30, March 31, June 30, March 31,
2002 2002 2002 2002
---------------- ------------------ -------------- -----------
Currency -
U.S. dollar 1,710,245 1,269,904 1,604,648 1,223,649
EURO 50,609 38,209 50,609 38,209
Swiss francs - 1,825 - 1,825
Unit of account (basket of currencies) 44,767 33,868 44,767 33,868
Others - 1,090 - 1,090
-------------- ------------------ -------------- ----------------
1,805,621 1,344,896 1,700,024 1,298,641
Indexes -
Indice Geral de Precos - IGP-M (General Price Index) 917,664 888,469 917,664 888,469
Indice Interno da Eletrobras - FINEL (Eletrobras
Internal Index) 161,022 165,849 161,022 165,849
UFIR (Tax Reference Unit) 95,570 95,430 95,570 95,430
Other 23,101 20,346 15,860 15,443
--------------- ---------------- -------------- ----------------
1,197,357 1,170,094 1,190,116 1,165,191
Escrow accounts (1)
Income based on CDI (interbank deposit)
rates (14,068) (14,068) (14,068) (14,068)
Short-term investment - Income based on U.S.
dollar variation (226,518) (169,521) (226,518) (169,521)
---------------- ------------------ ---------------- ----------------
(240,586) (183,589) (240,586) (183,589)
--------------- ----------------- --------------- ----------------
2,762,392 2,331,401 2,649,554 2,280,243
=============== ================== =============== ================
(1) Refers to restricted use funds for payment of foreign currency-denominated
financing, in compliance with Banco Central do Brasil - BACEN (Brazilian
Central Bank) Resolution No. 2,515 of June 29, 1998.
The variations in the three-month period from April 1, 2002 to June 30, 2002
of the principal currencies and indexes used to restate the loans and
financing are as follows:
Variation Variation
Currency % Indexes %
-------------------------------------- ---------- --------------------------------------------------------------- ---------
U.S. dollar 22.41 Indice Geral de Precos - IGP-M (General Price Index) 2.95
Euro 39.41 Indice Interno da Eletrobras - FINEL (Eletrobras Internal Index) 0.58
Swiss franc 39.24
Unit of account (Basket of 29.93
currencies)
16) RESERVE FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
Based on information provided by its internal and external legal counsel, the
Company believes that any loss in excess of the amounts provided for in
respect of such contingencies will not have a material adverse effect on the
Company's results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable
by the Company's legal counsel, the Company has recognized reserves for losses
as follows:
22
Item 5
Consolidated and Company
---------------------------------------------
June 30, March 31,
2002 2002
------------------ ---------------------
Labor claims 60,414 55,180
Civil lawsuits - Consumers 78,879 77,793
Social contribution tax 125,150 128,322
Finsocial (tax on revenue) 19,128 18,963
Civil lawsuits - Others 14,996 14,584
Others 22,842 34,554
------------------ ---------------------
321,409 329,396
================== =====================
Certain details relating to such reserves are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be R$75,518
as of June 30, 2002 (R$68,975 as of March 31, 2002). The Company recorded a
year to date provision in the amount of R$6,144 in 2002 (R$9,869 of reversion
provision in 2001). CEMIG determines the amounts to be reserved based on
advice from its legal counsel, the nature of the group of claims and the most
recent court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought legal action against the Company
seeking refunds of amounts paid to CEMIG as a result of a tariff increase that
became effective during the Brazilian government's economic stabilization
"Cruzado Plan" in 1986, alleging that such increases violated the price
controls instituted as part of that plan. CEMIG determines the amounts to be
reserved based on the amount billed subject to consumers' claims and recent
court decisions.
The total estimated exposure to the Company for those claims, fully provided
for, was R$78,879 as of June 30, 2002 (R$77,793 as of March 31, 2002).
(c) Social contribution tax
The Company is deducting the amounts of depreciation, amortization and
disposals of the supplementary monetary restatement of property, plant and
equipment, for purposes of computation of social contribution tax. The Company
estimates that its potential exposure in this matter is approximately
R$125,150 as of June 30, 2002 (R$128,322 as of March 31, 2002), The amount is
fully provided for.
(d) Finsocial
In 1994, CEMIG was fined by the Federal Tax Authorities due to the exclusion
of State VAT in the Finsocial calculation, a tax on billing extinguished in
1992. The Company estimates that the remaining amount still pending is
approximately R$19,128 as of June 30, 2002 (R$18,963 as of March 31, 2002).
The amount is fully provided for.
23
(e) Other
Other reserves are related to a number of lawsuits involving the Federal
Government, pursuant to which the Company is disputing the constitutionality
of certain federal taxes that have been assessed against it and other general
claims arising in the ordinary course of business.
CEMIG has other relevant legal proceedings with respect to which the Company
has been advised by its internal and external legal counsel that a favorable
outcome is probable. Certain details relating to such matters are as follows:
(i) Litigation involving FORLUZ with possible financial effects for
CEMIG
The Company is defending, together with FORLUZ, a claim brought by
its employees' labor union ("Sindieletro") contesting the suspension
of increases in the Company's required contribution to the pension
fund pursuant to periodic monetary restatements. The total amount
sought in this claim is R$546,241. No reserve has been recorded for
this claim, since the Company believes, based on advice from its
legal counsel, that it has a meritorious defense to such claim and,
consequently, does not expect to incur losses related thereto.
(ii) Income and social contribution taxes on post retirement
benefits
On October 11, 2001, the Brazilian Federal Tax Authorities
(Secretaria da Receita Federal) issued an assessment notice relating
to a R$217,746 discrepancy with respect to tax credits recorded by
CEMIG in 2001 that had been partially recovered during the year.
These credits result from the change in accounting method for
recording post-retirement benefit liabilities, as required by CVM
Deliberation No. 371/00. No reserve has been recorded as a result of
this notice, since the Company, based on advice from its legal
counsel, believes that the procedures, which generated the tax
credits, are legally sound. CEMIG is defending itself on the tax
assessment notice administratively against the Secretaria da Receita
Federal.
(iii) COFINS
The Company began contesting the payment of COFINS (tax on revenue)
beginning in 1992. As a result of an unfavorable court ruling, the
Company paid R$239,266 of COFINS tax on July 30, 1999. The Federal
Government is claiming that the Company owes approximately R$116,712
in additional fines and interest relating to the non-payment of
COFINS. The Company is contesting such claims. No reserve has been
recorded for this claim, since the Company believes, based on advice
from its legal counsel, that it has a meritorious defense against
such claim and, consequently, does not expect to incur losses
related thereto.
(iv) Regulatory agency acts
ANEEL has a regulatory proceeding pending against CEMIG claiming
that CEMIG owes the Federal Government R$341,377, subject to update
based on SELIC, because of a miscalculation of credits in the
amount of the cumulative rate deficit (CRC) applied to reduce
amounts owed to the Federal Government. On August 8, 2001. ANEEL
determined that CEMIG must pay the above amount, plus interest in
arrears since January 1, 1997. The Company, based on the opinion of
legal counselors, believes that it has a meritorious defense to
such claim and has therefore recorded no provision in respect of
such claim.
24
17) EMPLOYEE POST-RETIREMENT BENEFITS
Since 1973, the Company has been the sponsor of Fundacao Forluminas de
Seguridade Social - FORLUZ, a non-profit entity with the purpose of providing
its associates, participants and their dependants with additional income to
supplement the government pension, in accordance with the pension plan to
which they are linked.
FORLUZ offers its associates the following supplementary pension plans:
Mixed Benefit Plan - A defined contribution plan for normal
retirement and a defined benefit plan for coverage of active
participant's disability and death. The Company's contribution is
equivalent to the associate's monthly basic contributions and is the
only plan available for new participants.
Settled Benefit Plan - Includes all retired participants who opted
for this plan and the balances, at the option date, of active
participants who opted for migrating from the Defined Benefit Plan
to the above-mentioned Mixed Benefit Plan.
Defined Benefit Plan - Benefit plan adopted by FORLUZ up to 1998, in
which the Federal Government Social Security benefit is supplemented
in relation to the actual average salary of the employee's final
years of service in the Company.
In addition to the pension plans provided by FORLUZ, the Company also pays
part of the life insurance premium for its retirees and of the health care
plan for employees, retirees and their dependants. These plans are also
managed by FORLUZ.
The changes in net post-retirement liabilities recorded in accordance with CVM
Deliberation No. 371 are as follows:
Other post-retirement
Pension plans benefits
--------------------- --------------------
Net liabilities as of March 31, 2002 1,393,178 473,764
Net periodic cost recorded in the income statement 37,239 17,010
Contributions paid (25,312) (2,143)
--------------------- --------------------
Net liabilities as of June 30, 2002 1,405,105 488,631
====================== ====================
Part of the deficit in FORLUZ's actuarial reserves in the amount of
R$1,429,631 as of June 30, 2002 (R$ 1,416,244 as of March 31, 2002) was
recognized as obligations payable by the Company. These obligations are being
amortized through monthly installments, through June 2024, calculated under
the fixed-installment system ("Price Table"), subject to annual restatement in
accordance with the salary correction index for the Company's employees (not
including productivity) included in the defined benefit plan and subject to
IPCA - IPEAD (indices) for other plans, plus a 6% per year.
25
Item 5
18) SHAREHOLDERS' EQUITY
The Change in shareholders' equity is as follows:
Balance as of March 31, 2002 7,122,003
Reversal of dividends 260
Net loss for the quarter ended June 30, 2002 (1,114,743)
2002 Interest on shareholders' Equity (120,000)
-----------------------
Balance as of June 30, 2002 5,887,520
========================
At the Shareholders meeting held on April 30, 2002 the following issues were
approved:
I. Capital Increase
Capital increase from R$1,589,995 to R$1,621,538 through the
issuance of new shares with capitalization of part of the
capital reserve from the CRC account. The shareholders will
receive a 1.98% bonus in new shares.
II. Change on minimum dividend criteria for the preferred shares
The Company's Bylaws were changed to establish new minimum
dividend criteria. The preferred shares will be entitled to a
minimum annual dividend equal to the greater of (i) 10% of the
nominal value of preferred capital according to the Brazilian
Corporate Law or (ii) 3% of the book value of the preferred
shares.
As of May 20, 2002, the Board of Directors approved the payment of dividends,
as interest on capital, in the amount of R$120,000. Manner and date of the
payment shall be defined in the future.
In September 1999, the State of Minas Gerais filed a lawsuit seeking to
nullify the shareholders' agreement signed in 1997 with Southern Electric
Brasil Participacoes Ltda ("Southern). On August 7, 2001, the Minas Gerais
State Court of Appeals upheld the March 2000 lower court ruling declaring the
shareholders' agreement null and void. Southern appealed the decision which
was rejected by the Minas Gerais State Court of Appeals on October 9, 2001.
Southern has appealed the Court's latest decision.
26
Item 5
19) ELECTRICITY SALES
The composition of electricity sales to final customers is as follows:
Consolidated
--------------------------------------------------------------------------------------------------
(Not reviewed by accountants)
No. of consumers MWh R$
---------------------------- ----------------------------- -----------------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
----------------------------- ----------------------------- -----------------------------
2002 2001 2002 2001 2002 2001
------------- ------------ ------------ --------------- ------------- -------------
Residential 4,559,274 4,323,272 3,123,939 3,727,380 835,354 913,840
Industrial 68,110 65,311 10,794,168 11,556,356 1,021,778 923,062
Commercial 509,599 485,894 1,641,481 1,894,846 377,678 369,112
Rural 329,619 312,233 713,061 806,910 107,251 102,340
Public authorities 42,567 41,563 216,945 270,179 47,926 49,861
Public lighting 2,733 2,925 412,464 483,044 59,290 59,055
Public services 6,658 6,306 466,709 475,729 60,236 53,115
Own consumption 1,364 1,428 24,425 27,913 - -
Unbilled, net - - - - 33,939 12,822
5,519,924 5,238,932 17,393,192 19,242,357 2,543,452 2,483,207
------------- ------------ -------------- --------------- -------------- ------------
Billed supply 4 5 158,412 318,211 10,685 17,447
Unbilled supply - - - - 38,687 -
------------- ----------- ------------- -------------- ------------- ------------
Total 5,519,928 5,238,937 17,551,604 19,560,568 2,592,824 2,500,654
============= ============ ============== =============== ============== =============
Company
--------------------------------------------------------------------------------------------------
(Not reviewed by accountants)
-------------------------------------------------------------
No. of consumers MWh R$
---------------------------- ----------------------------- -----------------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
----------------------------- ----------------------------- -----------------------------
2002 2001 2002 2001 2002 2001
-------------- ------------ ------------ -------------- ------------- -----------
Residential 4,559,274 4,323,272 3,123,939 3,727,380 835,354 913,840
Industrial 68,108 65,309 10,379,266 11,230,390 1,001,936 906,554
Commercial 509,599 485,894 1,641,481 1,894,846 377,678 369,112
Rural 329,619 312,233 713,061 806,910 107,251 102,340
Public authorities 42,567 41,563 216,945 270,179 47,926 49,861
Public lighting 2,733 2,925 412,464 483,044 59,290 59,055
Public services 6,658 6,306 466,709 475,729 60,236 53,115
Own consumption 1,364 1,428 24,425 27,913 - -
Unbilled, net - - - - 33,939 12,822
------------ ------------ ------------- ------------- ------------ ------------
5,519,922 5,238,930 16,978,290 18,916,391 2,523,610 2,466,699
Billed supply 4 5 158,412 318,211 10,685 17,447
Unbilled supply - - - - 38,687 -
------------ ------------- ------------- ------------- ------------ ------------
Total 5,519,926 5,238,935 17,136,702 19,234,602 2,572,982 2,484,146
============ ============= ============= ============= ============ =============
27
Item 5
20) OTHER OPERATING REVENUES
Consolidated Company
------------------------------ ----------------------------
Six months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -----------
Use of basic transmission network 79,756 72,765 79,756 72,765
Gas sales 63,071 52,485 - -
Fuel consumption quota 16,102 36,056 16,102 36,056
Regulated services 3,560 4,544 3,560 4,544
Services rendered 7,842 7,136 7,842 7,136
Rent and leasing 8,997 5,812 8,997 5,812
Other 3,676 526 948 125
-------------- -------------- -------------- --------------
183,004 179,324 117,205 126,438
============== ============== ============== ==============
21) DEDUCTIONS FROM OPERATING REVENUES
Consolidated Company
------------------------------ ----------------------------
Six months ended Six months ended
June 30, June 30,
------------------------------------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -----------
State VAT (ICMS) on sales to final consumers 542,058 531,916 538,124 529,519
Tax on billing - COFINS 88,568 78,798 85,906 76,707
Global reserve for reversion quota - RGR 64,659 54,781 64,355 54,497
Tax on billing - PASEP 19,190 17,070 18,613 16,620
Emergency capacity charge 41,237 - 40,932 -
Other 191 117 162 111
---------- ----------- ----------- ----------
755,903 682,682 748,092 677,454
========== ========== ========== ==========
Starting in 2002, new rates were established to be prorated among final
consumers of electric energy, related to the acquisition of energy and
contracted generation capacity by CBEE (The Brazilian Emergency Energy
Trader). These charges were fully transferred to tariffs and recorded as a
part of electricity sales, billed directly to final consumers.
28
Item 5
22) ELECTRICITY PURCHASED FOR RESALE
Consolidated and Company
-----------------------------------
Six months ended
June 30,
-----------------------------------
2002 2001
------------------ ----------------
Itaipu Binacional (through FURNAS) 475,033 451,675
Energy traded on spot market - MAE 109,966 -
Initial contracts 74,509 58,765
Other 2,729 1,641
------------------ ----------------
662,237 512,081
================== ================
The electricity purchased from ITAIPU is denominated in US dollars and the
prices are defined by ANEEL.
The energy traded on the spot market in 2001 was accrued only in the fourth
quarter of 2001, since information from MAE necessary to record the estimates
only became available at that time.
23) OTHER EXPENSES
Consolidated Company
------------------------------ ----------------------------
Six months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -----------
Fuel consumption quota 16,104 36,415 16,102 36,415
Rentals and leasing 7,566 6,377 7,472 6,241
Labor indemnity 1,546 2,749 1,546 2,749
Grants and donations 6,938 6,315 6,938 6,315
Advertising 10,619 12,423 10,599 12,423
ANEEL inspection fee 5,772 6,554 5,699 6,554
Own consumption - Electric energy 5,509 4,513 4,957 4,513
Insurance 752 1,442 718 1,442
MAE Contribution 3,775 6,941 3,771 6,941
Technological and scientific national fund 4,556 5,235 4,429 5,235
Other taxes (real state, vehicle, etc.) 2,871 2,401 2,858 2,401
General expenses 9,251 2,497 6,730 1,477
------------- -------------- -------------- --------------
75,259 93,862 71,819 92,706
============== ============== ============== ==============
The fuel costs incurred for the purpose of electricity generation are
reimbursed by Centrais Eletricas Brasileiras S.A. - ELETROBRAS and are
recorded as other operating revenues.
29
Item 5
24) FINANCIAL INCOME (EXPENSES)
Consolidated Company
------------------------------ ----------------------------
Six months ended Six months ended
June 30, June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -----------
Financial income:
Investment income earned 95,095 29,266 89,941 26,817
Late charges on past-due electricity bills 19,037 24,024 19,037 24,024
Interest on receivable from Minas Gerais State Government 76,656 53,489 76,656 53,489
Monetary restatement on receivable from Minas Gerais
State Government 20,670 45,884 20,670 45,884
Renegotiation of industrial consumer debt - 11,924 - 11,924
Monetary restatement on recoverable taxes 1,129 12,535 1,129 12,535
Monetary restatement on special rate adjustment 137,546 - 137,546 -
Foreign exchange gains 29,441 14,678 29,439 14,678
Taxes on financial income (PASEP and COFINS) (14,398) (7,024) (14,376) (7,024)
Other 15,126 5,259 15,117 5,242
-------------- --------------- -------------- --------------
380,302 190,035 375,159 187,569
-------------- --------------- -------------- --------------
Financial expenses:
Interest on loans and financing (123,673) (83,062) (115,449) (83,062)
Monetary restatement - electricity suppliers (34,835) - (34,835) -
Foreign exchange losses (344,439) (231,330) (326,661) (229,592)
Monetary restatement on loans and financing (16,060) (9,509) (16,060) (9,509)
Financial transaction tax ("CPMF") (12,128) (11,334) (11,368) (10,908)
Interest and fines on taxes (7,434) (6,896) (7,434) (6,896)
Provision for valuation of marketable securities (20,828) 1,061 (20,828) 1,061
Advance billings of electric power (4,389) (15,050) (4,389) (15,050)
Interest on capital (120,000) - (120,000) -
Other (3,346) (4,655) (2,800) (2,422)
-------------- --------------- -------------- --------------
(687,132) (359,037) (659,824) (356,378)
(306,830) (169,002) (284,665) (168,809)
============== =============== ============== ==============
30
Item 5
25) PRINCIPAL TRANSACTIONS WITH RELATED PARTIES
June 30, 2002 March 31, 2002
---------------------------------- ---------------------------------
Minas Gerais Minas Gerais
State State
Government FORLUZ Government FORLUZ
------------------ --------------- ---------------- ----------------
ASSETS
Current assets
Accounts receivable 8,427 - 4,455 -
Recoverable taxes
State VAT - ICMS 22,958 - 22,483 -
Other
Advances on welfare benefits - 20,285 - 13,109
Noncurrent assets
Receivable from Minas Gerais State Government 544,106 - 1,533,943 -
Other
State VAT recoverable 18,843 - 18,843 -
State VAT recoverable - Complementary Law No.102 47,433 - 36,447 -
LIABILITIES
Current liabilities
Taxes payable-
State VAT - ICMS 80,361 - 101,679 -
Dividends and interest on capital 78,464 - 49,129 -
Employee post-retirement benefits - 167,015 - 152,530
Other
Transfer of contributions - 14,871 - 11,047
Long-term liabilities
Employee post-retirement benefits - 1,726,721 - 1,714,412
Six months ended Six months ended
June 30, 2002 June 30, 2001
------------------------------------- -----------------------------
INCOME STATEMENT
Electricity sales to final customers 10,952 - 11,186 -
Deductions from operating revenues - State VAT (ICMS) (538,124) - (529,519) -
Employee post-retirement benefits - (108,499) - (100,530)
Personnel expenses - (17,484) - (16,307)
Financial income-
Monetary restatement and interest on receivable
from Minas
Gerais State Government 97,326 - 99,373 -
Non-operating expenses-
Allowance for losses on receivable from Minas Gerais State
Government (Note 8) (1,045,325) - - -
The Company believes that its transactions with related parties are made on an
arm's length basis.
26) FINANCIAL INSTRUMENTS
a) The financial instruments used by CEMIG and its subsidiaries, all
recorded in the financial statements, are managed through monitoring
policies and operational strategies focused on liquidity, profitability
and safety. The Company operates with banks, which meet financial
strength and trustworthiness guidelines. The Company's control policy
includes continually comparing contracted rates with market rates. The
Company's short term investments related to marketable securities issued
by third parties, as of June 30, 2002, are as follows:
I. CEMIG and its subsidiaries have debentures issued by financial
institutions, in the amounts of R$28,694 and R$10,034, respectively.
These securities have immediate call clauses exercisable by the
Company and its subsidiaries, without penalty or loss. These
securities have interest rates based on the interbank deposit - CDI
rates.
31
Item 5
II. The swap transactions of CEMIG and its subsidiaries are purchased
from financial institutions, in the amount of R$14,068 and 14,394,
respectively, through the transfer of public or private securities
issued by third parties. These securities have repurchase clauses.
The interest rate is based on the CDI. CEMIG has the right to call
for early redemption of these securities without penalty or loss.
b) The Company has Brazilian National Treasury Notes acquired from the
State Government of Minas Gerais, with final maturity on April 15,
2024, subject to restatement based on the U.S. dollar exchange
variation and interest on the restated face value of 5.50% (up to April
14, 1998), 5.75% (from April 15, 1998 to April 14, 2000) and 6.00% per
year (from April 15, 2000 to maturity).
June 30, 2002
----------------------
Face value 171,975
Restated cost 103,185
Allowance for decrease in market value (34,898)
----------------------
68,287
======================
These securities are recorded at market value, determined based on a quotation
from ANDIMA (National Association of Open Market Institutions). This asset is
recorded under Marketable securities in noncurrent assets.
27) STATEMENT OF CASH FLOW
The individual (Company) and consolidated statements of cash flow for the
six-month period ended in June 30, 2002 and June 30, 2001 are presented for
additional analysis and are not required as part of the basic interim
financial statements.
The financial statements of Infovias, which were previously consolidated based
on the proportionate consolidation method, were totally consolidated this
quarter. Therefore, to ensure comparative information with the statement of
cash flow on June 30, 2002, the consolidated statement of cash flows for the
period ended June 30, 2001 was prepared including the full consolidation of
Infovias.
32
Item 5
Consolidated Company
------------------------------------ -----------------------------------
Six months period Six months period
ended June 30, ended June 30,
------------------------------------ -----------------------------------
2001 2001
2002 Reclassified 2002 Reclassified
------------- ------------------ ------------- -----------------
CASH FLOWS FROM OPERATIONS:
Net (loss) income for the period (894,796) 14,152 (894,796) 14,152
Items no affecting cash -
Depreciation and amortization 270,843 253,544 257,729 247,729
Special rate adjustment (261,425) - (261,425) -
Electricity supply (32,272) - (32,272) -
Purchased energy from MAE - suppliers 42,986 - 42,986 -
Disposals of property, plant and equipment, net 11,208 39,351 11,208 39,351
Equity in subsidiaries - - 280 (9,180)
Interest and monetary variations, net 51,965 22,109 34,231 4,776
Deferred income and social contribution taxes (99,404) (4,681) (86,780) (3,705)
Operational provisions 19,845 (14,044) 19,845 (14,044)
Allowance for losses on receivable from Minas
Gerais State Government negotiation 1,045,325 - 1,045,325 -
Employee post-retirement benefits 108,499 100,530 108,499 100,530
Others (9,773) 578 - 14
------------- ------------------ ------------- -----------------
253,001 411,539 244,830 379,623
------------- ------------------ ------------- -----------------
(Increase) Decrease in assets -
Accounts receivable (216,267) (22,208) (221,558) (20,712)
Consumers - Special rate adjustment 120,426 - 120,426 -
Recoverable taxes (35,216) (14,135) (20,903) (7,746)
Other current assets (33,073) (28,219) (19,919) (25,224)
Prepaid expenses - CVA (47,921) - (47,921) -
Escrow deposits (48,801) (2,923) (48,801) (2,923)
Other noncurrent assets (11,594) (15,560) (19,912) (14,327)
------------- ------------------ ------------- -----------------
(272,446) (83,045) (258,588) (70,932)
------------- ------------------ ------------- -----------------
Increase (Decrease) in liabilities -
Suppliers 109,467 70,431 111,342 62,869
Taxes payable 194,063 102,036 180,834 95,017
Payroll and related charges 1,866 26,010 1,245 25,911
Regulatory charges (2,461) (10,663) (2,203) (10,955)
Loans and financing 128,720 101,517 129,527 101,517
Employee post-retirement benefits (68,500) (71,289) (68,500) (71,289)
Electricity Rationing Plan - Bonus paid to
consumers and certain adoption
costs incurred in excess of surcharge
applied to consumers (87,565) - (87,565) -
Other (23,142) 2,722 (26,676) 2,589
------------- ------------------ ------------- -----------------
252,448 220,764 238,004 205,659
------------- ------------------ ------------- -----------------
CASH PROVIDED BY OPERATING ACTIVITIES
233,003 549,258 224,246 514,350
------------- ------------------ ------------- -----------------
33
Item 5
Consolidated Company
------------------------------------ -------------------------------------
Six months period Six months period
Ended June 30, Ended June 30,
------------------------------------ -------------------------------------
2001 2001
2002 Reclassified 2002 Reclassified
--------------- ---------------- --------------- -----------------
CASH FLOW FROM FINANCING ACTIVITY
Proceeds from long-term financing 147,512 90,690 147,512 90,690
Payments on loans and financing (227,257) (191,291) (214,343) (191,291)
Special liabilities 67,410 99,906 67,410 99,906
Advanced billings of electric power (30,370) (28,955) (30,730) (28,955)
Advance for future capital increase 11,526 - - -
Dividends and interest on capital (367) (105) (367) (110)
----------- ----------------- --------------- -----------------
(31,546) (29,755) (30,158) (29,760)
----------- ----------------- --------------- -----------------
TOTAL CASH PROVIDED 201,457 519,503 194,088 484,590
----------- ----------------- --------------- -----------------
CASH USED IN INVESTING ACTIVITIES
Additions to investments 187,629 48,855 223,600 75,402
Increase in property, plant and equipment 285,099 244,188 244,517 205,067
Increase in deferred charges 10,260 165 - -
----------- ----------------- --------------- -----------------
482,988 293,208 468,117 280,469
----------- ----------------- --------------- -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(281,531) 226,295 (274,029) 204,121
=========== ================= =============== =================
CHANGES IN CASH AND CASH EQUIVALENTS
At beginning of the period 705,844 245,108 642,492 219,281
At end of the period 424,313 471,403 368,463 423,402
----------- ----------------- --------------- -----------------
(281,531) 226,295 (274,029) 204,121
=========== ================= =============== =================
***********
Item 6
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS -- CEMIG
---------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF COMPANY OPERATIONS: FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2002 COMPARED TO THE SIX-MONTH PERIOD ENDED
JUNE 30, 2001
(Amounts expressed in thousands of Brazilian reais, unless otherwise indicated)
Net Income (Loss)
The Company had a net loss of R$894,796 in the six-month period ended June 30,
2002, equivalent to a loss of R$5.52 per thousand shares, compared to net
income of R$14,152 in the six-month period ended June 30, 2001, equivalent to
earnings of R$0.09 per thousand shares.
Change in accumulated results
[OBJECT OMITTED]
[Comparison of the Company's change in accumulated results (in thousands of
Brazilian reais) for the six-month period ended June 30, 2002 compared to
the six-month period ended June 30, 2001.]
Electricity sales
Electricity sales increased 2.31% in the six-month period ended June 30, 2002
compared to the six-month period ended June 30, 2001. This increase was due
primarily to a rate increase of 10.51% starting on April 8, 2002. This rate
increase was partially offset by a 10.24% decrease in the volume of
electricity sales to final customers, due to (i) Electricity Rationing Plan in
force in January and February of 2002; (ii) new patterns of consumption from
final consumers after the end of the Electricity Rationing Plan; and (iii)
decline in Brazil's economy in the six-month period ended June 30, 2000. The
most representative markets, industrial, residential and commercial decreased
7.58%, 16.19% and 13.37%, respectively.
Special rate adjustment
In accordance with the General Agreement of the Electricity Sector, the
Company recorded in the three-month period ended March 31, 2002, additional
revenue for the special rate adjustment for billing losses during the
Electricity Rationing Plan and spot market (MAE) transactions, in the amounts
of R$315,164. In the second quarter of 2002, as a result of revision made by
ANEEL in the billing losses computation method, there was a reversion
provision in the amount of R$53,739. Therefore, the total revenue from January
through June 2002, related to the issues described above, was R$261,425.
Item 6
Operating expenses
Since October 26, 2001, the differences between the sum of the uncontrollable
costs (Parcel "A") considered in the computation for regular rate adjustment
and the actual disbursements made by the Company will be compensated in
subsequent regular rate adjustments and are recorded in current and noncurrent
assets as prepaid expenses. Therefore, those expenses, in the amount of
R$83,974, were excluded from the 2002 statement of income. They will be
compensated in the subsequent regular rate adjustments of the company.
Operating Expenses increased 7.12% compared to the same period of the prior
year, in the amount of R$122,053, as a result of an increase in electricity
purchased for resale and partially offset by a decrease in personnel expenses.
Personnel
Personnel expense decreased 13.46% in the six-month period
compared with the same period of the prior year as a result of the
recording of the Company's Voluntary Termination Program costs accrual,
in the amount of R$32,541, in the income statement for the six-month
period ended June 30, 2001 and higher amounts transferred to the Property
Plant and Equipment under Construction in Progress.
Six month period ended June 30,
--------------------------------------
2002 2001 %
------------------- ----------------- ------------
Salary and related charges 264,033 258,987 1.95
Post retirement benefits expenses 17,484 16,307 7.22
Welfare benefits 26,995 31,208 (13.50)
------------------- ----------------- ------------
308,512 306,502 0.66
Amounts transferred to construction costs (48,576) (36,656) 32.52
------------------- ----------------- ------------
259,936 269,846 (3.67)
Voluntary Termination Program 1,753 32,541 (94.61)
------------------- ----------------- ------------
261,689 302,387 (13.46)
=================== ================= ============
Electricity purchased for resale
Electricity purchased for resale increased 29.32% due primarily to the
recording of expenses, related to the energy traded on the spot market
(MAE), in the income statement for the six-month period ended June 30,
2002, in the amount of R$109,966. In the prior year period, since the
information related to spot market (MAE) transactions was not available,
the expenses relating to energy traded on the spot market were recorded
only on December 31, 2001.
Outside services
Outside services expense increased 5.62% mainly due to the adjustment of
the price index of service contracts, related to meter reading, delivery
of bills to consumers and collection services.
Employee post-retirement benefits
Employee post-retirement benefit expenses refer basically to the accrual
of the net periodic cost, defined by an independent actuarial
computation.
Financial income (expenses)
The main factors that impacted the financial items are as follows:
o Foreign exchange losses of R$326,661 in the six-month period ended June
30, 2002 compared with net foreign exchange losses of R$229,592 in the
six-month period ended June 30, 2001. In the six-mouth period ended June
30, 2002, the Brazilian real devaluated 22.58% against the U.S. dollar,
compared to 17.87% devaluation in the same period of 2001.
Item 6
o An increase in financial income as a result of the monetary updating on
the special rate adjustment, based on the SELIC (Central Bank overnight
rate) in the amount of R$137,546.
o An increase of R$63,124 in income from temporary cash investments due to
higher cash volume in 2002 and income from cash investments denominated
in U.S. dollar.
o Interest on capital to be paid next year, recorded under Financial
expenses, in the amount of R$120,000.
Due to recognition of the allowance for losses on receivables from the Minas
Gerais State Government in 2002, CEMIG has recorded interest and monetary
restatement only for the third contractual amendment signed with the Minas
Gerais State Government in October 2002. See more information in Note 8 of the
quarterly information as of June 30, 2002.
Extraordinary loss
The Company has recognized an allowance for losses on accounts receivable
under the contract for the recoverable deficit account (CRC) with the Minas
Gerais State Government related to the second amendment signed in October
2002, in the amount of R$1,045,325. The allowance has been recognized since
there is no additional guarantee in such amendment that assures realization of
the recorded asset.
Other non-operating expenses, net
The other non-operating expenses decreased due to higher losses in 2001
related to economic feasibility studies and projects in the six-month period
ended in June 30, 2001.
Six month period ended June 30,
--------------------------------------
2002 2001 %
------------------ ------------------ ------------
Net losses on deactivation and disposal of assets 8,187 5,876 39.33
FORLUZ - Administrative costs 4,552 3,917 16.21
Losses on projects 368 17,547 (97.90)
Others 740 (858) -
------------------ ------------------ ------------
13,847 26,482 (47.71)
================== ================== ============
Income and social contribution taxes
In the six-month period ended June 30, 2002, the Company recorded income tax
expenses of R$28,142 on a pre-tax loss of R$976,000 compared to income tax
expenses of R$9,991 on pre-tax income of R$33,669 in the six-month period
ended June 30, 2001.
Employee profit sharing
The employees' share in 2002 profits will be defined by a specific labor
agreement. The estimate recorded in this period was based on the minimal
profit sharing recorded in prior years in proportional basis.
Item 6
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS of Results of consolidated Operations:
FOR THE SIX-Month Period Ended JUNE 30, 2002 Compared to THE SIX-Month Period
Ended JUNE 30, 2001
Management's discussion and analysis of results of the Company operations also
substantially covers the results of consolidated operations for the periods
presented.
Item 6
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
OTHER RELEVANT INFORMATION
Information not reviewed by independent accountants
CORPORATE GOVERNANCE
CEMIG has sought to implement the best corporate governance practices in order
to optimize its performance, through improvements in information disclosed to
the markets and to all interested parties, including investors, employees and
creditors, facilitating and its access to capital. These practices mainly
involve transparency, equitable treatment of shareholders accountable for the
Company's actions.
Highlighted below are practices that CEMIG has already adopted:
o The notices of general shareholders' meetings set forth in detail the
meeting's agenda, including relevant items suggested by shareholders, and
such meetings are held at convenient dates and times.
o The share register, which sets forth the number of shares owned by each
shareholder, can be obtained at any time for a service charge, in
accordance with Article 100 of Law 6,404 of December 15, 1976.
o Documentation necessary to evidence the ownership of shares of CEMIG is
accurately maintained, in order to permit the participation of its
shareholders or their representatives at shareholders' meetings.
o The Board of Directors, which has a unified term, has 11 technically
qualified members, 2 of whom have finance and accounting experience. The
Board of Directors seeks to advise CEMIG's executive officers to maximize
its return on assets in order to aggregate value for the enterprise.
o The shareholders' agreement is accessible to all shareholders at CEMIG's
headquarters.
o Preferred shares, as set forth in CEMIG's by-laws, are entitled to a
yearly 10% minimum dividend computed using par value. These shares become
entitled to vote in the event that CEMIG fails to pay dividends during 3
consecutive years.
o On a quarterly basis, the Company discloses reports prepared together
with the financial statements to its Fiscal Council, which analyzes and
discusses the financial statements, including the related internal and
external risk factors.
o In order to avoid conflicts of interest, the Board of Directors does not
authorize its public accountants to provide consulting or other services
to CEMIG.
o CEMIG provides to the members of its Fiscal Council all information that
may be needed to analyze the Company's main issues.
o The Company adopts, in addition to the financial statements prepared in
accordance with accounting practices emanating from Brazilian corporate
law and with accounting standards
Item 6
established by the CVM - Comissao de Valores Mobiliarios (Brazilian
Securities Commission), generally accepted accounting principles in the
United States, or US GAAP, in order to prepare financial statements to be
filed with the United States Securities and Exchange Commission - SEC.
o The memorandum of suggestions on accounting and internal control
procedures provided to CEMIG by its public accountants is submitted to
the Board of Directors and to the Fiscal Council in order to evaluate the
proposals and adoption of applicable measures.
o Transactions with related parties are disclosed in CEMIG's financial
statements and are conducted on an arm's length basis.
o CEMIG's investor relations policy seeks to provide access to a wide range
of investors through:
o CEMIG's Internet home page, which is accessible to all investors and
shareholders and contains material information related to CEMIG and
its operations.
o Broad dissemination of the disclosure of CEMIG's results.
o Live conferences accessible to everyone through CEMIG's Internet home
page.
o CEMIG has adopted Level 1 of the corporate governance standards
established by the Bolsa de Valores de Sao Paulo - BOVESPA (Sao Paulo
Stock Exchange).
o CEMIG has listed depositary receipts on foreign stock exchanges, in New
York and Madrid.
o CEMIG regularly pays dividends to its shareholders in accordance with the
provisions of its by-laws.
In addition, CEMIG is considering the adoption of additional corporate
governance practices that will be disclosed on a timely basis.
Item 6
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
FINANCIAL DRIVERS
The following data has been derived from unconsolidated financial information.
