- Annual Reports /Quarterly Information
- Reconciliation of Results
- Disclosure to the Market
Annual Reports/Quarterly Information
1. What are financial statements?
2. How can I access the financial results for Petrobras?
3. What does Petrobras do to protect itself from risk?
4. What is the impact of a foreign exchange rate variation on cash flow/ profit?
5. What is capitalization?
6. What is financial leverage? (What is the relation between Company short-term debt/ total debt?)
7. What does the degree of operating leverage mean?
8. What are the most used indicators for measuring a company’s efficiency?
9. What are Petrobras’ current earnings forecasts for the current fiscal year?
10. Which is Petrobras’ independent auditor?
11. Explain the reclassification of revenues and costs in 2Q03 between the E&P and Downstream segments.
12. What is the consolidated equity pick-up breakdown for the first and second quarters 2003?
13. The use of a new accounting practice in relation to provisions for cost of abandoned wells (FASB 143) has been recorded directly to shareholders’ equity as Adjustment for Previous Fiscal Years and amounting to R$ 2,396 million in 1Q03. However, what was the impact of the adoption of the new practice on the cost of goods sold (COGS)?
14. In 1Q03, Income Tax/Social Contribution represents about 37% of income before tax. What is the reason for such a high rate?
15. Where is the expenditure relating to active and retired employee pension plan and healthcare booked to the income statement? To which account(s) in the Income Statement is this expenses accrued?
16. To what does the equity pick-up of R$ 195.9 MM refer in the corporate area in 1Q03?
17. According to information supplied by Petrobras, COGS for 1Q03 compared with 4Q02, was impacted by oil and oil product imports (volume x price) worth R$ (1,161 MM)”. What is the reason for this impact since in 1Q03 we had higher oil and oil product prices in the international market and oil imports were higher than in 4Q02?
18. In what way will the new accounting practice (FASB 143) for "abandoned wells and disassembly of areas" affect the income statement and the balance sheet (impact on shareholders’ equity, assets, liabilities) in the coming fiscal years?
19. What are the principal influences on net operating income and COGS, both in the consolidated and controlling company figures in 1Q03 compared with 4Q02?
20. What is Petrobras’ budget for 2003?
21. To what fiscal periods does the "provision for contingencies relating to INSS” (Government Social Security System) (R$ 398 MM in 4Q02 – consolidated Income Statement) refer? Can this be a reoccurring item? What actions is Petrobras taking to mitigate these expenses?
22. What is the reason for the decline in investments from R$ 3.0 billion (3Q02) to R$ 637 MM (4Q02) in the consolidated balance sheet – fixed assets?
23. What is the reason for the decrease of R$ 2.8 billion (3Q02) to R$ 1.0 billion (4Q02) in ‘advance for pension plan – migration’ in the consolidated balance sheet - assets? And what is the reason for the fall in the "pension plan obligation" from R$ 2.4 billion (3Q02) to R$ 515 MM (4Q02) in the consolidated balance sheet - liabilities?
24. What are the main impacts on net operating revenues and COGS, in both the consolidated and controlling company balance sheet, in 4Q02 compared with 3Q02?
25. How is Brazilian natural gas purchased through the "take or pay" and "ship or pay" but not consumed, accounted for in the Company’s books?
26. How does Petrobras calculate its EBITDA? (earnings before interest, taxes, depreciation and amortization = operating cash flow)
27. Cash Flow Statement of the Controlling Company – What is the meaning of the item "Operation with Supplier of Petroleum and Oil Products - Foreign"?
28. What are the principal factors affecting Income Tax payments?
29. Can Petrobras sell the NTN Government bonds?
30. How is the reimbursement under "Ventures under Negotiation" booked to the accounts?
31. What has changed in the light of the new Administrative Rule (MP/MME 32 of March 8 2001) published by the Brazilian Government?
 1. What are financial statements?
ANSWER:
These are a combination of accounting statements and complementary information reflecting the economic and financial situation of a company. According to the Brazilian regulations, publicly held companies are required to publish quarterly trial balances while an annual report must be distributed within a maximum term of 90 days from the end of the fiscal year. The financial statements are made up of the balance sheet, the income statement, statement of changes in financial position, statement of changes in shareholders’ equity, the explanatory notes, and the Fiscal Board’s report and the report of the independent auditors. The financial statements show nominal values, and are normally accompanied by the results for the preceding financial year for the purposes of comparison. Some companies, such as Petrobras, publish a cash flow statement and separate results for each business segment.
2. How can I access the financial results for Petrobras?
ANSWER:
The quarterly trial balance sheets and the annual report in both BR-GAAP (Brazilian accounting principles) as well as US-GAAP (North American accounting principles) are to be found on the Financial Information page. Other financial information is also available, such as past investment data and details of debt, among others. Access the page.
3. What does Petrobras do to protect itself from risk?
ANSWER:
The Company is exposed to a series of market risks as a result of its operations. Such risks involve eventual variations in the prices of oil and oil products, in currency or interest rates that can negatively affect the value of the Company’s financial assets and liabilities or future cash flows and profits. Petrobras operates a global risk management policy that is being developed under the responsibility of the Company’s directors.
Petrobras is able to use both derivative and non-derivative instruments for implementing its global risk management strategy. However, in employing derivative instruments, the Company is exposed to credit and market risks. Credit risk consists in the non-compliance with the terms of the derivative contract by a counterparty, an example being the payment of the semi-annual coupon provided for in some fixed income securities. Market risks are the adverse effect on the value of a financial instrument arising from a change in interest or foreign exchange rates, in the prices of merchandise or other alterations in the micro and macroeconomic conditions impacting the company. The Company monitors credit risks, limiting its hedging activities to the financial derivative instruments of top grade financial institutions. The Company’s directors are responsible for managing market risks. The Company neither holds nor has issued financial derivative instruments for commercial purposes.
