Telemóvil El Salvador, SA and subsidiaries

Transcription

Telemóvil El Salvador, S.A. and subsidiaries
(A Salvadorean entity, subsidiary of Millicom International I N.V.,
domiciled in Luxembourg)
Consolidated Financial Statements
As of December 31, 2012 and 2011
With the Independent Auditors’ Report
(A Salvadorean entity, subsidiary of Millicom International I N.V.,
domiciled in Luxembourg)
Consolidated Financial Statements
Contents
Independent Auditors’ Report.................................................................................................. 1-2
Consolidated Statements of Financial Position........................................................................ 3
Consolidated Statements of Comprehensive Income .............................................................. 4
Consolidated Statements of Changes in Equity ....................................................................... 5
Consolidated Cash Flow Statements...………………………………. .................................... 6
Notes to the Consolidated Financial Statements ...................................................................... 8-41
Ernst & Young El Salvador, S.A. de C.V.
Torre Futura
87 Av. Norte y Calle El Mirador
Complejo World Trade Center, local 11-05
San Salvador
www.ey.com/centroamerica
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
We have audited the accompanying consolidated financial statements of Telemóvil El Salvador,
S.A. and subsidiaries (“the Company”), which comprise the consolidated statement of financial
position as of December 31, 2012, and the consolidated statement of comprehensive income,
statements of changes in equity and consolidated statement of cash flows for the year then ended,
and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards for Small
and Medium-sized Entities, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit. We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors’ judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are
appropriate under the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control.
An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial
statements.
A Member of Ernst & Young Global Limited
To the Board of Directors and Shareholders of
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Telemóvil El Salvador, S.A. and subsidiaries as of December
31, 2012, its financial performance and its cash flows for the year then ended, in conformity with
International Financial Reporting Standards for Small and Medium-sized Entities.
Report of other Auditors on December 31, 2011 Financial Statements
The consolidated financial statements of Telemóvil El Salvador, S.A. and subsidiaries as of
December 31, 2011 and for the year then ended, were audited by other auditors who expressed
an unmodified opinion on April 30, 2012 on those financial statements.
Ernst & Young El Salvador, S.A. de C.V.
Registry N° 3412
René Alberto Arce Barahona
Partner
Registry Nº 1350
April 30, 2013
Torre Futura World Trade Center 11-05
San Salvador, El Salvador
A-094-2013
A Member of Ernst & Young Global Limited
(A Salvadorean entity, subsidiary of Millicom International I N.V.)
Consolidated Statements of Financial Position
(amounts in thousands of US dollars)
2012
Notes
6
7
8
8
9
10
11
12
13
14
8
18
15
16
18
17
ASSETS
Current Assets
Cash and cash equivalents
Trade receivables, net
Accounts receivable from related companies
Loans receivable from related companies
Inventories
Other current assets
Sum of current assets
Intangible assets, net
Property, plant and equipment, net
Investment in an associate
Other non-current assets
Total assets
$
$
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accounts payable to related companies
Income tax payable
Deferred revenues
Other liabilities and accrued expenses
Sum of current liabilities
$
210,019
34,945
7,482
1,576
5,215
11,005
270,242
153,808
201,262
794
4,968
631,074
18,891
18,760
18,427
7,891
57,575
121,545
2011
$
$
$
106,270
36,635
3,244
171,784
5,040
7,443
330,416
179,540
207,959
673
894
719,482
26,783
17,282
18,550
7,011
55,418
125,044
Notes payable long term
Deferred income tax
Assets retirement obligations
Total liabilities
439,078
17,098
2,676
580,397
436,679
20,843
2,350
584,916
Equity
Share capital
Legal reserve
Retained earnings
Withholding tax
Sum of equity
Total liabilities and equity
1,292
258
52,544
(3,417)
50,677
631,074 $
1,292
258
133,016
134,566
719,482
$
The accompanying notes are part of the consolidated financial statements.
3
Consolidated Income Statements
Notes
19
20
20
18
Revenue
Voice
Value added services
Cable TV
Corporate data transmission
Sales of telephone devices
Total revenue
Cost of sales
Gross profit
$
Operating expenses
Sales and marketing
General and administrative expenses
Other income
Operating income
Finance income
Finance expenses
Profits before income tax
Income tax expenses
Net profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
$
2012
2011
232,072 $
136,818
46,490
11,634
10,342
437,356
(177,324)
260,032
262,893
117,879
29,793
10,967
421,532
(155,353)
266,179
(83,067)
(117,725)
6,276
65,516
(81,053)
(90,305)
7,295
102,116
12,257
(40,346)
37,427
(22,557)
14,870
15,804
(37,519)
80,401
(25,238)
55,163
14,870
4
$
55,163
Consolidated Statements of Changes in Equity
Share
capital
Notes
Balances as of December 31, 2010
Dividend distribution
Effect of the acquisition of entities under common control
Comprehensive income for the year
Dividend distribution
Comprehensive income for the year
Withholding tax
$
1,292 $
1,292
1,292 $
$
Legal
Reserve
258 $
258
258 $
Retained
earnings
164,121 $
(140,000)
53,732
55,163
133,016
(95,342)
14,870
52,544 $
5
Withholding
tax
- $
(3,417)
(3,417) $
Total
165,671
(140,000)
53,732
55,163
134,566
(95,342)
14,870
(3,417)
50,677
Consolidated Cash Flows Statements
Notes
12
11
12/11
7
9
18
Profit before income tax
Non cash adjustments to reconcile profit before tax to
net cash flows:
Finance income
Finance expenses
Depreciation
Amortization
Loss in derecognition of fixed and intangible assets
Expense for uncollectible accounts
Obsolete inventory
Provisions
Changes in working capital:
(Increase) decrease in assets:
Trade receivable
Accounts receivable from related companies
Inventories
Other assets
Increase (decrease) in liabilities:
Accounts payable
Accounts payable to related companies
Deferred revenues
Other liabilities and accrued expenses
Interest paid
Interest received
Income tax paid
Net cash flows provided from operating activities
$
$
2012
37,427 $
2011
80,401
(12,257)
40,346
62,689
28,233
3,188
9,007
734
206
169,573
(15,804)
37,519
55,513
20,216
1,694
7,562
67
(2,685)
184,483
(7,317)
(5,814)
(909)
(11,053)
(17,283)
601
3,019
(10,710)
(7,892)
1,050
880
2,072
(37,947)
12,257
(26,340)
88,560 $
7,200
(1,694)
(1,095)
9,762
(36,111)
1,050
(30,181)
109,041
Continues
6
Consolidated Cash Flows Statements (continued)
Continued from previous page
2012
Notes
12
11
8
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from the sale of property, plant and
equipment
Collection of financing granted to related parties
Payment of financing granted to related parties
Net cash flows provided by (used in) investing
activities
$
2011
- $
(58,835)
(2,846)
175,915
(3,703)
(47,519)
(26,955)
11
-
110,531
(74,463)
Cash flows from financing activities
Payment of dividends
Net cash flows used in financing activities
(95,342)
(95,342)
(140,000)
(140,000)
Increase (decrease) in cash and cash equivalents
Cash and cash equivalent at beginning of year
Cash and cash equivalent at year end
$
103,749
106,270
210,019 $
(105,422)
211,692
106,270
Transactions not requiring cash:
Decrease in accounts payable to related parties
Decrease in accounts receivable from related parties
Decrease in Other current assets
Increase in Withholding tax
$
$
$
$
4,131
4,131
(3,417)
3,417
7
$
$
$
$
-
Notes to the consolidated financial statements
1.