SHARE VALUE
(Expressed in Brazilian reais per thousand shares)
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Book value 43.12 44.81 41.90
--------------------------------------------------------------------------------------------------------------
Market value Common 29.79 32.11 25.29
Preferred 32.00 34.60 26.53
--------------------------------------------------------------------------------------------------------------
LIQUIDITY (excluding special liabilities)
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Current ratio Ratio 0.74 0.80 0.90
--------------------------------------------------------------------------------------------------------------
Overall liquidity Ratio 0.68 0.87 0.73
--------------------------------------------------------------------------------------------------------------
DEBT LEVEL (excluding special liabilities)
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Total assets % 54.43 42.73 42.59
--------------------------------------------------------------------------------------------------------------
Shareholders' equity % 119.46 89.88 74.18
--------------------------------------------------------------------------------------------------------------
Permanent assets % 86.64 67.92 61.66
--------------------------------------------------------------------------------------------------------------
PROFITABILITY
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Shareholders' equity % (15.20) 3.09 0.21
--------------------------------------------------------------------------------------------------------------
Operating margin % 16.71 22.91 11.37
--------------------------------------------------------------------------------------------------------------
Net margin % (34.69) 18.17 0.73
--------------------------------------------------------------------------------------------------------------
Return on property,
plant and
equipment % (12.37) 2.53 0.18
--------------------------------------------------------------------------------------------------------------
Item 6
OPERATING INDICES
INSTALLED CAPACITY
--------------------------------------------------------------------------------------------------------------
June 30, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Installed capacity (in MW) 5,675 5,632
--------------------------------------------------------------------------------------------------------------
EFFICIENCY
--------------------------------------------------------------------------------------------------------------
For the six-month period ended
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
MWh per employee MWh 1,510 1,657
--------------------------------------------------------------------------------------------------------------
Consumers per employee No. 488 461
--------------------------------------------------------------------------------------------------------------
SERVICE QUALITY
--------------------------------------------------------------------------------------------------------------
For the six-month period ended
--------------------------------------------------------------------------------------------------------------
Item Unit June 30, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Average time needed to restore electricity Hours 4.28 2.00
--------------------------------------------------------------------------------------------------------------
Electricity outage time - average per consumer Hours 5.93 5.39
--------------------------------------------------------------------------------------------------------------
Outages experienced - average per consumer No. 3.48 3.32
--------------------------------------------------------------------------------------------------------------
Item 6
AVERAGE RATE
(Expressed in Brazilian reais per MWh)
--------------------------------------------------------------------------------------------------------------
For the six-month period ended
--------------------------------------------------------------------------------------------------------------
Description June 30, 2002 June 30, 2001
--------------------------------------------------------------------------------------------------------------
Industrial 96.53 80,72
--------------------------------------------------------------------------------------------------------------
Residential 267.40 245,17
--------------------------------------------------------------------------------------------------------------
Commercial 230.08 194,80
--------------------------------------------------------------------------------------------------------------
Rural 150.41 126,83
--------------------------------------------------------------------------------------------------------------
Others 152.77 131,84
--------------------------------------------------------------------------------------------------------------
Final Consumers 146.85 129,91
--------------------------------------------------------------------------------------------------------------
SHAREHOLDERS WHICH OWN MORE THAN 5% OF VOTING CAPITAL AS OF JUNE 30, 2002
---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS
----------------------------------------------------------------------------------------
Number of shares Minas Gerais
State Government % Southern Electric Brasil Part. Ltda. %
---------------------------------------------------------------------------------------------------------------
Common 36,116,291,643 50.96 23,362,956,173 32.96
---------------------------------------------------------------------------------------------------------------
Preferred 1,887,263,121 2.07 - -
---------------------------------------------------------------------------------------------------------------
TOTAL 38,003,554,764 23.44 23,362,956,173 14.41
---------------------------------------------------------------------------------------------------------------
OWNERS OF SOUTHERN ELECTRIC BRASIL PARTICIPACOES LTDA. AS OF JUNE 30, 2002
----------------------------------------------------------------------------------------
Item Name Number of Quotas %
----------------------------------------------------------------------------------------
1 Cayman Energy Traders 321,480,876 91.75
----------------------------------------------------------------------------------------
2 524 Participacoes S/A 28,913,419 8.25
----------------------------------------------------------------------------------------
1 - Foreign Company
2 - Registered Company. Fundo Opportunity Alfa FIA has 99.99% interest of the 8.25%.
Item 6
CONTROLLING SHAREHOLDER, BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND
FISCAL COUNCIL MEMBERS INTEREST AS OF JUNE 30, 2002
---------------------------------------------------------------------------------------------------------------
NAME NUMBER OF SHARES
---------------------------------------------------------------------------------------------------------------
Common Preferred
---------------------------------------------------------------------------------------------------------------
CONTROLLING SHAREHOLDER
---------------------------------------------------------------------------------------------------------------
Minas Gerais State Government 36,119,456,294 3,030,365,843
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS
---------------------------------------------------------------------------------------------------------------
Djalma Bastos de Morais - 13,400
---------------------------------------------------------------------------------------------------------------
Geraldo de Oliveira Faria - 5,866
---------------------------------------------------------------------------------------------------------------
Alexandre de Paula Dupeyrat Martins 10,198 -
---------------------------------------------------------------------------------------------------------------
Antonio Adriano Silva - 1
---------------------------------------------------------------------------------------------------------------
Marcelo Pedreira de Oliveira 5,099 -
---------------------------------------------------------------------------------------------------------------
Claudio Jose Dias Sales 1 -
---------------------------------------------------------------------------------------------------------------
Oderval Esteves Duarte Filho 5,099 -
---------------------------------------------------------------------------------------------------------------
Marco Antonio Roberto Romanelli 1 -
---------------------------------------------------------------------------------------------------------------
Sergio Roberto Belisario - 1
---------------------------------------------------------------------------------------------------------------
David Travesso Neto 1 -
---------------------------------------------------------------------------------------------------------------
Ataide Vilela - 1
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS
---------------------------------------------------------------------------------------------------------------
Djalma Bastos de Morais - 13,400
---------------------------------------------------------------------------------------------------------------
Guy Maria Villela Paschoal 2,854 -
---------------------------------------------------------------------------------------------------------------
Aloisio Marcos Vasconcelos Novais - -
---------------------------------------------------------------------------------------------------------------
Stalin Amorim Duarte - 106,544
---------------------------------------------------------------------------------------------------------------
Cristiano Correa de Barros 1 1,325,790
---------------------------------------------------------------------------------------------------------------
Edmar de Oliveira Santana 582 376
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
FISCAL COUNCIL
---------------------------------------------------------------------------------------------------------------
Joao Pedrosa Castello - 12,644
---------------------------------------------------------------------------------------------------------------
Aristoteles Luiz Menezes Vasconcellos Drummond - -
---------------------------------------------------------------------------------------------------------------
Luiz Otavio Nunes West - -
---------------------------------------------------------------------------------------------------------------
Bruno Constantino Alexandre dos Santos - -
---------------------------------------------------------------------------------------------------------------
Ronald Gastao Andrade Reis - -
---------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES AVAILABLE ON MARKET AS OF JUNE 30, 2002
--------------------------------------------------------------------------------------------------
Common % Preferred % Total %
--------------------------------------------------------------------------------------------------
34,754,711,629 49 88,180,156,856 97 122,934,868,485 76
--------------------------------------------------------------------------------------------------
Item 7
Companhia Energetica de Minas Gerais - CEMIG
Consolidated Financial Statements
June 30, 2002
F - 1
Item 7
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais)
A S S E T S
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
CURRENT ASSETS:
Cash and cash equivalents (note 6) 176 218
Restricted investments (note 7) 454 602
Accounts receivable, net (note 8) 705 485
Accounts receivable - Use of basic transmission network 17 18
Deferred regulatory assets (note 3) 291 259
Recoverable taxes 128 86
Other 115 84
--------- ---------
1,886 1,752
--------- ---------
INVESTMENTS (note 10) 488 437
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET (note 11) 9,941 9,841
--------- ---------
OTHER ASSETS:
Marketable securities - Available for sale 68 70
Deferred regulatory assets (note 3) 1,484 1,245
Receivable from Federal Government in respect of bonus paid and rationing
adoption costs incurred (note 4) 210 123
Restricted investments (note 7) 35 18
Deferred income taxes, net (note 5) 155 -
Account receivable from State Government (note 9) 544 451
Other 214 125
--------- ---------
2,710 2,032
--------- ---------
Total assets 15,025 14,062
========= =========
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 2
Item 7
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais, unless otherwise indicated)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
CURRENT LIABILITIES:
Accounts payable to suppliers (note12) 1,161 945
Payroll and related charges 99 97
Taxes payable (note 13) 185 219
Dividends and interest on capital 315 105
Current portion of long-term financing (note 14) 644 451
Regulatory charges payable 49 52
Advanced billings of electric power 12 42
Employee profit sharing 12 35
Other 57 66
--------- ---------
2,534 2,012
--------- ---------
LONG-TERM LIABILITIES:
Long-term financing (note 14) 2,359 2,029
Taxes payable (note 13) 243 -
Employee post-retirement benefits (note 15) 1,675 1,627
Deferred income taxes, net (note 5) - 46
Accrued liability for contingencies (note 16) 321 319
Accounts payable to suppliers (note 12) 418 364
Surcharge applied to consumers (note 4) 25 26
Other 110 93
--------- ---------
5,151 4,504
--------- ---------
MINORITY INTEREST 35 3
--------- ---------
SHAREHOLDERS' EQUITY:
Capital stock
Preferred - 91,210,523 thousand shares authorized, issued and
outstanding as of June 30, 2002 (89,436,237 thousand shares as of
December 31, 2001) 804 786
Common - 70,874,168 thousand shares authorized, issued and outstanding
as of June 30, 2002 (69,495,478 thousand shares as of December 31,
2001) 624 610
--------- ---------
1,428 1,396
Additional paid-in capital 3,170 3,170
Appropriated retained earnings 3,101 3,133
Unappropriated retained earnings (loss) (158) 79
Accumulated other comprehensive loss (236) (235)
--------- ---------
7,305 7,543
--------- ---------
Total liabilities and shareholders' equity 15,025 14,062
========= =========
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 3
Item 7
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (LOSS) FOR THE SIX
MONTHS ENDED JUNE 30, 2002 AND 2001
(Expressed in millions of reais, except share
and per share amounts)
Six months ended
June 30,
-------------------------------------
2002 2001
----------------- ------------------
NET OPERATING REVENUES:
Electricity sales to final customers (note 18) 2,543 2, 483
Regulatory extraordinary rate adjustment (note 3) 174 -
Electricity sales to the interconnected power system (note 18) 110 18
Use of basic transmission network 80 73
Other operating revenues 87 70
Taxes on revenues (note 18) (687) (628)
----------------- ------------------
Total net operating revenues 2,307 2,016
----------------- ------------------
OPERATING COSTS AND EXPENSES:
Electricity purchased for resale (note 19) (739) (512)
Natural gas purchased for resale (45) (38)
Use of basic transmission network (142) (132)
Depreciation and amortization (340) (314)
Personnel (248) (287)
Regulatory charges (note 19) (253) (238)
Third-party services (112) (105)
Employee post-retirement benefits (note 15) (134) (152)
Materials and supplies (34) (33)
Other (note 19) (104) (103)
----------------- ------------------
Total operating costs and expenses (2,151) (1,914)
----------------- ------------------
Operating income 156 102
FINANCIAL EXPENSES, NET (note 20): (234) (155)
----------------- ------------------
Loss before income taxes and minority interests (78) (53)
INCOME TAXES - benefit (note 5)
Current (138) 22
Deferred 201 25
----------------- ------------------
63 47
----------------- ------------------
MINORITY INTERESTS 9 -
----------------- ------------------
NET LOSS (6) (6)
----------------- ------------------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on available-for-sale security (2) 13
Income taxes 1 (4)
----------------- ------------------
(1) 9
----------------- ------------------
COMPREHENSIVE INCOME (LOSS) (7) 3
================= ==================
Weighted average number of common and preferred shares outstanding
during the period (thousands) for basic loss per thousand shares 159,982,707 158,931,715
================= ==================
Basic earnings loss per thousand common and preferred shares - In reais (0.04) (0.04)
================= ==================
Weighted average number of common and preferred shares outstanding during
the period (thousands) for diluted earnings (loss) per
thousand shares 160,141,864 158,931,715
================= ==================
Diluted earnings loss per thousand common and preferred shares - In
reais (0.04) (0.04)
================= ==================
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 4
Item 7
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Expressed in millions of reais)
Six months ended
June 30,
-------------------------------------
2002 2001
----------------- ------------------
CAPITAL STOCK:
Preferred shares
Balance, beginning of the period 786 786
Transfer from appropriated retained earnings 18 -
----------------- ------------------
Balance, end of the period 804 786
Common shares
Balance, beginning of the period 610 610
Transfer from appropriated retained earnings 14 -
----------------- ------------------
Balance, end of the period 624 610
----------------- ------------------
1,428 1,396
----------------- ------------------
ADDITIONAL PAID-IN CAPITAL 3,170 3,170
----------------- ------------------
APPROPRIATED RETAINED EARNINGS:
Fiscal incentive investment reserve-
Balance 45 41
----------------- ------------------
Rate shortfall reserve-
Balance, beginning of period 2,680 2,680
Transfer to capital stock (32) -
Balance, end of the period ----------------- ------------------
2,648 2,680
----------------- ------------------
Unrealized income reserve-
Balance 314 484
----------------- ------------------
Legal reserve-
Balance 94 94
----------------- ------------------
3,101 3,299
----------------- ------------------
UNAPPROPRIATED RETAINED EARNINGS (LOSS):
Balance, beginning of the period 79 735
Net loss (6) (6)
Dividends and interest on shareholders' equity (231) -
----------------- ------------------
Balance, end of the period (158) 729
----------------- ------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance, beginning of the period (235) (438)
Other comprehensive income (loss) (1) 9
----------------- ------------------
Balance, end of the period (236) (429)
----------------- ------------------
Shareholders' equity at end of the period 7,305 8,165
================= ==================
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 5
Item 7
UNAUDITED
Page 1 of 2
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Expressed in millions of reais)
Six months ended
June 30,
-------------------------------------
2002 2001
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (6) (6)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization 340 314
Receivable from Federal Government in respect of bonus
payable and rationing adoption costs incurred, net of
surcharge applied to consumers (87) -
Deferred regulatory assets (213) -
Monetary variation and exchange rate variation loss 120 16
Loss on disposal of property, plant and equipment 11 40
Employee post-retirement benefits 48 65
Provision for contingencies and doubtful accounts receivable 11 (7)
Deferred income taxes (201) (25)
Other 2 1
Decrease (increase) in operating assets-
Accounts receivable (217) (20)
Recoverable taxes (35) (14)
Deferred regulatory assets 91 -
Judicial deposits (49) -
Other (49) 47
Increase (decrease) in operating liabilities-
Accounts payable to suppliers 176 65
Payroll and related charges 2 26
Taxes payable 191 54
Regulatory charges payable (3) (11)
Advanced billings of electric power (30) (30)
Accrued interest on long-term financing 128 101
Receivable from Federal Government in respect of bonus paid and
rationing adoption costs incurred, net of surcharge applied
to consumers (87) -
Other (19) (4)
----------------- ------------------
Net cash provided by operating activities 211 612
================= ==================
F - 6
Item 7
UNAUDITED
Page 2 of 2
Six months ended
June 30,
-----------------------------
2002 2001
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted short-term investments 131 (90)
Acquisition of new investments (187) (30)
Acquisition of property, plant and equipment (218) (170)
-------------- -------------
Net cash used in investing activities (274) (290)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term financing 147 91
Repayment of long-term financing (138) (102)
Advance from minority shareholder for future capital increase in subsidiary 12 -
Dividends and interest paid on capital - (1)
-------------- -------------
Net cash provided by (used in) financing activities 21 (12)
-------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (42) 310
============== =============
CASH AND CASH EQUIVALENTS:
Beginning of the period 218 303
End of the period 176 613
-------------- -------------
(42) 310
============== =============
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Taxes paid - income and social contribution taxes 42 15
Interest paid, net of interest capitalized 84 71
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 7
Item 7
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Amounts expressed in millions of reais unless otherwise indicated)
1. THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG ("CEMIG" or the "Company") is a
partly state-owned company (sociedade de economia mista), organized under the
laws of the Federative Republic of Brazil ("Brazil") and controlled by the
government of the State of Minas Gerais (the "State Government"). The
Company's principal business activities are the construction and operation of
systems used in the generation, transmission, distribution and sale of
electric energy. The Company also conducts business in certain related
activities.
As a concessionaire of electric utility services, the Company is subject to
regulations set by the Agencia Nacional de Energia Eletrica (the Brazilian
National Electric Energy Agency or "ANEEL"), an agency of the Brazilian
Federal Government (the "Federal Government").
The following are the Company's operational subsidiaries as of June 30, 2002:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest) - Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest) - Its principal
activities are the production and sale of electric energy, as an
independent power producer, at the Ipatinga thermoelectric power plant
located on the premises of Usinas Siderurgicas de Minas Gerais - USIMINAS,
a large steel manufacturer;
o Companhia de Gas de Minas Gerais - GASMIG ("GASMIG") (95.17% interest) -
Its principal activities are the operation, production, acquisition,
storage, transportation and distribution of natural gas and related
products. In 1993, GASMIG was granted a 30-year concession by the State
Government to perform these activities; and
o Empresa de Infovias S.A. ("Infovias") (94.89% interest) - Its principal
activities are rendering telecommunications services and developing related
activities through integrated systems using optical fiber cable, coaxial
cable, electronic equipment and other items. The Company acquired Infovias'
control in June, 2002, through the acquisition of shares from AES Forca e
Empreendimentos Ltda.
Additionally, the Company has a 100% interest in each of the following
pre-operational subsidiaries:
o Horizontes Energia S.A. - Its principal activities will be the production
and sale of electric energy, as an independent power producer, at the
Machado Mineiro and Salto do Paraopeba hydroelectric power plants, both
located in the State of Minas Gerais, and Salto Voltao and Salto do Passo
Velho hydroelectric power plants, both located in the State of Santa
Catarina. These plants were transferred to, and recorded as paid in capital
of, Horizontes Energia S.A. during the third quarter of 2002.
F - 8
Item 7
UNAUDITED
o Cemig PCH S.A., Cemig Capim Branco Energia S.A. and UTE Barreiro S.A. -
Their principal activities will be the production and sale of electric
energy, as independent power producers.
o Efficientia S.A. - Its principal activities will be rendering efficiency,
optimization and energy solutions services, and rendering operation and
management services in energy supply facilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"), management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from these estimates. The Company's financial statements therefore include
various estimates concerning (i) the recoverability of deferred regulatory
assets, (ii) valuation allowances for accounts receivable, deferred tax assets
and account receivable from State Government, (iii) the useful lives of
property, plant and equipment, (iv) provisions necessary for contingent
losses, (v) estimates of employee post-retirement benefit obligations and
other similar evaluations.
The interim financial statements as of and for the six months ended June 30,
2002 and 2001 have been prepared in accordance with U.S. GAAP, which differ in
certain respects from the Brazilian accounting practices applied by CEMIG in
its statutory financial statements that are prepared and filed in accordance
with the rules of the Brazilian Securities Commission (the "CVM"). The interim
financial statements were prepared on a basis consistent with the financial
statements as of and for the year ended December 31, 2001.
The interim financial statements included in this report have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary for a fair presentation are reflected in these interim financial
statements. Such adjustments are of a normal and recurring nature. The results
of operations for the six months ended June 30, 2002 are not necessarily
indicative of the operating results for the full year. The interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto as of and for each
of the years in the three-year period ended December 31, 2001 contained in
CEMIG's Annual Report on Form 20-F, as filed with the United States Securities
and Exchange Commission on March 26, 2003 (Registration No. 1-15224).
The consolidated financial statements for the year ended December 31, 2001
included the accounts of CEMIG and its subsidiaries Sa Carvalho S.A., Usina
Termica Ipatinga S.A. and Companhia de Gas de Minas Gerais - GASMIG. The
consolidated financial statements for the six months ended June 30, 2002
include the accounts of CEMIG and its subsidiaries Sa Carvalho S.A., Usina
Termica de Ipatinga S.A., Companhia de Gas de Minas Gerais - GASMIG, Empresa
de Infovias S.A., Cemig PCH S.A., Cemig Capim Branco S.A., UTE Barreiro S.A.,
Efficientia S.A. and Horizontes Energia S.A..
F - 9
Item 7
UNAUDITED
3. DEFERRED REGULATORY ASSETS
An emergency energy-rationing program (the "Energy Rationing Plan") was
created by the Federal Government's Executive Order No. 2148, of May 22, 2001,
to reduce energy consumption and avoid unplanned interruption in power supply.
Average reduction in monthly consumption of electricity during the rationing
period was estimated at 20% of the actual consumption for the months of May,
June and July 2000. The energy rationing became effective on June 1, 2001 and
ended February 28, 2002, when the Federal Government determined that the water
levels in the reservoirs serving Brazil's hydroelectric facilities had
returned to normal.
As a result of the Energy Rationing Plan, many electric generation and
distribution companies in Brazil, including CEMIG, experienced a reduction in
their profit margins, as their physical and personnel structures could not be
reduced in line with the consumption reduction quotas imposed. Thus, they
continued incurring fixed costs without earning corresponding revenue.
In December 2001, the Federal Government and the electric utilities in Brazil
affected by the Energy Rationing Plan signed an industry-wide agreement (the
General Agreement of the Electricity Sector or the "General Agreement" or the
"Agreement") to regain the financial-economic equilibrium of the existing
concession contracts and recover revenues relating to the period during which
the Energy Rationing Plan was in effect.
The Agreement addressed margin losses incurred by the electric distribution
and generation companies during the period that the Energy Rationing Plan was
effective, additional Parcel "A" costs for the period from January 1, 2001 to
October 25, 2001 and costs of energy purchased in the spot market through the
Mercado Atacadista de Energia (the Wholesale Energy Market or "MAE") up to
December 2002. These items will be recovered by an extraordinary rate
adjustment as follows:
III. an increase of 2.90% for rural and residential consumers
(excluding low-income consumers), lighting streets and
high-tension industrial consumers whose costs related to
electric energy represent at least 18.00% of average production
cost and fulfill certain criteria, related to charge and demand
energy factors which were determined by ANEEL's Resolution No.
130, dated April 30, 2002.
IV. an increase of 7.90% for all other consumers.
According to ANEEL's Resolution No. 484, of August 29, 2002, the extraordinary
rate adjustment for CEMIG is to be in force for a maximum period of 82 months,
as from January 2002 and bearing interest equivalent to the SELIC interest
rate (Brazilian benchmark interest rate). The Company recorded a provision for
loss on deferred regulatory assets, in the amount of R$162 as of June 30,
2002, considering its recoverability projections for the 82-month recovery
period allowed to the Company by ANEEL. The deferred regulatory assets are
periodically compared with the Company's recoverability projections, which are
constantly reviewed by Management, according to market conditions, changes in
regulation and other similar events. The balance of the provision is adjusted
accordingly.
F - 10
Item 7
UNAUDITED
The special rate adjustment mentioned will be used in the compensation of the
followig items:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Revenue losses (expected to be recovered within 24 months) incurred
during the rationing period 431 398
Additional Parcel "A" costs:
- Period from January 1, 2001 to October 25, 2001 295 273
- Period from October 26, 2001 and thereafter 216 139
Recording of energy transactions on the MAE 995 844
-------- --------
1,937 1,654
( - ) Provision for loss on deferred regulatory assets (computed
based on an 82-month period) (162) (150)
======== ========
1,775 1,504
Current assets 291 259
Other assets 1,484 1,245
During the six-month period ended June 30, 2002, the Company collected R$117
as a result of application of the extraordinary rate adjustment.
The VAT related to the rationing program revenue, amounting to R$254 as of
June 30, 2002 (R$301 as of December 31, 2001), only becomes an obligation to
be recorded in the financial statements once the customers are billed;
therefore, no provision related to this tax was recorded. The Company passes
all VAT amounts received from customers on to the State Government.
a) Recovery of revenue losses incurred during the Energy Rationing Plan
Although CEMIG's total revenue losses were R$877 as of June 30, 2002 (R$724 as
of December 31, 2001), CEMIG recorded a regulatory asset on a U.S. GAAP basis
in the amount of R$431 as of June 30, 2002 (R$398 as of December 31, 2001), in
accordance with consensus described on Emerging Issues Task Force - EITF
92-07, "Accounting by Rate-Regulated Utilities for the Effects of Certain
Alternative Revenue Programs", which establishes a 24 month period limit for
collection of the asset.
The accrued amount related to this asset, which will be reimbursed through the
special rate adjustment is monetarily restated based on SELIC from January 1,
2002 until collection.
b) Recovery of additional Parcel "A" costs
ANEEL Resolution No. 90, dated February 18, 2002, established procedures for
the compensation of some Parcel "A" costs for the period from January 1, 2001
to October 25, 2001. The base amount to be reimbursed is equal to the
difference between the Parcel "A" costs actually incurred and the estimated
Parcel "A" costs used for purposes of computing the most recent annual rate
adjustment prior to the Energy Rationing Plan. This amount will bear interest
at the SELIC rate from the day that the actual cost was paid until the date of
compensation.
On October 25, 2001, the Federal Government, through Executive Act No. 296,
created a tracking account mechanism to control the variation of Parcel "A"
costs for rate adjustment calculation purposes. This account is comprised of
the amounts resulting from the difference between the Parcel "A" costs
actually incurred, from October 26, 2001 and thereafter, and the estimated
Parcel "A" costs used for purposes of computing the annual rate adjustment as
from April 8, 2001.
The amounts determined for the period from October 26, 2001 and thereafter are
recorded as a deferred regulatory asset, as follows:
F - 11
Item 7
UNAUDITED
Values to be Values to be Total
compensated compensated Total December 31,
Parcel "A" Items until April, after April, June 30, 2001
2003 2004 2002 (Audited)
------------ ------------ -------- ------------
System service charges - 111 111 84
Itaipu Binacional electricity purchase rate 34 76 110 35
Itaipu Binacional electricity transport rate 1 1 2 1
Fuel usage quota - CCC 10 (33) (23) 11
Rate for use of basic transmission network 9 5 14 8
Charges for use of water resources - 2 2 -
----- ----- ------ -----
54 162 216 139
===== ===== ====== =====
The Company recorded System service charges related to the period from
September 2000 to June 2002, which are expected to be paid in 2003, in
accordance with information provided by the MAE.
c) Energy transactions on the MAE and other
(c.1) Recording of energy transactions on the MAE and other
During the period of the Energy Rationing Plan in Brazil, electricity
utilities, including CEMIG, made a substantial number of energy purchases on
the spot market through the MAE in order to supply their customers. During
this period, the prices for spot market energy were often significantly higher
than the prices set forth in initial energy purchase contracts.
Costs related to energy sold on the MAE are being prorated among consumers
supplied by the Brazilian interconnected power system through an extraordinary
rate adjustment, as from January 2002. The amount to be passed along to
consumers through the rate adjustment is calculated based on the amount of
energy purchased on the MAE during the period from May 1, 2001 until the end
of the rationing period, and equals the difference between the energy purchase
price on the MAE and R$49.26/MWh (which is the initial contract average cost
for the period). Generators will not be reimbursed with respect to MAE energy
purchases at a price less than or equal to R$49.26/MWh.
(c.2) Financial settlement of the MAE transactions
On February 18, 2003, CEMIG settled 50% of its outstanding obligations
relating to MAE transactions. In connection with this settlement, CEMIG
disbursed R$335 to the MAE agents.
The funds required for this settlement were obtained through a loan agreement
dated February 7, 2003 between the Company and BNDES.
CEMIG is required to settle the remaining 50% of its outstanding MAE amounts
after the completion of a review that will be performed by independent
auditors on data provided by MAE to the concessionaires. Under the General
Agreement, BNDES must provide additional financing in connection with such
additional settlement.
This independent review, as well as the outcome of certain judicial claims
brought by market participants (including CEMIG) concerning the interpretation
of the market rules in force, may result in the recalculation of the
transaction data figures previously provided by MAE. Such a recalculation may
impact the Company's future results of operations and cash flows.
4. BONUS PAID, SURCHARGES AND RATIONING ADOPTION COSTS INCURRED
F - 12
Item 7
UNAUDITED
Through Federal Government Executive Act No. 2,152-2, dated June 1, 2001, the
Federal Government determined that residential consumers whose electric energy
consumption was lower than the target consumption levels during the period of
the Energy Rationing Plan would be entitled to receive a bonus, limited to
their electric energy invoice amount, and that all consumers whose consumption
exceeded the target would be subject to surcharges, calculated based on the
effective consumption in excess of such target, as established by the Energy
Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Rationing Program involving the bonus, surcharge and related costs. The
related balances as of June 30, 2002 are as follows:
Other Assets
Receivable from Federal Government in respect of bonus paid to consumers that
consumed less than the target consumption 182
Receivable from Federal Government in respect of costs related to the adoption
of the Energy Rationing Plan in excess of the 2.00% surcharge on consumer
rates 28
-----
210
Long-term Liabilities
Surcharge applied to consumers that consumed more than the target consumption (25)
------
Net receivable from Federal Government in respect of bonus paid to
consumers and related costs in excess of the surcharge applied to
consumers 185
=====
In 2002, the Company recorded additional reimbursable bonuses and costs
related to the Energy Rationing Plan of R$74 and R$13, respectively.
In the second half of 2002, upon ANEEL approval, CEMIG received approximately
R$132 in reimbursement for consumer bonuses paid.
The remaining net amount to be received by CEMIG, of approximately R$24, is
under negotiation with ANEEL. The surcharges represented by this amount were
not billed or collected from the consumers as they are currently the subject
of a judicial dispute. Management does not expect losses relating to the
realization of this outstanding amount.
According to ANEEL Resolution No. 600, dated October 31, 2002, operational
costs of approximately R$32 related to the adoption of the Energy Rationing
Plan in excess of the 2.00% surcharge on consumer tariffs will be reimbursed
upon approval by ANEEL.
F - 13
Item 7
UNAUDITED
5. DEFERRED INCOME TAXES
Income taxes in Brazil include federal income tax and social contribution on
income (which is an additional federal income tax). For U.S. GAAP purposes,
the statutory annual rates applicable are 25% for federal income tax and 8%
for social contribution tax at June 30, 2002 and 2001. On December 30, 2002,
the Federal Government issued Law No. 10,637 that determines the increase on
the social contribution tax rate from 8% to 9%, beginning on January 1, 2003.
(a) Income tax reconciliation
The amounts reported as income tax benefit in the financial statements are
reconciled to the statutory rates as follows:
Six months ended
June 30,
-----------------------------
2002 2001
-------------- --------------
Loss before income taxes and minority interests (78) (53)
======= =======
Income taxes - 33% rate 26 17
Effects off:
Interest on capital deductibility 39 -
Special liabilities amortization 15 7
Social contribution on depreciation (5) 20
Rate difference (11) 1
Others (1) 2
------- -------
Tax benefit in the statement of operations 63 47
======= =======
(b) Analysis of deferred tax balances
Tax rate changes are enacted in the year prior to the year in which they
become effective. As of June 30, 2002 and December 31, 2001, the deferred tax
balances have been computed using a 34% rate, which is the rate expected to be
in force upon realization. The major components of the deferred income taxes
account in the balance sheet are as follows:
F - 14
Item 7
UNAUDITED
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Other assets-
Employee post-retirement benefits 79 74
Tax loss carryforwards 267 192
Temporary difference on regulatory assets 206 151
Other temporary differences 132 105
-------- --------
684 522
-------- --------
Long-term liabilities-
Effects of differences between tax basis of non-monetary assets relating to
property, plant and equipment and amounts reported
for U.S. GAAP (529) (568)
-------- --------
(529) (568)
======== ========
Net 155 (46)
======== ========
In the six-month period ended June 30, 2002 and 2001 deferred tax benefit and
expense of R$1 and R$4, respectively, related to unrealized losses/gains on
available-for-sale securities were recorded directly to shareholders' equity
as other comprehensive loss.
During 2001, the Company amended its income tax return for the year ended
December 31, 1997 to claim deductibility of pension costs accrued in its
Brazilian Corporate Law financial statements. This amendment resulted in (i)
the recognition of prepaid income and social contribution taxes in the amount
of R$161, which was reclassified from Deferred income taxes to Recoverable
taxes, classified as current assets, (ii) a reduction of Taxes payable in the
amount of R$49, and (iii) the recognition of tax loss carryforwards, recorded
considering the probable expected future profitability of CEMIG in subsequent
fiscal years. The Company has been offsetting this prepaid income tax with
federal tax liabilities.
6. CASH AND CASH EQUIVALENTS
The following table sets forth amounts of cash and cash equivalents for the
dates indicated:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Cash on hand and in banks 94 66
Short-term investments, with original maturity of three
months or less, mainly bank certificates of deposit and
investment funds at fair value 82 152
------ ------
176 218
====== ======
CEMIG has short-term investments with interest income calculated based on the
Brazilian Interbank Certificates of Deposit - CDI rate.
F - 15
Item 7
UNAUDITED
7. RESTRICTED INVESTMENTS
The following table sets forth amounts of restricted investments for the dates
indicated:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Investments to be used in investment plan 248 468
Investments to be used in settlement of financing 241 152
----- -----
489 620
=== ===
Short-term 454 602
Long-term 35 18
On June 30, 2002 and December 31, 2001, the balances of R$248 and R468,
respectively, refer to short-term investments, acquired with resources
obtained from the issuance of debentures (note 17), with interest income
calculated based on the variation of Brazilian Interbank Certificates of
Deposit - CDI and maturity dates that do not exceed 30 days.
These resources were used for the portion of the investment plan related to
the expansion of the Company's energy generation, transmission and
distribution operations, executed in 2002.
In compliance with Resolution No. 2,515 dated June 29, 1998 issued by the
Brazilian Central Bank, when CEMIG extends the maturity of any foreign
currency-denominated financing, it must make deposits in respect of the
principal amount of such extended financing into a short-term investment
escrow account so that at the final maturity date of the financing, such
escrow account contains an amount equal to the entire principal amount due
under the financing. The interest income is calculated based on the variation
of Brazilian Interbank Certificates of Deposit - CDI and U.S. dollar and
maturity dates that do not exceed 30 days. The restricted investments to be
used in the investment plan are classified as current and other according to
the maturity date of the respective financing.
F - 16
Item 7
UNAUDITED
8. ACCOUNTS RECEIVABLE
The following table sets forth information concerning accounts receivable by
type of consumers for the dates indicated.
Past-due
--------------------------
Total
Total December 31,
Up to 90 Over 90 June 30, 2001
days days 2002 (Audited)
-------- ------- -------- ------------
Residential 178 82 9 269 176
Industrial 141 45 33 219 181
Commercial 63 37 8 108 77
Rural 22 9 3 34 24
Governmental entities 18 35 11 64 37
Public services 46 2 1 49 38
----- ----- ----- ----- -----
Subtotal 468 210 65 743 533
Distributors 6 - 2 8 6
----- ----- ----- ----- -----
474 210 67 751 539
===== ===== ===== ===== =====
Allowance for doubtful accounts - - (46) (46) (54)
----- ----- -----
474 210 21 705 485
===== ===== ===== ===== =====
No single customer represented more than 10% of total receivables as of June
30, 2002 and December 31, 2001 and electricity sales to final customers for
the six months ended in June 30, 2002 and 2001.
In April 2002, our largest industrial client became a self power producer and
as such ceased to purchase energy from the Company.
9. ACCOUNT RECEIVABLE FROM STATE GOVERNMENT
On May 2, 1995, the obligation to pay the remaining balance of the CRC account
receivable, then R$867, was transferred from the Federal Government to the
State Government through a credit assignment contract. In connection with this
assignment, the State Government agreed to pay the amount due to the Company
over 20 years, with an initial three-year grace period, as restated based on
the UFIR (Tax Reference Unit Index) and accruing interest at 6% per year.
In the event that the Company receives any payments or retains declared
dividends to offset amounts not paid by the State Government, the Company is
obligated to issue shares to all shareholders in proportion to their
shareholding, transferring the principal amount of installments, from the
Appropriated retained earnings - Rate shortfall reserve to Capital Stock.
Since May 1995, the credit assignment contract has been amended as follows:
a) First Amendment, signed on January 24, 2001:
In October 2000, the UFIR index was eliminated by the Federal Government. As a
result, CEMIG negotiated and signed an amendment to the contract with the
State Government to change the index used from the UFIR index to Indice Geral
de Precos - Disponibilidade Interna - IGP-DI (General market price index -
internal availability), as from November 1, 2000.
F - 17
Item 7
UNAUDITED
b) Second Amendment, signed on October 14, 2002 (the "Second Amendment"):
The Second Amendment refers to 149 monthly installment payments, with
maturities from January 1, 2003 through May 1, 2015, in the total amount of
R$795, adjusted to present value, as of June 30, 2002. These installments
continued subject to an annual interest rate of 6%, and restated based on the
IGP-DI variation.
The Second Amendment was signed in accordance with Law No. 14,384, dated
October 11, 2002, issued by the Minas Gerais State Legislature. CEMIG's Board
of Directors ratified this amendment on October 23, 2002.
b.1) No payments made to date in 2003:
The State Government did not pay the first five installments due under the
Second Amendment, due from January 1 to May 1, 2003, totaling R$69 in the
aggregate. Management is currently negotiating the collection of the
aforementioned past due amounts with the State Government.
b.2) Provision for loss:
Since the Second Amendment did not include any guarantees that would assure
the realization of the CRC receivable, CEMIG recorded a provision for loss in
the amount of R$754 for this asset as of December 31, 2001 which corresponds
to the total amount of the Second Amendment. On January 21, 2003 the Company's
Board of Directors ratified such provision.
For income tax purposes, such provision is considered a permanent difference,
since it involves a related party non-deductible loss and, therefore, did not
impact the deferred income and social contribution taxes.
CEMIG continues to negotiate the payment of the balance due to it under the
Second Amendment, including the possibility of transfer of this obligation
back to the Federal Government.
On January 29, 2003, the Company's Board of Directors authorized management to
initiate judicial proceedings against the State Government in order to collect
the past due installments.
c) Third Amendment, signed on October 24, 2002 (the "Third Amendment"):
The Third Amendment covers installments originally due but unpaid under the
credit assignment contract from April 1, 1999 through December 1, 1999 and
from March 1, 2000 through December 1, 2002. Under the Third Amendment, these
unpaid installments, which totaled R$544 as of June 30, 2002 (R$451 as of
December 31, 2001), are subject to annual interest of 12.00% and are
monetarily restated based on the IGP-DI variation. The Third Amendment
requires repayment of these amounts over 149 monthly installments from January
2003 to May 2015. The Third Amendment allows CEMIG to retain annual dividends
and interest on capital due to the State Government as a Company shareholder
as an offset against any amounts not paid by the State Government.
