FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of November 5th, 2003
Commission File Number: 000-28011
Terra Networks, S.A.
(Translation of registrant’s name into English)
Paseo de la Castellana, 92
28.046 Madrid
Spain
(34) 91-452-3900
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F X | Form 40-F |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
| Yes | No X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
| Yes | No X |
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
| Yes | No X |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Terra Networks, S.A.
TABLE OF CONTENTS
| Item | Sequential Page Number | |||
| 1 | 9 month-03 Terra Lycos Financial Results | 27 |
Terra Lycos
January – September 2003
9m 2003 Results
Summary of Contents
| • | Press Release |
| • | Consolidated Statement of Operations |
| • | Notes to Consolidated Statement of Operations |
| • | Consolidated Balance Sheet |
| • | Cash Flow and Change in Net Debt Position |
| • | Operating Data |
| • | Consolidated Statements of Operations |
| • | Notes to Consolidated Statements of Operations |
| • | Consolidated Balance Sheet |
| • | Operating Data |
| • | Description of main Consolidated Statement of Operations accounts and EBITDA |
| • | Main Fully and Equity Consolidated Companies |
| • | Guidance |
| • | Relevant Facts filed with the CNMV/SEC |
| • | Press Releases |
| • | Contact Information |
2
The company improved EBITDA by 63% in 9M03
TERRA LYCOS IMPROVES NET INCOME THROUGH SEPTEMBER BY 59% AND EXPECTS TO POST POSITIVE EBITDA IN 4Q
Key highlights of the January-September 2003 performance compared to the same period last year:
| Ÿ | Growth in revenues in local currency was 15%, excluding the impact of the Bertelsmann agreement and Telefónica strategic alliance. |
| Ÿ | Revenues in local currency amounted to 463 million euros. The depreciation of all currencies outside the Euro zone yielded a negative impact of 72 million euros. In current euros, Terra Lycos reported revenues of 391 million euros. |
| Ÿ | In line with the continuous positive EBITDA performance in the last 13 quarters, the Company expects to reach positive EBITDA in 4Q03. |
| Ÿ | EBITDA in current euros was -37 million euros, an improvement of 63% or 63 million euros since last year. The EBITDA margin improved 11 basis points to -10%. |
| Ÿ | The EBITDA margin in local currency was -8%, an improvement of 13 basis points. |
| Ÿ | Net income in current euros rose 59%, or 195 million euros, to -137 million euros. |
| Ÿ | Terra Lycos exited the quarter with a total of 4.6 million paying access, communication and portal services customers, an increase of 82%. |
| Ÿ | In September 2003, the Company surpassed the half-million mark for broadband customers, ending the month with a total of 543,203, a rise of 59%. |
Madrid, 05 November 2003.-Terra Lycos (MC: TRR; NASDAQ: TRLY), the global Internet Group, today released its financial results for the first nine months of 2003 and comparisons with the same period of 2002.
Revenues
Terra Lycos recorded revenue growth in local currency of 15%, excluding the revenues derived from the Group’s agreement with Bertelsmann in the first nine months of 2002 and revenues derived from its strategic alliance with Telefónica this year.
3
9m 2003 Results
Press Release
Revenues in local currency amounted to 463 million euros. After the consolidation of local currency revenues, total revenues were negatively impacted by 72 million euros, due to the impact of the stronger euro, mainly vis-a-vis the Brazilian real and the US dollar.
The end of the agreement with Bertelsmann and the start of the new alliance with Telefónica yielded a negative impact of 56 million euros, at constant euros of the first nine months of 2002. Although this alliance means less revenues for the first three years, it guarantees profitability and stability for Terra Lycos’ business model in the medium and longer term (minimum 6 years vs 3), in addition to assuring a positive annual value of at least 78.5 million euros and leading to greater geographic, product and customer diversification.
In these nine months, the access business accounted for 41% of Terra Lycos revenues; advertising and e-commerce accounted for 25%; value-added communication, portal and content services accounted for 23%; and the remaining 11% of revenues came from corporate & SME services and other revenues.
Particularly noteworthy was the 165% increase in revenues generated by value-added communication, portal and content services.
During the course of the last quarter, Terra Lycos began marketing new and innovative products: the company broadened its ADSL offering with the introduction of WI-FI technology, which allows for wireless high-speed access to the Internet; in the US, it launched SideSearch, which offers users a second opinion without having to open other search engines; and it signed an agreement with Movielink enabling users in the US to download movies from leading film producers. Terra España and Terra Brasil (the latter rated as Brazil’s favourite ISP by the prestigious magazine,Carta Capital) were also successful recently with the launch of Conecta Disney.
4
9m 2003 Results
Press Release
The Company has reached new agreements and consolidated existing relationships with some of the largest advertisers in the world, such as Adidas, American Express, AT&T Wireless, Bank of America, BBVA, CNN, Dell, Exxon, Federal Express, General Motors, Google, Heineken, Hewlett Packard, IBM, Johnson & Johnson, KLM, Kraft, Lanbox, Nike, Pepsi, Samsung, Sears, Sony, Unilever, Universal Pictures, U.S Army, VISA, Volkswagen, Volvo and Western Union.
Operating expenses
Terra Lycos’ efficient management of operations in the period led to a steady improvement in processes, enabling it to progressively reduce operating expenses by as much as 29%.
Operating margin – EBITDA
The Company expects to obtain positive EBITDA in the whole of the fourth quarter, in line with the continuous improvement in EBITDA seen in the last 13 quarters. 9M03 EBITDA in current euros was -37 million euros, an improvement of 63% or 63 million euros. The EBITDA margin over revenues was -10%, an improvement of 11 basis points, while the EBITDA margin over revenues in local currency was -8%, an improvement of 13 basis points.
5
9m 2003 Results
Press Release
Net income
Terra Lycos reported net income of –137 million euros, an improvement of 59% or 195 million euros. The rise in net income was prompted by both the improvement in EBITDA and the write-down of assets made at the close of 2002.
