1
EXHIBIT 99.1
MARCA TEL
COMBINING FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
1
2
MARCA TEL
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors.............................. F-36
Combining Balance Sheets as of December 31, 1997 and 1996... F-37
Combining Statements of Income (Loss) for the Years Ended
December 31, 1997 and 1996................................ F-39
Combined Statements of Shareholders' Equity for the Years
Ended December 31, 1997 and 1996.......................... F-40
Combined Statements of Cash Flow for the Years Ended
December 31, 1997 and 1996................................ F-41
Notes to the Combining Financial Statements for the Year
Ended December 31, 1997 and 1996.......................... F-42
2
3
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
Marca Tel:
We have audited the accompanying combined balance sheets of Marca Tel, S.A.
de C.V., Marca Tel International, S.A. de C.V. and Grupo Marca Tel, S.A. de C.V.
(collectively referred to as "the Company"), stated in U.S. dollars, as of
December 31, 1997 and 1996, and the related combining statements of income,
changes in shareholders' equity and cash flows for the years then ended. These
combining financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1997 and 1996, and the results of their operations, their changes
in shareholders' equity and their cash flows for the years then ended, in
accordance with the accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN
Monterrey, N.L.
January 30, 1998
3
4
MARCA TEL
COMBINING BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(U.S. DOLLARS)
ASSETS
MARCA TEL GRUPO
MARCA TEL, INTERNATIONAL, MARCA TEL, COMBINED COMBINED
S.A. DE C.V. S.A. DE C.V. S.A. DE C.V. ELIMINATIONS 1997 1996
------------ -------------- ------------ --------------------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents.... $ 100,378 $ 295,414 $ 8,363 $ -- $ -- $ 404,155 $ 199,495
Accounts receivable.......... 3,683,059 -- -- -- -- 3,683,059 --
Value added taxes............ 5,714,074 650,768 2,209 -- 1,104,737 5,262,314 3,466,561
Affiliated companies......... 635,248 3,055,740 186,811 -- 3,877,799 -- --
Miscellaneous creditors...... 784,844 36,413 52,261 -- -- 873,518 722,490
----------- ---------- ---------- -------- ---------- ----------- -----------
Total current
assets.............. 10,917,603 4,038,335 249,644 -- 4,982,536 10,223,046 4,388,546
----------- ---------- ---------- -------- ---------- ----------- -----------
INVESTMENT IN SHARES........... -- -- 4,250,000 -- -- 4,250,000 4,250,000
PROPERTY AND EQUIPMENT, net.... 68,560,939 1,119,947 559,408 -- -- 70,240,294 26,593,833
OTHER ASSETS................... 5,357,832 1,391 264,359 170,015 1,742,876 4,050,721 2,149,960
DEFERRED CHARGES............... 1,709,948 -- -- -- -- 1,709,948 1,731,814
----------- ---------- ---------- -------- ---------- ----------- -----------
Total assets.......... $86,546,322 $5,159,673 $5,323,411 $170,015 $6,725,412 $90,474,009 $39,114,153
=========== ========== ========== ======== ========== =========== ===========
The accompanying notes are an integral part of this combined statement.
