/raid1/www/Hosts/bankrupt/TCRLA

/raid1/www/Hosts/bankrupt/TCRLA_Public/030228.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Friday, February 28, 2003, Vol. 4, Issue 42 Headlines A R G E N T I N A ARGENTINE BANKS: May Get $2.64B in Government Compensation ARGENTINE UTILITIES: Government To Appeal Court Ruling CENTRAL COSTANERA: Requesting Loan Term's Extension PECOM ENERGIA: Plans To Issue Dollar Bonds B E R M U D A ANNUITY & LIFE: A.M. Best Downgrades Ratings ANNUITY & LIFE: Fitch Lowers IFS Rating to 'CC' GLOBAL CROSSING: U.S. Orders Asian Buyers to Resubmit Bid GLOBAL CROSSING: IDT Plans to Bid For Assets B O L I V I A * Republic of Bolivia Ratings Lowered; Outlook Still Negative B R A Z I L BCP: Telemar Will Take Control But With 70% Discount on Debt Load ELETROPAULO METROPOLITANA: Previ Denies Investment Inclinations TERRA LYCOS: Writes Down EUR1.4B in Assets * World Bank Grants Brazil $505M Loan C H I L E ENERSIS: Renegotiates Debt With Creditor Banks ENERSIS: Parent Endesa Releases 2002 Consolidated Results SANTA ISABEL: Cencosud To Proceed With Purchase C O L O M B I A PAZ DEL RIO: University To Produce Report In A Fortnight SEVEN SEAS: Announces Closing of Producing Properties' Sale C O S T A R I C A ICE: Signs DSL Routers Agreement With GBM J A M A I C A AIR JAMAICA: COO & President Leaves Post M E X I C O BANCO INTERNACIONAL: New York Unit Voluntarily Liquidates Assets VITRO: Reports Unaudited Fourth Quarter And Fiscal 2002 Results P A R A G U A Y * Paraguay Reaches Debt Deal With International Creditor Banks U R U G U A Y BANCO DE CREDITO: St. George Rejects Offer To Take Back Control BNL: Exiting Uruguay Due to Low Profitability V E N E Z U E L A CERRO NEGRO: Resumes Operations on Smaller Scale CITGO: Reduces 2003 Capex By US$200 Million CITGO: Notes Recent Developments and Risks in 8-K Filing - - - - - - - - - ================= A R G E N T I N A ================= ARGENTINE BANKS: May Get $2.64B in Government Compensation ---------------------------------------------------------- Argentine economy minister Roberto Lavagna revealed that the government is negotiating a financial compensation package with local banks, reports Business News Americas. The US$2.64 billion package is designed to compensate for the banks' losses caused by the conversion of dollar-denominated deposits into pesos at below market rates last year. On Wednesday, Mr. Lavagna was scheduled to meet with representatives from the banks to establish the compensation package guidelines. The package is part of the government's agreement with the International Monetary Fund, after obtaining to permission to delay payments on US$6.8 billion in debt for three to five years. However, Mr. Lavagna did not indicate what form the compensation will take. Foreign and domestic banks in the country have begun returning deposits to the public. Some analysts see this as a sign of the foreign banks' commitment to stay in the country. But BNAmericas said that banks fear that the Supreme Court might order them to return former dollar-denominated deposits in dollars. The Supreme Court is expected to decide on the redolarization of US$247 million in deposits in Banco Nacion on March 4. The bank said that it might pay up to US$400 million if it loses the case. ARGENTINE UTILITIES: Government To Appeal Court Ruling ------------------------------------------------------ Argentine President Eduardo Duhalde confirmed reports that the government would appeal a court decision that blocks a utility rates hike decree declared last month. Judge Claudia Rodriguez Vidal ruled on Tuesday that the government could not order rate increases until after the renegotiation of contracts with privatized utility companies is completed, reports Dow Jones. "We know that there is a decision and, of course, we'll appeal. We must think about the risk this situation creates. My government is only around for two more months, but the next government could suffer problems [surrounding] maintenance of and investment in the public services," said Mr. Duhalde. The decree would have allowed electricity companies to raise their rates by 9 percent, while the allowed increase for natural gas prices would have been 7 percent. This is the second decree allowing utility companies to raise their rates, and like the first one, has been blocked by Argentine courts, saying it the decree is unconstitutional. However, consumer groups are confident that even if the government won an appeal, it would hardly have enough time left to implement the rate increases. Utility companies in the country had been hoping for a rate increase of as much as 30 percent, after having no increases in the previous year. A number of companies with dollar denominated debts were pushed to the brink of bankruptcy after the local currency declined by about 70 percent. The decree was issued to satisfy one of the International Monetary Fund's requirements for granting aid. Argentina lost all its credit lines, except for the IMF, after it defaulted on a record US$95 billion in debt in December 2001. Last month, the country received permission to delay payments for about three to five years on about US$6.8 billion in debt to the IMF. CENTRAL COSTANERA: Requesting Loan Term's Extension --------------------------------------------------- Argentina thermo generator Central Costanera asked six banks to accept a Siemens combined cycle unit as guarantee for extending the terms of a US$95-million loan until December 2004 from June 30, 2003. The banks are BBVA, BankBoston, Bank of America, HSBC, Scotiabank and the Latin American Export Bank. According to the terms of the new agreement, the loan, issued on July 12, 2000, will be paid back in quarterly installments from June 2003 to December 2004. Interest will be charged at a 90-day rate of Libor plus 4.4%-4.9% a year. Central Costanera has agreed to defer dividend payments until the loan is paid in full. The Company plunged into red last year with a loss of ARS27.2 million (US$8.1 million) from a profit of ARS600,000 the prior year. Central Costanera blamed the losses mainly on exposure to inflation, and the devaluation of the local currency. Central Costanera, whose net equity was ARS707 million at the end of 2002, is majority-owned by Chilean generator Endesa Chile. PECOM ENERGIA: Plans To Issue Dollar Bonds ------------------------------------------ Argentina's Pecom Energia is planning to issue dollar bonds, the energy group revealed Wednesday, though without giving further details. This will be the first time that Pecom will issue dollar bonds since Brazil's Petrobras buyout of parent company, Perez Companc. Last year Brazil's state-owned Petrobras bought a 58.6% stake in Perez Companc, which in turn controls 98.21% of Pecom Energia, in an operation worth US$3 billion. CONTACT: PECOM ENERGIA S.A. DE PEREZ COMPANC S.A. Maipo 1 - Piso 22 - C1084ABA Buenos Aires, Argentina Phone: (54-11) 4344-6000 Fax: (54-11) 4344-6315 URL: http://www.pecom.com.ar/ Contacts: Jorge Gregorio C. Perez Companc, Chairman Oscar Anibal Vicente, Vice Chairman ============= B E R M U D A ============= ANNUITY & LIFE: A.M. Best Downgrades Ratings -------------------------------------------- A.M. Best Co. has downgraded the financial strength ratings to B+ (Very Good) from B++ (Very Good) of Annuity and Life Re Holdings' (NYSE: ANR) (Bermuda) life insurance subsidiaries and the indicative senior debt rating on ANR's $200 million shelf registration to "b+" from "bbb-". Additionally, all ratings remain under review with negative implications. These actions reflect the continued erosion in ANR's earnings base from its core life insurance and annuity businesses. In addition, the ratings reflect ANR's recent announcement to cease writing new business, the execution risk in its restructuring plans and its lack of financial flexibility. These rating actions follow ANR's February 24, 2003, announcement that it expects to report a significant loss in the fourth quarter and for the full year 2002. On September 30, 2002, A.M. Best lowered ANR's ratings and placed them under review with developing implications primarily to reflect ANR's weakened operating performance, immediate concerns regarding its ability to meet collateral requirements under bank credit facilities and an SEC review. Since that time, ANR has taken actions to improve the quality of its balance sheet and continues to restructure its collateral funding requirements. While ANR has not satisfied all its year-end 2002 collateral requirements, A.M. Best acknowledges that it continues to attempt to recapture, retrocede or sell additional blocks of life insurance business to eliminate any unmet requirements. ANR is also in the process of restating its financial statements as it seeks to conclude an SEC staff review of the company's prior public filings. Although the combined impact of these issues has significantly reduced ANR's capitalization in 2002, A.M. Best believes that the company's capital remains adequate to cover its current obligations to existing policyholders even after the anticipated restatement of its financial statements. However, A.M. Best does remain concerned about ANR's ability over the near term to stabilize its overall financial position, particularly its collateral funding requirements. Therefore, A.M. Best will continue to monitor management's efforts to restructure the company and re-establish it as a going concern. If the company experiences any additional deterioration in its financial position, the ratings on ANR could be lowered. The financial strength ratings have been downgraded to B+ (Very Good) for the following life subsidiaries of Annuity and Life Re (Holdings), Ltd.: -- Annuity and Life Reassurance, Ltd -- Annuity & Life Reassurance America Inc The following indicative senior debt rating has been downgraded: Annuity and Life Re (Holdings), Ltd.-- -- "b+" on senior debt securities available under the $200 million shelf registration A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. 6 For more information, visit A.M. Best's Web site at www.ambest.com. ANNUITY & LIFE: Fitch Lowers IFS Rating to 'CC' ----------------------------------------------- Fitch Ratings has lowered the insurer financial strength rating of Annuity & Life Reassurance, Ltd. (ANR) to 'CC' from 'CCC'. The Rating Watch has been changed to Negative from Evolving. Wednesday's rating action follows the company's public disclosure on February 24th of a number of adverse developments related to its operating performance and financial position. Of particular concern to Fitch are the company's announcements that it has ceased writing new business and has notified its existing reinsurance clients that it cannot accept additional cessions under previously established treaties, as well as disclosure of continued adverse mortality and a large number of open claim submissions. These disclosures, combined with other negative developments, have led the company to announce that a significant loss will be reported in the fourth quarter of 2002, and for the year. The company also acknowledged that it fell $15 million short of securing a letter of credit issued in its favor by The Manufacturers Life Insurance Company. In addition, the company still has not satisfied year-end 2002 collateral requirements for the benefit of certain ceding companies. Being Bermuda-based, ANR is an unauthorized reinsurer in the U.S., and like all unauthorized reinsurers, it must post collateral to the benefit of its U.S. ceding companies per U.S. regulatory requirements. Such collateral can be provided in the form of trust deposits and/or letters of credit. On November 22, 2002, Fitch downgraded ANR's IFS rating to 'CCC' from 'BBB-' following the disclosure in ANR's 8-K that the company needed to raise additional capital to fill a collateral requirement of between $140 million and $230 million by year-end 2002. While the company has had some success in lowering its collateral obligation through various negotiations with ceding companies, the company reports that it still needs to collateralize or otherwise eliminate the need to collateralize in excess of $50 million. Further, the company has indicated ultimate collateral requirements may exceed this amount due to additional losses reported under certain treaties for which the company is seeking additional information. The Rating Watch Negative will remain in place until after ANR reports fourth quarter 2002 results, and Fitch is able to better judge the impact of the loss on capital. Fitch will also review several technical issues related to ANR's inability to meet its collateral obligations to judge if under the agency's ratings definitions, ANR should at some point be viewed as technically in default under certain of its reinsurance treaties. GLOBAL CROSSING: U.S. Orders Asian Buyers to Resubmit Bid --------------------------------------------------------- Hutchison Whampoa. Ltd. and Singapore technologies Telemedia Pte are required to resubmit their proposal to buy a majority stake in bankrupt Global Crossing, Ltd., according to the Bermuda Sun. The United States government wanted to make sure that their proposal would not jeopardize national security. The country's Committee on Foreign Investments is asking for more evidence to keep Global Crossing secure, said sources close to the matter. Hutchison, owned by Hong Kong billionaire Li Ka-shing and state- controlled Telemedia, are offering to buy a 61.5 percent stake in Global Crossing for US$250 million. Bermuda-based Global Crossing chief executive John Lagere said,"They worry about, in a time of war, in a time of uncertainty, is there anything that a group could do by controlling these assets." CONTACT: GLOBAL CROSSING Press Contacts Kendra Langlie + 1 305-808-5912 kendra.langlie@globalcrossing.com Analysts/Investors Contact Ken Simril +1 310-385-3838 investors@globalcrossing.com GLOBAL CROSSING: IDT Plans to Bid For Assets -------------------------------------------- Long distance telecommunications company IDT Corp. plans to bid for the assets of bankrupt Global Crossing, Ltd., relates the Royal Gazette. However, a statement from Global Crossing said that although it appreciates that IDT recognizes its increasing value, the Company is intent on completing its deal with Hutchison Whampoa and Singapore Technologies Telemedia. Hutchison and Telemedia are offering US$250 million for a 61.5 percent stake in Global Crossing. Nevertheless, IDT chairman Howard Jonas is confident that the U.S. government would block the Asian companies' acquisition of Global Crossing. "We think it is against the national interests of the United States to sell this company to a foreign entity, particularly a hostile foreign entity like the Communist Chinese and anyone who would be their partners, like the Singaporeans," said Mr. Jonas, adding, "We know we have obligations to our shareholders, but frankly, we think we have obligations to the country, too." California Republican Representative Dana Rohrabacher told U.S. President George W. Bush that the Asian companies should be prevented from acquiring fiber-optic networks in the country, as Hutchison owner, Hong Kong billionaire Li Ka-shing is reputed to have ties to the Chinese government. Mr. Jonas also mentioned that Global Crossing's fibre-optic network carries data for the Justice Department, CIA and FBI. The Asian companies defended their position. Telemedia spokesperson Melinda Tan said, "We have a definite agreement with Hutchison Whampoa approved by the Bankruptcy Court to take over Global Crossing. I do not think IDT will be entertained by the court." ============= B O L I V I A ============= * Republic of Bolivia Ratings Lowered; Outlook Still Negative ------------------------------------------------------------- Standard & Poor's Ratings Services said Wednesday that it lowered its long-term ratings on the Republic of Bolivia to 'B' from 'B+'. Standard & Poor's also lowered its short-term ratings to 'C' from 'B'. The outlook continues to be negative. "The downgrade reflects the increased social tensions, which weaken the government's already narrow base of support and capacity to introduce and implement policies. This diminishing room to maneuver occurs at a critical time as near-term fiscal and financing challenges exceed expectations," said Standard & Poor's credit analyst Sebastian Briozzo. The fiscal deficit for 2002 is now estimated to have reached 8.6% of GDP compared with an earlier forecast of 7.5%. The new official projection for the general government's 2003 deficit is at least 6.5% of GDP versus the original target of 5.5%. Standard & Poor's also said that due to the social unrest that occurred in mid-February, the government set aside its planned tax hikes and spending cuts and replaced these controversial proposals with a new strategy that provides for a more gradual reduction in fiscal imbalances. "Even with this relaxation of the target, given the volatile social pressures under which the government operates, the administration will be challenged to meet the current forecast. While the government has introduced some expenditure rationalization policies, most of the burden of the adjustment will come from the revenue side in the context of weak economic prospects," added Mr. Briozzo. A downgrade could occur should social and political problems further destabilize governability and impede the administration's ability to regain political momentum and garner broader support for its new strategy. Other downward pressures on the rating would occur should the administration be unable to secure sufficient sources of financing at reasonable terms. Conversely, evidence of broader political support for government initiatives and signs of a sustainable increase in investment levels that boosts medium-term growth prospects could lead to a stable outlook. ANALYSTS: Sebastian Briozzo, New York 212-438-7342 Jane Eddy, New York (1) 212-438-7996 =========== B R A Z I L =========== BCP: Telemar Will Take Control But With 70% Discount on Debt Load ----------------------------------------------------------------- Brazilian PCS operator Oi admitted it is looking to buy Sao Paulo-based mobile operator BCP as part of its expansion efforts. However, Oi's parent, fixed line incumbent Telemar, told creditors that it would buy BCP on the condition that the acquisition agreement involves a 70% or greater discount on the Company's US$1.8-billion debt. Business News Americas says that if Telemar or any other buyer were to purchase BCP at its total debt figure, the sale price would work out to an astronomical US$1,115/subscriber. However, under a 70% discount the sticker would be about US$350/subscriber. BCP's main creditors are ABN Amro and Bank of America, and its main shareholders are BellSouth and Brazil's Safra Group. Telemar is already active in the mobile segment through Oi, but a BCP acquisition would give it a formidable presence in the country's most lucrative market of Sao Paulo. CONTACT: BCP S.A. Rua Florida, 1970 4o andar Sao Paulo - SP Tel: 55 11 5509-6428 Fax: 55 11 5509-6257 Home Page: http://www.bcp.com.br BELLSOUTH CORPORATION 1155 Peachtree St. NE Atlanta, GA 30309-3610 Phone: 404-249-2000 Fax: 404-249-5599 Home Page: http://www.bellsouth.com/ Contacts: Investor Relations Phone (US): 800.241.3419 Fax: 404.249.2060 E-mail: investor@bellsouth.com ELETROPAULO METROPOLITANA: Previ Denies Investment Inclinations --------------------------------------------------------------- Previ director Arlindo de Oliveira said the Brazilian pension fund is not planning to invest in debt-laden Sao Paulo power distributor Eletropaulo Metropolitana, relates Business News Americas. Arlindo issued his statements to refute comments made by another Previ director, Erik Persson, that the fund is considering joining a pool of other pension funds, which would buy up to 15% in the utility, which is controlled by AES Corp.. "That is his [Persson's] personal opinion...but we have a policy of investments and we have already surpassed the limit of exposure to the electric sector," Oliveira said. Previ's total portfolio is about 34bn reais (US$9.48bn), of which 48%, or 17bn reais, is invested in equities. Of that total, 23%, or 4bn reais, is invested in the power sector. Meanwhile, Persson has also withdrawn his comments. In a statement, the fund said: "The board of Previ reaffirms that it is not analyzing the possibility of investing in Eletropaulo. The board meeting carried out [on Tuesday] was ordinary, with no discussion about new acquisitions in the electric sector on the agenda." AES has