Telemar Norte Leste S.A. · Telemar Norte Leste S.A. Report of Independent Accountants on Limited...

(A free translation of the original report in Portuguese on Limited Review of Interim Financial Information)

Telemar Norte Leste S.A. Report of Independent Accountants on Limited Review of Interim Financial Information at March 31, 2002 and 2001

2

(A free translation of the original report in Portuguese on Limited Review of Interim Financial Information) Report of Independent Accountants on Limited Review of Interim Financial Information May 3, 2002 To the Board of Directors and Shareholders Telemar Norte Leste S.A.

1 We have carried out limited reviews of the Quarterly Information - ITR of Telemar Norte Leste S.A. for the quarters ended March 31, 2002 and 2001, including the balance sheet (parent company and consolidated), the statement of income (parent company and consolidated), the notes to the financial information (parent company and consolidated) and the comments on the performance in the quarter (parent company and consolidated). This financial information is the responsibility of the Company's management.

2 Our reviews were conducted in accordance with the specific procedures determined by the Institute of

Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accountancy Board, and consisted principally of: (a) making inquiries of, and discussing with, officials responsible for accounting, financial and operational matters relating to the procedures adopted for preparing the quarterly financial information and (b) reviewing the information and subsequent events which have, or may have, significant effects on the financial position and results of operations of the Company.

3 Based on our limited reviews, we are not aware of any material adjustments that should be made to the Quarterly Information - ITR referred to in paragraph one above for it to be in accordance with accounting principles prescribed by Brazilian Corporate Law and the regulations established by the Brazilian Securities Commission - CVM, specifically for the preparation of the quarterly information.

4 The Quarterly Financial Information - ITR also contains accounting and financial information relating to

the quarter ended December 31, 2001. We examined this information at the time of its preparation, in connection with our audit of the financial statements at that date, on which we expressed our unqualified opinion on February 15, 2002. PricewaterhouseCoopers Marcos D. Panassol Auditores Independentes Partner CRC-SP-160-S-RJ Contador CRC-SP-155.975/O-8-S-RJ

(A free translation of the original Interim Financial Information in Portuguese, prepared in accordance with the requirements of Brazilian Corporate Law) FEDERAL PUBLIC SERVICE CVM - BRAZILIAN SECURITIES COMMISSION BRAZILIAN CORPORATE LAW ITR - QUARTERLY INFORMATION Base date - 03/31/02 COMMERCIAL, INDUSTRIAL & OTHER TYPES OF COMPANY THE REGISTRATION WITH THE CVM DOES NOT IMPLY THAT ANY OPTION IS EXPRESSED ON THE COMPANY. THE INFORMATION PROVIDED IS THE RESPONSIBILITY OF THE COMPANY'S MANAGEMENT

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01.01 - IDENTIFICATION

1 - CVM CODE 2 - NAME OF THE COMPANY 3 - CNPJ (Taxpayers Record Number)

01132-0 TELEMAR NORTE LESTE S.A. 33.000.118/0001-79

4 - NIRE 33300152580

01.02 - HEAD OFFICE

1 - ADDRESS 2 - QUARTER OR DISTRICT

Rua General Polidoro, 99 Botafogo

3 - CEP (ZIP CODE) 4 - CITY 5 - STATE

22280-001 Rio de Janeiro RJ

6 - AREA CODE 7 - PHONE NUMBER 8 - PHONE NO. 9 - PHONE NO. 10 - TELEX

21 3131-1105

11 - AREA CODE 12 - FAX No. 13 - FAX No.

21 3131-1144

14 - FAX No.

15 - E-MAIL

[email protected]

01.03 - DIRECTOR OF INVESTOR RELATIONS (BUSINESS ADDRESS)

1 - NAME 2 - ADDRESS

Alvaro Avelino Carvalho dos Santos Rua General Polidoro, 99

3 - QUARTER OR DISTRICT 4 - CEP (ZIP CODE) 3 - CITY 6 - STATE

Botafogo 22280-001 Rio de Janeiro RJ

7 - AREA CODE 8 - PHONE No. 9 - PHONE No. 10 - PHONE No. 11 - TELEX No. 12 - FAX No.

21 3131-1105 3131-1144

13 - E-MAIL

[email protected]

01.04 - GENERAL INFORMATION/AUDITOR

CURRENT FISCAL YEAR CURRENT QUARTER PREVIOUS QUARTER

1 - BEGINNING 2 - ENDING 3 - QUARTER 4 - BEGINNING 5 - ENDING 6 - QUARTER 7 - BEGINNING 8 - ENDING

01/01/2002 12/31/2002 1 01/01/2002 03/31/2002 4 10/01/2001 12/31/2001

9- INDEPENDENT ACCOUNTANTS - NAME OF THE COMPANY 10- CVM CODE

PRICEWATERHOUSECOOPERS AUDITORES INDEPENDENTES 00287-9

11- NAME OF THE ENGAGEMENT PARTNER 12- CPF OF THE ENGAGEMENT PARTNER

Marcos Donizete Panassol 063.702.238-67

01.05 - CURRENT BREAKDOWN OF PAID-IN CAPITAL

1 - No. of shares (thousands) Current quarter 03/31/2002 Previous quarter 12/31/2001 Comparative quarter 03/31/2001

Capital subscribed and paid-in

COMMON 107,186,966 107,186,966 111,803,874

PREFERRED 138,160,039 138,160,039 133,543,131

TOTAL 245,347,005 245,347,005 245,347,005

Treasury stock

COMMON 0 0 0

PREFERRED 3,731,991 3,742,284 3,742,284

TOTAL 3,731,991 3,742,284 3,742,284

(A free translation of the original Interim Financial Information in Portuguese, prepared in accordance with the requirements of Brazilian Corporate Law) FEDERAL PUBLIC SERVICE CVM - BRAZILIAN SECURITIES COMMISSION BRAZILIAN CORPORATE LAW ITR - QUARTERLY INFORMATION Base date - 03/31/02 COMMERCIAL, INDUSTRIAL & OTHER TYPES OF COMPANY 01.01 - IDENTIFICATION

1 - CVM CODE 2 - NAME OF THE COMPANY 3 - CNPJ (Taxpayers' Record Number) 01132-0 TELEMAR NORTE LESTE S.A. 33.000.118/0001-79

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01.06 - CHARACTERISTICS OF THE COMPANY

1 - TYPE OF COMPANY 2 - SITUATION 3 - TYPE OF SHARE CONTROL 4 - ACTIVITY CODE

Industrial, commercial and others Operating National Private 1990100 - Telecommunications

5 - MAIN ACTIVITY 6 - TYPE OF CONSOLIDATION 7 - TYPE OF AUDITORS REPORT

Telecommunication services Not presented Unqualified

01.07 - CORPORATIONS/PARTNERSHIPS EXCLUDED FROM THE CONSOLIDATED STATEMENTS

1 - ITEM 2 - CNPJ (TAX PAYERS RECORD NUMBER) 3 - NAME

01.08 - DIVIDENDS APPROVED AND/OR PAID DURING AND AFTER THE CURRENT QUARTER

1 - ITEM 2 - EVENT 3 - APPROVAL 4 - REMUNERATION 5 - PAYMENT 6 - SHARE TYPE 7 - REMUNERATION PER SHARE

01 OGM 04/24/2002 Dividend PNA 0.0001159000

02 OGM 04/24/2002 Dividend PNB 0.0019345000

03 OGM 04/24/2002 Interest on capital ON 0.0011590000

04 OGM 04/24/2002 Interest on capital PNA 0.0011590000

05 OGM 04/24/2002 Interest on capital PNB 0.0011590000

01.09 - SUBSCRIBED CAPITAL AND CHANGES IN THE CURRENT YEAR

1 - ITEM 2 - DATE OF CHANGE

3 - CAPITAL (R$/THOUSAND)

4 - AMOUNT OF CHANGE (R$/THOUSAND)

5 - REASON FOR CHANGE

7 - NUMBER OF SHARES ISSUED (THOUSANDS)

8 - SHARE ISSUE PRICE (R$) (Reais)

01 04/12/2002 7,092,537 4,438 FINOR 79,140 0.560800000

01.10 - INVESTOR RELATIONS DIRECTOR

1 - DATE 04/26/2002

2 - SIGNATURE



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02.01 - BALANCE SHEET - ASSETS (THOUSANDS OF REAIS)

1 - ITEM 2 - DESCRIPTION 3 - 03/31/2002 4 - 12/31/2001

1 TOTAL ASSETS 20,739,626 21,561,637

1.01 CURRENT ASSETS 3,257,202 3,224,080

1.01.01 CASH AND CASH EQUIVALENTS 309 74,181

1.01.02 CREDITS 2,200,948 2,140,464

1.01.03 INVENTORIES 40,125 36,051

1.01.04 OTHER 1,015,820 973,384

1.01.04.01 DEFERRED AND RECOVERABLE TAXES 773,711 781,553

1.01.04.02 LOANS RECEIVABLE 8,493 7,120

1.01.04.03 ADVANCES TO EMPLOYEES 21,868 7,028

1.01.04.04 ADVANCES TO SUPPLIERS 123,482 88,609

1.01.04.05 PREPAID EXPENSES 71,565 72,869

1.01.04.06 JUDICIAL DEPOSITS

1.01.04.07 OTHER 16,701 16,205

1.02 NON-CURRENT ASSETS 1,333,922 1,485,309

1.02.01 CREDITS RECEIVABLE 977,484 1,134,147

1.02.01.01 DEFERRED AND RECOVERABLE TAXES 977,484 1,134,147

1.02.02 CREDITS WITH RELATED PARTIES

1.02.02.01 WITH AFFILIATES

1.02.02.02 WITH SUBSIDIARIES

1.02.02.03 WITH OTHER RELATED PARTIES

1.02.03 OTHERS 356,438 351,162

1.02.03.01 TAX INCENTIVES 77,884 77,931

1.02.03.02 JUDICIAL DEPOSITS 278,520 273,198

1.02.03.03 OTHERS 34 33

1.03 PERMANENT ASSETS 16,148,502 16,852,248

1.03.01 INVESTMENTS 23,018 21,298

1.03.01.01 IN AFFILIATES

1.03.01.02 IN SUBSIDIARIES

1.03.01.03 OTHER 23,018 21,298

1.03.02 PROPERTY, PLANT & EQUIPMENT 16,125,484 16,830,950

1.03.03 DEFERRED CHARGES



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02.02 - BALANCE SHEET - LIABILITIES (THOUSANDS OF REAIS)

