As filed with the Securities and Exchange Commission on December 8, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTIONS 12(b) AND 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
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 to be registered pursuant to Section 12(b) of the Act:
American Depositary Shares, each representing New York Stock Exchange
20 Series L Shares, without par value
("L Share ADSs")
Series L Shares, without par value ("L Shares") New York Stock Exchange
(for listing purposes only)
Securities to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares, each representing 20 Series A Shares, without par
value ("A Share ADSs")
Series A Shares, without par value ("A Shares")
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None. The number of outstanding shares of each of the issuer's
classes of capital or common stock as of the establishment of the Company on
September 25, 2000 was:
3,266.2 million AA Shares
345.6 million A Shares
10,872.7 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 No X
---- ----
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 X
---- ----
<PAGE>
TABLE OF CONTENTS
Page
Presentation of Information.....................................ii
Forward-Looking Statements.....................................iii
Item 1. Identity of Directors, Senior Management and Advisers............1
Item 2. Not applicable...................................................2
Item 3. Key Information..................................................3
Selected Financial Data.......................................3
Dividends.....................................................6
Exchange Rate Information.....................................7
Capitalization................................................8
Risk Factors..................................................9
Item 4. Information on the Company......................................19
The Company..................................................19
Business of Telcel...........................................21
Subsidiaries.................................................32
Joint Ventures and Investments...............................37
Capital Expenditures.........................................46
The Spin-off.................................................47
Item 5. Operating and Financial Review and Prospects....................50
Item 6. Directors, Senior Management and Employees......................61
Item 7. Major Shareholders and Related Party Transactions...............66
Major Shareholders...........................................66
Related Party Transactions...................................67
Item 8. Financial Information...........................................70
Item 9. The Offer and Listing...........................................70
Description of Securities....................................70
Trading Markets..............................................70
Trading on the Mexican Stock Exchange........................71
Item 10. Additional Information..........................................72
Share Capital................................................72
Bylaws.......................................................72
Certain Contracts............................................77
Legal Proceedings............................................77
Exchange Controls............................................78
Dividends and Paying Agents..................................78
Taxation.....................................................78
Documents on Display.........................................82
Item 11. Quantitative and Qualitative Disclosures about Market Risk......83
Exchange Rate and Interest Rate Risks........................83
Sensitivity Analysis Disclosures.............................83
Item 12. Description of Securities other than Equity Securities..........84
Description of American Depositary Shares....................84
Items 13-17. Not applicable..................................................89
Item 18. Financial Statements............................................90
Item 19. Exhibits........................................................90
<PAGE>
PRESENTATION OF INFORMATION
In this registration statement, America Movil, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of Mexico, is referred to
as the "Registrant," and, unless the context otherwise requires, the Registrant
and its consolidated subsidiaries are referred to collectively as "America
Movil" or the "Company." America Movil was established on September 25, 2000 in
a spin-off (the "Spin-off") of the wireless business and certain international
businesses of 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." See "The Spin-off" under Item 4.
America Movil conducts its wireless business in Mexico through its
subsidiary Radiomovil Dipsa, S.A. de C.V., which operates under the trademark
"Telcel" and is referred to herein as "Telcel."
This registration statement includes under Item 18 the Company's
audited combined financial statements as of December 31, 1998 and 1999 and for
the years ended December 31, 1997, 1998 and 1999 (the "Audited Financial
Statements") and unaudited interim consolidated financial statements as of
September 30, 2000 and for the nine months ended September 30, 2000 and
unaudited interim combined financial statements for the nine months ended
September 30, 1999 (the "Unaudited Interim Financial Statements"). The Audited
Financial Statements and the unaudited interim financial statements for the nine
months ended September 30, 1999 have been prepared on a combined basis from
Telmex's historical accounting records and represent the combined historical
operations of the entities that were transferred to America Movil by Telmex in
the Spin-off.
The Audited Financial Statements and the Unaudited Interim Financial
Statements have been prepared in accordance with generally accepted accounting
principles in Mexico ("Mexican GAAP"), which differ in certain important
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). Note 19 to the Audited Financial Statements and Note 13 to the
Unaudited Interim Financial Statements provide a description of the principal
differences between Mexican GAAP and U.S. GAAP, as they relate to America Movil,
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.
Mexican GAAP requires restatement of all financial statements in
constant Mexican pesos as of the date of the most recent balance sheet
presented. Accordingly, the financial statements and other financial information
contained in this registration statement are stated in constant pesos with
purchasing power as of September 30, 2000.
References herein to "pesos" or "Ps." are to Mexican pesos and
references to "U.S. dollars" or "U.S.$" are to United States dollars. On
December 7, 2000, the noon buying rate in New York City for cable transfers in
pesos published by the Federal Reserve Bank of New York was Ps.9.4290 to
U.S.$1.00.
<PAGE>
FORWARD-LOOKING STATEMENTS
This registration statement 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.
Words such as "believe," "anticipate," "plan," "expect," "intend,"
"target," "estimate," "project," "predict," "forecast," "guideline," "should"
and similar expressions are intended to identify forward-looking statements but
are not the exclusive means of identifying such statements.
Forward-looking statements involve inherent risks and uncertainties. We
caution you 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 9, include our short
history of operations as an independent company, 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 you 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.
<PAGE>
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Directors
As of the date of this registration statement, the members of our Board
of Directors are as follows:
<TABLE>
<CAPTION>
Name Position Business Address
---- -------- ----------------
Elected by the holders of
AA Shares and A Shares:
<S> <C> <C>
Carlos Slim Helu................................ Chairman Paseo de las Palmas No. 736
Colonia Lomas de Chapultepec
11000 Mexico, D.F., Mexico
Daniel Hajj Aboumrad............................ Director Lago Alberto 366
Colonia Anahuac
11320 Mexico, D.F., Mexico
Jaime Chico Pardo............................... Director Parque Via 190, Piso 10
Colonia Cuauhtemoc
06599 Mexico, D.F., Mexico
Humberto Gutierrez-Olvera Zubizarreta........... Director Miguel de Cervantes Saavedra No. 255
Colonia Ampliacion Granada
11520 Mexico, D.F., Mexico
Alejandro Soberon Kuri.......................... Director Paseo de las Palmas No. 1005, P.H.
Colonia Lomas de Chapultepec
11000 Mexico, D.F., Mexico
Maria Asuncion Aramburuzabala L................. Director Campos Eliseos No. 400, Piso 4
Colonia Lomas de Chapultepec
11000 Mexico, D.F., Mexico
Rafael Robles Miaja............................. Director and Secretary Paseo de las Palmas No. 405, Piso 3
Colonia Lomas de Chapultepec
11000 Mexico, D.F., Mexico
Drew Roy........................................ Director 175 East Houston
San Antonio, Texas 78205
Royce S. Caldwell............................... Director 175 East Houston
San Antonio, Texas 78205
Elected by the holders of L Shares:
Claudio X. Gonzalez Laporte..................... Director Jose Luis Lagrange No. 103, Piso 3
Colonia Chapultepec Morales
11590 Mexico, D.F., Mexico
David Ibarra Munoz.............................. Director Canada No. 184
Colonia Los Alpes
01710 Mexico, D.F., Mexico
</TABLE>
Executive Committee
Our bylaws provide that the Executive Committee may generally exercise
the powers of the Board of Directors. 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 60 days following a request from the Board of Directors. The current
members of the Executive Committee are Carlos Slim Helu, Humberto
Gutierrez-Olvera Zubizarreta, Daniel Hajj Aboumrad and Drew Roy.
Senior Management
The chief executive officer of America Movil is Daniel Hajj Aboumrad.
Mr. Hajj is also the chief executive officer of Telcel. We expect that the other
members of senior management of America Movil will be named in the coming
months. The offices of America Movil and Telcel are located at Lago Alberto 366,
Colonia Anahuac, 11320 Mexico, D.F., Mexico.
Statutory Auditors
As of the date of this registration statement, our statutory auditors,
with offices at Corporativo Polanco, Jaime Balmes No. 8, Piso 5, Colonia Los
Morales Polanco, 11510 Mexico, D.F., Mexico, are as follows:
Name Responsibilities
Francisco Alvarez del Campo................... Statutory Auditor
Agustin Aguilar Laurents...................... Alternate Statutory Auditor
Independent Auditors
Our independent auditors are Mancera S.C., a member of Ernst & Young
International, with offices at Corporativo Polanco, Jaime Balmes No. 8, Piso 5,
Colonia Los Morales Polanco, 11510 Mexico, D.F., Mexico.
<PAGE>
Item 3. Key Information
SELECTED FINANCIAL DATA
Our financial statements have been prepared in accordance with Mexican
GAAP, which differ in certain important respects from U.S. GAAP. Note 19 to the
Audited Financial Statements and Note 13 to the Unaudited Interim Financial
Statements provide a description of the principal differences between Mexican
GAAP and U.S. GAAP, as they relate to America Movil, 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 the financial statements and the selected
consolidated financial information set forth below (a) nonmonetary assets,
including property, plant and equipment, and stockholders' equity are restated
for inflation and, in the case of imported telephone plant, devaluation, (b)
gains and losses in purchasing power from holding monetary liabilities or assets
are recognized in income and (c) all financial statements are restated in
constant pesos as of September 30, 2000. 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 ("NCPI"). 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 and Note 13 to
the Unaudited Interim Financial Statements.
<PAGE>
Annual Financial Information
The selected combined 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 has been prepared on a combined
basis from Telmex's historical accounting records and represents the combined
historical operations of the entities that were transferred to America Movil by
Telmex in the Spin-off. The selected financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the Audited
Financial Statements. See "Presentation of Information."
<TABLE>
<CAPTION>
As of and for the year ended December 31,
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1995 1996 1997 1998 1999
------------ -------------- ---------------- ---------------- ------------
(millions of constant pesos as of September 30, 2000)(1)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Mexican GAAP
Operating revenues.................... Ps. 4,899 Ps. 5,032 Ps. 5,834 Ps. 9,372 Ps. 15,355
Operating costs and expenses.......... 5,404 7,242 5,574 7,402 13,121
Operating income (loss)............... (505) (2,210) 260 1,970 2,234
Net income (loss)..................... (1,545) 271 1,830 3,998 4,317
Net income (loss) per share(2)........ (0.107) 0.019 0.126 0.276 0.298
U.S. GAAP
Operating revenues.................... 4,899 5,032 5,834 9,372 15,355
Operating income (loss)............... (633) (2,399) 58 1,592 1,617
Net income (loss)..................... (1,562) 126 1,966 2,969 2,668
Net income (loss) per share(2)........ (0.108) 0.009 0.136 0.205 0.184
Balance Sheet Data:
Mexican GAAP
Property, plant and equipment, net.... Ps. 4,912 Ps. 4,239 Ps. 4,772 Ps. 6,404 Ps. 12,404
Total assets.......................... 21,237 43,231 45,111 50,843 65,372
Long-term debt(3)..................... 1,329 720 182 84 2,404
Total stockholders' equity............ 18,689 41,004 43,552 49,084 56,179
U.S. GAAP
Total assets.......................... 21,522 43,482 45,744 51,575 66,033
Long-term debt(3)..................... 1,329 720 182 84 2,404
Minority interest..................... -- -- -- -- 659
Total stockholders' equity............ 18,249 40,988 43,908 48,235 53,565
</TABLE>
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(1) Except per share data.
(2) Based on 14,485 million shares outstanding at September 25, 2000. Each L
Share ADS represents 20 L Shares and each A Share ADS represents 20 A
Shares.
(3) Long-term debt includes long-term debt owed to related parties. See Notes
11 and 14 to the Audited Financial Statements.
<PAGE>
Interim Financial Information
The selected interim financial information set forth below has been
derived from our Unaudited Interim Financial Statements. See "Presentation of
Information." In the opinion of management, the financial data set forth below
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial condition and
results of operations as of the dates and for the periods specified. Results for
the first nine months are not, however, necessarily indicative of results to be
expected for the full year.
<TABLE>
<CAPTION>
As of and for the nine months
ended September 30,
-----------------------------
1999 2000
-------------- -------------
(millions of constant pesos as
of September 30, 2000)(1)
(combined) (consolidated)
<S> <C> <C>
Income Statement Data:
Mexican GAAP
Operating revenues............................................... Ps. 10,247 Ps. 19,150
Operating costs and expenses..................................... 8,633 16,459
Operating income................................................. 1,614 2,691
Net income....................................................... 2,959 1,580
Net income per share(2).......................................... 0.204 0.109
U.S. GAAP
Operating revenues............................................... 10,247 19,150
Operating income................................................. 1,173 2,148
Net income....................................................... 2,261 1,348
Net income per share(2).......................................... 0.156 0.093
Balance Sheet Data:
Mexican GAAP
Property, plant and equipment, net............................... Ps. 27,066
Total assets..................................................... 83,414
Long-term debt(3)................................................ 5,194
Total stockholders' equity....................................... 66,096
U.S. GAAP
Total assets..................................................... 85,404
Long-term debt(3)................................................ 5,194
Minority interest................................................ 2,194
Total stockholders' equity....................................... 64,277
</TABLE>
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(1) Except per share data.
(2) Based on 14,485 million shares outstanding at September 25, 2000. Each L
Share ADS represents 20 L Shares and each A Share ADS represents 20 A
Shares.
(3) Long-term debt includes long-term debt owed to related parties. See Notes 8
and 9 to the Unaudited Interim Financial Statements.
<PAGE>
DIVIDENDS
America Movil has not paid dividends since its establishment in
September 2000 and has not yet adopted a dividend policy.
The declaration, amount and payment of dividends will be determined by
majority vote of the holders of AA Shares and A Shares, generally on the
recommendation of the Board of Directors, and will depend on the Company's
results of operations, financial condition, cash requirements, future prospects
and other factors deemed relevant by the holders of AA Shares and A Shares.
Accordingly, we cannot assure you that we will pay dividends in the future on a
continuous and regular basis. 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 "Additional Information--Memorandum and Articles of
Association--Dividends" and "Additional Information--Memorandum and Articles of
Association--Preferential Rights of L Shares" under Item 10.
<PAGE>
EXCHANGE RATE INFORMATION
Mexico has had a free market for foreign exchange since 1991. Prior to
December 1994, the Mexican central bank, Banco de Mexico, kept the peso-U.S.
dollar exchange rate within a range prescribed by the government through
intervention in the foreign exchange market. In December 1994, the government
suspended intervention by Banco de Mexico and allowed the peso to float freely
against the U.S. dollar. The peso declined sharply in December 1994 and
continued to fall under conditions of high volatility in 1995. In 1996 and most
of 1997, the peso fell more slowly and was less volatile. 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 countries
including Brazil and Venezuela. The peso declined during this period, but has
been relatively stable in 1999 and in 2000 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.
<TABLE>
<CAPTION>
Period High Low Average(1) Period End
------ ---- --- ---------- ----------
<S> <C> <C> <C> <C>
1995............................... Ps.5.2700 Ps.8.0500 Ps.6.5263 Ps.7.7400
1996............................... 7.3250 8.0450 7.6347 7.8810
1997............................... 7.7172 8.4100 7.9674 8.0700
1998............................... 8.0400 10.6300 9.2425 9.9010
1999............................... 9.2430 10.6000 9.5630 9.4800
Nine months ended
September 30, 2000................. 9.4520
2000:
January......................... 9.4020 9.6400
February........................ 9.3540 9.5970
March........................... 9.1830 9.3630
April........................... 9.5010 9.2900
May............................. 9.3340 9.6270
June............................ 9.4900 10.0870
July............................ 9.3290 9.5570
August.......................... 9.1830 9.3880
September....................... 9.2080 9.4750
October......................... 9.3990 9.6960
November........................ 9.3710 9.6480
December (through December 7)... 9.3750 9.4290
</TABLE>
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(1) Average of month-end rates.
On December 7, 2000, the noon buying rate was Ps.9.4290 to U.S.$1.00.
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization under
Mexican GAAP as of October 31, 2000. See "Presentation of Information."
<TABLE>
<CAPTION>
As of October 31, 2000
------------------------------
(millions of constant pesos as
of October 31, 2000)
<S> <C>
Debt(1)(2):
Secured:
Banks......................................................... Ps. 508
Supplier credits.............................................. 239
Guatemalan government......................................... 3,378
Unsecured:
Banks......................................................... 2,361
Supplier credits.............................................. 124
Financial leases.............................................. 17
Related parties(3) ........................................... 1,278
-----------
Total debt.................................................. 7,905
-----------
Less short-term debt and current portion of
long-term debt................................................. 3,113
-----------
Long-term debt................................................... 4,792
-----------
Stockholders' equity(4):
Capital stock.................................................... 27,031
Retained earnings................................................ 39,174
Deficit from restatement of stockholders'
equity......................................................... (598)
Cumulative effect of deferred income tax......................... (1,452)
Minority interest................................................ 2,051
-----------
Total stockholders' equity.................................. 66,206
-----------
Total capitalization (total debt and stockholders' equity).......... Ps. 74,111
===========
</TABLE>
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(1) As of October 31, 2000, the Company's debt was denominated in U.S. dollars
and Guatemalan quetzales. See Note 8 to the Unaudited Interim Financial
Statements.
(2) Prior to the Spin-off, Telmex provided limited commitments to creditors of
certain of our subsidiaries. Telmex and America Movil are seeking consent
of the creditors under the applicable agreements to assign these
commitments to Telcel and release Telmex, but consent has not yet been
obtained. See "The Spin-off--Approvals and Consents" under Item 4.
(3) See Note 9 to the Unaudited Interim Financial Statements.
(4) See Note 15 to the Audited Financial Statements.
<PAGE>
RISK FACTORS
Risks Relating Specifically to Our Mexican Wireless Business
We face substantial and increasing competition
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 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
1800-1900 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 and the Peralta
Group, and several companies that Telefonica S.A. has recently agreed to
acquire.
The wireless industry is characterized by a high rate of customer
disconnection of services, referred to as customer "churn," which is increased
by additional competition. Churn reduces our revenues and profits, slows
customer growth and increases marketing and customer acquisition costs. Customer
churn is the result of several factors, including network coverage, network
reliability, pricing and affordability and customer care concerns.
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 greater choices for customers, possible consumer confusion
and increasing movement of customers between competitors. Our ability to compete
successfully also will depend 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. 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 build out and upgrade our network on a timely basis
We are in the process of building out and upgrading our wireless
network in Mexico. In order to build out our network, 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 upgrade our network to
implement the next generation of digital 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 network 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 network, or do so in a timely
manner, we could lose current and potential customers to competitors, and our
results and financial condition could suffer.
<PAGE>
We have substantial capital requirements
We require substantial capital to operate and build out our wireless
network. 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 may not be able to raise capital in
sufficient amounts 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, Telmex, to help satisfy its capital requirements. Following the
Spin-off, Telmex will not provide us with resources or provide 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 or expansion plans or the failure to
meet regulatory build-out requirements.
Regulatory developments in Mexico could hurt our business
Telcel's business is subject to extensive government regulation, and
may be adversely affected by changes in law, regulation or regulatory policy.
See "Business of Telcel--Regulation" under Item 4. Actions of Mexican regulatory
authorities could have a material adverse impact on our businesses and their
prospects, financial condition and result of operation.
The Mexican General Communications Law and Telcel's concessions include
various provisions under which the concessions may be terminated before their
scheduled expiration dates. See "Business of Telcel--Regulation--Termination of
the Concessions" under Item 4. Among other things, our 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.
Because all of Telcel's concessions may be terminated in the event that any one
of them is terminated, whether through revocation or otherwise, the loss of any
one concession could have a material adverse impact on our business and results
of operations.
We are unable to predict the impact that the new presidential
administration of Vicente Fox may have on the Mexican telecommunications
regulatory environment.
Risks Relating to our International Subsidiaries and Joint Ventures
We are dependent on relationships with our partners
We cannot assure you that all of our relationships with our partners
will be harmonious and successful, and disagreements with partners could impede
the execution of our international strategy and work in favor of our
competitors. Certain of our international businesses, including our operations
in Guatemala, Ecuador and Argentina, 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 "Subsidiaries" under Item 4.
Certain of our other international businesses, including the
investments we hold through our joint venture with Bell Canada International
Inc. and SBC International, Inc., as well as our investment in Puerto Rico, are
or will be conducted through joint ventures in which we do not own a majority
ownership interest or a controlling voting interest. As a result, we have
limited control over the business strategies of these companies. For instance,
approval of operating and capital expenditure budgets and distributions to and
capital contributions from shareholders typically require the consent of our
partners. Moreover, the refusal of any of these partners to approve funding or
to fund their pro rata share of capital contributions could force us to
contribute on a disproportionate basis in situations where we are unable to
receive a corresponding increase in our ownership percentage. Disagreements with
our partners could adversely affect the business prospects of these companies or
result in the termination of the joint venture arrangements under which we hold
our ownership interests. See "Joint Ventures and Investments" under Item 4.
<PAGE>
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. Our
fixed-line business in Guatemala, Telecomunicaciones de Guatemala, S.A., is also
in the process of building out its network. We cannot guarantee you that we
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, and our revenues could
suffer.
Our international businesses have substantial capital requirements
Our international businesses require a substantial amount of resources
to continue 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 our subsidiaries and joint ventures encounter in
addressing capital shortfalls will be aggravated. Historically, we relied on
assistance from Telmex to help satisfy our capital requirements. Following the
Spin-off, Telmex will not provide us with resources or to provide financial or
other support to our subsidiaries and joint ventures if they cannot meet their
own capital needs.
If we or our partners decide not to contribute capital to our
international businesses, they may be obliged to raise capital through external
borrowings or other external financing activities. These companies may not be
able to arrange any needed additional financing to fund their capital
requirements on acceptable terms, or at all.
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.
Our international businesses face substantial and increasing competition
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, to
acquire market share; 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.
<PAGE>
We may not be able to obtain or maintain favorable roaming arrangements
In countries where our businesses do not have nationwide coverage,
roaming is an important feature to some of their customers. 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 jurisdiction over our businesses
could adopt 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 business 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.
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.
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 you 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 a preference 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.
We have invested in businesses and countries in which we have no previous
experience
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 the Internet, information technology and wireless
industry. 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, Argentina
and Venezuela, may present different or greater country risk than Mexico. Some
are in sectors in which we have limited prior experience. 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.
<PAGE>
The Guatemalan government is seeking the reversal of the privatization of
our subsidiary Telgua
The Guatemalan government has commenced certain proceedings against our
subsidiary Telecomunicaciones de Guatemala, S.A. ("Telgua"). 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 state 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. Telgua was formally
notified of these proceedings on October 6, 2000. We are contesting the
proceedings and expect that we will have an opportunity to be heard. Although we
do not currently expect that the judicial proceeding will ultimately have
consequences that are materially adverse to the Company's interests, we are
unable to predict the outcome of the proceedings. If the government ultimately
prevails and pursues the most aggressive remedies, we may be required to
transfer our interest in Telgua to Guatel or another agency of the Guatemalan
government.
Our joint venture with BCI and SBCI presents a variety of new risks
We have entered into a joint venture agreement with Bell Canada
International, Inc. ("BCI") and SBC International, Inc. ("SBCI") under which
each party has contributed assets and funding commitments to a new joint venture
company called Telecom Americas Ltd.
We have contributed our investments in ATL-Algar Telecom Leste S.A. and
Techtel-LMDS Comunicaciones Interactivas, S.A. and U.S.$165 million to the joint
venture. We are required to contribute an additional U.S.$1,007 million over a
period of up to three years. We may also decide to contribute other investment
we have made, such as our investments in Telgua or Consorcio Ecuatoriano de
Telecomunicaciones, S.A. CONECEL, and we may refer future investment
opportunities to the joint venture. Through the joint venture, we have invested
in wireless, broadband and cable businesses in Brazil, Colombia and Venezuela,
which BCI has contributed to the joint venture. Each of the companies in which
the joint venture has interests is independently managed. Each of these
companies presents a variety of risks, including operational, commercial,
financial and management risks, that could adversely affect the value of our
investment in the joint venture.
We have a 44.277% interest in the joint venture, and the joint venture
is subject to complex provisions governing the rights of each venturer with
respect to management. In general, these provisions effectively require a
consensus among the three shareholders in order to make significant decisions
about the joint venture. As a result, our success in achieving our objectives
through the joint venture will depend on our ability to reach agreement with BCI
and SBCI.
Risks Relating to the Wireless Industry Generally
Our future prospects remain uncertain due to significant change in the
wireless industry
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. 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 and those of the industry remain uncertain.
<PAGE>
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. We cannot guarantee that the next generation
technology will be compatible with TDMA or CDMA. Telcel is currently considering
enhanced data rates from global evolution ("EDGE"), which represents a
convergence of TDMA and GSM, for possible use as its next or third generation
wireless technology, but has not yet decided on its third generation strategy
and may choose an alternative technology. Other wireless providers may choose a
third generation wireless technology that combines CDMA and GSM. If the next
generation technology that gains widespread acceptance is not compatible with
TDMA and CDMA, it could materially adversely affect our business, 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. For instance,
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. Telcel and our other businesses
may encounter difficulties collecting such amounts from some communications
companies. Some of these companies 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
Our wireless businesses depend on a small number of suppliers and
vendors for the build-out and upgrade of network infrastructure and the supply
of handsets and other customer equipment. Each of our wireless businesses relies
primarily on a particular vendor for its switch and cell site equipment and on a
particular supplier or small group of suppliers for its handsets and other
customer equipment. If any of these suppliers or vendors fails to provide us
with services or equipment in a timely and cost-effective basis, our business
and results of operations could be adversely affected.
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 impacts
interconnection costs, capacity costs, administrative costs and payments to
other carriers for unbillable fraudulent roaming. 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 illegally obtain 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.
<PAGE>
Use of wireless handsets may pose health risks
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 or expose us to potential
litigation, which could have a material adverse effect on our results of
operations. Additionally, 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 the Spin-off
The Spin-off is subject to legal challenge
America Movil was established on September 25, 2000 in a spin-off (the
"Spin-off") from Telefonos de Mexico, S.A. de C.V. ("Telmex"). Under Mexican
corporate law, for a period of 45 days following the registration and
publication of the shareholders' resolution approving the Spin-off, which
occurred on October 13, 2000, any shareholder or group of shareholders
representing at least 20% of the entire capital stock of Telmex, or any creditor
of Telmex, may commence judicial proceedings in Mexican courts to challenge the
Spin-off. The legal grounds on which an escision may be challenged, and the
remedies a court may impose if it sustains the challenge, are not specified in
Mexican corporate law and have not been the subject of extensive practical
experience or commentary. We are unable to anticipate whether any party will
challenge the Spin-off or, if so, what standards the Mexican courts will apply
to rule on the challenge, what procedures they will follow in conducting
proceedings or what remedies they will impose. See "The Spin-off--Judicial
Proceedings to Challenge the Spin-off" under Item 4.
Our historical performance may not be representative of our performance as
a separate company
Our combined financial statements have been carved out from the
consolidated financial statements of Telmex using the historical results of
operations and historical bases of the assets and liabilities of the former
Telmex businesses that we comprise. Our historical performance might have been
different if we had been a separate, consolidated entity during the periods
presented.
The historical financial information included in this registration
statement is not necessarily indicative of what our results of operations,
financial position and cash flows will be in the future. There may be changes
that will occur in our cost structure, funding and operations as a result of our
separation from Telmex, including increased costs associated with reduced
economies of scale, and increased costs associated with being a publicly traded,
stand-alone company.
We are a new company and have never operated independently of Telmex
America Movil is a new company and has never operated independently of
Telmex. Our ability to function as a new company will suffer if we do not
develop our own administrative infrastructure quickly and cost-effectively.
Telmex is providing us with certain legal, financial, accounting, investor
relations and other administrative services on an interim basis while we develop
the personnel and systems necessary to provide these services ourselves. We
expect to be dependent on Telmex for these services for at least six months and
possibly longer. See "Related Party Transactions--Transactions between America
Movil and Telmex" under Item 7.
After the expiration of these various arrangements, we may not be able
to replace the transitional services in a timely manner or on terms and
conditions as favorable as those we received from Telmex.
<PAGE>
In addition, in order to establish ourselves successfully as an
independent company, we need to attract and retain a significant number of
highly skilled employees. If we fail to do so, our business could suffer.
We may become an investment company, and if so we will be subject to severe
restrictions on our access to financing
We are currently relying on a temporary exemption under the Investment
Company Act of 1940 that will expire in September 2001. The Investment Company
Act applies to any "investment company," and we fall within one of the statutory
definitions of an investment company, primarily because of the large amount of
financial assets we received in the Spin-off to provide us with resources to
meet our capital expenditure requirements. We are not, however, engaged in the
business of investing in investment securities (as defined in the Act), and
accordingly we may rely on the temporary exemption provided by Rule 3a-1 under
the Act. The temporary exemption is available for no longer than one year, so in
order to remain exempt from the provisions of the Act, by September 2001 we must
either cease to be within the statutory definition or fall within the exemption
provided by Rule 3a-2 under the Act. We expect that we will be able to do so,
primarily because we expect to reduce our financial assets through capital
expenditures.
If we are an investment company after September 2001, we will be
subject to the provisions of the Investment Company Act that prohibit an
unregistered foreign investment company from offering or selling securities in
the United States. This prohibition would be likely to very severely restrict
our access to capital, which would impair our ability to invest to meet
competitive challenges and to expand our business.
Risks Relating to Our Controlling Shareholders and Capital Structure
We are controlled by one shareholder
A majority of the voting shares of America Movil is controlled by Carso
Global Telecom, S.A. de C. V. ("Carso Global Telecom"), which is controlled by a
trust for the benefit of Carlos Slim Helu and members of his immediate family.
Carso Global 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. Under Mexican law, the protections afforded
to minority shareholders are, in some respects, different from and less
comprehensive than those in the United States.
We have significant transactions with affiliates, particularly Telmex, that
create potential conflicts of interest
We engage in transactions with Telmex, which is also controlled by
Carso Global Telecom, and with certain other subsidiaries of Grupo Carso, S.A.
de C.V. and Grupo Financiero Inbursa, S.A. de C.V., which are under common
control with Carso Global Telecom. Our transactions with Telmex include certain
agreements implementing the Spin-off and providing for transitional services, as
well ongoing commercial relationships. See "Related Party Transactions" under
Item 7. Transactions with affiliates may create the potential for conflicts of
interest.
The arrangements among our controlling shareholders may change
A trust for the benefit of certain of our shareholders owns a majority
of the voting stock of America Movil. These controlling shareholders include
Carso Global Telecom, and SBC International, Inc., a subsidiary of SBC
Communications, Inc. The trust and the controlling shareholders are described
under "Major Shareholders and Related Party Transactions--Major Shareholders"
under Item 7. Any of the parties to the trust may terminate it beginning
December 20, 2000.
<PAGE>
In addition, beginning January 2, 2001 and concluding January 31, 2001,
holders of L Shares, which cannot vote except in limited circumstances, may
exchange them for full voting AA Shares subject to certain limitations. As a
result, it is possible that the arrangements for control of America Movil could
change.
Holders of L Shares and L Share ADSs have limited voting rights
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.
Our bylaws restrict transfers of shares in some circumstances
Our bylaws provide that any transfer of more than 10% of the capital
stock of the Company by any person or group of persons acting together requires
the approval of our Board of Directors.
Risks Relating to Developments in Mexico and Other Emerging Market Countries
Mexican economic and political conditions have a direct impact on 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 in Mexico.
Economic situation
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 other emerging markets have adversely affected the Mexican economy
and could do so again. In 1999, Mexico's gross domestic product, or GDP,
increased 3.7% and inflation was 12.3%. For 2000, according to Mexican
government estimates, GDP growth is expected to be 4.5%, while inflation is
expected to decline to no more than 10%. These estimates may not prove to be
accurate.
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.
Currency fluctuations
We are affected by fluctuations in the value of the peso because a
significant portion of our financial assets (25% at September 30, 2000) and all
of our indebtedness (100% at September 30, 2000) is denominated in foreign
currencies, principally U.S. dollars. In the past, we have had more foreign
currency-denominated assets than liabilities, so we have had exchange gains when
the peso depreciated and exchange losses when the peso appreciated.
As of September 30, 2000, we have more foreign currency-denominated
liabilities than assets, and we expect that this will continue to be the case.
Accordingly, we expect to recognize exchange losses when the peso depreciates
against foreign currencies.
<PAGE>
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.
Inflation and interest rates
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 18.61% for 1998 and 12.32% for 1999. Inflation for the first nine
months of 2000 was 6.15%. Interest rates on 28-day Mexican treasury bills, or
Cetes, averaged 24.5% in 1998 and 21.4% in 1999. On September 30, 2000, the
28-day Cetes rate was 15.10%. High interest rates in Mexico may have a material
adverse effect on our costs and thus on our financial condition and results of
operations.
Political events
Mexican political events may also affect significantly our operations
and the performance of Mexican securities, including our securities. In the
Mexican national elections held on July 2, 2000, Vicente Fox of the opposition
National Action Party (Partido Accion Nacional or the "PAN") won the presidency.
His victory ended more than 70 years of presidential rule by the Institutional
Revolutionary Party (the Partido Revolucionario Institucional or the "PRI").
Neither the PRI nor the PAN succeeded in securing a majority in the Congress or
Senate.
President Fox assumed office on December 1, 2000 and although he has
announced his intention to ensure a smooth transition from the previous
administration, there is a possibility that this change within the Mexican
government may result in changes in Mexico's economic policies that may
adversely affect our business. Although members of the PAN have governed several
states and municipalities, the PAN has not previously governed on a national
level. In the recent past, the transfer of power after presidential elections
has been accompanied by a significant deterioration of the economy. A transfer
of power could also trigger, among other events, currency instability. A change
in economic policy, as well as currency instability, could have a material
adverse effect on our business, financial condition, prospects and results of
operation. In addition, we are unable to predict the impact that the new
presidential administration of Vicente Fox may have on the Mexican
telecommunications regulatory environment.
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, Argentina and Brazil. 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 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. There can be
no assurance that the market value of our securities would not be adversely
affected by events elsewhere, especially in emerging market countries.
<PAGE>
Item 4. Information on the Company
THE COMPANY
America Movil is 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 Mexico's only single
nationwide cellular telecommunications service, with a network covering
approximately 16.2% of the geographical area of Mexico, including all major
cities, and approximately 85.5% of Mexico's population. As of September 30,
2000, Telcel had 8.9 million cellular subscribers and a 73.4% share of the
Mexican wireless market.
We have subsidiaries and joint ventures in the telecommunications
sector in Guatemala, Ecuador, Argentina, Brazil, Colombia, Venezuela, the United
States, Puerto Rico, Mexico and Spain. In addition, we have formed a new joint
venture company with Bell Canada International Inc. and SBC International, Inc.
that will serve as our principal vehicle for expansion in Latin America. See
"Subsidiaries" and "Joint Ventures and Investments."
We expect to have opportunities to further expand our presence 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 the BCI-SBCI joint venture or through direct investments
or other strategic alliances. We can make 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.
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, Colonia Anahuac, 11320, Mexico D.F., Mexico. The telephone number
of America Movil at this location is (525) 703-3990.
History
America Movil was established in September 2000 in a spin-off (the
"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." See "The Spin-off."
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) radio spectrum to cover Tijuana, Cuernavaca, Toluca,
Guadalajara, Monterrey and the metropolitan area of the Federal District, and in
1990 Telcel began offering cellular services nationwide.
In 1998, Telcel was awarded the 1800-1900 megahertz (Band D) radio
spectrum for personal communications services ("PCS") in all nine regions in
Mexico. In September 1999, Telcel launched PCS service in Mexico City with two
operating cellular base stations, and by the end of November 2000, it plans to
offer PCS services in all nine regions.
Our international subsidiaries and joint ventures were acquired during
1999 and 2000. See "Subsidiaries" and "Joint Ventures and Investments."
<PAGE>
Significant Subsidiaries and Affiliates
The following table sets forth our significant subsidiaries and
affiliates as of the date of this registration statement. For a complete list of
our subsidiaries and affiliates, see Exhibit 8.1 under Item 19.
