1
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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
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[X] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 333-11910
-----------------------
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
(Exact name of Registrant as specified in its charter)
MAXCOM TELECOMMUNICATIONS, INC.
(Translation of Registrant's name into English)
UNITED MEXICAN STATES
(Jurisdiction of incorporation or organization)
-----------------------
MAGDALENA NO. 211
COLONIA DEL VALLE
03100 MEXICO, D.F.
(Address of principal executive offices)
-----------------------
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT.
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
13 3/4% Series B Senior Notes
Due 2007 None
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 shares, no par value 1,276,428
Series B shares, no par value 1,226,373
Series C shares, no par value 5,622,822
Series N shares, no par value 5,622,822
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
- -
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2
This Amendment No. 1 to Form 20-F is being filed to present in Annex A
hereto new financial statements (the "New Financials") of Maxcom
Telecomunicaciones S.A. de C.V. ("Maxcom"), as of December 31, 1999 and 2000,
and for the years ended December 31, 1998, 1999 and 2000.
The New Financials reflect the following changes from the financial
statements (the "Old Financials") included in Maxcom's Annual Report on Form
20-F for the year 2000, filed with the Securities and Exchange Commission on
June 29, 2001:
- The New Financials have been audited in accordance with
United States generally accepted auditing standards,
while the Old Financials were audited in accordance with
Mexican generally accepted auditing standards.
- The New Financials include a new Note 18 j) that
presents condensed consolidating financial information
in tabular form in support of a request for an exemption
from the periodic reporting requirements of Sections 13
and 15(d) of the Securities and Exchange Act (the
"Exchange Act") pursuant to Section 12(h)-5 of the
Exchange Act for two of Maxcom's subsidiaries, filed on
August 17, 2001.
- Note 18 to the New Financials presents a reconciliation
from Mexican GAAP to U.S. GAAP of net loss and
stockholders' equity that is adjusted from the
reconciliation presented in Note 17 k) to the Old
Financials. As a result of this adjustment, net loss
under U.S. GAAP increases by 23.1% and 0.8% in 1998 and
2000, respectively, and decreases by 1.1% in 1999.
Stockholders' equity under U.S. GAAP decreases by 4.4%,
6.8% and 11.6% in 1998, 1999 and 2000, respectively.
- The Notes to the New Financials have also been revised
as compared to the Notes to the Old Financials to
clarify or provide additional disclosure and to make
conforming changes resulting from the adjustments
mentioned above.
This Amendment No. 1 to Form 20-F is also being filed to present in
Annex B hereto a revised Exhibit 7 "Computation of Ratio of Earnings to Fixed
Charges" that reflects corrections to the computation presented in the Annual
Report on Form 20-F for the year 2000, filed with the Securities and Exchange
Commission on June 29, 2001.
This Amendment No. 1 to Form 20-F is also being filed to present in
Annex C hereto a revised "ITEM 3. KEY INFORMATION. A. Selected Financial
Information, " that reflects the changes to the Notes to the New Financials and
Exhibit 7, and corrects certain typographical errors.
3
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the registrant certifies that it meets all requirements
for filing this Amendment No. 1 to Form 20-F and has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
By: /s/ ELOISA MARTINEZ
-----------------------------------
Eloisa Martinez
Chief Financial Officer
DATE: September 28, 2001
4
ANNEX A
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
We have audited the accompanying Consolidated Balance Sheets of Maxcom
Telecomunicaciones, S.A. de C.V. and Subsidiary, as of December 31, 1999 and
2000, and the related Consolidated Statements of Operations for the period from
May 1, 1999 (commencement of operations) through December 31, 1999 and for the
year ended December 31 2000, Consolidated Changes in Shareholders' Equity and
Changes in Financial Position for the years ended December 31, 1998, 1999 and
2000. These Financial Statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with Generally Accepted Auditing Standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance as to whether the Consolidated
Financial Statements are free of material misstatements. 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 Consolidated Financial Statements referred to above present
fairly, in all material respects, the Consolidated Financial Position of Maxcom
Telecomunicaciones, S.A. de C.V. and Subsidiary, as of December 31, 1999 and
2000, the Consolidated Result of its Operations for the period from May 1, 1999
(commencement of operations) through December 31, 1999 and for the year ended
December 31 2000, the Consolidated Changes in Shareholders' Equity and the
Changes in its Financial Position for the years ended December 31, 1998, 1999
and 2000, in conformity with Mexican Generally Accepted Accounting Principles
("Mexican GAAP").
Mexican GAAP vary in certain respects from accounting principles generally
accepted in the United States ("U.S. GAAP"). The application of U.S. GAAP after
the restatements referred to in Note 18, would have affected the determination
of consolidated net loss expressed at the purchasing power of pesos as of
December 31, 2000 for the years ended December 31, 1998, 1999 and 2000 and the
determination of the consolidated shareholders' equity and consolidated
financial position, also expressed at the purchasing power of pesos as of
December 31, 2000, as of and for the years ended December 31, 1998, 1999 and
2000, to the extent summarized in Note 18 to the consolidated financial
statements.
These consolidated financial statements have been translated into English solely
for the convenience of the readers of this language.
BDO INTERNATIONAL
MEXICO CITY,
FEBRUARY 12, 2001
5
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF MEXICAN PESOS "PS." WITH PURCHASING POWER AS OF DECEMBER 31, 2000
AND THOUSANDS OF U.S. DOLLARS "$")
DECEMBER 31, 1999 2000 2000
-------------------------------------------------------------------------------------------------------------
(Note 2)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 4) Ps. 167,430 Ps. 1,072,261 $ 111,462
-------------------------------------------------------------------------------------------------------------
Restricted cash (Note 10) 20,362 384,399 39,958
-------------------------------------------------------------------------------------------------------------
Accounts receivable:
Customers, net of allowance of Ps.3,373 and Ps.8,305 31,220 38,656 4,018
Value added tax refundable (Note 6) 44,333 16,924 1,759
Other 346 502 52
-------------------------------------------------------------------------------------------------------------
75,899 56,082 5,829
-------------------------------------------------------------------------------------------------------------
Equipment for resale 7,322 9,011 937
-------------------------------------------------------------------------------------------------------------
Prepaid expenses 4,574 9,651 1,003
-------------------------------------------------------------------------------------------------------------
Total current assets 275,587 1,531,404 159,189
RESTRICTED CASH (Note 10) - 184,479 19,177
FREQUENCY RIGHTS, Net (Note 7) 112,002 106,208 11,040
TELEPHONE NETWORK SYSTEMS AND EQUIPMENT, Net (Note 9) 859,532 1,197,136 124,442
PREOPERATING EXPENSES, Net 270,369 241,424 25,096
OTHER ASSETS 47,154 222,545 23,134
-------------------------------------------------------------------------------------------------------------
Total assets PS. 1,564,644 PS. 3,483,196 $ 362,078
=============================================================================================================
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 10) Ps. 4,081 Ps. 2,917 $ 303
CT Global Telecommunications, Inc. (Note 8) 26,121 479 50
Accrued expenses and other accounts payable 43,025 225,567 23,448
Deposits refundable to customers 7,964 5,525 574
Taxes payable 5,533 8,107 843
-------------------------------------------------------------------------------------------------------------
Total current liabilities 86,724 242,595 25,218
LONG-TERM LIABILITIES:
Long-term debt, less current maturities (Note 10) 872,338 2,798,866 290,942
-------------------------------------------------------------------------------------------------------------
Total liabilities 959,062 3,041,461 316,160
=============================================================================================================
Commitments (Notes 1, 10, 13 and 16)
SHAREHOLDERS' EQUITY (NOTE 12)
Capital Stock 810,318 1,152,553 119,808
Additional paid-in capital 31,902 122,830 12,768
Deficit (236,638) (833,648) (86,658)
-------------------------------------------------------------------------------------------------------------
Total shareholders' equity 605,582 441,735 45,918
-------------------------------------------------------------------------------------------------------------
PS. 1,564,644 PS. 3,483,196 $ 362,078
=============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-2
6
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF MEXICAN PESOS "PS." WITH PURCHASING POWER AS OF DECEMBER 31, 2000
AND THOUSANDS OF U.S. DOLLARS "$")
FOR THE PERIOD AND YEAR ENDED DECEMBER 31, 1999 2000 2000
-------------------------------------------------------------------------------------------------------------
(Note 2)
TELECOMMUNICATION REVENUES PS. 96,099 PS. 266,064 $ 27,657
-------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Network operating cost 47,751 107,765 11,202
Selling general and administrative expenses 176,037 331,166 34,425
Depreciation and amortization 80,919 201,040 20,898
-------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 304,707 639,971 66,525
-------------------------------------------------------------------------------------------------------------
OPERATING LOSS (208,608) (373,907) (38,868)
-------------------------------------------------------------------------------------------------------------
COMPREHENSIVE (INCOME) COST OF FINANCING:
Interest expense 50,450 399,979 41,578
Interest income (10,946) (97,951) (10,182)
Exchange loss, net 10,401 10,705 1,113
Gain on net monetary position (21,756) (90,101) (9,366)
-------------------------------------------------------------------------------------------------------------
28,149 222,632 23,143
-------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE), Net 119 (471) (49)
-------------------------------------------------------------------------------------------------------------
NET LOSS PS. 236,638 PS. 597,010 $ 62,060
=============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
7
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(THOUSANDS OF MEXICAN PESOS "PS." WITH PURCHASING POWER AS OF DECEMBER 31, 2000
AND THOUSANDS OF U.S. DOLLARS "$")
ADDITIONAL
CAPITAL STOCK PAID-IN CAPITAL DEFICIT TOTAL
--------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1997 (NOTE 12) PS. 252,717 PS. - PS. - PS. 252,717
Increase in capital stock, net of expenses
(Ps.24,800) incurred in connection with a
private placement (Note 12) 547,421 - - 547,421
Stock options (Note 13) - 29,478 - 29,478
--------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1998 (NOTE 12) 800,138 29,478 - 829,616
Increase in capital stock 10,180 - - 10,180
Contributions for future increases of capital - 361 - 361
Stock options (Note 13) - 2,063 - 2,063
Net loss - - 236,638 236,638
--------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1999 (NOTE 12) 810,318 31,902 (236,638) 605,582
Increase in capital stock 335,304 - - 335,304
Contributions for future increases of capital - 96 - 96
Stock options and warrants (Note 13) - 97,763 - 97,763
Exercise of warrants (Note 13) 6,931 (6,931) - -
Net loss - - 597,010 597,010
--------------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2000 (NOTE 12) PS. 1,152,553 PS. 122,830 PS. (833,648) PS. 441,735
================================================================================================================================
U.S. DOLLARS (NOTE 2) $ 119,808 $ 12,768 $ (86,658) $ 45,918
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
8
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(THOUSANDS OF MEXICAN PESOS "PS." WITH PURCHASING POWER AS OF DECEMBER 31, 2000
AND THOUSANDS OF U.S. DOLLARS "$")
FOR THE YEARS ENDED DECEMBER 31, 1998 1999 2000 2000
--------------------------------------------------------------------------------------------------------------------------------
(Note 2)
OPERATING ACTIVITIES:
Net loss Ps. - Ps. 236,638 Ps. 597,010 $ 62,060
Depreciation and amortization charged to operations
not requiring use of resources - 80,919 201,040 20,898
--------------------------------------------------------------------------------------------------------------------------------
- 155,719 395,970 41,162
Net change in restricted cash, accounts receivable,
inventories, prepaid expenses and accounts
payable and accrued expenses - 16,033 (378,430) (39,338)
--------------------------------------------------------------------------------------------------------------------------------
Resources used in operating activities - 139,686 774,400 80,500
--------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Issuance of capital stock 547,521 10,180 342,235 35,575
Additional paid-in capital 29,478 2,424 90,928 9,452
Proceeds from loans and notes payable, net 228,895 647,518 1,925,364 200,142
--------------------------------------------------------------------------------------------------------------------------------
Resources provided by financing
activities 805,894 660,122 2,358,527 245,169
--------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Preoperating expenses (113,037) (84,690) - -
Net changes in monetary assets and liabilities (26,778) - - -
--------------------------------------------------------------------------------------------------------------------------------
(139,815) (84,690) - -
Telephone network systems and equipment (270,106) (670,517) (476,642) (49,547)
Other assets (27,491) (19,663) (202,654) (21,066)
--------------------------------------------------------------------------------------------------------------------------------
Resources used in investing activities (437,412) (774,870) (679,296) (70,613)
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period 368,482 (254,434) 904,831 94,056
Beginning balance 53,382 421,864 167,430 17,406
--------------------------------------------------------------------------------------------------------------------------------
Ending balance Ps. 421,864 Ps. 167,430 Ps. 1,072,261 $ 111,462
================================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest Ps. 17,502 Ps. 42,972 Ps. 250,983 $ 26,090
================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-5
9
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED, DECEMBER 31, 1998, 1999 AND 2000
(THOUSANDS OF MEXICAN PESOS "PS." WITH PURCHASING POWER AS OF DECEMBER 31, 2000
AND THOUSANDS OF U.S. DOLLARS "$")
NOTE 1. INCORPORATION AND BUSINESS
Maxcom Telecomunicaciones, S.A. de C.V. ("Maxcom" or "the
Company"), is a Mexican company incorporated on February 28, 1996 (inception).
