THE TOTAL NUMBER OF PAGES CONTAINED IN THIS DOCUMENT IS 33
----
FORM 6 - K
----------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of the
Securities Exchange Act of 1934
For the month of May 2002
NATIONAL TELEPHONE COMPANY OF VENEZUELA (CANTV)
-----------------------------------------------
(Translation of Registrant's Name into English)
EDIFICIO CANTV
AVENIDA LIBERTADOR
CARACAS, VENEZUELA
------------------
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F_______
---
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Act of 1934
Yes______ No X
---
If "Yes" is marked, indicated below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82 _________________
This report consists of an English translation of the original Spanish language
version of a Venezuelan filing of the unaudited financial statements of
Compania Anonima Nacional Telefonos de Venezuela (CANTV) as of and for the
period ended on March 31, 2002, prepared according to Venezuelan GAAP, which
differ in certain important respects from US GAAP, as filed with the Venezuelan
National Commission on Securities on April 30, 2002.
ENGLISH TRANSLATION
-------------------
Caracas, April 30, 2002
Sirs
Comision Nacional de Valores
Present.-
Attention: Dra. Aida Lamus
President
Dear Dra. Lamus,
In accordance with the requirements of the "Periodic or Occasional Information
Reporting Norms to Be Submitted by Individuals Regulated by the Venezuelan
National Commission on Securities" ("Normas Relativas a la Informacion Periodica
u Ocasional que Deben Suministrar las Personas Sometidas al Control de la
Comision Nacional de Valores"), attached please find the unaudited Financial
Statements as of and for the period ended March 31, 2002.
I will make myself available should you need any clarification or additional
information.
Sincerely yours,
(signed)
Mariela Belmonte.
Secretary
Board of Directors
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA
(CANTV) AND SUBSIDIARIES
Consolidated financial statements
as of March 31, 2002 and December 31, 200l and for the three
months ended March 31, 2002 and 2001
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND DECEMBER 31, 200l
----------------------------------------------------------------------
(Adjusted for inflation and expressed in millions of constant bolivars as of
March 31, 2002)
ASSETS 2002 2001
------ ----------- -----------
CURRENT ASSETS:
Cash and temporary investments 223,585 322,720
Accounts receivable, net 401,387 394,886
Accounts receivable from Venezuelan Government entities 79,010 104,797
Inventories and supplies, net 29,512 34,995
Other current assets 31,106 12,319
----------- -----------
Total current assets 764,600 869,717
Property plant and equipment net 3,219,783 3,342,905
Cellular concession, net 110,017 110,937
Other assets 269,501 270,919
----------- -----------
Total assets 4,363,901 4,594,478
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt 75,948 142,485
Accounts payable 304,042 278,514
Employee severance benefits, net 12,694 10,494
Accrued employee benefits 75,932 80,453
Other current liabilities 305,368 501,621
----------- -----------
Total current liabilities 773,984 1,013,567
LONG-TERM LIABILITIES:
Long-term debt 231,485 244,177
Pension and other postretirement benefit obligations 442,139 422,824
----------- -----------
Total liabilities 1,447,608 1,680,568
STOCKHOLDERS' EQUITY 2,916,293 2,913,910
----------- -----------
Total liabilities and stockholders' equity 4,363,901 4,594,478
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
2
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
--------------------------------------------------
(Adjusted for inflation and expressed in millions of constant bolivars
as of March 31, 2002, except earning per share and per ADS amount)
2002 2001
--------- ---------
OPERATING REVENUES:
Local and domestic long distance usage 117,232 147,256
Basic rent 90,877 94,616
--------- ---------
Local and domestic long distance 208,109 241,872
International long distance 24,567 27,537
Net settlements 1,912 5,969
--------- ---------
International long distance 26,479 33,506
Fixed to mobile outgoing calls 118,185 1168,585
Interconnection incoming 5,992 16,972
Other wireline-related services 39,635 37,762
--------- ---------
Total wireline services 398,400 498,697
Wireless services 127,121 89,476
Other 12,903 7,596
--------- ---------
Total operating revenues 538,424 595,769
OPERATING EXPENSES:
Operations, maintenance, repairs and administrative 217,321 240,769
Interconnection costs 49,164 94,545
Depreciation and amortization 189,367 200,087
Concession and other taxes 40,007 33,068
--------- ---------
Total operating expenses 495,859 568,469
--------- ---------
Operating income 42,565 27,300
--------- ---------
OTHER EXPENSES, NET:
Financing cost, net 14,372 380
Other (expenses) income, net (8,289) 6,290
--------- ---------
Total other expenses, net 6,083 6,670
--------- ---------
Income before income 48,648 33,970
INCOME TAX 17,746 15,030
--------- ---------
Net income 30,902 18,940
========= =========
Earnings per share 39 20
========= =========
Earnings per ADS (based on 7 shares per ADS) 275 143
========= =========
Average shares outstanding (in millions) 787 926
========= =========
The accompanying notes are an integral part of these consolidated statements.
3
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
--------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND DECEMBER 31.2001
--------------------------------------------------------------
(Adjusted for inflation and expressed in millions of constant bolivars as of
March 31, 2002)
Capital stock
------------------------------------ Additional
Historical Inflation paid-in Retained Legal Treasury
cost adjustment Total capital earnings reserve stock
----------- ---------- --------- ---------- --------- --------- --------
Balance as of December 31, 2000 34,173 1588,676 1,622,849 21,788 1,955,947 175,212 -
Net loss - - - - 84,703 - -
Dividends declared - - - - (506,780) - -
Repurchased shares - - - - (239,963) - (241,832)
Change in cumulative translation adjustment - - - - - - -
----------- ---------- --------- ---------- --------- --------- --------
Balance as of December 31, 2001 34,173 1,588,676 1,622,849 21,788 1,293,907 175,212 (241,832)
Net income - - - - 30,902 - -
Dividends declared - - - - (32,745) - -
Repurchased shares - - - - - - -
Change in cumulative translation adjustment - - - - - - -
----------- ---------- --------- ---------- --------- --------- --------
Balance as of March 31, 2002 34,173 1,588,676 1,622,849 21,788 1,292,064 175,212 (241,832)
=========== ========== ========= ========== ========= ========= ========
Cumulative Total
translation stockholders'
adjustment equity
----------- -------------
Balance as of December 31, 2000 40,090 3,815,886
Net loss - 84,703
Dividends declared - (506,780)
Repurchased shares - (481,795)
Change in cumulative translation adjustment 1,896 1,896
----------- -------------
Balance as of December 31, 2001 41,986 2,913,910
Net income - 30,902
Dividends declared - (32,745)
Repurchased shares - -
Change in cumulative translation adjustment 4,226 4,226
----------- -------------
Balance as of March 31, 2002 46,212 2,916,293
=========== =============
The accompanying notes are an integral Part of these consolidated statements.