<TABLE>
<CAPTION>
Jurisdiction of Percentage
Name of Company Establishment Owned (1)
--------------- ------------- ---------
<S> <C> <C>
Sercotel, S.A. de C.V. ...................................................... Mexico 100.0%
Radiomovil Dipsa, S.A. de C.V........................................... Mexico 100.0
Cellular Communications of Puerto Rico, Inc.(2)..................... Puerto Rico 50.0
SubDipsa Treasury LLC............................................... Delaware 100.0
Inmobiliaria Los Cantaros, S.A. de C.V. ............................ Mexico 100.0
TracFone Wireless, Inc. ................................................ Florida 97.4
Comm South Companies, Inc. ......................................... Texas 97.4
Global Central America, S.A. de C.V. ................................... Mexico 90.8
Telecomunicaciones de Guatemala, S.A.................................... Guatemala 81.3
Techtel--LMDS Comunicaciones Interactivas, S.A.(3)...................... Argentina 60.0
Telstar S.A. ........................................................... Uruguay 60.0
Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL............... Ecuador 60.0
Empresas Cablevision, S.A. de C.V. ..................................... Mexico 49.0
CompUSA, Inc. .......................................................... Delaware 49.0
Telecom Americas Ltd. .................................................. Bermuda 44.3
ATL--Algar Telecom Leste S.A.(4).................................... Brazil 15.4
Americel S.A.(5).................................................... Brazil 7.2
Telet S.A.(5)....................................................... Brazil 7.2
Canbras Communications Corp. ....................................... Canada 29.5
Comunicacion Celular S.A. .......................................... Colombia 26.2
Occidente y Caribe Celular S.A. .................................... Colombia 19.4
Genesis Telecom, C.A. .............................................. Venezuela 22.6
</TABLE>
-------------
(1) Percentage of equity capital owned by America Movil directly or indirectly
through subsidiaries or affiliates.
(2) We hold our interest in Cellular Communications of Puerto Rico, Inc.
through SBC International Puerto Rico, Inc., a joint venture with SBC
International, Inc.
(3) We have agreed to contribute our interests in Techtel--LMDS Comunicaciones
Interactivas ("Techtel") and Telstar S.A. ("Telstar") to Telecom Americas
Ltd. ("Telecom Americas") within 90 days after November 16, 2000, the date
of the closing of our joint venture with Bell Canada International Inc. and
SBC International, Inc. If we are unable to obtain certain regulatory
consents or otherwise fail to contribute Techtel and Telstar to the joint
venture during this 90-day period, we have agreed to negotiate in good
faith with the other parties to agree on a way to contribute Techtel and
Telstar. If no agreement is reached, we will be required to contribute cash
in order to maintain our 44.277% ownership interest in Telecom Americas
Ltd. See "Joint Ventures and Investments--Telecom Americas."
(4) We hold our interest in ATL--Algar Telecom Leste S.A. ("ATL") through
Telecom Americas, a joint venture with Bell Canada International Inc. and
SBC International, Inc. See "Joint Ventures and Investments--Telecom
Americas." We hold 44.277% of the voting power of Telecom Americas Ltd. and
indirectly hold 11.3% of the voting power of ATL.
(5) We hold our interests in Americel S.A. ("Americel") and Telet S.A.
("Telet") through Telecom Americas. See "Joint Ventures and
Investments--Telecom Americas." We hold 44.277% of the voting power of
Telecom Americas and indirectly hold 4.1% of the voting power of each of
Americel and Telet.
<PAGE>
BUSINESS OF TELCEL
Telcel provides Mexico's only nationwide cellular service. As of
September 30, 2000, Telcel's cellular network covered 16.2% of the geographical
area of Mexico, including all major cities, and 85.5% 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 1800-1900 megahertz (Band D)
radio spectrums. As of September 30, 2000, Telcel had 8.9 million cellular
subscribers and a 73.4% share of the Mexican wireless market. Approximately
29.3% of Telcel's cellular subscribers are located in Mexico City.
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:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
Sept. 30,
1995 1996 1997 1998 1999 2000
-------- --------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cellular lines in service (thousands)
Prepaid subscribers........................ -- 261 661 1,465 4,450 7,976
Postpaid subscribers....................... 399 396 452 648 822 924
--------- -------- -------- -------- -------- ---------
Total.................................. 399 657 1,113 2,113 5,272 8,900
Subscriber growth during preceding 12 months. 30.4% 64.7% 69.3% 89.8% 149.4% 114.6%
Cellular penetration(1)...................... 0.4% 0.7% 1.2% 2.2% 5.4% 9.2%
Percentage of population covered(2).......... 79.3% 79.8% 80.2% 80.6% 82.3% 85.5%
Average monthly minutes of use per
subscriber during preceding 12 months..... 156 115 100 96 90 88
Average monthly revenues per subscriber
during preceding 12 months(3)............. Ps.1,090 Ps. 794 Ps. 550 Ps. 504 Ps. 339 Ps. 240
Cellular call minutes for the preceding 12
months (millions)(4)...................... 660 750 1,026 1,784 3,513 6,785
</TABLE>
---------------
(1) Number of Telcel cellular lines in service divided by the population of
Mexico.
(2) Percentage of population that can access Telcel's cellular telephone
signal.
(3) In constant pesos as of September 30, 2000. The figure for September 30,
2000 is the average monthly revenue per subscriber during the preceding
nine months.
(4) The figure for September 30, 2000 is the cellular call minutes for the
preceding nine months.
The business of Telcel is subject to comprehensive regulation and
oversight by the Mexican Ministry of Communications and Transportation
(Secretaria de Comunicaciones y Transportes or the "Communications Ministry")
and the Federal Telecommunications Commission (Comision Federal de
Telecomunicaciones or "Cofetel"). The Communications Ministry is part of the
executive branch of the Mexican federal government, and Cofetel is an agency of
the Communications Ministry. Regulation and oversight are governed by the Law of
General Means of Communication (the "General Communications Law"), the
Telecommunications Regulations adopted under such law (the "Telecommunications
Regulations"), the Federal Law of Telecommunications (the "Telecommunications
Law") and the concessions and license agreements granted by the Communications
Ministry. See "--Regulation."
<PAGE>
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: (i) monthly
charges, which usually include a number of free minutes of use, (ii) usage
charges, for usage in excess of the specified number of minutes included in the
monthly charge, (iii) additional charges, including charges for call forwarding,
call waiting and call blocking and (iv) in some instances, activation charges.
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, value-added services 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 value-added digital services such
as voicemail, call forwarding, call waiting, caller ID and three-way calling,
which are all included in the monthly fee. In the first nine months of 2000,
approximately 46% of Telcel's operating revenues were derived from postpaid
customers of Telcel.
Telcel adjusts its rates based on 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 have not increased in 2000,
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 8 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 value-added services such as
voicemail and caller ID, although less comprehensive than those available under
postpaid plans. 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 in
cash. Prepaid customers also include parents who wish to control costs for their
children. In the first six months of 2000, approximately 54% of Telcel's
operating revenues were generated by prepaid customers of Telcel.
The number of Telcel's prepaid customers grew by 136% in the 12-month
period ended September 30, 2000, 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.
In May 1999, pursuant to a decision of Cofetel, Mexico changed to 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. Subscribers have the option of
retaining the "mobile party pays" system but must change their cellular
telephone number to do so.
<PAGE>
Data Services
Message services
Telcel began to offer data services in the form of 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.
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 mobile telephone users in those
regions to access e-mail, banking, a variety of reservation and other types of
electronic commerce services.
Data transmission
In September 2000, Telcel rolled out a data service network based on
the cellular digital packet data ("CDPD") platform in the major cities in all
nine regions. 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 continues to test and enhance its CDPD platform. Once fully
functional, Telcel expects its CDPD services to be 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.
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.
<PAGE>
In the medium term, Telcel will also provide data services through a
circuit switch data ("CSD") transmission system, which is an alternative system
based on circuit-switch platforms that transmit data by using the existing voice
infrastructure. Because transmission connection is based on the dial-up system,
CSD can be implemented with minimal upgrades to the existing network. Telcel has
developed and expects to launch a pilot CSD system for data transmission
services by the end of 2000.
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.
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, as well
as other service providers. 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."
Roaming
Telcel offers national as well as international roaming services to
participating subscribers. Subscribers who pay the national 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 75 such agreements, 54 of them with
U.S. cellular service providers, 9 with Canadian providers, 10 with Central and
South American providers and 2 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 GTE Telecommunication
Services International, which functions as a central international clearing
house that collects and redistributes roaming fees from and to the participating
providers.
<PAGE>
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 after 12 months' service.
Telcel has designed promotional packages, including free handsets and
low monthly fees, to encourage new customers and current prepaid customers to
subscribe for postpaid plans that include value-added 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 nine months ended September 30,
2000, approximately 85% of Telcel's sales of handsets were generated by the
cellular distributors, with approximately 13% from sales in company-owned
stores, and approximately 2% from direct sales to corporate accounts.
Telcel has relationships with a broad network of approximately 750
exclusive distributors, who sell Telcel's services and products. A distributor
receives a first commission each time a new customer is signed up, another
commission if the customer stays for a specific period, and an additional amount
based on the total number of cellular customers Telcel has at a particular time.
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 handsets and accessories.
Company-owned stores also serve as points of customer service and payment
centers. Telcel owns and operates 93 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, Telmex distributes Telcel's prepaid cards and handsets,
the latter as part of "Amigo kits" consisting of handsets and either 100 or 300
minutes of free airtime, through 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. This initiative is expected to be
operational during 2001.
Billing and Collection
Telcel bills its postpaid customers through monthly invoices, which
detail itemized charges such as usage, value-added services and long-distance
and roaming charges. Customers may pay their bills with a credit card, through a
bank, or in person at Telcel retail stores. Telcel expects to provide its
customers with the option of paying bills through its Internet website during
2001.
<PAGE>
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 56% of Telcel's employees are dedicated
to customer service. Customers may call a toll-free telephone number or go to
one of the 93 company-owned retail stores located throughout the nine regions
for inquiries regarding their service or plan options. In addition, using
Telcel's website, subscribers may access information about their account
balance, learn about the various offered rate plans, products and promotions, as
well as subscribe for additional services.
Wireless Network
Analog and digital technologies
Telcel offers both analog and digital cellular service. Digital service
is provided using the time division multiple access ("TDMA") service standard.
Telcel's network operates using both 800 megahertz and 1800-1900 megahertz
frequency spectrums. 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
number of minutes.
Telcel is in the process of upgrading the network's radio base stations
to the TDMA digital standard, and at September 30, 2000, 33% of Telcel's total
network traffic used the TDMA digital cellular service. Telcel uses digital
switches and transmission equipment, and is in the process of digitalizing its
traffic channels. Converting from analog to digital service requires the
subscriber to purchase a dual mode handset that costs approximately U.S.$150 to
U.S.$250. Telcel is using subsidies to induce subscribers to convert from analog
to digital service.
TDMA technology
Telcel has chosen TDMA technology for its digital network because it
believes TDMA provides significant operating benefits compared to other digital
technologies, although it may choose another technology, such as GSM, in the
future. 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
1800-1900 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 served an
estimated 47.1 million subscribers worldwide, 24.6 million subscribers in North
America and 20.1 million subscribers in Latin America as of June 30, 2000,
according to the Universal Wireless Communications Consortium, an association of
TDMA service providers and manufacturers. TDMA equipment is available from
leading telecommunications vendors such as Lucent, Ericsson and Nortel Networks
Corporation. A number of other wireless service providers have chosen CDMA or
GSM as their digital wireless technology.
<PAGE>
CDPD network
CDPD is an industry standard which 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 network in all
nine regions in September 2000.
CSD network
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. Because
transmission connection is based on the dial-up system, CSD can be implemented
with minimal upgrades to the existing network. CSD accommodates both analog and
digital handsets, while CDPD can only be accessed by digital handsets. At
September 30, 2000, approximately 66% of Telcel's customers used analog
handsets. In addition, most of the WAP handsets currently under development are
for circuit switch platforms. Telcel expects to launch a pilot CSD system for
data transmission services in the fourth quarter of 2000.
Third generation development strategy
Third generation technologies will allow high-speed wireless packet
data services and ultimately voice services using Internet Protocol. 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 and
CSD have 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 using the 800 megahertz radio
spectrum. EDGE represents a convergence of Telcel's existing TDMA technology
with GSM technology that is expected to yield global economies of scale in
developing network equipment and handsets, as well as seamless global roaming
capabilities. EDGE can be deployed in existing spectrum and coexist with
Telcel's current TDMA voice services. As customers upgrade their 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, Lucent and Motorola, and Telcel expects to be able
to offer initial services of EDGE during the third quarter of 2001.
The evolution from 2.5G to third generation technology is expected to
make wireless networks broadband Internet and multimedia capable. 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 regulators. To this end, Telcel is encouraging regulators to establish the
new set of frequencies necessary for the deployment of W-CDMA.
<PAGE>
Spectrum
Telcel currently holds concessions in each of the nine regions of
Mexico in both the 800 megahertz and 1800-1900 megahertz radio spectrums and,
although two other companies also hold concessions for nationwide service using
the 1800-1900 megahertz spectrum, Telcel is the only provider with a functioning
nationwide network. 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
the Company retains its 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 of switches, cellular
base stations, microcells, local microwave links and repeaters. At September 30,
2000, Telcel owned and operated 94 customer sales and service centers, a total
of 1,828 radio base stations, 129 repeaters and 42 switching centers. Telcel
owns certain properties for commercial and administrative offices and the
installation of 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 depends principally on one supplier for its network
infrastructure and on two suppliers for its handsets and other customer
equipment. If any of these suppliers fails to provide Telcel with services or
equipment on a timely and cost-effective basis, our business and results of
operations could be adversely affected.
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 and the Peralta Group, and several companies that
Telefonica S.A. has recently agreed to acquire. Telcel estimates that its share
of the Mexican cellular market was 73.4% at September 30, 2000.
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.
<PAGE>
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, but those
provisions of the General Communications Law not specifically addressed in 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 and the Telecommunications
Regulations, a provider of public telecommunications services, 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 networks that do not
use electro-magnetic frequencies are not required to obtain a concession to
provide private telecommunications services but are required to obtain approval
from the Communications Ministry.
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.
<PAGE>
The General Communications Law gives certain rights to the Government
in its relations with concessionaires, including the right to take over the
management of America Movil in cases of imminent danger to national security or
the national economy. 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, the Communications Ministry has the power to
adopt specific regulations on rates, quality of service and information provided
by a dominant provider.
Rates
The General Communications Law, the Telecommunications Law and the
Telecommunications Regulations provide that the basis for setting rates of a
telecommunications concessionaire is set forth in its concession. 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 and are
prohibited from setting rates below cost. The Communications Ministry is
authorized to impose specific rate requirements on any operator that is
determined by the Federal Competition Commission to have substantial market
power. No such determination has been made with respect to the market for
cellular telecommunications services.
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
concessions to use the 1800-1900 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 1800-1900 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 1800-1900 megahertz concessions were granted in 1998 for an
initial term of 20 years that will expire in 2018.
Expansion and Modernization Requirements
America Movil'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
1800-1900 megahertz frequency, the concessions establish certain minimum network
capacities that Telcel must achieve, to extend service coverage to a targeted
percentage of population.
Service Quality Requirements
The concessions also set forth extensive requirements for the quality
and continuity of Telcel's service, including 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.
Cofetel adopted a resolution giving cellular users certain bonus time during
April and May of 2000.
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.
<PAGE>
Interconnection
Terms of interconnection (including fees) are negotiated between Telcel
and other service providers. In the event they are unable to agree, the
Communications Ministry may impose terms on Telcel and the other providers. 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.
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 (i) failure to expand telephone services at the rate specified in the
concession; (ii) interruption of all or a material part of the services provided
by Telcel; (iii) transfer or assignment without Ministry approval of the
concession or any asset used to provide service; (iv) violation of the
prohibition against ownership of shares of Telcel by foreign states; (v) any
material modification of the nature of Telcel's services without prior Ministry
approval; and (vi) 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 (i) a material and continuing violation of any of the conditions set forth in
the concessions; (ii) material failure to meet any of the service expansion
requirements under the concessions; (iii) material failure to meet any of the
requirements under the concession for improvement in the quality of service;
(iv) engagement in any telecommunications business not authorized under the
concession and requiring prior approval of the Communications Ministry; (v)
following notice and a cure period, failure without just cause to allow other
concessionaires to interconnect their networks to Telcel's network; or (vi)
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 substantial 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.
<PAGE>
SUBSIDIARIES
We have subsidiaries in the telecommunications sector in Guatemala,
Ecuador, the United States and Argentina. Our principal subsidiaries are
described below.
Telgua
Telecomunicaciones de Guatemala, S.A. ("Telgua") is a fixed-line
telecommunications operator in Guatemala that was privatized in November 1998.
Through certain affiliates, Telgua also provides wireless, Internet, cable
television, paging, trunking, data transmission and value-added services in
Guatemala. We indirectly own 81.3% of the stock of Telgua and 90.8% of the stock
of the affiliates. A portion of our interest in the affiliates was acquired in
May 1999 through our subsidiary Global Central America, S.A. de C.V. ("GCA").
Our interest in Telgua and the balance of our interest in the affiliates was
acquired in March 2000. We use the term "Telgua" below to refer to Telgua and
the affiliates together.
In 1999, Telgua had combined revenues of Ps.2,957 million and combined
net income of Ps.238 million. In the first nine months of 2000, Telgua had
combined revenues of Ps.2,707 million and combined net income of Ps.420 million.
At September 30, 2000, Telgua had total assets of Ps.10,443 million.
Business and strategy. At September 30, 2000, Telgua had approximately
630,000 fixed-line subscribers, representing approximately 5.7 lines per 100
inhabitants and a market share of 97.0%.
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 25% of the
geographical area of Guatemala and approximately 85% of its population. At
September 30, 2000, Sercom had approximately 209,000 wireless subscribers,
representing a market share of approximately 35%. Sercom has invested U.S.$51.3
million to expand its wireless network in the first nine months of 2000 and
plans to invest an additional U.S.$40.7 million by the end of 2001.
Telgua offers a variety of services through its fixed-line and wireless
networks, including Internet access, trunking, data transmission, cable
television and other value-added services, 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) and Telefonica. Bell South recently commenced
wireless operations in Guatemala, but has not yet gained a significant market
share.
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 10 for
a discussion of certain proceedings that the Guatemalan government has commenced
against Telgua.
Conecel
Consorcio Ecuatoriano de Telecomunicaciones, S.A. CONECEL ("Conecel")
is a wireless telecommunications operator in Ecuador. We own a 60% interest in
Conecel through a company in which 37% of the remaining interest is owned by an
Ecuadorian investor. Our interest in Conecel was acquired in March 2000. In
1999, Conecel had revenues of Ps.660 million and a net loss of Ps.420 million.
In the first nine months of 2000, Conecel had revenues of Ps.322 million and a
net loss of Ps.238 million. At September 30, 2000, Conecel had total assets of
Ps.1,527 million.
<PAGE>
Business and strategy. Conecel's cellular network uses TDMA digital
technology and covers approximately 65% of the geographical area of Ecuador and
approximately 80% of the population. At September 30, 2000, Conecel had 230,000
subscribers and a 51% 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 85% of the geographical area of
Ecuador by the second half of 2001 by building outs 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.$50
million in 2001 to finance the installation of 100 new cell sites and two new
switching centers.
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 2007 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 by the end of 2001.
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.
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 to operate its
wireless network on the 800 megahertz (Band A) radio spectrum. These include a
concession for cellular telephone service that expires in 2012, and concessions
for data transmission and Internet services that expire in 2009.
<PAGE>
TracFone
TracFone Wireless, Inc. ("TracFone"), formerly Topp Telecom, Inc., is a
company engaged in the resale of cellular service in the United States through
prepaid telephone cards. We own 97.45% of the capital stock of TracFone. Our
interest was acquired in January 1999. In 1999, TracFone had revenues of Ps.823
million and a net loss of Ps.334 million. In the first nine months of 2000,
TracFone had revenues of Ps.1,054 million and a net loss of Ps.816 million. At
September 30, 2000, TracFone had total assets of Ps.2,350 million.
Business and Strategy. TracFone currently offers its prepaid telephone
cards and wireless handsets throughout the United States using an extensive
distribution network. TracFone's wireless local service area is the largest of
any U.S. wireless carrier today, covering approximately 271 million "points of
presence." At October 31, 2000 TracFone had 731,783 subscribers, representing an
8% share of the U.S. prepaid cellular market. TracFone's subscriber base has
increased more than 200% since January 1, 2000.
TracFone does not own any wireless telecommunications facilities or
hold any licenses. The company purchases cellular air time for resale in the
form of prepaid cards under the terms of more than 40 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 manufactured
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 34,000 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 keep its handsets and air
time affordable, 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 and to U.S. telecommunications laws and regulations. TracFone does
not require licenses to carry out its business.
Comm South
Comm South Companies, Inc. ("Comm South"), a subsidiary of TracFone,
offers prepaid and prebilled local and long distance telephone services to
residential customers in 42 U.S. states. We own a 97.45% interest in Comm South.
Our interest was acquired in November 1999. In 1999, Comm South had revenues of
Ps.1,089 million and net income of Ps.50 million. In the first nine months of
2000, Comm South had revenues of Ps.713 million and a net loss of Ps.135
million. At September 30, 2000, Comm South had total assets of Ps.324 million.
<PAGE>
Business and strategy. Comm South purchases dial-tone time from
BellSouth, SBC and other carriers, and resells it to approximately 200,000
customers around the United States. Comm South's customers, who tend to be
low-income consumers without credit cards, bank accounts or telephone service at
home, purchase the company's prepaid cards in one of the approximately 1,800
Comm South agent stores around the nation.
Comm South currently earns most of its revenues in 20 states and plans
to focus on expanding its activity in the other 22 states in which it is
authorized to operate.
Competition. Comm South's principal competitors are Smoke Signals and
BPI.
Regulatory Environment. Comm South is subject to the jurisdiction of
the U.S. Federal Communications Commission and to U.S. telecommunications laws
and regulations.
Techtel
Techtel-LMDS Comunicaciones Interactivas, S.A. ("Techtel") operates a
local multipoint distribution services ("LMDS") network in Argentina, providing
data and video transfer services and other value-added services. Techtel began
providing local and long-distance fixed-line voice services in November 2000. We
currently 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. Our interest in Techtel
was acquired in July 2000. Subject to obtaining the requisite regulatory
consents, we expect to contribute our interest in Techtel to Telecom Americas.
See "Joint Ventures and Investments--Telecom Americas." In 1999, Techtel had
revenues of Ps.6.1 million and a net loss of Ps.45.5 million. In the first nine
months of 2000, Techtel had revenues of Ps.16.0 million and a net loss of
Ps.33.0 million. At September 30, 2000, Techtel had total assets of Ps.829.8
million.
Business and strategy. Techtel's LMDS and fiber optic network cover
Argentina's eight major metropolitan areas and approximately 50% of the nation's
population.
Techtel's strategic objective is to establish itself in Argentina's
long distance voice services market. The company will launch long-distance voice
services in December 2000 and expects to make capital expenditures of
approximately U.S.$150 million by the end of 2002 to complete the build-out of
its network (which will include 1780 kilometers of fiber optics and LMDS
connection). America Movil expects to make capital contributions to Techtel of
U.S.$39 million over the next two years, which, together with funds contributed
by a subsidiary of Techint, will fund Techtel's capital expenditure plan. Upon
completion of its build-out plan, Techtel believes that it will have a
significant competitive advantage over its current competitors because of the
speed and quality of its fiber optic network.
Competition. Techtel's principal competitors are Telefonica de
Argentina S.A. and Telecom S.A., both of which provide data, video and
value-added services, as well as local and long-distance fixed-line voice
services. A number of new competitors are entering or are expected in the near
future to enter the Argentine market for local and long-distance voice services.
Among these are Movicom and CTI, the first cellular companies to obtain general
licenses for voice services. Other competitors in data services, such as Impsat,
Comsat and Metrored, have announced plans to expand into voice services and have
already obtained the requisite licenses.
<PAGE>
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 Argentina. 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), a government
agency created in 1990, is responsible for general regulatory oversight of the
communications sector. Both the Communications Secretariat and the National
Communications Commission may issue technical and administrative regulations and
grant licenses to service providers.
Concessions and licenses. Techtel holds licenses to offer data
transmission, video-conferencing, value-added, local and long-distance
fixed-line telecommunications services as well as to provide radio signal
transmission service throughout Argentina. Techtel is authorized to operate on
the 10.5 Ghz (Band G) radio spectrum in the Buenos Aires region, on the 38 Ghz
(Band A) radio spectrum in certain other metropolitan areas of Argentina and on
the 28 ghz (Bands A and B) radio spectrum throughout Argentina. These licenses
and authorizations were granted by the Secretary of Communications and do not
have termination dates.
Telstar
Telstar S.A. ("Telstar") 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. Our interest in Telstar was
acquired on November 28, 2000. Subject to obtaining the requisite regulatory
consents, we expect to contribute our interest in Telstar to Telecom Americas.
See "Joint Ventures and Investments--Telecom Americas."
Telstar holds a non-exclusive license to install and operate a wireless
broadband network in Montevideo to provide data transmission services. Telstar
is authorized to operate on the 100 megahertz radio spectrum. Telstar is seeking
to expand the scope of its license to the entire territory of Uruguay.
<PAGE>
JOINT VENTURES AND INVESTMENTS
We have joint ventures and investments in the telecommunications sector
in Brazil, Colombia, Venezuela, the United States, Puerto Rico, Mexico and
Spain. Together with Bell Canada International Inc. and SBC International, Inc.,
we have recently formed Telecom Americas, a joint venture company that holds a
number of our investments and that will serve as our principal vehicle for
expansion in Latin America. Our principal joint ventures and investments are
described below.
With respect to certain of these companies, we expect to make
additional investments in the future to develop operations and infrastructure,
to repay indebtedness, to increase our ownership or for other purposes. 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 Telecom Americas or 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.
Telecom Americas
We have entered into an agreement with Bell Canada International Inc.
("BCI") and SBC International, Inc. ("SBCI") providing for the establishment of
Telecom Americas Ltd. ("Telecom Americas"), a new joint venture company that
will serve as the three parties' principal vehicle for expansion in Latin
America. The joint venture agreement was signed by Telmex on September 25, 2000
and assigned to America Movil by Telmex on November 15, 2000. The transaction
closed on November 16, 2000. Under the agreement:
o America Movil contributed to Telecom Americas at closing
approximately U.S.$1.17 billion in promissory notes. In addition,
we contributed our interest in ATL-Algar Telecom Leste S.A.
("ATL") and have agreed to contribute our interest in
Techtel-LMDS Comunicaciones Interactivas S.A. ("Techtel") and
Telstar S.A. ("Telstar") to Telecom Americas by February 14,
2001. If we are unable to obtain certain regulatory consents or
otherwise fail to contribute Techtel and Telstar to the joint
venture prior to such date, we have agreed to negotiate in good
faith with the other parties to agree on a way to contribute
Techtel and Telstar. If no agreement is reached, we will be
required to contribute additional cash in order to maintain our
44.277% ownership interest in Telecom Americas.
o BCI contributed to Telecom Americas at closing approximately
U.S.$1.00 billion in promissory notes. In addition, BCI
contributed its interests in Americel S.A. ("Americel") and Telet
S.A. ("Telet"), Brazilian wireless operators; Canbras
Communications Corp. ("Canbras"), a Brazilian cable television
and Internet access service provider; Comunicacion Celular S.A.
("Comcel") and Occidente y Caribe Celular S.A. ("Occel"),
Colombian wireless operators; Genesis Telecom, C.A. ("Genesis"),
a broadband wireless operator in Venezuela.
o SBCI contributed to Telecom Americas at closing a portion of its
interest in ATL and has agreed to contribute the balance of its
interest upon the expiration or removal of certain regulatory
restrictions in Brazil.
America Movil and BCI each has a 44.277% equity interest in Telecom Americas and
SBCI has an 11.446% equity interest. Telecom Americas is subject to complex
provisions governing the rights of each shareholder with respect to management.
In general, these provisions effectively require a consensus among the three
shareholders in order to make significant decisions about Telecom Americas.
<PAGE>
ATL
ATL-Algar Telecom Leste S.A. ("ATL") is the Band B cellular
concessionaire in the states of Rio de Janeiro and Espirito Santo in Brazil. We
hold a 15.4% interest in ATL through Telecom Americas. We indirectly hold 11.3%
of the voting power of ATL. Our interest in ATL was acquired in January 2000. In
1999, ATL had revenues of Ps.2,460 million and a net loss of Ps.2,499 million.
In the first nine months of 2000, ATL had revenues of Ps.1,646 million and a net
loss of Ps.976 million. At September 30, 2000, ATL had total assets of Ps.12,231
million.
Business and strategy. ATL began operations in 1999. ATL's cellular
network uses TDMA digital technology and covers approximately 60% of the
geographical area of Rio de Janeiro and 29% of the geographical area of Espirito
Santo. ATL's network covers approximately 92% of the combined population of
these states. At September 30, 2000, ATL had 1.2 million subscribers and a 37%
share of the wireless market in the states in which it operates.
ATL offers wireless voice services through a variety of rate plans. ATL
also offers value-added services such as voicemail, call waiting, caller ID,
conferencing services and short message services. ATL expects to roll out data
transmission services by the end of 2000. ATL distributes its services and
handsets through four large independent retailers (accounting for approximately
70% of handset sales), 410 independent dealers, 15 company stores and
telemarketing. ATL also uses agents who work on commission to support its
corporate customers.
ATL's business strategy is to compete with other cellular providers
based on both price and quality of service. ATL has used low prices as its
principal competitive advantage for building and broadening its customer base.
Competition. ATL's principal competitor is Telefonica do Brasil S.A.,
the A-band concessionaire that operates in several regions in Brazil and is
owned by Telefonica de Espana. Nextel, a joint venture between Motorola and
Nextel Communications, Inc., competes with ATL for trunk service to the
corporate segment in the Rio de Janeiro metropolitan area.
Before the end of 2000, the Brazilian authorities are expected to
auction three PCS licenses for the 1800 megahertz radio spectrum, allowing new
competitors to enter the market in mid-2001, early 2002 and mid-2002,
respectively. The new concessionaires will use GSM technology.
Regulatory environment. In conjunction with the breakup and
privatization of the Telecomunicacoes Brasileiras S.A.--Telebras ("Telebras")
telecommunications monopoly, Brazil officially 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
were subsequently auctioned to private enterprises. In July 1997, Brazil revised
its telecommunications code to affirm Brazil's commitment to privatize Telebras
and its operating subsidiaries 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. As of December 31, 1999, the
entire Brazilian telecommunications sector has been opened to competition.
Concessions. ATL holds a 15-year wireless service concession, with an
option to extend it for an additional 15 years, covering the states of Rio de
Janeiro (91 cities) and Espirito Santo (77 cities). This concession was granted
by Anatel and is regulated under the General Telecommunications Law (Lei Geral
de Telecomunicacoes).
<PAGE>
Americel
Americel S.A. ("Americel") is a Band B cellular concessionaire
operating in seven states in central-western Brazil. We hold a 7.2% ownership
interest in Americel through Telecom Americas. We indirectly hold 4.1% of the
voting power of Telet. Our interest in Americel was acquired in November 2000 in
connection with the BCI-SBCI joint venture. In 1999, Americel had revenues of
Ps.1,013 million and a net loss of Ps.1,275 million. In the first nine months of
2000, Americel had revenues of Ps.671 million and a net loss of Ps.577 million.
At September 30, 2000, Americel had total assets of Ps.3,516 million.
Business and strategy. Americel's cellular network uses TDMA digital
technology and covers approximately 60% of the population of the states in which
it operates. At September 30, 2000, Americel had 330,242 subscribers and a 22%
share of the wireless market in the states in which it operates.
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 70% of its customer base.
Americel offers bundled prepaid products, which include handsets as well as air
time, and, for customers who already have their own handsets, a prepaid
unbundled product marketed under the brand name "Virou Legal." 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 Oeste
was formed in the 1998 reorganization of subsidiaries of Telebras, the formerly
state-owned wireless and fixed-line telecommunications operator.
Regulatory environment. See "Joint Ventures and
Investments--ATL--Regulatory environment."
Concessions. Americel holds a 15-year wireless service concession, with
an option to extend it for an additional 15 years, covering seven states in
central-western Brazil. Granted by Anatel in 1997, this concession is regulated
under the General Telecommunications Law (Lei Geral de Telecomunicacoes).
Telet
Telet S.A. ("Telet") is the Band B cellular concessionaire operating in
the state of Rio Grande do Sul in Brazil. We hold a 7.2% ownership interest in
Telet through Telecom Americas. We indirectly hold 4.1% of the voting power of
Telet. Our interest in Telet was acquired in November 2000 in connection with
the BCI-SBCI joint venture. In 1999, Telet had revenues of Ps.374 million and a
net loss of Ps.1,001 million. In the first nine months of 2000, Telet had
revenues of Ps.646 million and a net loss of Ps.860 million. At September 30,
2000, Telet had total assets of Ps.4,869 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 79% of its
population. At September 30, 2000, Telet had 422,142 subscribers and a 24% share
of the wireless market in the state of Rio Grande do Sul.
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. Telet also offers value-added 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.
<PAGE>
Competition. Telet's only significant competitor is CRT Celular, which
is owned by Telefonica do Brasil S.A., the fixed-line telecommunications
operator in Rio Grande do Sul.
Regulatory environment. See "Joint Ventures and
Investments--ATL--Regulatory environment."
Concessions. Telet holds a 15-year wireless service concession, with an
option to extend it for additional periods of 15 years, covering the state of
Rio Grande do Sul. Granted by Anatel in 1998, this concession is regulated under
the General Telecommunications Law (Lei Geral de Telecomunicacoes).
Canbras
Canbras Communications Corp. ("Canbras") is a provider of cable
television and Internet access services in Brazil. We hold a 28.6% interest in
Canbras through Telecom Americas. Our interest in Canbras was acquired in
November 2000 in connection with the BCI-SBCI joint venture. In 1999, Canbras
had revenues of Ps.465 million and a net loss of Ps.178 million. In the first
nine months of 2000, Canbras had revenues of Ps.342 million and net income of
Ps.221 million. At September 30, 2000, Canbras had total assets of Ps.1,394
million.
Business and strategy. Canbras has developed and managed cable
television and telecommunications investments in Brazil since 1995. Canbras
provides cable television and Internet access service in metropolitan Sao Paulo,
several nearby cities in the coastal area of Sao Paulo state, and four cities in
the southern state of Parana. At September 30, 2000, Canbras had 173,904
subscribers. Canbras' cable network has been upgraded to offer two-way,
high-speed local Internet access service and at September 30, 2000 it covered
37% of homes passed. Canbras expects to have more than 900 kilometers of its
two-way Internet plant activated by the end of 2000, and to increase its number
of Internet subscribers to more than 2,000.
Canbras also operates in the private fixed-line telephone resale
sector. Canbras buys telecommunications services from regional Brazilian public
telephone service providers and then sells secondary switching services,
offering access to the public telephone system and computerized management among
the residents of private condominiums, commercial complexes and adjacent
neighborhoods. Canbras' technology connects subscribers in residential
condominiums to a switch installed on the premises of their building, which
expands the service capability of the existing public phone network by creating
up to 10 private phone lines for every public phone line in use. At December 31,
1999, Canbras serviced 56,242 subscribers in some 900 condominium buildings
located primarily in the states of Sao Paulo, Rio de Janeiro, Espirito Santo and
Minas Gerais.
In addition, through its wholly-owned subsidiary CanbrasNet, Canbras
launched Internet service provider or "ISP" services in July 2000. At September
30, 2000, CanbrasNet had 879 residential subscribers and 29 commercial
subscribers, the latter representing over 600 traffic points.
Competition. Canbras is currently the fourth largest cable operator in
Brazil in terms of total number of subscribers, holding exclusive licenses in
all regions in which it operates except for Santos in Sao Paolo.
In the Internet market, Canbras' principal competitors are AOL Brazil,
a joint-venture between America Online Inc. and the Cisneros Group of Argentina;
Universo Online S.A. (UOL), which is controlled by two Brazilian publishing
groups; Abril S.A. and Folha de Sao Paulo S.A.; and ZAZ, which is indirectly
controlled by Telefonica Internacional--TISA.
Regulatory environment. The telecommunications industry in Brazil is
regulated by Anatel. See "Joint Ventures and Investments--ATL--Regulatory
environment." In late 1999, Anatel adopted regulations permitting cable
television operators to provide high-speed local Internet access using cable
modems and bi-directional cable television networks. Cable television operators
are limited to providing connection to Internet service providers and are not
permitted to directly provide content on or final connection to the Internet.
Cable television operators are required to grant equal access to all Internet
service providers who request use of the operators' networks.
<PAGE>
Concessions. Canbras owns 10 licenses for the operation of cable
television services in the state of Sao Paulo. Each of these licenses was
acquired in 1996, has a 15-year term and is renewable for an additional 15
years, subject to certain conditions. Through a subsidiary, Canbras also holds
15-year cable television licenses for the cities of Sao Caetano do Sul,
Guarulhos, Sao Jose dos Campos, Diadema and Maua, with expiration years ranging
from 2009 to 2015.
No registration or license is necessary for the installation, operation
and maintenance of private telephone resale systems in Brazil.
