As filed with the Securities and Exchange Commission on July 2, 2002
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 20-F
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Annual Report Pursuant to Section 13
of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2001
Commission file number for securities registered
pursuant to Section 12(b) of the Act: 0-32245
Commission file number for securities registered
pursuant to Section 12(g) of the Act: 1-16269
AMERICA MOVIL, S.A. DE C.V.
(exact name of registrant as specified in its charter)
America Mobile
(translation of registrant's name into English)
United Mexican States
(jurisdiction of incorporation)
Lago Alberto 366, Colonia Anahuac, 11320 Mexico, D.F., Mexico
(address of principal executive offices)
Securities registered pursuant to Name of each exchange
Section 12(b) of the Act: on which registered:
American Depositary Shares, each representing New York Stock Exchange
20 Series L Shares, without par value
Series L Shares, without par value New York Stock Exchange
(for listing purposes only)
Securities registered pursuant to
Section 12(g) of the Act:
American Depositary Shares, each representing 20 Series A Shares,
without par value
Series A Shares, without par value
The number of outstanding shares of each of the registrant's classes of
capital or common stock as of December 31, 2001:
3,807 million AA Shares
315 million A Shares
9,077 million L Shares
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 Item 18 X
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TABLE OF CONTENTS
Item 1-2. Not Applicable.
Item 3. Key Information................................................................................1
Selected Financial Data.....................................................................1
Exchange Rates..............................................................................3
Forward-Looking Statements..................................................................4
Risk Factors................................................................................5
Item 4. Information on the Company....................................................................16
The Company................................................................................16
Mexican Operations.........................................................................19
Non-Mexican Operations.....................................................................32
Telecom Americas...........................................................................39
Other Investments..........................................................................46
Capital Expenditures.......................................................................48
Item 5. Operating and Financial Review and Prospects..................................................49
Item 6. Directors, Senior Management and Employees....................................................58
Item 7. Major Shareholders and Related Party Transactions.............................................67
Major Shareholders.........................................................................67
Related Party Transactions.................................................................69
Item 8. Financial Information.........................................................................71
Dividends..................................................................................71
Legal Proceedings..........................................................................71
Item 9. The Offer and Listing.........................................................................74
Trading Markets............................................................................74
Trading on the Mexican Stock Exchange......................................................77
Item 10. Additional Information........................................................................78
Bylaws.....................................................................................78
Certain Contracts..........................................................................83
Exchange Controls..........................................................................83
Taxation...................................................................................84
Documents on Display.......................................................................88
Item 11. Quantitative and Qualitative Disclosures about Market Risk....................................89
Exchange Rate and Interest Rate Risks......................................................89
Sensitivity Analysis Disclosures...........................................................89
Items 12-17. Not Applicable.
Item 18. Financial Statements..........................................................................90
Item 19. Exhibits......................................................................................91
i
PART I
Item 3. Key Information
Selected Financial Data
This annual report includes our audited financial statements as of
December 31, 2000 and 2001 and for the years ended December 31, 1999, 2000 and
2001. The audited financial statements as of December 31, 2000 and 2001 and for
the years ended December 31, 2000 and 2001 have been prepared on a consolidated
basis. The audited financial statements for the year ended December 31, 1999
have been prepared on a combined basis from the historical accounting records of
Telefonos de Mexico, S.A. de C.V. (Telmex) and represent the combined historical
operations of the entities that Telmex transferred to us in the spin-off that
established America Movil in September 2000.
Our financial statements have been prepared in accordance with Mexican
GAAP and presented in Mexican pesos. The financial statements of our non-Mexican
subsidiaries have been adjusted to conform to Mexican GAAP and translated to
Mexican pesos. See Note 2(c) to our audited financial statements.
Mexican GAAP differs in certain respects from U.S. GAAP. Note 19 to the
audited financial statements provides a description of the principal differences
between Mexican GAAP and U.S. GAAP, as they relate to us, and a reconciliation
to U.S. GAAP of operating income, net income and total stockholders' equity and
a condensed statement of cash flows under U.S. GAAP.
Pursuant to Mexican GAAP, in our financial statements and the selected
financial information set forth below:
o nonmonetary assets (including property, plant and equipment) and
stockholders' equity are restated for inflation and, in the case of
imported telephone plant, for devaluation,
o gains and losses in purchasing power from holding monetary
liabilities or assets are recognized in income, and
o all financial statements are restated in constant pesos as of
December 31, 2001.
Since January 1, 1997, we have elected to restate imported telephone plant based
on the rate of inflation in the country of origin and the prevailing exchange
rate at the balance sheet date; other fixed assets are restated based on the
Mexican National Consumer Price Index. The effect of inflation accounting under
Mexican GAAP has not been reversed in the reconciliation to U.S. GAAP of net
income and stockholders' equity, except with respect to the methodology for
restatement of imported telephone plant. See Note 19 to the audited financial
statements.
This annual report also includes audited financial statements of
Telecom Americas as of December 31, 2000 and 2001 and the 186-day period ended
December 31, 2000 and the year ended December 31, 2001. The audited financial
statements of Telecom Americas have been prepared on a consolidated basis in
accordance with U.S. GAAP and presented in U.S. dollars.
References herein to "U.S. dollars" or "U.S.$" are to the lawful
currency of the United States. References herein to "pesos," "P." or "Ps." are
to the lawful currency of Mexico.
1
The selected financial information set forth below has been derived in
part from our audited financial statements, which have been reported on by
Mancera S.C., a member of Ernst & Young International, independent auditors. The
selected financial information should be read in conjunction with, and is
qualified in its entirety by reference to, our audited financial statements.
As of and for the year ended December 31,
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1997 1998 1999 2000 2001 2001
------------ ------------- ----------- ----------- ------------ ----------------
(millions of constant pesos as of December 31, 2001)(1) (millions of
U.S. dollars)
Income Statement Data:
Mexican GAAP
Operating revenues ................ Ps. 5,882 Ps. 9,706 Ps. 16,183 Ps. 30,095 Ps. 41,364 U.S.$ 4,524
Operating costs and expenses ...... 5,899 7,833 13,886 27,189 35,290 3,860
Operating income .................. (17) 1,873 2,297 2,906 6,074 664
Net income (loss) ................. 1,644 4,020 4,502 905 (828) (91)
Net income (loss) per share(2) .... 0.113 0.277 0.311 0.063 (0.060) (0.006)
U.S. GAAP
Operating revenues ................ Ps. 5,956 Ps. 9,828 Ps. 16,387 Ps. 30,474 Ps. 41,364 U.S.$ 4,524
Operating income (loss) ........... 201 1,520 1,678 2,020 5,588 611
Net income (loss) ................. 1,945 3,064 2,821 (428) (610) (66)
Net income (loss) per share(2) .... 0.134 0.211 0.195 (0.030) (0.046) (0.005)
Balance Sheet Data:
Mexican GAAP
Property, plant and
equipment, net ................. Ps. 5,050 Ps. 6,778 Ps. 13,128 Ps. 34,175 Ps. 39,978 U.S.$ 4,373
Total assets ...................... 47,741 53,808 69,184 91,775 92,663 10,135
Short-term debt and current
portion of long-term debt ...... -- -- -- 6,948 6,304 690
Long-term debt .................... 193 89 2,544 1,220 15,173 1,660
Minority interest ................. -- -- 696 2,208 748 82
Total stockholders' equity ........ 45,745 51,389 58,831 68,370 56,629 6,194
U.S. GAAP
Total assets ...................... Ps. 49,022 Ps. 55,270 Ps. 70,765 Ps. 93,611 Ps. 96,449 U.S.$10,550
Short-term debt and current
portion of long-term debt ...... -- -- -- 7,036 6,304 690
Long-term debt .................... 195 90 2,577 1,235 15,173 1,660
Minority interest ................. -- -- 707 (28) 748 82
Total stockholders' equity ........ 46,862 51,381 57,056 64,633 56,976 6,232
Other Data:
EBITDA(3) ......................... 852 2,400 3,413 4,570 12,530 1,371
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(1) Except per share data.
(2) For 1999 and prior years, based on 14,485 million shares outstanding at
September 25, 2000, the date America Movil was established. For 2000, based
on the average weighted number of America Movil shares outstanding during
the year, assuming 14,485 million shares outstanding for the period prior
to September 25, 2000. For 2001, based on the average weighted number of
America Movil shares outstanding during the year. Each L Share ADS
represents 20 L Shares and each A Share ADS represents 20 A Shares.
(3) EBITDA is defined as operating income plus depreciation and amortization
and, in 2001, an impairment charge. EBITDA should not be construed as an
alternative to operating income, or net income, as determined in accordance
with Mexican GAAP or U.S. GAAP, as an indicator of our operating
performance as an alternative to cash flows from operating activities, as
determined in accordance with Mexican GAAP or U.S. GAAP, or as a measure of
liquidity. EBITDA is presented solely as a supplemental disclosure because
we believe that it is a widely used measure of operating performance.
Because all companies do not calculate EBITDA identically, the presentation
of EBITDA in this annual report is not necessarily comparable to similarly
entitled measures of other companies.
2
EXCHANGE RATES
Mexico has had a free market for foreign exchange since 1991. Since
December 1994, the Mexican government has allowed the peso to float freely
against the U.S. dollar. In the last quarter of 1997 and for much of 1998, the
foreign exchange markets were volatile as a result of financial crises in Asia
and Russia and financial turmoil in certain Latin American countries, including
Brazil and Venezuela. The peso declined during this period, but has been
relatively stable since 1999. The peso appreciated against the U.S. dollar in
2001, but it has depreciated in 2002 to date. There can be no assurance that the
government will maintain its current policies with regard to the peso or that
the peso will not further depreciate or appreciate significantly in the future.
The following table sets forth, for the periods indicated, the high,
low, average and period-end noon buying rate in New York City for cable
transfers in pesos published by the Federal Reserve Bank of New York, expressed
in pesos per U.S. dollar. The rates have not been restated in constant currency
units.
Period High Low Average(1) Period End
------ --------------- --------------- --------------- ---------------
1997 ........................................... Ps. 7.7172 Ps. 8.4100 Ps. 7.9674 Ps. 8.0700
1998 ........................................... 8.0400 10.6300 9.2425 9.9010
1999 ........................................... 9.2430 10.6000 9.5630 9.4800
2000 ........................................... 9.1830 10.0870 9.4717 9.6180
2001 ........................................... 9.0270 9.8850 8.9386 9.1560
2001:
January ................................... 9.6790 9.8850
February .................................. 9.6570 9.7800
March ..................................... 9.4850 9.7060
April ..................................... 9.1870 9.4225
May ....................................... 8.9460 9.2915
June ...................................... 9.0450 9.1800
July ...................................... 9.0270 9.3600
August .................................... 9.0850 9.2170
September ................................. 9.1990 9.4910
October ................................... 9.2000 9.5890
November .................................. 9.1480 9.3090
December .................................. 9.0900 9.2450
2002:
January ................................... 9.0950 9.2500
February .................................. 9.0480 9.1700
March ..................................... 9.0010 9.1140
April ..................................... 9.0020 9.3750
May ....................................... 9.4080 9.7130
June ...................................... 9.6050 9.9560
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(1) Average of month-end rates.
On June 28, 2002, the noon buying rate was Ps.9.800 to U.S.$1.00.
3
Forward-Looking Statements
This annual report contains forward-looking statements. We may from
time to time make forward-looking statements in our periodic reports to the
Securities and Exchange Commission on Forms 20-F and 6-K, in our annual report
to shareholders, in offering circulars and prospectuses, in press releases and
other written materials, and in oral statements made by our officers, directors
or employees to analysts, institutional investors, representatives of the media
and others. Examples of such forward-looking statements include:
o projections of operating revenues, net income (loss), net income (loss)
per share, capital expenditures, dividends, capital structure or other
financial items or ratios;
o statements of our plans, objectives or goals, including those relating
to competition, regulation and rates;
o statements about our future economic performance or that of Mexico or
other countries in which we operate; and
o statements of assumptions underlying such statements.
We use words such as "believe," "anticipate," "plan," "expect,"
"intend," "target," "estimate," "project," "predict," "forecast," "guideline,"
"should" and similar expressions to identify forward-looking statements, but
they are not the only way we identify such statements.
Forward-looking statements involve inherent risks and uncertainties. We
caution that a number of important factors could cause actual results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements. These factors, some of which are
discussed under "Risk Factors" beginning on page 5, include economic and
political conditions and government policies in Mexico or elsewhere, inflation
rates, exchange rates, regulatory developments, technological improvements,
customer demand and competition. We caution that the foregoing list of factors
is not exclusive and that other risks and uncertainties may cause actual results
to differ materially from those in forward-looking statements.
Forward-looking statements speak only as of the date they are made, and
we do not undertake any obligation to update them in light of new information or
future developments.
4
RISK FACTORS
Risks Relating to Our Mexican Wireless Business
Substantial and increasing competition in the Mexican wireless industry
could adversely affect our business
We face substantial competition in the Mexican wireless industry, and
we expect competition to intensify in the future as a result of the entry of new
competitors, the development of new technologies, products and services and the
auction of additional spectrum.
Our subsidiary Radiomovil Dipsa, S.A. de C.V., which operates under the
trade name "Telcel," holds concessions in all nine regions in Mexico to operate
both a cellular network using the 800 megahertz (Band B) radio spectrum and a
personal communications services (PCS) network using the 1900 megahertz (Band D)
radio spectrum. We face competition from other cellular providers using the 800
megahertz (Band A) spectrum in each of the regions in which we operate, and the
Mexican government has granted PCS licenses to other carriers that are in the
process of developing wireless service on the 1900 megahertz (Bands A, D and F)
spectrum. Our competitors in Mexico include Grupo Iusacell, S.A. de C.V., which
is controlled by Verizon Wireless and Vodafone, four regional operators
controlled by Telefonica S.A., Pegaso Comunicaciones y Sistemas, S.A. de C.V.,
and Operadora Unefon, S.A. de C.V. According to the Federal Telecommunications
Commission, an independent agency within the Mexican Communications Ministry,
which is known as Cofetel, Telcel's share of the Mexican cellular market was
approximately 77.6% at March 31, 2002.
We anticipate that market prices for two-way wireless services
generally will decline in the future due to increased competition. We also
expect that competition will lead to increases in advertising and promotional
spending, along with increased demands on access to distribution channels. All
of this may lead to smaller operating margins, greater choices for customers,
possible consumer confusion and increasing movement of customers between
competitors, which may make it difficult for us to retain customers or add new
customers.
Our ability to compete successfully will depend on customer service, on
marketing and on our ability to anticipate and respond to various competitive
factors affecting the industry, including new services, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. If we are unable to respond to competition and
compensate for declining prices by adding new customers, increasing usage and
offering new services, our revenues and profitability will decline.
We may not be able to build out and upgrade our network on a timely basis
We are in the process of building out and upgrading our wireless
networks in Mexico. In order to build out our networks, we must obtain cell and
switch sites; obtain rights of way, government approvals and permits for network
construction; complete radio frequency design for each developing area; design
and install switching systems, radio systems, interconnection facilities and
operating support systems; expand and maintain customer care, network management
and management and administrative systems; and obtain additional radio spectrum
frequencies. Over the next several years, we intend to continue to upgrade our
network to implement the next generation of wireless technology.
We cannot guarantee you that we will successfully execute these tasks,
many of which are not under our control, on a timely basis or at all. Our
ability to develop our networks is affected by, among other factors, the
availability of capital, relations with suppliers and vendors, political and
regulatory factors and currency fluctuations. If we cannot satisfactorily
complete the build-out and upgrade of our wireless networks, or do so in a
timely manner, we could lose current and potential customers to
5
competitors, one or more of our concessions could be terminated and our results
and financial condition could suffer.
We require substantial capital to build out our wireless network and for
other purposes, and we may not be able to raise sufficient capital on a
timely basis or at all
We require substantial capital to operate and build out our wireless
networks. We also require significant amounts of capital to market and
distribute our services and products, to develop new services and products, to
develop and implement new wireless technologies and potentially to acquire and
invest in other communications companies. We have budgeted capital expenditures
of approximately U.S.$900 million at Telcel for the year ending December 31,
2002, principally for the build-out and upgrade of its cellular networks. To
meet these requirements, we have relied on borrowings from banks and cash flow
from operations. However, our international businesses also have substantial
capital requirements, and we may also decide to finance new investments outside
Mexico. If available funds are insufficient to meet our budgeted capital
requirements for Telcel, we may not be able to raise capital to finance any
shortfall on a timely basis, or at all.
In addition, we may not be able to respond quickly, or at all, to new,
unexpected capital requirements, which could impede our business and
development. Some of the factors that could cause significant unanticipated
capital needs are regulatory changes, engineering design changes, new
technologies, currency fluctuations and significant departures from our business
plan.
Historically, Telcel relied on assistance from its former parent
company, Telefonos de Mexico, S.A. de C.V. (Telmex) to help satisfy its capital
requirements. Telmex no longer provides us with resources or provides financial
or other support to Telcel if we cannot meet our own capital needs.
Failure to obtain adequate capital in a timely fashion could result in
the delay or abandonment of our development and expansion plans or the failure
to meet regulatory build-out requirements.
Regulatory developments in Mexico could hurt our business and could
result in the termination of our concessions
Telcel's business is subject to extensive government regulation,
principally by Cofetel, and may be adversely affected by changes in law or by
actions of Mexican regulatory authorities.
The Mexican Telecommunications Law and Telcel's concessions include
various provisions under which the concessions may be terminated by the Mexican
Communications Ministry before their scheduled expiration dates. Among other
things, these concessions may be terminated if we fail to meet specified network
build-out requirements and schedules or to maintain minimum quality, service and
coverage standards. The loss of any one concession could have a material adverse
impact on our business and results of operations.
In addition, the Communications Ministry is authorized to impose
specific rate requirements on any wireless operator that is determined by the
Federal Competition Commission to have substantial market power. While no such
determination has been made with respect to the wireless market in Mexico, we
can provide no assurances that the regulatory authorities will not make such a
determination with respect to Telcel and impose specific rate requirements or
other special regulation on us. Any such new regulation could have a material
impact on our operations.
Risks Relating to our International Subsidiaries and Joint Ventures
We are dependent on relationships with our partners, and disagreements with
our partners could hurt our international businesses and favor our
competitors
We cannot assure you that all of our relationships with our partners
will be harmonious and successful. Certain of our international businesses,
including our operations in Brazil, Argentina and
6
Ecuador, are conducted through subsidiaries in which we own a majority, but less
than 100%, ownership interest. As a result, we are required to obtain the
consent and cooperation of our partners with respect to certain matters in order
to implement and expand upon our business strategies. See "Non-Mexican
Operations" under Item 4.
We have agreed to buy out BCI's interest in Telecom Americas, but there are
significant conditions to be met before we can complete the purchase
Telecom Americas, our joint venture with Bell Canada International,
Inc. (BCI) and SBC International, Inc. (SBCI), holds investments in the
telecommunications sector in Brazil. See "Telecom Americas" under Item 4.
We have a 52.8% interest in Telecom Americas. On May 31, 2002, we
agreed to acquire BCI's interest in Telecom Americas for approximately U.S.$366
million in cash and notes. In June 2002, we exercised an option to acquire
SBCI's interest in Telecom Americas. Following the closing of these transactions
and capital contributions currently being made, America Movil will have a 94.5%
interest in Telecom Americas. There are substantial conditions to be met before
the closing of the BCI transaction, including approval by the shareholders and
certain creditors of BCI. We cannot assure you that these approvals will be
obtained or that the transactions will close as contemplated.
Telecom Americas does not have voting control of its operating companies
Due to governmental regulations in Brazil and other restrictions,
Telecom Americas does not have voting control of any of ATL-Algar Telecom Leste
S.A., Tess S.A., Americel S.A. or Telet S.A. in Brazil. Although we expect that
Telecom Americas will eventually acquire voting control over these operating
companies, we can provide no assurances that this will occur.
The arrangements through which Telecom Americas holds its interests in
its operating companies are subject to extensive government regulation. Although
the Brazilian regulatory authorities reviewed and approved the transactions in
which Telecom Americas acquired its interests in the operating companies, we can
provide no assurances that the regulatory environment in Brazil will not change
in the future. Existing and future Brazilian regulatory restrictions could have
a material adverse effect on the ability of Telecom Americas to obtain voting
control of its investments, to transfer its interests in its operating companies
or to maximize the proceeds from any such transfer.
Our international businesses may not be able to build out and upgrade their
networks on a timely basis
Our international wireless businesses need to complete the build-out of
their wireless networks and, in the next several years, to implement upgrades to
their networks to access the next generation of digital technology. In addition,
our subsidiary in Guatemala, Telecomunicaciones de Guatemala, S.A. (Telgua),
plans to make substantial capital expenditures on its fixed-line network. We
cannot guarantee you that we will successfully execute these tasks on a timely
basis or at all. Our ability to develop networks is affected by, among other
factors, the availability of capital, relations with suppliers and vendors,
political or regulatory factors and foreign currency fluctuations. If we cannot
satisfactorily complete the build-out and upgrade of our networks, or do so in a
timely manner, we could lose current and potential customers to competitors, one
or more of our concessions could be terminated and our revenues could suffer.
Our international businesses require substantial capital to build out their
networks and for other purposes, and they may not be able to raise
sufficient capital on a timely basis or at all
Our international businesses require substantial capital resources to
continue their growth and development, and if we decline to assist them with our
resources at some time in the future, particularly during an economic crisis in
Latin America, any problems these businesses encounter in addressing
7
capital shortfalls will be aggravated. Historically, we relied on assistance
from Telmex to help satisfy our capital requirements. Following the spin-off,
Telmex no longer provides us with resources or financial or other support to our
subsidiaries and joint ventures if they cannot meet their own capital needs.
We have budgeted capital expenditures of approximately U.S.$500 million
for 2002 for our international businesses. To meet these requirements, we have
relied, and expect to continue to rely, on loans from banks and cash flow from
operations, but we also expect to use a substantial portion of our available
funds to finance capital expenditures of Telcel and to finance new international
investments.
Increased indebtedness may have a number of negative effects on the
operations of our international businesses, including increased difficulty in
obtaining future financing, allocation of increasing amounts of income to debt
repayments and restrictions imposed by lenders on these businesses' capital
resources or operations.
Substantial and increasing competition in the wireless industry could
adversely affect the revenues and profitability of our international
businesses
Our international wireless businesses face substantial competition,
typically from at least one other wireless provider, and increasingly from
multiple providers. We expect that competition will intensify in the future,
both from new entrants and existing competitors, and that market prices for
wireless services will continue to decline and customer churn will increase due
to increased competition. Among other things, our competitors could provide
increased handset subsidies, provide free services, such as Internet access,
expand their networks faster and develop and deploy improved wireless
technologies faster.
If we are unable to respond to competition and compensate for declining
prices by adding new customers, increasing usage and offering new services, the
revenues and profitability of our international businesses will decline. In
addition, the cost of adding new customers may continue to increase, reducing
profitability even if customer growth continues.
We may not be able to obtain or maintain favorable roaming arrangements
To the extent competitors have, or are perceived to have, better
roaming features than our businesses, those businesses may lose customers to
their competitors. Our customers can access another provider's wireless system
only if our customers' handsets are compatible with the other provider's system
and the other provider allows them to roam on its network. We rely on agreements
to provide roaming capability to customers in Latin America, the United States
and elsewhere in areas that our networks do not serve. Some competitors may have
more extensive coverage through their own networks and be less dependent on
roaming arrangements. Also, competitors may be able to obtain roaming rates that
are lower than rates obtained by our Latin American companies, giving these
competitors a pricing advantage. In addition, the quality of service that
another wireless provider delivers during a roaming call may be inferior to the
quality of service our companies provide.
Our companies are also dependent upon roaming agreements with other
providers as a source of revenues when the other providers' customers roam in
the companies' territories. If these roaming agreements were to terminate, or if
the other providers deploy incompatible technologies, revenues would decrease.
Government regulation could hurt our international businesses
Our international businesses are subject to extensive government
regulation and can be adversely affected by changes in law, regulation or
regulatory policy. The licensing, construction, operation, sale, resale and
interconnection arrangements of wireless telecommunications systems in Latin
America and elsewhere are regulated to varying degrees by government
authorities. Any of these authorities having
8
jurisdiction over our businesses could adopt or change regulations or take other
actions that could adversely affect us. In particular, the regulation of prices
operators may charge for their services could have a material adverse effect on
us by reducing our profit margins. Many of the laws, regulations and instruments
that regulate our businesses, including in Brazil, Argentina, Uruguay, Guatemala
and Ecuador, were only recently adopted or became effective, and there is only a
limited history that would allow us to predict the impact of these legal
requirements on our future operations. In addition, Brazil's federal and state
elections, slated to take place in October 2002, could result in political and
economic policy changes that could have a material adverse effect on the
Brazilian economy and on our businesses in Brazil.
Many Latin American countries are executing programs to deregulate and
privatize the provision of communications services, including wireless services.
However, these programs are still developing, and we cannot guarantee that
changes in political administrations will not lead to the adoption of policies
concerning competition, privatization and taxation of communications services
that may be detrimental to our Latin American operations. Such restrictions,
which may take the form of preferences for local over foreign ownership of
communications licenses and assets, or government over private ownership, may
make it impossible for us to continue to develop our businesses. These
restrictions could cause losses of revenues and capital investments. Some
restrictions currently exist, generally in the form of percentage limits on our
equity ownership in joint ventures in foreign markets.
Our international businesses have concessions that are subject to
termination
The terms of the licenses or concessions under which our international
wireless businesses operate typically require the operator to meet specified
network build-out requirements and schedules, as well as to maintain minimum
quality, service and coverage standards. Failure to comply with these criteria
could result in the revocation of licenses, the imposition of fines or other
government actions. We cannot assure you that our international business will be
able to comply fully with the terms of their licenses.
We have invested in businesses and countries in which we have no previous
experience, and we may be unsuccessful in addressing the new challenges and
risks they present
We have invested in a growing number of businesses outside our core
activity of providing wireless telecommunications services in Mexico, and we
plan to continue doing so, especially in the rest of Latin America and in
businesses related to wireless and broadband telecommunications. These
investments involve risks to which we have not previously been exposed and
countries in which we have no previous experience. Some of the investments are
in countries that, like Guatemala, Ecuador, Brazil, Colombia, Argentina and
Venezuela, may present different or greater country risk than Mexico. Many of
them are start-up or development-stage companies that will require substantial
investments. There can be no assurance that these investments will ultimately be
successful.
Risks Relating to the Wireless Industry Generally
Changes in the wireless industry could affect us in ways we cannot predict
The wireless communications industry is experiencing significant
change. This includes the increasing pace of digital upgrades in existing analog
wireless systems, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new
products, and changes in end-user needs and preferences. In Mexico and in the
other countries in which we conduct business, there is uncertainty as to the
pace and extent of growth in customer demand, and as to the extent to which
prices for airtime and line rental may continue to decline. As a result, our
future prospects remain uncertain.
9
Our technology may not be compatible with the next generation of wireless
technology
There are three existing digital technologies for wireless
communications, none of which is compatible with the others. Telcel and certain
of our international businesses currently use time division multiple access
(TDMA) technology for their digital networks. However, a number of other
wireless service providers, including certain of our other international
businesses, use code division multiple access (CDMA) as their digital wireless
technology, and still other wireless providers use global system for mobile
communications (GSM) technology. Telcel expects to launch GSM service in the
second half of 2002. The next generation wireless technology that gains
widespread acceptance might not be compatible with the technologies currently
used by Telcel and our international businesses. If it is not, we may be
required to make capital expenditures in excess of our current forecasts in
order to upgrade and replace our technology and infrastructure. Such increased
capital requirements could materially adversely affect our financial condition
and prospects.
We may have difficulty collecting amounts due from other communications
carriers
In most of the markets in which we operate, including Mexico, the
calling party pays for the airtime on a call to a wireless number. If a
subscriber of another cellular service provider places a call to one of our
Telcel customers in Mexico, Telcel charges the service provider from whose
network the call originates an interconnection charge for every minute Telcel's
network is in use in connection with the call. In addition, under our roaming
agreements, when a call is made from within one of Telcel's concession regions
by a subscriber of another cellular service provider, that service provider pays
Telcel for the call at the applicable rate. In the year ended December 31, 2001,
22% of America Movil's operating revenues and 24% of Telcel's operating revenues
were attributable to interconnection charges and roaming charges.
Telcel and our other wireless businesses may encounter difficulties
collecting such amounts from some communications companies. Some of these
companies face financial difficulties and may also be our competitors. If our
businesses cannot collect amounts due from other communications providers on a
timely basis, or at all, they could incur material losses. Difficulties in
collecting amounts due could also increase administrative costs, interest
expenses and risks from foreign exchange fluctuations.
We are dependent upon a small number of suppliers and vendors, and if they
fail to provide us with services or equipment on a timely and
cost-effective basis, our business could be adversely affected
Each of our wireless businesses relies primarily on a single vendor for
its switch and cell site equipment and on a single supplier or small group of
suppliers for its handsets and other customer equipment. If we had to replace a
primary supplier of switch and cell site equipment, for example because it
ceased to provide timely or cost-effective equipment or service, the transition
to another supplier would entail delays and additional costs. Supplies of
customer equipment may be subject to periodic shortages, and our ability to grow
will be limited if we cannot rely on our suppliers to ensure sufficient
quantities and quality of equipment.
Telcel relies primarily on Ericsson for the supply of its switch and
cell site equipment. Telcel purchases handsets and other customer equipment
primarily from Nokia, Brightpoint, Ericsson, Motorola, Brightstar and Cellular
Express.
We may incur significant costs from wireless fraud
Our wireless businesses incur costs associated with the unauthorized
use of their wireless networks, particularly their analog cellular networks.
These costs include administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraud also affects
interconnection costs, capacity costs, administrative costs and payments to
other carriers for unbillable
10
fraudulent roaming. In the year ended December 31, 2001, Telcel refunded its
customers approximately Ps.3.9 million due to wireless fraud. Although we try to
combat this problem through the deployment of anti-fraud technologies and other
measures, we cannot guarantee that these efforts will be effective or that fraud
will not result in material costs for us in the future.
Cloning, which is one form of wireless fraud, involves the use of
scanners and other electronic devices to obtain illegally telephone numbers and
electronic serial numbers during cellular transmission. These stolen telephone
and serial number combinations can be programmed into a cellular phone and used
to obtain improper access to cellular networks. Roaming fraud occurs when a
phone programmed with a number stolen from one of our customers is used to place
fraudulent calls from another carrier's market, resulting in a roaming fee
charged to us that cannot be collected from the customer.
Concerns about health risks relating to the use of wireless handsets may
adversely affect our prospects
Media and other reports have linked radio frequency emissions from
wireless handsets to various health concerns, including cancer, and to
interference with various electronic medical devices, including hearing aids and
pacemakers. Although we do not know of any definitive studies showing that radio
frequency emissions raise health concerns, concerns over radio frequency
emissions may discourage the use of wireless handsets in Mexico or the other
countries in which we conduct business, which could have a material adverse
effect on our results of operations. In addition, lawsuits have been filed in
the United States against certain participants in the wireless industry alleging
various adverse health consequences as a result of wireless phone usage, and
Telcel and our international businesses may be subject to similar litigation in
the future. Research and studies are ongoing, and there can be no assurance that
further research and studies will not demonstrate a link between radio frequency
emissions and health concerns.
Risks Relating to Our Controlling Shareholders, Capital Structure and
Transactions with Affiliates
We are controlled by one shareholder
As of May 31, 2002, 62.5% of the voting shares of America Movil was
directly or indirectly owned by America Telecom, S.A. de C.V., which was
established in November 2001 in a spin-off from Carso Global Telecom, S.A. de
C.V. America Telecom has the effective power to designate a majority of the
members of our Board of Directors and to determine the outcome of other actions
requiring a vote of the shareholders, except in very limited cases that require
a vote of the holders of L Shares.
We have significant transactions with affiliates, particularly Telmex, that
create potential conflicts of interest
We engage in transactions with Telmex, which is controlled by Carso
Global Telecom, as well as with certain other subsidiaries of Grupo Carso, S.A.
de C.V. and Grupo Financiero Inbursa, S.A. de C.V., all of which may be viewed
as affiliates of America Telecom. Transactions with affiliates may create the
potential for conflicts of interest. We are currently in the process of
developing specific procedures to review transactions with related parties.
The protections afforded to minority shareholders in Mexico are different
from those in the United States
Under Mexican law, the protections afforded to minority shareholders
are different from those in the United States. In particular, the law concerning
fiduciary duties of directors is not as fully developed as in other
jurisdictions, there is no procedure for class actions or shareholder derivative
actions, and there are different procedural requirements for bringing
shareholder lawsuits. As a result, in practice it may be more difficult for
minority shareholders of America Movil to enforce their rights against us or
11
our directors or controlling shareholder than it would be for shareholders of a
company incorporated in another jurisdiction, such as the U.S.
Holders of L Shares and L Share ADSs have limited voting rights, and
holders of ADSs may vote only through the depositary
Our bylaws provide that holders of L Shares are not permitted to vote
except on such limited matters as the transformation or merger of America Movil
or the cancellation of registration of the L Shares with the Mexican National
Banking and Securities Commission or any stock exchange on which they are
listed. If you hold L Shares or L Share ADSs, you will not be able to vote on
most matters, including the declaration of dividends, that are subject to a
shareholder vote in accordance with our bylaws.
Holders of ADSs are not entitled to attend shareholders' meetings, and they
may only vote through the depositary
Under Mexican law, a shareholder is required to deposit its shares with
a Mexican custodian in order to attend a shareholders' meeting. A holder of ADSs
will not be able to meet this requirement, and accordingly is not entitled to
attend shareholders' meetings. A holder of ADSs is entitled to instruct the
depositary as to how to vote the shares represented by ADSs, in accordance with
procedures provided for in the deposit agreements, but a holder of ADSs will not
be able to vote its shares directly at a shareholders' meeting or to appoint a
proxy to do so.
You may not be entitled to participate in future preemptive rights
offerings
Under Mexican law, if we issue new shares for cash as part of a capital
increase, we generally must grant our shareholders the right to purchase a
sufficient number of shares to maintain their existing ownership percentage in
America Movil. Rights to purchase shares in these circumstances are known as
preemptive rights. We may not legally be permitted to allow holders of ADSs or
holders of L Shares or A Shares in the United States to exercise any preemptive
rights in any future capital increase unless we file a registration statement
with the U.S. Securities and Exchange Commission, or SEC, with respect to that
future issuance of shares. At the time of any future capital increase, we will
evaluate the costs and potential liabilities associated with filing a
registration statement with the SEC and any other factors that we consider
important to determine whether we will file such a registration statement.
We cannot assure you that we will file a registration statement with
the SEC to allow holders of ADSs or U.S. holders of L Shares or A Shares to
participate in a preemptive rights offering. As a result, the equity interest of
such holders in America Movil be diluted proportionately. In addition, under
current Mexican law, it is not practicable for the depositary to sell preemptive
rights and distribute the proceeds from such sales to ADS holders.
Our bylaws restrict transfers of shares in some circumstances
Our bylaws provide that any acquisition or transfer of more than 10% of
our capital stock by any person or group of persons acting together requires the
approval of our Board of Directors. If you acquire or transfer more than 10% of
our capital stock, you will not be able to do so without the approval of the
Board of Directors.
Mexican law and our bylaws restrict the ability of non-Mexican shareholders
to invoke the protection of their governments with respect to their rights
as shareholders
As required by Mexican law, our bylaws provide that non-Mexican
shareholders shall be considered as Mexicans in respect of their ownership
interests in America Movil and shall be deemed to have agreed not to invoke the
protection of their governments in certain circumstances. Under this provision,
a non-Mexican shareholder is deemed to have agreed not to invoke the protection
of his own
12
government by asking such government to interpose a diplomatic claim against the
Mexican government with respect to the shareholder's rights as a shareholder,
but is not deemed to have waived any other rights it may have, including any
rights under the U.S. securities laws, with respect to its investment in America
Movil. If you invoke such governmental protection in violation of this
agreement, your shares could be forfeited to the Mexican government.
Our bylaws may only be enforced in Mexico
Our bylaws provide that legal actions relating to the execution,
interpretation or performance of the bylaws may be brought only in Mexican
courts. As a result, it may be difficult for non-Mexican shareholders to enforce
their shareholder rights pursuant to the bylaws.
It may be difficult to enforce civil liabilities against us or our
directors, officers and controlling persons
America Movil is organized under the laws of Mexico, and most of our
directors, officers and controlling persons reside outside the United States. In
addition, all or a substantial portion of our assets and their assets are
located in Mexico. As a result, it may be difficult for investors to effect
service of process within the United States on such persons or to enforce
judgments against them, including in any action based on civil liabilities under
the U.S. federal securities laws. There is doubt as to the enforceability
against such persons in Mexico, whether in original actions or in actions to
enforce judgments of U.S. courts, of liabilities based solely on the U.S.
federal securities laws.
Risks Relating to Developments in Mexico and Other Emerging Market Countries
Economic and political developments in Mexico may adversely affect our
business
Our principal business operations are located in Mexico. As a result,
our business may be significantly affected by the general condition of the
Mexican economy, by devaluation of the peso, by inflation and high interest
rates in Mexico, or by political developments or changes in law in Mexico.
Mexico has experienced adverse economic conditions
Mexico experienced a severe economic crisis following the devaluation
of the peso in December 1994. In recent years, economic crises in Asia, Russia,
Brazil and Argentina and other emerging markets have adversely affected the
Mexican economy and could do so again. In 2000, GDP grew by 6.9% and inflation
declined to 8.9%. In 2001, GDP decreased by 0.3% as a result of the U.S.
recession, while inflation declined to 4.4%. The Mexican government has
estimated GDP in 2002 to be 1.7% and inflation to be 4.5%. These estimates may
not prove to be accurate. Economic conditions in Mexico are heavily influenced
by conditions in the United States. If the U.S. economy does not recover,
Mexican economic growth will be adversely affected.
If the Mexican economy falls into a recession or if inflation and
interest rates increase significantly, our business, financial condition and
results of operations could suffer material adverse consequences because, among
other things, demand for wireless communications services may decrease and
consumers may find it difficult to pay for the services we offer.
Depreciation or fluctuation of the peso relative to the U.S. dollar could
adversely affect our financial condition and results of operations
We are affected by fluctuations in the value of the peso because a
significant portion of our financial assets (14.0% at December 31, 2001) and our
indebtedness (74.4% at December 31, 2001) is denominated in foreign currencies,
principally U.S. dollars. We have generally had more foreign
currency-denominated assets than liabilities, so we report exchange gains when
the peso depreciates and exchange losses when the peso appreciates.
13
Severe devaluation or depreciation of the peso may also result in
disruption of the international foreign exchange markets and may limit our
ability to transfer or to convert pesos into U.S. dollars and other currencies
for the purpose of making timely payments of interest and principal on our
indebtedness. While the Mexican government does not currently restrict, and for
many years has not restricted, the right or ability of Mexican or foreign
persons or entities to convert pesos into U.S. dollars or to transfer other
currencies out of Mexico, the government could institute restrictive exchange
rate policies in the future. Currency fluctuations are likely to continue to
have an effect on our financial condition, results of operations and cash flows
in future periods.
High levels of inflation and high interest rates in Mexico could adversely
affect our financial condition and results of operations
Mexico has experienced high levels of inflation in recent years. The
annual rate of inflation, as measured by changes in the National Consumer Price
Index, was 18.6% for 1998, 12.3% for 1999, 8.9% for 2000 and 4.4% for 2001.
Interest rates on 28-day Mexican treasury bills, or Cetes, averaged 24.5% in
1998, 21.4% in 1999, 15.3% in 2000 and 11.3% in 2001. On May 31, 2002, the
28-day Cetes rate was 6.6%. High interest rates in Mexico may adversely affect
our costs and thus our financial condition and results of operations.
Political events in Mexico could affect Mexican economic policy and our
operations
The Mexican national elections held in July 2000 ended 71 years of rule
by the Partido Revolucionario Institucional (Institutional Revolutionary Party
or PRI) with the election of president Vicente Fox, a member of the Partido
Accion Nacional (National Action Party or PAN). The elections resulted in
increased representation by opposition parties in mayoral, gubernatorial, and
legislative positions throughout Mexico. Neither the PRI nor the PAN currently
has a majority in the Congress or Senate.
Although there have not yet been any material adverse repercussions
resulting from this political change, multiparty rule is still relatively new in
Mexico and could result in economic or political conditions that could have a
material adverse effect on our operations. In addition, the lack of a majority
party in the legislature and the lack of political alignment between the
legislature and the presidency has resulted in deadlock that could prevent the
timely implementation of economic policy, which in turn could have a material
adverse effect on the Mexican economy and on our business.
Mexican taxes on services we offer could affect our results of operations
Legislation adopted in 2002 imposes a special 10% tax applicable to
certain telecommunications services, which may be passed on to customers.
Special taxes on the services we provide could be imposed, as have been imposed
on other telecommunications services. If a tax of this nature were applied to us
or to the services we provide, it could adversely affect our business and our
results of operations.
Developments in other emerging market countries may adversely affect our
business or the market price of our securities
Many of our investments and joint ventures and a substantial portion of
our total assets are located in other emerging market countries, including
Guatemala, Ecuador, Brazil, Colombia and Argentina. As a result, economic and
political developments in these countries, including future economic crises and
political instability, could have a material adverse effect on our business and
results of operations.
In addition, the market value of securities of Mexican companies is, to
varying degrees, affected by economic and market conditions in other emerging
market countries. Although economic conditions in such countries may differ
significantly from economic conditions in Mexico, investors' reactions to
developments in any of these other countries may have an adverse effect on the
market value of securities
14
of Mexican issuers. In late October 1997, prices of both Mexican debt securities
and Mexican equity securities dropped substantially, precipitated by a sharp
drop in value of Asian markets. Similarly, in the second half of 1998, prices of
Mexican securities were adversely affected by the economic crises in Russia and
in Brazil. In recent months, prices of Mexican securities have been adversely
affected by the economic crisis in Argentina. If the current economic situation
in Argentina continues to deteriorate, or if adverse economic or political
events occur in other emerging market countries, there can be no assurance that
the market value of our securities would not be adversely affected.
15
Item 4. Information on the Company
THE COMPANY
We are the leading provider of wireless communications services in
Mexico. Through our subsidiary Radiomovil Dipsa, S.A. de C.V., which operates
under the trademark "Telcel," we provide cellular telecommunications service in
all nine regions in Mexico, with a network covering approximately 34% of the
geographical area of Mexico, including all major cities, and approximately 90%
of Mexico's population. As of March 31, 2002, Telcel had 17.9 million
subscribers.
We have subsidiaries in the telecommunications sector in Guatemala,
Ecuador, Brazil, Colombia, Argentina, the United States and Mexico. We recently
acquired control of Telecom Americas, a joint venture formed in November 2000
between us, Bell Canada International Inc. (BCI) and SBC International, Inc.
(SBCI), Telecom Americas has interests in four wireless operators in Brazil. In
May 2002, we agreed to acquire BCI's interest in Telecom Americas, and in June
2002, we exercised an option to acquire SBCI's interest in Telecom Americas. We
acquired Comcel and Occel, Colombian wireless operators, from Telecom Americas
in February 2002. As of March 31, 2002, we had a total subscriber base of 27.4
million. See "Mexican Operations," "Non-Mexican Operations" and "Telecom
Americas."
America Movil, S.A. de C.V. is a sociedad anonima de capital variable
organized under the laws of Mexico with its principal executive offices at Lago
Alberto 366, Edificio Telcel I, Piso 2, Colonia Anahuac, 11320, Mexico D.F.,
Mexico. The telephone number of America Movil at this location is (5255)
2581-4411.
History
America Movil was established in September 2000 in a spin-off from
Telefonos de Mexico, S.A. de C.V. (Telmex), the largest provider of local and
long-distance telephone services in Mexico. The spin-off was implemented using a
procedure under Mexican corporate law called escision or "split-up." The shares
of America Movil were delivered to Telmex shareholders on February 7, 2001.
Our wireless business in Mexico is conducted through our subsidiary
Telcel, which traces its history to the establishment in 1956 of Publicidad
Turistica, S.A., an affiliate of Telmex that published telephone directories. In
1981, the Mexican Ministry of Communications and Transportation granted
Publicidad Turistica a concession for the installation and operation of a
wireless telephone system in Mexico City. In 1984, Publicidad Turistica changed
its name to Radiomovil Dipsa, S.A. de C.V., and in 1989, the company began
operating under the trademark "Telcel."
Between 1988 and 1990, Telcel expanded its cellular network on the 800
megahertz (Band B) frequency spectrum to cover the cities of Tijuana,
Cuernavaca, Toluca, Guadalajara, Monterrey and the Mexico City metropolitan
area, and in 1990 Telcel began offering cellular services in all nine regions in
Mexico.
In 1998, Telcel was awarded the 1900 megahertz (Band D) frequency
spectrum for personal communications services (PCS) in all nine regions in
Mexico. Telcel launched PCS service in Mexico City in 1999 and currently offers
the service in all nine regions.
Our international subsidiaries and our investments in Telecom Americas
and our other international affiliates were acquired during 1999, 2000 and 2001.
See "Mexican Operations," "Non-Mexican Operations," "Telecom Americas" and
"Other Investments."
16
Major Subsidiaries and Affiliates
The tables below and the diagram that follows set forth our major
subsidiaries and affiliates as of June 30, 2002.
Jurisdiction of Ownership
Name of Company Establishment Interest(1)
--------------- ------------- -----------
Sercotel, S.A. de C.V. ..................................................... Mexico 100.0%
Inmobiliaria los Cantaros, S.A. de C.V. ................................ Mexico 100.0
AM Treasury, LLC ....................................................... Delaware 100.0
Radiomovil Dipsa, S.A. de C.V. ......................................... Mexico 100.0
SubDipsa Treasury LLC ............................................. Delaware 100.0
TracFone Wireless, Inc. ................................................ Florida 97.8
Occidente y Caribe Celular S.A. (Occel) ................................ Colombia 95.5
Comunicacion Celular S.A. (Comcel) ..................................... Colombia 94.6
Telecomunicaciones de Guatemala, S.A. .................................. Guatemala 94.4
Servicios de Comunicaciones Personales Inalambricas, S.A. ......... Guatemala 94.4
Speedy Movil, S.A. de C.V. ............................................. Mexico 85.0
Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL .............. Ecuador 80.6
Techtel--LMDS Comunicaciones Interactivas, S.A. ........................ Argentina 60.0
Telstar, S.A. .......................................................... Uruguay 60.0
Telecom Americas Ltd(2). ............................................... Bermuda 52.8
CompUSA, Inc. .......................................................... Delaware 49.0
-------------
(1) Percentage of equity owned by America Movil directly or indirectly through
subsidiaries or affiliates.
(2) Following the closing of our acquisitions of BCI's and SBCI's interests and
capital contributions currently being made, we will hold a 94.5% interest
in Telecom Americas.
The table below sets forth the major subsidiaries held by Telecom
Americas as of June 30, 2002.
Jurisdiction of Economic
Name of Company Establishment Interest(1)
--------------- ------------- -----------
ATL--Algar Telecom Leste S.A.(2) ............................................... Brazil 100.0%
Tess S.A.(3) ................................................................... Brazil 100.0
Americel S.A.(4) ............................................................... Brazil 77.4
Telet S.A.(4) .................................................................. Brazil 77.5
------------
(1) Economic interest of Telecom Americas, including shares owned directly or
indirectly and shares subject to options or other contractual rights (which
may be subject to regulatory or other conditions) in favor of Telecom
Americas.
(2) Telecom Americas holds a 19.9% voting interest in the holding company
through which it holds its interests in ATL. SBCI indirectly holds a
controlling voting interest in this holding company.
(3) Telecom Americas indirectly holds a 19.9% voting interest in Tess.
(4) Telecom Americas holds a 19.9% voting interest in the holding company
through which it holds its interests in Americel and Telet. BCE Inc.
indirectly holds a controlling voting interest in this holding company.
17
[GRAPHIC REMOVED HERE]
18
MEXICAN OPERATIONS
Our subsidiary Telcel is the leading provider of wireless
communications services in Mexico. As of December 31, 2001, Telcel's cellular
network covered 34% of the geographical area of Mexico, including all major
cities, and 89.9% of Mexico's population. Telcel holds concessions to operate a
wireless network in all nine regions in Mexico using both the 800 megahertz
(Band B) and 1900 megahertz (Band D) radio spectrums. As of March 31, 2002,
Telcel had 17.9 million cellular subscribers and, according to Cofetel, an
approximately 78% share of the Mexican wireless market. Approximately 20% of
Telcel's cellular subscribers are located in the Mexico City area.
In 2001, Telcel had revenues of Ps.32,268 million, representing 78.0%
of the consolidated revenues of America Movil for such period, and net income of
Ps.1,949 million. At December 31, 2001, Telcel had total assets of Ps.51,642
million, representing 55.7% of the total assets of America Movil as of such
date.
Where roaming agreements are in place, Telcel is able to offer service
to customers of other wireless providers when they travel through its service
area, and Telcel subscribers can roam through other wireless providers' service
areas. Telcel continues to expand its cellular communications network to cover
as broad a geographical area as is economically feasible in order to meet
consumer demand.
The following table sets forth information on Telcel's subscriber base,
coverage and related matters at the dates and for the periods indicated:
December 31,
------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------------------------------------------------------------------
Revenues(1) .................................. Ps. 6,252 Ps. 10,043 Ps.14,760 Ps. 23,531 Ps. 32,268
Average monthly revenues per subscriber
during preceding 12 months(2) ............. 550 475 295 223 183
Net income(1) ................................ 229 1,972 3,011 2,100 1,949
Total assets ................................. 6,961 10,595 18,048 63,287 51,642
Cellular lines in service (thousands):
Prepaid subscribers ..................... 661 1,465 4,450 9,488 15,806
Postpaid subscribers .................... 452 648 822 974 1,160
Total ............................... 1,113 2,113 5,272 10,462 16,965
Subscriber growth during preceding
12 months ................................. 69.3% 89.8% 149.4% 98.4% 62.2%
Cellular penetration(3) ...................... 1.2% 2.2% 5.4% 10.7% 16.9%
Percentage of population covered(4) .......... 80.2% 80.6% 82.3% 86.3% 89.9%
Average monthly minutes of use per
subscriber during preceding 12 months ..... 100 96 90 86 73
Cellular call minutes for the preceding 12
months (millions) ......................... 1,026 1,784 3,513 7,891 11,677
Employees .................................... 1,966 2,532 4,510 6,452 7,644
-----------
(1) In millions of constant pesos as of December 31, 2001.