proposed to Brazil's development bank BNDES - its main creditor in the country - the sale of a stake in Eletropaulo to help the troubled distributor in its debt renegotiation process. Eletropaulo has been negotiating with BNDES for a way to settle its US$1.16 billion debt since it missed an US$85-million payment to the bank in January. A decision from the bank is expected as early as the end of the month. In the meantime, the distributor will likely seek an extension of Friday's deadline for a US$329 million payment to BNDES. BNDES, along with the country's Mines and Energy Minister and other government offices, have been analyzing different options to save Eletropaulo from bankruptcy after AES left its subsidiary to fend for itself when it started facing financial difficulties at home. AES announced last year it wouldn't make any new investments in its troubled units. AES hopes to reschedule its debt maturities without giving up control of Eletropaulo. But some government officials have warned that renationalizing the Sao Paulo utility to later resell it to a private investor is an option. As the return of certain AES assets in Brazil to state control in the event of default is part of guarantees included in the utility's loan contract with BNDES, the bank also has its eyes on the thermoelectric plant of Uruguaiana and on AES Sul Distribuidora Gaucha de Energia SA. The financing deal between BNDES and AES was signed in 1998 when it got a US$1.03 billion loan to acquire Eletropaulo. The government hasn't approached the fund to negotiate a possible deal, a Previ spokeswoman said. CONTACT: ELETROPAULO METROPOLITANA Avenida Alfredo Egidio de Souza Aranha 100-B, 13 andar 04726-270 San Paulo Brazil Phone: +55-11-548-9461, +55 11 5696 3595 Fax: +55-11-546-1933 URL: http://www.eletropaulo.com.br Contacts: Luiz D. Travesso, Chairman and President Orestes Gonzalves Jr., VP Finance/Investor Relations AES Corp., Arlington Kenneth R. Woodcock, 703/522-1315 Web site www.aes.com Investor relations: investing@aes.com TERRA LYCOS: Writes Down EUR1.4B in Assets ------------------------------------------ Terra Lycos issued the following information regarding its 2002 fiscal reports: * In the fourth quarter of 2002 and for the ninth consecutive quarter, the Company met its EBITDA and revenue projections made to analysts * Terra Lycos used transparency and prudent conservative accounting criteria to bring the book value of past investments in line with the current market situation. * These non-cash charges resulted in a net loss for the year of 2 billion euros. Net income for the year, excluding these asset write-downs and applying the same tax rate as in the previous year, amounted to 423 million euros, a 25% improvement over 2001. * Write-down of goodwill was 857 million euros, of which 81% corresponded to the acquisition of Lycos, while the write-down of the tax credit amounted to 453 million euros. * In the fourth quarter of 2002, revenues were 173 million euros, applying the same exchange rate of the third quarter, exceeding the guidance of 160-170 million euros provided in the third quarter conference call. This is an increase of 19% over the third quarter on a constant euro basis. * The effect of the devaluation in 2002 of all currencies outside the euro zone where Terra operates yielded a negative impact of 19 million euros in the fourth quarter. Taking into account the exchange rate impact, revenues were 154 million euros, 5% more than the previous quarter. * Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was -21 million euros, an EBITDA margin of -13%, also in line with the Company's guidance (between -11% and -14%). EBITDA for the year was -120 million euros, a 48% improvement over 2001, equivalent to 112 million euros. * At the end of December 2002, Terra Lycos had a total of 3.1 million paying access, communications services and portal subscribers, an increase of 24% over the previous quarter and 88% over 2001. The Company ended the year with 378,000 ADSL customers, an increase of 11% over the previous quarter and 62% over 2001. ASSET IMPAIRMENT Terra Lycos employed transparency and prudent conservative accounting criteria to bring the book value of past investments in line with the current market situation via an asset write-down totaling 1.4 billion euros. The write-down of goodwill was 857 million euros, of which 81% corresponded to the acquisition of Lycos, with the remainder due to other acquisitions. In keeping with this, a write-down of the tax credit amounted to 453 million euros. The rest of the write- downs, up to 1.4 million euros, correspond to other asset entries. These write-downs, which did not result in any cash disbursements, led to a net loss for the year of 2 billion euros. Net income for the year, excluding asset write-downs and using the same tax rate as in the previous year, amounted to -423 million euros, a 25% improvement over 2001. FOURTH QUARTER The Company kept its commitments with the Market. In the fourth quarter of 2002, Terra Lycos earned revenue of 173 million in constant third-quarter euros, an increase of 19% over the previous quarter. Exceeding the Company's guidance for the quarter (between 160 and 170 million in constant third-quarter euros). Total revenue, after consolidation of the different local currencies, suffered a negative exchange-rate effect of 19 million euros due to the appreciation of the euro against other currencies. Revenue in current euros, taking into account the exchange-rate effect, was 154 million euros, an increase of 5% over the previous quarter. The transition of the Company's business model was reflected in results for the fourth quarter of 2002, with the diversification of Company revenue being especially noteworthy. During the quarter, 33% of total revenue came from access subscriptions, 35% from advertising and e-commerce, 22% from portal subscriptions and communications services, and 10% from other sources, including corporate and SME services. During the fourth quarter, Terra Lycos launched value-added communications services, including Terra Messenger in Spain, inaugurating a new strategy based on real-time communications services. Terra Messenger was just one of several value-added products rolled out within the framework of the O.B.P. model in 2002, which also included the launch of a for-pay e-mail service in Brazil, which offers the protection of anti-virus and anti- spam filters and which already has almost 480,000 customers. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2002 improved by 21 million euros over the same period of the previous year, to -21 million euros, advancing the continual improvement in EBITDA over the last two years. The EBITDA margin was -13%, in line with the Company's guidance for the quarter (between -11% and -14%) an increase of 5 percentage points over the third quarter and 12 percentage points over the same period of the previous year. (SEE APPENDIX I) FISCAL YEAR 2002 Terra Lycos' revenue increased quarter by quarter. Revenue for fiscal year 2002 amounted to 622 million euros. At a constant 2001 exchange rate, revenue for 2002 would have amounted to 692 million euros. Despite an adverse macroeconomic environment, this is a figure similar to that reached the previous year, although it has greater quality because it is based on growth in profitable segments. At the close of 2002, and applying to each quarter of the year the foreign exchange rate effect for the twelve month period, Terra Lycos' revenues increased quarter by quarter throughout the year. EBITDA for the year was -120 million euros, a 48% or 112 million euro improvement over 2001. The EBITDA margin for the year was - 19%, a 14 percentage point improvement over the previous year. Operating Expenses In 2002, Terra Lycos continued to combine effective management with process improvement and created an organization consistent with its global presence, enabling the gradual reduction of operating expenses. During the year, the Company reduced costs by 22% from the previous year, a savings of 123 million euros. Net Income In 2002, the Company posted a net loss of 2 billion euros, due to the asset write-down of 1.4 billion euros. Excluding this non- cash charge, and applying the same tax rate as in 2001, net income would have reached 423 million euros, 25% higher than the year before. Cash Terra Lycos has one of the strongest cash positions in the sector, allowing it to fund its operations and explore new business opportunities in order to boost profitability. Skilled cash management enabled the Company to end 2002 with 1.8 billion euros. OPERATING RESULTS An increase of paying subscribers Terra Lycos ended 2002 with a total of 5.9 million subscribers, 3.1 million or 53% of which are paying subscribers to access, communications and portal services. This marks a 24% increase from the end of the third quarter and an 88% increase from the close of 2001. The Company ended the fourth quarter of the year with 378,000 ADSL subscribers, 62% more than the previous year and 11% more than at the end of the third quarter. Terra Lycos closed December with 1.7 million subscribers to communications and portal services, a 379% leap from the year before and 52% more than at the end of the third quarter. "2002 presented a major challenge for Terra Lycos, with an adverse macroeconomic backdrop and a crisis in the advertising industry in general and in the online advertising market in particular" stated Terra Lycos Executive Chairman Joaquim Agut. He added "We were still able to continue growing and focusing on services for which our clients are willing to pay. At the same time, we have maintained a constant path towards profitability through efficient management and a commitment to innovation that allows us to obtain new sources of recurring revenue." This growth and progress towards profitability were reinforced with an asset write-down in the year's last quarter and also with the strategic alliance signed with Telefonica, which will allow Terra Lycos to consolidate its long-term business model. The agreement makes Terra Lycos the exclusive portal and provider of value-added Internet services for the Telefonica Group, as well as continuing to exploit globally its broadband and narrowband access business. The agreement, for an initial period of six years with an automatic one- year renewal, guarantees that Terra Lycos will generate a minimum margin of 78.5 million euros per year, the difference between revenues from these services and the related direct costs and investment. For the first year (2003), Terra Lycos estimates it will obtain about 118 million euros from this agreement, generating a minimum margin of 78.5 million euros. 2002 SUMMARY: GROWTH: Despite an adverse operating environment, Terra Lycos managed to sustain its growth and profitability. Growth in revenues in local currency accelerated each quarter. Terra Lycos refocused towards the client and profitable services. EBITDA: This remains the key measure used by analysts of Internet companies. For the ninth straight quarter, Terra Lycos outperformed the guidance and met its commitments. In 2002, EBITDA increased by 112 million euros and the EBITDA margin by 14 percentage points. CASH: Terra Lycos boasts one of the strongest cash positions in the sector, which leaves it in a comfortable position to carry out operations to drive growth. TERRA LYCOS-TELEFONICA AGREEMENT: This agreement is aimed at tapping existing synergies between the two companies, while for Terra Lycos and its shareholders it provides a long-term guarantee for its business model. GOODWILL: The significant write-downs and the restructuring of assets and fiscal credits in the 2002 financial statements are all part of Terra Lycos' aim of maintaining a high level of investor transparency. MANAGEMENT: Reorganisation of the global group realized efficiencies and redundancies in the organization that led to management changes. The aim is to bring the size of the teams in line with the desired objectives, while complying with prevailing labour laws. This need was particularly evident in 2002. U.S.: The U.S. is one of Terra Lycos' most important markets. The company intends to maintain its presence there, both because of its position (it is the country's fourth-largest portal) and because of its technological leadership, which can be exported to the rest of the world. SPAIN AND LATIN AMERICA: They are both the natural markets in which Terra Lycos will continue its operations maintaining its leadership position. About Terra Lycos Terra Lycos is a global internet group, with a presence in 42 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 17 countries, Lycos in 25 countries, Angelfire.com, Atrea.com, Azeler.es, Direcciona.es, Educaterra.com, Emplaza.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). To see financial statements: http://bankrupt.com/misc/TERRA_LYCOS.htm CONTACTS: Public Relations Miguel Angel Garzon Tel: +34-91-452-3021 Email: miguel.garzon@corp.terralycos.com Kirsten Rankin (U.S.) Tel: +1-781-370-2691 Email: kirsten.rankin@corp.terralycos.com Investor Relations Miguel Von Bernard Tel: +34-91-452-3278 Email: relaciones.inversores@corp.terralycos.com * World Bank Grants Brazil $505M Loan ------------------------------------- First loan to Brazil's new administration promotes better targeting, better distribution and better impact of social spending The World Bank Board of Directors approved Wednesday a first US$505 million Programmatic Human Development Sector Reform Loan for Brazil. The loan supports Brazil's accelerated program of human development reforms. This program is important to reducing hunger and poverty by improving the quality and reach of public spending in education, health and social assistance, and to protecting the poorest and most vulnerable groups from the impacts of economic crises. "The crucial question right now is how to get the most impact from social spending," said Vinod Thomas, World Bank Brazil Country Director. "The increased quality of public spending supported by the current effort is aimed at enabling Brazil to speed up human development while maintaining fiscal responsibility," he added. A specially positive aspect of Brazil's human development sector reform program is to have been able to identify cross-cutting issues in education, health and social assistance and to focus on the important issues of accountability, governance, equity, quality and efficiency in public social spending. This loan supports the following results: (i) The recent substantial progress on social policies and outcomes. Over the recent years, Brazil has strengthened an innovative set of programs at the federal level to decentralize the delivery of social services, to place a floor on basic education and health spending, and to reduce inter-state and inter-municipality inequalities. It has also developed institutional mechanisms to coordinate and focus assistance to poor communities through a variety of programs to improve assistance for disadvantaged populations. (ii) The protection of budgets and monitoring of implementation of effective social policies during times of instability. In the face of macroeconomic instability, sound human development policies such as targeting, redistribution of resources to benefit the poor, transparent allocation of resources, and successful conditional cash transfers, are critical for guaranteeing continued growth and poverty reduction. (iii) The commitment by the new administration to the continuation, improvement, and expansion of these effective social policies to obtain better sector outcomes. The encouraging messages from the new administration have been coupled with the launching of important social sector initiatives. The Zero Hunger program, launched as a flagship program to fight hunger, supports the health, education, and social protection agendas. The new government has announced its commitment to decentralization, education evaluation, community empowerment and participation, and conditional cash transfer programs for the poor. Complementary is the effort to promote quality growth, competitiveness and employment, including through the First Job program, which the World Bank is following up with additional support. "Brazil is carrying out one of the greatest experiments in history of pursuing a bold social program with fiscal responsibility in an unusually tough external environment. This operation is one of the many ways the World Bank is supporting these efforts," said Vinod Thomas. "We will continue to work with the Government of Brazil for the common purpose of fighting poverty and inequality and bringing about socially and environmentally sustainable development in Brazil." The US$ 505 million single-tranche loan is a customized LIBOR- based, Fixed-Spread Loan, repayable in 10 years including a grace period of 7.5 years. The World Bank's current investment portfolio in Brazil includes 50 projects, totaling more than US$4.5 billion in commitments. Since 1949, the Bank has made more than 300 loans and invested more than US$32 billion to promote poverty reduction, social and economic development in Brazil. The World Bank Group, including the IBRD, IFC and MIGA, contemplates US$ 6 billion up to US$10 billion in new investments during the four years of this administration. ========= C H I L E ========= ENERSIS: Renegotiates Debt With Creditor Banks ---------------------------------------------- Chilean power sector holding Enersis said it will complete a US$2.3-billion debt deal with its four main creditor banks within two weeks, Business News Americas reports, citing Enersis spokesperson Marcelo Castillo. Enersis said the Company has reached an agreement "in principle" with the banks. Details of its terms were not revealed due to confidentiality agreements. This news comes on the heels of a downgrade of Enersis and Endesa Chile's debt rating Friday to one notch above junk, by ratings agency Standard & Poor's Corp. Enersis' efforts are part of a wider financial restructuring of the Company, hard hit by the economic meltdown of Argentina and the financial crisis in Brazil. As a result of last year's regional turmoil, Enersis suffered a CLP223.75-billion loss for the whole of 2002, principally due to writedowns on the value of its investments in Argentina and Brazil. Speaking in Madrid, Endesa Chief Financial Officer Jose Luis Palomo said the debt renegotiation for Enersis is "at a very advanced stage of talks." Within the overall restructuring plan, Endesa has sought to distance itself from its Latin American units, seeking to put them on independent financial footing. A week ago, Enersis said it would increase its capital by $2 billion, up from a $1.5 billion hike previously. The exact amount, price and period of the increase will be presented to the shareholders at an extraordinary meeting March 31. Enersis said the decision to beef up the capital increase by US$500 million came in response to Spain's Endesa, which wants to capitalize the total debt Enersis has with it, some US$1.3 billion. At the extraordinary meeting, the shareholders will also have to give their approval to the proposed sale of the Rio Maipo electricity utility. Enersis said that in January it had received 13 offers for Rio Maipo and an Endesa Chile company up for sale, and that the bidders are now undertaking due diligence of the companies. CONTACT: ENERSIS Investor Relations: Ricardo Alvial Chief Investments & Risks Officer of Enersis Email: ram@e.enersis.cl Phone: (562) 353-4682 Contacts: Susana Rey, srm@e.enersis.cl Ximena Rivas, mxra@e.enersis.cl Pablo Lanyi-Grunfeldt, pll@e.enersis.cl ENERSIS: Parent Endesa Releases 2002 Consolidated Results --------------------------------------------------------- Net income for the year 2002 was euro 1,270 million, and earnings per share euro 1.20, both with a decrease of 14.1% over 2001, due to the company's decision to make write downs and provisions to strengthen the balance-sheet. -- Other relevant magnitudes that registered significant changes were: -- Cash flow of euro 4,285 millions, an increase of 28% vs 2001. -- Operating income amounted to euro 3,582 million, 12.8% higher than 2001. -- Ordinary income was euro 1,500 million, increasing by 43.4%. -- Earnings per share evolved in line with net income, amounting to Euro 1.2, representing a 14.1% decrease against 2001. -- ENDESA's Board of Directors will submit a proposal to the Annual Shareholders Meeting to pay the same dividend against 2002 results than the one paid against 2001. -- Extraordinary provisions and write-downs have been