IN 2001, MORE THAN
PEOPLE ENJOYED THE BEST IN OUT-OF-HOME ENTERTAINMENT…
Corporación Interamericana de Entretenimiento, S.A. de C.V. / 2001 ANNUAL REPORT HAUSER-CIE HEADQUARTERS INVESTOR RELATIONS ENTERTAINMENT / Paseo de las Palmas 1005 Internal: Col. Lomas de Chapultepec Jaime J. Zevada Coarasa Joint venture with one of the top concert promoters in the U.S. 11000 Mexico City [email protected] and a company solely dedicated to Latin music. (5255) 5201 9000 (5255) 5201 9441 MARKET / Major Latin comunities in the U.S. (32 million consumers). 99 live events developed in 2001 attended by 620,000 people. Fax (5255) 5201 9384 Fax (5255) 5201 9384
CIE Brazil Conrado M. Ramírez Sordo Av. Das Nações Unidas, 17 950 [email protected] 04795-900, São Paulo, Brazil (5255) 5201 9382 CART SERIES / (5511) 5643 2619 Fax (5255) 5201 9384
Agreement with the CART Series, one of the two leading auto racing Fax (5511) 5643 2599 events in the world, to present annual races in Mexico City. Similary, CIE obtained The Anne McBride Company: the rights to provide organizational and specialized services to the annual event CIE Argentina Eli San Emeterio Morales (Mexico) in Monterrey, Mexico. Capitán Ramón Freire 932 [email protected] MARKET / Mexico City and Monterrey, Mexico. Two annual races beginning 2002, with an estimated attendance of around 650,000 fans. 1426 Buenos Aires, Argentina (5255) 5644 1247 (5411) 4556 8200 Fax (5255) 5630 6320 Fax (5411) 4556 8386 Vicky Osorio (New York) ATL HALL / CIE Spain [email protected] Antonio Maura No. 12 – 3ª Pta (212) 983 1702 Acquisition of the 10,000-seat Rio de Janeiro-based facility, 28014 Madrid, Spain one of the largest live entertainment venues in South America. Fax (212) 983 1736 MARKET / Rio de Janeiro (9 million consumers). (34) 915 238 283 100 live events in 2001 attended by 330,000 people, focused on Brazil’s Fax (34) 915 327 222 INFORMATION ON CIE’S SHARES prime artistic community. AND UDI-DENOMINATED NOTES CIE New York Corporación Interamericana de Entretenimiento, 200 West 57th Street – Suite 403 S.A. de C.V. listed its series B shares on the 10019 New York, NY Mexican Stock Exchange (BMV) in December (212) 586 0222 1995, under the ticker symbol CIE B. In addition, LA FERIA Fax (212) 586 4695 the Company completed two public offerings of DE CHAPULTEPEC / seven-year UDI-denominated notes in March and CIE Los Angeles (Hauser) April 2000 on the BMV, whose ticker symbols are Acquisition of the most well-attended park in the Mexico city area. 11003 Rooks Road CIE P00U and CIE P002U, respectively. MARKET / low and medium-level of income groups in Mexico City. 90601 Whittier, CA Around 2.2 million attendees in 2001 were incorporated into CIE’s amusement (562) 699 1751 park network in Argentina, Colombia and Mexico. SHARE TICKER SYMBOLS Fax (562) 699 0005 Bloomberg CIEB MM Reuters CIEB MX CIE Miami Infosel CIE B 801 Brickel Av. - 9th floor CENTRO DE EXPOSICIONES Y 33131 Miami, FL UDI-DENOMINATED NOTES TICKER SYMBOLS CONVENCIONES LAS AMÉRICAS / (305) 674 9888 Bloomberg EC2400694 and EC375958 Fax (305) 789 6760 Reuters CIEFL00UP=MX Construction and development of the most developed center of its kind in Mexico and one of the most important in Latin America. MARKET / local and international trade fairs and exhibitions; and social events. INDEPENDENT ACCOUNTANTS More than 150 events reserved in 2002. PRICEWATERHOUSECOOPERS CORPORATE SITE Mariano Escobedo 573 www.cie.com.mx Col. Rincón del Bosque 11580 Mexico City (5255) 5263 6000 AUDIENCIAS CAUTIVAS / Fax (5255) 5263 6010 Joint venture with the leading promoter of special EXPLANATORY NOTE and corporate events in the Mexican market. PUBLIC AFFAIRS Except for the historic information provided within this 2001 Annual Report MARKET / companies, government agencies, foundations and educational Guillermina Pilgram Santos (“the document”), statements included in this document regarding the institutions, among others, in Mexico. Comunications Buchanan Visual Company's business outlook and anticipated financial/operating results or [email protected] Over 1,200 events produced by Audiencias Cautivas in 2001, regarding the Company's growth potential, constitute forward-looking
Printing: statements and are based on management expectations regarding the on behalf of more than 200 local and international clients. (5255) 5201 9083 Fax (5255) 5201 9164 economic conditions in Mexico and the countries where CIE operates as well as the fluctuation of the Mexican Peso compared to the U.S. dollar and/or other currencies. The use of registered brands, commercial brands, logotypes,
milenio3.com.mx photographic material and images within this document is exclusively for WHO SELECTED FINANCIAL & LETTER TO BOARD OF DIVISIONS MANAGEMENT’s CONSOLIDATED EXECUTIVE illustrative purposes and is not meant to violate the rights of the creators WE ARE OPERATING DATA SHAREHOLDERS DIRECTORS DISCUSSION FINANCIAL OFFICERS and/or intellectual property laws applicable in the countries in which CIE, its
& ANALYSIS STATEMENTS Design: subsidiaries, and those companies with which CIE maintains or has maintained commercial or business relationships, operate. 1 3 4 9 11 28 33 63
2/ INFORME ANUAL 2001 ...AND THANKS TO THE STRATEGIC ALLIANCES AND DEVELOPMENTS OF 2001, THERE WILL BE MANY MORE IN THE FUTURE.
WHO WE ARE
With its origins in 1990, Corporación Interamericana de Entretenimiento, S.A. de C.V. (“CIE”) is today the leading out-of-home entertainment company serving the Spanish- and Portuguese- speaking markets in Latin America, Spain and the Latin U.S. market. Through a unique vertically integrated structure, the Company participates in a number of businesses that provides recre- ational and entertainment services and products. These services and products primarily include: the operation of entertainment venues and amusement parks, the promotion and organization of diverse live events, trade fairs and exhibi- tions, the marketing of advertising sponsorships, the sale of entrance tickets, food, beverages and souvenirs at public events and venues, and the operation of radio stations in Argentina. The Company also participates in the film industry through the production and distribution of films. Since 1995, CIE’s shares trade on the Mexican Stock Exchange (BMV), under the ticker symbol “CIE B”.
CIE / 1 FINANCIAL & OPERATING DATA
CAGR: Compound Annual Growth Rate.
2001 2001 2001 5,030 1,181 11,807
2000 2000 2000 1,034 10,265 4,174
1999 787 1999 3,102 1999 6,523
1998 530 1998 1998 2,145 4,502
1997 1997 278 1,121 1997 1,927
REVENUES EBITDA TOTAL ASSETS millions of mexican pesos millions of mexican pesos millions of mexican pesos as of December 2001 as of December 2001 as of December 2001 CAGR 45.5% CAGR 43.5% CAGR 57.3%
2001 2001 2000 5,359 6,448 10,499 2000 5,961 1999 2000 8,953 2001 4,304 8,533
1999 3,020 1999 3,503 1998 5,270 1998 2,258 1998 2,244
1997 1997 1997 839 1,088 1,571
TOTAL LIABILITIES STOCKHOLDERS’ ENTERPRISE millions of mexican pesos EQUITY VALUE as of December 2001 millions of mexican pesos millions of mexican pesos CAGR 59.0% as of December 2001 as of December 2001 CAGR 56.0% CAGR 52.7%
2 / ANNUAL REPORT 2001 SELECTED FINANCIAL & OPERATING DATA
(Figures expressed in millions of Mexican pesos as of December 31, 2001, except for number of outstanding shares and operating data. Certain amounts may differ due to rounding.)
2001 2000 1999 1998 1997 CAGR*
INCOME STATEMENT: Revenues 5,030.1 4,174.1 3,101.7 2,145.3 1,121.2 45.5% EBITDA (1) 1,181.1 1,034.3 787.0 529.5 278.3 43.5% EBITDA margin 23.5% 24.8% 25.4% 24.7% 24.8% N.A. Operating income 838.9 774.0 620.8 446.1 244.4 36.1% Operating margin 16.7% 18.5% 20.0% 20.8% 21.8% N.A. Comprehensive financing cost 354.5 276.4 291.4 104.9 41.5 71.0% Income tax, asset tax and employees’ statutory profit sharing 155.6 85.7 133.1 92.7 20.5 66.0% Minority interest (56.4) 100.9 93.3 22.4 7.1 N.A. Majority net income (405.1)(2) 279.0 195.6 189.1 162.7 N.A.
BALANCE SHEET: Current assets 4,260.2 4,136.0 2,683.1 1,758.0 781.5 52.8% Property, furniture and equipment, net 4,053.8 2,779.6 1,848.3 1,366.8 795.6 50.2% Deferred and other assets 3,493.0 3,349.0 1,991.5 1,376.6 350.3 77.7% Total assets 11,807.0 10,264.5 6,522.9 4,501.5 1,927.4 57.3% Total debt 3,357.2 2,956.2 1,792.1 1,435.5 379.7 72.4% Total liabilities 5,359.4 4,303.9 3,019.6 2,257.8 839.3 59.0% Stockholders’ equity 6,447.6 (3) 5,960.6 3,503.4 2,243.7 1,088.1 56.0%
OTHER FINANCIAL DATA: EBITDA-to-gross interest expense ratio (times) 3.3 3.0 2.1 2.2 3.0 N.A. Resources provided by (used in) operating activities (224.8) 598.6 39.0 (519.8) (145.1) 11.6% Resources provided by (used in) investing activities (1,756.8) (2,532.4) (1,089.3) (1,398.5) (381.4) 46.5% Resources provided by (used in) financing activities 1,349.5 3,222.6 1,296.6 1,999.9 724.8 16.8% Market capitalization (4) 6,377.8 9,376.3 7,706.1 4,132.9 1,408.1 45.9% Enterprise value (5) 8,533.0 10,498.5 8,953.0 5,270.2 1,571.2 52.7% Outstanding shares at end of period (millions) 305.9 238.9 203.8 153.2 55.1 53.5%
OPERATING DATA: Events promoted 3,335 3,233 1,543 1,061 797 43.0% Entertainment venues in Mexico, South America and Spain 23 22 18 12 9 N.A. Amusement parks in Argentina, Colombia and Mexico 11 10 6 6 5 N.A. Employees 10,527 8,628 4,891 2,387 2,011 51.3%
(1) Earnings before interests, taxes, depreciation and amortization. (2) On a pro forma basis, without Argentina’s Ps.694.0 million extraordinary items effect, majority net income was Ps.289.1 million. (3) On a pro forma basis, without Argentina’s Ps.694.0 million extraordinary items effect, Stockholders’ equity in 2001 was Ps.7,142.0 million. (4) Number of outstanding shares at the end of period times B series share price at year-end. (5) Market capitalization plus net debt. * Compound annual growth rate. N.A. Not applicable.
CIE / 3 ALEJANDRO SOBERÓN KURI CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (right)
RODRIGO H. GONZÁLEZ CALVILLO VICE CHAIRMAN OF THE BOARD AND CHIEF OPERATING OFFICER (left)
OUR BUSINESS MODEL
The business model is based on growing out-of-home entertainment options for
key Spanish- and Portuguese-speaking markets and taking advantage of our
content and venue network to offer diverse promotional opportunities to
corporate advertisers. We have now completed a capital intensive growth period
that will position us to use internally-generated funds to build the business going
forward, and lays the foundation to increase the return on invested capital.
4 / ANNUAL REPORT 2001 LETTER TO SHAREHOLDERS
DESPITE CHALLENGING EXTERNAL FACTORS SUCH
AS THE GLOBAL ECONOMIC RECESSION, THE
TRAGIC EVENTS IN THE U.S. AND THE FINANCIAL On behalf of the Board of Directors of CIE, we are CRISIS IN ARGENTINA, 2001 WAS A YEAR OF BOTH pleased to report our results for the year 2001 and share with you our strategic outlook for the coming ORGANIC AND ACQUISITION DRIVEN GROWTH, months and years. AS WELL AS CONSOLIDATION. We are very proud of CIE’s role today as the leading provider of out-of-home entertainment in the Spanish- and We have grown by adding prime venues in Portuguese-speaking world. Over 43 million people attended our key markets, and our track record of integrating events or visited our facilities in 2001 —concerts, theater productions, new ventures speaks for itself. We added four family, cultural and sporting events, trade fairs and exhibitions, amuse- new venues in 2001, with a focus on businesses ment parks and horse races— and many more participated in special that are accretive to earnings. Our approach is to and corporate events and client promotions and enjoyed our propri- empower local management while centralizing etary and distributed films. Notwithstanding these successes, administrative functions that can generate Argentina represented a major challenge for the Group in 2001 as the economies of scale. local entertainment market suffered material deterioration, particu- We have made considerable capital investments larly towards year-end. We adjusted our operations to reflect the new in our business —nearly Ps.1.5 billion in 2001 alone— reality of the Argentine market and will continue to do so as necessary. and have created a company that competes on an Our overall strength comes from vertical integration: the ability to international scale. As we complete this period of book, promote and produce a wide variety of live entertainment high investment growth, CIE emerges uniquely posi- events, sell tickets, market sponsorship rights and control the sale of tioned to capture out-of-home entertainment and food, beverages and merchandise. As the largest live entertainment sponsorship revenues in our key markets, enabling company in Latin America, we have an unsurpassed ability to attract us to generate healthy returns on invested capital in top international and local talent. the medium- and long-term. With a potential audience of nearly 145 million consumers and entertainment choices suitable for every budget, we strengthened our formidable complementary business in sponsorship and marketing in 2001 OPERATING HIGHLIGHTS / 2001. Corporate clients, which surpassed 150 at year-end, rely on our Despite challenging external factors such as the ability to draw audiences and partner with CIE to develop innovative global economic recession, the tragic events in the campaigns that can target specific market niches. This past year we U.S. and the aforementioned financial crisis in began working with sponsors in building integrated regional market- Argentina, 2001 was a year of both organic and ing packages for each country where we have a presence. acquisition driven growth, as well as consolidation.
CIE / 5 United States Brazil United States Spain Brazil 3.8% 7.1% 0.1% Spain 9.6% Colombia 3.2% 0.3% 2.9% Argentina Colombia & Chile 0.9% 10.6% Argentina & Chile 11.3% Mexico Mexico 71.5% 78.7%
REVENUE CONTRIBUTION BY COUNTRY ’01 ’00
Total attendees at CIE’s live entertainment exclusive rights to several top Latin artists. Our new alliance opens up events and venues increased 21% over the previ- a potential market of 32 million people to CIE and provides another ous year, reaching a record 18.8 million people. avenue to promote artists we currently represent in Latin America. Despite some cancellations and delays due to We acquired Mexico City’s largest amusement park, La Feria de September 11, we staged more live events than Chapultepec, which hosted more than 2.2 million visitors in 2001. La ever —3,335, compared to 3,233 in 2000—. Over Feria is the tenth park in our portfolio throughout Mexico and Colom- half a million racing fans flocked to 1,322 Hipó- bia that, including the Jardín Zoológico de la ciudad de Buenos dromo de las Américas races, and spent more Aires, were visited by nearly 9 million people in 2001. We expect to money per capita on betting, food and beverages generate savings on costs and expenses, and create operational —Ps.511 in 2001 versus Ps.454 in 2000—. Our film synergies with our other facilities. distribution portfolio grew to 83 titles (6 of which To supplement our advertising sponsorship business we obtained are CIE’s own productions), compared to 51 in the the marketing rights for the advertisements that are screened prior to previous year. And we produced over 200 special each movie in two of the largest theater chains in Mexico —with a 55% events such as parades, product launches, confer- market share—. CIE now exclusively markets these “cineminutos” at ences, and other corporate events. 1,100 screens in 150 multiplexes around the country, allowing us to Events in Argentina, however, had a real impact offer clients an extraordinary media, highly recognized for its flexibility on our business. We downsized operations, and impact on highly segmented niches. reduced overhead by more than 50% and wrote We consolidated our position in Brazil through the acquisition of down Ps.694 million in non-cash provisions and the 10,000-seat ATL Hall in Rio de Janeiro, the largest entertainment accounting revaluations. Argentina represented venue in the city, and the purchase of the remaining stake in Stage 11% of revenues in 2001, and we anticipate only 2- Empreendimentos (Sao Paulo) which we did not already own. CIE is 3% in 2002. now the most influential group in the Brazilian market, capable of Our challenges in Argentina further underscore providing artists with products and services on a regional basis. the judiciousness of our diversification strategy, and We secured the rights to present the CART Series (Championship in 2001 we continued to invest in complimentary Auto Racing Teams) in Mexico City from 2002 to 2006, as well as the out-of-home entertainment and sponsorship busi- management of the Monterrey CART races. Auto racing is one of the nesses. We formalized our entry into the U.S. most popular sporting events in the world; more than 650,000 spec- Hispanic market through a 51% acquisition of tators are expected to attend the races in both cities, generating fees Hauser Entertainment, ranked among the top and revenues equivalent to an average year’s worth of top U.S. talent concert promoters in the United States and a touring Latin America. Together with Forsythe Racing, our partner in company solely dedicated to Latin music, which has the project, we will invest approximately US$25-30 million to upgrade
6/ ANNUAL REPORT 2001 In order to finance our mission-critical capital expenditures, we increased our capital stock through a rights offering rather than a debt issue, which reasserted a core commitment to maintaining a conservative balance sheet. We believe over-leveraging the Company ultimately erodes shareholder value.
