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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
TRANSITION REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period 1 April 1999 - 30 June 1999
Commission file number 1-10798
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TELECOM CORPORATION OF NEW ZEALAND LIMITED
(Exact name of Registrant as specified in its charter)
New Zealand
(State or other jurisdiction of incorporation or organisation)
Telecom Networks House, 68 Jervois Quay, Wellington, New Zealand
(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
American Depositary Shares ................ New York Stock Exchange
("ADSs", evidenced by American Depositary Receipts ("ADRs"))
Ordinary Shares, no par value ............. New York Stock Exchange*
("Shares")
*Not for trading, but only in connection with the registration of ADSs pursuant
to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to
Section 12(g) of the Act..................................... None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act..................................... None
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report.
Ordinary Shares, no par value................................ 1,752,801,986
Special rights convertible preference share, no par value.... 1
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, and (2) has been subject to the filing requirements for
the past 90 days.
Yes [x] No
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 [x]
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2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Interpretation......................................................... 3
PART I
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Item 3 Legal Proceedings.............................................. 3
Item 9 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 4
PART III
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Item 15 Defaults Upon Senior Securities............................... 4
Item 16 Changes in Securities and Changes in Security
for Registered Securities.............................................. 4
PART IV
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Item 18 Financial Statements.......................................... 4
Item 19 Financial Statements and Exhibits............................. 7
</TABLE>
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3
Interpretation
Certain information required for this Report is incorporated by reference to
Telecom's Financial Statements (the "Financial Statements") for the period 1
April 1999 - 30 June 1999 (the "Transition Period") and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the Transition
Period (the "MD&A"). The Financial Statements and MD&A are contained in
Telecom's Annual Report to Shareholders for the Transition Period (the "Annual
Report") filed under cover of Form 6-K dated 6 September 1999. References to
"Notes" are references to the Notes to the Financial Statements.
PART I
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Item 3 - Legal Proceedings
In proceedings commenced in November 1996, Clear alleges breaches of the
Commerce Act in relation to Telecom's bundling practices, as well as claiming
the existence of arrangements between Telecom and Bell Atlantic and Ameritech
that breach the Commerce Act. Unspecified damages are sought in these
proceedings.
In April 1997, Telecom issued proceedings against Clear for withholding certain
payments for services supplied under Clear's 1996 interconnection agreement with
Telecom. Telecom seeks a declaration that the outstanding amounts are payable
and an injunction requiring Clear to pay for services provided under the
interconnection agreement. Clear's defence and counterclaim allege that both its
1991 and 1996 interconnection agreements are invalid and unenforceable because
the interconnection terms (including charges payable by Clear) have an anti-
competitive purpose and effect in breach of the Commerce Act, as does Telecom's
retail pricing. Clear seeks unspecified damages and other relief under the
Commerce Act. Clear's counterclaim also includes a claim against Telecom for
unspecified damages based on breach of "undertakings" allegedly given by Telecom
in the late 1980s regarding the provision of interconnection, and incorporates
other allegations previously raised in separate proceedings.
In May 1999, Telstra NZ Limited ("Telstra NZ") commenced proceedings against
Telecom alleging that Telecom's cessation of certain carrier rebilling
arrangements with Telstra NZ breaches the Commerce Act. Telstra NZ seeks
injunctive relief together with unspecified damages.
In June 1999, a claim was filed against Telecom in the Employment Court by nine
representatives and six individual plaintiffs, a total of 78 plaintiffs. The
plaintiffs allege breach of various express and implied terms of their
collective employment contracts, in respect of the provision of a safe working
environment. The claim is not fully quantified.
The Directors of Telecom cannot reasonably estimate the adverse effect (if any)
on Telecom if any of the foregoing claims are ultimately resolved against
Telecom's interests, and there can be no assurance that such litigation will not
have a material adverse effect on Telecom's business, financial condition or
results of operations. In particular, the Clear proceedings could, if resolved
against Telecom, affect the manner in which Telecom conducts its business.
All of the proceedings summarised above have been commenced in the High Court of
New Zealand unless otherwise stated.
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4
Item 9 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this Item is set out in the MD&A and is incorporated
herein by reference. See Item 19.