4
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002
-------------------------------------------------------------------------------
AND 2001
--------
(Adjusted for inflation and expressed in millions of constant bolivars as of
March 31, 2002)
2002 2001
---- ----
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income 30,902 18,941
Adjustments to reconcile net income to net cash provided by
operating activities-
(Gain) loss from net monetary position (13,137) 1,156
Exchange gain (loss), net 606 (2,608)
Depreciation and amortization 189,367 200,087
Provision for doubtful accounts 12,005 18,139
Provision for inventories obsolescence - 1,453
Changes in current assets and liabilities:
Accounts receivable (45,596) (19,825)
Accounts receivable from Venezuelan Government entities 19,524 (9,194)
Inventories and supplies 5,222 (2,933)
Other current assets (20,347) (5,119)
Accounts payable 98,461 (16,068)
Accrued employee benefits (2,035) (1,666
Other current liabilities (45,281) (41,141)
------- -------
229,691 141,222
CHANGES IN NON CURRENT ASSETS AND LIABILITIES:
Other assets (8,158) 1,308
Pension and other postretirement benefit obligations 19,315 7,141
------- -------
Net cash provided by operating activities 240,848 149,671
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of intangibles (3,058) (968)
Capital expenditures, net of disposals (55,722) (9,063)
------- -------
Net cash used in investing activities (58,780) (10,031)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments of debt (108,596) (27,177)
Dividend payments (153,020) -
------- -------
Net cash used in financing activities (261,616) (27,177)
------- -------
(Decrease) increase in cash and temporary investments before loss
in purchasing power of cash and temporary investments (79,548) 112,463
LOSS IN PURCHASING POWER OF CASH AND TEMPORARY INVESTMENTS (19,587) (37,838)
------- -------
(Decrease) increase in cash and temporary investments (99,135) 74,625
CASH AND TEMPORARY INVESTMENTS:
Beginning of period 322,720 654,741
------- -------
End of period 223,585 729,366
======= =======
SUPPLEMENTAL INFORMATION:
Cash paid during the period for-
Interest 9,331 16,967
======= =======
Taxes 94,175 108,700
======= =======
RESULT FROM NET MONETARY POSITION:
---------------------------------
Operating activities 9,776 28,535
------- -------
Investing activities 2,054 (2,190)
------- -------
Temporary investments 20,894 10.079
------- -------
The accompanying notes are an integral part of these consolidated statements.
5
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(Amounts are adjusted for inflation and expressed in millions of constant
bolivars as of March 31, 2002, unless otherwise indicated)
1. EXPLANATION ADDED FOR TRANSLATION INTO ENGLISH:
-----------------------------------------------
The consolidated financial statements were originally issued in Spanish and
translated into English.
2. COMPANY BACKGROUND AND CONCESSION AGREEMENT:
--------------------------------------------
Compania Anonima Nacional Telefonos de Venezuela (CANTV or the Company) is one
of the primary providers of telecommunications services in Venezuela, and is
the owner of a nationwide basic telecommunications network through which it
provides not only national and international fixed switched telephone service
but also private networks, data, public telephone, rural and telex services. In
addition, through its subsidiaries, CANTV provides other
telecommunications-related services including Internet access, wireless
communications and telephone directories.
CANTV entered into a Concession Agreement (the Concession) with the Government
of the Bolivarian Republic of Venezuela (the Government) in 1991 to provide
national and international telecommunications services, for the purpose of
guaranteeing high quality service, modernizing and expanding the local network,
introducing progressive rate rebalancing and establishing a framework for the
introduction of competition. November 2000 marked the opening of the
telecommunications market with the entrance of new competitors (see Note 18 (d)
and (e) - Commitments and contingencies - Concession mandates and Competition).
Significant terms of the Concession are as follows:
a. The Concession established a special privilege regime of limited
concurrence, through which the Government guaranteed CANTV, except in some
circumstances, to be the exclusive provider of fixed switched telephone
services, including local, national and international access until November
27, 2000. Beginning on that date, any party who obtains the corresponding
administrative concession is able to provide basic telecommunication
services in the country (see Note 4 - Regulation).
b. The Concession is for 35 years ending in 2026, and is extendable for an
additional period of 20 years subject to the approval by the Ministry of
Infrastructure, (the Ministry), and satisfactory performance by CANTV of
its obligations under the Concession.
C. Until December 31, 2000, CANTV paid annually a total of 5.5% of services
billed. Beginning in January 2001, the Company is subject to pay 4.8% of
gross revenues (see Note 4 (a) - Regulation - Organic Telecommunications
Law). Such amount is included in the accompanying consolidated statements
of operations as Concession and other taxes totaling for Bs. 16,993 and Bs.
18,742 for the three months ended March 31, 2002 and 2001, respectively.
6
d. The Concession requires the Company to expand, modernize and improve the
quality of its telephone network, as well as, meet prescribed service
quality targets. Those Concession mandates include national and regional
expansion and modernization targets as well as, annual and cumulative
targets (see Note 18 (d) and (e) - Commitments and contingencies -
Concession mandates and Competition).
e. The Concession specifies various penalties, which may be, imposed on CANTV
for negligent or intentional violation of Concession provisions, depending
on the violation, a public reprimand, a fine of up to 1% of services billed
and/or revocation and termination of the Concession. Penalties assessed
against CANTV through December 31, 2001, have not been material.
Eiqht-Year Review Aqreement
---------------------------
On February 21, 2000, CANTV and the Comision National de Telecomunicaciones
(CONATEL) signed the Eight-Year Review Agreement (the Agreement), effective
until December 31, 2000. The Agreement included the review of the concession
regarding quality service, tariffs framework, commercialization of new services
and the elimination of the service expansion mandate and the introduction of a
new 80% average digitalization mandate (see Note 4 - Regulation and Note 18 (d)
- Commitments and contingencies - Concession mandates).
Starting 2001, the Company is regulated by the Concession and the Organic
Telecommunication Law, enacted in 2000 (see Note 4 - Regulation).
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES:
----------------------------------------------------------
a. Basis of presentation
---------------------
The consolidated financial statements have been prepared in accordance with
Venezuelan generally accepted accounting principles (Venezuelan GAAP).
The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the amounts of revenues and expenses
during the reporting period. Actual consolidated results may differ from those
estimates.
b. Adjustment for inflation
------------------------
The Company's consolidated financial statements are expressed on a constant
bolivar basis as of March 31, 2002, in accordance with the Venezuelan Statement
of Accounting Principles Number 10 "Standards for the Preparation of Financial
Statements Adjusted for Inflation" (DPC 10) (revised and comprehensive), issued
by the Venezuelan Federation of Public Accountants.
In December 2000, the Venezuelan Federation of Public Accountants issued the new
DPC 10 (revised and comprehensive), which superseded the standard issued in 1991
and its three amendments as well as the technical publications number 14 and 19.
The main changes outlined in this standard pertain to presentation and not
methodology, and is effective for those periods beginning after December 31,
2000.
7
The amounts disclosed in the consolidated financial statements have been
adjusted to reflect the bolivar's purchasing power at March 31, 2002 based on
the Consumer Price Index (CPI) for the metropolitan area of Caracas as published
by the Central Bank of Venezuela (BCV).
The most representative indexes used in the preparation of the inflation
adjusted financial statements are as follows (1997 base):
March 31, December 31, March 31,
2002 2001 2000
--------- ------------ ---------
End of period 247.57354 231.27564 210.47694
Average for period 239.50774 219.40902 209.07698
Each caption in the accompanying consolidated financial statements has been
presented on the basis of the CPI at March 31, 2002, as follows:
i. Monetary assets and liabilities (cash and temporary investments, accounts
receivable, other assets and most liabilities) as of March 31, 2002, have
not been adjusted for the effect of inflation since they already represent
their inflation-adjusted value at that date. The balances as of December
31,2001, have been updated based upon the relative change in the CPI
between that date and the CPI at March 31, 2002.
ii. Non-monetary assets (principally inventories and supplies, net, property,
plant and equipment, net, the cellular concession, net and certain other
assets) and stockholders' equity have been updated based upon the relative
change in the CPI between the time the assets and equity were acquired or
contributed and the CPI at March 31, 2002.
III. The non-monetary liability for pension and other postretirement benefit
obligations and its related expense, are recorded based on actuarial
calculations (see Note 13 - Retirement benefits).
iv. Monetary revenues and expenses have been updated based upon the change in
the CPI from the month in which the transaction was recorded and the CPI at
March 31, 2002.
V. Non-monetary expenses (primarily depreciation and amortization) are based
upon the values of the corresponding assets (primarily property, plant and
equipment) in the accompanying consolidated balance sheets (See (ii)
above).
vi. The monetary gain (loss) is attributable to the Company's net monetary
asset or liability position in an inflationary period and has been set
forth-as loss from net monetary position as part of the Financing cost, net
caption in the accompanying consolidated statements of operations (see Note
15 - Financing cost, net).
