(Millions of euros) | Note | 12/31/2009 (*) | 12/31/2008 | |||||||||
A) NON-CURRENT ASSETS |
84,311 | 81,923 | ||||||||||
Intangible assets |
6 | 15,846 | 15,921 | |||||||||
Goodwill |
6 | 19,566 | 18,323 | |||||||||
Property, plant and equipment |
6 | 31,999 | 30,545 | |||||||||
Investment properties |
5 | 1 | ||||||||||
Investments in associates |
7 | 4,936 | 2,777 | |||||||||
Non-current financial assets |
9 | 5,988 | 7,376 | |||||||||
Deferred tax assets |
5,971 | 6,980 | ||||||||||
B) CURRENT ASSETS |
23,830 | 17,973 | ||||||||||
Inventories |
934 | 1,188 | ||||||||||
Trade and other receivables |
10,622 | 9,315 | ||||||||||
Current financial assets |
9 | 1,906 | 2,216 | |||||||||
Tax receivables |
1,246 | 970 | ||||||||||
Cash and cash equivalents |
9 | 9,113 | 4,277 | |||||||||
Non-current assets held for sale |
9 | 7 | ||||||||||
TOTAL ASSETS (A + B) |
108,141 | 99,896 | ||||||||||
A) EQUITY |
24,274 | 19,562 | ||||||||||
Equity attributable to equity holders of the parent |
8 | 21,734 | 17,231 | |||||||||
Minority interests |
2,540 | 2,331 | ||||||||||
B) NON-CURRENT LIABILITIES |
56,931 | 55,202 | ||||||||||
Interest-bearing debt |
9 | 47,607 | 45,088 | |||||||||
Trade and other payables |
1,249 | 1,117 | ||||||||||
Deferred tax liabilities |
3,082 | 3,576 | ||||||||||
Provisions |
4,993 | 5,421 | ||||||||||
C) CURRENT LIABILITIES |
26,936 | 25,132 | ||||||||||
Interest-bearing debt |
9 | 9,184 | 8,100 | |||||||||
Trade and other payables |
14,023 | 13,651 | ||||||||||
Current tax payables |
2,766 | 2,275 | ||||||||||
Provisions |
963 | 1,106 | ||||||||||
TOTAL EQUITY AND LIABILITIES (A+B+C) |
108,141 | 99,896 | ||||||||||
(*) | Unaudited |
-2-
Six months ended | ||||||||||||||||||||
December (*) | Year ended December (*) | |||||||||||||||||||
(Millions of euros) | Note | 2009 | 2008 | 2009 (*) | 2008 | |||||||||||||||
Revenues from operations |
5 | 29,166 | 29,797 | 56,731 | 57,946 | |||||||||||||||
Other income |
1,144 | 957 | 1,645 | 1,865 | ||||||||||||||||
Supplies |
(8,694 | ) | (9,156 | ) | (16,717 | ) | (17,818 | ) | ||||||||||||
Personnel expenses |
(3,517 | ) | (3,373 | ) | (6,775 | ) | (6,762 | ) | ||||||||||||
Other expenses |
(6,396 | ) | (6,429 | ) | (12,281 | ) | (12,312 | ) | ||||||||||||
OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION (OIBDA) |
5 | 11,703 | 11,796 | 22,603 | 22,919 | |||||||||||||||
Depreciation and amortization |
5 | (4,549 | ) | (4,525 | ) | (8,956 | ) | (9,046 | ) | |||||||||||
OPERATING INCOME |
5 | 7,154 | 7,271 | 13,647 | 13,873 | |||||||||||||||
Share of profit (loss) of associates |
17 | (157 | ) | 47 | (161 | ) | ||||||||||||||
Finance income |
474 | 402 | 814 | 827 | ||||||||||||||||
Exchange gains |
422 | 3,378 | 3,085 | 6,189 | ||||||||||||||||
Finance expenses |
(2,020 | ) | (1,819 | ) | (3,581 | ) | (3,648 | ) | ||||||||||||
Exchange losses |
(730 | ) | (3,370 | ) | (3,625 | ) | (6,165 | ) | ||||||||||||
Net financial result |
(1,854 | ) | (1,409 | ) | (3,307 | ) | (2,797 | ) | ||||||||||||
PROFIT BEFORE TAX FROM
CONTINUING OPERATIONS |
5,317 | 5,705 | 10,387 | 10,915 | ||||||||||||||||
Corporate income tax |
(896 | ) | (1,569 | ) | (2,450 | ) | (3,089 | ) | ||||||||||||
PROFIT FOR THE PERIOD FROM
CONTINUING OPERATIONS |
4,421 | 4,136 | 7,937 | 7,826 | ||||||||||||||||
Profit after taxes from discontinued operations |
| | | | ||||||||||||||||
PROFIT FOR THE PERIOD |
4,421 | 4,136 | 7,937 | 7,826 | ||||||||||||||||
Minority interests |
(97 | ) | (137 | ) | (161 | ) | (234 | ) | ||||||||||||
PROFIT FOR THE PERIOD ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT |
4,324 | 3,999 | 7,776 | 7,592 | ||||||||||||||||
Basic and diluted earnings per share attributable to
equity holders of the parent (euros) |
0.95 | 0.86 | 1.71 | 1.63 | ||||||||||||||||
(*) | Unaudited |
-3-
Year ended December 31 | ||||||||
(Millions of euros) | 2009 (*) | 2008 | ||||||
Profit for the year |
7,937 | 7,826 | ||||||
Other comprehensive income |
||||||||
Gain (loss) on measurement of available-for-sale investments |
638 | (1,167 | ) | |||||
Reclassification of gain/(losses) included in the income statement |
(4 | ) | (142 | ) | ||||
Income tax |
(105 | ) | 281 | |||||
529 | (1,028 | ) | ||||||
Gains (loss) on hedges |
(794 | ) | 1,302 | |||||
Reclassification of gain/(losses) included in the income statement |
(77 | ) | 50 | |||||
Income tax |
262 | (402 | ) | |||||
(609 | ) | 950 | ||||||
Currency translation differences |
1,982 | (4,051 | ) | |||||
Actuarial gains and losses and impact of limit on assets for defined benefit pension plans |
(189 | ) | (182 | ) | ||||
Income tax |
53 | 55 | ||||||
(136 | ) | (127 | ) | |||||
Share of income (loss) recognized directly in equity of associates |
233 | (59 | ) | |||||
Income tax |
2 | (13 | ) | |||||
235 | (72 | ) | ||||||
Total other comprehensive income |
2,001 | (4,328 | ) | |||||
Total comprehensive income recognized in the year |
9,938 | 3,498 | ||||||
Attributable to: |
||||||||
Equity holders of the parent |
9,418 | 3,612 | ||||||
Minority interests |
520 | (114 | ) | |||||
9,938 | 3,498 | |||||||
(*) | Unaudited |
-4-
Attributable to equity holders of the parent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
No. of | Share | Share | Legal | Revaluation | Treasury | Retained | Available-for- | Equity of | Translation | Minority | Total | |||||||||||||||||||||||||||||||||||||||||||||
(Millions of euros) | shares | capital | premium | reserve | reserve | shares | earning | sale investments | Hedges | associates | differences | Total | interests | equity | ||||||||||||||||||||||||||||||||||||||||||
Financial position at December 31,
2007 |
4,773,496,485 | 4,773 | 522 | 984 | 180 | (232 | ) | 13,025 | 457 | 463 | (144 | ) | 97 | 20,125 | 2,730 | 22,855 | ||||||||||||||||||||||||||||||||||||||||
Profit for the year |
| | | | | | 7,592 | | | | | 7,592 | 234 | 7,826 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | (127 | ) | (1,023 | ) | 950 | (72 | ) | (3,708 | ) | (3,980 | ) | (348 | ) | (4,328 | ) | |||||||||||||||||||||||||||||||||||
Total comprehensive income |
7,465 | (1,023 | ) | 950 | (72 | ) | (3,708 | ) | 3,612 | (114 | ) | 3,498 | ||||||||||||||||||||||||||||||||||||||||||||
Dividends paid |
| | | | | | (4,165 | ) | | | | | (4,165 | ) | (333 | ) | (4,498 | ) | ||||||||||||||||||||||||||||||||||||||
Net movement in treasury shares |
| | 1,074 | | | (3,151 | ) | (232 | ) | | | | | (2,309 | ) | | (2,309 | ) | ||||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of
minority interests |
| | | | | | | | | | | | (42 | ) | (42 | ) | ||||||||||||||||||||||||||||||||||||||||
Capital decrease |
(68,500,000 | ) | (68 | ) | (1,136 | ) | | | 1,204 | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Other movements |
| | | | (8 | ) | | (24 | ) | | | | | (32 | ) | 90 | 58 | |||||||||||||||||||||||||||||||||||||||
Financial position at December 31,
2008 |
4,704,996,485 | 4,705 | 460 | 984 | 172 | (2,179 | ) | 16,069 | (566 | ) | 1,413 | (216 | ) | (3,611 | ) | 17,231 | 2,331 | 19,562 | ||||||||||||||||||||||||||||||||||||||
Profit for the year |
| | | | | | 7,776 | | | | | 7,776 | 161 | 7,937 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
| | | | | | (136 | ) | 527 | (609 | ) | 235 | 1,625 | 1,642 | 359 | 2,001 | ||||||||||||||||||||||||||||||||||||||||
Total comprehensive income |
7,640 | 527 | (609 | ) | 235 | 1,625 | 9,418 | 520 | 9,938 | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid |
| | | | | | (4,557 | ) | | | | | (4,557 | ) | (295 | ) | (4,852 | ) | ||||||||||||||||||||||||||||||||||||||
Monetary adjustment at 1 January 2009 |
| | | | | | | | | | 613 | 613 | | 613 | ||||||||||||||||||||||||||||||||||||||||||
Net movement in treasury shares |
| | | | | (656 | ) | | | | | | (656 | ) | | (656 | ) | |||||||||||||||||||||||||||||||||||||||
Acquisitions and disposals of
minority interests |
| | | | | | | | | | | | (122 | ) | (122 | ) | ||||||||||||||||||||||||||||||||||||||||
Capital decrease |
(141,000,000 | ) | (141 | ) | | | | 2,308 | (2,167 | ) | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Other movements |
| | | | (15 | ) | | (300 | ) | | | | | (315 | ) | 106 | (209 | ) | ||||||||||||||||||||||||||||||||||||||
Financial position at December 31,
2009 |
4,563,996,485 | 4,564 | 460 | 984 | 157 | (527 | ) | 16,685 | (39 | ) | 804 | 19 | (1,373 | ) | 21,734 | 2,540 | 24,274 | |||||||||||||||||||||||||||||||||||||||
-5-
Year ended December 31 | ||||||||
(Millions of euros) | 2009 (*) | 2008 | ||||||
Cash received from customers |
67,358 | 69,060 | ||||||
Cash paid to suppliers and employees |
(46,198 | ) | (48,500 | ) | ||||
Dividends received |
100 | 113 | ||||||
Net interest and other financial expenses paid |
(2,170 | ) | (2,894 | ) | ||||
Taxes paid |
(2,942 | ) | (1,413 | ) | ||||
Net cash from operating activities |
16,148 | 16,366 | ||||||
Proceeds on disposals of property, plant and equipment and intangible assets |
242 | 276 | ||||||
Payments on investments in property, plant and equipment and intangible assets |
(7,593 | ) | (7,889 | ) | ||||
Proceeds on disposals of companies, net of cash and cash equivalents disposed |
34 | 686 | ||||||
Payments on investments in companies, net of cash and cash equivalents acquired |
(48 | ) | (2,178 | ) | ||||
Proceeds on financial investments not included under cash equivalents |
6 | 31 | ||||||
Payments made on financial investments not included under cash equivalents |
(1,411 | ) | (114 | ) | ||||
Net flows on cash surpluses not included under cash equivalents |
(548 | ) | 76 | |||||
Government grants received |
18 | 11 | ||||||
Net cash used in investing activities |
(9,300 | ) | (9,101 | ) | ||||
Dividends paid |
(4,838 | ) | (4,440 | ) | ||||
Transactions with equity holders |
(947 | ) | (2,241 | ) | ||||
Proceeds on issue of debentures and bonds |
8,617 | 1,317 | ||||||
Proceeds on loans, receivables and promissory notes |
2,330 | 3,693 | ||||||
Cancellation of debentures and bonds |
(1,949 | ) | (1,167 | ) | ||||
Repayments of loans, credits and promissory notes |
(5,494 | ) | (4,927 | ) | ||||
Net cash used in financing activities |
(2,281 | ) | (7,765 | ) | ||||
Effect of foreign exchange rate changes on collections and payments |
269 | (302 | ) | |||||
Effect of changes in consolidation methods and other non-monetary effects |
| 14 | ||||||
Net increase (decrease) in cash and cash equivalents during the period |
4,836 | (788 | ) | |||||
Cash and cash equivalents at January 1 |
4,277 | 5,065 | ||||||
CASH AND CASH EQUIVALENTS AT DECEMBER 31 |
9,113 | 4,277 | ||||||
Reconciliation of cash and cash equivalents with the statement of financial
position |
||||||||
BALANCE AT JANUARY 1 |
4,277 | 5,065 | ||||||
Cash on hand and at banks |
3,236 | 2,820 | ||||||
Other cash equivalents |
1,041 | 2,245 | ||||||
BALANCE AT DECEMBER 31 |
9,113 | 4,277 | ||||||
Cash on hand and at banks |
3,830 | 3,236 | ||||||
Other cash equivalents |
5,283 | 1,041 | ||||||
(*) | Unaudited |
-6-
(1) | INTRODUCTION AND GENERAL INFORMATION |
|
Telefónica Group organizational structure |
||
Telefónica, S.A. and its subsidiaries and investees make up an integrated group of companies (the
Telefónica Group, Telefónica, or the Group) operating mainly in the telecommunications, media
and contact center industries. |
||
The parent company of this Group is Telefónica, S.A. (the Company), incorporated on April 19,
1924. Its registered office is at calle Gran Vía 28, Madrid (Spain). |
||
Corporate structure of the Group |
||
Telefónicas basic corporate purpose, pursuant to Article 4 of its by-laws, is the provision of all
manner of public or private telecommunications services, including ancillary or complementary
telecommunications services or related services. All the business activities that constitute this
stated corporate purpose may be performed either in Spain or abroad and wholly or partially by the
Company, either through shareholdings or equity interests in other companies or legal entities with
an identical or a similar corporate purpose. |
||
The Telefónica Group follows a regional, integrated management model based on three business areas
by geographical market and integrated wireline and wireless businesses: |
| Telefónica Spain |
||
| Telefónica Latin America |
||
| Telefónica Europe |
The business activities carried out by most of the Telefónica Group companies are regulated by
broad-ranging legislation, pursuant to which permits, concessions or licenses must be obtained in
certain circumstances to provide the different services. |
||
In addition, certain wireline and wireless telephony services are provided under regulated rate and
price systems. |
(2) | BASIS OF PRESENTATION OF THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
|
The interim condensed consolidated financial statements for the six months ended December 31, 2009
(the interim financial statements) have been prepared in accordance with International Accounting
Standard (IAS) 34 Interim Financial Reporting and Article 12 of Royal Decree
1362/2007. Therefore,
they do not contain all the information and disclosures required in complete annual consolidated
financial statements and, for adequate interpretation, and should
be read in conjunction with the consolidated annual financial statements for the year ended
December 31, 2008. |
-7-
The accompanying interim financial statements were approved by the Companys Board of Directors at
its meeting on February 24, 2010. |
||
Unless indicated otherwise, the figures in these interim financial statements are expressed in
millions of euros and rounded. |
(3) | COMPARATIVE INFORMATION |
|
For comparative purposes, the accompanying interim financial statements include figures for 2008. |
||
The accompanying consolidated statement of comprehensive income and the consolidated statement of
changes in equity for the year ended December 31, 2009 are presented in accordance with the revised
IAS 1 Presentation of financial statements (see Note 4). Accordingly, the information presented
for the year ended December 31, 2008 has been adapted to this revision, and, therefore, differs
from the information contained in the approved 2008 consolidated financial statements. |
||
The main changes in the consolidation scope affecting comparability of the consolidated information
for 2009 and 2008 (see Appendix I for a more detailed explanation of the changes in consolidation
scope in 2008) are as follows: |
||
2009 |
| That the 2008 figures should not be restated. |
||
| Adjustment of the historical cost of non-monetary assets and liabilities and the
various items of equity of these companies from the date of acquisition or inclusion
in the consolidated statement of financial position to the end of the year for the
changes in purchasing power of the currency caused by inflation.