and prepare the Hermanos Rodríguez race track in Mexico City. The to take advantage of select M&A opportunities association is the platform to develop other international auto racing should they arise. events in the country, upgrading the auto racing industry in Mexico. Our 2001 financial results reflect our invest- With a total investment of nearly Ps.1 billion, the Centro de ments in the business. Revenues increased 21% Exposiciones y Convenciones Las Américas started up operations as over the previous year to Ps.5 billion, 10% of which expected in February 2002. This convention center is the biggest and was organic growth. EBITDA grew 14% to Ps.1.2 most developed facility of its kind in Mexico, and one of the most billion, representing 23.5% of revenues. Clearly, important in Latin America in terms of size, design, technology and our business plan has the flexibility and strength to portfolio of scheduled events. We have already soldout the exhibi- withstand changing economic cycles. Nonetheless, tion space for 2002, with a number of multi-annual events. The next profits were impacted by the crisis in Argentina and phases of development of the Centro de Entretenimiento Familiar y our consolidated net loss of Ps.405 million for the Cultural de las Américas, which include a hotel, an entertainment year reflects the non-cash write-down we took as a street and a cultural center, will be majority financed by third-party result. On a pro forma basis however, excluding the investors and strategic partners. non-cash provisions, net profit increased 4% to As one of only two companies in Mexico currently hnlding gaming Ps.289 million. licenses, we are aggressively building out our off-track betting sites (Sports Books) and number-based game shops (Yaks) in order to establish a dominant market presence. At year-end 2001 eight of our OUTLOOK 2002 / 45 sites were operational, including six in Mexico City. Aside from the Our business model is based on growing out-of- on-site facility at the Hipódromo de las Américas, five OTB and Yak home entertainment options for key Spanish- and centers are in shopping malls – key venues in terms of foot traffic. Portuguese-speaking markets and taking advan- In order to finance our mission-critical capital expenditures —the tage of our content and venue network to offer Centro de Exposiciones y Convenciones Las Américas, expansion of diverse promotional opportunities to corporate the OTB and Yak network in Mexico, and the revamping of the advertisers. We have now completed a capital Hermanos Rodríguez racetrack— we increased our capital stock intensive growth period that will position us to use through a rights offering that generated Ps.905 million in net internally-generated funds to build the business proceeds. By choosing a rights offering rather than a debt issue, we going forward, and lays the foundation to increase reasserted a core commitment to maintaining a conservative the return on invested capital. balance sheet —we believe over-leveraging the Company ultimately We are optimistic about results for 2002. erodes shareholder value. The offering raised sufficient funds for our Combined with a gradual economic turnaround in 15-month capex and working capital needs as well as enough cash many of our local markets, we anticipate higher
CIE / 7 We are also targeting margin improvement by tightening our cost structure, and our strategic focus today is to generate both short- and long-term returns on invested capital.
organic attendance in 2002 coupled with new representation and supplier negotiations. We also recently obtained venues and events consolidated into our oper- exclusive control of all advertising space at 13 airports in Mexico, ations. We are also targeting margin improvement providing our corporate clients with an audience of 11 million airline by tightening our cost structure. passengers annually. To this end, we already merged our online Our strategic focus today is to generate both short- and long- entertainment portal elfoco.com with Ticketmas- term returns on invested capital. As we conclude capital intensive ter Online at year-end 2001 in order to eliminate projects, fine tune operations, begin to generate cash from new busi- elfoco.com’s US$1 million per quarter cash burn nesses and continue to reduce overhead, EBITDA margins will show rate, while retaining the best of the online mer- improvement by year-end 2002 and CIE will be positioned to gener- chandising, event calendar and ticketing func- ate free cash flow by early 2003. We will continue to adjust the ma- tions. In Argentina we will continue to implement turity and structure of existing debt in order to substitute high cost, cost-cutting measures —unfortunately we do not short-term obligations for lower cost, long-term debt. see a quick turnaround— and are keeping a close In conclusion, we extend to you our appreciation of your commit- watch on developments in order to scale our ment to CIE’s growth and success. It is solely the dedication of our operations accordingly. employees, vision of our shareholders, and trust of our partners and In Mexico we will continue to promote afford- clients that has enabled the Company to attain its leadership posi- able entertainment options such as amusements tion. With your support, we can “entertain” even bigger possibilities. parks, local events, films and the racetrack; we will bring inexpensive Mexican talent to U.S. cities with highly concentrated Latin populations; and in Brazil we anticipate a full lineup of events with no need to adjust ticket prices. We have also increased the number of theatrical production in Alejandro Soberón Kuri
Spain, which should partially offset declines in CHAIRMAN OF THE BOARD AND
Argentina. CHIEF EXECUTIVE OFFICER We have already undertaken some interesting ALEJANDRO SOBERÓN KURI CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER projects in 2002, including the 60% partnership with Audiencas Cautivas, the leading special and corporate events promoter in the Mexican market which produced more than 1,200 events for around 200 clients in 2001. We are consolidating CIE’s
special and corporate events operations into the RODRIGO H. GONZÁLEZ CALVILLO new business, creating economies of scale in client VICE CHAIRMAN OF THE BOARD AND CHIEF OPERATING OFFICER
8/ ANNUAL REPORT 2001 BOARD OF DIRECTORS
ALEJANDRO SOBERÓN KURI CHAIRMAN
Chief Executive Officer, CIE B.S. in Business Administration, Universidad Iberoamericana
RODRIGO H. GONZÁLEZ CALVILLO VICE CHAIRMAN FEDERICO GONZÁLEZ COMPEÁN DIRECTOR Chief Operating Officer, CIE B.S. in Business Administration, Director of the Content Division, CIE University of Southern California B.S. in Communications, Universidad Autónoma Metropolitana
JOSÉ MANUEL ALAVÉZ GONZÁLEZ DIRECTOR GABRIEL JARAMILLO SANINT DIRECTOR Corporate Director of Development, CIE Master in Business Administration, President of Banco Santander Banespa Brasil, Instituto Panamericano de Alta Dirección de Empresas Brazil Master in Business Administration, California State University
ROBERTO ALBARRÁN CAMPILLO DIRECTOR ALEJANDRO RODRÍGUEZ MAURICE Chief Executive Officer, Jugos del Valle, Mexico SECRETARY Master in Finance, Boise State University Corporate Legal Director, CIE General Counsel, Escuela Libre de Derecho
CARLOS ELIZONDO MAYER-SERRA DIRECTOR ALEJANDRO TORRES HERNÁNDEZ Dean and Professor, STATUTORY AUDITOR Centro de Investigación y Docencia Económicas, Mexico Partner, Gossler, S.C., Mexico Ph.D. in Politics, Certified Public Accountant, Oxford University Instituto Politécnico Nacional
CIE / 9 HAUSER-CIE ENTERTAINMENT / UNITED STATES
An important catalyst for growth of CIE’s live music events in the region was our formal entry into the U.S. Latin EVENTS IN 2001 market in January 2001 through the creation of a joint venture with Los Angeles-based Hauser Entertainment, one of the top concert promoters in the U.S. and a company solely dedicated to Latin music. Through Hauser 99 we can now access a population of more than 32 million people living in highly concentrated communities in ATTENDEES Arizona, California, Colorado, Florida, Illinois, Nevada, New York and Texas, and take advantage of synergies from jointly promoting Latin talent that we already represent in other Latin American markets. Furthermore, we have expanded the marketing opportunity for our sponsors by offering unique cross-regional advertising 620 THOUSAND packages and other services and products.
10 / ANNUAL REPORT 2001 ENTERTAINMENT DIVISION
IN 2001, WE PRODUCED 1,205
CIE’s Entertainment Division promotes and stages a great diversity of live events MUSIC CONCERTS; 1,696 throughout key markets in Latin America, Spain and the Hispanic U.S.; operates enter- THEATRICAL PLAYS; 228 FAMILY, tainment venues in these markets; manages amusement parks in Mexico and Colom- bia, as well as the Jardín Zoológico de la ciudad de Buenos Aires; manages the Hipó- CULTURAL AND SPORTING dromo de las Américas and the Centro de Exposiciones y Convenciones Las Américas EVENTS, AND 206 SPECIAL in Mexico City; and distributes proprietary and third-party films throughout the region. Division revenues increased 18% in 2001 to reach Ps.3,704 million, primarily as a AND CORPORATE EVENTS. result of more live events staged in Mexico, Brazil and the U.S. Latin Market; growth at Mexico City’s Hipódromo de las Américas; the addition of La Feria de Chapultepec (Mexico City) to our amusement park network; and an increase in proprietary and ’01 third-party films distributed in the region. Partially offsetting these gains was the impact of Argentina’s economic crisis, as well as some adjustments to Broadway-type theatrical activity in the region. Entertainment 73.6% LIVE EVENTS / We staged 3,335 live events in Argentina, Brazil, Chile, Mexico, Spain and the United States, in 2001, an increase of 3% over the previous year. Our events drew nearly nine ’00 million total participants.
MUSIC / CIE produces and promotes numerous concerts in the region each year, of both Entertainment 75.1% Latin and Anglo-Saxon artists. In 2001 the Group staged 1,205 musical events, com- pared to 839 in the previous year. Concerts included regional tours for Backstreet Boys, Sting, Iron Maiden, Los Fabulosos Cadillacs, Paulina Rubio, Christian Castro, Deftones, Hevia, Eric Clapton, Red Hot Chili Peppers, Bad Religion, Juan Gabriel, and Laura REVENUE BY DIVISION Pausini.
CIE / 11 My fair lady, Madrid.
Las obras completas (abreviadas) de William Shakespeare, Mexico City.
Chicago, Mexico City.
Fito Páez, Buenos Aires.
Eric Clapton, Mexico City.
Marisa Monte, Sao Paulo.
Caetano Veloso, Rio de Janeiro.
Select local concerts included: • Mexico / Christina Aguilera, Creedence Clearwater Revival, Julio Iglesias, Alejandro Sanz, Moenia, Amauri Gutiérrez, King Krisom, Sentidos Opuestos, La Oreja de Van Gogh, Marco Antonio Solís, Alejandro Fernández and Papa Roach; • Argentina / Fito Páez, La Missisipi, Deepak Chopra, La Renga and Orquesta de Cannes; • Brazil / Eliades Ochoa, Leonardo, Cassia Eller, Marisa Monte, Djavan, Caetano Veloso, Ray Connif and Marina Lima; • United States / Juan Gabriel, Vicente and Alejandro Fernández, Joan Sebastian, OV7, Banda El Recodo, Paulina Rubio, Christian Castro and Nidia Rojas.
THEATRE / Beginning in the second half of the 1990s we began to acquire exclusive rights to stage Broadway musicals in Latin America and Spain after perceiving a lack of premium theatrical activity in the region. We have since created a new circuit for these types of productions, and today promote, produce and stage Broadway-type musicals and local plays in Mexico City, Buenos Aires, Sao Paulo, Madrid and, starting in 2001, We promote, produce Barcelona, Spain’s second largest theatrical market. To preserve the integrity and authenticity of the productions we work with the orig- and stage Broadway-type inal producers, including Cameron Mackintosh, Andrew Lloyd Webber and Walt Disney musicals and local plays in Theatrical Worldwide, to ensure that performances —even in their Spanish and Portuguese translations— wholly reflect the original shows. Mexico City, Buenos Aires, We staged 1,696 theatrical functions in 2001, compared to 1,972 in the previous year. Sao Paulo, Madrid and, The decline can be attributed principally to the early cancellation of Chicago in Buenos Aires, the relocation of Phantom of the opera from Mexico City to Madrid, and the starting in 2001, Barcelona, seasonal conclusion of local plays in Brazil. Productions in 2001 included Beauty and the Spain’s second largest beast in Madrid, which has had a successful run of more than two years already; Jesus Christ superstar and Chicago in Mexico City; Les misérables in Sao Paulo; My fair lady; theatrical market. and Notre Dame de París in Barcelona. Several productions completed their runs in one
12 / ANNUAL REPORT 2001 CART SERIES / MEXICO
In September 2001, we signed an agreement with Forsythe Racing, an experienced promoter of auto races, to ATTENDEES TO MONTERREY present the annual "FedEx Championship" races of the CART Series at Mexico City's Hermanos Rodríguez (MARCH 2002) Racetrack beginning 2002. Similarly, CIE will provide organizational and specialized services to the Monterrey, 236 Mexico event. These mark our entry into one of the most popular sporting events in the world, attracting THOUSAND unsurpassed advertising sponsorships. EXPECTED ATTENDANCE IN MEXICO CITY (END OF 2002) The races ushers Mexico into a prominent position in the 21-race circuit with the largest anticipated audience in 420 THOUSAND the Series. Local fans will particularly embrace the event as renowned Mexican drivers Adrián Fernández, Michael Jourdain Jr., and Mario Domínguez race in the Series.
CIE / 13 ATL HALL / RIO DE JANEIRO
We acquired Rio de Janeiro’s 10,000-seat ATL Hall in April 2001, one of the largest live entertainment venues EVENTS IN 2001 in South America. We are now the leading promoter of live events in Rio de Janeiro and have the capacity to serve a market of over nine million potential spectators. ATL Hall gives us the critical mass required to 100 maximize our operations in the country, particularly in Rio de Janeiro, the most important artistic market in Brazil. As a result of this acquisition, and in conjunction with our consolidated presence in Sao Paulo, we have ATTENDEES secured our position as the leading entertainment group in the Brazilian market, able to provide artists with a regional focus for their shows in the most important cities in the country. 330 THOUSAND
14 / ANNUAL REPORT 2001 Ballet Kirov, Sao Paulo.
Circo Imperial de China, Sao Paulo.
Disney on Ice, Buenos Aires.
Year-end event (Coca-Cola), Mexico City.
Buena Vista Social Club, Rio de Janeiro.
city and prepared to move elsewhere in our circuit. These include the aforementioned Phantom of the opera, as well as The man of La Mancha in Mexico City and Chicago in Buenos Aires. We also strengthened our lineup of local performances with De la guarda in Buenos Aires, The kiss of the spider woman in Sao Paulo, Las obras completas (abreviadas) de William Shakespeare, The vagina monologues and Defendiendo al cavernícola in Mexico City.
FAMILY, CULTURAL AND SPORTING EVENTS / We presented 228 family, cultural and sporting events in 2001. Events included Disney on Ice shows in Mexico City and Buenos Aires; the Circo Imperial de China and the Ballet Kirov throughout various Brazilian cities; Buenos Aires Vivo, Argentina en Vivo, Afro-Cuban All Stars and Circo de Pekín in Argentina. We also presented Tampa Bay Devil Rays vs. Pittsburg Pirates baseball games and various wrestling events in Mexico City, among others sporting spectacles.
SPECIAL AND CORPORATE EVENTS / Companies, government agencies, foundations and educational institutions, among others, often require unique ways to connect them- selves or their brands to their audiences. We help deliver their advertising and promo- tional messages through special and corporate events that we coordinate and manage on their behalf, such as conferences, holiday parties, product launches, parades, civic Through our special and events and film premieres, several of which are conducted throughout Mexico. We corporate events business, produced 206 such events in 2001, compared to 187 in the previous year. Events this year were developed for organizations such as Banco Santander Mexicano, Cemex, we look to participate Centro Comercial Perisur, Christian Dior, Coca-Cola, Comex, Danone, Disney, Ericsson, in events that occur FedEx, FEMSA, Gillette, Grupo Posadas, IBM, Jafra, Jumex, Motorola, Philip Morris, SEAT, Telcel, Telmex, and Universidad Anáhuac. on a regular basis.
CIE / 15 Hallway at Centro de Exposiciones y Convenciones Las Américas, Mexico City.
Teatro Abril, Sao Paulo.
Teatro Coliseum, Madrid.