Corporate information
Telemóvil El Salvador, S.A. and subsidiaries (the “Company”), is a group of Companies
dedicated to providing mobile telephony, fixed telephony, cable television and internet and
data transmission under the TIGO brand in El Salvador. Telemovil El Salvador was
incorporated under the laws of the Republic of El Salvador on May 23, 1991.
Its offices are located at Calle El Mirador, 87 Av. Norte, Colonia Escalón, Complejo
World Trade Center, Edificio Torre Futura, San Salvador.
The Company is a subsidiary of Millicom International I N.V., a company domiciled in
Curacao. The ultimate controlling parent is Millicom International Cellular, S.A. (MIC),
domiciled in Luxembourg.
Subsidiary Millicom Cable El Salvador, S.A. de C.V. signed a sale-purchase agreement
with Navega.com El Salvador branch, through which it acquired from the latter its assets
and liabilities. The selling price was $8,327. The effective date of the transaction was
January 1, 2012 and the carrying value of the assets and liabilities acquired was $11,464
and $3,117 respectively.
On May 10, 2011 the company acquired 100% of the shares of Millicom Cable 208, N.V.
and indirectly those of its subsidiaries that provide cable television, broadband internet and
fixed telephony services in El Salvador.
The assets and liabilities on the date of acquisition were:
Assets
Liabilities
Equity
Total purchase price
Less: non-monetary contribution (payment of debt)
Cash and cash equivalents in acquired subsidiaries
Cash used in the acquisition
$
$
Carrying
value
277,573
(48,591)
(53,732)
175,250
(113,409)
(14,322)
47,519
The consolidated financial statements as of December 31, 2012 were approved by
management for issue on April 15, 2013. These financial statements should be presented
for definite approval to the Company’s Shareholders Assembly. Management expects them
to be approved without modifications.
8
2.
Basis of preparation
2.1
Statement of compliance
The consolidated financial statements of Telemóvil El Salvador, S.A. and subsidiaries as of
December 31, 2012 were prepared in conformity with International Financial Reporting
Standards for Small and Medium-sized Entities (IFRS for SMEs) issued by the
International Accounting Standards Board.
2.2
Basis of valuation and presentation currency
The consolidated financial statements of Telemóvil El Salvador, S.A. and its subsidiaries
as of December 31, 2012 and 2011 were prepared on a historical cost basis except for
certain items that have been measured under the methods explained in Note 4. The
financial statements are expressed in US dollars and all values are rounded to the nearest
thousand ($’000) except where otherwise indicated.
2.3
Basis of consolidation
The consolidated financial statements as of December 31, 2012 include the financial
statements of Telemóvil El Salvador, S.A. and its subsidiaries as detailed below:
Established in
% share
2012
% share
2011
Mobile business
Telemóvil El Salvador, S.A.
El Salvador
100%
100%
Home business – subsidiary of Millicom Cable 208 NV
Millicom Cable El Salvador, S.A. de C.V.
El Salvador
99.99%
99.99%
Home business – subsidiaries of Millicom Cable
El Salvador, S.A. de C.V.
Amnet Telecomunications, S.A. de C.V.
Amnet Tel, S.A. de C.V.
Inversiones Cable El Granero, S.A. C.V.
Inversiones Paracentral, S.A. de C.V.
Cablepan, S.A. de C.V.
Inversiones Cablefonseca, S.A. de C.V.
Inversiones Cablemax, S.A. de C.V.
Inversiones Cablesan, S.A. de C.V.
Inversiones Cable El Trifinio, S.A. C.V.
Inversiones Cable Lamatepec, S.A. C.V.
Amnet Datos, S.A. de C.V.
MDK, S.A. de C.V.
Newcom El Salvador, S.A. de C.V. (a)
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
El Salvador
99.93%
99.55%
99.94%
99.55%
99.94%
99.59%
99.59%
99.25%
99.95%
99.92%
93.66%
99.26%
-
99.93%
99.55%
99.94%
99.55%
99.94%
99.59%
99.59%
99.25%
99.95%
99.92%
93.66%
99.26%
99.95%
Curacao
99.99%
99.99%
Subsidiary of Telemóvil El Salvador, S.A.
Millicom Cable 208 NV
(a) At september 30, 2012, Millicom Cable El Salvador, S.A. de C.V., merged Newcom El Salvador,
S.A. de C.V.
9
2.
Basis of preparation (continued)
2.3
Basis of consolidation (continued)
Subsidiaries of Millicom Cable El Salvador, S.A. de
C.V.
Millicom Cable 207 NV
Amzak Investment
Established in
% share
2012
% share
2011
Curacao
Bermuda
100%
100%
100%
100%
Cayman
Islands
100%
100%
Special purpose entity subsidiary of Millicom
International I NV
Telemovil Finance Co. Ltd.
The subsidiaries’ financial statements were prepared on the same reporting period as the
financial statements of Telemóvil El Salvador, S.A., using consistent accounting policies.
The subsidiaries are all of the entities (including the special purpose entity) over which the
company has the power to direct their financial and operating policies, generally
accompanied by a share interest of over half of the voting rights. Subsidiaries are fully
consolidated from the date of acquisition, which is the date on which the Companies obtain
control, and continue to be consolidated until the date of such control ceases.
All balances, transactions, income and expenses, dividends and gains or losses resulting
from intra-group transactions that have been recognized as assets or liabilities have been
eliminated in full in the consolidation process.
