30 Apr 2010 18:00
GRUPO CLARÍN S.A.
2009 ANNUAL REPORT
To the Shareholders of
Grupo Clarín S.A.
We hereby submit to your consideration the Annual Report and Exhibit, the Balance Sheet, the Statement of Income, the Statement of Changes in Shareholders' Equity and the Statement of Cash Flows, and the Notes and Exhibits of Grupo Clarín S.A. (hereinafter, "the Company" or "Grupo Clarín") for fiscal year No. 11 ended December 31, 2009 and the Consolidated Financial Statements as of December 31, 2009.
The main subsidiaries in which Grupo Clarín S.A. has a direct or indirect controlling interest are: Arte Gráfico Editorial Argentino S.A. (AGEA), Artes Gráficas Rioplatense S.A. (AGR), Compañía Inversora en Medios de Comunicación S.A. (CIMECO), Cablevisión S.A., Primera Red Interactiva de Medios Argentinos (PRIMA) S.A., Contenidos de Medios Digitales S.A. (CMD), Arte Radiotelevisivo Argentino S.A. (ARTEAR), GC Gestión Compartida S.A., Inversora de Eventos S.A. (IESA) and Radio Mitre S.A., among others.
MACROECONOMIC ENVIRONMENT
During 2009 and as in the case of most developed and emerging countries, Argentina underwent what was considered the most severe international financial crisis since the Great Depression. The effects of the crisis, which were underestimated locally, consisted mainly of a collapse of the productive activity and a strong destruction of employment, asset value and foreign trade.
Unlike other external negative shocks, the crisis found the Argentine economy with reserves at the Central Bank and current and fiscal account surpluses. These buffers allowed our country to deal simultaneously with the international crisis and the serious domestic problems that were building up before the crisis, such as the high and sustained outflow of foreign currency from the private sector and the lack of access to voluntary financing for the public sector.
The extraordinary drought that affected the agricultural sector and the mid-term elections (with the natural controversy that resulted from their unexpected early rescheduling) worsened this already complex scenario.
To face the adverse effects of the international crisis, Argentina adopted expansive economic policies, in line with the most countries. However, the lack of a counter-cyclical reserve fund and the inability to obtain financing from the sovereign debt voluntary market limited the extent of the most significant (i.e. fiscal) stimulus.
A brief review of the results of the fundamental economic variables reveals that the country was able to cushion only in part the cumulative collateral damage of the international crisis and local uncertainty. In fact, in 2009 Argentina experienced an abrupt slowdown in its economic growth rate (which decreased between three and four percentage points). This slowdown was more pronounced than that of other comparable countries in the region, such as Brazil (whose GDP growth rate did not decrease) or Chile (whose GDP growth rate is estimated to have fallen by approximately 1.5%).
In addition to a greater decrease in its GDP, Argentina again recorded a higher inflation rate, on average, than other countries in the region. The decrease in productive activity curbed the inflation rate somewhat, but not enough to bring inflation down to reasonable levels, with the consequent direct impact on social indicators. According to private estimates, the inflation rate in 2009 was of approximately 15%, that is, eight percentage points lower than in 2008, but almost double the 7.7% official rate published by the INDEC. At the end of 2009, unemployment and poverty rates stood at 11% and 35% respectively, exceeding the previous year's records.
Along with the productive activity slowdown and the inflationary deceleration, the current and fiscal account surpluses were also adjusted negatively. The value of exports in 2009 fell by 20%, mainly as a result of their high sensitivity to the agricultural commodities cycle.
This decrease occurred in spite of the controlled depreciation in the nominal value of the Argentine peso, which was another distinctive feature of the local accommodation to the global readjustment process. In real terms, at the end of 2009 the Argentine currency showed a remarkable depreciation (of more than 20%) relative to the currency basket of its main trading partners.
The collapse of exports did not have a negative impact on the genuine generation of foreign currency in the economy. In fact, the external trade surplus (estimated at almost USD17 billion) broadened as a result of the higher decrease in the level of imports.
The sustained growth of government expenditure over revenues (+30% against +19% in 2009) resulted in the collapse of the primary fiscal surplus, which in consolidated terms, decreased from a high of 5.2% of GDP in 2004 to only 1.1% in 2009. This collapse is mainly attributable to the federal government, whose fiscal surplus fell from 3.9% of GDP in 2004 to an estimate of only 1.6% of GDP in 2009. If one were to offset this figure by leaving out the funds received by the federal government from the nationalization of the social security system, the extraordinary contributions in Special Drawing Rights (SDR) that Argentina received as member of the IMF and the distributions received from the BCRA; the aforementioned primary surplus would become a deficit of approximately 1% of GDP. Notably, this result was achieved in spite of the significant additional inflow of revenues received by the federal government from the nationalization of the private pension funds (AFJP) and the application of a record-high aggregate tax pressure.
Therefore, for the first time since 2003, the primary fiscal surplus was not sufficient to service debt interest, resulting in a significant financial deficit in 2009. As a consequence of the lack of access to voluntary financing from debt markets, this deficit was funded through domestic sources (the Central Bank and other public agencies).
The fiscal deterioration is estimated to be even worse in the provinces. Due mainly to the fiscal imbalance of the province of Buenos Aires, in 2009 the primary deficit is believed to have fallen to almost Ps. 6 billion or Ps. 9 billion after interest. This last figure almost triples that recorded in 2008. Without access to voluntary financing from debt markets, many provinces had to resort to the federal government's financial assistance.
Perspectives for the Upcoming Year
During the last months of 2009, worldwide economic growth resumed its positive cycle, supported by the strong public policies that removed the concerns over a systemic global financial meltdown. Driven by this incipient improvement, the local economy also started to show a certain recovery. This trend is expected to continue throughout 2010.
The agricultural sector and the automobile industry are expected to be the most important pillars of the local recovery. In fact, after the strong contraction of more than 35% registered in the 2008/2009 economic cycle, the volume of the crop harvest in general and the soybean harvest in particular are expected to show a clear growth. These factors, along with a recovery in the prices of agricultural commodities will contribute to a new growth in the value of exports in 2010. This should lead to an increased current account surplus and to higher fiscal revenues from export duties. The automobile industry is also expected to grow, driven by the strong demand from Brazil: unlike crop harvest volumes, the volume of automobile production is expected to recover pre-crisis levels.
Naturally, the new projected environment stresses inflationary pressures in an economy which already shows inertial price acceleration and now lacks a surplus from the public sector to minimize the likelihood of spiralization. Thus, the projected inflation for the year (market consensus expects a floor of 17%) revives the struggle over the distribution of income and is a limiting factor to the sustainability of the GDP recovery path.
The same applies to fiscal policy, which generates uncertainty over sovereign debt service capacity. In other words, the decision to continue to increase public expenditure (currently higher than 35% of GDP, already a record high) above the level of revenues - with the immediate consequence of further impairing government savings without genuine financing sources in sight - has a limit and, at some point, will start to be countered by a significant increase in capital flight, the ultimate measure of the level of confidence in the health of the economy.
In summary, even though local economic activity is ready to take off, the prevailing uncertainties condition the rebound because they represent a burden that inhibits the perspectives for the recovery of reproductive investments and employment. The high level of social conflict and the growing institutional (and now also fiscal) weakness are factors that contribute to the extremely complex scenario that prevails in the Argentina of the Bicentennial.
THE YEAR 2009 AND THE MEDIA SECTOR IN ARGENTINA
Following the fall of one of its main sources of financing (i.e., advertising, which is highly sensitive to the economic cycle) and the leverage of some of its segments, the worldwide media industry was affected by the deep crisis most countries underwent in 2009. The decrease in profitability and in the value of this industry's assets over the year, paired with the withdrawal of investments, clearly reflected that trend.
As expected, the impact was far from homogeneous among countries, companies and segments, based on the sharp economic recession and the specific weight of advertising over GDP and each segment's revenue structure. However, the overall economic uncertainty that prevailed during the year under analysis was an additional focus of concern for this industry, which was already facing several challenges arising from the ongoing emergence of new technologies and the changes in the media consumption patterns of the new generations.
For the economy and the local media industry, 2009 brought signs of deterioration and concern. During this year, the country had to face an international financial crisis, considered as the most severe since the Great Depression and, at the same time, continued to deal with the domestic problems existing before the crisis.
A brief review of the crisis and the signs of uncertainty at the local level reveals that in 2009 the economy, according to private estimates, experienced a slowdown in the productive activity and consumption of approximately three to four percentage points, and registered an inflation rate of approximately 15%. These percentages are higher than those of other reference countries in the region. Certain social indicators, such as unemployment and poverty, were also affected.
The aforementioned "stagflation" environment (stagnation and high inflation) reduced the economic capacity of consumers (particularly, of those in the lower socioeconomic strata) and advertisers, reducing the consumption of certain paid media and increasing the consumption of free media.
The reduction in the consumption of paid media was evidenced by slowdown in the growth rate of paid television subscriptions. A clear example of the increase in free media consumption was the increasing number of visits to websites with content development, particularly news sites, with the newspapers in the top ranks. As a logical consequence, the increased number of readers of digital newspapers, along with the increased offering of news signals offered on television, helped to reinforce the downward structural trend of the quantity of newspapers in paper format.
The performance of high-speed broadband connections is an exception in this environment: the preference of local consumers for this service made it grow in all of its range of products, thus preserving its carryover dynamics.
Large private advertisers, affected by the economic situation, also reduced their advertising budgets. However, local advertising investment, increased by larger investments in mid-term election campaigns, fell in real terms to a lower extent than in other countries with similar real GDP drops (such as Spain and the US, where it fell by 15 or 20%). In spite of this, this variable showed, for the third consecutive year, an interannual nominal increase slightly lower than that of the inflation rate estimated by the private sector.
As a consequence of its reduced exposure to advertising, the cable TV segment was less vulnerable to the crisis. Leveraged by the increasing penetration of additional services, which allowed a high level of investment aimed at enlarging network capacity, paid television subscribers reached 7 million by the end of the year. Thus, it continued to grow in terms of volume, in spite of the adverse environment.
The Internet access segment remained dynamic. In fact, by the end of the year, residential broadband Internet access reached a new record high of approximately 4 million subscribers, in an environment of tough competition given by the aggressive promotional offers of the main players. The main limiting factors on this front are the low local PC penetration and hardware's high cost relative to other countries.
Nevertheless, it is important to note that broadband, a relevant factor in a country's competitiveness -since it helps to increase labor productivity and to increase and improve access to education- again increased its penetration in Argentine households.
Regulatory framework and conditions for the journalistic and media activity
In addition to the aforementioned, during 2009 the private media in general and Grupo Clarín in particular had to face an escalating level of harassment that is unprecedented since the restoration of democracy. Such harassment was executed through the official and para-official apparatus, with the clear intention of damaging the media's reputation and directly and indirectly limiting its journalistic activities.
In the framework of this escalation, the government reinforced certain actions that threaten and distort the full effectiveness of freedom of speech and information, such as the exponential increase and discriminatory distribution of official advertising used to create and sustain addict media; the several obstacles and discriminatory conduct in the access to public information, the remarkable shortage of press conferences or the sectarian handling of public media as tools of official advertising and stigmatization of independent media, editors and journalists.
Regarding public media or companies close to the governing party, this situation also resulted in the forced displacement of journalists. These facts took place within the framework of an official speech addressed to the private media loaded with claims to pluralism and independence in journalism and ongoing defamatory remarks about the press.
This discrediting and defamatory strategy was painfully reflected in aggravating street banner and graffiti campaigns, in persecution, espionage and phone-tapping actions against media, editors and journalists, and went so far as to include the financing of soccer hooligans arranging banners against the media to be displayed in soccer stadiums.
Other tools to exert editorial pressure consisted of abuse of bureaucratic controls or controls by public agencies. Tax control mechanisms were used as indirect means to intimidate the media, such as the inspection carried out by more than 200 tax revenue service ("AFIP") inspectors at Diario Clarín's premises and at the residence of its directors on September 10, 2009. The inspection was excessive and threatening and, suggestively, took place a few hours after the newspaper published information on an alleged case of corruption involving the head of the AFIP. This unusually intimidating incident was broadcast by many concerned media from all over the world.
With the same arbitrary attitude, shortly before that, the government favored the unilateral rescission and virtual nationalization of the agreement executed between the Asociación del Fútbol Argentino (Argentine Football Association) and TSC -a company in which one of the Company's subsidiaries has an interest- governing the broadcasting rights of the Argentine soccer first division official tournament. This action was carried out with the controversial and excessive financial support of the government, which secured for itself the control over soccer programming as a propaganda tool, while shifting the cost of soccer from a pay per view scheme to one funded with public funds of questionable sustainability.
In the audiovisual sector, this offensive against the media (against both, its editorial freedom and its economic sustainability, which guarantees its independence) had as its utmost expression the enactment of the controversial Audiovisual Communication Services Law. This law was challenged by the judiciary for irregularities in its enactment procedure as well as for its substance. The new Audiovisual Communication Services Law has been condemned for infringing constitutional rights, granting broad and discretionary powers over media and content to the Executive Branch, favoring official voices and affecting the sustainability of private media, promoting the elimination of independent signals and establishing dangerous indirect censorship criteria through the arbitrary granting of licenses and the application of penalties, among other controversial aspects.
Since its enactment in October 2009, five court rulings have been issued providing for the suspension of the so-called broadcasting law as a whole or some sections thereof.
In mid-December there was a first court decision challenging the constitutionality of the new broadcasting law. Judge Edmundo Carbone, from Federal Court No. 1, suspended the effectiveness of sections 161 and 41 by means of a preliminary injunction, upholding a request filed by the Company. Among other things, the ruling states that the section on compulsory retroactive divestitures violates the provisions of the Civil Code and infringes republican institutions like the freedom of press (Section 14 of the Constitution).
That same week, Federal Judge Miguel Antonio Medina from Salta accepted the class action brought by the Consumer Defense Committee and issued a preliminary injunction banning the application of several sections of the broadcasting law (Sections 45, 161, 62, 63, 64 and 65) on the basis of the restrictions that such sections would impose on the TV and radio programming offering in the provinces due to the limitations imposed on the number of licenses held by media companies, on the chain broadcasting of programming and the adjustment of the media companies to the new law.
The judiciary also echoed the irregularities in the procedure to pass the law. Olga Pura de Arrabal, a federal judge from the province of Mendoza, issued another preliminary injunction providing for the suspension of the application and execution of the broadcasting law in the whole country, at the request of Enrique Luis Thomas, a national representative from the province of Mendoza. The judge considered that "there was prima facie evidence of a breach" of Sections 26, 110 and 113 of the rules of proceedings of the House of Representatives, that "compliance" of the broadcasting law with section 13 of the American Convention on Human Rights "is doubtful" and that the law "provides for and decides upon aspects that exceed the mere regulation of the broadcasting media", by governing aspects related to the freedom of press, on the basis of section 32 of the Constitution".
A Federal Judge from San Juan, Leopoldo Rago Gallo, issued another injunction suspending the application of six sections of the Audiovisual Communication Services Law (Sections 42, 43, 45, 46, 48 and 161) pending a ruling on the merits, as in the previous cases. In this decision, the judge partially granted the preliminary injunction requested by the Estornell group and others, stating that the law jeopardizes "fundamental rights such as the freedom of speech, acquired rights and the inviolability of the property right, all of them rooted in the constitution and protected by the treaties".
The fifth decision was rendered in March 2010. Again, it suspended the effectiveness of the entire broadcasting law. The decision is a preliminary injunction issued by the Federal Judge from Salta, Miguel Medina, on the basis of the irregularities found in the procedures to pass the law, and in response to a legal action brought by Representative Beatriz Daher, of the Federal Peronist party. The judge ordered the Executive Branch and the enforcement authority of the Audiovisual Communication Services Law to "refrain" from applying it "in its entirety and from carrying out administrative acts or acts to execute such law until a final decision is rendered thereon".
The successive court decisions evidence the highly questionable nature of the Audiovisual Communication Services Law. Legislators from most of the political spectrum have stated their intention to review the law under the new composition of Congress.
In spite of the existence and full effectiveness of said court decisions against the law, the government seeks to move forward with the implementation thereof in an authoritarian and overwhelming manner. This ratifies all the warnings about the potential danger of editorial control by an enforcement authority that is not independent. Even though the law has been suspended, the government has ordered the implementation of a survey to review and organize radio and TV licenses.
At the same time, in 2009, the offensive against independent media and free journalism continued to take very diverse forms, including the measures adopted by trade unions related to the government, which tried to prevent newspaper distribution by blockading printing facilities. Several official agencies also sought to control paper, the basic input for newspaper production.
The government's attempt to gain control of the paper industry has worsened over the last months, through several administrative measures that sought to hinder the management of Papel Prensa. Papel Prensa supplies approximately 95% of the Argentine newspapers and the Company indirectly holds a 49% equity interest in that company. The government has tried to interfere with Papel Prensa's business practices, bring legal actions against it and, ultimately, pave the way for an intervention, according to a plan that the Secretary of Domestic Trade disclosed to directors and statutory auditors in Papel Prensa, who were violently threatened if they disclosed information on the official intention to act against the Company.
In this scenario, the government did not hesitate to exert pressure on entities such as the Argentine Securities Commission and the Financial Information Unit, causing the resignation on any members and renowned officials of such agencies who refused to start unfounded investigations on Papel Prensa and Grupo Clarín.
These and other deplorable actions that are not in line with the expected attitude of a democratic government towards the press were part of the challenging scenario in which private and independent media operated in 2009.
THE COMPANY. ORIGIN, EVOLUTION AND PROFILE
Grupo Clarín is the most prominent and diversified media group in Argentina and one of the most important in the Spanish-speaking world. The Company is organized and operates in Argentina, and its controlling shareholders and management are Argentine. Grupo Clarín is present in the Argentine printed media, radio, broadcast and cable television, audiovisual production, the printing industry and Internet access. Its leadership in the different media is a competitive advantage that enables Grupo Clarín to generate significant synergies and expand into new markets. Substantially all of Grupo Clarín's assets, operations and clients are located in Argentina, where it generates most of its revenues. The Company also carries out operations at a regional level.
Grupo Clarín and its subsidiaries have approximately 15,000 employees and, by the end of 2009, reached annual consolidated revenues of Ps. 6,678.8 million.
Grupo Clarín's history dates back to 1945, the year in which Roberto Noble founded the newspaper Clarín of Buenos Aires ("Diario Clarín"), with the goal of becoming a mass and quality newspaper, privileging information and committing to the comprehensive development of the country. Diario Clarín has been led by his wife, Ernestina Herrera de Noble, since 1969. It became the flagship national newspaper and has consolidated its position throughout the years thanks to the work of its journalists and the loyalty of its readers. Diario Clarín is now one of the Spanish-language newspapers with the highest circulation in the world.
Grupo Clarín has been one of the main actors in the changes undergone by the media worldwide. It has incorporated new and varied printing activities and decided to embrace technological developments, investing to reach its audiences through new platforms and channels and through new audiovisual and digital languages.
In this way, Grupo Clarín entered the radio and television sectors. Today, it is the owner of one of the two leading broadcast television channels in Argentina (ARTEAR/Canal Trece) and of AM/FM broadcast radio stations. Along with the newspaper, these media are recognized as the most credible and considered leaders of Argentine journalism in one of the most diverse media markets in the world. For example, only in Buenos Aires, the Company's media compete in a market that has five broadcast television stations, 550 radios, and 12 national newspapers.
Grupo Clarín also publishes Olé, the first and only sports daily in Argentina; the free newspaper La Razón and the magazines Ñ, Genios, Jardín de Genios, Pymes and Elle, among other publications. Through CIMECO the Company holds equity interests in the newspapers La Voz del Interior, Día a Día and Los Andes, in a market of approximately 200 regional and local newspapers. The Company also holds an equity interest in a national news agency (DyN). In the audiovisual arena, the Company also produces one of the five cable news signals (TodoNoticias), and the signals Volver and Magazine, among others, sports channels and events (TyC Sports), television series and motion pictures (through Pol-ka, Ideas del Sur and Patagonik).
Another strength lies in its strategic stake in the content distribution sector, through cable television and Internet access. Since the beginning of Multicanal's operations in 1992 and after the recent acquisition of a majority interest in Cablevisión, Grupo Clarín has created one of the largest cable television systems in Latin America in terms of subscribers. In Argentina, Cablevisión is the first among 700 operators and always competes with other cable or satellite options. Also, through Fibertel, it provides high speed Internet services and has one of the largest subscriber bases in a highly competitive market. In line with the global trend, Grupo Clarín has committed itself to expanding digital content production. Grupo Clarín's Internet portals and sites receive more than half of the visits to Argentine websites.
In 1999 Grupo Clarín was incorporated as an Argentine sociedad anónima, a corporation with limited liability. It gradually opened its capital to other participants and, since October 2007, it is listed in the Buenos Aires Stock Exchange and in the London Stock Exchange. It takes pride in having grown in Argentina, in being a source of influence on a local level in an increasingly transnational market with a size that enables it to compete without losing strength among large international players.
Grupo Clarín's investments in Argentina in the last 20 years have been very significant, always focused on journalism and the media. Its activities have contributed to the creation of an important Argentine cultural industry and generate qualified and genuine employment. Its vision and business model focus on investing, producing, informing and entertaining, preserving Argentine values and identity, and preserving business independence in order to ensure journalistic independence.
In relation to its mission and values; since its foundation, Grupo Clarín has undertaken intense community activities. Grupo Clarín, together with the Noble Foundation, which was established in 1966, organizes and sponsors several programs and activities, particularly focused on education, culture and citizen participation. Furthermore, as an indication of its social responsibility throughout its history, Grupo Clarín focuses on the ongoing improvement of its processes and develops initiatives that arise from discussions with different stakeholders.
GRUPO CLARÍN AND ITS BUSINESS SEGMENTS IN 2009
In terms of results, Grupo Clarín and its business segments grew again in 2009 in a highly challenging context. In 2009, the Company consolidated the positive economic and financial performance trends of the previous years.
Net consolidated sales increased by 16.4%, from Ps. 5,736.1 million to Ps. 6,678.8 million.
Despite a moderate slowdown in growth owing to the macroeconomic environment, the growth in cable modem Internet access subscribers played a key role in the performance of subscription revenues. Sales of the remainder of the Company's products and services also increased.
The devaluation of the exchange rate from 3.45 to 3.84 had an impact on financial gains (losses).
By the end of 2009, Grupo Clarín's gross consolidated financial debt (including sellers financing, accrued interest and fair value adjustments) was approximately Ps. 2,600 million, while net consolidated debt was approximately Ps. 2,100 million, representing a decrease of 14.8% and 18.2%, respectively, compared to 2008.
The following is a description of the most significant events related to the situation and management of each of Grupo Clarín's business segments during 2009.
CABLE TELEVISION AND INTERNET ACCESS
Grupo Clarín operates, through Cablevisión, one of the main regional integrated cable television and broadband systems. This segment's revenues mainly derive from monthly subscriptions to basic cable television service and high-speed Internet access, as well as from advertising charges, premium and pay-per-view programming, digital package sales, DVR and sales of the magazine "Miradas".
Out of Grupo Clarín's total sales in 2009, the Cable television and Internet access segment was the Company's main revenue driver, with sales of Ps. 4,219.0 million, taking into consideration intersegment sales.
In terms of subscribers, by the end of 2009, the Company's cable television systems had approximately 3 million subscribers in Argentina and 191,500 in Paraguay and Uruguay. Also, Grupo Clarín had 983,300 Internet service subscribers. As of December 31, 2009 in most of the cities it operates, the monthly price of Cablevisión basic service was Ps. 106.80, including Value Added Tax. The price varies according to the system to which clients are subscribed and depends mainly on the number of channels offered in each system.
Regarding the geographic availability of Grupo Clarín's services, by the end of 2009, its network reached approximately 7.2 million households in Argentina and approximately 234,000 households in Paraguay and Uruguay.
Grupo Clarín provides services in the City of Buenos Aires and suburban areas, as well as in the provinces of Buenos Aires, Santa Fe, Entre Ríos, Córdoba, Corrientes, Misiones, Salta, Chaco, La Pampa, Neuquén and Río Negro. Regionally, Grupo Clarín also operates in Uruguay and Paraguay.
In 2009, the Company informed that it had fulfilled the undertakings voluntarily assumed by Grupo Clarín and Cablevisión in 2007 with the National Antitrust Commission.
Cablevisión informed that it had exceeded its undertaking to expand the scope of its paid television and Internet access services by developing its networks, increasing the availability of its digital services and extending an optional social service of digital paid television with a reduced subscription to a larger extent than that stated in the undertaking. Cablevisión also fulfilled its undertaking to provide free connection to the basic paid television service to the respective municipal, provincial and national public agencies and other public welfare organizations. The company also reported that it had fulfilled its undertaking regarding the free availability of in-house television signals, the location of competing signals in the programming grid and the reasonable provision of news, sport and entertainment signals.
In 2009, the Supreme Court finally confirmed Cablevisión's out-of-court financial restructuring ("APE"). The Court decided not to intervene in the review of the ruling that confirmed the APE, by rejecting an appeal filed by the government's attorney and a creditor. Cablevisión's APE was judicially confirmed in 2004 and was one of the most successful and supported debt refinancing agreements in the recent history of Argentina. It was approved by creditors with claims representing the 99.9% of the total restructured debt and was only challenged by creditors with holdings for a total nominal amount of USD 30,000, over a total amount of USD 1 billion involved in the restructuring. On October 28, 2009, First Instance Commercial Court No. 11 ruled that Cablevisión's APE had been completed pursuant to section 59 of Law No. 24,522.
Networks
Cablevisión's network's backbone consists entirely of fiber optic cable. The bi-directional service network's architecture and the new networks rely on a fiber to service area ("FSA") design, which combines cable network fiber trunks with coaxial cable extensions and permits bi-directional transmission.
By the end of 2009, out of the total homes passed by Cablevisión's network, more than 57.3% were passed by its 750Mhz bi-directional broadband. Cablevisión is constantly increasing such capacity. Its 750MHz networks are designed to provide high-quality cable television services and also to be used as a platform for additional services and products, including modems for Internet access and telephony services.
During this year, progress was made in the development of an intercity digital network relying on a fiber optic infrastructure. This network or "Intercity Backbone' allows for the interconnection between the main operations in the provinces with the AMBA (City of Buenos Aires and its surrounding areas) network. Such a network reduces costs in the provision of Internet services to cities in the provinces, enables the implementation of broadband services in new cities and provides sufficient broadband capacity and reliability to broadcast digital video signals to the main cities in the provinces.
Programming, Cable Television and Internet Services
Cablevisión offers subscribers a basic service plan including up to 120 programming signals, depending on the capacity of the local network. It offers basic and premium programming from more than 25 providers and broadcast television stations of the City of Buenos Aires. Most of the programming contracts include pricing terms denominated in Argentine Pesos generally linked to the number of subscribers.
By paying an additional fee and renting a digital decoder, Cablevisión subscribers receive premium packages and pay-per-view programming that include additional movie signals and adult programming, among other products.
During 2009, upon the nationalization and unilateral termination by the AFA of the agreement executed with subsidiaries of Grupo Clarín that granted the broadcasting rights of the Argentine first division official tournament matches, premium sports programming services had to be discontinued.
In order to increase premium offerings of interactive services and also to reduce piracy through digital technology, during 2009, Cablevisión continued to enhance coverage and offered Premium digital video services to more cities in the provinces. As of December 31, 2009 there were approximately 473,300 digital set top units for Premium service in all of Cablevisión's operational regions.
Cablevisión has recently launched a high definition signal package (HD) as well as state-of-the-art digital set top units with digital video recorder (DVR). During 2009, Cablevisión added signals to the HD package in order to enhance this product's offering. It also enhanced coverage to offer its HD and DVR services to the cities of Rosario, Córdoba, Santa Fe, Mar del Plata, Campana, Zárate and La Plata.
As to Internet access services, Cablevisión offers products specially designed to meet the needs of both residential and corporate users. The products offered comprise high-speed cable modem Internet access through its 750 MHz network under the FiberTel brand, and ADSL, dial-up and telephony services under the brands Flash, Datamarkets and Vontel.
In an environment of high competition among the main providers, Cablevisión and its subsidiaries maintained their prominence and share in the Internet connectivity market. This was thanks to the momentum created by its products through vigorous advertising campaigns, as well as the constant optimization of the already traditional quality of its connectivity services. One of the main differentiating features of FiberTel's connectivity service lies in the great broadband potential of its services compared to the more limited ADSL connectivity service offered by its main competitors. During 2009, Cablevisión carried out a series of projects to enhance the capability of its broadband service.
As of December 31, 2009, Cablevisión's Internet subscribers included 951,000 subscribers to cablemodem service, 22,500 subscribers to ADSL service, 11,800 subscribers to Dial Up service and 2,700 subscribers to services that use other broadband technologies.
During the year, progress was made on the implementation of its residential telephony platform. This project required a research and selection process for the platform provider. As a result of that process, Cablevisión selected Siemens-Nokia. By mid 2009, Cablevisión began its offering of telephony services and as of December 31 it had over 3,000 clients.
Commercialization and Customer Service
Cablevisión uses several market positioning mechanisms for its products and brands, including promotions, customer service centre locations, newsletters about the company, institutional information and programming through its websites. It advertises in the printing media and over its own broadcasting signals. Cablevisión publishes a free monthly guide distributed to its subscribers and also publishes an optional, monthly paid magazine called Miradas, which, during 2009, increased its monthly circulation to approximately 336,900.
Customer service is provided through an integrated service center offering round-the-clock support, with the aim of optimizing customer relationship. Although subscribers mainly contact customer service via telephone, they can also do it via Internet or in person in the numerous customer service locations available in each region. Subscriber base turnover rate for the year ended December 31, 2008 was 15.9%. Cablevisión added 101,900 subscribers to its base compared to 168,200 added in 2008 and, during the year, continued with its vigorous customer attraction and retention policy.
Strategy
The long-term business strategy for the cable television and Internet access segment involves an expansion of the cable television and Internet broadband connectivity subscriber base, improvements in technology, and broader investments intended to streamline a flexible network architecture serving as a platform for developing additional video Internet and voice services to realize the potential provided by technology convergence.
Legal and administrative proceedings
During 2009, some agencies subordinated to the National Executive Branch issued several rulings and carried out acts intended to affect legitimate rights and interests of Cablevisión S.A. and its subsidiaries that comprise the Cable Television and Internet Access segment. Within this systemic context, the Company decided to resort to existing legal remedies and to the effective legal framework in each of the matters involved to protect its rights and its equity as a whole.
