Financial Statements-USGAAP

Telefonica SA
10 July 2002





                           JOAQUIN DE FUENTES BARDAJI

                            General Vice- Secretary

                 and Vice - Secretary of the Board of Directors

                               TELEFONICA, S.A.
 


           FURTHER INFORMATION ON SIGNIFICANT EVENT OF JULY 9TH, 2002



Telefonica, S.A., in accordance with that stated in article 82 of Spanish Stock
Market Law, yesterday published a significant event regarding the registering of
Telefonica 's financial statements applying US generally accepted accounting
principles (US GAAP).


Telefonica would like to add further information to the aforementioned
significant event:


Telefonica, S.A. and other Group companies have, in the past, made acquisitions
that were paid through the issuance of new shares.


In Spain these increases were accounted for at their issue value, as approved by
the corresponding Annual General Shareholders' Meetings. These investments and
shareholders' equity were accounted for with no revaluation over the accounting
value of the acquired companies, in compliance with the Spanish accounting
legislation.


Periodically, as a company whose securities are traded in the US, Telefonica is
obliged to present its financial statements applying US GAAP. These financial
statements include the revaluation of the aforementioned investments, among
other items, up to the market value at the moment the transaction took place,
which therefore results in goodwill that does not appear in the financial
statements under Spanish generally accepted accounting principles.


At the close of every accounting period, and when applying either Spanish or US
generally accepted accounting principles, an analysis must be made of the
recoverability of the value of the company's assets. Under US GAAP, this
analysis has meant that a provision has been made on the goodwill of certain
investments that have had a Euros 8,452 million impact on results. This
provision is not applicable under Spanish generally accepted accounting
principles, as the aforementioned goodwill has not been generated, given that no
revaluation took place at the time of the acquisition.


As no revaluation has taken place under Spanish generally accepted accounting
principles, Telefonica's consolidated shareholders'equity under US GAAP is
substantially greater than its shareholders'equity in its Spanish financial
statements.


Lastly, and extract of the 20 F has been annexed to this document, as it
reflects all the adjustments made.


                                                         Madrid, July 10th, 2002





  Reconciliation of Net Income and Shareholders' Equity to Generally Accepted
                   Accounting Principles in the United States

The following table ('Reconciliation Table') sets forth the most significant
adjustments to consolidated net income and shareholders' equity that would have
been required had U.S. GAAP been applied instead of Spanish GAAP:


                                                                                                           In Millions
                                                                                                              of U.S.
                                                                                                              Dollars
                                                                            Millions of Euros               (Note 2.e.)
                                                                         2000             2001                   2001
Shareholders' equity under Spanish GAAP                               25,930.54        25,861.62              23,019.43
Additions (deductions) for U.S. GAAP purposes:
Reversal of net effect of revaluation of fixed assets
and related accumulated depreciation (Note 25.1)                       (821.58)         (768.86)               (684.36)
Research and development expenses (Note 25.2)                          (390.45)         (186.87)               (166.33)
Foreign currency exchange gains (Note 25.3.e)                              4.23             1.55                   1.38
Capital increase expenses (Note 25.3.a)                                (227.81)         (325.59)               (289.81)
Start-up costs (Note 25.3.b)                                           (267.67)         (348.76)               (310.43)
Income recognized from PRIDES (Note 25.3.d)                             (17.75)          (11.05)                 (9.84)
Reflagging expenses (Note 25.3.f)                                       (24.07)          (15.05)                (13.40)
Goodwill, amortization, and impairments (Note 25.9)                   18,614.92         6,785.86               6,040.09
Capitalized interest (Note 25.3.c)                                       500.59           522.55                 465.12
Pension Plan of the Brazilian investees (Note 25.11)                     454.93           276.11                 245.77
Unrealized gains on marketable securities -                              761.89             6.54                   5.82
SFAS No. 115 (Note 25.10)
Consolidation method and others (Note 25.7)                             (86.67)          (68.42)                (60.90)
Adjustment of valuation account under SFAS No. 109
due to current period events (Note 25.6)                                 580.99           617.24                 549.41
Revenue recognition (SAB 101) - (Note 25.4)                            (260.02)       (1,253.35)             (1,115.61)
Treasury stock (Note 25.12)                                             (65.04)         (260.70)               (232.05)
Derivatives and hedging activities (SFAS No. 133) - effect
in period (Note 25.13)                                                        -         (100.00)                (89.01)
Stock options plans (Note 25.14)                                              -         (157.52)               (140.21)
Other U.S. GAAP adjustments (Note 25.15)                                  10.51          (20.45)                (18.19)
Deferred taxes related to U.S. GAAP adjustments (Note 25.6)              652.79         1,174.48               1,045.40
Total additions (deductions), before cumulative effect of a           19,419.79         5,867.71               5,222.85
change in accounting principle
Cumulative effect of a change in accounting principle:
Revenue recognition (SAP 101), as of January 1, 2000                   (992.58)                -                      -
(Note 25.4)
Derivatives and hedging activities (SFAS No. 133), as                         -            40.50                  36.05
of January 1, 2001 (Note 25.13)
Shareholders' equity under U.S. GAAP                                  44,357.75        31,769.83              28,278.33


