SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from to
Commission File Number 1-13120
GRUPO IUSACELL, S.A. DE C.V.
(Exact name of Registrant as specified in its charter)
IUSACELL GROUP, INC. THE UNITED MEXICAN STATES
(Translation of (Jurisdiction of
Registrant's name into English) incorporation or organization)
---------------------
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348 Mexico, D.F., Mexico
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
American Depositary Shares, each representing New York Stock Exchange
10 Series D Shares
Series D Shares New York Stock Exchange*
American Depositary Shares, each representing New York Stock Exchange
10 Series L Shares
Series L Shares New York Stock Exchange*
</TABLE>
- --------------------
* Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the Securities and
Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
U.S. $148,215,000 10% Series B Senior Notes Due 2004
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Series A Capital Stock 746,753,410 Shares
Series B Capital Stock 5,562,450 Shares
Series D Capital Stock 186,904,725 Shares
Series L Capital Stock 150,208,638 Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 |_| Item 18 |X|
<PAGE>
This Amendment No. 1 to our Annual Report on Form 20-F for the year ended
December 31, 1997 is made:
(a) To provide certain additional disclosures in our consolidated
financial statements required to be provided as a condition to our
wholly-owned subsidiaries listed on Schedule A to this amendment not
having to comply with the separate financial statement requirements
of Section 13 and 15(d) of the Securities and Exchange Act of 1934,
as amended. The terms of the exemption from the reporting
requirements are more fully set forth in a no-action letter from the
Staff of the Division of Corporation Finance of the Securities and
Exchange Commission dated September 15, 1999 (the "No-Action
Letter").
(b) To restate our consolidated financial statements to reflect a recent
reassessment of our accounting treatment under Mexican GAAP (but not
under US GAAP, which remains unchanged) of a Ps.928.0 million
(U.S.$115.0 million) impairment of the investment in our analog
telecommunications network, which resulted in a change from a charge
against stockholders' equity to a charge against operating results.
(c) To amend "Item 8. Selected Financial Data" and "Item 9. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" to reflect the reassessment referred to in (b) above.
(d) To correct certain information previously provided in "Item 5.
Nature of Trading Market" relating to the high, low and period end
sales prices and average trading volume of our series D and L shares
on the Mexican Stock Exchange as reported by the Mexican Stock
Exchange, and the high, low and period end sales price and the
average daily trading volume of our series D and L ADSs on The New
York Stock Exchange as reported by The New York Stock Exchange.
(e) To amend certain information provided in "Item 8. Selected Financial
Data" regarding 1997 average monthly MOUs per subscriber and nominal
average monthly revenue per subscriber in order to conform the
methodology used to standards applied by global cellular carriers.
(f) To amend "Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations" to provide certain additional
disclosure requested in the No-Action Letter.
Except for the above-specified modifications, our Annual Report on Form 20-F for
the year ended December 31, 1997, which was filed with the Securities and
Exchange Commission on June 30, 1998, is incorporated herein by reference.
2
<PAGE>
A. AMENDMENT TO ITEMS 8 AND 9.
The corresponding 1997 numbers in Item 8 and the 1997-1996 comparison of results
of operations in Item 9 of our Annual Report on Form 20-F for the year ended
December 31, 1997 filed on June 30, 1998 are hereby amended to reflect the
restated consolidated financial statements set forth herein.
In particular, a new paragraph is added to the 1997-1996 comparison immediately
above the "Net Income (Loss)" comparison as follows:
"Provision for Equipment Impairment
As a result of a reassessment of the accounting for the impairment charge
related to the Company's analog communications network, a provision of Ps.928.0
million (U.S.$115.0 million) was recorded for 1997. This results in a
corresponding increase in net loss for 1997. See Note 21 to the Consolidated
Financial Statements."
3
<PAGE>
B. AMENDMENT TO ITEM 5.
The corresponding text in Item 5 of Form 20-F of Grupo Iusacell, S.A. de C.V.
for the year 1997 filed on June 30, 1998 is hereby replaced by the following
text:
"The following tables set forth for the period indicated the high, low and
period end sales prices and the average daily trading volume of the series D and
L shares on the Mexican Stock Exchange as reported by the Mexican Stock
Exchange, and the high, low and period end sales price and the average daily
trading volume of the series D and L ADSs on the New York Stock Exchange as
reported by the New York Stock Exchange.
Mexican Stock Exchange (in Ps.)
<TABLE>
<CAPTION>
Average Daily
Period High Low Close Trading Volume
- ------ ---- --- ----- --------------
(shares)
<S> <C> <C> <C> <C>
Series D
First Quarter 1996........................................ 7.05 6.93 6.93 207,662
Second Quarter 1996....................................... 7.05 6.65 7.03 41,162
Third Quarter 1996(1)..................................... 7.03 7.03 7.03 0
Fourth Quarter 1996....................................... 7.03 5.02 5.02 17,305
First Quarter 1997........................................ 7.15 4.94 7.15 18,674
Second Quarter 1997....................................... 11.08 7.17 11.08 7,938
Third Quarter 1997........................................ 9.77 9.77 9.77 156,053
Fourth Quarter 1997....................................... 12.75 9.07 12.75 1,116,243
Series L
First Quarter 1996........................................ 9.58 8.00 8.48 135,641
Second Quarter 1996....................................... 10.08 8.30 8.32 224,968
Third Quarter 1996........................................ 8.28 5.99 5.99 113,222
Fourth Quarter 1996....................................... 7.14 5.39 6.99 112,660
First Quarter 1997........................................ 9.34 6.79 8.46 72,876
Second Quarter 1997....................................... 13.97 8.98 13.97 25,143
Third Quarter 1997........................................ 14.77 13.47 13.97 105,640
Fourth Quarter 1997....................................... 17.24 12.97 17.20 119,838
</TABLE>
- ----------
(1) There was no trading of series D shares in the third quarter of 1996.
4
<PAGE>
New York Stock Exchange (in U.S.$)
<TABLE>
<CAPTION>
Average Daily
Period High Low Close Trading Volume
- ------ ---- --- ----- --------------
(ADSs)
<S> <C> <C> <C> <C>
Series D
First Quarter 1996........................................ 11.125 8.500 8.875 7,562
Second Quarter 1996....................................... 11.250 8.375 8.750 4,974
Third Quarter 1996........................................ 8.875 6.625 6.750 1,845
Fourth Quarter 1996....................................... 7.125 5.625 5.750 12,652
First Quarter 1997........................................ 9.625 5.605 8.375 9,958
Second Quarter 1997....................................... 15.125 8.375 14.750 10,238
Third Quarter 1997........................................ 16.000 10.875 12.500 5,648
Fourth Quarter 1997....................................... 15.875 12.000 15.250 13,277
Series L
First Quarter 1996........................................ 13.250 10.500 10.875 35,172
Second Quarter 1996....................................... 14.125 10.500 10.750 27,211
Third Quarter 1996........................................ 10.750 7.500 7.500 19,803
Fourth Quarter 1996....................................... 9.375 6.750 7.625 33,188
First Quarter 1997........................................ 12.000 7.125 10.375 54,169
Second Quarter 1997....................................... 18.875 10.750 18.375 44,148
Third Quarter 1997........................................ 20.000 15.375 19.938 45,653
Fourth Quarter 1997....................................... 22.438 17.125 21.688 38,135"
</TABLE>
5
<PAGE>
C. AMENDMENT TO ITEM 8
o The number for average monthly MOUs per subscriber which appears in
the 1997 column in Item 8 (as well as references which appear in the
section "Year Ended December 31, 1997 as Compared to Year Ended
December 31, 1996--Revenues" of Item 9) should be "105" as opposed
to "100".
o Footnote 9 in Item 8 is replaced in its entirety by the following
text:
"(9) Effective January 1, 1998, the Company changed the methodology
by which it determines average monthly MOUs (minutes of use)
per subscriber. Average monthly MOUs per subscriber for a
given period are now calculated by dividing total MOUs in the
period by the sum of the monthly average subscribers for each
of the months in such period. Only 1997 average monthly MOUs
per subscriber information, which was 98 under the old
methodology, has been restated under the new methodology. The
average monthly MOUs per subscriber data for 1993 through 1996
are presented under the old methodology, which calculates
average monthly MOUs per subscriber for a given period by
dividing the total minutes of use for the respective period by
the number of average subscribers for the respective period
and dividing the result by the number of months in such
period."
o The amount for nominal average monthly revenue per subscriber which
appears in the 1997 column in Item 8 (as well as references which
appear in the section "Year Ended December 31, 1997 as Compared to
Year Ended December 31, 1996--Revenues" of Item 9) should be
"Ps.464" as opposed to "Ps.495".
o Footnote 10 in Item 8 is replaced in its entirety by the following
text:
"(10) Effective January 1, 1998, the Company changed the methodology
by which it determines nominal average monthly cellular
revenue per subscriber (ARPU). ARPU for a given period is now
calculated by dividing the sum of the monthly cellular service
revenue for each of the months in the period by the sum of the
monthly average cellular subscribers for each of the months in
such period. Only 1997 ARPU information, which was Ps.451
under the old methodology, has been restated under the new
methodology. The ARPU for 1993 through 1996 is presented under
the old methodology, which calculates ARPU for a given period
by dividing the total cellular service revenue for the
respective period by the average number of subscribers for the
respective period and dividing the quotient by the number of
months in such period."
6
<PAGE>
D. AMENDMENT TO ITEM 9
Two new paragraphs are added to the end of the sub-section entitled "--Liquidity
and Capital Resources--Liquidity" as follows:
"The Indenture imposes certain restrictions on the ability of the Company and
its Restricted Subsidiaries (as defined therein), including the subsidiaries of
the Company guaranteeing the 10% Senior Notes, to (i) pay dividends or make
distributions on the Company's Capital Stock or pay any Indebtedness (as defined
therein) owed to the Company or any other Restricted Subsidiary; (ii) make any
loans or advances to the Company or any other Restricted Subsidiary; or (iii)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary."
"There are no restrictions on the ability of any Restricted Subsidiary to pay
dividends or make distributions to the Company."
7
<PAGE>
E. FINANCIAL STATEMENTS
The financial statements included pursuant to Item 18 of Form 20-F of Grupo
Iusacell, S.A. de C.V. for the year ended December 31, 1997, filed on June 30,
1998, are hereby replaced in their entirety by the following text:
The Board of Directors of
Grupo Iusacell, S. A. de C. V.:
We have audited the accompanying consolidated balance sheets of Grupo
Iusacell, S. A. de C. V. (the "Company") and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and changes in financial position for each of the three
years in the period ended December 31, 1997. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards 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 and are prepared in accordance with generally accepted
accounting principles. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
a. The carrying values of the Company's property, plant and equipment
related to the 450 project are dependent on the assumption that these assets
will continue to be used in the operations of the Company. As a result of the
delays experienced by the Company and the uncertainty relating to the Company's
ability, at a commercially reasonable cost, to implement full scale local
wireless service in the 450 MHz frequency band, the Company may determine not to
pursue such service. In that event, the Company would record substantial
non-cash losses, consisting of the write off of assets in the range of Ps.
826,100, including about 90% of the tangible assets and all the preoperative
expenses (see Note 19.k).
b. As mentioned in Note 4.b, until December 31, 1996, the Company restated
Property and Equipment, net, and depreciation for the year, based on fair market
values determined from appraisals performed by independent appraisers; as a
result of the application of the Fifth Amendment of Bulletin B-10, modified,
issued by the Mexican Institute of Public Accountants, for the period ended
December 31, 1997, such method was changed to the method of restating based on
the National Consumer Price Index. For this reason amounts as of December 31,
1997 for the above-mentioned items are not comparable with the figures as of
December 31, 1996.
<PAGE>
-2-
c. As of December 31, 1996, the Company established a reserve for
restructuring costs for Ps. 157,850,000, which was charged to the consolidated
income statement as an extraordinary expense (see Notes 2, 4.d and 8.b to the
consolidated financial statements).
d. The attached financial statements as of and for the year ended December
31, 1997 have been restated, as mentioned in Note 4.b.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grupo Iusacell, S. A. de C. V. and subsidiaries as of December 31, 1997 and
1996, and the consolidated results of its operations, changes in stockholders'
equity and changes in its consolidated financial position for each of the three
years in the period ended December 31, 1997, in conformity with accounting
principles generally accepted in Mexico.
Accounting principles generally accepted in Mexico vary in certain
respects from accounting principles generally accepted in the United States. In
our opinion, based on our audits, application of accounting principles generally
accepted in the United States would have affected the determination of the
amount shown as net loss for the years ended December 31, 1997, 1996 and 1995
and the total amount of stockholders' equity as of December 31, 1997 and 1996 to
the extent summarized in Note 19 to the consolidated financial statements.
COOPERS & LYBRAND
DESPACHO ROBERTO CASAS ALATRISTE
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D. F., Mexico.
February 16, 1998, June 30,
1998 for Notes 19 and
20 and paragraph a, and
April 27, 1999 for Note 21
and paragraph d.