Cash
Terra Lycos still has one of the strongest cash positions in the sector, allowing it to fund its operations and explore new business opportunities with the aim of achieving profitable growth. The Company closed September 2003 with 1.62 billion euros in cash.
Operating Results
Terra Lycos ended September with a total of 4.6 million paying access, communication and portal services customers, an increase of 82%.
In September, the Company surpassed the half-million mark for broadband customers, ending the month with a total of 543,203, a rise of 59%. Along with increases in ADSL customers of 67% and 15% respectively in Brazil and Spain, another highlight is the growth in Chile, with 292%. Terra is still the leader in Brazil with market shares of over 50%, and in Spain continues to be the second ranked broadband access provider after Telefónica.
Subscribers to communications and portal services grew 166%, surpassing the 3 million mark thanks to both the success of the products and services launched by the Company in different countries and the new alliance with Telefónica.
About Terra Lycos
Terra Lycos is a global Internet group, with a presence in 40 countries in 19 languages. The group, which resulted from Terra Networks, S.A’s acquisition of Lycos, Inc. in October of 2000, operates some of the most widely visited web sites in the US, Europe, Asia and Latin America, and is the largest access provider in Spain and Latin America.
Terra Lycos’ network of websites includes Terra in 18 countries, Lycos in 22 countries, Angelfire.com, Atrea.com, Azeler.es, Educaterra.com, Gamesville.com, HotBot.com, Ifigenia.com, Invertia.com, Lycos Zone, Maptel.com, Matchmaker.com, Quote.com, RagingBull.com, Rumbo.com, Tripod.com, Uno-e.com and Wired News (Wired.com), among others.
Terra Lycos, with headquarters in Barcelona and operating centers in Madrid and Boston, as well as elsewhere, is listed on the Madrid stock exchange (ticker: TRR) and on the NASDAQ electronic market (ticker: TRLY).
6
9m 2003 Results
Press Release
*Safe-Harbour
This document contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company.This foward-looking statements in this document can be identified, in some instances, by the use of words such as “expects”, “anticipates”, “intends”, “believes” and similar language or the negative thereof or by the forward-looking nature of discussions of strategy, plans or intentions (Shearman.-May 2 2003). Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. Analysts and investors are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this presentation. Terra Lycos undertakes no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Terra Lycos business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company’s Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.
7
9m 2003 Results
8
9m 2003 Results
Financial Statements
Consolidated Statement of Operations
(in thousand of Euros – Spanish GAAP)
unaudited
| Nine Months Ended sep-30 | ||||||
| 2003 | 2002 | |||||
Revenues: | ||||||
Access | 158,570 | 169,156 | ||||
Advertising and e-commerce | 99,586 | 228,017 | ||||
Communication, portal and content services | 88,100 | 33,189 | ||||
Corporate & SMEs Services and Other | 44,983 | 37,744 | ||||
Total revenues | 391,239 | 468,106 | ||||
Operating expenses: | ||||||
Goods purchased | (199,561 | ) | (227,024 | ) | ||
Personnel expenses | (93,126 | ) | (136,781 | ) | ||
Professional services | (20,914 | ) | (29,002 | ) | ||
Depreciation and amortization | (57,158 | ) | (110,423 | ) | ||
Marketing and Commissions | (54,395 | ) | (96,253 | ) | ||
Maintenance, supplies and leases | (33,333 | ) | (47,734 | ) | ||
Other operating expenses | (37,013 | ) | (47,645 | ) | ||
Total operating expenses | (495,500 | ) | (694,862 | ) | ||
Operating loss | (104,261 | ) | (226,756 | ) | ||
Financial income (expense) | 27,059 | 49,324 | ||||
Amortization of goodwill | (62,385 | ) | (191,070 | ) | ||
Equity share in affiliate losses, net | (15,014 | ) | (60,278 | ) | ||
Extraordinary income (expense) and other | 17,401 | 875 | ||||
Income (loss) before taxes | (137,200 | ) | (427,905 | ) | ||
Corporate income tax credit | (226 | ) | 92,739 | |||
Minority interest | 447 | 2,972 | ||||
Net Loss (Spanish GAAP) | (136,979 | ) | (332,194 | ) | ||
Shares excluding Stock Options Plan (’000) | 560,973 | 559,364 | ||||
9
9m 2003 Results
Financial Statements
Notes to Consolidated Statement of Operations
(in thousand of Euros – Spanish GAAP)
unaudited
Revenues by Country (1)
| Nine Months Ended Sep-30 | D% | |||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||
| Current Euros | Local Currency | |||||||||||
Spain | 139,949 | 107,419 | 139,949 | 107,419 | 30% | |||||||
Brazil | 105,990 | 91,746 | 366,455 | 226,512 | 62% | |||||||
US | 93,812 | 198,584 | 104,140 | 183,505 | -43% | |||||||