Comcel and Occel
Comunicacion Celular S.A. ("Comcel") and its subsidiary 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. Occel operates under the "Comcel" brand, and we use the term "Comcel"
below to refer to Comcel and Occel together. We hold a 26.2% interest in Comcel
through Telecom Americas. Our interests in Comcel was acquired in November 2000
in connection with the BCI-SBCI joint venture. In 1999, Comcel had revenues of
Ps.2,475 million and net loss of Ps.1,915 million. In the first nine months of
2000, Comcel had revenues of Ps.2,748 million and a net loss of Ps.1,267
million. At September 30, 2000, Comcel had total assets of Ps.8,457 million.
Business and strategy. Comcel's network uses analog and TDMA digital
technology and covers approximately 72% of Colombia's population. At September
30, 2000, Comcel had 870,784 subscribers and a 56% share of the Colombian
wireless market.
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 has recently begun to
market some of its products and services through non-traditional distribution
channels, such as Blockbuster Video stores. 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. Comcel competes with
Celular Movil de Colombia S.A. in the eastern region and Compania Celular de
Colombia S.A. in the western region, both of which companies are owned by
BellSouth. Comcel also competes with traditional fixed-line telephone service
operators, including Empresa de Telecomunicaciones de Santafe de Bogota and
Empresa Nacional de Telecommunicaciones in the eastern region, and Empresas
Publicas de Medellin 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 service.
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.
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 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.
<PAGE>
Genesis
Genesis Telecom, C.A. ("Genesis") is a new broadband wireless operator
in Venezuela. We hold a 22.6% interest in Genesis through Telecom Americas. Our
interest in Genesis was acquired in November 2000, in connection with the
BCI-SBCI joint venture. In the first nine months of 2000, Genesis had revenues
of Ps.1.2 million and a net loss of Ps.59 million. At September 30, 2000,
Genesis had total assets of Ps.244 million.
Business and strategy. Genesis began operations in Caracas in March
2000, providing high-speed, broadband wireless services, which will include
data, voice, video and Internet services. Genesis' network uses LMDS digital
technology supplied by Nortel. At September 30, 2000, Genesis had 214 business
subscribers.
Competition. Compania Anonima Nacional Telefonos de Venezuela is the
incumbent provider of local, domestic, and international fixed-line telephone
services within Venezuela. In addition, Genesis competes with other wireless
providers in Venezuela and expects competition to increase as additional
wireless and LMDS licenses are auctioned.
Regulatory environment. The Venezuelan telecommunications industry is
regulated by the Ministry of Transportation and Communications through the
National Commission of Telecommunications ("Conatel"). Maximum and minimum
tariffs for the provision of certain telecommunications services are determined
by the Venezuelan government.
Concessions. In July 1997, Genesis was granted a concession to install,
maintain and commercially exploit a private network. The term of the concession
is 10 years, renewable at the option of Genesis for an additional 10-year
period. Under the terms of the concession, Genesis is required to pay the
Venezuelan government 0.5% of gross invoicing for services rendered annually and
a tax of 5% of gross invoicing for services rendered.
In March 1998, Conatel granted to Genesis a concession to provide
value-added services. The term of the license is also for 10 years, renewable at
the option of Genesis for an additional 10-year period. Under the terms of the
concession, Genesis is required to pay the Venezuelan Government 0.5% of gross
invoicing for services rendered annually and a tax of 5% of gross invoicing for
services rendered.
CompUSA
CompUSA, Inc. ("CompUSA") 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. ("Sanborns") 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 owned by Sanborns. In 1999, CompUSA had revenues of Ps.59,134 million and a
net loss of Ps.880.0 million. In the first nine months of 2000, CompUSA had
revenues of Ps.34,949 million and a net loss of Ps.1,697 million. At September
30, 2000, CompUSA had total assets of Ps.18,758 million.
Business and strategy. CompUSA operates 217 CompUSA Computer
Superstores in 82 metropolitan areas throughout the United States, spanning a
total of 42 states. In addition, CompUSA operates seven "small market" concept
stores.
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.
<PAGE>
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, in combination 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.
CCPR
Cellular Communications of Puerto Rico, Inc. ("CCPR") offers wireless,
paging and long distance services under the "Cellular One" brand in Puerto Rico
and the U.S. Virgin Islands. We own a 50% interest in CCPR, and the remaining
50% interest is held by SBCI. Our interest in CCPR was acquired in August 1999.
In 1999, CCPR had revenues of Ps.2,043 million and a net loss of Ps.105 million.
In the first nine months of 2000, CCPR had revenues of Ps.1,594 million and a
net loss of Ps.134 million. At September 30, 2000, CCPR had total assets of
Ps.10,060 million.
Business and strategy. CCPR's network uses TDMA digital technology and
covers approximately 87% of the geographical area of Puerto Rico and the Virgin
Islands, and approximately 90% of their population. As of September 30, 2000,
CCPR had 495,108 subscribers and a 40% share of the combined Puerto Rican and
Virgin Islands wireless market.
CCPR offers cellular, paging and long distance services, and is
expanding the resale of its backbone digital microwave network. CCPR also offers
Competitive Access Provider, or "CAP," services, which allow subscribers to
bypass local exchange carrier services and thus reduce costs. In 1997, CCPR
introduced prepaid services, designed primarily for low-usage individual
customers. Direct sales, including sales to corporate accounts, represented
approximately 65% of CCPR's total revenues for the first nine months of 2000. In
addition, CCPR uses a network of independent dealers and large retailers who
work on commission to distribute the company's products and services.
CCPR aims to differentiate itself from its competitors by offering
premium services at attractive prices. The company directs significant efforts
toward maintaining a high level of customer service and technical excellence, as
well as offering advanced calling features.
CCPR's sales and marketing strategy is to attract subscribers through
direct and indirect distribution channels and aggressive advertising. The
company targets the individual and corporate segments by developing tailored
pricing plans designed to appeal to those segments. CCPR is currently
considering new advertising campaigns to promote a modern and professional
image. In an effort to increase its postpaid customer base, CCPR is planning an
aggressive advertising campaign focusing on how favorably Cellular One rates and
quality of products and services compare to those of its competitors. With
respect to prepaid cards, CCPR plans to leverage its extensive distribution
network by creating additional distribution venues, including existing ATM
machines.
<PAGE>
CCPR's growth strategy is to continue to build out its digital network.
At present, approximately 85% of CCPR's network traffic is digital. CCPR is also
planning to install more than 20 new cell sites during 2001, in order to reach
the mountainous inner part of Puerto Rico which, due to topographical
conditions, requires additional cell sites for coverage.
Competition. CCPR holds one of two authorized cellular service licenses
for each of Puerto Rico and the Virgin Islands. The Puerto Rico Telephone
Company, which is the sole fixed-line provider for Puerto Rico, holds the second
cellular license for Puerto Rico. VitelCellular, Inc., an affiliate of the
fixed-line Virgin Islands Telephone Company, holds the second cellular license
for the Virgin Islands.
A number of companies hold PCS licenses for the Puerto Rican and U.S.
Virgin Islands markets. Centennial has offered PCS under its license since
December 1996. Telecorp, an affiliate of AT&T, launched PCS in July of 1999,
under the commercial name "Suncom." Clear Comm, Inc., which recently announced a
partnership with an affiliate of Telefonica S.A., launched PCS in October 1999,
under the commercial name "MovieStar." In addition, the Puerto Rico Telephone
Company, VitelCom, Inc. (an affiliate of VitelCellular, Inc.), Sprint PCS, and
Omnipoint Corp. hold PCS licenses but are not currently operating under them.
Sprint PCS has announced its plans to launch service at the beginning of 2001.
Regulatory environment. The telecommunications sector in Puerto Rico
and the Virgin islands falls under the jurisdiction of the U.S. Federal
Communications Commission (the "FCC"), and U.S. telecommunications laws and
regulations apply. The Communications Act of 1934, as amended, requires
cellular, paging and microwave station operators such as CCPR to obtain
authorization from the FCC prior to conducting or operating their systems.
Although the FCC has the ability to require wireless service providers to file
tariffs for their services, it has never required CCPR to file such tariffs.
The Puerto Rico Telecommunications Act of 1996 created a local board
with primary regulatory jurisdiction in Puerto Rico over all telecommunications
services, service providers, and persons with a direct or indirect interest in
such services or providers. This Act requires all telecommunications service
providers, except commercial mobile radio service providers, to obtain
certification to do business in Puerto Rico, and it directs the board to adopt
regulations specifying the form, content and procedures for such certification.
Licenses. CCPR holds various licenses issued by the FCC for cellular,
paging and international long distance resale services in Puerto Rico and the
U.S. Virgin Islands, operating on the 800 megahertz (Band A) radio spectrum.
Some of these licenses were acquired from the original licensees, and others
were obtained directly by CCPR. In addition, certain subsidiaries of CCPR hold
point-to-point common carrier microwave licenses to transport CCPR's network
traffic.
CCPR has renewed a number of these licenses, and is in the process of
renewing others through the FCC's "Expected Renewal" process. Under "Expected
Renewal," license holders may renew their licenses as long as they have been
operating in good standing under FCC rules, with no significant complaints or
failures in providing service.
Network Access
Network Access Solutions Corporation ("Network Access") is a provider
of broadband network access services to business customers. We own common shares
and convertible preferred shares representing a 5.9% equity interest in Network
Access. We acquired our interest in the common shares in June 1999 and our
interest in the preferred shares in March 2000. In 1999, Network Access had
revenues of Ps.164 million and a net loss of Ps.380 million. In the first six
months of 2000, Network Access had revenues of Ps.69.8 million and net income of
Ps.276.3 million. At September 30, 2000, Network Access had total assets of
Ps.2,103.6 million. At June 30, 2000, Network Access had approximately 8,000
subscribers.
<PAGE>
Cablevision
Empresas Cablevision, S.A. de C.V. ("Cablevision") is the cable
subsidiary of Grupo Televisa, S.A. de C.V. ("Televisa"), which is the largest
supplier of television programming in Mexico. Cablevision offers cable
television services in the Mexico City metropolitan area, and at September 30,
2000, had approximately 400,000 subscribers. We indirectly own a 49% interest in
Cablevision and the remaining interest is owned by Televisa. Cablevision is in
the process of exploring a variety of possible transactions through which
America Movil could significantly reduce its equity interest in Cablevision. In
1999, Cablevision had revenues of Ps.733 million and net income of Ps.170
million. In the first nine months of 2000, Cablevision had revenues of Ps.649
million and net income of Ps.89 million. At September 30, 2000, Cablevision had
total assets of Ps.1,718 million.
FirstMark
FirstMark Comunicaciones Espana, S.A. ("FirstMark") is a new broadband
wireless company in Spain. We own a 17.5% interest in FirstMark. Our interest in
FirstMark was acquired in November 1999. In the first nine months of 2000,
FirstMark had revenues of Ps.0.3 million and a net loss of Ps.29 million. At
September 30, 2000, FirstMark had total assets of Ps.427 million.
FirstMark plans to launch commercial operations in the first half of
2001, offering Internet access, voice, value-added and Internet services such as
web hosting, web housing, internet protocol virtual private network and frame
relay.
<PAGE>
CAPITAL EXPENDITURES
The following table sets forth our capital expenditures, before
retirements, for each year in the three-year period ended December 31, 1999 and
for the nine-month period ended September 30, 2000.
<TABLE>
<CAPTION>
Nine months
ended
Year ended December 31, September 30,
------------------------------------------- ----------------
1997 1998 1999 2000
---------- ------------------ --------------- -----------------
(millions of constant pesos as of September 30, 2000)
<S> <C> <C> <C> <C>
Transmission and switching equipment Ps. 1,318 Ps. 1,830 Ps. 6,195 Ps. 9,160
Computer equipment.................. 166 107 273 416
Licenses............................ 43 1,661 __ __
Investment in subsidiaries and
affiliates........................ (271) -- 4,428 11,093
Other............................... 24 34 104 603
----------- ----------- ----------- -----------
Total capital expenditures...... Ps. 1,280 Ps. 3,632 Ps. 11,000 Ps. 21,272
=========== =========== =========== ===========
</TABLE>
Telcel has budgeted capital expenditures of approximately U.S.$2.1
billion for the five quarters through December 31, 2001, principally for the
build-out of its cellular network. We currently expect the level of capital
expenditures at Telcel to decline after 2001, but capital expenditures will
continue to be substantial. Competitive, technical or market developments could
require increased capital expenditure.
In addition, we expect America Movil to provide funding for capital
expenditures of its subsidiaries and joint ventures. We have budgeted
approximately U.S.$194 million for this purpose through December 31, 2001. We
have contractual commitments to make contributions of approximately U.S.$509
million to our international subsidiaries through the end of 2001. In addition,
we are required to provide U.S.$1.17 billion to Telecom Americas as the
requirements of the joint venture arise and in any case no later than November
16, 2003. See "Joint Ventures and Investments--Telecom Americas" under Item 4.
<PAGE>
THE SPIN-OFF
Overview
America Movil was established in a spin-off (the "Spin-off") of the
wireless business and certain international businesses of Telmex, the largest
provider of local and long-distance telephone services in Mexico.
The Spin-off was approved by Telmex shareholders at an extraordinary
shareholders' meeting on September 25, 2000 (the "Approval Date"), at which time
each holder of Telmex shares became the owner of an equal number of America
Movil shares of the corresponding class. The shares of America Movil will not be
delivered to Telmex shareholders until a distribution date to be announced (the
"Share Distribution Date"). Prior to the Share Distribution Date, Telmex shares
and America Movil shares may only be owned and transferred together.
On the Share Distribution Date, our shares will be delivered to Telmex
shareholders as of a specified record date (the "Share Record Date"). On a date
(the "ADS Distribution Date") as soon as practicable following the Share
Distribution Date, America Movil American Depositary Shares ("ADSs") will be
delivered to holders of Telmex ADSs as of a specified record date (the "ADS
Record Date").
Telmex and America Movil currently have the same shareholders and will
continue to be controlled by the same group of shareholders until the Share
Distribution Date. See "Major Shareholders" under Item 7. Neither Telmex nor
America Movil owns any capital stock of the other.
Description of the Spin-off
The Spin-off was implemented using a procedure under Mexican corporate
law called escision, or "split-up." In an escision, an existing company is
divided, creating a new company or new companies to which specified assets and
liabilities are allocated. This procedure differs from the procedure by which a
spin-off is typically conducted in the United States, where a parent company
distributes to its shareholders shares of a subsidiary. The escision was
approved on the Approval Date by a single action of the shareholders of Telmex
at the extraordinary meeting creating America Movil and allocating certain
assets and liabilities of Telmex to America Movil.
Prior to the Spin-off, Telmex conducted an internal reorganization.
Following the reorganization, a subsidiary of Telmex called Sercotel, S.A. de
C.V. ("Sercotel") directly or indirectly owned the shares of Telcel and the
subsidiaries that conduct our international businesses and hold our
international investments. Also as a result of the reorganization, subsidiaries
of Telcel held Ps.17.1 billion of Telmex commercial paper and Ps.10.9 billion of
other liquid assets in order to help America Movil meet its capital requirements
following the Spin-off.
Effective on the Approval Date:
o America Movil was established as a separate company and our
initial Board of Directors was elected at the same extraordinary
meeting that approved the Spin-off.
o The shares of Sercotel were transferred to America Movil.
o Each holder of Telmex shares became the owner of an equal number
of America Movil shares of the corresponding class.
The shareholders' resolution from the extraordinary meeting was
notarized on October 5, 2000, and it was registered in the Mexican Public
Registry of Commerce and published in the Diario Oficial (Official Gazette) on
October 13, 2000. Mexican law provides for a period of 45 days following the
registration and publication of the resolution during which the Spin-off may be
challenged by certain parties, as described below under "--Judicial Proceedings
to Challenge the Spin-off." Our shares will not be delivered or held separately
from Telmex shares before the end of this statutory period. Prior to the Share
Distribution Date, there will be no separate certificates for our shares, and
the right to receive our shares will be transferred together with Telmex shares.
Investors will not be able to buy or otherwise acquire, or sell or otherwise
transfer or deliver, Telmex shares or America Movil shares separately.
<PAGE>
The Share Distribution
Our shares will be separated from the Telmex shares and distributed to
shareholders following the expiration of the period during which the Spin-off
may be challenged under Mexican corporate law. See "--Judicial Proceedings to
Challenge the Spin-off." We can give no assurance as to when the Share
Distribution Date will occur.
Distribution of shares will generally be made by book entry annotation
in the shareholder list maintained by S.D. Indeval, S.A. de C.V., Institucion
para Deposito de Valores (Indeval), which is the clearing system for securities
traded on the Mexican Stock Exchange. Beginning on or about the Share
Distribution Date, we expect that:
o America Movil A Shares and L Shares will commence trading on the
Mexican Stock Exchange.
o Telmex A Shares and L Shares will trade on the Mexican Stock
Exchange without the America Movil shares.
o Shareholders will be able to hold Telmex shares and America Movil
Shares separately.
See "Trading Markets" under Item 9.
The ADS Distribution
As of the Approval Date, each Telmex L Share ADS represented, in
addition to 20 Telmex L Shares, the right to receive 20 America Movil L Shares,
and each Telmex A Share ADS represented, in addition to one Telmex A Share, the
right to receive one America Movil A Share. As of the date of this registration
statement, Telmex has established a "sponsored" ADS program in respect of its A
Shares under which each Telmex A Share ADS represents 20 Telmex A Shares and 20
America Movil A Shares.
We will arrange with Morgan Guaranty Trust Company of New York, as
depositary (the "Depositary"), to issue L Share ADSs, each representing 20
America Movil L Shares, and A Share ADSs, each representing 20 America Movil A
Shares. On the ADS Distribution Date, the Depositary will issue and distribute
America Movil ADSs to each record holder of Telmex ADSs. Beginning on or about
the ADS Distribution Date, we expect that the America Movil L Share ADSs will
commence trading on the New York Stock Exchange and the America Movil A Share
ADSs will be quoted on the NASDAQ National Market System. See "Trading Markets"
under Item 9. We expect that the Depositary will announce the ADS Record Date
and the ADS Distribution Date on or about the same date on which we announce the
Share Record Date and the Share Distribution Date.
Persons holding Telmex ADSs through the facilities of The Depository
Trust Company ("DTC") will receive the distribution of America Movil ADSs by
book entry only, through the facilities of DTC. Persons holding Telmex ADSs
directly will receive the distribution of America Movil ADSs in the form of
certificated American Depositary Receipts ("ADRs") representing America Movil
ADSs. These ADRs will be mailed to direct holders of Telmex ADSs on or as soon
as practicable after the ADS Distribution Date. Persons holding Telmex ADSs
through a broker or other securities intermediary should consult such broker or
other securities intermediary concerning distribution of the America Movil ADSs.
<PAGE>
Certain Relationships between America Movil and Telmex
Following the Spin-off, there will be a variety of contractual
relationships between America Movil and Telmex, both to accomplish the
separation of the Spin-off and to provide for ongoing commercial relationships.
Telmex also remains obligated to certain creditors of certain of our
subsidiaries and joint ventures until those creditors agree to release Telmex.
See "Related Party Transactions" under Item 7.
Approvals and Consents
Where obligations of Telmex have been transferred to America Movil,
consent of the relevant creditors will be required in order for America Movil to
succeed to the rights and obligations of Telmex. In these cases, failure to
obtain consent from creditors may require that Telmex remain liable for certain
obligations of America Movil, including indebtedness and credit support provided
to certain of our subsidiaries and affiliates. See "Related Party Transactions"
under Item 7.
In addition, Telmex is required to obtain clearance from the Mexican
competition authorities. We do not expect the competition authorities to object
to the Spin-off, but there can be no assurance that they will not impose any
requirements on America Movil that will have a material effect on us.
Judicial Proceedings to Challenge the Spin-off
Under Mexican corporate law, for a period of 45 days following the
registration and publication of the shareholders' resolution approving the
Spin-off, which occurred by October 13, 2000, any shareholder or group of
shareholders representing at least 20% of the entire capital stock of Telmex, or
any creditor of Telmex, may commence judicial proceedings in Mexican courts to
challenge the Spin-off. In connection with such a challenge, a court may
temporarily suspend the Spin-off, if the party bringing the proceedings posts
bond as security for damages and losses which might be suffered by Telmex or
America Movil as a result of the challenge. The suspension may continue until
there is a final, non-appealable judicial declaration that the challenge is
unfounded or an agreement between the challenging party and Telmex. Once the
statutory period has expired, the Spin-off may no longer be challenged by
creditors or shareholders.
The legal grounds on which an escision may be challenged, and the
remedies a court may impose if it sustains the challenge, are not specified in
Mexican corporate law and have not been the subject of extensive practical
experience or commentary. We are unable to anticipate whether any party will
challenge the Spin-off or, if so, what standards the Mexican courts will apply
to rule on the challenge, what procedures they will follow in conducting
proceedings or what remedies they will impose.
<PAGE>
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the Audited
Financial Statements and the Unaudited Interim Financial Statements and the
notes thereto included in this registration statement under Item 18. The Audited
Financial Statements and the unaudited interim financial statements for the nine
months ended September 30, 1999 have been prepared on a combined basis from
Telmex's historical accounting records and represent the combined historical
operations of the entities that were transferred to America Movil by Telmex in
the Spin-off. The unaudited interim financial statements as of September 30,
2000 and for the nine months ended September 30, 2000 have been prepared on a
consolidated basis.
The financial statements have been prepared in accordance with Mexican
GAAP, which differ in certain important respects from U.S. GAAP. Note 19 to the
Audited Financial Statements and Note 13 to the Unaudited Interim Financial
Statements provide a description of the principal differences between Mexican
GAAP and U.S. GAAP, as they relate to the Company, 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.
Mexican GAAP requires that the financial statements recognize certain
effects of inflation. In particular, (a) nonmonetary assets, including property,
plant and equipment, and stockholders' equity are restated for inflation and, in
the case of imported telephone plant, devaluation, (b) gains and losses in
purchasing power from holding monetary liabilities or assets are recognized in
income and (c) all financial statements are restated in constant pesos as of
September 30, 2000. Since January 1, 1997, the Company has 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 NCPI.
Results of Operations
Overview
Our operating revenues consist of (i) usage charges, which include
airtime charges for outgoing calls and interconnection charges billed to other
service providers for calls completed on the Company's network under the
"calling party pays" system beginning May 1, 1999, (ii) monthly subscription
charges, (iii) long-distance charges, (iv) revenues from sales of cellular
handsets and accessories and (v) other revenues, which include roaming charges
and charges for call forwarding, call waiting and call blocking. Revenues from
sales of prepaid services are recognized at the time of sale and are included
under usage charges, long-distance charges and other revenues.
The principal factors affecting our operating revenues are rates and
the volumes of usage of wireless services. The effect of rates on revenues is
analyzed in terms of constant pesos of September 30, 2000 and therefore, unless
nominal rates increase by at least the rate of inflation, real rates will
decline over time.
Our results of operations for 1997, 1998, 1999 and the first nine
months of 2000 have been affected by continued rapid growth in the number of our
cellular subscribers, particularly prepaid subscribers of Telcel. The increase
in subscribers in 1999 and 2000 was attributable in part to the introduction of
the "calling party pays" system in Mexico in May 1999, which also led to an
increase in average minutes of incoming calls to new and existing subscribers.
The growth in our subscriber base has been offset in part by a decline in
average monthly revenues per subscriber, due to declining real rates and growth
in the number of prepaid customers. Our 1999 and 2000 results of operations
reflect the consolidation of TracFone beginning in February 1999 and GCA
beginning in May 1999. Our 2000 results of operations also reflect the
consolidation of Telgua and Conecel beginning in April 2000 and Techtel
beginning in July 2000. See "Subsidiaries" under Item 4.
<PAGE>
The effects of competition have been extensive, and have included lower
market share and competitive pressure on prices for cellular service. We believe
that we are well-positioned to continue meeting competition successfully in
Mexico and in the other countries in which we operate, but we can make no
assurances as to the effects of competition on our results of operations and
financial condition.
Our results of operations will also continue to be 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 tends to be
adversely affected. Poor economic conditions, particularly unemployment and high
domestic interest rates, can also result in an increase in allowance for
doubtful accounts. Devaluation of the peso, such as occurred most recently in
1998, also results in exchange losses on our foreign-currency denominated
indebtedness. In 1999 and 2000, Telcel has continued to grow in terms of lines
in service and minutes of usage, partly because of the strong performance of the
Mexican economy. However, we can make no assurances that economic conditions in
Mexico and in the other countries in which we operate will not have adverse
effects on our financial condition and results of operations.
<PAGE>
Summary of Operating Income
The following tables sets forth, for each of the years in the
three-year period ended December 31, 1999, and for the nine-month periods ended
September 30, 1999 and 2000, our operating revenues, operating costs and
expenses and operating income.
<TABLE>
<CAPTION>
Year ended December 31, % Change
-------------------------------------------- -------------------------
1997 1998 1999 1997-1998 1998-1999
------------- ------------- -------------- --------------- ------------
(millions of constant pesos as of
September 30, 2000)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Usage charges.................... Ps. 2,559 Ps. 3,680 Ps. 7,239 43.8% 96.7%
Monthly subscription charges..... 1,827 2,884 3,692 57.9 28.0
Long-distance charges............ 625 800 1,334 28.0 66.7
Sales of handsets and
accessories.................... 548 1,310 2,406 139.1 83.7
Other(1)......................... 275 698 684 153.8 (2.0)
------------ ------------ ------------
Total operating revenues....... 5,834 9,372 15,355 60.6 63.8
------------ ------------ ------------
Operating costs and expenses:
Cost of sales and services....... 2,350 3,608 7,156 53.5 98.3
Commercial, administrative and
general........................ 2,689 3,026 4,490 12.5 48.4
Depreciation and amortization.... 535 768 1,475 43.5 92.1
------------- ------------- ------------
Total operating costs and expenses 5,574 7,402 13,121 32.8 77.3
------------- ------------- ------------
Operating income.................... Ps. 260 Ps. 1,970 Ps. 2,234 657.7 13.4
============= ============ ============
</TABLE>
-------------
(1) Other revenues include roaming charges and charges for call forwarding,
call waiting and call blocking.
Nine months ended
September 30,
---------------------------
1999 2000 % Change
--------------------------- ----------
(millions of constant pesos
as of September 30, 2000)
Operating revenues:
Usage charges..................... Ps. 4,654 Ps. 10,622 128.2%
Monthly subscription charges...... 2,731 3,284 20.2
Long-distance charges............. 939 1,803 92.0
Sales of handsets and
accessories..................... 1,541 2,219 44.0
Other(1).......................... 382 1,222 219.9
------------ ------------
Total operating revenues........ 10,247 19,150 86.9
Operating costs and expenses:
Cost of sales and services........ 4,782 9,583 100.4
Commercial, administrative and
general......................... 3,006 4,809 60.0
Depreciation and
amortization.................... 845 2,067 144.6
------------- ------------
Total operating costs and expenses 8,633 16,459 90.6
------------- ------------
Operating income.................. Ps. 1,614 Ps. 2,691 66.7
============= ============
-------------
(1) Other revenues include roaming charges and charges for call forwarding,
call waiting and call blocking.
<PAGE>
Summary of Net Income
The following tables set forth, for each of the years in the three-year
period ended December 31, 1999, and for the nine-month periods ended September
30, 1999 and 2000, our operating income, comprehensive financing (income) cost,
provisions and equity in results of equity-method affiliates.
<TABLE>
<CAPTION>
Year ended December 31, % Change
-------------------------------------------- -------------------------
1997 1998 1999 1997-1998 1998-1999
------------- ------------- -------------- --------------- ------------
(millions of constant pesos as of
September 30, 2000)
<S> <C> <C> <C> <C> <C>
Operating income.................... Ps. 260 Ps. 1,970 Ps. 2,234 657.7% 13.4%
Comprehensive financing (income) cost:
Interest income................ (7,329) (9,581) (8,901) 30.7 (7.1)
Interest expense............... 51 26 157 (49.0) 503.8
Exchange loss (gain), net...... (488) (133) 1,094 (72.7) (922.6)
Monetary effect................ 5,460 6,590 4,664 20.7 (29.2)
------------ ----------- -----------
(2,306) (3,098) (2,986) 34.3 (3.6)
------------ ------------ ------------
Income before income tax and employee
profit sharing................... 2,566 5,068 5,220 97.5 3.0
----------- ----------- -----------
Provisions for:
Income tax..................... 778 1,072 1,102 37.8 2.8
Employee profit sharing........ 64 75 112 17.2 49.3
----------- ----------- -----------
842 1,147 1,214 36.2 5.8
----------- ----------- -----------
Income before equity in results of
affiliates and minority interest. 1,724 3,921 4,006 127.4 2.2
Equity in results of affiliates..... 106 77 15 (27.4) (80.5)
Minority interest in loss of
subsidiaries..................... -- -- 296 -- --
----------- ----------- -----------
Net income.......................... Ps. 1,830 Ps. 3,998 Ps. 4,317 118.5 8.0
=========== =========== ===========
</TABLE>
Nine months ended
September 30,
---------------------------
1999 2000 % Change
--------------------------- ----------
(millions of constant pesos
as of September 30, 2000)
Operating income..................... Ps. 1,614 Ps. 2,691 66.7%
Comprehensive financing (income) cost:
Interest income................. (7,259) (3,629) (50.0)
Interest expense................ 167 649 288.6
Exchange loss (gain), net....... 1,387 52 (96.3)
Monetary effect................. 3,666 1,823 (50.3)
---------- -----------
(2,039) (1,105) (45.8)
---------- -----------
Income before income tax and employee
profit sharing.................... 3,653 3,796 3.9
Provisions for:
Income tax...................... 727 1,798 147.3
Employee profit sharing......... 130 112 (13.8)
---------- -----------
857 1,910 122.9
---------- -----------
Income before equity in results of
affiliates and minority interest.. 2,796 1,886 (32.5)
Equity in results of affiliates...... 49 (465) --
Minority interest in loss of
subsidiaries...................... 114 159 39.5
---------- -----------
Net income........................... Ps. 2,959 Ps. 1,580 (46.6)
========== ===========
<PAGE>
Operating Revenues
Operating revenues increased by 60.6% in 1998, 63.8% in 1999 and 86.9%
in the first nine months of 2000 compared to the same period in 1999. These
increases in revenues were driven principally by growth in Telcel's subscriber
base, offset in part by a decline in monthly revenues per subscriber. The
average number of Telcel subscribers increased by 89.8% in 1998, 149.4% in 1999
and 114.6% in the first nine months of 2000 compared to first nine months of
1999, largely due to the growth in prepaid subscribers. The average number of
prepaid subscribers increased by 121.6% in 1998, 203.8% in 1999 and 79.2% in the
first nine months of 2000. As of September 30, 2000, Telcel had a total of 8.9
million subscribers, 7.9 million of which were prepaid subscribers.
Average monthly revenues per Telcel subscriber decreased from Ps.504 in
1998 to Ps.339 in 1999 to Ps.240 in the nine months ended September 30, 2000.
The decrease in average monthly revenues was due to the decline in real rates
and to the growth in prepaid customers.
Usage charges
Usage charges increased by 43.8% in 1998, 96.7% in 1999 and 128.2% in
the first nine months of 2000 compared to the same period in 1999. The increases
in each period were due principally to growth in the number of Telcel's
subscribers, offset in part by a decline in real rates. The increases in 1999
and in the first nine months of 2000 were partly attributable to the
introduction of the "calling party pays" system in Mexico in May 1999, which led
to an increase in subscribers. To a lesser extent, the increases were also due
to the consolidation of the revenues of TracFone and GCA beginning in the first
half of 1999 and of Conecel and Telgua beginning in April 2000.
Monthly subscription charges
Monthly subscription charges increased by 57.9% in 1998, 28.0% in 1999
and 20.2% in the first nine months of 2000 compared to the same period in 1999.
The increase in each period was due to growth in the number of Telcel's postpaid
subscribers. Monthly subscription charges did not increase as rapidly as the
number of subscribers because an increasing number of new subscribers were
prepaid customers, who do not pay monthly subscription charges.
Long-distance charges
Long-distance charges increased by 28.0% in 1998, 66.7% in 1999 and
92.0% in the first nine months of 2000 compared to the same period in 1999.
These increases were primarily due to subscriber growth, offset in part by a
decline in real rates.
Sales of handsets and accessories
Sales of handsets and accessories increased by 139.1% in 1998, 83.7% in
1999 and 44.0% in the first nine months of 2000 compared to the same period in
1999. These increases were attributable to growth in the number of subscribers,
which was partly offset by declines in prices and increased subsidies. The
comparatively lower rates of growth in 1999 and 2000 were due to increased
handset subsidies in those years.
<PAGE>
Other
Other revenues increased by 153.8% in 1998, decreased by 2.0% in 1999
and increased by 219.9% in the first nine months of 2000 compared to the same
period in 1999. The increases in 1998 and 2000 were principally due to growth in
the number of subscribers. The increase in 2000 was also attributable to the
consolidation of other revenues of Telgua. The decrease in 1999 was primarily
due to the elimination in that year of required handset deposits for new Telcel
subscribers. Handset deposits result in revenues if they are not claimed by
subscribers within a prescribed period of time.
Operating Costs and Expenses
Costs of sales and services
Costs of sales and services increased by 53.5% in 1998, 98.3% in 1999
and 100.4% in the first nine months of 2000 compared to the same period in 1999.
The increases during these periods were primarily due to growth in sales of
cellular handsets and higher cost of interconnection with other cellular
operators following the introduction of "calling party pays" in May 1999. The
increased costs in 1999 and the first nine months of 2000 were attributable in
part to the consolidation of TracFone, Conecel, GCA and Telgua.
Commercial, administrative and general
Commercial, administrative and general expenses increased by 12.5% in
1998, 48.4% in 1999 and 60.0% in the first nine months of 2000 compared to the
same period in 1999. 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 43.5% in 1998 and 92.1% in
1999 and by 144.6% in the first nine months of 2000 compared to the same period
in 1999. 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. Depreciation increased in 1998 as a result of investment in
telephone equipment and in part because the rate of devaluation exceeded the
rate of inflation. Depreciation increased in 1999 primarily due to the inclusion
of the assets of newly-acquired subsidiaries in the calculation of consolidated
depreciation and to the amortization of goodwill ensuing from the purchases of
TracFone and GCA. The increase in 1999 was also attributable to the amortization
of Telcel's PCS licenses which were acquired in October 1998. The increase in
depreciation in 1999 was offset in part because the rate of Mexican inflation
exceeded the rate of devaluation of the peso. The increase in depreciation in
the first nine months of 2000 was due primarily to increased investments in
telephone equipment and to the amortization of goodwill associated with
newly-acquired subsidiaries.
<PAGE>
Operating Margin
Operating margin (operating income as a percentage of operating
revenues) was 4.5% in 1997, 21.0% in 1998, 14.5% in 1999 and 14.0% in the first
nine months of 2000. The lower operating margins in 1999 and 2000 were due to
increases in sales commissions and sales of handsets at below cost and to the
consolidation of TracFone, Conecel, GCA and Telgua.
Comprehensive financing (income) cost
Under Mexican GAAP, comprehensive financing (income) 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 substantial liquid assets in the form of cash and
short-term investments (Ps.28.7 billion at September 30, 2000), so we have
significant interest income, and because our monetary assets exceed our monetary
liabilities, we generally report a net loss from monetary position. A
significant portion of our financial assets (25% at September 30, 2000) is
denominated in foreign currencies, principally U.S. dollars, so depreciation of
the peso results in foreign exchange gain and higher interest income with
respect to these assets. Substantially all of our indebtedness (100% at
September 30, 2000) is denominated in foreign currencies, so depreciation of the
peso results in foreign exchange loss and higher interest expense with respect
to indebtedness.
Comprehensive financing (income) cost was a net credit of Ps.3,098
million in 1998, a net credit of Ps.2,986 million in 1999 and a net credit of
Ps.1,105 million in the first nine months of 2000, compared to a net credit of
Ps.2,039 million for the same period in 1999. The credits were attributable
principally to interest income on our financial assets, offset in part by the
monetary effect on our net monetary asset position. The changes in each
component were as follows:
o Interest income increased by 30.7% in 1998 due to a higher level
of interest-bearing assets offset in part by lower interest
rates, and decreased by 7.1% in 1999 due to a lower average level
of interest-bearing assets. Interest income decreased by 50.0%
for the first nine months of 2000, compared to the same period in
1999, due to a lower average level of interest bearing assets.
o Interest expense decreased by 49.0% in 1998 and increased by
503.8% in 1999 and 288.6% in the first nine months of 2000,
compared to the same period in 1999. The increases in 1999 and
2000 were principally due to a higher average level of
indebtedness, attributable in part to the acquisition of new
subsidiaries.
o In 1998, the 16.6% depreciation of the peso resulted in a net
foreign exchange gain of Ps.133 million. In 1999, the impact of
the appreciation of the peso in the second half of the year on
the Company's U.S. dollar-denominated monetary assets resulted in
a net exchange loss of Ps.1,094 million. The 1.3% appreciation of
the peso in the first nine months of 2000 resulted in a net
exchange loss of Ps.52 million, compared to a net exchange loss
of Ps.1,387 million for the comparable period in 1999.
o In 1998, 1999 and the first nine months of 2000, average monetary
assets exceeded average monetary liabilities, resulting in a
substantial net loss from monetary position. The increase in 1998
reflected a higher average level of net monetary assets and
higher inflation. The decrease in 1999 reflected a lower rate of
inflation and lower average net monetary assets.