<PAGE>
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of December 31, 1997)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Services Ps.1,543,132 Ps.1,591,637 Ps.1,756,274
Telephone equipment sales and other 317,354 256,728 312,936
------------ ------------ ------------
1,860,486 1,848,365 2,069,210
------------ ------------ ------------
COST OF SALES:
Cost of services 514,215 583,533 643,895
Cost of telephone equipment and other 201,447 143,129 173,690
------------ ------------ ------------
715,662 726,662 817,585
------------ ------------ ------------
Gross profit 1,144,824 1,121,703 1,251,625
------------ ------------ ------------
OPERATING EXPENSES 743,777 800,763 913,942
DEPRECIATION AND AMORTIZATION 581,926 657,314 728,100
------------ ------------ ------------
Operating loss ( 180,879) ( 336,374) ( 390,417)
------------ ------------ ------------
PROVISION FOR EQUIPMENT IMPAIRMENT (Note 4.b) 928,000 -- --
------------ ------------ ------------
INTEGRAL FINANCING COST (GAIN):
Interest expense, net 248,200 305,573 188,354
Foreign exchange loss (gain), net 48,464 ( 67,531) 766,614
Gain from monetary position ( 292,724) ( 378,659) ( 545,261)
------------ ------------ ------------
3,940 ( 140,617) 409,707
------------ ------------ ------------
EQUITY PARTICIPATION IN NET (GAIN)
LOSS OF ASSOCIATED COMPANIES (Note 7) ( 157,688) 6,516 42,554
------------ ------------ ------------
Loss on continuing operations
before assets tax, employee
profit sharing, minority in-
terest and extraordinary item ( 955,131) ( 202,273) ( 842,678)
------------ ------------ ------------
PROVISIONS FOR
Assets tax 45,335 38,267 31,630
Employee profit sharing -- -- 2,263
------------ ------------ ------------
45,335 38,267 33,893
------------ ------------ ------------
Loss before minority interest
and extraordinary item ( 1,000,466) ( 240,540) ( 876,571)
MINORITY INTEREST 207 3,456 40,258
------------ ------------ ------------
Loss before extraordinary item ( 1,000,259) ( 237,084) ( 836,313)
EXTRAORDINARY ITEM:
Group reorganization charge
(Notes 2, 4.d and 8.b) -- 157,850 --
------------ ------------ ------------
Net loss for the year (Ps.1,000,259) (Ps. 394,934) (Ps. 836,313)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (thousands) 1,070,825 981,624 981,624
============ ============ ============
LOSS PER SHARE BEFORE EXTRAORDINARY
ITEM (pesos) (Ps. 0.07) (Ps. 0.24) (Ps. 0.85)
============ ============ ============
NET LOSS PER SHARE (pesos) (Ps. 0.07) (Ps. 0.40) (Ps. 0.85)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of December 31, 1997)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary item (Ps.1,000,259) (Ps. 237,084) (Ps. 836,313)
Items not requiring the use of resour-
ces:
Depreciation and amortization 581,926 657,314 733,755
Provision for equipment impairment 928,000 -- --
Equity participation in net (gain)
loss of associated companies ( 157,688) 6,516 42,554
Minority interest ( 207) ( 3,456) ( 40,258)
------------ ------------ ------------
351,772 423,290 ( 100,262)
Resources (used for) provided by ope-
rating activities-
Trade accounts receivable ( 51,916) 41,615 134,849
Related parties ( 362,230) 357,561 43,353
Recoverable taxes and other ( 132,582) ( 27,552) 86,092
Inventories ( 153,352) 61,126 51,849
Trade accounts payable 194,995 ( 456,162) 296,386
Taxes and other payables ( 74,071) 104,767 93,019
Income tax 1,759 5,729 1,345
Employee profit sharing ( 65) ( 227) ( 915)
Other 108 66 202
------------ ------------ ------------
Resources (used for) provided
by operating activities be-
fore extraordinary item ( 225,582) 510,213 605,918
Extraordinary item:
Group reorganization charge -- 157,850 --
------------ ------------ ------------
Resources (used for) provided
by operating activities ( 225,582) 352,363 605,918
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 2,218,837 113,240 30,186
Principal payments on long-term debt ( 717,849) ( 555,900) ( 476,109)
Net change in notes payable ( 806,668) 62,946 679,379
Increase of capital stock 698,502 -- --
------------ ------------ ------------
Resources provided by (used
for)financing activities 1,392,822 ( 379,714) 233,456
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment ( 677,853) ( 276,015) ( 512,349)
Sale of common stock of associated
companies 247,309 22,911 ( 55,778)
(Purchase) disposal of other assets ( 724,384) 192,010 ( 357,416)
------------ ------------ ------------
Resources used for investing
activities ( 1,154,928) ( 61,094) ( 925,543)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,312 ( 88,445) ( 86,169)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR 105,185 193,630 279,799
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR Ps. 117,497 Ps. 105,185 Ps. 193,630
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of December 31, 1997)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents Ps. 117,497 Ps. 105,185
------------ ------------
Accounts receivable:
Trade, net of Ps.78,136 and Ps.106,808 of
allowance for doubtful accounts in 1997
and 1996, respectively (Note 4.d) 204,512 152,596
Related parties (Note 5) 44,028 8,178
Recoverable taxes and other 226,084 93,502
------------ ------------
474,624 254,276
------------ ------------
Inventories (Note 6) 269,069 115,717
------------ ------------
Total current assets 861,190 475,178
INVESTMENT IN ASSOCIATED COMPANIES (Note 7) 17,781 101,669
PROPERTY AND EQUIPMENT, net (Note 8) 3,014,660 3,595,776
OTHER ASSETS, net (Note 9) 1,265,545 718,372
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER BOOK VALUE, net of
accumulated amortization of Ps.252,197 in 1997 and Ps.191,632 in 1996
(Note 4.i) 1,516,019 1,589,765
------------ ------------
Total assets Ps.6,675,195 Ps.6,480,760
============ ============
LIABILITIES
CURRENT:
Notes payable (Note 10) Ps. 2,663 Ps. 809,331
Current portion of long-term debt (Note 10) -- 122,126
Trade accounts payable (Note 11) 704,014 501,831
Related parties (Note 5) 80,294 406,674
Taxes and other payables 325,794 399,865
Income tax (Note 12) 8,833 7,074
Employee profit sharing (Note 12) 78 143
------------ ------------
Total current liabilities 1,121,676 2,247,044
LONG-TERM DEBT (Note 10) 2,218,837 595,723
TRADE ACCOUNTS PAYABLE, LONG-TERM (Note 11) 4,040 11,228
COMMITMENTS AND CONTINGENCIES (Notes 4.k and 13) 2,299 2,191
------------ ------------
Total liabilities 3,346,852 2,856,186
------------ ------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Notes 14 and 15):
Capital stock:
Nominal 2,979,286 2,356,153
Restatement 3,403,818 3,328,449
------------ ------------
6,383,104 5,684,602
------------ ------------
Capital contributed:
Nominal 18,655 18,655
Restatement 42,601 42,601
------------ ------------
61,256 61,256
------------ ------------
6,444,360 5,745,858
------------ ------------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve 3,349 3,349
For prior years ( 1,585,879) ( 1,190,945)
For the year ( 1,000,259) ( 394,934)
------------ ------------
( 2,582,789) ( 1,582,530)
------------ ------------
Deficit from restatement ( 544,802) ( 544,802)
------------ ------------
Total majority stockholders' equity 3,316,769 3,618,526
MINORITY INTEREST 11,574 6,048
------------ ------------
Total stockholders' equity 3,328,343 3,624,574
------------ ------------
Total liabilities and stockholders'
equity Ps.6,675,195 Ps.6,480,760
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of December 31, 1997)
<TABLE>
<CAPTION>
Accumulated losses
Capital ------------------------------------------- (Deficit)
stock Capital Legal Prior For the excess from
subscribed contributions reserve years year restatement
------------ ------------------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994 Ps.5,684,602 Ps.61,256 Ps.3,349 Ps. 407,568 (Ps.762,200) Ps. 700,223
Application of 1994 net
loss ( 762,200) 762,200
Recognition of the
effects of inflation
on the financial
statements ( 460,090)
Minority interest for
the year
Net loss for the year ( 836,313)
------------ --------- -------- ------------ ---------- ----------
Balance at December
31, 1995 5,684,602 61,256 3,349 ( 354,632) ( 836,313) 240,133
Application of 1995 net
loss ( 836,313) 836,313
Recognition of the
effects of inflation
on the financial
statements ( 784,935)
Minority interest for
the year
Net loss for the year ( 394,934)
------------ --------- -------- ------------ ---------- ----------
Balance at December
31, 1996 5,684,602 61,256 3,349 ( 1,190,945) ( 394,934) ( 544,802)
Application of 1996 net
loss ( 394,934) 394,934
Increase in capital
stock from the
capitalization of
stockholders' debt 615,345
Increase in capital
stock through the
issuance of shares
under the Executive
Stock Purchase Plan 83,157
Minority interest for
the year
Net loss for the year ( 1,000,259)
------------ --------- -------- ------------ ------------ ------------
Balance at December
31, 1997 Ps.6,383,104 Ps.61,256 Ps.3,349 (Ps.1,585,879) (Ps1,000,259) (Ps. 544,802)
============ ========= ======== ============ ============ ============
<CAPTION>
Total
Minority stockholders'
Interest equity
--------- ------------
<C> <C>
<S>
Balance at December Ps. 7,877 Ps.6,102,675
31, 1994
Application of 1994 net --
loss
Recognition of the
effects of inflation
on the financial ( 460,090)
statements
Minority interest for ( 35,733)
the year ( 836,313)
Net loss for the year --------- ------------
Balance at December ( 27,856) 4,770,539
31, 1995
Application of 1995 net --
loss
Recognition of the
effects of inflation
on the financial ( 784,935)
statements
Minority interest for 33,904 33,904
the year ( 394,934)
Net loss for the year --------- ------------
Balance at December 6,048 3,624,574
31, 1996
Application of 1996 net --
loss
Increase in capital
stock from the
capitalization of 615,345
stockholders' debt
Increase in capital
stock through the
issuance of shares
under the Executive 83,157
Stock Purchase Plan
Minority interest for 5,526 5,526
the year ( 72,259)
Net loss for the year --------- ------------
Balance at December Ps.11,574 Ps.3,328,343
31, 1997 ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
1128 (G26) 060298/270298 B5-03 A
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1996 AND 1995
(Adjusted for price-level changes and expressed in thousands
of constant Mexican pesos as of December 31, 1997 and
thousands of U.S. Dollars)
1. Entity and Nature of Business
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding Company which
was incorporated on October 6, 1992. Its subsidiaries are primarily
engaged in the wireless telecommunications business and hold concessions
to operate cellular telephone systems in four contiguous market areas
("Regions") in Mexico. In October 1995, the Company received a concession
from the Mexican government to operate as a long distance carrier and
started its operations in this market in August 1996. During 1996, the
Company also signed a joint venture agreement for the operation of
nationwide and international paging services. The Company started to
provide paging services in August 1996.
Affiliated companies of each of the Peralta Family and Bell Atlantic
Corporation ("Bell Atlantic") hold substantial ownership interests (direct
or indirect) in the Company.
On December 27, 1996, the Company's stockholders signed a definitive
agreement to change the management control of Grupo Iusacell, S.A. de
C.V., from the Peralta Family to Bell Atlantic, subject to certain Mexican
government approvals. Bell Atlantic assumed such management control on
February 18, 1997 (see Note 14).
The Company and its subsidiaries are referred to collectively herein as
the "Group" or "Grupo Iusacell".
2. Acquisitions and Group Reorganization
Acquisitions of Regions 5, 6 and 7
In 1993, the Company obtained ownership of Sistemas Telefonicos
Portatiles Celulares, S.A. de C.V. ("Portacel") and
Telecomunicaciones del Golfo, S.A. de C.V. ("Telgolfo"). Portacel
and Telgolfo hold the non-wireline cellular concessions for Region 6
and Region 7, respectively.
<PAGE>
-2-
The cost incurred in 1993 to acquire control of Portacel and
Telgolfo amounted to Ps. 924,731, of which Ps. 788,872 represented
the excess of investment cost over the book value.
In February 1994, the Company purchased the remaining minority
ownership interest of Telgolfo for Ps. 56,363, of which Ps. 52,463
represented the excess of investment cost over the book value.
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A.
de C.V. ("Hermes"), a company that owns 51% of Comunicaciones
Celulares de Occidente, S.A. de C.V. ("Comcel"). Comcel holds the
non-wireline cellular concession for Region 5. In December 1993, the
Company reached an agreement to purchase the remaining interests in
both Comcel and Hermes. The Company's cost of acquiring Comcel and
Hermes totaled Ps. 1,207,508, of which Ps.978,925 represented the
excess of investment cost over the book value.
Other acquisitions
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (later renamed Iusatel Chile, S.A. de
C.V.). The Company purchased this ownership interest for Ps. 22,211,
which was the book value of the shares acquired. During 1996, the
Company increased its ownership interest in Iusatel Chile, S.A. de
C.V. from 51% to 100% through the payment of $ 100 U.S. Dollars to
the minority stockholders in connection with the settlement of
litigation among the Company, Iusatel Chile, S.A. de C.V. and such
minority stockholders. In December 1996, the Company sold its debt
and equity in Iusatel Chile, S. A. de C. V. for $ 5,000 U.S.
Dollars. Payment was received in the form of three promissory notes
which matured between March and July 1997. Full payment of such
notes was made in December 1997.
In August 1994, the Company increased its ownership in Compania
Colombiana de Telefonia Celular, S.A. ("Telecel") from 28.5% to
63.25%, by acquiring an additional 34.75% interest. The cost to
acquire this interest was Ps. 35,724, of which Ps. 25,307
represented the excess of investment cost over the book value. In
March 1995, the Company increased its ownership interest in Telecel
through a capital contribution of Ps. 839. Through this
contribution, the Company increased its ownership in Telecel from
63.25% to 70.14%.
<PAGE>
-3-
On December 13, 1994, Iusacell, S.A. de C.V. (subsidiary company)
acquired 99.99% of Inmobiliaria Montes Urales 460, S.A. de C.V.. The
cost was Ps. 77,166, of which Ps. 14,500 represented the excess of
investment cost over the book value. In March 1997, the Company
signed an agreement under which the assets of Inmobiliaria Montes
Urales 460, S.A. de C.V. are to be sold to a third party for
approximately $ 8,275 U.S. Dollars.
In August 1995, the Company acquired from a related party 100%
interest of Iusatel, S.A. de C.V. Starting August 11, 1996, Iusatel,
S.A. de C.V. began to provide national and international long
distance basic telephone services pursuant to a concession received
from the Mexican government in October 1995. Under the conditions
established by the Mexican government for Bell Atlantic's assumption
of management control of the Company, the Company must sell a
majority of the voting shares of Iusatel, S.A. de C.V. to a Mexican
national by August 1998.
In August 1995, the Company incorporated as a new subsidiary, Grupo
Iusacell de Nicaragua, S.A. This company owns 100% of the shares of
Radio Telefonia Rural de Nicaragua, S.A. which in July 1995 entered
into a joint venture agreement with the Nicaraguan
Telecommunications Ministry for the provision of fixed wireless
local telephone services. In May 1996, the Nicaraguan
Telecommunications Ministry revoked the agreement. As of December
31, 1997, the Company has not made any investment in this project
and has no commitments for any such investments.
In December 1995, the Company signed a joint venture agreement with
Infomin, S.A. de C.V., a Mexican company which holds a fifteen-year
concession to provide nationwide and international paging services
through July 2009. Pursuant to this agreement, in March 1996, the
Company and Infomin established a joint venture company,
Infotelecom, S.A. de C.V., which is owned 51% and 49% by the Company
and Infomin, respectively. The Company committed to contribute up to
$ 10,500 U.S. Dollars; as of December 31, 1997 and 1996, the Company
had invested $ 8,500 and $ 3,500 U.S. Dollars, respectively, in the
joint venture. The joint venture agreement establishes the
individual and joint responsibilities of the partners. In case a
partner does not fulfill its responsibilities, sanctions could cause
such partner to lose its investment and up to $ 1,000 U.S. Dollars
as a penalty.
<PAGE>
-4-
In January 1996, the Company increased its ownership in Renta-Cell,
S.A. de C.V., which rents cellular phones, from 33.33% to 70%
through the acquisition of an additional 36.67% from its partners.