1 - CODE 2 - DESCRIPTION 3 - 03/31/2002 4 - 12/31/2001

2 TOTAL LIABILITIES 20,739,626 21,561,637

2.01 CURRENT LIABILITIES 5,786,429 6,758,265

2.01.01 LOANS AND FINANCING 814,861 840,006

2.01.02 DEBENTURES

2.01.03 SUPPLIERS 1,436,196 1,726,610

2.01.04 TAXES AND CONTRIBUTIONS PAYABLE 456,914 474,567

2.01.05 DIVIDENDS PAYABLE 198,149 198,734

2.01.06 PROVISIONS

2.01.07 RELATED PARTIES 2,603,386 3,221,042

2.01.07.01 LOANS AND FINANCING 2,102,054 2,691,911

2.01.07.02 DIVIDENDS AND INTEREST ON CAPITAL 496,307 488,062

2.01.07.03 OTHERS 5,025 41,069

2.01.08 OTHERS 276,923 297,306

2.01.08.01 PAYROLL AND RELATED CHARGES 104,107 134,868

2.01.08.02 CONSIGNMENTS IN FAVOR OF THIRD PARTIES 111,924 107,101

2.01.08.03 OTHER 60,982 55,337

2.02 LONG-TERM LIABILITIES 4,013,297 4,070,601

2.02.01 LOANS AND FINANCING 2,585,445 2,722,178

2.02.02 DEBENTURES

2.02.03 PROVISIONS 1,393,062 1,319,043

2.02.04 RELATED PARTIES

2.02.05 OTHER 34,790 29,380

2.02.05.01 TAXES AND CONTRIBUTIONS 1,428 1,480

2.02.05.02 CAPITALIZABLE FUNDS 3,064 3,064

2.02.05.03 OTHER LIABILITIES 30,298 24,836

2.03 DEFERRED INCOME 116

2.05 SHAREHOLDERS' EQUITY 10,939,900 10,732,655

2.05.01 CAPITAL 6,901,365 6,902,028

2.05.01.01 CAPITAL STOCK 7,088,098 7,088,098

2.05.01.02 TREASURY STOCK (186,733) (186,070)

2.05.02 CAPITAL RESERVES 1,960,397 1,959,482

2.05.03 REVALUATION RESERVES

2.05.03.01 OWN ASSETS

2.05.03.02 ASSETS OF SUBSIDIARIES/AFFILIATES

2.05.04 REVENUE RESERVES 258,860 258,860

2.05.04.01 LEGAL 258,860 258,860

2.05.04.02 STATUTORY

2.05.04.03 FOR CONTINGENCIES

2.05.04.04 UNREALIZED EARNINGS

2.05.04.05 RETENTION OF EARNINGS

2.05.04.06 SPECIAL RESERVE FOR UNPAID DIVIDENDS

2.05.04.07 OTHER REVENUE RESERVES



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2.05.05 RETAINED EARNINGS (LOSS) 1,819,278 1,612,285



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03.01 - STATEMENT OF INCOME (THOUSANDS OF REAIS)

1 - CODE 2 - DESCRIPTION 3 - 4 - 5 - 6 -

From 01/01/2002 To 03/31/2002

From 01/01/2002 To 03/31/2002

From 01/01/2001 To 03/31/2001

From 01/01/2001 To 03/31/2001

3.01 GROSS REVENUE FROM SALES AND SERVICES 3,760,433 3,760,433 3,125,638 3,125,638

3.02 DEDUCTIONS FROM GROSS REVENUE (973,465) (973,465) (814,325) (814,325)

3.03 NET SALES AND SERVICES REVENUE 2,786,968 2,786,968 2,311,313 2,311,313

3.04 COST OF PRODUCTS AND SERVICES SOLD (1,786,181) (1,786,181) (1,498,405) (1,498,405)

3.05 GROSS PROFIT 1,000,787 1,000,787 812,908 812,9 08

3.06 OPERATING INCOME/EXPENSES (677,728) (677,728) (454,298) (454,298)

3.06.01 SELLING (376,281) (376,281) (262,778) (262,778)

3.06.02 GENERAL AND ADMINISTRATIVE (204,841) (204,841) (164,833) (164,833)

3.06.03 FINANCIAL (206,049) (206,049) (58,275) (58,275)

3.06.03.01 FINANCIAL INCOME 32,518 32,518 60,747 60,747

3.06.03.02 FINANCIAL EXPENSES (238,567) (238,567) (119,022) (119,022)

3.06.04 OTHER OPERATING INCOME 227,433 227,433 88,993 88,993

3.06.04.01 EXTRAORDINARY (UNUSUAL) ITEMS 143,544 143,544

3.06.04.02 OTHERS 83,889 83,889

3.06.05 OTHER OPERATING EXPENSES (105,510) (105,510) (57,405) (57,405)

3.06.06 EQUITY ACCOUNTING (12,480) (12,480)

3.07 OPERATING INCOME 323,059 323,059 358,610 358,610

3.08 NON-OPERATING RESULTS (2,223) (2,223) 20,939 20,939

3.08.01 INCOME 4,085 4,085 102,540 102,540

3.08.02 EXPENSES (6,308) (6,308) (81,601) (81,601)

3.09 INCOME BEFORE TAXES/PARTICIPATIONS 320,836 320,836 379,549 379,549

3.10 PRO VISION FOR INCOME TAX AND SOCIAL

CONTRIBUTION (7,501) (7,501) (140,655) (140,655)

3.11 DEFERRED INCOME TAX (107,205) (107,205) (49,033) (49,033)

3.12 STATUTORY PARTICIPATIONS AND

CONTRIBUTIONS

3.12.01 PARTICIPATIONS

3.12.02 CONTRIBUTIONS

3.13 REVERSAL OF INTEREST ON CAPITAL

3.15 NET INCOME (LOSS) FOR THE PERIOD 206,130 206,130 189,861 189,861

NUMBER OF SHARES, LESS TREASURY STOCK

(THOUSANDS) 241,615,014 241,615,014 241,604,721 241,604,721

EARNINGS PER SHARE 0.00085 0.00085 0.00079 0.00079

LOSS PER SHARE

(A free translation of the original notes to interim financial information in Portuguese, prepared in accordance with the requirements of Brazilian Corporate Law) FEDERAL PUBLIC SERVICE CVM – BRAZILIAN SECURITIES COMMISSION ITR – Quarterly Information Brazilian Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES Base date - 03/31/2002 01132-0 TELEMAR NORTE LESTE S/A 33.000.118/0001-79

04.01 - NOTES TO THE FINANCIAL INFORMATION (In thousands of reais, except where otherwise stated)

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1. OPERATIONS Telemar Norte Leste S.A. ("TMAR") is the main provider of fixed-line telephone services in its operating area, comprising the states of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Maranhão, Pará, Amazonas, Roraima and Amapá. These services are provided based on the concession granted by the Federal Government which expires on December 31, 2005 and may be renewed for an additional 20-year period, at the discretion of Agência Nacional de Telecomunicações - ANATEL (National Agency for Telecommunications), the regulatory agency for the Brazilian telecommunications sector. On August 2, 2001, the other fixed-line telephone affiliates were merged into Telecomunicações do Rio de Janeiro S.A. (currently TMAR) with the transfer of the net book value of assets of these companies and the consolidation into one single company. 2. PRESENTATION OF THE QUARTERLY INFORMATION The quarterly information was prepared in accordance with the accounting principles determined by Brazilian Corporate Law, complementary regulations of the Brazilian Securities Commission - CVM, and standards applicable to concessionaires of public telecommunications services, substantially consistent to those adopted in the preparation of the financial statements for the year ended December 31, 2001. The accounting adjustments arising from the corporate restructuring described in Note 1 were included in the balance sheet and in the result of operations at March 31, 2001, the accounting base date of the merger, as follows: (i) reversal of deferred tax losses existing in the subsidiaries merged into TMAR (R$ 59,845); and (ii) elimination of crossed interests held among the subsidiaries (R$ 21,006). For the purpose of comparing these quarterly information with those for the prior year, the pro forma adjustment made to the results of the associated companies as a result of the merger was calculated and presented together with the income statement of Telecomunicações do Rio de Janeiro S.A. (currently TMAR). Accordingly, as the accounting base date of the merger was March 31, 2001, the results of the affiliated companies recorded up to that date were credited directly to retained earnings of TMAR. For consolidation purposes, significant intercompany revenues and expenses were eliminated from the result of operations.

