GRUPO TELEVISA, S.A.B. - 20-F - 20040630 - LIQUIDITY_CAPITAL
LIQUIDITY, FOREIGN EXCHANGE AND CAPITAL RESOURCES
LIQUIDITY. We generally rely on a combination of operating revenues,
borrowings and net proceeds from dispositions to fund our working capital needs,
capital expenditures, acquisitions and investments. Historically, we have
received, and continue to receive, most of our advertising revenues in the form
of upfront advertising deposits in the fourth quarter of a given year, which we
in turn used, and continue to use, to fund our cash requirements during the rest
of the quarter in which the deposits were received and for the first nine months
of the following year. As of December 31, 2003, December 31, 2002 and December
31, 2001 we had received Ps.12,354.9 million (nominal), Ps.11,304.7 million
(nominal) and Ps.10,480.0 million (nominal) of advertising deposits for
television advertising during 2004, 2003 and 2002 representing U.S.$1,100.7
million ,U.S.$1,080.3 million U.S.$1,142.0 million at the applicable year-end
exchange rates. The deposits as of December 31, 2003 represented a 9.3%
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(nominal) increase, or 5.1% in real terms, as compared to year-end 2002, and the
deposits at December 31, 2002 represented a 7.9% (nominal) increase or 2.4% in
real terms as compared to year-end 2001. Approximately 62.0%, 62.6% and 60.6% of
the advanced payment deposits as of each of December 31, 2003, December 31, 2002
and December 31, 2001 respectively, were in the form of short-term, non-interest
bearing notes, with the remainder in each of those years consisting of cash
deposits. The weighted average maturity of these notes at December 31, 2003,
December 31, 2002 and December 31, 2001 was 3.3 months, 3.5 months and 4.0
months. See "Operating and Financial Review and Prospects -- Results of
Operations -- Television Broadcasting."
We expect to fund our cash needs during 2004, other than cash needs in
connection with any potential investments and acquisitions, through a
combination of cash from operations and cash on hand. We intend to finance our
potential investments or acquisitions in 2004 through available cash from
operations, cash on hand and/or borrowings. The amount of borrowings required to
fund these cash needs in 2004 will depend upon the timing of cash payments from
advertisers under our advertising sales plan.
CASH BASIS INCOME. Our cash basis income is defined in our Consolidated
Statement of Changes in Financial Position in our year end financial statements
as "net income adjusted for non-cash items." Non-cash items represent primarily
depreciation and amortization, deferred income taxes and equity in results of
affiliates, exclusive of changes in working capital.
In 2003, we generated positive cash basis income of Ps.5,006.0 million,
as compared to a positive cash basis income of Ps.3,339.0 million during 2002.
This change was due primarily to the following increases in cash basis income:
- a Ps.1,228.6 million increase in operating income;
- a Ps.310.4 million decrease in other expense, net;
- a Ps.218.1 million decrease in restructuring and non-recurring
charges; and
- a Ps.23.0 million increase in integral cost of financing,
which was due primarily to an increase in interest income and
a decrease in interest expense.
The increases in our cash basis income were partially offset by a Ps.113.1
million increase in income and assets taxes and employees' profit sharing.
In 2002, we generated positive cash basis income of Ps.3,339.0 million, as
compared to a positive cash basis income of Ps.3,949.2 million during 2001. This
change was due primarily to the following decreases in cash basis income:
- a Ps.412.8 million increase in other expense, net:
- a Ps.278.1 million increase in restructuring and non-recurring
charges.
- a Ps.183.1 million increase in integral cost of financing,
which was due primarily to a decrease in interest income and
an increase in interest expense; and
- a Ps.158.8 million increase in income and assets taxes and
employees' profit sharing.
This change was partially offset by a Ps.422.6 million increase in
operating income.
In 2001, we generated positive cash basis income of Ps.3,949.2 million, as
compared to a positive cash basis income of Ps.1,657.9 million during 2000. This
change was due primarily to the following increases in cash basis income:
- a Ps.1,510.2 million decrease in restructuring and
non-recurring charges;
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- a Ps.741.6 million decrease in other expense, net;
- a Ps.642.5 million decrease in integral cost of financing,
which was due primarily to a decrease in interest expense and
loss from monetary position and a foreign exchange gain; and
- a Ps.258.7 million decrease in income and assets taxes and
employees' profit sharing.
The increase in our cash basis income in 2001 were partially offset by
a Ps.861.7 million decrease in operating income.
CAPITAL EXPENDITURES, ACQUISITIONS AND INVESTMENTS, DISTRIBUTIONS AND
OTHER SOURCES OF LIQUIDITY. During 2004, we expect to:
- make aggregate capital expenditures for property, plant and equipment
of approximately U.S.$110.0 million, which amount includes capital
expenditures in the amount of U.S.$32.0 million for the expansion and
improvement of our cable business; and
- invest an aggregate of U.S.$17.0 million in our Latin America DTH joint
ventures in the form of long-term loans.
During 2003, we:
- made aggregate capital expenditures for property, plant and equipment
of approximately U.S.$94.9 million, which amount includes capital
expenditures in the amount of U.S.$17.4 million for the expansion and
improvement of our cable business;
- invested an aggregate of U.S.$2.5 million in "TuTV" a 50% joint venture
with Univision for distribution of our Spanish-speaking programming
packages in the U.S.;
- invested an amount of approximately U.S.$4.8 million in OCESA
Entretenimiento, the live entertainment company in which we hold a 40%
stake;
- invested an aggregate of U.S.$20.6 million in our Latin America DTH
joint ventures in the form of long-terms loans. Innova did not require
shareholder funding in 2003 and does not expect to require shareholder
funding in 2004; and
- contributed Ps.36.1 million (nominal) to fund our seniority premium
obligations.
For a description of commitments we have made in connection with our
joint venture with Endemol, see "Information on the Company -- Business Overview
-- Television -- Programming."
During 2002, we:
- made aggregate capital expenditures for property, plant and
equipment of approximately U.S.$135.2 million, which amount
included capital expenditures in the amount of U.S.$18.8
million for the expansion and improvement of our cable
business, which was primarily funded by cash on hand and cash
from operations at Cablevision, in which we own a 51% stake;
- invested an aggregate of U.S.$32.5 million in our DTH joint
ventures in the form of long-term loans and/or capital
contributions;
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- sold our music recording operations to Univision in exchange
for 6,000,000 shares of Univision common stock and warrants to
purchase 100,000 shares of Univision common stock, for an
aggregate fair value amount of U.S.$235.1 million;
- acquired a 40% stake of the capital stock of OCESA
Entretenimiento, S.A. de C.V. for an amount of U.S.$104.7
million, of which U.S.$37.7 million was paid in 2003; and
- contributed Ps.103.0 million (nominal) to fund our pension and
seniority premium obligations.
REFINANCINGS. During 2000, we completed a refinancing of our
indebtedness which included the repurchase of a majority of the aggregate
principal amounts of our Series A Senior Notes due May 2003, Series B Senior
Notes due May 2006 and Senior Discount Debentures due May 2008, and the
amendments to the related indentures. After giving effect to the amendments to
the related indentures, substantially all of the restrictive covenants and
certain of the events of default were eliminated. In May 2001, we redeemed all
of the remaining Senior Discount Debentures outstanding and terminated the
related indenture. In the second quarter of 2003, we repaid all of the remaining
Series A Senior Notes, which matured in May 2003, with the net proceeds from a
long-term credit agreement that we entered into with a Mexican bank for an
aggregate principal amount of Ps.800.0 million. See " -- Indebtedness" below and
Note 9 to our year-end financial statements. For a description of the aggregate
principal amount of Series B Senior Notes outstanding as of December 31, 2003,
see " -- Indebtedness" below.
In September 2001, we issued U.S.$300.0 million aggregate principal
amount of 8% Senior Notes due 2011, which net proceeds and cash on hand were
used to repay approximately U.S.$300.0 million of a U.S.$400.0 million term loan
facility that we entered into with a group of banks in May 2000, which
originally matured in 2004. In December 2001, we entered into a U.S.$100.0
million long-term loan facility, the proceeds of which were used to repay the
remaining approximately U.S.$100.0 million of indebtedness then outstanding
under our U.S.$400.0 million term loan facility, which was subsequently
terminated. For a description of our 8% Senior Notes due 2011 and the U.S.$100.0
million long-term loan facility see " -- Indebtedness" below.
In connection with our acquisition of shares of preferred stock of
Univision, as described under "Information on the Company -- Business Overview
-- Univision," on December 21, 2001, we entered into a U.S.$276.0 million bridge
loan facility. We borrowed U.S.$276.0 million in a single drawing on December
21, 2001. We used all of the net proceeds from this bridge loan facility,
together with approximately U.S.$99.0 million of cash on hand, to finance our
acquisition of shares of preferred stock of Univision. See "Information on the
Company -- Business Overview -- Univision." We repaid all of the U.S.$276.0
million of indebtedness outstanding under this bridge loan facility with a
substantial portion of the net proceeds from the issuance of U.S.$300.0 million
aggregate principal amount of 8.5% Senior Notes due 2032 in March 2002. For a
description of our 8.5% Senior Notes due 2032 see " -- Indebtedness" below.
In May 2004, we entered into a five-year credit agreement with a
Mexican bank for an aggregate principal amount of Ps.1,162.5 million, which net
proceeds were used by us to repay any outstanding amounts under the U.S.$100
million syndicated term loan. For a description of the terms of the Ps.1,162.5
million long-term credit agreement see " -- Indebtedness" below.
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INDEBTEDNESS. The following table sets forth a description of our
outstanding indebtedness as of December 31, 2003 on a historical, actual basis,
and as adjusted to reflect (i) the incurrence in May 2004 of a Ps.1,162.5
million long-term loan, which will mature in 2009, and (ii) the prepayment in
May 2004 of the U.S.$100 million syndicated long-term loan, which originally
matured in 2005 and 2006 as if such transactions occurred on December 31, 2003.
Information in the following table is presented in millions of constant Pesos in
purchasing power as of December 31, 2003.
DEBT OUTSTANDING(1)
--------------------------------------------------------------------------
DECEMBER 31, 2003
---------------------- MATURITY OF
DESCRIPTION OF DEBT ACTUAL PRO FORMA INTEREST RATE(2) CURRENCY DEBT
------------------- ------ --------- ---------------- -------- ----
LONG-TERM DEBT AND BRIDGE LOAN
Series B Senior Notes(3)............. Ps. 60 Ps. 60 11.88% U.S. Dollars 2006
8 5/8% Senior Notes(4)(5)............ 2,245 2,245 8.625% U.S. Dollars 2005
8% Senior Notes(4)(6)................ 3,368 3,368 8.0% U.S. Dollars 2011
8.5% Senior Notes(4)(7).............. 3,368 3,368 8.5% U.S. Dollars 2032
UDIs (Peso-Indexed)
UDI-denominated notes................ 3,640 3,640 8.15% 2007
U.S.$100.0 million five-year term London Interbank
loan facility(8).................. 1,123 -- LIBOR + 0.875% U.S. Dollars 2005-2006
Banamex loan(9)...................... 114 114 TIIE Rate + .45% Mexican Pesos 2004
Banamex loan(10)..................... 800 800 8.925% Mexican Pesos 2004-2008
Banamex loan(11) -- 1,162 9.70% Mexican Pesos 2009
Serfin loan(12)...................... 160 160 TIIE Rate + .30% Mexican Pesos 2006
Other debt(13)....................... 111 111 3.80% Various 2004-2010
--------- ---------
Total debt (including current
maturities).................... 14,989 15,028 -- -- 9.10(14)
Less: current maturities............ 285 285 -- Various December 2004
--------- ---------
Total long-term debt.............. Ps.14,704 Ps.14,743
========= =========
(1) U.S. Dollar-denominated debt is translated into Pesos at an exchange
rate of Ps.11.225 per U.S. Dollar, the Interbank Rate, as reported by
Banamex, as of December 31, 2003.
(2) Excludes additional amounts payable in respect of Mexican withholding
taxes. See "Other Information -- Taxation -- Mexican Taxes."
(3) Interest on the Series B Senior Notes is payable semi-annually. The
Series B Notes bear interest at an effective rate of 12.49%. The
Series B Senior Notes are redeemable by us in the event of certain
changes in the law affecting the Mexican withholding tax treatment of
certain payments we make on the Series B Senior Notes, as well as at
our option in certain cases. See Note 9 to our year-end financial
statements.
(4) Interest is payable semi-annually on each of the 8 5/8% Senior Notes
due 2005, the 8.0% Senior Notes due 2011 and the 8.5% Senior Notes due
2032. The 8 5/8% Senior Notes due 2005, the 8.0% Senior Notes due 2011
and the 8.5% Senior Notes due 2032 bear interest at an effective rate
of 9.07%, 8.41% and 8.94%, respectively. The 8 5/8% Senior Notes due
2005, the 8.0% Senior Notes due 2011 and the 8.5% Senior Notes due 2032
are redeemable by us in the event of certain changes in the law
affecting the Mexican withholding tax treatment of certain payments we
make in respect of these notes, as well as at our option in certain
cases. See Note 9 to our year-end financial statements.
(5) As described below, we registered substantially all of our 8 5/8%
Senior Notes due 2005 through an exchange offer in January 2001.
(6) Reflects the issuance of U.S.$300.0 million aggregate principal amount
of 8.0% Senior Notes due 2011 on September 13, 2001. We applied the net
proceeds from this issuance, together with cash on hand, to repay
approximately U.S.$300.0 million of the U.S.$400.0 million of
indebtedness then outstanding under our prior U.S.$400.0 million term
loan facility. As described below, we registered substantially all of
these notes through an exchange offer in March 2002.
(7) Reflects the issuance of U.S.$300.0 million aggregate principal amount
of 8.5% Senior Notes due 2032 on March 1, 2002. We applied a
substantial portion of the net proceeds from this issuance to repay all
of the U.S.$276.0 million of indebtedness then outstanding under our
bridge loan facility. In July 2002, we registered all of our 8.5%
Senior Notes due 2032 pursuant to an exchange offer. See Note 9 to our
year-end financial statements.
(8) Reflects the incurrence in December 2001 of U.S.$100.0 million of
indebtedness under a U.S.$100.0 million term loan facility, with
maturities in 2005 and 2006, the proceeds of which were used to
refinance the remaining U.S.$100.0 million of indebtedness then
outstanding under our prior U.S.$400.0 million term loan facility,
which was subsequently terminated. We prepaid this term loan facility
in May 2004.
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(9) Indebtedness outstanding under this loan as of December 31, 2003
reflects the refinancing of this loan in July 2000. Pursuant to the
terms of this refinanced loan, we are obligated to make principal
payments on a quarterly basis and interest payments on a monthly basis.
The terms of this refinanced loan require us to comply with certain
covenants and maintain certain financial ratios similar to those under
the Ps.1,162.5 million credit agreement summarized below. See "Major
Shareholders and Related Party Transactions -- Related Party
Transactions -- Transactions and Arrangements With Affiliates and
Related Parties of Our Directors, Officers and Major Shareholders --
Loans from Banamex" and Note 9 to our year-end financial statements.
(10) In the second quarter of 2003, we entered into a long-term credit
agreement with a Mexican bank for an aggregate principal amount of
Ps.800.0 million, with two tranches of Ps.400.0 million each. The
annual interest rate for the first tranche equals 9.35% plus additional
basis points from 0 to 45 based on the maintenance of certain financial
coverage ratios related to indebtedness (the "additional basis
points"), and an annual interest rate for the second tranche equal to
the Mexican interbank rate plus 40 basis points plus additional basis
points. Interest due in connection with this credit agreement is
payable on a 28-day basis. This indebtedness has two semiannual
maturities of Ps.40.0 million each in 2004, two semiannual maturities
of Ps.120.0 million each in 2006 and two quarterly maturities of
Ps.240.0 million each in 2008. This credit agreement was subsequently
amended to reflect a fixed annual interest rate of 8.50% plus
additional basis points for the second tranche beginning in the third
quarter of 2003.
(11) In May 2004, we entered into a long-term credit agreement with a
Mexican Bank for an aggregate principal amount of Ps.1,162.5 million,
which matures in 2009. The annual interest rate of this indebtedness
equals 9.70% and is payable on a monthly basis.
(12) The aggregate principal amount of this loan is payable in 20 equal
quarterly installments beginning August 2001 and ending May 2006.
Interest on this loan is payable on a quarterly basis.
(13) Includes outstanding indebtedness in the aggregate amount of Ps.111.0
million under the following bank loans, capital leases and other notes
payable:
- Ps.20.3 million in capital lease obligations. These
obligations bear interest at a variable annual rate between
six and thirteen basis points above LIBOR and have maturities
ranging from 2004 to 2006; and,
- Ps.90.7 million in other bank loans, which are denominated in
U.S. Dollars. These bank loans bear interest at a variable
annual rate between one and six points above LIBOR and have
maturities ranging from 2004 and 2010.
(14) Actual pro forma weighted average maturity of long-term debt as of
December 31, 2003. After giving effect to redemption of the Series A
Senior Notes in May 2003, as if such transaction occurred on December
31, 2003, the pro forma weighted average maturity of our long-term debt
would have been 10.0 years.
In April, 2000, we issued UDI-denominated notes for an aggregate
principal amount of 1,086,007,800 UDIs, pursuant to a medium-term note program
in Mexico. Our UDI-denominated notes mature in 2007 and bear interest at an
annual rate of 8.15%. The facility governing the medium-term note program
pursuant to which we issued our UDI-denominated notes does not contain any
financial or restrictive covenants. See Note 9 to our year-end financial
statements.
In May, 2001, we redeemed all of the remaining Senior Discount
Debentures then outstanding, which were originally due in 2008. Pursuant to the
related indenture, we redeemed these Senior Discount Debentures for U.S.$34.7
million, which amount represented 106.625% of their aggregate principal amount
of approximately U.S.$32.5 million, plus premiums and amounts payable in respect
of Mexican withholding taxes in the amount of approximately U.S.$2.2 million.
Following this redemption, we terminated the related indenture. See Note 9 to
our year-end financial statements.
In August 2000, we issued U.S.$200.0 million aggregate principal amount
of 8 5/8% Senior Notes due 2005. Interest on the 8 5/8% Senior Notes due 2005 is
payable semi-annually in February and August of each year, commencing in
February 2001. In September 2001, we issued U.S.$300.0 million aggregate
principal amount of 8% Senior Notes due 2011. Interest on the 8.0% Senior Notes
due 2011 is payable semi-annually in March and September of each year,
commencing in March 2002. In March 2002, we issued U.S.$300.0 million aggregate
principal amount of 8.5% Senior Notes due 2032. Interest on the 8.5% Senior
Notes due 2032 is payable semi-annually in March and September of each year,
commencing in September 2002. The indenture related to the 8 5/8% Senior Notes
due 2005, the 8.0% Senior Notes due 2011 and the 8.5% Senior Notes due 2032
requires us to comply with certain covenants. The 8 5/8% Senior Notes due 2005,
the 8.0% Senior Notes due 2011 and the 8.5% Senior Notes due 2032 are unsecured
obligations, rank equally in right of payment with all of our future unsecured
and subordinated indebtedness and are junior in right of payments to all
existing and future liabilities of our subsidiaries. The 8 5/8% Senior Notes due
2005, the 8.0% Senior Notes due 2011 and the 8.5% Senior Notes due 2032 are
redeemable by us in the event of certain changes in the law affecting the
Mexican withholding tax treatment of certain payments we make on the these
notes. In the fourth quarter of 2000, we registered substantially all of the 8
5/8% Senior Notes due 2005 pursuant to an exchange offer. We registered
substantially all of the U.S. $300.00 million 8.0% Senior Notes due 2011
pursuant to an exchange offer in March 2002. In July 2002, we
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registered all of the 8.5% Senior Notes due 2032 pursuant to an exchange offer.
See Note 9 to our year-end financial statements.
As described above under " -- Refinancings," in December, 2001, we
entered into a U.S.$100.0 million term loan facility. We borrowed U.S.$100.0
million in a single drawing on December 21, 2001, the principal of which was
payable over five years in semi-annual installments, commencing on June 21,
2005. Borrowings under this facility bore interest at a rate of 0.875% per annum
over LIBOR. Interest in respect of principal amounts borrowed under this
facility was payable in semi-annual installments. In May 2004, we prepaid any
amounts outstanding under the U.S.$100.0 million term loan facility by using the
net proceeds from a Ps.1,162.5 million long-term credit agreement that we
entered into with a Mexican bank in May 2004, which terms are summarized below.
The Ps.1,162.5 million long-term credit agreement contains restrictive
covenants that limit our ability and the ability of our subsidiaries through
which we conduct our television broadcasting, programming for pay television and
program licensing businesses to:
- incur indebtedness;
- consummate transactions with affiliates;
- make dividend payments;
- issue and sell capital stock of restricted
subsidiaries;
- consummate capital expenditures or investments; and
- consummate mergers and consolidations, liquidations,
dissolutions or transfers of assets.
The Ps.1,162.5 million long-term credit agreement also requires us to
maintain:
- a total debt/EBITDA ratio (as defined) not greater
than 4.00 to 1.00;
- a EBITDA/cash interest ratio (as defined) not less
than 2.50 to 1.00; and
- a net worth (as defined) not less than 75% of net
worth as at December 31, 2000.
In the second quarter of 2003, we repaid all of the remaining Series A
Senior Notes, which matured in May 2003, with the net proceeds from a long-term
credit agreement that we entered into with a Mexican Bank for an aggregate
principal amount of Ps.800.0 million. The principal amount is divided into two
tranches of Ps.400.0 million each, with an annual interest rate for the first
tranche of 9.35% plus additional basis points from 0 to 45 based on the
maintenance of certain financial coverage ratios related to indebtedness (the
"additional basis points"), and an annual interest rate for the second tranche
equal to the Mexican interbank rate plus 40 basis points plus additional basis
points. Interest due in connection with this credit agreement is payable on a
28-day basis. This indebtedness has two semiannual maturities of Ps.40.0 million
each in 2004, two semiannual maturities of Ps.120.0 million each in 2006 and two
quarterly maturities of Ps.240.0 million each in 2008. The terms of this credit
agreement require us to comply with certain covenants and maintain certain
financial ratios similar to those under the Ps.1,162.5 million long-term credit
agreement summarized above. This credit agreement was subsequently amended to
reflect a fixed annual interest rate of 8.50% plus additional basis points for
the second tranche beginning in the third quarter of 2003.
In addition, in April 2003 we prepaid a long-term loan for
approximately 23.6 million Euros, which originally matured in June 2003. This
indebtedness was incurred to finance the recapitalization of Via Digital in
January 2000.
INTEREST EXPENSE. Interest expense for 2003 was Ps.1,375.7, Ps.139.3
million of which was attributable to the restatement of our UDI-denominated
notes due 2007.
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The following table sets forth our interest expense for the years
indicated:
YEAR ENDED DECEMBER 31,(1)(2)
---------------------------------------------
2001 2002 2003
---- ---- ----
(MILLIONS OF U.S. DOLLARS)
Interest payable in U.S. Dollars.............................. U.S.$ 59.7 U.S.$ 76.2 U.S.$ 70.2
Interest capitalized under our Senior Discount
Debentures............................................... 1.5 -- --
Amounts currently payable under Mexican withholding
taxes(3)................................................. 1.5 3.9 3.4
------------ ------------ ------------
Total interest payable in U.S. Dollars........................ U.S.$ 62.7 U.S.$ 80.1 U.S.$ 73.6
============ ============ ============
Peso equivalent of interest payable in U.S. Dollars........... Ps. 645.2 Ps. 829.4 Ps. 812.1
Interest payable in Pesos..................................... 500.9 399.1 424.3
Restatement of UDI-denominated Notes due 2007................. 177.8 197.1 139.3
------------ ------------ ------------
Total interest expense(4)............................ Ps. 1,323.9 Ps. 1,425.6 Ps. 1,375.7
============ ============ ============
(1) U.S. Dollars are translated into Pesos at the rate prevailing when
interest was recognized as an expense for each period and restated to
Pesos in purchasing power as of December 31, 2003.
(2) Interest expense in these periods includes amounts effectively payable
in U.S. Dollars as a result of U.S. Dollar-Peso swaps.
(3) See "Other Information -- Taxation -- Mexican Taxes."
(4) Total interest expense amounts in these periods exclude capitalized and
hedged interest expense.
GUARANTEES. We guarantee our proportionate share of our DTH joint
ventures' minimum commitments for use on PanAmSat and other transponders for
periods of up to 15 years. The amount of these guaranteed commitments is
estimated to be an aggregate of approximately U.S.$187.9 million as of December
31, 2003, including U.S.$143.8 million related to Innova and U.S.$44.1 million
related to MCOP. See "Major Shareholders and Related Party Transactions --
Related Party Transactions" and Notes 10 and 12 to our year end financial
statements. In addition, we have guaranteed obligations of TechCo in which we
have a 30% interest in an aggregate amount of approximately U.S.$15.8 million.
See "Key Information -- Risk Factors -- Risk Factors Related to Our Business --
MCOP, Our DTH Joint Venture in Latin America Outside of Mexico and Brazil, May
Not Be Able to Continue as a Going Concern" and Note 12 to our year end
financial statements.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Our contractual obligations and commercial commitments consist
primarily of long-term debt, as described above, guarantees related to our DTH
joint venture transponder obligations, as described in "Information on the
Company -- Business Overview -- DTH Joint Ventures" and "Major Shareholders and
Related Party Transactions -- Related Party Transactions," and transmission
rights obligations.
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Contractual Obligations on the Balance Sheet
The following table summarizes our contractual obligations on the
balance sheet as of December 31, 2003:
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------
LESS THAN 12 12-36 MONTHS 36-60 MONTHS AFTER 60
MONTHS JANUARY 1, JANUARY 1, MONTHS
JANUARY 1, 2004 2005 TO 2007 TO SUBSEQUENT
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
TOTAL 2004 2006 2008 2008
-------------- ------------ ------------ ------------ ---------------
(THOUSANDS OF U.S. DOLLARS)
Long-term debt (1)............... U.S.$1,335,360 U.S.$ 25,407 U.S.$338,707 U.S.$368,672 U.S.$602,574
DTH joint ventures (2)........... 115,279 11,169 25,876 21,164 57,070
Transmission rights (3).......... 114,181 69,875 13,510 30,796 --
-------------- ------------ ------------ ------------ ------------
Total contractual obligations.... U.S.$1,564,820 U.S.$106,451 U.S.$378,093 U.S.$420,632 U.S.$659,644
============== ============ ============ ============ ============
(1) See "Operating and Financial Review and Prospects -- Results of
Operations -- Liquidity, Foreign Exchange and Capital Resources --
Indebtedness" and Note 8 to our year-end financial statements.
(2) This liability reflects guarantees provided by us in respect of our
proportionate share of the capital lease obligations (discounted) of
Innova and MCOP. See "Information on the Company -- Business Overview
-- DTH Joint Ventures."
(3) This liability reflects our transmission rights obligations related to
programming acquired or licensed from third party producers and
suppliers, and special events, which are accounted for in our
consolidated balance sheet as trade accounts payable (current
liabilities) and other long-term liabilities.
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Contractual Obligations off the Balance Sheet
The following table summarizes our contractual obligations off the
balance sheet as of December 31, 2003:
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------------
LESS THAN 12 12-36 MONTHS 36-60 MONTHS AFTER 60
MONTHS JANUARY 1, JANUARY 1, MONTHS
JANUARY 1, 2004 2005 TO 2007 TO SUBSEQUENT TO
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
TOTAL 2004 2006 2008 2008
------------ ----------- ----------- ------------ -------------
(THOUSANDS OF U.S. DOLLARS)
DTH joint ventures (1)............. U.S.$ 17,000 U.S.$17,000 U.S.$ -- U.S.$ -- U.S.$--
Capital expenditures commitments -- --
(2)............................ 34,481 34,481 --
Capital lease (3).................. 15,812 5,947 6,688 3,177 --
Guarantees (4)..................... 13,200 -- 13,200 -- --
Other (5).......................... 42,600 15,500 27,100 -- --
------------ ----------- ----------- ---------- -------
Total contractual obligations...... U.S.$123,093 U.S.$72,928 U.S.$46,988 U.S.$3,177 U.S.$--
============ =========== =========== ========== =======
(1) We have commitments to make long-term loans in 2004 to our DTH joint
ventures in Latin America, excluding Mexico, for up to U.S.$17 million.
(2) Our commitments for capital expenditures include U.S.$15,143, which are
related to purchase commitments to acquire television technical
equipment.
(3) We have guaranteed the obligations of certain capital leases of our DTH
technical facilities.
(4) In connection with the disposal of our investment in PanAmSat in 1997,
we granted collateral to secure certain indemnification obligations.
After the expiration of applicable tax statutes of limitations, the
collateral will be reduced to a de minimus amount. The collateral
agreement will terminate in approximately four years. See Note 5 to our
year-end financial statements.
(5) In September 2001, we entered into a 50/50 programming joint venture
with Endemol, an international content developer and producer for
television and online platforms based in the Netherlands, to produce
and develop content for television and the Internet. As of December 31,
2003, we have commitments to acquire from Endemol programming formats
through this joint venture up to in the aggregate U.S.$40.6 million
through 2006.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
BOARD OF DIRECTORS
The following table sets forth the names of our current directors and their
alternates, their dates of birth, their principal occupation, their business
experience, including other directorships, and their years of service as
directors or alternate directors. Each of the following directors and alternate
directors were elected or ratified for a one-year term by our shareholders at
our April 16, 2004 annual shareholders' meeting.
FIRST
NAME AND DATE OF BIRTH PRINCIPAL OCCUPATION BUSINESS EXPERIENCE ELECTED
---------------------- -------------------- ------------------- -------
Emilio Azcarraga Jean Chairman of the Board, Member of the Boards of December
(02/21/68) President and Chief Executive Telefonos de Mexico, S.A. de 1990
Officer and President of the C.V. and Banco Nacional de
Executive Committee of Grupo Mexico, S.A. and Vice
Televisa Chairman of the Board of
Univision
Maria Asuncion Vice Chairwoman of the Board Chief Executive Officer of July 2000
Aramburuzabala Larregui and Member of the Executive Tresalia Capital, S.A. de
(05/02/63) Committee of Grupo Televisa and C.V. and Member of the Boards
Vice Chairwoman of the Board of Grupo Financiero Banamex,
and Member of the Executive S.A. de C.V., Banco Nacional
Committee of Grupo Modelo, S.A. de Mexico, S.A. and America
de C.V. Movil, S.A. de C.V.
In alphabetical order:
Alfonso de Angoitia Noriega Executive Vice President and Former Chief Financial April 1998
(01/17/62) Member of the Executive Office Officer of Grupo Televisa and
of the Chairman and Member of Alternate Member of the Board
the Executive Committee of of Univision and Partner,
Grupo Televisa Mijares, Angoitia, Cortes y
Fuentes, S.C. (1994 - 1999)
Pedro Aspe Armella Chairman of the Board and Chief Member of the Board of The April 2003
(07/07/50) Executive Officer of Protego McGraw Hill Companies and
Asesores, S.A. de C.V. Xigmux and former Member of
the Board of Vector Casa de
Bolsa, S.A. de C.V.
Julio Barba Hurtado Legal Advisor to the President Former Legal Advisor to December
(05/20/33) and Member of the Executive Televisa, S.A. de C.V. 1990
Committee of Grupo Televisa
Jose Antonio Baston Patino Corporate Vice President of Former Vice President of April 1998
(04/13/68) Television and Member of the Operations of Grupo Televisa,
Executive Committee of Grupo former General Director of
Televisa Programming of Grupo Televisa
and former Member of the
Board of Univision
Ana Patricia Botin O'Shea Private Investor Chairman of the Board of April 1999
(10/04/60) Banesto - Spain and Member of
the Board of Banco Santander
Central Hispano
Manuel Jorge Cutillas Covani Director of Bacardi Limited Member of the Board of April 1994
(03/01/32) Bacardi Limited and former
Chairman of the Board of
Bacardi Limited
- 95 -
FIRST
NAME AND DATE OF BIRTH PRINCIPAL OCCUPATION BUSINESS EXPERIENCE ELECTED
---------------------- -------------------- ------------------- -------
Carlos Fernandez Gonzalez Chief Executive Officer and Member of the Boards of July 2000
(09/29/66) Vice Chairman of the Board of Anheuser Busch Co., Grupo
Grupo Modelo, S.A. de C.V. Financiero Santander
Mexicano, S.A. de C.V. and
Emerson Electric, Co.
Bernardo Gomez Martinez Executive Vice President and Former President of the April 1999
(07/24/67) Member of the Executive Office Mexican Chamber of Television
of the Chairman and Member of and Radio Broadcasters and
the Executive Committee of Deputy to the President of
Grupo Televisa Grupo Televisa
Claudio X. Gonzalez Laporte Chairman of the Board and Chief Member of the Boards of April 1997
(05/22/34) Executive Officer of Kimberly-Clark Corporation,
Kimberly-Clark de Mexico, S.A. General Electric Co., Kellogg
de C.V. Company, Home Depot, Inc.,
Alfa, S.A. de C.V., Grupo
Carso, S.A. de C.V., America
Movil, S.A. de C.V. and
Investment Company of
America, and former President
of the Mexican Business
Council
Roberto Hernandez Ramirez Chairman of the Board of Banco Former Chief Executive April 1992
(03/24/42) Nacional de Mexico, S.A. Officer of Banco Nacional de
Mexico, S.A. and Member of
the Boards of Citigroup,
Inc., Empresas ICA, Sociedad
Controladora, S.A. de C.V.,
Grupo Modelo, S.A. de C.V.,
Gruma, S.A. de C.V., Grupo
Financiero Banamex Accival,
S.A. de C.V., Avantel, S.A.
and Munchener de Mexico, S.A.
de C.V.
Enrique Krauze Kleinbort Chief Executive Officer of General Director of Editorial April 1996
(09/17/47) Editorial Clio Libros y Videos, Clio Libros y Videos, S.A. de
S.A. de C.V. C.V.
German Larrea Mota Velasco Chairman of the Board, Chief Chairman of the Board and April 1999
(10/26/53) Executive Officer and President Chief Executive Officer of
of Grupo Mexico, S.A. de C.V. Asarco Incorporated, Southern
Peru Copper Corporation,
Grupo Ferroviario Mexicano,
S.A. de C.V. and former
Member of the Boards of Banco
Nacional de Mexico, S.A. and
Bolsa Mexicana de Valores,
S.A. de C.V.
Gilberto Perezalonso Cifuentes Private Advisor Member of the Boards of Grupo April 1998
(03/06/43) Gigante, S.A. de C.V. and
Southern Peru
Copper Corporation and
Director of the
pension funds of Banco
Nacional de Mexico,
S.A.
- 96 -
FIRST
NAME AND DATE OF BIRTH PRINCIPAL OCCUPATION BUSINESS EXPERIENCE ELECTED
---------------------- -------------------- ------------------- -------
Carlos Slim Domit Chairman of the Board of Grupo Vice Chairman of America April 2004
(02/28/67) Carso, S.A. de C.V. and Telecom, S.A. de C.V. and
Telefonos de Mexico, S.A. de Member of the Boards of Grupo
C.V. and President of Grupo Condumex, S.A. de C.V.,
Sanborns, S.A. de C.V. Phillip Morris Mexico, S.A.
de C.V. and Sears Roebuck de
Mexico, S.A. de C.V.
Alejandro Quintero Iniguez Corporate Vice President of Shareholder and Member of the April 1998
(02/11/50) Sales and Marketing and Member board of Grupo TV Promo, S.A.
of the Executive Committee of de C.V. and former Advisor to
Grupo Televisa former Mexican President
Ernesto Zedillo
Fernando Senderos Mestre Chairman of the Board and Chief Member of the Boards of April 1992
(03/03/50) Executive Officer of Grupo Telefonos de Mexico, S.A. de
Desc, S.A. de C.V. C.V., Alfa, S.A. de C.V.,
Kimberly Clark de Mexico,
S.A. de C.V., Industrias
Penoles, S.A. de C.V. and
Dana Corporation
Enrique F. Senior Hernandez Executive Vice President and Member of the Board of Pics April 2001
(08/03/43) Managing Director of Allen & Retail Networks and Member of
Company Incorporated the Board of Coca Cola Femsa
and Member of the Board of
Cinemark
Lorenzo H. Zambrano Trevino Chairman of the Board and Chief Member of the Boards of Alfa, April 1999
(03/27/44) Executive Officer of Cemex, S.A. de C.V., Empresas ICA,
S.A. de C.V. Sociedad Controladora, S.A.
de C.V., Fomento Economico
Mexicano, S.A. de C.V. and
Vitro, S.A. de C.V.
ALTERNATE DIRECTORS:
In alphabetical order:
Herbert Allen III Executive Vice President and Member of the Boards of Coca April 2002
(06/08/67) Managing Director of Allen & Cola Femsa, S.A. de C.V.,
Company Incorporated Convera-Enterprise Software
and Global Education Network
Juan Pablo Andrade Frich Asset Manager of Tresalia Former Member of the Board of July 2000
(06/05/64) Capital, S.A. de C.V. and Televicentro and Member of
Member of the Executive and the Board of Empresas
Audit Committee of Grupo Cablevision, S.A. de C.V.
Televisa
Lucrecia Aramburuzabala Private Investor Employee of Tresalia Capital, July 2000
Larregui S.A. de C.V. and Member of
(03/29/67) the Board of Grupo Modelo,
S.A. de C.V. and former
Member of the Board of
Televicentro
- 97 -
FIRST
NAME AND DATE OF BIRTH PRINCIPAL OCCUPATION BUSINESS EXPERIENCE ELECTED
---------------------- -------------------- ------------------- -------
Felix Araujo Ramirez Vice President of Telesistema Former Private Investor in April 2002
(03/20/51) Mexicano Promocion y Programacion de
la Provincia, S.A. de C.V.,
Promocion y Programacion del
Valle de Lerma, S.A. de C.V.,
Promocion y Programacion del
Sureste, S.A. de C.V.,
Teleimagen Profesional del
Centro, S.A. de C.V. and
Estragia Satelite, S.C.
Maximiliano Arteaga Carlebach Vice President of Operations, Former Vice President of April 2002
(12/06/42) Technical Service and Operations -- Televisa
Television Production of Grupo Chapultepec, former Vice
Televisa President of Administration
-- Televisa San Angel
and Chapultepec and
former Vice President
of Administration and
Finance of Univisa,
Inc.
Joaquin Balcarcel Santa Cruz Vice President - Legal and Former Director Legal April 2000
(01/04/69) General Counsel- Television Department of Grupo Televisa
Division of Grupo
Televisa and former
associate at Martinez,
Algaba, Estrella, De
Haro y Galvan-Duque,
S.C.
Juan Fernando Calvillo Vice President of Internal Member of the Board of April 2002
Armendariz Auditing and Member of the Private Banking of
(12/27/41) Audit Committee of Grupo Vanguardia, S.A. de C. V. and
Televisa former Member of the Boards
of Grupo Financiero Serfin,
S.A. de C.V. and Serpaprosa,
S.A. de C.V.
Rafael Carabias Principe Vice President of Former Member of the Boards April 1999
(11/13/44) Administration of Grupo Televisa of Promecap, S.C., Grupo
Financiero del Sureste, S.A.
and former Director of
Corporate Finance of
Scotiabank Inverlat, S.A.
Francisco Jose Chevez Robelo Retired Partner of Chevez, Member of the Board of April 2003
(07/03/29) Ruiz, Zamarripa y Cia, S.C. and Empresas Cablevision, S.A. de
Member of the Audit Committee C.V. and former Partner of
of Grupo Televisa Chevez, Ruiz, Zamarripa y
Cia, S.C.
Jose Luis Fernandez Fernandez Partner of Chevez, Ruiz, Former Member of the Boards April 2002
(05/18/59) Zamarripa y Cia., S.C. of Alexander Forbes, S.A. de
C.V. and Afore Bital, S.A.
Salvi Folch Viadero Chief Financial Officer of Former Vice President of April 2002
(08/16/67) Grupo Televisa Financial Planning of Grupo
Televisa, Chief Executive
Officer and Chief Financial
Officer of Comercio MAS, S.A.
de C.V. and former Vice
Chairman of Banking
Supervision of the National
Banking and Securities
Commission
- 98 -
FIRST
NAME AND DATE OF BIRTH PRINCIPAL OCCUPATION BUSINESS EXPERIENCE ELECTED
---------------------- -------------------- ------------------- -------
Leopoldo Gomez Gonzalez Blanco Vice President of Newscasts of Former Director of April 2003
(04/06/59) Grupo Televisa Information to the President
of Grupo Televisa
Jose Heredia Breton Director of Retail Business of Member of the Board of Banco April 2004
(16/06/61) Grupo Financiero Inbursa, S.A. Inbursa, S.A. and Member of
the Board of Aseguradora
Inbursa, S.A. de C.V.
Jose Antonio Lara del Olmo Vice President -- Tax of Grupo Former Tax Director of Grupo April 2003
(09/02/70) Televisa Televisa and former Associate
of Chevez, Ruiz, Zamarripa y
Cia, S.C.
Jorge Lutteroth Echegoyen Vice President Controller of Former Senior Partner of April 2000
(01/24/53) Grupo Televisa Coopers & Lybrand Despacho
Roberto Casas Alatriste, S.C.
Juan Sebastian Mijares Secretary of the Board, Partner, Mijares, Angoitia, July 2000
(10/04/59) Secretary of the Executive Cortes y Fuentes, S.C. (1994
Committee and Vice President -- - 2000), former Secretary
Member and Legal and Corporate of the Board of Bank
General Counsel of Grupo of Tokyo-Mitsubishi
Televisa Bank-Mexico and Member of the
Boards of Afore Banamex, S.A.
de C.V. and Organizacion de
Telecomunicaciones
Iberoamericanas, OTI, A.C.
Alberto Montiel Castellanos Director of Montiel Font y Former Tax Director of April 2002
(11/22/45) Asociados, S.C. and Member of Wal-Mart de Mexico, S.A. de
the Audit Committee of Grupo C.V.
Televisa
Raul Morales Medrano Partner of Chevez, Ruiz, Former Senior Manager of April 2002
(05/12/70) Zamarripa y Cia, S.C. Chevez, Ruiz, Zamarripa y
Cia, S.C.
Guillermo Nava Gomez Tagle Vice President of Former Vice President of April 1999
(08/27/43) Administration -- Televisa San Corporate Finance of Grupo
Angel Televisa, former Vice
President of
Citibank-Colombia and former
Finance Director of CIFRA
Alexandre Moreira Penna da Chief Executive Officer of Former Vice President of April 2002
Silva Innova Corporate Finance of Grupo
(12/25/54) Televisa and former Managing
Director of JPMorgan Chase
Maria Asuncion Aramburuzabala Larregui and Lucrecia Aramburuzabala
Larregui are sisters. Carlos Fernandez Gonzalez is the husband of Lucrecia
Aramburuzabala Larregui and the brother-in-law of Maria Asuncion Aramburuzabala
Larregui.
Maria Asuncion Aramburuzabala Larregui and Carlos Fernandez Gonzalez
are beneficiaries of the Investor Trust, one of our Major Shareholders which,
after giving effect to the Recapitalization, will own 5.12% of the Shares held
in the Shareholder Trust. See "Major Shareholders and Related Party Transactions
-- The Major Shareholders." Pursuant to the Shareholders Trust Agreement, the
Investor Trust is entitled to nominate one
- 99 -
individual to our Board of Directors so long as the Shares it holds through the
Shareholder Trust constitute more than 2% of the total issued and outstanding
Shares. See "Major Shareholders and Related Party Transactions - The Major
Shareholders" for a further discussion of the rights of the Investor Trust.
OUR BOARD OF DIRECTORS
General. The management of our business is vested in our Board of
Directors. Our bylaws currently provide for a Board of Directors of 20 members,
at least 25% of which must be "independent directors" under Mexican law (as
described below), and the same number of alternate directors. See "Other
Information -- Mexican Securities Market Law." Under Mexican law, a person will
not qualify as an "independent director" if he or she is, among others:
- one of our employees or managers;
- a controlling shareholder, in our case, Televicentro, and,
after the Recapitalization, the beneficiaries of the
Shareholder Trust;
- a partner or employee of a company which provides advisory
services to us or any company which is part of the same
economic group as we are, that receives 10% or more of its
income from us;
- a significant client, supplier, debtor or creditor, or member
of the Board or executive officer of any such entities;
- an employee of any association, foundation, or partnership
that receives at least 15% of its total donations from us; or
- any high level executive officer of a corporation in which one
of our high level executives is a member of the Board of
Directors of that corporation.
Election of Directors. A majority of the members of our Board of
Directors must be Mexican nationals and must be elected by Mexican shareholders.
At our annual shareholders' meeting, beginning 2005, a majority of the holders
of the A Shares voting together will have the right to elect eleven of our
directors and corresponding alternates, a majority of the holders of the B
Shares voting together will have the right to elect five of our directors and
corresponding alternates. At our special shareholders' meetings, a majority of
the holders of the L Shares and D Shares will each continue to have the right to
elect two of our directors and alternate directors, each of which must be an
independent director. Ten percent holders of L Shares or D Shares are also
entitled to nominate a director and corresponding alternates. Each alternate
director may vote in the absence of a corresponding director. Directors and
alternate directors are elected for one-year terms by our shareholders at each
annual shareholders' meeting, and each serves until a successor is elected and
takes office. All of the current and alternate members of the Board of Directors
were elected by our shareholders at our 2004 annual shareholders' special and
general meetings, which were held on April 16, 2004.
Quorum; Voting. In order to have a quorum for a meeting of the Board of
Directors, generally at least 50% of the directors or their corresponding
alternates must be present. However, in the case of a meeting of the Board of
Directors to consider certain proposed acquisitions of our capital stock, at
least 75% of the directors or their corresponding alternates must be present.
See "Other Information -- Bylaws -- Antitakeover Protections." In the event of a
deadlock of our Board, our Chairman will have the deciding vote.
Meetings; Actions Requiring Board Approval. Our bylaws provide that our
Board must meet at least once a quarter, and that our Chairman, 25% of the
Board, our Secretary or alternate Secretary or any statutory auditor may call
for a Board meeting. Pursuant to the Mexican Securities Market Law and our
bylaws, our Board of Directors must approve all transactions that deviate from
our ordinary course of business, and involve, among others, (i) a related party,
(ii) any purchase or sale of 10% or more of our assets, (iii) the grant by us of
guarantees in an amount or amounts exceeding 30% of our assets or (iv) other
transactions representing more than 1% of our assets, in addition to any
shareholder approval required by our bylaws or otherwise.
- 100 -
Committees of Our Board of Directors. Our Board of Directors has an
Executive Committee. Each member is appointed for a one-year term at each annual
general shareholders' meeting. Our bylaws provide that the Executive Committee
may generally exercise the powers of the Board of Directors, except those
expressly reserved for the Board in our bylaws or by applicable law. The
Executive Committee currently consists of Emilio Azcarraga Jean, Juan Pablo
Andrade Frich, Alfonso de Angoitia Noriega, Maria Asuncion Aramburuzabala
Larregui, Julio Barba Hurtado, Jose Antonio Baston Patino, Bernardo Gomez
Martinez and Alejandro Quintero Iniguez. In accordance with the Mexican
Securities Market Law and our bylaws, we established an Audit Committee
consisting of the following members of our Board: Francisco Jose Chevez Robelo
who is the Chairman of this Committee, Juan Pablo Andrade Frich, Juan Fernando
Calvillo Armendariz and Alberto Montiel Castellanos. Both the Chairman and a
majority of the members of the Audit Committee must be independent directors.
Our statutory auditors must be invited to attend all Audit Committee meetings.
Among other duties and responsibilities, the Audit Committee must:
- prepare an annual report regarding its activities for submission to
the Board and to our shareholders at our annual shareholders'
meeting;
- render an opinion as to transactions and arrangements with related
parties, which must be approved by our Board of Directors; and
- propose independent experts to render opinions in connection with
transactions that deviate from our ordinary course of business, and
which involve, among others, (i) a related party, (ii) any purchase
or sale of 10% or more of our assets, (iii) the grant by us of
guarantees in an amount or amounts exceeding 30% of our assets or
(iv) other transactions representing more than 1% of our assets.
EXECUTIVE OFFICERS
The following table sets forth the names of our executive officers, their
dates of birth, their current position, their prior business experience and the
year in which they were appointed to their current positions:
FIRST
NAME AND DATE OF BIRTH CURRENT POSITION BUSINESS EXPERIENCE APPOINTED
------------------------------ ----------------------------- ---------------------------- ------------
Emilio Azcarraga Jean Chairman of the Board, Member of the Boards of March 1997
(02/21/68) President and Chief Telefonos de Mexico, S.A.
Executive Officer and de C.V. and Banco Nacional
President of the Executive de Mexico, S.A. and Vice
Committee of Grupo Televisa Chairman of the Board of
Univision
In alphabetical order:
Alfonso de Angoitia Noriega Executive Vice President and Former Chief Financial May 2000
(01/17/62) Member of the Executive Officer of Grupo Televisa,
Office of the Chairman and Member of the Board and of
Member of the Executive the Executive Committee of
Committee of Grupo Televisa Grupo Televisa, Alternate
Member of the Board of
Univision and Partner,
Mijares, Angoitia, Cortes y
Fuentes, S.C. (1994 - 1999)
-101-
FIRST
NAME AND DATE OF BIRTH CURRENT POSITION BUSINESS EXPERIENCE APPOINTED
------------------------------ ----------------------------- ---------------------------- ------------
Felix Jose Araujo Ramirez Vice President of Former Private Investor in January 1993
(03/20/51) Telesistema Mexicano Promocion y Programacion de
la Provincia, S.A. de C.V.,
Promocion y Programacion
del Valle de Lerma, S.A. de
C.V., Promocion y
Programacion del Sureste,
S.A. de C.V., Teleimagen
Profesional del Centro,
S.A. de C.V. and Estragia
Satelite, S.C.
Maximiliano Arteaga Carlebach Vice President of Former Vice President of March 2002
(12/06/42) Operations, Technical Operations -- Televisa
Service and Television Chapultepec, former Vice
Production of Grupo Televisa President of Administration
-- Televisa San Angel and
Chapultepec and former
Vice President of
Administration
and Finance
of Univisa,
Inc.
Jose Antonio Baston Patino Corporate Vice President of Member of the Board and of February 2001
(04/13/68) Television of Grupo Televisa the Executive Committee of
Grupo Televisa, former Vice
President of Operations of
Grupo Televisa, former
General Director of
Programming of Grupo
Televisa and former Member
of the Board of Univision
Jean Paul Broc Haro Chief Executive Officer of Former General Manager of February 2003
(08/08/62) Cablevision Programming for Pay
Television of Grupo Televisa
Salvi Folch Viadero Chief Financial Officer Former Vice President of April 2002
(08/16/67) Financial Planning of Grupo
Televisa, Chief Executive
Officer and Chief Financial
Officer of Comercio MAS,
S.A. de C.V. and former
Vice Chairman of Banking
Supervision of the National
Banking and Securities
Commission
Bernardo Gomez Martinez Executive Vice President and Former Deputy to the July 1997
(07/24/67) Member of the Executive President of Grupo
Office of the Chairman and Televisa, member of the
Member of the Executive Board and of the Executive
Committee of Grupo Televisa Committee of Televisa and
former President of the
Mexican Chamber of
Television and Radio
Broadcasters
Eduardo Michelsen Delgado Chief Executive Officer of Former General Director -- January 2002
(03/03/71) Editorial Televisa Grupo Semana and former
Project Director --
McKinsey & Co.
-102-
FIRST
NAME AND DATE OF BIRTH CURRENT POSITION BUSINESS EXPERIENCE APPOINTED
------------------------------ ----------------------------- -------------------------------- ------------
Jorge Eduardo Murguia Orozco Vice President of Production Former Administrative Vice March 1992
(01/25/50) of Grupo Televisa President and former
Director of Human Resources
of Televisa
Alejandro Quintero Iniguez Corporate Vice President of Member of the Board and of April 1998
(02/11/50) Sales and Marketing of Grupo the Executive Committee of
Televisa Grupo Televisa, Shareholder
and Member of the Board of
Grupo TV Promo, S.A. de
C.V. and former advisor to
former Mexican President
Ernesto Zedillo
Raul Rodriguez Gonzalez Chief Executive Officer Former Media Advisor of January 2002
(06/20/59) Sistema Radiopolis Grupo Prisa and former
Chief Executive Officer of
Gerencia de Medios, S.A.
Alexandre Moreira Penna da Silva Chief Executive Officer of Former Vice President of January 2004
(12/25/54) Innova Corporate Finance of Grupo
Televisa and former
Managing Director of
JPMorgan Chase
COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 2003, we paid our directors, alternate
directors and executive officers for services in all capacities aggregate
compensation of approximately nominal Ps.193.4 million (U.S.$17.2 million using
the Interbank Rate, as reported by Banamex, as of December 31, 2003).
We made Ps.42.6 million in contributions to our pension and seniority
premium plans on behalf of our directors, alternate directors and executive
officers in 2003. Projected benefit obligations as of December 31, 2003 were
approximately Ps.46.8 million.
STOCK OPTION PLAN
In 1999, we adopted a stock option plan. Pursuant to the terms of our stock
option plan, as amended, we may grant eligible participants, who consist of key
executives and other personnel, rights to purchase CPOs and/or CPO equivalents
or we may conditionally sell CPOs and/or CPO equivalents to these participants.
Our shareholders have authorized the allocation of up to 8% of our capital stock
to this and any other plans we may establish from time to time for the benefit
of our employees. See " -- Long Term Retention Plan." Pursuant to the stock
option plan, the exercise or sale prices of the CPOs and/or CPO equivalents are
based on then current market prices at the time the options are granted or the
conditional sale agreement is executed. We have implemented the stock option
plan by means of a special purpose trust. The CPOs, CPO equivalents and
underlying Shares that are part of the stock option plan will be held by the
special purpose trust and will be voted with the majority of the CPOs, CPO
equivalents and underlying Shares represented at the relevant meeting until
these securities are transferred to plan participants or otherwise sold in the
open market. In accordance with the stock option plan, our President and the
technical committee of the special purpose trust have broad discretion to make
decisions related to the stock option plan, including the ability to accelerate
vesting terms, to release or transfer CPOs and/or CPO equivalents, subject to
conditional sale agreements, to plan participants in connection with sales for
purposes of making the payment of the related purchase price, and to implement
amendments to the stock option plan, among others.
The stock option plan has been implemented in several stages since 1999,
through a series of conditional sales to plan participants of CPOs. The
conditional sale agreements entered into by plan participants since the
implementation of the stock option plan through the fourth quarter of 2001 were
terminated for several reasons,
-103-
including the failure of plan participants to pay the purchase price and the
fact that the average closing price per CPO on the Mexican Stock Exchange fell
below certain thresholds for a 15 trading day period.
As of May 31, 2004, allocations and conditional sale agreements have been
made or executed with respect to approximately 110 million CPOs, generally at
exercise prices ranging from approximately Ps.11.21 - Ps.19.10 (approximately
U.S.$1.04 - U.S.$1.71) per CPO (in certain cases, adjusted upwards by a
specified percentage ranging from 2% - 10%, depending upon whether the purchase
price is paid in Pesos or in U.S. Dollars, generally from the date of the
relevant conditional sale agreement through the date of payment(s)). Pursuant to
the related conditional sale agreements, rights to approximately 30 million CPOs
vested in February 2003, approximately 17.5 million CPOs vested in March 2004
and approximately 17.5 will vest in March 2005. Rights to the remaining CPOs
currently vest no later than 2008. Rights to purchase these CPOs currently
expire in 2011. Unless the technical committee of the special purpose trust or
our President determines otherwise, these CPOs will be held in the special
purpose trust until they are transferred to plan participants or otherwise sold
in the open market, subject to the conditions set forth in the related
conditional sale agreements. Any CPOs not transferred to plan participants
pursuant to the relevant conditional sale agreement may be allocated to other
existing or future plan participants, provided that the rights of the original
plan participants to purchase these CPOs have expired or are terminated. See
Notes 13 and 26 to our year-end financial statements.
In December 2002, we registered for sale CPOs by the special purpose trust
to plan participants pursuant to a registration statement on Form S-8 under the
Securities Act. The registration of these CPOs permits plan participants who are
not affiliates and/or the special purpose trust on behalf of these plan
participants to sell their CPOs that have vested into the Mexican and/or U.S.
markets through ordinary brokerage transactions without any volume or other
limitations or restrictions. Those plan participants who are affiliates may only
sell their vested CPOs either pursuant to an effective registration statement
under the Securities Act or in reliance on an exemption from registration. All
or a portion of the net proceeds from any such sales would be used to satisfy
the purchase price obligations of these plan participants pursuant to their
conditional sale agreements. As of May 31, 2004, 34,132,840 CPOs transferred to
plan participants have been sold in open market transactions, and it is expected
that additional sales will take place during or after 2004.
LONG TERM RETENTION PLAN
At our general extraordinary and ordinary shareholders' meeting held on
April 30, 2002, our shareholders authorized the creation and implementation of a
Long Term Retention Plan, which supplements our existing stock option plan. At
the meeting, our shareholders also authorized the issuance of A Shares in an
aggregate amount of up to 4.5% of our capital stock at the time the A Shares are
issued, a portion of the 8% of our capital stock previously authorized by our
shareholders for these plans, as well as the creation of one or more special
purpose trusts to implement the Long Term Retention Plan. Approximately 430.3
million A Shares, as to which preemptive rights were previously offered to
holders of our A Shares, were issued and have been subscribed by one of these
special purpose trusts. As a result of the recapitalization described under "The
Recapitalization" and other related transactions, such special purpose trust
will have approximately 16.8 billion Shares, of which approximately 53% will be
in the form of CPOs and the remaining 47% will be in the form of A, B, D and L
Shares. We estimate that all of those Shares will become vested over a period of
no less than 15 years. Pursuant to our Long Term Retention Plan, we may grant
eligible participants, who consist of unionized and non-unonized employees,
including key personnel, awards as stock options, conditional sales, restricted
stock or other similar arrangements. As approved by our shareholders, the
exercise or sale price, as the case may be, is based (i) on the average trading
price of the CPOs during the first six months of 2003, or (ii) on the price
determined by the Board, the technical committee of the special purpose trust or
the President of the Company, in either case, adjusted by any applicable
discount, including discounts attributable to limitations on the disposition of
the Shares or CPOs that are subject to the Long Term Retention Plan. The CPOs
and their underlying shares as well as A, B, D and L Shares that are part of the
Long Term Retention Plan, will be held by the special purpose trust and will be
voted (y) with the majority of those securities, as the case may be, represented
at the relevant meeting or (z) as determined by the technical committee of the
special purpose trust, until these securities are transferred to plan
participants or otherwise sold in the open market.
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As of May 31, 2004, awards under the Long Term Retention Plan have been
granted with respect to approximately 143 million Shares, either in the form of
CPOs or Shares, at prices ranging from approximately Ps.13.45 - Ps.28.05 per
CPO. Rights with respect to these securities vest during the period commencing
in 2008 and ending in 2023 (in certain cases, adjusted upwards by a specified
percentage similar to the interest rate generated by Government liquid
securities). Pursuant to the resolutions adopted by our shareholders' meeting,
we have not, and do not intend to, register Shares under the Securities Act that
are allocated to the Long Term Retention Plan. See "Key Information -- Risk
Factors -- Risk Factors Related to Our Securities -- The Interests of Our GDS
Holders Will Be Diluted if We Issue New Shares and These Holders Are Unable to
Exercise Preemptive Rights for Cash."
SHARE OWNERSHIP OF DIRECTORS AND OFFICERS
Share ownership of our directors, alternate directors and executive
officers is set forth in the table under "Major Shareholders and Related Party
Transactions." Except as set forth in this table, none of our directors,
alternate directors or executive officers is currently the beneficial owner of
more than 1% of any class of our capital stock or conditional sale agreements or
options representing the right to purchase more than 1% of any class of our
capital stock.
STATUTORY AUDITORS
Under our bylaws, the holders of a majority of the outstanding A Shares and
B Shares elect a statutory auditor (comisario) and a corresponding alternate
statutory auditor at the Annual Ordinary Shareholders' Meeting. For such
election, the vote of the majority of the outstanding A Shares is also required.
In accordance with the Mexican Securities Market Law, holders of common stock or
non-voting stock representing at least 10% of a company's capital stock shall
have the right to appoint one statutory auditor. Mexican law requires that the
statutory auditors receive monthly reports from the Board of Directors regarding
material aspects of our affairs, including our financial condition, and that
they be invited to attend any meeting of the Board of Directors. The statutory
auditors are also required to report to the shareholders at the annual
shareholders' meeting regarding our financial statements and related matters,
and must be invited to all Board and Audit and Executive Committee meetings,
where they can attend but not vote. At our 2004 Annual Ordinary Shareholders'
Meeting, Mario Salazar Erdmann was elected to serve as our statutory auditor
until the acceptance of the election by his successor at the next annual
shareholders' meeting and Jose Miguel Arrieta Mendez was elected as alternate
statutory auditor.
EMPLOYEES AND LABOR RELATIONS
The following table sets forth the number of employees and a breakdown of
employees by main category of activity and geographic location as of the end of
each year in the three-year period ended December 31, 2003:
DECEMBER 31,
----------------------------------
2001 2002 2003
------ ------ ------
TOTAL NUMBER OF EMPLOYEES ......... 13,684 12,550 12,284
CATEGORY OF ACTIVITY:
Employees ....................... 13,621 12,514 12,248
Executives ...................... 63 36 36
GEOGRAPHIC LOCATION:
Mexico .......................... 12,544 11,169 10,912
Latin America (other than Mexico) 729 999 1,020
U.S ............................. 401 371 342
Spain ........................... 10 11 10
As of December 31, 2001, 2002 and 2003, approximately half of our employees
were represented by unions. We believe that our relations with our employees are
good. Under Mexican law, the agreements between us and most of our television,
radio and cable television union employees are subject to renegotiation on an
annual basis in January of each year. We also have union contracts with artists,
musicians and other employees, which are also renegotiated on an annual basis.
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As a result of new cost-cutting initiatives introduced in the first half of
2001, in April 2001 we further reduced our workforce by 750 personnel, which
personnel consisted of 684 employees and 66 independent contractors. In 2002 and
2003, we reduced our workforce by an additional 1,134 and 266 employees,
respectively. As of December 31, 2003, our total employee headcount was
approximately 12,284 employees. See "Information on the Company -- Business
Overview -- Business Strategy -- Continuing to Improve Cash Flow Margins" and
"Operating and Financial Review and Prospects -- Restructuring and Non-recurring
Charges."
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth information about the beneficial
ownership of our capital stock by our directors, alternate directors, executive
officers and each person who is known by us to own more than 5% of the currently
outstanding A Shares, L Shares or D Shares as of May 31, 2004, without giving
effect to our Recapitalization. Except as set forth below, we are not aware of
any holder of more than 5% of any class of our Shares, without giving effect to
our Recapitalization.
AGGREGATE
SHARE BENEFICIALLY OWNED(1)(2) PERCENTAGE
-------------------------------------------------------------------------------- OF
A SHARES L SHARES D SHARES OUTSTANDING
-------------------------- ------------------------ ------------------------ SHARES
PERCENTAGE PERCENTAGE PERCENTAGE BENEFICIALLY
IDENTITY OF OWNER NUMBER OF CLASS NUMBER OF CLASS NUMBER OF CLASS OWNED
----------------- ------ -------- ------ -------- ------ -------- -----
Grupo Televicentro, S.A .
de C.V(3) ............. 2,348,235,209 47.13% 52,806,227 2.37% 52,806,227 2.37% 25.97%
Capital Research and
Management Company(4) . 161,786,000 3.25% 161,786,000 7.25% 161,786,000 7.25% 5.14%
Janus Capital Management
LLC(5) ................ 143,861,820 2.89% 143,861,820 6.44% 143,861,820 6.44% 4.57%
Harris Associates L.P. (6) 140,959,680 2.83% 140,959,680 6.31% 140,959,680 6.31% 4.48%
Artisan Partners L.P. (7) 130,825,200 2.63% 130,825,200 5.86% 130,825,200 5.86% 4.15%
William H. Gates, III(8) . 126,944,000 2.55% 126,944,000 5.69% 126,944,000 5.69% 4.03%
Capital Group
International Inc.(9) . 116,053,520 2.33% 116,053,520 5.20% 116,053,520 5.20% 3.69%
(1) Unless otherwise indicated, the information presented in this section
and is based on the number of Shares authorized, issued and outstanding
as of May 31, 2004, without giving effect to the Recapitalization. As
of this date, the total number of authorized and issued Shares was
4,989,449,767 A Shares, of which 2,239,549,096 were in the form of CPOs
and 2,749,900,671 were additional A Shares not in the form of CPOs. The
number of Shares authorized, issued and outstanding for legal purposes
as of May 31, 2004 was 2,232,509,696 A Shares, L Shares and D Shares in
the form of CPOs and an additional 2,749,900,671 A Shares not in the
form of CPOs. The number of Shares authorized, issued and outstanding
reflects our repurchase in the open market of 7,039,400 CPOs as of May
31, 2004 pursuant to our share repurchase program. For financial
reporting purposes under Mexican GAAP only, the number of Shares
authorized, issued and outstanding as of May 31, 2004 was 2,171,632,182
A Shares, L Shares and D Shares in the form of CPOs and an additional
2,295,476,879 A Shares not in the form of CPOs. The number of Shares
authorized, issued and outstanding for financial reporting purposes
under Mexican GAAP as of May 31, 2003 does not include: (i) 60,877,514
CPOs and an additional 24,116,238 A Shares not in the form of CPOs
acquired by one of our subsidiaries, Televisa, S.A. de C.V.,
substantially all of which are currently held by the trust we created
to implement our stock option plan; and (ii) 430,307,554 A Shares not
in the form of CPOs acquired by the trust we created to implement our
long-term retention plan. See Notes 2 and 13 to our year-end financial
statements.
(2) Except indirectly through Televicentro, none of our directors and
executive officers currently beneficially owns more than 1% of our
outstanding A Shares, L Shares or D Shares. See "Directors, Senior
Management and Employees -- Share Ownership of Directors and Officers."
This information is based on information provided by directors and
executive officers.
(3) Televicentro's equity is currently owned by our Major Shareholders. For
a description of the current ownership of Televicentro's equity
securities, as well as a description of the ownership of our securities
by our Major Shareholders following the Recapitalization and the
Televicentro Distribution, see "The Major Shareholders" below.
(4) Based solely on information included in the Report on Form 13F for the
period ending March 31, 2004 filed by Capital Research and Management
Company, an affiliate of Capital Group International Inc.
(5) Based solely on information included in Janus Capital Management LLC's
(formerly Janus Capital Corporation) Report on Form 13G, dated February
16, 2004. According to this Report, Janus Capital has an indirect 100%
ownership stake in Bay Isle Financial LLC (Bay Isle) and an indirect
77.5% ownership stake in Enhanced Investment Technologies LLC
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(INTECH). As a result of this ownership structure, holdings for Janus
Capital, Bay Isle and INTECH are aggregated for purposes of this
filing. Janus Capital, Bay Isle and INTECH are registered investment
advisors, each furnishing investment advice to various investment
companies registered under Section 8 of the Investment Company Act of
1940 and to individual and institutional clients. As a result of its
role as investment adviser or subadviser to these portfolios, Janus
Capital may be deemed to be the beneficial owner of these Shares.
However, Janus Capital does not have the right to receive any dividends
from, or the proceeds from the sale of, the securities held in these
portfolios and disclaim any ownership associated with such rights.
(6) Based solely on information included in the Report on Form 13F for the
period ending March 31, 2004 filed by Harris Associates.
(7) Based solely on information included in the Report on Form 13F for the
period ending March 31, 2004 filed by Artisan Partners L.P.
(8) Based solely on information included in Mr. Gates' Report on Schedule
13G, dated July 16, 2003, filed as a group with Cascade Investment,
L.L.C. , or Cascade, and the Bill & Melinda Gates Foundation. Cascade
has sole voting power in respect of 4,859,800 GDSs and the Bill &
Melinda Gates Foundation has sole voting power in respect of 1,487,400,
GDSs. Mr. Gates has indicated that he may be deemed to beneficially own
all the GDSs owned by Cascade as the sole member of Cascade and he may
be deemed to beneficially own all the GDSs owned by the Bill & Melinda
Gates foundation as the sole trustee of the foundation.
(9) Based solely on information included in the Report on Form 13F filed
for the period ending March 31, 2004 by Capital Group International
Inc., the parent company of Capital International Inc. ("CII"), Capital
Guardian Trust Company ("CGTC"), Capital International S.A. ("CISA")
and Capital International Limited ("CIL"). According to this report,
CII has investment discretion and sole voting authority over 10,160,636
GDSs (the equivalent of 203,212,720 A Shares, L Shares and D Shares),
CGTC has investment discretion and sole voting authority over 458,600
GDSs (the equivalent of 9,172,000 A Shares, L Shares and D Shares),
CISA has investment discretion and sole voting authority over 68,700
GDSs (the equivalent of 1,374,000 A Shares, L Shares and D Shares), and
CIL has investment discretion and sole voting authority over 109,636
GDSs (the equivalent of 2,192,720 A Shares, L Shares and D Shares.
Capital Group International Inc. is an affiliate of Capital Research
and Management Company.
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THE MAJOR SHAREHOLDERS
BENEFICIAL OWNERSHIP OF OUR EQUITY SECURITIES
Televicentro is a holding company, the only assets of which are cash
and capital stock. Televicentro currently beneficially owns approximately 2,348
million A Shares and 53 million A Shares, L Shares, and D Shares in the form of
CPOs.
CURRENT OWNERSHIP OF TELEVICENTRO'S EQUITY
The ownership of Televicentro's equity is currently held through the
Shareholder Trust, for the benefit of the Azcarraga Trust, the Inbursa Trust and
the Investor Trust, as follows: the Azcarraga Trust 55.29%; the Inbursa Trust
24.70%; and the Investor Trust 20.01%. Interests of the Aramburuzabala family,
through the Investor Trust, represent 16.21%, and the interests of the Fernandez
family, through the Investor Trust represent 3.80%, of Televicentro's capital
stock. Emilio Azcarraga Jean is the sole beneficiary of the Azcarraga Trust and
has sole power to determine the investment and voting decisions made by the
trust. Promotora Inbursa, S.A. de C.V., or Promotora Inbursa, is currently the
sole beneficiary of the Inbursa Trust. The Investor Trust is a trust for the
benefit of five individual members of the Aramburuzabala and Fernandez families.
The principal business of the Investor Trust is to serve as the vehicle for its
beneficiaries' investment in shares of Televicentro and, after giving effect to
the Recapitalization, in Shares. The beneficiaries of the Investor Trust share
the power to determine the investment and voting decisions made by the Investor
Trust.
Through the Azcarraga Trust, Mr. Azcarraga Jean owns and has voting
control over a majority of Televicentro's capital stock. Pursuant to
Televicentro's bylaws, Emilio Azcarraga Jean has the ability to elect four of
Televicentro's seven directors and has the power to control the day-to-day
operations of Televicentro. However, under Televicentro's bylaws and a
shareholders agreement among the shareholders of Televicentro, certain actions
require the approval of the Inbursa Trust and/or the Investor Trust, or their
designees on Televicentro's Board of Directors or Executive Committee, as the
case may be. Upon the occurrence of all the condicitons precedent to the
Shareholder Trust, most of which have occurred, the shareholders agreement among
the shareholders of Televicentro will be terminated.
THE TELEVICENTRO DISTRIBUTION
In March 2004, the Televicentro shareholders contributed all their
Shares in Televicentro to the Shareholder Trust. Following completion of the
Recapitalization, Televicentro will distribute all its Shares and CPOs to the
Shareholder Trust (the "Televicentro Distribution") and, as a result, will cease
to be a shareholder of Televisa. Thereafter, the Shares beneficially owned by
the Inbursa Trust and the Investor Trust will be deposited in the CPO Trust in
exchange for 200 million CPOs and 164 million CPOs, respectively. The
Shareholder Trust will release two million CPOs to members of the Fernandez
family, leaving the Investor Trust with 162 million CPOs.
Televicentro currently owns approximately 2,348 million A Shares and 53
million A shares, L Shares and D shares in the form of CPOs. Following the
Recapitalization, the Televicentro Distribution and related transactions, the
beneficiaries of the Shareholders Trust will own Televisa shares (including
Shares in the form of CPOs), as follows:
Shares and CPOs held through the Shareholder Trust by the Azcarraga
Trust, the Inbursa Trust and the Investor Trust will constitute approximately
49.71% of the outstanding A Shares, approximately 13.28% of the outstanding B
Shares, and approximately 37.84% of the total number of outstanding A Shares and
B Shares combined. These Shares will be held by the trustee of the Shareholder
Trust, subject to an agreement that will provide for the voting and disposition
of these Shares and CPOs.
Following the Televicentro Distribution, the existing arrangements
among the Televicentro shareholders, which are described in our annual report on
Form 20-F for the fiscal year ended December 31, 2002, under "Major Shareholders
and Related Party Transactions", will be terminated. These arrangements include
a put option that, in certain circumstances, would have required Emilio
Azcarraga Jean to purchase the shares of Televicentro capital stock owned by the
Inbursa Trust and the Investor Trust.
THE SHAREHOLDER TRUST
VOTING OF SHARES
The Shares held through the Shareholder Trust will be voted by the
trustee as instructed by a Technical Committee comprising five members -- three
appointed by the Azcarraga Trust and one appointed by each of the Inbursa Trust
and the Investor Trust. Accordingly, except as described below, Emilio Azcarraga
Jean will control the voting of the Shares held through the Shareholder Trust.
In elections of directors, the Technical Committee will instruct the trustee to
vote the A Shares held through the Shareholder Trust for individuals designated
by Mr. Azcarraga Jean. The A Shares held through the Shareholder Trust after the
Televicentro Distribution will constitute a majority of the A Shares whose
holders are entitled to vote them, because non-Mexican holders of CPOs and GDSs
are not permitted by law to vote the underlying A Shares. Accordingly, after the
Televicentro Distribution, and so long as non-Mexicans own more than a minimal
number of A Shares, Mr. Azcarraga Jean will have the ability to direct the
election of eleven out of 20 members of our Board.
In accordance with the trust agreement, the Technical Committee will
instruct the trustee to vote the B Shares held through the Shareholder Trust for
a total of five individuals as members of our Board, who will be designated as
follows. Emilio Azcarraga Jean will be entitled to nominate two individuals. The
Investor Trust will be entitled to nominate one individual so long as the Shares
it holds through the Shareholder Trust constitute more than two percent of the
total issued and outstanding Shares. Until the Inbursa Trust is entitled to
release all its Shares from the Shareholder Trust, and so long as the Shares it
holds through the Shareholder Trust constitute more than two percent of the
total issued and outstanding Shares, it will be entitled to nominate two
individuals.
Because the B Shares held through the Shareholder Trust following the
Televicentro Distribution will constitute only 13.28% of the total B Shares
outstanding, there can be no assurance that individuals nominated by Shareholder
Trust beneficiaries will be elected to our Board. However, the B Shares held
through the Shareholder Trust following the Televicentro Distribution will
constitute a higher proportion of the B Shares whose holders are entitled to
vote them, because non-Mexican holders of CPOs and GDSs are not permitted by law
to vote the underlying B Shares.
Emilio Azcarraga Jean has agreed to consult with the Inbursa Trust and
the Investor Trust as to the voting of Shares held through the Shareholder Trust
on matters specifically set forth in the Shareholder Trust Agreement, including
increases or reductions in the capital stock of Televisa; merger, split-up,
dissolution, liquidation or bankruptcy proceedings of Televisa; related party
transactions, extensions of credit or share repurchases, in each case exceeding
specified thresholds; and selection of the chairman of Televisa's board of
directors, if different from Emilio Azcarraga Jean. If either of the Inbursa
Trust or the Investor Trust requests that Shares be voted in a particular way on
such a matter, and Mr. Azcarraga Jean declines to do so, such party may
immediately release its Shares from the Shareholder Trust. These consultation
rights will terminate as to either the Inbursa Trust or the Investor Trust if it
ceases to be party to the Shareholder Trust or if it owns less than two percent
of our total issued and outstanding Shares.
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RELEASE OF SHARES
The beneficiaries of the Shareholder Trust will have only limited
rights to transfer or pledge their trust interests without the consent of the
other trust beneficiaries, but they may transfer freely to affiliated parties as
defined in the Shareholder Trust Agreement.
Except for 2 million CPOs which will be released to the Fernandez
family immediately upon the completion of the Recapitalization, the Shareholder
Trust beneficiaries will not be permitted to release shares from the trust
before July 1, 2005. Beginning July 1, 2005, the Investor Trust may release or
sell any or all of its Shares from the Shareholder Trust. The Inbursa Trust may
release or sell up to two-thirds of its Shares from July 1, 2005 through June
30, 2009 and any or all of its Shares beginning July 1, 2009. The Azcarraga
Trust may release or sell any or all of its Shares from the Shareholder Trust
beginning July 1, 2005, but upon any such release or sale, the Inbursa Trust may
freely release or sell any or all of its Shares.
In addition, as described above, if either of the Inbursa Trust or the
Investor Trust requests that Shares be voted in a particular way on any matter
specifically set forth in the Shareholder Trust Agreement, and Mr. Azcarraga
Jean declines to do so, such party may immediately release its Shares.
RELATED PARTY TRANSACTIONS
TRANSACTIONS AND ARRANGEMENTS WITH INNOVA. In 2001, 2002 and 2003 we
engaged in, and we expect that we will continue to engage in, transactions with
Innova, including, without limitation, the transactions described below. We hold
a 60% equity interest in Innova through a non-consolidated joint venture with
News Corp. and Liberty Media. Although we hold a majority of Innova's equity,
News Corp. has significant governance rights, including the right to block any
transaction between us and Innova. See Note 9 to Innova's year-end financial
statements for all of the information that Innova must make publicly available
in Mexico regarding transactions and arrangements with us.
Capital Contributions and Loans. From Innova's inception through
September 2003, we had made approximately U.S.$89.4 million in capital
contributions and approximately U.S.$185.9 million in loans and U.S.$48.6
million in accrued interest, or a total of U.S.$234.5 million capitalized in
Innova. Effective as of September 9, 2003, we capitalized all outstanding loans
and accrued interest to Innova, which were reflected as a contribution to
Innova's capital.
In May 2004, we entered into the following transactions with Innova and
the other two equity owners of Innova, News Corp. and Liberty Media, which had
the net effect of increasing Innova's net worth by $15 million but did not
affect the relative ownership interests of any equity owner:
- News Corp. contributed to Innova an account receivable of
U.S.$15 million owed to News Corp. by Sky DTH, S. de R. L. de
C.V., or Sky DTH;
- We assigned to Sky DTH an account receivable of U.S.$15
million owed to us by Innova; and
- Innova, Innova Holdings, News, Liberty Media and Sky DTH
agreed that the obligation owed by Innova to Sky DTH and the
obligation owed by Sky DTH to Innova would be set off against
each other and cancelled.
In connection with this transaction, we and the other equity owners
also increased Innova's capital by a de minimus amount; we continue to
indirectly own 60%, News Corp. continues to indirectly own 30% and Liberty Media
continues to indirectly own 10% of Innova.
Programming. Pursuant to an agreement between us and Innova, we have
granted Innova exclusive DTH rights to some program services in Mexico, subject
to some preexisting agreements with third parties. Innova paid us approximately
Ps.268.7 million for these rights in 2003. Innova currently pays the rates paid
by third party providers of cable television and MMDS services in Mexico for our
various programming services. In addition,
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pursuant to the agreement, we cannot charge Innova higher rates than the rates
that we charge third party providers of cable television and MMDS services in
Mexico for our various programming services.
Advertising Services. In January 2001, we entered into an agreement
with Innova, pursuant to which Innova pools most of its advertising time with
advertising time on channels broadcast by us, Innova and Cablevision. Innova
pays us 18% of the revenues from any advertising sales we make on its behalf
pursuant to this agreement. Pursuant to this agreement, we also negotiate most
of Innova's advertising contracts with third party advertisers, as well as
provide other related and ancillary services, such as invoicing and collection
services.
Innova also purchased magazine advertising space and television and
radio advertising time from us in connection with the promotion of its DTH
satellite services in 2001, 2002 and 2003, and we expect that Innova will
continue to do so in the future. For television, radio and magazine advertising,
Innova paid and will continue to pay the rates applicable to third party
advertisers. Innova paid us Ps.122.3 million for advertising services in 2003.
Guarantees. We have guaranteed Innova's payments to PanAmSat for
transponder services on satellite PAS-9 in proportion to our respective
ownership interest in Innova, which is currently 60%. Innova is obligated to pay
a monthly service fee of U.S.$1.7 million to PanAmSat for satellite signal
reception and retransmission service from transponders on the PAS-9 satellite
through September 2015. As of December 31, 2003, we had guaranteed payments in
the amount of U.S.$143.8 million. If Innova does not pay these fees in a timely
manner, we will be required to pay 60% of its obligations to PanAmSat.