Special purpose entities
Telemovil Finance Co. Ltd, is a 100% subsidiary of de Millicom I NV, incorporated under
the laws of the Cayman Islands. This subsidiary was established to issue the financial
instruments as described in note 16. The funds arising from the issue of these financial
instruments were used to finance the acquisition of Grupo Amnet El Salvador, currently
part of the operations of Telemóvil El Salvador, S.A.
3.
Changes in accounting policies
The accounting policies adopted by the Companies to prepare their consolidated financial
statements as of December 31, 2012 are consistent with those used to prepare the financial
statements as of December 31, 2011.
10
4.
Summary of significant accounting policies
4.1
Functional and presentation currency of the financial statements
The Company’s functional currency is the US dollar. The Companies record their
transactions in foreign currency, any currency other than the functional currency, at the
exchange rate in effect on the date of each transaction. In determining its financial situation
and income, the Company appraises and adjusts its assets and liabilities in foreign currency
at the exchange rate in effect on the date of the statement of financial position. Exchange
differences resulting from the application of these procedures are recognized in the results
of the year in which they occur. Information relating to exchange regulations and rates is
presented in note 5.
4.2
Cash and cash equivalents are comprised of cash and highly liquid short-term investments
with maturity of three months or less from the date of acquisition at the date of their
acquisition. For purposes of the consolidated cash flow statement, cash and cash
equivalents are presented by the Company net of bank overdrafts, should there be any.
4.3
Financial instruments
The valuation of the Company’s financial instruments is determined using the fair value or
amortized cost, as defined below:
Fair value – The fair value of an investment negotiated in an organized financial market is
determined using as reference the prices quoted in that financial market for negotiations
performed as of the date of the statement of financial position. For investments for which
there is no active financial market, the fair value is determined using valuation techniques.
These techniques include recent market transactions between interested, fully informed
parties who act independently; references to the fair value of another substantially similar
financial instrument; and discounted cash flows or other valuation models.
Amortized cost – The amortized cost is calculated using the effective interest method less
any allowance for impairment. The calculation takes into consideration any award or
discount in the acquisition and includes the transaction costs and fees which are an integral
part of the effective interest rate.
4.4
Financial assets
4.4.1
Initial recognition and measurement of financial assets
Financial assets are classified as financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments, available-for-sale financial assets, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Company determines the classification of its financial assets at initial recognition.
11
4.
Summary of significant accounting policies (continued)
4.4
Financial assets (continued)
4.4.1
Initial recognition and measurement of financial assets (continued)
The Company initially recognizes all of its financial assets at fair value plus costs directly
attributable to the transaction, except for financial assets valued at fair value through
changes in profit or loss in which these costs are not considered. The Company recognizes
the purchase or sale of financial assets on the date of each transaction, which is the date on
which the Company commits to buy or sell a financial asset.
The Company’s financial assets include cash on hand and at banks, accounts receivable.
4.4.2
Subsequent measurement of financial assets
The subsequent measurement of financial assets depends on their classification as
described below:
Financial assets at fair value through profit or loss
Financial assets acquired for trading in the near term are included in the financial
statements as financial assets at fair value with gains or losses recognized in the income
statement, without deducting transaction costs that may be incurred in their sale or
disposal. These financial assets held for trading are designated upon initial recognition at
fair value through profit or loss. Gains or losses from their trade are recognized in income
in the year in which they occur.
The Company has not designated any financial asset from initial recognition as financial
assets at fair value through profit or loss.
Accounts receivable
Accounts receivable are non-derived financial assets with fixed or determined payments
which are not quoted in active markets.
Collection of these financial assets is analyzed periodically, and an allowance is recorded
for any accounts classified as doubtful with the corresponding charge to the period results.
Accounts declared uncollectible are deducted from the impairment allowance.
12
4.
4.4
Financial assets (continued)
4.4.3
Impairment of financial assets
The Company assesses at each statement of financial position date whether there is any
objective evidence that a financial asset or group of assets is impaired. A financial asset or
group of financial assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have occurred after the initial
recognition of the asset (an incurred “loss event”) and that loss event has an impact on the
estimated future cash flows of the financial asset or group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the debtors or a
group of debtors is experiencing significant financial difficulty, default or delinquency in
interest or principal payments, the probability that they will enter bankruptcy or other
financial reorganization and where observable data indicate that there is a measurable
decrease in the estimated future cash flows due to defaults.
Impairment of financial assets carried at amortized cost
When the Company determines that it has incurred in an impairment loss in the value of its
financial assets carried at amortized cost, it estimates the loss amount as the difference
between the asset’s carrying amount and the present value of future cash flows discounted
at the financial asset’s original effective interest rate; it deducts the loss from the asset’s
carrying value and recognizes such loss in the results of the year in which it occurs.
If, in a subsequent period, the amount of the loss due to impairment decreases and may be
objectively related to an event subsequent to the recognition of impairment, the loss due to
impairment is reversed. Once the reversal is recorded, the carrying amount of the financial
asset does not exceed the original amortized amount. The amount of the reversal is
recognized in the results of the year in which it occurs.
4.4.4
Derecognition of financial assets
Financial assets are derecognized by the Company when the rights to receive cash flows
from the asset have expired, or when the financial asset is transferred along with its
inherent risks and benefits and contractual rights to receive cash flows from the asset are
surrendered, or when the Company retains the contractual rights to receive cash flows and
assumes the obligation to pay them to one or more parties.
13
4.
4.5
Financial liabilities
4.5.1
Initial recognition and measurement
Financial liabilities are classified as financial liabilities at fair value through profit or loss,
loans and borrowings, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Company determines the classification of its financial liabilities
at initial recognition.
The Company recognizes all financial liabilities initially at fair value on the date of
acceptance or contracting of the liability, plus, in the case of loans and borrowings, directly
attributable transaction costs.
The Company’s financial liabilities include trade and other payables, and loans and
borrowings.
4.5.2
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as
described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for
trading acquired for the purpose of selling in the near term. Gains or losses on liabilities
held for trading are recognized in the income statement in the year they are incurred.
Notes and account payable
After initial recognition, notes and trade and other payables are measured at amortized cost
using the effective interest method. The Company recognizes gains or losses in the income
statement when the financial liability is derecognized as well as through the amortization
process.
4.5.3
Derecognition
Financial liabilities are derecognized when the obligation has been paid, cancelled or
expires. When a financial liability is replaced by another, the Company derecognizes the
original and recognizes a new liability. Differences that may result from these financial
liability replacements are recognized through income or loss when incurred.