Its main line of business is the construction and operation of a telephone
network, with the purpose of providing local, national and international
long-distance, data and other value-added services, including private network
services, within Mexico.
The Company started its commercial operations in May 1999.
Therefore, from its incorporation through April 30, 1999, the Company was in the
preoperating and development stage. From the beginning of its commercial
operations, the Company has had negative cash flow from operations and loss from
operations, due to its recent establishment and that it is building up its base
of customers. Therefore, the Company, and the recoverability of its investment
in telephone network systems and equipment, preoperating expenses and frequency
rights will depend on the ability of the Company to obtain financing to complete
development, and on the future profitable commercial exploitation of the
telephone network.
Effective February 3, 1997 (supplemented December 7, 1999),
Mexico's Ministry of Communications and Transportation (the "SCT") awarded the
Company a concession to install and operate a public telecommunication network
in Mexico. This concession is non-exclusive; its initial term is for 30 years,
and it contains certain renewal rights. The concession grants the Company the
right to provide local telephone services in the Federal District of Mexico and
in 124 other cities located in the states of Chiapas, Hidalgo, Mexico, Oaxaca,
Puebla, San Luis Potosi, Tabasco, Tamaulipas, Tlaxcala, Veracruz, Campeche,
Quintana Roo and Yucatan. It also grants the Company the right to provide
long-distance, data and other value-added services nationwide. There are
conditions for the concession to remain effective, such as building certain
networks and providing certain services by predetermined dates.
In October 1997, the Company was awarded a nationwide
point-to-point and three regional point-to-multipoint microwave concessions,
each for 20 years. See Note 7.
On November 24, 1998, the Company entered into an agreement
with Telefonos de Mexico, S.A. de C.V. ("Telmex"), through which both parties
agreed to provide each other with interconnection services to each other's local
telecommunications network. This agreement calls for reciprocal interconnection
rates for local-to-local services through January 1, 2001. On March 23, 1999,
this agreement was renewed and the term was extended to September 15, 2002.
On January 22, 1999, the Company entered into an agreement
with Telmex through which Maxcom agreed to provide Telmex with interconnection
services for Telmex's long-distance traffic. This agreement is valid through
September 15, 2002, with the possibility of extension after such date.
During 1999 and 2000, the Company has entered into
interconnection and reselling agreements with several local and long distance
carriers and mobile phone companies.
NOTE 2. BASIS OF PRESENTATION
a) CONSOLIDATION:
F-6
10
MAXCOM TELECOMUNICATIONS, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
For of the years ended December 31, 1998, 1999 and 2000, the
accompanying consolidated financial statements include the accounts of Maxcom
and Corporativo en Telecomunicaciones, S.A. de C.V. ("Corporativo" or the
"Subsidiary"), a wholly-owned Mexican subsidiary incorporated on January 19,
1998, whose main line of business is the rendering of administrative and
technical services, mainly to Maxcom. All intercompany balances and transactions
have been eliminated in the consolidation.
b) CONVENIENCE TRANSLATION:
U.S. Dollar amounts ("$") shown in the consolidated financial
statements have been included solely for the convenience of the reader and were
translated from Mexican Pesos, as a matter of arithmetic computation only, at
the December 29, 2000, noon-buying rate of Ps. 9.62 per U.S.$1.00, published by
The Federal Reserve Bank of New York. Such translation should not be construed
as a representation that the Mexican Peso amounts have been or could be
converted into U.S. Dollars at this or any other rate.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are
expressed in Mexican Pesos, denoted by the symbol "Ps", and have been prepared
by applying Mexican GAAP. The significant accounting policies used by the
Company in the preparation of its financial statements, including the concepts,
methods and criteria related to the recognition of the effects of inflation on
the financial information, are summarized below:
a) RECOGNITION OF THE EFFECTS OF INFLATION:
i) Following the methodology set out in Mexican
GAAP, the Company restates its financial statements
to reflect the purchasing power of the Mexican Peso
as of the most recent reporting date (December 31,
2000), thereby comprehensively recognizing the
effects of inflation. The financial statements of
previous years have also been restated in terms of
the purchasing power of the Mexican Peso as of the
most recent reporting date, thus making them
comparable. Therefore, these amounts differ from
those previously reported.
ii) Shareholders' equity accounts include their
restatement to express them in terms of constant
Pesos. The restatement amounts are determined by
applying factors derived from the National Consumer
Price Index ("INPC") to the historical balances.
iii) The result on net monetary position
represents the inflationary gain or loss, as
determined by applying factors derived from the INPC,
on the Company's monthly net monetary assets or
liabilities during the period.
iv) Comprehensive income and cost of financing
consists of interest income and expense, exchange
gains or losses and the gain or loss on the net
monetary position. Comprehensive income and cost of
financing during the development stage period, was
capitalized to preoperating expenses. Once the
Company commenced operations, these costs are applied
to the results of operations.
b) CASH AND CASH EQUIVALENTS:
Cash equivalents include highly liquid short-term investments
and bank deposits with original due dates of three months or less, which are
valued at market cost plus accrued interest.
c) TELEPHONE NETWORK SYSTEMS AND EQUIPMENT:
Telephone network systems and equipment are recorded at
acquisition cost and restated by applying factors derived from the INPC.
Depreciation is calculated by the straight-line method on restated cost based on
the estimated useful lives of the assets. Depreciation is charged to results of
operations. During the
F-7
11
MAXCOM TELECOMUNICATIONS, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
development stage, depreciation was applied to preoperating expenses.
d) FREQUENCY RIGHTS:
Frequency rights are recorded at acquisition cost and restated
by applying factors derived from the INPC. Amortization is calculated by the
straight-line method over the term of the concession (see Note 7), from the
start of the Company's operations.
e) PREOPERATING EXPENSES:
All expenses incurred during the development stage or in
specific projects in progress are capitalized. The amortization of such expenses
is determined by the straight-line method over ten years, once the corresponding
asset commences operations.
f) TRANSACTIONS AND BALANCES IN FOREIGN CURRENCIES:
Transactions in foreign currencies are recorded at the rates
of exchange prevailing on the dates they are entered into or settled. Assets and
liabilities denominated in those currencies are stated in Mexican Pesos at the
year-end closing rate published in Mexico's Official Gazette. Exchange gains or
losses are applied to comprehensive income from cost of financing.
g) INCOME TAX AND STATUTORY EMPLOYEES' PROFIT SHARING:
The Company has had no net income since inception and
accordingly has not provided for income taxes and statutory employees' profit
sharing.
Starting in year 2000, the Company recognizes the deferred tax
for the tax consequences of all temporary differences, both recurring and
non-recurring, between the financial statements' carrying amounts and the tax
basis of existing assets, liabilities and tax losses. An analysis of the
corresponding effects is shown in Note 15.
h) MANAGEMENT ESTIMATES:
Generally accepted accounting principles require that, in
preparing a company's financial statements, management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclose contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
i) FINANCIAL INSTRUMENTS:
The Company's financial instruments consist principally of
cash, cash equivalents and restricted cash, accounts receivable and payable, and
loans and notes payable. The carrying amounts of such financial instruments, as
reflected in the balance sheet, approximate their fair value as of December 31,
1999 and 2000.
j) REVENUE RECOGNITION:
The Company recognizes revenues from telephone services
provided to customers, from the sale of customer-premise equipment and from
services provided to other telephone-service companies (such as interconnection
services).
Revenues from services provided to customers are recognized on
accrual basis.
Revenues from the sale of customer-premise equipment are
recognized at the time of the sale and delivery of such equipment.
Advances from customers are classified as current liabilities
until they are refunded. When the
F-8
12
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
contract is rescinded, these deposits are applied to operations as services
rendered.
k) STOCK-BASED COMPENSATION:
At December 31, 1999 and 2000, the Company had several stock
option transactions, which are described below. Since Mexican GAAP does not have
standards to value and record these kinds of transactions, the Company adopted
the U.S. GAAP guidelines of APB Opinion 14, "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants"; APB Opinion 25, "Accounting for Stock
Issued to Employees"; and FASB Statement 123, "Accounting for Stock-Based
Compensation."
The Company recognizes compensation expense for its stock
option plan using the intrinsic-value method of accounting. Under the terms of
the intrinsic-value method, compensation cost is the excess, if any, of the
market price of the stock at the grant date, or other measurement date, over the
amount an employee must pay to acquire the stock.
l) SEGMENT REPORTING:
In August 1997, the International accounting Standards
Committee issued revised IAS No. 14, "Segment Reporting" ("IAS 14"), which is
applicable to Mexican Companies under Bulletin A-8. IAS 14 which is effective
for years beginning after June 30, 1998, requires that companies look to their
internal organizational structure and internal reporting system for purposes of
identifying segments. For all years presented the Company operates only one
segment and does not have any particular geographical location. The revenue by
geographical location included in Note 19 is a specific disclosure required by
the SCT in the Company's Concession title.
m) NEW ACCOUNTING STANDARDS:
In August 2000, the Mexican Institute of Certified Public
Accountants ("MIPA") issued Bulletin B-4, "Comprehensive Income", to become
effective January 1, 2001. This Bulletin sets forth new guidelines for reporting
and disclosing comprehensive income and its components. Based on this Bulletin
comprehensive income will include net income of the year and other items which,
in accordance with other bulletins are recorded directly in shareholders' equity
and which are not a result of shareholders transaction such as contributions,
reductions or distributions of capital.