Other | 51,488 | 70,357 | 62,383 | (2) | 70,357 | (3) | -11% | |||||
Total revenues | 391,239 | 468,106 | ||||||||||
| (1) | Not by legal entity |
| (2) | In euros at 9m’02 average exchange rates |
| (3) | In Euros |
EBITDA Reconciliation – Current Euros
| Nine Months Ended sep-30 | D% | |||||||
| 2003 | 2002 | |||||||
Operating loss | (104,261 | ) | (226,756 | ) | 54% F | |||
Depreciation and amortization | 57,158 | 110,423 | 48% F | |||||
Lease expense on fixed assets (1) | 9,875 | 16,661 | 41% F | |||||
EBITDA (2) | (37,228 | ) | (99,672 | ) | 63% F | |||
EBITDA Margin | -10% | -21% | 11 b.p. | |||||
| (1) | In all prior periods reported and for EBITDA guidance calculation purposes, expenses related to equipment leases recorded in Lycos are deemed to be depreciation costs. |
| (2) | See EBITDA description in the Other Information section |
| F: | Favorable evolution U: Unfavorable evolution |
10
9m 2003 Results
Financial Statements
9m’03 Figures at Constant Euros
| Nine Months Ended sep-30 | D% | ||||||||
| 2003 Constant € (1) | 2002 | ||||||||
Revenue by business: | |||||||||
Access | 185,240 | 169,156 | 10% | ||||||
Advertising and e-commerce | 120,880 | 228,017 | -47% | ||||||
Communication, portal and content services | 103,384 | 33,189 | 212% | ||||||
Corporate & SMEs Services and Other | 53,963 | 37,744 | 43% | ||||||
Total revenues | 463,467 | 468,106 | -1% | ||||||
Revenue by country: | |||||||||
Spain | 139,949 | 107,419 | 30% | ||||||
Brazil | 148,429 | 91,746 | 62% | ||||||
US | 112,706 | 198,584 | -43% | ||||||
Other | 62,383 | 70,357 | -11% | ||||||
Total revenues | 463,467 | 468,106 | -1% | ||||||
EBITDA (2) | (38,126 | ) | (99,672 | ) | 62% | F | |||
EBITDA Margin | -8% | -21% | 13 b.p. | ||||||
| (1) | 9m’02 average exchange rates |
| (2) | See EBITDA description in the Other Information section |
| F: | Favorable evolution U: Unfavorable evolution |
“Business as Usual” Revenues (Net of FX and Bertelsmann/TEF contracts)
| Nine Months Ended sep-30 | D% | ||||||
| 2003 | 2002 | ||||||
Revenue at Current Euros | 391,239 | ||||||
Effect of exchange rates on revenues (1) | 72,228 | ||||||
Revenue at Constant Euros | 463,467 | 468,106 | -1 | % | |||
Bertelsmann/Telefonica revenues | 65,793 | 133,073 | |||||
Effect of FX on Bertelsmann/TEF revenues (1) | 11,231 | ||||||
“Business as Usual” Revenues | 386,443 | 335,033 | 15 | % | |||
| (1) | 9m’02 average exchange rates |
11
9m 2003 Results
Financial Statements
(in million of Euros—Spanish GAAP)
unaudited
| sep-30 2003 | sep-30 2002 | |||
ASSETS | ||||
Due from Shareholders for Uncalled Capital | 224 | 323 | ||
Fixed and Other Noncurrent Assets: | ||||
Intangible assets | 78 | 90 | ||
Property and equipment | 39 | 91 | ||
Long-term investments | 619 | 1,114 | ||
Other fixed and noncurrent assets | 1 | 65 | ||
Total fixed and other noncurrent assets | 737 | 1,360 | ||
Goodwill in consolidation | 451 | 1,571 | ||
Long-Term deferred expenses | 7 | 14 | ||
Current Assets: | ||||
Cash and Short-term investments | 1,622 | 1,825 | ||
Other current assets | 176 | 202 | ||
Total current Assets | 1,798 | 2,027 | ||
TOTAL ASSETS | 3,217 | 5,294 | ||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||
Shareholders’ equity | 2,939 | 4,906 | ||
Minority interests | 3 | 0 | ||
Long-term liabilities | 73 | 79 | ||
Current liabilities | 202 | 309 | ||
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES | 3,217 | 5,294 | ||
Note to Balance Sheet:
In December 2002, as a result of the analysis based on the estimated future value that each of the businesses and countries will generate, performed in order to determine the recovery of the carrying value of goodwill, tax assets, and other fixed assets in the consolidated balance sheet, in accordance with the accounting principle of prudence in valuation, the Company recorded impairment charges amounting to 857 million Euro related to goodwill and reversed tax assets amounting to 385 million Euro. Also, the Company wrote down 57 million Euro of start-up costs and recorded fixed assets valuation allowances and write off amounting to 61 million Euro.
12
9m 2003 Results
Financial Statements
(in million of Euros—Spanish GAAP)
unaudited
| sep-30 2003 | |||
Initial Balance (1) | 1,748.4 | ||
Cash flows from operating activities | (59.9 | ) | |
Cash flows from investing activities | (66.6 | ) | |
Cash flows from financing activities | 30.5 | ||
Conversion exchange rate | (34.3 | ) | |
Ending Balance (2) | 1,618.0 |
| (1) | ’03 initial balance expressed in Euros at Dec ’02 closing exchange rates. |
| (2) | ’03 ending balance expressed in Euros at Sep ’03 closing exchange rates. |
Change in Net Debt Position
(in million of Euros—Spanish GAAP)
unaudited
| sep-30 2003 | ||||
| I | Cash flow from operations | -59.9 | ||
| II | Other payment related to operating activities | 0.0 | ||