Tax Sharing Agreement. We have a tax sharing agreement with Innova,
which sets forth certain of our rights and obligations, as well as those of
Innova, with respect to Innova's liability for federal income and assets taxes
imposed under Mexican tax laws. We received an authorization from Mexican tax
authorities to include Innova's results in our consolidated tax return for
purposes of determining our income and assets taxes. Tax profits or losses
obtained by Innova are consolidated with our tax profits or losses up to 60% of
our percentage ownership of Innova, which is currently 60%. Pursuant to the tax
sharing agreement, in no event shall Innova be required to remit to us an amount
in respect of its federal income and assets taxes that is in excess of the
product of (x) the amount that Innova would be required to pay on an individual
basis, as if Innova had filed a separate tax return, and (y) with respect to
asset taxes, our direct or indirect percentage ownership of Innova's capital
stock, and with respect to income taxes, 60% of our direct or indirect
percentage ownership in Innova's capital stock, as determined by applicable law.
For additional information concerning transactions with Innova, as well
as amounts paid to us by Innova pursuant to these transactions in 2003, see Note
17 to our year-end financial statements and Note 9 to Innova's year-end
financial statements. See also "Key Information -- Risk Factors -- Risk Factors
Related to Our Business -- We Have Experienced Substantial Losses, Primarily in
Respect of Our Investments in Innova and MCOP, and Expect to Continue to
Experience Substantial Losses as a Result of Our Participation in DTH Joint
Ventures, Which Would Adversely Affect Our Net Income" and "Information on the
Company -- Business Overview -- DTH Joint Ventures -- Mexico."
Possible Transactions. We are exploring with News Corp. and Liberty
Media, our partners in Innova, a possible transaction involving DIRECTV Mexico,
as well as elsewhere in Latin America. Any such transaction would be subject to
a number of conditions, including reaching a definitive agreement. There has
been no agreement reached to date on any transaction and it is uncertain whether
any transaction will take place.
TRANSACTIONS AND ARRANGEMENTS WITH MCOP. In 2001, 2002 and 2003 we
engaged in, and we expect that we will continue to engage in, transactions with
MCOP, including, without limitation, the transactions described below. We
indirectly hold a 30% equity interest in MCOP, our DTH non-consolidated joint
venture in Latin America outside of Mexico and Brazil. The balance of MCOP's
equity is owned by News Corp. and Globopar, each of which indirectly holds a 30%
equity interest, and Liberty Media, which indirectly holds a 10% equity
interest. Each of the partners also holds indirect interests, individually, in
the same proportion as their interests in MCOP, in two service entities: (i)
ServiceCo, a U.S. partnership formed to provide certain business and management
services; and (ii) TechCo, a U.S. partnership formed to provide certain
technical services from a main uplink facility in Miami Lakes, Florida and a
redundancy site in Port St. Lucie, Florida. Under an agreement among us, News
Corp., Globopar and Liberty Media, all decisions relating to the business and
affairs of MCOP and all decisions relating to
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MCOP's investment in any DTH platform must be approved by 75% of the partners.
In addition, representation on the board is proportional to the parties'
relative voting interests in MCOP.
Capital Contributions and Loans. From MCOP's inception through December
2003, we have made approximately U.S.$139.2 million in capital contributions.
Additionally, capital contributions of approximately U.S.$15.0 million were made
on our behalf by News Corp. in 2001, which amount was reflected as a liability
due to News Corp. in our consolidated balance sheets at December 31, 2002 and
2003. We currently do not intend to fund MCOP's operations other than the
amounts required to be paid under the transponder service agreement with
PanAmSat, which is expected to be made in the form of loans. During 2003, we
made loans to MCOP in the aggregate amount of U.S. $13.1 million. From January
1, 2004 through May 31, 2004 we made approximately U.S.$4.5 million in loans to
MCOP in connection with the transponder service agreement with PanAmSat.
Programming. Pursuant to an agreement between us, News Corp., Globopar
and Liberty Media, MCOP's initial programming line up was determined by a
majority vote of a programming committee with the representation on the
committee proportional to the parties' relative voting interest in MCOP. Each of
the partners is required to offer its program services to the extent
contractually available to MCOP on an exclusive basis. MCOP paid us
approximately U.S.$1.5 million for these rights in 2003. MCOP currently pays the
rates paid by third party providers of cable television and MMDS services for
our various programming services. In addition, pursuant to the agreement, we
cannot charge MCOP higher rates than the rates that we charge third party
providers of cable television and MMDS services for our various programming
services. In addition, each of the partners of MCOP has the right to require
MCOP to carry up to certain number of that partner's channels on MCOP's
platform.
Guarantees. We have guaranteed MCOP's payments to PanAmSat for
transponder services on PAS-6B in proportion to our respective ownership
interest in MCOP, which is currently 30%. MCOP is obligated to pay a monthly
service fee of U.S.$3.0 million to PanAmSat for satellite signal reception and
retransmission service from transponders on the PAS-6B satellite through 2014.
However, as a result of the reduction in the estimated remaining useful life of
the satellite transponders leased by MCOP, it is likely that MCOP will only be
obligated to pay for this service through 2008, the year in which life of the
PAS-6B satellite is currently estimated to terminate. As of December 31, 2003,
we guaranteed payments of approximately U.S.$44.1 million over the probable life
of the agreement, and we recognized a liability up to the amount of these
guarantees in our consolidated balance sheet in an aggregate amount of
approximately U.S.$36.8 million, which represents the present value of these
payments as of that date.
For additional information concerning transactions with MCOP, see Notes
10 and 12 to our year-end financial statements. See also "Key Information --
Risk Factors -- Risk Factors Related to Our Business -- MCOP, Our DTH Joint
Venture in Latin America Outside of Mexico and Brazil, May Not Be Able to
Continue as a Going Concern" and "Information on the Company -- Business
Overview -- DTH Joint Ventures -- Mexico."
TRANSACTIONS AND ARRANGEMENTS WITH TECHCO. In 2001, 2002 and 2003 we
engaged in, and we expect that we will continue to engage in, transactions with
TechCo, including, without limitation, the transactions described below. We
indirectly hold a 30% equity interest in TechCo, our U.S. partnership formed to
provide certain technical services from a main uplink facility in Miami Lakes,
Florida and a redundancy site in Port St. Lucie, Florida. The balance of
TechCo's equity is owned by News Corp. and Globo, each of which indirectly holds
a 30% equity interest, and Liberty Media, which indirectly holds a 10% equity
interest. Under an agreement among us, News Corp., Globo and Liberty Media, all
decisions relating to the business and affairs of TechCo and all decisions
relating to TechCo's investment in any DTH platform must be approved by 75% of
the partners. In addition, representation on the board is proportional to the
parties' relative voting interests in TechCo.
Capital Contributions and Loans. From TechCo's inception through
December 2003, we have made approximately U.S.$12.0 million in capital
contributions and U.S. $7.5 million in loans. In addition, as a result of
Globo's recent announcement that it will reorganize its financial debt
obligations in respect of its bank debt and bonds, it has ceased providing
financial support to TechCo. We, News Corp. and Liberty Media have been funding
TechCo's operating cash shortfall through loans. In that connection, in March
2004 we made a loan to TechCo of approximately U.S.$4.5 million. We currently
intend to continue to fund TechCo's shortfall in the form of loans.
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Guarantees. We have guaranteed 36% of TechCo's payments in respect of
its capital lease obligations. TechCo is obligated to make payments under its
capital leases with various maturities between 2004 and 2007 for an aggregate
amount of U.S.$43.9 million in respect of its capital lease obligations. As of
December 31, 2003, we had guaranteed payments by TechCo in the aggregate amount
of U.S.$15.8 million.
For additional information concerning transactions with TechCo, see
Notes 5 and 12 to our year-end financial statements. See also "Key Information
-- Risk Factors -- Risk Factors Related to Our Business -- MCOP, Our DTH Joint
Venture in Latin America Outside of Mexico and Brazil, May Not Be Able to
Continue as a Going Concern" and "Information on the Company -- Business
Overview -- DTH Joint Ventures -- Mexico."
TRANSACTIONS AND ARRANGEMENTS WITH UNIVISION. In 2001, 2002 and 2003,
we engaged in, and we expect that we will continue to engage in, transactions
with Univision. We currently own shares and warrants representing an approximate
10.7% equity stake in Univision, on a fully diluted basis. We currently have the
right to appoint a member of Univision's Board of Directors. For a description
of programming and other agreements between us and Univision, as well as
royalties paid to us by Univision pursuant to programming agreements, see
"Information on the Company -- Business Overview -- Programming Licensing," " --
Univision" and Note 17 to our year end financial statements.
As described under "Information on the Company -- Business Overview --
Univision," we appointed Emilio Azcarraga Jean, our Chairman of the Board, Chief
Executive Officer, President and President of the Executive Committee of our
Board, as our director, and Alfonso de Angoitia Noriega, our Executive Vice
President, as our alternate director of Univision. Univision appointed Mr.
Azcarraga Jean as Vice-Chairman of its Board of Directors.
TRANSACTIONS AND ARRANGEMENTS WITH OUR DIRECTORS AND OFFICERS
On June 1, 2004, Servicios Profesionales, a company controlled by
Emilio Azcarraga Jean, purchased a 5% interest of Mas Fondos from Corporativo
Vasco de Quiroga, S.A. de C.V., one of our subsidiaries and the controlling
shareholder of Mas Fondos. The total consideration that Servicios Profesionales
paid in connection with this acquisition was Ps.500,000. We received CNBV
authorization for this transaction on June 28, 2004. For additional information
concerning Mas Fondos see "Information on the Company -- Business Overview --
Mutual Fund Venture".
On May 31, 2000, we made a personal loan in the amount of U.S.$150,000
to Jorge Eduardo Murguia Orozco, one of our executive officers. The aggregate
principal amount of this loan, together with accrued interest, was repaid in
full by Mr. Murguia in June 2004.
TRANSACTIONS AND ARRANGEMENTS WITH AFFILIATES AND RELATED PARTIES OF
OUR DIRECTORS, OFFICERS AND MAJOR SHAREHOLDERS
Fonovideo. In March 2004, we entered into a production services
agreement with FV Productions LLC, which is currently controlled by
Televicentro, for the production of a telenovela series. Under these
arrangements, we will pay approximately U.S.$4.2 million for a telenovela series
delivered in accordance with an agreed upon schedule.
Acquisition of Telespecialidades. In June 2003, we purchased all the
outstanding equity of Telespecialidades, a company which was owned by all of the
shareholders of Televicentro in the same proportion that they owned
Televicentro. The total consideration we paid in connection with this
acquisition was approximately U.S.$83.0 million, which was financed with cash on
hand. At the time of the acquisition, Telespecialidades's net assets consisted
principally of 1,591,283 CPOs, which CPOs were previously owned by Televicentro,
and tax loss carryforwards of approximately Ps.6,713.7 million. The terms of
this acquisition were approved by our Audit Committee.
Consulting Services. Instituto de Investigaciones Sociales, S.C. or
Instituto de Investigaciones Sociales, a consulting firm which is controlled by
Ariana Azcarraga De Surmont, the sister of Emilio Azcarraga Jean, has, from time
to time during 2002 and 2003 provided consulting services and research in
connection with the effects of our programming, especially telenovelas, on our
viewing audience. Instituto de Investigaciones Sociales has provided us with
such services in 2004 and we expect to continue these arrangements through 2004.
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Loans from Banamex. From time to time in the past and in 2002, 2003 and
2004, Banamex made loans to us, Televicentro and several other of our
affiliates, and we expect that this will continue to be the case in the future.
These loans were made to us, Televicentro and our affiliates on terms
substantially similar to those offered by Banamex to third parties. Emilio
Azcarraga Jean, our Chief Executive Officer, President and Chairman of the
Board, is a member of the Board of Banamex. One of our directors, Roberto
Hernandez Ramirez, is the Chairman of the Board of Banamex. Mr. Hernandez is
also a member of the Board of, and the beneficial owner of less than 1% of the
outstanding capital stock of, Citigroup, Inc., the entity that indirectly
controls Banamex. Lorenzo H. Zambrano Trevino, one of our directors, is also a
member of the Board of Banamex. For a description of amounts outstanding under,
and the terms of, our existing credit facilities with Banamex, see "Operating
and Financial Review and Prospects -- Liquidity, Foreign Exchange and Capital
Resources -- Indebtedness."
Advertising Services. Two of our directors, Maria Asuncion
Aramburuzabala Larregui and Carlos Fernandez Gonzalez, and one of our alternate
directors, Lucrecia Aramburuzabala Larregui, are members of the Board and
Executive Committee of, as well as shareholders of, Grupo Modelo, S.A. de C.V.,
or Grupo Modelo, the leading producer, distributor and exporter of beer in
Mexico. Carlos Fernandez Gonzalez also serves as the Chief Executive Officer of
Grupo Modelo. Grupo Modelo purchased advertising services from us in connection
with the promotion of its products from time to time in 2001, 2002 and 2003, and
we expect that this will continue to be the case in the future. Grupo Modelo
paid and will continue to pay rates applicable to third party advertisers for
these advertising services.
Several other members of our current Board serve as members of the
Boards and/or shareholders of other companies. See "Directors, Senior Management
and Employees." Some of these companies, including Banamex, Kimberly-Clark de
Mexico, S.A. de C.V., Grupo Financiero Santander, S.A. de C.V. and Telefonos de
Mexico, S.A. de C.V., among others, purchased advertising services from us in
connection with the promotion of their respective products and services from
time to time in 2001, 2002 and 2003, and we expect that this will continue to be
the case in the future. Similarly, Alejandro Quintero Iniguez, a member of the
Board and the Executive Committee and our Corporate Vice President of Sales and
Marketing, is a shareholder and member of the Boards of Grupo TV Promo, S.A. de
C.V., or Grupo TV Promo, and TV Promo, S.A. de C.V., or TV Promo, companies
which produce promotional campaigns and events for their and our clients. Grupo
TV Promo and TV Promo have purchased and will continue to purchase advertising
services from us in connection with these promotional campaigns. All of the
companies described above paid and will continue to pay rates applicable to
third party advertisers for these advertising services.
Legal and Advisory Services. During 2001, 2002 and 2003, Mijares,
Angoitia, Cortes y Fuentes, S.C., a Mexican law firm, provided us with legal and
advisory services, and we expect that this will continue to be the case in the
future. Alfonso de Angoitia Noriega, a partner on leave of absence from the law
firm of Mijares, Angoitia, Cortes y Fuentes, S.C., is one of our directors, a
member of our Executive Committee, the Alternate Secretary of our Board and of
our Executive Committee, an Executive Vice President and was a member of the
Related Party Transactions Committee. Juan Sebastian Mijares Ortega, another
partner on leave of absence from the law firm of Mijares, Angoitia, Cortes y
Fuentes, S.C., serves as one of our alternate directors, the Secretary of our
Board, the Secretary of our Executive Committee, the Secretary of our Audit
Committee, our Vice President -- Legal Corporate General Counsel and was a
member of the Related Party Transactions Committee which was replaced by the
Audit Committee. Neither Alfonso de Angoitia Noriega nor Juan Sebastian Mijares
Ortega currently receives any form of compensation from, or participates in any
way in the profits of, Mijares, Angoitia, Cortes y Fuentes, S.C. Ricardo
Maldonado Yanez, a partner from the law firm of Mijares, Angoitia, Cortes y
Fuentes, S.C., serves also as Alternate Secretary of our Board of Directors. We
believe that the fees we paid for these services were comparable to those that
we would have paid another law firm for similar services. See Note 17 to our
year-end financial statements.
Financial Advisory Services. During 2001, 2002 and 2003, Allen &
Company Incorporated, an investment bank, provided us with financial advisory
services, including in connection with the series of transactions that we
entered into with Univision in December 2001, as described under "Information on
the Company -- Business Overview -- Univision." Enrique F. Senior Hernandez, one
of our directors, is an Executive Vice President and Managing Director of Allen
& Company Incorporated. Herbert Allen III, one of our alternate directors, is
also an Executive Vice President and Managing Partner of Allen & Company
Incorporated. We believe that the fees we paid for these services, including
those paid in connection with the transactions with Univision, were comparable
to those that we would have paid another investment bank for similar services.
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During 2001 and 2002, Protego Asesores, S.A. de C.V., or Protego, an
investment bank, provided some of our subsidiaries, including Cablevision, with
financial advisory services. Pedro Aspe Armella, one of our directors, is the
Chairman and Chief Executive Officer of Protego, and owns 80% of the shares of
Protego. We believe that the fees we paid for these services were comparable to
those that we would have paid another investment bank for similar services.
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ITEM 8. FINANCIAL INFORMATION
See "Item 18 -- Financial Statements" and pages F-1 through F-99, which
are incorporated herein by reference.
ITEM 9. OFFER AND LISTING DETAILS
TRADING HISTORY OF CPOS AND GDSS
Since December 1993, the GDSs have been traded on the NYSE and the CPOs
have been traded on the Mexican Stock Exchange. In July 2002, we removed
Citibank, N.A. as the depositary for the GDSs and appointed JPMorgan Chase Bank
pursuant to a new deposit agreement.
The table below shows, for the periods indicated, the high and low
market prices in nominal Pesos for the CPOs on the Mexican Stock Exchange,
giving effect to the March 1, 2000 10-for-1 stock split in all cases.
NOMINAL PESOS PER CPO(1)
----------------------------
HIGH LOW
---- ---
1999............................................. Ps. 33.11 Ps. 10.00
2000............................................. Ps. 40.50 Ps. 20.20
2001............................................. Ps. 25.90 Ps. 12.63
First Quarter.................................... 25.90 15.50
Second Quarter................................... 20.62 14.82
Third Quarter.................................... 19.34 12.63
Fourth Quarter................................... 19.85 13.49
2002............................................. Ps. 22.31 Ps. 12.44
First Quarter.................................... 22.00 17.35
Second Quarter................................... 22.31 17.90
Third Quarter.................................... 18.41 12.69
Fourth Quarter................................... 15.58 12.44
December......................................... 15.58 14.36
2003............................................. Ps. 23.56 Ps. 12.63
First Quarter.................................... 15.64 12.63
Second Quarter................................... 18.71 13.75
Third Quarter.................................... 21.71 17.53
Fourth Quarter................................... 23.56 19.80
December......................................... 23.41 21.18
2004.............................................
First Quarter.................................... Ps. 23.35 Ps. 22.22
January.......................................... 24.56 22.22
February......................................... 24.51 23.10
March............................................ 26.35 22.57
Second Quarter (through May 31, 2004)............ Ps. 26.74 Ps. 22.73
April............................................ 26.74 24.80
May.............................................. 25.72 22.73
(1) Source: Mexican Stock Exchange.
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The table below shows, for the periods indicated, the high and low
market prices in U.S. Dollars for the GDSs on the NYSE.
U.S. DOLLARS PER GDS(1)
------------------------------
HIGH LOW
---- ---
1999..................................................... U.S.$71.38 U.S.$18.50
2000..................................................... U.S.$86.25 U.S.$42.63
2001..................................................... U.S.$53.50 U.S.$26.83
First Quarter......................................... 53.50 32.47
Second Quarter........................................ 45.80 31.11
Third Quarter......................................... 42.65 26.83
Fourth Quarter........................................ 43.46 28.40
2002..................................................... U.S.$48.65 U.S.$24.30
First Quarter......................................... 48.52 38.40
Second Quarter........................................ 48.65 35.99
Third Quarter......................................... 37.00 25.20
Fourth Quarter........................................ 30.70 24.30
December........................................... 30.70 27.60
2003..................................................... U.S.$42.27 U.S.$23.26
First Quarter......................................... 29.95 23.26
Second Quarter........................................ 35.45 25.61
Third Quarter......................................... 39.85 33.55
Fourth Quarter........................................ 42.27 35.19
December........................................... 41.20 37.60
2004.....................................................
First Quarter......................................... U.S.$47.34 U.S.$40.08
January............................................ 44.55 40.08
February........................................... 44.91 41.80
March.............................................. 47.34 41.00
Second Quarter (through May 28, 2004)................. U.S.$47.66 U.S.$39.23
April.............................................. 47.66 43.59
May................................................ 45.10 39.23
(1) Source: NYSE.
Trading prices of the CPOs and the GDSs will be influenced by our
results of operations, financial condition, cash requirements, future prospects
and by economic, financial and other factors and market conditions. See "Key
Information -- Risk Factors -- Risk Factors Related to Mexico -- Economic and
Political Developments in Mexico May Adversely Affect Our Business." There can
be no assurance that prices of the CPOs and the GDSs will, in future, be within
the ranges set forth above. We believe that as of May 28, 2004, approximately
91.1 million GDSs were held of record by 137 persons with U.S. addresses. Before
giving effect to the Recapitalization, substantially all of the outstanding A
Shares not held through CPOs were owned by Televicentro and a special purpose
trust created for our Long Term Retention Plan, as described under "Major
Shareholders and Related Party Transactions" and "Directors, Senior Management
and Employees -- Long Term Retention Plan."
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TRADING ON THE MEXICAN STOCK EXCHANGE
OVERVIEW
The Mexican Stock Exchange, located in Mexico City, is the only stock
exchange in Mexico. Operating continuously since 1907, the Mexican Stock
Exchange is organized as a corporation with variable capital, or sociedad
anonima de capital variable. Securities trading on the Mexican Stock Exchange
occurs from 8:30 a.m. to 3:00 p.m., Mexico City time, each business day. Since
January 1999, all trading on the Mexican Stock Exchange has been effected
electronically. The Mexican Stock Exchange may impose a number of measures to
promote an orderly and transparent trading price of securities, including the
operation of a system of automatic suspension of trading in shares of a
particular issuer when price fluctuation exceeds certain limits. The Mexican
Stock Exchange may also suspend trading in shares of a particular issuer as a
result of the disclosure of a material event, or when the changes in the volume
traded or share price are not consistent with either the historic performance or
information publicly available. The Mexican Stock Exchange may resume trading in
the shares when it deems that the material events have been adequately disclosed
to public investors or when it deems that the issuer has adequately explained
the reasons for the changes in the volume traded or prevailing share price.
Under current regulations, in certain cases when the relevant securities are
simultaneously traded on a stock exchange outside of Mexico, the Mexican Stock
Exchange may consider the measures adopted by the other stock exchange in order
to suspend and/or resume trading in the issuer's shares.
Settlement is effected two business days after a share transaction on the
Mexican Stock Exchange. Deferred settlement, even by mutual agreement, is not
permitted without the approval of the CNBV. Most securities traded on the
Mexican Stock Exchange, including the CPOs, are on deposit with S.D. Indeval,
S.A. de C.V., Institucion para el Deposito de Valores, or Indeval, a privately
owned securities depositary that acts as a clearinghouse, depositary and
custodian, as well as a settlement, transfer and registration agent for Mexican
Stock Exchange transactions, eliminating the need for physical transfer of
securities.
Although the Mexican Securities Market Law provides for the existence of
an over-the-counter market, no such market for securities in Mexico has been
developed.
MARKET REGULATION AND REGISTRATION STANDARDS
In 1946, the Comision Nacional de Valores, or the National Securities
Commission, commonly known as the CNV, was established to regulate stock market
activity. In 1995, the CNV and the Comision Nacional Bancaria, or the National
Banking Commission, were merged to form the CNBV. The Mexican Securities Market
Law, which took effect in 1975, introduced important structural changes to the
Mexican financial system, including the organization of brokerage firms as
corporations with variable capital, or sociedades anonimas de capital variable.
The Mexican Securities Market Law sets standards for authorizing companies to
operate as brokerage firms, which authorization is granted at the discretion of
the Ministry of Finance upon the recommendation of the CNBV. In addition to
setting standards for brokerage firms, the Mexican Securities Market Law
empowers the CNBV, among other things, to regulate the public offering and
trading of securities and to impose sanctions for the illegal use of insider
information. The CNBV regulates the Mexican securities market, the Mexican Stock
Exchange and brokerage firms through a board of governors composed of thirteen
members, five of which are appointed by the Ministry of Finance.
As of June 2, 2001, the Mexican Securities Market Law requires issuers to
increase the protections offered to minority shareholders and to impose
corporate governance controls on Mexican listed companies in line with
international standards. The Mexican Securities Market Law expressly permits
Mexican listed companies, with prior authorization from the CNBV, to include in
their bylaws anti-takeover defenses such as shareholder rights plans, or poison
pills. We amended our bylaws to include certain of these protections at our
general extraordinary shareholders' meeting, which was held on April 30, 2002.
See "Other Information -- Bylaws -- Other Provisions -- Appraisal Rights and
Other Minority Protections" and "-- Antitakeover Protections."
To offer securities to the public in Mexico, an issuer must meet specific
qualitative and quantitative requirements, and generally only securities for
which an application for registration in the National Registry of
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Securities maintained by the CNBV has been approved by the CNBV may be listed on
the Mexican Stock Exchange. This approval does not imply any kind of
certification or assurance related to the merits or the quality of the
securities or the solvency of the issuer.
In March 2003, the CNBV issued general rules, or General CNBV Rules,
applicable to issuers and other securities market participants. The General CNBV
Rules, which repealed several previously enacted rules, or circulares, of the
CNBV, now provide a single set of rules governing issuers and issuer activity,
among other things.
The General CNBV Rules have mandated that the Mexican Stock Exchange adopt
minimum requirements for issuers to be registered with the CNBV and have their
securities listed on the Mexican Stock Exchange. To be registered, issuers will
be required to have, among other things:
- a minimum number of years of operating history;
- a minimum financial condition;
- a minimum number of shares or CPOs to be publicly offered to public
investors;
- a minimum price for the securities to be offered;
- a minimum of 15% of the capital stock placed among public investors;
- a minimum of 200 holders of shares or of shares represented by CPOs,
who are deemed to be public investors under the General CNBV Rules,
upon the completion of the offering;
- the following distribution of the securities offered pursuant to an
offering in Mexico: (i) at least 50% of the total number of
securities offered must be placed among investors who acquire less
than 5% of the total number of securities offered; and (ii) no
investor may acquire more than 40% of the total number of securities
offered; and
- complied with certain corporate governance requirements.
To maintain its registration, an issuer will be required to have, among
other things:
- a minimum financial condition;
- minimum operating conditions, including a minimum number of trades;
- a minimum trading price of its securities;
- a minimum of 12% of the capital stock held by public investors;
- a minimum of 100 holders of shares or of shares represented by CPOs
who are deemed to be public investors under the General CNBV Rules;
and
- complied with certain corporate governance requirements.
The CNBV has the authority to waive some of these requirements in some
circumstances. Also, some of these requirements are applicable for each series
of shares of the relevant issuer.
The Mexican Stock Exchange will review annually compliance with the
foregoing and other requirements, some of which may be further reviewed on a
quarterly or semi-annual basis. The Mexican Stock Exchange must inform the CNBV
of the results of its review and this information must, in turn, be disclosed to
investors. If an issuer fails to comply with any of the foregoing requirements,
the Mexican Stock Exchange will request that the issuer propose a plan to cure
the violation. If the issuer fails to propose such plan, if the plan is not
satisfactory to
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the Mexican Stock Exchange or if the issuer does not make substantial progress
with respect to the corrective measures, trading of the relevant series of
shares on the Mexican Stock Exchange will be temporarily suspended until the
situation is corrected. In addition, if the issuer fails to propose the plan or
ceases to follow such plan once proposed, the CNBV may suspend or cancel the
registration of the shares. In such event, the issuer must evidence the
mechanisms to protect the rights of public investors and market in general.
Issuers of listed securities are required to file unaudited quarterly
financial statements and audited annual financial statements as well as various
periodic reports with the CNBV and the Mexican Stock Exchange. Pursuant to the
General CNBV Rules, the internal regulations of the Mexican Stock Exchange must
be amended to include, among other things, the implementation of the Sistema
Electronico de Envio y Difusion de Informacion, or the SEDI, an automated system
for the electronic transfer of the information required to be filed with the
Mexican Stock Exchange, which will be similar to, but will replace, the existing
Sistema Electronico de Comunicacion con Emisores de Valores, or EMISNET. Issuers
of listed securities must prepare and disclose their financial information by a
Mexican Stock Exchange-approved system known as the Sistema de Informacion
Financiera Computarizada, or Computerized Financial Information System, commonly
known as the SIFIC. Immediately upon its receipt, the Mexican Stock Exchange
makes that information available to the public.
The General CNBV Rules and the internal regulations of the Mexican Stock
Exchange require issuers of listed securities to file through the SEDI
information on the occurrence of material events affecting the relevant issuer.
Material events include, but are not limited to:
- the entering into or termination of joint venture agreements or
agreements with key suppliers;
- the creation of new lines of businesses or services;
- significant deviations in expected or projected operating
performance;
- the restructuring or payment of significant indebtedness;
- material litigation or labor conflicts;
- changes in dividend policy;
- the commencement of any insolvency, suspension or bankruptcy
proceedings;
- changes in the directors; and
- any other event that may have a material adverse effect on the
results, financial condition or operations of the relevant issuer.
If there is unusual price volatility of the securities listed, the Mexican
Stock Exchange must immediately request that the issuer inform the public as to
the causes of such volatility or, if the issuer is unaware of such causes, make
a statement to that effect. In addition, the Mexican Stock Exchange must
immediately request that issuers disclose any information relating to relevant
material events, when it deems the information currently disclosed to be
insufficient, as well as instruct issuers to clarify such information when it
deems the information to be confusing. The Mexican Stock Exchange may request
issuers to confirm or deny any material events that have been disclosed to the
public by third parties when it deems that the material event may affect or
influence the securities being traded. The Mexican Stock Exchange must
immediately inform the CNBV of any requests made to issuers. The CNBV may also
make any of these requests directly to issuers. An issuer may delay the
disclosure of material events under some circumstances, including where the
information being offered is not related to transactions that have been
completed.
The CNBV and the Mexican Stock Exchange may suspend the dealing in
securities of an issuer:
- if the issuer does not adequately disclose a material event; or
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- upon price or volume volatility or changes in the offer or demand in
respect of the relevant securities, which are not consistent with
the historic performance of the securities and could not be
explained solely by the information made publicly available under
the General CNBV Rules.
The Mexican Stock Exchange must immediately inform the CNBV and the
general public of any such suspension. An issuer may request that the CNBV or
the Mexican Stock Exchange resume trading, provided it demonstrates that the
causes triggering the suspension have been resolved and that it is in full
compliance with the periodic reporting requirements under the applicable law. If
its request has been granted, the Mexican Stock Exchange will determine the
appropriate mechanism to resume trading in its securities. If trading of an
issuer is suspended for more than 20 business days and the issuer is authorized
to resume trading without conducting a public offering, the issuer must disclose
through the SEDI, before trading resumes, a description of the causes that
resulted in the suspension and reasons why it is now authorized to resume
trading.
Likewise, if the securities of an issuer are traded on both the Mexican
Stock Exchange and a foreign securities market, that issuer must file with the
CNBV and the Mexican Stock Exchange on a simultaneous basis the information that
it is required to file pursuant to the laws and regulations of the relevant
other jurisdiction.
Pursuant to the Mexican Securities Market Law, shareholders of issuers
listed on the Mexican Stock Exchange must notify the CNBV before effecting
transactions outside of the Mexican Stock Exchange that result in a transfer of
10% or more of an issuer's capital stock. These shareholders must also inform
the CNBV of the results of these transactions within three days of their
completion, or, in the alternative, that these transactions have not been
consummated. The CNBV will notify the Mexican Stock Exchange of these
transactions, without specifying the names of the parties involved. In addition,
the Mexican Securities Market Law provides that the CNBV also has the ability to
determine whether purchasers in these types of transactions must effect these
transactions through a tender offer, as well as the minimum and maximum
percentages of capital stock that may be purchased through any such tender
offer. See "Other Information -- Mexican Securities Market Law."
In addition, the Mexican Securities Market Law requires shareholders
holding 10% or more of the capital stock of companies listed in the registry to
notify the CNBV of any ownership changes in shares of the company that results
in a transfer of shares representing a beneficial ownership interest of 10% or
more, within ten business days following the transaction in question.
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ITEM 10. OTHER INFORMATION
MEXICAN SECURITIES MARKET LAW
The Mexican Congress approved amendments to the Mexican Securities Market
Law, which became effective on June 2, 2001, and have been implemented by
governmental regulations. We amended our bylaws at our annual shareholders'
meeting, which was held on April 30, 2002, to reflect some of these amendments,
including amendments that:
- established a Board with at least five and not more than 20 members
and alternate members, of which 25% must qualify as "independent
directors" under Mexican law;
- adopted specified corporate governance measures, which require us to
establish, among other things, an audit committee, as well as more
stringent procedures for the approval of transactions and
arrangements with related parties and extraordinary corporate
transactions; and
- provide additional protections for minority shareholders.
For a further description of amendments we made to our bylaws in
accordance with the Mexican Securities Market Law, see "Directors, Senior
Management and Employees -- Board of Directors," " -- Committees of Our Board of
Directors," and " -- Bylaws -- Other Provisions -- Share Repurchases" and " --
Appraisal Rights and Other Minority Protections."
In addition, the Mexican Securities Market Law now permits issuers to
include anti-takeover defenses in their bylaws, provided that their bylaws also
include specified minority rights and protections, among other things, and we
have included such provisions in our bylaws. See " -- Bylaws -- Other Provisions
-- Appraisal Rights and Other Minority Protections" and " -- Antitakeover
Protections." The Mexican Securities Market Law does not permit issuers to
implement mechanisms where common shares and limited or non-voting shares are
jointly traded or offered to public investors, unless the limited or non-voting
shares are convertible into common shares within a term of up to five years, or
when as a result of the nationality of a given holder, the shares or the
securities representing the shares limit the right to vote in order to comply
with applicable foreign investment regulations. In addition, the aggregate
amount of shares with limited or non-voting rights may not exceed 25% of the
total shares held by public investors. As a result of applicable grandfathering
provisions, our existing CPO structure will not be affected by this aspect of
the Mexican Securities Market Law.
The Mexican Securities Market Law imposes some restrictions on
shareholders of issuers listed on the Mexican Stock Exchange. Shareholders of
issuers listed on the Mexican Stock Exchange must notify the CNBV before
effecting transactions outside of the Mexican Stock Exchange that result in a
transfer of 10% or more of an issuer's capital stock. These shareholders must
also inform the CNBV of the results of these transactions within three days of
their completion, or, in the alternative, that these transactions have not been
consummated. The CNBV will notify the Mexican Stock Exchange of these
transactions without specifying the names of the parties involved. The CNBV also
has the ability to determine whether purchasers in these types of transactions
must effect these transactions through a tender offer, as well as the minimum
and maximum percentages of capital stock that may be purchased through any such
tender offer.
On April 25, 2002, the CNBV issued general rules to regulate public tender
offers and the obligation to disclose share acquisitions above certain
thresholds, as well as share acquisitions of the capital stock of public
companies by related parties. Subject to certain exceptions, any acquisition of
shares of a public company which increases the acquiror's ownership to 10% or
more, but not more than 30%, of the company's outstanding capital stock must be
disclosed to the CNBV and the Mexican Stock Exchange by no later than the day
following the acquisition. Any acquisition of shares by a related party that
increases such party's ownership interest in a public company by 5% or more of
the company's outstanding capital stock must also be disclosed to the CNBV and
the Mexican Stock Exchange by no later than the day following the acquisition.
In addition, any intended acquisition of shares of a public company which
increases the potential acquiror's ownership to 30% or more, but not more than
50%, of the company's voting shares requires the potential acquiror to make a
tender offer for the greater of (i) the percentage of
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the capital stock intended to be acquired or (ii) 10% of the outstanding capital
stock. Finally, any intended acquisition of shares of a public company which
increases the potential acquiror's ownership to more than 50% of the company's
voting shares requires the potential acquiror to make a tender offer for 100% of
the outstanding capital stock. Bylaw provisions regarding mandatory tender
offers in the case of these acquisitions may differ from the requirements
summarized above, provided that they are more protective to minority
shareholders than those afforded by law. See " -- Bylaws -- Other Provisions --
Antitakeover Protections."
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BYLAWS
Set forth below is a brief summary of some significant provisions of our
bylaws and Mexican law. This description does not purport to be complete, and is
qualified by reference in its entirety to our bylaws, which have been filed as
an exhibit to this annual report and Mexican law. For a description of the
provisions of our bylaws relating to our Board of Directors, Executive Committee
and statutory auditors, see "Directors, Senior Management and Employees."
ORGANIZATION AND REGISTER
Televisa is a sociedad anonima, or limited liability stock corporation,
organized under the laws of Mexico in accordance with the Mexican Companies Law.
Televisa was incorporated under Public Deed Number 30,200, dated December 19,
1990, granted before Notary Public Number 73 of Mexico City, D.F., and
registered with the Public Registry of Commerce of Mexico City, under Commercial
Page (folio mercantil) Number 142,164. We have a general corporate purpose, the
specifics of which can be found in Article Four of our bylaws.
We maintain a stock registry, and in accordance with Mexican law, we only
recognize those holders listed in our stock registry as our shareholders. Our
shareholders may hold their share in the form of physical certificates or
through book-entries with institutions that have accounts with Indeval. The CPO
Trustee is the holder of record for Shares represented by CPOs. Accounts may be
maintained at Indeval by brokers, banks and other entities approved by the CNBV.
VOTING RIGHTS AND SHAREHOLDERS' MEETINGS
Holders of A Shares. Holders of A Shares have the right to vote on all
matters subject to shareholder approval at any general shareholders' meeting and
have the right, voting as a class, to appoint eleven members of our Board of
Directors and the corresponding alternate directors. In addition to requiring
approval by a majority of all Shares entitled to vote together on a particular
corporate matter, certain corporate matters must be approved by a majority of
the holders of A Shares voting separately. These matters include mergers,
dividend payments, spin-offs, changes in corporate purpose, changes of
nationality and amendments to the anti-takeover provisions of our bylaws.
Holders of B Shares. Holders of B Shares have the right to vote on all
matters subject to shareholder approval at any general shareholders' meeting and
have the right, voting as a class, to appoint five members of our Board of
Directors and the corresponding alternate directors. The five directors and
corresponding alternate directors elected by the holders of the B Shares will be
elected at a shareholders' meeting that must be held within the first four
months after the end of each year beginning in 2005.
Holders of D Shares and L Shares. Holders of D Shares, voting as a class,
are entitled to vote at special meetings to elect two of the members of our
Board of Directors and the corresponding alternate directors, each of which must
be an independent director. In addition, holders of D Shares are entitled to
vote on the following matters at extraordinary general meetings:
- our transformation from one type of company to another;
- any merger (even if we are the surviving entity);
- extension of our existence beyond our prescribed duration;
- our dissolution before our prescribed duration (which is currently
December 2089);
- a change in our corporate purpose;
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- a change in our nationality; and
- the cancellation from registration of the D Shares or the securities
which represent the D Shares with the securities or special section
of the National Registry of Securities, or NRS, and with any other
Mexican or foreign stock exchange in which such shares or securities
are registered.
Holders of L Shares, voting as a class, are entitled to vote at special
meetings to elect two of the members of our Board of Directors and the
corresponding alternate directors, each of which must be an independent
director. Holders of L Shares are also entitled to vote at extraordinary general
meetings on the following matters:
- our transformation from one type of company to another;
- any merger in which we are not the surviving entity; and
- the cancellation from registration of the L Shares or the securities
that represent the L Shares with the special section of the NRS.
The two directors and corresponding alternate directors elected by each of
the holders of the D Shares and the L Shares are elected annually at a special
meeting of those holders. Special meetings of holders of D Shares and L Shares
must also be held to approve the cancellation from registration of the D Shares
or L Shares or the securities representing any of such shares with the
securities and/or special sections of the NRS, as the case may be, and in the
case of D Shares, with any other Mexican or foreign stock exchange in which such
shares or securities are registered. All other matters on which holders of L
Shares or D Shares are entitled to vote must be considered at an extraordinary
general meeting. Holders of L Shares and D Shares are not entitled to attend or
to address meetings of shareholders at which they are not entitled to vote.
Under Mexican law, holders of L Shares and D Shares are entitled to exercise
certain minority protections. See "Other Provisions -- Appraisal Rights and
Other Minority Protections."
Other Rights of Shareholders. Under Mexican law, holders of shares of any
series are also entitled to vote as a class in a special meeting governed by the
same rules that apply to extraordinary general meetings, as described below, on
any action that would prejudice the rights of holders of shares of such series,
but not rights of holders of shares of other series, and a holder of shares of
such series would be entitled to judicial relief against any such action taken
without such a vote. Generally, the determination of whether a particular
shareholder action requires a class vote on these grounds could initially be
made by the Board of Directors or other party calling for shareholder action. In
some cases, under the Mexican Securities Market Law and the Mexican Companies
Law, the Board of Directors, the statutory auditors or a Mexican court on behalf
of those shareholders representing 10% of our capital stock could call a special
meeting. A negative determination would be subject to judicial challenge by an
affected shareholder, and the necessity for a class vote would ultimately be
determined by a court. There are no other procedures for determining whether a
particular proposed shareholder action requires a class vote, and Mexican law
does not provide extensive guidance on the criteria to be applied in making such
a determination.
General shareholders' meetings may be ordinary general meetings or
extraordinary general meetings. Extraordinary general meetings are those called
to consider specific matters specified in Article 182 of the Mexican Companies
Law and our bylaws, including, among others, amendments to our bylaws, our
dissolution, liquidation or split-up, our merger and transformation from one
form of company to another, increases and reductions in our capital stock, the
approval of certain acquisitions of shares, including a change of control, as
set forth in the antitakeover provisions in our bylaws and any action for civil
liabilities against the members of our Board of Directors, members of our Audit
Committee or our statutory auditors. In addition, our bylaws require an
extraordinary general meeting to consider the cancellation of registration of
the D Shares or L Shares or the securities representing these Shares with the
securities and/or special sections of the NRS, as the case may be, and in the
case of D Shares, with any other Mexican or foreign stock exchange in which such
Shares or securities are registered. General meetings called to consider all
other matters are ordinary meetings which are held at least once each year
within four months following the end of each fiscal year. Shareholders may be
represented at any shareholders' meeting by completing a form of proxy provided
by us, which proxy is available within fifteen days
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prior to such meeting, and designating a representative to vote on their behalf.
The form of proxy must comply with certain content requirements as set forth in
the Mexican Securities Market Law, as amended, and in our bylaws.
Holders of CPOs. Holders of CPOs who are Mexican nationals or Mexican
corporations whose bylaws exclude foreign ownership of their shares are entitled
to exercise voting rights with respect to the A Shares, B Shares, D Shares and L
Shares underlying their CPOs. The CPO Trustee will vote such shares as directed
by Mexican holders of CPOs, which must provide evidence of Mexican nationality.
Non-Mexican holders of CPOs may only vote the L Shares held in the CPO Trust and
are not entitled to exercise any voting rights with respect to the A Shares, B
Shares and D Shares held in the CPO Trust. Voting rights in respect of these A
Shares, B Shares and D Shares may only be exercised by the CPO Trustee. A
Shares, B Shares and D Shares underlying the CPOs of non-Mexican holders or
holders that do not give timely instructions as to voting of such Shares, (a)
will be voted at special meetings of A Shares, B Shares or D Shares, as the case
may be, as instructed by the CPO Trust's Technical Committee (which consists of
members of the Board of Directors and/or Executive Committee, who must be
Mexican nationals), and (b) will be voted at any general meeting where such
series has the right to vote in the same manner as the majority of the
outstanding A Shares held by Mexican nationals or Mexican corporations
(directly, or through the CPO Trust, as the case may be) are voted at the
relevant meeting. L Shares underlying the CPOs of any holders that do not give
timely instructions as to the voting of such Shares will be voted, at special
meetings of L Shares and at general extraordinary meetings where L Shares have
voting rights, as instructed by the Technical Committee of the CPO Trust. The
CPO Trustee must receive voting instructions five business days prior to the
shareholders' meeting. Holders of CPOs that are Mexican nationals or Mexican
corporations whose bylaws exclude foreign ownership of their Shares also must
provide evidence of nationality, such as a copy of a valid Mexican passport or
birth certificate, for individuals, or a copy of the bylaws, for corporations.
As described in "Major Shareholders and Related Party Transactions", A
Shares held through the Shareholder Trust constitute a majority of the A Shares
whose holders are entitled to vote them, because non-Mexican holders of CPOs and
GDSs are not permitted to vote the underlying A Shares. Accordingly, the vote of
A Shares held through the Shareholder Trust generally will determine how the A
Shares underlying our CPOs are voted. B Shares held through the Shareholder
Trust constitute 13.28% of the outstanding B Shares but represent a greater
percentage of B Shares whose holders are entitled to vote them, because
non-Mexican holders of CPOs and GDSs are not permitted to vote the underlying B
Shares.
Holders of GDRs. Global Depositary Receipts, or GDRs evidencing GDSs are
issued by the Depositary, JPMorgan Chase Bank, pursuant to the Deposit Agreement
we entered into with the Depositary and all holders from time to time of GDSs.
Each GDR evidences a specified number of GDSs. A GDR may represent any number of
GDSs. Only persons in whose names GDRs are registered on the books of the
Depositary will be treated by us and the Depositary as owners and holders of
GDRs. Each GDS represents the right to receive 20 CPOs which will be credited to
the account of Banco Inbursa, S.A., the Custodian, maintained with Indeval for
such purpose. Each CPO represents financial interests in, and limited voting
rights with respect to, 25 A Shares, 22 B Shares, 35 L Shares and 35 D Shares
held pursuant to the CPO Trust.
The Depositary will mail information on shareholders' meetings to all
holders of GDRs. At least six business days prior to the relevant shareholders'
meeting, GDR holders may instruct the Depositary as to the exercise of the
voting rights, if any, pertaining to the CPOs represented by their GDSs, and the
underlying Shares. Since the CPO Trustee must also receive voting instructions
five business days prior to the shareholders' meeting, the Depositary may be
unable to vote the CPOs and underlying Shares in accordance with any written
instructions. Holders that are Mexican nationals or Mexican corporations whose
bylaws exclude foreign ownership of their Shares are entitled to exercise voting
rights with respect to the A Shares, B Shares, D Shares and L Shares underlying
the CPOs represented by their GDSs. Such Mexican holders also must provide
evidence of nationality, such as a copy of a valid Mexican passport or birth
certificate, for individuals, or a copy of the bylaws, for corporations.
Non-Mexican holders may exercise voting rights only with respect to L
Shares underlying the CPOs represented by their GDSs. They may not direct the
CPO Trustee as to how to vote the A Shares, B Shares or D Shares represented by
CPOs or attend shareholders' meetings. Under the terms of the CPO Trust
Agreement, the
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CPO Trustee will vote the A Shares, B Shares, D Shares and L Shares represented
by CPOs held by non-Mexican holders (including holders of GDRs) as described
under " -- Holders of CPOs." If the Depositary does not timely receive
instructions from a Mexican or Non-Mexican holder of GDRs as to the exercise of
voting rights relating to the A Shares, B Shares, D Shares or L Shares
underlying the CPOs, as the case may be, in the relevant shareholders' meeting
then, if requested in writing by us, the Depositary will give a discretionary
proxy to a person designated by us to vote the Shares. If no such written
request is made by us, the Depositary will not represent or vote, attempt to
represent or vote any right that attaches to, or instruct the CPO Trustee to
represent or vote, the Shares underlying the CPOs in the relevant shareholders'
meeting and, as a result, the underlying shares will be voted in the manner
described under " -- Holders of CPOs" with respect to shares for which timely
instructions as to voting are not given.
If the Depositary does not timely receive instructions from a Mexican or
non-Mexican holder of GDRs as to the exercise of voting rights relating to the
underlying CPOs in the relevant CPO holders' meeting, the Depositary and the
Custodian will take such actions as are necessary to cause such CPOs to be
counted for purposes of satisfying applicable quorum requirements and, unless we
in our sole discretion have given prior written notice to the Depositary and the
Custodian to the contrary, vote them in the same manner as the majority of the
CPOs are voted at the relevant CPOs holders' meeting.
Under the terms of the CPO Trust, beginning in December 2008, a
non-Mexican holder of CPOs or GDSs may instruct the CPO Trustee to request that
we issue and deliver certificates representing each of the Shares underlying its
CPOs so that the CPO Trustee may sell, to a third party entitled to hold the
Shares, all of those Shares and deliver to the holder any proceeds derived from
the sale.
DIVIDEND RIGHTS
At our annual ordinary general shareholders' meeting, our Board of
Directors is required to submit our financial statements from the previous
fiscal year to the holders of our A Shares and B Shares voting together and a
majority of the A Shares voting separately. Once our shareholders approve these
financial statements, they must then allocate our net profits for the previous
fiscal year. Under Mexican law, at least 5% of our net profits must be allocated
to a legal reserve, until the amount of this reserve equals 20% of our paid-in
capital stock. Thereafter, our shareholders may allocate our net profits to any
special reserve, including a reserve for share repurchases. After this
allocation, the remainder of our net profits will be available for distribution
as dividends. The vote of the majority of the A Shares and B Shares voting
together and a majority of the A Shares voting separately, is necessary to
approve dividend payments. As described below, in the event that dividends are
declared, holders of D Shares will have preferential rights to dividends as
compared to holders of A Shares, B Shares and L Shares. Holders of A Shares, B
Shares and L Shares have the same financial or economic rights, including the
participation in any of our profits.
PREFERENTIAL RIGHTS OF D SHARES
Holders of D Shares are entitled to receive a cumulative fixed preferred
annual dividend in the amount of Ps. 0.00034177575 per D Share before any
dividends are payable in respect of A Shares, B Shares and L Shares. If we pay
any dividends in addition to the D Share fixed preferred dividend, then such
dividends shall be allocated as follows:
- first, to the payment of dividends with respect to the A Shares, the
B Shares and the L Shares, in an equal amount per share, up to the
amount of the D Share fixed preferred dividend; and
- second, to the payment of dividends with respect to the A Shares, B
Shares, D Shares and L Shares, such that the dividend per share is
equal.
- Upon any dissolution or liquidation of our company, holders of D
Shares are entitled to a liquidation preference equal to:
- accrued but unpaid dividends in respect of their D Shares; plus
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- the theoretical value of their D Shares as set forth in our bylaws.
See "Other Provisions -- Dissolution or Liquidation."
LIMITATION ON CAPITAL INCREASES
Our bylaws provide that, in the event shares of a given series are issued
as a result of a capital increase (in respect of a cash capital contribution),
each holder of shares of that series will have a preferential right to subscribe
to new shares of that series, in proportion to the number of such holder's
existing Shares of that series. In addition, primary issuances of A Shares, B
Shares, D Shares and L Shares in the form of CPOs may be limited under the
Mexican Securities Market Law, as amended. As a result of grandfathering
provisions, our existing CPO structure will not be affected by the amendments to
the law. However, in the case of primary issuances of additional A Shares, B
Shares, L Shares and D Shares in the form of CPOs, any new L Shares and D Shares
may be required to be converted into A Shares or other voting stock within a
term specified by the CNBV, which in no event shall exceed five years. Moreover,
under the Mexican Securities Market Law, as amended, the aggregate amount of
shares of an issuer with limited or non-voting rights may not exceed 25% of the
total shares held by public investors. The vote of the holders of a majority of
the A Shares is necessary to approve capital increases.
PREEMPTIVE RIGHTS
In the event of a capital increase, a holder of existing shares of a given
series has a preferential right to subscribe to a sufficient number of shares of
the same series in order to maintain the holder's existing proportionate
holdings of shares of that series. Shareholders must exercise their preemptive
rights within the time period fixed by our shareholders at the meeting approving
the issuance of additional shares. This period must continue for at least
fifteen days following the publication of notice of the issuance in the Diario
Oficial de la Federacion and in a newspaper of general circulation in Mexico
City. Under Mexican law, shareholders cannot waive their preemptive rights in
advance or be represented by an instrument that is negotiable separately from
the corresponding share.
U.S. holders of GDSs may exercise preemptive rights only if we register
any newly issued shares under the Securities Act of 1933, as amended, or qualify
for an exemption from registration. We intend to evaluate at the time of any
offering of preemptive rights the costs and potential liabilities associated
with registering additional shares. In addition, if our shareholders' meeting
approves the issuance of shares of a particular series, holders of shares of
other series may be offered shares of that particular series.
LIMITATIONS ON SHARE OWNERSHIP
Ownership by non-Mexicans of shares of Mexican enterprises is regulated by
the Foreign Investment Law and the accompanying Foreign Investment Regulations.
The Economics Ministry and the Foreign Investment Commission are responsible for
the administration of the Foreign Investment Law and the Foreign Investment
Regulations. The Foreign Investment Law reserves certain economic activities
exclusively for the Mexican State, certain other activities exclusively for
Mexican individuals or Mexican corporations and limits the participation of
non-Mexican investors to certain percentages in regard to other enterprises
engaged in activities specified therein. Foreign investors may freely
participate in up to 100% of the capital stock of Mexican companies or entities
except for those existing companies engaged in specific activities, as described
below and those with assets exceeding specified amounts established annually by
the Foreign Investment Commission, in which case an approval from the Foreign
Investment Commission will be necessary in order for foreign investment to
exceed 49% of the capital stock. The Foreign Investment Law reserves certain
economic activities exclusively for the Mexican state and reserves certain other
activities (including television and radio broadcasting) exclusively for Mexican
nationals, consisting of Mexican individuals and Mexican corporations the
charters of which contain a prohibition on ownership by non-Mexicans of the
corporation's capital stock (a "foreign exclusion clause"). However, the Foreign
Investment Law grants broad authority to the Foreign Investment Commission to
allow foreign investors to own specified interests in the capital of certain
Mexican enterprises. In particular, the Foreign Investment Law provides that
certain investments are considered "neutral investments" and are not included in
the calculation of the foreign investment percentage for the relevant Mexican
entity.
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In order to comply with these restrictions, we have limited the ownership
of our A Shares and B Shares to Mexican individuals, Mexican companies the
charters of which contain a foreign exclusion clause, credit institutions acting
as trustees (such as the CPO Trustee) in accordance with the Foreign Investment
Law and the Foreign Investment Regulations, and trusts or stock purchase,
investment and retirement plans for Mexican employees. The criteria for an
investor to qualify as Mexican under our bylaws are stricter than those
generally applicable under the Foreign Investment Law and Foreign Investment
Regulations. A holder that acquires A Shares or B Shares in violation of the
restrictions on non-Mexican ownership will have none of the rights of a
shareholder with respect to those A Shares or B Shares and could also be subject
to monetary sanctions. The D Shares are subject to the same restrictions on
ownership as the A Shares and B Shares. However, the foregoing limitations do
not affect the ability of non-Mexican investors to hold A Shares, B Shares, D
Shares and L Shares through CPOs, or L Shares directly, because such instruments
constitute a "neutral investment" and do not affect control of the issuing
company, pursuant to the exceptions contained in the Foreign Investment Law. The
sum of the total outstanding number of A Shares and B Shares is required to
exceed at all times the sum of the total outstanding L Shares and D Shares.
The Foreign Investment Law and Foreign Investment Regulations also require
that we and the CPO Trust register with the National Registry of Foreign
Investments. In addition to the limitations established by the Foreign
Investment Law, the Mexican Federal Radio and Television Law provides
restrictions on ownership by non-Mexicans of shares of Mexican enterprises
holding concessions for radio and television such as those held indirectly by
us. Non-Mexican states and governments are prohibited under our bylaws and
Mexican Federal Radio and Television Law from owning Shares of Televisa and are,
therefore, prohibited from being the beneficial or record owners of the A
Shares, B Shares, D Shares, L Shares, CPOs and GDSs. We have been advised by our
Mexican counsel, Mijares, Angoitia, Cortes y Fuentes, S.C., that ownership of
the A Shares, B Shares, D Shares, L Shares, CPOs and GDSs by pension or
retirement funds organized for the benefit of employees of non-Mexican state,
municipal or other governmental agencies will not be considered as ownership by
non-Mexican states or governments for the purpose of our bylaws or the Radio and
Television Law.
We may restrict transfers or, to the extent permitted under applicable
law, cause the mandatory sale or disposition of CPOs and GDRs where such
transfer or ownership, as the case may be, might result in ownership of CPOs or
GDRs exceeding the limits under applicable law or our bylaws, the CPO Trust
Agreement or the CPO Deed. Non-Mexican states and governments are prohibited
under our bylaws and Radio and Television Law from owning our Shares and are,
therefore, prohibited from being beneficial or record owners of GDRs.
OTHER PROVISIONS
Forfeiture of Shares. As required by Mexican law, our bylaws provide that
for L Shares and CPOs, our non-Mexican shareholders formally agree with the
Foreign Affairs Ministry:
- to be considered as Mexicans with respect to the L Shares and CPOs
that they acquire or hold, as well as to the property, rights,
concessions, participations or interests owned by us or to the
rights and obligations derived from any agreements we have with the
Mexican government; and
- not to invoke the protection of their own governments with respect
to their ownership of L Shares and CPOs.
Failure to comply is subject to a penalty of forfeiture of such a shareholders'
capital interests in favor of Mexico. In the opinion of Mijares, Angoitia,
Cortes y Fuentes, S.C., our Mexican counsel, under this provision a non-Mexican
shareholder is deemed to have agreed not to invoke the protection of its own
government by asking such government to interpose a diplomatic claim against the
Mexican government with respect to the shareholders' rights as a shareholder,
but is not deemed to have waived any other rights it may have, including any
rights under the U.S. securities laws, with respect to its investment in
Televisa. If the shareholder should invoke governmental protection in violation
of this agreement, its shares could be forfeited to the Mexican government.
Exclusive Jurisdiction. Our bylaws provide that legal action relating to
the execution, interpretation or performance of the bylaws shall be brought only
in courts located in Mexico City.
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Duration. Our corporate existence under our bylaws continues until 2089.
Dissolution or Liquidation. Upon any dissolution or liquidation of our
company, our shareholders will appoint one or more liquidators at an
extraordinary general shareholders' meeting to wind up our affairs. The approval
of holders of the majority of the A Shares is necessary to appoint or remove any
liquidator. Upon a dissolution or liquidation, holders of D Shares will be
entitled to both accrued but unpaid dividends in respect of their D Shares, plus
the theoretical value of their D Shares (as set forth in our bylaws). The
theoretical value of our D Shares is Ps. 0.00683551495 per share. Thereafter, a
payment per share will be made to each of the holders of A Shares, B Shares and
L Shares equivalent to the payment received by each of the holders of D Shares.
The remainder will be distributed equally among all shareholders in proportion
to their number of Shares and amount paid.
Redemption. Our bylaws provide that we may redeem our Shares with
distributable profits without reducing our capital stock by way of a shareholder
resolution at an extraordinary shareholders' meeting. In accordance with Mexican
law and our bylaws:
- any redemption shall be made on a pro-rata basis among all of our
shareholders;
- to the extent that a redemption is effected through a public tender
offer on the Mexican Stock Exchange, the shareholders' resolution
approving the redemption may empower our Board to specify the number
of shares to be redeemed and appoint the related intermediary or
purchase agent; and
- any redeemed shares must be cancelled.
Share Repurchases. As required by Mexican law, our bylaws provide that we
may repurchase our Shares on the Mexican Stock Exchange at then prevailing
market prices. The amount of capital stock allocated to share repurchases and
the amount of the corresponding reserve created for this purpose is determined
annually by our shareholders at a ordinary general shareholders' meeting. The
aggregate amount of resources allocated to share repurchases in any given year
cannot exceed the total amount of our net profits in any given year, including
retained earnings. Share repurchases must be charged to either our net worth if
the repurchased Shares remain in our possession or our capital stock if the
repurchased Shares are converted into treasury shares, in which case our capital
stock is reduced automatically in an amount equal to the theoretical value of
any repurchased Shares, if any. Any surplus is charged to the reserve for share
repurchases. If the purchase price of the Shares is less than the theoretical
value of the repurchased Shares, our capital stock account will be affected by
an amount equal to the theoretical value of the repurchased Shares. Under
Mexican law, we are not required to create a special reserve for the repurchase
of shares, nor do we need the approval of our Board to effect share repurchases.
In addition, any repurchased Shares cannot be represented at any shareholders'
meeting.
Conflicts of Interest. Under the Mexican Securities Market Law, any
shareholder or director that votes on a transaction in which his, her or its
interests conflict with our interests may be liable for damages, but only if the
transaction would not have been approved without his, her or its vote. In
addition, any member of the Board of Directors that votes on a transaction in
which his, her or its interests conflict, with our interests may be liable for
damages. Our existing bylaws do not contain any provisions that govern or limit
the ability of our directors or shareholders to vote on transactions in which
their interests conflict with our interests. In addition, our existing bylaws do
not contain any provisions that govern or limit the ability of our directors, in
the absence of an independent quorum, to borrow from us or to vote compensation
to themselves or any other member of our Board of Directors or any committee of
our Board of Directors. In addition, pursuant to the Mexican Securities Market
Law our Audit Committee must review and approve transactions and arrangements
with our major shareholders, directors, executive officers and other related
parties and prepare and render statements to the Board as to the fairness of
transactions and arrangements with related parties, and these transactions and
arrangements must be approved by our Board of Directors. Members of our Board,
members of our Audit Committee and our Statutory Auditor could be liable to our
shareholders for breach of their duty of loyalty to the corporation to the
extent that these persons approve transactions in which they have a conflict of
interest.
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Appraisal Rights and Other Minority Protections. Whenever our shareholders
approve a change in our corporate purpose or jurisdiction of organization or our
transformation from one type of company to another, any shareholder entitled to
vote that did not vote in favor of these matters has the right to receive
payment for its A Shares, B Shares, D Shares or L Shares in an amount calculated
in accordance with Mexican law. However, shareholders must exercise their
appraisal rights within fifteen days after the shareholders' meeting at which
the matter was approved. Because the holders of L Shares and D Shares may only
vote in limited circumstances, appraisal rights are generally not available to
them. See " -- Voting Rights and Shareholders' Meetings."
Because the CPO Trustee must vote at a general shareholders' meeting, the
A Shares, B Shares and D Shares held by non-Mexicans in the CPO Trust in the
same manner as the majority of the A Shares held by Mexican nationals (directly,
or through the CPO Trust, as the case may be), the A Shares, B Shares and D
Shares underlying CPOs held by non-Mexicans will not be voted against any change
that triggers the appraisal rights of the holders of these Shares. Therefore,
these appraisal rights will not be available to holders of CPOs (or GDRs) with
respect to A Shares, B Shares or D Shares. The CPO Trustee will exercise such
other corporate rights at special shareholders' meetings with respect to the
underlying A Shares, B Shares and D Shares as may be directed by the Technical
Committee of the CPO trust.
Our bylaws include provisions that permit:
- holders of at least 10% of our outstanding capital stock to call a
shareholders' meeting in which they are entitled to vote;
- subject to the satisfaction of certain requirements under Mexican
law, holders of at least 15% of our outstanding capital stock to
bring an action for civil liabilities against our directors;
- holders of at least 10% of our Shares that are entitled to vote and
are represented at a shareholders' meeting to request postponement
of resolutions with respect to any matter on which they were not
sufficiently informed; and
- subject to the satisfaction of certain requirements under Mexican
law, holders of at least 20% of our outstanding capital stock to
contest and suspend any shareholder resolution.
See "Key Information -- Risk Factors -- Risk Factors Related to Our
Securities -- The Protections Afforded to Minority Shareholders Under Mexican
Law Are Different From Those in the United States." In addition, in accordance
with the Mexican Securities Market Law, we are also subject to certain corporate
governance requirements, including the requirement to maintain an audit
committee and to elect independent directors. The protections afforded to
minority shareholders under Mexican law are generally different from those in
the U.S. and many other jurisdictions. Substantive Mexican law concerning
fiduciary duties of directors has not been the subject of extensive judicial
interpretation in Mexico, unlike many states in the U.S. where duties of care
and loyalty elaborated by judicial decisions help to shape the rights of
minority shareholders. Mexican civil procedure does not contemplate class
actions or shareholder derivative actions, which permit shareholders in U.S.
courts to bring actions on behalf of other shareholders or to enforce rights of
the corporation itself. Shareholders in Mexico also cannot challenge corporate
actions taken at shareholders' meetings unless they meet stringent procedural
requirements. See " -- Voting Rights and Shareholders' Meetings." As a result of
these factors, it is generally more difficult for our minority shareholders to
enforce rights against us or our directors or Major Shareholders than it is for
shareholders of a corporation established under the laws of a state of the U.S.
In addition, under U.S. securities laws, as a foreign private issuer we are
exempt from certain rules that apply to domestic U.S. issuers with equity
securities registered under the Security Exchange Act of 1934, as amended, or
the Exchange Act, including the proxy solicitation rules. We are also exempt
from many of the corporate governance requirements of the New York Stock
Exchange.
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ANTITAKEOVER PROTECTIONS
General. Our bylaws provide that, subject to certain exceptions, (i) any
person, entity or group of persons and/or entities that wishes to acquire
beneficial ownership of common Shares (as defined below) which, when coupled
with common Shares previously beneficially owned by such persons or their
affiliates, represent 10% or more of our outstanding common Shares, (ii) any
competitor or group of competitors that wishes to acquire beneficial ownership
of Shares which, when coupled with Shares previously beneficially owned by such
competitor, group of competitors or their affiliates, represent 5% or more of
our outstanding capital stock, (iii) any person, entity or group of persons
and/or entities that wishes to acquire beneficial ownership of Shares
representing 10% or more of our outstanding Shares, and (iv) any competitor or
group of competitors that wishes to acquire beneficial ownership of Shares
representing 5% or more of our capital stock, must obtain the prior approval of
our Board of Directors and/or of our shareholders, as the case may be, subject
to certain exceptions summarized below. Holders that acquire Shares in violation
of these requirements will not be considered the beneficial owners of such
Shares under our bylaws and will not be registered in our stock registry.
Accordingly, these holders will not be able to vote such Shares or receive any
dividends, distributions or other rights in respect of these Shares. In
addition, pursuant to our bylaws, these holders will be obligated to pay us a
penalty in an amount equal to the market value of the Shares so acquired.
Pursuant to our bylaws, "Shares" are defined as the shares (of any class or
series) representing our capital stock, and any instruments or securities that
represent such shares or that grant any right with respect to or are convertible
into those shares, expressly including CPOs.
Pursuant to our bylaws, a "competitor" is generally defined as any person
or entity who, directly or indirectly, is engaged in any of the following
businesses or activities: television production and broadcasting, pay television
production, program licensing, direct-to-home satellite services, publishing
(newspaper and/or magazine), publishing distribution, music recording, cable
television, the transmission of programming and/or other content by any other
means known or to be known, radio broadcasting and production, the promotion of
professional sports and other entertainment events, paging services, production,
feature film/motion picture production and distribution, dubbing and/or the
operation of an Internet portal. A "competitor" is also defined to include any
person, entity and/or group that is engaged in any type of business or activity
in which we may be engaged from time to time and from which we derive 5% or more
of our consolidated income.
Board Notices, Meetings, Quorum Requirements and Approvals. To obtain the
prior approval of our Board, a potential acquiror must properly deliver a
written notice that states, among other things: (i) the number and class/type of
our Shares it beneficially owns, (ii) the percentage of Shares it beneficially
owns with respect to both our outstanding capital stock and the respective
class/type of our Shares, (iii) the number and class/type of Shares it intends
to acquire, (iv) the number and class/type of Shares it intends to grant or
share a common interest or right, (v) its identity, or in the case of an
acquiror which is a corporation, trust or legal entity, its shareholders or
beneficiaries as well as the identity and nationality of each person effectively
controlling such corporation, trust or legal entity, (vi) its ability to acquire
our Shares in accordance with our bylaws and Mexican law, (vii) its source of
financing the intended acquisition, (viii) if it has obtained any financing from
one of its related parties for the payment of the Shares, (ix) the purpose of
the intended acquisition, (x) if it intends to acquire additional common Shares
in the future, which coupled with the current intended acquisition of common
Shares and the common Shares previously beneficially owned by the potential
acquiror, would result in ownership of 20% or more of our common Shares, (xi) if
it intends to acquire control of us in the future, (xii) if the acquiror is our
competitor or if it has any direct or indirect economic interest in or family
relationship with one of our competitors, and (xiii) the identity of the
financial institution, if any, that will act as the underwriter or broker in
connection with any tender offer.
Either the Chairman, the Secretary or the Alternate Secretary of our Board
of Directors must call a Board meeting within 10 calendar days following the
receipt of the written notice and the Board meeting must be held within 45
calendar days following the call. Action by written consent is not permitted.
With the exception of acquisitions that must be approved by the general
extraordinary shareholders' meeting as described below in "Shareholder Notices,
Meetings, Quorum Requirements and Approvals," in order to proceed with any
acquisition of Shares that require Board authorization as set forth in our
bylaws, such acquisition must be approved by at least the majority of the
members of our Board present at a meeting at which at least 75% of the members
of our Board are present. Such acquisitions must be acted upon by our Board
within 60 calendar days following the receipt of the
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written notice described above, unless the Board determines that it does not
have sufficient information upon which to base its decision. In such case, the
Board shall deliver a written request to the potential acquiror for any
additional information that it deems necessary to make its determination. The 60
calendar days referred to above will commence following the receipt of the
additional information from the potential acquiror to render its decision.
Shareholder Notices, Meetings, Quorum Requirements and Approvals. In the
event (i) of a proposed acquisition of Shares that would result in a "change of
control," (ii) that our Board cannot hold a Board meeting for any reason, (iii)
of a proposed acquisition by a competitor and having certain characteristics, or
(iv) that the Board determines that the proposed acquisition must be approved by
our shareholders at a general extraordinary shareholders' meeting, among others,
then the proposed acquisition must be approved by the holders of at least 75% of
our outstanding common Shares at a general extraordinary shareholders' meeting
(both in the case of first and subsequent calls) at which the holders of at
least 85% of our outstanding common Shares are present. In addition, any
proposed merger, spin-off, or capital increase or decrease which results in a
change of control must also be approved by the holders of at least 75% of our
outstanding common Shares at a general extraordinary shareholders' meeting (both
in the case of first and subsequent calls) at which the holders of at least 85%
of our outstanding common Shares are present. Pursuant to our bylaws, a "change
of control" is defined as the occurrence of any of the following: (i) the
acquisition or transfer of ownership of a majority of our outstanding common
Shares, (ii) the ability of a person, entity or group, other than the person who
currently has the ability to, directly or indirectly, elect a majority of the
members of our Board of Directors, to elect a majority of the members of our
Board of Directors or (iii) the ability of a person, entity or group, other than
the person who currently has the ability to, directly or indirectly, determine
our administrative decisions or policies, to determine our administrative
decisions or policies. In the event that the general extraordinary shareholders'
meeting must approve the proposed acquisition, either the Chairman, the
Secretary or the Alternate Secretary of our Board of Directors must publish a
call for a general extraordinary shareholders' meeting in the Official Gazette
of the Federation and two other newspapers of general circulation in Mexico City
at least 30 calendar days prior to such meeting (both in the case of first and
subsequent calls). Once the call for the general extraordinary shareholders'
meeting has been published, all information related to the agenda for the
meeting must be available for review by the holders of common Shares at the
offices of our Secretary.
Mandatory Tender Offers in the Case of Certain Acquisitions. If either our
Board of Directors or our shareholders at a general extraordinary shareholders'
meeting, as the case may be, authorize an acquisition of common Shares which
increases the acquiror's ownership to 20% or more, but not more than 50%, of our
outstanding common Shares, without such acquisition resulting in a change of
control, then the acquiror must effect its acquisition by way of a cash tender
offer for a specified number of Shares equal to the greater of (x) the
percentage of common Shares intended to be acquired or (y) 10% of our
outstanding capital stock. In the event that our shareholders approve an
acquisition that would result in a change of control, the acquiror must effect
its acquisition by way of a cash tender offer for 100% of our total outstanding
capital stock at a price which cannot be lower than the highest of the
following: (i) the book value of the common Shares and CPOs as reported on the
last quarterly income statement approved by the Board of Directors, (ii) the
highest closing price of the common Shares, on any stock exchange during any of
the three hundred-sixty-five (365) days preceding the date of the shareholders'
resolution approving the acquisition; or (iii) the highest price paid for any
Shares, at any time by the acquiror. All tender offers must be made in Mexico
and the U.S. within 60 days following the date on which the acquisition was
approved by our Board of Directors or shareholders' meeting, as the case may be.
All holders must be paid the same price for their common Shares. The provisions
of our bylaws summarized above regarding mandatory tender offers in the case of
certain acquisitions are generally more stringent than those provided for under
the Mexican Securities Market Law. In accordance with the Mexican Securities
Market Law, bylaw provisions regarding mandatory tender offers in the case of
certain acquisitions may differ from the requirements set forth in such law,
provided that those provisions are more protective to minority shareholders than
those afforded by law. In these cases, the relevant bylaw provisions, and not
the relevant provisions of the Mexican Securities Market Law, will apply to
certain acquisitions specified therein.
Exceptions. The provisions of our bylaws summarized above will not apply
to (i) transfers of common Shares and/or CPOs by operation of the laws of
inheritance, (ii) acquisitions of common Shares and/or CPOs by any person who,
directly or indirectly, is entitled to appoint the greatest number of members to
our Board of Directors,
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as well as by (A) entities controlled by such person, (B) affiliates of such
person, (C) the estate of such person, (D) certain family members of such
person, and (E) such person, when such person acquires any common Shares and/or
CPOs from any entity, affiliate, person or family member referred to in (A), (B)
and (D) above, and (iii) acquisitions or transfers of common Shares and/or CPOs
by us, our subsidiaries or affiliates, or any trust created by us or any of our
subsidiaries.
Amendments to the Antitakeover Provisions. Any amendments to these antitakeover
provisions must be authorized by the CNBV and registered before the Public
Registry of Commerce at our corporate domicile.
ENFORCEABILITY OF CIVIL LIABILITIES
We are organized under the laws of Mexico. Substantially all of our
directors, executive officers and controlling persons reside outside of the
U.S., all or a significant portion of the assets of our directors, executive
officers and controlling persons, and substantially all of our assets, are
located outside of the U.S. and some of the experts named in this annual report
also reside outside of the U.S. As a result, it may not be possible for you to
effect service of process within the U.S. upon these persons or to enforce
against them or us in U.S. courts judgments predicated upon the civil liability
provisions of the federal securities laws of the U.S. We have been advised by
our Mexican counsel, Mijares, Angoitia, Cortes y Fuentes, S.C., that there is
doubt as to the enforceability, in original actions in Mexican courts, of
liabilities predicated solely on U.S. federal securities laws and as to the
enforceability in Mexican courts of judgments of U.S. courts obtained in actions
predicated upon the civil liability provisions of U.S. federal securities laws.
See "Key Information -- Risk Factors -- Risks Factors Related to Our Securities
-- It May Be Difficult to Enforce Civil Liabilities Against Us or Our Directors,
Executive Officers and Controlling Persons."
MATERIAL CONTRACTS
We have been granted a number of concessions by the Mexican government
that authorize us to broadcast our programming over our television and radio
stations and our cable and DTH systems, as well as operate our nationwide paging
business. These concessions are described under "Information on the Company --
Business Overview -- Regulation." If we are unable to renew, or if the Mexican
government revokes, any of the concessions for our significant television
stations, our business would be materially adversely affected. See "Key
Information -- Risk Factors -- Risk Factors Related to Our Business -- The
Operation of Our Business May Be Terminated or Interrupted if the Mexican
Government Does Not Renew or Revokes Our Broadcast or Other Concessions."
We operate our DTH satellite service in Mexico, Innova, through a joint
venture with News Corp. and Liberty Media, and our DTH joint ventures in Latin
America outside of Mexico and Brazil through a partnership with News Corp.,
Globopar and Liberty Media. See "Information on the Company -- Business Overview
-- DTH Joint Ventures."
We completed a refinancing of our indebtedness in 2000, which refinancing
involved a tender offer for our outstanding Series A Senior Notes, Series B
Senior Notes and Senior Discount Debentures and the amendment of the related
indentures, as well as the issuance of Ps.3.0 billion (nominal) as of April 14,
2000 of UDI-denominated notes. We also amended our working capital facility with
Banamex in July 2000. We issued U.S.$200.0 million aggregate principal amount of
8 5/8% Senior Notes due 2005 in August 2000, U.S.$300.0 million aggregate
principal amount of 8% Senior Notes due 2011 in September 2001, refinanced
approximately U.S.$100.0 million of our indebtedness through a five-year U.S.
$100 million term loan facility in December 2001and U.S.$300 million in
aggregate principal amount of 8.5% Senior Notes due 2032. We redeemed all of our
remaining Senior Discount Debentures and terminated the related indentures in
May 2001. In addition, in May 2003, we repaid all of the remaining Series A
Senior Notes, which matured in May 2003, with the net proceeds from a long-term
credit agreement that we entered into with a Mexican Bank for an aggregate
principal amount of Ps.800.0 million. For a description of the material terms of
the amended indentures related to the Series A Senior Notes and Series B Senior
Notes, the UDI-denominated notes, the indenture and supplemental indentures
related to our 8 5/8% Senior Notes due 2005, our 8% Senior Notes due 2011 and
our 8.5% Senior Notes due 2032, our working capital facility with Banamex, our
five-year term U.S.$100.0 million loan facility and our Ps.800 million long-term
credit agreement, see "Operating and Financial Review and Prospects -- Results
of Operations -- Liquidity, Foreign Exchange and Capital Resources --
Refinancings" and " -- Indebtedness."
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On May 17, 2004 we entered into a long-term credit agreement with Banamex
for an aggregate amount of Ps.1,162.5 million which matures in 2009. The annual
interest rate is 9.70%. See "Operating and Financial Review and Prospects --
Indebtedness."
Our transactions and arrangements with related parties are described under
"Major Shareholders and Related Party Transactions -- Related Party
Transactions."
For a description of our material transactions and arrangements with
Univision, see "Information on the Company -- Business Overview -- Univision."
For a description of our joint venture agreement with Grupo Prisa, see
"Information on the Company -- Business Overview -- Radio."
For a description of our acquisition of OCEN, see "Information on the
Company -- Business Overview -- Other Businesses -- Sports and Show Business
Promotions."
LEGAL PROCEEDINGS
On June 21, 2002, DTVLA WC, Inc., or DirecTV, drew down on a U.S.$10.0
million letter of credit that we issued in connection with our license agreement
with DirecTV, relating to the 2002 Korea/Japan FIFA World Cup. DirecTV has
claimed that we have breached certain black-out obligations in connection with
our transmission of certain 2002 World Cup soccer matches. DirecTV
simultaneously filed an arbitration claim for damages as a result of the alleged
breach for an additional amount of U.S.$10.0 million. We believe that we have
not violated the license agreement, and oppose the arbitration process and the
claims asserted by DirecTV. In 2002, the United States District Court for the
Central District of California ruled that this dispute must be resolved in
arbitration and we appealed that decision to the Ninth Circuit Court of Appeals,
which appeal is still pending. Notwithstanding our opposition to the arbitration
process, we have consented to participate in the proceedings, under protest, and
we are currently in the process of discovery. We cannot give you any assurances
as to the outcome of the arbitration process.
In June 2003, we were notified by the Secretaria de Hacienda y Credito
Publico, or the Mexican tax authority, of a federal tax claim made against us
for approximately Ps.302.0 million plus approximately Ps.658.7 million of
penalties and surcharges. The claim, which relates to an alleged assets tax
liability for the year ended December 31, 1994, was originally brought by the
Mexican tax authority in 1999, but was dismissed in 2002 on procedural grounds.
We believe that this claim is without merit, and we are vigorously defending
against this claim, although no assurances can be given as to the outcome of
this dispute.
There are other various legal actions and other claims pending against us
that are incidental to our ordinary course of our business. Our management does
not consider these actions or claims to be material. See Note 13 to our year-end
financial statements.
NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE STANDARDS
As a foreign private issuer with shares listed on the NYSE, we are subject
to different corporate governance requirements than a U.S. company under the
NYSE listing standards. With certain exceptions, foreign private issuers are
permitted to follow home country practice standards. Pursuant to Rule 303.A11 of
the NYSE listed company manual, we required to provide a summary of the
significant ways in which our corporate governance practices differ from those
required for U.S. companies under the NYSE listing standards.
We are a Mexican corporation with shares, in the form of CPOs listed on
the Bolsa Mexicana de Valores, or Mexican Stock Exchange. Our corporate
governance practices are governed by our bylaws, the Mexican Securities Market
Law, and the regulations issued by the CNBV and the Mexican Stock Exchange.
Although compliance is not mandatory, we also substantially comply with the
Mexican Code of Best Corporate Practices (Codigo de Mejores Practicas
Corporativas), which was created in January 1999 by a group of Mexican business
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leaders and was endorsed by the Mexican Banking and Securities Commission. See "
-- Bylaws" for a more detailed description of our corporate governance
practices.
The table below sets forth a description of the significant differences
between corporate governance practices required for U.S. companies under the
NYSE listing standards and the Mexican corporate governance standards that
govern our practices.
NYSE RULES MEXICAN RULES
Listed companies must have a The Mexican Securities Market Law requires
majority of independent directors that listed companies have at least 25% of
independent directors. Our board of directors
is not required to make a determination as to
the independence of the directors. The
definition of independence under the Mexican
Securities Market Law differs in some aspects
from the one applicable to U.S. issuers under
the NYSE standard and prohibits, among other
relationships, an independent director from
being an employee or officer of the company
or a shareholder that may have influence over
our officers, as well as certain
relationships between the company and the
independent director, entities in which the
independent director is a partner, director
or employee and family members of the
independent director. In addition, our bylaws
broadens the definition of independent
director. Our bylaws provide for an executive
committee of our board of directors. The
executive committee is currently composed of
eight members, and there are no Mexican rules
applicable that require any of the members to
be independent. The executive committee may
generally exercise the powers of our board of
directors, subject to certain exceptions. Our
Chief Executive Officer is a member of our
board of directors and the executive
committee.
Listed companies must have a Listed companies are not required to have a
nominating/corporate governance nominating/corporate governance committee
committee composed entirely of
independent directors.