|
||
The cumulative impact of the accounting restatement to adjust for the effects of
hyperinflation for years prior to 2009 is shown in translation differences at the
beginning of the 2009 financial year. |
-8-
| Adjustment the income statement to reflect the financial loss caused by the impact
of inflation in the year on net monetary assets (loss of purchasing power). |
||
| Adjustments of the various components in the income statement and statement of cash
flows for the general price index from the dates the components were contributed or
arose, with a balancing entry in net financial results and an offsetting item in the
statement of cash flows, respectively. |
||
| All components of the financial statements of the Venezuelan companies have been
translated at the closing exchange rate, which at December 31, 2009 was 2.15 bolivars
per dollar (3.1 bolivars per euro). |
Millions of euros | ||||
Revenue |
267 | |||
OIBDA |
64 | |||
Net profit (loss) |
(548 | ) | ||
Translation differences |
1,224 | |||
Impact on equity |
676 |
-9-
2008 |
-10-
(4) | ACCOUNTING POLICIES |
|
The accounting policies applied in the preparation of the interim financial statements for the six
months ended and year ended December 31, 2009 are consistent with those used in the preparation of
the Groups consolidated annual financial statements for the year ended December 31, 2008, except
for the adoption of new standards, amendments to standards and interpretations published by the
International Accounting Standards Board (IASB) and the International Financial Reporting
Interpretations Committee (IFRIC), and adopted by the European Union, effective as of January 1,
2009, noted below: |
| Amendment to IAS 23, Borrowing costs (revised) |
||
The amendment consists of the elimination of the possibility to immediately recognize in
profit or loss the borrowing costs related to the production or development of qualifying
assets. This amendment has had no impact on the accounting policies applied by Telefónica. |
|||
| Amendment to IAS 1, Presentation of Financial Statements (revised) |
||
The revised Standard separates owner from non-owner changes in equity. The statement of
changes in equity includes only details of transaction with owners, with non-owners changes
are presented as a single line. In addition, the Standard introduces the statement of
comprehensive income which can be presented in one single statement or in two linked
statements. Telefónica has elected to present two statements. This change is not mandatory,
but Telefónica has decided to use the proposed titles, which are: |
| Statement of financial position, instead of balance sheet |
||
| Income statement |
||
| Statement of comprehensive income, instead of statement of recognized income
and expense |
||
| Statement of changes in equity instead of movements in equity |
||
| Cash flow statement |
| Amendment to IFRS 2, Share-based Payment: Vesting Conditions and Cancellations |
||
This amendment clarifies the definition of vesting conditions and prescribes the
accounting treatment of an award that is cancelled because a non-vesting condition is not
met. The adoption of this amendment has not had any impact on the financial position or
results of the Group. |
-11-
| Amendments to IAS 32, Financial Instruments: Presentation and IAS 1 Presentation of
Financial Statements Puttable Financial Instruments and Obligations Arising on
Liquidation |
||
These amendments include a limited scope exemption for puttable financial instruments to be
classified as equity if they fulfill specified criteria. The adoption of these amendments
did not have any impact on the financial position or results of the Group. |
|||
| Improvements to IFRSs (May 2008) |
||
These improvements establish a broad amount of amendments to current IFRSs with the aim of
removing inconsistencies and clarifying wording. These improvements did not have any impact
on the financial position or results of the Group. |
|||
| Amendments to IFRS 7, Financial Instruments |
||
This amendment enhances the disclosure required about fair value measurements and
liquidity risk. In addition, it introduces a three-level hierarchy of fair value
measurement and the requirement to disclose any kind of change in the method of measuring
fair value and the reasons behind it. The adoption of this amendment has not had any impact
on the financial position or results of the Group. |
|||
| Amendments to IAS 39 and IFRIC 9, Embedded derivatives |
||
These amendments clarify the impact that a reclassification of a financial asset out
of the fair value through profit or loss category has on the assessment of whether an
embedded derivative shall be separated from its host contract. Additionally, it prohibits
the reclassification when the embedded derivative is not subject to a separate valuation
upon the moment of reclassification of a hybrid contract out of the aforementioned
category. The adoption of this amendment has not had any impact on the financial position
or results of the Group. |
|||
| IFRIC 12, Service concession arrangements |
||
This interpretation establishes the accounting criteria for the treatment by the operator
of the rights acquired and obligations assumed in service concession arrangements. The
adoption of this amendment has not had any impact on the financial position or results of
the Group. |
|||
| IFRIC 13, Customer loyalty programmes |
||
This interpretation establishes that entities that have programs which award points or
credits to their customers as the result of a commercial transaction, which in the future
will be redeemed for free or discounted products or services, must treat these points as
part of the commercial transaction that generates them. In other words, it is a transaction
with multiple components, combining the sale of the product or service itself and the sale
of points or credits, therefore such that a part of the amount earned must be allocated to
the points awarded and its recognition deferred until their redemption. The portion
corresponding to the points will be determined by reference to their fair value. The
adoption of this amendment has not had a significant impact on the financial position or
results of the Group. |
-12-
| IFRIC 15, Agreements for the Construction of Real Estate |
||
This interpretation refers to agreements for the construction of real estate and addresses
to related issues: it determines whether the construction of real estate is within the
scope of IAS 11, Construction Contracts, or IAS 18, Revenue and, when revenue from the
construction of real estate should be recognized. The adoption of this amendment has not
had any impact on the financial position or results of the Group. |
|||
| IFRIC 16, Hedges of a net investment in a foreign operation |
||
This interpretation establishes the criteria for the accounting of hedges of a net
investment in foreign operation, including the foreign currency risks that qualify for
hedge accounting in the hedge of a net investment, where within the group the hedging
instruments can be held and how an entity should determine the amount of foreign currency
gain or loss relating to both the hedging instrument and the hedged item that must be
recognized in profit or loss on disposal of the investment. The adoption of this amendment
has not had any impact on the financial position or results of the Group. |
|||
| IFRIC 18, Transfers of assets from customers |
||
This interpretation applies to deliveries of assets from customers as of July 1, 2009. This
interpretation establishes the criteria for accounting transactions in which an entity
receives from a customer an item of property, plant and equipment (or cash for their
acquisition or construction) that the entity must use either to connect the customer to a
network and/or to provide the customer with ongoing access to a supply of goods or
services. The adoption of this amendment has not had any impact on the financial position
or results of the Group. |
-13-
Mandatory application: | ||||
annual periods beginning on | ||||
Standards and amendments | or after | |||
IFRS 9
|
Financial instruments | January 1, 2013 | ||
Revised IFRS 3
|
Business combinations | July 1, 2009 | ||
Amendment to IAS 27
|
Consolidated and Separate Financial Statements | July 1, 2009 | ||
Improvements to IFRSs (April 2009)
|
January 1, 2010 (*) | |||
Revised IAS 24
|
Related Party Disclosures | January 1, 2011 | ||
Amendments to IAS 39
|
Eligible Hedged Items | July 1, 2009 | ||
Amendment to IFRS 2
|
Group cash-settled share-based payment transactions | January 1, 2010 | ||
Amendments to IAS 32
|
Classification of Rights Issues | February 1, 2010 |
(*) | The amendments to IFRS 2, IAS 38 (regarding intangible assets acquired in business combinations) IFRIC 9 and IFRIC 16 become effective
for all annual periods beginning on or after July 1, 2009. In addition, not effective date has been established for the additional
guidance to the appendix to IAS 18 for determining whether an entity is acting as a principal or as an agent, as this appendix does not
form part of the standard. |
Mandatory application: | ||||
annual periods beginning on | ||||
Interpretations | or after | |||
IFRIC 17
|
Distributions of non-cash assets to owners | July 1, 2009 | ||
IFRIC 19
|
Extinguishing financial liabilities with equity instruments | July 1, 2010 | ||
Amendment to IFRIC
14
|
Prepayment of minimum funding requirements | January 1, 2011 |
-14-
(5) | SEGMENT INFORMATION |
|
The following table presents profit and capital expenditure information regarding the Groups
operating segments for 2009 and 2008: |
Six months ended December 31, 2009 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
External sales |
9,739 | 11,934 | 6,935 | 558 | 29,166 | |||||||||||||||
Inter-segment sales |
207 | 103 | 27 | (337 | ) | | ||||||||||||||
Other operating income and expenses |
(5,027 | ) | (7,127 | ) | (4,931 | ) | (378 | ) | (17,463 | ) | ||||||||||
OIBDA (*) |
4,919 | 4,910 | 2,031 | (157 | ) | 11,703 | ||||||||||||||
Depreciation and amortization |
(1,073 | ) | (1,969 | ) | (1,444 | ) | (63 | ) | (4,549 | ) | ||||||||||
OPERATING INCOME |
3,846 | 2,941 | 587 | (220 | ) | 7,154 | ||||||||||||||
CAPITAL EXPENDITURES |
1,124 | 2,228 | 979 | 143 | 4,474 | |||||||||||||||
Six months ended December 31, 2008 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
External sales |
10,342 | 11,539 | 7,270 | 646 | 29,797 | |||||||||||||||
Inter-segment sales |
165 | 104 | 33 | (302 | ) | | ||||||||||||||
Other operating income and expenses |
(5,395 | ) | (7,029 | ) | (5,156 | ) | (421 | ) | (18,001 | ) | ||||||||||
OIBDA (*) |
5,112 | 4,614 | 2,147 | (77 | ) | 11,796 | ||||||||||||||
Depreciation and amortization |
(1,099 | ) | (1,864 | ) | (1,494 | ) | (68 | ) | (4,525 | ) | ||||||||||
OPERATING INCOME |
4,013 | 2,750 | 653 | (145 | ) | 7,271 | ||||||||||||||
CAPITAL EXPENDITURES |
1,157 | 2,536 | 1,216 | 42 | 4,951 | |||||||||||||||
Year ended December 31, 2009 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
External sales |
19,354 | 22,786 | 13,468 | 1,123 | 56,731 | |||||||||||||||
Inter-segment sales |
349 | 197 | 65 | (611 | ) | | ||||||||||||||
Other operating income and expenses |
(9,946 | ) | (13,840 | ) | (9,623 | ) | (719 | ) | (34,128 | ) | ||||||||||
OIBDA (*) |
9,757 | 9,143 | 3,910 | (207 | ) | 22,603 | ||||||||||||||
Depreciation and amortization |
(2,140 | ) | (3,793 | ) | (2,895 | ) | (128 | ) | (8,956 | ) | ||||||||||
OPERATING INCOME |
7,617 | 5,350 | 1,015 | (335 | ) | 13,647 | ||||||||||||||
CAPITAL EXPENDITURES |
1,863 | 3,450 | 1,728 | 216 | 7,257 | |||||||||||||||
Year ended December 31, 2008 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
External sales |
20,518 | 21,974 | 14,253 | 1,201 | 57,946 | |||||||||||||||
Inter-segment sales |
320 | 200 | 56 | (576 | ) | | ||||||||||||||
Other operating income and expenses |
(10,553 | ) | (13,729 | ) | (10,129 | ) | (616 | ) | (35,027 | ) | ||||||||||
OIBDA (*) |
10,285 | 8,445 | 4,180 | 9 | 22,919 | |||||||||||||||
Depreciation and amortization |
(2,239 | ) | (3,645 | ) | (3,035 | ) | (127 | ) | (9,046 | ) | ||||||||||
OPERATING INCOME |
8,046 | 4,800 | 1,145 | (118 | ) | 13,873 | ||||||||||||||
CAPITAL EXPENDITURES |
2,208 | 4,035 | 2,072 | 86 | 8,401 | |||||||||||||||
(*) | For the presentation of the segment reporting, revenue and expenses arising from the
use of the trademark and management services and that do not affect the Groups consolidated
results have been eliminated from the operating results of each segment. |
-15-
The following table compares segment assets, liabilities and investments in associates at
December 31, 2009 and 2008: |
At December 31, 2009 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
Investments in associates |
3 | 2,453 | | 2,480 | 4,936 | |||||||||||||||
