Annual Reports

 
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  • 6-K (Oct 16, 2012)
  • 15F-12G (Oct 12, 2012)
  • 6-K (Oct 2, 2012)
  • SC 13D (Aug 30, 2012)
  • 6-K (Aug 29, 2012)
  • 6-K (Aug 16, 2012)
Millicom International Cellular S.A. 6-K 2005

Documents found in this filing:

  1. 6-K
  2. 6-K

 

FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

For May 31, 2005

 

Commission File Number: 000-22828

 

MILLICOM INTERNATIONAL

CELLULAR S.A.

 

75 Route de Longwy

L-8080 Bertrange

Grand-Duchy of Luxembourg

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ý           Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  o

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes o                  No ý

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                     

 

 



 

The information contained in this report is incorporated by reference into registration statement No. 333-111779.

 

Item 1.  FINANCIAL STATEMENTS

 

Millicom International Cellular S.A. and subsidiaries (“MIC” or “Millicom” or the “Group”) unaudited interim condensed consolidated financial statements as of March 31, 2005.

 

2



 

Interim condensed consolidated balance sheets

 

MILLICOM INTERNATIONAL

As of March 31, 2005

 

CELLULAR S.A.

and December 31, 2004

 

 

 

ASSETS

 

Notes

 

March 31,
2005

 

December 31,
2004 (i)

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

US$ 000

 

US$ ’000

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

 

 

 

 

 

Goodwill, net of accumulated amortization of $nil and $30,508 (ii)

 

 

 

45,329

 

37,702

 

Licenses, net of accumulated amortization of $59,381 and $69,895

 

 

 

269,911

 

277,705

 

Other intangibles, net of accumulated amortization of $4,364 and $3,811

 

 

 

2,513

 

2,561

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $761,718 and $702,468

 

 

 

545,432

 

575,649

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

Investment in Tele2 AB shares

 

3

 

296,370

 

351,882

 

Investment in other securities

 

 

 

10,582

 

10,540

 

Investment in associates

 

 

 

3,597

 

2,220

 

Embedded derivative on the 5% Mandatory Exchangeable Notes

 

 

 

71,480

 

45,255

 

Pledged deposits

 

 

 

16,797

 

25,544

 

 

 

 

 

 

 

 

 

Deferred taxation

 

 

 

6,009

 

5,883

 

 

 

 

 

 

 

 

 

TOTAL NON-CURRENT ASSETS

 

 

 

1,268,020

 

1,334,941

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Investment in other securities

 

 

 

15,390

 

15,327

 

Inventories

 

 

 

14,298

 

16,304

 

Trade receivables, less allowance for receivable impairment of $38,754 and $38,091

 

 

 

128,171

 

141,972

 

Amounts due from joint ventures and joint venture partners

 

 

 

9,651

 

11,715

 

Amounts due from other related parties

 

 

 

1,956

 

2,067

 

Prepayments and accrued income

 

 

 

47,324

 

36,875

 

Other current assets

 

 

 

68,185

 

62,377

 

Pledged deposits

 

 

 

8,941

 

9,260

 

Time deposits

 

 

 

5,871

 

610

 

Cash and cash equivalents

 

 

 

669,960

 

413,381

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

 

969,747

 

709,888

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

2,237,767

 

2,044,829

 

 


(i) Comparative information restated as a result of the adoption of IFRS 2, “Share-based Payment” (see Note 2) and IAS 1, revised,“Presentation of Financial Statements”.

(ii) Following the adoption of IFRS 3 “Business Combinations”, Millicom derecognized negative goodwill existing on January 1, 2005 of $7,627,000 through an adjustment to accumulated losses brought forward. On January 1, 2005, Millicom also eliminated the carrying amount of accumulated amortization of goodwill existing as of December 31, 2004 with a corresponding decrease in the cost of goodwill.

 

The accompanying notes are an integral part of these condensed financial statements

 

3



 

Interim condensed consolidated balance sheets

 

MILLICOM INTERNATIONAL

As of March 31, 2005

 

CELLULAR S.A.

and December 31, 2004

 

 

 

EQUITY AND LIABILITIES

 

Notes

 

March 31,
2005

 

December 31,
2004 (i)

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

US$ ’000

 

US$ ’000

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital and premium

 

4

 

516,073

 

513,782

 

 

 

 

 

 

 

 

 

Treasury stock

 

 

 

(8,833

)

(8,833

)

4% Convertible Notes –equity component

 

5

 

39,109

 

 

Stock options compensation reserve

 

 

 

2,912

 

2,297

 

Legal reserve

 

 

 

13,577

 

13,577

 

Accumulated losses brought forward (ii)

 

 

 

(203,037

)

(277,053

)

Profit/ (Loss) for the period/year

 

 

 

(11,263

)

66,389

 

Currency translation reserve

 

 

 

(72,385

)

(71,116

)

 

 

 

 

276,153

 

239,043

 

Minority interest

 

 

 

43,481

 

43,351

 

TOTAL EQUITY

 

 

 

319,634

 

282,394

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities

 

 

 

 

 

 

 

Debt and other financing

 

 

 

 

 

 

 

10% Senior Notes

 

5

 

536,863

 

536,629

 

4% Convertible Notes – Debt component

 

5

 

158,115

 

 

5% Mandatory Exchangeable Notes – Debt component

 

5

 

346,347

 

365,006

 

Other debt and financing

 

5

 

115,952

 

124,267

 

Other non-current liabilities

 

 

 

197,458

 

194,774

 

Deferred taxation

 

 

 

35,298

 

39,216

 

Total non-current liabilities

 

 

 

1,390,033

 

1,259,892

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Other debt and financing

 

5

 

81,910

 

88,511

 

Trade payables

 

 

 

179,127

 

173,969

 

Amounts due to joint ventures and joint venture partners

 

 

 

4,615

 

7,760

 

Amounts due to related parties

 

 

 

147

 

975

 

Accrued interest and other expenses

 

 

 

66,863

 

55,203

 

Other current liabilities

 

 

 

195,438

 

176,125

 

Total current liabilities

 

 

 

528,100

 

502,543

 

TOTAL LIABILITIES

 

 

 

1,918,133

 

1,762,435

 

 

 

 

 

 

 

 

 

TOTAL EQUITY AND LIABILITIES

 

 

 

2,237,767

 

2,044,829

 

 


(i) Comparative information restated as a result of the adoption of IFRS 2, “Share-based Payment” (see Note 2) and IAS 1, revised,“Presentation of Financial Statements”.

(ii) Following the adoption of IFRS 3 “Business Combinations”, Millicom derecognized negative goodwill existing on January 1, 2005 of $7,627,000 through an adjustment to accumulated losses brought forward.