The Third Amendment was signed under authorization granted by Law No. 14,384,
dated October 11, 2002, issued by the Minas Gerais State Legislature. The
Company's Board of Directors ratified the Third Amendment on October 23, 2002.
c.1) No payments made to date in 2003:
The State Government did not pay the first five installments under the Third
Amendment, due from January 1 to May 1, 2003, totaling R$52 in the aggregate.
Management is negotiating the collection of the aforementioned past due
amounts with the State Government.
F - 18
Item 7
UNAUDITED
The projection of the Company's future operations indicates that the
offsetting of the dividends and interest on capital corresponding to the State
Government's share equity in the Company will be sufficient in the long term
to assure the realization of the entire outstanding receivable covered by the
Third Amendment, should the State Government continue in default. Management
will monitor future events, which could impact the Company's dividend payment
projections, in order to conclude whether an allowance relating to the Third
Amendment is necessary.
10. INVESTMENTS
The following table describes the Company's investments:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Consortia 392 297
Hydroelectric plants to be transferred to a subsidiary 62 62
Goodwill on purchase of Infovias 21 -
Other investments 13 13
Empresa de Infovias S.A. - 65
----- -----
488 437
===== =====
(a) Investments in other companies
In 2002, the Company acquired shares from AES Forca Empreendimentos Ltda.
("AES"), corresponding to 50.48% of Infovias' capital, of which 5.03% was
acquired during the fourth quarter. The aggregate purchase price paid was
R$87. These transactions increased CEMIG's interest in Infovias' capital from
49.44% to 99.92%. Therefore, as from June 30, 2002, CEMIG's consolidated
financial statements include Infovias' operations. The Company is assessing
the effects arising from the application of SFAS 141 "Business Combinations"
and SFAS 142 "Goodwill and Other Intangible Assets" to its 2002 financial
statements as a result of this acquisition.
The Company's Board of Directors authorized CEMIG to provide a guarantee
relating to a loan obtained by Infovias in the amount of US$40 million, which
began amortizing in May 2002. Any installment paid by CEMIG in case of
non-payment by Infovias will be repaid to CEMIG in the form of preferred
shares issued in connection with a capital increase of Infovias.
The independent auditor's report on the Infovias' financial statements as of
December 31, 2002 has comments about (i) the deferred income and social
contribution taxes and maintenance of VAT credits, which realization is based
on future profit projections that depend on the contracts sign-off, still
under negotiations; (ii) the dependence on additional funds, provided either
by shareholders or third parties, in order to finance its operations as well
as to guarantee the realization of the assets recorded in its financial
statements until the operating revenues are sufficient to do so.
F - 19
Item 7
UNAUDITED
(b) Hydroelectric power plants to be transferred to a subsidiary
The Company transferred R$62 to Investments from Property, plant and
equipment, after recognizing an impairment charge of R$33, of the Machado
Mineiro and Salto do Paraopeba hydroelectric plants, both located in the State
of Minas Gerais, and the Salto Voltao and Salto do Passo Velho hydroelectric
plants, both located in the State of Santa Catarina. These plants were
transferred to, and recorded as paid in capital of, a subsidiary, Horizontes
Energia S.A., in the third quarter of 2002.
(c) Consortia
CEMIG is a partner in certain consortia for electricity generation projects.
Each partner of each consortium has the right to take energy generated by the
applicable power plant in an amount proportionate to the partner's investment.
CEMIG's participation in consortia, represented by the amounts already
invested in the projects, is described as follows:
Annual average December 31,
CEMIG's rate of June 30, 2001
participation depreciation 2002 (Audited)
--------------------------------------------------------------------
In service-
Porto Estrela Hydroelectric Power Plant 33.33% 2.51% 53 72
Igarapava Hydroelectric Power Plant 14.50% 2.51% 51 52
Construction in progress-
Queimado Hydroelectric Power Plant 82.50% 94 74
Funil Hydroelectric Power Plant 49.00% 77 52
Aimores Hydroelectric Power Plant 49.00% 105 47
Cemig Capim Branco Hydroelectric Power Plants 20.00% 12 -
----- -----
392 297
===== =====
F - 20
Item 7
UNAUDITED
11. PROPERTY, PLANT AND EQUIPMENT
The following table describes the consolidated property, plant and equipment:
Annual average December 31,
rate of June 30, 2001
depreciation 2002 (Audited)
------------------- ------------------ ------------------
In service
Generation-
Hydroelectric 2.51% 7,694 7,629
Thermoelectric 1.79% 261 261
Transmission 3.08% 1,409 1,403
Distribution 5.10% 7,158 7,075
Administration 9.63% 464 447
Other 7.48% 214 48
--------- ---------
17,200 16,863
--------- ---------
Accumulated depreciation and amortization-
Generation (3,693) (3,595)
Transmission (735) (714)
Distribution (3,139) (2,966)
Administration (275) (252)
Other (24) (11)
--------- ---------
(7,866) (7,538)
--------- ---------
Total in service 9,334 9,325
--------- ---------
Construction in progress-
Generation 81 82
Transmission 69 58
Distribution 321 346
Administration 18 20
Other 118 10
--------- ---------
Total in construction in progress 607 516
--------- ---------
Total 9,941 9,841
========= =========
Interest cost and monetary variation capitalized during the six months ended
on June 30, 2002 and 2001 was R$26 and R$17, respectively.
F - 21
Item 7
UNAUDITED
12. ACCOUNTS PAYABLE TO SUPPLIERS
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Electricity suppliers-
Furnas - Centrais Eletricas S.A. (indexed to US dollar) 274 213
Spot market - MAE 797 644
Payments to generators for energy purchased on MAE 418 364
Others 29 22
-------- -------
1,518 1,243
Supplies and services 61 66
-------- --------
1,579 1,309
======== ========
Current liabilities 1,161 945
Long term liabilities 418 364
The Spot market - MAE liability includes the energy purchased on the wholesale
spot market during the period from September 2000 to June 2002, based on
information provided by MAE, the spot market administrator. The definitive
amounts and effective payment of this liability depends on the resolution of
judicial claims currently pending, brought by market agents, including the
Company, related to the interpretation of the market rules in force, as well
as in obtaining the necessary financing, as more fully set forth in note 3.
13. TAXES PAYABLE
The following table describes the Company's accrued taxes payable:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Short-term
Income tax 59 72
Social Contribution tax 21 36
Value-added tax - ICMS 81 30
Tax on billing - COFINS 7 52
Others 17 29
-------- --------
185 219
Long term
Income tax 132 -
Social Contribution tax 49 -
Tax on billing - COFINS 53 -
Tax on billing - PASEP 9 -
-------- --------
243 -
-------- --------
428 219
======== ========
CEMIG transferred to long-term liabilities, the income tax, social
contribution tax, COFINS and PASEP on special rate adjustment revenue,
recorded in 2001 and 2002. This transfer was conducted in accordance
F - 22
Item 7
UNAUDITED
with the Resolution of the Brazilian Federal Tax Authority (Secretaria da
Receita Federal), issued in the third quarter of 2002, which allowed the
payment of the mentioned obligations proportionally to the consumers' billing.
14.FINANCINGS
Composition of the Company's foreign loan and financing by currency and
domestic currency indices is as follows:
December 31,
June 30, 2001
2002 (Audited)
------------ --------------
Currency -
United States Dollars 1,710 1,255
Euro 51 15
Units of accounts (basket of currencies) 45 42
German Marks - 20
Swiss Francs - 2
Others - 1
--------- ---------
1,806 1,335
Indices -
Indice Geral de Precos de Mercado - "IGP-M"
(General Market Price Index) 918 866
Indice Interno da Eletrobras - "FINEL"
(Eletrobras Internal Index) 161 174
Unidade Fiscal de Referencia - "UFIR"
(Tax Reference Unit) 95 89
Others 23 16
--------- ---------
1,197 1,145
--------- ---------
3,003 2,480
========= =========
Current 644 451
Long-term 2,359 2,029
The following table sets forth the increases for the periods indicated in the
indices and in the foreign currency / Brazilian real exchange rates for the
principal foreign currencies used in the Company's loan and financing,
expressed as a percentage:
Six months ended June 30,
----------------------------
2002 2001
------- -------
Currency-
United States Dollars 22.41 10.55
Euro 39.41 3.25
Units of accounts (basket of currencies) 29.93 6.95
Indices
IGP-M 2.95 1.42
FINEL 0.58 0.28
F - 23
Item 7
UNAUDITED
15. EMPLOYEE POST-RETIREMENT BENEFITS
The Company sponsors a pension plan, administered by Fundacao Forluminas de
Seguridade Social - FORLUZ (Forluminas Social Security Foundation, or
"FORLUZ") covering substantially all of its employees. With respect to such
plan, SFAS 87 "Employers' Accounting for Pensions" has been applied from and
after January 1, 1995. However, amortization of the net transition obligation
existing at January 1, 1995 has been computed retroactively as if it had been
established on January 1, 1989, which is the date that SFAS 87 first became
applicable for non-U.S. pension funds.
Until October 1997, the Company sponsored only a defined benefit pension plan.
From September 29, 1997 to May 1, 1998, participants were permitted to elect
to migrate to a new defined contribution plan. Those participants who elected
to join the new plan had two options. The first was to maintain the benefit
earned up to the date of migration in the defined benefit plan, with no
further increases for salary increases or future services, and future
contributions would be made to the new plan to the individual account. The
second option for those participants who migrated to the defined contribution
plan was to transfer the accumulated benefit as of that date to their
individual account in the defined contribution plan. In both alternatives, the
participants became fully vested in the benefits accumulated as of the
migration date.
CEMIG has also established post-retirement health care plans and pays life
insurance premiums for retirees. The accounting for these benefits is in
accordance with SFAS 106 "Employers' Accounting for Post-retirement Benefits
other than Pensions".
CEMIG has offered to its employees an incentive for early retirement, which
consists of an additional amount, paid when the employee retires, of 10% of
the employees' salary for each year worked for the Company. To obtain this
benefit the employee must opt in writing indicating his intention to retire
early. Accordingly, the costs of this incentive are recognized as individual
employees opt for this benefit. CEMIG may withdraw this additional benefit at
any time.
In the third quarter of 2002, CEMIG and its employees' labor unions, mainly
represented by SINDIELETRO, agreed on changes to the existing employee health
care plans, which altered the contribution criteria that CEMIG, its employees
and its retirees are responsible for and the types of benefits covered in each
plan. Under this agreement, CEMIG is responsible for making annual payments up
to the maximum amount of R$33, as adjusted according to the IGP-M index, to
cover health expenses of employees and retirees. The implementation of these
changes took place as of January 1, 2003. The effects arising from these
changes cannot be estimated at this time. The respective actuarial assessment
is currently in progress.
The changes in net liabilities for the six months ended June 30, 2002 are as
follows:
Post-retirement
Defined benefit health care and
pension plan insurance
--------------- ---------------
Net liabilities as of December 31, 2001 1,307 320
Net periodic cost recorded on the statement of operations 78 38
Contribution paid (63) (5)
------- ------
Net liabilities as of June 30, 2002 1,322 353
======= ======
Additionally, the Company recorded contribution expenses to the defined
contribution plan for the six months ended June 30, 2002 in the amount of
R$18.
F - 24
Item 7
UNAUDITED
16. ACCRUED LIABILITY FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
The Company believes that any loss in excess of the amounts provided for in
respect of such contingencies will not have a material adverse effect on the
Company's results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable,
the Company has made provisions for losses as follows:
December 31,
June 30, 2001
2002 (Audited)
------------------ ------------------
Labor claims 60 54
Civil lawsuits - Consumers 79 74
Social contribution tax 125 125
Finsocial 19 19
Civil lawsuits - Others 15 22
Others 23 25
----- -----
321 319
===== =====
Certain details relating to such provisions are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be R$76 as
of June 30, 2002 (R$68 as of December 31, 2001). CEMIG determined the amounts
to be accrued based on the nature of the group of claims and the most recent
court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought suits against the Company
seeking refunds of amounts paid to CEMIG as a result of a rate increase that
became effective during the Brazilian government's "Cruzado Plan" in 1986,
alleging that such increases violated the price controls instituted as part of
that economic stabilization plan. CEMIG determined the amounts to be accrued
based on recent court decisions.
The total anticipated exposure to the Company for those suits, fully provided
for, was R$79 as of June 30, 2002 (R$74 as of December 31, 2001).
(c) Social contribution tax
On June 28, 1991, the Federal Government enacted Law No. 8,200, regulating the
monetary restatement for purposes of Brazilian Corporate Law financial
statements and tax liability. Under this law, the Company was required to
record complementary monetary restatement that was considered, through
depreciation, amortization and write-offs of fixed assets, a deductible
expense for income tax calculation. Such law did not clarify the proceedings
regarding the deductibility of the complementary monetary restatement charged
to income for social contribution tax purposes.
F - 25
Item 7
UNAUDITED
The Company is deducting the amounts of depreciation, amortization and
write-off relating to the complementary monetary restatement of Property,
plant and equipment, for purposes of computation of social contribution tax on
income. The Company believes that such deduction is in accordance with the
provisions of Law No. 8,200. The Company estimates that its potential exposure
in this matter is approximately R$125 as of June 30, 2002 (R$125 as of
December 31, 2001) for which a provision has been recorded.
(d) Finsocial
In 1994, CEMIG was fined by the Secretaria da Receita Federal (the tax
authority of the Federal Government) due to the Company's exclusion of State
VAT in the Finsocial calculation, a social contribution tax on billing
extinguished in 1992. The Company estimates that its potential exposure in
this matter is approximately R$19 as of June 30, 2002 (R$19 as of December 31,
2001). This amount is fully provisioned.
(e) Others
Other accrued liabilities are related to a number of lawsuits involving the
Federal Government, pursuant to which the Company is disputing the
constitutionality of certain federal taxes that have been assessed against it
and other general claims arising in the ordinary course of business.
(f) Contingencies for which a favorable outcome has been deemed probable
CEMIG has other relevant legal proceedings with respect to which the Company
believes that a favorable outcome is probable, and therefore the Company has
not recorded a provision for such claims. Certain details relating to these
matters are as follows:
(i) Litigation involving FORLUZ with possible financial effect upon CEMIG
The Company is defending, with FORLUZ, a claim brought by SINDIELETRO
that asserts that CEMIG failed to make certain allegedly obligatory
cost-of-living increases in contributions to employee pension funds. The
total amount sought in this claim is R$546. No reserve has been recorded
for this claim because the Company believes that it has a meritorious
defense to such claim and, consequently, does not expect to incur losses
related to such claim.
In addition, SINDILETRO has sued FORLUZ for R$230 relating to changes
made to the pension fund's contribution adjustment index. No reserve has
been recorded for this potential claim because the Company believes that
it has a meritorious defense to such claim and, consequently, does not
expect to incur losses related to such claim.
(ii) Income and social contribution taxes on post retirement benefits
On October 11, 2001, the Federal Government's tax authority issued a
deficiency notice in the amount of R$218 arising from the utilization of
tax credits that resulted from the amendment of the Company's 1997, 1998,
1999 and 2000 tax returns, to reduce taxable income. The tax returns were
amended as a result of a change in accounting method for recording
post-retirement benefit liabilities, as required by Brazilian accounting
practices. The additional liability that resulted from the accounting
change was attributed to the tax year that was amended, resulting in net
operating tax loss and social contribution negative basis carryforwards.
CEMIG is defending itself on the tax assessment notice in an
administrative proceeding with the Federal Government. No reserve has
been recorded as a result of this notice, as the Company believes that it
has a meritorious defense and, consequently, does not expect to incur
losses related to such claim.
The credits mentioned in the prior paragraph were offset by CEMIG from
its federal tax obligations in 2001 and 2002. Due to this offset, CEMIG
is exposed to additional penalties in the amount of R$116. No reserve has
been recorded for this claim, as the Company believes
F - 26
Item 7
UNAUDITED
that it has a meritorious defense and, consequently, does not expect to
incur losses related to such claim.
(iii) COFINS
The Company began contesting the payment of COFINS contributions
beginning in 1992. As a result of a judicial ruling, the Company paid
R$239 of accrued COFINS contribution on July 30, 1999. The Federal
Government is claiming that the Company owes approximately R$117 in fines
and interest relating to its non-payment of COFINS contributions. The
Company is contesting such claims. No reserve has been recorded for this
claim, as the Company believes that it has a meritorious defense and,
consequently, does not expect to incur losses related to such claim.
(iv) Regulatory agency acts
ANEEL has brought an administrative proceeding against the Company,
contesting a R$172 refund issued in 1995 by the Brazilian National
Treasury. ANEEL alleges that this refund originated from a miscalculation
of credits in the amount of rate shortfall receivable that was applied to
reduce amounts owed to the Federal Government. On October 31, 2002, ANEEL
issued a final administrative decision against the Company. The Company
intends to appeal this decision in court. The Company believes that it
has a meritorious defense and has therefore recorded no provision in
respect of such claim.
On January 16, 2003, ANEEL sent a notice alleging that the Company had
failed to obtain necessary ANEEL authorization relating to the Company's
5-year contract with Infovias, which relates to furnishing data and
rendering services related to geotechnology matters. ANEEL may seek to
impose a fine upon the Company relating to this claim. The maximum
penalty applicable in respect of this claim is a fine in an amount equal
to up to 2% of CEMIG's revenues during the 12-month period immediately
prior to the imposition of the fine. The Company believes that it has a
meritorious defense and has therefore recorded no provision in respect of
such claim.
(v) Civil lawsuits - Consumers
Some consumers have brought civil claims against CEMIG contesting rate
readjustments applied in prior years, including the special rate
adjustment and Encargo de Capacidade Emergencial (the Emergency Capacity
Charge) applied since 2002. The Company believes that it has a
meritorious defense and has therefore recorded no provision in respect of
such claims.
In addition to the matters described above, CEMIG and its subsidiaries are
involved as a plaintiff or defendant in a variety of routine litigation
incidental to the normal course of business. Management believes that it has
adequate defense in respect of such litigation and that any losses therefrom
would not have a material adverse effect on the consolidated financial
position or results of operation of the Company.
F - 27
Item 7
UNAUDITED
17. SHAREHOLDERS' EQUITY
On April 30, 2002, at the shareholders' meeting, the following matters were
approved:
o Capital increase in the amount of R$32, through the issuance of 3,154,321
new shares, as a result of the capitalization of the rate shortfall
reserve. The new shares were distributed among the shareholders as a
proportion to their participation in the capital prior to the issuance.
As a result, the interest of the shareholders and the par value per share
did not change. The change in the number of shares is as follows:
As of As of
December 31, Issuance of April 30,
Thousands of shares 2001 new shares 2002
------------------- ------------ ----------- ---------
Preferred shares 89,504,020 1,775,631 91,279,651
Common shares 69,495,478 1,378,690 70,874,168
-------------- ------------- --------------
Total shares authorized and issued 158,999,498 3,154,321 162,153,819
Treasury stock (67,783) (1,345) (69,128)
-------------- ------------- --------------
Total shares outstanding 158,931,715 3,152,976 162,084,691
============== ============= ==============
o Change in the Company's by-laws to establish new minimum dividend
criteria, in accordance with changes in local corporate legislation. The
preferred shares have priority in the repayment of capital and are
entitled to a minimum dividend of at least the highest amount between 10%
of the preferred capital on the Brazilian corporate law financial
statements or 3% of participation of the preferred shares in the total
shareholders equity on Brazilian Corporate Law financial statements.
In the six-month period ended June 30, 2002, the Company declared the
following dividends and interest on capital:
Six-month period
ended
June 30,
2002
----------------
Dividends 112
Interest on capital in lieu of dividends 119
-----
Total 231
=====
F - 28
Item 7
UNAUDITED
18. NET OPERATING REVENUES
(a) The composition of electric energy supplied by consumer class is as
follows:
No of consumers GWh R$
-------------------------- -------------------------- --------------------------
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
-------------------------- -------------------------- --------------------------
2002 2001 2002 2001 2002 2001
------------- ------------ ----------- ------------- ------------ ------------
Residential 4,559,274 4,323,272 3,124 3,728 835 914
Industrial 68,110 65,311 10,794 11,556 1,022 923
Commercial 509,599 485,894 1,642 1,895 378 369
Rural 329,619 312,233 713 807 107 102
Governmental Entities 45,300 44,488 629 753 107 109
Public services 6,658 6,306 467 476 60 53
Own consumption 1,364 1,428 24 28 - -
Unbilled, net - - - - 34 13
------------- ------------ ----------- ------------ ------------ ------------
5,519,924 5,238,932 17,393 19,243 2,543 2,483
Supply 4 5 159 318 11 18
Energy transactions on MAE - - - - 99 -
------------- ------------ ----------- ------------ ------------ ------------
Total 5,519,928 5,238,937 17,552 19,561 2,653 2,501
============= ============ =========== ============ ============ ============
(b) The composition of taxes on revenues is as follows:
Six months ended
June 30,
-----------------------------
2002 2001
-----------------------------
VAT 542 532
COFINS 85 79
PIS-PASEP social contribution 19 17
Emergency capacity charge 41 -
----- -----
687 628
===== =====
F - 29
Item 7
UNAUDITED
19. OPERATING COSTS AND EXPENSES
Some of the operating costs and expenses consist of the following:
(a) Electricity purchased for resale
Six months ended
June 30,
-------------------------------
2002 2001
--------------- --------------
Itaipu Binacional (through FURNAS) 475 452
From suppliers trough MAE 186 -
Initial contracts 75 59
From Other 3 1
------- ------
739 512
======= ======
ANEEL has reduced the price of energy acquired from Itaipu by 13.18%, from US$
20.1988 to US$ 17.5374 per kW, since October 23, 2002.
The energy traded on spot market in 2001 was accrued only in the fourth
quarter of 2001, since MAE information necessary to record the estimates only
became available at that time.
(b) Regulatory charges
Six months ended
June 30,
-----------------------------
2002 2001
------------- -------------
Global reserve for reversion quota 65 54
Fuel usage quota 160 156
Charges for use of water resources 22 21
ANEEL inspection fee 6 7
---- -----
253 238
==== =====
F - 30
Item 7
UNAUDITED
(c) Other
Six months ended
June 30,
----------------------------
2002 2001
-------------- ------------
Insurance 1 2
Consumption - electric energy 6 5
Labor indemnity 2 3
Disposal of fixed assets, net 8 26
Grants and donations 7 6
Accrued liabilities for contingencies-
Labor claims 6 (11)
Civil lawsuits - Consumers 5 3
Civil lawsuits - Other (1) 15
Allowance for doubtful accounts (3) 5
Provision for loss on deferred regulatory assets 12 -
Rentals 8 6
Advertising 11 13
Employees profit sharing 11 10
MAE Contribution 4 7
Technological and Scientific National Fund 5 5
General expenses 22 8
----- -----
104 103
===== =====
F - 31
Item 7
UNAUDITED
20. FINANCIAL EXPENSES, NET
Financial expenses consists of the following:
Six months ended
June 30,
---------------------------------
2002 2001
---------------- ----------------
Financial income:
Investment income earned 95 29
Late charges on overdue electricity bills, recorded on cash basis 19 24
Interest and monetary restatement of account receivable from State Government 93 98
Monetary restatement on recoverable tax 1 24
Monetary restatement on deferred regulatory assets 58 -
Foreign exchange gains 10 -
Taxes on financial income (PASEP and COFINS) (14) (7)
Other income 15 23
------- -------
277 191
------- -------
Financial expenses:
Interest on financings (124) (66)
Foreign exchange losses (344) (230)
Monetary restatement on financing (16) (11)
Financial transaction tax ("CPMF") (12) (10)
Interest and fines on taxes (7) (7)
Advance billings of electric power (4) (15)
Other expenses (4) (7)
------- -------
(511) (346)
------- -------
Financial expenses, net (234) (155)
======= =======
Foreign exchange losses relate to the devaluation of the real relative to the
US dollar. See notes 14 and 22 for the composition of foreign currency debt,
variation of exchange rates of each foreign currency for each period presented
and exposure to foreign exchange variation.
21. RELATED PARTY TRANSACTIONS
The Company enters into a variety of related party transactions, the main
transactions are as follows:
(a) State Government
Account receivable and related financial income Note 9 and 20
VAT - Liabilities Note 13
VAT - Expense Note 18
F - 32
Item 7
UNAUDITED
(b) FORLUZ
Employee post-retirement benefits related balances Note 15
Other related party transactions are not material.
22. FINANCIAL INSTRUMENTS
The Company manages its financial instruments through periodic monitoring of
positions, diversification of counterparties and establishment of credit
limits by counterparty.
Financial instruments, which potentially subject CEMIG to concentrations of
credit risk, are cash and cash equivalents, restricted investments and
accounts receivable. CEMIG limits its credit risk associated with cash and
cash equivalents and restricted investments by placing its investments with
highly rated financial institutions generally in short-term securities. The
credit risk associated with accounts receivable from residential consumers is
limited by CEMIG's policy of interrupting the supply of electricity if payment
becomes in arrears. With respect to larger industrial and commercial consumers
CEMIG limits its credit risk by performing ongoing credit evaluations and, in
certain cases, obtaining guarantees or collateral for impaired receivables.
The Company's customers are primarily located in the State of Minas Gerais,
although distributed among a wide variety of economic sectors.
The Company's short term investments related to marketable securities issued
by third parties are as follows:
I. CEMIG has debentures issued by financial institutions, in the amount
of R$39. These securities have immediate call clauses exercisable by
the Company, without penalty or loss. These securities have interest
rates based on the variation of the Brazilian Interbank Certificate
of Deposit - CDI rate.
II. The swap transactions of CEMIG, in the amount of R$28, are purchased
from financial institutions through the transfer of public or private
securities issued by third parties. These securities have repurchase
clauses. The interest rate is based on the CDI. CEMIG has the right
to call for early redemption of these securities without penalty or
loss.
The Company's exposure to exchange rate risks is as follows:
December 31,
June 30, 2001
2002 (Audited)
----------------- ------------------
US Dollar
Financings 1,710 1,255
Advanced sale of electric energy 12 42
(-) Escrow deposit related to loans and financing (226) (133)
-------- --------
1,496 1,164
======== ========
Other Currencies
Financings 96 80
-------- --------
Net liabilities exposed to exchange rate risk 1,592 1,244
======== ========
After 2001, the effects of the exchange rate variation on the liabilities
related to the energy purchase from Itaipu Binacional are included in the
Parcel "A" costs and will be considered in the subsequent rate adjustments.
F - 33
23. INSURANCE
The Company's insurance policies covering damages to its power plants caused
by fire and operational risks such as equipment failures expired on December
31, 2001. The Company is soliciting bids from insurance carriers for new
insurance policies to cover these risks.
CEMIG does not have general third party liability insurance covering accidents
and has not solicited bids relating to this type of insurance. In addition,
the Company has not solicited bids for, nor does it carry, insurance coverage
for major catastrophes affecting its facilities such as earthquakes and
floods, for business interruption risk or systemic failures.
The Company has not experienced significant losses arising from the
aforementioned risks.
24. SHAREHOLDERS' AGREEMENT
In 1997, the State of Minas Gerais sold approximately 33% of the Company's
common shares to a group of investors led by Southern Electric Brasil
Participacoes Ltda. ("Southern"). As part of this sale, the State of Minas
Gerais and Southern entered into a shareholders' agreement that provided for,
among other matters, special quorum requirements to approve significant
corporate actions, certain amendments to CEMIG's by-laws, the issuance of
convertible debentures and warrants, changes to the Company's corporate
structure and any distribution of dividends other than that required by the
by-laws. This agreement granted Southern a veto right over certain important
corporate decisions.
On September 13, 1999, the State of Minas Gerais filed a lawsuit to nullify
this shareholders' agreement on the grounds that it violated the state and
federal constitutions because the special quorum provisions would constitute
an unlawful transfer of the control of CEMIG to Southern.
On September 27, 1999, the Minas Gerais State Court of Appeals granted a legal
injunction suspending the effects of the special quorum provisions, pending
the outcome of the lawsuit.
In March 2000, the lower court rendered a decision declaring the shareholders'
agreement null and void.
On August 7, 2001, the Minas Gerais State Court of Appeals upheld the March
2000 lower court ruling declaring the shareholders' agreement null and void.
Southern has appealed the Court's decision and their appeal is still pending.
25. CORPORATE REORGANIZATION
Currently, CEMIG's electricity generation, transmission and distribution
operations are vertically integrated into and directly operated by CEMIG.
However, pursuant to CEMIG's main concession agreements and in accordance with
certain changes in the regulatory framework of the Brazilian electricity
sector, CEMIG has to restructure its business, resulting in the "unbundling"
of its generation, transmission and distribution operations into separate
subsidiaries, each wholly owned by CEMIG. According with the concession
agreements, CEMIG had to complete the reorganization process by December 31,
2000.
ANEEL granted the Company an extension until September 21, 2002 to complete
the unbundling process.
The State Government, the controlling shareholder, assuming that the
"unbundling" must be previously approved by Minas Gerais State Legislature,
submitted to the Legislature, on March 2, 2001, a bill proposing the
restructuring of the Company into three companies. This legislation has not
yet been approved and the reorganization process has not yet been completed.
Additionally, the Company has submitted an extension date request to ANEEL,
which has not yet been answered.
On November 11, 2002, ANEEL fined the Company in the amount of R$6, because
CEMIG had not concluded the "unbundling". No reserve has been recorded for
this claim, as the Company believes it has
F - 34
Item 7
UNAUDITED
a meritorious defense against the fine and any other possible penalties that
may be imposed regarding this matter.
26. SUBSEQUENT EVENTS
(a) 2002 dividend declared
On December 19, 2002, the Board of Directors approved interest on capital in
lieu of dividend for 2002 in the amount of R$100.
(b) Loan obtained from BNDES for settlement of MAE transactions
On February 7, 2003, CEMIG obtained a loan from BNDES, in the amount of R$335.
The loan bears interest of 1% per year and monetary variation based on SELIC.
It will be paid through 60 monthly installments from March 15, 2003 to
February 15, 2008 and is guaranteed by 3.27% of the Company's monthly
electricity sales to final customers.
(c) Periodic Rate Review
The Periodic Rate Review represents the revision of the rates granted to the
distribution electricity concessionaires to assure the financial-economic
equilibrium of the existing concession contracts. The Period Rate Review
occurs every 4 or 5 years, depending on each concession contract (5 years for
CEMIG). In the rate definition, ANEEL considers the Company's structural
changes occurred in its costs and its market and the desirable return on its
investments.
CEMIG's energy rates increased by an average of 31.5% on April 8, 2003, as a
result of the Company's Periodic Rate Review.
(d) Financial covenants
As of March 31, 2003, some of the Company's loan, financing and debenture
contracts, in the total amount of R$511, of which R$329 are classified as
long-term liabilities, contain covenants that, in case of noncompliance, may
cause amounts due under the contracts to become immediately due. In addition,
the Company also has financing contracts that contain cross-default clauses.
The Company has obtained waivers from the creditors that are parties to
contracts that contain covenants with respect to which the Company is not in
compliance, which waivers state that such creditors will not exercise their
rights to demand either anticipated or immediate payment of the total amounts
due. The waivers are in force as of December 31, 2002, March 31, 2003 and, for
most contracts, June 30, 2003. The Company believes that the noncompliance
with the covenants was eventual and that its 2003 operation will lead to their
compliance. Loans, financings and debentures are classified as current and
long-term liabilities according to the original contract terms, in compliance
with the waivers obtained.
Additionally, the Company is performing analysis regarding the covenants
compliance of the Infovias financing, in the total amount of R$125 of which
R$101 are classified as long-term liabilities as of March 31, 2003, and has
not yet reached a final conclusion. The financing is classified as current and
long-term liabilities according to the original contract terms.
(e) Significant exchange variation after June 30, 2002
From June 30, 2002 to December 31, 2002, the real depreciated significantly
against the US dollar, which has had a negative effect on the Company's net
earnings in 2002 year. The Company recorded exchange losses of approximately
R$400 in the second half of 2002, as the depreciation resulted in a decrease
in financial income. From June 30, 2002 to December 31, 2002, the real
depreciated 24.22% as compared to the U.S. dollar.
After December 31, 2002, the real appreciated significantly against the US
dollar, which has had a positive effect on the Company's net earnings in 2003
year. The Company recorded exchange gains of approximately R$356 in the
four-month period ended April 30, 2003, as the appreciation resulted in an
F - 35
Item 7
UNAUDITED
increase in financial income. From December 31, 2002 to April 30, 2003, the
real appreciated 18.21% as compared to the U.S. dollar.
(f) Recovery of additional "A" Parcel costs from April 8, 2003 to April 7,
2004
The Federal Government, through Executive Act No. 116, issued on April 4,
2003, postponed for 12 months the reimbursement of the Parcel "A" costs
relating to the period from April 8, 2002 to April 7, 2003, initially
scheduled to be received on April 8, 2003. Additionally, the same Executive
Act established that the Parcel "A" costs with respect to which reimbursement
was postponed, in addition to the Parcel "A" costs to be recorded during the
12-month period beginning April 8, 2003, will be reimbursed through an
increase in the electric energy rate for 24 months, starting with the rate
adjustment that will be in force as from April 8, 2004. Therefore, the Parcel
"A" costs balances, recorded as Deferred regulatory assets as of June 30,
2002, were classified as current and other assets considering the new expected
realization period.
27. RECENTLY ISSUED U. S. GAAP PRONOUNCEMENTS
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Under SFAS 143,
the liability for an asset retirement obligation is discounted and accretion
expense is recognized using the credit-adjusted risk-free interest rate in
effect when the liability was initially recognized. In addition, disclosure
requirements contained in SFAS 143 will provide more information about asset
retirement obligations. SFAS 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002 with earlier application
encouraged. The implementation of this statement did not result in a
significant impact to the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of
Debt," which required that all gains and losses from extinguishment of debt to
be aggregated and classified as an extraordinary item if material. SFAS 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary only if they meet criteria in APB 30, thus distinguishing
transactions that are part of recurring operations from those that are unusual
or infrequent, or that meet the criteria for classification as an
extraordinary item. SFAS 145 amends SFAS 13, "Accounting for Leases", to
require that lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS 145 rescinds SFAS 44,
"Accounting for Intangible Assets of Motor Carriers," and SFAS 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which are
not currently applicable to the Company. The provisions of SFAS 145 as they
relate to the rescission of SFAS 4 shall be applied in fiscal year 2003.
Certain provisions related to SFAS 13 are effective for transactions occurring
after May 15, 2002. The implementation of this statement did not result in a
significant impact to the Company's consolidated financial statements.
In June 2002, FASB issued SFAS 146 "Accounting for costs associated with Exit
or Disposal Activities". This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The principal
difference between this Statement and EITF 94-3 relates to its requirements
for recognition of a liability for a cost associated with an exit or disposal
activity. This Statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the
Board in this Statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. This Statement also establishes that fair value is the objective
for initial measurement of the liability. This Statement improves financial
reporting by requiring that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The accounting for similar events and circumstances
will be the same, thereby improving the comparability and representational
faithfulness of reported financial information. The provisions of this
F - 36
Item 7
UNAUDITED
Statement are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. The Company does
not expect that the adoption of SFAS 146 will have a significant impact on its
consolidated results of operations, financial position or cash flows.
* * * * * * * * * * *
F - 37
Item 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS FOR THE SIX
MONTH PERIOD ENDED JUNE 30, 2002 (THE "2002 INTERIM PERIOD") COMPARED TO THE
SIX MONTH PERIOD ENDED JUNE 30, 2001 (THE "2001 INTERIM PERIOD").
Net operating revenues
Net operating revenues increased 14.4% to R$2,307 million in the 2002
Interim Period from R$2,016 million in the 2001 Interim Period due primarily
to the recording of additional revenue from the regulatory extraordinary rate
adjustment, which is intended to reimburse revenue losses incurred as a result
of the Electricity Rationing Plan and related spot market transactions.
In the 2002 Interim Period, we recorded revenue relating to the
regulatory extraordinary rate adjustment in the amount of R$174 million, in
accordance with the terms of the General Agreement of the Electricity Sector,
which provides for reimbursement of revenue losses incurred during the period
of the Electricity Rationing Plan and related spot market transactions through
special rate increases to be billed to final customers, and in accordance with
consensus described on Emerging Issues Task Force EITF 92 07, "Accounting by
Rate Regulated Utilities for the Effects of Certain Alternative Revenue
Programs", which establishes a 24 month period limit for collection of the
recovery of revenue losses incurred during the Energy Rationing Plan. See Note
3 to our interim financial statements.
Electricity sales to final customers were R$2,543 million in the 2002
Interim Period representing a 2.4% increase compared to R$2,483 million in the
2001 Interim Period. This increase resulted from the net effect of an increase
in the average rate and a decrease in the volume of electricity sales to final
customers. There was a 13.3% increase in the average rate in the 2002 Interim
Period to R$146.41 per MWh compared to R$129.22 per MWh in the 2001 Interim
Period as a result of rate increases of 16.5% in April 2001 (full effect in
2002) and 10.5% in April 2002. The positive effect of the rate increases was
partially offset by a 9.6% decline in volume of electricity sales to final
customers due to (i) the Electricity Rationing Plan in force in January and
February of 2002; (ii) new patterns of final customer consumption after the
end of the Electricity Rationing Plan on March 1, 2002, and (iii) a decline in
Brazil's economy in 2002 year. The most representative markets, industrial,
residential and commercial consumers decreased 6.6%, 16.2% and 13.4%
respectively, during the 2002 Interim Period. See Note 18 to our interim
financial statements.
Electricity sales to the interconnected power system were R$110 million
in the 2002 Interim Period compared to R$18 million in the 2001 Interim
Period. This increase resulted from higher rates associated with energy
transactions on the Mercado Atacadista de Energia (Wholesale Electricity Spot
Market), or MAE during the period in which the Electricity Rationing Plan was
in force as well as the absence of a method to account for electricity sales
to the interconnected power system in the first six months of 2001, since the
MAE information necessary to record the estimates only became available in the
fourth quarter of 2001.
Revenues from use of the Basic Transmission Network by other
concessionaires increased 9.6% to R$80 million in the 2002 Interim Period from
R$73 million in the 2001 Interim Period. This change was due primarily to an
11.6% rate increase in July 2001.
Other operating revenues increased 24.3% to R$87 million in the 2002
Interim Period from R$70 million in the 2001 Interim Period due primarily to a
R$11 million increase in revenues from GASMIG, our subsidiary, reflecting
21.1% period over period growth, and R$3 million in revenue from Infovias
relating to telecommunications services rendered in the 2002 Interim Period.