Non-current assets |
14,082 | 25,016 | 26,962 | 1,351 | 67,411 | |||||||||||||||
Total allocated assets |
26,156 | 44,678 | 32,097 | 5,210 | 108,141 | |||||||||||||||
Total allocated liabilities |
13,363 | 22,862 | 6,435 | 41,207 | 83,867 | |||||||||||||||
At December 31, 2008 | ||||||||||||||||||||
Telefónica | Telefónica | Telefónica | Other and | Total | ||||||||||||||||
Millions of euros | Spain | Latin America | Europe | eliminations | Group | |||||||||||||||
Investments in associates |
99 | 107 | | 2,571 | 2,777 | |||||||||||||||
Non-current assets |
14,372 | 21,959 | 27,265 | 1,193 | 64,789 | |||||||||||||||
Total allocated assets |
32,273 | 37,942 | 32,726 | (3,045 | ) | 99,896 | ||||||||||||||
Total allocated liabilities |
20,754 | 21,998 | 6,420 | 31,162 | 80,334 | |||||||||||||||
(6) | INTANGIBLE ASSETS, PROPERTY, PLANT AND EQUIPMENT AND GOODWILL |
|
The movements in Intangible assets and Property, plant and equipment in 2009 are as follows: |
Intangible | Property, plant | |||||||||||
Millions of euros | assets | and equipment | Total | |||||||||
Opening balance at December 31, 2008 |
15,921 | 30,545 | 46,466 | |||||||||
Additions |
1,305 | 5,952 | 7,257 | |||||||||
Depreciation and amortization |
(2,861 | ) | (6,095 | ) | (8,956 | ) | ||||||
Decreases |
(3 | ) | (132 | ) | (135 | ) | ||||||
Changes in consolidation scope |
0 | 4 | 4 | |||||||||
Translation differences, monetary adjustment and other |
1,484 | 1,725 | 3,209 | |||||||||
Ending balance at December 31, 2009 |
15,846 | 31,999 | 47,845 | |||||||||
The movement in Goodwill in the year is as follows: |
Millions of euros | Goodwill | |||
Opening balance at December 31, 2008 |
18,323 | |||
Additions |
30 | |||
Retirements |
(209 | ) | ||
Translation differences and hyperinflation |
||||
adjustments |
1,422 | |||
Ending balance at December 31, 2009 |
19,566 | |||
Noteworthy is the impact of translation differences on these three headings caused by
fluctuations in the exchange rates of currencies of the countries where the Group operates. In
addition, the impact of recognizing Venezuela as a hyperinflationary economy (see Note 3) led to an
increase in goodwill of 713 million euros. |
-16-
(7) | RELATED PARTIES |
Revenue and expenses | Year ended December 31 | |||||||
(Millions of euros) | 2009 | 2008 | ||||||
Finance costs |
38 | 50 | ||||||
Leases |
4 | 9 | ||||||
Receipt of services |
26 | 20 | ||||||
Purchase of goods |
6 | | ||||||
EXPENSES |
74 | 79 | ||||||
Finance revenue |
49 | 86 | ||||||
Dividends received |
13 | 34 | ||||||
Services rendered |
209 | 229 | ||||||
Sale of goods |
37 | 45 | ||||||
REVENUE |
308 | 394 | ||||||
Other transactions | Year ended December 31 | |||||||
(Millions of euros) | 2009 | 2008 | ||||||
Finance arrangements: loans and capital contributions (lender) |
2,172 | 723 | ||||||
Finance leases (lessor) |
2 | 2 | ||||||
Finance arrangements: loans and capital contributions (loanee) |
1,174 | 1,118 | ||||||
Finance leases (lessee) |
26 | 15 | ||||||
Repayment or cancellation of loans and lease arrangements (lessee) |
2 | 4 | ||||||
Guarantees and deposits |
254 | 18 | ||||||
Commitments |
23 | | ||||||
Dividends and other earnings distributed |
546 | 516 | ||||||
Other transactions (derivatives) |
8,624 | 6,930 |
-17-
Investments in | ||||
Millions of euros | associates | |||
Opening balance at December 31, 2008 |
2,777 | |||
Additions |
772 | |||
Decreases |
(114 | ) | ||
Profit (loss) |
47 | |||
Dividends |
(58 | ) | ||
Changes in consolidation scope |
103 | |||
Translation differences and other |
1,409 | |||
Ending balance at December 31, 2009 |
4,936 | |||
(Millions of euros) | 12/31/2009 | 12/31/2008 | ||||||
Long-term loans to associates |
3 | 49 | ||||||
Short-term loans to associates |
15 | 77 | ||||||
Current receivables from associates |
189 | 120 | ||||||
Loans to associates |
149 | 109 | ||||||
Current payables to associates |
113 | 73 |
Year ended December 31 | ||||||||
(Millions of euros) | 2009 | 2008 | ||||||
Revenue from operations with associates |
204 | 212 | ||||||
Expenses from operations with associates |
484 | 533 |
-18-
Year ended December 31 | ||||||||
(Millions of euros) | 2009 | 2008 | ||||||
Current receivables |
73 | 65 | ||||||
Current payables |
25 | 54 | ||||||
Revenue from operations |
379 | 406 | ||||||
Expenses from operations |
420 | 504 |
(Millions of euros) | 12/31/2009 | 12/31/2008 | ||||||
Current assets |
1,170 | 1,234 | ||||||
Non-current assets |
5,617 | 4,616 | ||||||
Current liabilities |
1,170 | 1,351 | ||||||
Non-current liabilities |
1,505 | 1,212 |
Year ended December 31 | ||||||||
(Millions of euros) | 2009 | 2008 | ||||||
Revenue from operations |
2,743 | 2,662 | ||||||
Expenses from operations |
2,046 | 2,063 |
-19-
Standing | Advisory or Control | |||||||||||
Position | Board of Directors | Committee | Committees | |||||||||
Chairman |
300,000 | 100,000 | 28,000 | |||||||||
Vice Chairman |
250,000 | 100,000 | | |||||||||
Board member: |
||||||||||||
Executive |
| | | |||||||||
Proprietary |
150,000 | 100,000 | 14,000 | |||||||||
Independent |
150,000 | 100,000 | 14,000 | |||||||||
Other external |
150,000 | 100,000 | 14,000 |
-20-
-21-
Board of | Standing | Other Board Committees | ||||||||||||||||||
Board Members | Directors | Committee | Fixed payment | Attendance fees | TOTAL | |||||||||||||||
Chairman |
||||||||||||||||||||
César Alierta Izuel |
300,000 | 100,000 | | | 400,000 | |||||||||||||||
Vice chairmen |
||||||||||||||||||||
Isidro Fainé Casas |
250,000 | 100,000 | | | 350,000 | |||||||||||||||
Vitalino Manuel Nafría Aznar |
250,000 | | 56,000 | 22,500 | 328,500 | |||||||||||||||
Members |
||||||||||||||||||||
Julio Linares López |
| | | | | |||||||||||||||
José María Abril Pérez |
150,000 | 100,000 | 14,000 | 1,250 | 265,250 | |||||||||||||||
José
Fernando de Almansa Moreno-Barreda |
150,000 | | 56,000 | 21,250 | 227,250 | |||||||||||||||
José María Álvarez-Pallete López |
| | | | | |||||||||||||||
David Arculus |
150,000 | | 28,000 | 11,250 | 189,250 | |||||||||||||||
Eva Castillo Sanz |
150,000 | | 14,000 | 10,000 | 174,000 | |||||||||||||||
Carlos Colomer Casellas |
150,000 | 100,000 | 56,000 | 16,250 | 322,250 | |||||||||||||||
Peter Erskine |
150,000 | 100,000 | 56,000 | 25,000 | 331,000 | |||||||||||||||
Alfonso Ferrari Herrero |
150,000 | 100,000 | 84,000 | 38,750 | 372,750 | |||||||||||||||
Luiz Fernando Furlán |
150,000 | | 14,000 | 3,750 | 167,750 | |||||||||||||||
Gonzalo Hinojosa Fernández de Angulo |
150,000 | 100,000 | 98,000 | 42,500 | 390,500 | |||||||||||||||
Pablo Isla Álvarez de Tejera |
150,000 | | 84,000 | 16,250 | 250,250 | |||||||||||||||
Antonio Massanell Lavilla |
150,000 | | 65,333 | 28,750 | 244,083 | |||||||||||||||
Francisco Javier de Paz Mancho |
150,000 | 100,000 | 56,000 | 15,000 | 321,000 | |||||||||||||||
TOTAL |
2,600,000 | 800,000 | 681,333 | 252,500 | 4,333,833 | |||||||||||||||
-22-
2009 | ||||
ITEM | (euros) | |||
Salaries |
5,947,604 | |||
Variable compensation |
8,058,179 | |||
Compensation in kind (1) |
100,051 | |||
Contributions to pension plans |
25,444 |
(1) | Compensation in kind includes life and other insurance premiums (general medical
and dental insurance). |
-23-
(8) | EQUITY |
|
Dividends |
| Dividends paid in 2009 |
||
At its meeting held on June 23, 2009, the Companys Board of Directors resolved to pay a
dividend charged to unrestricted reserves for a fixed gross amount of 0.5 euros per outstanding
share carrying dividend rights. This dividend was paid in full on November 11, 2009, and the
total amount paid was 2,280 million euros. |
|||
In addition, in May 2009 an interim dividend against 2009 profit of a gross 0.50 euros per
share was paid, entailing a total payment of 2,277 million euros. |
|||
| Dividends paid in 2008 |
||
At its meeting held on April 22, 2008, Telefónicas Board of Directors agreed to pay an
additional dividend charged against 2007 profit of a gross 0.40 euros per share. A total of
1,869 million euros was paid in May 2008. |
|||
In addition, in November 2008 an interim dividend against 2008 profit of a gross 0.50 euros per
share was paid, entailing a total payment of 2,296 million euros. |
Proposed distribution of profit attributable to equity holders of the parent |
||
Telefónica, S.A. obtained 6,252 million euros of profit in 2009. |
||
At its meeting of April 29, 2009, Telefónica, S.A.s Board of Directors resolved to pay an interim
dividend against 2009 profit of a fixed gross 0.5 euros for each of the Companys outstanding
shares carrying dividend rights. This dividend was paid in full on May 12, 2009, and the total
amount paid was 2,277 million euros. |
||
Accordingly, the Companys Board of Directors will submit the following proposed appropriation of
2009 profit for approval at the Shareholders Meeting: |
Millions of euros | ||||
Total distributable profit |
6,252 | |||
Interim dividend (paid in May 2009) |
2,277 | |||
Goodwill reserve |
2 | |||
Voluntary reserves |
3,973 | |||
Total |
6,252 | |||
Treasury shares |
||
The following transactions involving treasury shares were carried out in 2009 and 2008: |
-24-
Number of | ||||
shares | ||||
Treasury shares at December 31, 2007 |
64,471,368 | |||
Acquisitions |
129,658,402 | |||
Disposals |
(68,759 | ) | ||
Share cancellation |
(68,500,000 | ) | ||
Treasury shares at December 31, 2008 |
125,561,011 | |||
Acquisitions |
65,809,222 | |||
Exchange of Telefónica, S.A. shares for China Unicom shares |
(40,730,735 | ) | ||
Employee share option plan |
(3,309,968 | ) | ||
Share cancellation |
(141,000,000 | ) | ||
Treasury shares at December 31, 2009 |
6,329,530 | |||
The amounts paid to acquire treasury shares in 2009 and 2008 were 1,005 million euros and
2,225 million euros, respectively. |
||
At December 31, 2009, the Group held call options on 150 million treasury shares, and at December
31, 2008, put options on 6 million treasury shares. |
(9) | FINANCIAL ASSETS AND LIABILITIES |
|
The breakdown of financial assets and liabilities of the Telefónica Group at December 31, 2009 and
2008 is as follows: |
At December 31, 2009 | ||||||||||||||||||||||||
Fair value through profit | ||||||||||||||||||||||||
or loss | Total | |||||||||||||||||||||||
Held for | Fair value | Available-for- | Amortized | carrying | ||||||||||||||||||||
(Millions of euros) | trading | option | sale | cost | Hedges | amount | ||||||||||||||||||
Non-current financial assets |
930 | 233 | 1,248 | 2,005 | 1,572 | 5,988 | ||||||||||||||||||
Equity Investments |
| | 654 | | | 654 | ||||||||||||||||||
Long-term credits |
91 | 233 | 594 | 1,022 | | 1,940 | ||||||||||||||||||
Deposits and guarantees |
| | | 1,496 | | 1,496 | ||||||||||||||||||
Derivative instruments |
839 | | | | 1,572 | 2,411 | ||||||||||||||||||
Provisions |
| | | (513 | ) | | (513 | ) | ||||||||||||||||
Current financial assets |
859 | 134 | 237 | 9,730 | 59 | 11,019 | ||||||||||||||||||
Financial investments |
859 | 134 | 237 | 617 | 59 | 1,906 | ||||||||||||||||||
Cash and cash equivalents |
| | | 9,113 | | 9,113 | ||||||||||||||||||
Total financial assets |
1,789 | 367 | 1,485 | 11,735 | 1,631 | 17,007 | ||||||||||||||||||
At December 31, 2009 | ||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||
Held for | Fair value | Total carrying | ||||||||||||||||||
(Millions of euros) | trading | option | Amortized cost | Hedges | amount | |||||||||||||||
Issues |
| | 35,843 | | 35,843 | |||||||||||||||
Interest-bearing debt |
705 | | 17,958 | 2,285 | 20,948 | |||||||||||||||
Total financial liabilities |
705 | | 53,801 | 2,285 | 56,791 | |||||||||||||||
-25-
At December 31, 2008 | ||||||||||||||||||||||||
Fair value through profit | ||||||||||||||||||||||||
or loss | Total | |||||||||||||||||||||||
Held for | Fair value | Available-for- | Amortized | carrying | ||||||||||||||||||||
(Millions of euros) | trading | option | sale | cost | Hedges | amount | ||||||||||||||||||
Non-current financial assets |
1,182 | 92 | 2,327 | 1,371 | 2,404 | 7,376 | ||||||||||||||||||
Equity Investments |
| | 1,584 | | | 1,584 | ||||||||||||||||||
Long-term credits |
| 88 | 743 | 863 | | 1,694 | ||||||||||||||||||
Deposits and guarantees |
| | | 905 | | 905 | ||||||||||||||||||
Derivative instruments |
1,182 | 4 | | | 2,404 | 3,590 | ||||||||||||||||||
Provisions |
| | | (397 | ) | | (397 | ) | ||||||||||||||||
Current financial assets |
700 | 273 | 181 | 4,951 | 388 | 6,493 | ||||||||||||||||||
Financial investments |
700 | 273 | 181 | 674 | 388 | 2,216 | ||||||||||||||||||
Cash and cash equivalents |
| | | 4,277 | | 4,277 | ||||||||||||||||||
Total financial assets |
1,882 | 365 | 2,508 | 6,322 | 2,792 | 13,869 | ||||||||||||||||||
At December 31, 2008 | ||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||
Held for | Fair value | Total carrying | ||||||||||||||||||