 

The accompanying notes are an integral part of these condensed financial statements

 

4



 

Interim condensed consolidated statements of profit and loss

 

MILLICOM INTERNATIONAL

For the three months ended March 31, 2005

 

CELLULAR S.A.

and March 31, 2004

 

 

 

 

 

Notes

 

Three months
ended
March 31, 2005

 

Three months
ended
March  31, 2004

 

 

 

 

 

(Unaudited)

 

(Unaudited) (i)

 

 

 

 

 

US$ ’000

 

US$ ’000

 

 

 

 

 

 

 

 

 

Revenues

 

6

 

268,891

 

213,859

 

Cost of sales

 

7

 

(139,244

)

(84,150

)

Gross profit

 

 

 

129,647

 

129,709

 

Sales and marketing

 

 

 

(39,697

)

(28,790

)

General and administrative expenses

 

 

 

(43,821

)

(29,330

)

Gain from sale of subsidiaries and joint ventures, net

 

 

 

222

 

30

 

Other operating expenses

 

 

 

(7,886

)

(9,682

)

Other operating income

 

10

 

661

 

 

Valuation movement on Tele2 shares

 

3

 

(55,512

)

(66,106

)

Fair value result on the Embedded derivative on the 5% Notes

 

5

 

26,225

 

51,700

 

Interest expense

 

 

 

(33,287

)

(27,349

)

Interest income

 

 

 

4,919

 

1,574

 

Exchange gain, net

 

 

 

19,693

 

14,424

 

Profit from associates

 

 

 

62

 

134

 

Profit before taxes

 

 

 

1,226

 

36,314

 

Charge for taxes

 

8

 

(11,968

)

(16,702

)

Net (loss) income for the period

 

 

 

(10,742

)

19,612

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the Company

 

 

 

(11,263

)

14,570

 

Minority interest

 

7

 

521

 

5,042

 

 

 

 

 

(10,742

)

19,612

 

Earnings per common share for profit attributable to the equity holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (US$)

 

11

 

(0.11

)

0.22

 

 

 

 

 

 

 

 

 

Diluted (US$)

 

11

 

(0.11

)

0.20

 

 


(i) Comparative information restated as a result of the adoption of IFRS 2, “Share-based Payment” (see Note 2) and IAS 1, revised,“Presentation of Financial Statements”.

 

The accompanying notes are an integral part of

these condensed financial statements

 

5



 

Interim condensed consolidated statements of cash flows

 

MILLICOM INTERNATIONAL

For the three months ended March 31, 2005

 

CELLULAR S.A.

and March 31, 2004

 

 

 

 

 

Three
months
ended
March 31,
2005

 

Three
months
ended
March 31,
2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

US $’000

 

US $’000

 

 

 

 

 

 

 

Net cash provided by operating activities

 

106,910

 

75,405

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Investment in associates

 

(1,272

)

 

Purchase of property, plant and equipment

 

(41,764

)

(39,003

)

Decrease/(increase) in amounts due from joint ventures

 

4,412

 

3,040

 

Decrease/(increase) in pledged deposits

 

9,147

 

7,940

 

Decrease/(increase) in time deposits

 

(5,222

)

(65,567

)

Cash from other investing activities

 

110

 

(3,453

)

Net cash used by investing activities

 

(34,589

)

(97,043

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from the issuance of debt and other financing

 

206,923

 

13,226

 

Repayment of debt and other financing

 

(24,904

)

(39,720

)

Payment of dividends to minority interests

 

 

(4,200

)

Cash provided by other financing activities

 

2,291

 

334

 

Net cash provided/(used) by financing activities

 

184,310

 

(30,360

)

 

 

 

 

 

 

Effect of exchange rate changes on cash balances

 

(52

)

58

 

Net increase in cash and cash equivalents

 

256,579

 

(51,940

)

 

 

 

 

 

 

Cash and cash equivalents, beginning

 

413,381

 

148,829

 

 

 

 

 

 

 

Cash and cash equivalents, ending

 

669,960

 

96,889

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

Investing activities:

 

 

 

 

 

Revaluation of marketable securities

 

(55,512

)

(66,106

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Issuance of capital through debt conversion

 

 

27,834

 

 

The accompanying notes are an integral part

of these condensed financial statements

 

6



 

Interim condensed consolidated statements of
Changes in equity

 

MILLICOM INTERNATIONAL

As of March 31, 2005 and March 31, 2004

 

CELLULAR S.A.

 

 

 

Three months
ended
March 31, 2005

 

Three months
ended
March 31, 2004(i)

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

US $’000

 

US $’000

 

 

 

 

 

 

 

Shareholders’ equity as of January 1 as previously reported

 

239,043

 

(85,180

)

 

 

 

 

 

 

Minority interests as of January 1(ii)

 

43,351

 

26,571

 

 

 

 

 

 

 

Total equity as of January 1

 

282,394

 

(58,609

)

 

 

 

 

 

 

Derecognition of negative goodwill on January 1(iii)

 

7,627

 

 

 

 

 

 

 

 

Total equity as of January 1 as restated

 

290,021

 

(58,609

)

 

 

 

 

 

 

(Loss)/profit for the period

 

(11,263

)

14,570

 

 

 

 

 

 

 

Stock options scheme

 

615

 

160

 

 

 

 

 

 

 

Shares issued via the exercise of stock options

 

2,291

 

333

 

 

 

 

 

 

 

Equity component of 4% Convertible Notes

 

39,109

 

 

 

 

 

 

 

 

Conversion/issuance of 2% PIK Notes

 

 

21,314

 

 

 

 

 

 

 

Movement in currency translation reserve

 

(1,269

)

(1,023

)

 

 

 

 

 

 

Minority Interest

 

130

 

3,885

 

 

 

 

 

 

 

Total equity as of March 31

 

319,634

 

(19,370

)

 


(i) Comparative information restated as a result of the adoption of IFRS 2, “Share-based Payment” (see Note 2) and IAS 1, revised,“Presentation of Financial Statements”.

(ii) Upon adoption of IAS 1, revised, “Presentation of Financial Statements” on January 1, 2005, Millicom reclassified minority interests to equity.

(iii) Following the adoption of IFRS 3 “Business Combinations”, Millicom derecognized negative goodwill existing on January 1, 2005 of $7,627,000 through an adjustment to accumulated losses brought forward.

 

The accompanying notes are an integral part

of these condensed financial statements

 

7



 

Condensed consolidated notes

 

MILLICOM INTERNATIONAL

As of March 31, 2005

 

CELLULAR S.A.

 

1.    ORGANIZATION

 

Millicom International Cellular S.A. (the “Company”), a Luxembourg Société Anonyme, and its subsidiaries, joint ventures and associates (the “Group” or “MIC”) is a global operator of cellular telephone services in the world’s emerging markets. As of March 31, 2005, Millicom had interests in 17 cellular operations in 16 countries focusing on emerging markets in South East Asia, South Asia, Central America, South America and Africa. The Company’s shares are traded on the NASDAQ National Market under the symbol MICC and on the Luxembourg and Stockholm stock exchanges under the symbol MIC. The Company has its registered office at 75, Route de Longwy, L-8080, Bertrange, Grand-Duchy of Luxembourg and is registered with the Luxembourg Register of Commerce under the number RCS B 40 630.

 

Millicom’s cellular interests (“MIC Cellular”) operate through strategic entities operating in major geographic regions of the world. Millicom’s cellular interests in South East Asia include operations in Cambodia, Laos and Vietnam (see Note 13); in South Asia operations in Pakistan, Sri Lanka and Iran (see Note 13); in Central America operations in El Salvador, Guatemala and Honduras (see Note 13); in South America operations in Bolivia and Paraguay and in Africa operations in Ghana, Mauritius, Senegal, Sierra Leone, Tanzania and Chad.

 

The Group was formed in December 1990 when Industriförvaltnings AB Kinnevik, a company established in Sweden, and Millicom Incorporated (“Millicom Inc.”), a corporation established in the United States of America, contributed their respective interests in international cellular joint ventures to form the Group. During 1992, the Group was restructured under a new ultimate parent company, maintaining the same name. On December 31, 1993, Millicom was merged into a wholly-owned subsidiary of Millicom, MIC-USA Inc a Delaware corporation, and the outstanding shares of Millicom’s common stock were exchanged for approximately 46.5% of MIC’s common stock outstanding at that time.

 

2.  SUMMARY OF CONSOLIDATION AND ACCOUNTING POLICIES

 

The interim condensed consolidated financial statements of the Group are unaudited. They are presented in US dollars and have been prepared in accordance with International Accounting Standard (IAS) No.34 Interim Financial Reporting, as published by the International Accounting Standards Board (“IASB”). Certain information and disclosures normally included in financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim financial statements reflect all adjustments that are necessary for a proper preparation of the results for interim periods. All adjustments made were normal recurring accruals. Millicom’s operations are not affected by significant seasonal or cyclical patterns. The interim condensed consolidated financial statements should be read in conjunction with the audited annual report as of December 31, 2004 filed on Form 20-F with the U.S. Securities Exchange Commission.