made to cover future risks for an amount of Euro 1,169 million, with an impact in net income of Euro 802 million. -- 2002 net income before write-downs and provisions amounted to Euro 2,072 million, a 40.1% increase from 2001. -- Domestic electricity business operating income amounted to Euro 2,131 million. This represents an 18.5% increase against 2001. -- Latin American operating income was Euro 1,268 million, representing 35.4% of the total operating income. -- This amount represents a 10.9% decrease against 2001 caused by the exceptional currency devaluation taken place in the main Latin American countries. Measured in local currency, Latin American operating income grew by 25.2%, confirming its profitability potential. -- Operating income for the electricity business in European countries other than Spain, which corresponds entirely to the activity carried out by ENDESA Italia, amounted to Euro 150 million, a 25% more than the effect of the sale of Viesgo. -- In telecommunications, AUNA EBITDA was positive amounting to Euro 610 million. Net income of AMENA, its main subsidiary, was Euro 101 million. The foreseeable future performance of the parent company and the asset sale in process will make unnecessary new equity contributions from the shareholders -- In 2002 ENDESA reduced its debt by Euro 2,260 million, 9% against year 2001. Excluding the new debt consolidated from Endesa Italia, debt reduction was Euro 3,590 million. -- Average cost of debt for the year ending 2002 improved significantly to 5.05%, against 5.85% for 2001. -- Debt reduction and the decrease in the average cost of debt have enabled a reduction in net financial expenses of Euro 222 million, a decrease of 15.2% against 2001. -- Debt reduction was especially relevant in the domestic business amounting to Euro 2,374 million with an average cost of debt of 4.3%, vs 4.6% in 2001. -- The company's total investments in 2002 amounted to Euro 3,963 million, down 27.2% from 2001. Excluding the financing of the deficit of revenues from regulated activities, investments were reduced by 40.2%. -- In accordance with the 2002-2006 Strategic Plan, the remarkable investment control above mentioned, did not affect the capital expenditures in the Electricity business in Spain, which amounted to Euro 1,350 million, +11.5% from 2001. ENDESA's (NYSE:ELE) net income for the year 2002 was Euro 1,270 million and earnings per share were Euro 1.20, both with a decrease of 14.1% over 2001. The lower results are due to the company's decision to make write downs and provisions in the amount of Euro 1,169 million in order to cover future risks, which have had an impact on net income of Euro 802 million. This provisioning effort against 2002 results considerably strengthens ENDESA's balance sheet covering the risks that might materialise in the next few years, yielding a more solid position to address the future. Net income before the above write-downs and provisions for future risks amounted to Euro 2,072 million, 40.1% higher than 2001. This increase is due in part for the new regulation contained in the Royal Decree 1432/2002 costs liquidation of the regulated activities. Cash flow for 2002 amounted to Euro 4,285 million, Euro 938 million or 28%, higher than in 2001. The increase in cash flow is in line with the increase in net income before write-downs and provisions for future risks. ENDESA's different lines of business have generally shown a very positive performance in 2002, as evidenced by a 43.4% increase in ordinary income to Euro 1,500 million. This positive evolution has been made possible by both a 12.8% higher operating income to Euro 3,582 million and by lower financial expenses. Domestic electricity business delivered 59.5% of the total operating income, amounting to Euro 2,131 million. This represents an 18.5% increase against 2001, which would have been 26.9% on a like for like basis discounting the effect of the sale of VIESGO. This increase was obtained mainly as a result of a 3.2% increase in the energy generated by ENDESA in an homogeneous basis and through the higher wholesale generation prices in 2002, more than compensating the higher fuel costs derived from lower hydro levels in 2002 against 2001. Royal Decree 1432/2002 establishes the companies' right to recover on a lineal basis, over the period 2003-2010, the amount of the tariff shortfall for regulated activities including the corresponding interest. The 2002 financial statements fully reflect the revenues from generation, supply, distribution and transmission in accordance with the price setting systems in force, deregulated in the first two cases and regulated in the latter two. ENDESA accounted Euro 658 million as account receivable to reflect the right to recover the revenue shortfall of the regulated activities. Of this amount, Euro 524 million correspond to the 2002 shortfall and the balance of Euro 134 million to the previous years, including their corresponding interests. It is important to highlight that previous years amount, deducted from revenues in year 2000, has been accounted in year 2002 as "Extraordinary Results". In addition to this, Royal Decree 1432/2002 recognises the right to recover, in the same way and in the same period as the revenue shortfall, the additional compensations for the extra costs in extra peninsular systems. Therefore, ENDESA has accounted Euro 128 million as extraordinary income for 2002 corresponding to the compensations recognised for previous years. The above Royal Decree has allowed the normalisation of the remuneration to the Spanish electricity industry by making sure that all of the agents receive the remuneration to which they are legally entitled for the activities carried out in 2002 and previous years. As for the business in Latin America, their performance has been positive in general in all of the countries in which ENDESA's subsidiaries operate, with a 25.2% rise in operating income in local currency terms. Even in Argentina, despite the country's crisis in 2002, the whole of the operating income from ENDESA's subsidiaries rose 27.0% in Argentinean peso terms. Nevertheless the currency devaluation in the countries where ENDESA's subsidiaries operate together with the Euro's strength, have resulted in a 10.9% decrease in operating income for the region to Euro 1,268 million against 2001, that represented 35.4% of the company's total. Given deep economic crisis that Latin America has gone through in 2002 and the strong currency devaluation in he area, this decrease in the operating income of the Latin American operations should be considered as moderate. This proves that even in extraordinary adverse circumstances, this business has a clear potential for growth and return. As for ENDESA's European electricity business, operating income rose 25% to Euro 150 million, more than offsetting the effect of the sale of Viesgo. On the other hand, ENDESA reduced its debt levels in Euro 2,260 million in 2002 to a total Euro 22,747 million as of 31December 2002. Average cost of debt for 2002 showed a significant decrease to 5.05%, against 5.85% in 2001. In particular, it is worth mentioning that the cost of debt for the domestic business decreased to 4.3% from 4.6% in 2001. The drop in debt and its average cost enabled Euro 222 million lower net financial expenses in 2002, a 15.2% decrease against 2001. The lower financial expenses have allowed absorbing the effect of the foreign exchange differences derived from the Latin American currency devaluation, with an improvement of Euro 88 million in the financial results for the year against 2001. As a summary, 2002 showed a very positive performance of the ordinary income and cash flow mainly due to the Spanish electricity business. In addition to this, ENDESA made a great effort through provisioning and write-downs in order to strengthen the company's balance sheet, allowing ENDESA to address the future from a more solid position. It is also remarkable the significant reduction in debt levels. Dividend ENDESA Board of Directors will submit a proposal to the Annual Shareholders Meeting to pay the same dividend against the 2002 results, than the one paid against 2001. Therefore, total dividend proposed would amount to Euro 0.6825 per share. On January 2nd 2003, an interim dividend of Euro 0.264 per share was paid, therefore final dividend would be Euro 0.4185 per share. This final dividend would be payable on July 1st 2003. This dividend proposal against 2002 results means a 56.9% pay-out ratio, which is similar to other European utilities. CHANGES IN THE CONSOLIDATION PERIMETER The main changes in the consolidation perimeter that took place in the year have been due to the following: -- In January 2002, ENDESA sold the 87.5% stake that it held in Viesgo as of 31 December 2001. As a result of this sale, completed as of January 2002, Viesgo has not been consolidated in ENDESA's 2002 accounts. -- In the first quarter 2002, ENDESA Europa acquired an additional 5.7% of ENDESA Italia, raising therefore its stake in the company to 51%. Therefore ENDESA's financial statements for 2002 fully consolidate ENDESA Italia from the beginning of the year. -- The Chilean mobile telephone operator SMARTCOM is now consolidated by the equity method. Before 2002 the company's accounts had previously been fully consolidated. ANALYSIS OF RESULTS The table below shows the main magnitudes of ENDESA's consolidated profit and loss account for 2002 and their comparison against 2001. Main magnitudes of ENDESA's profit and loss account (Euro million) ---------------------------------------------------------------- 2002 2001 % var. ---------------------------------------------------------------- Revenues 16,739 15,576 7.5 ---------------------------------------------------------------- EBITDA 5,278 5,004 5.5 ---------------------------------------------------------------- Cash flow 4,285 3,347 28.0 ---------------------------------------------------------------- Operating income 3,582 3,175 12.8 ---------------------------------------------------------------- Ordinary income 1,500 1,046 43.4 ---------------------------------------------------------------- Net income 1,270 1,479 -14.1 ---------------------------------------------------------------- 1 Operating income ENDESA's revenues in 2002 amounted to Euro 16,739 million, a 7.5% rise on the previous year. EBITDA was Euro 5,278 million, an increase of 5.5% over the previous year. Operating income for the year 2002 was Euro 3,582 million, an increase of 12.8% against the previous year. The table below shows a breakdown of revenues, EBITDA operating income among the different markets and lines of business in which ENDESA operate. Electricity Domestic Europe Latin America Other ----------------------------------------------------------------- Euro % on Euro % on Euro % on Euro % on million total million total million total million total ----------------------------------------------------------------- Revenues10,885 65.0 1,744 10.4 3,850 23.0 260 1.6 ----------------------------------------------------------------- EBITDA 3,205 60.7 263 5.0 1,735 32.9 75 1.4 ----------------------------------------------------------------- Operating Income 2,131 59.5 150 4.2 1,268 35.4 33 0.9 ----------------------------------------------------------------- Cash Flow 2.537 59.2 179 4.2 1.444 33.7 125 2.9 ----------------------------------------------------------------- 1.1 Domestic electricity business Operating income for the domestic electricity business in 2002 was Euro 2,131 million, an increase of Euro 332 million in absolute and of 18.5% in relative terms against 2001. For a homogeneous comparison between the operating income for 2001 and 2002 it is necessary to consider the sale of Viesgo, which contributed Euro 120 million to the operating income in 2001, whereby, on a like for like basis, operating income increased by Euro 452 million, that is, 26.9% higher than 2001 without Viesgo. This higher operating income has been mainly due to the advantages provided by ENDESA's balanced generation mix under low hydro conditions such as in 2002, in which the company can increase its output and therefore its market share with lower fuel costs than the rest of the industry. Revenues Revenues from the domestic electricity business amounted to Euro 10,885 million in 2002, an increase of 7.9% against 2001. The table below shows a breakdown of revenues. In order to facilitate the analysis, figures for 2001 highlight the figures for Viesgo. Euro million --------------------------------------------------------------- 2002 2001 Change % chge. --------------------------------------------------------------- Sales 10,579 9,044 1,535 17.0 --------------------------------------------------------------- CTC -By technology 49 70 (21) -30.0 -Coal 41 67 (26) -38.8 --------------------------------------------------------------- Services 216 251 (35) -13.9 --------------------------------------------------------------- Viesgo - 654 (654) N/A --------------------------------------------------------------- TOTAL 10,885 10,086 799 7.9 --------------------------------------------------------------- Sales Sales in 2002 were Euro 10,579 million, broken down as follows: Euro million ----------------------------------------------------------------- 2002 2001 Change % chge. ----------------------------------------------------------------- Generation, mainland 3,739 3,085 654 21.2 ----------------------------------------------------------------- Distribution and transmission, mainland 4,306 3,713 593 16.0 ----------------------------------------------------------------- Supply 1,209 1,085 124 11.4 ----------------------------------------------------------------- "Trading" 121 173 (52) -30.1 ----------------------------------------------------------------- Extra peninsular systems* 872 845 27 3.2 ----------------------------------------------------------------- Extra peninsular compensations 204 126 78 61.9 ----------------------------------------------------------------- Other** 128 17 111 N/A ----------------------------------------------------------------- TOTAL 10,579 9,044 1,535 17.0 ----------------------------------------------------------------- * For a higher transparency and due to the particularities of production and generation in the extra peninsular systems, the information on these activities is shown separately. ** Most of this amount corresponds to sales of gas in the Spanish liberalised market. Generation In 2002, demand for electricity in the mainland grew 2.1% against 2001. Still, the output from generators under the ordinary regime was only 0.8% higher, due to the 12.4% higher output from generators under the special regime and to the higher imports of electricity. ENDESA's generation sales in the mainland were 21.2% higher as a result of the following: -- ENDESA's output in the mainland sold in the wholesale market was 78,138 GWh in 2002, a decrease of 4.6% against 2001. Though, on a comparable basis, after subtracting the output corresponding to Viesgo, it increases a 3%. This represents a market share of 44% for the ordinary regime. -- The unit price of the electricity sold by ENDESA to the wholesale market rose 17.6% to 4.55 Euro cents per Kwh against 3.87 Euro cents per Kwh in 2001. This increase has been due to the low hydro generation levels in the year. The table below shows the structure of the generation in the mainland for both ENDESA and the whole of the industry for 2001 and 2002: Structure of electricity generation in the mainland for ENDESA and the total industry (%) ----------------------------------------------------------------- ENDESA Total industry ----------------------------------------------------------------- 2002 2001 2002 2001 ----------------------------------------------------------------- Nuclear 36.3 34.4 33.8 34.5 ----------------------------------------------------------------- Coal 47.5 45.2 43.1 37.6 ----------------------------------------------------------------- Hydro 10.1 15.4 12.2 22.1 ----------------------------------------------------------------- Fuel-gas 3.9 5.0 7.9 5.8 ----------------------------------------------------------------- CCGT 2.2 - 3.0 - ----------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ----------------------------------------------------------------- The table above shows that ENDESA's generation mix in the mainland is very stable, with low volatility to hydro conditions. This allows ENDESA to replace the hydro deficits with coal power plants, instead of fuel oil burning plants that result in much higher costs per kWh. On the other hand, is worth to point out that in the third quarter 2002 the CCGT plants at Besos (Barcelona) and San Roque (Cadiz) have generated a total of 1,732 GWh in their first five months of commercial operations. Distribution and Transmission Energy sold by ENDESA in the mainland was 73,399 GWh in 2002, 3.4% lower than 2001, though it increases a 2.9% compared to 2001 after subtracting figures for Viesgo. This figure represents a share of 39.6% of distribution in the mainland. Revenues from distribution and transmission in the mainland grew by Euro 593 million. Of this amount Euro 561 million corresponded to the higher cost of energy purchases, mainly as a result from the higher pool prices. The regulated margin on distribution remains at similar levels as in the 2001. Disregarding this effect, sales from distribution and transmission would have increased by Euro 32 million against 2001, a rise of 0.9%. Supply In 2002, ENDESA sold 22,797 GWh to eligible customers, an increase of 4.9% against 2001. Along the year 2002 ENDESA followed a pricing policy geared towards an improvement of margins, which led to a 6.3% increase in the price for energy, thereby leading to a 11.4% rise in revenues for the activity to Euro 1,209 million. ENDESA's share in the market for eligible customers has been 36.7% in 2002. Extra Peninsular Systems In 2002, ENDESA's output in the extra peninsular systems was 11,238 GWh, 3.7% higher than 2001. Sales in these markets were Euro 872 million, an increase of 3.2% against 2001. In addition to this, revenues include Euro 204 million from compensations, an increase of Euro 61.9 million against 2001, before the additional compensations established by Royal Decree 1.432/2002. In 2002 the 232 MW cycle power plant of Son Reus (Balearic Islands) started its commercial operations. Operating Costs The table below shows operating costs for the domestic electricity business, separating the ones for Viesgo in 2001 for an easier comparison. Euro million ----------------------------------------------------------------- 2002 2001 Change % chge. ----------------------------------------------------------------- Purchases 6,426 5,489 937 17.1 ----------------------------------------------------------------- Purchases of energy 4,605 3,837 768 20.0 ----------------------------------------------------------------- Fuel 1,434 1,318 116 8.8 ----------------------------------------------------------------- Transmission and other external expenses 387 334 53 15.9 ----------------------------------------------------------------- Depreciation 1,074 1,029 45 4.4 ----------------------------------------------------------------- Provisions (22) 23 (45) N/A ----------------------------------------------------------------- Personnel 825 823 2 0.2 ----------------------------------------------------------------- Other Operating Costs 641 549 92 16.8 ----------------------------------------------------------------- Viesgo - 542 (542) N/A ----------------------------------------------------------------- TOTAL 8,944 8,455 489 5.8 ----------------------------------------------------------------- Purchases In 2002, purchases were increased Euro 937 Million (17.1%) against 2001 mainly due to the following two reasons: -- Higher purchases of energy by ENDESA's distribution and commercialisation affiliates in the amount of Euro 768 million, representing an increase of 20.0% over the figures for 2001. This increase was a consequence of the higher average pool prices. -- Fuel costs increased by Euro 116 million as a consequence of the higher volumes of thermal-based generation vis-a-vis 2001. Provisions Operating provisions for 2002 include the usual annual provision charges, the amount for 2002 being lower since Euro 56 million from the domestic coal consumption compensations for the first half 2000 were collected in 2002. The provision, which was created for this amount in 2000, has therefore been reversed. Personnel Expenses As of December 31st 2002 ENDESA's domestic electricity business workforce amounted 13,548 employees decreasing 1,468 against December 31st 2001, including 876 of VIESGO. Personnel expenses in 2002 were Euro 825 million, practically equal to 2001 after excluding personnel costs from VIESGO. 