<PAGE>
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 2000
NATIONAL TELEPHONE COMPANY OF VENEZUELA (CANTV)
-----------------------------------------------
(Translation of Registrant's 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
---- ----
<PAGE>
This report consists of an English translation of the original Spanish
language version of an April 28, 2000 filing with the Venezuela National
Commission on Securities of the unaudited financial statements of Compania
Anonima Nacional Telefonos de Venezuela (CANTV) as of the period ended on March
31, 2000, prepared according to Venezuelan GAAP, which differs in certain
important respects from US GAAP.
<PAGE>
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA
(CANTV) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<PAGE>
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
FOR THE THREE MONTHS PERIOD ENDED MARCH 31, 2000 AND 1999
(Adjusted for CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE inflation and expressed in millions of constant bolivars
--------
as of March 31, 2000, except per share and per ADS amount)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Local and domestic long distance usage 133,803 139,767
Basic rent 70,875 86,986
Public telephones 21,842 29,220
-------- --------
Local and domestic long distance 226,520 255,973
International long distance 32,154 36,369
Net settlements 10,221 6,809
-------- --------
International long distance 42,375 43,178
Other wireline-related services 30,355 40,806
-------- --------
Total wireline services 299,250 339,957
Wireless services 106,517 99,987
Other telecommunications-related services 6,159 7,923
-------- --------
Total operating revenues 411,926 447,867
-------- --------
OPERATING EXPENSES:
Operations, maintenance, repairs and administrative 203,924 210,291
Depreciation and amortization 161,759 144,257
Concession and other taxes 31,879 31,201
-------- --------
Total operating expenses 397,562 385,749
-------- --------
Operating income 14,364 62,118
-------- --------
OTHER (EXPENSE) INCOME, NET:
Financing (cost) benefit, net (11,072) 118
Other income (expense), net 403 (107)
-------- --------
Total other (expense) income, net (10,669) 11
-------- --------
Income before income tax 3,695 62,129
INCOME TAX 813 14,128
-------- --------
Net income 2,882 48,001
======== ========
EARNINGS PER SHARE 3 48
======== ========
EARNINGS PER ADS (BASED ON 7 SHARES PER ADS) 20 336
======== ========
Average shares outstanding (in millions) 990 1,000
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
(Translation of financial statements originally issued in Spanish)
COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000
AND DECEMBER 31, 1999 (Adjusted for inflation and expressed
in millions of constant bolivars as of March 31, 2000)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments 301,339 332,869
Accounts receivable, net of allowance for doubtful accounts of Bs.
77,010 and Bs. 80,174 408,142 419,235
Accounts receivable from Venezuelan Government entities 130,934 124,875
Inventories and supplies, net 39,965 44,714
Other current assets 13,994 12,773
------------ ------------
Total current assets 894,374 934,466
Property, plant and equipment, net 3,090,671 3,211,064
Cellular concession, net 88,657 89,346
Other assets 222,936 231,724
------------ ------------
Total assets 4,296,638 4,466,600
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt 58,452 55,142
Accounts payable 264,695 283,375
Employee severance benefits, net 10,473 9,119
Accrued employee benefits 55,229 34,697
Other 112,359 178,662
------------ ------------
Total current liabilities 501,208 560,995
LONG-TERM LIABILITIES:
Long-term debt 329,667 351,942
Pension and postretirement benefit obligations 341,570 337,243
------------ ------------
Total liabilities 1,172,445 1,250,180
STOCKHOLDERS' EQUITY 3,124,193 3,216,420
- --------------------
------------ ------------
Total liabilities and stockholders' equity 4,296,638 4,466,600
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
(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, 2000 AND THE YEAR ENDED DECEMBER 31, 1999
(Adjusted for inflation and expressed in millions of
constant bolivars as of March 31, 2000)
<TABLE>
<CAPTION>
Capital Stock
---------------------------------------------
Additional
Historical Inflation Paid-in Retained Legal
Cost Adjustment Total Capital Earnings Reserve
------------- ----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1998 36,902 1,287,117 1,324,019 16,465 1,951,631 132,403
Accumulated postretirement
benefits obligation - - - - (158,609) -
Net income - - - - 91,906 -
Dividends declared - - - - (64,296) -
Extraordinary dividends
declared - - - - (103,029) -
Repurchased shares - - - - (1,160) -
Change in cumulative
translation adjustment - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance as of December 31, 1999 36,902 1,287,117 1,324,019 16,465 1,716,443 132,403
Net income - - - - 2,882 -
Dividends declared - - - - (60,000) -
Repurchased shares - - - - (18,375) -
Change in cumulative
translation adjustment - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Balance as of March 31, 2000 36,902 1,287,117 1,324,019 16,465 1,640,950 132,403
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Treasury Cumulative Total
Capital Translation Stockholders'
Stock Adjustment Equity
---------- ----------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1998 - 26,473 3,450,991
Accumulated postretirement
benefits obligation - - (158,609)
Net income - - 91,906
Dividends declared - - (64,296)
Extraordinary dividends
declared - - (103,029)
Repurchased shares (1,601) - (2,761)
Change in cumulative
translation adjustment - 2,218 2,218
---------- ---------- ----------
Balance as of December 31, 1999 (1,601) 28,691 3,216,420
