Table of Contents

As filed with the Securities and Exchange Commission on April 26, 2018

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 20-F

 

 

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2017

Commission file number: 1-16269

 

 

AMÉRICA MÓVIL, S.A.B DE C.V.

(exact name of registrant as specified in its charter)

 

 

America Mobile

(translation of registrant’s name into English)

United Mexican States

(jurisdiction of incorporation)

Lago Zurich 245, Plaza Carso / Edificio Telcel

Colonia Ampliación Granada, Delegación Miguel Hidalgo

11529 Mexico City, Mexico

(address of principal executive offices)

Daniela Lecuona Torras

Lago Zurich 245, Plaza Carso / Edificio Telcel, Piso 16,

Colonia Ampliación Granada, Delegación Miguel Hidalgo,

11529 Mexico City, Mexico

Telephone: (5255) 2581-4449

Facsimile: (5255) 2581-4422

E-mail: daniela.lecuona@americamovil.com

(name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered pursuant to Section 12(b) of the Act:

 

            Title of each class:            

 

  Name of each exchange on which registered:
A Shares, without par value   New York Stock Exchange
L Shares, without par value   New York Stock Exchange
5.000% Senior Notes Due 2019   New York Stock Exchange
5.000% Senior Notes Due 2020   New York Stock Exchange
3.125% Senior Notes Due 2022   New York Stock Exchange
6.375% Notes Due 2035   New York Stock Exchange
6.125% Notes Due 2037   New York Stock Exchange
6.125% Senior Notes Due 2040   New York Stock Exchange
4.375% Senior Notes Due 2042   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the registrant’s classes of capital or common stock as of December 31, 2017:

 

20,602 million   AA Shares
567 million   A Shares
44,901 million   L Shares

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒                    Accelerated filer  ☐                    Non-accelerated filer  ☐                    Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   ☐   

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ☒

   Other   ☐

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

 

 


Table of Contents

LOGO


Table of Contents

 

 

 

 

 

 


Table of Contents

 

  

 

TABLE OF CONTENTS         

 

 

(See Form 20-F Cross Reference Guide on page 113)

 

 

        
Selected Financial Data      1     
Part I: Information on the Company      5     
About América Móvil      6     
Our Networks      11     
Our Competitors      13     
Marketing, Sales and Distribution, Customer Services      14     
Acquisitions, Other Investments and Divestitures      14     
Part II: Operating and Financial Review and Prospects      17     
Overview      18     
Results of Operations      20     
Liquidity and Capital Resources      34     
Critical Accounting Policies and Estimates      38     
Part III: Risk Factors      43     
Part IV: Share Ownership and Trading      55     
Major Shareholders      56     
Related Party Transactions      57     
Dividends      57     
Trading Markets      58     
Bylaws      60     
Depositary Shares      63     
Purchases of Equity Securities by the Issuer and Affiliated Purchasers      64     
Taxation of Shares and ADSs      65     
Part V: Corporate Governance      71     
Management      72     
Management Compensation      80     
Corporate Governance      81     
Controls and Procedures      84     
Code of Ethics      86     
Part VI: Regulation      88     
Regulation      89     
Part VII: Additional Information      106     
Employees      107     
Legal Proceedings      107     
Principal Accountant Fees and Services      108     
Exchange Rates      108     
Additional Information      109     
Forward-Looking Statements      110     
Glossary      111     
Form 20-F Cross Reference Guide      113     
Signatures      115     

Part VIII: Consolidated Financial Statements

 

 

 

    

 

118

 

 

 

  

 


 

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

 

          SELECTED FINANCIAL DATA

 

 

We prepared our audited consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.

 

 

We present our financial statements in Mexican pesos. This annual report contains translations of various peso amounts into U.S. dollars at specified rates solely for your convenience. You should not construe these translations as representations that the peso amounts actually represent the U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, we have translated U.S. dollar amounts from pesos at the exchange rate of Ps.19.7867 to U.S.$1.00, which was the rate reported by Banco de México on December 28, 2017, as published in the Official Gazette of the Federation ( Diario Oficial de la Federación , or “Official Gazette”).

We have not included earnings or dividends on a per American Depositary Share (“ADS”) basis. Each L Share ADS represents 20 L Shares and each A Share ADS represents 20 A Shares.

 

 

 

 

 


 

1

 



Table of Contents
  
  

 

 

    AS OF AND FOR THE YEAR ENDED DECEMBER 31, (1)  
    2013     2014     2015      2016      2017     2017  
    

(in millions of Mexican pesos, except share and per share amounts)

 

    (in millions of
U.S. dollars,
except share
and per share
amounts)
 
INCOME STATEMENT DATA:  
Operating revenues     Ps.       786,101       Ps.        848,580       Ps.        893,738        Ps.       975,412        Ps.       1,021,634     U.S.$       51,632  
Operating costs and expenses             631,843                692,026                752,325                865,802                921,490               46,570  
Depreciation and amortization             101,535                114,994                125,715                148,526                160,175               8,095  
Operating income       154,258          156,554          141,413          109,610          100,143         5,062  
Net profit for the year     Ps.       74,974       Ps.        47,498       Ps.        36,961        Ps.       12,079        Ps.       32,155     U.S.$       1,627  
NET PROFIT ATTRIBUTABLE FOR THE YEAR TO:  
Equity holders of the parent     Ps.       74,625       Ps.        46,146       Ps.        35,055        Ps.       8,650        Ps.       29,326     U.S.$       1,482  
Non-controlling interests       349          1,352          1,906          3,429          2,829         145  
Net profit for the year     Ps.       74,974       Ps.        47,498       Ps.        36,961        Ps.       12,079        Ps.       32,155     U.S.$       1,627  
EARNINGS PER SHARE:  
Basic     Ps.       1.02       Ps.        0.67       Ps.        0.52        Ps.       0.13        Ps.       0.44     U.S.$       0.02  
Diluted     Ps.       1.02       Ps.        0.67       Ps.        0.52        Ps.       0.13        Ps.       0.44     U.S.$       0.02  
Dividends declared per share (2)     Ps.       0.22       Ps.        0.24       Ps.        0.26        Ps.       0.28        Ps.       0.30     U.S.$       0.02  
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (MILLIONS):  
Basic             72,866                69,254                66,869                65,693                65,909                  
Diluted             72,866                69,254                66,869                65,693                65,909                  
BALANCE SHEET DATA:  

Property, plant and equipment, net

    Ps.       501,107       Ps.        588,106       Ps.        573,529        Ps.       701,190        Ps.       676,343     U.S.$       34,182  

Total assets

            1,025,592                1,278,357                1,296,487                1,515,042                1,486,212               75,112  

Short-term debt and current

portion of long-term debt

            25,841                57,806                119,590                82,607                51,746               2,615  

Long-term debt

            464,478                545,949                563,627                625,194                646,139               32,655  

Capital stock

            96,392                96,383                96,338                96,338                96,339               4,869  

Total equity

            210,301                234,639                160,854                271,024                260,634               13,171  
NUMBER OF OUTSTANDING SHARES (MILLIONS):  

AA Shares

            23,424                23,384                23,384                20,635                20,602                  

A Shares

            681                649                625                592                567                  

L Shares

            46,370                44,120                41,990                44,571                44,901                  
Ratio of Earnings to Fixed Charges (3)       3.9          3.5          2.5          1.6          2.6        

(1)  As of December 31, 2017, we owned 51.0% of the total outstanding shares of Telekom Austria AG (“Telekom Austria” or “TKA”). We began consolidating Telekom Austria from July 1, 2014. Prior to July 1, 2014, we accounted for Telekom Austria using the equity method, which affects the comparability of our results for 2013 through 2017.

(2)  Figures for each year provided represent the annual dividend declared at the general shareholders’ meeting that year. For information on dividends paid per share translated into U.S. dollars, see “Share Ownership and Trading—Dividends” under Part IV of this annual report.

(3)  Earnings, for this purpose, consist of profit before income tax, plus interest expense, interest implicit in operating leases and current period amortization of interest capitalized in prior periods, minus equity interest in net (loss) income of associates, during the year.

 

  

  

  

 


 

2

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          ABOUT AMÉRICA MÓVIL

 

 

HISTORY AND CORPORATE INFORMATION

América Móvil, S.A.B. de C.V. (“América Móvil,” “we” or the “Company”) is a sociedad anónima bursátil de capital variable organized under the laws of Mexico.

We were established in September 2000 when Teléfonos de México, S.A.B. de C.V. (“Telmex”), a fixed-line Mexican telecommunications operator privatized in 1990, spun off to us its wireless operations in Mexico and other countries. We have made significant acquisitions throughout Latin America, the United States, the Caribbean and Europe, and we have also expanded our businesses organically. In 2010, we acquired control of Telmex and Telmex Internacional, S.A.B. de C.V. (currently, Telmex Internacional, S.A. de C.V., or “Telmex Internacional”) in a series of public tender offers.

Our principal executive offices are located at Lago Zurich 245, Plaza Carso / Edificio Telcel, Colonia Ampliación Granada, Delegación Miguel Hidalgo, 11529, Mexico City, Mexico. Our telephone number at this location is (5255) 2581-4449.

BUSINESS OVERVIEW

We provide telecommunications services in 25 countries. We are the leading telecommunications services provider in Latin America, ranking first in wireless, fixed-line, broadband and Pay TV services based on the number of revenue generating units (“RGUs”). Our largest operations are in Mexico and Brazil, which together account for over half of our total RGUs and where we have the largest market share based on RGUs. We also have major wireless, fixed or Pay TV operations in 16 other countries in the Americas and seven countries in Central and Eastern Europe as of December 31, 2017. For a list of our principal subsidiaries, see Note 2 a) to our audited consolidated financial statements and “Additional Information—Exhibit 8.1” under Part VII of this annual report.

We intend to build on our position as leaders in integrated telecommunications services in Latin America and the Caribbean, and to grow in other parts of the world by continuing to expand our subscriber base through the development of our existing businesses and strategic acquisitions when opportunities arise. We have developed world-class integrated telecommunications platforms to offer our customers new services and enhanced communications solutions with higher data speed transmissions at lower prices. We continue investing in our networks to increase coverage and implement new technologies to optimize our network capabilities. See “Operating and Financial Review and Prospects—Overview” under Part II of this annual report for a discussion on the seasonality of our business.

 

 


 

6

 



Table of Contents

LOGO


Table of Contents

 

 

         ABOUT AMÉRICA MÓVIL

 

 

KEY PERFORMANCE INDICATORS

We have identified certain KPIs that help measure the performance of our operations. The table of our KPIs below includes the number of our wireless subscribers and our fixed RGUs, which together make up the total RGUs, in the countries where we operate. Wireless subscribers consist of the number of prepaid and postpaid subscribers to our wireless services. Fixed RGUs consist of fixed voice, fixed data and Pay TV units (which include customers of our Pay TV services and, separately, of certain other digital services). The figures below reflect total wireless subscribers and fixed RGUs of all our consolidated subsidiaries, without adjustments to reflect our equity interest, in the following reportable segments:

 

  Mexico Wireless

 

  Mexico Fixed;

 

  Brazil;

 

  Colombia;

 

  Southern Cone (Argentina, Chile, Paraguay and Uruguay);

 

  Andean Region (Ecuador and Peru);

 

  Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama);

 

  the Caribbean (the Dominican Republic and Puerto Rico);

 

  the United States; and

 

  Europe (Austria, Belarus, Bulgaria, Croatia, Macedonia, Serbia and Slovenia).

 

     AS OF DECEMBER 31,  
     2015        2016        2017  
     (in thousands)  
WIRELESS SUBSCRIBERS:         
Mexico Wireless      73,697        72,953        73,855  
Brazil      65,978        60,171        59,022  
Colombia      28,973        28,954        29,353  
Southern Cone      29,186        30,377        31,076  
Andean Region      20,743        20,801        20,352  
Central America      15,317        15,085        15,927  
Caribbean      5,261        5,453        5,637  
United States      25,668        26,070        23,132  
Europe      20,711        20,708        20,658  
Total Wireless Subscribers      285,534        280,572        279,012  

FIXED RGUs:

        
Mexico Fixed      21,735        22,178        21,851  
Brazil      36,627        36,716        35,904  
Colombia      5,801        6,304        6,753  
Southern Cone      1,819        1,942        2,023  
Andean Region      1,727        1,820        1,765  
Central America      4,950        5,392        5,811  
Caribbean      2,511        2,663        2,700  
Europe      5,642        5,900        6,036  
Total Fixed RGUs      80,812        82,915        82,844  
Total RGUs      366,346        363,488        361,856  

PRINCIPAL BRANDS

We operate in all of our geographic segments under the Claro brand name, except in Mexico, the United States and Europe, where we principally do business under the brand names listed below.

 

Country   Principal Brands   Services and Products
Mexico   Telcel  

Wireless voice

Wireless data

   

Telmex

Infinitum

 

Fixed voice

Fixed data

United States   TracFone   Wireless voice
    Straight Talk   Wireless data
Europe   A1 (1)   Wireless voice
      Wireless data
      Fixed voice
      Fixed data
      Pay TV

 

(1)  In 2017, Telekom Austria announced the rebranding of all its regional operating companies as A1.

 

SERVICES AND PRODUCTS

We offer a wide range of services and products that vary by market, including wireless voice, wireless data and value-added services, fixed voice, fixed data, broadband and IT services, Pay TV and over-the-top (“OTT”) services.

Wireless Operations

In 2017, our wireless voice and data operations generated revenues of Ps.530.3 billion, representing 51.9% of our consolidated revenues. As of December 31, 2017, our wireless operations represented approximately 77.1% of our total RGUs.

Voice and Data

Our wireless subsidiaries provide voice communication services across the countries in which they operate. We offer international roaming services to our wireless subscribers through a network of cellular service providers with which our wireless subsidiaries have entered into international roaming agreements around the world, and who provide GSM, 3G and 4G-LTE roaming services.

Our wireless voice services are offered under a variety of plans to meet the needs of different market segments. In addition, we often bundle wireless data communications services together with wireless voice services. Our wireless subsidiaries had approximately 279 million wireless voice and data subscribers as of December 31, 2017.

 

 


 

8

 



Table of Contents

 

 

The voice and data plans are either “postpaid,” where the customer is billed monthly for the previous month, or “prepaid,” where the customer pays in advance for a specified volume of use over a specified period. Postpaid plans increased its composition of the wireless base from 23.7% in December 2016 to 25.3% as of December 31, 2017, while prepaid plans represented 74.7%.

 

 

 

Prepaid customers typically generate lower levels of usage and are often unwilling or financially ineligible to purchase postpaid plans. Our prepaid plans have been instrumental to increase wireless penetration in Latin America and Eastern Europe to levels similar to those of developed markets. Additionally, prepaid plans entail little to no risk of non-payment, as well as lower customer acquisition costs and billing expenses, compared to the average postpaid plan.

In general, our average rates per minute of wireless voice are very competitive for both prepaid and postpaid plans. The rates in 2017 decreased an average of 16.6%, at constant exchange rates relative to 2016. In addition, the plans we offer our retail customers include selective discounts and promotions that reduce the reference rates our customers pay.

Value-Added Services

As part of our wireless data business, our subsidiaries offer value-added services that include Internet access, messaging and other wireless entertainment and corporate services through GSM/EDGE, 3G and 4G LTE networks. Internet services include roaming capability and wireless Internet connectivity for feature phones, smartphones, tablets and laptops, including data transmission, e-mail services, instant messaging, content streaming and interactive applications. For example, in Mexico, our website for our wireless services (www.telcel.com) through Radiomóvil Dipsa, S.A. de C.V. (“Telcel”) offers a wide range of services and content such as video, music, games and other applications, which our subscribers can access from mobile devices.

In addition, we offer other wireless services, including wireless security services, mobile payment solutions, machine-to-machine services, mobile banking, virtual private network (“VPN”) services, video calls and Personal Communications Service (“PCS”).

Fixed Operations

In 2017, our fixed voice, data, broadband and IT solutions had revenues of Ps.229.1 billion, representing 22.4% of our consolidated revenues. As of December 31, 2017, our fixed operations represented approximately 22.9% of our total RGUs, compared to 22.8% as of December 31, 2016.

Voice

Our fixed voice services include local, domestic and international long-distance and public telephone services, under a variety of plans to meet the needs of different market segments, specifically tailored to our residential and corporate clients.

Data

We offer data services, including data centers, data administration and hosting services to our residential and corporate clients under a variety of plans.

Broadband

We provide residential broadband access through hybrid fiber-coaxial (“HFC”) or fiber-optic cable. These services are typically bundled with voice services and are competitively priced as a function of the desired or available speed. As a complement to these services, we offer a number of products such as home networking and smart home services.

 

 


 

9

 



Table of Contents

 

 

         ABOUT AMÉRICA MÓVIL

 

 

IT Solutions

Our subsidiaries provide a number of different IT solutions for small businesses and large corporations. We also provide specific solutions to the industrial, financial, government and tourism sectors, among others.

Pay TV

We offer Pay TV through cable and satellite TV subscriptions to both retail and corporate customers under a variety of plans. As of December 31, 2017, we had approximately 21.6 million Pay TV RGUs, a decrease of approximately 567 thousand Pay TV RGUs from the prior year.

In 2017, we acquired the rights to broadcast the Summer and Winter Olympic Games from 2018 through 2024 in all countries in Latin America, except for Brazil, on our Pay TV and digital platforms. Our largest Pay TV market is in Brazil, where we are the leading provider of Pay TV services through direct-to-home (“DTH”) technology and cable TV. We offer these services through individual subscription plans as well as in bundled packages of services, along with broadband, fixed voice and wireless services. In addition to our Brazilian operations, our Colombian operations are now offering quadruple-play services, combining Pay TV, broadband, fixed-line and wireless services.

Equipment, Accessories and Computer Sales

Equipment, accessories and computer sales revenues primarily include revenues from the sale of handsets, accessories and other equipment.

Other Services

Other services include revenues from other businesses, such as telephone directories, call center services, wireless security services, advertising, media and software development services.

OTT Services

We sell video, audio and other media content that is delivered through the internet directly from the content provider to the viewer or end user. Our most important service is ClaroVideo, an on-demand internet streaming video provider with more than 25,000 content titles sold across all the Latin American and Caribbean markets in which we operate. We offer bundled packages of ClaroVideo with other services. Additionally, we offer customers unlimited access to ClaroVideo for a fixed monthly subscription fee.

Services and Products by Country

The following table is a summary of our principal services rendered and products produced as of December 31, 2017 in the countries in which we operate.

 

   

Wireless
Voice, Data

and Value

Added

Services (1)

 

 

Fixed Voice,

Broadband,

Data and IT

Services (2)

   Pay TV  

OTT

Services (3)

Argentina           
Austria         
Belarus           
Brazil         
Bulgaria         
Chile         
Colombia         
Costa Rica         
Croatia         
Dominican Republic         
Ecuador         
El Salvador         
Guatemala         
Honduras         
Macedonia           
Mexico            (4)
Nicaragua         
Panama         
Paraguay         
Peru         
Puerto Rico         
Serbia               
Slovenia           
Uruguay         
United States               

(1)  Includes voice communication and international roaming services, interconnection and termination services, SMS, MMS, e-mail, mobile browsing, entertainment and gaming applications.

(2)  Includes local calls, national and international long distance.

(3)  Includes ClaroVideo and ClaroMúsica.

(4)  Services provided by non-concessionaire subsidiaries.

 

 

 


 

10

 



Table of Contents

 

          OUR NETWORKS

 

 

Our networks are one of our main competitive advantages. Today, we own and operate one of the largest integrated platforms based on our covered population across 17 countries in Latin America and are in the process of expanding our network in Europe.

 

 

 

Infrastructure

For the year ended December 31, 2017, our capital expenditures totaled Ps.136.7 billion, which allowed us to increase our network, to expand their capacity and to upgrade our systems to operate with the latest technologies. With fully convergent platforms, we are able to widely deliver high-quality voice, video and data products. See Note 10 to our audited consolidated financial statements for a description of our property, plant and equipment.