C. Consolidation
-------------
The consolidated financial statements include CANTV and all of its
majority-owned subsidiaries All significant intercompany balances and
transactions among the companies have been eliminated.
8
d. Cash and temporary investments
------------------------------
Cash and temporary investments include short-term, highly liquid investments,
which have original maturities of three months or less. The loss in the
purchasing power of cash and temporary investments due to inflation is reflected
as a separate caption in the consolidated statements of cash flows.
e. Inventories and supplies, net
-----------------------------
Inventories and supplies are presented at cost, net of reserves. Certain
inventories and supplies whose original cost per unit does not exceed the
equivalent in bolivars of U.S.$ 500 are expensed when purchased.
f. Depreciation and amortization
-----------------------------
Depreciation and amortization are calculated using the straight-line method
based on the estimated useful lives of the fixed assets and based on the
amortization period assigned to the intangible assets (see Note 5 - Cellular
concession and Note 10 - Other assets). Amortization expense was Bs. 15,769 and
Bs. 15,524 for the three months ended March 31,2002 and 2001, respectively.
Accumulated amortization was Bs. 346,407 and Bs. 330,638 at March 31, 2002 and
December 31, 2001, respectively.
g. Computer software
-----------------
The costs of certain purchased computer software and systems for internal use
are capitalized and classified as intangible assets. The estimated useful lives
of these intangible assets is between 3 and 7 years. Internal-use software is
defined as software which is acquired, internally developed, or modified solely
to meet the internal needs of the Company; and for which, during the software's
development or modification, no substantive plan exists or is being developed by
the Company to market the software externally. Regular maintenance and
modifications to existing software are expensed when incurred.
h. Impairment of Ions-lived assets
-------------------------------
The Company evaluates the impairment of long-lived assets, including intangible
assets, based on the projection of undiscounted cash flows whenever events or
changes in circumstances indicate that the carrying amounts of such assets may
not be recoverable. In the event such cash flows are not expected to be
sufficient to recover the recorded value of the assets, the assets are written
down to their estimated fair values. Under current circumstances, no adjustment
for impairment in the carrying value of long-lived assets has been recorded.
9
i. Revenue recognition
-------------------
Revenues for wireline and wireless services are recognized in the period in
which the services are provided. Unbilled revenues of Bs. 72,111 and Bs. 71,620
are included in accounts receivable as of March 31, 2002 and 2001, respectively.
Revenues from settlement of traffic with international telecommunications
carriers are recognized on a net basis and are based on estimates of traffic
volume and rates. Advertising revenues and related telephone directory printing
costs are recognized upon publication of the directories. The Company presents
as deferred revenue, included in the Other current liabilities caption, those
amounts of billed services, which have not been rendered yet, such as submarine
cable usage, basic rent for telecommunications services and telephone
directories (see Note 12 - Other current liabilities).
During 2000, the Company reviewed its revenue recognition polices for prepaid
services and subscriber right fees and changed the way it was accounting for
these services. Subscriber right fees, which are upfront fees paid by consumers
when the service is activated, are classified as liabilities on the Company's
balance sheet. The Company believes that the opening of the telecommunications
market where consumers have a choice of carrier changes the way in which
subscriber right fees should be accounted for on the Company's books. In line
with industry practices prepaid card sales are recognized as revenue when the
customer utilizes the service. The changes in the way the above revenues are
recognized did not materially impact the Company's results of operations.
During 2001, the Company changed the way it presents interconnection revenues
and costs in the consolidated statements of operations. Revenues from Fixed to
mobile outgoing calls include the amount paid to customers for fixed to mobile
calls terminating in a wireless operator The portion related to basic telephony
charged to a wireless operator for mobile to fixed calls is included as
Interconnection incoming revenue, while costs charged to CANTV and its
consolidated subsidiary Movilnet from a wireless operator for the
interconnection portion of fixed to mobile traffic, as well as mobile to mobile
are presented as Interconnection costs in the consolidated statements of
operations. Previously, only the fixed portion of the fixed to mobile traffic
was included as revenue, while the cost for the outgoing fixed to mobile or
mobile to mobile traffic were presented net of such revenues. This change was
applied to all the periods presented in the consolidated statements of
operations for comparative purposes.
j. Income tax
----------
Income taxes are calculated based upon taxable income which is different from
income before tax in the statement of operations. Venezuelan tax legislation
does not permit consolidation of results of subsidiaries for tax purposes.
Investment tax credits for property, plant and equipmenl: reduce the income tax
during the year in which such assets are placed in service. Investment tax
credits as well as fiscal losses except those from the tax inflation adjustment,
are permitted to be carried forward for 3 years. Venezuelan tax regulations also
provide for a corporate asset alternative minimum tax based on inflation
adjusted net assets.
The Company recognizes through the deferral method, the impact of income taxes
originated from temporary differences existing between the income tax expense
calculated on the basis of net income, determined in accordance with generally
accepted accounting principles, and this concept, calculated on the taxable
income for the period, determined in accordance with current tax legislation.
Such tax effect is assigned to future periods in which such temporary
differences will be realized. The recording of the deferred income taxes is
subject to its possible realization.
10
Based on current conditions, the Company has not recorded the asset resulting
from deferring the tax effect of temporary reconciliation differences.
k. Employee severance benefits and other benefits
----------------------------------------------
Employee severance benefits are calculated and recorded in accordance with the
Venezuelan labor law and the Company's current collective bargaining agreement.
Under the current Labor Law, employees earn a severance indemnity equal to 5
days salary per month, up to a total of 60 days per year of service. Labor
indemnities are earned once an employee has completed 3 months of continuous
service. Beginning with the second year of service, the employees earn an
additional 2 days salary for each year of service (or fraction of a year greater
than six months), cumulative up to a maximum of 30 days salary. Severance
benefits must be funded and deposited monthly in either an individual trust or a
severance fund, or accrued in an employer's accounting records, as specified in
writing by each employee.
In the case of unjustified or involuntary termination, employees have the right
to an additional indemnification payment of one-month salary per year of service
up to a maximum of 150 days' current salary. Furthermore, in the case of
involuntary termination the Law established the payment of an additional
severance benefit of up to a maximum of 90 days current salary based on length
of employment.
Additionally, the Venezuelan labor law requires a mandatory annual profit
sharing distribution to all employees. CANTV made distributions equal to 120
days salary for the year ended December 31,2001, of Bs. 40,544.
I. Pension plan and other postretirement benefits
----------------------------------------------
The noncontributory pension plan benefits are accrued based on actuarial
estimates. The real discount rate and real rate of compensation increase used to
develop the projected benefit obligation were 7% and 2%, respectively (see Note
13 - Retirement benefits).
Postretirement benefits relating to health care expenses are recorded based on
actuarial estimates (see Note 13 - Retirement benefits).
m. Foreiqn currency denominated transactions
-----------------------------------------
Foreign currency denominated transactions are recorded at the bolivar exchange
rate as of the transaction date. The outstanding balances of foreign currency
denominated assets and liabilities are translated into bolivars using the
exchange rate at the balance sheet date, which were Bs. 906.50 and Bs. 758 per
U.S. dollar as of March 31,2002 and December 31,2001, respectively (see Note 6 -
Balances in foreign currency). Any exchange gain or loss from the translation of
these balances and transactions is reflected as exchange gain (loss), net in the
Financing cost, net caption in the accompanying consolidated statements of
operations (see Note 15 - Financing cost, net).
n. Leqal reserve
-------------
The Company and each of its subsidiaries are required under the Venezuelan
Commercial Code and their Corporate By-laws to transfer at least 5% of each
year's net income to a legal reserve until such reserve equals at least 10% of
capital stock.
11
o. Earnings per share
------------------
Earnings per share are based on 787,141,849 and 926,037,385, of average common
shares outstanding at March 31, 2002 and 2001, respectively.
4. REGULATION:
-----------
CANTV's services and tariffs are regulated by the rules established in the
Concession agreement, the Organic Telecommunications Law enacted in 2000 and its
Regulations, as well as the Agreement (see Note 2 - Company background and
concession agreement).