Net income - - 2,882
Dividends declared - - (60,000)
Repurchased shares (17,454) - (35,829)
Change in cumulative
translation adjustment - 720 720
---------- ---------- ----------
Balance as of March 31, 2000 (19,055) 29,411 3,124,193
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
(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 PERIOD ENDED MARCH 31, 2000 AND 1999
(Adjusted for inflation and expressed in
millions of constant bolivars as of March 31, 2000)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 2,882 48,001
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss (gain) from net monetary position 2,547 (6,138)
Exchange loss, net 4,242 5,908
Depreciation and amortization 161,759 144,257
Provision for doubtful accounts 17,930 26,822
Changes in current assets and liabilities:
Accounts receivable (19,170) (47,732)
Accounts receivable from Venezuelan Government entities (9,803) (23,617)
Inventories and supplies, net 4,459 (12,547)
Other current assets (1,383) (3,433)
Accounts payable (3,356) 6,520
Employee severance benefits, net 23,154 17,260
Other current liabilities (62,088) (3,942)
-------- --------
121,173 151,359
Changes in non current assets and liabilities:
Other assets (428) 4,269
Pension and postretirement benefit obligations 4,327 10,249
-------- --------
Net cash provided by operating activities 125,072 165,877
-------- --------
INVESTING ACTIVITIES:
Capital expenditures, net of disposals (31,529) (45,436)
-------- --------
Net cash used in investing activities (31,529) (45,436)
-------- --------
FINANCING ACTIVITIES:
Payments of debt (18,265) (8,088)
Dividend payments (60,000) -
Share repurchase (35,829) -
-------- --------
Net cash used in financing activities (114,094) (8,088)
-------- --------
(Decrease) increase in cash and temporary investments before loss in
purchasing power of cash and temporary investments (20,551) 112,353
LOSS IN PURCHASING POWER OF CASH AND TEMPORARY
INVESTMENTS (10,979) (8,406)
-------- --------
(Decrease) increase in cash and temporary investments (31,530) 103,947
CASH AND TEMPORARY INVESTMENTS:
Beginning of period 332,869 141,113
-------- --------
End of period 301,339 245,060
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest 13,082 14,309
======== ========
Taxes 90,437 86,453
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
(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, 2000, 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)
suscribed in 1991, a Concession Agreement (the Concession) with the Government
of Venezuela (the Government) to provide national and international
telecommunications services, including fixed switched telephone services,
private networks, data, public telephone, rural and telex services; for the
purpose of guaranteeing high quality service, improving the supply, modernizing
and expansion of the local network, introducing progressive rate rebalancing and
establishing a framework for the introduction of competition.
CANTV is the primary provider of telecommunications services in Venezuela and
provides substantially all of its services within the country and substantially
all of its operating income is derived from Venezuela domiciled customers and
from settlements with foreign carriers for calls completed in Venezuela.
The Company is the proprietor of the only basic telecommunications network with
nationwide coverage, 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, the Company provides other telecommunications-related services
including wireless communications, internet access and telephone directories.
Significant terms of the Concession are as follows:
a. The Concession provides that the company is to be the exclusive provider
switched, fixed local, national and international telephone services, on an
exclusive basis until November, 2000 and after this date compete with other
Companys to provide these services.
b. The Concession is for 35 years ending in 2026 and is extendible for an
additional period of 20 years subject to the approval by the Ministry of
Infrastructure, previously the
<PAGE>
2
Ministry of Transportation and Communications (the Ministry), and
satisfactory performance by the Company of its obligations under the
Concession.
c. The Company is required to pay annually to the Government a total of 5.5% of
services billed which is reflected as Concession and other taxes in the
accompanying consolidated statements of operations.
d. The Concession requires the Company to expand, modernize and improve the
quality of its telephone network as well as to meet prescribed service
quality targets. The Concession mandates include national and regional
expansion and modernization targets as well as annual and cumulative targets
(See Note 17 - Commitments and contingencies).
e. The Concession specifies various penalties which may be imposed on the
Company for negligent or intentional violation of Concession provisions,
including a fine of up to 1% of services billed and/or revocation and
termination of the Concession. Penalties assessed against the Company
through March 31, 2000, have not been material.
f. The Concession allows for periodic increases in telephone rates as more
fully described in 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 in conformity with
generally accepted accounting principles 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 results may differ from those estimates.
b. Adjustment for inflation
The Company's consolidated financial statements are presented on a constant
bolivar basis as of March 31, 2000, in accordance with the Venezuelan Statement
of Accounting Principles Number 10 "Standards for the Preparation of Financial
Statements Adjusted for Inflation" (DPC 10) and its amendments issued by the
Venezuelan Federation of Public Accountants.