The Company protects its assets using a hybrid system of insurance in accordance with the characteristics of the goods and the nature of the risks covered.
More information Risk Factors.
4. What is the impact of a foreign exchange rate variation on cash flow/ profit?
ANSWER:
Following the oil industry’s deregulation and the consequent closer relationship with the international market, a significant proportion of the Company’s products now track international prices given their characteristics as commodities (low degree of product diversification). As a result, part of Petrobras’ future operating cash flow is closely linked to the dollar. While a large part of the Company’s debt is dollar -denominated, a devaluation in the Real against the dollar has a significant impact in the short-term only, since the Company’s operating cash flow contrives to cushion the impact of the currency risk over the long term.
5. What is capitalization?
ANSWER:
Capitalization is the increase in company assets through the reinvestment of profits, funding in the market or sale of part of corporate assets. Petrobras’ market capitalization in March 2004 was R$ 112,910 million. More details in Financial Information.
6. What is financial leverage? (What is the relation between Company short-term debt/ total debt?)
ANSWER:
Financial leverage is the degree to which third party capital is used (loans) in certain operations, or the relative importance of loans relative to the capital structure (ratio between liabilities and shareholders capital). The larger the company’s level of long-term debt, the greater its leverage.
In Petrobras’ case, the ratio of short-term debt/total debt has fallen over recent years: 54% in June 2000 to 17% in December 2003. This implies that the inherent risks in the financial operations are also diminishing since the latter represent a lower proportion of the Company’s liabilities.
7. What does the degree of operating leverage mean?
ANSWER:
The degree of operating leverage measures the percentage change in operating income in relation to the percentage change in sales. As a company’s operating costs are divided into fixed (rent, insurance etc.) and variable (raw materials, energy etc.) costs, a company with spare installed capacity can increase its sales on the back of a lower increment in costs proportional to this increase in sales.
Exemplifying, for a company in which all the costs are fixed, every increase in sales translates into an additional equivalent in operating income, given that the costs remain the same at any level of production. On the other hand, a company with a high level of variable costs proportional to fixed costs, will see a lower increase in operating income compared with the increase in sales because production costs rise in tandem with this increase.
The leverage expresses how much a variation in sales impacts on operating income or losses.
8. What are the most used indicators for measuring a company’s efficiency?
ANSWER:
Normally, fundamentalist indicators are used for analyzing the Company’s financial fundamentals. The fundamentals – such as market value, price/income, operating margin, return on equity, liquidity, asset turnover etc. – are all to be found in the company’s financial statements. This methodology allows us to evaluate the fair price for the share based on the outlook for future profits. The Petrobras Investor Relations site provides a tool for fundamentalist analysis in Key Ratios.
9. What are Petrobras’ current earnings forecasts for the current fiscal year?
ANSWER:
In accordance with CVM regulations, Petrobras does not disclose earnings forecasts. Information made available to analysts can be accessed through Market Consensus.
10. Which is Petrobras’ independent auditor?
ANSWER:
Currently the independent audit of Petrobras’ financial statements is the responsibility of ERNST & YOUNG (2003). The Company rotates its auditors every three years in line with CVM and SEC requirements.
11. Explain the reclassification of revenues and costs in 2Q03 between the E&P and Downstream segments.
ANSWER:
In the first quarter of 2003 the PIB BV oil export eliminations which include net operating revenues and COGS reductions amounting to R$ 1,508 million were incorrectly accrued in the Supply segment instead of E&P. Although this did not affect gross profits for both segments it caused higher numbers in the E&P division for both net operating revenue and COGS lines, and lower figures for the same lines in the Supply business.
In the first quarter, BR-GAAP, we had:
E&P segment: (R$ million)
Net operating revenue = 17,202 when it should be 17,202 - 1,508 = 15,694
COGS = COGS = (7,719) when it should be 7,719 - 1,508 = (6,211) when it should be 7,719 - 1,508 = (6,211)
Supply segment: (R$ million)
Net operating revenue = 18,127 when it should be 18,127 + 1,508 = 19,635
COGS = (15,235) when it should be 15,235 + 1,508 = (16,743)
Although this did not affect gross margins for either segment it did not reflect actual transfer prices, and so this was corrected in the second quarter.
12. What is the consolidated equity pick-up breakdown for the first and second quarters 2003?
ANSWER:
| CONSOLIDATED EQUITY INCOME |
| |
Until 06.30.2003 |
Until 03.31.2003 |
2º quarter 2003 |
| PETROBRAS PARENT CO. |
42.504 |
- |
42.504 |
| PETROQUISA |
172.274 |
87.627 |
84.647 |
| GASPETRO |
17.180 |
115 |
17.065 |
| FROM PREVIOUS RESULTS |
(150.898) |
- |
(150.898) |
| |
FX GAIN ON STOCKHOLDERS' EQUITY FROM
CONTROLLED COMPANIES ABROAD |
(1.307.086) |
(178.437) |
(1.128.649) |
| By subsidiaries in Brazil |
(1.001.985) |
(197.279) |
(804.706) |
| By subsidiaries outside Brazil |
(305.101) |
18.842 |
(323.943) |
| DISCOUNT AMORTIZATION |
(95.504) |
1.333 |
(96.837) |
| |
| TOTAL CONSOLIDATED EQUITY INCOME |
(1.321.530) |
(89.362) |
(1.232.168) |
13. The use of a new accounting practice in relation to provisions for cost of abandoned wells (FASB 143) has been recorded directly to shareholders’ equity as Adjustment for Previous Fiscal Years and amounting to R$ 2,396 million in 1Q03. However, what was the impact of the adoption of the new practice on the cost of goods sold (COGS)?