Income tax and employee profit-sharing
The statutory rate of the Mexican corporate income tax was 34% in 1997
and 1998 and 35% in 1999 and 2000. The Company's effective rates of provisions
for corporate income tax as a percentage of pretax income were 30.3%, 21.1%,
21.1% and 47.4% for 1997, 1998, 1999 and the first nine months of 2000,
respectively. The increase in effective rates in 2000 was principally due to the
change in Mexican accounting principles applicable to deferred income tax
described below.
<PAGE>
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 (calculated without
reference to inflation adjustments). The amount payable increased by 15.7% in
1999 and by 53.5% in the first nine months of 2000 compared to the same period
in 1999.
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 were considered to be
nonrecurring and that would reverse within a definite period. The new bulletin
does not significantly affect the accounting for employee profit sharing. 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 1.9%. Under
Bulletin D-4, the Company's deferred tax accounting under Mexican GAAP will be
much closer to U.S. GAAP than in the past, resulting in a smaller U.S. GAAP
difference. See Note 19 to the Audited Financial Statements and Note 9 to the
Unaudited Interim Financial Statements.
Equity in results of affiliates
Equity in results of affiliates represented net profits of Ps.77
million and Ps.15 million in 1998 and 1999, respectively, attributable primarily
to earnings at Cablevision, offset in part in 1999 by losses at CCPR. Equity in
results of affiliates represented a net loss of Ps.465 million in the first nine
months of 2000, attributable primarily to results at ATL, CCPR and CompUSA. The
Company expects to have a growing level of net loss attributable to equity in
results of affiliates in 2000 and 2001, primarily as a result of its investments
in Telecom Americas, CCPR and CompUSA. See "Joint Ventures and Investments"
under Item 4.
Minority interests
Minority interest represented a net credit of Ps.296 million in 1999
reflecting minority interest in losses at TracFone, Conecel and GCA. Minority
interest represented a net credit of Ps.159 million in the first nine months of
2000 due to losses at TracFone and Conecel, offset in part by gains at Telgua
and GCA.
<PAGE>
Net income
In 1998, net income increased by 118.5% due to a more than six-fold
increase in operating income, reflecting higher operating revenues and improved
margins, as well as increased interest income. In 1999, net income increased by
8.0% due to a 13.4% increase in operating income, reflecting higher operating
revenues and stable margins. Net income decreased by 46.6% in the first nine
months of 2000 compared to the same period in 1999 due to (a) a decrease in
comprehensive financing income mainly as a result of lower interest income, (b)
an increase in income tax provisions due to a change in Mexican accounting
principles and (c) a net loss of Ps.465 million attributable to equity in
results of affiliates due principally to losses at ATL, CCPR and CompUSA. Our
net income in the first nine months of 2000 was adversely affected by the
results of certain subsidiaries and affiliates that were acquired during 2000.
Giving pro forma effect to these acquisitions as if they had occurred on January
1, 2000, our net income for the first nine months of 2000 would have been
significantly lower. See Note 6(b) to the Unaudited Interim Financial
Statements.
Liquidity and Capital Resources
We will need substantial amounts of capital to finance investments at
Telcel and each of our international businesses. In addition, we may need
capital to take advantage of new investment opportunities. These requirements
will be met in part using the liquid assets we received in the Spin-off, which
are sufficient to meet our budgeted capital needs over the period through the
end of 2001. We also expect to rely on operating cash flows, particularly at
Telcel, and on borrowings, particularly supplier credits.
In the past, the capital requirements of Telcel were met to a
substantial extent by funding supplied by its former parent company Telmex, but
following the Spin-off, with the exception of certain transitional arrangements
discussed below, Telmex will not provide further funding to Telcel. This should
be kept in mind in using our historical financial performance to evaluate how we
will meet our capital expenditure requirements.
Capital requirements
We have budgeted approximately U.S.$2.1 billion for the five quarters
through December 31, 2001 to build out the network at Telcel. In addition, we
have budgeted approximately U.S.$155 million for the same period to build out
the cellular networks at Telgua, Conecel and some of our other subsidiaries and
affiliates. In addition to the budgeted amounts, under the BCI-SBCI joint
venture agreement we are required to provide U.S.$1.7 billion to Telecom
Americas as the requirements of the joint venture arise and in any event no
later than three years after closing. See "Joint Ventures and
Investments--Telecom Americas" under Item 4. In addition to this amount, we have
contractual commitments to make contributions of approximately U.S.$509 million
to our international subsidiaries through the end of 2001. See "Capital
Expenditures" under Item 4.
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 Telecom Americas or through direct
investments or other strategic alliances. Future international investments may
involve substantial capital requirements. We can give no assurance as to the
extent, timing or cost of such investments, and they may involve risks to which
we have not previously been exposed.
We may also use funds to pay dividends or to repurchase our shares. We
have not, however, established a dividend policy, and we do not currently expect
to engage in extensive share repurchases.
Capital resources
The assets we received in the Spin-off include approximately Ps.28.7
billion in liquid assets held by two finance subsidiaries of Telcel. Of this
amount, Ps.17.1 billion is peso-denominated commercial paper of Telmex issued
with a tenor of 28 days. We expect Telmex to repay this commercial paper before
the end of 2001, but we will continue to roll it over until it is repaid. The
balance consists of investments in a variety of money market instruments, of
which 18.8% is denominated in pesos and the balance is denominated in U.S.
dollars.
<PAGE>
The capital requirements of Telcel will be met in part from Telcel's
operating cash flow. America Movil's resources provided by operating activities
(which are primarily attributable to Telcel) were Ps.6,861 million in 1999 and
Ps.2,844 million in the first nine months of 2000. Of our other operating
subsidiaries, Telgua generates operating cash flows that will meet a material
portion of its capital requirements. Conecel, Techtel, TracFone and Comm South
do not generate enough operating cash flows to meet their capital requirements
and will rely primarily or entirely on borrowings or on funding provided by
America Movil.
We expect to have access to supplier credits to finance part of the
capital expenditure requirements at Telcel and at each of our international
businesses. As described below, some of our international businesses have used
guarantees of Telmex or Telcel to support their borrowings in the past, and we
expect that guarantees of America Movil or Telcel may be necessary in the
future. Following the Spin-off, with the exception of certain transitional
arrangements described below, we do not expect that Telmex will continue to
provide guarantees to support borrowings by us or our subsidiaries or joint
ventures.
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 Carso Global Telecom and SBC International, Inc. However, we have
approximately 1.6 billion L Shares in treasury and could offer these shares to
investors through the capital markets.
Existing Indebtedness and Contingent Liabilities
Telcel has relied on a syndicated credit facility entered into by
Telmex to finance the purchase of equipment from Ericsson for the build-out of
Telcel's cellular network. Under arrangements between Telcel and Telmex, each
time Telmex makes a drawing under the facility to finance the purchase of
equipment by Telcel, a matching obligation arises from Telcel to Telmex in the
same amount and for the same tenor. A substantial portion of the outstanding
amount Telcel owed to Telmex in connection with this arrangement was contributed
by Telmex to a subsidiary of America Movil prior to the Spin-off, and has been
eliminated in our consolidated balance sheet at September 30, 2000, reducing the
amount of our indebtedness to Telmex to Ps.905 million at September 30, 2000.
We have begun to negotiate a new credit agreement directly with the
lenders to replace these arrangements, but until we can do so Telmex has agreed
to maintain the arrangements in place. During this transition period, we are
effectively borrowing from Telmex and paying interest to Telmex at a spread over
the rates Telmex pays to its lenders. We have borrowed approximately U.S.$138
million under these arrangements.
Our subsidiary Telgua has two principal outstanding credit facilities,
both contracted in June 1999. One is a U.S.$60 million facility secured by a
pledge of Telgua's receivables arising under interconnection agreements with
foreign carriers. The other is a U.S.$80 million facility secured by a pledge of
Telgua's 49% interest in the shares of the subsidiaries that provide value-added
services. The remaining 51% is owned indirectly by America Movil. Under
agreements intended to provide additional security to creditors under this
facility, if the creditors were to exercise their remedies against the shares,
they would have an option to sell the shares to Telmex. We expect to agree with
Telmex that if the option is exercised, we will purchase the shares from Telmex.
We will seek the consent of the creditors to transfer the obligations of Telmex
under these agreements to America Movil or Telcel, but unanimous consent is
required and there can be no assurance that it will be forthcoming.
<PAGE>
Our subsidiary that owns 95% of the shares of Telgua, America Central
Tel, S.A. ("ACT," formerly Luca S.A.), is obligated to pay U.S.$350 million in
October 2001 to a trustee on behalf of the Guatemalan government. This amount is
the balance of the purchase price ACT agreed to pay for the shares of Telgua
when Telgua was privatized in November 1998. The debt bears interest at LIBOR
plus 3%, payable at maturity. The shares of Telgua are pledged to the trustee to
secure the obligations of ACT. ACT also has U.S.$70 million outstanding under a
floating rate promissory note maturing in April 2001. The promissory note is
guaranteed by Telcel and Telmex. We will seek consent from the creditors under
this promissory note to transfer the obligations of Telmex to America Movil or
Telcel.
Our subsidiary Sercom has U.S.$44 million outstanding under a U.S.$90
million floating rate credit facility maturing in September 2001. Sercom's
obligations under the facility are guaranteed by Telcel.
Our subsidiary Conecel currently has U.S.$7.74 million outstanding
under a fixed-rate credit facility maturing in 2002, and it has supplier credits
totaling U.S.$2.38 million. In addition, Conecel has outstanding U.S.$1.99
million principal amount of its 14% Notes due 2002. The balance of the Notes was
purchased by a company controlled by Telmex in connection with the acquisition
of Conecel and contributed to Conecel. Conecel has instructed the trustee under
the Notes to cancel the Notes that Conecel currently holds.
At September 30, 2000, all of America Movil's indebtedness was
denominated in foreign currencies.
At September 30, 2000, 72.8% of America Movil's debt obligations bore
interest at floating rates. America Movil's weighted average cost of all
borrowed funds in 1999 (including interest and reimbursement of certain lenders
for Mexican taxes withheld) was approximately 10.7%.
Telmex and SBCI have severally undertaken, for the benefit of creditors
under a U.S.$521 million secured loan facility of ATL, to guarantee the
obligations of certain shareholders of ATL under a capital contribution
agreement and certain other agreements related to the loan facility. Telmex and
other shareholders of ATL have also undertaken to provide a guarantee of a loan
facility to be granted to ATL by the Brazilian development bank Banco de
Desenvolvimento Economico e Social--BNDES. The obligations of Telmex in this
respect will be limited to U.S.$100 million. We will seek consent from the
creditors under these facilities to transfer the obligations of Telmex to
America Movil or Telcel.
We are a holding company, so we depend entirely on dividends and
advances from our subsidiaries to pay dividends and to meet our obligations.
U.S. GAAP Reconciliation
Net income under U.S. GAAP was Ps.1,966 million in 1997, Ps.2,969
million in 1998, Ps.2,668 million in 1999 and Ps.1,348 million for the first
nine months of 2000, compared to Ps.2,261 million for the first nine months of
1999. Compared to Mexican GAAP, net income under U.S. GAAP was 25.7% lower in
1998, 38.2% lower in 1999 and 14.7% lower in the first nine months of 2000
compared to the same period in 1999.
The principal differences between Mexican GAAP and U.S. GAAP as they
relate to us are the treatment of deferred income taxes and deferred employee
profit sharing, the restatement of plant, property and equipment, pension plan
costs, capitalization and depreciation of interest relating to assets under
construction and the treatment of accrued vacation costs. For a discussion of
these differences, see Note 19 to the Audited Financial Statements. Under
Mexican Accounting Principles Bulletin D-4, which went into effect on January 1,
2000, the Company's deferred tax accounting under Mexican GAAP will be much
closer to U.S. GAAP than in the past, resulting in a smaller U.S. GAAP
difference. See "--Results of Operations--Income tax and employee
profit-sharing."
<PAGE>
Item 6. Directors, Senior Management and Employees
Directors
Management of our business is vested in our Board of Directors. Our
bylaws provide for the Board of Directors to consist of at least five directors,
and allow us to also appoint alternate directors. A majority of the 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
Shares and A Shares is entitled to name one such 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 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. In order to have a quorum for a
meeting of the Board of Directors, a majority of those present must be Mexican
nationals.
The shareholders' meeting on September 25, 2000 established the Board
of Directors with 11 directors elected by the AA Shares and A Shares voting
together, two directors elected by the L Shares, and no alternate directors.
Pursuant to the terms of the trust through which our controlling shareholders
hold AA Shares, the Mexican controlling shareholders designated nine of the
directors elected by the holders of AA Shares and A Shares, and SBC
International, Inc. designated two of such directors. See "Major Shareholders"
under Item 7.
All of the current members of the Board of Directors were elected on
September 25, 2000. 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 principal business
activities outside the Company are as follows:
<PAGE>
<TABLE>
<S> <C> <C>
Carlos Slim Helu Born: 1940
Chairman and member of the First elected: 2000
Executive Committee Term expires: 2001
Principal occupation: Honorary chairman of the board of directors
of Grupo Carso, S. A. de C.V.
Other directorships: Chairman of board of directors of Telmex
Daniel Hajj Aboumrad Born: 1966
Director and member of the Executive First elected: 2000
Committee Term expires: 2001
Principal occupation: Chief executive officer of Telcel
Other directorships: Director of Carso Global Telecom and Grupo
Carso, S. A. de C.V.
Jaime Chico Pardo Born: 1950
Director First elected: 2000
Term expires: 2001
Principal occupation: Chief executive officer of Telmex
Other directorships: Vice-chairman of the board of directors of
Telmex
Humberto Gutierrez-Olvera Zubizarreta Born: 1941
Director and member of the Executive First elected: 2000
Committee Term expires: 2001
Principal occupation: Chief executive officer of Grupo Carso,
S.A. de C.V.; chief executive officer of
Grupo Condumex, S.A. de C.V.
Other directorships: Chairman of the board of directors of
Empresas Frisco, S.A. de C.V. and
Industrias Nacobre, S.A. de C.V.; director
of Grupo Carso, S. A. de C.V., Grupo
Financiero Inbursa, S.A. de C.V., Carso
Global Telecom, S.A. de C.V. and
Porcelanite, S.A. de C.V.
Alejandro Soberon Kuri Born: 1960
Director First elected: 2000
Term expires: 2001
Principal occupation: Chairman and chief executive officer of
Corporacion Interamericana de
Entretenimiento, S.A. de C.V.
Maria Asuncion Aramburuzabala L. Born: 1963
Director First elected: 2000
Term expires: 2001
Principal occupation: Vice-president of the board of directors
and member of the executive committee of
Grupo Modelo, S.A. de C.V.
Rafael Robles Miaja Born: 1965
Director and Secretary First elected: 2000
Term expires: 2001
Principal occupation: Partner, Franck, Galicia, Duclaud y Robles,
S.C.
Drew Roy Born: 1946
Director and member of the Executive First elected: 2000
Committee Term expires: 2001
Principal occupation: President of international operations of
SBC International, Inc.
Other directorships: Director of the Oklahoma State Chamber of
Commerce and Industry
Royce S. Caldwell Born: 1938
Director First elected: 2000
Term expires: 2001
Principal occupation: Vice-chairman of the board of directors of
SBC Communications Inc.
Claudio X. Gonzalez Laporte Born: 1934
Director First elected: 2000
Term expires: 2001
Principal occupation: Chief executive officer of Kimberly Clark
de Mexico, S.A. de C.V.
Other directorships: Director of the Kimberly Clark Corporation,
Kellog Company, IBM Latin America and Grupo
Carso, S.A. de C.V.
David Ibarra Munoz Born: 1930
Director First elected: 2000
Term expires: 2001
Principal occupation: Consultant to CEPAL and the United Nations
Director of Grupo Dina, S.A. de C.V. and
Other directorships: Grupo Financiero Inbursa, S.A. de C.V.
</TABLE>
<PAGE>
Daniel Hajj Aboumrad is the son-in-law of Carlos Slim Helu.
Executive Committee
Our bylaws provide that the Executive Committee may generally exercise
the powers of the Board of Directors. 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 60 days following a request from the Board of Directors.
The Executive Committee is elected from among the directors and
alternate directors by a majority vote of the holders of A Shares. It comprises
four members, as agreed to at the September 25, 2000 shareholders' meeting. The
majority of its members must be of Mexican nationality and elected by Mexican
shareholders. Our controlling shareholders have agreed that three members shall
be named by the Mexican controlling shareholders, and one member by SBC
International, Inc. See "Major Shareholders" under Item 7. The current members
of the Executive Committee are Carlos Slim Helu, Humberto Gutierrez-Olvera
Zubizarreta, and Daniel Hajj Aboumrad, all named by the Mexican controlling
shareholders, and Mr. Drew Roy, named by SBC International, Inc.
Senior Management
Daniel Hajj Aboumrad is the Chief Executive Officer of the Company.
Since 1997, he has also served as the General Manager of Telcel. His prior
positions include director of Telmex's Mexican subsidiaries, and chief executive
officer of Hulera Euzkadi, S.A. de C.V. We expect that the other members of
senior management of America Movil will be named in the coming months.
Statutory Auditors
Under our bylaws, the holders of a majority of the outstanding AA
Shares and A Shares voting together may elect one or more statutory auditors
(comisarios) and corresponding alternate statutory auditors. Under the agreement
governing the trust through which the AA Shares are held, the Mexican
controlling shareholders and SBC International, Inc. are each entitled to name
one statutory auditor. See "Major Shareholders" under Item 7. The primary role
of the statutory auditors is to report to the holders of AA Shares and A Shares
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 (i) to call ordinary or extraordinary general
meetings, (ii) to place items on the agenda for meetings of shareholders or the
Board of Directors, (iii) to attend meetings of shareholders or the Board of
Directors and (iv) generally to monitor the affairs of the Company. The
statutory auditors also receive monthly reports from the Board of Directors
regarding material aspects of the Company's affairs, including the Company's
financial condition. The current statutory auditor and alternate statutory
auditor are:
Name Position
---- --------
Francisco Alvarez del Campo Statutory Auditor
Agustin Aguilar Laurents Alternate Statutory Auditor
Compensation of Directors and Senior Management
We have not paid any compensation to our directors and senior
management since the establishment of America Movil in September 2000. The
aggregate compensation paid to the senior management of Telcel in 1999 was
approximately Ps.17 million.
As of the date of this registration statement, we have not made
provisions to provide pension, retirement or similar benefits for our directors
and senior management.
<PAGE>
Share Ownership
Carlos Slim Helu and members of his immediate family may be deemed to
have beneficial ownership of 1,944.2 million AA Shares, 46.0 million A Shares
and 2,142.3 million L Shares (including shares owned by Carso Global Telecom,
Grupo Carso, S. A. de C.V. and Grupo Financiero Inbursa, S.A. de C.V.). 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.
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, 1999 and the nine-month
period ended September 30, 2000:
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------------------------------------------
1997 1998 1999 2000
----------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Number of employees ......................... 1,966 2,532 6,059 13,022
Category of activity
Wireless............................... 1,966 2,532 5,218 8,397
Fixed.................................. -- -- 841 4,625
Geographic location
Mexico................................. 1,966 2,532 4,510 6,081
United States.......................... -- -- 829 1,470
Other Latin America.................... -- -- 720 5,471
</TABLE>
As of September 30, 2000, the Progressive Union of Communication and
Transport Workers of the Mexican Republic (Sindicato Progresista de Trabajadores
de Comunicacion y Transporte de la Republica Mexicana, or the "Telcel Union")
represented approximately 84% 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 2000, Telcel and the Telcel Union
agreed to a 12% nominal increase in basic wages, retroactive to March 2000.
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 two active employee unions--the
Telecommunications Union (Sindicato de las Telecomunicaciones y Similares),
which had 408 members, representing 12% of Telgua's employees, at October 31,
2000 and the Telgua Workers Union (Sindicato de los Trabajadores de la Empresa
TELGUA, S.A.), which had 280 members, representing 8.5% of Telgua's employees at
October 31, 2000. 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 1999, Telgua and the
Telecommunications Union agreed to a wage increase for administrative and
operative personnel, effective December 1, 1999. Telgua's labor agreement with
the Telecommunications Union expires in the third quarter of 2001, at which time
Telgua expects to renegotiate its terms.
Management considers its current relations with our workforce to be
good.
<PAGE>
Item 7. Major Shareholders and Related Party Transactions
MAJOR SHAREHOLDERS
The AA Shares represented 22.59% of the total capital stock and 90.43%
of the full voting shares (AA shares and A Shares) at September 30, 2000. The AA
Shares are held by a trust for the benefit of (a) a group of Mexican investors,
who collectively own 67.55% of the AA Shares, and (b) SBC International, Inc.
("SBCI"), a subsidiary of the U.S. telecommunications company SBC Communications
Inc., which owns 32.45% of the AA Shares. The Mexican investors include (a)
Carso Global Telecom, S.A. de C.V. ("Carso Global Telecom"), which owned 59.53%
of the AA Shares as of September 30, 2000, and (b) various other Mexican
investors, who owned the remaining 8.02% of the AA Shares. Carso Global Telecom
holds interests in the telecommunications sector and was spun off from Grupo
Carso, S.A. de C.V. ("Grupo Carso") in 1996. Through its ownership of all the
outstanding AA Shares, the trust owns a majority of America Movil's outstanding
regular voting equity securities. Therefore, through the trust, Carso Global
Telecom may be deemed to control America Movil. According to reports of
beneficial ownership of Telmex shares filed with the Securities and Exchange
Commission, Carso Global Telecom, Grupo Carso and Grupo Financiero Inbursa, S.A.
("Grupo Financiero Inbursa") are controlled by a trust for the benefit of Mr.
Carlos Slim Helu and members of his immediate family.
Under the trust through which the AA Shares are held, a beneficiary may
transfer its AA Shares subject to certain rights of first refusal in favor of
the other beneficiaries. The trust also provides that the trustee must vote the
AA Shares as a block as instructed by a technical committee, except that the
trustee must vote as instructed by the beneficiaries on the election of
directors, alternate directors, members and alternate members of the executive
committee and statutory auditors. The technical committee is controlled by the
Mexican controlling shareholders, except that the votes of representatives of
SBCI are required before the trustee may vote to approve dividends, to modify
the Company's bylaws, to merge or liquidate the Company, to issue voting shares
or to terminate the listing of the Company's shares on any stock exchange.
The trust through which the AA Shares are held was originally
established in 1990 to govern the ownership of shares representing voting
control of Telmex. The trust continues to hold a majority of the voting shares
of Telmex as well as the AA Shares of America Movil. The trust may be terminated
by any party as of December 20, 2000, or jointly by the beneficiaries at any
time. We currently expect that the strategic commitment of Carso Global Telecom
and SBCI will continue, even if the trust is terminated.
<PAGE>
The following table identifies each owner of more than 5% of any class
of the Company's shares at September 30, 2000. Except as described below, we are
not aware of any holder of more than 5% of any class of the Company's shares.
<TABLE>
<CAPTION>
Amount Owned
Title of Class Identity of Person or Group (millions of shares) Percent of Class
-------------- --------------------------- -------------------- ----------------
<S> <C> <C> <C>
AA Shares Carso Global Telecom 1,944.2 59.5%
AA Shares SBCI 1,059.8 32.5
A Shares Carso Global Telecom 46.0 13.3
A Shares Capital Group International, Inc.(1) 22.8 6.6
L Shares Carso Global Telecom 2,003.0 18.5
L Shares Franklin Resources, Inc.(1) 617.0 5.7
</TABLE>
-------------
(1) Derived from reports of beneficial ownership of Telmex shares filed with
the Securities and Exchange Commission, adjusted to reflect the two-for-one
stock split of the Telmex A Shares and L Shares effective February 1, 2000.
Carlos Slim Helu and members of his immediate family may be deemed to
have beneficial ownership of 1,944.2 million AA Shares, 46.0 million A Shares
and 2,142.3 million L Shares (including shares owned by Carso Global Telecom,
Grupo Carso and Grupo Financiero Inbursa). 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.
Prior to the Share Distribution Date in connection with the Spin-off,
which is expected to occur in December 2000, the Company's shares may only be
owned and transferred together with Telmex shares of the corresponding class,
and each Telmex ADS will represent the right to receive America Movil shares in
addition to Telmex L shares. See "The Spin-off" under Item 4.
On September 30, 2000, 86.9% of the outstanding L Shares were
represented by Telmex L Share ADSs, each representing the right to receive 20
Telmex L Shares and 20 America Movil L Shares, and 99.9% of the Telmex L Share
ADSs were held by 19,487 holders (including The Depositary Trust Company) with
registered addresses in the United States. 8.0% of the A Shares were held in the
form of Telmex A Share ADSs, each representing the right to receive one Telmex A
Share and one America Movil A Share. Each A Share may be exchanged at the option
of the holder for one L Share. As of the date of this registration statement,
Telmex has established a "sponsored" ADS program in respect of its A Shares
under which each Telmex A Share ADS represents 20 Telmex A Shares and 20 America
Movil A Shares.
RELATED PARTY TRANSACTIONS
Our transactions with affiliated parties are summarized in Note 14 to
the Audited Financial Statements and Note 7 to the Unaudited Interim Financial
Statements. As a result of the Spin-off, we will have additional transactions
with affiliated parties that we did not have during the periods covered by the
financial statements. The following discussion summarizes our transactions with
Telmex and its subsidiaries and with other parties controlled by Grupo Carso,
Carso Global Telecom or SBCI.
Transactions between America Movil and Telmex
We have or will have a variety of contractual relationships with Telmex
and its subsidiaries. These include agreements arising out of the Spin-off,
certain transitional arrangements, and continuing commercial relationships.
Implementation of the Spin-off
The creation of America Movil and the transfer of assets and
liabilities to America Movil was effected by the action of the extraordinary
shareholders' meeting of Telmex 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 resolutions, America Movil is 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.
<PAGE>
We expect to enter into an agreement with Telmex to ensure that the
purposes of the Spin-off are fully achieved. Among other things, this agreement
will provide in general terms as follows:
o America Movil agrees to indemnify Telmex against any loss or
expense resulting from the assertion against Telmex of any
liabilities or claims that were transferred to America Movil in
the Spin-off or that relate to the businesses transferred to
America Movil in the Spin-off.
o Telmex agrees to indemnify America Movil against any loss or
expense resulting from the assertion against America Movil 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.
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 the U.S.$80 million loan facility under which
creditors of Telgua are entitled, upon default by Telgua, to
foreclose on shares of certain subsidiaries and to sell those
shares to Telmex at a price equal to the unpaid principal amount
under the facility: (a) America Movil agrees to indemnify Telmex
against any claim of creditors of Telgua, (b) if the Telgua
creditors exercise their option to put subsidiary shares to
Telmex, America Movil will immediately purchase those shares from
Telmex at the same price plus a small percentage and (c) America
Movil and Telmex agree to transfer these obligations to America
Movil as soon as reasonably practicable. See "Liquidity and
Capital Resources" under Item 5.
o With respect to ATL's secured loan facility and the loan facility
to be granted to ATL by the Brazilian development bank Banco de
Desenvolvimento Economico e Social--BNDES: (a) America Movil will
reimburse and indemnify Telmex against any claim of creditors of
ATL, and (b) America Movil and Telmex agree to transfer these
obligations to America Movil as soon as reasonably practicable.
See "Liquidity and Capital Resources" under Item 5.
We own Ps.17.1 billion of 28-day commercial paper of Telmex, which we
received in the Spin-off to provide us with revenues to meet our capital
requirements. We expect Telmex to repay this commercial paper before the end of
2001, but we will continue to roll it over until it is repaid.
<PAGE>
Transitional services
America Movil and Telmex will enter into an agreement under which
Telmex will provide certain services to America Movil on an interim basis while
America Movil develops the personnel and systems necessary to provide these
services itself. The services will generally be 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. We expect to be dependent on Telmex for these services for at least
six months.
Telcel has relied on a syndicated credit facility entered into by
Telmex to finance the purchase of equipment from Ericsson for the build-out of
its cellular network. Under arrangements between Telcel and Telmex, Telcel has
effectively borrowed funds from Telmex and is paying interest to Telmex at a
spread over the rates Telmex pays to its lenders. Telcel has borrowed
approximately U.S.$138 million under this arrangement. See "Liquidity and
Capital Resources--Existing Indebtedness and Contingent Liabilities" under Item
5.
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.
Telmex distributes Telcel handsets and prepaid cards on commercial
terms similar to those given to other cellular distributors. See "Business of
Telcel--Sales and Distribution" under Item 4.
Contingent liabilities of Telmex
Prior to the Spin-off, Telmex undertook contractual obligations under
certain credit facilities to support certain of our subsidiaries and affiliates
that were transferred to America Movil in the Spin-off. We and Telmex will seek
consent from the creditors under these facilities to transfer the obligations of
Telmex to America Movil or Telcel. We cannot assure you that the beneficiaries
of these obligations will consent or know when they may do so. These commitments
are described in "Liquidity and Capital Resources" under Item 5.
Transactions between America Movil and Other Affiliates
America Movil owns 49% of the shares of CompUSA, and the other 51% is
owned by Grupo Sanborns, which is under common control with our controlling
shareholder Carso Global Telecom. America Movil expects to enter into a
shareholders' agreement with Grupo Sanborns providing for board representation,
rights to information, limited veto rights and restrictions on transfers of
shares by either party. Until the agreement is concluded, America Movil has no
contractual right to influence the management of CompUSA, to receive information
concerning its operations and financial condition, or to prevent Grupo Sanborns
from transferring its majority interest to another party.
Telcel purchases materials or services from a variety of companies that
are under common control with our controlling shareholder Carso Global 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.
<PAGE>
Item 8. Financial Information
See "Item 18--Financial Statements" and pages F-1 through F-62.
Item 9. The Offer and Listing
DESCRIPTION OF SECURITIES
Our capital stock comprises Series AA Shares, without par value, Series
A Shares, without par value and Series L Shares, without par value. Each AA
Share or A Share entitles the holder thereof to one vote at meetings of the
shareholders of the Company. The holder of an L Share may vote only in limited
circumstances as described under "Additional Information--Memorandum and
Articles of Association--Voting Rights." The rights of holders of all series of
capital stock are otherwise identical except for limitations on non-Mexican
ownership of AA Shares. See "Additional Information--Memorandum and Articles of
Association--Limitations on Share Ownership." All of the outstanding shares are
fully paid and non-assessable.
Each AA Share or A Share may be exchanged at the option of the holder
for one L Share, provided that the AA Shares may never represent less than 20%
of the outstanding capital stock of the Company or less than 51% of the combined
AA Shares and A Shares.
Beginning on January 2, 2001 and concluding January 31, 2001, each L
Share may be exchanged at the option of the holder for one AA Share, subject to
limitations on non-Mexican ownership of AA Shares, provided that the AA Shares
and A Shares together may never represent more than 51% of the outstanding
capital stock of the Company.
Morgan Guaranty Trust Company of New York, as Depositary, will issue L
Share ADSs, each representing 20 L Shares, and A Share ADSs each representing 20
A Shares. See "Description of American Depositary Shares" under Item 12.
TRADING MARKETS
As of the date of this registration statement, there is no trading
market for the America Movil shares or ADSs and there can be no assurances as to
the establishment or continuity of any such market. We expect that our shares
and ADSs will be listed or quoted on the following markets:
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
Listing or quotation on these markets requires approval from the
relevant authorities, and as of the date of this registration statement we have
not yet received approval from any of them. We expect trading of our shares and
our L Share ADSs to begin in December 2000, but there can be no assurance that
there will be no delay in the commencement of trading. We cannot predict the
prices at which the shares and ADSs will trade.
TRADING ON THE MEXICAN STOCK EXCHANGE
The Bolsa Mexicana de Valores, S.A. de C. V. (the "Mexican Stock
Exchange"), located in Mexico City, is the only stock exchange in Mexico.
Founded in 1907, it is organized as a corporation whose 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. Trades in securities listed on the
Mexican Stock Exchange can also be effected off the Exchange. 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. 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.
<PAGE>
Item 10. Additional Information
SHARE CAPITAL
The shares of America Movil were authorized and issued pursuant to the
Telmex shareholders' meeting on September 25, 2000 approving the Spin-off. See
"The Spin-off" under Item 4. As of the date of this registration statement, the
capital structure of America Movil is as follows:
<TABLE>
<CAPTION>
Number of Shares Percentage of Percentage of
Class (millions) Capital Voting(1)
----- ----------------- --------------- --------------
<S> <C> <C> <C>
L Shares (no par value)(2)............... 10,872.7 75.1% --
AA Shares (no par value)................. 3,266.2 22.5 90.4%
A Shares (no par value).................. 345.6 2.4 9.6
--------------- ----------- -----------
Total............................ 14,484.5 100.0% 100.0%
=============== =========== ===========
</TABLE>
------------
(1) Except on limited matters for which L Shares have voting rights.
(2) Excluding approximately 1,631 million L Shares held by America Movil in
treasury.
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 registration statement. For a description of the provisions of our bylaws
relating to our Board of Directors, Executive Committee and statutory auditors,
see Item 6.
Organization and Register
America Movil is a sociedad anonima de capital variable organized in
Mexico under the Mexican Companies Law (Ley General de Sociedades Mercantiles).
The Company 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 the shareholders of the Company. 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:
<PAGE>
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 America Movil's corporate life,
o the voluntary dissolution of America Movil,
o a change in the corporate purpose of America Movil,
o a change in America Movil's state of incorporation,
o removal of the America Movil Shares from the 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 vote of a
majority of all the capital stock 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 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 Companies 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 the Company's 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 of directors. 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 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 33% of the Company's 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 the Company's bylaws. In
addition, any holder of the Company's 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 (i) who were entitled to vote on, or
whose rights as shareholders were adversely affected by, the challenged
Shareholder action and (ii) whose shares were not represented when the action
was taken or, if represented, were voted against it.
<PAGE>
Shareholders' meetings may be called by the Board of Directors, 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 33% of the
AA Shares and A Shares or, in the case of a meeting at which holders of L Shares
are entitled to vote, by the holders of 33% of the outstanding capital stock.
Notice of meetings must be published in the Diario Oficial de la Federacion or a
newspaper of general circulation in Mexico City at least fifteen days prior to
the meeting. In order to attend a meeting, shareholders must deposit their
shares with the Company at its office in Mexico City, 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.
Dividend Rights
At the annual ordinary general meeting of holders of AA Shares and A
Shares, the Board of Directors submits the financial statements of the Company
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 the Company's 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 the Company's historical capital stock
(before effect of restatement). 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 share 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 Mexican 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 (i) 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 (ii) 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 (i) accrued but unpaid L Share preferred
dividends plus (ii) 0.025 Mexican pesos per share (representing the capital
attributable to such shares as set forth in America Movil's bylaws) before any
distribution is made in respect of our other capital stock in accordance with
Article 113 of the Mexican Companies Law. Following payment in full of any such
amount, holders of AA 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 America Movil's
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.
<PAGE>
Pre-emptive 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. Pre-emptive rights must be exercised within
15 days following the publication of notice of the capital increase in the
Diario Oficial de la Federacion and a newspaper of general circulation in Mexico
City. Under Mexican law, pre-emptive rights cannot be represented by an
instrument that is negotiable separately from the corresponding share.
Limitations on Share Ownership
Ownership by non-Mexicans of shares of Mexican enterprises in certain
economic sectors, including telephone services, is regulated by the 1993 Foreign
Investment Law (the "Foreign Investment Law") and the 1998 Regulations (the
"Regulations"). The National Commission on Foreign Investment (the "Foreign
Investment Commission") is responsible for administration of the Foreign
Investment Law and Regulations. In order to comply with restrictions on the
percentage of their capital stock that may be owned by non-Mexican investors,
Mexican companies typically limit particular classes of their stock to Mexican
ownership. Under the Foreign Investment Law, a trust for the benefit of one or
more non-Mexican investors may qualify as Mexican if the trust meets certain
conditions that will generally ensure that the non-Mexican investors do not
determine how the shares are voted.
Non-Mexican investors are not permitted to own more than 49% of the
capital stock of a Mexican corporation engaged in the telephone business.
Pursuant to a decision of the Foreign Investment Commission dated August 10,
1990, the L Shares of Telmex, because of their limited voting rights, are not
taken into account in determining compliance with this restriction and
accordingly are not subject to Mexican ownership restrictions. This decision is
expected to be renewed with respect to America Movil's L Shares. The A Shares,
which represented 9.78% of the combined AA Shares and A Shares at September 30,
2000, are also unrestricted. The AA Shares, however, which must always represent
at least 51% of the combined AA Shares and A Shares, may be owned only by
holders that qualify as Mexican investors as defined in the Foreign Investment
Law and our bylaws. A holder that acquires AA Shares in violation of the
restrictions on non-Mexican ownership will have none of the rights of a
shareholder with respect to those AA Shares.