The cost to acquire this interest was Ps. 3,786. Starting January
1996, the Company consolidated the assets, liabilities and operating
results of this subsidiary. In November 1997, the Company increased
its ownership of Renta-cell, S.A. de C.V. from 70% to 100% through
the acquisition of an additional 30% from its partners. The cost to
acquire the remaining interest was Ps. 18,500 which represented the
excess of investment cost over the book value.
Group Reorganization
During 1996, several of the Company's subsidiaries were reorganized
or merged. The reorganization consisted of the following operations:
At an extraordinary stockholders' meetings held on December 31,
1996, the respective stockholders of Hermes Telecomunicaciones, S.A.
de C.V., GMD Comunicaciones, S.A. de C.V. and Portaserv, S.A. de
C.V., voted to dissolve these companies. As of this date, these
three companies have not performed any transactions except those
necessary to wind-up their pending businesses.
At the end of 1996, and based on the reorganization of the Company
and the change in the managerial and administrative control of the
Group (which occurred in February 1997), the Company established a
reserve of Ps. 157,850 for the restructuring expenses associated
with the reorganization. This reserve, due to its characteristics of
being non-recurrent and unusual, represents an extraordinary item in
the consolidated income statement. The composition of this reserve
is as follows:
Provision for consolidation of
facilities Ps. 82,971
Employee severance 30,781
Fixed assets obsolescence reserve 38,188
Change in estimate of allowance for
doubtful accounts 5,910
----------
Ps.157,850
==========
<PAGE>
-5-
Summary
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
Ownership
Interest
as of
December 31
---------------
Subsidiary 1997 1996
- ------------------------------------------ ---- ----
S.O.S. Telecomunicaciones, S.A. de C.V. 100% 100%
Iusacell, S.A. de C.V. 100% 100%
Sistecel, S.A. de C.V. 100% 100%
Comunicaciones Celulares de Occidente,
S.A. de C.V. (Region 5) 100% 100%
Sistemas Telefonicos Portatiles Celulares,
S.A. de C.V. (Region 6) 100% 100%
Telecomunicaciones del Golfo, S.A. de C.V.
(Region 7) 100% 100%
Inflight Phone de Mexico, S.A de C.V. 100% 100%
GMD Comunicaciones, S.A. de C.V. 100% 100%
Hermes Telecomunicaciones, S.A. de C.V. 100% 100%
Inmobiliaria Montes Urales 460, S.A. de
C.V.100% 100%
Portaserv, S.A. de C.V. 100% 100%
Mexican Cellular Investments, Inc. 100% 100%
Iusanet, S.A. de C.V. 100% 100%
Promotora Celular, S.A. de C.V. 100% 75%
Renta-Cell, S.A. de C.V. 100% 70%
Iusatelecomunicaciones, S.A. de C.V. 100% 100%
Iusatel, S.A. de C.V. 100% 100%
Grupo Iusacell Nicaragua, S.A. 100% 100%
Compania Colombiana de Telefonia Celular,
S.A.70% 70%
Cellular Solutions de Mexico, S.A. de C.V. 68% 68%
Satelitron, S.A. de C.V. 65% 51%
Infotelecom, S.A. de C.V. 51% 51%
3. Basis of presentation
a) Basis of Presentation
The Group's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in Mexico
("Mexican GAAP").
<PAGE>
-6-
The consolidated financial statements for the three periods have
been presented in thousands of constant Mexican pesos as of June 30,
1998 as required by Bulletin B-10, "Recognition of the Effects of
Inflation on Financial Information", as amended, issued by the
Mexican Institute of Public Accountants ("Bulletin B-10"). All
amounts presented in U.S. Dollars are in thousands.
The amounts as of December 31, 1996 and 1995, presented in the
financial statements and in the notes have been restated based on
the 1997 annual inflation rate (15.72%) based on the National
Consumer Price Index (NCPI) published by Banco de Mexico (Mexican
Central Bank) in order to present them in Mexican pesos of
purchasing power as of December 31, 1997.
b) Consolidated financial statements
Those companies in which the Group holds 50% or more of the capital
stock and/or exercises control over operating and financing
activities are included in the consolidated financial statements.
All significant intercompany balances and transactions have been
eliminated on consolidation.
c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
4. Accounting Policies
A summary of the Group's significant accounting policies is as follows:
a) Monetary unit
The financial statements are presented in Mexican pesos, the
currency that, based on Mexican laws, must be used to prepare
the accounting records of the Company and its Mexican
subsidiaries. All amounts presented in the 1997, 1996 and 1995
consolidated financial statements are expressed in thousands
of Mexican pesos.
<PAGE>
-7-
b) Effects of inflation on the financial statements
The consolidated financial statements of the Group have been
prepared in accordance with Bulletin B-10. The Third Amendment
of Bulletin B-10, effective for fiscal years beginning January
1, 1990 and thereafter, requires the restatement of all
comparative financial statements to constant Mexican pesos as
of the date of the most recent balance sheet presented.
Accordingly, the consolidated financial statements have been
restated as follows:
- Consolidated income statements for the current and
prior year have been restated to constant Mexican
pesos as of June 30, 1998 using the NCPI from the
periods in which the transactions (income and
expenses) occurred.
- Bulletin B-12, "Statement of Changes in Financial
Information", issued by the Mexican Institute of
Public Accountants ("Bulletin B-12"), addresses
the appropriate presentation of the statement of
changes in financial position where financial
statements have been restated to constant Mexican
pesos as of the latest balance sheet date.
Bulletin B-12 identifies the origination and
application of resources representing differences
between beginning and ending balance sheet
balances in constant Mexican pesos, excluding the
effect of holding non-monetary assets. Bulletin
B-12 also provides that monetary and foreign
exchange gains and losses should not be eliminated
from resources provided by operating activities,
nor from financing activities.
The items which originate from the recognition of effects of
inflation on financial information are as follows:
Restatement of non-monetary assets:
Inventories are valued at the average price of the
purchases made during the period, and are restated
using the NCPI, without exceeding net realizable
value.
<PAGE>
-8-
Until December 31, 1996, property and equipment
other than real estate were stated at net
replacement cost. Real estate properties were
stated at their fair market value. Net replacement
cost and fair market values were determined from
appraisals performed by independent appraisers
registered with the Comision Nacional Bancaria y
de Valores (Mexican National Banking and
Securities Commission).
Based on the Fifth Amendment of Bulletin B-10,
effective January 1, 1997, property and equipment,
net, and depreciation for the year, are restated
using the NCPI factors, without exceeding net
realizable value.
In October 1997, the Group recorded an impairment
loss to reduce the value of the investment in its
analog communications equipment to fair value. The
valuation of the analog equipment was determined
based on an appraisal performed by independent
appraisers registered with the Comision Nacional
Bancaria y de Valores in order to comply with
Bulletin B-10, which requires non-monetary assets
to be as close as possible to, but not higher
than, their fair market value. In 1997 such
impairment loss was charged to the deficit from
holding non-monetary assets restatement account in
stockholders' equity.
In December 1997, as further described in Note 13
d), the Company signed an agreement with Lucent
Technologies ("Lucent") to purchase digital
communications equipment, primarily to address (i)
customer requirements for better voice quality,
(ii) a need to increase network capacity to handle
rapidly growing subscriber levels, and (iii) a
need to remain competitive, particularly in view
of the government's auction of digital concessions
to other carriers. In 1998, based on further
analysis of the accounting effects of the contract
with Lucent, the Company reconsidered the
appropiate presentation of the impairment loss
described in the preceding paragraph and decided
to charge it directly against income, thus
restating the 1997 financial statements herein.
Property and equipment, other than communications
equipment, are depreciated using the straight-line
method, based on the restated values. Until
December 31, 1996 useful lives were determined by
independent appraisers. For communications
equipment, useful lives are still being determined
by independent appraisers. The average annual
rates of depreciation used by the Company are as
follows:
1997 1996
---- ----
Buildings and facilities 3% 3%
Communications equipment 9% 10%
Furniture and fixtures 9% 8%
Transportation equipment 17% 15%
Computer equipment 21% 21%
Cellular rental telephones 25% 25%
<PAGE>
-9-
Investments in associated companies are accounted
for using the equity method based on the
investees' equity adjusted for the effects of
inflation in accordance with Bulletin B-10.
Restatement of stockholders' equity:
The common stock and retained earnings accounts
include the effect of restatement determined by
applying the NCPI factor from the date capital was
contributed or earned. The restatement represents
the amount required to maintain the contributions
and accumulated results in constant Mexican pesos
as of December 31, 1997.
The excess or deficit from restatement of capital
is an element of stockholders' equity that
includes surplus or deficit from holding
non-monetary assets, which represents the excess
or deficit in specific values of net non-monetary
assets in comparison with the increase
attributable to general inflation as measured by
the NCPI.
Integral financing (gain) cost:
Integral financing (gain) cost comprises net
interest expense, foreign exchange gains and
losses, and gains and losses from net monetary
position.
Foreign exchange gains and losses on transactions
denominated in currencies other than Mexican pesos
result from fluctuations in exchange rates from
the date transactions are recorded to the time of
settlement or valuation at the end of the period.
Gains and losses from monetary position represent
the effects of inflation, as measured by the NCPI,
on the Group's monetary assets and liabilities at
the beginning of each month. If monetary
liabilities exceed monetary assets, there is a
gain from monetary position. Otherwise, if
monetary liabilities are less than monetary
assets, there is a resulting loss from monetary
position.
<PAGE>
-10-
c) Cash and cash equivalents
Cash and short-term investments consist primarily of
short-term, fixed rate investments and bank deposits. The
Company invests its excess cash in deposits with major banks.
The investments are carried at cost plus accrued interest,
which approximates market value. These investments are highly
liquid cash equivalents, having a maturity of ninety days or
less when acquired.
d) Allowance for doubtful accounts
The Company cancels service to those customers with invoices
that are 60 days past due. Beginning in 1996, the Company
began to fully reserve accounts receivable that were 90 days
past due. Prior to 1996, the Company fully reserved accounts
receivable over 120 days past due. The accumulated effect at
the beginning of the year for the change of this estimate was
Ps. 5,910 and such amount is presented as part of the
reorganization reserve (see Note 2). During 1997, 1996 and
1995, the Company wrote off accounts receivable for Ps.
36,424, Ps. 77,092 and Ps. 79,361, respectively. The charge to
income for the year, to increase the allowance for doubtful
accounts, amounted to Ps. 16,807, Ps.68,168 and Ps. 89,776, in
1997, 1996 and 1995, respectively.
e) Investment in associated companies
Long-term investments in common stock of companies in which
the Group owns not less than 20% nor more than 50% of the
entity's voting common stock and over which the Company can
exercise significant influence are accounted for using the
equity method. Under the equity method such investments are
carried at cost adjusted for the Company's share of the net
income or losses of these companies and the effects of
restatement of non-monetary assets by the associated
companies. The effect of transactions with such associated
companies are eliminated before applying the equity method.
Investments of less than 20% of an entity's voting common
stock or over which the Company cannot exercise significant
influence are stated at cost less a provision for any other
than temporary diminution in value.
<PAGE>
-11-
f) Cellular Telephones
Cellular telephones given to customers through an exclusive
service contract are amortized over the initial contract
period which averages eighteen months. The amortization is
periodically reviewed and adjusted if the customer does not
fulfill the original agreement. The cost of such telephones
are included in other assets, net of accumulated amortization.
The cost of cellular telephones sold to customers is recorded
as a cost of telephone equipment sold. Telephones leased to
customers are included in fixed assets and are depreciated
over the initial lease period, generally two years.
g) Concessions
Costs related to the acquisition of concessions granted by the
Mexican government to provide cellular telephone services have
been capitalized and are included in other assets. Such costs
are amortized on a straight-line basis over a twenty-year
period, which is the period of the concession. The Mexican
government requires that the Company comply with the specific
requirements of each concession. The Company has substantially
complied with such requirements through December 31, 1997,
except for certain informational requirements of the
authorities. The Company believes this situation does not
expose such concessions to any regulatory risk.
h) Advertising
Prepaid media advertising costs are included in other assets
in the accompanying balance sheet. Such costs are expensed, as
incurred, and are included in current operating expenses.
i) Excess of cost of investment in subsidiaries over book value
The excess of cost over the book value of net assets of
acquired subsidiaries is amortized on a straight-line basis
over twenty years. Amortization expense was Ps. 93,352, Ps.
100,991 and Ps. 88,355 in 1997, 1996 and 1995, respectively.
<PAGE>
-12-
The carrying amount applicable to each acquired subsidiary is
reviewed if the facts and circumstances suggest that it might
be impaired.
j) Income taxes and employee profit sharing
Income taxes are computed in accordance with the partial
liability method, as required by Bulletin D-4, "Accounting
Treatment for Income Tax and Employee Profit Sharing", issued
by the Mexican Institute of Public Accountants ("Bulletin
D-4"), under which deferred income tax provisions are recorded
for identifiable, non-recurring temporary differences (i.e.,
those expected to reverse over a definite period of time) at
rates in effect at the time such differences arise, and
reversed at the rates in effect at the time such differences
reverse.
In accordance with Bulletin D-4, the Company did not record a
provision for deferred taxes as of December 31, 1997, 1996 and
1995.
Employee profit sharing is a statutory labor obligation
payable to employees which is determined on the basis of each
subsidiary's pretax income as adjusted in accordance with the
provisions of the Mexican labor law and the Mexican tax law.
k) Seniority premiums
In accordance with Mexican labor law, the Group's employees
are entitled to seniority premiums after 15 years of service
or upon dismissal, disability or death. The Group follows
Bulletin D-3, "Labor Obligations", issued by the Mexican
Institute of Public Accountants ("Bulletin D-3"). Under
Bulletin D-3, the actuarially determined projected benefit
obligation is computed using estimates of salaries that will
be in effect at the time of payment. Personnel not yet
eligible for seniority premiums are also included in the
determination of the obligation with necessary adjustments
made in accordance with the probability that these employees
will reach the required seniority. At December 31, 1997, the
average seniority of the eligible employees is less than 4
years.
Also, in accordance with Mexican labor law, the Company is
liable for severance payments to employees who are dismissed
under certain circumstances. Such compensation is expensed
when paid.
<PAGE>
-13-
The Company has no employee pension plans and does not provide
for post retirement benefits.
l) Earnings (loss) per share
Effective January 1, 1997, Bulletin B-14 "Earnings per Share"
issued by the Mexican Institute of Public Accountants
("Bulletin B-14"), requires the disclosure in the income
statement of the net earning (loss) per share, and any per
share effect of any extraordinary item affecting the net
profit or loss for the year. Such per share amounts must be
calculated based on the weighted average number of shares of
common and/or preferred stock outstanding.
m) Revenue recognition
Cellular air time is recorded as revenue as service is
provided. Sales of equipment and related services are recorded
when goods and services are delivered. Cellular access charges
are billed in advance and recognized when the services are
provided. Other revenue, mainly from paging and long distance
services, are recognized on provision of these services.
n) Foreign currency transactions
Foreign currency transactions are recorded at the exchange
rates in effect at the transaction date. Assets and
liabilities denominated in foreign currencies are translated
to Mexican pesos using the exchange rates in effect at the
time of settlement or valuation at each balance sheet date,
with resulting exchange differences being recognized as
exchange gains or losses.