As of December 31, 2017, the main components of our infrastructure were comprised of:

 

  Base stations : 163,033 bases stations with 2G, 3G and 4G technologies (of which approximately 65% are equipped with 3G and 4G capabilities).

 

  Fiber-optic network : More than 815 thousand km. Our network passed approximately 70 million homes as of December 31, 2017.

 

  Submarine cable system : Capacity of more than 168 thousand km in submarine cable, including the AMX-1 submarine cable that extends 17,500 km and connects the United States to Central and South America throughout 12 landing points and provides international connectivity to all of our subsidiaries in these geographic areas.

 

  Satellites : Nine. Star One S.A. (“Star One”) has the most extensive satellite system in Latin America, with a fleet that covers the United States, Mexico, Central America and South America. We use these satellites to supply capacity for DTH services for Claro TV throughout Brazil and in other DTH operations, as well as cellular backhaul, video broadcast and corporate data networks.

 

  Data centers : 21. We use our data centers to manage a number of cloud solutions, such as Infrastructure as a Service (“IAAS”), Software as a Service (“SAAS”), security solutions and unified communications.

In the United States, we do not own any wireless telecommunications facilities or hold any wireless spectrum licenses. Instead, we purchase airtime through agreements with wireless service providers and resell airtime to customers. Through these agreements, we have a nationwide “virtual” network, covering almost all areas in which wireless services are available.

 

 


 

11

 



Table of Contents

 

 

Technology

Our primary wireless networks use GSM/EDGE, 3G and 4G LTE technologies, which we offer in most of the countries where we operate. We aim to increase the speed of transmission of our data services and have been expanding our 3G and 4G LTE coverage. We also aim to roll out our 4.5 LTE coverage in most of our operations by the end of 2018.

We transmit wireless calls and data through radio frequencies that we use under spectrum licenses. Spectrum is a limited resource, and, as a result, we may face spectrum and capacity constraints on our wireless network. We continue to invest significant capital in expanding our network capacity and reach and to address spectrum and capacity constraints on a market-by-market basis. In 2017, we spent Ps.11.3 billion on the acquisition of spectrum licenses, mainly in Mexico and Uruguay.

The table below presents a summary of the population covered by our network, by country, as of December 31, 2017.

 

GENERATION TECHNOLOGY

 

       GSM          UMTS          LTE  

 

     (% of covered population)  
Argentina        98          91          82  
Austria        100          93          92  
Belarus        100          99           
Brazil        93          91          76  
Bulgaria        100          100          90  
Chile        99          97          89  
Colombia        92          76          53  
Costa Rica        71          79          31  
Croatia        99          99          92  
Dominican Republic        100          99          90  
Ecuador        96          74          51  
El Salvador        72          72          17  
Guatemala        89          66          18  
Honduras        86          74          49  
Macedonia        100          100          99  
Mexico        90          88          77  
Nicaragua        85          79          46  
Panama        84          84          58  
Paraguay        76          72          36  
Peru        87          79          69  
Puerto Rico        77          81          69  
Serbia        99          100          95  
Slovenia        100          99          99  
Uruguay        96          91          70  
 

 


 

12

 



Table of Contents

 

          OUR COMPETITORS

 

 

We operate in an intensely competitive industry. Competitive factors within our industry include pricing, brand recognition, service and product offerings, customer experience, network coverage and quality, development and deployment of technologies, availability of additional spectrum licenses and regulatory developments.

 

 

 

Our principal competitors differ, depending on the geographical market and the types of service we offer. We compete against other providers, of wireless, broadband and Pay TV that operate on a multi-national level, such as AT&T Inc. or Millicom, as well as various providers that operate on a nationwide level, such as Telecom Argentina and Teléfonica. Competition remains intense as a result of saturation in the fixed and wireless market, increased network investment by our competitors, the development and deployment of new technologies, the introduction of new products and services, new market entrants, the availability of additional spectrum, both licensed and unlicensed, and regulatory changes.

The effects of competition on our subsidiaries depend, in part, on the size, service offerings, financial strength and business strategies of their competitors, regulatory developments and the general economic and business climate in the countries in which they operate, including demand growth, interest rates, inflation and exchange rates. The effects could include loss of market share and pressure to reduce rates. See “Regulation” under Part VI and “Risk Factors” under Part III of this annual report.

 

 


 

13

 



Table of Contents

 

          MARKETING, SALES AND DISTRIBUTION,

         CUSTOMER SERVICES

 

 

MARKETING

We advertise our services and products through different channels with consistent and distinct branding and targeted marketing. We advertise via print, radio, television, digital media, sports event sponsorships and other outdoor advertising campaigns. In 2017, our efforts were mainly focused on promoting our 4G LTE services, leveraging on the speeds and quality of our networks and our fixed bundled offers, which compete on broadband speeds and premium content.

We build upon the strength of our well-recognized brand names to increase consumer awareness and customer loyalty. Building brand recognition is crucial for our business, and we have managed to position our brands as those of a premium carrier in most countries where we operate. For example, Claro is the most valuable telecom brand in the Latin America region, according to the Telecoms 300 2018 report by Brand Finance. BrandZ’s Top 50 Most Valuable Latin American Brands 2017 list ranked Telcel as the second-most valuable national brand in Mexico. In the same year, BrandZ also named Telcel and Telmex as the highest recognized telecom brands in Mexico and as two of the top four highest-ranked telecom brands in Latin America. In addition, a 2017 study by Austrian Brand Monitor found that A1, the brand name behind Telekom Austria, ranked number one in the Austrian telecommunications market for brand awareness, as well as for brand perception as a premium brand.

SALES AND DISTRIBUTION

Our extensive sales and distribution channels help us attract new customers and develop new business opportunities. We primarily sell our services and products through a network of retailers and service centers for retail customers and a dedicated sales force for corporate customers, with more than 420,000 points of sale and almost 2,900 customer service centers. Our subsidiaries also sell their services and products online.

CUSTOMER SERVICES

We give priority to providing our customers with quality customer care and support, with approximately 57,400 employees dedicated to customer service. We focus our efforts on constantly improving our customers’ experience by leveraging our commercial offerings and our sales and distribution networks. Customers may make inquiries by calling a toll-free telephone number, accessing our subsidiaries’ web sites and social media accounts or visiting one of the customer sales and service centers located throughout the countries we serve.

 

 


 

 

  ACQUISITIONS, OTHER INVESTMENTS AND
DIVESTITURES

 

Geographic diversification has been a key to our financial success, as it has provided for greater stability in our cash flow and profitability and has contributed to our strong credit ratings. In recent years, we have been evaluating the expansion of our operations to regions outside of Latin America. We believe that Europe and other areas beyond Latin America present opportunities for investment in the telecommunications sector that could benefit us and our shareholders over the long term.

We continue to seek investment opportunities in telecommunications and related companies worldwide, including in markets where we are already present, and we often have several possible acquisitions under consideration. We can give no assurance as to the extent, timing or cost of such investments. We may pursue opportunities in Latin America or in other areas in the world. Some of the assets that we acquire may require significant funding for capital expenditures. We continue to make incremental acquisitions in areas that we consider accretive to our existing operations. For additional information on our acquisitions and investments, see Note 12 to our audited consolidated financial statements.

 

 


 

14

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          OVERVIEW

 

 

INTRODUCTION

Segments

We have operations in 25 countries, which are aggregated for financial reporting purposes into ten reportable segments. Our operations in Mexico are presented in two segments—Mexico Wireless and Mexico Fixed, which consist principally of Telcel and Telmex, respectively. Our headquarters’ operations are allocated to the Mexico Wireless segment. Financial information about our segments is presented in Note 22 to our audited consolidated financial statements.

The factors that drive our financial performance differ in the various countries where we operate, including subscriber acquisition costs, the competitive landscape, the regulatory environment, economic factors and interconnection rates, among others. Accordingly, our results of operations in each period reflect a combination of these effects on our different segments.

Constant Currency Presentation

Our financial statements are presented in Mexican pesos, but our operations outside Mexico account for a significant portion of our revenues. Currency variations between the Mexican peso and the currencies of our non-Mexican subsidiaries, especially the Euro, U.S. dollar, Brazilian real, Colombian peso and Argentine peso, affect our results of operations as reported in Mexican pesos. In the following discussion regarding our operating results, we include a discussion of the change in the different components of our revenues between periods at constant exchange rates, i.e., using the same exchange rate to translate the local-currency results of our non-Mexican operations for both periods. We believe that this additional information helps investors better understand the performance of our non-Mexican operations and their contribution to our consolidated results.

Effects of Exchange Rates

Our results of operations are affected by changes in currency exchange rates. As discussed above, currency variations between the Mexican peso and the currencies of our non-Mexican subsidiaries, especially the Euro, U.S. dollar, Brazilian real and the Colombian and Argentine

pesos, affect our results of operations as reported in Mexican pesos. In 2017, the Mexican peso was generally weaker against our other operating currencies than in 2016, which tended to increase the reported amounts in Mexican pesos attributable to our non- Mexican operations.

In addition, we recognize foreign exchange gains and losses attributable to changes in the value of our operating currencies, particularly the Mexican peso and Brazilian real, against the currencies in which our indebtedness and accounts payable are denominated, especially the U.S. dollar, the pound sterling and the Euro. Appreciation of our operating currencies generally results in foreign exchange gains, while depreciation of these currencies generally results in foreign exchange losses. Changes in exchange rates also affect the fair value of derivative financial instruments that we use to manage our currency-risk exposure, which are generally not accounted for as hedging instruments. In 2017, the Mexican peso and the Brazilian real weakened against the currencies in which most of our indebtedness is denominated. We recorded net foreign exchange losses of Ps.13.8 billion, partially offset by net fair value gains on derivatives of Ps.8.2 billion. In 2016, the Mexican peso weakened against the currencies of our indebtedness, and we recorded net foreign exchange losses of Ps.40.4 billion. We also recorded net fair value losses on derivatives of Ps.9.6 billion, primarily driven by the effect of a weakened pound sterling and other currencies on certain derivative positions we use to offset exchange risk on our indebtedness. See Note 7 to our audited consolidated financial statements.

Effects of Regulation

We operate in a regulated industry. Our results of operations and financial condition have been, and will continue to be, affected by regulatory actions and changes. In recent periods, for example, regulators have imposed or sought to impose decreases in, or the elimination of, interconnection rates. We have offset lower interconnection revenues by attracting new customers with lower prices and new data services to increase traffic, but this may change. Significant regulatory developments are presented in more detail in “Regulation” under Part VI and “Risk Factors” under Part III of this annual report.

 

 


 

18

 



Table of Contents

 

COMPOSITION OF OPERATING REVENUES

In 2017,  our total operating revenues consisted of: mobile voice revenues (21.7% of total

operating  revenues), fixed voice revenues (8.8%), mobile data revenues (30.2%), fixed data

revenues (13.6%),  Pay TV revenues (8.5%), equipment, accessories and computer sales

revenues (14.0%) and other related services (3.1%).

 

 


Revenues from wireless and fixed voice services primarily include charges from monthly subscriptions and usage charges billed to other service providers for calls completed on our network. The primary drivers of revenues from monthly subscription charges are the number of total RGUs and the prices of our service packages. The primary driver of revenues from usage charges (airtime, international and long-distance calls and interconnection costs) is traffic, which is represented by the number of total RGUs and their average usage.

Revenues from wireless and fixed data services primarily include charges for data, cloud, internet and OTT services and the usage from our data centers. In addition, revenues from value-added services and IT solutions to corporate clients contribute to our results for wireless and fixed data services, respectively. Revenues from IT solutions to our corporate clients mainly consist of revenues from installing and leasing dedicated links and revenues from VPN services.

Pay TV revenues consist primarily of charges from subscription services, additional programming, including on-demand programming, and advertising.

Equipment, accessories and computer sales revenues primarily include revenues from the sale of handsets, accessories and other equipment such as office equipment, household appliances and electronics. Most of our sales in handsets are driven by the number of new customers and contract renewals. The pricing of handsets is not geared primarily towards making a profit from handset sales, because for some plans, the handset subsidy is considered an acquisition cost.

Other services primarily include revenues from other businesses, such as advertising and news companies, entertainment content distribution, telephone directories, call center services, wireless security services, network infrastructure services and a software development company.

Seasonality of our Business

Our business is subject to a certain degree of seasonality, characterized by a higher number of new customers during the fourth quarter of each year. We believe this seasonality is mainly driven by the Christmas shopping season. Revenue also tends to decrease during the months of August and September, when family expenses shift towards school supplies in many of the countries in which we operate, mainly Mexico.

General Trends Affecting Operating Results

Our results of operations in 2017 reflected several continuing long-term trends, including:

 

  intense competition, with growing costs for marketing and subscriber acquisition and retention, as well as declining customer prices;

 

  changes in the telecommunications regulatory environment;

 

  growing demand for data services over fixed and wireless networks, as well as for smartphones and devices with data service capabilities;

 

  declining demand for voice services;

 

  growing operating costs reflecting, among other things, higher costs for Pay TV, customer care services, as well as managing larger and more complex networks; and

 

  overall macroeconomic conditions and foreign exchange volatility in the countries in which we operate.

These trends are broadly characteristic of our businesses in all regions in recent years, and they have affected comparable telecommunications providers as well.

Other recent trends affecting our performance included:

 

  the ongoing effects of Mexico’s regulatory measures; and

 

  the impact of the depreciation of the Mexican peso in 2017 against the U.S. dollar, the Euro, the Brazilian real and the Colombian peso.
 

 


 

19

 



Table of Contents

 

          RESULTS OF OPERATIONS

 

 

CONSOLIDATED RESULTS OF OPERATIONS FOR 2017 AND 2016

Operating Revenues

Total operating revenues for 2017 increased by 4.7%, or Ps.46.2 billion, over 2016. At constant exchange rates, total operating revenues for 2017 increased by 2.0% over 2016. This increase principally reflects increases in revenues from our mobile data, fixed data and Pay TV operations, which were partially offset by a decrease in revenues from our mobile voice and fixed voice operations.

 

 

MOBILE VOICE — Mobile voice revenues for 2017 decreased by 8.5%, or Ps.20.6 billion, over 2016. At constant exchange rates, mobile voice revenues for 2017 decreased by 10.8% over 2016. This decrease principally reflects reduced interconnection rates and traffic in international and domestic long-distance calls, which was driven by higher data usage due to the growing use of social networking platforms.

FIXED VOICE — Fixed voice revenues for 2017 decreased by 5.7%, or Ps.5.4 billion, over 2016. At constant exchange rates, fixed voice revenues for 2017 decreased by 9.1% over 2016. This decrease principally reflects reduced interconnection rates and traffic in international and domestic long distance calls, which was driven by the growing use of wireless technology and broadband voice services, such as WiFi calling.

MOBILE DATA — Mobile data revenues for 2017 increased by 20.1%, or Ps.51.6 billion, over 2016. At constant exchange rates, mobile data revenues for 2017 increased by 18.8% over 2016. This increase principally reflects the increased use of mobile data services, such as media and content downloading, web browsing, content streaming and machine-to-machine services, which was driven in part by the growing use of social networking apps and content downloading on tablets and notebooks.

FIXED DATA — Fixed data revenues for 2017 increased by 10.3%, or Ps.13.0 billion, over 2016. At constant exchange rates, fixed data revenues for 2017 increased by 5.9% over 2016. This increase principally reflects the growth in

residential broadband services and corporate data services, such as cloud, dedicated links and data center services.

PAY TV — Pay TV revenues for 2017 increased by 11.0%, or Ps.8.6 billion, over 2016. At constant exchange rates, Pay TV revenues for 2017 increased by 2.3% over 2016. This increase principally reflects growth in the subscriber base and higher revenues driven by the cross-marketing of bundled packages and new TV channel packages, particularly in Colombia, Central America and the Caribbean.

EQUIPMENT, ACCESSORIES AND COMPUTER SALES — Equipment, accessories and computer sales revenues for 2017 decreased by 0.2%, or Ps.0.3 billion, over 2016. At constant exchange rates, revenues from equipment, accessories and computer sales for 2017 decreased by 0.7% over 2016. This decrease principally reflects lower sales of higher-end smartphones, other data-enabled devices and tablets, which were partially offset by higher sales of lower-end smartphones due to subsidies provided to our postpaid subscribers and handset financing plans.

OTHER SERVICES — Revenues from other services for 2017 decreased by 2.1%, or Ps.0.7 billion, over 2016. At constant exchange rates, revenues from other services for 2017 decreased by 5.0% over 2016. This decrease principally reflects lower revenues from advertising and media services, online content, wireless security services, telephone directories and call center services.

Operating Costs and Expenses

COST OF SALES AND SERVICES — Cost of sales and services for 2017 increased by 2.3%, or Ps.11.3 billion, over 2016, representing 48.6% of operating revenues for 2017, as compared to 49.7% of operating revenues for 2016. At constant exchange rates, cost of sales and services for 2017 decreased by 0.2% over 2016.

Cost of sales was Ps.170.2 billion for 2017, a decrease of 1.4% from Ps.172.5 billion in 2016. This decrease principally reflects higher sales of lower-end smartphones, which were driven by subsidies provided to our postpaid subscribers and an increase in handset financing plans, and improvements in the inventory management of our handsets.

Cost of services was Ps.326.2 billion for 2017, an increase of 4.4% from Ps.312.6 billion in 2016. This increase principally reflects an increase in costs related to network operations, including energy and leasing tower sites, third-party technical and IT services, as well as TV content acquisition.

 

 


 

20

 



Table of Contents

 

 

 

 

COMMERCIAL, ADMINISTRATIVE AND GENERAL EXPENSES — Commercial, administrative and general expenses for 2017 increased by 5.5%, or Ps.12.5 billion, over 2016. As a percentage of operating revenues, commercial, administrative and general expenses were 23.6% for 2017, as compared to 23.4% for 2016. At constant exchange rates, commercial, administrative and general expenses for 2017 increased by 2.2% over 2016. This increase principally reflects an increase in costs related to customer services, allowance for doubtful accounts, systems development and local taxes.

Telcel and Telmex, like other Mexican companies, are required by law to pay their employees, in addition to their agreed compensation and benefits, profit sharing in an aggregate amount equal to 10.0% of each entity’s taxable income. Our subsidiaries in Ecuador and Peru are also required to pay employee profit sharing at rates of 15.0% and 10.0% of taxable income, respectively. We account for these profit sharing contributions under commercial, administrative and general expenses.

OTHER EXPENSES — Other expenses for 2017 increased by Ps.20.2 billion over 2016, principally reflecting the payment of an arbitration award granted in Colombia. For further information on this arbitration proceeding, see Notes 1 and 16 to our audited consolidated financial statements included in this annual report.

DEPRECIATION AND AMORTIZATION — Depreciation and amortization for 2017 increased by 7.8%, or Ps.11.6 billion, over 2016. As a percentage of operating revenues, depreciation and amortization was 15.7% for 2017, as compared to 15.2% for 2016. At constant exchange rates, depreciation and amortization for 2017 increased by 3.4% over 2016. This increase principally reflects investments in our networks and the acceleration of amortizing the costs of various brands of Telekom Austria.

Operating Income

Operating income for 2017 decreased by 8.6%, or Ps.9.5 billion, over 2016. Operating margin (operating income as a percentage of operating revenues) was 9.8% for 2017, as compared to 11.2% for 2016. Excluding the effects of the approximately U.S.$1.0 billion arbitration payment in Colombia, operating income increased by 8.3%, or Ps.9.1 billion, over 2016.

Non-Operating Items

NET INTEREST EXPENSE — Net interest expense (interest expense less interest income) for 2017 decreased by 7.7%,

or Ps.2.3 billion, over 2016. This decrease principally reflects lower interest expense due to the amortization of debt during this period.

FOREIGN CURRENCY EXCHANGE LOSS, NET — We recorded a net foreign currency exchange loss of Ps.13.8 billion for 2017, compared to our net foreign currency exchange loss of Ps.40.4 billion for 2016. The loss in both periods principally reflects the appreciation of some of the currencies in which our indebtedness is denominated, particularly the U.S. dollar, the Euro and the pound sterling.