(Millions of euros) | trading | option | Amortized cost | Hedges | amount | |||||||||||||||
Issues |
| | 30,079 | | 30,079 | |||||||||||||||
Interest-bearing debt |
1,013 | 3 | 19,930 | 1,980 | 22,926 | |||||||||||||||
Other financial liabilities |
| | 183 | | 183 | |||||||||||||||
Total financial liabilities |
1,013 | 3 | 50,192 | 1,980 | 53,188 | |||||||||||||||
The movements in the Groups issues in 2009 and 2008 are as follows: |
Repurchases | Exchange- | |||||||||||||||||||
Balance at | or | rate effects | Balance at | |||||||||||||||||
Issues (millions of euros) | 12/31/08 | Issues | redemptions | and other | 12/31//2009 | |||||||||||||||
Debt securities issued in an EU Member State
requiring the registry of a prospectus |
19,636 | 6,583 | (2,050 | ) | (453 | ) | 23,716 | |||||||||||||
Debt securities issued
in an EU Member State
not requiring the registry of a
prospectus |
174 | | | 9 | 183 | |||||||||||||||
Other debt securities issued outside an EU Member
State |
10,269 | 2,127 | (779 | ) | 327 | 11,944 | ||||||||||||||
TOTAL |
30,079 | 8,710 | (2,829 | ) | (117 | ) | 35,843 | |||||||||||||
-26-
Repurchases | Exchange- | |||||||||||||||||||
Balance at | or | rate effects | Balance at | |||||||||||||||||
Issues (millions of euros) | 12/31/07 | Issues | redemptions | and other | 12/31//2008 | |||||||||||||||
Debt securities issued in an EU Member State
requiring the registry of a prospectus |
19,599 | 1,250 | (1,660 | ) | 447 | 19,636 | ||||||||||||||
Debt securities issued
in an EU Member State
not requiring the registry of a
prospectus |
172 | | | 2 | 174 | |||||||||||||||
Other debt securities issued outside an EU Member
State |
10,286 | 81 | (123 | ) | 25 | 10,269 | ||||||||||||||
TOTAL |
30,057 | 1,331 | (1,783 | ) | 474 | 30,079 | ||||||||||||||
The description of the main
issues or redemptions in 2009 is as follows: |
Name of | ISIN | Issue / | Type of | Transaction | Nominal | Issue | Outstanding | Interest | Listing | |||||||||||||||||||||||||||
issuer | code | cancellation | security | date | amount | currency | balance | rate | market | |||||||||||||||||||||||||||
Telefonica, S.A. |
ES0278430931 | Cancellation | Bond | 14/04/2009 | (500 | ) | EUR | | 4.500 | % | AIAF | |||||||||||||||||||||||||
Telefonica, S.A. |
ES0278430949 | Cancellation | Bond | 30/06/2009 | (300 | ) | EUR | | 6.038 | % | AIAF | |||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0410258833 | Issue | Bond | 03/02/2009 | 2,000 | EUR | 2,000 | 5.431 | % | London | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0419264063 | Issue | Bond | Misc. | 1,500 | EUR | 1,500 | 5.496 | % | London | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0430779537 | Issue | Bond | 02/06/2009 | 400 | EUR | 400 | Euribor (3m) + 1.825% | London | |||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
US87938WAH60 | Issue | Bond | 06/07/2009 | 1,000 | USD | 694 | 5.877 | % | NYSE | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
US87938WAJ27 | Issue | Bond | 06/07/2009 | 1,250 | USD | 868 | 4.949 | % | NYSE | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0462999573 | Issue | Bond | 10/11/2009 | 1,750 | EUR | 1,750 | 4.693 | % | London | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0470740530 | Issue | Bond | 10/12/2009 | 650 | GBP | 732 | 5.289 | % | London | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0474335840 | Issue | Bond | 23/12/2009 | 100 | EUR | 100 | Euribor (3m) + 0.70% | London | |||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
US87938WAD56 | Cancellation | Bond | 19/06/2009 | (1,000 | ) | USD | | Libor (3m) + 0.30% | NYSE | ||||||||||||||||||||||||||
Telefonica Emisiones, S.A.U. |
XS0293449574 | Cancellation | Bond | 30/03/2009 | (350 | ) | EUR | | Euribor (3m) + 0.13% | London | ||||||||||||||||||||||||||
Telefonica, S.A. |
Various | Issue | Promissory note | Misc. | 693 | EUR | | 1.498 | % | AIAF | ||||||||||||||||||||||||||
Telefonica, S.A. |
Various | Issue | Promissory note | Misc. | 1,303 | EUR | 254 | 1.141 | % | AIAF | ||||||||||||||||||||||||||
Telefonica, S.A. |
Various | Cancellation | Promissory note | Misc. | (1,280 | ) | EUR | | 2.941 | % | AIAF | |||||||||||||||||||||||||
Telefonica, S.A. |
Various | Cancellation | Promissory note | Misc. | (1,202 | ) | EUR | | 1.485 | % | AIAF | |||||||||||||||||||||||||
Telefonica Europe, BV |
Various | Issue | Commercial paper | Misc. | 6,010 | EUR | 551 | 1.169 | % | N/A | ||||||||||||||||||||||||||
Telefonica Europe, BV |
Various | Cancellation | Commercial paper | Misc. | (6,303 | ) | EUR | | 2.316 | % | N/A |
Telefónica, S.A. has a full and unconditional guarantee on issues made by Telefónica
Emisiones, S.A.U. and Telefónica Europe, B.V., both of which are wholly owned subsidiaries of
Telefónica, S.A. |
The credit rating of all the
issuers is A-/A-/Baa1. |
(10) | AVERAGE NUMBER OF GROUP
EMPLOYEES |
|
The average numbers of Group
employees in 2009 and 2008 are as follows: |
Average number of employees | 2009 | 2008 | ||||||
Female |
132,109 | 126,849 | ||||||
Male |
123,042 | 124,926 | ||||||
Total |
255,151 | 251,775 | ||||||
The average number of employees at the various companies of the Atento Group performing
contact center activities at December 31, 2009 and 2008 was
129,885 and 126,890, respectively. |
-27-
(11) | INCOME TAX |
In December 2009, the European Commission released its decision regarding the investigation
involving the Kingdom of Spain on the potential consideration of the deduction for tax amortization
of the financial goodwill arising on certain foreign shareholding acquisitions as government aid
under the provisions of article 12.5 of the revised Spanish Income Tax Law (TRLIS), deeming the
deduction to be state aid. This decision does not affect investments made before December 21, 2007
(see Note 3). As a result of this decision, income tax in the Telefónica Groups consolidated
income statement for the year ended December 31, 2009 is 591 million euros lower due to the
reversal of this liability. |
||
Tax credits for loss carryforwards |
||
The tax loss carryforwards in Spain at December 31, 2009 at the main Group companies amounted to
3,968 million euros (3,643 million euros for companies belonging to the Tax Group). |
||
The statement of financial position at December 31, 2009 includes a 500 million euros deferred tax
asset corresponding to 1,666 million euros of tax loss carryforwards in Spain. |
||
The 2002 tax return included a negative adjustment for 2,137 million euros from Telefónica Móviles,
S.A. (now Telefónica, S.A.). This arose through the transfer of certain holdings acquired in
previous years that was challenged by the tax authorities. The challenging of this adjustment in
the tax audit has not affected the condensed consolidated interim financial statements as in
accordance with past rulings by the tax authorities, which differ from the interpretation being put
forward by the Company, the Company decided not to recognize it. |
||
In relation to the sale by Terra Networks, S.A. (now Telefónica, S.A.) of it stake in Lycos Inc. in
2004, the Company has begun procedures to recognize a higher tax loss of up to 7,418 million euros
because of measuring as acquisition value for tax purposes, the market value of Lycos Inc. shares
received, rather than their carrying amount, in conformity with Article 159 of the Spanish
Corporation Law. No effect on the condensed consolidated interim financial statements has been
considered until the Company receives a definitive ruling on this procedure. |
||
O2 Germany has tax credits and deductible temporary differences incurred in prior years amounting
to 8,517 million euros, of which 426 million euros have been recognized in line with the prospects
of generating future taxable earnings. These losses were generated by O2 Germany and the rest of
the Germany subsidiaries of the Telefónica Group prior to the acquisition of the O2 Group. These
tax credits do not expire. |
||
Unused tax credits recognized in the consolidated statement of financial position at the Latin
American subsidiaries at December 31, 2009 amounted to 461 million euros. |
(12) | OTHER INFORMATION |
Litigation and arbitration |
||
With regard to ongoing litigation, the main developments in litigation reported in Note 21.a) to
the consolidated annual financial statements for the year ended December 31, 2008, in accordance
with their status at December 31, 2009 are as follows: |
-28-
| Contentious proceedings in connection with the merger between Terra Networks, S.A. and
Telefónica. |
||
On September 26, 2006, Telefónica was notified of the claim filed by former shareholders of
Terra Networks, S.A. (Campoaguas, S.L., Panabeni, S.L. and others) alleging breach of contract
in respect of the terms and conditions set forth in the Prospectus of the Initial Public
Offering of shares of Terra Networks, S.A. dated October 29, 1999. This claim was rejected via
ruling issued on September 21, 2009, and the appellants charged for the court costs. This
ruling was appealed on December 4, 2009. |
|||
| Claim before the Center for Settlement of Investment Disputes (ICSID) against the Argentine
government. |
||
On August 21, 2009, after successive extensions of the period of suspension included in the
memorandum of understanding, Telefónica and the Argentine government agreed to consider this
arbitration proceeding concluded. As a result, both parties requested the ICSID Court to file
the proceeding, which the court agreed to on September 24, 2009. |
|||
| Proceeding before the Prague District Court against the ruling of the Czech
Telecommunications Office dated December 22, 2003. |
||
In April 2009, an agreement was reached between T-Mobile and Telefónica O2 Czech Republic that
ended the procedure, whereby T-Mobile returned approximately 1,053 Czech crowns (approximately
40 million euros) to Telefónica O2 Czech Republic. |
|||
| Public civil procedure by the Sao Paulo government against Telesp for alleged reiterated
malfunctioning in the services provided by Telesp compensation for damages to the customers
affected. |
||
This proceeding was filed by the Public Ministry of the State of Sao Paulo for alleged
reiterated malfunctioning in the services provided by Telesp, seeking compensation for damages
to the customers affected. A general claim is filed by the Public Ministry of the State of Sao
Paulo, for 1,000 million Brazilian reais, calculated on the companys revenue base over the
last five years. A potential charge of responsibility for compensation by Telesp would be
carried out through the settlement and executing of the ruling at the request of individual
consumers. It is impossible to quantify the amount of this lawsuit at present. |
|||
This proceeding was suspended via resolution dated November 5, 2009, for a period of 90 days,
to assess the proposed agreement being negotiated between the parties. As no agreement was
reached, the suspension was lifted and the procedure remains in the courts. |
-29-
| Guarantees provided for Ipse 2000 (Italy). |
||
At December 31, 2009, the Telefónica Group had provided guarantees for the Italian company Ipse
2000 S.p.A. (holder of a UMTS license in Italy and in which the Company has a stake through
Solivella B.V.) to ensure the amounts payable to the Italian government in connection with the
grant of the license. The only payment pending at December 31, 2009, was the last of the 10
monthly payments scheduled. |
|||
In this respect, Telefónica (together with the other strategic partners of Ipse 2000, S.p.A)
arranged a counterguarantee (cash collateral) for a bank which, in turn, issued a bank
guarantee for the Italian authorities as security for the deferred payment of the UMTS license. |
|||
At December 31, 2009, the amount corresponding to the Telefónica Group in this cash collateral
was 97.5 million euros. |
|||
| Commitments relating to the acquisition in Germany of HanseNet Telekommunikation GmbH by
Telefonica Deutschland GmbH. |
||
On December 3, 2009, Telefónicas subsidiary in Germany, Telefónica Deutschland GmbH
(Telefonica Deutschland), signed an agreement to acquire all of the shares of German company
HanseNet Telekommunikation GmbH (HanseNet). The purchase price agreed by the parties was
based on the firm value of 900 million euros, subject to a series of adjustments upon
completion of the transaction. |
|||
The purchase and sale of the sales was subject to compliance with a series of conditions,
including approval of the transaction by the pertinent competition authorities, which was
obtained on January 29, 2010. The transaction was completed in February 2010; hence the
outstanding payment commitment was fulfilled (see Note 13). |
|||
| Agreements with PRISA-SOGECABLE. |
||
On November 25, 2009, Telefónica signed an agreement with Promotora de Informaciones, S.A.