Notwithstanding the detailed information in the Notes to the Financial Statements in each particular case, below are some brief comments on the most relevant examples that illustrate the abovementioned situation.
On September 3, 2009, the Federal Broadcasting Committee ("COMFER") issued Resolution No. 577/09, whereby it withheld the approval of the merger of Cablevisión and its subsidiaries and required Cablevisión to submit a plan to conform that company's licenses to alleged legal requirements. According to COMFER, the relinquishment of licenses spontaneously communicated by Cablevisión had been insufficient. The effects of this resolution and the term to submit the plan are currently suspended, pursuant to an effective preliminary injunction issued by the Federal Administrative Court in Administrative Litigation Matters No. 2.
With respect to Antitrust legal requirements, in 2009 the government carried out actions seeking to rescind the authorization granted unanimously by the National Antitrust Commission two years earlier, which had been subscribed by the very same Secretary of Domestic Trade in December 2007. By means of such resolution, Grupo Clarín and Fintech had been authorized to purchase, without conditions, shares representing Cablevisión S.A.'s capital stock, and Cablevisión S.A. had been authorized to purchase interests in Grupo Clarín subsidiaries.
The day following COMFER's issuance of Resolution No. 577/09, the National Antitrust Commission ("CNDC") issued Resolution No. 106/09, whereby it ordered an audit of Cablevisión to "articulate and harmonize" the several aspects of Resolution No. 577/09 issued by the COMFER, with the approval of the merger that had already been confirmed.
In view of the irregularities incurred by these two agencies, a preliminary injunction was issued on September 17 in the case entitled "Multicanal and Other v. Conadeco- Decree 527/05 and other on Proceeding leading to a declaratory judgment" providing for the suspension of the effects of Resolution No. 577/09 issued by the COMFER and Resolution No. 106/09 issued by the CNDC, until a final decision was rendered on these cases.
Such injunction was revoked by the Federal Administrative Court of Appeals, Clerk's Office No. 3, which in turn granted an appeal filed by Multicanal and Grupo Clarín. With the granting of that appeal, Cablevisión's preliminary injunction regained full force and effect. The appeal shall be heard by the Supreme Court.
At the same time and in spite of the quarterly reports filed by Cablevisión and its shareholders as evidence of compliance with the voluntary undertakings made at the time of approval of the acquisitions, the Secretariat of Domestic Trade ordered the CNDC to verify compliance with such undertakings. The CNDC carried out an audit of such compliance on a daily basis at the company's premises until the beginning of December, with the involvement of the Company's officers and directors.
On December 11, Cablevisión made an extensive filing with the CNDC evidencing that it had exceeded the requirements of its undertaking, and attaching reports from renowned independent professionals in each of the respective fields.
On December 15, the Federal Commercial and Civil Court, Clerk's Office No. 2 ordered the CNDC and the SCI to notify the results of their audit, once it had been concluded, so that the Company could exercise its defense rights, if necessary.
Notwithstanding the aforementioned, the CNDC issued Opinion No. 770 and the Secretariat of Domestic Trade issued Resolution No. 1011/09, declaring that the undertaking was deemed unfulfilled. Resolution No. 1011/09 ordered the rescission of the authorization of the acquisition and the CNDC was instructed to provide for the mechanisms to implement these decisions within sixty days.
Due to the untimely actions of these entities, the Company resorted to the courts again and new preliminary injunctions were issued to secure the due exercise of the defense right.
Finally, in its filing of February 19, 2010, Cablevisión requested the nullification of Opinion No. 770 and rejected all the accusations and allegations therein. Cablevisión also requested that the CNDC and the Secretariat of Domestic Trade be removed from the case, and produced evidence to prove compliance with each of the aspects of the undertaking. The Federal Court of Appeals in Commercial-Criminal Matters, Clerk's Office A, upheld the appeal filed by Grupo Clarín, removing the Secretary of Domestic Trade, Guillermo Moreno, from the case. The Court argued that there was "prejudgment" and instructed the replacement of Guillermo Moreno by another officer of the same rank.
On March 3, the Minister of Economy, Amado Boudou, issued Resolution No. 113, seeking to rescind the authorization granted unanimously by the CNDC in 2007. This action is null due to the arbitrary and illegitimate framework in which it was adopted and fails to comply with two court rulings that require that the legal proceedings and Cablevisión's defense right be observed and that no prejudgment should occur. The Minister failed to observe all these requirements. This is another example of the systematic harassment campaign conducted by some sectors of the government in order to interfere with the Company's operations.
Certain situations have hindered Cablevisión's possibility to provide telephony services under normal conditions. In this context, one particularly serious event deserves some attention. In its capacity as licensee of the telephony service, the Company filed with the regulatory entity a request for numbering in several locations of the country and a request for non-geographic numbering. At first, the Secretariat of Communications assigned the numbering through Resolution No. 146. The following week the Secretariat revoked the assignment, based on an unfounded motion for reconsideration filed by the two telephony companies. This unfounded and abrupt change and the unjustified delays in the resolution of several proceedings pending before such agency, resulted in strong claims by the Company at the administrative and judicial level.
The Office of Business Loyalty (Dirección de Lealtad Comercial), under the jurisdiction of the Secretariat of Domestic Trade, also adhered to the government's actions. Its actions were directly intended to punish Cablevisión and Multicanal, applying laws that are beyond the entity's powers, based on procedures that infringe constitutional principles. In its harassment campaign at the administrative level, the entity tried to apply the control mechanisms set forth under the Business Loyalty Law (No. 22,802) and invoked certain powers conferred by the Supply Law (No. 20,680), with successive requests for sensitive and confidential information about the companies, to be submitted within terms of 24 to 48 hours. These requests were completely beyond the purpose of the laws invoked. The Company challenged and appealed these requests and procedures. The requests for information were repeated in 2010 and resulted in direct accusations from the National Administration of Domestic Trade against the companies for alleged violations of the Consumer Defense Law (Sections 4 and 19) and the Business Loyalty Law (Section 21). The company requested the nullification of the procedures and submitted its defense.
After year-end, the company had to increase the basic fee for the cable television service by 9.4%, effective since February, and notified all of its clients in the invoice issued in January.
On January 21, the CNDC issued a Resolution within the framework of a proceeding which investigates the alleged collusion of prices among the paid television industry players. The Company and others were ordered to refrain from increasing the price of the subscriptions to this service for sixty days. Companies that had increased prices were ordered to refund affected subscribers in March and April. Cablevisión duly appealed said resolutions and on February 19, 2010, the Federal Commercial and Civil Court of Appeals, Clerk's Office 2 issued a preliminary injunction suspending the effects of the resolutions issued by the CNDC in connection with the increase.
The Secretariat of Domestic Trade also approved a set of guidelines for the commercialization of paid television service. According to Resolution No. 50/ 2010, cable television operators must apply a presumably mandatory formula to estimate the monthly price of subscriptions. Such formula is illegitimate, inconsistent with industry parameters, and flagrantly disregards constitutional rights. In the Company's view, the Resolution is arbitrary and bluntly disregards the freedom to contract which is part of the freedom of industry and trade. Therefore, the necessary legal actions will be brought requesting the suspension of the resolution's effects and ultimately requesting its nullification.
In this regard, the Company and Cablevisión will continue to defend themselves from these measures, which are to the detriment of a growing industry and will keep their commitment towards investment and creation of employment to provide the best TV and broadband service to their clients.
PRINTING AND PUBLISHING
Grupo Clarín, through Arte Gráfico Editorial Argentino S.A. ("AGEA"), is the main newspaper editor in Argentina and one of the most prominent editorial content producers in Latin America.
Out of Grupo Clarín's total sales in 2009, the printing and publishing segment accounted for Ps. 1,598.6 million. This segment derives revenues primarily from the sale of advertising, copies of newspapers and magazines and optional products.
Arte Gráfico Editorial Argentino
AGEA publishes Diario Clarín, the flagship Argentine newspaper and one of the most important in terms of circulation in the Spanish-speaking world; Olé, launched in 1996, the first and only sports newspaper of its kind in the Argentine market; and Genios, a magazine with a high penetration rate in the children's segment. It also publishes Elle, Jardín de Genios; Ñ, a cultural magazine that reflects all cultural news and trends; Revista Pymes, aimed at small and medium-sized entrepreneurs; and Diario de Arquitectura, aimed at the construction sector, architects, designers and building contractors, among other products.
Through Artes Gráficas Rioplatense S.A. ("AGR"), Grupo Clarín is also engaged in color printing, publishing and distribution activities. AGR prints Viva, Clarín's Sunday magazine, and carries out other production activities for AGEA and for third parties, including installment books, telephone directories and flyers.
AGEA leads the online classified advertising market through its vertical sites: Autos, Inmuebles, Empleos and Más Oportunidades, and has a leading position in the Internet content market through its subsidiary CMD, which produces content for Clarin.com, Olé.com.ar, and Más Oportunidades.com.ar, among others. These activities are contemplated under the segment Digital content and others. Through its subsidiary and controlled company Tinta Fresca Ediciones S.A., the Company entered the textbook editorial market.
Diario Clarín
With an average of 808,000 readers from Mondays to Saturdays and over 1.6 million readers on Sundays, and its long-standing journalistic and commercial leadership consolidated throughout its 64-year track record, Clarín is the most prominent Argentine newspaper in terms of outreach, influence, circulation and advertising.
The success of its prestigious editorial line lies in its identification with the needs and emotions of its audience through a plural and independent journalism style that enables the most diverse opinions. Clarín's approach to reality is in tune with its audience, supporting this bond with the responsibility and credibility that characterizes its journalists. Its extensive and thorough investigations, approaches and analyses are conveyed in a clear and direct language, providing its readers with easy access to the different sections and issues.
During 2009, its daily circulation reached almost 350,000 copies, a volume 2.3 times higher than its closest competitor. On Sundays, over 700,000 copies are sold, which places it among the major Sunday newspapers of the world. According to the Newspaper and Magazine Circulation Verification Institute ("IVC"), in 2009 Clarín maintained its lead in circulation in the Buenos Aires area and managed to increase its share in different segments, with an 11% penetration in Argentina (excluding the City of Buenos Aires) and 29% nationwide (including the City of Buenos Aires).
Given its broad circulation and reach to all social classes, Dario Clarín leads the printing media market. It is ranked first in terms of advertising revenues, sold advertising space and also leads in all advertising categories (display, special section and classified ads). In 2009, Diario Clarín's advertising sales were of Ps. 628 million, while AGEA's advertising sales were of Ps. 688.6 million.
From an editorial perspective, Clarín reaffirmed its long-standing journalistic leadership. Its in-depth coverage of this year's most outstanding news revealed once again the production quality of its reports and the depth of its approaches and insights. The work of the paper's investigation team, the constant proposal of new editorial products and the launch of new publications continue to reflect the work of the greatest team of journalists in Argentina.
Also this year, Grupo Clarín's journalists and media once again received prestigious awards and acknowledgments. In the category "Best Internet Coverage", the journalists Paula Lugones and María Arce were recognized with the most important award granted by Fundación Nuevo Periodismo Iberoamericano for their work: "Ruta 66: el largo camino hacia la Casa Blanca" (Route 66: the long path towards the White House). In the 17th edition of the Malofiej International Awards, Clarín's Infographics team was once again one of the most awarded in the world for the excellence of its work. It received 14 awards for the articles published in the newspaper and in the magazine Viva. Held in Buenos Aires and organized by Clarín, the 30th contest of the Society for News Design (SND) recognized once again the best of newspaper design. In this contest, Diario Clarín received 22 awards in the categories Design, Infographics and Magazines out of the 32 awards granted to Argentine media. In the annual Argentine Press Association (ADEPA) Contest held in 2009, Diario Clarín received an award in the category Public Welfare. The journalist Osvaldo Pepe received an award for his work as head of the section Letters from Diario Clarín's Readers, which reflects daily the thoughts and the main concerns of citizens.
The Inter American Press Association granted the awards to the best journalistic investigations of 2009 in its Annual Assembly held in Buenos Aires. Sibila Camps, a journalist who works in Diario Clarín's Society section, received an "Honorable Mention" in the category "Human Rights and Community Services", for her series of articles on prostitution.
In 2009, Diario Clarín offered outstanding promotions that increased interaction with readers, among them, the promotion "Inglés para todos" and the game "El Gran DT". Among the milestones achieved in 2009, in April the economic supplement iEco launched its first optional product "Master in Business", a collectible product about Management aimed at executives, businesspeople and students. Diario de Arquitectura continued to focus on offering high quality collectible products and in 2009, it also launched the contest "Vivienda Social ARQ", which consisted in the design of social housing modules using drywall construction technologies.
In June, Diario de Arquitectura was incorporated to the ten regional newspapers that reach Pilar, Escobar, Zárate and Campana, thus reaching the Province of Buenos Aires. Unlike other regional newspapers, this one is distributed for free on a monthly basis.
As to sports, in addition to the game El Gran DT, in 2009 special supplements were published covering prominent events such as the Davis Cup, the Dakar Rally and TC 2000. Diario Clarín also published the traditional products and special football tournament guides. During 2009, Diario Clarín took steps towards better positioning the sports supplement. Diario Clarín's newsroom started to work closely with the newsroom of Clarin.com Deportes, producing multimedia content and sharing knowledge, which enriched news coverage and content.
Diario Clarín also continued to build upon the achievements attained by the cultural magazine Ñ, reaching average sales of 45,500 copies per issue. During the year, several initiatives were carried out aimed at engaging readers through the launching of collectible products, the creation and sponsorship of forums comprising different cultural issues and involvement in, and sponsorship of, major cultural events.
In its sixth year, Revista Pymes, continued to strengthen its growth. It held both its "5th. Conference Cycle", aimed at training entrepreneurs and small businesspeople, and "Encuentro Pymes 2009", a training session aimed at businesspeople that was held at various locations throughout the provinces.
In order to continue to add value to its readers, Diario Clarín constantly keeps up to date and offers a wide range of editorial products together with the core product, addressing the need to satisfy an increasing segmentation among the diverse demographic groups. It was an intense year in terms of collectible and optional products, consolidating Grupo Clarín as one of the major book editors of Argentina.
The highlights were: Ejercita tu mente; Libros Bilingües Clarín 2009 Películas; Pura Pasión; Enciclopedia Esencial de la Historia del Mundo; El Gran Libro Clarín del Conocimiento Láminas Educativas; El Gran Libro de la Decoración; Historia Visual de la Argentina; El Gran Diccionario de los Argentinos; Guías Visuales de la Argentina; El Libro de los Juegos Clarín; Atlas Mundial del Estudiante; El Gran Libro Clarín de la Cocina del Mundo; Mafalda; El Gran Libro Clarín de la Vida Sana; El Gran Libro Clarín de Idiomas Inglés para Todos; Los mapas del ACA provincia por provincia; Almanaque 2010 - Bicentenario; Mafalda Animada; Cocina para las Fiestas; - El Gran Libro de Tejido 2009; - El Gran Libro del Crochet 2009.
Clarín's products continued to set trends and brand loyalty activities contributed to the consolidation of readers' strong relationship with the brand. Further efforts were channeled into strengthening the bond with advertisers, bringing together new sectors and identifying their needs.
Clarín organized the 2009 edition of its renowned Clarín Awards, honoring its strong commitment to the promotion of Argentina's best in the cultural and sports fields. To this effect, the 12th consecutive "Premio Clarín de Novela" ceremony was held, where Federico Jeanmaire was awarded for his novel "Más liviano que el aire". Clarín also awarded the best sportsmen of the year at the Premios Consagración y Revelación 2009 - La gran noche del Deporte Argentino ceremony. Also in 2009, the ceremony for the 2009 Premios Clarín Espectáculos (Show Business Awards) was held at Luna Park, where Clarín recognized the best in motion pictures, theatre, music, dance, radio and television, chosen by a panel of more than 800 specialists.
Other Newspapers
La Razón, the first-ever free distribution newspaper, is distributed on an exclusive basis in all subway and train lines in the City of Buenos Aires, in airlines, in residential communities, as well as in all highway tollbooths within Buenos Aires. Building upon the concept that "La Razón is a travelling companion", as it does every summer, the newspaper sent copies throughout the season to Mar del Plata, Pinamar and Villa Gesell.
After eleven years of existence and with an average daily circulation of 45,000 copies, Olé, the first and only Argentine sports newspaper, continues to consolidate its market positioning. It is the fifth largest newspaper in Buenos Aires in terms of circulation. Since its inception, it has revolutionized reading habits and managed to attract not only sports fans, but also a new generation of young readers, offering advertisers an opportunity to reach a specific market.
Magazines
In 2009, the magazine Genios celebrated its 11th anniversary in the Argentine market. Since it was launched in March 1998, it has led the children's magazine segment. Its editorial offering is always renewed at the beginning of each academic year, presenting new sections, updated school materials and collectible books prepared by experts. Genios sold 290,000 copies in its first annual issue at the beginning of the academic year and had an average weekly circulation of 84,000 copies throughout the year. During 2009, Genios consolidated its efforts in the website genios.com.ar and launched a benefit program. A promotion was launched in connection with the Clausura and Apertura tournaments, together with the game El Gran DT, which engaged more than 50,000 children from 1,730 schools throughout the country.
Jardín de Genios, the monthly publication aimed not only at pre-school children and those attending the first years of primary school, but also at parents and teachers, achieved increased average sales of 83,100 copies during 2009. In its annual launch, it published the magazine "Edición de Oro", with more pages and a square-shaped spine, and the supplement "Guía para Padres", that came with a free kindergarten backpack. The magazine also presented the first book of the new collectible "Grandes Clásicos de Oro Disney", which became a best-seller.
In May, the Company launched the magazine "Tiki Tiki", a football magazine with a new style of understanding and experiencing football that bears no precedents in Argentina. Tiki Tiki is aimed at children aged 8 through 14 and adolescents.
The magazine Elle reaffirmed its leadership in the high-end advertisers segment. In 2009, its circulation reached a monthly average of 30,000 copies. One of the milestones of 2009 was the launch in November of the magazine XXL, which came with the monthly Elle magazine, adding benefits to its readers.
Tinta Fresca
Tinta Fresca Ediciones S.A. ("Tinta Fresca") is a young Argentine publishing company, engaged in textbook publishing for the different stages of the Argentine education system. Tinta Fresca looks to place books as central elements of the teaching and learning processes and proposes to use books as effective and updated tools for teachers and students. Its strength is to provide access to textbooks to the largest number of students possible, at competitive prices, relying on a sales force capable of promoting its products by visiting teachers throughout the country and with points of sale nationwide.
In 2009, Tinta Fresca continued to improve its market position. Tinta Fresca strengthened its editorial offering with "Pompón", a series aimed at children attending the first years of primary school, the existing series "Pupic" and the new series "Puentes de conocimiento", in addition to the original math games series "Matijuegos", featuring Sendra's character, Matías.
Tinta Fresca had to adapt its publications aimed at the secondary school to the new curriculum design introduced by the Province of Buenos Aires. It also added the series "Respuestas para la Formación Docente" comprising the following three books: "Enseñar Matemática", "Enseñar Lengua" and "Enseñar a mirar imágenes en la escuela", which will continue to expand in the future. In addition, Tinta Fresca continued to develop literature books for children aimed at beginners in reading. The multidisciplinary team of specialists in charge of developing reference books produces original articles for lexicographic and encyclopedic dictionaries, following the most up-to-date criteria and procedures of lexicography and compilation of repertoires and thesaurus. Under its new brand "Voz Activa", Tinta Fresca recently launched "Diccionario integral del español de la Argentina", "Diccionario Estudiantil" and "Una Gramática para todos".
In 2007, Tinta Fresca went beyond the Argentine borders with the creation of Contenidos Estudiantiles Mexicanos S.A. ("CEM") in Mexico, a publishing company created jointly with the Mexican multimedia group Milenio. During 2009, Tinta Fresca published 7 textbooks on Biology, Spanish language, History and Geography in Mexico, under the brand Ríos de Tinta. A new branch was launched in Peru under the name Tinta Fresca, aimed at entering the Peruvian textbook market.
Artes Gráficas Rioplantense
AGR meets certain special printing needs of Clarín and Olé (magazines, optional and collectible products, among others), and also publishes large volumes of graphic material for third parties. It is the leading printing services company in Argentina.
In 2009, AGR retained its leading position in the sector with sales of Ps. 153 million. The company continued to exploit one of its main strengths: its participation in the entire value chain of the printing industry, which enables it to offer comprehensive customer service, including drafting, prepress, variable printing, offset printing, finishing and distribution.
AGR strengthened its presence in the foreign market, where sales reached Ps. 5.4 million.
In May 2000, AGR entered into an agreement with the Techint Group, acquiring 50% of Impripost Tecnologías S.A. ("Impripost"). Impripost is mainly engaged in the overall production and printing of invoices, advertising brochures, forms, labels and cards. It also provides envelop stuffing services for mass mailing.
UNIR S.A. ("Unir") is a company engaged in wholesale mail reception, classification, transportation, distribution and delivery services. As from August 25, 2008, AGEA holds a 93.41% direct controlling interest in Unir. In 2009, Unir totaled sales of Ps. 35.2 million, an 11.5% increase compared to 2008.
CIMECO
Compañía Inversora en Medios de Comunicación S.A. ("CIMECO") was organized in 1997 with the aim of acquiring equity interests in Argentine and foreign newspapers, seeking to preserve the regional journalistic industry, blending experience, synergy and economies of scale. To date, CIMECO holds a majority interest in two of the three largest regional newspapers in Argentina: La Voz del Interior (Córdoba) and Los Andes (Mendoza).
Diario Los Andes was able to maintain its leadership in the province with special publications, events and special supplements. In 2009, it recorded a significant increase in online advertising sales.
La Voz del Interior, a 104-year old newspaper, has a strong presence in the province of Cordoba. This year, it managed to consolidate its position as distributor of other publications at newsstands, with significant increases in the sale of optional products and also in digital media advertising sales.
Papel Prensa
Papel Prensa is the first producer of newsprint that is wholly owned by Argentine capital. It began its operations in 1978 and is currently the largest Argentine producer of newsprint, with an annual production capacity of approximately 170,000 tons. As of December 31, 2009, the shareholders of Papel Prensa were AGEA (37%), CIMECO (12%), S.A. La Nación (22.5%), the Argentine federal government (27.5%), and other minor investors (1%).
Papel Prensa has implemented production policies based on the procurement of strategic inputs without contributing to the depletion of natural resources. To this end, the paper mill recovers raw materials from the recycling of returned newspapers, instead of using virgin fiber and has a forest management policy in place, in line with sustainable development principles. In 2009, Papel Prensa produced approximately 158,000 tons of paper for newspapers.
Ferias y Exposiciones Argentinas
One of the main activities of Ferias y Exposiciones Argentinas is the organization of Caminos y Sabores, an exhibition intended to foster Argentina's gastronomy and handicrafts and promoting the region's most important tourist destinations. In its fifth year, the exhibition received 70,000 visitors.
In 2009, the company organized the first editions of Educación y Empleo, an exhibition that gathers Argentina's main educational institutions and explores first employment opportunities; Exponenciar 09, a new conference cycle in the City of Buenos Aires, Córdoba and Mendoza; and the Luxury week, a high-end fashion show featuring the most prominent Argentine designers. In 2007, AGEA entered into an agreement with S.A. La Nación for the organization of Expoagro, a new agro-industrial fair, improving the results that had been obtained until then by Feriagro, and achieving a record-high number of exhibitors. In 2009, the exhibition was held from March 6 through March 8 in the city of Theobald. It was a success and received more than 100,000 visitors.
BROADCASTING AND PROGRAMMING
Grupo Clarín is also the leading company in the audiovisual broadcasting and programming segment. Through Artear, it holds the license to broadcast Canal Trece, one of the two largest broadcast television channels in Argentina, and leads the segment in terms of advertising share and prime time audience share. It also has presence in broadcast television stations in Córdoba (Telecor), Bahía Blanca (Telba), Bariloche (Bariloche TV), and Río Negro (Radio Televisión Río Negro). Grupo Clarín also produces and sells some of the most popular cable television signals.
Its audiovisual broadcasting and programming array includes agreements and equity interests in the main television and film producers, such as Pol-ka Producciones, Ideas del Sur and Patagonik Film Group. Grupo Clarín also owns prominent radio stations, such as Mitre AM 790, La 100 (FM 99.9), both in Buenos Aires, and, more recently, Mitre AM 810 in the province of Córdoba.
Grupo Clarín also has a strong stake in sports commercialization and broadcasting rights, mainly soccer and motor racing, directly and through joint ventures.
Out of Grupo Clarín's total sales in 2009, the broadcasting and programming segment accounted for Ps. 1,097.5 million, taking into consideration intersegment sales.
Artear
Amidst a scenario marked by industry challenges and strong competition, Artear was able to achieve its goals in 2009. Its year-on-year total sales increased by 12.7% and its share in the traditional advertising market of broadcast television reached 37%.
In terms of audience share, although it shared its leadership overall, Canal Trece achieved an undisputed leadership in Prime Time, which accounts for 70% of advertising revenues. Its professionalism, artistic quality, innovative proposals and technological developments continue to distinguish it as the most prominent audiovisual media in the market.
As far as its programming is concerned, Canal Trece combined fiction, information and entertainment, a varied offering for a demanding and selective audience.
"Valientes", "Show Match", "Tratame bien" and "Enséñame a vivir" led audience ratings. As regards news programs, "Arriba Argentinos" continued to consolidate its morning audience rating. Canal Trece's news programs -"El Noticiero de Santo", "Telenoche" and "En Síntesis"- further validated their already existing recognition and credibility with audience ratings that led their respective time slots.
With respect to cable television signals, TN achieved the highest audience share throughout the year across all time slots. On several occasions, it outperformed broadcast stations, for example, upon the occurrence of particularly significant news events, thus reaffirming its journalistic leadership. Several political talk-shows stood out, such as "El Juego Limpio", "Palabras más, Palabras menos", "Código Político", "Desde el Llano", "Argentina para Armar", "Otro tema" and "A Dos Voces".
Artear further strengthened its TV slots seeking to offer diverse options in terms of information and entertainment. The Spanish language music signal "Quiero Música en mi Idioma"was quick to lead audience ratings in the music genre. "Volver" continued to offer the best of classic and vintage Argentine films and television shows and reaffirmed its role as a 100% national signal that preserves our memory with the highest technology. Magazine and Metro, general interest cable signals, renewed their shows and continued to develop their respective programming criteria through thematic modules and standardized broadcasting. Canal Trece Satelital, the signal of Canal Trece de Buenos Aires, continued to focus on local productions and on including a significant number of in-house national productions in its programming.
During 2009, the most prominent showbusiness and general interest events were broadcast, such as Quilmes Rock, Pepsi Music, the concerts of "La Viola en Concierto", Premios Clarín Espectáculos (Show Business Awards) and the 18th edition of the traditional campaign Un Sol para los chicos aimed at raising funds for UNICEF, held at Luna Park.
Revenues from the sale of Canal Trece programming increased compared to 2008. This increase was primarily due to the recovery in the number of cable television subscribers, the adjustment of fees implemented by cable operators and an increasing number of local stations in Argentina that began to broadcast the signal.
During 2009, Artear further developed its international market expansion strategy aimed at maintaining, consolidating and boosting its penetration in international markets. Another milestone was the new signal "El Trece Internacional", which six months after its launch reached Uruguay, Bolivia, Peru, Chile, Colombia, Venezuela, Ecuador and Panama. The sales area was recast to commercialize abroad, directly, TV content rights broadcast by Canal 13. For the first time, Artear sold content rights for paid TV signals that reach Mexico and USA.
Artear continued to produce fiction content for TV series and motion pictures through Pol-Ka, Ideas del Sur and Patagonik Film Group. In the case of fiction production, the flagship was "Valientes" which had the highest audience share in the history of Pol-ka. Also in 2009, Artear released "Ratón Pérez II", a Spanish-Argentine coproduction that became a box-office hit.
Sports Programming
In 1991, Grupo Clarín created Inversora de Eventos S.A. ("IESA"), a company engaged in sports marketing operations. Through IESA, the Company is a party to two joint ventures with Torneos y Competencias:
- TSC focuses its activity mainly on the TV rights for AFA's Premier League soccer matches in Argentina, as well as for the rest of the world with respect to certain matches.
- TRISA holds the rights to broadcast additional national and international soccer tournaments (national team World Cup qualifying matches and friendly matches), as well as other sports such as basketball, tennis, motor racing and boxing. As part of its broadcasting, production and marketing activities, TRISA broadcasts sporting events through its cable signal "TyC Sports" and, until August 2009, "TyC Max" (the sports premium and pay-per-view cable signal).
Following the AFA's unilateral and illegitimate decision to terminate an agreement with TSC that granted the broadcasting rights of the Argentine first division official tournament matches until 2014, during the second half of the year, certain regular activities related to the sports programming had to be reformulated, in light of the impossibility to continue to provide the product covered by said agreement (see Note 10 to the consolidated financial statements). The AFA's decision was arbitrary and illegitimate, since TSC did not breach any provision of the agreement, which does not expressly allow voluntary unilateral termination by either party. In view of this force majeure situation and until it is remedied, TRISA will not be able to broadcast the five weekly matches of the first division tournament that used to be broadcast by TyC Sports.
In addition, the Company is devoting significant efforts aimed at developing activities related to the commercialization, organization and broadcast of motor racing.
Radio Mitre
In 2009, AM Mitre 790 reaffirmed its track record and retained its second place in the ranking of audience share during the entire year, reaching an audience share of 19 points by the end of the year. This was accomplished, among other things, by renewing part of its staff without losing journalistic credibility and leadership. In this way, Radio Mitre reduced by 50% the gap with its closest competitor, compared to 2008.
The radio talk show "Primera edición", hosted by Ernesto Tenembaum, stood out among Radio Mitre's programming. The second morning slot was occupied by Chiche Gelblung, who began to host the new show "Hola Chiche".
FM 100's music programming relies on multitarget hits and anglo/latin pop, combining communication, information and entertainment slots. In 2009, the shows "El Show de la Noticia", hosted by Roberto Pettinato, and "Lalo por hecho", hosted by Lalo Mir, stood out once again. To further consolidate its bond with listeners, the radio station continued to organize acoustic concerts and on-location broadcasts from its mobile studio, featuring highly acclaimed national and international artists.