4.6
Inventories
Inventories consist mainly of mobile telephone handsets and related accessories, which are
measured at cost or net realizable value using the first in first out method. The net
realizable value corresponds to the selling price in the ordinary course of business, less
estimated costs necessary to make the sale. Costs of inventories comprise all costs derived
from their acquisition and transformation, as well as other costs incurred to bring them to
their current condition and location.
14
4.
4.7
Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less accumulated depreciation
and losses due to impairment, if any. These costs include the cost of replacing the
components of plant or equipment when the cost is incurred, if it meets the requirements
for recognition. Depreciation and those disbursements for repair and maintenance which do
not meet the conditions for recognition as assets are recognized as expenses in the year in
which they are incurred.
Depreciation is calculated on a straight-line basis over the useful life of each type of asset.
The remaining value of the depreciating assets, the estimated useful life, and depreciation
methods are annually reviewed by management and adjusted when necessary, at the end of
each financial year.
A breakdown of estimated useful lives is as follows:
Estimated
useful life
20 to 25 years
5 to 14 years
3 to 7 years
Buildings
Network equipment and Towers
Office furniture and equipment
A component of property, plant, and equipment is derecognized when it is sold or when the
Company does not expect future economic benefits from its use. Any loss or gain from the
disposal of the asset, calculated as the difference between the net carrying amount and the
sales proceeds, is recognized in income in the year in which it occurs.
The estimated costs of the Company’s obligation for dismantling and future disposal of
non-financial assets installed on leased property are capitalized to the respective assets and
amortized during the term of the lease. The amount of the amortization of these estimated
costs is recognized in profit or loss. The amount of the corresponding provision is reduced
as the future cash disbursements are performed.
4.8
Investment in an associate
Investments in associates are recorded using the equity method. An associate is an entity
in which the Company has significant influence
The associates’ reporting dates are the same as the Company’s, and the accounting policies
applied by associates coincide with those utilized by the Company to prepare its financial
statements.
15
4.
4.9
Intangible assets
Intangible assets acquired separately are measured initially at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any
accumulated impairment losses, as necessary. The Company records as expenses the
intangible assets generated internally in income in the year in which they are incurred,
except for development costs that are capitalized. The cost of intangible assets acquired in
a business combination is recorded at fair value at the acquisition date.
The useful lives of intangible assets are assessed to be either finite. Intangible assets with
finite lives are amortized under the straight-line method over the assets’ estimated useful
lives, which are annually reviewed by the Company. Expenses for the amortization of
intangible assets are recognized in the income statement of the year in which they are
incurred.
4.9.1
Goodwill
Goodwill represents the excess of the cost of a business combination over the fair value of
the group’s share of the net identifiable assets of the acquired subsidiaries at the date of
acquisition by the Company. Goodwill is carried at cost less accumulated amortization and
accumulated impairment losses. The amortization of goodwill is calculated by applying the
straight-line method over the estimated useful life, if a reliable estimate cannot be made,
the useful life of goodwill is presumed to be 10 years. At each reporting date the Company
assess whether there is any indication that goodwill may be impaired, and if such
indication exists, the Company estimates the recoverable value of the asset.
In case of acquisitions of subsidiaries from entities under common control, the assets and
liabilities of the acquired subsidiaries are initially included in the consolidated financial
statements at predecessor carrying values at the date of acquisition. The difference between
the cost of acquisition and the carrying values of net assets of the acquisition subsidiaries
acquired are recorded directly in equity. Identifiable assets acquired and liabilities and
contingent liabilities assumed in the business combination were measured initially at their
fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
The excess of the cost of the acquisition over the fair value of the company’s share of the
identifiable net assets acquired was recorded as goodwill. All acquisition related costs were
expensed
4.9.2
Licenses
Licenses have a definite useful life and are carried at cost less accumulated amortization
and any accumulated impairment losses. The terms of the licenses, which have been
granted for several periods, are the subject to periodic reviews for the definition of rates,
assignment of frequencies and technical standards, amongst others. Licenses are initially
measured at cost and are amortized from the date the network is available for use, applying
the straight-line method for a period of 5 to 20 years, depending on the terms of the license.
16
4.
4.9
Intangible assets (continued)
4.9.2
Licenses (continued)
Licenses are usually renewable, subject to certain conditions and are generally not
exclusive. To determine an estimated useful life, management does not consider the
renewal periods, given that there is no guarantee that the license will be renewed without
incurring in significant costs (or without costs).
4.9.3
Indefeasible Rights of Use
Indefeasible rights of use ("IRU") are contracts that mainly comprise the sale-purchase of
infrastructure, sale-purchase fiber capacity and the exchange of network infrastructure or
fiber capacity. These commitments are accounted for as leases, service contracts, or in part
as leases and in part service contracts. The determination of the adequate classification
depends on an assessment of the contracts’ characteristics.
4.9.4
Customer portfolios
Customer portfolios are recognized as intangible assets when the rights are purchased or
through a business combination. Its cost represents the fair value at the date of acquisition.
Customer portfolios have a definite useful life and are recorded at cost less accumulated
amortization. The amortization is calculated under the straight-line method to assign the
cost of customer portfolios over their estimated useful lives. The estimated useful life of
customer portfolio are based on the specific characteristics of the market in which they
exist. Customer portfolios are included in “Intangible Assets”.
4.10 Impairment of non-financial assets
The Company assesses the carrying amounts of its non-financial assets at each reporting
date to determine reductions in value when events or circumstances indicate that recorded
values may not be recovered. If any indication exists, and the carrying amount exceeds the
recoverable amount, the Company measures the assets or cash-generating units at their
recoverable amounts, defined as the higher of fair value less costs to sell and its value in
use. Resulting adjustments are recorded in the results of the year in which they are
determined.
For assets excluding goodwill, an assessment is made at each reporting date as to whether
there is any indication that previously recognized impairment losses may no longer exist or
may have decreased. If such indication exists, the Company estimates the asset’s
recoverable amount and if necessary, reverses the loss increasing the asset until its new
recoverable amount, which will not exceed the asset’s net carrying amount prior to
recognizing the original impairment loss, recognizing the credit in the income statement.
17
4.
4.10 Impairment of non-financial assets (continued)
4.11 Provisions
Provisions are recognized when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable
estimate of the obligation’s amount can be made. The amount of recorded provisions is
assessed periodically and required adjustments are recorded in the results of the year.
4.12 Financial leases
The determination of whether an arrangement is, or contains a lease is based on the
substance of the arrangement: whether fulfillment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a right to use the asset.