VALUATION OF DERIVATIVES, INTEREST COST FROM LABOR OBLIGATIONS AND OTHER FINANCIAL ITEMS, NET — We recorded a loss of Ps.1.9 billion for 2017 on the valuation of derivatives, interest cost from labor obligations and other financial items, net, compared to a loss of Ps.16.2 billion for 2016. The net loss in 2017 principally reflects the interest cost of labor obligations, which was partially offset by a gain in valuation of derivatives.

EQUITY INTEREST IN NET INCOME OF ASSOCIATED COMPANIES — Our share of the net income of associated companies accounted for under the equity method was Ps.0.1 billion in 2017, as compared to Ps.0.2 billion for 2016.

INCOME TAX — Our income tax expense for 2017 increased by 118.8%, or Ps.13.5 billion, over 2016. This increase principally reflects the effect of a smaller foreign exchange loss than the one observed in 2016.

Our effective corporate income tax rate as a percentage of profit before income tax was 43.7% for 2017, compared to 48.6% for 2016. This rate differed from the Mexican statutory rate of 30% and changed year over year principally as a result of changes in permanent items such as the valuation of derivatives and other impacts of non-taxable items. We are evaluating the impact of the U.S. income tax reform on our U.S. operations, but we do not expect a material impact on our effective corporate income tax rate.

Net Profit

We recorded a net profit of Ps.32.2 billion for 2017, an increase of 166.2%, or Ps.20.1 billion, over 2016.

 

 


 

21

 



Table of Contents

 

         RESULTS OF OPERATIONS

 

 

 

CONSOLIDATED RESULTS OF OPERATIONS FOR 2016 AND 2015

Operating Revenues

Total operating revenues for 2016 increased by 9.1%, or Ps.81.7 billion, over 2015. At constant exchange rates, total operating revenues for 2016 increased by 2.1% over 2015. This increase principally reflects increases in revenues from our mobile data, fixed data and Pay TV operations, which were partially offset by a decrease in revenues from our mobile voice and fixed voice operations.

 

 

MOBILE VOICE — Mobile voice revenues for 2016 decreased by 5.4%, or Ps.13.8 billion, over 2015. At constant exchange rates, mobile voice revenues for 2016 decreased by 12.7% over 2015. This decrease principally reflects reductions in the price per minute for calls, traffic in international and domestic long-distance calls and the reduction of interconnection rates in other jurisdictions where we operate, particularly in Brazil, Colombia, Argentina and Europe.

FIXED VOICE — Fixed voice revenues for 2016 decreased by 0.2%, or Ps.0.2 billion, over 2015. At constant exchange rates, fixed voice revenues for 2016 decreased by 7.0% over 2015. This decrease principally reflects reduced traffic in long-distance calls, which was driven by the growing use of wireless technology and increased regulation affecting our fixed voice markets in Mexico, Colombia and Brazil.

MOBILE DATA — Mobile data revenues for 2016 increased by 13.3%, or Ps.30.2 billion, over 2015. At constant exchange rates, mobile data revenues for 2016 increased by 7.3% over 2015. This increase principally reflects increased use of mobile data services, such as media and content downloading, web browsing, content streaming and machine-to-machine services, which was driven in part by the increased use of social networking apps and content downloading on tablets and notebooks.

FIXED DATA — Fixed data revenues for 2016 increased by 15.6%, or Ps.17.0 billion, over 2015. At constant exchange rates, fixed data revenues for 2016 increased by

7.4% over 2015. This increase principally reflects the growth in residential broadband services and corporate data services, such as cloud, dedicated links and data center services.

PAY TV — Pay TV revenues for 2016 increased by 18.5%, or Ps.12.2 billion, over 2015. At constant exchange rates, Pay TV revenues for 2016 increased by 5.6% over 2015. This increase principally reflects growth in the subscriber base and higher revenues driven by the cross-marketing of bundled packages and new TV channel packages, particularly in Brazil, Colombia, Peru, Central America and the Caribbean.

EQUIPMENT, ACCESSORIES AND COMPUTER SALES — Equipment, accessories and computer sales revenues for 2016 increased by 23.8%, or Ps.27.6 billion, over 2015. At constant exchange rates, revenues from equipment, accessories and computer sales for 2016 increased by 20.4% over 2015. This increase principally reflects increases in sales of higher-end smartphones, feature phones and other data-enabled devices, handsets, tablets and electronic household appliances, which were driven by new commercial plans and promotions among postpaid and prepaid subscribers, such as handset financing plans.

OTHER SERVICES — Revenues from other services for 2016 increased by 35.8%, or Ps.8.6 billion, over 2015. At constant exchange rates, revenues from other services for 2016 increased by 23.8% over 2015. This increase principally reflects increases in revenues from advertising and media services, online content, wireless security services, telephone directories and call center services.

Operating Costs and Expenses

COST OF SALES AND SERVICES — Cost of sales and services for 2016 increased by 15.4%, or Ps.64.8 billion, over 2015, representing 49.7% of operating revenues for 2016, as compared to 47.0% of operating revenues for 2015. At constant exchange rates, cost of sales and services for 2016 increased by 7.0% over 2015.

Cost of sales was Ps.172.5 billion for 2016, an increase of 18.6% from Ps.145.5 billion in 2015. This increase principally reflects the impact from a depreciation of the Mexican peso and other Latin American currencies against the U.S. dollar, and higher sales of smartphones to subscribers in all countries in which we operate, which was partially offset by a decrease in the costs associated with handset subsidies on financing plans we offer to acquire and retain subscribers.

 

 


 

22

 



Table of Contents

 

 

Cost of services was Ps.312.6 billion for 2016, an increase of 13.8% from Ps.274.8 billion in 2015. This increase principally reflects an increase in network services

payments to third-party U.S. operators and costs related to our Pay TV operations, network maintenance and labor, as well as an increase in rental and leasing costs associated with third-party mobile-site infrastructure.

COMMERCIAL, ADMINISTRATIVE AND GENERAL EXPENSES — Commercial, administrative and general expenses for 2016 increased by 13.3%, or Ps.26.7 billion, over 2015. As a percentage of operating revenues, commercial, administrative and general expenses were 23.4% for 2016, as compared to 22.5% for 2015. At constant exchange rates, commercial, administrative and general expenses for 2016 increased by 5.9% over 2015. This increase principally reflects higher advertising costs, as we seek to expand our subscriber base, and higher customer service costs, including increases in the number of customer service centers, back office call centers and employees, as we seek to provide better customer care and quality of service.

Telcel and Telmex, like other Mexican companies, are required by law to pay their employees, in addition to their agreed compensation and benefits, profit sharing in an aggregate amount equal to 10.0% of each entity’s taxable income. Our subsidiaries in Ecuador and Peru are also required to pay employee profit sharing at rates of 15.0% and 10.0% of taxable income, respectively. We account for these profit sharing contributions under commercial, administrative and general expenses.

OTHER EXPENSES — Other expenses for 2016 decreased by 17.5%, or Ps.0.9 billion, over 2015, reflecting unusually high regulatory charges in Brazil in 2015.

DEPRECIATION AND AMORTIZATION — Depreciation and amortization for 2016 increased by 18.1%, or Ps.22.8 billion, over 2015. As a percentage of operating revenues, depreciation and amortization was 15.2% for 2016, as compared to 14.1% for 2015. At constant exchange rates, depreciation and amortization for 2016 increased by 8.5% over 2015. This increase stems, for the most part, from higher capital investments in Argentina, Colombia, Austria and Mexico.

Operating Income

Operating income for 2016 decreased by 22.5%, or Ps.31.8 billion, over 2015. Operating margin (operating income as a percentage of operating revenues) was 11.2% for 2016, as compared to 15.8% for 2015.

Non-Operating Items

NET INTEREST EXPENSE — Net interest expense (interest expense less interest income) for 2016 increased by 12.6%, or Ps.3.3 billion, over 2015. This increase principally reflects higher interest expenses due to the appreciation of some of the currencies in which our indebtedness is denominated, particularly the U.S. dollar.

FOREIGN CURRENCY EXCHANGE LOSS, NET — We recorded a net foreign currency exchange loss of Ps.40.4 billion for 2016, compared to our net foreign currency exchange loss of Ps.79.0 billion for 2015. This loss in both periods principally reflects the appreciation of some of the currencies in which our indebtedness is denominated, particularly the U.S. dollar.

VALUATION OF DERIVATIVES, INTEREST COST FROM LABOR OBLIGATIONS AND OTHER FINANCIAL ITEMS, NET — The changes in valuation of derivatives, interest cost from labor obligations and other financial items, net, represented a loss of Ps.16.2 billion for 2016, compared to a gain of Ps.21.5 billion for 2015. The net loss in 2016 principally relates to market value losses on derivatives positions we use to offset exchange risk on indebtedness, particularly in connection with the pound sterling, and increased interest cost recognized on labor obligations, which were partially offset by increased dividends from KPN.

EQUITY INTEREST IN NET INCOME OF ASSOCIATED COMPANIES — Our share of the net income of associated companies accounted for under the equity method was Ps.0.2 billion in 2016, as compared to a loss of Ps.1.4 billion for 2015. This increase principally reflects the derecognition of the equity method investment in KPN, which we reclassified as an available-for-sale security in June 2015.

INCOME TAX — Our income tax expense for 2016 decreased by 40.6%, or Ps.7.8 billion, over 2015. This decrease was principally due to net foreign currency exchange losses as a result of the depreciation of the Mexican peso against the currencies in which a portion of our debt is denominated.

Our effective corporate income tax rate as a percentage of profit before income tax was 48.6% for 2016, compared to 34.2% for 2015. This rate differed from the Mexican statutory rate of 30% and changed year over year principally as a result of an increase in tax inflationary effects and derivatives.

Net Profit

We recorded a net profit of Ps.12.1 billion for 2016, a decrease of 67.3%, or Ps.24.9 billion, over 2015.

 

 


 

23

 



Table of Contents

 

         RESULTS OF OPERATIONS

SEGMENT RESULTS OF OPERATIONS

We discuss below the operating results of each reportable segment. Note 22 to our audited consolidated financial statements describes how we translate the financial statements of our non-Mexican subsidiaries. Exchange rate changes between the Mexican peso and the currencies in which our subsidiaries do business affect our reported results in Mexican pesos and the comparability of reported results between periods.

 

The following table sets forth the exchange rates used to translate the results of our significant non-Mexican operations, as expressed in Mexican pesos per foreign currency unit, and the change from the rate used in the prior period indicated. The U.S. dollar is our functional currency in several of the countries or territories in which we operate in addition to the United States, including Ecuador, Puerto Rico, Panama and El Salvador.

 

 

     MEXICAN PESOS PER FOREIGN CURRENCY UNIT (AVERAGE FOR THE PERIOD)      
     2015     

2015/2016

% CHANGE

       2016     

2016/2017

% CHANGE

      2017  
Brazilian real      4.8068      12.1          5.3868      10.2         5.9346  
Colombian peso      0.0058      5.3          0.0061      4.8         0.0064  
Argentine peso      1.7152      (26.4)          1.2632      (9.0)         1.1489  
U.S. dollar      15.8504      17.7          18.6529      1.5         18.9400  
Euro      17.3886      18.7          20.6334      3.5         21.3649  

The tables below set forth operating revenues and operating income for each of our segments for the years indicated.

 

     YEAR ENDED DECEMBER 31, 2017
     OPERATING REVENUES    OPERATING INCOME (LOSS)
     

(in millions of

Mexican pesos)

       (as a % of total
operating revenues)
      

(in millions of

Mexican pesos)

      

(as a % of total

operating income)

    
Mexico Wireless        Ps.        206,771                  20.2 %                  Ps.        50,666                  50.6 %          
Mexico Fixed        98,485                  9.6                  7,922                  7.9          
Brazil        215,322                  21.1                  11,601                  11.6          
Colombia        72,740                  7.1                  (4,704 )                  (4.7 )          
Southern Cone        82,344                  8.1                  11,676                  11.7          
Andean Region        56,571                  5.5                  5,650                  5.6          
Central America        44,282                  4.3                  5,252                  5.2          
United States        148,590                  14.5                  2,915                  2.9          
Caribbean        35,215                  3.4                  4,752                  4.7          
Europe        93,644                  9.2                  4,524                  4.5          
Eliminations        (32,330 )            (3.0 )            (111 )            (0.0 )      
Total        Ps.      1,021,634            100.0 %            Ps.      100,143            100.0 %      

 


 

24

 



Table of Contents

 

 

 

     YEAR ENDED DECEMBER 31, 2016  
     OPERATING REVENUES      OPERATING INCOME  
     

(in millions of

Mexican pesos)

          

(as a % of total

operating revenues)

          

(in millions of

Mexican pesos)

          

(as a % of total

operating income)

       
Mexico Wireless      Ps.        203,567                20.9%                Ps.        48,220                44.0%          
Mexico Fixed      102,216                10.5                12,276                11.2          
Brazil      197,357                20.2                6,325                5.8          
Colombia      67,589                6.9                11,210                10.2          
Southern Cone      72,330                7.4                8,317                7.6          
Andean Region      56,131                5.8                6,087                5.6          
Central America      42,421                4.3                3,831                3.5          
United States      140,856                14.4                1,221                1.1          
Caribbean      36,498                3.7                6,143                5.6          
Europe      86,979                8.9                5,389                4.9          
Eliminations      (30,532)                (3.0)                591                0.5          
Total      Ps.        975,412          100.0%          Ps.        109,610          100.0%      

 

     YEAR ENDED DECEMBER 31, 2015  
     OPERATING REVENUES      OPERATING INCOME  
     

(in millions of

Mexican pesos)

          

(as a % of total

operating revenues)

          

(in millions of

Mexican pesos)

          

(as a % of total

operating income)

       
Mexico Wireless      Ps.        204,825                22.9%                Ps.        70,726                50.0        
Mexico Fixed      101,078                11.3                15,947                11.3          
Brazil      178,174                19.9                10,879                7.7          
Colombia      66,137                7.4                13,362                9.4          
Southern Cone      68,948                7.7                9,185                6.5          
Andean Region      51,959                5.8                7,853                5.6          
Central America      34,752                3.9                1,750                1.2          
United States      110,654                12.4                1,294                0.9          
Caribbean      29,658                3.3                3,891                2.8          
Europe      72,681                8.1                6,205                4.4          
Eliminations      (25,128)                (2.7)                321                0.2          
Total      Ps.        893,738          100.0%          Ps.        141,413          100.0%      

 


 

25

 



Table of Contents

 

         RESULTS OF OPERATIONS

 

 

 

INTERPERIOD SEGMENT COMPARISONS

The following discussion addresses the financial performance of each of our reportable segments, first by comparing results for 2017 and 2016 and then by comparing results for 2016 and 2015. In the year-to- year comparisons for each segment, we include percentage changes in operating revenues, percentage changes in operating income and operating margin (operating income as a percentage of operating revenues), in each case calculated based on the segment financial information presented in Note 22 to our audited consolidated financial statements, which is prepared in accordance with IFRS.

 

 

 

Each reportable segment includes all income, cost and expense eliminations that occurred between subsidiaries within the reportable segment. The Mexico Wireless segment also includes corporate income, costs and expenses.

Comparisons in the following discussion are calculated using figures in Mexican pesos. We also include percentage changes in adjusted segment operating revenues, adjusted segment operating income and adjusted operating margin (adjusted operating income as a percentage of adjusted operating revenues). The adjustments eliminate (i) certain intersegment transactions, (ii) for our non-Mexican segments, the effects of exchange rate changes and (iii) for the Mexican Wireless segment only, revenues and costs of group corporate activities and other businesses that are allocated to the Mexico Wireless segment.

2017 COMPARED TO 2016

Mexico Wireless

The number of net prepaid wireless subscribers for 2017 increased by 0.2% over 2016, and the number of net postpaid wireless subscribers increased by 6.2%, resulting in a net increase in the total number of wireless subscribers in Mexico of 1.2%, or 902 thousand, to approximately 73.9 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 1.6% over 2016. Adjusted segment operating revenues for 2017 increased by 1.2% over 2016. This increase in segment operating revenues principally reflects an increase of 18.9% in mobile data revenues, driven by increased use of value-added services by our wireless subscribers, including activity from messaging, content downloading, mobile applications and social media, and an increase in revenues from service plans offering higher data capacity. The increase in segment operating revenues was partially offset by a decrease of 24.0% in mobile voice revenues, reflecting a decrease in the average wireless rates per user.

 

Segment operating income for 2017 increased by 5.1% over 2016. Adjusted segment operating income for 2017 increased by 0.9% over 2016.

Segment operating margin was 24.5% in 2017, as compared to 23.7% in 2016. Adjusted segment operating margin for this segment was 28.8% in 2017, which remained stable in comparison to 28.9% in 2016. The segment operating margin in 2017 principally reflects costs related to interconnection rates, licensing fees, mobile site infrastructure rentals, maintenance and roaming charges.

Mexico Fixed

The number of fixed voice RGUs in Mexico for 2017 decreased by 2.8% over 2016, and the number of broadband RGUs in Mexico increased by 0.4%, resulting in a decrease in total fixed RGUs in Mexico of 1.5% over 2016, or 327 thousand, to approximately 21.9 million as of December 31, 2017.

Segment operating revenues for 2017 decreased by 3.7% over 2016. Adjusted segment operating revenues for 2017 decreased by 3.9% over 2016. This decrease in segment operating revenues principally reflects a fall in fixed voice revenues of 8.2%, driven by RGU disconnections and a fall in long-distance calls. The decrease in segment operating revenues was partially offset by an increase in fixed data revenues of 2.9%, principally due to higher revenues from broadband and corporate network services.

Segment operating income for 2017 decreased by 35.5% over 2016. Adjusted segment operating income for 2017 decreased by 49.1% over 2016.

Segment operating margin was 8.0% in 2017, as compared to 12.0% in 2016. Adjusted segment operating margin was 4.3% in 2017, as compared to 8.3% in 2016. The decrease in the segment operating margin in 2017 principally reflects increases in costs associated with customer service and service quality improvements, as well as network maintenance.

 

 


 

26

 



Table of Contents

 

 

Brazil

The number of net prepaid wireless subscribers for 2017 decreased by 7.6% over 2016, and the number of net postpaid wireless subscribers increased by 11.1%, resulting in a net decrease in the total number of wireless subscribers in Brazil of 1.9%, or 1.1 million, to approximately 59.0 million as of December 31, 2017. The number of fixed voice RGUs for 2017 decreased by 2.8% over 2016, the number of broadband RGUs increased by 4.2%, and the number of Pay TV RGUs decreased by 5.3%, resulting in a decrease in total fixed RGUs in Brazil of 2.2%, or 812 thousand, to approximately 35.9 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 9.1% over 2016. Adjusted segment operating revenues for 2017 decreased by 1.4% over 2016. This decrease in segment operating revenues principally reflects a fall in mobile voice, fixed voice and Pay TV revenues of 18.8%, 15.1% and 0.4%, respectively, in 2017 over 2016, driven by RGU disconnections and lower traffic reflecting a decrease in disposable income following an overall economic downturn in the country. The decrease in segment operating revenues was partially offset by higher mobile data and fixed data revenues of 28.1% and 5.2%, respectively, in 2017 over 2016. Mobile data revenues increased principally due to the usage of social networking platforms, cloud services and content, and fixed data revenues increased principally due to an increase in broadband RGUs and corporate network services.

Segment operating income for 2017 increased by 83.4% over 2016. Adjusted segment operating income for 2017 increased by 81.1% over 2016.

Segment operating margin was 5.4% in 2017, as compared to 3.2% in 2016. Adjusted segment operating margin was 4.2% in 2017, as compared to 2.3% in 2016. The increase in segment operating margin in 2017 principally reflects synergy gains in marketing, network maintenance, information technology, subscriber acquisition and customer service related to the ongoing integration of our three Brazilian subsidiaries, which have collectively driven our costs down.