1.2. European Electricity Business Operating income for the electricity business in European countries other than Spain corresponds entirely to the activity carried out by ENDESA Italia. ENDESA's output in Italy in 2002 was 17,551 GWh with revenues of Euro 1,108 million. During 2002, ENDESA has continued to develop the improvements in efficiency as set out in the business plan. Total workforce at ENDESA Italia as of 31st December 2002 was 1,108, lower in 290 employees than at the end of the year 2001. EBITDA for 2002 was Euro 263 million, enabling an operating income of Euro 150 million. 1.3. Latin American Electricity Business Operating income for the Latin American electricity business in 2002 was Euro 1,268 million, a decrease of 10.9% against last year. However, should Argentina be disregarded, operating income shows an increase of 3.8%. Between 2001 and 2002 local currencies experienced significant devaluation against the Euro having a negative effect on the operating income measured in Euro. However, in local currency terms, operating income from the Latin American companies that are fully consolidated increased by 25.2%. The table below shows the performance of the EBITDA and operating income in Latin America broken down by activity: Euro million ---------------------------------------------------------------- EBITDA Operating income ---------------------------------------------------------------- 2002 2001 % chge. 2002 2001 %chge. ---------------------------------------------------------------- Generation 858 968 -11.4 627 653 -4.0 ---------------------------------------------------------------- Distribution & Transmission 911 1,115 -18.3 679 774 -12.3 ---------------------------------------------------------------- Other (34) 3 N/A (38) (4) N/A ---------------------------------------------------------------- Total 1,735 2,086 -16.8 1,268 1,423 -10.9 ---------------------------------------------------------------- The table below shows EBITDA and operating income for the activities of generation and distribution in 2002 and 2001, broken down by country where ENDESA has fully consolidated affiliates. Euro million ----------------------------------------------------------------- EBITDA Operating Income ----------------------------------------------------------------- 2002 2001 % chge. 2002 2001 % chge. ----------------------------------------------------------------- Generation ----------------------------------------------------------------- Chile 375 362 3.6 281 256 9.8 ----------------------------------------------------------------- Colombia 179 193 -7.3 124 132 -6.1 ----------------------------------------------------------------- Brazil 50 70 -28.6 40 63 -36.5 ----------------------------------------------------------------- Peru 158 163 -3.1 118 121 -2.5 ----------------------------------------------------------------- TOTAL Generation ex Argentina 762 788 -3.3 563 572 -1.6 ----------------------------------------------------------------- Argentina 96 180 -46.7 64 81 -20.9 ----------------------------------------------------------------- TOTAL Generation 858 968 -11.4 627 653 -4.0 ----------------------------------------------------------------- Distribution and Transmission ----------------------------------------------------------------- Chile 194 208 -6.7 171 184 -7.1 ----------------------------------------------------------------- Colombia 133 149 -10.7 56 65 -13.8 ----------------------------------------------------------------- Brazil 413 314 31.5 343 228 50.4 ----------------------------------------------------------------- Peru 85 91 -6.6 55 62 -11.3 ----------------------------------------------------------------- TOTAL Dist. and Trans. ex Argentina 825 762 8.3 625 539 16.0 ----------------------------------------------------------------- Argentina 86 353 -75.6 54 235 -77.0 ----------------------------------------------------------------- TOTAL Distribution & Transmission 911 1,115 -18.3 679 774 -12.3 ----------------------------------------------------------------- In all the countries and activities that reflect lower EBITDA and operating income against 2001, their decreases have been lower than the devaluation of the local currency against the Euro, therefore the currency devaluation has been the reason behind the reduction of both magnitudes in Euro terms. It is worth noting that in Chile, Colombia and Peru the drops have been much lower than the ones for their currency devaluation thereby evidencing the good business performance in local currency terms. On the other hand, the excellent performance of the Chilean generation should be highlighted, with an increase in Euro terms of its operating income of 9.8% despite the Chilean peso's 23,4% devaluation against the Euro in 2002, as well as distribution and transmission in Brazil, where the higher operating income was mainly due to CIEN, the company that interconnects Argentina and Brazil, whose second line was commissioned in 2002. Operating results for the Latin American electricity business of ENDESA in 2002, achieved in a very adverse economic environment, reflect the efficiency improvements that are being achieved in its subsidiaries and the limited impact from the situations of recession on the electricity business. The table below shows the physical data of ENDESA's Latin American subsidiaries in 2002 and 2001. Generation (GWh) Distribution (GWh) --------------------------------------------------------------- % chge. % chge. 2002 s/2001 2002 s/2001 --------------------------------------------------------------- Chile 16,285 3.5 9,895 3.9 --------------------------------------------------------------- Colombia 10,699 5.0 9,029 4.1 --------------------------------------------------------------- Argentina 8,600 -23.4 12,159 -6.0 --------------------------------------------------------------- Brazil 2,467 9.3 12,653 4.6 --------------------------------------------------------------- Peru 4,404 -2.3 3,872 5.1 --------------------------------------------------------------- TOTAL 42,455 -3.3 47,608 1.5 --------------------------------------------------------------- The data above show that ENDESA's Latin American business is adequately diversified, both by country and line of business, which enables it to face the consequences of the odd situations of recession. 2 Financial Results Financial results for 2002 were a net loss of Euro 1,634 million, an improvement of 5.1% against last year, as broken down below: Euro million ----------------------------------------------------------------- 2002 2001 Change % chge. ----------------------------------------------------------------- Financial expenses (1,499) (1,628) 129 7.9 ----------------------------------------------------------------- Financial income 260 167 93 55.7 ----------------------------------------------------------------- FX differences (549) (398) (151) -37.9 ----------------------------------------------------------------- Monetary correction 163 141 22 15.6 ----------------------------------------------------------------- Change in provisions (9) (4) (5) N/A ----------------------------------------------------------------- Total financial results (1,634) (1,722) 88 5.1 ----------------------------------------------------------------- ---- 2.1 Financial Expenses In 2002 ENDESA reduced its debt figure by Euro 2,260 million. As a consequence of that, debt fell to Euro 22,747 million as of December 31st 2002. The reduction in debt was the result of the following: -- The result of the operations in the year resulted in a reduction of the debt of Euro 1,366 million, as is detailed in item 6 "Cash Flow, Investments and Financing." -- The consolidation perimeter changes added Euro 1,330 million corresponding to ENDESA Italia's debt position as of 31 December 2001 as well as the reduction of Euro 152 million of the debt at that date from the companies that ceased to be fully consolidated mainly VIESGO. -- The changes in the exchange rates against the Euro of the currencies in which the consolidated affiliates hold their debt have resulted in a decrease of the Euro value of the total consolidated debt of Euro 2,072 million. On the other hand, average cost of debt for the year was 5.05%, against 5.85% for 2001. This decrease and the debt reduction have enabled a reduction in net financial expenses of Euro 222 million, a decrease of 15.2% against 2001. The following table shows a breakdown of debt and its average cost by line of business in 2002: Euro Million Debt as of Debt as of Change Avge 31-12-01 31-12-02 cost 2002 ----------------------------------------------------------------- Domestic electricity business 11,768 9,394 (2,374) 4.26 ----------------------------------------------------------------- Latin American electricity business 11,525 9,599 (1,926) 6.25 ----------------------------------------------------------------- Enersis with third parties debt 8.570 6.984 (1.586) 7,05 ----------------------------------------------------------------- Rest 2.955 2.615 (340) 4,17 ----------------------------------------------------------------- European electricity business - 1,627 1,627 3.83 ----------------------------------------------------------------- Other businesses 1,714 2,127 413 4.13 ----------------------------------------------------------------- TOTAL 25,007 22,747 (2,260) 5.05 ----------------------------------------------------------------- 2.2. Foreign Exchange Differences Net foreign exchange differences for 2002 resulted in a net loss of Euro 549 million. Among the currencies of the countries where ENDESA operates, the most significant exchange rate fluctuation against the Euro and US dollar has been the Argentinean peso. As of 31st December 2001 the exchange rate was 1 peso per dollar while as of 30th December 2002 was 3.37 pesos per dollar, meaning a devaluation of 70.3%. Since ENDESA closed its accounts for the year 2001 using an exchange rate of 1.7 pesos to the dollar, the effect on 2002 corresponds to a devaluation of 49.6%. Of the remaining currencies of the countries in which ENDESA has a presence, it is worth noting the 34.3% devaluation of the Brazilian real against the dollar. In 2002 the negative effect of the devaluation of the Argentinean peso on the debt of the ENDESA's subsidiaries operating in this country amounted to Euro 392 million with an impact on net income of Euro 67 million. In the case of Brazil, most of the dollar-denominated third party debt in ENDESA's subsidiaries is hedged; hence the impact from foreign exchange differences derived from this debt upon the results is not significant. 3 Equity Income In 2002, losses attributable to ENDESA under the equity method were Euro 93 million. The largest component of the equity losses corresponds to the shareholdings in telecommunications affiliates. The telecommunications holding company AUNA, showed a loss of Euro 160 million, which, apart from AUNA's ordinary income, includes some the provisions corresponding to the closing of Quiero TV and other write downs. In 2002 AUNA showed positive EBITDA of Euro 610 million and its main subsidiary, AMENA, posted a positive net income of Euro 101 million with a customer base of 6,460,000, and an income market share of 18.6%. On the other hand, the foreseeable future performance of the parent company and the asset sale in process will make unnecessary new equity contributions from the shareholders. It is important to highlight that the foreseeable future performance of the holding and divestments will make it unnecessary to ask for new equity contributions from the shareholders. The Chilean mobile telephone operator Smartcom, despite showing net loss of Euro 53 million, had EBITDA positive of Euro 8.6 millions for the year, due to 42% revenues increase compared to 2001. Moreover, as of 31st December 2002 it had a customer base of 946,000, 55% higher than a year ago, and a market share of 15.5%, against 12.6% in 2001. Following prudence criteria, ENDESA has deferred the effect from the fiscal deductibility of the telecom participations, for the amount of Euro 152 million, which will cover the future fiscal cost arisen when these participations show benefits. 4 Extraordinary Results Extraordinary results for ENDESA in 2002 were Euro 71 million. Its main components were the following: -- The Euro 1,066 million capital gain from the sale of 87.5% of VIESGO. -- The recognition of the tariff deficit and additional compensations corresponding to previous years over costs in the extra peninsular systems for the amount of Euro 86 and 128 million, respectively. -- A Euro 317 million extraordinary amortisation of Smartcom goodwill as a result of the value decrease in the sector of telecommunications. -- Euro 380 million provisions to cover the risks related to the national electricity business. This corresponds to the shortening of the useful life of assets caused by the liberalisation of the market, the new regulation on meters and the update of the actuarial studies for the pension commitments with the workforce as a consequence of higher inflation than the previously assumed. -- Euro 404 million provisions to cover risks related to the Latin American electricity business, where 134 millions were already allocated in the first nine months of the year. This provision covers possible assets and goodwill capital losses in Latin America and future risks due to other contingencies in ENDESA's subsidiaries and in operations conducted by ENDESA in Latin America. Among these provisions it is noteworthy the Euro 145 million provision to fully cover the risks of the investments, including intercompany loans granted to Argentinean subsidiaries, regarding the uncertainty of the economic situation of the country. With this provision, the book value of ENDESA's net assets in Argentina is zero. -- A provision to cover the effect of the lower share price on the treasury stock, which amounted to Euro 75 million. 5 Information by Line of Business The table shown below shows the main parameters of the income statement and balance sheet as of December 31, 2002 by line of business: Euro Million ---------------------------------------------------------- Revenues Operating Net Fixed Income Income Assets ---------------------------------------------------------- Generation 4.345 1.364 2.082 8.316 ---------------------------------------------------------- Distribution 5.597 684 498 6.729 ---------------------------------------------------------- Supply 1.323 98 38 10 ---------------------------------------------------------- Latin America 3.850 1.268 (281) 9.286 ---------------------------------------------------------- Europe 1.744 150 21 2.349 ---------------------------------------------------------- Other businesses 260 33 (496) 505 ---------------------------------------------------------- Services 254 6 27 59 ---------------------------------------------------------- Corporate Structure 211 (27) (619) 154 ---------------------------------------------------------- Adjustments among activities (845) 6 - 333 ---------------------------------------------------------- TOTAL 16.739 3.582 1.270 27.741 ---------------------------------------------------------- The net result by activities includes the effect of the Ministerio de Hacienda official reply to ENDESA's inquiry, regarding the company of the ENDESA Group to which the early retirement programs tax credit should be applied. As a result of this inquiry, the anticipated tax has been reallocated among the different companies of the Group, with no effect at a consolidated level. The main effects have been a negative Euro 541 million in the Holding Company and Euro 272 million and Euro 246 million in Generation and Distribution respectively. The balance of the positive effect basically corresponds to services for an amount of Euro 20 million. 6 Cash Flow, Investments and Financing Cash flow from operations amounted to Euro 4,285 million during 2002, a 28% increase over 2001. This cash flow allowed covering capital expenditures and intangibles which amounted to Euro 2,470 million, payment of the dividend to ENDESA's shareholder in the amount of Euro 723 and to minorities in the amount of Euro 116 million as well as payment of previously provisioned commitments, such as pensions and payroll reductions, in the amount of Euro 440 million, which includes the externalisation of the pension fund materialised in 2002. In 2002, funds from asset disposals amounted to Euro 1,889 million, of which Euro 1,684 million correspond to the sale of 87.5% of Viesgo. In addition, in December 2002, an advance payment of Euro 485 million was received from Red Electrica de Espana (REE) for the sale of the mainland transmission network that will be made in 2003. On the other hand, financial investments amounted to Euro 1,493 million, including the tariff deficit in Spain corresponding to the regulated business and the extra peninsular systems amounting to Euro 706 million to be cashed in more than one year time, thereby accounted as financial investment. Other financial investments include capital increases subscribed in AUNA and Smartcom for Euro 273 and 57 million respectively, and the acquisition to Telecom Italia of an additional 2% of AUNA for Euro 159 million. The acquisition of shares in consolidated companies corresponds in its entirety to the acquisition of the additional 5.7% in ENDESA Italia, already mentioned. The breakdown of total investments in the period 2002 and its comparison with 2001 is as follows: Euro Million ----------------------------------------------------------------- Change ----------------------------------------------------------------- 2002 2001 Amount % ----------------------------------------------------------------- Capital Expenditures 2,372 2,403 (31) (1.3) ----------------------------------------------------------------- Intangibles 98 141 (43) (30.5) ----------------------------------------------------------------- Financial 1,366 2,890 (1,524) (52.7) ----------------------------------------------------------------- Tariff deficit financing and islands compensations 706 ---- 706 N/A ----------------------------------------------------------------- Other financial investments 660 2,890 (2,230) (77.2) ----------------------------------------------------------------- Acquisition of shares in consolidated companies 127 12 (115) N/A ----------------------------------------------------------------- Total investments 3,963 5,446 (1,483) (27.2) ----------------------------------------------------------------- Total investments without regulated activities deficit3,257 5,446 (2,189) (40.2) ----------------------------------------------------------------- Following the investment control strategy carried out by ENDESA towards leverage reduction contemplated in it Strategic Plan 2002-2006, 2002 total investment decreased by 40.2% against 2001, excluding the tariff deficit financing and the extrapeninsular compensations. Even including this deficit, total investment decreased by 27.2%. The breakdown of capital expenditures by line of business is as follows: Euro Million Electricity business ----------------------------------------------------------------- Spain Latin Europe Other Total America Business ----------------------------------------------------------------- Generation 604 276 241 - 1,121 ----------------------------------------------------------------- Distribution 658 402(*) - - 1,060 ----------------------------------------------------------------- Others 88 32 4 67 191 ----------------------------------------------------------------- Total 1,350 710 245 67 2,372 ----------------------------------------------------------------- * Including the investment in the second transmission line between Brazil-Argentina. It is important to highlight, that in accordance with the 2002- 2006 Strategic Plan, the remarkable investment control above mentioned, did not affect the capital expenditures in the Electricity business in Spain. Particularly the capital expenditures in the distribution business in Spain amounted to Euro 658 million, or 48.7% of the capital expenditure carried out by ENDESA in the electricity business in Spain and a 11.3% increase against 2001. On the other hand, generation capital expenditures in Spain amounted to Euro 604 million, mainly in the deployment of new combined cycle power