5. Related parties
Affiliates of the Peralta Family and Bell Atlantic hold substantial
ownership interests (direct or indirect) in the Company. In addition, the
Peralta Family holds ownership interests in various other entities,
primarily Industrias Unidas, S.A. de C.V. ("IUSA") and related entities
which are customers of or suppliers to the Company.
<PAGE>
-14-
A summary of related party accounts and notes receivable, including
interest, as of December 31, is as follows:
1997 1996
--------- --------
Punto a Punto Iusacell, S.A. de C.V. Ps.36,434 Ps. --
IUSA and related entities 7,594 4,804
Peralta Family entities -- 3,374
--------- --------
Total Ps.44,028 Ps.8,178
========= ========
Accounts receivable result from the financing of related parties'
operations, the sale of cellular telephone services and operating lease
contracts.
Accounts and notes payable to related parties, including interest, as of
December 31, are as follows:
1997 1996
--------- ----------
IUSA and related entities Ps. 3,577 Ps. 788
Peralta Family entities -- 605
FIUSA Pasteje -- 329,570
Bell Atlantic 76,717 75,711
--------- ----------
Total Ps.80,294 Ps.406,674
========= ==========
Accounts payable result from the leasing of some facilities and services
received. The notes payable to FIUSA Pasteje and Bell Atlantic resulted
from the financing of the Company's operations.
As a part of the agreement signed by Company's stockholders to change the
management control of Grupo Iusacell, at an extraordinary stockholders'
meeting in December 1996, the Company's stockholders approved the
capitalization of outstanding debt with Bell Atlantic and FIUSA Pasteje
(see Note 14).
During 1997, as a part of the program to restructure its indebtedness
fully described in Note 10, the Company repaid its borrowings from Bell
Atlantic prior to the stated maturity date.
<PAGE>
-15-
Following is an analysis of the related party transactions described above
for the years ended December 31:
1997 1996 1995
--------- ---------- ---------
Service revenue Ps. 8,837 Ps. 10,793 Ps.12,535
Lease income 2,019 2,296 2,537
Interest income -- -- 474
--------- ---------- ---------
Total income Ps.10,856 Ps. 13,089 Ps.15,546
========= ========== =========
Commission expenses Ps. 89 Ps. 3,573 Ps.18,255
Technical expenses 30,417 68,827 39,653
Lease expenses 3,586 6,908 2,842
Interest expense 22,275 34,247 16,014
Operating expenses -- 7,329 12,780
--------- ---------- ---------
Total expenses Ps.56,367 Ps.120,884 Ps.89,544
========= ========== =========
6. Inventories
As of December 31, inventories consist of the following:
1997 1996
---------- ----------
Cellular telephones and
accessories Ps.253,628 Ps. 94,411
Allowance for obsolete and
slow-moving inventories ( 29,348) ( 37,267)
---------- ----------
Net 224,280 57,144
Advances to suppliers 44,789 58,573
---------- ----------
Total inventories Ps.269,069 Ps.115,717
========== ==========
7. Investment in associated companies
The Company and a Mexican national organized Punto a Punto Iusacell, S. A.
de C. V. to participate in the auctions for microwave frequencies. The
Company owns 94.9% of the economic interest and 49% of the voting shares
of Punto a Punto Iusacell, S. A. de C. V.
<PAGE>
-16-
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorian cellular and paging
companies, Consorcio Ecuatoriano de Telecomunicaciones, S. A. (CONECEL)
and Corptilor, S.A. At the closing of the transaction, the Company
received $ 29,400 U.S. Dollars in cash consideration for its direct
interests in CONECEL and anticipates receiving up to an additional $ 2,000
U.S. Dollars, net of taxes, in respect to its indirect interests. This
sale generated a gain of Ps. 156,849.
As of December 31, the Group's investment in associated companies is as
follows:
1997 1996
---------------------- ----------------------
Entity Ownership Investment Ownership Investment
------ --------- ---------- --------- ----------
Editorial Celular,
S.A. de C.V 40.00% 3,822 40.00% Ps.2,530
Punto a Punto
Iusacell, S. A
de C. V 94.90% 48 -- --
Consorcio Ecuato-
riano de Tele-
comunicaciones,
S.A -- -- 27.53% 88,617
Other 13,911 10,522
--------- ----------
Ps.17,781 Ps.101,699
========= ==========
Summarized financial information for these associated companies accounted
for by the equity method as of and for the years ended December 31, 1997
and 1996, is as follows:
1997 1996
---------- ----------
Total assets Ps. 45,191 Ps.519,565
Total liabilities 40,298 275,515
Revenues 27,142 282,705
Gross profit 12,917 14,693
Net income 2,098 6,157
Group's share of net gain
(loss) 157,688 ( 6,516)
========== ==========
<PAGE>
-17-
8. Property and equipment, net
a) At December 31, property and equipment, net consisted of:
1997 1996
------------ ------------
Buildings and facilities Ps.1,050,476 Ps.1,060,570
Communications equipment 2,434,930 3,489,562
Furniture and fixtures 92,030 69,784
Transportation equipment 38,744 39,501
Computer equipment 224,421 192,467
Cellular rental telephones 26,617 26,855
------------ ------------
3,867,218 4,878,739
Accumulated depreciation ( 1,568,411) ( 1,617,695)
------------ ------------
2,298,807 3,261,044
Land 36,556 38,044
Construction in progress 445,047 171,075
Advances to suppliers 234,250 125,653
------------ ------------
Ps.3,014,660 Ps.3,595,776
============ ============
b) Depreciation expense was Ps. 330,969, Ps. 330,721 and Ps. 318,341 for
1997, 1996 and 1995, respectively. In 1996, the Company established an
obsolescence reserve of Ps. 38,188 for certain communications equipment,
which is included in the accumulated depreciation and is part of the
restructuring expenses classified as an extraordinary item. This reserve
is included in the balance of accumulated depreciation at December 31,
1996.
9. Other assets
At December 31, other assets consisted of the following:
1997 1996
------------ ----------
Concessions Ps. 194,548 Ps.175,815
Cellular telephones to be
amortized 84,378 72,627
Prepaid expenses 97,032 47,569
Advance payments 298,000 84,467
450 Project preoperating
expenses (Note 18) 509,117 330,760
Preoperating expenses, other 23,237 4,318
Other 59,233 2,816
------------ ----------
Ps.1,265,545 Ps.718,372
============ ==========
<PAGE>
-18-
Cellular telephones amortization expense was Ps. 157,605, Ps. 225,602 and
Ps. 317,701 in 1997, 1996 and 1995, respectively.
10. Notes payable and long-term debt
During 1997, the Company restructured its loans, through the offering of
long-term, unsecured senior notes and a long-term, secured syndicated bank
loan. The proceeds from both transactions were used principally to repay
(i) $ 65,440 U.S. Dollars of short-term notes (including interest and
commissions) contracted with a U.S. bank, (ii) $ 119,174 U.S. Dollars of
short-term and long-term loans (including interest and commissions)
contracted with Mexican banks, and (iii) $ 25,498 U.S. Dollars of a credit
obtained from Bell Atlantic (see Note 5).
As of December 31, 1997, the long-term debt of the Company consisted of
the following:
Mexican
U.S.Dollars pesos
------------- ------------
Long-term bank loan U.S.$ 125,000 Ps.1,008,562
Unsecured senior notes 150,000 1,210,275
------------- ------------
U.S.$ 275,000 Ps.2,218,837
============= ============
Long-term bank loan
This loan consists of $ 125,000 U.S. Dollars maturing on July 15,
2002, bearing interest at a variable rate which will be elected by
the Company, equal to (i) LIBOR plus 1.75% or (ii) the higher of the
loan agent's prime rate, the reserve adjusted secondary market rate
for certificates of deposit plus 1% or the Federal Funds effective
rate plus 0.5%. Interest is payable quarterly. The loan has
principal amortization requirements as follows:
Date U.S. Dollars
---- ------------
July 15, 2000 U.S.$ 18,750
July 15, 2001 51,250
July 15, 2002 55,000
-------------
U.S.$ 125,000
=============
As a part of this arrangement, the Company has a revolving credit
facility in the United States for up to $ 100,000 U.S. Dollars with
principal payments of 15% in 2000, 41% in 2001 and 44% in 2002. The
facility expires in July 1998. As of December 31, 1997, the Company
had not used this revolving credit facility. In January and February
1998, the Company withdrew $ 52,000 U.S. Dollars under this
revolving credit facility.
<PAGE>
-19-
Senior notes
On July 15, 1997 the Company concluded an offering of senior notes
due July 15, 2004 for $ 150,000 U.S. Dollars, bearing interest at a
fixed rate of 10% payable semi-annually starting January 15, 1998
(the "Notes"). The Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or after July 15, 2001
starting at a redemption price of 105.0% plus accrued interest, if
any, declining to 102.5% after July 15, 2002, and finally to 100.0%
after July 15, 2003.
In addition, at any time and from time to time prior to July 15,
2000, the Company may redeem in the aggregate up to 35% of the
original aggregate principal amount of the notes with proceeds of a
public equity offering by the Company at a redemption price of
110.0% plus accrued interest, if any. The notes may be redeemed at a
price equal to 100.0% plus accrued interest, if any, in the case of
legal changes affecting the treatment of the withholding taxes on
payments to holders of the notes.
The long-term bank loan and the senior notes impose certain
restrictive covenants such as maintenance of certain financial
ratios, restrictions on incurring additional debt, limitations on
capital expenditures, and restrictions on the sale or lease of the
Group's assets. As of December 31, 1997, the Company has complied
with such covenants.
At December 31, 1996, the notes payable and long-term debt consisted
of the following:
Notes payable at December 31, 1996:
1996
----------
Short term loan of $ 24,282 U.S.
Dollars bearing interest at a
variable rate of LIBOR plus
5.75% and maturing on February 28,
1997 Ps.220,086
Unsecured business short term
loan of $ 65,000 U.S. Dollars bearing
interest at a variable rate of LIBOR
plus 4% and maturity dates from February
through March 1997. 589,245
----------
Total Ps.809,331
==========
<PAGE>
-20-
Long term debt at December 31, 1996:
1996
----
Long-term loan of $ 18,000 U.S.
Dollars bearing interest at a
variable rate of LIBOR plus
2.9375% maturing December 2001.
Interest and principal were
payable semiannually commencing
June 15, 1994. Ps.163,152
Long-term loan of $ 7,935 U.S.
Dollars bearing interest at
a rate of 12.55% maturing on
July 15, 2002. Interest and
principal were payable semi-
annually commencing January 1994. 71,923
Long-term loan of $ 33,952 U.S.
Dollars bearing interest at a
variable rate of LIBOR plus 4%
maturing on January 28, 2004.
Interest and principal were pa-
yable semiannually commencing
June 1994. 307,735
Long-term loan of $ 13,156 U.S.
Dollars bearing interest at a
variable rate of LIBOR plus
3.75% maturing on November 14, 2004.
Interest and principal were
payable semiannually co-
mmencing July 1994. 119,241
Various medium and long-term loans
denominated in U.S. Dollars
bearing interest at rates that
ranged from LIBOR plus 2.5% to
LIBOR plus 3%, maturing between
February 1998 and April 2002. 55,798
----------
Total Ps.717,849
Less current portion ( 122,126)
----------
Total long-term Ps.595,723
==========
As of December 31, 1997 and 1996, assets collateralizing long-term
debt include substantially all assets, (including the cellular
concessions) and other property and equipment.
<PAGE>
-21-
The Group leases certain communications equipment and transportation
equipment under agreements which are classified as capital leases.
Most equipment leases have purchase options at the end of the
original lease term. Leased capital assets included in property and
equipment at December 31, 1997 and 1996 are as follows:
1997 1996
--------- ---------
Communications equipment Ps.17,389 Ps.26,315
Accumulated depreciation ( 4,970) ( 5,182)
--------- ---------
Ps.12,419 Ps.21,133
========= =========
11. Trade accounts payable
As of December 31, trade accounts payable consisted of the following:
1997 1996
---------- ----------
Current accounts Ps.696,700 Ps.294,464
Notes payable 7,314 207,367
---------- ----------
Total Ps.704,014 Ps.501,831
========== ==========
Long-term notes payable Ps. 4,040 Ps. 11,228
========== ==========
As of December 31, 1996, because of various disputes with Telefonos de
Mexico, S.A. de C.V. and affiliated companies ("Telmex") the Company had
only partially paid amounts invoiced by that company.
On August 14, 1997, the Company and Telmex entered into a settlement
agreement with respect to the fees charged by Telmex to Iusacell through
May 31, 1997 for interconnection services, switched long distance services
and certain other services billed by Telmex as of the date of the
settlement agreement. The Company paid Telmex Ps. 170,000, of which Ps.
22,200 constituted value-added tax and Ps. 28,600 was accounted for as
interest expense.
In September 1997, the Company and Telmex also entered into amendments to
the current interconnection agreement pursuant to which the Company agreed
to pay Telmex an interim interconnection rate of 31 cents per minute
retroactive to June 1, 1997 and Telmex agreed to extend to the Company the
38% discount available to other large business consumers for use of its
long distance network.
<PAGE>
-22-
12. Income Tax, Assets Tax and Employee Profit Sharing
The Company has filed a consolidated income tax return since the tax year
beginning January 1, 1994.
The income tax rate is 34%. The provision for income tax differs from the
statutory income tax rate due to temporary and permanent differences in
the determination of the income for tax reporting and financial reporting
purposes. The most significant temporary differences are the tax deduction
for inventory purchases and certain liability accruals which are
deductible only when paid for tax purposes. The most important permanent
items are the differences between book and tax depreciation, goodwill
amortization and non-deductible expenses.
In accordance with Mexican accounting principles, no deferred taxes have
been provided on temporary differences since such differences are of a
recurring nature and their realization cannot be foreseen in a defined
period of time.
The 1.8% net assets tax is calculated on the average value of
substantially all assets less certain liabilities. This tax is required to
be paid if this computation exceeds the amount of income tax. The 1.8%
assets tax paid may be utilized as a credit against future income tax in
the years in which the Company generates an income tax in excess of the
assets tax. The assets tax is available as a carry forward for up to ten
years and is subject to restatement based on the National Consumer Price
Index when used. As of December 31, 1997, the net assets tax available as
carry forward was Ps. 133,217.