 

Colombia

The number of net prepaid wireless subscribers for 2017 increased by 0.4% over 2016, and the number of net postpaid wireless subscribers increased by 5.0%, resulting in a net increase in the total number of wireless subscribers in Colombia of 1.4%, or 399 thousand, to approximately 29.4 million as of December 31, 2017. The number of fixed voice RGUs for 2017 increased by 11.1% over 2016, the number of broadband RGUs increased by 8.1% and the number of Pay TV RGUs increased by 3.3%, resulting in an increase in total fixed RGUs in Colombia of 7.1%, or 450 thousand, to approximately 6.8 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 7.6% over 2016. Adjusted segment operating revenues for 2017 increased by 2.8% over 2016. This increase in segment operating revenues principally reflects increases in fixed data revenues, mobile data revenues, fixed voice revenues and Pay TV revenues, which increased by 9.7%, 14.3%, 11.7% and 15.9%, respectively, in 2017, principally due to an increase in sales of bundled packages of wireless services, higher demand for data plans and an increase in subscribers for internet services. The increase in segment operating revenues was partially offset by a decrease of 13.9% in mobile voice revenues, driven by more competitive commercial offerings in response to pricing pressure from competitors.

Segment operating income for 2017 decreased by 142.0% over 2016. Adjusted segment operating income for 2017 decreased by 125.2% over 2016. Excluding the effects of the approximately U.S.$1.0 billion arbitration payment in Colombia, adjusted segment operating income for 2017 increased by 15.2%.

Segment operating margin was (6.5)% in 2017, as compared to 16.6% in 2016. Adjusted segment operating margin was (5.0)% in 2017, as compared to 20.5% in 2016. The decrease in segment operating margin for 2017 principally reflects higher costs related to the arbitration payment in Colombia, content licensing and maintenance of our networks, which was partially offset by Comcel’s cost savings program.

 

 


 

27

 



Table of Contents

 

         RESULTS OF OPERATIONS

 

Southern Cone — Argentina, Chile, Paraguay and Uruguay

The number of net prepaid wireless subscribers for 2017 increased by 2.0% over 2016, and the number of net postpaid wireless subscribers increased by 2.9%, resulting in a net increase in the total number of wireless subscribers in our Southern Cone segment of 2.3%, or 699 thousand, to approximately 31.1 million as of December 31, 2017. The number of fixed voice RGUs for 2017 increased by 4.6% over 2016, the number of broadband RGUs increased by 9.1%, and the number of Pay TV RGUs increased by 0.6%, resulting in an increase in total fixed RGUs in our Southern Cone segment of 4.2%, or 81 thousand, to approximately 2.0 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 13.8% over 2016. Adjusted segment operating revenues for 2017

increased by 19.0% over 2016. This increase principally reflects an aggregate increase of 22.5% in Argentina, Paraguay and Uruguay and an increase of 10.9% in Chile. This increase was driven by higher data usage, particularly in the form of mobile data, video streaming, content downloading and service package purchases, in Argentina and Chile. For this segment, we analyze results in Argentina, Paraguay and Uruguay in terms of the Argentine peso, because Argentina accounts for the major portion of the operations in these three countries.

Segment operating income for 2017 increased by 40.4% over 2016. Adjusted segment operating income for 2017 increased by 56.2% over 2016. This increase principally reflects an increase in adjusted operating income of 16.8% in Argentina, Paraguay and Uruguay, which was partially offset by an increase in adjusted operating loss of 30.8% in Chile.

Segment operating margin was 14.2% in 2017, as compared to 11.5% in 2016. Adjusted segment operating margin was 17.0% in 2017, which remained stable in comparison to 17.0% in 2016. The segment operating margin in 2017 principally reflected the cost saving programs of our subsidiaries in the Southern Cone.

Andean Region — Ecuador and Peru

The number of net prepaid wireless subscribers for 2017 decreased by 4.3% over 2016, and the number of net postpaid wireless subscribers increased by 2.5%, resulting in a net decrease in the total number of wireless subscribers in our Andean Region segment of 2.2%, or 450 thousand, to approximately 20.4 million as of December 31, 2017. The

number of fixed voice RGUs for 2017 decreased by 7.1% over 2016, the number of broadband RGUs increased by 5.4% and the number of Pay TV RGUs decreased by 7.8%, resulting in a decrease in total fixed RGUs in our Andean Region segment of 3.0%, or 55 thousand, to approximately 1.8 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 0.8% over 2016. Adjusted segment operating revenues for 2017 decreased by 2.4% over 2016. This decrease principally reflects a decrease of 8.9% in Ecuador, which was partially offset by an increase of 3.6% in Peru. This decrease was driven by lower revenues from our wireless and fixed voice operations, an increase in tax obligations and bad debt expenses in Ecuador and competitive pricing practices in Peru, which were partially offset by higher revenues from mobile data and higher revenues from fixed data, especially broadband and corporate data services.

Segment operating income for 2017 decreased by 7.2% over 2016. Adjusted segment operating income for 2017 increased by 0.9% over 2016. This increase principally reflects an increase of 138.7% in Peru, which was partially offset by a decrease of 21.4% in Ecuador.

Segment operating margin was 10.0% in 2017, as compared to 10.8% in 2016. Adjusted segment operating margin was 15.9% in 2017, as compared to 15.1% in 2016. This increase principally reflects gains from our cost-savings program and lower direct taxes in Ecuador as well as operation, information technology, marketing and sales costs, which was partially offset by postpaid subscriber acquisition costs driven by a more aggressively competitive environment in Peru.

Central America — Guatemala, El Salvador, Honduras, Nicaragua, Panama and Costa Rica

The number of net prepaid wireless subscribers for 2017 increased by 5.4% over 2016, and the number of net postpaid wireless subscribers increased by 6.7%, resulting in a net increase in the total number of wireless subscribers in our Central America segment of 5.6%, or approximately 842 thousand, to approximately 15.9 million as of December 31, 2017. The number of fixed voice RGUs for 2017 decreased by 0.1% over 2016, the number of broadband RGUs increased by 15.1% and the number of Pay TV RGUs increased by 3.9%, resulting in an increase in total fixed RGUs in our Central America segment of 7.8%, or 419 thousand, to approximately 5.8 million as of December 31, 2017.

 

 


 

28

 



Table of Contents

 

 

Segment operating revenues for 2017 increased by 4.4% over 2016. Adjusted segment operating revenues for 2017

increased by 3.2% over 2016. This increase principally reflects higher mobile data, fixed data and Pay TV revenues in Central America, which was partially offset by decreases in mobile voice and fixed voice in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica and decreases in mobile voice and Pay TV in Panama. For this purpose, we analyze adjusted segment results in U.S. dollars because it is the functional currency for our operations in El Salvador and Panama, and the currencies in Costa Rica, Guatemala, Honduras and Nicaragua are relatively stable against the U.S. dollar.

Segment operating income for 2017 increased by 37.1% over 2016. Adjusted segment operating income for 2017 increased by 41.2% over 2016. This increase principally reflects an increase of 4.2% in Guatemala, an increase of 10.2% in El Salvador, an increase of 56.2% in Honduras, an increase of 41.2% in Nicaragua, an increase of 30.0% in Panama and an increase of 1.4% in Costa Rica.

Segment operating margin was 11.9%, as compared to 9.0% in 2016. Adjusted segment operating margin was 13.1% in 2017, as compared to 9.6% in 2016. This increase principally reflects lower costs related to maintenance, customer service and customer acquisition.

Caribbean — Dominican Republic and Puerto Rico

The number of net prepaid wireless subscribers for 2017 increased by 3.0% over 2016, and the number of net postpaid wireless subscribers increased by 4.1%, resulting in a net increase in the total number of wireless subscribers in our Caribbean segment of 3.4%, or approximately 184 thousand, to approximately 5.6 million as of December 31, 2017. The number of fixed voice RGUs for 2017 decreased by 1.3% over 2016, the number of broadband RGUs increased by 1.6% and the number of Pay TV RGUs increased by 11.4%, resulting in an increase in total fixed RGUs in our Caribbean segment of 1.4%, or 37 thousand, to approximately 2.7 million as of December 31, 2017.

Segment operating revenues for 2017 decreased by 3.5% over 2016. Adjusted segment operating revenues for 2017 decreased by 5.5% over 2016. This decrease in segment operating revenues principally reflects lower revenues from wireless and fixed voice services in Puerto Rico, which was partially offset by an increase in segment mobile data revenues and an increase in Pay TV revenues in the Dominican Republic. We analyze segment results in U.S. dollars because it is the functional currency in our

operations in Puerto Rico, and the currency in the Dominican Republic is relatively stable against the U.S. dollar.

Segment operating income for 2017 decreased by 22.6% over 2016. Adjusted segment operating income for 2017 decreased by 23.8% over 2016. This decrease principally reflects a decrease of 5.7% in the Dominican Republic and a decrease of 102.2% in Puerto Rico.

Segment operating margin was 13.5% in 2017, as compared to 16.8% in 2016. Adjusted segment operating margin was 13.8% in 2017, as compared to 17.2% in 2016. This decrease principally reflects higher extraordinary costs related to the reconstruction and operation of our networks in the aftermath of Hurricane Maria and bad debt expense in Puerto Rico and higher costs related to upgrades to our information technology systems in the Dominican Republic, which were partially offset by our corporate cost-savings program.

United States

The number of net prepaid wireless subscribers for 2017 decreased by 11.3% over 2016, or approximately 2.9 million, to approximately 23.1 million total net wireless subscribers in the United States as of December 31, 2017.

Segment operating revenues for 2017 increased by 5.5% over 2016. Adjusted segment operating revenues for 2017 increased by 4.1% over 2016. This increase in segment operating revenues principally reflects higher mobile voice and data usage and revenues driven by the success of existing unlimited data plans, principally those offered under our Straight Talk brand and our recently acquired Walmart Family Mobile brand.

Segment operating income for 2017 increased by 138.8% over 2016. Adjusted segment operating income for 2017 increased by 15.0% over 2016.

Segment operating margin was 2.0% in 2017, as compared to 0.9% in 2016. Adjusted segment operating margin was 8.4% in 2017, as compared to 7.6% in 2016. This increase principally reflects a decrease in subscriber acquisition costs.

 

 


 

29

 



Table of Contents

 

         RESULTS OF OPERATIONS

 

 

Europe

The number of net prepaid wireless subscribers for 2017 decreased by 10.4% over 2016, and the number of net postpaid wireless subscribers increased by 3.6%, resulting in a net decrease in the total number of wireless subscribers in our Europe segment of 0.2%, or approximately 50 thousand, to approximately 20.7 million as of December 31, 2017. The number of fixed voice RGUs for 2017 decreased by 3.7% over 2016, the number of broadband RGUs increased by 3.3% and the number of Pay TV RGUs increased by 10.7%, resulting in an increase in total fixed RGUs in our Europe segment of 2.3%, or 136 thousand, to approximately 6.0 million as of December 31, 2017.

Segment operating revenues for 2017 increased by 7.7% over 2016. Adjusted segment operating revenues for 2017 increased by 4.1% over 2016. This increase in segment operating revenues principally reflects higher revenues in Pay TV as well as mobile and fixed data, which were partially offset by lower revenues from wireless and fixed voice services due to the negative effects of the elimination of retail roaming in the EU in June 2017 and April 2016, as well as losses in the prepaid segment. We analyze segment results in euros because it is the functional currency in our operations in Europe.

Segment operating income for 2017 decreased by 16.0% over 2016. Adjusted segment operating income for 2017 decreased by 16.3% over 2016.

Segment operating margin was 4.8% in 2017, as compared to 6.2% in 2016. Adjusted segment operating margin was 5.0% in 2017, as compared to 6.2% in 2016. The decrease principally reflects increases in costs related to marketing, subscriber acquisitions and local taxes.

2016 COMPARED TO 2015

Mexico Wireless

The number of net prepaid wireless subscribers for 2016 decreased by 2.5% over 2015, and the number of net postpaid wireless subscribers decreased by 7.0%, resulting in a net decrease in the total number of wireless subscribers in Mexico of 1.0%, or 74 thousand, to approximately 73 million as of December 31, 2016.

Segment operating revenues for 2016 decreased by 0.6% over 2015. Adjusted segment operating revenues for 2016 decreased by 3.2% over 2015. This decrease was principally due to a decrease in mobile voice revenues by 37.9% in 2016 over 2015, reflecting a reduction in the average wireless rates per user. The decrease in segment operating revenues was partially offset by an increase in mobile data revenues of 0.8% in 2016 over 2015, principally due to the increased use of value-added services by our wireless subscribers, including activity from messaging, content downloading, mobile applications and social media, and an increase in revenues from service plans offering higher data capacity.

Segment operating income for 2016 decreased by 31.8% over 2015. Adjusted segment operating income for 2016 decreased by 29.3% over 2015. Segment operating margin was 23.7% in 2016, as compared to 34.5% in 2015. Adjusted segment operating margin for this segment was 28.9% in 2016 and 39.5% in 2015. The decrease in operating margin in 2016 was due principally to higher costs related to mobile site infrastructure rentals, interconnection and other Dollar-denominated costs, such as roaming charges and licensing fees.

Mexico Fixed

The number of fixed voice RGUs in Mexico for 2016 increased by 0.1% over 2015, and the number of broadband RGUs in Mexico increased by 4.9%, resulting in an increase in total fixed RGUs in Mexico of 2.0% to approximately 22.2 million as of December 31, 2016 over 2015.

Segment operating revenues for 2016 increased by 1.1% over 2015. Adjusted segment operating revenues for 2016 decreased by 0.3% over 2015. This decrease was principally due to a fall in fixed voice revenues of 10.9% in 2016 over 2015, reflecting RGU disconnections and a fall in long-distance calls. The decrease in segment operating revenues was partially offset by an increase in fixed data revenues of 3.2% in 2016 over 2015, principally due to higher revenues from broadband and corporate network services.

 

 


 

30

 



Table of Contents

 

 

Segment operating income for 2016 decreased by 23.0% over 2015. Adjusted segment operating income for 2016 decreased by 38.5% over 2015. Segment operating margin was 12.0% in 2016 and 15.8% in 2015. Adjusted segment operating margin for this segment was 8.3% in 2016 and 13.4% in 2015. The decrease in the segment operating margin for 2016 was principally due to increases in costs associated with customer service and service quality improvements as well as network maintenance.

Brazil

The number of net prepaid wireless subscribers for 2016 decreased by 15.1% over 2015, and the number of net postpaid wireless subscribers increased by 10.0%, resulting in a net decrease in the total number of wireless subscribers in Brazil of 8.8%, or 5.8 million over 2015, to approximately 60.2 million as of December 31, 2016. The number of fixed voice RGUs for 2016 decreased by 2.9% over 2015, the number of broadband RGUs increased by 5.4%, and the number of Pay TV RGUs increased by 0.1%, resulting in an increase in total fixed RGUs in Brazil of 0.2% to approximately 36.7 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 10.8% over 2015. Adjusted segment operating revenues for 2016 decreased by 1.1% over 2015. This decrease in segment operating revenues was principally due to a fall in mobile data, mobile voice and fixed voice revenues of 4.9%, 11.6% and 6.1%, respectively, in 2016 over 2015, driven by RGU disconnections and lower traffic reflecting lower disposable income caused by an overall economic downturn in the country. The decrease in wireless and fixed voice revenues was also affected by a 30.0% reduction in interconnection revenues. The decrease in segment operating revenues was partially offset by higher fixed data and Pay TV revenues of 10.3% and 3.6%, respectively, in 2016 over 2015. Fixed data revenues increased principally due to an increase in broadband RGUs and corporate network services, and Pay TV revenues increased as a result of an increase in the purchase of additional services, such as video-on-demand and bundled packages.

Segment operating income for 2016 decreased by 41.9% over 2015. Adjusted segment operating income for 2016 decreased by 54.1% over 2015. Segment operating margin was 3.2% in 2016 and 6.1% in 2015. Adjusted segment operating margin was 2.3% in 2016 and 4.9% in 2015. The decrease in segment operating margin for 2016 was principally due to higher marketing, subscriber acquisition and customer service costs related to the ongoing integration of our three Brazilian subsidiaries, as well as the reduction in the estimated useful life of television set-up boxes from five years to three years.

Colombia

The number of net prepaid wireless subscribers for 2016 decreased by 2.3%, and the number of net postpaid wireless subscribers increased by 8.6%, resulting in a net decrease in the total number of wireless subscribers in Colombia of 0.1%, or 19 thousand, to approximately 29 million as of December 31, 2016. In 2016, the number of fixed voice RGUs increased by 12.1%, the number of broadband RGUs increased by 11.3% and the number of Pay TV RGUs increased by 4.0%, resulting in an increase in total fixed RGUs in Colombia of 8.7% to approximately 6.3 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 2.2% over 2015. Adjusted operating revenues for 2016 decreased by 3.1% over 2015. This decrease was principally due to a reduction of 26.7% in mobile voice revenues, driven by more competitive commercial offerings in response to pricing pressure from competitors. The decrease was partially offset by increases in fixed data revenues, mobile data revenues, fixed voice revenues and Pay TV revenues, which increased by 9.7%, 18.3%, 15.0% and 17.0%, respectively, in 2016, principally due to an increase in sales of bundled packages of wireless services, higher demand for data plans and an increase in subscribers for internet services.

Segment operating income for 2016 decreased by 16.1% over 2015. Adjusted segment operating income for 2016 decreased by 16.7% over 2015. Segment operating margin was 16.6% in 2016 and 20.2% in 2015.

Adjusted segment operating margin was 20.5% in 2016 and 23.8% in 2015. The decrease in segment operating margin for 2016 was driven by higher costs related to infrastructure rentals, content licensing, maintenance of our networks and an increase in bad debt expense.

Southern Cone — Argentina, Chile, Paraguay and Uruguay

The number of net prepaid wireless subscribers for 2016 increased by 5.6%, and the number of net postpaid wireless subscribers increased by 1.3%, resulting in a net increase in the total number of wireless subscribers in our Southern Cone segment of 4.1%, or 1.2 million, to approximately 30.4 million as of December 31, 2016. In 2016, the number of fixed voice RGUs increased by 5.7%, the number of broadband RGUs increased by 14.9%, and the number of Pay TV RGUs increased by 2.8%, resulting in an increase in total fixed RGUs in our Southern Cone segment of 6.8% to approximately 1.9 million as of December 31, 2016.

 

 


 

31

 



Table of Contents

 

         RESULTS OF OPERATIONS

 

Segment operating revenues for 2016 increased by 4.9% over 2015, reflecting an aggregate increase of 0.2% in Argentina, Paraguay and Uruguay and an increase of 16.1% in Chile. Adjusted segment operating revenues for 2016 increased by 23.9% over 2015, reflecting an aggregate increase of 32.1% in Argentina, Paraguay and Uruguay and an increase of 1.6% in Chile. The increase in operating revenues primarily reflects higher inflation rates in Argentina. It was also driven by higher data usage, such as mobile data, purchased in bundled service packages in Argentina and Chile. For this segment, we analyze results in Argentina, Paraguay and Uruguay in terms of the Argentine peso, because Argentina accounts for the major portion of the operations in these three countries.

Segment operating income for 2016 decreased by 9.5% over 2015, reflecting a decrease in operating income of 7.9% in Argentina, Paraguay and Uruguay and a decrease in operating loss of 2.3% in Chile. Adjusted segment operating income for 2016 increased by 40.7% over 2015, reflecting an increase in adjusted operating income of 25.7% in Argentina, Paraguay and Uruguay and a decrease in adjusted operating loss by 13.5% in Chile.

Segment operating margin was 11.5% in 2016 and 13.3% in 2015. This decrease reflects a negative operating margin of 18.0% in Chile, partially offset by an aggregate positive operating margin of 26.0% in Argentina, Paraguay and Uruguay. Adjusted segment operating margin was 17.0% in 2016, compared to 15.0% in 2015, and reflects a higher margin in Chile, as a result of our cost-saving program, partially offset by a lower margin in Argentina, caused by an increase in the costs of handsets and the full year amortization of our license, purchased in 2015.

