<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: MARCH 31, 2000
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 333-85503
TELECOMUNICACIONES DE PUERTO RICO, INC.
-----------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Commonwealth of Puerto Rico 66-0566178
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1515 F.D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 787-793-1818
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,226 $ 45,482
Accounts receivable, net of allowance for doubtful accounts
of $73,512 and $66,994 in 2000 and 1999, respectively 334,557 357,895
Inventory and supplies, net 42,397 31,370
Prepaid expenses 5,869 5,407
----------- -----------
Total current assets 411,049 440,154
PROPERTY, PLANT AND EQUIPMENT, net 1,702,208 1,742,489
INTANGIBLES, net 366,007 371,378
DEFERRED INCOME TAX 240,132 256,559
OTHER ASSETS 18,315 17,167
----------- -----------
TOTAL ASSETS $ 2,737,711 $ 2,827,747
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 2,233 $ 2,317
Other current liabilities 325,636 348,368
----------- -----------
Total current liabilities 327,869 350,685
LONG-TERM DEBT, excluding current portion 1,440,157 1,495,109
OTHER NON-CURRENT LIABILITIES 537,807 612,325
----------- -----------
Total liabilities 2,305,833 2,458,119
----------- -----------
CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 699,284 699,284
Deferred ESOP compensation (26,100) (26,100)
Subscription receivable (133,104) (170,363)
Accumulated deficit (108,202) (133,193)
----------- -----------
Total shareholders' equity 431,878 369,628
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,737,711 $ 2,827,747
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
------------------------------------------------
FOR THE 1999 PERIOD
-------------------------------
FOR THE THREE MARCH 2, JANUARY 1,
MONTHS ENDED THROUGH THROUGH
MARCH 31, 2000 MARCH 31 MARCH 1
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES AND SALES:
Local services $ 137,438 $ 38,526 $ 80,196
Long distance services 42,195 20,671 48,613
Access services 91,839 26,050 49,517
Cellular services 35,400 10,595 20,541
Paging services 10,477 4,283 8,202
Directory services 9,609 3,213 6,726
Other services and sales 16,461 5,161 9,505
-------------- -------------- --------------
Total revenues and sales 343,419 108,499 223,300
-------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Cost of services and sales 102,361 43,689 91,723
Selling, general and administrative 105,841 23,786 49,983
ESOP government grant -- -- 26,100
Early retirement provision -- -- 4,226
Depreciation and amortization 73,817 34,168 50,393
-------------- -------------- --------------
Total operating costs and expenses 282,019 101,643 222,425
-------------- -------------- --------------
OPERATING INCOME 61,400 6,856 875
INTEREST AND OTHER INCOME (EXPENSE), net (19,982) (8,536) 976
-------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAX 41,418 (1,680) 1,851
INCOME TAX EXPENSE (BENEFIT) 16,427 (655) --
-------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE
24,991 (1,025) 1,851
EXTRAORDINARY CHARGE-
DISCONTINUANCE OF REGULATORY
ACCOUNTING, net of income tax benefit of $38,750 -- (60,500) --
-------------- -------------- --------------
NET INCOME (LOSS) $ 24,991 $ (61,525) $ 1,851
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE> 4
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
------------------------------------------------------
FOR THE 1999 PERIOD
----------------------------------
FOR THE THREE MARCH 2 JANUARY 1,
MONTHS ENDED THROUGH THROUGH
MARCH 31, 2000 MARCH 31, MARCH 1,
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
NET INCOME (LOSS) $ 24,991 $ (61,525) $ 1,851
OTHER COMPREHENSIVE INCOME:
Minimum pension liability adjustment -- -- 2,369
------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ 24,991 $ (61,525) $ 4,220
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE> 5
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
DEFERRED OTHER
COMMON ESOP SUBSCRIPTION ACCUMULATED COMPREHENSIVE
STOCK COMPENSATION RECEIVABLE DEFICIT LOSS TOTAL
-------- ------------ ------------ ----------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 1, 1999 ................ $ -- $ -- $ -- $ -- $ -- $ --
Acquisition by GTE and Popular Inc.
and partial step-up accounting ... 530,876 (26,100) (9,903) 494,873
ESOP capital contribution ........... 8,700 (8,700) --
Contribution receivable from PRTA ... 159,708 (159,708) --
Net loss, March 2, 1999 to
December 31, 1999 ................ (133,193) (133,193)
Accretion of discount on
subscription receivable .......... (10,655) (10,655)
ESOP compensation expense ........... 8,700 8,700
Minimum pension liability adjustment 9,903 9,903
-------- ------------ ------------ ----------- ------------- --------
BALANCE, DECEMBER 31, 1999 ........... 699,284 (26,100) (170,363) (133,193) -- 369,628
-------- ------------ ------------ ----------- ------------- --------
Net income, for the three months
ended March 31, 2000 ............. 24,991 24,991
Accretion of discount on
subscription receivable .......... (2,741) (2,741)
Government capital contribution ..... 40,000 40,000
-------- ------------ ------------ ----------- ------------- --------
BALANCE, MARCH 31, 2000 .............. $699,284 $ (26,100) $ (133,104) $ (108,202) $ -- $431,878
======== ============ ============ =========== ============= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE> 6
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
--------------------------------------------------
FOR THE 1999 PERIOD
--------------------------------
FOR THE THREE MARCH 2 JANUARY 1
MONTHS ENDED THROUGH THROUGH
MARCH 31, 2000 MARCH 31, MARCH 1,
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 24,991 $ (61,525) $ 1,851
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary charge 60,500
Depreciation and amortization 73,817 34,168 50,393
Accretion of discount on subscription receivable (2,741)
Deferred income tax 16,427 (655)
Compensation expense resulting from contribution
of shares to ESOP by PRTA 26,100
Changes in assets and liabilities:
Accounts receivable 23,338 21,186 (14,496)
Inventory and supplies (11,027) 659 (1,306)
Prepaid expenses and other assets (1,442) 1,535 2,374
Other current and non-current liabilities (97,250) (31,503) (9,059)
-------------- -------------- --------------
Net cash provided by operating activities 26,113 24,365 55,857
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and construction of telephone plant,
including cost of removal (31,117) (16,463) (33,237)
Net salvage on retirements 2,784 209 73
-------------- -------------- --------------
Net cash used in investing activities (28,333) (16,254) (33,164)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 110,577
Government capital contribution 40,000
Dividends and return of capital (83,116)
Deferred ESOP contribution (26,100)
Net borrowings under line-of-credit agreement
and proceeds from issuance of long-term debt 1,583,044
Special dividend paid to PRTA (1,570,182)
Repayment of principal on debt and capital
lease obligations (55,036) (35,219)
-------------- -------------- --------------
Net cash provided by (used in) financing
activities (15,036) (35,219) 14,223
-------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (17,256) (27,108) 36,916
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 45,482 72,527 35,611
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 28,226 $ 45,419 $ 72,527
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE> 7
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- ------------------------------------------------------------------------------
1. THE ACQUISITION, RELATED CORPORATE RESTRUCTURING AND CHANGES IN ACCOUNTING
BASIS
THE ACQUISITION AND CORPORATE RESTRUCTURING
On April 7, 1997, the Government of the Commonwealth of Puerto Rico (the
"Government") announced a plan, which resulted in the privatization of the
Puerto Rico Telephone Company, Inc. ("PRTC") and Celulares Telefonica, Inc.