| III | Net interest payment | 26.1 | ||
| IV | Payment for income tax | 0.0 | ||
| A=I+II+III+IV | Net cash provided by operating activities | -33.8 | ||
| V | Net payment for investment in fixed and intangible assets | -62.9 | ||
| VI | Net payment for financial investment | -3.7 | ||
| B=V+VI | Net cash used in investing activities | -66.6 | ||
| C | Dividends paid | 0.0 | ||
| D=A+B+C | Free cash flow after dividends | -100.4 | ||
| E | Capital increases | 4.4 | ||
| F | Effects of conversion rate changes on net debt | -34.3 | ||
| G | Net debt at beginning of period | -1,761.1 | ||
Cash and cash equivalent | -1,748.4 | |||
Other short term financial investment | -12.7 | |||
| H=G-D-E-F | Net debt at end of period | -1,622.4 | ||
Cash and cash equivalent | -1,618.0 | |||
Other short term financial investment | -4.4 | |||
13
9m 2003 Results
Financial Statements
(in thousands)
| sep-30 | D% | |||||
| 2003 | 2002 | |||||
Total Pay Subscribers (1) | 4,602 | 2,530 | 82% | |||
Access: | ||||||
Narrowband | 1,035 | 1,051 | -2% | |||
Broadband | 543 | 342 | 59% | |||
Total | 1,578 | 1,393 | 13% | |||
OBP (CSP/Portal): | 3,024 | 1,137 | 166% | |||
Broadband Access Subscribers: | ||||||
Spain | 143 | 125 | 15% | |||
Latam | 400 | 217 | 84% | |||
Total | 543 | 342 | 59% | |||
| (1) | Based on number of services delivered. Some subscribers may be contracting access and OBP product/services at the same time. |
14
9m 2003 Results
15
9m 2003 Results
Historic Data
Consolidated Statement of Operations
(in thousand of Euros—Spanish GAAP) unaudited
| 2001 | 2002 | 2003 | |||||||||||||||||||||||||||||||
| 3m | 6m | 9m | 12m | 3m | 6m | 9m | 12m | 3m | 6m | 9m | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||
Access | 46,275 | 101,249 | 151,944 | 200,451 | 60,896 | 118,326 | 169,156 | 220,416 | 49,722 | 102,696 | 158,570 | ||||||||||||||||||||||
Advertising and e-commerce | 111,502 | 206,062 | 302,121 | 389,143 | 75,138 | 156,386 | 228,017 | 281,362 | 20,753 | 59,962 | 99,586 | ||||||||||||||||||||||
Communication, portal and content services | 6,768 | 15,028 | 22,952 | 33,936 | 9,396 | 21,015 | 33,189 | 66,638 | 30,593 | 61,922 | 88,100 | ||||||||||||||||||||||
Corporate & SMEs Services and Other | 13,199 | 35,116 | 50,538 | 69,982 | 15,166 | 26,611 | 37,744 | 53,376 | 13,759 | 29,156 | 44,983 | ||||||||||||||||||||||
Total revenues | 177,745 | 357,455 | 527,555 | 693,512 | 160,596 | 322,338 | 468,106 | 621,791 | 114,827 | 253,736 | 391,239 | ||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||
Goods purchased | (90,400 | ) | (188,400 | ) | (273,365 | ) | (352,039 | ) | (83,218 | ) | (157,367 | ) | (227,024 | ) | (293,619 | ) | (57,857 | ) | (129,529 | ) | (199,561 | ) | |||||||||||
Personnel expenses | (54,870 | ) | (109,138 | ) | (157,216 | ) | (204,969 | ) | (47,788 | ) | (93,986 | ) | (136,781 | ) | (165,433 | ) | (31,831 | ) | (62,712 | ) | (93,126 | ) | |||||||||||
Professional services | (13,222 | ) | (28,933 | ) | (41,873 | ) | (56,976 | ) | (11,973 | ) | (24,383 | ) | (29,002 | ) | (35,361 | ) | (6,088 | ) | (13,627 | ) | (20,914 | ) | |||||||||||
Depreciation and amortization | (32,453 | ) | (73,713 | ) | (109,373 | ) | (157,426 | ) | (40,369 | ) | (76,612 | ) | (110,423 | ) | (142,718 | ) | (19,461 | ) | (37,492 | ) | (57,158 | ) | |||||||||||
Marketing and Commisions | (57,679 | ) | (111,963 | ) | (152,633 | ) | (186,043 | ) | (28,266 | ) | (62,081 | ) | (96,253 | ) | (142,905 | ) | (15,592 | ) | (35,398 | ) | (54,395 | ) | |||||||||||
Maintenance, supplies and leases | (17,483 | ) | (35,989 | ) | (53,148 | ) | (70,757 | ) | (17,020 | ) | (33,539 | ) | (47,734 | ) | (63,353 | ) | (12,176 | ) | (23,905 | ) | (33,333 | ) | |||||||||||
Other operating expenses | (26,782 | ) | (38,657 | ) | (61,202 | ) | (82,746 | ) | (19,179 | ) | (35,773 | ) | (47,645 | ) | (62,815 | ) | (10,844 | ) | (25,188 | ) | (37,013 | ) | |||||||||||
Total operating expenses | (292,889 | ) | (586,792 | ) | (848,809 | ) | (1,110,956 | ) | (247,813 | ) | (483,741 | ) | (694,862 | ) | (906,204 | ) | (153,849 | ) | (327,851 | ) | (495,500 | ) | |||||||||||
Operating loss | (115,144 | ) | (229,337 | ) | (321,254 | ) | (417,444 | ) | (87,217 | ) | (161,403 | ) | (226,756 | ) | (284,413 | ) | (39,022 | ) | (74,115 | ) | (104,261 | ) | |||||||||||
Financial income (expense) | 30,011 | 68,942 | 96,604 | 126,262 | 14,445 | 33,730 | 49,324 | 63,544 | 12,270 | 21,416 | 27,059 | ||||||||||||||||||||||
Amortization of goodwill | (126,334 | ) | (268,965 | ) | (320,284 | ) | (383,507 | ) | (65,661 | ) | (128,887 | ) | (191,070 | ) | (252,555 | ) | (20,129 | ) | (42,173 | ) | (62,385 | ) | |||||||||||
Equity share in affiliate losses, net | (112,503 | ) | (126,310 | ) | (173,045 | ) | (181,732 | ) | (21,012 | ) | (39,076 | ) | (60,278 | ) | (148,902 | ) | (11,187 | ) | (8,608 | ) | (15,014 | ) | |||||||||||