plants. Financing activity wise, in 2002 ENDESA made long term financing transactions for an amount of Euro 2,048 million and an average life of 5.6 Years. Additionally, in February 2003, Euro 700 million bond was issued under ENDESA's Euro Medium Term Notes (MTN's) program maturing in 10 years and closed a "Club Deal" with 14 banks in the amount of Euro1.5 billion maturing in 2008, and a bilateral loan of Euro 50 million maturing in 2009. As of today, there are credit lines available for an amount of Euro 2,514 million approximately and cash investments for Euro 1,060 million. CONTACT: Jacinto Pariente North America Investor Relations Office Phone: (212) 750 7200 Web Site: http://www.endesa.es SANTA ISABEL: Cencosud To Proceed With Purchase ----------------------------------------------- Chilean retailer Cencosud is sticking to its plans to buy Royal Ahold NV's Santa Santa Isabel supermarket chain in Chile despite the Dutch retail giant's admission of accounting irregularities. "We've got a deal signed with Ahold and what's happening to its operations in other countries won't affect this agreement," an Cencosud source told Dow Jones Newswires Tuesday. Ahold admitted this week that it overstated operating earnings by more than US$500 million during the past two years. In addition, the Dutch retailer said that it's investigating bookkeeping at its U.S. Foodservice unit and its Argentine retailer Disco, which partly owned Santa Isabel until Ahold took full control late last year. Cencosud, which agreed on Feb. 6 to buy Santa Isabel - 97%-owned by Ahold - for around $150 million, said it has so far, seen no evidence that accounting errors at Ahold could extend to Chilean operations. "We're in the middle of due diligence and there's a chance we might get a better bargain, but at least at present there's nothing to change the terms," the source said. According to Dow Jones, the US$150-million price tag for Santa Isabel's 77 stores in Chile includes the possible assumption of the supermarket retailer's debt amounting to some US$115 million. The transaction's final price will be determined approximately by late March, once due diligence has been carried out. Via its Jumbo hypermarket chain, Cencosud presently controls 8.8% of Chile's supermarket sector. By taking over Santa Isabel, which holds a 9.5% market share, Cencosud will become the second- biggest player in the domestic market behind D&S SA (DYS), which holds 30%. CONTACT: Royal Ahold Investor Relations: Huibert Wurfbain, 011-31-75-659-5813 or Media Relations: Annemiek Louwers, 011-31-75-659-5720 or Taylor Rafferty New York Media Relations: Ethan Sack, 212/889-4350 or Taylor Rafferty London Media Relations: Matthew Nardella, + 44 20 7936 0400 =============== C O L O M B I A =============== PAZ DEL RIO: University To Produce Report In A Fortnight -------------------------------------------------------- The National University of Colombia is expected to produce in two weeks' time a report that would help Colombian steelmaker Acerias Paz del Rio decide on an industrial reconversion plan, Business News Americas reports. According to a company spokesperson, the report is ready and is currently in the hands of the country's economic development ministry, which is preparing a presentation to be made to Colombian President Alvaro Uribe. "It's possible that either this week or next they [the ministry] will have the presentation ready, and then a meeting with the president will be scheduled," the spokesperson said. Once the presentation is ready, company executives will meet with President Uribe to discuss the plans and decide how to proceed with it. The plan is aimed at cutting costs by an estimated US$32/t and doubling output to 500,000t/y within seven years. A Paz del Rio director told Business News Americas previously that the plan would cost around US$45 million if it were to involve new equipment, including a continuous casting machine to produce billets and a ladle furnace. Uribe has pledged support, in the form of loan guarantees, to finance the technological conversion. But while the finance question is not resolved, nor that of a trustee for the Company, which is in a form of bankruptcy protection, no concrete steps can be taken to obtain resources, the spokesperson said. There are three potential investors interested in financing the industrial conversion project, one from the Colombian department of Antioquia and two from the United States. On the question of a trustee, President Uribe proposed naming a university that would in turn appoint someone to replace the previous trustee, Gilberto Gomez, who resigned. Bankruptcy protection law 550 is not clear on the issue, and the government wants to introduce a modification that would allow universities to play a role in appointing a trustee. CONTACT: ACERIAS PAZ DEL RIO S.A. Carrera 8 # 13-31, Pisos 7 al 11 Bogota, D.C. Phone: (091) 282-8111 Fax: (091) 282-6268 282-3480 E-mail: apdr@multi.net.co SEVEN SEAS: Announces Closing of Producing Properties' Sale ----------------------------------------------------------- Seven Seas Petroleum Inc. (OTC Pink Sheets: SVSSF) announced the closing of the sale of its Colombian subsidiaries' interest in the shallow Guaduas Oil Field inclusive of the 40-mile Guaduas-La Dorada Pipeline to Sociedad Internacional Petrolera, S.A. (Sipetrol). The purchase price is $20 million, subject to certain adjustments and taxes. Seven Seas is operating under the administration of a court- appointed trustee under Chapter 11 of the United States Bankruptcy Code. The Company has no source of cash flow from operations and is currently seeking to secure additional financing to test and complete the Escuela 2 exploration well. Seven Seas Petroleum Inc. is an independent oil and gas exploration and production company operating in Colombia, South America. Statements regarding anticipated oil and gas production and other oil and gas operating activities, including the costs and timing of those activities, are "forward looking statements" within the meaning of the Securities Litigation Reform Act. The statements involve risks that could significantly impact Seven Seas Petroleum Inc. These risks include, but are not limited to, adverse general economic conditions, operating hazards, drilling risks, inherent uncertainties in interpreting engineering and geologic data, competition, reduced availability of drilling and other well services, fluctuations in oil and gas prices and prices for drilling and other well services and government regulation and foreign political risks, as well as other risks discussed in detail in the Seven Seas Petroleum Inc.'s filings with the U.S. Securities and Exchange Commission. CONTACT: Seven Seas Petroleum Inc. Daniel Drum, Investor Relations Tel: +1-713-622-8218 Web site: http://www.sevenseaspetro.com =================== C O S T A R I C A =================== ICE: Signs DSL Routers Agreement With GBM ----------------------------------------- Costa Rican state power and telecom monopoly ICE signed an agreement with IT provider GBM to acquire routers for the country's broadband Internet backbone project, reports local paper El Financiero. The agreement, signed last Friday, requires GBM, distributor of Cisco System's products in Central America, to install the routers within 4 months. Cisco Systems will provide the equipment for a total cost of US$25.2 million. The project is expected to be fully operational on August, after a trial version has been started last year. However, said the report the government and ICE would have to reinstate a tender process for the deployment of the DSL lines themselves, that was suspended last year. ICE's contract with GBM came under threat until the government's comptroller rejected an appeal by French vendor Alcatel last month. Earlier this year, Costa Rican Finance Minister Jorge Walter Bolanos said that the country would not push for ICE's privatization, despite a misunderstanding between the Company and the government over ICE's budget. ============= J A M A I C A ============= AIR JAMAICA: COO & President Leaves Post ---------------------------------------- Air Jamaica Chief Operating Officer and President Bruce Nobles resigned from his post, according to an article released by in RJR News. A company press release said Mr. Nobles found it difficult being separated from his family in Texas. However, Mr. Nobles would be staying with Air Jamaica as a consultant, on a part-time basis. He has served as the airline's president since June 2002. The airline also announced that Chief Executive Officer Chris Zacca will assume the responsibilities of the company's day-to- day operations. It is not clear whether the airline's problems figure in Mr. Noble's resignation. Last month, the airline asked the Jamaican government for aid. CONTACT: Air Jamaica 4 St. Lucia Avenue Kingston 5, Jamaica Phone: 876/922-3460 Fax: 929-5643 Email: webinfo@airjamaica.com Contact: Gordon Stewart, Chairman Allen Chastanet, Vice President for Marketing and Sales =========== M E X I C O =========== BANCO INTERNACIONAL: New York Unit Voluntarily Liquidates Assets ---------------------------------------------------------------- Banco Internacional, S.A., disclosed the voluntary liquidation of its New York agency, located at 437 Madison Avenue, New York. The agency will cease operations on April 30, 2003. Any person or entity with a claim against the New York agency is directed to submit its claim on or before March 31, 2003, to: Banco Internacional, S.A., New York Agency 437 Madison Avenue, 17th Floor New York, NY 10022 Attn: Carlo Martinez, EVP and General Manager Banco Internacional was Mexico's fifth largest commercial bank in terms of total assets with a 7.3% market share at end- September 2002. VITRO: Reports Unaudited Fourth Quarter And Fiscal 2002 Results --------------------------------------------------------------- Results for the year reflected continued weakness in the US and Mexican economies. This particularly affected sales at Flat Glass and Glassware. Glass Containers results, on the other hand, were less affected by the macroeconomic environment, particularly in the domestic market, and benefited from Vitro's strategy to target niche specialty product markets. Vitro's management is aggressively implementing several initiatives to further strengthen its operations. Three key strategic initiatives are: focusing on niche markets; shifting sales to the more profitable auto replacement market; and, implementing measures to improve productivity across all businesses. - Consolidated net sales for the year, excluding Ampolletas, remained unchanged YoY at US$2,343 million despite unfavorable economic conditions. For the quarter, sales decreased YoY by 3.0 percent to US$574 million - Consolidated EBITDA for the year decreased YoY by 7.9 percent to US$403 million and for the quarter declined YoY by 20.1 percent to US$78 million - Exchange rate losses for US$152 million, which are non-cash items, affected the US$7 million consolidated net income for the year - Consolidated outstanding debt decreased YoY by 10.8 percent, or US$161 million, to US$1,336 million. This considers the cash available from the net proceeds of a medium term note in Mexican pesos issued on December 30, 2002 and the net obligation of a US private placement - Consolidated net sales. Consolidated net sales for the year declined YoY 1.1 percent to US$2,343 million. Excluding the effect of Ampolletas, which was divested in April 2002 and had sales of US$29 million for fiscal 2001 and US$9 million through April 2002, sales for the year would have remained unchanged. Glass Containers continued its solid results for the year and increased sales by 0.9 percent despite the Ampolletas divestiture. Net sales for the quarter declined by 5.6 percent, or US$16 million, at Flat Glass, by 1.7 percent, or US$4 million, at Glass Containers, and by 8.3 percent, or US$6 million, at Glassware. The decline in sales at Flat Glass and Glassware was mainly due to continued adverse market and economic conditions in both Mexico and the U.S. At Glass Containers, the YoY comparison was negatively impacted by the divestiture of Ampolletas. Excluding sales at Ampolletas, sales at Glass Containers would have risen by 1.4 percent, while consolidated net sales would have declined by 3.0 percent vs. actual 4.1 percent for the quarter. - Consolidated EBITDA. Consolidated EBITDA for the year, declined by 7.9 percent to US$403 million, reflecting the continued weakness in macroeconomic conditions. For the quarter, EBITDA at Flat Glass, declined by 36.0 percent, or US$14 million, as a result of some non-recurring charges, continued weakness in demand from the non-residential construction in the U.S. and OEM auto segments, pricing pressures that affected margins and increased costs in the domestic construction segment. At Glass Containers, EBITDA rose by 0.4 percent, or US$0.2 million, mainly as a result of improved efficiencies, the implementation of cost saving measures and a more favorable sales mix in the domestic market. At Glassware, EBITDA declined by 15 percent, or US$2 million, mainly due to lower profitability in the plastics segment, which accounted for 64 percent of the decline, and pricing pressures that affected margins in both segments as imports into the Mexican market increased driven by a strong peso. - For the year, the Company reported consolidated net income of US$7 million, which reflected the negative impact of an exchange loss, non-cash, of US$152 million. For the quarter, consolidated net loss was US$6 million, compared with consolidated net income of US$38 million for the fourth quarter of 2001. This was mainly due to the YoY increase in total financing cost resulting from exchange losses in the amount of US$20 million. - On December 31, 2002, consolidated outstanding debt was US$1,455 million. This amount considers the issuance of a Ps$1.0 billion, six-year, bullet, medium term note (MTN*) issued in the Mexican market on December 30, 2002. It also considers the full obligation of a US private placement. Net of these proceeds and the net obligation of the above-mentioned private placement, consolidated outstanding debt decreased YoY by 10.8 percent, or US$161 million to US$1,336 million, and QoQ increased by approximately US$5 million. On December 31, 2002, leverage (total debt/EBITDA) was 3.7 times, compared with 3.3 times on December 31, 2001. Net of the effect of the above mentioned issues, leverage on December 31, 2002, would have remained stable at 3.3 times. Consolidated Results Sales Consolidated net sales for the quarter decreased YoY by 4.1 percent, or US$25 million, to US$574 million. This was the result of declines at Flat Glass of 5.6 percent or US$16 million; at Glass Containers of 1.7 percent or US$4 million; and at Glassware, of 8.3 percent or US$6 million. The YoY comparison was negatively impacted by the divestiture on April of 2002 of Ampolletas, a company of Glass Containers, which accounted for one third of the YoY decline. In 2001, sales at Ampolletas were US$7.3 million for the fourth quarter and US$29 million for the year. Excluding sales at Ampolletas for the fourth quarter of 2001 from the YoY comparison, sales at Glass Containers would have risen by 1.4 percent, while consolidated net sales would have declined by 3.0 percent, instead of 4.1 percent. Flat Glass' sales declined mainly due to: the continued weakness in the U.S. economy, particularly the nonresidential construction sector in the U.S. and the OEM auto segment; and pricing pressures as imports into the Mexican market increased during the year driven by the strong peso. Glass Containers' sales (excluding Ampolletas) positively reflected the business unit's strategy to enter niche specialty product markets within segments such as wine & liquor, cosmetics and food. Additionally, during the fourth quarter the beer segment in Mexico continued to perform ahead of the general economic trend. Glassware's sales were negatively impacted by the continued weakness in the Mexican and U.S. economies and the rise in imports into the Mexican market driven by the strong peso. Sales were also affected by pricing pressures, especially in the retail segment, and decreased demand in the plastic segment. For the year, consolidated net sales declined 1.1 percent, or US$26.6 million, to US$2,343 million. However, excluding the effect of Ampolletas, which had sales of US$29 million for fiscal 2001 and US$9 million through April 2002, sales for the year would have remained stable. Glass Containers posted a solid year, despite the divestiture of Ampolletas, increasing sales YoY by 0.9 percent to US$977 million. EBIT and EBITDA Consolidated EBIT and EBITDA for the quarter decreased YoY by 34.7 and 20.1 percent, respectively, to US$26 million and US$78 million. Flat Glass' EBIT and EBITDA decreased by 67.3 and 36.0 percent, or US$16 and US$14 million, respectively, due to: the decrease in sales of US$16 million explained above; cost increases which included non-recurrent charges, derived by inventory write-offs; and pricing pressures in the automotive and domestic construction markets that affected margins. Glass Containers' EBIT and EBITDA increased by 23.0 and 0.4 percent, or US$4 and US$0.2 million, respectively, as a result of improved operating efficiencies, especially in the glass domestic operations, and better capacity utilization. Glassware EBIT and EBITDA decreased by 29.2 and 15.0 percent, or US$2 and US$3 million, respectively, due to: the decrease in sales of US$6 million described above, increases in the cost of raw materials within the plastic sector, and lower fixed cost absorption as a result of lower capacity utilization. For the year, consolidated EBIT and EBITDA declined by 13.9 and 7.9 percent, or US$32 and US$34 million, respectively, reflecting the continued weakness in macroeconomic conditions. Financing Cost During the quarter, the Company recorded a consolidated financing cost of US$31 million, compared with a consolidated financing gain of US$15 million for the same quarter of 2001. The decrease is explained by exchange losses during the quarter, which were non-cash items. The weighted average cost of debt for the quarter was 9.1 percent, similar to the same period of 2001. Interest expenses for the quarter were US$37 million, compared with US$34 million for the fourth quarter of 2001. The 7.9 percent YoY increase in interest expenses included costs from derivative transactions. Foreign exchange loss for the quarter was US$20 million, representing 63 percent of the total financing cost, and it was due to the 2.0 percent depreciation of the Mexican peso against the U.S. dollar over the period. This loss had no impact on the Company's cash position. For the year, the Company recorded a total financing cost of US$223 million, compared with US$59 million for fiscal 2001. Even tough interest expenses decreased YoY by 16.9 percent, a higher non-cash foreign exchange loss of US$152 million, as a result of the 13.8 percent depreciation of the Mexican peso against the U.S. dollar during the year, accounted for the majority of the increase. During fiscal year 2002 the Company entered into cross-currency swap transactions that as of December 31, 2002, covered a total of US$323 million and interest rates related derivatives for up to US$695 million. Such transactions were part of the Company's strategy to offset future increases in U.S. and Mexican interest rates and a possible abrupt devaluation of the local currency, therefore reducing the uncertainty of the cash flow generation. Taxes For the quarter, the YoY increase in accrued income taxes is due mainly to higher taxable gains in some of our foreign operations which are not consolidated for Mexican tax purposes. The deferred income tax decrease from US$21 million in 4Q'01 to US$(-7) million in the same quarter of 2002 is due to exchange losses byproduct of the Mexican peso devaluation during the year and the decrease in sales by the reasons previously explained. For fiscal 2002, the Company posted a negative US$85 million deferred income tax, mainly as a result of the reduction of the Mexican legal income tax rate, mentioned in previous quarters. Consolidated Net Income For the quarter, the Company posted a consolidated net loss of US$6 million, compared with consolidated net income of US$38 million for the same period of 2001. This was mainly the result of the above-mentioned increase in total financing cost and other extraordinary expenses related to the write-off of certain fixed assets and severance