ANSWER:
Provision Value for future abandonment of wells and disassembling of production areas:
In 12.31.2002 = R$ 4.083.860 thousand
In 03.31.2003 = R$ 649.401 thousand (84% reduction)
Part of the provision absorbed by the cost of goods sold:
(1Q03 / 1Q02)
In 03.31.2002 = R$ 62.438 thousand
In 03.31.2003 = R$ 20.719 thousand (67% reduction)
(1Q03 / 4Q02)
In 12.31.2002 = R$ 438.465 thousand
In 03.31.2003 = R$ 20.719 thousand (95% reduction)
The raised value in 12.31.2002 was because of the adjustment for provisioning the costs for abandonment of wells (R$ 443 million), due to the revision in the estimates of abandonment and disassembling of production areas. Wee can clarify that adjustments should continue to happen in the COGS when the estimates will be revised (normally in the end of Fiscal Year) for the fields in production or due to start up production of new fields.
Considering that usually the E&P proceeds the annual revisions, it is probable that in the 4Q-2003 we have adjustments that will impact the cost of goods sold, not being possible to foresee today the magnitude of this impact. It is also probably that this adjustment will be lower than the value observed in 4Q-2002, therefore, in accordance with the present rule, will be dealt as present value at the date of field's stat up production, to which it is being revised the estimate of abandonment, what reduces substantially the values that are considered in the asset.
It also occurs that as the provision, now, is a present value, it needs to be brought up to date financially. Hence, the expenditure related with interests incurred from provisioning, in the sum of R$ 23,395 thousand in 1Q03 is classified as operating expenses - exploration costs.
Thus, the impact of the intoduction of the new accounting practise on the operating margin is not so significant as on the gross margin, since in this case we would have:
Part of the provision absorbed by the operating expenses:
(1Q03 / 1Q02)
In 03.31.2002 = (0)
In 03.31.2003 = R$ 23.395 thousand
(1Q03 / 4Q02)
In 12.31.2002 = (0)
In 03.31.2003 = R$ 23.395 thousand
Part of the provision absorbed by the cost of goods sold and by the operating expenses:
(1Q03 / 1Q02)
In 03.31.2002 = R$ 62.438 thousand
In 03.31.2003 = R$ 20.719 thousand + R$ 23.395 thousand (R$ 44.114 thousand) (29% reduction).
(1Q03 / 4Q02)
In 12.31.2002 = R$ 438.465 thousand
In 03.31.2003 = R$ 20.719 thousand + R$ 23.395 thousand (R$ 44.114 thousand) (89% reduction).
14. In 1Q03, Income Tax/Social Contribution represents about 37% of income before tax. What is the reason for such a high rate?
ANSWER:
Due to the introduction of the new accounting practice (FASB 143) for the cost of abandonment of wells and disassembling of production areas was created a differed income tax of about R$ 150 MM in the quarter what had raised this rate. Moreover, Petrobras used almost all the fiscal credits that had right until middle of 2002 which means that we could not offset any raise.
15. Where is the expenditure relating to active and retired employee pension plan and healthcare booked to the income statement? To which account(s) in the Income Statement is this expenses accrued?
ANSWER:
The parcel of active employees are part of the 'general and administrative expenses' (corporate area) and part of the 'cost of good sold' (business areas); the retired employees are 'others operating expenses'.
16. To what does the equity pick-up of R$ 195.9 MM refer in the corporate area in 1Q03?
ANSWER:
The Equity Income of R$ (195,9 MM) in the corporate area represents the net loss in the translation effect of the foreign exchange rate on overseas corporate investments.
17. According to information supplied by Petrobras, COGS for 1Q03 compared with 4Q02, was impacted by oil and oil product imports (volume x price) worth R$ (1,161 MM)”. What is the reason for this impact since in 1Q03 we had higher oil and oil product prices in the international market and oil imports were higher than in 4Q02?
ANSWER:
We must consider the turn over of the oil inventory, in average of 60 days. That is, when we analyze the imings of 1Q03, the only January has influence in this quarter. The others months will impact only in the 2Q03 results.
18. In what way will the new accounting practice (FASB 143) for "abandoned wells and disassembly of areas" affect the income statement and the balance sheet (impact on shareholders’ equity, assets, liabilities) in the coming fiscal years?
ANSWER:
In 2001, FASB issued the "SFAS 143 - Accounting for Asset Retirement Obligations" that defines new treatment for the recognition of costs involved in the abandonment of oil wells and the disassembly of areas. Petrobras must adopt the SFAS 143 requirements as of January 1, 2003 for its accounting statements according to US GAAP.
Thus, in order to permanently improve the presentation of its accounting statements and in line with its policy of preparing them according to international accounting practices, mainly those related to the oil and gas exploration and production activity, the management of PETROBRAS decided to adopt as of January 1, 2003 in its accounting statements prepared according to BR GAAP and US GAAP, the SFAS 143 concepts regarding recognition of the costs involved in the abandonment of oil wells and the obligation associated with the disassembly of those areas. The main aspects of these new accounting practices are outlined below:
a - Estimates of abandonment costs will be entered considering the net present value of these obligations and consequently, the result will be a provision smaller than the one previously accrued using the historical cost;
b - Formation of fixed asset of the same amount as the provision after discounted to net present value;
c - Increase in the Shareholder Equity in the 1Q03, as Adjustments Pertaining to Previous Years, in an amount of approximately R$ 2,500 million;
The amount of the provision that monthly goes to the Income Statement will continue to entered as a cost. In accordance with this new methodology these costs now will be significantly lower than the ones previously accrued. (The provision calculated by the NPV is lower than the provision calculated by the Historical Cost).
