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We recorded other net operating expense of R$12.3 million
in 2000 compared to a net operating income of R$40.6 million
in 1999. Other net operating expense in 2000 was due mainly
to leases of rights-of-ways for telecommunications routes,
whereas in 1999 the net operating income was due primarily
to a R$68.3 million reduction in accrued penalties associated
with a COFINS tax payment. See notes 6 and 18 to our consolidated
financial statements. This reduction in 1999 was partially
offset by a management fee to WorldCom of R$27.9 million.
In 1999, a portion of the management fee to WorldCom was recorded
as SG&A. In accordance with Brazilian Corporate Law, the
management fee is classified as SG&A once it has been
registered with the Central Bank of Brazil. Please see note
22 to our consolidated financial statements for a description
of the terms of the management agreement.
The 1998 third and fourth quarter charges included in other
net operating expense for the year ended December 31, 1998
were as follows:
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· R$369.1 million
related to management's decision to convert our defined
benefit pension plan to a defined contribution plan. See
note 21 to our consolidated financial statements. Employees
were offered the option to convert to a defined contribution
plan in the third quarter of 1998. The option expired
on December 31, 1998. The pension obligation arising from
such conversions is expected to be funded over seventeen
years, which is the actuarial estimate of the average
remaining working life of the converting employees. Management
expects that such funding will be made from operating
cash flows. The third and fourth quarters' charges in
1998 were based on such actuarial estimates.
· R$74.5 million related to management's decision
during the third quarter of 1998 to offer to "buy
out" employees who elect to exit the post-retirement
health care plan. A lump-sum payment to this effect was
made on January 15, 1999.
· R$72 million related to a voluntary termination
program offered by us to employees engaged in activities
that were expected to be outsourced or discontinued. The
offer expired on November 27, 1998 and 1,537 of our employees
accepted the offer, resulting in actual severance payments
of R$86.5 million. |
Excluding the third and fourth quarter pre-tax charges in
1998 discussed above, net other operating expense was R$61.6
million in 1998 which included R$33.2 million in management
fees to WorldCom. See "Item 7. Major Shareholders and
Related Party Transactions-Related Party Transactions".
This also included R$28.4 million in other miscellaneous operating
expenses which comprised a R$10 million write-down of tax
related investments in economic development regions, according
to their fair market value.
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