Listed companies must have a The Mexican Code of Best Corporate Practices
compensation committee composed recommends listed companies to have a
entirely of independent directors compensation committee. While these rules are
not legally binding, companies failing to
comply with the Code's recommendation must
disclose publicly why their practices differ
from those recommended by the Code.
Listed companies must have an audit The Mexican Securities Market Law requires
committee with a minimum of three that listed companies must have an audit
members and must be independent. committee. The Chairman and the majority of
the members must be independent. We are not
required to satisfy the audit committee
requirements of Rule 10A-3 under the Exchange
Act until July 31, 2005.
Non-management directors must meet Our non-management directors are not required
at executive sessions without to meet at executive sessions. The Mexican
management. Code of Best
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Corporate Practices does not expressly
recommend executive sessions.
Listed companies must adopt and Companies listed on the Mexican Stock
disclose a code of business conduct Exchange are not required to adopt a code of
and ethics for directors, officers ethics. However, we have recently adopted a
and employees, and promptly discuss code of ethics which is available free of
any waivers of the code for charge through our offices. See Item 16B
directors or executive officers. "Code of Ethics" for directions on how to
obtain a copy of our code of ethics. Waivers
involving any of our executive officers or
directors will be made only by our Board of
Directors or a designated committee of the
Board.
EXCHANGE CONTROLS
For a description of exchange controls and exchange rate information, see
"Key Information -- Exchange Rate Information."
TAXATION
U.S. TAXES
GENERAL. The following is a summary of the anticipated material U.S.
federal income tax consequences of the purchase, ownership and disposition of
GDSs, CPOs and the A Shares, B Shares, L Shares and D Shares underlying the
CPOs, in each case, except as otherwise noted, by U.S. Holders (as defined
below). This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to a particular holder based on the holder's
particular circumstances. For example, with respect to U.S. Holders, the
following discussion does not address the U.S. federal income tax consequences
to a U.S. Holder:
- that owns, directly, indirectly or through attribution, 2% or more
of the total voting power or value of our Shares;
- that is a dealer in securities, insurance company, financial
institution, tax-exempt organization, U.S. expatriate, broker-dealer
or trader in securities; or
- whose functional currency is not the U.S. Dollar.
Also, this discussion does not consider:
- the tax consequences to the shareholders, partners or beneficiaries
of a U.S. Holder; or
- special tax rules that may apply to a U.S. Holder that holds GDSs,
CPOs or underlying A Shares, B Shares, L Shares and D Shares, as
part of a "straddle," "hedge," "conversion transaction," "synthetic
security" or other integrated investment.
In addition, the following discussion does not address any aspect of
state, local or non-U.S. tax laws other than Mexican tax laws. Further, this
discussion generally applies only to U.S. Holders that hold the CPOs, GDSs or
underlying A Shares, B Shares, L Shares and D Shares as capital assets within
the meaning of Section 1221 of the Internal Revenue Code.
The discussion set forth below is based on the U.S. federal income tax
laws as in force on the date of this annual report, including:
- the Internal Revenue Code of 1986, as amended, applicable Treasury
regulations and judicial and administrative interpretations, and
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- the convention between the Government of the United States of
America and the Government of the United Mexican States for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with respect to Taxes on Income, including the applicable protocol,
collectively referred to herein as the "tax treaty,"
and is subject to changes to those laws and the tax treaty subsequent to the
date of this annual report, which changes could be made on a retroactive basis;
and
- is also based, in part, on the representations of the depositary
with respect to the GDSs and on the assumption that each obligation
in the deposit agreement relating to the GDSs in the deposit
agreement and any related agreements will be performed in accordance
with its terms.
As used in this section, the term "U.S. Holder" means a beneficial owner
of CPOs, GDSs or underlying A Shares, B Shares, L Shares and D Shares that is,
for U.S. federal income tax purposes:
- a citizen or individual resident of the United States;
- a corporation or partnership created or organized in or under the
laws of the United States or of any political subdivision of the
United States, other than a partnership treated as foreign under
U.S. treasury regulations;
- an estate the income of which is included in gross income for U.S.
federal income tax purposes regardless of source; or
- a trust, in general, if a U.S. court is able to exercise primary
supervision over its administration and one or more U.S. persons
have the authority to control all of its substantial decisions.
An individual may be treated as a resident of the United States in any
calendar year for United States federal income tax purposes by being present in
the U.S. on at least 31 days in that calendar year and for an aggregate of at
least 183 days during a three-year period ending at the close of that year. For
purposes of this calculation, all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year would be counted. Residents are
taxed for U.S. federal income purposes as if they were U.S. citizens.
The application of the tax treaty to U.S. Holders is conditioned upon,
among other things, the assumptions that the U.S. Holder:
- is not a resident of Mexico for purposes of the tax treaty;
- is an individual who has a substantial presence in the United
States;
- is entitled to the benefits of the tax treaty under the limitation
on benefits provision contained in Article 17 of the tax treaty; and
- does not have a fixed place of business or a permanent establishment
in Mexico with which its ownership of CPOs, GDSs or underlying A
Shares, B Shares, L Shares and D Shares is effectively connected.
For U.S. federal income tax purposes, U.S. Holders of GDSs and CPOs will
be treated as the beneficial owners of underlying A Shares, B Shares, L Shares
and D Shares represented by the GDSs and CPOs.
DIVIDENDS. Any distribution paid by us, including the amount of any
Mexican taxes withheld, will be included in the gross income of a U.S. Holder as
a dividend, treated as ordinary income, to the extent that the distribution is
paid out of our current and/or accumulated earnings and profits, as determined
under U.S. federal income tax principles. Distributions that are treated as
dividends received from us in taxable years beginning before January 1,
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2009 by a non-corporate U.S. Holder who meets certain eligibility requirements
will qualify for U.S. federal income taxation at a reduced rate of 15% or lower
if we are a "qualified foreign corporation." We generally will be a "qualified
foreign corporation" if either (i) we are eligible for benefits under the tax
treaty or (ii) our ordinary Shares or GDSs are listed on an established
securities market in the United States. As we are eligible for benefits under
the tax treaty and our GDSs are traded on the New York Stock Exchange, we
presently are a "qualified foreign corporation", and we generally expect to be a
"qualified foreign corporation" during such taxable years, but no assurance can
be given that a change in circumstances will not affect our treatment as a
"qualified foreign corporation" in any of such taxable years. A non-corporate
U.S. Holder will not be eligible for the reduced rate (a) if the U.S. Holder has
not held the ordinary Shares or GDSs for at least 61 days of the 120-day period
beginning on the date which is 60 days before the ex-dividend date, (b) to the
extent the U.S. Holder is under an obligation to make related payments on
substantially similar or related property or (c) with respect to any portion of
a dividend that is taken into account as investment income under Section
163(d)(4)(B) of the Internal Revenue Code of 1986, as amended. Any days during
which a U.S. Holder has diminished the U.S. Holder's risk of loss with respect
to the ordinary Shares or GDSs (for example, by holding an option to sell such
shares or GDSs) is not counted towards meeting the 61-day holding period.
Special rules apply in determining the foreign tax credit limitation with
respect to dividends subject to U.S. federal income taxation at the reduced
rate. U.S. Holders should consult their own tax advisors concerning whether
dividends received by them qualify for the reduced rate.
U.S. Holders will not be entitled to claim a dividends received deduction
for these dividends. To the extent, if any, that the amount of a distribution
exceeds our current and/or accumulated earnings and B Shares, the distribution
will first reduce the U.S. Holder's adjusted tax basis in its CPOs, GDSs or
underlying A Shares, B Shares, L Shares and D Shares and, to the extent the
distribution exceeds the U.S. Holder's adjusted tax basis, it will be treated as
gain from the sale of the U.S. Holder's CPOs, GDSs or the underlying A Shares, B
Shares, L Shares and D Shares.
The U.S. Dollar value of any dividends paid in Pesos, including the amount
of any Mexican taxes withheld, will be calculated by reference to the interbank
exchange rate in effect on the date of receipt by the U.S. Holder or, with
respect to the GDSs, JPMorgan Chase Bank, in its capacity as Depositary,
regardless of whether the payment is in fact converted into U.S. Dollars. U.S.
Holders should consult their own tax advisors regarding the treatment of any
foreign currency gain or loss on any dividends paid in Pesos that are not
converted into U.S. Dollars on the day the Pesos are received. Dividends
distributed by us on CPOs, GDSs or shares underlying the CPOs generally will
constitute foreign source "passive income" or, in the case of some U.S. Holders,
"financial services income," for foreign tax credit purposes. There are
legislative proposals pending in the U.S. Congress that, if enacted, effective
for taxable years beginning after December 31, 2006, would treat such dividends
that constitute "financial services income" under current law as "general
category income" along with other foreign source income that is not "passive
income" for foreign tax credit purposes.
Pro rata distributions of additional Shares to our shareholders (including
U.S. Holders of GDSs) generally will not be subject to U.S. federal income tax.
Holders that are not U.S. Holders of CPOs, GDSs or underlying A Shares, B
Shares, L Shares and D Shares will not be subject to U.S. federal income or
withholding tax on dividends paid with respect to the CPOs, GDSs or the
underlying A Shares, B Shares, L Shares and D Shares, unless the income is
effectively connected with the conduct by the holder of a trade or business in
the United States.
CAPITAL GAINS. Gain or loss recognized by a U.S. Holder on the sale or
other taxable disposition of CPOs, GDSs or underlying A Shares, B Shares, L
Shares and D Shares will be subject to U.S. federal income taxation as capital
gain or loss in an amount equal to the difference between the amount realized on
the sale or other taxable disposition and the U.S. Holder's adjusted tax basis
in the CPOs, GDSs or underlying A Shares, B Shares, L Shares and D Shares. Such
capital gain or loss generally will be long-term capital gain or loss if the
CPOs, GDSs or underlying A Shares, B Shares, L Shares and D Shares have been
held for more than one year at the time of disposition.
Such capital gains generally will be U.S. source income, unless the gains
are subject to Mexican taxation, in which case such gains generally will be
treated as arising in Mexico under the tax treaty. If capital gains are subject
to Mexican taxation under the tax treaty, a U.S. Holder generally may elect to
treat such gains as foreign source income for U.S. foreign tax credit limitation
purposes. However, any such Mexican taxes may not be used to offset
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U.S. federal income tax on any other item of income, and foreign taxes on any
other item of income cannot be used to offset U.S. federal income tax on such
gains. U.S. Holders should consult their tax advisors.
Capital losses recognized on the sale or other taxable disposition of
CPOs, GDSs or underlying A Shares, B Shares, L Shares and D Shares generally
will offset U.S. source income. Deposits and withdrawals of CPOs for GDSs and of
underlying A Shares, B Shares, L Shares and D Shares for CPOs by U.S. Holders
will not be subject to U.S. federal income tax.
A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain recognized on a disposition of our CPOs, GDSs or underlying A Shares, B
Shares, L Shares and D Shares unless:
- the gain is effectively connected with the non-U.S. holder's conduct
of a trade or business in the United States. In this case, the gain
will generally be taxed on a net income basis at the regular
graduated rates and in the manner applicable to U.S. persons and, if
the non-U.S. holder is a foreign corporation, the "branch profits
tax" may also apply; or
- the non-U.S. holder is an individual who holds CPOs, GDSs or
underlying A Shares, B Shares, L Shares and D Shares as a capital
asset, is present in the United States for 183 days or more in the
taxable year of the disposition and meets other requirements.
U.S. BACKUP WITHHOLDING. A U.S. Holder may be subject to U.S. information
reporting and U.S. backup withholding on dividends paid on underlying A Shares,
B Shares, L Shares and D Shares, and on proceeds from the sale or other
disposition of CPOs, GDSs or underlying A Shares, B Shares, L Shares and D
Shares, unless the U.S. Holder:
- is a corporation or comes within an exempt category; or
- provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding tax and otherwise complies with
the applicable requirements of the backup withholding rules.
The amount of any backup withholding will be allowed as a credit against
the U.S. Holder's U.S. federal income tax liability and may entitle such holder
to a refund; provided, however, that certain required information is furnished
to the U.S. Internal Revenue Service. A Non-U.S. Holder may be required to
comply with certification and identification procedures in order to establish
its exemption from backup withholding.
TAX SHELTER DISCLOSURE REGULATIONS
U.S. Treasury regulations directed at tax shelter activity require persons
filing U.S. federal income tax returns to disclose certain information if they
participate in a "reportable transaction." A transaction will be a "reportable
transaction" if it is described in any of several categories of transactions,
which include transactions that are the same or substantially similar to a
transaction identified in a public IRS pronouncement as a tax avoidance
transaction (a "listed transaction"), transactions that result in the incurrence
of a loss or losses exceeding certain thresholds, transactions that result in
the existence of significant book-tax differences, transactions that result in
the taxpayer claiming a tax credit if the asset giving rise to the tax credit is
held by the taxpayer for 45 days or less and transactions that are offered under
conditions of confidentiality. Each holder of CPOs, GDSs, or underlying A
Shares, B Shares, L Shares or D Shares should consult with their tax advisors
concerning such possible disclosure obligations. There are legislative proposals
pending in the U.S. Congress that, if enacted, would impose significant
penalties for failure to comply with these disclosure requirements.
MEXICAN TAXES
GENERAL. The following is a summary of the anticipated material Mexican
tax consequences of the purchase, ownership and disposition of CPOs, GDSs or
underlying A Shares, B Shares, L Shares and D Shares by a person that is not a
resident of Mexico, as defined below.
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U.S. Holders should consult with their own tax advisors as to their
entitlement to benefits afforded by the tax treaty between the U.S. and Mexico.
Mexico has also entered into and is negotiating with various countries regarding
other tax treaties that may have an effect on the tax treatment of CPOs, GDSs or
shares underlying the CPOs. Holders should consult with their tax advisors as to
their entitlement to the benefits afforded by these treaties.
This discussion does not constitute, and shall not be considered as, legal
or tax advice to holders. This discussion is for general information purposes
only and is based upon the federal tax laws of Mexico as in effect on the date
of this annual report, which are subject to change, including:
- the Mexican Income Tax Law, Federal Tax Code, and
- the tax treaty.
Holders should consult their own tax advisors as to U.S., Mexican or other
tax consequences of the purchase, ownership and disposition of CPOs, GDSs or
underlying A Shares, B Shares, L Shares and D Shares.
As of January 1, 2004, the following principles apply regarding residency,
for Mexican income tax purposes:
- a natural person may be treated as a resident of Mexico if he or she
has established his or her home in Mexico, but if he or she has
homes both in Mexico and abroad, such person's residence for tax
purposes shall be considered to be in Mexico when such individual's
center of vital interests is located in Mexico.
The center of vital interests of an individual' is located in
Mexico, among other cases, when more than 50% of that person's total
income in a calendar year originates from a source of wealth located
in Mexico or when the main center of that person's professional
activities is located in Mexico;
- a legal entity is a resident of Mexico if it is established under
Mexican law, or it has established in Mexico its main place of
management;
- a Mexican citizen is presumed to be a resident of Mexico unless he
or she can demonstrate otherwise; and
- a permanent establishment in Mexico of a foreign individual or
entity shall be required to pay taxes in Mexico in accordance with
applicable law for income attributable to such permanent
establishment.
DIVIDENDS. Dividends, either in cash or in any other form, paid with
respect to the shares underlying the CPOs, including those CPOs represented by
GDSs, will not be subject to Mexican withholding tax.
When dividends are paid from our "previously taxed net earnings account,"
or "cuenta de utilidad fiscal neta," we will not be required to pay any Mexican
corporate income tax on the dividends. When such dividends are paid from our
"reinvested net tax earnings account," or "cuenta de utilidad fiscal neta
reinvertida," we will be required to pay a 5% Mexican corporate tax on the
dividends multiplied by 1.5385 (as applicable through 2004). If dividends are
not paid from either our "previously taxed net earnings account" or our
"reinvested net tax earnings account" we will be required to pay a 34% Mexican
corporate income tax on the dividends multiplied by 1.4925. As of January 1,
2002, Mexican entities may no longer defer 5% of their corporate income tax on
reinvested earnings. However, under applicable transition rules, when paying
dividends, Mexican entities with a positive balance in their "reinvested net tax
earnings account" corresponding to taxes deferred for earnings obtained in 1999,
2000 and 2001, must pay such deferred tax before comparing the dividend to the
"previously taxed net earnings account."
As a result of changes to the Mexican tax law effective January 1, 2002,
the corporate income tax rate will be gradually reduced to 32%. For 2003 the
applicable corporate income tax rate was 34%, 33% for 2004, and will be 32% in
2005.
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SALES OR OTHER DISPOSITIONS. Deposits and withdrawals of CPOs for GDSs and
of underlying A Shares, B Shares, L Shares and D Shares for CPOs will not give
rise to Mexican tax or transfer duties.
Generally, the sale or other disposition of CPOs, GDSs or underlying A
Shares, L Shares and D Shares will not be subject to any Mexican tax if:
- the sale is carried out through the Mexican Stock Exchange (or a
recognized securities market located in a country with which Mexico
has entered into a tax treaty); and
- the Ministry of Finance and Public Credit considers such securities
to be publicly held.
Sales or other dispositions of CPOs, GDSs or underlying A Shares, B
Shares, L Shares and D Shares made in other circumstances would be subject to
Mexican income tax. However, under the tax treaty, any U.S. Holder that is
eligible to claim the benefits of the tax treaty may be exempt from Mexican tax
on gains realized on a sale or other disposition of CPOs and shares underlying
the CPOs in a transaction that is not carried out through the Mexican Stock
Exchange or such other approved securities markets. The U.S. Holder will be
exempt under the tax treaty if the U.S. Holder did not own directly or
indirectly 25% or more of the our outstanding shares within the 12-month period
preceding such sale or disposition. Gains realized by other Holders that are
eligible to receive benefits pursuant to other income tax treaties to which
Mexico is a party may be exempt from Mexican income tax in whole or in part.
Non-U.S. Holders should consult their own tax advisors as to their possible
eligibility under such other income tax treaties. Appropriate residence
certifications must be obtained by Holders eligible for tax treaty benefits.
OTHER MEXICAN TAXES. There are no estate, gift, or succession taxes
applicable to the ownership, transfer or disposition of CPOs, GDSs or underlying
A Shares, B Shares, L Shares and D Shares. However, a gratuitous transfer of
CPOs, GDSs or underlying A Shares, B Shares, L Shares and D Shares may, in some
circumstances, result in the imposition of a Mexican federal tax upon the
recipient. There are no Mexican stamp, issuer, registration or similar taxes or
duties payable by holders of GDSs, CPOs, or underlying A Shares, B Shares, L
Shares and D Shares.
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DOCUMENTS ON DISPLAY
For further information with respect to us and our CPOs and GDSs, we refer
you to the filings we have made with the SEC. Statements contained in this
annual report concerning the contents of any contract or any other document are
not necessarily complete. If a contract or document has been filed as an exhibit
to any filing we have made with the SEC, we refer you to the copy of the
contract or document that has been filed. Each statement in this annual report
relating to a contract or document filed as an exhibit to any filing we have
made with the SEC is qualified in its entirety by the filed exhibit.
We are subject to the informational requirements of the Exchange Act and,
in accordance with these requirements, file reports and other information with
the SEC. These reports and other information, as well as any related exhibits
and schedules, may be inspected, without charge, at the public reference
facility maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's regional offices located at the
Woolworth Building, 233 Broadway, 13th Floor, New York, New York, 10007 and
Citicorp Center, 500 West Madison Street, Suite 1400 Chicago, Illinois
60661-2511. Copies of these reports and other information may also be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. These reports and other information
may also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
We furnish JPMorgan Chase Bank, the depositary for our GDSs, with annual
reports in English. These reports contain audited consolidated financial
statements that have been prepared in accordance with Mexican GAAP, and include
reconciliations of net income and stockholders' equity to U.S. GAAP. These
reports have been examined and reported on, with an opinion expressed by, an
independent auditor. The depositary is required to mail our annual reports to
all holders of record of our GDSs. The deposit agreement for the GDSs also
requires us to furnish the depositary with English translations of all notices
of shareholders' meetings and other reports and communications that we send to
holders of our CPOs. The depositary is required to mail these notices, reports
and communications to holders of record of our GDSs.
As a foreign private issuer, we are not required to furnish proxy
statements to holders of our CPOs or GDSs in the U.S.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURES
Market risk is the exposure to an adverse change in the value of financial
instruments caused by interest rate changes, foreign currency fluctuations,
inflation and changes in the market value of investments. The following
information includes "forward-looking statements" that involve risks and
uncertainties. Actual results could differ from those presented. Unless
otherwise indicated, all information below is presented on a Mexican GAAP basis
in constant Pesos in purchasing power as of December 31, 2003.
RISK MANAGEMENT. We are exposed to market risks arising from changes in
interest rates, inflation and foreign currency exchange rates, in both the
Mexican and U.S. markets. Our risk management activities are monitored by our
Risk Management Committee and reported to our Executive Committee.
We monitor our exposure to interest rate risk by: (i) evaluating
differences between interest rates on our outstanding debt and short-term
investments and market interest rates on similar financial instruments; (ii)
reviewing our cash flow needs and financial ratios (interest coverage); (iii)
assessing current and forecasted trends in the relevant markets; and (iv)
evaluating peer group and industry practices. This approach allows us to
establish the optimal liability's interest rate "mix" between floating and fixed
rate debt.
Foreign exchange risk is monitored by assessing our net monetary liability
position in U.S. Dollars and our forecasted cash flow needs for anticipated U.S.
Dollar investments and servicing our U.S. Dollar-denominated debt. Equity price
risk is assessed by evaluating the long-term value of our investment in both
domestic and foreign affiliates, versus comparable investments in the
marketplace. We classify our equity investments, consisting primarily of
investments in both domestic and foreign affiliates, as long-term assets.
In compliance with the procedures and controls established by our Risk
Management Committee, in 2002 and 2003 we entered into certain derivative
financial instrument transactions in order to manage our exposure to market
risks resulting from changes in foreign exchange rates, interest rates and the
price of our common stock. Our objective in managing foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes. As a result of the appreciation of the Peso
against the U.S. dollar during 2001, we incurred losses in connection with
certain forward exchange contracts entered into in 1999. We do not enter into
foreign currency or interest rate transactions for trading or speculative
purposes. See Note 9 to our year-end financial statements.
We did not enter into any financial instruments during 2001. In connection
with the Senior Notes due 2005, in the third quarter of 2002 we entered into
currency option agreements with a financial institution on a notional amount of
U.S.$100 million. Under these agreements, and subject to the exercise of the
options by us and the financial institution, as well as the payment of related
premiums by us for approximately U.S.$11.8 million in April 2004, the parties
will exchange related U.S. dollars and Mexican pesos at fixed exchange rates in
October 2005. We have recorded the change in fair value of these agreements from
inception through December 31, 2003 in the integral cost of financing (foreign
exchange gain or loss). In May 2004, we terminated this hedge early by
pre-paying a net amount of U.S.$2.7 million. In addition, in October 2002, April
2003 and June 2003, we entered into option contracts to exchange interest rates
with a financial institution on a notional amount of U.S.$200 million, and
received premiums in cash for an amount of approximately U.S.$3.4 million which
were being amortized through the maturity of these Senior Notes. We have
recorded the change in fair value of these agreements, together with the
amortization of related premiums, from inception through December 31, 2003 in
the integral cost of financing (interest expense). In February and August 2003,
the financial institution declined to exercise these options and we recognized
the benefit of unamortized premiums. In February 2004, the financial institution
exercised the option to enter into a interest rate swap to receive amounts based
on a variable interest rate in exchange for amounts based on fixed interest
rates over the life of the agreement.
In connection with the Senior Notes due 2011, in the fourth quarter of
2002 we entered into an interest rate swap agreements with a financial
institution on a notional amount of U.S.$100 million. These agreements involve
the exchange of amounts based on a fixed interest rate for amounts based on
variable interest rates over the life of the agreement, without an exchange of
the notional amount upon which the payments are based. We have recorded
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the change in fair value of these agreements from inception through December 31,
2003 in the integral cost of financing (interest expense). We terminated these
arrangements in early June 2003, and recognized a net gain on these contracts in
the amount of U.S.$5.5 million.
In the third quarter of 2002 and the first quarter of 2003, we entered
into agreements to sell share put options to a financial institution and
received premiums in cash for approximately U.S.$2.2 million. These put options
were exercisable in April and July 2003. We have recorded the change in fair
value of these agreements together with related premiums, in other income or
expense. These agreements expired unexercised by the financial institution in
April and July 2003 and we recognized the benefit of unamortized premiums.
Effective March 1, 2002, we designated our equity investment in Univision
as an effective hedge of the U.S. Dollar principal amount with respect to both
our 8% Senior Notes due in 2011 and our 8.5% Senior Notes due 2032 (see Notes
1(c) and 8 to our year-end financial statements). For so long as we maintain our
net investment in Univision as an effective hedge against these principal
amounts, any foreign exchange gain or loss attributable to our 8% Senior Notes
due 2011 and 8.5% Senior Notes due 2032 will be credited or charged directly to
equity (other comprehensive income or loss: foreign currency translation) for
Mexican GAAP purposes.
In March 2004, we entered into several derivatives transactions to hedge
certain risks related to our indebtedness:
o Inflation swaps. We entered into transactions to fix the inflation rate on
the principal amount of the UDI denominated medium-term notes due 2007. On
average we fixed the inflation rate at an annual rate of approximately 4.06%.
0 Currency coupon swaps. In connection with the Senior Notes due 2011 and
2032, we entered into several transactions that allow us to hedge the risk of
currency fluctuations on the interest payments on the Senior Notes due 2011
and 2032 for a period of 5 years. As of May 31, 2004, such transactions
correspond to interest payments on U.S.$315 million of the principal amount
of the Senior Notes due 2011 and 2032.
SENSITIVITY AND FAIR VALUE ANALYSES. The sensitivity analyses that follow
are intended to present the hypothetical change in fair value or loss in
earnings due to changes in interest rates, inflation rates, foreign exchange
rates and debt and equity market prices as they affect our financial instruments
at December 31, 2002 and 2003. These analyses address market risk only and do
not present other risks that we face in the ordinary course of business,
including country risk and credit risk. The hypothetical changes reflect our
view of changes that are reasonably possible over a one-year period. For
purposes of the following sensitivity analyses, we have made conservative
assumptions of expected near term future changes in U.S. interest rates, Mexican
interest rates, inflation rates and Peso to U.S. Dollar exchange rates of 10%,
10%, 10% and 5%, respectively. The results of the analyses do not purport to
represent actual changes in fair value or losses in earnings that we will incur.
FAIR VALUE AT DECEMBER 31,
----------------------------------------------
2002 2003 2003
----------- ----------- -------------
(MILLIONS OF PESOS IN PURCHASING POWER OF
DECEMBER 31, 2003 OR MILLIONS OF U.S. DOLLARS)(1)
ASSETS:
Temporary investments(2)............................. Ps. 7,458.9 Ps.11,891.8 U.S.$ 1,059.4
LIABILITIES:
U.S. DOLLAR-DENOMINATED DEBT:........................
Long-term debt securities(3)................... Ps. 836.9 Ps. 68.3 U.S.$ 6.1
Five-year U.S.$100.0 million term loan(4)...... 1,088.0 1,034.1 92.1
Senior Notes due 2005(5)....................... 2,337.1 2,461.9 219.3
Senior Notes due 2011(6)....................... 3,276.1 3,926.5 349.8
Senior Notes due 2032(7) ...................... 3,152.8 3,550.2 316.3
MEXICAN PESO-DENOMINATED DEBT:.......................
UDI-denominated long-term loan facility(8)..... 3,914.6 4,120.3 367.1
Long-term notes payable to Mexican Bank(9)..... 510.6 844.3 75.2
(1) Peso amounts have been converted to U.S. Dollars solely for the
convenience of the reader at a nominal exchange rate of Ps.11.225 per U.S.
Dollar, the Interbank Rate as of December 31, 2003.
(2) At December 31, 2003, our temporary investments consisted of fixed rate
short-term deposits in commercial banks (primarily Peso- and U.S.
Dollar-denominated in 2002 and 2003). Given the short-term nature of these
investments, an increase in U.S. and/or Mexican interest rates would not
significantly decrease the fair value of these investments.
(3) At December 31, 2003, fair value exceeded the carrying value of those debt
securities by approximately Ps.8.4 million (U.S.$0.7 million). The
increase in the fair value of a hypothetical 10% increase in the estimated
market price of those debt securities would amount to Ps.15.2 million
(U.S.$1.4 million) at December 31, 2003.
(4) At December 31, 2003, carrying value exceeded the fair value of amounts
outstanding under this loan by approximately Ps.88.4 million (U.S.$7.9
million). A hypothetical 10% increase in U.S. interest rates would
increase the fair value of amounts outstanding under this loan by
approximately Ps.15.0 million (U.S.$1.4 million) at December 31, 2003.
-146-
(5) At December 31, 2003, fair value exceeded carrying value of these notes by
approximately Ps.216.9 million (U.S.$19.2 million). The increase in the
fair value of these notes of a hypothetical 10% increase in the quoted
market price of these notes would amount to approximately Ps.463.0 million
(U.S.$41.2 million) at December 31, 2003.
(6) At December 31, 2003, fair value exceeded carrying value of these notes by
approximately Ps.559.0 million (U.S.$49.8 million). The increase in the
fair value of these notes of a hypothetical 10% increase in the quoted
market price of these notes would amount to approximately Ps.951.7 million
(U.S.$84.8 million) at December 31, 2003.
(7) At December 31, 2003, fair value exceeded carrying value of these notes by
approximately Ps.182.7 million (U.S.$16.3 million). The increase in the
fair value of these notes of a hypothetical 10% increase in the quoted
market price of these notes would amount to approximately Ps.537.7 million
(U.S.$47.9 million) at December 31, 2003.
(8) At December 31, 2003, fair value exceeded carrying value of amounts
outstanding under this loan by approximately Ps.480.0 million (U.S.$42.8
million). At December 31, 2003, a hypothetical 10% increase in the Mexican
inflation rate to 4.38% for the year 2004 would increase principal amounts
outstanding under this UDI-denominated long term loan facility by
approximately Ps.892.0 million (U.S.$79.5 million). An inflation rate of
3.00% is forecasted by the Mexican government for 2004.
(9) At December 31, 2003, fair value exceeded carrying value of these notes by
approximately Ps.44.3 million (U.S.$3.9 million). At December 31, 2003, a
hypothetical 10% increase in Mexican interest rates would increase the
fair value of these notes by approximately Ps.128.4 million (U.S.$11.5
million).
-147-
We are also subject to the risk of foreign currency exchange rate
fluctuations, resulting from the net monetary position in U.S. Dollars of our
Mexican operations, as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
2002 2003
-------------- --------------
(IN MILLIONS OF U.S. DOLLARS)
U.S. Dollar-denominated short-term investments and long-term notes
receivable................................................. U.S.$ 577.3 U.S.$ 373.0
U.S. Dollar-denominated senior debt securities and other notes
payable.................................................... 1,239.9 1,099.3
-------------- --------------
662.6 726.3
Derivative instruments, net..................................... 1.2 2.7
-------------- --------------
Net liability position..................................... U.S.$ 663.8 U.S.$ 729.0
============== ==============
At December 31, 2003, a hypothetical 5.0% depreciation in the U.S. Dollar
to Peso exchange rate would result in a loss in earnings of Ps.72.4 million and
an increase in other comprehensive loss of Ps.336.7 million. This depreciation
rate is based on the December 31, 2004 forecast of the U.S. Dollar to Peso
exchange rate for 2004 by the Mexican government for such year.
-148-
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2003. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in our periodic filings under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
There have been no significant changes in our internal controls over
financial reporting identified in connection with the evaluation above during
the period covered by this Annual Report that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
PART III
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Francisco Jose Chevez
Robelo is our audit committee financial expert. Mr. Francisco Jose Chevez Robelo
is "independent" and meets the requisite qualifications as defined in Item 16A
of Form 20-F, who serves on its audit committee.
ITEM 16B. CODE OF ETHICS
We have adopted a written code of ethics that applies to all of our
employees, including our principal executive officer, principal financial
officer and principal accounting officer.
You may request a copy of our code of ethics, at no cost, by writing to or
telephoning us as follows:
Grupo Televisa, S.A.
Avenida Vasco de Quiroga
No. 2000,
Colonia Santa Fe, 01210 Mexico, D.F., Mexico.
Telephone: (52) (55) 5261-2000.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PricewaterhouseCoopers acted as our independent auditor for the fiscal
years ended December 31, 2002 and 2003.
-149-
The chart below sets forth the total amount billed by our independent
auditors for services performed in the years 2002 and 2003, and breaks down
these amounts by category of service:
2002 2003
------------ ------------
(MILLIONS OF PESOS IN PURCHASING
POWER AS OF DECEMBER 31, 2003)
--------------------------------
Audit Fees...................... Ps. 34.3 Ps. 30.7
Audit-Related Fees.............. 5.5 1.8
Tax Fees........................ 4.7 6.4
Other Fees...................... - -
------------ ------------
Total........................... Ps. 44.5 Ps. 38.9
============ ============
"Audit Fees" are the aggregate fees billed by our independent auditor for
the audit of our consolidated annual financial statements, services related to
regulatory financial filings with the SEC and attestation services that are
provided in connection with statutory and regulatory filings or engagements.
"Audit-Related Fees" are fees charged by our independent auditor for
assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under
"Audit Fees." This category comprises fees billed for independent accountant
review of the financial statements of certain of our DTH joint ventures,
assistance in financial due diligence in connection with the disposal of our
Music Recording segment, as well as advisory services associated with our
financial reporting.
"Tax Fees" are fees for professional services rendered by the Company's
independent auditor for tax compliance in connection with our subsidiaries and
interests in the United States, as well as tax advice on actual or contemplated
transactions.
We have introduced procedures for the review and pre-approval of any
services performed by PricewaterhouseCoopers. The procedures require that all
proposed engagements of PricewaterhouseCoopers for audit and non-audit services
are submitted to the audit committee for approval prior to the beginning of any
such services.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
Our audit committee is responsible, among other things, for the
appointment, compensation and oversight of our external auditors. To assure the
independence of our independent auditors, our audit committee pre-approves
annually a catalog of specific audit and non-audit services in the categories
Audit Services, Audit-Related Services, Tax-Related Services, and Other Services
that may be performed by our auditors, as well as the budgeted fee levels for
each of these categories. All other permitted services must receive a specific
approval from our audit committee. Our external auditor periodically provides a
report to our audit committee in order for our audit committee to review the
services that our external auditor is providing, as well as the status and cost
of those services.
During 2003, none of the services provided to us by our external auditors
were approved by our audit committee pursuant to the de minimus exception to the
pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
PART IV
ITEM 17. FINANCIAL STATEMENTS
We have responded to Item 18 in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-111, which are incorporated herein by reference.
-150-
ITEM 19. EXHIBITS
Documents filed as exhibits to this annual report appear on the following
page.
-151-
(a) Exhibits.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
1.1-- English translation of Amended and Restated Bylaws (Estatutos
Sociales) of the Registrant, dated as of April 16, 2004.
2.1-- Indenture relating to the 11 7/8% Series B Senior Notes, dated as of
May 13, 1996, between the Registrant, as Issuer, and Fleet National
Bank, as Trustee (previously filed with the Securities and Exchange
Commission as Exhibit 4.7 to the Form F-3 and incorporated herein by
reference).
2.2-- Supplemental Indenture relating to the 11 7/8% Series B Senior
Notes, dated as of April 11, 2000, between the Registrant, as
Issuer, and State Street Bank and Trust (as successor in interest to
Fleet National Bank), as Trustee (previously filed with the
Securities and Exchange Commission as Exhibit 2.5 to the 1999 Form
20-F and incorporated herein by reference).
2.3-- Indenture relating to Senior Debt Securities, dated as of August 8,
2000, between the Registrant, as Issuer, and The Bank of New York,
as Trustee (previously filed with the Securities and Exchange
Commission as Exhibit 4.1 to the Registrant's Registration Statement
on Form F-4 (File number 333-12738), as amended (the "2000 Form
F-4"), and incorporated herein by reference).
2.4-- First Supplemental Indenture relating to the 8 5/8% Senior Notes due
2005, dated as of August 8, 2000, between the Registrant, as Issuer,
and The Bank of New York and Banque Internationale a Luxembourg,
S.A. (previously filed with the Securities and Exchange Commission
as Exhibit 4.2 to the 2000 Form F-4 and incorporated herein by
reference).
2.5-- Second Supplemental Indenture relating to the 8 5/8% Senior Exchange
Notes due 2005, dated as of January 19, 2001, between the
Registrant, as Issuer, and the Bank of New York and Banque
Internationale a Luxembourg, S.A. (previously filed with the
Securities and Exchange Commission as Exhibit 4.3 to the 2000 Form
F-4 and incorporated herein by reference).
2.6-- Third Supplemental Indenture relating to the 8% Senior Notes due
2011, dated as of September 13, 2001, between the Registrant, as
Issuer, and The Bank of New York and Banque Internationale a
Luxembourg, S.A. (previously filed with the Securities and Exchange
Commission as Exhibit 4.4 to the Registrant's Registration Statement
on Form F-4 (File number 333-14200) (the "2001 Form F-4") and
incorporated herein by reference).
2.7-- Fourth Supplemental Indenture relating to the 8.5% Senior Exchange
Notes due 2032 between the Registrant, as Issuer, and The Bank of
New York and Dexia Banque Internationale a Luxembourg (previously
filed with the Securities Exchange Commission as Exhibit 4.5 to the
Registrant's Registration Statement on
E-1
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
Form F-4 (the "2002 Form F-4") and incorporated herein by
reference).
2.8-- Fifth Supplemental Indenture relating to the 8% Senior Notes due
2011 between Registrant, as Issuer, and The Bank of New York and
Dexia Banque Internationale a Luxembourg (previously filed with the
Securities and Exchange Commission as Exhibit 4.5 to the 2001 Form
F-4 and incorporated herein by reference).
2.9-- Form of Deposit Agreement between the Registrant, JPMorgan Chase
Bank, as depositary and all holders and beneficial owners of the
Global Depositary Shares, evidenced by Global Depositary Receipts
(previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Registration Statement on Form F-6 (File
number 333-99195) (the "Form F-6") and incorporated herein by
reference).
4.1-- Form of Indemnity Agreement between the Registrant and its directors
and executive officers (previously filed with the Securities and
Exchange Commission as Exhibit 10.1 to the Registrant's Registration
Statement on Form F-4 (File number 33-69636), as amended, (the "1993
Form F-4") and incorporated herein by reference).
4.2-- Agreement of General Partnership of Sky Multi-Country Partners,
dated as of October 24, 1997, among DTH USA, Inc., SESLA, Inc.,
Televisa MCOP Holdings, Inc. and TCI Multicountry DTH, Inc
(previously filed with the Securities and Exchange Commission as
Exhibit 10.3 to the Form F-3 and incorporated herein by reference).
4.3-- Amended and Restated Collateral Trust Agreement, dated as of June
13, 1997, as amended, among PanAmSat Corporation, Hughes
Communications, Inc., Satellite Company, LLC, the Registrant and IBJ
Schroder Bank and Trust Company (previously filed with the
Securities and Exchange Commission as an Exhibit to the Registrant's
Annual Report on Form 20-F for the year ended December 31, 2001 (the
"2001 Form 20-F") and incorporated herein by reference).
4.4-- Amended and Restated Program License Agreement, dated as of December
19, 2001, by and between Productora de Teleprogramas, S.A. de C.V.
and Univision Communications Inc. ("Univision") (previously filed
with the Securities and Exchange Commission as Exhibit 10.7 to the
2001 Form F-4 and incorporated herein by reference).
E-2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.5-- Participation Agreement, dated as of October 2, 1996, by and among
Univision, Perenchio, the Registrant, Venevision and certain of
their respective affiliates (previously filed with the Securities
and Exchange Commission as Exhibit 10.8 to Univision's Registration
Statement on Form S-1 (File number 333-6309) (the "Univision Form
S-1") and incorporated herein by reference).
4.6-- Amended and Restated International Program Rights Agreement, dated
as of December 19, 2001, by and among Univision, Venevision and the
Registrant (previously filed with the Securities and Exchange
Commission as Exhibit 10.9 to the 2001 Form F-4 and incorporated
herein by reference).
4.7-- Co-Production Agreement, dated as of March 27, 1998, between the
Registrant and Univision Network Limited Partnership (previously
filed with the Securities and Exchange Commission as an Exhibit to
Univision's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference).
4.8-- Summary of Termination of Joint Venture Agreement between the
Registrant and America Movil, S.A. de C.V. (successor in interest to
Telefonos de Mexico, S.A. de C.V.), dated as of April 7, 2002
(previously filed with the Securities and Exchange Commission as
Exhibit 4.8 to the 2001 Form 20-F and incorporated herein by
reference).
4.9-- Amended and Restated Bylaws (Estatutos Sociales) of Innova, S. de
R.L. de C.V. , dated as of December 22, 1998 (previously filed with
the Securities and Exchange Commission as an Exhibit to the 1998
Form 20-F and incorporated herein by reference).
4.11-- U.S.$100,000,000 Credit Agreement, dated as of December 21, 2001,
among the Registrant, JPMorgan Chase Bank, J.P. Morgan Securities
Inc. and Salomon Smith Barney Inc. (previously filed with the
Securities and Exchange Commission as Exhibit 10.4 to the 2001 Form
F-4 and incorporated herein by reference).
E-3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
4.12-- Summary of Joint Venture Agreement between the Registrant and
Promotora de Informaciones, S.A., dated as of October 14, 2001
(previously filed with the Securities and Exchange Commission as
Exhibit 4.13 to the 2001 Form 20-F and incorporated herein by
reference).
4.13-- Administration Trust Agreement relating to Trust No. 80375, dated as
of March 23, 2004, by and among Nacional Financiera, S.N.C., as
trustee of Trust No. 80370, Banco Inbursa, S.A., as trustee of Trust
No. F/0553, Banco Nacional de Mexico, S.A., as trustee of Trust No.
14520-1, Nacional Financiera, S.N.C., as trustee of Trust No. 80375,
Emilio Azcarraga Jean, Promotora Inbursa, S.A. de C.V., Maria
Asuncion Aramburuzabala Larregui, Lucrecia Aramburuzabala Larregui
de Fernandez, Maria de las Nieves Fernandez Gonzalez, Antonino
Fernandez Rodriguez, Carlos Fernandez Gonzalez, Grupo Televisa, S.A.
and Grupo Televicentro, S.A. de C.V. (as previously filed with the
Securities and Exchange Commission as an Exhibit to Schedules 13D or
13D/A in respect of various parties' to the Trust Agreement (File
number 005-60431) and incorporated herein by reference).
8.1-- List of Subsidiaries of Registrant.
12.1-- CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, dated June 30, 2004.
12.2-- CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, dated June 30, 2004.
13.1-- CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated June 30, 2004.
13.2-- CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated June 30, 2004.
(b) Financial Statement Schedules
All financial statement schedules relating to the Registrant are omitted
because they are not required or because the required information, if material,
is contained in the audited year-end financial statements or notes thereto.
E-4
SIGNATURE
The Registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Date: June 30, 2004 GRUPO TELEVISA, S.A.
By: /s/ Rafael Carabias Principe
------------------------------------
Name: Rafael Carabias Principe
Title: Vice President of Administration
By: /s/ Jorge Lutteroth Echegoyen
------------------------------------
Name: Jorge Lutteroth Echegoyen
Title: Controller and Vice President
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
PAGE
----
Report of Independent Registered Public Accounting Firm....................................................... F-2
Consolidated Balance Sheets as of December 31, 2002 and 2003.................................................. F-3
Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003........................ F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31,
2001, 2002 and 2003...................................................................................... F-6
Consolidated Statements of Changes in Financial Position for the Years Ended December 31,
2001, 2002 and 2003...................................................................................... F-7
Notes to Consolidated Financial Statements for the Years Ended December 31, 2001,
2002 and 2003............................................................................................ F-9
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
INNOVA S. DE R.L. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm....................................................... F-66
Consolidated Balance Sheets as of December 31, 2002 and 2003.................................................. F-67
Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003........................ F-68
Consolidated Statements of Changes in Equity Owner's Deficit for the Years Ended December 31,
2001, 2002 and 2003...................................................................................... F-69
Consolidated Statements of Changes in Financial Position for the Years Ended December 31,
2001, 2002 and 2003...................................................................................... F-70
Notes to Consolidated Financial Statements for the Years Ended December 31, 2001,
2002 and 2003............................................................................................ F-71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
SKY MULTI-COUNTRY PARTNERS
Report of Independent Certified Public Accountants of Sky Multi-Country Partners.............................. F-98
Independent Auditors' Report of Sky Colombia S.A.............................................................. F-99
Consolidated Balance Sheets as of December 31, 2002 and 2001.................................................. F-100
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended
December 31, 2002, 2001 and 2000......................................................................... F-101
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 2002, 2001 and 2000......................................................................... F-102
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000......................................................................... F-103
Notes to Consolidated Financial Statements for the Years Ended December 31, 2002, 2001 and 2000............... F-105
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Mexico, D.F., February 25, 2004
To the Stockholders of Grupo Televisa, S.A.:
We have audited the accompanying consolidated balance sheets of Grupo Televisa,
S.A. and its subsidiaries as of December 31, 2002 and 2003, and the related
consolidated statements of income, changes in stockholders' equity and changes
in financial position for the years ended December 31, 2001, 2002 and 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Mexico and with the standards of the Public Company Accounting Oversight
Board (United States of America). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grupo Televisa, S.A.
and its subsidiaries at December 31, 2002 and 2003, and the results of their
operations, the changes in their stockholders' equity and the changes in their
financial position for the years ended December 31, 2001, 2002 and 2003, in
conformity with accounting principles generally accepted in Mexico.
Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the consolidated net income for each of the three years ended December 31, 2001,
2002 and 2003, and the determination of consolidated stockholders' equity at
December 31, 2002 and 2003, to the extent summarized in Note 26 to the
consolidated financial statements.
PRICEWATERHOUSECOOPERS
/s/ Felipe Perez Cervantes, C.P.C
----------------------------------------
FELIPE PEREZ CERVANTES, C.P.C
F-2
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003)
(NOTES 1 AND 2)
2002 2003
-------------- --------------
ASSETS
Current:
Available:
Cash....................................................... Ps. 1,677,324 Ps. 371,754
Temporary investments...................................... 7,458,892 11,891,774
-------------- --------------
9,136,216 12,263,528
Trade notes and accounts receivable - net....................... (Note 3) 9,879,900 10,603,054
Other accounts and notes receivable - net....................... 902,361 893,216
Due from affiliated companies - net............................. (Note 17) 2,987 442,440
Transmission rights and programming............................ (Note 4) 3,556,102 3,535,090
Inventories..................................................... 528,912 513,458
Other current assets............................................ 447,276 507,341
-------------- --------------
Total current assets....................................... 24,453,754 28,758,127
Transmission rights and programming ............................ (Note 4) 5,029,801 4,670,578
Investments..................................................... (Note 5) 3,153,703 6,321,780
Property, plant and equipment - net............................. (Note 6) 15,953,345 15,600,698
Goodwill and other intangible assets - net..................... (Note 7) 9,694,681 9,200,158
Other assets.................................................... (Note 11) 372,808 207,899
-------------- --------------
Total assets............................................... Ps. 58,658,092 Ps. 64,759,240
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003)
(NOTES 1 AND 2)
2002 2003
-------------- --------------
LIABILITIES
Current:
Current portion of long-term debt............................ (Note 8) Ps. 1,289,184 Ps. 285,193
Trade accounts payable....................................... 2,317,961 2,348,579
Customer deposits and advances............................... 12,008,690 13,584,683
Taxes payable................................................ 921,634 1,287,040
Accrued interest............................................. 319,694 315,165
Other accrued liabilities.................................... 848,993 1,131,506
-------------- --------------
Total current liabilities.................................. 17,706,156 18,952,166
Long-term debt.................................................. (Note 8) 13,875,887 14,704,222
Customer deposits and advances.................................. 211,767 419,560
Other long-term liabilities..................................... 790,690 708,505
Deferred taxes.................................................. (Note 21) 2,116,816 1,154,456
DTH joint ventures.............................................. (Note 10) 1,710,665 1,294,004
Pension plans and seniority premiums............................ (Note 11) 73,655 --
-------------- --------------
Total liabilities.......................................... 36,485,636 37,232,913
-------------- --------------
Commitments and contingencies................................... (Note 12)
STOCKHOLDERS' EQUITY
Majority interest:
Capital stock, no par value: (Note 13)
Issued..................................................... 7,916,621 8,207,441
Repurchased................................................ (254,870) (619,722)
-------------- --------------
Outstanding................................................ 7,661,751 7,587,719
Additional paid-in capital................................... 225,038 3,875,418
-------------- --------------
7,886,789 11,463,137
-------------- --------------
Retained earnings: (Note 14)
Legal reserve.............................................. 1,231,128 1,269,487
Reserve for repurchase of shares........................... 5,736,233 5,284,975
Unappropriated earnings.................................... 10,602,445 7,077,000
Net income for the year.................................... 767,176 3,596,603
-------------- --------------
18,336,982 17,228,065
Accumulated other comprehensive loss......................... (Note 15) (5,236,206) (2,243,519)
-------------- --------------
13,100,776 14,984,546
-------------- --------------
Total majority interest.................................... 20,987,565 26,447,683
Minority interest............................................... (Note 16) 1,184,891 1,078,644
-------------- --------------
Total stockholders' equity................................. 22,172,456 27,526,327
-------------- --------------
Total liabilities and stockholders' equity................. Ps. 58,658,092 Ps. 64,759,240
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003,
EXCEPT PER CPO AMOUNTS)
(NOTES 1 AND 2)
2001 2002 2003
-------------- -------------- ---------------
Net sales................................... (Note 25) Ps. 21,612,121 Ps. 22,416,573 Ps. 23,563,213
Cost of sales............................... 12,575,482 12,911,892 12,889,063
-------------- -------------- ---------------
Gross profit............................. 9,036,639 9,504,681 10,674,150
-------------- -------------- ---------------
Operating expenses:
Selling.................................. 1,636,661 1,752,572 1,692,930
Administrative........................... 1,479,931 1,409,525 1,410,043
-------------- -------------- ---------------
3,116,592 3,162,097 3,102,973
-------------- -------------- ---------------
Depreciation and amortization............... 1,407,883 1,507,334 1,525,240
-------------- -------------- ---------------
Operating income......................... (Note 25) 4,512,164 4,835,250 6,045,937
Integral cost of financing - net............ (Note 18) 454,292 637,347 614,527
Restructuring and non-recurring charges (Note 19) 597,176 875,340 657,249
Other expense - net......................... (Note 20) 722,102 2,218,938 543,256
-------------- -------------- ---------------
Income before taxes...................... 2,738,594 1,103,625 4,230,905
-------------- -------------- ---------------
Income tax and assets tax................... (Note 21) 570,530 306,991 713,959
Employees' profit sharing................... (Note 21) 23,626 4,259 5,524
-------------- -------------- ---------------
594,156 311,250 719,483
-------------- -------------- ---------------
Income before equity in results of
affiliates, results from discontinued
operations and cumulative loss effect
of accounting change................... 2,144,438 792,375 3,511,422
Equity in (losses) earnings of affiliates
- net.................................. (Note 5) (573,816) (1,201,779) 28,288
Income (loss) from discontinued operations
- net.................................. (Note 22) 14,622 1,105,010 (64,157)
Cumulative loss effect of accounting
change - net........................... (Note 1(p)) (76,320) -- --
-------------- -------------- ---------------
Consolidated net income.................. 1,508,924 695,606 3,475,553
Minority interest........................... (Note 16) (29,988) 71,570 121,050
-------------- -------------- ---------------
Net income............................... (Note 14) Ps. 1,478,936 Ps. 767,176 Ps. 3,596,603
============== ============== ===============
Net income per CPO....................... (Note 23) Ps. 0.51 Ps. 0.24 Ps. 1.23
============== ============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003)
(NOTES 1 AND 2)
ACCUMULATED
OTHER
CAPITAL ADDITIONAL RETAINED COMPREHENSIVE
STOCK PAID-IN EARNINGS (LOSS) INCOME
(NOTE 13) CAPITAL (NOTE 14) (NOTE 15)
------------- ------------- ------------- -------------
BALANCE AT JANUARY 1, 2001 Ps. 7,713,427 Ps. 224,647 Ps.16,321,391 Ps.(5,132,095)
Repurchase of capital stock (44,857) -- (198,804) --
Increase in minority interest -- -- -- --
Comprehensive income (loss) -- -- 1,478,936 (851,381)
------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 2001 7,668,570 224,647 17,601,523 (5,983,476)
Shares issued 35 391 -- --
Repurchase of capital stock (6,854) -- (31,717) --
Increase in minority interest -- -- -- --
Comprehensive income -- -- 767,176 747,270
------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 2002 7,661,751 225,038 18,336,982 (5,236,206)
Dividends -- -- (571,871) --
Repurchase of capital stock (460,029) -- (4,192,346) --
Sale of capital stock under
stock option plan 13,002 -- 58,697 --
Shares issued 372,995 3,650,380 -- --
Decrease in minority interest -- -- -- --
Comprehensive income -- -- 3,596,603 2,992,687
------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 2003 Ps. 7,587,719 Ps. 3,875,418 Ps.17,228,065 Ps.(2,243,519)
============= ============= ============= =============
TOTAL MINORITY TOTAL
MAJORITY INTEREST STOCKHOLDERS'
INTEREST (NOTE 16) EQUITY
------------- ------------- -------------
BALANCE AT JANUARY 1, 2001 Ps.19,127,370 Ps. 1,051,730 Ps.20,179,100
Repurchase of capital stock (243,661) -- (243,661)
Increase in minority interest -- 20,714 20,714
Comprehensive income (loss) 627,555 -- 627,555
------------- ------------- -------------
BALANCE AT DECEMBER 31, 2001 19,511,264 1,072,444 20,583,708
Shares issued 426 -- 426
Repurchase of capital stock (38,571) -- (38,571)
Increase in minority interest -- 112,447 112,447
Comprehensive income 1,514,446 -- 1,514,446
------------- ------------- -------------
BALANCE AT DECEMBER 31, 2002 20,987,565 1,184,891 22,172,456
Dividends (571,871) -- (571,871)
Repurchase of capital stock (4,652,375) -- (4,652,375)
Sale of capital stock under
stock option plan 71,699 -- 71,699
Shares issued 4,023,375 -- 4,023,375
Decrease in minority interest -- (106,247) (106,247)
Comprehensive income 6,589,290 -- 6,589,290
------------- ------------- -------------
BALANCE AT DECEMBER 31, 2003 Ps.26,447,683 Ps. 1,078,644 Ps.27,526,327
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003)
(NOTES 1 AND 2)
2001 2002 2003
-------------- -------------- --------------
Operating activities:
Net income................................................. Ps. 1,478,936 Ps. 767,176 Ps. 3,596,603
Adjustments to reconcile net income to resources
provided by (used for) operating activities:
Equity in losses (earnings) of affiliates............... 573,816 1,201,779 (28,288)
Minority interest........................................ 29,988 (71,570) (121,050)
Depreciation and amortization............................ 1,407,883 1,507,334 1,525,240
Write-off of long-lived assets and other amortization.... 582,509 1,653,648 747,224
Deferred taxes........................................... (185,673) (627,349) (332,068)
Loss (gain) on disposition of affiliates................. -- 12,996 (445,824)
Cumulative loss effect of accounting change.............. 76,320 -- --
(Income) loss from discontinued operations.............. (14,622) (1,105,010) 64,157
-------------- -------------- --------------
3,949,157 3,339,004 5,005,994
-------------- -------------- --------------
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade notes and accounts receivable - net................ (694,816) (306,603) (723,154)
Transmission rights and programming...................... 674,892 (154,537) 500,843
Inventories.............................................. (162,410) 56,342 15,454
Other accounts and notes receivable and other current
assets................................................. (385,172) 622,522 (50,920)
Increase (decrease) in:
Customer deposits and advances........................... 494,541 349,795 1,783,786
Trade accounts payable................................... (155,199) 150,699 30,618
Other liabilities, taxes payable and deferred taxes...... (774,027) 1,255,974 (188,257)
Pension plans and seniority premiums..................... 30,737 19,038 68,174
-------------- -------------- --------------
(971,454) 1,993,230 1,436,544
-------------- -------------- --------------
Resources provided by continuing operations.............. 2,977,703 5,332,234 6,442,538
Resources provided by discontinued operations............ 11,180 -- --
-------------- -------------- --------------
Resources provided by operating activities............... 2,988,883 5,332,234 6,442,538
-------------- -------------- --------------
Financing activities:
Issuance of Senior Notes................................... 3,026,097 3,264,030 --
Other decrease in debt-net................................. (1,441,605) (2,556,296) (175,656)
Repurchase of capital stock................................ (243,661) (38,571) (4,580,676)
Series "A" Shares of capital stock issued.................. -- 426 4,023,375
Dividends paid............................................. -- -- (571,871)
Minority interest.......................................... (9,274) 184,017 14,803
Translation effect......................................... (349,378) (253,660) (307,523)
-------------- -------------- --------------
Resources provided by (used for) financing activities..... 982,179 599,946 (1,597,548)
-------------- -------------- --------------
F-7
2001 2002 2003
-------------- -------------- --------------
Investing activities:
Due from affiliated companies -- net....................... (18,287) 513,601 (439,453)
Investments ............................................... (5,182,298) 1,614,693 (609,708)
Disposition of investments................................. 252,765 750,067 537,031
Investments in property, plant and equipment............... (1,471,339) (1,407,761) (1,052,221)
Disposition of property, plant and equipment............... 569,604 108,764 414,445
Disposition of discontinued operations..................... -- 2,277,061 (94,348)
Goodwill and other intangible assets-net................... (679,270) (6,839,384) (496,504)
Other assets............................................... 80,986 4,786 23,080
-------------- -------------- --------------
Resources used for investing activities.................... (6,447,839) (2,978,173) (1,717,678)
-------------- -------------- --------------
Net (decrease) increase in cash and temporary investments.. (2,476,777) 2,954,007 3,127,312
Cash and temporary investments at beginning of year........ 8,658,986 6,182,209 9,136,216
-------------- -------------- --------------
Cash and temporary investments at end of year.............. Ps. 6,182,209 Ps. 9,136,216 Ps. 12,263,528
============== ============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
GRUPO TELEVISA, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(IN THOUSANDS OF MEXICAN PESOS IN PURCHASING POWER AS OF DECEMBER 31, 2003,
EXCEPT PER CPO, PER SHARE AND EXCHANGE RATE AMOUNTS)
1. ACCOUNTING POLICIES
The principal accounting policies followed by Grupo Televisa, S.A. (the
"Company") and its consolidated subsidiaries (collectively, the "Group") and
observed in the preparation of these consolidated financial statements are
summarized below.
a) Basis of presentation
The financial statements of the Group are presented on a consolidated basis
and in accordance with accounting principles generally accepted in Mexico
("Mexican GAAP"), and accordingly, include the recognition of the effects of
inflation on financial information. The consolidated financial statements
include the net assets and results of operations of all companies in which the
Company has a controlling interest (subsidiaries). All significant intercompany
balances and transactions have been eliminated from the financial statements.
The preparation of financial statements in conformity with Mexican GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
b) Members of the Group
At December 31, 2003, the Group consisted of the Company and various
subsidiaries, including the following:
COMPANY'S
OWNERSHIP (1) BUSINESS SEGMENTS (2)
------------- ---------------------
Telesistema Mexicano, S.A. de C.V. and subsidiaries 100% Television broadcasting
Programming for pay television
Programming licensing
Television Independiente de Mexico, S.A. de C.V. and subsidiaries 100% Television broadcasting
Editorial Televisa, S.A. de C.V. and subsidiaries 100% Publishing
Grupo Distribuidoras Intermex, S.A. de C.V. and subsidiaries 100% Publishing distribution
Empresas Cablevision, S.A. de C.V. and subsidiaries 51% Cable television (3)
Sistema Radiopolis, S.A. de C.V. and subsidiaries 50% Radio (see Note 2)
Corporativo Vasco de Quiroga, S.A. de C.V. and subsidiaries 100% Other businesses
CVQ Espectaculos, S.A. de C.V. and subsidiaries 100% Other businesses
Galavision DTH, S. de R.L. de C.V. 100% DTH (4)
(1) Percentage of equity interest directly held by the Company in the holding
subsidiary.
(2) See Note 25 for a description of each of the Company's business segments.
(3) In April 2002, the minority shareholder of Empresas Cablevision, S.A. de
C.V. ("Cablevision"), the subsidiary through which the Group's cable
television business is conducted, sold its 49% equity interest in
Cablevision in connection with an offering of CPOs of Cablevision on the
Mexican Stock Exchange.
(4) The Group has investments in joint ventures engaged in direct-to-home
("DTH") broadcast satellite pay television.
F-9
The Group's television broadcasting, cable television, radio and nationwide
paging businesses require concessions (licenses) granted by the Mexican Federal
Government for a fixed term, subject to renewal in accordance with Mexican law.
At December 31, 2003, the expiration dates of the Group's concessions were as
follows:
CONCESSIONS EXPIRATION DATES
----------- ----------------
Television broadcasting.............................. Various from 2003 to 2012
Cable television..................................... In 2029
Radio................................................ Various from 2004 to 2015
Nationwide paging.................................... In 2006 and 2019
There are some television broadcasting concessions which expired in October
2003, and are pending to be confirmed for renewal. The Group's management has
complied with all applicable requirements and expects that renewal of these
concessions will be confirmed in 2004 by the Mexican Federal Government.
c) Foreign currency translation
Monetary assets and liabilities of Mexican companies denominated in foreign
currencies are translated at the prevailing exchange rate at the balance sheet
date. Resulting exchange rate differences are recognized in income for the year,
within integral cost of financing.
Assets, liabilities and results of operations of non-Mexican subsidiaries
are first converted to Mexican GAAP, including restating to recognize the
effects of inflation based on the inflation of each foreign country, and then
translated to Mexican pesos utilizing the exchange rate as of the balance sheet
date at year-end. Resulting translation differences are recognized in equity as
part of the other comprehensive income or loss. Financial statements of
non-Mexican operations that are integral to Mexican operations are converted to
Mexican GAAP and translated to Mexican pesos by utilizing the exchange rate of
the balance sheet date at year-end for monetary assets and liabilities, with the
related adjustment included in net income, and historical exchange rates for
non-monetary items.
Effective March 2002, the Group designated its net investment in Univision
as an effective hedge of its Senior Notes due 2011 and 2032 for an aggregate
amount of U.S.$600 million (Ps.6,735,000) (see Note 8). Consequently, beginning
March 2002, any foreign exchange gain or loss attributable to this U.S. dollar
long-term debt, being hedged by the Group's net investment in shares of
Univision, is credited or charged directly to equity (other comprehensive income
or loss).
d) Temporary investments
The Group considers all highly liquid investments with original maturities
of one year or less, to be temporary investments. Temporary investments are
valued at market value.
As of December 31, 2002 and 2003, temporary investments consisted of fixed
short-term deposits in commercial banks (primarily Mexican Pesos and U.S.
dollars), with an average yield of approximately 1.99% for U.S. dollar deposits
and 7.56% for Mexican Peso deposits in 2002, and approximately 1.30% for U.S.
dollar deposits and 7.07% for Mexican Peso deposits in 2003.
e) Transmission rights and programming
Programming is comprised by programs, literary works, production talent
advances and films.
Transmission rights and literary works are valued at the lesser of
acquisition cost or net ralizable value. Programs and films are valued at the
lesser of production cost, which consists of direct production costs and
production overhead, or net realizable value.
F-10
Transmission rights, programs, literary works, production talent advances
and films are restated by using the National Consumer Price Index ("NCPI")
factors, and specific costs for some of these assets, which are determined by
the Group on the basis of last purchase price or production cost, or replacement
cost whichever is more representative. Cost of sales is determined based on
restated costs, and calculated for the month in which such transmission rights,
programs, literary works, production talent advances and films are matched with
related revenues.
Transmission rights and literary works are amortized over the lives of the
contracts. Transmission rights in perpetuity, are amortized on a straight-line
basis over the period of the expected benefit as determined based upon past
experience, but not for more than 25 years.
The Group's policy is to capitalize the production costs of programs which
benefit more than one period and amortize them over the expected period of
program revenues based on the Company's historic revenue patterns for similar
productions.
The Group makes payments to artists, producers, writers and actors for
exclusive rights to their services in the Group's future programs for specified
periods (production talent advances). Such payments will be included as direct
or indirect costs of program production to be amortized starting with
transmission.
f) Inventories
Inventories of paper, magazines, materials and supplies are valued at the
lesser of acquisition cost or net realizable value. Inventories are restated by
using the NCPI factors, and specific costs for some of these assets, which are
determined by the Group on the basis of last purchase price.
g) Investments
Investments in companies in which the Group exercises significant influence
or joint control are accounted for by the equity method. The Group recognizes
equity in losses of affiliated companies up to the amount of its initial
investment and subsequent capital contributions, or beyond that when guaranteed
commitments have been made by the Group in respect of obligations incurred by
investees, but not in excess of such guarantees. If an affiliated company for
which the Group had recognized equity losses up to the amount of its guarantees
generates net income in the future, the Group would not recognize its
proportionate share of this net income until the Group first recognizes its
proportionate share of previously unrecognized losses. Other investments are
accounted for at cost.
h) Property, plant and equipment
Property, plant and equipment are recorded at acquisition cost, and
thereafter are restated using the NCPI, except for equipment of non-Mexican
origin, which is restated using an index which reflects the inflation in the
respective country of origin and the exchange rate of the Mexican Peso against
the currency of such country at the balance sheet date ("Specific Index").
Depreciation of property, plant and equipment is based upon the restated
carrying value of the assets in use and is computed using the straight-line
method over the estimated useful lives of the assets ranging principally from 20
to 65 years for buildings, 5 to 25 years for technical equipment and 5 to 20
years for other equipment.
i) Goodwill and other intangible assets
Goodwill and other intangible assets are recognized at cost, and thereafter
restated using the NCPI. Beginning January 1, 2003, in connection with the
adoption of Bulletin C-8, "Intangible Assets", issued by the Mexican Institute
of Public Accountants (the "MIPA"), the Group's trademarks and its
television network concession are deemed intangible assets with indefinite
useful lives, and ceased being amortized after December 31,2002. Additionally,
in accordance with the provisions of Bulletin C-8, indefinite-lived intangibles
are subject to at least an annual assessment for impairment and more frequently
if circumstances indicate a possible impairment exists. Before 2003, trademark
and the television network concession were amortized over periods of 40 and 15
years, respectively. Had these intangible assets been amortized during 2003, the
consolidated amortization expense for the
F-11
year ended December 31, 2003, would have increased by an amount of Ps. 93,714
(see Note 7). Goodwill and other intangible assets with measurable lives are
amortized using the straight-line method over the following periods:
YEARS
-----
Goodwill........................................... 20
Licenses and software.............................. Various from 3 to 10
Internet development costs......................... 3
Financing costs ................................... Over the life of the
related debt
j) Evaluation of long-lived assets
The Group evaluates the recoverability of its long-lived assets to
determine whether current events or circumstances warrant adjustment to the
carrying value. Such evaluation is based on current and projected income and
cash flows from operations as well as other economic and market variables (see
Notes 7 and 20). Beginning January 1, 2004, long-lived assets will be evaluated
for impairment in accordance with the provisions of the new Bulletin C-15
"Impairment of the Value fo Long-Lived Assets and its Disposition" issued by the
MIPA in March 2003.
Bulletin C-15 provides guidance for the recognition and measurement of the
impairment of long-lived assets to be held and used, and for the measurement of
long-lived assets to be disposed by sale, abandonment or exchange. The Group has
assessed the impact of this new accounting principle and determined that the
adoption of Bulletin C-15 in 2004 is not expected to have a material effect on
the Group's financial statements.
k) Customer deposits and advances
Deposit and advance agreements for television advertising services provide
that customers receive volume discounts, that are fixed for the contract period,
for television broadcast advertising time based on rates established by the
Group. Such rates vary depending on when the advertisement is aired, including
the season, hour, day and type of programming.
Customer deposits and advances are considered non-monetary items since they
are non-refundable and are applied at rates in effect when they were received.
Accordingly, these deposits and advances are restated to recognize the effects
of inflation by using the NCPI.
l) Stockholders' equity
The capital stock and other stockholders' equity accounts (other than the
result from holding non-monetary assets and the foreign currency translation
adjustments) include the effect of restatement, determined by applying the
change in the NCPI between the dates capital was contributed or net results were
generated to the most recent period end. The restatement represents the amount
required to maintain the contributions, share repurchases and accumulated
results in Mexican Pesos in purchasing power as of December 31, 2003.
m) Revenue recognition
The Group derives the majority of its revenues from media and entertainment
related business activities both domestically and internationally. Revenues
generally are recognized when the service is provided and collectibility is
probable. A summary of revenue recognition policies by activity is as follows:
- Advertising revenues, including deposits from customers for future
advertising, are recognized at the time the advertising services are
rendered.
- Revenues from program services for pay television and licensed
television programs are recognized when the programs are sold and
become available for broadcast.
F-12
- Revenues from magazine subscriptions are deferred and recognized
proportionately as products are delivered to subscribers. Revenues
from the sales of magazines and books are recognized when the
merchandise is delivered, net of a provision for estimated returns.
- Cable television subscription, pay per view and installation fees
are recognized in the period in which the services are rendered.
- Revenues from attendance to soccer games, including revenues from
advance ticket sales for soccer games and other promotional events,
are recognized on the date of the relevant event.
- Revenues from nationwide paging are recognized when the paging
services are rendered.
- Motion picture production and distribution revenues are recognized
as the films are exhibited.
- Revenues from dubbing services are recognized in the period in which
the services are rendered.
- Advertising revenues from Internet operations are recognized based
on the number of times in which such advertisement is shown on the
Group's Internet portal and the number of times such advertisement
is visited by a user.
n) Pension plans, seniority premiums and indemnities
Plans exist for pension and retirement payments for substantially all of
the Group's Mexican employees, funded through irrevocable trusts. Payments to
the trusts are determined in accordance with actuarial computations of funding
requirements. Pension payments are made by the trust administrators.
Increases or decreases in the seniority premium liability are made by the
Group and are based upon actuarial calculations.
Severance obligations to dismissed personnel are charged to income in the
year in which they are incurred.
o) Income tax
The recognition of deferred income tax is made by using the comprehensive
asset and liability method. Under this method, deferred income taxes are
calculated by applying the respective income tax rate to the temporary
differences between the accounting and tax values of assets and liabilities at
the date of the financial statements.
p) Derivative financial instruments
The Group uses from time to time derivative financial instruments for the
purpose of reducing its exposure to adverse fluctuations in foreign exchange
rates and interest. All derivative financial instruments are recorded in the
balance sheet at their fair value and changes in their fair value are recorded
in each period in the income statement. The Group adopted this accounting policy
as of January 1, 2001, and recognized a cumulative effect loss of Ps.76,320 (net
of income tax benefit of Ps.41,097) in the consolidated income statement for the
year ended December 31, 2001.
q) Comprehensive income
Comprehensive income includes the net income for the period presented in
the income statement plus other results for the period reflected in the
stockholders' equity which are from non-owner sources (see Note 15).
r) Prior years' financial statements
The Group's financial statements for prior years have been restated to
Mexican pesos in purchasing power as of December 31, 2003, by using a
restatement factor derived from the change in the NCPI, which for 2001 and 2002
was 1.0990 and 1.0398, respectively. Had the alternative weighted average factor
allowed under Mexican GAAP been applied to restate the Group's financial
statements for prior years, which included the results of Mexican and
non-Mexican subsidiaries, the restatement factor for 2001 and 2002 would have
been 1.1080 and 1.0515, respectively.
F-13
The NCPI at the following dates was:
December 31, 2001 97.354
December 31, 2002 102.904
December 31, 2003 106.996
Certain reclassifications have been made in prior years' financial
statements to conform to classifications used in the most recent year.
2. ACQUISITIONS AND DISPOSITIONS
In June 2001, the Group acquired a 30% equity interest in Argos
Comunicacion, S.A. de C.V. ("Argos"), a company engaged in the production of
television programming, for an aggregate cash purchase price of Ps.153,614 (see
Note 7).
In October 2001, the Company sold a 50% equity stake, with limited voting
rights, in the Group's radio subsidiary, Sistema Radiopolis, S.A. de C.V., to
Grupo Prisa, a Spanish communications group, for an aggregate purchase price of
U.S.$50 million (Ps.512,087), U.S.$15 million (Ps.153,626) of which was in the
form of cash and U.S.$35 million (Ps.358,462) of which was in the form of notes
receivable due in July 2002), and a U.S.$10 million (Ps.100,870) capital
contribution made in July 2002. The Group recognized a pre-tax gain on this sale
of approximately Ps.299,985, which represented the excess of the cash and
non-cash proceeds over the 50% carrying value of the net assets of this radio
subsidiary at the transaction date (see Note 20).
In December 2001, the Group entered into a series of transactions with
Univision Communications Inc. ("Univision") by which, among other things, the
Group (i) acquired 375,000 non-voting preferred shares of Univision stock, for
U.S.$375 million (Ps. 3,782,620) in cash, which converted upon the receipt of
required U.S. regulatory approvals in February 2002, into 10,594,500 shares of
Univision Class "A" Common Stock; (ii) received warrants (which expire in
December 2017) to purchase, at an exercise price of U.S.$38.261 per share,
6,274,864 shares of Univision Class "A" Common Stock and 2,725,136 shares of
Univision Class "T" Common Stock which expire in December 2017, as a
consideration for surrendering certain governance rights previously held by the
Group in Univision; (iii) agreed to sell its music recording business to
Univision, which sale was consummated in April 2002, in exchange for 6,000,000
shares of Univision Class "A" Common Stock and warrants (which expire in
December 2017) to purchase, at an exercise price of U.S.$38.261 per share,
100,000 shares of Univision Class "A" Common Stock; and (iv) amended its program
license agreement to provide Univision with exclusive rights to broadcast
substantially all of the Group's programming in the United States solely over
the Univision, Galavision and Telefutura networks, subject to some exceptions,
in exchange for increased royalties. Following the conversion of the preferred
shares described above into shares of Univision common stock, the Group
recognized an excess of the purchase price of U.S.$375.0 million paid by the
Group over the carrying value of the Univision stock acquired of approximately
U.S.$321.8 million (Ps.3,500,801). Also, in connection with the sale of the
music recording business described above, the Group recognized (i) an excess of
the purchase price of U.S.$233.1 million (Ps.2,556,824) assigned to the shares
of Univision common stock at the transaction date over the carrying value of the
Univision stock acquired of approximately U.S.$197.6 million (Ps.2,137,342);
(ii) an acquisition cost of U.S.$2.0 million (Ps.21,760) for the warrants to
purchase 100,000 shares of Univision common stock, as being the fair value
assigned to this investment at the transaction date; and (iii) a gain on
disposal of the music recording business of Ps.1,103,250, net of related costs,
expenses and income taxes. Any shares of Univision common stock owned by the
Group and those shares of Univision common stock that may be purchased by the
Group in connection with related warrants and warrant purchase agreements are
intended to be held as equity securities accounted for under the equity method
(see Notes 5, 9, 12, 22 and 25).
In April 2002, after completing a series of transactions and agreements,
the Group acquired a 50% interest of a live entertainment joint venture in the
United States (Vivelo, Inc., formerly Cardenas-Fernandez & Associates) for an
aggregate consideration of U.S.$4.0 million (Ps.39,559) in cash, subject to
working capital adjustments (as defined) and additional payments to be made by
the Group under certain circumstances (see Note 12). As a result, beginning the
second quarter of 2002, the Group accounts for its interest in Vivelo, Inc. by
applying the equity method to the results of operations and net assets of this
joint venture.
F-14
In April 2002, the Group acquired an additional 50% interest in the
capital stock of certain publishing distribution companies in Chile and
Argentina, which were 50% owned by the Group before this acquisition, for an
aggregate amount of U.S.$3.6 million (U.S.$2.7 million in cash and U.S.$0.9
million through an account payable due in April 2003), of which U.S.$3.1 million
is related to the acquisition in Chile. Accordingly, beginning May 2002, these
businesses became wholly-owned subsidiaries of the Company. The Group recognized
related goodwill as a result of this acquisition in the amount of Ps.28,013
resulting from the excess of the purchase price over the carrying value of the
related net assets of such companies.
In August 2002, the Group sold all of its 21.99% minority interest in the
capital stock of Red Televisiva Megavision, S.A. ("Megavision"), a broadcasting
television company in Chile, for an aggregate amount of U.S.$4.2 million, of
which U.S.$2.1 million were paid in cash and U.S.$2.1 million in the form of a
receivable due in August 2003 and collateralized with the shares of Megavision
previously owned by the Group. The Group recognized a pre-tax gain on this sale
of approximately Ps.5,195, which represented the excess of the proceeds over the
carrying value of the net investment in Megavision at the transaction date.
In October 2002, the Group acquired a 40% interest in Ocesa
Entretenimiento, S.A. de C.V. ("OCEN"), a subsidiary of Corporacion
Interamericana de Entretenimiento, S.A. de C.V. ("CIE"), which owns all the
assets related to CIE's live entertainment business unit in Mexico, for a gross
amount of approximately U.S.$104.7 million, of which approximately U.S.$67.0
million (Ps.703,737) was paid in cash in the fourth quarter of 2002, and the
remaining balance of U.S.$37.7 million (Ps.410,180) was paid in March 2003. The
Group recognized goodwill as a result of this minority interest acquisition in
the amount of Ps.719,006 resulting from the excess of the purchase price over
the estimated carrying value of the related net assets of OCEN. Under this
agreement, the purchase price of this acquisition is subject to be adjusted
based on a formula of EBITDA generated by OCEN (as defined) in a three-year
period which will end on December 31, 2005. In the first quarter of 2003, the
Group made an additional capital contribution to OCEN related to its 40%
interest in this company for the amount of Ps.53,415 (see Notes 5 and 17).
During 2002, the Group sold certain non-strategic businesses of the
television broadcasting and publishing segments for an aggregate amount of
Ps.9,062, which included a sale transaction with a Company's director for an
amount of Ps.1,825, and recognized in other expense a pre-tax loss in
disposition of these businesses of Ps.31,864 (see Note 20).
During 2003, the Group disposed its 10% minority interest in the capital
stock of DTS Distribuidora de Television Digital, S.A. ("Via Digital"), a DTH
venture in Spain. The disposal was effected by the Group through the sale of a
portion of its interest in Via Digital with cash proceeds of approximately 27.5
million euros (Ps.397,078) and the exchange of its remaining investment in this
venture for a diminimus interest in Sogecable S.A., a public pay television
company in Spain. As a result of these transactions, the Group recognized a
pre-tax gain of approximately 30.8 million euros (Ps.445,824), which represented
the excess of the cash and non-cash proceeds over the carrying value of the
Group's net investment in Via Digital at the transaction dates (see Note 20).
In May 2003, The Company made initial capital contributions of U.S.$2.5
million (Ps.26,798) to TuTv, LLC, a 50% joint venture with Univision engaged in
the distribution of the Company's Spanish-speaking programming packages in the
United States.
In June 2003, the Company completed the acquisition of all the outstanding
equity of Telespecialidades, S.A. de C.V. ("Telespecialidades"), a company which
was owned by all of the shareholders of Grupo Televicentro, S.A. de C.V.
("Televicentro"), the Group's controlling company. The total consideration paid
in the third quarter of 2003 in connection with this acquisition was for the
equivalent of U.S.$83 million (Ps.893,698), which was financed with cash on
hand. At the time of acquisition, Telespecialidades net assets consisted
principally of 4,773,849 shares of the Company's capital stock in the form of
1,591,283 CPOs, which securities were previously owned by Televicentro, and tax
loss carryforwards for approximately Ps.6,713,683. Beginning June 30, 2003, the
Group recognizes the Company's shares owned by Telespecialidades as a share
repurchase.
F-15
3. TRADE NOTES AND ACCOUNTS RECEIVABLE
Trade notes and accounts receivable as of December 31, 2002 and 2003,
consisted of:
2002 2003
-------------- --------------
Non-interest bearing notes received as customer deposits and advances..... Ps. 7,443,024 Ps. 8,042,676
Accounts receivable, including value-added tax receivables related to
advertising services................................................... 3,148,858 3,334,883
Allowance for doubtful accounts........................................... (711,982) (774,505)
-------------- --------------
Ps. 9,879,900 Ps. 10,603,054
============== ==============
4. TRANSMISSION RIGHTS AND PROGRAMMING
At December 31, 2002 and 2003, transmission rights and programming
consisted of:
2002 2003
--------------- ---------------
Transmission rights ................................................... Ps. 3,971,213 Ps. 4,151,298
Programming............................................................ 4,614,690 4,054,370
--------------- ---------------
8,585,903 8,205,668
--------------- ---------------
Non-current portion of:
Transmission rights ................................................... 1,956,079 2,120,747
Programming ........................................................... 3,073,722 2,549,831
--------------- ---------------
5,029,801 4,670,578
--------------- ---------------
Current portion of transmission rights, and programming................ Ps. 3,556,102 Ps. 3,535,090
================ ===============
5. INVESTMENTS
At December 31, 2002 and 2003, the Group had the following investments:
OWNERSHIP %
AS OF DECEMBER
2002 2003 31, 2003
-------------- -------------- --------------
ACCOUNTED FOR BY THE EQUITY METHOD:
Univision (1)............................... Ps. 2,196,736 Ps. 5,318,436 9.4%
OCEN (see Note 2)........................... 417,113 457,697 40.0%
DTH TechCo Partners (2) .................... 182,388 36,095 30.0%
Other....................................... 171,839 175,940
-------------- --------------
2,968,076 5,988,168
-------------- --------------
OTHER INVESTMENTS:
Deposits in escrow (3)...................... 163,202 148,658
DTH Techco Partners (2)..................... - 86,125
Univision (1)............................... 21,760 21,760
Other....................................... 665 77,069
-------------- --------------
185,627 333,612
-------------- --------------
Ps. 3,153,703 Ps. 6,321,780
============== ==============
(1) The Group accounts for this investment under the equity method due to the
Group's continued ability to exercise significant influence over
Univision's operations. As of December 31, 2002 and 2003, the Group owned
13,593,034 shares Class "T" and 16,594,500 shares Class "A" of common stock
of Univision, as well as warrants to acquire 2,727,136 shares Class "T" and
6,374,864 shares Class "A" of common stock of Univision (see Note 2).