(2) In constant pesos as of December 31, 2001.
(3) Number of Telcel cellular lines in service divided by the population of
Mexico.
(4) Percentage of population that can access Telcel's cellular telephone signal.
The business of Telcel is subject to comprehensive regulation and
oversight by the Mexican Communications Ministry, the Federal Telecommunications
Commission (Comision Federal de Telecomunicaciones or Cofetel) and the Federal
Competition Commission (Comision Federal de Competencia or COFECO). The
Communications Ministry is part of the executive branch of the
19
Mexican federal government, and Cofetel is an independent agency of the
Communications Ministry. COFECO is an independent agency of the Ministry of
Economy. Regulation and oversight are governed by the General Communications
Law, the Telecommunications Regulations adopted under such law, the Federal Law
of Telecommunications, the Federal Economic Competition Law and the concessions
and license agreements granted by the Communications Ministry. See
"--Regulation."
Services and Products
Voice Services
Telcel offers voice services under a variety of rate plans to meet the
needs of different user segments. The rate plans are either "postpaid"--where
the customer is billed monthly for the previous month--or "prepaid"--where the
customer pays in advance for a specified volume of use over a specified period.
Telcel's postpaid plans include the following charges:
o monthly charges, which usually include a number of free minutes of
use,
o usage charges, for usage in excess of the specified number of minutes
included in the monthly charge, and
o additional charges, including charges for voicemail, caller ID, call
waiting, call blocking and general information.
Certain plans include the cost of roaming and long-distance in the
price per minute so that all calls within Mexico cost the same amount per
minute. Some postpaid plans are designed for high and moderate usage
subscribers, who are typically willing to pay higher monthly fees in exchange
for larger blocks of free minutes, services such as voicemail, call forwarding,
call waiting, caller ID and three-way calling, and lower per minute airtime
charges under a single contract. To satisfy the more limited needs of low-usage
postpaid subscribers, Telcel also offers plans which provide a moderately
priced, fixed monthly charge coupled with a high per minute airtime charge and
relatively few free minutes. Postpaid customers, which include many corporate
accounts and professionals, often subscribe for additional digital services such
as voicemail, call forwarding, call waiting, caller ID and three-way calling,
which are all included in the monthly fee. In 2001, approximately 39% of
Telcel's operating revenues were derived from postpaid customers of Telcel.
Telcel adjusts its rates based on competitive conditions, inflation
rates and international standards. In July 1998, Telcel increased its nominal
rates for monthly charges by 7% and usage charges by 5%, and in April 1999, it
increased its nominal rates for monthly charges by 12%. Rates for postpaid plans
did not increase in 2000 or in 2001, and are expected to remain stable as long
as the Mexican economic environment remains stable. Telcel offers discounts that
reduce the effective rates paid by its customers based on the time of use, so
that calls made during off-peak hours (10 p.m. to 7 a.m. during the week, and
anytime on weekends) are less expensive than calls made during the remaining, or
peak, hours.
Telcel also offers several prepaid plans, none of which includes
activation or monthly charges. Prepaid customers purchase a prepaid card for a
specific amount of airtime and also receive additional services such as
voicemail and caller ID, although less comprehensive than those available under
postpaid plans. Telcel began to offer cellular digital packet data (CDPD)
services to prepaid customers in October 2001 and short message services (SMS)
in January 2002. Prepaid customers typically generate low levels of cellular
usage and are often unwilling to make a fixed financial commitment or do not
have the credit profile to purchase postpaid plan cellular services. Prepaid
plans serve the needs of distinct consumer segments such as the youth market,
families, customers with variable income who otherwise would not be able to
obtain service due to their credit profile, and customers who prefer to pay
20
in cash. Prepaid customers also include parents who wish to control costs for
their children. In 2001, approximately 61% of Telcel's operating revenues were
generated by prepaid customers of Telcel.
The number of Telcel's prepaid customers grew by 67% in the 12-month
period ended December 31, 2001, compared with a growth rate of 19% in postpaid
subscribers. Telcel believes the prepaid market represents a large and growing
under-penetrated market and an opportunity to improve margins because compared
to the average postpaid plan, prepaid plans involve higher average per minute
airtime charges, lower cost to acquire subscribers and no billing costs, credit
or payment risk. However, prepaid customers on average have substantially lower
minutes of use than postpaid customers and do not pay monthly fees and, as a
result, generate substantially lower average monthly revenues per customer.
Mexico uses the "calling party pays" system for cellular service, under
which subscribers only pay for outgoing calls. This replaced "mobile party
pays," under which subscribers also paid for incoming calls, in May 1999.
Subscribers have the option of retaining the "mobile party pays" system but must
change their cellular telephone number to do so.
Data Services
Message services
Telcel began to offer data services in the form of one-way short
message services (SMS) to its postpaid customers in April 1998. SMS offers a
one-way paging service as well as a variety of information services pre-selected
by customers, including weather reports, financial quotes and entertainment
news. In 2002, Telcel began to offer two-way paging services, allowing its
prepaid and postpaid customers to send and receive short text messages using
TDMA and GSM technology.
Internet
Wireless application protocol (WAP) is a global standard designed to
make Internet services available to mobile telephone users. At present, services
available through WAP include e-mail, data and information services and
electronic commerce transactions. The standard allows a micro "browser" in a
mobile phone to link into a gateway service in Telcel's network enabling users
to scroll through different pages of information on the Internet.
Telcel launched its WAP gateway for the major cities in all nine
regions in Mexico in September 2000, enabling its prepaid and postpaid users in
those regions to access e-mail, banking, a variety of reservation and other
types of electronic commerce services. In September 2001, Telcel introduced its
Datum Internet website, allowing customers to access various services such as
e-mail and financial news through a PDA connected to a wireless modem.
Data transmission
In September 2000, Telcel rolled out a data service network based on
the cellular digital packet data (CDPD) platform available to postpaid
subscribers in the major cities in all nine regions. As of November 2001, these
services were available to Telcel's prepaid customers. The CDPD network is a
packet-switched network that takes advantage of the fact that, in many data
applications, information is sent in bursts of activity, with intermittent quiet
periods. Unlike data services carried over circuit-switched analog or digital
wireless networks, the CDPD platform provides a significantly more
cost-effective means of sending data for the majority of applications, as it
allows many users to share the network channel. Instead of dialing in,
subscribers to the CDPD system always remain connected to a network service that
provides access to packet data networks.
Telcel's CDPD services are able to accommodate such industry-specific
applications as:
o Telemetry--Wireless networks will allow companies such as gas and electric
suppliers to track customer usage via wireless connection between the field
meter and a central control.
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Telemetry can also be applied in medicine to monitor patients within
and away from the hospital.
o Wireless credit card validation--Terminal equipment allows merchants
to verify credit/debit cards. With CDPD, the validation terminals can
remain online wirelessly, substantially reducing the time required to
process a validation and eliminating the need for a separate
telephone line at the verification terminal. This can open up a
variety of new applications in remote service industries, such as
fast food and delivery.
o Dispatch applications--Courier companies, delivery companies, and
companies with large field installation and repair groups use the
CDPD technology to support their employees. Workers can be dispatched
with detailed work orders, can access customer databases from the
field and can close out work orders online.
o Public safety applications--States and municipalities can use CDPD as
the primary means of data communication with public safety vehicles.
o Automated vehicle location--Utilizing a small device containing a
CDPD modem and a global positioning system, or GPS, device, users can
track vehicle fleets on the Internet, allowing rapid, cost-effective
access to the information necessary to route and dispatch vehicles
and packages.
Telcel began to offer circuit switch data (CSD) to all its users and
general packet radio services (GPRS) to its postpaid users through its new GSM
network. Telcel plans to extend its GPRS services to prepaid users in the second
half of 2002. See "--Wireless Network."
Products
Telcel offers a variety of products as complements to its wireless
service, including handsets and accessories such as chargers, headsets, belt
clips and batteries. As part of its basic prepaid service offering, Telcel
provides new customers with an Amigo Kit, which includes a handset, a charger
and other accessories at a subsidized price. New postpaid customers also receive
a handset at a subsidized price.
In the past, Telcel has offered a variety of handset types, including
analog, digital and dual-mode dual-band devices. Most of the handsets that
Telcel currently offers are dual-mode dual-band, which can operate in both
analog and digital modes and can switch between the 800 and 1900 megahertz radio
spectrums.
Interconnection
Telcel earns interconnection revenues from any call to one of its
subscribers, or to a roaming subscriber of another cellular service provider
located within the region covered by Telcel, that originates with another
service provider (cellular or fixed). Telcel charges the service provider from
whose network the call originates an interconnection charge for every minute
Telcel's network is used in connection with the call. The current
interconnection charge in Mexico for calls made from a fixed line to a cellular
line or from a cellular line to another cellular line is Ps.1.90 per minute. The
current interconnection charge for calls made from a cellular line to a fixed
line, which Telcel pays to Telmex, is Ps.0.31 per minute.
Telcel has entered into interconnection agreements with Telmex and
other service providers in connection with its TDMA network, and expects to
enter into similar agreements in connection with its new GSM network shortly.
The interconnection agreements specify a number of connection points, locations
of interconnection points, the method by which signals must be transmitted and
received and the costs and fees of interconnection. See
"--Regulation--Interconnection."
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Roaming
Telcel offers domestic as well as international roaming services to
participating subscribers. Subscribers who pay the domestic roaming rates gain
access to the nationwide Telcel network, while subscribers paying the
international roaming fees are able to roam outside of Mexico, using the
networks of cellular service providers with which Telcel has entered into
roaming agreements. Telcel has entered into 77 such agreements, 54 of them with
U.S. cellular service providers, 9 with Canadian providers, 13 with Central and
South American providers and one with operators of worldwide satellites. Under
the roaming agreements, when a call is made from within one of Telcel's
concession regions by a subscriber of another cellular service provider, that
service provider pays Telcel for the call at the applicable rate. Conversely,
when a Telcel subscriber makes a cellular call outside a covered region, Telcel
must pay the applicable charges to the cellular service provider in whose region
the call originates. These payments are channeled through Telecommunication
Services International, which functions as a central international clearing
house that collects and redistributes roaming fees from and to the participating
providers.
Marketing
Telcel develops customer awareness through its marketing and promotion
efforts and high-quality customer care. It builds upon the strength of its
well-recognized brand name to increase consumer awareness and customer loyalty,
employing continuous advertising efforts through print, radio, television,
sponsorship of sports events and other outdoor advertising campaigns. In
addition, Telcel employs concentrated advertising efforts to promote specific
products and services such as the Amigo Kit and its Internet services.
Telcel targets groups of customers who share common characteristics or
have common needs. Telcel then assembles a packet of services that meets the
particular needs of that targeted group through one of its various pricing
plans. As part of its promotional efforts, Telcel offers its new prepaid and
postpaid subscribers a free or subsidized handset when they subscribe, which the
postpaid customers may keep when their service agreement expires.
Telcel has designed promotional packages, including free handsets and
low monthly fees, to encourage new customers and current prepaid customers to
subscribe to postpaid plans that include services such as voicemail, call
waiting and caller ID.
Sales and Distribution
Telcel markets its wireless services primarily through exclusive
distributors located throughout Mexico. In the year ended December 31, 2001,
approximately 89% of Telcel's sales of handsets were generated by the cellular
distributors, with approximately 10% from sales in company-owned stores, and
approximately 1% from direct sales to corporate accounts.
Telcel has relationships with a broad network of approximately 875
exclusive distributors, who sell Telcel's services and products. For postpaid
services, a distributor receives a first commission each time a new customer is
signed up and another commission if the customer stays for a specific period.
For prepaid services, a distributor receives either a first commission followed
by another commission each time a customer recharges his account with a prepaid
card (after three recharges) or a commission representing the remaining profit
between the retail price and the customer price, depending on the type of plan
sold. Distributors receive an additional commission under all plans based on the
volume of sales registered. Telcel operates permanent training and evaluation
programs for distributors to help maintain the level of service quality.
Telcel's company-owned retail stores offer one-stop-shopping for a
variety of cellular services and products. Walk-in customers can subscribe for
postpaid plans, purchase prepaid cards and purchase
23
handsets and accessories. Company-owned stores also serve as points of customer
service and payment centers. Telcel owns and operates 121 customer sales and
service centers throughout the nine regions and will continue to open new
service centers in order to offer its products directly to subscribers in more
effective ways.
In addition, Telcel distributes prepaid cards and handsets, the latter
as part of "Amigo kits" consisting of handsets and free airtime ranging from 20
to 200 minutes, through distributors that include Telmex and its network of
retail outlets. Telmex purchases the Telcel prepaid cards and handsets on the
commercial terms given to other cellular distributors.
To service the needs of its large corporate and other high-usage
customers, Telcel has a dedicated corporate sales group.
Telcel is currently developing a project to sell and distribute its
products and services over the Internet, and began to offer the Amigo Kit
package of handsets and accessories on its website in January 2001.
Billing and Collection
Telcel bills its postpaid customers through monthly invoices, which
detail itemized charges such as usage, services such as voicemail, call
forwarding, call waiting, caller ID and three-way calling, and long-distance and
roaming charges. Customers may pay their bills with a credit card, through a
bank (including its Internet website), in person at Telcel retail stores and,
since July 2001, through Telcel's Internet website.
If a postpaid customer's payment is more than 17 days past due, service
may be suspended until full payment for all outstanding charges is received. If
the subscriber's payment is more than 60 days past due, service may be
discontinued. Accounts that are more than 90 days past-due are considered
doubtful accounts. Prepaid customers may continue to receive calls for up to 180
days after they exhaust the prepaid credits, but must purchase additional
credits within 60 days of the previous prepayment to make outgoing calls.
Customer Service
Telcel places a high priority on providing its customers with quality
customer care and support. Approximately 60% of Telcel's employees are dedicated
to customer service. Customers may call a toll-free telephone number or go to
one of the customer sales and service centers located throughout the nine
regions for inquiries regarding their service or plan options. In addition,
using Telcel's website, subscribers may learn about the various offered rate
plans, products and promotions, as well as subscribe for additional services.
Wireless Network
Telcel's wireless networks use both analog and digital technologies. As
a proportion of total traffic, digital traffic measured 61.8% in March 2002.
Telcel uses time division multiple access (TDMA) digital technology in the 800
megahertz (Band B) and the 1900 megahertz (Band D) frequency spectra, and
expects to launch a new network using global system for mobile communications
(GSM) digital technology in the 1900 megahertz (Band B) frequency spectrum in
the second half of 2002. TDMA is a digital technology that divides radio
spectrum into assigned time slots to transmit signals. Compared to analog
technology, TDMA makes voice signals harder to intercept, increases traffic
volume and offers improved voice quality. GSM is a digital standard used in
Europe, North America and elsewhere. Compared to TDMA, GSM provides access to a
better developed path toward third generation wireless technologies and, because
it is so widely used, faster availability of new products and services and a
wider variety of suppliers. CDMA is an alternative digital technology that
divides radio spectrum using codes, rather than time slots. Compared to TDMA and
GSM, it permits more subscribers to use the same
24
spectrum, but it is less mature and less well supported by suppliers and the
path from CDMA to third generation technologies is not as developed as for GSM.
In the fourth quarter of 2000, Telcel introduced data services based on
CDPD technology that is designed to improve data transmission services on its
TDMA network and to bridge the gap between second and third generation wireless
technologies. In the second half of 2002, Telcel plans to offer GPRS data
services through its new GSM network.
Analog and digital technologies
Telcel offers both analog and digital cellular service. Digital service
is currently provided using the TDMA service standard and is expected to be
provided using the GSM service standard in the second half of 2002. Telcel
believes that digital technology offers many advantages over analog technology,
including substantially increased network capacity, greater call privacy,
enhanced services and features, lower operating costs, reduced susceptibility to
fraud and the opportunity to provide improved data transmissions. Digital
service also enables Telcel to provide added benefits and services to its
customers, including SMS, extended battery life and caller ID.
As Telcel grows, it will need to increase its capacity in order to
support higher network traffic. Digital voice paths require less radio frequency
spectrum capacity than do analog voice paths. In addition to enhancing capacity,
digital technology also gives Telcel a cost advantage by allowing Telcel to
produce network minutes with less capital and operating expense than analog
technology. Not only is the cost of digital network equipment lower per voice
path than analog network equipment, but also fixed costs, such as towers,
shelters and other common equipment, are reduced by spreading them over a larger
geographical area.
At December 31, 2001, 100% of Telcel's total network traffic used TDMA
digital cellular service. Telcel uses digital switches and transmission
equipment, and is in the process of digitalizing its traffic channels. All of
Telcel's radio bases are currently equipped with both digital and analog traffic
channels, and Telcel is in the process of converting its radio bases to use
digital traffic channels only. Converting from analog to digital service
requires the subscriber to purchase a dual-mode handset that costs approximately
U.S.$125 to U.S.$400. Telcel sells some digital handsets below cost to induce
subscribers to convert from analog to digital service.
TDMA network
Telcel currently uses TDMA technology for its digital network. TDMA
permits the use of advanced dual-mode dual-band handsets that allow for roaming
across analog and digital systems and across 800 megahertz and 1900 megahertz
spectrums. TDMA digital technology also allows for enhanced services and
features, such as short alphanumeric message service, extended battery life,
added call security and improved voice quality. TDMA equipment is available from
leading telecommunications vendors such as Lucent, Ericsson and Nortel.
GSM Network
Ericsson has agreed with Telcel to build, install and transfer to
Telcel a GSM network in the 1900 megahertz frequency spectrum in all nine
regions in Mexico. The first phase of the new network is scheduled to be in
commercial operation in the second half of 2002. The new GSM network will allow
Telcel to augment its digital capacity and progress in its evolution toward the
third generation of wireless technology. GSM technology supports a wide range of
voice and data services, including CSD, high-speed CSD and GPRS, and is
currently the most widely used and tested wireless system in the world. GSM
technology is expected to yield global economies of scale in developing network
equipment and handsets, as well as seamless global roaming capabilities.
25
In its first stage, Telcel's GSM network will offer service in all nine
regions, but will not provide coverage in all cities in those regions. As Telcel
rolls out the GSM network, it plans to expand GSM coverage throughout the nine
regions while continuing to expand the TDMA network, but at a slower rate. The
continued development and upgrading of the TDMA network will allow Telcel to
support its growing number of subscribers and provide it with an increased
ability to expand coverage and variety and quality of service.
CDPD technology
The cellular digital packet data (CDPD) platform is an industry
standard that allows most applications written for the Internet as well as many
corporate applications to run efficiently over the network without modification.
Using CDPD, data files and transactions are divided into small packets and sent
on a dedicated wireless channel. In many data applications, data is sent in
bursts with intermittent quiet periods. Packet transmission technologies take
advantage of this fact and allow user data to be efficiently carried on the same
network channel. As a result, relative to data services carried over
circuit-switched analog or digital wireless networks, the packet-switched CDPD
service is a significantly more cost-effective means of sending data for the
majority of applications because it allows many users to share the same channel.
The use of packet switching capabilities on existing digital networks through
CDPD is considered to be the first level of the transitional stage in the
wireless industry between second and third generation technologies, referred to
as 2.5G. Telcel rolled out its CDPD service in all nine regions using its TDMA
network in September 2000.
CSD and HSCSD technology
Circuit switch data (CSD) is an alternative system based on circuit
switch platforms that provides data services by integrating the existing voice
infrastructure. Like CDPD, CSD is considered to be the first level of 2.5G
technology.
High-speed CSD (HSCSD) offers the same service as CSD, using voice
channels for data transmission, but by joining several slots of information it
offers increased capacity and speed, making it better suited to the needs of
users transmitting large amounts of information. Telcel plans to offer CSD as
well as HSCSD services in all nine regions through its new GSM network.
GPRS technology
General packet radio services (GPRS) is a system for the transmission
of data in packets using the GSM platform. It allows for the high-speed
transmission of information and accommodates a variety of handsets, offering
some third generation services but using different bands, hardware and software.
GPRS allows GSM operators to offer new Internet protocol services and provide
more attractive Wireless Internet Applications to a wide group of users. It
offers customers efficient access to the Internet, allowing several users to
share the same air-interface resources. Operators using GPRS are able to charge
their customers based on the amount of transferred data rather than airtime,
making GPRS a more attractive option for short transmissions of data. GPRS is
similar to the CDPD technology offered through Telcel's TDMA network, but it
allows greater capacity than CDPD. Together with CSD and HSCSD services, GPRS
services will allow Telcel's GSM to select data services suited to their
specific needs.
Third generation development strategy
Third generation technologies will provide high-speed wireless packet
data services and ultimately voice services over the Internet. Any successful
third generation strategy must allow the wireless provider to achieve a
pervasive footprint quickly and cost effectively and on a global scale through
international roaming capacities. While third generation networks are currently
under development and evaluation, transitional technologies including CDPD, CSD
and GSM/GPRS have
26
begun to bridge the gap between second and third generation technologies by
offering enhanced high-speed data services.
Telcel is considering choosing enhanced data rates for global evolution
(EDGE) as the intergeneration wireless architecture that will facilitate its
ultimate deployment of third generation technology. One benefit of EDGE is that
it can be deployed in existing spectrum. As customers upgradetheir equipment to
EDGE, Telcel expects that all the applications developed and deployed today will
be able to operate at higher speeds and in more places. EDGE is currently being
developed by Ericsson, Nokia, Nortel, Lucent and Motorola.
The evolution from 2.5G to third generation technology is expected to
make wireless networks capable of transmitting voice, data and video over a
single network. The wireless industry has recently agreed to converge towards a
common standard called wideband CDMA (W-CDMA) for the development of third
generation technology. W-CDMA offers configurations that allow multifaceted
processing and enable the transmission of large volumes of data, such as video
data, at high speeds.
As part of its strategic evaluation concerning the deployment of EDGE
technology, Telcel is engaged in discussions with suppliers and plans to test
the technology with heavy-use or corporate users. Telcel expects to launch EDGE
with the existing cellular or PCS technologies, and migrate to the W-CDMA third
generation technology once a new set of broadband frequencies is made available
by Cofetel.
Spectrum
Telcel currently holds concessions in each of the nine regions of
Mexico in both the 800 megahertz and 1900 megahertz radio spectrums and is the
only wireless provider in Mexico with a functioning nationwide network. Two
other companies also hold concessions for nationwide service using the 1900
megahertz spectrum. While Cofetel has not indicated which frequency spectrum it
will auction to deploy the third generation technology system or when such
auction will occur, Telcel expects to actively participate in such auction if
and when it occurs to ensure that its network meets the consumer demand and that
we retain our leading competitive position.
Fixed Wireless
Fixed wireless technology provides wireline quality voice telephony
available over cellular networks. Voice channels are delivered over the existing
telephone wiring within the residence or small business premises, allowing
customers to utilize their existing telephones.
Telcel provides fixed wireless voice services to Telmex's Ladafon
shared telephone network, under which a line is available for public use by the
residents of multi-unit dwellings. Telephone service is provided at a discount
through existing wire lines within the residential premises, which are then
connected to Telcel's cellular network. Telcel also provides fixed wireless
service to Telmex's Ladatel public telephone network.
Property
Telcel's wireless network includes transport and computer equipment, as
well as exchange and transmission equipment consisting primarily of switches
(which set up and route telephone calls either to the number called or to the
next switch along the path, and which may also record information for billing
and control purposes), cellular base stations (radio transmitters or receivers
that maintain communications with the cellular telephones within given
geographical areas or "cells"), microcells (small cells covered by low-power
base stations) and local links and repeaters (equipment for radio or fiberoptic
transmission between network elements). At December 31, 2001, Telcel owned and
operated 114 customer sales and service centers, a total of 3,147 radio base
stations, 65 repeaters and 56 switching centers. Telcel owns certain properties
for commercial and administrative offices and the installation of
27
some of its equipment, while it leases other locations. Telcel operates certain
equipment on Telmex property under a co-location agreement. See "Related Party
Transactions" under Item 7.
Telcel currently relies on Ericsson for the supply of more than 70%
(measured in terms of cost) of its switch and cell site equipment. Telcel
purchases handsets and other customer equipment primarily from Nokia,
Brightpoint, Ericsson, Motorola, Brightstar and Cellular Express.
Competition
Telcel faces competition from other cellular providers using the 800
megahertz (Band A) spectrum in each of the regions in which we operate, and the
Mexican government has granted PCS licenses to other carriers that are in the
process of developing wireless service on the 1900 megahertz (Bands A, D and F)
spectrum. Telcel's competitors in Mexico include Grupo Iusacell, S.A. de C.V.,
which is controlled by Verizon Wireless and Vodafone, four regional operators
controlled by Telefonica S.A., Pegaso Comunicaciones y Sistemas, S.A. de C.V.,
and Operadora Unefon, S.A. de C.V. According to Cofetel, Telcel's share of the
Mexican cellular market was approximately 77.6% at March 31, 2002.
Concessions in the same nine regions have also been granted to permit
the provision of PCS services using the A, B, D and E bands. Telcel uses Band D
to provide PCS services and competes with other PCS services providers using the
A, B and E bands in each of the nine regions.
The effects of competition on Telcel depend, in part, on the business
strategies of its competitors and the general economic and business climate in
Mexico, including demand growth, interest rates, inflation and exchange rates.
The effects could include loss of market share and pressure to reduce rates.
Telcel believes that its strategies to meet competition will continue to help
limit its loss of market share and that any loss of market share will be partly
offset by increasing demand.
Regulation
Set forth below is a summary of certain provisions of the General
Communications Law, the Telecommunications Law, the Telecommunications
Regulations and the various concessions held by Telcel.
General
The General Communications Law, the Telecommunications Law and the
Telecommunications Regulations provide the general legal framework for the
regulation of telecommunications services in Mexico. The Telecommunications Law
replaced certain provisions of the General Communications Law, and only those
provisions of the General Communications Law not opposed to the
Telecommunications Law remain in effect. Other regulations implementing
particular provisions of the Telecommunications Law have been adopted or are
pending. The objectives of the Telecommunications Law are to promote the
efficient development of the telecommunications industry, to encourage fair
competition in the provision of quality, low-priced services and to assure
satisfactory breadth of coverage of the Mexican population.
Under the Telecommunications Law, an operator of public
telecommunications networks, such as Telcel, must operate under a concession
granted by the Communications Ministry. Such a concession may only be granted to
a Mexican citizen or corporation and may not be transferred or assigned without
the approval of the Communications Ministry. A concession to provide services
which utilize electro-magnetic frequencies, such as cellular telecommunications
services, may have a term of up to twenty years and may be extended for
additional terms of equal duration.
The Telecommunications Law requires public telecommunications
concessionaires to establish open network architecture which permits
interconnection and interoperability. Operators of private
28
networks that do not use electro-magnetic frequencies or provide services to the
public are not required to obtain a concession, permit or registration.
In October 2001, the Mexican Congress announced the beginning of a
process to reform the Federal Telecommunications Law. Some of the proposals that
have been discussed, such as strengthening the regulatory power of Cofetel,
stimulating increased investment in telecommunications and increasing
competition, could have a material effect on our operations. We are unable to
predict whether or when such amendments may be implemented and, if implemented,
their effect on our business.
Regulatory Oversight
The Communications Ministry is the government agency principally
responsible for regulating telecommunications services. The Ministry's approval
is required for any change in Telcel's bylaws. It also has broad powers to
monitor Telcel's compliance with the concessions, and it can require Telcel to
supply it with such technical, administrative and financial information as it
may request. Telcel is required to publish its annual network expansion program,
and Telcel must advise the Ministry of the progress of its expansion and
modernization program on a quarterly basis.
The Telecommunications Law provided for the establishment of an
administrative agency, Cofetel, to regulate the telecommunications industry.
Cofetel commenced operations in August 1996. It is an independent agency within
the Communications Ministry, with four commissioners appointed by the
Communications Ministry on behalf of the President of Mexico, one of whom is
appointed as chairman. Many of the powers and obligations of the Communications
Ministry under the Telecommunications Law and the Telecommunications Regulations
have been delegated to Cofetel.
The Telecommunications Law gives certain rights to the Government in
its relations with concessionaires, including the right to take over the
management of Telecel's networks, facilities and personnel in cases of imminent
danger to national security, internal peace or the national economy, natural
disasters and public unrest. The General Communications Law also provides that
Telcel may not sell or transfer any of its assets unless it gives the Government
a right of first refusal. If the Government declines to exercise its right,
Telcel's unions also have a right of first refusal.
The Telecommunications Law provides that if a company is determined to
be dominant in a relevant market according to the Federal Law of Economic
Competition, the Communications Ministry has the power to adopt specific
regulations on rates, quality of service and information provided by a dominant
provider. To date, Telcel has not been declared a dominant provider, although
there can be no assurance that such a determination will not be made in the
future.
Rates
The Telecommunications Law provides that concessionaires may freely
determine the rates for telecommunications services. Cellular rates are not
subject to a price cap or any other form of price regulation. However, Telcel
and other cellular carriers operating in Mexico are required to disclose their
rates for cellular service to the Communications Ministry. The Communications
Ministry is authorized to impose specific rate requirements on any operator that
is determined to have substantial market power under the Federal Law of Economic
Competition. Although no such determination has been made with respect to the
market for cellular telecommunications services, there can be no assurance that
such a determination will not be made in the future.
Concessions
Telcel operates under several different concessions covering particular
frequencies and regions. It holds nine separate regional concessions, which
together cover all of Mexico, to provide cellular telecommunications services
using the 800 megahertz (Band B) radio spectrum. It also holds nationwide
29
concessions to use the 1900 megahertz (Band D) radio spectrum and a related
concession to provide cellular telecommunications services on that frequency.
The Band B concessions require Telcel to pay fees determined as a percentage of
gross revenues derived from the concessioned services. The percentage is 5% for
the Mexico City area and up to 10% elsewhere. The 1900 megahertz concessions
were purchased for a fixed amount in 1998 and do not require Telcel to pay
continuing fees.
The eight Band B concessions covering regions other than the Mexico
City area were granted for initial terms of twenty years that will expire in
2010 and 2011. The Band B concession covering the Mexico City area (Region 9)
was renewed effective October 2000 for a term of fifteen years that will expire
in October 2015. The 1900 megahertz concessions were granted in 1998 for an
initial term of 20 years that will expire in 2018.
Expansion and Modernization Requirements
Telcel's concessions impose a number of requirements for expansion and
modernization of its network. For both cellular service provided within the 800
megahertz frequency and PCS services provided within the 1900 megahertz
frequency, the concessions establish certain minimum network capacities that
Telcel must achieve, to extend service coverage to a targeted percentage of
population. We are in compliance with these requirements.
Service Quality Requirements
The concessions also set forth extensive requirements for the quality
and continuity of Telcel's service, including, in some cases, maximum rates of
incomplete and dropped calls and connection time. Due to the fast growth in
cellular services, Telcel, like all Mexican cellular carriers, has faced some
service problems, as a result of which Cofetel adopted a resolution giving
cellular users certain bonus time during April and May of 2000. Service problems
have not, however, had any material adverse regulatory impact. Telcel monitors
service quality for compliance with the requirements of the concessions and has
shown marked improvement according to recent measurements conducted by Cofetel.
Competition
The Telecommunications Regulations and the concessions contain various
provisions designed to introduce competition in the provision of communications
services. In general, the Communications Ministry is authorized to grant
concessions to other parties for the provision of any of the services provided
by Telcel under the concessions.
Interconnection
Terms of interconnection (including fees) are negotiated between Telcel
and other public telecommunications providers. In the event they are unable to
agree, the Communications Ministry may impose terms on Telcel and the other
public telecommunications networks. The current interconnection charge payable
to us by another operator for a call from its customer to our cellular line is
Ps.1.90 per minute. The current interconnection charge for calls made from a
cellular line to a fixed line, which Telcel pays to Telmex, is Ps.0.31 per
minute.
Termination of the Concessions
The General Communications Law and the concessions include various
provisions under which the concessions may be terminated before their scheduled
expiration dates. Under the General Communications Law, the Communications
Ministry may cause early termination of any of the concessions in certain cases,
including:
o failure to expand telephone services at the rate specified in the
concession;
30
o interruption of all or a material part of the services provided by
Telcel;
o transfer or assignment without Ministry approval of the concession or
any asset used to provide service;
o violation of the prohibition against ownership of shares of Telcel by
foreign states;
o any material modification of the nature of Telcel's services without
prior Ministry approval; and
o breach of certain other obligations under the General Communications
Law.
In addition, the concessions provide for early termination by the
Communications Ministry following administrative proceedings in the event of:
o a material and continuing violation of any of the conditions set
forth in the concessions;
o material failure to meet any of the service expansion requirements
under the concessions;
o material failure to meet any of the requirements under the concession
for improvement in the quality of service;
o engagement in any telecommunications business not authorized under
the concession and requiring prior approval of the Communications
Ministry;
o following notice and a cure period, failure without just cause to
allow other concessionaires to interconnect their networks to
Telcel's network; or
o bankruptcy of Telcel.
The General Communications Law provides that in the event of early termination
of one of Telcel's cellular concessions, all assets that are the subject of such
concession would revert to the Government without compensation to Telcel. In the
event of early termination of one of Telcel's PCS concessions, the Government
would have the option to purchase the equipment, installations and other assets
used directly for the exploitation of the frequencies which are the subject of
such concession. There is doubt as to whether the provisions of the concessions
and the Telecommunications Regulations regarding the consequences of expiration
of the concessions would apply to mitigate the provisions of the General
Communications Law in the event of early termination. In the case of foreign
investors, NAFTA and other similar international treaties require compensation
as mitigation for provisions of the General Communications Law that could result
in measures tantamount to expropriation.
Speedy Movil
Speedy Movil, S.A. de C.V. is a Mexican company that develops mobile
data solutions for SMS, wireless internet (WAP) and voice-activated data
applications for Telcel and our other subsidiaries and investments. We own an
85% interest in Speedy Movil, and Ericsson owns the remaining 15% interest.
Under the terms of a joint venture agreement with Ericsson, we are committed to
provide U.S.$8.5 million in capital contributions to the company as its needs
arise, of which we have contributed nearly U.S.$3.5 million.
In addition to developing mobile data applications, Speedy Movil
evaluates content and application providers and enters into contracts with them
in order to provide our wireless providers with content and applications. No
concessions or licenses are necessary for Speedy Movil's operations.
31
NON-MEXICAN OPERATIONS
We have subsidiaries in the telecommunications sector in Guatemala,
Colombia, Ecuador, the United States, Argentina and Uruguay. Our principal
subsidiaries are described below. The revenues of our subsidiaries other than
Telcel represented 21.9% of our consolidated revenues for 2001.
In addition, we expect to have opportunities to invest in other
telecommunications companies outside Mexico, especially in the United States and
in Latin America, because we believe that the telecommunications sector will
continue to be characterized by growth, technological change and consolidation.
We may take advantage of these opportunities through direct investments or other
strategic alliances. We can give no assurance as to the extent, timing or cost
of future international investments, and such investments may involve risks to
which we have not previously been exposed.
The following table sets forth financial and operating information for
our non-Mexican operations for the periods indicated:
December 31,
---------------------------------
1999 2000 2001
---- ---- ----
Telgua
Combined revenues(1) .............................. Ps. 2,566 Ps. 3,605 Ps. 4,009
Average monthly revenues per subscriber during
preceding 12 months(2) ......................... 261 219 150
Combined net income(1) ............................ (600) (29) 446
Total assets(1) ................................... 8,096 7,763 9,039
Lines in service (thousands):
Fixed .......................................... 571 647 715
Cellular ....................................... 76 261 420
Prepaid ........................................ 17 179 371
Postpaid ....................................... 58 82 49
Employees
Fixed .......................................... 3,650 3,209 2,844
Cellular ....................................... 136 325 361
Comcel and Occel
Combined revenues(1) .............................. 2,162 1,897 2,695
Average monthly revenues per subscriber during
preceding 12 months(2) ......................... 247 198 137
Combined net income(1) ............................ (1,899) (1,667) (915)
Total assets(1) ................................... 9,408 9,509 9,445
Cellular lines in service (thousands):
Prepaid ........................................ 321 740 1,451
Postpaid ....................................... 429 290 433
Employees ......................................... 1,381 1,342 1,207
Conecel
Revenues(1) ....................................... 698 359 776
Average monthly revenues per subscriber during
preceding 12 months(2) ......................... 276 145 127
Combined net income(1) ............................ (698) (285) (83)
Total assets(1) ................................... 2,409 1,697 1,813
Cellular lines in service (thousands):
Prepaid ........................................ 131 207 66
Postpaid ....................................... 67 48 418
Employees ......................................... 906 885 878
----------------
(1) In millions of constant pesos as of December 31, 2001.
(2) In constant pesos as of December 31, 2001.
32
December 31,
---------------------------------
1999 2000 2001
---- ---- ----
TracFone
Revenues(1) ............................................ 943 1,883 3,981
Average monthly revenues per subscriber during
preceding 12 months(2) .............................. 349 301 190
Net income(1) .......................................... (357) (1,912) (1,285)
Total assets(1) ....................................... 1,205 1,970 1,359
Cellular lines in service (thousands):
Prepaid ............................................ 234 1,136 1,913
Employees .............................................. 572 1,128 646
Techtel
Revenues(1) ............................................ 6.3 27.3 140.6
Net income(1) .......................................... (44) (148) (667)
Total assets(1) ........................................ 374 1,115 1,237
Employees .............................................. 43 249 342
----------------
(1) In millions of constant pesos as of December 31, 2001.
(2) In constant pesos as of December 31, 2001.
Telgua
Telecomunicaciones de Guatemala, S.A. (Telgua) is a fixed-line
telecommunications operator in Guatemala that was privatized in November 1998.
Subsidiaries of Telgua also provide wireless, Internet, cable television,
paging, data transmission and other services in Guatemala. We own 94.4% of the
stock of Telgua. We acquired a portion of our interest in the subsidiaries in
May 1999. We acquired the majority of our interest in Telgua and the balance of
our interest in the subsidiaries in March 2000 and increased these interests to
their present levels through a series of acquisitions of shares from minority
shareholders. We use the term "Telgua" below to refer to Telgua and the
affiliates together.
Business and strategy. At March 31, 2002, Telgua had approximately
741,400 fixed-line subscribers, representing approximately 6.3 lines per 100
inhabitants and a market share of approximately 96.1%.
Telgua's wireless business is operated by its affiliate Servicios de
Comunicaciones Personales Inalambricas, S.A. (Sercom). Sercom's cellular network
uses CDMA digital technology and covers approximately 68% of its population. At
March 31, 2002, Sercom had approximately 458,000 wireless subscribers,
representing a market share of approximately 42.8%. Sercom invested
approximately U.S.$65.2 million to expand its wireless network in 2000 and
approximately U.S.$47.7 million in 2001.
Telgua offers a variety of services through its fixed-line and wireless
networks, including Internet access, data transmission, cable television,
two-way communication systems used mainly for group communication and dispatch
applications, or "trunking," and also sells handsets and related products.
Telgua markets and distributes its services and products directly to customers
and also employs a network of independent distributors for services and products
other than basic telephony, such as prepaid calling cards and handsets. Telgua's
marketing strategy emphasizes the quality and reliability of services and
products.
Competition. Telgua continues to be the principal provider of
fixed-line services in Guatemala. Telgua's principal competitors in the wireless
sector are Millicom (Comcel), Telefonica of Spain and BellSouth.
33
Regulatory environment. Telgua's business is subject to comprehensive
regulation and oversight by the Guatemalan Telecommunications Agency
(Superintendencia de Telecomunicaciones de Guatemala) under the General
Telecommunications Law (Ley General de Telecomunicaciones). Telgua holds a
license from the Guatemalan government to operate its nationwide fixed-line
network and numerous licenses to operate its cellular network on different
frequencies and in different regions. See "Legal Proceedings" under Item 8 for a
discussion of certain proceedings that the Guatemalan government has commenced
against Telgua.
Comcel and Occel
Comunicacion Celular S.A. (Comcel) and Occidente y Caribe Celular S.A.
(Occel) provide wireless telecommunications services in Colombia, Comcel in the
eastern region of the country and Occel in the western region. We acquired our
interests in Comcel and Occel in 2002 from Telecom Americas and certain other
shareholders and increased them to their present levels through a series of
capitalized investments in 2002. Currently, we hold a 94.6% interest in Comcel
and a 95.5% interest in Occel. Occel operates under the "Comcel" brand, and we
use the term "Comcel" below to refer to Comcel and Occel together.
Business and strategy. Comcel's network uses analog and TDMA digital
technology and covers approximately 72% of Colombia's population. At March 31,
2002, Comcel had approximately 2.1 million subscribers and believed it had a 67%
share of the wireless market in the regions in which it operates.
Comcel offers basic cellular service through a variety of rate plans
and also offers prepaid service. Purchasers of Comcel's "Amigo" kit for prepaid
service receive a cellular phone together with a prepaid calling card, enabling
the customer to activate wireless service without contracts, monthly fees or
credit checks. Comcel markets its services through independent local
distributors and a direct sales force. In addition, Comcel and its distributors
have arrangements with various supermarket chains such as Exito and Carrefour
for the distribution of all of Comcel's basic products as well as the provision
of technical service and assistance. The Amigo prepaid card is available in
various chain stores nationwide. Comcel's strategy is to continue to expand its
customer base through the build-out of its network.
Competition. Comcel is one of only two cellular service providers in
each of the eastern and western regions of Colombia and competes with BellSouth.
Comcel also competes with traditional fixed-line telephone service operators,
including Empresa de Telecomunicaciones de Santa Fe de Bogota and Empresa
Nacional de Telecommunicaciones in the eastern region, and Empresas Publicas de
Medellin, Empresas de Telecomunicaciones de Cali S.A. E.S.P. and Empresas
Municipales de Cali in the western region. In addition, Comcel faces competition
from alternative wireless services, including mobile radio and paging services,
rural wireless operators and trunking services. These competing wireless
services are widely used in Colombia as a substitute for fixed-line services.
Regulatory environment. The Ministry of Communications of Colombia and
the Telecommunications Regulation Commission are responsible for regulating and
overseeing the telecommunications sector, including cellular operations. The
Ministry of Communications, which granted the cellular concessions in 1994,
supervises and audits the performances of the concessionaires' legal and
contractual obligations. Comcel's activities are also supervised by the
Colombian Superintendency of Industry and Commerce, which enforces antitrust
regulations, promotes free competition in the marketplace and protects consumer
rights.
Concessions. Comcel holds 10-year concessions, acquired in 1994, to
provide wireless telecommunications services in the eastern and western regions
of Colombia. Under the terms of the concessions, Comcel is required to make
quarterly royalty payments to the Ministry of Communications
34
based on its revenues. Under the terms of an agreement entered into in January
1997, the Ministry of Communications has agreed to renew the Comcel concessions
through 2014.
Conecel
Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL (Conecel) is
a wireless telecommunications operator in Ecuador. We acquired a 60% interest in
Conecel in March 2000, and gave the other investors the right to sell to us up
to 50%, 75% and 95% of their shares during specified periods following the
second, fourth and sixth anniversaries of our acquisition, subject to certain
conditions. In April 2002, the other investors exercised their first put rights,
and we paid approximately U.S.$70.3 million to increase our interest to 80.6%.
Business and strategy. Conecel's cellular network uses TDMA digital
technology and covers approximately 77% of the geographical area of Ecuador and
approximately 85% of its population. At March 31, 2002, Conecel had
approximately 546,000 subscribers, representing a 57% share of the Ecuadorian
wireless market.
Conecel offers both prepaid and postpaid wireless services. In addition
to wireless telephone service, Conecel provides Internet, paging and data
transmission services. Conecel's marketing strategy is to target its service
plans to selected segments of the market. Conecel is currently engaged in a
promotional effort to gain new subscribers through the sale of prepaid plans. In
addition, Conecel aims to expand the number of its postpaid subscribers by
promoting its postpaid plans in both the individual and the corporate segments.
Conecel conducts general advertising campaigns to promote its products and
services and to establish its brand.
Conecel aims to expand its coverage to 75% of the geographical area of
Ecuador by the end of 2001 by building out its network first in areas already
covered by its competitors and then in areas not currently covered by any
provider. Conecel has budgeted capital expenditures of approximately U.S.$36.2
million in 2001 to finance the installation of 35 new cell sites and one new
switching center.
Competition. Conecel's principal competitor is BellSouth Ecuador, which
offers wireless local, national and international long-distance and public
telephone services in Ecuador. BellSouth Ecuador's cellular network currently
exceeds that of Conecel. Conecel does not expect that additional competitors
will be permitted to enter the wireless market before 2003, but there can be no
assurances that the government of Ecuador will not grant additional wireless
concessions before such time.
Andinatel S.A. and Pacifitel S.A. hold exclusive concessions for the
provision of fixed-line telephone services in Ecuador. The Ecuadorian government
is expected to privatize these companies or open them to private investment in
the near future.
Regulatory environment. Beginning in 1995, the government of Ecuador
undertook a comprehensive reform of Ecuador's telecommunications sector adopting
new laws that provided for the establishment of a new regulatory framework, the
introduction of competition and the privatization of Emetel, the former state
telecommunications monopoly. The new laws established:
o the National Telecommunications Counsel (Consejo Nacional de
Telecomunicaciones, or Conatel), which is responsible for
policy-making in the telecommunications area;
o the National Telecommunications Secretariat (Secretaria Nacional de
Telecomunicaciones), which is responsible for executing Conatel's
resolutions; and
o the Telecommunications Agency (Superintendencia de
Telecomunicaciones), which monitors the use of authorized frequencies
and compliance with concession provisions.
35
The reforms also introduced specified interconnection rates as well as a system
of concessions for the operation of private networks, the use of frequencies and
the resale of telecommunications services and value-added services.
Concessions. Conecel holds nationwide concessions, which have been
fully paid, to operate its wireless network on the 800 megahertz (Band A) radio
spectrum. These include a concession for cellular telephone service that expires
in 2008, and concessions for data transmission and Internet services that expire
in 2009.
TracFone
TracFone Wireless, Inc., formerly Topp Telecom, Inc., is engaged in the
sale and distribution of prepaid wireless phones and wireless service throughout
the United States, Puerto Rico and the U.S. Virgin Islands. We own 97.8% of the
capital stock of TracFone. We first acquired a controlling interest in TracFone
in February 1999.
Business and Strategy. TracFone currently offers its prepaid telephone
cards and wireless handsets throughout the United States using an extensive
distribution network. At March 31, 2002, TracFone had approximately 1.9 million
subscribers and an estimated 17.4% share of the U.S. prepaid cellular market.
TracFone's subscriber base increased more than 68.4% in 2001. In 2002,
subscriber growth is lower as a result of an improving focus on profitability
over growth in subscribers, and the number of subscribers declined in the first
quarter of 2002.
TracFone does not own any wireless telecommunications facilities or
hold any licenses. The company purchases cellular airtime for resale in the form
of prepaid cards or codes under the terms of approximately 42 agreements with
the principal U.S. national cellular service providers, including Verizon
Wireless, Cingular Wireless and ALLTEL. Through these agreements, TracFone is
able to offer nationwide wireless coverage.
TracFone's prepaid cards may be used only in conjunction with handsets
installed with TracFone's patented, proprietary software. TracFone has its own
handset brand and has entered into agreements with manufacturers, including
Nokia and Motorola, for the installation of this software into their handsets.
TracFone expects to enter into agreements with additional handset manufacturers
for the installation of its prepaid software.
TracFone sells handsets through a variety of major U.S. retail stores
and sells its prepaid cards through approximately 50,000 large- and medium-sized
independent retailers throughout the United States.
TracFone expects that the U.S. prepaid wireless market will grow
significantly in the future, and it aims to grow its subscriber base and
increase its market share by taking advantage of its nationwide coverage and
broad distribution network. TracFone's strategy is to maintain low prices for
its handsets and airtime, offering competitive value to its target markets,
which include low-income and teenage customers.
Competition. TracFone's principal competitors are major U.S. wireless
operators, including Verizon Wireless, AT&T Wireless, Sprint PCS, VoiceStream
Wireless and Cingular Wireless. TracFone expects that many of these carriers
will increase their focus on prepaid wireless services in the future.
Regulatory Environment. As a U.S. reseller of cellular service,
TracFone is subject to the jurisdiction of the U.S. Federal Communications
Commission (FCC) and to U.S. telecommunications laws and regulations. TracFone
does not require licenses to carry out its business.
36
Techtel
Techtel-LMDS Comunicaciones Interactivas, S.A. operates a local
multipoint distribution services (LMDS) and fiber optic network in Argentina,
providing voice, data and video transfer services and other related
telecommunications services. LMDS is a wireless broadband technology that uses
radio signals to transmit voice, video and data. Techtel began providing
long-distance fixed-line voice services and call center support in December 2000
and launched local fixed-line voice services in August 2001.
We own a 60% interest in Techtel through a company in which the
remaining interest is owned by an affiliate of Techint Compania Tecnica
Internacional S.A.C.I., one of Argentina's largest industrial groups. We
acquired our interest pursuant to the February 2002 reorganization of Telecom
Americas.
Business and strategy. Techtel's data network covers Argentina's eight
major metropolitan areas and approximately 50% of its population. Techtel's
voice network covers 43 cities.
Techtel's strategic objective is to establish itself in Argentina's
long-distance voice services market, where it launched long-distance voice
services in December 2000. In 2001, Techtel invested approximately U.S.$68
million in capital expenditures for the build-out of its domestic and
international network, including 16,340 kilometers of fiber optics and LMDS
connection, of which 14,332 kilometers are fully operational. America Movil
contributed U.S.$28.2 million to Techtel in 2001, which, together with funds
contributed by a subsidiary of Techint, funded Techtel's capital expenditure
plan for 2001. We expect Techtel to be adversely affected by the current
economic climate in Argentina.
Competition. Techtel's principal competitors are Telefonica de
Argentina S.A. and Telecom S.A., both of which provide data and video services,
as well as local and long-distance fixed-line voice services. In addition, a
number of new competitors are entering the Argentine market for local and
long-distance voice services, including Movicom and CTI, the first cellular
companies to obtain general licenses for voice services. Other data services
providers, such as Impsat, Comsat and Metrored, compete with Techtel in the long
distance market principally through small shares of the business segment.