The amounts in the consolidated financial statements have been adjusted to
reflect the bolivar's purchasing power at March 31, 2000, based on the Consumer
Price Index (CPI) for the metropolitan area of Caracas as published by the
Central Bank of Venezuela. The indices used in connection with the preparation
of the inflation adjusted financial statements are as follows (1984 base):
<PAGE>
3
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
---------- -------------- -----------
<S> <C> <C> <C>
End of period 18,799.94 18,247.30 15,994.50
Average for period 18,660.94 16,860.30 15,777.53
</TABLE>
Each caption in the accompanying consolidated financial statements has been
presented on the basis of the CPI at March 31, 2000, as follows:
i. Monetary assets and liabilities (cash and temporary investments,
receivables, other assets and most liabilities) as of March 31, 2000, 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, 1999, have been reexpressed based upon the relative change in the CPI
between that date and the CPI at March 31, 2000.
ii. Non-monetary assets (principally inventories and supplies, property, plant
and equipment, the cellular concession 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, 2000.
iii. Non-monetary liability, pension and other postretirement benefit
obligations and its related expense are recorded based on actuarial
calculations.
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, 2000.
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 inflation (loss) gain attributable to the Company's net monetary asset
or liability position has been set forth as (loss) gain from net monetary
position as part of the Financing (cost) benefit, net caption in the
accompanying consolidated statements of operations (See Note 15 -
Financing (cost) benefit, net).
c. Consolidation principles
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.
<PAGE>
4
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 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 US $500 are expensed when purchased.
f. Depreciation and amortization
Depreciation is calculated using the straight-line method based on the estimated
useful lives of the assets. The costs of the cellular concession (See Note 5 -
Cellular concession) and other intangible assets (See Note 9 - Other assets) are
amortized on a straight-line basis over the expected periods benefited, not to
exceed 40 years. Amortization expense was Bs. 9,838 and Bs. 7,881 for the three
months periods ended March 31, 2000 and 1999, respectively. Accumulated
amortization was Bs. 206,655 and Bs. 196,817 at March 31, 2000 and December
1999, respectively.
g. Computer software
The costs of certain purchased computer software and systems for internal use
are capitalized and classified as intangible assets. Until December 31, 1998
such costs were amortized over their expected useful lives of 6 to 7 years. In
1999, the Company reviewed and updated its policy to amortize certain computer
software and set useful lives from 3 to 5 years. This change did not have a
material impact on the financial statements of the Company. During the periods
ended March 31, 2000 and 1999, the Company capitalized Bs. 2,123 and Bs. 10,300,
respectively. 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. Revenue recognition
Revenues for wireline and wireless services are recognized in the period in
which the services are provided. Unbilled revenues of Bs. 69,577 and Bs. 96,703
are included in accounts receivable as of March 31, 2000 and 1999, 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.
<PAGE>
5
i. Income tax
The income tax expense is calculated based upon taxable income. Venezuelan tax
legislation does not permit consolidation of results of subsidiaries for tax
purposes. Investment tax credits for plant and equipment 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 fiscal adjustment for
inflation, are permitted to be carried forward for three years.
j. 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 three 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. In the case of an involuntary
termination, an additional severance benefit of up to a maximum of 90 days'
current salary based on length of employment must be paid.
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, 1999, totaling Bs. 39,131.
k. 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 are 7% and 2%, respectively (See Note
13 - Retirement benefits).
In 1999, the Company recorded postretirement health care costs based on
actuarial estimates as required by International Accounting Standard 19 (IAS
19). The accumulated postretirement benefits obligation, as of December 31,
1998, was recognized on an immediate basis affecting retained earnings. This
adoption did not have a material impact on 1999 results.
l. Foreign currency denominated transactions
Foreign currency denominated transactions are recorded at the bolivar exchange
rate as of
<PAGE>
6
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 was Bs. 670.00 and Bs. 649.25 per US dollar as of
March 31, 2000 and December 31, 1999, 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 loss, net in the Financing
(cost) benefit, net caption in the accompanying consolidated statements of
operations (See Note 15 - Financing (cost) benefit, net).
m. Legal 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 10% of capital
stock. As of March 31, 2000 and December 31, 1999, the Company's legal reserve
had reached 10% of capital stock.
n. Earnings per share
Earnings per share are based on 990,057,000 common shares outstanding and
1,000,000,000 common shares outstanding during the three months ended March 31,
2000 and 1999, respectively.
