AMX

Business Context and Reporting Period

Company: America Movil, S.A. de C.V. (America Movil)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2000
Accounting Basis: Mexican GAAP (with U.S. GAAP reconciliations provided)
Key Event: The company was established in September 2000 via a spin-off from Telefonos de Mexico, S.A. de C.V. (Telmex). The 2000 financial statements are consolidated, while 1998-1999 data represents combined historical operations of the spun-off entities.

Key Financial Metrics (Year Ended Dec 31, 2000)

Note: U.S. Dollar equivalents are based on the Dec 31, 2000 exchange rate of Ps. 9.5997 to $1.00. Net income under U.S. GAAP reflects a net loss due to significant adjustments for deferred taxes and goodwill amortization.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 86.0% to Ps. 29,190 million, driven by a 98.4% increase in Telcel subscribers (reaching 10.5 million) and the consolidation of new international subsidiaries (Telgua, Conecel, Techtel).
• Profitability Decline: Despite revenue growth, Net Income under Mexican GAAP plummeted 79.9% to Ps. 877 million. Under U.S. GAAP, the company reported a net loss of Ps. 410 million.
• Margin Compression: Operating margin declined from 14.2% in 1999 to 9.7% in 2000 due to increased sales commissions, handset subsidies, and the consolidation of loss-making international ventures.
• Capital Expenditures: Total capital expenditures surged to Ps. 31,120 million (up from Ps. 11,291 million in 1999), primarily for network build-outs and investments in subsidiaries.
• Equity Method Losses: The company recognized a Ps. 1,001 million loss from equity in results of affiliates, primarily Telecom Americas, CCPR, and CompUSA.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary and Outlook

• Capital Requirements: Management projects capital requirements of approximately $2.88 billion for 2001, including $1.31 billion for Telcel network expansion and $1.01 billion for Telecom Americas funding.
• Technology Transition: Telcel plans to launch a GSM network in Q3 2001 to transition toward third-generation technology, requiring significant investment (committed $963 million through 2003).
• Dividends: Shareholders approved a dividend of Ps. 0.04 per share for 2001, payable in four installments.

Material Risks and Contingencies

• Guatemalan Legal Proceedings: The Guatemalan government has initiated proceedings to reverse the privatization of Telgua (America Movil's subsidiary). While management contests this, a loss could require transferring Telgua to the state.
• CompUSA Litigation: A jury verdict in Texas awarded damages against CompUSA and related parties (including the controlling shareholder) totaling over $121 million. The company is appealing.
• Competition: Intensifying competition in Mexico and Latin America is driving down prices and increasing churn, pressuring margins.
• Regulatory Risk: Concessions in Mexico and abroad are subject to termination if build-out or quality standards are not met. Regulatory bodies may impose rate caps if the company is deemed dominant.
• Investment Company Status: The company relies on a temporary exemption from the U.S. Investment Company Act of 1940, expiring September 2001. Failure to reduce financial assets could restrict access to U.S. capital markets.

Unusual Items

• Deferred Tax Charge: A change in Mexican accounting principles (Bulletin D-4) resulted in a Ps. 1,559 million deferred tax charge, significantly increasing the effective tax rate to 62.2% in 2000.
• ATL Contribution Gain: A Ps. 973 million gain was recognized under Mexican GAAP upon contributing the ATL investment to Telecom Americas; this gain is deferred under U.S. GAAP.

Investor Verification Checklist

• U.S. GAAP Reconciliation: Verify the impact of the Ps. 1.29 billion net adjustment that turns Mexican GAAP profit into a U.S. GAAP loss, specifically regarding deferred taxes and goodwill amortization.
• Cash Flow Sufficiency: Confirm that the Ps. 22.5 billion in cash and short-term investments is sufficient to meet the projected $2.88 billion capital expenditure requirement for 2001 without dilutive equity issuance.
• Telgua Legal Status: Monitor the outcome of the Guatemalan government's challenge to the Telgua privatization, which represents a significant asset risk.
• Telecom Americas Performance: Review the specific financial performance of Telecom Americas subsidiaries (ATL, Tess, Americel, Telet, Comcel) which contributed heavily to the equity method losses.
• Investment Company Exemption: Track the company's progress in deploying cash to ensure it remains exempt from the Investment Company Act of 1940 after September 2001.