FEDERAL PUBLIC SERVICE CVM – BRAZILIAN SECURITIES COMMISSION ITR – Quarterly Information Brazilian Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES Base date - 03/31/2002 01132-0 TELEMAR NORTE LESTE S/A 33.000.118/0001-79


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3. GROSS OPERATING REVENUE

03/31/02 % 03/31/01 % Telephone services Local Installation fees 43,240 1.1 67,425 2.2 Monthly subscription fees 1,074,858 28.6 768,791 24.6 Pulses (metered service) 527,938 14.0 483,747 15.5 Collect calls 29,766 0.8 23,013 0.7 Other revenues 592 4,946 0.2Long-distance services (intra-sectorial) 270,723 7.2 201,619 6.5Long-distance services (inters-sectorial) 98,296 2.6 78,325 2.5Public telephone services 147,943 3.9 164,894 5.3Fixed-mobile services 835,347 22.2 738,746 23.6Additional services 67,411 1.8 66,899 2.1

3,096,114 82.2 2,598,405 83.2

Remuneration for the use of the network Use of fixed-fixed networks 358,773 9.5 287,855 9.2Use of fixed-mobile networks 66,713 1.8 60,370 1.9

425,486 11.3 348,225 11.1

Data transmission services Industrial Dedicated Digital Line Service - EILD 98,110 2.6 80,309 2.6Dedicated Line Service - SLDD/SLDA 74,378 2.0 64,605 2.1IP services 29,556 0.8 20,279 0.6Packet and frame relay switching 21,417 0.6 13,080 0.4Others 15,372 0.5 735 0.0

238,833 6.5 179,008 5.7

Gross operating revenue 3,760,433 100.0 3,125,638 100.0



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4. COST OF SERVICES RENDERED AND OPERATING EXPENSES BY NATURE 03/31/2002 Cost of General and services adminis- rendered Sales trative Total Interconnection 587,373 587,373Depreciation 852,184 10,505 39,525 902,214Personnel 70,013 29,290 39,676 138,979Materials 54,315 2,719 4,152 61,186Third party services 166,092 110,787 88,124 365,003Administration fee 13,935 13,935Advertising 10,628 10,628Rental and insurance 50,962 2,026 14,826 67,814Provision for doubtful accounts and write-offs of accounts receivable 210,172 210,172Others 5,242 154 4,603 9,999 Total 1,786,181 376,281 204,841 2,367,303 03/31/2001 Cost of General and services adminis- rendered Sales trative Total Interconnection 519,586 519,586Depreciation 638,613 9,910 23,954 672,477Personnel 90,544 46,368 36,195 173,107Materials 57,422 1,455 4,357 63,234Third party services 140,656 71,434 70,924 283,014Administration fee 11,555 11,555Advertising 44,023 44,023Rental and insurance 43,366 2,331 14,120 59,817Provision for doubtful accounts and write-offs of accounts receivable 86,882 86,882Others 8,218 375 3,728 12,321 Total 1,498,405 262,778 164,833 1,926,016



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Interconnection costs refer mainly to the usage of fixed-mobile network charged by cellular operators, which represent a significant decrease in the margin for these services. The increase in interconnection costs when compared to the three-month period ended March 31, 2001 is due to an average increase of 10.7% in the rate of mobile services (Tarifa de Uso Móvel - TUM) on January 28, 2002, the substantial expansion of the mobile network as well as the fixed network, the latter being a result of the Plan on the Early Attainment of Targets ("PAM"). Third party service costs refer primarily to technical network services, such as installation of terminals and maintenance of lines and infrastructure equipment and to technical and administrative services. Sales expenses and administrative services consist mainly of data processing services, consulting, legal advisors and expenses on public services. Rental and insurance costs include amounts being paid to energy companies for the rental of electrical posts and right of way, as well as for the rental of dedicated lines (EILD) from Embratel. At the Extraordinary General Meeting held by the parent company Tele Norte Leste Participações S.A. ("TNL") on November 30, 1999, approval was given to an agreement referring to the rendering of managerial and administrative services between TMAR and Telemar Participações S.A., the majority shareholder of TNL, to collect an administrative fee, as established in the Concession Agreements. This agreement is effective until 2003, with a possible extension, and the remuneration is based on a percentage of the consolidated net revenues, determined in accordance with Brazilian Corporate Law, being: 1% in the period from August 1998 to December 31, 2000; 0.5% in 2001 and 2002; and 0.2% in 2003. 5. OTHER OPERATING INCOME (EXPENSES), NET 03/31/02 30/31/01 Funds reimbursed by the SISTEL pension plan (non-recurring extraordinary item) 143,544 Other usual operating income (expenses): Taxes (48,742) (28,632) Technical and administrative services 11,800 13,009 Fines on late-payment 28,395 23,373 Recovered expenses 4,449 27,798 Provisions for contingencies (49,660) (13,422) Reversal and settlement of contingencies 22,519 2,929 Rental of infrastructure 8,713 13,041 Other, net 905 (6,508) Total 121,923 31,588



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TMAR recorded in the quarter R$ 143,544 as other operating income referring to excess funds from Fundação Sistel de Seguridade Social, as a result of the reversal of part of its provisions for tax contingencies arising from the release of legal surcharges in connection with its defined contribution pension plan, after having adhered to the Special Rating System (Regime Especial de Tributação - RET), approved by Provisional Measure No. 2222/01. These values were received by the Company on March 1, 2002. "FUST" - Fundo de Universalização de Serviços de Telecomunicações (Fund for Universal Telecommunications Services) was approved on August 17, 2000 in order to provide funds to cover necessary costs to comply with the obligations established in the Plano Geral de Metas de Universalização (General Plan on Universal Service). The Fund's revenues include the monthly contribution, as from January 2001, of 1% of the gross operating revenue of all telecommunications services, net of ICMS, PIS and COFINS (taxes on sales and revenues). This contribution is being paid monthly since January 2001 by all telecommunication service providers. In the first quarter of 2002 and 2001, the Company charged R$ 23,327 and R$ 19,537 respectively in expenses referring to the FUST to "Other operating expenses - taxes". In October 2000, the Brazilian Senate passed a Bill establishing the FUNTTEL - Fundo para o Desenvolvimento Tecnológico das Telecomunicações Brasileiras (Fund for the Technical Development of Brazilian Telecommunications). The main objective of the Fund is to encourage the research and development of new technologies, and started on March 28, 2001, with funds arising from 0.5% of the net operating revenues of telecommunications service providers. In the first quarter of 2002, the amount of R$ 11,664 was recorded under "Other operating expenses - taxes", referring to the expenses with FUNTTEL. The values recorded as recovered expenses refer to fines and arrears interest charged from suppliers due to the late delivery of services and the recovery of several expenses. Provisions for contingencies refer largely to the increase in labor and civil contingencies of small amounts (R$ 10,490) as well as to the monetary restatement of existing provisions (R$ 39,170). The provisions for contingencies related to PIS/COFINS, ICMS and CPMF are charged to the related tax accounts in the income statement. Reversals of contingencies arise basically from the settlement of legal disputes relating to INSS, which were provided for, through auctions carried out by CETIP (Clearing House for the Custody and Financial Settlement of Securities), promoted by INSS in accordance with Law No. 9711/99. As these securities were acquired with a discount, R$ 12,141 were reversed to the income for the quarter (see Note 15). The remaining amounts refer to the reversal of several tax disputes in individually lower than R$ 1,000. After the privatization, cellular operators continued to use the radio base stations (ERB) located at the Company's facilities. The Company charges a rental fee for the use of these facilities, called rental of infrastructure, which is recorded under "Other operating revenues and expenses - Rental-infrastructure".



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6. FINANCIAL RESULT 03/31/02 03/31/01 Financial income Interest on marketable securities 536 23,219 Interest on the receipt of overdue bills 19,193 13,018 Amortization of option premiums 3,627 2,101 Interest and monetary variation on loans receivable from subsidiary 261 16,303 Other 8,901 6,106 32,518 60.747 Financial expenses Interest on loans payable to parent and affiliated companies (83,337) (8,915) Interest on loans payable to third parties (63,951) (22,920) Monetary/exchange variations on loans payable to third parties (25,859) (43,854) Amortization of option premiums (29,619) Bank charges, including liens and CPMF (28,634) (13,840) Monetary restatement of interest on capital and dividends proposed (3,603) (21,572) Other (3,564) (7,921) (238,567) (119,022) Total (206,049) (58,275) Financial expenses basically represent interest on loans obtained from third parties and the parent company TNL as well as of bank charges. Variations arise from loans obtained from TNL at the end of the first quarter of 2001, at the beginning of the adoption of the Plan on the Early Attainment of Targets by TMAR. Swap operations are recognized in the year-end result on the accrual method, thus reducing or increasing the financial expenses on exchange variations for the year. Losses arising from option and forward operations are recognized on the accrual basis, while gains are conservatively recognized only upon contract maturity. Income and expenses arising from option premiums are appropriated to year-end results during the contracts' period. The results of derivative operations are described in Note 17.



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7. NON-OPERATING INCOME (EXPENSES), NET 03/31/02 03/31/01 Results of disposals of permanent assets (2,248) 20,935 Other non-operating income 25 4 Total (2,223) 20,939 Results of disposals of permanent assets consist mainly of the write-off of equipment in connection with the modernization of the network, net of earnings obtained from the sale of this equipment. 8. INCOME TAX AND SOCIAL CONTRIBUTION

The reconciliation of income tax and social contribution calculated based on nominal rates and the taxes recorded in the income statement is as follows: 03/31/02 03/31/01 Net income before income taxes 320,836 379,549 Income tax and social contribution at nominal rates (34%) (109,084) (129,046) Adjustment to derive the effective rate: Permanent addition of equity accounting adjustments (4,243) Reversal of tax losses carryforward of affiliated companies merged into TMAR (Note 2) (59,845) Others (1,379) (797) Income tax and social contribution expense (114,706) (189,688) Income tax and social contribution effective rate 35.75% 49.98%



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The provisions for income tax and social contribution are composed as follows: 03/31/02 03/31/01 Current Social contribution for the year (7,501) (38,099) Income tax for the year (102,556) (7,501) (140,655) Deferred Income tax on temporary additions 29,936 18,427 Social contribution on temporary additions 10,777 6,348 Income tax on tax losses (114,293) (53,948) Social contribution on negative bases (33,625) (19,860) (107,205) (49,033) Total (114,706) (189,688) According to current legislation, tax loss carryforwards may be offset against future taxable income up to an annual limit of 30% on this income. However, the Company holds an injunction authorizing the offsetting of 100% of its tax loss carryforwards generated prior to 1998, maintaining a provision for contingencies relating to the principal amount and related financial charges. The tax credits described in Note 10 include R$ 36,322 relating to years prior to 1998. Tax credits arising from temporary differences are being realized in accordance with the activity of items generating their constitution. 9. TRADE ACCOUNTS RECEIVABLE 03/31/02 12/31/01 Services billed 2,124,163 2,016,616 Services not yet billed 424,151 458,805 Provision for doubtful accounts (347,366) (334,957) Total 2,200,948 2,140,464 The provision for doubtful accounts is recorded for probable losses on accounts receivable, and includes amounts due by government bodies, corporate clients and other telecommunications service providers, as well as those relating to agreements with default clients to settle their debts in installments.