Taxes on revenues increased 9.4% to R$687 million in the 2002 Interim
Period from R$628 million in the 2001 Interim Period as a result of the
increase in our operating revenues in the 2002 Interim Period as compared to
the 2001 Interim Period and as a result of the VAT billed to the customers
related to the billed extraordinary rate adjustment. Taxes on revenues consist
of: (i) VAT, assessed at an average rate of 21% on electricity sales to final
customers, and VAT billed to customers related to the deferred regulatory
assets; (ii) COFINS, assessed at a rate of 3%; (iii)
Item 8
PASEP, assessed at a rate of 0.65%; and (iv) emergency capacity charge, a new
charge established in 2002 which is prorated among final consumers of electric
energy, and which relates to the acquisition of energy and contracted
generation capacity by CBEE (The Brazilian Emergency Energy Trader). See Notes
3 and 18 to our interim financial statements.
Operating costs and expenses
Operating costs and expenses increased 12.4% to R$2,151 million in the
2002 Interim Period from R$1,914 million in the 2001 Interim Period,
principally as a result of increases in electricity purchased for resale,
depreciation and amortization and regulatory charges, partially offset by
decreases in personnel and employee post retirement benefits.
Electricity purchased for resale consists primarily of purchases from
Itaipu through Furnas Centrais Eletricas S.A., or Furnas. We are required
under applicable regulations to purchase 17.0% of Itaipu's capacity at U.S.
dollar denominated prices. We also purchase electricity from the MAE and
Furnas itself. Electricity purchased for resale increased 44.3% to R$739
million in the 2002 Interim Period from R$512 million in 2001 Interim Period
due mainly to the R$186 million provision related to energy purchased from the
MAE during the 2002 Interim Period. The energy purchased on the MAE in the
2001 Interim Period was accrued only in the fourth quarter of 2001, since the
MAE information necessary to record the estimates only became available at
that time. See Note 19 to our interim financial statements.
Charges for use of the Basic Transmission Network mainly correspond to
the cost of transporting electricity purchased from Itaipu and increased 7.6%
to R$142 million in the 2002 Interim Period compared to R$132 million in the
2001 Interim Period principally as a result of a rate increase in July 2001,
partially offset by a decline in the volume of energy transported through the
network due to the Electricity Rationing Plan that was in force in January and
February 2002.
Depreciation and amortization increased 8.3% to R$340 million in the 2002
Interim Period from R$314 million in the 2001 Interim Period as a result of
the entry into service of additional distribution and transmission networks
and lines.
Personnel expense decreased 13.6% to R$248 million in the 2002 Interim
Period compared to R$287 million in the 2001 Interim Period as a result of the
R$33 million provision recorded relating to our Voluntary Resignation Program
in March 2001 and an increase in amounts transferred to Property, Plant and
Equipment under Construction in Progress in the 2002 Interim Period.
Regulatory charges increased 6.3% to R$253 million in the 2002 Interim
Period from R$238 million in the 2001 Interim Period due primarily to an
increase of R$11 million in required contributions to the RGR Fund (a reserve
fund created by the Brazilian Congress that provides compensation to
electricity companies for certain assets used in connection with their
concessions if their concessions are revoked or not renewed) to R$65 million
in the 2002 Interim Period compared to R$54 million in the 2001 Interim
Period. See Note 19 to our interim financial statements.
Third party services expense increased 6.7% to R$112 million in the 2002
Interim Period compared to R$105 million in the 2001 Interim Period primarily
due to the increase in expenses relating to bill collection services as a
result of readjustments to contracts based on inflationary indices.
Employee post retirement benefits decreased 11.8% to R$134 million in the
2002 Interim Period compared to R$152 million in the 2001 Interim Period as a
consequence of a lower projected net periodic cost for 2002 as a result of a
higher expected return on plan assets. See Note 15 to our interim financial
statements.
Other expenses increased 1.0% to R$104 million in the 2002 Interim Period
from R$103 million in the 2001 Interim Period due mainly to a provision of
R$12 million in the 2002 Interim Period for expected loss on deferred
regulatory assets, partially offset by net losses of R12 million in the 2002
Interim Period relating to the disposal of fixed assets compared to a R26
million provision
Item 8
relating to the disposal of fixed assets in the 2001 Interim Period. See Note
19 to our interim financial statements.
Operating income
As a result of the foregoing, there was operating income of R$156 million
in the 2002 Interim Period compared to operating income of R$102 million in
the 2001 Interim Period.
Financial expenses, net
Financial expenses, net, includes (i) financial income, which is mainly
comprised of interest and monetary restatement of our account receivable from
the State Government, investment income, late charges on overdue electricity
bills, monetary restatement of recoverable tax, foreign exchange gains,
monetary restatement of deferred regulatory assets, and (ii) financial
expense, which is mainly comprised of interest expense on loans and financing,
the Contribuicao Provisoria sobre a Movimentacao ou Transmissao de Valores e
de Creditos e Direitos de Natureza Financeira (a financial transaction tax),
or CPMF, interest and fines on taxes, foreign exchange losses, monetary
restatement losses and other expenses. Financial expenses, net, were R$234
million in the 2002 Interim Period compared to financial expenses of R$155
million in the 2001 Interim Period. The main changes were an increase of R$114
million in foreign exchange net losses resulting from the 22.6% devaluation of
the real against the U.S. dollar in the six month period ended June 30, 2002
compared to a 17.9% devaluation of the real against the U.S. dollar in the
2001 Interim Period and a R$63 million increase in interest and monetary
restatement on loans and financing, partially offset by a R$66 million
increase in income from temporary cash investments due to higher cash and cash
equivalents and restricted short term investments in the 2002 Interim Period,
by income from cash investments denominated in U.S. Dollars and by financial
income in the amount of R$58 million as a result of the monetary restatement
on deferred regulatory assets. See Notes 3, 6, 7, 14 and 20 to our interim
financial statements.
Income taxes
Income taxes were benefit of R$63 million on pre tax loss of R$78 million
in the 2002 Interim Period compared to benefit of R$47 million on pre tax loss
of R$53 million in the 2001 Interim Period. A deduction of R$39 million in the
2002 Interim Period with respect to interest on capital helped to add the
amount provisioned for income tax benefit in 2002. See Note 5 to our interim
financial statements.
Minority interests
Minority interests were R$9 million, mainly related to the operation of
Infovias which was included in the consolidated financial statements as from
June 30, 2002.
Net loss
As a result of the foregoing, we had a net loss of R$6 million in both
the 2002 Interim Period and the 2001 Interim Period.
Other comprehensive income (loss)
Other comprehensive income (loss) was loss of R$1 million in the 2002
Interim Period compared to income of R$9 million in the 2001 Interim Period as
a result of the change in the fair value (unrealized gain / losses) of the
available for sale securities recognized in shareholders' equity.
Comprehensive income (loss)
As a result of the factors stated above, comprehensive loss was R$7
million in the 2002 Interim Period compared to comprehensive income of R$3
million in the 2001 Interim Period.
Item 9
Companhia Energetica de Minas Gerais CEMIG
Refiled Interim Financial Statements
Together with Independent Accountants' Report on Special Review
(Translated from the Original in Portuguese)
September 30, 2002
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
INDEPENDENT ACCOUNTANTS REPORT ON SPECIAL REVIEW
To the Shareholders and the Board of Directors of
Companhia Energetica de
Minas Gerais-CEMIG
Belo Horizonte-MG
1. We have performed a special review of the quarterly information,
presented in Brazilian reais R$, of Companhia Energetica de Minas Gerais
CEMIG and subsidiaries, as of September 30, 2002, and for the nine months
and quarter then ended, prepared under responsibility of the Company's
management, in accordance with accounting practices established by
Brazilian corporate law, comprising the individual (Company) and
consolidated balance sheets, the individual (Company) and consolidated
statements of income, management's discussion and analysis and relevant
information.
2. We conducted our review in accordance with specific standards established
by the Brazilian Institute of Independent Accountants (IBRACON), together
with the Federal Accounting Council, which consisted principally of: (a)
inquiries of and discussions with management responsible for the
accounting, financial and operating areas of the Company and its
subsidiaries as to the principal criteria adopted in the preparation of
the quarterly information, and (b) review of the information and
subsequent events that had or might have had significant effects on the
Company's and its subsidiaries' financial positions and results of
operations.
3. In our special review report originally issued on November 29, 2002, on
the Company's quarterly information as of September 30, 2002, we
mentioned that it was impossible to conclude the realization of accounts
receivable from the Government of the State of Minas Gerais, arising from
the remaining credit balance of the recoverable deficit account CRC. As
mentioned in Note 8, the Company renegotiated this credit with the Minas
Gerais State Government, including receiving a guarantee represented by
dividends to which the State Government is entitled as a shareholder, for
part of the credit, and recognized an allowance for losses on the
remaining portion, in the amount of R$1,045,325,000. As mentioned in Note
2, as a result of the recognition of this allowance, the quarterly
information as of September 30, 2002 is being presented on a revised
basis by the Company. As discussed in Note 29, this revised presentation
also includes information on the status of the Company's rights and
obligations within the context of the Mercado Atacadista de Energia
(Wholesale Energy Market) or MAE. As a result, this report on our special
review differs from that originally issued on November 29, 2002.
4. Based on our special review, we are not aware of any material
modifications that should be made to the quarterly information referred
to in paragraph 1 above for it to be in conformity with accounting
practices established by Brazilian corporate law and accounting standards
issued by the Brazilian Securities Commission (CVM), specifically
applicable to the preparation of mandatory quarterly financial
information.
Item 9
5. As mentioned in Note 28 to the quarterly information as of September 30,
2002, the Company does not have, at the present time, conditions to honor
the commitment assumed by its controlling shareholders, through the
concession agreements signed with the granting authority, regarding the
corporate reorganization of its activities resulting in the "unbundling"
of its generation, transmission and distribution operations into separate
subsidiaries. The deadline, established by the National Electric Energy
Agency (ANEEL), for completion of the "unbundling" process was September
21, 2002. The Company has submitted an extension request to ANEEL to
which ANEEL has not yet responded. The Minas Gerais State Government has
submitted this matter to the Minas Gerais Legislative Assembly, which has
not yet taken action. The Company, based on the opinion of its internal
and external legal counsel, believes it has strong arguments to defend
itself against possible penalties to be imposed by the granting authority
regarding this matter.
6. As mentioned in Notes 3 and 11 to the quarterly information, the Company
has recorded, as of September 30, 2002, accounts receivable from
consumers in noncurrent assets, in the amount of R$508,639,000, and
obligations with generating companies in long term liabilities, in the
amount of R$473,017,000, related to amounts to be collected by the
Company and transferred to the generating companies. Additionally, the
Company has recorded, as of September 30, 2002, accounts receivable from
distribution companies, in noncurrent assets, in the amount of
R$615,771,000, related to amounts to be collected by such distributors
and transferred to the Company. These assets and liabilities result from
the reimbursement to generating companies of costs incurred for energy
traded on the spot market during the Emergency Electricity Rationing
Program period, from June 1, 2001 to February 28, 2002. The transactions
above were recorded based on information made available by the Wholesale
Energy Market (MAE). These amounts are subject to changes, contingent on
the outcome of the litigation currently in progress, filed by market
agents, concerning the interpretation of the market rules in force, and
the definitive confirmation of such information by ANEEL.
7. As mentioned in Note 14 to the quarterly information, the Company has
recorded, as of September 30, 2002, obligations in current liabilities,
in the amount of R$819,939,000, related to energy purchased in the spot
market (MAE) and System Service Charges, covering the period from
September 1, 2000 to September 30, 2002. These transactions were recorded
based on information made available by the MAE for the period from
September 1, 2000 to February 28, 2002, and based on estimates developed
by management for the period from March 1, 2002 to September 30, 2002.
These amounts are subject to changes, depending on confirmation by the
MAE and contingent on the outcome of the litigation currently in
progress, filed by market agents, concerning the interpretation of the
market rules in force. Full settlement of these amounts depends on the
financial capacity of the companies in the sector to honor their
commitments.
8. Executive Act No.14, issued on December 21, 2001 and converted into Law
No. 14,438 on April 26, 2002, regulates, among other matters, recovery of
the economic and financial equilibrium of Brazilian companies in the
electric energy sector, as guaranteed under the concession agreements.
Detailed information and the impacts of such regulation on financial
position and result of operations of the Company are disclosed in Note 3
to the quarterly information. The realization of the balances recorded as
(i) accounts receivable related to the recovery of the reduction in sales
during the Electricity Rationing Plan period; (ii) energy traded on the
MAE as described in paragraph (5) above and, (iii) prepaid expenses
related to tariff adjustments and "Parcel A" cost variations (CVA), is
occurring through billings to consumers beginning January 2002, by
applying an extraordinary tariff increase, approved by the granting
authority in December 2001, as well as through future tariff revisions.
9. The individual (Company) and consolidated balance sheets as of June 30,
2002, presented for comparative purposes, were reviewed by us, as set
forth in our special review report originally issued on August 14, 2002,
and re issued on January 21, 2003, which contained emphasis comments on
the recording of assets and liabilities arising from (a) accounts
receivable related to the recovery of the reduction in sales during the
Electricity Rationing Plan period, (b) energy traded on the spot market,
and (c) prepaid expenses related to the tariff adjustments and "Parcel A"
cost variations (CVA), which were recorded based on preliminary
information and management estimates and were pending final confirmation
by ANEEL. The individual (Company) and consolidated statements of income
for the
2
Item 9
quarter and nine month period ended September 30, 2001 were reviewed by
other independent accountants whose report thereon dated November 1,
2001, included the following comments: (i) qualification as to unrecorded
transactions for energy traded on the MAE, from May 1, 2001 to September
1, 2001, (ii) emphasis of a matter about the negotiations between the
Company and the Minas Gerais State Government in order to resolve the
payment delay of the recoverable deficit account CRC, and (iii) emphasis
of a matter concerning the early adoption, effective January 1, 2001, of
the standards and accounting for employee post retirement benefit
obligations related to supplementary pension plans, life insurance are
health plans, in conformity with CVM Instruction No. 371/2000.
10. The translation of this quarterly information into English has been made
solely for the convenience of readers outside Brazil.
Belo Horizonte, November 29, 2002
(except for the matters discussed in Notes 2, 8 and 29, and in paragraph
3 above, as to which the date is January 21, 2003)
DELOITTE TOUCHE TOHMATSU Jose Carlos Amadi
Independent Accountants Engagement Partner
3
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS-CEMIG
------------------------------------------
UNAUDITED BALANCE SHEETS
SEPTEMBER 30, 2002 AND JUNE 30, 2002
(Expressed in thousands of Brazilian reais-R$)
------------------------------------------------------------------------------
A S S E T S
----------------
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
CURRENT ASSETS:
Cash and cash equivalents 415,973 424,313 348,408 368,463
Accounts receivable 771,036 704,922 757,706 696,347
Consumers-Special rate adjustment 264,670 248,751 264,670 248,751
Concessionaires-Energy transportation 20,496 16,844 20,496 16,844
Recoverable taxes 131,771 127,772 114,450 106,469
Materials and supplies 17,458 14,559 12,044 11,514
Prepaid expenses-CVA 136,131 65,805 136,131 65,805
Other 157,109 114,702 157,953 118,242
---------- --------- ---------- -----------
1,914,644 1,717,668 1,811,858 1,632,435
========== ========== ========== ==========
NONCURRENT ASSETS:
Receivable from Minas Gerais State
Government 626,466 544,106 626,466 544,106
Consumers-Special rate adjustment 1,349,013 1,353,340 1,349,013 1,353,340
Prepaid expenses- CVA 220,309 148,165 220,309 148,165
Tax credits 682,176 536,132 655,613 521,969
Marketable securities 56,645 68,287 56,645 68,287
Electricity Rationing Plan-Bonus paid
to consumers and adoption costs
incurred 96,592 209,660 96,592 209,660
Distributors-Energy supply 615,771 121,215 615,771 121,215
Project studies based on service
rendered 25,999 25,999 25,999 25,999
Other 206,305 188,399 190,521 177,574
-------------- ----------- ------------- ------------
3,879,276 3,195,303 3,836,929 3,170,315
-------------- ----------- ------------- ------------
PERMANENT ASSETS:
Investments 504,491 456,597 1,021,390 884,694
Property, plant and equipment 7,838,323 7,725,293 7,254,643 7,231,974
Deferred charges 24,696 19,870 1,266 1,487
-------------- ----------- ------------- ------------
8,367,510 8,201,760 8,277,299 8,118,155
-------------- ----------- ------------- ------------
Total assets 14,161,430 13,114,731 13,926,086 12,920,905
============== =========== ============== ============
The accompanying condensed notes are an integral part of these financial statements.
4
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS-CEMIG
------------------------------------------
UNAUDITED BALANCE SHEETS
SEPTEMBER 30, 2002 AND JUNE 30, 2002
(Expressed in thousands of Brazilian reais-R$)
------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
SHORT TERM LIABILITIES:
Suppliers 1,282,446 684,159 1,259,998 662,524
Taxes payable 270,999 428,418 252,099 410,982
Loans and financing 944,583 437,927 909,843 413,882
Payroll and related charges 113,263 98,936 112,074 97,664
Dividends and interest on capital 138,833 315,437 138,833 315,240
Employee post retirement benefits 158,149 167,015 158,149 167,015
Regulatory charges 68,836 49,235 68,776 49,175
Other 89,758 95,459 88,408 92,480
--------- --------- --------- ---------
3,066,867 2,276,586 2,988,180 2,208,962
--------- --------- --------- ---------
LONG TERM LIABILITIES:
Loans and financing 1,876,368 1,669,481 1,756,575 1,580,688
Debentures 721,957 654,984 721,957 654,984
Employee post retirement benefits 1,737,556 1,726,721 1,737,556 1,726,721
Suppliers 473,017 450,761 473,017 450,761
Electricity Rationing Plan-
Surcharge applied to consumers - 25,002 - 25,002
Reserve for contingencies 334,943 321,409 334,943 321,409
Taxes payable 217,996 - 217,996 -
Other 65,453 65,831 64,051 64,858
--------- --------- --------- ---------
5,427,290 4,914,189 5,306,095 4,824,423
--------- --------- --------- ---------
MINORITY INTEREST 35,462 36,436 - -
SHAREHOLDERS' EQUITY:
Capital 1,621,538 1,621,538 1,621,538 1,621,538
Capital reserves 4,074,949 4,074,949 4,074,949 4,074,949
Income reserves 1,154,136 1,153,736 1,154,136 1,153,736
Accumulated deficit (1,245,935) (989,826) (1,245,935) (989,826)
--------- --------- --------- ---------
5,604,688 5,860,397 5,604,688 5,860,397
Funds for future capital increase 27,123 27,123 27,123 27,123
--------- --------- --------- ---------
5,631,811 5,887,520 5,631,811 5,887,520
--------- --------- --------- ---------
Total liabilities and shareholders
equity 14,161,430 13,114,731 13,926,086 12,920,905
========== ========== ========== ==========
The accompanying condensed notes are an integral part of these financial statements.
5
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
(Expressed in thousands of Brazilian reais-R$, except for per share data)
------------------------------------------------------------------------------
Consolidated Company
----------------------------- -----------------------------
Nine month periods Nine month periods
ended September 30, ended September 30,
----------------------------- -----------------------------
2001 2001
2002 (reclassified) 2002 (reclassified)
---------- -------------- ----------- --------------
R$ R$ R$ R$
---------- -------------- ----------- --------------
OPERATING REVENUES:
Electricity sales 4,431,993 3,542,787 4,402,485 3,517,270
Special rate adjustment 268,913 - 268,913 -
Other operating revenues 304,310 269,009 193,697 196,340
----------- ----------- ----------- -----------
5,005,216 3,811,796 4,865,095 3,713,610
DEDUCTIONS FROM OPERATING REVENUES: (1,184,545) (960,773) (1,172,408) (952,860)
----------- ----------- ----------- -----------
Net operating revenues 3,820,671 2,851,023 3,692,687 2,760,750
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Personnel (398,328) (428,269) (391,927) (427,327)
Materials and supplies (52,316) (47,616) (50,873) (46,951)
Outside services (179,556) (167,215) (173,978) (162,886)
Charges for use of water resources (34,200) (28,101) (33,502) (27,671)
Electricity purchased for resale (1,455,041) (815,005) (1,455,041) (815,005)
Use of basic transmission network (219,953) (205,303) (219,953) (205,303)
Depreciation and amortization (408,388) (383,805) (387,376) (375,334)
Employee post-retirement benefits (162,748) (150,794) (162,748) (150,794)
Operating provisions (28,032) (31,652) (28,032) (31,652)
Fuel consumption quota-CCC (252,373) (244,527) (252,373) (244,527)
Gas purchased for resale (75,568) (52,581) - -
Other (118,465) (135,673) (111,747) (134,170)
----------- ----------- ----------- -----------
(3,384,968) (2,690,541) (3,267,550) (2,621,620)
----------- ----------- ----------- -----------
Income from operations before equity in
subsidiaries and financial income (expenses) 435,703 160,482 425,137 139,130
----------- ----------- ----------- -----------
EQUITY IN SUBSIDIARIES - - (15,778) 14,321
----------- ----------- ----------- -----------
FINANCIAL INCOME (EXPENSES)
Financial income 759,506 332,252 751,344 327,688
Financial expenses (1,516,352) (697,521) (1,457,734) (694,078)
----------- ----------- ----------- -----------
(756,846) (365,269) (706,390) (366,390)
----------- ----------- ----------- -----------
Loss from operations (321,143) (204,787) (297,031) (212,939)
----------- ----------- ----------- -----------
NON OPERATING EXPENSES, NET (1,064,866) (61,545) (1,064,287) (61,546)
----------- ----------- ----------- -----------
Loss before taxes on income and employee profit
sharing (1,386,009) (266,332) (1,361,318) (274,485)
----------- ----------- ----------- -----------
Income and social contribution tax credits 126,809 85,768 112,279 93,515
Employee profit sharing (21,903) (13,651) (21,866) (13,651)
Reversal of interest on capital 120,000 - 120,000 -
----------- ----------- ----------- -----------
Loss before minority interest (1,161,103) (194,215) (1,150,905) (194,621)
MINORITY INTEREST 10,198 (406) - -
----------- ----------- ----------- -----------
NET LOSS FOR THE PERIOD (1,150,905) (194,621) (1,150,905) (194,621)
=========== =========== =========== ===========
NUMBER OF THOUSAND OF SHARES 162,084,691 158,931,714 162,084,691 158,931,714
=========== =========== =========== ===========
LOSS PER SHARE-R$ (0,00710) (0,00122) (0,00710) (0,00122)
=========== =========== =========== ===========
The accompanying condensed notes are an integral part of these financial
statements.
6
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS-CEMIG
------------------------------------------
UNAUDITED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 2002 AND 2001
(Expressed in thousands of Brazilian reais-R$, except for per share data)
------------------------------------------------------------------------------
Consolidated Company
----------------------------- -----------------------------
Quarter Quarter
ended September 30, ended September 30,
----------------------------- -----------------------------
2001 2001
2002 (reclassified) 2002 (reclassified)
---------- -------------- ----------- --------------
R$ R$ R$ R$
---------- -------------- ----------- --------------
OPERATING REVENUES:
Electricity sales 1,839,169 1,042,133 1,829,503 1,033,124
Special rate adjustment 7,488 - 7,488 -
Other operating revenues 121,306 89,685 76,492 69,902
----------- ----------- ----------- ------------
1,967,963 1,131,818 1,913,483 1,103,026
DEDUCTIONS FROM OPERATING REVENUES: (428,642) (278,091) (424,316) (275,406)
----------- ----------- ----------- ------------
Net operating revenues 1,539,321 853,727 1,489,167 827,620
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Personnel (133,146) (125,205) (130,238) (124,940)
Materials and supplies (18,153) (14,251) (17,399) (13,812)
Outside services (67,820) (62,224) (66,284) (60,922)
Charges for use of water resources (12,024) (7,020) (11,871) (6,918)
Electricity purchased for resale (792,804) (302,924) (792,804) (302,924)
Use of basic transmission network (77,745) (73,477) (77,745) (73,477)
Depreciation and amortization (137,545) (130,261) (129,647) (127,605)
Employee post retirement benefits (54,249) (50,264) (54,249) (50,264)
Operating provisions (19,613) (17,676) (19,613) (17,676)
Fuel consumption quota-CCC (92,369) (88,268) (92,369) (88,268)
Gas purchased for resale (30,509) (14,215) - -
Other (43,206) (41,811) (39,928) (41,464)
----------- ----------- ----------- ------------
(1,479,183) (927,596) (1,432,147) (908,270)
----------- ----------- ----------- ------------
Income (loss) from operations before equity in
subsidiaries and financial income (expenses) 60,138 (73,869) 57,020 (80,650)
----------- ----------- ----------- ------------
EQUITY IN SUBSIDIARIES - - (15,498) 5,141
----------- ----------- ----------- ------------
FINANCIAL INCOME (EXPENSES)
Financial income 379,204 142,217 376,185 140,119
Financial expenses (829,220) (338,484) (797,910) (337,700)
----------- ----------- ----------- ------------
(450,016) (196,267) (421,725) (197,581)
----------- ----------- ----------- ------------
Loss from operations (389,878) (270,136) (380,203) (273,090)
----------- ----------- ----------- ------------
NON OPERATING EXPENSES, NET (5,694) (35,064) (5,115) (35,064)
----------- ----------- ----------- ------------
Loss before taxes on income and employee
profit sharing (395,572) (305,200) (385,318) (308,154)
----------- ----------- ----------- -----------
Income and social contribution tax credit 149,169 100,666 140,421 103,506
Employee profit sharing (11,249) (4,125) (11,212) (4,125)
----------- ----------- ----------- -----------
Loss before minority interest (257,652) (208,659) (256,109) (208,773)
MINORITY INTEREST 1,543 (114) - -
----------- ----------- ----------- -----------
NET LOSS FOR THE PERIOD (256,109) (208,773) (256,109) (208,773)
=========== =========== =========== ===========
NUMBER OF THOUSAND OF SHARES 162,084,691 158,931,714 162,084,691 158,931,714
=========== =========== =========== ===========
LOSS PER SHARE-R$ (0.00158) (0.00131) (0.00158) (0.00131)
=========== =========== =========== ===========
The accompanying condensed notes are an integral part of these financial
statements.
7
Item 9
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
UNAUDITED CONDENSED NOTES TO THE INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
(Amounts expressed in thousands of Brazilian reais-R$, unless otherwise
indicated)
------------------------------------------------------------------------------
1) THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais-CEMIG ("CEMIG" or the "Company"), a
company organized under the laws of the Federative Republic of Brazil, is an
electric power concessionaire and public utility controlled by the Government
of the State of Minas Gerais, Brazil (the "State Government"). Its principal
activities are the construction and operation of systems used in the
generation, transmission, distribution and sale of electric energy, as well as
certain related business activities.
The Company has equity interests in the following companies:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest)-Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest)-Its principal
activities are the production and sale of electric energy, as an
independent power producer, at the Ipatinga thermoelectric power plant
located at the facilities of Usinas Siderurgicas de Minas Gerais
USIMINAS;
o Companhia de Gas de Minas Gerais-GASMIG ("GASMIG") (95.17% interest)-Its
principal activities are the operation, production, acquisition, storage,
transportation and distribution of natural gas and related products.
GASMIG was granted a concession by the State Government to perform these
activities and,
o Empresa de Infovias S.A. ("Infovias") (94.89% interest)-Its principal
activities are rendering telecommunications services and developing
activities related thereto, through integrated systems using optical
fiber cable, coaxial cable, electronic equipment and other (multiservice
networks). Infovias owns 51% of the capital stock of Way TV Belo
Horizonte S.A., a cable TV and internet services provider in certain
cities in the State of Minas Gerais.
Additionally, the Company has a 100% interest in each of the following
pre-operational companies:
o Horizontes Energia S.A.-Its principal activities are the production and
sale of electric energy, as an independent power producer, at the Machado
Mineiro and Salto do Paraopeba hydroelectric power plants, located in the
State of Minas Gerais, and the Salto Voltao and Salto do Passo Velho
hydroelectric power plants, located in the State of Santa Catarina.
o Cemig PCH S.A., Cemig Capim Branco Energia S.A. and UTE Barreiro S.A.-
Their principal activities are the production and sale of electric
energy, as independent power producers.
o Efficientia S.A.-Its principal activities are rendering efficiency,
optimization and energetic solutions services through developing and
executing projects, and providing operation and maintenance services in
energy supply facilities.
8
Item 9
2) PRESENTATION OF THE FINANCIAL STATEMENTS
(a) Basis of consolidation
In the current period, the consolidated financial statements include the
financial statements of Horizontes Energia S.A. and Efficientia S.A., as a
result of the payment of capital by CEMIG to these entities, in the third
quarter of 2002, through the transfer of fixed assets and cash.
The accounting practices, methods and criteria used by the Company in the
preparation of these quarterly financial statements are consistent with those
applied in the financial statements as of and for the year ended December 31,
2001.
(b) Reclassification of account balances
In order to conform to the current presentation, the Company reclassified
certain 2001 balances, as follows:
Original Account Reclassified Account Consolidated Company
------------------------------------------- ----------------------------- ---------------- ----------
Employee post retirement benefits
Financial expenses-FORLUZ debt Operating expenses-Employee
post retirement benefits 166,231 166,231
Operating provisions Operating expenses-Employee
post-retirement benefits (15,437) (15,437)
PASEP and COFINS taxes on financial income:
Financial expenses Financial income 12,404 12,404
In order to prepare the individual and consolidated statements of cash flows
presented in Note 30, CEMIG reclassified escrow accounts in the amount of
R$89,313 and R$67,171 as of September 30, 2001 and December 31, 2000,
respectively, originally recorded under Assets Cash and cash equivalents, to
Liabilities as a reduction of loans and financing.
(c) Revision of interim financial statements
CVM (Brazilian Securities Commission) letter, of January 7, 2003, required the
Company to refile its quarterly information as of June 30, 2002 to include an
allowance for losses on receivables from the Minas Gerais State Government, as
described in Note 8. Therefore, the Company refiled its new quarterly
information as of September 30, 2002, including the mentioned allowance.
The new quarterly information as of September 30, 2002, now being presented,
differs from that originally filed on December 2, 2002, with respect to the
allowance for losses and additional information included in Note 8 and the
corresponding effects on financial income, extraordinary losses and income
taxes. Additionally, Note 29 includes information on the current status of the
Company's rights and obligations in the Wholesale Energy Spot Market-MAE.
As a result of the revised quarterly information as the June 30 and September
30, 2002, both including the allowance for losses on receivables from the
Minas Gerais State Government, the Company is concluding the preparation of
its consolidated financial statements as of December 31, 2001, prepared in
accordance with generally accepted accounting principles in the United States
of America, to be filed with the U.S. Securities and Exchange Commission
SEC, including the retroactive effects of such allowance as of December 31,
2001.
9
Item 9
3) CONSUMERS-SPECIAL RATE ADJUSTMENT
In December 2001, the Federal Government, through the Camara de Gestao da
Crise de Energia Eletrica (the Federal Government's Electric Energy Crisis
Committee or the "Energy Crisis Committee"), and the electricity distribution
and generation concessionaires entered into the Acordo Geral do Setor Eletrico
("General Agreement of the Electricity Sector"). This agreement defines
criteria to ensure the economic and financial equilibrium of the concession
contracts and to reimburse such concessionaires for lost revenues related to
the period when the Electricity Rationing Plan was in force, through a special
rate adjustment.
Law No. 10,438, of April 26, 2002, and the Energy Crisis Committee's
Resolution No. 91, of December 21, 2001, established a special rate adjustment
beginning December 27, 2001. The rate increases were defined through the
Energy Crisis Committee's Resolution No. 130, of April 30, 2002, as follows:
I. an increase of 2.90% for rural and residential consumers (excluding
low-income consumers), street lighting and high tension industrial
consumers whose costs related to electric energy represent at least
18.00% of average production cost and meet certain criteria, related
to charge and demand energy factors which were determined in the
Resolution.
II. an increase of 7.90% for all other consumers.
The special rate adjustment mentioned will be used in the recovery of the
following items:
a. Billing losses in the period from June 1, 2001 to February 28, 2002,
representing the difference between the Company's estimated revenue,
assuming that the Electricity Rationing Plan had not been
implemented, and the actual revenue earned during the rationing
period, as established by ANEEL (National Energy Authority). The
computation does not include State VAT and overdue payment losses
which the Company does not expect will be material.
b. Variation in Parcel "A" Items (uncontrolled costs as established by
the concession contracts) related to the period between January 1,
2001 to October 25, 2001. The amount to be reimbursed is equal to the
difference between the Parcel "A" costs effectively paid and the
estimated Parcel "A" costs used for purposes of computing the most
recent annual rate adjustment.
c. Amounts to be transferred to generators for the energy purchased on
the MAE, from June 1, 2001 to February 28, 2002, at a price exceeding
R$49.26/MWh. This includes the taxes and charges on revenues (PASEP,
COFINS, RGR and CPMF), since the Company is only responsible to
transfer these amounts to generators. These amounts may change,
depending on the litigation currently in progress, filed by market
agents, related to the interpretation of the market rules in force.
Under ANEEL Resolution No. 484 of August 29, 2002, the special rate adjustment
will be in force for a maximum period of 82 months, starting in January 2002.
Management is preparing studies to confirm whether or not the period
determined by ANEEL will be enough to recover these amounts.
The amounts related to 2001, which will be realized through the special rate
adjustment, described in items ("a"), ("b"), and ("c") have been restated
based on SELIC (Brazilian Central Bank overnight interest rate) from January
1, 2002 to the month of their effective recovery. The amounts in items ("a"),
and ("c") related to 2002 have been updated from March 1, 2002 using the same
criteria.
Through Resolutions No. 480 to 482, of August 29, 2002, ANEEL approved the
amounts of billing losses and recovery of variations of the Parcel "A" items.
Despite ANEEL Resolution No. 483, which approved the amounts to be paid to
generators for the energy purchased on the MAE during the rationing period,
CEMIG recorded such transactions based on updated information provided by MAE
in October 2002, which resulted from the MAE revision of the calculation
criteria.
The amounts approved by ANEEL and the final amounts related to energy
purchased, provided by MAE, are reflected in the consolidated financial
statements as of September 30, 2002, and represent an increase in the estimate
of the special rate adjustment revenue, in the amount of R$7,488 in the third
quarter of 2002.
10
Item 9
The State VAT related to the special rate adjustment, related to future
billings, which is estimated to be R$403,421, only becomes an obligation once
the customers are billed. In this context, the Company's only responsibility
is to transfer this tax from consumers to the State tax authorities.
The amounts to be recovered through the special rate adjustments mentioned in
items "a", "b", and "c" are as follows:
Company and Consolidated
------------------------------------------------------
September 30, June 30,
2002 2002
--------------------------------------- ------------
SELIC
Principal restatement Total Total
--------- ----------- ---------- ------------
Billing losses during the Electricity Rationing Period 876,847 113,554 990,401 943,214
Amounts collected in the nine-month period ended
September 30, 2002 (183,201) (10,022) (193,223) (120,426)
--------- ----------- ---------- ------------
693,646 103,532 797,178 822,788
Recovery of uncontrollable cost variations relating to
Parcel "A" 245,299 62,567 307,866 294,597
Recovery of spot market amounts by generators 449,769 58,870 508,639 484,706
--------- ----------- ---------- ------------
1,388,714 224,969 1,613,683 1,602,091
========= ======= ========= =========
Current 264,670 248,751
Noncurrent 1,349,013 1,353,340
========= =========
In counterpart to the amounts to be collected through the special rate
adjustments, CEMIG has recorded a long term liability, in the amount of
R$473,017, updated based on the SELIC, related to reimbursement to generators
for energy purchased on the MAE, described in item "c".
Accounting Effects
The effects in the nine month period ended September 30, 2002, resulting from
the Electricity Rationing Plan during January and February 2002, as well as
adjustments to the recorded amounts as of December 31, 2001, due to approval
by ANNEL and new estimates by the MAE, described previously, were as follows:
Energy
Billing Recovery of purchased on Tax
losses Parcel "A" MAE effects Total
---------- ------------ ------------- --------- ----------
Revenue from special rate adjustments 220,168 - 48,745 - 268,913
Deductions from operating revenues - - - (28,858) (28,858)
Operating expenses - (1,862) (45,330) - (47,192)
Financial income 103,532 36,788 58,870 (8,785) 190,405
Financial expenses - - (54,747) - (54,747)
Income and social contribution taxes - - - (122,268) (122,268)
---------- ------------ ------------- --------- ----------
323,700 34,926 7,538 (159,911) 206,253
========== ============ ============= ========= ==========
4) CASH AND CASH EQUIVALENTS
The composition of the balance is as follows:
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Banks 37,836 94,106 33,366 87,798
Short term investments 378,137 330,207 315,042 280,665
------- ------- ------- -------
415,973 426,345 350,440 368,463
======= ======= ======= =======
Approximately R$147,838 of the short-term investments refers to funds obtained
from the issuance of debentures. These funds were obtained to be used in the
investment plan related to expansion of the Company's energy generation,
transmission and distribution operations.
The cash equivalents of CEMIG and its subsidiaries are substantially invested
in Bank CDs and debentures issued by third parties (Note 27).