At December 31, 1997, the Company had the following net operating losses
for income tax purposes that may be carried forward and applied against
future taxable earnings:
Year of Amount Expiration
loss of loss year
---- ------- ----
1991 Ps. 9,456 2001
1993 459,365 2003
1994 988,500 2004
1995 510,785 2005
1996 6,694 2006
1997 265,752 2007
<PAGE>
-23-
These losses are indexed for inflation from the year incurred to the sixth
month of the year utilized. Accordingly, these amounts include inflation
up to June 1997. Losses include Ps. 171,432 and Ps. 258,019 of capital
stock issuance costs expensed for tax purposes in 1994 and 1993. Such
amounts were charged against stockholders' equity in the financial
statements.
Employee profit sharing, generally 10%, is computed on taxable income,
with adjustments to exclude inflationary effects and the restatement of
depreciation expense. In the years ended December 31, 1997 and 1996 there
were no provisions for profit sharing.
The effective rate reconciliation as of December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income tax benefit at statutory rate (Ps. 14,417) (Ps.135,753) (Ps.286,510)
Add (deduct):
Inventory purchases less cost of
sales ( 76,281) ( 36,719) ( 90,800)
Depreciation and amortization ( 111,205) ( 109,443) ( 133,130)
Differences between interest and
inflationary gains or losses 93,856 165,793 224,521
Net assets tax 45,335 38,267 31,630
Application of income tax loss
carryforwards 90,356 11,081 164,157
Provision for doubtful accounts 12,080 ( 1,428) 7,290
Telephones to be amortized 42,032 68,886 86,445
Goodwill amortized 29,443 27,865 25,798
Other ( 65,864) 19,718 2,229
---------- ---------- ----------
Effective income tax expense at
effective rate Ps. 45,335 Ps. 38,267 Ps. 31,630
========== ========== ==========
</TABLE>
13. Commitments and contingencies
As of December 31, 1997, the Company has the following commitments and
contingent liabilities:
a) The Company has entered into operating lease agreements for
administrative offices, sales branches, and service
facilities. Such lease agreements expire at various dates
through 2007. Some agreements contain options for renewal.
Rental expense was Ps. 62,166, Ps. 54,409 and Ps. 55,360 for
the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
-24-
Future minimum rental payments under existing leases with
terms in excess of one year as of December 31, 1997 are as
follows:
1998 Ps. 69,287
1999 59,486
2000 53,153
2001 44,672
Thereafter 36,005
----------
Ps.262,603
==========
b) For taxes and penalties that the tax authorities may collect
if they disagree with the criteria applied by the Group
regarding the calculation of some taxes, rights and federal
contributions as a result of prior years' tax returns. As of
this date, there has been no notification of disagreement from
the authorities. In February 1996, the tax authorities
(Secretaria de Hacienda y Credito Publico) started an audit in
three companies of the Group (Grupo Iusacell, S.A. de C.V.,
Iusacell, S.A. de C.V. and SOS Telecomunicaciones, S.A. de
C.V.). During 1997, the tax authorities finished such audit
and determined differences of Ps. 6,135, including penalties
and surcharges. These differences are classified as a part of
the provision for taxes in the income statement for 1997.
c) Mitsubishi Electronics America Inc. ("MELA") filed a complaint
in the United States on July 18, 1996 against Grupo Iusacell,
S.A. de C.V. and Bell Atlantic Corporation. Essentially,
Mitsubishi alleges that it had a contract with Grupo Iusacell
for the sale of telephone terminals and that Iusacell has
breached the contract by not purchasing the terminals. MELA
alleges the contract was for the sale of 60,000 units at a
unit cost of .510 U.S. Dollars. Grupo Iusacell filed a motion
to dismiss for lack of personal jurisdiction. The motion was
denied by Illinois State court. Management believes the
lawsuit has no basis and does not anticipate that any
significant damages will result in favor of MELA at the end of
the lawsuit. The lawsuit is currently in the discovery stage.
<PAGE>
-25-
d) In 1996, the Company received a notification from the
authorities requesting the payment of surcharges related to
the purchase completed in 3 installments in 1990 of the Region
5 concession. This Region was bought by Grupo Iusacell in 1993
(see Note 2). In 1997, the Ministry of Communications and
Transportation ("S.C.T.") notified the Company that, based on
its review, the Company had no further obligation with respect
to such concession payments.
e) In December 1997, the Company signed an agreement with Lucent
Technologies to purchase CDMA-based wireless equipment for $
182,000 U.S. Dollars, to install its digital cellular network.
In connection with this contract, Lucent has issued trade-in
credits to the Company for approximately $ 90,000 U.S.
Dollars, representing the net replacement cost of the network
equipment being displaced.
f) In February 1998, the Company's former advertising agency sued
the Company for Ps. 23,000, alleging improper termination of
its contract. Management believes the lawsuit has no basis and
does not anticipate that any significant damages in favor of
such former advertising agency will result at the end of the
lawsuit.
14. Contributed capital
As mentioned in Note 1, in December 1996, the Company's principal
stockholders signed an agreement to transfer management control over Grupo
Iusacell to Bell Atlantic. Following the signed agreement, at a
extraordinary stockholders' meeting, the following resolutions modifying
the Company's bylaws were adopted:
1) Series A shares may be acquired by Mexicans and/or foreigners.
2) The conversion of 200,000,000 Series B shares and 166,769,760
Series D shares, for 366,769,760 Series A shares.
3) The conversion of 100,000,000 Series A shares for 100,000,000
Series D shares.
These resolutions were subject to the receipt of authorizations from the
National Foreign Investment Commission and the Federal Competition
Commission. On February 10 and 12, 1997, Grupo Iusacell's new share
ownership and management control structure received the required Mexican
government authorizations.
<PAGE>
-26-
Based on the above mentioned authorizations and the adoption of such
resolutions, the stockholders decided to increase the fixed portion of the
capital stock by up to Ps. 720,000 through the issuance of up to
74,163,591 Series A shares and up to 54,407,837 Series D shares.At the
same stockholders' meeting, an Executive Employee Stock Purchase Plan for
the Company's executives (the "Stock Purchase Plan") was approved (see
Note 15). As part of this plan, the stockholders decided to increase the
fixed portion of the capital stock by up to Ps. 100,000 through the
issuance of up to 15,625,000 Series L shares.
On February 28, 1997 the Company's Board of Directors ratified a capital
increase of Ps. 545,351. The shares were offered for their subscription
and payment in the following way:
a) Bell Atlantic Latin America Holdings, Inc. subscribed
47,017,491 Series A shares through the capitalization of
certain liabilities.
b) FIUSA Pasteje, S.A. de C.V. subscribed 4,390,619 Series A
shares and 48,754,265 Series D shares through the
capitalization of certain liabilities.
c) Preemptive stockholder rights were exercised for the amount of
92,584 Series L shares.
Additionally, 7,812,500 Series L shares were kept in Company's treasury
available for the Stock Purchase Plan. During 1997, 7,549,834 of these
shares have been subscribed by employees, as follows:
On April, 17, 1997, the Technical Committee of the trust
administrating the Stock Purchase Plan ("Technical Committee")
approved the subscription of 5,741,033 Series L shares for the Stock
Purchase Plan. The subscription price for those shares was Ps.
52,648.
On June 6, 1997, the Technical Committee approved the subscription
of 1,124,344 Series L shares for the Stock Purchase Plan. The
subscription price for those shares was Ps. 15,639.
On September 30, 1997 the Technical Committee approved the
subscription of 684,457 Series L shares for the Stock Purchase Plan.
The subscription price for those shares was Ps. 9,495.
As of December 31, 1997, 262,666 Series L shares remained available
in the Company's treasury for issuance under the Stock Purchase
Plan.
<PAGE>
-27-
The changes in the number of shares of common stock for the period
January 1, 1995 through December 31, 1997 are analyzed as follows:
Number of shares
----------------
January 1, 1995 balance 981,624,430
No changes --
----------------
December 31, 1995 balance 981,624,430
No changes --
----------------
December 31, 1996 balance 981,624,430
February 28, 1997 - issuance
of common stock through the
capitalization of debt 100,254,959
April 17, 1997 - issuance of
common stock for the Stock
Purchase Plan 5,741,033
June 6, 1997 - issuance of
common stock for the Stock
Purchase Plan 1,124,344
September 30, 1997 - issuance
of common stock for the
Stock Purchase Plan 684,457
---------------
December 31, 1997 balance 1,089,429,223
===============
At December 31, 1997 and 1996, the issued and outstanding shares of
common stock of the Company, without par value, are as follows:
1997 1996
------------- -----------
Series A 746,753,410 428,575,540
Series B 5,562,450 205,562,450
Series D 186,904,725 204,920,220
Series L 150,208,638 142,566,220
------------- -----------
Total 1,089,429,223 981,624,430
============= ===========
Series A, B and D represent shares entitling the holder of each share to
one vote at the Company's stockholders' meetings. The stockholders of
Series L shares may vote only in limited circumstances as described in the
Company's bylaws. Stockholder actions on certain matters require approval
by both Series A and Series B stockholders.
<PAGE>
-28-
Series A shares must always represent no less than 51% of the capital
stock with full voting rights and are acquirable by Mexicans or
foreigners. Series B, D and L shares may also be acquired by foreigners or
Mexicans.
Series B shares cannot exceed 29.1% of the total capital stock and Series
D shares cannot exceed 19.9% of the total capital stock. Series L shares
cannot exceed 19% of the total capital stock.
15. Executive Employee Stock Purchase Plan
In March 1997, the Company adopted the Stock Purchase Plan. The Stock
Purchase Plan is administrated by a management trust with the assistance
of the trust division of a Mexican Bank. Under the Stock Purchase Plan,
the Technical Committee, which is composed of certain executive officers
of the Company, determines the executive employees to whom Series L shares
of the Company will be offered for purchase. The Technical Committee also
determines the number of Series L shares to be offered for purchase to
such executive employees, the purchase price per share for such purchase
rights, the vesting schedule for such purchase rights, the payment terms
and all other terms and conditions therefor. The number of Series L shares
that may be granted under the Stock Purchase Plan cannot exceed 4.9% of
the aggregate number of issued and outstanding Company shares.
During 1997, the Technical Committee granted purchase rights with respect
to a total of 7,549,834 Series L shares. All such purchase rights vest
either in three equal annual installments commencing on April 17, 1998,
June 6, 1998 or September 30, 1998 or in their entirety on April 17, 1999
or June 6, 1999 (see Note 14).
16. Earned Capital
In accordance with Mexican corporate law, a legal reserve must be created,
and annually increased by 5% of the annual net earnings until it reaches
20% of the common stock amount. This reserve is not available for
dividends, but may be used to reduce a deficit or may be transferred to
capital.
As defined in the Federal income tax law, a tax on dividends is calculated
based on the paid dividends which exceed taxable net income. The
accumulated taxable net income of the Company as of December 31, 1997 is
approximately Ps. 86,488.
The Company cannot pay dividends under the covenants for the senior notes
and bank loans.
<PAGE>
-29-
The earned capital accounts consist of the following:
December 31, 1997
-----------------------------------------------
Accumulated
adjustments
Historical for
value inflation Total
------------- ------------- -------------
Legal reserve Ps.1,499 Ps.1,850 Ps.3,349
Accumulated
losses from
prior years (1,646,797) 60,918 (1,585,879)
Net loss for
the year (192,364) 120,105 (72,259)
Deficit from
restatement -- (1,472,802) (1,472,802)
------------- ------------- -------------
Total (Ps.1,837,662) (Ps.1,289,929) (Ps.3,127,591)
============= ============= =============
December 31, 1996
----------------------------------------------
Accumulated
adjustments
Historical for
value inflation Total
------------- ----------- -------------
Legal reserve Ps.1,499 Ps.1,850 Ps.3,349
Accumulated
losses from
prior years (1,131,162) (59,783) (1,190,945)
Net loss for
the year (515,635) 120,701 (394,934)
Deficit from
restatement -- (544,802) (544,802)
------------- ----------- -------------
Total (Ps.1,645,298) (Ps.482,034) (Ps.2,127,332)
============= =========== =============
17. Foreign Currency Position
The balance sheet as of December 31 includes assets and liabilities
denominated in U.S. Dollars, as follows:
1997 1996
-------------- --------------
Monetary assets U.S.$ 52,166 U.S.$ 12,752
Monetary liabilities 360,775 254,629
------------- --------------
Net monetary liability po-
sition in U.S. Dollars U.S.$ 308,609 U.S.$ 241,877
============== ==============
Equivalent in nominal
Mexican pesos Ps. 2,489,887 Ps. 1,894,502
============== ==============
<PAGE>
-30-
During 1997 and 1996, interest expense and interest income on assets and
liabilities denominated in U.S. Dollars were as follows:
1997 1996 1995
------------ ----------- -----------
Interest income U.S.$ 386 U.S.$18,298 U.S.$ 7,749
Interest expense 15,994 52,011 28,779
------------ ----------- -----------
Net expense U.S.$ 15,608 U.S.$33,713 U.S.$21,030
============ =========== ===========
Equivalent in nomi-
nal Mexican pesos Ps. 125,927 Ps. 264,057 Ps. 162,764
============ =========== ===========
The exchange rate as of December 31, 1997, 1996 and 1995 was Ps. 8.0681,
Ps. 7.8325 and 7.7396 per 1 U.S. Dollar, respectively. At the issuance
date of these financial statements the exchange rate in effect was Ps.
8.4652 per 1 U.S. Dollar.
18. Project 450
During 1994, the Company created a subsidiary to be in charge of providing
fixed wireless local telephony services ("Project 450"). At December 31,
the Company's investment in Project 450 consisted of the following assets:
1997 1996
---------- ----------
Fixed assets Ps.362,144 Ps.423,489
Capitalized interest (Note 9) 262,185 167,734
Inventory 19,275 23,116
Pre-operating expenses (Note 9) 246,932 163,026
---------- ----------
Total Ps.890,536 Ps.777,365
========== ==========
December 31, 1996 amounts have been reclassified to conform to the 1997
presentation.
The Company had an agreement with a foreign supplier under which it agreed
to buy approximately $ 315,000 U.S. Dollars worth of network switching
equipment and radio base station equipment as well as associated software
and technical services for the development of the local wireless network,
in a five year period commencing when the Ministry of Communications and
Transportation ("S.C.T.") would grant the required licenses. On December
31, 1997, this agreement automatically terminated without penalty.
Consequently, any obligation of the Company to acquire any additional
equipment under the agreement was terminated.