19. What are the principal influences on net operating income and COGS, both in the consolidated and controlling company figures in 1Q03 compared with 4Q02?
ANSWER:
NET OPERATING REVENUE - VARIATION 1Q-2003 AGAINST 4Q-2002
Main Influences |
| |
R$ Millions |
| |
Controlling |
Consolidated |
| Effect of the exchange rate conversion on the international net revenue after intersegment eliminations |
- |
(229) |
| Effect of the international oil price and volumes sold in off-shore controlled companies |
- |
375 |
| Effect of prices readjustments in the domestic market |
3,391 |
3,391 |
| Effect of the volumes sold in the domestic market |
(1,824) |
(1,824) |
| Effect of the prices on exings' revenue |
851 |
851 |
| Effect of the volumes sold on exings' revenue |
329 |
329 |
| Others |
(27) |
764 |
| TOTAL |
2,720> |
3,657 |
COST OF GOODS SOLD - VARIATION 1Q-2003 AGAINST 4Q-2002
Main Influences |
| |
R$ Millions |
| |
Controlling |
Consolidated |
| Effect of the exchange rate conversion on the international COGS after intersegment eliminations |
- |
(205) |
| Effect of the international oil price and volumes sold in off-shore controlled companies |
- |
220 |
| Effect of the exchange rate, the international quotation and the oil production on the third parties in Joint Ventures and Project Finance on the Petrobras' COGS |
638 |
638 |
| Effect of the exchange rate, the international quotation and the oil production on the Government participation in Petrobras' Cost of Goods Sold |
346 |
346 |
| Effect of the change of critera on the cost of abandonment of wells in Petrobras' Cost of Goods Sold |
(60) |
(60) |
| Effect of the revised estimates for the abandoned wells expenses in the Petrobras' Cost of Goods Sold in 2002 |
(443) |
(443) |
| Oil and oil products imings' impact in Petrobras' Cost of Goods Sold (volume x price) |
(1,161) |
(1,161) |
| Volumes sold impact in Petrobras' Cost of Goods Sold (domestic market and exings) |
(1,052) |
(1,052) |
| Others |
45 |
797 |
| TOTAL |
(1,687) |
(920) |
20. What is Petrobras’ budget for 2003?
ANSWER:
The budget for the year 2003 is the following:
| R$ Million |
| Description |
Petrobras |
System |
| ON INVESTIMENTS |
9981 |
16379 |
| PROJECT FINANCE |
2139 |
2139 |
| CAPITAL TRANSFER |
372 |
2205 |
| CONTROLLED COMPANIES |
257 |
0 |
| OTHER COMPANIES |
115 |
2205 |
| TOTAL |
12492 |
20723 |
21. To what fiscal periods does the "provision for contingencies relating to INSS” (Government Social Security System) (R$ 398 MM in 4Q02 – consolidated Income Statement) refer? Can this be a reoccurring item? What actions is Petrobras taking to mitigate these expenses?
ANSWER:
The provision for contingency is related to the notifications of the INSS received until September of 2002, in the sum of R$ 398 million, that impute social security obligations to Petrobras for contributions not collected by its contracted service providers between the years of 1997 and 2001. To prevent future occurrences prevention procedures are being implemented in the internal control systems. Future adjustments still can occur, however, in medium term, such provision tend to disappear.
22. What is the reason for the decline in investments from R$ 3.0 billion (3Q02) to R$ 637 MM (4Q02) in the consolidated balance sheet – fixed assets?
ANSWER:
The decrease from R$ 3,0 billion in the 3Q02 to R$ 637million in the 4Q02 in investments is due to the re-classification of some 'structured projects' assets as property plant & equipment. This re-classification is due to the fact that it is almost certain that in the future these assets (projects) will belong to Petrobras in the place of SPCs - option purchase clause of the asset at the end of the project.
23. What is the reason for the decrease of R$ 2.8 billion (3Q02) to R$ 1.0 billion (4Q02) in ‘advance for pension plan – migration’ in the consolidated balance sheet - assets? And what is the reason for the fall in the "pension plan obligation" from R$ 2.4 billion (3Q02) to R$ 515 MM (4Q02) in the consolidated balance sheet - liabilities?
ANSWER:
In November 28, 2001, Petrobras advanced to PETROS resources to cover the commitments of migration for PETROBRAS VIDA Plan, which, monetarily corrected in accordance with the IPCA's variation + interests of 6%ªª in 12.31.2002, were R$ 3,0 billion. Of this value, on 12.31.2002, R$1,9 billion were used to pay the technical deficit that appeared in the closing of PETROS Plan regarding the responsibility of the sponsors' companies and the participants who had joined the PETROBRAS VIDA Plan and the respective administration tax.
a - Because of the payment of the technical deficit that appeared in the closing of PETROS Plan previously commented. The accounting was carried through a write off in the actuarial liabilities with PETROS, and on the other hand, a write off in the advances for the migration of PETROBRAS VIDA Plan.
24. What are the main impacts on net operating revenues and COGS, in both the consolidated and controlling company balance sheet, in 4Q02 compared with 3Q02?