("CT"), through a competitive bidding process. On July 21, 1998, after the
conclusion of the bidding process, a consortium led by GTE Corporation (the
"GTE Group") was awarded the right to purchase a controlling interest in
Telecomunicaciones de Puerto Rico, Inc. (the "Company" or the "Successor")
and entered into the acquisition agreement (the "Acquisition"). Under the
provisions of the Acquisition agreement, the Company, a Puerto Rico
corporation, was utilized for the purpose of acquiring the stock of PRTC and
CT from the Puerto Rico Telephone Authority ("PRTA"), a public corporation
and an instrumentality of the Government, in connection with the
privatization. On March 1, 1999, pursuant to the terms of the Acquisition
agreement, the Company acquired 100% of the common stock of PRTC and CT (the
"Predecessors"). Prior to the Acquisition, the Company had no operations,
nor assets and liabilities, and operated as a holding company formed in
connection with the efforts to privatize the Predecessors and to consummate
the sale of a controlling interest in the Predecessors to the GTE Group
under the Acquisition agreement.
The PRTA received approximately $2.0 billion as part of the Acquisition. A
portion of this amount was paid as a special dividend amounting to
approximately $1.6 billion.
The closing of the sale occurred on March 2, 1999, under the following
terms:
o A subsidiary of GTE Corporation (member of the GTE Group) acquired
40.01% plus one share of the Company stock and Popular Inc. (Popular)
acquired 9.99% of the Company stock.
o The PRTA obtained a forty-three percent (43%) interest less one share
of the stock of the Company in exchange for its remaining interests in
PRTC and CT. In the Acquisition agreement, the PRTA agreed to
contribute cash or stock worth a total of $200 million as a capital
contribution in even installments over five years beginning on March 2,
2000. The Company will use the $200 million to fund its unfunded
pension and other post-retirement benefit obligations. The contribution
must be in cash for the first two installments and cash or stock of the
Company for the last three installments. Future receipts have been
recorded at their discounted present value of $159.7 million (at a 8%
discount rate).
In conjunction with the Acquisition, PRTA contributed 3% of the Company's
shares to a newly created employee stock ownership plan (the "ESOP")
amounting to $26.1 million, and the GTE Group purchased an additional 1% of
the Company's shares from the PRTA amounting to $8.7 million, and
contributed them to the ESOP. The shares for the $26.1 million fully vested
to employees on March 2, 1999. The ESOP also acquired an additional 3% with
funds borrowed from the Company, amounting to $26.1 million, for the purpose
of establishing a newly created contributory investment benefit plan for
current and future employees.
PARTIAL STEP-UP IN ACCOUNTING BASIS
The Acquisition was accounted for following rules governing partial step-up
in accounting basis under the Accounting Principles Board Opinion ("APB")
No.16, Business Combinations, and Emerging Issues Task Force Consensus
("EITF") 88-16, "Basis in Leveraged Buyout Transactions". The Acquisition
resulted in a purchase of 100% of the common stock of PRTC and CT by the
Company, a purchase of a controlling interest in the Company by a new group
of controlling investors with the shareholders of the Predecessors
maintaining a minority interest in the new company. Under EITF 88-16, a
partial step-up is required to reflect the difference between the book value
of the portion of the assets and liabilities purchased by the GTE Group and
the fair value on the Acquisition date. In accordance with EITF 88-16, no
step-up is recorded for the portion of the assets and liabilities owned by
the PRTA.
7
<PAGE> 8
The excess of the purchase price over the basis in the assets and
liabilities has been allocated to the net assets reflecting the 50% interest
acquired by the GTE Group and Popular, Inc. as follows (amounts in
thousands):
<TABLE>
<S> <C>
Goodwill and other long-term intangibles $ 336,118
Deferred tax assets 171,356
Property, plant and equipment (99,250)
Employee benefit plan liabilities (180,740)
Other intangibles, net (98)
----------
Total increase in paid-in capital $ 227,386
==========
</TABLE>
These adjustments consider the effect of a change in the status of the
Company to a tax paying enterprise after March 2, 1999, as required by the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes".
DISCONTINUATION OF SFAS NO. 71, "ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES
OF REGULATION"
PRTC discontinued the application of SFAS No. 71 with the consummation of
the Acquisition on March 2, 1999, due to changes in regulation, the
competitive environment and the terms of the Acquisition. A write-down of
plant and equipment of $199 million was recorded of which $99.5 million was
accounted for as a purchase price adjustment consistent with partial step-up
accounting to reflect the fair value of the acquired assets. The remaining
$99.5 million was recorded as an extraordinary charge (approximately $60.5
million after-tax).
2. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been prepared
pursuant to rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Management believes the financial statements include all
adjustments, and recurring accruals necessary to present fairly the
financial information and changes in the basis of accounting to properly
account for the acquisition as explained in Note 1. The December 31, 1999
condensed consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's 1999 Annual Report on Form 10-K.