As a consequence of these limitations, non-Mexican investors cannot
under Mexican law own AA Shares except through trusts that effectively
neutralize the votes of non-Mexican investors. The Controlling Shareholders own
the AA Shares through a trust that has been approved by the Foreign Investment
Commission for this purpose.
Pursuant to the Foreign Investment Law and Regulations, we have applied
to register any foreign owner of our shares, and the depositary with respect to
the ADSs representing our shares, with the National Registry of Foreign
Investment.
In addition, pursuant to the Foreign Investment Law and Regulations,
our Mexican shareholders retain the power to determine our administrative
control and management.
Foreign states are prohibited under the General Communications Law from
directly or indirectly owning shares of America Movil. The Telecommunications
Regulations provide, however, that foreign state-owned enterprises organized as
separate entities with their own assets may own minority interests in America
Movil or any number of shares with limited voting rights. Ownership of A Shares
or L Shares by such foreign state-owned companies, or by pension or retirement
funds organized for the benefit of employees of state, municipal or other
governmental agencies, will not be considered direct or indirect ownership by
foreign states for the purposes of the General Communications Law.
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.
Other Provisions
Variable capital. The Company is permitted to issue shares constituting
fixed capital and L Shares constituting variable capital. All of the outstanding
shares of capital stock of the Company 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 the
Company issued variable-capital L Shares, any holder of such shares would be
entitled to redeem them at the holder's option at any time at a redemption price
equal to the lower of (i) 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 (ii) the book value of such shares at
the end of the fiscal year in which the exercise of the option is effective. If
the option is exercised during the first three quarters of a fiscal year, it is
effective at the end of the next succeeding fiscal year. 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.
<PAGE>
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 the Company. 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. The Company's existence under the bylaws continues
indefinitely.
Purchase by the Company of its shares. According to the bylaws, the
Company may repurchase its 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, the capital stock of the Company is reduced automatically in an
amount equal to the assumed par value of each repurchased L Share (determined by
dividing the outstanding capital stock of the Company 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 is charged against amounts
allocated from net earnings to a special reserve created for the repurchase of
shares. Repurchased L Shares are held by the Company as treasury stock, pending
future sales thereof on the Mexican Stock Exchange or cancellation. The capital
stock of the Company 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 L Shares may not be exercised during the period in
which such shares are owned by the Company, 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 that of the Company 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 the Company and receive 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.
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 "Business of Telcel--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 "Subsidiaries" and "Joint Ventures and
Investments" under Item 4.
<PAGE>
We have entered into an agreement with BCI and SBCI providing for the
formation of a joint venture company that will serve as the parties' principal
vehicle for expansion in Latin America. See "Joint Ventures and
Investments--Telecom Americas" under Item 4.
Our agreements with related parties are described in "Related Party
Transactions" under Item 7.
LEGAL PROCEEDINGS
Telcel
In November 1995, Telcel's cellular competitor Grupo Iusacell, S.A. de
C.V. ("Iusacell") commenced proceedings against Telmex and Telcel before the
Competition Commission, claiming that Telmex engaged in anti-competitive
practices such as cross-subsidization, predatory pricing and discrimination in
access for the benefit of Telcel. In the petition, Iusacell requested that the
Competition Commission impose sanctions against Telmex, including fines, an
order requiring Telmex to sell Telcel and an order nullifying certain provisions
in the interconnection agreement between Iusacell and Telmex. Telmex and Telcel
are contesting these claims on the basis that their behavior has not been
anti-competitive. If the Competition Commission were to find against Telmex and
Telcel in this proceeding, Iusacell could seek damages in a separate proceeding
against Telcel. We consider the likelihood of damages being awarded against
Telcel to be remote.
Telgua
The Guatemalan government has commenced certain proceedings against our
subsidiary Telgua. See "Subsidiaries--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 state 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. Telgua was formally
notified of these proceedings on October 6, 2000. We are contesting the
proceedings and expect that we will have an opportunity to be heard. Although we
do not currently expect that the judicial proceeding will ultimately have
consequences that are materially adverse to the Company's interests, we are
unable to predict the outcome of the proceedings. If the government ultimately
prevails and pursues the most aggressive remedies, we may be required to
transfer our interest in Telgua to Guatel or another agency of the Guatemalan
government.
CompUSA
In January 2000, COC Services Ltd. ("CSL") filed a lawsuit against our
affiliate CompUSA in the District Court of Dallas County, Texas asserting
various contractual and tort claims against CompUSA arising out of a letter of
intent concerning franchise retail stores in Mexico. See "Joint Ventures and
Investments--CompUSA" under Item 4. The lawsuit also asserts claims against
other defendants, including Grupo Carso, Sanborns and Carlos Slim Helu. CSL
requests U.S.$150,000,000 from CompUSA in actual damages for the breach of
contract, tortious interference and conspiracy claims and U.S.$2,000,000 in
damages for the fraud claim, as well as U.S.$300,000,000 in exemplary damages.
CSL also seeks to recover interest, attorneys' fees and court costs. CompUSA and
the other defendants filed motions seeking summary judgment on all claims
against them, but these motions were denied on December 1, 2000. Trial is
expected to begin on January 16, 2001. Although it is not possible to assess the
outcome of this litigation at present, CompUSA has advised us that it intends to
defend vigorously against the claims in this lawsuit.
<PAGE>
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.
DIVIDENDS AND PAYING AGENTS
The Company has not yet established procedures for the payment of
dividends, and has not appointed any financial institution to act as paying
agent for the payment of dividends. No procedures have been put into place to
allow non-resident holders to claim dividends.
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 (together with L Shares, "Shares"), L Share
ADSs, or A Share ADSs (together with L Share ADSs, "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 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.
The summary is based upon tax laws of Mexico and the United States as
in effect on the date of this registration statement including the Tax Treaty,
which are subject to change, including changes that 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 Ley del Impuesto sobre la Renta (the "Mexican Income Tax Law") 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.
<PAGE>
For purposes of Mexican taxation, a natural person is a resident of
Mexico for tax purposes if he has established his home in Mexico, unless he has
resided in another country for more than 183 days, whether consecutive or not,
in any one calendar year and can demonstrate that he has become a resident of
that country for tax purposes, and a legal entity is a resident of Mexico if it
was incorporated in Mexico or maintains the principal administration of its
business or the effective location of its management in Mexico. A Mexican
citizen is presumed to be a resident of Mexico unless such person can
demonstrate the contrary. If a non-resident of Mexico is deemed to have a
permanent establishment or fixed base in Mexico for tax purposes, all income
attributable to such permanent establishment or fixed base will be subject to
Mexican taxes, in accordance with applicable laws.
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 several other tax
treaties that may reduce the amount of Mexican withholding tax to which payment
of dividends on Shares or ADSs may be subject. Holders of Shares or ADSs should
consult their own tax advisors as to the tax consequences, if any, of such
treaties.
Under the Mexican Income Tax Law, in order for any benefits from the
Tax Treaty or any other tax treaties to be applicable, residence for tax
purposes must be demonstrated.
Payment of Dividends
Under the Mexican Income Tax Law, dividends, either in cash or in kind,
paid with respect to Shares represented by ADSs will be subject to 5% Mexican
withholding tax based on the amount of the distributed dividend, multiplied by a
factor of 1.5385, which produces a net tax effect of approximately 7.7%. In
accordance with rules issued by the Ministry of Finance and Public Credit, the
applicable factor is 1.515 for profits resulting from the previous net tax
profit account (cuenta de utilidad fiscal neta or CUFIN) at December 31, 1999. A
Mexican corporation will not be subject to any tax if the amount maintained in
its previous net reinvested tax profit account (cuenta de utilidad fiscal neta
reinvertida or CUFINRE, required for corporations that have elected to defer a
portion of their income taxes) and CUFIN exceeds the dividend payment to be
made. However, corporations that have elected to defer their income taxes are
required to pay such deferred taxes by applying the rate of 5% to the amount of
the dividend multiplied by a factor of 1.5385. Mexican corporations must first
exhaust the balance in their CUFINRE before they can utilize CUFIN balances.
If we pay a dividend in an amount greater than our CUFINRE and CUFIN
balance (which may occur in a year when net profits exceed the balance in such
accounts), then we are required to pay a 35% income tax on an amount equal to
the product of (i) the portion of the grossed-up amount which exceeds such
balance times (ii) 1.5385. A portion of Telmex's CUFINRE and CUFIN balance was
allocated to America Movil in the Spin-off.
Taxation of Dispositions
The sale or other disposition of ADSs by a non-resident holder will not
be subject to Mexican tax. 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.
The sale of Shares by a non-resident holder will not be subject to any
Mexican tax if the transaction is carried out through the Mexican Stock Exchange
or other securities markets approved by the Mexican Ministry of Finance. Sales
or other dispositions of Shares made in other circumstances generally would be
subject to Mexican tax, regardless of the nationality or residence of the
transferor.
Under the Mexican Income Tax Law, gains realized by a nonresident
holder of Shares on the sale or disposition of Shares not conducted through a
recognized stock exchange generally are subject to a Mexican tax at a rate of
20% of the gross sale price. However, if the holder is a resident of a country
which is not considered to be a low tax rate country (by reference to a list of
low rate countries published by the Mexican Ministry of Finance and Public
Credit), the holder may elect to designate a resident of Mexico as its
representative, in which case taxes would be payable at a 40% rate on the gain
on such disposition of Shares.
<PAGE>
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: (i) 50% or more of the assets of America
Movil consist of fixed assets situated in Mexico, (ii) 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,
or (iii) the gain is attributable to a permanent establishment or fixed base of
the U.S. holder in Mexico.
Other Mexican Taxes
A non-resident 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 non-resident holder with
respect to Shares or ADSs.
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 the voting shares of the Company (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 (i) a citizen or resident of the United States of America, (ii)
a corporation organized under the laws of the United States of America or any
state thereof, or (iii) otherwise subject to U.S. federal income taxation on a
net income basis with respect 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.
<PAGE>
Taxation of Distributions
In general, the gross amount of any distributions (including any
amounts withheld in respect of Mexican withholding tax) paid out of the
Company's current or accumulated earnings and profits (including earnings and
profits that accrued to Telmex and were attributed to the Company in connection
with the Spin-off) with respect to Shares or ADSs ("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 the Company 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
shareholders of the Company generally will not be subject to U.S. federal income
tax.
Dividends paid on Shares or ADSs generally will be treated for U.S.
foreign tax credit purposes as foreign source passive income, or, in the case of
certain U.S. holders, as foreign source financial services income. The Mexican
withholding tax that is imposed on such dividends will be treated as a foreign
income tax eligible, subject to generally applicable limitations and conditions
under U.S. federal income tax law, for credit against a U.S. holder's U.S.
federal income tax liability or, at the U.S. holder's election, for deduction
from gross income in computing the U.S. holder's taxable income.
The calculation and availability of foreign tax credits and, in the
case of a U.S. holder that elects to deduct foreign taxes, the availability of
deductions, involves the application of rules that depend on a U.S. holder's
particular circumstances. U.S. holders should consult their own tax advisors
regarding the availability of foreign tax credits.
Under certain U.S. Treasury Department guidance, foreign tax credits
will not be allowed for withholding taxes imposed in respect of certain
short-term or hedged positions in securities or in respect of arrangements in
which a U.S. holder's expected economic profit, after non-U.S. taxes, is
insubstantial. U.S. holders should consult their own advisors concerning the
implications of these rules in light of their particular circumstances.
Taxation of Dispositions
A U.S. holder will recognize gain or loss on the sale or other
disposition of the Shares or 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 realized 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 realized by a U.S. holder that is an individual generally is
subject to a maximum federal income tax rate of 20%. Such gain or loss generally
will be treated as U.S. source gain or loss for U.S. foreign tax credit
purposes.
<PAGE>
Exchange of Shares
A U.S. holder's exchange of AA Shares or A 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 or A 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 or A Shares before such shares were exchanged.
A U.S. holder's exchange of L Shares for AA Shares, pursuant to the
option to exchange in respect of such L Shares, effective beginning January 1,
2001, 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 AA Shares received equal
to the basis such holder had in the exchanged L Shares. A U.S. holder's holding
period for AA Shares received in such an exchange will include the holding
period such U.S. holder had in the L Shares prior to such exchange.
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 at
the rate of 31% unless the holder (i) establishes that it is a corporation or
other exempt holder or (ii) 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 (i) such gain is effectively connected with the conduct by the
holder of a U.S. trade or business or (ii) 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 identification procedures in order to establish
its exemption from information reporting and backup withholding.
<PAGE>
DOCUMENTS ON DISPLAY
Upon effectiveness of this registration statement, America Movil will
become subject to the information requirements of the Securities Exchange Act of
1934, as amended, and, in accordance therewith, will be required to file
reports, including annual reports on Form 20-F, and other information with the
Securities and Exchange Commission (the "Commission"). These materials,
including this registration statement and the exhibits thereto, may be inspected
and copied at the Commission's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20459. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. In
addition, materials filed by America Movil can be inspected and copied at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York, 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661.
<PAGE>
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 the
Company's indebtedness that bears interest at floating rates. At September 30,
2000, America Movil had Ps.4.8 billion of indebtedness bearing interest at
floating rates.
Exchange rate risk exists principally with respect to the Company's
indebtedness denominated in currencies other than Mexican pesos. As of September
30, 2000, indebtedness denominated in foreign currencies was Ps.6.6 billion, of
which Ps.6.56 billion was denominated in U.S. dollars and Ps.36 million was
denominated in Guatemalan quetzales.
We will 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 other than the U.S. dollar. We expect to use
such transactions, which may be foreign exchange forward contracts or options,
to hedge against changes in the exchange rate between such foreign currencies
and the U.S. dollar, but not against changes in exchange rates between any
foreign currency and the Mexican peso.
SENSITIVITY ANALYSIS DISCLOSURES
The potential loss in fair value of financial instruments held at
September 30, 2000 that would have resulted from a hypothetical, instantaneous
and unfavorable 10% change in currency exchange rates would have been
approximately Ps.397 million. Such a change in currency exchange rates would
also have resulted in additional interest expense of approximately Ps.207
million per year, 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
foreign currencies in which the Company's indebtedness is denominated.
The potential loss in fair market value of financial instruments held
at September 30, 2000 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.36
million. This effect would be fully attributable to the impact of the interest
rate change on fixed-rate financial assets and liabilities. A hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate
applicable to floating-rate financial assets and liabilities held at September
30, 2000 would have resulted in an additional interest expense of approximately
Ps.348 million per year, assuming no change in the principal amount of such
indebtedness. 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.
<PAGE>
Item 12. Description of Securities other than Equity Securities
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
Morgan Guaranty Trust Company of New York is the depositary (the
"Depositary") for the L Share ADSs, each representing 20 L Shares, and the A
Share ADSs, each representing 20 A Shares (collectively, the "ADSs"). The
Depositary's principal executive office is 60 Wall Street, New York, and its
telephone number is (212) 648-3250.
Each L Share ADS and each A Share ADS represents an ownership interest
in 20 L Shares or 20 A Shares, as the case may be, deposited with the custodian,
as agent of the Depositary, specified under the L Share ADS Deposit Agreement or
the A Share ADS Deposit Agreement (collectively, the "Deposit Agreements") among
the Company, the Depositary and all holders from time to time of the L Share
ADSs or the A Share ADSs, as the case may be. In the future, each ADS will also
represent any securities, cash or other property deposited with the Depositary
but which it has not distributed directly to holders. The ADSs are evidenced by
American Depositary Receipts, or "ADRs."
ADSs may be held either directly or indirectly through a broker or
other financial institution. The following description assumes holders hold ADSs
directly, by having an ADS registered in their name on the books of the
Depositary. Indirect ADS holders must rely on the procedures of the broker or
financial institution through which they hold their securities to assert the
rights of ADR holders described below, and should consult with their broker or
financial institution to find out what those procedures are.
Because the Depositary's nominee will actually be the registered owner
of the shares, holders must rely on it to exercise the rights of a shareholder
on their behalf. The obligations of the Depositary and its agents are set out in
the Deposit Agreements. Each of the Deposit Agreements and the ADSs is governed
by New York law.
The following is a summary of the material terms of the Deposit
Agreements. Because it is a summary, it does not contain all the information
that may be important to holders. For more complete information, holders should
read the entire Deposit Agreement and the form of ADR which contains the terms
of their ADSs. Copies of the Deposit Agreements will be filed as exhibits to
this registration statement. Holders may also obtain a copy of the Deposit
Agreements at the SEC's Public Reference Room, located at 450 Fifth Street,
N.W., Washington, D.C. 20549. Holders may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-732-0330.
Share Dividends and Other Distributions
<PAGE>
The Depositary has agreed to pay to holders the cash dividends or other
distributions it or the custodian receives on the A Shares and L Shares or other
deposited securities, after deducting its expenses. Holders will receive these
distributions in proportion to the number of underlying shares their ADSs
represent.
o Cash. The Depositary will distribute to holders any U.S. dollars
available to it resulting from any cash dividend or other cash
distribution we pay on the shares unless that is not possible or
practical. If we pay such cash dividend or cash distribution in
foreign currency, the Depositary will convert any such cash into
U.S. dollars, if it can do so on a reasonable basis and can
transfer the U.S. dollars to the United States. The Depositary
will deduct its expenses in (1) converting and transferring cash,
including obtaining the approval of a governmental authority
therefor, and (2) making any other public or private sale. In
addition, before making a distribution the Depositary will deduct
any taxes withheld. If the exchange rates fluctuate during a time
when the Depositary cannot convert the currency, holders may lose
some or all of the value of the distribution.
o Shares. The Depositary may distribute new ADSs representing any
shares we distribute as a dividend or free distribution. The
Depositary will only distribute whole ADSs. It will sell shares
which would require it to issue fractional ADSs and distribute
the net proceeds in the same way as it distributes cash. If new
ADSs are not so distributed, outstanding ADSs will represent the
proportionate interest in the shares for which no new ADSs were
distributed.
o Rights to receive additional shares. If we offer holders of our
securities any rights to subscribe for additional shares or any
other rights, the Depositary will make these rights available to
holders to the extent that we first furnish the Depositary with
satisfactory evidence that it is legal to do so. If we do not
furnish this evidence and it is practical to sell the rights, the
Depositary will sell the rights and distribute the U.S. dollar
proceeds in the same way as it distributes cash. The Depositary
may allow rights that are not distributed or not sold (because a
sale is not practicable) to lapse. In that case, holders will
receive no value for them.
o Other distributions. The Depositary will send to holders anything
else we distribute on deposited securities by any means it thinks
is equitable and practical. If the Depositary believes it is not
feasible to make the distribution, the Depositary will distribute
any net proceeds from the sale of what we distributed if
available in U.S. dollars, in the same way as it distributes
cash.
Any U.S. dollars will be distributed by checks for whole dollars and
cents (fractional cents will be withheld without liability for interest and
added to future cash distributions).
<PAGE>
To the extent the Depositary decides any distribution to holders is not
practical, it may make any other distribution it believes is practical,
including foreign currency, securities or property. The Depositary may retain
any of the same as deposited securities without paying interest on or investing
it.
Holders have no assurance from the Depositary that it will be able to
effect any currency conversion or to sell any distributed property, rights or
other securities timely or at a specified rate or price.
Deposit, Withdrawal and Cancellation
Issuance of ADSs
The Depositary will issue ADSs if holders or their brokers deposit
shares or evidence of rights to receive shares issued by us with the custodian.
Upon payment of its fees and expenses and of any taxes or charges, such as stamp
taxes or stock transfer taxes or fees, the Depositary will register the
appropriate number of ADSs in the names requested by holders and will deliver
ADSs at its office to the persons requested by holders.
Withdrawal of ADS and delivery of shares
When holders turn in their ADS at the Depositary's office, it will,
upon payment of certain applicable fees, charges and taxes, deliver at the
custodian's office the underlying shares in registered form only.
At holders' risk, expense and request, the Depositary may deliver at
such other place as the holders may request.
Voting Rights
Holders may attend and vote at shareholder meetings or they may
instruct the Depositary to vote the shares underlying their ADSs. The Depositary
will notify holders of upcoming votes and arrange to deliver voting materials to
them. Such materials will describe the matters to be voted on and explain how
holders may, on a certain date, vote or instruct the Depositary to vote the
shares or other deposited securities underlying their ADSs as they direct. For
instructions to be valid, the Depositary must receive them on or before the date
specified. The Depositary will try, as far as practical, subject to the
provisions of and governing the underlying shares or other deposited securities,
to vote or to have its agents vote the shares or other deposited securities as
holders instruct. The Depositary will only vote or attempt to vote as instructed
by holders. We cannot assure holders that they will receive the voting materials
in time to ensure that they can instruct the Depositary to vote their shares.
Holders who do not provide voting instructions to the Depositary will be deemed
to have instructed it to give a discretionary proxy to a person that we
designate, provided that no such instruction shall be deemed given and no such
discretionary proxy shall be given with respect to any matter as to which we
inform the Depositary that we do not desire a discretionary proxy, substantial
opposition exists or materially and adversely affects the rights of holders of L
Shares or A Shares, as the case may be.
<PAGE>
Reports and Other Communications
The Depositary will make available for inspection by holders any
written communications from us which are both received by the custodian or its
nominee as a holder of deposited securities and made generally available to the
holders of deposited securities. We will furnish these communications in
English.
Additionally, if we make any written communications generally available
to holders of L Shares or A Shares, as the case may be, including the Depositary
or the custodian, and the Depositary or the custodian actually receives those
written communications, the Depositary will mail copies of them, or, at its
option, summaries of them, to ADS holders.
Fees and Expenses
<TABLE>
<CAPTION>
ADS holders must pay: For:
--------------------- ----
<S> <C>
U.S.$5.00 per 100 ADSs (or portion thereof) o Each issuance of an ADS, including as a result
of a distribution of shares or rights or other
property
o Each withdrawal of an ADS
Registration or transfer fees o Transfer and registration of L Shares or A
Shares on any applicable register payable by
holders when they deposit or withdraw shares.
Depositary's expenses o Conversion of foreign currency to U.S. dollars
Depositary's expenses o Cable, telex and facsimile transmission
</TABLE>
In addition, ADS holders must pay as necessary or incurred any taxes
and other governmental charges the Depositary or the custodian is required to
pay on any ADS, or share underlying an ADS, such as stock transfer, stamp duty,
stamp duty reserve or withholding taxes.
We will pay all other charges and expenses of the Depositary and its
agents (except the custodian) pursuant to agreements entered into from time to
time between ourselves and the Depositary.
Payment of Taxes
Holders will have to pay any other taxes payable by or on behalf of the
Depositary or the custodian with respect to the ADSs, other deposited securities
or any distribution thereon to the Depositary. Until holders pay such taxes, the
Depositary may withhold their dividends and other distributions and may refuse
to effect a registration, registration of transfer, split-up, combination or
withdrawal of the deposited securities.
The Depositary may deduct the amount of any taxes owed from any
payments to holders. It may also sell deposited securities or property, other
than cash, by public or private sale, to pay any taxes owed. Holders will remain
liable if the proceeds of the sale are not enough to pay the taxes. If the
Depositary sells deposited securities, it will, if appropriate, reduce the
number of ADSs to reflect the sale and will pay to holders any proceeds, or send
to holders any cash or other property, remaining after it has paid the taxes.
<PAGE>
The Depositary or the custodian will remit to the governmental
authority any amounts required to be withheld in connection with a distribution
which is owed by either of them to such governmental authority. We will
similarly remit any amounts so owed by us.
Reclassifications, Recapitalizations and Mergers
If we
o change the par value of the L Shares or A Shares,
o reclassify, split up, cancel or consolidate any of the deposited
securities, or
o recapitalize, reorganize, merge, consolidate or sell our assets;
then:
o the securities received by the Depositary will become deposited
securities, and each ADS will automatically represent its
proportionate share of the new deposited securities, and
o the Depositary may issue new ADSs or ask holders to surrender
their outstanding ADSs in exchange for new ADSs identifying the
new deposited securities.
Amendment and Termination
We may agree with the Depositary to amend the Deposit Agreements and
the ADSs without the consent of holders for any reason. If an amendment adds or
increases fees or charges (except for taxes and other governmental charges,
transfer or registration fees or certain expenses of the Depositary and except
for cable, telex, electronic and facsimile transmission and delivery charges),
or prejudices an important right of ADS holders, it will only become effective
30 days after the Depositary notifies holders of the amendment. At the time an
amendment becomes effective, holders are considered, by continuing to hold their
ADSs, to agree to the amendment and to be bound by the relevant ADSs and Deposit
Agreement as amended.
No amendment will impair holders' rights to surrender their ADSs and
receive the underlying securities.
The Depositary will terminate the Deposit Agreements if we ask it to do
so but must notify holders 30 days before termination. The Depositary may also
terminate the Deposit Agreements at its own initiative but may only do so after
giving us 30 days' prior notice at any time 90 days after it has resigned as
Depositary, provided no successor Depositary has been appointed during such
90-day period. In the case of a termination by the Depositary, it will provide
holders with 30 days' prior notice.
After termination, the Depositary and its agent will be required to do
only the following under the Deposit Agreements: (a) advise holders of such
termination, (b) collect and hold distributions on the deposited securities, (c)
sell property or rights or convert deposited securities into cash as provided in
the Deposit Agreements, and (d) deliver shares and other deposited securities
upon cancellation of ADSs. As soon as practicable after six months from the
termination date, the Depositary will, if practical, sell any remaining
deposited securities by public or private sale. After that, the Depositary will
hold the money it received on the sale, as well as any other cash it is holding
under the relevant Deposit Agreement for the pro rata benefit of the ADS holders
that have not surrendered their ADSs. The Depositary has no liability for
interest. Its only obligations will be to account for the money and other cash
and with respect to certain indemnification obligations. After termination, our
only obligations will be with respect to certain indemnification obligations and
to pay certain charges to the Depositary.
Limitations on Obligations and Liability to ADS Holders
<PAGE>
The Deposit Agreements expressly limit our obligations and the
obligations of the Depositary. They also limit our liability and the liability
of the Depositary. We and the Depositary:
o are only obligated to take the actions specifically set forth in
the Deposit Agreement without negligence or bad faith;
o are not liable if either of us is prevented or delayed by law or
circumstances beyond our control from performing our respective
obligations under the Deposit Agreements;
o are not liable if either of us exercises discretion permitted
under the Deposit Agreements;
o have no obligation to become involved in a lawsuit or other
proceeding related to the ADSs or the Deposit Agreements on
holders' behalf or on behalf of any other party unless indemnity
satisfactory to us in our sole discretion is, and continues to
be, provided to us covering all expenses and liability;
o may rely upon any documents we believe to be genuine and to have
been signed or presented by the proper party;
o will not be liable for any action or inaction while relying on
advice or information from legal counsel or certain other
advisors, holders or anyone else competent to give advice or
information.
The Depositary will not be responsible for failing to carry out
instructions to vote the ADSs or for the manner in which the ADSs are voted or
the effect of the vote.
The Depositary may own and deal in our securities and in ADSs.
In the Deposit Agreements, we and the Depositary agree to indemnify
each other under certain circumstances.
Requirements for Depositary Actions
Before the Depositary will issue or register transfer of an ADS, make a
distribution of an ADS, or permit withdrawal of underlying shares, it may
require:
o payment of (a) stock transfer or other taxes or other
governmental charges, (b) transfer or registration fees charged
by third parties for the transfer of any shares or other
deposited securities and (c) the Depositary's charges in
connection with such action;
o production of satisfactory proof of the identity and genuineness
of any signature or other information it deems necessary; and
o compliance with regulations it may establish from time to time,
consistent with the Deposit Agreements, including presentation of
transfer documents.
<PAGE>
The Depositary may refuse to deliver, transfer or register transfers of
ADSs generally when its or our transfer books or any register for deposited
securities are closed or at any time the Depositary or we think it advisable to
do so.
Holders' Right to Receive Shares Underlying their ADSs
Holders have the right to cancel their ADSs and withdraw the underlying
shares at any time except:
o when temporary delays arise because: (a) we or the Depositary
have closed our transfer books; (b) the transfer of shares is
blocked to permit voting at a shareholders' meeting; or (c) we
are paying a dividend on the shares;
o when any holder seeking to withdraw shares owes money to pay
fees, taxes and similar charges; and
o when it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADSs or
to the withdrawal of shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of
the Deposit Agreements.
Books of Depositary
The Depositary or its agent will maintain a register for the
registration, registration of transfer, combination and split-up of ADRs.
Holders may inspect such records at reasonable times, but solely for the purpose
of communicating with other holders in the interest of business matters relating
to the Deposit Agreements or the Company.
The Depositary will maintain facilities to record and process the
issuance, cancellation, combination, split-up and transfer of ADRs. These
facilities may be closed from time to time, to the extent not prohibited by law.
Pre-release of ADSs
In certain circumstances, subject to the provisions of the Deposit
Agreements, the Depositary may issue ADSs before deposit of the underlying
shares. This is called a pre-release of the ADSs. A pre-release is closed out as
soon as the underlying shares are delivered to the Depositary. The Depositary
may pre-release ADSs if:
o before or at the time of the pre-release, the person to whom the
pre-release is being made represents in writing to the Depositary
that it or its customer owns the shares to be deposited, assigns
all rights thereto to the Depositary, holds the shares for the
account of the Depositary and will deliver the shares to the
custodian as soon as practicable, and
o pre-released ADSs are fully collateralized with cash or U.S.
government securities held by the Depositary for the benefit of
holders. In addition, the Depositary will limit the number of
pre-released ADSs to no more than 20% of all deposited shares.
<PAGE>
Item 18. Financial Statements
See pages F-1 through F-62, incorporated herein by reference.
Item 19. Exhibits
Documents filed as exhibits to this registration statement:
1.1 Bylaws (estatutos sociales) of America Movil, S.A. de C.V. (together with
an English translation).
2.1 L Share Deposit Agreement (incorporated by reference to the Registrant's
registration statement on Form F-6 filed on the date hereof).
2.2 A Share Deposit Agreement (incorporated by reference to the Registrant's
registration statement on Form F-6 filed on the date hereof).
3.1 Trust Agreement dated December 20, 1990 among certain shareholders of
Telefonos de Mexico, S.A. de C.V., together with an English translation
(incorporated by reference to the registration statement of Telefonos de
Mexico, S.A. de C.V. on Form F-1 (File No. 333-39893)).
3.2 Conversion and Termination Agreement dated April 27, 2000 among Carso
Global Telecom, S.A. de C.V., SBC International, Inc. and France Telecom
Financiere Internationale.
4.1 Shareholders Agreement, dated November 16, 2000 and amended December 5,
2000, among Bell Canada International Investments Limited, AM Latin
America, LLC, SBC International--Brazil Holding, Ltd. and Telecom Americas
Ltd.*
8.1 Significant subsidiaries.
------------
* Portions of this agreement have been omitted from this registration
statement pursuant to a confidential treatment request filed on the date
hereof.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
America Movil, S.A. de C.V.
We have audited the accompanying combined balance sheets of America Movil, S.A.
de C.V. and subsidiaries as of December 31, 1998 and 1999, and the related
combined statements of income, changes in stockholders' equity and changes in
financial position for each of the three years in the period ended December 31,
1999. 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 of America and in Mexico. 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 the disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and the 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of America
Movil, S.A. de C.V. and subsidiaries at December 31, 1998 and 1999, and the
combined results of their operations and changes in their financial position for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in Mexico, which differ in certain
respects from those followed in the United States (see Note 19).
Mancera, S.C.