<PAGE>
-31-
On June 10, 1997, the S.C.T. and the Company reached an agreement on a
process whereby the Company could obtain a concession issued and
recognized by the S.C.T. to provide local wireless service in the 450 MHz
frequency band. Although the Company is exploring alternatives for
providing local telephone service in other frequency bands, management
believes that at least 75% of the Project 450 tangible assets could be
used in its cellular operations. (See Note 19).
19. Differences between Mexican and United States Generally Accepted Accounting
Principles
The Company's consolidated financial statements are prepared based on
accounting principles generally accepted in Mexico ("Mexican GAAP"), which
differ in certain significant respects from United States generally
accepted accounting principles ("U.S. GAAP").
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. The application of Bulletin B-10
represents a comprehensive measure of the effects of price-level changes
in the financial statements based on historical cost for Mexican and U.S.
accounting purposes. The principal differences, other than inflation
accounting, between Mexican and U.S. GAAP are listed below, together with
an explanation where appropriate, of the adjustments that affect
consolidated net income and stockholders' equity for each of years ended
December 31, 1997, 1996 and 1995.
a) Deferred income taxes and employee profit sharing
Under Mexican GAAP deferred income taxes are provided for
identifiable, non-recurring timing differences (those expected to
reverse over a definite period of time) at rates in effect at the
time such differences originate. Benefits from loss carryforwards
are not allowed to be recognized before the period in which the
carryforward is utilized. For purposes of this reconciliation to
U.S. GAAP, the Company has applied Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes"("SFAS 109"), for
all periods presented.
<PAGE>
-32-
SFAS 109 requires an asset and liability method of accounting
whereby deferred taxes are recognized for the tax consequences of
all temporary differences between the financial statement carrying
amounts and the related tax bases of assets and liabilities. Under
U.S. GAAP, the effect on deferred taxes of a change in tax rate is
recognized in income in the period that includes the enactment date.
SFAS 109 requires deferred tax assets to be reduced by a valuation
allowance if, based on the weight of available evidence, including
cumulative losses in recent years, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
As described in Note 12, Mexican tax law requires payment of a 1.8%
tax on the Company's net assets which may be used to offset future
income tax obligations. Under Mexican GAAP, the net asset tax is
charged to the provision for income taxes. Under SFAS 109, such
amounts are treated as a deferred tax benefit and offset by a
valuation allowance, if required.
Employee profit sharing expense, which is based on each subsidiary's
taxable income after certain statutory adjustments, is included in
the income tax provision under Mexican GAAP. The provision for
employee profit sharing is charged to operations for U.S. GAAP
purposes.
b) Capitalized interest
Under Mexican GAAP, capitalization of integral financing costs on
assets under construction is allowed but not required. For Mexican
GAAP purposes the Company began capitalizing interest on January 1,
1995. Prior to this date, interests costs were expensed for Mexican
GAAP purposes. Under Mexican GAAP, interest on those obligations
which are identified as relating to construction projects is subject
to capitalization. For U.S. GAAP purposes, interest is capitalized
by applying the weighted average rate of borrowings to the average
amount of accumulated expenditures for the asset. In 1994, the
interest capitalized under Mexican GAAP was adjusted to reconcile
with U.S. GAAP. For the years ended December 31, 1997 and 1996,
there was no difference in the amounts capitalized under Mexican and
U.S. GAAP. As of December 31, 1997 and 1996, the capitalized
interest amounted to Ps. 262,185 and Ps. 167,734, respectively.
<PAGE>
-33-
c) Acquisitions
Under Mexican GAAP, assets and liabilities of acquired subsidiaries
are carried over the acquiring entity's financial statements at
their book value as of the date of acquisition. The excess of cost
over such book value is recorded as "excess of cost of investment in
subsidiaries over book value" ("goodwill") in the accompanying
balance sheets.
Under U.S. GAAP, for acquisitions accounted for using the purchase
method, the cost of acquiring another entity is allocated to the
tangible and identifiable intangible assets based on their fair
values at the date of acquisition and liabilities assumed are
recorded at their then current fair values. Any excess of cost over
such fair values is recorded as goodwill.
In the accompanying balance sheet, the concessions acquired in the
acquisitions of Regions 5, 6 and 7, have been recorded at their book
value under Mexican GAAP and not at their fair value as required by
U.S. GAAP. Substantially all goodwill recorded under Mexican GAAP
would be assigned to cellular concessions under U.S. GAAP. However,
since acquired concessions are amortized over the same twenty year
period as goodwill, there is no effect on U.S. GAAP net income or
stockholders' equity.
e) Fixed assets impairment
Statement of Financial Accounting Standard No.121 "Accounting for
the impairment of long lived assets and for long lived assets to be
disposed of" states that assets to be disposed of should be
accounted for at the lower of carrying amount or fair value less
costs to sell. Any reduction in the carrying value of the assets
should be accounted for as a component of income from operations.
Therefore under US GAAP, the reduction in the carrying value of the
telecommunications analog network would be accounted for asa
component of income from operations rather than as a reduction in
the amount "Excess from restatement" in stockholders' equity. The
effects of the above adjustment are included in paragraph j) below.
e) Investment in Project 450
Under Mexican GAAP capital expenditures, related finance costs and
pre-operating costs related to Project 450 have been capitalized.
<PAGE>
-34-
Under U.S. GAAP pre-operating costs that meet the definition of deferred
start up costs would be expensed as incurred.
f) Minority interest
Under Mexican GAAP, the minority interest in consolidated
subsidiaries is presented as a separate component within the
stockholders' equity section of the consolidated balance sheet. For
U.S. GAAP purposes, minority interest is not included in
stockholders' equity and accordingly is deducted as a reconciling
item to arrive at U.S. GAAP equity.
g) Earnings (loss) per share
As of January 1, 1997, Mexican GAAP requires the disclosure of
earnings per share ("EPS") for public companies. Under U.S. GAAP,
disclosure of EPS is also required for public companies.
Accordingly, EPS has been computed for the years ended December 31,
1997, 1996 and 1995, based on the weighted average number of common
shares outstanding during such periods.
h) Effect of inflation accounting on U.S. GAAP adjustments
In order to determine the net effect on the financial statements of
recognizing certain of the adjustments described above, it is
necessary to recognize the effects of applying the Mexican GAAP
inflation accounting principles (described in Note 4) to such
adjustments.
i) Extraordinary item
In the financial statements prepared in accordance with Mexican
GAAP, Ps. 157,850 relating to restructuring charges for 1996 have
been clasified as an extraordinary item. Under U.S. GAAP such
amounts would be classified as operating expenses.
j) Net loss and stockholders' equity under U.S. GAAP
The following is a summary of net loss and stockholders' equity
adjusted to take into account certain material differences between
Mexican GAAP and U.S. GAAP:
<PAGE>
-35-
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported under
Mexican GAAP (Ps.1,000,259) (Ps. 394,934) (Ps.836,313)
Deffered income taxes 370,290 195,340 263,260
Project 450 investment ( 64,203) ( 69,695) --
Gain on net monetary position 15,142 115,195 178,142
------------ ----------- -----------
Net loss under U.S. GAAP (Ps. 679,030) (Ps. 154,094) (Ps. 394,911)
============ =========== ===========
Weighted average number of
shares outstanding (thousands) 1,070,825 981,624 981,624
============ =========== ===========
Net loss per share (pesos) (Ps. 0.63) (Ps. 0.16) (Ps. 0.40)
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Stockholders' equity under
Mexican GAAP Ps.3,328,343 Ps.3,624,574 Ps.4,770,539
Minority interest ( 11,574) ( 6,048) 27,856
Deffered income taxes 96,615 ( 273,673) ( 763,672)
Project 450 investment ( 133,898) ( 69,695) --
------------ ------------ ------------
Stockholders' equity as re-
ported under U.S. GAAP Ps.3,279,486 Ps.3,275,158 Ps.4,034,723
============ ============ ============
</TABLE>
k) Supplementary U.S. GAAP disclosures
1) Cash flow information
Since Statement of Financial Accounting Standards No.95,
"Statement of Cash Flows" ("SFAS 95"), does not provide any
specific guidance with respect to inflation adjusted financial
statements, for U.S. GAAP purposes, the following cash flow
statement is presented, using U.S. GAAP balance sheets
restated for inflation. Monetary gains and losses, and
unrealized foreign exchange gains and losses have been
included as operating cash flow reconciling items. Other items
have been included based on their cash flows, adjusted by
inflation.
<PAGE>
-36-
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss under U.S. GAAP (Ps.679,030) (Ps.154,094) (Ps.394,911)
Adjustments to reconcile net loss to
cash provided by (used in) opera-
ting activities:
Depreciation 330,969 330,721 318,341
Amortization 250,957 326,593 415,414
Provision for equipment impairment 928,000 -- --
Equity in loss (earnings) of asso-
ciated companies (157,688) 6,516 42,554
Increase in allowance for doubtful
accounts 16,807 77,091 89,776
Increase in allowance for obsolete
and slow-moving inventories (2,856) 4,467 56,725
Minority interest (207) (3,457) (40,258)
Deffered income taxes and employee
profit sharing (16,799) (195,340) (263,259)
Gain on net monetary position and
foreign exchange losses (326,858) (661,589) (723,403)
Group reorganization reserve -- 157,850 --
Changes in operating assets and liabilities:
Accounts receivable (89,566) (94,399) 7,995
Inventories (160,496) 56,661 (4,875)
Trade accounts payable and related
parties (91,377) (73,303) 532,216
Taxes and other payable (241,826) 138,851 223,277
Income tax 2,602 5,501 429
Other 342 65 202
---------- ---------- ----------
Net cash provided by (used in) opera-
ting activities (535,182) (77,860) 260,223
---------- ---------- ----------
Financing activities:
Proceeds from notes payable and long-
term debt 2,396,507 150,340 1,859,677
Payments of notes payable and long-
term debt (1,624,246) (299,073) (1,343,015)
Increase of capital stock 698,502 -- --
---------- ---------- ----------
Total cash provided by (used in) finan-
cing activities 1,570,763 (148,733) 579,151
---------- ---------- ----------
Investing activities:
Purchase of property and equipment,
net (677,853) (229,665) (512,349)
Investment in associated companies,
net of cash acquired 247,309 22,911 (55,778)
Purchase of other assets (592,725) 344,902 (357,416)
---------- ---------- ----------
Total cash (used in) provided by in-
vesting activities (1,023,269) 138,148 (925,543)
---------- ---------- ----------
</TABLE>
<PAGE>
-37-
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents Ps. 12,312 (Ps. 88,445) (Ps. 86,169)
Cash and cash equivalents at beginning
of year 105,185 193,630 279,799
---------- ---------- -----------
Cash and cash equivalents at the end
of year Ps.117,497 Ps.105,185 Ps. 193,630
========== ========== ===========
Interest expense paid Ps.127,750 Ps.195,340 Ps. 263,260
========== ========== ===========
Income tax paid Ps. 36,502 Ps. 34,347 Ps. 24,482
========== ========== ===========
</TABLE>
Supplemental disclosures of non-cash activities:
As detailed in Note 2, the sale of the investment in Iusatel Chile and the
increase in the participation in the equity of Renta-Cell, were non-cash
transaction for the year ended December 31, 1996. The sale of the
investment in Iusatel Chile became a cash transaction during 1997.
2) The provision for income taxes for the years ended December 31, 1997,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Asset tax not offset by current
taxes Ps. 45,335 Ps. 38,267 Ps. 31,630
Deferred taxes ( 370,290) ( 195,340) ( 263,260)
---------- ---------- ----------
Tax benefit (Ps.324,955) (Ps.157,073) (Ps.231,630)
========== ========== ===========
</TABLE>
3) Deferred income taxes
Significant components of deferred income taxes under U.S. GAAP are
as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
----------------------------------------------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 91,483 Ps. -- Ps. 91,483
Property and equipment 262,738 -- 262,738
Cellular telephones to be
amortized 28,689 -- 28,689
Concessions 2,096 -- 2,096
------------ ------------ -----------
Deferred tax liabilities Ps. 385,006 Ps. -- Ps. 385,006
------------ ------------ -----------
</TABLE>
<PAGE>
-38-
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
----------------------------------------------------
<S> <C> <C> <C>
Deferred assets:
Allowance for doubtful
accounts Ps. 26,566 Ps. -- Ps. 26,566
Net operating loss and tax
credit carryforward 895,004 -- 895,004
Group reorganization
reserve 20,264 -- 20,264
Preoperating expenses -- 21,829 21,829
Allowance for deffered
tax assets ( 460,213) ( 21,829) ( 482,042)
------------ ------------ -----------
Deferred tax assets 481,621 -- 481,621
------------ ------------ -----------
Net deffered tax assets (Ps. 96,615) Ps. -- (Ps. 96,615)
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
----------------------------------------------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 39,344 Ps. -- Ps. 39,344
Property and equipment 976,769 -- 976,769
Cellular telephones to be
amortized 35,086 -- 35,086
Concessions 12,033 -- 12,033
------------ ------------ ------------
Deferred tax liabilities Ps.1,063,232 -- Ps.1,063,232
------------ ------------ ------------
Deferred assets:
Allowance for doubtful
accounts Ps. 36,591 Ps. -- Ps. 36,591
Net operating loss and tax
credit carryforward 757,489 -- 757,489
Group reorganization
reserve 53,669 -- 53,669
Preoperating expenses -- 23,696 23,696
Allowance for deffered
tax assets ( 58,190) ( 23,696) ( 81,886)
------------ ------------ -----------
Deferred tax assets 789,559 -- 789,559
------------ ------------ -----------
Net deffered tax assets Ps. 273,673 Ps. -- Ps. 273,673
============ ============ ===========
</TABLE>
<PAGE>
-39-
Under U.S GAAP, the effect of the restatement of non-monetary assets
is recorded directly to stockholders' equity. Accordingly, the
deferred taxes related to such assets would be reflected directly in
equity under U.S. GAAP. Deferred taxes recorded directly to
stockholders' equity relating to the restatement of non-monetary
assets were Ps. 722,288 and (Ps.294,659) for the years ended
December 31, 1996 and 1995, respectively.
The Company has recorded a deferred tax asset of Ps. 895,004
reflecting the benefit of tax loss carryforwards (see paragraph 2
above), which expire in varying amounts between 2001 and 2007.
Realization is dependent on generating sufficient taxable income
prior to expiration of the loss carryforwards. Although realization
is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. However, the amount
of the deferred tax asset considered realizable could be reduced in
the near term if estimates of future taxable income during the
carryforward periods are reduced.
4) Fair values of financial instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at
December 31, 1997 and 1996.
Cash and cash equivalents: The carrying amount reported in the
balance sheet approximates fair value due to its short-term nature.
Long term debt: The fair value of the long term debt as of December
31, 1997 is estimated to be approximately 100% of its nominal value.