Substantially all of these warrants can be exercised at a price of
U.S.$38.261 per share, and expire in December 2017. In 2002, the Group
recognized the acquisition
F-16
cost of 100,000 warrants for an amount of Ps.21,760 as other investments
since the shares that may be purchased through these instruments are
intended to beheld by the Group as an equity investment in Univision (see
Notes 2 and 9). In September 2003, Univision and Hispanic Broadcasting
Corporation ("HBC"), a leading Spanish-language radio group in the United
States, completed a proposed merger of their businesses following the
approval of the U.S. Federal Communications Commission. As a result of this
merger, the Group (i) decreased its ownership in Univision from
approximately 14.7% to 10.9% on a fully diluted basis; and (ii) increased
the carrying value of its investment in Univision by recognizing a net
other comprehensive income of approximately U.S.$250.6 million
(Ps.2,812,927) in the fourth quarter of 2003 (see Note 15). The Group's
ownership stake in Univision as of December 31, 2003, was approximately of
10.7% on a fully diluted basis.
(2) General partnership engaged in providing technical services to DTH ventures
in Latin America. During 2003, the Group provided funding to DTH TechCo
Partners ("TechCo") for approximately U.S.$7.5 million (Ps.84,284) in the
form of long-term notes with principal and interest maturities in 2008,
bearing annual interest rate of LIBOR plus 2.5%. As of December 31, 2003,
promissory notes and accrued interest receivable due from TechCo were of
approximately U.S.$7.7 million (Ps.86,125).
(3) In connection with the disposal of a Group's investment in 1997, the Group
granted collateral to secure certain indemnification obligations which
consisted, at December 31, 2002 and 2003, of short-term securities of
approximately U.S.$15.0 million (Ps.163,202) and U.S.$13.2 million
(Ps.148,658), respectively. After the expiration of applicable tax statutes
of limitations, the collateral will be reduced to diminimus. The collateral
agreement will terminate in approximately four years (see Note 12).
In 2001, 2002 and 2003, the Group recognized in the consolidated statements
of income equity in losses (earnings) of affiliates of Ps.573,816, Ps.1,201,779
and (Ps.28,288), respectively, and in the consolidated other comprehensive
income or loss (see Note 15), equity in the loss (gain) from holding
non-monetary assets of affiliates of Ps.1,422, Ps.16 and (Ps.63), respectively,
equity in the translation loss (gain) effect of affiliates of Ps.198,227,
Ps.111,223 and (Ps.154,679), respectively, and in 2002 and 2003, equity in the
gain on issuance of shares of associates of Ps.509,434 and Ps.2,883,214,
respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2002 and 2003, consists
of:
2002 2003
-------------- --------------
Buildings.................................................... Ps. 6,779,204 Ps. 7,160,757
Buildings improvements....................................... 1,769,044 1,634,628
Technical equipment.......................................... 10,124,891 11,399,328
Furniture and fixtures....................................... 539,479 562,691
Transportation equipment..................................... 986,790 1,084,767
Computer equipment........................................... 819,922 916,240
-------------- --------------
21,019,330 22,758,411
Accumulated depreciation..................................... (9,666,143) (11,306,059)
-------------- ---------------
11,353,187 11,452,352
Land......................................................... 3,594,734 3,534,492
Construction in progress..................................... 1,005,424 613,854
-------------- --------------
Ps. 15,953,345 Ps. 15,600,698
============== ===============
At December 31, 2002 and 2003, the Group's Mexican subsidiaries had
technical equipment, transportation equipment and computer equipment of
non-Mexican origin totaling Ps.2,746,581 and Ps.2,926,794, respectively, net of
accumulated depreciation (see Note 1(h)).
Had the NCPI been applied to restate all of the Group's net equipment, the
net balance of property, plant and equipment as of December 31, 2002 and 2003
would have been Ps.16,796,406 and Ps.16,181,850, respectively.
Depreciation charged to income in 2001, 2002 and 2003 was Ps.1,013,585,
Ps.1,046,228 and Ps.1,281,436, respectively.
F-17
Included in property, plant and equipment are assets held under capital
leases, net of accumulated depreciation, of Ps.87,090 and Ps.6,892 as of
December 31, 2002 and 2003, respectively.
7. GOODWILL AND OTHER INTANGIBLE ASSETS - NET
The balances of goodwill and other intangible assets as of December 31,
2002 and 2003, were as follows (see Note 1(i)):
NET CARRYING AMOUNT ACCUMULATED NET CARRYING AMOUNT
AS OF DECEMBER 31, GROSS CARRYING AMORTIZATION AND AS OF DECEMBER 31,
2002 AMOUNT WRITE-OFF 2003
------------------ ----------------- ---------------- ------------------
Goodwill....................... Ps. 7,861,336 Ps. 9,521,017 Ps. (1,953,030) Ps. 7,567,987
Trademark...................... 421,639 600,571 (156,097) 444,474
Television network concession.. 554,395 1,160,425 (606,030) 554,395
Licenses and software.......... 404,257 942,350 (594,894) 347,456
Internet....................... 138,054 467,663 (467,663) --
Deferred financing cost........ 171,611 291,402 (149,631) 141,771
Other.......................... 143,389 198,816 (54,741) 144,075
------------------ ----------------- ---------------- ------------------
Ps. 9,694,681 Ps. 13,182,244 Ps. (3,982,086) Ps. 9,200,158
================== ================= ================= ==================
Amortization of other intangible assets charged to income in 2001, 2002
and 2003, was Ps.534,798, Ps.550,422 and Ps.416,397, respectively, of which
Ps.62,731, Ps.48,631 and Ps.2,524, respectively, were recorded as other cost and
expenses, (see Note 20), Ps.44,325, Ps.33,626 and Ps.30,494, respectively, were
recorded as interest expense (see Note 18) and Ps.33,444 and Ps.7,060 in 2001
and 2002, respectively, were recorded as non-recurring charges in connection
with the extinguishment of long-term debt (see Note 19).
The changes in the net carrying amount of goodwill for the year ended
December 31, 2003, were follows:
FOREING CURRENCY ALLOCATED
BALANCE AS OF TRANSLATION AMORTIZATION OF (ADJUSTED) WRITTE- OFF BALANCE AS OF
DECEMBER 31, 2002 ADJUSTMENTS GOODWILL GOODWILL OF GOODWILL DECEMBER 31, 2003
----------------- ----------- -------- -------- ----------- -----------------
Consolidated subsidiaries:
Television broadcasting... Ps.1,264,106 Ps. -- Ps. (86,495) Ps. -- Ps. -- Ps.1,177,611
Publishing distribution... 274,390 12,807 (30,500) -- (88,805) 167,892
Other businesses.......... 38,099 -- (3,532) -- (1,150) 33,417
Equity-method investment...... 6,284,741 294,527 (340,164) (26,053) (23,984) 6,189,067
------------ ---------- ------------ ----------- ------------ ------------
Ps.7,861,336 Ps.307,334 Ps.(460,691) Ps.(26,053) Ps.(113,939) Ps.7,567,987
============ ========== ============ =========== ============ ============
F-18
Amortization of goodwill in 2001, 2002 and 2003 was Ps.210,672, Ps.455,214
and Ps.460,691, respectively, which was recorded in other expense (see Note 20).
In 2001, 2002 and 2003, a write-off of unamortized goodwill for the amount
of Ps.231,567, Ps.1,109,117 and Ps.113,939, respectively, was recognized in
connection with the recoverability evaluation of certain long-lived assets of
the Group (see Note 20). In 2002, the write-off of unamortized goodwill was a
primary related to the operations of a television broadcasting subsidiary in San
Diego and the Group's investment in Argos (see Note 2).
8. DEBT
As of December 31, 2002 and 2003, debt outstanding was as follows:
2002 2003
-------------------- --------------------
U.S. dollars:
11.375% Series "A" Senior Notes due 2003................ Ps. 749,062 Ps. --
11.875% Series "B" Senior Notes due 2006 (1) (5) ....... 58,132 59,975
8.625% Senior Notes due 2005 (2) (5) (6)................ 2,176,020 2,245,000
8% Senior Notes due 2011 (3) (5) (6).................... 3,264,030 3,367,500
8.50% Senior Notes due 2032 (4) (5) (6) ................ 3,264,030 3,367,500
U.S.$100 million syndicated term loan (7) .............. 1,088,010 1,122,500
Other, including capital leases (8)..................... 113,802 91,836
-------------------- --------------------
10,713,086 10,254,311
-------------------- --------------------
Mexican pesos:
UDI-denominated Notes due 2007 (9) ..................... 3,642,526 3,640,302
Ps.800 million term loan (10) .......................... -- 800,000
Bank loans (11) ........................................ 535,856 293,010
-------------------- --------------------
4,178,382 4,733,312
-------------------- --------------------
Other currency debt (12)................................... 273,603 1,792
-------------------- --------------------
Total debt...................................... 15,165,071 14,989,415
Less: long-term maturities................................. 13,875,887 14,704,222
-------------------- --------------------
Current portion of long-term debt................ Ps. 1,289,184 Ps. 285,193
==================== ====================
(1) These securities are unsecured, unsubordinated obligations of the Company,
rank pari passu in right of payment with all existing and future unsecured,
unsubordinated obligations of the Company, and are senior in right of
payment to all future subordinated indebtedness of the Company, and are
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries. Interest on the Series "B" Senior Notes, including
additional amounts payable in respect of certain Mexican withholding taxes,
is 12.49% per annum, and is payable semi-annually.
(2) Interest on these Senior Notes, including additional amounts payable in
respect of certain Mexican withholding taxes, is 9.07% per annum, and is
payable semi-annually.
(3) In the third quarter of 2001, the Company issued these Senior Notes, which
were priced at 98.793% for a yield to maturity of 8.179%. Interest on these
Senior Notes, including additional amounts payable in respect of certain
Mexican withholding taxes, is 8.41% per annum, and is payable
semi-annually.
(4) In the first quarter of 2002, the Company issued these Senior Notes, which
were priced at 99.431% for a yield to maturity of 8.553%. A portion of the
net proceeds of this offering were used to repay all of the amounts then
outstanding under a U.S.$276 million (Ps.2,784,009) bridge loan facility
with an original maturity in December 2002. Interest on these Senior Notes,
including additional amounts payable in respect of certain Mexican
withholding taxes, is 8.94% per annum, and is payable semi-annually.
(5) These Senior Notes may not be redeemed prior to maturity, except in the
event of certain changes in law affecting the Mexican withholding tax
treatment of certain payments on the securities, in which case the
securities will be redeemable, as a whole but not in part, at the option of
the Company.
(6) These Senior Notes are unsecured obligations of the Company, rank equally
in right of payment with all existing and future unsecured and
unsubordinated indebtedness of the Company, and are junior in right of
payment to all of the existing and future liabilities of the Company's
subsidiaries. The agreement of these Senior Notes contains certain
covenants that limit the ability of the Company and its restricted
subsidiaries engaged in television broadcasting, programming for pay
television and programming licensing, to incur or assume liens, perform
sale and leaseback transactions, and consummate
F-19
certain mergers, consolidations and similar transactions. Substantially all
of these Senior Notes are registered with the U.S. Securities and Exchange
Commission.
(7) In the third quarter of 2001, the Company refinanced all of the amounts
outstanding under a syndicated term loan agreement for the amount of
U.S.$400 million. This refinancing was made through a combination of the
net proceeds from the issuance of U.S.$300 million Senior Notes due 2011
described above and, in December 2001, a U.S.$100 million syndicated term
loan with international commercial banks. Amounts outstanding under this
U.S.$100 million term loan are payable in four consecutive semi-annual
installments beginning in June 2005 and ending in December 2006 (the first
two installments of U.S.$20 million each and the last two installments of
U.S.$30 million each), and bear an annual interest rate of LIBOR plus
0.875% for the first three years and 1.125% for the last two years
(excluding the effect of the related Mexican withholding tax). Under the
terms of this credit agreement, the Company and its restricted subsidiaries
engaged in television broadcasting, programming for pay television and
programming licensing are required to maintain (a) certain financial
coverage ratios related to indebtedness, interest expense and stockholders'
equity; and (b) certain restrictive covenants on indebtedness, dividend
payments, issuance and sale of capital stock, capital expenditures or
investments and liens.
(8) Includes notes payable to banks, bearing annual interest rates which vary
between 0.35 and 6.38 points above LIBOR. The maturities of this debt at
December 31, 2003, are various from 2004 to 2010.
(9) Notes denominated in Mexican Investment Units ("Unidades de Inversion" or
"UDIs"), representing 1,086,007,800 UDIs, with an annual interest rate of
8.15% and maturity in 2007. Interest on these notes is payable
semi-annually. The balance as of December 31, 2002 and 2003 includes
restatement of Ps.523,231 and Ps.640,302, respectively. The UDI value as of
December 31, 2003, was of Ps.3.352003 per one UDI.
(10) In May, 2003, the Company entered into a long-term credit agreement with a
Mexican bank for an aggregate amount of Ps.800,000, bearing an average
annual interest rate of 8.925% plus additional basis points from 0 to 45
based on the maintenance of certain financial coverage ratios related to
indebtedness, and payable on a 28-day basis. This indebtednnes has two
semiannual maturities of Ps.40,000 each in 2004, two semiannual maturities
of Ps.120,000 each in 2006 and two quarterly maturities of Ps.240,000 each
in 2008. The net proceeds of this long-term loan were primarily used to pay
amounts outstanding under the Series "A" Senior Notes which matured in May
2003. Under the terms of this credit agreement, the Company and certain
restricted subsidiaries are required to maintain certain financial coverage
ratios and are subject to certain restrictive covenants similar to the
ratios and covenants under the Company's U.S.$100 million syndicated term
loan described above.
(11) It includes a long-term loan payable to a Mexican bank with outstanding
balances of Ps.277,715 and Ps.114,469 at December 31, 2002 and 2003,
respectively, with equal quarterly installments ending July 2004, and
bearing an annual interest rate of the Mexican interbank rate plus 45 basis
points, payable on a monthly basis. The terms of this loan include certain
financial ratios and covenants to be complied with by the Company and
certain restricted subsidiaries similar to the covenants and financial
ratios under the Company's U.S.$100 million term loan facility described
above. The 2002 balance also includes a long-term loan of Ps.232,907
granted by a commercial Mexican bank in 2001 to refinance the redemption of
the Company's Senior Discount Debentures then outstanding, with principal
and interest thereof payable on a quarterly basis through May 2006, and
annual interest rate equal to the Mexican interbank rate plus 30 basis
points. The terms of this loan include certain financial ratios and
covenants. The maturities of these loans at December 31, 2003 are various
from 2004 to 2008.
(12) Included at December 31, 2002, a long-term loan for approximately 23.6
million Euros (Ps.269,695), with an annual interest rate of EURIBOR plus
0.80% payable on a quarterly basis. This loan was fully paid out in April
2003.
In February 2000, the Company entered into arrangements under which it may
issue unsecured short-term debt up to U.S.$200 million as a part of a
Euro-Commercial Paper Program. As of December 31, 2003, no debt had been
incurred by the Company under this program.
MATURITIES OF DEBT
Debt maturities for the years subsequent to December 31, 2003, excluding
capital lease obligations, are as follows:
2004............................................................................ Ps. 276,553
2005............................................................................ 2,772,317
2006............................................................................ 1,017,972
2007............................................................................ 3,651,649
2008............................................................................ 486,693
Thereafter...................................................................... 6,763,897
---------------
Ps. 14,969,081
===============
F-20
Future minimum payments under capital leases for the years subsequent to
December 31, 2003, are as follows:
2004.......................................................................... Ps. 8,640
2005.......................................................................... 6,494
2006.......................................................................... 5,200
---------------
Present value of net minimum payments (1)..................................... Ps. 20,334
===============
(1) Net of amount representing interest of Ps.3,647.
9. FINANCIAL INSTRUMENTS
The Group's financial instruments recorded on the balance sheet include
cash, temporary investments, accounts and notes receivable, accounts payable,
debt and derivative instruments. For cash, temporary investments, accounts
receivable and payable, and short-term notes payable due to banks and other
financial institutions, the carrying amounts approximate fair value due to the
short maturity of these instruments. The fair value of the Group's long-term
debt securities and foreign currency contracts are based on quoted market
prices. Escrow deposits (see Note 5) bear interest at market rates and the
carrying value approximates fair value. The fair value of warrants to purchase
shares of Univision was based upon an option pricing model. The fair value of
the long-term loans that the Group borrowed from leading Mexican banks (see Note
8) was estimated using the borrowing rates currently available to the Group for
bank loans with similar terms and average maturities. The fair value of currency
option, interest rate swap and share put option agreements is based on quotes
obtained from financial institutions.
In connection with the Senior Notes due 2005, in the third quarter of
2002, the Company entered into currency option agreements with a financial
institution on a notional amount of U.S.$100 million. Under such agreements, and
subject to the exercise of the options by the parties, as well as the payment of
related premiums by the Company, the parties would exchange related U.S. dollars
and Mexican pesos at fixed exchange rates in October 2005. In February 2004, the
Company declined to exercise these options and remains subject to pay related
premiums for an aggregate amount of approximately U.S.$2.8 million in April
2004. The Company has recorded the change in fair value of these agreements in
the integral cost of financing (foreign exchange gain or loss). Also, beginning
in the fourth quarter of 2002, the Company entered into option agreements to
exchange interest rates with a financial institution on a notional amount of
U.S.$200 million, and received premiums in cash for an amount of approximately
U.S.$3.4 million. The Company has recorded the change in fair value of these
agreements together with the amortization of related premiums in the integral
cost of financing (interest expense). During 2003, the financial institution
declined to exercise these options and the Company recognized the benefit of
unamortized premiums. In February 2004, the financial institution exercised the
options and the Company entered into swap transactions to exchange interest
rates of the Senior Notes due 2005.
In connection with the Senior Notes due 2011, in the fourth quarter of
2002, the Company entered into an interest rate swap agreement with a financial
institution on a notional amount of U.S.$100 million. This agreement involved
the exchange of amounts based on a fixed interest rate for amounts based on
variable interest rates over the life of the agreement, without an exchange of
the notional amount upon which the payments are based. The Company has recorded
the change in fair value of this agreement in the integral cost of financing
(interest expense). In June 2003, the Company decided to unwind this agreement
and received an amount in cash of approximately U.S.$4.6 million, which was
recognized as a benefit from this transaction.
In the third quarter of 2002 and the first quarter of 2003, the Company
entered into agreements to sell share put options to financial institutions, and
received premiums in cash for an aggregate amount of approximately U.S.$2.2
million. Under these agreements and depending on market conditions the Company
had a remaining potential obligation to purchase shares of the Company's common
stock. In the second and third quarters of 2003, the financial institutions
declined to exercise these options and the Company recognized the benefit of the
premiums received under these agreements. The Company recorded the change in
fair value of these agreements together with related premiums, in other income
or expense.
F-21
The estimated fair values of the Group's financial instruments at December
31, 2002 and 2003 were as follows:
2002 2003
---- ----
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
ASSETS:
Univision warrants (see Note 5)........... Ps. 21,760 Ps. 1,228,701 Ps. 21,760 Ps. 2,072,573
LIABILITIES:
Senior Notes due 2005, 2011 and 2032...... 8,704,081 8,765,880 8,980,000 9,938,559
Other long-term debt securities........... 807,194 836,881 59,975 68,338
UDI-denominated long-term securities...... 3,642,526 3,914,620 3,640,302 4,120,285
Long-term notes payable to Mexican banks.. 510,622 510,622 800,000 844,313
U.S.$100 million term loan................ 1,088,010 1,088,010 1,122,500 1,034,114
DERIVATIVE FINANCIAL INSTRUMENTS:
ASSETS:
Interest rate swaps....................... 1,148 1,148 -- --
Share put options......................... 4,674 4,674 -- --
LIABILITIES:
Foreign currency options.................. 3,247 3,247 22,155 22,155
Interest rate swaps....................... -- -- 8,946 8,946
10. DTH JOINT VENTURE PROVISIONS
DTH joint venture provisions as of December 31, 2002 and 2003 resulted
from the Group's investments in Innova, S. de R.L. de C.V. ("Innova") and Sky
Multi-Country Partners ("SMCP"), and the equity in losses of these joint
ventures recognized by the Group in excess of such investments and up to the
amount of the guarantees made by the Group in connection with certain capital
lease obligations of Innova and SMCP (see Notes 1(g) and 12), are as follows:
2002 2003
--------------------- ---------------------
Innova (1) ............... Ps. 886,912 Ps. 881,036
SMCP (2) ................ 823,753 412,968
--------------------- ---------------------
Ps. 1,710,665 Ps. 1,294,004
===================== ======================
(1) Joint venture engaged in providing DTH broadcast satellite pay television
services in Mexico, in which the Group has a 60% non-consolidated interest.
The concession granted by the Mexican Federal Government for operating this
joint venture expires in 2026. The Group's liability position in Innova as
of December 31, 2002, was net of long-term notes and interest receivable
due from Innova of approximately U.S.$222.9 million (Ps.2,424,829), with
principal and interest maturities between 2008 and 2012, bearing annual
interest rate of 9.0%. Long-term loans provided to Innova by the Group in
2001 and 2002 amounted to approximately U.S.$79.7 million (Ps.866,927) and
U.S.$17.7 million (Ps.192,578), respectively. In September 2003, the Group
capitalized the long-term notes and interest receivable from Innova related
to its 60% interest in this joint venture for an aggregate amount of
U.S.$234.5 million (Ps.2,602,770).
(2) General partnership engaged in providing DTH broadcast satellite pay
television services in Latin America outside of Mexico and Brazil, in which
the Group has a 30% interest. The Group liability position in SMCP as of
December 31, 2003, was net of long-term receivables due from SMCP of
approximately U.S.$13.1 million (Ps.147,512), in connection with loans
provided to SMCP by the Group in 2003. Capital contributions made to SMCP
by the Group in 2001 and 2002 amounted to U.S.$36.2 million (Ps. 374,592)
and U.S.$14.8 million (Ps.161,080), respectively. In 2001, News Corp. made
equity contributions in this partnership on behalf of the Group of
U.S.$15.0 million (Ps.151,305) (see Note 17). In the fourth quarter of
2003, a portion of the SMCP liability provision was reversed by the Group
for an amount of approximately U.S.$38.9 million (Ps.436,893) in connection
with the expected reduction of the SMCP lease obligation being guaranteed
by the Group, resulting from a technical failure that shortened the
remaining useful life of the satellite being leased by SMCP. This reversal
was recognized by the Group as an equity gain in the consolidated income
statement for the year ended December 31, 2003.
F-22
11. PENSION PLANS AND SENIORITY PREMIUMS
Certain companies in the Group have collective bargaining contracts which
include defined benefit pension plans for substantially all of their employees.
Additionally, the Group has a defined benefit pension plan for executives. All
pension benefits are based on salary and years of service rendered.
Under the provisions of the Mexican labor law, seniority premiums are
payable, based on salary and years of service, to employees who resign or are
terminated prior to reaching retirement age. Some companies in the Group have
seniority premium benefits which are greater than the legal requirement. After
retirement age, employees are no longer eligible for seniority premiums.
Pension and seniority premium amounts are actuarially determined by using
real assumptions (net of inflation) and attributing the present value of all
future expected benefits proportionately over each year from date of hire to age
65. The Group has used a 4% discount rate, 2% salary scale, and 5% return on
assets rate for 2001, 2002 and 2003. The Group makes voluntary contributions
from time to time to trusts for the pension and seniority premium plans which
are generally deductible for tax purposes. No cash contributions to the trusts
were made by the Group in 2001. In the fourth quarter of 2002 and 2003, the
Group made a cash contribution of approximately Ps.107,144 and Ps.36,068,
respectively, to its pension and seniority premium plans. Plan assets were
invested in a portfolio that primarily consisted of equity and debt securities
(including shares of the Company) as of December 31, 2002 and 2003. Pension and
seniority premium benefits are paid when they become due.
The pension and seniority premium plan liability as of December 31, 2002
and 2003, was as follows:
2002 2003
------------------ ------------------
Actuarial present value of benefit obligations:
Vested benefit obligations............................... Ps. 330,760 Ps. 334,949
Nonvested benefit obligations............................ 466,322 370,327
------------------ ------------------
Accumulated benefit obligation........................... 797,082 705,276
Benefit attributable to projected salaries............... 166,486 146,612
------------------ ------------------
Projected benefit obligation............................. 963,568 851,888
Plan assets.............................................. (723,427) (888,748)
------------------ ------------------
Projected benefit obligation in excess of plan assets.... 240,141 (36,860)
------------------ ------------------
Items to be amortized over a 15-year period:
Transition obligation.................................... 308,509 279,616
Unrecognized prior service cost.......................... 27,607 (79,875)
Unrecognized net loss from experience differences........ 162,071 (46,728)
------------------ ------------------
498,187 153,013
------------------ ------------------
Net projected asset......................................... (258,046) (189,873)
Adjustment needed to recognize minimum liability
(with the recognition of an intangible asset
included in other assets).............................. 331,701 --
------------------ ------------------
Balance sheet liability (asset)............................. Ps. 73,655 Ps. (189,873)
================== ==================
The net pension and seniority premium cost for 2001, 2002 and 2003 was
Ps.110,247, Ps.123,555 and Ps.123,406, respectively.
12. COMMITMENTS AND CONTINGENCIES
At December 31, 2003, the Group had commitments in an aggregate amount of
Ps.387,044, of which Ps.169,984 related to purchase commitments to acquire
television technical equipment, Ps.105,356 are construction commitments for
building improvements and technical facilities, and Ps.111,704 are commitments
for the aquisition of software and related services.
At December 31, 2003, the Group had commitments for making long-term
loans in 2004 to its DTH ventures in Latin America, excluding Mexico, for up to
U.S.$17.0 million, and capital contributions to its joint venture for
distributing Spanish-speaking programming in the United States for up to
U.S.$2.0 million.
F-23
In September 2001, the Company entered into a 50/50 programming joint
venture with Endemol, a world leading content developer and producer for
television and online platforms based in The Netherlands, to produce and develop
content for television and the Internet. As of December 31, 2003, the Group has
commitments to acquire from Endemol programming formats through this venture for
up to U.S.$40.6 million through 2006.
The Group has granted collateral in connection with certain
indemnification obligations (see Note 5), which includes a deposit of U.S.$13.2
million of short-term securities as of December 31, 2003.
In June 2003, the Company was notified by the Mexican tax authority, of a
federal tax claim made against the Company for approximately Ps.960,657,
including penalties and surcharges, for an alleged assets tax liability for the
year 1994. The Company believes it has meritorious defense against this claim.
Furthermore, the Group has guaranteed certain financing and lease
obligations of TechCo (see Note 5) for an amount of approximately U.S.$15.8
million (undiscounted).
Payments to be made by certain Mexican companies in the Group to
employees in case of dismissal and under certain circumstances provided by the
Mexican labor law will be expensed as incurred.
At December 31, 2003, the Group had the following aggregate minimum
annual commitments for the use of satellite transponders (other than
transponders for DTH television services described below):
THOUSANDS OF
U.S. DOLLARS
-----------
2004.............................. U.S.$17,847
2005.............................. 17,643
2006.............................. 15,618
2007.............................. 11,326
2008 and thereafter............... 31,888
-----------
U.S.$94,322
===========
The Group has guaranteed its 60% proportionate share of Innova's minimum
commitment for use of transponders over a period ending in 2015, which is
estimated to be an aggregate of approximately U.S.$143.8 million (undiscounted)
as of December 31, 2003.
The Group has also guaranteed its 30% proportionate share of SMCP's
minimum commitments for use of transponders over a period ending in 2008, which
is estimated to be an aggregate of approximately U.S.$44.1 million
(undiscounted) as of December 31, 2003.
In connection with the Group's acquisition of its 50% interest in Vivelo,
Inc., (see Note 2), the Group is required, under certain circumstances, to make
additional payments to the sellers of such interest of up to U.S.$1.5 million
(Ps.16,838) during a three-year period which will end in April 2005.
In conjunction with the Group's disposal of its former music recording
business (see Note 2), the Group may have to pay certain adjustments to
Univision in connection with an audit of the music recording business by
Univision, which is expected to be resolved by the parties in 2004. While the
Group's management believes that the outcome of this audit will not have a
material adverse effect on its financial position or future operating results,
no assurance can be given in this regard.
In the fourth quarter of 2001, a former U.S. subsidiary of the Company,
received final proposed adjustments in connection with U.S. Internal Revenue
Service audits for fiscal periods ended in 1995, 1996 and 1997. As a result of
these audits, the Group made U.S. federal and state income tax and interest
payments in 2001 and 2003 of approximately U.S.$14.0 million (Ps.141,550) and
U.S.$1.8 million (Ps.19,387), respectively. As of December 31, 2003, the Group
has accrued Ps.44,698 representing the Group's estimate of state and other tax
liabilities in
F-24
connection with these matters. These matters did not have, and the Group does
not expect that they will have, a material adverse effect on its financial
condition or results of operations.
There are other various legal actions and other claims pending against
the Group incidental to its businesses and operations. In the opinion of the
Group's management, none of these proceedings will have a material adverse
effect on the Group's financial position or results of operations.
13. CAPITAL STOCK, STOCK OPTION PLAN AND LONG-TERM RETENTION PLAN
CAPITAL STOCK
At December 31, 2002, there were 9,133,043,117 shares of capital stock
issued, consisting of 4,590,743,117 Series "A" Shares, 2,271,150,000 Series "L"
Shares and 2,271,150,000 Series "D" Shares; and 8,848,394,374 shares of capital
stock outstanding, consisting of 4,479,799,524 Series "A" Shares, 2,184,297,425
Series "L" Shares and 2,184,297,425 Series "D" Shares.
At December 31, 2003, shares of capital stock consisted of:
SERIES "D"
SERIES "A" SERIES "L" SHARES (DIVIDEND TOTAL
SHARES SHARES PREMIUM SHARES) SHARES
--------------- --------------- ------------------- ---------------
Authorized and issued.................... 4,989,449,767 2,239,549,096 2,239,549,096 9,468,547,959
Acquired by a Company's trust........... (430,307,554) -- -- (430,307,554)
Acquired by a subsidiary of the Company.. (110,939,672) (86,848,654) (86,848,654) (284,636,980)
--------------- --------------- ------------------- ---------------
Outstanding.............................. 4,448,202,541 2,152,700,442 2,152,700,442 8,753,603,425
=============== =============== =================== ===============
Series "L" Shares and Series "D" Shares have limited voting rights. At
December 31, 2003, the shares of capital stock issued included 2,239,549,096
Series "A" Shares, 2,239,549,096 Series "L" Shares and 2,239,549,096 Series "D"
Shares that are represented, until at least December 2008, by 2,239,549,096
Ordinary Participation Certificates ("CPOs"), each CPO representing one Series
"A" Share, one Series "L" Share and one Series "D" Share. Non-Mexican holders of
CPOs do not have voting rights with respect to the Series "A" and "D" Shares.
Under the Company's bylaws, the Company's Board of Directors consists of a
minimum of five and a maximum of 20 members, of which the holders of Series "L"
Shares and Series "D" Shares, each voting as a class, are entitled to elect two
members and two members, respectively.
Holders of Series "D" Shares are entitled to receive an annual,
cumulative and preferred dividend equivalent to 5% of the nominal capital
attributable to those Shares (nominal Ps.0.0085443938 per share) before any
dividends are payable in respect of Series "A" Shares or Series "L" Shares.
Until December 10, 2003, holders of Series "D" Shares were also entitled to a
premium preference consisting of annual dividends per Series "D" Share of at
least 160% of any annual dividend payable per Series "A" Share and Series "L"
Share, including the preferred dividend. Beginning December 10, 2003, holders of
Series "A" and "L" Shares are entitled to receive the same dividends as holders
of Series "D" Shares if shareholders declare dividends in addition to the
preferred dividend that holders of Series "D" Shares are entitled to.
The Series "A", "L" and "D" Shares are perpetual in duration, and are not
subject to be exchanged for shares of any other class of equity securities. If
the Company is liquidated, Series "D" Shares are entitled to a liquidation
preference equal to the nominal capital attributable to those Shares (nominal
Ps.0.1708878756 per share) before any distribution is made in respect of Series
"A" and Series "L" Shares.
In September 2002, in connection with the approval of the Company's
shareholders on April 30, 2002 to issue additional Series "A" Shares for a Long-
Term Retention Plan, which supplements the Company's existing stock option
plan, in an aggregate amount of up to 4.5% of the Company's outstanding capital
stock or 430,350,671 Series "A" Shares (a portion of the 8% of the Company's
capital stock previously authorized by the shareholders for these plans), and in
conjunction with preemptive rights exercised by certain existing holders of
Series "A" Shares, the
F-25
Company increased its capital stock in the amount of Ps.426 by issuing
additional 43,117 Series "A" Shares (not in the form of CPOs), of which Ps.391
were recognized as additional paid-in capital. In December 2003, the Company
increased its capital stock in the amount of Ps.4,023,375 by issuing the
remaining additional 430,307,554 Serie "A" shares (not in the form of CPOs), of
which Ps.3,650,380 were recognized as additional paid-in capital. Following this
capital stock increase, the 430,307,554 Series "A" shares were acquired by a
Company's trust for the purpose of implementing the Company's Long-Term
Retention Plan.
In April and December 2003, the Company's stockholders approved the
cancellation of 94,802,712 shares of capital stock in the form of 31,600,904
CPOs, which were repurchased by the Company in 2000 and 2003.
At December 31, 2003, the restated tax value of the Company's common
stock was Ps.19,621,859.
STOCK OPTION PLAN
The Company adopted a stock option plan (the "Plan") that provides, in
conjunction with the long-term retention plan described below, for the grant and
sale of up to 8% of the Company's capital stock to key Group management.
Pursuant to this Plan, through December 31, 2003 the Company had assigned
approximately 87 million CPOs at market prices, subject to certain conditions,
including vesting periods within five years from the time the awards are
granted. The shares sold pursuant to the Plan, which have been registered
pursuant to a registration statement on Form S-8 under the Securities Act, can
only be transferred to the plan participants when the conditions set forth in
the Plan are satisfied. During 2003, 15 million shares of capital stock in the
form of 5 million CPOs were exercised pursuant to this Plan for the amount of
Ps.71,699 and transferred to the Plan participants.
LONG-TERM RETENTION PLAN
In 2003, the Company designated a trust to implement a long-term retention
plan (the "Retention Plan") which supplements the Company's existing stock
option plan described above, and provides for the grant and sale of the
Company's capital stock to key Group's employees. In December 2003, the
designated trust acquired approximately 430.3 million Series "A" Shares (not in
the form of CPOs) for the purposes of the Company's Retention Plan. Shares
assigned to employees under the Retention Plan are estimated to be vested over a
period of no less than 10 years from the time the awards are granted. As of
December 31, 2003, no shares under the Retention Plan had been assigned to Group
employees.
14. RETAINED EARNINGS
In accordance with Mexican law, the legal reserve must be increased by 5%
of annual net profits until it reaches 20% of the capital stock amount. In 2002
and 2003, the Company's stockholders approved increases to the legal reserve
amounting to Ps.73,947 and Ps.38,359, respectively. This reserve is not
available for dividends, but may be used to reduce a deficit or may be
transferred to stated capital. Other appropriations of profits require the vote
of the stockholders.
As of December 31, 2002 and 2003 the Company's stockholders had approved
appropriating from retained earnings a reserve amounting to Ps.6,616,401 for the
repurchase of shares, at the discretion of management. As of December 31, 2002
and 2003, this reserve has been used for an amount of Ps.880,168 and
Ps.1,331,426, respectively, in connection with repurchases of shares made by the
Company.
In September 2002, the Company announced a share repurchase program of up
to U.S.$400 million (Ps.4,352,040) over the next three years. Under the terms of
the program, the Company may, at the discretion of management, acquire stock
subject to legal, market and other conditions at the time of purchase. The
Company started repurchasing shares in 2003, and as of December 31, 2003,
94,800,300 shares in the form of 31,600,100 CPOs had been repurchased by the
Company under this program for an aggregate amount of Ps.533,431 (nominal
Ps.520,187).
F-26
Unappropiated earnings as of December 31, 2002 and 2003 are comprised by
(i) accumulated earnings from prior years for an amount of Ps.14,171,532 and
Ps.14,328,478, respectively; (ii) cumulative charges in connection with the
acquisition of shares of the Company made by subsidiaries and a trust of the
Company for an amount of Ps.3,581,193 and Ps.7,216,705, respectively; and (iii)
other unappropriated earnings for an amount of Ps.12,107.
In April 2003, the Company's stockholders approved the payment of a
dividend in the aggregate amount of Ps.571,871 (nominal Ps.550,000), which
consisted of Ps.0.18936540977 (nominal) per CPO and Ps.0.05260150265 (nominal)
per Series "A" Share (not in the form of a CPO), and was paid in June 2003.
Dividends, either in cash or in other forms, paid by the Mexican companies
in the Group will be subject to income tax if the dividends are paid from
earnings that have not been subject to Mexican income taxes computed on an
individual company basis under the provisions of the Mexican Income Tax Law. In
this case, dividends will be subject to a 33% income tax to be paid by the
companies paying the dividends and applied to the result of multiplying the
dividends paid by a factor of 1.4925.
At December 31, 2003, cumulative earnings that have been subject to income
tax and can be distributed by the Company free of Mexican withholding tax were
approximately Ps.4,022,344. In addition, the payment of dividends is restricted
under certain circumstances by the terms of the U.S. dollar loan facility
agreement (see Note 8).
15. COMPREHENSIVE INCOME
Comprehensive income related to the majority interest for the years ended
December 31, 2001, 2002 and 2003, was as follows:
2001 2002 2003
----------------- ----------------- -----------------
Net income .............................................. Ps. 1,478,936 Ps. 767,176 Ps. 3,596,603
----------------- ----------------- -----------------
Other comprehensive (loss) income, net:
Foreign currency translation adjustments, net (1)... (547,605) (142,438) (152,850)
Result from holding non-monetary assets, net (2).... (303,776) 380,274 262,323
Gain on issuance of shares of Univision (see note 5) -- 509,434 2,883,214
----------------- ----------------- -----------------
Total other comprehensive (loss) income, net............. (851,381) 747,270 2,992,687
------------------ ----------------- -----------------
Comprehensive income..................................... Ps. 627,555 Ps. 1,514,446 Ps. 6,589,290
================= ================= =================
(1) In 2002 and 2003 include the foreign exchange loss of Ps.826,847 and
Ps.468,989, respectively which was hedged by the Group's net investment in
Univision (see Note 1(c)).
(2) Represents the difference between specific costs (net replacement cost or
Specific Index) of non-monetary assets and the restatement of such assets
using the NCPI, net of deferred tax benefit (provision) of Ps.177,974,
(Ps.198,428) and (Ps.149,362) for the years ended December 31, 2001, 2002
and 2003, respectively.
The changes in components of accumulated other comprehensive loss for the
years ended December 31, 2001, 2002 and 2003, were as follows:
CUMULATIVE CUMULATIVE
GAIN ON RESULT FROM RESULT FROM CUMULATIVE ACCUMULATED
ISSUANCE OF HOLDING FOREIGN EFFECT OF OTHER
SHARES OF ACCUMULATED NON-MONETARY CURRENCY DEFERRED COMPREHENSIVE
ASSOCIATES MONETARY RESULT ASSETS TRANSLATION TAXES (LOSS) INCOME
------------ --------------- ------------- ------------- ------------- -------------
Balance at December 31, 2000 Ps.223,590 Ps.(29,984) Ps.(1,938,753) Ps.(639,326) Ps.(2,747,622) Ps.(5,132,095)
Current year change........ -- -- (303,776) (547,605) -- ) (851,381)
------------ ---------- ------------- ------------- ------------- -------------
Balance at December 31, 2001 223,590 (29,984) (2,242,529) (1,186,931) (2,747,622) (5,983,476)
Current year change........ 509,434 -- 380,274 (142,438) -- 747,270
------------ ---------- ------------- ------------- ------------- -------------
Balance at December 31, 2002 733,024 (29,984) (1,862,255) (1,329,369) (2,747,622) (5,236,206)
Current year change........ 2,883,214 -- 262,323 (152,850) -- 2,992,687
------------ ---------- ------------- ------------- ------------- -------------
Balance at December 31, 2003 Ps.3,616,238 Ps.(29,984) Ps.(1,599,932) Ps.(1,482,219) Ps.(2,747,622) Ps.(2,243,519)
============ ========== ============= ============= ============= =============
F-27
Cumulative result from holding non-monetary assets as of December 31,
2001, 2002 and 2003 is net of a deferred income tax benefit of Ps.405,907,
Ps.207,479 and Ps.58,117, respectively.
16. MINORITY INTEREST
Minority interest at December 31, 2002 and 2003, consisted of:
2002 2003
--------------- ---------------
Capital stock............................................................. Ps. 1,066,981 Ps. 1,086,748
Retained earnings......................................................... 479,963 415,539
Cumulative result from holding non-monetary assets........................ (220,580) (232,542)
Accumulated monetary result............................................... (4,563) (4,601)
Cumulative effect of deferred income tax.................................. (65,340) (65,450)
Net income for the year.................................................. (71,570) (121,050)
--------------- ---------------
Ps. 1,184,891 Ps. 1,078,644
=============== ===============
17. TRANSACTIONS WITH RELATED PARTIES
The principal transactions that the Group carried out with affiliated
companies, including equity investees, stockholders and entities in which
stockholders have an equity interest, were as follows:
2001 2002 2003
----------------- ----------------- -----------------
Revenues:
Royalties (Univision) (a)..................... Ps. 784,135 Ps. 809,879 Ps. 1,070,145
Soccer transmission rights (Univision)........ 102,872 49,158 41,958
Programming production and transmission
rights (b)................................ 296,541 300,965 307,790
Administrative services (c)................... 70,980 120,191 69,568
Interest income............................... 126,892 177,673 125,955
Advertising (d)............................... 250,372 223,262 207,490
----------------- ----------------- -----------------
Ps. 1,631,792 Ps. 1,681,128 Ps. 1,822,906
================= ================= =================
Costs:
Donations..................................... Ps. 66,176 Ps. 57,591 Ps. 69,472
Administrative services (c)................... 25,281 43,109 37,336
Other......................................... 58,186 53,566 56,773
----------------- ----------------- -----------------
Ps. 149,643 Ps. 154,266 Ps. 163,581
================= ================= =================
(a) The Group receives royalties from Univision for programming provided
pursuant to a program license agreements, that expire in December 2017.
Royalties are determined based upon a percentage of combined net sales of
Univision, which was 9% in 2001, and 9% plus an incremental percentage of
up to 3% over additional sales in 2002 and 2003.
(b) Services rendered to Innova in 2001 and 2002, and Innova and other
affiliates in 2003.
(c) The Group receives revenue from and is charged by affiliates for various
services, such as equipment rental, security and other services, at rates
which are negotiated. The Group provides management services to
affiliates, which reimburse the Group for the incurred payroll and related
expenses.
(d) Advertising services rendered to Innova in 2001, 2002 and 2003, and to
Univision in 2002 and 2003, and to OCEN in 2003.
During 2001, 2002 and 2003, a professional services firm in which a
current director and two alternate directors maintain interest provided legal
advisory services to the Group in connection with various corporate matters.
Total fees for such services amounted to Ps.13,747, Ps.9,780 and Ps.8,072,
respectively.
F-28
The balances of receivables and (payables) between the Group and
affiliates as of December 31, 2002 and 2003, were as follows:
2002 2003
------------- -------------
CIE (see Note 2).................................. Ps. (437,380) Ps. --
Coyoacan Films, S.A. de C.V....................... 10,825 9,872
Editorial Clio, Libros y Videos, S.A. de C.V...... 32,132 23,963
Grupo Triple C, S.A. de C.V....................... 30,588 29,569
Innova (see Note 10).............................. 392,700 365,537
News Corp. (see Note 10).......................... (163,202) (168,375)
OCEN (see Note 2) ................................ -- 21,462
Univision (see Note 5)............................ 76,298 96,727
Other............................................. 61,026 63,685
------------- -------------
Ps. 2,987 Ps. 442,440
============= =============
All significant account balances included in amounts due from affiliates
bear interest. In 2001, 2002 and 2003, average interest rates of 19.55%, 14.56%
and 7.07% were charged, respectively. Advances and receivables are short-term in
nature; however, these accounts do not have specific due dates.
Customer deposits and advances as of December 31, 2002 and 2003 included
deposits and advances from affiliates in an aggregate amount of Ps.281,110 and
Ps.452,510, respectively, which were made by Univision, Innova and Editorial
Clio, Libros y Videos, S.A. de C.V. as of December 31, 2002 and 2003, and CIE
and OCEN as of December 31, 2003.
18. INTEGRAL COST OF FINANCING
Integral cost of financing for the years ended December 31, consisted of:
2001 2002 2003
-------------- -------------- --------------
Interest expense (1).............................. Ps. 1,323,941 Ps. 1,425,677 Ps. 1,375,770
Interest income................................... (1,017,324) (613,074) (649,892)
Foreign exchange gain, net (2).................... (38,825) (219,213) (193,355)
Loss from monetary position (3)................... 186,500 43,957 82,004
-------------- -------------- --------------
Ps. 454,292 Ps. 637,347 Ps. 614,527
============== ============== ==============
(1) Interest expense in 2001, 2002 and 2003 includes Ps.177,841, Ps.197,190
and Ps.139,331, respectively, derived from the restatement of the
Company's UDI-denominated debt securities (see Note 8).
(2) Net foreign exchange gain in 2001, includes losses of Ps.110,494, derived
from forward exchange contracts. Net foreign exchange gain in 2002 and
2003 includes a net loss from foreign currency option contracts of
Ps.3,013 and Ps.17,825, respectively. Foreign exchange loss in 2002 and
2003 of Ps.826,847 and Ps.468,989, respectively, were hedged by the
Group's net investment in Univision and recognized in stockholders' equity
as other comprehensive loss (see Notes 1(c) and 15).
(3) The gain or loss from monetary position represents the effects of
inflation, as measured by the NCPI in the case of Mexican companies, or
the general inflation index of each country in the case of foreign
subsidiaries, on the monetary assets and liabilities at the beginning of
each month. Includes monetary loss in 2001, 2002 and 2003 of Ps.205,248,
Ps.186,888 and Ps.135,642, respectively, arising from temporary
differences of non-monetary items in calculating deferred income tax (see
Note 21).
19. RESTRUCTURING AND NON-RECURRING CHARGES
The restructuring charges in 2001, 2002 and 2003 consisted principally of
severance costs in connection with employees who were terminated. All associated
costs have been expensed as incurred.
F-29
In 2001, the Company early extinguished a significant amount of its
long-term debt outstanding (see Note 8), and recognized related premiums,
consent fees, unamortized financing costs (see Note 7) and other expenses of
Ps.63,126 as non-recurring charges in the consolidated income statements.
In 2002, the Company recognized a non-recurring charge of Ps.338,322 taken
in connection with the write-off of exclusive rights letters for soccer players,
as well as a Ps.169,930 non-recurring charge related to the drawdown by DirecTV
under a letter of credit posted by the Company in connection with certain
arrangements between DirecTV and the Company to broadcast the 2002 World Cup,
which amount is in dispute by the parties.
In 2003, the Company recognized a non-recurring charge of Ps.284,200 taken
in connection with the payment of vested and non-vested salary benefits to
certain Group's union employees, as a part of the Company's continuing
cost-cutting efforts, as well as a non-recurring charge of Ps.164,576 taken in
connection with an estimate for the disposal of certain long-lived assets and
associated costs related to the Group's nationwide paging business based on the
evaluation of the recoverability of the assets.
20. OTHER EXPENSE - NET
Other (income) expense is analyzed as follows:
2001 2002 2003
-------------- -------------- --------------
(Gain) loss on disposition of investments, net
(see Note 2)................................... Ps. (306,335) Ps. 37,610 Ps. (444,155)
Amortization of goodwill (see Note 7)............. 210,672 455,214 460,691
Costs incurred in DTH investments (1)............. 30,080 30,080 --
Provision for doubtful non-trade accounts and
write-off of other receivables ................ 191,664 69,096 10,630
Write-off of goodwill (see Notes 2 and 7)......... 231,567 1,109,117 113,939
Donations (see Note 17)........................... 130,587 117,978 161,903
Financial advisory and professional services (2).. 109,684 110,257 51,320
Loss on disposition of fixed assets............... 100,407 138,088 212,497
Penalties and surcharges.......................... -- 72,546 --
Uncredited foreign income tax..................... -- 48,089 --
Miscellaneous other expense (income) - net........ 23,776 30,863 (23,569)
-------------- -------------- --------------
Ps. 722,102 Ps. 2,218,938 Ps. 543,256
============== ============== ==============
(1) In 2001 and 2002, these costs include the amortization of DTH development
costs of Ps.30,080 for each year.
(2) Includes financial advisory services in connection with contemplated
dispositions and strategic planning projects and professional services in
connection with certain litigation and other matters (see Notes 2, 12 and
17).
21. INCOME TAX, ASSET TAX AND EMPLOYEES' PROFIT SHARING
The Company is authorized by the Mexican tax authorities to compute its
income tax and assets tax on a consolidated basis. Mexican controlling companies
are allowed to consolidate, for income tax purposes, income or losses of their
Mexican subsidiaries up to 60% of their share ownership in such subsidiaries.
The assets tax is computed on a fully consolidated basis.
The Mexican corporate income tax rate in 2001 and 2002 was 35%, and in
2003 was 34%. In accordance with the Mexican Income Tax Law, the corporate
income tax rate applicable to Mexican companies will be gradually reduced
annually by 1% effective 2003 until it reaches 32% in 2005. Consequently, the
effect of this gradual decrease in the income tax rate reduced the Group's
deferred income tax liability in 2002 and 2003.
F-30
In 2001, companies were allowed to pay the income tax liability computed
at a 30% rate with the remaining 5% of the liability due when the taxable income
of the year is distributed to shareholders. Effective 2002, this option is no
longer allowed. At December 31, 2003, the amount of payments deferred of this
provision of the income tax law totaled Ps.64,817.
The income tax provision for the years ended December 31, 2001, 2002 and
2003, was comprised as follows:
2001 2002 2003
-------------- -------------- --------------
Income tax and assets tax - current............... Ps. 756,203 Ps. 934,340 Ps. 1,046,027
Income tax and assets tax - deferred.............. (185,673) (627,349) (332,068)
-------------- -------------- --------------
Ps. 570,530 Ps. 306,991 Ps. 713,959
============== ============== ==============
The following items represent the principal differences between income
taxes computed at the statutory rate and the Group's provision for income tax
and the assets tax.
%
----------------------------
2001 2002 2003
------ ------ ----
Tax at the statutory rate on income before provisions...................... 35 35 34
Differences in restatement (a) ............................................ (5) 7 2
Hedge...................................................................... -- (26) (3)
Non-deductible items....................................................... 2 7 4
Special tax consolidation items............................................ 9 2 (1)
Unconsolidated income tax.................................................. (30) 38 6
Minority interest.......................................................... 9 (2) 11
Excess in tax provision of prior years..................................... (4) (17) 4
Changes in valuation allowances:
Goodwill............................................................... 2 42 --
Assets tax............................................................. 1 (7) 6
Tax loss carryforwards................................................. -- 26 --
Effect of change in income tax rates....................................... -- (25) 4
Foreign operations......................................................... 3 (51) (18)
Discontinued operations.................................................... (3) (1) --
Cumulative effect of accounting change..................................... 2 -- --
Use of unconsolidated tax loss carryforwards (b)........................... -- -- (32)
------ ------ ----
Provision for income tax and the assets tax................................ 21 28 17
====== ====== ======
(a) This amount represents the effect of using different methods of
calculating inflation adjustments for tax purposes and book purposes,
which includes the net effect of differences between tax and accounting
practices in calculating the inflation effects of customer deposits,
interest expense and interest income.
(b) This amount represents the effect of the use of tax loss carryforwards
arising from the acquisition of Telespecialidades in June 2003 (see Note
2).
F-31
The Group has tax loss carryforwards at December 31, 2003, as follows:
AMOUNT EXPIRATION
-------------- --------------
Operating tax loss carryforwards:
Consolidated ............................................... Ps.1,678,085 2013
Unconsolidated:
Mexican subsidiaries (1)................................. 56,615 From 2004 to 2013
Non-Mexican subsidiaries (2)............................. 1,114,497 From 2004 to 2023
--------------
2,849,197
Capital tax loss carryforwards:
Unconsolidated Mexican subsidiary (3)....................... 370,326 From 2009 to 2013
--------------
Ps. 3,219,523
==============
(1) During 2001, 2002 and 2003, certain Mexican subsidiaries utilized
unconsolidated operating tax loss carryforwards of Ps.557,207,
Ps.1,089,980 and Ps.6,415,855, respectively.
(2) Approximately the equivalent of U.S.$99.3 million for subsidiaries in
Spain, South America and the United States.
(3) These carryforwards can only be used in connection with capital gains to
be generated by such subsidiary.
The assets tax rate is 1.8%. The assets tax paid in excess of the income
tax in the previous ten years can be credited in future years if the amount of
the income tax in subsequent years is in excess of the assets tax. As of
December 31, 2003, the Company had Ps.1,794,261 of assets tax subject to be
credited and expiring between 2007 and 2013.
The Mexican companies in the Group are required by law to pay employees,
in addition to their agreed compensation and benefits, employee profit sharing
at the statutory rate of 10% based on their respective taxable incomes
(calculated without reference to inflation adjustments and tax loss
carryforwards).
The deferred taxes as of December 31, 2002 and 2003, were principally
derived from the following temporary differences:
2002 2003
--------------- ----------------
ASSETS:
Accrued liabilities............................. Ps. 634,673 Ps. 503,173
Goodwill........................................ 871,298 833,197
Tax loss carryforwards.......................... 297,137 856,810
Allowance for doubtful accounts................. 292,781 353,603
Customer advances............................... 1,236,244 1,452,949
LIABILITIES:
Inventories..................................... (1,859,448) (1,267,319)
Property, plant and equipment -- net............ (1,166,256) (1,229,717)
Other items..................................... (527,417) (399,955)
Innova.......................................... (1,370,199) (1,579,306)
-------------- ---------------
Deferred-income taxes of Mexican companies...... (1,591,187) (476,565)
Deferred tax of foreign subsidiaries............ (370,439) (374,133)
Assets tax...................................... 1,606,547 1,855,702
Valuation allowances............................ (2,041,411) (2,248,239)
-------------- ---------------
Deferred income tax liability................... (2,396,490) (1,243,235)
Effect of change of income tax rates............ 279,674 88,779
-------------- ---------------
Deferred tax liability -- net................... Ps. (2,116,816) Ps. (1,154,456)
============== ===============
F-32
The change in the deferred income tax liability for the years ended
December 31, 2001, 2002 and 2003, representing a charge (credit) Ps.251,328,
(Ps.213,200) and Ps.962,360, respectively, was recorded against the following
accounts:
2001 2002 2003
-------------- -------------- --------------
Credits to the gain from monetary position........ Ps. 89,212 Ps. 102,668 Ps. 80,956
Credits (charges) to the result from holding
non-monetary assets ........................... 177,974 (198,428) (149,362)
(Charges) credits to the provision for deferred
income tax .................................... (19,575) 440,461 196,426
Credits (charges) to the discontinued operations . 3,717 (557,901) 30,191
Acquisition of Telespecialidades (see Note 2) .... -- -- 804,149
-------------- -------------- --------------
Ps. 251,328 Ps. (213,200) Ps. 962,360
============== ============== ==============
Additionally, the provision for deferred income tax for the years ended
December 31, 2001, 2002 and 2003 was credited by Ps.205,248, Ps.186,888 and
Ps.135,642, respectively, representing the effect on restatement of the
non-monetary items included in the deferred tax calculation, which was
originally accounted for in the result from monetary position and then
reclassified to the provision for deferred income tax (see Note 18).
Consequently, the provision for deferred tax for the years ended December 31,
2001, 2002 and 2003, was a benefit of Ps.185,673, Ps.627,349 and Ps.332,068,
respectively.
22. DISCONTINUED OPERATIONS
In December 2001, in connection with a series of transactions the Group
reached an agreement with Univision to sell its music recording business in the
United States and Latin America, which sale was consummated in April 2002 (see
Note 2). Accordingly, the results of operations of the music recording business
are reported as discontinued operations for all periods presented in these
consolidated financial statements.
Discontinued operations of the music recording segment are presented as
follows:
2001 2002 2003
------------- -------------- ---------------
Income from music recording operations.................... Ps. 14,622 Ps. 1,760 Ps. --
Gain (loss) on disposal of music recording operations, net
of an income tax provision of Ps. 557,902 and
an income tax benefit of Ps.30,191 for the year
ended December 31, 2002 and 2003, respectively (1)... -- 1,103,250 (64,157)
------------- -------------- ---------------
Ps. 14,622 Ps. 1,105,010 Ps. (64,157)
============= ============== ===============
(1) In 2002, the costs and expenses related to the disposal of the Group's
music recording operations, amounted to approximately Ps.895,672, which
included fees of Ps.89,577 for financial advisory services provided to the
Group by a professional services firm in which a current director of the
Company maintains an interest, and advertising time for an aggregate
amount of Ps.163,202 rendered and to be provided to Univision by the Group
in a three-year period following this disposal (see Note 17). In 2003, the
Group incurred in additional costs and expenses related to this disposal
for an amount of approximately Ps.94,348.
F-33
Summarized information on results of the discontinued music recording
operations for the year ended December 31, 2001, and for the period from January
1, 2002 through the closing date in March 2002, is as follows:
2001 2002
---- ----
Net sales......................................... Ps. 1,086,022 Ps. 215,583
Cost of sales..................................... 804,399 157,414
Operating expenses................................ 184,422 37,484
Depreciation and amortization..................... 4,394 800
Operating income.................................. 92,807 19,885
Income before income tax.......................... 78,138 12,315
Income taxes...................................... 63,516 10,555
Net income from discontinued operations........... 14,622 1,760
The results of the music recording segment reflected revenues, costs and
expenses related to the production and distribution (in Mexico and abroad) of
cassettes, compact disc recordings and records of Mexican and Latin American
artists, principally under three record labels which were wholly-owned by the
Group. Music recording segment revenues were derived primarily from sales of
recorded music and royalty revenues from the licensing of recordings to third
parties.
23. EARNINGS PER CPO/SHARE
During the years ended December 31, 2001, 2002 and 2003, the weighted
average of outstanding shares, CPOs and Series "A" Shares (not in the form of
CPO units) was as follows:
2001 2002 2003
---- ---- ----
Shares............................................ 8,877,087,751 8,853,846,396 8,794,461,912
CPOs.............................................. 2,193,876,256 2,186,138,824 2,166,319,938
Series "A" Shares (not in the form of CPO units).. 2,295,458,982 2,295,458,982 2,295,502,099
Earnings (loss) per CPO and per Series "A" Share (not in the form of a CPO
unit) for the years ended December 31, 2001, 2002 and 2003, are presented as
follows:
2001 2002 2003
-------------------- ----------------------- --------------------
PER SERIES PER SERIES PER SERIES
PER "A" PER "A" PER "A"
CPO SHARE CPO SHARE CPO SHARE
--- ----- --- ----- --- -----
Continuing operations ... Ps.0.54 Ps.0.18 Ps. (0.12) Ps. (0.04) Ps.1.23 Ps.0.41
Discontinued operations . -- -- 0.36 0.12 -- --
Cumulative loss effect of
accounting change ... (0.03) (0.01) -- -- -- --
------- ------- --------- --------- ------- -------
Net income ............. Ps.0.51 Ps.0.17 Ps. 0.24 Ps. 0.08 Ps.1.23 Ps.0.41
======= ======= ========= ========= ======= =======
F-34
24. FOREIGN CURRENCY POSITION
The foreign currency position of monetary items of the Group at December
31, 2003, was as follows:
FOREIGN CURRENCY YEAR-END
AMOUNTS EXCHANGE RATE MEXICAN PESOS
---------------- ---------------- ---------------
(THOUSANDS)
ASSETS:
U.S. dollars ... 415,988 Ps. 11.2250 Ps. 4,669,465
Euros .......... 2,860 14.2500 40,755
Chilean pesos .. 9,093,212 0.0189 171,862
Colombian pesos 24,034,000 0.0040 96,136
Other currencies 16,423 -- 33,093
LIABILITIES:
U.S. dollars (1) 1,133,732 Ps. 11.2250 Ps. 12,726,142
Euros .......... 708 14.2500 10,089
Chilean pesos .. 8,931,500 0.0189 168,805
Colombian pesos 18,964,495 0.0040 75,858
Other currencies 7,883 -- 42,474
(1) Includes U.S.$600 million (Ps.6,735,000) of long-term securities being
hedged by the Group's net investment in Univision (see Note 1(c)).
The foreign currency position of non-monetary items as of December 31,
2003, was as follows:
FOREIGN YEAR-END
CURRENCY EXCHANGE MEXICAN
AMOUNTS RATE PESOS (1)
------- ---- ---------
(THOUSANDS)
PROPERTY, PLANT AND EQUIPMENT:
U.S. dollars .................... 156,731 Ps. 11.2250 Ps.1,759,305
Japanese yen .................... 4,480,979 0.1070 479,465
Euros ........................... 16,341 14.2500 232,859
Colombian pesos ................. 7,951,415 0.0040 31,806
Pounds sterling ................. 1,214 20.3200 24,668
Other currencies ................ 467,071 -- 40,289
TRANSMISSION RIGHTS AND PROGRAMMING:
U.S. dollars .................... 352,772 Ps. 11.2250 Ps.3,959,866
Colombian pesos ................. 6,008,388 0.0040 24,034
Chilean pesos ................... 3,779,229 0.0189 71,427
Peruvian nuevo sol .............. 3,026 3.2404 9,805
Other currencies ................ 2,037 -- 12,362
F-35
(1) Amounts translated at the year-end exchange rates for reference purposes
only; does not indicate the actual amounts accounted for in the financial
statements.
Transactions incurred during 2003 in foreign currencies were as follows:
U.S. DOLLAR
EQUIVALENT OF
OTHER FOREIGN
CURRENCY TOTAL U.S. MEXICAN
U.S. DOLLAR TRANSACTIONS DOLLAR PESOS (1)
----------- ------------ ------ ---------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
INCOME:
Revenues .......................... $ 287,455 $ 126,768 $ 414,223 Ps.4,649,653
Other income ...................... 16,276 41,408 57,684 647,503
Interest income ................... 18,883 602 19,485 218,719
--------- --------- --------- ------------
$ 322,614 $ 168,778 $ 491,392 Ps.5,515,875
========= ========= ========= ============
PURCHASES, COSTS AND EXPENSES:
Purchases of inventories .......... $ 161,876 $ 9,547 $ 171,423 Ps.1,924,223
Purchases of property and equipment 12,670 2,728 15,398 172,843
Investments ....................... 27,979 -- 27,979 314,064
Costs and expenses ................ 200,952 134,863 335,815 3,769,523
Interest expense .................. 72,655 537 73,192 821,580
--------- --------- --------- ------------
$ 476,132 $ 147,675 $ 623,807 Ps.7,002,233
========= ========= ========= ============
(1) Income statement amounts translated at the year-end exchange rate of
Ps.11.225 for reference purposes only; does not indicate the actual
amounts accounted for in the financial statements (see Note 1(c)).
As of December 31, 2003 the exchange rate was Ps.11.225 per U.S. dollar,
which represents the interbank free market exchange rate on that date as
reported by Banco Nacional de Mexico, S.A.
As of February 25, 2004, the exchange rate was Ps.11.095 per U.S. dollar,
which represents the interbank free market exchange rate on that date as
reported by Banco Nacional de Mexico, S.A.
25. SEGMENT DATA
The Group's segment data is prepared in accordance with Bulletin B-5
"Financial Information by Segments" issued by the MIPA in April 2003. Before
that date, segment data was prepared in accordance with International Accounting
Standard No. 14. The adoption of Bulletin B-5 in 2003 did not have a significant
impact on the Group's consolidated financial statements. Reportable segments are
those that are based on the Group's method of internal reporting.
The Group is organized on the basis of services and products. The Group's
segments are strategic business units that offer different entertainment
services and products. The Group's reportable segments are as follows:
TELEVISION BROADCASTING
The television broadcasting segment includes the production of television
programming and nationwide broadcasting of Channels 2, 4, 5 and 9 (television
networks), and the production of television programming and broadcasting for
local television stations in Mexico and the United States. The broadcasting of
television networks is performed by television repeater stations in Mexico which
are wholly-owned, majority- or minority-owned by the Group or otherwise
affiliated with the Group's networks. Revenues are derived primarily from the
sale of advertising time on the Group's television network and local television
station broadcasts.
F-36
PROGRAMMING FOR PAY TELEVISION
The programming for pay television segment includes programming services
for cable and pay-per-view television companies in Mexico, other countries in
Latin America, the United States and Europe. The programming services consist of
both programming produced by the Group and programming produced by others.
Programming for pay television revenues are derived from domestic and
international programming services provided to the independent cable television
systems in Mexico and the Group's DTH satellite and cable television businesses,
and from the sale of advertising time on programs provided to pay television
companies in Mexico.
PROGRAMMING LICENSING
The programming licensing segment consists of the international licensing
of television programming. Programming licensing revenues are derived from
international program licensing fees.
PUBLISHING
The publishing segment primarily consists of publishing Spanish-language
magazines in Mexico, the United States and Latin America. Publishing revenues
include subscriptions, sales of advertising space and magazine sales to
distributors.
PUBLISHING DISTRIBUTION
The publishing distribution segment consists of distribution of
Spanish-language magazines, owned by either the Group or independent publishers,
and other consumer products in Mexico and Latin America. Publishing distribution
revenues are derived from magazine and other consumer products sales to
retailers.
CABLE TELEVISION
The cable television segment includes the operation of a cable television
system in the Mexico City metropolitan area and derives revenues principally
from basic and premium services subscription and installation fees from cable
subscribers, pay-per-view fees, and local and national advertising sales.
RADIO
The radio segment includes the operation of six radio stations in Mexico
City and eleven other domestic stations owned by the Group. Revenues are derived
by advertising and by the distribution of programs to nonaffiliated radio
stations.
OTHER BUSINESSES
The other businesses segment includes the Group's domestic operations in
sports and show business promotion, soccer, nationwide paging, feature film
production and distribution, Internet and dubbing services for Mexican and
multinational companies.
F-37
The table below presents information by segment for the years ended
December 31, 2001, 2002 and 2003.
OPERATING
INCOME
(LOSS)
BEFORE DEPRECIATION
DEPRECIATION AND OPERATING
TOTAL INTERSEGMENT CONSOLIDATED AND AMORTIZATION INCOME
REVENUES REVENUES REVENUES AMORTIZATION EXPENSE (LOSS)
-------- -------- -------- ------------ ------- ------
2001:
Television broadcasting .. Ps.13,980,141 Ps. 154,738 $ 13,825,403 Ps.5,305,526 Ps. 884,452 Ps.4,421,074
Programming for pay
television ............. 565,167 76,915 488,252 44,090 41,262 2,828
Programming licensing .... 1,544,033 -- 1,544,033 334,801 15,434 319,367
Publishing ............... 1,763,156 19,708 1,743,448 306,953 49,267 257,686
Publishing distribution .. 985,937 16,816 969,121 22,442 13,559 8,883
Cable television ......... 1,189,421 589 1,188,832 364,070 103,490 260,580
Radio .................... 259,059 15,207 243,852 6,997 23,559 (16,562)
Other businesses ......... 1,896,736 287,556 1,609,180 (316,273) 276,860 (593,133)
Eliminations and corporate
expenses ............... (571,529) (571,529) -- (148,559) -- (148,559)
------------- ------------ ------------ ------------ ------------ ------------
Consolidated total ....... Ps.21,612,121 Ps. -- $ 21,612,121 Ps.5,920,047 Ps.1,407,883 Ps.4,512,164
============= ============ ============ ============ ============ ============
2002:
Television broadcasting .. Ps.14,596,503 Ps. 104,661 $ 14,491,842 Ps.5,700,462 Ps. 954,591 Ps.4,745,871
Programming for pay
television ............... 632,209 59,278 572,931 107,444 44,788 62,656
Programming licensing .... 1,461,051 -- 1,461,051 238,582 11,924 226,658
Publishing ............... 1,750,040 27,163 1,722,877 281,917 28,661 253,256
Publishing distribution .. 1,397,200 11,717 1,385,483 15,495 17,422 (1,927)
Cable television ......... 1,152,268 499 1,151,769 337,247 127,773 209,474
Radio .................... 194,501 43,647 150,854 (30,433) 17,124 (47,557)
Other businesses ......... 1,610,395 130,629 1,479,766 (158,908) 305,051 (463,959)
Eliminations and corporate
expenses ............... (377,594) (377,594) -- (149,222) -- (149,222)
------------- ------------ ------------ ------------ ------------ ------------
Consolidated total ....... Ps.22,416,573 Ps. -- $ 22,416,573 Ps.6,342,584 Ps.1,507,334 Ps.4,835,250
============= ============ ============ ============ ============ ------------
2003:
Television broadcasting .. Ps.15,387,002 Ps. 70,112 $ 15,316,890 Ps.6,540,214 Ps. 923,148 Ps.5,617,066
Programming for pay
television ............. 699,677 55,877 643,800 154,316 39,613 114,703
Programming licensing .... 1,630,155 -- 1,630,155 498,028 7,406 490,622
Publishing ............... 1,787,753 6,875 1,780,878 346,132 18,893 327,239
Publishing distribution .. 1,776,224 6,617 1,769,607 8,644 20,266 (11,622)
Cable television ......... 986,507 4,872 981,635 301,423 180,509 120,914
Radio .................... 249,306 47,079 202,227 22,486 15,537 6,949
Other businesses ......... 1,361,278 123,257 1,238,021 (150,759) 319,868 (470,627)
Eliminations and corporate
expenses ............... (314,689) (314,689) -- (149,307) -- (149,307)
------------- ------------ ------------ ------------ ------------ ------------
Consolidated total ....... Ps.23,563,213 Ps. -- $ 23,563,213 Ps.7,571,177 Ps.1,525,240 Ps.6,045,937
============= ============ ============ ============ ============ ============
ACCOUNTING POLICIES
The accounting policies of the segments are the same as those described in
the Group's summary of significant accounting policies (see Note 1). The Group
evaluates the performance of its segments and allocates resources to them based
on operating income before depreciation and amortization.
F-38
INTERSEGMENT REVENUE
Intersegment revenue consists of revenues derived from each of the
segments principal activities as provided to other segments.
The Group accounts for intersegment revenues as if the revenues were from
third parties, that is, at current market prices.
ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
Non-allocated corporate expenses include payroll for certain executives,
related employee benefits and other general expenses.
The table below presents segment information about assets, liabilities,
and additions to property, plant and equipment as of and for the years ended
December 31, 2001, 2002 and 2003.
SEGMENT ADDITIONS TO
SEGMENT ASSETS LIABILITIES PROPERTY, PLANT
AT YEAR-END AT YEAR-END AND EQUIPMENT
-------------- ------------- ---------------
2001:
Continuing operations:
Television operations (1) ... Ps.35,533,006 Ps.16,784,453 Ps. 994,519
Publishing .................. 1,495,155 316,400 11,454
Publishing distribution ..... 945,477 244,979 7,825
Cable television ............ 1,885,988 284,577 419,487
Radio ....................... 1,104,974 35,112 2,487
Other businesses 3,933,179 1,627,869 35,566
------------- ------------- -------------
44,897,779 19,293,390 1,471,338
Discontinued operations:
Music recording (see Note 22) 801,126 186,974 642
------------- ------------- -------------
Total ................ Ps.45,698,905 Ps.19,480,364 Ps. 1,471,980
============= ============= =============
2002:
Continuing operations:
Television operations (1) ... Ps.38,637,414 Ps.17,448,542 Ps. 1,147,581
Publishing .................. 1,612,364 178,176 3,643
Publishing distribution ..... 966,549 374,275 15,429
Cable television ............ 2,189,958 599,168 190,481
Radio ....................... 412,366 47,921 11,236
Other businesses ............ 3,818,459 2,815,426 39,392
------------- ------------- -------------
Total ................. Ps.47,637,110 Ps.21,463,508 Ps. 1,407,762
============= ============= =============
2003:
Continuing operations:
Television operations (1) ... Ps.42,178,645 Ps.19,130,544 Ps. 750,970
Publishing .................. 1,859,246 364,131 10,625
Publishing distribution ..... 969,539 394,956 21,179
Cable television ............ 2,115,790 485,226 176,260
Radio ....................... 423,523 51,009 14,049
Other businesses ............ 3,322,730 1,892,333 79,138
------------- ------------- -------------
Total ................. Ps.50,869,473 Ps.22,318,199 Ps. 1,052,221
============= ============= =============
(1) Segment assets and liabilities information is not maintained by the Group
for each of the television broadcasting, programming for pay television
and programming licensing segments. In management's opinion, there is no
reasonable or practical basis to make allocations due to the
interdependence of these segments. Consequently, management has presented
such information on a combined basis as television operations.
F-39
Segment assets reconcile to total assets as follows:
2001 2002 2003
---- ---- ----
Segment assets.................................... Ps. 45,698,905 Ps. 47,637,110 Ps. 50,869,473
Non trade long-term receivables................... 7,111 5,942 --
Investments attributable to:
Television operations(1)....................... 1,462,500 7,866,450 10,976,209
Other segments................................. 3,878,115 471,692 543,418
DTH ventures(2)................................ 278,328 376,577 350,954
Goodwill - net attributable to:
Television operations.......................... 2,295,810 1,264,106 1,177,354
Cable television............................... 111,940 -- --
Publishing distribution........................ 272,964 274,389 167,892
Other segments................................. 67,545 761,826 673,940
-------------- -------------- --------------
Total assets...................................... Ps. 54,073,218 Ps. 58,658,092 Ps. 64,759,240
============== ============== ==============
(1) Includes goodwill attributable to equity investments of Ps.2,295,
Ps.5,476,406 and Ps.5,447,326 in 2001, 2002 and 2003, respectively.
(2) Includes goodwill attributable to investments in DTH ventures of
Ps.61,392, Ps.84,610 and Ps.101,475 in 2001, 2002 and 2003, respectively.
Equity method income for the years ended December 31, 2001, 2002 and 2003
attributable to television operations, equity investments approximated
Ps.39,400, Ps.57,119 and Ps.116,207, respectively.
Segment liabilities reconcile to total liabilities as follows:
2001 2002 2003
---- ---- ----
Segment liabilities............................... Ps. 19,480,364 Ps. 21,463,508 Ps. 22,318,199
Notes payable and long-term debt not
attributable to segments........................ 14,009,147 15,022,128 14,914,714
---------------- ---------------- ----------------
Total liabilities................................. Ps. 33,489,511 Ps. 36,485,636 Ps. 37,232,913
================ ================ ================
GEOGRAPHICAL SEGMENT INFORMATION
ADDITIONS TO
SEGMENT PROPERTY,
TOTAL NET ASSETS AT PLANT AND
SALES YEAR-END EQUIPMENT
----- -------- ---------
2001:
Mexico......................................... Ps. 18,640,421 Ps. 43,348,435 Ps. 1,438,586
Other countries................................ 2,971,700 2,350,470 33,394
---------------- --------------- ----------------
Ps. 21,612,121 Ps. 45,698,905 Ps. 1,471,980
================ =============== ================
2002:
Mexico......................................... Ps. 18,948,923 Ps. 43,104,122 Ps. 1,381,550
Other countries................................ 3,467,650 4,532,988 26,212
---------------- --------------- ----------------
Ps. 22,416,573 Ps. 47,637,110 Ps. 1,407,762
================ =============== ================
2003:
Mexico......................................... Ps. 19,461,254 Ps. 47,347,399 Ps. 1,005,575
Other countries................................ 4,101,959 3,522,074 46,646
---------------- --------------- ----------------
Ps. 23,563,213 Ps. 50,869,473 Ps. 1,052,221
================ =============== ================
Net sales are attributed to countries based on the location of customers.
F-40
26. DIFFERENCES BETWEEN MEXICAN AND U.S. GAAP
The Group's consolidated financial statements are prepared in accordance
with Mexican GAAP, which differs in certain significant respects from accounting
principles generally accepted in the United States ("U.S. GAAP"). The principal
differences between Mexican GAAP and U.S. GAAP are presented below, together
with explanations of certain adjustments that affect net income and
shareholders' equity as of and for the years ended December 31:
RECONCILIATION OF NET INCOME (LOSS)
2001 2002 2003
--------------- --------------- ---------------
Net income as reported under Mexican GAAP ............... Ps. 1,478,936 Ps. 767,176 Ps. 3,596,603
U.S. GAAP adjustments:
(a) Capitalization of financing costs, net of
depreciation........................................ 69,435 17,516 19,758
(b) Deferred costs, net of amortization ................ 16,807 24,125 205,082
(c) Equipment restatement, net of amortization ......... (118,072) (105,873) 64,573
(d) Purchase accounting adjustments:
Amortization of broadcast license and network
affiliation agreements ............................. (95,111) -- (6,100)
Depreciation of fixed assets ....................... (8,758) (10,326) (10,326)
Amortization of other assets ....................... (4,120) (4,120) (4,164)
Amortization of goodwill on acquisition of Bay City 92,316 -- --
Amortization of goodwill on acquisition of minority
interest in Editorial Televisa ..................... (57,330) -- --
Amortization of negative goodwill on acquisition of
additional interests in Univision .................. 18,087 -- --
(e) Goodwill and other intangible assets:
Reversal of Mexican GAAP goodwill amortization ..... -- 455,214 460,691
Reversal of Mexican GAAP impairment of goodwill .... -- 816,008 88,805
Reversal of Mexican GAAP amortization of intangible
assets with indefinite lives ....................... -- 93,724 --
(f) Equity method investees ............................ (581,049) (723,471) (1,021,058)
(g) Adjustment to gain on sale of music recording
business ........................................... -- (276,101) --
(h) Derivative financial instruments ................... 2,663,768 (1,223,787) 1,330,338
(i) Pension plan costs and seniority premiums .......... (2,581) 1,345 (372)
(j) Employee stock option plan ......................... 65,440 5,409 (466,993)
(k) Production and film costs .......................... (742,111) (347,064) 648,860
(l) Deferred income taxes and employee profit sharing:
Deferred income taxes (1) .......................... (662,123) 592,658 (2,175,610)
Deferred employees profit sharing (1) .............. 44,459 24,478 80,216
(m) Minority interest on U.S. GAAP adjustment (k) ...... -- 8,372 (809)
(n) Effects of inflation accounting on U.S. GAAP
adjustments ........................................ 116,036 (11,119) (5,289)
--------------- --------------- ---------------
Net income before cumulative effect of change in
accounting principles ................................... 2,294,029 104,164 2,804,205
Cumulative effect of change in accounting principles
(In 2001: SoP 00-2(k), Ps.863,841 net of tax benefit
of Ps.465,144; and in 2002: SFAS 141(d), and
SFAS 142(e), Ps.1,281,782, net of write off of
negative goodwill of Ps.325,540 and tax benefit of
Ps.435,006) ........................................ (863,841) (1,281,782) --
--------------- --------------- ---------------
Net income (loss) under U.S. GAAP ...................... Ps. 1,430,188 Ps. (1,177,618) Ps. 2,804,205
=============== =============== ===============
(1) Net of inflation effects.