VENUE OPERATION / Operating entertainment venues is an integral part of CIE’s vertical integration model. We have aggressively secured the operation of the 23 most important spectacle centers in the region, including forums, soccer stadiums, arenas, theatres and fair pavilions, located throughout Latin America and Spain. We also operate the Centro de Entreteni- miento Familiar y Cultural de las Américas in Mexico City which thus far comprises a racetrack and an exhibition and convention center. Our venues are consistently regarded as the best locations for live events. Operating the most extensive entertainment network in Latin America allows us to exploit other opportunities related to live entertainment, such as event promotion, marketing of advertising sponsorships, ticketing, the sale of food and beverages, and merchandizing. These ancillary activities substantially reduce the risks associated with operating entertainment venues and lower our attendance break-even requirements. In 2001 we consolidated new facilities into our venue portfolio, including Madrid’s Mexico City’s Las Americas Teatro Coliseo, Barcelona’s Palau de Sports, Rio de Janeiro’s ATL Hall and Sao Paulo’s Center currently includes Teatro Abril, all of which will augment entertainment revenues in the years to come. a horse racetrack and CENTRO DE ENTRETENIMIENTO FAMILIAR Y CULTURAL DE LAS AMÉRICAS / an exhibition and convention In 1998, we received a renewable concession for 25 years to operate Mexico City’s Hipó- center, and ultimately dromo de las Américas (10.2 hectares), as well as a renewable concession for 50 years a five-star hotel, a family to the land surrounding the Racetrack (41.1 hectares). This entire area, under progres- sive development, is the Centro de Entretenimiento Familiar y Cultural de las Américas center and a cultural center. (“Las Americas Center”), which currently includes the horse racetrack and the exhibition
16 / ANNUAL REPORT 2001 LA FERIA DE CHAPULTEPEC / MEXICO CITY
In February 2001, we acquired La Feria de Chapultepec, the most well-attended park in the Mexico City area. La VISITORS Feria de Chapultepec traditionally attracts low- and medium-level income groups. The park dovetails our IN 2001 successful strategy of selectively incorporating amusement parks with characteristics that can further enhance 2.2 synergies with our core live entertainment operations. MILLION VISITORS IN 2000 1.7 MILLION
CIE / 17 Sports Book, Mexico.
Races at Hipódromo de las Américas, Mexico City.
Central stand at Hipódromo de las Américas, Mexico City.
Jardín Zoológico de la ciudad de Buenos Aires.
Parque El Salitre, Bogota.
Attraction at La Feria de Chapultepec, Mexico City.
and convention center, and ultimately a five-star hotel, a family center and a cultural center. Our development of this entertainment concept arose from our strategic focus on participating in diverse outdoor entertainment and amusement activities. The Hipódromo de las Américas, inaugurated in March 2000, was the first compo- nent of the Las Americas Center to be completed. The 2001 racing season boasted two more months than the inaugural year, with 1,322 total races compared to the 1,012 in 2000, and a 19% increase in attendance to 530,000. Per capita consumption of food, beverages and bets increased from Ps.454 in 2000 to Ps.511 in 2001. The Las Americas Center concessions also include government licenses to operate 45 off-track betting centers and number-based games (Yaks) in Mexico. As of Decem- ber 2001, we operated eight OTB and Yak facilities in the country, strategically located in the Hipódromo de las Américas as well as in shopping malls at urban centers, where foot traffic virtually assures success. Five of these sites are located in Mexico City (three of which opened at year-end 2001), and one each in Leon and Guadalajara.
AMUSEMENT PARKS / CIE is the leading operator of amusement parks in Latin America with 11 major com- plexes in three countries: Argentina, Colombia and Mexico. Approximately 9 million The Jardín Zoológico de la people visited our parks in 2001, and contributed to record levels of per capita con- sumption. ciudad de Buenos Aires is an Despite the economic situation in Argentina, our zoo in Buenos Aires continued to inexpensive entertainment attract a significant number of visitors in 2001, resulting from its unique position as an inexpensive entertainment option for city residents. We also implemented various option for city residents. promotional measures that had previously proven to be successful in Mexico.
18 / ANNUAL REPORT 2001 Poster for Thirteen days (Trece días).
Poster for Spy game (Juego de espías).
Poster for Dungeons and dragons (Calabozos y dragones).
Poster for What women want (Lo que ellas quieren).
Poster for El segundo aire.
We continue to focus on increasing the level of attendance and per capita con- sumption at each of our amusement parks, while capitalizing on our capacity to serve low and middle-level income visitors. By increasing amusement-related services and products —particularly at Divertido Ciudad de México; and Bogota’s Parque El Salitre, the complex’s two first business units— our approach has proven to be successful.
FILM PRODUCTION AND DISTRIBUTION / In early 1999 we entered the film industry in order to take advantage of the growth in demand we saw in Latin America. Local and international productions offer multiple distribution channel opportunities, including cinema, video rental, DVDs, and broad- cast and pay TV. We produce films in Mexico —to take advantage of lower production costs— and make movies that focus on universal themes within a Latin content, seeking to achieve a special appeal to Spanish-speaking audiences. Our productions in 2001 included El segundo aire, Sin dejar huella and Atletico San Pancho, in addition to 2000’s Todo el poder (Gimme power), Por la libre (Dust to dust), and the universally acclaimed Amores perros (Love’s a bitch). Our strategy also incorporates marketing activities such as public- ity, sponsorships and “behind the scenes” programs, as well as movie soundtracks. CIE is also the leading independent film distributor in the region with a portfolio of 83 third party and proprietary films, a marked increase from our 51 titles in 2000. Our distribution market includes Mexico and 17 countries in South and Central America and Our film portfolio included various Caribbean nations. In addition to our own films, some titles which we began 83 third party and proprietary to distribute in 2001 include: Thirteen days, Dungeons and dragons, The gift, What women want, Crocodile Dundee in New York, Luzhin’s strategy, and The unsaid. titles at the end of 2001.
CIE / 19 CENTRO DE EXPOSICIONES Y CONVENCIONES LAS AMÉRICAS / MEXICO CITY
After more than a year of construction, the second component of the Centro de Entretenimiento Familiar y Cultural EVENTS RESERVED de las Américas was completed in early 2002. The Centro de Exposiciones y Convenciones Las Américas was IN 2002 MORE THAN inaugurated in February of this year with the capacity to host diverse local and international B2B, B2C and social events. The Center’s size, design, technology and administration are the most developed of their kind in 150 Mexico and one of the most important in Latin America. The facility today encompasses a total constructed CONSTRUCTED AREA area of 125,000 m2, of which 21,000 are devoted to the exhibition area, and nearly 3,000 for conventions and social events. 125 THOUSAND M2
20 / ANNUAL REPORT 2001 COMMERCIAL DIVISION
We organize and promote trade fairs and exhibitions in Mexico, and market event BECAUSE WE DRAW NUMEROUS sponsorships and naming rights, sell food, beverages and souvenirs (or market the SPECTATORS TO OUR DIVERSE right to sell specific products) at our venues and events. In addition, we sell advertising space at our events, entertainment venues and EVENTS AND VENUES, amusement parks, on rotational advertising panels located at professional soccer WE CAN OFFER SPECIALIZED stadiums in Mexico, on pedestrian overpasses in Mexico and on billboards in Panama City. Similarly, we market advertising space in the venues where live events are held, ADVERTISING SPONSORSHIP AND whether operated by us or third parties, and pre-movie advertisements known as PROMOTIONAL OPPORTUNITIES cineminutos in Mexico. We also operate Argentina’s leading radio broadcasting sta- tions and recently obtained the right to market indoor and outdoor advertising space TO ADVERTISERS LOOKING at several Mexican airports. FOR A UNIQUE CONNECTION Division revenues increased 43% in 2001 to reach Ps.855 million. Despite the economic crisis in Argentina, our primary commercial growth came from our Buenos TO THEIR AUDIENCES. Aires-based radio stations, five out of seven of which were consolidated in late 2000. Further driving commercial growth was an increase in advertising sponsorship sales and a higher number of attendees at our trade fairs and exhibitions. ’01
TRADE FAIRS AND EXHIBITIONS / Commercial 17.0% CIE first entered the trade fair and exhibition promotion industry in the early 1990s and has since become the largest organizer and promoter of these events in Mexico, both in terms of attendance and event portfolio. Our leading position has enabled us to effectively leverage our venue operations on behalf of our clients and sponsors. We organized and promoted eleven trade fairs and exhibitions in 2001, which drew ’00 nearly 720,000 visitors. These included: Auto Expo Mundial, Classic Motor Show, Expo
Didáctica, Expo Equipo Médico Manufacturado, Expo Médica Hospital, Expo México Commercial 14.4% Textil, Expo Mujer, Expo Taller Mecánico, ISA Expo Central, La Feria de la Ciudad de México and Rest-Hotel Abastur. We anticipate future revenue growth from this unit as we consolidate the Centro de Exposiciones y Convenciones Las Américas into our operations in 2002. As one of the largest and most versatile expo centers in the region, we have significantly increased REVENUE BY DIVISION our ability to attract large-scale trade fairs and exhibitions.
CIE / 21 Auto Expo Mundial 2001, Mexico City.
Rotational advertising at professional soccer stadiums, Mexico.
Cineminutos and advertising concepts in movie theatres, Mexico.
Static advertising on pedestrian overpasses, Mexico.
ADVERTISING / PEDESTRIAN OVERPASSES / Partnering with municipalities in several Mexican cities, we construct pedestrian overpasses at no charge to the city in exchange for 5-year ex- clusive rights to sell advertising on the upper lateral surfaces of those overpasses. At year-end 2001 we counted 107 overpasses and 383 advertisement billboards in our portfolio, in comparison with 98 structures and 347 billboards in the previous year.
BILLBOARDS IN PANAMA / We began selling billboard advertising space in Panama in December 2000, specifically on the Carretera Corredor Sur, a 11-mile-long highway which connects Panama City with the international airport. At year-end, we operated 16 billboards with 34 advertisements.
ADVERTISING IN AIRPORTS / In early 2002, we obtained 8-year exclusive rights for marketing advertising space at 13 Mexican airports operated by Grupo Aeropor- tuario Centro Norte, including Monterrey, Acapulco, Ixtapa-Zihuatanejo and Ciudad Juárez. Nearly 11 million passengers fly through these facilities annually. The agree- ments includes both outdoor advertising (billboards on access streets, benches, parking areas and others) and indoor advertising (baggage claim areas, corridors, In 2001, we began working boarding areas, etc.).
with sponsors in building ROTATIONAL ADVERTISING / Complementing our marketing and live event-related oper- integrated regional ations, we sell advertising space on rotating panels surrounding the fields of many lead- ing Mexican soccer stadiums, allowing the strategic placement of advertisements in full marketing packages view of TV cameras during sporting events held at those stadiums. Our participation in for each country where soccer provides access to the most important and widely-attended amusement and sporting activity in the country. In 2001 we implemented two new highly effective adver- we have a presence. tising concepts: static announcements, and electronic displays which did not previously
22 / ANNUAL REPORT 2001 AUDIENCIAS CAUTIVAS / MEXICO
We created a joint venture with Audiencias Cautivas, the leading promoter of special and corporate events in the EVENTS PRODUCED BY Mexican market, and have already completed the merger of our special and corporate events unit into a new entity. AUDIENCIAS CAUTIVAS IN 2001 MORE THAN Through this new partnership, CIE becomes the largest special and corporate events group in Mexico, creating 1,200 important operating and commercial synergies derived from unified representation and negotiation with clients and suppliers, along with the integration of our respective local and international client bases, multimedia assets CLIENTS and content development. 200
CIE / 23 Credicard Hall, Sao Paulo.
Centro Cultural Telmex I and II, Mexico City.
Teatro Lope de Vega, Madrid.
Telmex Racing Team at Hipódromo de las Américas, Mexico City.
exist in the country but complement the mechanical boards we already operate. These advances led to agreements with 14 professional soccer teams, two more than in 2000, and allowed us to consolidate our client base from 134 in 2000 to 45 in 2001.
ADVERTISING IN MOVIE THEATRES / In early 2001 we obtained the exclusive right from two leading Mexican multiplex chains which have a combined 55% market share, to market “cineminutos”, the advertisements screened prior to a film. Cineminutos are an attractive alternative to traditional mass media advertising channels, allowing compa- nies to connect their brands with highly targeted and segmented audiences. Our agree- ment, covering more than 1,100 screens at 150 theatres, includes screen ads as well as space inside the multiplex that can be used for promotional activities.
NAMING RIGHTS / Companies seeking unique branding opportunities have sought to affix their names to our entertainment venues, which are some of the most prominent and well-attended in Latin America. We have sold naming rights for eight of our venues in the region: • Prior to 2001 / Foro Sol (FEMSA, brewer) and Centro Cultural Telmex I and II (Telmex, telecommunications) in Mexico City; Auditorio Coca-Cola Fundidora (the Coca-Cola Company, soft drinks) in Monterrey; DirecTV Music Hall (DirecTV, digital TV) and Credicard Hall (Credicard; credit cards) in Sao Paulo. We market advertising • In 2001 / Sao Paulo’s Teatro Abril (Editora Abril, publisher), Rio de Janeiro’s ATL Hall in movie theatres in Mexico, (ATL, cellular operator) and Buenos Aires’ Teatro Sky Ópera (Sky, digital TV). an attractive alternative RADIO / to traditional mass media In the fourth quarter of 2000, CIE began operating three important radio groups in Argentina which broadcast on five leading AM and FM stations, complementing our advertising channels. two existing stations we have operated since 1998 in the country.
24 / ANNUAL REPORT 2001 Zipango, Angus and La Terraza restaurants, and Winners´ Circle suits at Hipódromo de las Américas, Mexico City.
Radio program, Buenos Aires.
Radio stations represent an important aspect of our vertical integration in Argentina, allowing us to promote our live entertainment events on air and offering our large base of sponsors and advertisers integrated multi-pronged marketing initiatives. CIE is the leading radio operator in Argentina: 26% of listeners in FM and 13% in AM. Our stations include Radio América (1190 AM), Radio Aspen (102.3 FM), Radio del Plata (1030 AM), La Metropolitana (95.1 FM), FM San Isidro Labrador (95.5 FM), Rock&Pop (95.9 FM) and Radio Splendid (990 AM).
FOOD, BEVERAGES AND MERCHANDISING / An important part of our vertical integration strategy is the sale of food, beverages and merchandising at all of our events, spectacle centers and amusement parks in several of our markets, providing ancillary revenues to CIE’s diverse live entertainment and amusement activities. In 2001, as part of the Hipódromo de las Américas development, we extended our commitment to this aspect of the business by opening the “Angus” restaurant and Casa Bacardi bar at the track, two third party’s upscale facilities that round out our original plan for dining. The horse racetrack now boasts seven specialized food and beverage facilities: Winners’ Circle, Turf, 1943, La Terraza, Zipango, Angus and Casa Bacardi, in addition to several fast food stations located throughout the horse racetrack. We also provide catering services for clients seeking to host special and corporate events at the horse racetrack, mainly conferences and year-end dinners. Construction at the Centro de Exposiciones y Convenciones Las Américas included the biggest industrial kitchen in Mexico, with the capacity to serve 5,000 meals simulta- We extended our food neously at conventions and social events. The center also has several fast food units to service exhibitors and visitors to the facility. and beverages operations We market exclusive rights for the sale of merchandise at CIE’s events and venues. in 2001, specifically at We have also established agreements with promoters and event organizers to market promotional items connected either with sponsors or the events themselves. the Las Americas Center.
CIE / 25 SERVICES DIVISION
THROUGH THE DEVELOPMENT
OF TELESERVICES AND CIE’s Services Division connects entertainment content to audiences through ticket sales for spectacle centers and public entertainment venues. The Division also provides TELEMARKETING PROGRAMS, supplementary teleservices to third parties. Division revenues increased 7% in 2001 to WE COMPLIMENT OUR LARGE reach Ps.440 million.
ARRAY OF MARKETING AND TICKETING / ENTERTAINMENT ACTIVITIES. In 1991, we signed a license agreement with Ticketmaster, the largest ticket-selling company worldwide, to sell tickets in Mexico and Latin America using the TM name and its computerized ticketing system. Following subsequent agreements and the expan- Services 8.8% ’01 sion of operations in South America, we have managed ticketing activities in Argentina and Chile since 1998, and in Brazil since 2000. We were also granted the exclusive 10- year rights to expand and consolidate ticketing operations in the Central and South American region, including on-line activities. Growth in the volume of tickets sold throughout the region in 2001 was due to the renewal of contracts with and the affiliation of entertainment venues and talent promot- ing companies in Mexico and Brazil. Services 9.9% ’00 • Ticketmaster Brazil benefited from expansions of its sale and distribution systems in Sao Paulo, Rio de Janeiro and, recently, Salvador; • Ticketmaster Mexico continued developing its third ticketing unit in Guadalajara and continued improving its selling and delivery systems. • The Chilean ticketing unit, traditionally a small operation, continued performing well in the year. Partially offsetting overall ticketing gains were declines at TM Argentina due to REVENUE BY adjustments in the number of tickets sold, reflecting a lower number of affiliated events DIVISION and entertainment venues. This situation resulted from a reduction in the local enter-
26 / ANNUAL REPORT 2001 www.ticketmaster.com.mx
www.ticketmaster.com.br
Guia Ticketmaster, Brazil.
La Guía Ticketmaster, Mexico.