<PAGE>
-40-
5) Economic environment
The Company is a Mexican corporation with substantially all its
operations situated in Mexico and approximately 99.5% of its
revenues in 1997 resulted from sales generated within Mexico.
Accordingly, the economic environment within Mexico, which is
significantly affected by the actions taken by the Mexican
government, can be expected to have significant impact on the
Company's financial condition and results of operations and on the
Company's ability to meet its future obligations. The Company
imports handsets, cellular sites and other telecommunications
equipment, while their pricing and receivables are quoted and stated
in Mexican pesos.
6) Disclosure of certain significant risks and uncertainties:
a) Local telephony in the 450 MHz. frequency band
The carrying values of the Company's property, plant and equipment
are dependent on the assumption that these assets will continue to
be used in the operation of the Company. As a result of the delays
experienced by the Company and the uncertainty relating to the
Company's ability at a commercially acceptable cost, to obtain
concessions to provide local wireless service in the 450 MHz
frequency band, the Company is exploring alternatives for providing
local telephony services, including limited zone wireless services
in the 800 MHz (cellular) or 1.9 GHz (PCS) frequency bands deploying
digital technology that permits mobility. If the Company were to
determine that it would be preferable to pursue such an alternative
rather than to continue to pursue local wireless service in the 450
MHz frequency band, such alternative could require the acquisition
of concessions, other regulatory approvals and the payment of
substantial fees. Additionally, the Company would record substantial
non-cash losses in writing off assets relating to its 450 MHz local
wireless service, in the range of Ps. 826,100, since about 90% of
the assets would be lost and all the pre-operative expenses all well
(see Note 18).
b) Year 2000 compliance:
The Company has initiated a company-wide program to identify and
address the impact of the onset of the Year 2000 on its operations.
The Company has substantially completed the identification of the
scope of its Year 2000 problem.
<PAGE>
-41-
The Company expects that all of the required modifications or
replacements will be implemented by the first half of 1999. While
the Company believes that it is taking appropriate and timely steps
to ensure Year 2000 compliance, its operations are dependent on
vendor and third party compliance to some extent. For the years 1998
and 1999, the Company's preliminary estimate is that total costs
ranging between approximately Ps.72,600 and Ps.121,100 will be
incurred to prepare its equipment and its software applications for
the Year 2000.
7) Stock Purchase Plan
As mentioned in the Note 15, the Company has a fixed stock option
plan, the Stock Purchase Plan. This plan grants options to purchase
Iusacell common stock at a price equal to the market price of the
stock at the date of the grant. The Company applies APB Opinion
No.25 and related interpretations in accounting for its plan. The
Company has adopted the disclosure-only provisions of SFAS No.123.
The Company recognize no compensation expense for its Stock Purchase
Plan. If the Company had elected to recognize compensation expense
based on the fair value at the grant dates for 1997 and subsequent
fixed plan awards consistent with the provisions of SFAS No.123, net
income and earnings per share would have been changed to the pro
forma amounts indicated below:
Year ended
December 31,1997
----------------
Net loss As reported (Ps. 72,259)
Pro forma ( 113,830)
Basic loss As reported (Ps. 0.07)
per share Pro forma ( 0.11)
These results may not be representative of the effects on pro forma
net income for future years.
The Company determined the pro forma amounts using the Black-Scholes
option-pricing model based on the following weighted-average
assumptions:
1997
----
Dividend yield 0%
Expected volatility 45
Risk-free interest rate 23%
Expected lives (in years) 2.7
<PAGE>
-42-
The weighted average value of options granted during 1997 was 4.85
pesos.
This table is a summary of the status of the Stock Purchase Plan:
Weighted
Average
Stock Options Exercise Price
------------- --------------
Granted 8,571,281 Ps. 10.28
Exercised -- --
Canceled/forfeited 1,265,876 8.48
Outstanding December 31, 1997 7,305,405 10.59
As of December 31, 1997 no stock options were exercisable. The
following table summarizes information about Stock Purchase Plan
options outstanding as of December 31, 1997:
Range Weighted
of Remaining Average
Exercise Contractual Exercise
Prices Shares Life Price
------ ------ ---- -----
Ps. 8.48 to
14.00 7,305,405 2 Ps. 5.00
8) The Financial Accounting Standards Board has issued several new
pronouncements that include the following:
SFAS 130, "Reporting Comprehensive Income", establishes guidelines
for the reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general purpose financial statements. It requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements; it does not address issues of recognition or
measurement. The Company is currently assessing the impact of
adoption of this standard on its financial statements.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December
31, 1997, establishes guidelines for the way that public enterprises
report information about operating segments in financial statements.
<PAGE>
-43-
This statement also established guidelines for related disclosures
about products and services, geographic areas, and major customers.
The Company is currently assessing the impact of adoption of this
standard on its financial statements.
SFAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", effective for fiscal years beginning after
December 15, 1997, revises current disclosure requirements for
employers' pension and other retiree benefits but does not change
the measurement of recognition of pension or other postretirement
benefit plans. It standarizes the disclosure requirements for
pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures
from prior Statements that are no longer useful. The Company is
currently assessing the impact of adoption of this standard on its
financial statements.
20. Condensed Consolidated Information
As mentioned in Note 10, in July 1997, the Company issued $ 150,000 U.S.
Dollars of senior unsecured notes (the "Notes") as part of its refinancing
program. The Notes are guaranteed on a senior subordinated, unsecured
basis pursuant to guarantees by most of the Company's subsidiaries both
directly and indirectly wholly-owned ("Guarantor Subsidiaries"). The
subsidiary guarantees are full, unconditional, joint and several. On
January 16, 1998 $148,215 U.S. Dollars principal amount of the Notes were
exchanged for the Company's 10% Series B Senior Notes (the "Exchange
Notes"), issued pursuant to a registration statement on Form F-4 declared
effective by the Commission on October 31, 1997 (and again on November 5,
1997 with respect to a post-effective amendment). The Exchange Notes are
fully and unconditionally guaranteed by the Guarantor Subsidiaries on a
joint and several basis. The Company has not presented separate financial
statements and other disclosures concerning each of the Subsidiary
Guarantors because management has determined that such information is not
material to investors. The following condensed consolidated financial
information presents:
i) The parent Company with its investments in subsidiaries accounted
for on the equity method; ii) condensed combined balance sheet as of
December 31, 1997 and 1996, and, condensed combined statements of
income and condensed statements of cash flows, for each of the three
years then ended, for the guarantor subsidiaries; iii) condensed
combined balance sheet as of December 31, 1997 and 1996, and
condensed combined statements of income and condensed statements of
cash flows for each of the three years then ended, for the
non-guarantor subsidiaries; iv)elimination entries necessary to
consolidate the parent Company and all of its subsidiaries.
<PAGE>
-44-
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments Ps.110,849 Ps.5,499 Ps.1,149 Ps. -- Ps.117,497
------------ ------------ ------------ ------------- ------------
Accounts receivable:
Trade -- 213,900 21,495 (30,883) 204,512
Related parties 3,811,054 -- -- (3,767,026) 44,028
Recoverable taxes and
other 32,379 119,253 86,528 (12,076) 226,084
------------ ------------ ------------ ------------- ------------
3,843,433 333,153 108,023 (3,809,985) 474,624
------------ ------------ ------------ ------------- ------------
Inventories 14,132 223,499 37,613 (6,175) 269,069
------------ ------------ ------------ ------------- ------------
Total current assets 3,968,414 562,151 146,785 (3,816,160) 861,190
Investment in associated
companies 898,635 10,482 8,319 (899,655) 17,781
Property and equipment,
net 1,530,787 970,951 514,493 (1,571) 3,014,660
Other asssets 226,300 413,497 625,748 -- 1,265,545
Excess of investment
cost over book value 1,494,559 21,460 -- -- 1,516,019
------------ ------------ ------------ ------------- ------------
Total assets Ps.8,118,695 Ps.1,978,541 Ps.1,295,345 (Ps.4,717,386) Ps.6,675,195
============ ============ ============ ============= ============
LIABILITIES
Current liabilities:
Notes payable Ps.2,663 Ps. - Ps. - Ps. - Ps.2,663
Trade accounts payable 389,378 286,029 34,782 (6,175) 704,014
Related parties 2,058,197 524,987 1,264,135 (3,767,025) 80,294
Taxes and other payable 122,284 197,885 49,429 (43,804) 325,794
Income tax 6,527 2,095 1,015 (726) 8,911
------------ ------------ ------------ ------------- ------------
Total current liabilities 2,579,049 1,010,996 1,349,361 (3,817,730) 1,121,676
Long-term debt 2,218,837 -- -- -- 2,218,837
Trade accounts payable,
long-term 4,040 -- -- -- 4,040
Commitments and
contingencies -- 2,146 153 -- 2,299
------------ ------------ ------------ ------------- ------------
Total liabilities 4,801,926 1,013,142 1,349,514 (3,817,730) 3,346,852
------------ ------------ ------------ ------------- ------------
Stockholders' equity:
Capital contributions 6,444,360 2,833,670 302,941 (3,136,611) 6,444,360
Earned capital (3,127,591) (1,868,271) (357,110) 2,225,381 (3,127,591)
Minority interest -- -- -- 11,574 11,574
------------ ------------ ------------ ------------- ------------
Total stockholders' equity 3,316,769 965,399 (54,169) (899,656) 3,328,343
------------ ------------ ------------ ------------- ------------
Total liabilities and
stockholders' equity Ps.8,118,695 Ps.1,978,541 Ps.1,295,345 (Ps.4,717,386) Ps.6,675,195
============ ============ ============ ============= ============
Total stockholders' equity
under Mexican GAAP Ps.3,316,769 Ps.965,399 (Ps.54,169) (Ps.899,656) Ps.3,328,343
Minority interest -- -- -- (11,574) (11,574)
Deferred income taxes 96,615 -- -- -- 96,615
Project 450 investment -- (133,898) -- -- (133,898)
------------ ------------ ------------ ------------- ------------
Total stockholders' equity
under US GAAP Ps.3,413,384 Ps.831,501 (Ps.65,743) (Ps.899,656) Ps.3,279,486
============ ============ ============ ============= ============
</TABLE>
<PAGE>
-45-
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps.367,013 Ps.2,660,345 Ps.224,365 (Ps.1,391,236) Ps.1,860,486
Total cost of sales 21,130 1,229,098 199,158 (733,724) 715,662
------------- ----------- ----------- ----------- -------------
Gross profit 345,883 1,431,247 25,207 (657,512) 1,144,824
Operating expenses 60,146 1,293,080 172,963 (782,412) 743,777
Depreciation and
amortization 277,685 287,092 17,149 -- 581,926
------------- ----------- ----------- ----------- -------------
Operating profit (loss) 8,052 (148,925) (164,906) 124,900 (180,879)
------------- ----------- ----------- ----------- -------------
Provision for equipment
Impairment (567,833) (360,167) -- -- (928,000)
------------- ----------- ----------- ----------- -------------
Integral financing result:
Interest expense, net 14,260 30,020 136,170 67,750 248,200
Foreign exchange loss, net 41,747 6,181 536 -- 48,464
Gain from monetary posi-
tion (97,488) (33,692) (112,616) (48,928) (292,724)
------------- ----------- ----------- ----------- -------------
(41,481) 2,509 24,090 18,822 3,940
------------- ----------- ----------- ----------- -------------
Equity participation in net
(gain) loss of associated
companies 474,128 -- -- (631,816) (157,688)
Provision for assets tax 7,831 32,680 325 4,499 45,335
Minority interest -- -- -- 207 207
------------- ----------- ----------- ----------- -------------
Net loss for the year (Ps.1,000,259) (Ps.544,281) (Ps.189,321) (Ps.733,602) (Ps.1,000,259)
============= =========== =========== =========== =============
Net loss for the year under
Mexican GAAP (Ps.1,000,259) (Ps.544,281) (Ps.189,321) Ps.733,602 (Ps.1,000,259)
Deferred income taxes 217,183 92,256 60,851 -- 370,290
Project 450 investment -- (64,203) -- -- (64,203)
Gain on net monetary
position 8,881 3,773 2,488 -- 15,142
------------- ----------- ----------- ----------- -------------
Net loss for the year under
US GAAP (Ps.414,028) (Ps.512,455) (Ps.125,982) Ps.373,435 (Ps.679,030)
============= =========== =========== =========== =============
</TABLE>
<PAGE>
-46-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps.414,028) (Ps.512,455) (Ps.125,982) Ps.373,435 (Ps.679,030)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activi-
ties:
Depreciation and amortization 284,065 287,092 17,149 (6,380) 581,926
Provision for equipment impairment 567,833 60,167 -- -- 928,000
Equity in net loss (earnings)
of associated companies 113,961 -- -- (271,649) (157,688)
Increase in allowance for
doubtful accounts -- 17,543 (736) -- 16,807
Increase in allowance for obso-
lete and slow-moving inventories (54) (2,673) (129) -- (2,856)
Minority interest -- -- -- (207) (207)
Deffered income taxes and emplo-
yee profit sharing (209,352) (59,576) (60,526) 4,499 (324,955)
Gain on net monetary position and
foreign exchange losses (60,784) (96,710) (117,905) (51,459) (326,858)
Changes in operating assets and
Liabilities:
Accounts receivable (18,298) (98,401) 29,844 (54,762) (89,566)
Inventories (3,029) (152,231) (7,222) 11,986 (150,496)
Trade accounts payable and re-
lated parties (1,361,329) 850,261 604,373 47,326 (91,377)
Taxes and other payable (73,600) (131,466) 28,014 (64,774) (241,826)
Income Tax (243) 2,003 804 38 2,602
Other -- 62 107 173 342
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (1,174,858) 463,616 308,103 (11,774) (535,182)
---------- ---------- ---------- ---------- ----------
