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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(AMENDMENT NO. 1)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-12610
------------------
GRUPO TELEVISA, S.A.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant's name into English)
UNITED MEXICAN STATES
(Jurisdiction of incorporation or organization)
AV. VASCO DE QUIROGA NO. 2000
COLONIA SANTA FE
01210 MEXICO, D.F.
MEXICO
(Address of principal executive offices)
------------------
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
A Shares, without par value ("A Shares") New York Stock Exchange (for listing purposes only)
L Shares, without par value ("L Shares") New York Stock Exchange (for listing purposes only)
Dividend Premium Shares, without par value ("D Shares") New York Stock Exchange (for listing purposes only)
Global Depositary Shares ("GDSs"), each representing twenty Ordinary New York Stock Exchange
Participation Certificates (Certificados de Participacion Ordinarios)
("CPOs")
CPOs, each representing one A Share, one L Share and one D Share New York Stock Exchange (for listing purposes only)
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None.
The number of outstanding shares of each of the issuer's classes of
capital or common stock as of December 31, 2002 was:
4,479,799,524 A Shares
2,184,297,425 L Shares
2,184,297,425 D Shares
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Indicate by check which financial statement item the registrant has
elected to follow. Item 17 |_| Item 18 |X|
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TABLE OF CONTENTS
PAGE
Explanatory Note.......................................................... 1
PART IV
Item 18. Financial Statements..........................................1
Item 19. Exhibits......................................................1
EXPLANATORY NOTE
This Amendment No. 1 to our Annual Report on Form 20-F filed with the
Securities and Exchange Commission, or the SEC, on June 30, 2003 is being
filed to provide separate audited consolidated financial statements of Sky
Multi-Country Partners, or MCOP, a U.S. partnership in which we indirectly
hold a 30% interest, for the years ended December 31, 2002 and 2001 as
required by Rule 3-09 of Regulation S-X. As described in our Annual Report
on Form 20-F filed with the SEC on June 30, 2003, one of our venture
partners in MCOP had informed us that it did not agree with certain
accounting estimates required by the auditors for the preparation of
stand-alone financial statements for MCOP under U.S. GAAP. These audited
consolidated financial statements are now available and, accordingly, are
being filed as part of this amendment.
This amendment consists solely of a cover page, this explanatory note,
the information required by "Item 18 -- Financial Statements" and "Item 19
-- Exhibits", a signature page and the prinicipal executive officer and
principal financial officer certifications required to be included in this
amendment. In accordance with Rule 12b-15 promulgated pursuant to
Securities Exchange Act of 1934, the complete text of "Item 18 -- Financial
Statements" and "Item 19 -- Exhibits", each as amended, are included in
this amendment. However, with respect to the financial statements and
financial schedules included in "Item 18 -- Financial Statements", other
than the inclusion of the audited consolidated financial statements of MCOP
and the Report of Independent Certified Public Accountants of MCOP and the
Independent Auditors' Report of Sky Colombia S.A. relating to the audited
consolidated financial statements, no changes have been made.
PART IV
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-99 to our Annual Report on
Form 20-F filed with the SEC on June 30, 2003, which are incorporated
herein by reference.
The following audited consolidated financial statements of MCOP and
the Report of Independent Certified Public Accountants of MCOP and the
Independent Auditors' Report of Sky Colombia S.A. relating to the audited
consolidated financial statements are being filed pursuant to Rule 3-09 of
Regulation S-X as part of this amendment:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
SKY MULTI-COUNTRY PARTNERS
PAGE
----
Report of Independent Certified Public Accountants of
Sky Multi-Country Partners.......................................F-100
Independent Auditors' Report of Sky Colombia S.A......................F-101
Consolidated Balance Sheets as of December 31, 2002 and 2001..........F-102
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 2002, 2001 and 2000.............F-103
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 2002, 2001 and 2000.................................F-104
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.................................F-105
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2002, 2001 and 2000.................................F-107
ITEM 19. EXHIBITS
Documents filed as exhibits to this amendment appear on the following
page.
(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
30, 2003 (previously filed with the Securities and Exchange
Commission as Exhibit 1.1 to the Registrant's Annual Report
on Form 20-F for the year ended December 31, 2002 (the "2002
Form 20-F") and incorporated herein by reference).
2.1-- Indenture relating to the 11 3/8% Series A 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 4.6 to the
Registrant's Registration Statement on Form F-3 (File number
333-11310), as amended (the "Form F-3"), and incorporated
herein by reference).
2.2-- 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).
2.3-- Supplemental Indenture relating to the 11 3/8% Series A
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 2.4 to the Registrant's Annual Report
on Form 20-F for the year ended December 31, 1999 (the "1999
Form 20-F") and incorporated herein by reference).
2.4-- 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).
2.5-- 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).
2.6-- 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).
2.7-- 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).
2.8-- 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).
2.9-- 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 Form F-4 (the "2002 Form F-4") and incorporated
herein by reference).
2.10-- 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).
2.11-- 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).
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).
4.10-- English translation of a summary of the provisions of Letter
Agreement between the Registrant and Grupo Televicentro,
S.A. de C.V., dated as of December 10, 1993 (previously
filed with the Securities and Exchange Commission as an
Exhibit to the Form F-3 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).
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).
8.1-- List of Subsidiaries of Registrant (previously filed with
the Securities and Exchange Commission as Exhibit 8.1 to the
2002 Form 20-F and incorporated herein by reference).
12.1-- Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
12.2-- Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
13.1-- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2-- Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(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.
SIGNATURE
The Registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this amendment to the annual report on its behalf.
Date: March 3, 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
SKY MULTI-COUNTRY PARTNERS
PAGE
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Report of Independent Certified Public Accountants of
Sky Multi-Country Partners.......................................F-100
Independent Auditors' Report of Sky Colombia S.A......................F-101
Consolidated Balance Sheets as of December 31, 2002 and 2001..........F-102
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 2002, 2001 and 2000.............F-103
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 2002, 2001 and 2000.................................F-104
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.................................F-105
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2002, 2001 and 2000.................................F-107
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
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
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.
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.
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.
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
================= ================= ================
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.
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.
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.
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
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.
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):
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:
2003....................................... $ 3,444
2004....................................... 3,516
2005....................................... 163
2006....................................... 163
Thereafter through 2007.................... 136
---------------
$ 7,422
===============
LITIGATION
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):
2002 2001 2000
-------------- ------------ -------------
Current expense............... $ (430) $ (516) $ (418)
Deferred benefit.............. - - 22
-------------- ------------ -------------
Income tax provision....... $ (430) $ (516) $ (396)
============== ============ =============
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.................................. $ - $ -
=============== ===============
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.
* * * * * *