-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rb1pTsP0MwoQsih2EJ6C4hGzADhQ/8RyI31AiWNO+MUDUgyL8oZWL9MuE/4GVAsG YktdoA3yJWKpdj8qX2y4kQ== 0000895345-05-000938.txt : 20060629 0000895345-05-000938.hdr.sgml : 20060629 20050923163426 ACCESSION NUMBER: 0000895345-05-000938 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050923 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVA S DE RL CENTRAL INDEX KEY: 0001044884 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: INSURGENTES SUR 694 STREET 2: PISO 8 COL DEL VALLE 03100 CITY: MEXICO STATE: O5 BUSINESS PHONE: 5254484000 CORRESP 1 filename1.txt [SKY LOGO] September 23, 2005 Mr. Michael Henderson Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549 Dear Mr. Henderson: On behalf of Innova, S. de R.L. de C.V. (the "Company"), I am writing in response to the questions raised in our September 13, 2005 telephone conversation related to Comment No. 8 of the comment letter issued by the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") on August 1, 2005 and our initial response dated September 2, 2005 relating to the Company's accounting for the Direct TV transaction. Pursuant to the Staff's request, we are enclosing the quantitative and qualitative materiality analysis prepared under the guidance of Staff Accounting Bulletin No. 99 (SAB 99). It is our conclusion that the impact of not recording the transaction in 2004 for US GAAP purposes was not material to our financial statements on both a quantitative and qualitative basis, as set forth in the attached schedules. The conclusions set forth herein have been discussed with our Board of Directors. Our proposed accounting for the transaction under US GAAP is based on the following: Although we believe that our contractual obligation to pay for subscribers only arises upon the subscriber successfully being categorized as a "good subscriber"(1) as defined in the purchase agreement, we acknowledge that at December 31, 2004, to the extent that subscribers had signed on but had not yet reached the classification of a "good subscriber", an estimated liability could have been recognized. Therefore, pursuant to US GAAP, we would recognize an estimated asset and liability at such date. Our attached analysis is based on a conservative model which takes into consideration 100% of the subscribers signed up through December 31, 2004 and not just those which became good subscribers in subsequent periods. The cost per subscriber was also determined based on the minimum threshold of 70,000 subscribers required to migrate to our system for us to be obligated to pay the Ps. 621 million (i.e. the highest possible cost per subscriber). We have also concluded that discounting the non interest bearing liability is appropriate pursuant to APB No. 21 Interest on "Receivables and Payables" due to its contractual payment provisions and have thus reflected the initial asset and liability at the discounted amounts. The subscriber intangible asset was subsequently amortized based on the expected subscriber relationship period and the accretion expense was recognized on the liability. Lastly, as we report under a price-level method of accounting, we also have calculated the purchasing power gain on the liability. - -------------------------------- (1) Subscribers are considered fully migrated ("good subscribers") if once they have subscribed to our service, they remain as subscribers for four months in the case of credit card payers and six months in the case of cash payers, respectively. At December 31, 2004, none of the 34,614 signed subscribers arising from the subscriber list had met this contractual definition. If you need any additional information or have any questions or additional comments concerning the foregoing, please contact me at (5255) 5448-4131 or contact Faustino Montero at PricewaterhouseCoopers at (5255) 5263-6095 or Andrew Varney of Fried, Frank, Harris, Shriver & Jacobson, LLP at (202) 639-7032. Sincerely, /s/ Carlos Ferreiro Rivas Carlos Ferreiro Rivas Chief Financial Officer cc: Faustino Montero Andrew P. Varney INNOVA RECOGNITION OF THE ASSET & LIABILITY AND AMORTIZATION, BASED ON MIGRATED SUBSCRIBERS ONLY AMOUNTS IN THOUSANDS OF PESOS
GROSS ----------------------------------------------------------------- NO. OF COST PER NOMINAL DISCOUNTED RECOGNITION OF THE INTANGIBLE ASSET: SUBSCRIBERS SUBSCRIBER AMOUNT (1) AMOUNT (3) Actual subscriber migration per month October 1,411 8.87 12,520 10,899 November 15,632 8.87 138,703 121,651 December 17,571 8.87 155,908 137,940 ------------ ------------ ------------ ------------ Intangible Asset 34,614 8.87 307,131 270,489 ============ ============ ============ ============ INITIAL INITIAL NO. OF COST PER NOMINAL DISCOUNTED RECOGNITION OF THE LIABILITY: SUBSCRIBERS SUBSCRIBER AMOUNT (1) AMOUNT (3) October 1,411 8.87 12,520 10,899 November 15,632 8.87 138,703 121,651 December 17,571 8.87 155,908 137,940 ------------ ------------ ------------ ------------ Liability 34,614 8.87 307,131 270,489 ============ ============ ============ ============ 12/31/04 AMORTIZATION NET BOOK VALUE RECOGNITION OF THE INTANGIBLE ASSET: CONSTANT PESOS EXPENSE (2) AS OF 12/31/04 Actual subscriber migration per month October 11,014 459 10,555 November 121,902 2,540 119,362 INPC Oct 111.368 December 137,940 0 137,940 INPC Nov 112.318 INPC Dic 112.550 ------------ ------------ ------------ Intangible Asset 270,856 2,999 267,857 10.550% ============ ============ ============ (ACCRETION) NET LIABILITY AS RECOGNITION OF THE LIABILITY: EXPENSE OF 12/31/04 October 195 11,093 November 1,105 122,756 December 0 137,940 ------------ ------------ Liability 1,300 271,789 ============ ============
IMPACT ON INCOME STATEMENT: Amortization Expense (2,999) Interest Expense (1,300) Monetary Gain on the Liability 367 (4) ---------- (3,932) (1) Based on the actual migration of subscribers multiplied by the actual purchase price per subscriber (2) Per our accounting policies, we commenced the amortization in the first month subsequent to acquisition (3) We discounted the asset and the liability from February 06 which is the measurement date and the earliest expected settlement date. (4) Pursuant to inflation accounting, monetary assets and liabilities generated gains and losses in purchasing power as measured by inflation.