Financing activities:
Proceeds from notes payable and
long-term debt 1,744,739 (231,660) (536) 883,564 2,396,507
Payments of notes payable and
long-term debt (806,669) (60,418) -- (657,159) (1,524,246)
Increase of capital stock 698,502 (128,885) (75,735) 204,620 698,502
---------- ---------- ---------- ---------- ----------
Total cash provided by (used in)
financing activities 1,636,572 (420,563) (76,271) 431,025 1,570,763
---------- ---------- ---------- ---------- ----------
Investing activities:
Purchase of property and
equipment, net (603,947) (3,511) 5,689 (76,084) (677,853)
Investment in associated
companies, net cash acquired (113,961) 15,641 (8,319) 353,948 247,309
Purchase of other assets 281,853 (61,826) (233,454) (579,298) (592,725)
---------- ---------- ---------- ---------- ----------
Total cash (used in) provided
by investing activities (436,055) (49,696) (236,084) (301,434) (1,023,269)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
Cash 25,659 (6,643) (4,253) (2,451) 12,312
Cash at beginning of year 85,190 12,143 5,401 2,451 105,185
---------- ---------- ---------- ---------- ----------
Cash at the end of year Ps.110,849 Ps.5,500 Ps.1,148 Ps.-- Ps.117,497
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
-47-
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments Ps.85,190 Ps.12,143 Ps.5,401 Ps.2,451 Ps.105,185
------------ ------------ ------------ ------------ ------------
Accounts receivable:
Trade -- 149,101 26,388 (22,893) 152,596
Related parties 2,220,314 136,532 -- (2,348,669) 8,178
Recoverable taxes and
other 14,081 103,194 51,055 (74,828) 93,502
------------ ------------ ------------ ------------ ------------
2,234,395 388,827 77,443 (2,446,389) 254,276
------------ ------------ ------------ ------------ ------------
Inventories 11,049 68,595 30,262 5,811 115,717
------------ ------------ ------------ ------------ ------------
Total current assets 2,330,634 469,565 113,106 (2,438,127) 475,178
Investment in associated
companies 1,565,877 26,123 -- (1,490,331) 101,669
Property and equipment,
net 1,874,952 1,190,678 539,819 (9,673) 3,595,776
Other asssets 41,304 286,393 392,294 (1,619) 718,372
Excess of investment
cost over book value 1,566,999 22,706 -- 60 1,589,765
------------ ------------ ------------ ------------ ------------
Total assets Ps.7,379,766 Ps.1,995,465 Ps.1,045,219 (Ps.3,939,690) Ps.6,480,760
============ ============ ============ ============ ============
LIABILITIES
Current liabilities:
Notes payable Ps.809,331 Ps.60,419 Ps.- (Ps.60,419) Ps.809,331
Current portion of long-
term debt 61,707 -- -- 60,419 122,126
Trade accounts payable 333,271 132,722 37,881 (2,043) 501,831
Related parties 1,980,236 -- 775,104 (2,348,666) 406,674
Taxes and other payable 188,052 296,671 21,090 (105,948) 399,865
Income tax 6,771 92 211 143 7,217
------------ ------------ ------------ ------------ ------------
Total current liabilities 3,379,368 489,904 834,286 (2,456,514) 2,247,044
Long-term debt 370,644 225,079 -- -- 595,723
Trade accounts payable,
long-term 11,228 -- -- -- 11,228
Commitments and
contingencies -- 2,084 46 61 2,191
------------ ------------ ------------ ------------ ------------
Total liabilities 3,761,240 717,067 834,332 (2,456,453) 2,856,186
------------ ------------ ------------ ------------ ------------
Stockholders' equity:
Capital contributions 5,745,858 2,808,943 321,221 (3,130,164) 5,745,858
Earned capital (2,127,332) (1,530,545) (110,334) 1,640,879 (2,127,332)
Minority interest -- -- -- 6,048 6,048
------------ ------------ ------------ ------------ ------------
Total stockholders'
equity 3,618,526 1,278,398 210,887 (1,483,237) 3,624,574
------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity Ps.7,379,766 Ps.1,955,465 Ps.1,045,219 (Ps.3,939,690) Ps.6,480,760
============ ============ ============ ============ ============
Total stockholders' equity
under Mexican GAAP Ps.3,618,526 Ps.1,278,398 Ps.210,887 (Ps.1,483,237 Ps.3,624,574
Minority interest -- -- -- (6,048) (6,048)
Deferred income taxe (153,937) (50,587) (70,410) 1,261 (273,673)
Project 450 investment -- (69,695) -- -- (69,695)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity
under US GAAP Ps.3,464,589 Ps.1,158,116 Ps.140,477 (Ps.1,488,024) Ps.3,275,158
============ ============ ============ ============ ============
</TABLE>
<PAGE>
-48-
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps.339,198 Ps.2,608,049 Ps.98,792 (Ps.1,197,674) Ps.1,848,365
Total cost of sales 5,910 1,166,994 72,906 (519,148) 726,662
---------- ------------ ---------- ------------ ------------
Gross profit 333,288 1,441,055 25,886 (678,526) 1,121,703
Operating expenses 72,436 1,279,974 46,265 (597,912) 800,763
Depreciation and amortization 267,820 388,257 1,525 (288) 657,314
---------- ------------ ---------- ------------ ------------
Operating loss (6,968) (227,176) (21,904) (80,326) (336,374)
---------- ------------ ---------- ------------ ------------
Integral financing result:
Interest expense, net 115,577 33,432 89,748 66,816 305,573
Foreign exchange gain, net (65,052) (1,144) (1,335) -- (67,531)
Gain from monetary posi-
tion (164,444) (62,108) (88,693) (63,414) (378,659)
---------- ------------ ---------- ------------ ------------
(113,919) (29,820) (280) 3,402 (140,617)
---------- ------------ ---------- ------------ ------------
Equity participation in net
(gain) loss of associated
companies 327,204 -- -- (320,688) 6,516
Provision for assets tax 22,741 55,304 (192) (39,586) 38,267
Minority interest -- 3,011 -- 445 3,456
Extraordinary item 151,940 5,910 -- -- 157,850
---------- ------------ ---------- ------------ ------------
Net loss for the year (Ps.394,934) (Ps.255,559) (Ps.21,432) Ps.276,991 (Ps.394,934)
========== ============ ========== ============ ============
Net loss for the year under
Mexican GAAP (Ps.394,934) (Ps.255,559) (Ps.21,432) Ps.276,991 (Ps.394,934)
Deferred income taxes 90,621 104,719 -- -- 195,340
Project 450 investment -- (69,695) -- -- (69,695)
Gain on net monetary
Position (153,855) 269,050 -- -- 115,195
---------- ------------ ---------- ------------ ------------
Net loss for the year under
US GAAP (Ps.458,168) Ps.48,515 (Ps.21,432) Ps.276,991 (Ps.154,094)
========== ============ ========== ============ ============
</TABLE>
<PAGE>
-49-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps.458,168) Ps.48,515 (Ps.21,432) Ps.276,991 (Ps.154,094)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activi-
ties:
Depreciation and amortization 267,820 388,257 1,525 (286) 657,314
Equity in net loss (earnings)
of associated companies 327,204 -- -- (320,688) 6,516
Increase in allowance for
doubtful accounts -- 75,325 13,331 (11,565) 77,091
Increase in allowance for obso-
lete and slow-moving inventories 427 2,648 1,168 224 4,467
Minority interest -- -- -- (3,457) (3,457)
Deffered income taxes and emplo-
yee profit sharing (90,621) (104,719) -- -- (195,340)
Gain on net monetary position
And foreign exchange losses (75,641) (332,302) (90,028) (163,618) (661,589)
Group reorganization reserve 151,940 5,910 -- 157,850
Changes in operating assets and
Liabilities:
Accounts receivable (9,856) (72,121) 30,137 (42,559) (94,399)
Inventories 11,359 51,188 672 (6,558) 56,661
Trade accounts payable and re-
lated parties (276,484) (123,400) 263,487 63,094 (73,303)
Taxes and other payable (32,340) 74,330 (720) 97,581 138,851
Income Tax 5,678 (6,515) (1,476) 7,814 5,501
Other -- 683 (697) 79 65
--------- --------- -------- -------- ----------
Net cash provided by (used in)
operating activities (178,682) 7,799 135,693 42,670 (77,860)
--------- --------- -------- -------- ----------
Financing activities:
Proceeds from notes payable and
long-term debt 325,783 -- 84,314 (259,757) 150,340
Payments of notes payable and
long-term debt (152,313) (404,338) (133,478) (391,056) (299,073)
--------- --------- -------- -------- ----------
Total cash provided by (used in)
financing activities 173,470 (404,338) (49,164) 131,299 (148,733)
--------- --------- -------- -------- ----------
Investing activities:
Purchase of property and
equipment, net (137,096) (44,926) 71,457 (119,100) (229,665)
Investment in associated
companies, net cash acquired 411,867 73,386 20,370 (482,712) 22,911
Purchase of other assets (442,048) 336,531 (177,681) 628,100 344,902
--------- --------- -------- -------- ----------
Total cash (used in) provided
by investing activities (167,277) 364,991 (85,854) 26,288 138,148
--------- --------- -------- -------- ----------
Net increase (decrease) in
Cash (60,434) (31,548) 675 8,771 (88,445)
Cash at beginning of year 145,624 43,691 4,727 (412) 193,630
--------- --------- -------- -------- ----------
Cash at the end of year Ps.85,190 Ps.12,143 Ps.5,402 Ps.8,359 Ps.105,185
========= ========= ======== ======== ==========
</TABLE>
<PAGE>
-50-
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps.295,313 Ps.2,497,517 Ps.90,473 (Ps.814,093) Ps.2,069,210
Total cost of sales 107,869 1,223,596 64,365 (578,245) 817,585
----------- ----------- ---------- ---------- -----------
Gross profit 187,444 1,273,921 26,108 (235,848) 1,251,625
Operating expenses 53,652 1,023,638 84,888 (248,236) 913,942
Depreciation and amortization 308,826 403,004 4,699 11,571 728,100
----------- ----------- ---------- ---------- -----------
Operating loss (175,034) (152,721) (63,479) (817) (390,417)
----------- ----------- ---------- ---------- -----------
Integral financing result:
Interest expense, net 29,663 1,439 126,297 (30,955) 188,354
Foreign exchange loss, net 431,449 322,767 5,203 (7,195) 766,614
Gain from monetary posi-
Tion (175,130) (232,645) (119,322) 18,164 (545,261)
----------- ----------- ---------- ---------- -----------
(285,982) (91,561) (12,178) 19,986 (409,707)
----------- ----------- ---------- ---------- -----------
Equity participation in net
(gain) loss of associated
companies 371,256 -- -- (328,702) 42,554
Provision for assets tax 4,041 72,724 -- (42,872) 33,893
Minority interest -- -- -- (40,258) (40,258)
----------- ----------- ---------- ---------- -----------
Net loss for the year (Ps.836,313) (Ps.317,006) (75,657) Ps.392,663 (Ps.836,313)
=========== =========== ========== ========== ===========
Net loss for the year under
Mexican GAAP (Ps.836,313) (Ps.317,006) (Ps.75,657) Ps.392,663 (Ps.836,313)
Deferred income taxes 315,912 (36,856) (15,796) -- 263,260
Gain on net monetary position 100,596 36,499 41,047 -- 178,142
----------- ----------- ---------- ---------- -----------
Net loss for the year under
US GAAP (Ps.419,805) (Ps.317,363) (Ps.50,406) Ps.392,663 (Ps.394,911)
=========== =========== ========== ========== ===========
</TABLE>
<PAGE>
-51-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps.419,805) (Ps.317,363) (Ps.50,406) Ps.392,663 (Ps.394,911)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activi-
ties:
Depreciation and amortization 308,827 405,240 4,725 14,963 733,755
Equity in net loss (earnings)
of associated companies 371,254 -- -- (328,700) 42,554
Increase in allowance for
doubtful accounts (19,562) (13,534) 122,872 89,776
Increase in allowance for obso-
lete and slow-moving inventories (37,434) (28,975) 123,134 56,725
Minority interest (40,258) (40,258)
Deffered income taxes and emplo-
yee profit sharing (315,912) 36,856 15,797 -- (263,259)
Gain on net monetary position and
foreign exchange losses (275,726) (269,144) (160,370) (18,163) (723,403)
Changes in operating assets and
Liabilities:
Accounts receivable 22,283 2,368 (26,101) 9,445 7,995
Inventories 22,697 3,218 2,491 (33,281) (4,875)
Trade accounts payable and re-
Lated Parties 1,164,641 42,932 329,936 (1,005,293) 532,216
Taxes and other payable 56,147 64,316 17,910 84,904 223,277
Income Tax 1,092 (593) 2,431 (2,501) 429
Other -- 218 -- (16) 202
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 935,498 (88,948) 93,904 (680,231) 260,223
Financing activities:
Proceeds from notes payable and
long-term debt 502,677 866,018 448,155 42,827 1,859,677
Payments of notes payable and
long-term debt -- (153,195) -- (1,189,820) (1,343,015)
---------- ---------- ---------- ---------- ----------
Total cash provided by (used in)
financing activities 502,677 712,823 448,155 (1,084,504) 579,151
Investing activities:
Purchase of property and
equipment, net (458,501) (610,907) (371,348) 928,407 (512,349)
Investment in associated
companies, net cash acquired (661,702) 109,154 (20,371) 517,141 (55,778)
Purchase of other assets (375,381) (119,575) (146,389) 283,929 (357,416)
---------- ---------- ---------- ---------- ----------
Total cash (used in) provided
by investing activities (1,495,584) (621,328) (538,108) 1,729,477 (925,543)
Net increase (decrease) in
Cash (57,409) 2,547 3,951 (35,258) (86,169)
Cash at beginning of year 203,033 41,144 776 34,846 279,799
---------- ---------- ---------- ---------- ----------
Cash at the end of year Ps.145,624 Ps.43,691 Ps.4,727 (Ps.412) Ps.193,630
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
-52-
21. Restatement of 1997 Financial Statements
As described in Note 4.b., the Company had previously recorded an
impairment charge related to the analog communications network directly
against stockholders' equity.
The Company has reassessed this accounting treatment and determined that
the impairment charge should have been recorded as operating expense.
Consequently, the financial statements for the year ended December 31,
1997 have been restated. The effect of the restatement is as follows:
For the year ended,
December 31, 1997
------------------------------
As previously
reported As restated
-------------- -------------
Consolidated Income statement:
Net loss (Ps.72,259) (Ps.1,000,259)
Net loss per share (pesos) (0.07) (0.93)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all requirements for filing on Form
20-F and has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRUPO IUSACELL, S.A. DE C.V.
By: /s/ RUBEN G. PERLMUTTER
---------------------------------
Ruben G. Perlmutter
Vice President, Mergers and
Acquisitions and General Counsel
Date: October 27, 1999
<PAGE>
SCHEDULE A
Grupo Iusacell, S.A. de C.V.
(Iusacell Group, Inc.)
SOS Telecomunicaciones, S.A. de C.V.
(SOS Telecommunications, Inc.)
Iusacell, S.A. de C.V.
(Iusacell, Inc.)
Sistecel, S.A. de C.V.
(Sistecel, Inc.)
Comunicaciones Celulares de Occidente, S.A. de C.V.
(Cellular Communications of the West, Inc.)
Telecomunicaciones del Golfo, S.A. de C.V.
(Gulf Telecommunications, Inc.)
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V.
(Portable Cellular Telephone Systems, Inc.)
Inmobiliaria Montes Urales 460, S.A. de C.V.
(Montes Urales 460 Real Estate, Inc.)
Iusanet, S.A. de C.V.
(Iusanet, Inc.)
Mexican Cellular Investments, Inc.