The Organic Telecommunications Law along with the Regulations, provide the
general legal framework for the regulation of telecommunications services in
Venezuela. Under the Organic Telecommunications Law, suppliers of public
telecommunications services, such as the Company, must operate under concessions
granted by the Government, which acts through the Ministry.
CONATEL is an independent regulatory body under the direction of the Ministry,
created by presidential decree in September 1991, which has the authority to
manage, regulate and control the use of limited resources in the
telecommunications services in Venezuela, and recommend the granting of
concessions, licenses and administrative authorizations as well as the approval
of tariffs and collection taxes. Also, it shall promote and protect free
competition, together with the Superintendent of Promotion and Protection of
Free Competition (Pro-Competencia).
a. Organic Telecommunications Law
------------------------------
On June 12, 2000, the Venezuelan Government issued the Organic
Telecommunications Law, which provides the guidelines for the opening of the
telecommunications sector for existing and new operators after November 2000.
This Law replaces the 1940 Organic Telecommunications Law and it is the result
of several years of consultation between the private and public sector. Some of
the most important aspects of the Telecommunications Law are as follows:
i. Provides the legal framework to establish specific regulations related to
interconnection, universal service, spectrum, administrative concessions,
networks, taxes, as well as penalties, consumer and operator's rights and
responsibilities.
ii. Defines telecommunications as an activity of general interest rather than
as a public service, as provided by the former law.
iii. Operator's freedom to set rates is specified, establishing controls only in
cases where dominant control is evidenced and in cases of insufficient
competition.
iv. Adopts a new tax regime applicable to all telecommunications service
providers on the basis of gross revenues. The new taxes replace the former
annual tax and concession fee of 5.5% for wireline and 10% for wireless
services. The new tax rates are: 2.3% activity tax, 0.5% tax to cover
CONATEL's activities, 0.5% tax for spectrum allocation, 1% tax to create
the Universal Service Fund, 0.5% tax for the Telecommunications Training
and Development Fund. In addition, cellular providers are subject to a
supplemental tax starting at 4.5% of gross revenues in the year 2000 and
decreasing by 1% per annum until 2005 after which time the supplemental tax
will be eliminated.
12
b. Telecommunications regulations
------------------------------
On November 24, 2000, the Regulations for Basic Telephony Services,
Interconnection and Administrative concessions were issued and represent the
legal framework for the market opening of telecommunication services in
Venezuela.
The most significant aspects of these Regulations include:
i. Requirements, condition and limitations for the opening of basic telephony
services in a free competition environment and equal opportunities between
existing and new operators.
ii. Regulation for mandatory interconnection with charges based on costs,
changing the previous structure of interconnection charges based on
tariffs. It also requires the submission of quarterly accounting
information by separate accounts and before the fourI quarter of 2001,
carriers must establish accounting systems indicating costs generated by,
interconnection and the allocation criteria. At March 31, 2002, CANTV has
signed seven interconnection agreements with different operators (see Note
18 (e) - Commitments and contingencies - Competition).
iii. The rules for granting administrative concession for the network
establishment and development and the rendering of telecommunication
services and the spectrum concession usage and development. Additionally,
spectrum concession will be granted through public offering procedures and
in certain cases, direct adjudication will be granted. Value added
services, except for Internet services, does not require authorization,
only notification specifying the networks, links or systems to support the
service.
C. Tariffs
-------
On February 22, 2001, pursuant to the New Organic Telecommunications Law,
CONATEL established the maximum tariffs that are applicable during 2001,
effective March 10, 2001 and a new "price-cap" system that replaced the tariff
adjustment mechanism provided under the Agreement. Under the new "price-cap"
system applicable for 2001, the maximum tariffs may be adjusted based on a
formula tied to the wholesale price index (WPI) and the rate of devaluation in
the Bolivar. The "price-cap" system allows the increase or decrease of
established tariffs based on deviations of 2.5% above or 2.5% below projected
monthly estimates of those indexes. CANTV may apply for an upward adjustment to
the established tariffs up to 2.5% above the accrued excess of the projected
index. CONATEL may request a downward adjustment to the established tariffs up
to 2.5% below the accrued excess of the projected index. If accrued excess of
the projected index deviates more than 7.5% above, CONATEL must review the
"price-cap" formula.
5. CELLULAR CONCESSION:
-------------------
On May 19, 1992, the Company purchased one of two cellular concessions from the
Government for Bs. 148,139 (Bs. 5,388 on an historical cost basis) and
established Telecomunicaciones Movilnet, C.A. (Movilnet). The amount paid for
the cellular concession is being amortized over 40 years.
13
Until December 2000, the annual payment of cellular concession fee based on
services billed was 10%. Beginning in 2001, the tax regime applicable to
cellular services providers is up to 9.3% of gross revenues. (see Note 4 (a) -
Regulation - Organic Telecommunications Law).
For the period the three months ended March 31,2002 and 2001, the Concession tax
expense included in the consolidated statements of operations were Bs. 11,544
and Bs. 7,283, respectively.
6. BALANCES IN FOREIGN CURRENCY:
-----------------------------
The Company has assets and liabilities denominated in U.S. dollars and Japanese
yens (see Note 19 - Market risk), as follows:
March 31, December 31,
2002 2001
----------- --------------
(Expressed in millions of U.S.
dollars)
Cash and temporary investments 372 304
Accounts receivable, net 44 37
Other assets and advances to suppliers 29 29
Accounts payable (32) (92)
Short and long-term debt (302) (434)
----------- --------------
Net asset (liabilities) position in foreign currency 111 (156)
=========== ==============
7. ACCOUNTS RECEIVABLE, NET:
-------------------------
The Company's accounts receivable, net balances, are as follows:
March 31, December 31,
2002 2001
----------- -------------
Subscribers 363,232 393,430
Net settlements 29,166 22,574
Other 63,260 36,061
----------- -------------
455,658 452,065
Less: Allowance for doubtful accounts (54,271) (57,179)
----------- -------------
401,387 394,886
=========== =============
8. ACCOUNTS RECEIVABLE FROM VENEZUELAN GOVERNMENT ENTITIES:
--------------------------------------------------------
The Company's largest customer is the Venezuelan public sector, including the
Government, its agencies and enterprises, and the Venezuelan states and
municipalities (collectively, Government entities). Government entities
generated approximately 5% and 7%, of the Company's revenues during the
three-month periods ended March 31,2002 and 2001, respectively.
14
The following table sets forth the aging of accounts receivable from Government
entities as:
2002 2001
-------- ---------
Years
-----
2002 19,995 -
2001 13,951 39,607
2000 and prior 45,064 65,190
-------- ---------
79,010 104,797
======== =========
The changes in accounts receivable from Government entities are as follows:
March 31, December 31,
2002 2001
----------- ------------
Balance at beginning of year 104,797 123,530
Billings 28,883 126,176
Collections (50,933) (131,396)
Monetary loss (3,737) (13,513)
----------- ------------
Balance at end of period 79,010 104,797
=========== ============
The amounts that Government entities can pay for telecommunications services are
established in annual budgets, which is not based upon actual usage during such
year. As a result of these budgeting processes and for other macroeconomic
reasons, a number of Government entities have not paid the Company in full for
telecommunications services received. In addition, as a result of inflation and
devaluation, the value of these balances has decreased.
Although the Company has, in the case of certain Government entities, reduced
the number of lines available, there can be no assurance that Government
entities will not continue to use telecommunications services in excess of the
amounts that can be paid, that the Company will not continue to experience
significant delays in collecting receivables from Government entities or that
inflation and devaluation will not continue to decrease the value of these
receivables to the Company. Failure by Government entities to pay the amounts
owed to the Company or the amounts to be billed in the future, has had, and will
continue to have an adverse effect on the profitability of the Company.