payments in connection with headcount reduction as part of the ongoing downsizing program at the corporate level announced in conjunction with 3Q02 results. For the year, the Company reported consolidated net income of US$7 million, a YoY decline of 88 percent from US$62 million for fiscal 2001, due mainly to the above-mentioned increase in total financing cost and EBIT decrease. Capital Expenditures During the fourth quarter, the Company made capital expenditures (CAPEX) for a total of US$33.5 million, nearly all for maintenance purposes. Of these, US$16 million were invested at Flat Glass, US$14 million at Glass Containers and US$4 million at Glassware. CAPEX for the year was in line with the Company's initial expectation of US$100 million. For the year, a total of US$47 million were invested at Flat Glass, of which US$18 million corresponded to the purchase of a Glass Containers' facility in Mexicali, US$58 million at Glass Containers and US$13 million at Glassware, nearly all for maintenance purposes. Consolidated Financial Position On December 31, 2002, consolidated outstanding debt was US$1,455 million, compared with US$1,370 million on September 30, 2002. Consolidated outstanding debt rose QoQ by US$85 million, mainly as a result of the issuance of a Ps.1.0 billion, six-year, bullet, medium term note (MTN*) issued in the Mexican market on December 30, 2002. Proceeds from this MTN will be used to strengthen the financial position of the Company. Consolidated outstanding debt as of year-end 2002 also considers the full obligation of a U.S. private placement. Net of these proceeds and the net obligation of the above-mentioned private placement, consolidated outstanding debt decreased YoY by 10.8 percent, or US $161 million to US$1,336 million, and QoQ increased by approximately US$5 million. On December 31, 2002, leverage (total debt/EBITDA) was 3.7 times, compared with 3.4 times on September 30, 2002 and 3.3 times on December 31, 2001. Net of the effect of the above mentioned issues, leverage on December 31, 2002, would have remained stable at 3.3 times. Debt Profile as of December 31, 2002 - Continuing with the Company's strategy of strengthening its financial structure, short-term debt decreased QoQ by US$34 million to US$458 million, thus increasing the average life of Vitro's debt to 3.1 years, (and 3.2 years net of the effect of the MTN issue on a pro-forma basis) from 3.0 years for the third quarter of 2002, and from 1.8 years at December 31, 2001. - Long-term debt represented 69 percent of total debt as of December 31, 2002 versus 64 percent as of December 31, 2001. Net of the effect of the MTN issue, long-term debt would have been 73 percent on a pro-forma basis. - 50 percent of debt maturing in the period January 2003 - December 2003, or approximately US$228 million, was related to trade finance. Cash Flow Starting with the fourth quarter of 2002, the Company aligned its definition of "Working Capital" to include other current assets and liabilities in addition to the variations in clients, inventories and suppliers. For ease of comparison, working capital for 2001 was adjusted to reflect this new definition. For the quarter, net interest expense declined as a result of a lower debt level and lower financing costs; working capital decreased by US$16 million. Dividends paid for the period corresponded to minority interest from joint venture partners in Central America. The Company recovered US$16 million on tax returns that more than offset taxes paid for the quarter. On summary, net free cash flow for the quarter was US$14million, compared with US$76 million for the fourth quarter of 2001. For the year, the decrease in EBITDA was compensated by lower interest expenses, dividends and cash taxes paid. However, a total investment of US$85 million in working capital and higher capital expenditures resulted in a net free cash flow of US$8 million. For 2002, other extraordinary cash inflows, from the divestitures of Acros Whirlpool and Ampolletas, were a total of US$143. 4 million. Excess cash flow was mainly used to pay down debt. Sales Sales for the quarter declined YoY by 5.6 percent, to US$265 million, from US$281 million for the same quarter in 2001. This was mainly due to the continued weakness of the U.S. economy; particularly the non-residential construction sector in the U.S. and the OEM auto segment, which declined YoY; and pricing pressures, mainly in the commodity segment, as imports into the Mexican market increased driven by the strong peso. The impact of these factors was only partially compensated by increases in sales to the auto replacement market in Mexico and at Vitro Cristalglass in Spain, where sales increased YoY by 31.4 percent. Domestic sales for the quarter declined YoY by 11.4 percent to US$78 million. This was mainly due to a sales volume decline to the OEM auto segment, despite an improvement in the sales mix toward more value-added products. Volumes also declined slightly in the construction segment, with sales shifting to the export market as a consequence of the slowdown of the Mexican economy. Export sales for the quarter declined YoY by 4.4 percent to US$62 million mainly due to a decline in volume and prices of the OEM auto segment. Vitro America's sales to the non-residential construction segment in the U.S. continue to be affected by excess availability of office space due to the decline in business activity, especially on the West Coast of the U.S. Sales at Vitro Cristalglass increased by 31.4 percent, driven by higher sales from the distribution segment. For the year, domestic sales declined by 10.1 percent to US$320 million. This was partially compensated by a 4.7 percent increase in export sales, to US$272 million, in particular to the auto segment. Volumes were up for both the construction and auto segments, while prices remained stable in the case of construction and declined for the auto segment, especially the OEM, which is the sector where prices are under constant pressure. EBIT and EBITDA Consolidated EBIT for the quarter was US$8 million, representing a YoY decline of 67.3 percent. This was mainly due to the decline in sales explained above and US$9 million in extraordinary charges related to the write-off of inventories previously mentioned in the 3Q'02 earnings report, as well as increases in the following costs: direct materials for the auto segment, maintenance and freight; the latter due to the shift in sales to export markets. EBIT margin was affected by pricing pressures and the shift in sales toward the less profitable export market. EBITDA for the quarter was US$26 million, reflecting a 36.0 percent YoY decrease, as a result of the factors discussed above. Management continued in its efforts to shift sales of the OEM auto segment toward the more profitable auto replacement market by improving the utilization of existing distribution channels to partially offset pricing pressures and by increasing production of car sets with better margins for import car models within the domestic auto replacement market. For the year, sales produced in Mexico (excluding Vitro America) to the auto replacement market increased to 37 percent of total sales to the auto industry, from 33 percent for fiscal 2001. Management is currently working on several initiatives to enhance synergies with its foreign subsidiaries, including increasing purchases by Vitro America of glass produced by the Mexican operations, which is expected to improve consolidated margins. Also, at Vitro America, the Company started implementing different initiatives to optimize its distribution network. Other initiatives include increasing efficiencies of the furnaces by reducing the number of products produced by the float glass process and focusing on those with the highest margins and demand. Other products are being purchased from third parties, and finished by Vitro according to each client's requirements. In addition, Flat Glass sales are expected to benefit from the start up of operations during the second half of 2003 of the new furnace currently being built by the JV with Asahi. This new furnace will provide additional capacity of 146,000 tons per year, which will be used 50/50 by the JV partners. Glass Containers (42 percent of Consolidated Sales) Sales Consolidated sales for the quarter declined by 1.7 percent to US$241 million, from US$245 million. This was mainly due to the divestiture of Ampolletas on April of 2002, which had net sales of US$7.3 million for the fourth quarter of 2001. Excluding the effect of these sales on the YoY comparison, sales for the fourth quarter of 2002 would have increased by 1.4 percent. For the quarter, net sales of glass products accounted for approximately 85 percent of the business unit's sales. Average prices for the period were stable for both, the domestic and export markets. Domestic sales (excluding Ampolletas) were up by US$7 million to US$156 million. Sales to the beer and the wine & liquor segments, and to a lesser degree, to niche markets within the food segment, continued to be strong. This was offset by a 7 percent decline in sales at the business unit's subsidiary in Central America, due to lower demand in that region. Exports declined by 4.2 percent YoY to US$53 million. Exports to the wine and liquor segments, especially to the West Coast of the U.S., and the cosmetic segments improved. This increase, however, was not enough to compensate for the decline in sales in other segments explained partially by a cold winter that impacted sales to the soft drink segment in the U.S. For the year, consolidated sales rose by 0.9 percent to US$977 million, with the improvement resulting mainly from strong demand, both at the domestic operations and foreign subsidiaries. Excluding the effect of Ampolletas on the YoY comparison, sales for the year would have increased by 3.2 percent. Ampolletas sales for fiscal year 2001 were US$29 million, and US$9 million for the period through April 2002, when the company was divested. Due to a strong demand, the business has been working at full capacity, reflecting the business unit's strategic position within the region. As a result, it is currently in the process of aligning production capacity with demand by increasing capacity at the Queretaro facility to better serve the soft drink and beer segment. EBIT and EBITDA EBIT for the quarter, increased YoY by 23.0 percent to US$23 million, mainly due to increased sales, an improvement in operating efficiencies, better capacity utilization and sales mix in the domestic market. EBIT margin improved YoY by 190 basis points to 9.5 percent. EBIT for the quarter at Vancan, the aluminum can subsidiary, rose YoY as a result of higher sales and increases in productivity. EBITDA for the quarter rose YoY by 0.4 percent to US$46 million, mainly due to the factors discussed above. Glassware (11 percent of Consolidated Sales) Sales Sales for the quarter declined YoY by 8.3 percent to US$65 million, mainly as a result of a 6.5 percent decline in sales at the glass segment of this business. This was mainly due to an increase in glassware imports into Mexico favored by the strong peso, the YoY decline in import duties and continued weak consumer confidence. Glass sales accounted for approximately 82 percent of total sales at the Glassware business unit, compared with 80 percent for the same quarter of 2001. Sales at the plastic subsidiaries declined YoY by 15.6 percent, mainly due to lower demand for promotional products within the industrial segment and pricing pressures within the disposable dishware segment, especially with retailers. For the year, sales declined YoY by 4.9 percent to US$256 million, mainly due to same factors that impacted the quarter. EBIT and EBITDA EBIT for the quarter decreased YoY by 29.2 percent to US$6 million, mainly as a result of a decline in profitability of the plastic business caused by lower fixed cost absorption within the industrial segment and lower sales, as well as a YoY increase in raw materials costs of oil sub-products. Additionally, margins were impacted by pricing pressures in the disposable dishware segment, as a result of over capacity in the sector, and in the glass segment, especially due to imports. EBITDA for the quarter was US$12 million, reflecting a YoY decrease of 15 percent, resulting from the factors discussed above. Management continues to focus on improving customer service, while leveraging on its distribution channels and traditional quality product line. In addition, management is focusing on product innovation and the degree of quality demanded in the medium and high-end markets. Key Developments Debt Refinancing On December 30, 2002, the Company issued a MTN in the Mexican market for Ps.1 billion, six-years, bullet, maturing on December 22, 2008. On February 13, 2003, the Company placed another MTN in the Mexican market for Ps. 1.14 billion, maturing on February 5, 2009, bullet. Proceeds from both issues will be used mainly to extend the average life of Vitro's debt profile at the holding company level by replacing short-term debt and current maturities of long-term debt. With these transactions, Vitro continued to focus on strengthening its financial position and improving its debt profile, while maintaining a presence in the capital markets. The program and both issues were granted a rating of AA- (mex) by Fitch M�xico, S.A. de C.V., the rating agency. The Company is in the process of finalizing a US$200 million syndicated loan facility within Flat Glass to improve the business unit's debt profile. The average life of the facility is 2.5 years. Proceeds are being used to pay down mostly short -term maturities and some long-term debt with less favorable financial conditions. After the closing of these transactions, the average life of the Company's consolidated net outstanding debt improved on a pro-forma basis, as of December 31, 2002 to 3.4 years, from 3.1 years with long-term debt accounting for 77 percent of total debt. Joint Venture in Portugal As part of Vitro's strategy to grow within value-added segments and to increase its presence in Europe, especially in the Iberic Peninsula Vitro Cristalglass, the Company's subsidiary in Spain, recently completed a 60/40 joint venture with the Portuguese company Vidraria Chaves Lda. This will allow the Company to expand its operations and better serve the European flat glass market with value-added products by integrating a total of four manufacturing facilities and three distribution centers to meet demand for laminated glass and double glazing products in Spain, Portugal, and France. The 60 percent stake in the JV was acquired for approximately US$3 million. The new company employs 55 people, dedicated to manufacturing glass and glazing products for the industrial, commercial and home segments. Long-Term Supply Agreement On February 19, 2003, a power and steam generation facility was inaugurated in the metropolitan area of Monterrey, Nuevo Leon, home to several Vitro facilities. This cogeneration plant was built and is to be operated by Tractebel, a french-belgian energy group. Vitro will be one of main customers of this facility, using 104 of the 245 Megawatts of capacity and all of the Steam generation (approximately 1.3 million metric tons per year) under a 15-year contract. Fifteen Vitro facilities in five states of Mexico are part of this project. This is the largest private sector project of its nature in Mexico and will provide cost savings and increased availability of power to Vitro and the other participants. Savings for Vitro are estimated to average US$10 million per year and the Commercial Operation Date is expected in the next few weeks. Vitro, S.A. de C.V. (NYSE: VTO; BMV: VITROA), through its subsidiary companies, is one of the world's leading glass producers. Vitro is a major participant in three principal businesses: flat glass, glass containers, and glassware. Its subsidiaries serve multiple product markets, including construction and automotive glass; fiberglass; food and beverage, wine, liquor, cosmetics and pharmaceutical glass containers; glassware for commercial, industrial and retail uses; plastic and aluminum containers. Vitro also produces raw materials, and equipment and capital goods for industrial use. Founded in 1909 in Monterrey, Mexico-based Vitro has joint ventures with major world-class partners and industry leaders that provide its subsidiaries with access to international markets, distribution channels and state-of-the-art technology. Vitro's subsidiaries have facilities and distribution centers in eight countries, located in North, Central and South America, and Europe, and export to more than 70 countries worldwide. For further information, please visit our website at: http://www.vitro.com To see financial statements: http://bankrupt.com/misc/VITRO.htm CONTACTC: Vitro S.A. de C.V. Investor Relations Beatriz Mart�nez Tel: + (52) 81-8863-1258 Email: bemartinez@vitro.com Breakstone & Ruth International U.S. agency Luca Biondolillo / Susan Borinelli Tel: (646) 536-7012 / 7018 Email: Lbiondolillo@breakstoneruth.com Email: Sborinelli@breakstoneruth.com Media Relations Albert Chico Vitro, S. A. de C.V. Tel: + (52) 81-8863-1335 Email: achico@vitro.com =============== P A R A G U A Y =============== * Paraguay Reaches Debt Deal With International Creditor Banks -------------------------------------------------------------- Paraguay struck an agreement with several international banks over payment of US$21 million in outstanding bonds the government defaulted on, reports Business News Americas, citing a central bank spokesperson. International and local banks holding US$21 million in sovereign bonds had a "put" option to demand full payment last December, but the government did not have enough cash on hand to comply with its obligations. A host of international banks including Citibank, Sudameris, SCH, Banco do Brasil and Banco de la Republica de Uruguay have now agreed to accept a 30% partial payment and the balance when the bonds come due in 2005, the spokesperson said. Other banks such as ABN Amro and Spain's BBVA did not accept the partial payment and instead will earn interest on the principal until 2005, according to the spokesperson. The government's failure to honor its obligations prompted international rating agency Standard & Poor's to downgrade Paraguay's long-term foreign currency credit rating to a selective default rating SD, from B-. The rating action was prompted by the government's failure to honor the "put" option exercised by local bondholders of US dollar-denominated debt. The terms and conditions of the debt allow bondholders to exercise a "put" option every year until maturity in 2005. Although the government is in talks with the local banks that hold the defaulted bonds "full repayment of this debt seems unlikely in the coming weeks" given the Paraguayan government's limited liquidity, S&P sovereign analyst Sebastian Briozzo said. ============= U R U G U A Y ============= BANCO DE CREDITO: St. George Rejects Offer To Take Back Control --------------------------------------------------------------- Uruguay suffered another blow in its attempts to draw bidders into its ailing financial system, says Bloomberg. Just two days after a failed attempt to auction Nuevo Banco Comercial, the country's third-largest bank, an expected bidder for Banco de Credito SA turned down an offer to buy back a majority stake in the bank. St. George Ltd., an investment arm of the Rev. Sun Myung Moon's Unification Church, said it wouldn't try to reclaim a majority stake in Banco de Credito. "We do not want to be the majority shareholder," said Elizeu Christiano Netto, vice president of Banco de Credito who represents St. George Ltd. in Uruguay. Banco de Credito's operations were suspended in August after it ran out of cash. According to Finance Minister Alejandro Atchugarry, the government was hoping St. George would inject at least US$120 million to reclaim it. Uruguay has held a 51% stake in the bank since 1998. Prior to its suspension, the bank was one of Uruguay's 10 biggest. Uruguay's bank workers had planned to hold a strike Thursday to protest delays in lifting the suspension of Banco de Credito, Juan Jose Ramos, an official at Uruguay's largest bank employees union, AEBU, told El Pais newspaper. The country promised in August, after a one-week shutdown of the entire financial system, to close insolvent banks as part of an agreement to tap US$3.8 billion in credits from the International Monetary Fund, World Bank and Inter-American Development Bank. The IMF, which