Ticketmaster ticket‘s new design.
tainment activity of CIE and third-parties, as a consequence of the economic crisis in Argentina. We continue to focus on developing local Ticketmaster internet sites. In addition to Mexico’s www.ticketmaster.com.mx site, we launched www.ticketmaster.com.br in Brazil, and expect to launch an Argentine ticketing site shortly. Although our regional entertainment portal elfoco.com generated Ps.32 million in revenues for the year, a 29% increase over 2000, we decided to merge the unit’s opera- tions with Ticketmaster Online. The process enabled us to eliminate elfoco.com’s cash burn while retaining online ticketing and merchandising functionality.
TELESERVICES / Through a joint venture with Sitel, the leading teleservices provider worldwide, CIE provides outsourced call center solutions for corporations in Mexico City and Monterrey, Mexico, and Bogotá, Colombia. Teleservices programs include technical support, billing inquiries, customer servi- ce, product support, and credit card fraud protection. We also support our corporate clients’ sales programs by handling product orders, activating credit cards and so- liciting sales. We use sophisticated call management technology, software, automated call distributors, and other tools to provide seamless service in Spanish and English, process data on multiple products and services, and distribute call volumes and data In 2001, we sold 15 million between call centers. Some of the clients for whom we provided teleservices programs in 2001 include: tickets in Argentina, Brazil, • Mexico / American Express, America On Line, Banco Nacional de México, Compaq, Chile and Mexico, 27% more Grupo Financiero Serfin, Philip Morris and Telmex. • Colombia / Avaya, Comcel, Compaq, Fundación Social, Microsoft and TV Cable. than 2000.
CIE / 27 MANAGEMENT’s DISCUSSION & ANALYSIS
Figures appearing in this section are expressed in millions of Mexican pesos of purchasing power as of December 31, 2001, unless otherwise specified; and have been prepared in accordance with Mexican Generally Accepted Accounting Principles (“Mexican GAAP”). Certain amounts may differ due to rounding.
2001 PART. 2000 PART. VAR. $ VAR. % ENTERTAINMENT 3,704 73.6% 3,137 75.1% 567 18.1% COMMERCIAL 855 17.0% 600 14.4% 255 42.5% SERVICES 440 8.8% 413 9.9% 27 6.5% LE 32 0.6% 25 0.6% 7 28.6%
REVENUES / III. The addition of Mexico City’s La Feria de Chapultepec in the first In the year, CIE’s consolidated revenues grew 21%, quarter of the year to CIE’s amusement park network in Latin reaching Ps.5,030, in comparison with Ps.4,174 re- America; and, corded in 2000. The table above details CIE’s Divi- IV. To a lesser extent, the distribution in 18 countries of more films in sion contributions to consolidated revenues in 2001 than 2000. CIE’s film portfolio contained 83 films at the end of 2000 and 2001. 2001, which compares with 51 titles at the end of 2000.
ENTERTAINMENT DIVISION / Revenues increased Revenues were partially affected by a relatively lower theatrical 18% in the year, which was mainly driven by: activity in the region. In 2001, 1,696 functions were presented, in
I. The promotion of a greater variety of music comparison with 1,972 functions in the previous year. This 14% reduc- concerts in the Mexican and Brazilian markets, tion was mainly due to moving musical The phantom of the opera and Latin events in various cities of the United from Mexico City to Madrid, previously expected to stage in mid States, a market formally served since early 2001. 2001, and now planned to premiere in the second half of 2002; and However, the promotion activity was partially the in-advance cancellation of musical Chicago in Buenos Aires, affected by less events promoted in Argentina as which was staged in Mexico City in October 2001; jointly with end of a direct consequence of the economic crisis; the season of some local plays in Brazil.
II. The operation of Mexico City’s Hipódromo de las Américas, whose 2001 season lasted two COMMERCIAL DIVISION / The 43% increase in the division was due more months (February-December) than 2000’s mainly to:
April-December season, obtaining higher per I. The operation of more Buenos Aires-based radio stations, as five capita consumption and attendees; out of seven stations began to be operated and consolidated by
28 / ANNUAL REPORT 2001 VÍCTOR MANUEL MURILLO VEGA CHIEF FINANCIAL OFFICER
CIE in late 2000 when they were acquired by the Group and added centers in the country, jointly with the startup of to CIE’s radio stations already operating in this country. However, operations in Guadalajara, the second largest city during 2001 this operation was importantly affected by the in the country. Similarly, TM Brazil, which began economic crisis in Argentina; operations in Sao Paulo during the second half of
II. The marketing of the various advertising sponsorship concepts 2000, increased the number of tickets sold due to that CIE offers in the region. Among them are: advertising on the affiliation of third-party public events and ven- pedestrian overpasses in Mexico; the sale of naming rights in the ues, jointly with the startup of its Rio de Janeiro region; the marketing of advertisements in leading movie theatres and Salvador-based sales and distribution systems. in Mexico and of billboard space in Panama City; jointly with the sale of rotational and static advertising at soccer fields; and, LATIN ENTERTAINMENT / Revenues increased 29%,
III.A higher number of attendants to CIE’s trade fairs and exhibitions to reach Ps.32. In November 2001 CIE initiated a in the year, despite the fact that CIE’s event portfolio reduced from process of merging elfoco.com with Ticketmaster 15 events in 2000 to 11 in the year. Online, which has already been completed. This process eliminated the Company’s cash burn that SERVICES DIVISION / The 7% increase in the division resulted princi- elfoco.com, CIE’s former internet venture, gener- pally from more tickets sold by the Ticketmaster system in the region. ated when it was operated. The merger allows CIE The increase was mainly experienced at Brazil and Mexico’s units; to maintain the key live-entertainment related however, Argentina unit under-performed due to the economic situ- goodies that elfoco.com offered through an e- ation in the country. commerce concept, including selling tickets and The increase recorded in TM Mexico is explained by the affilia- merchandise on-line, as well as event-related tion and renewal of talent promoting agencies and spectacle sponsorships and an agenda of events.
CIE / 29 MATURITIES DENOMINATION
2002 14% Mexican pesos 2007 2003-2005 UDIs 38% 62% 24% 57%
U.S. dollars and other currencies DEBT AS OF DECEMBER 31, 2001: 5% Ps.3,351 MILLION ’01 ’00
GROSS PROFIT / 2000. EBITDA margin presented an adjustment of 130 basis points, to Gross profit increased 18% to Ps.1,980, in compar- reach 23.5% in 2001, in comparison with the EBITDA margin of 24.8% ison with Ps.1,681 in 2000, resulting from the 21% achieved in 2000. This adjustment mainly resulted from: increase in total revenues recorded in 2001. The I. Adjustments in revenues and margins in the operation of CIE in gross margin dropped 91 basis points during 2001 Argentina, which are the result of a lower level of activity for the to reach 39.4%, as compared with a gross margin economic conditions in Argentina: a) a decrease in the operating of 40.3% in the previous year. This adjustment was revenues of radio stations which, by nature, have a high operating the result of a higher cost of sales as percentage of leverage; jointly with b) an adjustment in the out-of-home revenues in the year, in comparison with 2000. This entertainment events and attendance levels; and, situation must be attributed to a change in the II. The recognition of negative EBITDA for Ps.51 resulting from the SG&A mix, where a higher proportion of cost of operation of elfoco.com in the year. Based on the previously sales, in comparison to operating expenses, was mentioned merging of elfoco.com and Ticketmaster On Line, CIE registered in 2001 vs. 2000. Said change in the mix eliminates the cash burn derived from the operation of the site, is the result of a higher participation in certain live- beginning January 2002. entertainment activities that, by nature, generate more variable than fixed costs. OPERATING INCOME / The Group recognized operating income of Ps.839 in 2001, 8% EBITDA / higher than the Ps.774 figure registered for the previous year. Oper- Earnings before interest, taxes, depreciation and ating margin was 16.7%, an adjustment of 186 basis points as amortization (“EBITDA”) were Ps.1,181, an increase compared with the 18.5% operating margin for 2000, an effect that of 14% against the EBITDA of Ps.1,034 generated in must be attributed principally to:
30 / ANNUAL REPORT 2001 We will continue to adjust the maturity and structure of existing debt in order to substitute high cost, short-term obligations for lower cost, long-term debt.
I. A greater level of non-cash items, such as depreciation and for lower cost, long-term debt; a strategy that amortization, which increased from Ps.260 in 2000 to Ps.342 in the has been followed since two years ago.
year, reflecting a higher base of fixed and deferred assets in the III. A higher net foreign exchange loss in 2001 than Mexican, Brazilian and Argentine operations; and, in 2000, increasing from a net loss of Ps.15 to a
II. Other adjustments in margins from operations, as previously net loss for Ps.22 in 2001. The net effect in the mentioned. foreign exchange positions derived form the various adjustments between the Mexican peso CCF/ and the U.S.-dollar parity in 2001, thus im- CIE recorded Ps.355 as comprehensive cost of financing (CCF) in pacting CIE’s U.S.-dollar position. Exchange 2001, an increase of 28% against the Ps.276 figure registered in 2000. rates used by the Company were Ps.9.1695 as of This increase was mainly the result of: December 31, 2001, and Ps.9.6098 as of Decem-
I. A 146% change in the monetary position, which grew from a Ps.24 ber 31, 2000. loss in 2000 to a Ps.58 loss in 2001. This effect was caused by the recognition of a 4.4% inflation rate during 2001, affecting CIE’s net EXTRAORDINARY ITEMS / liability position, which included the effect of the Company’s UDI- In the year, CIE recorded Ps.746 as extraordinary denominates medium-term notes, a debt instrument linked to items, of which Ps.694 were recorded in the last Mexico’s inflation rate; quarter, as it is explained as follows.
II. A net interest expense of Ps.274 in 2001, in comparison with Ps.268 Resulting from the events of Argentina, as well recorded in the previous year. It is important to note that the as the amount of investments and level of oper- Company continues adjusting maturity and denomination ations that CIE has in this country, the Company structures of debt in order to substitute high-cost, short-term debt decided to make certain provisions and account-
CIE / 31 In Argentina, we will continue to implement cost-cutting measures and are keeping a close watch on developments in order to scale our operations accordingly.
ing revaluations on its most important investments. Beginning January 2002, accounting affectations at the income These revaluations do not affect cash-flow. statement level will be conducted in terms of lower revenues and This adjustments for Ps.694, recorded as ex- costs and expenses in Mexican pesos, when consolidated by CIE as traordinary items in CIE’s consolidated financial holding company. statements as of December 31, 2001, are mainly Furthermore, CIE expects non-cash accounting impacts from the explained by: devaluation of the Argentine peso, by the conversion of foreign enti- A. Current assets: ties in the Group’s financial statements. These impacts will be offset • Ps.87 in provisions for accounts receivables, by the local inflationary effects, which generally tend to increase mainly at the radio operation; jointly with, some assets and liabilities’ book value. • A reduction of Ps.23 in other current assets, mainly advanced and pre-operating expenses, PROVISIONS FOR TAXES / which derive from the cancellation of some live CIE recorded provisions for taxes of Ps.156 in 2001, of which Ps.64 events (rights and pre-operating expenses), corresponded to deferred income taxes that results from extraordi- mainly theatrical plays and family events. nary losses for the revaluation of CIE Argentina’s assets carried out in B. According with Net Present Value valuation the last quarter of the year. As the Group does not consolidate for criteria, applied to all the investments recorded in fiscal purposes, each of its subsidiaries is fully responsible for its own CIE’s balance sheet as deferred assets, CIE made a fiscal activities, including, in certain cases, taking advantages of write-off of nearly Ps.584, which is explained by: unused tax carry forwards. • Ps.303 in the Company’s radio investments; • Ps.94 in the promoter of events and trademarks MAJORITY NET RESULT / acquired in 1997; and, Majority net result decreased 245% in 2001 to reach a loss of Ps.405, • Ps.57 in the Jardín Zoológico de la ciudad de compared with a net majority income of Ps.279 for 2000. This loss was Buenos Aires concession and Ps.55 for goodwill mainly driven by extraordinary items of Ps.694, and a higher compre- generated by the Teatro Sky Ópera acquisition. hensive cost of financing. This reductions include pre-operating costs On a pro-forma basis, excluding extraordinary items, CIE recorded and deferred investments for Ps.75 to be amor- a majority net income of Ps.289, an increase of 4% in comparison with tized in some of the businesses above mentioned. the pro-forma Ps.279 majority income registered in 2000.
32 / ANNUAL REPORT 2001 CONSOLIDATED FINANCIAL STATEMENTS as of December 31, 2001 and 2000. Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries
REPORT OF REPORT OF CONSOLIDATED CONSOLIDATED CONSOLIDATED STATEMENTS ECONSOLIDATED NOTES TO STATUTORY INDEPENDENT BALANCE SHEETS STATEMENTS OF OF CHANGES IN STATEMENTS OF CHANGES CONSOLIDATED AUDITOR ACCOUNTANTS INCOME STOCKHOLDERS’ EQUITY IN FINANCIAL POSITION FINANCIAL STATEMENTS 34 35 36 37 38 40 41 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries REPORT OF STATUTORY AUDITOR
Alejandro Torres Hernández CERTIFIED PUBLIC ACCOUNTANT
To the General Shareholders Meeting of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V.
I, the undersigned, as statutory auditor and in compliance with the dispositions of Article 166 of the Ley General de Sociedades Mercantiles (General Business Corporations Act) and CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V., Bylaw, hereby submit to you my opinion on the truthfulness, sufficiency and reasonability of the information the Board of Director has presented to you related to this Corporation’s operation during the year ended on December 31, 2001.
I have attended the Shareholders Meeting and Board of Directors Meeting to which I have been duly convened, and obtained from both director and managers the operation information. Documents and records I considered necessary to review. My revision has been made in accordance with the generally accepted audit standards in Mexico.
The attached financial statements have been prepared under the laws and regulations applicable to the corporation as an independent legal entity; therefore investment in subsidiaries’ capital stock has been valued following the equity method. Separated are presented the consolidated financial statements which, on the same date, have an accountant’s report without exception.
In my opinion, the accounting and reporting criteria and policies applied by the Corporation and considered by managers in preparing the reports presented by them to this Meeting, are both adequate and sufficient and have been applied consistently with the prior fiscal year. Therefore, such financial information reflect in a truthful sufficient and reasonable way the financial situation of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V., as of December 31, 2001, the results of its operations, the changes on the stockholder’ equity and changes in financial position for the year then ended, in accordance with the accounting principles generally accepted in Mexico.
Alejandro Torres Hernández C.P.A.
STATUTORY AUDITOR
Mexico City
February 22, 2002
34 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries REPORT OF INDEPENDENT ACCOUNTANTS Mexico City, February 22, 2002
To the General Stockholders Meeting of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V., AND SUBSIDIARIES
1. We have audited the accompanying consolidated balance sheets of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V. AND SUBSIDIARIES at December 31, 2001 and 2000, and the related consolidated statements of income, of changes in stockholders’ equity and of changes in financial position 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.
2. We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with accounting principles generally accepted in Mexico. 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.
3. The financial statements at December 31, 2001 of certain subsidiaries, whose combined assets and sales represent 28% and 18%, respectively, of the consolidated totals at that date, (22% and 31%, respectively, at December 31, 2000), were examined by other independent accountants. Our opinion expressed herein, as far as concerns the amounts of the financial statements pertaining to said subsidiaries included in the consolidated financial statements, is based solely on the opinion of said independent accountants.
4. As mentioned in Note 2k. to the financial statements, as from January 1, 2000, the Company applied the guidelines of revised Statement D-4, Accounting Treatment of Income Tax, Asset Tax and Employees’ Statutory Profit Sharing”, issued by the Accounting Principles Board of the Mexican Institute of Public Accountants. The effects of adopting said statement are shown in Notes 2k and 13 to the accompanying financial statements.
5. In our opinion, based on our examinations and on the opinion of the other independent accountants mentioned in paragraph 3 above, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V. AND SUBSIDIARIES at December 31, 2001 and 2000, and the results of their operations, the changes in their stockholders’ equity and the changes in their financial position for the years then ended, in conformity with accounting principles generally accepted in Mexico.