In 2001, the National Assembly, previously the Congress, approved a decree
authorizing the issuance of bonds for the payment of basic services. The amount
set aside for payments of debt owed CANTV in the period 1996-2000 amounted Bs.
43,300. During 2001, the Company collected Bs. 6,633 from these bonds.
In February and March 2002, CANTV acquired National Treasury Bonds of Bs.
24,000. The Government paid overdue debts to CANTV with these funds. The current
portion Bs. 15,991, and the non-current portion, Bs. 7,530, are recorded as
Other assets (See Note IO - Other assets).
CANTV's management believes all amounts from Government entities will be
collected either in cash and/or through Government bonds.
15
9. PROPERTY, PLANT AND EQUIPMENT, NET:
-----------------------------------
Property, plant and equipment, net is comprised as follows:
March 31, December 31,
2002 2001
------------ --------------
Plant 9,917,990 9,970,393
Buildings and facilities 1,304,276 1,238,979
Furniture and equipment 859,694 807,204
Vehicles 62,170 70,978
------------ --------------
12.144.130 12.087.554
Less: Accumulated depreciation (9,005,481) (8,840,701)
------------ --------------
3,138,649 3,246,853
Land 45,430 46,305
Construction work in progress 35,704 49,747
------------ --------------
3,219,783 3,342,905
============ ==============
The average useful lives for the different classes of property, plant and
equipment are as follows:
Average useful
lives (in years)
------------------
Plant 3 to 32
Buildings and facilities 5 to 25
Furniture and equipment 3 to 7
Vehicles 3 to 5
Property, plant and equipment includes capitalized direct labor and allocated
overhead well as materials used in connection with construction work in
progress. Capitalized direct and allocated overhead costs totaled Bs. 2,220 and
Bs. 6,001 for the three months ended March 31,2002 and 2001, respectively.
Maintenance and repair costs are expensed when incurred while major improvements
and renovations are capitalized.
10. OTHER ASSETS:
-------------
Other assets are comprised as follows:
March 31, December 31,
2002 2001
----------- -------------
Software and other intangible assets, net 174,912 82,376
Prepaid taxes 11,787 12,787
Investment in INTELSAT 26,639 23,845
Employees benefit fund 47,273 43,072
Other 8,949 8,839
----------- -------------
269,501 270,919
=========== =============
Software and other intangible assets include the cost of computer software and
systems for internal use, net of accumulated amortization (see Note 3 (g) -
Summary of significant accounting principles and policies - Computer software)
and the cost of usage rights of satellites
16
which are amortized over periods ranging from 3 to 7 years based upon the terms
of contracts granting usage rights.
Prepaid taxes include taxes assessed on the inflation-adjusted value of fixed
assets. In 1991, the Venezuelan Income Tax Law was revised to incorporate new
provisions. Under this new law, companies were required to pay an initial tax
equal to 3% of the inflation-adjusted value of fixed assets. This initial tax
was paid prior to 1996 and has been deferred and is being amortized over the
estimated useful lives of the related assets.
As of March 31, 2002, the investment in INTELSAT represents the Company's
participation of 1.12% in the International Satellite Telecommunications
Organization. The Company accounts for this investment using the equity method.
The functional currency of INTELSAT is the U.S. dollar.
In 1993, the Company contributed Bs. 49,704 to the "Employees Benefit Fund".
This amount was deposited in a Bank Trust on behalf of employees and was
utilized to acquired 1% of CANTV's capital stock to be distributed to the
employees as part of the "Excellence Award" program launched by CANTV. The
Company amortizes this contribution as the employees earn stock awards. On
October 24, 2001, an Extraordinary Shareholders Assembly approved the increase
of the "Excellence Award" via the internal purchase of Class C shares of up to
2% of the capital stock as of December 2, 1991. The assembly also approved the
creation of a new benefit plan named "Value Fund" to acquire Class C shares up
to 5.5% of the capital stock at the same price offered during the share
repurchase program. As of March 31, 2002, Bs. 4,200 has been spent to acquire
such shares. At March 31, 2002 and 2001 the trust maintains II,1 18,436 and
9,229,008 shares respectively.
Other assets include Bs. 7,530 related to the non-current portion of National
Treasury Bonds acquired (see Note 8 - Accounts receivable from Venezuelan
Government entities). These bonds have a maturity date of March 2003 and pay a
quarterly variable interest at a rate of 93.46% of the TAM (Average lending rate
of the main 6 banks of the country) effective 5 banking working days before the
maturity of the previous quarter.
11. LONG-TERM DEBT:
---------------
Long-term debt is comprised of the following:
March 31, December 31,
2002 2001
--------- ------------
Notes in U.S. dollars at fixed interest rates of 9.25% and
8.88% maturing in 2002 and 2004, respectively. 90,591 162,220
Notes in U.S. dollars at interest rates of three-month
LIBOR plus a margin between 1.35% and 1.75%,
(averaging 3.75% and 3.69% at March 31, 2002 and
December 31, 2001, respectively), maturing through
2003. 49,858 58,828
17
March 31, December 31,
2002 2001
---------- ------------
Bank loans in Japanese yens at a fixed interest rate of
2.83% to 6.80%, and in U.S. dollars at interest rates of
three-month LIBOR plus a margin between 0.25% and
0.75% (averaging 5.78% and 5.83% at March 31, 2002
and December 31, 2001, respectively), maturing
through 2009. 55,691 53,240
IFC loans in U.S. dollars at variable interest rates:
a. Three-month LIBOR plus a margin of 1.75%,
(averaging 5.57% at March 31, 2002 and December
31, 2001) maturing through 2005. 31,728 32,457
b. Three-month LIBOR plus a margin of 2.00%,
(averaging 5.82% at March 31,2002 and December
31, 2001), maturing through 2007. 21,813 21,300
c. Three-month LIBOR plus a margin between 3.00%
and 6.00% (averaging 6.09% and 7.89% at March
31,2002 and December 31,2001, respectively),
maturing through 2005. 22,663 20,285
Supplier loans in U.S. dollars at interest rates of three-
month LIBOR plus a margin of 0.25% to 0.75%
(averaging 2.39% and 3.84% at March 31, 2002 and
December, 31, 2001, respectively), maturing through
2002.
1,478 2,137
Notes payable to suppliers in U.S. dollars at fixed interest
rates (averaging 6.70% and 6.75% at March 31, 2002
and December 31, 2001, respectively), maturing
through 2002. 727 1,250
Banks loan in bolivars, bearing interest at the average
lending rate of the four major banks in Venezuela
(40.20% and 25.76% at March 31, 2002 and
December 31, 2001, respectively), maturing through
2003. 2,028 2,239
Bank loans in bolivars at a fixed and variable interest rate
of 30.80% and 23.31% at March 31, 2002 and
December 31, 2001, respectively, maturing through
2010. 30,856 32,706
---------- ------------
307,433 386,662
Less: Current maturities (75,948) (142,485)
---------- ------------
231,485 244,177
========== ============
18
On June 7, 1996, the Company entered into an agreement with the "International
Finance Corporation" (IFC Facility). Pursuant to the IFC Facility, the Company
obtained loan commitments aggregating up to U.S.$261 million, of which U.S.$175
million was disbursed. Of the amount disbursed, U.S.$75 million was used in the
Company's modernization and expansion program as mandated by the Concession and
for certain other capital expenditures. The remaining U.S.$lOO million
represents the conversion of certain debt outstanding under a Bank Refinancing
Agreement into longer-term debt. In March 1998, the Company paid U.S.$150
million of the debt outstanding under the IFC Facility with the proceeds from
the sale of variable interest rate notes issued by CANTV Finance Ltd., a
wholly-owned subsidiary of the Company, which are unconditionally and
irrevocably guaranteed as to payment of principal and interest by CANTV. The
principal on the remaining loan is payable as a single payment of U.S.$25
million in 2005. The interest rate on this loan is based on LIBOR plus a margin
and an additional amount of up to 3% based on the Company's annual net income
equivalent in U.S. dollars.