4.12.1 Company as lessor
Leases in which the Company substantially transfers all risks and benefits incidental to
ownership of the leased asset are considered financial leases. The Company recognizes in
its statement of financial position all assets kept as financial leases within the credit
portfolio for an amount equal to the net investment in the lease.
The Company recognizes related interest income based on a guideline that reflects, in each
period, a type of constant performance over the net financial investment made in financial
leases.
4.12.2 Company as lessee
Assets acquired through financial leases, in which all risks and benefits incidental to asset
ownership are substantially transferred to the Company, are capitalized at the inception of
the lease at the fair value of the leased property, or, if lower, at the present value of the
minimum lease payments, simultaneously recognizing the corresponding liability. The
monthly installment for lease contracts is comprised of interest charges and debt
amortization. Interest charges are directly recognized in the period’s results. Capitalized
assets are depreciated based on the estimated useful life of the leased asset.
4.13 Operating leases
4.13.1 Company as lessee
Leases in which the lessor substantially retains all risks and benefits incidental to asset
ownership are considered operating leases. Payments on these leases, according to rates
established in the respective contracts, are recognized as expenses on a straight-line basis
over the lease term.
18
4.
4.14 Severance and retirement obligations
In accordance with the current Labor Code, severance compensations accumulated on
behalf of employees shall be reimbursed in the event of unjustified dismissal. The
Company’s policy is to consider these as expenses at the time they are paid.
Pension costs correspond to a defined contribution retirement plan, through which the
Company and its employees make contributions to a fund managed by a specialized
institution, authorized by the Salvadorean Government, which is responsible under the Law
of the Pension System for the payment of pensions and other benefits to affiliates of the
system.
4.15 Revenue recognition
Revenue from ordinary activities is measured at the fair value of the consideration received
or receivable, related to the revenue.
Revenue from rendering of services is recognized when the amount of ordinary revenue
can be measured reliably, it is probable that the Company will receive economic benefits
from the transaction, the stage of completion of the service rendered can be measured
reliably as of the date of the statement of financial position, and costs already incurred, as
well as those remaining to complete the service, can be measured reliably. Where the
revenue from services cannot be measured reliably, revenue is recognized only to the
extent that the expenses incurred are eligible to be recovered.
Recurring income consist of monthly subscription charges, use of airtime, interconnection
fees, roaming fees, broadband internet fess, cable television and charges for other
telecommunication services such as data, messages and other value added services.
Recurring revenues are recognized on an accrual basis, to the extent that the services are
rendered.
Unbilled revenues for airtime use and subscription charges resulting from services
provided from the billing cycle close and the monthly close are estimated and recorded.
Revenue from the subscription of products and services are deferred and amortized over
the estimated life of the relationship with the client. The estimated life of the relationship
with the client is calculated based on the historic percentage of disconnections for the same
type of customer.
When the customer acquires air time in advance, revenues are recognized when the air time
is consumed. Unused airtime is recognized in the consolidated financial statements as
deferred revenue.
19
4.
4.15 Revenue recognition (continued)
Revenues from value added services such as text messages, video messages, ringtones,
games, etc., are recognized net of payments to the vendors of those services, when the
vendors are responsible for the content and for the determination of the price paid by the
client, in which case the Company is considered to be acting in substance only as an agent.
When the Company is responsible for the content and determines the price paid by the
client, the revenue is recognized at its gross amount.
Interconnection revenues correspond to the use of the Company’s network infrastructure
by national and international operators, and are recognized when the services are provided.
These services are regulated through contracts with national and international telephone
operators. The contracts define the liquidation rates. The revenue corresponding to the last
month is recognized based on the real traffic of the Company’s network and adjusted in the
following month according to the liquidations with operators.
Programming revenues are derived from the transmission of international channels and are
recognized when the service is rendered.
Revenues from the sale of mobile telephone handsets and related accessories are
recognized when the risks and benefits of ownership are transferred to the buyer, the
revenue amount can be measured reliably, it is probable that the Company will receive
economic benefits from this transaction and costs incurred can be measured reliably.
Revenue from the sale of goods is presented in the income statement, net of discounts,
returns and sales tax.
Revenues from the rental of space at towers are recognized during the period of the
contracts. Revenues from financial leases are distributed between the income from the
lease of space at the tower and interest income.
4.16 Cost of Sales
Primary cost of sales incurred by the Company in relation to the provision of services in
telecommunications are related to interconnection costs, roaming, programming, rental of
leased lines, mobile telephone handsets costs and costs of other accessories sold and
royalties. Cost of sales is recorded on an accrual basis. Cost of sales also includes
depreciation and impairment of network equipment.
4.16.1. Cost of acquisition of subscribers
Specific costs of acquisition of subscribers, including the commission to distributors and
subsidies on telephones are charged to sales and marketing expenses when the subscriber is
activated.
20
4.
4.17 Current and deferred income tax
4.17.1. Current income tax
The Company calculates income tax by applying adjustments from certain items affected
by or not subject to income tax, in conformity with current tax regulations. Current tax,
corresponding to the present period and to prior periods, is recognized by the Company as
a liability to the extent that it has not been settled. If the amount already paid,
corresponding to present and prior periods, exceeds the amount payable for those periods,
the excess is recognized as an asset.
4.17.2. Deferred income tax
Deferred income tax is determined by applying the liability method to all temporary
differences existing between the asset, liability, and net equity tax base and the amounts
recorded for financial purposes as of statement of financial position date. Deferred income
tax is calculated using the tax rate expected to apply to the period when the asset is realized
or the liability is settled. Deferred tax assets are recognized only when there is reasonable
probability of their realization.
The carrying amount of a deferred tax asset is reviewed at each statement of financial
position date. The Company reduces the amount of the deferred tax assets balance to the
extent that it estimates that it will not have sufficient tax earnings in the future to allow to
charge against it all or part of the benefits from the deferred tax asset. Likewise, at the
financial period close, the Company reconsiders deferred tax assets that it had not
recognized previously. The Company recognizes income tax and deferred income tax
related to other components of comprehensive income. The Company offsets its current
and deferred tax assets with current and deferred tax liabilities, respectively, if a legally
enforceable right exists to set off the amounts recognized before the same taxation
authority and when it has the intention to liquidate them for the net amount or to realize the
asset and settle the liability simultaneously.
4.17.3 Sales tax
Revenue from sales is recorded by the Company net of sales tax, and a liability is
recognized in the statement of financial position for the related sales tax amount. Expenses
and assets acquired are recorded by the Company net of sales tax if the tax authorities
credit these taxes to the Company, recognizing the accumulated amount receivable in the
statement of financial position. When the sale tax incurred is not recoverable the company
includes within the expenses or assets, as applicable.