The site Cienradios.com was a particular initiative of La 100 in the period. The extension to the World Wide Web entails the development of an infinite concept of the dial and is unique in Latin America. The user may choose among a wide offering of broadcast radio stations and other stations specially designed for the Internet (more than 150) with segmentations of singers, bands, music from different decades, the music presented by the FM radio station hosts, folklore, tango, romantic music and other rhythms. The initiative received the "Best online radio" award in The New York Festival held in 2009.
During 2009, the presence of Mitre AM 810 was also consolidated in the province of Córdoba, as the second radio with the highest audience share. With a permanent staff in the city and its own news service, Mitre AM 810 developed a comprehensive coverage of news comprising Córdoba, Argentina and the world.
DIGITAL CONTENT AND OTHER
Revenues in this segment are derived from the sale of advertising in Internet websites and portals and the provision of administrative and corporate services by Grupo Clarín and its subsidiary GC Gestión Compartida S.A. ("GCGC") to third parties and other subsidiaries. They also include digital content production through Clarín Global and Contenidos de Medios Digitales (CMD) S.A. ("CMD").
Out of Grupo Clarín's total sales in 2009, this segment accounted for Ps. 192.3 million.
Digital Content
Grupo Clarín is the leading producer of digital content. Through CMD and Clarín Global, the Company developed the broadest network of portals and digital content in Argentina, covering news, entertainment, sports, classified advertisements, e-commerce, digital photography, video, blogs, chat rooms, music, mobile content (ringtones, SMS and games) and a browser. This network seeks to replicate on the Internet the presence and relevance of Grupo Clarín's several offline media.
According to the traffic measurements carried out by Certifica.com for the Interactive Advertising Bureau (IAB), by the end of 2009, Clarín.com website received an average of 11.2 million monthly unique visits, a 34% increase, compared to 2008. Olé received 4.7 million monthly unique visits, a 41% increase, compared to 2008. The same happened with Ciudad.com. Of particular note is vxv.com growth, with a 91% increase in its monthly unique visits. These traffic levels reaffirm once again Clarín Global's Internet portal leadership and places Clarín Global portals as the number one portals in the news and sports segments, respectively. Clarin.com is also one of the most visited digital newspapers in the Spanish-speaking world.
In order to consolidate its leadership position, besides its journalistic excellence, Clarin.com continued to make progress in the redesign of its website, the upgrade of services and tools and the improvement of the websites of its supplements and related magazines.
Through CMD, Grupo Clarín continued to exploit efficiently the capabilities and potential of the Internet by devoting resources and know-how to its websites and portals such as TN.com.ar, ElTreceTV.com.ar and Cienradios.com.ar.
During 2009, the Company continued to consolidate its leadership position in specific content production for Internet and mobile phones, reflected in the growth of brands such as Ciudad, Ubbi, VXV and the tourism portals Interpatagonia.com, Welcomeargentina.com, Welcomechile.com and Welcomeuruguay.com. After executing a Joint Venture agreement in 2008 with Nimbuzz BV and Myriad International Holdings BV for the development and commercialization of a mobile service platform in Argentina, focused on the aggregation of SMS, VoIP and telecommunication applications, since mid-2009 the Company has undertaken a communication strategy supporting the implementation of the Nimbuzz Out service, enabling users to make low cost phone calls between mobile phones.
Concerning launches, during 2009 the Company executed a strategic agreement with one of Grupo La Nación's companies and the caricaturist Nik to start the development of Mundo Gaturro, a virtual platform with games and entertainment for kids. The Company also focused on the development of Clarín Widgets and Gadgets and on the creation of sports communities such as, Toda Pasión, and Spanish-speaking social communities, such as, Tipete. The Clarín Blogs platform was enhanced, incorporating a Wordpress platform that further boosted its growth.
During 2009, the Company continued to work on positioning MasOportunidades.com as the second largest online shopping portal. It also moved forward with the development of Confronte.com and launched Click Avisos, a free version of electronic commerce platforms.
Also in this segment, Oportunidades S.A. deserves a special mention. It is engaged mainly in the exploitation of classified adds websites such as www.argenprop.com, www.buscainmuebles.com, www.deautos.com and www.demotos.com. As in previous years, during 2009, the efforts were also focused on the development of sites related to the real estate, automobile and labor markets. Subscribers to the real estate intranet reached 2,203, a 56% increase compared to 2008.
Other Services
Through GCGC, Grupo Clarín renders specialized process outsourcing services to medium and large companies. The services focus on reducing costs, optimizing quality and providing innovative management tools. During 2009, total sales increased by 28% compared to the previous year.
The company continues to bolster the services offered, increasingly focusing on a customer-driven approach, as well as on strengthening improvement processes.
GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY
OUR COMMITMENT
Since its foundation, Grupo Clarín has been conscious of its social responsibility as a company and as a member of the media, and has strived to assume such responsibility abiding by the laws, honoring its active and sustained social and community involvement and, especially, fulfilling its duty to inform with honesty and accuracy.
A commitment to society is an inherent and essential part of Grupo Clarín's vision and mission statement. The Company attaches special importance to the relationship with its different audiences, which acknowledge and validate its activities each day and, over time, have established multiple communication and interaction channels with Clarín's stakeholders.
From the standpoint of its audiences, readers and society in general, Grupo Clarín's media and journalists work day after day towards respecting and consolidating the people's right to information; combining high credibility with a comprehensive journalistic and entertainment offering based on a deep knowledge of the audience.
STANDARDS AND GUIDELINES
Through its commitment to the Global Compact proposed by the United Nations, Grupo Clarín seeks to intensify and, to a greater extent, systematically embody the values and principles that guide the Company's daily work, particularly those concerning labor, sustainable development, and human rights.
Grupo Clarín also participates in several groups and spaces, which gather other Argentine, Latin-American and global media players and stakeholders to share experiences, identify best practices, and foster cooperation on the specific issues that media companies address as part of their social responsibility strategies. During 2009, the Noble Foundation renewed its presence in the "Grupo de Fundaciones y Empresas", a space to share knowledge and set standards in the field of strategic social investment.
During the period of 2009-2011, Grupo Clarín committed its participation in the multi-stakeholder development of the Media Sector Supplement for the Global Reporting Initiative. The GRI guidelines act as a reference for an extensive process, currently underway at the Company, to further consolidate, identify and report relevant information regarding the environmental and social impacts, while establishing new goals to strengthen its related initiatives and strategy.
Grupo Clarín's observance to the principles included in all those guidelines is also outlined in the Company's Code of Ethics and "Guía para la Acción", a document which proposes models for management, organization and roles, while outlining Grupo Clarín´s policies and procedures concerning labor, the environment and human rights.
Freedom of expression and transparency are values which are indispensable to the Company and its professionals. Both principles are particularly relevant in areas linked to news services. At Grupo Clarín, each company commits to the quality, rigor and transparency of its information and content. News coverage and programmes aim to be impartial and fair, reflecting the journalists' efforts to inform on facts and events in a balanced and unbiased manner, while allowing opinion regarding the parties involved.
Style guides, ethics manuals, news coverage guidelines -including some for kidnapping and hostage situations- and several other self-regulations and commitments guide the different activities of news and entertainment oriented companies. This does not mean that every issue, especially regarding content and editorial view, is addressed as expected. For that reason business units are continuously designing new means to engage with its readers and audiences.
2009 proved to be a specially challenging year for freedom of expression. The Company supported numerous initiatives to create awareness on the subject and demonstrated its sustained commitment to defending and promoting it.
PEOPLE'S VOICES
The proliferation of new media, Internet based networks and the web 2.0 phenomenon, started a revolution in journalism and in terms of how people consume news. This requires a serious assessment on how to face the challenges of the digital era, adapting the Company's business models to satisfy Grupo Clarín's audiences, and at the same time sustaining the Company's leadership position.
Grupo Clarín's media companies have a long history of audiences' and readers' engagement. The ability to anticipate trends together with a profound knowledge of media consumers and the ability to interpret their needs and meet their demands, explain the Company's sustained leadership and favored place amongst consumers' preferences.
The pace of change calls for new and creative means of interaction. Clarín's newspaper segments such as "El juicio final", "Cartas al país" and daily readers' surveys, all traditional means of engaging readers, are complemented by more recent initiatives to accompany peoples' needs to participate in the news process. Over the last few years, the Company has launched a growing number of new blogs, and generated greater interaction not only with journalists, but also between our users. Interactivity opens space for informative content deriving from readers, listeners and web users. 'TN y la gente' is a web-based tool developed by the Company's news channel, where audiences send photos or video footage captured from personal and mobile cameras, as another way of introducing citizen journalism and increasing end-user participation in our media.
Initiatives such as those carried out by the newspaper La Voz del Interior, in the province of Córdoba, also break new ground in terms of engaging the community. In light of the absence of reliable statistics and diagnostics in terms of traffic accidents, the newspaper designed and sustained what they entitled as the "Citizen Monitor", an online platform that keep details of every event. This was constructed in a collaborative effort with its readers, creating a database that was of great aid to the authorities that later designed a new traffic scheme that resulted in a considerable reduction of accidents in the city.
The Company also pays special attention to giving voice to small or underserved communities and providing for the development of local content. Cablevisión and Artear are working together to gradually renew local TV channels and newscasts in several cities in Argentina. The program takes into consideration access to local information and culture, while providing them with state-of-the-art technology and training.
SOCIAL AND SUSTAINABILITY COVERAGE
To better assess the influence the media can have on different audiences, Grupo Clarín establishes goals to ensure the quality and pluralism of its content. Grupo Clarín's newspapers and television newscasts have a long and highly praised record in investigative reporting, and provide comprehensive news coverage and insightful pieces on relevant social and environmental issues. Reflecting the diversity of society through its news coverage and entertainment content lies in the core of its unique capacity to engage with audiences and readers.
Special supplements, expert and academic voices and editorials, onsite coverage and skilled journalists and infographics complete an extensive offering on topics that vary from health, consumption and development to science, education and conservation. Weekly TV Programs such as 'TN Ecología' and 'TN Ciencia', in Todo Noticias, Grupo Clarín's 24 hour news channel and the leading cable channel in Argentina, have become leaders in their fields.
During 2009, the Company´s media paid special attention to issues related to climate change and the environment. Special envoys, extensive coverage and various TV programs accompanied the meetings at Copenhagen 2009. Also, 0n December the 7th, along with other 55 newspapers in 45 countries, Clarín published a front-page editorial calling for action from world leaders on climate change.
The Company also developed weblogs that create social awareness within Clarín.com. Some examples are "¿Estás?" in association with Red Solidaria, "Espacio Positivo", with Fundación Huésped and "El Otro, el Mismo", with Universidad Católica Argentina and social organizations engaged in fostering the inclusion of people with disabilities. Moreover, the "Calendario del Compromiso con la Comunidad" was published in Revista Viva for the fourth consecutive year. Specific campaigns were developed covering issues such as the Dengue Fever and the Swine Flu.
Education is deeply rooted in the Noble Foundation's mission and history of community involvement since its origin, and is also one of the key social issues frequently addressed by Grupo Clarín's editorial coverage. During the last few years, third party, academic and the company's own monitoring processes have all registered a gradual, yet sustained increase in social topics coverage.
The company is setting the goal for the next period of introducing training for journalists in regards to coverage and integration of social issues, recognizing the importance of reflecting diversity, promoting social justice, protecting youth, encouraging minority recognition and preventing racial and gender discrimination.
PROMOTING INVOLVEMENT
Still, there is much to be done. In this regard, Grupo Clarín aims to continuously enhance its role in promoting public debate, encouraging individual involvement by better and further portraying the challenges of society under social, economic and environmental aspects with a plural view.
Grupo Clarín's different media companies also endorse several initiatives promoting people's involvement in democracy and responsible civic control of their representatives' acts and decisions.
Among 2009's most relevant activities, was the Company's organization of the debate forum "Los Desafíos de la Justicia" (The Challenges of Justice) aimed at contributing to the improvement of judicial proceedings, along with the Center for the Implementation of Public Policies for Equity and Growth (or "CIPPEC", for its Spanish acronym). It continued promoting initiatives such as the one sponsored in 2008, aimed at recognizing model municipal websites that provided proper access to information. Access to information is recognized as a right and a vital component of democracy, although Argentina still holds a debt with its citizens in this regards
During 2009, Clarín also endorsed a campaign organized by the American Foundation for Education, to promote participation in the mid-term elections. The initiative included training for election officials and simple guides to understand the voting process and the importance of involvement.
COMMUNITY ENGAGEMENT AND SOCIAL ADVERTISING
Grupo Clarín's impact and relation with communities and individuals exceed those of its editorial coverage. Support for vulnerable communities, mentoring education projects, campaigning for disaster affected regions and different types of donations and expertise are only some examples of the many initiatives organized and fostered jointly or separately by Grupo Clarín's different media companies.
In terms of social advertising, during 2009, through the Noble Foundation and several of its media companies, Grupo Clarín contributed with advertising time and space to promote social, civic and environment related causes, through its own programs or within strategic alliances with renowned NGOs.
The impact made by specific contributions to projects and campaigns by other subsidiaries, can be added to the 1.7 million pesos budget of the Noble Foundation for the 08/09 period. Nevertheless, the total figure of donations cannot be calculated at the group level since information is not available in detail. As well as contributing with its own funding, knowhow and expertise, Grupo Clarín aims to leverage support from others by seeking matching funding and regular donations from individuals and partner organizations for supported initiatives.
In response to civil society organizations growing communication needs and demands, Grupo Clarín launched a multiple approach program that combines spreading and raising active awareness of public and social interest topics through advertising, design and communication services for NGOs and the development of web based blogs and sites.
During 2009, the Company strived to further contribute to the improvement of social advertising and communication skills in civil society organizations. One of the ways to engage this issue involved increasing the scale and impact of "Segundos para Todos", a advertising contest for NGOs organized by Cablevisión, which combined broadcasting spots with coaching sessions in Buenos Aires, Córdoba and Santa Fe. During 2009, Cablevisión has met its goal of including two new provinces, Salta and Neuquén. This was also addressed from the advertising supply chain perspective, though a "Social" category to the well-known "Premio Clarín Creatividad" (Clarín Creativity Awards). The contest invited advertising agencies and companies to act as judges, and involved students and academic institutions in the production of high quality and socially sensitive ads, which were later published and adapted for television. The initiative provided a unique opportunity to engage in debate regarding the challenges of effectiveness, quality, balance and the risks of stereotyping in promoting awareness in social issues through advertising.
An additional issue in which Grupo Clarín has a sustained and strategic commitment is in reducing the digital divide and promoting digital inclusion. This is addressed by raising awareness through news coverage and TV programmes in different media outlets. Also during 2009, Cablevisión extended its cable TV and Internet access connections program to a growing number of schools, hospitals and other institutions, reaching more than 12 thousand by the end of the year. This is completed with specific programs such as the "social charges", which are special low subscription fees for low income neighborhoods.
FOSTERING EDUCATION AND CULTURE
As part of the Company's initiatives to support education, Grupo Clarín used its cross-segment position and ability to communicate with society to raise awareness of education's importance as a right and as a critical driver of social development in Argentina's future. In this sense, the Company tried to foster equal opportunities in education through the generation of updated, affordable and quality educational materials for students, teachers and schools throughout the country, through its publishing company Tinta Fresca.
In 2009, the company created Voz Activa, a new publishing house that launched the first Dictionary ever published that is entirely focused in the Spanish language spoken in Argentina. This historic contribution to culture and education was widely acknowledged by academics and society in general.
As part of its actions to promote public debate on educational issues, the achievements of the program and three year conference cycle "La Infancia en Agenda" (Childhood in the Agenda), developed together with the Arcor Foundation and CIPPEC, were consolidated in 2009. The Company also provided renewed support to the traditional campaign "Un sol para los chicos", together with Artear and UNICEF. For the eight consecutive year, the Company successfully organized a campaign entitled "Digamos Presente", an initiative focused on education involvement and rural education, together with APAER, Red Solidaria, Cimientos Foundation, Arcor Foundation and YPF Foundation.
Among the main alliances are specific initiatives such as the public-private project entitled "Escuelas del Bicentenario" (Bicentennial Schools). This project seeks to assist public elementary schools to which children in vulnerable social circumstances attend throughout the country, and to contribute to public policy, by developing scalable, sustainable and replicable school improvement mechanisms.
Another relevant initiative is the "Premio Clarín-Zurich a la Educación" (Education Awards). Awarded for the first time in 2008-2009, this edition recognized the best projects aimed at improving the quality of technical education. For the next period it increased the amount of prices and will select the best project in the field of language teaching.
Likewise, Grupo Clarín plays an important role in the recognition, promotion and encouragement of literary creation, through prestigious awards such as "Premio Clarín de Novela" and "Premio Clarín de Cuentos". The Company is committed to the support and dissemination of culture. Cultural editorial products and collectibles, partnership agreements with renowned institutions and several sponsorships add to Grupo Clarín and its brands' sustained presence in important events such as the National Book Fair, the Book Fair for Kids and the Youth, Arte BA, Expo Trastiendas and Arte Clásica, among others. During 2009, Clarín partnered with the local government of the City of Buenos Aires to promote massive cultural events, such as the International Tango Festival, the BAFICI, the increasingly renowned independent film festival, the International Theater Festival, International Jazz Festival, Polo Circo, Library Night and Museum Night, among others.
Through its cable and broadcasting channels, the Company also makes significant efforts to promote the most important cultural, cinema and sports events, and makes an increasing contribution in the field of cultural diversity and local identity. Noteworthy are initiatives such as "Volver", a cable channel that preserves the most complete Argentine programming archive, or the "Word Archive" at Radio Mitre, which offers an online record of some of the country's most valuable audio heritage.
MEDIA LITERACY AND YOUNG PEOPLE
There is debate about the increasing role of media in society and in the lives of young people. Specialists agree that the best approach is to encourage critical analysis and to take advantage of opportunities presented by media for young people to explore their identities, creatively express their thoughts and opinions, and amplify their voices.
Media Literacy is generally defined as the ability to access, analyze, critically respond and benefit from the different type of media. Grupo Clarín´s main tool for fostering media literacy is "Los medios de comunicación y la educación" ('Education and Media'), a leading and recognized program that has been in place for more than 25 years. One of the main activities of the Noble Foundation in 2009 -foundation which embodies Grupo Clarín's mission and values- was that of renewing the program, which consists of workshops and booklets for teachers and students to promote a critical approach to the media and to utilize them as complementary resources in education. During 2009, there was an unexpected reduction in the number of workshops, that was directly related to the long periods of cancellation of classes due to teachers' strikes over wages and the N1H1 virus*. The goal for the next period is to continue the expanding trend and outreach of the program.
"Education and the Media" Program
2009 2008 %Change*
Teachers' workshops: 111 126 -11.9%
Students' workshops: 553 714 -22.5%
Also in 2009, together with the Ministry of Education, Science and Technology; the Noble Foundation developed the Program Los Medios en Familia (The Media in the Family) which provides recommendations and tools for the responsible use of the media. In the context of such alliance, Canal Trece aired "Sueños de Radio", directed and produced by renowned director Juan José Campanella, which focused on the setting up of radio stations in locations where there were no media outlets, promoting the involvement of teenagers and local schools. Furthermore, the Foundation renewed the presence and coordination of the media section at the "Museo de los Niños" (Children's Museum), and increased the number of visitors to its printing facilities to 14,488 (mainly students).
The Foundation strengthened its donations of bibliographical material, distance learning programs and several sponsorships, and renewed its long time support of several schools which carry the name of the Clarín's founder, Roberto Noble ('Escuelas Roberto Noble').
Noble Foundations' educational donations
2009 2008 %Change
Books 40,589 39,659 2.29%
Magazines 7,066 8,267 -14.52%
Booklets 837 658 21.38%
Within its Cable and Internet access segment, the Company contributes with the necessary tools for parents to keep their children from accessing sensitive or age inappropriate programming. This includes parental control options in Cable TV service and equipment, in addition to guidance tips and tools for web access. Regarding children artistic participation in television and films, the Company complies with regulations and self-imposed guidelines by setting limited time schedules and engaging with parents and tutors.
EXCELLENCE IN JOURNALISM
Reaffirming its commitment to journalistic excellence, the Noble Foundation also carried out activities to consolidate the training and excellence of current and future communicators.
Among them is the support provided to the Masters Degree in Journalism, an international graduate course at the highest academic level, organized by Grupo Clarín and the University of San Andrés, with the participation of the School of Journalism at Columbia University and the University of Bologna, and dictated by renowned national and international journalists and academics.
During 2009, The Company renewed its support to the Graduate Course in Scientific, Medical and Environmental Communication, a program is organized by the University Pompeu Fabra in Barcelona, together with the Leloir Institute and the cable station Todo Noticias (TN), aimed at addressing the challenges and assuming a responsible approach to scientific and medical information. The proliferation of the N1H1 virus during 2009, proved to be a specially testing issue in regards to the coverage and availability of information for the population.
Also in this period, Clarín actively participated in the Society of News Design(SND) meeting in September, where there was a debate on the new challenges faced by newspapers such as the Internet and the worldwide decreasing figures in circulation.
Clarín also organized the General Assembly of the Interamerican Press Society (SIP) that took place in Buenos Aires in November. The SIP is an organization that was established in 1942 to defend and promote the right of the peoples of the Americas to be fully and freely informed through an independent press, a basic right to the survival of a free society and individual liberty.
OUR PEOPLE
Grupo Clarín's success and leadership is mostly the result of the efforts, talent, professionalism and creativity of its people.
It is no coincidence that Grupo Clarín's media companies are amongst the most preferred working places by communication professionals. The Company strives to offer better opportunities, incentives and tools to sustain and strengthen the firm commitment of the professionals that believe in Grupo Clarín's project.
| Total Employees | 2009 | 2008 | %Change |
| | 15,522 | 15,735 | 1.35% |
| Distribution of company employees by category: | 2009 | 2008 | %Change |
| Management | 246 | 249 | -1.20% |
| Middle management | 2,075 | 2,073 | 0.09% |
| Junior management, administration and commercial | 3,538 | 3,983 | -12.57% |
| Qualified technical personnel | 6,174 | 6,254 | -1.28% |
| Journalists and others | 3,489 | 3,176 | 8.97% |
The Company possesses a special make-up in terms of age and gender diversity among its employees. When it comes to gender, the higher proportion of male employees is significantly explained by the large number of technical personnel, which in Argentina is predominantly male, working in the printing facilities and in the Cable TV and Internet access segment. The gender composition in other companies of the Group is balanced, especially regarding content related activities, such as journalism and audiovisual production, where the workforce is diverse.
| Employees by sex | 2009 | 2008 | %Change |
| Men | 11,554 | 12,211 | -5.38% |
| Women | 3,968 | 3,524 | 11.2% |
| Employees by groups of age | 2009 | 2008 | %Change |
| | 4,350 | 4,819 | -9.73% |
| 31-50 | 9,558 | 9,110 | 4.69% |
| >51 | 1,614 | 1,806 | -10.63% |
In 2009, employee turnover was reduced to 7.77%, from the 8.5% of the previous year. This figure shows the number of employees that left the Company or its subsidiaries voluntarily or due to dismissal, retirement or death.
Turnover by Sex and Age
(As a percentage of total employe
| | 2009 | 2008 | %Change |
| Men | 5.33% | 5.94% | -0.61% |
| Women | 2.44% | 2.57% | -0.13% |
| | | | |
| | 3.43% | 3.78% | -0.35% |
| 31-50 | 3.18% | 3.74% | -0.35% |
| >51 | 1.16% | 0.99% | 0.17% |
In addition to strictly abiding by the laws, the Company sets higher than standard conditions for its employees. Of Grupo Clarín's total workforce, more than76% of employees are covered by collective agreements. For those who are not, the Company applies the conditions established by the best existing agreement.
Taking care of the work environment and conditions, health and job safety and offering training to improve employees' professional skills and techniques are some of the actions aimed at consolidating the sense of integration and achievement of organizational goals.
One of the key ways of obtaining feedback on the Company's performance is via the global staff survey. In this respect, during 2009 Grupo Clarín made progress in the climate management process, including activities for the joint development of measurement tools, a thorough analysis of variables and improvement opportunities, and a collaborative effort to define a permanent approach and improvement stages. 80% of the personnel is already involved in the joint process concerning feedback, sharing and proposals.
Grupo Clarín has paid special attention to the multiple internal communication tools, such as the magazine Nuestro Medio, the Corporate Intranet with participation spaces and forums, the digital newsletter Nuestro Resumen, and the digital newsletters of the Corporate Training Program and the Company Climate Management Program, as well as internal communication spaces and notice boards. Year after year, Grupo Clarín increases its efforts to implement and streamline the information channels on benefit programs, policies and relevant organizational changes, and news concerning the daily development of activities.
New challenges for the media, changing business models and complex environments often require change and special approaches. During this period, the Company had to face the challenges of the 2009 economic environment, and also those the unilateral rescission of a contract by the AFA regarding soccer rights, posed in terms of activities and programming. Also during 2009, Clarín continued to further integrate its newsroom, adding in a number of professionals that previously worked in separate structures.
Benefits and career development
Although most benefits are common to the whole Company, each business unit integrates additional benefits that vary in nature according to tasks. Since the last quarter of 2007, the Company, together with its subsidiaries, began to implement a Long Term Savings Plan for directors and managers, which became effective in 2008.
During 2009, corporate and business units' human resources departments have continued to implement different programs to identify internal talent for career development. Also, Cablevision's Young Professionals Program was renewed, creating opportunities for professionals that are taking their first steps in their career paths.
In order to develop new skills and build up existing strengths, people need encouragement and support. In addition to increasing the number and variety of training options, during 2009, the Company continued efforts to extend and enhance the employee performance appraisal program in different categories. Although the program is still not extensively applied, during 2009, it reached an average of 46% of employees in the subsidiaries in which it is already in place. For 2010 the Company is setting the goal of broadening its introduction to the rest of its main subsidiaries.
Grupo Clarín's employees and professionals can update and expand their knowledge and skills trough several training programs, ranging from seminars and courses to graduate degrees and MBAs. Human Resources departments are in the process of consolidating individual training records and training hour's information
One of the main initiatives in this respect is the 'Corporate Training Program' which includes a wide variety of courses. A relevant aspect among current training options is that the Company pays special attention to training on new tools and technology developments, in order to properly prepare its workforce for the challenges the media sector is facing.
In addition, throughout the business units, there have been seminars and programs on quitting smoking, diseases, and other relevant topics, as well as special action campaigns regarding health and medical check-ups, with special focus on the preemptive measures against dengue and the N1H1 virus. Also, the Group carries our several different activities designed to prevent job related accidents.
Grupo Clarín continued to explore alternatives of interaction or joint approach to common interest issues at the various levels of its value chain. Grupo Clarín focused on the implementation of systems and procedures aimed at the application of best practices for purchases, hiring, and contracting with suppliers, within a framework of supervision and transparency.
ENVIRONMENT
It is widely recognized that the media industry has a lower impact than most other industrial processes. Within the framework of an environmental management policy aimed at improving eco-efficiency, the Company and its subsidiaries primarily consume energy, wood, newsprint, cable and water and generate waste.
During 2009, the Company continued to take steps towards the measurement, planning and improvement of manufacturing processes to optimize results and address possible impacts. Progress was made in achieving the period's goals by introducing sustainable methods to obtain and use resources; implementing policies for investment in equipment and raising awareness for the adequate use of technology.
The United Nations Global Compact, signed by Grupo Clarín in 2004, also sets principles regarding environmental protection. Businesses are asked to:
(Principle 7) support a precautionary approach to environmental challenges;
(Principle 8) undertake initiatives to promote greater environmental responsibility;
(Principle 9) and encourages the development and diffusion of environmentally friendly technologies.
The present report reflects the global impact of the different subsidiaries where the Group has controlling or minority stakes, while indicating some specific effects with regards to the nature of the different business activities.
CONSUMPTION
Wood, Newsprint and Energy
A company that publishes newspapers and magazines with a vertically integrated structure achieves a comprehensive view of product's life cycles. Through its subsidiaries and related companies, Grupo Clarín participates in the production of newsprint, which is then used as a raw material by some of its subsidiaries. Printed products can subsequently be recovered and reused via recycling processes to generate more newsprint.
The principal raw materials for the production of newsprint are fresh fiber from round wood and recovered paper.
In 2009, Papel Prensa, the paper mill in which Grupo Clarín owns a minority stake, consumed 338.730 tones of fresh fiber and 13.484 tones of recovered paper. The type of fiber source (Poplar, and Willow) depends upon the availability of materials, as well as economic considerations such as the minimization of transport distances and costs, which is a relevant economic and environmental consideration.
Nevertheless, it is important to mention that fresh fiber comes entirely from sustainable plantations.
This means that no native forests are involved or endangered. This is combined with continuing research on Salicaceae, related to their genetic improvement and also to ecologic and silvicultural aspects, done by means of agreements made with universities, research centers and experts, with the objective of increasing productivity, reducing costs and assuring the sustainability of the ecosystem.
The forestry division undertakes its activities with a sustainability strategy that involves the protection of biodiversity. Protected forestry areas and the banning of hunting activities have led to a sustained increase in bird fauna. These conditions allows for the development of several R&D programs, also in collaboration with universities, which include the introduction, protection and reproduction of certain endangered deer species for their proper and secure development.
Most of the other Company activities are undertaken in urban areas with no relation to natural areas, and complying with urban planning standards in force.
At the printing plants, paper and ink constitute the main material consumed. Almost the entire newsprint supply comes from Papel Prensa. The Company also follows established guidelines to ensure the provision of other materials, such as inks and other specific inputs, at quality levels compatible with international standards. At the Company's printing sites the stochastic printing style introduced in 2008 continues to be applied optimizing ink usage.
2009 2008 %Change
Paper 112,400 Tn 133,322 Tn -15.7%
Ink 2,335 Tn 2,787 Tn -16.2%
Aluminum plates 233 Tn 296 Tn -21.3%
Company qualified teams continuously strive to reduce consumption by identifying and adopting increasingly eco-efficient processes. During this period, the paper consumption decreased. Although this can be partially attributable to the economic slowdown and slightly lower circulation figures, it also showed the progress made by AGEA by deciding to introduce adjustments on the dimensions of its newspapers. A reduction by a very small percentage of its depth, achieved a 2.69% of extra cuts in the use of paper and other materials. This was later applied to products such as Revista Viva that are produced in a different printing facility, thus horizontally expanding the practice and its benefits.
The percentage of polybagging in the Company's newspapers and magazines continues to be of no significance, although; nevertheless, an assessment is under way to replace the use of polypropylene in some parts of the dispatching process for more environmentally friendly options.