F-41
RECONCILIATION OF STOCKHOLDERS' EQUITY
2002 2003
-------------- --------------
Total stockholders' equity under Mexican GAAP .......................... Ps. 22,172,456 Ps. 27,526,327
-------------- --------------
U.S. GAAP adjustments:
(a) Capitalization of financing costs, net of depreciation ............ (832,955) (813,197)
(b) Deferred costs, net of amortization ............................... (349,160) (144,078)
(c) Equipment restatement, net of depreciation ........................ 596,825 370,384
(d) Purchase accounting adjustments:
Broadcast license and network affiliation agreements .............. 136,242 130,142
Fixed assets ...................................................... 87,766 77,440
Other assets ...................................................... 53,798 52,050
Goodwill on acquisition of Bay City ............................... (1,882,439) (1,882,439)
Goodwill on acquisition of minority interest in Editorial Televisa 1,157,551 1,157,551
Goodwill on acquisition of additional interests in Univision ...... (560,576) (560,576)
(e) Goodwill and other intangible assets:
Reversal of Mexican GAAP goodwill amortization .................... 455,214 915,905
Reversal of Mexican GAAP impairment of goodwill related to Bay City 816,008 816,008
Reversal of Mexican GAAP amortization of intangible assets with
indefinite lives .................................................. 93,724 93,724
Impairment of goodwill of distribution segment .................... (348,729) (272,730)
(f) Equity method investees ........................................... (902,750) (1,923,808)
(g) Adjustment to gain on sale of music recording business ............ (276,101) (276,101)
(h) Derivative financial instruments .................................. 1,228,971 2,484,773
(i) Pension plan and seniority premiums ............................... 372 --
(j) Employee stock option plan ........................................ (127,996) (580,428)
(k) Production and film costs ......................................... (2,418,161) (1,769,301)
(l) Deferred income taxes and employee profit sharing:
Deferred income taxes ............................................. 624,849 (38,120)
Deferred employees' profit sharing ................................ (189,428) (109,212)
(m) Minority interest ................................................. (1,176,519) (1,071,081)
-------------- --------------
Total U.S. GAAP adjustments, net ....................................... (3,813,494) (3,343,094)
-------------- --------------
Total stockholders' equity under U.S. GAAP ............................. Ps. 18,358,962 Ps. 24,183,233
============== ==============
A summary of the Group's statement of changes in stockholders' equity with
balances determined under U.S. GAAP is as follows:
CHANGES IN U.S. GAAP STOCKHOLDERS' EQUITY
2002 2003
-------------- --------------
BALANCE AT JANUARY 1, ............................ Ps. 19,672,356 Ps. 18,358,962
Net (loss) income for the year ................... (1,777,618) 2,804,205
Share issuance ................................... 426 4,023,375
Repurchase of capital stock ...................... (38,571) (4,652,375)
Acquisition of Telespecialidades ................. -- 1,374,997
Dividends ........................................ -- (571,871)
Sale of capital stock under stock option plan .... -- 71,699
Other comprehensive income:
Gain on issuance of shares of associates -- 2,883,214
Result from holding non-monetary assets . 171,580 54,267
Foreign currency translation adjustment . (269,211) (163,240)
-------------- --------------
BALANCE AT DECEMBER 31 ........................... Ps. 18,358,962 Ps. 24,183,233
============== ==============
The reconciliation to U.S. GAAP includes a reconciling item for the effect
of applying the option provided by the Mexican GAAP Bulletin B-10, "Recognition
of the Effects of Inflation on Financial Information" for the
F-42
restatement of equipment of non-Mexican origin because, as described below, this
provision of inflation accounting under Mexican GAAP does not meet the
consistent reporting currency requirement of Regulation S-X of the Securities
and Exchange Commission ("SEC").
The reconciliation to U.S. GAAP does not include the reversal of the other
adjustments to the financial statements for the effects of inflation required
under Mexican GAAP Bulletin B-10, because the application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
inflationary Mexican economy and, as such, is considered a more meaningful
presentation than historical, cost-based financial reporting for both Mexican
and U.S. accounting purposes.
Mexican GAAP Bulletin B-15, "Foreign Currency Transactions and Translation
of Financial Statements of Foreign Operations" requires restating the financial
statements for all periods prior to the most recent period by using a
weighted-average factor which considers the inflation in Mexico and the other
countries in which the Group and its subsidiaries operate and the currency
exchange rate for the currency of each country as of the date of the most recent
balance sheet. The consistent reporting currency requirements of the SEC rules
require restatement of prior periods for general price level changes only,
utilizing the NCPI, and supplemental condensed financial statements utilizing
the NCPI are required for U.S. GAAP purposes. The Group utilized the NCPI to
restate its financial statements for prior years because the use of the
weighted-average factor prescribed by B-15 would not have produced a materially
different result.
(A) CAPITALIZATION OF FINANCING COSTS, NET OF DEPRECIATION
Mexican GAAP allows, but does not require, capitalization of financing
costs as part of the cost of assets under construction. Financing costs
capitalized include interest costs, gains from monetary position and foreign
exchange losses.
U.S. GAAP requires the capitalization of interest during construction on
qualifying assets. In an inflationary economy, such as Mexico, acceptable
practice is to capitalize interest net of the monetary gain on the related
Mexican Peso debt, but not on U.S. dollar or other stable currency debt. U.S.
GAAP does not allow the capitalization of foreign exchange losses.
(B) DEFERRED COSTS, NET OF AMORTIZATION
Under Mexican GAAP, preoperating costs and certain development costs
(including those related to web site development) are capitalized and
subsequently amortized on a straight-line basis once the related venture
commences operations, defined as the period when revenues are generated. In
addition, other expenditures which are expected to generate significant and
identifiable future benefit are also capitalized and amortized over the expected
future benefit period.
Under U.S. GAAP, preoperating, development and other deferred costs are
generally expensed as incurred given that the assessment of future economic
benefit is uncertain. In the case of web site development costs, certain costs
are capitalized and others expensed in accordance with EITF Issue No. 00-2,
"Accounting for Web Site Development Costs". Consequently, the U.S. GAAP net
income reconciliation reflects the write-off, for U.S. GAAP purposes, of the
preoperating and other deferred costs (including certain web site development
costs) capitalized under Mexican GAAP, net of the reversal of any amortization
which is reflected under Mexican GAAP. In 2003 there were no additional
capitalizations under Mexican GAAP and therefore, the U.S. GAAP adjustment
reflects the reversal of the Mexican GAAP amortization.
(C) EQUIPMENT RESTATEMENT, NET OF DEPRECIATION
The Group restates equipment of non-Mexican origin using the Specific
Index for determining the restated balances under Mexican GAAP. Under Regulation
S-X of the SEC, the restatement of equipment of non-Mexican origin by the
Specific Index under the provisions of Bulletin B-10 is a deviation from the
historical cost concept. The NCPI factors applied to restate equipment of
non-Mexican origin were 4.40%, 5.70% and 3.98% in 2001, 2002 and 2003,
respectively. The U.S. GAAP net income and stockholders' equity reconciliations
reflect adjustments to
F-43
reverse the Specific Index restatement recognized under Mexican GAAP and to
restate equipment of non-Mexican origin by the NCPI and recalculate the
depreciation expense on this basis. Consequently, the deficit from restatement
adjustment recognized under Mexican GAAP related to fixed assets totaling
Ps.(378,080) and Ps.(291,014) for the years ended December 31, 2002 and 2003,
respectively, has been reversed for U.S. GAAP purposes.
(D) PURCHASE ACCOUNTING ADJUSTMENTS
Under Mexican GAAP, the excess of the purchase price over the adjusted net
book value of enterprises acquired is recorded as goodwill and amortized over a
period not to exceed twenty years.
Under U.S. GAAP, the purchase method of accounting, for acquisitions prior
to June 1, 2001, requires the acquiring Group to record at fair value the assets
acquired and liabilities assumed, including deferred income taxes on existing
temporary differences. The difference between the purchase price and the sum of
the fair values of tangible and identifiable intangible assets less liabilities
assumed, whether or not previously recorded by the acquired enterprise, is
recorded as goodwill. The U.S. GAAP adjustments for the year ended December 31,
2001 reflects the difference in the amortization expense of goodwill and other
purchase price adjustments resulting from the application of the purchase method
for U.S. GAAP and the accounting under Mexican GAAP described above related to
the acquisition of Bay City Television, Inc. ("Bay City") and Radiotelevision,
S.A. de C.V. in July 1996. For U.S. GAAP purposes, the purchase price has been
allocated, based on fair values primarily to the broadcast license and network
affiliation agreement, programming and advertising contracts, fixed assets,
other assets and goodwill. Such purchase price adjustments are amortized over
the remaining estimated useful lives of the respective assets, which is 15 years
for fixed assets and 3 years for programming contracts. Upon the adoption of the
new accounting standard on goodwill and other intangible assets (described
below) on January 1, 2002, the Group ceased amortizing the broadcast license and
network affiliation agreement, as they were considered to have indefinite lives,
and the amount allocated to goodwill. Notwithstanding, following new EITF Issue
No. 03-9 Interaction of Paragraphs 11 and 12 of FASB Statement No. 142 Regarding
Determination of the Useful Life and Amortization of an Intangible Asset, in
2003 the Company re-assessed the useful life of its network affiliation
agreement and concluded that it constitutes a definite lived intangible.
Consequently, in 2003 the Company restarted amortizing the remaining carrying
value of its network affiliation agreement amounting to Ps.34,061 over the
remaining life of the contract, which is 6 years. In addition, on January 1,
2002, the Group recorded a non-cash impairment charge relating to the broadcast
license and network affiliation agreement (Ps.797,473, net of tax benefit of
Ps.435,006) and the goodwill in Bay City (Ps.526,487) (described below).
On October 19, 2000, the Group acquired all of the interest owned by a
minority shareholder in its majority-owned subsidiary, Editorial Televisa, by
issuing 172,922,325 shares of capital stock in the form of 57,640,775 CPOs.
Under Mexican GAAP, this acquisition was accounted for as a purchase, and the
related purchase price was determined using the carrying value of the Group's
treasury shares at the acquisition date, with a related goodwill of Ps.77,823
and an additional paid-in capital of Ps.217,247 being recognized. Under U.S.
GAAP, this acquisition was accounted for by the purchase method, and the related
purchase price was determined by using the fair value of the shares issued by
the Group as consideration for the minority interest acquired. The additional
purchase price adjustment under U.S. GAAP was allocated to goodwill and
amortized through December 31, 2001. Upon the adoption of the new accounting
standard on goodwill and other intangible assets effective January 1, 2002
(described below), this amount is no longer amortized, but subject to an annual
impairment test.
In 1999, the Group exercised warrants to acquire an additional interest in
Univision. Under Mexican GAAP, the Group recognized the excess of its underlying
equity in the net assets of Univision over the cost of the investment in income.
Under U.S. GAAP, the additional investment in Univision was accounted for as a
purchase with the difference between the investors' cost and underlying equity
in the net assets of the investee at the date of acquisition being accounted for
in a manner similar to a consolidated subsidiary and amortized over the
remaining estimated useful lives of the underlying assets. The unamortized
balance of negative goodwill that arose on this transaction was written off on
January 1, 2002 and was reflected as part of "Cumulative effect of change in
accounting principle" in the accompanying U.S. GAAP reconciliation, pursuant to
the provisions of Statement of Financial Accounting Standard No. 141, "Business
Combinations" ("SFAS 141").
F-44
In addition, as described in Note 2, the Group also entered into a series
of transactions with Univision in December 2001, by which, among other things,
the Group acquired 375,000 non-voting preferred shares of Univision stock, which
converted upon the receipt of required U.S. regulatory approval in February
2002, into 10,594,500 shares of Univision Class "A" Common Stock and 2,725,136
shares of Univision Class "B" Common Stock, and 6,000,000 shares of Univision
Class "A" Common Stock as partial consideration for the sale of its music
recording business. Under Mexican GAAP, the Group recognized the excess of its
underlying equity in the net assets of Univision over the cost of the additional
investments as goodwill. Under U.S. GAAP, the additional investments were each
accounted for as a purchase with the difference between the investors' cost and
underlying equity in the net assets of the investee at the date of acquisition
being accounted for in a manner similar to a consolidated subsidiary.
Accordingly, under U.S. GAAP, the Group recognized goodwill on these
acquisitions amounting to Ps.4,801,466.
(E) GOODWILL AND OTHER INTANGIBLE ASSETS
During 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that, effective January 1, 2002,
goodwill, including the goodwill included in the carrying value of investments
accounted for using the equity method of accounting, and certain other
intangible assets deemed to have an indefinite useful life, cease amortizing.
The new rules also require that goodwill and certain intangible assets be
assessed for impairment using fair value measurement techniques.
The Group recorded a Ps.1,281,782 non-cash charge (net of a write off of
negative goodwill of Ps.325,540 and tax benefit of Ps.435,006) for the
impairment of goodwill and other intangible assets upon completion of its
initial impairment reviews pursuant to the adoption of SFAS 142 on January 1,
2002. The charge is reflected as a cumulative effect of an accounting change in
the accompanying U.S. GAAP reconciliation. The charge reduced the carrying value
of goodwill in the Group's television broadcasting and publishing distribution
segments by Ps.526,487 and Ps.272,964, respectively. The impairment in the
Group's television broadcasting segment relates to the operations of Bay City,
which have been adversely affected by an increase in operational costs resulting
from the start up of a local news center in the frame of the Company's business
strategy and the commitments assumed under the network affiliation agreement
signed with Fox, as well as from increased competition. The impairment in the
Group's publishing distribution segment related primarily to the operations of
Grupo Distribuidoras Intermex, S.A. de C.V. ("Distribuidoras Intermex"), as a
result of increased competition and decreasing margins of its South-American
operations. The fair value of Bay City and Distribuidoras Intermex, as separate
reporting units, were determined using expected present value of future cash
flows.
As a result of the annual impairment review of goodwill performed in 2002,
the Company recorded an additional non-cash charge of Ps.293,110 to reduce the
carrying value of goodwill in its television broadcasting segment (Ps.53,919),
cable television segment (Ps.111,940) and other segments (Ps.127,250). These
charges were recorded as a component of operating income (loss) in the
accompanying U.S. GAAP reconciliation.
The changes in the carrying amount of goodwill under U.S. GAAP for the
years ended December 31, 2002 and 2003, are as follows:
BALANCE AS OF WRITE-OFF OF
JANUARY 1, NEGATIVE ALLOCATED IMPAIRMENT BALANCE AS OF
2001 GOODWILL GOODWILL LOSSES DECEMBER 31, 2002
---- -------- -------- ------ -----------------
Consolidated subsidiaries:
Television broadcasting Ps. 813.287 Ps. -- Ps. 53,886 Ps. (580,406)(3) Ps. 286,767
Publishing distribution 272,964 -- -- (272,964)(3) --
Publishing ............ 1,230,835 -- -- -- 1,230,835
Cable television ...... 111,940 -- -- (111,940) --
Other segments ........ 69,248 -- 100,868 (127,250) 42,866
Equity-method investees (210,270) 325,540(1) 5,579,609(2) -- 5,694,879
-------------- -------------- -------------- -------------- --------------
Ps. 2,288,004 Ps. 325,540 Ps. 5,734,363 Ps. (1,092,560) Ps. 7,255,347
============== ============== ============== ============== ==============
F-45
(1) Represents the write-off of negative goodwill in Univision on January 1,
2002 - refer to (d) and (e) above.
(2) Represents the goodwill arising on acquisitions of additional interests in
Univision (Ps.4,801,466) and OCEN (Ps.778,142) - refer to Note 2 and (d)
above.
(3) Relates mainly to the impairment of goodwill in Bay City and Grupo
Distribuidoras Intermex (described above).
TRANSLATION
EFFECT OF
BALANCE AS OF GOODWILL OF
JANUARY 1, FOREIGN ALLOCATED IMPAIRMENT BALANCE AS OF
2003 SUBSIDIARIES GOODWILL LOSSES DECEMBER 31, 2003
------------- ------------ ------------ ------------ -----------------
Consolidated subsidiaries:
Television broadcasting Ps. 286,767 Ps. -- Ps. -- Ps. -- Ps. 286,767
Publishing ............ 1,230,835 -- -- -- 1,230,835
Other segments ........ 42,866 -- -- (1,150) 41,716
Equity-method investees 5,694,879 294,527 (26,053) (23,984) 5,939,369
------------ ------------ ------------ ------------ ------------
Ps.7,255,347 PS. 294,527 Ps. (26,053) Ps. (25,134) Ps.7,498,687
============ ============ ============ ============ ============
The following disclosure of what the Group's income before extraordinary
items and cumulative change in accounting principle, net income, earnings per
CPO and earnings per share would have been under U.S. GAAP, adjusted to exclude
the amortization expense recognized in 2001 related to goodwill, negative
goodwill and intangible assets with indefinite lives, is required by SFAS 142:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2001 2002 2003
-------------- -------------- --------------
Reported income before cumulative effect of change in
accounting principle ........................................ Ps. 2,294,029 Ps. 104,164 Ps. 2,804,205
Add back: Goodwill amortization ............................ 175,685 -- --
Deduct: Negative goodwill amortization ..................... (18,087) -- --
Add back: Amortization of acquired television network
concession, broadcast license, network affiliation agreements
and trademarks, net of deferred tax of Ps.65,212 ............ 121,108 -- --
-------------- -------------- --------------
Adjusted income before cumulative change in accounting
principle ................................................... Ps. 2,572,735 Ps. 104,164 Ps. 2,804,205
============== ============== ==============
Reported net income (loss) .................................. Ps. 1,430,188 Ps. (1,177,618) Ps. 2,804,205
Add back: Goodwill amortization ............................ 175,685 -- --
Deduct: Negative goodwill amortization ..................... (18,087) -- --
Add back: Amortization of acquired television network
concession, broadcast license, network affiliation agreements
and trademarks, net of deferred tax of Ps.65,212 ............ 121,108 -- --
-------------- -------------- --------------
Adjusted net income (loss) .................................. Ps. 1,708,894 Ps. (1,177,618) Ps. 2,804,205
============== ============== ==============
F-46
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2001 2002 2003
----------------------- ------------------------ -----------------------
PER PER PER
(in constant pesos) PER SERIES "A" PER SERIES "A" PER SERIES "A"
CPO SHARE CPO SHARE CPO SHARE
---------- ---------- ---------- ---------- ---------- ----------
Reported earnings (loss)
per CPO and per share ..... Ps. 0.48 Ps. 0.16 Ps. (0.42) Ps. (0.14) Ps. 0.96 Ps. 0.32
Add back: Goodwill
amortization .............. 0.06 0.02 -- -- -- --
Add back: Amortization of
acquired television network
concession, broadcast
license, network
affiliation agreements and
trademarks, net of deferred
tax of
Ps.65,212 ................. 0.06 0.02 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Adjusted earnings (loss)
per CPO and per share ..... Ps. 0.60 Ps. 0.20 Ps. (0.42) Ps. (0.14) Ps. 0.96 Ps. 0.32
========== ========== ========== ========== ========== ==========
The carrying value of intangible assets as of December 31, 2002 and 2003
amounted to:
2002 2003
------------ ------------
Trademarks(1)(2) ................................. Ps. 436,963 Ps. 459,799
Television network concession(1) ................. 632,792 632,792
Network affiliation agreements(1) ................ 102,181 102,181
Broadcast license ................................ 34,061 27,961
------------ ------------
Total intangible assets .......................... Ps.1,205,997 Ps.1,222,733
============ ============
(1) Indefinite-lived
(2) Includes translation effect
The aggregate amortization expense for intangible assets subject to
amortization under U.S. GAAP, is estimated at Ps.102,181 for each of the next
five fiscal years.
As mentioned in Note 1 i), under Mexican GAAP, until January 1, 2003, all
intangible assets were amortized over their estimated useful life. Bulletin C-8
was adopted starting January 1, 2003, and consequently, trademarks and the
television network concession were recognized as having indefinite lives and
were not longer amortized. Accordingly, amortization of these indefinite-lived
intangible assets ceased in 2002 for U.S. GAAP and in 2003 for Mexican GAAP.
(F) EQUITY METHOD INVESTEES
The effect of applying U.S. GAAP to the Group's equity investees, as it
relates to Innova, SMCP, Univision and OCEN, has been included in the Group's
U.S. GAAP reconciliation.
The schedules below present, under U.S. GAAP, summarized statements of
operations for the years ended December 31, 2003, 2002 and 2001, and balance
sheet information as of December 31, 2003 and 2002 for the significant
investments that were accounted for under the equity method.
F-47
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------
TOTAL
OTHER EQUITY EQUITY
INNOVA SMCP INVESTMENTS INVESTMENTS
-------------- -------------- -------------- --------------
Net sales .............................................. Ps. 3,265,898 Ps. 784,041 Ps. 13,568,611 Ps. 17,618,550
Total expenses ......................................... 4,185,441 2,388,034 12,210,563 18,784,038
-------------- -------------- -------------- --------------
(Loss) income before income taxes and minority interest. (919,543) (1,603,993) 1,358,048 (1,165,488)
-------------- -------------- -------------- --------------
Income tax provisions .................................. (48,124) (3,379) (1,973,158) (2,024,661)
-------------- -------------- -------------- --------------
Loss before minority interest .......................... (967,667) (1,607,372) (615,110) (3,190,149)
Minority interest ...................................... -- -- 977 977
-------------- -------------- -------------- --------------
U.S. GAAP net loss ..................................... Ps. (967,667) Ps. (1,607,372) Ps. (614,133) Ps. (3,189,172)
============== ============== ============== ==============
Televisa's equity in net (losses) income of equity
investees, under U.S. GAAP ............................. Ps. (580,600) Ps. (482,212) Ps. (92,053) Ps. (1,154,865)
============== ============== ============== ==============
YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------------------------------------------------
OTHER TOTAL
EQUITY EQUITY
INNOVA UNIVISION SMCP INVESTMENTS INVESTMENTS
-------------- -------------- -------------- -------------- --------------
Net sales ....................... Ps. 3,447,836 Ps. 11,873,377 Ps. 606,620 Ps. 7,164,200 Ps. 23,092,033
Total expenses .................. 5,240,673 10,262,774 1,995,617 10,345,251 27,844,315
-------------- -------------- -------------- -------------- --------------
(Loss) income before income taxes
and minority interest ........... (1,792,837) 1,610,603 (1,388,997) (3,181,051) (4,752,282)
Income tax provisions ........... (78,533) (669,170) (22) (12,628) (760,353)
-------------- -------------- -------------- -------------- --------------
(Loss) income before minority
interest ........................ (1,871,370) 941,433 (1,389,019) (3,193,679) (5,512,635)
Minority interest ............... -- -- -- (2,272) (2,272)
-------------- -------------- -------------- -------------- --------------
U.S. GAAP net (loss) income ..... Ps. (1,871,370) Ps. 941,433 Ps. (1,389,019) Ps. (3,195,951) Ps. (5,514,907)
============== ============== ============== ============== ==============
Televisa's equity in net (losses)
income of equity investees, under
U.S. GAAP ....................... Ps. (1,122,822) Ps. 123,064 Ps. (908,608)(1) Ps. (16,884) Ps. (1,925,250)
============== ============== ============== ============== ==============
(1) Includes corporate consolidation adjustments of Ps.(491,902)
YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------------------
OTHER EQUITY TOTAL EQUITY
INNOVA UNIVISION INVESTMENTS INVESTMENTS
-------------- -------------- -------------- --------------
Net sales ........................................ Ps. 3,745,848 Ps. 14,716,143 Ps. 3,560,685 Ps. 22,022,676
Total expenses ................................... 4,644,461 11,788,805 4,751,970 21,185,236
-------------- -------------- -------------- --------------
(Loss) income before income taxes and minority
interest ......................................... (898,613) 2,927,338 (1,191,285) 837,440
Income tax benefit (provision) ................... 117,050 (1,182,958) (75,560) (1,141,468)
-------------- -------------- -------------- --------------
(Loss) income before minority interest ........... (781,563) 1,744,380 (1,266,845) (304,028)
Minority interest ................................ -- -- (15,284) (15,284)
-------------- -------------- -------------- --------------
U.S. GAAP net (loss) income ...................... Ps. (781,563) Ps. 1,744,380 Ps. (1,282,129) Ps. (319,312)
============== ============== ============== ==============
Televisa's equity in net (losses) income of equity
investees, under U.S. GAAP ....................... Ps. (468,938) Ps. 163,448 Ps. (687,280) Ps. (992,770)
============== ============== ============== ==============
F-48
CONDENSED BALANCE SHEETS
DECEMBER 31, 2002
---------------------------------------------------------------------------------------
OTHER
EQUITY TOTAL EQUITY
INNOVA UNIVISION SMCP INVESTMENTS INVESTMENTS
-------------- -------------- -------------- --------------- -------------
Current assets ......................... Ps. 572,612 Ps. 4,188,381 Ps. 242,833 Ps. 1,920,020 Ps. 6,923,846
Non-current assets ..................... 3,253,480 33,051,875 2,227,505 1,819,511 40,352,371
-------------- -------------- -------------- -------------- --------------
Total assets ........................... 3,826,092 37,240,256 2,470,338 3,739,531 47,276,217
============== ============== ============== ============== ==============
Current liabilities .................... 1,363,395 2,428,678 815,344 989,212 5,596,629
Non-current liabilities ................ 9,585,870 17,637,579 2,761,163 528,366 30,512,978
Stockholders' (deficit) equity ......... (7,123,173) 17,173,999 (1,106,169) 2,221,953 11,166,610
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
(deficit) equity ....................... Ps. 3,826,092 Ps. 37,240,256 Ps. 2,470,338 Ps. 3,739,531 Ps. 47,276,217
============== ============== ============== ============== ==============
Televisa's investment in and advances
to equity investees at cost plus equity
in undistributed (losses) earnings since
acquisition (net) ...................... Ps. (1,849,075)(1) Ps. 2,272,750 Ps. (823,753)(2) Ps. 744,008 Ps. 343,930
============== ============== ============== ============== ==============
(1) Includes long-term notes and interest receivable of Ps.2,424,829.
(2) Includes corporate consolidation adjustments of Ps.(491,902).
DECEMBER 31, 2003
-------------------------------------------------------------------
TOTAL
OTHER EQUITY EQUITY
INNOVA UNIVISION INVESTMENTS INVESTMENTS
-------------- -------------- -------------- --------------
Current assets .................................. Ps. 758,962 Ps. 5,843,353 Ps. 2,074,526 Ps. 8,676,841
Non-current assets .............................. 2,868,087 79,948,390 2,037,039 84,853,516
-------------- -------------- -------------- --------------
Total assets .................................... 3,627,049 85,791,743 4,111,565 93,530,357
============== ============== ============== ==============
Current liabilities ............................. 1,431,891 3,239,905 5,290,969 9,962,765
Non-current liabilities ......................... 5,761,811 25,270,921 610,061 31,642,793
Stockholders' (deficit) equity .................. (3,566,653) 57,280,917 (1,789,465) 51,924,799
-------------- -------------- -------------- --------------
Total liabilities and stockholders' equity ...... Ps. 3,627,049 Ps. 85,791,743 Ps. 4,111,565 Ps. 93,530,357
============== ============== ============== ==============
Televisa's investment in and advances to equity
investees at cost plus equity in undistributed
(losses) earnings since acquisition (net) .... Ps. (2,139,992) Ps. 5,366,303 Ps. (318,629) Ps. 2,907,682
============== ============== ============== ==============
The Group owns a 60% interest in Innova. Despite the Group's majority
interest, the investment is accounted for under the equity method due to the
fact that one of the other venture partner has significant governance rights,
including the right to block any transaction between the Group and Innova.
The primary differences between Innova's Mexican GAAP and U.S. GAAP net
earnings is due to satellite transponder and reorientation cost adjustments.
Under Mexican GAAP, Innova established an accrual and recognized non-recurring
losses for the redundant use of transponders as well as antenna reorientation
costs in 2000. Under U.S. GAAP, the redundant satellite costs would not be
accrued and along with the antenna reorientation costs, would be expensed as
incurred. In 2001 and 2002, these expenditures were incurred. Under Mexican
GAAP, there was no impact to net income as the accruals had been established the
previous year. Under U.S. GAAP, the expenses were recognized when incurred in
2001 and 2002.
In addition, in 2001 and 2002 for Mexican GAAP purposes, the Group decided
to discontinue the recognition of equity losses with respect to its investment
in Innova. Under U.S. GAAP, the Group will continue to equity account Innova's
results of operations since the Group has guaranteed certain of its obligations
and is committed to provide further financial support for Innova.
F-49
In addition, under Mexican GAAP, the convertible preference shares of
Univision were initially accounted for at cost, with the equity method applied
from the date of conversion into Univision Class "A" and Class "B" Common Stock.
Under U.S. GAAP, the equity method was applied retroactively to these shares
upon conversion, in a manner consistent with the accounting for a "step"
acquisition of a subsidiary.
As described in Note 2, the Group acquired a 40% interest in OCEN during
October 2002. The excess of the purchase price over the net book value of the
assets acquired was allocated to goodwill under Mexican GAAP and is amortized
over a period not to exceed twenty years. Under U.S. GAAP, the difference
between the cost of the investment and the amount of underlying equity in net
assets of the investee should be accounted as if the investee were a
consolidated subsidiary. Accordingly, under U.S. GAAP, the Group reduced the
total carrying value of fixed assets and other assets in OCEN by Ps.67,415 and
Ps.14,273, respectively, and allocated the difference to goodwill (Ps.778,142).
Such adjustments are amortized over the remaining estimated useful lives of the
respective assets. The amount allocated to goodwill is not amortized but is
reviewed for impairment in accordance with Accounting Principles Board Opinion
No. 18, "The Equity Method of Accounting for Investments in Common Stock".
(G) ADJUSTMENT TO GAIN ON SALE OF MUSIC RECORDING BUSINESS
As described in Note 2 and in (d) above, the Group disposed of its music
recording business to Univision in exchange for 6,000,000 shares of Univision
Class "A" Common Stock and warrants to purchase, at an exercise price of
U.S.$38.261 per share, 100,000 shares of Univision Class "A" Common Stock. The
sale, which was consummated in April 2002, was accounted for at fair value under
both Mexican and U.S. GAAP. The fair value of the proceeds exceeded the carrying
value of music recording business and, under Mexican GAAP, the Group recognized
a 100% of the gain arising on the disposal of the business. Under U.S. GAAP
however, although the fair value of the proceeds exceeded the carrying value of
the assets by the same amount, the Group only recognized the portion of the gain
that has effectively been sold to third parties. The U.S. GAAP adjustment
therefore eliminates a portion of the gain recognized under Mexican GAAP
attributable to the Group's interest in Univision, immediately after the
transaction.
(H) DERIVATIVE FINANCIAL INSTRUMENTS
The Group's activities expose it to a variety of market risks, including
risks related to the effects of changes in foreign-currency exchange rates,
inflation and interest rates. These financial exposures are monitored and
managed by the Group in the Risk Management Committee which reports to the
Executive Committee. The Group's risk management program focuses on the
unpredictability of financial markets and seeks to reduce the potentially
adverse effects that the volatility of these markets may have on its operating
results.
The Group uses currency option agreements to protect its exposure to
changes in the exchange rates created by its U.S. dollar-denominated debt. The
Group also uses derivative instruments to minimize significant, unanticipated
earnings fluctuations that may arise from volatility in interest rates. The
Group's specific goals are to (1) manage interest rate sensitivity by modifying
the repricing or maturity characteristics of some of its debt and (2) lower
(where possible) the cost of its borrowed funds. Fluctuations in interest rates
create an unrealized appreciation or depreciation in the market value of the
Group's fixed-rate debt when that market value is compared with the cost of the
borrowed funds.
By using derivative financial instruments to hedge exposures to changes in
exchange rates and interest rates the Group exposes itself to credit risk and
market risk. Credit risk is the risk that the counterparty might fail to fulfill
its performance obligations under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes the
Group, which creates repayment risk for the Group. When the fair value of a
derivative contract is negative, the Group owes the counterparty and, therefore,
does not assume repayment risk. The Group minimizes its credit (or repayment)
risk in derivative instruments by (1) entering into transactions with
high-quality counterparties (2) limiting the amount of its exposure to each
counterparty, and (3) monitoring the financial condition of its counterparties.
Market risk is the risk that the value of a financial instrument might be
adversely affected by a change in interest rates and currency exchange rates.
The Group manages the market risk associated with interest rate and
foreign-exchange contracts by establishing and monitoring parameters that limit
the types and degree of market risk that may be undertaken.
F-50
Under Mexican GAAP, effective January 1, 2001 and in accordance with
Bulletin C-2, "Financial Instruments", all financial instruments are recorded on
the balance sheet at fair value and subsequent changes in fair value are
recognized in current period earnings (see Note 1(p)). Since the Group did not
designate the derivative instruments in effect at December 31, 2000 as a hedge
upon the adoption of SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS 137 and SFAS 138 on the same matter
(collectively referred to herein as "SFAS 133"), there was no significant
cumulative effect (transition adjustment) in either earnings or other
comprehensive income during 2001. The U.S. GAAP net income adjustment for the
year ended December 31, 2001 includes the reversal into earnings of the U.S.
GAAP difference outstanding as of December 31, 2000 for speculative forward
contracts upon the adoption of Bulletin C-2.
As disclosed in Note 5, the Group received warrants for 9,000,000 Class A
Common Shares of Univision in 2001 in exchange for the relinquishing of certain
governance rights related to its investment in Univision. Under Mexican GAAP,
the warrants have not been assigned a value since they are related to an equity
investee and it is management's intent not to dispose of such warrants, but
rather to exercise such warrants prior to their expiration. Under U.S. GAAP,
SFAS 133, due to the cashless exercise feature of the warrants, the warrants are
considered derivative financial instruments. In accordance with EITF Issue No.
00-8, "Accounting by a Grantee for an Equity Instrument to Be Received in
Conjunction with providing Goods or Services", they must be recorded at their
fair value from the date of performance commitment.
As disclosed in Note 10, in 2002, the Group entered into currency option
agreements, option agreements to exchange interest rates, interest rate swap
agreements and written put option agreements on its own shares. Under Mexican
GAAP, the Group recorded these derivative instruments on the balance sheet at
their fair value with changes in fair values taken directly to the income
statement. The Group has not undertaken to qualify these contracts as hedges for
U.S. GAAP purposes. Accordingly, no differences in accounting for derivative
financial instruments under Mexican and U.S. GAAP have been included in the
accompanying U.S. GAAP reconciliation.
The Group manages the currency exposure related to the net assets of
Univision through the U.S. dollar-denominated debt agreements that the Group
enters into (its U.S.$300 million Senior Notes due 2011 and its U.S.$300 million
Senior Notes due 2032). The Group generally hedges the total beginning-period
amount of the net investment up to the total amount of hedging U.S.
dollar-denominated debt and measures ineffectiveness of such hedge based upon
the change in the spot foreign exchange rate. Gains and losses in Group's net
investment in Univision are offset by exchange losses and gains in the Group's
debt obligations, which are charged or credited to other comprehensive loss or
income.
As described in Note 1(c), under Mexican GAAP the Group designated its net
investment in Univision as being a hedge of the U.S. dollar-denominated debt.
However, this different designation has no significant effect in the U.S. GAAP
reconciliation.
For the years ended December 31, 2002 and 2003, Ps.826,847 and Ps.468,989,
respectively, of net losses related to the foreign-currency-denominated debt
agreements were included in the Group's cumulative translation adjustment.
(I) PENSION PLAN AND SENIORITY PREMIUMS
For U.S. GAAP purposes, pension plan costs and seniority premiums have
been determined in accordance with SFAS No. 87, "Employers' Accounting for
Pensions" ("SFAS 87"), which became effective for the Group on January 1, 1989,
whereas, for Mexican GAAP purposes, the Group adopted Bulletin D-3 "Labor
Obligations," effective January 1, 1993. Therefore, the difference between
Mexican GAAP and U.S. GAAP is due to the difference in implementation dates.
Such difference is determined by separate actuarial computations for each year
under both SFAS 87 and Bulletin D-3.
The Company uses a December 31 measurement date for its plans.
F-51
Components of Net Periodic Benefit Cost
The components of net periodic pension and seniority premium plan cost as
of December 31, calculated in accordance with SFAS 87, consist of the following:
2001 2002 2003
----------- ----------- -----------
Service cost ............................................ Ps. 75,834 Ps. 76,794 Ps. 71,318
Interest cost ........................................... 38,164 37,739 37,564
Expected return on plan assets .......................... (42,468) (36,319) (36,677)
Net amortization and deferral ........................... 41,298 43,996 51,573
----------- ----------- -----------
Net cost under U.S. GAAP ................................ 112,828 122,210 123,778
Net cost under Mexican GAAP ............................. 110,247 123,555 123,406
----------- ----------- -----------
Increase (reduction) of net cost that would be recognized
under U.S. GAAP ...................................... Ps. 2,581 Ps. (1,345) Ps. 372
=========== =========== ===========
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost
For Years Ended December 31
The assumptions used to determine the pension obligation and seniority
premiums as of year-end and net costs in the ensuing year were:
2001 2002 2003
---- ---- ----
Weighted average discount rate ......................... 4% 4% 4%
Rate of increase in future compensation levels ......... 2% 2% 2%
Expected long-term rates of return on plan assets ...... 5% 5% 5%
The long-term asset return rate is based on the annual recommendations of
the Actuarial Commission of the Mexican Association of Consulting Actuaries
(AMAC), which in turn based its recommendation on historical averages of real
interest rates of Treasury Bills (CETES) for the last twenty years. Such
Association recommends an asset return between 0 and 400 basis point above
discount rate used to estimate the benefit obligation. According to such
recommendation, we used 4% as discount rate and 5% as asset return rate, this
means 100 basis points higher than the discount rate.
Obligations and Funded Status At December 31
The pension and seniority premium plan liability as of December 31, 2002
and 2003, under SFAS 87, is as follows:
2002 2003
------------ ------------
Projected benefit obligation .................... Ps. 971,902 Ps. 851,888
Plan assets ..................................... (723,427) (888,748)
------------ ------------
Funded status ................................... 248,475 (36,860)
------------ ------------
Unrecognized prior service cost ................. 117,364 65,791
Unrecognized net loss (gain) .................... 249,888 (28,931)
------------ ------------
367,252 36,860
------------ ------------
Prepaid pension asset ........................... (118,777) --
Additional minimum liability .................... 192,060 --
------------ ------------
Balance sheet liability ......................... Ps. 73,283 Ps. --
============ ============
Change in benefit obligation:
Projected benefit obligation at beginning of year Ps. 992,523 Ps. 971,902
Service cost .................................... 76,794 71,318
Interest cost ................................... 37,740 37,564
Actuarial gain .................................. (54,436) (133,390)
Benefits paid ................................... (80,719) (95,506)
------------ ------------
Benefit obligation at end of year ............... Ps. 971,902 Ps. 851,888
============ ============
Change in plan assets:
Fair value of plan assets at beginning of year .. Ps. 774,384 Ps. 723,427
Actual return on plan assets .................... (118,973) 189,362
Plan asset contribution ......................... 107,144 36,068
Benefits paid ................................... (39,128) (60,109)
------------ ------------
Fair value of plan assets at end of year ........ Ps. 723,427 Ps. 888,748
============ ============
F-52
Plan Assets
The Company's weighted average asset allocation by asset category as of
December 31 was as follows:
Included within plan assets at December 31, 2002 and 2003 are shares held
by the trust in the Group with a fair value of Ps.323,101 and Ps.482,466,
respectively (44.7% and 54.3% of total plan assets, respectively).
The plan assets are invested according to specific investment guidelines
determined by the technical committees of the pension plan and seniority
premiums trusts. These investment guidelines require to invest a minimum of 30%
of the plan assets in fixed rate instruments, or mutual funds comprised of fixed
rate instruments. The plan assets that are invested in mutual funds are all
rated "AA" or better by at least one of the main rating agencies. These mutual
funds vary in liquidity characteristics ranging from one day to one month. The
investment goals of the plan assets are to preserve principal, diversify the
portfolio, maintain a high degree of liquidity and credit quality, and deliver
competitive returns subject to prevailing market conditions. Currently, the plan
assets do not engage in the use of financial derivatives.
The Group has substantially funded its projected benefit obligation as of
December 31, 2003; accordingly, the Group does not expect to make significant
contributions to its plan assets in 2004.
Under U.S. GAAP, SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" ("SFAS 106"), requires accrual of postretirement
benefits, other than pensions, (such as health care benefits) during the years
an employee provides services. The Group does not and is not required to provide
postretirement benefits.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112"), requires the accrual of certain employee benefits provided after
employment but before retirement. The Group does not and is not required to
provide postemployment benefits, which would be required to be accrued under
SFAS 112.
(J) EMPLOYEE STOCK OPTION PLAN
As described in Note 14, the Group adopted a stock option plan, as
amended (the "Plan"), under which a specific number of awards to purchase CPOs
are granted and sold to eligible employees. Pursuant to the Plan, ownership of
the CPOs is not transferred until certain conditions are met. In accordance with
the Plan, a trust administered by a Mexican financial institution is being used
to implement the Plan (the "Trust"). The technical committee of the Trust may
also authorize anticipated sales in the open market by the trustee of a portion
of the CPOs granted and sold to employees in order to settle the purchase price
(a "cashless transaction").
F-53
During 2001 and 2002, the market price of the CPOs had not appreciated
enough to make a cashless transaction attractive to employees. Under the Plan,
all awards are granted at an exercise price ranging from approximately Ps.11.21
to Ps.19.10 or from U.S.$1.04 to U.S.$1.71 (Initial Price) per CPO, to be
adjusted by a rate ranging from 2% to 10% per annum (depending upon whether the
purchase price is paid in pesos or U.S. dollars) (Adjusted Price) accruing from
the date of the contract to the date of exercise.
Under the terms of the Plan, the awards generally vest within five years
depending on certain variables. The Group will transfer the CPOs to the
participant at the end of each vesting period if the participant settles the
payment of the Initial Price or the Adjusted Price and continues as an employee
of the Group or any of its subsidiaries.
Under Mexican GAAP, the Group recognizes no compensation expense for their
purchase plan. For U.S. GAAP purposes, the Group applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees", and its related
interpretations ("APB 25") to account for stock-based compensation. In
accordance with APB 25, the Company recognizes compensation expense for its
employee 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.; compensation
cost is accrued over the vesting/performance periods and adjusted for subsequent
changes in fair market value of the shares from the measurement date.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS 123
"Accounting for Stock-Based Compensation" ("SFAS 123") to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has elected to continue to account for its stock based
compensation in accordance with the provision of APB 25 and present the pro
forma disclosures required by SFAS 123 as amended by SFAS 148.
At December 31, 2002, the Group had granted approximately 82.8 million
CPOs. Had the compensation cost of these plans been determined based on the fair
value of the options at date of grant using the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Group's net income and earnings
per share would be the pro forma amounts shown in the following table:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2002 2003
---- ---- ----
Net income (loss) under U.S. GAAP
As reported .................................... Ps. 1,430,188 Ps.(1,177,618) Ps.2,804,205
Add: Stock-based employee compensation expense
included in reported net income (loss), net of
related tax effects ............................ (65,440) (5,409) 466,993
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ..... (85,283) (96,944) (231,067)
------------- ==----------- -------------
Pro forma ...................................... Ps. 1,279,465 Ps.(1,279,971) Ps. 3,040,131
============= ============= =============
Earnings (loss) per CPO under U.S. GAAP
(constant pesos)
Basic and diluted, as reported .................. 0.48 (0.42) 0.96
Basic and diluted, pro forma .................... 0.42 (0.45) 1.05
The results may not be representative of the effects on the pro forma net
income for the future.
F-54
The Group determined the pro forma amounts using the Black-Scholes
option-pricing model based on the following weighted-average assumptions:
DECEMBER 31,
----------------------
2001 2002 2003
---- ---- ----
Dividend yield .................... 0% 0% 0%
Expected volatility ............... 52% 52% 52%
Risk-free interest rate ........... 21% 21% 21%
Expected life of options (in years) 1.7 3.2 1.2
A summary of the changes of the stock awards for employees for the years
ended December 31, is presented below (in constant pesos and thousands of CPOs):
2001 2002 2003
--------------------- ---------------------- ---------------------
Weighted- Weighted Weighted
average average average
exercise exercise exercise
CPOs price CPOs price CPOs price
---- ----- ---- ----- ---- -----
Outstanding at beginning of year . 62,300 Ps. 14.70 83,812 Ps. 12.07 82,776 Ps. 11.86
Granted .......................... 21,512 13.18 20 11.65 4,416 11.21
Exercised ........................ -- -- -- -- (5,000) 12.00
Forfeited ........................ -- -- (1,056) -- (1,716) --
------- ------- -------
Outstanding at the end of the year 83,812 13.29 82,776 11.86 80,476 11.54
======= ======= =======
Options exercisable at end of year -- -- -- -- 25,000 12.00
======= ======= =======
As of December 31, 2003, the weighted-average remaining contractual life
of the awards is 1.2 years.
(K) PRODUCTION AND FILM COSTS
Effective January 1, 2001, the Group adopted the provisions of the
American Institute of Certified Public Accountants Statements of Position 00-2,
"Accounting by Producers or Distributors of Films" ("SoP 00-2"). SoP 00-2
supersedes SFAS 53. Although SoP 00-2 carries forward many of the requirements
of SFAS 53, it differs in the areas of revenue recognition, costs for abandoned
projects, limitations on ultimate revenues used, impairment guidance and
advertising costs, as well as expanded disclosures. The Group recorded a
one-time after-tax charge for the initial adoption of SoP 00-2 totaling
approximately Ps.863,841, net of related tax benefit of Ps.465,144 in its
cumulative effect of accounting change in the consolidated statement of income
for the year ended December 31, 2001.
The Group expects to amortize all of its unamortized film costs over the
next year.
Under Mexican GAAP, the Group capitalizes production costs related to
programs, which benefit more than one period, and amortizes them proportionately
over the projected program revenues that are based on the Group's historic
revenue patterns for similar types of production. For Mexican GAAP purposes,
royalty agreements that are not individual film-specific are considered in
projecting program revenues to capitalize related production costs.
Under U.S. GAAP, production costs related to programs are also capitalized
and amortized over the period in which revenues are expected to be generated
(ultimate revenues). In evaluating ultimate revenues, the Group uses projected
program revenue on a program-by-program basis, taking into consideration
secondary market revenue only for those programs where a firm commitment or
licensing arrangement exists related to specific individual programs. For U.S.
GAAP purposes, royalty agreements that are not individual film-specific are not
considered in the ultimate revenues. Exploitation costs are expensed as
incurred.
In addition, Mexican GAAP, allows the capitalization of artist exclusivity
contracts and literary works, whereas U.S. GAAP is generally more restrictive.
F-55
(L) DEFERRED INCOME TAXES
Under Mexican GAAP, the Group applies the provisions of Bulletin D-4,
"Accounting for Income Tax, Assets Tax and Employees' Profit Sharing", which
uses the comprehensive asset and liability method for the recognition of
deferred income taxes for existing temporary differences.
Under U.S. GAAP, SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"),
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
The components of the net deferred tax liability applying SFAS 109 consist
of the following:
DECEMBER 31,
------------------------------------
2002 2003
---- ----
Net deferred income tax liability recorded under Mexican
GAAP (see Note 21) ............................................ Ps. (2,116,816) Ps. (1,154,456)
-------------- ---------------
Impact of U.S. GAAP adjustments:
Capitalization of financing costs................................ 291,533 276,487
Deferred costs .................................................. 122,207 48,987
Equipment restatement .......................................... (208,889) (125,931)
Purchase accounting adjustments ................................. (97,232) (88,276)
Adjustment of gain on sale of music recording business .......... 96,636 93,874
Pension plan and seniority premiums ............................. (130) --
Gain from Univision warrants..................................... (430,139) (844,823)
Production and film costs........................................ 850,863 601,562
Employee stock option plan ...................................... 44,798 197,345
Valuation allowance ............................................. (44,798) (197,345)
-------------- ---------------
624,849 (38,120)
-------------- ---------------
Net deferred income tax liability on U.S. GAAP...................... (1,491,967) (1,192,576)
Less:
Deferred income tax liability under Mexican GAAP.................... (2,116,816) (1,154,456)
-------------- ---------------
Net deferred income tax adjustment required under U.S. GAAP......... Ps. 624,849 Ps. (38,120)
============== ===============
The components of net deferred employees' profit sharing ("EPS") liability
applying SFAS 109 consist of the following:
DECEMBER 31,
---------------------------
2002 2003
---- ----
Deferred EPS liability:
Current:
Inventories ............................................ Ps. (1,881) Ps. (877)
Noncurrent:
Property, plant and equipment........................... (129,863) (121,523)
Deferred costs.......................................... (60,309) (57,833)
Pension plan and seniority premiums..................... 4,623 74,148
Other................................................... (1,998) (3,127)
-------------- ----------------
Total deferred EPS liability.......................... Ps. (189,428) Ps. (109,212)
============== ================
F-56
The provisions for income tax and assets tax from continuing operations,
on a U.S. GAAP basis, by jurisdiction as of December 31 are as follows:
For purposes of the U.S. GAAP, the Group has charged, (credited)
Ps.36,484, Ps.1,305,747 and Ps.(582,753) of the change for the years ended
December 31, 2001, 2002 and 2003 respectively, in SFAS 109 deferred income tax
and EPS liabilities to income, and has charged (credited) Ps.83,857,
Ps.169,384 and Ps.(82,958), respectively, of deferred income tax liability and
deferred EPS directly to stockholders' equity relating to the result from
holding non-monetary assets and translation effect of foreign subsidiaries.
As disclosed in Note 2, in June 2003, the Company completed the
acquisition of Telespecialidades from the shareholders of Televicentro, paying
approximately U.S.$83 million. At the time of acquisition, Telespecialidades's
net assets consisted principally of 4,773,849 shares of the Company as well as a
deferred tax asset for net operating loss carryforwards of approximately
Ps.6,713,683 and a related full valuation allowance. Under Mexican GAAP, the
difference between the purchase price of U.S.$83 million (Ps.893,698) and the
historical cost basis of the net assets acquired was recognized on the balance
sheet as a deferred tax asset amounting to Ps.804,149. Subsequent incremental
amounts realized in the 2003 tax return amounting to Ps.1,374,997 resulting from
the use of these net loss carryforwards were recognized in the income statement.
For U.S. GAAP purposes, since the Company and Telespecialidades were under
common control, the transaction was accounted for on a historical cost basis
with the difference between the purchase price and the historical cost basis of
the net assets acquired being accounted for as an adjustment to shareholders'
equity. In addition, the Company accounted for the utilization of the acquired
net operating loss carryforwards as a capital contribution.
A roll-forward of the Group's Mexican GAAP valuation allowance for 2003 is
as follows:
Balance at December 31, 2002.......................................... Ps. (2,041,411)
Increase in valuation allowance.................................... (206,828)
--------------
Balance at December 31, 2003.......................................... Ps. (2,248,239)
==============
(M) MINORITY INTEREST
This adjustment represents the minority interest in part of the U.S. GAAP
adjustment (k) described above for one non-wholly owned subsidiary.
In addition, under Mexican GAAP, the minority interest in consolidated
subsidiaries is presented as a separate component within the stockholders'
equity section in the consolidated balance sheet. For U.S. GAAP purposes, the
minority interest is not included in stockholders' equity.
(N) EFFECTS OF INFLATION ACCOUNTING ON U.S. GAAP ADJUSTMENTS
In order to determine the net effect on the consolidated financial
statements of recognizing the adjustments described above, it is necessary to
recognize the effects of applying the Mexican GAAP inflation accounting
provisions (described in Note 1) to such adjustments.
F-57
In addition, as disclosed in Notes 19 and 22, under Mexican GAAP Bulletin
D-4, effective 2000, the monetary gain or loss generated by the monetary
temporary differences are reflected within the integral cost of financing while
those related to the non-monetary items are reflected within the deferred tax
provision. For U.S. GAAP purposes, the Group has historically followed the
provisions of EITF Issue No. 93-9 and reflected the entire monetary gain or loss
within the provision for deferred taxes. Consequently for 2001, 2002 and 2003,
the Ps.116,036, Ps.84,220 and Ps.54,686, respectively, of monetary gain
reflected within integral result of financing under Mexican GAAP has been
reclassified to the deferred tax provision under U.S. GAAP.
(O) OTHER
Under U.S. GAAP, the cost of exclusive rights letters of soccer players
would be amortized over the period of the expected benefit. The Group has not
adjusted its net income reconciliation for 2001 and 2002 for this item because
the impact would not be material. As noted in Note 20, the balance was written
off under Mexican GAAP in 2002.
ADDITIONAL DISCLOSURE REQUIREMENTS
Presentation in the financial statements - Operating income
Under Mexican GAAP, the Group recognizes various costs as non-operating
expenses, which would be considered operating expenses under U.S. GAAP. Such
costs include primarily amortization of goodwill, the write-off of certain
receivables, the write-off of program inventories, write-off of exclusive rights
letters for soccer players, disputed or contractual letters of credit, certain
financial advisory and professional fees, restructuring charges and employees'
profit sharing expense (see Notes 20, 21 and 23). The differences relate primary
to the Television Broadcasting and Publishing segments. Operating income of the
Television Broadcasting segment would have been Ps.3,407,629, Ps.3,599,960 and
Ps.6,975,593 and operating income of the Publishing segment would have been
Ps.209,714, Ps.233,558 and Ps.336,012 for the years ended December 31, 2001,
2002 and 2003, respectively.
Presentation in the financial statements - Loss on extinguishment of debt
As more fully explained in Notes 9 and 20, during 2001, the Group
extinguished long-term debt securities and recognized related premiums, consent
fees and other expenses of approximately Ps.41,033 (net of tax benefit of
Ps.22,094) which under Mexican GAAP, are included within non-recurring charges.
Under U.S. GAAP, on January 1, 2003 the Company adopted SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" (issued in April 2002 and effective for
fiscal years beginning after May 15, 2002). Upon the adoption of SFAS No. 145
the Company reclassified the extraordinary losses recognized on the
extinguishments of debt in 2001 to income from continuing operations in its
consolidated income statement.
Presentation in the financial statements - Discontinued operations
As more fully disclosed in Note 23, under Mexican GAAP, the Group has
reflected as a discontinued operation the Music Recording segment that it sold
to Univision, its equity investee. Under U.S. GAAP, pursuant to Staff Accounting
Bulletin 5-Z, the disposition of a business in which the seller retains an
interest, either directly or indirectly, and over which it has continuing
significant influence, is not presented as a discontinued operation. Summarized
condensed balance sheet and results of operation information for the Music
recording business is reflected in Note 23.
To provide a better understanding of the differences in accounting
standards, the table below presents the Group's condensed consolidated
statements of operations for the three years ended December 31, 2001, 2002 and
2003 under U.S. GAAP in a format consistent with the presentation of U.S. GAAP
consolidated statements of operations, as if the music recording business were
presented as continuing operations, and after processing the adjustments in (a)
to (n) above:
F-58
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2001 2002 2003
---- ---- ----
Net sales.................................................... Ps. 22,698,143 Ps. 22,632,156 Ps. 23,563,213
---------------- ----------------- --------------
Cost of providing services (exclusive of depreciation and
amortization)............................................. 14,121,992 13,924,619 12,240,203
Selling and administrative expenses.......................... 4,111,540 3,764,757 4,051,700
Depreciation and amortization................................ 1,914,606 1,811,664 1,421,127
---------------- ----------------- --------------
Income from operations....................................... 2,550,005 3,131,116 5,850,183
Integral result of financing - net........................... 2,201,817 (1,869,591) 710,522
Loss on extinguishment of debt............................... (63,126) -- --
Other income (expense) - net ................................ 45,260 970,738 (24,593)
---------------- ----------------- --------------
Income before income taxes, minority interest, equity in
losses of affiliates and cumulative effect of change in
accounting principle...................................... 4,733,956 2,232,263 6,536,112
Income tax and assets tax.................................... (1,255,074) (282,791) (2,859,378)
---------------- ----------------- --------------
Income before minority interest, equity in losses of
affiliates and cumulative effect of change in
accounting principle...................................... 3,478,882 1,949,472 3,676,734
Minority interest............................................ (29,988) 79,942 120,241
Equity in losses of affiliates............................... (1,154,865) (1,925,250) (992,770)
---------------- ----------------- --------------
Income before cumulative effect of change in accounting
principle................................................. 2,294,029 104,164 2,804,205
Cumulative effect of change in accounting principles (In
2001: SoP 00-2, Ps.863,841 net of tax benefit of
Ps.465,144; and in 2002: SFAS 141 and SFAS 142,
Ps.1,281,782, net of write off of negative goodwill of
Ps.325,540 and tax benefit of Ps.435,006 in 2002)......... (863,841) (1,281,782) --
---------------- ----------------- --------------
Net income (loss)............................................ Ps. 1,430,188 Ps. (1,177,618) Ps. 2,804,205
================ ================= ==============
Weighted average common shares outstanding (in millions)..... 8,877 8,854 8,794
================ ================= ==============
Presentation in the financial statements - Earnings per CPO and per share
As disclosed in Note 14, the Group has three classes of common stock,
Series A, L and D. The Group's publicly traded securities are CPOs, which
represent one share of each class of stock. All of the authorized and issued
Series L and D shares and 227,115,000 of the Series A shares trade as CPO units.
Holders of the Series D shares, and therefore holders of the CPOs, are entitled
to an annual, cumulative and preferred dividend of approximately nominal
Ps.0.009 per D share before any dividends are payable on the Series A and L
shares. For purposes of U.S. GAAP, the "two-class" method, which first reduces
net income by the amount of the dividend preference to the D shares, has been
applied to calculate earnings per share.
F-59
Earnings (loss) per CPO and per share under U.S. GAAP is presented in
constant pesos for the years ended December 31, 2001, 2002 and 2003, as follows:
2001 2002 2003
---------------------- --------------------- ---------------------
PER PER PER
PER SERIES "A" PER SERIES "A" PER SERIES "A"
CPO SHARE CPO SHARE CPO SHARE
--- ----- --- ----- --- -----
Continuing
operations................ Ps.0.96 Ps.0.32 Ps. 0.03 Ps. 0.01 Ps.0.96 Ps.0.32
Cumulative effect of change
in accounting
principles................ (0.48) (0.16) (0.45) (0.15) -- --
------- ------- -------- -------- ------- -------
Net income (loss) per
CPO/share................. Ps.0.48 Ps.0.16 Ps.(0.42) Ps.(0.14) Ps.0.96 Ps.0.32
======= ======= ======== ======== ======= =======
Presentation in the financial statements - Consolidated balance sheets
To provide a better understanding of the differences in accounting
standards, the table below presents the condensed consolidated balance sheets as
of December 31, 2002 and 2003, in a format consistent with the presentation of
condensed consolidated balance sheets under U.S. GAAP, and after processing the
adjustments in (a) and (n) above.
DECEMBER 31,
----------------------------------
2002 2003
---- ----
ASSETS
Current assets:
Cash and cash equivalents ......................................... Ps. 9,136,217 Ps. 12,263,528
Trade notes and accounts receivable - net ......................... 9,879,900 10,603,054
Other accounts and notes receivable - net ......................... 902,361 893,216
Due from affiliated companies - net ............................... 2,987 442,440
Transmission rights and programing................................. 3,556,102 3,535,090
Inventories ....................................................... 528,912 513,458
Deferred taxes .................................................... 1,931,539 2,428,197
Other current assets .............................................. 447,276 507,341
-------------- --------------
Total current assets .............................................. 26,385,294 31,186,324
Non-current assets:
Transmission rights and programming................................ 2,611,640 2,901,277
Investments ....................................................... 3,016,758 6,223,749
Property, plant and equipment - net ............................... 15,804,981 15,235,324
Goodwill - net .................................................... 7,255,347 7,498,687
Intangible assets ................................................. 1,205,997 1,222,733
Deferred costs - net .............................................. 508,153 489,227
Other assets ...................................................... 1,818,852 2,907,925
-------------- --------------
TOTAL ASSETS ...................................................... Ps. 58,607,022 67,665,246
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................................. 1,289,184 285,193
Trade accounts payable ............................................ 2,317,961 2,348,579
Customer deposits and advances .................................... 12,008,690 13,584,683
Taxes payable ..................................................... 921,634 1,287,040
Accrued interest .................................................. 319,694 315,165
Other accrued liabilities ......................................... 848,993 1,131,506
-------------- --------------
Total current liabilities ......................................... 17,706,156 18,952,166
Non-current liabilities:
Long-term debt .................................................... 13,875,887 14,704,222
Customer deposits and advances .................................... 211,767 419,560
Other long-term liabilities ....................................... 790,690 708,505
Deferred taxes .................................................... 3,612,934 3,729,984
DTH joint ventures ................................................ 2,672,828 3,316,067
Pension plans and seniority premiums .............................. 201,279 580,428
-------------- --------------
TOTAL LIABILITIES ................................................. 39,071,541 42,410,932
-------------- --------------
Commitments and contingencies
Minority interest ................................................. 1,176,519 1,071,081
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY ........................................ 18,358,962 24,183,233
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ Ps. 58,607,022 Ps. 67,665,246
-------------- --------------
F-60
Cash flow information
Mexican GAAP Bulletin B-12 issued by the MIPA specifies the appropriate
presentation of the statements of changes in financial position. Under Bulletin
B-12, the sources and uses of resources are determined based upon the
differences between beginning and ending financial statement balances in Mexican
Pesos of constant purchasing power. In addition, the inflation-adjusted
statement of changes in financial position includes certain non-cash items such
as monetary gains and losses, unrealized foreign currency translation gains or
losses and net effect of foreign investment hedges. Under U.S. GAAP, Statement
of Financial Accounting Standard No. 95, "Statement of Cash Flows" ("SFAS 95"),
a statement of cash flows is required, which presents only cash movements and
excludes non-cash items.
The Group considers all highly liquid temporary cash investments with
original maturities of three months or less, consisting primarily of short-term
promissory notes (Mexican pesos and U.S. dollars in 2001, 2002 and 2003) of
Mexican financial institutions, to be cash equivalents.
The following is a cash flow statement on a U.S. GAAP basis in constant
Mexican Pesos with the effects of inflation on cash and cash equivalents stated
separately in a manner similar to the concept of presenting the effects of
exchange rate changes on cash and cash equivalents as prescribed by SFAS 95.
F-61
2001 2002 2003
---- ---- ----
Operating activities:
Net income (loss) under U.S. GAAP ....................................... Ps. 1,430,188 Ps. (1,177,618) Ps. 2,804,205
Adjustments to reconcile net income to cash provided by operating
activities:
Equity in losses of affiliates ....................................... 1,154,865 1,925,250 992,770
Minority interest from continuing operations ......................... 29,988 (79,942) (120,241)
Depreciation and amortization ........................................ 1,914,606 1,811,664 1,421,127
Cumulative loss effect of accounting change .......................... 863,841 1,281,782 --
Deferred income tax and employees' profit sharing .................... 495,507 (676,029) 388,328
Derivative financial instruments ..................................... (2,663,768) 1,223,787 (1,330,338)
Gain on disposal of investment ....................................... (306,334) (789,538) (445,824)
Unrealized foreign exchange loss, net ................................ (260,937) 514,186 222,201
Loss from monetary position .......................................... (302,535) (165,323) (76,715)
-------------- -------------- --------------
2,355,421 3,868,219 3,855,513
-------------- -------------- --------------
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade notes and accounts receivable and customer deposits and
advances, net....................................................... (461,188) (457,378) 641,420
Inventories .......................................................... (161,419) 56,342 15,454
Transmission rights, programs and films and production talent advances 2,723,398 174,072 (164,791)
Other accounts and notes receivable and other current assets ......... (671,659) 456,256 (104,716)
(Decrease) increase in:
Trade accounts payable ............................................... (30,670) 288,350 146,510
Other liabilities and taxes payable .................................. (1,809,159) 1,711,363 138
Pension plans and seniority premiums ................................. (339,943) (269,052) 555,767
-------------- -------------- --------------
(750,640) 1,959,953 1,089,782
-------------- -------------- --------------
Cash provided by operating activities ................................... 1,604,781 5,828,172 4,945,295
-------------- -------------- --------------
Financing activities:
Issuance of Senior Notes ............................................. 3,026,097 3,264,030 --
Other changes in notes payable ....................................... (537,833) (3,021,861) (205,214)
Shares issued ........................................................ -- 425 4,023,375
Repurchase of shares ................................................. (243,661) (38,571) (4,580,676)
Dividends ............................................................ -- -- (571,871)
Minority interest .................................................... (9,274) 184,017 14,803
-------------- -------------- --------------
Cash provided (used) by financing activities ............................ 2,235,329 388,040 (1,319,583)
-------------- -------------- --------------
Investing activities:
Due from affiliated companies, net ................................... 24,370 663,243 (275,667)
Proceeds from dispositions of investments ............................ 512,087 2,619,502 397,078
Equity investments and other advances ................................ (5,387,811) (5,513,204) 667,290
Investments in property, plant and equipment ......................... (981,932) (1,266,055) (649,093)
Deferred costs and other assets ...................................... (201,638) 626,993 (219,468)
-------------- -------------- --------------
Cash used for investing activities ...................................... (6,034,924) (2,869,521) (79,860)
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents .................... (2,194,814) 3,346,691 3,545,852
Translation effect on cash and cash equivalents ......................... (103,082) (68,450) (51,141)
Effect of inflation on cash and cash equivalents ........................ (178,881) (324,234) (367,399)
Cash and cash equivalents at beginning of year .......................... 8,658,986 6,182,209 9,136,216
-------------- -------------- --------------
Cash and cash equivalents at end of year ................................ Ps. 6,182,209 Ps. 9,136,216 Ps. 12,263,528
============== ============== ==============
Net cash provided by (used for) operating activities reflects cash
payments for interest and income taxes as follows:
2001 2002 2003
---- ---- ----
Interest..................................................... Ps. 1,033,874 Ps. 1,124,919 Ps. 1,047,112
Income taxes and/or assets tax............................... 577,508 721,793 480,364
Supplemental disclosures about non-cash activities:
2001 2002 2003
---- ---- ----
Note receivable related to customer deposits................. Ps. 7,352,123 Ps. 7,443,204 Ps. 8,042,676
F-62
Recently issued accounting standards
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB 51." FIN
46 requires the primary beneficiary of a variable interest entity to consolidate
that entity. A Variable Interest Entity ("VIE") is created when (i) the equity
investment at risk is not sufficient to permit the entity from financing its
activities without additional subordinated financial support from other parties
or (ii) equity holders either (a) lack direct or indirect ability to make
decisions about the entity, (b) are not obligated to absorb expected losses of
the entity or (c) do not have the right to receive expected residual returns of
the entity if they occur. The primary beneficiary of a variable interest entity
is the party that absorbs a majority of the variable interest entity's expected
losses, receives a majority of the entity's expected residual returns, or both,
as a result of ownership, contractual or other financial interest in the entity.
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46-R"), clarifying
certain provisions of FIN 46. The Company was required to adopt the provisions
of FIN 46-R on February 1, 2003 as they related to VIEs created on or after that
date. For VIEs created before January 1, 2003, FIN 46-R was deferred to 2004.
The Company expects that upon the adoption of FIN 46 and FIN 46-R, it will begin
to consolidate Innova. Although such adoption may not impact net income, it will
change the income statement and balance sheet presentation.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". The
statement requires issuers to classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). The statement is
effective for financial instruments entered into or modified after May 31, 2003
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The Company is evaluating the impact which SFAS
No. 150 may have on its consolidated results of operations or financial
condition.
Consolidated valuation and qualifying accounts
BALANCE AT BALANCE AT
BEGINNING OF END
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- ------ --------- ---------- ---------
CONTINUING OPERATIONS:
Reserve for damage, obsolescence or
deterioration of inventory:
Year ended December 31, 2001..... Ps. 13,407 Ps. -- Ps. (2,731) Ps. 10,676
Year ended December 31, 2002..... 10,676 1,808 (3,747) 8,737
Year ended December 31, 2003..... 8,737 2,692 (55) 11,374
Allowances for doubtful accounts (1):
Year ended December 31, 2001..... Ps. 762,421 Ps. 216,141 Ps. (201,733) Ps. 776,829
Year ended December 31, 2002..... 776,829 327,631 (151,299) 953,161
Year ended December 31, 2003..... 953,161 356,725 (423,247) 886,639
F-63
BALANCE AT BALANCE AT
BEGINNING OF END
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- ------ --------- ---------- ---------
DISCONTINUED OPERATIONS:
Reserve for damage, obsolescence or
deterioration of inventory:
Year ended December 31, 2001..... Ps. 37,538 Ps. 22,669 Ps. (54,230) Ps. 5,977
Year ended December 31, 2002..... 5,977 -- (5,977) --
Year ended December 31, 2003..... -- -- -- --
Allowances for doubtful accounts (1):
Year ended December 31, 2001..... Ps. 39,519 Ps. 3,313 Ps. (4,965) Ps. 37,867
Year ended December 31, 2002..... 37,867 -- (37,867) --
Year ended December 31, 2003..... -- -- -- --
(1) Include allowances for trade and non-trade doubtful accounts.
F-64
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BEGINNING BALANCE AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- --------- --------- ---------- ---------
CONTINUING OPERATIONS:
Reserve for damage, obsolescence or deterioration
of inventory:
Year ended December 31, 2001................. Ps. 13,407 Ps. -- Ps. (2,731) Ps. 10,676
Year ended December 31, 2002................. 10,676 1,808 (3,747) 8,737
Year ended December 31, 2003................. 8,737 2,692 (55) 11,374
Allowances for doubtful accounts (1):
Year ended December 31, 2001................. Ps. 762,421 Ps. 216,141 Ps. (201,733) Ps. 776,829
Year ended December 31, 2002................. 776,829 327,631 (151,299) 953,161
Year ended December 31, 2003................. 953,161 356,725 (423,247) 886,639
DISCONTINUED OPERATIONS:
Reserve for damage, obsolescence or deterioration
of inventory:
Year ended December 31, 2001................. Ps. 37,538 Ps. 22,669 Ps. (54,230) Ps. 5,977
Year ended December 31, 2002................. 5,977 -- (5,977) --
Year ended December 31, 2003................. -- -- -- --
Allowances for doubtful accounts (1):
Year ended December 31, 2001................. Ps. 39,519 Ps. 3,313 Ps. (4,965) Ps. 37,867
Year ended December 31, 2002................. 37,867 -- (37,867) --
Year ended December 31, 2003................. -- -- -- --
(1) Include allowances for trade and non-trade doubtful accounts.
F-65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Mexico, D. F., January 30, 2004
To the Equity Owners of
Innova, S. de R. L. de C.V.:
We have audited the accompanying consolidated balance sheets of Innova, S. de R.
L. de C.V. and its subsidiaries (collectively the "Group") as of December 31,
2003 and 2002, and the related consolidated statements of loss, of changes in
equity owners' deficit and of changes in financial position for each of the
three years in the period ended December 31, 2003 all expressed in Mexican
pesos. These financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Mexico and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Innova, S. de R. L.
de C.V. and its subsidiaries at December 31, 2003 and 2002, and the results of
their operations, the changes in their equity owners' deficit and the changes in
their financial position for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in Mexico.
Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
the consolidated net loss for each of the three years in the period ended
December 31, 2003, and the determination of consolidated equity owners' deficit
at December 31, 2003 and 2002 to the extent summarized in Note 20 to the
consolidated financial statements.
PricewaterhouseCoopers
/s/ Felipe Perez Cervantes, C.P.
----------------------------------
Felipe Perez Cervantes, C.P.
F-66
INNOVA, S. DE R. L. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Mexican Pesos in
purchasing power as of December 31, 2003)
December 31,
------------
2003 2002
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Ps. 493,569 Ps. 277,243
Trade accounts receivable, net (Note 4) 112,307 107,913
Value added tax credit and other 1,955 1,279
Spare parts 10,079 13,537
Prepaid advertising (Note 9) 125,000 126,892
Other current assets 16,052 45,767
-------------- -------------
Total current assets 758,962 572,631
Property and equipment, net (Note 5) 1,397,679 1,606,392
Satellite transponders, net (Note 6) 1,253,439 1,290,389
Deferred costs, net (Note 7) 58,207 85,677
Intangible assets, net (Note 8) 5,055 7,010
Other non-current assets 3,191 16,417
-------------- -------------
Total assets Ps. 3,476,533 Ps. 3,578,516
============== =============
LIABILITIES AND EQUITY OWNERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable Ps. 147,605 Ps. 103,548
Accrued expenses 254,633 278,875
Satellite transponders obligation (Note 6) 63,523 54,914
Due to affiliated companies and other related parties (Note 9) 426,280 450,670
Accrued interest 120,367 138,098
Accrued taxes 97,664 32,807
Deferred income 137,957 113,856
-------------- -------------
Total current liabilities 1,248,029 1,172,768
NON-CURRENT LIABILITIES:
Senior notes (Note 10) 4,355,300 4,080,175
Equity Owners' loans (Note 11) -- 3,371,856
Satellite transponders obligation (Note 6) 1,404,870 1,423,323
Accrued interest -- 709,613
Other liabilities 1,641 1,226
-------------- -------------
Total liabilities 7,009,840 10,758,961
-------------- -------------
Commitments and contingencies (Note 13) -- --
EQUITY OWNERS' DEFICIT:
Contributed capital:
Social Parts (Note 14) 6,327,232 1,989,258
-------------- -------------
Earned capital:
Accumulated losses (Note 16) (9,136,974) (7,298,019)
Loss for the period (798,653) (1,838,955)
Excess (deficit) from restatement 75,187 (32,590)
-------------- -------------
(9,860,440) (9,169,564)
-------------- -------------
Supplementary liability for labor obligations (99) (139)
Total equity owners' deficit (3,533,307) (7,180,445)
-------------- -------------
Total liabilities and equity owners' deficit Ps. 3,476,533 Ps. 3,578,516
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-67
INNOVA, S. DE R. L. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(Expressed in thousands of Mexican Pesos in
purchasing power as of December 31, 2003)
Years ended December 31,
------------------------
2003 2002 2001
---- ---- ----
Net sales Ps. 3,820,738 Ps. 3,569,500 Ps. 3,396,025
Operating expenses:
Cost of sales 1,180,215 1,105,059 1,271,527
Administrative expenses 124,997 126,309 157,441
Selling expenses 848,358 865,894 851,364
Other operating expenses 475,665 500,962 419,640
-------------- -------------- --------------
Total operating expenses 2,629,235 2,598,224 2,699,972
Depreciation and amortization 808,628 961,896 986,079
-------------- -------------- --------------
Operating profit (loss) 382,875 9,380 (290,026)
-------------- -------------- --------------
Integral results of financing (Note 3):
Interest expense (938,901) (1,022,183) (939,826)
Interest income 15,171 11,504 20,566
Foreign exchange (losses) gains, net (587,758) (1,221,164) 385,767
Gain from monetary position 315,295 518,460 460,020
-------------- -------------- --------------
Total integral results of financing (1,196,193) (1,713,383) (73,473)
Other income (expenses) - Net 3,478 (22,677) --
Restructuring and non-recurring items
(Note 15) (106,896) (33,718) (14,116)
-------------- -------------- --------------
Loss before taxes and minority interest (916,736) (1,760,398) (377,615)
Provision for income and asset taxes
(Note 17) 117,050 (78,536) (48,126)
Minority interest 1,033 (21) --
-------------- -------------- --------------
Net loss (Ps. 798,653) (Ps. 1,838,955) (Ps. 425,741)
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-68
INNOVA, S. DE R. L. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OWNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Expressed in thousands of Mexican Pesos in
purchasing power as of December 31, 2003)
Supplementary
Deficit liability Total
Social from for labor Accumulated Net equity owners'
parts restatement obligations losses loss deficit
----- ----------- ----------- ------ ---- -------
Balance at December 31, 2000 Ps. 1,989,258 (Ps. 69,781) Ps. -- (Ps. 4,939,644) (Ps. 1,932,634) (Ps. 4,952,801)
Transfer of net loss to
accumulated losses (1,932,634) 1,932,634 --
Comprehensive loss (Note 18) (133,610) (16) (425,741) (559,367)
-------------- ------------ --------- -------------- --------------- --------------
Balance at December 31, 2001 1,989,258 (203,391) (16) (6,872,278) (425,741) (5,512,168)
Transfer of net loss to
accumulated losses (425,741) 425,741 --
Comprehensive loss (Note 18) 170,801 (123) (1,838,955) (1,668,277)
-------------- ------------ --------- --------------- --------------- --------------
Balance at December 31, 2002 1,989,258 (32,590) (139) (7,298,019) (1,838,955) (7,180,445)
Capitalization of equity owners'
loans (Note 11) 4,337,974 4,337,974
Transfer of net loss to
accumulated losses (1,838,955) 1,838,955 --
Comprehensive loss (Note 18) 107,777 40 (798,653) (690,836)
-------------- ----------- --------- -------------- -------------- --------------
Balance at December 31, 2003 Ps. 6,327,232 Ps. 75,187 (Ps. 99) (Ps. 9,136,974) (Ps. 798,653) (Ps. 3,533,307)
============== =========== ========= ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
INNOVA, S. DE R. L. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Expressed in thousands of Mexican Pesos in
purchasing power as of December 31, 2003)
Years ended December 31,
------------------------
2003 2002 2001
---- ---- ----
Operating activities:
Net loss (Ps. 798,653) (Ps. 1,838,955) (Ps. 425,741)
Adjustments to reconcile net loss to
resources provided by (used in) operating activities:
Depreciation and amortization 808,628 961,896 986,079
Maintenance reserve 4,635 7,365 5,078
Impairment of fixed assets -- 32,000 --
------------ -------------- --------------
14,610 (837,694) 565,416
------------ -------------- --------------
Changes in operating assets and liabilities:
Trade accounts receivable (4,394) 25,310 56,140
Value added tax credit and other (676) 8,455 14,431
Spare parts 3,458 (4,760) (2,313)
Prepaid advertising and other current assets 31,607 32,941 (173,297)
Deferred costs 34,234 15,304 5,512
Intangible and other assets 45,367 6,096 (6,977)
Trade accounts payable 44,057 13,862 (42,909)
Accrued expenses and Satellite reorientation reserve 40,615 (60,067) (388,957)
Due to affiliated companies and other related parties (24,390) 87,129 109,698
Transponder Services - Solidaridad 2 -- -- (231,826)
Accrued interest (727,344) 365,614 189,785
Deferred income 24,101 1,130 5,551
Supplementary liability for labor obligations 40 (124) (15)
Other 415 469 428
------------ -------------- --------------
Resources (used in) provided by operating activities (518,300) (346,335) 100,667
------------ -------------- --------------
Financing activities:
Capital contributions 4,337,974 -- --
Equity Owners' loans (3,371,856) 543,391 1,200,912
Senior notes 275,125 297,457 (352,323)
Satellite transponders obligation (9,844) 65,900 (118,466)
------------ -------------- --------------
Resources provided by financing activities 1,231,399 906,748 730,123
------------ -------------- --------------
Investing activities:
Investment in property and equipment, net (496,773) (330,148) (834,670)
------------ -------------- --------------
Resources used in investing activities (496,773) (330,148) (834,670)
------------ -------------- --------------
Cash and cash equivalents:
Increase (decrease) for the period 216,326 230,265 (3,880)
At the beginning of the period 277,243 46,978 50,858
------------ -------------- --------------
At the end of the period Ps. 493,569 Ps. 277,243 Ps. 46,978
============ ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
INNOVA, S. DE R.L. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Mexican Pesos in purchasing power as of December 31,
2003)
NOTE 1 - THE COMPANY AND ITS PRINCIPAL OPERATIONS:
Innova, S. de R.L. de C.V. ("Innova" or the "Company"), a Mexican company with
limited liability and variable capital, provides direct-to-home ("DTH")
broadcast satellite pay television services in Mexico under the SKY brand name.
Innova is a joint venture indirectly owned by Grupo Televisa, S. A. ("Televisa")
(60%), The News Corporation Limited ("News Corporation") (30%) and Liberty Media
International Holdings, LLC (formerly Liberty Media International, Inc.) ("LMI")
(10%). The Company and its subsidiaries are collectively referred to as the
Group.
The Group's business requires a concession (license granted by the Mexican
federal government) to operate. On May 24, 1996, the Ministry of Communications
and Transportation (the "SCT") ratified the concession granted to a wholly-owned
subsidiary of the Company to offer DTH satellite broadcasting services in Mexico
using domestic satellites. The concession is for a period of thirty years,
beginning May 24, 1996, and renewable in accordance with Mexican Communications
Law. On November 27, 2000, the SCT, granted to a wholly-owned subsidiary of the
Company a concession to provide its broadcasting services using foreign
satellites. The concession is for a 20-year period, effective November 27, 2000
and may be extended in accordance with Mexican Communications Law.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Mexico ("Mexican GAAP") as
promulgated by the Mexican Institute of Public Accountants ("MIPA"). A
reconciliation from Mexican GAAP to United States generally accepted accounting
principles ("U.S. GAAP") is included in Note 20.
The principal accounting policies followed by the Group are as follows:
a. Basis of presentation -
The financial statements of the Group are presented on a consolidated
basis. All significant intercompany balances and transactions have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain prior period amounts have been reclassified to conform with the
current year basis of presentation.
b. Members of the Group -
At December 31, 2003, the Group consists of the Company and the following
wholly-owned subsidiaries:
- Corporacion de Radio y Television del Norte de Mexico, S. de R.L. de
C.V.
- Corporacion Novavision, S. de R. L. de C.V.
- Corporacion Novaimagen, S. de R. L. de C.V.
- Servicios Novasat, S. de R.L. de C.V.
- Servicios Corporativos de Telefonia, S. de R. L. de C.V. ("SECOTEL")
F-71
SECOTEL was formed in July 2001, when the Company purchased the Call Center
operation from an affiliate of Televisa (Note 8).
c. Cash and cash equivalents -
The Group considers all highly liquid temporary cash investments with
original maturities of three months or less, consisting primarily of
overnight deposits, obligations of the Mexican Government, deposits and
bonds in U.S. financial institutions to be cash equivalents.
d. Property and equipment -
Property and equipment are recorded at acquisition cost and thereafter are
restated using the National Consumer Price Index ("NCPI"), except for
equipment of a non-Mexican origin, which are restated using an index which
reflects the inflation in the respective country of origin and the exchange
rate of the Mexican peso against the currency of such country at the
balance sheet date ("Specific Index"). Maintenance costs for technical
equipment are reserved based on management estimates. Actual costs are
applied against the applicable reserve when incurred. Repair and
maintenance costs for computer equipment and integrated receiver/decoder
("IRDs") are expensed as incurred.