 

The preparation of the financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The interim condensed consolidated financial statements are prepared in accordance with consolidation and accounting policies consistent with the consolidated financial statements as of December 31, 2004, except as follows:

 

8



 

IFRS 2 - “Share-based payment”

 

The adoption of IFRS 2 resulted in a change in the accounting policy for share-based payments. Prior to its adoption on January 1, 2005 stock options granted to employees did not result in a charge to the income statement. Subsequent to that date, Millicom charges the cost of stock options to the income statement.  On the date of grant, Millicom computes the fair value of the stock options, using a Black-Scholes model, and recognizes the so determined fair value over the vesting period. The adoption of IFRS 2 was retrospective and therefore Millicom restated comparative figures.

 

The effect of the new accounting policy is an increase in the consolidated net loss for the three-months ended March 31, 2005 of $615,000 (2004: $160,000) with a corresponding increase in equity. In addition, accumulated losses brought forward as of January 1, 2004 were increased by a cumulative effect of $445,000, and the net profit for the year ended December 31, 2004 decreased by $1,852,000.

 

IFRS 3 – “Business combinations”

 

The adoption of IFRS 3, resulted in a change in the accounting policy of goodwill. Until December 31, 2004 goodwill was amortised on a straight line basis over its estimated useful life but not longer than 20 years and assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3, Millicom ceased amortization of goodwill from January 1, 2005 and eliminated the carrying amount of accumulated amortization with a corresponding decrease in the cost of goodwill. On that date Millicom also derecognised negative goodwill of $7,627,000 through an adjustment to accumulated losses brought forward.

 

IFRS 5 “Non-current assets held for sale and discontinued operations”

 

Millicom adopted IFRS 5 on January 1, 2005 though it currently has no assets classified as held for sale or discontinued operations.

 

IAS 39, revised, which is effective on January 1, 2005, changed the measurement of available-for-sale (AFS) securities by requiring the change in fair value to be recognised directly in equity (except for impairment losses and foreign exchange gain and losses).  As a consequence, Millicom decided to change the classification of its Tele2 AB shares from AFS securities to financial assets at fair value through profit or loss.  Accordingly, Millicom continues to recognise the change in fair value of its Tele2 AB shares in the statements of profit and loss.  In addition, on January 1, 2005 Millicom adopted the revised International accounting standards IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 32, 33, 36 and 38 which did not result in substantial changes to the Group’s accounting policies.

 

9



 

3.    INVESTMENT IN TELE2 AB SHARES

 

Following variations in the market value of the Tele2 AB shares and the exchange rate of the Swedish Krona to the U.S. Dollar in the three month period ended March 31, 2005, a loss of $55,512,000 (three month period ended March 31, 2004: a loss of $66,106,000) was recorded in the statement of profit and loss under the caption “Valuation movement on Tele2 shares”.

 

On January 1, 2005, Millicom changed the classification of Tele2 AB shares (see Note 2).

 

4.    SHARE CAPITAL AND PREMIUM

 

During the first three months of 2005, 142,669 stock options were exercised for a net proceeds of $2,291,000, recorded in share capital and premium.

 

As of March 31, 2005, following the above exercise of stock options, the total subscribed and fully paid-in share capital and premium amounted to $516,072,546 consisting of 98,706,896 registered common shares with a par value of $1.50 each.

 

5.    DEBT AND FINANCING

 

10% Senior Notes

 

On November 24, 2003, Millicom issued $550 million aggregate principal amount of 10% Senior Notes (the “10% Senior Notes”) due on December 1, 2013. The 10% Senior Notes bear interest at 10% per annum, payable semi-annually in arrears on June 1 and December 1, beginning on June 1, 2004.

 

Interest has been accrued from June 1, 2004 at an effective interest rate of 10.4%.

 

Due to the fact that the registration statement of the 10% Senior Notes was not declared effective, a special interest charge was added to the interest rate of 10% of 0.25% from May 23, 2004 to August 20, 2004, of 0.5% from August 21, 2004 to November 18, 2004, of 0.75% from November 19, 2004 to February 16, 2005 and of 1% from February 17, 2005 until March 2, 2005 the date the registration statement was declared effective.

 

The 10% Senior Notes are general unsecured obligations of Millicom and rank equal in right of payment with all future unsecured and unsubordinated obligations of Millicom. The 10% Senior Notes are not guaranteed by any of Millicom’s subsidiaries or affiliates, and as a result are structurally subordinated in right of payment to all indebtedness of such subsidiaries and affiliates.

 

As of March 31, 2005, the carrying amount of the 10% Senior Notes, net of unamortized financing fees, is $536,863,000.

 

5% Mandatory Exchangeable Notes

 

On August 7, 2003, Millicom Telecommunications S.A., Millicom’s wholly-owned subsidiary, issued for an aggregate value of SEK 2,555,994,000 (approximately $310 million at the exchange rate at the date of issuance) Mandatory Exchangeable Notes (the “5% Mandatory Exchangeable Notes”), which are mandatorily exchangeable into Tele2 AB series B shares.

 

The 5% Mandatory Exchangeable Notes bear interest on the U.S. dollar equivalent amount of each note at a rate of 5% per annum payable semi-annually on February 7 and August 7 of each year.  The effective interest rate is 8.45%.  As of March 31, 2005 the carrying amount of the 5% Mandatory Exchangeable Notes net of unamortized financing fees was $346,347,000.

 

10



 

The 5% Mandatory Exchangeable Notes include an embedded derivative, which is valued separately. The embedded derivative, which reflects Millicom’s right to participate in a portion of the increase in value of the Tele2 shares above the reference price of SEK 285, is recorded at fair value, taking into account time and volatility factors. As of March 31, 2005, the fair value of the embedded derivative result in an asset amounting to $71,480,000, with the change in fair value for the three months ended March 31, 2005 amounting to $26,225,000 recorded under the caption “Fair value result on the Embedded derivative on the 5% Notes”.

 

4% Convertible Notes

 

In January 2005, Millicom raised $200 million aggregate principal amount of 4% Convertible Notes due 2010 (the “4% Convertible Notes”). The net proceeds of the offering were paid and settled on January 7, 2005 in the amount of $195,875,000.

 

The 4% Convertible Notes are direct, unsecured obligations of Millicom. The rate of interest payable on the 4% Convertible Notes is 4% per annum. Interest is payable semi-annually in arrear in equal installments on January 7 and July 7 of each year commencing on July 7, 2005.  Unless previously redeemed or converted, the 4% Convertible Notes will be redeemed on January 7, 2010 at their principal amount.  Each note will entitle the holder to convert such note into shares or Swedish Depository Receipts at the then applicable conversion price at any time on or after February 17, 2005 and up to December 28, 2010.

 

The initial conversion price will be $34.86 per share.

 

The 4% Convertible Notes were constituted by a trust deed dated January 7, 2005 between Millicom and The Bank of New York, as Trustee for the holders of notes.

 

Millicom has apportioned part of the value of the 4% convertible notes to equity and part to debt. The value allocated to equity as of March 31, 2005 was $39.1 million and the value allocated to debt was $158.1 million.