Extraordinary income (expense) and other | 64,181 | (8,776 | ) | (31,420 | ) | (74,847 | ) | (1,352 | ) | (2,942 | ) | 875 | (1,046,331 | ) | 2,518 | 5,773 | 17,401 | ||||||||||||||||
Income (loss) before taxes | (259,788 | ) | (564,446 | ) | (749,398 | ) | (931,268 | ) | (160,797 | ) | (298,578 | ) | (427,905 | ) | (1,668,657 | ) | (55,550 | ) | (97,707 | ) | (137,200 | ) | |||||||||||
Corporate income tax credit | 85,525 | 173,308 | 274,983 | 363,350 | 30,046 | 62,291 | 92,739 | (342,625 | ) | (164 | ) | (168 | ) | (226 | ) | ||||||||||||||||||
Minority interest | (218 | ) | 699 | 1,101 | 1,620 | 586 | 2,811 | 2,972 | 2,411 | 26 | 24 | 447 | |||||||||||||||||||||
Net Loss (Spanish GAAP) | (174,482 | ) | (390,439 | ) | (473,314 | ) | (566,298 | ) | (130,165 | ) | (233,476 | ) | (332,194 | ) | (2,008,871 | ) | (55,688 | ) | (97,851 | ) | (136,979 | ) | |||||||||||
Shares excluding Stock Options Plan (’000) | 557,127 | 557,471 | 558,619 | 558,835 | 560,600 | 559,313 | 559,364 | 559,569 | 559,848 | 560,835 | 560,973 | ||||||||||||||||||||||
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9m 2003 Results
Historic Data
Notes to Consolidated Statement of Operations
(in thousand of Euros – Spanish GAAP)
unaudited
| 2001 | 2002 | 2003 | |||||||||||||||||||||||||||||||
| 3m | 6m | 9m | 12m | 3m | 6m | 9m | 12m | 3m | 6m | 9m | |||||||||||||||||||||||
Revenues by Country: (1) | |||||||||||||||||||||||||||||||||
Spain | 30,649 | 72,656 | 104,992 | 137,997 | 35,458 | 71,154 | 107,419 | 164,148 | 42,051 | 89,638 | 139,949 | ||||||||||||||||||||||
Brazil | 20,216 | 43,874 | 69,268 | 98,941 | 31,853 | 65,371 | 91,746 | 115,484 | 33,270 | 71,934 | 105,990 | ||||||||||||||||||||||
US | 106,123 | 195,524 | 283,878 | 354,629 | 67,455 | 137,909 | 198,584 | 230,907 | 21,317 | 57,263 | 93,812 | ||||||||||||||||||||||
Other | 20,758 | 45,401 | 69,419 | 101,945 | 25,830 | 47,904 | 70,357 | 111,252 | 18,189 | 34,902 | 51,488 | ||||||||||||||||||||||
Total revenues | 177,745 | 357,455 | 527,555 | 693,512 | 160,596 | 322,338 | 468,106 | 621,791 | 114,827 | 253,736 | 391,239 | ||||||||||||||||||||||
EBITDA reconciliation: | |||||||||||||||||||||||||||||||||
Operating loss | (115,144 | ) | (229,337 | ) | (321,254 | ) | (417,444 | ) | (87,217 | ) | (161,403 | ) | (226,756 | ) | (284,413 | ) | (39,022 | ) | (74,115 | ) | (104,261 | ) | |||||||||||
Depreciation and amortization | 32,453 | 73,713 | 109,373 | 157,426 | 40,369 | 76,612 | 110,423 | 142,718 | 19,461 | 37,492 | 57,158 | ||||||||||||||||||||||
Lease expense on fixed assets (2) | 6,696 | 14,133 | 21,621 | 28,029 | 6,009 | 11,611 | 16,661 | 21,388 | 4,359 | 8,404 | 9,875 | ||||||||||||||||||||||
EBITDA(3) | (75,995 | ) | (141,491 | ) | (190,260 | ) | (231,989 | ) | (40,839 | ) | (73,180 | ) | (99,672 | ) | (120,306 | ) | (15,202 | ) | (28,219 | ) | (37,228 | ) | |||||||||||
EBITDA Margin | -43% | -40% | -36% | -33% | -25% | -23% | -21% | -19% | -13% | -11% | -10% | ||||||||||||||||||||||
| (1) | Not by legal entity |
| (2) | In all prior periods reported and for EBITDA guidance calculation purposes, expenses related to equipment leases recorded in Lycos are deemed to be depreciation costs. |
| (3) | See EBITDA description in the Other Information section |
17
9m 2003 Results
Historic Data
(in million of Euros—Spanish GAAP)
| 2001 | 2002 | 2003 | ||||||||||||||||||||
| mar-31 | jun-30 | sep-30 | dic-31 | mar-31 | jun-30 | sep-30 | dic-31 | mar-31 | jun-30 | sep-30 | ||||||||||||
ASSETS | ||||||||||||||||||||||
Due from Shareholders for Uncalled Capital | 474 | 421 | 389 | 367 | 350 | 339 | 323 | 292 | 254 | 229 | 224 | |||||||||||
Fixed and Other Noncurrent Assets: | ||||||||||||||||||||||
Intangible assets | 192 | 174 | 151 | 158 | 141 | 107 | 90 | 57 | 72 | 69 | 78 | |||||||||||
Property and equipment | 130 | 137 | 121 | 128 | 121 | 98 | 91 | 55 | 46 | 43 | 39 | |||||||||||
Long-term investments | 974 | 894 | 1,016 | 1,126 | 1,080 | 1,099 | 1,114 | 522 | 559 | 615 | 619 | |||||||||||
Other fixed and noncurrent assets | 111 | 104 | 95 | 88 | 82 | 72 | 65 | 3 | 3 | 3 | 1 | |||||||||||
Total fixed and other noncurrent assets | 1,407 | 1,309 | 1,383 | 1,500 | 1,423 | 1,376 | 1,360 | 637 | 679 | 730 | 737 | |||||||||||
Goodwill in consolidation | 1,907 | 1,883 | 1,866 | 1,819 | 1,760 | 1,625 | 1,571 | 627 | 606 | 471 | 451 | |||||||||||
Long-Term deferred expenses | 23 | 14 | 11 | 9 | 15 | 12 | 14 | 10 | 7 | 7 | 7 | |||||||||||
Curent Assets: | ||||||||||||||||||||||
Cash and Short-term investments | 2,602 | 2,611 | 2,333 | 2,191 | 2,022 | 1,911 | 1,825 | 1,761 | 1,744 | 1,650 | 1,622 | |||||||||||
Other current assets | 273 | 235 | 220 | 221 | 212 | 187 | 202 | 177 | 147 | 169 | 176 | |||||||||||
Total current Assets | 2,875 | 2,846 | 2,553 | 2,412 | 2,234 | 2,099 | 2,027 | 1,938 | 1,891 | 1,819 | 1,798 | |||||||||||