The condensed consolidated financial statements of the Predecessors for the
two-month period ended March 1, 1999, reflect the historical cost of its
assets and liabilities and results of its operations prior to completion of
the Acquisition and are referred to as the Predecessors' condensed
consolidated financial statements. Accordingly, the accompanying financial
statements of the Predecessors and the Company are not comparable in all
material respects, since the Company's financial condition, results of
operations, and cash flows use a new accounting basis. PRTC and CT are
wholly owned subsidiaries, and fully and unconditionally guarantee payment
of the senior notes, as set forth in the Indenture.
Separate financial statements for PRTC and CT have not been included because
the aggregate net assets, earnings and equity of PRTC and CT are
substantially equivalent to the aggregate net assets, earnings and equity of
the Company on a consolidated basis. Management believes that separate
financial statements and other disclosures concerning PRTC and CT are not
material to investors. In addition, the Company's other subsidiaries; Puerto
Rico Telephone Directories, Inc. and Datacom Caribe, Inc. (which are not
guarantors of the senior notes) are inconsequential to the condensed
consolidated financial statements.
8
<PAGE> 9
3. SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS
The SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," to be effective no later than June 30,
2000. SAB No. 101 provides additional guidance on revenue recognition. This
SAB could potentially change the recognition of installation revenues and
related direct selling expenses. The Company is currently assessing the
impact of SAB No. 101.
4. PRO FORMA INFORMATION
The following unaudited pro forma summary represents the consolidated
results of operations of the Company as if the Acquisition had occurred at
the beginning of 1999, after giving effect to certain adjustments. This pro
forma information is presented for informational purposes only and may not
be indicative of the results of operations as they would have been if the
Company had been a single entity during the entire 1999, nor is it
indicative of the results of operations which may occur in the future.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE YEAR ENDED
MONTHS ENDED MONTHS ENDED DECEMBER 31,
MARCH 31, 2000 MARCH 31, 1999 1999
-------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues and sales $ 325,919 $ 314,299 $1,279,566
---------- ---------- ----------
Income (Loss) before income tax $ 23,636 $ (50,958) $ (221,537)
---------- ---------- ----------
Income (Loss) before extraordinary charge $ 14,418 $ (31,084) $ (135,138)
========== ========== ==========
</TABLE>
The pro forma amounts reflect adjustments for interest expense, property,
municipal and unemployment taxes, management and technology fees,
amortization expense, and an anticipated loss in long term support from
NECA.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Land $ 23,445 $ 23,441
Buildings 324,479 322,431
Central office and transmission equipment 1,165,910 1,125,272
Outside plant 1,839,802 1,836,360
Other equipment 363,309 365,254
---------- ----------
Total plant in service 3,716,945 3,672,758
Less accumulated depreciation and amortization 2,112,819 2,056,432
---------- ----------
Net plant in service 1,604,126 1,616,326
Construction in progress 98,082 126,163
---------- ----------
Total $1,702,208 $1,742,489
========== ==========
</TABLE>
9
<PAGE> 10
6. INTANGIBLES
Intangibles consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill $150,236 $150,236
Franchise-wireline 96,000 96,000
Franchise-wireless 60,000 60,000
Brand 50,900 50,900
Customer base 21,100 21,100
Deferred pension asset 6,290 6,290
Other 2,302 1,879
-------- --------
Total cost 386,828 386,405
Less accumulated amortization 20,821 15,027
-------- --------
Total $366,007 $371,378
======== ========
</TABLE>
7. DEFERRED ESOP COMPENSATION
The ESOP acquired a 3% interest amounting to $26.1 million with funds
borrowed from the Company in order to establish a contributory investment
fund plan for current and future employees. Shares are maintained in a
suspense account until released to a participant. The release of shares is
determined by multiplying the number of shares in the suspense account by
the ratio of annual debt service to total debt service. Compensation expense
is recorded based on the release of shares at market value, based on an
annual appraisal, with an offsetting reduction to deferred compensation and
paid-in-capital.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable $ 59,924 $111,582
Accrued expenses 134,808 131,843
Employee accruals 64,097 40,564
Carrier payables 26,055 32,102
Taxes 12,512 20,684
Interest 28,240 11,593
-------- --------
Other current liabilities $325,636 $348,368
======== ========
</TABLE>
10
<PAGE> 11
9. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Senior notes
Due May 20, 2002 at 6.15% $ 299,950 $ 299,944
Due May 20, 2006 at 6.65% 399,867 399,863
Due May 20, 2009 at 6.80% 299,842 299,839
Bank note facility due March 2, 2004 440,000 495,000
Other debt, including obligations under capital leases 2,731 2,780
---------- ----------
Total 1,442,390 1,497,426
Less short-term debt 2,233 2,317
---------- ----------
Long-term debt $1,440,157 $1,495,109
========== ==========
</TABLE>
The senior notes are unconditionally guaranteed by PRTC and CT with no
financial covenants. The 2006 and 2009 notes can be prepaid at a 15 basis
point penalty. The bank note consists of a $500 million syndicated five year
revolving credit facility with prepayment at the option of the Company and
bears interest at LIBOR plus .725%, approximating a 7.59% interest rate at
March 31, 2000. This bank debt is subject to financial covenants, with the
most significant being where the debt must be less than 4 times adjusted
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"),
as defined in the bank facility agreement. All of the debt is unsecured and
non-amortizing.
The Company executed a new working capital line of credit facility with
Banco Bilbao Vizcaya ("BBV") for $50 million on May 4, 2000 and is in
negotiations with another bank for an additional $50 million. These
facilities replace a $200 million facility with Banco Popular, which was
initiated on March 2, 1999 and expired on March 2, 2000. The interest rate
on the BBV credit facility is LIBOR plus .50%.
10. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Customer deposits $ 29,230 $ 28,990
Employee benefit plans liability 483,462 547,040
Other liabilities 25,115 36,295
-------- --------
Other non-current liabilities $537,807 $612,325
======== ========
</TABLE>
11. SHAREHOLDERS' EQUITY
COMMON STOCK
Common stock consisted of 50 million authorized and 25 million shares
outstanding of no par value at March 31, 2000 and December 31, 1999. A 25 to
1 stock split was approved and became effective on December 31, 1999 to
decrease the per share market price in order to increase their affordability
to ESOP participants.