in December held up a disbursement saying the country hadn't solved liquidity problems in the banking sector, last week said it reached a new agreement with Uruguay that would free up US$480 million in the first half of this year. BNL: Exiting Uruguay Due to Low Profitability --------------------------------------------- Italy's Banca Nazionale del Lavoro (BNL) told Uruguay's central bank that it is leaving the South American nation. Citing low profitability levels, BNL said it will cease its operations in Uruguay on June 30. The news came as a surprise to Juan Jose Ramos, chairman of the banking industry workers union AEBU. Ramos expressed his surprise that the Italian bank would choose to leave Uruguay while continuing to operate in crisis-ridden Argentina. Ramos said BNL will have to negotiate the fate of its 20 contracted employees and 20 associated workers with the union. AEBU's board met with the Italian ambassador to Uruguay, Giorgio Malfatti, earlier this week to express their concern over BNL's exit. BNL originally operated in Uruguay as a financing house before receiving the central bank's green light to operate as a bank in 2001. ================= V E N E Z U E L A ================= CERRO NEGRO: Resumes Operations on Smaller Scale ------------------------------------------------ "Operadora Cerro Negro, an ExxonMobil (XOM) affiliate, confirms that its upgrader operations have restarted with an initial production of 50,000 barrels per day of upgraded crude," Dow Jones reports, citing a company press release. The national strike that hit Venezuela forced the extra-heavy crude oil joint-venture between ExxonMobil and state oil company, PdVSA, to cease operations in December last year, by cutting off the gas feed needed for operations. Cerro Negro's pre-strike daily output was an average of 390,000 barrels per day. The strike nearly crippled Venezuela's oil industry. The country's, oil output was reduced by about 90 percent during the strike. Strikers were clamoring for either the resignation of President Hugo Chavez, or the implementation of early elections. Mr. Chavez retaliated by dismissing thousands of oil workers. About US$4 billion in revenue was lost. Since the strike ended, the country's oil industry is starting to recover. In fact, Cerro Negro is the third operator to resume operations, after Sincor and Hamaca. Another operator, Petrozuata remains shuttered, said the report. CITGO: Reduces 2003 Capex By US$200 Million ------------------------------------------- Petroleos de Venezuela subsidiary, Citgo Petroleum Corporation reduced its projected capital expenditures for this year by US$200 million. Business News Americas cited the company's recent 8-K filing with the U.S. Securities and Exchange Commission saying the reduction is caused by the disruption brought about by a nation-wide strike that hit the country. The company now expects this year's capital expenditure to be US$448 million. In the filing the company said, "We have taken steps to reduce our planned discretionary capital expenditures in 2003 by approximately US$200mn and are continuing to review the timing and amount of scheduled expenditures under our planned capital spending programs." Capital expenditure for the 2004-2007 period is projected at about US$2.07 billion. The company's 2002 net income went down by 55 percent, compared to a US$180 million net income in 2001. Citgo is supplied by its parent, Venezuelan state oil company, PdVSA. But in the recent months, the strike has reduced the amount of crude volumes Citgo is receiving. According to BNAmericas, PDVSA supplies in December 2002 were 61% of the supplies Citgo received in December 2001, and in January 2003 the supplies were 94% of January 2002 levels. This month, Citgo expects to receive about 80% of the regular supply. When the strike broke out, Citgo was forced to pay higher prices for alternative sources of crude oil to maintain normal operations at its refineries. Suppliers shortened Citgo's payment terms, in some cases requiring payment before delivery, which hurt liquidity. CONTACT: Petroleos de Venezuela SA Head Office Apdo 169 Avenida Libertador La Campina, Caracas Venezuela 1010-A Phone: +58 212 708 4111 Fax: +58 212 708 4661 Home Page: http://www.pdvsa.com/ Contact: Ali Rodriguez Araque, Chairman Jorge Kamkoff, Joint Vice Chairman Jose Rafael Paz, Joint Vice Chairman CITGO: Notes Recent Developments and Risks in 8-K Filing --------------------------------------------------------- Citgo related its take on the consequences of the recent Venezuelan strike: RECENT CRUDE OIL SUPPLY DISRUPTION Our ultimate parent is PDVSA, the national oil company of the Bolivarian Republic of Venezuela and our largest supplier of crude oil. We have long-term crude oil supply agreements with PDVSA for a portion of the crude oil requirements for our Lake Charles, Corpus Christi, Paulsboro and Savannah refineries. A nation-wide work stoppage by opponents of President Hugo Chavez began in Venezuela on December 2, 2002, and has disrupted most activity in that country, including the operations of PDVSA. A large portion of PDVSA's employees abandoned their jobs during the month of December. PDVSA has informed us that these actions led to an employee termination process and an organizational restructuring of PDVSA, which are expected to produce longer-term savings at PDVSA. PDVSA also informed us that its production of crude oil and natural gas, as well as the export of crude oil and refined petroleum products, were severely affected by these events in December, but that since then the production and export of crude oil has been progressively increasing. While operations have been hampered by work stoppage, some members of PDVSA management have continued to work and PDVSA has restored a portion of its output. PDVSA has reported that some employees are returning to work and some qualified replacements are being found. We continue to be able to locate and purchase adequate crude oil, albeit at higher prices than under the contracts with PDVSA, to maintain normal operations at our refineries and to meet our refined products commitments to our customers. In December 2002, we received approximately 61 percent of the crude oil volumes that we received from PDVSA in December 2001. In January 2003, we received approximately 94 percent of the crude oil volumes that we received from PDVSA in January 2002. In February 2003, we expect to receive deliveries of approximately 80 percent of the crude oil volumes that we received from PDVSA in February 2002. For the three-year period ended December 31, 2002, we purchased approximately 52 percent of our total crude oil requirements from PDVSA. The reduction in supply from PDVSA and the purchase of crude oil from alternative sources has had the effect of increasing our crude oil cost and decreasing our gross margin and profit margin from what they would have been had the crude oil been purchased under our long-term crude oil supply contracts with PDVSA. LIQUIDITY AND CAPITAL RESOURCES Our liquidity has been adversely affected recently as a result of events directly and indirectly associated with the disruption in our Venezuelan crude oil supply from PDVSA. That disruption affected a portion of the crude oil supplies that we receive from PDVSA, requiring us to replace those supplies from other sources at higher prices and on payment terms generally less favorable than the terms under our supply agreements with PDVSA. We received approximately 43% and 91% of our contracted crude oil volumes from PDVSA during December and January, respectively. We expect to receive approximately 80% of our contracted crude oil volumes from PDVSA during February. During this supply disruption, we have been successful in covering any shortfall with spot market purchases, but those purchases generally require payment 15 days sooner than would be the case for comparable deliveries under our supply agreements with PDVSA. This shortening of our payment cycle has increased our cash needs and reduced our liquidity. Also, a number of trade creditors have sought to tighten credit payment terms on purchases that we make from them. That tightening would further increase our cash needs and further reduce our liquidity. In addition, all three major rating agencies lowered our credit ratings based upon, among other things, concerns regarding the supply disruption. One of the downgrades caused a termination event under our existing accounts receivables sale facility, which ultimately led to the repurchase of $125 million in accounts receivables and cancellation of the facility on January 31, 2003. That facility had a maximum size of $225 million, of which $125 million was used at the time of cancellation. In the ordinary course of business we maintain uncommitted short-term lines of credit with several commercial banks. Effective following the debt ratings downgrade, these uncommitted lines of credit are not currently available. Our committed revolving credit facilities remain available. Letter of credit providers for $76 million of our outstanding letters of credit have indicated that they will not renew such letters of credit. These letters of credit support approximately $75 million of tax-exempt bond issues that were issued previously for our benefit. We are arranging for the repurchase of these tax-exempt bonds. We expect that we will seek to reissue these tax-exempt bonds with replacement letters of credit in support if we are able to obtain such letters of credit from other financial institutions or, alternatively, we will seek to replace these tax-exempt bonds with new tax-exempt bonds that will not require letter of credit support. We have an additional $231 million of letters of credit outstanding that back or support other bond issues that we have issued through governmental entities, which are subject to renewal during 2003. We have not received notice from the issuers of these additional letters of credit indicating an intention not to renew. However, we cannot assure you that any of our letters of credit will be renewed, that we will be successful in obtaining replacements if they are not renewed, that any replacement letters of credit will be on terms as advantageous as those we currently hold or that we will be able to arrange for replacement tax-exempt bonds that will not require letter of credit support. In August 2002, three of our affiliates entered into agreements to advance excess cash to us from time to time under demand notes. These notes provide for maximum amounts of $10 million from PDV Texas, Inc., $30 million from PDV America and $10 million from PDV Holding. If a demand were to be made under these notes, it would further tighten our liquidity. At December 31, 2002, the outstanding amounts under these notes were $5 million, $30 million and $4 million, respectively. Operating cash flow represents a primary source for meeting our liquidity requirements; however, the termination of our accounts receivable sale facility, the possibility of additional tightened payment terms and the possible need to replace non-renewing letters of credit has prompted us to undertake arrangements to supplement and improve our liquidity. To date, we have undertaken the following: - We have reduced our planned discretionary capital expenditures in 2003 by approximately $200 million. - Effective February 20, 2003, we entered into a commitment letter, which is subject to customary terms and conditions, with an affiliate of Credit Suisse First Boston LLC for a $200 million three-year term loan. The loan will bear interest at a floating rate plus a spread and will be secured by our equity interests in Colonial Pipeline Company and Explorer Pipeline Company. - On February 6, 2003, we signed a commitment letter with a financial institution pursuant to which, subject to customary terms and conditions, the financial institution has agreed to provide us with a new non-recourse facility to sell trade accounts receivable to independent third parties. The amount funded under this facility will be limited to a maximum of $200 million outstanding at any one time. In addition, we are working on a transaction that, if consummated, could provide us with up to $100 million from the transfer of title to a third party of certain of our refined products at the time those products are delivered into the custody of interstate pipelines. We would expect the terms of any such agreement to include an option to acquire like volumes of refined products from the third party at prevailing prices at predetermined transfer points. OUR BOARD OF DIRECTORS On January 22, 2003, at the direction of PDVSA, our immediate shareholder replaced four of our seven board members. One of the four new directors had previously served on our board. All of our newly appointed directors are employees of PDVSA. Our new board of directors has met and conducted routine business for us, including the approval of the Operating and Capital Budgets for 2003. RISKS RELATED TO OUR RELATIONSHIP WITH PDVSA AND THE CURRENT SITUATION IN VENEZUELA THE VENEZUELAN ECONOMIC AND POLITICAL ENVIRONMENT HAS DISRUPTED OUR CRUDE OIL SUPPLY. A nation-wide work stoppage by opponents of President Hugo Chavez began in Venezuela on December 2, 2002, and has disrupted most activity in that country, including the operations of PDVSA. A large portion of PDVSA's employees abandoned their jobs during the month of December. PDVSA has informed us that these actions led to an employee termination process and an organizational restructuring of PDVSA. PDVSA also informed us that its production of crude and gas, as well as the export of crude oil and products, were severely affected by these events in December. As a result, we have had to replace a significant amount of crude oil we would normally have purchased under our PDVSA supply contracts with purchases of crude oil on the spot market on pricing and credit terms that are less favorable than we would have obtained under the supply contracts. The price terms of our supply contracts with PDVSA are designed to provide some protection for our earnings and cash flow from market volatility. When we are required to purchase crude oil on the spot market instead of under our contracts we lose this protection. In addition, spot market trading companies require us to pay for delivered crude oil on 10-day or prompt-pay terms instead of the 30-day terms under which we would pay PDVSA pursuant to the supply contracts. If we continue to be unable to purchase crude oil under the PDVSA supply agreements due to events in Venezuela or other factors, we could continue to experience significantly greater volatility in our earnings and cash flow. THE VENEZUELAN WORK STOPPAGE HAS PUT PRESSURE ON OUR LIQUIDITY. The existence of the work stoppage and our ownership by PDVSA have given rise to concerns about our financial condition. Because of the uncertainty in Venezuela, all three major rating agencies have reduced PDV America's and our debt ratings. The reactions that have followed have increased the pressure on our liquidity. We are seeking to replace these lost sources of liquidity. However, we cannot assure you that we will be able to establish new sources of liquidity. If we are not able to meet our significant liquidity needs in the near future our financial condition will be adversely affected. WE MAY NOT BE ABLE TO ACCESS NEW SOURCES OF LIQUIDITY. We cannot assure you that we will be able to close either our new secured credit facility or our new accounts receivable facility. The commitments that we have from financial institutions to provide the new secured credit facility and the new accounts receivable facility are each subject to a number of conditions that may not be met. The credit agreement for the new secured credit facility will also contain a number of closing conditions that we may not be able to satisfy. In addition, we cannot assure you that we will be able to realize the $100 million in additional liquidity we expect to receive under the transaction to transfer title of inventory at the time delivered into interstate pipelines. We have no commitment in place for such transaction at this time. Finally, we cannot provide any assurances that we will be able to reissue any of the tax-exempt bonds that we are arranging for the repurchase of. We may not be able to obtain letters of credit to support such tax-exempt bonds and we may not be able to replace these tax-exempt bonds with new tax-exempt bonds that will not require letter of credit support. If we cannot access any of these sources of liquidity our financial condition will be adversely affected. WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY OUR DISCRETIONARY CAPITAL EXPENDITURES PROJECTS. Because of the liquidity risks described above, we have taken steps to reduce our planned discretionary capital expenditures in 2003 by approximately $200 million and are continuing to review the timing and amount of scheduled expenditures under our planned capital spending programs, including regulatory and environmental projects in the near term. Because of this reduction, we may be unable to undertake discretionary capital expenditure projects designed to increase the productivity and profitability of our refineries. Other factors beyond our control also may prevent or hinder our undertaking of some or all of these projects, including compliance with or liability under environmental regulations, a downturn in refining margins, technical or mechanical problems, lack of availability of capital and other factors. Failure to successfully implement these projects may adversely affect our business prospects and competitive position in the industry. WE RELY HEAVILY UPON SUPPLY CONTRACTS WITH OUR ULTIMATE PARENT WHICH COULD BE MODIFIED OR TERMINATED. We have historically purchased a significant portion of our crude oil requirements from PDVSA, our parent corporation, under supply agreements (expiring in 2006 through 2013) which we believe contain favorable terms that could not be replicated with other suppliers. PDVSA supplied approximately 50% of the crude oil we refined in 2002 under those supply agreements. PDVSA could cause the termination of the supply agreements or a modification of the terms of the supply agreements for any number of reasons. Certain covenants in our other debt instruments restrict, for so long as such debt is outstanding, our ability to terminate or modify the supply agreements. However, those covenants do not prevent PDVSA from taking actions to cause a termination or modification of those agreements. By their terms, the supply agreements give either party a right to terminate the agreements upon six months notice if PDVSA no longer retains an ownership interest in us as indicated in the agreements. Although we expect that the supply agreements will be replaced as they expire, we cannot assure you that we will be able to replace them and, if replaced, we are not able to predict the terms of any replacement supply agreements, including provisions for pricing crude oil. The supply agreements permit PDVSA to decrease or stop providing us crude oil based on the existence of a force majeure. In the past, when the Venezuelan government ordered PDVSA to curtail the production of oil in response to a decision by the organization of Oil Producing and Exporting Countries, otherwise known as "OPEC," to reduce production, PDVSA invoked force majeure under the supply agreements. PDVSA has invoked these force majeure provisions on numerous occasions over the past few years. If the supply agreements are modified or terminated or this source of crude oil continues to be interrupted due to production difficulties, political or economic events in Venezuela or other factors, we might not be able to find other sources of heavy crude oil for our refineries on terms comparable to those contained in the current supply agreements, and as a result we could continue to experience greater volatility in our operating results than we historically have experienced. PRICING PROVISIONS OF OUR SUPPLY AGREEMENTS WITH PDVSA MAY AFFECT OUR EARNINGS. Our crude oil supply agreements with PDVSA are designed to reduce the volatility of earnings and cash flows from our refining and marketing operations by providing a relatively stable level of gross margin on crude oil supplied by PDVSA. The supply agreements incorporate formula prices based on the market value of a slate of refined products deemed to be produced from each particular grade of crude oil or feedstock, less: - specified deemed refining costs, - specified