4. REGULATION:
The Telecommunications Law and telecommunications regulations, provide the
general legal framework for the regulation of telecommunications services in
Venezuela. Under the Telecommunications Law, suppliers of public
telecommunications services, such as the Company, must operate under concessions
or permissions granted by the Government, which acts through the Ministry. The
Company's business and the tariffs it charges for basic telephony services are
regulated by the Concession, the Telecommunications Law and telecommunications
regulations, and, most recently, by the agreement signed by CANTV and CONATEL on
February 21, 2000.
The Comision Nacional de Telecomunicaciones (CONATEL) is a regulatory body under
the direction of the Ministry, and has the authority to supervise
telecommunications services in Venezuela and recommend the granting of
concessions, licenses and administrative authorizations. CONATEL creation decree
provides that this entity shall promotes investments in telecommunications and
technological innovation in Venezuela.
Prior to February 2000, when CANTV entered into the agreement with CONATEL,
CANTV's rates were regulated under the Concession, the Concession had provided
for tariff regulation through a "price-cap" and a "rate rebalancing" mechanism
that promotes operating efficiency and allows for progressive tariff
adjustments. The price-cap varies directly with the Wholesale Price Index (WPI)
published by the Central Bank of Venezuela, permitting the Company, with the
approval of the Ministry, to raise tariffs each quarter to keep pace with
wholesale inflation. Generally a three to six month delay
<PAGE>
7
exists between the date the WPI is published for a particular quarter and its
actual effect on new tariffs.
CANTV's third and fourth quarter 1999 tariff increases were not approved by
CONATEL. According to statements given to the press by CONATEL, the Company was
in noncompliance, and therefore, in violation of the Concession with regards to
service quality targets. These statements did not have legal bases.
On July 12, 1999, CANTV filed a legal document with the Ministry to initiate a
preliminary administrative proceeding, a step prior to filing a lawsuit, and
sought the participation of the Ministry and the Attorney General of the
Republic (the Attorney) in order to solve the tariff increase issue. This
procedure allowed the Government to resolve the situation before formal judicial
proceedings took place.
CANTV decided not to introduce the case to the courts because on October 27,
1999 CANTV and CONATEL signed a preliminary letter of understanding that sought
a global agreement to review the eighth year as established in the Concession.
The review began with the naming of two independent international
telecommunications experts whose objective was to evaluate and recommend
appropriate tariff and quality standards and methodologies for Venezuela after
comparison with similar information in ten other countries. On November 15,
1999, the experts presented their recommendations in a common report to CANTV
and CONATEL.
On February 21, 2000, CANTV and CONATEL signed an agreement to review the eighth
year of the Concession. This agreement will be in place until December 31, 2000,
with the exception of tariff-related matters, which can be modified in the event
of open competition in the fixed switch telecommunication services that will
occur in November 2000. The agreement addressed issues related to quality
standars, methodologies, targets, network modernization, new services and
clarifies some Concession terms.
5. CELLULAR CONCESSION:
On May 19, 1992, the Company purchased one of two cellular concessions from the
Government for Bs. 111,947 (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.
The cellular concession has an initial term of 20 years and may be extended
under certain circumstances for an additional 20 years. The cellular concession
requires the payment of an annual concession fee of 10% of services billed. The
cellular concession requires that Movilnet expand the cellular network, improve
the quality of cellular services when technically feasible, and provide certain
rural, public and emergency services. Management believes Movilnet is in
compliance with these requirements as of March 31, 2000.
<PAGE>
8
6. BALANCES IN FOREIGN CURRENCY:
The Company has assets and liabilities denominated in US dollars and Japanese
yen as follows (in millions of US dollars):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Cash and temporary investments 409 509
Accounts receivable, net 25 26
Other assets and advances to suppliers 35 35
Accounts payable (95) (128)
Short and long-term debt (564) (578)
---- ----
Net liability position in foreign currency (190) (136)
==== ====
</TABLE>
7. 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 11% and 9% of the Company's revenues during the three
months ended March 31, 2000, and 1999, respectively.
The following table sets forth the aging of the accounts receivable from
Government entities:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Year of Service
2000 26,693 -
1999 44,637 62,648
1998 and prior 59,604 62,227
----------- ------------
130,934 124,875
=========== ============
</TABLE>
The changes in accounts receivable from Government entities are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -------------
<S> <C> <C>
Balance at beginning of year 124,875 103,649
Billings 44,753 151,160
Collections (34,950) (109,469)
Loss from exposure to inflation (3,744) (20,465)
------------ -------------
Balance at end of period 130,934 124,875
============ =============
</TABLE>
<PAGE>
9
The amounts that Government entities can pay for telecommunications services are
established in annual budgets, which are not based upon actual usage during such
year. As a result of these budgeting processes and for other 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.