Installation costs of antennas, low noise blocks ("LNBs") and accessories
in subscribers' homes or businesses are capitalized in the line item
antennas, LNBs and accessories, and are amortized over the estimated useful
life of the asset, which is three years.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the appropriate accounts and any
gain or loss is included in results of operations.
External costs incurred for internal use software are capitalized in
computer equipment and depreciated over three years.
e. Spare parts -
Spare parts inventory are recorded at the lower of cost or net realizable
value. The cost of spare parts utilized is charged to income when utilized.
f. Depreciation -
Depreciation of property and equipment is based upon the restated carrying
value of the assets and is recognized using the straight-line method over
the estimated useful lives of the assets, which range from 3 to 10 years.
Land, equipment in progress and advances to suppliers are not depreciated.
g. Preoperating expenses -
The Group deferred preoperating expenses incurred prior to the launch of
its satellite pay television services in December 1996. Amortization was
calculated using the straight-line method over a term of five years and
amounted to Ps.49,136 in 2001. The preoperating expenses were fully
amortized in November 2001.
h. Seniority premiums and indemnities -
Seniority premiums to which employees are entitled upon termination of
employment after 15 years of service, as well as the obligations under the
Company's noncontributory retirement plan for its employees, are recognized
as expenses in the years in which the services are rendered, based on
actuarial studies using the projected unit credit method.
Other compensation based on length of service to which employees may be
entitled in the event of dismissal or death, in accordance with the Federal
Labor Law, is charged to income in the year in which it becomes payable.
F-72
i. Foreign currency -
Monetary assets and liabilities denominated in foreign currencies are
reported at the prevailing exchange rate at the balance sheet date.
Exchange differences on monetary assets and liabilities are included in
income for the period and reflected in the integral result of financing.
Revenues and expenses denominated in foreign currencies are reported at
the exchange rates in effect when recognized.
j. Revenue recognition -
Program service revenues are recognized on a monthly basis as DTH service
is provided. Program service revenues paid in advance are deferred until
earned.
The Group provides the DTH antenna, LNB and remote control to customers
along with the IRD, but has retained title to the equipment. The IRD is
included in fixed assets and is rented to customers under an operating
lease. Rental revenues are recognized on a monthly basis.
Advertising revenues are recognized at the time the advertising services
are rendered.
k. Advertising costs -
Advertising expenses are expensed as incurred and amounted to Ps.201,194,
Ps.212,123 and Ps.235,865 during the years ended December 31, 2003, 2002
and 2001 respectively.
l. Capitalized financing costs -
The Group capitalized the integral financing costs attributable to
acquired assets during installation and preoperating expenses. Capitalized
integral financing costs include interest costs, gains from monetary
position and foreign exchange gains or losses, and are determined by
reference to the Group's average interest cost for outstanding borrowings.
No amounts were capitalized in 2003, 2002 and 2001.
m. Risk concentrations -
Financial instruments which potentially subject the Group to significant
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Group maintains its cash
and cash equivalents with various major financial institutions and are
principally invested in obligations of the U.S. and Mexican governments.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers throughout Mexico. The
Group's policy is to require one month's payment in advance, to reserve
for all accounts receivable greater than ninety days and to write off
against the reserve all receivables greater than 120 days. Bad debt
expense was Ps.96,741 in 2003, Ps.115,238 in 2002 and Ps.180,986 in 2001
(Note 4).
In order to provide DTH service to customers, the Group relies on the use
of 12 KU-band transponders on the PAS 9 satellite. The use of these
transponders is unprotected and, as a result, any long term disruption to
one or more of the transmission signals could have a material adverse
effect on the Group.
n. Comprehensive loss -
Comprehensive loss represents the net loss for the period presented in the
income statement plus other results for the period reflected in
equity owners' deficit which are from non-owner sources (Note 18).
o. Evaluation of long-lived assets -
The Group evaluates the recoverability of its long-lived assets to
determine whether current events or circumstances warrant adjustment to
the carrying value. Such evaluation may be based on current and projected
income and cash flows from operations as well as other economic and market
variables.
F-73
p. Income tax -
The recognition of deferred income tax is made by using the comprehensive
asset and liability method. Under this method, deferred income taxes are
calculated by applying the respective income tax rate to the temporary
differences between the accounting and tax values of assets and
liabilities at the date of the financial statements.
The accrued effect required the recognition of a net deferred tax asset
and corresponding valuation allowance, because available evidence did not
indicate that there was a high probability of future taxable income to
realize the deferred tax asset. Subsequent changes in deferred tax assets
and liabilities and valuation allowances are recognized in income.
q. New accounting bulletins -
In January 2002, the MIPA issued Statement C-8, "Intangible Assets,"
effective as from January 1, 2003. This statement establishes criteria for
the recognition of intangible assets, as well as their accounting
treatment through particular valuation, disclosure and presentation
regulations. The adoption of Statement C-8 did not have any impact on the
Group's consolidated financial statements.
In January 2002, the MIPA issued Statement C-9, "Liabilities, Provisions,
Contingent Assets and Liabilities and Commitments," effective as from
January 1, 2003. This statement establishes the particular valuation,
disclosure and presentation regulations of liabilities and provisions, as
well as those for commitments and contingent assets and liabilities. The
adoption of this Statement did not have any impact on the Group's
financial statements.
On January 1, 2004 the provisions of Statement C-15, "Impairment of
Long-Lived Assets and Their Disposal," issued by the MIPA, became
effective. This Statement contains general standards covering the
identification and recording of losses due to impairment or reduction in
value of long-lived assets, tangible or intangible, including goodwill. In
addition, it also prescribes guidelines for valuation of long-lived
assets. The Group does not expect the adoption of this standard to have
any effect on its financial statement.
In 2003, the MIPA issued new Statement C-12, "Financial Instruments
Qualifying as Liabilities, Capital or Both" ("Statement C-12"), which
highlights the differences between liabilities and stockholders' equity
from the viewpoint of the issuer, as a basis for identifying, classifying
and recording the liability and capital components of combined financial
instruments in their initial recognition. The new Statement C-12
establishes the methodology for separating liabilities and stockholders'
equity from the price received from the placement of combined financial
instruments. That methodology is based on the residual nature of
stockholders' equity and avoids the use of fair values affecting
stockholders' equity in initial transactions. Additionally, it establishes
that beginning on January 1, 2004, the initial costs resulting from the
issuance of the combined instruments are assigned to liabilities and
stockholders' equity in the same proportion as the amounts of the
components recognized as liabilities and stockholders' equity; that the
losses and incomes related to financial instrument components classified
as liabilities are recorded in overall financing; and the yield
distributions to owners of financial instrument components classified as
stockholders' equity are charged directly to a capital account other than
the income account for the year. Although this Statement C-12 became
effective on January 1, 2004, it is not required when restating
information for prior periods or when recognizing an initial accrued
effect on the income for the year it is adopted, in accordance with the
provisions established in the transitory paragraph of the Statement C-12.
The Group does not expect that the adoption of this Statement will have a
material effect on the consolidated financial statements.
NOTE 3 - EFFECTS OF INFLATION ON THE FINANCIAL STATEMENTS:
The consolidated financial statements of the Group have been prepared in
accordance with Statement B-10, "Recognition of the Effects of Inflation on
Financial Information," as amended ("Statement B-10"), which provides guidance
for recognizing the effects of inflation. The financial statements of the Group
are presented in Mexican Pesos in purchasing power as of December 31, 2003 in
order to be comparable to financial information as of that date, as follows:
F-74
- The balance sheets have been restated in Mexican Pesos in purchasing power
as of December 31, 2003 using the NCPI as of December 31, 2003.
- The statements of loss and changes in equity owners' deficit have been
restated in Mexican Pesos in purchasing power as of December 31, 2003
using the NCPI for the month in which the transactions occurred.
The restatement of the financial statements has been applied in accordance with
Statement B-10 guidelines as described below:
Restatement of non-monetary assets -
Property and equipment, except for equipment of non-Mexican origin, are restated
using the NCPI. Equipment of non-Mexican origin, primarily satellite
transponders, are restated using a Specific Index. The Specific Index is derived
from inflation in the country of the assets' origin and the foreign currency
exchange rate of the Mexican Peso against the currency of such country.
Property and equipment in use at the beginning of the year is depreciated based
upon the restated carrying value of the assets and is recognized using the
straight-line method over the estimated useful lives of the assets. Additions
during the year are depreciated based on the restated value.
Restatement of equity owners' deficit -
Social parts and other equity owners' deficit accounts (other than the excess /
deficit from restatement) include the effect of restatement, determined by
applying the NCPI factor to the applicable period. The restatement represents
the amount required to maintain the contributions and the accumulated results in
Mexican Pesos in purchasing power as of December 31, 2003. The deficit / excess
from restatement includes the result from holding non-monetary assets and is the
cumulative difference between the cost of the non-monetary assets restated using
NCPI and the restatement of such assets using the Specific Index.
Integral results of financing -
The gain or loss from monetary position represents the effects of inflation, as
measured by the NCPI, on the monetary assets and liabilities of the Group at the
beginning of each month. For the years ended December 31, 2003, 2002 and 2001,
monetary liabilities exceeded monetary assets, resulting in gains from monetary
position during the periods.
Statement of changes in financial position -
Statement B-12, "Statements of Changes in Financial Position" ("Statement
B-12"), issued by the MIPA, specifies the appropriate presentation of the
statement of changes in financial position when the financial statements have
been restated in constant monetary units in accordance with the Third Amendment
to Statement B-10. Statement B-12 identifies the generation and application of
resources as the differences between beginning and ending financial statement
balances in constant monetary units. The Statement also requires that monetary
and foreign exchange gains and losses not be treated as non-cash items in the
determination of resources provided by operations. The translation effects of
operating assets and liabilities are included in the stated change of the
related item.
Other accounts -
The following accounts are restated using the NCPI:
Debt issuance costs and related amortization
Leasehold improvements and related amortization
Intangible assets and related amortization
F-75
National Consumer Price Index (NCPI) -
Restatement of the financial statements to Mexican pesos in purchasing power as
of December 31, 2003, in accordance with the Third Amendment to Statement B-10,
requires restatement of the results for each month during each year using a
factor derived from the change in the NCPI. The NCPI as of December 31, 2003,
2002 and 2001 was 106.996, 102.904 and 97.354 respectively.
NOTE 4 - TRADE ACCOUNTS RECEIVABLE, NET:
Trade accounts receivable, net includes the receivables from DTH services
provided to subscribers, from the rental of IRD's and from the sale of
advertising. Balances as of December 31, consist of:
2003 2002
---- ----
Trade accounts receivable Ps. 182,568 Ps. 183,959
Allowance for doubtful accounts (70,261) (76,046)
----------- -----------
Ps. 112,307 Ps. 107,913
=========== ===========
The allowance for doubtful accounts for the years ended December 31, 2003, 2002
and 2001, was as follows:
2003 2002 2001
---- ---- ----
Beginning balance Ps. 76,046 Ps. 88,149 Ps. 15,431
Additions 96,741 115,238 180,986
Write offs (102,526) (127,341) (108,268)
---------- ---------- ----------
Ending balance Ps. 70,261 Ps. 76,046 Ps. 88,149
========== ========== ==========
NOTE 5 - PROPERTY AND EQUIPMENT, NET:
Property and equipment, net as of December 31, consists of:
2003 2002
---- ----
Integrated receiver/decoders Ps. 2,652,723 Ps. 2,650,006
Transmission equipment 379,729 356,298
Antennas, LNBs and accessories 800,989 576,586
Computer equipment 487,865 318,009
Furniture 20,327 20,291
Transportation equipment 20,437 21,811
Buildings 851 2,117
------------ -------------
4,362,921 3,945,118
Accumulated depreciation (3,010,723) (2,471,760)
------------ -------------
1,352,198 1,473,358
Land 1,350 9,092
Equipment in progress 32,425 121,426
Advances to suppliers 11,706 2,516
------------- -------------
Ps. 1,397,679 Ps. 1,606,392
============= =============
Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
Ps.693,826, Ps.763,991 and Ps.741,622, respectively.
The Group recorded an impairment loss on certain transmission equipment and
other equipment not in use of Ps.32,000 (which was included in "Transponder
services - Solidaridad 2 and reorientation cost" line item) during the year
ended December 31, 2002. As of April 2002, the Group ceased utilizing the
service of the Solidaridad 2 satellite, continuing only with the services
provided by the PAS-9 satellite. At that date, transmission equipment
F-76
with a book value of Ps.39,868 associated with Solidaridad 2 was held by the
Group and the Group decided to recognize an impairment charge amounting to
Ps.32,000 for the equipment that could not be utilized by the PAS-9 satellite,
and to create a spare-part inventory for the remaining Ps.7,868 of transmission
equipment that could be utilized by the PAS-9 satellite.
At December 31, 2003 and 2002, IRDs, transmission equipment, computer equipment
and transportation equipment include restated assets which are of a non-Mexican
origin of Ps.324,318 and Ps.442,031, respectively, net of accumulated
depreciation. Computer equipment includes Ps.178,765 and Ps.16,950 of
capitalized software costs as of December 31, 2003 and 2002, respectively.
NOTE 6 - SATELLITE TRANSPONDERS:
On February 8, 1999, the Group and PanAmSat Corporation ("PanAmSat") entered
into a new agreement for satellite signal reception and retransmission service
from 12 KU-band transponders on a new satellite ("PAS-9"), which became
operational in September 2000. The service term for PAS-9 will end at the
earlier of (a) the end of 15 years or (b) the date PAS-9 is taken out of
service. The Group is committed to pay a monthly fee of U.S.$1.7 million. The
Group received a credit against the initial service fees of U.S.$11.7 million
paid under the new agreement.
The concession authorizing the use of PAS-9 was granted by the Federal
Government through the SCT in November 2000. Under the terms of this concession,
the Group is bound to offer the service of paid television via DTH satellite for
a three-year term starting in November 2000, in the Municipalities or City
Districts where 40% of the total population of the coverage area dwells, as per
the most recent census information available. The process of migrating customers
from Solidaridad 2 to PAS-9 started in November 2000 and ended in March 2002.
The Group stopped using the services of Solidaridad 2 in early April 2002.
The Group recorded an asset equal to the net present value of the U.S.$1.7
million per month payments and the U.S.$11.7 million credit. The balance of the
satellite transponders as of December 31, is as follows:
2003 2002
---- ----
Satellite transponders Ps. 1,611,565 Ps. 1,528,092
Accumulated depreciation (358,126) (237,703)
-------------- --------------
Ps. 1,253,439 Ps. 1,290,389
============== ==============
Amortization of satellite transponders in 2003, 2002 and 2001 was Ps.107,438,
Ps.101,873 and Ps.92,474, respectively.
The Group's future obligation from the PAS-9 agreement, determined using the
Group's incremental borrowing rate at the lease commencement date of 11.5%, is
as follows:
Total
-----
2004 Ps. 228,990
2005 228,990
2006 228,990
2007 228,990
2008 228,990
Thereafter 1,531,053
--------------
2,676,003
Less: amount representing interest (1,207,610)
--------------
Ps. 1,468,393
==============
Interest expense recognized during the years ended December 31, 2003, 2002 and
2001 was Ps.169,866, Ps.166,118 and Ps.170,043, respectively.
F-77
The obligation is reflected on the consolidated balance sheet as of December 31,
as follows:
December 31,
------------
2003 2002
---- ----
Current portion Ps. 63,523 Ps. 54,914
Long-term portion 1,404,870 1,423,323
-------------- --------------
Total obligations Ps. 1,468,393 Ps. 1,478,237
============== ==============
The obligations of the Group under the PAS-9 agreement are proportionately
guaranteed by the Group's equity owners in relation to their respective
ownership interests.
NOTE 7 - DEFERRED COSTS, NET:
Deferred costs, net as of December 31, consist of:
2003 2002
---- ----
Debt issuance costs, net (a) Ps. 51,280 Ps. 76,707
Leasehold improvements, net (b) 6,927 8,970
-------------- --------------
Ps. 58,207 Ps. 85,677
============== ==============
a. Debt issuance costs
2003 2002
---- ----
Old Senior Notes (1) Ps. 42,268 Ps. 179,475
New Senior Notes (2) 39,427 --
-------------- --------------
81,695 179,475
Less: Accumulated amortization (30,415) (102,768)
-------------- --------------
Total capitalized expenses, net Ps. 51,280 Ps. 76,707
============== ==============
(1) During 2003, the Group expensed as a non-recurring item, Ps.45,681
corresponding to the unamortized debt issuance costs in respect of
noteholders that accepted to exchange their Old Senior Notes for the New
Senior Notes (Note 10). The remaining Ps.12,840 corresponds to the
proportional debt issuance cost of the Old Senior Notes that were not
exchanged, which will continue to be amortized over the remaining term of
the Old Senior Notes.
(2) Fees and expenses incurred for the issuance of the New Senior Notes (Note
10), will be amortized over the term of the New Senior Notes.
Amortization of debt issuance costs was Ps.16,397, Ps.17,936 and Ps.17,936
in 2003, 2002 and 2001, respectively.
b. Leasehold improvements
Amortization of leasehold improvements was Ps.3,668, Ps.9,896 and Ps.6,324 in
2003, 2002 and 2001, respectively.
F-78
NOTE 8 - INTANGIBLE ASSETS, NET:
Intangible and other assets, net are amortized using the straight-line method
over a period of five years. Balances as of December 31, consist of:
2003 2002
---- ----
Noncompetition agreement (a) Ps. -- Ps. 181,224
Call Center Operations (b) 9,784 9,784
-------------- --------------
9,784 191,008
Accumulated amortization (4,729) (183,998)
-------------- --------------
Ps. 5,055 Ps. 7,010
============== ==============
(a) Consists mainly of a noncompetition agreement and certain rights for the
use of transponders acquired in 1997, both of which were fully amortized
in 2002.
(b) Consist mainly of software and other licenses for the Call Center
operation that was acquired from an affiliate of Televisa in 2001.
NOTE 9 - TRANSACTIONS WITH AFFILIATED COMPANIES AND OTHER RELATED PARTIES:
The principal transactions of the Group with affiliated companies and related
parties are:
2003 2002 2001
---- ---- ----
Borrowings and accrued interest from
equity owners (Note 11) Ps. -- Ps. 4,081,469 Ps. 3,188,805
Broadcasting services, Florida (a) 85,209 85,375 95,784
Programming (b) 204,846 186,096 149,234
Special events programming (c) (i) 123,883 190,493 147,744
Advertising costs (d) 126,010 133,094 146,213
Royalties (e) 62,627 45,983 99,230
Call Center services (f) -- -- 74,525
Broadcasting services, Mexico City (g) 45,410 40,066 37,695
Fixed asset acquisitions -- 12,206 23,985
Acquisition of smart cards 11,706 10,486 54,191
Finance costs (Note 11) 213,806 296,609 223,373
Management and administrative services 2,166 7,530 21,329
Maintenance services 3,917 13,105 11,692
Advertising revenue 25,896 29,854 32,894
Transmission services, income 6,106 7,457 6,692
Other 662 8,141 2,310
(a) The Group has an agreement with DTH TechCo Partners, an affiliate of both
Televisa and News Corporation, for play-out, uplink and downlink of
signals and compression services. Costs for these services are anticipated
to be approximately U.S.$8.0 million per year.
(b) The Group purchases the rights to broadcast certain popular channels
through affiliates of Televisa and News Corporation. Fees for this
programming are based upon the number of subscribers.
(c) The Group purchases, on occasion, the rights to broadcast certain special
events programming from Televisa and its affiliates.
(d) The Group purchases advertising time from Televisa on an as needed basis
and creative services from DTH TechCo Partners.
(e) Royalties paid to an affiliate of News Corporation consist of license,
security and access fees and charges for the use of certain technology.
The monthly fees and charges are based on the total number of smart cards,
new subscribers during the period and the number of IRD's purchased.
F-79
(f) Until June 30, 2001, the Group received call processing services and
customer care from an affiliate of Televisa. As described in Note 2.b.,
the Group purchased the call center operations from Televisa for
Ps.25,123.
(g) The Group purchases uplink and downlink, playout and compression services
from an affiliate of Televisa for operations conducted in the Mexico City
broadcast facility.
The outstanding balances due to affiliates and other related parties, excluding
equity owners' loans and accrued interest, as of December 31, are as follows:
2003 2002
---- ----
Televisa and subsidiaries (h) Ps. 365,827 Ps. 392,841
News Corporation and subsidiaries 60,453 57,829
-------------- --------------
Ps. 426,280 Ps. 450,670
============== ==============
(h) Amount includes the liability for the prepaid advertising to Televisa. On
December, 2003, the Group entered into one-year advertising agreements
with Televisa and subsidiaries for Ps.125,000, covering the period
January 1, 2004 to December 31, 2004. In December 2002, the Group entered
into one-year advertising agreement amounting to Ps.120,000, covering the
period January 1, 2003 to December 31, 2003. The prepaid advertising is
amortized as the advertising is aired.
(i) The Company has an informal agreement with Televisa for the purchase of
exclusive rights to exhibit and distribute through SKY certain of the
professional Mexican Soccer League programming and Mexican Boxing
programming during the 2001 through 2003 seasons, as follows:
- Exclusive transmission rights and local block-out rights over 20% of
the professional Mexican Soccer League programming during the summer
and winter seasons of 2001 and 2002;
- Exclusive transmission rights and local block-out rights over 10% of
the professional Mexican Soccer League programming during the summer
season of 2003; and
- Exclusive transmission rights to all Mexican Boxing programming
during the calendar years 2001 and 2002.
In consideration for the right to distribute all of the licensed events,
the Group should pay Televisa a total license fee amounting to U.S.$15
million pro rata during the term, as follows:
- U.S.$6 million for all programming licensed during 2001;
- U.S.$6 million for all programming licensed during 2002; and
- The remaining U.S.$3 million for all programming licensed thereafter
until the end of the summer soccer season for 2003.
During 2003, the Group entered into an agreement with Televisa amounting
approximately U.S.$4.6 million for all programming licensed thereafter
until the end of the winter soccer season for 2003 and approximately
U.S.$4.9 million for all programming licensed of summer soccer season for
2004.
The Group has engaged the law firm of Mijares, Angoitia, Cortes y Fuentes,
S.C. to advise them on various legal issues. Two of their partners,
currently on leave from the partnership, serve as members of our Board.
The fees paid to this law firm during 2003 and 2001 were Ps.437 and Ps.
148, respectively. We did not pay any legal fees in 2002.
F-80
NOTE 10 - SENIOR NOTES:
The Senior Notes consist of the following balances as of December 31:
2003 2002
---- ----
New Senior Notes (a) Ps. 3,367,500 Ps. --
Old Senior Notes (b) 987,800 4,080,175
-------------- --------------
Ps. 4,355,300 Ps. 4,080,175
============== ==============
(a) On September 19, 2003 the Group completed the offering of U.S.$300 million
of its Senior Notes due 2013 ("New Senior Notes"). The New Senior Notes
bear interest at a coupon rate of 9.375%, payable semiannually on March 19
and September 19 of each year, commencing March 19, 2004. Interest will be
computed on the basis of a 360-day year or twelve 30-day months. The New
Senior Notes are unsecured and unsubordinated indebtedness of the Group
and contain certain covenants relating to the Group, including covenants
with respect to: (i) limitations on additional indebtedness; (ii)
limitations on liens; (iii) limitations on sales and leasebacks; (iv)
limitations on restricted payments; (v) limitations on asset sales; and
(vi) limitations on certain mergers, consolidations and similar
transactions.
The Group may, at its own option, redeem the New Senior Notes, in whole or
in part, at any time on or after September 19, 2008 at the following
redemption prices (expressed in percentages of the principal amount), plus
accrued and unpaid interest, if any:
If redeemed during the
twelve-month period Redemption
commencing September 19, Percentage
----------------------- ----------
2008 104.6875
2009 103.1250
2010 101.5625
2011 100.0000
In addition, on or before September 19, 2006, the Group may, at its own
option and subject to certain requirements, use the proceeds from one or
more qualified equity offerings to redeem up to 35% of the aggregate
principal amount of the New Senior Notes at 109.375% of their principal
amount, plus accrued and unpaid interest.
The net proceeds from the offering of the New Senior Notes were used to
redeem on October 20, 2003 U.S.$287.0 million in principal amount of the
Group's 12-7/8% Old Senior Notes due 2007 (see below), and to pay a
redemption premium of U.S.$9.2 million, and fees and expenses relating to
the transaction of U.S.$3.8 million (Note 7-a).
(b) In 1997, the Group concluded an offering of U.S.$375 million of its Senior
Notes due 2007 ("Old Senior Notes"). The Old Senior Notes bear interest at
a rate of 12-7/8% and are redeemable at the option of the Group, in whole
or in part, at any time on or after April 1, 2002, initially at 106.4375%
of their principal amount, plus accrued interest, declining ratably to
100% of their principal amount, plus accrued interest, on or after April
1, 2004. Interest on the Old Senior Notes is payable semi-annually on
April 1 and October 1 of each year and commenced on October 1, 1997. The
Old Senior Notes are uncollateralized, unsubordinated indebtedness of the
Group and contain certain covenants similar to the New Senior Notes.
The U.S.$88 million in Old Senior Notes that were not exchanged will
continue to accrue interest at 12-7/8% per annum, and remain outstanding
in accordance with their original terms.
NOTE 11 - EQUITY OWNERS' LOANS:
Effective September 9, 2003, the Group's equity owners capitalized all
outstanding principal amounts of the loans made by them to the Group totaling
Ps.3,438,958 as well as the portion of accrued interest as of such date which
F-81
amounted to Ps.899,016. After giving effect to the capitalization, the Group's
equity owners, Televisa, News Corporation and Liberty Media, continue to
indirectly own 60%, 30% and 10% of Innova, respectively.
The equity owners' loans, which were all made on a pro rata basis by the Group's
equity owners, incurred interest at an annual rate of 9% and were payable in
full ten years from the date of issuance. The maturity date of any individual
loan could be accelerated or otherwise modified upon joint agreement of the
equity owners and the Group.
NOTE 12 - FINANCIAL INSTRUMENTS:
The Group's financial instruments include cash and cash equivalents, trade
accounts receivables, trade accounts payable, due to affiliated companies and
other related parties, and debt. For cash and cash equivalents, trade accounts
receivables, trade accounts payable, and due to affiliated companies and other
related parties, the carrying amounts approximate fair value due to the short
maturity of these instruments.
The fair value of the Senior Notes is based on quoted market prices. The
estimated fair value of these instruments at December 31, 2003 and 2002 is as
follows (amounts in thousands):
Carrying value Fair value
-------------- ----------
December 31, 2003 New Senior Notes U.S.$ 300,000 U.S.$ 307,890
Old Senior Notes U.S.$ 88,000 U.S.$ 89,100
December 31, 2002 Old Senior Notes U.S$ 375,000 U.S.$ 330,000
The Senior Notes are thinly traded financial instruments. Accordingly, their
market price at any balance sheet date may not be representative of the price
which would be obtained in a more active market.
In 2002 management was unable to estimate the fair value of the equity owners'
loans due to their nature.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
a. In 1996, the Group signed an agreement with an affiliate of News
Corporation to acquire and implement a conditional access system. This
system includes Smart Cards which decode satellite signals and control
access by subscribers. In 1999, the Group acquired a subscriber management
system (SMS) designed specifically for DTH services. Under these
arrangements, the Group estimates that the 2004 commitment will
approximate U.S.$11.6 million for royalties, licenses and maintenance of
the foregoing systems. In 2003, 2002, and 2001, the Group incurred
expenses of U.S.$7.2 million, U.S.$5.9 million and U.S.$9.7 million,
respectively.
The Group has entered into agreements with Televisa and an affiliate of
Televisa to provide uplink and downlink, playout and compression services
at the Mexico City station. The annual commitments are estimated to be
approximately U.S.$4.0 million per year. The Group incurred expenses of
U.S.$4.1 million in 2003, U.S.$3.9 million in 2002 and U.S.$3.8 million in
2001.
The Group entered into several contracts with programming providers,
establishing that the amounts payable to the programmers will be based on
the number of subscribers. These charges totaled Ps.729,608, Ps.683,424
and Ps.676,234 for the years ended December 31, 2003, 2002 and 2001,
respectively.
b. The Group entered into two related agreements with CSG Software, Inc.
(CSG), on June 12, 2002 under which CSG provides: a) A non-exclusive,
perpetual license for the use of the software "Kenan" to provide billing
and order management to licensed subscribers, besides installation and
implementation of the system, training and support services and, b)
consulting services.
Under the Software License and Service Agreement, the Group paid U.S.$2.9
million to CSG for a license capacity of up to 1,125,000 subscribers.
However, the Group can purchase additional capacity according to the
subscriber base growth at an additional cost per every 100,000
subscribers. Technical support in Mexico will be available for the first
24 months following the date on which live production of the system
begins, the annual cost for this service will be U.S.$585,600. It is
possible in accordance with the agreement to use the Kenan system for
other DTH platform in case of merger, acquisition or combination of
platforms. The new SMS was placed in service on November 2003.
F-82
Under the Consulting Services agreement, CSG provided management and
technology consulting, advisory and integration services related to the
implementation of the Kenan end-to-end integrated solution, as well as the
required interfaces with the Group's Siebel and NDS software currently in
operation, in accordance with a Implementation Planning and Analysis
process (IPA), previously agreed with the Group. The total cost of these
services is U.S.$4.4 million. As of December 31, 2003, U.S.$3.8 million
were paid and the U.S.$0.6 million remaining will be payable upon
completion of certain agreed milestones.
c. In January 2002, the Group executed an agreement with TV Azteca to begin
paying them for the rights to rebroadcast their over-the-air Channels 7
and 13. It has also committed to purchase up to U.S.$10.6 million in
advertising from TV Azteca over three years and received rights to
broadcast certain soccer matches and an option for exclusive broadcast
rights after 2004. Prior to May 1, 2002, the Group was permitted to
rebroadcast these over-the-air channels at no cost. The remaining
commitment under this agreement amounted to U.S.$4.2 million on December
31, 2003.
d. Since January 1st 2002, a 10% federal excise tax was imposed on the
collected revenues from the Group's pay television services. In February
2002, the Group filed a petition for constitutional relief against the
Legislative Decree, which contains the amendments to the law regarding the
excise tax. On August 15, 2003, the Group received a favorable resolution
for the excise tax paid in 2002; such resolution generated a tax return
which is in process. The resolution for the excise tax paid in 2003 is
still pending (Note 15c).
NOTE 14 - SOCIAL PARTS:
The social parts as of December 31, 2003 and 2002, is represented by four and
three partnership interests, respectively, of unequal value distributed as
follows:
December 31, 2003:
Partnership Interest Subseries Amount
-------------------- --------- ------
1 A-1 Ps. 880,752
1 B-1 440,375
1 B-2 146,792
1 C 4,859,313
As discussed in Note 11, effective September 9, 2003, the Group's equity owners
capitalized all loans made by them. These loans were capitalized in exchange for
a proportionate interest in Innova Holdings, S. de R. L. de C.V. ("Innova
Holdings"), a newly created company. Innova Holdings is the holder of a 100% of
Series "C" partnership interest, described below.
Series "A" is composed of a partnership interest initially representing 13.92%
(60% in 2002) of the total social parts. The Series "A" partnership interest
may be subscribed to only by persons of Mexican nationality.
Series "B" is composed of a partnership interest initially representing 9.28%
(40% in 2002) of the total social parts. The Series "B" partnership interest is
unrestricted as to ownership and therefore, may be acquired by Mexican investors
and foreign natural and legal persons or by persons, companies or entities that
are included in Article 2, Section III of the Foreign Investments Law.
Series "C" is composed of a partnership interest initially representing 76.80%
of the social parts. The Series C interests are owned by Innova Holdings and
have limited voting rights.
Dividends paid are not subject to income tax if paid from the Net Tax Profit
Account and will be taxed at a rate that fluctuates between 4.62% and 7.69% if
they arise from the reinvested Net Tax Profit Account. Any excess over this
F-83
account is subject to a tax equivalent to 49.25% and 47.06% depending on whether
paid in 2004 and 2005 respectively. The tax is payable by the company and may be
credited against its income tax in the same year or the following two years.
Dividends paid are not subject to tax withholding.
The ability of the Group to declare dividends is restricted by the New and Old
Senior Notes indentures.
In the event of a capital reduction, any excess of equity owners' equity over
capital contributions, the latter restated in accordance with the provisions of
the Income Tax Law, is accorded the same tax treatment as dividends.
NOTE 15 - RESTRUCTURING AND NON-RECURRING ITEMS:
a. The restructuring charges in 2003, 2002 and 2001 consisted of severance
costs in connection with employee terminations.
b. As a result of the restructuring of the Senior Notes, the Group recognized
a nonrecurring loss in the amount of Ps.145,154 (net), which is mainly
composed of the Premium on redemption payment and the unamortized cost of
debt issuance corresponding to the Old Senior Notes that were exchanged
for the New Senior Notes (Note 7).
c. On October 30, 2003, the Federal Executive approved a temporary tax
incentive equal to 100% of the 10% excise tax on telecommunications,
effective November 1, 2003 and applicable only to the tax triggered from
this date up to December 31, 2003. Therefore, during the months of
November and December 2003, the Group recorded, the derived effects of the
tax incentive above mentioned amounting Ps.39,978, as a non-recurring
charge.
d. During 2000, the Group recognized a nonrecurring charge of Ps.448,066
relating to the redundant use of the transponders on the Solidaridad 2
satellite once the PAS-9 satellite became operational, and for the
increased costs to re-orientate customers' antennas to PAS-9 in a short
period of time. The process of migrating customers from Solidaridad 2 to
PAS-9 started in November 2000 and finally ended in March 2002. As
explained in Note 5, the Group recorded an impairment charge of Ps.32,000
in April 2002 that related to certain transmission equipment associated
with Solidaridad 2. This impairment loss, together with the payments for
the use of Solidaridad 2 in the first quarter of 2002 amounting to
Ps.14,747, was offset by the reversal of unutilized amounts raised in 2000
amounting to Ps.19,782, and reflected as a nonrecurring charge of
Ps.26,965 in 2002.
NOTE 16 - ACCUMULATED LOSSES:
Under Mexican Corporate Law, interested third parties can request the
dissolution of the Group if accumulated losses exceed two-thirds of social
parts. At December 31, 2003, the Group's accumulated losses exceeded its social
parts. Although the Group believes it is unlikely such action will occur, the
Group, obtained from Televisa and News Corporation, a commitment to provide
financial support to the Group for a period of one year from the balance sheet
date, in proportion to their respective ownership interests, if required, to
avoid such action.
The recoverability of the Group's investment in DTH infrastructure and product
development is dependent upon future events, including, but not limited to, the
stability of the Mexican economic environment, obtaining adequate financing for
the Group's development program, the continued operation of satellites owned by
third parties, the competitive and market environment for pay television
services in Mexico, and the achievement of a level of operating revenues that is
sufficient to support the Group's cost structure.
NOTE 17 - PROVISION FOR INCOME TAX ("IT"), ASSETS TAX ("AT") AND EMPLOYEES'
STATUTORY PROFIT SHARING:
Tax losses can be carried forward for up to ten years and offset against any
profits that the Group or Televisa may generate during that period in accordance
with the Income Tax Law.
F-84
At December 31, 2003, the Group had total tax loss carryforwards of
Ps.8,186,538, which will under certain circumstances, be carried forward over
ten years from the period that the respective tax loss was generated in:
Year of Expiration Amount
------------------ ------
2004 Ps. 5
2005 8
2006 329,627
2007 1,280,271
2008 1,960,492
2009 700,095
2010 935,254
2011 731,074
2012 1,567,244
2013 682,468
----------------
Ps. 8,186,538
================
The following items represent the principal differences between income taxes
computed at the statutory rate and the Group's provision for income taxes:
2003 2002 2001
---- ---- ----
Tax at the statutory rate 34% in 2003 (35%
in 2002 and 2001) on loss before taxes (Ps. 311,690) (Ps. 616,147) (Ps. 132,165)
Differences in restatement 127,429 93,409 (15,922)
Valuation allowance 226,293 604,980 315,019
Deferred advertising (3,991) (13,857) (10,300)
Depreciation and amortization (9,986) (44,785) 22,688
Debt issuance costs 7,830 3,629 3,836
Provisions (28,625) (11,506) (165,622)
Deferred income 16,010 (7,607) (11,156)
Other (23,270) (8,116) (6,378)
-------------- -------------- --------------
Provision for income tax -- -- --
Assets tax 117,050 (78,536) (48,126)
-------------- -------------- --------------
Total Ps. 117,050 Ps. (78,536) Ps. (48,126)
============== ============== ==============
Deferred taxes at December 31, 2003 and 2002, were generated by the following
temporary differences and tax loss carryforwards:
2003 2002
---- ----
Prepaid expenses (Ps. 17,674) (Ps. 13,815)
Other deferred costs 5,608 38,195
Property and equipment 92,302 131,500
Deferred income 45,526 38,699
Accrued expenses 110,275 168,448
Satellite transponders, net 70,935 63,869
Debt issuance costs (13,131) (26,080)
Tax loss carryforwards 2,701,558 2,551,632
-------------- --------------
2,995,399 2,952,448
Valuation allowance (2,995,399) (2,952,448)
-------------- --------------
Deferred income tax Ps. -- Ps. --
============== ==============
F-85
Employees' statutory profit sharing in Mexico is determined for each subsidiary
individually, not on a consolidated basis. There is no employees' statutory
profit sharing deferred tax as of December 31, 2003 and 2002.
Pursuant to the tax legislation in force, the Company must pay annually the
greater of the IT or the AT, which is determined on the average value of assets
less certain liabilities. When the AT payments are greater than IT, they are
recoverable against the IT in excess of the AT from the three prior years and
the ten subsequent years. In 2003, 2002 and 2001 the asset tax rate was 1.8%.
Under Mexican law, taxpayers cannot deduct from their asset tax basis debt
contracted with nonresident companies or financial intermediaries. The Group
challenged these provisions of Mexico's asset tax law but at the same time, and
in order to avoid penalties and interest payments in the event the Group could
lose the appeal, the Group paid Ps.43,284 of tax on assets for the year
ended December 31, 2001, Ps.45,189 for the year ended December 31, 2002,
and Ps.7,531 for the months of January and February 2003. On March 19,
2003, the court issued a resolution in the Group's favor, allowing the Group to
deduct debts payable to nonresidents from the asset tax basis. In addition,
subsequent to March 19, 2003, the Group has recovered the amounts previously
paid as described above.
The Group is also included in the consolidated tax return of Televisa and its
consolidated subsidiaries for purposes of determining its income taxes and
assets tax. Beginning January 1, 1999, 60% of the tax profit or loss obtained by
the Group will be consolidated with the tax profit or loss of Televisa to the
extent of Televisa's percentage ownership of the Group. Through December 31,
1998, Televisa recognized the total taxable loss of the Group to the extent of
its percentage ownership.
The Group entered into a tax sharing agreement with Televisa under which the
Group will, during the periods that the Group is a part of Televisa's
consolidated tax group, pay Televisa the amount of income and asset taxes that
Televisa is required to pay on behalf of the Group. No such amount will be
payable until the Group's profit exceeds its tax loss carryforwards. Conversely,
Televisa shall pay to the Group the portion of any tax refund allocable to the
Group.
NOTE 18 - COMPREHENSIVE LOSS:
Comprehensive loss for the years ended December 31, 2003, 2002 and 2001, was as
follows:
2003 2002 2001
---- ---- ----
Loss per consolidated statement of loss (Ps. 798,653) (Ps. 1,838,955) (Ps. 425,741)
Result from holding non-monetary assets for the year 107,777 170,801 (133,610)
Supplementary liability for labor obligations 40 (123) (16)
-------------- -------------- --------------
Comprehensive loss for the year (Ps. 690,836) (Ps. 1,668,277) (Ps. 559,367)
============== ============== ==============
F-86
NOTE 19 - FOREIGN CURRENCY POSITION:
a. The foreign currency position of monetary items of the Group at December
31, 2003 and 2002, were as follows:
2003:
Foreign currency Year-end Mexican pesos
Currency amounts (thousands) Exchange rate (thousands)
-------- ------------------- ------------- -------------
Assets:
U.S. Dollars 42,331 11.225 Ps. 475,165
Liabilities:
U.S. Dollars 574,056 11.225 6,443,779
2002:
Foreign currency Year-end Mexican pesos
Currency amounts (thousands) Exchange rate (thousands)
-------- ------------------- ------------- -------------
Assets:
U.S. Dollars 21,391 10.464 Ps. 223,835
Liabilities:
U.S. Dollars 935,999 10.464 9,794,294
b. The foreign currency position of non-monetary items of the Group at
December 31, 2003 and 2002, were as follows:
2003:
Foreign currency Year-end Mexican pesos
Currency amounts (thousands) Exchange rate (thousands)
-------- ------------------- ------------- -------------
Property and equipment:
U.S. Dollars 22,755 11.225 255,425
Pounds Sterling 2,210 20.32 44,907
Yen 37,031 0.1070 3,962
Canadian dollar 277 8.91 2,468
Satellite transponders:
U.S. Dollars 104,396 11.225 1,171,845
2002:
Foreign currency Year-end Mexican pesos
Currency amounts (thousands) Exchange rate (thousands)
-------- ------------------- ------------- -------------
Property and equipment:
U.S. Dollars 32,674 10.464 Ps. 341,901
Pounds Sterling 3,364 17.00 57,188
Yen 46,674 0.0899 4,196
Canadian dollar 360 6.69 2,408
Satellite transponders:
U.S. Dollars 113,344 10.464 1,186,032
F-87
c. Transactions during 2003, 2002 and 2001 in foreign currencies included in
the consolidated statements of loss were as follows:
2003:
Foreign
currency Year-end Mexican
amounts exchange Pesos
Currency (thousands) rate (1) (thousands) (1)
-------- ----------- -------- ---------------
Interest income U.S. Dollars 1,079 11.225 Ps. 12,112
Costs and expenses:
Transponder expense U.S. Dollars 20,400 11.225 228,990
Broadcasting U.S. Dollars 12,536 11.225 140,717
Programming U.S. Dollars 64,300 11.225 721,768
Royalty fees U.S. Dollars 5,769 11.225 64,757
Other expenses U.S. Dollars 9,163 11.225 102,855
Interest expense U.S. Dollars 76,643 11.225 860,318
2002:
Foreign
currency Year-end Mexican
amounts exchange Pesos
Currency (thousands) rate (1) (thousands) (1)
-------- ----------- -------- ---------------
Interest income U.S. Dollars 74 10.464 Ps. 774
Costs and expenses:
Transponder expense U.S. Dollars 21,900 10.464 229,162
Broadcasting U.S. Dollars 12,663 10.464 132,506
Programming U.S. Dollars 58,800 10.464 615,283
Royalty fees Pounds Sterling 652 17.00 11,084
Royalty fees U.S. Dollars 3,605 10.464 37,723
Other expenses U.S. Dollars 3,552 10.464 37,168
Interest expense U.S. Dollars 79,974 10.464 836,848
2001:
Foreign
currency Year-end Mexican
amounts exchange Pesos
Currency (thousands) rate (1) (thousands) (1)
-------- ----------- -------- ---------------
Interest income U.S. Dollars 235 9.178 Ps. 2,157
Costs and expenses:
Transponder expense U.S. Dollars 22,527 9.178 206,753
Broadcasting U.S. Dollars 13,581 9.178 124,646
Programming U.S. Dollars 59,281 9.178 544,081
Royalty fees Pounds Sterling 2,177 13.560 29,520
Royalty fees U.S. Dollars 6,481 9.178 59,483
Other expenses U.S. Dollars 8,593 9.178 78,867
Interest expense U.S. Dollars 72,052 9.178 661,293
(1) For reference purposes only. Does not indicate the actual amounts
presented in the consolidated statement of loss.
Paragraphs b) and c) are disclosed in accordance with the Fourth Amendment to
Bulletin B-10 issued by the MIPA, which also provides that liabilities
denominated in a foreign currency are translated using exchange rates in effect
at the balance sheet date.
F-88
As of December 31, 2003 and 2002, the exchange rate between the Mexican Peso and
the U.S. Dollar was Ps.11.225 and Ps.10.464 per U.S. dollar, respectively, which
represents the interbank free market exchange rate as of those dates as
published by Banco de Mexico, S.A. As of January 30, 2004, the exchange rate was
Ps.11.0843 per U.S. dollar, which represents the interbank free market exchange
rate as of that date as published by Banco de Mexico, S.A.
NOTE 20 - DIFFERENCES BETWEEN MEXICAN GAAP AND U.S. GAAP:
The Group's consolidated financial statements are prepared in accordance with
Mexican GAAP, which differs in certain significant respects from U.S. GAAP.
The reconciliation to U.S. GAAP includes a reconciling item for the effect of
applying the option provided by the Modified Fifth Amendment to Bulletin B-10
for the restatement of equipment of non-Mexican origin because, as described
below, this provision of inflation accounting under Mexican GAAP does not meet
the consistent currency requirement of Regulation S-X of the Securities and
Exchange Commission ("SEC").
The reconciliation to U.S. GAAP does not include the reversal of the other
adjustments to the financial statements for the effects of inflation required
under Mexican GAAP Bulletin B-10, because the application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
inflationary Mexican economy and, as such, is considered a more meaningful
presentation than historical, cost-based financial reporting for both Mexican
and U.S. accounting purposes.
The principal differences between Mexican GAAP and U.S. GAAP that affect net
loss and total equity owners' deficit are described below:
Deferred preoperating expenses and advertising costs
Under Mexican GAAP, it is acceptable to defer certain preoperating expenses and
advertising costs and amortize these expenses over the life of the expected
benefit. Under U.S. GAAP, these items are expensed as incurred. In 2001, the
remaining capitalized amount under Mexican GAAP was fully amortized.
Solidaridad 2 and satellite reorientation costs
Under Mexican GAAP, the Group recognized a non-recurring loss of Ps.448,066
during the year ended December 31, 2000 for the redundent use of the
transponders on the Solidaridad 2 satellite once the PAS-9 satellite became
operational and for the increased costs to reorientate customer's antennas to
PAS-9 in a short period of time.
Under U.S. GAAP, the Group continued to use the Solidaridad 2 satellite to
provide services to its customers through the termination of the Solidaridad 2
agreement. Accordingly, the monthly payments cannot be recognized as a one time
loss, and the Group must continue using the straight-line method in accounting
for the agreement. In addition, the satellite reorientation costs are expensed
as incurred as a part of operating expenses.
The Group fully utilized the provision recognized under Mexican GAAP in 2001,
but only discontinued the use of the Solidaridad Satelite on March 31, 2002.
Accordingly, the monthly payment for the use of Solidaridad 2 were expensed as
incurred under both Mexican and U.S. GAAP for the three months ended March 31,
2002.
Maintenance reserve and smart cards replacement
Under Mexican GAAP, it is acceptable to accrue for certain expenses which
management believes will be incurred in subsequent periods. Under U.S. GAAP,
these costs are expensed as incurred.
Capitalization of financing costs
Mexican GAAP allows, but does not require, capitalization of integral financing
costs attributable to acquired assets during installation and preoperating
expenses. In 1996, the Group capitalized integral financing costs attributable
to those assets as part of its preoperating expenses and was fully amortized in
2001. Capitalized integral financing costs include interest expense, gains from
monetary position and foreign exchange losses.
F-89
U.S. GAAP requires the capitalization of interest during construction and
installation of qualifying assets. In an inflationary economy, such as Mexico's,
acceptable practice is to capitalize interest net of the monetary gain on the
related Mexican Peso debt, but not on U.S. dollar or other stable currency debt.
In addition, U.S. GAAP does not allow the capitalization of foreign exchange
losses or the capitalization of financing costs on deferred expenses. These
assets were fully amortized in 2001 under Mexican GAAP.
No interest costs were capitalized for the years ended December 31, 2003, 2002
and 2001.
Restatement of property and equipment
Effective January 1, 1997, the Group adopted the Fifth Amendment to Bulletin
B-10 which eliminated the use of replacement costs for the restatement of
property and equipment and instead, included an option of using the Specific
Index for the restatement of equipment of non-Mexican origin. The Group has
elected to apply the Specific Index option for determining the restated balances
of equipment of non-Mexican origin under Mexican GAAP. For U.S. GAAP purposes,
the use of an index that contemplates currency exchange movements is not in
accordance with the historical cost concept nor does it present financial
information in a constant currency. Hence for U.S. GAAP purposes, property and
equipment are restated by the NCPI and the difference in depreciation expense
and carrying value are recognized in the net income and equity owners' equity
adjustments, respectively.
Revenue recognition
The Group provides the antenna, LNB and accessories to new subscribers, together
with the IRD, for a set monthly rental fee, retaining title and ownership of all
the equipment. The Group also uses intermediate parties to perform certain
customer acquisition and installation services on its behalf. Under Mexican
GAAP, the Group records as revenue amounts received from these intermediate
parties. Under U.S. GAAP, the Group follows the guidance of Emerging Issues Task
Force Summary No. 99-19, "Reporting Revenue Gross as a Principal versus Net as
an Agent," pursuant to which it has determined that it serves as principal in
these transactions and that it should record as revenue amounts billed to the
subscriber, as ultimate customer. The accompanying condensed consolidated
statement of loss under U.S. GAAP for the years ended December 31, 2003 and 2002
therefore include an adjustment to reflect as revenue the amounts billed to
subscribers and not the amounts received from intermediate parties. The
adjustment for the year ended December 31, 2001 was not material.
In addition, under Mexican GAAP, initial non-refundable subscription fees are
recognized upon activation of the new subscriber's DTH services. Under U.S.
GAAP, initial non-refundable subscription fees are recognized over the period
that a new subscriber is expected to remain a customer (estimated to be 3
years). Customer acquisition costs directly attributable to the income are
recognized over the same period under U.S. GAAP. Those customer acquisition
costs in excess of the initial non-refundable subscription fee revenues, are
expensed as incurred.
Initial non-refundable subscription fees for the year ended December 31, 2003,
2002 and 2001 amounted to Ps.121,457, Ps.150,679 and Ps.172,492, respectively.
Under U.S. GAAP, deferred initial non-refundable subscription fee revenues of
approximately Ps.199,127, Ps.202,807 and Ps.141,356 were recorded as of December
31, 2003, 2002 and 2001, respectively. In addition, customer acquisition costs
which are expensed immediately under Mexican GAAP, have been deferred to match
and equal initial non-refundable subscription revenues; therefore at December
31, 2003, 2002 and 2001, deferred costs under U.S. GAAP also amounted to
Ps.199,127, Ps.202,807 and Ps.141,356, respectively. Initial non-refundable
subscription revenues (which are matched by customer acquisition costs) that
have been recognized during the year amount to Ps.129,653 (Ps.81,606 and
Ps.31,144 in 2002 and 2001, respectively).
These U.S. GAAP adjustments did not have any impact on operating or net loss in
2003, 2002 or 2001.
Presentation in the financial statements - Restructuring and non-recurring items
Under Mexican GAAP, the Group recognizes various costs as "Restructuring and
non-recurring items," which would be considered operating expenses under U.S.
GAAP. Such costs primarily include severance costs in connection with employee
terminations, the derived effects of the 10% excise tax on telecommunications,
costs related to the redundant use of the Solidaridad 2 satellite and the
increased costs to reorient customer's antennas to
F-90
PAS-9 in a short period of time (see Note 15).
In addition, during the year ended December 31, 2003, the provisions of
Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," became effective for the Group. As a result, the Group is not
allowed to classify the loss on the restructuring of the Senior Notes as an
extraordinary item, since the restructuring of the Senior Notes did not meet the
criteria of Accounting Principles Board Opinion No. 30. Accordingly, the loss on
restructuring of Senior Notes, which is comprised of the redemption premium on
the Old Senior Notes (see Note 10) and the unamortized cost of debt issuance
costs corresponding to the Old Senior Notes that were exchanged for the New
Senior Notes (see Note 7), are classified as part of income from continuing
operations under U.S. GAAP.
Deferred income taxes
Under Mexican GAAP, the Group follows the guidelines of amended Bulletin D-4 in
accounting for income taxes. Bulletin D-4 is similar to U.S. GAAP, Statement of
Financial Accounting Standards No. 109 ("SFAS 109") "Accounting for Income
Taxes," in many respects.
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
tax assets including benefits from tax loss carryforwards are recognized to the
extent their realization is more likely than not.
F-91
The tax effects of temporary differences that give rise to significant deferred
tax assets and liabilities, applying SFAS 109 at December 31, 2003 and 2002, are
as follows:
2003 2002
-------------- --------------
Deferred income tax liabilities:
Current:
Prepaid expenses and other (Ps. 17,674) (Ps. 82,769)
-------------- --------------
Total current (17,674) (82,769)
Non-current:
Debt issuance costs (13,131) (26,080)
-------------- --------------
Total deferred income tax liabilities (30,805) (108,849)
-------------- --------------
Deferred income tax assets:
Current:
Satellite transponders, net 70,935 74,428
Accrued expenses 105,271 164,218
Deferred income 45,526 107,654
-------------- --------------
Total current 221,732 346,300
Non-current:
Other deferred costs 5,608 38,195
Property and equipment 92,302 105,680
Tax loss carryforwards 2,701,558 2,551,632
-------------- --------------
Total deferred income tax assets 3,021,200 3,041,807
Less: Valuation allowance (2,990,395) (2,932,958)
-------------- --------------
Net deferred income tax assets 30,805 108,849
-------------- --------------
Deferred income taxes Ps. -- Ps. --
============== ==============
In conformity with the Income Tax Law, the Group restates the tax basis of
preoperating expenses and property and equipment in a form similar to the
restatement for financial reporting purposes, however based on a different date
criteria.
Summary
Net loss for the years ended December 31, 2003, 2002 and 2001, adjusted to take
into account the principal differences between Mexican GAAP and U.S. GAAP, as
they relate to the Group, are as follows:
2003 2002 2001
------------ -------------- -------------
Net loss as reported under Mexican GAAP (Ps. 798,653) (Ps. 1,838,955) (Ps. 425,741)
Deferred preoperating expenses -- -- 48,524
Solidaridad 2 costs -- -- (274,597)
Satellite reorientation costs -- (33,600) (262,637)
Maintenance reserve 2,721 7,364 (6,795)
Smartcards replacement -- -- (33,946)
Capitalization of financing costs -- -- 1,923
Restatement of property and equipment 14,369 (1,031) (19,332)
Restructuring charge -- (4,902) 4,902
------------ -------------- -------------
Net loss in accordance with U.S. GAAP (Ps. 781,563) (Ps. 1,871,124) (Ps. 967,699)
============ ============== =============
F-92
Equity owners' deficit as of December 31, 2003 and 2002, adjusted to take into
account the principal differences between Mexican GAAP and U.S. GAAP, as they
relate to the Group, are as follows:
2003 2002
-------------- --------------
Total equity owners' deficit under Mexican GAAP (Ps. 3,533,307) (Ps. 7,180,445)
U.S. GAAP adjustments:
Maintenance reserve 15,164 12,443
Restatement of property and equipment (48,510) 44,898
-------------- --------------
Total U.S. GAAP adjustments (33,346) 57,341
-------------- --------------
Total equity owners' deficit under U.S. GAAP (Ps. 3,566,653) (Ps. 7,123,104)
============== ==============
A summary of the Group's statement of changes in equity owners' deficit with
balances determined under U.S. GAAP is as follows:
Balance at December 31, 2001 (Ps. 5,251,857)
Supplementary liability for labor obligations (123)
Net loss for the year (1,871,124)
--------------
Balance at December 31, 2002 (7,123,104)
Capitalization of equity owners' loans 4,337,974
Supplementary liability for labor obligations 40
Net loss for the year (781,563)
--------------
Balance at December 31, 2003 (Ps. 3,566,653)
==============
A summary of the Group's stockholders' deficit after the U.S. GAAP adjustments
described above, as of December 31, is as follows:
2003 2002
-------------- --------------
Social parts Ps. 6,327,232 Ps. 1,989,258
Accumulated losses (9,906,093) (9,124,530)
Other comprehensive income:
Excess from restatement 12,307 12,307
Supplementary liability for labor obligations (99) (139)
-------------- --------------
Total equity owners' deficit under U.S. GAAP (Ps. 3,566,653) (Ps. 7,123,104)
============== ==============
Included below are condensed consolidated financial statements of the Group as
of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002
and 2001, after giving effect to the U.S. GAAP adjustments.
F-93
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Mexican Pesos in purchasing power as
of December 31, 2003)
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents Ps. 493,569 Ps. 277,243
Trade accounts receivables, net 112,307 107,913
Prepaid advertising 125,000 126,891
Other current assets 28,086 60,584
------------- -------------
Total current assets 758,962 572,631
Property and equipment, net 1,442,627 1,682,337
Satellite transponders, net 1,159,880 1,259,341
Deferred costs, net 257,334 288,484
Intangible and other assets, net 8,246 23,427
------------- -------------
Total assets Ps. 3,627,049 Ps. 3,826,220
============= =============
December 31,
-----------------------------
2003 2002
-------------- -------------
LIABILITIES
Current liabilities:
Trade accounts payable Ps. 147,605 Ps. 103,548
Accrued expenses 239,468 266,433
Satellite transponders obligation 63,523 54,914
Due to affiliated companies and other related parties 426,280 450,670
Other current liabilities 555,015 487,566
-------------- -------------
Total current liabilities 1,431,891 1,363,131
Non-current liabilities:
Senior notes 4,355,300 4,080,175
Equity owners' loans -- 3,371,856
Satellite transponders obligation 1,404,870 1,423,323
Other non-current liabilities 1,641 710,839
-------------- -------------
Total Liabilities 7,193,702 10,949,324
-------------- -------------
Commitments and contingencies -- --
Equity owners' deficit (3,566,653) (7,123,104)
-------------- -------------
Total liabilities and equity owners' deficit Ps. 3,627,049 Ps. 3,826,220
============== =============
F-94
CONDENSED CONSOLIDATED STATEMENT OF LOSS
(Expressed in thousands of Mexican Pesos in purchasing power as
of December 31, 2003)
Years ended December 31,
------------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Revenues from programming services Ps. 2,121,766 Ps. 1,980,316 Ps. 2,078,212
Revenues from rental of IRDs 980,870 836,858 535,869
Other revenues 643,212 630,778 651,927
-------------- -------------- --------------
Net revenues 3,745,848 3,447,952 3,266,008
Operating expenses:
Cost of sales - programming services 669,948 580,034 811,073
Cost of sales - other 435,377 403,477 583,062
Administrative expenses 124,997 137,964 462,914
Selling expenses 848,358 865,894 892,400
Other operating expenses 430,175 576,861 384,409
Depreciation and amortization 794,259 962,928 954,963
-------------- -------------- --------------
Total operating expenses 3,303,114 3,527,158 4,088,821
-------------- -------------- --------------
Operating profit (loss) 442,734 (79,206) (822,813)
Loss on debt restructuring (153,430) -- --
Integral results of financing (1,187,917) (1,713,382) (96,760)
-------------- -------------- --------------
Loss before tax (898,613) (1,792,588) (919,573)
Provision for income and assets taxes 117,050 (78,536) (48,126)
-------------- -------------- --------------
Net loss (Ps. 781,563) (Ps. 1,871,124) (Ps. 967,699)
============== ============== ==============
Cash Flows
Mexican GAAP Bulletin B-12, specifies the appropriate presentation of the
statements of changes in financial position. Under Bulletin B-12, the sources
and uses of resources are determined based upon differences between beginning
and ending financial statement balances in constant pesos. Under U.S. GAAP, a
statement of cash flows is required, which presents only cash movements and
excludes non-cash items.
Presented below are statements of cash flow for the years ended December 31,
2003, 2002 and 2001, prepared after considering the impact of U.S. GAAP
adjustments. The cash flow statements present nominal cash flows during the
period, adjusted to December 31, 2003, purchasing power.
F-95
2003 2002 2001
------------ -------------- ------------
Operating activities:
Net loss (Ps. 781,563) (Ps. 1,871,124) (Ps. 967,699)
Adjustments to reconcile net (loss)
to cash flows (used in)
operating activities:
Gain from monetary position (315,295) (518,460) (449,368)
Unrealized exchange losses (gains) 231,618 1,063,611 (315,168)
Allowance for doubtful accounts 96,741 115,238 180,985
Depreciation and amortization 794,259 962,928 954,963
Impairment of fixed assets -- 32,000 --
Other -- -- 39,058
Changes in operating assets and liabilities:
Assets (40,383) (121,018) (259,740)
Liabilities 488,599 654,719 256,898
------------ -------------- ------------
Cash flows provided by (used in) operating activities 473,976 317,894 (560,071)
------------ -------------- ------------
Financing activities:
Equity owners' loans -- 320,974 1,339,585
Satellite transponders obligation (52,151) (46,884) (31,099)
Payments of Old Senior Notes (3,003,168) -- --
Proceeds from New Senior Notes 3,302,400 -- --
------------ -------------- ------------
Cash flows provided by financing activities 247,081 274,090 1,308,486
------------ -------------- ------------
Investing activities:
Investment in property and equipment (474,399) (350,497) (748,541)
------------ -------------- ------------
Cash flows (used in) investing activities (474,399) (350,497) (748,541)
------------ -------------- ------------
Effects of inflation (30,332) (11,222) (3,754)
------------ -------------- ------------
Increase (decrease) in cash and cash equivalents 216,326 230,265 (3,880)
Cash and cash equivalents, beginning of period 277,243 46,978 50,858
------------ -------------- ------------
Cash and cash equivalents, end of period Ps. 493,569 Ps. 277,243 Ps. 46,978
============ ============== ============
Interest and taxes paid:
Interest paid Ps. 541,281 Ps. 514,830 Ps. 530,748
Income and asset taxes paid 402 92,405 134
Non-cash Investing and Financing Activities
Capital lease obligation of U.S.$133.9 million (Ps.1,489,617) was incurred
when the Group entered into agreements with PanAmSat for the use of 12 KU-band
transponders on the PAS-9 satellite in September 2000.
Excluded from the Cash Flow Statement for 2003, is the capitalization of the
equity owners' loans (Note 11).
F-96
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities.
FIN 46 requires the primary beneficiary of a variable interest entity to
consolidate that entity. A Variable Interest Entity ("VIE") is created when (i)
the equity investment at risk is not sufficient to permit the entity from
financing its activities without additional subordinated financial support from
other parties or (ii) equity holders either (a) lack direct or indirect ability
to make decisions about the entity, (b) are not obligated to absorb expected
losses of the entity or (c) do not have the right to receive expected residual
returns of the entity if they occur. The primary beneficiary of a variable
interest entity is the party that absorbs a majority of the variable interest
entity's expected losses, receives a majority of the entity's expected residual
returns, or both, as a result of ownership, contractual or other financial
interests in the entity. In December 2003, the FASB issued a revision of FIN 46
("FIN 46-R"), clarifying certain provisions of FIN 46. The Company was required
to adopt the provisions of FIN 46-R effective February 1, 2003 as they related
to VIEs created on or after that date. For VIEs created before January 31, 2003,
FIN 46-R was deferred to 2004. The partial adoption of FIN 46-R on February 1,
2003 did not have a material impact on the Company's results of operation and
financial position. In addition, the Group does not expect that the full
adoption of FIN 46-R will have a significant impact on the Company's results of
operation and financial condition.
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). This statement
amends and clarifies the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designed after June
30, 2003. The adoption of SFAS 149 did not have a material impact on the
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
This statement affects how an entity measures and reports financial instruments
that have characteristics of both liabilities and equity, and is effective for
financial instruments entered into or modified after May 31, 2003 and is
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS 150 did not have a material impact on the
consolidated financial statements.
F-97
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Sky Multi-Country Partners
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations and comprehensive loss, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of Sky
Multi-Country Partners and its subsidiaries at December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of Sky Colombia S.A., a majority owned
subsidiary, which statements reflect total assets of 24% and 21% of the related
consolidated totals as of December 31, 2002 and 2001, and total revenues of 15%,
11%, and 30% of the related consolidated totals for each of the three years in
the period ended December 31, 2002. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Sky Colombia
S.A., is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, since inception, the Partnership has
incurred significant operating losses and generated negative cash flows from
operating activities, and at December 31, 2002 has negative working capital and
a partners' deficit of approximately $317.0 million and $299.0 million,
respectively. Further, the partners have not renewed their written commitment to
the Partnership to provide the necessary financial support to fund future
operations and meet the Partnership's liquidity needs. These matters raise
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Sky Multi-Country Partners is a member of a group of affiliated companies and,
as disclosed in Note 4 to the consolidated financial statements, has extensive
transactions and relationships with members of the group. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among unrelated parties.
PRICEWATERHOUSECOOPERS LLP
December 26, 2003
F-98
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Sky Colombia S.A.
We have audited the accompanying balance sheets of Sky Colombia S.A. as of
December 31, 2002 and 2001, and the related statements of operations,
shareholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in United States of America. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2002 and
2001, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and
shareholders' deficit raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
DELOITTE & TOUCHE
December 26, 2003
F-99
SKY MULTI-COUNTRY PARTNERS
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
(IN THOUSANDS OF U.S. DOLLARS)
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 358 $ 2,173
Trade accounts receivable, net of allowance for doubtful accounts of
$2,981 and $3,597 .............................................. 3,807 7,577
Value added tax credits ............................................ 599 3,416
Deferred marketing and installation costs, current portion ......... 1,478 5,403
Prepaid expenses and other current assets .......................... 1,870 4,651
--------- ---------
Total current assets .......................................... 8,112 23,220
Property and equipment, net ............................................ 20,965 42,847
Deferred marketing and installation costs, net of current portion ...... 216 2,948
Other assets ........................................................... 217 314
--------- ---------
$ 29,510 $ 69,329
========= =========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Current portion of long term debt and capital lease obligations .... $ 257,124 $ 8,593
Accounts payable and accrued liabilities ........................... 26,381 30,761
Deferred revenue, current portion .................................. 4,191 8,599
Due to related parties ............................................. 37,366 21,566
--------- ---------
Total current liabilities ..................................... 325,062 69,519
Long term debt and capital lease obligations ........................... 813 261,278
Deferred revenue, net of current portion ............................... 285 3,327
Other liabilities ...................................................... 1,909 2,131
--------- ---------
Total liabilities ............................................. 328,069 336,255
--------- ---------
Commitments and contingencies (Note 8)
Partners' deficit ...................................................... (298,559) (266,926)
--------- ---------
$ 29,510 $ 69,329
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-100
SKY MULTI-COUNTRY PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS OF U.S. DOLLARS)
2002 2001 2000
--------- --------- ---------
Revenue ................................................... $ 55,784 $ 80,022 $ 43,134
--------- --------- ---------
Direct costs:
Programming, including $5,820, $5,955 and $5,848 of
charges from affiliates in 2002, 2001 and 2000 ........ 31,061 49,619 32,285
Transmission and satellite, including $23,116, $24,501
and $26,174 of charges from affiliates in 2002, 2001
and 2000 .............................................. 26,465 32,490 33,545
Depreciation and amortization ........................... 12,995 32,516 27,045
Other ................................................... 13,449 27,238 5,723
--------- --------- ---------
83,970 141,863 98,598
Selling, general and administrative expenses, including
$4,646, $3,909, and $4,158 of charges from affiliate in
2002, 2001 and 2000 ..................................... 23,371 70,941 38,161
Impairment charge and write down of assets to estimated net
realizable value ........................................ -- 237,838 --
--------- --------- ---------
Total costs and expenses ......................... 107,341 450,642 136,759
--------- --------- ---------
Operating loss ................................... (51,557) (370,620) (93,625)
Other income (expense):
Interest income ........................................ 75 234 603
Interest expense ....................................... (25,056) (26,684) (28,468)
Other, net ............................................. (23,660) (3,094) (4,262)
--------- --------- ---------
Loss before income taxes and minority interest ... (100,198) (400,164) (125,752)
Income tax provision ...................................... (430) (516) (396)
--------- --------- ---------
Loss before minority interest .................... (100,628) (400,680) (126,148)
Minority interest in losses of consolidated subsidiaries .. -- -- 3,401
--------- --------- ---------
Net loss ......................................... (100,628) (400,680) (122,747)
Other comprehensive income (loss) ......................... 19,645 (23,265) (2,711)
--------- --------- ---------
Total comprehensive loss .................................. $ (80,983) $(423,945) $(125,458)
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-101
SKY MULTI-COUNTRY PARTNERS
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS OF U.S. DOLLARS)
LIBERTY
TELEVISA MULTI-
MCOP COUNTRY
HOLDINGS, DTH,
SESLA, INC. DTH USA, INC. INC. INC. TOTAL
----------- ------------- ---- ---- -----
Balance, December 31, 1999 $ (1,732) $ (1,732) $ (1,732) $ (579) $ (5,775)
Capital contributions .... 35,237 35,237 35,237 11,744 117,455
Net loss ................. (36,824) (36,824) (36,824) (12,275) (122,747)
Other comprehensive loss . (813) (813) (813) (272) (2,711)
--------- --------- --------- --------- ---------
Balance, December 31, 2000 (4,132) (4,132) (4,132) (1,382) (13,778)
Capital contributions .... 51,239 51,239 51,239 17,080 170,797
Net loss ................. (120,204) (120,204) (120,204) (40,068) (400,680)
Other comprehensive loss . (6,980) (6,980) (6,980) (2,325) (23,265)
--------- --------- --------- --------- ---------
Balance, December 31, 2001 (80,077) (80,077) (80,077) (26,695) (266,926)
Capital contributions .... 14,805 14,805 14,805 4,935 49,350
Net loss ................. (30,188) (30,188) (30,188) (10,064) (100,628)
Other comprehensive income 5,893 5,893 5,893 1,966 19,645
--------- --------- --------- --------- ---------
Balance, December 31, 2002 $ (89,567) $ (89,567) $ (89,567) $ (29,858) $(298,559)
========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-102
SKY MULTI-COUNTRY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS OF U.S. DOLLARS)
2002 2001 2000
--------- --------- ---------
Cash flows from operating activities:
Net loss .................................................... $(100,628) $(400,680) $(122,747)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................ 12,995 32,516 27,045
Bad debt expense ......................................... 3,419 7,003 --
Impairment charges ....................................... -- 237,838 --
Other asset write-downs .................................. 3,723 2,880 --
Minority interest in losses of consolidated subsidiaries . -- -- (3,401)
Other .................................................... 854 -- 972
(Increase) decrease in:
Restricted cash ........................................ -- -- 3,199
Trade accounts receivable .............................. 709 (3,422) (7,159)
Value added tax credits ................................ 6,165 (1,588) (4,247)
Prepaid expenses and other assets ...................... 2,738 (797) (1,040)
Deferred marketing and installation costs .............. 40 3,112 (4,469)
Increase (decrease) in:
Accounts payable and accrued liabilities ............... (1,938) 11,142 14,648
Deferred revenue ....................................... (5,442) (2,389) 5,940
Due to related parties ................................. 17,740 400 10,429
Other liabilities ...................................... (213) 2,344 --
--------- --------- ---------
Net cash used in operating activities .............. (59,838) (111,641) (80,830)
--------- --------- ---------
Cash flows from investing activities:
Maturities (purchases) of short term investments ............ -- 4,176 (1,922)
Proceeds from sale of assets ................................ 631 -- --
Purchases of property and equipment ......................... (622) (26,299) (27,136)
--------- --------- ---------
Net cash provided by (used in) investing activities 9 (22,123) (29,058)
--------- --------- ---------
Cash flows from financing activities:
Partners' contributions ..................................... 49,350 170,797 117,455
Capital contributions from minority interests ............... -- -- 726
Proceeds from issuance of long term debt .................... -- -- 700
Payments of long term debt and capital lease obligations .... (11,825) (14,745) (7,442)
--------- --------- ---------
Net cash provided by financing activities .......... 37,525 156,052 111,439
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents 20,489 (21,255) (1,227)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ........ (1,815) 1,033 324
Cash and cash equivalents, beginning of period .............. 2,173 1,140 816
--------- --------- ---------
Cash and cash equivalents, end of period .................... $ 358 $ 2,173 $ 1,140
========= ========= =========
F-103
SKY MULTI-COUNTRY PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS OF U.S. DOLLARS)
2002 2001 2000
--------- --------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ................................................ $ 20,076 $ 26,095 $ 25,917
--------- --------- ---------
Taxes ................................................... $ 149 $ 190 $ 114
--------- --------- ---------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Capital lease obligations incurred for other property
and equipment ......................................... $ 16 $ 19 $ 1,990
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-104
SKY MULTI-COUNTRY PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
1. BUSINESS AND BASIS OF PRESENTATION
Sky Multi-Country Partners (the "Partnership") is a Delaware general
partnership formed on October 24, 1997 between SESLA, Inc., a subsidiary of
The News Corporation Limited ("News"), DTH USA, Inc., a subsidiary of Globo
Comunicacoes e Participacoes, Ltda. ("Globo"), Televisa MCOP Holdings,
Inc., a subsidiary of Grupo Televisa, S.A. ("Televisa"), and Liberty
Multi-Country DTH, Inc., a subsidiary of Liberty Media, Inc. ("Liberty
Media"). News, Globo and Televisa each own a 30% interest in the
Partnership and Liberty owns a 10% interest. All capital contributions are
made in proportion to the Partners' ownership interest, except for Liberty,
which is only required to make capital contributions in the aggregate of
$27 million, plus 10% of the amount the Partnership is obligated to pay
third parties for satellite capacity. The Partnership agreement provides
that profits and losses are shared in proportion to the partners'
respective ownership percentages and that the termination date of the
Partnership is December 31, 2047.
The Partnership was established to invest, develop, distribute and manage
direct-to-home satellite transmission platforms through wholly owned
subsidiaries in Chile and Argentina and its approximately 85% owned
subsidiary in Colombia. The subsidiaries provide satellite-fed television,
audio and related entertainment programming services.
In September 2003, the Partnership increased its ownership interest in the
Colombian subsidiary from 85% to 89%, by converting a portion of its
outstanding debt to capital. During 2001 and 2002, the Partnership
increased its ownership interest in the Colombian subsidiary from 75% to
84% and from 84% to 85%, respectively, through capital contributions in
excess of its proportionate ownership interest immediately prior to the
capital contribution. The Partnership has not recorded goodwill from these
transactions as the Partnership is funding substantially all the losses and
capital requirements of its Colombian subsidiary.
In March 2001, the Partnership purchased the remaining 49% ownership
interest in Sky Argentina for a nominal amount in accordance with the terms
of its agreement with the former minority shareholder.
During 2002, the Partnership ceased its Argentine programming operations
and is currently in the process of liquidating this subsidiary. The
Partnership currently expects to continue programming operations solely in
Colombia and Chile.
2. LIQUIDITY
Since inception, the Partnership has incurred significant operating losses
and generated negative cash flows from operating activities and, at
December 31, 2002, has a working capital deficit of approximately $317.0
million and a partners' deficit of approximately $299.0 million. Going
forward, the Partnership requires significant amounts of additional funds
to support its future operations. Since September 2002, Globo has ceased
providing financial support to the Partnership. Further, News, Televisa,
and Liberty Media have not renewed their written commitment to continue to
provide the necessary financial support to fund future operations and meet
the Partnership's liquidity needs.
As of December 31, 2002, as a result of continued losses, the Partnership's
Colombian subsidiary was under technical dissolution under Colombian law
because its net stockholder's equity was less than 50% of its paid in
capital. In September 2003, the Partnership increased the capital of its
Colombian subsidiary by converting $14.2 million of its outstanding debt
into capital. Through this debt conversion, the stockholders of the
Colombian subsidiary avoided technical dissolution and any action that
could have been taken by the Colombian regulatory agencies.
As described in Note 4, the Partnership receives satellite uplink/downlink
and other related services from DTH TechCo Partners ("TechCo"), an
affiliate of the Partnership, that is indirectly owned by News, Globo,
Televisa, and Liberty Media. TechCo depends on payments from affiliates of
Globo and Televisa, and the Partnership to fund its operations. Because of
the Partnership's lack of liquidity, amounts due to TechCo have become
delinquent and at December 31, 2002, the Partnership had recorded amounts
due to TechCo of approximately $31.0 million. Should TechCo be unable to
provide services to the Partnership, the Partnership would be unable to
provide programming services to its customers.
The above matters raise substantial doubt about the Partnership's ability
to continue as a going concern. News, Televisa, and Liberty Media to date
have continued to provide the necessary funding to maintain the
Partnership's operations in Colombia and Chile as well as maintain the
related uplink/downlink operations of TechCo. The Partnership continues in
its efforts to expand its subscriber base in Colombia and Chile and the
partners continue to explore strategic alternatives for the Partnership's
operations in Latin America. There can be no assurance that the Partnership
will continue to receive funding from any or all of its partners nor can
there be assurance that TechCo will continue to provide uplink/downlink
services to the Partnership. The accompanying financial statements do not
reflect any adjustments that might result from the outcome of these
uncertainties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Partnership and its subsidiaries, after elimination of all significant
intercompany accounts and transactions. The interest of the majority owned
subsidiaries' shareholders, other than the Partnership's, in the net losses
of the majority owned subsidiaries is set forth as minority interest in the
consolidated statements of operations.
In certain circumstances, losses allocated to minority interest are in
excess of the applicable minority interest balance. Such excess losses are
absorbed by the Partnership.
F-105
As a result of liquidation of the Partnership's programming operations in
Argentina (see Note 6), in 2002 the Partnership's Argentine operations are
reflected on a liquidation basis of accounting.
REVENUE RECOGNITION
Revenues are generated from sales of direct-to-home broadcast
subscriptions, from equipment rentals, and from installation services.
Installation revenue represents up front fees paid by the customer for
equipment installation, certain promotional programming packages and, in
certain instances, the sale of antennas. Installation revenue is deferred
and recognized as revenue over the estimated life of the customer. As of
December 31, 2002 and 2001, deferred installation revenue amounted to $1.9
million and $8.8 million, respectively.
Subscription revenues and rental revenues are recognized in the period that
services are delivered. As of December 31, 2002 and 2001, deferred
subscription and rental revenue amounted to $2.6 million and $3.1 million,
respectively, related to the payment for these services prior to their
delivery date.
Marketing and installation costs directly related to installation revenue,
which include sales commissions, the cost of installing the equipment and
in certain instances, the cost of the antennas, are deferred to the extent
of installation revenue and recognized as expense over the estimated life
of the customer. As of December 31, 2002 and 2001, deferred marketing and
installation costs amounted to $1.3 million and $7.9 million, respectively.
The Partnership classifies as current deferred revenue and marketing and
installation costs expected to be recognized as revenue and direct costs,
respectively, within one year.
FOREIGN CURRENCY
All of the Partnership's foreign operations except for Sky Sistemas
Argentina S.R.L., have determined the local currency to be their functional
currency. Accordingly, these subsidiaries translate assets and liabilities
from their local currencies to U.S. dollars using year-end exchange rates
while income and expense accounts are translated at the average rates in
effect during the year. The resulting translation adjustment is recorded as
part of other comprehensive loss, a component of partners' deficit. Sky
Sistemas Argentina S.R.L. has determined that the U.S. dollar is its
functional currency.
All of the amounts recorded as other comprehensive loss in the statement of
partners' deficit represent cumulative translation losses as follows:
Balance at December 31, 1999 ......................................... $ (1,776)
Loss on cumulative translation ....................................... (2,711)
--------
Balance at December 31, 2000 ......................................... (4,487)
Recognition of Argentinean cumulative translation losses ............. (20,817)
Recognition of Chilean cumulative translation losses ................. (2,884)
Recognition of Colombian cumulative translation gains ................ 436
--------
Balance at December 31, 2001 ......................................... (27,752)
Effect of changes to the Argentinean cumulative translation losses (in
liquidation) ...................................................... 20,817
Recognition of Chilean cumulative translation losses ................. (804)
Recognition of Colombian cumulative translation losses ............... (368)
--------
Balance at December 31, 2002 ......................................... $ (8,107)
========
Gains and losses resulting from remeasurement into the functional currency
of transactions denominated in non-functional currencies are recognized in
earnings. Net foreign currency transaction gains and losses approximated
$9.2 million for the year ended December 31, 2002 ($1.8 million and $2.0
million in 2001 and 2000, respectively).
As a result of the liquidation of its programming subsidiary in Argentina
in 2002, the Partnership recorded as a foreign exchange loss within other
expenses in its statement of operations the cumulative translation losses
related to Argentina, which had previously been recognized within partners'
deficit. The amount of foreign exchange losses in connection with this
matter amounted to $20.8 million in 2002.
LONG-LIVED ASSETS
The Partnership accounts for the impairment of long-lived assets to be held
and used by evaluating the carrying value of its long-lived assets in
relation to the operating performance and future undiscounted cash flows of
the underlying businesses when indications of impairment are present.
Long-lived assets to be disposed of are evaluated in relation to the
estimated fair value of such assets less costs to sell (see Note 6).
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
(including amortization of assets under capital leases) are computed using
the straight-line method over estimated useful lives as follows:
Years
-----
Satellite ....................................................... --
Communication, transmission and reception equipment ............. 5
Furniture, fixtures and all other equipment ..................... 3-10
The cost of antennas expected to be leased to subscribers is included in
property and equipment in the accompanying balance sheet. Prior to the
write down in 2001 of capitalized satellite cost (see Note 6), the
Partnership amortized such asset over a 15 year period.
VALUE ADDED TAX CREDITS
The Partnership's subsidiaries have earned certain value added tax credits.