actual costs, including transportation charges, natural gas and electricity and import duties and taxes, and - a deemed margin, which varies according to the grade of crude oil or feedstock delivered. Deemed margins and deemed costs are adjusted periodically by a formula primarily based on the rate of inflation. Because deemed operating costs and the slate of refined products deemed to be produced for a given barrel of crude oil or other feedstock do not necessarily reflect the actual costs and yields in any period, the actual refining margin we earn under the various supply agreements will vary depending on, among other things, the efficiency with which we conduct our operations during that period. Although we believe that these supply agreements reduce the volatility of our earnings and cash flows, these supply agreements also limit our ability to enjoy higher margins during periods when the market price of crude oil is low relative to the then current market prices for refined products. OUR PRIMARY SUPPLY OF CRUDE OIL IS CONTROLLED BY THE GOVERNMENT OF VENEZUELA. All oil and hydrocarbon reserves within Venezuela are owned by the Bolivarian Republic of Venezuela and not by PDVSA or by us. Under Venezuela's recently adopted Hydrocarbons Law, primary activities such as exploration, exploitation, manufacturing, refining and initial transportation from the field is reserved to the Bolivarian Republic of Venezuela. PDVSA coordinates, monitors and controls all operations related to hydrocarbons. There can be no assurance that Venezuelan law and implementation policies will not adversely affect the supply of crude oil by PDVSA to us. Historically, members of OPEC have entered into agreements to reduce their production of crude oil. The Bolivarian Republic of Venezuela is a member of OPEC. PDVSA does not control the Venezuelan government's international affairs and the government could enter into an agreement with OPEC or other oil exporting countries that when implemented could require PDVSA to reduce its crude oil production and export activities. Such a curtailment could be an event of force majeure under our crude oil supply agreements, giving PDVSA's affiliates the right to reduce crude oil deliveries under those supply agreements for so long as such curtailment is in effect. We are currently operating under reduced levels of delivery under the crude oil supply agreements and have been required to obtain a correspondingly increased portion of our crude oil in the open market. We are unable to predict when the current curtailment will be lifted or if additional curtailments will be imposed. RECOURSE AGAINST OUR DIRECTORS FOR SECURITIES LAWS CLAIMS MAY BE LIMITED. Certain members of our board of directors are residents of Venezuela, and all or a substantial portion of the assets of those directors are located outside the U.S. As a result, it may be difficult for investors to effect service of process within the U.S. upon those directors or to enforce, in U.S. courts, judgments obtained in such courts and predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, PDVSA may replace members of our board of directors at any time, as it recently did in January 2003. This could make it even more difficult to effect service of process on our directors. We have been advised that liabilities predicated solely upon the civil liability provisions of the U.S. federal securities laws in actions brought in Venezuela, in original actions or in actions for enforcement of judgments of U.S. courts, may not be enforceable in Venezuela. RISKS RELATED TO OUR BUSINESS AND THE PETROLEUM INDUSTRY VOLATILE MARGINS IN THE REFINING INDUSTRY MAY NEGATIVELY AFFECT OUR FUTURE OPERATING RESULTS AND DECREASE OUR CASH FLOW. Our financial results are primarily affected by the relationship, or margin, between refined product prices and the prices for crude oil and other feedstocks. The cost to acquire our feedstocks and the price at which we can ultimately sell refined products depend on a variety of factors beyond our control. Historically, refining margins have been volatile and they are likely to continue to be volatile in the future. Although an increase or decrease in prices for crude oil, feedstocks and blending components generally will result in a corresponding increase or decrease in prices for refined products, there is generally a lag in the realization of the corresponding increase or decrease in prices for refined products. Our supply agreements with PDVSA are designed to provide some protection for our earnings and cash flow from volatility through the pricing formula employed under those contracts. To the extent that we are unable to continue to rely on these supply agreements our exposure to volatility would increase. Future volatility may negatively affect our results of operations, since the margin between refined products prices and feedstock prices may decrease below the amount needed for us to generate net cash flow sufficient to meet our needs. Specific factors that may affect our refining margins include: - disruptions in our crude oil supply under our supply agreements with PDVSA such as we are currently experiencing; - accidents, interruptions in transportation, inclement weather, the impact of energy conservation efforts, or other events that cause unscheduled shutdowns or otherwise adversely affect our plants, machinery, pipelines or equipment, or those of our suppliers or customers; - changes in the cost or availability to us of transportation for crude oil, feedstocks and refined products; - failure to successfully implement our planned capital projects or to realize the benefits expected for those projects; - changes in fuel specifications required by environmental and other laws, particularly with respect to oxygenates and sulfur content; - rulings, judgments or settlements in litigation or other legal matters, including unexpected environmental remediation or compliance costs at our facilities in excess of any reserves, and claims of product liability or personal injury; and - aggregate refinery capacity in our industry to convert heavy sour crude oil into refined products. Other factors that may affect our margins, as well as the margins in our industry in general, include, in no particular order: - domestic and worldwide refinery overcapacity or undercapacity; - aggregate demand for crude oil and refined products, which is influenced by factors such as weather patterns, including seasonal fluctuations, and demand for specific products such as jet fuel, which may themselves be influenced by acts of God, nature and acts of terrorism; - domestic and foreign supplies of crude oil and other feedstocks and domestic supply of refined products, including from imports; - the ability of the members of OPEC, to maintain oil price and production controls; - political conditions in oil producing regions, including the Middle East, Africa and Latin America; - refining industry utilization rates; - pricing and other actions taken by competitors that impact the market; - price, availability and acceptance of alternative fuels; - adoption of or modifications to federal, state or foreign environmental, taxation and other laws and regulations; - price fluctuations in natural gas; and - general economic conditions. A SIGNIFICANT INTERRUPTION OR CASUALTY LOSS AT ONE OF OUR REFINERIES COULD REDUCE OUR PRODUCTION, PARTICULARLY IF NOT FULLY COVERED BY OUR INSURANCE. Our business includes owning and operating refineries. As a result, our operations could be subject to significant interruption if one of our refineries were to experience a major accident, be damaged by severe weather or other natural disaster, or otherwise be forced to shut down. Any such shutdown would reduce the production from the refinery. For example, on August 14, 2001, a fire occurred at the crude oil distillation unit of the Lemont refinery. The crude unit was destroyed and the refinery's other processing units were temporarily taken out of production. A new crude unit did not become operational until May 2002. We have also experienced other accidents at our facilities that have required us to shut down operations for significant periods of time to rebuild. We also face risks of mechanical failure and equipment shutdowns. In any such situations, undamaged refinery processing units may be dependent on or interact with damaged sections of our refineries and, accordingly, are also subject to being shut down. In the event any of our refining facilities is forced to shut down for a significant period of time, it would have a material adverse effect on our earnings, our other results of operations and our financial conditions as a whole. OUR INSURANCE COVERAGE MAY BE INADEQUATE TO COVER ALL LOSSES. We maintain insurance in accordance with industry standards with respect to our assets and operations. However, not all operating risks are insurable, and there can be no assurance that the insurance will be available in the future or that insurance will cover all unanticipated losses in the event of a loss. As a result of factors affecting the insurance market, insurance premiums with respect to renewed insurance policies may increase significantly compared to what we are currently paying. In addition, the level of coverage provided by such renewed policies may decrease, while deductibles and/or waiting periods may increase, compared to our existing insurance policies. ENVIRONMENTAL STATUTES AND REGULATIONS MAY IMPOSE SIGNIFICANT COSTS AND LIABILITIES. Our operations are subject to extensive federal and state environmental, health and safety laws and regulations, including those governing discharges to the air and water, the handling and disposal of solid and hazardous wastes and the remediation of contamination. The failure to comply with those laws and regulations can lead, among other things, to civil and criminal penalties and, in some circumstances, the temporary or permanent curtailment or shutdown of all or part of our operations in one or more of our refineries. The nature of our refining business exposes us to risks of liability due to the production, processing and refining, storage, transportation, and disposal of materials that can cause contamination or personal injury if released into the environment. Consistent with the experience of all U.S. refineries, environmental laws and regulations have raised operating costs and necessitated significant capital investments at our refineries. We believe that existing physical facilities at our refineries are substantially adequate to maintain compliance with existing applicable laws and regulatory requirements, other than: - upgrades to or closure of surface impoundments or other solid waste management units, which are required by our Resource Conservation and Recovery Act ("RCRA"), permit, - upgrades to sulfur removal capabilities, which are required to comply with mandates adopted by the U.S. Environmental Protection Agency ("U.S. EPA"), to reduce the sulfur content of diesel fuel and gasoline, - changes that are required to address a ban on MTBE and other ether-based gasoline additives, and - changes that will be required to comply with the terms of a potential settlement agreement with the U.S. EPA of alleged violations of the New Source Review provisions of the federal Clean Air Act of 1990 (the "Clean Air Act"). Our refineries produce gasolines that meet the current requirements for conventional and reformulated gasolines under the Clean Air Act and its implementing regulations. Our refineries also produce low-sulfur diesel fuel meeting federal standards. In February 2000, the U.S. EPA published the Tier 2 Motor Vehicle Emission Standards and Gasoline Sulfur Control Requirements for all passenger vehicles, establishing standards for reduced sulfur content in gasoline. The ruling mandates that the average sulfur content of gasoline at any refinery not exceed 30 parts per million, or ppm, during any calendar year starting January 1, 2005. Starting in 2004, the U.S. EPA will begin a program to phase in new low sulfur gasoline. In addition, in January 2001, the U.S. EPA issued its rule to reduce the sulfur content of diesel fuel sold to highway consumers by 97%, from 500 ppm to 15 ppm, beginning June 1, 2006. Lawsuits by refining industry groups have been filed that may delay implementation of the diesel rule beyond 2006. Compliance with the new Tier 2 specifications for the reduction of sulfur in both gasoline and distillates is expected to cost the refining industry over $8 billion. Several states in our marketing areas have banned or limited the use of oxygenated ethers such as MTBE in gasoline. For example, New York has banned gasoline containing MTBE effective January 1, 2004. Other states and the U.S. EPA are also considering use restrictions on those ethers. Our refineries currently produce and use two oxygenated ethers -- TAME and MTBE -- in reformulated gasoline to comply with requirements in federal law for 2% oxygen content. If use of these ethers is further banned or limited, we will have to make significant changes to be able to sell reformulated gasoline into markets affected by these restrictions. The nature, extent and costs of these changes depend on the nature and extent of the restrictions on oxygenated ethers, whether the federal oxygenate mandate remains in place and other laws and regulations relating to fuels. In addition, the cost to produce diesel and gasoline fuels will increase as a result of sulfur or aromatics reductions or a ban of oxygenated ethers. We cannot assure that we will be able to recover the increased cost of production through increases in the price of our refined products. Several states in our market areas have adopted regional or statewide restrictions on the properties of gasoline distributed in those areas, and other standards have been proposed. We may not be able to make gasoline for such local markets depending on the standards imposed without additional capital investment. Investments to meet either local or federal fuel standards are made subject to market conditions and economic justification. Several bills are pending before the U.S. Congress which would mandate that the gasoline pool be made up of a specified percentage of "renewable fuels" which would likely be ethanol. We cannot predict the extent and requirements of any renewable fuels program nor the potential effects of such a program on our operations. Any requirement that we use ethanol or achieve a specific level of renewable fuels in our gasoline pool could impose significant costs on us. We expect that the nature of the refining business will continue to make it subject to increasingly stringent environmental and other laws and regulations that may increase the costs of operating our refineries above currently projected levels and require future capital expenditures, including increased costs associated with more stringent standards for air emissions, wastewater discharges and the remediation of contamination. It is difficult to predict the effect of future laws and regulations on our financial condition or results of operations. We cannot assure that environmental or health and safety liabilities and expenses will not have a material adverse effect on our financial condition or results of operations. PERMITTING AND REGULATORY MATTERS MAY IMPACT THE OPERATION OF OUR REFINERIES. We are required to obtain certain permits and to comply with constantly changing provisions of numerous statutes and regulations relating to, among other things: - business operations, - the safety and health of employees and the public, - the environment, - employment, - hiring and anti-discrimination, and - limitations on noise. New statutes and regulations or new permit provisions may become applicable to our refineries, resulting in the imposition of significant additional costs. Failure to comply with any such permits, statutes and regulatory requirements may result in significant civil or criminal liability and, in certain circumstances, the temporary or permanent curtailment or shutdown of all or part of our operations or the inability to produce marketable products. We cannot assure that we will at all times be in compliance with all applicable statutes and regulations or have all necessary permits. Furthermore, our failure to be in compliance at all times with applicable regulations also could adversely affect our financial condition or results of operations. COMPETITORS WHO PRODUCE THEIR OWN SUPPLY OF FEEDSTOCKS, MAKE ALTERNATIVE FUELS OR HAVE GREATER FINANCIAL RESOURCES MAY HAVE A COMPETITIVE ADVANTAGE OVER US. The refining industry is highly competitive with respect to both feedstock supply and refined product markets. We compete with numerous other companies for available supplies of crude oil and other feedstocks and for outlets for our refined products. We are not engaged in the petroleum exploration and production business and therefore do not produce any of our crude oil feedstocks. Competitors that have their own production are at times able to offset losses from refining operations with profits from production operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. A number of our competitors have greater financial and other resources than we do. Such competitors have a greater ability to bear the economic risks inherent in all phases of the refining industry. Some of our competitors have more efficient refineries and they may have lower per barrel crude oil refinery processing costs. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. If we are unable to compete effectively with these competitors, our financial condition, results of operations, and business prospects could be materially adversely affected. OUR OPERATIONS ARE INHERENTLY SUBJECT TO DISCHARGES OR OTHER RELEASES OF PETROLEUM OR HAZARDOUS SUBSTANCES FOR WHICH WE MAY FACE SIGNIFICANT LIABILITIES. Our operations, as with others in the businesses in which we operate, are inherently subject to spills, discharges or other releases of petroleum or hazardous substances that may give rise to liability to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. We could incur substantial costs in connection with these liabilities, including clean-up costs, fines and civil or criminal sanctions, and personal injury or property damage claims. Spills, discharges or other releases of contaminants have occurred from time to time during the normal course of our operations, including releases associated with our refineries, pipeline and trucking operations, as well as releases at gasoline service stations and other petroleum product distribution facilities we have operated and are operating. We cannot assure you that additional spills, discharges and other releases will not occur in the future, that governmental agencies will not assess penalties against us in connection with any past or future discharges or incidents, or that third parties will not assert claims against us for damages allegedly arising out of any such past or future discharges or incidents. TERRORIST ATTACKS AND THREATS OR ACTUAL WAR MAY NEGATIVELY IMPACT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control. Recent terrorist attacks in the United States, as well as events occurring in response to or in connection with them, including future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions impacting our suppliers or our customers, may adversely impact our operations. As a result, there could be delays or losses in the delivery of supplies and raw materials to us, decreased sales of our products and extension of time for payment of accounts receivable from our customers. Strategic targets such as energy-related assets (which could include refineries such as ours) may be at greater risk of future terrorist attacks than other targets in the United States. These occurrences could have an adverse impact on energy prices, including prices for our products, and an adverse impact on the margins from our refining and marketing operations. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any or a combination of these occurrences could have a material adverse effect on our business, financial condition and results of operations. *********** S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter Latin American is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ, and Beard Group, Inc., Washington, DC. John D. Resnick, Edem Psamathe P. Alfeche and Oona G. Oyangoren, Editors. Copyright 2003. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is $575 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *