FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of November 2003
Commission File Number: 333-13580
Telefonos de Mexico, S.A.de C.V.
(Exact Name of the Registrant as Specified in the Charter)
Telephones of Mexico
(Translation of Registrant's Name into English)
Parque Via 190
Colonia Cuauhtemoc
Mexico City 06599, Mexico, D.F.
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F. Form
Form 20-F...X... Form 40-F......
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
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Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
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Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No..X..
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
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Report dated November 21, 2003
[TELMEX LOGO]
Telefonos de Mexico, S.A. de C.V.
We have prepared this report to provide our investors with disclosure
regarding recent developments in our business and results of operation for the
nine months ended September 30, 2003.
The information in this report updates information contained in our
annual report on Form 20-F for the year ended December 31, 2002 (File No.
1-10749), filed with the Securities and Exchange Commission on June 25, 2003.
The financial information appearing in this report is derived from our
interim financial statements. Our financial statements are prepared in
accordance with generally accepted accounting principles in Mexico, or Mexican
GAAP, which differ in certain respects from U.S. GAAP. Mexican GAAP requires
restatement of all financial statements in constant Mexican pesos as of the date
of the most recent balance sheet presented. All financial information presented
in this report is accordingly stated in constant pesos with purchasing power as
of September 30, 2003.
As a result of Mexican inflation during the first nine months of 2003,
the purchasing power of one peso as of December 31, 2002 is equivalent to the
purchasing power of 1.0230 pesos as of September 30, 2003. Accordingly, the
unaudited condensed consolidated interim financial statements and financial
information appearing in this report are not directly comparable to our audited
financial statements contained in our 2002 Form 20-F, because they are stated in
constant pesos as of different dates.
This report contains forward-looking statements. Forward-looking
statements involve inherent risks and uncertainties. We caution you that a
number of important factors could cause actual results to differ materially from
the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements. For information on factors that could cause our
actual results to differ from expectations reflected in forward-looking
statements, see "Item 3-Key Information-Risk Factors" in our 2002 Form 20-F.
RECENT DEVELOPMENTS
Results of Operations for the Nine-Months Ended September 30, 2003 and 2002
The following discussion should be read in conjunction with our
audited consolidated financial statements and "Item 5--Operating and Financial
Review and Prospects" contained in our 2002 Form 20-F and our unaudited
condensed consolidated interim financial statements contained in this report.
Our financial statements are prepared in accordance with Mexican GAAP, which
differ in certain respects from U.S. GAAP. See Note 18 to our audited
consolidated financial statements and Note 13 to our unaudited condensed
consolidated interim financial statements.
Summary of Operating and Net Income
In the table below we set forth our operating revenues, operating
costs and expenses (each expressed as a percentage of total operating revenues)
and operating income as well as our comprehensive financing cost, provisions and
net income for the first nine months of 2003 and 2002.
Nine-months ended September 30,
----------------------------------------------------------------------------------
2002 2003
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(millions of constant (percentage of (millions of constant (percentage of
pesos as of operating pesos as of operating
September 30, 2003 revenues) September 30, 2003) revenues)
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Operating revenues
Local service........................... Ps. 40,677 47.7% Ps. 39,885 46.8%
Domestic long distance service.......... 21,941 25.7 22,520 26.4
International long distance service..... 7,578 8.9 6,399 7.5
Interconnection service................. 11,719 13.7 12,978 15.2
Other................................... 3,386 4.0 3,485 4.1
----------- ----------- ----------- -----------
Total operating revenues............ 85,301 100.0 85,267 100.0
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of sales and services.............. 19,461 22.8 19,845 23.3
Commercial, administrative and general.. 12,194 14.3 12,803 15.0
Interconnection......................... 8,685 10.2 9,103 10.7
Depreciation and amortization........... 15,474 18.1 14,969 17.5
----------- ----------- ----------- -----------
Total operating costs and expenses.. 55,814 65.4 56,720 66.5
----------- ----------- ----------- -----------
Operating income........................... 29,487 34.6% 28,547 33.5%
----------- ----------- ----------- -----------
Comprehensive financing cost:
Interest income......................... (816) (2,578)
Interest expense........................ 4,843 4,310
Exchange loss, net...................... 3,903 2,128
Monetary gain, net...................... (2,164) (1,062)
----------- -----------
5,766 2,798
----------- -----------
Income before income tax and employee
profit sharing.......................... 23,721 25,749
Provisions for:
Income tax.............................. 6,654 7,244
Employee profit sharing................. 2,304 1,775
----------- -----------
8,958 9,019
----------- -----------
Income before equity in results of
affiliates.............................. 14,763 16,730
Equity in results of affiliates............ (150) (137)
----------- -----------
Net Income................................. Ps. 14,613 Ps. 16,593
=========== ===========
Local Service Revenues
Revenues from local service in the first nine months of 2003 decreased
by 1.9% compared with the same period in 2002. The decrease was attributable to
lower real rates, partly offset by the increase in the use of the digital
services by our customers and the increase in lines in service, which totaled
15,356 thousand at September 30, 2003, compared to 14,158 thousand at September
30, 2002.