(Prisa) and Sogecable, S.A.U. (Sogecable) for the acquisition of a 21% stake in DTS
Distribuidora de Televisión Digital, S.A. (DTS), the company that will include the pay-TV
services of PRISA Group (Digital+), for a firm value of 2,350 million euros. |
|||
Additionally, on the same date Telefónica signed a shareholder agreement with Prisa and
Sogecable for DTS (Shareholder agreement), which will come into effect following completion
of the transaction and will establish, among other things, that in the event of a change in
control at Telefónica, Sogecable will have the right to acquire from Telefónica, which will be
obliged to sell, its stake in DTS. Similarly, in the event of a change of control at Prisa,
Telefónica will have the right to buy from Sogecable, which will be obliged to sell, its stake
in DTS. In these events, the acquisition would be carried out at the real value of the shares
based on an independent valuation by investment banks in accordance with the procedure
stipulated in the agreement (see Note 13). |
(13) | EVENTS AFTER THE REPORTING PERIOD |
The following events regarding Telefónica took place between December 31, 2009 and the date of
authorization for issue of the accompanying interim consolidated financial statements: |
-30-
Maturity of debentures and bonds |
||
On January 25, 2010, Telefónica Emisiones, S.A.U. repaid at maturity the bonds issued on July 25,
2006 under the bond issuance program (EMTN) registered with the London Stock Exchange for an
aggregate amount of 1,250 million euros. |
||
Voluntary early redemptions |
||
The following issues were redeemed voluntarily before maturity in the early months of 2010: |
| On January 29, 2010, Telefónica, S.A. made a voluntarily repayment ahead of
schedule of 500 million euros on the 6,000 million euro syndicated loan arranged
on June 28, 2005 and amended on February 13, 2009 to extend the maturity of
4,000 million euros from June 28, 2011, by one year for 2,000 million euros and
by two years for the other 2,000 million euros. |
||
| Similarly, on February 11, 2010, Telefónica, S.A. made a voluntary repayment of
500 million euros on the same loan. |
Financing of Telco |
||
On January 11, 2010, Telco, S.p.A. (Telco) arranged a 1,300 million euro loan with Intesa
Sanpaolo, S.p.A., Mediobanca, S.p.A., Société Générale, S.p.A. and Unicredito, S.p.A. maturing on
May 31, 2012, part of which is secured with Telecom Italia, S.p.A. shares. The lending banks have
granted Telco shareholders a call option on the Telecom Italia, S.p.A. shares that they may be
entitled to receive as a result of the potential execution of the pledge. |
||
In line with the commitments assumed by Telco shareholders, on December 22, 2009, the rest of
Telcos financing needs with respect to debt maturities were met with a bridge loan granted by
shareholders Telefónica, Intesa Sanpaolo, S.p.A. and Mediobanca, S.p.A., for approximately 902
million euros, and a bank bridge loan granted by Intesa Sanpaolo, S.p.A. and Mediobanca, S.p.A.,
for the remaining 398 million euros. |
||
The financing from the bridge loans was substituted with a bond subscribed by Telcos shareholder
groups, on a pro-rate basis in accordance with their interests in the company, on February 19, 2010
for 1,300 million euros. |
||
Financing of ECAs |
||
On February 12, 2010, Telefónica, S.A. arranged long-term financing for an amount of 472 million US
dollars at fixed rates with a guarantee of the Swedish Export Agency (EKN) to acquire network
equipment from a Swedish service provider. This financing entailed three tranches: tranche A, for
232 million US dollars maturing on November 30, 2018, tranche B, for 164 million US dollars
maturing on April 30, 2019, and tranche C, for 76 million US dollars maturing on November 30, 2019. |
||
Devaluation of the Venezuelan bolivar |
||
Regarding the devaluation of the Venezuelan bolivar on January 8, 2010 (see Note 3), the two main
factors to consider with respect to the Telefónica Groups 2010 financial statements will be: |
| The decrease in the Telefónica Groups net assets in Venezuela as a result of the new
exchange rate, with a balancing entry in equity of the Group. This effect is estimated at
approximately 1,810 million euros. |
-31-
| The translation of results and cash flows from Venezuela at the new devalued closing exchange
rate. |
Finally, on January 19, the Venezuelan authorities announced that they would grant a preferential
rate of 2.60 bolivar fuerte per dollar for new items, among which payment of dividends is included,
as long as the request for Authorization of Acquisition of Foreign Exchange was filed before
January 8, 2010. To that date, the Company had in fact requested authorizations related to the
distribution of dividends of prior years. |
||
Fulfillment of commitments relating to the acquisition in Germany of HanseNet Telekommunikation
GmbH by Telefónica Deutschland GmbH |
||
On February 16, 2010, having complied with the terms established in the agreement dated December 3,
2009 by the parties, the Telefónica Group completed the acquisition of 100% of the shares of
HanseNet. The final amount paid out was approximately 912 million euros. |
||
Amendment to the agreements signed with Prisa and Sogecable following the purchase of a stake in
Digital+ by Gestevisión Telecinco, S.A. |
||
Following the signing on the agreement between Prisa and Gestevisión Telecinco, S.A. (Telecinco)
for the sale by Prisa to Telecinco of a 22% stake in Digital+, on January 29, 2010, Telefónica and
Prisa signed a new agreement raising the percentage stake to be acquired by Telefónica from 21% to
22%. Meanwhile, following the agreement reached between Prisa and Telecinco, Telefónica has
undertaken to renegotiate the terms of the Shareholder Agreement to reflect the shareholder
structure of Digital+ following the acquisition of a stake in the company by Telecinco. |
||
The estimated total investment to be made by Telefónica, after deduction of the net debt, will be
around 495 million euros, of which approximately 230 million euros will be covered by the
assumption by the buyer of subordinated loan between Telefónica de Contenidos, S.A.U. (creditor)
and Sogecable (debtor). |
||
This acquisition is subject, among other conditions, to the obtainment of the appropriate
regulatory authorizations. |
||
Acquisition of JAJAH |
||
In January 2010, the Telefónica Group, through its wholly owned subsidiary Telefónica Europe plc,
acquired 100% of the shares of JAJAH, an innovative leader communications company, for 145 million
euros. |
(14) | ADDITIONAL NOTE FOR ENGLISH TRANSLATION |
These interim financial statements were originally prepared in Spanish. In the event of a
discrepancy, the Spanish-language version prevails. |
||
These interim financial statements are presented on the basis of International Accounting Standards
(IAS) 34 Interim Financial Reporting and Article 12 of Royal Decree 1362/2007. Consequently,
certain accounting practices applied by the Group do not conform with generally accepted accounting
principles in other countries. |
-32-
APPENDIX I: CHANGES IN THE CONSOLIDATION SCOPE |
||
The main changes in consolidation scope in 2009 were as follows: |
||
Telefónica Europe |
||
The companies BT Cellnet Ltd and SPT Telecom Finance, B.V. have been disposed of. Both entities,
previously included in the consolidated financial statements of the Telefónica Group using the full
consolidation method, have been removed from the consolidation scope. |
||
In December, German company Telefónica Global Services, GmbH, a wholly owned subsidiary of the
Telefónica Group, set up a German company, Telefónica Global Roaming, GmbH, with initial capital of
25 thousand euros. This company was fully consolidated in the Telefónica Group. |
||
Telefónica Latin America |
||
Pursuant to Chilean law, on December 1, 2008, Telefónica, S.A., through subsidiary Inversiones
Telefónica Internacional Holding, Ltda., launched a second tender offer (second offer) for all
the shares of Compañía de telecomunicaciones de Chile, S.A. (CTC) Telefónica did not already hold
(representing 3.25% of CTCs capital). |
||
Upon completion of the second offer, Telefónicas indirect stake in CTC increased from 96.75% to
97.89% at the date of filing the notice with the Spanish National Securities Commission, the CNMV,
on January 9, 2009. The Telefónica Group still consolidates the Chilean company using the full
consolidation method. |
||
Pursuant to the corporate restructuring of the Brazilian group Vivo, on July 27, 2009 Telemig
Celular, S.A. was absorbed by Telemig Celular Participaçoes, S.A., which was subsequently absorbed
by Vivo Participaçoes, S.A. Following this transaction, Telemig Celular, S.A. and Telemig Celular
Participaçoes, which had been fully consolidated in the Telefónica Group, were removed from the
consolidation scope. The Telefónica Group still consolidates Vivo Participaçoes, S.A. using
proportionate consolidation. |
||
On November 19, 2009, within the scope of the same corporate restructuring, the companies Tagilo
Participaçoes, Ltda., Sudestecel Participaçoes, Ltda., Avista Participaçoes, Ltda. and Vivo Brasil
Comunicaçoes Ltda. were absorbed by Portelcom Participaçoes, S.A. All these companies, previously
consolidated using proportionate consolidations, were removed from the Telefónica Groups
consolidation scope. |
||
In September 2009, deeds of liquidation of Nicaraguan companies Telefónica Móviles Nicaragua, S.A.,
Doric Holdings y Compañía, Ltda. and Kalamai Holdings y Compañía, Ltda. were executed The
companies, which had been fully consolidated in the Telefónica Group, were removed from the
consolidation scope. |
||
On December 3 2009, following approval by the Comisión Nacional de Valores de la República
Argentina, the Argentine securities regulatory, Telefónica, S.A. acquired shares representing 1.8%
of the share capital of Telefónica de Argentina, S.A. held by minority shareholders for a price of
approximately 23 million euros. Following this acquisition, the Telefónica Group is owner of all of
the shares of the Argentine company. This company is still fully consolidated in the consolidated
financial statements of the Telefónica Group. |
-33-
On October 21, 2009 Telefónica, S.A. and China Unicom (Hong Kong) Limited (China Unicom)
completed the mutual share exchange agreement through which Telefónica, through its wholly owned
subsidiary Telefónica Internacional, S.A.U., subscribed for 693,912,264 newly issued shares of
China Unicom, satisfied by the contribution in kind to China Unicom of 40,730,735 Telefónica
shares. This entailed an investment of approximately 1,000 million US dollars of ordinary shares of
China Unicom. Following this acquisition, the Telefónica Groups shareholding interest in China
Unicoms voting share capital increased from 5.38% to 8.06%. |
||
On November 5, the share buyback agreement of one of China Unicoms core shareholders, SK Telecom
Co., Ltd. (SKT), was carried out. Following the buyback and cancellation of the shares, the
Telefónica Groups holding in China Unicoms share capital reached 8.37%. The Telefónica Group
accounts for this investment using the equity method. |
||
Other companies |
||
In February 2009, Telefónica International Wholesale Services II, S.L. was incorporated, with
initial capital of 3,006 euros, fully subscribed and paid by Telefónica, S.A. This company is
included in the consolidated financial statements of the Telefónica Group using the full
consolidation method. |
||
In 2009, Telefónica International Wholesale Services II, S.L. incorporated the European companies
TIWS Hungary, TIWS Sweden and TIWS Latvia, subscribing and paying up 100% of their respective share
capital. All of these companies have been included in the Telefónica Groups consolidation scope
using the full consolidation method. |
||
In April, Dutch company Atento, N.V. acquired 100% of the shares of Venezuelan company Teleatención
de Venezuela, C.A. for approximately 9 thousand euros. This company has been included in the
Telefónica Groups consolidation scope using the full consolidation method. It has been idle since
its incorporation. |
||
In April, Chilean company Telecomunicaciones de Chile, Marketing e Información, S.A., a subsidiary
of Atento Chile, S.A., was wound up. The company, which was fully consolidated in the Telefónica
Groups financial statements, has been removed from the consolidation scope. |
||
Spanish company Telefónica Remesas, S.A. was incorporated by Telefónica Telecomunicaciones
Públicas, S.A., a wholly owned Telefónica Group subsidiary, with initial capital of 0.3 million
euros, fully subscribed and paid. This company has been included in the Telefónica Groups