Management believes all amounts from Government entities will be collected
either in cash and/or through Government bonds.
On November 3, 1999 Congress passed a law authorizing the issuance of bonds to
refinance external and internal debts, as well as other past - due obligations.
The amount of bonds set aside for payment of debts owed CANTV under such
legislation totaled Bs. 63,218. The Goverment has stated, that it plans to issue
such bonds by July 30, 2000 and cancelled the accumulated debt as of
December 31, 1998.
8. PROPERTY, PLANT AND EQUIPMENT, NET:
-----------------------------------
Property, plant and equipment, net is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- ------------
<S> <C> <C>
Plant 7,637,652 7,631,857
Buildings and facilities 901,073 897,789
Furniture and equipment 625,651 615,760
Vehicles 71,504 71,741
Land 34,989 34,939
-------------- ------------
9,270,869 9,252,086
Less- Accumulated depreciation (6,282,734) (6,132,265)
-------------- ------------
2,988,135 3,119,821
Construction work in progress 102,536 91,243
-------------- ------------
3,090,671 3,211,064
============== ============
</TABLE>
The average useful lives for the different classes of property, plant and
equipment are as follows:
<PAGE>
10
<TABLE>
<CAPTION>
Average
useful lives
(in years)
--------------
<S> <C>
Plant 3 to 33
Buildings and facilities 5 to 25
Furniture and equipment 3 to 7
Vehicles 3
</TABLE>
Property, plant and equipment includes capitalized direct labor and allocated
overhead costs, as well as materials used in connection with construction work
in progress. Capitalized direct labor and allocated overhead costs totaled Bs.
17,344 and Bs. 13,794 for the three months ended March 31, 2000 and 1999,
respectively. Maintenance and repair costs are expensed when incurred while
major improvements and renovations are capitalized.
9. OTHER ASSETS:
Other assets are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Software and other intangible assets 148,277 156,208
Prepaid taxes 15,279 16,184
Investment in INTELSAT 23,284 23,192
Class C stock and other 36,096 36,140
------- -------
222,936 231,724
======= =======
</TABLE>
Software and other intangible assets include the cost of computer software and
systems for internal use (See Note 3 (g) - Summary of significant accounting
principles and policies - Computer software) and the cost of usage rights of
satellites and submarine cables which are amortized over periods ranging from 7
to 16 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.
The investment in INTELSAT represents the Company's participation in the
International Satellite Telecommunications Organization. The Company accounts
for this investment using the equity method. The functional currency of INTELSAT
is the US dollar.
<PAGE>
11
In 1993, the Company purchased 1% of its capital stock, for Bs. 45,146. The
stock is being distributed to employees as part of an incentive plan. All the
employees of the Company are eligible. The Company charges the related cost to
expense in the year employees earn the award and the stock is issued to
employees the following year. At March 31, 2000, 8,912,314 shares are available
for distribution to employees under this plan.
10. LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Notes in US dollars at interest rates of 9.08% and 8.88% at March 31, 2000 and
December 31, 1999, maturing in 2002 and 2004, respectively 133,861 133,631
Notes in US dollars at interest rates of six-month LIBOR plus a margin between
1.35% and 1.75%, (averaging 7.69% and 7.50% at March 31, 2000 and December
31, 1999), maturing through 2003 83,750 91,976
Bank loans in Japanese yen at fixed interest rates (averaging 5.89% at March 31,
2000 and 5.88% at December 31, 1999), and in US dollars at interest rates of
six-month LIBOR plus a margin between 0.25% and 2.00%, maturing through 2009 72,031 75,650
IFC loans in US dollars at variable interest rates:
a. At six-month LIBOR plus a margin of 1.75%, (averaging
7.97% and 6.79% at March 31, 2000 and December 31, 1999),
maturing through 2005 37,077 40,135
b. At six-month LIBOR plus a margin of 2.00%, (averaging
8.22% and 7.04% at March 31, 2000 and December 31, 1999),
maturing through 2007 21,757 23,412
c. At six-month LIBOR plus a margin between 3.00% and
6.00 % (averaging 12.36% at March 31, 2000 and 11.06% at
December 31, 1999), maturing through 2005 16,750 16,723
Supplier loans in US dollars at interest rates of six-month LIBOR plus a margin
of 0.25% to 0.50% (averaging 6.51% at March 31, 2000 and 6.35% at December
31, 1999), maturing through 2002 8,052 8,710
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ----------
<S> <C> <C>
Notes payable to suppliers in US dollars at variable interest rates (averaging
7.39% at March 31, 2000 and 7.45% at
December 31, 1999), maturing through 2002 4,257 5,244
Bank loan in bolivars bearing interest at the average lending rate of the four
major banks in Venezuela (30.65% at March 31, 2000 and 30.95% at December 31,
1999), maturing through 2003 5,625 6,494
Bank loans in bolivars at various interest rates (averaging 9.03% at March 31,
2000 and 10.47% at
December 31, 1999), maturing through 2001 209 215
-------- ----------
383,369 402,190
Less: Current maturities (53,702) (50,248)
-------- ----------
329,667 351,942
======== ==========
</TABLE>
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 US$ 261 million, of which US$ 175
million was disbursed. Of the amount disbursed, US$ 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 US$ 100 million represents
the conversion of certain debt outstanding under a Bank Refinancing Agreement
into longer term debt. In March 1998, the Company paid US$ 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 US$ 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 US 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, each as defined by the
agreement. The Company has complied with these covenants as of March 31, 2000.