Andean Region — Ecuador and Peru

The number of net prepaid wireless subscribers for 2016 increased by 0.6%, and the number of net postpaid wireless subscribers decreased by 0.5%, resulting in a net increase in the total number of wireless subscribers in our Andean Region segment of 0.3%, or 58 thousand, to approximately 20.8 million as of December 31, 2016. In 2016, the number of fixed voice RGUs decreased by 0.2%, the number of broadband RGUs increased by 17.8% and

the number of Pay TV RGUs increased by 0.7%, resulting in an increase in total fixed RGUs in our Andean Region segment of 5.4% to approximately 1.8 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 8.0% over 2015, reflecting operating revenue increases of 5.5% in Ecuador and 10.2% in Peru. Adjusted segment operating revenues for 2016 decreased by 5.5%, reflecting a decrease

of 10.3% in Ecuador and a decrease of 0.9% in Peru. This decrease in operating revenues reflects a decrease in revenues from our wireless and fixed voice operations, driven by an increase in tax obligations in Ecuador and aggressive price reductions in Peru, which were partially offset by higher revenues from mobile data and higher revenues from fixed data, especially broadband and corporate data services.

Segment operating income for 2016 decreased by 22.5% over 2015, reflecting an increase in operating income of 24.5% in Ecuador and a decrease of 68.3% in Peru. Adjusted segment operating income for 2016 decreased by 24.2%, reflecting an increase of 5.8% in Ecuador and a decrease of 70.9% in Peru. Segment operating margin was 10.8% in 2016, reflecting operating margins of 27.5% in Ecuador and 4.2% in Peru, and was 15.1% in 2015. Adjusted segment operating margin was 15.1% in 2016, reflecting adjusted operating margins of 27.5% in Ecuador and 4.2% in Peru, and was 18.8% in 2015. The results of operations were impacted in 2016 by increases in customer service, marketing and sales costs, as well as direct taxes in Ecuador, and higher interconnection costs and postpaid subscriber acquisition costs driven by a more aggressively competitive environment in Peru.

Central America — Guatemala, El Salvador, Honduras, Nicaragua, Panama and Costa Rica

The number of net prepaid wireless subscribers for 2016 decreased by 2.0%, and the number of net postpaid wireless subscribers increased by 1.5%, resulting in a net decrease in the total number of wireless subscribers in our Central America segment of 1.5%, or approximately 231 thousand, to approximately 15.1 million as of December 31, 2016. In 2016, the number of fixed voice RGUs increased by 0.4%, the number of broadband RGUs increased by 19.1% and the number of Pay TV RGUs increased by 3.0%, resulting in an increase in total fixed RGUs in our Central America segment of 8.9% to approximately 5.3 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 22.1% over 2015. Adjusted segment operating revenues for 2016 increased by 3.9% over 2015. This increase in segment operating revenues was driven principally by higher mobile data, fixed data and Pay TV revenues in Central America, which was partially offset by decreases in mobile voice and fixed voice in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica and decreases in mobile voice and Pay TV in Panama. For this purpose, we analyze adjusted segment results in U.S. dollars because it is the functional currency in our operations in El Salvador and Panama, and the currencies in Costa Rica, Guatemala, Honduras and Nicaragua are relatively stable against the U.S. dollar.

 

 


 

32

 



Table of Contents

 

 

Segment operating income and adjusted segment operating income increased by approximately ten times in 2016 over 2015. Segment operating margin was 9.0% for 2016 and 5.0% for 2015. Adjusted segment operating margin was 9.6% for 2016 and 5.4% in 2015. The results of operations in the segment in 2016 were impacted by lower costs related to maintenance, customer service and customer acquisition.

Caribbean — Dominican Republic and Puerto Rico

The number of net prepaid wireless subscribers for 2016 increased by 2.2%, and the number of net postpaid wireless subscribers increased by 6.7%, resulting in a net increase in the total number of wireless subscribers in our Caribbean segment of 3.6%, or approximately 192 thousand, to approximately 5.4 million as of December 31, 2016. In 2016, the number of fixed voice RGUs increased by 2.8%, the number of broadband RGUs increased by 8.3% and the number of Pay TV RGUs increased 14.2%, resulting in an increase in total fixed RGUs in our Caribbean segment of 6.0% to approximately 2.7 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 23.1% over 2015. Adjusted segment operating revenues for 2016 increased by 0.1% over 2015. This increase in operating revenues was principally due to an increase in segment mobile data revenues and an increase in Pay TV revenues in the Dominican Republic, which was partially offset by lower revenues from wireless and fixed voice services in Puerto Rico. We analyze segment results in U.S. dollars because it is the functional currency in our operations in Puerto Rico, and the currency in the Dominican Republic is relatively stable against the U.S. dollar.

Segment operating income for 2016 increased by 57.9% over 2015. Adjusted segment operating income for 2016 increased by 0.9% over 2015. Segment operating margin was 16.8% in 2016 and 13.1% in 2015. Adjusted segment operating margin was 17.2% in 2016 and 17.1% in 2015. This increase in segment operating income and operating margin for 2016 resulted from our cost- savings programs, which was partially offset by increased expenses in connection with our pension obligations in Puerto Rico.

United States

The number of net prepaid wireless subscribers for 2016 increased by 1.6%, or approximately 401 thousand, to approximately 26.1 million total net wireless subscribers in the United States as of December 31, 2016.

Segment operating revenues for 2016 increased by 27.3% over 2015. Adjusted segment operating revenues for 2016 increased by 7.9% over 2015. This increase in operating revenues reflects higher mobile voice and data usage and revenues driven by the success of existing unlimited data plans, principally those offered by Straight Talk.

Segment operating income for 2016 decreased by 5.6% over 2015. Adjusted segment operating income for 2016 increased by 4.2% over 2015. Segment operating margin was 0.9% in 2016 and 1.2% in 2015. Adjusted segment operating margin was 7.6% in 2016 and 7.8% in 2015. This decrease in segment operating margin for 2016 was principally due to increased payments to third-party network operators for voice and data, as a result of higher usage of unlimited plans.

Europe

The number of net prepaid wireless subscribers for 2016 decreased by 4.3%, and the number of net postpaid wireless subscribers increased by 1.7%, resulting in a net decrease in the total number of wireless subscribers in our Europe segment of approximately 3 thousand to approximately 20.7 million as of December 31, 2016. In 2016, the number of fixed voice RGUs decreased by 3.5%, the number of broadband RGUs increased by 5.9% and the number of Pay TV RGUs increased by 18.3%, resulting in an increase in total fixed RGUs in our Europe segment of 4.6% to approximately 5.9 million as of December 31, 2016.

Segment operating revenues for 2016 increased by 19.7% over 2015. Adjusted segment operating revenues for 2016 increased by 2.1% over 2015. This increase in operating revenues was principally due to higher revenues in wireless and fixed data, driven by our acquisitions in Macedonia, Bulgaria and Slovenia during the second half of 2015, which were partially offset by lower revenues from wireless and fixed voice services following recent regulations in Austria blocking roaming charges. We analyze segment results in euros because it is the functional currency in our operations in Europe.

Segment operating income for 2016 decreased by 13.2% over 2015. Adjusted segment operating income for 2016 decreased by 24.4% over 2015. Segment operating margin was 6.2% in 2016 and 8.5% in 2015. Adjusted segment operating margin was 6.2% in 2016 and 8.4% in 2015. The decrease in segment operating income and operating margin for 2016 reflects increases in costs related to advertising and subscriber acquisition and non-cash revisions for future pension liabilities in Austria.

 

 


 

33

 



Table of Contents

 

          LIQUIDITY AND CAPITAL RESOURCES

 

 

 

FUNDING REQUIREMENTS

We generate substantial cash flows from our operations. On a consolidated basis, our cash flows from operating activities were Ps.217.8 billion in 2017, compared to Ps.235.8 billion in 2016. Our cash and cash equivalents amounted to Ps.24.3 billion at December 31, 2017, compared to Ps.23.2 billion at December 31, 2016. We believe our working capital is sufficient for our present requirements. We use the cash that we generate from our operations and from borrowings principally for the following purposes:

 

 

 

 

 

  We make substantial capital expenditures to continue expanding and improving our networks in each country in which we operate. Our capital expenditures on plant, property and equipment and acquisition or renewal of licenses were Ps.136.7 billion in 2017, Ps.155.0 billion in 2016 and Ps.151.6 billion in 2015. The amount of these capital expenditures varies significantly from year to year, depending on acquisition opportunities, concession renewal schedules and the need for more spectrum. We have budgeted capital expenditures for 2018 of approximately U.S.$8 billion (Ps.148.3 billion), which will be primarily funded through our operating activities.

 

  In some years, we have made substantial expenditures on acquisitions.

 

  We must pay interest on our indebtedness and repay principal when due. As of December 31, 2017, we had approximately Ps.51.7 billion of principal and amortization due in 2018.

 

  We pay regular dividends. We paid Ps.16.1 billion in dividends in 2017 and Ps.13.8 billion in 2016. Our shareholders approved on April 16, 2018 the payment of a Ps.0.32 ordinary cash dividend per share in two installments in 2018. See “Share Ownership and Trading—Dividends” under Part IV in this annual report.

 

  We regularly repurchase our own shares. We spent Ps.1.2 billion repurchasing our own shares in the open market in 2017 and Ps.7.0 billion in 2016. Our shareholders have authorized additional repurchases, and as of March 31, 2018, we have spent Ps.101.9 million repurchasing our shares in the open market in 2018, but whether we will continue to do so will depend on our operating cash flow and on various other considerations, including market prices and our other capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2017, we had no off-balance sheet arrangements that require disclosure under applicable SEC regulations.

CONTRACTUAL OBLIGATIONS

The following table summarizes certain contractual obligations as of December 31, 2017. Many of our obligations are denominated in currencies other than Mexican pesos, and in particular our purchase obligations and approximately 28.6% of our debt are denominated in U.S. dollars. The table does not include accounts payable, pension liabilities, interest payments or payments under derivatives contracts. See Note 16 to our audited consolidated financial statements.

 

 

    PAYMENTS DUE BY PERIOD  
    TOTAL       LESS THAN 1 YEAR     1-3 YEARS   4-5 YEARS     AFTER 5 YEARS    
            (in millions of Mexican pesos)       
CONTRACTUAL OBLIGATIONS AS OF DECEMBER 31, 2017                      

Equipment leases, real estate leases and

mobile site rentals

    Ps.    125,650     Ps.      20,422     Ps.      37,356     Ps.      23,567       Ps.      44,305  
Short-term debt     51,746     51,746     —     —          
Long-term debt     646,139     —     245,716     115,038       285,385  
Purchase obligations     167,345     24,228     143,117     —          
Total     Ps.    990,880     Ps.    96,396     Ps.    426,189     Ps.    138,605       Ps.    329,690  

 

 

 

 


 

34

 



Table of Contents

 

 

 

 

Other than the amounts in the table above, we had no other outstanding material purchase commitments as of December 31, 2017. We enter into a number of supply, advertising and other contracts in the ordinary course of business, but those contracts are not material to our liquidity.

BORROWINGS

In addition to cash flows generated from operations, we rely on a combination of borrowings from a range of different sources, including the international capital markets, capital markets in Mexico and other countries where we operate, international and local banks, equipment suppliers and export credit agencies. We seek to maintain access to diverse sources of funding. In managing our funding, we generally seek to keep our leverage, as measured by the ratio of net debt to EBITDA, at a level that is consistent with maintaining the ratings given to our debt by the principal credit rating agencies. Our total consolidated indebtedness as of December 31, 2017 was Ps.697.9 billion, of which Ps.51.7 billion was short-term debt (including the current portion of long-term debt), compared to Ps.707.8 billion as of December 31, 2016.

Management defines net debt as total debt minus cash and cash equivalents, minus marketable securities (including KPN shares) or other short-term investments. As of December 31, 2017, we had net debt of Ps.614.5 billion, compared to Ps.629.7 billion as of December 31, 2016, which represented a decrease of Ps.15.2 billion in net debt. This decrease principally reflects a net amortization of debt in the amount of Ps.47.9 billion during 2017, the arbitration ruling in Colombia (which added Ps.18.5 billion to our debt) and the impact of foreign exchange variation (in Mexican peso terms) on our balance sheet.

Without taking into account the effects of derivative financial instruments that we use to manage our interest rate and currency risk, approximately 88.1% of our indebtedness at December 31, 2017 was denominated in currencies other than Mexican pesos (approximately 32.5% of such non-Mexican peso debt in U.S. dollars and 67.5% in other currencies), and approximately 5.7% of our consolidated debt obligations bore interest at floating rates. After the effects of derivative transactions and excluding the debt owned by Telekom Austria, approximately 28.8% of our net debt as of December 31, 2017 was denominated in Mexican pesos.

The weighted average cost of all our third-party debt at December 31, 2017 (excluding commissions and reimbursement of certain lenders for Mexican taxes withheld) was approximately 4.3% per annum.

Our major categories of indebtedness at December 31, 2017 are summarized in the table below. The majority of our consolidated indebtedness is owned by América Móvil and most of the remaining debt is owed by Telekom Austria, in which we own a 51% interest. The amounts are based on book values in our financial statements under IFRS and may differ from the principal amount. See also Note 14 to our audited consolidated financial statements.

 

DEBT              
(millions of Mexican pesos)                  
Senior Notes                  
DENOMINATED IN U.S. DOLLARS                  
América Móvil 5.000% Senior Notes due 2019      Ps.        14,840  
Telmex 5.500% Senior Notes due 2019               7,467  
América Móvil 5.000% Senior Notes due 2020               42,043  
América Móvil 3.125% Senior Notes due 2022               31,659  
América Móvil 6.375% Senior Notes due 2035               19,417  
América Móvil 6.125% senior Notes due 2037               7,306  
América Móvil 6.125% Senior Notes due 2040               39,573  
América Móvil 4.375% Senior Notes due 2042         22,755  
Total      Ps.        185,060  
DENOMINATED IN MEXICAN PESOS                  
América Móvil 8.11% Domestic Senior Notes due 2018      Ps.        1,750  
Telmex 8.27% Domestic Senior Notes due 2018               1,160  
América Móvil 8.60% Domestic Senior Notes due 2020               7,000  
América Móvil 0.00% Domestic Senior Notes due 2025               4,410  
Telmex 8.36% Domestic Senior Notes due 2037               5,000  
América Móvil 6.000% Senior Notes due 2019               10,000  
América Móvil 6.45% Senior Notes due 2022               22,500  
América Móvil 7.125% Senior Notes due 2024               11,000  
América Móvil 8.46% Senior Notes due 2036         7,872  
Total      Ps.        70,692  
DENOMINATED IN EURO                  
América Móvil 1.00% Senior Notes due 2018      Ps.        14,252  
América Móvil 4.125% Senior Notes due 2019               23,754  
América Móvil B.V. 0.00% Exchangeable Bonds due 2020               67,505  
América Móvil 3.00% Senior Notes due 2021               23,754  
TKA 3.125% Senior Notes due 2021               18,728  
TKA 4.00% Senior Notes due 2022               19,334  
América Móvil 4.75% Senior Notes due 2022               17,815  
TKA 3.5% Senior Notes due 2023               7,594  
América Móvil 3.259% Senior Notes due 2023               17,815  
América Móvil 1.50% Senior Notes due 2024               20,191  
TKA 1.50% Senior Notes due 2026               17,815  
América Móvil 2.125% Senior Notes due 2028         15,440  
Total      Ps.        263,998  
 

 


 

35

 



Table of Contents

 

          LIQUIDITY AND CAPITAL RESOURCES

 

 

 

DEBT              
DENOMINATED IN POUND STERLING                  
América Móvil 5.000% Senior Notes due 2026      Ps.        13,369  
América Móvil 5.750% Senior Notes due 2030               17,380  
América Móvil 4.948% Senior Notes due 2033               8,021  
América Móvil 4.375% Senior Notes due 2041         20,053  
Total      Ps.        58,823  
DENOMINATED IN SWISS FRANCS                  
América Móvil 1.125% Senior Notes due 2018      Ps.        11,170  
Total      Ps.        11,170  
DENOMINATED IN JAPANESE YEN                  
América Móvil 2.95% Senior Notes due 2039      Ps.        2,283  
Total      Ps.        2,283  
DENOMINATED IN CHILEAN PESOS                  
América Móvil 3.961% Senior Notes due 2035      Ps.        4,312  
Total      Ps.        4,312  
DENOMINATED IN BRAZILIAN REALS                  
Claro Brasil 102.4% of CDI Domestic senior notes due 2019      Ps.        5,981  
Claro Brasil 103.9% of CDI Domestic senior notes due 2019               5,981  
Claro Brasil 102.9% of CDI Domestic senior notes due 2020         8,973  
Total      Ps.        20,935  
Hybrid Notes                  
DENOMINATED IN EURO:                  
América Móvil Euro NC5 (Euro Series A) Capital Securities due 2073      Ps.        21,378  
América Móvil Euro NC10 (Euro Series B) Capital Securities due 2073         13,065  
Total      Ps.        34,443  
DENOMINATED IN POUND STERLING                  
América Móvil GBP NC7 Capital Securities due 2073      Ps.        14,706  
Total      Ps.        14,706  
Bank Debt and Other                  
DENOMINATED IN U.S. DOLLARS      Ps.        14,474  
DENOMINATED IN MEXICAN PESOS      Ps.        12,500  
DENOMINATED IN CHILEAN PESOS      Ps.        100  
DENOMINATED IN BRAZILIAN REALS      Ps.        4,389  
Total      Ps.        31,463  
Total Debt      Ps.        697,885  
Less short-term debt and current portion of long-term debt               (51,746
Total Long-term Debt      Ps.        646,139  
Equity:                  
Capital stock      Ps.        96,339  
Total retained earnings               171,088  
Other comprehensive income (loss) items               (73,262
Non-controlling interest               66,469  
Total Equity      Ps.        260,634  

Total Capitalization

(total long-term debt plus equity)

     Ps.        906,773  

Additional information about certain categories of our indebtedness is provided below:

 

  Mexican peso-denominated international notes . Our 8.46% senior notes due 2036 are denominated in Mexican pesos, but all amounts in respect of the notes are payable in U.S. dollars, unless a holder of notes elects to receive payment in Mexican pesos in accordance with certain specified procedures.

 

  Mexican peso-denominated domestic notes . Our domestic senior notes ( certificados bursátiles ) sold in the Mexican capital markets have varying maturities, ranging from 2018 through 2037, and bear interest at fixed rates.

 

  Global peso notes program . The global peso notes program was established in November 2012. Since its establishment, we have issued peso-denominated notes that can be distributed and traded on a seamless basis in Mexico and internationally. The notes are registered with the SEC in the United States and with the CNBV in Mexico.

 

  International notes . We have outstanding debt securities in the international markets denominated in U.S. dollars, pound sterling and euros. We have also issued debt securities in the local markets in Switzerland and Japan.

 

  Hybrid notes . In September 2013, we issued three series of Capital Securities maturing in 2073: two series denominated in euros and totaling €1,450 million, and one series denominated in pound sterling in the amount of £550 million. The Capital Securities are subject to redemption at our option at varying dates beginning in 2018 and 2023 for the euro-denominated series and beginning in 2020 for the sterling-denominated series. Our hybrid notes are deeply subordinated, and when they were issued, the principal rating agencies stated that they would treat only half of the principal amount as indebtedness for purposes of evaluating our leverage (an analysis referred to as 50.0% equity credit).

In February 2018, Telekom Austria redeemed its €600 million aggregate principal amount of hybrid bonds at their nominal value, plus all interest on the first call date. These were nominally perpetual bonds but with the option to be called at specific dates. In accordance with IFRS, they were classified within shareholders’ equity. For additional information, see Notes 19 and 24 to our audited consolidated financial statements.