ANSWER:
Net Operating Revenue - Variation 4Q-2002 Against 3Q-2002
Main Influences |
| |
R$ Millions |
| |
Controlling |
Consolidated |
| Decrease relative to the exchange conversion effect on the international revenue after intersegment eliminations |
- |
(3,171) |
| Effect of prices readjustment |
2,562 |
2,562 |
| Effect of the increase in the volume sold in the domestic market |
284 |
284 |
| Exingation's effect (volume decrease x price increase) |
(283) |
(283) |
| Others |
12 |
156 |
| TOTAL |
2,575 |
(452) |
Cost of Goods Sold - Variation 4Q-2002 Against 3Q-2002
Main Influences |
| |
R$ Millions |
| |
Controlling |
Consolidated |
| Decrease relative to the exchange conversion effect on the international COGS after intersegment eliminations |
- |
(2,891) |
| Effect of the exchange rate, the international quotation and the oil production on the third parties participation in Joint Ventures and Project Finance in the Petrobras' Cost of Goods Sold |
(550) |
(550) |
| Effect of the exchange rate, the international quotation and the oil production on the Government participation in Petrobras' Cost of Goods Sold |
569 |
569 |
| Effect of the revised estimates for the abandoned wells expenses in the Petrobras' Cost of Goods Sold |
443 |
443 |
| Increase of Refining Cost - PETROBRAS (programmed stoppages at the REVAP, REPAR and REPLAN refineries, increase in the HSE costs, etc.) |
107 |
107 |
| Increase of oil and oil products imings prices in Cost of Goods Sold |
1,979 |
1,979 |
| Others |
(175) |
(27) |
| TOTAL |
2,373 |
(370) |
25. How is Brazilian natural gas purchased through the "take or pay" and "ship or pay" but not consumed, accounted for in the Company’s books?
ANSWER:
The Bolivian natural gas transing, even what is not consumed but contacted (ship or pay) is considered COGS. Regarding quantity (take or pay) the volume consumed is considered cost and so reflected in the COGS. The volume not consumed goes to the long tern assets, and so it isn't considered as COGS.
Regarding the natural gas not consumed, but contacted, (take or pay) Petrobras has 7 years to lift.
26. How does Petrobras calculate its EBITDA? (earnings before interest, taxes, depreciation and amortization = operating cash flow)
ANSWER:
(Values picked up from the Income Statement & Cash Flow)
Operating Profit
- Gains from investments in subsidiaries
+ Depreciation & Amortization
- Financial income
+ Financial expenses
- Monetary & FX correction - assets
+ Monetary & FX correction - liabilities
= EBITDA
27. Cash Flow Statement of the Controlling Company – What is the meaning of the item "Operation with Supplier of Petroleum and Oil Products - Foreign"?
ANSWER:
This line is basically oil imings via PIFCO, a wholly owned subsidiary incorporated in the Cayman Islands. The effect is in the controlling company because of the imings and because of the FX rate variation. In the consolidated statement it disappears because it represents Intercompany operations.
28. What are the principal factors affecting Income Tax payments?
ANSWER:
The Brazilian legislation allows adjustments to be made in the form of additions and exclusions from net book profit such as:
INTEREST ON OWN CAPITAL
Remuneration of shareholders in the form of interest on own capital is a practice followed by PETROBRAS and other large Brazilian companies and, when paid or credited to shareholders individually, may be deducted directly from the calculation base for income tax and social contribution on profit, without affecting corporate profits but reducing the tax burden and at the same time maximizing the Company's profitability.
PROSPECTING AND EXPLORATION EXPENSES
While these expenses may be deferred for accounting purposes, prospecting and exploration expenses are deductible from the calculation base for income tax and social contribution on profit when paid, in contrast with the treatment given for accounting purposes.
NON-DEDUCTIBLE PROVISIONS
Expenses recorded in the accounts as provisions for abandoned wells, depletion, programmed stoppages, Multidisciplinary Healthcare - AMS, future retirement and other provisions are not deductible for tax purposes, becoming DEDUCTIBLE only when these expenses are actually disbursed.
FINES
Fines levied for legal transgressions or for infringements of administrative, penal, labor and other laws and regulations as well as those in connection with notifications for underpayment of tax, are non-deductible in a legal entity's corporate income tax computation.
ACCELERATED DEPRECIATION
When tax law authorizes a deduction greater than the normal depreciation of the cost of acquisition or construction of machines, equipment, apparatus and instruments used in an industrial process by way of accelerated depreciation, the assets become fully depreciated in a period less than their useful lives for accounting purposes, thus postponing the payment of corporate income tax. However, when the accelerated depreciation rate is zero, the assets are fully depreciated for tax purposes and any depreciation recorded in the accounts with respect to such assets must be added back for tax purposes.
29. Can Petrobras sell the NTN Government bonds?
ANSWER:
During the 1990's, the Federal Government developed the National Privatization Program (PND) for the future privatization of various government-controlled entities. The Company, through its subsidiaries PETROQUISA and GASPETRO, had previously invested in several of the companies included in the PND. As these companies were sold, the Company initially received from the acquirers securities issued by the Federal Government. On September 11th, 1997, these securities were exchanged for National Treasury Bonds ''Series P'' (NTN-P). The NTN-P notes cannot be traded in the secondary market; therefore, they are recorded at face value plus accrued interest. The bonds can only be redeemed at the maturity date or at an earlier date, at face value plus accrued interest, if they are used to pay debt to the Federal Government or agencies related to the Federal Government. In 1998, the Federal Government and the Company reached an agreement authorizing the Company to use U.S. $702 to settle its obligation with the Brazilian Central Bank (BACEN) as of October 31st, 1998 with the application of a ingion of the NTN-P bonds used to offset a loan with the Brazilian Central Bank. There are no future plans to use these securities to settle obligations with the government; accordingly, all of the securities have been classified as held-to-maturity.
Below you have the maturing schedule for the bonds (US$ Million):
| As of December 31 |
| |
Index |
Interest |
Maturity |
1999 |
1998 |
| NTN-P |
TR |
6% p.a. |
2007 |
2,022 |
2,671 |
| |
|
|
2008 |
549 |
726 |
| |
|
|
2009 |
708 |
937 |
| |
|
|
2010 and thereafter |
294 |
442 |
| |
|
|
|
3,573 |
4,776 |
30. How is the reimbursement under "Ventures under Negotiation" booked to the accounts?
ANSWER:
Ventures under negotiation apply to projects that the Company has been structuring with national and international financial agents, as well as the negotiations with oil companies to establish operational partnerships.