In 1997, Movilnet signed an agreement with the IFC for two loans totaling US$ 95
million, which were disbursed during 1998. The proceeds of these loans were used
for expansion and modernization of the cellular network.
Estimated payments of long-term debt are: Bs. 30,960 in 2000, Bs. 49,102 in
2001, Bs. 119,053 in 2002, Bs. 36,385 in 2003, and Bs. 147,869 thereafter,
translated into bolivars at the exchange rate at March 31, 2000.
<PAGE>
13
11. SHORT-TERM DEBT:
Short-term debt is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ---------------
<S> <C> <C>
Bank loans in bolivars at various interest rates (averaging 18.26% at
March 31, 2000 and 20.22% at December 31, 1999) 4,750 4,894
Current maturities of long-term debt 53,702 50,248
------------ ---------------
58,452 55,142
============ ===============
</TABLE>
12. OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ---------------
<S> <C> <C>
Income, value added and other taxes 13,548 11,792
Accrued liabilities 17,435 16,481
Legal claims 8,535 9,367
Concession tax 25,761 89,532
Deferred income 22,377 23,028
Technical and administrative services due to affiliates of
VenWorld stockholders 5,962 7,014
Interest payable 4,887 10,365
Others 13,854 11,083
------------ ---------------
112,359 178,662
============ ===============
</TABLE>
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, 2000, the Company has funded Bs.
64,674 in a trust for this purpose.
Assumptions used to develop the projected benefit obligation are as follows:
Discount rate 7%
Expected return on assets 5%
Rate of compensation increase 2%
<PAGE>
14
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.
The amount of pension expense was Bs. 6,309 at March 31, 2000.
Postretirement Benefits Other than Pensions
In 1999, the Company recorded postretirement benefit obligations based on
actuarial estimates. Benefit payments 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%
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.
The amount of postretirement benefits expense was Bs. 3,490 at March 31, 2000.
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, 2000, the Company
had funded Bs. 9,490 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 some regulations issued
by the Comision Nacional 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 10 - 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, assessed on a
non-consolidated basis and without reflecting its share in the net income of its
subsidiaries. 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
<PAGE>
15
accumulated losses. Until 1996, net income for this purpose was computed as the
lesser of (i) net income according to historical figures or (ii) net income
according to inflation adjusted figures. However, in May 1997, the CNV modified
its regulations and provided that inflation adjusted net income would be the
sole basis for the calculation of dividend payments. The requirements of the
Capital Markets Law are subject to the provisions of the Commercial Code, that
is, dividends shall always be paid out of "liquid and collected earnings."
In October 1998, a new Capital Markets Law was passed. One of the principal
changes is that dividends must be declared in a shareholders' assembly during
which the shareholders determine the amount, form and frequency of the dividend
payment and that dividend policies must be stated in the company's By-laws. The
CNV cannot exempt a company with publicly traded securities from paying the
minimum dividends required by the Capital Markets Law.
On March 30, 1999, the Company shareholders approved the incorporation of the
Capital Markets Law into the Company's By-laws.
On March 31, 2000, an ordinary shareholders' assembly, the Company declared a
cash dividend. This dividend was Bs. 60.00 per share and Bs. 420.00 per ADS, to
stockholders registered on April 11, 2000. This dividend will be paid on April
28, 2000.
Capital Stock
The Company's capital stock of 1,000,000,000 shares has a par value of Bs.
36.9018 per share, and include 14,534,800 shares (2,076,400 ADS) in treasury
capital stock for the repurchase program.