 

Other debt and financing

 

The total amount of other debt and financing is repayable as follows:

 

 

 

As of
March 31, 2005

 

As of
December 31,
2004

 

 

 

(Unaudited)

 

 

 

 

 

US $’000

 

US $’000

 

Due within:

 

 

 

 

 

One year

 

81,910

 

88,511

 

One – two years

 

393,507

 

413,213

 

Two – three years

 

35,709

 

37,735

 

Three – four years

 

19,010

 

18,848

 

Four – five years

 

171,749

 

15,247

 

After five years

 

537,302

 

540,859

 

Total debt, net

 

1,239,187

 

1,114,413

 

 

11



 

In the normal course of business, Millicom has issued guarantees to secure some of the obligations of some of its operations under bank and supplier’s financing agreements. The tables below describe, for each operation, the outstanding amount under the guarantees and the remaining terms of the guarantees as of March 31, 2005 and December 31, 2004. Amounts covered by bank guarantees are recorded in the condensed consolidated balance sheet under the caption “Other debt and financing” and amounts covered by suppliers’ guarantees are recorded under the caption “Trade payables”.

 

As of March 31, 2005 (unaudited):

 

 

 

Bank and other financing
guarantees (1)

 

Suppliers’ guarantees (2)

 

Total

 

Terms

 

Outstanding
exposure

 

Maximum
exposure

 

Outstanding
exposure

 

Maximum
exposure

 

Outstanding
exposure

 

Maximum
exposure

 

 

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

0-1 year

 

1,467

 

3,467

 

3,265

 

3,265

 

4,732

 

6,732

 

1-3 years

 

21,048

 

21,048

 

13,769

 

13,769

 

34,817

 

34,817

 

3-5 years

 

3,753

 

3,753

 

 

 

3,753

 

3,753

 

More than 5 years

 

4,288

 

10,000

 

 

 

4,288

 

10,000

 

Total

 

30,556

 

38,268

 

17,034

 

17,034

 

47,590

 

55,302

 

 

As of December 31, 2004:

 

 

 

Bank and other financing
guarantees (1)

 

Suppliers’ guarantees (2)

 

Total

 

Terms

 

Outstanding
exposure

 

Maximum
exposure

 

Outstanding
exposure

 

Maximum
exposure

 

Outstanding
exposure

 

Maximum
exposure

 

 

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

(‘000 USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0-1 year

 

 

2,000

 

2,702

 

2,702

 

2,702

 

4,702

 

1-3 years

 

23,248

 

23,248

 

9,290

 

9,290

 

32,538

 

32,538

 

3-5 years

 

3,753

 

3,753

 

 

 

3,753

 

3,753

 

More than 5 years

 

4,092

 

10,000

 

 

 

4,092

 

10,000

 

Total

 

31,093

 

39,001

 

11,992

 

11,992

 

43,085

 

50,993

 

 


(1) The guarantee covers outstanding amounts of the underlying loans in the case of non payment from Millicom Group company guarantor

 

(2) The guarantee covers outstanding amounts of the underlying supplier financing in the case of non payment from Millicom Group company guarantor

 

12



 

6.  SEGMENTAL REPORTING

 

The five operational clusters in the Group are South East Asia, South Asia, Central America, South America and Africa.

 

Revenues

 

Three months
ended
March 31, 2005

 

Three months
ended
March 31, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

US $’000

 

US $’000

 

 

 

 

 

 

 

South East Asia

 

70,296

 

55,743

 

South Asia

 

29,704

 

30,608

 

Central America

 

88,592

 

68,784

 

South America

 

31,211

 

25,014

 

Africa

 

47,954

 

31,672

 

Other

 

1,134

 

2,038

 

Of which divested

 

 

794

 

 

 

 

 

 

 

Total revenues

 

268,891

 

213,859

 

 

Segmental result

 

Three months
ended
March 31, 2005

 

Three months
ended
March 31, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

US $’000

 

US $’000

 

 

 

 

 

 

 

South East Asia (see Note 7)

 

3,268

 

16,302

 

South Asia (see Note 7)

 

(12,248

)

5,283

 

Central America

 

21,438

 

17,054

 

South America

 

1,949

 

1,186

 

Africa

 

7,750

 

5,787

 

Other

 

(866

)

(595

)

Of which divested

 

 

60

 

Unallocated items

 

(32,033

)

(25,405

)

Net (loss)/profit for the period

 

(10,742

)

19,612

 

 

7.  IMPAIRMENT OF ASSETS

 

For the three months ended March 31, 2005 Millicom recorded under the caption “Cost of sales” an impairment charge of $16,569,000 on the property, plant and equipment in its operation in Vietnam and an impairment charge on the analog equipment of Pakcom, Millicom’s operation in Pakistan of $5,248,000. The Vietnam asset impairment is due to a late approval of investments required under the BCC preventing CIV from generating revenues on these fixed assets as the Business Cooperation Contract in Vietnam expired on May 18, 2005. The Pakcom asset impairment results from a decrease in the recoverable amount of the analog equipment following the increased competition by new entrants in the market. There were no asset impairments in the three months ended March 31, 2004.

 

13



 

8.    TAXES

 

Group taxes are comprised of income taxes of profitable subsidiaries and joint ventures, after allowance of losses brought forward from previous years. The Company is subject to taxes applicable to a Luxembourg Société Anonyme. Due to losses incurred and brought forward, no taxes based on Luxembourg-only income have been computed for the three month periods ended March 31, 2005 and 2004.

 

9.  JOINT VENTURES

 

The following amounts have been proportionally consolidated into the Group accounts representing the Group’s share of revenues, cost of sales, net profit from continuing operations and net profit in the Group’s ventures:

 

 

 

Three months
ended March
31, 2005

 

Three months
ended March
31, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

US$ ’000

 

US$ ’000

 

 

 

 

 

 

 

Revenues

 

71,509

 

53,742

 

Cost of sales

 

(28,025

)

(13,926

)

Net profit from continuing operations

 

17,698

 

13,785

 

Net profit

 

17,698

 

13,785

 

 

10.    COMMITMENTS AND CONTINGENCIES

 

The Company and its operations are contingently liable with respect to lawsuits and other matters that arise in the normal course of business. As of March 31, 2005, the total value of cases against Millicom’s operations was $48,237,000 of which $13,099,000 had been provided in the consolidated balance sheet. Management is of the opinion that while it is impossible to ascertain the ultimate legal and financial liability with respect to these contingencies, the ultimate outcome of these contingencies is not anticipated to have a material effect on the Group’s financial position and operations in excess of the provisions already recorded.

 

Mach

 

In November 2002, Millicom completed the sale of Multinational Automatic Clearing House S.A. (“MACH”). Following examination of the books and records of MACH subsequent to purchase, the buyers have claimed a reduction in the purchase price to reflect a claimed lower balance sheet value, as per the terms of the purchase agreement. Millicom’s management is currently examining this claim but does not expect there to be a significant impact on the Group’s consolidated financial statements.

 

Letters of support

 

In the normal course of business, the Company issues letters of support to various subsidiaries and joint ventures within the Group.

 

Capital Commitment

 

As of March 31, 2005, Millicom had committed to purchase network equipment, land and buildings and other non-current assets with a value of $85,005,000 from a number of suppliers.

 

14



 

Operational environment

 

Millicom has operations in emerging markets, including Asia, Latin America and Africa where the regulatory, political, technological and economic environments are evolving. As a result, there are uncertainties that may affect future operations, the ability to conduct business, foreign exchange transactions and debt repayments and which may impact upon agreements with other parties. In the normal course of business, Millicom is involved in discussions regarding taxation, interconnect and tariff arrangements, which can have a significant impact on the long-term economic viability of its operations.  In management’s opinion, the current status and anticipated evolution of the regulatory, political, technological and economic environments as well as its business arrangements with third parties in countries in which Millicom has operations, will not materially negatively impact Millicom’s financial position or operations.

 

New licenses

 

The Company continues to review options to acquire additional cellular telephone licenses in various countries.

 

Dividends

 

The ability of the Company to make dividend payments is subject to, among other things, the terms of the indebtedness, local legal restrictions and the ability to repatriate funds from Millicom’s various operations.