During 2000, the MIPA issued a revised Bulletin C-1 "Valuation
of Cash and temporary investments", applicable to all Mexican companies for the
year beginning January 1, 2001. This statement provides guidance for the
valuation of foreign currencies and precious metals as currency. As the Company
follows the practices mentioned in the Bulletin, the adoption of this standard
will not have a material effect on the Company's financial statements and
disclosures.
During 2000, the MIPA issued the Bulletin C-2 "Financial
instruments", which requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. The Company has not entered into derivative contracts either to hedge
existing risk or for speculative purposes, and do not expect to enter in to
them. Accordingly, the Company does not expect the adoption of this new standard
to have a material effect in its financial statements.
NOTE 4. CASH AND CASH EQUIVALENTS
DECEMBER 31, 1999 2000
-------------------------------------------------------------------------------------------------------------
Republic National Bank of New York: $6,625 in a certificate of deposit, due
January 12, 2000. Annual interest rate of 5.94%. Ps. 69,400 Ps. -
BancBoston: $5,010 in a certificate of deposit, due January 5, 2000. Annual
interest rate of 5.7%. 52,206 -
Bank of America: $3,430 in a certificate of deposit, due January 3, 2000.
Annual interest rate of 3.5%. 35,604 -
F-9
13
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
DECEMBER 31, 1999 2000
-------------------------------------------------------------------------------------------------------------
Bank of America: $22,710 in two certificates of deposit, due January 3, 2001
Annual interest rate of 6.58% and 6.32%. - 218,009
HSBC Republic: $72,375 in a certificate of deposit, due January 3, 2001
Annual interest rate of 6.70%. - 694,778
Paine Webber Incorporated: $15,192 in money market instruments, bearing
interest at 6.71% per annum. - 145,843
Other 10,220 13,631
-------------------------------------------------------------------------------------------------------------
PS. 167,430 PS.1,072,261
=============================================================================================================
NOTE 5. SIGNIFICANT CUSTOMERS
Currently, our three largest customers account for more than 30%
of our revenues. We believe that this concentration will be reduced over time as
the size of our operations grows. However, our revenues could be negatively
affected, at least in the short term, if one or more of these largest customers
cancel their contract.
NOTE 6. VALUE-ADDED TAX REFUNDABLE
Value-Added Tax ("VAT") is levied on goods and services
acquired, at a standard rate of 15%. VAT does not usually represent an
additional cost to business enterprises because the amounts paid will be offset
against the VAT liability of the Company on the billing to customers. Because
the Company has paid VAT on investments, costs and expenses incurred, the VAT
paid has resulted in a tax overpayment subject to refund. This tax is being
refunded on a regular basis.
NOTE 7. FREQUENCY RIGHTS
On October 3, 1997, the federal government granted the Company
a concession to use and exploit different bands of the radio-electric spectrum
and to establish point-to-point and point-to-multi-point microwave links. The
concession became effective February 28, 1998, and will run to the year 2018.
The Company paid the government the sum of Ps. 114,624, which
will be amortized over the life of the concession from the start of the
Company's operations. As of December 31, 1999 and 2000, the Company has recorded
amortization expenses of Ps.2,581 and Ps.5,835 respectively.
NOTE 8. TRANSACTIONS WITH RELATED PARTIES
1999 2000
-------------------------------------------------------------------------------------------------------------
TRANSACTIONS:
Office and site lease Ps. 2,603 Ps. 188
Compensation in connection with the operation agreement and other
expenses with CT Global Telecommunications, Inc. 72,825 35,710
Strategic assistance agreement and other expenses to Bachow Associates 2,004 1,698
Advisory fee and other expenses to Bank of America 901 1,066
Expenses to BancBoston 173 90
-------------------------------------------------------------------------------------------------------------
PS. 78,506 PS. 38,752
=============================================================================================================
NOTE 9. TELEPHONE NETWORK SYSTEMS AND EQUIPMENT
F-10
14
MAXCOM TELECOMUNICATIONS, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
USEFUL LIFE
DECEMBER 31, 1999 2000 (YEARS)
--------------------------------------------------------------------------------------------------------------------------------
Office furniture Ps. 3,604 Ps. 5,933 10
Transportation equipment 8,342 15,212 4
Software 5,570 16,920 3.33
Engineering equipment 7,681 8,930 10
Computer equipment 17,079 27,885 3.33
Telecommunication equipment and network 487,494 731,893 10
Electronic equipment 153,244 186,587 3.33
Radio equipment 76,727 116,090 10
Leasehold improvements 47,955 52,105 20(1)
Other 4,010 5,789 10
--------------------------------------------------------------------------------------------------------------------------------
811,706 1,167,344
Less - Accumulated depreciation (61,437) (201,428)
Construction in process:
Telecommunications 109,263 231,220
--------------------------------------------------------------------------------------------------------------------------------
PS. 859,532 PS. 1,197,136
================================================================================================================================
(1) Or life of the lease.
NOTE 10. LONG-TERM DEBT
The balances as of December 31, 1999 and 2000, were:
CURRENT
MATURITIES LONG-TERM TOTAL
--------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999:
Nissho Iwai American Corp. (Lucent) (2) Ps. - Ps. 556,023 Ps. 556,023
Nissho Iwai American Corp. (NEC) (3) - 143,232 143,232
Hewlett Packard de Mexico, S.A. de C.V. (4) - 168,094 168,094
Other 4,081 4,989 9,070
--------------------------------------------------------------------------------------------------------------------------------
PS. 4,081 PS. 872,338 PS. 876,419
================================================================================================================================
--------------------------------------------------------------------------------------------------------------------------------
CURRENT
DECEMBER 31, 2000: MATURITIES LONG-TERM TOTAL
--------------------------------------------------------------------------------------------------------------------------------
$ 300,000 Senior Notes Due April 1, 2007. These Notes accrue
interest at the rate of 13.75 % per annum. (1) Ps. - Ps. 2,879,910 Ps. 2,879,910
Less- Cost of warrants granted to the initial purchasers of the
senior notes (net of accumulated amortization) - (82,227) (82,227)
--------------------------------------------------------------------------------------------------------------------------------
Senior Notes, Net - 2,797,683 2,797,683
Other 2,917 1,183 4,100
--------------------------------------------------------------------------------------------------------------------------------
PS. 2,917 PS. 2,798,866 PS. 2,801,783
================================================================================================================================
Maturities of the long-term debt are as follows:
YEAR ENDED 2000
--------------------------------------------------------------------------------------------------------------------------------
2001 Ps. 2,917
2002 1,183
2003 -
2004 -
2005 -
2006 -
2007 and thereafter 2,879,910
--------------------------------------------------------------------------------------------------------------------------------
PS. 2,884,010
================================================================================================================================
(1) On March 17, 2000, Maxcom issued a private offering of Senior
Notes with a maximum aggregate
F - 11
15
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
principal amount of $300 million. The Notes will mature on April 1,
2007. The main characteristics of these Notes are as follows: (a)
unsecured senior obligations of the Company; (b) pari passu in right of
payment to all existing and future Senior Indebtedness of the Company;
(c) senior in right of payment to any future Subordinated Obligations of
the Company; (d) subject to registration with Securities and Exchange
Commission ("SEC"), pursuant to a Registration Rights Agreement; and (e)
fully and unconditionally guaranteed by Corporativo en
Telecomunicaciones, S.A de C.V. These notes accrue interest at the rate
of 13.75% per annum (14.46% including the withholding tax effect
according to prevailing tax regulations in year 2000) and are payable
semiannually in arrears on April 1 and October 1, commencing on October
1, 2000.
RESTRICTED CASH:
Additionally, the first four semiannual scheduled interest payments were
secured pursuant to a Pledge and Escrow Agreement between the Company
and the Trustee, as Escrow Agent, through a deposit of $77.9 million of
the net proceeds from the sale of the notes which were used to purchase
and pledge to the Trustee a portfolio of U.S. government securities.
Said portfolio is in an amount intended to be sufficient to fulfill the
payment of the mentioned payments. As of December 31, 2000, this fund
amounted to approximately $59 million, which was presented as restricted
cash. After the mentioned payments, the remaining balance of the fund,
if any, will be released from the pledge.
On August 22, 2000, the Notes were registered with the SEC, and
beginning on that date and ending on September 21, 2000, the Notes were
exchanged into Series B Senior Notes, with substantially identical terms
to those of the old notes, except that the Series B can be freely traded
in the open market.
The indenture contains certain covenants among others: limitations on
indebtedness and derived payments, restrictions on distributions from
restricted subsidiaries, limitations on sales of assets and subsidiary
stock, limitation on affiliate transactions, limitations of sale or
issuance of capital stock of restricted subsidiaries, limitations on
liens, limitation on sale/leaseback transactions and restrictions in
mergers and consolidations. If an event of default occurs and is
continuing, the trustee or the holders of 25% in principal amount of the
outstanding notes may declare the principal and accrued but unpaid
interest on all the notes to be due and payable. As of December 31,
2000, the Company has complied with all the covenants.
(2) $100 million vendor facility, bearing an annual interest rate of
three-month LIBOR plus 4.15% plus withholding tax (11.47% at December
31, 1999). The outstanding balance was paid in March 2000.
(3) $20 million vendor facility, bearing an annual interest rate of
three-month LIBOR plus 4.15% plus withholding tax (11.47% at December
31, 1999). The outstanding balance was paid in March 2000.
(4) $18.7 million from Hewlett-Packard, bearing an annual interest rate of
three-month LIBOR plus 4.15% (10.28% at December 31, 1999). The
outstanding balance was paid in March 2000.
NOTE 11. EMPLOYEES BENEFITS
As of December 31, 1999 and 2000, the Company had the following labor
liabilities:
a) INDEMNITIES TO EMPLOYEES:
Employees who are dismissed without justification are entitled to
severance compensation determined in accordance with the provisions of Mexico's
Federal Labor Law.
F - 12
16
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
b) SENIORITY PREMIUMS:
In the event of dismissal without justification, retirement
after 15 years of service, or death, employees are entitled to a seniority
premium determined in accordance with the provisions of Mexico's Federal Labor
Law.
As of December 31, 1999 and 2000, these items were not
significant because the seniority of the vast majority of the Company's
employees was less than three years.
NOTE 12. CAPITAL STOCK
Under Mexico's Federal Telecommunications Law and Foreign
Investment Law, no more than 49% of the full voting capital stock of a Mexican
corporation holding a concession to provide local and long-distance
telecommunication services may be held by foreigners.
The Extraordinary Shareholders' Meeting held on February
21, 2000, resolved to modify the equity structure of the Company by converting
50% of Series N shares into new shares, of Series C shares, at a rate of 1:1.