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The aging-list of accounts receivable is as follows: 03/31/02 12/31/01 Not yet due 1,521,388 1,441,918 Overdue up to 30 days 418,330 435,980 Overdue from 31 to 60 days 170,172 183,788 Overdue from 61 to 90 days 155,358 112,142 Overdue by more than 90 days 323,066 301,593 Total 2,548,314 2,475,421

Overdue accounts are subject to a 2% fine on the total debt and late-payment interest of 1% per month, which are recorded when the subsequent bill is issued after the payment of the overdue bill. 10. DEFERRED AND RECOVERABLE TAXES

03/31/02 12/31/01

Income tax on temporary additions 441,671 412,255Social contribution on temporary additions 161,858 151,268 Income tax on tax losses 104,020 218,314 Social contribution on negative bases 35,419 69,043Income tax recoverable 46,838 45,636Social contribution recoverable 28,256 27,523ICMS (value-added tax) and other taxes recoverable 920,613 980,990Withholding income tax 12,520 10,671

1,751,195 1,915,700

Current 773,711 781,553Long-term receivables 977,484 1,134,147

Under the terms of CVM Resolution No. 273/98, the Company records deferred tax credits arising from temporary differences and tax loss carryforwards. These credits are shown under current and non-current assets, according to the expectation of their realization. Based on budget reports prepared by management, taxable income to be generated in the next three years will be sufficient to absorb these tax credits.



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11. INVESTMENTS 03/31/02 12/31/01 Fiscal incentives 22,770 21,050 Other investments 248 248 Total 23,018 21,298 The Company holds a 100% interest in the capital of ABS 52 Participações Ltda., a company formed on March 27, 2001 with the objective of providing services related to installation, maintenance, building and operation of networks, as well as of purchasing and selling electronic equipment. At March 31, 2002, this subsidiary company recorded a loss of R$ 12,480 and had a net deficit (negative equity) of R$ 12,683 (2001 - R$ 203) presented under Other liabilities - short-term. In view of the immateriality of this subsidiary's financial information and due to the fact that its operations are solely carried out with TMAR, the consolidated financial statements were not prepared. However, we present below a summary balance sheet of the subsidiary company: 03/31/02 12/31/01 Assets and net deficit Current 6,690 18,713 Permanent 3 60 Net deficit (negative equity) 12,683 203 19,376 18,976

Liabilities Current 19,376 18,976 19,376 18,976



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12. PROPERTY, PLANT AND EQUIPMENT 03/31/02 12/31/01 Annual depre - Accumulated ciation Cost depreciation Net Net rate (%) Buildings and underground ducts 3,859,422 (1,987,341) 1,872,081 1,882,963 4 to 10Switching equipment 11,300,756 (7,533,185) 3,767,571 3,939,399 20 Transmission and other equipment 16,014,340 (10,247,716) 5,766,624 5,730,637 10 Other assets 6,079,851 (2,074,788) 4,005,063 3,510,779 5 to 20Construction work- in-progress 714,145 714,145 1,767,172

Total 37,968,514 (21,843,030) 16,125,484 16,830,950 In compliance with CVM Resolution No. 193, of June 11, 1996, in the quarter ended March 31, 2002, the Company capitalized the amount of R$ 74,581 (R$ 64,550 - March 31, 2001) of interest expenses relating to the financing of construction work in progress. Capitalized interest is depreciated in proportion to the depreciation of the assets to which it refers. Pursuant to clause 21.1 of the Concession Agreement, all the Company's property, plant and equipment which are essential to provide the services described thereunder are considered reversible assets and comprise the concession's net assets. Upon expiration of the Concession Agreement these assets will automatically revert to ANATEL. At March 31, 2002, the balance of reversible assets amounts to R$ 15,769,363 (R$ 16,401,646 at December 31, 2001), and these comprise assets and installations in progress, switching and transmission equipment, public telephones, external network equipment, energy and air-conditioning equipment, infrastructure and systems and operation equipment.



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13. LOANS AND FINANCING

Inception Maturity Guarantees Financial charges 03/31/02 12/31/01

(a) Local currency

Financial institutions

Banco Nacional de Desenvolvimento Econômico e Social - BNDES "Credit line" (i) 12/00 01/08 Endorsement by TNL and

receivables TJLP + 3.85% p.a. 2,132,972 2,173,697

Banco de Desenvolvimento de Minas Gerais S.A. 06/97 07/05 Receivables TJLP + 4.2% p.a. 19,248 20,501 Parent and associated companies 102% of CDI (ii) 2,047,474 2,376,650 Financial charges 63,587 359,460

Total in local currency 4,263,281 4,930,308

(b) Foreign currency (U.S. dollars)

Financial institutions

Banco Nacional de Desenvolvimento Econômico e Social - BNDES "Credit line" (i) 12/99 01/08 Endorsement by TNL and

receivables UMBND (iv) + 3.85% p.a. 679,400 695,953

BankBoston N.A. 12/99 01/06 Endorsement by TNL Libor + 4.25% p.a. 85,555 91,934

Unibanco - União de Bancos Brasileiros S.A.

06/00 11/02 Promissory note endorsed by TNL 10.85% p.a. 35,594 35,545



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Unibanco - União de Bancos Brasileiros S.A. 08/00 08/03 Promissory note endorsed by TNL 12.01% p.a. 116,180 116,020

Banco Bilbao Vizcaya Argentaria S.A. 07/00 12/06 Endorsement by TNL 6.48% p.a. 25,794 25,759

Sumitomo Corporation do Brasil S.A. 10/97 01/03 Promissory note endorsed by TMAR

Libor + 3% p.a. 29,038 28,998



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Inception Maturity Guarantees Financial charges 03/31/02 12/31/01

Suppliers (iii)

Bosch Telecom Ltda. 01/97 11/04 Promissory note endorsed by TNL Libor + 2.5% to 3.3% p.a. 97,490 106,675 SIEMENS Ltda. 12/99 12/02 Promissory note endorsed by TNL Libor + 5.4375% p.a. 8,551 16,776 SIEMENS Ltda. 01/00 09/05 Promissory note endorsed by TNL Libor + 5% p.a. 69,713 69,617 Other suppliers 10/96 05/04 Promissory note endorsed by TNL Libor + 1.125% to 12% p.a. 9,910 12,521 Financial charges 13,973 26,184 Total in foreign currency 1,171,198 1,225,982 Total loans and financing 5,434,479 6,156,290

Swap operations 67,881 97,805 Loans and financing - Current liabilities 814,861 840,006 Debts to related parties - Current liabilities 2,102,054 2,691,911 Loans and financing - Long-term liabilities 2,585,445 2,772,178



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(i) Refers to the use of funds provided by special credit lines in the acquisition of infrastructure and electronic equipment, network management software and others, as well as in the payment of the related installation and assembling services, under the terms of the "Telecommunications Investment Support Program". Financial charges mature on a quarterly basis up to December 2001; as from February 2002 to January 2008, interest and the principal amount mature on a monthly basis.

(ii) Loans and debts with TNL bear interest at the rate of 102% of CDI - Interbank Deposit

Certificate. A funding rate is calculated monthly, based on a basket of actual rates related to funding charges, including exchange variation. The parent company has a contractual right to transfer costs in excess of the rate of 102% of CDI, when applicable. Intercompany loans mature annually. However, the management of TNL, based on its estimated cash flow may renegotiate the terms of these contacts, as the case was in previous years.

(iii) Loans from suppliers refer to contracts for the supply and installation of equipment in order

to comply with the network expansion project. (iv) Basket of currencies published by BNDES on a daily basis. The maturities for the long-term debt are as follows: 03/31/02 12/31/01

2003 513,987 666,637 2004 537,531 533,564 2005 522,026 518,098 2006 489,603 485,747 2007 and thereafter 522,298 518,132

Total 2,585,445 2,722,178 14. PAYABLE AND DEFERRED TAXES

03/31/02 12/31/01

ICMS (value-added tax) 338,201 376,773 COFINS and PIS (other indirect taxes on revenues) 33,437 31,997 Social contribution payable 7,487 Income tax payable 5,637 12,431 Deferred income tax and social contribution 35,293 35,999 Others 38,287 18,847

Total 458,342 476,047 Current 456,914 474,567



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Long-term 1,428 1,480



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15. PROVISION FOR CONTINGENCIES 03/31/02 12/31/01 Labor (i) Hazardous work conditions premium 108,565 106,418 (ii) Inflation indexation adjustments 15,943 15,343 (iii) Equalization of salary scales 36,547 35,579 (iv) Salary differences/indemnities/productivity 35,621 34,616 Other claims 90,693 80,135 287,369 272,091 Tax (i) FINSOCIAL 82,066 72,659 (ii) Increase in COFINS rate and broadening of the calculation basis for PIS and COFINS 325,661 273,044 (iii) ISS (service tax) on services which are not subject to ICMS (value-added tax) 38,380 33,848 (iv) ICMS on activation/installation fees 147,672 139,407 (v) INSS 100,745 114,205 (vi) CPMF 60,780 44,599 (vii) ILL 39,139 39,139 Other claims 177,281 199,531 971,724 916,432 Civil (i) Embratel VC2/VC3 63,442 62,201 (ii) Indemnity and collection suits 21,527 21,560 Other claims 49,000 46,759 133,969 130,520 Total 1,393,062 1,319,043

Labor (i) Hazardous work conditions premium - This provision reflects the expected possible

agreements with trade unions for employees working within an environment considered to be unsafe, principally close to high-tension electric installations. Increases refer to new claims and monetary restatement of contingent liabilities.