 

Contingent Assets

 

Due to the late delivery by a supplier of network equipment in Central and South America, Millicom is entitled to a total compensation for suffered damages amounting to approximately $9.8 million. This compensation is in the form of discount vouchers on future purchases of network equipment. The recognition of the compensation as “other operating income” occurs when the network equipment purchased is delivered. As of March 31, 2005, approximately $5.9 million of compensation is expected to be recognized as other operating income in the second and third quarters of 2005. In the three month period ended March 31, 2005, Millicom recorded $661,000 as “other operating income” following the delivery of network equipment.

 

15



 

11.  (LOSS)  EARNINGS PER COMMON SHARE

 

(Loss) earnings per common share attributable to equity holders are comprised as follows:

 

 

 

Three months
ended March
31, 2005

 

Three months
ended March
31, 2004

 

 

 

(Unaudited)

 

(Unaudited) (iii)

 

Basic computation

 

 

 

 

 

 

 

 

 

 

 

Net (loss) profit attributable to equity holders (US$’000)

 

(11,263

)

14,570

 

 

 

 

 

 

 

Weighted average number of shares outstanding during the period (in ‘000)

 

98,637

 

65,963

 

 

 

 

 

 

 

Basic (loss) earnings per common share (US$)

 

(0.11

)

0.22

 

 

 

 

 

 

 

Diluted computation

 

 

 

 

 

 

 

 

 

 

 

Net (loss) profit attributable to equity holders (US$’000)

 

(11,263

)

14,570

 

 

 

 

 

 

 

Interest expense on convertible debt (US$’000)

 

 

1,553

 

 

 

 

 

 

 

Net (loss) profit used to determine diluted earnings per share (US$’000)

 

(11,263

)

16,123

 

 

 

 

 

 

 

Weighted average number of shares outstanding During the period (in ‘000)

 

98,637

 

65,963

 

 

 

 

 

 

 

Adjustments for

 

 

 

 

 

Assumed conversion of convertible debt (in ‘000) (i)

 

 

13,801

 

Share options (in ‘000) (ii)

 

 

166

 

 

 

 

 

 

 

Weighted average number of shares and potential dilutive shares outstanding during the period (in ‘000)

 

98,637

 

79,930

 

 

 

 

 

 

 

Diluted (loss) earnings per common share (US$)

 

(0.11

)

0.20

 

 


(i) Potential ordinary shares that have been converted into ordinary shares during the reporting period are included in the calculation of diluted earnings per share from the beginning of the period to the date of conversion. From the date of conversion, the resulting shares are included in both the basic and diluted earnings per share.

(ii) As of March 31, 2005, the Group had 502,307 (March 31, 2004: 1,263,348) stock options that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the period presented.

(iii) As restated for the adoption of IFRS2 “Share-based Payment”.

 

16



 

12.  RECONCILIATION TO U.S. GAAP

 

The interim condensed consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). If the interim condensed consolidated financial statements had been prepared under accounting principles generally accepted in the United States of America (“U.S. GAAP”) the following principal differences would arise:

 

1.                                      On March 31, 2004 Millicom adopted Financial Interpretation No. 46, revised 2003 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 applies to legal entities in which a variable interest is held. Such entities are referred to as variable interest entities (“VIEs”). VIEs are those entities possessing certain characteristics, which indicate either a lack of equity investment sufficient to cover the expected losses of the entity or the equity holders lack of characteristics consistent with holding a controlling financial interest. When an entity is a VIE the party whose interests absorb a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, is deemed to be the Primary Beneficiary and must consolidate the VIE.

 

Millicom adopted FIN 46 on March 31, 2004 for entities created prior to February 1, 2003, and as a result, began consolidating its interest in the following VIEs: (i) Cam GSM Company Limited (“Cam GSM”), (ii) Royal Telecam International Limited (“Telecam”), (iii) Millicom Argentina S.A. (sold in September 2004) and (iv) Comunicaciones Celulares S.A. The VIEs under (i) to (iv), collectively, are referred to as the “Joint Ventures interests”. Under IFRS, the Joint Ventures interests are proportionally consolidated. In addition, Great Universal Inc. (“GU”) and Modern Holdings (“Modern”), which were consolidated under U.S. GAAP before the adoption date of FIN 46 (see item 14), are variable interest entities, which continue to be consolidated under FIN 46. For IFRS, GU and Modern are not consolidated. The effect of consolidating GU and Modern under U.S. GAAP is an incremental income of $704,000 for the three month period ended March 31, 2005 (March 31, 2004: $1,269,000).The adoption of FIN 46 did not lead to the deconsolidation of any interests previously consolidated under U.S. GAAP.

 

The effect of consolidating the above mentioned VIE’s is reflected in the US GAAP reconciliation of the balance sheet and statement of profit and loss, which are presented on the following pages. Information on the Group’s share of revenues and expenses contributed on a proportional basis under IFRS are included in Note 9 to the interim condensed consolidated financial statements. The cumulative impact of adopting FIN 46 as of March 31, 2004 was $2,865,000 including $2,832,000 relating to the discontinued operation Millicom Argentina S.A. and has been recorded as a cumulative effect of change in accounting principle as of March 31, 2004.

 

Millicom has determined that it holds a significant variable interest in its joint venture in Honduras. Millicom has been associated with Telefonica Celular since its formation in 1995. The Telefonica Celular joint venture is accounted for under the equity method for U.S. GAAP and is proportionally consolidated for IFRS. The size of Telefonica Celular and Millicom’s maximum exposure to loss as a result of its involvement with this entity is as follows for the three months ended and as of March 31, 2005:

 

Under IFRS
(Unaudited)

 

Revenues

 

Operating
Profit

 

Total assets

 

Maximum
Exposure to
loss

 

 

 

U.S.$’000

 

U.S.$’000

 

U.S.$’000

 

U.S.$’000

 

Telefonica Celular (Honduras)

 

34,916

 

15,468

 

101,718

 

34,281

 

 

17



 

The adjustment to reflect Millicom’s investment in joint ventures not consolidated under FIN46 from proportionally consolidated under IFRS to equity method under U.S. GAAP (Telefonica Celular and Emtel Limited), is also reflected in the balance sheet reconciliation on the following pages.

 

As of March 31, 2005, Millicom had issued corporate guarantees covering an amount of $7,058,000 debt in consolidated VIEs.

 

2.               Prior to the adoption date of FIN 46 on March 31, 2004, as it relates to entities created prior to February 1, 2003 Millicom’s interests in joint ventures were accounted for under the equity method under U.S. GAAP. Summarized below are the adjustments to the profit and loss account that are required under U.S. GAAP for the reversal of additional losses recorded by Millicom above those recorded for IFRS due to Millicom’s commitment to provide further financial support to the joint ventures. These additional losses are reversed to the extent of net income subsequently reported by the joint ventures.

 

 

 

March 31, 2005

 

March  31, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

U.S.$’000

 

U.S.$’000

 

Subsequent reversal of additional losses in excess of investment value

 

 

21

 

 

3.                                       Under IFRS, Millicom started reconsolidating its operation in El Salvador (“Telemovil”) in September 2003 after the dispute with the minority shareholders was resolved. Upon consolidation, in September 2003, under U.S. GAAP, Millicom reclassified an amount of $19,605,000 from the carrying amount of its investment in Telemovil to goodwill, corresponding to the remaining difference between the investments cost and the underlying equity in net assets of Telemovil at the date of investments in Telemovil. Under IFRS, prior to the consolidation in September 2003, Telemovil was recorded as an available-for-sale investment and therefore no reclassification to goodwill was recorded.