Regulatory environment. In 1990, the government of Argentina granted
Telefonica de Argentina S.A. and Telecom S.A. the exclusive right to provide
local and long-distance fixed-line services, following the privatization of
Entel, the former state-owned telecommunications company. In 1998, the
government announced a timetable for the entry of additional telecommunications
services providers, giving the Communications Secretariat (Secretaria de
Comunicaciones) the power to grant and regulate telecommunications licenses. In
November 1999, Movicom and CTI were granted entry into the market, and in
November 2000 the Argentine telecommunications market was opened to any
interested participant, subject to the licensing terms and conditions set out by
the Communications Secretariat. The National Communications Commission (Comision
Nacional de Comunicaciones) is responsible for general regulatory oversight of
the communications sector. The Communications Secretariat grants licenses to
service providers, and each of the Communications Secretariat and the National
Communications Commission may issue technical and administrative regulations.
Concessions and licenses. Techtel holds licenses to offer data
transmission, video-conferencing and local and long-distance fixed-line voice
telecommunications services as well as to provide radio signal transmission
service throughout Argentina. Techtel is authorized to operate on the 38
gigahertz (Band G) radio spectrum in the Buenos Aires region, on the 10.5
gigahertz (Band A) radio spectrum in certain other metropolitan areas of
Argentina and on the 28 gigahertz (Band A) radio spectrum throughout Argentina.
These licenses and authorizations were granted by the Secretary of
Communications and do not have termination dates. Under the terms of its
licenses and authorizations,
37
Techtel has committed to certain investment targets for network development and
other undertakings, and as of the date of this prospectus Techtel is complying
with these commitments.
Telstar
Telstar S.A. is building an LMDS network to provide data transmission
services in Montevideo, Uruguay. We own a 60% interest in Telstar through the
same company that holds Techtel. We acquired our interest pursuant to the
February 2002 reorganization of Telecom Americas.
Telstar holds a non-exclusive license to install and operate a wireless
broadband network throughout Uruguay to provide data transmission services.
Telstar is authorized to operate on the 10.5 gigahertz (Band A) radio spectrum.
Telstar has paid the monthly charges required under the terms of its license and
authorization for 2000 and 2001. Jointly with other telecommunications providers
in Uruguay, Telstar filed a petition for the reduction of these monthly charges
with Uruguay regulatory authorities in 2002 and is currently awaiting a
response. Telstar's payments of such monthly charges for 2002 are not due until
the matter is resolved.
38
TELECOM AMERICAS
Telecom Americas Ltd. owns investments in four operating companies in
the wireless telecommunications sector in Brazil. Telecom Americas is currently
owned 52.8% by America Movil, 32.2% by Bell Canada International Inc. (BCI),
9.1% by SBC International, Inc. (SBCI) and 5.7% by a financial investor. BCI is
a subsidiary of BCE Inc., Canada's largest telecommunications company, and SBCI
is a subsidiary of SBC Communications Inc., a global communications company
operating in the United States and 19 other countries worldwide. We agreed to
acquire BCI's interest in Telecom Americas in May 2002, and exercised an option
to acquire SBCI's interest in Telecom Americas in June 2002. We expect the SBCI
transaction to close in July 2002 and the BCI transaction to close in August
2002. Pursuant to amendments to the Telecom Americas shareholders' agreement
that we entered into concurrently with the agreement to acquire BCI's shares, we
have effective control over Telecom Americas.
History
Telecom Americas was established as a joint venture in November 2000.
Under the joint venture agreement:
o America Movil contributed to Telecom Americas its 25% interest in
ATL-Algar Telecom Leste S.A., a Brazilian Band B wireless operator,
and approximately U.S.$1.17 billion in promissory notes. In addition,
we agreed to contribute our interests in Techtel-LMDS Comunicaciones
Interactivas S.A. and Telstar S.A., broadband wireless operators in
Argentina. These interests were contributed in August 2001.
o BCI contributed to Telecom Americas its economic interests in Comcel
and Occel; Americel S.A. and Telet S.A., Brazilian Band B wireless
operators; Canbras Communications Corp., a Brazilian cable television
and Internet access service provider; and Genesis Telecom, C.A., a
Venezuelan broadband wireless operator. In addition, BCI contributed
approximately U.S.$964 million in promissory notes.
o SBCI contributed to Telecom Americas its 25% economic interest in
ATL.
In a series of transactions in 2001:
o Telecom Americas increased its economic ownership interests in each
of Americel and Telet to 77.4% and 77.5%, respectively.
o Telecom Americas acquired 19.9% of the voting shares and 100% of the
non-voting preferred shares of Tess S.A., a Brazilian Band B wireless
operator in the state of Sao Paulo.
Telecom Americas was reorganized in February 2002. In concurrent
transactions:
o We acquired Telecom Americas' 77.1% interest in Comcel and Occel.
o We paid U.S.$80 million in cash.
o We sold our 50% interest in ATL to Telecom Americas.
o BCI acquired Telecom Americas' 75.6% interest in Canbras.
o We acquired Telecom Americas' interest in Techtel and Telstar.
o Telecom Americas transferred its 59% interest in Genesis equally to
BCI and America Movil.
In January 2002, SBCI granted us an option to acquire its interest in
Telecom Americas. We acquired this as part of a transaction in which we sold our
50% interest in Cellular Communications of
39
Puerto Rico, Inc. to SBCI. The exercise of our option to acquire SBCI's interest
in Telecom Americas does not entail the payment of any further consideration on
our part. We exercised the option in June 2002 and expect to acquire the shares
in July 2002.
In April 2002, Telecom Americas issued to a financial investor 1,844
nonvoting convertible preferred shares, representing 6.9% of the capital stock
of Telecom Americas at the time of issuance. The preferred shares may be
converted to common shares at the holder's option at any time. The preferred
shares are entitled to dividends per share equal to 1.5 times the amount of any
dividends per share declared on the common shares, and to preference over the
common shares in the return of capital upon liquidation up to an aggregate
amount of U.S.$300 million. The preferred shares have no voting rights and no
right to representation on the board of directors. A holder has the right to
require that its shares be included for sale in a registered offering by Telecom
Americas, including demand registration rights exercisable beginning in 2006,
and in some circumstances to require that its shares be included if we sell more
than 20% of the shares of Telecom Americas. Holders have the right to sell half
of the shares to us beginning in 2006 at a price based on the amount of the
liquidation preference for such shares plus interest at a nominal interest rate,
and we have the right to acquire half of the shares beginning in 2006 at the
same price.
In May 2002, we agreed to acquire all of BCI's shares of Telecom
Americas for cash and a note. The cash payment is U.S.$150 million, discounted
if the closing occurs before October 1, 2002. If the closing occurs in August,
it will be approximately U.S.$146 million. The note will be for U.S.$220 million
and will be payable in March 2003, without interest. Following the closing of
this transaction and capital contributions currently being made, America Movil
will have a 94.5% interest in Telecom Americas.
BCI is seeking approval for the transaction from its shareholders and
the holders of certain debt securities, and it is seeking a court order
approving a plan of arrangement under which BCI will dispose of all its assets,
including the Telecom Americas shares, and ultimately liquidate. The conditions
precedent to closing of the transaction include, in addition to customary
matters, a court order approving the sale. We understand that it may be possible
for this condition to be satisfied in time for a closing in late July or early
August 2002, but that there can be no assurances in this regard.
The shares we are acquiring are held as collateral by lenders to BCI
under its principal bank financing, which matures on August 9, 2002. If our
purchase of the shares from BCI does not close by the time the syndicated loan
matures, the lenders will be contractually entitled to enforce their security
interest in the shares. We have entered into an option agreement with the
lenders under this facility, which provides that if they obtain title to the BCI
shares, they are entitled to require us to purchase the shares. If the option is
exercised on or prior to March 1, 2003, the consideration will be substantially
the same as under our purchase agreement with BCI. If the option is exercised
after March 1 but before June 30, 2003, the consideration will be equal to the
fair market value of the shares, but not less than the outstanding indebtedness
under the loan facility or more than U.S.$370 million. The lenders' option will
expire if it is not exercised on or before June 30, 2003, and after that date we
will have the right to purchase the shares at fair market value, but not less
than the outstanding indebtedness under the loan facility.
Business Overview
Telecom Americas' wireless properties in Brazil include the Band B
cellular operations of ATL, Tess, Telet and Americel. ATL operates in the states
of Rio de Janeiro and Espirito Santo; Tess operates in the state of Sao Paulo
(other than the city and metropolitan region of Sao Paulo); Telet operates in
the state of Rio Grande do Sul; and Americel operates in seven states in the
central-west and northern regions of Brazil. As of March 31, 2002, these
companies together served approximately 4.5 million subscribers and covered
approximately 60.3 million licensed points of presence (POPs).
40
The following table summarizes Telecom Americas' principal operating
companies and certain related operating data as of March 31, 2002 and for the
year ended December 31, 2001.
Average
Estimated Average Monthly
Licensed Total Minutes of Revenues Monthly
Company POPs Subscribers Use per Month per User(1) Churn(2)
------- --------- ----------- ------------- ----------- --------
(millions) (thousands)
Brazil Wireless
Tess ......................... 17.8 1,078 94 Ps.124.4 1.9%
ATL .......................... 17.5 1,935 116 118.5 1.4%
Telet ........................ 10.2 851 96 117.3 3.1%
Americel ..................... 14.7 640 122 153.2 3.3%
----------------
(1) Constant pesos as of December 31, 2001.
(2) Churnrates represent the number of customers whose wireless service is
discontinued during a period, whether voluntarily or involuntarily (such as
when customers fail to pay their bills), divided by the average number of
customers during the period.
Telecom Americas' principal operating companies are described below.
Financial information provided for these operating companies has been prepared
in accordance with local accounting principles and restated in constant pesos as
of December 31, 2001.
ATL
ATL-Algar Telecom Leste S.A. is the Band B cellular concessionaire in
the states of Rio de Janeiro and Espirito Santo in Brazil. Telecom Americas
indirectly holds a 100% economic interest in ATL. Telecom Americas' interest in
ATL was acquired by Telmex and SBCI in January 2000. In August 2001, America
Movil acquired the remaining economic interest in ATL from Williams
Communications Group, Inc. for U.S.$398.4 million, payable in part in 2001 and
in part in 2002. In the reorganization of Telecom Americas that closed on
February 8, 2002, we transferred our interest in ATL to Telecom Americas. Algar
Telecom S.A. holds a controlling voting interest in ATL, which Telecom Americas
has the right to acquire upon the expiration or removal of certain Brazilian
regulatory restrictions. In 2001, ATL had revenues of Ps.3,603.6 million and a
net loss of Ps.1,307.9 million. At December 31, 2001, ATL had total assets of
Ps.10,325.9 million.
Business and strategy. ATL began operations in January 1999. ATL's
cellular network uses TDMA digital technology and covers approximately 70% of
the geographical area of Rio de Janeiro and 30% of the geographical area of
Espirito Santo. ATL's network covers approximately 93% of the combined
population of these states. At March 31, 2002, ATL had approximately 1.9 million
subscribers and a 40% share of the wireless market in the states in which it
operates. At March 31, 2002, ATL had 1,464 employees.
ATL offers wireless voice services through a variety of rate plans. At
March 31, 2002, prepaid subscribers accounted for approximately 84% of ATL's
subscribers. ATL also offers additional services such as voicemail, call
waiting, caller ID, conferencing services and short message services. ATL rolled
out wireless Internet (WAP) and data transmission services in January 2001. ATL
distributes its services and handsets through four large independent retailers
(accounting for approximately 80% of handset sales), 274 independent dealers, 20
company stores and telemarketing. ATL also uses agents who work on commission to
support its corporate customers.
41
ATL's business strategy is to:
o compete with the other cellular providers in its service area based
on both price and quality of customer service, with the goal of
increasing market penetration;
o use lower costs as a competitive advantage for building and
broadening its customer base; and
o increase the prepaid subscriber base through mass market distribution
and numerous points of sale.
Competition. ATL's principal competitor is Telefonica do Brasil, the
Band A concessionaire that operates in several regions in Brazil, including Rio
de Janeiro and Espirito Santo, and that is owned by Telefonica of Spain. Nextel,
a joint venture between Motorola and Nextel Communications, Inc., competes with
ATL for private line service to the corporate segment in the Rio de Janeiro
metropolitan area.
During the first half of 2001, the Brazilian authorities auctioned two
PCS licenses for the 1800 megahertz radio spectrum, allowing new competitors to
enter the market in early 2002. The Brazilian authorities are expected to
auction a third such license at a future time to be announced. No bidders came
forward for an attempted auction of the third PCS license in August 2001, when
current operators were prohibited from bidding.
Regulatory environment. In conjunction with the breakup and
privatization of the Telecomunicacoes Brasileiras S.A.--Telebras
telecommunications monopoly, Brazil opened its cellular mobile telephone service
industry to private enterprises. Starting in 1997, 10 cellular licenses covering
all of Brazil were auctioned to wireless operators to compete against the eight
incumbent providers that emerged from the Telebras breakup and that were
subsequently auctioned to private enterprises. In 1997, Brazil revised its
telecommunications code to promote competition among service providers and
establish an independent regulatory agency, Agencia Nacional de
Telecomunicacoes--ANATEL (Anatel), to regulate its telecommunications industry.
Anatel issues licenses for both wireless and wireline operators. It also
mandates specific targets for delivering telephone services to the Brazilian
population, including current mandates intended to increase penetration to 20%
by 2005. Anatel has the authority to grant concessions and licenses for public
telecommunications services. Starting in 1999, the entire Brazilian
telecommunications sector has been open to competition.
In September 2000, Anatel published guidelines for the implementation
of PCS (Servico Movel Pessoal) operations in Brazil. The guidelines enable
communication between mobile stations, as well as from mobile stations to
non-mobile stations within the same PCS registration area. In addition, calls
originated within a registration area and having a destination point outside
that registration area will be treated as switched fixed telephone service for
national and international long distance.
The guidelines establish rules regarding the selection of up to three
additional wireless providers per region, corresponding to Bands C, D and E.
Under the guidelines, Brazil is divided into three regions for PCS operation, as
opposed to 10 regions for the current cellular service providers. Each of the
three regions should have three new competitors in addition to the existing two
competitors, which currently operate on Bands A and B. The current Band A and
Band B cellular providers have the option to switch to PCS, and migration to PCS
is a condition for the extension of their concessions. Upon migration to PCS,
ATL will have the right to acquire additional radio spectrum to enable it to
offer the same services as PCS providers, to apply for long distance services
licenses and to consolidate its licenses and operations with other wireless
providers.
There are no restrictions on the participation of companies organized
and based in Brazil, even if they are foreign-owned. Interested companies may
compete in each of the three regions. The same
42
provider, however, may not provide cellular or PCS, or both, through more than
one authorization or concession in the same service area.
Concessions. ATL holds a 15-year wireless service concession granted by
Anatel in April 1998, covering the states of Rio de Janeiro (91 cities) and
Espirito Santo (77 cities), with an option to extend the concession for an
additional 15 years, provided that ATL migrates to PCS and agrees with the
Brazilian Ministry on renewal license fees. The concession, which has been fully
paid, is regulated under the General Telecommunications Law (Lei Geral de
Telecomunicacoes).
Tess
In April 2001, Telecom Americas, through its wholly owned subsidiary
Telecom Americas Investments Ltd. (TAIL), acquired 19.9% of the voting shares
and 100% of the non-voting preferred shares of Tess S.A., the Band B cellular
concessionaire in the state of Sao Paulo (other than the city and metropolitan
region of Sao Paulo). The majority of the voting shares of Tess is controlled by
the Swedish telecommunications company Telia. In 2000, Tess had revenues of
Ps.2,195.2 million and a net loss of Ps.1,545.7 million. In 2001, Tess had
revenues of Ps.2,106.5 million and a net loss of Ps.1,707.2 million. At December
31, 2001, Tess had total assets of Ps.10,032.5 million.
The purchase price for the Tess acquisition comprised U.S.$318.7
million in cash and U.S.$631.3 million in three-year promissory notes issued by
TAIL. The promissory notes are payable in three equal installments, on the
first, second and third anniversaries of the closing, and bear interest at
LIBOR. The remaining principal amount of the TAIL notes is U.S.$420 million
after the April 2002 payment. Half of the TAIL notes is guaranteed by America
Movil, and we acquired these notes at a discount at the initial closing in April
2001. The other half of the TAIL notes is guaranteed by BCI. These notes were
acquired during 2001 by certain affiliates of America Movil, which have agreed
to release BCI from its guarantees in connection with the closing of our
acquisition of BCI's interest in Telecom Americas.
In connection with the acquisition, Telecom Americas also acquired an
option to acquire control of the remaining voting interests in Tess. The option
is subject to approval by the Brazilian regulatory agency Anatel for the
transfer of control of Tess to Telecom Americas (or the absence of a requirement
for such approval), or conversion of Tess' Band B cellular concession to a PCS
(Servico Movel Pessoal) license in accordance with Anatel regulations. As part
of the acquisition, Telecom Americas granted Bell South International, Inc. an
option to purchase 50% of its interest in Tess. The option was not exercised by
Bell South International, Inc., and expired in October 2001.
Business and strategy. Tess began operations in January 1999. Tess'
cellular network uses TDMA technology and covers approximately 13% of the
geographical area for which it holds a concession in the state of Sao Paulo.
Tess' network covers approximately 74% of the population of this area. At March
31, 2002, Tess had approximately 1.1 million subscribers and a 35% share of the
wireless market in the state in which it operates. At March 31, 2002, Tess had
872 employees.
Tess offers wireless voice services through a variety of rate plans. At
March 31, 2002, prepaid subscribers accounted for approximately 87% of Tess'
subscribers. Tess also offers additional value-added services such as voicemail,
call waiting, caller ID, conferencing services and short message services. Tess
introduced Wireless Internet Access data transmission service to corporate
clients in August 2000, and made Wireless Internet (WAP) and data transmission
service available to all subscribers in December 2000. Tess distributes its
services and handsets through 19 large independent retailers (accounting for
approximately 440 points of sale), 372 independent dealers, 12 company stores
and telemarketing. Tess also uses agents who work on commission to support its
corporate customers.
Tess offers eighteen types of calling plans. Fifteen different plans
are offered to postpaid customers, all but one requiring a 12-month contract.
Three additional plans are offered exclusively to
43
prepaid customers: "Plano Tess Pre-pago," "Plano Noturno" and "Plano
Corporativo." Tess intends to introduce the "Plano Minutos" prepaid service in
2002, which will be a premium prepaid product featuring monthly automatic
recharge. Currently, prepaid customers have several recharge options, including
vouchers, bank ATMs, Tess calling card machines, payment by credit card and
national lottery points of sale, where customers pay cash and receive a PIN
number. Together, these options allow Tess's prepaid customers to easily
recharge their prepaid account.
Tess's business strategy is to:
o compete with the other cellular providers in its service area based
on both price and quality of customer service, with the goal of
increasing market penetration;
o use lower costs as a competitive advantage for building and
broadening its customer base; and
o increase the prepaid subscriber base through mass market distribution
and numerous points of sale.
Competition. Tess' principal competitor is Telesp Celular, which is
controlled by Portugal Telecom.
Regulatory environment. See "--ATL--Regulatory environment."
Concessions. Tess holds a 15-year wireless service concession granted
by Anatel in March 1998, covering the state of Sao Paulo (other than the city
and metropolitan region of Sao Paulo), with an option to extend the concession
for an additional 15 years, provided that Tess migrates to PCS and agrees with
the Brazilian Ministry on the renewal license fees. Tess' concession, which has
been fully paid, is regulated under the General Telecommunications Law (Lei
Geral de Telecomunicacoes).
Americel
Americel S.A. is a Band B cellular concessionaire operating in seven
states in central-western Brazil, including the city of Brasilia, the capital of
Brazil. Telecom Americas holds an indirect 77.4% economic interest in Americel.
Telecom Americas' initial interest in Americel was acquired in November 2000 and
was increased in 2001 through an acquisition of shares from TeleSystem
International Wireless, Inc. and a group of investment and pension funds. In
2000, Americel had revenues of Ps.1,126.7 million and a net loss of Ps.621.9
million. In 2001, Americel had revenues of Ps.1,345.5 million and a net loss of
Ps.660.3 million. At December 31, 2001, Americel had total assets of Ps.4,092.9
million.
Business and strategy. Americel's cellular network uses TDMA digital
technology and covers approximately 67% of the population of the states in which
it operates. At March 31, 2002, Americel had approximately 640,000 subscribers
and a 23% share of the wireless market in the states in which it operates. At
March 31, 2002, Americel had 648 employees.
Americel offers a variety of rate plans to its postpaid customers and
offers prepaid services in all of its markets. Americel's prepaid card, marketed
under the brand name "Legal," is used by more than 65% of its prepaid customer
base. Americel offers bundled prepaid products, which include handsets as well
as airtime, and, for customers who already have their own handsets, prepaid
airtime marketed under the brand name "Virou Legal." At March 31, 2002, prepaid
subscribers accounted for approximately 83% of Americel's subscribers.
Americel's strategy is to continue to expand its customer base through the
build-out of its network.
Competition. Americel competes with Tele Centro Oeste, which provides
wireless service in certain of the states in central-western Brazil, and
Companhia de Telecomunicacoes do Brasil Central--CTBC Telecom, which offers
wireless service in some cities located in the state of Goias. Tele Centro
44
Oeste was formed in the 1998 reorganization of subsidiaries of Telebras, the
formerly state-owned wireless and fixed-line telecommunications operator.
Regulatory environment. See "--ATL--Regulatory environment."
Concessions. Americel holds a 15-year wireless service concession
granted by Anatel in 1997, covering central-western and northern Brazil, with an
option to extend the concession for an additional 15 years, provided that
Americel migrates to PCS and agrees with the Brazilian Ministry on the renewal
license fees. The concession, which has been fully paid, is regulated under the
General Telecommunications Law (Lei Geral de Telecomunicacoes).
Telet
Telet S.A. is the Band B cellular concessionaire operating in the state
of Rio Grande do Sul in Brazil. Telecom Americas holds a 77.5% economic interest
in Telet. Telecom Americas' initial interest in Telet was acquired in November
2000 and was increased in 2001 through an acquisition of shares from TeleSystem
International Wireless, Inc. and a group of investment and pension funds. In
2000, Telet had revenues of Ps.1,104.9 million and a net loss of Ps.799.7
million. In 2001, Telet had revenues of Ps.1,375.5 million and a net loss of
Ps.1,069.4 million. At December 31, 2001, Telet had total assets of Ps.5,669
million.
Business and strategy. Telet began operations in February 1999. Telet's
cellular network uses TDMA digital technology and covers approximately 17% of
the geographical area of Rio Grande do Sul and approximately 86% of its
population. At March 31, 2002, Telet had 851,000 subscribers and a 31% share of
the wireless market in the state of Rio Grande do Sul. At March 31, 2002, Telet
had 721 employees.
Telet offers postpaid wireless services under the "Claro Digital" brand
name, prepaid services under the "Claro Expresso" brand name, Internet service
under the "Claro Net" brand name and international roaming service under the
"Claro Mundi" brand name. At March 31, 2002, prepaid subscribers accounted for
approximately 83% of Telet's subscribers. Telet also offers additional services
such as voicemail, call waiting, three-way calling, call forwarding and call
blocking. Telet's principal business strategy is to continue to expand its
customer base through the build-out of its network.
Competition. Telet's only significant competitor is CRT Celular, which
is owned by Telefonica of Spain.
Regulatory environment. See "--ATL--Regulatory environment."
Concessions. Telet holds a 15-year wireless service concession granted
by Anatel in 1998, covering the state of Rio Grande do Sul, with an option to
extend the concession for an additional 15 years, provided that Telet migrates
to PCS and agrees with the Brazilian Ministry on the renewal license fees. The
concession, which has been fully paid, is regulated under the General
Telecommunications Law (Lei Geral de Telecomunicacoes).
45
Other Investments
Our principal investments in affiliates other than our subsidiaries and
Telecom Americas are described below. Financial information provided for these
affiliates has been prepared in accordance with local accounting principles and
restated in constant pesos as of December 31, 2001. We can give no assurance as
to the extent, timing or cost of future international investments, and such
investments may involve risks to which we have not previously been exposed.
CompUSA
CompUSA, Inc. is a retailer of personal computing equipment based in
Dallas, Texas. We own a 49% interest in CompUSA. Our interest in CompUSA was
acquired in March 2000, following the completion of a tender offer in which
Telmex and Grupo Sanborns, S.A. de C.V. acquired 100% of the capital stock of
CompUSA. Sanborns is a subsidiary of Grupo Carso, S.A. de C.V., which is an
affiliate of America Movil. The remaining interest in CompUSA is currently owned
by Tenedora U.S., S.A. de C.V., a Mexican company spun off in February 2002 by
Sanborns. In 2000, CompUSA had revenues of Ps.40,347 million and a net loss of
Ps.471 million. In 2001, CompUSA had revenues of Ps.37,885.3 million and a net
loss of Ps.955.1 million. At December 31, 2001, CompUSA had total assets of
Ps.16,127 million.
Business and strategy. CompUSA operates 217 CompUSA Computer
Superstores in 90 metropolitan areas throughout the United States, spanning a
total of 44 states. In addition, CompUSA operates eight "small market" concept
stores, which are smaller stores offering products targeted to the communities
in which they operate. At March 31, 2002, CompUSA had 14,006 employees.
CompUSA is one of the leading U.S. retailers and resellers of personal
computers and related products and services, operating principally through its
Computer Superstores. Its other activities include direct sales and providing
comprehensive training and technical services to corporate, government, and
education customers.
CompUSA offers personal computer hardware and software and related
products and accessories. In addition to its in-store selection, CompUSA also
offers customers the ability to special order approximately 30,000 additional
products. Prices and services are typically determined centrally, but managers
have the authority to adjust in-store prices in response to local competitive
conditions within guidelines established and controlled centrally. CompUSA's
strategy includes development and growth of its Internet retail business.
Competition. CompUSA competes with a variety of resellers of personal
computers and related products and services. As to product sales, CompUSA
competes with large format consumer electronics and office supply retailers,
manufacturers and distributors that sell directly to the public, other large
format computer retailers, Internet-based retailers, mail order houses, mass
merchants, discounters, specialty electronics retailers, software specialty
retailers, other personal computer retailers, outbound dealers and value-added
resellers. In addition, CompUSA has numerous competitors in its training and
technical service businesses.
The personal computer industry is undergoing significant change. Rapid
technological advances, combined with an increasingly computer-literate
population, have increased the use and popularity of personal computers,
resulting in the emergence and growth of a variety of distribution channels.
CompUSA believes that customers have become increasingly price sensitive and
this results in widespread and intense competition among personal computer
product retailers and resellers.
Other
Genesis. We own a 29.5% interest in Genesis Telecom, C.A., a broadband
wireless operator in Venezuela. We acquired our direct interest in Genesis in
the reorganization of Telecom Americas that
46
closed on February 8, 2002, in which Telecom Americas transferred its 59.0% in
Genesis equally to BCI and America Movil. Telecom Americas' interest in Genesis
was acquired in November 2000 and was subsequently increased through capital
contributions in 2001. Genesis has ceased operations and is in the process of
winding up its affairs. We have fully written off our investment in Genesis. We
provided loans to Genesis during 2001 and 2002 totaling U.S.$6.2 million for
general working capital purposes, and expect to capitalize these loans in the
near future.
ARBROS. We own an indirect 24.9% interest in ARBROS Communications,
Inc. and hold warrants to purchase additional shares, the exercise of which
would increase our indirect interest to 45%. Our interest in ARBROS was acquired
in a two-step transaction, the second step of which closed in July 2001. Since
the July 2001 closing, ARBROS has continued to report substantial losses and has
had difficulty meeting its cash requirements. Recently, ARBROS substantially
ceased its regular operations. ARBROS is now in the process of disposing of its
assets in order to settle the claims of its creditors.
In addition to our equity investment, our subsidiaries, Telcel and
Sercotel, hold two of the largest creditor claims against ARBROS, with claims of
U.S.$100 million and U.S.$40 million respectively. Telcel's claim resulted from
its May 2002 payment in full as guarantor on a loan made by Credit Suisse First
Boston to ARBROS, which we charged to income in the first quarter of 2002.
Sercotel's claim is in respect of a loan made by Sercotel to ARBROS in October
2001. Given ARBROS' financial condition, there can be no assurance that any
portion of Telcel's or Sercotel's claims against ARBROS will be paid. We have
fully written off our investment in ARBROS.
Network Access. We own convertible preferred shares representing a
small equity interest in Network Access Solutions Corporation, a provider of
high-speed data communications services to business customers on the East Coast
of the United States. Our original investment was made in March 2000. In August
2001, we exchanged a large portion of our preferred shares of Network Access for
certain warrants that, upon exercise, would give us an 8.8% interest on a fully
diluted basis in Armillaire Technologies, Inc. We have fully written off our
investment in Network Access.
Armillaire. We own warrants to purchase shares of Armillaire
Technologies, Inc., the exercise of which would give us an 8.8% interest in the
company on a fully diluted basis. Armillaire is a Delaware corporation that
develops telecommunications solutions for unified voice, data and video
networks, with its headquarters and principal place of business located in
Bethesda, Maryland. As of the date of this annual report, Armillaire has
suspended operations. We have fully written off our investment in Armillaire.
CCPR. In January 2002, we sold our 50% interest in Cellular
Communications of Puerto Rico, Inc. (CCPR) to SBCI in exchange for U.S.$106.3
million and the option to acquire SBCI's interest in Telecom Americas. CCPR
offers wireless, paging and long-distance services under the "Cingular Wireless"
(formerly "Cellular One") brand in Puerto Rico and the U.S. Virgin Islands. We
reported a gain of Ps.218 million in the first quarter of 2002 as a result of
this sale.
Cablevision. In April 2002, we sold our 49% interest in Empresas
Cablevision, S.A. de C.V. in an initial public offering on the Mexican Stock
Exchange for approximately U.S.$200 million. Cablevision provides cable
television and internet access services in the Mexico City metropolitan area.
The remaining interest in Cablevision continues to be owned by Grupo Televisa,
S.A., which is the largest supplier of television programming in Mexico. We
reported a gain of Ps.1,283 million in the first quarter of 2002 resulting from
this sale.
Telvista. We own an indirect 44.2% interest in Telvista, which we
acquired in June 2001 from Technology and Internet Holding Co., a company in
which Telmex, Grupo Carso and America Movil have a joint interest. Telvista is a
Delaware corporation that operates four call centers with approximately 2,600
positions in the United States.
47
Iberbanda. We own an 18.6% interest in Iberbanda S.A. (formerly
FirstMark Comunicaciones Espana, S.A.), which we acquired in November 1999.
Iberbanda provides broadband wireless services in Spain. We have fully written
off our investment in Iberbanda.
Capital Expenditures
The following table sets forth our capital expenditures, before
retirements, for each year in the four-year period ended December 31, 2001.
Year ended December 31,
----------------------------------------------------
1999 2000 2001
---- ---- ----
(millions of constant pesos as of December 31, 2001)
Transmission and switching equipment .................. Ps. 6,556 Ps. 13,814 Ps. 12,285
Computer equipment .................................... 289 476 598
Licenses .............................................. -- 90 310
Investment in subsidiaries and affiliates ............. 4,686 16,453 7,124
Other ................................................. 110 1,224 2,759
----------- ----------- -----------
Total capital expenditures ....................... Ps. 11,641 Ps. 32,057 Ps. 23,076
=========== =========== ===========
We estimate capital expenditures of approximately U.S.$1.4 billion for
the year ending December 31, 2002, including capital expenditures at Telecom
Americas and Comcel. Approximately two-thirds of our capital expenditures will
be applied principally for the build-out and improvement of Telcel's cellular
networks.
48
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with our audited
financial statements and the notes thereto included in this annual report. The
statement of operations for the year ended December 31, 1999 was prepared on a
combined basis from historical accounting records of Telmex and represents the
combined historical operations of the entities that were transferred to America
Movil by Telmex in the spin-off.
Our financial statements have been prepared in accordance with Mexican
GAAP, which differs in certain respects from U.S. GAAP. Note 19 to the audited
financial statements provides a description of the principal differences between
Mexican GAAP and U.S. GAAP, as they relate to us, a reconciliation to U.S. GAAP
of operating income, net income and total stockholders' equity and a condensed
statement of cash flows under U.S. GAAP.
Pursuant to Mexican GAAP, in our financial statements:
o nonmonetary assets (including property, plant and equipment) and
stockholders' equity are restated for inflation and, in the case of
imported telephone plant, for devaluation;
o gains and losses in purchasing power from holding monetary
liabilities or assets are recognized in income; and
o all amounts are restated in constant pesos as of December 31, 2001.
Since January 1, 1997, we have elected to restate imported telephone plant based
on the rate of inflation in the country of origin and the prevailing exchange
rate at the balance sheet date; other fixed assets are restated based on the
Mexican National Consumer Price Index. The effect of inflation accounting under
Mexican GAAP has not been reversed in the reconciliation to U.S. GAAP of net
income and stockholders' equity, except with respect to the methodology for
restatement of imported telephone plant. See Note 19 to the audited financial
statements.
Background
Effects of 1999 and 2000 Acquisitions
We made acquisitions in 1999 and 2000 that affected our financial
performance. Our audited financial statements reflect the consolidation of the
following major subsidiaries from the following dates:
TracFone ...................................................... February 1999
Guatemalan wireless business .................................. May 1999
Telgua ........................................................ April 2000
Conecel ....................................................... April 2000
These acquisitions resulted in increased revenues and net income. We also
recognized goodwill on these acquisitions, which amounted to Ps.3,608 million
(net of accumulated amortization) at December 31, 2001. In 2001, we recognized
Ps.630 million in amortization of goodwill attributable to these acquisitions.
Other Investments
At December 31, 2001, we had Ps.22,879 million in investments in
affiliates for which we accounted on the equity method because we had more than
10% of the shares and exerted significant influence, but we did not have
control. The largest components of this amount were our investments in Telecom
Americas, ATL, CompUSA, CCPR and Cablevision.
49
Our equity in losses of these affiliates had a substantial adverse
effect on our financial performance. Our equity in net results of affiliates was
a loss of Ps.3,701 million in 2001 and a loss of Ps.1,032 million in 2000. In
both years, the largest element in the net loss was attributable to our interest
in Telecom Americas. In 2000, our equity in net losses of affiliates was partly
offset by gain we recognized upon contributing our interest in ATL to Telecom
Americas.
In the reorganization of Telecom Americas in February 2002, we acquired
Comcel and Techtel in exchange for our interest in ATL and other consideration.
In June 2002, we acquired a majority and controlling interest in Telecom
Americas. Also in 2002, we sold our entire interest in CCPR and our entire
interest in Cablevision. As of the date of this annual report, our only
substantial remaining equity method investment is CompUSA. We will, however,
report equity in net losses of Telecom Americas, CCPR and Cablevision through
the dates of their respective dispositions.
We also hold investments in several other non-strategic associated
companies, including ARBROS, Iberbanda S.A. (formerly FirstMark Comunicaciones
Espana, S.A.), Network Access and Armillaire. In 2001, we wrote off the entire
balance of our investment in these four entities, resulting in an impairment
charge to income of Ps.1,941 million.
Effects of 2002 Acquisitions
Our financial performance in 2002 and future years will be affected by
the acquisitions we made in February 2002, as part of the reorganization of
Telecom Americas, and by the full consolidation of Telecom Americas beginning in
July 2002. Beginning in 2002, our financial statements will reflect the
consolidation of the following major subsidiaries from the following dates:
Comcel and Occel ............................................ February 2002
Telecom Americas ............................................ July 2002
These acquisitions will have a material impact on our consolidated financial
performance in 2002, resulting in increased revenue, EBITDA and debt.
Geographic Segments
In 2000 and 2001, we had fully consolidated subsidiaries operating in
Mexico (Telcel), the United States (TracFone), Guatemala (Telgua) and Ecuador
(Conecel). Of our consolidated 2001 revenues, Mexico accounted for 78.0%, the
United States for 10.4%, Guatemala for 9.7% and Ecuador for 1.9%.
In 2002, we will also have fully consolidated subsidiaries operating in
Brazil (Telecom Americas), Colombia (Comcel and Occel), Argentina (Techtel) and
Uruguay (Telstar). As a result, the proportion of our revenues and earnings
attributable to Mexico will decrease, although we expect that Mexico will still
account for approximately two-thirds of consolidated revenues after we begin
consolidating Telecom Americas.
The factors that drive financial performance are different for our
operations in different countries. Each of them differs in its business model,
competitive situation, regulatory environment, capital expenditure requirements,
debt profile and many other factors. Our results of operations in each period
accordingly reflect a combination of different effects in the different
countries.
Effects of Economic Conditions
Our results of operations are affected by economic conditions in Mexico
and in the other countries in which we operate. In periods of slow economic
growth, demand for telecommunications services might be adversely affected. In
2002, our performance could be affected by economic developments not only in
Mexico, but in other countries in which we operate, and especially in Brazil,
which is undergoing economic difficulties.
50
Devaluation of the peso against the U.S. dollar, such as occurred most
recently in 1998, results in exchange losses on our net U.S. dollar-denominated
indebtedness. Our results from our non-Mexican operations, as stated in net
pesos, are also affected by the exchange rate between the local currency and the
peso. For example, in the first quarter of 2002, results of our non-Mexican
operations as stated in pesos were adversely affected by appreciation of the
peso against their currencies.
Nature of Revenues
Our operating revenues include service revenues (88.0% of the total in
2001), sales revenues and other revenues.
Of our service revenues, the largest portion (70.5% in 2001) is usage
charges, which include airtime charges for outgoing calls and interconnection
charges billed to other service providers for calls completed on our network.
The primary driver of usage charges is traffic, which in turn is driven by the
number of customers and by their average usage. Postpaid customers generally
have an allotment of airtime each month for which they are not required to pay
usage charges. Service revenues also include (a) monthly subscription charges
paid by postpaid customers, (b) long-distance charges and (c) charges for other
services, such as roaming, call forwarding, call waiting and call blocking.
Monthly fees for postpaid service are billed in the month prior to
service, and are deferred and recognized in the month that service is provided.
Revenues from airtime used by postpaid subscribers above the amount covered by
their monthly fees are recognized as airtime is used. Revenues from sales of
prepaid services are deferred and recognized as airtime is used or when prepaid
cards expire, and are included under usage charges.
We also have sales revenues from selling handsets and other equipment,
primarily to our subscribers. Most of our new subscribers purchase a handset,
and although we also sell new handsets to existing customers, changes in sales
revenues are driven primarily by the number of new customers. In most of our
subscriber packages, we do not profit on the sale of the handset, which is
priced near or beneath cost, so in the aggregate, on sales of handsets to new
customers our cost of sales exceeds our revenues.
Results of Operations
Operating Revenues
Our revenues for 1999, 2000 and 2001 have been affected by continued
rapid growth in the number of our wireless subscribers, especially prepaid
subscribers, in all countries in which we operate. At December 31, 2001, we had
63.3% more wireless subscribers than at year-end 2000. The rate of growth
year-on-year was similar in all the countries in which we operate: 62.2% in
Mexico, 61.0% in Guatemala, 89.8% in Ecuador and 68.4% in the United States. In
our fixed-line operations in Guatemala, subscriber growth was 10.5% in 2001. In
2002, subscriber growth has generally continued, except that in the United
States it is lower as a result of a focus on profitability rather than customer
growth.
Operating revenues increased by 86.0% in 2000 and 37.4% in 2001. Of the
increase from 2000 to 2001, Ps.9,005 million was attributable to Mexico, Ps.404
million was attributable to Guatemala, Ps.1,442 million was attributable to the
United States and Ps.417 million was attributable to Ecuador. In each case,
increases in revenues were driven principally by growth in subscribers and
traffic.
Mexico--Operating revenues were up 59.5% in 2000 and 37.1% in 2001. The
increase in 2001 reflected a 38% increase in total traffic, resulting
from the growth in subscribers. The average number of Telcel
subscribers increased by 98.4% in 2000 and 62.2% in 2001. In 2001,
revenues were adversely affected by the effects of the U.S. economic
slowdown on the Mexican economy and, in the fourth quarter, by the
temporary negative impact on traffic of the introduction of
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10-digit dialing in November. Equipment sales revenues were especially
high in the fourth quarter, reflecting year-end holidays and
promotions.
Guatemala--We began fully consolidating Telgua in April 2000. Operating
revenues were up 11.2% in 2001. Fixed-line operations represented 82%
of revenues in 2001, and are not experiencing the same growth as
wireless operations.
United States--Operating revenues were up 179.9% in 2000 and 50.0% in
2001. The increase in 2000, from a low level in 1999, reflects a major
step-up in marketing efforts. The increase in 2001 was in services
revenues, reflecting growth in the number of subscribers. Sales
revenues were down slightly in 2001, as the number of additions of new
customers remained at a level similar to 2000.
Ecuador--We began consolidating Conecel in April 2000. Operating
revenues were up 116.0% in 2001, reflecting the growth in subscribers.
Operating Costs and Expenses
Costs of sales and services
Costs of sales and services increased by 103.1% in 2000 and 15.3% in
2001. The increase in both years was due to the growth in traffic, increase in
the number of customers and higher sales of handsets. The increased costs in
2000 were also attributable in part to the consolidation of Conecel and Telgua.
Commercial, administrative and general
Commercial, administrative and general expenses increased by 83.5% in
2000 and 27.7% in 2001. These increases were due primarily to commissions paid
to cellular distributors, to advertising and other promotional expenses as a
result of greater competition, and, to a lesser extent, to increases in wages
and salaries.
Depreciation and amortization
Depreciation and amortization increased by 97.9% in 2000 and 44.9% in
2001. Under Mexican GAAP, we have elected to restate imported fixed assets based
in part on the exchange rate between the peso and the currency of the country of
origin, and as a result changes in exchange rates affect the amount of
depreciation. The increase in 2001 was due to increased investments in plant,
property and equipment, including the new GSM network in Mexico and acquisition
of facilities we previously rented. The increase in depreciation and
amortization in 2000 was due primarily to increased investments in telephone
equipment and to the amortization of goodwill associated with newly-acquired
subsidiaries, offset in part by our decision to change the amortization period
of goodwill from 5 years to 10 years. Had we maintained our previous policy,
amortization in 2000 would have been Ps.600 million higher. See Note 2(l) to our
audited financial statements.
Impairment charge
In 2001, we recognized a charge of Ps.1,941 million for impairment of
our investments in four telecommunications companies. These were non-strategic
investments in small companies, three in the United States and one in Spain,
whose prospects have been adversely affected by the crisis in the
telecommunications sector. The charge reduced the carrying value of these
investments to zero, and accordingly we do not expect further charges.
Operating Income and EBITDA
Operating income increased by 26.5% in 2000 and 109.0% in 2001. Without
the impairment charge in 2001, operating income would have been Ps. 8,014
million, or 176% higher than in 2000. In
52
2001, the increase in operating income reflected revenue growth and an improved
operating margin. Excluding the impairment charges, operating income increased
by Ps.3,637 million in Mexico and Ps.927 million in Guatemala, while operating
loss decreased by Ps.413 million in the United States. In 2000, the effect of
revenue growth was partly offset by a lower operating margin.
Operating margin (operating income as a percentage of operating
revenues) was 14.2% in 1999, 9.7% in 2000 and 14.7% in 2001. Without the
impairment charge in 2001, our operating margin would have been 19.4%. The
increase in our operating margin in 2001 reflected greater efficiency due to the
larger number of customers, cost-control measures and an improved focus on
profitability rather than growth. The decrease in our operating margin in 2000
was due to increases in sales commissions, growth in sales of handsets, higher
discounts on sales of handsets at below cost and the consolidation of Conecel
and Telgua.
EBITDA (operating income plus depreciation and amortization and, in
2001, the impairment charge) was Ps.12,491 million in 2001, compared to Ps.5,995
million in 2000. EBITDA margin (EBITDA as a percentage of revenues) was 30.2% in
2001, compared to 19.9% in 2000. Our EBITDA is attributable largely to our
Mexican operations, as EBITDA is small in Guatemala, slightly positive in
Ecuador and negative in the United States. Our U.S. operations reduced their
negative EBITDA substantially during 2001, due to the focus on profitability
rather than growth.
Comprehensive Financing (Income) Cost
Under Mexican GAAP, comprehensive financing cost reflects interest
income, interest expense, foreign exchange gain or loss and the gain or loss
attributable to the effects of inflation on monetary assets and liabilities. We
have had substantial liquid assets in the form of cash and short-term
investments (Ps.12,426 million at December 31, 2001), resulting in significant
interest income. Because our average monetary assets exceed our average monetary
liabilities, we reported a net loss from monetary position in 2001 and 2000, but
we expect this to change in 2002 because of the increase in our debt. We have
more financial liabilities than financial assets denominated in foreign
currencies, so depreciation of the peso results in foreign exchange loss and
higher interest expense.
We had comprehensive financing cost of Ps.220 million in 2001 and
comprehensive financing income of Ps.2,092 million in 2000. The credit in 2000
was attributable principally to interest income on our financial assets, offset
in part by the monetary effect on our net monetary asset position and gain on
the contribution of ATL to Telecom Americas. In 2001, we had a lower level of
interest-bearing assets and a higher level of debt, and the resulting increase
in net cost was only partly offset by exchange gain due to the appreciation of
the peso. We expect that in 2002, we will report a higher net comprehensive
financing cost, due to the higher level of debt.
Income Tax and Employee Profit-sharing
The statutory rate of the Mexican corporate income tax was 35% in 1999,
2000 and 2001. Our effective rates of provisions for corporate income tax as a
percentage of pretax income were 21.3%, 62.2% and 51.2% for 1999, 2000 and 2001,
respectively. Our effective tax rate exceeds the statutory rate because losses
in our non-Mexican operations are not deductible against our Mexican taxable
income. The Mexican tax rate will decrease to 32% from 2003 through 2005, but
the reduction will not have a material effect on us.
Mexican Accounting Principles Bulletin D-4 "Accounting for Income Tax,
Asset Tax and Employee Profit Sharing" went into effect on January 1, 2000. The
new bulletin modifies the rules with respect to the computation of deferred
income tax. It generally requires that deferred income tax be determined on
virtually all temporary differences in balance sheet accounts for financial and
tax reporting purposes, using the enacted income tax rate at the time the
financial statements are issued. Through December 31, 1999, deferred income tax
was recognized only on temporary differences that
53
were considered to be nonrecurring and that would reverse within a definite
period. The cumulative effect of the adoption of this bulletin at the beginning
of 2000 was applied to stockholders' equity without restating the financial
statements for prior years. The effect on stockholders' equity was a reduction
of 3.1%. Under Bulletin D-4, our deferred tax accounting under Mexican GAAP in
2000 is similar to U.S. GAAP.
Telcel, like other Mexican companies, is required by law to pay to its
employees, in addition to their agreed compensation and benefits, profit sharing
in an aggregate amount equal to 10% of its taxable income, subject to certain
adjustments. The amount payable increased by 53.7% in 2000 and 10.9% in 2001.
Bulletin D-4 does not affect accounting for employee profit-sharing.
Equity in Results of Affiliates
Our proportionate share of the results of equity-method affiliates
represented net losses of Ps.1,032 million in 2000 and Ps.3,701 million in 2001,
attributable primarily to results at Telecom Americas. We expect to continue to
report a net loss attributable to equity in results of affiliates in 2002,
reflecting our investment in CompUSA, and the performance of Telecom Americas
prior to full consolidation in July 2002.
Telecom Americas reported a net loss of U.S.$944 million in 2001. This
includes a U.S.$280 million charge for impairment of its investments in Comcel,
Techtel, Genesis and Canbras, and our share of this charge accounts for Ps.1,168
million of the total of our equity in net losses. Most of the balance of the
loss was accounted for by the Colombian and Brazilian wireless operations that
we will fully consolidate in 2002. In 2002, we will recognize gains from the
sale of our interests in CCPR and Cablevision, and a loss from our payment of
U.S.$100 million under a guarantee to creditors of Arbros.
Minority Interests
Minority interest represented a net credit of Ps.204 million in 2001
due to minority interest in losses at TracFone and Conecel. Minority interest
represented a net credit of Ps.218 million in 2000 due to minority interest in
losses at TracFone and Conecel, offset in part by minority interest in earnings
at Telgua and GCA.
Net Income
In 2001, we had a net loss of Ps.828 million due to Ps.3,701 million of
equity in losses of affiliates, principally Telecom Americas, and the impairment
charge of Ps.1.941 million. But for the effect of equity in losses in both
years, our net income would have increased by 48.3% from 2000 to 2001, as a
result of increased operating income, partly offset by higher comprehensive
financing cost.
Net income decreased by 79.9% in 2000 due to a decrease in
comprehensive financing income mainly as a result of lower interest income; an
increase in income tax provisions due to a change in Mexican accounting
principles; and net losses of Ps.1,032 million attributable to equity in results
of affiliates due principally to losses at Telecom Americas, CCPR and CompUSA.
Liquidity and Capital Resources
Capital Requirements
We have substantial requirements for capital, primarily for the
following purposes:
o We must make substantial capital expenditures to continue
expanding and improving our networks in each country in which we
operate. In 2001, we invested Ps.11,069 million in plant,
property and equipment. We estimate capital expenditures for 2002
at approximately U.S.$1.4 billion. See "Capital Expenditures"
under Item 4. Of this amount, approximately Ps.5,605 million is
contractually committed. We expect our
54
capital expenditure requirements to decrease in subsequent years,
and do not have material contractual commitments for years after
2002.
o We pay dividends, and we may also repurchase our own shares. We
paid Ps.566 million in dividends in 2001, and we are paying
dividends quarterly in 2002. We also spent Ps.6,845 million
repurchasing our own shares in the open market in 2001, and we
have repurchased shares periodically during 2002 and expect to
continue to do so.
We have used substantial amounts of cash to provide funding to Telecom
Americas during 2001 and 2002 to date. These funds have been used to reduce the
indebtedness of Telecom Americas. See "--Indebtedness of Telecom Americas"
below. In addition, we used cash to pay for the purchase of an interest in ATL,
which we paid partly in 2001 and partly in 2002. We also received more than
U.S.$300 million in cash in 2002 from the sale of our interests in CCPR and
Cablevision.