4
5
MARCA TEL
COMBINING BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(U.S. DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCA TEL GRUPO
MARCA TEL, INTERNATIONAL, MARCA TEL, COMBINED COMBINED
S.A. DE C.V. S.A. DE C.V. S.A. DE C.V. ELIMINATIONS 1997 1996
------------ -------------- ------------ --------------------- ------------ -----------
CURRENT LIABILITIES:
Current portion of long-term
debt...................... $ -- $ -- $ 325,000 $ -- $ -- $ 325,000 $ 325,000
Suppliers (Siemens)......... 16,349,155 -- -- -- -- 16,349,155 25,286,778
Accounts payable............ 71,456 643,485 13,495 -- -- 728,436 --
Affiliated companies........ 3,055,741 186,811 635,248 3,877,800 -- -- --
Taxes payable............... 607,312 1,425,308 17,943 1,056,978 -- 993,585 102,748
Other accrued liabilities... 34,895 -- -- -- -- 34,895 950,697
------------ ---------- ---------- ---------- -------- ------------ -----------
Total current
liabilities........ 20,118,559 2,255,604 991,686 4,934,778 -- 18,431,071 26,665,223
------------ ---------- ---------- ---------- -------- ------------ -----------
LONG TERM DEBT:
Banco Santander Mexicano,
S.A....................... -- -- 2,744,096 -- -- 2,744,096 2,870,833
Suppliers (Siemens)......... 49,086,608 -- -- -- -- 49,086,608 --
------------ ---------- ---------- ---------- -------- ------------ -----------
Total long term
debt............... 49,086,608 -- 2,744,096 -- -- 51,830,704 2,870,833
------------ ---------- ---------- ---------- -------- ------------ -----------
Total liabilities.... 69,205,167 2,255,604 3,735,782 4,934,778 -- 70,261,775 29,536,056
SHAREHOLDERS' EQUITY:
Capital stock............... 29,496 6,567 6,634 -- -- 42,697 42,697
Advances for future capital
increases................. 44,276,015 2,760,304 1,647,720 -- -- 48,684,039 12,655,099
Accumulated earnings
(losses).................. (26,964,356) 137,198 (66,725) 1,790,634 170,015 (28,514,502) (3,119,699)
------------ ---------- ---------- ---------- -------- ------------ -----------
Total shareholders'
equity............. 17,341,155 2,904,069 1,587,629 1,790,634 170,015 20,212,234 9,578,097
------------ ---------- ---------- ---------- -------- ------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY........ $ 86,546,322 $5,159,673 $5,323,411 $6,725,412 $170,015 $ 90,474,009 $39,114,153
============ ========== ========== ========== ======== ============ ===========
The accompanying notes are an integral part of these combining statements.
5
6
MARCA TEL
COMBINING STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(U.S. DOLLARS)
MARCA TEL, GRUPO
MARCA TEL, INTERNATIONAL, MARCA TEL, COMBINED COMBINED
S.A. DE C.V. S.A. DE C.V. S.A. DE C.V. ELIMINATIONS 1997 1996
------------ -------------- ------------ ------------ ------------- -----------
REVENUES:
Net sales........... $ 5,915,946 $ -- $ -- $ (130,084) $ 5,785,862 $ --
Income from
administrative
services.......... -- 9,446,500 -- (9,446,500) -- --
Other income........ -- 118,020 (118,020) -- -- --
------------ ---------- --------- ----------- ------------- -----------
Total
revenues..... 5,915,946 9,446,500 118,020 (9,694,604) 5,785,862 --
Cost of sales
excluding
depreciation and
amortization...... 10,341,476 -- -- -- 10,341,476 --
------------ ---------- --------- ----------- ------------- -----------
Gross profit
(loss)....... (4,425,530) 9,446,500 118,020 (9,694,604) (4,555,614) (3,110,000)
OPERATING EXPENSES:
Administrative
expenses.......... 18,061,631 8,780,129 14,697 (9,694,604) 17,161,853 --
Depreciation and
amortization...... 2,573,366 98,507 40,084 (170,015) 2,541,942 --
------------ ---------- --------- ----------- ------------- -----------
Operating
income
(loss)....... (25,060,527) 567,864 63,239 170,015 (24,259,409) (3,110,000)
OTHER INCOME (EXPENSE):
Interest expense.... (229,020) -- (296,398) -- (525,418) (12,571)
Interest income..... -- 10,114 -- -- 10,114 2,872
Other losses........ (2,102,380) (154,035) (137,507) -- (2,393,922) --
Translation gain
(loss)............ 1,725,599 (1,705) 303,942 -- 2,027,836 --
------------ ---------- --------- ----------- ------------- -----------
(605,801) (145,626) (129,963) -- (881,390) (9,699)
------------ ---------- --------- ----------- ------------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES.................. (25,666,328) 422,238 (66,724) 170,015 (25,140,799) --
PROVISION FOR INCOME
TAXES.................. -- 254,004 -- -- 254,004 --
------------ ---------- --------- ----------- ------------- -----------
Net income
(loss)....... $(25,666,328) $ 168,234 $ (66,724) $ 170,015 $ (25,394,803) $(3,119,699)
============ ========== ========= =========== ============= ===========
The accompanying notes are an integral part of these combined statements.