21
4.
4.18 Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements requires management
to make judgments, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities as of
the reporting date. However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.
The main assumptions related to future events and other sources of estimates subject to
variations as of the reporting date, which due to their nature carry a high risk of causing
significant adjustments to the asset and liability amounts in next year’s financial
statements, are presented below:
Impairment of non-financial assets
The Company considers that there are no indications of impairment for any of its nonfinancial assets as of the reporting date. The Company performs impairment tests on
acquired goodwill and other intangible assets with indefinite lives on an annual basis, or
when there is an indication of impairment. Other non-financial assets are also assessed for
impairment when there is an indication that recorded values may not be recovered.
5.
Monetary Integration Law
The Monetary Integration Law, effective since January 2001, made the United States dollar
the official legal tender with unrestricted, unlimited use for the payment of monetary
obligations in the country. The exchange rate for the colon and the dollar was set at ¢8.75
per US$1.00. In the years ended December 31, 2012 and 2011, the Company did not
conduct any significant transactions in currencies other than the functional currency of the
financial statements.
6.
2012
Cash at banks and on hand:
Cash in local banks
Cash in foreign banks
Cash equivalents:
Cash equivalents in local banks
$
$
22
2011
83,815 $
110,848
83,320
17,150
15,356
210,019 $
5,800
106,270
6.
Cash and cash equivalents (continued)
Cash at banks earns interest at daily rates determined by the corresponding banks. As of
December 31, 2012 and 2011 there were no restrictions on the use of cash and cash
equivalent balances.
Cash equivalents, comprised of short-term deposits, have maturity dates of three months or
less, their use depends on the Company’s cash requirements, and they earn interest rates
between 3% to 4.1%.
As of December 31, 2012 and 2011 there were no restrictions of the use of cash and cash
equivalents.
7.
Trade receivables
Customers
Operators
Dealers
$
Less provision for impairment of receivables
$
2012
43,520 $
409
713
44,642
(9,697)
34,945 $
2011
40,571
2,251
1,136
43,958
(7,323)
36,635
Maturity terms for accounts receivable from customers, operators and dealers extend up to
90 days, as of the date of issue of the corresponding invoices. They are not subject to
discounts for early payment, do not generate interest other than late payment interest and
are recoverable in the functional currency of the financial statements.
A breakdown of the allowance for impairment of receivables is presented below:
Balance at beginning of year
Additions due to the acquisition of entities under
common control
Amounts credited to the allowance
Amounts debited from the allowance
23
$
2012
(7,323) $
2011
(3,374)
$
(9,007)
6,633
(9,697) $
(2,672)
(7,562)
6,285
(7,323)
7.
Trade receivables (continued)
A breakdown of accounts receivable past due but not impaired as of December 31, 2012
and 2011 is presented below:
Neither past
due nor
impaired
8.
Less than 30
days
30 to 60
days
60 to 90
days
Total
2012
$
28,637 $
4,303 $
1,560
445 $
34,945
2011
$
27,311 $
4,870 $
3,225
1,229 $
36,635
Related party transactions
Balances and transactions with related parties as of December 31 are detailed below:
2012
Accounts receivable
Global Interlink, Ltd.
Navega.com, S.A.
Millicom International Cellular, S.A.
Navega.com S.A. de Guatemala sucursal El
Salvador
Navega Honduras
Comunicaciones Celulares, S.A. – Guatemala
Millicom Cable Honduras S.A.
Amnet Telecommunications Holding, Ltd.
Amnet Cable Costa Rica S.A.
Telefónica Celular, S.A. – Honduras
Colombia Móvil, S.A. E.S.P.
Newcom Nicaragua
Teleservicios Centroamericanos, S.A. de C.V.
Newcom Bermudas
Telefonica Celular de Bolivia S.A.
Navega Nicaragua
Cable Paraguay
NJ Telecomunications
Amnet Telecommunications, Ltd (Bermuda)
Cable Mundo Corp. S.A. de C.V.
Newcom Guatemala S.A.
Relationship
Related party $
Related party
Parent
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
$
24
2011
2,159 $
1,255
1,082
32
193
1,077
984
449
106
104
96
93
19
18
15
8
6
5
4
2
7,482 $
113
337
79
1,643
238
402
5
9
46
79
68
3,244
8.
Related party transactions (continued)
2012
Loans receivable short-term
Millicom International Operations S.A. (a)
Continental Programming Services, Ltd.
Global Interlink, Ltd. – Bermuda
Relationship
Related party $
Related party
Related party
Related party
$
Accounts payable
Global Interlink Bermuda
Navega.com S.A.
Teleservicios Centroamericanos, S.A. de C.V.
Millicom Cable Honduras S.A.
Navega Honduras
Navega S.A. de C.V.
Amnet Cable Costa Rica S.A.
Comunicaciones Celulares, S.A. – Guatemala
Telefónica Celular, S.A. – Honduras
Newcom Limited Bermuda
Telefonica Cellular Del Paraguay
Millicom International Operation S.A.
NJ Telecomunications
Navega Nicaragua
Newcom Nicaragua S.A.
Colombia Movil, S.A.
Millicom Cable N.V.
Continental Programming Services, Ltd.
Navega.com S.A. Sucursal El Salvador
Relationship
Parent
$
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
Related party
$
1,576 $
1,576 $
2012
(a)
7,618 $
5,332
2,023
876
611
505
443
435
300
277
119
89
77
17
16
13
5
4
18,760 $
2011
167,489
1,724
530
2,041
171,784
2011
4,503
2,017
3,295
35
264
128
54
376
2
160
87
10
1
3
5,896
448
3
17,282
On October 2, 2006 a loan was granted to MIC Latin America B.V. for $122,514 for
the acquisition of 50% plus one share of Colombia Móvil S.A.E.S.P. In November
2009 the liability was assumed by Millicom International Operations S.A., a
subsidiary of MIC. The loan had an interest rate of LIBOR plus 1.75% which can be
capitalized annually until September 2010. As of October 2010 the loan bears an
annual interest rate of 8.75%. The balance was collected in three disbursements in
2012.
25
8.
Related party transactions (continued)
Accounts receivable from related parties arise mainly from interest, interconnection
charges, fixed telephony and others.
The main transactions carried out during the years ended December 31, 2012 and 2011 are
presented below:
Transaction:
Dividends paid
Royalties and corporate fees
Loan collected
Millicom International Operations S.A.
Interest earned
Telefónica Celular, S.A. de C.V.