We could have opportunities to invest in other telecommunications
companies outside Mexico, especially in Latin America, because the
telecommunications sector currently is undergoing consolidation in an
environment of low asset prices and financial instability for many participants.
We can give no assurance as to the extent, timing or cost of such investments.
Our commitments as of December 31, 2001 are summarized in the following
table.
Payments Due
---------------------------------------------------------------------------------
2006 and
Total 2002 2003 2004 2005 thereafter
----------- ----------- ----------- ----------- ----------- -----------
(millions of constant December 31, 2001 pesos)
Contractual obligations as of December 31, 2001:
Equipment leases ............. Ps. 2,196 Ps. 1,175 Ps. 1,002 Ps. 19 -- --
Real estate leases ........... Ps. 896 Ps. 179 Ps. 179 Ps. 179 Ps. 179 Ps. 538
Long-term debt ............... Ps. 17,427 Ps. 2,254 Ps. 2,903 Ps. 1,130 Ps. 5,047 Ps. 6,092
Short-term debt .............. Ps. 4,050 Ps. 4,050 -- -- -- --
Capital expenditures ......... Ps. 5,605 Ps. 5,605 -- -- -- --
Capital Resources
We generate substantial resources from our operations. In 2001, Telcel,
Telgua and Conecel had net resources provided by operating activities, while at
Tracfone there was substantial net resources used by operating activities. On a
consolidated basis, operating activities provided Ps.8,016 million in 2001.
Telecom Americas also generates cash from operations, with U.S.$142 million in
net cash from continuing operations in 2001.
If we seek to raise funds by issuing stock, our bylaws require that we
issue stock of each class in the same proportion. This would limit our ability
to issue more L Shares, which are the most liquid class of our stock, unless we
issue more AA Shares, which are an unlisted class of voting shares currently
held only by America Telecom and SBCI. However, as of May 31, 2002, we had
approximately 862,507,302 L Shares in treasury that we are free to resell.
During 2001 and 2002, we have used available cash and new borrowings to
fund acquisitions and investments, particularly in Telecom Americas, and to
provide funding to repay indebtedness of our non-Mexican subsidiaries. We have
relied on a combination of equipment financing, other borrowings from
international banks, and borrowings in the Mexican capital markets. When we
begin consolidating Telecom Americas in July 2002, our consolidated net debt
(indebtedness less cash and marketable securities) will be approximately
U.S.$3.75 billion, excluding the amount payable to BCI for its interest
55
in Telecom Americas. We do not expect the level of net debt to increase
materially for the balance of 2002.
Outstanding Indebtedness
At December 31, 2001, we had total indebtedness of Ps.21,477 million.
At December 31, 2001, approximately 74.4% of our indebtedness was denominated in
foreign currencies, and approximately 80% of our debt obligations bore interest
at floating rates. Our weighted average cost of all borrowed funds in 2001
(including interest and reimbursement of certain lenders for Mexican taxes
withheld) was approximately 5.23%.
Our major categories of indebtedness are as follows:
o Equipment financing facilities. We have a number of equipment
financing facilities, under which export development agencies
provide support for financing to purchase exports from their
respective countries. The largest is for up to U.S.$878 million and
was concluded in October 2001. These facilities are generally
medium- to long-term, with periodic amortization and interest at a
spread over LIBOR. They are extended to us or to operating
subsidiaries, usually with guarantees from one or more of America
Movil, Telcel or Sercotel.
o Other bank loans. Our largest bank loan is a July 2001 syndicated
loan agreement for U.S. $500 million. This loan includes a U.S.$400
million tranche maturing in January 2005 and bearing interest at
LIBOR plus a margin determined based on debt to EBITDA ratios. We
are the borrower and Telcel is the guarantor. We are required to
add as a guarantor any other controlled subsidiary that provides a
specified percentage of our consolidated EBITDA.
o Peso-denominated notes and commercial paper. In 2001, we issued
Ps.5.0 billion in senior notes in the Mexican market. In 2002 to
date, we have issued a further Ps.5.0 billion in senior notes and
approximately Ps.1.3 billion in commercial paper.
We are subject to financial and operating covenants under our loan
agreements. They limit our ability to pledge our assets, to effect a merger or a
sale of all or substantially all of our assets, and to permit restrictions on
the ability of our subsidiaries to pay dividends or make distributions to us.
The most restrictive financial covenants require us to maintain a consolidated
ratio of debt to EBITDA not greater than 4.0 to 1 and a consolidated ratio of
EBITDA to interest expense not less than 2.5 to 1 (using terms defined in the
loan agreements). Telcel is subject to financial covenants similar to those
applicable to us. A number of our financing instruments are subject to either
acceleration or repurchase at the holder's option if there is a change of
control, as defined in the respective instruments. The definitions of change of
control vary, but none of them is met so long as America Telecom or its present
controlling shareholders continue to control a majority of our voting stock.
Indebtedness of Comcel
We have recapitalized Comcel and Occel since acquiring them in February
2002. During the first quarter, Comcel and Occel prepaid in full, for a total
amount of approximately U.S.$630 million, all their bank debt and their
outstanding public debt securities--the 14.125% senior deferred coupon bonds due
2005 of Comcel and the 14% senior discount notes of Occel.
Indebtedness of Telecom Americas
In 2002, we have recapitalized Telecom Americas. It had more than
U.S.$3.5 billion in debt at December 31, 2001. Its debt was reduced as a result
of the February 2002 reorganization, the issuance of preferred stock in April
2002, and the application of additional shareholder contributions. Following our
56
agreement with BCI, we made further advances and capital contributions to
Telecom Americas, which were also applied to reduce debt. When Telecom Americas
is consolidated with us, all its indebtedness to us and our subsidiaries will be
eliminated in consolidation.
As a result of these measures, the total indebtedness of Telecom
Americas to third parties, as of the commencement of full consolidation with us
in July 2002, will be approximately U.S.$775 million. It will consist of the
following:
o Equipment financing at ATL for a principal amount of U.S.$211
million. This facility is due in October 2005 and bears interest at
LIBOR plus 400 basis points.
o Brazilian bank facilities at ATL, Tess and Americel. Each of these
facilities includes a tranche under which the Brazilian development
bank BNDES is the lender, and a syndicated bank tranche. They are
primarily denominated in reais, with part indexed to the U.S.
dollar. The aggregate principal amounts are approximately R$750
million plus the equivalent in reais of approximately U.S.$77
million. They amortize monthly through final maturity in 2006 and
2007.
o Debentures of ATL. These are in a principal amount of R$350 million
and bear interest at a spread over a Brazilian money market rate.
They are due in March 2003.
o Additional short-term vendor financing for approximately R$200
million.
Telecom Americas has pledged substantially all the assets and part of the shares
of ATL, Tess and Americel. The debt instruments also contain extensive financial
and operating covenants applicable to each subsidiary separately. Except for the
ATL debentures and the short-term vendor financing, through a variety of
arrangements we have effectively guaranteed all of the Telecom Americas debt
listed above.
U.S. GAAP Reconciliation
We had a net loss under U.S. GAAP of Ps.610 million in 2001 and Ps.428
million in 2000, and net income under U.S. GAAP of 2,281 million in 1999.
Compared to Mexican GAAP, net loss under U.S. GAAP was 26.3% lower in 2001. In
2000, we had a loss under U.S. GAAP and net income under Mexican GAAP, while in
1999, net income under U.S. GAAP was 37.3% lower.
There are several differences between Mexican GAAP and U.S. GAAP that
affect our net income and stockholders' equity. The most significant in its
effect on 2001 net income is the difference in how the carrying value of plant,
property and equipment is restated to reflect effects of inflation. Under
Mexican GAAP, we restate fixed assets of non-Mexican origin based on the rate of
inflation in the country of origin and the prevailing exchange rate at the
balance sheet date, while under U.S. GAAP we use the Mexican inflation rate. In
recent years, this has resulted in lower net income under U.S. GAAP, because
Mexican inflation has exceeded the rate of depreciation of the Mexican peso
against foreign currencies, particularly the U.S. dollar.
Other differences that affected 2001 net income relate to pension and
seniority premium plan costs, interest on assets under construction, and
deferred income tax and employee profit sharing. The differences in
stockholders' equity under Mexican GAAP and U.S. GAAP reflect these same
matters, and also reflect some matters for which accounting differed in prior
years but has since converged. For a discussion of the principal differences
between Mexican GAAP and U.S. GAAP, see Note 19 to our consolidated financial
statements.
In 2000, we recognized a gain of Ps.1,003 million under Mexican GAAP
when we contributed our investment in ATL to Telecom Americas. This gain, which
is reported under comprehensive financing (income) cost under Mexican GAAP, is
deferred under U.S. GAAP.
57
Use of Estimates in Certain Accounting Policies
In preparing our financial statements, we make estimates concerning a
variety of matters. Some of these matters are highly uncertain, and our
estimates involve judgments we make based on the information available to us. In
the discussion below, we have identified several of these matters for which our
financial presentation would be materially affected if either (a) we used
different estimates that we could reasonably have used or (b) in the future we
change our estimates in response to changes that are reasonably likely to occur.
The discussion addresses only those estimates that we consider most
important based on the degree of uncertainty and the likelihood of a material
impact if we used a different estimate. There are many other areas in which we
use estimates about uncertain matters, but the reasonably likely effect of
changed or different estimates is not material to our financial presentation.
Estimated useful lives of plant, property and equipment
We estimate the useful lives of particular classes of plant, property
and equipment in order to determine the amount of depreciation expense to be
recorded in each period. Depreciation expense is a very significant element of
our costs, amounting in 2001 to Ps.3,568 million, or 10.1% of our operating
costs and expenses, under Mexican GAAP, and Ps.4,092 million, or 11.4% of our
operating costs and expenses, under U.S. GAAP. See notes 6 and 19 to our
consolidated financial statements.
The estimates are based on historical experience with similar assets,
anticipated technological changes and other factors, taking into account the
practices of other telecommunications companies. We review estimated useful
lives each year to determine whether they should be changed, and at times we
have changed them for particular classes of assets. We may shorten the estimated
useful life of an asset class in response to technological changes, changes in
the market or other developments. This results in increased depreciation
expense, and in some cases it can result in our recognizing an impairment charge
to reflect a write-down in value. The same kinds of developments can also lead
us to lengthen the useful life of an asset class, resulting in reduced
depreciation expense.
Impairment
We carry substantial amounts on our balance sheet for plant, property
and equipment and for goodwill that are based on historical costs net of
accumulated depreciation and amortization. We are required to evaluate each year
whether these assets are impaired, that is, whether their future capacity to
generate cash does not justify maintaining them at their carrying values. If
they are impaired, we are required to recognize a loss by writing off part of
their value. The analysis we perform requires that we estimate the future cash
flows attributable to these assets, and these estimates require us to make a
variety of judgments about our future operations. Changes in these judgments
could require us to recognize impairment losses in future periods.
Item 6. Directors, Senior Management and Employees
MANAGEMENT
Directors
Management of our business is vested in our Board of Directors. Our
bylaws provide for the Board of Directors to consist of between 5 and 20
directors and allow for the appointment of an equal number of alternate
directors. Directors need not be shareholders. A majority of our directors and a
majority of the alternate directors must be Mexican nationals and elected by
Mexican shareholders. A majority of the holders of the AA Shares and A Shares
voting together elect a majority of the directors and alternate directors,
provided that any holder or group of holders of at least 10% of the total AA
58
Shares and A Shares is entitled to name one director. Two directors and two
alternate directors, if any, are elected by a majority vote of the holders of L
Shares. Each alternate director may attend meetings of the Board of Directors
and vote in the absence of a corresponding director. Directors and alternate
directors are elected or ratified at each annual ordinary general meeting of
shareholders and each annual ordinary special meeting of holders of L Shares,
and each serves until a successor is elected and takes office. Pursuant to our
bylaws and Mexican law, at least 25% of our directors and 25% of our alternate
directors must be independent, as defined under the Mexican Securities Market
Law. In order to have a quorum for a meeting of the Board of Directors, a
majority of those present must be Mexican nationals.
All of the current members of the Board of Directors and of the
Executive, Audit and Compensation Committees were elected or ratified at a
shareholders' meeting held on April 30, 2002, with 8 directors elected by the AA
Shares and A Shares voting together and two directors elected by the L Shares.
No alternate directors were appointed. America Telecom and SBC International
have agreed to vote for the number of directors and alternate directors named by
America Telecom and SBC International, respectively, in proportion to their
respective share ownership.
Our bylaws provide that the members of the Board of Directors are
appointed for terms of one year. Pursuant to Mexican law, members of the Board
continue in their positions after the expiration of their terms if new members
are not appointed. The names and positions of the current members of the Board,
their dates of birth, and information on their committee membership and
principal business activities outside America Movil are as follows:
Carlos Slim Helu Born: 1940
Chairman and member of the First elected: 2000
Executive Committee Term Expires: 2003
Principal occupation: Honorary chairman of the board
of directors of Grupo Carso, S.A. de C.V.
Other directorships and Chairman of the board of directors
business experience: of Telmex and Grupo Financiero Inbursa, S.A.
de C.V.
Daniel Hajj Aboumrad Born: 1966
Director and member of the First elected: 2000
Executive Committee Term Expires: 2003
Principal occupation: Chief executive officer of Telcel
Other directorships: Director of Carso Global Telecom
and Grupo Carso, S.A. de C.V.
Business experience: Chief executive officer of Hulera
Euzkadi, S.A. de C.V.
59
Jaime Chico Pardo Born: 1950
Director and member of the First elected: 2000
Compensation Committee Term Expires: 2003
Principal occupation: Chief executive officer of Telmex
Other directorships: Vice-chairman of the board of directors
of Telmex; director of America Telecom, S.A.
de C.V., Carso Global Telecom, S.A. de C.V.,
Grupo Carso, S.A. de C.V. and Honeywell
International
Business experience: Chief executive officer of Grupo
Condumex, president of Corporacion
Industrial Llantera (Euzkadi General Tire
de Mexico)
Alejandro Soberon Kuri Born: 1960
Director and chairman of the First elected: 2000
Audit Committee Term Expires: 2003
Principal occupation: Chairman and chief executive officer
of Corporacion Interamericana
de Entretenimiento, S.A. de C.V.
Other Directorships Director of Telmex, Bolsa Mexicana de Valores,
S.A. de C.V. and Corporacion Interamericana de
Entretenimiento, S.A. de C.V.
Maria Asuncion Aramburuzabala L. Born: 1963
Director First elected: 2000
Term Expires: 2003
Principal occupation: Chief executive officer of Tresalia Capital,
S.A. de C.V.
Other Directorships: Director of Grupo Modelo, S.A. de C.V., Grupo
Televisa, S.A., Grupo Financiero
Banamex-Accival, S.A. de C.V. and KIO Networks
Business experience: President of Integracion y Verificacion
Analitica, S.A. de C.V.
Rafael Robles Miaja Born: 1965
Director and Corporate Secretary First elected: 2000
Term Expires: 2003
Principal occupation: Partner, Franck, Galicia y Robles, S.C.
Other Directorships: Corporate Secretary of Carso Global Telecom,
S.A. de C.V., Sears Roebuck de Mexico, S.A. de
C.V., America Telecom, S.A. de C.V., Nacional
Automotriz, S.A. de C.V. and Parras Cone de
Mexico, S.A. de C.V.
60
Drew A. Roy Born: 1946
Director and member of the First elected: 2000
Executive, Audit and Term Expires: 2003
Compensation Committees
Principal occupation: President of International Operations
of SBC International, Inc.
Other directorships: Director of Belgacom, S.A., Telkom S.A.,
Limited, ADSB Telecommunications B.V. and TDC
A/S
Richard D. McCormick Born: 1949
Director First elected: 2002
Term Expires: 2003
Principal occupation: Executive Director of International Operations
of SBC International, Inc.
Business experience: President and chief executive officer of
TransAsia Telecommunications
Claudio X. Gonzalez Laporte Born: 1934
Director First elected: 2000
Term Expires: 2003
Principal occupation: Chief executive officer of Kimberly Clark
de Mexico, S.A. de C.V.
Other directorships: Director of the Kimberly Clark Corporation,
Kellogg Company, IBM Latin America and Grupo
Carso, S.A. de C.V.
Business experience: Various positions at the Kimberly Clark
Corporation
David Ibarra Munoz Born: 1930
Director and member of the Audit First elected: 2000
Committee
Term Expires: 2003
Other directorships: Director of Grupo Financiero Inbursa, S.A. de
C.V.
Business experience: Chief executive officer of Nacional
Financiera, served in the Mexican Ministry of
Finance and Public Credit
Daniel Hajj Aboumrad is the son-in-law of Carlos Slim Helu.
61
Executive Committee
Our bylaws provide that the Executive Committee may generally exercise
the powers of the Board of Directors, with certain exceptions. In addition, the
Board of Directors is required to consult the Executive Committee before
deciding on certain matters set forth in the bylaws, and the Executive Committee
must provide its views within 10 calendar days following a request from the
Board of Directors, the Chief Executive Officer or the Chairman of the Board of
Directors. If the Executive Committee is unable to make a recommendation within
10 calendar days, the Board of Directors is authorized to act without such
recommendation. The Executive Committee may not delegate its powers to special
delegates or attorneys-in-fact.
The Executive Committee is elected from among the directors and
alternate directors by a majority vote of the holders of common shares (AA
Shares and A Shares). As of May 31, 2001, the Executive Committee comprises
three members. The majority of its members must be of Mexican nationality and
elected by Mexican shareholders. Our controlling shareholders have agreed that
two of its members shall be named by Mexican controlling shareholders and one
member by SBC International, Inc. See "Major Shareholders." The current members
of the Executive Committee are Carlos Slim Helu and Daniel Hajj Aboumrad, named
by the Mexican controlling shareholders, and Drew A. Roy, named by SBC
International, Inc.
Other Committees
In January 2000, a Mexican commission of business leaders (Consejo
Coordinador Empresarial), with the support of the Comision Nacional Bancaria y
de Valores (CNBV), issued a Code of Best Corporate Practices (Codigo de Mejores
Practicas Corporativas) for publicly traded Mexican companies, recommending
certain actions with respect to various areas of corporate governance.
Subsequently, the Securities Market Law was amended effective June 2001 to
require that all publicly traded Mexican companies have an audit committee. The
Board of Directors created an Audit Committee on July 10, 2001, and a
Compensation Committee on March 13, 2001.
The Audit Committee consists of Messrs. Alejandro Soberon Kuri,
chairman, David Ibarra Munoz and Drew A. Roy. The mandate of the Audit Committee
is to establish and monitor procedures and controls in order to ensure that the
financial information we distribute is useful, appropriate and reliable and
accurately reflects our financial position. In particular, it is required (a) to
assist the Board of Directors in selecting candidates for our auditors and
reviewing the scope and terms of their engagement, (b) to assist the Executive
Committee in monitoring the performance of our auditors and re-evaluating the
terms of their engagement, (c) to recommend procedures for preparing financial
statements and internal controls, (d) to monitor internal controls and to
monitor accounting for specified types of matters, (e) to propose procedures for
the preparation of financial statements for internal use that are consistent
with the published financial statements, (f) to review with the auditors the
annual financial statements and the accounting principles being applied in the
annual and the interim financial statements, (g) to report to the Board of
Directors on its activities, (h) to opine on transactions with related parties
as defined in the Securities Market Law and propose consulting independent
specialists to opine on such transactions and (i) to perform any other functions
the Board of Directors may delegate to the Audit Committee. In addition,
pursuant to our bylaws and Mexican law, (i) the Audit Committee is required to
submit an annual report to the Board of Directors and to our shareholders and
(ii) the Board must seek the opinion of the Audit Committee regarding any
transaction with a related party that is outside the ordinary course of our
business.
The Compensation Committee consists of Messrs. Jaime Chico Pardo and
Drew A. Roy. The mandate of the Compensation Committee is to assist the Board of
Directors in evaluating and compensating our senior executives. In particular,
it is required (a) to recommend to the Board of Directors procedures for the
selection and succession of our chief executive officer and our principal
62
executives, (b) to propose criteria for evaluating executive performance, (c) to
analyze the proposals of the chief executive officer concerning the structure
and amount of compensation for our senior executives, and to raise them with the
Board of Directors, (d) to review new executive compensation programs and the
operations of existing programs, (e) to establish contracting practices to avoid
excessive payments to executives, (f) to assist the Board of Directors in
developing appropriate personnel policies, (g) to participate with the Board of
Directors in developing a plan for employees to invest in our L Shares, and to
review the implementation of such plan, (h) to report to the Board of Directors
on its activities and (i) to perform any other functions the Board of Directors
may delegate to the Compensation Committee.
Senior Management
The names, responsibilities and prior business experience of our senior
officers are as follows:
Daniel Hajj Aboumrad Appointed: 2000
Chief Executive Officer Business Experience: Director of Telmex's Mexican subsidiaries,
chief executive officer of Compania Hulera
Euzkadi, S.A. de C.V.
Carlos Jose Garcia Moreno Elizondo Appointed: 2001
Chief Financial Officer Business Experience: General director of Public Credit at
Mexican Ministry of Finance and Public
Credit, managing director of UBS Warburg,
associate director of financing at Petroleos
Mexicanos, S.A. de C.V. (Pemex)
Carlos Cardenas Blasquez Appointed: 2000
Latin American Operations Business Experience: Various positions at Telmex, including
Operating manager for the paging service
Company Buscatel, S.A. de C.V. and vice-
President of operations for Telmex USA,
Manager at Grupo Financiero Inbursa, S.A. de
C.V.
Jose Elias Briones Capetillo Appointed: 2001
Administration and Finance Business Experience: Comptroller of Telcel
Alejandro Cantu Jimenez Appointed: 2001
General Counsel Business Experience: Associate at Mijares, Angoitia, Cortes y
Fuentes, S.C., associate at Fried, Frank,
Harris, Shriver & Jacobson
Alfonso Gallardo Sosa Appointed: 2001
Treasurer Business Experience: Investment Banking Director at UBS Warburg
63
Walter Lopez Burgoa Appointed: 2001
Comptroller Business Experience: Chief financial officer of Scala Azteca, S.A.
de C.V.
Mr. Carlos Cardenas Blasquez is the son-in-law of Jaime Chico Pardo,
one of our directors.
Statutory Auditors
Under our bylaws, the holders of a majority of our outstanding common
shares (AA Shares and A Shares) may elect one or more statutory auditors
(comisarios) and corresponding alternate statutory auditors, who serve until a
successor is elected. Statutory auditors are normally elected or ratified at the
annual general shareholders' meetings. The primary role of the statutory
auditors is to report to the shareholders at the annual ordinary general meeting
regarding the accuracy of the financial information presented to such holders by
the Board of Directors. The statutory auditors are also authorized to:
o call ordinary or extraordinary general meetings,
o place items on the agenda for meetings of shareholders or the Board
of Directors,
o attend meetings of shareholders, the Board of Directors or the
Executive Committee, and
o generally monitor our affairs.
The statutory auditors also receive monthly reports from the Board of Directors
regarding material aspects of our affairs, including our financial condition.
The current statutory auditor and alternate statutory auditor are:
Name Position
---- --------
Agustin Aguilar Laurents Statutory Auditor
Francisco Alvarez del Campo Alternate Statutory Auditor
According to our bylaws and Mexican law, any holder or group of holders
of at least 10% of our capital stock is entitled to name one statutory auditor.
The appointment of statutory auditors elected as described above may only be
revoked if the appointment of statutory auditors elected by the majority of the
holders of our common shares is also revoked.
Compensation of Directors and Senior Management
The aggregate compensation paid to our senior management and directors
in 2001 was approximately Ps.12.5 million and Ps.1.7 million, respectively. The
aggregate compensation paid to the senior management of Telcel in 2001 was
approximately Ps.62.7 million. Provisions to provide pension, retirement or
similar benefits for our directors and senior management were approximately
Ps.1,237 million.
During 2001, we established a stock option plan for our most senior
executives. Our Compensation Committee and Board of Directors authorized the
plan, reserving a total of 3,215,000 Series L Shares from our treasury. The
subscription price for the 2001 plan is Ps.1.00 per share. Participants under
the plan may exercise 25% of the options during 2001, 25% during 2002, 25%
during 2003 and the remaining 25% during 2004. Because the options do not expire
if not exercised in a particular year, however, a participant could wait until
the fourth anniversary of the plan to exercise 100% of the options granted by
us. As of May 31, 2002, a total of 256,250 Series L Shares have been acquired by
our employees under our stock option plan.
Share Ownership
According to beneficial ownership reports filed with the SEC, Carlos
Slim Helu, the chairman of our Board of Directors, and certain members of his
immediate family together own a majority of the voting stock of America Telecom,
S.A. de C.V., our controlling shareholder. See "Major Shareholders."
64
To our knowledge, none of our other directors, alternate directors or executive
officers is the beneficial owner of more than 1% of any class of our capital
stock.
65
Employees
The following table sets forth the number of employees and a breakdown
of employees by main category of activity and geographic location as of the end
of each year in the three-year period ended December 31, 2001:
December 31,
--------------------------------------------
1999 2000 2001
------ ------- -------
Number of employees ............................. 6,059 13,450 14,786
Category of activity:
Wireless ................................... 5,218 8,789 11,942
Fixed ...................................... 841 4,661 2,844
Geographic location:
Mexico ..................................... 4,510 6,452 7,644
United States .............................. 829 1,543 646
Other Latin America ........................ 720 5,455 6,496
As of December 31, 2001, the Progressive Union of Communication and
Transport Workers of the Mexican Republic (Sindicato Progresista de Trabajadores
de Comunicacion y Transporte de la Republica Mexicana) represented approximately
83.4% of the employees of Telcel. All management positions at Telcel are held by
non-union employees. Salaries and certain benefits are renegotiated every year.
In May 2002, Telcel and the union agreed to a 5.5% nominal increase in basic
wages, retroactive to March 2002.
Under our labor agreements and Mexican labor law, we are obligated to
pay seniority premiums to retiring employees and pension and death benefits to
retired employees. Retirees will be entitled to receive pension increases
whenever salary increases are granted to current employees.
Our subsidiary Telgua has three active employee unions--the
Telecommunications Union (Sindicato de las Telecomunicaciones y Similares),
which had 517 members, representing 24.8% of Telgua's employees, at December 31,
2001, the Telgua Workers Union (Sindicato de los Trabajadores de la Empresa
TELGUA, S.A.), which had 605 members, representing 29% of Telgua's employees, at
December 31, 2001 and the Guatel Workers' Union (Sindicato de los Trabajadores
de la Empresa Guatel), which had 154 members, representing 7.4% of Telgua's
employees, at December 31, 2001. All management positions at Telgua are held by
non-union employees. Under Guatemalan law, Guatemalan companies are required to
negotiate only with the largest of its employees' unions. In October 2001,
Telgua and the Telecommunications Union entered into a new two-year labor
agreement.
Our subsidiaries Comcel and TracFone have no active employee unions.
We believe that we have good current relations with our workforce.
66
Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
The AA Shares represented 92.4% of the full voting shares (AA Shares
and A Shares) and 28.7% of the total capital stock of America Movil as of May
31, 2002. The AA Shares are owned by America Telecom, S.A. de C.V., SBC
International Inc. (SBCI), a subsidiary of the U.S. telecommunications company
SBC Communications, Inc. and certain other Mexican investors. The following
table sets forth their respective ownership amounts and percentages of AA Shares
as of May 31, 2002.
AA Shares Percent of
Owned Percent of Voting
Shareholder (millions) Class Shares(1)
----------- ---------- ---------- ----------
America Telecom ................................ 2,500 66.4% 61.3%
SBCI ........................................... 1,059 28.1 26.0
Other Mexican investors ........................ 207 5.5 5.1
------- ------ ------
Total ..................................... 3,766 100.0% 92.4%
----------------------
(1) AA Shares and A Shares.
America Telecom was established in November 2001 in a spin-off from
Carso Global Telecom using a procedure under Mexican corporate law called
escision or "split-up." Carso Global Telecom holds interests in the
telecommunications sector and was spun off from Grupo Carso, S.A. de C.V. in
1996. According to reports of beneficial ownership of our shares filed with the
Securities and Exchange Commission, Carlos Slim Helu and certain members of his
immediate family together own a majority of the voting stock of America Telecom.
America Telecom, as successor to Carso Global Telecom, and SBCI are
parties to an agreement entered into in December 2000 relating to their
ownership of AA Shares. Among other things, the agreement subjects certain
transfers of AA Shares by either party to a right of first offer in favor of the
other party, although the right of first offer does not apply to the conversion
of AA Shares to L Shares, as permitted by our bylaws, or the subsequent transfer
of L Shares. The agreement also provides for the composition of the Board of
Directors and the Executive Committee and for each party to enter into a
Management Services Agreement with us. See "Directors" and "Executive Committee"
and "Related Party Transactions."
67
The following table identifies each owner of more than 5% of any class
of our shares as of May 31, 2002. Except as described below, we are not aware of
any holder of more than 5% of any class of our shares.
AA Shares(1) A Shares(2) L Shares(3)
------------------- -------------------- -------------------- Percent
Shares Percent Shares Percent Shares Percent of
Owned of Owned of Owned of Voting
Shareholder (millions) Class (millions) Class (millions) Class Shares(4)
----------------------------------- ---------- ------- ---------- ------- ---------- ------- ---------
America Telecom(5) ................ 2,500 66.3% 48 15.5% 1,624 17.9% 62.5%
SBCI .............................. 1,059 28.1 -- -- -- -- 25.9
Brandes Investment Partners ....... -- -- -- -- 858 9.5 --
Capital International, Inc. ....... -- -- -- -- 794.1 8.7 --
Capital Research Management ....... -- -- -- -- 684 7.5 --
---------------
(1) As of May 31, 2002, there were approximately 3,767 million AA Shares
outstanding, representing 92.4% of the total full voting shares (AA Shares
and A Shares).
(2) As of May 31, 2002, there were approximately 309 million A Shares
outstanding, representing 7.6% of the total full voting shares (AA Shares
and A Shares).
(3) As of May 31, 2002, there were approximately 9,046 million L Shares
outstanding.
(4) AA Shares and A Shares.
(5) As of May 31, 2002, Carlos Slim Helu and certain members of his immediate
family may be deemed to have beneficial ownership of 2,500 million AA
Shares, 48 million A Shares and 1,644 million L Shares (including shares
owned by America Telecom and Grupo Financiero Inbursa, S.A.).
As of May 30, 2002, 80% of the outstanding L Shares were represented by
L Share ADSs, each representing the right to receive 20 L Shares, and 99.2% of
the L Share ADSs were held by 16,103 holders (including The Depositary Trust
Company) with registered addressees in the United States. 26.7% of the A Shares
were held in the form of A Share ADSs, each representing the right to receive 20
A Shares. Each A Share may be exchanged at the option of the holder for one L
Share.
We may repurchase our shares on the Mexican Stock Exchange from time to
time up to a specified maximum aggregate value authorized by the holders of AA
Shares and A Shares and our Board of Directors. In March 2001, we were
authorized by our shareholders to repurchase shares with an aggregate value of
up to Ps.5,000 million and in July 2001, we were authorized to repurchase an
additional Ps.5,000 million, for a total aggregate value of Ps.10,000 million.
As of May 31, 2002, we had repurchased 862.7 million L Shares and 4.3 million A
Shares, with an aggregate value of approximately Ps.7,117 million.
68
Related Party Transactions
Transactions with Telmex
We have and will likely continue to have a variety of contractual
relationships with Telmex and its subsidiaries. These include agreements arising
out of the spin-off and certain transitional arrangements.
Continuing Commercial Relationships
Because Telmex and Telcel provide telecommunications services in the
same geographical markets, they have extensive operational relationships. These
include interconnection between their respective networks; use of facilities,
particularly for the co-location of equipment on premises owned by Telmex; use
by Telcel of Telmex's private circuits; and use by each of the services provided
by the other. These operational relationships are subject to a variety of
different agreements, which, for the most part, were in place prior to the
spin-off and will continue in effect without being significantly modified as a
result of the spin-off. Many of them are also subject to specific regulations
governing all telecommunications operators. The terms of these agreements are
similar to those on which each company does business with other, unaffiliated
parties.
These operational relationships between Telcel and Telmex are material
to our financial performance. In 2001, 18.5% of our total revenues (Ps.7,663
million) was attributable to interconnection with Telmex, primarily representing
payments under the calling party pays system arising from fixed-to-mobile calls.
We had Ps.586 million in accounts receivable from Telmex and subsidiaries at
December 31, 2001. Also in 2001, 9.8% of our operating costs (Ps.3,477 million)
was attributable to payments to Telmex, primarily representing interconnection
payments for long-distance calls carried by Telmex and use of facilities under
leases and colocation agreements with Telmex.
Telmex distributes Telcel handsets and prepaid cards on commercial
terms similar to those given to other cellular distributors. See "Mexican
Operations--Sales and Distribution" under Item 4.
Implementation of the Spin-off
The creation of America Movil and the transfer of assets and
liabilities to us was effected by the action of the extraordinary shareholders'
meeting of Telmex held on September 25, 2000. Neither we nor Telmex has made any
promises to the other regarding the value of any of the assets we received in
the spin-off. Under the shareholder resolutions adopted at the meeting, we are
obligated to indemnify Telmex against any liability, expense, cost or
contribution asserted against Telmex that arises out of the assets owned
directly or indirectly by Sercotel, S.A. de C.V., the subsidiary whose shares
were transferred to us in the spin-off.
We have entered into an agreement with Telmex to ensure that the
purposes of the spin-off are fully achieved. Among other things, this agreement
provides in general terms as follows:
o We agree to indemnify Telmex against any loss or expense resulting
from the assertion against Telmex of any liabilities or claims that
were transferred to us in the spin-off or that relate to the
businesses transferred to us in the spin-off.
o Telmex agrees to indemnify us against any loss or expense resulting
from the assertion against us of any liabilities or claims that
were retained by Telmex in the spin-off or that relate to the
businesses retained by Telmex in the spin-off.
o The parties agree to cooperate in obtaining consents or approvals,
giving notices or making filings, as may be required as a result of
the spin-off or in order to achieve the purposes of the spin-off.
69
o Each party agrees to provide the other with information required to
prepare financial statements, tax returns, regulatory filings or
submissions and for other specified purposes.
o Each party agrees to maintain the confidentiality of any
information concerning the other that it obtained prior to the
spin-off or that it obtains in connection with the implementation
of the spin-off.
o Each party agrees that it will not take any action that could
reasonably be expected to prevent the spin-off from qualifying as
tax-free under Mexican or U.S. federal tax laws.
o Each party releases the other from certain claims arising prior to
the spin-off. Telmex makes no representations concerning the assets
transferred directly or indirectly in the spin-off.
o With respect to undertakings Telmex has given for the benefit of
creditors of subsidiaries and affiliates that were transferred to
us, we and Telmex agree to use our best efforts to replace each of
these undertakings with undertakings of America Movil or our
subsidiaries.
Telmex has guaranteed two loan facilities granted to ATL by Brazilian
banks, and, we have entered into an agreement with Telmex under which:
o we will reimburse and indemnify Telmex against any claim of
creditors of ATL, up to Telmex's U.S.$104 million maximum
obligation,
o we will pay Telmex a guarantee fee of 0.25% per annum, and
o we and Telmex agree to transfer these obligations to us as soon as
reasonably practicable.
See "Liquidity and Capital Resources."
Transitional Services
Following the spin-off, Telmex provided certain services to America
Movil on an interim basis while we developed the personnel and systems necessary
to provide these services ourselves. The services were generally provided at a
fixed periodic price based on the estimated cost of providing the services plus
a percentage. They include legal, financial, administrative, accounting and
investor relations services. Telmex no longer provides these transitional
services.
Transactions with Other Affiliates
At December 31, 2001, we held financial instruments issued by equity
method investees in the aggregate principal amount of Ps.6,770 million. All of
these investees will be consolidated in 2002.
We own 49% of the shares of CompUSA. The remaining interest in CompUSA
is currently owned by Tenedora U.S., S.A. de C.V., a Mexican company spun off in
February 2002 by Grupo Sanborns, S.A. de C.V. According to beneficial ownership
reports filed with the Securities and Exchange Commission, Grupo Sanborns is
under common control with our controlling shareholder America Telecom.
Telcel purchases materials or services from a variety of companies
that, according to beneficial ownership reports filed with the Securities and
Exchange Commission, are under common control with our controlling shareholder
America Telecom. These include insurance and banking services provided by Grupo
Financiero Inbursa and its subsidiaries. Telcel purchases these materials and
services on terms no less favorable than it could obtain from unaffiliated
parties, and would have access to other sources if our affiliates ceased to
provide them on competitive terms.
70
Item 8. Financial Information
See "Item 18--Financial Statements" and pages F-1 through F-85.
Dividends
The declaration, amount and payment of dividends by America Movil is
determined by majority vote of the holders of AA Shares and A Shares, generally
on the recommendation of the Board of Directors, and depends on our results of
operations, financial condition, cash requirements, future prospects and other
factors deemed relevant by the holders of AA Shares and A Shares. In an ordinary
shareholders meeting held on April 30, 2002, our shareholders resolved to pay a
dividend of Ps.0.044 per share, payable in four installments of Ps.0.011 per
share, for each AA, A and L Share outstanding on the payment dates of June 27,
2002, September 26, 2002, December 26, 2002 and March 27, 2003.
Our bylaws provide that holders of AA Shares, A Shares and L Shares
participate on a per-share basis in dividend payments and other distributions,
subject to certain preferential dividend rights of holders of L Shares. See
"Bylaws--Dividend Rights" and "Bylaws--Preferential Rights of L Shares" under
Item 10.
Legal Proceedings
Telcel
In November 1995, a competitor of Telcel that provides cellular
telephone services reported Telmex and Telcel to COFECO, the Federal Competition
Commission, for alleged monopolistic practices. In July 2001, COFECO ruled that
Telmex was responsible for the alleged monopolistic practices. The ruling did
not find Telcel responsible for such practices. Telmex appealed this ruling, and
its appeal was denied.
Administrative proceedings were commenced in January, June and July
2001 by COFECO against Telcel for alleged monopolistic practices related to the
wireless telecommunications industry. In May 2002, COFECO ruled against Telcel
in connection with the proceeding begun in January. Telcel appealed this ruling
in June 2002. If we are unsuccessful in challenging these proceedings, they may
result in fines or specific regulations applicable to Telcel.
Telgua
The Guatemalan government has commenced certain proceedings against our
subsidiary Telgua. See "Non-Mexican Operations--Telgua" under Item 4. In June
2000, the executive branch of the Guatemalan government issued declarations
concerning Empresa Guatemalteca de Telecomunicaciones (Guatel), a Guatemalan
state agency that conducted the privatization of Telgua. The declarations stated
that certain actions of Guatel relating to the privatization of Telgua were
contrary to the interests of the Guatemalan State.
In September 2000, the Guatemalan government commenced judicial
proceedings against Guatel, Telgua and certain other parties involved in the
privatization, alleging improprieties in connection with the privatization and
seeking reversal of the privatization.
In October 2001, the Guatemalan State announced a governmental accord
issued by the President of Guatemala and the Cabinet Ministers establishing the
principal terms and conditions of a settlement agreement between the Guatemalan
State, Telgua, Guatel and America Central Tel, S.A. (ACT, formerly Luca, S.A.),
and ordering the Attorney General of Guatemala to enter into such agreement in
the name and on behalf of the Guatemalan State.
Under the terms of the settlement agreement, which was executed on
October 31, 2001, Telgua agreed, among other things, (i) to undertake a fixed,
mobile, rural and internet telephone development
71
project within Guatemala, to be completed within a period of three
years and to consist of an investment of at least 1,950 million quetzales
(approximately U.S .$246 million) and (ii) to establish a total of 380,000
public, mobile and rural telephones lines. In addition, as part of the
settlement agreement, ACT agreed to pay Guatel a sum of U.S.$350 million, which
was the balance owed under the agreement for the sale of Telgua shares between
Guatel, as the seller, and ACT as the buyer, in October 1998, plus accrued
interest through the date of actual payment.
On October 31, 2001, (i) ACT paid Guatel a total of U.S.$452 million,
corresponding to the balance owed under the agreement for the sale of Telgua
shares, plus accrued interest as of such date and (ii) Guatel instructed
Citibank N.A. to release the collateral of 95% of the capital stock of Telgua,
which was pledged in 1998 as guarantee of the payment of the sale price for the
shares of Telgua.
Pursuant to the settlement agreement, the Guatemalan State, ACT and
Telgua have agreed to abandon all litigation and related actions with respect to
this matter. At the date hereof, for reasons attributable to the status of the
related legal actions and proceedings, the abandonment of proceedings had not
been undertaken in the competent Guatemala courts.
In addition, judicial proceeding were commenced in the United States
District Court for the Southern District of New York in March 2001 by
International Telecom, Inc (ITI) against Generadora Electrica de Oriente, S.A.
(GEDO), Antonio Jorge Alvarez and Telgua, alleging breach of contract, tortious
interference with contract and fraud in connection with an international
telecommunications service agreement.
On March 26, 2002, the court granted Telgua's motion to dismiss the
case against it for lack of personal jurisdiction, finding that Telgua has
insufficient contacts with New York to subject it to jurisdiction in that forum.
On May 28, 2002, the court denied ITI's motion for reargument of the case. ITI
or GEDO may appeal the decision to the United States Court of Appeals for the
Second Circuit once a final judgment is rendered following trial of the
remaining issues in the case. The court has not yet scheduled a trial date.
Comcel
The Colombian tax authorities have challenged portions of Comcel's 1994
and 1995 returns relating to taxes payable on value-added services. The
authorities contend that Comcel has not charged customers value-added taxes on
cellular activation fees. The amount claimed by the tax authorities as of
December 31, 2001, including fines and interest, amounted to approximately
Colombian Ps.35 billion. In the opinion of its management and legal counsel,
Comcel has appropriately filed and paid the value-added tax for all the periods
in question. Comcel has made no provisions in its financial statements as of
December 31, 2001 against these proceedings.
On March 13, 2000, the Colombian Superintendencia de Industria y
Comercio (SIC) issued Resolution No. 4954, requiring Comcel to pay a fine of
Colombian Ps.5.2 billion. In addition to this administrative fine, the SIC
ordered Comcel to pay damages to other long distance operators. Comcel requested
an administrative review of the decision, which was denied in June 2000.
Comcel's appeal was rejected in November 2000. Comcel resubmitted the appeal in
February 2001, and it remains pending in the Colombian courts. The long distance
operators estimated their damages to be U.S.$70 million, an assertion currently
being evaluated by the SIC. A final decision is expected in March 2003.
CompUSA
In 2000, a lawsuit was filed against our affiliate CompUSA and certain
other defendants, including James Halpin, its former chief executive officer, on
behalf of COC Services Ltd. asserting various contractual and tort claims. See
"Other Investments--CompUSA" under Item 4. A jury trial concluded in February
2001, with a jury verdict against CompUSA for U.S.$90 million in actual damages
72
and U.S.$94.5 million in exemplary damages. The jury also awarded actual and
punitive damages totalling U.S.$175.5 million against Mr. Halpin. In May 2001,
the court entered a judgment that COC take nothing from CompUSA or Mr. Halpin,
having granted motions for judgment notwithstanding the verdict. The trial court
entered judgment against the remaining defendants. COC has appealed the take
nothing verdict in favor of CompUSA and Mr. Halpin. The other defendants have
appealed the judgment against them. If CompUSA or Mr. Halpin are not successful
in defense of their position on appeal, the financial condition and results of
operations of CompUSA could be materially and adversely affected.
73
Item 9. The Offer and Listing
Trading Markets
Our shares and ADSs are listed or quoted on the following markets:
L Shares ........... Mexican Stock Exchange--Mexico City
Mercado de Valores Latinoamericanos en Euros
(LATIBEX)--Madrid, Spain
L Share ADSs ....... New York Stock Exchange--New York
Frankfurt Stock Exchange--Frankfurt
A Shares ........... Mexican Stock Exchange--Mexico City
A Share ADSs ....... NASDAQ National Market System--New York
74
The following table sets forth, for the periods indicated, the reported
high and low sales prices for the L Shares on the Mexican Stock Exchange and the
reported high and low sales prices for the L Share ADSs on the New York Stock
Exchange. Prices have not been restated in constant currency units.
Mexican Stock Exchange New York Stock Exchange
High Low High Low
----- --- ---- ---
(U.S. dollars per
(pesos per L Share) L Share ADS)
Annual highs and lows
2001 Ps. 11.32 Ps. 5.69 U.S.$23.29 U.S.$11.75
Quarterly highs and lows
2001:
First quarter (starting February 7) ...............Ps. 11.32 Ps. 6.61 U.S.$23.29 U.S.$13.95
Second quarter .................................... 10.44 6.76 23.00 14.20
Third quarter ..................................... 9.88 5.69 21.65 11.75
Fourth quarter .................................... 9.06 6.40 19.79 13.75
Monthly highs and lows
2001:
February (starting February 7) Ps. 11.32 Ps. 8.58 U.S.$23.29 U.S.$17.70
March ............................................ 8.92 6.61 18.60 13.95
April ............................................ 8.55 6.76 18.50 14.20
May .............................................. 10.44 8.37 23.00 18.35
June ............................................. 10.25 8.87 22.47 19.50
July ............................................. 9.88 8.52 21.65 18.51
August ........................................... 9.40 7.7 20.47 16.84
September ........................................ 7.82 5.69 16.95 11.75
October .......................................... 7.28 6.40 15.68 13.75
November ......................................... 8.01 6.91 17.45 14.97
December ......................................... 9.06 7.80 19.79 16.95
2002:
January ........................................ Ps. 9.29 Ps. 8.24 U.S.$20.35 U.S.$18.15
February ....................................... 9.06 7.90 19.90 17.00
March .......................................... 9.30 8.26 20.48 18.09
April .......................................... 9.06 8.35 20.00 18.00
May ............................................ 9.11 8.36 19.30 17.36
June 6.86 6.65 13.33 13.85
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The table below sets forth, for the periods indicated, the reported
high and low sales prices for the A Shares on the Mexican Stock Exchange and the
high and low bid prices for A Share ADSs published by NASDAQ. Bid prices
published by NASDAQ for the A Share ADSs are inter-dealer quotations and may not
reflect actual transactions. Prices have not been restated in constant currency
units.
Mexican Stock Exchange NASDAQ
High Low High Low
---- --- ---- ---
(U.S. dollars per
(pesos per A Share) A Share ADS)
Annual highs and lows
2001 Ps. 11.28 Ps. 5.80 U.S.$23.63 U.S.$11.17
Quarterly highs and lows
2001:
First quarter (starting February 7) .............. Ps. 11.28 Ps. 6.62 U.S.$23.63 U.S.$13.88
Second quarter ................................... 10.32 6.75 22.71 14.06
Third quarter .................................... 9.80 5.80 21.50 11.17
Fourth quarter ................................... 9.00 6.46 19.60 13.56
Monthly highs and lows
2001:
February (starting February 7) ................... Ps. 11.28 Ps. 8.50 U.S.$23.63 U.S.$17.50
March ............................................ 8.80 6.62 18.00 13.88
April ............................................ 8.40 6.75 18.35 14.06
May .............................................. 10.32 8.33 22.71 18.00
June ............................................. 10.20 8.95 22.43 19.40
July ............................................. 9.80 8.58 21.50 18.50
August ........................................... 9.35 7.76 20.40 16.70
September ........................................ 7.72 5.80 16.80 11.17
October .......................................... 7.25 6.46 15.60 13.56
November ......................................... 8.20 7.00 17.20 14.56
December ......................................... 9.00 8.95 19.60 16.25
2002:
January .......................................... Ps. 9.25 Ps. 8.36 U.S.$20.20 U.S.$17.95
February ......................................... 8.82 8.06 19.90 16.80
March ............................................ 9.25 8.30 20.26 17.75
April ............................................ 9.02 8.40 20.00 17.65
May .............................................. 9.10 8.38 18.91 17.25
June ............................................. 6.80 6.70 13.58 13.25
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Trading On The Mexican Stock Exchange
The Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A. de C. V.),
located in Mexico City, is the only stock exchange in Mexico. Founded in 1907,
it is organized as a corporation and operates under a concession from the
Ministry of Finance and Public Credit. Its shares are held by 30 brokerage
firms, which are exclusively authorized to trade on the Exchange. Trading on the
Mexican Stock Exchange takes place principally on the Exchange through automated
systems, which is open between the hours of 8:30 a.m. and 3:00 p.m. Mexico City
time, each business day. The Mexican Stock Exchange operates a system of
automatic suspension of trading in shares of a particular issuer as a means of
controlling excessive price volatility, but under current regulations this
system does not apply to securities such as the A Shares or the L Shares that
are directly or indirectly (for example, through ADSs) quoted on a stock
exchange (including for these purposes NASDAQ) outside Mexico.
Settlement is effected two business days after a share transaction on
the Mexican Stock Exchange. Deferred settlement, even by mutual agreement, is
not permitted without the approval of the Mexican National Securities Commission
(CNBV). Most securities traded on the Mexican Stock Exchange, including those of
America Movil, are on deposit with Institucion para el Deposito de Valores, S.A.
de C.V. (Indeval), a privately owned securities depositary that acts as a
clearinghouse for Mexican Stock Exchange transactions.
77
Item 10. Additional Information
Bylaws
Set forth below is a brief summary of certain significant provisions of
our bylaws and Mexican law. This description does not purport to be complete and
is qualified by reference to our bylaws, which have been filed as an exhibit to
this annual report. For a description of the provisions of our bylaws relating
to our Board of Directors, Executive and Audit Committees and statutory
auditors, see "Item 6--Directors, Senior Management and Employees."
We amended our bylaws in July 2001 in order to comply with the
amendments to the Securities Market Law and the National Banking and Securities
Commission Law published on June 1, 2001 in the Diario Oficial (Official
Gazette), which are designed, among other things, to protect the rights of
minority shareholders.
Organization and Register
America Movil is a sociedad anonima de capital variable organized in
Mexico under the Mexican General Corporations Law (Ley General de Sociedades
Mercantiles). It was registered in the Public Registry of Commerce of Mexico
City on October 13, 2000 under the number 263770.