 

 


 

36

 



Table of Contents

 

 

  Bank loans . At December 31, 2017, we had approximately Ps.31.4 billion outstanding under a number of bank facilities bearing interest at fixed and variable rates. We also have two revolving syndicated facilities—one for U.S.$2.5 billion expiring in 2019 and one for the Euro equivalent of U.S.$2.0 billion expiring in May 2021. Loans under the facilities bear interest at variable rates based on LIBOR and EURIBOR, respectively. Both facilities include covenants that limit our ability to incur secured debt, to effect a merger in which the surviving entity would not be América Móvil or to sell substantially all of our assets. In addition, both facilities require us to maintain a consolidated ratio of debt to EBITDA not greater than 4.0 to 1.0 and a consolidated ratio of EBITDA to interest expense not less than 2.5 to 1.0. As of the date of this annual report, we are in compliance with these covenants. Telekom Austria also has a revolving syndicated facility for €1.0 billion (the “TKA Facility”) expiring in 2019. The TKA Facility bears interest at variable rates based on EURIBOR and includes covenants that limit Telekom Austria’s ability to incur secured debt, effect certain mergers or sell substantially all of its assets and our ability to transfer control over, or reduce our share ownership in, Telekom Austria.

Options involving KPN and TKA shares . The Company has entered into certain option contracts related to shares that are or have been a strategic investment for the Company. These options include a sale of call options related to our KPN shares with an exercise period that will expire in May 2020 and the sale of a cash-settled put option related to TKA shares that will expire in August 2023. See Note 7 to our audited consolidated financial statements.

Some of the public securities issued by América Móvil in international and Mexican capital markets are guaranteed by Telcel. As of December 31, 2017, we had, on an

unconsolidated basis, unsecured and unsubordinated indebtedness of approximately Ps.582.1 billion (U.S.$29.4 billion), excluding guarantees of subsidiaries’ indebtedness. As of December 31, 2017, our subsidiaries had indebtedness (excluding guarantees of indebtedness of us and our other subsidiaries) of approximately Ps.115.8 billion (U.S.$5.9 billion).

RISK MANAGEMENT

We regularly assess our interest rate and currency exchange exposures in order to determine how to manage the risk associated with these exposures. We have indebtedness denominated in currencies other than the currency of our operating environments, and we have expenses for operations and for capital expenditures in a variety of currencies. We use cross-currency swaps and forwards to adjust the resulting exchange rate exposures. We do not use derivatives to hedge the exchange rate exposures that arise from having operations in different countries.

We also use interest rate swaps from time to time to adjust our exposure to variable interest rates or to reduce our costs of financing. Our practices vary from time to time depending on our judgment of the level of risk, expectations as to exchange or interest rate movements and the costs of using derivative financial instruments. We may stop using derivative financial instruments or modify our practices at any time.

As of December 31, 2017, we had derivatives positions with an aggregate net fair value liability of Ps.6.3 billion, which are described in Note 7 to our audited consolidated financial statements. For additional information, see Note 2 w) to our audited consolidated financial statements.

 

 


 

37

 



Table of Contents

 

          CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

 

 

 

USE OF ESTIMATES IN CERTAIN ACCOUNTING POLICIES

In preparing our financial statements, we make estimates concerning a variety of matters. Some of these matters are highly uncertain, and our estimates involve judgments we make based on the information available to us. In the discussion below, we have identified several of these matters for which our financial presentation would be materially affected if either (i) we used different estimates that we could reasonably have used or (ii) in the future, we change our estimates in response to changes that are reasonably likely to occur.

The discussion addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation.

 

 

 

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

We have substantial financial assets and liabilities that we recognize at their fair value, which is an estimate of the amount at which the instrument could be exchanged in a current transaction between willing parties. The methodologies and assumptions we use to estimate an instrument’s fair value depend on the type of instrument and include (i) recognizing cash and cash equivalents, trade receivables, trade payables and other current liabilities at close to their carrying amount, (ii) recognizing quoted instruments at their market price quotations, without any deduction for transaction costs, for financial instruments such as available-for-sale marketable securities and certain debt instruments on the reporting date, (iii) recognizing unquoted instruments, such as loans from banks and obligations under financial leases, by discounting future cash flows using rates for similar instruments and (iv) applying various valuation techniques, such as present value calculations, to derivative instruments. Using different methodologies or assumptions to estimate the fair value of our financial assets and liabilities could materially impact our reported financial results.

We maintain investments in available-for-sale securities that are valued at market prices obtained from the stock exchange where these shares are listed. At each reporting date, we evaluate whether an impairment exists on its available-for-sale securities. This analysis first involves an evaluation of the objective measures of impairment as described in IAS 39. We will then evaluate whether the loss recognized in other comprehensive income on its available for sale securities is either prolonged or significant. As of December 31, 2017, we have not observed an objective measure of impairment on its available-for-sale securities, nor has significant or prolonged unrealized losses on its available-for-sale securities.

ESTIMATED USEFUL LIVES OF PLANT, PROPERTY AND EQUIPMENT

We estimate the useful lives of particular classes of plant, property and equipment in order to determine the amount of depreciation expense to be recorded in each period. Depreciation expense is a significant element of our costs and expenses, amounting in 2017 to Ps.135.2 billion, or 14.7% of our operating costs and expenses. See Note 10 to our audited consolidated financial statements.

 

 


 

38

 



Table of Contents

 

 

 

 

We currently depreciate most of our property, plant and equipment based on an estimated useful life determined upon the expected particular conditions of operations and maintenance in each of the countries in which we operate. The estimates are based on our historical experience with similar assets, anticipated technological changes and other factors, taking into account the practices of other telecommunications companies. We review estimated useful lives each year to determine whether they should be changed, and, at times, we have changed them for particular classes of assets. We may shorten the estimated useful life of an asset class in response to technological changes, changes in the market or other developments, which would result in higher depreciation expense.

IMPAIRMENT OF LONG-LIVED ASSETS

We have large amounts of long-lived assets, including property, plant and equipment, intangible assets, investments in associates and goodwill, on our balance sheet. Under IFRS, we are required to test long-lived assets for impairment when circumstances indicate a potential impairment or, in some cases, at least on an annual basis. The impairment analysis for long-lived assets requires us to estimate the recovery value of the asset, which is the greater of its fair value (minus any disposal costs) and its value in use. To estimate the fair value of a long-lived asset, we typically take into account recent market transactions, or, if no such transactions can be identified, we use a valuation model that requires the making of certain assumptions and estimates. Similarly, to estimate the value in use of long-lived assets, we typically make various assumptions about the future prospects for the business to which the asset relates, consider market factors specific to that business and estimate discounted future cash flows to be generated by that business. Based on this impairment analysis, including all assumptions and estimates related thereto, as well as guidance provided by IFRS relating to the impairment of long-lived assets, we determine whether we need to recognize an impairment to reduce the carrying value of the asset as stated on our balance sheet. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors, such as industry and economic trends, and internal factors, such as changes in our business strategy and our internal forecasts. Different assumptions and estimates could materially impact our

reported financial results. More conservative assumptions of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions could result in lower or no impairment charges, higher net income and higher asset values. See Note 2 ac) to our audited consolidated financial statements.

DEFERRED INCOME TAXES

We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves the jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of temporary differences resulting from the differing treatment of certain items, such as accruals and amortization, for tax and financial reporting purposes, as well as net operating loss carry forwards and other tax credits. These items result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must assess, in the course of our tax planning procedures, the fiscal year of the reversal of our deferred tax assets and liabilities, and if there will be future taxable profits in those periods to support the recognition of the deferred tax assets. Significant management judgment is required in determining our provisions for income taxes, deferred tax assets and liabilities. The analysis is based on estimates of taxable income in the jurisdictions in which the group operates and the period over which the deferred tax assets and liabilities will be recoverable or settled. If actual results differ from these estimates, or if we adjust these estimates in future periods, our financial position and results of operations may be materially affected.

We record deferred tax assets based on the amount that we believe is more likely than not to be realized. In assessing the future realization of deferred tax assets, we consider future taxable income and ongoing tax planning strategies. In the event that our estimates of projected future taxable income and benefits from tax planning strategies are lowered, or changes in current tax regulations are enacted that would impose restrictions on the timing or the extent of our ability to utilize the tax benefits of net operating loss carry forwards in the future, an adjustment to the recorded amount of deferred tax assets would be made, with a related charge to income.

 

 


 

39

 



Table of Contents

 

         CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

 

 

 

ACCRUALS

Accruals are recorded when, at the end of the period, we have a present obligation as a result of past events whose settlement requires an outflow of resources that is considered probable and can be measured reliably. This obligation may be legal or constructive, arising from, but not limited to, regulation, contracts, common practice or public commitments which have created a valid expectation for third parties that we will assume certain responsibilities. The amount recorded is the best estimation performed by our management in respect of the expenditure that will be required to settle the obligations, considering all the information available at the date of our financial statements, including the opinion of external experts, such as legal advisors or consultants. Accruals are adjusted to account for changes in circumstances for ongoing matters and the establishment of additional accruals for new matters.

If we are unable to reliably measure the obligation, no accrual is recorded and information is then presented in the notes to our audited consolidated financial statements. Because of the inherent uncertainties in this estimation, actual expenditures may be different from the originally estimated amount recognized.

LABOR OBLIGATIONS

We recognize liabilities on our balance sheet and expenses in our income statement to reflect our obligations related to our post-retirement seniority premiums, pension and retirement plans in the countries in which we operate and offer defined contribution and benefit pension plans. The amounts we recognize are determined on an actuarial basis that involves many estimates and assumptions for post-retirement pension and termination benefits in accordance with IFRS.

We use estimates in four specific areas that have a significant effect on these amounts: (i) the rate of return we assume our labor obligation plans will achieve on their investments, (ii) the rate of increase in salaries that we assume we will observe in future years, (iii) the discount rates that we use to calculate the present value of our future obligations and (iv) the expected rate of inflation. The assumptions we have applied are identified in Note 17 to our audited consolidated financial statements. These estimates are determined based on actuarial studies performed by independent experts using the projected unit-credit method.

ALLOWANCE FOR BAD DEBTS

We maintain an allowance for bad debts for estimated losses resulting from the failure of customers, distributors and cellular operators to make required payments. We base these estimates on the individual conditions of each of the markets in which we operate that may impact the collectability of accounts. In particular, in making these estimates, we take into account (i) with respect to accounts with customers and distributors, the number of days since invoices are overdue and (ii) with respect to accounts with telecom operators, both the number of days since the invoices are due and any disputes with respect to such invoiced traffic. The amount of loss, if any, that we actually experience with respect to these accounts may differ from the amount of the allowance maintained in connection with them. See Note 5 to our audited consolidated financial statements.

 

 


 

40

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

         RISK FACTORS

 

 

RISKS RELATING TO OUR OPERATIONS

Competition in the telecommunications industry is intense and could adversely affect the revenues and profitability of our operations

Our businesses face substantial competition. We expect that competition will intensify in the future as a result of the entry of new competitors, the development of new technologies, products and services and convergence. We also expect consolidation in the telecommunications industry, as companies respond to the need for cost reduction and additional spectrum. This trend may result in larger competitors with greater financial, technical, promotional and other resources to compete with our businesses.

Among other things, our competitors could:

  provide increased handset subsidies;
  offer higher commissions to retailers;
  provide free airtime or other services (such as internet access);
  offer services at lower costs through double, triple and quadruple play packages or other pricing strategies;
  expand their networks faster; or
  develop and deploy improved technologies faster.

Competition can lead us to increase advertising and promotional spending and to reduce prices for services and handsets. These developments may lead to lower operating margins, greater choices for customers, possible consumer confusion and increasing movement of customers among competitors, which may make it difficult for us to retain or add new customers. The cost of adding new customers may also continue to increase, reducing profitability even if customer growth continues.

Our ability to compete successfully will depend on our coverage, the quality of our network and service, our rates, customer service, effective marketing, our success in selling double, triple and quadruple play packages and our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services and technologies, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors.

If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability could decline.

Governmental or regulatory actions could adversely affect our operations

Our operations are subject to extensive government regulation and can be adversely affected by changes in law, regulation or regulatory policy. The licensing, construction, operation, sale, resale and interconnection arrangements of telecommunications systems in Latin America and elsewhere are regulated to varying degrees by government or regulatory authorities. Any of these authorities having jurisdiction over our businesses could adopt or change regulations or take other actions that could adversely affect our operations. In particular, the regulation of prices that operators may charge for their services and environmental matters, including renewable energy and climate change regulation, could have a material adverse effect by reducing our profit margins. See “Regulation” under Part VI, “Legal Proceedings” under Part VII and Note 16 to our audited consolidated financial statements included in this annual report.

In addition, changes in political administrations could lead to the adoption of policies concerning competition and taxation of communications services. For example, since 2013, Mexico has overseen reforms to the telecommunications sector that aim to promote competition and investment by imposing asymmetric regulation upon economic agents deemed “preponderant.” In other countries, we could also face policies such as preferences for local over foreign ownership of communications licenses and assets or for government over private ownership, which could make it more cumbersome or impossible for us to continue to develop our businesses. Restrictions such as those described above could result in our incurring losses of revenues and require capital investments, all of which could materially adversely affect our businesses and results of operations.

Our failure to meet or maintain quality of service goals and standards could result in fines and other adverse consequences

The terms of the concessions under which our subsidiaries operate require them to meet certain service quality goals, including, for example, minimum call completion rates, maximum busy circuits rates, operator availability and responsiveness to repair requests. Failure to meet service quality obligations in the past has resulted in the imposition of material fines by regulatory entities. We are also subject to and may be subject to additional claims by customers, including class actions, seeking remedies for service problems. Our ability to comply with these obligations in the future may be affected by factors beyond our control and, accordingly, we cannot assure that we will be able to comply with them.

 

 


 

44

 



Table of Contents

 

 

Dominant and carrier related regulations could adversely affect our business by limiting our ability to pursue competitive and profitable strategies

Our regulators are authorized to impose specific requirements as to rates (including termination rates), quality of service, access to active or passive infrastructure and information, among other matters, on operators that are determined to have substantial market power in a specific market. We cannot predict what steps regulatory authorities might take in response to determinations regarding substantial market power in the countries in which we operate. However, adverse determinations against our subsidiaries could result in material restrictions on our operations. We may also face additional regulatory restrictions and scrutiny as a result of our provision of combined services.

If dominant carrier regulations are imposed on our business in the future, they could likely reduce our flexibility to adopt competitive market policies and impose specific tariff requirements or other special regulations on us, such as additional requirements regarding disclosure of information or quality of service. Any such new regulation could have a material adverse effect on our operations.

Changes in the regulatory framework for telecommunications services in Mexico may have a material adverse effect on our business and results of operations

The Mexican legal framework for the regulation of telecommunications and broadcasting services has changed, beginning with constitutional amendments in 2013, implementing legislation in 2014, and the establishment in 2014 of a new regulator, the Federal Telecommunications Institute ( Instituto Federal de Telecomunicaciones , or the “IFT”). The IFT determined in 2014 that our operating subsidiaries in Mexico are part of an “economic interest group” that is a “preponderant economic agent” in the Mexican telecommunications sector, and, based on this determination, the IFT has imposed extensive asymmetric regulations on our Mexican fixed-line and wireless businesses. The asymmetric regulations took effect in 2015 and were amended in 2017, when the IFT added new requirements, including the functional separation of certain assets used to provide local loop unbundling services. For further information, see “Regulation” under Part III of this annual report. The IFT measures have adversely affected the results of our Mexican operations, and we expect that those effects will continue, but their long-term impact remains uncertain.

We must continue to acquire additional radio spectrum capacity and upgrade our existing networks in order to expand our customer base and maintain the quality of our wireless services

Licensed radio spectrum is essential to our growth and the quality of our wireless services, not only for our global system for mobile communications (“GSM”), universal mobile telecommunications systems (“UMTS”) and long-term evolution (“LTE”) networks, but also for the deployment of new generation networks to offer improved data and value-added services. We obtain most of our radio spectrum through auctions conducted by governments of the countries in which we operate. Participation in spectrum auctions in most of these countries requires prior government authorization, and we may be subject to caps on our ability to acquire additional spectrum. Our inability to acquire additional radio spectrum capacity could affect our ability to compete successfully because it could result in, among other things, a decrease in the quality of our network and service and in our ability to meet the demands of our customers.

In the event we are unable to acquire additional radio spectrum capacity, we can increase the density of our network by building more cell and switch sites, but such measures are costly and may be subject to local restrictions and regulatory approvals, and they would not meet our needs as effectively.

In addition, the continual maintenance and upgrading of our wireless networks is critical to expanding our coverage, increasing our capacity to absorb higher bandwidth usage and adapting to new technologies, as well as offering more specialized services to our customers.

We have concessions and licenses for fixed terms, and the government may revoke or terminate them as well as reacquire the assets under our concession under various circumstances, some of which are beyond our control

Our concessions and licenses have specified terms, ranging typically from five to 20 years, and are generally subject to renewal upon payment of a fee, but renewal is not assured. The loss of, or failure to renew, any one concession could have a material adverse effect on our business and results of operations. Our ability to renew concessions and the terms of renewal are subject to a number of factors beyond our control, including the prevalent regulatory and political environment at the time of renewal. Fees are typically established at the time of renewal. As a condition for

 

 


 

45

 



Table of Contents

 

         RISK FACTORS

 

 

 

renewal, we may be required to agree to new and stricter terms and service requirements. In some of the jurisdictions where we operate and under certain circumstances, mainly in connection with fixed services, we may be required to transfer certain assets covered by some of our concessions to the government pursuant to valuation methodologies that vary in each jurisdiction. It is uncertain whether reversion would ever be applied in many of the jurisdictions where we operate and how reversion provisions would be interpreted in practice. For further information, see “Regulation” under Part VI of this annual report and Notes 1 and 16 to our audited consolidated financial statements included in this annual report.

In addition, the regulatory authorities in the jurisdictions in which we operate can revoke our concessions under certain circumstances. In Mexico, for example, the Federal Law on Telecommunications and Broadcasting gives the government the right to expropriate our concessions or to take over the management of our networks, facilities and personnel in cases of imminent danger to national security, internal peace or the national economy, natural disasters and public unrest. See “Regulation” under Part VI of this annual report.

We continue to look for acquisition opportunities, and any future acquisitions and related financing could have a material effect on our business, results of operations and financial condition

We continue to look for investment opportunities in telecommunications and related companies worldwide, including in markets where we are already present, and we often have several possible acquisitions under consideration. Any future acquisitions, and related financing and acquired indebtedness, could have a material effect on our business, results of operations and financial condition, but we cannot provide assurances that we will complete any of them. In addition, we may incur significant costs and expenses as we integrate these companies in our systems, controls and networks.

We are subject to significant litigation

Some of our subsidiaries are subject to significant litigation that, if determined adversely to our interests, may have a material adverse effect on our business, results of operations, financial condition or prospects. Our significant litigation is described in “Regulation” under Part VI and in Note 16 to our audited consolidated financial statements included in this annual report.

We are contesting significant tax assessments

We and some of our subsidiaries have been notified of tax assessments for significant amounts by the tax authorities of the countries in which we operate, especially in Brazil, Mexico and Ecuador. The tax assessments relate to, among other things, alleged improper deductions and underpayments. We are contesting these tax assessments in several administrative and legal proceedings, and our challenges are at various stages. If determined adversely to us, these proceedings may have a material adverse effect on our business, results of operations, financial condition or prospects. In addition, in some jurisdictions, challenges to tax assessments require the posting of a bond or security for the contested amount, which may reduce our flexibility in operating our business. Our significant tax assessments are described in Note 16 to our audited consolidated financial statements included in this annual report.