SUBSCRIPTION RECEIVABLE
The subscription receivable reflects future receipts at their discounted
present value (at an 8% discount rate) to be contributed by the PRTA in even
installments over five years to fund the unfunded pension and other
post-retirement benefit obligations.
11
<PAGE> 12
12. SEGMENT REPORTING
The Company has two reportable segments: Wireline and Wireless. The Wireline
segment provides:
o Local services including basic voice, telephone and telecommunications
equipment rentals, public phone service, value-added services, high
speed private line services, Internet access and installations;
o Long distance services both on-island and off-island;
o Access services provided to long distance, competitive local exchange
carriers, and cellular and paging operators to originate and terminate
calls on its network;
o Directory publishing right revenues; and
o Telecommunications equipment sales and billing and collection services
to competing long distance operators in Puerto Rico.
The Wireless segment includes cellular and paging services.
The Company measures and evaluates the performance of its segments based on
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"),
which is a common industry profitability and liquidity measure. The
accounting policies of the segments are the same as those followed by the
Company. The Company accounts for intersegment sales of products and
services at current market prices.
12
<PAGE> 13
Segment results for the Company and its Predecessors were as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
--------------------------------- ------------
FOR THE THREE MARCH 2, JANUARY 1,
MONTHS ENDED THROUGH THROUGH
MARCH 31, MARCH 31, MARCH 1,
2000 1999 1999
------------- -------------- ------------
<S> <C> <C> <C>
WIRELINE:
Revenues and sales:
Local services $ 138,442 $ 38,526 $ 80,196
Long distance services 42,476 20,671 48,613
Access services 94,060 26,050 49,517
Directory services and other 32,686 6,600 12,951
----------- ----------- -----------
Total revenues and sales $ 307,664 $ 91,847 $ 191,277
=========== =========== ===========
EBITDA $ 125,787 $ 33,477 $ 50,519
=========== =========== ===========
Capital Expenditures $ 27,435 $ 11,538 $ 31,427
=========== =========== ===========
WIRELESS:
Revenue and sales:
Cellular services $ 35,913 $ 10,595 $ 20,541
Paging services 10,648 4,883 8,202
Other 2,949 1,174 3,280
----------- ----------- -----------
Total revenues and sales $ 49,510 $ 16,652 $ 32,023
=========== =========== ===========
EBITDA $ 9,430 $ 7,547 $ 749
=========== =========== ===========
Capital Expenditures $ 2,172 $ 697 $ 5,388
=========== =========== ===========
Consolidated:
Revenues for reportable segments $ 357,174
Elimination of intersegment revenues (13,755)
-----------
Consolidated revenues $ 343,419 $ 108,499 $ 223,300
=========== =========== ===========
EBITDA $ 135,217 $ 41,024 $ 51,268
=========== =========== ===========
Depreciation and amortization $ 73,817 $ 34,168 $ 50,393
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------------------------- ------------ ------------
<S> <C> <C>
Wireline assets $ 2,525,277 $ 2,591,170
Wireless assets 262,790 296,550
------------ ------------
Segment assets $ 2,788,067 $ 2,887,720
Elimination of intersegment assets (50,356) (59,973)
------------ ------------
Consolidated Assets $ 2,737,711 $ 2,827,747
============ ============
</TABLE>
13
<PAGE> 14
13. CONTINGENCIES
(a) Litigation
The Company is a defendant in various legal matters arising in the ordinary
course of business. The Company's management, after consultation with legal
counsel, believes that the resolution of these matters will not have a
material adverse effect on the Company's financial position and results of
operations. In connection with the Acquisition, the PRTA agreed to
indemnify, defend and hold the Company harmless for specified significant
litigation, including one environmental matter.
14. RECLASSIFICATIONS
Reclassifications of prior years' data have been made, where appropriate, to
conform to the current presentation.
14
<PAGE> 15
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company has made forward-looking statements. These
statements are based on the Company's estimates and assumptions and are subject
to certain risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of operations, as well
as those statements preceded or followed by the words "anticipates," "believes,"
"estimates," "expects," "hopes," "targets" or similar expressions.
Future results could be affected by subsequent events and could differ
materially from those expressed in the forward-looking statements. If future
events and actual performance differ from the Company's assumptions, the actual
results could vary significantly from the performance projected in the
forward-looking statements.
The following important factors could affect future results and could cause
those results to differ materially from those expressed in the forward-looking
statements: (1) materially adverse changes in economic conditions in Puerto
Rico; (2) material changes in available technology; (3) the final resolution of
regulatory initiatives and proceedings, including arbitration proceedings,
pertaining to, among other matters, the terms of interconnection, access
charges, universal service, unbundled network elements and resale rates; and (4)
the extent, timing, success and overall effects of competition from others in
the Puerto Rico telecommunications service.
THE ACQUISITION AND CHANGE IN ACCOUNTING BASIS
Our results of operations and financial position as of March 31, 2000
reflect the adoption of a new accounting basis for our assets and liabilities
and the consequences of becoming a tax paying enterprise as a result of the
Acquisition. The revaluation of assets and liabilities reflects the value paid
by the GTE Group to acquire their 50% plus one share interest in the Company in
excess of the historical book value of the assets and liabilities acquired. As a
result of this Acquisition, our results of operations and financial position for
periods ending after March 2, 1999 differ materially from those previously
reported by our Predecessors primarily due to the items discussed above and the
following:
o The incurrence of $1.6 billion of debt and related interest expense in
connection with the Acquisition;
o The accrual of management fees owed to GTE;
o The introduction of dialing parity in the on-island long distance market and
our entrance into the off-island long distance market; and
o The discontinuation of regulatory accounting principles
RESULTS OF OPERATIONS
Our discussion of results for the quarters ended March 31, 2000 and 1999 is
based upon results from March 2, 1999 to March 31, 1999, and the Predecessor
results from January 1, 1999 to March 1, 1999. In the discussion below,
references to the Company also include our Predecessors. The comparability of
revenues before and after the Acquisition was not affected by a change in
accounting basis. Accordingly, in the discussion of revenue trends, we have not
distinguished between the operations of the Predecessors before March 1, 1999
and after this date.
We have two reportable segments, Wireline and Wireless. See Note 12 to the
condensed consolidated financial statements for additional information on our
segments.