The primary resource used by Grupo Clarín and its subsidiaries is energy.
Grupo Clarín's consumption comes from both direct and indirect sources; the indirect consumption comes from electricity taken from the grid.
Direct and Indirect energy consumption by primary source:
2009 2008
Electricity 442,670 MWh 462,839 MWh
Natural Gas 33,688,892 m3 35,533,914 m3
Gasoline 20,550 GJ 62,841 GJ
Fuel Oil 84,593 GJ 40,726 GJ
Gasoil 72,387 GJ 63,726 GJ
LP Gas 2,887 GJ 771 GJ
Energy consumption is only significant in the paper related and printing activities and, to a lesser extent, in the business units which operate with technology, such as cable television and Internet services, broadcasting, etc. In this area, some initiatives developed by Artear include the replacement of 98% of office and general lighting for low consumption light bulbs. In studio sets, Artear is also undertaking a program that includes the introduction of cold lighting in all new and renovated studios, in order to obtain a less than 5 times the regular consumption. In an annual comparison, Artear has reduced
Also, 75% of all live unit vehicles have already been replaced by low consumption vehicles, thus considerable reducing emissions. By the end of 2010, Artear has set the goal to expand tis criteria to the whole 100% of its fleet.
Emissions and discharges
In terms of emissions, by far the main contributors to the Company's carbon footprint are print sites and the paper mill. Nevertheless, Grupo Clarín's indicators include other emissions such as those arising from transport and the daily use of its facilities. The Company is constantly exploring alternatives to improve processes and efficiency in these areas, and to continue to enhance the analysis and inventory of Co2 emissions generated by Grupo Clarín's activities.
2009 2008
Total CO2 direct emissions 79,866 Tn 82,654 Tn
Indirect emissions arising from electricity usage can only be calculated based on Argentina's energy matrix. The latest available information (CAMMESA, 2008) shows the following breakdown:
Natural Gas 45.28%
Fuel Oil 9.46%
Gasoil 2.98%
Coal 1.79%
Hydraulic 32.80%
Nuclear 6.10%
Imports 1.60%
The primary strategies available to reduce greenhouse gas emissions is reducing the consumption or changing the energy sources. Increased use of renewable forms of fuel and bioenergy is a positive strategy. During 2009, Papel Prensa purchased a bark boiler that will allow the Company to set a goal of making additional savings in GHG emissions, while better managing waste. Thus, the decision was made to develop an emission reduction project (Clean Development Mechanism) which is now in its initial phase.
Each Grupo Clarín subsidiary and related company identifies and manages waste production and disposal. In 2209, this management included the recycling of 13,723 tones of recuperated paper and cardboard, 40 tones of ink and the reuse of nearly 295 thousand cable modem units.
Contrary to the production of white paper, the newsprint manufacturing process does not involve the use of chlorine for bleaching. This results in a significantly lower chemical impact.
As part of the treatment of industrial waste from the printing process, the Company collects and separates other waste materials (ink, oils, greases and solvents), which are shipped to certified third parties for recycling and reuse. Aluminum plates used in printing can be 100% reused.
Hazardous waste is carefully handled and handed over to authorized waste management companies. The figures provided for 2008* do not accurately reflect the previous period due to changes in data measurement procedures, and is being revised.
2009 2008
Urban or non-hazardous waste 53,115 Tn 54,625 Tn
Hazardous waste 619 Tn 495 Tn*
Special care is also maintained regarding the handling of liquid effluents resulting from development processes, subjecting them to rigorous treatments and measurements before disposal. The main water usage, recycling and discharges are related to the paper mill. Since the beginning of its operations in 1978, Papel Prensa's investments have allowed it to reduce its water usage in more than 40%. Strict procedures are set in place to permanently asses and manage the quality of discharges. Routine testing validates compliance with nationwide regulation in terms of toxicity of the discharges.
In addition, Grupo Clarín continued to increase the contribution to the Garrahan Foundation through an office paper recycling program. This was combined with programs for reducing the use of paper in Company offices while seeking to optimise printing techniques, and renewed efforts to raise employee awareness regarding sustainability issues.
BUSINESS PROJECTIONS AND PLANNING
In the forthcoming years and as part of Argentina's challenge to achieve sustainable growth, Grupo Clarín seeks to maintain and consolidate its presence in the local market, both in the production and in the distribution of content.
Grupo Clarín's business units, along with the development of its core activities, will continue to work in order to seize opportunities, seeking to reinforce, improve and expand the range of products and services offered; increase market share; reach new audiences and promote permanent innovations.
Grupo Clarín will continue to focus on further optimizing the productivity and efficiency levels in all of its areas and companies, seeking to develop and apply the best practices related to each of these processes.
At a corporate level, it will continue to focus on the main processes that allow a sustainable, healthy and efficient growth from different perspectives: financial structure, management control, business strategy, human resources, innovation and corporate social responsibility. Grupo Clarín will continue to analyze alternative new ventures related to its mission and strategic objectives both in Argentina and abroad, as long as they add value to shareholders and are feasible and viable under the prevailing economic environment.
Grupo Clarín will continue to strengthen its consolidated commitment in traditional media, with a growing focus on the area of digital media and connectivity. To such end, the Company will leverage its strong presence in distribution networks, brand strength and, fundamentally, its broad experience in the production of content, recognized by the Spanish-speaking market for its quality, credibility and prestige.
In the hostile environment created by the current government towards the media, Grupo Clarín ratifies its determination to bring the necessary legal and administrative actions to safeguard its rights and those of its shareholders, while reinforcing once again its commitment towards its readers, audiences and the country. In its daily work, Grupo Clarín undertakes to assume with strength and responsibility the role the media are called to play through independent journalism and through the defense and promotion of universal and fundamental rights, such as freedom of speech, since these are pillars that extol the quality of democracy and the welfare of the Argentine society as a whole.
RISKS FACTORS
As an Argentine multimedia company, Grupo Clarín is exposed to a wide range of risks, related to the country and also to its operations. Nevertheless, one of the Company's strengths lies in its strategic diversification to help spread possible risks.
The Company relies on strong internal control and risk management systems. The identification of risk and its assessment is part of each unit's business plans, and is also addressed by a corporate based control department and by the Board on a regular basis.
Argentina's economic environment
Substantially all of our operations are conducted in Argentina, and are therefore affected by changes in Argentina's economic environment. After six years of sustained economic growth, the Argentina economy began to slow down in the second half of 2008, affected by the international crisis as well as internal political developments. The trend continued throughout 2009. A sustained downturn in economic activity is likely to result in increased subscriber churn as well as decreased advertising revenues.
We seek to address the cycles affecting the Argentine economy by diversifying the scope of our business and managing our foreign currency liabilities.
Political and Economic Instability
Our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing in Argentina.
The country´s economy may be adversely and lengthily affected by economic developments in other markets. Furthermore, to date Argentina's ability to obtain financing from international markets remains limited. Inflation, which stood at 7.7% for 2009 (INDEC information, although private sources claim that the actual rate of consumer price inflation for 2009 stood approximately in 15%) may continue to rise, affecting adversely the Argentine long-term credit markets as well as the Argentine economy generally. A contraction of the economy would also adversely affect our financial condition and results of operations. Political and economic factors may impair the governments´ ability or decision to implement reforms, foster economic growth and take on pending infrastructure investments. Restrictions on the supply of energy could also negatively affect the country´s growth and impact the Company's results of operations. The Company has taken the measures to lessen the impact of increases in energy cost and constraints on supplies, but it cannot assure that its operations will not be adversely affected in the event these risks materialize in any significant respect.
Certain of our costs, including a significant portion of our financial expenses, are dollar denominated. Currency fluctuations, such as a considerable devaluation of the Peso against the U.S. dollar are likely to affect adversely the Argentine economy and will impact negatively on our financial condition.
Legislation and Regulation
In October 2009, the Argentine Congress passed a new Audiovisual Communication Services Law that is intended to replace the general legal framework under which the audiovisual media industry operated in Argentina for practically three decades. The new Audiovisual Communication Services Law has been challenged by us and other parties in interest on several grounds, including its encroachment upon constitutional rights, the broad and discretionary powers over media and content granted to the Executive Branch, for favoring state-owned and sponsored media and affecting the sustainability of privately-owned media, promoting the elimination of independent signals and enabling a pervasive and questionable censorship system anchored upon the discretional power to grant licenses and the application of penalties, among other controversial aspects. Since its enactment in October, 2009, five court rulings have been issued enjoining the application of the statute in its entirety in certain cases, or of certain of its provisions, in other cases.
If ultimately upheld by the judiciary, the application of the new legal and regulatory environment to our cable television, telecommunications and Internet and digital content operations may be disadvantageous to us, and will affect the manner in which we operate our business. Failure or delay in renewing our licenses or obtaining regulatory approvals may also influence the availability of our services to our customers.
In addition, in 2009 the Argentine government took measures intended to rescind the authorization granted unanimously by the National Antitrust Commission in 2007 to the purchase by the Company and Fintech of shares representing Cablevisión's capital stock, and Cablevisión's purchase of interests in certain of our subsidiaries. Such rescission, which we have challenged judicially, if upheld would materially adversely affect our business. We have obtained preliminary injunctions that have enjoined the government action, and will continue to make every effort to defend ourselves by taking all actions necessary to safeguard our rights. However, we cannot assure that such efforts ultimately will prove successful.
In Argentina, the legal system, including the Constitution, shields journalistic activities from regulation with the purpose of protecting the independence of the free press. As a media company, we are vigilant as to the menaces that might arise in this respect and widely cooperate with journalistic associations and other NGOs that advocate for the protection of fundamental constitutional rights such as freedom of speech and freedom of the press.
Sector Development and Competition
The media industry is dynamic and undergoing significant developments, at a pace that may differ from our current expectations affecting our growth. Increased competition through new technological developments may adversely affect our business if we are not able to adapt readily our operations. Also some of our activities cater to maturing markets.
While our analysis may not always be accurate, the Company devotes significant resources to analyzing emerging trends and has vast experience and a solid track record in reading consumer demands and successfully developing new products and services, adapting its business model in time.
Programming and Personnel
We may not be able to renew our rights to certain programming and our results of operations may be adversely affected by the loss of key personnel. In addition, under the new Audiovisual Communication Services Law we may be forced to divest or cease to broadcast certain signals.
The production of content is part of our strategy and we dedicate significant resources to the identification of market trends and new figures and matters of public interest, to preserve the position of leadership we have acquired in the market.
Liquidity and Funding
We have financial debt outstanding, a significant portion of which is denominated in foreign currency. Financial markets remain practically closed for Argentine companies, and we must rely primarily on our cash flow generation to service our debt.
We have engaged in an active liability management policy, and improved our debt to free cashflow ratio to limit our need to access the market as a means of repayment of our financial obligations.
CORPORATE GOVERNANCE, ORGANIZATION AND INTERNAL CONTROL SYSTEM
Grupo Clarín's Board of Directors is responsible for the Company's management and approves its policies and overall strategies. According to the Company's By-laws, the Board has ten permanent members and ten alternate members, appointed on an annual basis at the Regular Shareholders' Meeting. The By-laws also provide for the appointment of four independent directors, two permanent members and two alternate members, appointed in accordance with the requirements of National Securities Commission ("CNV").
Day-to-day decisions relating to Grupo Clarín's businesses are taken by an Executive Committee formed by three members, appointed and supervised by the Board of Directors.
Members of the Board of Directors
Héctor Horacio Magnetto Chairman
José Antonio Aranda Vice Chairman
Lucio Rafael Pagliaro Director
Alejandro Alberto Urricelqui Director
Jorge Carlos Rendo Director
Pablo César Casey Director
Muneer Satter Director
David Castelblanco Director
Mario Parrado Independent Director
Alberto César José Menzani Independent Director
Executive Committee
Héctor Horacio Magnetto; José Antonio Aranda; Lucio Rafael Pagliaro.
Grupo Clarín also has a Supervisory Committee comprised of 3 permanent members and 3 alternate members, who are also appointed on an annual basis at the Regular Shareholders' Meeting. The Board of Directors, through an Audit Committee, is in charge of the ongoing oversight of all matters relating to control information systems and risk management, and issues an annual report on these topics. The members of the Company's Audit Committee may be proposed by any member of the Board of Directors and a majority of its members must meet the independence requirement set forth by the CNV.
Audit Committee
Mario Parrado Independent Director
Alberto César José Menzani Independent Director
Alejandro Alberto Urricelqui Director
Supervisory Committee
Raúl Antonio Morán Independent Permanent Member
Carlos A. P. Di Candia Independent Permanent Member
Miguel Maxwell Permanent Member
Hugo Ernesto López Independent Alternate Member
Martín Guillermo Ríos Alternate Member
Alberto López Carnabucci Alternate Member
To assist the Executive Committee in their daily duties, Grupo Clarín organizes its activities under an executive structure comprising: External Relations Division; Corporate Finance Division; Corporate Control Division; Corporate Strategy Division; Audiovisual Content Division; Corporate Human Resources Division; Corporate Affairs Division; Digital Content Division.
The overall criteria used to appoint managers are based on the background and experience in the position and the industry, companies they have worked for, age, professional and moral aptitude, etc. The professional experience and background of the main managers are disclosed to the general public upon their designation.
In order to identify opportunities and streamline structures and systems with the aim of improving processes and making informed decisions, Grupo Clarín sets forth several procedures and policies for the specific purpose of controlling the Company's operations. The areas responsible for the Company's internal controls, both at the Company level and at the level of its subsidiaries and affiliates, contribute to the safeguard of the shareholders' equity, the reliability of financial information and the compliance with laws and regulations.
Compensation of the members of the Board of Directors and senior management
Compensation of the members of the Board of Directors is decided at the Shareholders' Meeting after the close of each fiscal year, considering the cap established by Section 261 of Law No. 19,550 and related regulations of the CNV.
Grupo Clarín has compensation arrangements with all of its officers in executive and managerial positions, which contemplate a fixed and variable remuneration scheme. Fixed compensation is tied to the level of responsibility attached to each position and prevailing market salaries. The variable component is tied to performance during the fiscal year, of the objectives set at the beginning of the year. Grupo Clarín does not have any stock option plans in place for its personnel.
As mentioned in Note 13 to the parent company only Financial Statements, on January 1, 2008 Grupo Clarín began to implement a Long-term Savings Plan ("PALP") for certain executives of Grupo Clarín and its subsidiaries. Executives who adhere to such plan will contribute regularly a portion of their salary to a fund that will allow them to increase their income at the retirement age. Furthermore, each company matches the sum contributed by such executives. This matching contribution will be added to the fund raised by the employees. Under certain conditions, employees may access such fund upon retirement or upon termination of their jobs with Grupo Clarín.
INVESTOR RELATIONS
Creating value and fostering the relationship with its shareholders and investors are two particularly important aspects of Grupo Clarín's daily conduct. Since Grupo Clarín is listed in the Buenos Aires Stock Exchange and in the London Stock Exchange, its commitment to enhancing transparency bears the utmost importance in the Company's daily work.
In addition to a thorough control of the reliability of information, Grupo Clarín pays special attention to disclosing accurately and through multiple channels relevant news, market developments and the financial perspectives of the Company and the sector. During 2009, the Company continued to work on opening communication channels with investors and shareholders in order to learn their concerns and information needs and to improve journalistic communication tools.
Stock Information and Shareholder Structure
Grupo Clarín is listed in the Buenos Aires Stock Exchange where it trades its shares, and in the London Stock Exchanges, where it trades its shares in the form of GDS.
London Stock Eschange (LSE) - Ticker: GCLA
Bolsa de Comercio de Buenos Aires (BCBA) - Ticker: GCLA
GCLA (BCBA)
Price per share, December 31st 2009
Ps. 10.00
GCLA (LSE)
Price per GDS, December 31st 2009
US$ 5.25
Total Shares 287.418.584
Total GDS 143.709.292
Shareholder Structure
70.99% Controlling Shareholders
19.90% Free float
9.11% Goldman Sachs
Annual Shareholders' Meeting
On April 23, 2009, Grupo Clarín held the second Annual Regular Shareholders' Meeting since the Initial Public Offering of its shares. On this occasion, the shareholders reviewed and approved the accounting records for fiscal year No. 10, ended on December 31, 2008 and the performance and compensation of the members of the Board of Directors, the Supervisory Committee and the Audit Committee. Among other things, they reelected the permanent members and alternate members of the Board of Directors and said committees for the year 2009. The Company did not distribute dividends.
Dividend Policy
Grupo Clarín does not have a formal dividend policy governing the amount and payment of dividends or other distributions. According to its Bylaws and the Argentine Business Associations Law, Grupo Clarín may lawfully pay and make declarations of dividends only out of the retained earnings stated in the Company's annual Financial Statements prepared in accordance with Argentine GAAP and CNV regulations and approved at the annual ordinary shareholders' meeting. In such case, dividends must be paid on a pro rata basis to all holders of shares of common stock as of the relevant record date.
Corporate Governance Code
In addition to the aforementioned and in conformity with the CNV's decisions concerning the filing of the Code of Corporate Governance report (Resolution No. 516/07), Grupo Clarín prepared the report for the year under analysis, which is attached as an exhibit to this annual report.
SETTING UP OF RESERVES
Pursuant to the Argentine Business Associations Law, Grupo Clarín is required to set up a legal reserve of no less than 5% of each year's retained earnings until such reserve reaches 20% of its outstanding capital stock. The legal reserve is not available for distribution to shareholders.
FINANCIAL POSITION AND RESULTS OF ITS OPERATIONS
In 2009, the main changes in the Company's financial position and results of its operations were the following:
Working capital (current assets minus current liabilities) at year-end increased by Ps. 43.0 million, from (negative) Ps. 26.8 million to Ps. 16.2 million. This increase is basically evidenced in the Company's funds (the items Cash and Banks and Other Current Investments), in the amount of Ps. 19.0 million, and the decrease in current liabilities, which were repaid, as detailed in Note 9 to the parent company only Financial Statements.
With respect to non-current items, the most significant variation was recorded in Investments, due to the results obtained by Grupo Clarín's subsidiaries, mainly Cablevisión S.A. (indirectly), Arte Gráfico Editorial Argentino S.A., Arte Radiotelevisivo Argentino S.A., and Inversora de Eventos S.A. The items Other receivables and Sellers financing recorded a significant decrease as a result of collections and payments, as detailed in Note 9 to the parent company only Financial Statements.
The Statement of Operations as of December 31, 2009 recorded a net income of Ps. 290.1 million. Such income is basically derived from earnings of Ps 336.9 million derived from equity investments in affiliates and subsidiaries. Income from management fees, net of administrative expenses, generated a gain of Ps 9.0 million.
Grupo Clarín S. A. is still controlled by GC Dominio S.A., which holds 64.2% of its voting rights. Balances and transactions with subsidiaries and affiliates are detailed in Note 4 to the Parent Company Only Financial Statements.
Finally, with respect to net income for the year, which was of Ps. 290,146,539, the Board of Directors of Grupo Clarín S.A. proposed to the Ordinary Shareholders' Meeting that the net income for fiscal year ended December 31, 2009 be distributed as follows:
|
To the Legal reserve: 5% of Net Income for the year |
Ps. 14,507,327 |
|
The balance to Retained earnings |
Ps. 275,639,212 |
Subsequently to the end of the period, on April 22, 2010, Grupo Clarín held its General Annual Ordinary Shareholders Meeting. On that occasion, the shareholders considered and approved the 2009 Financial Statements and other related documentation and the performance and compensation of Directors, Supervisory Committee and Audit Committee. Also, they elected members of the Board of Directors and mentioned committees for fiscal year 2010, along with an external auditor. No dividends were distributed.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
- the consolidated financial statements included with this annual report, prepared in accordance with US GAAP, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
- this annual report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board,
Alejandro Urricelqui
Chief Financial Officer
Grupo Clarín
GRUPO CLARÍN S.A.
-------------
Exhibit to the Annual Report for fiscal year ended December 31, 2009. General Resolution No. 516/07 issued by the "Comisión Nacional de Valores" ("CNV", the Argentine Securities Commission) - Code of Corporate Governance.
This exhibit to the Annual Report outlines the corporate governance practices that Grupo Clarín S.A. ("the Company") maintains or has adopted, in line with its commitment to transparency towards investors and shareholders.
In the following sections, the Board of Directors explains its views and, in some cases, the views of the Company's main shareholders on several corporate governance aspects. The Board of Directors seeks that the Company's corporate governance practices not only meet legal requirements, but also conform to the recommendations on the issue, intended to combine effectively the intention to achieve results with the compliance with corporate governance guidelines set by the Board.
For the ease of interpretation and analysis of this exhibit, it is recommended that the order set forth in such resolution be followed. (www.cnv.gov.ar)
Scope of application of the Code
1) Grupo Clarín S.A. does not customarily carry out transactions with the Company's shareholders or directors. The transactions carried out with affiliates, related companies, shareholders and directors are disclosed in the quarterly and annual financial statements, in accordance with effective accounting standards.
2) The Company's Bylaws include the corporate governance provisions required by effective legislation (such as the audit committee and the public offering regime). The Board of Directors is responsible for the adoption of general policies and strategies, which are updated based on the evolution of local and international trends. No provision included in the Company's Bylaws contradicts the existing recommendations on corporate governance. Regarding conflicts of interest, the Company fully conforms to the Argentine Business Associations Law and other applicable legislation.
General Information about the Board of Directors
3), 4) and 5) The Board of Directors is responsible for the Company's administration and approves its overall policies and strategies. The daily decisions related to the Company's businesses, including the approval of specific policies set forth by General Resolution No. 516/07 and the verification of the implementation thereof, are the responsibility of an Executive Committee comprised by three members appointed by the Board from among its own members. The Executive Committee acts under the oversight of the Board of Directors.
The Board of Directors, through its Audit Committee, is in charge of the ongoing oversight of all matters relating to control information systems and risk management, and issues an annual report on these topics. The Executive Committee oversees the control tasks carried out by the Corporate Control Division; an area in charge of the independent control of the Company's operating management.
6) The members of the Company's Audit Committee may be proposed by any member of the Board of Directors and most of its members must meet the independence requirement set forth by the CNV. The members of the Audit Committee have experience in finance and operating management.
7) The Company's Bylaws set forth the election of ten permanent directors and ten alternate directors. The main shareholders have considered that this number is adequate due to the Company's size, the structure of its capital stock and the complexity inherent to its decision-making processes. According to the Bylaws, four independent directors, two permanent directors and two alternate directors shall be included in the Audit committee to secure compliance with applicable legislation. However, the Company's directors and main shareholders regularly review the number of independent directors and the creation of committees in addition to the Audit and the Executive Committees. To date, there is no plan in place to change the Board's structure in the short term. If the Board of Directors decides to increase the number of Board committees, the Company will take precautions to include the necessary number of independent directors.
8) In the Board of Directors' view, it is not particularly convenient for the Company to include former executives among its members, though the Company's main shareholders regularly review this alternative.
9) Certain members of the Board of Directors and the Supervisory Committee carry out functions in other companies. In practice, the performance of such other functions, particularly in companies which are not related to the Company, has not been found to cause inconveniences in the due compliance with the functions of such bodies. Should any inconvenience occur, the respective member of the Board or Supervisory Committee would not be reelected.
10) Given that the Board of Directors discloses its main activities and in view of the information made available to the shareholders on a regular basis, the Board considers that shareholders have all the elements necessary to approve or reject its performance at the meetings held on an informed basis, with no additional written self-assessment being necessary.
11) The Company's Human Resources Division, at the request of the Board, plans for and manages the training activities for the Board's members that also carry out executive functions in the Company, as well as the training activities for the first line of managers. Such training includes the attendance by these officers to conferences and lectures related to the Company's businesses.
Directors' Independence
12) The Company has four independent directors, two permanent directors and two alternate directors, appointed in compliance with the CNV's rules and regulations.
At the time of appointment of such directors at the Shareholders' Meeting, the Board established compliance with the legal requirements, without the need of additional statements or representations by the proponents.
13) The overall criteria used to appoint managers are based on the background and experience in the position and the industry, the background of companies they have worked for, age, professional and moral suitability, etc. The professional experience and background of the main managers are disclosed to the general public upon their designation.
14) According to the Bylaws, two permanent directors and two alternate directors must meet the independence requirements set forth by the CNV to secure that the majority of the Audit committee is comprised by independent directors. Independent directors are identified at the time of their appointment and in subsequent communications from the Company. The executive or non-executive status of directors will also be informed at the upcoming Shareholders' Meeting.
15) Independent directors may hold exclusive meetings during the exercise of their functions in the Audit committee. To date, the Board of Directors has not delegated the preparation of the agenda to an independent member.
Relationship with Shareholders
16) The Company maintains communication channels with the minority shareholders through the disclosure of relevant information in the stock exchanges where its shares and GDSs are listed and through information disclosed in the Company's website. The Company also communicates with its investors through its executives in charge of market relations and through regular informational meetings and conferences. The Company calls for shareholders' meetings, as set forth by the Argentine Business Associations Law.
17) The Company's management is in charge of the relationship with investors and shareholders and addresses their questions and concerns. It also provides public financial and operating information, provided such disclosure conforms to the law and does not affect the Company's strategy and forward-looking plans. Management issues quarterly reports and holds regular conference calls to discuss further information requested by investors and shareholders. These reports and files can be found in the Company's website.
18) The Company encourages the participation of minority shareholders at the meetings. It calls the meeting and distributes the agenda with sufficient anticipation, translated into English for shareholders domiciled abroad, through the GDS's depositary institution. The Company complies with the publication requirements set forth under current legislation (publication in the Official Gazette, a newspaper with high circulation and the bulletin of the Buenos Aires Stock Exchange) and with the publication in the Company's website.
19) As contemplated in the Company's Bylaws, the Company opted out of the mandatory tender offer rules set forth in Decree No. 677/01. However, the Bylaws set forth mechanisms to protect the minority shareholders' interests against certain scenarios involving the acquisition of the Company's shares. The Company also abides by current legislation in the event of a voluntary delisting or tender offer.
20) The Company has not adopted a fixed dividend policy establishing the amount and payment of dividends or other distributions. Four months after each year-end, the Company's Board of Directors submits the financial statements for approval at the Annual Shareholders' Meeting, where the allocation of the net income for the year is decided upon.
Relationship with the Community
21) The Company has a website with sufficient and updated information, which may be easily accessed from multiple channels. The website includes contact information as well as several forms and mechanisms to gather concerns from several users.
22) The Company's website guarantees the confidentiality and integrity of the information contained therein. The site is hosted by the Company's own and exclusive Windows-based server, with restricted access. It has a 24-hour monitored firewall and the information integrity is secured through the safest measures available and through regular safety updates and audits. Content updates are made through a secured application with restricted access to authorized and trained personnel.
Committees
23) In the Board's view, the president of the Audit committee does not necessarily have to be an independent director to secure compliance with the goals to be achieved by such committee. According to effective legislation and the Company's Bylaws, a majority of the Audit Committee's members must be independent, even if the president of the committee is not. Therefore, the independent directors may make all relevant decisions.
24) In the Company's view, it is not necessary to have a specific policy in place concerning the rotation of the Supervisory Committee's members. As regards the rotation of the partner of the external audit firm, the Company follows the CNV's guidelines. In line with international practices, the Board of Directors does not require the rotation of the external audit firms. The Audit Committee periodically evaluates external auditors in terms of independence, know-how and performance, among other issues.
25) The members of the Company's Supervisory Committee are not involved in the external audit and do not belong to the firm rendering these services.
26) Certain members of the Board of Directors that also carry out managerial functions, along with the Company's executives, set forth the Company's compensation and benefit policies, following criteria in line with the expected results and goals, as well as conventional and legal limitations.
27) The Company's main shareholders regularly review the convenience of creating an Appointment and Corporate Governance Committee. The shareholders particularly review the extent to which the implementation of such committee would lead to a more favorable opinion on the Company's governance from the investors' standpoint, since its creation would entail a significant change in the current way of operating.
28) In line with its policies, the Company ensured that the appointment of the Board's members was free of any form of discrimination.