Member of
Ernst & Young International
/s/ C.P.C. Francisco Alvarez Del Campo
Mexico City, Mexico
November 16, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Combined Statements of Income
(Thousands of Constant Pesos as of September 30, 2000, except for earnings per share)
Year ended December 31,
------------------------------------------------------------------
Millions of
U.S. dollars
1997 1998 1999 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Services:
Usage charges Ps. 2,559,025 Ps. 3,679,924Ps. 7,238,536 $ 768
Monthly rent 1,827,433 2,884,150 3,691,978 392
Long-distance 624,992 799,951 1,334,333 142
Other services 77,250 60,010 472,111 50
Telephone equipment sales and other:
Sales of handsets and accessories 547,271 1,309,770 2,405,844 255
Other revenues 198,051 637,785 211,921 22
------------------------------------------------------------------
5,834,022 9,371,590 15,354,723 1,629
------------------------------------------------------------------
Operating costs and expenses:
Cost of sales and services 1,449,319 2,722,337 5,917,176 628
Cost of sales and services with related parties
(Note 14) 901,203 885,765 1,238,470 131
Commercial, administrative and general 2,533,994 2,903,385 4,277,447 454
Commercial, administrative and general
with related parties (Note 14) 155,030 122,377 212,896 23
Depreciation and amortization (Notes 6, 7 and 8) 534,814 768,183 1,474,578 156
------------------------------------------------------------------
5,574,360 7,402,047 13,120,567 1,392
------------------------------------------------------------------
Operating income 259,662 1,969,543 2,234,156 237
------------------------------------------------------------------
Comprehensive financing (income) cost:
Interest income ( 7,329,497) ( 9,580,768) ( 8,900,889) ( 944)
Interest expense 25,712 15,984 70,189 7
Interest expense with related parties (Note 14) 25,662 10,763 87,292 9
Exchange (gain) loss, net ( 488,401) ( 133,500) 1,093,629 116
Monetary effect 5,459,629 6,589,799 4,663,931 495
------------------------------------------------------------------
( 2,306,895) ( 3,097,722) ( 2,985,848) ( 317)
------------------------------------------------------------------
Income before income tax and employee
profit sharing 2,566,557 5,067,265 5,220,004 554
------------------------------------------------------------------
Provisions for:
Income tax (Note 16) 778,049 1,071,687 1,101,978 117
Employee profit sharing 64,227 74,942 111,619 12
------------------------------------------------------------------
842,276 1,146,629 1,213,597 129
------------------------------------------------------------------
Income before equity in results of affiliates
and minority interest 1,724,281 3,920,636 4,006,407 425
Equity in results of affiliates 105,747 77,910 14,784 2
------------------------------------------------------------------
Income before minority interest 1,830,028 3,998,546 4,021,191 427
Minority interest in loss of subsidiaries 295,931 31
------------------------------------------------------------------
Net income Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122 $ 458
==================================================================
Common shares outstanding (in millions) (Note 15) 14,485 14,485 14,485 14,485
==================================================================
Net income per share Ps. 0.126 Ps. 0.276 Ps. 0.298 $ 0.032
==================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Combined Balance Sheets
(Thousands of Constant Pesos as of September 30, 2000)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
Millions
of U.S.
dollars
-------------------------------------------------
1998 1999 1999
-------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and short-term investments Ps. 40,627,847 Ps. 36,861,340 $ 3,909
Marketable securities (Note 3) 4,327,628 459
Accounts receivable, net (Note 4) 1,022,939 1,736,282 184
Related parties (Note 14) 1,600 532,018 56
Inventories, net (Note 5) 350,753 2,143,301 227
Prepaid expenses and other assets 40,944 318,272 34
-------------------------------------------------
Total current assets 42,044,083 45,918,841 4,869
Plant, property and equipment, net (Note 6) 6,403,781 12,404,147 1,317
Licenses, net (Note 7) 1,874,816 2,018,957 214
Investments in affiliates and others (Note 8) 520,062 3,172,139 336
Goodwill, net (Note 8) 1,857,973 197
-------------------------------------------------
Total assets Ps. 50,842,742 Ps. 65,372,057 $ 6,933
=================================================
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt (Note 11) Ps. 100,434 Ps. 390,771 $ 41
Accounts payable and accrued liabilities (Note 10) 991,485 5,128,228 544
Taxes payable 493,555 650,137 70
Related parties (Note 14) 89,240 447,722 47
-------------------------------------------------
Total current liabilities 1,674,714 6,616,858 702
Long-term debt (Note 11) 77,219 86,012 9
Related parties (Note 14) 6,578 2,317,967 246
Deferred credits 171,800 18
-------------------------------------------------
Total liabilities 1,758,511 9,192,637 975
-------------------------------------------------
Stockholders' equity (Note 15):
Parent investment 45,065,621 47,429,316 5,030
Retained earnings:
Unappropriated results of prior years 419,312 4,417,858 468
Net income for the year 3,998,546 4,317,122 458
-------------------------------------------------
4,417,858 8,734,980 926
Deficit from restatement of stockholders' equity ( 399,248) ( 576,493) ( 61)
Effect of translation of foreign entities ( 67,628) ( 7)
-------------------------------------------------
Total majority stockholders' equity 49,084,231 55,520,175 5,888
Minority interest 659,245 70
-------------------------------------------------
Total stockholders' equity 49,084,231 56,179,420 5,958
-------------------------------------------------
Total liabilities and stockholders' equity Ps. 50,842,742 Ps. 65,372,057 $ 6,933
=================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Combined Statements of Changes in Stockholders' Equity
(Thousands of Constant Pesos as of September 30, 2000)
Retained earnings
----------------------------------------------
Deficit from
restatement
of
Parent Legal stockholders'
investment reserve Unappropriated Total equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 Ps. 42,631,780 Ps. 39,130 Ps.( 1,449,846)Ps.( 1,410,716) Ps. ( 217,080)
Increase in parent investment, net 1,218,071
Deficit from holding nonmonetary assets ( 500,348)
Net income for the year 1,830,028 1,830,028
----------------------------------------------------------------------------------
Balances at December 31, 1997 43,849,851 39,130 380,182 419,312 ( 717,428)
Increase in parent investment, net 1,215,770
Surplus from holding nonmonetary assets 318,180
Net income for the year 3,998,546 3,998,546
----------------------------------------------------------------------------------
Balances at December 31, 1998 45,065,621 39,130 4,378,728 4,417,858 ( 399,248)
Increase in parent investment, net 2,363,695
Minority interest
Effect of translation of foreign
Entities
Increase in legal reserve 92,015 ( 92,015)
Deficit from holding nonmonetary assets ( 177,245)
Net income for the year 4,317,122 4,317,122
----------------------------------------------------------------------------------
Balances at December 31, 1999 Ps. 47,429,316 Ps.131,145 Ps. 8,603,835 Ps. 8,734,980 Ps. ( 576,493)
==================================================================================
<CAPTION>
Effect of
translation Total majority Total
of foreign stockholders' Minority stockholders'
entities equity interest equity
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 Ps. 41,003,984 Ps. 41,003,984
Increase in parent investment, net 1,218,071 1,218,071
Deficit from holding nonmonetary assets ( 500,348) ( 500,348)
Net income for the year 1,830,028 1,830,028
--------------------------------------------------------------
Balances at December 31, 1997 43,551,735 43,551,735
Increase in parent investment, net 1,215,770 1,215,770
Surplus from holding nonmonetary assets 318,180 318,180
Net income for the year 3,998,546 3,998,546
--------------------------------------------------------------
Balances at December 31, 1998 49,084,231 49,084,231
Increase in parent investment, net 2,363,695 2,363,695
Minority interest Ps.659,245 659,245
Effect of translation of foreign Ps.( 67,628) ( 67,628) ( 67,628)
Entities
Increase in legal reserve
Deficit from holding nonmonetary assets ( 177,245) ( 177,245)
Net income for the year 4,317,122 4,317,122
--------------------------------------------------------------
Balances at December 31, 1999 Ps.( 67,628)Ps. 55,520,175 Ps.659,245 Ps. 56,179,420
==============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Combined Statements of Changes in Financial Position
(Thousands of Constant Pesos as of September 30, 2000)
Year ended December 31,
------------------------------------------------------------------
Millions
of U.S.
dollars
1997 1998 1999 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net income Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122 $ 458
Add (deduct) items not requiring the use of
resources:
Depreciation 484,998 684,935 1,129,029 120
Amortization 49,816 83,248 345,549 36
Equity in results of affiliates ( 105,747) ( 77,910) ( 14,784) ( 2)
Minority interest ( 295,931) ( 31)
Changes in operating assets and liabilities:
Accounts receivable 685,285 (352,835) (442,558) ( 47)
Prepaid expenses (109,001) ( 12)
Inventories for sale ( 72,123) (213,118) (1,743,769) ( 185)
Accounts payable and accrued liabilities 198,132 35,384 3,776,637 401
Related parties ( 60,684) ( 21,192) (214,989) ( 23)
Taxes payable ( 127,613) 409,636 114,150 13
------------------------------------------------------------------
Resources provided by operating activities 2,882,092 4,546,694 6,861,455 728
------------------------------------------------------------------
Financing activities:
New loans 10,567 2,551,779 271
Repayment of loans (521,775) (185,536) ( 195,594) ( 21)
Effect of inflation and of exchange rate differences
on debt (151,230) 8,301 ( 20,520) ( 2)
Increase in parent investment 1,218,071 1,215,770 2,363,695 250
------------------------------------------------------------------
Resources provided by financing activities 545,066 1,049,102 4,699,360 498
------------------------------------------------------------------
Investing activities:
Investment in telephone plant (1,508,509) (1,971,443) (6,571,760) ( 697)
Investment in subsidiaries and affiliated companies 271,780 (4,427,934) ( 470)
Investment in licenses ( 42,956) (1,660,576)
Investment in marketable securities (4,327,628) ( 459)
------------------------------------------------------------------
Resources used in investing activities (1,279,685) (3,632,019) (15,327,322) ( 1,626)
------------------------------------------------------------------
Net increase (decrease) in cash and short-term
investments 2,147,473 1,963,777 (3,766,507) ( 400)
Cash and short-term investments at beginning of the year 36,516,597 38,664,070 40,627,847 4,309
------------------------------------------------------------------
Cash and short-term investments at end of the year Ps. 38,664,070 Ps. 40,627,847 Ps. 36,861,340 $ 3,909
==================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Notes to Combined Financial Statements
(Amounts in Thousands of Constant Pesos as of September 30, 2000)
1. Description of the Spin off and Business
a) Telmex Spin-off
The 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 shareholders at an extraordinary shareholders' meeting held on September
25, 2000, at which time each of the holders of Telmex shares became the owner of
an equal number of America Movil shares of the corresponding class. In
connection with the spin-off, America Movil was incorporated and was allocated
certain assets and liabilities of Telmex (including shares of specified
subsidiaries and affiliates of Telmex). The spin-off was implemented using a
procedure under Mexican corporate law called escision or "split-up."
Prior to the spin-off, the entities that comprise America Movil
operated on a stand-alone basis. Costs incurred or paid by Telmex on behalf of
the spun-off entities were charged to the appropriate entity. Because Telmex and
Radiomovil Dipsa, S.A. de C.V. ("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 switching equipment on premises
owned by Telmex; use by Telcel of transmission capacity on Telmex's network; 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.
Relationships between Telmex and America Movil will be limited to: i)
agreements relating to the implementation of the spin-off such as
indemnification, releases, assistance in obtaining consents, exchange of
information, covenants relating to the tax treatment of the spin-off and similar
matters; ii) ordinary course commercial relationships of the kind that normally
occur between a major fixed-line network operator and a major wireless network
operator, such as interconnection and co-location of facilities; and iii)
certain transitional arrangements for services to be provided by Telmex, such as
certain data processing and corporate support and administrative services, that
will continue while America Movil develops independent capabilities. Telmex will
provide these services at a fixed periodic price based on estimated cost plus a
percentage.
As of the date of the issuance of these financial statements, the
above-mentioned agreements are in the process of being drafted and are subject
to final negotiations and approvals.
Under Mexican corporate law the spin-off remains subject to possible
challenges in judicial proceedings by third parties within a period of 45 days
following the date of registration and publication of the shareholders
resolutions approving the spin-off, which was October 13, 2000.
F-6
<PAGE>
Prior to the incorporation of America Movil, its operations were
conducted through subsidiaries of Telmex. The accompanying financial statements
for these periods 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 and its subsidiaries have been
included in these financial statements at Telmex's cost plus its equity in the
undistributed earnings or losses of the contributed entities.
b) Description of the Business
America Movil was established on September 25, 2000 in conjunction with
the spin-off (see subparagraph a above) of the wireless business and certain
international operations Telmex.
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 service.
America Movil also has subsidiaries and joint ventures in the
telecommunications sector in Guatemala, Ecuador, Argentina, Brazil, Colombia,
Venezuela, Puerto Rico, Spain and the United States. The principal international
operations of America Movil were acquired during 1999 and 2000.
America Movil's participation in its principal subsidiaries at December
31, 1999 is as follows:
Radiomovil Dipsa, S.A. de C.V. 100%
Global Central America, S.A. de C.V. and
subsidiaries ("GCA") 51%
TracFone Wireless, Inc. and subsidiary 88.3%
The equity participation in its affiliates at December 31, 1999 is
as follows:
SBC International Puerto Rico, Inc. and subsidiaries 50%
Empresas Cablevision, S.A. de C.V. and subsidiaries 49%
America Movil through its subsidiaries, Telcel and GCA, has licenses to
install, operate and manage mobile telecommunication service in Mexico and
Guatemala, respectively. The licenses in Mexico will expire on various dates
between the years 2009 and 2015 and the licenses in Guatemala will expire in
December 2011. As payment for the licenses awarded in Mexico (except as
mentioned in the next two paragraphs below), the Mexican federal government
receives a percentage of Telcel's revenues, ranging from 4% to 10% of annual
gross revenues generated in Mexico.
In 1997, the Mexican federal government awarded Telcel licenses to
operate a nationwide wireless network using the 800-megahertz (Band B) radio
spectrum. The licenses are for twenty years and required a single payment of Ps.
42,952. The term of these licenses may be extended at the discretion of the
federal government.
F-7
<PAGE>
In 1998, the Mexican federal government granted Telcel licenses to use
the 1800-1900 megahertz (Band D) radio spectrum for personal communications
services ("PCS") in all nine regions in Mexico. The licenses are for twenty
years and required a single payment of Ps. 1,680,145. The term of these licenses
may be extended at the discretion of the federal government.
Servicios de Comunicaciones Personales Inalambricas, S.A. ("Sercom"),
GCA's subsidiary, owns licenses in Guatemala to operate its cellular network on
different frequencies for fifteen years. GCA paid approximately U.S.$ 20 million
for these licenses.
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 rates and register them with the Ministry.
Telcel's revenues include usage charges, monthly subscription charges,
long-distance charges, proceeds from sales of handsets and accessories and
charges for other services.
The "Calling Party Pays" program (CPP) went into effect in Mexico in
May 1999. Under this program the Company charges Telmex, Telefonos del Noroeste,
S.A. de C.V. (Telmex's subsidiary) and other cellular operators an
interconnection fee of Ps. 1.90 per minute for calls made to the Company's
subscribers. Revenues obtained from the CPP program from the month it went into
effect through December 31, 1999 totaled Ps.1,883,547. Before this program went
into effect, subscribers were charged for incoming as well as in outgoing calls.
TracFone Wireless, Inc. ("TracFone"), formerly Topp Telecom, Inc.,
resells cellular airtime on a prepaid basis through retailers to customers who
use telephones equipped with TracFone's software. TracFone does not own any
cellular facilities, but purchases airtime from carriers throughout the United
States of America. 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 of America.
Comm South Companies, Inc. ("Comm South"), TracFone's subsidiary,
resells local telephone service to customers on a prepaid basis. Revenue is
derived from the resale of local dial tone and ancillary services such as
call-waiting. Comm South does not own any telephone service facilities, but
purchases local telephone service from carriers in its markets of operation.
Comm South services are provided in the southeast section of the United States
of America.
2. Significant Accounting Policies
The most important accounting policies observed by the Company in the
preparation of its combined financial statements are described below:
a) Combination
The combined financial statements include the accounts of the
subsidiaries transferred to America Movil in the spin-off (see Note 1b). Each of
the subsidiaries operates in the telecommunications sector or provides services
to companies operating in this sector.
F-8
<PAGE>
The minority interest principally relates to the Company's foreign
subsidiaries.
Balances and significant transactions between the combined entities
have been eliminated in the combined financial statements.
b) Basis of translation of financial statements of foreign subsidiaries
The accounting records of foreign subsidiaries, located in the U.S. and
Guatemala, which in the aggregate account for approximately 10% of the Company's
total operating revenues and approximately 5% of the Company's total assets in
1999 were adjusted to conform to accounting principles generally accepted in
Mexico ("Mexican GAAP"). The accounting records of these subsidiaries were kept
in the local currency and translated into Mexican pesos in conformity with
Mexican Accounting Principles Bulletin B-15 ("Transactions in Foreign Currency
and Translation of Financial Statements of Foreign Operations") as follows:
The figures reported by the subsidiaries abroad were adjusted to
conform to Mexican GAAP.
All balance sheet amounts, except for capital stock and retained
earnings, were translated at the prevailing exchange rate at year-end; capital
stock and retained earnings were translated at the prevailing exchange rate at
the time capital contributions were made and earnings were generated. The
statement of income was translated at the exchange rate at the end of the year.
At December 31, 1999, translation effects amounted Ps. 67,628 and are
included in stockholders' equity. No translation effects were required for prior
years because these subsidiaries were acquired during 1999.
c) Revenue recognition
Revenues are normally recognized at the time services are provided.
All services provided by Telcel are billed monthly based on the rates
registered with the Communications Ministry.
Revenues obtained by Telcel from prepaid plans (calling cards) are
recognized at the time they are billed (see Note 19).
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 obligations remain and that collection of the
resulting receivable is deemed probable by management.
Comm South bills for local service in the month prior to service and
recognizes revenues in the month the service is provided.
d) Earnings per share
Earnings per share are determined based on the number of shares issued
and outstanding (14,485 million) at September 25, 2000, the date America Movil
was establish.
F-9
<PAGE>
e) 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"), as amended,
issued by the Mexican Institute of Public Accountants (MIPA). Consequently, the
amounts shown in the accompanying financial statements and in these notes are
expressed in thousands of constant pesos as of September 30, 2000. The September
30, 2000 restatement factors applied to the financial statements at December 31,
1997, 1998 and 1999 were 41.41%, 19.22% and 6.15% respectively (which represent
the rate of inflation for 1997, 1998 and 1999 up to September 2000) based on the
Mexican National Consumer Price Index (NCPI) published by Banco de Mexico (the
Central Bank). Accordingly the financial statements have been restated as
follows:
The combined balance sheets and the combined statements of changes in
stockholders' equity and changes in financial position have been restated in
constant pesos as of September 30, 2000 using the NCPI.
Combined income statements for the current and prior years have been
restated in constant pesos as of September 30, 2000, using the NCPI for the
month in which the transactions (income and expenses) occurred.
The NCPI (with a base of 100 for the year 1994) at the respective
balance sheet dates was as follows:
December 31, 1996........................................200.388
December 31, 1997........................................231.886
December 31, 1998........................................275.038
December 31, 1999........................................308.919
September 30, 2000.......................................327.910
The important inflation accounting concepts are described below:
- Plant, property and equipment
Plant, property and equipment and construction in progress were
restated as described in Note 6.
- Inventories
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.
- Monetary effect
This represents the impact of inflation on monetary assets and
liabilities. The net monetary effect of each year is included in the statements
of income as a part of the comprehensive financing (income) cost.
- Restatement of stockholders' equity
Capital stock, retained earnings and deficit from restatement of
stockholders' equity were restated based on the NCPI.
F-10
<PAGE>
- Deficit from the restatement of stockholders' equity
The deficit from the restatement of stockholders' equity consists of
(i) the accumulated monetary position gain determined at the time the provisions
of Bulletin B10 were first applied (Ps. 14,162 at December 31, 1999); and (ii)
the result from holding non-monetary assets, which represents the net difference
between restatement by the specific-cost method through 1996 and the alternate
method of specific-indexation (see Note 6) effective January 1997, compared to
restatement based on the NCPI.
- Statement of changes in financial position
Mexican accounting Bulletin B-12 specifies the appropriate presentation
of the statement of changes in financial position when the financial statements
have been 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 non-cash items in the
determination of resources provided by operations.
f) Cash, short-term investments and restricted investments
Cash and short-term investments, represented basically 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 U.S. 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 (Ps. 31,322 and Ps. 30,494
at December 31, 1998 and 1999, respectively), these restricted amounts have been
included under cash and short-term investments on the combined balance sheet.
g) Marketable securities
Marketable securities are held for trading purposes and include
foreign government bonds and equity securities.
h) Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts for accounts
receivable amounts that are more than 90 days past due.
i) Plant, property and equipment
Depreciation is computed on the restated value of 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.
F-11
<PAGE>
Average annual depreciation rates are as follows:
Telephone plant 10.00% to 25.00%
System performance monitoring equipment
included in telephone plant 33.33%
Buildings 3.333%
Other assets 10.00% to 25.00%
The cost of installed telephone equipment used to provide cellular
telephone service in rural areas and fixed cellular telephone service in urban
areas is amortized over a three-year period, based on the estimated useful lives
of the telephone equipment.
j) Leasehold improvements
These investments are restated based on the NCPI and comprise costs
incurred in remodeling the building where the Company's offices are located.
Amortization is computed over the term of the lease.
k) Licenses
The licenses to operate wireless telecommunications networks in Mexico
are restated using the NCPI. Amortization is computed using the straight-line
method over the term of the license. The wireless mobile (PCS) licenses to
operate in Guatemala are being amortized at 6% annually.
l) Equity investments in affiliates
The investment in shares of affiliates in which the Company holds an
equity interest of 10% or more is valued 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 incurred (see Note 8).
m) Goodwill
Goodwill represents the excess of cost over the fair value of the net
assets of acquired subsidiaries and affiliates and is amortized using the
straight-line method over a five or fifteen year period.
n) Exchange rate 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.
o) Labor 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 Principles Bulletin D-3 ("Labor
Obligations," see Note 9). Termination payments are charged to income in the
year in which the decision to dismiss an employee is made.
F-12
<PAGE>
p) Advertising
All advertising costs are expensed as incurred. Advertising expense
amounted to approximately Ps. 251,732, Ps. 336,913 and Ps. 565,715 for the years
ended December 31, 1997, 1998 and 1999, respectively.
q) Income tax and employee profit sharing
Income taxes and employee profit sharing are provided based on the
amount paid, taking into consideration the effect of non-recurring temporary
differences in income for financial and tax reporting purposes (deferred taxes,
see Note 16).
r) 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 accompanying
notes. Actual results could differ from those estimates.
s) Concentration of risk
The Company invests its excess cash in commercial paper issued by a
related party and cash 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
losses in its cash and short-term investments. The Company does not believe it
has significant concentrations of credit risks in its accounts receivable,
because the Company's customer base is geographically diverse.
Approximately 92% of the Company's aggregate expenditures in its
cellular network for the years ended December 31, 1997, 1998 and 1999
represented purchases from one supplier and approximately 79% of the Company's
aggregate costs of telephone equipment for such periods represented purchases
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 or operations could be adversely affected.
t) Convenience translation
United States dollar amounts as of December 31, 1999 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 September 30, 2000, as
a matter of mathematical computation only, at an exchange rate of Ps. 9.4290 to
U.S.$ 1.00, the September 30, 2000 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.
F-13
<PAGE>
3. Marketable Securities
The following is a summary of marketable securities, all of which were
classified as trading securities, as of December 31, 1999.
Cost [1] Fair Value
-----------------------------------------------
Ecuador government bonds Ps. 2,191,521 Ps. 2,226,748
Equity securities 2,362,461 2,100,880
-----------------------------------------------
Ps. 4,553,982 Ps. 4,327,628
===============================================
The Company has recognized net unrealized gains in its income statement
for the year ended December 31, 1999 in the amount of Ps. 47,858. Net realized
gains on trading securities for 1999 totaled Ps. 235,756.
[1] Cost is expressed in constant pesos as of September 30, 2000, and
has been restated using the NCPI.
4. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------
<S> <C> <C>
Subscribers and interconnection receivables from
cellular operators Ps. 769,702 Ps. 1,131,232
Retailers 240,730 167,735
Creditable taxes 113,848 259,044
Other receivables 30,695 327,344
------------------------------------------------
1,154,975 1,885,355
Less:
allowance for doubtful accounts (132,036) (149,073)
------------------------------------------------
Net Ps. 1,022,939 Ps. 1,736,282
================================================
</TABLE>
Activity in the allowance for doubtful accounts for the years ended
December 31, 1997, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------------------------
<S> <C> <C> <C>
Opening balance December 31 Ps. (140,597) Ps. (211,171) Ps. (132,036)
Additions:
Charged to costs and expenses (316,063) (133,839) (205,380)
Deductions:
Adjustments to reserves 245,489 212,974 188,343
-----------------------------------------------------------------
Ending balance Ps. (211,171) Ps. (132,036) Ps. (149,073)
=================================================================
</TABLE>
F-14
<PAGE>
5. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------
<S> <C> <C>
Cellular telephones and accessories Ps. 356,005 Ps. 2,159,254
Less:
reserve for obsolete inventory ( 5,252) ( 15,953)
------------------------------------------------
Net Ps. 350,753 Ps. 2,143,301
================================================
</TABLE>
6. Plant, Property and Equipment
a) Plant, property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
---------------------------------------------------
<S> <C> <C>
Telephone plant and equipment Ps. 7,047,903 Ps. 10,936,024
Land and buildings 77,407 103,302
Other assets 1,078,817 1,508,258
---------------------------------------------------
8,204,127 12,547,584
Less: accumulated depreciation ( 2,970,819) ( 3,742,253)
---------------------------------------------------
Net 5,233,308 8,805,331
Construction in progress and advances
to equipment suppliers 69,698 3,205,529
Inventories for use in construction of the telephone
plant 1,100,775 393,287
---------------------------------------------------
---------------------------------------------------
Total Ps. 6,403,781 Ps. 12,404,147
===================================================
</TABLE>
Included in plant, property and equipment are the following assets held under
capital leases :
1998 1999
---------------------------------------------
Assets under capital leases Ps. - Ps. 120,819
Less accumulated depreciation - ( 26,874)
---------------------------------------------
Ps. - Ps. 93,945
=============================================
b) Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
Ps. 484,998, Ps. 684,935 and Ps. 1,129,029, respectively.
c) Through December 31, 1996, items comprising the telephone plant in Mexico
were 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
("CNBV").
Since the fifth amendment (as revised) to Bulletin B-10 issued by the
MIPA, effective January 1, 1997, eliminated the use of appraisals to restate
plant, property and equipment in the financial statements, plant, property and
equipment was restated as follows at December 31, 1998 and 1999:
F-15
<PAGE>
The December 31,1996 appraised 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 (i.e., 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, 1999, approximately 85% of the value of the plant,
property and equipment (87% in 1998) has been restated using specific indexation
factors.
Plant, property and equipment at December 31, 1998 and 1999, restated
on the basis of the NCPI (starting with the appraised values at December 31,
1996), in accordance with disclosure requirements of the CNBV with respect to
the restatement of fixed assets based on specific indexation factors, is as
follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------
<S> <C> <C>
Telephone plant and equipment Ps. 7,183,884 Ps. 11,404,276
Land and buildings 77,407 103,302
Other assets 1,117,866 1,614,208
------------------------------------------------
8,379,157 13,121,786
Less: accumulated depreciation ( 3,003,411) ( 3,989,141)
------------------------------------------------
Net 5,375,746 9,132,645
Construction in progress and advances
to equipment suppliers 79,152 3,233,833
Inventories for use in construction of the
telephone plant 1,100,775 393,287
------------------------------------------------
Total Ps. 6,555,673 Ps. 12,759,765
================================================
</TABLE>
7. Licenses
As of December 31, 1998 and 1999 licenses are as follows:
1998 1999
------------------------------------------------
Investment Ps. 2,261,584 Ps. 2,558,537
Accumulated amortization ( 386,768) ( 539,580)
------------------------------------------------
Net Ps. 1,874,816 Ps 2,018,957
================================================
Amortization expense for the periods ended December 31, 1997, 1998 and
1999 was Ps. 49,816, Ps. 83,248 and Ps. 152,812, respectively.
F-16
<PAGE>
8. Investments
An analysis at December 31, 1998 and 1999 is as follows:
1998 1999
--------------------------------------------
Investments in:
Affiliates Ps. 520,062 Ps. 3,073,211
Other 98,928
--------------------------------------------
Total Ps. 520,062 Ps. 3,172,139
============================================
- Investments in affiliates
An analysis of the equity investments in affiliated companies at
December 31, 1998 and 1999, and a brief description of major acquisitions is as
follows:
1998 1999
---------------------------------------
SBC International Puerto Rico, Inc. Ps. 2,385,020
Empresas Cablevision, S.A. de C.V. Ps. 520,062 688,191
---------------------------------------
Total Ps. 520,062 Ps. 3,073,211
=======================================
a) 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 Virgin Islands. The remaining 50% equity interest in SBCI
Puerto Rico is held by SBC Wireless Puerto Rico, LLC. The goodwill of Ps. 55,066
generated on this transaction will be amortized over a period of five years. The
unamortized balance of goodwill at December 31, 1999 was Ps. 53,255.
b) 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.
c) Network Access
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, which is included at December 31, 1999, under the caption other
investments.
In March 2000, the Company made additional capital contributions to
Network Access and as a result, increased its equity in interest to 5.9%.
Total 1999 and 2000 equity investments in Network Access were
approximately U.S.$79.0 million.
F-17
<PAGE>
- Goodwill
An analysis of goodwill at December 31, 1999 is as follows:
1999
-------------------------
Goodwill:
Subsidiaries Ps. 1,995,644
Affiliates 55,066
-------------------------
2,050,710
Accumulated amortization ( 192,737)
-------------------------
Ps. 1,857,973
=========================
- Investments in subsidiaries
Following is a summary of the most important equity investments in
subsidiaries:
a) 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. In the period June through September 1999,the Company made
additional capital contributions to TracFone and, as a result, increased its
equity interest to 88.3%. The goodwill of Ps.1,067,794 generated on these
acquisitions will be amortized over a period of five years. The unamortized
balance of goodwill at December 31, 1999 was Ps.916,494.
From June through October 2000, America Movil made additional capital
contributions to TracFone. As a result of these transactions, America Movil owns
97.45% of outstanding common stock, as of the date of issuance of these
financial statements.
Total equity investments in TracFone made in 1999 and 2000 amounted to
approximately U.S$352.6 million.
b) In 1999, through TracFone, the Company acquired in a step acquisition an
88.3% equity interest in Comm South for a total consideration of approximately
U.S.$79.0 million. Comm South is engaged in the resale of prepaid local
telephone service in the United States. The goodwill of Ps. 753,770 generated on
this acquisition will be amortized over a period of fifteen years. The
unamortized balance of goodwill at December 31,1999 was Ps. 746,625.
c) In May 1999, the Company acquired a 51% equity interest in Global Central
America, S.A. de C.V., for a total consideration of approximately 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 the GCA acquisition, the Company acquired 99.9% of the capital
stock of seven companies in Guatemala. The goodwill from these acquisitions
amounted Ps.174,080 and is being amortized over a period of five years. The
unamortized balance of goodwill at December 31, 1999 was Ps. 141,599.
e) All of the acquisitions were recorded pursuant to the purchase method of
accounting
F-18
<PAGE>
The results of operations of the acquisitions made in 1999 have been
included in the Company's combined financial statements from the month following
the date of acquisition through the end of the period presented.
The Company is not obligated to make any further payments or provide
any form of additional or contingent consideration related to these
acquisitions.
The following pro forma unaudited combined financial data for the years
ended December 31, 1998 and 1999 is based upon the historical financial
statements of the Company adjusted to give effect to (i) the acquisitions as
described above during 1999; 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. The pro forma adjustments assume that the
acquisitions were made at the beginning of each year 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.
<TABLE>
<CAPTION>
Pro Forma combined America Movil
For the years ended December 31,
--------------------------------------------
1998 1999
--------------------- ----------------------
<S> <C> <C>
Operating revenues: Ps. 10,631,062 Ps. 16,333,112
Net income 3,312,503 4,388,491
Earnings per share (in Mexican Pesos) 0.229 0.303
</TABLE>
9. Employee Benefits Obligations
a) Seniority premiums are paid upon termination of employment for any reason and
may, at the discretion of the Company, be paid earlier if the employee so
requests.
In 1994, Telcel set up an irrevocable trust fund to cover the payment
of the obligations for seniority premiums. It adopted the policy of making
annual contributions to the fund. During 1997 and 1998 contributions to the fund
totaled Ps. 272 and Ps. 279, respectively, and no contributions were made to the
fund in 1999. These contributions are tax deductible for purposes of Mexican
corporate income tax.
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.
In 1997, 1998 and 1999, seniority premium expense totaled Ps. 326, Ps.
333 and Ps. 608, respectively.
F-19
<PAGE>
An analysis of the net period cost for 1997, 1998 and 1999 is as
follow:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------------------
<S> <C> <C> <C>
Service cost Ps. 362 Ps. 393 Ps. 640
Interest cost 76 85 123
Expected return on plan assets ( 106) ( 130) ( 149)
Amortization of transition amount ( 6) ( 7) ( 6)
Recognized net actuarial loss ( 8)
-----------------------------------------------------------
Net period cost Ps. 326 Ps. 333 Ps. 608
===========================================================
</TABLE>
The change in the pension plan benefit obligation is as follows:
<TABLE>
<CAPTION>
1998 1999
-----------------------------------------
<S> <C> <C>
Benefit obligation at the beginning of the year Ps. 1,248 Ps. 1,824
Service cost 393 640
Interest cost 85 123
Actuarial gain (loss) 134 ( 286)
Benefits paid ( 36) ( 38)
-----------------------------------------
Benefit obligation at the end of the year Ps. 1,824 Ps. 2,263
=========================================
</TABLE>
An analysis of the seniority premium reserve at December 31, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-----------------------------------------
<S> <C> <C>
Projected benefit obligation Ps. 1,824 Ps. 2,263
Plan asset ( 1,844) ( 2,031)
Transition asset 74 67
Actuarial gain 138 469
-----------------------------------------
Net current liability Ps. 192 Ps. 768
=========================================
Current benefit obligation Ps. 1,824 Ps. 2,263
=========================================
</TABLE>
The change in employee benefit plan assets and plan funded status is as
follows:
<TABLE>
<CAPTION>
1998 1999
-----------------------------------------
<S> <C> <C>
Fair value of plan assets at beginning of year Ps. 1,741 Ps. 1,844
Real investment return 103 187
-----------------------------------------
Current benefit obligation Ps. 1,844 Ps. 2,031
=========================================
1998 1999
-----------------------------------------
Funded status Ps. 20 Ps. ( 232)
Unrecognized net actuarial loss ( 138) ( 469)
Unrecognized net transition asset ( 74) ( 67)
-----------------------------------------
Accrued benefit cost Ps. ( 192) Ps. ( 768)
=========================================
</TABLE>
F-20
<PAGE>
The net of inflation rates used to determine the actuarial present
values of the benefit obligations at December 31, 1997, 1998 and 1999 are
presented below for each of the economic assumptions.
1997 1998 1999
--------------- --------------- --------------
Discount rate 7.6% 6.9% 6.9%
Expected return on plan assets 7.6% 6.9% 6.9%
Rate of compensation increase 0.9% 0.9% 0.9%
10. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
1998 1999
------------------------------------------------
Suppliers Ps. 747,871 Ps. 4,128,028
Accrued expenses 28,679 243,731
Guarantee deposit 211,441 309,393
Vendors 3,494 335,984
Others - 111,092
------------------------------------------------
Total Ps. 991,485 Ps. 5,128,228
================================================
11. Analysis of Long-term Debt
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
Average Average Maturities Balance at
interest rate interest rates from 2000 December 31,
1998 1999* through 1998 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Banks, guaranteed by an
affiliated company Libor + 1.5 Libor + 1.5 2002 Ps. 177,653 Ps. 269,904
Other (1) 8.3 2003 25,259
Banco GIT 20.0 2000 38,455
Citibank 7.79 2000 13,140
Banco del Agro 20.0 2000 11,543
Other foreign banks 15.6 2004 22,426
Financial leases 16.5 2004 96,056
-------------------------------
Total 177,653 476,783
Less: current portion of
long-term debt 100,434 390,771
-------------------------------
Long-term debt Ps. 77,219 Ps. 86,012
===============================
</TABLE>
*Subject to variances in international and local rates.
(1) On February 12, 1999, a director and shareholder of TracFone, together with
certain of his family members, acquired Ps. 25,259 of TracFone's debt directly
from CellStar. This note payable bears interest at 8.33% with quarterly
principal and interest payments beginning on April 30, 2000.
F-21
<PAGE>
The Company's weighted average cost of borrowed funds in 1999
(including interest, fees and reimbursement of such lenders for Mexican taxes
withheld) was approximately 10.72% (7% in 1998).
An analysis of the foreign currency-denominated debt at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Foreign Exchange rate at Pesos with Pesos with
currency December 31, 1999 purchasing power purchasing power
(pesos per unit of as of December 31 as of September 30
(thousands) foreign currency) 1999 2000
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. dollar 36,384 Ps. 9.5222 Ps. 346,457 Ps. 367,764
Guatemalan
quetzal 82,215 1.2492 102,703 109,019
---------------------------------------------
Total Ps. 449,160 Ps. 476,783
=============================================
</TABLE>
Long-term debt maturities at December 31, 1999 are as follows:
Year ended
December 31, Amount
---------------------------------
2001 Ps. 67,783
2002 12,216
2003 4,630
2004 1,383
-----------
Total Ps. 86,012
===========
12. Foreign Currency Position and Transactions
a) At December 31, 1998 and 1999, America Movil had the following foreign
currency denominated assets and liabilities:
Thousands of foreign currency
1998 1999
----------------------------------------------
Assets
U.S. dollar 25,904 1,854,053
Guatemalan quetzal 377,514
Liabilities
U.S. dollar ( 93,629) ( 381,975)
Guatemalan quetzal ( 632,075)
The exchange rates used to translate the above-mentioned amounts into
Mexican pesos were Ps. 9.8650 and Ps. 9.5222 per U.S. dollar at December 31,
1998 and 1999, respectively, and Ps. 1.2492 per quetzal at December 31, 1999. At
November 16, 2000 the exchange rates of the Mexican peso relative to the U.S.
dollar and the Guatemalan quetzal were Ps. 9.4625 per U.S. dollar and Ps. 1.2198
per quetzal.
b) In the years ended December 31, 1998 and 1999, the Mexican subsidiaries of
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.
F-22
<PAGE>
<TABLE>
<CAPTION>
Thousands of U.S. dollars
1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C>
Net settlement revenues $ 17,568 $ 10,996 $ 5,991
Interest income 271,023 112,718 241,074
Interest expense 367 1,593 487
Operating costs and expenses 18,950 163,907 442,579
</TABLE>
13. Commitments and Contingencies
a) The Company leases certain equipment used in its operations under capital
leases. At December 31, 1999, the Company had the following commitments under
non-cancelable leases are as follows:
Year ended
December 31, Amount
-------------------------------------------------------------------------------
2000 Ps. 53,475
2001 57,078
2002 1,645
2003 1,138
2004 21
Total 113,357
Less interest ( 17,301)
-----------------
Present valued of net minimum lease payments 96,056
Less current installment ( 38,545)
-----------------
Long-term obligations at December 31, 1999 Ps. 57,511
=================
b) As of December 31, 1999, 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 one to five years. Rent charged to expenses was Ps.
40,958 in 1997, Ps. 57,072 in 1998 and Ps. 107,333 in 1999. 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 increases in
appraisal values of the property.
Year ended December 31,
-----------------------
2000 Ps. 40,591
2001 34,094
2002 33,030
2003 30,065
2004 25,580
------------------------
Ps. 163,360
------------------------
c) Where obligations of Telmex have been transferred to America Movil, consent
of the relevant creditors will be required in order for America Movil to succeed
to the rights and obligations of Telmex. Failure to obtain consent from
creditors may require that Telmex remain liable for certain obligations of
America Movil, including indebtedness and credit support provided to certain of
its subsidiaries and affiliates. In such cases, America Movil will agree to
indemnify Telmex.
F-23
<PAGE>
d) In November 1995, Telcel's cellular competitor Grupo Iusacell, S.A. de C.V.