6
7
MARCA TEL
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(U.S. DOLLARS)
ADVANCES FOR TOTAL
CAPITAL FUTURE CAPITAL CUMULATIVE SHAREHOLDERS'
STOCK INCREASES LOSSES EQUITY
------- -------------- ------------ -------------
BALANCE, DECEMBER 31, 1995.............. $12,922 $ -- $ -- $ 12,922
Capital increase...................... 29,775 -- -- 29,775
Net loss for the year................. -- -- (3,119,699) (3,119,699)
Advances for future capital
increases.......................... -- 12,655,099 -- 12,655,099
------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1996.............. 42,697 12,655,099 (3,119,699) 9,578,097
Net loss for the year................. -- -- (25,394,803) (25,394,803)
Advances for future capital
increases.......................... -- 36,028,940 -- 36,028,940
------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1997.............. $42,697 $48,684,039 $(28,514,502) $ 20,212,234
======= =========== ============ ============
The accompanying notes are an integral part of these combined statements.
7
8
MARCA TEL
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(U.S. DOLLARS)
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the year..................................... $(25,394,803) $ (3,199,699)
Adjustments to reconcile net loss to cash provided by
operating activities --
Depreciation and amortization.......................... 2,541,942 --
------------ ------------
(22,852,861) (3,199,699)
RESOURCES GENERATED BY OPERATIONS:
(Increase) decrease in assets --
Accounts receivable.................................... (3,730,873) --
Value-added taxes...................................... (1,905,290) (3,575,132)
Miscellaneous creditors................................ (170,958) (745,118)
------------ ------------
(5,807,121) (4,320,250)
Increase (decrease) in liabilities --
Current portion of long-term debt...................... 8,084 335,179
Suppliers (Siemens).................................... (8,424,715) 26,078,750
Accounts payable....................................... 737,893 --
Taxes payable.......................................... 904,958 105,966
Other accrued liabilities.............................. (904,043) 980,472
------------ ------------
(7,677,823) 27,500,367
------------ ------------
Net cash (used in) provided by operating
activities..................................... (36,337,805) 19,980,418
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in shares...................................... -- (4,250,000)
Property and equipment.................................... (45,870,208) (26,593,833)
Deferred charges and other assets......................... (2,197,090) (3,855,403)
------------ ------------
Net cash used in investing activities............. $(48,067,298) $(34,699,236)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loans................................................ $ (126,737) $ 3,195,833
Suppliers................................................. 49,086,608 29,775
Advances for future capital increase...................... 36,028,940 12,655,099
------------ ------------
Net cash provided by financing activities......... 84,988,811 15,880,707
Effects of exchange rate changes on cash.................. (379,048) (962,394)
------------ ------------
Net increase in cash and cash equivalents......... 204,660 199,495
Cash and cash equivalents at beginning of year............ 199,495 --
------------ ------------
Cash and cash equivalents at end of year.................. $ 404,155 $ 199,495
============ ============
Supplemental cash flow disclosures:
Cash paid during the period for --
Interest............................................... $ 3,189,485 $ 76,156
============ ============
Income taxes........................................... $ 186,921 $ --
============ ============
The accompanying notes are an integral part of these combined statements.
8
9
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of operations
The principal activity of this group is to provide basic public telephone
services of long distance calls through a concession valid for 30 years, granted
in October 1995 by the Ministry of Communications and Transportation. Until
December 1996, the Company was in its development stage period. In January 1997,
the Company began the sale of services, primarily national and international
long-distance calls.