The value added tax credits arise from goods and services acquired by the
Partnership's subsidiaries and are generally recovered by allocating these
credits against value added tax payable on services provided by the
Partnership's subsidiaries. The Partnership has classified as current those
value added tax credits expected to be recovered within one year.
F-106
The Partnership wrote down its unrecoverable value added tax credits in
Argentina to reflect its Argentine programming assets at their net
realizable value. This amount has been included within impairment charge
and write down of assets to net realizable value in the accompanying 2001
statement of operations (see Note 6).
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $2.6 million, $15.1
million and $5.8 million for the years ended December 31, 2002, 2001 and
2000, respectively.
GOODWILL
Prior to its write down during 2001, goodwill represented the excess of the
purchase price of ownership interests in the Partnership's subsidiaries
over the estimated fair value of the proportionate share of net tangible
and intangible assets acquired of the subsidiaries. Goodwill was amortized
using the straight-line method over a 15 year period through December 31,
2001. Goodwill amortization for each of the years ended December 31, 2001
and 2000 approximated $573,000.
During 2001, the Partnership wrote down approximately $7.4 million of
goodwill related to its Colombian subsidiary due to continued funding
requirements in excess of those previously contemplated. This amount has
been included within impairment charge and write down of assets to net
realizable value in the accompanying 2001 statement of operations.
INCOME TAXES
The Partnership is not subject to U.S. federal, state or local income
taxes. Income taxes are the responsibility of the individual partners. The
Partnership's subsidiaries are subject to income taxes in their respective
countries.
The Partnership accounts for its subsidiaries' income taxes using the
liability method. The liability method requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
assets and liabilities. A valuation allowance is established when
management believes that it is more likely than not that all or a portion
of the Company's net deferred tax asset will not be recovered.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially expose the Partnership to
concentration of credit risk, consist mainly of trade receivables from
subscribers. Concentration of credit risk with respect to trade receivables
is limited due to the large number of customers and to the Partnership's
ability to stop providing the service to customers with past due accounts
in a short period of time. However, the Partnership's operations are
concentrated in various Latin American countries and the ability of
customers to pay depends, in part, upon the general economic condition of
these countries.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
4. RELATED PARTY TRANSACTIONS
Sky Multi-Country Partners is a member of a group of affiliated companies
and, as disclosed below, has extensive transactions and relationships with
members of the group. Because of these relationships, it is possible that
the terms of these transactions are not the same as those that would result
from transactions among unrelated parties.
In January 1998 the Partnership entered into a 10 year contract with
TechCo, an affiliate of the Partnership that is indirectly owned by News,
Globo, Televisa and Liberty Media, to provide satellite uplink/downlink and
other related services. The contract specifies that TechCo will charge the
Partnership all costs incurred for the provision of services plus 5.76%.
For the years ending December 31, 2002, 2001 and 2000, the Partnership
incurred costs of approximately $23.1 million, $24.5 million, and $26.2
million related to these services, respectively.
During 2000, the Partnership entered into a note payable agreement with
TechCo which provides for cash borrowings by the Partnership from TechCo.
At December 31, 2002 and 2001, approximately $16.5 million and $14.1
million, respectively, was outstanding under the note payable with an
annual interest rate of 5%. The note is payable in monthly installments
until the full amount borrowed is fully paid. The Partnership has been
making payments on the note payable at its discretion and is currently not
in compliance with the terms of the note payable agreement. Accordingly,
the note is classified as a current liability and is included in the due to
related parties in the accompanying balance sheets at December 31, 2002 and
2001. Interest costs incurred on the note during 2002, 2001 and 2000
approximated $740,000, $637,000 and $399,000, respectively.
Sky Entertainment ProgramCo Latin America, LLC and Sky Latin America
Partners (previously known as Sky Latin America, LLC), affiliates of the
Partnership indirectly owned by News, Globo, Televisa and Liberty Media,
provided administrative and programming services totaling approximately
$10.5 million, $9.9 million and $10.0 million during the years ending
December 31, 2002, 2001 and 2000, respectively. Sky Latin America Partners
provides all of the Partnership's U.S. based personnel and administrative
services.
Sky Latin America Partners made interest bearing cash advances to the
Partnership during 2002 and 2001, which at December 31, 2002 and 2001
approximated $4.1 million and $1.5 million, respectively. The cash advances
do not have any repayment terms and bear interest at 5%. Interest costs
incurred on the cash advances during 2002 and 2001 approximated $109,000
and $54,000, respectively.
As a result of cash advances made to Sky Latin America Partners and Techco,
at December 31, 2002, the Partnership's Colombian subsidiary held
approximately $1.3 million in notes receivable from Sky Latin America
Partners. These notes bear interest at LIBOR (1.51% at December 31, 2002)
and mature five years after inception. Principal and interest on the notes
are due at maturity. Maturities on the notes
F-107
range from October 31, 2007 to December 31, 2007. In May 2003, Sky Latin
America Partners assigned these notes as well as additional amounts
relating to advances in 2003, to the Partnership for a procurement fee of
0.05% or $9,000, in exchange for a reduction in an equal dollar amount of
amounts due to Sky Latin America Partners by the Partnership. In December
2003, the Partnership paid off the outstanding amount due to its Colombian
subsidiary.
Corporacion Novavision S. de. R.L. de C.V., a related party indirectly
owned by Televisa, News and Liberty Media, provided satellite up-link
services totaling approximately $677,000, $659,000 and $671,000 for
the years ended December 31, 2002, 2001 and 2000, respectively.
Amounts due to (from) related parties at December 31, 2002 and 2001 are as
follows (in thousands):
2002 2001
-------- --------
Due to DTH Techco Partners for note payable
borrowings and accrued interest .................... $ 16,475 $ 14,147
Due to DTH Techco Partners for services ................ 14,525 5,554
Due to Sky Latin America Partners for note payable
borrowings and accrued interest .................... 4,076 1,497
Due to (from) Sky Latin America Partners ............... 649 (136)
Due to Sky Entertainment ProgramCo Latin America, LLC .. 2,995 456
Due from Sky Latin America Partners for notes receivable
and accrued interest ............................... (1,300) --
Other, net ............................................. (54) 48
-------- --------
$ 37,366 $ 21,566
======== ========
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
2002 2001
-------- --------
Communication, transmission and set top boxes,
including assets under capital
leases of $5,233 and $16,494 .................... $ 49,705 $ 62,606
Furniture, fixtures and all other equipment, including
assets under capital leases of $1,296 and $610 .. 5,884 7,902
-------- --------
55,589 70,508
Accumulated depreciation and amortization ............ (34,624) (27,661)
-------- --------
$ 20,965 $ 42,847
======== ========
Accumulated amortization for assets under capital leases approximates $3.1
million and $8.3 million at December 31, 2002 and 2001, respectively.
Depreciation and amortization expense related to the Partnership's property
and equipment for the years ended December 31, 2002, 2001 and 2000 amounted
to $13.0 million, $31.9 million and $26.4 million, respectively.
6. ASSET IMPAIRMENT CHARGES
In December 2001, the Argentine peso was floated in the international
currency markets, resulting in a devaluation of the peso to the U.S. dollar
of more than 200% over the following six-month period. As a substantial
portion of the Argentine operating expenses are U.S. dollar denominated,
the devaluation had a significant negative impact on the continuing
operations. Accordingly, in June 2002, following an evaluation of the
viability of the business, the Partnership agreed to cease operations in
Argentina and begin liquidation proceedings. In connection with these
events, the Partnership determined that certain assets were not only
impaired due to the effects of the peso's devaluation, but also in
consideration of the liquidation proceedings undertaken in 2002, and
recorded an impairment charge in 2001 of approximately $22.3 million.
The Argentine impairment charges included approximately $8.9 million
related to value added tax credits that were no longer deemed recoverable
and approximately $13.4 million related to the write down of fixed assets
to their estimated net realizable values. The Partnership's Argentine
assets were valued on an asset-by-asset basis at the lower of carrying
amount or fair value less costs to sell, taking into consideration recent
appraisals, valuations, offers and bids, and the Partnership's estimate of
future cash flows related to its Argentine operations.
In connection with the economic events in Argentina and Latin America and
continued losses of its business in Chile and Argentina, the Partnership
reviewed its long-lived assets for impairment in December 2001. The review
of these long-lived assets was based upon a comparison of the carrying
values and the projected future undiscounted cash flows for each particular
asset. In the event the undiscounted projected future cash flows were less
than the carrying value for the respective asset, an impairment charge was
recorded to reduce the carrying value of the particular long-lived asset to
its estimated fair market value. In arriving at this estimate,
consideration was given to historical performance, future cash flow
projections and prevailing and anticipated economic and competitive
conditions existing as of the balance sheet date. However, with respect to
2001, consideration was also given to certain events occurring subsequent
to December 31, 2001 in estimating fair values of certain assets, namely
the liquidation of operations in Argentina in June 2002 and continued
economic deterioration of the major Latin America economies. As a result of
this review, the Partnership recorded an asset impairment charge related to
the impairment of goodwill and capitalized transponder obligations.
In December 2001, the Partnership recorded an asset impairment charge of
approximately $7.4 million for goodwill resulting from its original
acquisition of its interest in its Colombian operations. The impairment was
principally based on continued losses and funding requirements in excess of
those previously contemplated.
F-108
In December 2001, the Partnership recorded an asset impairment of $208.1
million relating to its capitalized transponder obligations of PAS 6B. The
impairment considered historical losses and on-going cash flows deficits of
the Partnership, the effect of the prolonged economic difficulties and
uncertainties in the Latin America region on estimated future cash flow
projections, as well as the effects of the Partnership's decision to
liquidate its operations in Argentina in June 2002.
In June 2003, the Partnership's satellite provider publicly announced an
anomaly relating to the satellite on which the Partnership's leased
transponders are located. The anomaly significantly reduced the available
on-board fuel of the satellite. As a result of this development, the
satellite provider estimated that the satellite would have fuel sufficient
to maintain appropriate positioning until early 2008, as opposed to the
original date of 2013. This anomaly does not affect the current performance
of the satellite or of the Partnership's leased transponders, and is not
expected to cause any other performance issues during its revised useful
life. The Partnership will have no further obligation to the satellite
provider when the satellite is taken out of service in 2008, but until then
remains obligated under the terms of the original lease agreement. Upon
termination of service, if prior to the original anticipated date of 2013,
the Partnership would reduce the satellite transponder obligation by any
remaining unpaid balance and record a gain for amounts it would no longer
be obligated to pay. Should the satellite transponder agreement be
terminated in 2008 the Partnership estimates that it would record a gain of
approximately $168.2 million, however, there can be no assurance that the
lease transponder agreement will be terminated in 2008.
7. LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
In March 1999, sixteen satellite transponders were placed in service
subject to a capital lease agreement executed by the Partnership in March
1998. The capital lease has an implicit rate of 9% and has a term for the
useful life of the satellite transponders, estimated at 15 years at date of
lease inception. The balance of the capital lease as of December 31, 2002
and 2001 included in the accompanying balance sheet is approximately $253.9
million and $256.6 million, respectively. Total accrued interest relating
to this capital lease amounted to approximately $3.8 million and $3.6
million as of December 31, 2002 and 2001, respectively. The short term
portion of the accrued interest is included within accounts payable and
accrued liabilities in the accompanying balance sheets.
The capital lease contains escalation clauses for the minimum lease
payments for the first four years of the lease as well as payments
contingent on the Partnership reaching certain monthly and annual revenue
thresholds per transponder as described in the Transponder Service
Agreement with the satellite provider ("the Agreement"). The Partnership
did not have any contingent lease costs for the years ended December 31,
2002, 2001 and 2000.
Compensation to the satellite provider is based on the greater of i) $3
million per transponder per year or ii) an amount based on annual gross
revenue per transponder, as defined, plus a minimum service fee per
transponder of $1 million in year 1 escalating to $2.25 million in year 5
and thereafter. Compensation to the satellite provider is for the remaining
term of the Agreement and is net of any fees received by the satellite
provider for the use of the transponders by other parties during the
period. The capital lease payments are guaranteed by the Partners.
Included in the Agreement are certain termination indemnity clauses which
require the Partnership to compensate the satellite provider should certain
termination events occur, including, among other things, failure to make
payments and failure to cease any satellite activity as specified in the
Agreement.
As indicated in Note 2 to the consolidated financial statements, since
September 2002, Globo had ceased to provide financial support to the
Partnership. As a result News, Televisa and Liberty Media funded Globo's
portion of the satellite transponder payment in September and October 2002.
At December 31, 2002 the Partnership was in default with respect to terms
of the Agreement for failing to make the satellite transponder payments for
the months of November and December 2002. As of December 31, 2002, the
Partnership accrued approximately $120,000 for the payments in default.
In December 2002 the Partnership along with News, Televisa, Globo and
Liberty Media entered into a Forbearance Agreement with the satellite
provider. Pursuant to the terms of the Forbearance Agreement, the
Partnership or its guarantors, which included News, Televisa and Liberty
Media, have agreed to pay 70% of the service fee payments that are past due
under the Agreement plus any applicable late payment interest during the
forbearance period. In exchange, the satellite provider has agreed to
provide satellite transponder service under the Agreement during the
forbearance period. The remaining service fees will continue to be due and
payable by the Partnership or its guarantors as specified in the Agreement.
If the Partnership fails to pay any of the forbearance fees or any service
fees for which the satellite provider has not granted forbearance rights,
the satellite provider will be entitled to terminate the Agreement and
demand payment for all amounts due under the Agreement.
As a result of subsequent amendments to the Forbearance Agreement, the
forbearance period currently extends through January 31, 2004. Because the
partners have not provided a written commitment to the Partnership
guaranteeing amounts due under the Agreement, the Partnership has
classified as a current liability approximately $253.9 million, which
represents the Partnership's total obligation under Agreement at December
31, 2002.
The Partnership entered into other capital leases with balances at December
31, 2002 and 2001 of approximately $2.1 million and $5.8 million,
respectively, for various other equipment. The Partnership also entered
into loan agreements with various banks for loans with balances at December
31, 2002 and 2001 of approximately $1.9 million and $7.5 million,
respectively. The capital leases and banks loans have various maturity
terms from 2001 to 2004 with interest rates at December 31, 2002 of 12% to
27% for debt denominated in the subsidiaries' local currencies, and of 7%
to 11% for debt denominated in U.S. dollars. As of December 31, 2002,
aggregate annual maturities of long term debt and future annual minimum
lease payments for capital leases are as follows (in thousands):
F-109
CAPITAL LEASES-
MINIMUM
LEASE PAYMENTS DEBT
-------------- ----
2003 .......................................... $ 408,373 $ 1,795
2004 .......................................... 565 272
2005 .......................................... -- --
2006 .......................................... -- --
Thereafter .................................... -- --
--------- ---------
408,938 2,067
Less: Amount representing interest ............ (152,904) (164)
--------- ---------
Present value of net minimum payments ...... 256,034 1,903
Less: Current maturities ...................... (255,484) (1,640)
--------- ---------
Long term debt and capital lease obligations $ 550 $ 263
========= =========
8. COMMITMENTS AND CONTINGENCIES
LICENSING RIGHTS
The Partnership had licensing agreements for the broadcasting rights of
soccer tournaments in Chile which expired in 2002. The Chilean contract was
entered into jointly with Fox Sports Latin America, Ltd.
The amounts incurred for these licensing rights during 2002, 2001 and 2000
totaled $9.4 million, $16.3 million and $18.9 million, respectively, and
are recorded as programming costs in the accompanying statements of
operations.
The Partnership is committed under non-cancelable operating lease
agreements for the rental of its existing office facilities in Argentina,
Chile and Colombia. Total rent expense for 2002, 2001 and 2000, amounted to
$2.0 million, $4.0 million and $1.9 million, respectively. The total
aggregate commitment under these agreements is as follows:
The Partnership is a defendant in a regulatory lawsuit in Colombia. The
National Television Commission of Colombia (CNTV) is seeking fees in the
amount of $1.7 million and pursuing a lien of the Company's assets in that
amount. Management and its legal counsel are of the opinion that the
Partnership will prevail in defending the lawsuit; however, a Colombian
tribunal has ordered the Company to obtain a $1.7 million bond to avoid the
lien. The Company is analyzing various alternatives including negotiating a
settlement with CNTV as well as working with insurance companies to obtain
the bond and avoid the lien.
TAX MATTERS
The Colombian tax authorities have informed the Partnership of several
possible tax contingencies, which aggregate to $5.5 million. Management and
its legal counsel, are vigorously defending these matters, and believe that
the final disposition of such matters will not have a material adverse
effect on the financial position and results of operations of the
Partnership.
The Partnership is involved in various other claims and legal actions
arising from ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Partnership's financial position, results of operations or
liquidity.
OTHER
See Note 4 for additional Partnership commitments with related parties.
9. INCOME TAXES
Foreign income taxes are provided in the accompanying consolidated
statements of operations as follows (in thousands):
As of December 31, 2002 and 2001, deferred tax assets and deferred tax
liabilities reflect the tax effect of the following differences between
financial statement carrying amounts and tax bases of assets and
liabilities (in thousands):
2002 2001
-------- --------
Current assets .................................. $ 607 $ 808
Property and equipment and other long term assets 24,913 17,013
Other liabilities ............................... 748 1,404
Net operating loss carryforwards ................ 44,096 39,364
-------- --------
Deferred tax asset .............................. 70,364 58,589
Valuation allowance ............................. (70,364) (58,589)
-------- --------
Net deferred tax asset .......................... $ -- $ --
======== ========
F-110
The net increase in the valuation allowance for the years ended December
31, 2002 and 2001 approximated $11.8 million and $16.8 million,
respectively. The Partnership has net operating loss carryforwards in
foreign countries (the "NOLs") of approximately $172.6 million.
Approximately $90.6 million of the net operating loss carryforwards do not
expire. The remaining net operating loss carryforwards expire in varying
amounts through the year 2006. Based on the weight of available evidence, a
valuation allowance has been provided to offset substantially all of the
deferred tax asset amount at December 31, 2002 and 2001, respectively. In
the opinion of management, it is more likely than not that substantially
all of the deferred tax asset will not be realized.
10. RISKS, UNCERTAINTIES AND GEOGRAPHIC INFORMATION
The Partnership has operations in Colombia, Chile and Argentina. The
Partnership's operations in these countries are subject to political,
monetary, economic and regulatory risk, which can have a significant impact
on the Partnership's financial position, results of operations and cash
flows.
All revenues are generated in the Partnerships foreign operations.
Long-lived assets, net of accumulated depreciation, were primarily located
in the Partnership's foreign operations and approximated $21.0 million and
$42.8 million as of December 31, 2002 and 2001, respectively.
* * * * * *
F-111
EXHIBIT 1.1
GRUPO TELEVISA, S.A.
AMENDED AND RESTATED BY-LAWS
(DATED AS OF APRIL 16, 2004)
CHAPTER I
CORPORATE NAME, DOMICILE, CORPORATE EXISTENCE,
CORPORATE PURPOSE AND NATIONALITY
ARTICLE ONE. The corporate name of the Company shall be "GRUPO TELEVISA".
This corporate name must always be followed by the words "SOCIEDAD ANONIMA" or
by the initials "S.A."
ARTICLE TWO. The corporate domicile of the Company shall be MEXICO CITY,
FEDERAL DISTRICT; nevertheless, the Company may establish agencies and branches
anywhere else in the Mexican Republic or abroad, and it may agree upon any other
contractual domiciles, without this being understood as a change of its
corporate domicile.
ARTICLE THREE. The corporate existence of the Company shall be NINETY-NINE
years, as from the date of execution of this Deed.
ARTICLE FOUR. The corporate purpose of the Company shall be:
(a) To promote, incorporate, organize, exploit and acquire any
participations in the capital stock and patrimony of any kind of national or
foreign mercantile or civil companies, associations or industrial, commercial,
or service companies, as well as to participate in their management or
liquidation.
(b) To purchase, dispose of and in general negotiate with all type of
shares, corporate participations or interest as well as with respect to any
other type of titles or securities allowed by the law.
(c) To issue, subscribe, accept, endorse and guarantee any negotiable
instruments or real estate securities as allowed by the law.
(d) To borrow or lend, conferring and accepting specific guarantees; to
issue debentures and commercial paper; to accept, draw, endorse or guarantee all
kinds of negotiable instruments and to grant bonds or sureties of any nature
whatsoever, with respect to any obligations contracted or instruments issued or
accepted by third parties engaged in any business with the Company.
(e) To acquire, dispose of, enjoy and grant the enjoyment and use in any
form whatsoever permitted by the law of real estate and personal property, as
well as real rights
thereon, when deemed necessary or appropriate in order to comply with the
corporate purpose of the Company or for any operations of the civil or
mercantile companies in which the Company has acquired any share or interest.
(f) To obtain, acquire, use, dispose of and grant, under any title, any
patents, certificates of invention, trademarks and trade names, options and
preferences, as well as any copyright and concessions for any kind of activity.
(g) To render, receive or contract all kind of technical, advisory and
consulting services, as well as to enter into all kinds of contracts or
agreements to attain said purposes.
(h) To act as commission agent and to mediate and accept the
representation in all kind of negotiations whatsoever.
(i) To carry out, supervise or contract on its own account or on the
account of third parties, any kind of constructions, buildings, subdivision of
urban areas as well to manufacture, purchase and dispose, under any title, of
any construction materials.
(j) To carry out any other acts of commerce in which it may be involved in
accordance with the law and its corporate purpose.
ARTICLE FIVE. The capital stock will be represented by Series "A", "B",
"D" and "L", pursuant to Article Six of these by-laws.
The Series "A", "B" and "D" can only be acquired by:
ONE. Individuals of Mexican nationality;
TWO. Mexican companies whose corporate by-laws contain a foreign investment
exclusion clause, in which only Mexican persons and Mexican companies whose
by-laws include a foreign investment exclusion clause can become shareholders;
THREE. Mexican credit, bonding and insurance institutions, financial leasing
companies, financial factoring companies, credit unions and Mexican
investment corporations, all of which shall have clauses of foreigner
exclusion in their statutes;
FOUR. Credit institutions, acting as trustees in trusts for share assignment
funds or retirement plans and share acquisition plans for Mexican employees,
executives and workers; and
FIVE. Credit Institutions, acting as trustees in terms of the Foreign
Investment Law and the Rules of the Foreign Investment Law and the National
Registry of Foreign Investments.
The Company would not admit, direct or indirectly, as shareholders of Series
"A", "B" or "D", to foreign investors or to companies whose by-laws include a
foreign investment admission clause. In case the aforesaid investors or
companies get to acquire Series "A", "B" or "D", the Company would absolutely
not recognize them any right whatsoever as shareholders. The above, in the
understanding, however, that such investors and companies may be holders of
ordinary
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certificates of participation issued upon shares of the Company, notwithstanding
the series that represent, but always taking into consideration that the trust
to which the same are transferred, is considered and has been authorized as
neutral investment in accordance with the applicable law.
The Series "L" shall be considered neutral investment and can be acquired by
Mexican investors and by foreign individuals, companies and economic entities or
by individuals, companies or entities referred to in sections II and III of
article Two of the Foreign Investment Law. The Series "L" would not be taken
into account in order to determine the amount and proportion of the
participation of foreign investors in the capital stock, pursuant to the
applicable law. In case that any foreign investor of the Company has or may
have, acquired Series "L" shares, such foreign investor binds itself before the
Ministry of Foreign Affairs to consider itself as a national regarding Series
"L" shares that he acquires or is a holder of, and of its goods, rights,
authorizations, participations or interests that the Company may hold, as well
as any rights and obligations arising from the agreements, and not to invoke,
for that reason, the protection of its Government, under the penalty, in case of
not honoring such commitment, of forfeiting the corporate participation they may
have acquired to the benefit of the Nation.
Holders of ordinary participation certificates issued upon Series "A", "B", "D"
and "L" of the Company, that are foreigners or Mexican companies whose by-laws
include a foreign investment admission clause, may exercise only and exclusively
the corporate rights with respect to their Series "L", same that cannot grant to
their holders, in any case whatsoever, the right to appoint more than two
members of the Board of Directors of the Company.
In no event shall foreign Governments or States be admitted as shareholders of
the Company.
The control of the Company, in any moment and under any circumstance, can
be withhold, individual or jointly, de iure or de facto, by foreign individuals,
entities of foreign nationality and/or Mexican companies with majority of
foreign capital. For purposes of this paragraph, "control" shall have the
meaning set forth in Section Two of Article Ninth of these by-laws.
CHAPTER II
CAPITAL STOCK AND SHARES
ARTICLE SIX. The capital stock is fixed.
The Company's authorized capital stock is Ps$2,524'173,643.26 (Two thousand five
hundred twenty four million one hundred seventy three thousand six hundred and
forty three Pesos, twenty six cents, Mexican Currency), represented by
369,273'370,401 (Three hundred sixty nine thousand two hundred seventy three
million three hundred seventy thousand four hundred and one) nominative shares,
without par value, which shall be divided in four series, as follows;
i) Series "A" consisting of up to 124,736'244,175 ordinary shares;
ii) Series "B" consisting of up to 60,269'682,796 ordinary shares;
-3-
iii) Series "D" consisting of up to 92,133'721,715 shares with limited voting
rights and preferred dividend, issued pursuant to article One hundred
thirteen of the General Law of Commercial Companies; and
iv) Series "L" consisting of up to 92,133'721,715 shares with limitations to
voting and other corporate rights.
Series "A" and "B" shall be integrated by ordinary shares, with full voting
rights that will represent, at any time, 100% (One hundred percent) of the total
of the ordinary shares. The aggregate of the Series "A" and "B" shall represent,
at least, 50% (Fifty percent) plus one share of the capital stock of the
Company, to therefore, at any moment and under no circumstance, the total amount
of ordinary shares can be equal or less than the aggregate of the Series "D" and
"L".
Series "D" will consist of shares with limited voting rights and preferred
dividend, issued in terms of article one hundred thirteen of the General Law of
Commercial Companies, which by no means shall represent, added to the Series "L"
shares, an equal or larger number to the total ordinary outstanding shares.
Series "L" will consist of shares with limitations to voting and other corporate
rights, that by no means will represent, added up to Series "D", an equal or
larger number than the total ordinary outstanding shares.
The capital stock and the number of shares referred to in sections i), ii), iii)
and iv) above may diminish in case the Company repurchase its own shares
pursuant to provisions set forth in articles 14 Bis 3 of the Securities Law and
Eighth of these by-laws, but always being in compliance with the requirements
and limitations established in this Article.
The Company will be able to issue non-subscribed shares in the terms and
provisions foreseen in article Eighty One of the Securities Law, which shall
correspond to the capital structure and division of the series of shares
referred to in these By-laws.
The Company may transfer the shares that represent its capital stock
and/or of its ordinary certificates of participation to the trust, with credit
institutions, with the purpose of establishing option plans for the acquisition
or subscription of these shares, for the benefit of its executives and employees
or its subsidiaries' executives or employees, or persons who render their
services to the Company, its subsidiaries or affiliates.
ARTICLE SEVEN. Within its respective Series, each share shall grant equal
rights and obligations to their holders.
Each Series "A" and "B" ordinary share shall grant the right to 1 (one) vote at
the Shareholders Meetings.
I. Holders of Series "A", shall have the right to appoint and remove
eleven members of the Board of Directors and their respective alternates,
as well as the Chairman of the Board of Directors, the Chairman or General
Manager of the Company and the Secretary
-4-
and Alternate Secretary of the Board of Directors, according to the
provisions of Article Twenty Two of these by-laws. Holders of Series "A"
shall have the monetary and economic rights conferred by law and these
by-laws, including, but not limited to, the participation in any profits
and the preferential right to subscribe the new shares of such series to
be issued in such proportion as may correspond to them.
II. Holders of Series "B", shall have the right to appoint and remove five
members of the Board of Directors and their respective alternates,
pursuant to Article Twenty Two herein. Holders of Series "B" shall have
the monetary and economic rights conferred by law and these by-laws,
including, but not limited to, the participation in any profits and the
preferential right to subscribe the new shares of such series to be issued
in such proportion as may correspond to them.
III. Series "D" shares shall grant their holders the right to vote at the rate
of one vote per share, under the terms of article One Hundred and Thirteen
of the General Law of Commercial Companies, that is, when shareholders are
called to deal with any of the matters referred to in sections I, II, IV,
V, VI and VII of article One Hundred and Eighty Two of the General Law of
Commercial Companies and shall be entitled to the privileges provided for
in said article.
Accordingly, Series "D" shares grant their holders the right to vote, at
the rate of one vote per share, when the General Extraordinary
Shareholders Meeting is held to deal with any of the following matters:
1. Extension of the corporate existence of the Company;
2. Advance dissolution of the Company;
3. Change in the corporate purpose of the Company;
4. Change of nationality of the Company;
5. Transformation of the Company; and
6. Merger of the Company with another company or legal entity.
Series "D" shareholders, by resolution passed at a Special Meeting called
for said purpose, shall be entitled to appoint and remove two members of
the Board of Directors and their respective alternates, by means of the
favorable vote of at least fifty percent of the outstanding Series "D"
shareholders, which resolution shall be notified to the General Ordinary
Shareholders Meeting through the person that have acted as secretary of
the respective Special Meeting. The Proprietary Directors and Alternates
that, in its case, were appointed by holders of Series "D", shall comply
with the requirements provided for in Article Twenty First of these
By-laws. Except as provided for in Article Twenty Seventh of these
By-laws, the removal of Directors appointed by holders of Series "D" shall
be resolved at a Special Shareholders Meeting and later notified to the
General Ordinary Shareholders Meeting in the same form than the
designations.
In addition, Series "D" shareholders shall be entitled to vote, regarding
the cancellation of
-5-
the listing of Series "D" shares of the Company or other securities issued
regarding said shares in the Securities Section or Special Section of the
National Registry of Securities and in other national or foreign stock
exchanges where they are registered or listed.
Holders of Series "D" will have the preferential right to subscribe the new
shares of such series to be issued in such proportion as may correspond to
them.
Holders of Series "D" shall also be entitled to the payment of dividends
referred to in article sixteen, section I, article One Hundred Twelve and
article One Hundred Seventeen of the General Law of Commercial Companies,
in the same terms as the other shareholders of the Company, once the
minimum preferred dividend paid under the terms of the second paragraph of
article One Hundred and Thirteen of the General Law of Commercial
Companies, according to the following:
a. In terms of article One Hundred of the General Law of Commercial
Companies, dividends can not be assigned to the holders of
ordinary shares, without paying beforehand to the Series "D" of
limited vote, an annual dividend of $0.00034177575 Mexican
Pesos, per share, equal to five percent of the theoretical value
of Series "D" shares that amounts to $0.00683551495 Mexican
Pesos, per share. If in a fiscal year no dividends are declared
or such dividends are lower than the abovementioned five
percent, the dividend will be paid in the following years with
the priority indicated above.
b. Once the dividend provided for in section a. above has been paid and
the General Shareholders Meeting declares the payment of additional
dividends, Series "A", "B" and "L" shareholders must receive the
same amount of dividend received by Series "D" shareholders
according to section a. above, so that all shareholders receive the
same amount of dividends.
c. If the Company pays any additional dividends, holders of all Series
"A", "B", "D", and "L" shall receive, per share, the same amount of
dividends, so that each Series "D" shall receive the payment of
additional dividends in the manner and in an amount identical to
those received by each of Series "A", "B" or "L".
IV. Holders of Series "L" shares, with limitations to voting and other
corporate rights, shall have the right to attend and cast one vote per each
share, solely and exclusively at the Special Meetings of such Series, and at any
Extraordinary Shareholders Meetings held to deal with the following matters: (i)
transformation of the Company; (ii) merger with another company or companies, in
the event that the Company is merged into such company or companies; and (iii)
cancellation of the listing of Series "L" of the Company or of other securities
issued with respect to such shares in the Special Section of the National
Securities Registry in which they may be listed. Holders pf Series "L", by means
of a resolution passed in a Special Meeting called for such purpose, shall be
entitled to appoint and remove two members of the Board of Directors and their
respective alternates, appointment which shall take place by means of the
favorable
-6-
vote of at least fifty percent of the outstanding Series "L" shareholders, and
which resolution shall be notified to the General Ordinary Shareholders Meeting
through the person that acted as secretary of the corresponding Special Meeting.
The Proprietary and Alternates Directors which may be appointed by holders of
Series "L" shares, shall comply with the requirements provided for in Article
Twenty First of these By-laws. Except as provided for in Article Twenty Seventh
of these By-laws, the removal of Directors appointed by Series "L" shareholders
must be convened in a Special Shareholders Meeting and later notified to the
General Ordinary Shareholders Meeting in the same form as the designations.
Holders of Series "L" shall have the same monetary or economic rights as Series
"A" and "B" ordinary shareholders, including the participation in any profits of
the Company and the preferential right to subscribe the new shares to be issued
of such Series "L" in the proportion that may correspond to them in such Series
"L".
ARTICLE EIGHT. According to the terms of article 14 Bis 3 section I of the
Mexican Securities Market Law, the Company may acquire, through the stock
exchange at which its shares are listed, at the then current stock exchange
price, shares of its capital stock, or securities underlying such stock,
provided the purchase is charged to the accounting capital if such shares are
held by the Company or, if applicable, to the capital stock in the event that it
is resolved to convert them into treasury shares, in which case a resolution by
the Shareholders Meeting shall not be required. For this purpose, the General
Ordinary Shareholders Meeting must expressly resolve, for each fiscal year, the
maximum amount of resources which may be allocated to the purchase of its own
shares, with the only limitation that the sum of resources which may be
allocated for such purpose in any case may not exceed the total amount of the
net profits of the Company, including retained earnings. The Board of Directors
shall appoint for such effects the person or persons responsible for the
acquisition and placement of the Company's repurchased shares.
As long as the shares are held by the Company, they may not be represented
in Shareholders Meetings of any kind or nature.
The repurchased shares that the Company acquires under the terms of this
Article or the treasury shares, as the case may be, may be replaced among public
investors. The proceeds from the sale of the treasury shares shall be applied to
increase the capital stock by the amount equal to the theoretical value of such
shares; in case of any surplus, among the theoretical value and the price at
which such shares are placed, the same shall be registered in the premium for
subscription of shares account.
Subject to the foregoing, the Company will be entitled to constitute and
maintain one or more special reserves in order to acquire shares of its capital
stock.
The purchase and placement of shares pursuant to this Article, the reports
that with respect to the same must be submitted to the General Shareholders
Meetings, the financial information disclosure rules, as well as the terms and
conditions pursuant to which such transactions will be disclosed to the Comision
Nacional Bancaria y de Valores, the relevant stock exchanges and the public
investor, shall be subject to the general rules enacted by the Comision Nacional
Bancaria y de Valores pursuant to the terms of the Securities Market Law.
-7-
ARTICLE NINE. Section First. According to articles One Hundred and
Twenty-Eight and One Hundred and Twenty-Nine of the General Law of Commercial
Companies, either directly or pursuant to article 57 paragraph IV section b) of
the Securities Market Law, the Company shall keep and maintain a Stock Registry,
which may be kept by the Secretary of the Board of Directors of the Company, a
securities deposit institution, a credit institution or the person appointed by
the Board of Directors to act as Registrar, on behalf of the Company.
For a term that will expire precisely on December 10, 2008, the Company's
shares will be documented in certificates that represent one or more shares of
Series "A", Series "B", Series "D", Series "L", and if applicable, of the other
series that the shareholders meeting may so determine. In this manner,
immediately after the shares representing the capital stock are organized
through such certificates, the Company will inscribe, for such period of time,
in its Stock Registry, only to the "A", "B", "D" and "L" shares in the form of
the mentioned titles and only when such period of time is over, the Company will
be able to recognize and inscribe shares of different series. The Certificates
to which this paragraph refers to will be contributed to a trust, with the
purpose that such trust proceeds to issue the ordinary participation
certificates that will be exchanged in the securities exchanges.
The provisions of the former paragraph shall not be applicable (i) with
respect to the Series "A" or any other series that holds the person who owns the
majority of Series "A" and the permanent shareholder of the Company or any of
its assignees, successors or the credit institutions that act as trustees in
their behalf, and (ii) with respect to such Series "A" or any other series that,
in its case, are contributed or affected in favor of financial institutions
acting as trustees in such trust agreements executed with the purpose of
establishing option plans for the benefit of the employees and directors of the
Company or of its subsidiaries, or for the benefit of individuals that render
their services to the Company, its subsidiaries, or the companies in which the
same may participate, same that, therefore, may keep independently in the trust
estate of such trusts shares of the same series.
The Stock Registry shall be closed during any period of time starting five
business days before any Shareholders' Meeting is held and ending on (and
including) the date of such meeting. During such period no annotation shall be
made on such Registry.
However, the Board of Directors or the Executive Committee, indistinctly,
may demand that the Registry be closed with more anticipation, whenever it
considers it to be convenient, if it is so specified in the relevant meeting
call, as such call is published at least ten days before the Registry is closed.
Also, in case there are non-fulfillments to the provisions set forth in Section
Two of this Article, the Board of Directors or the Executive Committee may
cancel any registrations made under the Registry
The Company shall consider as legal shareholder whomever is
registered as such in the Stock Registry, taking into account the provisions of
article seventy-eight of the Mexican Securities Market Law. This, subject to the
provisions of Section Second of this Article Nine of the By-laws.
-8-
Section Second. (A) Any Person (as this concept is defined hereinbelow)
who individually or together with a Related Person (as this concept is defined
hereinbelow) intends to acquire ordinary Shares (as this concept is defined
hereinbelow) or rights over ordinary Shares, by any means or title, directly or
indirectly, be it in one single act or in a succession of acts without any limit
to the time between them, which consequence is that [such Person's]
shareholding, individually or together with the Shares being acquired, having
been acquired or intended to be acquired by a Related Person or [such Person's]
ownership of rights over ordinary Shares, individually or together with the
Shares being acquired, having been acquired or intended to be acquired by a
Related Person directly or indirectly, is equal to or greater than 10% (ten
percent) of the total number of ordinary Shares; (B) any Person who individually
or together with a Related Person, intends to acquire ordinary Shares or rights
over ordinary Shares, by any means or title, directly or indirectly, be it in
one single act or in a succession of acts without any limit to the time between
them, which Shares represent individually or together with the Shares being
acquired, having been acquired or intended to be acquired by a Related Person,
10% (ten percent) or more of the total number of ordinary Shares; (C) any Person
who is a Competitor (as this concept is defined hereinbelow) of the Company or
of any Subsidiary (as this concept is defined hereinbelow) or Affiliate (as this
concept is defined hereinbelow) of the Company, who individually or together
with a Related Person intends to acquire ordinary Shares or rights over ordinary
Shares, by any means or title, directly or indirectly, be it in one single act
or in a succession of acts without any limit to the time between them, which
consequence is that [such Person's] shareholding individually or together with
the Shares being acquired, having been acquired or intended to be acquired by a
Related Person or [such Person's] ownership of rights over ordinary Shares,
individually or together with the Shares being acquired, having been acquired or
intended to be acquired by a Related Person directly or indirectly, is equal to
or greater than 5% (five percent) of the total number of issued Shares; and (D)
any Person who is a Competitor of the Company or of any Subsidiary or Affiliate
of the Company, who individually or together with a Related Person intends to
acquire ordinary Shares or rights over ordinary Shares, by any means or title,
directly or indirectly, be it in one single act or in a succession of acts
without any limit to the time between them, which Shares individually or
together with the Shares being acquired, having been acquired or intended to be
acquired by a Related Person represents 5% (five percent) or more of the total
number of issued Shares, shall require the prior written approval of the Board
of Directors and/or of the Shareholders' Meeting, as indicated below. For these
effects, the Person in question shall comply with the following:
I. Board of Directors approval:
1. The Person in question shall submit a written approval application
with the Board of Directors. Such application shall be addressed and
delivered, in an indubitable manner, to the Chairman of the Board of
Directors, with a copy to the Secretary and the Assistant
Secretaries of the Board. The aforesaid application shall set forth
and detail the following:
(a) the number and class or series of Shares that the Person
in question or any Related Person (i) owns or co-owns, be
it directly or through any Person or through any relative
by consanguinity, affinity or adoption, within the fifth
degree, or any spouse under a civil or common law marriage
or by
-9-
means of any other intermediary; or (ii) in respect of which
has, shares or enjoys any right, be it as a result of a
contract or any other cause;
(b) the number and class or series of Shares that the Person
in question or any Related Person intends to acquire (i)
be it directly or through any Person in which [the Person
or the Related Person] has an interest or participation,
either in the capital stock or in the direction,
management or operation or through any relative by
consanguinity, affinity or adoption, within the fifth
degree, or any spouse under a civil or common law marriage
or by means of any other intermediary;
(c) the number and class or series of Shares in respect of which
[the Person or Related Person] intends to obtain or share any
right or option, be it as a result of a contract or any other
cause;
(d) (i) the percentage that the Shares referred to in paragraph
(a) above represent of the aggregate Shares issued by the
Company; (ii) the percentage that the Shares referred to in
paragraph (a) above represent of the class or series to
which they belong; (iii) the percentage that the Shares
referred to in paragraphs (b) and (c) above represent of
the aggregate Shares issued by the Company; and (iv) the
percentage that the Shares referred to in paragraphs (b)
and (c) above represent of the class or series to which
they belong;
(e) the identity and nationality of the Person or group of
Persons who intends to acquire the Shares, in the
understanding that if any of such Persons is an entity,
trust or its equivalent, or any other vehicle, enterprise
or other form of economic or commercial association, the
identity and nationality of the partners or shareholders,
settlors and beneficiaries or their equivalent, members of
the technical committee or its equivalent, successors,
members or associates shall be specified, as well as the
identity and nationality of the Person or Persons that
Control (as this concept is defined hereinbelow), directly
or indirectly, the entity, trust or its equivalent,
vehicle, enterprise or economic or commercial association
in question, until the individual or individuals who have
any right, interest or participation of any nature in the
entity, trust or its equivalent, vehicle, enterprise or
economic or commercial association in question are
identified;
(f) the reasons and purposes for which [the Person or Related
Person] intends to acquire the Shares subject-matter of the
approval being sought, mentioning, in particular, if [the
Person or Related Person] intends to
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acquire (i) Shares in addition to those referred to in the
approval application, (ii) a Material Interest o (iii) the
Control of the Company;
(g) if [the Person or Related Person] is, directly or
indirectly, a Competitor of the Company or of any
Subsidiary or Affiliate thereof and if [the Person or
Related Person] has the authority to legally acquire the
Shares pursuant to the provisions of these by-laws and the
applicable legislation; as well, it should be specified if
the Person who intends to acquire the Shares in question
has any relatives by consanguinity, affinity or adoption,
within the fifth degree, or any spouse under a civil or
common law marriage, that may be considered a Competitor
of the Company or of its Subsidiaries or Affiliates, or
has an economic relationship with a Competitor or has an
interest or participation either in the capital stock or
in the direction, management or operation of a Competitor,
directly or through any Person or relative by
consanguinity, affinity or adoption, within the fifth
degree or any spouse under a civil or common law marriage;
(h) the origin of the economic resources that [the Person or
Related Person] intends to use to pay the price of the
Shares subject-matter of the application; in the event
such resources derive from any financing, the identity and
nationality of the Person providing such resources shall
be specified and the documents subscribed by such Person,
evidencing and explaining the conditions of such
financing, shall accompany the approval application;
(i) if [the Person or Related Person] forms part of an economic
group, formed by one or more Related Persons, which as such,
in one act or in a succession of acts, intends to acquire
Shares or rights over the same or, in its event, if such
economic group, is the owner of Shares or rights over Shares;
(j) if [the Person or Related Person] has received economic
resources in loan or in any other concept from a Related
Person or has provided economic resources in loan or in any
other concept to a Related Person, in order to pay the price
of the Shares; and
(k) the identity and nationality of the financial institution
acting as broker, in the event that the acquisition in
question is carried out through a tender offer.
-11-
2. Within the ten (10) days following the date of receipt of the
approval application referred to in paragraph I.1. above, the
Chairman or the Secretary or, in the absence of the latter, any
Assistant Secretary, shall call the Board of Directors in order
to discuss and resolve on the above-mentioned approval
application. The notice for the meetings of the Board of
Directors shall be made in writing and shall be sent by the
Chairman or the Secretary or, in the absence of the latter, by
any Assistant Secretary, to each of the regular and alternate
directors at least forty five (45) days in advance of the date
when the meeting is to take place, by certified mail, private
courier service, telegram, telex, telecopier or facsimile, to
their domiciles or to the addresses that the directors have
informed in writing in order to be notified for purposes of the
matters referred to in this Article of the by-laws. The
alternate directors shall only participate in the deliberations
and vote in the event the corresponding regular director does
not attend the meeting being called. The notices shall specify
the time, date and place of the meeting and the Agenda therefor.
For purposes of this Article of the by-laws, resolutions adopted
without a Board meeting shall not be valid.
3. Except for the provisions of the last paragraph of this section
I.3., the Board of Directors shall decide on all approval
applications submitted within the sixty (60) days following the
date when the application was submitted. The Board of Directors
may, in any case and without incurring in liability, submit the
approval application to the decision of the general
extraordinary shareholders' meeting. Notwithstanding the
foregoing, the general extraordinary shareholders' meeting shall
necessarily decide on any approval application in the following
cases:
(a) when the Share acquisition subject-matter of the
application implies a change of Control in the Company; or
(b) when [after] having been called in terms of the provisions of
this Article, the Board of Directors cannot be installed for
any cause; or
(c) when [after] having been called in terms of the provisions of
this Article, the Board of Directors does not decide on the
approval application submitted [to the Board of Directors],
with the exception of the instances in which [the Board of
Directors] does not decide due to the request of the documents
or clarifications referred to in the immediately following
paragraph.
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The Board of Directors may request the Person who pretends to
acquire the Shares in question, the additional documents and
clarifications that it considers necessary in order to decide on the
approval application submitted [to the Board of Directors],
including the documents that evidence the veracity of the
information referred to in sections I.1(a) to I.1(k) of this
Article. Should the Board of Directors request the above-cited
clarifications or documents, the sixty (60) day term set forth in
the first paragraph of this section I.3 shall be counted as of the
date when the aforementioned Person makes or delivers, as may be the
case, the clarifications or documents requested by the Board of
Directors, through its Chairman, its Secretary or any Assistant
Secretary.
4. In order for the Board to validly hold a meeting, at least 75%
(seventy five percent) of the respective regular or alternate
directors shall be in attendance and its decisions and resolutions,
to be valid, shall be adopted by the favorable vote of the majority
of the directors in attendance. The Chairman of the Board shall have
a deciding vote, in the event of a tie.
The meetings of the Board of Directors called to decide on the
above-mentioned approval applications shall consider and adopt
resolutions solely with regards to the approval application referred
to in this section I.
5. Should the Board of Directors approve the Share acquisition
requested and such acquisition imply the acquisition of a
Material Interest (as this concept is defined hereinbelow)
without such acquisition exceeding half of the ordinary voting
Shares or implying a change of Control in the Company, the
Person who intends to acquire the Shares in question shall carry
out a tender offer, at a price payable in cash, for the
percentage of Shares equal to the percentage of ordinary voting
Shares that [such Person] intends to acquire or for 10% (ten
percent) of the Shares, whichever is greater.
The tender offer referred to in this section 1.5. shall be made
simultaneously in Mexico and in the United States of America within
the sixty (60) days following the date when the Share acquisition in
question was authorized by the Board of Directors. The price to be
paid for the Shares shall be the same, regardless of the class or
series in question. Should there be certificates or instruments
representing two or more shares of the capital stock of the Company
and shares that were issued and are outstanding individually, the
price of the latter shall be determined by the dividing the price of
the above-mentioned certificates or instruments by the number of
underlying shares that they represent.
6. Any Person who is a Competitor of the Company or of any
Subsidiary or Affiliate thereof, who intends to acquire Shares
or rights over Shares, by any means or title,
-13-
directly or indirectly, be it in one single act or in a succession
of acts without any limit to the time between them, as a result of
which [such Person's] shareholding or ownership of rights over
Shares, directly or indirectly, is equal to or greater than 5% (five
percent) of the total number of issued Shares and any Person who is
a Competitor of the Company or of any Subsidiary or Affiliate
thereof, who intends to acquire Shares or rights over Shares, by any
means or title, directly or indirectly, be it in one single act or
in a succession of acts without any limit to the time between them,
representing 5% (five percent) or more of the total number of issued
Shares, shall require the prior written approval of the
Shareholders' Meeting. The corresponding approval application shall
be submitted to the Board of Directors which shall be called as
provided in sections I.1. and I.2. hereof. The Board of Directors
may deny the authorization being sought or may submit the approval
application in question to the consideration of the general
extraordinary shareholders' meeting in order for it to decide
thereon.
II. Shareholders' meeting approval:
1. In the event that the approval application referred to in this
Article of the by-laws is submitted to the decision of the general
extraordinary shareholders' meeting, the Board of Directors, by
means of the Chairman or of the Secretary or, in the absence of the
latter, of any Assistant Secretary, shall call the general
extraordinary shareholders' meeting.
2. For purposes of this Article of by-laws, the notice for the
general extraordinary shareholders' meeting shall be published
in the official gazette of the domicile of the Company and in
two of the newspapers with broadest circulation in such
domicile, at least thirty (30) days in advance of the date set
for the meeting; in the case of a second notice the publication
shall likewise be made at least thirty (30) days in advance of
the date set for the corresponding meeting; in the understanding
that this last notice shall notice shall only be published after
the date for which the unheld meeting was called in first notice.
The notice shall contain the Agenda and shall be signed by the
Chairman or the Secretary or, in the absence of the latter, by any
Assistant Secretary of the Board of Directors.
3. For purposes of this Article, in order for a general
extraordinary shareholders' meeting to be deemed legally
assembled by virtue of first or subsequent notice, at least 85%
(eighty five percent) of the ordinary voting Shares must be
represented therein and its resolutions shall be valid when
adopted with the favorable vote of the holders of Shares
representing, at least, 75% (seventy five percent) of the
ordinary voting Shares.
-14-
From the moment of publishing of the notice for the shareholders'
meeting referred to in this Article of the by-laws, the information
and documents mentioned in the Agenda and, as a result, the approval
application referred to in paragraph I.1 of this Article of the
by-laws, and any opinion and/or recommendation issued, in its event,
by the Board of Directors in connection with the above-mentioned
approval application, shall be put at the disposal of the
shareholders, at the offices of the Secretary of the Company, at no
cost.
4. If the general extraordinary shareholders' meeting approves the
proposed acquisition of Shares and such acquisition implies the
acquisition of a Material Interest (as this concept is defined
hereinbelow) without such acquisition exceeding half of the
ordinary voting Shares or implying a change of Control in the
Company, the Person who intends to acquire the Shares in
question shall make a tender offer, at a price payable in cash,
for the percentage of the Shares that is equivalent to the
percentage of ordinary voting Shares that [the Person] intends
to acquire or for 10% (ten percent) of the Shares, whichever is
higher.
The tender offer referred to in this section 4. shall be made
simultaneously in Mexico and in the United States of America within
the sixty (60) days following the date in which the Share
acquisition in question was approved by the general extraordinary
shareholders' meeting. The price to be paid for the Shares shall be
the same, regardless of the class or series in question. Should
there be certificates or instruments representing two or more shares
of the capital stock of the Company and shares which were issued and
are outstanding individually, the price of the latter shall be
determined by dividing the price of the above-mentioned certificates
or instruments by the number of underlying shares that they
represent.
5. If the general extraordinary shareholders' meeting approves the
proposed Share acquisition and such acquisition implies a change of
Control in the Company, the Person who intends to acquire the Shares
in question shall make a tender offer for 100% (one hundred percent)
minus one of the issued and outstanding Shares, at a price payable
in cash not smaller than the highest price between the following:
a. the book value of the Share according to the last
quarterly profit statement approved by the Board of
Directors, or
b. the highest closing price of the transactions carried out
in stock exchanges during any of the three hundred and
sixty five (365) days preceding the date of the approval
granted by the general extraordinary shareholders'
meeting, or
-15-
c. the highest price paid for the Shares at any time by the
Person acquiring the Shares subject-matter of the
application approved by the general extraordinary
shareholders' meeting.
The tender offer referred to in this section 5. shall be made in
Mexico and in the United States of America within the sixty (60)
days following the date in which the Share acquisition in question
was approved by the general extraordinary shareholders' meeting. The
price to be paid for the Shares shall be the same, regardless of the
class or series in question. Should there be certificates or
instruments representing two or more shares of the capital stock of
the Company and shares which were issued and are outstanding
individually, the price of the latter shall be determined by
dividing the price of the above-mentioned certificates or
instruments by the number of underlying shares that they represent.
6. The Person who carries out a Share acquisition approved by the
general extraordinary shareholders' meeting, shall not be
registered in the stock registry of the Company but until such
time when the tender offer referred to in sections II.4 and II.5
above has been concluded. Consequently, such Person shall not
be able to exercise the corporate nor the economic rights
corresponding to the Shares whose acquisition has been approved
but until such time when the tender offer has been concluded.
In the case of Persons who are already shareholders of the Company
and, as a result, are registered in the stock registry of the
Company, the Share acquisition approved by the general extraordinary
shareholders' meeting shall not be registered in the stock registry
of the Company but until such time when the tender offer has been
concluded and, consequently, such Persons shall not be able to
exercise the corporate nor the economic rights corresponding to the
acquired Shares.
The Board of Directors and the Shareholders' Meeting, as may be the case,
shall have the right to determine if one or more Persons that intend to
acquire Shares are acting jointly, in coordination or in agreement with
others, in which case, the Persons in question shall be considered as a
single person for purposes of this Article of the by-laws.
As well, the Board of Directors and the Shareholders' Meeting, as may be
the case, shall determine the cases in which Shares held by different
Persons, shall be considered as Shares held by a same Person for purposes
of this Article. In this sense, it shall be deemed that the Shares held by
a Person, plus the Shares (i) held by any relative by consanguinity,
affinity or adoption, within the fifth degree, or any spouse under a civil
or common law marriage of that Person, or (ii) held by an entity, trust or
its equivalent, vehicle, enterprise or other form of economic or
commercial association whenever such entity, trust or its equivalent,
vehicle, enterprise or economic or commercial association is
-16-
Controlled by the above-mentioned Person or (iii) held by any Related
Person [related] to such Person.
In their assessment of the approval applications referred to in this
Article, the Board of Directors and/or Shareholders' Meeting, as may be
the case, shall take into account the factors that they deem appropriate,
considering the interests of the Company and its shareholders, including
financial, market, business and other factors.
In order for a general extraordinary shareholders' meeting, in which a
merger, a spin-off or an increase or reduction of the capital of the
Company implying a change of Control is to be discussed, to be considered
legally held by virtue of first or subsequent call, at least 85% (eighty
five percent) of the ordinary voting Shares must be represented and its
resolutions shall be valid when adopted with the favorable vote of the
holders of Shares representing, at least, 75% (seventy five percent) of
the ordinary voting Shares.
The Person who acquires Shares without having complied with the
formalities, requirements and other provisions of this Article of the
by-laws, shall not be registered in the stock registry of the Company and,
consequently, such Person shall not be able to exercise the corporate nor
the economic rights corresponding to such Shares, including specifically
the exercise of voting rights at shareholders' meetings. In the case of
Persons who are already shareholders of the Company and, therefore, are
already registered in the stock registry of the Company, the Share
acquisition carried out without complying with any of the formalities,
requirements and other provisions of this Article of the by-laws, shall
not be registered in the stock registry of the Company and, consequently,
such Persons shall not be able to exercise the corporate nor the economic
rights corresponding to such Shares, including specifically the exercise
of voting rights at shareholders' meetings. In the instances when the
formalities, requirements and other provisions of this Article of the
by-laws have not been complied with, the certificates or lists referred to
in the first paragraph of article 78 of the Securities Market Law (Ley del
Mercado de Valores), shall not demonstrate the ownership of Shares nor
shall they evidence the right to attend shareholders' meetings and
registration in the stock registry of the Company, nor shall they
legitimize the exercise of any action, including those of a procedural
nature.
The authorizations granted by the Board of Directors or by the
Shareholders' Meetings pursuant to the provisions of this Article, shall
cease to be in effect if the information and documents on which such
authorizations were granted upon are not or cease to be true.
Additionally and in accordance with the provisions of Article 2117 of the
Federal Civil Code (Codigo Civil Federal), any Person who acquires Shares
in violation of the provisions of this Article of the by-laws, shall pay
liquidated damages to the Company in an amount equivalent to the market
value of all Shares acquired without the approval referred to in this
Article of the by-laws. In the case of Share acquisitions with no
consideration carried out in violation of the provisions of this Article
of the by-laws, the liquidated damages shall be in an amount equivalent to
the market value of the Shares subject-matter of the acquisition in
question.
-17-
The provisions of the Section Second of this Article of the by-laws shall
not apply to (a) the acquisition of Shares by the law of succession, even
by inheritance or testamentary gift; or (b) the acquisition of Shares (i)
by the Person who, directly or indirectly, is entitled to appoint the
majority of the members of the board of directors of the Company; (ii) by
any company, trust or its equivalent, vehicle, entity, enterprise or other
form of economic or commercial association under the Control of the Person
referred to in item (i) above; (iii) by succession to property of the
Person referred to in item (i) above; (iv) by the lineal ancestors and
descendants within the third degree of the Person referred to in item (i)
above; or (v) by the Person referred to in item (i) above, whenever [such
Person] is reacquiring the Shares of any company, trust or its equivalent,
vehicle, entity, enterprise, form of economic or commercial association,
ancestors or descendants referred to in items (ii) and (iv) above; and
(vi) by the Company or its Subsidiaries, or by trusts created by the
Company or its Subsidiaries or by any other Person Controlled by the
Company or its Subsidiaries.
For purposes of this Article, the terms or concepts mentioned below shall
have the meaning that follows:
"Shares" means the shares representing the capital stock of the
Company, regardless of their class or series, or any other
certificate, security or instrument that was issued based upon such
shares or that is convertible into such shares, including
specifically certificados de participacion ordinarios representing
Shares of the Company.
"Affiliate" means any company that Controls, is controlled by, or is
under common Control with, another Person.
"Competitor" means any Person dedicated, directly or indirectly, (i)
to the business of television production, television broadcasting,
television programming, pay-television programming, distribution of
television programs, direct-to-home satellite services, periodical
and editorial publications and distribution thereof, music
recording, television by cable or any other means known or to be
known, production for radio, radio broadcasting, promotion of
professional sports and other entertainment events, pager services,
production and distribution of motion pictures, dubbing, the
operation of any internet portal and/or (ii) to any activity carried
out by the Company or its Subsidiaries representing 5% (five
percent) or more of the income of the Company and its subsidiaries
on a consolidated basis.
"Control" or "Controlled" means: (i) to be the owner of the majority
of the ordinary voting shares representing the capital stock of a
company or of securities or instruments issued based upon such
shares; or (ii) the ability or possibility to
-18-
appoint the majority of the members of the board of directors or the
manager of an entity, trust or its equivalent, vehicle, enterprise
or other form of economic or commercial association, be it directly
or indirectly through the exercise of the voting right corresponding
to the shares or equity quotas held by a Person, of any pact
resulting in the voting right corresponding to the shares or equity
quotas held by a third party being exercised in the same sense as
the voting rights corresponding to the shares or equity quotas held
by the above-cited Person or in any other manner; or (iii) the
ability to determine, directly or indirectly, the policies and/or
decisions of the management or operation of an entity, trust or its
equivalent, vehicle, enterprise or any other form of economic or
commercial association.
"Material Interest" means the ownership or possession, directly or
indirectly, of 20% (twenty percent) or more of the ordinary voting
Shares.
"Person" means any individual or entity, company, trust or its
equivalent, vehicle, enterprise or any other form of economic or
commercial association or any of their Subsidiaries or Affiliates
or, if so determined by the Board of Directors or by the
Shareholders' Meeting, any group of Persons that is acting jointly,
in coordination or in agreement in accordance with the provisions of
this Article.
"Related Person" means any individual or entity, company, trust or
its equivalent, vehicle, enterprise or any other form of economic or
commercial association, or any other parent by consanguinity,
affinity or adoption within the fifth degree or any spouse under a
civil law or common law marriage, or any of the Subsidiaries or
Affiliates of all of the above, (i) that belongs to the same
economic or interest group of the Person that intends to acquire the
Shares or is a Subsidiary or Affiliate of such Person or (ii) that
acts in agreement with the Person who intends to acquire the Shares.
"Subsidiary" means any company in respect of which a Person owns the
majority of the shares representing its capital stock or in respect
of which a Person has the right to appoint the majority of the
members of its board of directors or is sole administrator.
The provisions of this Article of the by-laws shall apply regardless of
the laws and general provisions concerning the acquisition of securities
that are compulsory in the markets in which the Shares or other securities
issued in relation thereto or rights derived therefrom are listed (i) that
must be revealed to the authorities or (ii) that must be made through
tender offer.
To amend the Section Second of this Article the prior written
authorization of the National Banking and Securities Commission (Comision
Nacional Bancaria y de Valores) shall be required.
-19-
This pact shall be recorded with the Public Registry of Commerce of the
corporate domicile of the Company and shall be transcribed in the
certificates of the shares representing the capital stock of the Company,
to the effect of creating rights against all third parties.
ARTICLE TEN. The Subsidiaries of the Company may in no event invest,
neither directly nor indirectly, in the capital stock of the Company, nor of any
other company with respect to which the Company is its Subsidiary, unless in the
event of such Subsidiaries acquiring shares of the Company, with the aim of
complying with any sale options or plans granted or designed, or to be granted
or designed for the benefit of the employees or officers of said Subsidiaries or
this Company, provided that the number of those shares does not exceed 25%
(twenty-five percent) of all outstanding shares of this Company. For purposes of
this Article, the term Subsidiary shall have the meaning set forth in the
general accounting accepted principles referred to in the general provisions or
rules issued by the National Banking and Securities Commission.
CHAPTER III
INCREASE AND DECREASE IN THE CAPITAL STOCK
ARTICLE ELEVEN. Increases in the capital stock shall be carried out by
resolution of the General Extraordinary Shareholders Meeting and the respective
amendment of By-laws; once the respective resolutions have been passed, the
Shareholders Meeting which resolves on the increase, or any subsequent
Shareholders Meeting, shall determine the terms and basis on which said increase
should be implemented. The foregoing, subject to the provisions of the Second
Section of Article Nine of this by-laws.
All increases in the capital stock must be carried out by means of the
issuance of shares in such a form that in no event may Series "L" or Series "D"
shares exceed the maximum number provided for in Article Six of these By-laws.
Increases in capital stock may take place by means of (i) the
capitalization of accounts of net worth referred to in article One Hundred and
Sixteen of the General Law for Commercial Companies, (ii) through the payment in
cash or in kind, or (iii) through the capitalization of liabilities. In the
event of increases due to capitalization of items of the net worth, all shares
shall be entitled to the proportional part corresponding to them in such
accounts. In the event of increases due to payment in cash or in kind or due to
capitalization of liabilities, those shareholders holding outstanding shares at
the time of the determination of the increase, shall have preference, with the
prerogatives and limitations established by the applicable law in each country,
if applicable, according to the circumstances, in the subscription of any new
shares issued or made outstanding to represent such increase, in proportion to
the shares held by them in each respective Series at the time of the increase,
for a term of no less than fifteen days established for that purpose by the
Meeting which resolved on the increase. Said term shall be calculated as from
the date of publication of the respective notice in the official gazette of the
corporate domicile (for purposes of this Article of the By-laws, the
shareholders consider the Official Gazette of the Federation as the official
gazette of the Company's corporate domicile)
-20-
and in one of the newspapers having the widest circulation at the corporate
domicile, or as from the date of the Meeting in the event that all the shares
which the capital stock has been divided into, have been represented at said
Meeting.
In the event that after the expiration of the term during which the
shareholders should enforce the preference granted to them in this Article,
there should be any remaining shares pending subscription, these may be offered
for subscription and payment pursuant to the conditions and terms determined by
the Meeting, which had decreed the increase in the capital stock or in the terms
provided for by the Board of Directors, the Executive Committee, or Delegates
designated by the Meeting for such purposes, on the understanding that the
offering price for the shares to third parties may not be less than that which
was offered to the shareholders of the Company for subscription and payment.
ARTICLE TWELVE. The capital stock may be decreased by resolution of the
Extraordinary Shareholders Meeting according to the rules provided for in this
Article. Decreases in the capital stock shall be made by resolution of the
General Extraordinary Shareholders Meeting and the respective amendments of
By-laws, complying, in any case, with the provisions of Article Nine and, if
applicable, article One Hundred and Thirty-Five of the General Law of Commercial
Companies, and article 14 Bis 3, Section One of the Securities Market Law. The
foregoing in terms of Section Second of Article Nine of this by-laws.
Decreases in the capital stock may be made in order to cover losses, to
reimburse the shareholders or to release them from payments not made, to allow
for the acquisition of the Company's own shares and, if applicable, by
redemption of shares with profits subject to sharing.
In no event decreases in the capital stock shall be carried out or shares
representing the capital stock or securities representing them be repurchased in
such a manner that the number of Series "L" or Series "D" shares outstanding
exceeds the maximum referred to in Article Six of these By-laws.
Decreases in the capital stock made to cover losses shall be carried out
in proportion to all shares of the capital stock, without it being necessary to
cancel shares, due to the fact that they express no par value.
The Company may redeem shares with profits subject to sharing, without
decreasing its capital stock, for which purpose the Extraordinary Shareholders
Meeting resolving on the redemption, in addition to the provisions of article
one hundred and thirty-six of the General Law of Commercial Companies, shall
observe the following rules:
(a) The Meeting may agree to redeem shares to all shareholders, which
shall be made in such a form that after the redemption, they have the same
percentages regarding the capital stock and shareholding which they had
previously.
(b) When the redemption of shares is carried out by means of their
purchase in the stock exchange, through a public purchase offer, the
Shareholders Meeting, after passing the respective resolutions, may empower the
Board of Directors to state the number of shares to be redeemed
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and the person appointed as intermediary or purchase agent, with all other
provisions that may be necessary.
(c) Share certificates of redeemed shares shall be cancelled.
In no event may shares be redeemed in such manner that the number of
shares outstanding corresponding to Series "L" or Series "D" shares exceeds the
maximum referred to in Article Six of these By-laws.
ARTICLE THIRTEEN. Definitive or provisional share certificates
representing the shares shall be registered and may cover one or more shares,
they shall contain the notations referred to in article one hundred and
twenty-five of the General Law of Commercial Companies, the indication of the
Series to which they correspond, they shall contain the text of Article Six and
Article Nine Section Second of these By-laws and will be signed by two Regular
Members of the Board of Directors.
The signatures of the mentioned directors may be in autograph or facsimile
form, provided, in this last case, that the original of the respective
signatures is deposited at the Public Registry Bureau of the corporate domicile.
In the event of definitive share certificates, they must have adhered thereto
the numbered registered coupons as set provided in the applicable legislation or
the ones to be determined by the Board of Directors.
CHAPTER IV
SHAREHOLDERS MEETINGS
ARTICLE FOURTEEN. The Shareholders Meetings shall be General or
Special and Extraordinary or Ordinary.
Extraordinary Meetings shall be those called to deal with any of the matters
indicated in article one hundred and eighty-two of the General Law of Commercial
Companies and Article Nine Section Second, second paragraph of Article Twenty
First, Twenty Third and Forty Seventh of these by-laws, and those others that,
by express disposition of the law or of these by-laws, must be dealt, discussed
and approved in an Extraordinary Meeting. Likewise, Extraordinary Meetings shall
be those convened to resolve on the cancellation of the listing of the shares of
the Company in the Special or Securities Sections of the National Registry of
Securities and in other Mexican stock exchanges or foreign markets where they
are listed. All other meetings shall be Ordinary Meetings.
Special Meetings shall be those held to deal with the following matters, as the
case may be depending on the respective Series and shall be subject the
provisions set forth in Article Twenty Fifth of these by-laws and if nothing is
provided therein, is shall be applicable the provisions of the Extraordinary
Meetings:
(i) Special Meetings for Series "D":
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Special Meetings for Series "D" shall be those held by the shareholders of
such Series in order to deal with the following:
(a) Appoint and remove the members of the Board of Directors and
their respective Alternates that to such Series "D" correspond
to appoint, pursuant to Articles Seventh, Twenty Sixth and
other related of these by-laws.
(b) Discuss and approve, in advance, any provision that may harm
the rights that are conferred in these by-laws to Series "D"
and not to any other of the remaining Series.
(ii) Special Meetings for Series "L":
Special Meetings for Series "L" shall be those held by the shareholders of
such Series in order to deal with the following:
(a) Appoint and remove the members of the Board of Directors and
their respective Alternates that to such Series "L" correspond
to appoint, pursuant to Articles Seventh, Twenty Sixth and
other related of these by-laws.
Discuss and approve, in advance, any provision that may harm the rights
that are conferred in these by-laws to Series "D" and not to any other of the
remaining Series.
ARTICLE FIFTEEN. Calls for Shareholders Meetings must be made by the Board
of Directors or by the Statutory Auditors. However, shareholders representing at
least ten percent of the capital stock entitled to vote on the subject, may
require in writing, at any time, that the Board of Directors or the Statutory
Auditors call a General Shareholders Meeting to deal with the matters specified
in said request, in terms of the provisions of article one hundred and eighty
four of the General Law of Commercial Companies. The foregoing shall be in
effect notwithstanding the provisions of Article Nine Section Second of these
by-laws.
Any shareholder holding one voting share shall have the same right in any
of the cases referred to in article one hundred and eighty-five of the General
Law of Commercial Companies. If the call is not made within the fifteen days
following the date of the request, a Civil or District Judge of the domicile of
the Company shall make such call at the request of any of the concerned parties,
who must exhibit their shares with this purpose.
ARTICLE SIXTEEN. Calls for the Meetings must be published in the Official
Gazette of the domicile of the Company or in one of the newspapers with a wide
circulation at such domicile and may be published in a newspaper with a wide
circulation in Manhattan, New York, United States of America, at least fifteen
days in advance to the date fixed for the Meeting for cases of General Ordinary
Shareholders Meeting, and at least eight days in advance to the dated in which
the meeting shall be held, for cases of General Extraordinary Shareholders
Meeting if
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the Special Shareholders Meeting. In the event of a second call, the publication
must be made at least eight days in advance to the date fixed to hold the
respective Meeting, either if such meeting shall be general or special, ordinary
or extraordinary. The Shareholders Meetings may be called by the Board of
Directors, by the Chairman of such Board and by the Statutory Auditor. Calls
shall contain the Agenda and must be signed by the person or persons making
them, provided that if such calls are made by the Board of Directors, the
signature of the Secretary or Assistant Secretary shall suffice. The call
mentioned in this paragraph shall be made and published in terms of Article Nine
Section Second of these by-laws, when the call is made to resolve the matters
mentioned in the same.
From the moment in which the call for a Shareholders Meeting is published,
the corresponding information and documents that are prepared by the Company,
related to each one of the matters in the agenda of the referred meeting, shall
be available, immediately and at no cost, for the corresponding voting
shareholders.
When the Meetings are held to deal with matters where Series "D" and Series "L"
are not entitled to vote, they may be held without a prior call, if the total
number of Series "A" and Series "B" is fully represented at the time of voting.
If at any Meeting, regardless whether it is General or Special, Ordinary or
Extraordinary Meeting, all shareholders entitled to vote in the corresponding
meeting are in attendance, said Meeting may resolve on matters of any nature and
even on matters not contained in the relevant Agenda.
ARTICLE SEVENTEEN. Shareholders registered in the Share Registry Book of
Shares kept by the Company as holders of one or more shares thereof shall be
admitted to the Meeting. Said Registry shall be considered closed five days
before the date fixed for the holding of the Meeting. The foregoing shall be in
effect notwithstanding the provisions of Article Nine Section Second of these
by-laws.
To attend the Meetings, the shareholders must exhibit their respective
admission cards which are to be issued only at the request of persons who are
registered as holders of shares in the Registry Book of Registered Shares of the
Company; the request must be submitted at least forty-eight hours before the
time fixed for the holding of the Meeting, together with the deposit, in the
Secretary's Office of the Company, of the respective share certificates or the
deposit certificates or evidence of said securities issued by an institution for
the deposit of securities, by a credit institution, either Mexican or foreign,
or by authorized brokerage houses. Shares deposited to be entitled to attend
Meetings shall not be returned until after the Meetings have been held, by way
of the delivery of the certificate which shall be issued to the shareholder in
exchange thereof.
The Company may, in terms of paragraph b) of section IV of article 57 of
the Securities Market Law, request that such Registry Book of Registered Shares
is kept by an institution for the deposit of securities authorized for that
effect.
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ARTICLE EIGHTEEN. Shareholders may be represented at the Meetings by the
person or persons they may appoint by means of a proxy granted forcefully in
terms of the format prepared by the Company, which shall have to contain, in
addition to the requirements mentioned in article 14 Bis 3, section VI,
paragraph c) of the Securities Market Law, the following information: (a) the
express mention and under oath of truth in the sense that if the shareholder (or
holder of the stock certificates referred to the shares representative of the
capital stock of the Company) and/or spouse or concubine, as well as his family
members by consanguinity, affinity or civil, up to five degrees, without
limitation, is(are) a Competitor (as such term is defined in Article Nine
Section Second of these By-laws) of the Company or any of its subsidiaries; (b)
the express mention and under oath of truth, that such shareholder (or holder of
titles referred to the shares representing the capital stock of the Company), or
his spouse or concubine, as well as its family by consanguinity, affinity or
civil, up to five degrees, without limitation, is(are) holders or beneficiaries
at that date, directly or indirectly, of shares of the Company (or titles
referred to these) representing 5% (five percent) or more of the total shares
issued by the Company, or in its case, direct or indirect holders or
beneficiaries, of rights of any kind of shares of the Company (or titles
referred to these) representing such percentage; (c) the express mention and
under oath of truth that if any Related Party (as such term is defined in
Article Nine Clause Second of these by-laws) to such shareholder (or holder of
the stock certificates referred to the shares representative of the capital
stock of the Company), is the owner of shares or of rights over shares issued by
the Company; (d) the identity and nationality of each shareholder (or holder of
the stock certificates referred to the shares representative of the capital
stock of the Company) that is going to be represented in the meeting in terms of
the proxy granted in the mentioned form, in the understanding that if the proxy
is being granted in favor of a company, enterprise, trust agent in a trust
agreement, fideicomiso or equivalent, or through any other vehicle, entity,
corporation or form of economic or mercantile association, it shall specify the
identity and nationality of its partners or shareholders, trustee, trustors and
beneficiaries or its equivalent, members of the technical committee or its
equivalent in such trusts, assignees, members or associates, as well as the
identity and nationality of the Person or Persons that Controls (as such concept
is defined in Article Nine Section Second of these by-laws), directly or
indirectly, the company, fideicomiso or trust or its equivalent, vehicle,
entity, enterprise, corporation or economic or mercantile association, until the
corresponding person or persons are identified; and (e) any other requisite that
the Board of Directors establishes.
The Board of Directors and the Executive Committee of the Company,
indistinctly, shall be authorized to establish exceptions to the requirements
provided for in sections (a) to (d) above.
The Secretary of the Board of Directors shall be obligated to certify that
such forms include all the requirements provided in article 14 Bis 3, section
VI, paragraph a) of the Securities Market Law and that the same are made
available to the securities market intermediaries crediting to have the
representation of the shareholders of the Company during the term referred to in
article One Hundred and Seventy Three of the General Law of Commercial
Companies, which shall be stated in the corresponding minute.
The members of the Board of Directors and Statutory Auditors may not
represent any shareholders at any Meeting.
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ARTICLE NINETEEN. The Minutes of the Meeting shall be registered in the
respective Registry Book and shall be signed by the Chairman and Secretary of
the Meeting as well as by the attending Statutory Auditors.
ARTICLE TWENTY. The Meetings shall be presided over by the Chairman of the
Board of Directors and in his absence, by the Vice-Chairmen of the Board in the
order of their appointment. In their absence, the Meetings shall be presided
over by the person appointed by the shareholders present, by majority vote.
The Secretary of the Board of Directors shall act as Secretary at the
Shareholders Meeting and in his absence, the Assistant Secretaries of the Board
itself, in the order of their appointment shall act as Secretary. In the absence
thereof, by the person appointed for such purpose by the shareholders in
attendance by majority vote shall act as Secretary. The Chairman shall appoint
Tellers to count the attending shares.
ARTICLE TWENTY-ONE. General Ordinary Shareholders Meetings shall be held
at least once a year within the four months following the end of each fiscal
year. In addition to the matters contained in the Agenda, they must discuss,
approve or amend and resolve everything related to: 1 (one), the report of the
Board of Directors regarding the financial position of the Company and all other
accounting documents submitted to the Shareholders Meeting pursuant to article
One Hundred and Seventy Two of the General Law of Commercial Companies; 2 (two),
the report of the Statutory Auditor, regarding the veracity, sufficiency and
reasonability of the information submitted by the Meeting by the Board of
Directors to the Meeting, pursuant to article One Hundred and Sixty Six of the
General Law of Commercial Companies; 3 (three), the audited consolidated and
unconsolidated financial statements, including the notes necessary to clarify
and supplement the information thereof; 4 (four), resolve on the application of
profits, if any; 5 (five), carry out the appointment, and if the case may be,
the removal, of the members of the Board of Directors of the Company and their
respective Alternates; and 6 (six), carry out the appointment and, if the case
may be, the removal of the Chairman of the Board of Directors, the Chairman or
Chief Executive Officer of the Company, and the Secretary and Alternate
Secretaries, these last ones may be or may not be members of the Board of
Directors, and determine their remuneration. The appointment and/or removal of
the Chairman of the Board of Directors, the Chairman or Chief Executive Officer
of the Company, and of the Secretary and Alternate Secretaries, shall correspond
to the shareholders of Series "A". Pursuant to Articles Seventh and Twenty
Second of these by-laws, in order for a Shareholders Meeting to revolve
favorably with respect to the matters listed above from 1 (one) to 6 (six), it
will be required the favorable vote of the majority of the Series "A"
represented in the corresponding General Ordinary Shareholders Meeting.
The Extraordinary Shareholders Meetings will be held whenever there is a
matter to be dealt with as to which an Extraordinary Meeting is competent,
including those matters that by express disposition of the law or of these
by-laws are exclusive to be dealt and approved in such Meetings. Pursuant to
section XII of article One Hundred and Eighty Two of the General Law of
Commercial Companies, particularly, the following matters, shall be dealt in a
General Extraordinary Meeting:
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(i) Increase or reduction of capital stock of the Company;
(ii) Change in the corporate purpose;
(iii) Issue of privileged shares;
(iv) Redemption by the Company of its shares and issue of shares of
enjoyment; with out this being applicable to the repurchase of
shares referred to in article 14-Bis 3 of the Securities Law and
Article Eighth of these by-laws;
(v) Issue of debentures or any other type of bonds;
(vi) Merger of the Company;
(vii) Spin-off of the Company;
(viii)The resolution regarding the exercise of the liability actions and
other acts provided in articles One Hundred and Sixty One and One
Hundred and Sixty Two of the General Law of Commercial Companies,
against any of the members of the Board of Directors or of the Audit
Committee of the Company or of the Statutory Auditors;
(ix) the resolution of matters referred to, respectively, on Articles
Ninth Section Second and Forty Seventh of these by-laws;
(x) Any amendment to these by-laws.
The matters referred to in sections (i) to (x) above, shall be subject to the
necessary quorum for the installment and voting set forth in Article Twenty
Third of these by-laws.
Special Meetings of Series "D" and "L" shall be held at least once a year,
within the four months following the end of each fiscal year, and before the
execution of the General Ordinary Shareholders Meeting in which the Board of
Directors is appointed, to appoint Regular and Alternate members of the Board of
Directors that correspond to each of such Series, respectively, pursuant to
Articles Seventh, Twenty Sixth and others related to of this by-laws. The
appointment of the members that each one of the Special Meetings has resolved,
shall be notice to the corresponding General Ordinary Shareholders Meeting,
through the person that have acted as Secretary in each one of the Special
Meetings.