15
<PAGE> 16
The Wireline segment provides:
o Local services including basic voice, telephone and telecommunications
equipment rentals, public phone service, value-added services, high
speed private line services, Internet access and installations;
o Long distance services including direct dialed on-island and off-island,
operator assisted, calling card and on-island private line revenues.
o Access services provided to long distance, competitive local exchange
carriers, and cellular and paging operators to originate and terminate
calls on its network;
o Directory publishing right revenues; and
o Telecommunications equipment sales and billing and collection services
to competing long distance operators in Puerto Rico.
The Wireless segment includes cellular and paging services.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
2000 1999
--------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
WIRELINE:
Local $ 137 40% $ 119 36%
Network Access 92 27 76 23
Long Distance 42 12 69 21
Directory and Other 24 7 20 6
------ ------ ------ ------
Total Wireline 295 86% 284 86%
------ ------ ------ ------
WIRELESS:
Cellular 35 10% 31 9%
Paging 11 3 12 4
Wireless Equipment 2 1 5 1
------ ------ ------ ------
Total Wireless 48 14% 48 14%
------ ------ ------ ------
Revenues and Sales $ 343 100% $ 332 100%
====== ====== ====== ======
</TABLE>
16
<PAGE> 17
EXPENSES AND CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
2000 1999
------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C>
WIRELINE:
Cost of services and sales $ 91 $ 124
Selling, general and administrative 76 54
----- -----
Total Wireline 167 178
WIRELESS:
Cost of services and sales $ 11 $ 11
Selling, general and administrative 30 20
----- -----
Total Wireless 41 31
OTHER:
ESOP compensation expense $ -- $ 26
Early retirement provision -- 4
Depreciation and amortization 74 85
Interest and Others 20 8
Income Tax Expense (Benefit) 16 (1)
Extraordinary Item (FAS #71) - net -- 61
of tax
----- -----
Net Income (Loss) $ 25 $ (60)
===== =====
</TABLE>
OPERATING DATA (1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Access Lines in Service (000's):
Residential 954 953
Business 305 297
------ ------
Total Access Lines in Service 1,259 1,250
On-island LD Minutes (millions) 256 405
Off-island LD Minutes (millions)(2) 31 1
Cellular Customers (000's):
Post-paid 189 166
Pre-paid 109 63
------ ------
Total Cellular Customers 298 229
Cellular ARPU $ 40 $ 47
Paging Customers (000's) 174 212
</TABLE>
- ----------
(1) March 31, 2000 assets included $2,526 million wireline assets, $ 263 million
wireless assets and $50 million of intersegment asset eliminations.
(2) Off-island long distance service commenced February 1, 1999.
17
<PAGE> 18
QUARTER ENDED MARCH 31, 2000 COMPARED WITH QUARTER ENDED MARCH 31, 1999
REVENUES AND SALES. Revenues for the quarter ended March 31, 2000
increased $11 million, or 3%, to $343 million from the $332 million in the
comparable period in 1999.
WIRELINE:
Local service revenues include revenue generated from basic voice,
telephone and telecommunications equipment rental, value-added services, high
speed private line services, Internet access, public phone service, and
installation services. Local service revenues for the quarter ended March 31,
2000 increased $18 million, or 15%, to $137 million from $119 million in the
same period in 1999, resulting primarily from increases in private lines,
residential lines, Internet, public phones, installation charges and business
lines of $5 million, $4 million, $3 million, $2 million, $2 million and $2
million, respectively.
Access line growth in the quarter ended March 31, 2000 was .4%, compared to
1.5% for the comparable period in 1999 due to facilities based local exchange
competition. The waiting list of orders for new installations increased to
41,400 at March 31, 2000 in comparison with 22,200 at December 31, 1999 and
31,600 at March 31, 1999. The increase in the waiting list in the quarter was
due to contractor's work actions.
Network access revenues include service provided to long distance,
competitive local exchange carriers, and cellular and paging operators to
originate and terminate calls on its network. Network access revenues for the
quarter ended March 31, 2000 increased $16 million, or 21%, to $92 million
compared to $76 million for the quarter ended March 31, 1999. We received $13
million of additional access revenues from long distance carriers to originate
on-island calls, which was the result of our on-island long distance market
share loss. An additional $2 million was realized from higher off-island access
revenues due to higher competitor off-island traffic.
Long distance revenues include direct dialed on-island and off-island,
operator-assisted, calling card and on-island private line revenues. Long
distance revenues decreased $27 million, or 39%, to $42 million for the quarter
ended March 31, 2000 from $69 million in the same quarter in 1999. The decrease
was attributable to 34% lower on-island minutes of use, which was partially
offset by an increase in off-island minutes-of-use and higher operator assisted
set-up fees. Competition in the on-island market accelerated in February 1999
with the introduction of dialing parity. We have experienced erosion in market
share from 98% in February 1999 to 58% as of March 31, 2000. The increase in
off-island traffic for the total market has mitigated some of our on-island
share loss. For the quarter ended March 31, 2000, new revenues as a result of
our entrance in the off-island long distance market were $5 million higher than
the same period in 1999.
Directory and other revenues include directory publishing rights,
telecommunication equipment and billing and collecting services to competitor
long distance operators in Puerto Rico. Directory and other revenues for the
quarter ended March 31, 2000 increased $4 million or 21%, to $24 million, from
$20 million in the quarter ended March 31, 1999 mainly due to higher billing and
collection services which is related to intra-island long distance market share
erosion.
WIRELESS:
Revenues from cellular and paging service and related equipment sales
were the same for both periods. Cellular service revenues increased $4 million
or 13% as a result of the net addition of approximately 69,000 more customers
versus the same period last year, which represents an increase in net customers
of 30% from the same period of time in 1999. Cellular average revenue per unit
of $40 for the quarter ended March 31, 2000 decreased by $7 from the similar
period in 1999. The reduction is the result of competitive pricing actions and a
larger portion of prepaid customers, which have lower average revenue per unit.
Paging revenues declined $1 million, or 8% to $11 million during the
quarter ended in March 31, 2000 from $12 million in the quarter ended March 31,
1999. The decrease was due to a reduction of 38,000 customers versus the same
period last year because of disconnection's related to non-payments and
migration to cellular pre-paid plans.