Humberto Pacheco Soria
AUDIT PARTNER
CIE / 35 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries (Note 1) CONSOLIDATED BALANCE SHEETS Mexican pesos (Ps) of December 31, 2001 purchasing power
December 31, 2001 2000 Assets
Current Assets: Cash and marketable securities Ps 1,201,927,188 Ps 1,834,057,954 Accounts receivable (Note 4) 1,839,485,004 1,394,261,764 Inventories for sale and internal consumption 19,469,668 23,944,589 Film costs - Net 112,964,864 69,251,286 Costs of future events and prepaid expenses 1,086,320,206 814,459,643
Total current assets 4,260,166,930 4,135,975,236
Long-term accounts receivable 21,351,639 1,354,404 Film costs 354,914,109 187,880,761 Property, furniture and equipment - Net (Note 6) 4,053,776,085 2,779,554,065 Preoperating expenses and other assets - Net (Note 7) 1,379,354,973 1,305,188,769
Goodwill (included accumulated amortization of Ps.343,892,766 and Ps.126,325,172 in 2001 and 2000, respectively) 1,737,402,272 1,854,526,764
Total assets Ps 11,806,966,008 Ps 10,264,479,999
Liabilities and Stockholders’ Equity
Current Liabilities: Bank loans (Note 8) Ps 478,544,207 Ps 945,661,954 Suppliers 673,067,430 489,279,618 Other accounts payable 601,967,047 481,703,377 Revenue of future events and advances from customers 367,377,281 225,533,311 Income tax payable (Note 13) 59,082,986 Other taxes payable 76,074,266 61,885,503
Total current liabilities 2,256,113,217 2,204,063,763
Long-term debt, net of current maturities (Note 8) 2,878,641,139 2,010,579,672 Other liabilities 90,000,374 27,694,235 Deferred income tax (Notes 2k and 13) 121,346,537 52,217,931 Labor liabilities (Note 2l) 13,277,500 9,365,855
Total long-term liabilities 3,103,265,550 2,099,857,693
Total liabilities 5,359,378,767 4,303,921,456
Stockholders’ Equity: Capital stock (Note 9) 338,986,203 271,902,403 Share premium 4,484,334,169 3,650,880,076 Retained earnings 547,537,418 952,641,703 Cumulative translation adjustment (Note 2a) (390,623,296) (121,475,318) Cumulative deferred income tax (Notes 2k and 13) (45,880,297) (45,880,297)
Majority stockholders’ equity 4,934,354,197 4,708,068,567 Minority interest 1,513,233,044 1,252,489,976 Total stockholders’ equity 6,447,587,241 5,960,558,543 Commitments, contingencies and subsequent events (Notes 15, 16 and 17)
Total liabilities and stockholders’ equity Ps 11,806,966,008 Ps 10,264,479,999
The accompanying seventeen notes are an integral part of these financial statements.
36 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Mexican pesos (Ps) of December 31, 2001 purchasing power
Year ended December 31, 2001 2000
Net sales (Note 5) Ps 5,030,082,934 Ps 4,174,099,469 Cost of sales (3,050,119,290) (2,493,075,051)
Gross profit 1,979,963,644 1,681,024,418
Operating expenses (1,141,026,208) (907,008,564)
Operating income 838,937,436 774,015,854
Comprehensive financing cost - Net (Note 11) (354,523,906) (276,393,513)
484,413,530 497,622,341
Other expenses - Net (44,684,126) (32,019,382)
Income before tax provisions and extraordinary item 439,729,404 465,602,959
Provisions for income tax (Note 13): Current (91,673,931) (32,318,735) Deferred (63,906,156) (47,880,855)
(155,580,087) (80,199,590) Asset tax (5,510,723)
(155,580,087) (85,710,313)
Income before extraordinary item 284,149,317 379,892,646
Extraordinary item - Impact of the economic situation in Argentina (Note 12) (745,657,088)
Consolidated net (loss) income for the year Ps (461,507,771) Ps 379,892,646
Distribution of the consolidated net (loss) income for the year: Majority stockholders Ps (405,104,285) Ps 279,023,918 Minority interest (56,403,486) 100,868,728
Ps (461,507,771) Ps 379,892,646
(Loss) earnings per share (Note 14): Basic Ps (1.63) Ps 1.32
Diluted Ps (1.63) Ps 1.17
The accompanying seventeen notes are an integral part of these financial statements.
CIE / 37 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries (Notes 2a., 9 and 10) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY for the years ended December 31, 2001 and 2000 Mexican pesos (Ps) of December 31, 2001 purchasing power
Capital stock
Issued Unpaid Net
Balances at December 31, 1999 Ps 16,869,867 Ps 16,869,867
Increase in and payment of capital stock 255,032,536 255,032,536
Amortization of cost of executives’ stock plan
Net change in minority interest
Comprehensive income for the year (Notes 2a, 2k and 10)
Balances at December 31, 2000 271,902,403 271,902,403
Increase in and payment of capital stock 70,750,133 Ps (3,666,333) 67,083,800
Net change in minority interest
Comprehensive loss for the year (Notes 2a and 10)
Balances at December 31, 2001 Ps 342,652,536 Ps (3,666,333) Ps 338,986,203
The accompanying seventeen notes are an integral part of these financial statements.
38 / ANNUAL REPORT 2001 Cumulative Cumulative deferred Majority Total Share Retained translation income stockholders’ Minority stockholders’ premium earnings adjustement tax equity interest equity
Ps 2,267,993,301 Ps 673,617,785 Ps (45,152,984) Ps 2,913,327,969 Ps 589,939,748 Ps 3,503,267,717
1,363,983,333 1,619,015,869 1,619,015,869
18,903,442 18,903,442 18,903,442
561,681,500 561,681,500
279,023,918 (76,322,334) Ps (45,880,297) 156,821,287 100,868,728 257,690,015
3,650,880,076 952,641,703 (121,475,318) (45,880,297) 4,708,068,567 1,252,489,976 5,960,558,543
833,454,093 900,537,893 900,537,893
317,146,554 317,146,554
(405,104,285) (269,147,978) (674,252,263) (56,403,486) (730,655,749)
Ps 4,484,334,169 Ps 547,537,418 Ps (390,623,296) Ps (45,880,297) Ps 4,934,354,197 Ps 1,513,233,044 Ps 6,447,587,241
CIE / 39 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Mexican pesos (Ps) of December 31, 2001 purchasing power
Year ended December 31, 2001 2000 Operations:
Net income before extraordinary item Ps 284,149,317 Ps 379,892,646 Charges to income not affecting resources: Depreciation and amortization 307,960,496 214,339,489 Amortization of goodwill 34,163,424 78,374,407 Amortization of cost of executives’ stock plan 18,903,442 Deferred income tax 63,906,156 47,880,855
Net change in working capital (169,341,438) (140,804,619)
Resources provided by operating activities before extraordinary item 520,837,955 598,586,220
Extraordinary item - Impact of the economic situation in Argentina (745,657,088)
Resources (used in) provided by operating activities (224,819,133) 598,586,220
Financing:
Bank loans obtained - Net 400,943,720 1,164,153,370 Increase in and payment of capital stock 67,083,800 255,032,536 Share premium 833,454,093 1,363,983,333 Cumulative effect of deferred income tax (45,880,297) Translation adjustment effects (269,147,978) (76,322,334) Net change in minority interest 317,146,554 561,681,500
Resources provided by financing activities 1,349,480,189 3,222,648,108
Investment:
Acquisition of property, furniture and equipment - Net (1,476,383,813) (1,026,624,021) Preoperating expenses and other assets (179,964,907) (606,000,748) Goodwill (100,443,102) (899,814,630)
Resources used in investment activities (1,756,791,822) (2,532,439,399)
(Decrease) increase in cash and marketable securities (632,130,766) 1,288,794,929
Cash and marketable securities at beginning of year 1,834,057,954 545,263,025
Cash and marketable securities at end of year Ps 1,201,927,188 Ps 1,834,057,954
The accompanying seventeen notes are an integral part of these financial statements.
40 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 1 - ACTIVITIES OF THE COMPANY:
CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A. DE C.V. (“CIE” or “the Company”) was incorporated on August 21, 1995, under Mexican law for a duration of 99 years. CIE is the parent, directly or indirectly, of the companies mentioned below, which are grouped in the following divisions:
Entertainment / Production and promotion of live shows, such as music concerts, theatrical productions, operation of entertainment venues and amusement parks, family, corporate and sports events, both in Mexico and in some other Latin American countries; and the production and distribution of films and the operation of radio broadcasting.
Commercial / Sale of sponsorship advertising rights to events, advertising signs, rights to spaces in advertising media, promotion and organization of commercial fairs and exhibitions, and the sale of food, beverages and promotional articles to the public attending the shows.
Services / Sale of access tickets for shows and entertainment venues, through automated reservation systems and the rendering of telemarketing services.
Horse racetrack / Operation and exploitation of the permit to organize live horse races and bet-placing at the “Hipódromo de las Américas”, located in Mexico City, a Federal Government-owned property operated under a concession; as well as the operation of sports betting in Mexico, through the “Libro Foráneo” (simulcasting) system. This Division includes the development of a real estate project for the construction and operation of a hotel, a convention and exhibition center, and an entertainment, cultural and family center on the property under concession surrounding the “Hipódromo de las Américas”.
CIE has subsidiaries in the following countries: Mexico, Argentina, Brazil, Chile, Panama, Colombia, the United States of America, Spain and Holland.
In 2001 and 2000, CIE and its subsidiaries carried out the following significant operations:
• On January 9, 2001, CIE announced the incorporation of a joint venture with Hauser Entertainment, Inc., in which CIE has 51% of the capital stock. The main object of this company will be the promotion and production of live events for Spanish-speaking audiences in the United States of America.
• On January 23, 2001, CIE, through Latin Entertainment, Inc. (LE), acquired 100% of the capital stock of Radio Libertad, to consolidate its broadcasting position in Argentina.
• On February 1, 2001, CIE, through its subsidiary Grupo Mantenimiento de Giros Comerciales Internacional, S.A. de C.V., announced agreements by which 100% of the capital stock of Grupo Empresarial Chapultepec, S.A. de C.V. (GECSA) was acquired. GECSA operates La Feria de Chapultepec, an amusement park located in Mexico City.
• On February 23, 2001, CIE announced that it had obtained from Organización Ramírez, S.A. de C.V. (Cinépolis) and Cinemark de México, S.A. de C.V., the exclusive rights for the commercialization and operation of “cineminutos”, publicity that is exhibited in cinematographic screens, as well as the operation of certain promotional and advertising spaces in all the theater complexes that these companies have or will develop in Mexico.
• On February 26, 2001, CIE acquired the remaining 30% of the capital stock of Stage Empreendimentos, S.A. (Stage). This company is the leading operator of live entertainment centers and the most important promoter of local and international live shows in Brazil.
• On April 2, 2001, CIE announced that it started formal operations in Rio de Janeiro, Brazil, by means of the acquisition of the operation rights of the ATL Hall, the largest center of live entertainment and special events in that city.
• On September 6, 2001, CIE announced that, together with Forsythe Racing, Inc. (Forsythe), it entered into an agreement, renewable for a period equal to its term, with Championship Auto Racing Teams, Inc. (CART), one of the two most important auto racing organizations in the world, and the most important in America, with the object of presenting the CART championship in Mexico City from 2002 to 2006.
CIE / 41 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
• During the last quarter of 2001, CIE entered into an association with the Audiencias Cautivas group, one of the largest promoters and organizers of special events in Mexico, and leader in some entertainment sectors in Mexico. The new company, Creatividad y Espectáculos, S.A. de C.V., will be 60% controlled by CIE from 2002 onwards.
• During November 2001, CIE started combining the operations of its Internet portal focused on live entertainment, el Foco.com, with Ticketmaster Online.
• On January 11, 2000, LE, a subsidiary of Aspel Grupo, S.A. de C.V. (Aspel), granted CIE a share subscription option on shares representing 85% of its capital.
• On January 19, 2000, CIE announced the signing of an agreement with Aspel, by means of which CIE, as preferred supplier, will provide live entertainment content, sale of tickets on line with preferential rights, access to film and theatrical premieres and other events to El Foco, a subsidiary of Aspel that operates an internet portal for the Spanish- speaking world and Correo Web, another subsidiary of Aspel, which offers the public communication solutions and electronic mail.
• On January 20, 2000, the foregoing agreement to provide content was also entered into between CIE and LE, the parent of El Foco Punto Com, S.A. de C.V. and Correoweb, S.A. de C.V.
• On March 17, 2000, CIE, through Grupo CIE Argentina, S.A. de C.V., increased its equity in Stage from 40% to 70%.
• On March 31, 2000, CIE signed several agreements with Ticketmaster Corp., under which CIE enlarged the terms for the expansion and consolidation of its ticket-selling operations in Central and South America, by means of a ten-year concession for the exclusive use of the “Ticketmaster” system in that region.
• On May 2, 2000, CIE announced that it would exercise its option to subscribe the shares of LE previously referred to, and that, by means of a general shareholders’ agreement, Sinca Inbursa, S.A., Sociedad de Inversión de Capitales (an investment fund), or a company designated by the latter, would acquire 31.5% of the capital stock of LE, as a result of which CIE’s equity would be decreased to 58.2%.
• In May 2000, CIE Internacional, S.A. de C.V. increased its equity in the capital stock of Grupo TVP, S.A. de C.V. and Grupo Crea TV, S.A. de C.V., from 50.48% to 99.9%.
• On July 11, 2000, CIE, through its subsidiary LE, acquired 100% of the capital stock of three radio broadcasting groups in Argentina, which operate five radio stations, thus becoming the largest radio operator in that country.
• In August 2000, CIE Internacional, S.A. de C.V. acquired 51% of Video on Demand, S.A. de C.V., a company which leases movies through closed-circuit television systems in hotels.
Following are the principal CIE subsidiaries, which CIE effectively controls and in which it holds 50% or more of the capital stock:
Company Main activity
Intermediate holding companies: CIE Internacional, S.A. de C.V. Holding company Operadora de Centros de Espectáculos, S.A. de C.V. Administrator of entertainment venues and holding company Latin Entertainment, Inc. Holding company; operates companies engaged in radio- broadcasting in Argentina and Internet companies Servicios Corporativos, CIE, S.A. de C.V. Holding company; renders administrative services to other group companies Grupo Sitel de México, S.A. de C.V. Holding company; renders telemarketing services
42 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
Entertainment Division: Ocesa Anfiteatro, S.A. de C.V. Holding company; operates entertainment venues OCESA Presents, Inc. Artists agency Ocesa Presenta, S.A. de C.V. Promoter of live entertainment Ocesa Deportes, S.A. de C.V. Promoter of sports events Rac Producciones, S.A. de C.V. Promoter of live entertainment Estudio México Films, S.A. de C.V. Holding company for companies engaged in the production and distribution of films Grupo CIE Argentina, S.A. de C.V. Holding company for subsidiaries located in Argentina and Brazil, and indirectly in Spain Grupo Mantenimiento de Giros Comerciales Holding company; operates amusement parks Internacional, S.A. de C.V. Mat Theatrical Entertainment, S.A. de C.V. Owner of rights to theater productions Generamúsica, S.A. de C.V. Artist promotion Opera Show, S.A. de C.V. Artist promotion CIE America Holdings, C.V. Holding company for subsidiaries located in the United States of America Grupo Automovilístico Nacional y Deportivo, Promoter of car racing events S. de R.L. de C.V.
Services Division: Venta de Boletos por Computadora, S.A. de C.V. Automated ticket sales Teleservicios de Valor Agregado, S.A. de C.V. Promoter of teleservices Show Off, S.A. de C.V. Management of local and foreign artists Servicios de Protección Privada Lobo, S.A. de C.V. Security and protection services Servicios de Alimentos y Bebidas Especializados, Sales of food and beverages at events S.A. de C.V.
Commercial Division: Corporación de Medios Integrales, S.A. de C.V. Holding company Grupo TVP, S.A. de C.V. Design of promotional campaigns Grupo Crea TV, S.A. de C.V. Design of promotional campaigns Publitop, S.A. de C.V. Sale of advertising for display on pedestrian overpasses Grupo Mundo, S.A. de C.V. Presenting and creating high-technology entertainment Representaciones de Exposiciones México, Promoter of fairs and exhibitions S.A. de C.V. Publisport, S.A. de C.V. Sale of advertising rights for sports events Stactika, S.A. de C.V. Sale of advertising rights for sports events Unimarket, S.A. de C.V. Sale of rotating advertising for sports events Make Pro, S.A. de C.V. Advertising intermediary Concesión de Artículos Promocionales, S.A. de C.V. Sale of promotional articles at events Video on Demand, S.A. de C.V. Leasing of movies throught closed-circuit television systems in hotels
Horse racetrack: Administradora Mexicana de Hipódromo, Organizing of live horse races and bet placing, as well as S.A. de C.V. other gambling permitted by law Entretenimiento Recreativo, S.A. de C.V. Owner of equipment and systems for electronic gambling centers and other games
CIE / 43 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in Mexico (Mexican GAAP), and accordingly are stated in Mexican pesos of December 31, 2001 purchasing power.
The significant accounting policies, including the concepts, methods and criteria relative to the recognition of the effects of inflation on the financial information, are summarized in the following pages.
a. The consolidated financial statements include the accounts of all the companies mentioned in Note 1. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidation was carried out based on audited financial statements for most of the subsidiaries.
The financial statements of foreign subsidiaries included in the consolidation were previously adjusted and conformed to Mexican GAAP and translated to Mexican pesos in accordance with Statement B-15, “Transactions in Foreign Currency and Translation of Financial Statements of Foreign Operations”, issued by the Accounting Principles Board (APB) of the Mexican Institute of Public Accountants (MIPA). In accordance with this statement, monetary and nonmonetary assets and liabilities, as well as income and expenses, are translated at the exchange rate in effect on the balance sheet date.
b. Marketable securities are stated at cost plus the accrued interest at the balance sheet date.
c. Motion pictures produced by the company and those for which distribution rights have been acquired are distributed, firstly, to movie theaters and video companies, then to closed-circuit television companies, and lastly to open television companies. Motion pictures to be sold and distributed from the year 2003 onwards are classified as non-current assets.