These negotiations gather the project expenses until its production start-up, including the reimbursement of the expenses already paid by Petrobras in the referred projects.
For instance, when the oil exploration expense reimbursement occurs, there is a consequent debt in the "Cash and Banks / Short-term Investments" account in the Assets, and a credit in the "Ventures under Negotiation" account in the Assets, which prevents any possible impact in the results. For further details, please check the 2nd and 3rd QIS's for the year 2000, Notes to the Quarterly Financial Information, page 9.
For more details, please read the "Ventures in Negotiation" Explanatory Note in the ITRs & DFPs.
31. What has changed in the light of the new Administrative Rule (MP/MME 32 of March 8 2001) published by the Brazilian Government?
ANSWER:
A - The new Administrative Rule published by the Government has positive implications for Petrobras.
The new Administrative Rule should be seen as a continuation of the process involving the gradual elimination of the restrictions on Petrobras's operations. The measures published in AM 32 are designed to make it easier for Petrobras in manage its business. The new rules exempt Petrobras and its subsidiaries from administrative procedures required from the majority of state-owned companies.
As a result of the Administrative Rule, Petrobras will not have to request specific approval from the Ministry of Planning for the following items:
(1) Numbers on the payroll (whether in the case of hiring or voluntary lay-off programs);
(2) Salary policy for which the Company will enjoy freedom to manage as its sees fit;
(3) Increases in capital;
(4) Dividend policy;
(5) Acquisitions;
(6) Issue of long-term bonds including leasing and financial instruments convertible into Company shares. (*)
(*) Although Petrobras and its Subsidiaries are no longer required to obtain prior authority from the Department of Coordination and Control of State-Owned Companies (Departamento de Coordenação e Controle das Empresas Estatais - DEST), it must still obtain the prior manifestation of the National Treasury Secretariat (Secretaria do Tesouro Nacional - STN) and the agreement from the Central Bank of Brazil for external credit operations, according to Decree 93,872, of December 23 1986.
Should Petrobras and its Subsidiaries have insufficient limits for raising necessary funding for its internal and external credit operations, specific authority from the Federal Senate for the temporary increase in these limits is still needed - the same also applying in the case of operations involving the guarantee of the Federal Government.
Imingant to note that Petrobras and Subsidiaries remain obliged to observe the respective annual limits for debt, capital expenditure and the budget as well as to reach the targets approved for the primary surplus each year.
At the end of 2000, Petrobras was authorized to raise additional external credit of up to U$ 1.8 billion for the period of 18 months. This represented an ADDITIONAL limit to those already sanctioned.
Reconciliation of Results
1. What are the most significant differences between results stated according to Brazilian and to US accounting principles - BR GAAP and US GAAP respectively for the Balance Sheet and the Income Statement?
2. What is the reconciliation between consolidated result in US-GAAP and BR-GAAP (2003/2002)?
3. What is the reconciliation between the consolidate result in US-GAAP and BR-GAAP (1st HALF 2003)
4. What is the reconciliation between US-GAAP and BR-GAAP on consolidated equity pick-up on June 30 2003?
5. What is the Reconciliation between the consolidated results in US-GAAP and BR-GAAP (1st QUARTER 2003)?
6. What is the reconciliation between consolidated results in US-GAAP and BR-GAAP (fiscal year 2002)?
7. What is the reconciliation between the consolidated equity pick-up in US-GAAP and BR-GAAP (fiscal year 2002)?
8. What are the differences between the way inventories are booked under US-GAAP and BR-GAAP?
9. Reconciliation between consolidated US-GAAP and BR-GAAP results (January - September 2003?)
1. What are the most significant differences between results stated according to Brazilian and to US accounting principles - BR GAAP and US GAAP respectively for the Balance Sheet and the Income Statement?
ANSWER:
US-GAAP means United States' Generally Accepted Accounting Principles, the American accounting standard established by the FASB (Financial Accounting Standards Board). The BR-GAAP is the Brazilian accounting standard.
As some of the accounting rules are different there are value differences between the statements made in BR GAAP and US GAAP. The main methodology differences are:
- Leasing: Is considered as rent expenses according to BR GAAP and as financed purchasing in US GAAP.
- Derivatives: In BR GAAP the mark to market is only mentioned in explanatory notes, the result of the derivative is only quantified when the financial execution is done. In US GAAP derivatives are quantified and registered in a mark to market basis every fiscal period.
- Expenses with scheduled shutdowns: In BR GAAP these expenses will be incorporated to the fixed assets (facilities and fleet maintenance) while in the US GAAP these expenses are registered in the income statement when incurred.
- Pension: In BR GAAP we register liabilities net of guarantor assets and accumulated losses. For US GAAP purposes, we only register the liabilities net of guarantor assets. Unrecognized losses are registered in the Shareholder's Equity.
- Investments: The BR GAAP requires proportional consolidation. The US GAAP does not accept proportional consolidation.
- Capitalized interest: in the BR GAAP, only interest listed for specific projects are capitalized. For the US GAAP purposes, interest amount capitalized results from all capitalized expenses under construction multiplied by the weight average interest rate of the debts.
- Pre-Operational Expenses: In BR GAAP these expenses are capitalized and amortized. In US GAAP they are registered as expenses when incurred.