11
Item 9
5) ACCOUNTS RECEIVABLE
Consolidated
---------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - accounts September 30, June 30,
Consumer Class Current up to 90 days over 90 days 2002 2002
-------------------------------------- ------------------ -------------- ------------- ----------------- -------------
Residential 179,498 106,072 10,875 296,445 269,170
Industrial 141,261 72,028 34,464 247,753 219,084
Commercial 67,877 34,170 8,709 110,756 108,301
Rural 22,074 11,444 2,714 36,232 33,450
Public authorities 7,710 17,329 12,607 37,646 34,245
Public lighting 10,448 22,569 12,885 45,902 29,494
Public services 25,430 13,560 1,165 40,155 49,076
------- ------- ------ ------- -------
Subtotal - Consumers 454,388 277,262 83,419 816,921 744,852
Supply 5,192 - 1,506 6,698 7,689
Allowance for doubtful accounts - - (50,551) (50,551) (45,587)
------- ------- ------ ------- -------
459,490 554,524 34,374 771,036 704,922
======= ======= ====== ======= =======
Company
---------------------------------------------------------------------------------------------------------------------------
Past due Past due Total Total
accounts - accounts - September 30, June 30,
Consumer Class Current up to 90 days over 90 days 2002 2002
-------------------------------------- ------------------ -------------- ------------- ----------------- -------------
Residential 179,498 106,072 10,875 296,445 269,170
Industrial 134,689 72,028 34,464 241,181 217,355
Commercial 61,119 34,170 8,709 103,998 101,455
Rural 22,074 11,444 2,714 36,232 33,450
Public authorities 7,710 17,329 12,607 37,646 34,245
Public lighting 10,448 22,569 12,885 45,902 29,494
Public services 25,430 13,560 1,165 40,155 49,076
------- ------- ------ ------- -------
Subtotal - Consumers 440,968 277,262 83,419 803,591 736,277
Supply 5,192 - 1,506 6,698 7,689
Allowance for doubtful accounts - - (50,551) (50,551) (45,587)
------- ------- ------ ------- -------
446,160 554,524 34,374 757,706 696,347
======= ======= ====== ======= =======
6) RECOVERABLE TAXES
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Current Assets
State VAT - ICMS 10,306 27,701 12,179 22,958
Income and social contribution tax 114,396 98,972 98,208 83,153
Other 7,069 1,099 4,063 358
------- ------- ------ -------
131,771 127,772 114,450 106,469
======= ======= ======= =======
Noncurrent Assets
State VAT - ICMS 93,378 76,360 78,808 66,276
------- ------- ------ -------
93,378 76,360 78,808 66,276
======= ======= ======= =======
The balances of income and social contribution tax are basically related to
prepaid income and social contribution taxes and withheld income tax on
short term investments to be offset against future liabilities.
The State VAT assets of the Company and its subsidiaries are recoverable
through offset against State VAT liabilities. Most of the balance recorded as
non current assets is subject to the 48 month compensation period, as
established by State Law. The Company is in a legal dispute with the State
Government in order to compensate tax credits in the amount of R$18,843.
12
Item 9
7) PREPAID EXPENSES - CVA
The balance of the recoverable variation account of Parcel "A" items CVA,
refers to variations, which began on October 26, 2001, between the estimated
Parcel "A" costs of the Company, used in defining tariff adjustments, and
payments effectively made. The variations will be recovered in subsequent
annual rate adjustments and are composed as follows:
Consolidated and Company
----------------------------------------------------------------------
Amount to be Amount to be Total Total
compensated by compensated September 30, June 30,
April 2003 after April 2003 2002 2002
---------------- ----------------- --------------- ----------
System service charges - ESS - 114,379 114,379 109,074
Itaipu Binacional electricity purchase tariff 24,209 237,359 261,568 109,796
Itaipu Binacional electricity transport tariff 878 1,624 2,502 2,032
Fuel usage quota - CCC 6,994 (62,363) (55,369) (22,321)
Tariff for use of basic transmission network 6,051 26,167 32,218 13,718
Charges for use of water recourses - 1,142 1,142 1,671
------ ------- ------- -------
38,132 318,308 356,440 213,970
------ ------- ------- -------
Current 136,131 65,805
Noncurrent 220,309 148,165
======= =======
The above mentioned amounts are updated based on the SELIC rate from the
payment date to effective recovery through annual rate adjustments.
The amounts to be compensated by April 2003 refer to variations of
uncontrollable costs that were included in the annual rate adjustment on April
8, 2002 and are being transferred monthly to operating expenses on a linear
basis.
The System service charges - ESS for the period from September 2000 to
February 2002 were accrued based on definitive information provided by MAE and
for the period from March 2002 to September 2002, were accrued based on
Company estimates and are subject to change.
8) RECEIVABLE FROM MINAS GERAIS STATE GOVERNMENT
The remaining balance of the CRC Account (Recoverable Rate Deficit) was
transferred to the State Government in 1995, through a credit assignment
contract, pursuant to Law No. 8,724/93. This balance is payable monthly, over
17 years beginning June 1, 1998, and accrues annual interest of 6% and is
subject to updating based on the IGP DI (General Price Index).
In October 2002, negotiations between CEMIG and the Minas Gerais State
Government, related to the CRC receivable, were concluded, as described below:
(a) Second Amendment of Credit Assignment Contract for CRC, signed on October
14, 2002
This Amendment refers to 149 installments, maturing from January 1, 2003 to
May 1, 2015, in the total amount of R$1,160,982, as of September 30, 2002.
These installments are subject to annual interest of 6% and are updated based
on the IGP DI. The Minas Gerais State Government and CEMIG have decided to
sign this Amendment in order to preserve the terms and conditions of the
original contract and allow a transfer of this asset to BNDES (Brazilian
Economic and Social Development Bank). This Amendment was signed pursuant to
Law No. 10,438/02 which guarantees to CEMIG the recovery of its credits that
arose from the General Agreement of the Electricity Sector.
This Amendment was signed based on Law No. 14,384 of October 11, 2002, enacted
by the Minas Gerais State Legislature, which granted guarantees to BNDES
regarding the revenues from taxes and other revenues as established by the
Brazilian Constitution, through Articles 155, 157 and 159. The Board of
Directors of CEMIG approved this Amendment on October 23, 2002.
13
Item 9
The Minas Gerais State Government did not pay the installment, maturing on
January 1, 2003, in the amount of R$12,104. Company management is negotiating
the collection of the aforementioned past due amount with the Minas Gerais
State Government, under the conditions established by the contract.
Transfer to BNDES
The transfer of the asset mentioned above is linked to the General Agreement
of the Electricity Sector which established that the Company would be entitled
to a BNDES funding program, or an equivalent transaction, in order to
anticipate the effective recovery of a significant part (approximately 90%) of
its rights that arose from the Electric Rationing Plan. The funds from such
transaction would be used to settle the MAE transactions and reimburse the
billing losses and additional costs incurred during the period in which the
Electricity Rationing Plan was in force in 2001 and 2002.
The National Treasury Secretary - STN, responsible for implementation of the
funding program, suggested the transfer of the CRC asset to the Federal
Government in order to solve the restrictions applicable to CEMIG for being a
partially state-owned company. Such transaction would be equivalent to the
BNDES funding program, and would provide the Company with necessary resources
to settle the obligations and rights mentioned above.
Allowance for losses
Due to the fact that negotiations with the STN are still in progress at the
present date, and the non inclusion in the Second Amendment of additional
guarantees that would assure the realization of the aforementioned asset,
CEMIG recorded an allowance for losses in the amount of R$1,045,325. This
allowance represents the total amount of the referred amendment as of March
31, 2002 (original contract installments with maturities from January 1, 2003
to May 1, 2015). Thus, the effect of updating the balance, from March 31, 2002
to September 30, 2002, in the amount of R$115,657, was excluded from the
statement of income for the nine month period ended September 30, 2002. On
January 21, 2003, the Board of Directors approved recognition of the
allowance.
The allowance for losses on this asset was recorded in the statement of income
as an extraordinary loss in non operating expense, since it does not result
from the Company's operations during the period, and has an abnormal nature.
Such allowance did not impact deferred income and social contribution taxes,
since it represents a permanent difference to be included in the taxable
income calculation.
(b) Third Amendment of Credit Assignment Contract for CRC, signed on October
24, 2002
CEMIG and the Minas Gerais State Government signed this Amendment in order to
reschedule the payment of installments originally due from April 1, 1999 to
December 1, 1999 and from March 1, 2000 to December 1, 2002. These
installments, in the total amount of R$626,466, as of September 30, 2002, are
subject to annual interest rate of 12.00% and are updated based on the IGP DI.
They will be paid in 149 monthly installments from January 2003 to May 2015.
The original contract included the guarantee of the State Government's share
of taxes collected by the Federal Government entitled Fundo de Participacao
dos Estados FPE. This Amendment established an additional guarantee which
now allows the Company to retain dividends and interest on capital to be paid
to the Minas Gerais State Government, as a Company shareholder.
This Amendment was signed based on Law No.14,384 of October 11, 2002, enacted
by the Minas Gerais State Legislature. The Board of Directors of CEMIG
approved this Amendment on October 23, 2002.
The Minas Gerais State Government did not pay the installment of the third
amendment due on January 1, 2003, in the amount of R$9,150. Company management
is negotiating the collection of the aforementioned past due amount with the
Minas Gerais State Government.The projection of the Company's future
operations indicates that the dividends attributable to the Minas Gerais State
Government will be sufficient to assure the full realization of the asset, in
case of default by the State.
14
Item 9
Management will monitor future events which may impact the Company's dividend
payment projection, in order to conclude if the above mentioned guarantee is
still effective or an additional allowance under this amendment is necessary.
9) INCOME AND SOCIAL CONTRIBUTION TAXES
(a) Tax credits
The Company and its subsidiaries have tax credits recorded as noncurrent
assets. The income tax credits are recorded at a 25% rate and social
contribution tax credits are recorded at a 9% rate. The composition of the
balances is as follows:
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Tax credits on:
Tax loss carryforwards 367,443 266,959 340,956 252,869
Employee post retirement benefits 158,711 153,155 158,711 153,155
Reserve for contingencies 63,595 58,352 63,595 58,352
Accrual for voluntary termination program 9,784 8,943 9,784 8,943
- PDV
Allowance for doubtful accounts 17,225 15,080 17,225 15,080
Allowance for decrease in market value of
marketable securities 28,781 11,517 28,781 11,517
Reserve for PASEP/COFINS Special Rate
Adjustment 27,647 17,209 27,647 17,209
Other 8,990 4,917 8,914 4,844
------- ------- ------- -------
682,176 536,132 655,613 521,969
======= ======= ======= =======
The Board of Directors approved, on November 29, 2002, the technical study
made by CEMIG's Financial Management on the projected future results of
operations, adjusted to present value. The study confirms the Company's
capacity to realize the tax credits in a ten year maximum period, in
compliance with CVM Resolution No. 371, published on June 27, 2002. The CEMIG
Fiscal Council, on November 29, 2002, received such study for consideration.
In accordance with CEMIG's estimates, future taxable income will permit
realization of the tax credits, as follows:
Consolidated Company
---------------- ------------
2002 128,189 128,189
2003 854
2004 79,727 78,969
2005 120,622 116,557
2006 132,074 127,611
2007 101,497 96,756
2008 to 2010 82,896 71,214
2011 to 2012 36,317 36,317
682,176 655,613
======= =======
15
Item 9
(b) Reconciliation of income tax and social contribution tax expenses
The reconciliation between the nominal expense/credit of income tax (25% rate)
and social contribution tax (9% rate) and the effective benefits presented in
the statement of income is as follows:
Consolidated Company
------------------------- ------------------------
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- --------- ----------- ---------
Loss before taxes on income and employee profit sharing (1,386,009) (266,332) (1,361,318) (274,485)
Income and social contribution benefits - nominal 471,243 90,553 462,848 93,325
Tax effects on:
Employee profit sharing 7,447 4,641 7,435 4,641
Reversal of social contribution tax on additional monetary (6,950) (8,239) (6,950) (8,239)
restatement
Equity pick-up in subsidiaries - - (6,685) 4,869
Contributions and grants not deductible (3,559) (2,970) (3,559) (2,970)
Adjustment to social contribution tax rate - Executive Act 66 12,921 - 12,921 -
Allowance for losses on receivable from Minas Gerais State
Government (355,411) - (355,411) -
Other 1,118 1,783 1,680 1,889
----------- --------- ----------- ---------
Income and social contribution tax benefits in income statement 126,809 85,768 112,279 93,515
=========== ========= =========== =========
10) BONUS, NET OF SURCHARGE, AND COSTS TO BE REIMBURSED AS A RESULT OF THE
ELECTRICITY RATIONING PROGRAM
Through the Energy Crisis Committee, the Federal Government established
electric energy consumption targets for all consumers affected by the
Electricity Rationing Plan in force during the period from June 2001 to
February 2002. A financial bonus was established for residential consumers
whose electric energy consumption was lower than the target, and surcharges
were established for all consumers whose consumption exceeded the target,
calculated based on the effective consumption in excess of such target, as
established by the Energy Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Electricity Rationing Plan involving the bonus, surcharge and related costs.
The related effects are as follows:
Consolidated and Company
---------------------------------
September 30, June 30,
2002 2002
---------------- -----------
Noncurrent Assets
Bonus paid to consumers that consumed less than the target consumption 68,728 181,794
Costs incurred related to the adoption of the Electricity Rationing Program in
excess of the 2.00% surcharge on consumer tariffs. 27,864 27,866
------ --------
96,592 209,660
Long-term Liabilities
Surcharge applied to consumers that consumed more than the target consumption - (25,002)
------ --------
Net Disbursements
Net bonus paid to consumers and related costs in excess of the surcharge applied
to consumers 96,592 184,658
====== ========
In conformity with Federal Government Executive Act No. 4, dated October 17,
2001, the Federal Government, acting through its Ministry of Mines and Energy,
will reimburse electric utilities, including CEMIG, for costs associated with
the payment of bonuses to consumers and other related operating costs that
exceeded the surcharge on tariffs.
In the third quarter of 2002, due to approval by ANEEL, CEMIG received a
refund for part of the consumers' bonus, in the amount of R$88,066. On October
3, 2002, ANEEL reimbursed an additional R$39,543.
16
Item 9
Part of the amount to be received by CEMIG, R$23,680, is being discussed with
ANEEL, as part of the surcharges were not billed and collected from the
consumers since they are under court order. Company management does not expect
losses on the realization of this amount.
In conformity with ANEEL Resolution No. 600, dated October 31, 2002, the
operation costs related to the adoption of the Electricity Rationing Plan in
excess of the 2.00% surcharge on consumer tariffs will be recovered, after
approval by ANEEL, in the next annual rate adjustment.
11) DISTRIBUTORS - ENERGY SUPPLY
ANEEL Resolution No. 447, dated August 23, 2002, defined the methodology to be
used to calculate the rights and obligations of each market participant
related to MAE transactions, changing certain assumptions previously adopted
by the electric energy sector to record these transactions. Due to the new
criteria adopted and the information supplied by the MAE, there was an
increase in CEMIG's reimbursement rights, related to the difference between
the MAE price and R$49.26, recorded as Noncurrent assets, in counterpart of
unbilled supply revenue. Additionally, there was an increase in the Suppliers
- Energy purchased in the spot market, in counterpart of electricity purchased
for resale expenses.
The accrued amount of R$615,771, as of September 30, 2002, updated base on
SELIC, will be collected by distribution companies in the Brazilian electric
energy sector through the special rate adjustment and will be directly
repassed to CEMIG.
These amounts may change, depending on the litigation currently in progress,
filed by market agents, related to the interpretation of the market rules in
force.
12) INVESTMENTS
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Equity in subsidiaries
Empresa de Infovias S.A. - - 175,240 168,379
Companhia de Gas de Minas Gerais - GASMIG - - 78,368 70,409
Usina Termica Ipatinga S.A. - - 86,192 85,672
Sa Carvalho S.A. - - 100,182 96,817
Cemig Capim Branco S.A. - - 12,022 11,600
UTE Barreiro S.A. - - 4,183 2,928
Cemig PCH S.A. - - 11,796 7,698
Horizontes Energia S.A. - - 64,066 -
Efficientia S.A. - - 567 -
------- ------- ------- -------
- - 532,616 443,503
In consortiums for power plant construction 487,557 376,490 475,540 364,895
Goodwill on purchase of Infovias 8,457 8,457 8,457 8,457
Other investments 8,477 71,650 4,777 67,839
------- ------- ------- -------
504,491 456,597 1,021,390 884,694
======= ======= ======= =======
The recorded goodwill in Infovias, resulting from the additional interest
acquired by CEMIG in 2002, is based on the subsidiary's future expected
profitability and will be amortized in future years, based on income earned by
the subsidiary.
The amount of R$61,998, recorded in Other investments as of June 30, 2002,
referred to the Machado Mineiro, Salto do Paraopeba, Salto Voltao and Salto do
Passo Velho power plants, was transferred to Horizontes Energia S.A., a wholly
owned subsidiary, in accordance with ANEEL approval. This investment is now
carried under the equity method of accounting.
17
Item 9
(a) The principal information related to subsidiaries as of September 30,
2002, is as follows:
Cemig
Interest Shareholders' Interest Net income
Subsidiaries % Capital equity on Capital (loss)
-------- ------- ------------- ---------- ----------
Empresa de Infovias S.A. 94.88 179,798 126,850 - (50,081)
Companhia de Gas de Minas Gerais - GASMIG * 95.17 41,913 82,145 - 12,607
Usina Termica Ipatinga S.A. 100.00 84,584 86,192 389 1,030
Sa Carvalho S.A. 100.00 86,833 100,182 2,789 7,771
Horizontes Energia S.A. 100.00 62,871 64,066 - -
Cemig Capim Branco Energia S.A. 100.00 1 12,022 - -
Cemig PCH S.A. 100.00 1 11,796 - -
UTE Barreiro S.A. 100.00 1 4,183 - -
Efficientia S.A. 100.00 10 567 - -
(*) The consolidated interim financial statements include the financial
statements of GASMIG as of August 31, 2002.
CEMIG's advance for future capital increase in Infovias, in the amount of
R$54,880, is recorded in the Infovias' balance sheet as a long term liability.
The independent accountants' special review report on the interim financial
statements of Infovias, as of September 30, 2002, is in process of conclusion.
The independent accountants' special review report on the interim financial
statements of Infovias, as of June 30, 2002, included comments on: (i)
deferred income and social contribution taxes for which realization was based
on management profit projections which depend on contracts which are under
negotiation; and (ii) need of additional resources from shareholders or
third parties to fund its operations, as well to ensure the recoverability of
its assets at the amounts recorded in its financial statements, until
Infovias' own operating revenues reach a certain level to absorb these
amounts.
(b) Consortia
CEMIG and its subsidiary, Cemig Capim Branco Energia, are partners with other
companies in certain consortia for electricity generation projects. The
consortia, which are not legal entities, were created to manage the concession
contracts. The Company maintains accounting records of its share in the
consortia assets which are jointly managed with the other consortia partners,
as follows:
Company and Consolidated
---------------------------
CEMIG's
Participation September 30, June 30,
% 2002 2002
------------- ------------- --------
In Operation
Porto Estrela Hydroelectric Power Plant 33.33 42,577 37,365
Igarapava Hydroelectric Power Plant 14.50 50,660 51,133
Under Construction
Queimado Hydroelectric Power Plant 82.50 119,056 94,354
Funil Hydroelectric Power Plant 49.00 101,377 76,719
Aimores Hydroelectric Power Plant 49.00 161,870 105,324
------- -------
Total Company 475,540 276,397
Cemig Capim Branco S.A.
Capim Branco Hydroelectric Power Plants I and II 20.00 12,017 11,595
------- -------
Total Consolidated 487,557 11,595
======= =======
18
Item 9
13) PROPERTY, PLANT AND EQUIPMENT
Annual average Consolidated Company
--------------------------- ---------------------------
depreciation September 30, June 30, September 30, June 30,
rate % 2002 2002 2002 2002
-------------- ------------- -------- ------------- --------
In service
Generation -
Hydroelectric 2.51 5,438,456 5,436,366 5,353,872 5,351,782
Thermoelectric 1.79 279,543 216,726 131,894 131,981
Transmission 3.08 1,019,545 1,012,574 1,019,545 1,012,574
Distribution 5.10 6,589,862 6,553,605 6,589,862 6,553,605
Administration 9.63 264,422 266,641 264,422 266,641
Other 7.48 281,882 '243,352 - -
---------- ---------- ---------- ----------
13,873,710 13,729,264 13,359,595 13,316,583
---------- ---------- ---------- ----------
Accumulated depreciation
and amortization
Generation (2,095,763) (2,060,061) (2,080,079) (2,046,447)
Transmission (457,637) (449,874) (457,637) (449,874)
Distribution (2,599,490) (2,531,104) (2,599,490) (2,531,104)
Administration (127,364) (122,660) (127,364) (122,660)
Other (31,235) (23,992) - -
---------- ---------- ---------- ----------
(5,311,489) (5,187,691) (5,264,570) (5,150,085)
---------- ---------- ---------- ----------
Total in service 8,562,221 8,541,573 8,095,025 8,166.498
---------- ---------- ---------- ----------
Construction in progress -
Generation 155,455 110,894 138,506 100,051
Transmission 97,670 77,149 97,670 77,149
Distribution 435,427 359,197 435,427 359,197
Administration 29,496 24,829 29,496 24,829
Other 99,535 107,401 - -
---------- ---------- ---------- ----------
Total construction in progress 817,583 679,470 701,099 561,226
---------- ---------- ---------- ----------
Total 9,379,804 9,221,043 8,796,124 8,727,724
---------- ---------- ---------- ----------
Special liabilities (1,541,481) (1,495,750) (1,541,481) (1,495,750)
---------- ---------- ---------- ----------
Total, net 7,838,323 7,725,293 7,254,643 7,231,974
========== ========== ========== ==========
Special liabilities refer primarily to consumers' contributions to support
construction necessary to meet energy supply orders. The eventual liquidation
of this obligation depends on ANEEL's disposition at the end of the
distribution concessions. According to accounting principles and electric
energy sector legislation in force in Brazil, these amounts are not subject to
updating, amortization or depreciation.
14) SUPPLIERS
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Electricity suppliers - Furnas 363,255 273,874 363,255 273,874
Wholesale Energy Market - MAE
Energy purchased on spot market 705,560 211,274 705,560 211,274
System Service Charges - ESS 114,379 109,074 114,379 109,074
Other 31,089 28,987 31,027 28,987
--------- ------- --------- -------
1,214,283 623,209 1,214,221 623,209
Supplies and services 68,163 60,950 45,777 39,315
--------- ------- --------- -------
1,282,446 684,159 1,259,998 662,524
========= ======= ========= =======
The amounts to be paid for energy purchased on MAE and System service charges
- ESS from September 2000 to February 2002 were recorded based on definitive
information provided by MAE. The amounts related to the period from March 2002
to September 2002 were accrued based on Company estimates. The increase in the
amounts to be paid for energy purchased on the MAE is due to the new
calculation criteria adopted by the MAE to determine the obligations of each
electricity company (Note 11).
These amounts may change, depending on the litigation currently in progress,
filed by market agents, related to the interpretation of the market rules in
force.
19
Item 9
15) TAXES PAYABLE
Consolidated Company
----------------------------------- ----------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ----------- ------------- ------------
Current
Income Tax 77,855 191,489 66,633 180,849
Social Contribution Tax 28,507 69,531 23,820 65,105
ICMS (State VAT) 118,020 81,191 116,793 80,361
COFINS (tax on revenue) 5,587 60,359 24,975 59,777
INSS (social security) 7,519 7,227 7,503 7,218
Other 13,511 18,621 12,375 17,672
------- ------- ------- -------
270,999 428,418 252,099 410,982
======= ======= ======= =======
Long Term
Income Tax 109,549 - 109,549 -
Social Contribution Tax 39,438 - 39,438 -
COFINS 49,708 - 49,708 -
PASEP 19,301 - 19,301 -
------- ------- ------- -------
217,996 - 217,996 -
======= ======= ======= =======
CEMIG transferred to long term liabilities, in the third quarter of 2002, the
income tax, social contribution tax, COFINS and PASEP on special rate
adjustment revenue, recorded in 2001 and 2002. This proceeding was adopted in
conformity with the Resolution of the Brazilian Federal Tax Authority
(Secretaria da Receita Federal) which allows payment of these obligations in
proportion to the consumers' billings.
16) LOANS, FINANCING AND DEBENTURES
Composition of the financing by currency and local currency by index is as
follow:
Consolidated Company
------------------------------ -------------------------------
September 30, June 30, September 30, June 30,
2002 2002 2002 2002
------------- ---------- ------------- ------------
Currency -
U.S. dollar 2,352,767 1,710,245 2,205,918 1,604,648
EURO 76,991 50,609 76,991 50,609
Unit of account (basket of currencies) 48,391 44,767 48,391 44,767
--------- --------- --------- ---------
2,478,149 1,805,621 2,331,300 1,700,024
Indexes -
Indice Geral de Precos - IGP M (General Price 1,022,504 917,664 1,022,481 917,664
Index)
Indice Interno da Eletrobras - FINEL (Eletrobras
Internal Index) 158,632 161,022 158,632 161,022
UFIR (Tax Reference Unit) 93,017 95,570 93,017 95,570
Other 23,690 23,101 16,029 15,860
--------- --------- --------- ---------
1,297,843 1,197,357 1,290,159 1,190,116
Escrow accounts (1)
Income based on CDI (interbank deposit) rates (39,383) (14,068) (39,383) (14,068)
Short term investment - Income based on U.S.
dollar variation (193,701) (226,518) (193,701) (226,518)
--------- --------- --------- ---------
(233,084) (240,586) (233,084) (240,586)
--------- --------- --------- ---------
3,542,908 2,762,392 3,388,375 2,649,554
========= ========= ========= =========
Refers to restricted use funds for payment of foreign currency denominated
financing, in compliance with Banco Central do Brasil BACEN (Brazilian
Central Bank) Resolution No. 2,515 of June 29, 1998.
The annual shareholders meeting on April 30, 2002 approved the issuance of
debentures in the total amount of R$90,000, not convertible into shares of
CEMIG and without any preference or guarantee, to be acquired by the Minas
Gerais State Government, with final maturity in 25 years and updated based on
the IGP M index, without interest. The funds to be obtained from this issuance
will be used in the construction of the Irape Power Plant. On September 30,
2002, the Company issued the first series, in the amount of R$22,500.
20
Item 9
The variations in the principal currencies and indexes used to restate the
loans, financing and debentures are as follows:
Quarterly Annual Quarterly Annual
Variation Variation Variation Variation
Currency % % Indexes % %
---------------------------------- --------- --------- ------------------------------ --------- ---------
U.S. dollar 36.93 67.85 Indice Geral de Precos - IGP-M
(General Price Index) 6.82 10.54
Euro 36.44 86.74 Indice Interno da Eletrobras -
FINEL
(Eletrobras Internal Index) 1.34 2.04
Unit of account (Basket of
currencies) 35.58 75.70
17) RESERVE FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
Based on information provided by its internal legal counsel, the Company
believes that any loss in excess of the amounts provided for, in respect of
such contingencies, will not have a material adverse effect on the Company's
results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable
by the Company's legal counsel, the Company has recognized reserves for losses
as follows:
Consolidated and Company
---------------------------------
September 30, June 30,
2002 2002
---------------- -----------
Labor claims 63,932 60,414
Civil lawsuits Consumers 80,962 78,879
Social contribution tax 128,015 125,150
Finsocial (tax on revenue) 19,256 19,128
Civil lawsuits Others 18,960 14,996
Other 23,818 22,842
------- -------
336,975 321,409
======= =======
Certain details relating to such reserves are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be
R$79,914, as of September 30, 2002 (R$75,518 as of June 30, 2002). The Company
recorded a year-to-date provision in the amount of R$9,662 in 2002 (R$5,157
provision reversal in 2001). CEMIG determines the amounts to be reserved based
on advice from its legal counsel, the nature of the group of claims and the
most recent court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought legal action against the Company
seeking refunds of amounts paid to CEMIG as a result of a tariff increase that
became effective during the Brazilian government's economic stabilization
"Cruzado Plan" in 1986, alleging that such increases violated the price
controls instituted as part of that plan. CEMIG determines the amounts to be
reserved based on the amount billed subject to consumers' claims and recent
court decisions.
The total estimated exposure to the Company for those claims, fully provided
for, was R$80,962 as of September 30, 2002 (R$78,879 at June 30, 2002).
21
Item 9
(c) Social contribution tax
The Company is deducting the amounts of depreciation, amortization and
disposals of the supplementary monetary restatement of property, plant and
equipment, for purposes of computation of social contribution tax. The Company
estimates that its potential exposure in this matter is approximately
R$128,015, as of September 30, 2002 (R$125,150 as of June 30, 2002). The
amount is fully provided for.
(d) Finsocial
In 1994, CEMIG was fined by the Federal Tax Authorities due to the exclusion
of State VAT in the Finsocial calculation, a tax on billing extinguished in
1992. The Company estimates that the remaining amount still pending is
approximately R$19,256 as of September 30, 2002 (R$19,128 as of June 30,
2002). The amount is fully provided for.
(e) Other
Other reserves are related to a number of lawsuits involving the Federal
Government, pursuant to which the Company is disputing the constitutionality
of certain federal taxes that have been assessed against it and other general
claims arising in the ordinary course of business.
(f) Legal proceedings in which a favorable outcome is probable
CEMIG has other relevant legal proceedings with respect to which the Company
has been advised by its internal legal counsel that a favorable outcome is
probable. Certain details relating to such matters are as follows:
(i) Litigation involving FORLUZ with possible financial effects for CEMIG
The Company is defending, together with FORLUZ, a claim brought by its
employees' labor union ("Sindieletro") contesting the suspension of
increases in the Company's required contribution to the pension fund
pursuant to periodic monetary restatements. The total amount sought in
this claim is R$560,674. No reserve has been recorded for this claim,
since the Company believes, based on advice from its legal counsel, that
it has a meritorious defense to such claim and, consequently, does not
expect to incur losses related thereto.
(ii) Income and social contribution taxes on post retirement benefits
On October 11, 2001, the Brazilian Federal Tax Authorities (Secretaria da
Receita Federal) issued an assessment notice relating to a R$222,133
discrepancy with respect to tax credits recorded by CEMIG in 2001 that
had been partially recovered during the year. These credits result from
the change in accounting method for recording post retirement benefit
liabilities, as required by CVM Deliberation No. 371/00. CEMIG is
defending the tax assessment notice administratively against the tax
authorities. Due to a legal determination in such appeals, the Company
contracted guarantee insurance (seguro garantia) of R$66,724, for a two
year period starting in May 2002, representing 30% of the amount claimed.
This insurance does not transfer, from CEMIG to others, the risk of
eventual future obligations. No reserve has been recorded as a result of
this notice, since the Company, based on advice from its legal counsel,
believes that the procedures which generated the tax credits are legally
sound.
The tax credits mentioned in the prior paragraph were offset by CEMIG
against federal tax obligations in 2001 and 2002. Due to this offset, the
Secretaria da Receita Federal issued an assessment notice, in the amount
of R$120,334. No reserve has been recorded for this claim, since the
Company believes, based on advice from its legal counsel, that the
procedures adopted are legally sound.
22
Item 9
(iii) COFINS
The Company began contesting the payment of COFINS (tax on revenue)
beginning in 1992. As a result of an unfavorable court ruling, the
Company paid R$239,266 of COFINS tax on July 30, 1999. The Federal
Government is claiming that the Company owes approximately R$119,795 in
additional fines and interest relating to the non payment of COFINS. The
Company is contesting such claims. No reserve has been recorded for this
claim, since the Company believes, based on advice from its legal
counsel, that it has a meritorious defense against such claim and,
consequently, does not expect to incur losses related thereto.
(iv) Regulatory agency acts
ANEEL has a regulatory proceeding pending against CEMIG claiming that
CEMIG owes the Federal Government R$146,099, subject to updating based on
SELIC, because of a miscalculation of credits in the amount of the
cumulative rate deficit (CRC) applied to reduce amounts owed to the
Federal Government. On October 31, 2002, ANEEL determined that CEMIG must
pay the above amount, without monetary variation, partially accepting the
defense made by CEMIG. The Company, based on the opinion of legal
counselors, believes that it has a meritorious defense against such claim
and has therefore recorded no reserve in respect thereto.
(v) Civil lawsuits - Consumers
Various consumers brought civil class action claims against CEMIG
contesting rate adjustments applied in prior years, including the special
rate adjustment and the Emergency Capacity Charge (Encargo de Capacidade
Emergencial) applied starting in 2002. The Company, based on the opinion
of legal counselors, believes that it has a meritorious defense to such
claims and has therefore recorded no reserve.
18) EMPLOYEE POST RETIREMENT BENEFITS
Since 1973, the Company has been the sponsor of Fundacao Forluminas de
Seguridade Social FORLUZ, a non profit entity with the purpose of providing
its associates, participants and their dependants with additional income to
supplement the government pension, in accordance with the pension plan to
which they are linked.
FORLUZ offers its associates the following supplementary pension plans:
o Mixed Benefit Plan - A defined contribution plan for normal
retirement and a defined benefit plan for coverage of active
participant's disability and death. The Company's contribution is
equivalent to the associate's monthly basic contributions and is the
only plan available for new participants.
o Settled Benefit Plan - Includes all retired participants who opted for
this plan and the balances, at the option date, of active
participants who opted for migrating from the Defined Benefit Plan
to the above mentioned Mixed Benefit Plan.
o Defined Benefit Plan - Benefit plan adopted by FORLUZ up to 1998, in
which the Federal Government Social Security benefit is supplemented
in relation to the actual average salary of the employee's final
years of service in the Company.
In addition to the pension plans provided by FORLUZ, the Company also pays
part of the life insurance premium for its retirees and of the health care
plan for employees, retirees and their dependants. These plans are also
managed by FORLUZ.
23
Item 9
The changes in net post retirement liabilities recorded in accordance with CVM
Deliberation No. 371 are as follows:
Other
post-retirement
Pension plans benefits
------------- ---------------
Net liabilities as of June 30, 2002 1,405,105 488,631
Net periodic cost recorded in the income statement 37,239 17,010
Contributions paid (50,624) (1,656)
--------- -------
Net liabilities as of September 30, 2002 1,391,720 503,985
========= =======
Part of the deficit in FORLUZ's actuarial reserves in the amount of
R$1,428,910 as of September 30, 2002 (R$1,429,631 as of June 30, 2002) was
recognized as obligations payable by the Company. These obligations are being
amortized through monthly installments, through June 2024, calculated under
the fixed installment system ("Price Table"), subject to annual restatement in
accordance with the salary correction index for the Company's employees (not
including productivity) included in the defined benefit plan and subject to
IPCA IPEAD (indices) for other plans, plus 6% per year.
Health Care Plan changes - CEMIG and the unions agreed on changes to the
current health care plans, which altered the contribution criteria that CEMIG,
employees, and retirees are responsible for and the types of benefits covered
in each plan. Due to this agreement, CEMIG is responsible to make annual
payments in the amount of R$32,600, monetarily updated by the IGP M, to cover
health costs of employees and retirees. The implementation of these changes
will take place as of January 1, 2003.
19) SHAREHOLDERS' EQUITY
The change in shareholders' equity is as follows:
Balance as of June 30, 2002 5,887,520
Reversal of dividends 400
Net loss for the quarter ended September 30, 2002 (256,109)
---------
Balance as of September 30, 2002 5,631,811
=========
In September 1999, the State of Minas Gerais filed a lawsuit seeking to
nullify the shareholders' agreement signed in 1997 with Southern Electric
Brasil Participacoes Ltda.. On August 7, 2001, the Minas Gerais State Court of
Appeals upheld the March 2000 lower court ruling declaring the shareholders'
agreement null and void. Southern Electric Brasil Participacoes Ltda. appealed
the decision which was rejected by the Minas Gerais State Court of Appeals on
October 9, 2001. Southern Electric Brasil Participacoes Ltda. has appealed the
Court's latest decision.
24
Item 9
20. ELECTRICITY SALES
The composition of electricity sales to final customers is as follows:
Consolidated
-----------------------------------------------------------------------------------
(Not reviewed by accountants)
----------------------------------------------------
No. of consumers MWh R$
----------------------- ------------------------ ----------------------
Nine months ended Nine months ended Nine months ended
September 30, September 30, September 30,
----------------------- ------------------------ ----------------------
2002 2001 2002 2001 2002 2001
--------- --------- --------- --------- --------- ---------
Residential 4,586,863 4,408,866 4,710,103 5,099,463 1,275,029 1,253,810
Industrial 67,668 67,137 16,425,089 16,416,361 1,601,054 1,383,796
Commercial 512,666 496,638 2,415,082 2,532,111 568,137 512,140
Rural 332,427 318,251 1,230,838 1,234,615 179,967 157,673
Public authorities 43,031 41,160 336,852 366,856 75,747 70,241
Public lighting 2,661 2,783 657,449 656,752 94,568 82,415
Public services 6,770 6,475 707,623 708,673 93.491 82,355
Own consumption 1,358 1,408 37,032 39,080 - -
Unbilled, net - - - - 54,868 (55,146)
--------- --------- ---------- ---------- --------- ---------
5,555,476 5,344,749 26,520,068 27,055,942 3,942,861 3,489,315
Billed supply 4 4 244,117 487,046 15,168 27,091
Unbilled supply - - - - 473,964 28,412
--------- --------- ---------- ---------- --------- ---------
Total 5,553,448 5,342,722 26,764,185 27,540,957 4,431,993 3,542,787
========= ========= ========== ========== ========= =========
Company
-----------------------------------------------------------------------------------
(Not reviewed by accountants)
----------------------------------------------------
No. of consumers MWh R$
----------------------- ------------------------ ----------------------
Nine months ended Nine months ended Nine months ended
September 30, September 30, September 30,
----------------------- ------------------------ ----------------------
2002 2001 2002 2001 2002 2001
--------- --------- --------- --------- --------- ---------
Residential 4,586,863 4,408,866 4,710,103 5,099,463 1,275,029 1,253,810
Industrial 67,666 67,135 15,850,605 15,947,339 1,571,546 1,358,279
Commercial 512,666 496,638 2,415,082 2,532,111 568,137 512,140
Rural 332,427 318,251 1,230,838 1,234,615 179,967 157,673
Public authorities 43,031 41,160 336,852 366,856 75,747 70,241
Public lighting 2,661 2,783 657,449 656,752 94,568 82,415
Public services 6,770 6,475 707,623 708,673 93,491 82,355
Own consumption 1,358 1,408 37,032 39,080 - -
Unbilled, net - - - - 54,868 (55,146)
--------- --------- ---------- ---------- --------- ---------
5,555,474 5,344,747 25,945,584 26,586,920 3,913,353 3,463,798
Billed supply 4 4 244,117 487,046 15,168 27,091
Unbilled supply - - - - 473,964 28,412
--------- --------- ---------- ---------- --------- ---------
Total 5,553,446 5,342,720 26,189,701 27,071,935 4,402,485 3,517,270
========= ========= ========== ========== ========= =========
The unbilled supply revenue refers to CEMIG's reimbursement right to the
difference between the amount to be paid for energy purchased on the MAE and
R$49.26 (Note 11).