 

4.                                       The value of cellular properties contributed by the shareholders of certain of the Company’s subsidiaries and joint ventures, upon formation of Millicom, were not recorded at the contributing shareholders’ carryover basis under IFRS. Rather, the value of such properties was stepped-up to reflect their fair value.  The incremental value recorded for these properties was recorded as an intangible asset, attributable to licenses, for $58,628,000.  Following the implementation of International Accounting Standard No. 38 (IAS 38), Intangible Assets, the step-up in value of the properties has been amortized through the profit and loss account. The amount of amortization expense related to these intangible assets recorded for IFRS in the three month period ended March 31, 2005 was $513,000 (March 31, 2004: $568,000). Under U.S. GAAP, the contributed properties would have been recorded at the contributing shareholders’ carryover basis, thus no intangible asset and no amortization expense would have been recorded. Accordingly, this adjustment reverses the amortization expense recorded for IFRS, and the stepped-up value recorded in the balance sheet.

 

5.                                       For the three month period ended March 31, 2005, the adjustment to reconcile the compensation cost recorded under IFRS to U.S. GAAP corresponds to a reversal of the cost of $438,000 (March 31, 2004: $41,000) recorded for IFRS. For the three month period ended March 31, 2005 the compensation expense recognized under U.S. GAAP for stock based compensation amounts to $177,000 (March 31, 2004: $119,000).

 

18



 

6.                                       On January 1, 2004, Millicom adopted Emerging Issues Task Force Issue 00-21 (‘‘EITF 00-21’’), Accounting for Revenue Arrangements with Multiple Deliverables. The impact of adopting EITF 00-21 compared to the revenues recognized under IFRS, for the three month period ended March 31, 2005, corresponds to a decrease in revenues of $82,000 (March 31, 2004: $407,000). This decrease is mainly due to a lower allocation of revenues to handsets that are delivered together with prepaid cards in a single package leading to a higher allocation to airtime recognized in revenues as credit is used.

 

Under US GAAP, up-front connection fees and direct incremental costs associated with such fees are deferred and amortized over the estimated customer relationship period. The adjustment to defer revenues under U.S. GAAP on connection fees that do not form part of a multiple deliverables arrangement, net of revenues recognized which were deferred in a prior period, results in an increase in revenues as of March 31, 2005 of $228,000 (March 31, 2004: decrease of $1,035,000) and the adjustment to defer incremental cost of sales on connection fees for U.S. GAAP, net of cost of sales recognized which were deferred in a prior period, results in an increase in cost of sales as of March 31, 2005 of $11,000 (March 31, 2004: decrease of $511,000) resulting in a net increase of $217,000 to the Company’s net profit under IFRS as of March 31, 2005 (March 31, 2004: decrease of $524,000).

 

Under US GAAP, customer acquisition costs including dealer commissions and handset subsidies are recorded as cost of sales. Under IFRS these are classified as sales and marketing expenses. For the three month period ended March 31, 2005 an amount of $29,902,000 was reclassified from sales and marketing to cost of sales (March 31, 2004: $21,099,000).

 

In addition, Millicom decreased the profit from equity investees under U.S. GAAP by $13,000 as of March 31, 2005 (March 31, 2004: $201,000) to reflect the application of EITF 00-21 and SAB 104 to its equity investments.

 

These adjustments led to an increase in the charge for taxes of $54,000 (March 31, 2004: $nil) and an increase in minority interest’s share of profit of $16,000 (March 31, 2004: $nil) resulting in a total net increase in profit under U.S. GAAP for 2005 of $52,000 (March 31, 2004: decrease of $1,132,000).

 

7.                                       During 2003, under IFRS, Millicom reversed part of an impairment recorded in 2000 on analogue equipment belonging to its Bolivian operation, for an amount of $1,579,000, due to a change in the underlying assumptions to determine the recoverable amount of these assets. Under U.S. GAAP, such reversal is not allowed. Accordingly, the increase in value for the Bolivian equipment has been reversed for U.S. GAAP purposes. As of March 31, 2005 the cost of sales under U.S. GAAP was decreased by an amount of $108,000 (2004: $132,000) as a reversal of the incremental depreciation charge for these assets recorded under IFRS.

 

In 2004, under IFRS Millicom recorded an impairment charge of $5,058,000 on the value of its analogue equipment in Pakistan and in March 2005 Millicom recorded a further impairment of $5,248,000. Since for both impairments the recoverable amount of the analogue equipment, determined by reference to an undiscounted cash flow model was higher than its carrying value, the impairment recorded under IFRS in cost of sales has been reversed for U.S. GAAP purposes. Accordingly, for U.S. GAAP purposes, Millicom recorded an incremental depreciation charge of $422,000 during the three month period ended March 31, 2005.

 

These adjustments led to an increase in the charge for taxes of $1,849,000 (March 31, 2004: $nil) and an increase in minority interest’s share of profit of $904,000 (March 31, 2004: $nil) resulting in a total net increase in profit under U.S. GAAP for 2005 of $2,181,000 (March 31, 2004: $132,000).

 

19



 

8.                                       Under IFRS, the Company records its 10% Senior Notes and the debt component of its 4% Convertible Notes and 5% Mandatory Exchangeable Notes net of un-amortized financing fees incurred to acquire these debts. Under U.S. GAAP, these financing fees are capitalized as a deferred charge. The amount that is reclassified as an asset in the balance sheet as of March 31, 2005, is $22,602,000 (December 31, 2004: $19,005,000), comprised of $13,137,000 for the 10% Senior Notes (December 31, 2004: $13,371,000), $4,225,000 for the 4% Convertible Notes (December 31, 2004: $nil) and $5,240,000 for the 5% Mandatory Exchangeable Notes (December 31, 2004: $5,634,000).

 

9.                                       For U.S. GAAP purposes, Millicom ceased amortization of existing goodwill on December 31, 2001. Under IFRS, Millicom ceased the amortization of goodwill on December 31, 2004. For the three month period ended March 31, 2004, Millicom reversed $1,823,000 of amortization on goodwill and negative goodwill charged under IFRS. In addition, in accordance with Statement of Financial Accounting Standard No. 141 (SFAS 141), Business Combinations, negative goodwill in the amount of $3,660,000 on the purchase of an additional 25% of MIC Tanzania in February 2004 has been reassigned on a pro rata basis to all acquired assets, except some assets as specified in SFAS 141. For the three month period ended March 31, 2005 cost of sales under U.S. GAAP decreased by $302,000 (2004: $210,000) and other operating expenses by $4,000 (2004: $2,000) as a reversal of the incremental depreciation charge recorded for IFRS.

 

10.                                 Under IFRS, Millicom holds shares in Tele2 classified as financial assets at fair value through profit and loss (see Note 2). Under U.S. GAAP, these shares are classified as available for sale (“AFS”) and their fair value adjustments should be recorded in shareholders’ equity within the caption “Revaluation Reserve”. Accordingly, under U.S. GAAP, Millicom reclassified an unrealized loss of $55,512,000 for the three month period ended March 31, 2005 (March 31, 2004: reclassification of a net unrealized loss of $66,106,000 to shareholders’ equity).

 

20



 

11.                                 For U.S. GAAP purposes, the adjustments to the net profit under IFRS for the three month period ended March 31, 2004 related to the debt exchange that Millicom completed in May 2003 are as follows: (i) an amortization charge of the beneficial conversion feature (“BCF”) related to the 2% PIK Notes of $5,178,000, (ii) a decrease in the interest on the 2% PIK Notes of $1,391,000 recorded under IFRS and (iii) an amortization expense of $589,000 of the deferred costs related to the issuance of the 2% PIK Notes. Summarized below are the adjustments to the profit for the three month period ended March 31, 2004 related to the debt exchange for U.S. GAAP purposes:

 

 

 

Adjustments
to profit for
the three
month period
ended March
31, 2004

 

 

 

(Unaudited)

 

 

 

U.S.$’000

 

Amortization of BCF on the 2% PIK Notes

 

(5,178

)

Adjustment to interest expenses on the 2% PIK Notes

 

1,391

 

Amortization of incremental deferred costs

 

(589

)

 

 

(4,376

)

 

12.                                 Under U.S. GAAP the equity component of $39,109,000 of the 4% Convertible Notes is reclassified to the debt component of the 4% Convertible Notes. The incremental interest expense under IFRS for the three month period ended March 31, 2005 of $1,449,000 is reversed under U.S. GAAP.