                                                                                                            In Millions
                                                                                                              Of U.S.
                                                                                                              Dollars
                                                                             Millions of Euros              (Note 2.e.)
                                                                     1999          2000            2001            2001

Net income under Spanish GAAP                                       69.60      2,504.81         2,106.81       1,875.27
Additions (deductions) for U.S. GAAP purposes:
Reversal of depreciation on revalued portion
of fixed assets (Note 25.1)                                        170.19        124.87            52.71          46.92
Research and development expenses (Note 25.2)                       80.41         16.08           205.82         183.20
Foreign currency exchange gains (Note 25.3.e)                     (19.34)        (0.01)           (2.68)         (2.39)
Reversal of amortization of capital expenses (Note
25.3.a.)                                                            19.27         15.27            84.78          75.46
Start-up costs (Note25.3.b)                                       (98.74)      (162.52)         (263.45)       (234.50)
Reflagging expenses (Note 25.3.f)                                  (2.25)        (6.18)             7.26           6.46
Capitalized interest, net of amortization (Note 25.3.c)           (82.07)       (77.79)          (67.87)        (60.41)
Goodwill, amortization, and impairments (Note 25.9):
- Goodwill arising from acquisitions, net of amortization
and translation adjustment                                         (4.98)        187.98       (1,128.43)     (1,004.42)
- Impairment of goodwill                                                -             -       (8,452.00)     (7,523.13)
Early retirement (Note 25.5)                                       445.44      (505.32)                -              -
Pension Plan of the Brazilian investees (Note 25.11)                             454.93         (129.21)       (115.01)
    Unrealized gains (losses) on marketable securities              82.38       (88.55)           (0.41)         (0.36)
    SFAS No. 115 (Note 25.10)
Consolidation method and others (Note 25.7)                       (76.00)       (30.78)            20.01          17.81
Adjustment of valuation account under SFAS No. 109 due to
current period events (Note 25.6)                                  152.05         86.34            36.25          32.27
Revenue recognition (SAB 101) - effect in period (Note
25.4)                                                                   -      (260.02)            23.94          21.31
Treasury stock (Note 25.12)                                             -        133.15         (127.17)       (113.19)
Reclassification of cumulative currency translation                     -      (130.90)            35.45          31.55

adjustment of disposed investees (Note 25.9)
Derivative instruments and hedging activities                           -             -         (261.70)       (232.94)
(SFAS No. 133) - effect in period (Note 25.13)
Change in subsidiaries' fiscal year end (Note 25.8)                     -             -          (51.05)        (45.44)
Stock options plan (Note 25.14)                                         -             -          (14.89)        (13.25)
Other U.S. GAAP adjustments (Note 25.15)                                -          7.74          (33.92)        (30.19)
Deferred taxes related to U.S. GAAP adjustments (Note
25.6)                                                            (181.75)        579.41           162.68         144.80
Income, under U.S. GAAP, before cumulative effect of a
change in accounting principle                                     554.21      2,848.51       (7,797.07)     (6,940.18)
Cumulative effect of a change in accounting principle:
Revenue recognition (SAB 101), as of January 1, 2000                    -      (992.58)                -              -
(Note 25.4)
Derivatives and hedging activities (SFAS No. 133), as                   -             -           614.80         547.23
of January 1, 2001 (Note 25.13)

Net income under U.S. GAAP                                         554.21      1,855.93       (7,182.27)     (6,392.95)





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