Domestic Long Distance Revenue
Revenues from domestic long distance in the first nine months of 2003
increased by 2.6% as compared to the same period of 2002. The increase was due
to increased traffic and growth in demand for Internet services, partly offset
by lower real rates. The number of billed minutes increased by 9.4% to 11,613
million in the first nine months of 2003 from 10,616 million in the first nine
months of 2002.
International Long Distance Revenues
Revenues from international long distance for the first nine months of
2003 decreased by 15.5% compared to the same period in 2002. Billed minutes
declined by 22.5% to 3,108 million in the first nine months of 2003 compared to
4,010 million in the first nine months of 2002. The decrease was primarily due
to lower incoming billed traffic, which we believe is attributable to illegal
bypass practice, and lower growth in traffic billed in Mexico.
Revenues from Interconnection
Revenues from interconnection in the first nine months of 2003
increased by 10.7% compared to the same period in 2002. This increase was due to
growth in "calling party pays" minutes and greater minutes billed from long
distance carriers.
Other Revenues
Other revenues in the first nine months of 2003 increased by 2.9%
compared to the same period in 2002. The increase was principally due to higher
sales of telecommunications equipment and accessories, which was partly offset
by lower revenues from yellow pages advertising and sales of unused materials.
Operating Costs and Expenses
Operating costs in the first nine months of 2003 were 1.6% higher than
in the first nine months of 2002. Cost of sales and services was 2.0% higher,
due to increased pension and seniority premiums, a higher volume of sales of
telecommunications equipment and accessories and increased electricity rates.
Commercial, administrative and general expenses were 5.0% higher due to
increased expenses related to increased statutory social security contributions,
collections and marketing. Interconnection cost increased 4.8% due primarily to
the increase of traffic from our network to the network of cellular operators as
a result of the growth in the number of cellular users. Depreciation and
amortization was 3.3% lower due to lower depreciable assets, as the rate of our
investment has slowed and an increased proportion of our assets has fully
depreciated.
Comprehensive Financing Cost
For the first nine months of 2003, comprehensive financing cost was
Ps.2,798 million compared to Ps.5,766 million for the same period in 2002.
Interest income increased by 215.9% primarily due to an unrealized gain of
Ps.1,697 million on our investment in bonds of MCI, Inc. (MCI). Interest expense
decreased by 11.0% principally because in the first nine months of 2002 we
recognized a charge of Ps.216 million under our swap contracts and had an
unrealized loss of Ps.1,247 million on marketable securities (including
unrealized losses of Ps.115 million on MCI bonds and Ps.670 million on MCI
shares), while in the first nine months of 2003, as a result of a decrease in
average interest rates, we recognized a charge of Ps.293 million under our swap
contracts and an additional charge of Ps.947 million related to our replacement
of peso-denominated interest-rate swaps for swaps with more attractive terms. We
recognized a lower exchange rate loss, as the peso depreciated less against the
U.S. dollar during the nine-month period. The net gain from monetary position
was 50.9% lower than in the same period in 2002 due to lower inflation and a
smaller net monetary position.
Income Tax and Employee Profit Sharing
The combined rate of provisions for income tax and employee
profit-sharing in the first nine months of 2003 was 35.0%, compared to 40.2% for
the full year 2002. The reduction in the rate resulted mainly from increased
deductible contributions made to our pension plan.
Share Purchase Program
We have continued our share purchase program. In 2002, we purchased
386.4 million L shares for an aggregate consideration of Ps.6,326 million and
1.4 million A shares for Ps.21 million. The shares purchased in 2002 decreased
our capital stock by Ps.620 million and retained earnings by Ps.5,727 million.
In 2003 through November 9, we purchased 553.4 million L shares for an aggregate
consideration of Ps.9,191 million and 3.6 million A shares for Ps.61 million. As
of November 9, 2003, our share purchases in 2003 have decreased our capital
stock by Ps.909 million and retained earnings by Ps.8,343 million.