consolidation scope using the full consolidation method. |
||
Telefónica Móviles España, S.A., a 100% owned subsidiary of Telefónica, S.A., sold its 32.18% stake
in Moroccan company Medi Telecom, S.A. (Méditel) and the companys outstanding loans for 400
million euros to the rest of Méditels local partners. This company, which in 2008 was accounted
for by the Telefónica Group using the equity method, was removed from the consolidation scope. |
||
In September, Argentine company Atusa, S.A. was incorporated, with initial capital of 50 thousand
Argentine pesos, which was fully subscribed. The Telefónica Group paid for 25% of the company. This
company has been included in the Telefónica Groups consolidated financial statements using the
full consolidation method. |
-34-
In 2009, Spanish company Atento Teleservicios España, S.A.U., a wholly owned subsidiary of the
Telefónica Group, took over and merged Amsterdam-based company Atento EMEA, B.V. This company,
which was fully consolidated in the Telefónica Groups consolidated financial statements, has been
removed from the consolidation scope. |
||
Following the sale of Sintonia, S.A.s stake in Telco S.p.A. (Telco), the Italian company with a
22.45% shareholding in telecommunications operator Telecom Italia S.p.A., Telefónica, S.A.s stake
in Telco increased from 42.3% to 46.18%, maintaining its effective interest in Telecom Italia,
S.p.A. through this company at 10.49% of the voting shares. The company is still accounted for in
the Telefónica Group consolidated financial statements using the equity method. |
||
In November, Telefónica Servicios Audiovisuales, S.A., a whole owned subsidiary of the Telefónica
Group, acquired 100% of Spanish company Gloway Broadcast Services, S.L. (Gloway) for
approximately 6 million euros. This company has been included in the Telefónica Groups
consolidated financial statements using the full consolidation method. |
-35-
INTERIM CONSOLIDATED MANAGEMENT REPORT |
||
CONSOLIDATED RESULTS |
||
We continued to increase our customer base, measured in terms of total accesses, by 2.1% to 264.6
million accesses at December 31, 2009 from 259.1 million accesses at December 31, 2008, which was a
13.3% increase from the 228.7 million accesses we had at December 31, 2007. This growth from
December 31, 2008 to December 31, 2009 was primarily driven by a 3.3% increase in mobile accesses,
a 8.2% increase in broadband accesses and a 9.8% increase in pay TV accesses, which more than
offset our 5.4% loss of fixed telephony accesses and 28.5% loss of narrowband accesses as these
technologies continue to be substituted by customers for mobile and broadband technologies,
respectively. Growth in our total number of accesses from December 31, 2007 to December 31, 2008
was primarily driven by strong growth in mobile and broadband accesses. |
||
The growth in our customer base from December 31, 2008 to December 31, 2009 under difficult
economic circumstances did not compensate a decrease of 2.1% in revenues in 2009 compared to 2008.
However, excluding foreign exchange rate effects and Venezuelas hyperinflationary economy,
revenues would have increased 0.3% in 2009 compared to 2008. In Spain and Europe, the competitive
environment remained intense and continued to put downward pressure on our tariff structures, which
resulted in revenue growth not keeping pace with access growth. In addition, further downward
pressure was placed on our revenues from mobile accesses as a result of regulatory action in the
European Union and certain Latin American countries, which resulted in decreased interconnection
and roaming rates during the period. This decrease in revenues led to a 1.4% decrease in OIBDA to
22,603 million in 2009 from 22,919 million 2008. Nonetheless, excluding foreign exchange rate
effects and Venezuelas hyperinflationary economy, OIBDA would have increased 0.5% in 2009 compared
to 2008. Operating income decreased 1.6% to 13,647 million in 2009 from 13,873 million in 2008,
while profit for the year attributable to equity holders of the parent company increased 2.4% to
7,776 million in 2009 from 7,592 million in 2008 as a result of our share of profit of associates
and lower corporate income tax. |
||
At December 31 2008, our customer base, measured in terms of total accesses, increased 13.3% to
259.1 million accesses from the 228.7 million accesses we had at December 31, 2007. Growth in our
total number of accesses from December 31, 2007 to December 31, 2008 was primarily driven by strong
growth in mobile and broadband accesses. The strong growth in our customer base from December 31,
2007 to December 31, 2008 under difficult economic circumstances translated into a moderate
increase of 2.7% in revenues in 2008 compared to 2007. Negative exchange rate effects resulted in
a reduction of our revenue growth by 3.0 percentage points. This modest increase in revenues led
to a small increase in OIBDA to 22,919 million in 2008 from 22,824 million 2007, which amount in
2007 included non-recurring gains on the sales of Airwave (1,296 million) and Endemol (1,368
million). Operating income rose 3.6% to 13,873 million in 2008 from 13,388 million in 2007,
while profit for the year attributable to equity holders of the parent company decreased 14.8% to
7,592 million in 2008 from 8,906 million in 2007. |
-36-
By geographic area, Telefónica Europe had the largest percentage increase in accesses with an
increase of 6.9% to 49.2 million accesses at December 31, 2009 from 46.1 million accesses at
December 31, 2008, primarily driven by a 6.5% increase in mobile accesses. Telefónica Latin
America had the largest percentage increase in accesses from December 31, 2007 to December 31,
2008, with an increase of 18.0% to 158.3 million accesses at December 31, 2008 from 134.1 million
accesses at December 31, 2007, primarily driven by strong growth in its mobile business, increased
broadband sales and an expanding pay TV customer base. |
||
By access type, we increased mobile accesses by 3.3% to 202.3 million (no longer including 9.0
million accesses of Medi Telecom, which we sold in December 2009) at December 31, 2009 from 195.8
million at December 31, 2008 (including approximately 4.0 million accesses of Telemig, which we
incorporated in April 2008), which was a 16.7% increase from the 167.8 million mobile accesses we
had at December 31, 2007. Contributions to mobile net adds from December 31, 2008 to December 31,
2009, by country, were Brazil (6.8 million additional mobile accesses), Mexico (2.1 million
additional mobile accesses), Germany (1.3 million additional mobile accesses) and Argentina (1.1
million additional mobile accesses) and the United Kingdom (1.0 million additional mobile
accesses), and with negative mobile net adds of 1.0 million mobile accesses in Colombia.
Contributions to mobile net adds from December 31, 2007 to December 31, 2008, by country, were also
dominated by countries in Latin America, with the highest growth in Brazil (7.5 million additional
mobile accesses, excluding the previously mentioned mobile accesses of Telemig), Mexico (2.8
million additional mobile accesses), and Peru (2.5 million additional mobile accesses). In Europe,
Germany was a strong contributor to the growth in mobile accesses with 1.7 million additional
mobile accesses from December 31, 2007 to December 31, 2008. |
||
We also increased broadband accesses by 8.2% to 13.5 million at December 31, 2009 from 12.5 million
at December 31, 2008, which was a 20.9% increase from the 10.3 million broadband accesses we had at
December 31, 2007. We increased our number of broadband accesses from December 31, 2007 to
December 31, 2009 primarily as a result of a robust demand for Duo and Trio bundles, including
broadband, pay TV and fixed telephony, which have made a significant contribution to the
development of the broadband market and to increased customer loyalty. From December 31, 2008 to
December 31, 2009, we increased broadband accesses by 4.4% in Spain to 5.5 million, by 5.9% to 6.4
million in Latin America and by 37.1% to 1.6 million in Europe. At December 31, 2009, in Spain 88%
of our broadband accesses were included in Duo or Trio bundles, while in Latin America the weight
of packaged products continued to grow, with 56% of broadband accesses bundled in Duo and Trio
bundles at the same date. This growth in broadband accesses more than offset the continued
decrease in narrowband accesses from 2.7 million accesses at December 31, 2007 to 2.0 million
accesses at December 31, 2008 to 1.4 million accesses at December 31, 2009. |
||
Finally, we increased pay TV accesses by 9.8% to 2.5 million at December 31, 2009 from 2.3 million
at December 31, 2008, which was a 29.7% increase from the 1.7 million pay TV accesses we had at
December 31, 2007. The continued growth in pay TV accesses from December 31, 2007 to December 31,
2009 was primarily as a result of further market penetration in the areas in which this service is
available, which as of December 31, 2009, included Spain, the Czech Republic, Peru, Chile,
Colombia, Brazil and Venezuela, and the success of bundling this service with others. |
-37-
During 2009 and the beginning of 2010 several factors have surfaced with respect to the Venezuelan
economy that have led us to reconsider the accounting treatment that the Telefónica Group
previously applied in the translation of the financial statements of our subsidiaries in that
country, and the recoverability of our financial investments in there. Key among these factors are: the inflation index reached in 2009 and the cumulative inflation index
over the last three years, restrictions in the official foreign exchange market, and the
devaluation of the bolivar fuerte on January 8, 2010. Consequently, according to IFRS, the
Venezuelan economy should be considered as hyperinflationary for 2009. |
||
Revenues decreased 2.1% to 56,731 million in 2009 compared to 57,946 million in 2008. Excluding
foreign exchange rate effects and excluding considering Venezuela a hyperinflationary economy,
revenues would have increased 0.3% in 2009 compared to 2008. |
||
By geographic area, Telefónica Latin America contributed the greatest percentage to our revenues in
2009, accounting for 40.5% of the total, which represents an increase of 2.2 percentage points from
2008. Telefónica Spain contributed 34.7% (36.0% in 2008) of our 2009 revenues and Telefónica
Europe contributed 23.9% (24.7% in 2008). |
||
Other income decreased to 1,645 million in 2009 compared to 1,865 million in 2008. Excluding
foreign exchange rate effects and excluding considering Venezuela a hyperinflationary economy,
other income would have decreased 9.7% in 2009 compared to 2008. Other income in 2009 included a
220 million gain on the sale of our stake in Medi Telecom. In 2008, other income included a 143
million gain on the sale of our stake in Sogecable. |
||
Total expenses include supplies, personnel expenses and other expenses (mainly external services
and taxes). Total expenses do not include depreciation and amortization. Our total expenses
decreased 3.0% to 35,773 million in 2009 compared to 36,892 million in 2008. Excluding foreign
exchange rate effects and excluding considering Venezuela a hyperinflationary economy, total
expenses would have decreased 0.4% in 2009 compared to 2008. |
||
Supplies decreased 6.2% to 16,717 million in 2009 compared to 17,818 million in 2008. On a
constant euro basis and excluding considering Venezuela a hyperinflationary economy, supplies would
have decreased 3.1% from 2008 to 2009. This decrease is primarily due to lower interconnection
costs associated with lower fixed-mobile traffic and the reduction of mobile termination rates. |
||
Personnel expenses increased 0.2% to 6,775 million in 2009 compared to 6,762 million in 2008. On
a constant euro basis and excluding considering Venezuela a hyperinflationary economy, personnel
expenses would have increased 2.7% from 2008 to 2009. This increase was primarily due to increases
in our work force and wages over the period. The average workforce during 2009 reached 255,151
employees, with a net increase of 3,376 employees compared to 2008, mainly due to the workforce
increases within Atento. Excluding employees of Atento, our average number of employees in 2009
would have increased by 381 employees to 125,266 employees compared to 2008. |
||
Other expenses are mainly comprised of external services, which consist of commercial expenses
related to our business (such as commissions to distributors of services, marketing and advertising
expenses and customer service related expenses), network maintenance expenses, general
administrative expenses and subcontracted services expenses, as well as certain types of taxes.