Basis of Combination
The accompanying combined financial statements include the financial
statements of Marca Tel, S.A. de C.V., Marca Tel International, S.A. de C.V. and
Grupo Marcatel, S.A. de C.V. All material intercompany balances and transactions
have been eliminated in combination.
Basis for Translation
The accounts of the companies are maintained in Mexican pesos.
The combined balance sheet was remeasured into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" (SFAS-52). In this regard Mexico has been considered to be a highly
inflationary economy, and accordingly, the functional currency of the Mexican
operations is the U.S. dollar. The method of translating the Mexican combined
financial statements was as follows:
a. Quoted year-end exchange rates are used to remeasure monetary
assets and liabilities.
b. All other assets and shareholders' equity accounts are remeasured
at the exchange rates in effect at the time the items were originally
recorded.
c. Revenues and expenses are remeasured at the average rates of
exchange in effect during the year, except for depreciation and
amortization, which are translated at the exchange rates in effect when the
respective assets were acquired.
d. Translation gains and losses arising from the remeasurement are
included in the determination of net income in the period such gains and
losses arise and have been distributed to the related income statement
accounts.
Use of estimates
The accounting policies followed by the companies require management to
make certain estimates and use certain assumptions to determine the valuation of
some of the balances included in the financial statements and to make
disclosures required to be included therein. Although the actual results may
differ from those estimates, management believes that the estimates and
assumptions used were appropriate in the circumstances.
Adjustments to conform with accounting principles generally accepted in the
United States
Certain accounting practices applied by the companies that conform with the
accounting principles generally accepted in Mexico do not conform with the
generally accepted accounting principles in the United States. The accompanying
financial statements have been prepared for use primarily in the United States
and
9
10
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
reflect certain adjustments required to conform with the accounting principles
generally accepted in that country.
Cash and cash equivalents
Cash and cash equivalents are primarily represented by short-term bank
deposits, valued at market price (cost plus accrued interest).
Investment in shares
This investment is valued at cost, which approximates market or net
realizable value (see Note 3).
Property and equipment
Property and equipment includes the costs of buildings and equipment.
Additions, improvements and expenditures for repairs and maintenance that
significantly add to the productive capacity or extend the life of an asset are
capitalized; other expenditures for repairs and maintenance are charged to
income.
Depreciation is calculated under the straight-line method over the
estimated remaining useful lives of the assets, which begin depreciating when
the asset is completed or placed in service, whichever comes first.
Pensions and other employee benefits
The companies are liable for severance payments to employees terminating
under certain conditions. The charge occurs in the period in which the payments
are made and the companies are also liable for the payment of vested seniority
premiums to employees with 15 or more years of service. At December 31, 1997 the
companies had not recorded a liability for this concept primarily because they
were in their first year of operation.
Under the Mexican Labor Law, the companies are liable for separating
payments to employees terminating under certain circumstances. The companies
accrue for such costs when known.
The companies have no other post-retirement or post-employment benefits
which would require adjustment under Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions"
or Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Post-employment Benefits".
Capitalized interest
Interest incurred with respect to long-term capital projects is capitalized
and reflected as a reduction to interest expense. Such amount was $4,109,837 in
1997.
Income taxes
Deferred income taxes are calculated using the liability method for
temporary differences between assets and liabilities for financial and tax
reporting purposes.
Financial instruments
The companies have considered the disclosure provisions of Statement of
Financial Accounting Standards No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk, and Financial Instruments
with Concentration of Credit Risk", as well as the provisions of Statement of
10
11
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments". The companies do not have any financial instruments,
which would call for any additional disclosures under Statements 105 and 107.
Furthermore, the fair value of the companies' financial instruments generally
approximate the amounts at which they are carried on the balance sheet.
Deferred charges
This mainly corresponds to expenses incurred for improvements and
remodeling of leased facilities in Monterrey and Guadalajara. These deferred
charges are subject to amortization over 10 years.