(ii) Inflation indexation adjustments - Provision referring to labor claims discussing the

inflation indexation adopted for the adjustment of salaries in the years of certain government



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economic stabilization programs ("Collor Plan" and "Bresser Plan"). Management believes that the provision is sufficient to cover lawsuits brought by the employees and sponsored by trade unions.



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(iii) Equalization of salary scales - Provision to reflect the probable loss arising from claims to equalize salary scales among certain classes of employees. The change verified in the quarter is due to the monetary restatement of contingent liabilities.

(iv) Salary differences/indemnities/productivity - Claims referring to grouped claims with

loss expectations considered as probable, in view of unfavorable decisions in the lower courts. The change verified in the quarter refers to monetary restatement.

Tax (i) FINSOCIAL - In 1995, the Brazilian Supreme Court ruled that certain increases in the tax

rate of the FINSOCIAL (Social Security Financing) were unconstitutional. As a result, the Company credited in that year R$ 33,118 to "Other operating income, net". In 1997, the Brazilian Supreme Court narrowed its prior decision, leading the tax authorities to refuse similar credits recognized by other telecommunications companies. In addition to FINSOCIAL, a similar contingency in relation to PASEP (Public Employee Savings Program) also exists. Management reevaluated these issues in 1998 and recorded a provision. The increase verified in the quarter refers to the monetary restatement of existing provisions.

(ii) PIS/COFINS - Law No. 9718/98 - Based on the opinion of its legal advisors and on

unfavorable understandings of Regional Federal Courts, the Company maintains a provision to cover the discussions of the rate increase of COFINS (Social Security Financing that substituted FINSOCIAL) and broadening of the calculation basis for PIS (Employees' Profit Participation Program) and COFINS, in spite of having obtained preliminary orders which authorize that these taxes be offset. It should be mentioned that the Company suffered unfavorable decisions in some states where it operates, basically in: (i) Minas Gerais, where the amount due plus arrears interest was judicially deposited; (ii) Roraima, where a suspending effect to the appeal was obtained on June 26, 2001; and (iii) Pará, where an appeal was denied on June 26, 2001. Increases result from monthly provisions recorded based on the quarter revenues as well as from the monetary restatement of existing provisions.

(iii) ISS - The Company maintains provisions due to tax assessment notices received as from

1998, questioning the levy on several telecommunication services, such as equipment rental, value-added services and other technical and administrative services. The provision reflects assessed services considered as probable losses by the legal consultants. The changes in the quarter refer to the monetary restatement of the existing provision. Assessments referring to the levy of ISS on services relating to outsourcing of personnel, telephone line rental, wake-up call services, and others, in the approximate amount of R$ 320 million have not been provided for since these contingencies are considered possible or remote as some activities are not within the scope of the ISS and are taxable by the ICMS. These assessments are analyzed by the Company's legal department in connection with a thorough study on the laws applicable to the Company's overall income prepared by a renowned law firm. As an additional support to the Company's defense, in the last quarter



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of 2001, the Supreme Court considered that the INSS is not applicable to the rental of equipment; a substantial part of amounts assessed refer to this source of income.



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(iv) ICMS - On June 19, 1998, the Secretaries of the Treasuries of the individual Brazilian States approved the Convênio 69 (an agreement to interpret existing tax law) to broaden the levy of ICMS to other services, including activation fees. Pursuant to this interpretation, the ICMS tax may be applied retroactively to such telecommunications services rendered during the last five years. Management believes that the extended scope of ICMS tax on supplementary services to the basic telecommunications services is unlawful because: (i) the State Secretaries acted beyond the scope of their authority; (ii) their interpretation considers certain services which are not telecommunications services; and (iii) new taxes cannot be applied retroactively. With the introduction of the Convênio 69, the Company filed an injunction against the levy of ICMS on installation and activation services (main revenues under discussion), recording the related provision and the respective monetary restatement on a monthly basis. From 1999 to December 2001, the Company was assessed in relation to the ICMS levied on supplementary services, including activation and installation fees, totaling approximately R$ 260 million. Based on the opinion of its legal consultants, management considers the probability of loss for notifications and amounts assessed related to periods prior to June 1998 as "remote" and for those after June 1998 as "possible/probable". Accordingly, a provision of some R$ 148 million is maintained, including R$ 13 million which refer to assessments and R$ 135 million which refer to the injunction and have been provided since the introduction of the Convênio. These provisions were recorded based on the opinion of the Company's legal consultants, often supported by external advisors, and are monetarily restated. This is a rather complex matter as it involves the conceptual and technical definition of services that would be subject to the levy of ICMS, ISS or none of these taxes.

(v) INSS (Social security) - Refers to the tax assessment on the joint responsibility for the

payment of this tax by the service providers, in the amount of R$ 3,663, as well as for the contributions on the compensation and suspension of SAT - Seguro de Acidente de Trabalho (workers' assistance insurance) in the amount of R$ 54,446. Although these amounts are monetarily restated, there has been a decrease in this provision as a result of the settlement, through government security auctions, of lawsuits provided for and considered as probable losses, in the approximate amount of R$ 33,100. These settlements generated an income of R$ 12,141 due to a discount obtained from the auction (see Note 5).

(vi) CPMF - The Company obtained an injunction relieving it of the payment of CPMF. In

view of the pro-tax attitude adopted by the Supreme Court, the Company maintains a provision to cover possible losses and increased every month based on bank movements, monetarily restated.

(vii) ILL - The Company offset ILL (tax on net income) paid in previous years, based on the

Supreme Court decisions for the unconstitutionality of this tax in similar cases tried to other companies. However, although the grounds of the suit have been appeased at higher courts, the Company maintains a provision due to the lack of a final decision on this matters.



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Civil (i) Embratel VC2/VC3 - On June 6, 2000, ANATEL decided for Embratel's right over the

revenues arising from fixed-mobile long distance calls and for the Company's right over revenues arising from VC1 calls (local), for the period between June 1998, when the Concession Agreements were signed, and July 1999, when the CSP (carrier dialing code) was introduced for long-distance call services. ANATEL's decision establishes that, following the introduction of the CSP, the corresponding revenue belongs to the service provider selected by the user. On the Company's opinion, ANATEL misinterpreted the fixed-mobile and switched fixed-line telephone services as being equivalent. Management understands that the revenues generated by fixed-mobile services, irrespective of the distance called, belong to the Company, as it is the service provider to the caller who originated the call, in conformity with the regulations, still in force, established by the Ministry of Telecommunications. The Company obtained an unfavorable decision from ANATEL with regard to the reconsideration request submitted to the Conselho Diretor (Directors Council) of ANATEL and, therefore, contested the matter judicially, challenging not only Embratel's right to offset amounts, but also the regulation of this type of revenue. With regard to the first issue, the Company obtained a provisional legal instruction, which prevents Embratel from discounting the related amounts; this procedure, however, has a temporary nature and may be revoked or overruled at any time. As for the regulation matter, the suit is in its initial stage. The unfavorable decision announced by ANATEL and the temporary nature of the injunction which prevents Embratel from discounting the amounts, resulted in the constitution of a provision in 2001. Changes in the quarter refer to monetary restatement.

(ii) Indemnity and collection suits - These refer to claims brought by former resellers of

pre-paid calling cards requiring indemnity, indemnity for rescission of contracts with subcontractors and indemnity for expansion plans with the issuance of shares.

Possible contingencies: The Company also has several cases deemed as possible losses in the opinion of its legal advisors and provisions for which are not recorded. The main proceedings thus regarded approximate R$ 890 million, and include claims related to ISS (see item (iii) on page 21), ICMS on services (see item (iv) on page 22), rescission of contracts held with former resellers of pre-paid calling cards, rescission of contracts held with subcontractors and other suppliers, indemnity for expansion plans/issue of shares and changes in long-distance calls. The Company still waits for the decision in the lower courts. The main contingencies deemed as possible or remote losses (in the process referring to Federal taxes the administration currently considers the risk remote) in the opinion of the Company's legal advisors are as follows:



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• ICMS on international calls - In July 1999, the legal dispute in Rio de Janeiro relating to international calls originating in Brazil was estimated at approximately R$ 70 million (tax assessments). Tax authorities claim that international call services are provided in Brazil, being, therefore, subject to the ICMS. However, this law opposes other legal interpretations that consider international calls as exported services, being therefore exempt from the ICMS. Additionally, there can be no assurance as to the responsibility for the payment of this tax, if charged, since the Company does not earn revenues from these services.

In February 2000, Telemar-RJ obtained a favorable response from the Conselho de Contribuintes (Taxpayers' Council) of Rio de Janeiro, which was later reversed by a partially unfavorable decision given by the State Revenue Secretary (who understood that the Company is liable for the tax payment up to the introduction of the CSP - "Carrier Dialing Code"). The Company obtained an injunction granted by the lower court guaranteeing that even after the introduction of the CSP, in July 1999, the obligation of the tax and payment belongs to the service provider of long-distance international calls.