25
Item 9
21) OTHER OPERATING REVENUES
Consolidated Company
------------------------- ------------------------
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- --------- ----------- ---------
Use of basic transmission network 134,461 114,219 134,461 114,219
Gas sales 102,879 72,030 - -
Fuel consumption quota 27,216 55,015 27,216 55,015
Regulated services 5,395 6,700 5,395 6,700
Services rendered 11,938 11,341 11,938 11,341
Rent and leasing 13,258 8,789 13,258 8,789
Other 9,163 915 1,429 276
------- ------- ------- -------
304,310 269,009 193,697 196,340
======= ======= ======= =======
22) DEDUCTIONS FROM OPERATING REVENUES
Consolidated Company
------------------------- ------------------------
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- --------- ----------- ---------
State VAT (ICMS) on sales to final consumers 839,491 746,927 833,385 743,095
Tax on billing - COFINS 148,441 111,945 144,176 108,945
Global reserve for reversion quota - RGR 109,741 77,447 109,284 77,021
Tax on billing - PASEP 41,912 24,250 40,988 23,604
Emergency capacity charge 44,602 - 44,299 -
Other 358 204 276 195
--------- ------- --------- -------
1,184,545 960,773 1,172,408 952,860
========= ======= ========= =======
Starting in 2002, new rates were established to be prorated among final
consumers of electric energy, related to the acquisition of energy and
contracted generation capacity by CBEE (The Brazilian Emergency Energy
Trader). These charges were fully transferred to tariffs and recorded as a
part of electricity sales, billed directly to final consumers.
The billing of the emergency capacity charge was suspended in the period from
July 2, 2002 to October 8, 2002, due to a legal injunction granted for a civil
claim.
23) ELECTRICITY PURCHASED FOR RESALE
Consolidated and Company
------------------------------
Nine months ended
September 30,
------------------------------
2002 2001
------------- -------------
Itaipu Binacional (through FURNAS) 727,705 717,014
Energy traded on spot market - MAE 564,538 -
Initial contracts 110,639 95,444
Special rate adjustment - transfer to generators 45,330 -
Other 6,829 2,547
--------- -------
1,455,041 2,547
========= =======
ANEEL reduced the price of energy acquired from Itaipu by 13.18% from
US$20.1988 to US$17.5374 per kW, effective October 23, 2002.
The energy traded on the spot market in 2001 was accrued only in the fourth
quarter of 2001, since information from the MAE necessary to record the
estimates only became available at that time.
26
Item 9
24) OTHER EXPENSES
Consolidated Company
------------------------- ------------------------
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- --------- ----------- ---------
Fuel consumption quota 27,994 55,371 27,994 55,371
Rentals and leasing 11,340 9,112 11,082 9,112
Labor indemnity 3,739 4,741 3,739 4,741
Grants and donations 10,467 8,976 10,467 8,976
Advertising 15,257 19,908 15,230 19,908
ANEEL inspection fee 8,640 9,832 8,529 9,832
Own consumption - Electric energy 8,486 6,570 7,493 6,570
Insurance 1,085 7,499 1,048 7,499
MAE contribution 5,696 8,097 5,696 8,097
Technological and scientific national fund 7,197 7,435 7,003 7,435
Other taxes (real estate, vehicle, etc.) 3,321 2,635 3,284 2,635
General expenses 15,243 (4,503) 10,182 (6,006)
------- ------- ------- -------
118,465 135,673 111,747 134,170
======= ======= ======= =======
The fuel costs incurred for the purpose of electricity generation are
reimbursed by Centrais Eletricas Brasileiras S.A. ELETROBRAS and are
recorded as other operating revenues.
25) FINANCIAL INCOME (EXPENSES)
Consolidated Company
------------------------- ------------------------
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
----------- --------- ----------- ---------
Financial income:
Investment income earned 196,829 62,506 188,695 57,962
Late charges on past-due electricity bills 29,479 34,373 29,479 34,373
Interest on receivable from Minas Gerais State Government 128,864 84,996 128,864 84,996
Monetary restatement on receivable from Minas Gerais State
Government 50,822 101,286 50,822 101,286
Renegotiation of industrial consumer debt - 11,924 - 11,924
Monetary restatement on recoverable taxes 4,285 16,688 4,259 16,688
Monetary restatement on special rate adjustment 199,190 - 199,190 -
Monetary restatement - Electricity supply 70,654 - 70,654 -
Foreign exchange gains 81,914 25,971 81,912 25,971
Taxes on financial income (PASEP and COFINS) (30,208) (12,404) (30,064) (12,404)
Other 27,677 6,912 27,533 6,892
---------- -------- ---------- --------
759,506 332,252 751,344 327,688
---------- -------- ---------- --------
Financial expenses:
Interest on loans and financing (184,117) (136,880) (171,743) (136,880)
Monetary restatement - electricity suppliers (54,747) - (54,747) -
Foreign exchange losses (969,505) (510,474) (969,421) (482,399)
Monetary restatement on loans and financing (70,060) (17,013) (25,605) (17,013)
Financial transaction tax ("CPMF") (18,842) (16,850) (17,801) (16,291)
Interest and fines on taxes (11,659) (10,582) (11,659) (10,582)
Provision for valuation of marketable securities (70,579) (3,401) (70,579) (3,401)
Advance billings of electric power (9,717) - (9,717) (26,061)
Interest on capital (120,000) - (120,000) -
Other (7,126) (2,321) (6,462) (1,451)
---------- -------- ---------- --------
(1,516,352) (697,521) (1,457,734) (694,078)
---------- -------- ---------- --------
(756,846) (365,269) (706,390) (366,390)
========== ======== ========== ========
Financial charges and inflationary/exchange effects on financing of
construction in progress during the nine month period in 2002, in the amounts
of R$41,626 and R$69,621, respectively, were transferred to Property, plant
and equipment, and Investments (R$414 of financial charges and R$355 of
inflationary/exchange effects during the nine month period in 2001).
The Board of Directors approved, on May 21, 2002, payment of interest on
capital, in the amount of R$120,000. The manner and date of the payment shall
be defined at a later time.
27
Item 9
26) PRINCIPAL TRANSACTIONS WITH RELATED PARTIES
September 30, 2002 June 30, 2002
------------------------ ------------------------
Minas Gerais Minas Gerais
State State
Government FORLUZ Government FORLUZ
------------ -------- ------------ --------
ASSETS
Current assets
Accounts receivable 11,523 - 8,427 -
Recoverable taxes
State VAT - ICMS 12,179 - 22,958 -
Other
Advances for welfare benefits - 12,790 - 20,285
Noncurrent assets
Receivable from Minas Gerais State Government (Note 8) 626,466 - 544,106 -
Other
State VAT recoverable - 18,843 - 18,843 -
State VAT recoverable - Complementary Law No.102 59,965 - 47,433 -
LIABILITIES
Current liabilities
Taxes payable
State VAT - ICMS 116,793 - 80,361 -
Dividends and interest on capital 28,136 - 78,464 -
Employee post-retirement benefits - 158,149 - 167,015
Other
Transfer of contributions - 4,091 - 14,871
Long term liabilities
Debentures 22,500 - - -
Employee post-retirement benefits - 1,737,556 - 1,726,721
Nine months ended Nine months ended
September 30, 2002 September 30, 2001
------------------------ ------------------------
INCOME STATEMENT
Electricity sales to final customers 17,071 - 15,799 -
Deductions from operating revenues - State VAT (ICMS) (833,385) - (743,095) -
Employee post-retirement benefits - (162,748) - (150,794)
Personnel expenses - (24,419) - (22,672)
Financial income -
Monetary restatement and interest on receivable from
Minas Gerais State Government (Note 8) 179,686 - 186,282 -
Non-operating expenses -
Allowance for losses on receivable from Minas Gerais
State Government (Note 8) (1,045,325) - - -
The Company believes that its transactions with related parties are made on an arm's length basis.
28
Item 9
27) FINANCIAL INSTRUMENTS
(a) The financial instruments used by CEMIG and its subsidiaries, all recorded
on the financial statements, are managed through monitoring policies and
operational strategies focused on liquidity, profitability and safety. The
Company operates with banks which meet financial strength and trustworthiness
guidelines. The Company's control policy includes continually comparing rates
contracted with market rates. The Company's short term investments related to
marketable securities issued by third parties, as of September 30, 2002, are
as follows:
o CEMIG and its subsidiaries have debentures issued by financial
institutions, in the amounts of R$26,136 and R$11,004, respectively.
These securities have immediate call clauses exercisable by the
Company and its subisidiaries, without penalty or loss. These
securities have interest rates based on the interbank deposit - CDI
rates.
o The swap transactions of CEMIG's subsidiaries are purchased from
financial institutions, in the amount of R$20,713, through the
transfer of public or private securities issued by third parties.
These securities have repurchase clauses. The interest rate is based
on the CDI. CEMIG has the right to call for early redemption of
these securities without penalty or loss.
o Hedge transactions are contracted by CEMIG to reduce the exchange
rate risk at the US dollar to the Brazilian real, in the amount of
US$8,157, equivalent to R$31,771. The gain or loss on these
operations arising from the differences between the actual exchange
variation and the exchange variation agreed with financial
institutions are recognized on the accrual basis.
(b) The Company has Brazilian National Treasury Notes acquired from the State
Government of Minas Gerais, with final maturity on April 15, 2024, subject to
restatement based on the U.S. dollar exchange variation and interest on the
restated face value of 5.50% (to April 14, 1998), 5.75% (from April 15, 1998
to April 14, 2000) and 6.00% per year (from April 15, 2000 to maturity).
September 30,
2002
-------------
Face value 235,491
Restated cost 141,294
Allowance for decrease in market value (84,649)
-------
56,645
=======
These securities are recorded at market value, determined based on a quotation
from ANDIMA (National Association of Open Market Institutions). This asset is
recorded under Marketable securities in noncurrent assets.
28. CORPORATE REORGANIZATION
Currently, CEMIG's electricity generation, transmission and distribution
operations are vertically integrated into and directly operated by CEMIG.
However, pursuant to CEMIG's principal concession agreements and in accordance
with certain changes in the regulatory framework of the Brazilian electricity
sector, CEMIG has to restructure its business, resulting in the "unbundling"
of its generation, transmission and distribution operations into separate
subsidiaries, each wholly owned by CEMIG. According to the concession
agreements, CEMIG was to have completed the reorganization process by December
31, 2000.
ANEEL later granted the Company an extension to September 21, 2002 to complete
the unbundling process.
The Minas Gerais State Government, the major shareholder, considering that the
"unbundling" must be approved in advance by the State Legislature, submitted
to the Legislature, on March 2, 2001, a bill proposing the restructuring of
the Company into three companies, but as this legislation has not yet been
adopted, the reorganization process has not yet been completed. Additionally,
The Company has submitted an extension request to ANEEL, which has not yet
been answered.
29
Item 9
On November 11, 2002, ANEEL fined the Company the amount of R$5,507, because
CEMIG has not concluded the "unbundling". No reserve has been recorded for
this claim, since the Company believes, based on advice from its legal
counsel, that it has a meritorious defense against such claim.
29) SUBSEQUENT EVENTS
Financial settlement in Wholesale Energy Market - MAE
Due to changes in MAE accounting rules, the amounts assigned to CEMIG changed
during the period between March and December 2002, representing an increase in
the Company's exposure of approximately 100%, mainly due to the application of
ANEEL Resolution 447, of August 25, 2002, which determined that CEMIG should
be considered as a distribution concessionaire only, for the purpose of the
recording and settlement of MAE transactions, not considering its generation
activities which represent production of approximately 11% of the energy
generated in the Brazilian system.
On December 19, 2002, CEMIG sent a letter to the Mines and Energy Minister,
requesting certain actions in order for it to obtain the BNDES financing to
pay the MAE obligations and suggesting a review of the discriminatory criteria
prescribed in ANEEL Resolution 447, in order to consider CEMIG as both a
distributor and a generator and to allow its participation in the MAE
settlement.
On December 20, 2002, ANEEL issued Resolution 763 which allowed MAE to proceed
with the partial and conditional financial settlement on December 26 and 27,
2002. Until that time, the pending issues concerning CEMIG's participation in
the MAE settlement had not been resolved.
As a result of the aforementioned, CEMIG filed a claim in the federal court,
which granted an injunction, on December 25, 2002, determining that CEMIG be
considered as both a distributor and a generator for purposes of recording of
MAE transactions, in compliance with CEMIG's concession agreements and the
General Agreement of the Electricity Sector, to which CEMIG had agreed.
On December 30, 2002, however, ANEEL succeeded on a claim that aimed to
suspend the MAE settlement, and on the same day, without prior notice, proceed
with the settlement with funds deposited by various companies. This settlement
ignored CEMIG's specific situation and the court order determining the
recalculation of the transactions involving the Company, essential to allow
the Company to participate in the settlement through the BNDES financing.
Therefore CEMIG issued a formal notification to MAE in order to release it
from its obligations and protect its rights, since the Company's participation
in the settlement was not possible.
CEMIG has been informed by MAE of its new liability, which represented a R$122
million decrease from the previous liability. As a consequence, CEMIG
requested BNDES to immediately make the funds available to allow it to take
part in the MAE settlement, which has not yet occurred. Therefore, the Company
is still awaiting the BNDES funds in order to allow it take part in the MAE
settlement.
30
30) STATEMENTS OF CASH FLOWS
The individual (Company) and consolidated statements of cash flows for the
nine month periods ended September 30, 2002 and 2001 are presented for
additional analysis and are not required as part of the basic interim
financial statements.
The financial statements of Infovias, which were previously consolidated based
on the proportionate consolidation method, were totally consolidated this
quarter. Therefore, to ensure comparative information with the statement of
cash flows for the period ended September 30, 2002, the consolidated statement
of cash flows for the period ended September 30, 2001 was prepared including
the full consolidation of Infovias.
Consolidated Company
-------------------------------- -------------------------------
Nine month periods Nine month periods
ended September 30, ended September 30,
-------------------------------- -------------------------------
2001 2001
2002 (Reclassified) 2002 (Reclassified)
------------ -------------- ------------ --------------
CASH FLOWS FROM OPERATIONS:
Net loss for the period (1,150,905) (194,621) (1,150,905) (194,621)
Items not affecting cash -
Depreciation and amortization 408,388 383,805 387,376 375,334
Special rate adjustment (268,913) - (268,913) -
Electricity supply (464,976) - (464,976) -
Purchased energy from MAE - suppliers 65,242 - 65,242 -
Disposals of property, plant and equipment, net 16,205 83,304 16,205 83,304
Equity in subsidiaries - - 15,778 (14,321)
Interest and monetary variations, net 282,742 48,037 234,027 33,028
Deferred income and social contribution taxes (245,448) (94,750) (220,424) (93,516)
Operating provisions 91,010 6,748 91,010 6,748
Allowance for losses on receivable from Minas Gerais
State Government negotiation 1,045,325 - 1,045,325 -
Employee post retirement benefits 162,748 150,794 162,748 150,794
Other (10,949) (7,925) - (8,458)
---------- -------- ---------- --------
(69,533) 375,392 (87,507) 338,292
---------- -------- ---------- --------
(Increase) Decrease in assets
Accounts receivable (290,261) 134,058 (290,797) 136,512
Consumers - Special rate adjustment 183,203 - 183,203 -
Recoverable taxes (39,215) 8,666 (28,884) 17,503
Other current assets (74,791) (47,924) (56,572) (46,172)
Electricity Rationing Plan Bonus paid to
consumers and adoption costs incurred in excess of
surcharge applied to consumers (87,565) (34,256) (87,565) (34,256)
ANEEL reimbursement of bonus paid to consumers and
certain adoption costs incurred in excess of
surcharge applied to consumers 88,066 - 88,066 -
Prepaid expenses - CVA (159,028) - (159,028) -
Escrow deposits (49,474) - (49,474) -
Other noncurrent assets (36,195) (28,534) (39,608) (27,782)
---------- -------- ---------- --------
(465,260) 32,010 (440,659) 45,805
---------- -------- ---------- --------
Increase (Decrease) in liabilities -
Suppliers 702,449 66,151 703,511 65,226
Taxes payable 254,640 97,549 239,947 86,565
Payroll and related charges 16,193 33,205 15,655 33,085
Regulatory charges 17,140 (18,261) 17,398 (18,695)
Loans and financing 324,274 219,762 314,387 208,940
Employee post-retirement benefits (120,780) (105,273) (120,780) (105,273)
Other (16,747) 29,425 (19,330) 29,196
---------- -------- ---------- --------
1,177,169 322,558 1,150,788 299,044
---------- -------- ---------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 642,376 729,960 622,622 683,141
---------- -------- ---------- --------
31
Item 9
Consolidated Company
-------------------------------- -------------------------------
Nine month periods Nine month periods
ended September 30, ended September 30,
-------------------------------- -------------------------------
2001 2001
2002 (Reclassified) 2002 (Reclassified)
------------ -------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITY
Proceeds from long-term financing 287,290 263,411 287,290 263,411
Payments on loans and financing (287,949) (273,690) (275,035) (273,690)
Special liabilities 113,141 123,271 113,141 123,271
Advanced billings of electric power (42,596) (35,060) (42,596) (35,060)
Advance for future capital increase 11,526 - - -
Dividends and interest on capital (176,571) (169,543) (176,374) (169,548)
---------- -------- ---------- --------
(95,159) (91,611) (93,574) (91,616)
---------- -------- ---------- --------
TOTAL CASH PROVIDED 547,217 638,349 529,048 591,525
---------- -------- ---------- --------
CASH USED IN INVESTING ACTIVITIES
Additions to investments 293,392 93,502 372,567 120,044
Increase in property, plant and equipment 528,509 348,552 450,565 295,511
Increase in deferred charges 15,187 154 - -
---------- -------- ---------- --------
837,088 442,208 823,132 415,555
---------- -------- ---------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (289,871) 196,141 (294,084) 175,970
---------- -------- ---------- --------
CHANGES IN CASH AND CASH EQUIVALENTS
At beginning of the period 705,844 245,108 642,492 219,281
At end of the period 415,973 441,249 348,408 395,251
---------- -------- ---------- --------
(289,871) 196,141 (294,084) 175,970
========== ======== ========== ========
32
Item 10
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS of Results of COMPANY Operations: FOR THE
NINE Month Period Ended SEPTEMBER 30, 2002 Compared to THE NINE Month Period
Ended SEPTEMBER 30, 2001
(Amounts expressed in thousands of Brazilian reais, unless otherwise indicated)
Net Income (Loss)
The Company had a net loss of R$1,150,905 in the nine month period ended
September 30, 2002, equivalent to a loss of R$7.10 per thousand shares,
compared to a net loss of R$194,621 in the nine month period ended September
30, 2001, equivalent to a loss of R$1.22 per thousand shares.
The 2002 results were substantially impacted by the allowance for losses
recognized on receivables from the Minas Gerais State Government, in the
amount of R$1,045,325, and the devaluation of the Brazilian real against the
U.S. dollar, generating net foreign exchange losses in the amount of
R$887,509.
Change in accumulated results
[OBJECT OMITTED]
[Comparison of the Company's change in accumulated results (in thousands of
Brazilian reais) for the nine-month period ended September 30, 2002 compared to
September 30, 2001.]
Electricity sales
Electricity sales increased 25.17% in the nine month period ended September
30, 2002 compared to the nine month period ended September 30, 2001. This
increase was due primarily to:
o rate increases of 16.50% starting in April 2001 (full effect in 2002) and
10.51% starting April 8, 2002;
o additional revenue related to reimbursement for energy purchased on the
spot market (MAE);
o 2.40% decrease in electricity volume to sold final customers.
Item 10
GWH billed - final customers
[OBJECT OMITTED]
[Comparison of the Company's electricity sales, in GWH for the first, second
and third quarters of 2002, as compared to the same periods in 2001.]
Electricity sales to final customers
As shown in the graphic above, the Electricity Rationing Program in force
until February 2002 impacted electricity sales to final customers in the first
quarter of 2002. Despite the increase in the volume of electricity sold since
the second quarter of 2002, the new habits of consumers and Brazil's economic
downturn did not permit energy sales to return to the same levels noted before
the Electricity Rationing Program. Therefore, electricity sales reached
25,909GWh in the nine month period ended September 30, 2002, compared to
energy sales of 26,546GWh in the nine month period ended September 30, 2001, a
decrease of 2.40%. The most representative markets, industrial, residential
and commercial, decreased 0.61%, 7.64% and 4.62%, respectively.
Electricity Supply
As a result of changes in certain assumptions adopted to calculate the rights
and obligations arising from energy traded in the spot market (MAE), the
Company recorded, in the third quarter of 2002, additional revenue of
R$435,277, corresponding to CEMIG's right of reimbursement for the difference
between the amounts payable to MAE and the price of R$49.26, as defined in a
specific regulation.
Special rate adjustment
In accordance with the General Agreement of the Electricity Sector, CEMIG
recorded in the nine month period ended September 30, 2002, additional revenue
for the special rate adjustment for billing losses and a portion of expenses
for energy traded on the spot market (MAE), arising from the Electricity
Rationing Plan, in the amount of R$268,913.
Operating expenses
Since October 26, 2001, the differences between the sum of the uncontrollable
costs (Parcel "A") considered in the computation for regular rate adjustments
and the actual disbursements made by the Company are being compensated in
subsequent regular rate adjustments and are recorded in current and noncurrent
assets as prepaid expenses. After the regular rate adjustment is allowed, the
expenses are transferred monthly to income on a linear amortization basis.
Operating expenses increased 24.64% compared to the same period of the prior
year, in the amount of R$645,930, principally as a result of increases in
electricity purchased for resale. The main variations in expenses are
described below:
Item 10
Personnel
The Company's Voluntary Termination Program cost accrual, in the amount of
R$32,541, recorded in income for the nine month period ended September 30,
2001, and higher amounts transferred to Property, Plant and Equipment under
Construction in Progress in the current year explain the decrease of 8.28% in
personal expense.
Nine month period ended September 30,
-------------------------------------
2002 2001 %
------------------- ----------------- ---------------
Salary and related charges 395,830 387,241 2.22
Post retirement benefits 24,419 22,672 7.71
Welfare benefits 39,110 45,130 (13.34)
------------------- ----------------- ---------------
459,359 455,043 0.95
Amounts transferred to construction costs (69,185) (60,257) 14.82
------------------- ----------------- ---------------
390,174 394,786 (1.17)
Voluntary Termination Program 1,753 32,541 (94.61)
------------------- ----------------- ---------------
391,927 427,327 (8.28)
=================== ================= ===============
Electricity purchased for resale
Electricity purchased for resale increased 78.53% due basically to the
increase in expenses for energy purchased in the spot market (MAE) for the
nine month period ended September 30, 2002 and additionally, to ANEEL's review
of certain assumptions adopted to calculate the amounts to be paid relating to
energy purchased in the spot market (MAE) during the electricity rationing
period. In the prior year period, since the information related to spot market
(MAE) transactions was not available, the expenses relating to energy traded
on the spot market were recorded only in December 2001. The electricity
purchased for resale increase in the third quarter of 2002, in the amount of
R$454,582, was partially offset by an energy supply increase in the amount of
R$435,277, as previously described.
Outside services
These expenses increased 6.81% mainly due to the adjustment of prices for
service contracts, related to meter reading, delivery of bills to consumers
and collection services.
Employee post-retirement benefits
Employee post-retirement benefit expenses refer basically to the accrual of
the net periodic cost, defined by an independent actuarial computation.
Financial income (expenses)
The main factors that impacted the financial items are as follows:
o Foreign net exchange losses of R$887,509 in the nine month period ended
September 30, 2002 compared with foreign net exchange losses of R$456,428
in the nine month period ended September 30, 2001. In the nine month
period ended September 30, 2002, the Brazilian real devalued 67.85%
against the U.S. dollar, compared to 13.21% devaluation in the same
period of 2001.
o An increase in financial income as a result of the monetary updating on
the special rate adjustment, based on the SELIC (Central Bank overnight
rate), in the amount of R$199,190.
o An increase of R$130,733 in income from temporary cash investments due to
higher cash volume in 2002 and income from cash investments denominated
in U. S. dollars.
o Interest on capital to be paid next year, recorded under Financial
expenses, in the amount of R$120,000.
Item 10
o Provision for devaluation to market value on National Treasury notes of
R$70,579 compared to a provision of R$3,401 in the prior year due to the
greater discount imposed by financial markets on transactions involving
long term bonds.
Due to recognition of the allowance for losses on receivables from the Minas
Gerais State Government in 2002, CEMIG has recorded interest and monetary
restatement only for the third contractual amendment signed with the Minas
Gerais State Government in October 2002. See more information in Note 8 of the
quarterly information as of September 30, 2002.
Extraordinary loss
The Company has recognized an allowance for losses on accounts receivable
under the contract for the recoverable deficit account (CRC) with the Minas
Gerais State Government related to the second amendment signed in October
2002, in the amount of R$1,045,325. The allowance has been recognized since
there is no additional guarantee in such amendment that assures realization of
the recorded asset.
Other non operating expenses, net
The other non operating expenses decreased due to higher losses in 2001
related to economic feasibility studies and projects and to losses recorded in
the amount of the R$32,969 related to the Machado Mineiro power plant.
Nine month period ended September 30,
-------------------------------------
2002 2001 %
------------------- ----------------- ---------------
Net losses on deactivation and disposal of assets 10,881 32,746 (66.77)
FORLUZ - Administrative costs 6,544 6,476 1.05
Losses on projects 444 21,778 (97.96)
Other 1,093 546 100.18
------------------- ----------------- ---------------
18,962 61,546 (69.19)
=================== ================= ===============
Income and social contribution taxes
In the nine month period ended September 30, 2002, the Company recorded
credits of R$112,279 on a pre tax loss of R$1,361,318 compared to credits of
R$93,915 on pre tax loss of R$274,485 in the nine month period ended September
30, 2001.
Item 10
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF CONSOLIDATED OPERATIONS:
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 2001
Management's discussion and analysis of results of the Company operations also
substantially covers the results of consolidated operations for the periods
presented.
Item 10
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
OTHER RELEVANT INFORMATION
Information not reviewed by independent accountants
CORPORATE GOVERNANCE
CEMIG has sought to implement the best corporate governance practices in order
to optimize its performance, through improvements in information disclosed to
the markets and to all interested parties, including investors, employees and
creditors, facilitating its access to capital. These practices mainly involve
transparency, equitable treatment of shareholders being accountable for the
Company's actions.
Highlighted below are practices that CEMIG has already adopted:
o The notices of general shareholders' meetings set forth in detail
the meeting's agenda, including relevant items suggested by
shareholders, and such meetings are held at convenient dates and
times.
o The share register, which sets forth the number of shares owned by
each shareholder, can be obtained at any time for a service charge,
in accordance with Article 100 of Law 6,404 of December, 15, 1976.
o Documentation necessary to evidence the ownership of shares of CEMIG
is accurately maintained, in order to permit the participation of
its shareholders or their representatives at shareholders' meetings.
o The Board of Directors, which has a unified term, has 11 technically
qualified members, 2 of whom have finance and accounting experience.
The Board of Directors seeks to advise CEMIG's executive officers to
maximize its return on assets in order to aggregate value for the
enterprise.
o The shareholders' agreement is accessible to all shareholders at
CEMIG's headquarters.
o Preferred shares, as set forth in CEMIG's by laws, are entitled to a
yearly 10% minimum dividend computed using par value. These shares
become entitled to vote in the event that CEMIG fails to pay
dividends during 3 consecutive years.
o On a quarterly basis, the Company discloses reports prepared
together with the financial statements to its Fiscal Council, which
analyzes and discusses the financial statements, including the
related internal and external risk factors.
o In order to avoid conflicts of interest, the Board of Directors does
not authorize its public accountants to provide consulting or other
services to CEMIG.
o CEMIG provides to the members of its Fiscal Council all information
that may be needed to analyze the Company's main issues.
o The Company adopts, in addition to the financial statements prepared
in accordance with accounting practices emanating from Brazilian
corporate law and with accounting standards established by the CVM
Comissao de Valores Mobiliarios (Brazilian Securities Commission),
generally accepted accounting principles in the United States, or US
GAAP, in order to prepare financial statements to be filed with the
United States Securities and Exchange Commission - SEC.
o The memorandum of suggestions on accounting and internal control
procedures provided to CEMIG by its public accountants is submitted
to the Board of Directors and to the Fiscal Council in order to
evaluate the proposals and adoption of applicable measures.
Item 10
o Transactions with related parties are disclosed in CEMIG's financial
statements and are conducted on an arm's length basis.
o CEMIG's investor relations policy seeks to provide access to a
wide range of investors through:
o CEMIG's Internet home page, which is accessible to all
investors and shareholders and contains material information
related to CEMIG and its operations.
o Broad dissemination of the disclosure of CEMIG's results.
o Live conferences accessible to everyone through CEMIG's
Internet home page.
o CEMIG has adopted Level 1 of the corporate governance standards
established by the Bolsa de Valores de Sao Paulo BOVESPA (Sao Paulo
Stock Exchange).
o CEMIG has listed depositary receipts on foreign stock exchanges, in
New York and Madrid.
o CEMIG regularly pays dividends to its shareholders in accordance
with the provisions of its by-laws.
In addition, CEMIG is considering the adoption of additional corporate
governance practices that will be disclosed on a timely basis.
Item 10
FINANCIAL DRIVERS
SHARE VALUE
(Expressed in Brazilian reais per thousand shares)
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, 2002 June 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Book value 40.19 42.92 40.59
--------------------------------------------------------------------------------------------------------------
Market value Common 20.76 29.79 24.80
Preferred 19.50 32.00 25.70
--------------------------------------------------------------------------------------------------------------
LIQUIDITY (excluding special liabilities)
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, 2002 June 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Current ratio Ratio 0.61 0.74 0.75
--------------------------------------------------------------------------------------------------------------
Overall liquidity Ratio 0.68 0.68 0.70
--------------------------------------------------------------------------------------------------------------
DEBT LEVEL (excluding special liabilities)
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, 2002 June 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Total assets % 59.56 54.43 43.67
--------------------------------------------------------------------------------------------------------------
Shareholders' equity % 147.28 119.46 77.52
--------------------------------------------------------------------------------------------------------------
Permanent assets % 100.21 86.64 62.78
--------------------------------------------------------------------------------------------------------------
PROFITABILITY
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, 2002 June 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Shareholders' equity % (20.44) (15.20) (3.02)
--------------------------------------------------------------------------------------------------------------
Operating margin % 11.51 16.71 5.04
--------------------------------------------------------------------------------------------------------------
Net margin % (25.89) (34.69) (6.27)
--------------------------------------------------------------------------------------------------------------
Return on property,
plant and
equipment % (15.86) (12.37) (2.57)
--------------------------------------------------------------------------------------------------------------
OPERATING INDICES
INSTALLED CAPACITY
--------------------------------------------------------------------------------------------------------------
September 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Installed capacity (in MW) 5,675 5,632
--------------------------------------------------------------------------------------------------------------
EFFICIENCY
--------------------------------------------------------------------------------------------------------------
For the nine-month period ended
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
MWh per employee MWh 3,332 2,350
--------------------------------------------------------------------------------------------------------------
Consumers per employee No. 484 470
--------------------------------------------------------------------------------------------------------------
Item 10
SERVICE QUALITY
--------------------------------------------------------------------------------------------------------------
For the nine-month period ended
--------------------------------------------------------------------------------------------------------------
Item Unit September 30, September 30,
2002 2001
--------------------------------------------------------------------------------------------------------------
Average time needed to restore electricity Hours 4.01 3.63
--------------------------------------------------------------------------------------------------------------
Electricity outage time - average per consumer Hours 8.39 7.70
--------------------------------------------------------------------------------------------------------------
Outages experienced - average per consumer No. 5.00 4.76
--------------------------------------------------------------------------------------------------------------
AVERAGE RATE
(Expressed in Brazilian reais per MWh)
--------------------------------------------------------------------------------------------------------------
For the nine-month period ended
--------------------------------------------------------------------------------------------------------------
Description September 30, 2002 September 30, 2001
--------------------------------------------------------------------------------------------------------------
Industrial 99.15 85.17
--------------------------------------------------------------------------------------------------------------
Residential 270.70 245.87
--------------------------------------------------------------------------------------------------------------
Commercial 235.25 202.26
--------------------------------------------------------------------------------------------------------------
Rural 146.22 127.71
--------------------------------------------------------------------------------------------------------------
Others 155.00 135.67
--------------------------------------------------------------------------------------------------------------
Final Consumers 148.93 132.48
--------------------------------------------------------------------------------------------------------------
SHAREHOLDERS WHICH OWN MORE THAN 5% OF VOTING CAPITAL
AS OF SEPTEMBER 30, 2002
---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS
----------------------------------------------------------------------------------------
Number of shares Minas Gerais % Southern Electric Brasil %
State Government Part. Ltda.
---------------------------------------------------------------------------------------------------------------
Common 36,116,291,643 50.96 23,362,956,173 32.96
---------------------------------------------------------------------------------------------------------------
Preferred 1,887,263,121 2.07 - -
---------------------------------------------------------------------------------------------------------------
TOTAL 38,003,554,764 23.44 23,362,956,173 14.41
---------------------------------------------------------------------------------------------------------------
OWNERS OF SOUTHERN ELECTRIC BRASIL PARTICIPACOES LTDA.
AS OF SEPTEMBER 30, 2002
----------------------------------------------------------------------------------------
Item Name Number of Sharequotas %
----------------------------------------------------------------------------------------
1 Cayman Energy Traders 321,480,876 91.75
----------------------------------------------------------------------------------------
2 524 Participacoes S/A 28,913,419 8.25
----------------------------------------------------------------------------------------
1 - Foreign Company
2 - Registered Company. Fundo Opportunity Alfa FIA has 99.99% interest of the 8.25%.
Item 10
CONTROLLING SHAREHOLDER, BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND
FISCAL COUNCIL MEMBERS INTEREST AS OF SEPTEMBER 30, 2002 AND 2001
------------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF SHARES
------------------------------------------------------------------------------------------------------------------------
September 30, 2002 September 30, 2001
-------------------------------------------------------------------
Common Preferred Common Preferred
-------------------------------------------------------------------
CONTROLLING SHAREHOLDER 36,116,291,643 1,887,263,121 35,413,734,262 1,850,550,863
BOARD OF DIRECTORS
Djalma Bastos de Morais - 13,400 - 13,140
Geraldo de Oliveira Faria - 5,866 - 5,752
Alexandre de Paula Dupeyrat Martins 10,198 1 10,000 1
Antonio Adriano Silva - 1 - 1
Ayres Augusto Alvares da Silva Mascarenhas - - 100,000 2,400,000
Marcelo Pedreira de Oliveira 5,099 - - -
Claudio Jose Dias Sales 1 - 1 -
Oderval Esteves Duarte Filho 5,099 - 5,000 -
Nelcy Pereira Pena - - - 1
Marco Antonio Rebelo Romanelli 1 - - -
Sergio Roberto Belisario - 1 - -
Sergio Lustosa Botelho Martins - - 5,000 -
David Travesso Neto 1 - 1 -
Ataide Vilela - 1 - 1
EXECUTIVE OFFICERS
Djalma Bastos de Morais - 13,400 - -
Guy Maria Villela Paschoal 2,854 - - -
Aloisio Marcos Vasconcelos Novais - - - -
Stalin Amorim Duarte - 106,544 - 104,472
Cristiano Correa de Barros 1 1,325,790 - -
Elmar de Oliveira Santana - - - -
FISCAL COUNCIL
Joao Pedrosa Castello - 12,644 - 12,399
Aristoteles Luiz Menezes Vasconcellos Drummond - - - -
Luiz Otavio Nunes West - - - -
Bruno Constantino Alexandre dos Santos - - - -
Ronald Gastao Andrade Reis - - - -
------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES AVAILABLE ON MARKET AS OF JUNE 30, 2002
----------------------------------------------------------------------------------------------------------------------
Common % Preferred % Total %
----------------------------------------------------------------------------------------------------------------------
09/30/2002 34,754,711,629 49 88,180,156,856 97 122,934,868,485 76
----------------------------------------------------------------------------------------------------------------------
Item 10
(Convenience Translation into English from the Original Previously Issued in
Portuguese)
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
--------------------------------------------
CHANGED INFORMATION DESCRIPTION
CVM letter, dated January 7, 2003, requested the filing of new quarterly
information as of June 30, 2002 to include the allowance for losses on
accounts receivable from the Minas Gerais State Government, as described in
Note 8. Therefore, the Company decided to also file new quarterly information
as of September 30, 2002, including such allowance.
Item 11
UNAUDITED
Companhia Energetica de Minas Gerais - CEMIG
Consolidated Financial Statements
September 30, 2002
F - 2
Item 11
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais)
A S S E T S
December 31,
September 30, 2001
2002 (Audited)
------------- --------------
CURRENT ASSETS:
Cash and cash equivalents (note 6) 268 218
Restricted investments (note 7) 315 602
Accounts receivable, net (note 8) 771 485
Accounts receivable - Use of basic transmission network 20 18
Deferred regulatory assets (note 3) 286 259
Recoverable taxes 132 86
Other 171 84
------ ------
1,963 1,752
------ ------
INVESTMENTS (note 10) 536 437
------ ------
PROPERTY, PLANT AND EQUIPMENT, NET (note 11) 10,021 9,841
------ ------
OTHER ASSETS:
Marketable securities - Available for sale 57 70
Deferred regulatory assets (note 3) 1,656 1,245
Receivable from Federal Government in respect of bonus paid and
rationing adoption costs incurred (note 4) 97 123
Restricted investments (note 7) 66 18
Deferred income taxes, net (note 5) 302 -
Account receivable from State Government (note 9) 626 451
Other 232 125
------ ------
3,036 2,032
------ ------
Total assets 15,556 14,062
====== ======
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 3
Item 11
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Expressed in millions of reais, unless otherwise indicated)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
September 30, 2001
2002 (Audited)
------------- --------------
CURRENT LIABILITIES:
Accounts payable to suppliers (note 12) 1,256 945
Payroll and related charges 113 97
Taxes payable (note 13) 271 219
Dividends and interest on capital 139 105
Current portion of long term financing (note 14) 1,112 451
Regulatory charges payable 69 52
Advanced billings of electric power - 42
Employee profit sharing 22 35
Other 63 66
------ ------
3,045 2,012
------ ------
LONG TERM LIABILITIES:
Long-term financing (note 14) 2,664 2,029
Employee post-retirement benefits (note 15) 1,681 1,627
Accrued liability for contingencies (note 16) 335 319
Accounts payable to suppliers (note 12) 418 364
Taxes payable (note 13) 201 -
Deferred income taxes, net (note 5) - 46
Surcharge applied to consumers (note 4) - 26
Other 108 94
------ ------
5,407 4,504
------ ------
MINORITY INTEREST 34 3
------ ------
SHAREHOLDERS' EQUITY:
Capital stock
Preferred - 91,210,523 thousand shares authorized, issued and
outstanding as of September 30, 2002 (89,436,237 thousand shares as
of December 31, 2001) 804 786
Common - 70,874,168 thousand shares authorized, issued and outstanding
as of September 30, 2002 (69,495,478 thousand shares as of December
31, 2001) 624 610
------ ------
1,428 1,396
Additional paid in capital 3,170 3,170
Appropriated retained earnings 3,101 3,133
Unappropriated retained earnings (loss) (385) 79
Accumulated other comprehensive loss (244) (235)
------ ------
7,070 7,543
------ ------
Total liabilities and shareholders' equity 15,556 14,062
====== ======
The accompanying condensed notes are an integral part of these consolidated balance sheets.