Other assets
This corresponds to a fund (escrow account) created to finance part of the
investments in assets that Siemens Aktiengesellschaft will perform by creating a
contract to provide the telecommunications networks, including the systems
equipment, fiber optics, labor structure, etc.
2. PROPERTY AND EQUIPMENT:
At December 31, the property and equipment consists of:
1997 1996
----------- -----------
Land................................................ $ 361,092 $ 313,990
Building............................................ 1,692,286 216,545
Furniture and fixtures.............................. 592,302 88,551
Transportation equipment............................ 46,933 32,997
Communication equipment............................. 32,525 690,348
Net construction, installation and equipment........ 69,663,621 19,693,460
Advance to suppliers................................ -- 5,557,942
----------- -----------
Total fixed assets........................ 72,388,759 26,593,833
Accumulated depreciation.................. (2,145,466) --
----------- -----------
$70,240,293 $26,593,833
=========== ===========
The fixed assets of the companies are given as collateral to Siemens,
derived from the obligation that exists with its supplier as mentioned in Note
9.
3. INVESTMENT IN SHARES:
Grupo Marca Tel, S.A. de C.V. has an investment in shares corresponding to
the purchase of shares of Inmobiliaria Mexicana del Noreste, S.A. de C.V., by
means of a contract dated September 26, 1996, in which the Company acquires
99.99% of the shares issued and outstanding of the Company and .01% corresponds
to Marca Tel International, S.A. de C.V. These shares were acquired with
contract that provides for the shares to be held as collateral by the seller
until the purchase price of such shares is to be paid in 60 monthly installments
through September 2001 (see Note 4).
11
12
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
4. LONG-TERM DEBT:
Maturity:
1998 (current portion)................................. $ 325,000
==========
1999................................................... 325,000
2000................................................... 325,000
2001................................................... 2,094,096
----------
$2,744,096
==========
The loan corresponds to Banco Santander Mexicano, S.A. and is payable in 60
monthly payments of $27,083, at an annual interest rate of LIBOR + 4 points with
a final payment of US$1,570,830 due on September 26, 2001.
The loan is guaranteed with the shares of Inmobiliaria Mexicana del
Noreste, S.A. de C.V.
5. TAX ENVIRONMENT:
Income and asset tax regulations
The companies are subject to income taxes. Income taxes are computed taking
into consideration the taxable and deductible effects of inflation, such as
depreciation calculated on restated values and the deduction of purchases in
place of cost of sales, which permit the deduction of current cost, and taxable
income is increased or reduced by the effects of inflation on certain monetary
assets and liabilities through the inflationary component. The income tax rate
in effect is 34% over taxable income.
Since 1996 was the start-up period of the companies, they will not be
subject to asset tax until 2000.
At December 31, 1997 the companies had available tax loss carryforwards
totaling $23,645,893 expiring in 2006 and 2007, which will be indexed through
the date used. Since there is no assurance that sufficient taxable income will
be generated in the future to utilize these tax loss carryforwards, no related
deferred tax benefits have been recorded.
The provisions for income taxes have been determined on the basis of the
taxable income of each individual company.
Mexican law requires the payment to employees of 10% of the Company's
taxable income, excluding certain adjustments for inflation. These amounts are
treated as compensation expense and are reflected in the appropriate income
statement captions in the accompanying financial statements. The employee profit
sharing expense in 1997 in Marcatel International, amounted $57,678.
6. SHAREHOLDERS' EQUITY:
At December 31, 1997, the combined capital stock consists of 2,000 ordinary
nominative shares, completely subscribed and paid, with a par value of 100
Mexican pesos each which corresponds to the fixed portion of the capital stock.
The variable portion is unlimited.
In accordance with the companies' bylaws, shares are divided into two
series, classified as series "A" and "B". "Series A" represents the minimum
fixed capital in a proportion of 51% of the total capital stock and can only be
owned by Mexican individuals or entities and "Series B" represents the remaining
variable capital of free subscription.