Pursuant to the IFC Facility, the Company may pay dividends only if it is
current with respect to its semi-annual payments. In addition, the Company is
required to meet certain financial ratios, including a long-term debt-to-equity
ratio, a current ratio and a fixed charge coverage ratio, eactl as defined by
the agreement. The Company has complied with these covenants as of March 31,
2002.
In 1997, Movilnet signed an agreement with the IFC Facility for two loans
totaling U.S.$95 million, which were disbursed during 1998. The proceeds of
these loans were used for expansion and modernization of the cellular network.
In September 2000, the Company issued discount promissory notes of Bs. 28,000
denominated in bolivars with a maturity of 5 years. The promissory notes were
placed at a 44% discount and an annual fixed interest rate of 23.5%. The
discount is amortized using the effective rate method. At March 31, 2002, the
balance of these notes, presented net of the unamortized discount, was Bs.
17,082. Additionally, two loan agreements were signed with local banks for Bs.
7,000 each, with maturities between 1 and 10 years.
Estimated payments of long-term debt are: Bs. 46,357 in 2002, Bs. 47,281 in
2003, Bs. 112,181 in 2004, Bs. 74,582 in 2005, Bs. 12,624 in 2006 and Bs. 14,408
thereafter, translated into bolivars at the exchange rate at March 31, 2002.
19
12. OTHER CURRENT LIABILITIES:
--------------------------
Other current liabilities are comprised of the following:
March 31, December 31,
2002 2001
---------- ------------
Concession tax 31,127 58,891
Subscriber rights 58,975 60,725
Deferred revenue 65,847 77,517
Accrued liabilities 24,063 30,302
Income, value added and other taxes 51,765 30,496
Interest payable 4,816 10,915
Legal claims 18,134 17,942
Technical and administrative services due to
affiliates stockholders 4,346 7,716
Dividends payable 32,745 198,856
Other 13,550 8,261
---------- -----------
305,368 501.621
========== ===========
13. RETIREMENT BENEFITS:
--------------------
Pension plan
------------
The Company sponsors a noncontributory pension plan for its employees. The
benefits to be paid under the plan are based on years of service rendered and
the employee's final salary. At March 31, 2002, the Company has funded Bs.
129,834, in a trust for this purpose.
Assumptions used to develop the projected benefit obligation are as follows:
Discount rate 7%
Expected return on assets 9%
Rate of compensation increase 2%
These assumptions represent estimates of real interest rates and compensation
increases rather than nominal rates. The unrecognized transition obligation is
being amortized over 20 years.
Postretirement benefits other than pensions
-------------------------------------------
Beginning 1999, the Company recorded medical claims related to accrued
postretirement benefit obligations other than pensions, based on actuarial
calculations. Such calculations are based on the average medical claims per
retiree for 1998.
Assumptions used to develop the accumulated postretirement benefit obligation
are as follows:
Discount rate 7%
Medical cost trend rate 2%
20
These assumptions represent estimates of real interest rates and medical cost
trend rate increases rather than nominal rates. The unrecognized transition
obligation is being amortized over 11 years.
Defined contribution plan
-------------------------
The Company has a defined contribution plan (Special Economic Protection Plan
for Eligible Retirees) to supplement the current pension benefits of retirees as
of August 15, 1995. Contributions are allocated to retirees based upon their
age, pension income and other existing benefits. At March 31, 2002, the Company
has funded Bs. 14,542 for this plan. The Company is not required to increase the
funding of this plan.
14. STOCKHOLDERS' EQUITY:
--------------------
Dividends
---------
The Venezuelan Commercial Code, Capital Markets Law and the Standards issued by
the Comision National de Valores (CNV), regulate the ability of the Company to
pay dividends. In addition, some of the Company's debt agreements provide for
certain restrictions which limit the ability of the Company to pay cash
dividends (see Note 1 l- Long-term debt). The Commercial Code establishes that
dividends shall be paid solely out of "liquid and collected earnings", and the
Capital Markets Law mandates that the Company distribute every year among its
shareholders not less than 50% of its net annual income, after income tax
provision and having deducted the legal reserves. Likewise, the Capital Markets
Law provides that at least 25% of such 50% shall be paid to the shareholders in
cash dividends. However, should the Company have accumulated losses, any net
income shall initially be applied to offset such deficit.
According to CNV Standards, the unconsolidated net income, excluding the equity
participation of subsidiaries adjusted for inflation, is the basis for dividends
distribution.
The Capital Markets Law provides that dividends must be declared in a
Shareholders' Assembly during which the shareholders determine the amount, form
and frequency of the dividend payment. Additionally, By-laws of companies under
CNV regulation, must state their dividend policies. The CNV cannot exempt a
company with publicly traded securities from paying the minimum dividends in the
year when the income is obtained.
On March 27, 2001, an Ordinary Shareholders' Assembly declared a cash dividend
of Bs. 63 per share and Bs. 441 per ADS to shareholders of record as of April 6,
2001. This dividend was paid on April 24, 2001.
On October 24, 2001, an Extraordinary Shareholders' Assembly declared an
extraordinary cash dividend of Bs. 520 per share and Bs. 3,640 per ADS to be
paid in two installments, one of Bs. 284 per share on December IO,2001 to
shareholders of record as of December 3,200l and the other one of Bs. 236 per
share on March 18,2002 to shareholders of record March 6, 2002.
Guidelines for future dividends distribution
--------------------------------------------
On December 14, 2001, CANTV's Board of Directors approved some guidelines for
the annual dividend distribution beginning in 2002. These guidelines include the
distribution to the shareholders of 50% of the prior year free cash flow,
defined as free cash flow taken from audited consolidated financial statements,
net of debt and interest payments scheduled for the following year. Annual
payment of dividends will be made in bolivars in quarterly installments previous
to the Board of Directors recommendation and approval of the Annual Shareholders
Assembly, according to current Venezuelan legislation.
21
Capital stock
-------------
Capital stock is represented by 926,037,385 shares at March 31, 2002, as
follows:
Number of
Participation shares
Stockholders Class % (in thousands)
----------------------------------------------- ----- ------------- --------------
Verizon Communications, Inc (Verizon) A 24.95 196,401
Telefonica Venezuela Holding B.V. A 6.91 54,407
Banco Mercantil A 0.05 367
Inversiones TIDE, S.A. A 3
Banco de Desarrollo Economico y Social de
Venezuela (formerly Fondo de Inversiones de Venezuela) B 6.59 51,900
Employee Trusts and Employees C 12.02 94,608
Verizon Communications, Inc. (Verizon) D 3.56 28,009
Public Shareholders D 45.92 361,445
---------- ----------
100.00 787,140
==========
Treasury Stock D 138,897
----------
926,037
==========
VenWorld was incorporated as a private consortium of companies led by Verizon
(formerly GTE Corporation), and originally included T.I. Telefonica
lnternacional de Espaiia, S.A.; C.A. La Electricidad de Caracas, S.A.C.A.;
Consorcio lnversionista Mercantil (CIMA), C.A. S.A.C.A. and AT&T International,
Inc. (AT&T) (Participants in the Consortium to acquire 40% of CANTV shares in
1991).
Beginning on January 1, 2001, VenWorld shareholders have the right to have their
shares redeemed and converted into CANTV Class A shares. Any Class A share
transferred to a non-subsidiary entity, wholly owned by the Participants of the
Consortium will be automatically converted into Class D shares.
During 2001, three of the Participants of the Consortium requested the
redemption of their shares, leaving Verizon Communications and T.I. Telefonica
lnternacional de Espaiia, S.A. as shareholders and Participants of the
Consortium, together with other minority shareholders representing 3.3% of
VenWorld's capital stock.
On February 1, 2002, an extraordinary shareholders assembly of VenWorld approved
the liquidation of the Consortium.