TOTAL ASSETS | 6,686 | 6,473 | 6,202 | 6,107 | 5,782 | 5,451 | 5,294 | 3,505 | 3,437 | 3,256 | 3,217 | |||||||||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||||||||||||||||||||
Shareholders’ equity | 6,002 | 5,841 | 5,592 | 5,557 | 5,312 | 5,007 | 4,906 | 3,191 | 3,112 | 2,987 | 2,939 | |||||||||||
Minority interests | 4 | 3 | 3 | 4 | 2 | 0 | 0 | 0 | 0 | 4 | 3 | |||||||||||
Long-term liabilities | 203 | 188 | 163 | 115 | 108 | 110 | 79 | 52 | 60 | 62 | 73 | |||||||||||
Current liabilities | 477 | 441 | 444 | 431 | 361 | 334 | 309 | 262 | 266 | 203 | 202 | |||||||||||
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES | 6,686 | 6,473 | 6,202 | 6,107 | 5,782 | 5,451 | 5,294 | 3,505 | 3,437 | 3,256 | 3,217 | |||||||||||
Note to Balance Sheet:
In December 2002, as a result of the analysis based on the estimated future value that each of the businesses and countries will generate, performed in order to determine the recovery of the carrying value of goodwill, tax assets, and other fixed assets in the consolidated balance sheet, in accordance with the accounting principle of prudence in valuation, the Company recorded impairment charges amounting to 857 million Euro related to goodwill and reversed tax assets amounting to 385 million Euro. Also, the Company wrote down 57 million Euro of start-up costs and recorded fixed assets valuation allowances and write off amounting to 61 million Euro.
18
9m 2003 Results
Historic Data
(in thousands)
| 2001 | 2002 | 2003 | |||||||||||||||||||||
| 3m | 6m | 9m | 12m | 3m | 6m | 9m | 12m | 3m | 6m | 9m | |||||||||||||
Total Pay Subscribers (1) | 1,085 | 1,273 | 1,237 | 1,663 | 1,830 | 2,269 | 2,530 | 3,127 | 3,260 | 3,610 | 4,602 | ||||||||||||
Access: | |||||||||||||||||||||||
Narrowband | 1,025 | 1,140 | 1,063 | 1,070 | 1,038 | 1,048 | 1,051 | 1,021 | 1,031 | 1,045 | 1,035 | ||||||||||||
Broadband | 60 | 133 | 174 | 233 | 272 | 301 | 342 | 378 | 419 | 477 | 543 | ||||||||||||
Total | 1,085 | 1,273 | 1,237 | 1,303 | 1,310 | 1,349 | 1,393 | 1,399 | 1,450 | 1,522 | 1,578 | ||||||||||||
OBP (CSP/Portal): | n.a. | n.a. | n.a. | 360 | 520 | 920 | 1,137 | 1,728 | 1,810 | 2,088 | 3,024 | ||||||||||||
Broadband Access Subscribers: | |||||||||||||||||||||||
Spain | 36 | 79 | 91 | 109 | 122 | 123 | 125 | 125 | 122 | (2) | 135 | 143 | |||||||||||
Latam | 24 | 54 | 83 | 124 | 150 | 178 | 217 | 253 | 297 | 342 | 400 | ||||||||||||
Total | 60 | 133 | 174 | 233 | 272 | 301 | 342 | 378 | 419 | 477 | 543 | ||||||||||||
| (1) | Based on number of services delivered. Some subscribers may be contracting access and OBP product/services at the same time. |
| (2) | Between 3m’02 and 3m’03 the company terminated 7,500 subscriber accounts, mainly due to bad-debt. |
19
9m 2003 Results
20
9m 2003 Results
Other Information
Description of main Consolidated Statement of Operations accounts and EBITDA
Revenues
Access:subscriptions, traffic-inducement fees and call center revenues from residential clients.
Advertising and e-commerce:advertising, slotting fees and transaction commissions.
Communication, Portal and Content Services: value-added service fees related to communication, portal and content services and software package licenses paid to us by the final user or the companies through which we distribute them to the final user.
Corporate & SMEs Services and Other:primarily services to corporations and SMEs both access and media related. It excludes fees paid to us by the companies that distribute our value-added services, which are included under the Communication, Portal and Content Services line.
Goods Purchased
Include telecommunication expenses, technical help desk expenses, purchase of customer connection kits and modems, cost of e-commerce products sold, ad-serving costs, purchase of content, operating outsourcing and any other purchase.
Personnel Expenses
Include salaries, associated expenses and other employee benefits, regardless of the job classification of the employee.
Professional Services
Include, among others, consulting, legal advisors’, auditors’ fees and insurance policies.
Depreciation and Amortization Expenses
Include depreciation charges relating to tangible assets and amortization charges relating to intangible assets (not including goodwill), intangible rights and start-up costs.
Marketing and Commissions
Include expenses related to advertising and marketing.
Maintenance, Supplies and Leases
Include rental expenses, equipment leases, repairs and maintenance expenses, as well as expenses related to internal communications and other office expenses.
Other Operating Expenses
These expenses include bad debt, tax (other than income tax), travel expenses and other operating expenses.
EBITDA
EBITDA is defined as operating income (loss) before depreciation on fixed assets, lease expense on fixed assets and amortization on intangible assets.