In an Extraordinary General Shareholders' Meeting held on January 12, 1996
and protocolized on January 10, 1997, an increase in the capital stock of Marca
Tel, S.A. de C.V. was approved with the issuance
12
13
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
of 15,300 series "A-1" shares and 14,700 series "B-1" shares amounting to
$5,000,000 (five million of Mexican Pesos). These shares remain deposited in the
treasury of the Company for its subsequent subscription and payment. No increase
in capital stock has been made as of the date of the issuance of these financial
statements.
During 1996 and 1997, the shareholders made advances for future capital
increases.
7. COMMITMENTS AND GUARANTEES:
At December 31, 1997, Marca Tel, S.A. de C.V. had the following commitments
and guarantees:
(a) Long-term contract with its principal supplier (Siemens) to carry
out a turnkey project in order to establish a telecommunications system in
Mexico. This supplier is in charge of installing and supplying the
equipment and the information system to perform communication activities
for external users. The commercial contract with Siemens amounts to
$74,539,537, of which $49,086,608 has been spent, as of December 31, 1997
and is shown in the balance sheet in accounts payable to suppliers. The
dollar denominated liability with Siemens bears interest at an annual rate
of 11%, which is recorded under other accounts payable. As of the date of
operation and of the license granted by the Ministry of Communications and
Transportation, fixed assets and accounts receivable from customers have
been pledged as collateral.
(b) A collateral agreement was executed on December 20, 1996, whereby
the shareholders of Progress International, L.L.C. and Formento Radio Beep,
S.A. de C.V. and Mr. Gustavo Mario de la Garza Ortega pledged the 1,000
shares of the capital stock of the association they own to Siemens
Aktiengesellschaft and Siemens, S.A. de C.V.
An agreement was executed on February 28, 1997 among the above mentioned
shareholders and Siemens Aktiengesellschaft and Siemens, S.A. de C.V., whereby
it was decided to terminate the collateral agreement dated December 20, 1996,
given an irrevocable administration and collateral trust was established on that
same date among the shareholders of Progress International, L.L.C. and Fomento
Radio Beep, S.A. de C.V. and Mr. Gustavo Mario de la Garza Ortega, acting as
trustees in second lien; Bancomer, S.A., Institucion de Banca Multiple and Grupo
Financiero Bancomer, Trust Division, acting as trustors and Siemens
Aktiengesellschaft and Siemens Credit Corporation, acting as trustees in first
lien, whereby the trust held the 1,000 shares of the capital stock of the
association owned by the shareholders.
8. CONTINGENCIES:
In June 1997, through the Federal Telecommunications Commission (COFETEL),
the Ministry of Communications and Transportation issued an administrative
resolution establishing costs of interconnection projects relative to signaling,
pre-subscription and numbering that must be recovered by Telefonos de Mexico,
S.A. de C.V. and Telefonos del Noroeste, S.A. de C.V. in operating their local
services.
According to the official resolution, each company participating in the
long-distance telephone service in Mexico must pay the aforementioned companies
an amount to be determined by an expert hired by COFETEL. Such payment will be
based on various variables such as: recorded cross minutes, market share, total
ratio of ports owned by the company to the overall amount of ports existing in
Mexico. As of December 31, 1997, the companies' relative contingent liability
amounted to US$37,157,883 which must be paid to Telefonos de Mexico and
Telefonos del Noroeste over a seven-year period, starting on January 1, 1998.
Since some telephone companies have expressed dissatisfaction with the
COFETEL resolution, and to this date payments have not been made, although the
related liabilities have been recorded.
13
14
MARCA TEL
NOTES TO THE COMBINING FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
(STATED IN U.S. DOLLARS)
9. SITUATION OF DISSOLUTION:
At December 31, 1997, Marcatel, S.A. de C.V. and Grupo Marcatel, S.A. de
C.V. had accumulated losses exceeding two-thirds of their capital stock, which
places them in a situation of technical bankruptcy. In order for any related
action to be taken, a dissolution order must be approved by the shareholders or
requested by an interested third party through a judicial order.
14