Income from the distribution of motion pictures is recorded when the pictures are shown. Income from the sale of motion pictures to video companies is recorded when the pictures are available in the stores.
The total cost of film productions and of acquired exhibition rights (including capitalizable administrative costs) plus accrued related expenses for each picture are amortized in proportion to the income recognized, based on the expected income-producing period estimated individually for each picture. Said costs are expressed in current pesos determined by applying factors derived from the National Consumer Price Index (NCPI) to the historical amounts.
The cost of the pictures, net of amortization, including the unamortized portion of costs identified with the various distribution channels, is classified as current asset. The costs of pictures in process of production, including the rights to scripts and screenplays, are classified as non-current assets.
d. Inventories are stated at average cost and are restated by using factors derived from the NCPI. The values so determined do not exceed market value. Cost of sales is restated by applying factors derived from the NCPI.
e. The costs of future events include advances, deposits, advertising and other costs related to the events. Said costs are charged to income when the events take place. Costs identified with events which will take place after one year are stated at restated value, determined by applying NCPI factors to the historical costs.
f. Property, furniture and equipment and the related accumulated depreciation are stated at cost, restated by applying factors derived from the NCPI to the historical cost. Depreciation is calculated by the straight-line method, based on the estimated useful lives of the assets, on both the historical cost and the restatement increments.
g. Rights, patents and trademarks are stated at their inflation-indexed acquisition cost by applying NCPI factors. Amortization is calculated by the straight-line method over a period of twenty or ten years, depending on the period expected to be benefited.
h. Preoperating expenses and other assets and the related accumulated amortization are stated at cost, restated by applying factors derived from the NCPI to the historical amounts. Amortization is calculated by the straight-line method over a period of three to twenty years, depending on the nature of the assets.
44 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
i. Goodwill is stated at restated value, determined by applying NCPI factors to the original amount, less accumulated amortization. Amortization of the restated value of these items is calculated over a period of twenty years, commencing in the year following the year of acquisition.
j. Authorizations pertaining to the “Hipódromo de las Américas” are, firstly, the Ministry of the Interior permit for the operation and exploitation of live horse races, including on-site betting as well as sports betting under the “Libro Foráneo” system (simulcasting), and, secondly the concessions granted by the General Controller’s Office for the use and exploitation of two pieces of real estate belonging to the federal government, the first for use as a horse-racing track and the second for the construction and operation of a hotel, a convention and exhibition venue, and a cultural, sports and family entertainment venue. Investments made in connection with these concessions will be amortized by the straight-line method over a period of 25 years for the horse-racing operation and 50 years for the real estate operation.
k. Commencing January 1, 2000, the company adopted the provisions of revised Statement D-4, “Accounting Treatment of Income Tax, Asset Tax and Employees’ Statutory Profit Sharing”, issued by the APB of the MIPA.
According to the provisions of this statement, deferred income tax and profit sharing should be calculated using the comprehensive asset-and-liability method, which consists of calculating deferred income tax by applying the respective income tax rate to all temporary differences between the accounting and tax values of assets and liabilities at the date of the financial statements.
The cumulative initial effect of applying the revised statement involved recognizing a liability of Ps.45,880,297, which was charged directly to stockholders’ equity.
All deferred income tax arising after initial adoption of the statement is charged or credited to income, except for deferred tax applicable to items charged or credited directly to stockholders’ equity accounts, which is credited or charged, respectively, to the same accounts.
Note 13 includes an analysis of the consolidated temporary differences at December 31, 2001 and 2000, on which deferred taxes were recognized.
l. Seniority premiums to which employees are entitled upon termination of employment after 15 years of services, as well as the obligations under the non-contributory retirement plan that the companies have established for their employees, are recognized as expenses of the years in which the services are rendered.
Retirement plan benefits are primarily based on employees’ years of service and their remuneration at retirement date. The liabilities and costs related to these plans, as well as those related to seniority premiums are recognized based on actuarial studies made by independent experts. A summary of the principal financial data relative to these plans is as follows:
December 31, 2001 2000
Projected benefit obligation Ps (45,982,300) Ps (42,037,440) Unamortized transition liability 10,995,600 24,762,826 Unamortized actuarial losses - Net (1,440,750) 7,908,759 Intangible asset 20,268,450
Projected net liability Ps (13,277,500) Ps (9,365,855)
Net cost for the year Ps 16,670,662 Ps 17,096,332
CIE / 45 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
The actuarial losses and the transition liability are recognized through charges to income based on the average remaining service life of the employees expected to receive the benefits (approximately 13 years).
Other compensation based on seniority to which employees may be entitled in the event of dismissal or death, in accordance with the Federal Labor Law, is applied to income in the year in which it becomes payable.
m. Revenue of future events represents income from future presentations and is applied to income on the date on which the presentations are made. Advance ticket sales are recorded as deferred income until the event takes place. Income from future events or services to be rendered over a period of more than one year are stated at restated value, determined by applying factors derived from the NCPI.
n. Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates they are entered into and/or settled. Assets and liabilities denominated in these currencies are stated at the Mexican peso equivalents resulting from applying the exchange rates in effect at the balance sheet date. The differences arising from fluctuations in the exchange rates between the dates on which transactions are entered into and those on which they are settled, or the balance sheet date, are charged or credited to income.
o. Capital stock, share premium, retained earnings, cumulative translation adjustment and cumulative deferred income tax represent the amount of these items expressed in pesos of purchasing power as of the balance sheet date, and are determined by applying factors derived from the NCPI to the historical amounts.
p. The cost of the executives’ stock plan represents the difference between the market value of the shares at the time of subscription and the amount paid, and is amortized over the term in which the executives will render the related services, normally 15 years. At December 31, 2001, the average remaining term over which the cost of the plan will be amortized was 12 years, see Note 9c.
In the event that an executive leaves the company before the agreed term, either as a result of resignation or dismissal, he is required to return the shares corresponding proportionately to the years in which his services will not be rendered, or the equivalent in money at the market value of the related shares. The difference between the market value of the shares at the date of subscription and at the date on which the executive leaves the company is recorded in income in the year in which the employment terminates.
q. The gain or loss on net monetary position represents the inflationary loss, as measured by the NCPI, on the company’s monthly net monetary assets and liabilities during the year.
r. As of January 1, 2001, Statement B-4 “Comprehensive Income”, entered into effect. This bulletin requires that the various items affecting earned surplus during the year be shown in the statement of changes in stockholders’ equity as comprehensive income (loss). The statement of changes in stockholders’ equity for 2000 has been restructured accordingly, see Note 10.
46 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 3 - FOREIGN CURRENCY POSITION:
The amounts in this Note are stated in thousands, except for exchange rates.
At December 31, 2001 and 2000, the Company and its subsidiaries had the following monetary assets and liabilities in foreign currency:
U.S. Argentine Colombian Chilean Spanish Brazilian dollars pesos pesos pesos pesetas reals
2001
Assets 113,040 27,650 4,888,243 2,140,571 57,424 24,804 Liabilities (20,440) (11,405) (29,383,221) (650,857) (4,472) (8,191)
Net position 92,600 16,245 (24,494,978) 1,489,714 52,952 16,613
2000
Assets 108,544 35,062 39,551,974 496,001 609,289 29,465 Liabilities (115,677) (41,096) (34,585,517) (1,036,969) (913,091) (32,621)
Net position (7,133) (6,034) 4,966,457 (540,968) (303,802) (3,156)
The exchange rates with the Mexican peso at December 31, 2001 and 2000 were the following:
2001 2000
U.S. dollar Ps 9.1695 Ps 9.6098 Argentine peso 9.1695 9.6098 Colombian peso 0.0040 0.0043 Chilean peso 0.0138 0.0168 Spanish peseta 0.0488 0.0537 Brazilian real 4.9609 4.9293
At February 22, 2002, date of issuance of the audited financial statements, the exchange rates had not varied significantly, except as described in Note 12.
At December 31, 2001, the Company had an exchange rate hedge contract the effects of which were included in the exchange (loss) gain in the consolidated statement of income.
At December 31, 2001 and 2000, the Company had the following position in nonmonetary assets of foreign origin whose replacement cost can be determined only in U.S. dollars (Dls.):
2001 2000
Inventories Dls. 544 Dls. 517 Furniture and equipment 73,886 64,573 Deferred cost and expenses 222,021 211,969
Dls. 296,451 Dls. 277,059
CIE / 47 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
The principal foreign currency transactions carried out by the Company in the years ended December 31, 2001 and 2000, are summarized below. These transactions have been converted to U.S. dollars, since the dollar has an exchange rate similar to that of the Argentine peso, and Argentina is the country in which most of CIE’s foreign operations are located.
U.S. dollars Years ended December 31, 2001 2000
Income from services Dls. 141,887 Dls. 107,026 Other expenses - Net (821) (1,273) Purchases (68,481) (65,543) Operating expenses (35,022) (34,439) Artistic talent (7,997) (7,454) Interest paid - Net (4,251) (2,332)
NOTE 4 - ANALYSIS OF ACCOUNTS RECEIVABLE:
Accounts receivable are analyzed as follows:
December 31, 2001 2000
Customers - Net Ps 1,077,032,190 Ps 827,174,028 Recoverable value added tax 268,749,009 170,401,840 Other receivables 493,703,805 377,698,756 Ticketmaster Corp. 17,764,107 Recoverable income tax 1,223,033
Ps 1,839,485,004 Ps 1,394,261,764
NOTE 5 - SEGMENT INFORMATION:
Information about net sales, operating income and total assets by segment for the years ended December 31, 2001 and 2000, is shown below:
Year ended December 31, 2001 2000 Net sales
Commercial Ps 1,176,460,237 Ps 1,499,705,246 Entertainment 5,800,477,637 3,300,021,352 Services 444,082,048 1,348,429,056
7,421,019,922 6,148,155,654 Eliminations (2,390,936,988) (1,974,056,185)
Consolidated total Ps 5,030,082,934 Ps 4,174,099,469
48 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
Year ended December 31, 2001 2000 Operating income
Commercial Ps 225,340,126 Ps 185,455,955 Entertainment 554,222,304 542,148,042 Services 59,375,006 46,411,857
Consolidated total Ps 838,937,436 Ps 774,015,854
December 31, 2001 2000 Total assets
Commercial Ps 3,074,533,028 Ps 3,505,018,332 Entertainment 45,869,053,344 31,638,894,292 Services 1,020,260,241 3,555,842,005
49,963,846,613 38,699,754,629 Eliminations (38,156,880,605) (28,435,274,630)
Consolidated total Ps 11,806,966,008 Ps 10,264,479,999
Following is an analysis of net sales for the years ended December 31, 2001 and 2000, by geographic sector:
Year ended December 31, 2001 2000 Net sales
Mexico Ps 3,594,430,568 Ps 2,834,264,321 Foreign 1,435,652,754 1,339,835,148
Total Ps 5,030,082,934 Ps 4,174,099,469
CIE / 49 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 6 - ANALYSIS OF PROPERTY, FURNITURE AND EQUIPMENT:
The investment in property, furniture and equipment was as follows:
Annual December 31, depreciation and amortization rates (%) 2001 2000
Land Ps 51,560,098 Ps 56,413,486
Buildings 1,158,645,056 1,096,265,227 5 Leasehold improvements 796,080,298 499,408,464 5 Amusement park equipment 710,866,445 338,887,432 2.5 and 10 Furniture and equipment 365,125,850 266,295,659 10 Computer and peripheral equipment 209,109,206 161,662,247 25 and 30 Radio and communications equipment 140,682,307 137,469,489 10 and 8 Billboards and related structural equipment 38,166,549 37,769,313 14 to 33 Transportation equipment 48,910,243 46,238,339 20 and 25 Other 64,483,723 29,517,148
3,532,069,677 2,613,513,318 Accumulated depreciation (947,147,852) (469,899,067)
2,584,921,825 2,143,614,251
Construction in progress 1,388,582,612 530,243,358 Advances to suppliers 28,711,550 49,282,970
Ps 4,053,776,085 Ps 2,779,554,065
NOTE 7 - ANALYSIS OF PREOPERATING EXPENSES AND OTHER ASSETS:
Preoperating expenses and other assets are analyzed below:
December 31, 2001 2000
Preoperating expenses - Net Ps 1,096,483,238 Ps 1,045,461,155 Prepaid financial expenses 6,172,937 6,336,496 Guarantee deposits 50,655,842 27,025,396 Rights, patents and trademarks - Net 45,491,628 35,015,134 Other 180,551,328 191,350,588
Ps 1,379,354,973 Ps 1,305,188,769
50 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 8 - ANALYSIS OF SHORT AND LONG-TERM BANK LOANS:
Short-term bank loans, classified by currency, at December 31, 2001 and 2000, were as follows:
December 31, 2001 2000
Mexican pesos Ps 459,598,500 (1) Ps 756,025,127 (5) Argentine pesos 3,994,545 (2) 17,254,170 (6) Colombian pesos 6,496,882 (3) 20,016,678 (7) Brazilian reals 27,464,196 (8) U.S. dollars (US$) 8,454,280 (4) 124,832,021 (9) Spanish pesetas 69,762 (10)
Ps 478,544,207 Ps 945,661,954
(1) This amount includes an issue of unsecured commercial paper for Ps.250,000,000 with Casa de Bolsa Inverlat, maturing on January 10, 2002. This corresponds to a revolving line maturing in July 2002, interest is calculated at the inter-bank equilibrium rate (TIIE) for 28 days, plus an additional surcharge rate at the date of the draw-downs. At December 2001, that surcharge rate was 0.5 points.
Additionally, there are Ps.179,598,500 in unsecured loans for financing working capital from Banco Inbursa subject to an annual average interest rate of 8.45%.
(2) Includes unsecured revolving short-term loans in Argentine pesos from a number of Argentine banks, maturing mainly in February 2002, subject to an annual weighted interest rate of 22%.
(3) Includes a Ps.4,602,399 unsecured loan from Citibank Group maturing on March 20, 2002. Interest is calculated at the annual rate of 14.50%.
This also includes unsecured loans from Leasing Bogotá and Leasing Occidente amounting to 1,229,506 and 498,853 Colombian pesos, respectively, maturing in September, October and November 2002. Interest is determined at the average annual Fixed Deposit Rate (FDR) plus 7 percentage points.
(4) Includes short-term unsecured revolving loans in US dollars from a number of Argentine banks, subject to average interest rate of 22% and maturing mainly in February 2002.
(5) This amount includes an issue of unsecured commercial paper for Ps.250,000,000 with Casa de Bolsa Inverlat as mentioned in point (1) above, maturing in January 2001. The additional surcharge rate at December 2000 was 0.8 points.
Additionally, there were Ps.394,000,000 and Ps.90,384,700 in unsecured loans with a number of banks and Banco Inbursa, respectively for financing working capital at the TIIE average interest rate plus 1.30 percentage points.
(6) This amount includes short-term revolving unsecured loans in US dollars from a number of Argentine banks at the average interest rate of 15.90%, mostly maturing in January 2001.
(7) This amount includes unsecured loans renewable every 60 days, contracted with Banco de Bogotá for 19,068,982 Colombian pesos. Interest is determined based on the average FDR plus 6 percentage points.
(8) Includes short-term unsecured loans denominated in reals, contracted with a number of Brazilian banks and maturing in the first quarter of 2001, at a weighted average rate of 32.71%.
CIE / 51 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
(9) Includes sort-term loans from Citibank and Invex, subject to the London Interbank Offered Rate (Libor) plus 2.4 and 3 percentage points, respectively, maturing in January and February 2001. At December 31, 2000, the rate was 9.11% and 9.60%, respectively.
Also includes loans contracted with Argentine banks subject to average interest rate of 14.37%, maturing in January 2001.
(10) Includes a loan contracted with Iberleasing, subject to 7% annual interest rate.
Long-term bank loans, classified by currency at December 31, 2001, were analyzed as follows:
Mexican Foreign pesos currency Total Due date
2003 Ps 1,502,364 Ps 1,502,364 2004 2,103,312 (13) 2,103,312 2005 Ps 800,000,000 (11) 722,376 800,722,376 2006 109,021,052 (14) 109,021,052 2007 1,941,279,524 (12) 24,012,511 1,965,292,035
Ps 2,741,279,524 Ps 137,361,615 Ps 2,878,641,139
(11) This amount is for two notes amounting to Ps.540,000,000 and Ps.260,000,000, with Banco Nacional de México, S.A. Interest is determined at the 28-day TIIE rate plus 1.15 percentage points payable on the tenth of each month.