(Honduras)
Airtime revenue
Airtime costs
Millicom International Operations S.A.
Collect of loan
Interest earn
Relationship
2012
Parent
$
$
$
(95,342) $
(25,624) $
175,915
(140,000)
(24,207)
-
$
10,003 $
14,542
$
$
405 $
417 $
530
441
$
165,912 $
10,003
175,915 $
14,542
14,542
(3,086) $
(617)
3,703 $
-
2012
3,779 $
1,436
5,215 $
2011
4,067
973
5,040
Related party
Related party
Related party
$
Millicom Cable N.V.
Payment of loan
Interest paid
Related party
$
$
9.
2011
Inventories
Telephone handsets
Other
$
$
Adjustments related to the valuation of inventories at net realizable value are recorded in
cost of sales. As of December 31, 2012 and 2011 it was $734 and $67, respectively.
26
10.
Other current assets
Value-added tax
Advance payments to vendors
Treasury credit notes
Interest receivable
Other prepayments
Prepaid expenses
Other
Total other current assets
$
$
27
2012
3,830 $
1,848
1,260
913
716
454
1,984
11,005 $
2011
242
1,080
3,775
756
170
1,420
7,443
11.
Intangible assets
Movements in intangible assets, which include goodwill, licenses, frequencies and other intangible assets in 2012 and 2011 are
presented below:
Frequency
licenses
Goodwill
Cost of intangible assets
Balance as of January 1, 2011
Additions by acquisition of entities
under common control
Additions
Balance as of December 31, 2011
Additions
Disposals
Accumulated amortization and
impairment
Amortization for the year
Amortization for the year
Disposals
Net carrying amount:
As of December 31, 2012
As of January 1, 2011
$
Other
Total
- $
- $
- $
142,903
142,903 $
142,903 $
2,345
567
28,065 $
(345)
27,720 $
31,598
31,598 $
31,598 $
- $
2,478
2,478 $
6,891
6,891 $
368
7,259 $
183,737
567
209,457
2,846
(345)
211,958
$
- $
(9,527)
(9,527)
(14,115)
(23,642) $
(9,701) $
(2,670)
(12,371)
(2,221)
(14,592) $
- $
(8,019)
(8,019)
(4,355)
(12,374) $
- $
(218)
(218) $
- $
(7,324)
(7,324) $
(9,701)
(20,216))
(29,917)
(28,233)
(58,150)
$
$
$
119,261 $
133,376 $
- $
13,128
15,694
15,452
19,224 $
23,579 $
- $
(65) $
6,891 $
- $
153,808
179,540
15,452
$
$
25,153
Rights
of use
$
$
- $
Customer
portfolio
28
$
$
$
2,260
$
- $
- $
25,153
12.
Property, plant and equipment
Network
equipment
Assets at cost:
Additions
Disposals
Transfers
Additions
Disposals
Transfers
Reclassifications
Depreciation and impairment:
Balances as of January 1, 2011
Depreciation for the year
Disposals
Transfers
Depreciation for the year
Disposals
Transfers
Reclassifications
Balances as of December 31,2012
Net assets:
As of January 1, 2011
$
Towers
buildings
Office
furniture
and other
Works in
progress
Spare parts
Total
242,334 $
9,207
(1,539)
24,722
274,724 $
8,999
(363)
(27,660)
65,222
320,922 $
118,719 $
2,020
(754)
6,690
126,675 $
10,124
(2,827)
(256)
(44,354)
89,362 $
6,025 $
201
(64)
93
6,255 $
217
(161)
4,994
19
11,324 $
42,929 $
1,089
(3,063)
3,775
44,730 $
3,359
(2,648)
22,950
9,171
77,562 $
11,745 $
32,405
(316)
(29,698)
14,136 $
33,836
(357)
(28)
(25,573)
22,014 $
3,931 $
6,727
(997)
(5,582)
4,079 $
2,300
243
(4,485)
2,137 $
425,683
51,649
(6,733)
470,599
58,835
(6,113)
523,321
$
(127,485) $
(40,377)
1,239
(533)
(167,156) $
(41,315)
203
(23,047)
19,843
(211,472) $
(49,744) $
(13,288)
454
533
(62,045) $
(13,566)
352
23,577
(124)
(51,806) $
(857) $
(324)
65
(1,116) $
(314)
88
59
(3,797)
(5,080) $
(28,969) $
(6,363)
3,009
(32,323) $
(7,494)
2,627
(589)
(15,922)
(53,701) $
- $
- $
- $
- $
- $
- $
(207,055)
(60,352)
4,767
(262,640)
(62,689)
3,270
(322,059)
$
$
$
109,450 $
107,568 $
114,849 $
37,556 $
64,630 $
68,975 $
6,244 $
5,139 $
5,168 $
23,861 $
12,407 $
13,960 $
22,014 $
14,136 $
11,745 $
2,137 $
4,079 $
3,931 $
201,262
207,959
218,628
$
$
$
$
29
13.
Investments in associates
Amzak Investment holds 22.5% interest in Telefónica Multiservicios, S.A. de C.V., an
entity dedicated to the sale of mobile services incorporated under the laws of the Republic
of El Salvador in 1999, with legal address in that country.
This associate’s shares are not quoted in an active market. A summary of the financial
information of this associate is presented below:
Total assets
Total liabilities
Equity
Income
Expenses
Net loss
14.
$
2012
3,156
(302)
(2,854) $
2011
4,634
(1,644)
(2,990)
$
1,589
(1,726)
(137) $
4,805
(5,123)
(318)
Accounts payable
Local vendors
Foreign vendors
Total
$
$
2012
13,191
5,700
18,891
$
$
2011
13,312
13,471
26,783
Maturity terms for accounts payable to vendors extend up to 90 days from the
corresponding note or invoice’s issue date, are not subject to discounts for early payment,
do not generate interest other than late charges and are payable in the functional currency
of the financial statements.
30
15.
Other accounts payable and accumulated expenses
Other accounts payable and accumulated expenses as of December 31 are detailed below:
Provision for capital expenditure
Interest earned
Provision for roaming and interconnection vendors
Taxes payable
Provision for operating expenditures
Provision for external services
Provision for expenses
Provision for employee benefits
Provision for municipal taxes
Other provisions
Total
16.