GRUPO CLARIN
CONSOLIDATED
FINANCIAL STATEMENTS
As of and for the years ended
December 31, 2009 and 2008
GLOSSARY OF SELECTED TERMS
| AD 2000.................................................... | Automóviles Deportivos 2000 S.A. |
| AFA............................................................. | Asociación del Fútbol Argentino (Argentine Football Association) |
| AFIP............................................................ | Administración Federal de Ingresos Públicos (Argentine Federal Revenue Service) |
| AGEA.......................................................... | Arte Gráfico Editorial Argentino S.A. |
| AGR............................................................ | Artes Gráficas Rioplatense S.A. |
| ANA............................................................ | Administración Nacional de Aduanas (National Customs Administration) |
| Antitrust Law............................................. | Law No. 25,156, as amended |
| APE............................................................ | Acuerdo preventivo extrajudicial (out-of-court restructuring agreement) |
| Argentine GAAP ...................................... | Accounting principles generally accepted in Argentina |
| ARTEAR.................................................... | Arte Radiotelevisivo Argentino S.A. |
| ASC............................................................ | Accounting Standards Codification |
| Autos Virtuales......................................... | Autos Virtuales S.A. |
| Bariloche TV............................................. | Bariloche TV S.A. |
| BCBA......................................................... | Bolsa de Comercio de Buenos Aires (Buenos Aires Stock Exchange) |
| Broadcasting Law................................... | Law No. 22,285 and its regulations |
| Cablevisión.............................................. | Cablevisión S.A. |
| Canal Rural.............................................. | Canal Rural Satelital S.A. |
| CER........................................................... | Coeficiente de Estabilización de Referencia (Reference Stabilization Coefficient, a consumer price inflation coefficient) |
| CIMECO.................................................... | Compañía Inversora en Medios de Comunicación (CIMECO) S.A. |
| Clarín Global............................................ | Clarín Global S.A. |
| CMD........................................................... | Compañía de Medios Digitales S.A. (former PRIMA Internacional) |
| CNDC........................................................ | Comisión Nacional de Defensa de la Competencia (National Antitrust Commission) |
| CNV............................................................ | Comisión Nacional de Valores (Argentine Securities Commission) |
| COMFER................................................... | Comité Federal de Radiodifusión (Federal Broadcasting Committee) |
| CPGB......................................................... | Comercializadora de Produtos Gráficos Brasileiros Ltda. |
| Dineromail ............................................... | Dineromail, LLC |
| DTVLA........................................................ | DirecTV Latin America, LLC |
| Editorial Atlántida.................................... | Editorial Atlántida S.A. |
| FASB.......................................................... | Financial Accounting Standards Board |
| Fintech....................................................... | Fintech Advisory, Inc. together with its affiliates |
| GCGC........................................................ | GC Gestión Compartida S.A. |
| GCSA Investments ................................. | GCSA Investments, LLC |
| GC Minor................................................... | GC Minor S.A. |
| GC Services............................................. | Grupo Clarín Services, LLC |
| GDS........................................................... | Global Depositary Shares |
| Grupo Carburando.................................. | Carburando S.A.P.I.C.A.F.I., Mundo Show S.A. and Mundo Show TV S.A. |
| Grupo Clarín, or the Company.............. | Grupo Clarín S.A. |
| Holding Teledigital.................................. | Holding Teledigital Cable S.A. |
| Ideas del Sur............................................ | Ideas del Sur S.A. |
| IESA........................................................... | Inversora de Eventos S.A. |
| IGJ.............................................................. | Inspección General de Justicia |
| Impripost .................................................. | Impripost Tecnologías S.A. |
| JPM............................................................ | JP Morgan Chase Bank, N.A. |
| La Capital Cable..................................... | La Capital Cable S.A. |
| LSE............................................................ | London Stock Exchange |
| Mercoprop................................................. | Mercado de Propuestas Inmobiliarias S.A. |
| Multicanal.................................................. | Multicanal S.A. |
| OSA............................................................ | Oportunidades S.A. |
| PALP.......................................................... | Long-Term Savings Plan |
| Papel Prensa........................................... | Papel Prensa S.A.I.C.F. y de M. |
| Pol-Ka........................................................ | Pol-Ka Producciones S.A. |
| PRIMA........................................................ | Primera Red Interactiva de Medios Argentinos (PRIMA) S.A. |
| PRIMA Internacional .............................. | Primera Red Interactiva de Medios Americanos (PRIMA) Internacional S.A. (now CMD) |
| Ps. ............................................................. | Argentine Pesos |
| Radio Mitre............................................... | Radio Mitre S.A. |
| Raven........................................................ | Raven Media Investments, LLC |
| SCI............................................................. | Secretaría de Comercio Interior (Secretariat of Domestic Trade) |
| SECOM...................................................... | Secretaría de Comunicaciones (Argentine Secretariat of Communications) |
| SMC........................................................... | Secretaría de Medios de Comunicación (Media Secretariat) |
| Supercanal............................................... | Supercanal Holding S.A. |
| TATC.......................................................... | Tres Arroyos Televisora Color S.A. |
| Telba.......................................................... | Teledifusora Bahiense S.A. |
| Telecor...................................................... | Telecor S.A.C.I. |
| Teledigital................................................. | Teledigital Cable S.A. |
| TFN............................................................ | Tribunal Fiscal de la Nación (National Tax Court) |
| Tinta Fresca............................................. | Tinta Fresca Ediciones S.A. |
| TPO............................................................ | Televisora Privada del Oeste S.A. |
| TRISA......................................................... | Tele Red Imagen S.A. |
| TSC............................................................ | Televisión Satelital Codificada S.A. |
| TSMA.......................................................... | Teledifusora San Miguel Arcángel S.A. |
| US GAAP................................................... | Accounting principles generally accepted in the United States of America |
| VAT............................................................. | Value Added Tax |
| Vistone...................................................... | Vistone, LLC, o Vistone S.A. after its incorporation as a sociedad anónima (a corporation with limited liability) under Argentine Law |
| VLG............................................................ | VLG Argentina, LLC |
CONSOLIDATED BALANCE SHEETS
(In Ps. - unless otherwise stated)
|
| As of December 31, |
| ||||
|
| 2009 |
| 2008 |
| ||
|
|
|
|
|
| ||
| ASSETS |
|
|
|
| ||
|
|
|
|
|
| ||
| Current assets |
|
|
|
| ||
|
|
|
|
|
| ||
| Cash and cash equivalents | 384,122,752 |
| 389,252,232 |
| ||
| Trade receivables, net | 759,772,280 |
| 611,977,702 |
| ||
| Other receivables, net | 307,592,997 |
| 293,063,081 |
| ||
| Inventories | 202,742,203 |
| 200,368,734 |
| ||
| Other assets | 7,412,222 |
| 7,199,516 |
| ||
|
|
|
|
|
| ||
| Total Current assets | 1,661,642,454 |
| 1,501,861,265 |
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
| Trade receivables, net | 2,007,532 |
| 3,692,540 |
| ||
| Other receivables, net | 181,389,852 |
| 185,649,707 |
| ||
| Inventories | 29,399,018 |
| 26,209,721 |
| ||
| Investments in unconsolidated affiliates | 298,725,887 |
| 271,429,817 |
| ||
| Other long-term investments | 1,099,540 |
| 3,228,752 |
| ||
| Property, plant and equipment, net | 2,225,479,079 |
| 1,981,802,233 |
| ||
| Intangible assets, net | 415,356,465 |
| 495,725,406 |
| ||
| Goodwill | 3,166,653,198 |
| 3,162,653,758 |
| ||
|
|
|
|
|
| ||
| Total Assets | 7,981,753,025 |
| 7,632,253,199 |
| ||
|
|
|
|
|
| ||
| LIABILITIES |
|
|
|
| ||
|
|
|
|
|
| ||
| Current liabilities |
|
|
|
| ||
|
|
|
|
|
| ||
| Accounts payable | 642,822,086 |
| 560,802,207 |
| ||
| Short-term debt and current portion of long-term debt | 368,174,458 |
| 417,674,105 |
| ||
| Salaries and social security payable | 304,235,591 |
| 261,859,704 |
| ||
| Taxes payable | 356,043,834 |
| 239,847,087 |
| ||
| Sellers financing | 6,115,988 |
| 63,337,460 |
| ||
| Other liabilities | 71,630,378 |
| 75,408,905 |
| ||
|
|
|
|
|
| ||
| Total Current liabilities | 1,749,022,335 |
| 1,618,929,468 |
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
| Accounts payable | 21,813,108 |
| 14,373,232 |
| ||
| Long-term debt | 2,314,556,456 |
| 2,283,659,449 |
| ||
| Taxes payable | 189,016,993 |
| 148,136,648 |
| ||
| Sellers financing | 116,250,465 |
| 551,170,669 |
| ||
| Other liabilities | 134,193,121 |
| 164,721,827 |
| ||
| Provisions | 112,184,122 |
| 95,124,110 |
| ||
|
|
|
|
|
| ||
| Commitments and contingencies (Note 12) |
|
|
|
| ||
|
|
|
|
|
| ||
| Total liabilities | 4,637,036,600 |
| 4,876,115,403 |
| ||
|
|
|
|
|
| ||
| Shareholders' Equity |
|
|
|
| ||
| Common shares Class A common shares Ps.1 par value per share, 75,980,304 shares authorized, issued and outstanding. Class B common shares Ps.1 par value per share, 186,281,411 shares authorized, issued and outstanding. Class C common shares Ps.1 par value per share, 25,156,869 shares authorized, issued and outstanding. | 287,418,584 |
| 287,418,584 |
| ||
| Additional paid-in capital | 1,358,001,994 |
| 1,358,001,994 |
| ||
| Retained earnings | 537,025,127 |
| 190,949,764 |
| ||
| Accumulated other comprehensive income | 31,187,452 |
| 12,007,782 |
| ||
|
|
|
|
|
| ||
| Total Grupo Clarín's shareholders' Equity | 2,213,633,157 |
| 1,848,378,124 |
|
| |
|
|
|
|
|
|
| |
| Equity attributable to noncontrolling interests | 1,131,083,268 |
| 907,759,672 |
|
| |
|
|
|
|
|
|
| |
| Total Shareholders' Equity | 3,344,716,425 |
| 2,756,137,796 |
|
| |
|
|
|
|
|
|
| |
| Total Liabilities and Shareholders' Equity | 7,981,753,025 |
| 7,632,253,199 |
|
| |
|
|
|
|
|
|
| |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(In Ps. - unless otherwise stated)
|
| For the years ended December 31, | ||
|
| 2009 |
| 2008 |
|
|
|
|
|
| Net sales | 6,438,890,419 |
| 5,378,076,159 |
|
|
|
|
|
| Cost of sales (excluding depreciation and amortization) | (3,155,430,351) |
| (2,576,556,492) |
|
|
|
|
|
| Selling expenses (excluding depreciation and amortization) | (650,359,443) |
| (596,160,727) |
|
|
|
|
|
| Administrative expenses (excluding depreciation and amortization) | (736,088,368) |
| (615,181,133) |
|
|
|
|
|
| Depreciation of property, plant and equipment | (396,562,288) |
| (295,908,912) |
|
|
|
|
|
| Amortization of intangible assets | (85,221,517) |
| (77,374,641) |
|
|
|
|
|
| Goodwill impairment | (4,932,060) |
| - |
|
|
|
|
|
| Other results, net | 10,829,282 |
| 7,541,244 |
|
|
|
|
|
| Operating income | 1,421,125,674 |
| 1,224,435,498 |
|
|
|
|
|
| Financial results, net | (546,272,677) |
| (563,720,409) |
|
|
|
|
|
| Equity in earnings from unconsolidated affiliates | 46,789,599 |
| 44,062,116 |
|
|
|
|
|
| Income before income tax, tax on assets and noncontrolling interests | 921,642,596 |
| 704,777,205 |
|
|
|
|
|
| Income tax and tax on assets | (333,454,841) |
| (292,509,960) |
|
|
|
|
|
| Net income before allocation to noncontrolling interests | 588,187,755 |
| 412,267,245 |
|
|
|
|
|
| Less: Net income attributable to noncontrolling interests | (242,112,392) |
| (141,369,299) |
|
|
|
|
|
| Net income attributable to Grupo Clarín's common shareholders | 346,075,363 |
| 270,897,946 |
|
|
|
|
|
|
|
|
|
|
| Net income per common share: |
|
|
|
| Basic | 1.20 |
| 0.94 |
| Weighted average number of common shares outstanding: |
|
|
|
| Basic | 287,418,584 |
| 287,418,584 |
|
|
|
|
|
| Comprehensive income: |
|
|
|
|
|
|
|
|
| Net income | 588,187,755 |
| 412,267,245 |
|
|
|
|
|
| Other comprehensive income |
|
|
|
| (Foreign currency translation adjustments) | 33,755,187 |
| 17,028,530 |
|
|
|
|
|
| Total Comprehensive income | 621,942,942 |
| 429,295,775 |
|
|
|
|
|
| Less: Comprehensive income attributable to noncontrolling interests | (256,687,909) |
| (150,065,187) |
|
|
|
|
|
| Comprehensive income attributable to Grupo Clarín's common shareholders | 365,255,033 |
| 279,230,588 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Ps. - unless otherwise stated)
|
| For the years ended December 31, | ||
|
| 2009 |
| 2008 |
|
|
|
|
|
| Operating activities: |
|
|
|
|
|
|
|
|
| Net income before allocation to noncontrolling interests | 588,187,755 |
| 412,267,245 |
|
|
|
|
|
| Adjustments for non-cash and non-operating items: |
|
|
|
|
|
|
|
|
| Income tax and tax on assets | 333,454,841 |
| 292,509,960 |
| Accrued interest | 146,913,318 |
| 239,504,680 |
|
|
|
|
|
| Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
| Depreciation of property, plant and equipment | 396,562,288 |
| 295,908,912 |
| Amortization of intangible assets | 85,221,517 |
| 77,374,641 |
| Goodwill impairment | 4,932,060 |
| - |
| Allowances for doubtful accounts | 86,135,533 |
| 36,303,106 |
| Setting up of provision for contingencies | 32,100,088 |
| 25,750,397 |
| Equity in earnings from unconsolidated affiliates | (46,789,599) |
| (44,062,116) |
| Other financial results | 310,006,369 |
| 229,860,142 |
| Gain on sale of property, plant and equipment | (10,829,282) |
| (7,541,244) |
|
|
|
|
|
| Changes in assets and liabilities |
|
|
|
| Trade receivables | (225,816,206) |
| (80,224,272) |
| Other receivables | (19,332,188) |
| (8,750,169) |
| Inventories | (5,562,766) |
| (28,573,180) |
| Other assets | (1,088,549) |
| (1,761) |
| Accounts payable | 54,224,858 |
| 33,499,350 |
| Salaries and social security payable | 45,038,097 |
| 97,004,234 |
| Taxes payable | (108,555,171) |
| 66,635,818 |
| Other liabilities | 18,086,857 |
| (50,390,332) |
| Provisions
| (20,744,488) |
| (44,397,496) |
| Payments of interest | (264,839,343) |
| (261,705,682) |
| Collection of interest | 191,616 |
| 8,128,686 |
| Collection of dividends | 10,945,897 |
| 15,906,416 |
| Income tax and tax on assets payments | (71,256,980) |
| (123,711,663) |
|
|
|
|
|
| Cash provided by operating activities | 1,337,186,522 |
| 1,181,295,672 |
|
|
|
|
|
| Investing activities: |
|
|
|
|
|
|
|
|
| Payments for the acquisition of property, plant and equipment | (656,922,615) |
| (828,159,209) |
| Payments for the acquisition of subsidiaries and unconsolidated affiliates, net of cash acquired | (720,570) |
| (54,389,098) |
| Impact to cash from deconsolidation | (10,362,392) |
| (924,426) |
| Payments for the acquisition of intangible assets | (7,946,413) |
| (7,677,771) |
| Proceeds from sale of property, plant and equipment and other investments | 20,031,530 |
| 7,522,500 |
| Restricted cash | (307,538) |
| - |
| Capital contributions in equity investees | (3,549,900) |
| (8,609,273) |
|
|
|
|
|
| Cash used in investing activities | (659,777,898) |
| (892,237,277) |
|
|
|
|
|
| Financing activities: |
|
|
|
|
|
|
|
|
| Loans obtained | 139,567,144 |
| 121,510,932 |
| Repayment of loans - Principal | (318,514,016) |
| (146,009,561) |
| Payments of financial instruments | (15,499,812) |
| (42,779,446) |
| Proceeds from financial instruments | 22,361,317 |
| 14,126,700 |
| Payments of sellers financing | (514,044,058) |
| (334,460,012) |
| Payments of dividends | - |
| (48,000,000) |
| Payments of dividends to noncontrolling interests | (22,083,167) |
| (11,999,439) |
| Net reimbursement of expenses related to the initial public offering | - |
| 1,484,015 |
|
|
|
|
|
| Cash used in financing activities | (708,212,592) |
| (446,126,811) |
|
|
|
|
|
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | 25,674,488 |
| 18,701,172 |
|
|
|
|
|
| Decrease in cash and cash equivalents | (5,129,480) |
| (138,367,244) |
| Cash and cash equivalents at the beginning of the year | 389,252,232 |
| 527,619,476 |
|
|
|
|
|
| Cash and cash equivalents at the end of the year | 384,122,752 |
| 389,252,232 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Ps. - unless otherwise stated)
|
| For the years ended December 31, | ||
|
| 2009 |
| 2008 |
|
|
|
|
|
| Supplemental cash flow information |
|
|
|
|
|
|
|
|
| Acquisition of subsidiaries (see Note 6) | |||
|
|
|
|
|
| Cash and cash equivalents | - |
| 4,365,563 |
| Trade receivables | 87,247 |
| 21,710,340 |
| Other receivables | 66,387 |
| 16,634,457 |
| Inventories | - |
| 29,176,045 |
| Investments in unconsolidated affiliates | - |
| 4,069,933 |
| Property, plant and equipment, net | 25,605 |
| 28,905,783 |
| Accounts payable | (76,992) |
| (28,078,414) |
| Borrowings | - |
| (8,001,302) |
| Salaries and social security payable | (27,843) |
| (7,625,091) |
| Taxes payable | (4,790) |
| (3,635,755) |
| Other liabilities | (153,201) |
| (35,498,954) |
| Provisions | - |
| (24,429) |
| Noncontrolling interest | - |
| 11,374,407 |
|
|
|
|
|
| Net value of assets consolidated | (83,587) |
| 33,372,583 |
| Other intangible assets (net of related deferred income tax) | - |
| 26,872,259 |
| Goodwill | 804,157 |
| 26,849,215 |
| Noncontrolling interest on net assets consolidated | - |
| (16,973,674) |
|
|
|
|
|
| Purchase price | 720,570 |
| 70,120,383 |
| Cash and cash equivalents acquired | - |
| (5,551,785) |
| Sellers financing | - |
| (10,179,500) |
|
|
|
|
|
| Payment for the acquisition of subsidiaries, net of cash acquired | 720,570 |
| (54,389,098) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant non-cash investing and financing activities | |||
|
|
|
|
|
| Financed acquisitions of property, plant and equipment | 9,717,658 |
| - |
| Financed disposal of subsidiaries | 9,029,619 |
| - |
| Financed disposal of other assets | - |
| 7,750,000 |
| Financed acquisitions of subsidiaries | - |
| 10,179,500 |
| Payment of loans with trade receivables | - |
| 5,968,557 |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
OTHER COMPREHENSIVE (loss) INCOME
(In Ps. - unless otherwise stated)
|
|
| Common Shares |
Additional Paid-In Capital |
| (Accumulated Deficit) Retained Earnings |
| Accumulated Other Comprehensive Income |
| Total Grupo Clarín's shareholders' Equity |
| Noncontrolling interests |
| Total shareholders' Equity | |
|
|
| Shares | Amount | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2007 |
| 287,418,584 | 287,418,584 | 1,358,001,994 |
| (31,948,182) |
| 3,675,140 |
| 1,617,147,536 |
| 987,100,718 |
| 2,604,248,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends declared |
| - | - | - |
| (48,000,000) |
| - |
| (48,000,000) |
| - |
| (48,000,000) |
| Dividends to noncontrolling interests |
| - | - | - |
| - |
| - |
| - |
| (11,999,439) |
| (11,999,439) |
| Foreign currency translation adjustments |
| - | - | - |
| - |
| 8,332,642 |
| 8,332,642 |
| 8,695,888 |
| 17,028,530 |
| Decrease from sale |
| - | - | - |
| - |
| - |
| - |
| (217,406,794) |
| (217,406,794) |
| Net income for the year |
| - | - | - |
| 270,897,946 |
| - |
| 270,897,946 |
| 141,369,299 |
| 412,267,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2008 |
| 287,418,584 | 287,418,584 | 1,358,001,994 |
| 190,949,764 |
| 12,007,782 |
| 1,848,378,124 |
| 907,759,672 |
| 2,756,137,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends to noncontrolling interests |
| - | - | - |
| - |
| - |
| - |
| (22,083,167) |
| (22,083,167) |
| Foreign currency translation adjustments |
| - | - | - |
| - |
| 19,179,670 |
| 19,179,670 |
| 14,575,517 |
| 33,755,187 |
| Decrease from sale |
| - | - | - |
| - |
| - |
| - |
| (11,281,146) |
| (11,281,146) |
| Net income for the year |
| - | - | - |
| 346,075,363 |
| - |
| 346,075,363 |
| 242,112,392 |
| 588,187,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2009 |
| 287,418,584 | 287,418,584 | 1,358,001,994 |
| 537,025,127 |
| 31,187,452 |
| 2,213,633,157 |
| 1,131,083,268 |
| 3,344,716,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in Ps. - unless otherwise stated)
Note 1. Description of the business
Grupo Clarín is a holding company that operates in the media industry. Its operating income and cash flows derive from the operations of its subsidiaries in which it participates directly or indirectly.
Its operations include cable television and Internet access services, newspaper and other printing, publishing and advertising activities, broadcast television, radio operations and television content production, on-line and new media services, and other media-related activities. A substantial portion of its revenues is generated in Argentina. Through its controlled companies and equity investees, it is engaged primarily in the following business segments: a) Cable television and Internet access, b) Printing and publishing, c) Broadcasting and programming and d) Digital content and others.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
In preparing these consolidated financial statements, the Company has followed accounting policies that are in accordance with US GAAP.
US GAAP differs in certain respects from Argentine accounting practice applied by the Company in its statutory financial statements prepared in accordance with Argentine GAAP and in accordance with the rules of the CNV.
The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of Grupo Clarín and all entities in which the Company has a controlling voting interest ("subsidiaries") required to be consolidated in accordance with US GAAP. When Grupo Clarín consolidates entities, the ownership interests of any minority parties are reflected as noncontrolling interests, and investment in entities in which the Company has 20% to 50% ownership, but not a controlling interest, are accounted for under the equity method. Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation. The following chart includes the most significant consolidated subsidiaries as of each closing date (percentages show direct and indirect interest held by the Company).
|
| 2009 |
| 2008 |
|
| Cablevisión (1) | 59.9% |
| 59.9% |
|
| PRIMA | 59.7% |
| 59.7% |
|
| AGEA | 100.0% |
| 100.0% |
|
| AGR | 100.0% |
| 100.0% |
|
| CIMECO | 100.0% |
| 100.0% |
|
| ARTEAR | 99.2% |
| 99.2% |
|
| Pol-Ka | 55.0% |
| 55.0% |
|
| IESA | 100.0% |
| 100.0% |
|
| Radio Mitre | 100.0% |
| 100.0% |
|
| GCGC | 100.0% |
| 100.0% |
|
| CMD (2) | 100.0% |
| 100.0% |
|
| GC Services | 100.0% |
| 100.0% |
|
| GCSA Investments | 100.0% |
| 100.0% |
|
(1) Includes Multicanal and Teledigital, companies merged into Cablevisión as from October 1, 2008 (see Note 6).
(2) Includes Clarín Global, company merged into CMD effective as of January 1, 2009 (see Note 6).
Use of estimates
US GAAP requires management to make estimates that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses. The Company evaluates its estimates, including those related to tangible and intangible assets, doubtful accounts, inventories, provisions and income taxes, on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value.
Cash in foreign currency is converted into Ps. at the exchange rate prevailing as of each year end.
Concentration of cash and credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, accounts receivable, and short-term investments. The Company maintains cash and cash equivalents and other financial investments with various high credit quality financial institutions, in order to mitigate the amount of credit exposure to any one institution. The Company has not experienced any significant losses in such accounts. The Company does not depend on any single customer.
The Company maintains reserves for potential credit losses based on impaired accounts, historical charge-off patterns and management judgment; historically such losses have not been significant and have been within management's expectations.
Allowance for doubtful accounts
The Company reviews its doubtful accounts on a monthly basis for estimated losses resulting from the inability of its customers to make required payments. The customer base in the cable television and Internet access segment is primarily residential in nature while the customer base of the publishing, printing and broadcast television operations involves a wide range of companies and, to a lesser extent, individuals. Generally, the Company does not require collateral from its customers, although it does require that all advertising agencies, receiver agencies and direct advertisers that are granted financing to sell advertisement in its print media, provide AGEA security with respect to at least 70% of the payment obligations, in general by means of a mortgage or bank guaranty.
The Company invoices most of its cable television and Internet access subscribers in advance. A majority of Argentine cable television subscribers pay their invoices in cash, and it encourages them to pay their monthly invoices by automatic credit card or bank account debits. The Company enforces a strict disconnection policy.
In determining the adequacy of allowances for doubtful accounts, the Company analyzes, among other things, historic bad debt experience, customer credit worthiness, current economic trends in Argentina and customer payment history.
Inventories
Inventories are valued at lower of cost (standards approximating the first-in, first out method) or market. Costs included in inventories are based on invoiced cost and/or production costs, as applicable. Included in production costs are material, direct labor and allocated overhead. The Company writes down inventories for the difference between the carrying value of the inventories and their estimated market value. If actual market conditions are less favorable than those projected by management, additional write-downs may be required.
Investment in unconsolidated affiliates
Investments in companies in which the Company has significant influence, but less than a controlling voting interest, are accounted for using the equity method. This is generally presumed to exist when the Company owns between 20% and 50% of the investee.
Property, plant and equipment, net
Property, plant and equipment are stated at cost. The cost of additions and substantial improvements to property, plant and equipment is capitalized. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Borrowing costs are capitalized as part of the cost of property, plant and equipment when the preparation of such assets for their intended use necessarily involves a substantial period of time. Other materials and equipment consisting mainly of networking infrastructure not related to additions or improvements are charged to profit or loss as consumed. Property, plant and equipment are depreciated using straight-line methods over their estimated economic lives.
Goodwill and Intangible assets, net
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Such fair values are determined by using primarily internal valuations, including discounted cash flows, external market values and others. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.
Intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. Identifiable intangible assets are mainly comprised of acquired subscriber portfolio, which is amortized over its useful life determined on the basis of the churn rate of such acquired portfolio. These useful lives range from approximately 7 to 10 years.
Impairment of Long-Lived Assets and Goodwill
The Company reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Goodwill is reviewed at least annually for impairment. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income or discounted cash flows approach and the market approach, which utilizes comparable companies' data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.
During 2009, the Company has reviewed, based on the term of certain contracts, the carrying value of the goodwill related to CPGB, and accounted for an impairment of approximately Ps. 5 million.
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.
Revenues for each of the main business segments identified by the Company are recognized when the following conditions are met.
·; Cable television and Internet access
Subscriber fees and internet services are recognized as revenue in the period that the service is provided. Advertising revenues for cable television are recognized when the advertisement is aired and online advertising revenues are recognized over the period in which the advertisements are displayed.
·; Printing and Publishing
Advertising sales are determined by the prices achieved per single column centimeter (the advertising yield) and the number of advertising centimeters sold (advertising lineage) in the relevant period. Circulation sales include the price received from the sale of newspapers, magazines and other publications. Printing services sales consists mainly of fees received from the printing of magazines, books, supermarket leaflets and related products.
Advertising sales from newspapers and magazines is recognized when the advertisements are published. Revenues from the sale of newspaper and magazines are recognized upon passing control to the buyer. The Company records the estimated impact of residual returns as a deduction from revenues. In determining the estimate of the sales to be returned as of the end of each fiscal year, the Company uses historical return trends to calculate the amount. Revenues from printing services are recognized upon completion of the services and delivery of the related product and customer acceptance.
·; Broadcasting and Programming
Advertising revenues for television and radio stations are recognized when the advertisement is aired. Revenues from programming and distribution of television content for broadcast channels are recognized when the programming service is provided.
Barter transactions
The Company enters into transactions that either exchange advertising for advertising ("Advertising Barter") or advertising for other products and services ("Non-advertising Barter"). Advertising Barter transactions are recorded at the estimated fair value of the advertising given. Revenue from barter transactions is recognized when advertising is provided, and services received are charged to expense when used. Revenues for Non-advertising Barter transactions are recognized at the estimated fair value when the product is available for telecast and the advertising spots received under such contracts are either used or sold to third parties. Revenue from barter transactions is not material to the Company's consolidated statement of income for any of the fiscal years presented herein.
Advertising cost
Advertising costs are expensed as incurred. Advertising expenses in 2009 and 2008 totaled approximately Ps. 122.8 and Ps. 128.0 million, respectively.
Other Comprehensive Income
Other Comprehensive Income is reported on the accompanying consolidated statement of shareholders' equity and other comprehensive income and consists of income and other gains and losses affecting shareholders' equity that, under US GAAP, are excluded from net income. For the Company, such item includes the cumulative translation adjustment relating to the translation of the financial statements of the Company's foreign subsidiaries.
Fair value of financial instruments
The carrying amounts of cash, accounts receivable and short-term obligations approximate their fair values, because of the short-term maturities of these instruments.
The fair value of non-current long-term debt and sellers financing was estimated based on the current rates available to the Company for the debt of similar remaining maturities. Fair value of derivative financial instruments represents the estimated amount that would have been required to terminate the contracts. The estimated fair values of financial instruments (amounts stated in millions of Ps.) are as follows, except for those financial instruments noted above for which the carrying values approximate their fair values:
|
|
| 2009 |
| 2008 |
| ||||
|
|
| Carrying amount |
| Fair value |
| Carrying amount |
| Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt |
| 2,315 |
| 1,836 |
| 2,284 |
| 1,447 |
|
| Sellers financing |
| 116 |
| 103 |
| 551 |
| 445 |
|
Foreign Currency Translation
Management has determined that for all of the Company's foreign operations the local currency is their functional currency. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to Ps. using year end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of Other Comprehensive Income, a component of shareholders' equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction (losses) gains are included in the consolidated statements of income under the caption "Financial results, net" and amounted to Ps. (272.7) and Ps. (248.9) million for the years ended December 31, 2009 and 2008, respectively.
Derivative financial instruments
The Company uses derivative instruments, including interest rate swap and foreign exchange contracts, to manage its exposure to interest rate and foreign exchange rate risks. The Company does not hold or issue financial instruments for speculative or trading purposes. Refer to Note 16 for additional information.
Fair value measurements
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009:
| Description |
| Balances as of December 31, 2009 |
| Significant other observable inputs (Level 2) |
| Assets |
|
|
|
|
| Other receivables, net |
|
|
|
|
| Interest rate swaps |
| 26,906,186 |
| 26,906,186 |
| Liabilities |
|
|
|
|
| Other liabilities |
|
|
|
|
| Foreign exchange future contracts |
| 3,748,000 |
| 3,748,000 |
Financial assets and liabilities are valued using readily-available pricing sources for comparable instruments (Level 2). Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of December 31, 2009, the Company did not have any assets or liabilities with valuations obtained from real-time quotes for transactions in active exchange markets involving identical assets (level 1 assets), or without observable market values that would require a high level of judgment to determine fair value (level 3 assets).
Derivative financial instruments are valued using pricing models. Pricing models take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curve, option volatility and currency rates.
As of December 31, 2009, the carrying value of cash and cash equivalents approximated their fair value and it was held primarily in bank deposits and money market funds. The Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.
Income taxes
The Company accounts for income tax following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company's deferred tax assets will not be realized. The Company's income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company's deferred tax assets and liabilities.
Tax on assets is supplementary to income tax. While income tax is levied on the taxable income for the year, tax on assets is imposed on the potential income from certain productive assets at the rate of 1%. Therefore, the Company's tax liability shall be equal to the higher of both taxes. However, if tax on assets exceeds income tax in any given fiscal year, the excess may be creditable against any excess of income tax over tax on assets in any of the following ten years.
Tax on assets balance has been capitalized under the caption Other non-current receivables, since the Company has estimated, based on its current business plans, that the outstanding balance will be recoverable within the statute of limitations.