(12) In March and April 2000, the Company made a public offering of 6,353,866 medium-term promissory notes with a par value of 100 investment units (UDI’s) per note, payable over a seven-year period, detailed as shown below::
Restated value Value of Value of Historical of public Number of UDI at UDI at value offering at Annual Date of Due UDI ‘s date of December 31, of public December 31, interest issuance date offered issuance 2000 offering 2001 rate
16/03/00 16/03/07 436,697,300 Ps 2.7479 Ps 3.0553 Ps 1,200,000,000 Ps 1,334,229,470 8.25% 27/04/00 24/04/07 198,689,300 2.7681 3.0553 550,000,000 607,050,054 8.40%
635,386,600 Ps 1,750,000,000 Ps 1,941,279,524
The medium-term promissory notes are unsecured.
(13) This amount includes long-term unsecured loans in Colombian pesos from Banco Unión, subject to interest at FDR plus 6 percentage points.
(14) The most significant amount is a US$7,250,000 unsecured loan, subject to Libor plus 3.5 percentage points, maturing in July 2006.
52 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
Long-term bank loans, classified by currency, at December 31, 2000 were analyzed as follows:
Mexican Foreign pesos currency Total Due date
2002 Ps 2,014,892 (15) Ps 4,445,092 (17) Ps 6,459,984 2003 5,139,692 (15) 1,789,749 6,929,441 2005 11,701,541 11,701,541 2007 1,929,771,370 (16) 55,717,336 (18) 1,985,488,706
Ps 1,936,925,954 Ps 73,653,718 Ps 2,010,579,672
(15) This amount corresponds to two ordinary loans from Ixe Banco, S.A., for original amounts of Ps.16,000,000 and Ps.11,000,000, maturing in November 2002 and August 2003, respectively. These loans are payable in monthly installments equivalent to 1.28% of the original amounts. Interest is calculated on the basis of the TIIE rate plus 4 percentage points. Certain restrictions are established under these loans, with which the Company was in compliance. The loans are unsecured.
Installments payable in 2001 are included in current maturities of long-term debt balance.
(16) This amount corresponds to the public offering medium-term promissory notes as mentioned in point (8) above.
(17) This amount comprised the following:
a. A US$50,000 bank loan (mortgage) contracted with Banco Lancaster. Interest is at the Libor rate plus 3 percentage points. This loan was contracted by the subsidiary CIE R&P, S.A. of Argentina. The due date of this loan is May 2002.
b. Unsecured loans contracted with Leasing Bogotá amounting to 1,592,574 Colombian pesos. Interest is at the FDR rate plus 7 percentage points, and the loans are payable in last quarter of 2002.
c. An unsecured bank loan contracted with Banco de Bogotá in the amount of 675,478,000 Colombian pesos. Interest is at the FDR, plus 7 percentage points. The loan is payable quarterly as from the date on which it was contracted through May 2002.
d. An unsecured loan of 913,613 Colombian pesos from Banco Leasing Occidente. Interest is at the FDR rate, plus 7 percentage points, and the loan is payable in October 2002.
(18) This amount includes revolving loans contracted with Banco de Bogotá in the amount of US$6,047,066. Interest is at FDR rate plus 7 percentage points, and the loan is due in 2007.
CIE / 53 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 9 - STOCKHOLDERS’ EQUITY:
a. Analysis of stockholders’ equity -
Stockholders’ equity at December 31, 2001 and 2000 was composed as follows:
Pesos of December 31, Historical Inflation 2001 amount increment purchasing power December 31, 2001
Capital stock Ps 305,887,520 Ps 33,098,683 Ps 338,986,203 Share premium 3,737,022,568 747,311,601 4,484,334,169 Retained earnings 221,328,495 326,208,923 547,537,418 Cumulative translation adjustment (390,623,296) (390,623,296) Cumulative deferred income tax (43,525,306) (2,354,991) (45,880,297)
Ps 4,220,713,277 Ps 713,640,920 Ps 4,934,354,197
December 31, 2000
Capital stock Ps 238,887,520 Ps 33,014,883 Ps 271,902,403 Share premium 2,903,568,474 747,311,602 3,650,880,076 Retained earnings 646,230,701 306,411,002 952,641,703 Cumulative translation adjustment (121,475,318) (121,475,318) Cumulative deferred income tax (43,525,306) (2,354,991) (45,880,297)
Ps 3,745,161,389 Ps 962,907,178 Ps 4,708,068,567
Dividends paid will be free of income tax if paid out of the Net Taxable Income Account (CUFIN), whose balance at December 31, 2001, amounted to Ps.74,276,828. In the event dividends are paid in excess of the CUFIN, tax will be payable on the excess at a rate of 53.84%. This tax will be payable by the Company and may be credited against income tax payable by the Company in the following three years.
Dividends paid will not be subject to any tax withholding.
Capital stock or share premium paid in capital reductions in excess of capital contributions, the latter inflation-indexed in accordance with the procedures established by Mexican Income Tax Law, are accorded the same treatment as dividends.
b. Changes in capital -
At the extraordinary general shareholders’ meeting held on February 15, 2000, the shareholders agreed to increase the fixed portion of the capital stock by Ps.78,398, (Ps.70,301 in historical pesos) by converting 1,701,282 common nominative Series B, Class II shares with no par value, representing the variable portion of the capital stock, to 1,701,282 common nominative Series B, Class I shares with no par value, representing the minimum fixed portion of the capital stock.
The stockholders also agreed to convert 38,495,371 common nominative Series L shares with limit voting rights, to Series B, Class II shares, representing the variable portion of the capital stock. After this there were no more Series L shares in existence.
54 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
Additionally, the stockholders agreed to increase the capital stock, without issuing shares, by capitalizing Ps.217,893,062 of the share premium (Ps.195,389,557 in historical pesos) in conformity with National Banking and Securities Commission requirements. As a result, the theoretical par value of each share is one peso.
At the extraordinary general shareholders’ meeting held on September 18, 2000, the stockholders agreed to increase the variable portion of the capital stock by Ps.37,139,474 (Ps.35,076,000 in historical pesos) generating a net share premium of Ps.1,581,876,395 (Ps.1,482,578,918 in historical pesos), through the issuance of 35,076,000 Series B, Class II shares with no par value.
The stockholders also agreed to convert 3,507,600 common nominative Series B, Class II shares, representing the variable portion of the capital stock, with a value of Ps.3,911,621 (Ps.3,507,600 in historical pesos), to 3,507,600 Series B, Class I shares without withdrawal rights, representing the fixed portion of the capital stock.
At the ordinary and extraordinary stockholders’ meeting held on April 26, 2001, the stockholders agreed to increase the variable portion of the capital stock by Ps.3,666,333, by issuing 3,666,333 common nominative Series B, Class II shares with no par value, considering a theoretical value of Ps1 per share. These shares will be used for the executives’ stock plan. At December 31, 2001, these shares had not been paid and were in the Company’s treasury.
Additionally, the stockholders agreed to increase the fixed portion of the capital stock by Ps.366,633, by converting 366,633 common nominative Series B, Class II shares with no par value, representing the variable portion of the capital stock, to 366,633 common nominative Series B, Class I shares with no par value, representing the minimum fixed portion of the capital stock, thus reducing the variable portion of the capital stock by Ps.366,633.
At the same meeting the stockholders approved the constitution of a reserve for the repurchase of its own shares in the amount of Ps.138,424,750. When utilized, this would result in a capital stock reduction of Ps.4,183,280. Both amounts are in historical pesos.
At the ordinary and extraordinary stockholders’ meeting held on October 24, 2001, the stockholders agreed to increase the variable portion of the capital stock by Ps.67,083,800 (Ps.67,000,000 in historical pesos) by issuing 67,000,000 common nominative Series B, Class II shares with no par value, at a subscription price of Ps.14.20 per share, considering a theoretical value of Ps.1.00 plus a share premium of Ps.13.20 per share. The amount shown in the statement of changes in stockholders’ equity for the 2001 share premium is net of the expenses of issuing the shares.
Additionally, the stockholders agreed to increase the fixed portion of the capital stock by Ps.6,708,381 (Ps.6,700,000 in historical pesos) by converting 6,700,001 common nominative Series B, Class II shares with no par value, representing the variable portion of the capital stock, to 6,700,001 common nominative Serie B, Class I shares with no par value, representing the minimum fixed portion of the capital stock, thus reducing the variable portion of the capital stock by Ps.6,708,381 (Ps.6,700,000 in historical pesos).
After the above-mentioned changes, the capital stock at December 31, 2001 was represented by common nominative shares with no par value, analyzed as follows:
CIE / 55 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
Number of shares Description Amount
30,955,386 Series B, Class I shares, representing the fixed minimum portion of the capital stock Ps 30,955,386
278,598,467 Series B, Class II shares, representing the variable portion of the capital stock 278,598,467
309,553,853 Subtotal 309,553,853
(3,666,333) Subscribed capital stock unpaid corresponding to Series B, Class II shares (3,666,333)
305,887,520 Capital stock in historical pesos 305,887,520 Restatement increase 33,098,683
Capital stock in pesos of December 31, 2001 purchasing power Ps 338,986,203
c. Executives’ stock plan -
The Company has a stock subscription plan for its executives (the plan), which entitles participants to subscribe shares from the variable portion of the capital stock, under the terms and conditions determined by the technical committee managing the plan. The shares assigned to the plan are handled through two trusts, one a subscription trust and the other a management trust. One of the conditions for share subscription is that the executive in question must remain in the employment of the Company for a period of at least 15 years from the date on which the shares are subscribed. During that time, the executive must render services to the Company and make available to the Company all his skill, knowledge and experience, in an effort to increase the value of the Company.
The cost of the plan is represented by the difference between the market value of the shares at the time of subscription and the amount paid by the executives. This item is included in preoperating expenses and other assets, and for the purpose of presentation in the financial statements the unamortized portion is netted against share premium.
In accordance with the shareholders’ agreements, at December 31, 2001, 12,560,071 shares had been assigned to the plan, of which 6,860,071 were Series B shares and 5,700,000 corresponded originally to Series L shares (see paragraph b. above), all entirely subscribed and paid in. The amortization of the plan cost amounted to Ps.18,903,442 (Ps.13,501,552 in historical pesos) in 2000. Additionally, at present there are 3,666,333 Series B, Class II shares, in the Company’s treasury, pending to be assigned, as mentioned above in the sixth paragraph of point b (fourth paragraph, the page before).
NOTE 10 - COMPREHENSIVE INCOME:
Comprehensive (loss) income for the years ended December 31, 2001 and 2000 is analyzed as follows:
December 31, 2001 2000
Consolidated net (loss) income as per statement of income Ps (461,507,771) Ps 379,892,646 Effect of cumulative translation adjustment (Note 2a) (269,147,978) (76,322,334) Initial recognition of deferred income tax (Note 2k) (45,880,297)
Ps (730,655,749) Ps 257,690,015
56 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 11- COMPREHENSIVE FINANCING COST:
The comprehensive financing cost for 2001 and 2000 was analyzed as shown below:
Year ended December 31,
2001 2000
Interest expense - Net Ps (274,461,099) Ps (267,869,212) Exchange (loss) gain - Net (21,803,729) 15,136,658 Loss on net monetary position (58,259,078) (23,660,959)
Comprehensive financing cost - Net Ps (354,523,906) Ps (276,393,513)
NOTE 12 - EXTRAORDINARY ITEM:
In December 2001, the Argentine government set in place a number of measures designed to restrict the availability and circulation of cash and the transfer of money abroad, in order to be in a position to handle its loan obligations. However, following several days of political and social instability, in January 2002 the government passed the Law of Public Emergencies and Amendments to the Exchange System, which annulled the 1 to 1 exchange rate of the Argentine peso with the US dollar in effect since 1993, and established an official and a free exchange market.
Additionally, a Decree for Reordering of the Financial System was issued, under which credits and debts not pertaining to the financial system denominated in US dollars or any other foreign currency would be subject to an exchange rate of 1 to 1 US dollar or the equivalent in other currencies. These balances would be subject to the application of a stabilization factor until the date of payment. The same mechanics were applicable to credits and debts pertaining to the financial system, except that the respective interest rate would be added to the stabilization factor.
On January 11, 2002, the date on which exchange operations opened, the first free market quotation was published: 1.6 Argentine pesos per US dollar.
Subsequently, on February 11, 2002, the Argetine National Government set in place a new exchange rate, annulled former the dual market and established a unique free exchange market, in which the quotation would derive from the supply and demand. As of that date the exchange rate was 1.80 Argentine pesos per US dollar.
At the date of issuance of the audited financial statements, it is not possible to forecast Argentina’s economic future, or the financial impact on CIE’s subsidiaries in that country.
As a result of the foregoing, the Company and its subsidiaries revised future cash flows expected from their investments and assets pertaining to current and future operations in Argentina, and recorded impairment estimates designed to reflect the current position of its business in that country. As a result, the Company and its subsidiaries recorded an extraordinary item, which included the provisions for doubtful accounts for the radio operation, fully identified with the current economic crisis, and other current assets, mainly advance expenses and costs arising from live events, particularly theater and family events.
Additionally, the Company re-estimated the future benefits expected from the related investments and assets in that country, such as brand names, radio stations and theaters.
CIE / 57 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 13 - INCOME TAX, ASSET TAX AND EMPLOYEES’ STATUTORY PROFIT SHARING:
CIE and its subsidiaries do not consolidate for tax purposes. In the years ended December 31, 2001 and 2000, certain subsidiaries individually determined taxable income amounting to Ps.558,125,914 and Ps.386,369,493, respectively. The difference between book and tax results is due mainly to timing differences, in which some items are included in taxable income or deducted for book or tax purposes in different periods, as well as to the use of different methods and criteria for recognizing the effects of inflation for book and tax purposes.
In 2001 and 2000, some subsidiaries totally or partially utilized prior years’ tax losses amounting to Ps.259,692,484 and Ps.297,291,942, respectively. The tax benefit of such utilization was Ps.90,892,369 and Ps.104,272,680, respectively.
At December 31, 2001, CIE and certain of its subsidiaries had unused tax losses for a total of Ps.1,768,924,840 which may be offset against future profits through the dates shown below. These losses may be restated by applying factors derived from the NCPI up to the year in which they are utilized.
Restated amount Expiration date December 31,
2006 Ps 131,422 2007 27,912,208 2008 120,223,710 2009 245,627,306 2010 777,857,490 2011 597,172,704
Ps 1,768,924,840
Following is a summary of the computation of the current and deferred income tax provision:
Year ended December 31, 2001 2000 Income tax on income before tax provisions and extraordinary item (at 35% statutory rate) Ps 99,452,260 Ps 162,961,036 Add (deduct) effect of income tax on: Purchase and cost of films (87,513,644) (99,971,072) Property, furniture and equipment - Net 463,492 25,584,463 Utilization of prior years’ tax losses (90,892,369) (108,860,678) Cost and revenues of future events - Net 117,126,945 72,970,594 Net difference between comprehensive financing cost and inflationary component 14,651,227 (46,132,146) Other items 38,386,020 25,766,538
Current income tax 91,673,931 32,318,735 Deferred income tax 63,906,156 53,391,578
Income tax provision Ps 155,588,087 Ps 85,710,313
Effective tax rate 35.30% 18.40%
58 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
The principal temporary differences giving rise to deferred taxes were as follows:
December 31, 2001 2000
Cost of films and inventories Ps (487,348,641) Ps (197,795,862) Property, furniture and equipment - Net (359,303,883) (383,289,621) Provisions and asset valuation allowances (40,377,860) 4,320,192 Preoperating expenses (519,953,528) (205,432,724) Tax loss carryforwards 1,768,924,840 1,329,861,500 Costs and revenues of future events - Net (718,942,925) (707,608,273)
(357,001,997) (159,944,788)
Income tax rate 35% 35%
Deferred income tax (124,950,698) (55,980,676) Less - Recoverable asset tax 3,604,161 3,762,745
Net deferred income tax liability Ps (121,346,537) Ps (52,217,931)
As a result of the amendments to the Income Tax Law approved on January 1, 2002, the income tax rate (35%) will be reduced annually, beginning in 2003, to a nominal rate of 32% in 2005. Consequently, the effect of this gradual decrease in the income tax rate will be a reduction of deferred income tax liabilities in 2002 of Ps.3,570,020, thereby increasing 2002 net income by the same amount.
CIE and a number of its subsidiaries paid asset tax amounting to Ps.22,207,030 and Ps.5,103,543 in 2000 and 1999, respectively, since their asset tax liability exceeded their income tax liability in those years, or because they had tax losses, or because their tax profits were offset by prior years’ tax losses. These amounts will eventually be recoverable as a credit against income tax payable, and therefore the deferred income tax liability is presented net of such amounts. A portion of these balances was included in the deferred income tax computation, as a recoverable tax.
Asset tax may be recovered in any of the ten years following that in which it is paid, to the extent the company’s income tax liability exceeds its asset tax in those years. This tax may be restated by applying factors derived from the NCPI.
Employees’ statutory profit sharing was calculated by applying the 10% rate to the basis determined in accordance with the rules established in the Mexican Income Tax Law.
CIE / 59 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 14 - EARNINGS PER SHARE:
The basic earnings per share is calculated by dividing the majority net income for the year by the weighted average of common shares outstanding during the year. The weighted average of shares used for this calculation was 248,200,624 in 2001 and 212,580,520 in 2000.