Failure to comply with anti-corruption, anti-bribery and anti-money laundering laws could harm our reputation, subject us to substantial fines and adversely affect our business

We operate in multiple jurisdictions and are subject to complex regulatory frameworks with increased enforcement activities worldwide. Our governance and compliance processes, which include the review of internal controls over financial reporting, may not prevent future breaches of legal, accounting or governance standards and regulations. We may be subject to breaches of our code of ethics, anti-corruption policies and business conduct protocols and to instances of fraudulent behavior, corrupt practices and dishonesty by our employees, contractors or other agents. Our failure to comply with applicable laws and other standards could harm our reputation, subject us to substantial fines, sanctions or penalties and adversely affect our business and ability to access financial markets.

 

 


 

46

 



Table of Contents

 

 

 

A system failure could cause delays or interruptions of service, which could have an adverse effect on our operations

We need to continue to provide our subscribers with a reliable service over our network. Some of the risks to our network and infrastructure include the following:

  physical damage to access lines and fixed networks;
  power surges or outages;
  natural disasters;
  climate change;
  malicious actions, such as theft or misuse of customer data;
  limitations on the use of our radio bases;
  software defects;
  human error; and
  disruptions beyond our control.

In Brazil, for example, our satellite operations may be affected if we experience a delay in launching new satellites to replace those currently in use when they reach the end of their operational lives. Such delay may occur because of, among other reasons, construction delays, unavailability of launch vehicles and/or launch failures. In addition, in 2017, our operations in Puerto Rico suffered significant damage in the aftermath of Hurricane Maria, and our operations in Mexico experienced network overloads and power outages following the earthquake on September 19, 2017.

We have instituted measures to reduce these risks. However, there is no assurance that any measures we implement will be effective in preventing system failures under all circumstances. System failures may cause interruptions in services or reduced capacity for our customers, either of which may have an adverse effect on our operations due to, for example, increased expenses, potential legal liability, loss of existing and potential subscribers, reduced user traffic, decreased revenues and reputational harm.

Cybersecurity incidents and other breaches of network or information technology security could have an adverse effect on our business and our reputation

Cybersecurity incidents, and other tactics designed to gain access to and exploit sensitive information by breaching critical systems of large companies, are evolving and have been increasing in both sophistication and occurrence in recent years. While we employ a number of measures to prevent, detect and mitigate such incidents, there is no guarantee that we will be able to adequately anticipate or prevent one. Cybercrime, including attempts to overload our

servers with denial-of-service attacks, theft, social engineering, phishing, ransomware or similar disruptions from unauthorized access or attempted unauthorized access to our systems could result in the destruction, misuse or release of personal information or other sensitive data. As of the date of this annual report, we have no knowledge of any significant data loss, significant compromise or material financial loss related to a cybersecurity incident. However, it is difficult to detect or prevent evolving forms of cybersecurity incidents, and our systems, those of our third-party service providers and of our customers are vulnerable to cybersecurity incidents.

In the event that our systems are breached or damaged for any reason, we may suffer loss or unavailability of data and interruptions to our business operations. If such an event occurs, the unauthorized disclosure, loss or unavailability of data and the disruption to our fixed-line or wireless networks may have a material adverse effect on our business and results of operations. The costs associated with a cybersecurity incident could include increased expenditures on information and cybersecurity measures, damage to our reputation, loss of existing customers and business partners and lead to financial losses from remedial actions and potential liability, including possible litigation and sanctions. Any of these occurrences may result in a material adverse effect on our results of operations and financial condition.

If our churn rate increases, our business could be negatively affected

The cost of acquiring a new subscriber is much higher than the cost of maintaining an existing subscriber. Accordingly, subscriber deactivations, or “churn,” could have a material negative impact on our operating income, even if we are able to obtain one new subscriber for each lost subscriber. A substantial majority of our subscribers are prepaid, and we do not have long-term contracts with them. Our weighted monthly average churn rate on a consolidated basis was 4.1% for the year ended December 31, 2017 and 4.2% for the year ended December 31, 2016. If we experience an increase in our churn rate, our ability to achieve revenue growth could be materially impacted. In addition, a decline in general economic conditions could lead to an increase in churn, particularly among our prepaid subscribers.

 

 


 

47

 



Table of Contents

 

         RISK FACTORS

 

 

 

We rely on key suppliers and vendors to provide equipment that we need to operate our business

We rely upon various key suppliers and vendors to provide us with handsets, network equipment or services, which we need to expand and operate our business. If these suppliers or vendors fail to provide equipment or service to us on a timely basis, we could experience disruptions, which could have an adverse effect on our revenues and results of operations. In addition, we might be unable to satisfy requirements under our concessions.

Our ability to pay dividends and repay debt depends on our subsidiaries’ ability to transfer income and dividends to us

We are a holding company with no significant assets, other than the shares of our subsidiaries and our holdings of cash and cash equivalents. Our ability to pay dividends and repay debt depends on the continued transfer to us of dividends and other income from our subsidiaries. The ability of our subsidiaries to pay dividends and make other transfers to us may be limited by various regulatory, contractual and legal constraints that affect them.

We may fail to realize the benefits anticipated from acquisitions, divestments and significant investments we make from time to time

The business growth opportunities, revenue benefits, cost savings and other benefits we anticipated to result from our acquisitions, divestments and significant investments may not be achieved as expected, or may be delayed. Our divestments, like the spin-off of our Mexican tower business, may also adversely affect our prospects. For example, we may be unable to fully implement our business plans and strategies for the combined businesses due to regulatory limitations, and we may face regulatory restrictions in our provision of combined services in some of the countries in which we operate. To the extent that we incur higher integration costs or achieve lower revenue benefits or fewer cost savings than expected, or if we are required to recognize impairments of acquired assets, investments or goodwill, our results of operations and financial condition may suffer.

RISKS RELATING TO THE TELECOMMUNICATIONS INDUSTRY GENERALLY

Changes in the telecommunications industry could affect our future financial performance

The telecommunications industry continues to experience significant changes as new technologies are developed that offer subscribers an array of choices for their communications needs. These changes include, among others, regulatory changes, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products and changes in end-user needs and preferences. There is uncertainty as to the pace and extent of growth in subscriber demand, and as to the extent to which prices for airtime, broadband access, Pay TV and fixed- line rental may continue to decline. Our ability to compete in the delivery of high-quality internet and broadband services is particularly important, given the increasing contribution of revenues from data services to our overall growth. If we are unable to meet future advances in competing technologies on a timely basis or at an acceptable cost, we could lose subscribers to our competitors. In general, the development of new services in our industry requires us to anticipate and respond to the varied and continually changing demands of our subscribers. It also requires significant capital expenditure, including investment in the continual maintenance and upgrading of our networks, in order to expand coverage, increase our capacity to absorb higher bandwidth usage and adapt to new technologies. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints to our introduction of new services. If these services fail to gain acceptance in the marketplace, or if costs associated with implementation and completion of the introduction of these services materially increase, our ability to retain and attract subscribers could be adversely affected. This is true across many of the services we provide, including wireless and cable technology.

The intellectual property used by us, our suppliers or service providers may infringe on intellectual property rights owned by others

Some of our products and services use intellectual property that we own or license from others. We also provide content we receive from content producers and distributors, such as ringtones, text games, video games, video, including TV programs and movies, wallpapers or screensavers, and we outsource services to service providers, including billing

 

 


 

48

 



Table of Contents

 

 

and customer care functions, that incorporate or utilize intellectual property. We and some of our suppliers, content distributors and service providers have received, and may receive in the future, assertions and claims from third parties that the content, products or software utilized by us or our suppliers, content producers and distributors and service providers infringe on the patents or other intellectual property rights of these third parties. These claims could require us or an infringing supplier, content distributor or service provider to cease engaging in certain activities, including selling, offering and providing the relevant products and services. Such claims and assertions also could subject us to costly litigation and significant liabilities for damages or royalty payments, or require us to cease certain activities or prevent us from selling certain products or services.

Concerns about health risks relating to the use of wireless handsets and base stations may adversely affect our business

Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions. Lawsuits have been filed in the United States against certain participants in the wireless industry alleging various adverse health consequences as a result of wireless phone usage, and our subsidiaries may be subject to similar litigation in the future. Research and studies are ongoing, and there can be no assurance that further research and studies will not demonstrate a link between radio frequency emissions and health concerns. Any negative findings in these studies could adversely affect the use of wireless technology and, as a result, our future financial performance.

Developments in the telecommunications sector have resulted, and may result, in substantial write-downs of the carrying value of certain of our assets

Where the circumstances require, we review the carrying value of each of our assets, subsidiaries and investments in associates to assess whether those carrying values can be supported by the future discounted cash flows expected to be derived from such assets. Whenever we consider that due to changes in the economic, regulatory, business or political environment, our goodwill, investments in associates, intangible assets or fixed assets may be impaired, we consider the necessity of performing certain valuation tests, which may result in impairment charges. The recognition of impairments of tangible, intangible and financial assets could adversely affect our results of operations. See “Critical Accounting Policies and Estimates—Impairment of Long-Lived Assets” under Part II of this annual report.

RISKS RELATING TO OUR CONTROLLING SHAREHOLDERS, CAPITAL STRUCTURE AND TRANSACTIONS WITH AFFILIATES

Members of one family may be deemed to control us and may exercise their control in a manner that may differ from the interest of other shareholders

Based on reports of beneficial ownership of our shares filed with the SEC, Carlos Slim Helú, a member of our Board of Directors, together with his sons and daughters (together, the “Slim Family”), including his two sons, Carlos Slim Domit and Patrick Slim Domit, who serve as the Chairman and Vice Chairman of our Board of Directors, respectively, may be deemed to control us. The Slim Family may be able to elect a majority of the members of our Board of Directors and to determine the outcome of other actions requiring a vote of our shareholders, except in very limited cases that require a vote of the holders of L Shares. The interests of the Slim Family may diverge from the interests of our other investors.

We have significant transactions with affiliates

We engage in various transactions with Telesites, S.A.B. de C.V. (“Telesites”) and certain subsidiaries of Grupo Carso, S.A.B. de C.V. (“Grupo Carso”) and Grupo Financiero Inbursa, S.A.B. de C.V. (“Grupo Financiero Inbursa”), all which may be deemed for certain purposes to be under common control with América Móvil. Many of these transactions occur in the ordinary course of business. Transactions with affiliates may create the potential for conflicts of interest.

We also make investments together with related parties, sell investments to related parties and buy investments from related parties. For more information about our transactions with affiliates, see “Related Party Transactions” under Part IV of this annual report.

Our bylaws restrict transfers of shares in some circumstances

Our bylaws provide that any acquisition or transfer of more than 10.0% of our capital stock by any person or group of persons acting together requires the approval of our Board of Directors. You may not acquire or transfer more than 10.0% of our capital stock without the approval of our Board of Directors. See “Bylaws—Restrictions of Certain Transfers” under Part IV of this annual report.

 

 


 

49

 



Table of Contents

 

         RISK FACTORS

 

 

 

The protections afforded to minority shareholders in Mexico are different from those in the United States

Under Mexican law, the protections afforded to minority shareholders are different from those in the United States. In particular, the law concerning fiduciary duties of directors is not as fully developed as in other jurisdictions, the procedure for class actions is different, and there are different procedural requirements for bringing shareholder lawsuits. As a result, in practice it may be more difficult for minority shareholders of América Móvil to enforce their rights against us or our directors or controlling shareholders than it would be for shareholders of a company incorporated in another jurisdiction, such as the United States.

Holders of L Shares and L Share ADSs have limited voting rights

Our bylaws provide that holders of L Shares are not permitted to vote, except on such limited matters as, among others, the transformation or merger of América Móvil or the cancellation of registration of the L Shares with the Mexican Securities Registry ( Registro Nacional de Valores , or “RNV”) maintained by the CNBV or any stock exchange on which they are listed. If you hold L Shares or L Share ADSs, you will not be able to vote on most matters, including the declaration of dividends, which are subject to a shareholder vote in accordance with our bylaws.

Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary

Under our bylaws, a shareholder is required to deposit its shares with a custodian in order to attend a shareholders’ meeting. A holder of ADSs will not be able to meet this requirement and, accordingly, is not entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs, in accordance with procedures provided for in the deposit agreements, but a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so.

Our bylaws may only be enforced in Mexico

Our bylaws provide that legal actions relating to the execution, interpretation or performance of the bylaws may be brought only in Mexican courts. As a result, it may be difficult for non-Mexican shareholders to enforce their shareholder rights pursuant to the bylaws.

It may be difficult to enforce civil liabilities against us or our directors, officers and controlling persons

América Móvil is organized under the laws of Mexico, with its principal place of business in Mexico City, and most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and their assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to judgments of U.S. courts, of liabilities based solely on U.S. federal securities laws.

You may not be entitled to participate in future preemptive rights offerings

Under Mexican law, if we issue new shares for cash as part of certain capital increases, we must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in América Móvil. Rights to purchase shares in these circumstances are known as preemptive rights. Our shareholders do not have preemptive rights in certain circumstances such as mergers, convertible debentures, public offers and placement of repurchased shares. We may not be legally permitted to allow holders of ADSs or holders of L Shares or A Shares in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) with respect to that future issuance of shares. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration statement.

We cannot assure you that we will file a registration statement with the SEC to allow holders of ADSs or U.S. holders of L Shares or A Shares to participate in a preemptive rights offering. As a result, the equity interest of such holders in América Móvil may be diluted proportionately. In addition, under current Mexican law, it is not practicable for the depositary to sell preemptive rights and distribute the proceeds from such sales to ADS holders.

 

 


 

50

 



Table of Contents

 

 

RISKS RELATING TO DEVELOPMENTS IN MEXICO AND OTHER COUNTRIES

Economic, political and social conditions in Latin America, the United States, the Caribbean and Europe may adversely affect our business

Our financial performance may be significantly affected by general economic, political and social conditions in the markets where we operate. Many countries in Latin America and the Caribbean, including Mexico, Brazil and Argentina, have suffered significant economic, political and social crises in the past, and these events may occur again in the future. We cannot predict whether changes in political administrations will result in changes in governmental policy and whether such changes will affect our business. Factors related to economic, political and social conditions that could affect our performance include:

  significant governmental influence over local economies;
  substantial fluctuations in economic growth;
  high levels of inflation;
  changes in currency values;
  exchange controls or restrictions on expatriation of earnings;
  high domestic interest rates;
  price controls;
  changes in governmental economic or tax policies;
  imposition of trade barriers;
  unexpected changes in regulation; and
  overall political, social and economic instability.

Adverse economic, political and social conditions in Latin America, the United States, the Caribbean or in Europe may inhibit demand for telecommunication services and create uncertainty regarding our operating environment or may affect our ability to renew our licenses and concessions, to maintain or increase our market share or profitability and may have an adverse impact on future acquisition efforts, which could have a material adverse effect on our company. In addition, the perception of risk in the countries in which we operate may have a negative effect on the trading price of our shares and ADSs and may restrict our access to international financial markets.

In various countries where we operate, for example, elections will take place during 2018, which could lead to economic, political and social changes over which we have no control. Our business may also be especially affected by conditions in Mexico and Brazil, two of our largest markets. In Mexico, economic conditions are strongly impacted by those of the United States. Following the election of the current U.S. administration in 2016, there is uncertainty regarding future U.S. policies with respect to matters of importance to Mexico

and its economy, particularly including trade and migration. Additionally, in Brazil, our results of operations were adversely affected by weak economic conditions in Brazil during 2015 and 2016, and may be so affected again in the future.

Changes in exchange rates could adversely affect our financial condition and results of operations

We are affected by fluctuations in the value of the currencies in which we conduct operations compared to the currencies in which our indebtedness is denominated. Such changes result in exchange losses or gains on our net indebtedness and accounts payable. In 2017, we reported net foreign exchange losses of Ps.13.8 billion.

In addition, currency fluctuations between the Mexican peso and the currencies of our non-Mexican subsidiaries affect our results as reported in Mexican pesos. Currency fluctuations are expected to continue to affect our financial income and expense.

Major depreciation of the currencies in which we conduct operations could cause governments to impose exchange controls that would limit our ability to transfer funds between us and our subsidiaries

Major depreciation of the currencies in which we conduct operations may result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert such currencies into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our indebtedness. For example, although the Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert Mexican pesos into U.S. dollars or to transfer other currencies out of Mexico, it could institute restrictive exchange rate policies in the future. Similarly, the Brazilian government may impose temporary restrictions on the conversion of Brazilian reals into foreign currencies and on the remittance to foreign investors of proceeds from investments in Brazil whenever there is a serious imbalance in Brazil’s balance of payments or a reason to foresee a serious imbalance. In the past, the government of Argentina has adopted restrictions on access to the foreign exchange market and the transfer of foreign currency outside Argentina. The Argentine government could impose further exchange controls or restrictions on the movement of capital and take other measures in the future in response to capital flight or a significant depreciation of the Argentine peso.

 

 


 

51

 



Table of Contents

 

         RISK FACTORS

 

 

 

Developments in other countries may affect the market price of our securities and adversely affect our ability to raise additional financing

The market value of securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other countries, including the United States, the European Union (the “EU”) and emerging market countries. Although economic conditions in such countries may differ significantly from economic

conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers. Crises in the United States, the EU and emerging market countries may diminish investor interest in securities of Mexican issuers. This could materially and adversely affect the market price of our securities, and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

 

 


 

52

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          MAJOR SHAREHOLDERS

 

 

The following table sets forth our capital structure as of March 31, 2018.

 

Series

    

Number of Shares

(millions)

 

 

     Percent of Capital       

Combined A Shares

and AA Shares (1)


 

L Shares (no par value)

     44,898        68.0       

AA Shares (no par value)

     20,602        31.2      97.3

A Shares (no par value)

     563        0.9      2.7

Total (2)

     66,063        100.0      100.0

(1)  The AA Shares and A Shares of América Móvil, together, are entitled to elect a majority of our directors. Holders of L Shares are entitled to limited voting rights under our bylaws. See “Bylaws—Voting Rights” under this Part IV.

(2)  Figures in the table may not recalculate exactly due to rounding.

 

  

  

 

According to reports of beneficial ownership of our shares filed with the SEC, the Slim Family may be deemed to control us through their interests in a Mexican trust that holds AA Shares and L Shares for their benefit (the “Family Trust”), their interest in Inversora Carso, S.A. de C.V., including its subsidiary Control Empresarial de Capitales, S.A. de C.V. (CEC) and their direct ownership of our shares. See “Management—Directors” and “Management—Executive Committee” under Part V and “Related Party Transactions” under this Part IV of this annual report.

The following table identifies owners of more than 5.0% of any series of our shares as of March 31, 2018. Except as described in the table below and the accompanying notes, we are not aware of any holder of more than 5.0% of any series of our shares. Figures below do not include L Shares that would be held by each shareholder upon conversion of AA Shares or A Shares, as provided for under our bylaws. See “Bylaws—Share Capital” under this Part IV and “Management Compensation—Share Ownership of Directors and Senior Management” under Part V of this annual report.

 

 

Shareholder

   Shares owned

(millions)  

     Percent of class (1)  

AA SHARES:

 

Family Trust (2)

   10,894      52.9

Inversora Carso (3)

     4,381      21.3

Carlos Slim Helú

     1,879      9.1

L SHARES:

 

Inversora Carso (3)

     6,020      13.4

Family Trust (2)

     5,998      13.4

Carlos Slim Helú

     3,072      6.8

BlackRock, Inc. (4)

     2,291      5.1
 

(1)  Percentage figures are based on the number of shares outstanding as of March 31, 2018.

(2)  The Family Trust is a Mexican trust that holds AA Shares and L Shares for the benefit of members of the Slim Family. In addition to shares held by the Family Trust, members of the Slim Family, including Carlos Slim Helú, directly own an aggregate of 3,558 million AA Shares and 9,570 million L Shares representing 17.3% and 21.3%, respectively, of each series. According to beneficial reports filed with the SEC, none of these members of the Slim Family, other than Carlos Slim Helú, individually directly own more than 5.0% of any class of our shares.

(3)  Includes shares owned by subsidiaries of Inversora Carso. Based on beneficial ownership reports filed with the SEC, Inversora Carso is a Mexican sociedad anónima de capital variable and may be deemed to be controlled by the Slim Family.