2. What is the reconciliation between consolidated result in US-GAAP and BR-GAAP (2003/2002)?
ANSWER:
| |
U.S.MILLION |
| Consolidated result according to BR
GAAP |
1.370 |
| Deferred income tax |
201 |
| Capitalized interest |
62 |
| Leasing |
39 |
| Losses on financial exposures – Thermoelectric
power plants |
(114) |
| PETROS – Pension Plan |
(80) |
| Hedging |
(71) |
| Outros |
(70) |
| Result under US-GAAP |
1.337 |
3. What is the reconciliation between the consolidate result in US-GAAP and BR-GAAP (1st HALF 2003)?
ANSWER:
|
| |
u.s. million |
| Consolidated result according to BR GAAP |
2,897 |
| Abandonment provisions adjustment |
697 |
| Equity in results of non-consolidated companies |
510 |
| Leasing |
102 |
| Capitalized interest |
61 |
| Deferred income tax |
12 |
| PEPSA and PELSA results exclusion |
(264) |
| PETROS - Pension Plan |
(165) |
| Proportional consolidated effect |
(116) |
| Other |
34 |
| Result under US-GAAP |
3,768 |
4. What is the reconciliation between US-GAAP and BR-GAAP on consolidated equity pick-up on June 30 2003?
ANSWER:
In the first quarter of 2003 the PIB BV oil export eliminations which include net operating revenues and COGS reductions amounting to R$ 1,508 million were incorrectly accrued in the Supply segment instead of E&P. Although this did not affect gross profits for both segments it caused higher numbers in the E&P division for both net operating revenue and COGS lines, and lower figures for the same lines in the Supply business.
In the first quarter, BR-GAAP, we had:
E&P segment: (R$ million)
Net operating revenue = 17,202 when it should be 17,202 - 1,508 = 15,694
COGS = COGS = (7,719) when it should be 7,719 - 1,508 = (6,211) when it should be 7,719 - 1,508 = (6,211)
Supply segment: (R$ million)
Net operating revenue = 18,127 when it should be 18,127 + 1,508 = 19,635
COGS = (15,235) when it should be 15,235 + 1,508 = (16,743)
Although this did not affect gross margins for either segment it did not reflect actual transfer prices, and so this was corrected in the second quarter.
5. What is the Reconciliation between the consolidated results in US-GAAP and BR-GAAP (1st QUARTER 2003)?
ANSWER:
| CONSOLIDATED EQUITY INCOME |
| |
Until 06.30.2003 |
Until 03.31.2003 |
2º quarter 2003 |
| PETROBRAS PARENT CO. |
42.504 |
- |
42.504 |
| PETROQUISA |
172.274 |
87.627 |
84.647 |
| GASPETRO |
17.180 |
115 |
17.065 |
| FROM PREVIOUS RESULTS |
(150.898) |
- |
(150.898) |
| |
FX GAIN ON STOCKHOLDERS' EQUITY FROM
CONTROLLED COMPANIES ABROAD |
(1.307.086) |
(178.437) |
(1.128.649) |
| By subsidiaries in Brazil |
(1.001.985) |
(197.279) |
(804.706) |
| By subsidiaries outside Brazil |
(305.101) |
18.842 |
(323.943) |
| DISCOUNT AMORTIZATION |
(95.504) |
1.333 |
(96.837) |
| |
| TOTAL CONSOLIDATED EQUITY INCOME |
(1.321.530) |
(89.362) |
(1.232.168) |
6. What is the reconciliation between consolidated results in US-GAAP and BR-GAAP (fiscal year 2002)?
ANSWER:
| Reconciliation Betwen US-GAAP and BR-GAAP Results (2002 Fiscal Year) |
| |
U.S. Million |
| Consolidated result according to BR GAAP |
2.770 |
| Equity on results of non-consolidated companies |
(665) |
| PETROS - Pension Plan |
(338) |
| Project financings |
(268) |
| Impairment |
(63) |
| Exchange variation on payable accounts to foreign subsidiaries |
290 |
| Deferred income tax |
248 |
| Leasing |
156 |
| Capitalized interest |
119 |
| Depreciation, depletion and amortization |
90 |
| Other |
(28) |
| Result under US-GAAP |
2.311 |
7. What is the reconciliation between the consolidated equity pick-up in US-GAAP and BR-GAAP (fiscal year 2002)?
ANSWER:
| Reconciliation Betwen US-GAAP and BR-GAAP on Equity Results of Non-Consolidated Companies (2002 Fiscal Year) |
| |
U.S. Million |
| Equity on results of non-consolidated companies - BR GAAP |
487 |
| Equity on MEGA Company investment |
(95) |
| Equity on investments in thermoelectric power plants |
(94) |
| Reversal of EG3 goodwill |
(83) |
| Reversal of exchange gain on conversion of investments in subsidiaries abroad |
(439) |
| Other |
46 |
| Equity on results of non-consolidated companies - US GAAP |
(178) |
8. What are the differences between the way inventories are booked under US-GAAP and BR-GAAP?
ANSWER:
For both process Petrobras uses the average cost methodology to account the inventories. Whatever the Income Tax payment is calculated based on the Brazilian Corporate Law any other method to account the inventories would not affect the IR base calculus.