 

13.                                 As at December 31, 2004 and March 31, 2005, Millicom classified its investment in its Peruvian subsidiary as an asset held for sale in accordance with SFAS 144, following a decision to sell this operation and the status of the negotiations with potential buyers. Due to unforeseen liquidity problems of the initial potential buyer, the subsidiary was not sold in the one-year period following the initial decision to classify the operation as an asset held for sale. During this initial one-year period Millicom initiated actions necessary to respond to this change in circumstances and Management pursued actively marketing the sale of its Peruvian operation. As of March 31, 2005 negotiations with a new potential buyer were well advanced and the parties have subsequently signed a non-binding agreement. Millicom is now finalizing the terms and conditions of the share purchase agreement with the identified buyer and expects the sale to be completed soon. In addition, upon adoption of FIN 46, as of March 31, 2004 Millicom classified its investment in its Argentinean operation, which had previously been recorded as an equity investment under U.S. GAAP, as an asset held for sale in accordance with Statement of Financial Accounting Standards No 144 (SFAS 144) prior to the divesture on September 22, 2004.

 

21



 

Presented below is an analysis of loss from discontinued operations:

 

Net profit (loss) from component qualifying as discontinued operations:

 

 

 

March 31, 2005

 

March 31, 2004

 

Segment in
which
reported

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

U.S.$’000

 

U.S.$’000

 

 

 

Peruvian operations

 

(244

)

(289

)

Other

 

Argentinean operations

 

 

1,945

 

Other

 

Net (loss) profit from discontinued operations, excluding Great Universal and Modern Holdings

 

(244

)

1,656

 

 

 

Certain operations held by Great Universal and Modern Holdings

 

 

(38

)

See item 14

 

Net (loss) profit reported from discontinued operations(a)

 

(244

)

1,618

 

 

 

 


(a)  The tax impact of these items is $nil (2004: $nil).

 

The table below provides information about revenues, cost of sales, operating expenses, operating profit and net profit under U.S. GAAP for the three month period ended March 31, 2005 and 2004 from continuing operations excluding the discontinued operations above:

 

 

 

March 31, 2005

 

March 31, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

U.S.$’000

 

U.S.$’000

 

 

 

 

 

 

 

Revenues from continuing operations

 

295,428

 

169,180

 

Cost of sales from continuing operations

 

(178,491

)

(69,476

)

Operating expenses and income from continuing operations

 

(69,526

)

(51,412

)

Profit reported from continuing operations

 

50,000

 

77,616

 

 

14.         Under International Accounting Standards No 27 (IAS 27), revised, Consolidated Financial Statements and Accounting for Investments in Subsidiaries potential voting rights that are presently exercisable or presently convertible must be considered when, in substance, they provide the capability to exercise control. Under IFRS, Millicom does not consolidate its investment in Great Universal (“GU”), and Modern Holdings (“Modern”) since the existence of warrants, which enable the holder to obtain 100% of GU and 53% of Modern, are presently exercisable and provide the capability, to the warrant holder, to control GU and Modern.

 

22



 

Prior to the adoption of FIN 46 on March 31, 2004 (as it relates to entities created prior to January 31, 2003), under U.S. GAAP an entity should consolidate all enterprises in which it has a controlling financial interest. The usual condition for a controlling financial interest is ownership of a majority of the outstanding voting shares. Accordingly, absent of a reason that GU and Modern should not be consolidated, they should be consolidated. Under U.S. GAAP, potential voting rights are generally not considered in determining whether and entity should be consolidated. Upon adoption of FIN 46 (see item 1), GU and Modern continued to be consolidated. Therefore, under U.S. GAAP, both GU and Modern are consolidated.

 

15.                                 In December, 2004 the FASB issued Statement 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment.” Statement 123(R) replaces FASB Statement 123, “Accounting for Stock-Based Compensation”, supersedes APB Opinion 25, “Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows.” SFAS 123(R) requires all share-based awards to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant-date fair values. The related compensation costs are to be recognized over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits are to be recognized as an addition to paid-in capital and reflected as financing cash inflows in the statement of cash flows. We will adopt the prospective provisions of SFAS 123(R) to new and existing plans as of July 1, 2005. The grant-date fair values of unvested awards that are outstanding on the date of adoption will be charged to expense over their remaining vesting periods. We are currently assessing the impact that the implementation of SFAS 123(R) will have on our consolidated financial position or results of operations.

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets-an amendment of APB Opinion 29.” The guidance in Accounting Principles Board Opinion 29 (“APBO 29”), “Accounting for Nonmonetary Transactions,” is based on the general principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in APBO 29 included certain exceptions to that principle. SFAS 153 amends APBO 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance (that is, transactions where future cash flows are not expected to significantly change as a result of the exchange). We will adopt the provisions of SFAS 153 for non-monetary asset exchange transactions after December 31, 2005. We do not expect the adoption of SFAS 153 to have a material impact on our consolidated financial position or results of operations.

 

In March 2004, the EITF reached a consensus on EITF Issue 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” EITF 03-1 addresses the meaning of other-than-temporary impairment and its application to investments in debt and equity securities accounted for under Statement of Financial Accounting Standards (“SFAS”) 115, “Accounting for certain Investments in Debt and Equity Securities,” and to investments in equity securities accounted for using the cost method, as well as new disclosure requirements for investments that are deemed to be temporarily impaired. EITF 03-1 currently provides a multi-step model for determining whether an impairment of an investment is other-than-temporary, and requires that an impairment charge be recognized in earnings in the period in which an other-than-temporary impairment has occurred based on the difference between the adjusted cost basis of the investment and its fair value at the balance-sheet date. EITF 03-1 requires certain quantitative and qualitative disclosures about unrealized losses pertaining to certain investments and beneficial interests, in addition to certain disclosures about cost method investments when the fair value of such investments is not currently estimable. While the disclosure requirements for specified debt and equity securities and cost method investments are effective for annual periods ending after December 15, 2003, the FASB has delayed the effective date for the application of multi-step measurement and recognition guidance until issuance of implementation guidance contained in FSP EITF 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment

 

23



 

and Its Application to Certain Investments.” Since we have recorded a significant impairment on our Tele2 shares as of December 31, 2002, the current cost of these securities is significantly lower than their market value, therefore we do not expect the adoption of EITF No. 03-1 to have a material impact on our consolidated financial position or results of operations.

 

16.                                 As a result of the adoption of IFRS 2 (see Note 2), Millicom has restated its net profit under IFRS from $14,730,000 to $14,570,000.  Accordingly, we have restated the adjustment to compensation cost for stock options granted to employees (item 5) from $(119,000) to $41,000 for the three month period ended March 31, 2004.  In addition, Millicom reclassified an amount of $2,862,000 from the line “cumulative effect of change in accounting principle” to the line “Consolidation of GU and Modern” as a result of the inclusion of GU and Modern in the U.S. GAAP reconciliation.