• Federal taxes - On August 9, 2000, the Company was assessed by the Brazilian Internal Revenue Service, in the amount of R$ 993,700, in relation to IRPJ, CSL, PIS, COFINS and IRRF taxes for supposed infringements related to taxable events occurring in 1996, prior, therefore, to the privatization. The Company submitted to the State Federal Revenue Service of Rio de Janeiro the documentation supporting the conformity of the accounting records which were unaccepted for tax purposes, as well as proof of the correct payment of the corresponding taxes in the period assessed. This documentation consists of 3,500 pages organized in 66 volumes.

The Company requested further proceedings as to the presentation of supplementary documentation, which was accepted and the Company now awaits the analysis by the lower court of the documentation submitted. The judgement should be based on the quality of the documentation provided and the Company's management believes that it was adequately identified and submitted within the period legally required. Accordingly, this contingency is substantially considered as remote.

• IDEC - Instituto de Defesa do Consumidor (Consumer's Protection Institute) - In the first semester of 2001, IDEC filed a Public Civil Lawsuit against the Company in Rio de Janeiro, questioning the increase in tariffs at a higher percentage than IGP-DI. The Company appealed against the decision and the effects of the injunction granted to IDEC were suspended. Based on the opinion of its legal advisors, grounded on the fact that this increase complies strictly with the terms of the Concession Contract signed by the Company and ANATEL, management did not record a provision for this lawsuit.



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16. SHAREHOLDERS' EQUITY Changes in shareholders' equity At December 31, 2001 10,732,655 Other capital reserves 1,778 Treasury stock (663) Net income for the quarter 206,130 At March 31, 2002 10,939,900 The change in the quarter refers to investments in tax incentives - Fundo de Recuperação Econômica do Estado do Espírito Santo - FUNRES, as well as the acquisition of treasury stock. 17. FINANCIAL INSTRUMENTS (a) General comments The Company is exposed to market risks mainly arising from changes in interest rates and in foreign currency exchange rates, in view of the large amount of financing obtained in foreign currency, while its revenues are recorded in reais, as well as changes in indexed interest rates, especially the LIBOR. With a view to reducing its exposure to exchange and interest rate risks, the Company uses derivative instruments such as forward contracts in foreign currency, foreign currency options and foreign exchange rate swaps to manage its foreign currency exchange risks. The Company does not use derivatives or other financial instruments for other purposes. These operations are carried out by the Company's financial department in accordance with the strategy previously approved by management. (b) Market value of financial instruments The market value of the main financial instruments approximates their book value, as follows: 03/31/02 12/31/01 Book Market Book Market value value value value Loans and financing 5,434,479 5,405,160 6,156,290 6,134,941 The market value of loans and financing was calculated in accordance with the present value of these financial instruments, considering market interest rates for operations of similar terms and risks.



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(c) Foreign currency exchange risk Some 34% (December 31, 2001 - 35%) of the consolidated debt is expressed in foreign currency (U.S. dollars and a basket of currencies published by BNDES). Consequently, TMAR is exposed to foreign currency exchange rate risks that may adversely affect its business, financial position and result of operations, as well as its ability to comply with debt liabilities. The Company signed swap, option and forward (term contracts) to reduce the exposure of its foreign currency debt to exchange rate risks. Foreign exchange rate option operations refer to the purchase and sale of U.S. currency, whereby the Company pays and receives premium upon contract signature. These premiums are appropriated to revenue and expense accounts on the accrual basis up to contract maturity. Foreign exchange swap operations transfer the foreign currency exchange rate risk to the CDI variation. The summary of these operations is as follows:

Derivatives Results with contract value derivatives

03/31/02 12/31/01 03/31/02 03/31/01

Foreign currency swap 256 (1,727) Options 464,720 816,781 (30,294) Forward 429,866 382,866 674 (d) Interest rate risk The Company has loans and financing subject to floating interest rates based on the Brazilian long-term interest rate (TJLP) or CDI for real-denominated debts, and based on the LIBOR for U.S. dollar-denominated debts. The company has swap contracts which alter the contracts bearing interest of LIBOR + 3% to 5.5% p.a. to fixed interest rates, reducing the exposure to changes in the LIBOR. (e) Concentration of credit risk The concentration of credit risk associated to accounts receivable is not relevant due to a pulverized client portfolio and the monitoring controls. Doubtful accounts receivable are adequately protected by a provision to cover possible losses. Operations with financial institutions (bank accounts, financial investments, loans and financing) are distributed among creditworthy institutions, thus minimizing concentration risks.



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18. PENSION PLANS TMAR sponsors defined benefit private pension plans (PBS-Telemar and PB-CT) and defined contribution plans (TelemarPrev), administered by SISTEL. Contributions to the plans are based on actuarial calculations prepared by independent actuaries, in compliance with the regulation in force in Brazil. Actuarial studies are reviewed on a regular basis, with a view to identifying the need to adjust the contributions. Defined benefit pension plans are being discontinued as no new associations are allowed; thus, a significant part of the members (over 96%) of PBS-Telemar and PB-CT have migrated to TelemarPrev. In December 2000, the Institute of Independent Auditors of Brazil (IBRACON), issued a technical pronouncement on the recording of benefits granted to employees (approved by CVM Resolution No. 371/00), establishing the period and means for the employer/sponsor to recognize the costs incurred in the granting of benefits to employees, as well as the information that must be disclosed in the financial statements. This pronouncement must be adopted as from 2002 and the Company's management, together with the pension fund's actuaries, evaluated and recorded the impacts of this Resolution. In March 2002, SISTEL reimbursed the amount of R$ 143,544 thousand (see Note 5), corresponding to the recovery of expenses as a result of the exemption of financial charges and fines established in Provisional Measure No. 2222. The amount in excess of provisions for income tax on interest and earnings from investments of funds relating to the provisions, technical reserves and funds has been settled and reversed prior to August 31, 2001. This amount does not correspond to excess actuarial assets. (i) SISTEL defined benefit plans (PBS-A and PBS-Telemar) At the time of the SISTEL restructuring, the PBS-Telemar was introduced maintaining the rights established in PBS-A. In addition to the monthly income supplementation benefit, medical care is provided (PAMA) to retired employees and their dependents on a shared cost basis. The actuarial method to determine the cost of benefits is the capitalization method. This plan has not admitted new members since the creation of TelemarPrev (September 2000). As 96% of active participants have migrated to the TelemarPrev plan, in addition to the technical surplus, contributions to this plan are immaterial. The terms of Decree No. 3721, of January 8, 2001, do not apply to PBS-A, as this is a closed plan, only with assisted participants.



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Consolidated PBS- PBS-A (*) Telemar Fair value of plan assets 1,787,446 118,303 Present value of actuarial liabilities (1,562,352) (106,490) Fair value of assets in excess of actuarial liabilities 225,094 11,813 (*) This plan does not include active participants, and the existing technical surplus is sufficient to

cover future actuarial liabilities. Although the plans' assets exceed the actuarial liabilities, this surplus will not be recognized as the reimbursement is not legally allowed; in addition, PBS-A is not a contributive plan. The amounts shown above do not include the assets and liabilities of PAMA, as this is a multi-sponsored plan, similar to "defined contribution" plans (the payment of benefits is limited to the amount of contributions received by the plan), and there are no obligations other than the existing balances. (ii) Complementary Pension Plan (PB-CT) The Company sponsors the Complementary Pension Plan ("PB-CT"), which assumes the charges, obligations and responsibilities laid down in the Individual Complementary Pension Contracts and the Collective Labor Agreements related to ex-employees of the sponsors, which belonged to the former Companhia Telefônica Brasileira - CTB and to Companhia Telefônica de Pernambuco - CTP. The change from Consortium to Administration and Payment of Pension Benefits in the PB-CT attended to Article Nos. 80 and 81 of Law No. 6435 of July 15, 1977, which expressly forbids the direct management of pension plan benefit by the employer. The plan for complementary pension, designed in 1971, before the creation of SISTEL, includes approximately 720 beneficiaries at March 31, 2002. The terms of Decree No. 3721, of January 8, 2001, do not apply to PB-CT, as this is a private plan, only with assisted participants. Based on actuarial calculations, prepared by independent actuaries, the Company maintains provisions to cover future disbursements.



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Consolidated Fair value of plan assets 984 Present value of actuarial liabilities (35,424) Actuarial liabilities in excess of fair value of assets (34,440) (iii) TelemarPrev - defined contribution pension plan The Company sponsors TelemarPrev of SISTEL, as approved by the "Secretaria de Previdência Complementar" (Secretariat for Complementary Pensions) on September 21, 2000. The plan members are assured benefits categorized as follows: (i) risk benefits, and (ii) programmable benefits. The usual contribution from the participants consists of two parts: (i) basic - equivalent to 2% of the participation salary; and (ii) standard - equivalent to 3% of the positive difference between the total participation salary and the amount allocated to the pension plan. Additional contributions from the participant are optional, in a percentage representing multiples of 0.5% of the participation salary and must be made for no less than 12 months. Occasional contributions from the participant, which are also optional, must not be lower than 5% of the participation salary cap. The plan establishes the contribution parity for contributions from participants and its sponsors up to the limit of 8% of the participation salary, noticing that the sponsor does not have to make any additional or occasional contributions, in accordance with those made by the participant. The actuarial method to determine the cost of the benefits is the capitalization method. During the quarter ended March 31, 2002, the Company's contributions totaled R$ 628. The terms of Decree No. 3721, of January 8, 2001, have not been applied to the calculation of reserves, funds, provisions and funding of TelemarPrev, as this is a defined contribution plan. For this reason, the reconciliation of assets and liabilities is not presented.