The new Series C shares have full voting and economic rights. They can only be
subscribed by the agent acting as trustee of a Neutral Investment Trust
incorporated in accordance with the Mexico's Foreign Investment Law. The trust
shall in turn issue Certificados de Participacion Ordinarios (CPO's).
Statutorily, the Trustee shall vote Series C shares in the same manner as the
majority of the Series A shares are voted. The corporate governance of the
Company remains unaffected.
Additionally from the capital restructuring, the
Shareholders Meeting held on February 21, 2000, resolved the conversion of
255,000 Series A shares into 127,500 Series C shares and 127,500 Series N shares
and the conversion of 245,000 Series B shares into 122,500 Series C shares and
122,500 Series N shares.
The capital stock is represented by registered shares with
no par value, which are divided in Series A, B and C common shares and Series N
limited-voting shares. Series A shares may only be subscribed to, acquired or
owned by Mexicans, Series B shares may be freely subscribed to and Series C
shares can only be subscribed to, acquired or owned by the agent acting as
trustee of a Neutral Investment Trust. Series N shares, which may also be freely
subscribed to, are limited-voting shares. Series C and N shares are deposited in
the Neutral Investment Trust, which in turn issue CPO's. Series C and N shares
may not be computed for purposes of determining the foreign-investment
percentage under the terms of the Foreign Investment Law. In compliance with a
ruling of the Mexican Foreign Investment Authorities, in accordance with the
Foreign Investment Law and the Company Bylaws, Series B shares may not represent
more than 49% of the voting right shares, Series C shares may not represent more
than 44.5% of the Company's total outstanding capital stock and Series N shares
may not represent more than 44.5% of the Company's total outstanding capital
stock.
The Extraordinary Shareholders' Meetings held on June 5 and
September 29, 2000, resolved the following:
(1) To increase the Capital stock in an amount of $35
million issuing 3,355,446 shares, of which 1,677,723
are Series C shares, and 1,677,723 are Series N
Shares, the shareholders paid $10.44 for each share
or its equivalent in Mexican Pesos at the exchange
rate published on the official gazette on the day of
the payment.
(2) To cancel 4,660,000 Series N shares which were held
in the treasury of the Company to fulfill
commitments of the Company, in accordance with
several stock options and warrants agreements (See
Note 13).
(3) To issue 1,679,866 nominative Series C shares and
1,679,866 Series N shares to be held in the treasury
of the Company to fulfill the commitments derived
from the stock options and warrants agreements,
mentioned in Note 13.
F - 13
17
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Bylaws and a Shareholders' Agreement require a
supermajority of votes to approve certain transactions; they also stipulate that
the transfers of shares may be subject to certain restrictions and rights of
first refusal.
As of December 31, 1999 and 2000, the Company's outstanding
shares were:
DECEMBER 31, 1999 2000
--------------------------------------------------------------------------------------------------------------------------------
Capital stock:
Series A 1,531,428 1,276,428
Series B 1,471,373 1,226,373
Series C - 5,622,822
Series N 7,320,190 5,622,822
--------------------------------------------------------------------------------------------------------------------------------
TOTAL OUTSTANDING SHARES 10,322,991 13,748,445
Treasury Shares:
Series C - 1,679,866
Series N 4,660,000 1,679,866
--------------------------------------------------------------------------------------------------------------------------------
TOTAL ISSUED SHARES 14,982,991 17,108,177
================================================================================================================================
Of the total outstanding shares, 765,714 Series A shares
and 763,113 Series B shares represent the minimum fixed portion, with no
withdrawal rights, of Maxcom's capital stock, while the remaining A, B, C and N
Series shares represent the variable portion of the capital stock.
Under the May 1998 Shareholders' Agreement as amended and
restated on August 18, 2000, if the Company registers any equity securities for
a primary or secondary public offering prior to May 21, 2002, it must permit
parties to the Shareholders' Agreement to include their shares in such an
offering. The Company will bear all expenses of any primary or secondary public
offering, other than the fees of counsel to the holders of the registration
rights and any underwriting commission or discounts. If the Company does not
register the equity securities in a primary or secondary public offering prior
to May 21, 2005, the Series N shareholders will have the right to retain an
investment banker to: sell substantially all of the assets of the Company; merge
or consolidate into another company; or require parties to the Shareholders'
Agreement to sell their shares, and distribute the proceeds to the shareholders.
As of December 31, 1999 and 2000, the Company's capital
stock was:
DECEMBER 31 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
Capital stock Ps. 595,841 Ps. 925,958
Restatement for effects of inflation 239,277 251,395
---------------------------------------------------------------------------------------------------------------------------------
Total capital stock 835,118 1,177,353
---------------------------------------------------------------------------------------------------------------------------------
Expenses connected with private placement (18,280) (18,280)
Restatement for effects of inflation (6,520) (6,520)
---------------------------------------------------------------------------------------------------------------------------------
(24,800) (24,800)
---------------------------------------------------------------------------------------------------------------------------------
PS. 810,318 PS. 1,152,553
---------------------------------------------------------------------------------------------------------------------------------
During May 1998, Maxcom had a private placement and issued
6,085,977 Series N shares, which resulted in a capital stock increase of
Ps.572,221 (Ps.421,914 nominal Pesos). The expenses incurred (Ps.24,800) in
connection with the placement were directly applied to shareholders' equity.
NOTE 13. STOCK OPTIONS
At December 31, 1999 and 2000, the Company had several
stock option transactions, which are described below. Since Mexican GAAP does
not have standards to value and record these kinds of transactions, the Company
adopted the U.S. GAAP guidelines of APB Opinion 14, "Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants"; APB Opinion 25, "Accounting
for Stock Issued to Employees"; and FASB Statement 123, "Accounting for
Stock-Based Compensation".
F - 14
18
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FASB 123 requires the Company to calculate the fair value
of each stock option at the grant date by using the Black-Scholes option-pricing
model. The following weighted average assumptions were used for grants in 1998:
no dividend yield for all years; expected volatility of 46.10%; risk-free
interest rate of 5.15%; and expected lives of 4 to 7 years.
a) EXECUTIVE STOCK OPTION PLAN:
At a Board of Directors' Meeting held in May 1998, an
executive stock option plan was approved. This plan provides that the Company
grant options, on every April 1, commencing in 1999 and until December 2000, to
several of its officers. Under this plan, a technical committee will determine
the executive officers to whom, options to purchase Series N shares will be
granted, as well as the terms of those options.
The Company has created two option plans for its executive
officers, as follows:
The first award (option "A") consists of a total of 425,000
options to be awarded as follows: 170,000 on April 1, 1999, at an exercise price
of $8.70; 145,000, on April 1, 2000, at an exercise price of $10.40 and 110,000
on April 1, 2001, at an exercise price of $12.55. The options vest equally over
a five-year period beginning on the date of the grant. These options are granted
to executive officers depending on the achievement of certain Company goals
determined by the Board of Directors.
If targets are met, these options may be awarded to
executive officers who continued to provide professional services to the Company
on April 1, 1999 and 2000. The only requirement to receive the option is that
the executive officers must be rendering services to the Company at the time of
the grant, in his capacity of officer.
The second award (option "B") is granted based on a set
formula as defined in the options plan agreement. Options will be granted to
executive officers at an exercise price of $10.45 at April 1, 2000, and at an
exercise price of $12.55 at April 1, 2001.
Based on APB Opinion No. 25, compensation expense is
determined based on the market or fair-value price of the stock at the
measurement date, less the amount, if any, that the executive officers are
required to pay for the stock.
Since the option price equals the market value on the date
of the grant, there is no intrinsic value for the options and thus there is no
expense associated with these options to record in the financial statements.
Should a company elect to account for options to employees
under APB 25, FASB 123 requires it to provide pro forma information regarding
net income and earnings per share as if compensation cost for the company's
executive stock option plan had been determined in accordance with the
fair-value based method prescribed in that statement.
As of December 31, 1999 and 2000, under the accounting
provisions of FASB 123, the Company's net loss and net loss per share would have
been as follows:
AS REPORTED PRO-FORMA
-------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Net loss Ps 236,638 Ps 241,636
Net loss per share -- basic and diluted 23.05 23.18
DECEMBER 31, 2000
Net loss 597,010 599,237
Net loss per share -- basic and diluted 52.08 50.87
b) NISSHO IWAI AMERICAN CORP. STOCK OPTIONS:
F - 15
19
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In March 24, 1998, the Company granted options to Nissho
Iwai for 337,471 Series N shares at fixed exercise prices per share of $10.87,
expiring through March 2005. No options have been exercised as of December 31,
2000. These options were issued in connection with a financing agreement and
their cost was valued at approximately $2.2 million, which was amortized during
the life of the financing.
c) CT GLOBAL TELECOMMUNICATIONS, INC. (CTGT) STOCK OPTIONS:
On May 21, 1998, the Company granted options to CT Global
Telecommunications for up to 250,000 Series N shares at an exercise price of
$8.70. These options will expire two years after CTGT disposes of its equity
participation in Maxcom. CTGT's rights to these options is subject to certain
performance objectives. On this basis, as of December 31, 2000, CTGT had
acquired the right to exercise up to 150,000 series N shares. The cost of these
options was valued at approximately $567, which was expensed as granted. No
options have been exercised as of December 31, 2000. The shares subject to these
options agreement are limited to a maximum gain of $40.00 per share.
d) BACHOW AND ASSOCIATES STOCK OPTIONS:
On May 21, 1998, the Company granted options to Bachow and
Associates for up to 100,000 Series N shares at an exercise price of $8.70
expiring two years after Bachow Investment Partners III L.P. disposes of its
current equity participation in Maxcom. Bachow and Associates' right to exercise
the options are subject to performance objectives. As of December 31, 2000,
Bachow and Associates had accomplished all objectives, which gave it the right
to exercise the total of the options. The cost of these options was valued at
approximately $397, which was expensed as granted. No options have been
exercised as of December 31, 2000. The shares subject to these options agreement
are limited to a maximum gain of $40.00 per share. During 1999 and 2000, Bachow
and Associates advanced $43 towards the exercise of its options and such amount
is reflected in additional paid-in capital.
e) AMSTERDAM PACIFIC LLC STOCK OPTIONS:
On May 21, 1998, the Company granted options to Amsterdam
Pacific, in connection with an equity financing transaction, for up to 24,425
Series N shares at an exercise price of $8.70 expiring May 21, 2003. As of
December 31, 2000, Amsterdam Pacific had the right to exercise its options.
f) WARRANTS IN CONNECTION WITH THE OFFERING OF THE NOTES:
The Company granted the bondholders and initial purchasers
of the Senior Notes up to 876,492 warrants to purchase Series N shares at an
exercise price of $0.01 (or $0.02 CPO's). The cost of these warrants was valued
at approximately $8.6 millions, and was recorded as a discount of the senior
notes and as an additional paid-in capital. This cost will be amortized as
additional interest expense over the life of the senior notes.