Class B shares may only be owned by the Bolivarian Republic of Venezuela. The
transfer of Class B shares to any non-public sector individual or entity will
cause the shares to be automatically converted to Class D shares, except if the
shares are transferred to a CANTV employee or retiree, in which case the shares
will be converted to Class C shares.
22
Class B stockholders had the right to elect two members of the Board of
Directors of the Company until January 1, 2001. Thereafter, they may elect only
one member together with all other stockholders. A majority of holders of Class
B shares is required to approve a number of corporate actions, including certain
amendments to the By-laws.
Class C shares may be owned only by employees, retirees, former employees and
heirs and spouses of employees or retirees of CANTV and its subsidiaries as well
as employees companies and benefit plans. Any Class C shares transferred to any
other individual or entity will be automatically converted to Class D shares.
Holders of Class C shares have the right, voting as a separate class, to elect
two members of the Board of Directors provided such Class C shares represent at
least 8% of the capital stock of CANTV and the right to elect one member
provided that such shares represent at least 3% of the capital stock of CANTV.
Class D shares are comprised of the conversion of Class A, B and C shares as
described above or capital increases. There are no restrictions on the ownership
or transfer of Class D shares. Holders of Class D shares will have the right to
elect, in conjunction with the other stockholders, any members of the Board of
Directors, at the time the Class B and C stockholders lose the right to
designate them according to CANTV's By-laws.
In November 1996, the Government sold 348.1 million shares representing 34.8% of
CANTV's capital stock in a global public offering. The Company's Class D shares
are traded on the Caracas Stock Exchange. They are also traded on the New York
Stock Exchange in the form of American Depository Shares (ADS), each
representing 7 Class D shares.
Repurchase proqrams
-------------------
On November 16, 1999, an Extraordinary Shareholder's Assembly authorized a share
repurchase program for up to 50,000,OOO shares. As required under Venezuelan
Law, the program specified a maximum repurchase price of Bs. 3,696 per share or
up to U.S.$40 per ADS. As of December 31, 1999, CANTV had acquired 1,229,900
shares at an average price of Bs. 2,472 per share, equivalent U.S.$23.50 per
ADS.
On March 31, 2000, an Ordinary Shareholders' Assembly approved a new share
repurchase program that authorized the Company to repurchase up to 50,000,OOO
shares. As required under Venezuelan Law, the program specified a maximum
repurchase price of Bs. 4,871 per share or up to U.S.$50 per ADS. During 2000,
CANTV acquired 72,732,716 shares related to both repurchase programs at an
average price of Bs. 2,940 per share, equivalent U.S.$28.39 per ADS.
On October 24, 2001, an Extraordinary Shareholders' Assembly approved a third
share repurchase program to acquire up to 138,905,608 shares or 15% of the
capital stock at a price of U.S.$30 per ADS or U.S.$4.29 per share. The program
began on October 25, 2001 and ended on November 23, 200l.
Upon completion of the repurchase program, the total repurchased shares were
138,896,536, which were converted into treasury shares. These shares may be
offered for sale within two years following their acquisition date, or reduced
from capital stock as approved by the Shareholders Assembly as established by
the Capital Markets Law.
23
15. FINANCING COST, NET:
-------------------
Financing cost, net as follows:
March 31, March 31,
2002 2001
--------- ---------
Interest income 6,819 10,451
Interest expense (4,978) (11,523)
Exchange (loss) gain, net (606) 2,608
Gain (loss) from net monetary position 13,137 (1,156)
--------- ---------
14,372 380
========= =========
The net exchange gain (loss) reflects the loss resulting from adjusting the debt
denominated in foreign currencies, principally U.S. dollars and Japanese yens
into bolivars at the exchange rates as of March 31, 2002 and December 31, 2001
(see Note 6 - Balances in foreign currency). The Central Bank of Venezuela has
the explicit policy to intervene to maintain the exchange rate within 7.5%
(above or below) of the reference rate, which has been set by the Central Bank
of Venezuela and is adjusted to account for projected inflation on a monthly
basis.
Effective February 12, 2002, the National Government decreed the free currency
fluctuation, which stopped the band system that formerly ruled the exchange
transactions from April 1996. Therefore, the exchange rate used for purchases
and sales of currencies is fixed based on the free market fluctuation resulting
from the supply and demand. As of February 18, 2002, the Central Bank of
Venezuela purchases and sells currencies in the market through an auction system
with the foreign exchange market operators. During the first business days of
free foreign currency fluctuation there was strong bolivar devaluation.
The devaluation of the bolivar against the U.S. dollar was 8% and 15% for the
three months period ended March 31,2002 and December 31,2001, respectively.
The loss or gain from net monetary position reflects the loss from holding net
monetary assets or liabilities in a period of inflation, which was 7%, and 2%
for the three months ended March 31, 2002 and 2001, respectively.
24
16. MONETARY POSITION:
-----------------
The loss from net monetary position as follows:
March 31, March 31,
2002 2001
--------- ---------
Net monetary liability position at the beginning of the period (337,656) (46,992)
Revenue and expenses, other than depreciation and
amortization and other expenses generated by non-monetary
assets and liabilities 74,919 89,051
Additions to non-monetary assets and liabilities 100.890 170,739
Pension plan payments (3,466) (3,522)
Dividends declared (32,745) (68,622)
Exchange (loss) gain, net (606) 2,608
-------- --------
(198,664) 143,262
Net monetary (liability) asset position at the end of the period (185,527) 142,106
-------- --------
Gain (loss) from net monetary position 13,137 (1,156)
======== ========
17. TRANSACTIONS WITH RELATED PARTIES:
---------------------------------
Transactions with related parties are subject to conditions similar to
transactions with independent third parties. In the normal course of business
and as limited by applicable debt agreements, the Company enters into
transactions with certain of its stockholders and their respective affiliates.
In addition, the Government has significant influence over the Company's
tariffs, regulation, labor contracts and other matters. The Government is also
the major customer of the Company (see Note 8 - Accounts receivable from
Venezuelan Government entities).
Inventories, supplies and plant and equipment of Bs. 5,347 and Bs. 4,389 for the
three months ended March 31, 2002 and 2001, respectively, were purchased from
affiliates of VenWorld. These same affiliates provided technical and
administrative services to the Company at a total cost of Bs. 3,138 and Bs.
12,641 for the three months ended March 31,2002 and 2001, respectively. Net
revenues, with respect to the settlement of international telephone traffic with
affiliates of Bs. 2,765 and Bs. 3,191 were recognized for the three months ended
March 31, 2002 and 2001, respectively. At March 31,2002, the Company has
recorded payables to Verizon and AT&T affiliates for all such transactions of
Bs. 5,435 and Bs. 1,332 respectively, and at December 31, 2001, Bs. 25,242 and
Bs. 961, respectively.
18. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company has the following commitments and contingencies:
a. Capital expenditures
--------------------
CANTV's capital expenditures for 2002 are currently estimated at Bs. 498,575
(U.S.$400 million). The funding for these capital expenditures is expected to be
generated by internal cash flows.
25
b. Operatinq leases
----------------
The Company leases buildings under operating leases for periods of one year or
less. Lease agreements generally include automatic extension clauses for equal
terms, unless written termination notification is provided.
C. Litiqation
----------
The Company is involved in numerous administrative and judicial proceedings.