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(iv) The results expected for the plans in 2002 are as follows: Consolidated PBS- PBS-A Telemar PB-CT Estimated remuneration of assets 248,588 16,546 142 Cost of current services (880 ) Increase in liabilities to be recognized following the adoption of IBRACON pronouncement (826) Cost of interest (169,001) (11,519 ) (3,688) Total income (expenses) expected for 2002 79,587 4,147 (4,372) (v) Significant actuarial assumptions Significant actuarial assumptions adopted in the calculation of the PBS-A, PBS-Telemar, PB-CT and TelemarPrev plans are as follows: Annual % Discount rate of actuarial liability (includes 5% inflation) 11.30 Expected remuneration rate of assets (includes 5% inflation) 14.45 Estimated inflation rate of salary increase 5.00 Estimated inflation rate of benefit increase 5.00 Employees' profit sharing The employees' profit sharing is based on the accomplishment of targets in connection with the return of the shareholders' investment, as well as the early attainment of targets established by ANATEL ("PAM"). There are also individual performance goals to be reached by management. At December 31, 2001, the Company recorded provisions in accordance with the best estimate of the accomplishment of these targets.



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19. TRANSACTIONS WITH RELATED PARTIES 03/31/02 Dividends and interest Debts to Loans Accounts on capital related Financial Financial Company receivable receivable payable parties expenses income TNL 220 496,307 2,074,178 91,194 TNL Net 30,290 963 TNext 32 Contax 2,588 43 Oi 24 ABS 8,493 261 Pégasus 23 Total 8,493 276 496,307 2,107,079 92,200 261

03/31/01 Dividends and interest Loans and Loans Accounts on capital financing Financial Financial Company receivable receivable payable payable expenses income TNL 220 488,062 2,665,718 2,711 6 TNL Net 29,044 TNext 32 Contax 35,476 Oi 24 ABS 7,120 2,398 Pégasus 2 HiCorp 342 Total 7,120 276 488,062 2,732,980 2,711 6

The transactions with related parties are similar to those with third parties. Loans with TNL bear interest at the rate of 102% of Interbank Deposit Certificates - CDI. TNL has a contractual right to transfer all additional costs (exchange variation, hedge costs, etc.) that eventually has to incur. 20. INSURANCE Assets and responsibilities of material value and/or high risk are covered by insurance. TMAR holds insurance policies which guarantee coverage for material damages and loss of revenue as a result of these damages (loss of profit) at the subsidiary companies in the amount of R$ 600,000. Management considers the sum insured to be sufficient to guarantee full protection



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of its net worth and operational continuity, as well as the rules established in the Concession Contracts.



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On January 1, 2002, as required by the Concession Contracts signed by TMAR and ANATEL, insurance was taken out for one year with a view to ensuring the rendering of public local and long-distance switched fixed line services. The sum insured represents 10% of the investments made by TMAR (R$ 61,638) in attaining and maintaining the quality and universal targets established in the contracts. ANATEL is the beneficiary of the insurance. 21. SUBSEQUENT EVENTS On April 12, 2002, the Board of Directors approved a capital increase in the amount of R$ 4,438, with the issue of 79,140 thousand nominative preferred class B shares, in favor of FINOR, at R$ 56.08 per lot of 1,000 preferred shares. At the Ordinary General Meeting held by TMAR on April 24, 2001, approval was given to the distribution of interest on capital declared during 2001 and complementary dividends proposed at December 31, 2001. The amount approved totaled R$ 710,339, restated up to December 31, 2001. The payments should occur within 60 days counted from the date of the meeting. Interest on capital was restated at the CDI up to December 31, 2001 and both interest on capital and dividends are being restated by the Referential Rate - TR since January 1, 2002. The amount of interest on capital approved at the Ordinary General Meeting held on April 24, 2002 will be paid to the shareholders, informed at the time of declaration by each company which merged into TMAR, as defined at the general meetings held on August 2, 2001.



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Resolution Date Type of share Value per share TMAR OGM 04/24/02 ON/PNA/PNB 0.0011590000 TPA OGM 04/24/02 ON/PNA/PNB/PNC 0.0064966170 OGM 04/24/02 ON/PNA/PNB/PNC 0.0030007470 OGM 04/24/02 ON/PNA/PNB/PNC 0.0021715930 TMA OGM 04/24/02 ON/PNA/PND/PNE 0.0029632640 OGM 04/24/02 ON/PNA/PND/PNE 0.0023928650 TPI OGM 04/24/02 ON/PNA/PNB/PNC 0.0027404390 OGM 04/24/02 ON/PNA/PNB/PNC 0.0012559300 OGM 04/24/02 ON/PNA/PNB/PNC 0.0009628800 TCE OGM 04/24/02 ON/PNA/PNB/PNC 0.0100012890 OGM 04/24/02 ON/PNA/PNB/PNC 0.0048391140 OGM 04/24/02 ON/PNA/PNB/PNC 0.0033538410 TRN OGM 04/24/02 ON/PNA/PNC 0.0061059250 OGM 04/24/02 ON/PNA/PNC 0.0027735100 OGM 04/24/02 ON/PNA/PNC 0.0021011440 TPB OGM 04/24/02 ONA/ONB/PNA/PNB/PNC 0.0050043160 OGM 04/24/02 ONA/ONB/PNA/PNB/PNC 0.0023204960 OGM 04/24/02 ONA/ONB/PNA/PNB/PNC 0.0016574970 TSE OGM 04/24/02 ON/PNA/PNB 0.0033740700 OGM 04/24/02 ON/PNA/PNB 0.0016535510 OGM 04/24/02 ON/PNA/PNB 0.0010748080 TBA OGM 04/24/02 ON/PNA/PNB 0.0038520410 OGM 04/24/02 ON/PNA/PNB 0.0019794880 OGM 04/24/02 ON/PNA/PNB 0.0011644050 TMG OGM 04/24/02 ON/PNA/PNB/PNC/PND/PNE 0.0026888430 OGM 04/24/02 ON/PNA/PNB/PNC/PND/PNE 0.0013321460 OGM 04/24/02 ON/PNA/PNB/PNC/PND/PNE 0.0008451680 TES OGM 04/24/02 ON/PN 0.0065447980 OGM 04/24/02 ON/PN 0.0030592100 OGM 04/24/02 ON/PN 0.0021510070 TPE OGM 04/24/02 ON/PNA/PNB/PNC/PND 0.0013141180 OGM 04/24/02 ON/PNA/PNB/PNC/PND 0.0026282360 OGM 04/24/02 ON/PNA/PNB/PNC/PND 0.0008541770 TRR OGM 04/24/02 ON/PNA/PNB/PNC 0.0022456860 TAP OGM 04/24/02 ON/PNA/PNB/PNC 0.0025544860 OGM 04/24/02 ON/PNA/PNB/PNC 0.0004912470

(A free translation of the original interim financial information in Portuguese, prepared in accordance with the requirements of Brazilian Corporate Law) FEDERAL PUBLIC SERVICE CVM – BRAZILIAN SECURITIES COMMISSION ITR – Quarterly Information Brazilian Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES Base date - 03/31/2002 01132-0 TELEMAR NORTE LESTE S/A 33.000.118/0001-79

05.01 - COMMENTS ON THE COMPANY'S PERFORMANCE IN THE QUARTER

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REVENUE - Gross Revenue totaled R$ 3,760 million in 1Q02, a 20.3% increase over 1Q01. Net Revenue in 1Q02 reached R$ 2,787 million, a 20.6% increase over 1Q01, mainly due to the increase in Long-distance (+32.3%), Data (+33.5%) and Network Usage (+22.1%) revenues. The following table shows a comparative quarterly breakdown of gross revenue:

Gross Revenue %

1Q02 1Q01

Local 44.5 43.2

LD 9.8 9.0

PF 3.9 5.3

Fixed-to-Mobile 22.2 23.6

Network Usage 11.3 11.1

Data 6.4 5.7

Others 1.9 2.1

Total (%) 100.0 100.0

Total (R$ Mn) 3,760.0 3,126.0

Local Service: gross revenue was R$ 1,676 million in 1Q02, a 24.3% increase over the same period of the previous year. Revenue from Installation Fees was R$ 43 million in 1Q02, a 35.8% decrease over 1Q01, basically due to the lower number of lines installed in the period. Monthly subscription revenue was R$ 1,075 million in 1Q02, a 39.8% increase over 1Q01. Traffic revenue (pulses) was R$ 528 million in 1Q02, a 9.1% increase over 1Q01. Long-distance Services: gross revenue was R$ 369 million in 1Q02, a 31.8% increase over 1Q01, due to an increase in the Company's market share, mostly in interstate (interregional) long-distance calls, with higher average tariffs. Public Telephone Services: gross revenue from public phones was R$ 148 million in 1Q02, a 10.3% decrease over 1Q01. Public telephones installed reached 724,000 in 1Q02, 48.7% higher than 1Q01 (487,000). Fixed-to-Mobile Service : gross revenue was R$ 835 million in 1Q02, a 13.1% increase over 1Q01, reflecting the average 9.9% increase in fixed-mobile rates effective as from February 1, 2002. However, the rate increase was partially offset by lower traffic volume (-4%), partly due to the marketing campaign implemented by Telemar, highlighting the high cost of fixed-to-mobile calls versus fixed-to-fixed calls.