("Iusacell") commenced proceedings against Telmex and Telcel before the
Competition Commission, claiming that Telmex engaged in anti-competitive
practices such as cross-subsidization, predatory pricing and discrimination in
access for the benefit of Telcel. In the petition, Iusacell requested that the
Competition Commission impose sanctions against Telmex, including fines, an
order requiring Telmex to sell Telcel and an order nullifying certain provisions
in the interconnection agreement between Iusacell and Telmex. Telmex and Telcel
are contesting these claims on the basis that their behavior has not been
anti-competitive. If the Competition Commission were to find against Telmex and
Telcel in this proceeding, Iusacell could seek damages in a separate proceeding
against Telcel.
e) In January 2000, COC Services Ltd. ("CSL") filed a lawsuit against CompUSA,
Inc. ("CompUSA") in the District Court of Dallas County, Texas asserting various
contractual and tort claims against CompUSA arising out of a letter of intent
concerning franchise retail stores in Mexico. The lawsuit also asserts claims
against other defendants, including Grupo Carso, S.A. de C.V. ("Grupo Carso"),
Grupo Sanborns, S.A. de C.V. ("Sanborns") and Carlos Slim Helu. CSL requests
U.S.$150 million from CompUSA in actual damages for the breach of contract,
tortious interference and conspiracy claims and U.S.$2 million in damages for
the fraud claim, as well as U.S.$300 million in exemplary damages. CSL also
seeks to recover interest, attorneys' fees and court costs. CompUSA and the
other defendants filed motions seeking summary judgment on all claims against
them and were heard on October 27, 2000. The judge has taken these motions under
submission, but has not yet ruled on them. Although it is not possible to assess
the outcome of this litigation at present, CompUSA has advised the Company that
it intends to defend vigorously against the claims in this lawsuit.
f) In June 2000, the executive branch of the Guatemalan government issued
declarations concerning Empresa Guatemalteca de Telecomunicaciones, or Guatel, a
Guatemalan state agency that conducted the privatization of Telecomunicaciones
de Guatemala, S.A. ("Telgua"). The declarations state 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. Telgua was formally notified of such
proceedings on October 6, 2000. The Company is contesting the proceedings and
expects that it will have an opportunity to be heard. Although the Company does
not currently expect that the judicial proceeding will ultimately have
consequences that are materially adverse to the Company's interests it is unable
to predict the outcome of the proceedings. If the government ultimately prevails
and pursues the most aggressive remedies, the Company may be required to
transfer its interest in Telgua to Guatel or another agency of the Guatemalan
government.
g) TracFone was a defendant in a lawsuit alleging among other items patent and
trademark infringement. Pursuant to a settlement agreement dated July 14, 2000
between TracFone and the plaintiff, TracFone agreed to pay the plaintiff a total
of U.S.$750 in exchange for the license rights without limitation, to use the
patented software technology in the functions currently existing and being
utilized by TracFone. The settlement also released the plaintiff from all and
any other claims brought against it by the TracFone and released TracFone from
all and any other claims brought against it by the plaintiff.
F-24
<PAGE>
14. Related Parties
a) Following is an analysis of balances due from/to related parties as of
December 31, 1998 and 1999. 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.
<TABLE>
<CAPTION>
1998 1999
-----------------------------------------------
<S> <C> <C>
Trade receivables:
Sanborns' Hermanos, S.A. de C.V. Ps. 54,753
Telefonos del Noroeste, S.A. de C.V. Ps. 1,600 21,577
Telmex 238,090
-----------------------------------------------
1,600 314,420
Other receivables:
Telecomunicaciones de Guatemala, S.A.
de C.V. 148,102
Telecosmos de Honduras, S.A. (2) 14,502
Telecosmos de El Salvador, S.A. (2) 10,981
Seguros Inbursa, S.A. de C.V. (insurance) 26,903
Others 17,110
-----------------------------------------------
1,600 217,598
-----------------------------------------------
Ps. 1,600 Ps. 532,018
===============================================
Accounts payable:
Telmex (1) Ps. 36,902
Others Ps. 2,490 16,713
-------------------------------------------------------
2,490 53,615
Current portion of long-term debt: Telmex
86,750 394,107
-------------------------------------------------------
Ps. 89,240 Ps. 447,722
=======================================================
Long-term debt:
Telmex Ps. 6,578 Ps. 2,317,967
=======================================================
</TABLE>
(1) Borrowings through disposition of Telmex's lines of credit with the
following financial institutions: Societe Generale, Bank of America, Export
Development Credit and Ericsson Telecom.
(2) Working capital borrowings.
The debt due to Telmex consist of the following:
<TABLE>
<CAPTION>
Average Maturities
Interest From 1999 Balance at December 31
Rate 1999 Through 1998 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt denominated in foreign currency 7.84% 2005 Ps. 93,328 Ps. 2,712,074
Less current portion of long-term debt ( 86,750) ( 394,107)
-------------------------------
Long-term debt Ps. 6,578 Ps. 2,317,967
===============================
</TABLE>
F-25
<PAGE>
The maturities of long-term debt due to Telmex at December 31, 1999 are as
follows:
Year ended December 31, 2001 Ps. 391,834
2002 390,104
2003 390,104
2004 390,104
2005 390,104
2006 and beyond 365,717
----------------------------
Ps. 2,317,967
============================
b) The Company has included in cash and short-term investments in 1998 and 1999,
Ps. 24,757,327 and Ps. 18,744,122, respectively, of commercial paper issued by
an affiliated party.
Interest earned for the years ended December 31, 1997, 1998 and 1999
was Ps. 1,932,169, Ps. 5,168,243 and Ps. 5,495,733, respectively.
c) In the years ended December 31, 1997, 1998 and 1999 the Company had the
following significant transactions with related parties, mainly with Telmex:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
-----------------------------------------------------
CPP interconnection fees (1) Ps. 1,750,559
-----------------------------------------------------
Expenses:
Cost of sale and services:
Payments of long distance, circuits and
others (2) Ps. 901,203 Ps. 885,765 Ps. 1,238,470
-----------------------------------------------------
Commercial, administrative and general:
Advertising 143,572 95,930 197,979
Others, net 11,458 26,447 14,917
-----------------------------------------------------
155,030 122,377 212,896
-----------------------------------------------------
-----------------------------------------------------
Interest expense 25,662 10,763 87,292
-----------------------------------------------------
</TABLE>
(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) Interconnection (cost): payments of interconnection for outgoing calls from
the wireless network to the fixed line network.
(2) Long distance: payments for the use of national and international
long-distance.
(2) Building and other cellular space leases.
F-26
<PAGE>
d) 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 repetitor space, and is able to install its
interconnection equipment (see table above).
e) Telcel purchases materials or services from a variety of companies that are
under common control with Carso Global Telecom, S.A. de C.V. which is the
controlling shareholder of America Movil. These include insurance and banking
services provided by Grupo Financiero Inbursa, S.A. de C.V. 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 its affiliates ceased to provide them on competitive terms
(see table above).
15. Stockholders' Equity
a) The shares of America Movil were authorized and issued pursuant to the Telmex
shareholders' meeting on September 25, 2000 approving the Spin-off. (see note
1a). Capital stock is represented by 14,485 million common shares with no par
value, representing the fixed capital. An analysis is as follows:
3,266 million series AA shares
346 million series A shares
10,873 million series L shares
-----------
14,485 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 common 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
contemplate the possibility of the holders of series L shares exchanging such
shares, in certain circumstances, for series AA shares, commencing January 1,
2001.
Of the full voting stock of the Company, the series AA shares
represented 90% and the series A shares represented 10% at December 31, 1999.
c) America Movil has not paid dividends since its establishment in September
2000. Dividends, if any, will be declared and paid in Mexican pesos.
16. Income Tax, Asset Tax and Employee Profit Sharing
a) Mexico
1) The amount shown under income tax in the combined statements of income
corresponds to the combined income tax determined individually by the
subsidiaries. For the years ended December 31, 1997, 1998 and 1999 income tax
provision totaled Ps. 778,049, Ps. 1,071,687 and Ps. 1,101,978, respectively,
mainly due to the interest income generated by the Company's cash and short-term
investments.
F-27
<PAGE>
America Movil is in the process of obtaining an authorization from the
Ministry of Finance and Public Credit to file consolidated tax returns of its
Mexican subsidiaries, effective in fiscal year 2001. Management believes that
such authorization will be granted.
2) At December 31, 1999, the Company's Mexican subsidiaries had tax losses that
can be carried forward during the next 10 years. These losses could be restated
as of the date of its application against the tax result of the year with
adjustment factors obtained from the NCPI. Restated losses as of December 31,
1999 and their expiration dates are as follows:
Amount Date
---------------------------------------
Ps. 495,054 2006
542,301 2007
26,786 2008
------------------------
Ps. 1,064,141
========================
3) The asset tax is a minimum tax levied on the average value of most assets net
of certain liabilities. Income tax may be credited against the asset tax so that
the asset tax is payable only to the extent that it exceeds income tax. The
asset tax for the years ended December 31, 1997, 1998 and 1999 was Ps. 37,835,
Ps. 59,020 and Ps. 45,977, respectively.
In conformity with a decree published on December 24, 1996, companies
that determined accelerated tax depreciation in 1997, based on purchases of
property and equipment made during that year have the option of crediting the
statutory 34% tax rate on the accelerated tax depreciation against the asset
tax. Since Telcel computed accelerated tax depreciation in 1997 on the purchases
of property and equipment made in that same year, it applied the credit in 1997,
1998 and 1999 for Ps. 37,835, Ps. 59,020 and Ps. 45,977, respectively, thereby
eliminating the asset tax provision of those years. At December 31, 1999, the
remaining creditable amount of depreciation was Ps. 110,923, which may be
recovered, restated for inflation based on the NCPI, in any of the next four
years.
4) Effective January 1, 1999, the corporate income tax rate was increased from
34% to 35%. However, corporate taxpayers have the option of deferring a portion,
so that the tax payable will represent 30% of taxable income (32% in 1999). The
earnings on which there is a deferral of taxes must be controlled in a so-called
"net reinvested tax profit" account ("CUFINRE"), to clearly identify the
earnings on which the taxpayer has opted to defer payment of corporate income
tax.
If the Company opts for this tax deferral, starting in the year 2000,
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).
Any distribution of earnings in excess of the above mentioned account
balances will be subject to payment of 35% corporate income tax.
F-28
<PAGE>
In addition, effective January 1, 1999, cash dividends received by
individuals or residents abroad from corporate entities in Mexico, are subject
to a 5% withholding tax on the amount of the dividend multiplied by 1.5385
(1.515 for dividends paid from the determined balance of the CUFIN account at
December 31, 1998).
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 combined provision for income tax:
Year ended December 31,
--------------------------------
1997 1998 1999
--------------------------------
Statutory income tax rate 34.0% 34.0% 35.0%
Depreciation (137.3) (8.3) (5.8)
Financing costs 57.8 24.2 25.0
Purchases (12.9) (4.5) (19.6)
Licenses (PCS) 0.0 (28.0) 0.0
Amortization of commissions 86.5 0.0 0.0
Others 2.2 3.8 (1.3)
Tax loss carryforwards 0.0 0.0 (12.2)
Provision for income tax 30.3 21.2 21.1
6) A new 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. Basically, the new bulletin 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 were considered to
be nonrecurring and that had a known turnaround time.
The initial effect of the adoption of new Bulletin D-4, at the
beginning of the year 2000 was the recognition of deferred tax liabilities and a
debit to shareholders' equity in the amount of Ps. 1,668,417. Also, it is
expected that this bulletin will increase income tax provisions in future years.
The new bulletin does not significantly affect the accounting for
employee profit sharing.
7) The Company is required by the Mexican law to pay employee profit sharing to
its Mexican employees in addition to their contractual compensation and
benefits. The statutory rate for employee profit sharing in 1997, 1998 and 1999
was 10%, based on taxable income after eliminating certain effects of inflation
and the restatement of depreciation expense.
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 combined pretax income and income tax provisions of
these subsidiaries in 1999 were Ps. 22,980 and Ps. 7,150, respectively.
F-29
<PAGE>
17. Segments
America Movil operates primarily in one segment (cellular services),
however, as mentioned in note 1b above, the Company has international
telecommunications operations as of December 31, 1999, in three different
geographic regions: (i) Mexico, (ii) United States and Puerto Rico and (iii)
Guatemala.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
The following summary shows the most important segment information:
Year ended December 31,
1997 1998 1999
----------------- -------------------- -------------------
Operating revenues:
Mexico Ps. 5,834,022 Ps.9,371,590 Ps. 13,836,354
United States 971,640
Guatemala 546,729
-------------------- ------------------ ------------------
Ps. 5,834,022 Ps.9,371,590 Ps. 15,354,723
==================== ================== ==================
December 31,
1998 1999
---------------------------------------
Plant, property and equipment, net
Mexico Ps. 6,403,781 Ps. 11,299,145
United States 221,352
Guatemala 883,650
---------------------------------------
Ps. 6,403,781 Ps. 12,404,147
=======================================
Goodwill, net
Mexico Ps. Ps. 969,749
United States 888,224
---------------------------------------
Ps. Ps. 1,857,973
=======================================
Licenses, net
Mexico Ps. 1,874,816 Ps. 1,744,552
Guatemala 274,405
---------------------------------------
Ps. 1,874,816 Ps. 2,018,957
=======================================
18. Subsequent Events
The most important equity investments made by Telmex subsequent to
December 31, 1999, and before the spin-off, and transferred to America Movil,
are as follows:
F-30
<PAGE>
Telecom Americas
The Company entered into an agreement with Bell Canada International Inc.
("BCI") and SBC International, Inc. ("SBCI") providing for the establishment of
Telecom Americas Ltd. ("Telecom Americas"), a new joint venture company that
will serve as the three parties' principal vehicle for expansion in Latin
America. The joint venture agreement was signed by Telmex on September 25, 2000
and assigned to America Movil on November 7, 2000. The transaction closed on
November 16, 2000. Under the agreement America Movil contributed to Telecom
Americas at closing approximately U.S.$1.17 billion in cash and promissory
notes.
In addition, the Company contributed its interests in ATL-Algar Telecom Leste
S.A. ("ATL"), and has agreed to contribute its interests in Techtel-LMDS
Comunicaciones Interactivas S.A. ("Techtel") to Telecom Americas by February 14,
2001 (see "Techtel" and "ATL" paragraphs below). If the Company is unable to
obtain certain regulatory consents or otherwise fails to contribute Techtel to
the joint venture prior to such date, the Company has agreed to negotiate in
good faith with the other parties to agree on a way to contribute Techtel. If no
agreement is reached, the Company will be required to contribute cash in order
to maintain its 44.277% ownership interest in Telecom Americas.
BCI contributed to Telecom Americas at closing approximately U.S.$1.00
billion in promissory notes. In addition, BCI contributed its interests in the
Brazilian wireless operators Americel S.A. ("Americel") and Telet S.A.
("Telet"); Canbras Communications Corp. ("Canbras"), a Brazilian cable
television and Internet access service provider; the Colombian wireless
operators Comunicacion Celular S.A. ("Comcel") and Occidente y Caribe Celular
S.A. ("Occel"); Genesis Telecom, C.A. ("Genesis"), a broadband wireless operator
in Venezuela.
SBCI contributed to Telecom Americas a portion of its interest in ATL
and has agreed to contribute the balance of its interest upon the expiration or
removal of certain regulatory restrictions in Brazil.
America Movil and BCI each have a 44.277% equity interest in Telecom
Americas and SBCI has an 11.446% equity interest. Telecom Americas is subject to
complex provisions governing the rights of each shareholder with respect to
management. In general, these provisions effectively require a consensus among
the three shareholders in order to make significant decisions about Telecom
Americas.
Techtel
America Movil owns a 60% interest in Telcel Wireless Argentina, LLC
(formerly Telecom Americas LLC ) ("Telcel Argentina"), a joint venture with
Techint, one of Argentina's largest industrial groups. America Movil's interest
in Telcel Argentina was acquired in July 2000, for approximately U.S. $148.5
million. Telcel Argentina controls Techtel, a company which provides data and
video transfer solutions and value-added telecommunications services.
F-31
<PAGE>
ATL
America Movil owns an interest in ATL-Algar Telecom Leste, S.A.
("ATL"), the B-band cellular concessionaire in the states of Rio de Janeiro and
Espirito Santo in Brazil. America Movil's interest in ATL was acquired in
January 2000, for approximately U.S. $248.2 million. America Movil holds a 16.5%
interest in ATL through Telecom Americas. ATL's revenues were Ps. 2,460 million
for the year ended December 31, 1999.
Conecel
America Movil owns a controlling interest in Consorcio Ecuatoriano de
Telecomunicaciones, S.A. Conecel ("Conecel"), a cellular telecommunications
provider in Ecuador. The company indirectly owns 60% of the capital stock of
Conecel, and local investors own the remaining interest. The interest in Conecel
was acquired in March 2000 for approximately U.S. $217.0 million. Conecel's
revenues were Ps. 660 million for the year ended December 31, 1999.
CompUSA
America Movil owns 49% of the capital stock of CompUSA, a retailer of
personal computing equipment based in Dallas, Texas. The investment in CompUSA
was acquired in March 2000, for approximately U.S. $458.9 million, following the
completion of a tender offer in which Telmex and Sanborns acquired 100% of the
capital stock of CompUSA. Sanborns is a subsidiary of Grupo Carso, which is an
affiliate of the Company. CompUSA's revenues were Ps. 59,134 million for the
year ended December 31, 1999.
Telgua
America Movil owns 85.6% of the capital stock of America Central Tel,
S.A. ("America Central", formerly Luca S.A.), which owns 95% of the capital
stock of Telgua, a fixed-line and wireless telecommunications operator in
Guatemala. America Movil's interest in America Central was acquired in March
2000, for approximately U.S. $171.5 million. Telgua's revenues were Ps. 2,571
million for the year ended December 31, 1999. In connection with the acquisition
of the shares of Telgua, America Central is obligated to pay U.S.$350 million in
October 2001 to a trustee on behalf of the Guatemalan Government, which bears
interest at Libor plus 3%. The shares of Telgua are pledged to the trustee to
secure the obligations of America Central.
F-32
<PAGE>
19. Differences between Mexican and U.S. GAAP
The Company's combined financial statements are prepared in accordance
with Mexican GAAP, which differ in certain significant respects from generally
accepted accounting principles in the United States ("U.S. GAAP").
The accompanying 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.
Cash Flow Information
Under Mexican GAAP, the Company presents combined statements of changes
in financial position, as described in Note 2.
The changes in the combined 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 increase
(decrease) in current and long-term debt due to restatement in constant pesos,
including the effect of exchange differences, is 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.
If the changes in trading securities 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:
F-33
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income Ps. 1,966,448 Ps. 2,969,330 Ps. 2,667,582
Depreciation and amortization 606,815 821,472 1,618,922
Deferred taxes ( 135,624) 1,169,549 1,792,112
Monetary effect 5,425,411 6,475,568 4,453,508
Equity in results of affiliates, minority
interest and others ( 105,747) ( 77,910) ( 310,715)
Effect of exchange rate differences on debt 100,342 ( 184,844) ( 19,487)
Marketable securities ( 4,327,628)
Change in operating assets and liabilities 368,865 153,843 1,465,825
----------------- ----------------- -------------------
Resources provided by operating activities 8,226,510 11,327,008 7,340,119
----------------- ----------------- -------------------
Financing activities:
New loans and repayment of loans ( 521,775) ( 174,969) 2,356,185
Increase in parent investment 1,218,071 1,215,770 2,363,695
----------------- ----------------- -------------------
Resources provided by financing activities 696,296 1,040,801 4,719,880
----------------- ----------------- -------------------
Resources used in investing activities ( 1,327,052) ( 3,722,972) ( 11,107,077)
----------------- ----------------- -------------------
Effect of inflation accounting ( 5,448,281) ( 6,681,060) ( 4,719,429)
Net increase (decrease) in cash and short term
Investments 2,147,473 1,963,777 ( 3,766,507)
Cash and short-term investments at beginning
of year 36,516,597 38,664,070 40,627,847
----------------- ----------------- -------------------
Cash and short-term investments at end of year Ps. 38,664,070 Ps. 40,627,847 Ps. 36,861,340
================= ================= ===================
</TABLE>
Cash Flows from purchases and sales of trading securities during 1999
were Ps. 9,005,487 and Ps. 5,149,715, respectively.
Net resources provided by operating activities reflect cash payments
for interest, income tax and employee profit sharing as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Interest expense Ps. 80,698 Ps. 150,148 Ps. 241,407
Income tax 1,035,250 1,942,024 582,561
Employee profit sharing - 55,305 63,971
</TABLE>
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.
F-34
<PAGE>
Valuation of Plant, Property and Equipment
As 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 National Banking and
Securities Commission. Since January 1, 1997, the valuation method of plant,
property and equipment was modified, as the fifth amendment (as revised) to
Bulletin B-10 eliminated the use of appraisals to restate plant, property and
equipment.
The alternate restatement method allowed by the fifth amendment (as
revised) to Bulletin B-10, which was adopted in 1997 by the Company as described
in Note 6, which allows for the use of the rate of inflation in the country of
origin of imported telephone plant for the restatement, is not acceptable for
U.S. GAAP reporting purposes. Accordingly, 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.
As a result of this comparison, plant, property and equipment and
stockholders' equity increased by Ps. 151,892 in 1998 and Ps. 355,618 in 1999
and depreciation expense increased by Ps. 52,663 in 1997, Ps. 28,346 in 1998 and
Ps. 108,638 in 1999, respectively.
Plant, property and equipment at December 31, 1998 and 1999 under U.S.
GAAP, is as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------
<S> <C> <C>
Plant, property and equipment, net, as reported under
Mexican GAAP Ps. 6,403,781 Ps. 12,404,147
Effects of inflation 151,892 355,618
Capitalized interest 301,737 409,119
Cumulative depreciation of capitalized interest
( 67,761) ( 103,466)
------------------------------------------------
Plant, property and equipment, net under U.S. GAAP
Ps. 6,789,649 Ps. 13,065,418
================================================
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and
1999 under U.S. GAAP is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Depreciation expense as reported under Mexican
GAAP Ps. 484,998 Ps. 684,935 Ps. 1,129,029
Effects of inflation 52,663 28,346 108,638
Depreciation of capitalize interest 19,338 24,943 35,706
---------------------------------------------------------
Depreciation expense under U.S. GAAP Ps. 556,999 Ps. 738,224 Ps. 1,273,373
=========================================================
</TABLE>
F-35
<PAGE>
Accrued Vacation Pay
For purposes of the accompanying combined 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, 1997, 1998 and
1999, and accordingly, has adjusted the expense for vacation pay during the
periods then ended.
Deferred Income Tax and Deferred Employee Profit Sharing
Under Mexican GAAP, deferred income tax and deferred employee profit
sharing are determined by the partial liability method of accounting, under
which deferred income tax and deferred employee profit sharing (for purposes of
this Note, collectively "deferred taxes") are 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.
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 in the accompanying
reconciliations has been determined following the guidelines of SFAS No.109. To
determine operating income under U.S. GAAP deferred employee profit sharing and
employee profit sharing expense have been included under the caption operating
expenses.
The effect of income tax and employee profit sharing on the difference
between the indexed cost and the replacement cost valuation of fixed assets and
inventories is applied as an adjustment to stockholders' equity. The related
accumulated amount of income taxes at December 31, 1999 increased equity by Ps.
206,511, and decreased equity by Ps. 24,679 in 1998.
The yearly changes in the accumulated amount for deferred taxes applied
to equity from 1997 through 1999 are the following:
1997 Ps. (184,147)
1998 Ps. 10,752
1999 Ps. 231,189
In 1997, 1998 and 1999, monetary (losses) gains of Ps. (10,415), Ps.
5,122 and Ps. (7,460), 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 U.S. GAAP equity, netted as part of the
change of the year.
The deferred tax adjustment included in the net income and
stockholders' equity reconciliations also includes the effect of deferred taxes
on the other U.S. GAAP adjustments reflected in the respective summaries.
F-36
<PAGE>
Significant components of deferred taxes under U.S. GAAP at December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------- -----------------------------------------------
Employee Employee
Income Profit Deferred Income Profit Deferred
Tax sharing Taxes Tax sharing Taxes
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Allowances for bad
debts Ps. 46,212 Ps. 13,204 Ps. 59,416 Ps. 54,307 Ps. 10,521 Ps. 64,828
Tax loss carry forwards 752,790 - 752,790 389,075 389,075
Accrued liabilities 63,218 18,060 81,278 161,627 42,294 203,921
Debt exchange loss 10,973 10,973
NOL carryforward 287,412 287,412
Valuation allowance ( 314,677) (314,677)
------------ -------------- ------------- -------------- ------------- --------------
Total deferred tax
assets 862,220 42,237 904,457 577,744 52,815 630,559
------------ -------------- ------------- -------------- ------------- --------------
Deferred tax
liabilities:
Fixed assets (841,072) (239,901) (1,080,973) (1,163,867) ( 331,134) (1,495,001)
Inventories (122,763) (35,075) ( 157,838) ( 644,062) ( 184,017) ( 828,079)
Capitalized interest
or net Financing cost ( 81,893) ( 23,398) ( 105,291) ( 106,979) ( 30,566) ( 137,545)
Licenses (578,191) ( 179,787) ( 757,978) ( 562,700) ( 160,772) ( 723,472)
------------ -------------- ------------- -------------- ------------- --------------
Total deferred tax
liabilities (1,623,919) ( 478,161) (2,102,080) (2,477,608) ( 706,489) (3,184,097)
------------ -------------- ------------- -------------- ------------- --------------
Net deferred tax
liabilities Ps.(761,699) Ps.(435,924) Ps.(1,197,623) Ps.(1,899,864) Ps.(653,674) Ps.(2,553,538)
============ ============== ============== =============== ============== ===============
</TABLE>
As mentioned in Note 16, the new Mexican Accounting Principle Bulletin
D-4, went into effect on January 1, 2000. This new bulletin modifies the rules
with respect to the accounting treatment for deferred income tax. Under the new
accounting guidelines set-forth in this bulletin, the differences with US GAAP
will comprise the accounting treatment for deferred employee profit sharing,
which was not significantly affected by the new Mexican Accounting Principle,
and the recognition of deferred taxes on all other US GAAP adjustments.
Employee Benefits Obligations
The Company accrues expenses for the seniority premium plan 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 the Company
are not presented because such information is considered to be immaterial in
relation to the combined financial statements taken as a whole.
Effects of Inflation Accounting on Approximate U.S. GAAP Adjustments
To determine the net effect on the combined 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.
F-37
<PAGE>
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 at December 31, 1999. As
of December 31, 1998, the carrying value of total debt at December 31 is
Ps.177,653 in 1998 and Ps 412,849 in 1999; the fair value is Ps. 177,653 at
December 31, 1998 and Ps. 412,509 at December 31, 1999.
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. Based
on current circumstances, it was not necessary to record any adjustment to the
carrying value of the Company's long-lived assets.
Impairment of Goodwill
Excess cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over a five-year period. The
carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impair. If this review indicates that goodwill will not
be recoverable, as determined based on the undiscounted cash flow of the entity
acquired over the remaining amortization period, the Company's carrying value of
goodwill will be reduce by the estimated shortfall of cash flow.
Minority Interest
Under Mexican GAAP, minority interest is presented as a component of
stockholders' equity, immediately after total majority stockholders' equity.
Under US 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 Ps. 659,245 at December 31, 1999.
F-38
<PAGE>
Reporting Comprehensive Income
The Company has adopted for purposes of the U.S. GAAP reconciliations
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes rules for the reporting and disclosure of comprehensive income and
the related components. However, such adoption had no impact on the Company's
net income or stockholders' equity. Statement No. 130 requires the deficit from
restatement of stockholders' equity, deferred taxes on the difference between
indexed cost and replacement cost, and effect of translation of foreign
entities, which prior to the adoption were reported separately in stockholders'
equity, to be included in other comprehensive income. The U.S. GAAP statements
of changes in stockholders' equity include the disclosure requirements of
Statement No. 130.
Cumulative effects of the deficit from restatement of stockholder's
equity, deferred taxes on the difference between indexed cost and replacement
cost, and effect of translation of foreign entities included in comprehensive
income at December 31, 1999, are Ps. (31,230), Ps. 206,512 and Ps. (67,628),
which (decreased) increased stockholders' equity, 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 was already
capitalizing such costs, SOP 98-1 did not have any significant effect on
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 effective date of the SOP was January 1, 1999. It
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 is expensing such costs as incurred, the adoption of this guideline did
not affect either earnings or financial position.
Recent Accounting Pronouncement
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133. Pursuant to SFAS No. 137, the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, will be effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities and requires, among other things, that all
derivatives be recognized as either assets or liabilities in the balance sheet
and that these instruments be measured at fair value. The Company has no
derivative instruments and does not engage in hedging activities.
F-39
<PAGE>
SAB-101 Revenue Recognition
Staff Accounting Bulletin No. 101 ("SAB 101") was released on December 3, 1999,
and provides the staff's views in applying generally accepted accounting
principles to certain revenue recognition transactions. The Company is currently
evaluating the process for full implementation of the SEC's SAB-101 "Revenue
Recognition" for U.S. GAAP purposes in the fourth quarter of 2000.
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:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
-----------------------------------------------------------
<S> <C> <C> <C>
Net income as reported under Mexican GAAP Ps. 1,830,028 Ps. 3,998,546 Ps. 4,317,122
Approximate U.S. GAAP adjustments:
Capitalized interest or net financing cost 47,367 90,953 107,383
Depreciation of capitalized interest ( 19,338) ( 24,943) ( 35,706)
Accrued vacation pay ( 8,787) ( 11,562) ( 30,890)
Deferred income tax on U.S. GAAP adjustments ( 14,283) ( 31,068) ( 24,041)
Deferred income tax 206,533 ( 900,531) (1,437,655)
Deferred employee profit sharing on U.S. GAAP
adjustments ( 4,201) ( 8,534) ( 6,869)
Deferred employee profit sharing ( 52,426) ( 229,416) ( 323,547)
Difference between the restatement of
depreciation expense based on specific
indexation factors and on the basis of the
NCPI ( 52,663) ( 28,346) ( 108,638)
Effects of inflation accounting on U.S. GAAP
adjustments. 34,218 114,231 210,423
----------------- ------------------ -------------------
Total approximate U.S. GAAP adjustments, net 136,420 (1,029,216) (1,649,540)
----------------- ------------------ -------------------
Approximate net income under U.S. GAAP Ps. 1,966,448 Ps. 2,969,330 Ps. 2,667,582
================= ================== ===================
Common shares outstanding as of
September 25,2000 (in millions): 14,485 14,485 14,485
Approximate net income per share under U.S.
GAAP (in pesos): Ps. 0.136 Ps. 0.205 Ps. 0.184
================= ================== ===================
</TABLE>
After giving effect to the foregoing approximate adjustments for
accrued vacation pay, 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 Ps 58,020, Ps. 1,591,799 and
Ps. 1,616,887, in 1997, 1998 and 1999, respectively.
F-40
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998 1999
-----------------------------------------
<S> <C> <C>
Total stockholders' equity under Mexican GAAP Ps. 49,084,231 Ps. 56,179,420
Approximate U.S. GAAP adjustments, net of effects
of inflation on monetary items:
Capitalized interest or net financing cost 301,737 409,119
Accumulated depreciation of capitalized interest or
net financing cost ( 67,761) ( 103,466)
Accrued vacation pay ( 37,372) ( 62,846)
Deferred income tax from US GAAP ( 68,811) ( 84,982)
Deferred income tax from Mexican GAAP ( 673,694) ( 1,975,501)
Deferred employee profit sharing from US GAAP ( 19,660) ( 24,281)
Deferred employee profit sharing from Mexican GAAP ( 410,779) ( 675,285)
Deferred taxes on the difference between the indexed
cost and replacement cost valuation of fixed assets
and inventories ( 24,679) 206,511
Minority interest ( 659,245)
Difference between the restatement of fixed assets and
inventories based on specific indexation factors and
on the basis of the NCPI 151,892 355,618
------------------- ------------------
Total approximate U.S. GAAP adjustments, net ( 849,127) ( 2,614,358)
------------------- ------------------
Approximate total stockholders' equity under U.S. GAAP Ps. 48,235,104 Ps. 53,565,062
=================== ==================
</TABLE>
F-41
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Combined Statements of Changes in Stockholders' Equity
Under U.S. GAAP at December 31, 1997, 1998 and 1999
(Thousands of Constant Pesos with purchasing power as of September 30, 2000)
Retained Earnings
Parent investment Legal Reserve Unappropriated Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 Ps. 42,631,780 Ps. 39,130 Ps.( 1,614,398) Ps. (1,575,268)
Increase in parent investment, net 1,218,071
Comprehensive income:
Net income for the year 1,966,448 1,966,448
Other comprehensive income:
Deferred taxes allocated to equity, net of inflation
Deficit from holding nonmonetary assets
Total comprehensive income
------------------ --------------- -------------------- ----------------
Balances at December 31, 1997 43,849,851 39,130 352,050 391,180
Increase in parent investment, net 1,215,770
Comprehensive income:
Net income for the year 2,969,330 2,969,330
Other comprehensive income:
Deferred taxes allocated to equity, net of inflation
Surplus from holding nonmonetary assets
Total comprehensive income
------------------ --------------- -------------------- ----------------
Balances at December 31, 1998 45,065,621 39,130 3,321,380 3,360,510
Increase in parent investment, net 2,363,695
Increase in legal reserve 92,015 ( 92,015)
Comprehensive income:
Net income for the year 2,667,582 2,667,582
Other comprehensive income:
Effect of conversion in foreign entities of the year
Deferred taxes allocated to equity, net of inflation
Surplus from holding nonmonetary assets
Total comprehensive income
Balances at December 31, 1999 Ps. 47,429,316 Ps. 131,145 Ps. 5,896,947 Ps. 6,028,092
================== =============== ==================== ================
Accumulated other Comprehensive
comprehensive income income Total
------------------------------------------------------------------
<S> <C> <C> <C>
Balances at January 1, 1997 Ps. ( 68,364) Ps. 40,988,148
Increase in parent investment, net 1,218,071
Comprehensive income:
Net income for the year Ps. 1,966,448 1,966,448
Other comprehensive income:
Deferred taxes allocated to equity, net of inflation ( 184,147) ( 184,147) ( 184,147)
Deficit from holding nonmonetary assets ( 80,308) ( 80,308) ( 80,308)
--------------------
Total comprehensive income Ps. 1,701,993
====================
------------------------ -------------------
Balances at December 31, 1997 ( 332,819) 43,908,212
Increase in parent investment, net 1,215,770
Comprehensive income:
Net income for the year Ps. 2,969,330 2,969,330
Other comprehensive income:
Deferred taxes allocated to equity, net of inflation 10,752 10,752 10,752
Surplus from holding nonmonetary assets 131,040 131,040 131,040
--------------------
Total comprehensive income Ps. 3,111,122
====================
------------------------ -------------------
Balances at December 31, 1998 ( 191,027) 48,235,104
Increase in parent investment, net 2,363,695
Increase in legal reserve
Comprehensive income:
Net income for the year Ps. 2,667,582 2,667,582
Other comprehensive income:
Effect of conversion in foreign entities of the year ( 67,628) ( 67,628) ( 67,628)
Deferred taxes allocated to equity, net of inflation 231,189 231,189 231,189
Surplus from holding nonmonetary assets 135,120 135,120 135,120
--------------------
Total comprehensive income Ps. 2,966,263
====================
Balances at December 31, 1999 Ps. 107,654 Ps. 53,565,062
======================== ===================
See accompanying notes.
</TABLE>
F-42
<PAGE>
<PAGE>
UNAUDITED INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER
30, 2000
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Statements of Income
(Unaudited)
(Thousands of Constant Pesos as of September 30, 2000, except for earnings per share)
Nine Months ended September 30,
-----------------------------------------------------------
Millions
of U.S. dollars
1999 2000 2000
-----------------------------------------------------------
Combined Consolidated
<S> <C> <C> <C>
Operating revenues:
Services:
Usage charges Ps. 4,654,233 Ps. 10,621,508 $ 1,127
Monthly rent 2,731,089 3,284,255 348
Long-distance 938,809 1,803,316 191
Other services 166,269 395,838 42
Telephone equipment sales and other:
Sales of handsets and accessories 1,541,124 2,219,205 235
Other revenues 215,922 825,680 88
-----------------------------------------------------------
10,247,446 19,149,802 2,031
-----------------------------------------------------------
Operating costs and expenses:
Cost of sales and services 3,880,733 7,806,185 828
Cost of sales and services with related parties
(Note 9) 901,532 1,776,381 189
Commercial, administrative and general 2,994,112 4,789,640 508
Commercial, administrative and general with
related parties (Note 9) 11,341 19,850 2
Depreciation and amortization 845,316 2,067,190 219
-----------------------------------------------------------
8,633,034 16,459,246 1,746
-----------------------------------------------------------
Operating income 1,614,412 2,690,556 285
-----------------------------------------------------------
Comprehensive financing (income) cost:
Interest income ( 7,258,760) ( 3,628,969) (385)
Interest expense 120,582 361,395 38
Interest expense with related parties (Note 9) 46,721 287,393 30
Exchange loss, net 1,386,715 52,123 6
Monetary effect 3,666,145 1,822,900 193
-----------------------------------------------------------
( 2,038,597) ( 1,105,158) (118)
-----------------------------------------------------------
Income before income tax and employee
profit sharing 3,653,009 3,795,714 403
-----------------------------------------------------------
Provisions for:
Income tax 726,812 1,798,460 191
Employee profit sharing 130,107 112,001 12
-----------------------------------------------------------
856,919 1,910,461 203
-----------------------------------------------------------
Income before equity in results of affiliates
and minority interest 2,796,090 1,885,253 200
Equity in results of affiliates 48,613 ( 465,433) (49)
-----------------------------------------------------------
Income before minority interest 2,844,703 1,419,820 151
Minority interest in loss of subsidiaries 114,028 159,640 17
-----------------------------------------------------------
Net income Ps. 2,958,731 Ps. 1,579,460 $ 168
===========================================================
Common shares outstanding (in millions) 14,485 14,485 14,485
Net income per share 0.204 0.109 0.012
</TABLE>
See accompanying notes.