New Developments
In May 1999 Telecom acquired a 9.9% shareholding in AAPT Limited ("AAPT") an
Australian telecommunications carrier through its wholly owned subsidiary TCNZ
Australia Investments (Pty) Limited ("TNZ Australia"). This shareholding was
increased to 19.8% in June 1999. On 15 September 1999 Telecom announced that TNZ
Australia intended to make an offer for all of the remaining AAPT shares that
TNZ Australia did not already own but with the aim of increasing its
shareholding while maintaining AAPT as a major listed Australian
telecommunications carrier. The offer price was A$5.10 per share. If all AAPT
shareholders accepted this offer the cost to Telecom would be approximately
NZ$1.6 billion which would be funded by debt.
PART III
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Item 15 - Defaults Upon Senior Securities
None.
Item 16 - Changes In Securities And Changes In Security For Registered
Securities
None.
PART IV
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Item 18 - Financial Statements
See Item 19 for a list of Financial Statements included as part of this
Transition Report on Form 20-F.
Valuation and Qualifying Accounts
The table below shows movements in the allowance for doubtful accounts for the
Transition Period and the 1998 and 1999 fiscal years:
<TABLE>
<CAPTION>
Balance at Additions charged
beginning to costs and Balance at
of period expenses end of period
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(Dollars in millions) NZ$ NZ$ NZ$
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<S> <C> <C> <C> <C>
30 June 1999 22 1 23
31 March 1999 20 2 22
31 March 1998 19 1 20
</TABLE>
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5
The table below shows movements in the provision for inventory obsolescence for
the Transition Period and the 1998 and 1999 fiscal years:
<TABLE>
<CAPTION>
Balance at Additions charged Deductions for
beginning to costs inventory Balance at
of period and expenses written off end of period
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(Dollars in millions) NZ$ NZ$ NZ$ NZ$
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<S> <C> <C> <C> <C>
30 June 1999 11 - - 11
31 March 1999 9 2 - 11
31 March 1998 12 2 (5) 9
</TABLE>
Change of Balance Date
Effective 1 April 1999, the Company changed its annual balance date from 31
March to 30 June.
Segmental Reporting
During 1997, the Financial Accounting Standards Board issued SFAS 131
("Disclosures about Segments of an Enterprise and Related Information") which is
effective for periods beginning after 15 December 1997. SFAS 131 establishes
standards for the way companies must determine and report information about
operating segments. Telecom has two reportable segments: Wireline and Wireless.
The Wireline segment comprises all basic and value-added voice telephony, and
data services. These services include the provision and maintenance of basic
connections between the customers premises and the public switched network,
voice telephony calls originating on fixed lines (Local, National, International
and Other Calling), value added services such as call waiting and voice
messaging, data transmission services, directory services, dedicated leased
lines, Internet services and offering interconnection to other service
providers. The Wireless segment includes a full range of wireless based
telecommunications services including the provision of, connection to, and usage
of the cellular and paging networks. Operating segments included within the "all
other" category generate revenue by developing software, supplying equipment and
providing a network design, build and maintenance service. These other segments
do not meet the quantitative thresholds for determining reportable segments.
Telecom's reportable segments are aggregations of similar products and services.
This is a basis management uses for making operating decisions and assessing
performance. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies disclosed in Note 1
of Telecom's annual report.
The network design, build and maintenance segment charges the Wireline and
Wireless segments for the provision of services. Other intersegment revenue
relates to internal telecommunications services charges. The Company generally
accounts for intersegment sales of products and services at current market
prices.
In each of the last three fiscal years ended 31 March, and the three months
ended 30 June 1999, more than 90% of the Group's total operating revenues,
operating earnings and identifiable assets were generated by operations in New
Zealand.
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6
The table below summarises reportable segment surplus and segment assets as at
and for the years ended 31 March and three months ended 30 June 1999.