The diluted earnings per share is calculated by adding the comprehensive financing cost for the year identified with the convertible debt, net of income tax, to the majority net income for the year, and dividing the result by the weighted average of common shares outstanding during the year plus the shares which would be issued on conversion of the debt. The weighted average of shares used for these calculations was 248,200,624 in 2001 and 238,887,520 in 2000. The convertible debt was converted in 2000.
Other relevant data on the consolidated earnings per share are as follows:
2001 2000 Basic earnings per share:
Before extraordinary item, less minority interest Ps 1.37 Ps 1.32 Extraordinary item (3.00)
Diluted earnings per share:
Before extraordinary item, less minority interest 1.37 1.17 Extraordinary item (3.00)
NOTE 15 - COMMITMENTS:
Operadora de Centros de Espectáculos, S.A. de C.V. (OCESA), a subsidiary of CIE, has the following commitments arising from operating and/or real estate contracts:
a. PALACIO DE LOS DEPORTES (MEXICO CITY): In 1999, the Mexico City Municipal Government (GDF) granted OCESA an extension to the contract for the use of those facilities for an additional five-year period, expiring on April 15, 2004. There is no guarantee that a further extension will be granted on that contract or that any new conditions agreed to will be the same.
The monthly payments vary based on total income, on the number of events and on sales of advertising spaces. Additionally, OCESA agreed to modernize the facilities and invest a minimum amount during the lifetime of the permit.
b. FORO SOL (MEXICO CITY): The GDF granted SERVIMET an administrative permit for a period of 15 years, expiring in 2012, and a contract to OCESA for the same term granting it the rights to construct and operate a permanent forum located within the Autódromo Hermanos Rodríguez (El Foro), used for mass sports, cultural and musical events such as mega-concerts, automobile racing, motorcycle racing and so on. OCESA will pay to the GDF a percentage of the gross income received.
On November 10, 1999, SERVIMET granted OCESA authorization to adapt El Foro for use as a baseball stadium, in addition to the public shows authorized to be carried out at this facility. Additionally, SERVIMET was granted authorization for the construction of a pedestrian bridge to communicate El Foro with El Palacio de los Deportes facilities.
The foregoing gave rise to changes in originally agreed-upon terms mainly such as for a minimum guarantee, a specific number of free days to the GDF and the production of mass events, free of charge, by OCESA for the GDF.
60 / ANNUAL REPORT 2001 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
c. TEATRO METROPÓLITAN (MEXICO CITY): On June 11, 2001, OCESA signed an extension of the contract to operate the Teatro Metropólitan, expiring on December 31, 2004. This extension does not modify any condition of the original contract. The monthly payments vary based on the total income.
d. AUDITORIO COCA COLA - FUNDIDORA (MONTERREY, N.L.): On October 29, 1993, a fifty-year trust was set up under which the government of Nuevo León allowed the use of seven hectares of land within the Parque Fundidora de Monterrey for the construction and operation of an open-air theater for public entertainment events. The annual payment varies based on total income.
e. CENTRO DE CONVENCIONES DE TLALNEPANTLA: On November 15, 2000, the municipality of Tlalnepantla de Baz (the Municipality) in the State of Mexico and OCESA signed a lease agreement expiring August 17, 2003. There is no guarantee that an extension will be granted on said date, nor that the new conditions will be the same. The annual compensation established varies on the basis of the total income.
In addition, OCESA is required, for the duration of the contract, to carry out a maintenance and remodeling program.
f. The Company has a lease agreement for its offices in Mexico City commencing December 1997. Monthly lease payments are stated in US dollars and restated annually for inflation on the basis of the U.S. consumer price index. The obligatory term is 5 years.
g. As from March 30 and August 1, 2001, OCESA has acted as the guarantor of lease obligations contracted by Administradora Mexicana de Hipódromo, S.A. de C.V., a related party, for an obligatory period of 10 years, for the spaces located at Plaza Universidad and Pabellón Polanco.
OCESA is responsible for the payment of registration fees, maintenance and advertising for the spaces and the monthly lease payments.
Monthly lease and parking payments will be restated for inflation every six months, on the basis of the NCPI.
h. On October 26, 2001, OCESA Deportes, S.A. de C.V. (Ocesa Deportes) signed a four-year service agreement with Monterrey Grand Prix, S. de R.L. de C.V. (Monterrey Grand Prix), under which Ocesa Deportes agreed to operate and manage the Monterrey Grand Prix, which is part of the CART program.
That agreement also establishes a minimum annual guarantee to be provided by OCESA Deportes to Monterrey Grand Prix during the term of the agreement.
i. In November 2001, Grupo Automovilístico Nacional y Deportivo, S. de R.L. de A.C. (GRAND) signed an agreement under which it received the rights to organize one race of the CART series, at the Hermanos Rodríguez racetrack in Mexico City. Said rights are for a five-year period, beginning in 2002.
Under the agreement, GRAND is required to make an annual payment to CART for the organization costs and rights during the term of the agreement.
CIE / 61 Corporación Interamericana de Entretenimiento, S.A. de C.V. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Monetary figures expressed in Mexican Pesos (Ps) of December 31, 2001 purchasing power
NOTE 16 - CONTINGENCIES:
a. Under the provisions of the Income Tax Law, parties carrying out operations with related parties, either resident in Mexico or abroad, are subject to tax limitations and obligations as concerns determination of transfer prices, which must be similar to those agreed with unrelated parties in comparable operations.
In order to comply with the Law, the Company has documented most of its foreign transactions with related parties.
b. OCESA is involved in litigation concerning the extension of the lease agreement for the Teatro Orfeón. OCESA invested approximately Ps.30,000,000 in remodeling the theater. In management’s opinion, the lawsuit will be favorably resolved and therefore no liability has been recorded in this connection.
c. At December 31, 2001, and at the day of this report, there is an ongoing lawsuit against the management of CIE R&P, C.V. and its related parties in Buenos Aires, Argentina, for the alleged concealment of funds from an illegal source. Company attorneys are of the opinion that once the arguments of the defense have been provided, no evidence will remain to support the charges.
NOTE 17 - SUBSEQUENT EVENTS:
a. On February 13, 2002, CIE, started operations at the Centro de Exposiciones y Convenciones Las Américas, located in Mexico City. The exhibition center is the second phase of the real estate project, an integral concept of family entertainment and attractions “out of home” in Mexico City.
b. On February 14, 2002 CIE in association with Forsythe, obtained from CART the rights to commercialize the T.V. transmissions of the car races to be held in Mexico.
62 / ANNUAL REPORT 2001 EXECUTIVE DIRECTORS*
EXECUTIVE DIRECTORS /
Alejandro Soberón Kuri CHIEF EXECUTIVE OFFICER
Rodrigo H. González Calvillo CHIEF OPERATING OFFICER
José Manuel Alavéz González CORPORATE DIRECTOR OF DEVELOPMENT
Gerardo Cándano Conesa CORPORATE DIRECTOR OF NEW BUSINESSES
Alejandro Garza Díaz CORPORATE DIRECTOR OF PLANNING AND PROMOTION
Arturo Graue Lozano CORPORATE DIRECTOR OF HUMAN RESOURCES
Víctor Manuel Murillo Vega CHIEF FINANCIAL OFFICER
Guillermina Pilgram Santos CORPORATE DIRECTOR OF PUBLIC AFFAIRS
DIVISIONAL DIRECTORS /
George González Alvarado DIRECTOR OF THE ENTERTAINMENT DIVISION
Federico González Compeán DIRECTOR OF THE CONTENT DIVISION
Arturo Langdon Lagarrigue DIRECTOR OF THE ADMINISTRADORA MEXICANA DE HIPÓDROMO DIVISION
Gabriel Lecumberri Pando DIRECTOR OF THE INTERNATIONAL DIVISION
Manuel Pérez Díaz DIRECTOR OF THE COMMERCIAL DIVISION
* In alphabetic order, except for Chief Executive Officer & Chief Operating Officer.
CIE / 63 ASSOCIATED DIRECTORS
ASSOCIATED SUBSIDIARIES / SUBSIDIARIES /
Federico Alamán González Fernando Alterio VICE PRESIDENT OF EVENTS, HAUSER-CIE ENTERTAINMENT LLC. PRESIDENT OF CIE DO BRASIL, S.A.
Sergio Alamán González José Ramón Dosal GENERAL DIRECTOR OF HIPÓDROMO DE LAS AMÉRICAS GENERAL DIRECTOR OF CIE-ESPAÑA, MEDIOS Y ESPECTÁCULOS, S.L.
Francisco Alonso Olivares Philip Ernst GENERAL DIRECTOR OF PUBLITOP, S.A. DE C.V. PRESIDENT OF OCESA PRESENTS, INC.
René Aziz Checa Patricia Farías Barlow PRESIDENT OF GRUPO MÁGICO INTERNACIONAL, S.A. DE C.V. GENERAL DIRECTOR OF CENTRO DE EXPOSICIONES Y CONVENCIONES LAS AMÉRICAS Lorenza Baz Braun GENERAL DIRECTOR OF VENTA DE BOLETOS POR COMPUTADORA, S.A. DE C.V. Alejandro García del Castillo GENERAL DIRECTOR OF CIE DO BRASIL, S.A. Francisco González Compeán GENERAL DIRECTOR OF ALTAVISTA FILMS, S.A. DE C.V. Omar López Escarpulli GENERAL DIRECTOR OF MEDIA INNOVATIONS, S.A. DE C.V. Ralph Hauser PRESIDENT OF HAUSER-CIE ENTERTAINMENT LLC. Eduardo Martínez Garza DIRECTOR OF SERVICES Miguel Medina Menéndez GENERAL DIRECTOR OF AUDIENCIAS CAUTIVAS, S.A. DE C.V. Bruce E. Moran PRESIDENT OF CIE-USA ENTERTAINMENT, INC. Jack Misrachi Bessudo GENERAL DIRECTOR OF GRUPO MUNDO, S.A. DE C.V. Enrique Prosen DIRECTOR OF THE RADIO OPERATIONS Raúl Pérez Salinas GENERAL DIRECTOR OF UNIMARKET, S.A. DE C.V. René Reyes Espinoza GENERAL DIRECTOR OF RAC PRODUCCIONES, S.A. DE C.V. Pedro Rodríguez Domecq GENERAL DIRECTOR OF NUVISIÓN, S.A. DE C.V. Pedro Reyes Esquer GENERAL DIRECTOR OF RAC AGENCIA ARTÍSTICA, S.A. DE C.V. Guillermo Weschler Berstein GENERAL DIRECTOR OF SITEL DE MÉXICO, S.A. DE C.V. Marcelo Ripoll GENERAL DIRECTOR OF CIE-R&P, S.A.
Rubén Saldívar González GENERAL DIRECTOR OF GRUPO AUTOMOVILÍSTICO NACIONAL Y DEPORTIVO, S. DE R.L. DE C.V. (CART SERIES PROJECT)
Carlos Santos Pérez GENERAL DIRECTOR OF FAIRS AND NEW PROJECTS
Cecilia Vega Islas GENERAL DIRECTOR OF REPRESENTACIONES DE EXPOSICIONES MÉXICO, S.A. DE C.V. (REMEX)
Mario Villa Vera GENERAL DIRECTOR OF OCESA, S.A. DE C.V.
64 / ANNUAL REPORT 2001 HAUSER-CIE HEADQUARTERS INVESTOR RELATIONS ENTERTAINMENT / Paseo de las Palmas 1005 Internal: Col. Lomas de Chapultepec Jaime J. Zevada Coarasa Joint venture with one of the top concert promoters in the U.S. 11000 Mexico City [email protected] and a company solely dedicated to Latin music. (5255) 5201 9000 (5255) 5201 9441 MARKET / Major Latin comunities in the U.S. (32 million consumers). 99 live events developed in 2001 attended by 620,000 people. Fax (5255) 5201 9384 Fax (5255) 5201 9384
CIE Brazil Conrado M. Ramírez Sordo Av. Das Nações Unidas, 17 950 [email protected] 04795-900, São Paulo, Brazil (5255) 5201 9382 CART SERIES / (5511) 5643 2619 Fax (5255) 5201 9384
Agreement with the CART Series, one of the two leading auto racing Fax (5511) 5643 2599 events in the world, to present annual races in Mexico City. Similary, CIE obtained The Anne McBride Company: the rights to provide organizational and specialized services to the annual event CIE Argentina Eli San Emeterio Morales (Mexico) in Monterrey, Mexico. Capitán Ramón Freire 932 [email protected] MARKET / Mexico City and Monterrey, Mexico. Two annual races beginning 2002, with an estimated attendance of around 650,000 fans. 1426 Buenos Aires, Argentina (5255) 5644 1247 (5411) 4556 8200 Fax (5255) 5630 6320 Fax (5411) 4556 8386 Vicky Osorio (New York) ATL HALL / CIE Spain [email protected] Antonio Maura No. 12 – 3ª Pta (212) 983 1702 Acquisition of the 10,000-seat Rio de Janeiro-based facility, 28014 Madrid, Spain one of the largest live entertainment venues in South America. Fax (212) 983 1736 MARKET / Rio de Janeiro (9 million consumers). (34) 915 238 283 100 live events in 2001 attended by 330,000 people, focused on Brazil’s Fax (34) 915 327 222 INFORMATION ON CIE’S SHARES prime artistic community. AND UDI-DENOMINATED NOTES CIE New York Corporación Interamericana de Entretenimiento, 200 West 57th Street – Suite 403 S.A. de C.V. listed its series B shares on the 10019 New York, NY Mexican Stock Exchange (BMV) in December (212) 586 0222 1995, under the ticker symbol CIE B. In addition, LA FERIA Fax (212) 586 4695 the Company completed two public offerings of DE CHAPULTEPEC / seven-year UDI-denominated notes in March and CIE Los Angeles (Hauser) April 2000 on the BMV, whose ticker symbols are Acquisition of the most well-attended park in the Mexico city area. 11003 Rooks Road CIE P00U and CIE P002U, respectively. MARKET / low and medium-level of income groups in Mexico City. 90601 Whittier, CA Around 2.2 million attendees in 2001 were incorporated into CIE’s amusement (562) 699 1751 park network in Argentina, Colombia and Mexico. SHARE TICKER SYMBOLS Fax (562) 699 0005 Bloomberg CIEB MM Reuters CIEB MX CIE Miami Infosel CIE B 801 Brickel Av. - 9th floor CENTRO DE EXPOSICIONES Y 33131 Miami, FL UDI-DENOMINATED NOTES TICKER SYMBOLS CONVENCIONES LAS AMÉRICAS / (305) 674 9888 Bloomberg EC2400694 and EC375958 Fax (305) 789 6760 Reuters CIEFL00UP=MX Construction and development of the most developed center of its kind in Mexico and one of the most important in Latin America. MARKET / local and international trade fairs and exhibitions; and social events. INDEPENDENT ACCOUNTANTS More than 150 events reserved in 2002. PRICEWATERHOUSECOOPERS CORPORATE SITE Mariano Escobedo 573 www.cie.com.mx Col. Rincón del Bosque 11580 Mexico City (5255) 5263 6000 AUDIENCIAS CAUTIVAS / Fax (5255) 5263 6010 Joint venture with the leading promoter of special EXPLANATORY NOTE and corporate events in the Mexican market. PUBLIC AFFAIRS Except for the historic information provided within this 2001 Annual Report MARKET / companies, government agencies, foundations and educational Guillermina Pilgram Santos (“the document”), statements included in this document regarding the institutions, among others, in Mexico. Comunications Buchanan Visual Company's business outlook and anticipated financial/operating results or [email protected] Over 1,200 events produced by Audiencias Cautivas in 2001, regarding the Company's growth potential, constitute forward-looking
Printing: statements and are based on management expectations regarding the on behalf of more than 200 local and international clients. (5255) 5201 9083 Fax (5255) 5201 9164 economic conditions in Mexico and the countries where CIE operates as well as the fluctuation of the Mexican Peso compared to the U.S. dollar and/or other currencies. The use of registered brands, commercial brands, logotypes,
milenio3.com.mx photographic material and images within this document is exclusively for WHO SELECTED FINANCIAL & LETTER TO BOARD OF DIVISIONS MANAGEMENT’s CONSOLIDATED EXECUTIVE illustrative purposes and is not meant to violate the rights of the creators WE ARE OPERATING DATA SHAREHOLDERS DIRECTORS DISCUSSION FINANCIAL OFFICERS and/or intellectual property laws applicable in the countries in which CIE, its
& ANALYSIS STATEMENTS Design: subsidiaries, and those companies with which CIE maintains or has maintained commercial or business relationships, operate. 1 3 4 9 11 28 33 63
2/ INFORME ANUAL 2001 OUR MISSION
To satisfy the leisure-time entertainment and amusement needs, desires and expectations of the diverse Latin American social groups, becoming their best entertainment option, as well as to become an efficient integral marketing tool for artists, producers, and any kind of product and service providers, thus building a business circle to generate and promote social and economic development for the people who participate in and interact with our Organization.