Voting Rights
Each AA Share and A Share entitles the holder thereof to one vote at
any meeting of our shareholders. Each L Share entitles the holder to one vote at
any meeting at which holders of L Shares are entitled to vote. Holders of L
Shares are entitled to vote only to elect two members of the Board of Directors
and the corresponding alternate directors and on the following matters:
o the transformation of America Movil from one type of company to another,
o any merger in which America Movil is not the surviving entity or any
merger with an entity whose principal corporate purposes are different
from those of America Movil,
o the extension of our corporate life,
o our voluntary dissolution,
o a change in our corporate purpose,
o a change in our state of incorporation,
o removal of our shares from listing on the Mexican Stock Exchange or any
foreign stock exchange, and
o any action that would prejudice the rights of holders of L Shares and
not prejudice the other classes of shares similarly.
A resolution on any of the specified matters requires the affirmative
vote of both a majority of all outstanding shares and a majority of the AA
Shares and the A Shares voting together.
Under Mexican law, holders of shares of any series are also entitled to
vote as a class on any action that would prejudice the rights of holders of
shares of such series but not rights of holders of shares or other series, and a
holder of shares of such series would be entitled to judicial relief against any
such action taken without such a vote. The determination whether an action
requires a class vote on these grounds would initially be made by the Board of
Directors or other party calling for shareholder action. A negative
determination would be subject to judicial challenge by an affected shareholder,
and the necessity for a class vote would ultimately be determined by a court.
There are no other procedures
78
for determining whether a proposed shareholder action requires a class vote,
and Mexican law does not provide extensive guidance on the criteria to be
applied in making such a determination.
Shareholders' Meetings
General shareholders' meetings may be ordinary meetings or
extraordinary meetings. Extraordinary general meetings are those called to
consider certain matters specified in Article 182 of the Mexican General
Corporations Law, including, principally, amendments of the bylaws, liquidation,
merger and transformation from one type of company to another, as well as to
consider the removal of our shares from listing on the Mexican Stock Exchange or
any foreign stock exchange. General meetings called to consider all other
matters are ordinary meetings. The two directors elected by the holders of L
Shares are elected at a special meeting of holders of L Shares. All other
matters on which holders of L Shares are entitled to vote would be considered at
an extraordinary general meeting. Holders of L Shares are not entitled to attend
or address meetings of shareholders at which they are not entitled to vote.
A special meeting of the holders of L Shares must be held each year for
the election or ratification of directors and statutory auditors. An ordinary
general meeting of the holders of AA Shares and A Shares must be held each year
to consider the approval of the financial statements for the preceding fiscal
year, to elect or ratify directors and statutory auditors and to determine the
allocation of the profits of the preceding year.
The quorum for an ordinary general meeting of the AA Shares and A
Shares is 50% of such shares, and action may be taken by a majority of the
shares present. If a quorum is not available, a second meeting may be called at
which action may be taken by a majority of the AA Shares and A Shares present,
regardless of the number of such shares. Special meetings of holders of L Shares
are governed by the same rules applicable to ordinary general meetings of
holders of AA Shares and A Shares. The quorum for an extraordinary general
meeting at which holders of L Shares may not vote is 75% of the AA shares and A
Shares, and the quorum for an extraordinary general meeting at which holders of
L Shares are entitled to vote is 75% of the outstanding capital stock. If a
quorum is not available in either case, a second meeting may be called and
action may be taken, provided a majority of the shares entitled to vote is
present. Whether on first or second call, actions at an extraordinary general
meeting may be taken by a majority vote of the AA Shares and A Shares
outstanding and, on matters which holders of L Shares are entitled to vote, a
majority vote of all the capital stock.
Holders of 20% of our outstanding capital stock may have any
shareholder action set aside by filing a complaint with a court of law within 15
days after the close of the meeting at which such action was taken and showing
that the challenged action violates Mexican law or our bylaws. In addition, any
holder of our capital stock may bring an action at any time within five years
challenging any shareholder action. Relief under these provisions is only
available to holders
o who were entitled to vote on, or whose rights as shareholders were
adversely affected by, the challenged shareholder action, and
o whose shares were not represented when the action was taken or, if
represented, were voted against it.
Shareholders' meetings may be called by the Board of Directors, its
chairman, its secretary, the statutory auditors or a court. The Board of
Directors or the statutory auditors may be required to call a meeting of
shareholders by the holders or 10% of the outstanding capital stock. Notice of
meetings must be published in the Diario Oficial (Official Gazette) or a
newspaper of general circulation in Mexico City at least 15 days prior to the
meeting. In order to attend a meeting, shareholders must deposit their shares at
the office of our corporate secretary with a Mexican or foreign banking
institution or with a Mexican exchange broker. If so entitled to attend the
meeting, a shareholder may be represented by proxy. The depositary for the L
Share ADSs and the A Share ADSs does not satisfy this requirement, so
79
ADS holders are not entitled to attend shareholder meetings. However, ADS
holders may still vote through the depositary.
Dividend Rights
At the annual ordinary general meeting of holders of AA Shares and A
Shares, the Board of Directors submits our financial statements for the previous
fiscal year, together with a report thereon by the Board, to the holders of AA
Shares and A Shares for approval. The holders of AA Shares and A Shares, once
they have approved the financial statements, determine the allocation of our net
profits for the preceding year. They are required by law to allocate 5% of such
net profits to a legal reserve, which is not thereafter available for
distribution except as a stock dividend, until the amount of the legal reserve
equals 20% of our capital stock. The remainder of net profits is available for
distribution.
All shares outstanding at the time a dividend or other distribution is
declared are entitled to participate in such dividend or other distribution,
subject to certain preferential rights of the L Shares. See "--Preferential
Rights of L Shares."
Preferential Rights of L Shares
Holders of L Shares are entitled to receive a cumulative preferred
annual dividend of 0.00125 pesos per share before any dividends are payable in
respect of any other class of America Movil capital stock. If we pay dividends
with respect to any fiscal year in addition to the L Share preferred dividend,
such dividends must be allocated:
o first, to the payment of dividends with respect to the A Share and AA
Shares, in an equal amount per share, up to the amount of the L Share
preferred dividend, and
o second, to the payment of dividends with respect to all classes of
America Movil shares such that the dividend per share is equal.
Upon liquidation of America Movil, holders of L Shares will be entitled to
a liquidation preference equal to:
o accrued but unpaid L Share preferred dividends, plus
o 0.025 pesos per share (representing the capital attributable to such
shares as set forth in our bylaws) before any distribution is made in
respect of our other capital stock in accordance with Article 113 of the
Mexican General Corporations Law.
Following payment in full of any such amount, holders of AA Shares and
A Shares are entitled to receive, if available, an amount per share equal to the
liquidation preference paid per L Share. Following payment in full of the
foregoing amounts, all shareholders share equally, on a per share basis, in any
remaining amounts payable in respect of our capital stock.
Limitation on Capital Increases
Our bylaws require that any capital increase be represented by new
shares of each series in proportion to the number of shares of each series
outstanding.
Preemptive Rights
In the event of a capital increase, a holder of existing shares of a
given series has a preferential right to subscribe for a sufficient number of
shares of the same series to maintain the holder's existing proportionate
holdings of shares of that series. Preemptive rights must be exercised within
the next 15 calendar days following the publication of notice of the capital
increase in the Diario Oficial (Official Gazette) and a newspaper of general
circulation in Mexico City. Under Mexican law, preemptive rights cannot be
traded separately from the corresponding shares that give rise to such rights.
As a result, there
80
is no trading market for the rights in connection with a capital increase.
Holders of ADSs may exercise preemptive rights only through the depositary. We
are not required to take steps that may be necessary to make this possible. See
"Description of American Depositary Shares--Share Dividends and Other
Distributions" under Item 12.
Limitations on Share Ownership
Our bylaws provide that at least 20% of our capital stock must consist
of AA Shares. Our bylaws also provide that A Shares and L Shares together cannot
represent more than 80% of our capital stock.
AA shares can only be held or acquired by:
o Mexican citizens,
o Mexican corporations whose capital stock is held completely by
Mexican citizens and whose articles of incorporation contain a
foreigner exclusion clause,
o Mexican corporations whose articles of incorporation provide that
at least 51% of their capital stock may only be held or acquired
by (i) Mexican citizens, (ii) Mexican corporations whose articles
of incorporation contain a foreigner exclusion clause or (iii)
Mexican corporations that allow minority foreign participation,
o Mexican credit and insurance companies,
o Mexican investment companies operating under the Investment
Companies Law and Mexican institutional investors as defined in
the Mexican Securities Market Law, and
o Trusts expressly permitted to acquire AA Shares in accordance
with Mexican law and in which (i) the majority of the trustee's
rights are held by Mexican citizens, corporations whose capital
stock is completely held by Mexican citizens, and Mexican credit,
insurance and investment companies or (ii) the AA Shares
controlled by the trust represent a minority of the outstanding
AA Shares and are voted in the same manner as the majority of the
outstanding AA Shares.
If foreign governments or states acquire our AA Shares, such shares
would immediately be rendered without effect or value.
Non-Mexican investors cannot hold AA Shares except through trusts that
effectively neutralize their votes. SBCI, one of our shareholders, holds its AA
Shares through a trust that has been approved by relevant authorities in Mexico
for this purpose.
Restrictions on Certain Transactions
Our bylaws provide that any transfer of more than 10% of the combined A
Shares and AA Shares, effected in one or more transactions by any person or
group of persons acting in concert, requires prior approval by our Board of
Directors. If the Board of Directors denies such approval, however, Mexican law
and our bylaws require it to designate an alternate transferee, who must pay
market price for the shares as quoted on the Mexican Stock Exchange.
Other Provisions
Variable capital. We are permitted to issue shares constituting fixed
capital and L Shares constituting variable capital. All of our outstanding
shares of capital stock constitute fixed capital. The issuance of
variable-capital L Shares, unlike the issuance of fixed-capital L Shares, does
not require an amendment of the bylaws, although it does require a majority vote
of the AA Shares and the A Shares. Under Mexican law and our bylaws, if we
issued variable-capital L Shares, any holder of such shares
81
would be entitled to redeem them at the holder's option at any time at a
redemption price equal to the lower of:
o 95% of the average market value of such shares on the Mexican
Stock Exchange for 30 trading days preceding the date on
which the exercise of the option is effective and
o the book value of such shares at the end of the fiscal year in
which the exercise of the option is effective.
The redemption price would be payable following the annual ordinary general
meeting of holders of AA Shares and A Shares at which the relevant annual
financial statements were approved.
Forfeiture of shares. As required by Mexican law, our bylaws provide
that "any alien who at the time of incorporation or at any time thereafter
acquires an interest or participation in the capital of the corporation shall be
considered, by virtue thereof, as Mexican in respect thereof and shall be deemed
to have agreed not to invoke the protection of his own government, under
penalty, in case of breach of such agreement, of forfeiture to the nation of
such interest or participation." Under this provision a non-Mexican shareholder
is deemed to have agreed not to invoke the protection of his own government by
asking such government to interpose a diplomatic claim against the Mexican
government with respect to the shareholder's rights as a shareholder, but is not
deemed to have waived any other rights it may have, including any rights under
the U.S. securities laws, with respect to its investment in America Movil. If
the shareholder invokes such governmental protection in violation of this
agreement, its shares could be forfeited to the Mexican government. Mexican law
requires that such a provision be included in the bylaws of all Mexican
corporations unless such bylaws prohibit ownership of shares by non-Mexican
persons.
Exclusive jurisdiction. Our bylaws provide that legal actions relating
to the execution, interpretation or performance of the bylaws shall be brought
only in Mexican courts.
Duration. America Movil's existence under the bylaws continues
indefinitely.
Purchase of our own shares. According to the bylaws, we may repurchase
our shares on the Mexican Stock Exchange at any time at the then prevailing
market price. Any such repurchase must be approved by the Board of Directors,
and the amount of shares to be repurchased must be approved by the general
ordinary shareholders meeting. In the event of any such repurchase, our capital
stock will be reduced automatically in an amount equal to the assumed par value
of each repurchased share (determined by dividing our outstanding capital stock
by the number of shares outstanding immediately prior to such repurchase); if
the purchase price of such shares exceeds the assumed par value, the difference
will be charged against amounts allocated from net earnings to a special reserve
created for the repurchase of shares. Repurchased shares will be held as
treasury stock, pending future sales thereof on the Mexican Stock Exchange or
cancellation. Our capital stock is automatically increased upon the resale of
such shares in an amount equal to their assumed par value; any excess amount is
allocated to the special reserve referred to above. The economic and voting
rights corresponding to repurchased shares may not be exercised during the
period in which we own such shares, and such shares are not deemed to be
outstanding for purposes of calculating any quorum or vote at any shareholders'
meeting during such period.
Conflict of interest. A shareholder that votes on a business
transaction in which its interest conflicts with America Movil's may be liable
for damages, but only if the transaction would not have been approved without
its vote.
Appraisal rights. Whenever the shareholders approve a change of
corporate purposes, change of nationality of the corporation or transformation
from one type of company to another, any shareholder entitled to vote on such
change that has voted against it may withdraw from America Movil and receive
82
the book value attributable to its shares, provided it exercises its right
within 15 days following the adjournment of the meeting at which the change was
approved.
Rights of Shareholders
The protections afforded to minority shareholders under Mexican law are
different from those in the United States and many other jurisdictions. The
substantive law concerning fiduciary duties of directors has not been the
subject of extensive judicial interpretation in Mexico, unlike many states in
the United States where duties of care and loyalty elaborated by judicial
decisions help to shape the rights of minority shareholders. Mexican civil
procedure does not contemplate class actions or shareholder derivative actions,
which permit shareholders in U.S. courts to bring actions on behalf of other
shareholders or to enforce rights of the corporation itself. Shareholders cannot
challenge corporate action taken at a shareholders' meeting unless they meet
certain procedural requirements, as described above under "Shareholders'
Meetings."
As a result of these factors, in practice it may be more difficult for
our minority shareholders to enforce rights against us or our directors or
controlling shareholders than it would be for shareholders of a U.S. company.
In addition, under the U.S. securities laws, as a foreign private
issuer we are exempt from certain rules that apply to domestic U.S. issuers with
equity securities registered under the U.S. Securities Exchange Act of 1934,
including the proxy solicitation rules, the rules requiring disclosure of share
ownership by directors, officers and certain shareholders. We are also exempt
from certain of the corporate governance requirements of the New York Stock
Exchange and NASDAQ, including the requirements concerning audit committees and
independent directors.
Enforceability of Civil Liabilities
America Movil is organized under the laws of Mexico, and most of our
directors, officers and controlling persons reside outside the United States. In
addition, all or a substantial portion of our assets and their assets are
located in Mexico. As a result, it may be difficult for investors to effect
service of process within the United States on such persons. It may also be
difficult to enforce against them, either inside or outside the United States,
judgments obtained against them in U.S. courts, or to enforce in U.S. courts
judgments obtained against them in courts in jurisdictions outside the United
States, in any action based on civil liabilities under the U.S. federal
securities laws. There is doubt as to the enforceability against such persons in
Mexico, whether in original actions or in actions to enforce judgments of U.S.
courts, of liabilities based solely on the U.S. federal securities laws.
Certain Contracts
Telcel has entered into concession agreements with the Mexican
Communications Ministry with respect to its Band B and Band D licenses in each
of the nine regions in Mexico. See "Mexican Operations--Regulation" under Item
4. A number of our subsidiaries and affiliates have also entered into
telecommunications concession agreements with regulatory authorities in the
countries in which they operate. See "Mexican Operations," "Non-Mexican
Operations," "Telecom Americas" and "Other Investments" under Item 4.
Our agreements with related parties are described in "Related Party
Transactions" under Item 7.
Exchange Controls
Mexico has had a free market for foreign exchange since 1991, and the
government has allowed the peso to float freely against the U.S. dollar since
December 1994. There can be no assurance that the government will maintain its
current foreign exchange policies. See "Exchange Rate Information" under Item 3.
83
Taxation
The following summary contains a description of certain Mexican federal
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of L Shares, A Shares, L Share ADSs or A Share ADSs, but it does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase or hold shares or ADSs.
The Convention for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion and a Protocol thereto (the "Tax Treaty") between the United
States and Mexico entered into force on January 1, 1994. The United States and
Mexico have also entered into an agreement concerning the exchange of
information with respect to tax matters.
This discussion does not constitute, and should not be considered as,
legal or tax advice to holders. The discussion is for general information
purposes only and is based upon the federal tax laws of Mexico (including the
Mexican Income Tax Law and the Mexican Federal Tax Code) and the United States
as in effect on the date of this annual report (including the Tax Treaty), which
are subject to change, and such changes may have retroactive effect. Holders of
shares or ADSs should consult their own tax advisers as to the Mexican, U.S. or
other tax consequences of the purchase, ownership and disposition of shares or
ADSs, including, in particular, the effect of any foreign, state or local tax
laws.
Mexican Tax Considerations
The following is a general summary of the principal consequences under
the Mexican Income Tax Law (Ley del Impuesto sobre la Renta) and rules and
regulations thereunder, as currently in effect, of an investment in Shares or
ADSs by a holder that is not a resident of Mexico and that will not hold shares
or ADSs or a beneficial interest therein in connection with the conduct of a
trade or business through a permanent establishment or fixed base in Mexico.
For Mexican income tax purposes, the following principles apply
regarding residency:
o a natural person may be treated as a resident of Mexico if he has
established his home in Mexico, unless he resided in another
country for more than 183 calendar days during one year and can
demonstrate that he has become a resident of that country for tax
purposes;
o a legal entity is a resident of Mexico if it is established under
Mexican law, or it has established its principal place of
management in Mexico;
o a Mexican citizen is presumed to be a resident of Mexico unless he
can demonstrate otherwise; and
o a permanent establishment in Mexico of a foreign individual or
entity is required to pay Mexican taxes for income attributable
to such permanent establishment.
Tax Treaties
Provisions of the Tax Treaty that may affect the taxation of certain
U.S. holders are summarized below. The United States and Mexico have also
entered into an agreement that covers the exchange of information with respect
to tax matters.
Mexico has also entered into and is negotiating with other countries
similar tax treaties that may reduce the amount of Mexican tax attributable to
income derived from an investment in shares or ADSs. Holders of shares or ADSs
should consult their own tax advisors as to the tax consequences, if any, of
such treaties.
Effective January 1, 2002, the Mexican Income Tax Law provides that in
order for a foreign holder to be entitled to the benefits under any tax treaties
entered into by Mexico, it is necessary for such
84
foreign holder to meet the procedural requirements established in such law.
Procedural requirements include the obligation to prove tax treaty residence,
present tax calculations made by authorized certified public accountants and
appoint representatives in Mexico for taxation purposes.
Payment of Dividends
Under the Mexican Income Tax Law in effect since January 1, 2002,
dividends, either in cash or in any other form, paid with respect to the L
Shares, A Shares, AA Shares, L Share ADSs, A Share ADSs or AA Share ADSs will
not be subject to any Mexican withholding tax.
Taxation of Dispositions
In the past, Mexican tax regulations have provided a specific exemption
from Mexican tax for the sale or other disposition of ADSs by a nonresident of
Mexico. Under the Mexican tax regulations currently in force, the continued
applicability of this exemption is uncertain. We cannot be certain that
regulations or other guidance clarifying the tax treatment of these transactions
will be issued. In the absence of any exemption, the sale or other disposition
of ADSs should be treated for Mexican tax purposes as though it were a sale or
other disposition of the underlying shares.
Deposits of shares in exchange for ADSs and withdrawals of shares in
exchange for ADSs will not give rise to Mexican tax or transfer duties.
In general terms, the sale of shares by a nonresident individual will
not be subject to any Mexican tax if the transaction is carried out through the
Mexican Stock Exchange or any other stock exchange authorized pursuant to the
Mexican Securities Market Law and certain requirements set forth by the Mexican
Income Tax Law are complied with. A sale or other disposition of shares made in
other circumstances generally would be subject to Mexican tax, regardless of the
nationality or residence of the transferor.
On April 10, 2002, a general ruling was issued by the Mexican Ministry
of Finance and Public Credit allowing a nonresident legal entity to elect not
to pay the income tax if the sale or disposition of shares is carried out
through the Mexican Stock Exchange and certain requirements set forth by the
Mexican Income Tax Law are complied with. On May 30, 2002 the Mexican Ministry
of Finance and Public Credit extended the effective date of this ruling until
February 28, 2003, but the Mexican Ministry of Finance and Public Credit may
withdraw this tax benefit at any time.
If the exemption described above for a sale or other disposition of
shares carried out through the Mexican Stock Exchange is not available, a
nonresident individual or entity will be subject to a 5% tax on the gross income
obtained on the sale or other disposition of shares, if the transaction is
carried out through the Mexican Stock Exchange and certain requirements set
forth by the Mexican Income Tax Law are complied with. In this case, a
nonresident individual or entity may elect to pay a 20% tax on the gain
realized on the sale or other disposition of shares.
A sale or other disposition of shares by a nonresident individual or
entity not carried out through the Mexican Stock Exchange is subject to a 25%
tax on the gross income obtained on the sale or other disposition. In this case,
a nonresident of Mexico that is not resident in a low tax jurisdiction (as
defined by the Mexican Income Tax Law) may elect to designate a resident of
Mexico to act as its representative for tax purposes, in which case taxes would
be payable at a 35% rate on the gain realized on such sale or other disposition
of shares. In accordance with the current Mexican Income Tax Law, this rate will
be reduced to 34% during 2003, 33% during 2004 and 32% during 2005.
If an individual or entity is a resident in a low tax jurisdiction (as
defined by the Mexican Income Tax Law), then the sale or other disposition of
shares by that individual or entity is subject to a 40% tax on the gross income
obtained, regardless of whether or not the sale or disposition is carried out
through the Mexican Stock Exchange or any other stock exchange authorized
pursuant to the Mexican Securities Market Law.
Pursuant to the Tax Treaty, gains realized by qualifying U.S. holders
from the sale or other disposition of shares, even if the sale is not conducted
through a recognized stock exchange, will not be subject to Mexican income tax,
except that Mexican taxes may apply if such U.S. holder owned 25% or more of the
shares representing our capital stock (including ADSs), directly or indirectly,
during the 12-month period preceding such disposition.
Gains realized by other holders that are eligible to receive benefits
pursuant to other income tax treaties to which Mexico is a party may be exempt
from Mexican income tax in whole or in part or subject to a reduced tax rate.
Non-U.S. holders should consult their own tax advisors as to their possible
eligibility under such treaties.
Other Mexican Taxes
Under certain circumstances, a nonresident holder will not be liable for
estate, inheritance or similar taxes with respect to its holdings of shares or
ADSs; provided, however, that gratuitous transfers of shares may in certain
circumstances result in imposition of a Mexican tax upon the recipient. There
are no Mexican stamp, issue registration or similar taxes payable by a
nonresident holder with respect to shares or ADSs.
85
U.S. Federal Income Tax Considerations
The following is a summary of certain U.S. federal income tax
consequences to U.S. holders (as defined below) of the acquisition, ownership
and disposition of shares or ADSs. The summary does not purport to be a
comprehensive description of all of the tax consequences of the acquisition,
ownership or disposition of shares or ADSs. The summary applies only to U.S.
holders that will hold their shares or ADSs as capital assets and does not apply
to special classes of U.S. holders such as dealers in securities or currencies,
holders with a functional currency other than the U.S. dollar, holders of 10% or
more of our voting shares (whether held directly or through ADSs or both),
tax-exempt organizations, financial institutions, holders liable for the
alternative minimum tax, securities traders electing to account for their
investment in their shares or ADSs on a mark-to-market basis, and persons
holding their shares or ADSs in a hedging transaction or as part of a straddle
or conversion transaction.
For purposes of this discussion, a "U.S. holder" is a holder of shares
or ADSs that is:
o a citizen or resident of the United States of America,
o a corporation organized under the laws of the United States of
America or any state thereof, or
o otherwise subject to U.S. federal income taxation on a net income
basis withrespect to the shares or ADSs.
Each U.S. holder should consult such holder's own tax advisor
concerning the overall tax consequences to it of the ownership or disposition of
shares or ADSs that may arise under foreign, state and local laws.
Treatment of ADSs
In general, a U.S. holder of ADSs will be treated as the owner of the
shares represented by those ADSs for U.S. federal income tax purposes. Deposits
or withdrawals of shares by U.S. holders in exchange for ADSs will not result in
the realization of gain or loss for U.S. federal income tax purposes. U.S.
holders that withdraw any shares should consult their own tax advisors regarding
the treatment of any foreign currency gain or loss on any pesos received in
respect of such shares.
Taxation of Distributions
In this discussion, we use the term "dividends" to mean distributions
paid out of our current or accumulated earnings and profits (including earnings
and profits that accrued to Telmex and were attributed to us in connection with
the spin-off) with respect to shares or ADSs. In general, the gross amount of
any dividends will be includible in the gross income of a U.S. holder as
ordinary income on the day on which the dividends are received by the U.S.
holder in the case of shares or by the depositary in the case of ADSs. Dividends
will be paid in pesos and will be includible in the income of a U.S. holder in a
U.S. dollar amount calculated by reference to the exchange rate in effect on the
day that they are received by the U.S. holder in the case of shares or by the
depositary in the case of ADSs. U.S. holders should consult their own tax
advisors regarding the treatment of foreign currency gain or loss, if any, on
any pesos received by a U.S. holder or depositary that are converted into U.S.
dollars on a date subsequent to receipt. Dividends paid by us will not be
eligible for the dividends-received deduction allowed to corporations under the
U.S. Internal Revenue Code of 1986, as amended (the "Code").
Distributions of additional shares or ADSs to U.S. holders with respect
to their shares or ADSs that are made as part of a pro rata distribution to all
of our shareholders generally will not be subject to U.S. federal income tax.
Taxation of Dispositions
A U.S. holder generally will recognize capital gain or loss on the sale
or other disposition of the shares or
86
ADSs in an amount equal to the difference between the U.S. holder's basis in
such shares or ADSs (in U.S. dollars) and the amount realized on the disposition
(in U.S. dollars, determined at the spot rate on the date of disposition if the
amount realized is denominated in a foreign currency). Gain or loss recognized
by a U.S. holder on such sale or other disposition generally will be long-term
capital gain or loss if, at the time of disposition, the shares or ADSs have
been held for more than one year. Long-term capital gain recognized by a U.S.
holder that is an individual is subject to lower rates of federal income
taxation than ordinary income or short-term capital gain. The deduction of a
capital loss is subject to limitations for U.S. federal income
tax purposes.
Gain, if any, realized by a U.S. holder on the sale or other
disposition of the shares or ADSs generally will be treated as U.S. source
income for U.S. foreign tax credit purposes. Consequently, if a Mexican
withholding tax is imposed on the sale or disposition of the shares, a U.S.
holder that does not receive significant foreign source income from other
sources may not be able to derive effective U.S. foreign tax credit benefits in
respect of these Mexican taxes. U.S. holders should consult their own tax
advisors regarding the application of the foreign tax credit rules to their
investment in, and disposition of, the shares.
Exchange of Shares
A U.S. holder's exchange of AA Shares for L Shares will not constitute
a taxable event for U.S. federal income tax purposes. An exchanging U.S. holder
will have a tax basis in the L Shares equal to the basis such holder had in the
exchanged AA Shares. An exchanging U.S. holder's holding period for the L Shares
will include the holding period such U.S. holder had in the AA Shares before
such shares were exchanged.
Information Reporting and Backup Withholding
Dividends on, and proceeds from the sale or other disposition of, the
shares or ADSs paid to a U.S. holder generally may be subject to the information
reporting requirements of the Code and may be subject to backup withholding
unless the holder:
o establishes that it is a corporation or other exempt holder, or
o provides an accurate taxpayer identification number on a properly
completed Internal Revenue Service Form W-9 and certifies that no
loss of exemption from backup withholding has occurred.
The amount of any backup withholding from a payment to a holder will be allowed
as a credit against the U.S. holder's U.S. federal income tax liability and may
entitle such holder to a refund, provided that certain required information is
furnished to the Service.
U.S. Tax Consequences for Non-U.S. holders
Distributions. A holder of shares or ADSs that is, with respect to the
United States, a foreign corporation or a non-resident alien individual (a
"non-U.S. holder") generally will not be subject to U.S. federal income or
withholding tax on dividends received on shares or ADSs, unless such income is
effectively connected with the conduct by the holder of a U.S. trade or
business.
Dispositions. A non-U.S. holder of shares or ADSs will not be subject
to U.S. federal income or withholding tax on gain realized on the sale of shares
or ADSs, unless
o such gain is effectively connected with the conduct by the holder
of a U.S. trade or business, or
o in the case of gain realized by an individual holder, the holder
is present in the United States for 183 days or more in the taxable
year of the sale and certain other conditions are met.
Information Reporting and Backup Withholding. Although non-U.S. holders
generally are exempt from backup withholding, a non-U.S. holder may be required
to comply with certification and
87
identification procedures in order to establish its exemption from information
reporting and backup withholding.
Documents On Display
We file reports, including annual reports on Form 20-F, and other
information with the Securities and Exchange Commission pursuant to the rules
and regulations of the SEC that apply to foreign private issuers. You may read
and copy any materials filed with the SEC at its public reference rooms in
Washington, D.C., at 450 Fifth Street, N.W., Washington, D.C. 20549 and
in Chicago, at 500 West Madison Street, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. As
a foreign private issuer, we are not required to make filings with the SEC by
electronic means, although we may do so. Any filings we make electronically will
be available to the public over the Internet at the SEC's web site at
http://www.sec.gov.
88
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Exchange Rate And Interest Rate Risks
We are exposed to market risk from changes in currency exchange rates
and interest rates. Interest rate risk exists principally with respect to our
financial assets and liabilities with short terms or that bear interest at
floating rates. Interest rate risk also exists with respect to the fair market
value of fixed-rate financial assets and liabilities, which is affected by
changes in interest rates. Exchange rate risk exists principally with respect to
our financial assets and liabilities denominated in currencies other than
Mexican pesos.
We regularly assess our exposure and monitor opportunities to manage
these risks, for example through the use of financial instruments. We may from
time to time enter into hedging transactions with respect to indebtedness
denominated in foreign currencies.
The consolidation of Comcel and Telecom Americas in 2002 will increase
the total amount of our financial assets and liabilities denominated in
currencies other than Mexican pesos, and we will monitor opportunities to manage
these risks.
Sensitivity Analysis Disclosures
At December 31, 2001, we had approximately Ps.11.7 billion in financial
assets denominated in U.S. dollars, principally consisting of cash, short-term
investments and marketable securities, and approximately Ps.16.1 billion in
financial liabilities denominated in U.S. dollars, consisting of debt. At
December 31, 2001, we had approximately Ps.20.1 billion of indebtedness bearing
interest at floating rates.
At December 31, 2001, our financial liabilities denominated in U.S.
dollars exceeded our financial assets denominated in U.S. dollars. The potential
loss in fair value of financial instruments held at December 31, 2001 that would
have resulted from a hypothetical, instantaneous 10% depreciation of the peso
against the U.S. dollar would have been approximately Ps.446 million. Such a
change in currency exchange rates would have resulted in additional interest
income of approximately Ps.47 million per year due to the fact that our
financial assets bear interest at a higher rate than our financial liabilities,
assuming no change in the principal amount of such indebtedness, reflecting the
increased costs in local currencies of servicing foreign currency indebtedness.
This sensitivity analysis assumes an instantaneous unfavorable 10% fluctuation
in exchange rates affecting the U.S. dollar.
The potential loss in the fair market value of fixed-rate financial
assets at December 31, 2001 that would have resulted from a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate
applicable to such financial instruments would have been approximately Ps.145
million. The potential impact on the fair market value of fixed-rate financial
liabilities at December 31, 2001 that would have resulted from a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate
applicable to such financial instruments would have been approximately Ps.53
million.
A hypothetical, instantaneous and unfavorable change of 100 basis
points in the interest rate applicable to floating-rate financial assets and
liabilities at December 31, 2001 would have resulted in additional interest
expense of approximately Ps.140 million per year, assuming no change in the
principal amount of such indebtedness.
89
The above sensitivity analyses are based on the assumption of an
unfavorable 100 basis point movement of the interest rates applicable to each
homogeneous category of financial assets and liabilities. A homogeneous category
is defined according to the currency in which financial assets and liabilities
are denominated and assumes the same interest rate movement with each
homogeneous category. As a result, interest rate risk sensitivity analysis may
overstate the impact of interest rate fluctuations for such financial
instruments, as consistently unfavorable movements of all interest rates are
unlikely.
Item 18. Financial Statements
See pages F-1 through F-85, incorporated herein by reference.
90
Item 19. Exhibits
Documents filed as exhibits to this annual report:
1.1 Amended and restated bylaws (estatutos sociales) of America Movil, S.A.
de C.V., dated as of August 20, 2001 (together with an English
translation).
2.1 L Share Deposit Agreement (incorporated by reference to
our registration statement on Form F-6 filed on December 8, 2000).
2.2 A Share Deposit Agreement (incorporated by reference to our registration
statement on Form F-6 filed on December 8, 2000).
3.1 Shareholders Agreement dated December 20, 2000 between America Telecom,
S.A. de C.V. (as successor to Carso Global Telecom, S.A. de C.V.) and SBC
International, Inc. (incorporated by reference to the report of
beneficial ownership of our shares filed on Schedule 13D on May 16,
2001).
4.1 Post-spin-off Master Agreement dated January 18, 2001 between Telefonos
de Mexico, S.A. de C.V. and America Movil, S.A. de C.V. (together with an
English translation) (incorporated by reference to our registration
statement on Form 20-F (File No. 1-16269) filed on February 5, 2001).
4.2 First Amendment dated March 15, 2001 to Post-spin-off Master Agreement
dated January 18, 2001 between Telefonos de Mexico, S.A. de C.V. and
America Movil, S.A. de C.V. (together with an English translation).
4.3 Second Amendment dated April 30, 2001 to Post-spin-off Master Agreement
dated January 18, 2001 between Telefonos de Mexico, S.A. de C.V. and
America Movil, S.A. de C.V. (together with an English translation).
8.1 List of certain subsidiaries of America Movil, S.A. de C.V.
Omitted from the exhibits filed with this annual report are certain
instruments and agreements with respect to long-term debt of America Movil, none
of which authorizes securities in a total amount that exceeds 10% of the total
assets of America Movil. We hereby agree to furnish to the Securities and
Exchange Commission copies of any such omitted promissory notes or other
instruments or agreements as the Commission requests.
91
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of America Movil, S.A de C.V. Page
--------------------------------------------------------------- ----
Report of Mancera, S.C..................................................................................... F-1
Report of Deloitte and Touche.............................................................................. F-3
Report of PricewaterhouseCoopers........................................................................... F-4
Report of Arthur Andersen LLP.............................................................................. F-5
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 ................ F-6
Consolidated Balance Sheets as at December 31, 2001 and 2000 .............................................. F-7
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and
1999 ...................................................................................................... F-8
Consolidated Statements of Changes in Financial Position for the years ended December 31, 2001, 2000 and
1999 ...................................................................................................... F-9
Notes to the Consolidated Financial Statements ............................................................ F-10
Consolidated Financial Statements of Telecom Americas Ltd. Page
---------------------------------------------------------- ----
Report of Deloitte and Touche.............................................................................. F-58
Consolidated Statement of Operations for the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000 ......................................................................................... F-59
Consolidated Statement of Stockholders' Equity for the year ended December 31, 2001 and for the 186-day
period ended December 31, 2000 ............................................................................ F-60
Consolidated Balance Sheets as at December 31, 2001 and 2000 .............................................. F-61
Consolidated Statement of Cash Flows for the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000 ......................................................................................... F-62
Notes to the Consolidated Financial Statements ............................................................ F-63
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
America Movil, S.A. de C.V.
We have audited the accompanying consolidated balance sheets of America Movil,
S.A. de C.V. and subsidiaries as of December 31, 2000 and 2001, and the related
consolidated statements of operations, changes in stockholders' equity and
changes in financial position for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain subsidiaries which statements reflect total assets
constituting 10% in 2000 and 11% in 2001, and total revenues constituting 9% in
2000 and 10% in 2001 of the related consolidated totals. Also, we did not audit
the financial statements of certain affiliates which statements reflect
approximately 10% and 21% of total assets as of December 31, 2000 and 2001,
respectively, and 97% and 90% of total equity in results of affiliates for the
years then ended. Those financial statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for such subsidiaries and affiliates, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of America Movil, S.A. de C.V. and
subsidiaries at December 31, 2000 and 2001, and the consolidated results of
their operations and changes in their financial position for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in Mexico, which differ in certain respects from
those followed in the United States of America (see Note 19).
F-1
As described in Note 2 to the accompanying consolidated financial statements,
effective January 1, 2000, the Company adopted the requirements of Mexican
Accounting Principles Bulletin D-4, Accounting for Income Tax, Asset Tax and
Employee Profit Sharing, issued by the Mexican Institute of Public Accountants.
The effects are described in Note 16.
Mancera, S.C.
A member practice of
Ernst & Young Global
/s/ Francisco Alvarez
C.P.C. Francisco Alvarez
Mexico City, Mexico
March 22, 2002
F-2
Deloitte and Touche
Independent Auditors' Report
To the Board of Directors and Shareholders of Telecom Americas, Ltd.
We have audited the accompanying consolidated balance sheets of Telecom Americas
Ltd. as at December 31, 2001 and 2000 and the related consolidated statements of
operations, comprehensive loss, stockholders' equity and cash flows for the
years ended December 31, 2001 and the 186-day period ended December 31, 2000.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits.
We concluded our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Corporation as at
December 31, 2001 and 2000 and the consolidated results of its operations and
its cash flows for the year ended December 31, 2001 and the 186-day period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/Deloitte & Touche S.P.C.
Montreal, Canada
January 31, 2002, except as to notes 1 and 25 which are as of February 12, 2002
F-3
PricewaterhouseCoopers
Report of the Independent Accountants
To the Board of Directors and Shareholder of America Central Tel, S. A.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of America
Central Tel, S. A. and its subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in Guatemala. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States and in Guatemala which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
Accounting principles generally accepted in Guatemala vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in Guatemalan Quetzales for each of the two
years in the period ended December 31, 2001, and the determination of
consolidated stockholders' equity also expressed in Guatemalan Quetzales as of
December 31, 2001 and 2000 to the extent summarized in Note 14 to the
consolidated financial statements.
/s/PricewaterhouseCoopers
Guatemala City, Guatemala, C.A.
March 19, 2002
F-4
THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR ANDERSEN LLP AND
THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Board of Directors of CompUSA Inc.:
We have audited the accompanying consolidated balance sheets of CompUSA Inc., a
Delaware corporation, and subsidiaries as of December 29, 2001, and December 30,
2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year ended December 29, 2001, and for the period
from February 27, 2000, to December 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CompUSA Inc. and subsidiaries
as of December 29, 2001, and December 30, 2000, and the results of its
operations and its cash flows for the year ended December 29, 2001, and for the
period from February 27, 2000, to December 30, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
March 7, 2002 (except with respect to the
matter discussed in Note 9, as to which
the date is March 28, 2002)
F-5
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001,
except for earnings per share)
Year ended December 31,
----------------------------------------------------------
Millions of
U.S. dollars
2001, except
for earnings
1999 2000 2001 per share
----------------------------------------------------------
Operating revenues:
Services:
Usage charges P. 7,646,317 P. 17,141,754 P. 25,680,609 $ 2,809
Monthly rent 3,854,643 4,450,263 5,090,312 557
Long-distance 1,412,153 2,885,814 3,850,847 421
Other services 499,645 843,955 1,786,606 195
Telephone equipment sales and other:
Sales of handsets and accessories 2,546,157 3,388,903 3,618,970 396
Other revenues 224,281 1,384,327 1,336,569 146
----------------------------------------------------------
16,183,196 30,095,016 41,363,913 4,524
----------------------------------------------------------
Operating costs and expenses:
Cost of sales 6,262,275 12,027,648 14,264,029 1,560
Cost of sales for services with related parties (Note 14) 1,310,699 3,354,415 3,477,349 380
Commercial, administrative and general 4,526,914 8,306,572 10,800,307 1,182
Commercial, administrative and general with
related parties (Note 14) 225,313 411,628 331,062 36
Impairment of investments in affiliates (Note 8) 1,940,557 212
Depreciation and amortization (Notes 6, 7 and 8)
(includes P. 1,198,593, P. 1,995,170 and
P. 3,357,881 for the years ended December 31
1999, 2000 and 2001, respectively not included in
cost of sales) 1,560,577 3,088,899 4,477,174 490
----------------------------------------------------------
13,885,778 27,189,162 35,290,478 3,860
----------------------------------------------------------
Operating income 2,297,418 2,905,854 6,073,435 664
----------------------------------------------------------
Comprehensive financing income (cost):
Interest income 9,420,003 5,049,653 1,940,004 212
Interest expense (74,285) (809,563) (1,447,414) (158)
Interest expense with related parties (Note 14) (92,383) (307,505) (5,995) (1)
Exchange (loss) gain, net (1,157,411) 239,336 (347,632) (38)
Monetary loss (4,935,938) (3,083,024) (743,985) (81)
Other income 1,003,364 385,101 42
----------------------------------------------------------
3,159,986 2,092,261 (219,921) (24)
----------------------------------------------------------
Income before income tax and employee profit sharing 5,457,404 4,998,115 5,853,514 640
----------------------------------------------------------
Provisions for:
Income tax (Note 16) 1,166,247 3,109,432 2,993,988 327
Employee profit sharing 118,128 169,913 190,795 21
----------------------------------------------------------
1,284,375 3,279,345 3,184,783 348
----------------------------------------------------------
Income before equity in results of affiliates and
minority interest 4,173,029 1,718,770 2,668,731 292
Equity in net results of affiliates 15,646 (1,031,744) (3,700,658) (405)
----------------------------------------------------------
Income (loss) before minority interest 4,188,675 687,026 (1,031,927) (113)
Minority interest in loss of subsidiaries 313,190 217,678 203,853 22
----------------------------------------------------------
Majority net income (loss) P. 4,501,865 P. 904,704 P. (828,074) $ (91)
==========================================================
Common shares outstanding (in million) (Note 15) 14,485 14,222 13,199 13,199
==========================================================
Majority net income (loss) per share (Note 15) P. 0.311 P. 0.063 P. (0.060) $(0.006)
==========================================================
See accompanying notes
F-6
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
December 31,
---------------------------------------------------------
Millions of
U.S. dollars
2000 2001 2001
---------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments P. 23,178,306 P. 2,527,224 $ 276
Marketable securities (Note 3) 1,668,818 9,898,965 1,083
Accounts receivable, net (Note 4) 4,557,876 4,383,641 479
Related parties (Note 14) 860,776 1,674,030 183
Inventories, net (Note 5) 3,700,367 3,408,221 373
Prepaid expenses and other assets 585,066 628,793 69
---------------------------------------------------------
Total current assets 34,551,209 22,520,874 2,463
Plant, property and equipment, net (Note 6) 34,175,114 39,977,826 4,373
Licenses, net (Note 7) 2,488,372 2,474,352 271
Investments in affiliates and others (Note 8) 13,242,797 23,432,861 2,563
Goodwill, net (Note 8) 7,317,499 4,257,251 465
---------------------------------------------------------
Total assets P. 91,774,991 P. 92,663,164 $ 10,135
=========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term
debt (Note 11) P. 6,947,975 P. 6,304,020 $ 690
Accounts payable and accrued liabilities (Notes 9 and 10) 10,852,410 9,550,025 1,045
Taxes payable 544,369 1,185,716 130
Related parties (Note 14) 20,056 322,207 35
Deferred revenues 1,136,195 1,478,060 161
---------------------------------------------------------
Total current liabilities 19,501,005 18,840,028 2,061
Long-term debt (Note 11) 1,220,187 15,172,670 1,660
Deferred taxes (Note 16) 2,635,991 2,004,592 219
Deferred credits 47,884 16,782 1
---------------------------------------------------------
Total liabilities 23,405,067 36,034,072 3,941
---------------------------------------------------------
Stockholders' equity (Note 15):
Capital stock 28,411,802 28,391,094 3,105
Retained earnings:
Prior years 37,115,002 30,629,581 3,350
Net income (loss) for the year 904,704 (828,074) (91)
---------------------------------------------------------
38,019,706 29,801,507 6,364
Accumulated other comprehensive loss (269,770) (2,311,343) (252)
---------------------------------------------------------
Total majority stockholders' equity 66,161,738 55,881,258 6,112
Minority interest 2,208,186 747,834 82
---------------------------------------------------------
Total stockholders' equity 68,369,924 56,629,092 6,194
---------------------------------------------------------
Total liabilities and stockholders' equity P. 91,774,991 P. 92,663,164 $ 10,135
=========================================================
See accompanying notes.
F-7
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
------------------------------------------------------------------------------------------
Retained earnings
----------------------------------------------------------
Reserve for
purchase of
Investment of Capital Company's own Legal
parent company Stock shares Reserve Unappropriated Total
------------------------------------------------------------------------------------------
Balances at January 1, 1999 P. 47,693,916 P. 41,412 P. 4,075,987 P. 4,117,399
Increase in legal reserve 97,381 (97,381)
Increase in investment of parent
company 2,501,549
Minority interest
Comprehensive income:
Net income for the year 4,501,865 4,501,865
Other comprehensive income:
Effect of translation of foreign
entities
Results from holding nonmonetary
assets
Comprehensive income:
------------------------------------------------------------------------------------------
Balances at December 31, 1999 50,195,465 138,793 8,480,471 8,619,264
Cumulative effects of accounting
change (1,866,558) (1,866,558)
Increase in legal reserve 152,948 (152,948)
Increase in investment of parent
company 8,578,633
Effect of spin-off (Notes 1 and 15) (58,774,098 P.28,411,802 30,362,296 30,362,296
Minority interest
Comprehensive income:
Net income for the year 904,704 904,704
Other comprehensive income:
Effect of translation of foreign
entities
Effect of current year deferred
income tax on stockholders'
equity accounts
Results from holding nonmonetary
assets
Comprehensive income:
------------------------------------------------------------------------------------------
Balances at December 31, 2000 (Note 15) 28,411,802 291,741 37,727,965 38,019,706
Increase in legal reserve 82,772 (82,772)
Increase in reserve for purchase of
Company's own shares P.10,210,500 (10,210,500)
Minority interest
Dividends paid (566,274) (566,274)
Cash purchase of Company's own shares (20,708) (6,823,851) (6,823,851)
Comprehensive income:
Net loss for the year (828,074) (828,074)
Other comprehensive income:
Effect of translation of foreign
entities
Effect of current year deferred
income tax on stockholders'
equity accounts
Results from holding nonmonetary
assets
Comprehensive income:
------------------------------------------------------------------------------------------
Balances at December 31, 2001 (Note 15) P. P.28,391,094 P. 3,386,649 P. 374,513 P.26,040,345 P.29,801,507
==========================================================================================
----------------------------------------------------------------------------------------
Accumulated other Comprehensive Total majority Total
comprehensive income stockholders' Minority stockholders'
loss (loss) equity interest equity
------------------------------------------------------------------------------------
Balances at January 1, 1999 P. (422,533) P. 51,388,782 P. 51,388,782
Increase in legal reserve
Increase in investment of parent
company 2,501,549 2,501,549
Minority interest P. 697,693 697,693
Comprehensive income:
Net income for the year P. 4,501,865 4,501,865 4,501,865
Other comprehensive income:
Effect of translation of foreign
entities (71,572) (71,572) (71,572) (71,572)
Results from holding nonmonetary
assets (187,582) (187,582) (187,582) (187,582)
-----------------
Comprehensive income: P. 4,242,711
-------------------=================------------------------------------------------
Balances at December 31, 1999 (681,687) 58,133,042 697,693 58,830,735
Cumulative effects of accounting
change 301,706 (1,564,852) (1,564,852)
Increase in legal reserve
Increase in investment of parent
company 8,578,633 8,578,633
Effect of spin-off (Notes 1 and 15)
Minority interest 1,510,493 1,510,493
Comprehensive income:
Net income for the year P. 904,704 904,704 904,704
Other comprehensive income:
Effect of translation of foreign
entities (535,952) (535,952) (535,952) (535,952)
Effect of current year deferred
income tax on stockholders'
equity accounts 468,507 468,507 468,507 468,507
Results from holding nonmonetary
assets 177,656 177,656 177,656 177,656
-----------------
Comprehensive income: P. 1,014,915
-------------------=================------------------------------------------------
Balances at December 31, 2000 (Note 15) (269,770) 66,161,738 2,208,186 68,369,924
Increase in legal reserve
Increase in reserve for purchase of
Company's own shares
Minority interest (1,460,352) (1,460,352)
Dividends paid (566,274) (566,274)
Cash purchase of Company's own shares (6,844,559) (6,844,559)
Comprehensive income:
Net loss for the year P. (828,074) (828,074) (828,074)
Other comprehensive income:
Effect of translation of foreign
entities (343,665) (343,665) (343,665) (343,665)
Effect of current year deferred
income tax on stockholders'
equity accounts 316,866 316,866 316,866 316,866
Results from holding nonmonetary
assets (2,014,774) (2,014,774) (2,014,774) (2,014,774)
-----------------
Comprehensive income: P. (2,869,647)
-------------------=================------------------------------------------------
Balances at December 31, 2001 (Note 15) P. (2,311,343) P. 55,881,258 P. 747,834 P. 56,629,092
=================== ================================================
See accompanying notes.