Other below the line items that are not included in EBITDA represent costs that are either not directly related to our core business or are non-recurring in nature including our share of gains and losses on equity method investments, goodwill amortization and other one time charges we believe to be outside the normal course of business and which may change from period to period, as well as income taxes.
21
9m 2003 Results
Other Information
Main Fully and Equity Consolidated Companies
| MAIN FULLY CONSOLIDATED COMPANIES | ||
ARGENTINA | TERRA NETWORKS ARGENTINA S.A. | |
BRAZIL | TELEFONICA INTERACTIVA BRASIL LTDA. (GROUP) | |
CHILE | TERRA NETWORKS CHILE HOLDING LIMITADA (GROUP) | |
COLOMBIA | TERRA NETWORKS COLOMBIA HOLDING S.A. (GROUP) | |
DOMINICAN REPUBLIC | TERRA NETWORKS CARIBE, S.A. | |
GUATEMALA | TERRA NETWORKS GUATEMALA S.A. (GROUP) | |
MEXICO | TERRA NETWORKS MEXICO HOLDING S.A. DE C.V. (GROUP) | |
PERU | TERRA NETWORKS PERU S.A.I | |
SPAIN | EDUCATERRA | |
SPAIN | IFIGENIA PLUS, S.A. | |
SPAIN | MAPTEL NETWORKS, S.A. | |
SPAIN | TERRA NETWORKS ESPAÑA, S.A. | |
USA | LYCOS INC. (GROUP) | |
USA | ONE TRAVEL.COM, INC. | |
VENEZUELA | TERRA NETWORKS VENEZUELA S.A. | |
| MAIN EQUITY CONSOLIDATED COMPANIES | |||||
HOLLAND | LYCOS EUROPE | 32,1 | % | ||
SINGAPUR | LYCOS ASIA | 50 | % | ||
SPAIN | AZELER AUTOMOCIÓN, S.A. | 50 | % | ||
SPAIN | ATREA | 50 | % | ||
SPAIN | RED UNIVERSAL DE MARKETING Y BOOKINGS ON-LINE, S.A. | 50 | % |
22
9m 2003 Results
Other Information
| Revenue (€ m) | EBITDA Margin | |||
February 26, 2003 | ||||
For the period of: | ||||
FY 2003 | 570 – 620 (*) | -12% -8% | ||
| (*) | Figures at 2002 average exchange rates |
This document contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company. The forward-looking statements in this document can be identified, in some instances, by the use of words such as “expects”, “anticipates”, “intends”, “believes” and similar language or the negative thereof or by the forward-looking nature of discussions of strategy, plans or intentions.
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors.
Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Terra Lycos undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this document, including, without limitation, changes in Terra Lycos business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company’s Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.
23
9m 2003 Results
Other Information
Relevant Facts filed with the CNMV/SEC
| ¨ | October 29th. 2003:The Board of Directors of TERRA NETWORKS, S.A., in its meeting held today, accepted the resignation submitted by Mr. Robert J. Davis, as Member and Vice President of the Board of Directors of TERRA NETWORKS, S.A., after thanking Mr. Davis for his work and dedication during the term of his functions. |
| ¨ | June 26th. 2003:The Board of Directors of Terra Networks, S.A., in accordance to the opinion issued by Citigroup and Lehman Brothers, considers that the Public Tender Offer for 100% of the shares in Terra Networks, S.A., due to the launching by Telefónica, S.A., is fair to the shareholders of the company. In accordance with the recommendation made, the Board of Directors has decided to accept the Offer as regards the 2.420.468 shares of Terra held as treasury stock by Lycos Inc. The Directors holders of shares in Terra have declared their intention to accept the Offer as regards the shares in Terra held by them. Additionally, the director appointed by proposal of Banco Bilbao Vizcaya, S.A., informs that such entity has resolved to accept the Offer. |
| ¨ | June 18th. 2003:Terra Networks, S.A. has consummated a series of stock purchase agreements pursuant out which it has increased its stake in Onetravel.com, Inc. by approximately 39.6% to 52.05% of the outstanding stock of OneTravel.com, Inc. Such transactions were completed during the second quarter of 2003 |
| ¨ | June 16th 2003:The Board of Directors of Terra Networks has agreed to hire the investment banks, Lehman Brothers and Citigroup, for the valuation work to issued a fairness opinion of Telefónica’s tender offer; as well as the law firms Garrigues, Davis Polk & Wardwell and Cravath, Swaine & Moore. |
| ¨ | June 13th. 2003:Terra Networks, S.A. has announced the sell of its 20% stake in Terra Mobile, S.A. to its partner Telefónica Móviles, S.A., which now owns the 100% of the company. |
| ¨ | May 29th 2003:The Board of Directors of Terra Networks, S.A. has had knowledge of the tender offer launched by Telefónica, S.A. for the 100% of Terra Networks, S.A.’s shares. The Board, at this time, nonetheless and, awaiting for the formal notification of the “Comisión Nacional del Mercado de Valores” as to its approval, hereby declares its willingness to fully comply with all applicable laws in regard to this matter. Taking into consideration the foregoing, the Board of Directors will provide a constant follow up in connection with all and any events that may occur from now on and will adopt as many beneficial decisions as the social and shareholder interests may require. Following all this steps, and fully complying with their legal obligations, a declaration will be issued with regard to the terms and conditions of the tender offer as well as their willingness as to offering or not their shares in this procedure. |
24
9m 2003 Results
Other Information
| ¨ | April 24th. 2003:Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) and Terra Networks, S.A. (TERRA), holders of the 51% and 49% of the share capital of Unoe Bank, S.A., respectively, in an Extraordinary General Shareholders’ Meeting held on April 23, 2003, have unanimously approved an increase of capital in Unoe Bank, S.A., to be wholly subscribed by Finanzia Banco de Crédito, S.A. (a wholly owned subsidiary of BBVA), through the contribution of its Consumer’s Lending Business. As a result of the referred capital increase, BBVA Group and TERRA will hold stakes in Unoe Bank, S,A, share capital of 67% and 33%, respectively. |