18
<PAGE> 19
Other revenues include equipment sales, which decreased $3 million or
60% to $2 million during the quarter ended March 31, 2000 from $5 million in the
quarter ended March 31, 1999. This was a result of lower gross additions.
OPERATING COSTS AND EXPENSES. Operating costs and expenses for the quarter
ended March 31, 2000 decreased $1 million, or 2%, to $208 million from the $209
million incurred in the same period in 1999.
WIRELINE:
Wireline expenses for the quarter ended March 31, 2000 decreased $11
million, or 6%, to $167 million from the $178 million incurred in the same
quarter in 1999. Costs of services and sales decreased $33 million, or 27%, to
$91 million from $124 million in the same quarter of 1999, mainly due to
decreases in labor of $14 million, the absence of Hurricane Georges repair
expenses of $13 million, rent of $2 million, cost of equipment sold of $1
million, maintenance of $2 million and contributions to the universal service
fund of $1 million. There were 1,342 employees who accepted early retirement
during 1999, of which approximately 1,100 were no longer on the payroll at the
beginning of 2000. The balance of the employee reduction occurred at the end of
the first quarter of 2000. The labor savings in the first quarter resulted from
this workforce reduction.
Selling, general and administrative expenses of $76 million increased
$22 million or 41%, when compared to the quarter ended March 31, 1999. The
principal component of the increase relates to management and technology license
fees of $9 million, higher executive labor expenses of $3 million, ESOP expenses
of $2 million and higher bad debt provisions of $1 million.
WIRELESS:
Wireless expenses for the quarter ended March 31, 2000, increased $10
million or 32%, to $41 million from the $31 million reported in the same period
from 1999. Costs of services and sales reflect no change from the first quarter
of 1999. Selling, general and administrative expenses increased $10 million or
50%, to $30 million from the $20 million reported in the same quarter from
1999. The principal components of this increase were higher bad debt provisions
of $7 million, higher commissions of $2 million and higher advertising of $1
million. These expense increases reflect an intense competitive market.
ESOP COMPENSATION EXPENSES. A $26 million non-cash expense was recorded in the
quarter ended March 31, 1999 representing the PRTA's grant. The grant was
recorded as compensation expense, with an offsetting credit to paid-in-capital.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization of $74
million for the quarter ended March 31, 2000 was $11 million lower than the
prior year quarter primarily due to the discontinuation of regulatory accounting
principles.
INTEREST EXPENSE. Interest expense of $20 million for the quarter ended March
31, 2000 results from the borrowing related to the special dividend paid to the
government in connection with the privatization. Debt decreased from $1.6
billion on March 2, 1999 to $1.4 billion at March 31, 2000.
INCOME TAXES. A $16 million tax provision for the first quarter of 2000 reflects
a 39% statutory rate excluding some non-tax deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $28 million at March 31, 2000, compared
to $45 million at December 31, 1999. As of March 31, 2000, we had working
capital of $83 million compared to $89 million at December 31, 1999. Cash from
operations for the three months ended March 31, 2000 was $26 million, compared
to $80 million for the quarter ended March 31, 1999. The $54 million decrease is
primarily attributable to a reduction in current liabilities, mainly due to a
$37 million pension payment and $18 million in real property tax payments.
19
<PAGE> 20
Cash expended for investing activities for the three months ended March
31, 2000 was $28 million compared to $49 million for 1999. The decrease was due
to the timing of equipment deliveries from suppliers and contractor work
actions. Our capital expenditure budget for 2000 is $228 million, which is
funded with internally generated funds.
The Company executed a new working capital line of credit facility with
Banco Bilbao Vizcaya ("BBV") for $50 million on May 4, 2000 and is in
negotiations with another bank for an additional $50 million. These facilities
replace a $200 million facility with Banco Popular, which was initiated on March
2, 1999 and expired on March 2, 2000. The interest rate on the BBV credit
facility is LIBOR plus .50%.
REGULATORY MATTERS
LONG DISTANCE CALLING PLANS
Telefonica Larga Distancia ("TLD") has asserted to the
Telecommunications Regulatory Board ("TRB") that several of our bundled long
distance calling plans are below cost. One of these plans includes competitive
prices for off-island and on-island long distance, free weekend on-island calls
with a minimum monthly billing of $18. The TRB found the plan was based on cost
in a March 2000 ruling but required us to submit a new cost study by October
2000 to reflect weekend traffic under the plan.
The alternate calling plan is the same as the one described above,
except that Internet access is added and the monthly minimum is replaced with a
monthly service charge. In April 2000, we increased the monthly service charge
from $15 to $18 to be comparable to the first plan and filed a motion to dismiss
on the basis that we met the cost imputation test. We await a decision from the
TRB.
ON-ISLAND ACCESS RATE DISPUTE
All the elements of our intrastate access rates were set at the same
amounts as our interstate access rates prior to October 1998, which was
supported by a cost study in compliance with FCC rules. We developed a cost
study for our intrastate access rates and changed each rate element in October
1998. The change had the effect of increasing the common carrier line ("CCL")
element and decreasing other elements since as a rate-of-return carrier our rate
elements are set to recover our revenue requirement.
In February 1999, the TRB ordered us to decrease the terminating CCL
element without increasing other elements. We appealed the order, and continued
billing the rate through November 1999, at which time the increase was replaced
with a monthly pre-subscribed inter-exchange common carrier charge ("PICC") of
$2.75 per line for residential and single-line business customers, and $6.00 per
line for multi-line business customers. In January 2000, the TRB instructed us
to show cause why we should not refund the 2 cents increase since February 1999
and accessed a $500,000 fine plus interest. We appealed the decision. In May
2000 the TRB rejected our appeal and reduced the fine to $250,000. We intend to
appeal this decision further.
INTERNET TRAFFIC
A competitive local exchange carrier ("CLEC") brought an action before
the TRB complaining that we did not compensate them for local Internet traffic
originating from our customers and terminating on their network. The CLEC claims
that this traffic is subject to a reciprocal compensation agreement.
We have been negotiating this matter through a TRB selected arbitrator
while challenging the legality of the claim with the FCC. We reached a
reciprocal compensation agreement in April 2000. The settlement for prior period
claims was not significant in relation to our financial condition or results of
operation.