F-8
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Year ended December 31,
---------------------------------------------------------------------
Millions of
U.S. dollars
1999 2000 2001 2001
---------------------------------------------------------------------
Operating activities:
Majority net income (loss) P. 4,501,865 P. 904,704 P. (828,074) $ (91)
Add (deduct) items not requiring the use of resources:
Depreciation 1,194,875 2,247,536 3,568,137 391
Amortization 365,702 841,363 909,037 99
Deferred income tax 1,607,617 (273,247) (30)
Deferred employee profit sharing 20,352
Impairment on affiliates 1,940,557 212
Equity in results of affiliates (15,646) 1,031,744 3,700,658 405
Minority interest in results of subsidiaries (313,190) (217,678) (203,853) (22)
Changes in operating assets and liabilities:
Accounts receivable (468,369) (1,645,411) 174,235 19
Prepaid expenses (115,359) (119,926) (43,727) (5)
Inventories (1,845,468) (1,170,437) 292,146 32
Accounts payable and accrued liabilities 3,996,896 3,617,408 (1,933,784) (211)
Related parties (227,527) (384,842) (511,103) (56)
Deferred revenues and credits 67,039 411,788 310,763 34
Taxes payable 120,808 (321,712) 914,594 100
---------------------------------------------------------------------
Resources provided by operating activities 7,261,626 6,822,506 8,016,339 877
---------------------------------------------------------------------
Financing activities:
New loans 2,700,602 10,266,312 19,995,844 2,187
Repayment of loans (207,001) (9,286,042) (6,049,993) (663)
Decrease in capital stock and retained earnings due to
purchase of Company's own shares (6,844,559) (749)
Cash dividends paid (566,274) (62)
Effect of inflation and exchange rate differences
on debt (21,717) (133,494) (637,323) (68)
Related parties (2,906,932)
Increase in investment of parent company 2,501,549 8,578,633
---------------------------------------------------------------------
Resources provided by financing activities 4,973,433 6,518,477 5,897,695 645
---------------------------------------------------------------------
Investing activities:
Investment in plant, property and equipment (6,955,035) (15,515,183) (11,068,757) (1,211)
Investment in subsidiaries and affiliated companies (5,474,321) (16,874,625) (15,001,680) (1,641)
Investment in marketable securities (4,580,022) 2,911,204 (8,230,147) (900)
Initial cash from companies acquired 788,144 394,156
Investment in licenses (89,378) (264,532) (29)
---------------------------------------------------------------------
Resources used in investing activities (16,221,234) (29,173,826) (34,565,116) (3,781)
---------------------------------------------------------------------
Net decrease in cash and short-term investments (3,986,175) (15,832,843) (20,651,082) (2,259)
Cash and short-term investments at beginning of the year 42,997,324 39,011,149 23,178,306 2,535
---------------------------------------------------------------------
Cash and short-term investments at end of the year P. 39,011,149 P. 23,178,306 P. 2,527,224 $ 276
=====================================================================
See accompanying notes.
F-9
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
1. Description of Business
a) Telmex Spin-off
The spin-off by Telefonos de Mexico, S.A. de C.V. (Telmex) of the
entities comprising America Movil, S.A. de C.V. and its subsidiaries
(collectively, the Company or America Movil) was approved by Telmex stockholders
at an extraordinary stockholders' meeting held on September 25, 2000, at which
time each holder of Telmex shares became the owner of an equal number of America
Movil shares of the corresponding class. As a result of the spin-off, America
Movil was established as a Mexican corporation, independent of Telmex, to which
specified assets, liabilities and equity were transferred.
Prior to the spin-off, the entities comprising America Movil operated
independently of Telmex. Costs and expenses incurred or paid by Telmex on behalf
of these entities were passed on to the respective Company. Telmex and
Radiomovil Dipsa, S.A. de C.V. (Telcel), a significant subsidiary of America
Movil, have extensive operational relationships including, among others, the
interconnection of their respective networks and the use of facilities,
particularly the colocation of switching equipment on premises owned by Telmex.
These operational relationships are subject to various agreements, which, for
the most part, were in place prior to the spin-off and have continued in effect
without significant modification following the spin-off. Many of them are also
subject to specific regulations governing all telecommunications operators. The
terms of these agreements are similar to those on which each company does
business with other unaffiliated parties.
Neither Telmex nor America Movil owns any capital stock in the other;
however, both companies are controlled by the same group of shareholders. The
relationship between Telmex and America Movil is limited to: a) agreements
related to the implementation of the spin-off and b) commercial relationships in
the ordinary course of business between a major fixed-line network operator and
a major wireless network operator as described above.
Prior to the incorporation of America Movil, the Company's operations
were conducted through subsidiaries of Telmex. The financial statements for the
year ended December 31, 1999, are presented on a combined basis prepared from
Telmex's historical accounting records, and include the historical operations of
the entities transferred to America Movil by Telmex in the spin-off. In this
context, no historical direct ownership relationship existed among the various
entities comprising America Movil prior to the spin-off; accordingly, Telmex and
its subsidiaries' net investment in America Movil has been included in these
financial statements at Telmex's indexed cost plus its equity in the
undistributed earnings or losses of the spun-off entities.
F-10
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
b) Operations
America Movil is a leading provider of wireless communications services
in Mexico through its subsidiary Radiomovil Dipsa, S.A. de C.V. which operates
under the trademark "Telcel". America Movil provides Mexico's only nationwide
cellular telecommunications services.
America Movil has subsidiaries and equity investments in affiliated
companies in the telecommunications sector in Guatemala, Ecuador, Brazil,
Argentina, Colombia, Spain, Puerto Rico and the United States.
America Movil equity interest in its principal subsidiaries and
affiliated companies as of December 31, 2000 and 2001 is as follows:
-------------------------------------------------------------------------------------------------------
Equity interest at December 31,
Name of Company Location 2000 2001
-------------------------------------------------------------------------------------------------------
Subsidiaries:
Sercotel, S.A. de C.V. Mexico 100.0% 100.0%
Radiomovil Dipsa, S.A. de C.V. Mexico 100.0 100.0
TracFone Wireless, Inc. USA 97.4 97.8
America Central Tel, S.A. (ACT) Guatemala 85.6 94.9
Telecomunicaciones de Guatemala, S.A.
(TELGUA) Guatemala 81.3 93.8
Servicios de Comunicaciones Personales
Inalambricas, S.A., (Sercom) Guatemala 90.8 93.8
Consorcio Ecuatoriano de Telecomunicaciones,
S.A. CONECEL (Conecel) Ecuador 60.0 61.3
Techtel-LMDS Comunicaciones Interactivas, S.A. Argentina 60.0
Affiliates:
Telecom Americas, Ltd. Bermuda 44.3 45.5
ATL-Algar Telecom Leste, S.A. Brazil 22.1 26.8
Americel, S.A. Brazil 7.2 34.1
Telet, S.A. Brazil 7.2 35.3
Tess, S.A. Brazil 45.5
Techtel-LMDS Comunicaciones Interactivas, S.A. Argentina 27.3
Canbras Communications Corp. Canada 31.3 34.6
Comunicacion Celular, S.A. Colombia 30.3 35.3
Occidente y Caribe Celular, S.A. Colombia 22.9 28.6
Genesis Telecom, C.A. Venezuela 22.5 26.8
ATL-Algar Telecom Leste, S.A. Brazil 41.0
CompUSA, Inc. USA 49.0 49.0
SBC International Puerto Rico, Inc. Puerto Rico 50.0 50.0
Empresas Cablevision, S.A. de C.V. Mexico 49.0 49.0
Organizacion Recuperadora de Cartera S.A. C.V. Mexico 45.0
Iberbanda, S.A. (formerly FirstMark
Comunicaciones Espana, S.A.) Spain 17.5 18.6
Network Access Solutions USA 5.9 2.0
F-11
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
America Movil through its subsidiaries, Telcel, Sercom and Conecel, has
licenses to install, operate and manage mobile telecommunication services in
Mexico, Guatemala and Ecuador, respectively. The licenses in Mexico will expire
on various dates between the years 2009 and 2015. The licenses in Ecuador and
Guatemala will expire between the years 2009 and 2014, respectively. As payment
for the licenses awarded in Mexico (except as mentioned in the next paragraph),
the Mexican federal government receives a percentage of Telcel's revenues,
ranging from 4% to 10% of annual gross revenues derived from the licenses and
generated in Mexico.
In 1997 and 1998, the Mexican federal government awarded Telcel
additional licenses to those mentioned in the preceding paragraph to operate a
nationwide wireless network using the 800-megahertz (Band B) radio spectrum and
to use the 1800-1900 megahertz (Band D) radio spectrum to provide personal
communication services (PCS) in the nine regions into which Mexico is divided.
The licenses are for 20 years and required a single payment of P. 45,457 and P.
1,778,134, respectively. The term of these licenses may be extended at the
discretion of the federal government.
Servicios de Comunicaciones Personales Inalambricas, S.A. (Sercom),
ACT's subsidiary, holds licenses in Guatemala to operate its cellular network on
different frequencies for 15 years. Sercom paid approximately U.S.$ 20 million
for these licenses.
Since 1994, Consorcio Ecuatoriano de Telecomunicaciones, S.A. (Conecel)
has held licenses to operate a cellular network and provide teleport services in
Ecuador for a period of 15 years. In May 1998, Conecel paid in advance U.S.$ 53
million for the concession rights.
Under the terms of licenses granted to Telcel, and under the Mexican
Federal Telecommunications Law, the Company may freely set rates for licensed
services. Rates do not require authorization from the Communications Ministry;
however, the Company must publish and register them with the Ministry.
Revenues of Telcel, Telgua Sercom and Conecel include usage charges,
monthly rent, long-distance charges, proceeds from sales of handsets and
accessories and charges for other services.
TracFone Wireless, Inc. (TracFone) resells cellular airtime on a
prepaid basis through retailers to customers who use telephones equipped with
TracFone's software. TracFone does not own cellular infrastructure but purchases
airtime from carriers throughout the United States. Revenues derived from the
sale of cellular telephones are incidental to TracFone's main business of
reselling cellular airtime. TracFone services are provided within the
continental United States.
F-12
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
2. Significant Accounting Policies
The most important accounting policies and practices followed in the
preparation of these financial statements are described below:
a) Consolidation
The consolidated financial statements include the accounts of America
Movil and those of the subsidiaries mentioned in Note 1. All of the companies
operate in the telecommunications sector or provide services to companies
operating in such sector.
All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
The minority interest relates to the Company's foreign subsidiaries.
b) Revenue recognition
Revenues are recognized at the time services are provided. All services
provided by Telcel, Telgua, Sercom and Conecel are billed monthly based on the
rates approved by the regulatory authorities in the respective countries.
Revenues from the sale of prepaid plans (calling cards) are deferred
and recognized as a customer uses the airtime or when the card expires. Basic
monthly rent under other than prepayment plans is billed in the month prior to
service and recognized as revenues in the month the service is provided.
Revenues from minutes over the maximum allotted are recognized at the time the
service is provided.
Telcel generally does not charge activation fees to its customers;
however, in certain regions of Mexico, depending upon market and competition
strategies, certain activation fees are charged. Telcel recognizes these fees,
as well as the cost incurred to obtain a customer, in the statement of
operations when the fees are billed. Telgua's revenues from telephone line
installation fees are deferred based on the estimated useful life of
subscribers.
TracFone's sales of airtime are deferred and recognized as revenues
when a customer uses the airtime.
Sales of handsets and accessories are recorded as revenue upon
shipment, provided that no Company obligation remains and that collection of the
resulting receivable is deemed probable by management. The cost of telephone
equipment delivered to customers under other than prepayment plans is charged to
income at the time the respective agreements are signed.
F-13
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
c) Basis of translation of financial statements of foreign subsidiaries
The financial statements of foreign subsidiaries and affiliates,
located in Guatemala, Ecuador, Argentina, Brazil, Spain, Puerto Rico and the
United States, which in the aggregate account for approximately 23% and 22% of
the Company's total operating revenues and approximately 31% and 35% of the
Company's total assets in 2000 and 2001, respectively, are translated into
Mexican pesos in conformity with Mexican accounting Bulletin B-15 "Transactions
in Foreign Currency and Translation of Financial Statements of Foreign
Operations", issued by the Mexican Institute of Public Accountants (MIPA), as
follows:
The figures reported by the subsidiaries abroad were adjusted to
conform to Mexican GAAP.
All balance sheet amounts, except for stockholders' equity accounts,
were translated at the prevailing exchange rate at year-end; stockholders'
equity accounts were translated at the prevailing exchange rate at the time
capital contributions were made and earnings were generated. The statement of
operations accounts were translated at the weighted average exchange rate for
the year. The exchange rate differences and the monetary effect derived from
intercompany monetary items were not eliminated in the consolidated statements
of income. Translations adjustments are reflected in a separate stockholders'
equity caption known as "Effect of translation of foreign subsidiaries."
At December 31, 1999, 2000 and 2001, translation losses aggregated P.
71,572, P. 535,952 and P. 343,665, respectively, and are included in
stockholders' equity under the caption other accumulated comprehensive income
items.
Previously reported 1999 and 2000 consolidated financial statements are
presented in constant currency at December 31, 2001, using a common restatement
factor of 3.10%, which was determined based on the weighted average revenues for
each of the currencies included in the financial statements.
d) Recognition of the effects of inflation
The Company recognizes the effects of inflation on financial
information as required by Mexican accounting Bulletin B-10 "Accounting
Recognition of the Effects of Inflation on Financial Information", issued by the
MIPA. Consequently, the amounts shown in the accompanying financial statements
and in these notes are expressed in thousands of constant pesos as of December
31, 2001. Accordingly, the financial statements have been restated as follows:
Plant, property and equipment and construction in progress were
restated as described in Note 6.
F-14
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Inventories are presented at estimated replacement cost, not in excess
of market value. Cost of sales represents estimated replacement cost at the time
inventories were sold, restated in constant pesos at year-end.
Capital stock, retained earnings and other nonmonetary assets were
restated using adjustment factors obtained from the Mexican National Consumer
Price Index (NCPI) published by Banco de Mexico.
Included in Accumulated other comprehensive income, is the deficit from
restatement of stockholder's equity, which consists of the accumulated monetary
position gain determined at the time the provisions of Bulletin B-10 were first
applied, which at December 31, 2001 aggregates P. 14,988, the result from
holding nonmonetary assets, which represents the net difference between
restatement by the specific indexation method (see Note 6) and restatement based
on the NCPI, and the effect of translation of foreign entities.
The net monetary loss represents the impact of inflation on monetary
assets and liabilities. The relative amounts were included in the statements of
operations as a part of the comprehensive financing income (cost).
Mexican accounting Bulletin B-12, "Statement of Changes in Financial
Position" specifies the appropriate presentation of the statement of changes in
financial position based on financial statements restated in constant Mexican
pesos in accordance with Bulletin B-10. Bulletin B-12 identifies the sources and
applications of resources representing differences between beginning and ending
financial statement balances in constant Mexican pesos. In accordance with this
Bulletin, monetary and foreign exchange gains and losses are not treated as
noncash items in the determination of resources provided by operations.
e) Cash, short-term investments and restricted investments
Cash and short-term investments, represented principally by bank
deposits and highly liquid investments with maturities of three months or less,
are stated at cost plus accrued interest. The stated value is not in excess of
market value.
In order to comply with agreements entered with certain United States
national airtime carriers, TracFone has placed funds on deposit with commercial
banks in the form of certificates of deposits with maturities between six months
and one year. Because the amounts involved are not material (P. 29,780 and P.
11,784 at December 31, 2000 and 2001, respectively), these amounts have been
included under cash and short-term investments on the consolidated balance
sheets.
F-15
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
f) Marketable securities
Marketable securities, presented at market value, are held for trading
purposes and include corporate and foreign government bonds, notes and equity
securities.
g) Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts for accounts
receivable that are more than 90 days past due.
h) Plant, property and equipment
Depreciation is computed on the restated value of telephone plant and
equipment using the straight-line method based on the estimated useful lives of
the related assets, starting the month after the assets are put into use.
Average annual depreciation rates are as follows:
Telephone plant 10% to 33%
System performance monitoring equipment
included in telephone plant 33%
Buildings 3%
Other assets 10% to 25%
Telcel's cost of installed telephone equipment used to provide cellular
telephone service in rural areas and fixed cellular telephone service in urban
areas is depreciated over a 3 year period, based on the estimated useful lives
of the telephone equipment.
i) Leasehold improvements
These investments are restated based on the NCPI and consist of costs
incurred in remodeling the building where the Company's offices are located.
Amortization is computed over a 3 year period which in general corresponds to
the term of the lease agreement.
j) Licenses
The licenses to operate wireless telecommunications networks in Mexico
are restated using the NCPI. Amortization is computed based on the restated
value, using the straight-line method over the initial term of the license. The
wireless mobile (PCS) licenses to operate in Guatemala and Ecuador are being
amortized at 6% annually.
k) Equity investments in affiliates
The investment in shares of affiliates in which the Company holds an
equity interest of 10% or more and has significant influence, is accounted for
using the equity method. This accounting method consists basically of
recognizing the investor's equity interest in the results of operations and in
the result from holding nonmonetary assets of investees at the time such results
are determined (see Note 8).
F-16
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
l) Goodwill
As described in Note 8, during 1999 and 2000, the Company expanded its
business through acquisitions of wireless telecommunications companies which
operate in established markets, where the estimated useful lives of the acquired
assets are approximately 10 years; based on this, the Company decided to change
the amortization period of goodwill to ten years. Had the Company continued with
its previous policy, amortization expense for the years ended December 31, 2000
and 2001 would have increased by P. 599,730 and P.630,485 and net income would
have decreased by the same amount (reduction of P. 0.042 and P. 0.050 of net
income per share).
In addition, the ten-year amortization period is consistent with
amortization practices in the wireless telecommunications industry.
Through December 31, 1999, the Company amortized goodwill derived from
the acquisition of subsidiaries and affiliates over a period of five years.
m) Exchange differences
Transactions in foreign currencies are recorded at the prevailing
exchange rate at the time of the related transactions. Foreign currency
denominated assets and liabilities are translated at the prevailing exchange
rate at the balance sheet date. Exchange rate differences are applied directly
to income of the year.
n) Employee benefits obligations
The cost of seniority premiums is recognized during the years of
service of employees, based on actuarial computations made by independent
actuaries, using the projected unit-credit method and financial hypotheses net
of inflation, as required by Mexican accounting Bulletin D-3, issued by the
MIPA, (see Note 9). Termination payments are charged to income in the year in
which the decision to dismiss an employee is made.
o) Income tax and employee profit sharing
Effective January 1, 2000, requirements of Mexican accounting Bulletin
D-4, "Accounting for Income Tax, Asset Tax and Employee Profit Sharing", issued
by the MIPA, went into effect. This Bulletin modifies the rules with respect to
the determination and presentation of deferred income tax (deferred taxes).
Basically, this Bulletin requires that deferred taxes be determined on virtually
all temporary differences in balance sheet accounts for financial and tax
reporting purposes, using the enacted income tax rate at the date of the
financial statements. Through December 31, 1999, deferred taxes were recognized
only for temporary differences that were considered to be non-recurring and that
had a known turnaround time. Consequently, the income tax provision for 2000 and
2001 includes both current year and deferred income tax (see Note 16).
F-17
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Bulletin D-4 does not significantly change how deferred employee profit
sharing in accounted for.
p) Advertising
All advertising costs are expensed as incurred. Advertising expense
amounted to approximately P. 598,708, P. 1,481,384 and P. 1,722,407, for the
years ended December 31, 1999, 2000 and 2001, respectively.
q) Comprehensive income
Requirements of Mexican accounting Bulletin B-4, "Comprehensive
Income", issued by the MIPA, went into effect on January 1, 2001. The Company's
comprehensive income is the net income (loss) for the year presented in the
statement of operations plus the result from holding nonmonetary assets, the
effects of translation of foreign entities and the effect of deferred taxes
applied directly to stockholders' equity.
r) Earnings per share
The Company determined earnings per share by dividing current year net
results by the average weighted number of shares issued and outstanding during
the period as specified in Mexican accounting Bulletin B-14, "Earnings per
share", issued by the MIPA. For the year ended December 31, 1999, earnings per
share were determined based on the number of shares issued and outstanding
(14,485 million) at September 25, 2000, the date America Movil was incorporated.
To determine the average weighted number of shares issued and
outstanding in 2001, the shares held by the Company have been excluded from the
computation.
s) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and in the
accompanying notes. Actual results could differ from those estimates.
t) Concentration of risk
The Company invests a portion of its surplus cash in deposits in
financial institutions with strong credit ratings and has established guidelines
relating to diversification and maturities to maintain safety and liquidity. The
Company has not experienced any important losses in its marketable securities.
America Movil does not believe it has significant concentrations of credit risks
in its accounts receivable, because the Company's customer base is
geographically diverse, thus spreading the trade credit risk.
F-18
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The Company operates internationally; consequently, it is exposed to
market risks for fluctuations in exchange rates.
Approximately 92%, 60% and 67% of the Company's aggregate
interconnection expenditures in its cellular network for the years ended
December 31, 1999, 2000 and 2001, respectively, represented services rendered
from one supplier; approximately 79%, 75% and 75% of the aggregate cost of
telephone equipment for such periods represented purchases from three suppliers;
and approximately 75%, 90% and 90% of telephone plant purchases were made from
two suppliers.
If any of these suppliers fails to provide the Company with services or
equipment on a timely and cost effective basis, the Company's business and
results of operations could be adversely affected.
u) Financial instruments
Requirements of the new Mexican Accounting Principles Bulletin C-2,
"Financial Instruments", issued by the MIPA, went into effect on January 1,
2001. This new bulletin establishes the basic rules to be observed by issuers of
and the investors in financial instruments when valuing, presenting and
disclosing these instruments in their financial information. Bulletin C-2
requires that financial instruments (including derivatives) be recognized as
assets and liabilities and that the gains and losses on such instruments be
credited and charged, respectively, to income, except for asset and liability
hedges. The Company enters into short-term exchange-rate hedges to offset the
risk of loss on certain U.S. dollar denominated transactions. The gains or
losses on these hedges are credited or charged to income using the accrual
method, net of the gains or losses on the related assets or liabilities. In
2001, the observance of the requirements of Bulletin C-2 had no material
effects, nor were there any equivalent transactions of importance in 1999 and
2000.
v) Convenience translation
United States dollar amounts as of December 31, 2001 shown in the
financial statements have been included solely for the convenience of the reader
and are translated from pesos with purchasing power as of December 31, 2001, as
a matter of mathematical computation only, at an exchange rate of P. 9.1423 to
U.S.$ 1.00, the December 31, 2001 exchange rate. Such translations should not be
construed as a representation that the peso amounts have been or could be
converted into U.S. dollars at this or any other rate.
w) Reclassifications
Some amounts shown in the 1999 and 2000 financial statements have been
reclassified for uniformity of presentation with 2001.
F-19
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
3. Marketable Securities
The following is a summary of marketable securities, all of which were
classified as trading, as of December 31, 2000 and 2001:
2000 2001
---------------------------------------------------------------------
Cost Fair Value Cost Fair Value
---------------------------------------------------------------------
Corporate bonds P. 2,828,629 P. 3,031,953
Notes 5,528,472 5,682,811
Foreign government bonds P. 1,448,152 P. 1,526,027 746,466 762,983
Equity securities 145,110 142,791 421,218 421,218
---------------------------------------------------------------------
P. 1,593,262 P. 1,668,818 P. 9,524,785 P. 9,898,965
=====================================================================
The Company included for 2001, under comprehensive financing cost,
unrealized gains in its marketable securities of P. 374,180, of which 357,663
are from available-for-sale securities (P. 50,649 and P. 75,556 in 1999 and
2000, respectively). Net realized gains on trading securities for 2001 totaled
P. 272,777 (P. 249,506 and P. 51,251 in 1999 and 2000).
The December 31, 1999 investments in equity securities and bonds were
realized in 2000, producing a gain of P. 190,579. During 2001, the Company sold
part of its foreign government bonds that held at December 31, 2000, producing a
loss of P. 573,512.
4. Accounts Receivable
Accounts receivable consist of the following:
2000 2001
---------------------------------------
Subscribers P. 1,623,106 P. 2,217,499
Interconnection receivables from cellular operators 156,556 318,967
Retailers 475,048 1,529,583
Williams International, Ltd. 697,783
Creditable taxes 1,417,347 121,895
Other receivables 528,330 338,368
---------------------------------------
4,898,170 4,526,312
Less: Allowance for doubtful accounts (340,294) (142,671)
---------------------------------------
Net P. 4,557,876 P. 4,383,641
=======================================
Activity in the allowance for doubtful accounts for the years ended
December 31, 1999, 2000 and 2001 was as follows:
1999 2000 2001
---------------------------------------------------------
Opening balance as of December 31 P. (139,737) P. (157,767) P. (340,294)
Additions charged to costs and expenses (217,359) (313,682) (140,191)
Deductions to reserve for write-offs 199,329 131,155 337,814
---------------------------------------------------------
Ending balance P. (157,767) P. (340,294) P. (142,671)
=========================================================
F-20
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
5. Inventories
Inventories consist of the following:
2000 2001
---------------------------------------
Cellular telephones and accessories P. 3,712,695 P. 3,434,960
Less:
Reserve for obsolete inventory (12,328) (26,739)
---------------------------------------
Net P. 3,700,367 P. 3,408,221
=======================================
6. Plant, Property and Equipment
a) Plant, property and equipment consist of the following:
2000 2001
---------------------------------------
Telephone plant and equipment P. 26,301,005 P. 32,966,811
Land and buildings 950,351 4,540,649
Other assets 2,579,202 6,694,803
---------------------------------------
29,830,558 44,202,263
Accumulated depreciation (7,194,193) (13,365,067)
---------------------------------------
Net 22,636,365 30,837,196
Construction in progress and advances to
equipment suppliers 7,778,289 7,124,127
Inventories for use in construction of the
telephone plant 3,760,460 2,016,503
---------------------------------------
Total P. 34,175,114 P. 39,977,826
=======================================
Included in plant, property and equipment are the following assets held
under capital leases:
2000 2001
---------------------------------------
Assets under capital leases P. 43,835 P. 43,835
Accumulated depreciation (13,727) (37,669)
---------------------------------------
P. 30,108 P. 6,166
=======================================
b) Depreciation expense for the years ended December 31, 1999, 2000 and 2001 was
P. 1,194,875, P. 2,247,536 and P. 3,568,137, respectively.
c) Through December 31, 1996, items comprising the telephone plant in Mexico
were restated based on the acquisition date and cost, applying the factor
derived from the specific indexes determined by the Company and validated by an
independent appraiser registered with the National Banking and Securities
Commission (NBSC).
F-21
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Effective January 1, 1997, Bulletin B-10 eliminated the use of
appraisals to present telephone plant, property and equipment in the financial
statements. At December 31, 2000 and 2001 this caption was restated as follows:
. The December 31, 1996 appraisal value of the imported telephone
plant, as well as the cost of subsequent additions to such plant,
were restated based on the rate of inflation in the respective
country of origin and the prevailing exchange rate at the balance
sheet date (specific indexation factors).
. The appraised value of land, buildings and other fixed assets of
domestic origin at December 31, 1996, and the cost of subsequent
additions to such assets were restated based on the NCPI.
At December 31, 2001, approximately 88% of the value of the telephone
plant, property and equipment (90% in 2000) has been restated using specific
indexation factors.
d) Following are the plant, property and equipment amounts at December 31, 2000
and 2001, restated on the basis of the 2001 NCPI (starting with the appraised
values at December 31, 1996), to meet NBSC disclosure requirements with respect
to the restatement of fixed assets based on specific indexation factors:
2000 2001
---------------------------------
Telephone plant and equipment P. 26,683,849 P. 35,490,271
Land and buildings 951,462 4,908,137
Other assets 2,579,202 6,975,764
---------------------------------
30,214,513 47,374,172
Accumulated depreciation (7,495,513) (13,639,717)
---------------------------------
Net 22,719,000 33,734,455
Construction in progress and advances
to equipment suppliers 7,785,525 7,124,127
Inventories for use in construction of the
telephone plant 3,760,460 2,016,503
---------------------------------
Total P. 34,264,985 P. 42,875,085
=================================
7. Licenses
As of December 31, 2000 and 2001 licenses are as follows:
2000 2001
---------------------------------
Investment P. 3,301,054 P. 3,565,586
Accumulated amortization (812,682) (1,091,234)
---------------------------------
Net P. 2,488,372 P. 2,474,352
=================================
F-22
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Amortization expense for the years ended December 31, 1999, 2000 and
2001 was P. 161,725, P. 241,633 and P. 278,552, respectively.
8. Investments
An analysis at December 31, 2000 and 2001 is as follows:
2000 2001
--------------------------------------------
Investments in:
Affiliates P. 12,320,410 P. 22,879,542
Other investments 922,387 553,319
--------------------------------------------
Total P. 13,242,797 P. 23,432,861
============================================
I. Investments in affiliates
An analysis of the equity investments in affiliated companies at
December 31, 2000 and 2001, and a brief description of major acquisitions is as
follows:
2000 2001
---------------------------------------------
Telecom Americas, Ltd. P. 4,928,961 P. 12,964,146
ATL-Algar Telecom Leste, S.A. (1) 2,836,215
CompUSA, Inc. 4,066,625 3,914,892
SBC International Puerto Rico, Inc. 2,471,848 2,072,828
Empresas Cablevision, S.A. de C.V. 757,100 665,103
Organizacion Recuperadora de Cartera S.A. de C.V. 426,358
Iberbanda, S.A. 95,876
-------------------------------------------
Total P. 12,320,410 P. 22,879,542
===========================================
(1) Net of a note payable of U.S.$ 90 million.
Financial statements highlights of the affiliated companies as of
December 31, 2000 and 2001 are as follows:
December 31, 2000
--------------------------------------------------------
Telecom SBC International
Americas, Ltd. CompUSA, Inc. Puerto Rico, Inc.
--------------------------------------------------------
Balance sheet:
Current assets P. 11,118,200 P. 8,786,112 P. 826,107
Noncurrent assets 24,522,161 11,436,764 9,805,632
Current liabilities 2,418,225 7,156,552 4,228,775
Noncurrent liabilities 7,073,713 4,743,237 2,078,520
Minority interest 224,401
Statement of operations:
Revenues 250,956 40,292,613 2,254,543
Gross (loss) profit (151,944) 7,930,877 (92,965)
Net loss (724,195) (470,982) (367,446)
F-23
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
December 31, 2001
-----------------------------------------------------
Telecom. SBC International
Americas, Ltd. CompUSA, Inc. Puerto Rico, Inc.
-----------------------------------------------------
Balance sheet:
Current assets P. 8,190,705 P. 6,610,953 P. 1,920,797
Noncurrent assets 58,412,897 9,564,272 8,894,333
Current liabilities 25,355,602 5,281,690 5,236,837
Noncurrent liabilities 17,154,959 3,313,910 1,781,203
Minority interest 1,343,580
Statement of operations:
Revenues 4,326,200 37,962,944 2,455,823
Gross (loss) profit (2,307,709) (771,345) 1,770,077
Net loss (8,632,370) (969,047) (216,032)
Telecom Americas
a) In November 2000, The Company entered into an agreement with Bell Canada
International Inc. (BCI) and SBC International, Inc. (SBCI) to form Telecom
Americas, Ltd., a joint venture company that will serve the three parties as the
major vehicle for expansion in Latin America. Under this agreement each party
was committed to make the following contributions to the joint venture:
America Movil contributed to Telecom Americas approximately U.S.$ 164.9
million in cash and U.S.$ 1,007.5 million in notes. In addition, the Company
contributed (i) its equity interest in ATL-Algar Telecom Leste, S.A. ("ATL") (a
Brazilian Band B wireless operator), and (ii) in August 2001, its equity
interest in Techtel-LMDS Comunicaciones Interactivas, S.A. and Telstar, S.A.,
broadband wireless operators in Argentina. The goodwill of P. 232,367 generated
is amortized over a period of ten years. The unamortized balance of goodwill at
December 31, 2000 and 2001 was P. 232,367 and P. 193,177, respectively.
BCI contributed notes for approximately U.S.$ 964 million to Telecom
Americas. In addition, BCI contributed its equity interest in (i) the Brazilian
cellular phone operators Americel, S.A. and Telet, S.A.; (ii) Canbras
Communications Corp., S.A. a Brazilian supplier of cable television and internet
access services, (iii) Colombian cellular phone operators Comunicacion Celular,
S.A. (Comcel) and Occidente y Caribe Celular, S.A. (Occel); and (iv) Genesis
Telecom, C.A. a broadband cellular operator in Venezuela.
SBCI contributed its equity interest in ATL.
As a result of the contributions mentioned above, America Movil and BCI
each had a 44.27% equity interest in the capital stock of Telecom Americas and
SBCI had an equity interest of 11.46%. Telecom Americas is subject to provisions
regulating the rights of each stockholder with respect to management. Basically,
these provisions require agreement between America Movil and BCI on important
decisions affecting Telecom Americas.
b) As mentioned previously, as part of the formation of Telecom Americas, BCI
and America Movil contributed notes for U.S.$ 964 million and U.S.$ 1,007.5
million, respectively, subject to cancellation at June 30, 2001. On July 13,
2001, BCI and America Movil cancelled notes for a total of U.S.$ 275 million and
U.S.$ 141 million, respectively.
F-24
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
In addition, during the first half of 2001 America Movil, BCI and SBCI
contributed U.S.$ 107 million, U.S.$ 97 million and U.S.$ 30 million,
respectively, to Telecom Americas.
As a result of these cancellations and contributions, BCI's equity
interest in Telecom Americas was reduced to 41.7% (from 44.27%); America Movil's
equity interest was increased to 45.5% (from 44.27%) and SBCI's equity interest
was increased to 12.8% (from 11.46%).
c) On February 7, 2002, Telecom Americas was reorganized to maintain exclusively
investments in cellular companies in Brazil. Telecom Americas transfered its
77.1% equity interest in Comcel and 60% equity interest in Techtel to America
Movil; its 76% equity interest in Canbras to BCI; and its 59% equity interest in
Genesis equally to America Movil and BCI. America Movil also transfered to
Telecom Americas an additional 41% equity interest in the Brazilian ATL plus
U.S.$80 million in cash. BCI, SBCI and America Movil's equity interest in
Telecom Americas did not change as a result of the restructuring.
d) On February 12, 2002, Telecom Americas signed an agreement with a financial
investor for an equity investment of U.S.$ 300 million, which is subject to
customary closing conditions and is expected to close in April 2002. Taking into
account the proposed U.S.$ 300 million investment, America Movil's interest in
Telecom Americas would be reduced approximately to 42.4%.
e) In January 2002, America Movil acquired in various transactions a minority
equity interest of 14% in Comcel for approximately U.S.$ 55 million. Most of
this minority interest was acquired from Empresa de Telecomunicaciones de
Bogota, S.A. As a result of the restructuring in Telecom Americas described in
the preceding paragraph and the acquisition of the 14% minority interest,
America Movil's equity interest in Comcel was increased to 93%. Due to the
above-mentioned agreements, America Movil will start the consolidation of Comcel
in its results of operations commencing February 2002.
Unaudited subsequent events
a) On April 9, 2002, America Movil sold its 49% equity interest in Cablevision,
through an IPO in the Mexican Stock Exchange. Proceeds of the sale amounted to
approximately U.S.$ 200 million.
b) As mentioned on paragraph d) above, on April 19, 2002, the U.S.$ 300 million
equity contribution in Telecom Americas by a financial investor was closed. As a
result, BCI, America Movil and SBCI's equity interest in Telecom Americas was
reduced to 39.1%, 42.4% and 11.1%, respectively.
c) In April 2002, America Movil increased its interest in Conecel from 61.3% to
80.6% for a total consideration of approximately U.S.$ 70.3 million.
F-25
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
d) On June 3, 2002, America Movil reached a definitive agreement with BCI, which
is expected to close in August 2002, for the purchase of BCI's 39.1% interest in
Telecom Americas. The purchase price will be approximately U.S.$ 366 million and
will be paid in two installments, one upon closing of the agreement for
approximately U.S.$ 146 million and another one for U.S.$ 220 million on March
1, 2003. Upon the closing of this transaction, America Movil will also exercise
its call option on SBCI's 11.1% interest in Telecom Americas. The exercise of
this option will not entail any payment by America Movil. America Movil's
interest in Telecom Americas will rise from 42.2% to 93% as a result of the
above-mentioned transactions.
ATL-Algar Telecom Leste
At December 31, 2000, America Movil through Telecom Americas indirectly
held a 59% economic interest in ATL. America Movil's interest in ATL was
acquired in January 2000 for approximately U.S.$ 248.2 million. Ameriva Movil's
in interest in ATL was contributed at fair market value to Telecom Americas in
November 2000, resulting in a gain of P. 1,003,364.
In August 2001, America Movil acquired from Williams Communications
Group, Inc. and additional 41% economic interest in ATL, for a purchase price of
U.S.$ 400 million. The first U.S.$ 300 million were paid at the closing of the
transaction in August 2001, and the remaining U.S.$ 100 million provided on the
form of a promissory note maturing in May 2002.
Techtel-LMDS Comunicaciones Interactivas
In July 2000, America Movil acquired a 60% equity interest in Telcel
Wireless Argentina, LLC (Telcel Argentina), a partnership with Techint, an
Argentinean industrial group, for approximately U.S.$ 148.5 million. Telcel
Argentina holds a 100% equity interest in Techtel, a company that provides video
and data transfer services, as well as added value telecommunications services.
America Movil's interest in Techtel was contributed at fair market value to
Telecom Americas in August 2001, resulting in a gain of P. 385,101.
CompUSA
In March 2000, the Company acquired a 49% equity interest in CompUSA, a
PC retailer located in Dallas, Texas for approximately U.S.$ 458.9 million.
Goodwill of P. 228,075 generated on this acquisition is amortized over a period
of ten years. The unamortized balance of goodwill at December 31, 2000 and 2001
was P. 211,604 and P. 176,394 respectively.
F-26
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
SBC International Puerto Rico
In October 1999, the Company acquired a 50% equity interest in SBC
International Puerto Rico, Inc. (SBCI Puerto Rico), for a total consideration of
approximately U.S.$ 244.7 million. SBCI Puerto Rico is the parent company of
Cellular Communications of Puerto Rico, Inc., a wireless telephone operator in
Puerto Rico and the U.S. Virgin Islands. The remaining 50% equity interest in
SBCI Puerto Rico is held by SBC Wireless Puerto Rico, LLC.
In January 2002, the Company sold its 50% interest in SBC International
Puerto Rico to SBCI for U.S.$ 106 million in cash plus an option agreement under
which the Company may elect to acquire SBCI's 12.8% interest in Telecom Americas
or an amount in cash equal to the fair market value of such interest. The option
expires in 2005 but may be exercised earlier if America Movil reaches a 50%
equity interest in Telecom Americas.
Empresas Cablevision
In 1995, the Company acquired 49% of the capital stock of Empresas
Cablevision, S.A. de C.V. and subsidiaries (Cablevision). Cablevision provides
cable TV in the Mexico City metropolitan area. The remaining 51% interest in
Cablevision is held by Grupo Televisa, S.A. de C.V.
Organizacion Recuperadora de Cartera S.A. de C.V.
At the end of June 2001, America Movil jointly with Telmex and Grupo
Carso completed the constitution of Organizacion Recuperadora de Cartera, S.A.
de C.V. (ORCA). ORCA, through a subsidiary, groups together four call centers in
the United States. America Movil owns a 45% interest participation in ORCA, to
which it contributed approximately U.S.$ 46.8 million.
Network Access Solutions
In June 1999, the Company acquired a 0.08% equity interest in Network
Access Solutions Corporation (Network Access) a provider of broadband network
access services. In March 2000, the Company made additional capital
contributions to Network Access and as a result, increased its equity interest
to 5.9%. Total equity investments in Network Access were approximately US$ 79
million. No additional contributions were made in 2001.
In December 2001, America Movil, through Sercotel exchanged 412,500
shares of the preferred stock of Network Access Solutions Corporation for
warrants to purchase 9,728,774 common shares of Armillaire Technologies, Inc.
(Armillaire) owned by Linsang Partners, LLC, representing 10.08% of the common
stock of Armillaire. No gain or loss was recognized on this transaction.
F-27
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The investment in Network Access at December 31, 2000 is included under
the caption other investments.
Other minor acquisitions made by the Company during 2000 and 2001
aggregated P. 515,122 and P. 82,886, respectively.
At December 31, 2001, the Company recognized an impairment equal to
100% of the carrying value of its equity investments in non-strategic associated
companies (ARBROS Communications, Inc, Iberbanda, Network Access and Armillaire)
through a charge to operations of P. 1,940,557.
The equity in the net loss of Telecom Americas includes the equity
share of the impairment on the value of its subsidiaries, as recognized by
Telecom Americas of P. 1,168,292, which is presented in the statement of
operations under the caption equity in net results of affiliates.
II. Investments in subsidiaries
Following is a summary of the most important equity investments in
subsidiaries during 2000 and 2001:
TracFone Wireless
In February 1999, the Company acquired a 55.5% equity interest in
TracFone, which is engaged in the resale of prepaid cellular telephone service
in the United States. From June 1999 through December 2001, America Movil has
made additional capital contributions to TracFone. As a result of these
transactions, as of December 31, 2000 and 2001, America Movil owns 97.4% and
97.8%, respectively, of the outstanding common stock.
The goodwill of P. 1,316,871 generated on these acquisitions is being
amortized over a ten year period. The unamortized balance of goodwill at
December 31, 2000 and 2001 was P. 1,111,535 and P. 1,009,245, respectively.
At December 31, 2001, total equity investments in TracFone amounted to
approximately U.S.$ 452.6.
Conecel
In March 2000, America Movil acquired a 60% interest in Conecel, a
supplier of cellular telecommunications services in Ecuador for approximately
U.S.$ 217 million. During 2001, the Company increased to 61.3% its equity
participation. The goodwill of P. 2,601,884 generated on this acquisition is
amortized over a ten-year period. The unamortized balance of goodwill at
December 31, 2000 and 2001 was P. 2,406,645 and P. 1,985,970, respectively .
F-28
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Telgua
In March 2000, the Company acquired an 85.6% equity interest in America
Central Tel, S.A. (America Central, formerly Luca, S.A.), which holds a 95%
equity interest in Telgua, a wireless and fixed line telecommunications operator
in Guatemala for approximately U.S.$ 171.5 million. In connection with the
acquisition of the shares of Telgua, America Central paid U.S.$ 350 million in
October 2001 to the Guatemalan Government and U.S.$ 101.7 million to cover 36
months of financing (See Note 11). During 2001, the Company increased to 94.9%
its equity participation in America Central Tel, S.A. and acquired an additional
direct 3.65% equity interest in Telgua. The goodwill of P. 636,975 generated on
these acquisitions is amortized over a ten year period. The unamortized balance
of goodwill at December 31, 2000 and 2001 was P. 590,124 and P. 486,270,
respectively.
Global Central America
In May 1999 the Company through Sercotel established Global Central
America (GCA) to which it contributed U.S.$ 65.8 million. In December 1999 and
March 2000, the Company made additional capital contributions to GCA in the
amount of U.S.$ 12.4 million and U.S.$ 15.7 million, respectively.
Through GCA, the Company acquired 99.9% of the capital stock of seven
companies in Guatemala. During 2001, Sercotel transferred its equity
participation in GCA and its Guatemalan subsidiaries to ACT. The goodwill from
these acquisitions amounted P. 169,031 and is amortized over a ten year period.
The unamortized balance of goodwill at December 31, 2000 and 2001 was P. 142,268
and P. 126,950, respectively.
The results of operations of the acquisitions made in 1999, 2000 and
2001 have been included in the Company's financial statements from the month
following the date of acquisition through the end of the period presented.
All of acquisitions were recorded pursuant to the purchase method of
accounting.
The Company is not obligated to make any further payments or provide
any form of additional or contingent consideration related to these
acquisitions, other than those already disclosed.
The following pro forma unaudited consolidated financial data for the
years ended December 31, 1999, 2000 and 2001 is based upon the historical
financial statements of the Company adjusted to give effect to (i) the
acquisitions as described above during 1999, 2000 and 2001; and (ii) certain
purchase accounting adjustments related to the amortization of goodwill, a
reduction in interest income for the loss of interest on the amounts expended
for the above acquisitions and adjustments for depreciation of amounts allocated
to adjust to fair value of the net assets of the acquired entities.
F-29
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The pro forma adjustments assume that the acquisitions were made at the
beginning of the earliest period presented and are based upon available
information and certain assumptions that management believes are reasonable. The
pro forma financial data does not purport to represent what the Company's
operations would have actually been had such transactions in fact occurred or to
predict the Company's results of operations.
Unaudited Pro Forma Consolidated
America Movil
For the years ended December 31,
----------------------------------------------------------
1999 2000 2001
----------------------------------------------------------
Operating revenues P. 20,538,385 P. 30,863,817 P. 41,363,913
Net income (loss) 3,520,318 905,645 (1,288,118)
Earnings (loss) per share (in Mexican
Pesos) 0.243 0.063 (0.098)
III. Goodwill
An analysis of goodwill at December 31, 2000 and 2001 is as follows:
2000 2001
-------------------------------------
Goodwill:
Subsidiaries P. 7,694,024 P. 4,895,120
Affiliates 460,442 460,442
-------------------------------------
8,154,466 5,355,562
Accumulated amortization (836,967) (1,098,311)
-------------------------------------
P. 7,317,499 P. 4,257,251
=====================================
Amortization expense for the years ended December 31, 1999, 2000 and 2001
was P. 203,977, P. 599,730 and P. 630,485, respectively.
9. Employee Benefits Obligations
In 1994, Telcel set up an irrevocable trust fund to cover the payment
of the obligations for seniority premiums, adopting the policy of making
contributions to the fund as they are deemed necessary. No contributions were
made to the fund in 1999, 2000 and 2001.
F-30
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The transition asset, past services and variances in assumptions are
amortized over a thirteen-year period, which is the estimated average remaining
working lifetime of Telcel's employees.
An analysis of the net period cost for 1999, 2000 and 2001 is as
follows:
1999 2000 2001
--------------------------------------
Service cost P. 677 P. 860 P. 1,254
Interest cost on projected benefit obligations 130 148 203
Expected return on plan assets (158) (165) (194)
Amortization of past service costs (6) (16) (26)
--------------------------------------
Net period cost P. 643 P. 827 P. 1,237
======================================
The change in the pension plan benefit obligation is as follows:
2000 2001
-------------------------
Benefit obligation at the beginning of the year P. 2,395 P. 3,131
Service cost 860 1,254
Interest cost 148 203
Actuarial (loss) (259) (4)
Benefits paid (13) 25
-------------------------
Benefit obligation at the end of the year P. 3,131 P. 4,609
=========================
An analysis of the seniority premium reserve at December 31, 2000 and
2001 is as follows:
2000 2001
-------------------------
Projected benefit obligation P. 3,131 P. 4,609
Plan assets (2,302) (2,479)
Transition asset 64 58
Actuarial gain 804 832
-------------------------
Net projected liability 1,697 3,020
Additional liability 0 0
-------------------------
Reserve for seniority premiums P. 1,697 P. 3,020
=========================
Accumulated benefit obligation P. 3,131 P. 4,609
=========================
F-31
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The change in employee benefit plan assets and plan funded status is as
follows:
2000 2001
---------------------------
Fair value of plan assets at beginning of year P. 2,150 P. 2,302
Real investment return 152 177
---------------------------
Fair value of plan assets at end of year P. 2,302 P. 2,479
===========================
2000 2001
---------------------------
Funded status P. (829) P. (2,130)
Unrecognized net actuarial gain (804) (832)
Unrecognized net transition asset (64) (58)
---------------------------
Accrued benefit cost P. (1,697) P. (3,020)
===========================
The current net liability was included in the balance sheet under the
caption other accounts payable and accrued liabilities.
The net of inflation rates used to determine the actuarial present
values of the benefit obligations at December 31, 1999, 2000 and 2001 are
presented below for each of the economic assumptions.
1999 2000 2001
--------------------------------------
Discount rate 6.9% 6.8% 7.8%
Expected return on plan assets 6.9 6.8 6.8%
Rate of compensation increase 0.9 1.9 1.9%
10. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
2000 2001
---------------------------
Suppliers P. 9,043,301 P. 8,237,249
Guarantee deposits 343,810 397,324
Accrued expenses 491,835 688,564
Interest payable 690,891 212,276
Others 282,573 14,612
---------------------------
Total P.10,852,410 P. 9,550,025
===========================
F-32
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
11. Debt
The Company's long-term debt consists of the following:
Maturities
Interest rate From 2002 Balance at December 31,
2000 2001 Through 2000 2001
-----------------------------------------------------------------------
Debt denominated in foreign
currency:
Lines of credit for the acquisition
of telephone plant and equipment LIBOR+0.20 2008 P. 4,722,099
Syndicated loans LIBOR+1 2005 4,571,150
Government of Guatemala (1) LIBOR+3 P. 3,466,004
From
LIBOR+0.6
up to
Other direct loans 8.25 LIBOR+1.5 2007 2,620,632 4,031,582
Lines of credit for the
acquisition of handsets 2.89 2002 1,828,460
Credits extended by suppliers 8.03 8.76 2004 2,014,379 821,293
Financial leases 20.48 8.75 2004 67,147 2,106
----------------------------
Total 8,168,162 15,976,690
Debt denominated in Mexican pesos:
Domestic senior notes
("Certificados Bursatiles") 11.14 2006 5,000,000
Lines of credit 7.98 2002 500,000
----------------------------
Total 5,500,000
----------------------------
Total debt 8,168,162 21,476,690
Less: short-term debt and current
portion of long-term debt 6,947,975 6,304,020
----------------------------
Long-term debt P. 1,220,187 P. 15,172,670
============================
(1) Repaid in October 2001 (See Note 8).
The above-mentioned interest rates are subject to variances in
international and local rates and do not include the effect of the Company's
agreement to reimburse certain lenders for Mexican taxes withheld. The Company's
weighted average cost of borrowed funds at December 31, 2001 (including
interest, fees and reimbursement of such lenders for Mexican taxes withheld) was
approximately 5.23% (8.61% at December 31, 2000).
Short-term debt as of December 31, 2001 amounted to P. 4,049,584 comprised
of P. 2,328,461 of lines of credit, P. 914,230 of syndicated loans and P.
806,893 of banks and other direct loans (P. 3,931,853 in 2000, comprised of P.
3,466,004 due to the Guatemalan Government and P. 465,849 of banks and other
direct loans); with a weighted averaged interest rate of 4.21% (8.5% in 2000).
F-33
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
An analysis of the foreign currency denominated debt at December 30, 2001
is as follows:
Exchange rate at
Foreign December 31, 2001 Pesos with
Currency (pesos per unit of purchasing power
(thousands) foreign currency) as of December 31, 2001
----------------------------------------------------------------
U.S. dollar 1,747,557 P. 9.1423 P. 15,976,690
Long-term debt maturities at December 31, 2001 are as follows:
Year ended December 31, Amount
-----------------------------------------------------
2003 P. 2,903,109
2004 1,130,693
2005 5,046,766
2006 4,639,855
2007 and thereafter 1,452,247
----------------------
Total P. 15,172,670
======================
Credit facilities for the acquisition of cellular communications equipment
During the last quarter of 2001, the Company established credit
facilities of up to U.S.$ 878 million guaranteed by Telcel (Facility "A" up to
U.S.$678 million, supported by the Swedish Export Credits Guarantee Board "EKN"
and Facility "B" up to U.S.$ 200 million), to purchase cellular communications
equipment and services.