| ¨ | April 4th. 2003:Terra Lycos communicates the resolutions approved by the General Shareholders Meeting held on April, 2nd. |
| ¨ | March 26th. 2003:Terra Lycos communicates the appointment of the shareholder Mr. J. Alfonso Bustamante as a member of the Board of Directors, in order to fill the vacancy produced after the resignation of Mr. John H. de Mol. |
| ¨ | February 26th. 2003:Terra Lycos announced its 2002 financial results. In accordance with the accounting principle of prudence in valuation, as of December 31, 2002 consolidation goodwill amounting to €856,657 thousand was written down and capitalized tax credits amounting to €384,530 thousand were reversed (this reversal amounted to €453.403 thousand considering the tax assets booked during year 2002). Also,€56,622 thousand of start-up costs were written down and tangible fixed asset and intangible asset allowances and write offs were recorded for a total amount of €61.202 thousand. |
| ¨ | February 13th. 2003:The Board of Directors of Terra Lycos unanimously approved the signature with Telefónica of a Strategic Alliance Master Agreement that substitutes the Strategic Agreement of May 16th, 2000 to which the company Bertelsmann was also party. The signing of the new Strategic Agreement between Terra and Telefónica responds, on the one hand, to the changes experienced in the Internet business, particularly the development of broadband services; and, on the other hand, the need to adapt the range of products and services offered by Terra Lycos Group under the May 2000 Agreement to the abovementioned new conditions and the specific needs of the Telefónica Group in those markets in which operates. Throughout its term, the Strategic Agreement guarantees Terra Lycos Group a generation of at least 78.5 million euro per year in value. |
| ¨ | January 30th. 2003:The Board of Directors meeting of Terra Networks, S.A. approved, previous favourable report of the Appointment and Remuneration Committee, the appointment of the shareholders Mr. Luis Bassat and Mr. Luis Badía as members of the Board of Directors, in order to fill the vacancies produced after the resignation of Mr. Jesús María Zabalza Lotina and Mr. Alejandro Junco de la Vega Elizondo. |
| ¨ | January 30th. 2003:The Board of Directors meeting of Terra Networks, S.A. approved the Internal Regulation of Best Practices on Financial Markets which modifies and develops the one in force that was approved on October 18, 1999, so as to comply with the new Spanish and USA regulations. |
25
9m 2003 Results
Other Information
| ¨ | October, 20th., 2003: Movielink, LLC and Terra Lycos launch a new co-branded site, giving millions of Lycos users more convenient access to Movielink’s leading movie download service. |
| ¨ | October, 16th., 2003: Terra Lycos launches Angelfire Elements on Lycos Angelfire, giving teens a choice of four very affordable subscription packages to meet all of their Web page building and hosting needs in one place. |
| ¨ | October, 8th., 2003: Terra España Offers non-cable Internet for its whole broadband offer, increasing its high-speed products’ catalogue with the new WIFI technology. |
| ¨ | October, 2nd., 2003: Terra Lycos announces the relaunch of Quote.com, its online financial site, with an entirely new design and functionality built specifically to serve the needs of today’s re-emerging and fast growing Active Trader segment. |
| ¨ | September, 30th 2003: Terra Lycos and Google Inc., developer of the largest performance-based advertising program, announce a multi-year agreement making contextually-targeted advertisements through the Google AdSense program available on selected sites throughout the Terra Lycos Network. Google will provide relevant contextually-targeted ads to pages of Terra Lycos’ U.S. properties. |
| ¨ | September, 22nd 2003: Terra Lycos announces the launch of its new Lycos Entertainment Top 50 Video View now available on Lycos Entertainment TV. |
| ¨ | September, 15th 2003: Terra Lycos announces its Angelfire Web site is the number one site within the Teen category for teens and tweens, according comScore Media Metrix, the industry-leading Internet audience measurement service. |
| ¨ | August, 27th 2003: Terra Lycos announces the launch of Lycos Models, an international models site. |
| ¨ | August, 25th 2003: Terra Lycos announces the redesign of its InSite Search Engine Marketing site. The new presentation eliminates the confusion surrounding search engine optimisation and paid inclusion. |
| ¨ | August, 11th 2003: Matchmaker.com announces the launch of an entirely new online dating environment and offers a special “get acquainted” price promotion for new members for only $9.95/month for either one. |
| ¨ | July, 3rd 2003: Terra.es consolidates its leadership as Spanish portal with an audience of 3.613.000 users, according to the 2(a) Ola of EGM in 2003. |
26
9m 2003 Results
Other Information
Contact Information
Terra Lycos
Investor Relations
Miguel von Bernard | Investor Relations Director | |
Phone: | 34.91.452.3922 | |
e-mail: | miguel.vonbernard@corp.terra.com | |
Claudia Sierra | Investor Relations | |
Phone: | 34.91.452.3927 | |
e-mail: | claudia.sierra@corp.terra.com | |
Concha López | Investor Relations | |
Phone: | 34.91.452.3926 | |
e-mail: | concha.lopez@corp.terra.com | |
Justine Alonzo | Investor Relations USA | |
Phone | 1.781.370.28.07 | |
e-mail: | justine.alonzo@corp.terralycos.com | |
Terra Lycos
Shareholders Office
Cristina García | Shareholders Office | |
Phone: | 900.500.525 | |
e-mail: | oficina.accionistas@corp.terra.com |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Terra Networks, S.A. | ||||
| Date: November 5, 2003 | By: | /s/ Elías Rodríguez-Viña Cancio | ||
| Name: Elías Rodríguez-Viña Cancio | ||||
Title: Chief Financial Officer Terra Networks, S.A. | ||||