20
<PAGE> 21
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
hedging instruments. SFAS No. 133, as amended, is effective for fiscal years
beginning after June 15, 2000. The statement requires entities that use
derivative instruments to measure and record these instruments at fair value as
assets or liabilities on the balance sheet. It also requires entities to reflect
gains or losses associated with changes in the fair value of these derivatives,
either in earnings or as a separate component of comprehensive income, depending
on the nature of the underlying transaction. We do not currently use derivative
instruments. Therefore, the adoption of SFAS No. 133 is not expected to have a
significant effect on our results of operations or our financial condition.
The SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," to be effective no later than June 30,
2000. SAB No. 101 provides additional guidance on revenue recognition. This SAB
could potentially change the recognition of installation revenues and related
direct selling expenses. The Company is currently assessing the impact of SAB
No. 101.
21
<PAGE> 22
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table below provides information about debt at March 31,
2000. The table presents the estimated interest requirement for each of
the next five years and in the aggregate thereafter as well as the
related average interest rates.
<TABLE>
<CAPTION>
INITIAL INTEREST REQUIREMENT INITIAL
--------------------------------------------------------- REMAINING MATURITY PRINCIPAL MATURITY
2000 2001 2002 2003 2004 2005 PRINCIPAL TOTAL AMOUNT DATE
------- ------- ------- ------- ------- ------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED RATE
SENIOR NOTES
Due 2002 (1) $18,450 $18,450 $20,200 $21,450 $21,450 $23,200 $ 58,069 $181,269 $ 300,000 2002
Interest Rate 6.15% 6.15% 6.73% 7.15% 7.15% 7.73% 8.15%
Due 2006 $26,600 $26,600 $26,600 $26,600 $26,600 $26,600 $ 9,975 $169,575 $ 400,000 2006
Interest Rate 6.65% 6.65% 6.65% 6.65% 6.65% 6.65% 6.65%
Due 2009 $20,400 $20,400 $20,400 $20,400 $20,400 $20,400 $ 68,850 $191,250 $ 300,000 2009
Interest Rate 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 6.80%
FLOATING RATE DEBT(2) $36,520 $37,400 $38,280 $39,160 $40,040 $40,920 $ 129,580 $361,900 $ 440,000 2004
Average interest Rate 8.30% 8.50% 8.70% 8.90% 8.10% 9.30% 9.30%
</TABLE>
- ---------------
Assumptions:
(1) Senior Notes 2000:
o To be refinanced for an additional three years in 2002 and again
in 2005
o The 2002 refinancing is based on a 6.15% rate up to May and 7.15%
rate thereafter
o The 2005 refinancing is based on a 7.15% rate up to May and 8.15%
rate thereafter
(2) Floating Rate Debt:
o Used March 31, 2000 balance of $440 million throughout the
forecast period
o To be refinanced in 2004
o Company forecast based on a 20 basis point increase per year
22
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are a defendant in various legal and administrative proceedings arising in
the ordinary course of business. We believe the resolution of these matters
will not have a material adverse effect on our financial position and results
of operations. See the Regulatory Matters section of Management's Discussion
and Analysis for more information regarding this matter. In connection with the
Acquisition, the PRTA agreed to indemnify, defend and hold us harmless for
specified significant litigation, including one environmental matter.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K
12) Statement re: Calculation of the Consolidated Ratio of Earnings to
Fixed Charges
27) Financial Data Schedule
b) No reports on Form 8-K were filed during the first quarter of 2000.
23
<PAGE> 24
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.
TELECOMUNICACIONES DE PUERTO RICO, INC.
By: /s/ Jon Slater
--------------------------------------
Name: Jon Slater
Title: Chief Executive Officer
Date: May 15, 2000
By: /s/ Robert P. Huberty
--------------------------------------
Name: Robert P. Huberty
Title: Chief Accounting Officer
Date: May 15, 2000
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of Telecomunicaciones de
Puerto Rico, Inc (Incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement
filed on Form S-4 (File 333-85503).
3.2 Certificate of Amendment to the Certificate of
Incorporation of Telecomunicaciones de Puerto Rico,
Inc. (Incorporated by reference to Exhibit 3.2 of the
Company's Annual Report filed on Form 10-K (File
333-85503).
3.3 By-Laws of Telecomunicaciones de Puerto Rico, Inc.
(Incorporated by reference to Exhibit 3.4 of the
Company's Registration Statement filed on Form S-4
(File 333-85503).
4.1 Trust Indenture dated as of May 20, 1999 between
Telecomunicaciones de Puerto Rico, Inc. and The Bank
of New York. (Incorporated by reference to Exhibit
4.1 of the Company's Registration Statement filed on
Form S-4 (File 333-85503).
10.1 Amended and Restated Stock Purchase Agreement, dated
as of May 27, 1998 and Amended and Restated as of
July 21, 1998 by and among Puerto Rico Telephone
Authority, Puerto Rico Telephone Company, GTE
Holdings (Puerto Rico) LLC and GTE International
Telecommunications Incorporated. (Incorporated by
reference to Exhibit 10.1 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.2 First Amendment to the Stock Purchase Agreement,
dated as of January 4, 1999, by and among Puerto Rico
Telephone Authority, Puerto Rico Telephone Company,
GTE Holdings (Puerto Rico) LLC and GTE International
Telecommunications Incorporated. (Incorporated by
reference to Exhibit 10.2 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.3 Second Amendment to the Stock Purchase Agreement,
dated as of January 29, 1999, by and among Puerto
Rico Telephone Authority, Puerto Rico Telephone
Company, GTE Holdings (Puerto Rico) LLC and GTE
International Telecommunications Incorporated.
(Incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement filed on Form S-4
(File 333-85503).
10.4 Third Amendment to the Stock Purchase Agreement,
dated as of March 2, 1999, by and among Puerto Rico
Telephone Authority, Puerto Rico Telephone Company,
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, Telecomunicaciones
de Puerto Rico, Inc. and Celulares Telefonica, Inc.
(Incorporated by reference to Exhibit 10.4 of the
Company's Registration Statement filed on Form S-4
(File 333-85503).
10.5 Shareholders Agreement, dated as of March 2, 1999, by
and among Telecomunicaciones de Puerto Rico, Inc.,
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, Popular, Inc, Puerto
Rico Telephone Authority and the shareholders of
Telecomunicaciones de Puerto Rico, Inc., who shall
from time to time be parties thereto as provided
therein. (Incorporated by reference to Exhibit 10.5
of the Company's Registration Statement filed on Form
S-4 (File 333-85503).