A summary of the changes of the stock options for the years
reported, is presented below:
YEAR ENDED DECEMBER 31, 1998 1999 2000
-------------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year - - 711,896 $ 9.73 853,646 $ 9.56
Granted 711,896 $ 9.73 142,250 8.70 1,469,492 4.15
Forfeited - - (500) (850) -
-------------------------------------------------------------------------------------------------------------------------------
Outstanding at the end of the year 711,896 $ 9.73 853,646 $ 9.56 2,322,288 $ 6.14
-------------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 414,396 $ 10.47 492,346 $ 10.19 1,670,538 $ 4.65
-------------------------------------------------------------------------------------------------------------------------------
F - 16
20
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Weighted-average fair value of options
granted during the year (expressed in
U.S. Dollars) $ 6.21 $ 3.72 $ 8.21
-------------------------------------------------------------------------------------------------------------------------------
The following table summarizes of the stock options
outstanding:
OUTSTANDING EXERCISABLE
----------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-
------------------------ AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
PRICES NUMBER LIFE PRICE NUMBER PRICE
----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
$ 8.70 374,425 4.97 $ 8.70 76,925 $ 8.70
10.87 337,471 7.00 10.87 337,471 10.87
----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
$ 8.70 516,175 5.86 $ 8.70 154,875 $ 8.70
10.87 337,471 6.00 10.87 337,471 10.87
----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000
$ 8.70 515,325 5.22 $ 8.70 329,975 $ 8.70
10.40-10.87 920,471 7.89 10.57 454,071 5.30
0.01 886,492 7.00 0.01 886,492 0.01
----------------------------------------------------------------------------------------------------------------------------
NOTE 14. POSITION IN FOREIGN CURRENCY
The Company currently does not hedge any of its
foreign-denominated assets or liabilities.
As of December 31, 1999 and 2000, the Company's
foreign-currency position was:
DECEMBER 31, 1999 2000
--------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLARS:
Assets $ 18,953 $ 170,799
Liabilities 88,552 320,945
--------------------------------------------------------------------------------------------------------------------------------
NET LIABILITY IN U.S. DOLLARS $ (69,599) $ (150,146)
--------------------------------------------------------------------------------------------------------------------------------
Exchange rate at end of the year (Ps. per U.S.$1.00) Ps. 9.52 Ps. 9.60
================================================================================================================================
NOTE 15. INCOME TAX AND TAX-LOSS CARRY-FORWARDS
The Company has had tax losses since inception and
accordingly has not provided for income taxes. The following is a summary of the
reconciliation between book and tax results:
PERIOD ENDED DECEMBER 31, 1999 2000
-------------------------------------------------------------------------------------------------------------------------------
Net loss for the period Ps. 236,638 Ps. 597,010
Preoperating expenses and expenses incurred in connection with a placement, which were
considered as tax deductions when incurred 90,661 26,503
Difference between inflationary effects for accounting and tax purposes 41,289 (143,969)
Nondeductible items (3,017) (1,834)
-------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD PS. 365,571 PS. 477,710
-------------------------------------------------------------------------------------------------------------------------------
F - 17
21
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In accordance with Mexico's Income Tax Law, tax losses are
subject to restatement by inflation and may be carried forward against future
taxable profits of subsequent years. As of December 31, 2000, the Company's
restated cumulative tax losses were:
FISCAL EXPIRATION
YEAR AMOUNT YEAR
---------------------------------------------------------------------------------------------------------------------------------
1996 Ps. 6,306 2006
1997 22,500 2007
1998 144,649 2008
1999 365,571 2009
2000 477,710 2010
--------------------------------------------------------------------------------------------------------------------------------
PS. 1,016,736
---------------------------------------------------------------------------------------------------------------------------------
In accordance with Bulletin D-4 issued by MIPA, starting
2000, the Company recognizes the deferred income tax using the assets and
liabilities method. This method requires to recognize the tax consequences of
all temporary differences, both recurring and non-recurring, between the
financial statements' carrying amounts and the tax basis of existing assets,
liabilities and tax losses. At year-end this caption is summarized as follows:
DECEMBER 31, 2000
--------------------------------------------------------------------------------------------------------------------------------
Accounts receivable Ps. 2,907
Equipment for resale (3,154)
Frequency rights (4,148)
Telephone network systems and equipment, net (76,293)
Preoperating expenses (77,560)
Other assets (3,501)
--------------------------------------------------------------------------------------------------------------------------------
Total assets and liabilities (161,749)
Tax-loss carry-forward 355,858
--------------------------------------------------------------------------------------------------------------------------------
Deferred-tax asset 194,109
Deferred-tax asset-valuation allowance (194,109)
--------------------------------------------------------------------------------------------------------------------------------
NET DEFERRED TAX PS. -
--------------------------------------------------------------------------------------------------------------------------------
NOTE 16. COMMITMENTS
At December 31, 2000, the Company had the following
commitments:
1. The Company was committed under purchase orders and
other commitments in the amount of Ps.22,849.
2. The Company maintains operating leases on buildings,
sites and transportation equipment, having recorded
leasing costs of Ps.26,278 in 1999 and Ps.27,553 in
2000. The schedule of future minimum lease payments
is as follows:
DECEMBER 31, 2000 1999 2000
--------------------------------------------------------------------------------------------------------------------------------
2001 Ps. 21,037 Ps. 23,214
2002 23,393 22,566
2003 19,716 19,543
2004 107,579 16,882
2005 and thereafter - 128,510
--------------------------------------------------------------------------------------------------------------------------------
PS. 171,725 PS. 210,715
--------------------------------------------------------------------------------------------------------------------------------
F - 18
22
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 17. SUBSEQUENT EVENT
As of the date of issue of these financial statements, the
Company is negotiating with several carriers the interconnection tariffs. The
new agreements will have retroactive effects to January 1, 2001.
NOTE 18. SIGNIFICANT DIFFERENCES BETWEEN MEXICAN AND U.S. GAAP
The Company's consolidated financial statements are prepared
in accordance with Mexican GAAP, which differ in certain significant respects
from U.S. GAAP. The Mexican GAAP consolidated financial statements include the
effects of inflation as provided for under Bulletin B-10 of MIPA. The
application of Bulletin B-10 represents a comprehensive measure of the effects
of price level changes in the Mexican economy, an is considered to result in a
more meaningful presentation than historical cost-based financial reporting for
both Mexican and U.S. accounting purposes. Therefore, the following
reconciliation to U.S. GAAP does not include the reversal of such inflationary
effects.
The principal differences between Mexican GAAP and U.S. GAAP
other than inflation accounting, are presented in the following pages with an
explanation, where appropriate, of the effects on consolidated net income and
shareholders' equity. Reconciling items are presented net of any gain or loss
from monetary position.
The following is a summary of the adjustments to net loss
and shareholders' equity as of and for the periods ended December 31, 1998, 1999
and 2000:
PERIODS ENDED DECEMBER 31, 1998* 1999* 2000*
------------------------------------------------------------------------------------------------------------------------------------
Net loss under Mexican GAAP Ps - Ps 236,638 Ps 597,010
------------------------------------------------------------------------------------------------------------------------------------
Adjustments:
Preoperating expenses applied to operations for U.S. GAAP
purposes (133,923) (87,072) -
Capitalization of interest 20,423 19,790 15,407
Amortization of preoperating expenses - 19,073 28,945
Amortization of frequency rights for U.S. GAAP purposes,
considering 20 year life of concession (2) (5,761) (3,180) 74
Amortization of capitalized interest (1,015) (3,031) (4,791)
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. GAAP adjustments (120,276) (54,420) 39,635
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS UNDER U.S. GAAP PS 120,276 PS 291,058 PS 557,375
------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 8,134,883 10,264,827 11,463,667
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE UNDER U.S. GAAP PS 14.78 PS 28.35 PS 48.62
------------------------------------------------------------------------------------------------------------------------------------
*as adjusted - see below
BALANCES AS OF DECEMBER 31, 1998* 1999* 2000*
------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY UNDER MEXICAN GAAP: 829,616 605,582 441,735
Accumulated adjustments:
Preoperating expenses applied to operations for U.S. GAAP
purposes (203,516) (290,588) (290,588)
Capitalization of interest 20,423 40,213 55,620
Amortization of preoperating expenses - 19,073 48,018
F - 19
23
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
BALANCES AS OF DECEMBER 31, 1998* 1999* 2000*
------------------------------------------------------------------------------------------------------------------------------------
Amortization of frequency rights for U.S. GAAP purposes,
considering 20 year life of concession (2) (7,201) (10,381) (10,307)
Amortization of capitalized interest (1,015) (4,046) (8,837)
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. GAAP Adjustments (191,309) (245,729) (206,094)
------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY UNDER U.S. GAAP PS 638,307 PS 359,853 PS 235,641
------------------------------------------------------------------------------------------------------------------------------------
*as adjusted - see below
Provided below is an analysis of changes in shareholders' equity under U.S.
GAAP:
YEAR ENDED DECEMBER 31,
-----------------------
1999* 2000*
----- -----
Balance at the beginning of the year 638,307 359,853
Net income under U.S. GAAP (291,058) (557,375)
Increase in capital stock 10,180 335,304
Contributions for future increases of capital 361 96
Stock options and warrants 2,063 97,763
============= ============
Balance at the end of the year 359,853 235,641
============= ============
*as adjusted - see below
a) RESTATEMENT OF PREVIOUSLY REPORTED RECONCILIATION BETWEEN
MEXICAN GAAP AND U.S. GAAP:
The Company reassessed the accounting treatment of U.S.
GAAP adjustments as of and for the years ended December 31, 1998, 1999 and 2000,
mainly due to (1) the recognition of the inflationary effects on the U.S. GAAP
adjustments, (2) the methodology of the amortization of the capitalization of
interest, preoperating expenses and frequency rights and (3) the recognition of
the deferred taxes on U.S. GAAP adjustments. As a result of such reassessment,
the Company restated the reconciliation between Mexican GAAP and U.S. GAAP.
Additionally the Company included other disclosures in both Mexican and U.S.
GAAP in order to comply with the S-X rules required by the SEC.
The effect of these adjustments on previously reported
consolidated net income and shareholders' equity is summarized as follows:
1998 1999 2000
---- ---- ----
U.S. GAAP NET LOSS AS PREVIOUSLY REPORTED 97,632 294,442 552,758
Difference due to:
Preoperating expenses (28,870) 10,527
Capitalization of interest 1,785 1,627
Amortization of preoperating expenses 1,568 100
Amortization of capitalized interest (1,015) (3,031) (4,791)
Amortization of frequency rights (444) (1,407) 74
Deferred income tax 5,900 (5,900)
============= ============= ==============
NET LOSS AS ADJUSTED 120,276 291,058 557,375
============= ============= ==============
U.S. GAAP SHAREHOLDERS' EQUITY AS PREVIOUSLY
REPORTED 668,112 386,274 266,679
Difference due to:
F-20
24
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Preoperating expenses (36,031) (25,504) (25,504)
Capitalization of interest 1,785 3,412 3,412
Amortization of preoperating expenses 1,568 1,668
Amortization of capitalized interest (1,015) (4,046) (8,837)
Amortization of frequency rights (444) (1,851) (1,777)
Deferred income tax 5,900 - -
------------- ------------- --------------
SHAREHOLDERS' EQUITY AS ADJUSTED 638,307 359,853 235,641
------------- ------------- --------------
B) PREOPERATING EXPENSES:
Under Mexican GAAP, all expenses incurred while a company or a
project is in the preoperating or development stages are deferred and considered
as a component of the company's assets. Such capitalized expenses are amortized
on a straight-line basis for a period not exceeding 10 years after the
corresponding asset commences operations. According to U.S. GAAP, such
preoperating expenses are expensed as incurred.