Uncertainty in Income Taxes
As of December 31, 2009, income tax filings corresponding to fiscal years 2004 through 2008 could be subject to examination by the AFIP. The Company classifies interest and penalties in the consolidated statements of income in Other financial results.
Troubled debt restructurings
The Company accounts for debt restructurings in accordance with provisions related to troubled debt restructurings. US GAAP requires that a debtor should (a) recognize a gain or loss by reducing the carrying amount of the debt by the fair value of the assets or equity interest transferred, and (b) account for the remainder of the restructuring as a modification of debt terms. When the terms of a debt are adjusted in a troubled-debt restructuring, the total amount of the future cash payments should be determined. If the carrying amount of debt is less than the aggregate future cash payments required by the new debt term, the debtor should amortize the difference over the life of the new debt as interest expense using the effective interest method. No gain or loss is recognized in the period of extinguishments. If the carrying amount of debt is greater than the aggregate future cash payments required by the new debt term, the debtor should reduce the
carrying value of debt to an amount equal to the total future cash payments and recognize the reduction an extraordinary gain. No interest expense should be recorded.
Recent Accounting Pronouncements
Hierarchy of Generally Accepted Accounting Principles
In June 2009, the FASB issued "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles," which establishes the FASB ASC as the source of authoritative US GAAP recognized by the FASB to be applied to nongovernmental entities. The ASC was effective for financial statements issued for interim and annual periods ending after September 15, 2009. After effectiveness, only one level of authoritative GAAP exists. All other literature is considered non-authoritative. The ASC does not change US GAAP; instead, it introduces a new structure-one that is organized in an easily accessible, user-friendly online research system. The adoption of the ASC did not affect reported results of operations, financial condition or cash flows.
Business Combinations
On January 1, 2009, the Company adopted a new accounting guidance for business combinations as issued by the FASB. The new accounting guidance establishes principles and requirements regarding how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from previous guidance resulting from this new guidance include the expansion of the definitions of a "business" and a "business combination". For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date; for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. The new accounting guidance also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination.
Noncontrolling Interests in Consolidated Financial Statements
On January 1, 2009, the Company adopted a new accounting guidance for noncontrolling interests in subsidiaries as issued by the FASB. The new accounting guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as a minority interest, is a third-party ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the new guidance requires the consolidated statement of income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The new guidance also requires disclosure on the face of the consolidated statement of income of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The Company's consolidated financial statements were updated to reflect the reporting and disclosure requirements.
Disclosures about fair value of financial instruments
In April 2009, the FASB issued a guidance requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. This guidance also amends the guidance on Interim Financial Reporting, now requiring such disclosures in summarized financial information for interim reporting periods. An entity may early adopt this guidance only if it also elects to early adopt the guidance on Determining Fair Value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly and Recognition and Presentation of other-than-temporary impairments. This guidance does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this guidance requires comparative disclosures only for periods ending after initial adoption. This guidance will be effective for interim reporting periods after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
Note 3. earnings per share
Basic net income per share for the Company's common shares is computed by dividing Grupo Clarin's net income available to common shareholders attributable to common shares for the year by the weighted average number of common shares outstanding during the year.
Net income per common share for the years ended December 31, 2009 and 2008 is as follows:
|
|
| Year ended December 31, | ||
|
|
| 2009 |
| 2008 |
| Numerator |
|
|
|
|
|
|
|
|
|
|
| Net income attributable to Grupo Clarín available to common shareholders for Basic earnings per common share |
| 346,075,363 |
| 270,897,946 |
|
|
|
|
|
|
| Denominator: |
|
|
|
|
| Weighted average of common shares outstanding for Basic earnings per common share |
| 287,418,584 |
| 287,418,584 |
|
|
|
|
|
|
| Basic net income per common share |
| 1.20 |
| 0.94 |
For the years ended December 31, 2009 and 2008 there were no outstanding instruments that through conversion or exercise could result in an increase of common shares with either dilutive or anti-dilutive effect.
Note 4. Breakdown of certain balance sheet accounts
| Investments in unconsolidated affiliates |
|
|
|
|
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
|
|
|
|
|
|
| Papel Prensa |
| 134,883,312 |
| 131,145,407 |
| Impripost |
| 9,360,882 |
| 8,905,866 |
| Ideas del Sur |
| 18,129,043 |
| 19,130,334 |
| TRISA |
| 34,474,446 |
| 39,656,709 |
| TSC |
| 12,284,544 |
| 10,001,461 |
| Ver TV S.A. |
| 15,656,651 |
| 15,897,054 |
| Dineromail |
| 10,948,000 |
| 10,948,000 |
| TPO |
| 10,822,223 |
| 10,822,223 |
| TATC |
| 4,942,522 |
| - |
| TSMA |
| 10,060,515 |
| - |
| Other investments |
| 37,163,749 |
| 24,922,763 |
|
|
| 298,725,887 |
| 271,429,817 |
|
|
|
|
| Interest in capital and votes | ||
| Unconsolidated affiliates |
| Main activity |
| 2009 |
| 2008 |
|
|
|
|
|
|
|
|
| Papel Prensa |
| Paper manufacture |
| 49.00% |
| 49.00% |
| Impripost |
| Printer |
| 50.00% |
| 50.00% |
| Ideas del Sur |
| Production of television programmes |
| 30.00% |
| 30.00% |
| TRISA |
| Production and exploitation of sports events |
| 50.00% |
| 50.00% |
| TSC |
| Exploitation of transmission rights of sports events |
| 50.00% |
| 50.00% |
| Ver TV |
| Cable operator |
| 49.00% |
| 49.00% |
Trade receivables, net
Trade receivables, net consist of:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
| Current |
|
|
|
|
| Trade receivables |
| 890,585,837 |
| 697,802,158 |
| Less: Allowance for doubtful accounts |
| (130,813,557) |
| (85,824,456) |
|
|
| 759,772,280 |
| 611,977,702 |
| Non Current |
|
|
|
|
| Trade receivables |
| 2,007,532 |
| 3,692,540 |
|
|
| 2,007,532 |
| 3,692,540 |
Other receivables, net
Other receivables, net consist of:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
| Current |
|
|
|
|
| Reserve account |
| 54,763,526 |
| 34,084,790 |
| Net deferred tax assets |
| 42,763,376 |
| 45,904,707 |
| Tax credits |
| 72,182,686 |
| 69,984,990 |
| Court-ordered and guarantee deposits |
| 6,595,676 |
| 8,690,033 |
| Prepaid expenses |
| 35,827,919 |
| 14,590,120 |
| Advance payments |
| 36,458,797 |
| 32,731,009 |
| Related parties |
| 18,078,663 |
| 13,368,225 |
| Dividends receivable |
| 8,719,412 |
| 447,691 |
| Derivatives |
| - |
| 12,785,000 |
| Other receivables |
| 12,046,281 |
| 22,105,908 |
| Others |
| 21,676,607 |
| 39,962,327 |
| Subtotal |
| 309,112,943 |
| 294,654,800 |
| Less: Allowance for other doubtful accounts |
| (1,519,946) |
| (1,591,719) |
|
|
| 307,592,997 |
| 293,063,081 |
| Non Current |
|
|
|
|
| Net deferred tax assets |
| 81,237,115 |
| 101,077,649 |
| Tax credits |
| 14,569,506 |
| 42,887,933 |
| Guarantee deposits |
| 650,067 |
| 745,027 |
| Prepaid expenses |
| 22,558,913 |
| 802,742 |
| Advances to personnel |
| 1,287,463 |
| 1,210,689 |
| Derivatives |
| 26,906,186 |
| 26,595,885 |
| Related parties |
| 5,980,641 |
| - |
| Others |
| 28,199,961 |
| 13,523,187 |
| Subtotal |
| 181,389,852 |
| 186,843,112 |
| Less: Allowance for other doubtful accounts |
| - |
| (1,193,405) |
|
|
| 181,389,852 |
| 185,649,707 |
Inventories
Inventories consist of:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
| Current |
|
|
|
|
| Film products and rights |
| 37,723,793 |
| 51,831,891 |
| Finished goods |
| 11,993,383 |
| 11,434,074 |
| Products in process |
| 1,604,810 |
| 1,010,503 |
| Raw materials and supplies |
| 137,124,893 |
| 127,525,923 |
| Others |
| 240,324 |
| 381,818 |
| Subtotal |
| 188,687,203 |
| 192,184,209 |
| Advances to suppliers |
| 14,055,000 |
| 8,184,525 |
|
|
| 202,742,203 |
| 200,368,734 |
|
|
|
|
|
|
| Non Current |
|
|
|
|
| Film products and rights |
| 26,699,018 |
| 18,109,721 |
| Subtotal |
| 26,699,018 |
| 18,109,721 |
| Advances to suppliers |
| 2,700,000 |
| 8,100,000 |
|
|
| 29,399,018 |
| 26,209,721 |
Accounts payable
Accounts payable consist of:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
| Current |
|
|
|
|
| Suppliers |
| 583,606,147 |
| 507,807,040 |
| Related parties |
| 59,215,939 |
| 52,995,167 |
|
|
| 642,822,086 |
| 560,802,207 |
|
|
|
|
|
|
| Non Current |
|
|
|
|
| Suppliers |
| 21,813,108 |
| 14,373,232 |
|
|
| 21,813,108 |
| 14,373,232 |
Other liabilities
Other liabilities consist of:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
| Current |
|
|
|
|
| Advances from clients |
| 27,448,573 |
| 42,336,451 |
| Related parties |
| 211,210 |
| 208,714 |
| Dividends payable |
| 2,724,908 |
| 189,043 |
| Derivatives |
| 3,748,000 |
| 760,000 |
| Others |
| 37,497,687 |
| 31,914,697 |
|
|
| 71,630,378 |
| 75,408,905 |
|
|
|
|
|
|
| Non Current |
|
|
|
|
| Net deferred tax liabilities |
| 122,246,255 |
| 158,892,663 |
| Guarantee deposits |
| 5,601 |
| 1,882,505 |
| Others |
| 11,941,265 |
| 3,946,659 |
|
|
| 134,193,121 |
| 164,721,827 |
Note 5. Goodwill and Intangible assets, net
The breakdown of Goodwill is as follows:
|
|
| As of December 31, 2008 |
| Acquisitions, dispositions and other adjustments |
| As of December 31, 2009 |
|
|
|
|
|
|
|
|
| Cablevisión (1) |
| 2,866,540,661 |
| 9,143,547 | (2) | 2,875,684,208 |
| PRIMA |
| 1,835,769 |
| - |
| 1,835,769 |
| CIMECO and subsidiaries |
| 234,169,393 |
| - |
| 234,169,393 |
| CPGB |
| 4,932,060 |
| (4,932,060) | (3) | - |
| Telecor |
| 18,854,954 |
| - |
| 18,854,954 |
| Grupo Carburando |
| 13,069,775 |
| (1,016,202) |
| 12,053,573 |
| Pol-ka |
| 8,975,764 |
| - |
| 8,975,764 |
| Telba |
| 1,929,235 |
| - |
| 1,929,235 |
| Bariloche TV |
| 1,844,621 |
| - |
| 1,844,621 |
| Others |
| 10,501,526 |
| 804,155 |
| 11,305,681 |
|
|
| 3,162,653,758 |
| 3,999,440 |
| 3,166,653,198 |
|
|
| As of December 31, 2007 |
| Acquisitions, dispositions and other adjustments |
| As of December 31, 2008 |
|
|
|
|
|
|
|
|
| Cablevisión (1) |
| 2,867,366,518 |
| (825,857) |
| 2,866,540,661 |
| PRIMA |
| 1,835,769 |
| - |
| 1,835,769 |
| CIMECO and subsidiaries |
| 234,169,393 |
| - |
| 234,169,393 |
| CPGB |
| 4,932,060 |
| - |
| 4,932,060 |
| Telecor |
| 18,854,954 |
| - |
| 18,854,954 |
| Grupo Carburando |
| - |
| 13,069,775 | (4) | 13,069,775 |
| Pol-ka |
| - |
| 8,975,764 | (4) | 8,975,764 |
| Telba |
| 1,929,235 |
| - |
| 1,929,235 |
| Bariloche TV |
| 1,844,621 |
| - |
| 1,844,621 |
| Others |
| 3,663,066 |
| 6,838,460 | (4) | 10,501,526 |
|
|
| 3,134,595,616 |
| 28,058,142 |
| 3,162,653,758 |
(1) Includes goodwill corresponding to Multicanal and Teledigital, companies merged into Cablevisión as of October 1, 2008.
(2) Impact to goodwill from foreign currency translation adjustments on subsidiaries.
(3) See Note 2 "Impairment of Long-Lived Assets and Goodwill".
(4) See Note 6 "Other acquisitions".
The components of Goodwill by segments are as follow:
|
|
| As of December 31, | ||
|
|
| 2009 |
| 2008 |
|
|
|
|
|
|
| Cable television and Internet access |
| 2,877,519,977 |
| 2,868,376,430 |
| Printing and publishing |
| 242,397,394 |
| 246,525,299 |
| Broadcasting and programming |
| 43,658,147 |
| 44,674,349 |
| Digital content and others |
| 3,077,680 |
| 3,077,680 |
|
|
| 3,166,653,198 |
| 3,162,653,758 |
The breakdown of Intangible assets, net is as follows:
|
|
| As of December 31, 2009 | ||||
|
|
| Gross |
| Accumulated amortization |
| Net |
|
|
|
|
|
|
|
|
| Editing / exploitation rights |
| 56,288,570 |
| (27,122,929) |
| 29,165,641 |
| Subscriber portfolio acquired |
| 597,779,076 |
| (242,954,986) |
| 354,824,090 |
| Trademarks and patents |
| 16,563,724 |
| (5,361,151) |
| 11,202,573 |
| Others |
| 51,742,250 |
| (31,578,089) |
| 20,164,161 |
|
|
| 722,373,620 |
| (307,017,155) |
| 415,356,465 |
|
|
| As of December 31, 2008 | ||||
|
|
| Gross |
| Accumulated amortization |
| Net |
|
|
|
|
|
|
|
|
| Editing / exploitation rights |
| 59,090,014 |
| (15,323,357) |
| 43,766,657 |
| Subscriber portfolio acquired |
| 597,779,076 |
| (176,479,720) |
| 421,299,356 |
| Trademarks and patents |
| 15,974,376 |
| (4,872,118) |
| 11,102,258 |
| Others |
| 54,294,946 |
| (34,737,811) |
| 19,557,135 |
|
|
| 727,138,412 |
| (231,413,006) |
| 495,725,406 |
The amortization expense is estimated in approximately Ps. 72.0, Ps. 71.2, Ps. 70.6, Ps. 67.5 and Ps. 48.3 for fiscal years 2010 through 2014, respectively.
Note 6. Business combinations
CIMECO
On August 23, 2007, AGEA executed call and put options for an additional interest in CIMECO's capital stock. On August 24, 2007, AGEA paid US$ 6 million as guarantee for the put option. On August 27, 2007, AGEA directly and indirectly increased its participation in CIMECO from 33.3% to 50.0%, for approximately US$ 18 million in cash. On August 28, 2007, AGEA acquired from S.A. La Nación irrevocable contributions made to CIMECO in the amount of US$ 6 million; thus, indirectly increasing through CIMECO its interest in Papel Prensa by 6%.
On April 3, 2008, AGEA partially assigned the rights and obligations arising from the call option mentioned above to its subsidiary AGR and the Company. On the same date, AGEA, AGR and the Company exercised such call option, increasing, directly and indirectly, the Company's equity interest in CIMECO and Papel Prensa to 100% and 49%, respectively. The total amount paid for the above transaction was US$ 61.6 million.
On April 10, 2008, the Company and the parties to the above-mentioned transaction notified CNDC of such transaction and on May 12, 2008 filed form F-1 with the CNDC. After such filing and as of the date of these financial statements, the Company has submitted additional information requested by the CNDC. As of the date of these financial statements, the above transaction is subject to administrative approvals.
Other acquisitions
On January 11, 2008, IESA acquired the controlling interest of a group of companies mainly engaged in sports journalism, production and commercialization of shows, and the production of motor racing television broadcasting. The price paid for such acquisitions was approximately US$ 9.5 million. The share purchase agreement sets forth certain objectives to be met by such group of companies. In case of breach of such agreement, the sellers shall have to pay an indemnification that may be deducted from the outstanding balance of the purchase price. This transaction is subject to administrative approvals.
On August 29, 2008, CMD acquired an additional interest in Dineromail increasing its equity interest to 13.7%.
On September 22, 2008, CMD entered into a purchase agreement for 100 % of NITS S.A.'s capital stock. The latter is engaged in the development of Internet content and IT services.
On September 2, 2008, ARTEAR increased its equity interest in Pol-Ka and SB Producciones S.A. by 25% to 55% of such companies' capital stock and votes, thus acquiring a controlling interest in both companies, in which it previously exercised common control. The total price for the above transaction was US$ 2.5 million. These transactions are subject to administrative approvals.
On October 2, 2008, ARTEAR acquired additional shares of Canal Rural, increasing its equity interest to 25.0% in the capital stock and votes of such company.
Mergers
On December 29, 2006, Cablevisión and its subsidiary Cablevisión Federal S.A. approved a merger, whereby Cablevisión would absorb Cablevisión Federal S.A. and continue its operations. The above merger became effective on January 1, 2007. As of the date of these financial statements, such merger was approved by the CNV and registered with de IGJ.
On September 25, 2008, OSA, Mercoprop and Autos Virtuales approved a merger whereby OSA would absorb Mercoprop and Autos Virtuales and continue their operations. The merger was made effective as of July 1, 2008. As of the date of these financial statements, this merger was registered with the IGJ.
On December 15, 2008, Cablevisión's shareholders approved the merger of Multicanal, Delta Cable S.A., Holding Teledigital, Teledigital, Televisora La Plata Sociedad Anónima, Pampa TV S.A., Construred S.A. and Cablepost S.A. into Cablevisión, whereby, effective as of October 1, 2008, Cablevisión, in its capacity as surviving company, becomes the universal successor to all of the assets, rights and obligations of the merged companies. The merger commitment was executed on February 12, 2009 and has been filed with the CNV pursuant to applicable regulations that require administrative approval. As of the date of these financial statements, such merger is pending administrative approval by the CNV and registration with the IGJ (see Note 21.f).
On December 30, 2008, CMD purchased all the shares of Clarín Global from AGEA, GC Minor and the Company. Furthermore, on December 30, 2008, the Boards of Directors of CMD, Clarín Global and Nits S.A. approved the initiation of a procedure to merge such companies effective January 1, 2009. CMD became the universal successor of the assets, rights and obligations of the merged companies. As of the date of these financial statements, this merger was registered with the IGJ.
Note 7. Property, plant and equipment, NET
The breakdown of Property, plant and equipment, net is as follows:
|
|
| As of December 31, |
| Estimated useful lives (years) | ||
|
|
| 2009 |
| 2008 |
| |
|
|
|
|
|
|
|
|
| Land and buildings |
| 362,548,597 |
| 323,839,056 |
| 50 |
| Furniture and fixture |
| 55,387,179 |
| 67,510,261 |
| 10 |
| Telecommunication, audio and video equipment |
| 117,584,827 |
| 93,243,393 |
| 3 |
| External network and broadcasting equipment |
| 1,537,809,622 |
| 1,750,850,665 |
| 14 |
| Computer equipment and software |
| 292,819,696 |
| 282,395,391 |
| 4 |
| Technical equipment |
| 46,745,449 |
| 60,685,413 |
| 10 |
| Workshop machinery |
| 279,919,495 |
| 280,948,612 |
| 10 |
| Tools |
| 26,844,800 |
| 29,696,670 |
| 4 |
| Spare parts |
| 22,419,570 |
| 17,776,704 |
| 5 |
| Installations |
| 331,155,671 |
| 274,705,008 |
| 10 |
| Vehicles |
| 108,837,807 |
| 102,318,043 |
| 5 |
| Plots |
| 10,664,009 |
| 10,037,331 |
| 5 |
| Leased assets |
| 117,379 |
| 127,336 |
| 5 |
| Leasehold improvements |
| 17,754,585 |
| 12,678,907 |
| 3 |
| Other materials and equipment |
| 365,553,633 |
| 464,326,453 |
| - |
| Construction in progress |
| 248,201,851 |
| 227,531,907 |
| - |
| Advances to suppliers |
| 13,350,053 |
| 14,042,091 |
| - |
| Subtotals |
| 3,837,714,223 |
| 4,012,713,241 |
|
|
| Less accumulated depreciation |
| (1,612,235,144) |
| (2,030,911,008) |
| |
|
|
| 2,225,479,079 |
| 1,981,802,233 |
| |
Note 8. financial RESULTS, NET
Financial results, net, consist of:
|
|
| Year ended December 31, |
| ||
|
|
| 2009 |
| 2008 |
|
| Interest income |
| 19,326,668 |
| 17,224,264 |
|
| Interest expense |
| (166,239,986) |
| (256,728,944) |
|
| Exchange difference |
| (272,669,826) |
| (248,930,869) |
|
| Others |
| (126,689,533) |
| (75,284,860) |
|
|
|
| (546,272,677) |
| (563,720,409) |
|
Note 9. Segment information
US GAAP requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company is mainly engaged in media and entertainment activities, which are carried out through the companies in which it holds a participating interest. Therefore, the following business segments have been identified:
- Cable Television and Internet Access: basically comprised of the operations of its subsidiary Cablevisión and its subsidiaries, mainly PRIMA.
- Printing and publishing: basically comprised of the operations of its subsidiary AGEA and its subsidiaries AGR, Tinta Fresca and CIMECO and its subsidiaries, and its equity investment in Papel Prensa.
- Broadcasting and programming: basically comprised of the operations of its subsidiaries ARTEAR, IESA and Radio Mitre, and their respective subsidiaries, including Telecor, Telba, Pol-ka, AD 2000, Grupo Carburando, and their equity investments in Ideas del Sur, TRISA and TSC.
- Digital Content and Others: basically comprised of the operations of its controlled companies CMD and subsidiaries, and OSA. Additionally, this segment includes the Company's own operations (typical of a holding) and those carried out by its controlled company GCGC.
The following tables summarize the information as of December 31, 2009 and 2008 for each of the business segments identified by the Company:
|
| Cable television and Internet access |
| Printing and publishing |
| Broadcasting and programming |
| Digital content and others |
| Eliminations |
| Total |
|
INFORMATION ARISING FROM CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2009 | |||||||||||
|
Net sales to third parties | 4,215,486,046 |
| 1,389,289,336 |
| 766,135,264 |
| 67,979,773 |
| - |
| 6,438,890,419 |
| Intersegment net sales | 4,364,145 |
| 106,562,017 |
| 60,453,403 |
| 124,276,345 |
| (295,655,910) |
| - |
| Net sales | 4,219,850,191 |
| 1,495,851,353 |
| 826,588,667 |
| 192,256,118 |
| (295,655,910) |
| 6,438,890,419 |
| Cost of sales (excluding depreciation and amortization) | (1,850,756,966) |
| (797,889,766) |
| (514,338,450) |
| (72,947,420) |
| 80,502,251 |
| (3,155,430,351) |
| Selling expenses (excluding depreciation and amortization) | (401,756,618) |
| (233,744,435) |
| (80,689,402) |
| (48,204,264) |
| 114,035,276 |
| (650,359,443) |
| Administrative expenses (excluding depreciation and amortization) | 463,377,444 |
| (183,235,939) |
| (118,750,168) |
| (71,843,200) |
| 101,118,383 |
| (736,088,368) |
| Depreciation of property, plant and equipment | (338,764,447) |
| (28,440,312) |
| (23,257,731) |
| (6,099,798) |
| - |
| (396,562,288) |
| Amortization of intangible assets | (69,046,045) |
| (2,743,318) |
| (10,191,643) |
| (3,240,511) |
| - |
| (85,221,517) |
| Goodwill impairment | - |
| (4,932,060) |
| - |
| - |
| - |
| (4,932,060) |
| Other results, net | 10,829,282 |
| - |
| - |
| - |
| - |
| 10,829,282 |
| Operating Income (loss) | 1,106,977,953 |
| 244,865,523 |
| 79,361,273 |
| (10,079,075) |
| - |
| 1,421,125,674 |
| Financial results, net | (410,681,073) |
| (60,918,922) |
| (29,709,344) |
| (44,963,338) |
| - |
| (546,272,677) |
| Equity in earnings (losses) from unconsolidated affiliates | 17,111,422 |
| 3,355,393 |
| 27,391,476 |
| (1,068,692) |
| - |
| 46,789,599 |
| Income (loss) before income tax and tax on assets | 713,408,302 |
| 187,301,994 |
| 77,043,405 |
| (56,111,105) |
| - |
| 921,642,596 |
| Income tax and tax on assets | (225,723,462) |
| (69,894,019) |
| (19,975,671) |
| (17,861,689) |
| - |
| (333,454,841) |
| Net income (loss) before allocation to noncontrolling interests | 487,684,840 |
| 117,407,975 |
| 57,067,734 |
| (73,972,794) |
| - |
| 588,187,755 |
| Less: Net income attributable to noncontrolling interests | (232,839,452) |
| (5,642,024) |
| (3,328,823) |
| (302,093) |
| - |
| (242,112,392) |
| Net income (loss) attributable to Grupo Clarin´s shareholders | 254,845,388 |
| 111,765,951 |
| 53,738,911 |
| (74,274,887) |
| - |
| 346,075,363 |
|
INFORMATION ARISING FROM CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 | |||||||||||
|
Total Assets | 5,777,208,009 |
| 1,285,146,410 |
| 742,667,404 |
| 241,599,602 |
| (64,868,400) |
| 7,981,753,025 |
| Investments in unconsolidated affiliates | 52,695,937 |
| 156,561,297 |
| 76,261,909 |
| 13,206,744 |
| - |
| 298,725,887 |
| Total Liabilities | 3,188,111,314 |
| 767,436,303 |
| 426,449,856 |
| 319,907,527 |
| (64,868,400) |
| 4,637,036,600 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
ADDITIONAL CONSOLIDATED INFORMATION AS OF DECEMBER 31, 2009 | |||||||||||
|
Payments for the acquisition of property, plant and equipment | 572,411,240 |
| 47,657,884 |
| 26,913,444 |
| 9,940,047 |
| - |
| 656,922,615 |
| Payments for the acquisition of intangible assets | - |
| 3,039,017 |
| 59,939 |
| 4,847,457 |
| - |
| 7,946,413 |
|
| Cable television and Internet access |
| Printing and publishing |
| Broadcasting and programming |
| Digital content and others |
| Eliminations |
| Total |
|
INFORMATION ARISING FROM CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2008 | |||||||||||
|
Net sales to third parties | 3,413,556,991 |
| 1,336,919,931 |
| 576,536,069 |
| 51,063,168 |
| - |
| 5,378,076,159 |
| Intersegment net sales | 5,028,736 |
| 88,777,200 |
| 46,345,477 |
| 114,825,809 |
| (254,977,222) |
| - |
| Net sales | 3,418,585,727 |
| 1,425,697,131 |
| 622,881,546 |
| 165,888,977 |
| (254,977,222) |
| 5,378,076,159 |
| Cost of sales (excluding depreciation and amortization) | (1,461,329,412) |
| (742,830,490) |
| (383,372,506) |
| (72,985,067) |
| 83,960,983 |
| (2,576,556,492) |
| Selling expenses (excluding depreciation and amortization) | (381,806,862) |
| (209,636,244) |
| (50,089,733) |
| (36,456,122) |
| 81,828,234 |
| (596,160,727) |
| Administrative expenses (excluding depreciation and amortization) | (385,626,312) |
| (161,661,633) |
| (91,581,387) |
| (65,499,806) |
| 89,188,005 |
| (615,181,133) |
| Depreciation of property, plant and equipment | (253,692,972) |
| (26,109,827) |
| (12,254,068) |
| (3,852,045) |
| - |
| (295,908,912) |
| Amortization of intangible assets | (71,349,832) |
| (2,937,136) |
| (1,092,282) |
| (1,995,391) |
| - |
| (77,374,641) |
| Other results, net | 7,541,244 |
| - |
| - |
| - |
| - |
| 7,541,244 |
| Operating Income (loss) | 872,321,581 |
| 282,521,801 |
| 84,491,570 |
| (14,899,454) |
| - |
| 1,224,435,498 |
| Financial results, net | (445,659,240) |
| (69,668,860) |
| (33,360,337) |
| (15,031,972) |
| - |
| (563,720,409) |
| Equity in earnings (losses) from unconsolidated affiliates | 8,348,286 |
| 4,229,393 |
| 32,212,784 |
| (728,347) |
| - |
| 44,062,116 |
| Income (loss) before income tax and tax on assets | 435,010,627 |
| 217,082,334 |
| 83,344,017 |
| (30,659,773) |
| - |
| 704,777,205 |
| Income tax and tax on assets | (165,282,602) |
| (79,923,976) |
| (20,228,575) |
| (27,074,807) |
| - |
| (292,509,960) |
| Net income (loss) before allocation to noncontrolling interests | 269,728,025 |
| 137,158,358 |
| 63,115,442 |
| (57,734,580) |
| - |
| 412,267,245 |
| Less: Net income attributable to noncontrolling interests | (128,099,988) |
| (5,555,500) |
| (7,629,258) |
| (84,553) |
| - |
| (141,369,299) |
| Net income (loss) attributable to Grupo Clarin´s shareholders | 141,628,037 |
| 131,602,858 |
| 55,486,184 |
| (57,819,133) |
| - |
| 270,897,946 |
|
INFORMATION ARISING FROM CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 | |||||||||||
|
Total Assets | 5,621,417,740 |
| 1,258,490,760 |
| 632,374,034 |
| 591,964,997 |
| (471,994,332) |
| 7,632,253,199 |
| Investments in unconsolidated affiliates | 27,110,302 |
| 151,460,317 |
| 80,365,983 |
| 12,493,215 |
| - |
| 271,429,817 |
| Total Liabilities | 3,531,512,862 |
| 792,037,878 |
| 379,742,936 |
| 644,816,059 |
| (471,994,332) |
| 4,876,115,403 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
ADDITIONAL CONSOLIDATED INFORMATION AS OF DECEMBER 31, 2008 | |||||||||||
|
Payments for the acquisition of property, plant and equipment | 746,264,611 |
| 46,646,147 |
| 25,365,204 |
| 9,883,247 |
| - |
| 828,159,209 |
| Payments for the acquisition of intangible assets | 1,014,584 |
| 3,331,211 |
| - |
| 3,331,976 |
| - |
| 7,677,771 |
NOTE 10. SHAREHOLDER'S EQUITY
Upon the Company's initial public offering in October 2007, the Company's capital stock was set at Ps. 287,418,584, represented by:
- 75,980,304 registered non-endorsable Class A common shares, with nominal value of Ps. 1 each and entitled to 5 votes per share.