At December 31, 2001, the Company has used approximately U.S.$ 528
million from Facility "A", of which U.S.$ 269 million is to be repaid in 14
equal semi-annual installments commencing September 15, 2001. The remaining
amount of Facility "A" is to be repaid in 14 equal semi-annual installments
commencing March 2002. Interest is payable semi-annually at the LIBOR rate plus
0.20% per annum.
In January 2002, The Company used U.S.$ 200 million available under
Facility "B" with maturity in May 2005. Interest is payable annually at the
LIBOR rate plus an appropriate margin that will be determined on debt/EBITDA
ratios.
Syndicated loan agreement
In July 2001, the Company entered into a syndicated loan agreement with
certain lenders and Citibank, N.A. as administrative agent, for U.S.$ 500
million divided into two tranches. The first tranche is in an aggregate
principal amount of U.S.$ 100 million, with maturity in one year and bearing
interest at the LIBOR rate plus 0.625%.
The second tranche is in an aggregate principal amount of U.S.$ 400
million, with maturity in January 2005 and bearing interest at the LIBOR rate
plus an appropriate margin that will be determined based on debt/EBITDA ratios.
F-34
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Lines of credit for the acquisition of handsets
During the third quarter of 2001, the Company opened two lines of
credit, for up to U.S.$ 100 million each, guaranteed by Telcel, for the
acquisition of handsets.
Loan Agreement for the acquisition of cellular equipment
During the first half of 2001, Telcel entered into loan agreements for
approximately U.S.$ 277.5 million to purchase cellular telecommunications
equipment and services guaranteed by America Movil. The facilities are to be
repaid in fourteen consecutive semi-annual installments for equal amounts.
Interest is payable semi-annually at the LIBOR rate plus 0.20% for U.S.$ 171
million and LIBOR plus 1.65% for U.S. 106.5 million.
Domestic Senior Notes ("Certificados Bursatiles")
On August 9, 2001, the National Banking and Securities Commission
authorized the Company's program to issue domestic senior notes guaranteed by
Telcel, for as much as P. 5,000 million.
On August 10, 2001, the Company made the first issuance under the
program for P. 1,500 million, maturing in five years, and bearing semi-annual
interest at an annual rate of 11.33%.
In October 2001, the Company made the second and third issuances of the
domestic senior notes for P. 3,500 million (P. 1,750 million each), maturing in
April 2003 and October of 2006, respectively; bearing interest at the "TIIE"
rate plus 0.35% and the CETES rate plus 1.20%, respectively.
Line of Credit in Mexican pesos
During the second quarter of 2001, the Company obtained a revolving
line of credit guaranteed by Telcel for up to P. 500 million bearing interest at
variable rates.
The above-mentioned loans contain certain restrictive covenants,
including among others, the maintenance of certain financial ratios,
restrictions on incurring additional debt and restrictions on the sale of the
group's assets. As of December 31, 2001, the Company has complied with such
covenants.
12. Foreign-Currency Position and Transactions
a) At December 31, 2000 and 2001, America Movil had the following foreign-
currency denominated assets and liabilities:
Thousands of foreign currency
2000 2001
------------------------------------
Assets
U.S. dollar 5,051,478 4,551,767
Guatemalan quetzal 2,128,818 8,484,625
Liabilities
U.S. dollar (1,004,036) (2,495,612)
Guatemalan quetzal (1,857,575) (1,067,537)
F-35
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The exchange rates used to translate the above-mentioned amounts into
Mexican pesos were P. 9.59 and P. 9.14 per U.S. dollar at December 31, 2000 and
2001, respectively, and P. 1.24 and P. 1.15 per quetzal at December 31, 2000 and
2001, respectively. At March 22, 2002 the exchange rates of the Mexican peso
relative to the U.S. dollar and the quetzal were P. 9.01 per U.S. dollar and
P. 1.19 per quetzal.
b) In the years ended December 31, 1999, 2000 and 2001, the Company had the
following transactions denominated in foreign currencies. Currencies other than
the U.S. dollar were translated to U.S. dollars using the average exchange rate
for the year.
Thousands of U.S. dollars
-----------------------------------------
1999 2000 2001
-----------------------------------------
Operating revenues 6,341 684,211 609,910
Interest income 255,133 52,046 176,635
Interest expense 516 58,431 102,130
Operating costs and expenses 468,391 801,096 1,350,872
13. Commitments and Contingencies
a) The Company leases certain equipment used in its operations under capital
leases. At December 31, 2001, the Company had the following commitments under
non-cancelable leases:
Year ended December 31, Amount
-----------------------------------------------------------
2002 P. 1,175
2003 1,002
2004 19
----------
Total 2,196
Less interest (90)
----------
Present value of net minimum lease payments 2,106
Less current installments 1,100
----------
Long-term obligations at December 31, 2001 P. 1,006
==========
b) As of December 31, 2001, the Company has entered into various leases (as a
lessee) with related parties for the buildings in which its offices are located,
as well as with owners of property where the Company has installed radio bases.
The leases expire within five to ten years. Rent charged to expenses in 1999,
2000 and 2001 aggregated, P. 113,592, P. 171,968 and P. 225,271, respectively.
Following is an analysis of minimum rental payments due in the next five years.
In some cases, the amount will be increased either based on the NCPI or on the
appraisal values of the property.
F-36
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Year ended December 31, Amount
--------------------------------------------------------
2002 P. 179,217
2003 179,217
2004 179,217
2005 179,217
2006 and thereafter 537,650
---------------
P. 1,254,518
===============
c) Under Mexican legislation, Telmex remains jointly and severally liable for
obligations transferred to America Movil pursuant to the spin-off for a period
of three years beginning on September 25, 2000, the spin-off date. However, such
liability does not extend to any obligation with a creditor that has given its
express consent, relieving Telmex of such liability and approving the spin-off.
In conformity with clause eleven of the post spin-off master agreement
between Telmex and America Movil, Telmex binds itself to indemnify and hold
America Movil harmless from any and all claims resulting from any liability or
direct or contingent contingency which was to be paid by Telmex as a result of
Telmex's Spin-off; and America Movil binds itself to indemnify and hold Telmex
harmless from any liability or direct or contingent contingency which was
expressly transmitted to be paid by America Movil as a result of Telmex's
spin-off.
d) In November 1995, a competitor that provides cellular telephone services
reported Telmex and Telcel to the Comision Federal de Competencia (Cofeco) for
alleged monopolistic practices.
In July 2001, the COFECO ruled that Telmex was responsible for the
related monopolistic practices and Telcel was found innocent of all monopolistic
practices.
e) In January 2000, COC Services Limited filed a lawsuit against CompUSA in the
Dallas County District Court for various alleged breaches of contract and civil
liability derived from a letter of intent with respect to retail store
franchises in Mexico. The lawsuit also extended to other co-defendants,
including among others, Grupo Carso and Grupo Sanborns. COC Services sought
payment of U.S.$ 150 million in exemplary damages by CompUSA caused by the
breach of contract, tortuous interference under the contract and a conspiracy
lawsuit for damages in the amount of U.S.$ 2 million for fraud and punitive
damages of U.S.$ 300 million. COC Services also sought to collect interest, as
well as legal and court costs.
F-37
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The case was brought before a jury in January and February 2001. In
February 2001, the jury handed down its verdict finding against all the
co-defendants and requiring each of the co-defendants to pay compensatory and
punitive damages. The actual amount awarded to COC Services for punitive damages
payable by the defendants are as follows: U.S.$ 175.5 million by James Halpin,
former chairman and chief executive officer of CompUSA; U.S.$ 94.5 million by
CompUSA; U.S.$ 67.5 million by other co-defendants; U.S.$ 13.5 million by
Grupo Carso; and U.S.$ 13.5 million by Grupo Sanborns. Based on the verdicts
handed down by the jury, the parties filed a brief with the court concerning
various legal aspects that affect the final verdict.
On May 18, 2001, the judge reduced the damages payable by Grupo Carso,
Grupo Sanborns, and other co-defendants from U.S.$ 454 million to U.S.$ 121.5
million, or a reduction of 73% with respect to the original award.
COC Services, Grupo Carso, Grupo Sanborns and the other co-defendants
have all appealed the judgment to the Texas courts of appeals.
f) In June 2000, the executive branch of the Guatemalan government made
statements concerning the privatization of Telgua, affirming that the actions
taken are contrary to the interests of the Guatemalan State. In September 2000
the Guatemalan government commenced judicial proceedings against Guatel, Telgua,
America Central Tel, S.A. (formerly Luca, S.A.) and certain other related
parties involved in the privatization alleging improprieties in connection with
the privatization and seeking reversal of the process. In October 2001, the
Guatemalan State announced an agreement by the President of the Guatemalan State
and the cabinet Ministers establishing the basic terms and conditions of the
settlement agreements between the Guatemalan State, ACT and Telgua. Under such
government agreement, the Guatemalan State ordered the Attorney General to
extend and sign in the name and on behalf of the Guatemalan State the settlement
agreement to conclude litigious proceedings undertaken by the Guatemalan State
during 2000 to reverse the process whereby Telgua was privatized. On October 31,
2001, the parties signed the aforesaid settlement agreement, whereby Telgua
agreed, among other things, to undertake a fixed, mobile, rural and internet
telephone development project within Guatemala, to be completed within a three
year period consisting of an investment of at least 1,950 million quetzals
(approximately U.S.$ 246 million) and the installation of a total of 380,000
public, mobile and rural telephone lines.
In addition, as part of the settlement agreement, ACT agreed to pay
Empresa Guatemalteca de Telecomunicaciones (Guatel) the sum of U.S.$ 350
million, which was the balance owed under the agreement for the sale of Telgua
shares entered into by and between Guatel, as the seller, and ACT as the buyer,
in October 1998, plus accrued interest through the date of actual payment. On
October 31, 2001, ACT paid Guatel the sum of U.S.$ 452 million, corresponding to
the balance owed under the agreement for the sale of Telgua shares previously
mentioned, plus accrued interest at such date.
F-38
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
On this same date, Guatel instructed Citibank NA, as secured creditor,
to release the 1998 pledge (guarantee) of 95% of the shares representing the
capital stock of Telgua to guarantee payment of the sales price of such shares.
As a result of the settlement agreement, the Guatemalan State, ACT and Telgua
agreed to abandon all litigious proceedings and whatsoever other actions related
thereto. At December 31, 2001, for reasons attributable to the status of the
related legal actions and proceedings, the abandonment of proceedings had not
been undertaken in the competent Guatemala courts.
g) In May 2001, America Movil guaranteed a bank loan to ARBROS for U.S.$ 100
million maturing in May 2002.
h) In the final quarter of 2001, the Company replaced Williams Communications,
Inc. as guarantor of one third of a loan granted by Banco Nacional de
Desenvolvimiento Economico y Social of Brazil "BNDES" for ATL.
14. Related Parties
a) Following is an analysis of balances due from/to related parties as of
December 31, 2000 and 2001. All of the companies are considered as America
Movil's affiliates, as the Company's principal owners are also directly or
indirectly, shareholders of these related parties.
2000 2001
------------------------------
Accounts receivable:
Telecom Americas, Ltd. P. 1,087,565
ARBROS Communications, Inc. P. 494,865
Telefonos de Mexico, S.A. de C.V. 276,946 504,006
Sanborns Hermanos, S.A. de C.V. 45,109 39,903
Sears Roebuck, S.A. de C.V. 24,127
Telefonos del Noroeste, S.A. de C.V. 24,080 10,783
Seguros Inbursa, S.A. de C.V. 10,179 3,753
Others 9,597 3,893
--------------------------------
P. 860,776 P. 1,674,030
================================
Accounts payable:
Alquiladora de Casas, S.A. de C.V. P. 224,634
Carso Global Telecom, S.A. de C.V. 39,542
Compania de Telefonos Bienes y Raices, S.A. de
C.V. 8,412
Others P. 20,056 49,619
--------------------------------
Total P. 20,056 P. 322,207
================================
b) Marketable securities in 2001, include P. 5,682,811 and P. 1,791,039 of
notes and corporate bonds issued by affiliated parties, respectively.
c) Cash and short-term investments in 2000, include P. 11,184,495 of commercial
paper issued by affiliated parties, which was realized during 2001.
F-39
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Interest earned in such instruments for the years ended December 31,
1999, 2000 and 2001 were P. 5,816,252, P. 3,094,530 and P. 365,595,
respectively.
d) In the years ended December 31, 1999, 2000 and 2001 the Company had the
following significant transactions with related parties, mainly with Telmex:
1999 2000 2001
-------------------------------------------------------
Revenues:
CPP interconnection fees (1) P. 1,852,654 P. 5,637,902 P. 7,662,976
-------------------------------------------------------
Costs and expenses:
Payments of long-distance,
circuits and others (2) 1,310,699 3,354,415 3,477,349
-------------------------------------------------------
Commercial, administrative and general:
Advertising 209,526 134,621 431,049
Others, net 15,787 277,007 (99,987)
-------------------------------------------------------
225,313 411,628 331,062
-------------------------------------------------------
Interest expense 92,383 307,505 5,995
-------------------------------------------------------
(1) Interconnection fee from the "Calling Party Pays" program (CPP): incoming
calls from a fixed line telephone to a wireless telephone. Prior to the spin-off
Telcel had entered into interconnection agreements with Telmex. The
interconnection agreements specify a number of connection points, locations of
interconnection points, the method by which signals must be transmitted and
received and the costs and fees of interconnection.
(2) Includes: a) Interconnection (cost): payments of interconnection for
outgoing calls from the wireless network to the fixed line network; b)
Long-distance: payments for the use of national and international long-distance;
c) Leases of buildings and other cellular space.
e) Telcel has entered into various leasing and co-location agreements with a
subsidiary of Telmex. Under these agreements, Telcel pays monthly fees for the
use of Telmex's antenna and repeater space, and is able to install its
interconnection equipment.
f) The company believes that its purchases of materials and services from
related parties are on terms no less favorable than it could obtain from
unaffiliated parties. These include insurance and bank services provided by
Grupo Financiero Inbursa, S.A. and its subsidiaries.
15. Stockholders' Equity
a) The shares of America Movil were authorized and issued pursuant to the
Telmex stockholders' meeting on September 25, 2000 approving the spin-off (see
note 1a). Capital stock at December 31, 2000 and 2001, is represented by 14,010
million and 13,199 million common shares with no par value, respectively
representing the fixed portion of capital.
F-40
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
An analysis of the shares at December 31, 2001 is as follows:
Million of
shares
3,807 series AA shares
315 series A shares
9,077 series L shares
------
13,199 Total shares
======
b) Series AA shares, which may be subscribed only by Mexican individuals and
corporate entities, must represent at all times no less than 20% of capital
stock and no less than 51% of the combined AA shares and A shares. Common series
A shares, which may be freely subscribed, must account for no more than 19.6% of
capital stock and no more than 49% of the common shares. Series AA and A shares
combined may not represent more than 51% of capital stock. The combined number
of series L shares, which have limited voting rights and may be freely
subscribed, and series A shares may not exceed 80% of capital stock.
The Company's bylaws permit the holders of series L shares to exchange
such shares, in certain circumstances, for series AA shares, commencing January
1, 2001. During 2001, a total of 605 million series L shares were exchanged for
series AA shares.
Of the full voting stock of the Company, series AA shares represented
92.5% and series A shares represented 7.5% at December 31, 2001.
c) On April 27, 2001, the stockholders approved a dividend of P. 0.04 per
share, to be paid in four installments of P. 0.01 per share in June, September
and December 2001 and in March 2002.
d) At a regular stockholders' meeting held on March 30, 2001, it was decided to
establish a reserve of five billion pesos (historical amount) for the purchase
of the Company's own shares. On July 31, 2001, the stockholders approved an
increase of additional five billion pesos (historical amount) to the reserve.
At December 31, 2001, the Company purchased 807 million series "L"
shares for P. 6,804,190 (P. 6,662,635 historical) and 4 million series "A"
shares for P. 40,369 (P. 38,999 historical).
Under the Securities Trading Act, amended starting June 1, 2001, it is
no longer required to create a reserve for the repurchase of the Company's own
shares. The Company's own shares that have been purchased since this change were
acquired using the reserve.
e) In conformity with the Mexican Corporations Act, at least 5% of the net
income of each year must be appropriated to increase the legal reserve until it
reaches 20% of capital stock issued and outstanding.
F-41
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
16. Income Tax, Asset Tax and Employee Profit Sharing
a) Mexico
1) Effective January 1, 2002, the Ministry of Finance and Public Credit
authorized America Movil to consolidate the group tax returns of its Mexican
subsidiaries. GCA is excluded from this tax consolidation.
2) The amount shown under income tax in the consolidated statements of income
corresponds to income tax or asset tax determined individually by each of the
consolidated subsidiaries.
3) The statutory income tax rate of 1999, 2000 and 2001 was 35%, However,
corporate tax payers had the option of deferring a portion, so that the tax
payable for those years represented 30% of taxable income (32% in 1999). The
deferred portion of the tax had to be controlled in the so-called "net
reinvested tax profit account" (CUFINRE) to clearly identify the earnings on
which the taxpayer opted to defer payment of a portion of income tax.
Since the Company opted for this tax deferral, earnings will be
considered to be distributed first from the "CUFINRE" account and any excess
will be paid from the "net tax profit account" ("CUFIN") so as to pay the 5%
deferred tax (3% for 1999). Effective January 1, 2002, the above-mentioned
option of deferring a portion of income tax, was eliminated.
Any distribution of earnings in excess of the above-mentioned account
balances will be subject to payment of corporate income tax.
In addition, from January 1, 1999 through December 31, 2001, cash
dividends obtained by individuals or residents abroad from corporate entities in
Mexico, were subject to a 5% withholding tax on the amount of the dividend
multiplied by 1.5385.
4) The cumulative effect of the adoption of Bulletin D-4 at the beginning of
the year 2000 was the recognition of a deferred tax liability and a debit to
stockholders' equity in the amount of P. 1,564,852.
Had Bulletin D-4 been adopted in prior years, net income for the year
ended December 31, 1999 would have been reduced by approximately P. 1,354,244.
An analysis of income tax charged to results of operations for the
years ended December 31, 1999, 2000 and 2001 is as follows:
1999 2000 2001
------------------------------------------------
Current year income tax of Mexican
subsidiaries P. 1,158,680 P. 1,378,629 P. 3,158,109
Current year income tax of foreign
subsidiaries 7,567 123,186 109,126
Deferred income tax of Mexican
operations 1,607,617 (273,247)
------------------------------------------------
Total P. 1,166,247 P. 3,109,432 P. 2,993,988
================================================
F-42
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Employee profit sharing as shown in the December 31, 2000 income
statement includes P. 20,352 of deferred employee profit sharing.
Foreign subsidiaries account for deferred taxes based on Statement of
Financial Accounting Standards No. 109 (SFAS-109). Valuation allowances for
deferred tax assets of these companies have been established (see Note 19).
5) The following items represent the principal reasons for the differences
between Mexican income taxes computed at the statutory tax rate and the
Company's provision for income tax:
Year ended December 31
-----------------------------------------------
1999 2000 2001
-----------------------------------------------
Statutory income tax rate in Mexico 35.0% 35.0% 35.0%
Financing costs 5.2 3.8 1.8
Goodwill 0.2 0.2 0.7
Impairment on affiliates 1.0
Others (7.0) 5.4 5.4
Tax loss carry forwards (12.2)
-----------------------------------------------
Effective tax rate for Mexican operations 21.2 44.4 43.9
-----------------------------------------------
Revenues and costs from foreign subsidiaries 0.1 17.8 7.3
-----------------------------------------------
Effective tax rate 21.3 62.2% 51.2%
-----------------------------------------------
6) The temporary differences on which the Company recognized deferred taxes in
the years ended December 31, 2000 and 2001, were as follows:
December 31,
2000 2001
-----------------------------------------------
Deferred tax assets
-------------------
Liability provisions P. (199,962) P. (441,898)
Other (27,473) (76,447)
Deferred revenues (147,571) (322,739)
-----------------------------------------------
(375,006) (841,084)
Deferred tax liabilities
------------------------
Fixed assets 1,244,039 1,296,264
Inventories 1,190,767 993,114
Licenses 576,191 556,298
-----------------------------------------------
3,010,997 2,845,676
-----------------------------------------------
Deferred income tax P. 2,635,991 P. 2,004,592
===============================================
On January 1, 2002, a annual one-percentage point decrase in the income
tax rate was approved, starting in 2003, so that in 2005 the rate will be 32%.
The effect this change will have in succeeding years has not yet been
determined, although it is not expected to be material.
7) The Company is legally required to pay employee profit sharing in addition
to the compensations and benefits to which employees are contractually entitled.
The statutory employee profit sharing rate in 1999, 2000 and 2001 was 10% of
taxable income, after eliminating certain effects of inflation and the indexing
of depreciation expenses.
F-43
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
8) Asset tax, which is a minimum income tax is payable on the average value of
most assets net of certain liabilities. Since income tax may be credited against
asset tax, the latter is actually payable only to the extent that it exceeds
current year income tax. Asset tax for the years ended December 31, 1999, 2000
and 2001 was P. 48,658, P. 70,493 and P. 104,480, respectively.
b) Foreign Subsidiaries
The foreign subsidiaries determine their income tax based on the individual
results of each subsidiary and in conformity with the specific tax regimes of
each country. The consolidated pretax income (loss) and tax provisions of these
subsidiaries in 1999, 2000 and 2001 were P. 24,320, P. (1,235,847) and P.
(2,229,335) and P. 7,567, P. 123,186 and P. 109,126, respectively.
17. Segments
America Movil operates primarily in one segment (cellular services);
however, as mentioned in Note 1b above, the Company has international
telecommunications operations, in three different geographic regions: (i)
Mexico, (ii) United States and (iii) Central and South America. The accounting
policies of the segments are the same as those described in Note 2.
The following summary shows the most important segment information:
Central and
United South Consolidated
Mexico States America total
-------------------------------------------------------------
December 31, 1999
Operating revenues P. 14,576,273 P. 1,028,308 P. 578,615 P. 16,183,196
Depreciation and amortization 1,413,475 26,629 120,473 1,560,577
Operating income (loss) 2,892,818 (295,953) (299,447) 2,297,418
Interest expense 107,474 17,434 41,760 166,668
Capital expenditures 11,429,602 3,481,229 1,310,403 16,221,234
Segment assets 65,316,528 1,453,290 2,414,835 69,184,653
Telephone plant, property and
equipment, net 11,958,128 234,262 935,186 13,127,576
Goodwill, net 1,026,306 940,027 1,966,333
Licenses, net 1,846,296 290,409 2,136,705
F-44
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Central and
United South Consolidated
Mexico States America Eliminations total
--------------------------------------------------------------------------------
December 31, 2000
Operating revenues 23,252,429 2,878,870 3,963,717 30,095,016
Depreciation and amortization 1,505,785 356,154 1,321,785 (94,825) 3,088,899
Operating income (loss) 5,450,452 (2,034,915) (341,526) (168,157) 2,905,854
Interest expense 1,902,836 18,376 565,978 (1,370,122) 1,117,068
Capital expenditures 10,271,157 2,213,578 16,689,091 29,173,826
Segment assets 116,667,037 10,376,917 18,102,040 (53,371,003) 91,774,991
Telephone plant, property and
equipment, net 24,839,691 348,084 8,987,339 34,175,114
Goodwill, net 1,120,617 1,710,065 4,986,407 (499,590) 7,317,499
Licenses, net 1,801,376 686,996 2,488,372
December 31, 2001
Operating revenues 34,344,650 4,320,928 4,785,114 (2,086,779) 41,363,913
Depreciation and amortization 2,580,573 320,717 1,606,879 (30,995) 4,477,174
Operating income (loss) 6,319,450 (2,853,496) 725,231 1,882,250 6,073,435
Interest expense 5,836,344 (4,463) 606,638 (4,985,110) 1,453,409
Capital expenditures 16,075,394 7,222,308 11,267,414 34,565,116
Segment assets 157,223,920 17,085,212 29,642,857 (111,288,825) 92,663,164
Telephone plant, property and
equipment, net 30,967,742 471,207 8,538,877 39,977,826
Goodwill, net 1,465,908 662,682 2,592,076 (463,415) 4,257,251
Licenses, net 1,683,125 791,227 2,474,352
18. Subsequent Events
a) On January 31, 2002, America Movil made a public placement on the Mexican
capital market of P. 500 million in fixed-rate securities redeemable in five
years plus an additional P. 1,250 million in floating rate securities,
redeemable in five years. These instruments were issued as part of the new P.
5,000 million program recorded by America Movil with the NBSC.
b) On January 1, 2002, the Mexican Congress approved a tax package which, among
other things provides for a new cellular telecommunications service tax. This
tax will affect rental payments, as well as payments associated with outgoing
calls made by post-payment subscribers. "The calling-party pays," long-distance
calls, interconnection traffic and rural telephone service are exempt from the
new tax. The Company is assessing the impact that this new tax will have, as
well as possible measures it may take.
c) See Note 8 to the financial statements for a description of subsequent
events as they relate to transactions with associated companies.
F-45
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
19. Differences between Mexican and U.S. GAAP
The Company's consolidated financial statements are prepared in
accordance with Mexican GAAP, which differ in certain respects from generally
accepted accounting principles in the United States (U.S. GAAP).
The reconciliation to U.S. GAAP does not include the reversal of the
adjustments to the financial statements for the effects of inflation required
under Mexican GAAP (Bulletin B-10), because the application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
Mexican economy and, as such, is considered a more meaningful presentation than
historical cost-based financial reporting for both Mexican and U.S. accounting
purposes.
The principal differences between Mexican GAAP and U.S. GAAP, as they
relate to the Company, are described below together with an explanation, where
appropriate, of the method used to determine the adjustments that affect
operating income, net income, total stockholders' equity and resources provided
by operating and financing activities.
Income Statement Information:
Cost of sales as shown in the income statement, includes cost of sales
of telephone equipment and other in the amount of P. 3,894,426, P. 6,695,628 and
P. 7,655,638 for the years ended December 31, 1999, 2000 and 2001, respectively.
Cash Flow Information:
Under Mexican GAAP, the Company presents consolidated statements of
changes in financial position, as described in Note 2. The changes in the
consolidated financial statement balances included in this statement constitute
resources provided by and used in operating, financing and investing activities
stated in constant pesos (including monetary and foreign exchange gains and
losses). Under Mexican GAAP changes in trading securities are presented as
investing activities, while under U.S. GAAP the cash flows from these type of
securities should be disclosed as cash provided by (used in) operating
activities.
Statement of Financial Accounting Standards No. 95 (SFAS No. 95),
"Statement of Cash Flows," does not provide guidance with respect to inflation
adjusted financial statements. In accordance with Mexican GAAP, the changes in
current and long-term debt due to restatement in constant pesos, including the
effect of exchange differences, are presented in the statement of changes in
financial position in the financing activities section. The Company has adopted
the guidance issued by the AICPA SEC Regulations Committee's International
Practices Task Force in its meeting held on November 24, 1998, encouraging
foreign registrants that file price level adjusted financial statements to
provide cash flow statements that show separately the effects of inflation on
cash flows.
F-46
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
If the changes in trading securities, the monetary gain and the
exchange gain or loss related to the debt were treated as components of
operating activities, summarized consolidated statements of cash flows derived
from information prepared in accordance with U.S. GAAP would be as follows:
Year ended December 31,
1999 2000 2001
---------------------------------------------------------
Operating activities:
Net income (loss) P. 2,821,418 P. (428,090) P. (609,794)
Depreciation 1,364,630 2,550,267 4,091,921
Amortization 370,313 851,971 909,037
Excess of contributed company over cost (97,320)
Deferred taxes 1,920,545 1,993,725 (729,913)
Monetary effect 4,772,673 3,055,944 743,985
Equity in results of affiliates, minority
interest and others (332,982) 824,331 3,496,805
Effect of exchange rate differences on debt (20,884) (135,177) (637,323)
Marketable securities (4,637,772) 2,764,378 484,617
Change in operating assets and liabilities 1,608,213 916,756 (796,876)
---------------------------------------------------------
Resources provided by (used in) operating
activities 7,866,154 12,394,105 6,855,139
Financing activities:
New loans 2,734,654 10,395,761 19,995,844
Repayment of loans (209,610) (10,952,935) (6,049,993)
Increase in parent investment 2,533,091 8,686,802
Purchase of Company's own shares and cash
dividend paid (7,116,815)
---------------------------------------------------------
Resources provided by financing activities 5,058,135 8,129,628 6,829,036
---------------------------------------------------------
Resources used in investing activities (11,903,075) (33,811,855) (34,692,070)
---------------------------------------------------------
Effect of inflation accounting (5,057,651) (2,744,359) 64,556
---------------------------------------------------------
Net decrease in cash and short term Investments (4,036,437) (16,032,481) (20,943,339)
Cash and short-term investments at beginning
of year 43,539,481 39,503,044 23,470,563
---------------------------------------------------------
Cash and short-term investments at end of year P. 39,503,044 P. 23,470,563 P. 2,527,224
=========================================================
Net resources provided by operating activities reflect cash payments
for interest, income tax and employee profit sharing as follows:
Year ended December 31,
1999 2000 2001
---------------------------------------------------------
Interest expense P. 258,707 P. 679,874 P. 498,445
Income tax 624,310 936,014 2,134,358
Employee profit sharing 68,555 97,212 140,359
Cash flows from purchases and sales of trading securities during 1999 were P.
9,650,874 and P. 5,518,784, respectively. Cash flows from purchases an sales of
trading securities during 2000 were P. 2,067,875 and P. 5,018,389, respectively.
Cash flows from purchases an sales of trading securities during 2001 were P.
9,669,500 and P. 1,617,635, respectively.
F-47
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Capitalized Interest:
Under Mexican GAAP, the Company does not capitalize net financing costs
on assets under construction. Under U.S. GAAP, interest on borrowings in foreign
currencies or comprehensive financing cost for borrowings in pesos, must be
considered an additional cost of constructed assets to be capitalized in plant,
property and equipment and depreciated over the lives of the related assets. The
amount of interest or net financing costs capitalized for U.S. GAAP purposes was
determined by reference to the Company's average interest cost of outstanding
borrowings.
Valuation of Plant, Property and Equipment:
As previously discussed in Note 6, through December 31, 1996, items
comprising the telephone plant were restated based on the acquisition date and
cost, applying the factors derived from the specific indexes determined by the
Company and validated by an independent appraiser registered with the NBSC.
Since January 1, 1997, the valuation method of plant, property and equipment was
modified, as Bulletin B-10 eliminated the use of appraisals to restate plant,
property and equipment.
The restatement method allowed by the Bulletin B-10, which was the one
adopted in 1997 by the Company as described in Note 6, is not acceptable for
U.S. GAAP purposes; consequently, the difference between this method and the
restatement of plant, property and equipment based on the NCPI was taken to the
U.S. GAAP reconciliations subsequently presented.
As a result of this comparison, plant, property and equipment and
stockholders' equity increased by P. 91,004 in 2000 and P. 2,897,259 in 2001 and
depreciation expense increased by P. 116,424 in 1999, P. 222,512 in 2000 and P.
434,907 in 2001, respectively.
Accrued Vacation Pay:
For purposes of the attached consolidated financial statements, the
expense for vacation pay is recognized when paid rather than during the period
in which it is earned by employees. For U.S. GAAP purposes, the Company has
determined the accrued liability for vacation pay at December 31, 1999, 2000 and
2001, and accordingly, has adjusted the expense for vacation pay during the
periods then ended.
Excess of contributed company over cost
Under Mexican GAAP the excess value of ATL when contributed to Telecom
Americas in the amount of P. 1,016,016, was considered as a gain and included
under comprehensive financial income. For U.S. GAAP purposes, the Company is
amortizing this negative goodwill over a ten-year period.
As a result of the application of Statement 141 in 2002, the Company
will include as a cumulative effect adjustment in the 2002 U.S. GAAP
reconciliation the write off the unamortized negative goodwill at December 31,
2001, which amounts to P. 914,414.
F-48
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Deferred Income Tax and Deferred Employee Profit Sharing:
As explained in Notes 2 and 16, the accounting for deferred income tax
was changed in 2000 with the issuance of Bulletin D-4. Through December 31,
1999, under Mexican GAAP, deferred income tax was determined by the partial
liability method of accounting, under which deferred income tax is provided for
identifiable, non-recurring temporary differences (i.e., those that are expected
to reverse over a definite period of time) at rates expected to be in effect at
the time those temporary differences reverse.
Bulletin D-4 requires that deferred income tax be determined on
virtually all temporary differences in balance sheet accounts for financing and
tax reporting purposes. The cumulative effect derived from the adoption of
Bulletin D-4 at the beginning of 2000 for P. 1,564,852 was charged to
stockholders' equity.
Statement of Financial Accounting Standards No. 109 (SFAS No. 109)
"Accounting for Income Taxes," requires deferred income tax be determined using
the liability method for all temporary differences between financial reporting
and tax bases of assets and liabilities and that such difference be measured at
the enacted income tax rates for the years in which such taxes will be payable
or refundable.
The Company is required to pay employee profit sharing in accordance
with Mexican labor law. Deferred employee profit sharing under U.S. GAAP has
been determined following the guidelines of SFAS No.109. Bulletin D-4 did not
significantly change the accounting for employee profit sharing, of which the
deferred portion is determined by the partial liability method of accounting
referred to above. To determine operating income under U.S. GAAP, deferred
employee profit sharing and employee profit sharing expense have to be
considered as operating expenses.
The deferred tax adjustment included in the net income and
stockholders' equity reconciliations, also include the effect of deferred taxes
on the other U.S. GAAP adjustments reflected in the respective summaries.
The differences in the recognition of deferred income tax and deferred
employee profit sharing (for purposes of this note, collectively "deferred
taxes") between Mexican and U.S. GAAP for purposes of the income statement were
as follows:
1999.........P. (1,859,518)
2000.........P. (345,230)
2001.........P. 456,666
The effect of income tax and employee profit sharing on the difference
between the indexed cost and the specific indexation factor valuation of fixed
assets and inventories, is applied as an adjustment to stockholders' equity. The
related accumulated amounts at December 31, 2000 and 2001 that decreased equity
were P. (809,128), and P. (1,021,013), respectively.
F-49
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
The yearly changes in the accumulated amount for deferred taxes applied to
equity from 1999 through 2001 are the following:
1999 P. 247,760
2000 P.(1,030,439)
2001 P. (211,885)
In 1999, 2000 and 2001, monetary (losses) gains of P. (7,995), P. 9,038 and
P. 5,018, respectively, on the deferred taxes balance related to the difference
between the indexed cost and replacement cost valuation of fixed assets and
inventories were taken to equity, as part of the change of the year.
Significant components of deferred taxes under U.S. GAAP at December 31,
2000 and 2001 are as follows:
2000 2001
-------------------------------------------- --------------------------------------------
Employee Employee
Income Profit Deferred Income Profit Deferred
Tax Sharing Taxes Tax Sharing Taxes
--------------------------------------------------------------------------------------------
Deferred tax assets:
Allowances for bad debts P. 55,106 P. 11,020 P. 66,126 P. 21,727 P. 6,208 P. 27,935
Tax loss carry forwards 1,188,078 1,188,078 167,265 75,269 242,534
Accrued liabilities 120,714 28,525 149,239 359,028 102,580 461,608
NOL carryforward 200,246 90,111 290,357
Deferred revenues 406,438 100,791 507,229 322,739 92,211 414,950
Others 9,971 9,971 4,539 2,043 6,582
------------ ------------ ------------ ------------ ------------ ------------
Valuation allowance (1,275,502) (1,275,502) (370,702) (166,816) (537,518)
------------ ------------ ------------ ------------ ------------ ------------
Total deferred tax assets 504,805 140,336 645,141 704,842 201,606 906,448
------------ ------------ ------------ ------------ ------------ ------------
Deferred tax liabilities:
Fixed assets (2,006,478) (581,294) (2,587,772) (1,578,745) (451,292) (2,030,037)
Inventories (1,205,781) (344,510) (1,550,291) (993,113) (283,747) (1,276,860)
Capitalized interest or net
financing cost (205,776) (58,792) (264,568) (311,265) (88,933) (400,198)
Licenses (583,456) (166,702) (750,158) (556,298) (158,942) (715,240)
Others (8,448) (8,448) (72,625) (20,750) (93,375)
------------ ------------ ------------ ------------ ------------ ------------
Total deferred tax
Liabilities (4,009,939) (1,151,298) (5,161,237) (3,512,046) (1,003,664) (4,515,710)
------------ ------------ ------------ ------------ ------------ ------------
Net deferred tax liabilities P.(3,505,134) P.(1,010,962) P.(4,516,096) P.(2,807,204) P. ( 802,058) P.(3,609,262)
============ ============ ============ ============ ============ ============
For Mexican GAAP purposes, as earlier discussed in Note 16, deferred income
tax liabilities of P. 2,635,991 and P. 2,004,592 were recognized at December 31,
2000 and 2001.
F-50
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Employee Benefits Obligations:
The Company recognizes the cost for seniority premiums on the basis of
actuarial computations. The Company's funding policy has been in accordance with
the projected unit credit method based on the provisions of bulletin D-3 issued
by the Mexican Institute of Public Accountants for recording labor obligations
by employers. This bulletin substantially follows the same basis for the
computation of labor costs and related liability as prescribed by SFAS No. 87.
The differences between D-3 and SFAS 87, as they relate to the Company are not
presented because such information is considered to be immaterial in relation to
the consolidated financial statements taken as a whole.
Effects of Inflation Accounting on Approximate U.S. GAAP Adjustments:
To determine the net effect on the consolidated financial statements of
recognizing the adjustments described above, it is necessary to recognize the
effects of applying the Mexican GAAP inflation accounting provisions (described
in Note 2) to such adjustments. These effects are taken into consideration in
the preparation of U.S. GAAP reconciliations of net income, operating income and
equity.
Disclosure about Fair Value of Financial Instruments:
In accordance with Statement of Financial Accounting Standards No. 107
(SFAS No. 107), "Disclosures about Fair Value of Financial Instruments," under
U.S. GAAP it is necessary to provide information about the fair value of certain
financial instruments for which it is practicable to estimate that value.
The carrying amounts of cash and short-term investments, accounts
receivable and accounts payable and accrued liabilities approximate fair values
due to the short maturity of these instruments.
The fair value of total debt, excluding capital leases, is estimated using
discounted cash flow analyses based on current borrowing rates offered to the
Company for debt of the same remaining maturities and the market value for the
domestic senior notes at December 31, 2001 and 2000. As of December 31, 2000,
the carrying value of total debt is P. 8,101,015 and P. 21,261,343 in 2001; the
fair value is P. 8,202,161 at December 31, 2000 and P. 21,630,083 at December
31, 2001.
Impairment of Assets:
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. As
mentioned in Note 8, during the year, the Company recognized an impairment equal
to 100% of the carrying value of its equity investments in ARBROS
Communications, Inc, Iberbanda, Network Access and Armillaire through a charge
to operations of P. 1,940,557.
F-51
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
In addition, the equity in the net loss of Telecom Americas includes the
equity share of the impairment on the value of its subsidiaries, as recognized
by Telecom Americas of P. 1,168,292, which is presented in the statement of
operations under the caption equity in result of affiliates companies.
Minority Interest:
Under Mexican GAAP, minority interest is presented as a component of
stockholders' equity, immediately after total majority stockholders' equity.
Under U.S. GAAP, minority interest is generally presented out of stockholders'
equity. As a result of the above, for U.S. GAAP purposes the Company
reclassified minority interest from stockholders' equity, decreasing its total
stockholders' equity by P. 2,236,029 and P. 747,834 at December 31, 2000 and
2001, respectively.
Translation of Financial Statements of Foreign Subsidiaries
As explained in Note 2, in accordance with Mexican GAAP, the financial
statements for the years ended December 31, 1999 and 2000 were restated to
constant pesos as of December 31, 2001, based on Mexican accounting Bulletin
B-15, applying the common restatement factor of 3.10% to consolidated amounts at
such dates. The factor was determined on the weighted average in relations to
revenues for each of the currencies included in the financial statements.
Under U.S. GAAP, the financial information for foreign subsidiaries of
prior years must be restated in constant units of the reporting currency, the
Mexican peso, which requires the restatement of such prior year amounts using
the inflation rate of Mexico. Accordingly, a reconciling item for the difference
in methodologies of restating prior year balances is included in the GAAP
reconciliation of majority net income and consolidated majority stockholders'
equity. Additionally, all other U.S. GAAP adjustments affected by the use of the
B-15 methodology have been determined based on the U.S. GAAP methodology
described above.
Summarized consolidated financial information on U.S. GAAP basis as of
December 31, 2000 and for the years ended December 31, 1999 and 2000 after
restatement to present all amounts in thousands of constant Mexican Pesos of
equivalent purchasing power as of December 31, 2001 is as follows:
December 31,
1999 2000
------------------------------
Operating revenues P. 16,387,251 P. 30,474,487
Operating costs and expenses 14,708,810 28,454,529
Net income (loss) 2,821,418 (428,090)
F-52
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
December 31,
2000
--------------
Current assets P. 34,986,869
Non-current assets 58,624,267
Current liabilities 19,892,196
Non-Current liabilities 6,849,410
Minority interest 2,236,029
Reporting Comprehensive Income:
Statement No. 130 establishes rules for the reporting and disclosure of
comprehensive income and the related components. Statement No. 130 requires the
deficit from restatement of stockholders' equity, deferred taxes on the
difference between indexed cost and replacement cost and the effect of
translation of foreign entities, to be included in other comprehensive income.
Cumulative effects of the deficit from restatement of stockholder's
equity, deferred taxes on the difference between indexed cost and replacement
cost, effect of translation of foreign entities and unrealized gains on
securities included in comprehensive income at December 31, 2001, that increased
(decreased) stockholder's equity are P. 640,374, P. (241,088), P. (958,849) and
P. 357,663, respectively.
Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use:
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1,
which was effective beginning on January 1, 1999, requires the capitalization of
certain costs incurred after the date of adoption in connection with developing
or obtaining software for internal-use. Because the Company capitalizes such
costs, the adoption of SOP 98-1 in 1999 did not have any significant effect on
U.S. GAAP earnings or financial position.
Accounting for the Costs of Start-Up Activities:
In April 1998, the AICPA issued SOP 98-5, "Reporting the Cost of
Start-Up Activities." The SOP requires that start-up costs capitalized prior to
January 1, 1999, be written-off and any future start-up costs be expensed as
incurred. Because the Company expensed such costs as incurred, adoption did not
affect U.S. GAAP earnings or financial position.
Accounting for Derivative Instruments and Hedging Activities:
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which was required to be adopted in years beginning after June 15,
2000. Because of the Company's limited use of derivatives, the adoption of this
Statement did not have a significant effect on earnings or the financial
position of the Company.
F-53
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
SAB-101 Revenue Recognition:
Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101) was
released on December 3, 1999, and provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition issues.
The adoption of this Bulletin had no impact on the Company's net income or
stockholders' equity.
Business Combinations and Goodwill and Other Intangible Assets:
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations, including intangible
assets with indefinite useful lives. SFAS 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives. SFAS 142 requires
that these assets be reviewed for impairment at least annually. Intangible
assets with finite lives will continue to be amortized over their estimated
useful lives. Additionally, SFAS 142 requires that goodwill included in the
carrying value of equity method investments no longer be amortized.
The Company will apply Statement 142 in 2002. Application of the
nonamortization provisions of Statement 142 is expected to result in an increase
in net income of approximately P. 535,556 in 2002. The Company will test
goodwill for impairment using the two-step process prescribed in Statement 142.
The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. The Company expects to perform
the first of the required impairment test of goodwill and indefinite lived
intangible assets as of January 1, 2002 during 2002. Any impairment charge
resulting from these transitional impairment tests will be reflected as the
cumulative effect of the adoption of Statement 142. The Company has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
Asset Retirement Obligations:
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002. The Statement requires legal obligations associated with the
retirement of long-lived assets to be recognized at their fair value at the time
that the obligations are incurred. Upon initial recognition of a liability, that
cost should be capitalized as part of the related long-lived asset and allocated
to expense over the useful life of the asset. The Company will adopt Statement
143 on January 1, 2003, and, based on current circumstances, does not believe
that the impact of adoption of Statement 143 will have a material impact on the
Company's financial position or results of operations.
Unrealized gains and losses
In accordance with Statements of Financial Accounting Standard No. 115
(SFAS No. 115) "Accounting for Certain Investments in Debt and Equity
Securities" unrealized gains for available-for-sale securities shall be excluded
from earnings and reported as a net amount in a separate component of
Stockholders' equity until realized.
F-54
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
Impairment or Disposal of Long-Lived Assets:
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations for a
disposal of a segment of a business. FAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company expects to adopt FAS 144 as of January 1, 2002 and has not yet
determined the effect of these new standard.
Summary
Net income, operating income and total stockholders' equity, adjusted
to take into account the material differences between Mexican GAAP and U.S.
GAAP, are as follows:
Year ended December 31,
1999 2000 2001
-----------------------------------------------------
Net income (loss) as reported under Mexican
GAAP P. 4,501,865 P. 904,704 P. (828,074)
U.S. GAAP adjustments:
Effects of applying B-15 56,764 11,408
Capitalized interest or net financing cost 115,079 312,264 390,181
Depreciation of capitalized interest (38,265) (51,881) (88,877)
Excess of contributed company over cost (1,016,016) 101,602
Accrued vacation pay (33,104) (86,784) (34,456)
Deferred income tax on U.S. GAAP adjustments (25,764) 44,074 294,463
Deferred income tax (1,493,220)
Deferred employee profit sharing on U.S. GAAP
adjustments (7,361) (21,186) 91,882
Deferred employee profit sharing (333,173) (368,118) 70,321
Difference between the restatement of
depreciation expense based on specific
indexation factors and on the basis of the
NCPI (116,424) (222,512) (434,907)
Unrealized gains on securities (357,663)
Effects of inflation accounting on U.S. GAAP
Adjustments 195,021 65,957 185,734
--------------- ---------------- ----------------
Total U.S. GAAP adjustments, net (1,680,447) (1,332,794) 575,943
--------------- ---------------- ----------------
Net income (loss) under U.S. GAAP P. 2,821,418 P. (428,090) P. (609,794)
=============== ================ ================
Common shares outstanding as of December
31, 2001 (in million): 14,485 14,222 13,199
=============== ================ ================
Net income (loss) per share under U.S. GAAP
(in pesos): P. 0.195 P. (0.030) P. (0.046)
=============== ================ ================
F-55
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in thousands of Constant Mexican Pesos as of December 31, 2001)
After giving effect to the foregoing adjustments for accrued vacation
pay, amortization of the excess of contributed company over cost, depreciation
of capitalized interest and the difference between the restatement of
depreciation expense based on specific indexation factors and on the basis of
the NCPI as well of the reclassification of the employee profit sharing expense
and the deferred employee profit sharing expense, operating income under U.S.
GAAP totaled P. 1,678,441, P. 2,019,958 and P. 5,588,205 in 1999, 2000 and 2001,
respectively.
December 31,
2000 2001
------------------------------------
Total stockholders' equity under Mexican GAAP P. 68,369,924 P. 56,629,092
U.S. GAAP adjustments, net of effects of inflation on
monetary items:
Capitalized interest or net financing cost 750,702 1,140,883
Accumulated depreciation of capitalized interest or
net financing cost (162,762) (251,639)
Excess of contributed company over cost (1,016,016) (914,414)
Accrued vacation pay (145,301) (172,181)
Deferred income tax from U.S. GAAP (66,504) 219,505
Deferred employee profit sharing from U.S. GAAP (44,262) 47,580
Deferred employee profit sharing (960,211) (850,742)
Deferred taxes on the difference between the indexed
cost and replacement cost valuation of fixed assets
and inventories (809,128) (1,021,013)
Minority interest (2,208,186) (747,834)
Minority interest from U.S. GAAP (27,843)
Difference between the restatement of fixed assets and
inventories based on specific indexation factors and
on the basis of the NCPI 91,004 2,897,259
Effect of applying B-15 862,084
----------------- ----------------
Total U.S. GAAP adjustments, net (3,736,423) 347,404
----------------- ----------------
Total stockholders' equity under U.S. GAAP P. 64,633,501 P. 56,976,496
================= ================
F-56
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Under U.S. GAAP at December 31, 1999, 2000 and 2001
(Thousands of Constant Pesos with purchasing power as of December 31, 2001)
Retained earnings
----------------------------------------------------------------
Reserve for
Parent Capital purchase of Legal
investment Stock Company's own reserve Unappropriated Total
------------------------------------------------------------------------------------------------
Balances at January 1, 1999 P. 48,295,294 P. 41,934 P. 3,248,573 P. 3,290,507
Increase in legal reserve 98,609 (98,609)
Increase in parent investment 2,533,092
Comprehensive income:
Net income for the year 2,821,418 2,821,418
Other comprehensive income:
Effect of translation in
foreign entities
Deferred taxes allocated
to equity, net of inflation
Surplus from holding
nonmonetary assets
Comprehensive income
------------------------------------------------------------------------------------------------
Balances at December 31, 1999 50,828,386 140,543 5,971,382 6,111,925
Increase in legal reserve 154,876 (154,876)
Increase in parent investment 8,686,802
Effect of spin-off (59,515,188) P.28,770,050 30,745,138 30,745,138
Comprehensive income:
Net loss for the year (428,090) (428,090)
Other comprehensive income:
Effect of translation in
foreign entities
Deferred taxes allocated
to equity, net of inflation
Surplus from holding
nonmonetary assets
Comprehensive income
------------------------------------------------------------------------------------------------
Balances at December 31, 2000 28,770,050 295,419 36,133,554 36,428,973
Increase in legal reserve 82,772 (82,772)
Increase in reserve for purchase
of Company's own shares P.(10,210,500) 10,210,500
Cash purchase of Company's own
shares (20,708) (6,823,851) (6,823,851)
Dividends paid (566,274) (566,274)
Comprehensive income:
Net loss for the year (609,794) (609,794)
Other comprehensive income:
Effect of translation in
foreign entities
Unrealized gains on securities
Deferred taxes allocated
to equity, net of inflation
Surplus from holding
nonmonetary assets
Comprehensive income
------------------------------------------------------------------------------------------------
Balances at December 31, 2001 P. P.28,749,342 P. 3,386,649 P. 378,191 P. 24,664,214 P. 28,429,054
================================================================================================
Other accumulated Comprehensive
comprehensive income
income (loss) Total
--------------------------------------------------------
Balances at January 1, 1999 P. (204,715) P. 51,381,086
Increase in legal reserve
Increase in parent investment 2,533,092
Comprehensive income:
Net income for the year P. 2,821,418 2,821,418
Other comprehensive income:
Effect of translation in
foreign entities (72,474) (72,474) (72,474)
Deferred taxes allocated
to equity, net of inflation 247,760 247,760 247,760
Surplus from holding
nonmonetary assets 144,803 144,803 144,803
-----------------
Comprehensive income P. 3,141,507
----------------------=================------------------
Balances at December 31, 1999 115,374 57,055,685
Increase in legal reserve
Increase in parent investment 8,686,802
Effect of spin-off
Comprehensive income:
Net loss for the year P. (428,090) (428,090)
Other comprehensive income:
Effect of translation in
foreign entities (542,710) (542,710) (542,710)
Deferred taxes allocated
to equity, net of inflation (250,515) (250,515) (250,515)
Surplus from holding
nonmonetary assets 112,329 112,329 112,329
-----------------
Comprehensive income P. (1,108,986)
----------------------=================------------------
Balances at December 31, 2000 (565,522) 64,633,501
Increase in legal reserve
Increase in reserve for purchase
of Company's own shares
Cash purchase of Company's own
shares (6,844,559)
Dividends paid (566,274)
Comprehensive income:
Net loss for the year P. (609,794) (609,794)
Other comprehensive income:
Effect of translation in
foreign entities (343,665) (343,665) (343,665)
Unrealized gains on securities 357,663 357,663 357,663
Deferred taxes allocated
to equity, net of inflation (211,885) (211,885) (211,885)
Surplus from holding
nonmonetary assets 561,509 561,509 561,509
-----------------
Comprehensive income P. (246,172)
----------------------=================------------------
Balances at December 31, 2001 P. (201,900) P. 56,976,496
====================== =================
F-57
Deloitte and Touche
Independent Auditors' Report
To the Board of Directors and Shareholders of Telecom Americas, Ltd.