SUMMARY OF IMPACT: Non-current Intangible Asset Db 267,857.36 Operating Expenses/ (amortization) Db 2,998.55 Interest Expense Db 1,299.99 Non-current Liability Cr 271,788.95 Monetary Gain on the Liability Cr 366.95 ---------------- ------------- 272,155.90 272,155.90 ================ =============
QUANTITATIVE MATERIALITY ANALYSIS: - --------------------------------- Unadjusted difference on Intangible Assets: 267,857.36 Total assets as reported USGAAP 4,906,926.00 % 5.46% Unadjusted difference on liabilities: 271,788.95 Total liabilities as reported USGAAP 7,879,612.00 % 3.45% Unadjusted difference on net income - 3,931.59 Net income as reported (USGAAP) 599,310.00 % impact -0.66% Unadjusted difference on operating income - 2,998.55 Operating income as reported (USGAAP) 975,207.00 % impact -0.31% Unadjusted difference on equity - 3,931.59 Equity owners deficit as reported (USGAAP) - 2,972,686.00 % 0.13% INNOVA SUPPLEMENTAL QUALITATIVE ANALYSIS RELATED TO THE DIRECT TV SUBSCRIBER LIST ISSUE SEC COMMENT NO. 8
No. Qualitative factor Evaluation and conclusion 1. Whether the misstatement arises from an No - The Company views this item as item capable of precise measurement or an estimate as it could not precisely whether it arises from an estimate and, measure the number of ultimate "good if so, the degree of imprecision inherent subscribers" and the final liability in the estimate in 2004. 2. Whether the misstatement masks a change No - The Company reported positive in earnings or other trends operating income and a net income for 2004. This adjustment would not impact the trend in either numbers in any significant manner as demonstrated in the attached SAB 99 quantitative analysis. In addition, this adjustment would not impact cash flows from financing and investing activities or working capital. 3. Whether the misstatement hides a failure No - Ratios that provide useful to meet analysts' consensus expectations information to investors, financial for the enterprise analysts and the public in their review of the Company's operating performance, as well as their comparison to other companies in the same industry are the following: (i) average revenue per user, (ii) monthly average rotation of users, (iii) free cash flow, and (iv) EBITDA. None of these ratios would be affected in any significant manner by this adjustment. 4. Whether the misstatement changes a loss No - The Company reported a net into income or vice versa income for the period and this adjustment would not impact the net income in any significant manner. 5. Whether the misstatement concerns a N/A - The Company operates in only segment or other portion of the one business segment. registrant's business that has been identified as playing a significant role in the registrant's operations or profitability 6. Whether the misstatement affects the No - The Company is not a public registrant's compliance with regulatory company in Mexico and voluntarily requirements files its annual report on Form 20-F. 7. Whether the misstatement affects the No - The Company's indenture registrant's compliance with loan agreements expressly permit this covenants or other contractual transaction and there are no debt requirements covenant implications at December 31, 2004. In addition, these liabilities are subordinated to existing indebtedness of the registered bondholders. 8. Whether the misstatement has the effect No - management is not compensated of increasing management's compensation - based on U.S. GAAP results. for example, by satisfying requirements for the award of bonuses or other forms of incentive compensation 9. Whether the misstatement involves No - We believe that this transaction concealment of an unlawful transaction. was disclosed in a transparent manner both in the body of the annual report on Form 20-F as well as the notes to the audited financial statements. 10. Expected market reaction None - The Company believes that the market understands the transaction and the amount of the liability. In essence, this is only a timing issue as the entire liability will be recognized in 2005.
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