The capital stock is compound as follows:
<TABLE>
<CAPTION>
Number of
Participation shares (in
Stockholder Class % thousands)
- ------------------------------------------- ---------- ----------------- --------------
<S> <C> <C> <C>
VenWorld Telecom C.A. (VenWorld) A 40.00 400,000
Fondo de Inversiones de Venezuela (FIV) B 5.19 51,900
Employee Trusts and Employees C 12.63 126,252
Public Shareholders D 40.73 407,313
Treasury Capital Stock (ADS) D 1.45 14,535
----------- ------------
100.00 1,000,000
=========== ============
</TABLE>
VenWorld is a private consortium of companies led by GTE Corporation (GTE), and
originally included T.I. Telefonica Internacional de Espana, S.A.; C.A. La
Electricidad de Caracas, S.A.C.A.; Consorcio Inversionista Mercantil (CIMA),
C.A. S.A.C.A. and AT&T International, Inc. (AT&T) (Participants in the
Consortium).
During 2000, VenWorld may transfer or encumber the Class A shares if it
continues to own directly, and free from all encumbrances, at least 20% of the
capital stock of the Company. After January 1, 2001 any Class A shares
transferred to any person other than
<PAGE>
16
VenWorld or its wholly-owned subsidiaries and affiliates controlled by any of
the partners of the Participants in the Consortium, will be automatically
converted into an equal number of Class D shares. VenWorld has the right to
elect the CANTV President and four members of the Board of Directors of the
Company until January 1, 2001.
Class B shares may only be owned by Venezuelan Government entities. 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. Class B stockholders have 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. A majority of holders of Class A and
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. 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 equity share
capital of CANTV and the right to elect one member provided such shares
represent at least 3% of the equity share capital of CANTV.
Class D shares are comprised of the conversion of Class B and C shares as
described above or from 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 A, 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 equity in a global public equity 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 program
On extraordinary and ordinary shareholders' assemblies held on November 16, 1999
and on March 31, 2000, respectively, two share repurchase programs were approved
up to 50,000,000 CANTV's outstanding shares every one. At the end of the each
program the total of the outstanding shares repurchased will be canceled and the
capital stock will be decreased proportionally. The Company intends to spend
approximately US$ 150 million on each program and a maximun US$ 300 million
subject to market conditions. The Capital Markets Law limits each repurchase
program to six months and requires publication of a maximum repurchase price per
share and a maximum volume of shares. In order to comply with these local
regulations, a maximum repurchase price of Bs. 3,696 and Bs. 4,871 or up to US$
40 and US$ 50 per ADS, respectively were set, and a maximum volume of 50,000,000
shares on each program.
<PAGE>
17
As of March 31, 2000, CANTV has registered the adquisition of 14,534,800
ouststanding shares (2,076,400 ADS) by the first repurchase program.
15. FINANCING (COST) BENEFIT, NET:
Financing (cost) benefit, net for the three months ended March 31 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------- ---------------
<S> <C> <C>
Interest income 5,660 6,943
Interest expense (9,943) (10,934)
Exchange loss, net (4,242) (5,908)
(Loss) gain from net monetary position (2,547) 6,138
Gain from indexation of tax units - 3,879
------------- -------------
(11,072) 118
============= =============
</TABLE>
The net exchange loss reflects the loss resulting from adjusting the Company's
net liabilities denominated in foreign currencies (principally US dollars and
Japanese yen) into bolivars at the exchange rates as of March 31, 2000 and
December 31, 1999 (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. The devaluation of the bolivar against the U.S. dollar was 3%
for the three months ended March 31, 2000 and 1999.
The (loss) gain from net monetary position reflects the gain or loss from
holding net monetary assets or liabilities in a period of inflation, which was
3% and 5% for the three months ended March 31, 2000 and 1999, respectively.
16. 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 a
major customer of the Company (See Note 7 - Accounts receivable from Venezuelan
Government entities).
Inventories, supplies and plant and equipment of Bs. 7,208 and Bs. 1,164 for the
three months ended March 31, 2000 and 1999, respectively, were purchased from
affiliates of VenWorld's stockholders. These same affiliates provided technical
and administrative services to the Company at a total cost of Bs. 15,895 and
3,190 Bs. for the three months ended March 31, 2000 and 1999, respectively. Net
operating revenues of Bs. 2,902 and Bs. 4,663 were recognized for the three
months ended March 31, 2000, and 1999, respectively, with respect to the
settlement of international telephone traffic with affiliates. At March 31,
2000, the Company has recorded payables to GTE and AT&T affiliates for all such
<PAGE>
18
transactions of Bs. 11,031 and Bs. 1,259, respectively, and at December 31,
1999, Bs. 16,093 and Bs. 1,046, respectively.
17. COMMITMENTS AND CONTINGENCIES:
The Company has the following commitments and contingencies:
a. Capital expenditures
CANTV's capital expenditures for 2000 are currently estimated at Bs. 368,500
(US$ 550 million). The funding for these capital expenditures is expected to be
generated by internal cash flows.
b. Operating 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. Litigation
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 March 31, 2000 for all such matters.