Based on the opinion of its external legal counsel handling these proceedings,
management considers that the majority of these actions will be resolved in the
Company's favor. Nevertheless, management believes that the Company has recorded
adequate reserves as of December 31, 2001 for all such matters. Some of the most
significant proceedings are as follows:
i. In May 2000, the Supreme Court of Justice issued sentences against CANTV
charging that the Company had changed the criteria on the presubscription
term and the option for special retirement. The Company is presently
exercising pertinent legal actions.
ii. On July 7, 2000, CANTV was notified of a Bs. 1.8 billion (U.S.$2.4 million)
fine imposed by Pro-Competencia. Pro-Competencia claims that CANTV has
abused its dominant position in the market to favor its subsidiary
CANTV.NET (formerly CANTV Servicios). In August 2000, CANTV filed an action
of nullity in the First Court of Appeals in Administrative Matters.
d. Concession mandates
-------------------
The Agreement (see Note 2 - Company background and concession agreement)
considers an accelerated modernization program to meet an annual average target
of 80% plant digitalization nationwide by the end of 2000. The network expansion
and modernization targets established in Appendix "A" of the Concession
Agreement were effective until December 31, 1999. Quality service and
digitalization mandates agreed in the Agreement were effective until December
31, 2000. The Agreement, substantially modified the high quality service and
eliminates of the mandatory requirement of expanding the plant, instead of it,
included the obligation of 80% digitalization at December 31, 2000. After year
2000, the specific expansion requirements, modernization or digitalization are
not mandatory.
Opening Regulations establish that Basic Service Telecomunication Operators are
required to install and maintain public telephone equipment equivalent to 3% of
its subscriber base.
The guidelines for the market opening in Venezuela (see Note 4 - Regulation)
include certain quality and service standards with minimum and maximum targets,
which are the base for the preparation by CONATEL of the quality service
regulations that will be effective for all basic services operators.
e. Competition
-----------
Pursuant to the Concession, prior to November 27, 2000, the Company was the sole
provider of basic telephone services. During that period, the Ministry could
grant concessions to operate in population centers with 5,000 or fewer habitants
if CANTV was not providing basic telephone services in such areas and did not
contemplate doing so within two years, according to the network expansion and
modernization plans established in the Concession.
26
In December 1996, the Ministry exercised its authority under this provision to
grant a rural multi-service concession to lnfonet Redes de Information C.A.
(Infonet) to provide basic telephone services, except national and international
long distance services, on population centers with 5,000 or fewer inhabitants in
eight western states of Venezuela. Additionally, multi-service concessions were
granted in January 1998 to Corporation Digitel, C.A. (Digitel) and Consorcio
ELCA, C.A. (today Digicel) for the central and eastern regions of Venezuela,
respectively. Currently Infonet, Digitel and Digicel are operating.
With the recently issued new Telecommunications Law, CONATEL established the
basic regulatory framework. The new regulations issued on November 24, 2000,
(see Note 4 (a) -Regulation - Organic Telecommunications Law) have the objective
of creating an appropriate environment for new entrants and allow for effective
competition. These regulations rule the sector's opening, interconnection,
administrative and spectrum concessions.
In November 2000, CONATEL formally started the auction of frequencies for
Wireless Local Loop (WLL) services. Thirteen qualified bidders have been
announced by CONATEL. Five regions were defined and three permits in each region
were auctioned in different frequency bands. Telcel BellSouth, C.A. (Telcel
BellSouth) and Genesis Telecom, C.A. (Genesis) are two of the companies granted
with a concession.
The Company during the second quarter, 2001, completed the update of five
interconnection agreements with telecommunication's operators and subscribed the
first two interconnection agreements with companies authorized by CONATEL. These
agreements will permit the interconnection between CANTV and other carrier's
networks. Current operators maintaining interconnection agreements with the
Company are: Telcel BellSouth, Digicel, Infonet, Digitel, Movilnet, Convergence
Communications de Venezuela, Veninfotel, Orbitel, Multiphone, Totalcom, Etelix y
New Global Telecom.
19. MARKET RISK:
-----------
The carrying amounts of cash and short-term investments, trade receivables and
payables, and short-term and long-term debt approximate their fair values. The
fair value was determined by quoted market prices.
The Company is exposed to market risk, including changes in interest rates and
foreign currency exchange rates.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with the highest quality United
States of America (U.S.) issuer:; and, by policy, limits the amount of credit
exposure to any one issuer. The Company is averse to principal loss and ensures
the safety and preservation of its invested funds by limiting default risk,
market risk, and reinvestment by investing with U.S. and European issuers that
are guaranteed by wholly-owned foreign companies with the safest and highest
credit quality securities.
The Company mitigates default risk by investing in highly liquid U.S. dollars
short-term investments, primarily certificates of deposit and investment grade
commercial paper, which have maturities of three months or less. The Company
does not expect any material loss with respect to its investment portfolio.
27
The majority of the Company's indebtedness is denominated in foreign currencies,
primarily in U.S. dollars and Japanese yens, which exposes the Company to market
risk associated with changes in exchange and interest rates. The Company's
policy is to manage interest rate risk through the use of a combination of fixed
and variable rate debt. Presently the Company does not hedge against foreign
currency exposures, but keeps cash reserves in U.S. dollars to meet financing
obligations.
20. SEGMENT REPORTING:
-----------------
The Company manages its operations in two main business segments: wireline and
wireless services. The Company's reportable segments are strategic business
units that offer different products and services in the telecommunications and
related services industry. They are managed separately because each business
requires different technology and marketing strategies. The wireline services
segment provides domestic telephone services, international long distance
services and other telecommunications-related services. The wireless services
segment provides nationwide cellular mobile telephone services.
Segment results for the period the three months ended March 31, 2002 and 2001,
and property, plant and equipment as of March 31, 2002 and December 31, 2001,
are as follows:
2002 2001
---------- ----------
Wireline services:
Operating revenues-
Local and domestic long distance usage 118,385 150,312
Basic rent 90,877 94,648
---------- ----------
Local and domestic long distance 209,262 244,960
International long distance 24,965 27,724
Net settlements 1,912 5,969
---------- ----------
International long distance 26,877 33,693
Fixed to mobile outgoing calls 118,185 168,585
Interconnection incoming 6,785 21,351
Other wireline-related services 70,388 59,344
---------- ----------
Total operating revenues 431,497 527,931
========== ==========
Intersegment revenues (33,097) (29,234)
========== ==========
Operating income 11,112 20,876
========== ==========
Depreciation and amortization 160,578 164,843
========== ==========
Capital expenditures, net (10,521) 9,800
========== ==========
Property, plant and equipment 11,033,962 11,046,418
========== ==========
28
Wireless services:
Operating revenues-
Access 12,052 11,432
Interconnection 54,979 41,757
Usage 71,046 61,459
Equipment sales 1,991 1,142
----------- ----------
Total operating revenues 168,566 131,500
=========== ==========
Intersegment revenues (41,445) (42,024)
=========== ==========
Operating income 31,227 9,816
=========== ==========
Depreciation and amortization 26,330 32,851
=========== ==========
Capital expenditures, net 49,220 (2,424)
=========== ==========
Property, plant and equipment 1,132,918 1,083,851
=========== ==========
The reconciliations of segment operating revenues, operating income and
property, plant and equipment, to the consolidated financial statements are as
follows:
Reconciliation of operating revenues:
2002 2001
----------- ----------
Reportable segments 600,063 659,431
Other telecommunications-related services 12,903 7,596
Elimination of intersegment operating revenues (74,542) (71,258)
----------- ----------
Total operating revenues 538,424 595,769
=========== ==========
Reconciliation of operating income:
2002 2001
----------- ----------
Reportable segments 42,339 30,684
Other telecommunications-related services 1,350 (3,693)
Elimination of intersegment operating income (1,124) 302
----------- ----------
Total operating income 42,565 27,301
=========== ==========
Reconciliation of property, plant and equipment:
2002 2001
----------- ----------
Reportable segments 12,166,880 12,130,269
Other telecommunications-related services 58,384 53,337
----------- ----------
Property, plant and equipment 12,225,264 12,183,606
=========== ==========
21. CONSOLIDATED FINANCIAL STATEMENT RECLASSIFICATIONS:
--------------------------------------------------
Certain amounts from the December 31, 2001 and March 31, 2001, consolidated
financial statements have been reclassified for comparison purposes.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPANIA ANONIMA NACIONAL
TELEFONOS DE VENEZUELA, (CANTV)
By: /s/ ARMANDO YANES
--------------------------
Armando Yanes
Chief Financial Officer
Date: May 17, 2002