(A free translation of the original interim financial information in Portuguese, prepared in accordance with the requirements of Brazilian Corporate Law) FEDERAL PUBLIC SERVICE CVM – BRAZILIAN SECURITIES COMMISSION ITR – Quarterly Information Brazilian Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES Base date - 03/31/2002 01132-0 TELEMAR NORTE LESTE S/A 33.000.118/0001-79


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Data Transmission Services: gross revenue was R$ 239 million in 1Q02, a 33.5% increase over 1Q01. Data revenue growth in 1Q02 was due to the increase in sales of service packages to small and medium companies (TC Frame and TC IP) especially through Telemar Corporate authorized sales agents (established in the first half-year of 2001) and due to the yearly restatement of some Corporate Contracts at the accumulated IGP-DI variation. In addition, there was an increase in sales of new circuits to SMP operators. It should be mentioned that the restatement of contract values will not occur again over the next quarters. Network Usage: gross revenue from Telemar's network usage was R$ 425 million in 1Q02, a 22.1% growth over 1Q01. This increase was basically due to an improvement in traffic clearing procedures, collection processes and the actual traffic volume in the network. OPERATING COSTS AND EXPENSES (ex- depreciation) amounted to R$ 1,343 million in 1Q02, a 9.9% or R$ 121 million increase over 1Q01. The following table shows a quarterly breakdown of costs and expenses:

The Company's management remains focused on embracing cost reduction opportunities by improving efficiencies, optimizing existing assets and the integration among the several subsidiaries. With the conclusion of the Plan on the Early Attainment of Targets and the benefits arising from the Corporate Restructuring and the Operating and Backoffice Reorganization, the main reductions in "operating costs and expenses" in relation to 1Q01 were: Personnel Expenses (R$ 34Mn), Advertising and Marketing Expenses (R$ 33Mn). The main changes in operating costs and expenses are described below: Interconnection expenses were 13.0% higher in 1Q02 (R$ 67 million), mainly due to the average increase of 10.7% in mobile interconnection rates (TU-M) imposed, in February, by the cellular operators in our region.

Costs and Expenses 1Q02 1Q01Cost of Service 346 340

Interconnection 587 520

Selling Expenses* 156 166Doubtful accounts 210 87

Administrative Expenses 166 141Other Exp/(Rev), net (122) (32)

Total (R$Mn) 1,343 1,222

* Does not include doubtful accounts



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Selling Expenses decreased by R$ 10 million in 1Q02 due to lower marketing and advertising expenditures as well as lower headcount costs.



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Provisions for Doubtful Accounts totaled R$ 210 million in 1Q02 (R$ 87 million in 1Q01), representing 5.6% of the quarter's gross revenue. Management expects that the credit and billing procedures recently implemented will gradually reduce the default ratio to levels lower than 5% for 2002. Administrative Expenses registered, in 1Q02, a 17.7% or R$ 25 million increase over 1Q01. The following table shows a breakdown of Costs and Expenses:

Other Operating Expenses (Income) presented a positive balance (income) of R$ 122 million in 1Q02 against positive R$ 32 million in 1Q01. Telemar Norte Leste S.A. recorded in 1Q02 R$ 143.5 million as "other operating income (expenses)" referring to excess funds from Fundação Sistel de Seguridade Social, as a result of the reversal of part of expenses arising from the release of legal surcharges in connection with its defined contribution pension plan, after having adhered to the Special Rating System (Regime Especial de Tributação - RET), approved by Provisional Measure No. 2222/01, in view of the fact that the sponsor's current and future liabilities are adequately covered. Due to the levy of taxes on the amount recovered (PIS and COFINS at 3.65%), the net impact on 1Q02 EBITDA was R$ 138.3 million. Personnel expenses totaled R$ 139 million in 1Q02, a 19.7% (R$ 34 million) decrease over 1Q01, mainly due to the headcount reduction which occurred in the past two quarters as a result of the completion of the Plan on the Early Attainment of Targets. At the end of March 2002, the Company had 10,483 full-time employees, a total reduction of 7,623 employees (-42.1%) from 1Q01.

Costs and Expenses * COS Selling G&AOther Op.Exp (Rev) Total

Personnel 70 29 40 - 139

Materials 54 3 4 - 61

Third Party 166 111 88 - 365

Administration 0 - 14 - 14

Marketing-

11- -

11

Doubtful accounts - 210 - - 210

Interconnection 587 - - - 587

Others 56 2 20 -122 -44

Total 933 366 166 -122 1,343

* Excludes Depreciation and Amortization

COS (Cost of Services)

1Q01

173

283

12

44

87

520

40

1,222

63



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EBITDA - In 1Q02, EBITDA reached R$ 1,431 million, a 31.4% increase over 1Q01 (R$ 1,089 million). The EBITDA margin was 51.3% in 1Q02 against 47.1% in 1Q01. The EBITDA growth in 1Q02 reflects the strong effort made by the Company's management to handle costs and expenses, in addition to the recovery of contributions made to Sistel. The Company is returning to EBITDA margin levels registered before the completion of the Plan on the Early Attainment of Targets. The consolidated EBITDA margin was 51.3%. However, excluding the unusual revenue related to SISTEL, the normalized EBITDA totals R$ 1,293.0 million, with a 46.4% margin over Net Revenue, as follows:

DEPRECIATION AND AMORTIZATION totaled R$ 902 million in 1Q02, an increase by R$ 230 million in relation to 1Q01. NET FINANCIAL RESULT in 1Q02 is represented by negative R$ 200 million against R$ 58 million in 1Q01. Financial Expenses reached R$ 238 million in 1Q02, R$ 119 million higher than those registered in 1Q01, as a result of an increase in the Company's debt in 1Q02 (R$ 2,696 million). Financial Income reached R$ 32 million in 1Q02, a decrease by R$ 29 million in relation to 1Q01. The decrease in financial income in 1Q02 when compared to 1Q01 is due to the fact that the Company recorded, in 1Q01, earnings related to money market investments in the amount of R$ 23 million. NON-OPERATING RESULT - There was a R$ 2.2 million negative impact in 1Q02, versus negative R$ 20.9 million in 1Q01 relating to gains arising from the sale of property, plant and equipment. NET INCOME - TMAR's net income reached R$ 206 million in 1Q02 (US$ 0.85 EPADR) against R$ 199 million in 1Q01 (US$ 0.79 EPADR). It should be noted that the result for 1Q02 exceeds the total net income for 2001 (R$ 49 million).

1Q02 1Q01

EBITDA 1,431.3 1,089.4

(-) Unusual

Rev/Expenses (138.3) -

Normalized EBITDA 1,293.0 1,089.4

EBITDA Margin 51.3% 47.1%

Normalized 46.4% 47.1%



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ACCOUNTS RECEIVABLE, net of a R$ 347 million provision for doubtful accounts, reached a consolidated position of R$ 2,201 million at the end of 1Q02, compared to R$ 2,140 million at the end of 4Q01, a 2.8% increase over the quarter. Of the total accounts receivable, 80% refer to wireline clients and 20% to other clients, mainly telecom service providers for the use of TELEMAR network. DEBT - The Company's net indebtedness at the end of 1Q02 amounted to R$ 5,193 million. Total indebtedness (loans and financing) reached R$ 5,502 million at the end of March 2002. Of this total, 77% refers to local currency denominated debt.

The total foreign currency debt, with an average cost of Libor plus 6% p.a., amounts to R$ 1,239 million and is composed of U.S. dollars and a basket of currencies. The local currency debt amounts to R$ 4,263 million and refers to the use of funds provided by special credit lines in the acquisition of infrastructure and electronic equipment, network management software and others, as well as in the payment of the related installation and assembling services, under the terms of the "Telecommunications Investment Support Program".

Debt R$ Mn 1Q02 4Q01TotalIndebtedness 5,502

Short Term

Long Term

(-) Cash

(=) Net Debt

(+) Suppliers

(+) Other Accounts

Payable

Total

2,917 2,585

(309)

5,193

6,695 8,003

6,180

6,2543,532

2,722

1,436 1,727

66 96

(74)

A free translation of the original report in Portuguese on Limited Review of Interim Financial Information) FEDERAL PUBLIC SERVICE CVM – BRAZILIAN SECURITIES COMMISSION ITR – Quarterly Information Brazilian Corporate Law COMMERCIAL, INDUSTRIAL AND OTHER COMPANIES Base date - 03/31/2002 01132-0 TELEMAR NORTE LESTE S/A 33.000.118/0001-79

17.01 - REPORT ON LIMITED REVIEW - UNQUALIFIED

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May 3, 2002 To the Board of Directors and Shareholders Telemar Norte Leste S.A.

1 We have carried out limited reviews of the Quarterly Information - ITR of Telemar Norte Leste S.A. for the quarters ended March 31, 2002 and 2001, including the balance sheet (parent company and consolidated), the statement of income (parent company and consolidated), the notes to the financial information (parent company and consolidated) and the comments on the performance in the quarter (parent company and consolidated). This financial information is the responsibility of the Company's management.

2 Our reviews were conducted in accordance with the specific procedures determined by the

Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accountancy Board, and consisted principally of: (a) making inquiries of, and discussing with, officials responsible for accounting, financial and operational matters relating to the procedures adopted for preparing the quarterly financial information and (b) reviewing the information and subsequent events which have, or may have, significant effects on the financial position and results of operations of the Company.

3 Based on our limited reviews, we are not aware of any material adjustments that should be made to the Quarterly Information - ITR referred to in paragraph one above for it to be in accordance with accounting principles prescribed by Brazilian Corporate Law and the regulations established by the Brazilian Securities Commission - CVM, specifically for the preparation of the quarterly information.

3 The Quarterly Financial Information - ITR also contains accounting and financial information

relating to the quarter ended December 31, 2001. We examined this information at the time of its preparation, in connection with our audit of the financial statements at that date, on which we expressed our unqualified opinion on February 15, 2002. PricewaterhouseCoopers Marcos D. Panassol Auditores Independentes Partner CRC-SP-160-S-RJ Contador CRC-SP-155.975/O-8-S-RJ

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