10.6 Amended and Restated Puerto Rico Management
Agreement, dated as of March 2, 1999, by and among
Telecomunicaciones de Puerto Rico, Inc., Puerto Rico
Telephone Company, and GTE International
Telecommunications Incorporated. (Incorporated by
reference to Exhibit 10.6 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.7 Amended and Restated U.S. Management Agreement, dated
as of March 2, 1999, by and among Telecomunicaciones
de Puerto Rico,
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
(Incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement filed on Form S-4
(File 333-85503).
10.8 Amended and Restated Technology Transfer Agreement,
dated as of March 2, 1999, by and among
Telecomunicaciones de Puerto Rico, Inc., Puerto Rico
Telephone Company, and GTE International
Telecommunications Incorporated. (Incorporated by
reference to Exhibit 10.8 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.9 Non-Competition Agreement, dated as of March 2, 1999,
by and among Telecomunicaciones de Puerto Rico, Inc,
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, Popular, Inc.,
Puerto Rico Telephone Authority, and the Government
Development Bank for Puerto Rico. (Incorporated by
reference to Exhibit 10.9 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.10 Share Option Agreement, dated as of March 2, 1999, by
and among Puerto Rico Telephone Authority,
Telecomunicaciones de Puerto Rico, Inc, GTE Holdings
(Puerto Rico) LLC, and GTE International
Telecommunications Incorporated. (Incorporated by
reference to Exhibit 10.10 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.11 Stock Purchase Agreement, dated as of March 1, 1999,
by and between Telecomunicaciones de Puerto Rico, Inc
and Puerto Rico Telephone Authority. (Incorporated by
reference to Exhibit 10.11 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.12 Trust Agreement of the Employee Stock Ownership Plan
of Telecomunicaciones de Puerto Rico, Inc., dated as
of March 2, 1999, by and between U.S. Trust, National
Association and Telecomunicaciones de Puerto Rico,
Inc. (Incorporated by reference to Exhibit 10.12 of
the Company's Registration Statement filed on Form
S-4 (File 333-85503).
10.13 ESOP Loan Agreement, dated as of March 2, 1999, by
and between the Trust of the Employee Stock Ownership
Plan of Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc. (Incorporated
by reference to Exhibit 10.13 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.14 Stock Purchase Agreement, dated as of March 2, 1999,
by and between Puerto Rico Telephone Authority and
the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. (Incorporated
by reference to Exhibit 10.14 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.15 Pledge Agreement, dated as of March 2, 1999, by and
between the Trust of the Employee Stock Ownership
Plan of Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc. (Incorporated
by reference to Exhibit 10.15 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.16 Tag Along Agreement, dated as of March 2, 1999, by
and among GTE Holdings (Puerto Rico) LLC, GTE
International Telecommunications Incorporated, and
the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. (Incorporated
by reference to Exhibit 10.16 of the Company's
Registration Statement filed on Form S-4 (File
333-85503).
10.17 $500,000,000 Five-Year Credit Agreement, dated as of
March 2, 1999, among Telecomunicaciones de Puerto
Rico, Inc., as Borrower, Puerto Rico Telephone
Company and Celulares Telefonica, as Guarantors, the
Initial Lenders named therein, Citibank, N.A., as
Administrative Agent, Bank of America National Trust
and Savings Association, as Syndication Agent, and
The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as Documentation Agents.
(Incorporated by reference
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
to Exhibit 10.17 of the Company's Registration
Statement filed on Form S-4 (File 333-85503).
10.18 Letter Amendment to the Five-Year Credit Agreement,
dated May 7, 1999. (Incorporated by reference to
Exhibit 10.18 of the Company's Registration Statement
filed on Form S-4 (File 333-85503).
10.19 $200,000,000 Revolving Credit Agreement, dated as of
March 2, 1999, among Telecomunicaciones de Puerto
Rico, Inc., as Borrower, Puerto Rico Telephone
Company and Celulares Telefonica, as Guarantors,
Banco Popular de Puerto Rico, as Managing Agent and
Administrative Agent, Scotiabank de Puerto Rico, as
Co-Agent, and Banco Popular de Puerto Rico,
Scotiabank de Puerto Rico, Banco Bilbao Vizcaya
Puerto Rico and Banco Popular North America, as
Initial Lenders. (Incorporated by reference to
Exhibit 10.19 of the Company's Registration Statement
filed on Form S-4 (File 333-85503).
10.20 First Amendment to $200,000,000 Revolving Credit
Agreement. (Incorporated by reference to Exhibit
10.20 of the Company's Registration Statement filed
on Form S-4 (File 333-85503).
12 Statement Regarding Computation of Ratio of Earnings
to Fixed Charges.
27 Financial Data Schedule as of March 31, 2000.
</TABLE>
<PAGE> 1
EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31,
2000
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Net earnings available for fixed charges:
Net income before extraordinary
charge $ 25.0
Add: Income taxes 16.4
Fixed charges 20.3
-------
Adjusted earnings $ 61.7
=======
Fixed charges $ 20.3
=======
RATIO OF EARNINGS TO FIXED CHARGES
3.0
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 28,226
<SECURITIES> 0
<RECEIVABLES> 408,069
<ALLOWANCES> 73,512
<INVENTORY> 42,397
<CURRENT-ASSETS> 411,049
<PP&E> 3,815,027
<DEPRECIATION> 2,112,819
<TOTAL-ASSETS> 2,737,711
<CURRENT-LIABILITIES> 327,989
<BONDS> 1,440,157
0
0
<COMMON> 699,284
<OTHER-SE> (267,406)
<TOTAL-LIABILITY-AND-EQUITY> 2,737,711
<SALES> 343,419
<TOTAL-REVENUES> 343,419
<CGS> 102,361
<TOTAL-COSTS> 282,019
<OTHER-EXPENSES> (282)
<LOSS-PROVISION> 20,130
<INTEREST-EXPENSE> 20,264
<INCOME-PRETAX> 41,418
<INCOME-TAX> 16,427
<INCOME-CONTINUING> 24,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,991
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