We have audited the accompanying consolidated balance sheets of Telecom Americas
Ltd. as at December 31, 2001 and 2000 and the related consolidated statements of
operations, comprehensive loss, stockholders' equity and cash flows for the
years ended December 31, 2001 and the 186-day period ended December 31, 2000.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits.
We concluded our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Corporation as at
December 31, 2001 and 2000 and the consolidated results of its operations and
its cash flows for the year ended December 31, 2001 and the 186-day period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/Deloitte & Touche S.P.C.
Montreal, Canada
January 31, 2002, except as to notes 1 and 25 which are as of February 12, 2002
F-58
TELECOM AMERICAS LTD.
Consolidated Statement of Operations
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------
Notes 2001 2000
------------------------------------------------------------------------------------------
(186 days)
Revenues $ 473,207 $ -
Cost of sales 220,786 -
Selling, general and administrative expenses 139,179 28
Depreciation and amortization 248,280 -
---------- ---------
Operating loss from continuing operations (135,038) 28
Equity in loss of joint venture investees 9,24 (98,885) (21,459)
Foreign exchange loss 24 (17,081) -
Interest expense 18 (246,751) -
Other income 29,895 8
---------- ---------
Loss from continuing operations before
minority interest (467,860) (21,423)
Minority interest 36,772 -
---------- ---------
Net loss from continuing operations (431,088) (21,423)
Discontinued operations 3 (513,135) (51,748)
---------- ---------
Net loss $ (944,223) $ (73,171)
========== =========
TELECOM AMERICAS LTD.
Consolidated Statement of Comprehensive loss
For the year ended and for the 186-day period ended December 31
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------------------
(186 days)
Net loss $ (944,223) $ (73,171)
Other comprehensive loss:
Foreign currency translation adjustment
net of income taxes of nil (192,545) (24,986)
------------ -----------
$ (1,136,768) $ 98,157
============ ===========
F-59
TELECOM AMERICAS LTD.
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(in thousands of U.S. dollars, except number of shares)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Accumulated
Common stock Additional other
--------------------------- paid-in comprehensive
Shares Par value capital Deficit loss Total
--------------------------------------------------------------------------------------
Balance at beginning of period - $ - $ - $ - $ - $ -
Issuance of common stock (Note 17) 12,000.000 12 - - - 12
Cancellation of shares pursuant to
reorganization of the Corporation's
share capital (Note 17) (12,000.000) (12) - - - (12)
Issuance of shares of new common
stock (Note 17) 22,309.858 22 3,629,990 3,630,012
Foreign currency translation loss - - - - (24,986) (24,986)
Net loss - - - (73,171) (73,171)
--------------------------------------------------------------------------------------
Balances at December 31, 2000 22,309.858 22 3,629,990 (73,171) (24,986) 3,531,855
Issuance of common stock (Note 17) 1,439.298 2 234,184 - - 234,186
Cancellation of shares (Note 17) (865,956) (1) (140,898) - - (140,899)
Foreign currency translation loss - - - - (192,545) (192,545)
Net loss - - - (944,223) - (944,223)
--------------------------------------------------------------------------------------
Balances at December 31, 2001 22,883.200 $ 23 $(3,723,276) $(1,017,394) $ (217,531) $2,488,374
======================================================================================
F-60
TELECOM AMERICAS LTD.
Consolidated Balance Sheets
As at December 31,
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------
Notes 2001 2000
------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 4 $ 552,245 $ 65,814
Notes receivable 5 11,415 2,151,690
Accounts receivable, net 6 204,163 69,091
Inventory 93,410 19,330
Prepaid expenses and other current assets 34,680 4,983
---------- ----------
895,913 2,310,908
Goodwill, net 7,8 3,033,791 947,968
Investments, at equity 9 - 947,193
Fixed assets, net 10 1,429,092 268,638
Licenses, net 11 1,821,297 286,699
Other assets 105,120 27,166
---------- ----------
$7,285,213 $4,788,572
========== ==========
Current liabilities
Short-term loan facilities 12 896,063 $ 64,790
Accounts payable and accrued liabilities 13 753,913 106,876
Notes payable 14 143,693 5,090
Long-term debt due within one year 15 979,769 67,576
---------- ----------
2,773,438 244,332
Long-term debt 15 1,748,898 714,712
Other long-term liabilities 16 127,540 -
---------- ----------
4,649,876 959,044
---------- ----------
Minority interest 146,963 22,673
---------- ----------
Series C Preferred Stock 17 - 275,000
---------- ----------
Commitments and contingencies 22
Stockholders' equity
Common stock 17 23 22
Additional paid-in capital 17 3,723,276 3,629,990
Deficit (1,017,394) (73,171)
Accumulated other comprehensive loss (217,531) (24,986)
---------- ----------
2,488,374 3,531,855
---------- ----------
$7,285,213 $4,788,572
========== ==========
On behalf of the Board of Directors
Director Director
F-61
TELECOM AMERICAS LTD.
Consolidated Statement of Cash Flows
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------
Notes 2001 2000
------------------------------------------------------------------------------------------
(186 days)
Operations
Net loss from continuing operations $ (431,088) $ (21,422)
Items not affecting cash
Depreciation and amortization 248,280 -
Unrealized foreign exchange losses 62,957 -
Accreted interest on long-term debt 52,894 -
Minority interest (36,772) -
Equity in net loss of associated company 98,885 21,459
Amortization of discount on notes 15 21,771 -
Changes in working capital items 125,219 (92)
---------- ----------
Cash provided by (used for)
continuing operations 142,146 (55)
---------- ----------
Investing activities
Acquisition of subsidiaries (net of cash) (616,877) -
Investments (146,891) (8,386)
Notes receivable 1,436,147 -
Capital expenditures (136,667)
Other long-term assets (33,801) -
---------- ----------
Cash provided by (used for) continuing
investing activities 501,911 (8,386)
---------- ----------
Financing activities
Short-term loan facilities 9,229 -
Increase in notes payable 172,846 -
Addition of long-term debt 391,502 -
Reduction of long-term debt (516,753) -
Issuance of common shares 234,186 -
Other long-term liabilities 56,194 -
Shareholder contributions (including
subsidiaries' cash of $19,108,000 in 2000) - 159,307
---------- ----------
Cash provided by continuing
financing activities 347,204 159,307
---------- ----------
Foreign exchange loss on cash held in
foreign currencies (5,131) -
---------- ----------
Cash used for discontinued operations (499,699) (85,052)
---------- ----------
Net increase in cash and cash equivalents 486,431 65,814
Cash and cash equivalents, beginning of period 65,814 -
---------- ----------
Cash and cash equivalents, end of period 4 $ 522,245 $ 65,814
========== ==========
See Note 21 for supplementary cash flow information
F-62
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
1. Description of business and basis of presentation
Ivey Holdco Ltd. was incorporated under the Companies Act 1981 of Bermuda
on June 28, 2000, and on November 8, 2000, changed its name to Telecom
Americas Ltd. ("Telecom Americas").
Telecom Americas, through joint ventures and subsidiaries (collectively the
"Corporation") is a communications company.
a) FORMATION OF TELECOM AMERICAS
On November 16, 2000, pursuant to a joint venture agreement entered
into by America Movil S.A. de C.V. ("America Movil"), Bell Canada
International Inc. ("BCI") and SBC International Inc. ("SBC"), Telecom
Americas received the following contributions in exchange for
22,309.858 shares of Common stock and 1,690.142 shares of Series C
Preferred stock (see Note 16):
(i) BCI contributed certain of its equity interests in Latin American
investments and promissory notes payable in the amount of
$964,140,000 and;
(ii) America Movil and SBC contributed their respective equity
interests in ATL - Algar Telecom Leste S.A. ("ATL") and America
Movil contributed $164,950,000 in cash, $1,007,500,000 in
promissory notes payable and a $180,050,000 commitment to
contribute its 60% economic interest in an Argentine broadband
company, Techtel LMDS Communicaciones Interativas S.A.
("Techtel"). America Movil undertook to contribute Techtel upon
the receipt of the necessary regulatory approvals.
The results of operations and cash flows reflect the operations of the
companies contributed as of the effective dates of their contribution to
the Corporation which reflect approximately one month of operations for
such companies in 2000.
The following table summarizes the Corporation's principal operations,
along with the accounting treatment for such operations as of December 31,
2001.
Equity Accounting
Company Operations Interest (1) Treatment
--------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS
Brazil Mobile
ATL-Algar Telecom Leste S.A. ("ATL") Cellular 59.0% Consolidation
Tess S.A. ("Tess") Cellular 100.0% Consolidation
Telet S.A. ("Telet") Cellular 77.6% Consolidation
Americel S.A. ("Americel") Cellular 76.7% Consolidation
DISCONTINUED OPERATIONS
Brazil Broadband
Canbras Communications Broadband cable
Corporation ("Canbras") and ISP 75.6% Discontinued operation
Spanish Americas Broadband
Techtel-LMDS Comunicaciones Broadband, Long
Interativas S.A. ("Techtel") Distance Carrier 60.0% Discontinued operation
Genesis Telecom C.A. ("Genesis") LMDS 59.1% Discontinued operation
Spanish Americas Mobile
Comunicacion Celular S.A. - Comcel
S.A. ("Comcel") Cellular 77.1% Discontinued operation
(1) Figures represent Telecom Americas' economic interests in the
operating companies listed.
F-63
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
1. Description of business and basis of presentation (cont'd)
b) TELECOM AMERICAS REORGANIZATION
In order to address the funding requirements of Telecom Americas, on
February 8, 2002, BCI, America Movil and SBC completed the
reorganization (the "Reorganization") of Telecom Americas. This
resulted in Telecom Americas becoming a company focused exclusively on
the provision of mobile wireless services in Brazil, with reduced
consolidated indebtedness.
The Reorganization included the following transactions (see Note 3):
. Telecom Americas transferred its 77.1% indirect interest in
Comcel to America Movil;
. America Movil transferred cash U.S.$80 million and its 41%
indirect interest in ATL to Telecom Americas;
. Telecom Americas distributed its 75.6% indirect interest in
Canbras to BCI;
. Telecom Americas distributed its 59.1% interest in Genesis
equally to BCI and America Movil; and
. Telecom Americas will distribute its 60% indirect interest in
Techtel to America Movil upon the receipt of regulatory
approvals.
c) In January 2002, America Movil agreed to sell its investment in
Cellular Communications of Puerto Rico, a cellular property, to SBC
for cash and a note redeemable for SBC's investment in Telecom
Americas.
2. Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
a) INVESTMENTS
The financial statements of entities which are controlled by the
Corporation are consolidated and entities which are jointly controlled
by the Corporation, referred to as joint venture investees, are
accounted for using the equity method. All significant intercompany
transactions and balances have been eliminated.
b) REVENUE RECOGNITION
Revenues from airtime, monthly fixed charges, prepaid cards, and cable
subscriber fees are recognized when services are provided. Revenues
from sales of equipment are recognized upon shipment to third party
distributors or direct sales to subscribers. Activation revenues are
deferred and amortized over the expected period of benefit.
F-64
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
2. Summary of significant accounting policies (cont'd.)
c) TRANSLATION OF FOREIGN CURRENCIES
The financial statements of Telecom Americas' subsidiaries and joint
venture investees which have a functional currency other than the U.S.
dollar are translated into U.S. dollars in accordance with Statement
of Financial Accounting Standard ("SFAS") No. 52, "Foreign Currency
Translation". Assets and liabilities are translated at exchange rates
in effect at the balance sheet date. Revenues and expenses are
translated at the average exchange rates prevailing during the period.
The resulting translation gains or losses are accumulated and reported
in other comprehensive income or loss.
d) CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and highly-liquid
investments with a maturity of three months or less at the date of
acquisition.
e) INVENTORY
Inventory consists mainly of mobile telephones held for resale and is
recorded at the lower of weighted average cost or market.
f) FIXED ASSETS
Fixed assets are recorded at cost and are depreciated and amortized
over their expected useful lives, using principally the straight-line
method. The annual depreciation and amortization rates by fixed asset
category are as follows:
Buildings 20 - 25 years
Network equipment 3 - 15 years
Other equipment 3 - 10 years
Leasehold improvements 5 - 10 years
Costs that are directly attributable to the construction of a network,
including materials, direct labour, construction overhead and
interest are capitalized and are included in network equipment.
g) LICENSES
Licenses are recorded at cost and are amortized over their terms
ranging from 15 to 20 years using the straight-line method.
h) HANDSET SUBSIDIES
The excess of cost over the selling price of handsets is expensed upon
subscriber activation.
i) GOODWILL
Goodwill represents the excess of the purchase price over the
estimated fair values of the net assets of subsidiaries and joint
venture investees at the dates of acquisition. Goodwill is amortized
on a straight-line basis over the estimated useful lives ranging
between 9 and 17 years. For acquisitions recorded after June 30, 2001,
the Corporation did not amortize the associated goodwill in accordance
with the new Standards of the Financial Accounting Standards Board
("FASB"). (See Note 2n).
F-65
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended December
31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
2. Summary of significant accounting policies (cont'd.)
j) IMPAIRMENT OF LONG-LIVED ASSETS
The Corporation evaluates the carrying value of its long-lived assets,
including goodwill, on an ongoing basis. In order to determine whether
an impairment exists, management compares the undiscounted cash flows
estimated to be generated by those assets with their carrying amount.
If such assets are considered to be impaired, the impairment charge to
be recognized is measured by the amount by which the carrying amount
of the assets exceeds their fair value. Any permanent impairment in
the carrying value of assets is charged against income in the period
an impairment is determined (See Note 2n).
k) INCOME TAXES
The Corporation accounts for income taxes under the liability method.
Deferred taxes relate to the expected future tax consequences of
temporary differences between the carrying amount of balance sheet
items and their corresponding tax values. Deferred tax assets are
recognized only to the extent that, in the opinion of management, it
is more likely than not that the deferred tax assets will be realized.
Deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
Telecom Americas is not liable for income taxes in Bermuda. It has
been given assurance from the appropriate authorities that in the
event of there being enacted in Bermuda any legislation imposing tax
computed on profits or income or on any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance
tax, then the imposition of any of the aforementioned taxes shall not
be applicable until March 28, 2016.
l) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised entirely of foreign currency
translation adjustments, net of income taxes.
m) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
To manage interest rate exposure, the Corporation enters into interest
rate swap agreements. Furthermore, the Corporation manages exposure to
fluctuations in foreign exchange rates by creating offsetting
positions principally through the use of foreign exchange swaps. The
Corporation enters into foreign exchange swaps to hedge certain
short-term loan facilities. The Corporation does not use financial
instruments for trading or speculative purposes.
In accordance with SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities", the Corporation records derivatives on the
balance sheet as assets or liabilities measured at fair value. For
those derivatives representing effective hedges of risks and
exposures, unrealized gains or losses resulting from changes in the
fair values are presented either in net earnings or as a component of
comprehensive income (loss), depending upon the nature of the hedge.
F-66
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
2. Summary of significant accounting policies (cont'd.)
n) RECENT ACCOUNTING PRONOUNCEMENT
The FASB recently issued SFAS No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets". Effective July 1,
2001, the standards require that all business combinations be
accounted for using the purchase method. Additionally, effective
January 1, 2002, goodwill and intangible assets with an indefinite
life will no longer be amortized to earnings and will be assessed for
impairment on an annual basis in accordance with the new standards,
including a transitional impairment test. The Corporation is currently
evaluating the impact of the adoption of the new standards, and
therefore has not yet finalized their effect on its consolidated
financial statements. However, a substantial amount of goodwill on the
consolidated balance sheet at January 1, 2002 may be found to be
impaired.
The FASB recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-lived Assets", which is effective for fiscal years
beginning after December 15, 2001 and addresses how to account for and
report impairments or disposals of long-lived assets (including
discontinued operations). An impairment loss is to be recorded on
long-lived assets being held or used when the carrying amount of the
asset is not recoverable from its undiscounted cash flows. The
impairment loss is equal to the difference between the asset's
carrying amount and estimated fair value. Long-lived assets to be
disposed of by other then a sale for cash are to be accounted for and
reported like assets being held or used, except that the impairment
loss is recognized at the time of the disposition. Long-lived assets
to be disposed of by sale are to be recorded at the lower of their
carrying amount or estimated fair value (less costs to sell) at the
time the plan of disposition has been approved and committed to by the
appropriate company management. The results of operations of
discontinued operations must be reported in the period in which they
occur. In addition, depreciation is to cease at the same time. The
Corporation's management does not expect the adoption of this standard
to have a significant impact on its future consolidated financial
results.
3. Discontinued operations
Discontinued operations are comprised of the following:
Spanish Americas Mobile, Spanish Americas Broadband and Brazil Broadband
Effective December 31, 2001, the Corporation adopted a formal plan of
disposal for all of its operations in the Spanish Americas Mobile (Comcel),
Spanish Americas Broadband (Techtel and Genesis) and Brazil Broadband
(Canbras) business segments. On February 8, 2002, Comcel, Canbras, Genesis
and Techtel were disposed of at management's best estimate of fair value as
part of the Reorganization, as described in Note 1. As at December 31,
2001, a provision was recorded for the expected loss on disposal.
F-67
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2002 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
3. Discontinued operations (cont'd.)
Years ended December 31
-----------------------------
2001 2000
---------- ---------
(186 days)
Revenues applicable to discontinued operations,
excluded from consolidated revenues $ 355,100 $ 25,356
----------------------------------------------------------------------------------------
Net operating loss from discontinued operations, net (252,086) (53,424)
of tax:
Provision for loss on disposal (280,754) -
Minority interest 19,705 1,676
----------------------------------------------------------------------------------------
Net loss from discontinued operations $ (513,135) $ (51,748)
----------------------------------------------------------------------------------------
Amounts related to the discontinued operations included in the
consolidated balance sheets are as follows:
Years ended December 31
-----------------------------
2001 2000
---------- ---------
Current assets $ 153,892 $ 124,470
Fixed assets, net 434,194 268,637
Licenses, net 290,079 286,699
Goodwill 1,023,693 947,968
Other assets 61,040) 26,971
---------- ----------
1,962,898 1,654,745
Current liabilities 673,594 244,154
Long-term debt 543,754 714,712
---------- ----------
Total liabilities 1,217,348 958,866
---------- ----------
Net assets $ 745,550 $ 695,879
========== ==========
Cash flows from discontinued operations are as follows:
Years ended December 31
-----------------------------
2001 2000
---------- ---------
(186 days)
Operating activities $ (35,059) $ (46,274)
Investing activities (334,958) (4,792)
Financing activities (128,171) (36,999)
Foreign exchange (loss) gain on cash
held in foreign currencies (1,511) 3,013
---------- ---------
Cash flows from discontinued operations $ (499,699) $ (85,052)
========== =========
F-68
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
4. Cash and cash equivalents
Cash and cash equivalents at December 31, 2001 include $351,633,000 of
restricted cash. This amount represents cash not available for use other
than to collateralize short-term bank loans of certain subsidiaries of the
Corporation.
5. Notes receivable
2001 2000
-------- -----------
Shareholders(1) $ - $ 2,151,690
Other 11,415 -
-------- -----------
$ 11,415 $ 2,151,690
======== ===========
(1) These notes are non-interest bearing, payable on demand and include
$180,050,000 receivable from America Movil representing its commitment
to contribute its 60% economic interest in Techtel (see Note 1).
6. Accounts receivable
2001 2000
-------- -----------
Third parties $ 195,759 $ 65,482
Customers 24,058 7,855
Other --------- -----------
219,817 73,337
Allowance for doubtful accounts (15,837) (4,350)
--------- -----------
Net 203,980 68,987
Related parties
Associated company(1) 183 104
--------- -----------
$ 204,163 $ 69,091
========= ===========
(1) An associated company is a company where the Corporation or any one of
the Corporation's shareholders exercises significant influence.
F-69
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
7. Investments in subsidiaries
During the year ended December 31, 2001 the Corporation completed several
acquisitions.
The results of operations for each of the acquisitions are included in the
consolidated statements of earnings as of the effective date of
acquisition. Each acquisition was accounted for using the purchase method.
2001
The allocation of the purchase price to the estimated fair value of net
assets acquired is as follows:
ATL(b) Americel(c) Telet(c) Tess(d) Techtel(e) Total
-------------------------------------------------------------------------------------------------------------------------------
Current assets
(including cash of $405,078,000) 408,420 53,814 39,462 107,345 17,491 626,532
Fixed assets 245,604 151,310 208,447 296,389 94,946 996,696
License 721,119 94,807 135,693 736,526 26,114 1,714,259
Other assets 1,173 12,542 7,843 5,409 36,020 62,987
-------------------------------------------------------------------------------------------------------------------------------
1,376,316 312,473 391,445 1,145,669 174,571 3,400,474
Less:
Current liabilities 97,260 266,546 299,991 528,151 16,994 1,208,942
Long-term debt 980,144 70,308 102,118 393,660 53,209 1,599,439
Minority interest 122,573 - - - 41,748 164,321
-------------------------------------------------------------------------------------------------------------------------------
Net assets (liabilities) acquired 176,339 (24,381) (10,664) 223,858 62,620 427,772
Goodwill 123,661 232,939 193,079 667,491 147,430 1,364,600
-------------------------------------------------------------------------------------------------------------------------------
Consideration paid 300,000 208,558 182,415 891,349 210,050 1,792,372
-------------------------------------------------------------------------------------------------------------------------------
Goodwill amortization period 12 years 11 years 11 years 12 years N/A
a) On February 28, 2001 Canbras completed a rights offering amounting to
$66,058,000 (CDN$99,105,000). The Corporation exercised all rights
issued to it, as well as all remaining rights which were unexercised
at the expiry of the offering, for a total investment of $54,373,000
(CDN$81,575,000) and which resulted in an increase of its economic
interest in Canbras from 70.7% to 75.6%.
b) On March 27, 2001, the Corporation invested U.S.$300,000,000 in ATL,
increasing its total economic interest from 50% to 59% and changed its
basis of accounting for ATL from the equity method to consolidation as
of that date.
c) On March 30, 2001, the Corporation acquired an additional 16.3%
economic interest in each of Americal and Telet for an aggregate
purchase price of $153,311,000.
On September 25, 2001, the Corporation acquired an additional 42.7%
and 43.4% economic interest in each of Americel and Telet,
respectively, for an aggregate purchase price of $376,364,000
including acquisition costs and changed its basis of accounting for
Americel and Telet from the equity method to consolidation as of that
date.
On December 5, 2001, the Corporation acquired an additional 1.3% and
1.5% in Americel and Telet, respectively for an aggregate purchase
price of $14,612,000.
F-70
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
7. Investments in subsidiaries (cont'd)
d) On April 9, 2001, the Corporation acquired, for total consideration of
approximately $950,000,000 a 100% economic interest in Tess, one of
two B Band cellular companies operating in the Brazilian state of Sao
Paulo. The consideration consisted of $318,725,000 in cash and
$631,275,000 in notes payable (see Note 14), which had an estimated
fair value of $571,275,000, resulting in an effective purchase price
of approximately $890,000,000 before related costs of acquisition.
The following table summarizes the results of the Corporation as if it
had acquired Tess at January 1, 2001:
2001
--------------
Revenues $ 523,867
Net loss (1,005,355)
e) On August 31, 2001, the Corporation acquired, for a total
consideration of $210,050,000, a 60% economic interest in Techtel, an
Argentine broadband company. Techtel was contributed to Telecom
Americas by America Movil in exchange for shares pursuant to the joint
venture agreement entered into in November 2000 (see Note 1).
f) During 2001, the Corporation invested amounts totalling $187,117,000
in Comcel resulting in an increase in its economic interest from
68.5% to 77.1%
g) During November 2001, the Corporation invested $14,471,000 in Genesis,
resulting in an increase in its economic interest from 51.0% to
59.06%.
2000
During the 186-day period ended December 31, 2000, the Corporation either
directly, through subsidiaries or operating companies, completed several
transactions as follows:
a) During December 2000, the Corporation converted, through a subsidiary,
a note receivable in the amount of $17,083,000 (CDN$25,590,000) into
common shares of Canbras Communications, resulting in an additional
6.2% effective economic interest for the Corporation. The transaction
resulted in additional goodwill of $2,648,000.
b) During December 2000, the Corporation, through a subsidiary, invested
$116,000,000, resulting in a 9.33% increase in the Corporation's
effective economic interest in Comcel. The net equity investment of
the minority interest shareholders of Comcel is Nil as a result of
accumulated losses experienced by Comcel. Consequently, the
Corporation does not allocate losses to the minority interest
shareholders.
F-71
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
8. Goodwill, net
Accumulated Net book
Cost amortization value
----------- ------------ -----------
2001 $ 3,199,520 $ 165,729 $ 3,033,791
=========== ========== ===========
2000 $ 953,866 $ 5,898 $ 947,968
=========== ========== ===========
9. Investments, at equity
As at December 31, 2000, investments at equity comprised the following
joint venture investees (see Notes 7 b) and c)):
2000
----------
ATL $ 806,374
Americel 66,932
Telet 73,887
----------
$ 947,193
==========
During 2000, the Corporation made cash investments in the aggregate of
$8,386,000 to fund its pro-rata share of its joint venture investees'
operations. These investments did not change the Corporation's economic
interest in such operations.
The table below sets out the financial position and results of operations
of investments for the periods during which they were accounted for using
the equity method:
2001 2000
---------- ----------
Balance sheet
Total assets $ 2,103,997(1)
Total liabilities 1,996,695
Statement of operations
Revenues $ 263,029 $ 68,338
Net loss $ (313,481) $ (61,976)
(1) Includes approximately $899,793,000 of goodwill (net of accumulated
amortization).
F-72
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended December
31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
10. Fixed assets, net
2001
Accumulated
depreciation/ Net book
Cost amortization value
---------- ------------- -----------
Land $ 8,604 $ - $ 8,604
Buildings 39,614 2,827 36,787
Network equipment 861,469 223,399 638,070
Other equipment 494,025 158,103 335,922
Network equipment under construction 323,686 - 323,686
Leasehold improvements 109,687 23,664 86,023
----------- ---------- -----------
$ 1,837,085 407,993 $ 1,429,092
=========== ========== ===========
2000
Accumulated
depreciation/ Net book
Cost amoritization value
---------- ------------- -----------
Land $ 2,899 $ - $ 2,899
Buildings 6,543 1,332 5,211
Network equipment 246,269 85,054 161,215
Other equipment 57,672 15,841 41,831
Network equipment under construction 55,120 - 55,120
Leasehold improvements 3,357 995 2,362
----------- ---------- -----------
$ 371,860 $ 103,222 $ 268,638
=========== ========== ===========
11. Licenses
Accumulated Net book
Cost amoritization value
---------- ------------- -----------
2001 $ 2,319,616 $ 498,319 $ 1,821,297
=========== ========== ===========
2000 $ 402,043 $ 115,344 $ 286,699
=========== ========== ===========
F-73
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
12. Short-term loan facilities
The Corporation's principal short-term loan facilities are as follows:
COMCEL
At December 31, 2001, Comcel had $33,081,000 owing to banks, bearing
interest at variable rates. Effective interest rates at December 31, 2001
on these loans ranged from Colombian fixed-term deposit rate plus 1.67% to
Colombian fixed-term deposit rate plus 7% on peso denominated loans
($22,523,000), and at LIBOR plus 4.5% on U.S. dollar denominated loans
($10,558,000). The LIBOR and the Colombian fixed-term deposit rates were
2.44% and 10.75%, respectively, as at December 31, 2001.
ATL
At December 31, 2001, ATL had $79,063,000 owing to banks, bearing interest
at variable rates. Effective interest rates at December 31, 2001 on these
loans ranged from 102.4% of the Interbank Certificate Deposit rate ("CDI")
to 118% of CDI on real denominated loans ($33,240,000) and from 7.4% to
12.35% on foreign exchange variation rate ("FE") loans denominated in U.S.
dollars ($45,823,000). The CDI and FE rates were 19.02% and 7.45%
respectively as at December 31, 2001. Included in the real denominated
loans are $41,865,000, which were swapped from U.S. dollars to real. (See
Note 24)
TESS
At December 31, 2001, Tess had $175,888,000 owing to banks, bearing
interest at variable and fixed rates. Effective interest rates at December
31, 2001 on these loans ranged from 2% to 12.35% on FE loans denominated in
U.S. dollars ($119,583,000) and from 101% of CDI to 140% of CDI and fixed
rates of 17.8% to 26.08% on real denominated loans ($56,304,000). Included
in the real denominated loans are $23,588,000, which were swapped from U.S.
dollars to real. (See Note 24)
AMERICEL
At December 31, 2001, Americel had $196,306,000 owing to banks bearing
interest at variable rates. Effective interest rates at December 31, 2001
on these loans ranged from 104% of CDI to 130% of CDI on Real denominated
loans ($142,448,000) and from 4.5% to 12% on FE loans denominated in U.S.
dollars ($53,858,000). Included in the real denominated loans are
$11,298,000, which were swapped from U.S. dollars to real. (See Note 24)
TELET
At December 31, 2001, Telet had $408,030,000 owing to banks, bearing
interest at variable rates. Effective interest rates at December 31, 2001
on these loans ranged from 5% to 19% on FE loans ($280,091,000) and from
104% of CDI to 134% of CDI on real denominated loans ($127,939,000).
F-74
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
13. Accounts payable and accrued liabilities
2001 2000
-------- --------
Third parties
Trade $227,498 $ 48,316
Accrued liabilities 242,761 56,234
-------- --------
470,259 104,550
Provision for loss on disposal (see Note 3) 280,754 --
-------- --------
751,013 104,550
-------- --------
Related parties
Shareholder -- 1,688
Affiliated companies/(1)/ 2,900 638
-------- --------
2,900 2,326
-------- --------
$753,913 $106,876
======== ========
/(1)/ Affiliated companies are companies controlled by the Corporation's
shareholders.
14. Notes payable
2001 2000
-------- --------
Third parties $ 3,076 $ 5,090
Shareholders/(1)/ 140,617 --
-------- --------
$143,693 $ 5,090
======== ========
/(1)/ Notes payable to shareholders, bearing interest at various rates up to
6.75%, maturing February 8, 2002.
15. Long-term debt
2001 2000
-------- --------
CONTINUING OPERATIONS
ATL:
Equipment financing, bearing interest at LIBOR plus 2.50% to
LIBOR plus 3.75%, repayable in varying amounts ending in 2002 $215,769 --
Bank loans (R$295,253,000), bearing interest at the long-term
Brazilian Development bank prime rate ("TJLP") plus 3.00% to TJLP
plus 4.50%, due in 2007 239,288 --
Debentures (R$573,230,000), bearing interest at CDI plus 1.20%
repayable in 2003 151,485
Other 13,601 --
-------- --------
620,143 --
-------- --------
F-75
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
15. Long-term debt (cont'd)
2001 2000
-------- --------
CONTINUING OPERATIONS (CONT'D)
TESS:
Equipment financing, bearing interest at LIBOR plus 6.50%,
repayable in varying amounts ending in 2002 $271,301 $ --
Bank loans (R$227,543,000) bearing interest at TJLP plus 2.80%
to TJLP plus 4.30%, due in 2006 99,448 --
Bank loans, bearing interest at FE 4.30%, due in 2006 16,678 --
-------- --------
387,427 --
-------- --------
AMERICEL:
Bank loan (R$181,517,000) bearing interest at TJLP plus 3.0%
repayable in varying amounts beginning in 2002 and ending in 2006 $ 79,408 $ --
Other -- --
-------- --------
79,408 --
-------- --------
TELET:
Equipment financing, bearing interest at LIBOR plus 3.75%, due in
2002 $ 40,504 $ --
Other 12,392 --
-------- --------
52,896 --
-------- --------
Discounted OPERATIONS
COMCEL:
14.125% senior deferred coupon bonds, due in 2005 $280,370 $281,103
Senior term loan, bearing interest at LIBOR plus a variable margin
(3.25% to 4.25%), repayable in varying payments ending in 2002 92,832 164,513
14% senior discount notes, due in 2004 185,495 178,903
Bank loans, bearing interest at LIBOR plus 2.70% to LIBOR plus
3.75%, repayable in varying amounts ending in 2004 21,319 33,584
Bank loans (2001 -- Cols Ps 53,099,440,000, 2000 -- Col Ps
82,574,300,000), bearing interest at 15.00% to 17.00%, repayable
in varying amounts ending in 2002 24,110 36,932
Other 17,796 24,617
-------- --------
621,922 719,652
-------- --------
F-76
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
15. Long-term debt (cont'd)
2001 2000
---------- --------
DISCONTINUED OPERATIONS (CONT'D)
TECHTEL:
Other $ 65,417 $ -
---------- --------
CANBRAS:
Floating rate note facility, bearing interest at LIBOR plus 4.50% to
LIBOR plus 7.50%, due in 2007 $ 27,752 $ 27,735
Bank loan repaid in 2001 - 16,664
Other 2,946 9,276
---------- --------
30,698 53,675
---------- --------
GENESIS TELECOM:
Equipment financing, bearing interest at LIBOR plus 8.00% to
LIBOR plus 10.00%, repayable in varying amounts ending 2004 $ 7,695 $ 8,735
Other - 226
---------- --------
7,695 8,961
---------- --------
TELECOM AMERICAS:
Tess Note (see Notes a) and b)):
Series A Notes bearing interest at LIBOR, payable annually, with
principal repayable in three equal annual installments
ending in April 2004 $ 315,638 $ -
Series B Notes bearing interest at an average rate of 3.62%,
payable semi-annually, with principal repayable in three equal
annual installments ending in April 2004 315,638 -
Discount on Series A and Series B Notes (see Note 7 d) (38,229) -
---------- --------
593,047 -
Loan payable to a shareholder, bearing interest at 12%
per year, maturing June 15, 2004 198,619 -
Loan payable to a shareholder, bearing interest at 12% per year, maturing
June 15, 2004, repayable in shares of Telecom Americas (see Note c) 71,395 -
---------- --------
863,061 -
---------- --------
2,728,667 782,288
---------- --------
Less: due within one year 979,769 67,576
---------- --------
$1,748,898 $714,712
========== ========
F-77
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended December
31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
15. Long-term debt (cont'd)
Estimated principal repayments of long-term debt outstanding at December
31, 2001 over the next five years are as follows:
2002 2003 2004 2005 2006
--------- --------- --------- --------- ---------
979,769 469,304 756,274 390,251 78,251
a) TESS NOTES
The Tess Notes were purchased by an affiliate of America Movil from the
vendors of Tess.
b) CHANGE OF CONTROL COVENANTS
The covenants of the Tess Notes, Series A and B include change of
control clauses in respect of the ownership of BCI by its ultimate
parent company. If these clauses were to be breached, the repayment of
the outstanding amounts under these financial obligations could be
accelerated.
c) 12% LOAN REPAYABLE IN SHARES OF TELECOM AMERICAS
During December 2001, the Corporation received a loan facility in the
amount of U.S.$120,000,000, bearing interest at 12%, repayable on June
15, 2004 in shares of Telecom Americas at a price of $47,353.06 per
share.
d) COLLATERAL
In general, substantially all of the assets of the Corporation's
operating companies have been pledged to secure short-term and long-
term loan facilities.
16. Other long-term liabilities
Other long-term liabilities are comprised of disputed amounts related to
license fee instalments payable to Agencia Nacional de Telecomunicacoes
("Anatel") for ATL ($78,781,000) and Tess ($48,759,000). The amounts in
dispute reflect a difference in the application of inflation indexing in
the computation of the license instalments payable in March, 1999, 2000
and 2001 and interest thereon. The dispute is not expected to be resolved
within the next twelve months.
F-78
TELECOM AMERICAS LTD.
Notes to the Consolidated Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
17 Preferred and Common stock
Authorized
46,309.858/(1)/ Common stock, par value $1.00 per share
1,690.142 Series C Preferred stock, par value $1.00 per share,
voting, cancelled during 2001.
(1) As of June 30, 2001, the share capital of Telecom Americas consists of a
single class of Common Stock.
2001 2000
---- ----
Issued and outstanding
22,883.200 in 2001 (22,309.858 in 2000) Common stock $ 23 $ 22
Nil in 2001 (1,690.142 in 2000) Series C Preferred stock - 2
---- ----
$ 23 $ 24
==== ====
On July 13, 2001, BCI and America Movil each tendered shares of Telecom Americas
to redeem $275,000,000 and $140,898,191, respectively, of notes due to Telecom
Americas. As a result, 1,690.142 Series C Preferred stock in the amount of
$275,000,000 and 865.956 shares of Common stock, having a par value of $1.00, in
the amount of $140,898,191 were cancelled.
On September 19, 2001, Telecom Americas issued 1,439.298 shares of Common Stock
having a par value of $1.00 per share, in exchange for cash consideration of
$234,186,349.
On June 28, 2000, in connection with its incorporation, Telecom Americas issued
12,000 shares of Common stock in exchange for cash consideration of $12,000.
On November 16, 2000, Telecom Americas issued redeemable Preferred stock Series
A through G (100 shares for each of Series A, B, D, E, F and G of Preferred
stock, par value $1.00 per share and 1,690.142 shares of Series C preferred
stock, par value $1.00 per share). Series A, B, D, E, F and G of Preferred stock
were non-voting and non-convertible. In exchange for the issuance of shares of
Preferred stock, the Corporation received $164,950,000 in cash, $2,151,690,000
in promissory notes and equity interests in certain investments having an
aggregate fair value of $1,588,360,000. Also on November 16, 2000, in connection
with a reorganization of the Corporation's authorized and issued share capital,
the Series A, B, D, E, F and G of Preferred stock and 12,000 shares of Common
stock outstanding at that time were exchanged for 22,309.858 shares of new
Common stock having a par value of $1.00 per share. As a result of this
reorganization of share capital, all authorized and unissued Preferred stock
series, A, B, D, E, F and G were cancelled.
F-79
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
17. Preferred and Common stock (Cont'd)
Outstanding Common Stock at December 31, 2001 are owned as follows:
Number Ownership
--------- ---------
BCI 9,536.138 41.7%
America Movil 10,415.643 45.5%
SBC 2,931.419 12.8%
---------- ---------
22,883.200 100.000%
18. Interest expense
2001 2000
--------- ----------
(186 days)
Interest expense - long-term debt $ 83,554 $ -
Interest expense - other 163,197 -
--------- ----------
$ 246,751 $ -
========= ==========
19. Income taxes
As at December 31, future income taxes are as follows:
2001 2000
--------- ----------
Deferred tax assets:
Tax benefits on losses $ 807,255 $ 183,664
Deferred tax liabilities:
Current assets 11,523 1,284
Other assets 9,851 41,861
Current liabilities 39,999 4,391
--------- ----------
Total deferred tax liabilities 61,373 47,536
--------- ----------
745,882 136,128
Valuation Allowance (745,882) (136,128)
--------- ----------
Deferred taxes, net $ - $ -
========= ==========
F-80
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
19. Income taxes (cont'd.)
The Corporation has Brazilian non-capital tax losses from continuing
operations carried forward amounting to approximately $1,847,000,000 that
can be used to offset future years' taxable income indefinitely. A
significant portion of these losses was accumulated in the foreign
operations prior to them being contributed to or acquired by the
Corporation (see Notes 1 and 7). The benefit of these losses has not been
reflected in the consolidated financial statements except to the extent of
future income tax liabilities.
The valuation allowance as at December 31, 2001 and 2000 represents
primarily tax benefits on losses carryforwards that may remain
indefinitely unutilized.
20. Segmented information
As of December 31, 2001, the Corporation's continuing operations are in
only one operating segment: Brazil Mobile, which is comprised of four
cellular companies in Brazil.
21. Supplementary cash flow information
2001 2000
---------- ----------
(186 days)
a) Changes in working capital items
Increase (decrease) in current assets of
continuing operations
Accounts receivable $ (7,584) $ (299)
Inventory (25,556) -
Prepaid expenses and other current assets 1,156 28
Decrease in accounts payable and
accrued liabilities 157,203 179
---------- ----------
Decrease in working capital items $ 125,219 $ (92)
========== ==========
F-81
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
21. Supplementary cash flow information
2001 2000
--------- ------------
(186 days)
b) Non-cash investing and financial activities
Investing activities
Increase in promissory notes receivable
from shareholders $ - $ (2,151,690)
Shareholder contributions - (1,588,360)
Non-cash consideration paid for subsidiaries 841,325 -
--------- ------------
Financing activities $ 841,325 $ (3,740,050)
========= ============
Issuance of shares of common stock and of
Preferred Series C stock (including
additional paid-in capital) $ - $ 3,740,050
Redemption of shares 415,898 -
--------- ------------
$ 415,898 $ 3,740,050
========= ============
c) Other cash flow information
Interest paid $ 173,628 $ -
========= ============
Income taxes paid $ - $ -
========= ============
22. Commitments and contingencies
a) At December 31, 2001, the Corporation is committed in the aggregate
amount of $81,400,000 under the terms of operating leases with
various expiration dates for the rental of premises and equipment.
Annual lease payments in 2001 amounted to $19,349,000. Future payments
will be as follows:
2002 2003 2004 2005 2006
------- ------- ------ ------ ------
$18,849 $11,597 $7,730 $5,883 $5,511
b) Pursuant to the joint venture agreement relating to the formation of
Telecom Americas,BCI agreed to increase the amount of the promissory
notes it contributed to Telecom Americas to the extent Comcel is
required to pay damages in excess of U.S.$5 million as a result of
litigation in respect of the provision by Comcel, between December
1998 and September 1999, of long distance services through voice-over
Internet protocol (VOIP). Comcel is currently involved in litigation
whereby plaintiffs are claiming damages of approximately U.S.$70
million. While Comcel's Colombian counsel believes the damage
allegations will be subject to defenses on the merits and that
substantially all of the claims lack a sufficient evidentiary basis,
there can be no assurance that Comcel will be successful in its
defense.
As part of the Telecom Americas Reorganization (see Note 1) which
closed on February 8, 2002, the parties agreed to modify the existing
indemnification obligation of BCI. BCI has agreed: (i) that BCI shall
indemnify Comcel for the initial U.S.$5 million of damages; (ii)
Comcel shall be responsible for damages in excess of U.S.$5 million up
to and including U.S.$7.5 million; and (iii) BCI shall indemnify
Comcel for any damages in excess of U.S.$7.5 million.
F-82
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
22. Commitments and contingencies (continued)
c) The Corporation's consolidated long-term debt includes certain debt of
ATL and Tess ($215,769,000 and $217,301,000, respectively), maturing
in 2002 (see Note 15). Management of ATL and Tess are currently
renegotiating the repayment terms of such debt.
The accounts of ATL and Tess have been included in these consolidated
financial statements on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the normal
course of operations. The continuation of ATL and Tess as going
concerns is dependent upon their ability to successfully renegotiate
the terms of the long-term debt referred to above, the ability to
generate sufficient future cash flows to meet their obligations on a
timely basis and the continuing financial support of Telecom Americas.
Should ATL and Tess not be able to continue as going concerns, the
recoverability by the Corporation of the net assets included in these
consolidated financial statements is in doubt. In addition, the
Corporation guarantees the majority of these subsidiaries long-term
bank loans and equipment financings.
Management believes that the terms of the long-term debt will be
successfully renegotiated.
The net assets at December 31, 2001 related to each of ATL and Tess
included in these consolidated financial statements are as follows:
ATL Tess Total
Assets $1,738,631 $1,597,079 $3,335,710
Liabilities 919,628 1,549,935 2,469,563
------------------------------------------
Net assets $ 819,003 $ 47,144 $ 866,147
==========================================
23. Related party transactions
In the normal course of business, the Corporation had transactions which
were measured at exchange amounts with its shareholders and affiliated
companies as follows:
2001 2000
-------- ------
Interest expense $43,511 $6,977
F-83
TELECOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
24. Financial Instruments
a) CURRENCY RISK
The Corporation is exposed to market risks from changes in foreign
currency rates.
b) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Corporation to
concentration of credit risk consist principally of accounts
receivable from customers and distributors. The Corporation's
customers from continuing operations are located in Brazil. The
ability of the customers to pay their debt depends, in part, upon the
general condition of the Brazilian economy. Generally, the Corporation
does not require collateral or other security to support receivables.
c) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values approximate amounts at which financial instruments could
be exchanged for instruments of similar risk, principal and remaining
features. Fair values are based on estimates using present value and
other valuation techniques which are significantly affected by
assumptions concerning future cash flows and discount rates and should
not be interpreted as being realizable in an immediate settlement of
the instruments. Estimated fair value of the Corporation's financial
instruments, where the fair value differs from the carrying amounts in
the financial statements as at December 31, 200 are as follows:
2001 2000
----------------------- ---------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
---------- ---------- -------- ----------
Long-term debt $2,728,667 $2,624,240 $782,288 $690,542
========== ========== ======== ========
F-84
TELCOM AMERICAS LTD.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2001 and for the 186-day period ended
December 31, 2000
(all tabular amounts are in thousands of U.S. dollars, unless otherwise stated)
--------------------------------------------------------------------------------
24. Financial Instruments (continued)
c) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT'D)
The carrying amounts of cash and cash equivalents, notes receivable,
accounts receivable, short-term loan facilities, notes payable and
accounts payable, in the consolidated balance sheet, approximate their
estimated fair values.
In addition, the fair value of the foreign exchange swaps utilized by
the Corporation as hedges for certain short-term loan facilities (see
Note 12) amounts to $6,296,000 ($Nil in 2000) and is included in
short-term loan facilities in these consolidated financial statements.
Foreign exchange loss and equity loss of joint venture investees for
the year ended December 31, 2001 includes $13,419,000 and $2,369,000,
respectively, ($Nil in 2000) relating to realized and unrealized fair
value gains on foreign exchange swaps.
d) INTEREST RATE RISK
The Corporation is exposed to market risks from changes in interest
rates on its long-term debt and does not currently hold any financial
instruments that mitigate this risk.
25. Subsequent events
On February 12, 2002, the Corporation entered into an agreement with a
private investor relating to the purchase of U.S.$300 million of common
shares in Telecom Americas. The proceeds will be used to retire debt. The
transaction is expected to close in the first quarter of 2002, and is
subject to a number of conditions.
F-85
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
AMERICA MOVIL, S.A. de C.V.
By: /s/ Carlos Jose Garcia Moreno Elizondo
----------------------------------------
Name: Carlos Jose Garcia Moreno Elizondo
Title: Chief Financial Officer
By: /s/ Alejandro Cantu Jimenez
----------------------------------------
Name: Alejandro Cantu Jimenez
Title: General Counsel
Date: July 2, 2002
EXHIBIT INDEX
1.1 Amended and restated bylaws (estatutos sociales) of America Movil, S.A. de
C.V., dated as of August 20, 2001 (together with an English translation).
2.1 L Share Deposit Agreement (incorporated by reference to our registration
statement on Form F-6 filed on December 8, 2000).
2.2 A Share Deposit Agreement (incorporated by reference to our registration
statement on Form F-6 filed on December 8, 2000).
3.1 Shareholders Agreement dated December 20, 2000 between America Telecom,
S.A. de C.V. (as successor to Carso Global Telecom, S.A. de C.V.) and SBC
International, Inc. (incorporated by reference to the report of beneficial
ownership of our shares filed on Schedule 13D on May 16, 2001).
4.1 Post-spin-off Master Agreement dated January 18, 2001 between Telefonos de
Mexico, S.A. de C.V. and America Movil, S.A. de C.V. (together with an
English translation) (incorporated by reference to our registration
statement on Form 20-F (File No. 1-16269) filed on February 5, 2001).
4.2 First Amendment dated March 15, 2001 to Post-spin-off Master Agreement
dated January 18, 2001 between Telefonos de Mexico, S.A. de C.V. and
America Movil, S.A. de C.V. (together with an English translation).
4.3 Second Amendment dated April 30, 2001 to Post-spin-off Master Agreement
dated January 18, 2001 between Telefonos de Mexico, S.A. de C.V. and
America Movil, S.A. de C.V. (together with an English translation).
8.1 List of certain subsidiaries of America Movil, S.A. de C.V.