The Regular and Alternate Directors to be appointed by such Special
Shareholders Meetings of Series "D" and "L" shares in terms of the foregoing,
must be independent from the Company, for which effect the following shall not
be considered as independent: (a) such persons that act as employees or officers
of the Company, including the persons that occupied such office during the
immediately preceding fiscal year in which they are intended to be appointed,
(b) any shareholder of the Company, (c) such persons that are shareholders of
the
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Company that, without being employees or officers of the Company, have the right
to command or instruct the officers of the latter , (d) any employee of any
shareholder of the Company or of any company that is under Control (as such term
is defined in Article Nine Clause Second of these by-laws) of any shareholder,
(e) any consultant or service provider that receives more than 1% (one percent)
of the income from any shareholder, (f) those persons that are partners or
employees of the companies or associations that provide consulting and support
services to the Company or the companies that are part of the same economic
group to which the Company is a part , whose income for providing such services
represents 10% (ten percent) or more of its income, (g) clients, providers,
debtors, creditors, partners or employees of a company or economic entity that,
on its part, is an important client, provider, debtor or creditor to the Company
or any of its subsidiaries, considering for purposes of this Article as
important clients or providers, those entities whose sales with the Company or
any of its subsidiaries represent 10% (ten percent) or more of the total volume
of sales of the corresponding entity; and by important creditor and debtor,
those entities whose credits or debts with the Company or any of its
subsidiaries represents 10% (ten percent) or more of the volume of total assets
of such persons, (h) employees of a foundation, association or partnership that
receive important donations from the Company, being considered as important
donations those that represent 5% (five percent) or more of the total donations
received by such institutions, (i) General Directors or high level officers of a
company in whose Board of Directors, the President, Vice-presidents, General
Director or any other high level officer of the Company participates, (j) those
persons that are considered as a Competitor (as such term is defined in Article
Nine Section Second of these By-laws) of the Company or any of its Subsidiaries
or Affiliates or Related Parties to them (as such terms are defined in Article
Nine Section Second of these By-laws), (k) those persons that are shareholders,
officers, directors, clients, providers, important creditors or debtors of a
Competitor (as such term is defined in Article Ninth Section Second of these
By-laws) of the Company or any of its Subsidiaries or Affiliates or Related
Parties (as such terms are defined in Article Nine Section Second of these
By-laws), (l) those persons that, directly or indirectly, have business
relations or any contractual relation with a Competitor of the Company or its
Subsidiaries or Affiliates or Related Parties(as such terms are defined in
Article Nine Section Second of these By-laws) or that have or have had the legal
representation or are lawyers of a Competitor of the Company or its Subsidiaries
or Affiliates or Related Parties(as such terms are defined in Article Nine
Section Second of these By-laws) or that receive, directly or indirectly, any
fees, price or economic benefit of a Competitor of the Company or its
Subsidiaries or Affiliates or Related Parties(as such terms are defined in
Article Nine Section Second of these By-laws), (m) those persons that, directly
or indirectly, render their services or support to a Competitor of the Company
or its Subsidiaries or Affiliates or Related Parties(as such terms are defined
in Article Nine Section Second of these By-laws), not withstanding the amount of
fees, prices, economic remunerations or benefits that they receive from the
Competitor of the Company or its Subsidiaries or Affiliates or Related Parties
(as such terms are defined in Article Nine Section Second of these By-laws) or
those persons that have received any fee, price, economic remuneration or
benefit from a Competitor of the Company or its Subsidiaries or Affiliates or
Related Parties (as such terms are defined in Article Nine Section Second of
these By-laws) during the 5 (five) previous years from the date in which their
appointment as director of the Company is proposed, (n) those persons that
directly or through any Persons or any Related Party (as such terms are defined
in Article Nine Section Second of these By-laws) to them, are shareholders of a
Person (as such term is defined in Article Nine Section Second of
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these By-laws) that is the owner of 10% (ten percent) or more of the shares
issued by the Company or that has the right, jointly or severally with a Related
Party (as such term is defined in Article Nine Section Second of these By-laws),
to exercise the voting right on shares issued by the Company, representing 10%
(ten percent) or more of the capital stock of the latter, and (n) the spouse or
concubine, as well as their family by consanguinity, affinity or civil, up to
five degrees, without any limitation, of the persons mentioned in the foregoing
paragraphs (a) through (n).
ARTICLE TWENTY-TWO. For General Ordinary Meetings to be considered legally
convened in first call, at least fifty percent of the ordinary shares with
voting rights, unless for what is provided further on, shall be represented
thereat, and the adopted resolutions will be valid if adopted by the vote of the
majority of the present shares. In the event of a second or subsequent call,
Ordinary Shareholders Meetings may be validly held, regardless of the number of
ordinary shares that are represented at the Meeting and, unless for what is
provided further on, the resolutions thereof shall be valid when adopted by the
majority of votes of the ordinary shares present at such meeting.
In order for a Ordinary Shareholders Meeting to adopt resolutions validly,
either in first or ulterior call, with respect to the following matters, it
shall be necessary the favorable vote of the majority of Series "A" represented
in the corresponding Meeting:
(i) The report of the Board of Directors submitted to the Meeting
pursuant to article One Hundred and Seventy Two of the General Law
of Commercial Companies;
(ii) The report of the Statutory Auditor with respect to the veracity,
sufficiency and reasonability of the report submitted by the Board
of Directors to the Meeting, pursuant to article One Hundred and
Sixty Six of the General Law of Commercial Companies;
(iii) The consolidated and unconsolidated financial statements audited by
and independent public accountant, including the notes necessary to
clarify and supplement the information thereof;
(iv) The application of profits, including, expressly, the payment of
dividends in cash or in shares, under any way;
(v) The appointment and, as the case may be, removal, of 11 (eleven)
members of the Board of Directors and their respective Alternates,
that correspond to Series "A";
(vi) The appointment and, as the case may be, removal, of the Chairman of
the Board of Directors, the Chairman or Chief Executive Officer of
the Company, and the Secretary and Alternate Secretaries;
(vii) The establishment of the amount that might be destined to the
repurchase of shares, as well as the establishment of the percentage
of the capital stock susceptible of such operations;
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(viii) The appointment and, as the case may be, removal of the Statutory
Auditors, including their Alternates;
(ix) The appointment and, as the case may be, removal of the members of
the Executive Committee and the Audit Committee of the Company, if
it corresponds to the Shareholders Meeting their appointment or
removal.
Also, in the Ordinary Shareholders Meeting for the appointment and/or, as the
case may be, removal, of the Regular and Alternate Directors of the Board of
Directors of the Company, the voting shall be carried out and counted necessary
separately for each Series represented in such Meeting. Therefore (i) the
shareholders of Series "A" shall appoint and/or remove in the General Ordinary
Shareholders Meeting, by resolution adopted by the majority of such Series "A"
represented in the Meeting, to eleven members of the Board of Directors and
their respective Alternates, that, pursuant to Articles Seventh and Twenty Sixth
of these by-laws, correspond such Series "A" to appoint and/or remove, as well
as to the Chairman and the Secretary and Alternate Secretaries of the Board of
Directors, and the Chairman and Chief Executive Officer of the Company, event in
which shareholders of the other Series would not be able to participate in the
respective deliberations and resolutions; and (ii) the shareholders of Series
"B" shall appoint and/or, as the case may be, remove, in the Ordinary
Shareholders Meeting, by resolution adopted by the majority of such Series "B"
represented in the Meeting, to five members of the Board of Directors and their
respective Alternates, that, pursuant to Articles Seventh and Twenty Sixth of
these by-laws, correspond such Series "B" to appoint and/or remove, event in
which shareholders of the other Series would not be able to participate in the
respective deliberations and resolutions.
Those shareholders that represent at least ten percent (10%) of the shares
represented in an ordinary shareholders meeting, may request the postponement of
the voting on any matter on which they considered themselves as not sufficiently
informed, in the terms and conditions foreseen in article one hundred and ninety
nine of the General Law of Commercial Companies. Also, those shareholders that
represent at least twenty percent (20%) of the capital stock may judicially
oppose the resolutions to the extraordinary shareholders meetings, in terms of
which they have voting rights, as long as they satisfy the requirements of
article two hundred and one of the General Law of Commercial Companies, also
applying article two hundred and two of such law.
ARTICLE TWENTY-THREE. Extraordinary Shareholder Meetings will be
considered legally installed and the approved resolutions valid, according to
the following rules:
I. First Call.
I.1.- Pursuant to section XII of article One Hundred and Eighty Two of the
General Law of Commercial Companies, in the case of Meetings held in first call
in order to deal and resolve the following matters, at least seventy-five
percent of the shares entitled to vote must be represented and their resolutions
shall be valid when taken by favorable vote of at least fifty
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percent of the shares entitled to vote, only, if in such percentage, is included
the favorable vote of the majority of Series "A" represented in the Meeting:
(i) Increase or reduction of capital stock of the Company;
(ii) Change in the corporate purpose;
(iii) Issue of privileged shares;
(iv) Redemption by the Company of its shares and issue of shares of
enjoyment; with out this being applicable to the repurchase of
shares referred to in article 14-Bis 3 of the Securities Law and
Article Eighth of these by-laws;
(v) Issue of debentures or any other type of bonds;
(vi) Merger of the Company;
(vii) Spin-off of the Company;
(viii) the resolution of matters referred to in Article Forty Seventh of
these by-laws;
(ix) Any amendment to these by-laws.
In any case, the provisions of Article Twenty Fourth of these Bylaws must be
complied with.
I.2.- Pursuant to section XII of article One Hundred and Eighty Two of the
General Law of Commercial Companies, in the event of a Meeting held due to first
call in order to deliver and resolve about the exercise of liability actions and
other acts referred to in articles One Hundred and Sixty One and One Hundred and
Sixty Two of the General Law of Commercial Companies, against any of the members
of the Board of Directors or the Audit Committee of the Company, or the
Statutory Auditors, at least eighty five percent of the shares entitled to vote
must be represented thereat and their resolutions shall be valid when taken by
the favorable vote of at least fifty percent of shares entitled to vote, only,
if in such percentage, is included the favorable vote of the majority of Series
"A" represented in the Meeting.
In any case, the provisions of Article Twenty Fourth of these Bylaws must be
complied with.
I.3.- Pursuant to section XII of article One Hundred and Eighty Two of the
General Law of Commercial Companies, in the event of a Meeting held due to first
call in order to deliver and resolve on the acts mentioned in Article Nine
Section Second of these by-laws, at least eighty five percent of the shares
entitled to vote must be represented, and its resolutions shall be valid when
taken by the favorable vote of the holders of the shares that represent, at
least, seventy five percent of the voting shares in terms of the provisions of
such Article of these by-laws, and, only, if in such percentage, is included the
favorable vote of the majority of Series "A" represented in the Meeting.
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II. Second Call.
II.1.- In the event of a Meeting held due to second or subsequent calls,
in order to deal and resolve the following matters at least fifty percent of the
voting shares shall be represented, and its resolutions shall be valid when
taken by the favorable vote of the holders of shares that represent at least
fifty percent of the voting shares, only, if in such percentage, is included the
favorable vote of the majority of Series "A" represented in the Meeting.
(i) Increase or reduction of capital stock of the Company;
(ii) Change in the corporate purpose;
(iii) Issue of privileged shares;
(iv) Redemption by the Company of its shares and issue of shares of
enjoyment; with out this being applicable to the repurchase of
shares referred to in article 14-Bis 3 of the Securities Law and
Article Eighth of these by-laws;
(v) Issue of debentures or any other type of bonds;
(vi) Merger of the Company;
(vii) Spin-off of the Company;
(viii) the resolution of matters referred to in Article Forty Seventh of
these by-laws;
(ix) Any amendment to these by-laws.
In either case, the provisions of Article Twenty Four of these By-Laws shall be
observed.
II.2.- In the event of a Meeting held due to second or subsequent calls in
order to deliver and resolve about the exercise of liability actions and other
acts referred to in articles One Hundred and Sixty One and One Hundred and Sixty
Two of the General Law of Commercial Companies, against any of the members of
the Board of Directors or the Audit Committee of the Company, or the Statutory
Auditors, at least eighty five percent of the shares entitled to vote must be
represented thereat and their resolutions shall be valid when taken by the
favorable vote of at least fifty percent of shares entitled to vote, only, if in
such percentage, is included the favorable vote of the majority of Series "A"
represented in the Meeting.
In either case, the provisions of Article Twenty Four of these By-Laws shall be
observed.
II.3.- In the event of a Meeting held due to second or subsequent calls in
order to deliver and resolve under the acts referred to in Article Ninth Section
Second of these by-laws, at least fifty percent of the voting shares shall be
represented, and its resolutions shall be valid when taken by the favorable vote
of the holders of shares that represent at least fifty percent of the voting
shares in terms of the provisions of such Article of these by-laws, and, only,
if in such
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percentage, is included the favorable vote of the majority of Series "A"
represented in the Meeting.
Those shareholders with voting rights in the meetings mentioned in this
Article that represent at least ten percent (10%) of the represented shares in
an extraordinary shareholders meeting, may request the postponement of voting on
any matter on which they considered themselves as not sufficiently informed, in
the terms and conditions foreseen in article One Hundred and Ninety Nine of the
General Law of Commercial Companies. Also, those shareholders with voting rights
in the meetings mentioned in this Article, that represent at least twenty
percent (20%) of the capital stock, may judicially oppose the resolutions of the
extraordinary shareholders meetings, in terms of which they have voting rights,
as long as they satisfy the requirements of article Two Hundred and One of the
General Law of Commercial Companies, also applying article Two Hundred and Two
of such law.
ARTICLE TWENTY-FOUR. For the resolutions passed at the Extraordinary
Shareholders Meetings held due to first or ulterior call to deal with any of the
matters on which Series "L" shareholders or, if applicable, Series "D"
shareholders, are entitled to vote to be valid, in addition to the requirements
set forth in the above Article, it shall be required that they are approved by
the majority of Series "A" ordinary shareholders. Likewise, the approval of the
Special Series "D" or Series "L" Shareholders Meeting shall be required for the
resolutions of the General Extraordinary Shareholders Meeting to be valid
regarding the cancellation of the listing of Series "D" or Series "L" shares, as
the case may, or the securities representing them, in the Securities Section
and/or the Special Section in the case of Series "L" shares, of the National
Registry of Securities and in other Mexican stock exchanges or foreign markets
where they are listed.
ARTICLE TWENTY-FIVE. Special Shareholders Meetings shall be considered
legally convened and their resolutions shall be valid according to the following
rules:
ONE. In order for the Special Meetings of holders of Series "D" or "L" be
considered validly convened in a first call, it will be required that at least
the seventy five percent of the outstanding Series "D" or "L", as the case my
be, are present or represented in the corresponding meeting, and their
resolutions shall be valid when passed by the favorable vote of at least fifty
percent of the outstanding Series "D" or "L", as the case may be.
TWO. In order for the Special Meetings of holders of Series "D" and "L" be
considered validly convened in a second or ulterior call, it will be required at
least fifty percent of the outstanding Series "L" or Series "D" shares, as
applicable, are represented thereat and their resolutions shall be valid if
taken by the favorable vote of the outstanding Series "D" or "Series "L"
representing at least fifty percent of said shares, as the case may be. Also, in
cases of second or ulterior call, this shall be published pursuant to Article
Sixteenth herein, stating such circumstance, once that the Special Meeting in a
first call were not convened.
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CHAPTER V
MANAGEMENT OF THE COMPANY;
THE BOARD OF DIRECTORS
SECTION I
MISCELLANEOUS
ARTICLE TWENTY-SIX. The management and direction of the business and
assets of the Company shall be vested in a Board of Directors formed by twenty
Regular members, whom shall be appointed as follows:
(i) Series "A" shareholders will have the right to appoint eleven
Regular members and their respective Alternates; such appointment
shall be made pursuant to provisions set forth in Article Twenty
Second and other related of these by-laws;
(ii) Series "B" shareholders will have the right to appoint five Regular
members and their respective Alternates; such appointment shall be
made pursuant to provisions set forth in Article Twenty Second and
other related of these by-laws;
(iii) Series "D" shareholders will have the right to appoint two Regular
members and their respective Alternates; such appointment shall be
made pursuant to provisions set forth in Articles Seventh, Twenty
First, Twenty Fifth and other related of these by-laws, in the
understanding that the individuals appointed, must fulfill with the
requirements established in such Article Twenty First, and
(iv) Series "L" shareholders will have the right to appoint two Regular
members and their respective Alternates; such appointment shall be
made pursuant to provisions set forth in Articles Seventh, Twenty
First, Twenty Fifth and other related of these by-laws, in the
understanding that the individuals appointed, must fulfill with the
requirements established in such Article Twenty First.
Pursuant to provisions set forth in article 14 (fourteen) Bis 3, section IV of
the Securities Market Law, at least twenty five percent of the Regular members
shall be independent, which in order to be considered as independent may not
qualify for any of the conditions provided in Article Twenty First of these
by-laws. For each Regular member an Alternate shall be appointed, provided that
the Alternate members of the independent members shall also qualify as
independent. The Alternates appointed by Series "A", "B", "D" or "L" may only
cover Regular Directors appointed by such Series.
Also, the members appointed by the Series "D" or "L" shall necessarily be
considered independent in terms of the provisions of Article Twenty First of
these by-laws.
General Ordinary Shareholders Meetings may appoint lifetime honorary directors
who may attend the Board of Directors Meetings with the right to speak but
without the right to vote and neither their attendance nor their absence shall
be taken into account to determine the number of
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persons forming the Board of Directors or the quorum required for the legal
operation of said board.
The minority shares or shareholders group may appoint the number of
Regular Directors and Alternates that may correspond to them according to the
provisions of the following Article.
ARTICLE TWENTY-SEVEN. The majority of the members of the Board of
Directors must be of Mexican citizenship. Whenever any shareholder or group of
shareholders that is entitled to or exercises the minority right to appoint
members of the Board of Directors granted in this Article, will be constrained
to participate in the voting and appointment of the remaining directors that in
its case corresponds to appoint to the respective Series, in the understanding
that in order to compute the majority of votes to carry out the appointment of
such last directors, the votes of the minority shareholders who had exercised
the mentioned right are not to be taken into account or included.
Minority shareholders representing at least ten percent of the capital
stock exclusively represented by Series "A" ordinary shares, as provided for in
article one hundred and forty-four of the General Law of Commercial Companies,
may appoint a Regular Director and his respective Alternate, for every ten
percent of the capital stock they represent. The appointment made by the
minority shareholders, will be made exclusively taking into account the number
of the directors that correspond to appoint to such Series "A".
Minority shareholders representing at least ten percent of the capital
stock exclusively represented by Series "B" ordinary shares, as provided for in
article one hundred and forty-four of the General Law of Commercial Companies,
may appoint a Regular Director and his respective Alternate, for every ten
percent of the capital stock they represent. The appointment made by the
minority shareholders, will be made exclusively taking into account the number
of the directors that correspond to appoint to such Series "B".
Series "D" and Series "L" shareholders that represent at least ten percent
of the capital stock in one or both series of shares shall have the right to
appoint at least one member of the board of directors and its alternate in the
Special Meetings of each one of the series that are held for such purpose. When
these appointments are not carried out, the holders of each one of these series
of shares shall have the right to appoint two regular members and their
alternates, by a majority vote in the Special Meetings of each one of the series
that are held separately for such purpose. In the latter case, the appointments,
as well as the substitutions and removals of the members appointed by each one
of these series, shall be approved in a Special Meeting. The appointments made
by the minority shareholders, will be made exclusively taking into account the
number of the directors that correspond to appoint to such Series "D" or "L", as
the case may be.
In the case of the Series "D" and "L", the minority right herein provided
must be exercised, at any time, in the Special Meeting in charge or carry out
the appointment of the corresponding directors, considering the Series of the
capital stock that correspond pursuant to Article Twenty Fifth of these by-laws.
If such minority right is not exercised in the corresponding Special Meeting,
said right shall become invalid.
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The members that are appointed by shareholders of Series "D" and "L" in
terms of the provisions set forth in this Article, shall be considered as
independent, in terms of the provisions of Article Twenty First of these
by-laws.
The appointment of the members designated by shareholders of Series "A"
cannot be revoked, as long as such revocation is not agreed in the Ordinary
Shareholders Meeting by the favorable vote of the majority of Series "A"
shareholders. Also, the appointments of the directors designated by shareholders
of Series "B" cannot be revoked, as long as such revocation is not agreed in the
Ordinary Shareholders Meeting by the favorable vote of the majority of Series
"B" shareholders.
The appointment of the members designated by shareholders of Series "D"
and "L" cannot be revoked, as long as such revocation is not agreed by the
Special Meeting to the corresponding director pursuant to Articles Seventh,
Fourteenth and Twenty First above, or, if such revocation is pretended to be
made through an Ordinary Shareholders Meeting, as long as the appointment of all
other members are equally revoked.
The shareholders that represent at least fifteen percent (15%) of the
capital stock may directly exercise a civil liability action against the
administrators, as long as the requirements provided in article One Hundred and
Sixty Three of the General Law of Commercial Companies are satisfied. Such
action may be exercised also with respect to the Statutory Auditors and members
of the Auditors Committee, subject to the provisions of such law.
ARTICLE TWENTY-EIGHT. Except for the Regular directors and their
Alternates referred to in the last paragraph of Article Twenty First of these
by-laws, who shall comply with the requirement of independence established
therein, the Regular members and their respective Alternates may or may not be
shareholders, they shall hold their position for one year as from the date of
their appointment, but they shall continue holding office until their successors
take office and they shall receive the fees to be determined by the General
Ordinary Shareholders Meeting.
ARTICLE TWENTY-NINE.
A. When making the appointment of the Directors, the Ordinary Shareholders
Meeting shall appoint, from amongst them, the Chairman and one or more
Vice-Chairmen of the Board of Directors. The Meeting may also appoint a
Secretary and one or two Assistant Secretaries, whether they are members of the
Board of Directors or not.
B. If the Shareholders' Meeting should not make the appointments
mentioned in the former paragraph, the Board of Directors shall make such
appointments.
C. In the absence of the Chairman and the Secretary, they shall be
substituted, by the Vice-Chairmen, in the order of their appointments, and the
Assistant Secretary, respectively, and in case the alternates should also be
absent, the Board of Directors shall appoint the persons who shall substitute
the titleholders.
D. The Chairman of the Board shall have the authorities mentioned in these
By-laws and those granted to him at the time of his appointment. The Chairman of
the Board shall
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represent such Body before all kind of authorities and individuals, except as
provided for in item A of Article thirty-three of these By-laws; likewise, he
shall see that these Bylaws, the rulings of the Company and the resolutions
passed at the Shareholders Meeting, the board itself or the executive committee
or other committees of the Board, are complied with.
E. The Chairman shall have the widest general power-of-attorney for
lawsuits and collections and for acts of administration, with all general
authorities and even the special authorities which in accordance with the law
require a special power-of-attorney or clause, under the terms of the two first
paragraphs of articles two thousand five hundred and fifty-four (2,554) and two
thousand five hundred and eighty-seven (2,587), except for the authority set
forth in sections IV and V of the FEDERAL CIVIL CODE in force and its
correlative articles of the Civil Code for the Federal District and the Civil
Codes for the other states of the Mexican Republic, or abroad depending on the
place where it is exercised. He shall also have a general power-of-attorney for
acts of ownership according to the provisions of paragraph three of article two
thousand five hundred and fifty-four (2,554) of the FEDERAL CIVIL CODE in force
and its correlative articles of the Civil Code for the Federal District and the
Civil Codes for the other States of the Mexican Republic, or abroad, depending
on the place where it is exercised, and to draw, accept, endorse, grant and aval
or in any other manner subscribe credit instruments according to the provisions
of article nine (9) of the General Law of Credit Instruments and Operations.
F. The General Managers and the Special Managers shall have the legal
representation of the Company and of the Board of Directors before any
individual or corporation or before all kind of authorities of any order and
degree, either municipal, local or federal, fiscal, judicial, civil, criminal,
administrative, and labor authorities or any other kind of authorities, in all
controversies, arbitration proceedings and lawsuits where the Company is a party
and shall enjoy the authorities mentioned in item A of Article thirty-three of
these By-laws. Accordingly, the Chairman and all other members of the Board of
Directors, the Executive Committee, the President and Executive Vice Presidents
of the Company and other officials are not authorized to represent the Board or
the Company in any controversy, arbitration proceedings or lawsuit where the
Company is a party, except as stated at the beginning of this paragraph F.
ARTICLE THIRTY.
A. The Board of Directors shall meet at the domicile of the Company
or in any other place, as the board itself may determine and is necessary.
B. The Board of Directors Meetings may be held at any time when called by
the Chairman, by the 25% (twenty five percent) of the Directors of the Board, by
the Secretary or Assistant Secretary, or by any of the Statutory Auditors of the
Company. The Board of Directors shall meet at least once every three months. The
foregoing, without prejudice to the provisions of Article Nine Section Second of
these by-laws.
C. Summons for the Board of Directors Meeting must be made in writing and
sent by the Secretary or any of the Assistant Secretaries to each of the Regular
Directors at least ten days in advance, by certified mail, private courier, by
telegram, telex, telecopier or telefax, to their domiciles or to the places the
Directors themselves had appointed in writing for such purpose. In
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the event that a Regular Director is unable to attend a Meeting called, the
Alternate Directors, which correspond in accordance with the manner in which
they were appointed, must be summoned in the fastest possible way in the manner
established in these by-laws or, in its absence, by the Shareholders Meeting
that appointed them. Calls must specify the time, date, place and Agenda. The
Statutory Auditors shall be called to the meetings of the Board of Directors, to
which they will attend with right of voice but without vote. The foregoing, with
exception to the provisions of Article Nine Section Second of these by-laws.
D. When all Regular Members of the Board of Directors or their respective
Alternates are in attendance and agree with the Agenda, it shall not be
necessary to exhaust the formalities for the notification of the call. The
foregoing shall not be applicable in the cases foreseen in Article Nine Section
Second of these by-laws.
E. The Board of Directors Meetings shall only consider and resolve on
items contained in the Agenda. At the request of any director, any matters may
be included in the Agenda, provided such inclusion is approved by unanimous vote
of the present Directors.
F. For the Board of Directors to validly meet, at least fifty percent of
the Regular Directors or their respective Alternates must be present thereat,
and its resolutions, to be valid, must be passed by the favorable vote of a
majority of the members present at the meeting. The foregoing, with exception to
the provisions of Article Nine Section Second of these by-laws, in which case
the installation of such body and the resolutions to be taken by the same shall
comply with the installation and voting quorums provided therein.
G. Each Director shall be entitled to one vote. In the event of a
tie, the Chairman of the Board of Directors shall have the deciding vote.
H. The Board of Directors may pass resolutions without a meeting by
unanimous vote of the Regular Directors or their respective Alternates. Said
resolutions shall have, for all legal effects, the same validity as if they had
been passed by the Directors in a Board of Directors Meeting, provided they are
confirmed in writing. The document containing the written confirmation of each
Director must be sent to the Chairman, the Secretary or the Assistant Secretary
of the Board of Directors of the Company, who shall transcribe the respective
resolutions on the corresponding minutes book and shall certify that said
resolutions were passed in accordance with the provisions contained in this
Article. The foregoing shall not be applicable in connection with the meetings
and resolutions to be taken by the Board of Directors when resolving any of the
matters provided in Article Nine Section Second of these by-laws in which case a
meeting shall be required, called and installed for such effects, in terms and
subject to the provisions of Article Nine Section Second of these by-laws.
I. It shall be an exclusive power of the Board to approve the transactions
that are not part of the ordinary course of business and (i) that are intended
to be executed between the Company and its partners, with persons that are part
of the management of the Company or with others with which such persons have
pecuniary relations or, if applicable, family links by consanguinity or affinity
up to a second degree, the spouse or concubine; (ii) that consist in the
purchase or sale of ten percent or more of the assets; (iii) that consist in
granting guarantees on an amount superior to thirty percent of the Company's
assets; and (iv) being different
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transactions to the ones mentioned above, represent more than one percent of the
assets of the Company. The members of the Board of Directors shall be liable for
the resolutions they approve as a consequence of the matters mentioned in this
section, except for provisions of article one hundred and fifty nine of the
General Law of Commercial Companies.
ARTICLE THIRTY-ONE. Minutes of each Board of Directors Meeting shall be
drafted in the respective book where the resolutions passed shall be contained,
and which shall be signed by the Chairman and the Secretary or those acting as
such.
ARTICLE THIRTY-TWO. In the absence of express appointment by the Meeting,
the Board of Directors at its first Meeting immediately following the Meeting
which had appointed its members, shall appoint from among its members, the
Chairman and, if applicable, one or more Vice-Chairmen. The Board of Directors
may also appoint the Secretary and one or two Assistant Secretaries who may or
may not be members of the Board of Directors.
The Chairman of the Board of Directors shall preside over the Board of
Directors Meetings, and in his absence, they shall be presided over by the
Vice-Chairmen of the Board itself, in the order of their appointments. In the
absence of the abovementioned persons, the Meetings shall be presided over by
one of the members that the other attendants appoint by majority vote.
The copies or evidences of the minutes of the Board of Directors Meetings
and of the Shareholders Meetings, as well as the entries in their non-accounting
and corporate books and registries and, in general, any document of the files of
the Company, may be authorized and certified by the Secretary or the Assistant
Secretary who, in the absence of appointment of another person, shall be the
permanent Delegates to resort to the Notary Public of their choice to notarize
the minutes of the Shareholders Meetings, the minutes of the Board of Directors
Meetings and the minutes of the Executive Committee Meetings, as well as to
grant, as Delegates, the powers-of-attorney the Board of Directors itself may
grant. Likewise, the Secretary or Assistant Secretary shall be in charge of
drafting and including, in the respective books, the minutes of the Shareholders
Meetings, the minutes of the Board of Directors Meetings and the minutes of the
Executive Committee Meetings, as well as to make summaries and certifications
thereof, and of the appointments, signatures and authorities of the officers of
the Company.
SECTION II
AUTHORITIES OF THE BOARD OF DIRECTORS
ARTICLE THIRTY-THREE.
A. Except for the legal representation delegated to the General Managers
and Special Managers of the Company to represent it at all controversies,
arbitration proceedings and lawsuits to which the Company is a party, with the
authorities mentioned in item B of this Article, the Board of Directors shall
have the fullest authorities and faculties to execute all agreements and to
carry out all acts and operations which in accordance with the law or these
By-laws are not expressly reserved to the Shareholders Meeting, to manage and
direct the matters of the Company, to comply with the corporate purpose of the
Company
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and to legally represent the Company before any person and judicial, criminal,
civil, labor or administrative authorities, either federal, state or municipal,
with the widest authorities required by the law, including, without limitation,
those mentioned in the following paragraphs:
One. To manage the corporate business and assets with a wide
power-of-attorney for acts of administration under the terms of article two
thousand five hundred and fifty-four, second paragraph, of the FEDERAL CIVIL
CODE in force and its correlative articles of the Civil Code for the Federal
District and the Civil Codes for the other States of the Mexican Republic,
depending on the place where it is exercised;
Two. To exercise acts of ownership regarding the real estate or personal
property of the Company or its real or personal rights, under the terms of
paragraph three of article two thousand five hundred and fifty-four (2,554) of
the FEDERAL CIVIL CODE in force and its correlative articles of the Civil Code
for the Federal District and the Civil Codes for the other States of the Mexican
Republic, or abroad, depending on the place where the power-of-attorney is
exercised;
Three. To manage the business of the Company and the real estate and
personal property thereof, with a general power-of-attorney for lawsuits and
collections, with all the general authorities and even the special authorities
which in accordance with the law require a special power-of-attorney or clause,
under the terms of the first paragraph of articles two thousand five hundred and
fifty-four (2,554) and two thousand five hundred and eighty-seven (2,587),
except for the authority set forth in section IV thereof, of the FEDERAL CIVIL
CODE in force and its correlative articles of the Civil Code for the Federal
District and the Civil Codes for the other States of the Mexican Republic,
depending on the place where it is exercised, for which reason it shall
represent the Company before any individual or corporation or before all kind of
authorities of any order and degree either municipal, local or federal
authorities or fiscal, judicial, civil, criminal, administrative or any other
kind of authorities, before all Boards of Conciliation and Conciliation and
Arbitration, either federal or local, and all other labor authorities and before
arbiters and arbitrators;
Four. To file criminal claims, complaints and accusations and to grant the
pardon referred to in Article ninety-three (93) of the FEDERAL CRIMINAL CODE in
force and its correlative articles of the Criminal Code for the Federal District
and the Criminal Codes for the other States of the Mexican Republic, depending
on the place where it is exercised, to assist the Public Prosecutor as civil
party as well as to demand the restoration of the damages derived from the
crime;
Five. To file and withdraw from all kind of lawsuits, challenges,
incidents, remedies and ordinary and extraordinary appeals, actions and
procedures of a civil, mercantile, criminal, administrative, litigious and labor
nature, and to file "amparo" proceedings and withdraw therefrom;
Six. To assign assets, settle, receive payments, bid and outbid in
auctions and submit to arbitrators;
Seven. To draw, accept, endorse, grant and guarantee, or in any other
manner subscribe
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credit instruments according to the provisions of article nine (9) of the
General Law of Credit Instruments and Operations;
Eight. To lend or borrow granting or receiving the respective guarantees;
to issue debentures with or without specific guarantee; to accept, draw, endorse
and guarantee all kind of credit instruments and to grant bonds or guarantees of
any kind, regarding the obligations contracted by the Company or the instruments
issued or accepted by third parties;
Nine. To contribute real estate or personal property to other
companies and to subscribe shares or take participations in other companies;
Ten. To cancel any registrations made in the Stock Registry in cases
of non-fulfillment to the provisions set forth in Section Two, Article Ninth
of these by-laws.
Eleven. To appoint and remove all other directors (excepting the General
Director), general managers, special managers, managers, deputy managers,
external auditors and attorneys-in-fact of the Company who may be necessary for
the due attention of the matters of the Company and its subsidiaries, stating
their authorities, duties and remunerations, provided they had not been
appointed by the Meeting;
Twelve. To grant and revoke the powers-of-attorney that may be convenient,
with or without substitution right, being able to grant therein the authorities
that these By-laws grant the Board of Directors, if any, keeping the exercise
thereof;
Thirteen. To resolve on the matters related to the acquisition or
sale by the Company of any shares, corporate participations, bonds or
securities, to the participation of the Company in other firms or companies
and to the acquisition, construction or sale of real estate;
Fourteen. To authorize both the temporary acquisition of shares
representing the capital stock of the Company itself, under the terms of
these By-laws, as well as appoint the person or persons responsible for the
acquisition and their later placement;
Fifteen. To propose, negotiate and approve the terms and conditions for
the establishment of programs for and/or the issuance and offering of notes at a
national and international level; to appoint the persons in charge of their
negotiation to whom they may grant general or special powers-of-attorney, as
well as to appoint representatives abroad for the purposes related to such
operations;
Sixteen. To open and cancel bank accounts in the name of the Company,
as well as to make deposits and draw therefrom and to appoint those persons
to draw against them;
Seventeen. To establish branches and agencies of the Company anywhere
in the Mexican Republic or abroad;
Eighteen. To determine the sense on which the votes corresponding to
the shares held by the Company must be cast at the Meetings of the companies
in which capital stock if participates, appointing attorneys-in-fact to
attend on behalf of the Company;
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Nineteen. To prepare domestic labor rulings;
Twenty. To carry out the resolutions of the Meetings, delegate its
functions in one or several Directors, officers of the Company or the
attorneys-in-fact appointed for said purpose, to exercise them in the
business and under the terms and conditions established by the Board itself;
Twenty-One. To determine the expenses, approve the annual budgets of
the Company, the amendments thereof, as well as any other extraordinary item;
Twenty-Two. To prepare the financial statements;
Twenty-Three. To call the Meetings;
Twenty-Four. Establish the Executive Committee and the Audit Committee,
both, mentioned in Article Thirty-Four of these by-laws and appoint and remove
its members, as well as establish the special committee or commissions they
consider necessary for the development of the operations of the Company,
establishing the rights and obligations of such committees or commissions, the
number of members that integrate them and the manner in which the members are
appointed, as well as the rules that establish their functions, in the
understanding that such committee or commissions shall not have the faculty that
in terms or the Law or these by-laws correspond solely to the shareholders
meeting or the Board of Directors.
Twenty-Five. To know, deliberate and resolve the matters referred in
Article Nine Section Second of these by-laws in terms and subject to terms
established therein.
Twenty-Six. In general, to carry out all acts and operations that may be
necessary or convenient for the corporate purpose of the Company, exception made
of those expressly reserved by the law or these By-laws to the Meeting.
The Meeting may limit or rule said authorities. No member of the Board of
Directors may exercise, jointly or severally, any of the powers-of-attorney
mentioned in item A of this Article, except when expressly authorized by the
Board of Directors or the Shareholders Meeting.
B. THE GENERAL MANAGERS and THE SPECIAL MANAGERS are granted the legal
representation of the Company and the legal representation of the Board of
Directors and the Executive Committee or of the other Board Committees, to
appear, any of them, before any individual or corporation or before any kind of
authorities of any order and degree, either municipal, local or federal, fiscal,
judicial, civil, criminal, administrative and labor authorities or any other
authority, to defend whatever is in the interest of the Company, in all
controversies, arbitration proceedings and lawsuits to which the Company is a
party. In the exercise of their positions, the Secretary and the Assistant
Secretary or the Assistant Secretaries of the Board of Directors, as well as the
General Managers and the Special Managers, shall jointly or severally enjoy the
following authorities:
(i) General power-of-attorney for lawsuits and collections, to be exercised
jointly or severally, with all general authorities and even special authorities
which in accordance with the law require a special power-of-attorney or clause,
under the terms of the first paragraph of article Two
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Thousand Five Hundred and Fifty-Four and of article Two Thousand Five Hundred
and Eighty-Seven, except for the authority mentioned in section V thereof, of
the FEDERAL CIVIL CODE in force and its correlative articles of the Civil Code
for the Federal District and the Civil Codes for the other States of the Mexican
Republic, or abroad, depending on the place where it is exercised , for which
reason they shall represent the Board of Directors, the Executive Committee and
Company before all kind of individuals or corporations or authorities of any
order and degree, either municipal, local or federal, fiscal, judicial, civil,
criminal, administrative and labor authorities or any other kind of authorities,
being able to file and withdraw from all kind of civil, mercantile, criminal,
administrative, litigious and labor lawsuits, actions and proceedings, to file
"amparo" proceedings and withdraw therefrom, to make and answer questions in
court, to settle, to receive payments, to bid and outbid in auctions, to submit
to arbitrators, to file and prosecute lawsuits, incidents, remedies and ordinary
or extraordinary appeals, to challenge, to file criminal denounces, complaints
and accusations and to grant the pardon referred to in article Ninety-Three of
the FEDERAL CRIMINAL CODE in force and its correlative articles of the Criminal
Code for the Federal District and the Criminal Codes for the other States of the
Mexican Republic, or abroad, depending on the place where it is exercised, to
assist the Public Prosecutor as civil party, as well as to demand the
restoration of damages derived from the crime, being authorized to sign as many
public or private documents as may be necessary to duly comply with this
power-of-attorney.
(ii) To manage the labor relationships of the Company, for which reason any of
them may execute, rescind, amend and terminate individual and collective labor
agreements, establish and modify working conditions, issue domestic labor
rulings and, in general, appear before private individuals and before all labor
authorities, especially before those related to article five hundred and
twenty-three (523) of the Federal Labor Law, as well as before the Institute of
the National Fund for Workers Housing (INFONAVIT), the Mexican Institute of
Social Security (IMSS) and the Fund for the Promotion and Guaranty of the
Workers' Consumption (FONACOT) to carry out all negotiations to resolve the
matters as needed by the Company to which they shall appear as representatives
under the terms of article eleven (11) of the Federal Labor Law, which provides:
"The directors, managers, administrators and all other persons exercising
management functions in the companies or establishments shall be considered as
representatives of the employer and therefore, they bind it in all its
relationships with the workers". Accordingly, in connection with these matters,
they may exercise the mentioned authorities, that is, they may appear as
managers and therefore, as representatives of the Company, under the terms of
article eleven (11), six hundred and ninety-two (692), section two, seven
hundred and eighty-seven (786) and eight hundred and seventy-six (876) of the
Federal Labor Law, to the conciliation hearings to which the Company is summoned
by the Boards of Conciliation and of Conciliation and Arbitration, with all
general authorities and even those special authorities which in accordance with
the law require a special power-of-attorney or clause.
(iii) To appear, any of them, on behalf of the Company to the conciliation
proceedings before the Federal Consumers Protection Office and its delegations
in the Mexican Republic, considering that they are duly authorized therefor,
being able to carry out all kind of negotiations and proceedings in connection
with the matters where the Company has any interest, being authorized to execute
any act or document that may be applicable.
(iv) General power-of-attorney for acts of administration under the
terms of the
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second paragraph of article two thousand five hundred and forty-four of the
FEDERAL CIVIL CODE in force and its correlative articles of the Civil Code for
the Federal District and the Civil Codes for the other States of the Mexican
Republic, or abroad, depending on the place where it is exercised, with all
general authorities and the special authorities which in accordance with the law
require a special power-of-attorney or clause, to be exercised jointly or
severally.
SECTION III
EXECUTIVE COMMITTEE
ARTICLE THIRTY-FOUR.
A. The Company may have an Executive Committee formed by the number of
Regular or Alternate Members of the Board of Directors of the Company or by
other persons that are not members of the Board of Directors, appointed
indistinctly by such Board of Directors or by the Chairman of the Company. The
persons that are appointed to form part of the Executive Committee shall form a
Delegated Collegiate Body of the Board. In the case that such authority is
exercised by the Board of Directors and by the Chairman of the Company, the
appointments made by this last one shall prevail
B. The Board of Directors and the Chairman of the Company may appoint an
Alternate member for each Regular member of the Executive Committee they had
appointed. Alternate members shall take office in the absence of the Regular
members for whom they had been expressly appointed. If the Board of Directors or
the Chairman of the Company, at the time of their appointment, had failed to
establish a special order for said purpose, the Alternate Members shall be
called in the order of their appointment.
C. The members of the Executive Committee shall hold their positions for
one year unless they are removed by resolution of the Board of Directors or by
the Chairman of the Company, but in any event, they shall continue holding
office until the persons appointed to substitute them take office; they may be
reelected and shall receive the remunerations to be determined by the Board of
Directors or, as the case may be, by the Chairman of the Company.
D. When making the appointment of the members of the Executive Committee,
the Board of Directors of the Chairman of the Company, shall appoint, from
amongst them, the Chairman and, as the case may be, to one or more Vice-Chairmen
of the Executive Committee.
E. The offices of Secretary and Assistant Secretaries of the Executive
Committee shall be held by the same persons which hold such offices as to the
Board of Directors.
F. In the absence of the Chairman and the Secretary, they shall be
substituted, by the Vice-Chairmen, in the order of their appointments, and the
Assistant Secretary, respectively, and in case the alternates should also be
absent, the other members of the Committee shall appoint the persons who shall
substitute the titleholders.
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G. The Chairman shall have the widest general power-of-attorney for
lawsuits and collections and for acts of administration, with all general
authorities and even the special authorities which in accordance with the law
require a special power-of-attorney or clause, under the terms of the two first
paragraphs of article two thousand five hundred and fifty-four and two thousand
five hundred and eighty-seven, except for the authority set in sections IV and V
of the Federal Civil Code in force and its correlative articles of the Civil
Code for the Federal District and of the Civil Codes for the other states of the
Mexican Republic, or abroad where exercised. He shall also have a general
power-of-attorney for acts of ownership according to the provisions of paragraph
three of article two thousand five hundred and fifty-four of the Federal Civil
Code in force and its correlative articles of the Civil Code for the Federal
District and of the Civil Codes for the other states of the Mexican Republic, or
abroad where it is exercised, and to draw, accept, endorse, grant and aval or in
any other manner subscribe credit instruments according to the provisions of
article nine of the General Law of Credit Instruments and Operations.
H. The Executive Committee shall meet when so required by the Chairman or
any of the Vice-Chairmen, the Secretary, the Alternate Secretary or any two of
its members, prior notice given five days in advance to the other members of the
Executive Committee. The call must be sent by mail, private courier, telegram,
telefax, messenger or any other means guaranteeing that the members of the
Committee receive it at least five days in advance of the date of the Meeting.
I. The call must specify the time, the date, the place and the respective
Agenda, it may be signed by the person making such call. The notification of the
call shall not be necessary if all of the members of the Executive Committee are
present at a meeting.
J. For the Meetings of the Executive Committee to be considered legally
convened the attendance of at least the majority of its members shall be
required. The resolutions of the Executive Committee must be approved by the
favorable vote of the majority of its members present at each Meeting.
K. The Executive Committee may pass resolutions without a Meeting by
unanimous vote of the Regular Members or their respective Alternates. Said
resolutions shall have, for all legal effects, the same validity as if they had
been passed by the members in a Committee Meeting, provided they are confirmed
in writing. The document containing the written confirmation of every member
must be sent to the Chairman, the Secretary or the Assistant Secretary of the
Board of Directors of the Company, who shall transcribe the respective
resolutions in the corresponding minutes book and shall certify that said
resolutions were passed in accordance with the provisions contained in this
Article.
L. The Executive Committee shall have the authorities granted to the Board
of Directors under item B of Article Thirty-Three of these By-laws, except those
included in items Thirteen, Twenty, (in this case, except for the faculty
granted by the Shareholders Meeting to the Executive Committee in order to
execute the resolutions adopted in such shareholders meeting) Twenty-two,
Twenty, three and Twenty-five. Also, the Executive Committee is granted
faculties in order to create Special Committees and appoint the persons that
form them, indicating the faculties, obligations and remunerations.
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M. The Executive Committee shall not carry out any activities reserved by
the law or by these By-laws to the Shareholders Meeting or to the Board of
Directors Meeting. The Executive Committee may not, in turn, delegate its
authorities to any person, but it may grant general and special
powers-of-attorney when deemed convenient and appoint the persons to carry out
its resolutions. In the absence of such appointment, the Chairman, any
Vice-Chairman, the Secretary and the Alternate Secretary shall be authorized to
carry them out.
N. The Executive Committee must inform to the Board of Directors, through
its Chairman, of the resolutions the Executive Committee may pass or when, in
the opinion of the Committee, any transcendental acts or facts about the Company
may arise.
O. Minutes must be drafted from every Executive Committee Meeting which
shall be transcribed in a special book. The minutes must evidence the
resolutions passed, and the persons who had acted as Chairman and Secretary must
sign such minutes.
P. The Company shall have an Audit Committee which shall be integrated by
the number of members that the Board of Directors or the Executive Committee
determines among the Directors appointed by the Ordinary General Shareholders
Meeting, of which the President and the majority of them shall be independent in
terms of the provisions of article 14 Bis 3 section V of the Securities Market
Law. The Statutory Auditor or Auditors shall be present at the Audit Committee
with voice but without voting rights.
Q. The Auditors Committee shall have, among others, the following
functions:
i. Express opinions on operations with related parties
mentioned in paragraph I of Article Thirty of these
By-Laws.
ii. Propose the hiring of independent specialists in those cases
it deems convenient, in order that such specialists express
their opinion with respect to the operations mentioned in
paragraph I of Article Thirty of these By-Laws.
R. The Auditors Committee must prepare an annual report about its
activities and file it to the Board of Directors. Also, such annual report
shall be presented to the Annual General Ordinary Shareholders Meeting.
SECTION IV
THE PRESIDENT OF THE COMPANY
ARTICLE THIRTY-FIVE. The Company shall have a President or s General
Manager, who shall be appointed by the majority of votes of Series "A" holders
represented in the corresponding General Shareholders Meeting, pursuant to
Articles Seven, Twenty-Two and Twenty-Three of these by-laws. The President or
the General Manager of the Company, by the mere fact of his appointment, shall
be the Chief Executive Officer of the Company and shall have, among others, the
following authorities:
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(A) To carry out the resolutions passed by the Shareholders Meetings, by
the Board of Directors Meetings and by the Executive Committee Meetings.
(B) To appoint and remove the Vice-Presidents of the Company as well as
all other officers, employees, external auditors and attorneys-in-fact who may
be necessary for the due attention of the matters of the Company and of its
subsidiaries, stating their authorities, duties and remunerations.
(C) To manage the corporate business and assets with a wide
power-of-attorney for acts of administration under the terms of article two
thousand five hundred and fifty-four, paragraph two, of the FEDERAL CIVIL CODE
in force and its correlative articles of the Civil Codes for the other states of
the Mexican Republic and the Federal District, or abroad where it is exercised..
(D) To manage the business of the Company and the real estate and personal
property thereof, with a general power-of-attorney for lawsuits and collections,
with all the general authorities and even the special authorities which in
accordance with the law require a special power-of-attorney or clause, under the
terms of the first paragraph of articles two thousand five hundred and
fifty-four (2,554) and two thousand five hundred and eighty-seven (2,587), of
the FEDERAL CIVIL CODE in force and its correlative articles of the Civil Codes
for the other states of the Mexican Republic and the Federal District, or abroad
where it is exercised, for which reason he shall represent the Company before
any individual or corporation or before all kind of authorities of any order and
degree, either municipal, local or federal, fiscal, judicial, civil, criminal,
administrative or any other kind of authorities, before all boards of
conciliation and boards of conciliation and arbitration, either federal or
local, and all other labor authorities and before arbitrers and arbitrators.
(E) To file criminal claims, complaints and accusations and grant the
pardon referred to in article ninety-three (93) of the FEDERAL CRIMINAL CODE in
force for and its correlative articles in the Criminal Code for the Federal
District and of the Criminal Codes for all other States of the Mexican Republic
where it is exercised, assist the Public Prosecutor as civil party as well as to
demand the restoration of the damages derived from the crime.
(F) To file and withdraw from all kind of lawsuits, challenges, incidents,
remedies and ordinary or extraordinary appeals, actions and proceedings of a
civil, mercantile, criminal, administrative, litigious and labor nature, and to
file "amparo" proceedings and withdraw therefrom.
(G) To have a general power-of-attorney for acts of ownership under the
terms of the third paragraph of article two thousand five hundred and fifty-four
of the FEDERAL CIVIL CODE in force and its correlative articles of the Civil
Codes for the other states of the Mexican Republic and the Federal District, or
abroad where it is exercised, and to draw, accept, endorse, grant and aval or in
any other manner subscribe credit instruments according to the provisions of
article nine of the General Law of Credit Instruments and Operations.
(H) To appoint the attorneys-in-fact of the Company granting them such
authorities as
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he may deem convenient, within the scope of his attributions, being able to
revoke the powers-of-attorney he had granted.
(I) To open and cancel bank accounts on behalf of the Company as well as
to make deposits and draw against them and to appoint those persons to sign such
accounts.
(J) To appoint attorneys-in-fact to attend the meetings of the companies
in whose capital stock this Company participates and to vote on the matters for
which they were called and in the sense previously determined by the Board of
Directors.
(K) To appoint the members of the Executive Committee of the Company.
(L) To create special committees and to appoint members thereof, as well
as their authorities, duties and remunerations.
CHAPTER VI
SURVEILLANCE OF THE COMPANY
ARTICLE THIRTY-SIX. The surveillance of the Company shall be trusted to
one Statutory Auditor whom shall be appointed by the General Ordinary
Shareholders Meeting in accordance with Article Twenty-Two herein, who may have
his respective Alternate. The Statutory Auditor does not need to be a
shareholder of the Company and shall be appointed for terms of one year, but may
be reelected once or several times, and shall continue in office until the
Meeting makes new appointments, and the one appointed take office. The Statutory
Auditor must be independent from the Company, and for such purpose the following
shall not be considered as independent: (a) such persons that act as employees
or officers of the Company, including the persons that occupied such office
during the immediately preceding fiscal year in which they are appointed, (b)
any shareholder of the Company, (c) such persons that are shareholders of the
Company that, without being employees or officers of the Company, have mandate
or command powers over officers of such Company, (d) any employee of any
shareholder of the Company or of any company that is under the Control (as such
term is defined in Article Nine Clause Second of these by-laws) of any
shareholder, (e) any consultant or service provider that receives more than 1%
(one percent) of their income from any shareholder, (f) those persons that are
partners or employees of the companies or associations that render consulting
and supporting services to the Company or the companies that are part of the
same economic group to which the Company is a part of , whose income for
providing such services represents 10% (ten percent) or more of their income,
(g) clients, providers, debtors, creditors, partners or employees of a company
or economic entity that is an important client, provider, debtor or creditor of
the Company or any of its subsidiaries, considered for this purpose as important
clients or providers such entities whose sales with the Company or any of its
subsidiaries, represent 10% (ten percent) or more of the total volume of sales
of the corresponding entity; and by important creditor and debtor, such entities
whose amount of the corresponding credit represents 10% (ten percent) or more of
the volume of total assets of such persons, (h) employees of a foundation,
association or partnership that receive important donations from the Company,
considered as important donations those that represent 5% (five
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percent) or more of the total donations received by such institutions, (i)
general directors or high level officers of a company in whose board of
directors the President, Vice-presidents, general director or any other high
level officer of the Company participates, (j) those persons that are considered
as a Competitor (as such term is defined in Article Nine Section Second of these
by-laws) of the Company or any of its Subsidiaries or Affiliates or Related
Parties (as such terms are defined in Article Nine Section Second of these
By-laws), (k) those persons that are shareholders, officers, directors, clients,
providers, important creditors or debtors of a Competitor (as such term is
defined in Article Ninth Section Second of these by-laws) of the Company or any
of its Subsidiaries or Affiliates or Related Parties(as such terms are defined
in Article Nine Section Second of these By-laws), (l) those persons that,
directly or indirectly, have business relations or contract relations with a
Competitor of the Company or its Subsidiaries or Affiliates or Related
Parties(as such terms are defined in Article Nine Section Second of these
By-laws) or have or have had the legal representation or are lawyers of a
Competitor of the Company or its Subsidiaries or Affiliates or Related
Parties(as such terms are defined in Article Nine Section Second of these
By-laws) or receive, directly or indirectly, any fees, price or economic benefit
of a Competitor of the Company or its Subsidiaries or Affiliates or Related
Parties(as such terms are defined in Article Nine Section Second of these
By-laws), (m) those persons that, directly or indirectly, provide their services
or support a Competitor of the Company or its Subsidiaries or Affiliates or
Related Parties(as such terms are defined in Article Nine Section Second of
these By-laws), not withstanding the amount of fees, prices, economic
remunerations or benefits that they receive from the Competitor of the Company
or its Subsidiaries or Affiliates or Related Parties (as such terms are defined
in Article Nine Section Second of these By-laws) or have received any fee,
price, economic remuneration or benefit from a Competitor of the Company or its
Subsidiaries or Affiliates or Related Parties (as such terms are defined in
Article Nine Section Second of these By-laws) during the 5 (five) previous years
from the date in which their appointment as director of the Company is proposed,
(n) those persons that directly or through any Persons or any Related Party (as
such terms are defined in Article Nine Section Second of these By-laws) to them,
are shareholders of a Person (as such terms are defined in Article Nine Section
Second of these By-laws)that is holder of 10% (ten percent) or more shares
issued by the Company or has the right, jointly or severally with a Related
Party (as such term is defined in Article Nine Section Second of these By-laws),
to exercise its voting right on shares issued by the Company, representing 10%
(ten percent) or more of the capital stock, and (n) the spouse or concubine, as
well as their family by consanguinity, affinity or civil, up to five degrees,
without any limitation, of the persons mentioned in the foregoing paragraphs (a)
through (n). The foregoing, in the understanding that in connection to the
provisions of paragraphs (k), (l) and (m) , the persons who are intended to be
appointed as Statutory Auditors shall not lose their independent character when
its sole relation or link with a Competitor of the Company or its Subsidiaries
or Affiliates or Related Parties (as such terms are defined in Article Nine
Section Second of these By-laws), derives, directly or indirectly, from
accounting or auditing services to that Competitor or when the fees, prices,
economic remunerations or benefits have been received from a Competitor of the
Company or its Subsidiaries or Affiliates or Related Parties (as such terms are
defined in Article Nine Section Second of these By-laws) exclusively from
rendering accounting and auditing services to that Competitor.
The Statutory Auditor shall have the authorities and obligations listed in
article one hundred and sixty-six of the General Law of Commercial Companies.
Also, it shall be
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summoned, additionally from the meetings of the Board of Directors, to all the
meetings of the Executive Committee and the Auditors Committee, to which it
shall assist with voice but without voting rights.
The holders of ordinary shares and, if applicable, the holders of
non-voting shares, that represent at least ten percent of the capital stock, may
appoint a Statutory Auditor. The Statutory Auditor appointed by such
shareholders can only be revoked when the others Statutory Auditors are revoked.
ARTICLE THIRTY-SEVEN. When taking office, the Statutory Auditory and his
Alternate must guarantee their management by depositing at the treasury of the
Company the amount of $100,000 (ONE HUNDRED THOUSAND 11/100 Mex. Cy.) in cash,
or granting a bond in said amount that they may not withdraw until their
management has been approved by the Shareholders Meeting. The Statutory Auditor
shall receive the fees annually stated by the Ordinary Shareholders Meeting.
CHAPTER VII
FISCAL YEAR AND FINANCIAL INFORMATION
ARTICLE THIRTY-EIGHT. The fiscal year of the Company shall coincide with
the calendar year. In the event that the Company enters into liquidation
proceedings or is merged, its fiscal year shall end before the date on which it
undergoes liquidation proceedings or is merged and it shall be considered that
there shall be a fiscal year all the time the Company is under liquidation; this
last fiscal year must coincide with the provisions of the applicable fiscal
laws.
ARTICLE THIRTY-NINE. Within the four months following the end of each
fiscal year, the Board of Directors shall prepare, at least, the following
financial information:
(a) A report from the Board of Directors on the progress of the Company
during the fiscal year, as well as the policies followed by the Board itself,
and, if any, on the main existing projects;
(b) A report stating and explaining the main accounting and information
criteria and policies followed in the preparation of the financial information;
(c) A statement showing the financial condition of the Company as at the
end of the fiscal year;
(d) A statement showing, duly explained and classified, the results of the
Company during the fiscal year;
(e) A statement showing the changes in the financial condition of the
Company during the fiscal year;
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(f) A statement showing the changes in the items forming the corporate
patrimony, which occurred during the fiscal year; and
(g) Notes that may be necessary to fully clarify the information contained
in the above-mentioned statements.
CHAPTER VIII
PROFITS AND LOSSES
ARTICLE FORTY. From the net profits of each fiscal year, according to the
financial statements, the following applications shall be made once the amounts
necessary to: (i) make the payments or the provisions to pay the respective
taxes; (ii) the funds that may be set aside in a compulsory manner by operation
of law; (iii) if any, the redemption of losses of previous fiscal years; and
(iv) the payments charged to the general expenses of the fiscal year which had
been made to pay the members of the Board of Directors, Statutory Auditors and
Director General, have been deducted:
1. Five percent shall be set aside to create, increase or if necessary,
replenish the reserve fund, until said fund equals twenty percent of the paid-up
capital stock.
2. The amounts that the Meeting resolves to assign to create or increase
general or special reserves, including, if applicable, the reserve to repurchase
shares or securities representing them, referred to in Article Eighth of these
by-laws.
3. From the remaining amount, the sum necessary to pay all shareholders
the dividends which, if any, were decreed by resolution of the Meeting and under
the terms provided for in Article Seven of these By-laws shall be taken.
4. The surplus, if any, shall remain available for the Meeting or for the
Board of Directors, if so authorized by the Meeting itself. The Meeting may
apply the surplus as it may deem convenient for the interest of the Company and
its shareholders.
5. In the event of capitalization of accounting capital accounts, all the
shareholders will have the right to the corresponding proportional part of such
accounts, so they will receive shares of the class or series that the
shareholders meeting determines.
ARTICLE FORTY-ONE. Losses, if any, shall be borne by all shareholders in
proportion to the number of their shares, without their liability exceeding the
amount of their contributions.
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CHAPTER IX
DISSOLUTION AND LIQUIDATION
ARTICLE FORTY-TWO. The Company shall be dissolved in any of the events
provided for by article Two hundred and twenty-nine of the General Law of
Commercial Companies.
ARTICLE FORTY-THREE. Once the Company has been dissolved, it shall enter
liquidation proceedings. The Extraordinary Shareholders Meeting shall appoint
one or more regular liquidators, being able to appoint their respective
alternates, if it so wishes, who shall have the authorities that the Law or the
Shareholders Meeting appointing them shall determine.
ARTICLE FORTY-FOUR. Once the Company has been dissolved, it shall enter
liquidation proceeding, which shall be carried out by one or more liquidators.
In order to adopt resolutions with respect to the appointment and/or removal of
the liquidator or liquidators, it will be necessary the favorable vote of the
majority of Series "A" represented in the corresponding General Extraordinary
Shareholders Meeting. The liquidator or liquidators appointed pursuant to these
by-laws and the General Law of Commercial Companies, shall carry out the
liquidation according to the basis which, if any, had been determined by the
Meeting and in the absence thereof, in accordance with the following bases and
in accordance with the provisions of the respective chapter of the General Law
of Commercial Companies:
(a) They shall complete the businesses in the manner they may deem the
most convenient;
(b) They shall pay the credits and the debts by disposing of the assets of
the Company that may be necessary to sell for such purpose;
(c) They shall prepare the final liquidation balance sheet; and
(d) Once the final liquidation balance sheet has been approved, they shall
allocate the liquid assets as follows:
d.1.- Series "D" shareholders shall be paid a preferred accumulative
dividend equivalent to five percent on the theoretical value of the shares
corresponding to them and which have not been paid, as indicated, before
allocating the allocable remainder.
d.2.- Following and once the dividend to which paragraph d-One
refers, the holders of Series "D" shares shall receive a payment
corresponding to the refund per share equivalent to its theoretical value
of $0.00683551495 Mexican Pesos per share.
d-3.- Once the item referred to in paragraph d.1 and d.2 above have
been paid, a payment per share to each of Series "A", "B" and "L"
shareholders equivalent to the payment received by each of Series "D"
shareholders shall be made according to the above two paragraphs.
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d.4.- The remainder shall be distributed equally among all
shareholders in proportion to the number of shares and the amount paid
each of them hold.
In the event of controversy among the liquidators, the Statutory Auditor
must call a Shareholders Meeting for it to resolve the questions regarding any
controversy which may have arisen.
ARTICLE FORTY-FIVE. During the liquidation proceedings, the Meeting shall
be held in the manner provided for in these By-laws, and the liquidator or
liquidators shall carry out functions equivalent to those corresponding to the
Board of Directors during the normal existence of the Company, and the Statutory
Auditor shall continue fulfilling, regarding the liquidator or liquidators, the
functions he had carried out during the existence of the corporation, regarding
the Board of Directors.
CHAPTER X
JURISDICTION AND COMPETENCE
ARTICLE FORTY-SIX. For the construction of and compliance with these
By-laws, the Shareholders expressly submit to the competence of the courts of
Mexico City, Federal District, for which reason they waive any other forum that
may correspond to them by reason of their domicile.
CHAPTER XI
SPECIAL PROVISIONS
ARTICLE FORTY-SEVEN. In the event of cancellation of the registration of
the shares representing the capital stock of the Company in the Securities
Section of the National Securities Registry, the shareholders who hold the
majority of the ordinary shares or that have the possibility, under any title,
to impose decisions in the general shareholders meetings or to appoint the
majority of the members of the Board of Directors of the Company, must carry out
a tender offer, before to the cancellation. The shareholders mentioned must
transfer into a trust, for a period of time of at least six months, the
necessary funds, to buy at the same price of the tender offer, the shares of the
investors that do not participate in such offer, in the event that once the
tender offer has been carried out and before the cancellation of the
registration of the shares representing the capital stock of the Company or any
other securities issued pursuant to shares in the National Securities Registry,
the above mentioned shareholders do not achieve to acquire the 100% of the
capital stock paid.
The tender offer above mentioned must be carried out at least at the highest
price between (i) the Market Price (as such term is defined below), or (ii) the
book value of the shares as determined pursuant to the latest quarterly
financial information filed with the National Securities and Exchange Commission
and the Mexican Stock Exchange before the beginning of the tender
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offer, except when such value has been modified pursuant to the applicable
criteria to the determination of relevant information, in which case, the most
recent financial information of the Company must be considered.
For purposes of the above mentioned, "Market Price" shall be understood as the
average trading price of the closing operations during the last 30 days on which
the shares were quoted prior to the date on which the tender offer is made,
during a period that cannot be of more than six months. In the event that the
number of days in which the shares have been traded during the above period is
less than thirty, it will be taken into consideration the number of days in
which were effectively traded. In the event that the shares are not trade in
such period, it will be taken into account the book value of the shares. In the
event that the tender offer comprises more than one series of shares, the
average trading price referred above, must be done for each one of the series
that is might be cancelled, taking into consideration for purposes of the Market
Price for the tender offer of all the series, the highest average.
The Board of Directors of the Company, during the next five business days
prior to the beginning of the tender offer, must disclose its opinion, with
respect to the justification of the price of the tender offer, in which it will
take into account the interest of the minority shareholders in order to comply
with the provisions set forth in article 16, second paragraph of the Securities
Law an the opinion of the Audit Committee, which in case this last one is
contrary, its must be disclosed. If the Board of directors is precluded from
making this determination as a result of a conflict of interest, the Board's
resolution must be based on a fairness opinion issued by an Independent Expert
selected by the Audit Committee, making special emphasis to the rights of the
minority shareholders.
The shareholders that hold the majority of the ordinary shares or that
have the possibility, under any title, to impose decisions in the general
shareholders meetings or to appoint the majority of the members of the Board of
Directors of the Company, will not be bound to carry out the tender offer above
mentioned to cancel the registration, if the consent of the shareholders that
represent at least 95% of the capital stock of the Company is accredited through
a shareholders meeting and that the amount to be offered for the shares to be
publicly-traded among the Public Investors (as defined below) is less than
300,000 UDIs, as provided in this Article. The above mentioned, in the
understanding that in order to request and obtain the cancellation, the Company
must create the trust referred to in this Article and notify the cancellation
and creation of the trust through the electronic system of information, or the
equivalent, authorized to the Mexican Stock Exchange by the National Securities
and Exchange Commission.
For purposes of the above paragraph, "Public Investors" shall be
understood as the person or persons that keep securities of the Company,
different from this last one, but always in the case that they are not located
in any of the provisions of the Securities Law or the general dispositions or
regulations issued by the National Securities and Exchange Commission.
The provisions of this Article must be applicable to the ordinary
certificates of participation issued upon shares of the Company.
The shareholders bounded to carry out the tender offer provided in this
Article, may
-54-
request to the National Securities and Exchange Commission to authorize them,
considering the financial situation and perspectives of the Company, use a
different base for the determination of the price referred to above in this
Article, only in the case they present the prior resolution of the Board of
Directors, prior favorable opinion of the Audit Committee in which the are
explained the reasons in order to consider a different price, together with an
inform of the Independent Expert making special emphasis that the price complies
with provisions set forth in article 16 of the Securities Law.
CHAPTER XII
TRANSITORY ARTICLES
ARTICLE ONE-TRANSITORY. It is hereby approved that the Restructure of the
Series of Shares representing the capital stock shall become effective December
13, 1993 at the close of the market operations, save in the event that the Board
of Directors suspends the effects of such Restructure.
ARTICLE TWO-TRANSITORY. Grupo Televicentro, S.A. de C.V., the
subsidiaries of Grupo Televicentro, S.A. de C.V. and the shareholders of
Grupo Televicentro, S.A. de C.V. (the "Founding Shareholders") bind
themselves, for a ten-year period as from the date on which the Restructure
of the Series of the Shares representing the capital stock is made, that the
voting right corresponding to them by the fact of being the holders of
Series "L" shares shall be exercised in the same sense on which the majority
of all other Series "L" shares are voted so that public investors may
determine the sense of the vote corresponding to such Series of shares.
-55-
.
.
.
EXHIBIT 8.1
GRUPO TELEVISA'S SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
AS OF DECEMBER 31, 2003
NAME OF COMPANY COUNTRY OF INCORPORATION
------------------------------------------------------------------------------------- ------------------------
Corporativo Vasco de Quiroga, S.A. de C.V. .......................................... Mexico
Audiomaster 3000, S.A. de C.V. ................................................ Mexico
Corporatel, S.A. de C.V. ...................................................... Mexico
Dibujos Animados Mexicanos Diamex, S.A. (*) ................................. Mexico
Editorial Clio Libros y Videos, S.A. de C.V. (*) ............................ Mexico
Eventicket, S.A. de C.V. (1). ............................................... Mexico
Futbol del Distrito Federal, S.A. de C.V. ..................................... Mexico
Grupo Comunicacion y Esfuerzo Comercial, S.A. de C.V. ......................... Mexico
Impulsora del Deportivo Necaxa, S.A. de C.V. .................................. Mexico
Magical Entertainment, S. de R.L. de C.V. ..................................... Mexico
En Vivo Espectaculos, S. de R.L.. de C.V. (1) .......................... Mexico
Mas Fondos, S.A. de C.V. ...................................................... Mexico
Operadora Dos Mil, S.A. de C.V. ............................................... Mexico
Promarca y Cia., S.A. de C.V. ................................................. Mexico
Promo-Certamen, S.A. de C.V. .................................................. Mexico
Radiotelefonia Movil Metropolitana, S.A. de C.V. .............................. Mexico
Comunicaciones Mtel, S.A. de C.V. ........................................ Mexico
Cmtel Importaciones, S.A. de C.V. ................................... Mexico
Servicios Independientes de Telefonia, S.A. de C.V. ........... Mexico
Sistema Telefonico de Atencion y Respuesta, S.A. de C.V. ...... Mexico
CVQ Espectaculos, S.A. de C.V. ...................................................... Mexico
Club de Futbol America, S.A. de C.V. .......................................... Mexico
Nueva Generacion, S.A. ........................................................ Mexico
Real San Luis F.C., S.A. de C.V. .............................................. Mexico
Teatro de los Insurgentes, S.A. de C.V. ....................................... Mexico
Videocine, S.A. de C.V. ....................................................... Mexico
Coyoacan Films, S.A. de C.V. (*) ....................................... Mexico
DTH Europa, S.A. .................................................................... Spain
Grupo Europroducciones, S.A. (*) ............................................ Spain
Editora Factum, S.A. de C.V. ....................................................... Mexico
BouncyNet, Inc. (*) ......................................................... United States of America
Desarrollo Vista Hermosa, S.A. de C.V. ........................................ Mexico
Digital TV, S.A. de C.V. ...................................................... Mexico
Empresas Cablevision, S.A. de C.V. ............................................ Mexico
Milar, S.A. de C.V. ...................................................... Mexico
Argos Comunicacion, S.A. de C.V. (*) .............................. Mexico
Cablestar, S.A. de C.V. ............................................. Mexico
Cablevision, S.A. de C.V. ........................................... Mexico
Tercera Mirada, S.A. de C.V. .................................. Mexico
Grupo Mexicano de Cable, S.A. de C.V. (1) ......................... Mexico
Integravision de Occidente, S.A. de C.V. ............................ Mexico
La Casa de la Risa, S.A. de C.V. .................................... Mexico
Servicios Cablevision, S.A. de C.V. ................................. Mexico
Tecnicable, S.A. de C.V. ............................................ Mexico
Telestar del Pacifico, S.A. de C.V. ................................. Mexico
Galavision DTH, S. de R.L. de C.V. ............................................ Mexico
Televisa DTH TechCo, Inc. ................................................ United States of America
DTH TechCo Partners (*) ........................................... United States of America
NAME OF COMPANY COUNTRY OF INCORPORATION
------------------------------------------------------------------------------------- ------------------------
DTH, LLC ................................................................. United States of America
Televisa MCOP Holdings, Inc. ........................................ United States of America
Sky Latin America Partners (*) .............................. United States of America
Sky Multi-Country Partners (*) ............................. United States of America
Mednet, S.A. de C.V. (*) ................................................... Mexico
Metros Cubicos, S.A. de C.V. (*) ........................................... Mexico
Queplan, S.A. de C.V. (*) ................................................... Mexico
Editorial Televisa, S.A. de C.V. .................................................... Mexico
Editel Delaware, LLC. ......................................................... United States of America
Editorial Televisa International, S.A. ................................... Mexico
Editorial Televisa Puerto Rico, Inc. ..................................... Puerto Rico
Repremex Incorporated (1) ............................................. United States of America
Union Publishing Company, Inc. (1) .................................... United States of America
Editorial Motorpress Televisa, S.A. de C.V. ................................... Mexico
Editorial Televisa Argentina, S.A. ............................................ Argentina
Editorial Tucuman, S.A.C.I. y de M.S. .................................... Argentina
Editorial Televisa Chile, S.A. ................................................ Chile
Editorial Televisa Colombia, S.A. ............................................. Colombia
Editorial Televisa Peru, S.A. ................................................. Peru
Editorial Televisa Venezuela, S.A. ............................................ Venezuela
Vanipubli Ecuatoriana, S.A. ................................................... Ecuador
Venetel Servicios Publicitarios, S.A. ......................................... Venezuela
En Vivo U.S. Holding, LLC (1) ..................................................... United States of America
En Vivo U.S. Holding Company (1) ........................................... United States of America
CCE-Televisa Music Promotions, LLC (*) ................................. United States of America
Vivelo, Inc. (*) ................................................. United States of America
Henry Cardenas & Associates, Inc. (*) ............................ United States of America
Plaza Mexico, Inc. (*) ........................................... United States of America
Sports and Entertainment Media Services, Inc. (*) ................ United States of America
Esmas Holding, LLC (1) ........................................................... United States of America
Esmas I, LLC (1) ........................................................... United States of America
Factum Mas, S.A. de C.V. ............................................................ Mexico
Sky DTH, S. de R.L. de C.V. ................................................... Mexico
Innova Holdings, S. de R.L. de C.V (*) ................................. Mexico
Innova, S. de R.L. de C.V. (*) .................................... Mexico
Consorcio Portal, S.A. de C.V. ................................................ Mexico
Comercio Mas, S.A. de C.V. ............................................... Mexico
Corporacion Mas, S.A. de C.V. ............................................ Mexico
Grupo Distribuidoras Intermex, S.A. de C.V. ......................................... Mexico
Distribuidora Panamex, S.A. ................................................... Panama
Armaco, S.A. .................................................................. Peru
Atmore Investment, A.V.V. ..................................................... Aruba
Distribuidora Bolivariana, S.A. ............................................... Peru
Distribuidora de Revistas Bertran, S.A.C. ..................................... Argentina
Intercontinental Media, S.A. ............................................ Argentina
Distribuidora Intermex, S.A. de C.V. .......................................... Mexico
Distribuidora Televisa Chile, S.A. ............................................ Chile
Distribuidora Alfa, S.A. ................................................. Chile
Distribuidora San Joaquin, S.A. .......................................... Chile
Easa Colombiana, S.A. ......................................................... Colombia
NAME OF COMPANY COUNTRY OF INCORPORATION
------------------------------------------------------------------------------------- ------------------------
Editorial Momento, S.A. .................................................. Colombia
Distribuidoras Unidas, S.A. ......................................... Colombia
Gonarmex, S.A. de C.V. ........................................................ Mexico
Grupo America, S.A. ........................................................... Panama
Samra, S.A. ................................................................... Ecuador
Distribuidora Los Andes, S.A. ............................................ Ecuador
Saral Publications, Inc. ...................................................... United States of America
Grupo Radiopolis, S.A. de C.V. ...................................................... Mexico
Fonovisa Centroamerica, S.A. (1) ............................................ Nicaragua
Television Holdings USA, LLC .................................................. United States of America
Univision Communications, Inc. (*) ..................................... United States of America
Televisa Pay-TV Venture, Inc. ................................................. United States of America
TuTv, LLC (*) ......................................................... United States of America
Promo-Industrias Metropolitanas, S.A. DE C.V. ....................................... Mexico
Telestar de Occidente, S.A. de C.V. ........................................... Mexico
Multimedios Santa Fe, S.A. de C.V. ....................................... Mexico
Recursos Corporativos Alameda, S.C. ................................. Mexico
Producciones Nacionales Televisa, S.C. .............................. Mexico
Proyectos Especiales Televisa, S.C. ................................. Mexico
Sistema Radiopolis, S.A. de C.V. ................................................... Mexico
Cadena Radiodifusora Mexicana, S.A. de C.V. ................................... Mexico
Radio Melodia, S.A. de C.V. .............................................. Mexico
Radio Tapatia, S.A. de C.V. .............................................. Mexico
X.E.Z.Z., S.A. de C.V. ................................................... Mexico
Radio Comerciales, S.A. de C.V. ............................................... Mexico
Radiotelevisora de Mexicali, S.A. de C.V. ..................................... Mexico
Teleparabolas, S.L. ................................................................. Spain
Telesistema Mexicano, S.A. de C.V. .................................................. Mexico
Altavista Sur Inmobiliaria, S.A. de C.V. ...................................... Mexico
Dimar, S.A. de C.V. ........................................................... Mexico
Estudio Sevilla 613, S.A. de C.V. ............................................. Mexico
Inmobiliaria Amber, S.A. de C.V. .............................................. Mexico
Inmobiliaria Rio de la Loza, S.A. de C.V. ..................................... Mexico
Pico Tres Padres, S. de R.L. de C.V. .......................................... Mexico
Teleinmobiliaria, S. de R.L. de C.V. .......................................... Mexico
Televicentro, S.A. de C.V. .................................................... Mexico
Terma, S.A. de C.V. ........................................................... Mexico
Televisa, S.A. de C.V. ........................................................ Mexico
Endemol Mexico, S.A. de C.V. (*) ...................................... Mexico
Espacio en Vinculacion, A. C. (1) ....................................... Mexico
Morning Glory Productions, S.A. de C.V. ....................................... Mexico
Televisa Internacional, LLC. ............................................. United States of America
Televisa International Marketing Group, Inc. .................................. United States of America
Visat, S.A. de C.V. ........................................................... Mexico
Televisa Mexico, Ltd. ......................................................... Switzerland
Videoserpel, Ltd. ........................................................ Switzerland
Televisa Entretenimiento, S.A. de C.V. ................................... Mexico
Ocesa Entretenimiento, S.A. de C.V. (*) ........................... Mexico
Televisa Argentina, S.A. ............................................................ Argentina
NAME OF COMPANY COUNTRY OF INCORPORATION
------------------------------------------------------------------------------------- ------------------------
Television Independiente de Mexico, S.A. de C.V. .................................... Mexico
Bay City Television, Inc. ..................................................... United States of America
Cadena de las Americas, S.A. De C.V. .......................................... Mexico
Cadena Televisora del Norte, S.A. de C.V. ..................................... Mexico
Canal 23 de Ensenada, S.A. de C.V. ............................................ Mexico
Canal XXI, S.A. de C.V. ....................................................... Mexico
Canales de Television Populares, S.A. de C.V. ................................. Mexico
Compania Televisora de Leon Guanajuato, S.A. de C.V. .......................... Mexico
Desarrollo Milaz, S.A. de C.V. ................................................ Mexico
Editora San Angel, S.A. de C.V. ............................................... Mexico
Empresas Baluarte, S.A. de C.V. ............................................... Mexico
Grupo Administrativo Tijuana, S.A. de C.V. .................................... Mexico
Radiotelevisora de Mexico Norte, S.A. de C.V. ................................. Mexico
Radio Television, S.A. de C.V. ................................................ Mexico
Telehermosillo, S.A. de C.V. .................................................. Mexico
Televimex, S.A. de C.V. ....................................................... Mexico
Televisa Corporacion, S.A. de C.V. ............................................ Mexico
Televisa Producciones, S.A. de C.V. .......................................... Mexico
Televisa Talento, S.A. de C.V. ................................................ Mexico
Television de Puebla, S.A. de C.V. ............................................ Mexico
Television del Golfo, S.A. de C.V. ............................................ Mexico
Televisora de Calimex, S.A. de C.V. ........................................... Mexico
Televisora de Mexicali, S.A. de C.V. .......................................... Mexico
Televisora de Navojoa, S.A. ................................................... Mexico
Televisora de Occidente, S.A. de C.V. ......................................... Mexico
Televisora del Golfo, S.A. de C.V. ............................................ Mexico
Televisora del Yaqui, S.A. de C.V. (*) ...................................... Mexico
Televisora Peninsular, S.A. de C.V. ........................................... Mexico
T.V. de los Mochis, S.A. de C.V. .............................................. Mexico
Telemercado Alameda, S. de R.L. de C.V. (*) (1) ............................. Mexico
T.V. del Humaya, S.A. de C.V. ................................................. Mexico
Transmisiones Nacionales de Television, S.A. de C.V. .......................... Mexico
T.V. Conceptos, S.A. de C.V. .................................................. Mexico
XHCC-TV Television, S.A. de C.V. .............................................. Mexico
(*) Associate or Joint Venture. Under Mexican GAAP and International
Accounting Standard No. 28, paragraph 3, an "associate" is an enterprise
in which the investor has significant influence and which is neither a
subsidiary nor a joint venture of the investor.
(1) Without current operations.
Exhibit 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Emilio Azcarraga Jean, certify that:
1. I have reviewed this annual report on Form 20-F of Grupo Televisa, S.A.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the company's internal control
over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably
likely to materially affect, the company's internal control over
financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the company's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal
control over financial reporting.
Dated this 30th day of June, 2004
By: /s/ EMILIO AZCARRAGA JEAN
---------------------------
Name: Emilio Azcarraga Jean
Title: Chairman, President and Chief Executive Officer
Exhibit 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Salvi Rafael Folch Viadero, certify that:
1. I have reviewed this annual report on Form 20-F of Grupo Televisa, S.A.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the company's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the company's internal control
over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated this 30th day of June, 2004
By: /s/ SALVI RAFAEL FOLCH VIADERO
-------------------------------------
Name: Salvi Rafael Folch Viadero
Title: Chief Financial Officer
Exhibit 13.1
GRUPO TELEVISA, S.A.
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Emilio Azcarraga Jean, Chairman, President and Chief Executive Officer of
Grupo Televisa, S.A. (the "Company"), hereby certify, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Company's annual report on Form 20-F for the fiscal year ended
December 31, 2003, to which this statement is filed as an exhibit (the
"Report"), fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: June 30, 2004
By: /s/ EMILIO AZCARRAGA JEAN
----------------------------
Name: Emilio Azcarraga Jean
Title: Chairman, President and Chief Executive Officer
Exhibit 13.2
GRUPO TELEVISA, S.A.
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Salvi Rafael Folch Viadero, the Chief Financial Officer of Grupo Televisa,
S.A. (the "Company"), hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Company's annual report on Form 20-F for the fiscal year ended
December 31, 2003, to which this statement is filed as an exhibit (the
"Report"), fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: June 30, 2004
By: /s/ SALVI RAFAEL FOLCH VIADERO
---------------------------------
Name: Salvi Rafael Folch Viadero
Title: Chief Financial Officer
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