9. Reconciliation between consolidated US-GAAP and BR-GAAP results (January - September 2003)?
ANSWER:
| Power Offtake Projected Commitments |
| |
| |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
Yearly Average
after 2007 |
| |
| |
|
(Average MW) |
|
|
| NE Contingent Capacity Payments |
90 |
240 |
240 |
240 |
240 |
240 |
- |
| NE Tolling Arrangements |
95 |
255 |
255 |
255 |
255 |
255 |
255 |
| Total Northeast Region |
185 |
495 |
495 |
495 |
495 |
495 |
255 |
| S/SE Contingent Capacity Payments |
1055 |
1190 |
1190 |
1190 |
893 |
- |
- |
| S/SE Tolling Arrangements |
310 |
1440 |
2000 |
2000 |
2000 |
2000 |
2000 |
| Total South and Southeast Region |
1365 |
2630 |
3190 |
3190 |
2893 |
2000 |
2000 |
| Total Commitments |
1550 |
3125 |
3685 |
3685 |
3388 |
2495 |
2255 |
In 2002 Petrobras paid Capacity Utilization Contingencies (Contingent Capacity Payments) amounting to R$828 million corresponding to the total of capacity subject to such payments for this period, or 1055 MW relating to Macaé Merchant (maximum capacity of 870 MW), and Eletrobolt (maximum capacity of 320 MW), plus 90 MW relating to MPX (maximum capacity of 240) MW. Also in 2002 Petrobras provisioned R$ 724 MM representing 54% of the forecasted maximum loss for 2003. In the 1Q03 Petrobras provisioned more R$ 708 MM, which in addition to the value provisioned in 2002 stands for 94% of the expected maximum loss for the current year. All of these payments were accrued in the "other operating expense" on the Income Statement.
The reasoning for these contingency payments is as follows: Petrobras is responsible for covering the return on 50% of the investments costs of these plants amortized over a period of five years whenever the electricity tariffs as posted by the MAE (Energy Spot Market) is insufficient to cover this return. Inversely Petrobras is entitled to 50%, 25%, and 50%, respectively of the upsides of Macaé Marchant, Eletrobolt and MPX, indefinitely.
For the Tolling Arrangements (ECC - Energy Conversion Contracts) in which Petrobras has an exposure (beginning 4Q02), the generation above corresponds to the following thermal plants: TermoRio, Ibirite, 3 Lagoas, Canoas and Pirtaininga in the Southeast and TermoBahia, TermoAçu e Fafen in the northeast. The ECC is a contract between the off-taker (Petrobras) and the Thermo power Plant (SPC). Petrobras will delivery the natural gas to the Plant, will pay a tax for the conversion (tolling fee) and will get all the energy from it. From this time Petrobras will evaluate the destiny of the energy that could be for retail or own consumption.
In this case Petrobras pays the conversion fee, which is dimensioned to remunerate the investments related to the energy it has the right, for 20 years. As of June 2002 the Company had already substantially negotiated certain supply contracts for electricity for lesser periods amounting to 800 MW, 1,530 MW, 1,700, and 1,400 MW on average, for 2003, 2004, 2005 and 2006 respectively, all in the south and southeast region.
Market Disclosure
1. What is the difference between an announcement of a material fact and a press release?
2. What are the instruments that Petrobras uses to communicate with the market?
3. What is Petrobras’ policy for disclosing information?
4. What is a webcast?
5. What is a Chat with investors?
6. How can a take part in a WebCast/Chat with Investors?
7. What were Petrobras’ most recent presentations?
8. When will the Investor Relations area be holding their next presentations?
9. How can I contact Petrobras Investor Relations Area?
1. What is the difference between an announcement of a material fact and a press release?
ANSWER:
A material fact is any information, whether good or bad, which can impact investors decisions’ on selling or buying securities issued by the Company. The Company is obliged by the regulatory organs (in Brasil, by the CVM and in the USA, by the SEC) to publicly disclose material facts to all the investors and the public at large.
A press release contains information that has no significant impact on the decision to buy and sell shares. Management supplies this information as part of the company’s policy of increasing business transparency and investor protection. The disclosure of timely and transparent information to the market is a component part of good Corporate Governance practices.
Petrobras’ internal policy for disclosing information on an act or material fact can be found in Petrobras’ Good Practices Code.
2. What are the instruments that Petrobras uses to communicate with the market?
ANSWER:
The principal instruments for communicating directly with the market (investors and analysts) are presentations, conference calls, e-mails, telephone calls (0800 282-1540), web casts and chats, in addition to the Company’s internationally award winning website. Transcripts, replays, slides and audio files are available in Presentations and Events, immediately following their presentation for those who wish to obtain more details on what was shown, spoken or debated.
3. What is Petrobras’ policy for disclosing information?
ANSWER:
In view of the modern and transparent system of corporate governance practiced by Petrobras, the Board has prepared and approved a Good Practices Code. This covers disclosure policies on acts or material facts; securities’ trading; the business conduct of managers and employees comprising Petrobras’ senior management; appointments to positions in the management of subsidiaries, controlled companies and affiliates and Investor Relations.
Petrobras has implemented these policies for providing investors with the fullest information on which to base decisions with respect to investing and divesting the Company’s securities.
Access the page on the Good Practices Code.
4. What is a webcast?
ANSWER:
A Webcast is a conference call via the Internet (and, simultaneously, via the telephone): using the Internet, the presentation is visual while via the telephone, the participant listens to the executives’ explanations. Petrobras holds webcasts after the publication of its quarterly results for clarifying doubts of analysts who follow the Company.
5. What is a Chat with investors?
ANSWER:
A Chat is also a conference call via the Internet, in which the participants can go to a chat room for debating purposes. Petrobras holds chats following its webcasts to clarify the doubts of institutional and individual investors.
6. How can a take part in a WebCast/Chat with Investors?
ANSWER:
Webcasts are only open to market analysts connected to consultancies and investment banks that specifically follow Petrobras. On the other hand, any effective or potential Petrobras shareholder may take part in a Chat.
For more information, access Presentations and Events.
7. What were Petrobras’ most recent presentations?
ANSWER:
The most recent conference call presentations and transcripts can be found in Presentations and Events.
8. When will the Investor Relations area be holding their next presentations?
You can find the dates of the next Webcast, Chat and other scheduled events in Events Calendar..
9. How can I contact Petrobras Investor Relations Area?
ANSWER:
You are provided with services tailored according to whether you are shareholder, investor or analyst. You can contact the Area via e-mail, mail, telephone, fax or in person. Details can be found on the Contacts page.
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