- 186,281,411 book-entry Class B common shares, with nominal value of Ps. 1 each and entitled to 1 vote per share.
- 25,156,869 registered non-endorsable Class C common shares, with nominal value of Ps. 1 each and entitled to 1 vote per share.
On October 5 and 11, 2007, the CNV and BCBA, respectively, granted authorization for the Company's initial public offering of its capital stock. Said authorizations contemplated (i) the public offering of its Class B book-entry common shares, (ii) the listing of its Class B book-entry common shares, and (iii) the listing of its registered non-endorsable Class C common shares, which trading was suspended due to restrictions on transfers set forth in the Company's Bylaws. Also in the last quarter of 2007, the Company was granted authorization for the listing of its GDSs on the LSE. Each GDS represents two of the Company's Class B common shares.
Note 11. Income tax
Current and deferred income taxes provided are as follows (amounts stated in thousands of Ps.):
|
| For the years ended December 31, | ||
|
| 2009 |
| 2008 |
|
|
|
| |
| Current | (292,211) |
| (128,397) |
| Deferred | (43,274) |
| (135,259) |
| Income tax | (335,485) |
| (263,656) |
| Tax on assets | 2,030 |
| (28,854) |
| Total | (333,455) |
| (292,510) |
|
|
|
| |
For the years ended December 31, 2009 and 2008 total income tax and tax on assets include charges of income tax expense of Ps. (335.5) million and Ps. (263.7) million respectively, and valuation allowance over tax on assets for Ps. 2.0 million and Ps. (28.9) million respectively.
The following table summarizes the reconciliation between the income tax charged to income for the years ended December 31, 2009 and 2008 and the income tax liability that would result from applying the current tax rate on income before income tax and tax on assets and the income tax liability assessed on income for each year (amounts stated in thousands of Ps.):
|
| For the years ended December 31, |
| ||
|
| 2009 |
| 2008 |
|
|
|
|
|
| |
| Income tax assessed at the current tax rate (35%) on income before income taxes, tax on assets and minority interest | (322,575) |
| (246,672) |
|
| Permanent differences: |
|
|
|
|
| Equity in earnings from unconsolidated affiliates | 16,376 |
| 15,422 |
|
| Non-deductible expense | (21,191) |
| (12,891) |
|
| Others | 9,017 |
| (17,073) |
|
| Effect of changes in the allowance of deferred tax asset and tax loss carryforward | (17,112) |
| (2,442) |
|
|
|
|
|
| |
| Income tax | (335,485) |
| (263,656) |
|
The following table shows the breakdown of net deferred tax position as of December 31, 2009 and 2008, respectively (amounts stated in thousands of Ps.):
|
| As of December 31, |
| ||
|
| 2009 |
| 2008 |
|
|
|
|
|
|
|
| Deferred Assets (Liabilities) |
|
|
|
|
| Tax loss carryforward | 34,382 |
| 50,665 |
|
| Trade receivables | 27,947 |
| 32,457 |
|
| Property, plant and equipment | (39,506) |
| (39,156) |
|
| Intangible assets | (117,939) |
| (136,228) |
|
| Other assets | (1,832) |
| (1,973) |
|
| Other investments | 7,942 |
| 8,194 |
|
| Short and long-term debt | 73,370 |
| 60,295 |
|
| Provisions | 34,456 |
| 35,866 |
|
| Others | 7,038 |
| 14,412 |
|
|
|
|
|
|
|
| Subtotal | 25,858 |
| 24,532 |
|
|
|
|
|
|
|
| Allowance for deferred tax asset | (24,104) |
| (36,442) |
|
|
|
|
|
|
|
| Net deferred tax position | 1,754 |
| (11,910) |
|
As of December 31, 2009 and 2008, the Company presents current deferred tax assets of Ps. 42.8 million and Ps. 45.9 million, respectively and non-current deferred tax assets of Ps. 81.2 million and Ps. 101.1 million, respectively. The Company also presents non-current deferred tax liabilities of Ps. 122.2 million and Ps. 158.9 millon as of December 31, 2009 and 2008, respectively.
The Company has assessed the recoverability of its deferred tax assets as of December 31, 2009 and believes that it is more likely than not that the deferred tax assets, net of the valuation allowance, will be realized through future taxable income.
As of December 31, 2009, the Company's accumulated tax losses amount to approximately Ps. 98.2 million, which calculated at the current tax rate, represent deferred tax assets in the amount of approximately Ps. 34.4 million. The following table shows a breakdown of accumulated tax losses according to their respective year of expiration pursuant to applicable statutes of limitations (amounts stated in thousands of Ps.):
| Year of expiration |
| Tax loss carryforward |
| 2010 |
| 10,943 |
| 2011 |
| 13 |
| 2012 |
| 27,290 |
| 2013 |
| 27,319 |
| 2014 |
| 32,669 |
|
|
| 98,234 |
Note 12. Commitments and Contingencies
Restrictions, surety and guarantees
The Company has executed guarantees with the banks involved in the swap contracts specified in Note 16 in order to fully, unconditionally and irrevocably guarantee the timely payment of all obligations arising from said contracts.
The Company assigned the proceeds, if any, of some of the foreign currency forward contracts mentioned in Note 16 for a nominal value of US$ 12 million in guarantee for the fulfillment of certain obligations arising from the swap agreements mentioned in the above paragraph.
Note 14 sets forth certain restrictions to which the Company, Cablevisión (by itself and as the surviving company and successor of Multicanal's operations after the merger) and AGEA are subject under their respective financial obligations described in such note.
Under a loan held by TRISA, a company in which IESA holds a 50% interest, IESA has undertaken certain commitments, such as refraining from merging, attaching certain assets or paying dividends, without the bank's prior consent. Additionally, all of TRISA's shares and 75% of Torneos y Competencias S.A.'s (Uruguay) shares are pledged as guarantee for this loan.
Under the terms and conditions of its Notes, Cablevisión has set up a reserve account. In the event of a failure by Cablevisión to make an interest payment when due, in part or in full, on any of its new Notes, the trustee shall promptly draw on any funds that may be on deposit in the reserve account to the extent required to cover such payment shortfall, pro rata among the new Notes entitled to benefit from the reserve account with respect to which an interest payment was not made. To the extent Cablevisión has not defaulted on its obligations, it may instruct the trustee to transfer amounts deposited for the sole purpose of applying them to service debt or to pay the purchase or redemption price of the new Notes acquired in the over-the-counter market or redeemed directly by Cablevisión or through any agent or broker in accordance with the terms and conditions for the issuance of such Notes. The drawing by the trustee on the reserve account will not give rise to a Default or an Event of Default under the terms and conditions of Cablevision's Notes. As of December 31, 2009 the amount deposited in the reserve account totaled Ps. 1,623.
Pursuant to the terms and conditions of the Notes originally issued by Multicanal, Cablevisión holds a reserve account, which had a balance of Ps. 54,761,903 at year-end. Such funds are restricted to the payment of interest and principal under the Notes issued under the Multicanal APE.
IESA is subject to contractual restrictions on the transfer of its equity interest in TRISA and Tele Net Image Corp.
In 2009, AGR purchased a binding machine on credit. To secure the transaction, AGR granted the supplier a pledge over the machine.
Broadcasting licenses
Pursuant to Broadcasting Law No. 22,285, broadcasting licenses were granted for an initial period of 15 years, allowing for a one-time extension of 10 years. This Law also set forth that the COMFER would grant the extension, provided it could be proven that the licensee had complied with applicable legislation, bidding terms and conditions and undertakings in their proposals during the first period of the license in question.
On May 24, 2005, Decree 527/05 provided for a 10-year-suspension of the terms then effective of broadcasting licenses or its extensions. Calculation of the terms shall be automatically resumed upon expiration of the suspension term, subject to certain conditions. The Decree requires that companies seeking to rely on the extension subject to it submit for the COMFER's approval, within 2 years of the date of the Decree, programming proposals, contributing to the preservation of the national culture and the education of the population and a technology investment project to be implemented during the suspension term. COMFER's Resolution 214/07 regulated the obligations established by Decree 527/05 in order to enjoy such suspension.
All the broadcasting services licensee subsidiaries have submitted both projects in due time and form. ARTEAR and its subsidiaries Telecor, Telba and Bariloche TV, as well as Radio Mitre, Cablevisión and the licensees merged into Cablevisión, have obtained the COMFER's approval of their respective projects (see Note 20).
Cablevisión has requested the COMFER's approval of several transactions, including certain company reorganizations and share transfers. The approvals of said reorganization processes, except for the Cablevisión-Multicanal merger, are still pending. On September 3, 2009, the COMFER issued Resolution 577/09, whereby it denied the approval of the Cablevisión-Multicanal merger and required Cablevisión to submit a conforming plan, holding that the relinquishment of licenses spontaneously communicated by that company to the COMFER was insufficient. The effects of this Resolution were enjoined by decision of the Federal Administrative Court in Litigation Administrative Matters.
On October 23, 2009, the court decision that had suspended the effects of COMFER Resolution No. 577/09 was revoked by the Federal Administrative Court of Appeals, Clerk's Office No. 3 in re "Multicanal S.A. -Inc. Med- and others v. CONADECO- Decree 527/05 on Proceeding leading to declaratory judgment". Therefore, the calculation of the suspended terms was automatically resumed. On December 1, 2009, Cablevisión ratified the filing it had made with the COMFER at the time of the merger, and specified the licenses to which it had decided to maintain title.
On December 16, 2009, the Federal Administrative Court of Appeals, Clerk's Office No. 3 in re "Multicanal S.A. and other INC MED v. CONADECO Decree 527/05" File No. 14.024/08, granted the appeal filed by Multicanal and Grupo Clarín against the decision rendered by that same court on October 23, 2009. With the granting of that appeal, Cablevisión's preliminary injunction regained full force and effect. Therefore, on January 8, 2010, Cablevisión served notice of the injunction on the COMFER of such situation (see Note 21.f).
Antitrust regulations
a. Pursuant to the Antitrust Law and the Broadcasting Law No. 22,285, the transactions carried out on September 26, 2006 that resulted in an increase in the indirect interest the Company held in Cablevisión to 60%, Cablevisión's acquisition of 98.5% of Multicanal and 100% of Holding Teledigital and Multicanal's acquisition of PRIMA (from PRIMA Internacional (now CMD)) required the authorization of the CNDC (validated by the SCI), the COMFER and the SECOM. On October 4, 2006, the Company, Vistone, Fintech, VLG and Cablevisión, as purchasers, and AMI CV Holdings LLC, AMI Cable Holdings Ltd. and HMTF-LA Teledigital Cable Partners LP, as sellers, filed for the approval of the acquisition. After several requests for information, the SCI issued Resolution No. 257/07, validating the CNDC's approval of the above-mentioned transactions. The Company was served notice in this respect on December 7, 2007. Such resolution has been appealed by five entities. As of the date of these financial statements, the CNDC has dismissed the five appeals filed against the above-mentioned resolution. Four of the entities filed appeals before the judicial branch. Three of such appeals were dismissed and one is still pending resolution. Cablevisión believes this appeal is unlikely to be admitted based on its legal counsel's opinion and the judicial decisions rendered to date (see Note 21.f).
b. On September 4, 2009, the CNDC issued Resolution No. 106/09 whereby it ordered an audit of Cablevisión to articulate and harmonize the several aspects of Resolution No. 577/09 issued by the COMFER with Resolution No. 257/07 issued by the Secretariat of Domestic Trade. Resolution No. 106/09 also sets forth that the notifying companies shall not, from the enactment thereof and until the end of the audit and / or resolution from the CNDC, remove or replace physical or legal assets. The Federal Administrative Court in Litigation Administrative Matters enjoined of the effects of this Resolution until a final decision is rendered in the case "Multicanal S.A. and other v. CONADECO - Decree 527/05 and other over Proceeding leading to declaratory judgment" (see Note 12 "Other regulatory matter" point a.). The order was served on the CNDC, the CNV, the BCBA, Caja de Valores S.A., the IGJ and all other public entities, state-owned or not, in charge of carrying out proceedings concerning the merger (see Note 12 "Broadcasting licenses").
On October 23, 2009, the court decision that had enjoined the effects of COMFER Resolution No. 577/09 was revoked by the Federal Administrative Court of Appeals, Clerk's Office No. 3 in re "Multicanal S.A. -Inc. Med- and others v. CONADECO- Decree 527/05 on Proceeding leading to declaratory judgment". Therefore, the calculation of the suspended terms was automatically resumed.
On December 16, 2009, the Federal Administrative Court of Appeals, Clerk's Office No. 3 in re "Multicanal S.A. and other INC MED v. CONADECO Decree 527/05" File No. 14.024/08, granted the appeal filed by Multicanal and Grupo Clarín against the decision rendered by that same court on October 23, 2009. With the granting of that appeal, Cablevisión's preliminary injunction regained full force and effect.
In spite of the filings made by the Company and its shareholders as required by the CNDC to evidence compliance with the commitment agreed with the CNDC on December 7, 2007 (date on which the SCI granted authorization), on September 23, 2009, the SCI issued Resolution No. 641 instructing the CNDC to verify compliance with the parties' proposed commitment by visiting the parties' premises, requesting reports, reviewing documents and conducting hearings, among other things.
On December 11, 2009, Cablevisión notified the CNDC of the completion and corresponding verification of the fulfillment of the voluntary undertakings made by Cablevisión at the time of the enactment of SCI Resolution No. 257/07, which had approved the acquisitions notified by the Company at that time. On December 15, 2009, the Federal Commercial and Civil Court, Clerk's Office No. 2, issued a preliminary injunction in re "Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions" (case 10.506/09), granting in part the preliminary injunction requested by Grupo Clarín, and instructing the CNDC and the SCI to notify Grupo Clarín whenever their own verification of Cablevisión's fulfillment of its undertakings had been concluded, regardless of their result. Should such agencies have any observations, they should notify Grupo Clarín within a term of 10 days. On the same date, the CNDC issued Resolution No. 1011/09 whereby it deemed Cablevisión's voluntary undertakings unfulfilled and declared the rescission of the authorization granted under Resolution 257/07.
On December 17, 2009, the Federal Court of Appeals in Commercial-Criminal Matters, Clerk's Office A, decided to suspend the term to appeal Resolution No. 1011/09 until the principal docket was transferred back to the CNDC.
On December 17, 2009, the CNDC notified Cablevisión of the initiation of the motion for execution of Resolution 1011/09. On December 18, 2009 the Federal Commercial and Civil Court, Clerk's Office No. 2, issued a preliminary injunction in re "Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions", which suspended the effects of Resolution No. 1011/09 until the notice set forth in the preliminary injunction of December 15, 2009 was served. Accordingly, the CNDC served notice to Cablevisión by means of Resolution No. 1101/09.
On December 30, 2009, the Federal Commercial and Civil Court, Clerk's Office No. 2, issued a preliminary injunction in the case entitled "Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions", partially acknowledging Grupo Clarín's request and suspending the term to respond granted to Grupo Clarín S.A. under Resolution No. 1,101/09, until access is granted to the administrative proceedings related to the charges brought by the CNDC in its Opinion No. 770/09 (on which Resolution 1,011/09 was based).
On February 19, 2010, Cablevisión submitted the response requested under Resolution No. 1101/09. On February 26, 2010, the Federal Court of Appeals in Commercial-Criminal Matters approved the recusation filed by Cablevisión and excluded the Secretary of Domestic Trade from the proceedings (see Note 21.f).
c. On June 11, 2008, Cablevisión was served with a decision of the Federal Commercial and Civil Court of Appeals revoking a decision rendered by the CNDC on September 13, 2007, whereby such agency had dismissed a claim filed by Gigacable S.A. prior to the December 7, 2007 decision referred to above. The Argentine Court of Appeals revoked the CNDC's decision only with respect to matters relating to the conduct of Cablevisión and Multicanal prior to the CNDC's authorization of the September 26, 2006 transactions, and ordered an investigation to determine whether a fine should be imposed on Cablevisión and Multicanal due to such conduct. As of the date of these financial statements, Cablevisión has filed its response.
d. Cablevisión, by itself and as successor to Multicanal's operations after the merger, is a party to several administrative proceedings under the Antitrust Law, facing charges of anticompetitive conduct, including territorial division of markets, price discrimination, abuse of dominant position, refusal to deal and predatory pricing, as well as a proceeding filed by the Cámara de Cableoperadores Independientes (Chamber of Independent Cable Operators), challenging the transactions consummated on September 26, 2006. All of these proceedings are still pending resolution. While Cablevisión believes that its conduct and that of Multicanal have always been in compliance the Argentine Antitrust Law and regulations and that their positions in each of these proceedings are reasonably grounded, it can give no assurance that these cases will be resolved in its favor.
Other regulatory matters
a. The litigation brought before the Civil, Commercial, Mining and Labor Court of the City of Concarán, Province of San Luis, in early 2007 in re "Grupo Radio Noticias SRL v. CableVisión and others", is still pending before the Federal Administrative Court in Litigation Administrative Matters No. 2.
The purpose of that claim was to challenge the share transfers mentioned in Note 12 "Antitrust Regulations" (point a.) and to request the revocation of Cablevisión's broadcasting licenses. Cablevisión has responded to such claim and believes it is unlikely that it will be admitted.
b. The Government of the City of Mar del Plata enacted Ordinance No. 9163, governing the installation of cable television networks. Such ordinance was amended and restated by Ordinance No. 15981 dated February 26, 2004, giving cable companies until December 31, 2007 to adapt their cable networks to the new municipal requirements. The Executive Department of the Municipality of General Pueyrredón has submitted to the Municipal Council a proposed ordinance extending the term provided for the replacement of aerial cable television networks with underground networks until December 31, 2010. Such ordinance is ready for discussion by legislators. Even though the ordinance provides for certain penalties that may be imposed, including the suspension of the right to use airspace, the City has not generally imposed such penalties to cable systems that are not in compliance with such ordinance.
Claims brought by the COMFER
Cablevisión
As from November 1, 2002 and until December 31, 2009, the COMFER initiated summary administrative proceedings against Cablevisión and Multicanal (merged into Cablevisión) for infringements of regulations regarding the content of programming. Accordingly, a provision has been set up in this regard.
On October 16, 2009, Cablevisión appeared before the SMC in accordance with Decree 1145/09, to offer advertising spaces in Cablevisión's programming as payment for certain debts, including fines imposed by the COMFER.
ARTEAR
As of December 31, 2009, Artear recorded a provision in the amount of approximately Ps. 3.8 million for fines imposed by the COMFER, which have been appealed and are pending resolution.
On October 16, 2009, Artear appeared before the SMC in order to offer advertising spaces in Artear's programming as payment for certain debts, including fines imposed by the COMFER.
Lawsuits and /or Claims
Cablevisión
On December 12, 2001, Supercanal filed a claim against Multicanal (merged into Cablevisión) for damages as a result of the enforcement of a preliminary injunction brought by Multicanal against Supercanal. Multicanal responded to such claim denying any liability. Based on de jure and de facto records of the case, Multicanal believes that the claim filed should be rejected in its entirety, and the legal costs should be borne by the plaintiff. As of the date of these financial statements, the proceeding is at the discovery stage. The court of first instance has dismissed Supercanal's request that it be allowed to sue without paying court fees or costs.
AGEA
On April 29, 2008, AGEA was served with a decision rendered by the National Court of First Instance (the "Civil Court") ordering AGEA to pay damages to Editorial Atlántida in the amount of Ps. 28.5 million plus interest accrued from March 2, 1998 to the payment date. On May 2, 2008, AGEA filed an appeal against such ruling and on September 5, 2008 it submitted its legal brief.
The decision was rendered in connection with a claim filed by Editorial Atlántida against AGEA in February 2000, alleging plagiarism and unlawful competition in connection with the publication of Genios magazine, and requesting damages. In April 2006, Editorial Atlántida brought criminal charges against several parties (including AGEA) on the same grounds. All criminal charges were dismissed. In the appeal of the above mentioned decision served on April 29, 2008, AGEA brought to bear the result of such criminal proceedings and the evidence gathered in the civil claim, which, in AGEA's opinion, support its arguments.
Both Editorial Atlántida and AGEA appealed the decision rendered in the First Instance, and each was served with a response.
On October 31, 2008, the Court of Appeals decided that the case was ready for resolution. The draw to establish the voting order of such Court's judges for the review of the decision rendered in the First Instance was carried out on March 31, 2009. Due to a change in the Court's composition, its decision stating that the case was ready for resolution was suspended. As of the date of these financial statements, the court has returned to its original composition.
Once the term to issue a decision was resumed, on March 5, 2010 the Court rendered a decision favorable to AGEA. AGEA was served with the Court's decision on March 8, 2010. The decision reversed the previous decision rendered by the Court of First Instance, definitely dismissing the claim brought against AGEA, with legal costs to be borne by the plaintiff Editorial Atlántida in both instances.
Although, Editorial Atlántida has filed an appeal before the Argentine Supreme Court, AGEA and its legal counsel consider that such appeals should not prosper. For such reason, AGEA did not book an allowance as of December 2009.
CIMECO
The AFIP served CIMECO with a notice challenging its income tax assessment for the fiscal periods 2000, 2001 and 2002. In such notice, the AFIP challenged mainly the deduction of interest and exchange differences in the tax returns filed for those years. Even though reversing such deductions would not generate final tax liabilities for the above periods, the Company would have to reduce the accumulated tax loss carry-forward amounts that were used to offset taxable income in subsequent years. If AFIP's position prevails, CIMECO's contingency as of December 31, 2009 would amount to approximately Ps. 12.3 million principal and Ps. 13.1 million interest.
CIMECO filed a response, which was dismissed by the tax authorities. The tax authorities issued their own official assessment and imposed penalties. CIMECO appealed the tax authorities' resolution before the TFN on August 15, 2007.
CIMECO and its legal and tax advisors believe CIMECO has strong grounds to defend its position, and that the TFN will decide in its favor. Accordingly, CIMECO did not book an allowance as of December 31, 2009.
ARTEAR
During 2005, the ANA brought a claim against all holders of broadcast and cable television licenses for the payment of tariffs and customs taxes applicable to the importation of films. According to ANA, television licensees are liable for customs duties, VAT, and income taxes over the total Peso value of imports. The ANA alleges that the import value of films includes the value of the intellectual property rights related to such films. Based on the criterion followed by broadcast television stations, which ARTEAR and its legal counsel believe to be reasonably grounded, ARTEAR has paid other taxes during the period covered by ANA's claim that would not have been payable had ANA's interpretation been applied. ARTEAR understands that if ANA's interpretation were to prevail, ARTEAR would be entitled to recover the other taxes paid in excess. Even though ARTEAR believes that the interpretation of customs legislation has reasonable legal grounds, it cannot assure that the matter will be resolved in its favor. ARTEAR would not expect an adverse decision, however, to have a material adverse effect on its financial condition or the results of its operations. Accordingly, no allowance was recorded to this effect.
Grupo Clarín
Pursuant to a notarial certificate issued on September 19, 2008, AGEA and the Company were served with a legal action brought by an entity representing consumers and alleged financial victims and by other individuals (with more than 6 people). Claimants are Multicanal noteholders who claim to be consumers or non-professional investors allegedly affected by Multicanal's APE. The claim is grounded on a Consumer Defense Law which, in general terms, provides for an ambiguous procedure that is strict against the defendant.
The Company, AGEA and one of the alternate members of Multicanal's Board of Directors, the only parties that have been served with this claim as of the date of these financial statements, have responded that, as a preliminary matter, claimants failed to comply with prior, mandatory mediation procedures. Defendants have also requested that the claim be treated as an ordinary civil claim rather than a specially expedited summary proceeding. Additionally, defendants have requested the application of statutes of limitation and a suspension of the proceedings, all of which is currently being substantiated. Notwithstanding the foregoing, the Company and AGEA have succeeded in postponing the term for responding about the merits of the claim until the judge decides whether or not the claim should follow ordinary civil procedure and whether or not the parties are required to undergo prior mediation. In March 2010 the judge ordered the plaintiff to undergo mediation proceedings. The Company's legal counsel believes that there are grounds for the judge to decide on the request that the proceeding be reclassified as ordinary.
Other undertakings
ARTEAR
Pursuant to ARTEAR's acquisition of 85.2% of its subsidiary Telecor's capital stock in 2000, Telecor's sellers have an irrevocable put option of the remaining 755,565 common, registered, non-endorsable shares, representing 14.8% of the capital stock and votes of Telecor, for a 16-year term as from March 16, 2010 at a price of US$ 3 million and ARTEAR has an irrevocable call option for such shares for a term of 26 years as from March 16, 2000 at a price of approximately US$ 4.8 million, which will be adjusted at a 5% nominal annual rate as from April 16, 2016.
CMD
Pursuant to CMD's acquisition of 60.0% of Interpatagonia S.A.'s capital stock in 2007, CMD and the sellers granted each other reciprocal call and put options on all of the shares owned by each of the parties. The price of the shares varies depending on the party exercising the options, which shall be effective from August 1, 2011 until July 31, 2012.
Administrative disputes
Papel Prensa has several disputes pending before the Commercial Court of Appeals of the City of Buenos Aires as a consequence of CNV Resolution No. 16.222. Pursuant to said Resolution, the CNV declared that the decisions recorded under the Minutes of Papel Prensa's Board of Directors Nos. 947 and 948 were irregular and with no effect for administrative purposes. The Resolution challenged the Board's fulfillment of the formalities required in the preparation, transcription and execution of meeting minutes on the relevant corporate books. On that basis, the CNV questioned several decisions of the Board and of the Shareholders. In response, Papel Prensa has brought several administrative claims against the CNV's questioning its interpretation of the formal requirements. Additionally, the National Government -in this case acting as a party related to Papel Prensa, and represented by the Secretary of Trade- brought a claim against the Board of Papel Prensa requesting effects similar to those requested by the CNV. In connection with the above, Papel Prensa was forced to bring criminal charges against certain public officials. With respect to the claims brought by the National Government, on March 8 Commercial Court No. 2, Secretariat No. 4 decided to suspend the decision rendered by the Board of Directors on November 4, 2009 and in subsequent meetings of the Board, retroactively change the composition of the company's corporate bodies as of such date and to appoint a co-administrator without removing the members of the Board of Directors. Neither the CNV's nor the National Government's challenges, nor the Court's March 8 decision should have a material effect on the Company's financial and economic condition as of December 31, 2009.
Note 13. restrictions on profit distributions
The Company may declare dividends only out of the Company's retained earnings stated in the Company's financial statements, prepared in accordance with Argentine GAAP and CNV regulations and approved by the shareholders. As of December 31, 2009, the Company reported retained earnings of Ps. 689.5 million in its financial statements prepared in accordance with Argentine GAAP and CNV regulations.
As required by the Argentine Corporate Law and the Company's amended by-laws, realized and liquid profits shall be appropriated as follows: (i) 5% to the Company's legal reserve until such reserve equals 20% of the Company's capital stock; and (ii) the balance, in whole or in part, to the payment of the fees of the members of the Board of Directors and the Supervisory Committee, to dividends on common shares, voluntary reserves, provisions, a new account, or as otherwise determined by the shareholders.
Note 14. borrowings
|
|
Weighted Average Interest Rate at December 31, 2009 |
|
|
|
|
| ||||
|
|
|
|
| As of December 31, |
|
| ||||
|
|
| Maturities |
| 2009 |
| 2008 |
|
| ||
| Current |
|
|
|
|
|
|
|
|
| |
| Bank overdraft | 26.6% |
| 2010 |
| 8,641,535 |
| 8,272,356 |
|
| |
| Financial loans | 6.5% |
| 2010 |
| 46,535,353 |
| 136,476,739 |
|
| |
| Negotiable obligations | 8.2% |
| 2010 |
| 219,370,925 |
| 185,903,749 |
|
| |
| Equipment purchases | 6.3% |
| 2010 |
| 27,139,179 |
| - |
|
| |
| Related parties |
|
| 2010 |
| - |
| 25,000,000 |
|
| |
| Accrued interests |
|
| 2010 |
| 66,487,466 |
| 62,021,261 |
|
| |
|
|
|
|
|
| 368,174,458 |
| 417,674,105 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
| Non Current |
|
|
|
|
|
|
|
|
| |
| Financial loans | 6.5% |
| 2011-2017 |
| 96,600,442 |
| 49,389,393 |
|
| |
| Negotiable obligations | 8.2% |
| 2011-2016 |
| 2,180,701,456 |
| 2,210,903,739 |
|
| |
| Equipment purchases | 6.3% |
| 2011-2012 |
| 24,627,246 |
| 22,022,465 |
|
| |
| Related parties | 15.0% |
| 2011-2014 |
| 11,924,641 |
| - |
|
| |
| Others |
|
|
|
| 702,671 |
| 1,343,852 |
|
| |
|
|
|
|
|
| 2,314,556,456 |
| 2,283,659,449 |
|
| |
Scheduled maturities of the long-term debt for the next years (excluding current portion), as of December 31, 2009, are as follows:
| 2011......................................................................................................................... |
| 308,834,307 |
| 2012......................................................................................................................... |
| 315,128,226 |
| 2013......................................................................................................................... |
| 645,950,040 |
| 2014 ........................................................................................................................ |
| 432,279,430 |
| 2015 - 2018 .......................................................................................................... |
| 612,364,453 |
|
|
| 2,314,556,456 |
Financial loans
Grupo Clarín
On July 26, 2001, the subsidiary Raven executed a loan agreement with JPM for a principal amount of US$ 194.8 million.
During fiscal year 2004, JPM assigned to the Company its rights under the loan agreement executed with Raven for up to US$ 75 million, as a result of the settlement of certain guarantees.
Furthermore, in February 2004, Raven and DTVLA, among other companies, executed an agreement whereby Raven received US$ 56 million as payment of the receivable arising from the acceleration of a put option under a certain "Put Agreement". Subsequently, Raven settled part of its debts with JPM and the Company. Thus, the unpaid balances amounted to US$ 40 million and US$ 54 million, respectively.
In May 2004, JPM transferred its receivable with Raven, assigning to the Company the balance of such receivable in exchange for the payment of an equivalent amount.
The balances of US$ 54 and US$ 40 million that Raven owed to the Company were condoned by means of the agreements dated February 6 and May 4, 2004, respectively.