F - 4
Item 11
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Expressed in millions of reais, except share and per share amounts)
Nine months ended
September 30,
-----------------------------------
2002 2001
-------------- --------------
NET OPERATING REVENUES:
Electricity sales to final customers (note 18) 3,943 3,487
Regulatory extraordinary rate adjustment (note 3) 238 -
Electricity sales to the interconnected power system (note 18) 117 56
Use of basic transmission network 134 114
Other operating revenues 143 100
Taxes on revenues (note 18) (1,054) (884)
----------- -----------
Total net operating revenues 3,521 2,873
----------- -----------
OPERATING COSTS AND EXPENSES:
Electricity purchased for resale (note 19) (1,029) (815)
Natural gas purchased for resale (75) (53)
Use of basic transmission network (220) (205)
Depreciation and amortization (521) (479)
Personnel (377) (405)
Regulatory charges (note 19) (405) (360)
Third party services (180) (167)
Employee post retirement benefits (note 15) (197) (226)
Materials and supplies (52) (47)
Other (note 19) (172) (178)
----------- -----------
Total operating costs and expenses (3,228) (2,935)
----------- -----------
Operating income (loss) 293 (62)
----------- -----------
FINANCIAL EXPENSES, NET (note 20): (747) (349)
----------- -----------
Loss before income taxes and minority interests (454) (411)
INCOME TAXES - benefit (expense) (note 5)
Current (137) 31
Deferred 348 137
----------- -----------
211 168
----------- -----------
MINORITY INTERESTS 10 -
----------- -----------
NET LOSS (233) (243)
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on available for sale security (13) 22
Income taxes 4 (7)
----------- -----------
(9) 15
----------- -----------
COMPREHENSIVE LOSS (242) (228)
=========== ===========
Weighted average number of common and preferred shares outstanding
during the period (thousands) for basic loss per thousand shares 160,683,368 158,931,715
=========== ===========
Basic loss per thousand common and preferred shares In reais (1.45) (1.53)
=========== ===========
Weighted average number of shares outstanding (thousands) during the
period for diluted loss per thousand shares 160,842,525 158,931,715
=========== ===========
Diluted loss per thousand common and preferred shares In reais (1.45) (1.53)
=========== ===========
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 5
Item 11
UNAUDITED
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Expressed in millions of reais)
Nine months ended
September 30,
-----------------------------------
2002 2001
-------------- --------------
CAPITAL STOCK:
Preferred shares
Balance, beginning of the period 786 786
Transfer from appropriated retained earnings 18 -
-------- --------
Balance, end of the period 804 786
Common shares
Balance, beginning of the period 610 610
Transfer from appropriated retained earnings 14 -
-------- --------
Balance, end of the period 624 610
-------- --------
1,428 1,396
-------- --------
ADDITIONAL PAID-IN CAPITAL 3,170 3,170
-------- --------
APPROPRIATED RETAINED EARNINGS:
Fiscal incentive investment reserve
Balance 45 41
-------- --------
Rate shortfall reserve -
Balance, beginning of period 2,680 2,680
Transfer to capital stock (32) -
-------- --------
Balance, end of the period 2,648 2,680
-------- --------
Unrealized income reserve
Balance 314 484
-------- --------
Legal reserve -
Balance 94 94
-------- --------
3,101 3,299
-------- --------
UNAPPROPRIATED RETAINED EARNINGS (LOSS):
Balance, beginning of the period 79 735
Net Loss (233) (243)
Dividends (231) -
-------- --------
Balance, end of the period (385) 492
-------- --------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance, beginning of the period (235) (438)
Other comprehensive income (loss) (9) 15
-------- --------
Balance, end of the period (244) (423)
-------- --------
Shareholders' equity at end of the period 7,070 7,934
======== ========
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 6
Item 11
UNAUDITED
Page 1 of 2
COMPANHIA ENERGETICA DE MINAS GERAIS - CEMIG
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Expressed in millions of reais)
Nine months ended
September 30,
-----------------------------------
2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (233) (243)
Adjustments to reconcile net loss to net cash provided by
operating activities -
Depreciation and amortization 521 479
Deferred regulatory assets (238) -
Monetary variation and exchange rate variation loss 463 62
Loss on disposal of property, plant and equipment 16 75
Employee post-retirement benefits 54 98
Provision for contingencies and doubtful accounts receivable
33 10
Deferred income taxes (348) (137)
Other (14) 24
Decrease (increase) in operating assets -
Accounts receivable (283) 134
Recoverable taxes (39) 9
Deferred regulatory assets 5 -
Receivable from Federal Government in respect of bonus paid and
rationing adoption costs incurred, net of surcharge applied to
consumers - (34)
Judicial deposits (49) -
Other (125) (75)
Increase (decrease) in operating liabilities -
Accounts payable to suppliers 268 65
Payroll and related charges 16 33
Taxes payable 253 49
Regulatory charges payable 17 (19)
Advanced billings of electric power (42) (36)
Accrued interest on long term financing 325 210
Receivable from Federal Government in respect of bonus paid and
rationing adoption costs incurred, net of surcharge applied
to consumers - (34)
Other 14 24
-------- --------
Net cash provided by operating activities 614 728
======== ========
F - 7
Item 11
UNAUDITED
Nine months ended
September 30,
---------------------
2002 2001
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted short term investments 239 (22)
Acquisition of new investments (286) (31)
Acquisition of property, plant and equipment (433) (298)
------ -----
Net cash used in investing activities (480) (351)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term financing 287 263
Repayment of long-term financing (207) (252)
Advance from minority shareholder for future capital increase in subsidiary 12 -
Dividends and interest paid on capital (176) (170)
------ -----
Net cash used in financing activities (84) (159)
------ -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 50 218
======= ======
CASH AND CASH EQUIVALENTS:
Beginning of the period 218 303
End of the period 268 521
------ -----
50 218
======= ======
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Taxes paid - income and social contribution taxes 42 15
Interest paid, net of interest capitalized 123 124
The accompanying condensed notes are an integral part of these consolidated financial statements.
F - 8
Item 11
COMPANHIA ENERGETICA DE MINAS GERAIS CEMIG
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Amounts expressed in millions of reais, unless otherwise indicated)
1. THE COMPANY AND ITS OPERATIONS
Companhia Energetica de Minas Gerais - CEMIG ("CEMIG" or the "Company") is a
partly state-owned company (sociedade de economia mista), organized under the
laws of the Federative Republic of Brazil ("Brazil") and controlled by the
government of the State of Minas Gerais (the "State Government"). The
Company's principal business activities are the construction and operation of
systems used in the generation, transmission, distribution and sale of
electric energy. The Company also conducts business in certain related
activities.
As a concessionaire of electric utility services, the Company is subject to
regulations set by the Agencia Nacional de Energia Eletrica (the Brazilian
National Electric Energy Agency or "ANEEL"), an agency of the Brazilian
Federal Government (the "Federal Government").
The following are the Company's operational subsidiaries as of September 30,
2002:
o Sa Carvalho S.A. ("Sa Carvalho") (100.00% interest) - Its principal
activities are the production and sale of electric energy from the Sa
Carvalho hydroelectric power plant, as an electric energy public service
concessionaire;
o Usina Termica Ipatinga S.A. ("Ipatinga") (100.00% interest) - Its
principal activities are the production and sale of electric energy, as an
independent power producer, at the Ipatinga thermoelectric power plant
located on the premises of Usinas Siderurgicas de Minas Gerais USIMINAS,
a large steel manufacturer;
o Companhia de Gas de Minas Gerais GASMIG ("GASMIG") (95.17% interest)
Its principal activities are the operation, production, acquisition,
storage, transportation and distribution of natural gas and related
products. In 1993, GASMIG was granted a 30 year concession by the State
Government to perform these activities; and
o Empresa de Infovias S.A. ("Infovias") (94.89% interest) Its principal
activities are rendering telecommunications services and developing
related activities through integrated systems using optical fiber cable,
coaxial cable, electronic equipment and other items. The Company acquired
Infovias' control in June, 2002, through the acquisition of shares from
AES Forca e Empreendimentos Ltda.
Additionally, the Company has a 100% interest in each of the following
pre operational companies:
o Horizontes Energia S.A. Its principal activities will be the production
and sale of electric energy, as an independent power producer, at the
Machado Mineiro and Salto do Paraopeba hydroelectric power plants, both
located in the State of Minas Gerais, and Salto Voltao and Salto do Passo
Velho hydroelectric power plants, both located in the State of Santa
Catarina. These plants were transferred to, and recorded as paid in
capital of, Horizontes Energia S.A. during the third quarter of 2002.
F-9
Item 11
UNAUDITED
o Cemig PCH S.A., Cemig Capim Branco Energia S.A. and UTE Barreiro S.A.
Their principal activities will be the production and sale of electric
energy, as independent power producers.
o Efficientia S.A. Its principal activities will be rendering efficiency,
optimization and energy solutions services, and rendering operation and
management services in energy supply facilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In preparing financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"), management
is required to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from these estimates. The Company's financial statements therefore include
various estimates concerning (i) the recoverability of deferred regulatory
assets, (ii) valuation allowances for accounts receivable, deferred tax assets
and account receivable from State Government, (iii) the useful lives of
property, plant and equipment, (iv) provisions necessary for contingent
losses, (v) estimates of employee post retirement benefit obligations and
other similar evaluations.
The interim financial statements as of and for the nine months ended September
30, 2002 and 2001 have been prepared in accordance with U.S. GAAP, which
differ in certain respects from the Brazilian accounting practices applied by
CEMIG in its statutory financial statements that are prepared and filed in
accordance with the rules of the Brazilian Securities Commission (the "CVM").
The interim financial statements were prepared on a basis consistent with the
financial statements as of and for the year ended December 31, 2001.
The interim financial statements included in this report have been prepared by
the Company without audit. In the opinion of management, all adjustments
necessary for a fair presentation are reflected in these interim financial
statements. Such adjustments are of a normal and recurring nature. The results
of operations for the nine months ended September 30, 2002 are not necessarily
indicative of the operating results for the full year. The interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto as of and for each
of the years in the three year period ended December 31, 2001 contained in
CEMIG's Annual Report on Form 20 F, as filed with the United States Securities
and Exchange Commission on March 26, 2003 (Registration No. 1 15224).
The consolidated financial statements for the year ended December 31, 2001
included the accounts of CEMIG and its subsidiaries Sa Carvalho S.A., Usina
Termica Ipatinga S.A. and Companhia de Gas de Minas Gerais GASMIG. The
consolidated financial statements for the nine months ended September 30, 2002
include the accounts of CEMIG and its subsidiaries Sa Carvalho S.A., Usina
Termica de Ipatinga S.A., Companhia de Gas de Minas Gerais GASMIG, Empresa
de Infovias S.A., Cemig PCH S.A., Cemig Capim Branco S.A., UTE Barreiro S.A.,
Efficientia S.A. and Horizontes Energia S.A..
F-10
Item 11
UNAUDITED
3. DEFERRED REGULATORY ASSETS
An emergency energy rationing program (the "Energy Rationing Plan") was
created by the Federal Government's Executive Order No. 2148, of May 22, 2001,
to reduce energy consumption and avoid unplanned interruption in power supply.
Average reduction in monthly consumption of electricity during the rationing
period was estimated at 20% of the actual consumption for the months of May,
June and July 2000. The energy rationing became effective on June 1, 2001 and
ended February 28, 2002, when the Federal Government determined that the water
levels in the reservoirs serving Brazil's hydroelectric facilities had
returned to normal.
As a result of the Energy Rationing Plan, many electric generation and
distribution companies in Brazil, including CEMIG, experienced a reduction in
their profit margins, as their physical and personnel structures could not be
reduced in line with the consumption reduction quotas imposed. Thus, they
continued incurring fixed costs without earning corresponding revenue.
In December 2001, the Federal Government and the electric utilities in Brazil
affected by the Energy Rationing Plan signed an industry wide agreement (the
General Agreement of the Electricity Sector or the "General Agreement" or the
"Agreement") to regain the financial economic equilibrium of the existing
concession contracts and recover revenues relating to the period during which
the Energy Rationing Plan was in effect.
The Agreement addressed margin losses incurred by the electric distribution
and generation companies during the period that the Energy Rationing Plan was
effective, additional Parcel "A" costs for the period from January 1, 2001 to
October 25, 2001 and costs of energy purchased in the spot market through the
Mercado Atacadista de Energia (the Wholesale Energy Market or "MAE") up to
December 2002. These items will be recovered by an extraordinary rate
adjustment as follows:
I. an increase of 2.90% for rural and residential consumers (excluding
low income consumers), lighting streets and high tension industrial
consumers whose costs related to electric energy represent at least
18.00% of average production cost and fulfill certain criteria,
related to charge and demand energy factors which were determined by
ANEEL's Resolution No. 130, dated April 30, 2002.
II. an increase of 7.90% for all other consumers.
According to ANEEL's Resolution No. 484, of August 29, 2002, the extraordinary
rate adjustment for CEMIG is to be in force for a maximum period of 82 months,
as from January 2002 and bearing interest equivalent to the SELIC interest
rate (Brazilian benchmark interest rate). The Company recorded a provision for
loss on deferred regulatory assets, in the amount for R$170 as of September
30, 2002, considering its recoverability projections for the 82 month recovery
period allowed to the Company by ANEEL. The deferred regulatory assets are
periodically compared with the Company's recoverability projections, which are
constantly reviewed by Management, according to market conditions, changes in
regulation and other similar events. The balance of the provision is adjusted
accordingly.
F-11
Item 11
UNAUDITED
The special rate adjustment mentioned will be used in the compensation of the
following items:
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Revenue losses (expected to be recovered within 24 months) incurred
during the rationing period 453 398
Additional Parcel "A" costs:
- Period from January 1, 2001 to October 25, 2001 308 273
- Period from October 26, 2001 and thereafter 356 139
Recording of energy transactions on the MAE 995 844
2,112 1,654
----- -----
(-) Provision for loss on deferred regulatory assets (computed based
on an 82 month period) (170) (150)
===== =====
1,942 1,504
Current assets 286 259
Other assets 1,656 1,245
During the nine month period ended September 30, 2002, the Company collected
R$183 as a result of application of the extraordinary rate adjustment.
The VAT related to the rationing program revenue, amounting to R$260 as of
September 30, 2002 (R$301 as of December 31, 2001), only becomes an obligation
to be recorded in the financial statements once the customers are billed;
therefore, no provision related to this tax was recorded. The Company passes
all VAT amounts received from customers on to the State Government.
a) Recovery of revenue losses incurred during the Energy Rationing Plan
Although CEMIG's total revenue losses were R$877 as of September 30, 2002
(R$724 as of December 31, 2001), CEMIG recorded a regulatory asset on a U.S.
GAAP basis in the amount of R$453 as of September 30, 2002 (R$398 as of
December 31, 2001), in accordance with consensus described on Emerging Issues
Task Force EITF 92 07, "Accounting by Rate Regulated Utilities for the
Effects of Certain Alternative Revenue Programs", which establishes a 24 month
period limit for collection of the asset.
The accrued amount related to this asset, which will be reimbursed through the
special rate adjustment is monetarily restated based on SELIC from January 1,
2002 until collection.
b) Recovery of additional Parcel "A" costs
ANEEL Resolution No. 90, dated February 18, 2002, established procedures for
the compensation of some Parcel "A" costs for the period from January 1, 2001
to October 25, 2001. The base amount to be reimbursed is equal to the
difference between the Parcel "A" costs actually incurred and the estimated
Parcel "A" costs used for purposes of computing the most recent annual rate
adjustment prior to the Energy Rationing Plan. This amount will bear interest
at the SELIC rate from the day that the actual cost was paid until the date of
compensation.
On October 25, 2001, the Federal Government, through Executive Act No. 296,
created a tracking account mechanism to control the variation of Parcel "A"
costs for rate adjustment calculation purposes. This account is comprised of
the amounts resulting from the difference between the Parcel "A" costs
actually incurred, from October 26, 2001 and thereafter, and the estimated
Parcel "A" costs used for purposes of computing the annual rate adjustment as
from April 8, 2001.
F-12
Item 11
UNAUDITED
The amounts determined for the period from October 26, 2001 and thereafter are
recorded as a deferred regulatory asset, as follows:
Values to be Values to be Total
compensated compensated Total December 31,
Parcel "A" Items until April after April, September 30, 2001
2003 2004 2002 (Audited)
------------ ------------ ------------- ------------
System service charges - 114 114 84
Itaipu Binacional electricity purchase rate 24 237 261 35
Itaipu Binacional electricity transport rate 1 2 3 1
Fuel usage quota - CCC 7 (62) (55) 11
Rate for use of basic transmission network 6 26 32 8
Charges for use of water resources - 1 1 -
=== === === ===
38 318 356 139
=== === === ===
The Company recorded System service charges related to the period from
September 2000 to September 2002, which are expected to be paid in 2003, in
accordance with information provided by the MAE.
c) Energy transactions on the MAE and other
(c.1) Recording of energy transactions on the MAE and other
During the period of the Energy Rationing Plan in Brazil, electricity
utilities, including CEMIG, made a substantial number of energy purchases on
the spot market through the MAE in order to supply their customers. During
this period, the prices for spot market energy were often significantly higher
than the prices set forth in initial energy purchase contracts.
Costs related to energy sold on the MAE are being prorated among consumers
supplied by the Brazilian interconnected power system through an extraordinary
rate adjustment, as from January 2002. The amount to be passed along to
consumers through the rate adjustment is calculated based on the amount of
energy purchased on the MAE during the period from May 1, 2001 until the end
of the rationing period, and equals the difference between the energy purchase
price on the MAE and R$49.26/MWh (which is the initial contract average cost
for the period). Generators will not be reimbursed with respect to MAE energy
purchases at a price less than or equal to R$49.26/MWh.
(c.2) Financial settlement of the MAE transactions
On February 18, 2003, CEMIG settled 50% of its outstanding obligations
relating to MAE transactions. In connection with this settlement, CEMIG
disbursed R$335 to the MAE agents.
The funds required for this settlement were obtained through a loan agreement
dated February 7, 2003 between the Company and BNDES.
CEMIG is required to settle the remaining 50% of its outstanding MAE amounts
after the completion of a review that will be performed by independent
auditors on data provided by MAE to the concessionaires. Under the General
Agreement, BNDES must provide additional financing in connection with such
additional settlement.
This independent review, as well as the outcome of certain judicial claims
brought by market participants (including CEMIG) concerning the interpretation
of the market rules in force, may result in the recalculation of the
transaction data figures previously provided by MAE. Such a recalculation may
impact the Company's future results of operations and cash flows.
F-13
Item 11
UNAUDITED
4. BONUS PAID, SURCHARGES AND RATIONING ADOPTION COSTS INCURRED
Through Federal Government Executive Act No. 2,152 2, dated June 1, 2001, the
Federal Government determined that residential consumers whose electric energy
consumption was lower than the target consumption levels during the period of
the Energy Rationing Plan would be entitled to receive a bonus, limited to
their electric energy invoice amount, and that all consumers whose consumption
exceeded the target would be subject to surcharges, calculated based on the
effective consumption in excess of such target, as established by the Energy
Crisis Committee.
ANEEL established specific accounts and controls to record the effects of the
Rationing Program involving the bonus, surcharge and related costs. The
related balances as of September 30, 2002 are as follows:
Other Assets
Receivable from Federal Government in respect of bonus paid to consumers
that consumed less than the target consumption 69
Receivable from Federal Government in respect of costs related to the
adoption of the Energy Rationing Plan in excess of the 2.00% surcharge on
consumer rates 28
---
97
===
In 2002, the Company recorded additional reimbursable bonuses and costs
related to the Energy Rationing Plan of R$74 and R$13, respectively.
In the second half of 2002, upon ANEEL approval, CEMIG received approximately
R$128 in reimbursement for consumer bonuses paid.
The remaining net amount to be received by CEMIG, of approximately R$24, is
under negotiation with ANEEL. The surcharges represented by this amount were
not billed or collected from the consumers as they are currently the subject
of a judicial dispute. Management does not expect losses relating to the
realization of this outstanding amount.
According to ANEEL Resolution No. 600, dated October 31, 2002, operational
costs of approximately R$32 related to the adoption of the Energy Rationing
Plan in excess of the 2.00% surcharge on consumer tariffs will be reimbursed
upon approval by ANEEL.
F-14
Item 11
UNAUDITED
5. DEFERRED INCOME TAXES
Income taxes in Brazil include federal income tax and social contribution on
income (which is an additional federal income tax). For U.S. GAAP purposes,
the statutory annual rates applicable are 25% for federal income tax and 8%
for social contribution tax at September 30, 2002 and 2001. On December 30,
2002, the Federal Government issued Law No. 10,637 that determines the
increase on the social contribution tax rate from 8% to 9%, beginning on
January 1, 2003.
(a) Income tax reconciliation
The amounts reported as income tax benefit in the financial statements are
reconciled to the statutory rates as follows:
Nine months ended
September 30,
--------------------
2002 2001
---- ----
Loss before income taxes and minority interests (454) (411)
==== ====
Income taxes rate 33% rate 150 136
Effects of:
Interest on capital deductibility 39 -
Special liabilities amortization 23 21
Social contribution on depreciation (7) 14
Rate difference 4 (7)
Others 2 4
----- -----
Tax benefit in the statement of operations 211 168
==== ====
(b) Analysis of deferred tax balances
Tax rate changes are enacted in the year prior to the year in which they
become effective. As of September 30, 2002 and December 31, 2001, the deferred
tax balances have been computed using a 34% rate, which is the rate expected
to be in force upon realization. The major components of the deferred income
taxes account in the balance sheet are as follows:
F-15
Item 11
UNAUDITED
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Other assets-
Employee post retirement benefits 86 74
Tax loss carryforwards 367 192
Temporary difference on regulatory assets 185 151
Other temporary differences 157 105
---- ----
795 522
---- ----
Long term liabilities -
Effects of differences between tax basis of non monetary
assets relating to property, plant and equipment and
amounts reported for U.S. GAAP (493) (568)
---- ----
(493) (568)
==== ====
Net 302 (46)
==== ====
In the nine month period ended September 30, 2002 and 2001, deferred tax
benefit and expense of R$4 and R$7, respectively, related to unrealized
losses/gains on available for sale securities were recorded directly to
shareholders' equity as other comprehensive loss.
During 2001, the Company amended its income tax return for the year ended
December 31, 1997 to claim deductibility of pension costs accrued in its
Brazilian Corporate Law financial statements. This amendment resulted in (i)
the recognition of prepaid income and social contribution taxes in the amount
of R$161, which was reclassified from Deferred income taxes to Recoverable
taxes, classified as current assets, (ii) a reduction of Taxes payable in the
amount of R$49, and (iii) the recognition of tax loss carryforwards, recorded
considering the probable expected future profitability of CEMIG in subsequent
fiscal years. The Company has been offsetting this prepaid income tax with
federal tax liabilities.
6. CASH AND CASH EQUIVALENTS
The following table sets forth amounts of cash and cash equivalents for the
dates indicated:
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Cash on hand and in banks 38 66
Short term investments, with original maturity of three
months or less, mainly bank certificates of deposit and
investment funds at fair value 230 152
---- ---
268 218
=== ===
CEMIG has short term investments with interest income calculated based on the
Brazilian Interbank Certificates of Deposit CDI rate.
F-16
7. RESTRICTED INVESTMENTS
The following table sets forth amounts of restricted investments for the dates
indicated:
December 31,
June 30, 2001
2002 (Audited)
------------- ------------
Investments to be used in investment plan 148 468
Investments to be used in settlement of financing 233 152
--- ---
381 620
=== ===
Short-term 315 602
Long-term 66 18
On September 30, 2002 and December 31, 2001, the balances of R$148 and R$468,
respectively, refer to short term investments, acquired with resources
obtained from the issuance of debentures (note 17), with interest income
calculated based on the variation of Brazilian Interbank Certificates of
Deposit CDI and maturity dates that do not exceed 30 days.
These resources were used for the portion of the investment plan related to
the expansion of the Company's energy generation, transmission and
distribution operations, executed in 2002.
In compliance with Resolution No. 2,515 dated June 29, 1998 issued by the
Brazilian Central Bank, when CEMIG extends the maturity of any foreign
currency denominated financing, it must make deposits in respect of the
principal amount of such extended financing into a short term investment
escrow account so that at the final maturity date of the financing, such
escrow account contains an amount equal to the entire principal amount due
under the financing. The interest income is calculated based on the variation
of Brazilian Interbank Certificates of Deposit CDI and U.S. dollar and
maturity dates that do not exceed 30 days. The restricted investments to be
used in the investment plan are classified as current and other according to
the maturity date of the respective financing.
F-17
Item 11
UNAUDITED
8. ACCOUNTS RECEIVABLE
The following table sets forth information concerning accounts receivable by
type of consumers for the dates indicated.
Past due
-----------------------
Total
Total December 31,
Up to 90 Over 90 September 30, 2001
Current days days 2002 (Audited)
------- --------- -------- ------------- -------------
Residential 180 106 11 297 176
Industrial 141 72 34 247 181
Commercial 68 34 9 111 77
Rural 22 11 3 36 24
Governmental entities 19 40 25 84 37
Public services 25 14 1 40 38
--- --- --- --- ---
Subtotal 455 277 83 815 533
Distributors 5 - 2 7 6
--- --- --- --- ---
460 277 85 822 539
=== === === === ===
Allowance for doubtful accounts - - (51) (51) (54)
--- --- --- --- ---
460 277 34 771 485
=== === === === ===
No single customer represented more than 10% of total receivables as of
September 30, 2002 and December 31, 2001 and electricity sales to final
customers for the nine months ended in September 30, 2002 and 2001.
In April 2002, our largest industrial client became a self power producer and
as such ceased to purchase energy from the Company.
9. ACCOUNT RECEIVABLE FROM STATE GOVERNMENT
On May 2, 1995, the obligation to pay the remaining balance of the CRC account
receivable, then R$867, was transferred from the Federal Government to the
State Government through a credit assignment contract. In connection with this
assignment, the State Government agreed to pay the amount due to the Company
over 20 years, with an initial three year grace period, as restated based on
the UFIR (Tax Reference Unit Index) and accruing interest at 6% per year.
In the event that the Company receives any payments or retains declared
dividends to offset amounts not paid by the State Government, the Company is
obligated to issue shares to all shareholders in proportion to their
shareholding, transferring the principal amount of installments, from the
Appropriated retained earnings Rate shortfall reserve to Capital Stock.
F-18
Item 11
UNAUDITED
Since May 1995, the credit assignment contract has been amended as follows:
a) First Amendment, signed on January 24, 2001:
In October 2000, the UFIR index was eliminated by the Federal Government. As a
result, CEMIG negotiated and signed an amendment to the contract with the
State Government to change the index used from the UFIR index to Indice Geral
de Precos Disponibilidade Interna IGP DI (General market price index
internal availability), as from November 1, 2000.
b) Second Amendment, signed on October 14, 2002 (the "Second Amendment"):
The Second Amendment refers to 149 monthly installment payments, with
maturities from January 1, 2003 through May 1, 2015, in the total amount of
R$860, adjusted to present value, as of September 30, 2002. These installments
continued subject to an annual interest rate of 6%, and restated based on the
IGP DI variation.
The Second Amendment was signed in accordance with Law No. 14,384, dated
October 11, 2002, issued by the Minas Gerais State Legislature. CEMIG's Board
of Directors ratified this amendment on October 23, 2002.
b.1) No payments made to date in 2003:
The State Government did not pay the first five installments due under the
Second Amendment, due from January 1 to May 1, 2003, totaling R$69 in the
aggregate. Management is currently negotiating the collection of the
aforementioned past due amounts with the State Government.
b.2) Provision for loss:
Since the Second Amendment did not include any guarantees that would assure
the realization of the CRC receivable, CEMIG recorded a provision for loss in
the amount of R$754 for this asset as of December 31, 2001 which corresponds
to the total amount of the Second Amendment. On January 21, 2003 the Company's
Board of Directors ratified such provision.
For income tax purposes, such provision is considered a permanent difference,
since it involves a related party non deductible loss and, therefore, did not
impact the deferred income and social contribution taxes.
CEMIG continues to negotiate the payment of the balance due to it under the
Second Amendment, including the possibility of transfer of this obligation
back to the Federal Government.
On January 29, 2003, the Company's Board of Directors authorized management to
initiate judicial proceedings against the State Government in order to collect
the past due installments.
c) Third Amendment, signed on October 24, 2002 (the "Third Amendment"):
The Third Amendment covers installments originally due but unpaid under the
credit assignment contract from April 1, 1999 through December 1, 1999 and
from March 1, 2000 through December 1, 2002. Under the Third Amendment, these
unpaid installments, which totaled R$626 as of September 30, 2002 (R$451 as of
December 31, 2001), are subject to annual interest of 12.00% and are
monetarily restated based on the IGP DI variation. The Third Amendment
requires repayment of these amounts over 149 monthly installments from January
2003 to May 2015. The Third Amendment allows CEMIG to retain annual dividends
and interest on capital due to the State Government as a Company shareholder
as an offset against any amounts not paid by the State Government.
F-19
Item 11
UNAUDITED
The Third Amendment was signed under authorization granted by Law No. 14,384,
dated October 11, 2002, issued by the Minas Gerais State Legislature. The
Company's Board of Directors ratified the Third Amendment on October 23, 2002.
c.1) No payments made to date in 2003:
The State Government did not pay the first five installments under the Third
Amendment, due from January 1 to May 1, 2003, totaling R$52 in the aggregate.
Management is negotiating the collection of the aforementioned past due
amounts with the State Government.
The projection of the Company's future operations indicates that the
offsetting of the dividends and interest on capital corresponding to the State
Government's share equity in the Company will be sufficient in the long term
to assure the realization of the entire outstanding receivable covered by the
Third Amendment, should the State Government continue in default. Management
will monitor future events, which could impact the Company's dividend payment
projections, in order to conclude whether an allowance relating to the Third
Amendment is necessary.
10. INVESTMENTS
The following table describes the Company's investments:
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Consortia 504 297
Goodwill on purchase of Infovias 21 -
Other investments 11 13
Empresa de Infovias S.A. - 65
Hydroelectric plants to be transferred to a subsidiary - 62
--- ---
536 437
=== ===
(a) Investments in other companies
In 2002, the Company acquired shares from AES Forca Empreendimentos Ltda.
("AES"), corresponding to 50.48% of Infovias' capital, of which 5.03% was
acquired during the fourth quarter. The aggregate purchase price paid was
R$87. These transactions increased CEMIG's interest in Infovias' capital from
49.44% to 99.92%. Therefore, as from June 30, 2002, CEMIG's consolidated
Financial Statements include Infovias operations. The Company is assessing the
effects arising from the application of SFAS 141 "Business Combinations" and
SFAS 142 "Goodwill and Other Intangible Assets" to its 2002 financial
statements as a result of this acquisition.
The Company's Board of Directors authorized CEMIG to provide a guarantee
relating to a loan obtained by Infovias in the amount of US$40 million, which
began amortizing in May 2002. Any installment paid by CEMIG in case of
non payment by Infovias will be repaid to CEMIG in the form of preferred
shares issued in connection with a capital increase of Infovias.
The independent auditor's report on the Infovias' financial statements as of
December 31, 2002 has comments about (i) the deferred income and social
contribution taxes and maintenance of VAT credits, which realization is based
on future profit projections that depend on the contracts sign off, still
under negotiations; (ii) the dependence on additional funds, provided either
by shareholders or third parties, in order to finance its operations as well
as to guarantee the realization of the assets recorded in its financial
statements until the operating revenues are sufficient to do so.
F-20
Item 11
UNAUDITED
(b) Hydroelectric power plants to be transferred to a subsidiary
The Company transferred R$62 to Investments from Property, plant and
equipment, after recognizing an impairment charge of R$33, of the Machado
Mineiro and Salto do Paraopeba hydroelectric plants, both located in the State
of Minas Gerais, and the Salto Voltao and Salto do Passo Velho hydroelectric
plants, both located in the State of Santa Catarina. These plants were
transferred to, and recorded as paid in capital of, a subsidiary, Horizontes
Energia S.A., in the third quarter of 2002.
(c) Consortia
CEMIG is a partner in certain consortia for electricity generation projects.
Each partner of each consortium has the right to take energy generated by the
applicable power plant in an amount proportionate to the partner's investment.
CEMIG's participation in consortia, represented by the amounts already
invested in the projects, is described as follows:
Annual December 31,
CEMIG's average rate of September 30, 2001
participation depreciation 2002 (Audited)
------------- --------------- -------------- --------------
In service -
Porto Estrela Hydroelectric Power Plant 33.33% 2.51% 59 72
Igarapava Hydroelectric Power Plant 14.50% 2.51% 51 52
Construction in progress -
Queimado Hydroelectric Power Plant 82.50% 119 74
Funil Hydroelectric Power Plant 49.00% 101 52
Aimores Hydroelectric Power Plant 49.00% 162 47
Cemig Capim Branco Hydroelectric Power
Plants 20.00% 12 -
--- ---
504 297
=== ===
F-21
11. PROPERTY, PLANT AND EQUIPMENT
The following table describes the consolidated property, plant and equipment:
Annual average December 31,
rate of September 30, 2001
depreciation 2002 (Audited)
-------------- -------------- ------------
In service -
Generation -
Hydroelectric 2.51% 7,760 7,629
Thermoelectric 1.79% 261 261
Transmission 3.08% 1,415 1,403
Distribution 5.10% 7,147 7,075
Administration 9.63% 459 447
Other 7.48% 253 48
------ ------
17,295 16,863
Accumulated depreciation and amortization -
Generation (3,742) (3,595)
Transmission (746) (714)
Distribution (3,219) (2,966)
Administration (284) (252)
Other (32) (11)
------ ------
(8,023) (7,538)
------ ------
Total in service 9,272 9,325
------ ------
Construction in progress -
Generation 137 82
Transmission 91 58
Distribution 399 346
Administration 100 20
Other 22 10
------ -------
Total in construction in progress 749 516
------ -------
Total 10,021 9,841
====== =====
Interest cost and monetary variation capitalized during the nine months ended
in September 30, 2002 and 2001 was R$112 and R$32, respectively.
F-22
Item 11
UNAUDITED
12. ACCOUNTS PAYABLE TO SUPPLIERS
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Electricity suppliers -
Furnas Centrais Eletricas S.A. (indexed to US dollar) 363 213
Spot market - MAE 794 644
Payments to generators for energy purchased on MAE 418 364
Others 31 22
----- =====
1,606 1,243
Supplies and services 68 66
----- =====
1,674 1,309
===== =====
Current liabilities 1,256 945
Long term liabilities 418 364
The Spot market - MAE liability includes the energy purchased on the wholesale
spot market during the period from September 2000 to September 2002, based on
information provided by MAE, the spot market administrator. The definitive
amounts and effective payment of this liability depends on the resolution of
judicial claims currently pending, brought by market agents, including the
Company, related to the interpretation of the market rules in force, as well
as in obtaining the necessary financing, as more fully set forth in note 3.
13. TAXES PAYABLE
The following table describes the Company's accrued taxes payable:
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Short term
Income tax 78 72
Social Contribution tax 29 36
Value added tax ICMS 118 30
Tax on billing COFINS 25 52
Others 21 29
----- ---
271 219
Long term
Income tax 110
Social Contribution tax 39
Tax on billing COFINS 36
Tax on billing PASEP 16
----- ---
201
472 219
=== ===
F-23
Item 11
UNAUDITED
CEMIG transferred to long term liabilities, the income tax, social
contribution tax, COFINS and PASEP on special rate adjustment revenue,
recorded in 2001 and 2002. This transfer was conducted in accordance with the
Resolution of the Brazilian Federal Tax Authority (Secretaria da Receita
Federal), issued in the third quarter of 2002, which allowed the payment of
the mentioned obligations proportionally to the consumers' billing.
14. FINANCINGS
Composition of the Company's foreign loans and financings by currency and
domestic currency indices is as follows:
December 31,
September 30, 2001
2002 (Audited)
------------- ------------
Currency-
United States Dollars 2,353 1,255
Euro 77 15
Units of accounts (basket of currencies) 48 42
German Marks - 20
Swiss Francs - 2
Others - 1
------ -----
2,478 1,335
Indices-
Indice Geral de Precos de Mercado "IGP-M"
(General Market Price Index) 1,022 866
Indice Interno da Eletrobras - "FINEL"
(Eletrobras Internal Index) 159 174
Unidade Fiscal de Referencia - "UFIR"
(Tax Reference Unit) 93 89
Others 24 16
------ -----
1,298 1,145
------ -----
3,776 2,480
===== =====
Current 1,112 451
Long-term 2,664 2,029
The following table sets forth the increases for the periods indicated in the
indices and the foreign currency / Brazilian real exchange rates for the
principal foreign currencies used in the Company's loan and financing,
expressed as a percentage:
Nine months ended September 30,
-------------------------------
2002 2001
--------- ----------
Currency-
United States Dollars 67.85 36.61
Euro 86.74 32.26
Units of accounts (basket of currencies) 75.70 35.24
Indices
IGP-M 10.54 7.67
FINEL 2.04 1.50
F-24
Item 11
UNAUDITED
15. EMPLOYEE POST-RETIREMENT BENEFITS
The Company sponsors a pension plan, administered by Fundacao Forluminas de
Seguridade Social - FORLUZ (Forluminas Social Security Foundation, or
"FORLUZ") covering substantially all of its employees. With respect to such
plan, SFAS 87 "Employers' Accounting for Pensions" has been applied from and
after January 1,1995. However, amortization of the net transition obligation
existing at January 1, 1995 has been computed retroactively as if it had been
established on January 1, 1989, which is the date that SFAS 87 first became
applicable for non-U.S. pension funds.