<TABLE>
<CAPTION>
Eliminations/
Wireline Wireless All Other Adjustments Consolidated
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(Dollars in millions) NZ$ NZ$ NZ$ NZ$ NZ$
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<S> <C> <C> <C> <C> <C>
Revenues from external customers (before abnormal items)
30 June 1999 684 130 34 - 848
31 March 1999 2,881 477 76 - 3,434
31 March 1998 2,871 423 104 - 3,398
31 March 1997 2,669 316 98 - 3,083
Intersegment revenue
30 June 1999 1 1 41 (43) -
31 March 1999 8 11 184 (203) -
31 March 1998 7 9 249 (265) -
31 March 1997 7 7 234 (248) -
Depreciation
30 June 1999 106 22 2 6 136
31 March 1999 428 89 10 26 553
31 March 1998 381 83 13 87 564
31 March 1997 370 71 12 91 544
Segment surplus (before interest, taxation and abnormal items)
30 June 1999 287 50 10 2 a 349
31 March 1999 1,159 202 16 22 a 1,399
31 March 1998 1,189 200 23 (35)a 1,377
31 March 1997 1,084 147 (1) 1 a 1,231
Segment fixed assets
30 June 1999 3,199 530 34 11 b 3,774 c
31 March 1999 3,219 518 32 11 b 3,780 c
31 March 1998 3,192 509 40 52 b 3,793 c
31 March 1997 3,066 482 54 161 b 3,763 c
</TABLE>
The above information is for the years ended 31 March except for the 30 June
1999 information which is for a three month period.
(a) Included within this column is the results of the Corporate office (net of
a recovery from operating segments) whose activities are only incidental to
the activities of Telecom. The Corporate office is not considered an
operating segment under SFAS 131.
(b) The adjustment/elimination for segment fixed assets relates primarily to
Corporate office fixed assets net of the elimination of internal margins on
assets constructed by the network design, build and maintenance service.
(c) Reconciliation to Segment Assets:
<TABLE>
<CAPTION>
As at 31 March As at 30 June
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1997 1998 1999 1999
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(Dollars in millions) NZ$ NZ$ NZ$ NZ$
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<S> <C> <C> <C> <C>
Fixed assets - reportable segments 3,602 3,741 3,769 3,763
Fixed assets - eliminations/adjustments 161 52 11 11
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Group fixed assets 3,763 3,793 3,780 3,774
Other assets 855 1,372 1,595 1,468
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Total group assets 4,618 5,165 5,375 5,242
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</TABLE>
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7
Item 19 - Financial Statements and Exhibits
Financial Statements
1. The following Consolidated Financial Statements are incorporated herein by
reference from the Annual Report.
. Consolidated Statement of Financial Performance. See page 38 of the
Annual Report.
. Consolidated Statement of Financial Position. See page 39 of the Annual
Report.
. Consolidated Statement of Movements in Capital Funds. See page 40 of the
Annual Report.
. Consolidated Statement of Cash Flows. See page 41 of the Annual Report.
. Notes to the financial statements. See pages 45 to 79 of the Annual
Report.
2. The MD&A is incorporated herein by reference from pages 17 to 37 of the
Annual Report.
3. The report of PricewaterhouseCoopers Independent Accountants is filed
herewith. See F-1.
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Report of Independent Accountants
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To the Board of Directors and
Shareholders of Telecom Corporation of New Zealand Limited
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of financial performance, movements in
capital funds and cash flows present fairly, in all material respects, the
financial position of Telecom Corporation of New Zealand Limited and its
subsidiaries at June 30, 1999, and the results of their operations and their
cash flows for the three month period ended June 30, 1999, in conformity with
generally accepted accounting principles in New Zealand. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards in New Zealand, which have been
applied on a basis consistent with generally accepted auditing standards in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. Generally
accepted accounting principles in New Zealand vary in certain significant
respects from generally accepted accounting principles in the United States. The
application of the latter would have affected the determination of consolidated
net earnings expressed in New Zealand dollars for the three month period ended
June 30, 1999 and the determination of consolidated shareholders' funds, also
expressed in New Zealand dollars, at June 30, 1999 to the extent summarized in
Note 28 to the consolidated financial statements.
Wellington, New Zealand PricewaterhouseCoopers
August 12, 1999 Chartered Accountants
F-1
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Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorised.
TELECOM CORPORATION OF NEW ZEALAND LIMITED
By: /s/ Roderick Deane
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Dr Roderick Deane
Managing Director
Dated: 28 September 1999