Subsequently the Company, as the only shareholder of Raven, decided to wind up and liquidate that company at the Board meeting held on July 31, 2004.
The remaining balance of the price referred to above (US$ 40 million) was refinanced through an agreement between the Company and JPM on May 3, 2004. Such refinancing was obtained at an interest rate of LIBOR plus a 2% spread, payable quarterly. Principal was to be cancelled in annual installments.
In March 2006, the Company paid the first installment of the loan for US$ 4 million.
In August 2006, the Company executed an addendum to such refinancing agreement, whereby JPM reimbursed the US$ 4 million paid by the Company and the repayment of principal was rescheduled as follows:
| Payment date |
| Repayment of principal | |
|
|
|
|
|
| March 17, 2007 |
| US$ | 8 million |
| March 17, 2008 |
| US$ | 16 million |
| March 17, 2009 |
| US$ | 16 million |
The addendum sets forth several commitments and restrictions, including but not limited to restrictions on borrowings, creation of encumbrances, mergers, sale of significant assets, liquidations, dissolution and winding-up and effective changes of control, as well as the maintenance of a reserve account for an amount at least equal to the aggregate amount payable under this loan on the next interest payment date. Under a new addendum to the refinancing agreement dated August 20, 2007, the original guarantees granted by the Company's shareholders have ceased to be in effect.
In March 2008, the Company executed a new addendum to such refinancing agreement, whereby the repayment of outstanding principal was rescheduled as follows:
| Payment date |
| Repayment of principal | |
|
|
|
|
|
| March 17, 2008 |
| US$ | 4 million |
| September 17, 2008 |
| US$ | 7 million |
| March 17, 2009 |
| US$ | 7 million |
| September 17, 2009 |
| US$ | 7 million |
| March 17, 2010 |
| US$ | 7 million |
The interest rate to be accrued was changed to LIBOR plus a 3% margin as from March 17, 2008, and LIBOR plus a 4% margin as from March 17, 2009.
As of December 31, 2009 and 2008, the Company owed aggregate principal amounts of Ps. 26,600,000 and Ps. 72,450,000, and interest thereon of Ps. 51,802 and Ps. 160,915, respectively.
As of the date of these financial statements, the Company has made all payments when due (see Note 21.d).
GCSA Investments
As of December 31, 2009, GCSA Investments is the borrower under a long-term loan with JPM for a principal amount of US$ 20 million, payable in two installments of US$ 10 million each, due on December 30, 2012 and June 30, 2013, respectively. Interest under the loan accrues at a variable rate and is payable semiannually. The loan agreement sets forth certain covenants and restrictions for GCSA Investments, including restrictions on borrowings, creation of encumbrances, winding-up, liquidation and effective changes of control.
Negotiable Obligations
Cablevisión
On October 7, 2005, before being acquired by the Company, Cablevisión completed the restructuring of US$ 754.6 million (aggregate principal amount of its financial debt), out of a final total debt subject to restructuring of US$ 796.4 million, by paying approximately US$ 142.8 million in cash, issuing US$ 150,077,436 principal amount of 7-year Notes due 2012, divided into two Series with a 6% interest rate for the first five years and 7% for the remaining two years; and US$ 235,121,316 aggregate principal amount of 10-year Notes due 2015, divided into three Series payable in three equal annual installments as from the eighth year, with an interest rate increasing from 3% to 12%, and authorizing a Ps. 39,465,500 capital increase and the issuance of 39,465,500 Class "B" shares, in consideration for the full, total, and final settlement of all the claims and rights of any nature on and against Cablevisión or its assets by those creditors taking part in the restructuring.
The terms of Cablevisión's debt restructuring were set forth in a pre-packaged insolvency plan (APE) filed for judicial confirmation on May 14, 2004 and confirmed in the first instance on July 5, 2005. Such judicial confirmation was ratified by the Argentine Commercial Court of Appeals on June 25, 2008. On August 25, 2009, the Supreme Court issued a final ruling dismissing the extraordinary appeals and petitions filed against the decision of the Argentine Commercial Court of Appeals.
Therefore, the provisions of the APE were imposed on the creditors that had not expressly accepted them. Accordingly, on September 22, 2009 Cablevisión delivered to such creditors all the consideration set forth in the APE, thereby discharging by novation the credit obligations thereunder. On October 28, 2009, Commercial Court No. 11 of First Instance ruled that the APE had been completed pursuant to section 59 of Law No. 24,522.
Between October 2005 and April 2009, in accordance with the APE's general terms and conditions, Cablevisión cancelled US$ 50,075,210 of the Short-Term Negotiable Obligations, leaving an outstanding balance US$ 100,002,226.
In accordance with CNV regulations, the Company informed that the funds related to the issuance of the new notes were used to settle pre-existing indebtedness.
Before being acquired by the Company, Cablevisión also completed the restructuring of certain debts held with public sector banks for a total amount of approximately Ps. 40 million. On June 11 and October 8, 2007, it repaid two of the three restructured loans plus interest accrued as of repayment date. As of the date of these financial statements, Cablevisión holds only one loan with public sector banks for US$ 3.1 million.
The outstanding Notes of Cablevisión impose restrictions on certain operations by Cablevisión and its subsidiaries for so long as they remain outstanding, such as: Selling, transferring or otherwise disposing of all or part of its operations or properties, imposing encumbrances or guarantees on its assets, financial indebtedness, amounts to be invested in property, plant and equipment, certain payments (including payments of dividends), corporate reorganization transactions and disposal of licenses, franchises and other rights owned by the Company. In addition, Cablevisión is required to repay Negotiable Obligations in advance with any excess cash.
If the Company is unable to comply with the above mentioned restrictions, the holders of such Negotiable Obligations and other financial creditors may declare an event of default and accelerate repayment of the outstanding financial indebtedness.
Multicanal
Multicanal's Notes (assumed by Cablevisión) effective as of December 31, 2009, issued under Multicanal's judicially confirmed APE, comprise: a) Series A Step Up Notes with a principal amount of US$ 80,325,000 (the "10-year Notes"), accruing interest at an annual nominal rate of 2.5% from December 10, 2003 to the fourth anniversary of their issue date, 3.5% from the fourth to the eighth anniversary, and 4.5% thereafter until maturity, and b) Series B Notes with a principal amount of US$ 100,439,291 (the "7-year Notes"), accruing interest at an annual nominal rate of 7%.
The 10-year Notes and the 7-year Notes include certain covenants, such as: (i) limitation on the issuance of guarantees by subsidiaries; (ii) limitations on mergers, consolidations, and sale of assets under certain conditions, (iii) limitation on incurring debt above certain approved ratios, (iv) limitation on capital expenditure exceeding certain amount, (v) excess cash sweeps to prepay outstanding 7-year Notes, (vi) limitation on transactions with shareholders and affiliates under certain conditions, (vii) limitation on the issuance and sale of significant subsidiaries' shares with certain exceptions.
Some of the covenants originally included in such Notes were amended at extraordinary noteholders' meetings. The amendments proposed by Multicanal were approved at each such meetings.
In order to harmonize the terms and conditions of the Notes issued by Multicanal with those issued by Cablevisión, an extraordinary noteholders' meeting was held on December 22, 2008 by the holders of 7-year Notes in which the amendment of certain terms and conditions of such notes was approved, effective as of October 1, 2008.
On May 6, 2009, an extraordinary noteholders' meeting was held by the holders of 10-year Notes in which the noteholders granted a waiver of certain merger covenants of the 10-year Notes in connection with the Multicanal and Cablevisión merger.
On June 20, 2009 the Company made the first payment of principal under the 7-year Notes, for an amount of US$ 5,286,278.
On June 30, 2009, pursuant to certain merger covenants under Multicanal's 10-year and 7-year Notes, Cablevisión assumed Multicanal's obligations under such Notes as from October 1, 2008, subject to Multicanal's merger into Cablevisión becoming effective under Argentine law.
AGEA
On January 28, 2004, AGEA issued US$ 30.6 million aggregate principal amount (Series C Notes due 2014), which accrue interest at an incremental fixed rate (2% from December 17, 2003 to January 28, 2008; 3% from January 29, 2008 to January 28, 2012; and 4% from January 29, 2012 up to the maturity), payable semiannually. Principal will be repaid in a lump sum on January 28, 2014.
On January 26, 2006, AGEA issued Ps. 300 million aggregate principal amount (Series D Notes due 2014), which accrue interest at a variable rate equal to the CER variation for the period, plus a 4.25% margin, payable semiannually commencing on June 15, 2006. Principal will be repaid in 8 equal and consecutive semiannual installments beginning on June 15, 2008.
The Series C Notes due 2014 and the Series D Notes include certain covenants and restrictions, including but not limited to, restrictions on borrowings, creation of encumbrances, mergers, disposition of significant assets, transactions with affiliates (including the Company) and payment of dividends or other payments to shareholders (including the payment of management fees to the Company), if certain ratios are not met or if certain amounts are exceeded.
As of the date of these financial statements, AGEA had paid the first four installments of the Series D Notes of Ps. 37.5 million principal amount each, plus interest accrued thereon.
Note 15. Sellers financing
|
|
Weighted Average Interest Rate at December 31, 2009 |
|
|
|
|
| ||||
|
|
|
|
| As of December 31, |
|
| ||||
|
|
| Maturities |
| 2009 |
| 2008 |
|
| ||
| Current |
|
|
|
|
|
|
|
|
| |
| Principal | 4.86% |
| 2010 |
| 4,375,301 |
| 50,726,478 |
|
| |
| Accrued interests |
|
| 2010 |
| 1,740,687 |
| 12,610,982 |
|
| |
|
|
|
|
|
| 6,115,988 |
| 63,337,460 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
| Non Current |
|
|
|
|
|
|
|
|
| |
| Principal | 4.86% |
| 2011-2013 |
| 116,250,465 |
| 551,170,669 |
|
| |
|
|
|
|
|
| 116,250,465 |
| 551,170,669 |
|
| |
Scheduled maturities of the sellers financing for the next years (excluding current portion), as of December 31, 2009, are as follows:
| 2011......................................................................................................................... |
| 1,174,419 |
| 2012......................................................................................................................... |
| 114,860,837 |
| 2013......................................................................................................................... |
| 215,209 |
|
|
| 116,250,465 |
Grupo Clarín
In connection with the transactions carried out in September 2006 resulting in an increase in the Company's indirect interest in Cablevisión to 60%, the Company issued a US$ 157.8 million promissory note, with original maturity on September 26, 2009, accruing interest at 6-month LIBOR plus a 3.50% spread payable on a semi-annual basis as from March 26, 2007. Such maturity could be extended until September 26, 2010 if the Company prepaid a minimum amount of 40% of the promissory note's original principal amount. If so extended, the promissory note would accrue interest at 6-month LIBOR plus a 4.25% spread. Under certain circumstances, if the Company decided to capitalize such interest, such spread would increase by 0.25%. If, as of September 26, 2010, the Company prepaid a minimum amount of 70% of the promissory note's original principal amount, the Company would have the option to extend the maturity until September 26, 2011, accruing, during this second extension period, interest at 6-month LIBOR plus a 5.00% spread.
During 2007 and 2008, Grupo Clarín prepaid principal amounts of US$ 29 million and US$ 27 million, respectively, plus interest thereon.
During June and October 2009, the Company executed amendments to the original promissory note, whereby the conditions to be met for such extensions were eliminated, modifying the maturity schedule and establishing a 5.75% margin applicable to the period running from September 27, 2011 through September 26, 2012. Pursuant to such amendments, the outstanding balance as of the date of the last amendment shall be repaid according to the following maturity schedule:
| Payment date |
| Repayment of principal | |
|
|
|
|
|
| September 26, 2011 |
| US$ | 8.2 million |
| September 26, 2012 |
| US$ | 30.0 million |
As of December 31, 2009, Grupo Clarín made debt prepayment for an aggregate principal amount of US$ 71.8 million, plus interest thereon. As of the date of these financial statements, the Company owes a principal amount of US$ 30.0 million.
Cablevisión
As a result of Cablevisión's acquisition of Multicanal, Cablevisión issued debt held by unrelated parties and Grupo Clarín, which, after certain transfers by Grupo Clarín and Cablevisión's prepayment of Ps. 68.9 million in December 2007, is now held entirely by unrelated parties and totals Ps. 292.0 million. The total amount of this debt accrues interest at a variable rate equal to BADLAR plus a fixed 6% spread, subject to certain caps and payable semi-annually as from March 26, 2007. The original terms provided for the repayment of principal in a lump sum on September 26, 2009.
On June 1, 2008, a new promissory note was issued replacing the previous one, whereby the term was extended until December 31, 2010, at a 21% interest rate until December 31, 2008, and 18.75% interest rate from such date until its maturity.
During 2008, Cablevisión repaid principal amount of Ps. 97.9 million, plus interest thereon.
Additionally, December 1, 2008, the Company assigned to the holders of such debt a principal amount of Ps. 40.4 million of this debt as prepayment of the promissory note mentioned above.
During 2009, Cablevisión prepaid all outstanding principal and interest accrued thereon.
Note 16. Derivative financial instruments
The Company enters into derivative instruments only to the extent considered necessary to ensure future debt cash flows at a fixed-rate in US dollars. It does not enter into derivative contracts for speculative purposes.
Receivables and liabilities generated by derivatives have been valued at their estimated fair value. Changes in fair value have been recognized as result for the year.
Under the item Other non-current receivables, these financial statements include Ps. 36.8 million of receivables generated by the prepayment of outstanding indebtedness held by financial entities, net of Ps. 9.9 million payable under swap agreements. Such agreements, executed by a subsidiary of the Company, consist of interest rate and exchange rate swaps for a nominal value of approximately Ps. 76.1 million, whereby the net position resulting from swapping the obligation to pay interest and principal at a variable rate in pesos for the obligation to pay interest and principal at a fixed rate in US dollars is transferred to the financial entities that are party to such agreements. The swap agreements, executed in January 2006, are effective until December 2011.
During October 2008, certain amendments were executed to the swap agreements mentioned in the previous paragraph, which involved the prepayment of certain outstanding amounts denominated in US$ due in 2010 and 2011 in the amount of US$ 13.5 million.
Under the item Other current liabilities, these financial statements include Ps. 3.7 million, representing the net amounts of certain foreign currency forward contracts, executed by a subsidiary of the Company and by the Company itself, for a nominal value of approximately US$ 16 million due on March 31, 2010 and June 30, 2010.
These transactions related to derivatives generated a net loss of Ps. 10.0 million for the year ended December 31, 2009.
Note 17. Related parties
The Company has entered into certain transactions in the ordinary course of business with unconsolidated affiliates accounted for under the equity method. These transactions have been executed on terms comparable to those of unrelated third parties and primarily include:
|
|
| Year ended December, 31 |
| ||
|
|
| 2009 |
| 2008 |
|
|
|
| Income (Expense) |
| ||
|
|
|
|
|
|
|
| Advertising sales |
| 29,558,033 |
| 50,155,326 |
|
| Cable television signals sales |
| 41,669,152 |
| 19,478,120 |
|
| Other sales |
| 7,631,670 |
| 10,870,255 |
|
| Financial interest |
| 182,462 |
| 1,522,926 |
|
|
|
| 79,041,317 |
| 82,026,627 |
|
|
|
|
|
|
|
|
| Cost of sales |
| (435,400,676) |
| (562,353,015) |
|
| Selling expenses |
| (5,768,801) |
| (5,739,863) |
|
| Administrative expenses |
| (1,026,189) |
| (632,311) |
|
| Financial Interest |
| (83,350) |
| (83,345) |
|
|
|
| (442,279,016) |
| (568,808,534) |
|
NOTE 18. AGREEMENTS EXECUTED WITH THE ARGENTINE FOOTBALL ASSOCIATION
On June 22, 2007 TRISA and TSC executed several documents with AFA, applicable from the 2007/2008 until the 2013/2014 soccer seasons, governing the broadcasting of five of the Argentine soccer first division official tournament matches played each week.
The agreements set the price to be paid by TRISA for the product and clearly stated its right to sell such product.
On August 12, 2009, AFA notified TSC of its decision to terminate unilaterally the agreement that bound both parties until the 2013/2014 soccer season. IESA, as TSC's shareholder, will make its best efforts for TSC to take all judicial action necessary to safeguard the rights illegitimately violated by the AFA. In that regard, IESA completed the prior and mandatory mediation proceedings with the AFA, with the participation of TSC. The parties failed to reach an agreement and therefore TSC was allowed to bring its claim before a judicial court.
In light of the events and until the situation is remedied, TRISA will not be able to broadcast the five weekly matches of the first division tournament that it used to broadcast on its signal TyC Sports.
The broadcasting rights for the matches of National B and Metropolitan First B categories; National Team Friendly matches, the show "Fútbol de Primera" and the international rights for the so-called Classic matches are governed by agreements that are different from the above-mentioned agreement, and which the AFA has not terminated. They should therefore be deemed to be in full force and effect.
The situation described above has a significant impact on TRISA's revenues and costs. Therefore, as of the date of these financial statements, such company is considering alternatives to adjust its signal to this new situation. Nevertheless, TRISA has recorded decreased revenues since August to December 2009; the amount of which was estimated based on the progress of negotiations with each client and the new content of the signal.
The total revenues recognized for such period, subject to the final outcome of the negotiation process which has not been concluded as of the date of these financial statements, accounts for approximately 12% of TRISA's total sales.
The final outcome of the negotiation process may generate actual results different from TRISA's assessments and estimates and such differences may be material for such subsidiary.
Note 19. PALP
During the last quarter of 2007, the Company, together with its subsidiaries, began to implement a PALP for certain executives (directors and managers comprising the "executive payroll"), which became effective in January 2008. Executives who adhere to such plan will undertake to contribute regularly a portion of their salary (variable within a certain range, at the employee's option) to a fund that will allow them to strengthen their savings capacity. Furthermore, each company of the Group where such executives render services will match the sum contributed by such executives. This matching contribution will be added to the fund raised by the employees. Under certain conditions, the employees may access such funds upon retirement or upon termination of their jobs with the Group.
Likewise, the PALP provides for certain special conditions for those managers who were in the "executive payroll" before January 1, 2007. Such conditions consist of supplementary contributions made by each company to the PALP related to the executive's years of service with the Group. As of year-end, such supplementary contributions made by the Company on a consolidated basis amount to approximately Ps. 28 million and the charge to income is deferred until the retirement of each executive.
Note 20. CHANGES IN THE REGULATORY FRAMEWORK
In a context of an escalation of attacks and intimidation against the media, the Audiovisual Communication Services Law (Law No. 26,522) was passed and enacted on October 10, 2009, subject to strong concerns over its content and enactment procedure. Among other things, this law - which will repeal the current Broadcasting Law No. 22,285 under which the Company has conducted its Audiovisual Communication Services activities through its subsidiaries - provides for a license award and review scheme that grants wide discretion to the Executive Branch and to an Enforcement Authority with questionable composition and powers. In this regard, the law sets out that the terms of licenses shall be limited to 10 years, with a one-time non-renewable extension. The law also establishes that authorizations and licenses are non-transferable and sets out a regulatory framework and registration requirements for signals and production companies.
The new law also provides for a multiple license scheme that is inconsistent with major international precedents on the matter and with the one that exists under Broadcasting Law No. 22,285. Among other things, the new law restricts to 10 the number of Audiovisual Communication Services licenses plus a single broadcasting signal for radio, broadcast TV and subscription cable TV services that make use of the radio spectrum. On the other hand, it restricts the licensing of services that do not make use of the radio spectrum, such as subscription broadcasting services rendered by means of a physical link (cable), limiting the number of local licenses to 24, with eventual extensions to be determined. Moreover, the law sets forth a further restriction on these services, which may not be provided to more than 35% of all inhabitants or subscribers nationwide and must be provided at a lower, "social" rate in certain social and geographic segments.
The law establishes that a broadcast TV signal and a cable TV signal may not be simultaneously exploited in the same location. This provision contradicts the international legislation on the subject, which has no similar precedents, as it is generally considered unreasonable from the point of view of competition, diversity and economic rationality.
In this same regard, the law restricts the production of signals. This aspect has been questioned since it violates Article 14 of the Argentine National Constitution by establishing authorizations for the exercise of free speech over non-radioelectric platforms. Thus, broadcast TV networks may only own one cable TV signal. The same applies to cable TV networks, which may only own the so-called "local channel".
Moreover, the law prescribes that owners of audiovisual communication services pay a tax on the gross revenues derived from the sale of traditional and non-traditional advertising, programs, signals, content, subscriptions and all other items related to the exploitation of such services. The tax rate may reach up to 5%, depending on the category under which the service rendered is classified.
This Law also imposes regulations on content. The provisions in this regard were also strongly questioned during the congressional debate of the bill, since they were deemed excessive and unconstitutional because they provide for types of mandatory content and prior approvals.
Also controversially, the law sets forth retroactive effects by requiring holders of current broadcasting licenses - which were legitimately acquired rights under Law No. 22,285 as amended - to conform to the new law within the term of one year counted as from the time certain mechanisms required for implementation are set in place.
Even though the new Audiovisual Communication Services Law became effective on October 19, its regulations have not been enacted yet and there are still many issues that need clarification before they can be applied in practice.
It is publicly known that the main entities of the audiovisual media industry as well as industry players, jurists and experts have expressed several concerns about this law, since they consider that it has defects that render it unconstitutional; it seriously damages the development of the audiovisual industry and it restricts fundamental freedoms. Some of these industry players, such as provincial governments and political parties, as well as private entities including the Company, have already made court filings in this sense. As of the date of these financial statements and at the request of several of these parties, five court decisions were rendered providing for (i) the provisional suspension of sections 41 and 161 of the Audiovisual Communication Services Law with respect to the Company; (ii) at the request of the Consumer Defense Committee, the suspension of section 45, which sets forth limits to multiple licenses; section 161, which provides for a term to divest certain assets; and sections 62 through 65, thus allowing companies to continue broadcasting network programs and suspending the requirement that TV and radio stations broadcast certain percentages of provincial programming or national music, with the National Executive Power having to refrain from regulating these aspects of the law; (iii) the suspension at the request of a group of companies in the broadcasting industry of six sections until the court rules on the merits; and (iv) and (v) at the request of two national representatives who reported serious irregularities in the enactment procedures of such law, the suspension of the application, implementation and execution of the entire Law during the proceedings related to both claims. After the appeal presented by the National Government, one of the court decisions mentioned in (iv) and (v) has been confirmed by a Federal Court. These court decisions evidence the highly questionable nature of the law. Moreover, several legislators have stated their intention to review the law in Congress after December, when the newly elected legislators take office, thus changing the current composition of Congress.
Even though Decrees 1525/09 and 1979/09 set forth the composition of the Federal Enforcement Authority of the Audiovisual Communication Services Law and some of its members were appointed (also raising controversy), as of the date of these financial statements such authority has not been fully formed and its functions may be deemed suspended by the decisions mentioned in (iv) and (v) above.
The Company and its subsidiaries are evaluating the possible effects of such questioned Audiovisual Communication Services Law on their business. However, depending on several aspects which until now have not been made clear by the law, the Company and its subsidiaries could be forced to divest of certain services, based on the elections of the Company and its subsidiaries and the divestiture mechanisms to be established to such end. These situations have not taken place as of the date of these financial statements. All the abovementioned could result in a reduction of the services the Company currently renders, which ownership and rights were acquired pursuant to Law 22,285. Therefore, at present this situation generates uncertainties about the business of the Company and its subsidiaries, which could significantly affect the recoverability of the Company's relevant assets.
However, the recoverability of such assets could be unaffected if the Company's and other parties' main arguments were adopted to create a framework of increased rationality, either by the amendment, repeal or declaration of unconstitutionality of the new media law.
The Company and its legal advisors consider that this law violates fundamental constitutional rights, such as, the property right and the freedom of press, among others. For this reason, it will continue bringing the legal actions in each instance to safeguard its rights and those of its shareholders; as well as to protect the fundamental principles infringed by such law (see Note 21.a to additional information related to changes in the regulatory framework).
The decisions to be made based on these financial statements should contemplate the eventual impact these changes in the regulatory framework may have on the Company and its subsidiaries. The parent only and the consolidated financial statements of the Company should be read in the light of this uncertain environment.
Note 21. Subsequent events
a. On January 5, 2010 the Federal Enforcement Authority of the Audiovisual Communication Services Law issued Resolutions No. 1, 2, 3 and 4, providing for: (i) the initiation of a process aimed at identifying broadcasting services lacking authorization; ii) a mandatory survey of all precarious and provisional licenses, authorizations and permits (Decree No. 1357/89- Evidence of Request for "Re-registration") and of current recognized AM and FM radio stations (Resolution No. 753/COMFER/06 as amended) and broadcast television within Argentina; (iii) the initiation of a process aimed at reordering television services with limited reach; and (iv) the creation of a Registry of signals contemplated by Law 26.522 for the broadcasters to register signals to be broadcast in Argentina.
Even though Resolutions 2 and 4 mentioned above apply to some of the Company's subsidiaries, in view of the preliminary injunctions issued by Federal Court No. 2 of Mendoza in re "Thomas Enrique v. ENA on Complaint based on constitutional rights and other", confirmed by the Federal Court of Mendoza and by Federal Court No. 2 of Salta in re "Daher, Zulema Beatriz v. National Government - Honorable Senate - National Executive Branch on Declaratory Action - Preliminary Injunction", the effects of both Resolutions may be considered currently suspended to the extent that they entail the application and enforcement of Law 26.522.
b. On January 22, 2010, Cablevisión was notified of CNDC Resolution No. 8/10 issued within the framework of file No. 0021390/2010 entitled "Official Investigation of Cable Television Subscriptions (C1321)". By means of such Resolution, Cablevisión and other companies were ordered to refrain from conducting collusive practices and, particularly, from increasing the price of cable television subscriptions for a term of 60 days, counted as from the date all required notices are certified as completed. According to said Resolution, companies which have already increased the price of the subscriptions shall return to the price applicable in November 2009 and maintain such price for the abovementioned term.
On February 2, 2010, by means of Resolution No. 13/10, the CNDC ordered Cablevisión to credit its subscribers the amount of any price increase made after the date of CNDC Resolution No. 8/10 on its March invoices.
The effects of both resolutions were suspended by a preliminary injunction granted by the Federal Commercial and Civil Court of Appeals, Clerk's Office II, at Cablevisión's request.
c. On January 6, 2010, the SCI issued Resolution 1/2010 whereby certain business practices were imposed on Papel Prensa. Such Resolution was appealed before the Federal Administrative Courts and was also subject to a preliminary injunction that suspended its effects.
d. On February 22, 2010, the Company settled the last installment of the debt referred to in Note 14, plus accrued interest.
e. On March 3, 2010, the SCI issued Resolution No. 50/10, whereby it approved certain rules for the sale of cable television services. These rules provide that cable television operators must apply a presumably mandatory formula to estimate the monthly subscription prices. Such formula is illegitimate, inconsistent with industry parameters, and flagrantly disregards constitutional rights. The price arising from the application of the formula must be informed to the Office of Business Loyalty (Dirección de LealtadComercial). Cable television operators shall adjust such amount every six month and inform the result of such adjustment to said Office.
Even though as of the date of these financial statements Cablevisión cannot assure the actual impact of the application of this formula, given the vagueness of the variables provided by the Resolution to calculate the monthly subscription prices, Cablevisión believes the Resolution is arbitrary and bluntly disregards the freedom to contract, which is part of the freedom of industry and trade. Therefore, it has filed the pertinent administrative claims and will bring the necessary legal actions requesting the suspension of the Resolution's effects and ultimately requesting its nullification.
As of the date of issuance of these financial statements, such Resolution has been provisionally suspended by Federal Courts of Salta. Even though Cablevisión, like other companies in the industry, have strong constitutional arguments to support their position, it can not be assured that the final outcome of this issue will be favorable. Therefore, Cablevisión may be forced to modify the price of their cable television subscription, a situation that could significantly affect the revenues of its core business. This situation creates a general framework of uncertainty over Cablevisión's business, which may significantly affect the recoverability of its relevant assets.
Decisions made on the basis of these financial statements should contemplate the eventual impact that said resolution may have on the Company and these financial statements should be construed in the light of such uncertainty.
f. On March 3, 2010, the Argentine Ministry of Economy and Public Finance issued Resolution No. 113 (subscribed by the Minister of Economy, Dr Amado Boudou) rejecting the Company's request for the nullification of Resolution No. 1011/09, for the abstention and excusation, and rejecting all evidence produced by the Company. The voluntary undertakings made by Cablevisión at the time of Resolution 257/07 were deemed unfulfilled, thus declaring the rescission of the authorization granted under such resolution. The parties involved were ordered to take all necessary actions within a term of six months to comply with such rescission and inform the CNDC about the progress made on a monthly basis. It should be noted that such resolution is clearly arbitrary. Therefore, even though the Company cannot assure that the results of any legal actions brought will be resolved in its favor, it considers it has strong grounds to request the suspension of its effects. Consequently, it will file an appeal requesting the nullification of such resolution.
On April 20, 2010 the Federal Commercial and Civil Court of Appeals, Clerk's Office 2, granted the appeal filed by Grupo Clarín S.A. in re "Grupo Clarín on delay in the appeal of the proceedings", and decided that the appeal granted by the CNDC to Grupo Clarín S.A. against Resolution No. 113/10 had the effect of staying such resolution.
Report of Independent Auditors
To the board of directors and shareholders of
Grupo Clarín S.A.
We have audited the accompanying consolidated balance sheets of Grupo Clarín S.A. and its subsidiaries as of December 31, 2008 and 2009, and the related consolidated statements of income, of shareholders' equity and comprehensive income and of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grupo Clarín S.A. and its subsidiaries at December 31, 2008 and 2009 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
We draw attention to Notes 12, 20 and 21 to the financial statements, which describe the uncertainties related to the effect of the resolutions issued by several regulators on matters associated with the acquisition of Cablevisión S.A. and other companies and their subsequent merge with Multicanal S.A. and other companies; the effect of the change in the audiovisual communication services regulatory framework and the outcome of the legal actions being brought by the Company in this connection; and, the effect of resolution issued by the regulator to calculate the monthly fee payable by the users of cable television services. Our opinion is not qualified in respect to these matters.
As discussed in Note 2 to the financial statements, the Company changed the manner in which it accounts for Business Combinations and Noncontrolling Interest in 2009.
City of Buenos Aires, Argentina
April 30, 2010
Price Waterhouse & Co. S.R.L.
Carlos Pace (Partner)