C) DEFERRED INCOME TAXES:
Temporary differences under SFAS 109 are determined based on the
difference between the indexed tax-basis amount of the asset or liability and
the related restated amount reported in the financial statements. The deferred
income tax expense or benefit is calculated as the difference between (a) the
deferred tax assets and liabilities at the end of the current period, and (b)
the deferred tax assets and liabilities reported at the end of the prior period
remesured to units of current general purchasing power at the end of the current
period, whereas, under Mexican GAAP Bulletin D-4, the change in the deferred tax
asset or liability is first measured on a historical cost basis and the
components of the change including monetary gains or losses are allocated
between tax provision, deficit from restatement and monetary gain or loss.
Generally, under U.S. GAAP, the tax benefit of a net
operating-loss carry-forward must be reported in the same manner as the source
of the income or the loss in the current year. Because the realization of the
Company's tax losses is considered to be uncertain, a valuation allowance has
been established for the net amount of the potential deferred tax asset.
Deferred income taxes determined in accordance with SFAS 109 would
be as follows:
DECEMBER 31, 1998 1999 2000
-------------------------------------------------------------------------------------------
Non-current deferred tax liability on:
Customers Ps - Ps 1,181 Ps 2,907
Equipment for resale - (2,563) (3,154)
Frequency rights (2,352) (4,799) (4,148)
Telephone network system and equipment (2,693) (25,636) (76,578)
Preoperating expenses 7,251 8,750 6,939
Other assets - - (3,500)
-------------------------------------------------------------------------------------------
2,206 (23,067) (77,534)
Non-current deferred tax asset on tax-loss
carry-forwards 53,713 188,659 348,401
-------------------------------------------------------------------------------------------
Deferred tax (liability) asset 55,919 165,592 270,867
Deferred-tax asset-valuation allowance (55,919) (165,592) (270,867)
-------------------------------------------------------------------------------------------
Net deferred tax liability Ps - Ps - Ps -
===========================================================================================
F-21
25
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
D) STATEMENT OF CHANGES IN FINANCIAL POSITION:
Under Mexican GAAP, the Company presents statements of changes in
financial position in constant Mexican Pesos. This presentation identifies the
generation and application of resources representing differences between
beginning and ending financial statement balances in constant Mexican Pesos.
Under U.S. GAAP, pursuant to SFAS No. 95, "Statement of cash
flows" ("SFAS 95"), a statement of cash flows is a required component of a
complete set of financial statements in lieu of a statement of changes in
financial position. SFAS 95 establishes specific presentation requirements and
additional disclosures but does not provide guidance with respect to inflation
adjusted financial statements. Based on requirements of the Securities and
Exchange Commission (the "SEC"), the effect of the inflation restatements and
foreign exchange gains and losses on cash flow related to the financing and
operating activities has been included in the line item, "Monetary gain", and
the effect of inflation on cash balances has been included in a separate line
item after cash flows from investing activities.
PERIODS ENDED DECEMBER 31, 1998 1999 2000
-----------------------------------------------------------------------------------------
Operating activities:
Net loss under U.S. GAAP Ps 120,276 Ps 291,058 Ps 557,375
Adjustments to reconcile net income to net
cash flow
provided by operation activities:
Depreciation and amortization 8,076 69,691 176,812
Allowance for doubtful accounts - 3,095 8,035
Monetary gain (loss) 49,704 (21,756) (90,101)
Accrued interest - 5,875 104,098
Unrealized foreign exchange loss, net - - 28,792
---------------------------------------
(62,496) (234,153) (329,739)
Changes in operating assets and liabilities:
Restricted cash - (20,362) (543,072)
Accounts receivable, net (48,674) (22,691) 5,541
Equipment for resale, net - (7,322) (2,292)
Prepaid expenses - (4,574) (5,453)
Other liabilities 17,608 66,063 163,808
-----------------------------------------------------------------------------------------
Cash flow provided by operating activities (93,562) (223,039) (711,207)
-----------------------------------------------------------------------------------------
Financing activities:
Notes payable 231,700 688,160 1,961,524
Increase in capital stock 655,580 136,243 408,869
Increase in additional paid-in capital - 31,902 93,551
-----------------------------------------------------------------------------------------
Cash flow provided by financing activities 887,280 856,305 2,463,944
-----------------------------------------------------------------------------------------
Investing activities:
Acquisition in fixed assets (281,929) (706,589) (573,504)
Other assets (5,613) (42,618) (179,269)
-----------------------------------------------------------------------------------------
Cash flow used in investing activities (287,542) (749,207) (752,773)
-----------------------------------------------------------------------------------------
Cash and cash equivalents:
Effect of inflation and exchange rate changes on
cash and cash equivalents (121,088) (140,881) (95,133)
Net increase (decrease) in cash and cash
equivalents 387,476 (256,822) 904,831
Cash and cash equivalents at beginning of the
year 36,776 424,252 167,430
-----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year Ps 421,864 Ps 167,430 Ps 1,072,261
=========================================================================================
E) FREQUENCY RIGHTS:
F-22
26
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Frequency rights are being amortized by the straight-line method
over the term of the concession, since the Company commenced operations. Under
U.S. GAAP, this item should be amortized during the term of the concession
beginning at the granting date of the Concession by the SCT.
F) CAPITALIZATION OF INTEREST:
In accordance with Mexican GAAP, capitalization of interest or,
during inflationary periods, comprehensive (income from) cost of financing
incurred in the period of construction and installation of an asset is
permitted. The interest to be capitalized is that of specific financing obtained
for the construction of the related asset. Under U.S. GAAP, capitalization of
interest is required for certain qualifying assets that require a period of time
to get them ready for their intended use. The amount of interest to be
capitalized is that portion of the interest cost incurred during the assets'
acquisition period that theoretically could have been avoided if expenditures
for the assets had not been made, and is not limited to indebtedness
attributable to the assets.
G) STOCK OPTION PLAN:
Mexican GAAP does not specifically address this item. Under U.S.
GAAP, an entity is encouraged to use a fair-value method of accounting to
measure compensation cost for its stock options and similar equity instruments
awarded to employees. If the fair-value method is not used, the intrinsic-value
method of accounting is required. Under the fair-value method, compensation cost
is generally measured at the grant date based on the fair value of the award and
is recognized over the service period, which is usually the vesting period.
Under the intrinsic-value method, compensation cost is the excess, if any, of
the market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. Options issued to
non-employees are valued using the fair-value concept.
As is mentioned in Note 13, since the Company adopted U.S. GAAP
for these transactions, there are no differences between Mexican and U.S. GAAP.
H) COMPREHENSIVE INCOME:
SFAS No. 130 "Reporting Comprehensive Income" for U.S. GAAP
purposes establishes rules for the reporting and display of comprehensive income
and its components. For the years ended December 31, 1998, 1999 and 2000 there
are no components of other comprehensive income.
I) LOSSES PER SHARE:
Diluted losses per share are equal to basic losses per share for
the years ended December 31, 1998, 1999 and 2000.
J) RECENT U.S. ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standard Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as a part of a hedge
transaction, and, if so, the type or hedge transaction. This statement is
effective for fiscal years beginning after June 15, 2000. In June 2000, the FASB
issued Statement No. 138 Accounting for Derivative Instruments and Hedging
Activities - an amendment of SFAS 133. This amendment addresses certain issues
causing implementation difficulties for entities that have adopted or will adopt
SFAS 133. The adoption of SFAS 133 did not have a material impact on the
Company's financial position or results of operations.
F-23
27
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenues in financial statements and requires adoption no later
than the fourth fiscal quarter of fiscal years after December 15, 1999. The
company implemented SAB 101 effective January 1, 2000 and its adoption did not
have a material impact on the Company's earnings of financial position.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. "
SFAS140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. SFAS 140 replaces SFAS
No. 125 and is effective for transfers and servicing of financial assets and
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of SFAS 140 effective January 1, 2001, will not
materially impact the Company's earnings or financial position.
In March 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation. Interpretation
44 provides criteria for the recognition of compensation expense in certain
stock-based compensation arrangements that are accounted for under Accounting
Principles Board Opinion No. 25, Accounting for Stock-Based Compensation.
Interpretation 44 was effective July 1, 2000, with certain provisions that were
effective retroactively to December 15, 1998 and January 15, 2000. The adoption
of Interpretation 44 did not have an impact on the company's consolidated
financial statements.
K) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
As mentioned in Note 10, in March 2000 the Company issued
U.S.$300 million of senior unsecured notes (the "Notes") as part of its
financing program. The Notes are guaranteed on a senior subordinated, unsecured
basis, pursuant to a guarantee by the Company's subsidiary, Corporativo
("Guarantor Subsidiary"). The subsidiary guarantee is full and unconditional.
Presented below is condensed consolidated financial information
as and for December 31, 1998, 1999, and 2000 and for the three years ended
December 31.
The Company has not presented separate financial statements and
other disclosures concerning the Guarantor Subsidiary because management has
determined that such information is not material to investors.