$
$
2012
11,770
9,000
9,765
7,478
7,953
3,616
3,433
2,294
2,267
57,576
$
$
2011
19,189
9,000
7,559
4,228
5,607
2,183
2,489
3,515
1,618
30
55,418
Notes payable long-term
On September 23, 2010, Telemóvil Finance Co. Ltd., a special purpose entity established
in the Cayman Islands issued $450 million aggregate principal amount of 8% Senior
Unsecured Guaranteed Notes (the “8% Senior Notes”) due on October 1, 2017. The 8%
Senior Notes were issued for $444 million representing 98.68% of the aggregate principal
amount. Distribution and other transaction fees of $9 million reduced the total proceeds
from issuance to $435 million. The 8% Senior Notes have an 8% per annum coupon with
an 8.25% yield and are payable semi-annually in arrears on April 1 and October 1. The
effective interest rate is 8.76%.The 8% Senior Notes are general unsecured obligations of
Telemóvil Finance Co. Ltd and rank equal in right of payment with all future unsecured
and unsubordinated obligations of Millicom. The 8% Senior Notes are guaranteed by
Telemóvil El Salvador, S.A., a Millicom subsidiary. Telemóvil Finance Co. Ltd has
options to partially or fully redeem the 8% Senior Notes as follows:
(i)
Full or partial redemption at any time prior to October 1, 2014 for 100% of the
principal to be redeemed, or the present value of the remaining scheduled payments
of principal to be redeemed and interest, whichever is higher.
31
16.
Notes payable long-term (continued)
(ii)
Full or partial redemption at any time on or after October 1, 2014 for the following
percentage of principal to be redeemed, plus accrued and unpaid interest and all other
amounts dues, if any:
October 1, 2014 104%
October 1, 2015 102%
October 1, 2016 100%
(iii) Redemption of up to 35% of the original principal of the 8% Senior Notes if, prior to
October 1, 2013, Telemóvil El Salvador S.A. receives proceeds from issuance of
shares, at a repurchase price of 108% of the principal amount to be redeemed plus
accrued and unpaid interest and all other amounts due, if any, on the redeemed notes.
If either Millicom, Telemóvil Finance Co. Ltd or Telemóvil El Salvador, S.A. experience a
Change of Control Triggering Event, defined as a rating decline resulting from a change in
control, each holder will have the right to require repurchase of its notes at 101% of their
principal amount plus accrued and unpaid interest and all other amounts due, if any.
17.
Share capital and legal reserve
As of December 31, 2012 and 2011 the share capital is represented by 129,200 common
shares with a nominal value per share of $10 and a total amount of $1,292,000.
Legal reserve
The Code of Commerce of El Salvador establishes that at least 7% of profit before tax for
each period must be set aside for a legal reserve until said reserve is equal to 20% of share
capital.
Dividend
At December 31, 2012 and 2011 the Company paid dividends for an amount of $ 95,342
and $ 140,000 respectively. The company recorded withholding taxes related to those
dividend for an amount of $ 3,417 which are deducted from equity.
18.
Income tax
The Company and its subsidiaries are subject to income tax; hence they prepare their
respective tax returns and file them before the corresponding tax authorities. The income
tax rate in effect for the fiscal years ending December 31, 2012 and 2011 was 30% and
25%, respectively. The current income tax calculation is presented in the reconciliation
below.
32
18.
Income Tax (continued)
The annual tax expense as of December 31, 2012 and 2011 is detailed below:
Profit before tax
Add
Fiscal loss of consolidated subsidiary
Non-deductible expenses
Less
Non-taxable income
Taxable income
Income tax rate
$
Current income tax
Withholding taxes on transfers between entities
Total tax expense
Prepayment of income tax during the year
Income tax payable
$
2012
37,427
$
51,661
$
$
2011
80,401
6,162
23,426
(1,414)
87,674 $
30%
(10,833)
99,156
25%
26,302 $
26,302
(7,875)
18,427 $
24,789
449
25,238
(6,688)
18,550
2012
18,550 $
26,302
(26,425)
18,427 $
2011
22,129
25,238
(28,817)
18,550
The annual activity in the income tax liability is as follows:
Income tax payable at beginning of year
Add – Current income tax
Less - Income tax paid during the year
Income tax payable at year end
$
$
The components of deferred tax assets and liabilities are shown below:
2012
Deferred income tax :
Effect of financial and fiscal depreciation
Asset retirement obligations
Allowance for uncollectible accounts
Total deferred tax liability
$
$
33
(20,770) $
763
2,909
(17,098) $
2011
(22,578)
1,735
(20,843)
19.
Cost of Sales
A breakdown of cost of sales is provided below:
Depreciation and amortization
Cost of national and international calls
Value-added services – VAS
Programming costs
Cost of telephone devices
Other costs
Uncollectible accounts expense
$
$
20.
2012
70,389
41,338 $
18,903
12,258
10,376
15,053
9,007
177,324 $
2011
58,940
33,621
14,066
10,598
11,702
18,864
7,562
155,353
2012
33,101
19,283
25,624
27,837
25,630
20,708
10,398
15,537
3,564
3,667
15,443
200,792
2011
32,797
22,854
24,207
20,133
19,397
15,095
10,267
10,373
2,974
2,680
10,581
171,358
Operating expenses
A breakdown of operating expenses is provided below:
Commissions to dealers
Mobile telephone handsets subsidies
Royalties and technical service fees
Employee expenses
Sites and network maintenance
Depreciation and amortization
Advertising and promotion
External services
Operating lease expense
Billing and payments
Other operating expenses
$
$
21.
$
$
Commitments and contingencies
The Company is responsible for legal claims arising in its ordinary course of business. The
total claims against the Company as of December 31, 2012 and 2011 is $15,000 and
$5,000, respectively, for which the Company had recorded a provision as of December 31,
2012 and 2011 of $2,900 and $1,500, respectively.
34
21.
Commitments and contingencies (continued)
Commitments
The Company signed concession contracts with Superintendencia General de
Telecomunicaciones (SIGET), the regulating entity of the telecommunications system in El
Salvador, to operate mobile telephony services in El Salvador. These contracts expire in
2018 and 2025 (note 11).
As of December 31, 2012 and 2011 the Company has firm commitments for the purchase
of network equipments and other fixed assets for $16,900 and $ 12,800 for 2012 and 2011,
respectively.
The Company has the following operating lease commitments as of December 31:
Within a year
One to five years
More than five years
Total
$
$
2012
8,001 $
24,919
4,320
37,240 $
2011
6,538
18,989
2,886
28,413
Operating leases are mainly comprised of leases relating to land and buildings. The terms
and conditions of operating leases reflect normal market conditions. Operating lease
expenses amounted to $12,000 and $11,000 during the years ended December 31, 2012
and 2011, respectively.
***
35

Telemóvil El Salvador, SA and subsidiaries

Transcription

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