During 1998, the Company was advised of a legal claim filed by Manufacturas
Plasticas Telefonicas, C.A. (Maplatex), asserting noncompliance by CANTV with a
telephone equipment supply contract and damages totaling Bs. 26,641. In June 30,
1999, the judicial proceeding was closed. CANTV and Maplatex signed an
"Agreement." The settlement was for Bs. 1,930 (expressed in constant bolivars as
of June 30, 1999).
In August 1999, CANTV paid the net settlement amount to the Court and not
directly to Maplatex, as Maplatex is involved in bankruptcy proceedings.
d. Concession mandates
The Concession requires the Company to carry out a plan of network expansion and
modernization based on the construction of a specified minimum number of new
digital lines, the modernization of analog lines and the installation of public
telephones for each year until the year 2000. In addition, the Company is
required to meet certain quality and service targets.
In September 1996, the Ministry reduced the Company's expansion mandates for
1996 through 2000, and entered into an agreement with the Company which provided
for
<PAGE>
19
review of the mandates in the first quarter of 1998. Depending on the
results, the mandates were to be increased or decreased in order to reflect
economic conditions. The mandates were reviewed based on economic estimates
available in the first quarter of 1998. Access demand was slightly lower than
1996 estimate. Therefore, it was not necessary to modify the mandates and the
Company will review them in case of macroecomic changes. On December 16, 1998,
the Company presented to CONATEL a proposal to reduce the projected access
demand due to the changes of the macroeconomic conditions.
Clause 22, of the Concession, calls for the review and possible update of the
concession mandates during the eighth year of the Concession. During the second
half of 1999, CANTV and CONATEL held several meetings to address issues such as
the regulatory climate and the existing mandates in order to ready the
telecommunications market for open competition in Venezuela. On October 27,
1999, CANTV and CONATEL signed a preliminary letter of understanding to initiate
this review.
Based on the recommendations presented by the international experts on November
15, 1999, on February 21, 2000 CANTV and CONATEL signed an agreement to review
the eight year of the Concession which includes the update of the concession
mandates (See Note 4 - Regulation). This agreement includes the reduction in the
expansion targets and considers an accelerated modernization program to meet an
annual medium target of eighty percent in plant digitalization by the end of
year 2000. No target has been set related to the expansion in new digital lines.
e. Competition
Pursuant to the Concession, until November 27, 2000, the Company is currently
the sole provider of switched, fixed local, domestic, and international long
distance services throughout Venezuela, except in population centers with 5,000
or fewer habitants if CANTV is not providing basic telephone services in such
areas and does not contemplate doing so within two years. In addition, the
Ministry may grant concessions for basic telephone services to serve population
centers with more than 5,000 habitants if CANTV has not installed an automatic
switching center within a specified plan or the Ministry determines that CANTV
has materially failed to meet for two consecutive years the terms of the
Concession with respect to network expansion and modernization or service
quality and the Ministry determines that such action would markedly improve the
existing situation.
In December 1996, the Ministry exercised its authority under this provision to
grant a rural concession to Infonet Redes de Informacion C.A. (Infonet) to
provide multi-services, except national and international long distance
services, on population centers with 5,000 or fewer habitants in eight western
states of Venezuela. Additionally, multi-service concessions were granted in
January 1998 to Corporacion Digitel, C.A. (Digitel) and Consorcio ELCA, C.A. for
the central western and eastern regions of Venezuela, respectively. Both Infonet
and Digitel have started operations.
<PAGE>
20
18. 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 European
and United States of America (US) issuers 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 US 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 US dollar
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.
The majority of the Company's indebtedness is denominated in foreign currencies,
primarily in US dollars and Japanese yen, 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 and Japanese yens to
meet financing obligations.
19. WORK FORCE REDUCTION PROGRAM:
The Company has implemented a work force reduction program, granting employees
an incentive to voluntarily retire prior to their anticipated retirement date,
in order to improve the efficiency of the operation and administration of the
Company. This expense amounted to Bs. 10,059 and Bs. 2,551 for the three months
ended March 31, 2000 and 1999, respectively, and is included in operating
expenses in the accompanying consolidated statements of operations.
20. CONSOLIDATED FINANCIAL STATEMENT RECLASSIFICATIONS:
Certain amounts from the December 31, 1999 and March 31, 1999 consolidated
financial statements have been reclassified for comparison purposes.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPANIA ANONIMA NACIONAL
TELEFONOS DE VENEZUELA, (CANTV)
By: /S/ DAVID N. SCHOENBERGER
David N. Schoenberger
Chief Manager of Finance
Date: May 11, 2000