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1998:
Cash and cash equivalents and restricted
cash Ps 421,825 Ps 39 Ps Ps 421,864
Short- and long-term restricted cash 2,026 - 2,026
Accounts receivable 54,542 661 (661) 54,542
Equipment for resale - - -
Prepaid expenses 6,467 246 6,713
Frequency rights 114,582 - 114,582
Telephone network system and equipment 269,934 - 269,934
Preoperating expenses 183,099 - 183,099
Other assets 27,715 - (226) 27,489
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS PS 1,080,190 PS 946 PS (887) PS 1,080,249
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Total liabilities Ps 250,581 Ps 720 Ps (661) Ps 250,640
-------------------------------------------------------------------------------------------------------
Shareholders' Equity
-------------------------------------------------------------------------------------------------------
Capital stock and additional paid-in
capital 829,609 71 (71) 829,609
Deficit - 155 (155) -
-------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 829,609 226 (226) 829,609
-------------------------------------------------------------------------------------------------------
F-24
28
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------
Total liabilities and Shareholders' Equity PS 1,080,190 PS 946 PS (887) PS 1,080,249
-------------------------------------------------------------------------------------------------------
Total Shareholder's Equity under Mexican GAAP PS 829,609 226 (226) 829,609
-------------------------------------------------------------------------------------------------------
Preoperating expenses (203,516) (203,516)
Capitalization of interest (20,423) (20,423)
Amortization of preoperating
expenses
Amortization of frequency rights (7,201) (7,201)
Amortization of capital interest (1,015) (1,015)
-------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY UNDER U.S. GAAP 638,307 226 (226) 638,307
-------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenues Ps - Ps 40,302 Ps (40,302) Ps -
Operating cost and expenses - (40,451) 40,451 -
Comprehensive (income) cost of financing - 330 (330) -
Other - (26) 26 -
-------------------------------------------------------------------------------------------------------
NET LOSS PS - PS 155 PS (155) PS -
-------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR UNDER MEXICAN GAAP PS PS PS PS
-------------------------------------------------------------------------------------------------------
Preoperating expenses (133,923) (133,923)
Capitalization of interest 20,423 20,423
Amortization of preoperating
expenses
Amortization of frequency rights (5,761) (5,761)
Amortization of capital interest (1,015) (1,015)
-------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR UNDER U.S. GAAP PS 120,276 PS PS PS 120,276
-------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN FINANCIAL POSITION FOR
THE YEAR ENDED DECEMBER 31, 1998
OPERATING ACTIVITIES:
Net loss Ps - Ps 155 Ps (155) Ps -
Depreciation and amortization charged to
operations - - - -
-------------------------------------------------------------------------------------------------------
- 155 (155) -
Net change in restricted cash, accounts
receivable, inventories, prepaid expenses,
accounts payable and accrued expenses: - (187) 187 -
-------------------------------------------------------------------------------------------------------
Resources used in operating activities - (32) 187 -
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Issuance of capital stock 547,521 71 (71) 547,521
Additional paid- in capital 29,478 - - 29,478
Proceeds form loans and notes payables, net 228,895 - - 228,895
-------------------------------------------------------------------------------------------------------
Resources provided by financing
activites 805,894 71 (71) 805,894
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES: -
Preoperating expenses 113,037 - - 113,037
Cambio neto en activos y pasivos monetarios 26,817 - - 26,817
Telephone network systems and equipment 270,106 - - 270,106
Other asset 27,491 - - 27,491
-------------------------------------------------------------------------------------------------------
Resources used in investing activities 437,451 - - 437,451
-------------------------------------------------------------------------------------------------------
F-25
29
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period 368,443 39 368,482
Beginning balance 53,382 - - 53,382
-------------------------------------------------------------------------------------------------------
Ending balance Ps 421,825 Ps 39 Ps - Ps 421,864
=======================================================================================================
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
-----------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1999:
Cash and cash equivalents and restricted cash Ps 167,059 Ps 371 Ps - Ps 167,430
Short- and long-term restricted cash 20,362 - - 20,362
Accounts receivable 75,774 5,279 (5,154) 75,899
Equipment for resale 7,322 - - 7,322
Prepaid expenses 4,475 99 - 4,574
Frequency rights 112,002 - - 112,002
Telephone network system and equipment 859,532 - - 859,532
Preoperating expenses 270,369 - - 270,369
Other assets 46,781 113 260 47,154
------------------------------------------------------------------------------------------------------
TOTAL ASSETS PS 1,563,676 PS 5,862 PS (4,894) PS1,564,644
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Total liabilities 958,094 6,123 (5,155) 959,062
------------------------------------------------------------------------------------------------------
Shareholders' Equity
------------------------------------------------------------------------------------------------------
Capital stock and additional paid-in capital 842,220 71 (71) 842,220
Deficit (236,638) (332) 332 (236,638)
Total Shareholder's Equity 605,582 (261) 261 605,582
------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY PS 1,563,676 PS 5,862 PS (4,894) PS1,564,644
------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY UNDER MEXICAN GAAP 605,582 (261) 261 605,582
------------------------------------------------------------------------------------------------------
Preoperating expenses (290,588) (290,588)
------------------------------------------------------------------------------------------------------
Capitalization of interest 40,213 40,213
------------------------------------------------------------------------------------------------------
Amortization of preoperating
expenses 19,073 19,073
------------------------------------------------------------------------------------------------------
Amortization of frequency rights (10,381) (10,381)
------------------------------------------------------------------------------------------------------
Amortization of capital interest (4046) (4046)
------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY UNDER U.S. GAAP 359,853 359,853
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999
Revenues Ps 96,099 Ps 96,236 Ps (96,236) Ps 96,099
Operating cost and expenses (303,832) (97,089) 96,214 (304,707)
Comprehensive (income) cost of financing (28,400) 235 16 (28,149)
Other (505) 128 496 119
------------------------------------------------------------------------------------------------------
NET LOSS PS 236,638 PS 490 PS (490) PS 236,638
------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR UNDER MEXICAN GAAP PS 236,638 PS 490 PS (490) PS 236,638
------------------------------------------------------------------------------------------------------
Preoperating expenses (87,072) (87,072)
------------------------------------------------------------------------------------------------------
Capitalization of interest 19,790 19,790
------------------------------------------------------------------------------------------------------
Amortization of preoperating
expenses 19,073 19,073
------------------------------------------------------------------------------------------------------
Amortization of frequency rights (3,180) (3,180)
------------------------------------------------------------------------------------------------------
F-26
30
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------------------------------------------
Amortization of capital interest (3,031) (3,031)
------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR UNDER U.S. GAAP PS 291,058 PS 490 PS (490) PS 291,058
------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED DECEMBER 31, 1999
OPERATING ACTIVITIES:
Net loss Ps 236,638 Ps 490 Ps (490) Ps 236,638
Depreciation and amortization charged to
operations 80,919 - - 80,919
------------------------------------------------------------------------------------------------------
(155,719) (490) 490 (155,719)
Net change in restricted cash, accounts
receivable, inventories, prepaid expenses,
accounts payable and accrued expenses: 15,540 928 (435) 16,033
------------------------------------------------------------------------------------------------------
Resources used in operating activities (140,179) 438 55 (139,686)
------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Issuance of capital stock 10,180 - - 10,180
Additional paid- in capital 2,424 - - 2,424
Proceeds form loans and notes payables, net 647,518 - - 647,518
------------------------------------------------------------------------------------------------------
Resources provided by financing activities 660,122 - - 660,122
------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Preoperating expenses 84,690 - - 84,690
Telephone network systems and equipment 670,455 - 62 670,517
Other asset 19,557 106 - 19,663
------------------------------------------------------------------------------------------------------
Resources used in investing activities 774,702 106 62 774,870
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period (254,759) 332 (7) (254,434)
Beginning balance 421,825 39 421,864
------------------------------------------------------------------------------------------------------
ENDING BALANCE PS 167,066 PS 371 PS (7) PS 167,430
------------------------------------------------------------------------------------------------------
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
------------------------------------------------------
BALANCE SHEET AS OF DECEMBER 31, 2000:
Cash and cash equivalents and restricted cash Ps 1,071,390 Ps 871 Ps - Ps 1,072,261
Short- and long-term restricted cash 568,878 - - 568,878
Accounts receivable 68,793 8,674 (21,385) 56,082
Equipment for resale 9,011 - - 9,011
Prepaid expenses 22,612 - (12,961) 9,651
Frequency rights 106,208 - - 106,208
Telephone network system and equipment 1,197,136 - - 1,197,136
Preoperating expenses 241,424 - - 241,424
Other assets 222,418 127 - 222,545
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS PS 3,507,870 PS 9,672 PS (34,346) PS 3,483,196
-------------------------------------------------------------------------------------------------------
Total liabilities 3,066,135 11,815 (36,489) 3,041,461
-------------------------------------------------------------------------------------------------------
Capital stock and additional paid-in capital 1,275,383 71 (71) 1,275,383
Deficit (833,648) (2,214) 2,214 (833,648)
-------------------------------------------------------------------------------------------------------
F-27
31
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
MAXCOM CORPORATIVO ELIMINATIONS CONSOLIDATED
-------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 441,735 (2,143) 2,143 441,735
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,507,870 9,672 (34,346) 3,483,196
-------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY UNDER MEXICAN GAAP 441,735 (2,143) 2,143 441,735
Preoperating expenses (290,588) (290,588)
Capitalization of interest 55,620 55,620
Amortization of preoperating
expenses 48,018 48,018
Amortization of frequency rights (10,307) (10,307)
Amortization of capital interest (8,837) (8,837)
-------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY UNDER U.S. GAAP 235,641 (2,143) 2,143 235,641
-------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
Revenues Ps 266,064 Ps 163,893 Ps (163,893) Ps 266,064
Operating cost and expenses (638,267) (165,596) 163,893 (639,970)
Comprehensive (income) cost of financing (223,425) 814 (22) (222,633)
Other (1,382) (989) 1,900 (471)
-------------------------------------------------------------------------------------------------------
NET LOSS Ps 597,010 Ps 1,878 Ps (1,878) Ps 597,010
-------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR UNDER MEXICAN GAAP Ps 597,010 Ps 1,878 Ps (1,878) Ps 597,010
Preoperating expenses
Capitalization of interest 15,407 15,407
Amortization of preoperating
expenses 28,945 28,945
Amortization of frequency rights 74 74
Amortization of capital interest (4,791) (4,791)
NET LOSS FOR THE YEAR UNDER U.S. GAAP PS 557,375 PS 1,878 PS (1,878) 557,375
STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED DECEMBER 31, 2000
Operating activities:
Net loss Ps 597,010 Ps 1,878 Ps (1,878) Ps 597,010
Depreciation and amortization charged to
operations 201,040 - - 201,040
-------------------------------------------------------------------------------------------------------
(395,970) (1,878) 1,878 (395,970)
Net change in working capital (378,824) 2,397 (2,022) (378,449)
-------------------------------------------------------------------------------------------------------
Resources used in operating activities (774,794) 519 (144) (774,419)
-------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of capital stock 342,235 - - 342,235
Additional paid- in capital 90,928 - - 90,928
Proceeds form loans and notes payables, net 1,925,364 - - 1,925,364
-------------------------------------------------------------------------------------------------------
Resources provided by financing activities 2,358,527 - - 2,358,527
-------------------------------------------------------------------------------------------------------
Investing activities: -
Telephone network systems and equipment 476,563 - 60 476,623
Other asset 202,825 19 171 202,673
-------------------------------------------------------------------------------------------------------
Resources used in investing activities 679,388 19 231 679,296
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Increase (decrease) during the period 904,345 500 - 904,845
Beginning balance 167,045 371 - 167,416
-------------------------------------------------------------------------------------------------------
ENDING BALANCE PS 1,071,390 PS 871 PS - PS 1,072,261
-------------------------------------------------------------------------------------------------------
F-28
32
MAXCOM TELECOMUNICACIONES, S.A. DE C.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 19. REVENUE BY GEOGRAPHICAL LOCATION
The Company's concession title requires a revenue report by
geographic location, which follows:
MEXICAN PESOS
----------------------------------------------------------
CENTER-
SERVICES METROPOLITAN SOUTH TOTAL
-----------------------------------------------------------
PERIOD ENDED
DECEMBER 31, 1999
Local Ps. 28,695 Ps. 2,270 Ps. 30,965
Long distance 53,199 634 53,833
Rent of dedicated
links 486 - 486
Sale of customer
premise equipment 1,412 516 1,928
Lease of capacity 645 - 645
Other 8,049 193 8,242
-----------------------------------------------------------
Ps. 92,486 Ps. 3,613 Ps. 96,099
-----------------------------------------------------------
YEAR ENDED
DECEMBER 31, 2000
Local Ps. 149,210 Ps. 29,060 Ps.178,270
Long distance 75,334 4,759 80,093
Rent of dedicated
links 2,460 - 2,460
Sale of customer
premise equipment 689 689 1,378
Lease of capacity 473 - 473
Other 1,830 1,560 3,390
-----------------------------------------------------------
Ps. 229,996 Ps. 36,068 Ps.266,064
-----------------------------------------------------------
--------------------------------------------------------------------------------
F-29
33
ANNEX B
RATIO OF EARNINGS TO FIXED CHARGES
Ratio of earnings to fixed charges is calculated as earnings from continuing
operations before income taxes divided by fixed charges. Earnings for this
purpose consist of earnings before provision for income tax plus fixed charges
minus capitalized interest and capitalized debt issuance cost. Fixed charges for
this purpose consist of interest expense plus the portion of rental expenses
deemed to represent interest expense under operating lease agreements and the
capitalization of interest and deferred cost related to the issuance of secured
debt and senior notes. Under Mexican GAAP, earnings for the years ended December
31, 1999 and 2000 were insufficient to cover fixed charges by the amount of
Ps.253,135 and Ps 679,232 respectively. Under U.S. GAAP earnings for the years
ended December 31, 1998, 1999 and 2000 were insufficient to cover fixed charges
by the amount of Ps.161,755, Ps 327,346 and Ps 655,004 respectively
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------
1998 1999 2000
-----------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges under Mexican GAAP
(2.45) (0.39)
-----------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges under U.S. GAAP (1.21) (2.40) (0.29)
-----------------------------------------------------------------------------------------------------------------
34
ANNEX C
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following tables present selected consolidated financial information
of Maxcom and its consolidated subsidiary. We have extracted some of this
information from the audited consolidated financial statements of Maxcom as of
December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999 and
1998, appearing elsewhere in this annual report and you should read this
information in conjunction with such consolidated financial statements.