F-43
<PAGE>
<TABLE>
<CAPTION>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Balance Sheets
(Thousands of Constant Pesos as of September 30, 2000)
-----------------------------------------------------------
Millions
of U.S.
Combined Consolidated dollars
-----------------------------------------------------------
December 31, September 30, September, 30
1999 2000 2000
-----------------------------------------------------------
(Note 1) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and short-term investments Ps. 36,861,340 Ps. 28,675,032 $ 3,041
Marketable securities (Note 3) 4,327,628
Accounts receivable, net (Note 4) 1,736,282 3,921,209 416
Related parties (Note 9) 532,018 1,383,466 147
Inventories, net 2,143,301 1,827,009 194
Prepaid expenses and other assets 318,272 577,173 61
-----------------------------------------------------------
Total current assets 45,918,841 36,383,889 3,859
Plant, property and equipment, net (Note 5) 12,404,147 27,065,561 2,871
Licenses, net (Note 6) 2,018,957 2,349,926 249
Investments in affiliates and others (Note 7) 3,172,139 9,938,053 1,054
Goodwill, net (Note 7) 1,857,973 7,676,627 814
-----------------------------------------------------------
Total assets Ps. 65,372,057 Ps. 83,414,056 $ 8,847
===========================================================
Liabilities and stockholders' equity Current liabilities:
Current portion of long-term debt (Note 8) Ps. 390,771 Ps. 1,850,006 $ 196
Accounts payable and accrued liabilities 5,128,228 6,817,430 723
Taxes payable (Note 11) 650,137 2,759,718 293
Related parties (Note 9) 447,722 473,467 50
-----------------------------------------------------------
Total current liabilities 6,616,858 11,900,621 1,262
Long-term debt (Note 8) 86,012 4,750,788 504
Related parties (Note 9) 2,317,967 443,069 47
Deferred credits 171,800 223,321 24
-----------------------------------------------------------
Total liabilities 9,192,637 17,317,799 1,837
-----------------------------------------------------------
Stockholders' equity (Note 10):
Parent investment 47,429,316
Capital stock 26,846,098 2,847
Capital contributions 28,689,105 3,043
Retained earnings:
Unappropriated results of prior years 4,417,858 6,759,480 717
Net income for the period 4,317,122 1,579,460 168
-----------------------------------------------------------
8,734,980 8,338,940 885
Deficit from restatement of stockholders' equity ( 576,493) ( 354,655) (38)
Effect of translation of foreign entities ( 67,628) 382,826 41
Cumulative effect of deferred income taxes ( 1,452,141) (154)
-----------------------------------------------------------
Total majority stockholders' equity 55,520,175 63,902,314 6,778
Minority interest 659,245 2,193,943 232
-----------------------------------------------------------
Total stockholders' equity 56,179,420 66,096,257 7,010
-----------------------------------------------------------
Total liabilities and stockholders' equity Ps. 65,372,057 Ps. 83,414,056 $ 8,847
===========================================================
</TABLE>
See accompanying notes.
F-44
<PAGE>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(Thousands of Constant Pesos as of September 30, 2000)
Nine-month period ended September 30, 2000
<TABLE>
<CAPTION>
Retained Earnings
-------------------------------------------------
Parent investment Capital Capital Legal
Stock contributions reserve Unappropriated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1999 Ps. 47,429,316 Ps. 131,145 Ps. 8,603,835
Cumulative effect of deferred income taxes at
at the beginning of the year (1,975,500)
Contribution to the parent Company of an
account receivable held by a former
affiliated party 6,601,492
Increase in parent investment, net 1,504,395
Allocation of the effects of the spin-off ( 55,535,203) Ps.26,846,098 Ps. 28,689,105
Minority interest
Effect of translation of foreign entities
Deferred income taxes on the difference between
the indexed cost and replacement cost
valuation of fixed assets and inventories
allocated to equity, net of inflation
Deficit from holding nonmonetary assets
Net income for the period 1,579,460
-----------------------------------------------------------------------------------
Balances at September 30, 2000 Ps. Ps.26,846,098 Ps. 28,689,105 Ps. 131,145 Ps. 8,207,795
===================================================================================
Retained Earnings
-----------------
Deficit from
restatement Effect of
of translation Total majority
stockholders' of foreign stockholders'
Total equity entities equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1999 Ps. 8,734,980 Ps. ( 576,493) Ps.( 67,628) Ps. 55,520,175
Cumulative effect of deferred income taxes at
at the beginning of the year ( 1,975,500) 307,083 ( 1,668,417)
Contribution to the parent Company of an
account receivable held by a former
affiliated party 6,601,492
Increase in parent investment, net 1,504,395
Allocation of the effects of the spin-off
Minority interest
Effect of translation of foreign entities 450,454 450,454
Deferred income taxes on the difference between
the indexed cost and replacement cost
valuation of fixed assets and inventories
allocated to equity, net of inflation 216,276 216,276
Deficit from holding nonmonetary assets ( 301,521) ( 301,521)
Net income for the period 1,579,460 1,579,460
--------------------------------------------------------------------------
Balances at September 30, 2000 Ps. 8,338,940 Ps. ( 354,655) Ps. 382,826 Ps. 63,902,314
==========================================================================
Total
Minority stockholders'
interest equity
------------------------------------
<S> <C> <C>
Balances at December 31, 1999 Ps. 659,245 Ps. 56,179,420
Cumulative effect of deferred income taxes at
at the beginning of the year ( 1,668,417)
Contribution to the parent Company of an
account receivable held by a former
affiliated party 6,601,492
Increase in parent investment, net 1,504,395
Allocation of the effects of the spin-off
Minority interest 1,534,698 1,534,698
Effect of translation of foreign entities 450,454
Deferred income taxes on the difference between
the indexed cost and replacement cost
valuation of fixed assets and inventories
allocated to equity, net of inflation 216,276
Deficit from holding nonmonetary assets ( 301,521)
Net income for the period 1,579,460
------------------------------------
Balances at September 30, 2000 Ps.2,193,943 Ps. 66,096,257
====================================
</TABLE>
See accompanying notes.
F-45
<PAGE>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Statements of Changes in Financial Position
(Unaudited)
(Thousands of Constant Pesos as of September 30, 2000)
<TABLE>
<CAPTION>
Nine Months ended September 30,
------------------------------------------------------
Millions
of U.S. dollars
1999 2000 2000
------------------------------------------------------
Combined Consolidated
<S> <C> <C> <C>
Operating activities:
Net income Ps. 2,958,731 Ps. 1,579,460 $ 168
Add (deduct) items not requiring the use of resources:
Depreciation 645,666 1,313,118 139
Amortization 199,650 754,072 80
Deferred taxes 787,545 84
Equity in results of affiliates ( 48,613) 465,433 49
Minority interest ( 114,028) (159,640) (17)
Changes in operating assets and liabilities:
Accounts receivable (371,944) (1,168,128) (124)
Prepaid expenses ( 316,876) (222,877) (24)
Inventories for sale (519,042) 563,505 60
Accounts payable and accrued liabilities 962,247 90,779 10
Related parties 402,336 (861,080) (91)
Taxes payable 277,202 (298,322) (32)
------------------------------------------------------
Resources provided by operating activities 4,075,329 2,843,865 302
------------------------------------------------------
Financing activities:
Related parties 756,729 (1,874,898) (199)
Debt (43,812) (317,172) (34)
Increase in parent investment 2,139,230 8,105,887 860
------------------------------------------------------
Resources provided by financing activities 2,852,147 5,913,817 627
------------------------------------------------------
Investing activities:
Investment in telephone plant (2,694,862) (10,178,276) (1,080)
Investment in subsidiaries and affiliated companies ( 1,506,755) (11,093,342) (1,176)
(Investment) disposal of marketable securities ( 1,359,225) 4,327,628 459
------------------------------------------------------
Resources used in investing activities (5,660,842) (16,943,990) (1,797)
------------------------------------------------------
Net increase (decrease) in cash and short-term
investment 1,366,634 (8,186,308) (868)
Cash and short-term investments at beginning of the
period 40,627,847 36,861,340 3,909
------------------------------------------------------
Cash and short-term investments at end of the period Ps. 41,994,481 Ps. 28,675,032 $ 3,041
======================================================
</TABLE>
See accompanying notes.
F-46
<PAGE>
AMERICA MOVIL, S.A. DE C.V. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial
Statements (Amounts in thousands of constant
pesos as of September 30, 2000)
1. Description of the Business and basis of presentation
a) Description of the Business.
America Movil was established in September 25, 2000 in a spin-off (the
"Spin-off") from Telefonos de Mexico, S.A. de C.V. ("Telmex"). America Movil and
its subsidiaries (collectively the "Company" or "America Movil") is the leading
provider of wireless communications services in Mexico.
America Movil has subsidiaries and joint ventures in the
telecommunications sector in Guatemala, Ecuador, Argentina, Brazil, Puerto Rico,
and the United States.
As of September 30, 2000, America Movil holds equity interest in the
following companies:
<TABLE>
<CAPTION>
Name of Company Jurisdiction of Percentage
--------------- Establishment Owned
------------- -----
<S> <C> <C>
Sercotel, S.A. de C.V. Mexico 100.0%
Radiomovil Dipsa, S.A. de C.V. ("Telcel") Mexico 100.0
Cellular Communications of Puerto Rico, Inc. Puerto Rico 50.0
SubDipsa Treasury L.L.C. Delaware 100.0
Inmobiliaria Los Cantaros, S.A. de C.V. Mexico 100.0
TracFone Wireless, Inc. Florida 97.4
Comm South Companies, Inc. Texas 97.4
Global Central America, S.A. de C.V. Mexico 90.8
Telecomunicaciones de Guatemala, S.A. C.V. ("Telgua") Guatemala 81.3
Techtel-LMDS Comunicaciones Interactivas, S.A. ("Techtel") Argentina 60.0
Consorcio Ecuatoriano de Telecomunicaciones, S.A. ("Conecel") Conecel Ecuador 60.0
Empresas Cablevision, S.A. de C.V. Mexico 49.0
CompUSA, Inc. Delaware 49.0
ATL-Algar Telecom Leste, S.A. ("ATL") Brazil 16.5
Inmobiliaria El Recuerdo, S.A. de C.V. Mexico 100.0
Inmobiliaria Las Trufas, S.A. de C.V. Mexico 100.0
FirstMark Comunicaciones Espana, S.A. Spain 17.5
Network Access Solutions Delaware 5.9
</TABLE>
F-47
<PAGE>
b) Basis of Presentation
The accompanying unaudited consolidated financial statements are
presented on the same basis of accounting as described in the audited combined
financial statements of the Company as of December 31, 1998, 1999 and for the
three years in the period ended December 31, 1999, and have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
The combined balance sheet as of December 31, 1999 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the combined financial statements at December 31, 1999 and footnotes thereto
included elsewhere in this registration statement.
2. Significant accounting policies
a) Consolidation
The September 30, 2000, unaudited consolidated financial statements,
include the accounts of America Movil and those of the subsidiaries mentioned in
Note 1. Intercompany balances and transactions were eliminated in the
consolidation.
The minority interest principally relates to the Company's foreign
subsidiaries.
b) Recognition of the Effects of Inflation on the Financial Statements
The unaudited consolidated financial statement were prepared in
accordance with Bulletin B-10 ("Accounting Recognition of the Effects of
Inflation on Financial Information"), as amended, as described in the audited
annual combined financial statements; consequently, all financial statements
presented herewith were restated to constant pesos as of September 30, 2000. The
Mexican National Consumer Price Index (NCPI) as of September 30, 2000, was
327.910.
c) Convenience Translation
United States dollar amounts as of September 30, 2000 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 September 30, 2000, as
a matter of mathematical computation only, at an exchange rate of Ps. 9.4290 to
U.S.$ 1.00, the September 30, 2000 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.
F-48
<PAGE>
3. Marketable securities
Marketable securities were held for trading purposes and included
foreign government bonds and equity securities.
During 2000, the Company disposed of these marketable securities. Net
realized gains on trading securities for the nine-month period ended September
30, 2000 totaled Ps. 180,077.
4. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
------------------------- -----------------------
<S> <C> <C>
Suscribers and interconnection
receivables from cellular operators Ps. 1,131,232 Ps. 1,988,644
Retailers 167,735 703,748
Williams International ATL, Ltd. 695,240
Creditable taxes 259,044 277,562
Other receivables 327,344 567,253
------------------------- -----------------------
1,885,355 4,232,447
Less:
Allowance for doubtful accounts (149,073) (311,238)
------------------------- -----------------------
Net Ps. 1,736,282 Ps. 3,921,209
========================= =======================
</TABLE>
Activity in the allowance for doubtful accounts for the nine-month
periods ended September 30, 1999 and 2000 was as
follows:
September 30, 1999 September 30, 2000
------------------------------------------------
Opening balance December 31 Ps.( 132,036) Ps.( 149,073)
Additions:
Charge to costs and expenses ( 122,944) ( 244,519)
Deductions:
Adjustments to reserves 140,520 82,354
------------------------------------------------
Ending balance Ps. ( 114,460) Ps. ( 311,238)
================================================
F-49
<PAGE>
5. Plant, Property and Equipment
Plant, property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
----------------------------- -----------------------------
<S> <C> <C>
Telephone plant and equipment Ps. 10,936,024 Ps. 21,200,394
Land and buildings 103,302 503,856
Other assets 1,508,258 3,180,111
----------------------------- -----------------------------
12,547,584 24,884,361
Less: accumulated depreciation ( 3,742,253) ( 5,910,738)
----------------------------- -----------------------------
Net 8,805,331 18,973,623
Construction in progress and advances
to equipment suppliers 3,205,529 6,551,552
Inventories for use in construction of the telephone plant
393,287 1,540,386
----------------------------- -----------------------------
Total Ps. 12,404,147 Ps. 27,065,561
============================= =============================
</TABLE>
Included in plant, property and equipment are the following assets
held under capital leases.
December 31, September 30,
1999 2000
-------------------------------------------------
Assets under capital leases Ps. 120,819 Ps. 117,470
Less accumulated depreciation ( 26,874) ( 42,540)
-------------------------------------------------
Ps. 93,945 Ps. 74,930
=================================================
a) Depreciation expense for the nine-month periods ended September 30, 1999 and
2000 was Ps. 645,666 and Ps. 1,313,118, respectively.
b) During 2000, Telcel invested Ps. 6,960 million for the improvement of its
microwave network.
c) Plant, property and equipment increased significantly due to the series of
acquisitions made in the first nine months of 2000, mainly with the acquisition
of Telgua and Conecel that as of September 30, 2000, had fixed assets of Ps.
5,186 million and Ps. 933 million, respectively.
F-50
<PAGE>
6. Licenses
As of December 31, 1999 and September 30, 2000 licenses are as
follows:
1999 2000
--------------------------- -------------------------
Investment Ps. 2,558,537 Ps. 3,138,489
Accumulated amortization ( 539,580) ( 788,563)
--------------------------- -------------------------
Net Ps. 2,018,957 Ps 2,349,926
=========================== =========================
Amortization expense for nine-month periods ended September 30, 1999
and 2000 was Ps. 100,912 and Ps. 138,463, respectively.
Conecel owns licenses in Ecuador to operate its cellular network for
fifteen years. Conecel paid approximately U.S.$57 million for these licenses.
Telgua owns frequency licenses in Guatemala to operate its fixed
network for fifteen years. Telgua paid approximately U.S.$8 million for these
licenses.
7. Investments
An analysis at December 31, 1999 and September 30, 2000 is as follows:
December 31, September 30,
1999 2000
------------------------- ---------------------
Investments in:
Affiliates Ps. 3,073,211 Ps. 8,927,040
Other 98,928 1,011,013
------------------------- ---------------------
Ps. 3,172,139 Ps. 9,938,053
========================= =====================
-Affiliates
An analysis of the equity investments in affiliated companies at
December 31, 1999 and September 30, 2000 is as follows:
December 31, September, 30
1999 2000
-------------------------------------
CompUSA, Inc. Ps. 3,840,096
SBCI Brazil Ltda. 2,199,782
SBC International Puerto Rico, Inc. Ps. 2,385,020 2,112,576
Empresas Cablevision, S.A. de C.V. 688,191 709,247
FirstMark Comunicaciones de Espana, S.A. 65,339
-------------------------------------
Total Ps. 3,073,211 Ps. 8,927,040
=====================================
F-51
<PAGE>
a) All the acquisitions, as described in Note 18 of the audited annual combined
financial statements for 1999, were recorded pursuant to the purchase method of
accounting.
The results of operations of the acquisitions made in 2000 have been
included in the Company's unaudited consolidated financial statements from the
month following the date of acquisition through the end of the period presented.
The Company is not obligated to make any further payments or provide
any form of additional or contingent consideration related to these
acquisitions, except as described in Note 18 of the audited annual combined
financial statements for 1999.
b) The following pro forma unaudited combined and consolidated financial data
for the nine months ended September 30, 1999 and 2000 respectively, are based
upon the historical financial statements of the Company adjusted to give effect
to (i) the series of acquisitions during 2000 through September 30; (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. The pro
forma adjustments assume that the acquisitions were made at the beginning of
each year 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 transaction in fact occurred or to predict the Company's results of
operations.
<TABLE>
<CAPTION>
Pro Forma America Movil For
the nine month periods
ended September 30,
1999 2000
-----------------------------------------------
<S> <C> <C>
Operating revenues: Ps. 19,303,189 Ps. 19,859,572
Net income 3,836,152 888,268
Earnings per share (in Mexican Pesos)
0.264 0.061
</TABLE>
c) On November 16, 2000, the Company entered into an agreement for the
establishment of Telecom Americas, Ltd. (see note 18 of the combined audited
financial statements). Under this agreement, America Movil contributed cash,
promissory notes and its interest in ATL and has agreed to contribute its
interest in Techtel by February 14, 2001.
At September 30, 2000 the Company's disposition of its interest in
ATL is not material with respect to the Company's consolidated financial
statements taken as a whole.
F-52
<PAGE>
-Goodwill
a) An analysis of goodwill for the year ended December 31, 1999 and for the
nine-month period ended September 30, 2000 is as follows:
December 31, September, 30
1999 2000
-------------------------------------------
Goodwill:
Subsidiaries Ps. 1,995,644 Ps. 8,371,777
Affiliates 55,066 270,810
-------------------------------------------
2,050,710 8,642,586
Accumulated amortization ( 192,737) ( 965,960)
-------------------------------------------
Ps. 1,857,973 Ps. 7,676,627
===========================================
b) Amortization expense for the nine-month periods ended September 30, 1999 and
2000 was Ps. 97,783 and Ps. 615,609, respectively.
8. Analysis of Long Term Debt
The Company's long-term-debt consists of the following:
<TABLE>
<CAPTION>
Average Average Maturities Balance at Balance at
interest rate Interest rates from 2000 December 31, September 30,
1999 2000* Through 1999 2000
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Banks, guaranteed by an
affiliated company Libor + 1.5 Libor + 1.5 2002 Ps. 269,904 Ps. 283,792
Marconi Libor + 1.5 Libor + 1.5 2001 139,503
Banco Pichincha 16.6 2002 72,977
Citibank 7.79 9.7 2005 13,140 1,872,279
Other Banks 16.0 12.7 2004 97,683 124,658
Guatemalan Government (2) Libor + 3 Libor + 3 2001 3,301,630
Suppliers' credits 4.0 2003 788,155
Financial leases 16.5 11.9 2004 96,056 17,800
------------------------------------
Total 476,783 6,600,794
Less: current portion of
long-term det (1) 390,771 1,850,006
------------------------------------
Long-term debt Ps. 86,012 Ps. 4,750,788
=====================================
</TABLE>
*Subject to variances in international and local rates.
The Company's weighted average cost of borrowed funds at September
30, 2000 (including interest, fees and reimbursement of such lenders for Mexican
taxes withheld) was approximately 9.42%.
(1) Includes Ps. 1,075 million of loans to subsidiaries guaranteed by Telcel
and Telmex.
(2) Guaranteed with Telgua's shares.
F-53
<PAGE>
An analysis of the foreign currency denominated debt at September 30,
2000 is as follows:
<TABLE>
<CAPTION>
Foreign Exchange rate at
currency September 30, 2000 Pesos with
(pesos per unit of purchasing power
(thousands) foreign currency) as of September 30, 2000
-----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. dollar 696,220 Ps. 9.4290 Ps. 6,564,658
Guatemalan Quetzal 29,933 1.2065 36,114
-------------------------
Total Ps. 6,600,772
=========================
</TABLE>
Long-term debt maturities at September 30, 2000 are as follows:
September 30, 2000 Amount
--------------------------------------------
2001 Ps. 3,594,072
2002 861,504
2003 104,008
2004 97,365
2005 93,839
------------------
Total Ps. 4,750,788
==================
9. Related Parties
a) Following is an analysis of balances due from/to related parties as of
December 31,1999 and September 30, 2000. 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.
<TABLE>
<CAPTION>
1999 2000
-------------------------------- -------------------------------
<S> <C> <C>
Trade receivables:
Sanborns Hermanos, S.A. de C.V. Ps. 54,753 Ps. 25,955
Telefonos del Noroeste, S.A. de C.V. 21,577 50,647
Telmex 238,090 603,428
-------------------------------- -------------------------------
314,420 680,030
Others receivables:
Telecomunicaciones de Guatemala, S.A. de C.V.
148,102
Telecosmos de Honduras, S.A. (2) 14,502
Telecosmos de El Salvador, S.A. (2) 10,981
Sears 10,338
Seguros Inbursa, S.A. de C.V. 26,903 18,262
Telmex 665,829
Others 17,110 9,007
-------------------------------- -------------------------------
217,598 703,436
-------------------------------- -------------------------------
Ps. 532,018 Ps. 1,383,466
================================ ===============================
</TABLE>
F-54
<PAGE>
<TABLE>
<CAPTION>
Accounts payable:
<S> <C> <C>
Telmex (1) Ps. 36,902 Ps. 1,018
Consorcio Red Uno, S.A. de C.V. 8,695
Others 16,713 1,840
------------------- ----------------
53,615 11,553
Current portion of long-term debt: Telmex
394,107 461,914
------------------- ----------------
Ps. 447,722 Ps. 473,467
=================== ================
Long-term debt:
Telmex Ps. 2,317,967 Ps. 443,069
=================== ================
</TABLE>
(1) Borrowings through disposition of Telmex's lines of credit with the
following financial institutions as: Societe Generale, Bank of America, Export
Development Credit and Ericsson Telecom, during 1999.
(2) Working capital borrowings.
The debt due to Telmex consist of the following:
<TABLE>
<CAPTION>
Average Maturities
Interest From 2000
Rate 2000 Through December 31, 1999 September 30, 2000
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt denominated in foreign
Currency 7.84% 2001 Ps. 2,712,074 Ps. 904,983
Less current portion of long term
Debt ( 394,107) ( 461,914)
-----------------------------------------
Long-term debt Ps. 2,317,967 Ps. 443,069
=========================================
</TABLE>
b) The Company has included in cash and short-term investments at December 31,
1999 and September 30, 2000, Ps. 18,744,122 and Ps. 18,995,894 respectively, of
commercial paper issued by an affiliated party.
Interest earned for the nine-month periods ended September 30, 1999 and
2000 was Ps. 4,532,267 and Ps. 2,141,588 respectively.
c) In the nine-month period ended September 30, 1999 and 2000 the Company had
the following significant transactions mainly with Telmex:
<TABLE>
<CAPTION>
1999 2000
-------------- ----------------
<S> <C> <C>
Revenue:
-------------- ----------------
CPP interconnection fees Ps. 968,337 Ps. 3,515,553
-------------- ----------------
Expenses:
Cost of sales and services:
Payments of long distance, circuits
and others Ps. 886,399 Ps. 1,756,429
Building and other cellular space leases 15,133 19,952
-------------- ----------------
Ps. 901,532 Ps. 1,776,381
-------------- ----------------
</TABLE>
F-55
<PAGE>
-------------------------
Commercial, administrative and
general Ps. 11,341 Ps. 19,850
-------------------------
-------------------------
Interest expense Ps. 46,721 Ps. 287,393
-------------------------
See Note 14 of the audited combined financial statements for a
description of major transactions with the Company's affiliates.
10. Stockholders' Equity
a) The shares of America Movil were authorized and issued pursuant to the Telmex
shareholders' meeting on September 25, 2000 approving the Spin-off. (see note
1a). Capital stock is represented by 14,485 million common shares with no par
value, representing the fixed capital. An analysis is as follows:
3,266 million series AA shares
346 million series A shares
10,873 million series L shares
---------
14,485 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 common 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% 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 contemplate the possibility of the holders of series
L shares exchanging such shares, in certain circumstances, for series AA shares,
commencing January 1, 2001.
c) In conformity with the Mexican Corporations Act, at least 5% of the net
income of the year must be appropriated to increase the legal reserve. This
practice must be continued each year until the legal reserve reaches at least
20% of capital stock issued and outstanding.
d) America Movil has not paid dividends since its establishment in September
2000. Dividends, if any, will be declared and paid in Mexican pesos.
F-56
<PAGE>
11. Deferred Income Taxes
Requirements of the new Mexican accounting Bulletin D-4, "Accounting
for Income Tax, Asset Tax and Employee Profit Sharing," issued by the Mexican
Institute of Public Accountants, went into effect on January 1, 2000. The new
bulletin modifies the rules with respect to the valuation of deferred income tax
(deferred taxes). Basically, the new 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
time the financial statements are issued. Through December 31, 1999, deferred
taxes were recognized only on temporary differences that were considered to be
non-recurring and that had a known turnaround time.
The following table sets forth deferred taxes activity in the
stockholders' equity for the nine-month period ended September 30, 2000 under
D-4.
<TABLE>
<CAPTION>
Deferred income
taxes on the deficit
Cumulative effect from restatement
of accounting change of stockholders' equity Total
-----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 2000 Ps. (1,975,500) Ps. 307,083 Ps. (1,668,417)
Deferred income taxes on the
difference between the
indexed cost and
replacement cost valuation
of fixed assets and 216,276 216,276
inventories allocated to
equity, net of inflation
-----------------------------------------------------------------------
Balance at September 30, 2000 Ps. (1,975,500) Ps. 523,359 Ps. (1,452,141)
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Deferred income tax liability as of September 30, 2000 is as follows:
Deferred income
tax liability
--------------------
<S> <C>
Balance at January 1, 2000 Ps. 1,668,417
Deferred income tax for the period 787,545
Deferred income taxes on the difference between the indexed cost
and replacement cost valuation of fixed assets and inventories
allocated to equity, net of inflation (216,276)
Effects of inflation recognized in income statement (131,784)
------------------------
Balance at September 30, 2000 Ps. 2,107,902
========================
</TABLE>
The new bulletin does not significantly affect how employee profit
sharing is accounted for.
Had bulletin D-4 been adopted in prior years, net income for the
nine-months ended September 30, 1999 would have been reduced by Ps.571 million
approximately.
F-57
<PAGE>
12. Segments
America Movil operates primarily in one segment (cellular services),
however, as mentioned in note 1 above, the Company has international
telecommunications operations as of September 30, 2000, in three different
geographic regions: (i) Mexico, (ii) United States and Puerto Rico and (iii)
Central and South America.
The following summary shows the most important segment information:
<TABLE>
<CAPTION>
Nine month periods ended
September 30,
1999 2000
------------------------------------------------
<S> <C> <C>
Operating revenues:
Mexico Ps. 8,729,077 Ps. 15,679,073
United States 971,640 1,421,263
Central and South America 546,729 2,049,466
------------------------------------------------
Ps. 10,247,446 Ps. 19,149,802
================================================
December 31, September 30,
------------------------------------------------
1999 2000
Plant, property and equipment, net
Mexico Ps. 11,299,145 Ps. 19,010,624
United States 221,352 307,877
Central and South America 883,650 7,747,060
------------------------------------------------
Ps. 12,404,147 Ps. 27,065,561
================================================
Goodwill, net
Mexico Ps. 969,749 Ps. 959,439
United States 746,625 633,778
Central and South America 141,599 6,083,410
------------------------------------------------
Ps. 1,857,973 Ps. 7,676,627
================================================
Licenses, net
Mexico Ps. 1,744,552 Ps. 1,655,449
Central and South America 274,405 694,477
------------------------------------------------
Ps. 2,018,957 Ps. 2,349,926
================================================
</TABLE>
13. Differences Between Mexican and U.S. GAAP:
The unaudited consolidated financial statements of the Company are
prepared in accordance with generally accepted accounting principles in Mexico
("Mexican GAAP"), which in certain respects differ significantly from generally
accepted accounting principles in the United States ("U.S. GAAP").
F-58
<PAGE>
The following 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 Bulletin B-10, as amended. The application of
Bulletin B-10 represents a comprehensive measure of the effect of price level
changes in the inflationary Mexican economy and, as such, is considered a more
meaningful presentation than financial reporting based on historical cost under
both Mexican and US accounting principles.
The principal differences between Mexican GAAP and U.S. GAAP, as they
relate to the Company, are described in Note 19 to the audited financial
statements and listed below, with an explanation, where appropriate, of the
adjustments that affect consolidated operating income, net income, stockholders'
equity and resources provided by operating and financing activities for the
nine-month periods ended September 30, 1999 and 2000.
SAB-101 Revenue Recognition
Staff Accounting Bulletin No. 101 ("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 Company is
currently evaluating the process for full implementation of the SEC's SAB-101
"Revenue Recognition" for U.S. GAAP purposes in the fourth quarter of 2000.
Cash Flow Information
Under Mexican GAAP, the Company presents consolidated statements of
changes in financial position. The changes in the 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 increase
(decrease) in current and long-term debt due to restatement in constant pesos,
including the effect of exchange differences, is 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-59
<PAGE>
If the changes in trading securities 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:
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
-- ------------------- - ---------------------
Operating activities:
<S> <C> <C>
Net income Ps. 2,260,749 Ps. 1,348,057
Depreciation and amortization 954,246 2,256,203
Deferred taxes 764,049 1,009,578
Monetary effect 3,537,609 1,767,636
Equity in results of affiliates, minority
interest and others ( 162,641) 305,793
Effect of exchange rate differences on debt 67,518 283,560
(Investment) disposal of marketable securities (1,359,225) 4,327,628
Change in operating assets and liabilities ( 131,020) ( 2,115,281)
------------------- ---------------------
Resources provided by operating activities 5,931,285 9,183,174
------------------- ---------------------
Financing activities:
New loans and repayment of loans 1,141,600 ( 1,915,335)
Increase in parent investment 2,139,230 8,105,887
------------------- ---------------------
Resources provided by financing activities 3,280,830 6,190,552
------------------- ---------------------
Resources used in investing activities ( 4,271,514) ( 21,454,295)
------------------- ---------------------
Effect of inflation accounting ( 3,573,967) ( 2,105,739)
Net increase (decrease) in cash and short term
Investments 1,366,634 ( 8,186,308)
Cash and short-term investments at beginning
of year 40,627,847 36,861,340
------------------- ---------------------
Cash and short-term investments at end of year Ps. 41,994,481 Ps. 28,675,032
=================== =====================
</TABLE>
Cash from purchases and sales of trading securities for the first nine
months of 1999 were Ps. 3,950,053 and Ps. 2,644,658, respectively and Ps.
307,130 and Ps. 4,682,357 for 2000, respectively.
F-60
<PAGE>
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:
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 2000
-------------------- -- --------------------
<S> <C> <C>
Net income as reported under Mexican GAAP Ps. 2,958,731 Ps. 1,579,460
Approximate U.S. GAAP adjustments:
Capitalized interest or net financing cost 69,897 182,677
Depreciation of capitalized interest ( 26,779) ( 36,309)
Accrued vacation pay ( 23,436) ( 58,298)
Deferred income tax on U.S. GAAP adjustments ( 14,689) ( 38,314)
Deferred income tax ( 570,679)
Deferred employee profit sharing on U.S.
GAAP adjustments ( 4,197) ( 10,947)
Deferred employee profit sharing ( 174,484) ( 172,772)
Difference between the restatement of
depreciation expense based on specific
indexation factors and on the basis of the
NCPI ( 82,151) ( 152,704)
Effects of inflation accounting on U.S. GAAP
Adjustments. 128,536 55,264
-------------------- --------------------
Total approximate U.S. GAAP adjustments, net ( 697,982) ( 231,403)
-------------------- --------------------
Approximate net income under U.S. GAAP Ps. 2,260,749 Ps. 1,348,057
==================== ====================
Common shares outstanding as of September
25,2000 (in millions): 14,485 14,485
Approximate net income per share under U.S.
GAAP (in pesos): Ps. 0.156 Ps. 0.093
==================== ====================
</TABLE>
After giving effect to the foregoing approximate adjustments for
accrued vacation pay, 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 Ps 1,173,258, and Ps.
2,147,525, in the first nine months of 1999 and 2000, respectively.
F-61
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
--------------------- --- ---------------------
<S> <C> <C>
Total stockholders' equity under Mexican GAAP Ps. 56,179,420 Ps. 66,096,257
Approximate U.S. GAAP adjustments, net of effects
of inflation on monetary items:
Capitalized interest or net financing cost 409,119 591,796
Accumulated depreciation of capitalized interest or
net financing cost ( 103,466) ( 139,776)
Accrued vacation pay ( 62,846) ( 116,220)
Deferred income tax on U.S. GAAP adjustments ( 84,982) ( 117,531)
Deferred income tax ( 1,975,501)
Deferred employee profit sharing on U.S. GAAP ( 24,281) ( 33,580)
adjustments
Deferred employee profit sharing ( 675,285) ( 805,131)
Deferred taxes on the difference between the indexed
cost and replacement cost valuation of fixed assets
and inventories 206,511 ( 542,411)
Minority interest ( 659,245) ( 2,193,943)
Difference between the restatement of fixed assets and
inventories based on specific indexation factors and
on the basis of the NCPI 355,618 1,537,665
--------------------- ---------------------
Total approximate U.S. GAAP adjustments, net ( 2,614,358) ( 1,819,131)
--------------------- ---------------------
Approximate total stockholders' equity under U.S. GAAP Ps. 53,565,062 Ps. 64,277,126
===================== =====================
</TABLE>
Comprehensive income under US GAAP is comprised as follows:
<TABLE>
<CAPTION>
Nine-month periods ended September 30,
1999 2000
-------------------- ---------------------
<S> <C> <C>
Approximate net income under US GAAP Ps. 2,260,749 Ps. 1,348,057
Other comprehensive income:
Surplus from holding non-monetary assets 188,609 1,033,231
Deferred taxes adjustments (10,864) (225,565)
Effect of translation of foreign entities (116,233) 450,454
-------------------- ---------------------
Other comprehensive income 61,512 1,258,120
-------------------- ---------------------
Approximate comprehensive income under US GAAP Ps.2,322,261 Ps. 2,606,177
==================== =====================
</TABLE>
F-62
<PAGE>
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 registration statement on its behalf.
AMERICA MOVIL, S.A. DE C.V.
By: /s/ Daniel Hajj Aboumrad
-------------------------------
Name: Daniel Hajj Aboumrad
Title: Chief Executive Officer
Date: December 8, 2000
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
EXHIBITS
TO
FORM 20-F
REGISTRATION STATEMENT
PURSUANT TO SECTIONS
12(b) AND 12(g) OF THE
SECURITIES ACT OF 1933
------------
America Movil, S.A. de C.V.
(exact name of registrant as specified in its charter)
================================================================================
<PAGE>
Exhibit Index
Exhibit Page
Number Description No.
------ ----------- ---
1.1 Bylaws (estatutos sociales) of America Movil, S.A. de
C.V. (together with an English translation).
2.1 L Share Deposit Agreement (incorporated by reference to
the Registrant's registration statement on Form F-6
filed on the date hereof).
2.2 A Share Deposit Agreement (incorporated by reference to
the Registrant's registration statement on Form F-6
filed on the date hereof).
3.1 Trust Agreement dated December 20, 1990 among certain
shareholders of Telefonos de Mexico, S.A. de C.V.,
together with an English translation (incorporated by
reference to the registration statement of Telefonos de
Mexico, S.A. de C.V. on Form F-1 (File No. 333-39893)).
3.2 Conversion and Termination Agreement dated April 27,
2000 among Carso Global Telecom, S.A. de C.V., SBC
International, Inc. and France Telecom Financiere
Internationale.
4.1 Shareholders Agreement dated November 16, 2000 and
amended December 5, 2000, among Bell Canada
International Investments Limited, AM Latin America,
LLC, SBC International--Brazil Holding, Ltd. and
Telecom Americas Ltd.*
8.1 Significant subsidiaries.
--------------------
* Portions of this agreement have been omitted from this registration
statement pursuant to a confidential treatment request filed on the date
hereof.