 

24



 

Reconciliation of statement of profit and loss for the period ended March 31, 2005 and reconciliation of net profit for the period ended March 31, 2005 and 2004:

 

The above items give rise to the following differences in the statement of profit and loss for the three month period ended March 31, 2005 recorded under U.S. GAAP:

 

Three months ended
March 31, 2005
(Unaudited)

 

Item

 

Per IFRS
Profit and Loss

 

Consolidation of
VIEs and
Proportional
Consolidation
Adjustment (a)
(Item 1)

 

Other
Adjustments

 

Discontinued
operations
(Item 13)

 

Under
U.S. GAAP

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

US$ ‘000

 

US$ ‘000

 

US$ ‘000

 

US$ ‘000

 

US$ ‘000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

6

 

268,891

 

27,052

 

146

 

(661

)

295,428

 

Cost of sales

 

6, 7, 9

 

(139,244

)

(14,987

)

(24,677

)

417

 

(178,491

)

Gross profit

 

 

 

129,647

 

12,065

 

(24,531

)

(244

)

116,937

 

Sales and marketing

 

6

 

(39,697

)

(4,227

)

29,902

 

96

 

(13,926

)

General and administrative expenses

 

4,5

 

(43,821

)

(4,995

)

951

 

366

 

(47,499

)

Gain from sale of subsidiaries and joint ventures, net

 

 

 

222

 

 

 

 

222

 

Other operating expenses

 

 

 

(7,886

)

(1,102

)

4

 

 

(8,984

)

Other operating income

 

 

 

661

 

 

 

 

 

 

 

661

 

Valuation movement on Tele2 shares

 

10

 

(55,512

)

 

55,512

 

 

 

Fair value result on the Embedded derivative on the 5% Notes

 

 

 

26,225

 

 

 

 

26,225

 

Interest expense

 

12

 

(33,287

)

(630

)

1,449

 

4

 

(32,464

)

Interest income

 

 

 

4,919

 

8

 

 

(2

)

4,925

 

Exchange gain, net

 

 

 

19,693

 

(150

)

 

(1

)

19,542

 

Profit from associates

 

6

 

62

 

7,234

 

(13

)

 

7,283

 

Profit before taxes and minority interest

 

 

 

1,226

 

8,203

 

63,274

 

219

 

72,922

 

Charge for taxes

 

6,7

 

(11,968

)

146

 

(1,903

)

25

 

(13,700

)

(Loss)/profit before minority interest

 

 

 

(10,742

)

8,349

 

61,371

 

244

 

59,222

 

Minority interest

 

6,7

 

(521

)

(7,781

)

(920

)

 

(9,222

)

(Loss)/profit from continuing operations

 

 

 

(11,263

)

568

 

60,451

 

244

 

50,000

 

Loss from discontinued operations, net of tax

 

13

 

 

 

 

(244

)

(244

)

Net (loss)/profit for the period

 

 

 

(11,263

)

568

 

60,451

 

 

49,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity holders of the Company

 

 

 

(11,263

)

568

 

60,451

 

 

49,756

 

Minority interest

 

6,7

 

521

 

7,781

 

920

 

 

9,222

 

 

 

 

 

(10,742

)

8,349

 

61,371

 

 

58,978

 

 


(a)  this column includes only the IFRS amounts applicable;  US GAAP adjustments related to these amounts are included in succeeding columns.

 

25



 

The above items give rise to the following differences in net profit for the three month period ended March 31, 2005 recorded under U.S. GAAP:

 

 

 

Item

 

March  31, 2005

 

March 31, 2004

 

 

 

 

 

(Unaudited)

 

(Unaudited)(i)

 

 

 

 

 

U.S.$’000

 

U.S.$’000

 

 

 

 

 

 

 

 

 

Net (loss) profit for the period attributable to the equity holders of the Company reported under IFRS

 

 

 

(11,263

)

14,570

 

Items increasing/(decreasing) reported profit:

 

 

 

 

 

 

 

Consolidation of GU and Modern

 

1,14

 

704

 

(1,593

)

Elimination of negative minority interest

 

1

 

(136

)

 

Application of equity method of accounting

 

2

 

 

21

 

Adjustments to initial step-up in the value of licenses

 

4

 

513

 

568

 

Adjustments to compensation cost for stock options granted to employees

 

5

 

438

 

41

 

Adjustments to connection revenues and connection costs, net of tax

 

6

 

52

 

(1,132

)

Adjustments to impairment of property, plant and equipment

 

7

 

2,181

 

132

 

Reversal of goodwill amortization

 

9

 

 

2,035

 

Reversal of incremental depreciation charge

 

 

 

306

 

 

Reclassification to shareholders’ equity of fair value adjustments on securities

 

10

 

55,512

 

66,106

 

Adjustments related to debt exchange

 

11

 

 

(4,376

)

Adjustment to interest expense on the 4% Convertible Notes

 

12

 

1,449

 

 

Profit after taxes before cumulative effect of change in accounting principle

 

 

 

49,756

 

76,372

 

Cumulative effect of change in accounting principle

 

1,14

 

 

2,865

 

Net profit under U.S. GAAP

 

 

 

49,756

 

79,237

 

 


(i)  As restated, see item 16.

 

Presented as:

 

 

 

 

 

 

 

Net profit from continuing operations

 

 

 

50,000

 

74,754

 

Discontinued operations:

 

13

 

 

 

 

 

Profit (loss) from discontinued operations, net of taxes (a)

 

 

 

(244

)

1,618

 

Profit after taxes, before cumulative effect of change in accounting principle under U.S. GAAP

 

 

 

49,756

 

76,372

 

Cumulative effect of change in accounting principle

 

 

 

 

2,865

 

Net profit under U.S.GAAP

 

 

 

49,756

 

79,237

 

 


(a)  The tax impact of these items is $nil in 2005 and 2004.

 

 

 

 

 

March 31, 2005

 

March 31, 2004

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

Basic profit per common share

 

 

 

 

 

 

 

Profit per common share under U.S. GAAP:

 

 

 

 

 

 

 

from continuing operations

 

 

 

0.50

 

1.14

 

from discontinuing operations

 

13

 

 

0.02

 

Profit per common share after taxes, before cumulative effect of change in accounting principle

 

 

 

0.50

 

1.16

 

Impact of cumulative effect of change in accounting principle

 

 

 

 

0.04

 

Basic profit per common share under U.S. GAAP

 

 

 

0.50

 

1.20

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding in the period (in ‘000)

 

 

 

98,637

 

65,963

 

 

26



 

 

 

 

 

March  31,2005

 

March 31, 2004

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

Diluted profit per common share

 

 

 

 

 

 

 

Profit per common share under U.S. GAAP:

 

 

 

 

 

 

 

from continuing operations

 

 

 

0.49

 

0.93

 

from discontinuing operations

 

13

 

 

0.02

 

Profit per common share after taxes, before cumulative effect of change in accounting principle

 

 

 

0.49

 

0.95

 

Impact of cumulative effect of change in accounting principle

 

 

 

 

0.04

 

Diluted profit per common share under U.S. GAAP

 

 

 

0.49

 

0.99

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding in the period (in ‘000)

 

 

 

104,603

 

79,930

 

 

27



 

Balance Sheet Reconciliation:

 

The following significant balance sheet differences arise under U.S. GAAP as of March 31, 2005:

 

Balance sheet
as of March 31, 2005 (Unaudited)

 

Item

 

Per IFRS
Balance
Sheet
(Unaudited)

 

Consolidation
of VIEs and
Proportional
Consolidation
Adjustment (a) (Item 1)
(Unaudited)

 

Other
Adjustments
(Unaudited)

 

Held for sale
assets and
liabilities
(Item 13)
(Unaudited)

 

Under
U.S. GAAP
(Unaudited)

 

 

 

 

 

U.S.$’000

 

U.S.$’000

 

U.S.$’000

 

U.S.$’000

 

U.S.$’000

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill, net

 

3, 9

 

45,329

 

11,173

 

27,287

 

 

83,789

 

Licenses, net

 

4

 

269,911

 

4,109

 

(5,006

)

(165

)

268,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other intangibles net

 

8

 

2,513

 

(145

)

22,602

 

(21

)

24,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

7,9

 

545,432

 

47,187

 

7,020

 

(1,324

)

598,315

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Tele2 AB shares