The consolidated financial statements have been prepared in accordance
with Mexican GAAP, which differs in significant respects from U.S. GAAP.
Pursuant to Mexican GAAP, we have prepared the financial statements and the
selected financial data presented below in accordance with Bulletin B-10 of the
Mexican Institute of Public Accountants, which provides for the recognition of
certain effects of inflation.
Note 18 of the consolidated financial statements presents the principal
differences between Mexican GAAP and U.S. GAAP and contains a reconciliation of
Maxcom's net income and stockholders' equity to U.S. GAAP.
The U.S. dollar amounts provided below are translations from the peso
amounts, solely for the convenience of the reader, at the noon buying rate at
December 29, 2000 of Ps.9.62 per U.S. $1.00. You should not construe these
translations as representations that the peso amounts actually represent such
U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated as of any dates mentioned in this annual report.
35
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996(1)(2) 1997(2) 1998(2)
----------- ----------- -----------
THOUSANDS OF CONSTANT DECEMBER 31, 2000 PESOS
AND THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE DATA(4)(5)
STATEMENT OF OPERATIONS DATA:
Mexican GAAP
Telecommunications revenues ..............
Operating costs and expenses:
Network operating cost .................
Selling, general and
administrative expenses ..............
Depreciation and amortization ..........
Total operating costs and expenses ...
Operating loss ...........................
Comprehensive (income) financing cost:
Interest expense .......................
Interest income ........................
Exchange loss, net .....................
Gain on net monetary position ..........
Total comprehensive cost of
financing ..........................
Other income, net ........................
Net loss .................................
Net loss per share .......................
Dividends per share ......................
Weighted average shares outstanding ......
U.S. GAAP
Net (loss) ............................... Ps. (6,133) Ps. (63,455) Ps.(120,276)
Net loss per share ....................... (1,126) (43) (15)
Dividends per share ...................... -- -- --
BALANCE SHEET DATA:
Mexican GAAP
Cash and cash equivalents ................ Ps. 34 Ps. 53,397 Ps. 421,980
Restricted cash .......................... -- -- 2,026
Working capital(6) ....................... 141 14,774 39,533
Frequency rights ......................... -- 114,614 114,614
Telephone network systems and
equipment .............................. 291 1,256 270,009
Preoperating expenses .................... 6,132 68,653 210,647
Total assets ............................. 6,598 252,694 1,058,809
Total debt ............................... -- -- 228,971
Capital stock and additional paid-in
capital ................................ 6,598 252,694 829,838
Deficit .................................. -- -- --
Shareholders' equity ..................... Ps. 6,598 Ps. 252,694 Ps. 829,838
U.S. GAAP
Shareholders' equity ..................... Ps. 465 Ps. 183,035 Ps. 638,307
OTHER FINANCIAL DATA:
Mexican GAAP
EBITDA(7) ................................
Capital expenditures ..................... Ps. 6,423 Ps. 126,145 Ps. 437,412
Ratio of earnings to fixed charges(8) .... -- -- --
U.S. GAAP
EBITDA(7) ................................ Ps. (6,213) Ps.(64,620) Ps.(140,944)
Ratio of earnings to fixed charges(9) .... -- -- --
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999(2)(3) 2000 2000
----------- ------------ -----------
THOUSANDS OF CONSTANT DECEMBER 31, 2000 PESOS
AND THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE DATA(4)(5)
STATEMENT OF OPERATIONS DATA:
Mexican GAAP
Telecommunications revenues .............. Ps. 96,099 Ps. 266,064 $ 27,657
------------ ------------ ------------
Operating costs and expenses:
Network operating cost ................. 47,751 107,765 11,202
Selling, general and
administrative expenses .............. 176,037 331,166 34,425
Depreciation and amortization .......... 80,919 201,040 20,898
------------ ------------ ------------
Total operating costs and expenses ... 304,707 639,971 66,525
------------ ------------ ------------
Operating loss ........................... (208,608) (373,907) (38,868)
------------ ------------ ------------
Comprehensive (income) financing cost:
Interest expense ....................... 50,450 399,979 41,578
Interest income ........................ (10,946) (97,951) (10,182)
Exchange loss, net ..................... 10,401 10,705 1,113
Gain on net monetary position .......... (21,756) (90,101) (9,366)
------------ ------------ ------------
Total comprehensive cost of
financing .......................... 28,149 222,632 23,143
------------ ------------ ------------
Other income, net ........................ 119 (471) (49)
------------ ------------ ------------
Net loss ................................. Ps.(236,638) Ps. (597,010) $ (62,060)
Net loss per share ....................... (23) (52) (5.41)
Dividends per share ...................... -- -- --
Weighted average shares outstanding ...... 10,264,827 11,463,677 11,463,677
U.S. GAAP
Net (loss) ............................... Ps.(291,058) Ps. (557,375) $ (57,939)
Net loss per share ....................... (28) (49) (5)
Dividends per share ...................... -- -- --
BALANCE SHEET DATA:
Mexican GAAP
Cash and cash equivalents ................ Ps. 167,430 Ps.1,072,261 $ 111,462
Restricted cash .......................... 20,362 568,878 59,135
Working capital(6) ....................... 5,152 (164,934) (17,145)
Frequency rights ......................... 112,002 106,208 11,040
Telephone network systems and
equipment .............................. 859,532 1,197,136 124,442
Preoperating expenses .................... 317,523 463,969 48,230
Total assets ............................. 1,482,001 3,243,518 337,164
Total debt ............................... 876,419 2,801,783 291,246
Capital stock and additional paid-in
capital ................................ 842,220 1,275,383 132,576
Deficit .................................. (236,638) (833,648) (86,658)
Shareholders' equity ..................... Ps. 605,582 Ps. 441,735 $ 45,918
U.S. GAAP
Shareholders' equity ..................... Ps. 359,853 Ps. 235,341 $ 24,495
OTHER FINANCIAL DATA:
Mexican GAAP
EBITDA(7) ................................ Ps.(127,689) Ps. (172,867) $ (17,969)
Capital expenditures ..................... Ps. 774,870 Ps. 679,296 $ 70,613
Ratio of earnings to fixed charges(8) .... -- -- --
U.S. GAAP
EBITDA(7) ................................ Ps.(211,119) Ps. (172,867) $ (17,969)
Ratio of earnings to fixed charges(9) .... -- -- --
36
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(1) This financial period began on the date of our incorporation, February 28,
1996.
(2) All amounts incurred in operations from February 28, 1996 (date of
incorporation), to May 1, 1999 (commencement of operations), were
capitalized as "preoperating expenses" under Mexican GAAP. Therefore no
amounts are reported in the table.
(3) We commenced commercial operations on May 1, 1999. In accordance with
Mexican GAAP, our financial statements reflect eight months of operations.
(4) Pursuant to Mexican GAAP, financial data for all periods in the financial
statements have, unless otherwise indicated, been restated in constant
pesos of December 31, 2000. Restatement into December 31, 2000 pesos is
made by multiplying the relevant nominal peso amount by the inflation index
for the period between the end of the period to which such nominal peso
amount relates and December 31, 2000. The inflation index used in this
annual report for 1996 figures is 1.6797, for 1997 figures is 1.4516, for
1998 figures is 1.2238 and for 1999 figures is 1.0896.
(5) Peso amounts were converted to U.S. dollars at the exchange rate of Ps.9.62
per U.S. $1.00 reported by the Federal Reserve Bank of New York as its noon
buying rate for pesos on December 31, 2000. Such conversions are for the
convenience of the reader and should not be construed as representations
that the peso amounts actually represent such U.S. dollar amounts or could
be converted into U.S. dollars at the rate indicated, or at all.
(6) Working capital is defined as current assets (excluding cash and cash
equivalents and restricted cash) less current liabilities (excluding
current maturities of long-term debt).
(7) EBITDA represents earnings before income taxes, comprehensive (income) cost
of financing and depreciation and amortization. We have included
information concerning EBITDA (which is not a measure of financial
performance under Mexican GAAP or U.S. GAAP) because we believe it is a
standard financial statistic commonly reported and widely used by analysts
and other interested parties. We understand that EBITDA is also used by
investors as one measure of an issuer's ability to service or incur
indebtedness. We also understand that EBITDA may be defined differently by
other companies that disclose a similarly titled account. You should not
construe EBITDA as an alternative to operating income or as a measure of
liquidity or cash flows from operating activities. For a description of the
differences between Mexican GAAP and U.S. GAAP, see "Item 5. Operating and
Financial Review and Prospects--U.S. GAAP reconciliations."
(8) Our earnings have been insufficient to cover fixed charges under Mexican
GAAP since we started incurring debt in 1998, 1999 and 2000. Fixed charges
include interest expense plus capitalized interest plus the portion of
operating lease rental expense that represents the interest factor. We had
no fixed charges coverage ratio for year ended December 31, 1998 because we
were at preoperating stage. The fixed charge coverage deficiency for the
years ended December 31, 1999 and 2000 amounted to Ps.253.1 million (U.S.
$26.3 million) and Ps.669.2 million (U.S. $70.6 million), respectively.
(9) Our earnings have been insufficient to cover fixed charges under U.S. GAAP
since we started incurring debt in 1998, 1999 and 2000. Fixed charges
include interest expense plus capitalized interest plus the portion of
operating lease rental expense that represents the interest factor. The
fixed charge coverage deficiency for the years ended December 31, 1998,
1999 and 2000 amounted to Ps.162.7 million (U.S. $16.8 million), Ps.327.3
million (U.S.$34.0 million) and Ps.655.0 million (U.S. $68.0 million),
respectively.