Other expenses also include changes in operating allowances and other operating expenses. Other
expenses decreased 0.2% to 12,281 million in 2009 from 12,312 million in 2008. Excluding foreign
exchange rate effects and excluding considering
Venezuela a hyperinflationary economy, other expenses would have increased 2.0% in 2009 compared to
2008. This increase was principally driven by higher customer care, network and IT expenses in
Telefónica Latin America. |
-38-
As a result of the foregoing, our operating income before depreciation and amortization (OIBDA)
decreased 1.4% to 22,603 million in 2009 compared to 22,919 million in 2008. On a constant euro
basis and excluding considering Venezuela a hyperinflationary economy, OIBDA would have increased
0.5% from 2008 to 2009. |
||
Of our 2009 OIBDA, Telefónica Spain contributed 43.2% (44.9% in 2008), while Telefónica Latin
America and Telefónica Europe contributed 40.5% (36.8% in 2008) and 17.3% (18.2% in 2008),
respectively. Our OIBDA margin increased to 39.8% in 2009 compared to 39.6% in 2008. |
||
Our depreciation and amortization decreased 1.0% to 8,956 million in 2009 compared to 9,046
million in 2008. On a constant euro basis and excluding considering Venezuela a hyperinflationary
economy, depreciation and amortization would have increased 1.3% from 2008 to 2009, principally
driven by Telefónica Latin America and Telefónica Europe depreciation and amortization increases.
Telefónica Europe depreciation and amortization in 2009 includes the amortization of the purchase
price allocation made following the acquisitions of the O2 Group (635 million; 689 million in
2008) and Telefónica O2 Czech Republic (89 million; 131 million in 2008). |
||
As a result of the foregoing, our operating income decreased 1.6% to 13,647 million in 2009 from
13,873 million in 2008. On a constant euro basis and excluding considering Venezuela a
hyperinflationary economy, operating income would have remained constant in 2009 compared to 2008. |
||
Our share of profit (loss) of associates amounted to a gain of 47 million in 2009 compared to a
loss of 161 million in 2008, primarily as a result of share of profits we recorded in respect to
our interest in Portugal Telecom and lower share of loss we recorded in respect to our interest in
Telco S.p.A.. In 2008, the loss in our share of profit (loss) of associates was primarily the
result of the net adjustment Telco made to the valuation of its investment in Telecom Italia. To
estimate the adjustment to be recorded by the Telefónica Group, we took the value of the estimated
synergies that we expect to achieve by improving certain processes in our operations in Europe as a
result of certain alliances reached with Telecom Italia. As a result of this revaluation, we
recorded a loss of 209 million in 2008, which more than offset share of profits we recorded in
respect of our interest in Portugal Telecom. |
||
Net financial result increased 18.2% to 3,307 million in 2009 compared to 2,797 million in 2008,
leaving the average cost of debt of the Group in the 7.3%. The impact of Venezuela is of 630
million; if this effect is not taken into account the average cost is 5.9%, the financial cost is
reduced 4.3% in respect of the previous year due to:: |
| A decrease of the expenses in 298 million due to the interest rates drop during 2009 mainly
in European currencies. |
||
| A decrease of 3.7% in the average debt, which has generated savings of 104 million. |
-39-
| Changes of the actual value of commitments derived mainly from the pre-retirement plans and
other positions equally accounted at market value have generated a lower income by 85 million
in comparison with the same period of the previous year as the positive 2008 results were not
repeated. |
||
| Changes in the FX gains and losses up to December 2009 with respect to the same period in
2008 yield a higher cost of about 197 million. |
Income tax expense fell to 2,450 million euros in 2009 from 3,089 million euros in 2008, implying
an effective tax rate of 23.6%. We would highlight that in December 2007, the European Commission
opened an investigation involving the Kingdom of Spain on the potential consideration of the
deduction for tax amortization of the financial goodwill arising on certain foreign shareholding
acquisitions as government aid under the provisions of article 12.5 of the revised Spanish Income
Tax Law (TRLIS). This investigation led to widespread uncertainties regarding the scope of the
European Commissions decision on the future for, among others, the Telefónica Group. In the case
of the Telefónica Group, as a result of this uncertainty the Company deemed necessary to recognize
a liability in the consolidated financial statements until the proceedings were clarified as it had
been applying a tax incentive. In December 2009, the European Commission released its decision
regarding the investigation, deeming the deduction as state aid. This decision does not affect
investments made before December 21, 2007, which is the case of the Telefónica Groups investments
in O2 Group companies, the operators acquired from BellSouth, Colombia Telecomunicaciones, S.A. ESP
and Telefonica O2 Czech Republic, a.s. As a result of this decision and considering the corporate
structure of these investments, income tax in the Telefónica Groups consolidated income statement
for the year ended December 31, 2009 is 591 million euros lower due to the reversal of this
liability. |
||
Our minority interests amounted to a negative figure of 161 million in 2009 compared to a negative
figure of 234 million in 2008, primarily as a result of lower profits at Telesp and Telefónica
Chile (after the public offering dropped on the minority shareholders of it in 2008) and higher
loss at Colombia Telecom, which we account for as minority interests. |
||
As a result of the above, our profit for the year attributable to equity holders of the parent
company increased 2.4% to 7,776 million in 2009 compared to 7,592 million in 2008. |
-40-
The following table shows our total accesses at the dates indicated: |
At December 31, | ||||||||||||
2007 | 2008 (1) | 2009 | ||||||||||
(in thousands) | ||||||||||||
Fixed telephony accesses (2) |
43,433.6 | 42,930.8 | 40,606.0 | |||||||||
Internet and data accesses |
13,156.6 | 14,654.3 | 15,082.5 | |||||||||
Narrowband accesses |
2,678.7 | 1,997.2 | 1,427.5 | |||||||||
Broadband accesses (3) |
10,320.2 | 12,472.1 | 13,492.6 | |||||||||
Other accesses (4) |
157.7 | 185.0 | 162.4 | |||||||||
Mobile accesses (5) (6) |
167,781.1 | 195,818.6 | 202,332.5 | |||||||||
Pay TV accesses |
1,748.1 | 2,267.5 | 2,489.2 | |||||||||
Final clients accesses |
226,119.4 | 255,671.1 | 260,510.2 | |||||||||
Unbundled local loop accesses |
1,396.5 | 1,748.1 | 2,206.0 | |||||||||
Shared UL accesses |
776.4 | 602.3 | 447.7 | |||||||||
Full UL accesses |
620.1 | 1,145.8 | 1,758.3 | |||||||||
Wholesale ADSL accesses (7) |
571.7 | 534.7 | 463.4 | |||||||||
Other accesses (8) |
656.0 | 1,150.1 | 1,426.0 | |||||||||
Wholesale accesses |
2,624.2 | 3,433.0 | 4,095.3 | |||||||||
Total accesses |
228,743.6 | 259,104.1 | 264,605.5 | |||||||||
(1) | From January 1, 2008, fixed wireless public use telephony accesses are included under
the caption fixed telephony accesses. |
|
(2) | PSTN (including public use telephony) x1; ISDN basic access x1; ISDN primary access; 2/6
access x30. Includes the Groups accesses for internal use. It also includes VOIP and
naked ADSL accesses. |
|
(3) | Includes ADSL, satellite, fiber optic, cable modem and broadband circuits and naked
ADSL. |
|
(4) | Includes remaining non-broadband final client circuits. |
|
(5) | Includes accesses of Telemig since 2008. Medi Telecom accesses are excluded in 2009. |
|
(6) | As of 1 January 2008, in order to align the criteria for the key performance indicators
of the mobile operations of the Group, the series of mobile accesses, and therefore, of
total accesses, have been revised, including machine to machine accesses. In addition,
the accounting criteria for prepaid access in the Czech Republic and Slovakia have been
modified to align them, changing from 13 months (registered) to three months (active). |
|
(7) | Includes unbundled lines by Telefónica O2 Germany. |
|
(8) | Includes circuits for other operators. |
-41-
| Country risk (investments in Latin America). At December 31, 2009, approximately 35.7% of
the Groups assets were located in Latin America. In addition, around 40.6% of its revenues
from operations for 2009 were derived from its Latin American operations. The Groups
investments and operations in Latin America (including the revenues generated by these
operations, their market value, and the dividends and management fees expected to be received
from them) are subject to various risks linked to the economic, political and social
conditions of these countries, including risks related to the following: |
| government regulation or administrative polices may change unexpectedly and negatively
affect the economic conditions or business environment in which it operates and, therefore
our interests in such countries; |
||
| currencies may be devalued or may depreciate or currency restrictions and other
restraints on transfer of funds may be imposed; |
||
| the effects of inflation or currency depreciation may lead certain of its subsidiaries
to a negative equity situation, requiring them to undertake a mandatory recapitalization
or commence dissolution proceedings; |
||
| governments may expropriate or nationalize assets or increase their participation in
the economy and companies; |
||
| governments may impose burdensome taxes or tariffs; |
||
| political changes may lead to changes in the economic conditions and business
environment in which it operates; and |
||
| economic downturns, political instability and civil disturbances may negatively affect
the Telefónica Groups operations in such countries. |
For instance, throughout 2009 and in the early part of 2010, certain factors affecting the
Venezuelan economy have had an impact on the accounting treatment applied with respect to the
Groups subsidiaries in that country, notably the level of inflation reached in 2009, the
cumulative inflation rate over the last three years, restrictions to the official foreign
exchange market and the devaluation of the bolivar on January 8, 2010. As a result, in
accordance with IFRS, Venezuela had to be considered a hyperinflationary economy in 2009, which
has had a series of impacts on the Groups consolidated financial statements for 2009 and will
on 2010. A more detailed description of this issue is included in Note 2 to the Telefónica
Groups 2009 financial statements. |
-42-
In addition, the Telefónica Groups operations are dependent, in many cases, on concessions and
other agreements with existing governments in the countries in which it operates. These
concessions and agreements, including their renewal, could be directly affected by economic and
political instability, altering the terms and conditions under which it operates. |
| Management of foreign currency and interest rate risk. The Telefónica Groups business is
exposed to various types of market risk in the normal course of its business, including the
impact of changes in interest rates or foreign currency exchange rates, as well as the impact
of changes of credit risk in its treasury operations or in some structured financed
transactions it enters. The Telefónica Group employs risk management strategies to manage this
risk, in part through the use of financial derivatives, such as foreign currency forwards,
currency swap agreements and interest rate swap agreements. If the financial derivatives
market is not sufficiently liquid for the Groups risk management purposes, or if it cannot
enter into arrangements of the type and for the amounts necessary to limit its exposure to
currency exchange-rate and interest-rate fluctuations, or if its banking counterparties fail
to deliver on their commitments due to lack of solvency or otherwise, such failure could
adversely affect its financial position, results of operations and cash flow. Also,
Telefónicas other risk management strategies may not be successful, which could adversely
affect its financial position, results of operations and cash flow. Finally, if the rating of
its counterparties in treasury investments or in its structured financed transactions
deteriorates significantly or if these counterparties fail to meet their obligations to the
Company, the Telefónica Group may suffer loss of value in its investments, incur in unexpected
losses and/or assume additional financial obligations under these transactions. Such failure
could adversely affect the Telefónica Groups financial position, results of operations and
cash flow. |
| Current global economic situation. The Telefónica Groups business is impacted by general
economic conditions and other similar factors in each of the countries in which it operates.