Pension Funding
In 2003, we are making tax-deductible additional contributions to the
Telmex pension fund, based on changes in the actuarial value of our future
pension obligations. We contributed Ps.4.0 billion in cash in January 2003, and
we plan to contribute Ps.3.7 billion in cash in December 2003. We are not
required to make these contributions, but we are permitted to deduct them for
tax purposes when certain actuarial and legal conditions are met. We currently
expect such additional contributions in 2004 to be at a lower level than in
2003.
Capital Expenditures
Our capital expenditures were Ps.4,669 million in the first nine
months of 2003, and we anticipate that our total capital expenditures for 2003
will be consistent with or slightly lower than the budgeted U.S.$1.1 billion.
For 2004, we anticipate that our capital expenditures will be approximately
U.S.$1.5 billion. Our budgeted amount excludes any other investments we may make
in other companies. For subsequent years, our capital expenditures will depend
on the state of the Mexican economy and market conditions.
Rates
In August 2003, we announced that we would not increase rates for any
of our services during 2004.
Indebtedness
In 2003, we have sought to reduce our indebtedness and use swaps to
manage the profile of our outstanding debt. At September 30, 2003, we had total
indebtedness of Ps.59,553 million representing a decrease of 10.0% compared to
December 31, 2002. This decrease is due to the prepayment of approximately
U.S.$727 million in outstanding debt, the repurchase of U.S.$190 million of our
convertible debentures and the repayment of approximately Ps.3,915 million in
maturing debt in 2003. At September 30, 2003, foreign currency-denominated debt
comprised 82.3% of our total indebtedness and hedging instruments covered
U.S.$880 million of our total indebtedness. From September 30 to November 9,
2003, our long-term debt increased by approximately Ps.1,600 million due to new
debt incurred in connection with investment in our plant.
Our long-term debt further increased in November upon the sale of an
aggregate principal amount of U.S.$1 billion in senior notes due in 2008 bearing
interest at 4.50%. The senior notes were sold pursuant to a private placement
that closed on November 19, 2003. We intend to use the proceeds of the senior
notes for general corporate purposes, including funding working capital and
capital expenditures, contributing to the Telmex pension fund and repaying
maturing debt.
Included in our foreign-denominated indebtedness are convertible
debentures that bear interest at 4.25% and mature in June 2004. During the third
quarter of 2003, we repurchased a total of U.S.$190 million of these convertible
debentures in the open market. We also purchased U.S.$1.2 million of additional
debentures in a tender offer that expired on November 6, 2003 for a total of
approximately U.S.$1.3 million. As a result, the outstanding principal amount of
debentures is U.S.$809 million. We may continue to repurchase the debentures in
the future if they can be purchased at attractive prices. The conversion price
of the debentures is U.S.$29.5762 per L Share American Depositary Share (or
ADS), and the ADSs have regularly traded above that price in recent months.
Acquisition of AT&T Latin America
We have agreed to purchase substantially all of the assets of AT&T
Latin America Corp., which is a provider of telecommunications services to
corporate customers in Argentina, Brazil, Chile, Colombia and Peru. AT&T Latin
America is in reorganization under Chapter 11 of the U.S. Bankruptcy Code, and
the bankruptcy court approved the sale on November 3, 2003. Subject to certain
contractual adjustments, the purchase price is U.S.$171 million in cash, and we
will assume U.S.$36 million of indebtedness. The transaction is subject to the
satisfaction of conditions precedent and the receipt of regulatory approvals,
and is expected to close during the first quarter of 2004.
Certain Investments
We have invested in equity securities and several series of bonds
issued by MCI, a U.S.-based telecommunications company that is in Chapter 11
proceedings under the U.S. Bankruptcy Code. As of September 30, 2003, we held
approximately U.S.$1,759 million in face amount of the bonds, with a market
value of approximately U.S.$580 million at such date. On October 31, 2003, the
bankruptcy court approved a plan of reorganization for MCI. Under the plan, we
expect to receive common stock of MCI in exchange for our bonds. The amount of
stock we receive will depend on a number of factors, including the amount of
other valid claims and the elections made by other creditors. Based on our
current holdings, and assuming that the plan of reorganization does not change,
we estimate that if the reorganization were implemented today, we would receive
an amount of common stock equal to approximately 7% of the total common stock of
MCI.
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.
TELEFONOS DE MEXICO, S.A. DE C.V.
Date: November 21, 2003 By: /s/ Adolfo Cerezo Perez
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Name: Adolfo Cerezo Perez
Title: Chief Financial Officer