Until October 1997, the Company sponsored only a defined benefit pension plan.
From September 29, 1997 to May 1, 1998, participants were permitted to elect
to migrate to a new defined contribution plan. Those participants who elected
to join the new plan had two options. The first was to maintain the benefit
earned up to the date of migration in the defined benefit plan, with no
further increases for salary increases or future services, and future
contributions would be made to the new plan to the individual account. The
second option for those participants who migrated to the defined contribution
plan was to transfer the accumulated benefit as of that date to their
individual account in the defined contribution plan. In both alternatives, the
participants became fully vested in the benefits accumulated as of the
migration date.
CEMIG has also established post-retirement health care plans and pays life
insurance premiums for retirees. The accounting for these benefits is in
accordance with SFAS 106 "Employers' Accounting for Post-retirement Benefits
other than Pensions".
CEMIG has offered to its employees an incentive for early retirement, which
consists of an additional amount, paid when the employee retires, of 10% of
the employees' salary for each year worked for the Company. To obtain this
benefit the employee must opt in writing indicating his intention to retire
early. Accordingly, the costs of this incentive are recognized as individual
employees opt for this benefit. CEMIG may withdraw this additional benefit at
any time.
In the third quarter of 2002, CEMIG and its employees' labor unions, mainly
represented by SINDIELETRO, , agreed on changes to the existing employee
health care plans, which altered the contribution criteria that CEMIG, its
employees and its retirees are responsible for and the types of benefits
covered in each plan. Under this agreement, CEMIG is responsible for making
annual payments up to the maximum amount of R$33, as adjusted according to the
IGP-M index, to cover health expenses of employees and retirees. The
implementation of these changes took place as of January 1, 2003. The effects
arising from these changes cannot be estimated at this time. The respective
actuarial assessment is currently in progress.
The changes in net liabilities for the nine months ended September 30, 2002
are as follows:
Post-retirement
Defined benefit health care and
pension plan insurance
--------------- ----------------
Net liabilities as of December 31, 2001 1,307 320
Net periodic cost recorded on the statement of operations 116 59
Contribution paid (114) (7)
------ -------
Net liabilities as of September 30, 2002 1,309 372
====== =====
Additionally, the Company recorded contribution expenses to the defined
contribution plan for the nine months ended September 30, 2002 in the amount
of R$22.
F-25
Item 11
UNAUDITED
16. ACCRUED LIABILITY FOR CONTINGENCIES
CEMIG and its subsidiaries are party to certain legal proceedings in Brazil
arising in the normal course of business, regarding tax, labor, civil and
other issues.
The Company believes that any loss in excess of the amounts provided for in
respect of such contingencies will not have a material adverse effect on the
Company's results of operations or financial position.
For those contingencies for which an adverse outcome has been deemed probable,
the Company has made provisions for losses as follows:
December 31,
September 30, 2001
2002 (Audited)
---------------- -------------------
Labor claims 64 54
Civil lawsuits - Consumers 81 74
Social contribution tax 128 125
Finsocial 19 19
Civil lawsuits - Others 19 22
Others 24 25
--- -----
335 319
=== ===
Certain details relating to such provisions are as follows:
(a) Labor claims
The labor claims relate principally to overtime and hazardous occupation
compensation. The total exposure for those matters is estimated to be R$80 as
of September 30, 2002 (R$68 as of December 31, 2001). CEMIG determined the
amounts to be accrued based on the nature of the group of claims and the most
recent court decisions.
(b) Civil lawsuits - Consumers
A number of industrial consumers have brought suits against the Company
seeking refunds of amounts paid to CEMIG as a result of a rate increase that
became effective during the Brazilian government's "Cruzado Plan" in 1986,
alleging that such increases violated the price controls instituted as part of
that economic stabilization plan. CEMIG determined the amounts to be accrued
based on recent court decisions.
The total anticipated exposure to the Company for those suits, fully provided
for, was R$81 as of September 30, 2002 (R$74 as of December 31, 2001).
(c) Social contribution tax
On June 28, 1991, the Federal Government enacted Law No. 8,200, regulating the
monetary restatement for purposes of Brazilian Corporate Law financial
statements and tax liability. Under this law, the Company was required to
record complementary monetary restatement that was considered, through
depreciation, amortization and write-offs of fixed assets, a deductible
expense for income tax calculation. Such law did not clarify the proceedings
regarding the deductibility of the complementary monetary restatement charged
to income for social contribution tax purposes.
F-26
Item 11
UNAUDITED
The Company is deducting the amounts of depreciation, amortization and
write-off relating to the complementary monetary restatement of Property,
plant and equipment, for purposes of computation of social contribution tax on
income. The Company believes that such deduction is in accordance with the
provisions of Law No. 8,200. The Company estimates that its potential exposure
in this matter is approximately R$128 as of September 30, 2002 (R$125 as of
December 31, 2001) for which a provision has been recorded.
(d) Finsocial
In 1994, CEMIG was fined by the Secretaria da Receita Federal (the tax
authority of the Federal Government) due to the Company's exclusion of State
VAT in the Finsocial calculation, a social contribution tax on billing
extinguished in 1992. The Company estimates that its potential exposure in
this matter is approximately R$19 as of September 30, 2002 (R$19 as of
December 31, 2001). This amount is fully provisioned.
(e) Others
Other accrued liabilities are related to a number of lawsuits involving the
Federal Government, pursuant to which the Company is disputing the
constitutionality of certain federal taxes that have been assessed against it
and other general claims arising in the ordinary course of business.
(f) Contingencies for which a favorable outcome has been deemed probable
CEMIG has other relevant legal proceedings with respect to which the Company
believes that a favorable outcome is probable, and therefore the Company has
not recorded a provision for such claims. Certain details relating to these
matters are as follows:
(i) Litigation involving FORLUZ with possible financial effect upon
CEMIG
The Company is defending, with FORLUZ, a claim brought by SINDIELETRO
that asserts that CEMIG failed to make certain allegedly obligatory
cost-of-living increases in contributions to employee pension funds.
The total amount sought in this claim is R$561. No reserve has been
recorded for this claim because the Company believes that it has a
meritorious defense to such claim and, consequently, does not expect to
incur losses related to such claim.
In addition, SINDILETRO has sued FORLUZ for R$228 relating to changes
made to the pension fund's contribution adjustment index. No reserve
has been recorded for this potential claim because the Company believes
that it has a meritorious defense to such claim and, consequently, does
not expect to incur losses related to such claim.
(ii) Income and social contribution taxes on post retirement benefits
On October 11, 2001, the Federal Government's tax authority issued a
deficiency notice in the amount of R$222 arising from the utilization
of tax credits that resulted from the amendment of the Company's 1997,
1998, 1999 and 2000 tax returns, to reduce taxable income. The tax
returns were amended as a result of a change in accounting method for
recording post-retirement benefit liabilities, as required by Brazilian
accounting practices. The additional liability that resulted from the
accounting change was attributed to the tax year that was amended,
resulting in net operating tax loss and social contribution negative
basis carryforwards. CEMIG is defending itself on the tax assessment
notice in an administrative proceeding with the Federal Government. No
reserve has been recorded as a result of this notice, as the Company
believes that it has a meritorious defense to such claim and,
consequently, does not expect to incur losses related to such claim.
F-27
Item 11
UNAUDITED
The credits mentioned in the prior paragraph were offset by CEMIG from
its federal tax obligations in 2001 and 2002. Due to this offset, CEMIG
is exposed to additional penalties in the amount of R$120. No reserve
has been recorded for this claim, as the Company believes that it has a
meritorious defense to such claim and, consequently, does not expect to
incur losses related to such claim.
(iii) COFINS
The Company began contesting the payment of COFINS contributions
beginning in 1992. As a result of a judicial ruling, the Company paid
R$239 of accrued COFINS contribution on July 30, 1999. The Federal
Government is claiming that the Company owes approximately R$120 in
fines and interest relating to its non-payment of COFINS contributions.
The Company is contesting such claims. No reserve has been recorded for
this claim, as the Company believes that it has a meritorious defense
to such claim and, consequently, does not expect to incur losses
related to such claim.
(iv) Regulatory agency acts
ANEEL has brought an administrative proceeding against the Company,
contesting a R$176 refund issued in 1995 by the Brazilian National
Treasury. ANEEL alleges that this refund originated from a
miscalculation of credits in the amount of rate shortfall receivable
that was applied to reduce amounts owed to the Federal Government. On
October 31, 2002, ANEEL issued a final administrative decision against
the Company. The Company intends to appeal this decision in court. The
Company believes that it has a meritorious defense to such claim and
has therefore recorded no provision in respect of such claim.
On January 16, 2003, ANEEL sent a notice alleging that the Company had
failed to obtain necessary ANEEL authorization relating to the
Company's 5-year contract with Infovias, which relates to furnishing
data and rendering services related to geo-technology matters. ANEEL
may seek to impose a fine upon the Company relating to this claim. The
maximum penalty applicable in respect of this claim is a fine in an
amount equal to up to 2% of CEMIG's revenues during the 12-month period
immediately prior to the imposition of the fine. The Company believes
that it has a meritorious defense to such claim and has therefore
recorded no provision in respect of such claim.
(v) Civil lawsuits - Consumers
Some consumers have brought civil claims against CEMIG contesting rate
readjustments applied in prior years, including the special rate
adjustment and Encargo de Capacidade Emergencial (the Emergency
Capacity Charge) applied since 2002. The Company believes that it has a
meritorious defense to such claims and has therefore recorded no
provision in respect of such claims.
In addition to the matters described above, CEMIG and its subsidiaries are
involved as a plaintiff or defendant in a variety of routine litigation
incidental to the normal course of business. Management believes that it has
adequate defense in respect of such litigation and that any losses therefrom
would not have a material adverse effect on the consolidated financial
position or results of operation of the Company.
F-28
Item 11
UNAUDITED
17. SHAREHOLDERS' EQUITY
On April 30, 2002, at the shareholders' meeting, the following matters were
approved:
o Capital increase in the amount of R$32, through the issuance of
3,154,321 new shares, as a result of the capitalization of the rate
shortfall reserve. The new shares were distributed among the
shareholders in proportion to their participation in the capital
prior to the issuance. As a result, the interest of the shareholders
and the par value per share did not change. The change in the number
of shares is as follows:
As of December
31, 2001 Issuance of As of April 30,
Thousands of shares (Audited) new shares 2002
------------------------------------ ----------------- ---------------- ----------------
Preferred shares 89,504,020 1,775,631 91,279,651
Common shares 69,495,478 1,378,690 70,874,168
---------------- --------------- ----------------
Total shares authorized and issued 158,999,498 3,154,321 162,153,819
Treasury stock (67,783) (1,345) (69,128)
---------------- --------------- ----------------
Total shares outstanding 158,931,715 3,152,976 162,084,691
================ =============== ================
o Change in the Company's by-laws to establish new minimum dividend
criteria, in accordance with changes in local corporate legislation.
The preferred shares have priority in the repayment of capital and
are entitled to a minimum dividend of at least the highest amount
between 10% of the preferred capital on the Brazilian corporate law
financial statements or 3% of participation of the preferred shares
in the total shareholders equity on Brazilian Corporate Law
financial statements.
In the nine-month period ended September 30, 2002, the Company declared the
following dividends and interest on capital:
Nine-month
period ended
September 30, 2002
-------------------
Dividends 112
Interest on capital in lieu of dividends 119
---
Total 231
===
F-29
Item 11
UNAUDITED
18. NET OPERATING REVENUES
(a) The composition of electric energy supplied by consumer class is as
follows:
No. of consumers GWh R$
-------------------------- ------------------ --------------------------
Nine months ended Nine months ended Nine months ended
September 30, September 30, September 30,
-------------------------- ------------------ --------------------------
2002 2001 2002 2001 2002 2001
---------- ---------- ------ ------ ---------- -----------
Residential 4,586,863 4,408,867 4,710 5,099 1,275 1,254
Industrial 67,668 67,137 16,425 16,416 1,601 1,384
Commercial 512,666 496,638 2,415 2,532 568 512
Rural 332,427 318,251 1,231 1,235 180 158
Governmental Entities 45,692 43,943 994 1,024 170 152
Public services 6,770 6,475 708 709 94 82
Own consumption 1,358 1,408 37 39 - -
Unbilled, net - - - - 55 (55)
------------- ------------- ------------- ------------- ------------- -------------
5,553,444 5,342,719 26,520 27,054 3,943 3,487
Supply 4 4 244 487 15 27
Energy transactions on MAE
- - - - 102 29
------------- ------------- ------------- ------------- ------------- -------------
Total 5,553,448 5,342,723 26,764 27,541 4,060 3,543
============ ============ ============ ============ ============ ============
(b) The composition of taxes on revenues is as follows:
Nine months ended
September 30,
-----------------------------
2002 2001
------------ -------------
VAT 840 747
COFINS 131 112
PIS-PASEP social contribution 38 25
Emergency capacity charge 45 -
----- -----
1,054 884
==== ===
F-30
Item 11
UNAUDITED
19. OPERATING COSTS AND EXPENSES
Some of the operating costs and expenses consist of the following:
(a) Electricity purchased for resale
Nine months ended
September 30,
-------------------------------
2002 2001
--------------- --------------
Itaipu Binacional (through FURNAS) 728 717
From suppliers though MAE 182 -
Initial contracts 111 95
From Other 8 3
------- ------
1,029 815
======= ======
ANEEL has reduced the price of energy acquired from Itaipu by 13.18%, from US$
20.1988 to US$ 17.5374 per kW, since October 23, 2002.
The energy traded on spot market in 2001 was accrued only in the fourth
quarter of 2001, since MAE information necessary to record the estimates only
became available at that time.
(b) Regulatory charges
Nine months ended
----------------------------
September 30,
2002 2001
------------- -------------
Global reserve for reversion quota 110 78
Fuel usage quota 252 244
Charges for use of water resources 34 28
ANEEL inspection fee 9 10
----- -----
405 360
==== =====
F-31
Item 11
UNAUDITED
(c) Other
Nine months ended
September 30,
-----------------
2002 2001
------- -----
Insurance 1 8
Consumption - electric energy 9 7
Labor indemnity 4 5
Disposal of fixed assets, net 12 56
Grants and donations 11 9
Accrued liabilities for contingencies-
Labor claims 10 (6)
Civil lawsuits - Consumers 7 4
Civil lawsuits - Other 4 16
Allowance for doubtful accounts 5 16
Provision for loss on deferred regulatory assets 20 -
Rentals 12 9
Advertising 15 20
Employees profit sharing 22 14
MAE Contribution 6 -
Technological and Scientific National Fund 7 -
General expenses 27 20
--- ---
172 178
=== ===
F-32
Item 11
UNAUDITED
20. FINANCIAL EXPENSES, NET
Financial income (expense) consists of the following:
Nine months ended
September 30,
---------------------------------
2002 2001
------------- --------------
Financial income:
Investment income earned 197 61
Late charges on overdue electricity bills, recorded on cash basis 29 34
Interest and monetary restatement of account receivable from State
Government 175 181
Monetary restatement on recoverable tax 4 17
Monetary restatement on deferred regulatory assets 95 -
Foreign exchange gains 25 26
Taxes on financial income (PASEP and COFINS) (30) (12)
Other income 28 15
------ ------
523 322
------ ------
Financial expenses:
Interest on financings (183) (105)
Foreign exchange losses (970) (508)
Monetary restatement on financing (70) (17)
Financial transaction tax ("CPMF") (19) (17)
Interest and fines on taxes (12) (11)
Advance billings of electric power (10) -
Other expenses (6) (13)
------- --------
(1,270) (671)
------ --------
Financial expenses, net (747) (349)
==== =====
Foreign exchange losses relate to the devaluation of the real relative to the
US dollar. See notes 14 and 22 for the composition of foreign currency debt,
variation of exchange rates of each foreign currency for each period presented
and exposure to foreign exchange variation.
21. RELATED PARTY TRANSACTIONS
The Company enters into a variety of related party transactions, the main
transactions are as follows:
(a) State Government-
Account receivable and related financial income Note 9 and 20
VAT - Liabilities Note 13
VAT - Expense Note 18
F-33
Item 11
UNAUDITED
(b) FORLUZ
Employee post-retirement benefits related balances Note 15
Other related party transactions are not material.
22. FINANCIAL INSTRUMENTS
The Company manages its financial instruments through periodic monitoring of
positions, diversification of counterparties and establishment of credit
limits by counterparty.
Financial instruments, which potentially subject CEMIG to concentrations of
credit risk, are cash and cash equivalents, restricted investments and
accounts receivable. CEMIG limits its credit risk associated with cash and
cash equivalents and restricted s investments by placing its investments with
highly rated financial institutions generally in short-term securities. The
credit risk associated with accounts receivable from residential consumers is
limited by CEMIG's policy of interrupting the supply of electricity if payment
becomes in arrears. With respect to larger industrial and commercial consumers
CEMIG limits its credit risk by performing ongoing credit evaluations and, in
certain cases, obtaining guarantees or collateral for impaired receivables.
The Company's customers are primarily located in the State of Minas Gerais,
although distributed among a wide variety of economic sectors.
The Company's short term investments related to marketable securities issued
by third parties are as follows:
I. CEMIG has debentures issued by financial institutions, in the amount
of R$37. These securities have immediate call clauses exercisable by
the Company, without penalty or loss. These securities have interest
rates based on the variation of the Brazilian Interbank Certificate
of Deposit - CDI rate.
II. The swap transactions of CEMIG in the amount of R$21, are purchased
from financial institutions, through the transfer of public or
private securities issued by third parties. These securities have
repurchase clauses. The interest rate is based on the CDI. CEMIG has
the right to call for early redemption of these securities without
penalty or loss.
III. CEMIG has entered into hedge transactions in the amount of US$8
million equivalent to R$32 to reduce the exchange rate risk of the US
dollar to the Brazilian real. , The gain or loss on these operations
arising from the differences between the actual exchange variation
and the exchange variation agreed with financial institutions are
recognized on the accrual basis.
The Company's exposure to exchange rate risks is as follows:
December 31,
September 30, 2001
2002 (Audited)
------------ -------------
US Dollar
Financings 2,353 1,255
Advanced billings of electric energy - 42
(-) Escrow deposit related to loans and financing (194) (133)
-------- --------
2,159 1,164
===== =====
Other Currencies
Financings 125 80
-------- --------
Net liabilities exposed to exchange rate risk 2,284 1,244
===== =====
F-34
After 2001, the effects of the exchange rate variation on the liabilities
related to the energy purchase from Itaipu Binacional are included in the
Parcel "A" costs and will be considered in the subsequent rate adjustments.
23. INSURANCE
The Company's insurance policies covering damages to its power plants caused
by fire and operational risks such as equipment failures expired on December
31, 2001. The Company is soliciting bids from insurance carriers for new
insurance policies to cover these risks.
CEMIG does not have general third party liability insurance covering accidents
and has not solicited bids relating to this type of insurance. In addition,
the Company has not solicited bids for, nor does it carry, insurance coverage
for major catastrophes affecting its facilities such as earthquakes and
floods, for business interruption risk or systemic failures.
The Company has not experienced significant losses arising from the
aforementioned risks.
24. SHAREHOLDERS' AGREEMENT
In 1997, the State of Minas Gerais sold approximately 33% of the Company's
common shares to a group of investors led by Southern Electric Brasil
Participacoes Ltda. ("Southern"). As part of this sale, the State of Minas
Gerais and Southern entered into a shareholders' agreement that provided for,
among other matters, special quorum requirements to approve significant
corporate actions, certain amendments to CEMIG's by-laws, the issuance of
convertible debentures and warrants, changes to the Company's corporate
structure and any distribution of dividends other than that required by the
by-laws. This agreement granted Southern a veto right over certain important
corporate decisions.
On September 13, 1999, the State of Minas Gerais filed a lawsuit to nullify
this shareholders' agreement on the grounds that it violated the state and
federal constitutions because the special quorum provisions would constitute
an unlawful transfer of the control of CEMIG to Southern.
On September 27, 1999, the Minas Gerais State Court of Appeals granted a legal
injunction suspending the effects of the special quorum provisions, pending
the outcome of the lawsuit.
In March 2000, the lower court rendered a decision declaring the shareholders'
agreement null and void.
On August 7, 2001, the Minas Gerais State Court of Appeals upheld the March
2000 lower court ruling declaring the shareholders' agreement null and void.
Southern has appealed the Court's decision and their appeal is still pending.
25. CORPORATE REORGANIZATION
Currently, CEMIG's electricity generation, transmission and distribution
operations are vertically integrated into and directly operated by CEMIG.
However, pursuant to CEMIG's main concession agreements and in accordance with
certain changes in the regulatory framework of the Brazilian electricity
sector, CEMIG has to restructure its business, resulting in the "unbundling"
of its generation, transmission and distribution operations into separate
subsidiaries, each wholly owned by CEMIG. According with the concession
agreements, CEMIG had to complete the reorganization process by December 31,
2000.
ANEEL granted the Company an extension until September 21, 2002 to complete
the unbundling process.
The State Government, the controlling shareholder, assuming that the
"unbundling" must be previously approved by Minas Gerais State Legislature,
submitted to the Legislature, on March 2, 2001, a bill proposing the
restructuring of the Company into three companies. This legislation has not
yet been approved and the reorganization process has not yet been completed.
Additionally, the Company has submitted an extension date request to ANEEL,
which has not yet been answered.
F-35
Item 11
UNAUDITED
On November 11, 2002, ANEEL fined the Company in the amount of R$6, because
CEMIG had not concluded the "unbundling". No reserve has been recorded for
this claim, as the Company believes it has a meritorious defense against the
fine and any other possible penalties that may be imposed regarding this
matter.
26. SUBSEQUENT EVENTS
(a) 2002 dividend declared
On December 19, 2002, the Board of Directors approved interest on capital in
lieu of dividend for 2002 in the amount of R$100.
(b) Loan obtained from BNDES for settlement of MAE transactions
On February 7, 2003, CEMIG obtained a loan from BNDES, in the amount of R$335.
The loan bears interest of 1% per year and monetary variation based on SELIC.
It will be paid through 60 monthly installments from March 15, 2003 to
February 15, 2008 and is guaranteed by 3.27% of the Company's monthly
electricity sales to final customers.
(c) Periodic Rate Review
The Periodic Rate Review represents the revision of the rates granted to the
distribution electricity concessionaires to assure the financial-economic
equilibrium of the existing concession contracts. The Period Rate Review
occurs every 4 or 5 years, depending on each concession contract (5 years for
CEMIG). In the rate definition, ANEEL considers the Company's structural
changes occurred in its costs and its market and the desirable return on its
investments.
CEMIG's energy rates increased by an average of 31.5% on April 8, 2003, as a
result of the Company's Periodic Rate Review.
(d) Financial covenants
As of March 31, 2003, some of the Company's loan, financing and debenture
contracts, in the total amount of R$511, of which R$329 are classified as
long-term liabilities, contain covenants that, in case of noncompliance, may
cause amounts due under the contracts to become immediately due. In addition,
the Company also has financing contracts that contain cross-default clauses.
The Company has obtained waivers from the creditors that are parties to
contracts that contain covenants with respect to which the Company is not in
compliance, which waivers state that such creditors will not exercise their
rights to demand either anticipated or immediate payment of the total amounts
due. The waivers are in force as of December 31, 2002, March 31, 2003 and, for
most contracts, June 30, 2003. The Company believes that the noncompliance
with the covenants was eventual and that its 2003 operation will lead to their
compliance. Loans, financings and debentures are classified as current and
long-term liabilities according to the original contract terms, in compliance
with the waivers obtained.
Additionally, the Company is performing analysis regarding the covenants
compliance of the Infovias financing, in the total amount of R$125 of which
R$101 are classified as long-term liabilities as of March 31, 2003, and has
not yet reached a final conclusion. The financing is classified as current and
long-term liabilities according to the original contract terms.
(e) Significant exchange variation after September 30, 2002
After September 30, 2002, the real appreciated significantly against the US
dollar, which has had a positive effect on the Company's net earnings in 2002
and 2003. The Company recorded exchange gains of approximately R$191 in the
fourth quarter of 2002 and R$356 in the four-month period ended April 30, 2003
as the real appreciation resulted in an increase in financial income. From
September 30, 2002 to April 30, 2003, the real appreciated 25.8% as compared
to the U.S. dollar.
F-36
Item 11
UNAUDITED
(f) Recovery of additional "A" Parcel costs from April 8, 2003 to April 7,
2004
The Federal Government, through Executive Act No. 116, issued on April 4,
2003, postponed for 12 months the reimbursement of the Parcel "A" costs
relating to the period from April 8, 2002 to April 7, 2003, initially
scheduled to be received on April 8, 2003. Additionally, the same Executive
Act established that the Parcel "A" costs, which reimbursement was postponed,
in addition to the Parcel "A" costs to be recorded during the 12-month period
beginning April 8, 2003, will be reimbursed through an increase in the
electric energy rate for 24 months, starting with the rate adjustment that
will be in force as from April 8, 2004. Therefore, the Parcel "A" costs
balances, recorded as Deferred regulatory assets as of September 30, 2002,
were classified as current and other assets considering the new expected
realization period.
27. RECENTLY ISSUED U. S. GAAP PRONOUNCEMENTS
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". SFAS 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Under SFAS 143,
the liability for an asset retirement obligation is discounted and accretion
expense is recognized using the credit-adjusted risk-free interest rate in
effect when the liability was initially recognized. In addition, disclosure
requirements contained in SFAS 143 will provide more information about asset
retirement obligations. SFAS 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002 with earlier application
encouraged. The implementation of this statement did not result in a
significant impact to the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS 145 "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
SFAS 145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of
Debt," which required that all gains and losses from extinguishment of debt to
be aggregated and classified as an extraordinary item if material. SFAS 145
requires that gains and losses from extinguishment of debt be classified as
extraordinary only if they meet criteria in APB 30, thus distinguishing
transactions that are part of recurring operations from those that are unusual
or infrequent, or that meet the criteria for classification as an
extraordinary item. SFAS 145 amends SFAS 13, "Accounting for Leases", to
require that lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS 145 rescinds SFAS 44,
"Accounting for Intangible Assets of Motor Carriers," and SFAS 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which are
not currently applicable to the Company. The provisions of SFAS 145 as they
relate to the rescission of SFAS 4 shall be applied in fiscal year 2003.
Certain provisions related to SFAS 13 are effective for transactions occurring
after May 15, 2002. The implementation of this statement did not result in a
significant impact to the Company's consolidated financial statements.
F-37
Item 11
UNAUDITED
In June 2002, FASB issued SFAS 146 "Accounting for costs associated with Exit
or Disposal Activities". This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The principal
difference between this Statement and EITF 94-3 relates to its requirements
for recognition of a liability for a cost associated with an exit or disposal
activity. This Statement requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the
Board in this Statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. This Statement also establishes that fair value is the objective
for initial measurement of the liability. This Statement improves financial
reporting by requiring that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The accounting for similar events and circumstances
will be the same, thereby improving the comparability and representational
faithfulness of reported financial information. The provisions of this
Statement are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. The Company does
not expect that the adoption of SFAS 146 will have a significant impact on its
consolidated results of operations, financial position or cash flows.
* * * * * * * * * * *
F - 38
Item 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS FORTHE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002 (THE "2002 INTERIM PERIOD")
COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 (THE "2001 INTERIM
PERIOD").
Net operating revenues
Net operating revenues increased 22.6% to R$3,521 million in the 2002
Interim Period from R$2,873 million in the 2001 Interim Period due primarily
to the recording of additional revenue from the regulatory extraordinary rate
adjustment, which is intended to reimburse revenue losses incurred as a result
of the Electricity Rationing Plan and related spot market transactions and an
increase in electricity sales to final customers
In the 2002 Interim Period, we recorded revenue relating to the
regulatory extraordinary rate adjustment in the amount of R$238 million, in
accordance with the terms of the General Agreement of the Electricity Sector,
which provides for reimbursement of revenue losses incurred during the period
of the Electricity Rationing Plan and related spot market transactions through
special rate increases to be billed to final customers, and in accordance with
consensus described on Emerging Issues Task Force - EITF 92-07, "Accounting by
Rate-Regulated Utilities for the Effects of Certain Alternative Revenue
Programs", which establishes a 24 month period limit for collection of the
recovery of revenue losses incurred during the Energy Rationing Plan. See Note
3 to our interim financial statements.
Electricity sales to final customers were R$3,943 million in the 2002
Interim Period representing a 13.1% increase compared to R$3,487 million in
the 2001 Interim Period. This increase resulted from the net effect of an
increase in the average rate and a decrease in the volume of electricity sales
to final customers. There was a 15.3% increase in the average rate in the 2002
Interim Periodto R$148.89 per MWh compared to R$129.08 per MWh in the 2001
Interim Periodas a result of rate increases of 16.5% in April 2001 (full
effect in 2002) and 10.5% in April 2002. The positive effect of the rate
increases was partially offset by a 2.0% decline in volume of electricity
sales to final customers due to (i) the Electricity Rationing Plan in force
from June 2001 to February 2002; (ii) new patterns of final customer
consumptionafter the end of the Electricity Rationing Plan on March 1, 2002,
and (iii) a decline in Brazil's economy in 2002 year. The most representative
market, comprising the industrial consumers, increased 0.1%. On the other
hand, sales to residential and commercial consumers decreased 7.6% and 4.6%,
respectively. See Note 18 to our interim financial statements.
Electricity sales to the interconnected power system were R$117 million
in the 2002 Interim Period compared to R$56 million in the 2001 Interim
Period. This increase resulted from higher rates associated with energy
transactions on the Mercado Atacadista de Energia Wholesale Electricity Spot
Market, or MAE, during the period in which the Electricity Rationing Plan was
in force as well as the abscense of a method to account for electricity sales
to the interconnected power system in the first nine-months of , 2001, since
MAE information necessary to record the estimates only became available in the
fourth quarter of 2001.
Revenues from the use of the Basic Transmission Network by other
concessionaires increased 17.6% to R$134 million in the 2002 Interim Period
from R$114 million in the 2001 Interim Period. This increase was due primarily
to 11.6% and 7.15% rate increases in July 2001 and 2002,respectively.
Other operating revenues increased 43.0% to R$143 million in the 2002
Interim Period from R$100 million in the 2001 Interim Period due to a R$31
million increase in revenues from GASMIG, our subsidiary, reflecting 43.0%
period-over-period growth, and R$7 million in revenue from Infovias relating
to telecommunications services rendered in the 2002 Interim Period.
Taxes on revenues increased 19.2% to R$1,054 million in the 2002 Interim
Period from R$884 million in the 2001 Interim Period as a result of the
increase in our operating revenues in the 2002 Interim Period as compared to
the 2001 Interim Period and as a result of the VAT billed to the
Item 8
customers related to the billed extraordinary rate adjustment. Taxes on
revenues consist of: (i) VAT, assessed at an average rate of 21% on electricity
sales to final customers, and VAT billed to customers related to the deferred
regulatory assets; (ii) COFINS, assessed at a rate of 3%; (iii) PASEP, assessed
at a rate of 0.65%; and (iv) emergency capacity charge, a new charge
established in 2002 which is prorated among final consumers of electric energy
and which relates to the acquisition of energy and contracted generation
capacity by CBEE (The Brazilian Emergency Energy Trader). See Notes 3 and 18 to
our interim financial statements.
Operating costs and expenses
Operating costs and expenses increased 10.0% to R$3,228 million in the
2002 Interim Period from R$2,935 million in the 2001 Interim Period,
principally as a result of increases in electricity purchased for resale,
depreciation and amortization and regulatory charges, partially offset by
decreases in personnel and employee post-retirement benefits.
Electricity purchased for resale consists primarily of purchases from
Itaipu through Furnas Centrais Eletricas S.A., or Furnas. We are required
under applicable regulations to purchase 17.0% of Itaipu's capacity at U.S.
dollar-denominated prices. We also purchase electricity from the MAE and
Furnas itself. Electricity purchased for resale increased 26.3% to R$1,029
million in the 2002 Interim Period from R$815 million in 2001 Interim Period
due mainly to the R$182 million provision related to energy purchased from the
MAE during the 2002 Interim Period. The energy purchased on the MAEt in the
2001 Interim Period was accrued only in the fourth quarter of 2001, since the
MAE information necessary to record the estimates only became available at
that time. See Note 19 to our interim financial statements.
Charges for use of the Basic Transmission Network mainly correspond to
the cost of transporting electricity purchased from Itaipu and increased a
7.3% to R$220 million in the 2002 Interim Period compared to R$205 million in
the 2001 Interim Period principally as a result of a rate increase in July
2001 and 2002, partially offset by a decline in the volume of energy
transported through the network due to the Electricity Rationing Plan that was
in force from June 2001 to February 2002.
Depreciation and amortization increased 8.8% to R$521 million in the 2002
Interim Period from R$479 million in the 2001 Interim Period as a result of
the entry into service of additional distribution and transmission networks
and lines.
Personnel expense decreased 6.9% to R$377 million in the 2002 Interim
Period compared to R$405 million in the 2001 Interim Period as a result of the
R$33 million provision recorded relating to our Voluntary Resignation Program
in March 2001 and an increase in amounts transferred to Property, Plant and
Equipment under Construction in Progress in the 2002 Interim Period.
Regulatory charges increased 12.5% to R$405 million in the 2002 Interim
Period from R$360 million in the 2001 Interim Period due primarily to an
increase of R$32 million in required contributions to the RGR Fund (a reserve
fund created by the Brazilian Congress that provides compensation to
electricity companies for certain assets used in connection with their
concessions if their concessions are revoked or not renewed) to R$110 million
in the 2002 Interim Period compared to R$78 million in the 2001 Interim
Period. See Note 19 to our interim financial statements.
Third-party services expense increased 7.8% to R$180 million in the 2002
Interim Period compared to R$167 million in the 2001 Interim Period primarily
due to the increase in expenses relating to bill collection services as a
result of readjustments to contracts based on inflationary indices.
Employee post-retirement benefits decreased 12.8% to R$197 million in the
2002 Interim Period compared to R$226 million in the 2001 Interim Period as a
consequence of a lower projected net periodic cost for 2002 as a result of a
higher expected return on plan assets. See Note 15 to our interim financial
statements.
Other expenses decreased 3.4% to R$172 million in the 2002 Interim Period
from R$178 million in the 2001 Interim Period due mainly to a decrease in net
losses on disposal of fixed assets (R$12 million in the 2002 Interim Period
compared to R$56 million in the 2001 Interim Period, R$32 million of which
related to the Machado Mineiro Power Plant), partially offset by a R$16
million increase in provision for labor claims in the 2002 Interim Period and
a R$20 million provision for loss on deferred regulatory assets in the 2002
Interim Period. See Note 19 to our interim financial statements.
Operating income (loss)
As a result of the foregoing, there was operating income of R$293 million
in the 2002 Interim Period compared to operating loss of R$62 million in the
2001 Interim Period.
Financial expenses, net
Financial expenses, net, includes (i) financial income, which is mainly
comprised of interest and monetary restatement of our account receivable from
the State Government, investment income, late charges on overdue electricity
bills, monetary restatement of recoverable tax, foreign exchange gains,
monetary restatement of deferred regulatory assets, and (ii) financial
expense, which is mainly comprised of interest expense on loans and financing,
the Contribuicao Provisoria sobre a Movimentacao ou Transmissao de Valores e
de Creditos e Direitos de Natureza Financeira (a financial transaction tax),
or CPMF, interest and fines on taxes, foreign exchange losses, monetary
restatement losses and other expenses. Financial expenses, net, were R$747
million in the 2002 Interim Period compared to financial expenses of R$349
million in the 2001 Interim Period. The main changes were an increase of R$462
million in foreign exchange net losses resulting from the 67.9% devaluation of
the real against the U.S. dollar in the nine-month period ended September 30,
2002 compared to a 36.6% devaluation of the real against the U.S. dollar in
the 2001 Interim Period and a R$131 million increase in interest and monetary
restatement on loans and financing, partially offset by a R$136 million
increase in income from temporary cash investments due to higher cash and cash
equivalents and restricted short-term investments in the 2002 Interim Period,
by income from cash investments denominated in U.S. Dollars and by financial
income in the amount of R$95 million as a result of the monetary restatement
on deferred regulatory assets. See Notes 3, 6, 7, 14 and 20 to our interim
financial statements.
Income taxes
Income taxes were benefit of R$211 million on pre-tax loss of R$454
million in the 2002 Interim Period compared to benefit of R$168 million on
pre-tax loss of R$411 million in the 2001 Interim Period. A deduction of R$39
million in the 2002 Interim Period with respect to interest on capital helped
reduce the amount provisioned for income taxes in 2002. See Note 5 to our
interim financial statements.
Minority interests
Minority interests were R$10 million, mainly related to the operation of
Infovias, which was included in the consolidated financial statements as from
June 30, 2002.
Net Loss
As a result of the foregoing, we had net loss of R$233 million in the
2002 Interim Period compared to net loss of R$243 million in the 2001 Interim
Period.
Other comprehensive income (loss)
Other comprehensive income (loss) was loss of R$9 million in the 2002
Interim Period compared to income of R$15 million in the 2001 Interim Period
as a result of the change in the fair value (unrealized gain / losses) of the
available for sale securities recognized in shareholders' equity.
Comprehensive loss
As a result of the factors stated above, comprehensive loss was R$242
million in the 2002 Interim Period compared to comprehensive loss of R$228
million in the 2001 Interim Period.
*******
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPANHIA ENERGETICA DE MINAS
GERAIS - CEMIG
By: /s/ Flavio Decat de Moura
-----------------------------------
Name: Flavio Decat de Moura
Title: Chief Financial Officer
Date: June 27, 2003