The current adverse global economic situation and uncertainty about the economic recovery may
negatively affect the level of demand of existing and prospective customers, as customers may
no longer deem critical the services offered by the Group. Other factors that could influence
customer demand include access to credit, unemployment rates, consumer confidence and other
macroeconomic factors. Specifically, in this respect the continuation of recession in Spain,
according to the Stability Program 2009-2013 forecasts of the Spanish Ministry of Economy,
could have an adverse affect on the Telefónica Groups results in Spain. |
In addition, there could be other possible follow-on effects from the economic crisis on the
Groups business, including insolvency of key customers or suppliers. A loss of customers or a
reduction in purchases by its current customers decline in sales could have an adverse effect
on the Telefónica Groups financial position, results of operations and cash flow and may
therefore negatively affect its ability to meet its growth targets. |
| Dependence on external sources of financing. The performance, expansion and improvement of
networks, as well as the development and distribution of the Telefónica Groups services and
products require a substantial amount of financing. Moreover, the Telefónica Groups liquidity
and capital resource requirements may increase if the Company participates in other fixed line
or wireless license award processes or makes
acquisitions. There are also other major capital recourse requirements relating to, among
others, the development of distribution channels in new countries of operations and the
development and implementation of new technologies. |
-43-
If its ability to generate cash flow were to decrease, whether due to the ongoing economic and
financial crisis or otherwise, the Telefónica Group may need to incur additional debt or raise
other forms of capital to support its liquidity and recourses requirements for the sustained
development and expansion of its business. |
|||
The current situation of financial markets in terms of liquidity, cost of credit and volatility
has improved since the second half of 2008 and during 2009. However, there are still
uncertainties surrounding the pace of the economic recovery, the health of the international
banking system, the increasing concerns regarding the burgeoning deficits of some governments,
etc., which could affect the normal development of financial markets. Worsening conditions in
international financial markets due to any of these factors may make it more difficult and
expensive for the Telefónica Group to refinance its debt or take on additional debt if
necessary. |
|||
In addition, its capacity to raise capital in the international capital markets would be
impaired if its credit ratings were downgraded, whether due to decreases in its cash flow or
otherwise. Further, current market conditions make it more challenging to renew unused
bilateral credit facilities. |
|||
The current financial crisis could also make it more difficult and costly for the Companys
current shareholders to launch rights issues or ask key investors for equity investments, even
if further funds were needed for the Company to pursue its business plans. |
|||
| Risks associated with relationships with venturers. Telefónicas mobile business in Brazil
is conducted through a 50/50 joint venture company, Brasilcel, N.V., which is jointly
controlled by the Group and Portugal Telecom, SGPS, S.A. (Portugal Telecom). Since it has
less than a controlling interest in this joint venture, Telefónica does not have absolute
control over the ventures operations. As a result, there is an inherent risk for management
or operational disruptions whenever an agreement between the Company and its partners arises,
in terms of a deadlock of the management or the possible operations. |
Therefore, Telefónica must cooperate with Portugal Telecom to implement and expand it business
strategies and to finance and manage the operations of the venture. If Telefónica does not
manage to obtain the cooperation of Portugal Telecom or if a disagreement or deadlock arises it
may not achieve the expected benefits from its interest in this joint venture, such as
economies of scale and opportunities to achieve potential synergies and cost savings. |
| Highly competitive markets. The Telefónica Group faces significant competition in all of
the markets in which it operates. Therefore, it is subject to the effects of actions by
competitors in these markets. These competitors could: |
| offer lower prices, more attractive discount plans or better services or features; |
-44-
| develop and deploy more rapidly new or improved technologies, services and products; |
||
| launch bundle offerings of one type of service with others; |
||
| in the case of the mobile industry, subsidize handset procurement; or |
||
| expand and extend their networks more rapidly. |
Furthermore, some of these competitors in certain markets have, and some potential competitors
may enjoy, in certain markets, competitive advantages, including the following: |
| greater brand name recognition; |
||
| greater financial, technical, marketing and other resources; |
||
| dominant position or significant market power; |
||
| better strategic alliances; |
||
| larger customer bases; and |
||
| well-established relationships with current and potential customers. |
To compete effectively with these competitors, the Telefónica Group needs to successfully
market its products and services and to anticipate and respond to various competitive factors
affecting the relevant markets, such as the introduction of new products and services by its
competitors, pricing strategies adopted by its competitors, changes in consumer preferences and
in general economic, political and social conditions. The Telefónica Groups inability to
effectively compete could result in price reductions, lower revenues, under-utilization of the
Groups services, reduced operating margins and loss of market share. Any of these
circumstances could negatively affect the Telefónica Groups financial position, results of
operations and cash flow. |
| Highly regulated markets. As a multinational telecommunications company that operates in
regulated markets, the Telefónica Group is subject to different laws and regulations in each
of the jurisdictions in which it provides services and in which supranational (e.g. the
European Union), national, state, regional local authorities intervene to varying degrees and
as appropriate. Depending on whether the Company has a dominant position or not in these
markets, the regulations in some countries are particularly strict. In this respect, the
regulatory authorities regularly intervene in both the wholesale and retail offering and
pricing of the Telefónica Groups products and services. |
Furthermore, they could also adopt regulations or take other actions that could adversely
affect the Telefónica Group, including revocation of or failure to renew any of its licenses,
changes in the spectrum allocation or the grant of new licenses, authorizations or concessions
to competitors to offer services in a particular market. They could also adopt, among others,
measures or additional requirements to reduce roaming prices and fixed
|
-45-
mobile termination rates, force Telefónica to provide third-party access to its networks and
impose economic fines for serious breaches. Such regulatory actions or measures could place
significant competitive and pricing pressure on the Groups operations, and could have a
material adverse effect on the Telefónica Groups financial position, results of operations and
cash flow. |
In addition, since the Telefónica Group holds a leading market share in many of the countries
where in operates, the Group could be affected by regulatory actions of antitrust or
competition authorities. These authorities could prohibit certain actions, such as making
further acquisitions or continuing to engage in particular practices or impose fines or other
penalties on the Company, which, if significant, could result in loss of market share and/ or
in harm to future growth of certain businesses. |
Specifically, the regulatory landscape in Europe will change as a consequence of the recent
approval of the European Unions new common regulatory framework, which must be transposed into
national law by Member States by June 2011. The regulatory principles established for Europe
suggest that the new frameworks in each Member State could result in increased regulatory
pressure on the local competitive environment. |
This framework supports the adoption of measures by national regulators, in specific cases and
under exceptional conditions, establishing the functional separation between the wholesale and
retail businesses of operators with significant market power and vertically integrated
operators, whereby they would be required to offer equal wholesale terms to third-part
operators that are not integrated. The new framework is also likely to strengthen consumer
protection, network integrity and data privacy measures. The Company may also face new
regulatory initiatives in the area of mobile termination rates and the provision of audiovisual
content and services. |
In some European countries, the Telefónica Group may also face increased pressure from
regulatory initiatives aimed at reallocating spectrum rights of use and changing the policies
regarding spectrum allocation which could lead to new procedures for awarding spectrum in
Europe. |
Finally, the recommendation on the application of the European regulatory policy to
next-generation broadband networks being drawn up by the European Commission could play a key
role in the incentives for operators to invest in net fixed broadband networks in the short and
medium term, thus affecting the outlook for the business and competition in this market
segment. |
| Services are provided under licenses or concessions. Most of Telefónicas operating
companies require licenses, authorizations or concessions from the governmental authorities of
the various countries. These licenses, authorizations and concessions specify the types of
services Telefónica is permitted to offer under each circumstance. |
The terms of its licenses, authorizations and concessions are subject to review by regulatory
authorities in each country and to possible interpretation, modification of termination by
these authorities. Moreover, authorizations, licenses and concessions, as well as their renewal
terms and conditions, may be directly affected by political and regulatory factors. |
-46-
The terms of these licenses, authorization and concessions and the conditions of the renewals
of such licenses, authorizations and concessions vary from country to country. Although
license, authorization and concession renewal is not usually guaranteed, most licenses,
authorizations and concessions do address the renewal process and terms, which is usually
related to the fulfillment of the commitments that were assumed by the grantee. As licenses,
authorizations and concessions approach the end of their terms, the Telefónica Group intends to
pursue their renewal to the extent provided by the relevant licenses, authorizations or
concessions, though the Group can not guarantee that it will always complete this process
successfully. |
Many of these licenses, authorizations and concessions are revocable for public interest
reasons. The rules of some of the regulatory authorities with jurisdiction over the Telefónica
Groups operating companies require them to meet specified network build-out requirements and
schedules. In particular, Telefónicas existing licenses, authorizations and concessions
typically require it to satisfy certain obligations, including, among others, minimum specified
quality standards, service and coverage conditions and capital investment. Failure to comply
with these obligations could result in the imposition of fines or revocation or forfeiture of
the license, authorization or concession. In addition, the need to meet scheduled deadlines may
require Telefónica Group operators to expend more resources than otherwise budgeted for a
particular network build-out. |
| Markets subject to constant technological development. The Telefónica Groups future
success depends, in part, on its ability to anticipate and adapt in a timely manner to
technological changes. New products and technologies are constantly emerging, while existing
products and services continue to develop. This need for constant technological innovation can
render obsolete the products and services the Telefónica Group offers and the technology it
uses, and may consequently reduce the revenue margins obtained and require investment in the
development of new products, technology and services. In addition, the Company may be subject
to competition in the future from other companies that are not subject to regulation as a
result of the convergence of telecommunications technologies. As a result, it may be very
expensive for the Telefónica Group to develop the products and technology it needs in order to
continue to compete effectively with new or existing competitors. Such increased costs could
adversely affect the Telefónica Groups financial position, results of operations and cash
flow. |
The Telefónica Group must continue to upgrade its existing mobile and fixed line networks in a
timely and satisfactory manner in order to retain and expand its customer base in each of its
markets, to enhance its financial performance and to satisfy regulatory requirements. Among
other things, the Telefónica Group could be required to upgrade the functionality of its
networks to achieve greater service customization, to increased coverage of some of its
markets, or expand and maintain customer service, network management and administrative
systems. |
Many of these tasks are not entirely under the Telefónica Groups control and could be
constrained by applicable regulation. If the Telefónica Group fails to execute these tasks
efficiently, its services and products may become less attractive to new customers and the
Company may lose existing customers to its competitors, which would adversely affect the
Telefónica Groups financial position, results of operations and cash flow. |
-47-
| Limitations on spectrum capacity could curtail growth. Telefónicas mobile operations in a
number of countries may rely on the availability of spectrum. The Companys failure to obtain
sufficient or appropriate capacity and spectrum coverage, and, albeit to a lesser extent, the
related cost of obtaining this capacity could have an adverse impact on the quality of our
services and on its ability to provide new services, adversely affecting its business,
financial position, results of operations and cash flow. |
| Supplier issues. The Telefónica Group depends upon a small number of major suppliers for
essential products and services, mainly network infrastructure and mobile handsets. These
suppliers may, among other things, extend delivery times, raise prices and limit supply due to
their own shortages and business requirements. Further, these suppliers may be adversely
affected by current economic conditions. If these suppliers fail to deliver products and
services on a timely basis, this could have an adverse impact on the Telefónica Groups
businesses and the results of its operations. Similarly, interruptions in the supply of
telecommunications equipment for its networks could impede network development and expansion,
which in some cases could adversely affect the Telefónica Groups ability to satisfy its
license terms and requirements. |
| Risks associated with unforeseen network interruptions. Unanticipated network interruptions
as a result of system failures whether accidental or otherwise, including due to network,
hardware or software failures, which affect the quality of or cause an interruption in the
Telefónica Groups service, could lead to customer dissatisfaction, reduced revenues and
traffic, costly repairs, fines or other types of measures imposed by regulatory authorities
and could harm the Telefónica Groups reputation. Telefónica attempts to mitigate these risks
through a number of measures, including backup systems and protective systems such as
firewalls, virus scanners and building security. However, these measures are not effective
under all circumstances and it is not possible to foresee every incident or action that could
damage or interrupt the Telefónica Groups networks. Although the Telefónica Group carries
business interruption insurance, its insurance policy may not provide coverage in amounts
sufficient to compensate it for any losses it may incur. |
| Certain studies suggest that electromagnetic radio emissions are harmful. Over the last few
years, the debate about the alleged potential effects of radio frequency emissions on human
health has hindered the deployment of the infrastructures necessary to ensure quality of
service. |
Institutions and organizations, such as the World Health Organization, have stated that
exposure to radio frequency emissions generated by mobile telephony, within the limits
established, has no adverse effects on health. In fact, a number of European countries,
including Spain among others, have drawn up complete regulations reflecting the Recommendation
of the Council of the European Union dated July 12, 1999. These add planning criteria for new
networks, thus ensuring compliance with the limits on exposure to radio frequency emissions. |
Whether or not other research or studies conclude there is a link between radiofrequency
emissions and health, popular concerns about radio frequency emissions may discourage the use
of mobile communication devices and may result in significant restrictions on both the location
and operation of cell sites, either or both of which could have a detrimental |
-48-
impact on the Telefónica Groups mobile companies and consequently on its financial position,
results of operations and cash flow. While the Telefónica Group is not aware of any evidence
confirming a link between radio-frequency emissions and health problems and it continues to
comply with good practices codes and relevant regulations, there can be no assurance of what
future medical research may suggest. |
| Risk of asset impairment. The Telefónica Group reviews on an annual basis, or more
frequently where the circumstances require, the value of each of its assets and subsidiaries,
to asses whether the carrying values of such assets and subsidiaries can be supported by the
future cash flows expected, including, in some cases synergies included in acquisition cost.
The current economic environment and its development in the short and medium term, as well as
changes in the regulatory, business or political environment may result in the need to
introduce impairment changes in its goodwill, intangible assets or fixed assets. Though the
recognition of impairments of items of property, plant and equipment, intangible assets and
financial assets results in a non-cash charge on the income statement, it could adversely
affect the Telefónica Groups results of operations. |
| Litigation and other legal proceedings. The Telefónica Group is party to lawsuits and other
legal, regulatory and antitrust proceedings in the ordinary course of its business, the final
outcome of which is generally uncertain. Litigation and regulatory proceedings are inherently
unpredictable. An adverse outcome in, or any settlement of, these or other proceedings
(including any that may be asserted in the future) could result in significant costs and may
have a material adverse effect on the Telefónica Groups business, financial position, results
of operations and cash flow. |
-49-
Telefónica, S.A. |
||||
Date: February 26th, 2010 | By: | Santiago Fernández Valbuena | ||
Name: | Santiago Fernández Valbuena | |||
Title: | Chief Financial Officer | |||