(4)  Based on beneficial ownership reports filed with the SEC.

 

  

  

  

  

 

As of March 31, 2018, 15.9% of the outstanding L Shares were represented by L Share ADSs, each representing the right to receive 20 L Shares, and 99.9% of the L Share ADSs were held by 7,393 registered holders with addresses in the United States. As of such date, 34.4% of the A Shares were held in the form of A Share ADSs, each representing the right to receive 20 A Shares, and 99.8% of the A Share ADSs were held by 3,282 registered holders with addresses in the United States. Each A Share may be exchanged at the option of the holder for one L Share.

We have no information concerning the number of holdings or holders with registered addresses in the United States that hold:

  AA Shares;
  A Shares not represented by ADSs; or
  L Shares not represented by ADSs.
 

 


 

56

 



Table of Contents

 

          RELATED PARTY TRANSACTIONS

 

 

 

Our subsidiaries purchase materials or services from a variety of companies that may be deemed for certain purposes to be under common control with us, including Telesites, Grupo Carso and Grupo Financiero Inbursa and their respective subsidiaries.

 

 

These services include insurance and banking services provided by Grupo Financiero Inbursa and its subsidiaries. In addition, we sell products in Mexico through the Sanborns and Sears Operadora México, S.A. de C.V. (“Sears”) store chains. Some of our subsidiaries also purchase network construction services and materials from subsidiaries of Grupo Carso. Our subsidiaries purchase these materials and services on terms no less favorable than they could obtain from unaffiliated parties, and would have access to other sources if our related parties ceased to provide them on competitive terms.

We lease space on telecommunications towers owned by Telesites, which we spun off in December 2015. We and Telesites have entered into an agreement providing for site usage fees, annual price escalations and fixed annual charges that permit us to install a pre-determined amount of equipment at the sites and provide for incremental fee payments if capacity use is exceeded. The principal economic terms of the agreement conform to the reference terms published by Telesites and approved by IFT.

Notes 6 and 17 to our audited consolidated financial statements included in this annual report provides additional information about our related party transactions.

 

 

 

 


 

 

  DIVIDENDS

 

We regularly pay cash dividends on our shares. The table below sets forth the nominal amount of dividends paid per share on each date indicated, in Mexican pesos and translated into U.S. dollars at the exchange rate on each of the respective payment dates.

 

Payment date   Pesos per share       Dollar per share     

November 13, 2017

    Ps.0.15       U.S.$0.0079  

July 17, 2017

    Ps.0.15       U.S.$0.0085  

November 14, 2016

    Ps.0.14       U.S.$0.0068  

July 15, 2016

    Ps.0.14       U.S.$0.0076  

November 13, 2015

    Ps.0.13       U.S.$0.0078  

September 25, 2015

    Ps.0.30       U.S.$0.0177  

July 17, 2015

    Ps.0.13       U.S.$0.0082  

November 14, 2014

    Ps.0.12       U.S.$0.0082  

July 18, 2014

    Ps.0.12       U.S.$0.0082  

November 15, 2013

    Ps.0.11     U.S.$ 0.0084  

July 19, 2013

    Ps.0.11     U.S.$ 0.0084  

In November 2016, July 2017 and November 2017, we offered shareholders the option to receive a scrip dividend in the form of either cash, Series L shares or a combination thereof.

On April 16, 2018, our shareholders approved a cash dividend of Ps.0.32 (thirty two peso cents) per share, payable in two equal installments in July and November 2018.

The declaration, amount and payment of dividends by América Móvil is determined by majority vote of the holders of AA Shares and A Shares, generally on the recommendation of the Board of Directors, and depends on our results of operations, financial condition, cash requirements, future prospects and other factors considered relevant by the holders of AA Shares and A Shares.

Our bylaws provide that holders of AA Shares, A Shares and L Shares participate equally on a per-share basis in dividend payments and other distributions, subject to certain preferential dividend rights of holders of L Shares. See “Bylaws—Dividend Rights” and “Bylaws—Preferential Rights of L Shares” under this Part IV.

 

 


 

57

 



Table of Contents

 

          TRADING MARKETS

 

 

 

Our shares and ADSs are listed on the following markets:

 

L Shares (1)

   Mexican Stock Exchange—Mexico City

L Share ADSs

   New York Stock Exchange—New York

A Shares

   Mexican Stock Exchange—Mexico City

A Share ADSs (2)

   New York Stock Exchange—New York

(1)  L Shares were delisted from the Mercado de Valores Latinoamericanos en Euros as of May 29, 2017.

(2)  A Share ADSs were delisted from the NASDAQ and listed on the NYSE as of December 13, 2016.

 

The following table sets forth the reported high and low market prices for the L Shares on the Mexican Stock Exchange and the reported high and low market prices for the L Share ADSs on the NYSE.

 

     MEXICAN STOCK EXCHANGE      NYSE  
     HIGH      LOW      HIGH      LOW  
      (Mexican pesos per L Share)      (U.S. dollars per L Share ADS)  
ANNUAL HIGHS AND LOWS  
2013      Ps.        16.19                 Ps.        11.60               U.S.$         25.62               U.S.$         18.47           
2014      17.51                 12.43                 26.38                 19.17           
2015      16.44                 11.96                 23.58                 14.06           
2016      13.91                 10.40                 15.95                 11.02           
2017      18.20                 12.31                 19.24                 12.16           
QUARTERLY HIGHS AND LOWS  
2016:                                                                        
First quarter      Ps.        13.53                 Ps.        10.92               U.S.$ 15.55               U.S.$ 12.16           
Second quarter      13.91                 10.77                 15.95                 11.31           
Third quarter      11.97                 10.40                 12.92                 11.02           
Fourth quarter      13.36                 10.87                 13.52                 11.02           
2017:                                                                        
First quarter      Ps.        13.96                 Ps.        12.31               U.S.$ 14.62               U.S.$ 12.16           
Second quarter      15.07                 13.30                 16.41                 14.15           
Third quarter      16.71                 14.63                 18.88                 15.89           
Fourth quarter      18.20                 15.90                 19.24                 16.86           
2018:                                                                        
First quarter      Ps.        18.09                 Ps.        16.37               U.S.$ 19.37               U.S.$ 16.93           
MONTHLY HIGHS AND LOWS  
2017:                                                                        
October      Ps.        18.20                 Ps.        15.92               U.S.$ 19.24               U.S.$ 16.98           
November      16.93                 15.99                 17.61                 16.86           
December      16.98                 15.90                 17.44                 16.92           
2018:                                                                        
January      Ps.        17.62                 Ps.        16.37               U.S.$ 19.00                 16.93           
February      18.01                 16.58                 19.37                 17.46           
March      18.09                 17.25                 19.35                 18.62           
April (through April 24)      17.98                 17.16                 19.87                 18.65           
Source: Bloomberg                          

 


 

58

 



Table of Contents

 

 

The following tables set forth reported high and low market prices for the A Shares on the Mexican Stock Exchange, the reported high and low market prices for the A Share ADSs on the NASDAQ from 2013 until 2016 when the shares were delisted from the NASDAQ, and the reported high and low market prices on the NYSE.

 

     MEXICAN STOCK EXCHANGE      NASDAQ  
     HIGH      LOW      HIGH      LOW  
      (Mexican pesos per A Share)      (U.S. dollars per A Share ADS)  
ANNUAL HIGHS AND LOWS  
2013      Ps.        16.00                 Ps.        11.60               U.S.$         25.55               U.S.$         18.56           
2014      17.61                 12.50                 26.46                 19.16           
2015      16.14                 11.91                 23.52                 13.99           
2016      13.91                 10.71                 15.93                 10.83           
QUARTERLY HIGHS AND LOWS  
2016:                                                                        
First quarter      Ps.        13.50                 Ps.11.28               U.S.$ 15.71               U.S.$ 12.07           
Second quarter      13.91                 10.97                 15.93                 11.34           
Third quarter      11.83                 10.71                 12.92                 11.03           
Fourth quarter      13.41                 10.82                 13.18                 10.83           

 

     MEXICAN STOCK EXCHANGE      NYSE  
     HIGH      LOW             HIGH      LOW  
      (Mexican pesos per A Share)      (U.S. dollars per A Share ADS)  
QUARTERLY HIGHS AND LOWS  
2017:                                                                        
First quarter      Ps.        14.00                 Ps.        12.02               U.S.$         14.46               U.S.$         11.89           
Second quarter      16.00                 12.90                 16.33                 14.02           
Third quarter      17.00                 14.09                 18.84                 15.68           
Fourth quarter      18.50                 15.90                 19.06                 16.76           
2018:                                                                        
First quarter      Ps.        18.01                 Ps.        16.41               U.S.$ 19.46               U.S.$ 16.83           
MONTHLY HIGHS AND LOWS  
2017:                                                                        
October      Ps.        18.50                 Ps.        15.91               U.S.$ 19.06               U.S.$ 16.76           
November      16.90                 16.11                 17.55                 16.78           
December      16.87                 15.90                 17.45                 16.78           
2018:                                                                        
January      Ps.        17.40                 Ps.        16.41               U.S.$ 18.96               U.S.$ 16.83           
February      18.00                 16.50                 19.36                 19.36           
March      18.01                 17.50                 19.46                 18.35           
April (through April 24)      18.00                 17.27                 19.87                 18.51           
Source: Bloomberg                          

 


 

59

 



Table of Contents

 

          BYLAWS

 

 

 

Below is a brief summary of certain significant provisions in our current bylaws and Mexican law. It does not purport to be complete and is qualified by reference to the bylaws themselves. An English translation of our bylaws has been filed with the SEC as an exhibit and is incorporated by reference to this annual report. For a description of our Board of Directors, Executive and Audit and Corporate Practices Committees and External Auditor, see “Management” under Part V of this annual report.

 

 

 

Organization

We are a sociedad anónima bursátil de capital variable organized under Mexican law.

Shareholders’ Equity

We have three classes of outstanding shares: AA Shares, A Shares and L Shares, all without par value, fully paid and non-assessable.

AA Shares and A Shares have full voting rights.

L Shares may vote only in limited circumstances as described under “—Voting Rights” under this Part IV.

The rights of all series of shares are generally identical except for voting rights and the limitations on non-Mexican ownership of AA Shares and A Shares. The AA Shares must always represent at least 51.0% of the combined AA Shares and A Shares. At least 20.0% of our outstanding shares must consist of AA Shares, and not more than 80% can be A Shares and L Shares.

Each AA Share or A Share may be exchanged at the option of the holder for one L Share, provided that the AA Shares may never represent less than 20.0% of our outstanding shares or less than 51.0% of our combined AA Shares and A Shares.

Any capital increase must be represented by new shares of each series in proportion to the number of shares of each series outstanding.

Voting Rights

Each AA Share or A Share entitles the holder to one vote at any shareholders meeting.

Each L Share entitles the holder to one vote at any meeting at which L Shares are entitled to vote. L Shares are entitled to vote to elect only two members of the Board and the corresponding alternate directors, as well as on the

following limited matters: our transformation from one type of company to another; any merger involving us; the extension of our authorized corporate duration; our voluntary dissolution; any change in our corporate purpose; any transaction that represents 20.0% or more of the Company’s consolidated assets; any change in our jurisdiction of incorporation; removal of our shares from listing on the Mexican Stock Exchange or any foreign exchange; and any action that would prejudice the rights of L Shares. A resolution on any of the specified matters requires the affirmative vote of both a majority of all outstanding shares and a majority of the AA Shares and the A Shares voting together.

Shares of any series are also entitled to vote as a class on any action that would prejudice the rights of that series and are entitled to judicial relief against any action taken without their vote.

Shareholders’ Meetings

General shareholders’ meetings may be ordinary or extraordinary. Extraordinary general meetings are those called to consider certain specified matters, including, principally, changes to the bylaws, liquidation, merger and transformation, as well as to consider the removal of our shares from listing on the Mexican Stock Exchange or any foreign stock exchange. General meetings called to consider all other matters are ordinary meetings.

An ordinary general meeting of AA Shares and A Shares must be held each year to consider the approval of the financial statements for the preceding fiscal year, to elect directors and to determine the allocation of the profits. Transactions that represent 20.0% or more of our consolidated assets in any fiscal year must be approved by an ordinary general shareholder meeting of all shareholders, including L Shares. All other matters on which L Shares are entitled to vote would be considered at an extraordinary general meeting.

 

 


 

60

 



Table of Contents

 

 

 

The two directors elected by the L Shares are elected at a special meeting of L Shares. A special meeting of the L Shares must be held each year for the election of directors.

The quorum for an ordinary general meeting of the AA Shares and A Shares is 50.0% of such shares, and action may be taken by a majority of the shares present. If a quorum is not available, a second meeting may be called at which action may be taken by a majority of the AA Shares and A Shares present, regardless of the number of such shares. Special meetings of L Shares are governed by the same rules applicable to ordinary general meetings of AA Shares and A Shares. The quorum for an extraordinary general meeting at which L Shares may not vote is 75.0% of the AA Shares and A Shares, and the quorum for an extraordinary general meeting at which L Shares are entitled to vote is 75.0% of the outstanding capital stock. If a quorum is not available in either case, a second meeting may be called and action may be taken, provided a majority of the shares entitled to vote is present. Whether on first or second call, actions at an extraordinary general meeting may be taken by a majority vote of the AA Shares and A Shares outstanding and, on matters which L Shares are entitled to vote, a majority vote of all the capital stock.

Holders of 20.0% of our outstanding capital stock may have any shareholder action set aside by filing a complaint with a Mexican court of law within 15 days after the close of the meeting at which such action was taken and showing that the challenged action violates Mexican law or our bylaws. In addition, any holder of our capital stock may bring an action at any time within five years challenging any shareholder action. Relief under these provisions is only available to holders who were entitled to vote on, or whose rights as shareholders were adversely affected by, the challenged shareholder action and whose shares were not represented when the action was taken or, if represented, voted against it.

Shareholders’ meetings may be called by the Board, its chairman, its corporate secretary, the Chairman of the Audit and Corporate Practices Committee or a Mexican court of law. The Chairman of the Board or the Chairman of the Audit and Corporate Practices Committee may be required to call a meeting of shareholders by the holders of 10.0% of the outstanding shares. Notice of meetings must be published at least 15 days prior to the meeting.

A shareholder is required to deposit its shares with a custodian in order to attend a shareholders’ meeting. A holder of ADSs will not be able to meet this requirement,

and accordingly is not entitled to attend shareholders’ meetings. A holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by ADSs, in accordance with procedures provided for in the deposit agreements. However, a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so.

Dividend Rights

At the annual ordinary general meeting of AA Shares and A Shares, the Board submits our financial statements for the previous fiscal year to the holders of AA Shares and A Shares for approval. Once financial statements are approved, the allocation of our net profits is determined, and we must allocate 5.0% of such net profits to a legal reserve, which is not thereafter available for distribution except as a stock dividend, until the amount of the legal reserve equals 20.0% of our capital stock. The remainder of net profits is available for distribution.

All shares outstanding are entitled to participate in a dividend or other distribution. L shares are entitled to a nominal preference with respect to dividends or liquidation, but the preference has no economic significance.

Preemptive Rights

In new issuances of shares, each shareholder has a preferential right to subscribe for a sufficient number of shares of the same series to maintain its existing proportionate holdings, except in certain circumstances such as mergers, convertible debentures, public offers and placement of treasury or repurchased shares. These rights cannot be traded separately from the shares. As a result, there is no trading market for such rights. Holders of ADSs may exercise these rights only through the depositary. We are not required to take steps that may be necessary to make this possible.

Limitations on Share Ownership

AA Shares and A Shares may be owned only by holders that qualify as Mexican investors as defined in the Foreign Investment Law ( Ley de Inversión Extranjera ) and our bylaws. AA Shares can only be held or acquired by Mexican citizens, Mexican corporations whose capital stock is held completely by Mexican citizens or other Mexican qualified investors. Non- Mexican investors cannot hold AA Shares except through trusts that effectively neutralize their votes.

If a foreign government or state acquires our AA Shares, such shares would immediately be rendered without effect or value.

 

 


 

61

 



Table of Contents

 

 

         BYLAWS

 

 

 

We have a foreign exclusion clause that restricts ownership of our shares to holders that qualify as Mexican investors. It does not apply to the L Shares, and, under transitional provisions adopted by our shareholders, it does not limit foreign ownership of A Shares outstanding as of the date of the shareholders’ meeting approving the amendment.

Restrictions on Certain Transfers

Any transfer of more than 10.0% of our voting shares, in one or more transactions, by any person or group of persons acting in concert, requires prior approval by our Board. If the Board denies such approval, however, it shall designate an alternate transferee, who must pay market price for the shares as quoted on the Mexican Stock Exchange.

Restrictions on Deregistration in Mexico

Our shares are registered with the RNV maintained by the CNBV.

If we wish to cancel our registration, or if it is cancelled by the CNBV, we are required to conduct a public offer to purchase all of the outstanding shares prior to such cancellation. Such offer shall exclude our controlling group of shareholders. If, after the public offer is concluded, there are still outstanding shares held by the general public, we will be required to create a trust for a period of six months, with funds in an amount sufficient to purchase, at the same price as the offer price, the number of outstanding shares held by the public that did not participate in the offer.

Unless the CNBV authorizes otherwise, upon the prior approval of the Board, which must take into account the opinion of the Audit and Corporate Practices Committee, the offer price will be the higher of (i) the average of the closing price during the previous 30 days on which the shares may have been quoted or (ii) the book value of the shares in accordance with the most recent quarterly report submitted to the CNBV and to the Mexican Stock Exchange.

The voluntary cancellation of the registration shall be subject to (i) the prior authorization of the CNBV and (ii) the

authorization of not less than 95.0% of the outstanding capital stock in a general extraordinary shareholders’ meeting.

Tender Offer Requirement

Certain significant acquisitions of our capital stock may require the purchaser to make a tender offer.

Other Provisions

EXCLUSIVE JURISDICTION. Our bylaws provide that legal actions relating to the execution, interpretation or performance of the bylaws shall be brought only in Mexican courts.

PURCHASE OF OUR OWN SHARES. We may repurchase our shares on the Mexican Stock Exchange at any time at the then-prevailing market price. Any such repurchase must conform to guidelines established by the Board, and the amount available to repurchase shares must be approved by the general ordinary shareholders’ meeting. The economic and voting rights corresponding to repurchased shares may not be exercised during the period in which we own such shares, and such shares are not deemed to be outstanding for purposes of calculating any quorum or vote at any shareholders’ meeting during such period.

CONFLICT OF INTEREST. A shareholder that votes on a business transaction in which its interest conflicts with our interests may be liable for damages, but only if the transaction would not have been approved without its vote.

WITHDRAWAL RIGHTS. Whenever a shareholders meeting approve a change of corporate purposes, change of nationality of the corporation or transformation from one type of company to another, any shareholder entitled to vote on such change that has voted against may withdraw and receive the book value of its shares, provided this right is exercised within 15 days following the meeting.

 

 


 

62

 



Table of Contents

 

 

American Depositary Shares

Citibank, N.A. (“the Depositary”) serves as the depositary for our ADSs and our American Depository Receipts (“ADR”) program. ADS holders are required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

ADS holders are required to pay the Depositary amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including expenses arising from (i) taxes or other governmental charges, (ii) registration fees payable to us that may be applicable to the transfer of shares

upon deposits to or withdrawals from the ADS program, (iii) cable, telex and facsimile transmission, (iv) conversion of foreign currency into U.S. dollars, (v) compliance with exchange control regulations and other regulatory requirements or (vi) servicing of the ADSs or the shares underlying ADSs. The Depositary may decide in its sole discretion to seek payment either by billing holders or by deducting the fee from one or more cash dividends or other cash distributions.

ADS holders are also required to pay additional fees for certain services provided by the Depositary, as set forth in the table below.

 

 

Depositary Service    Fee Payable by ADS Holders
Issuance and delivery of ADSs, including in connection with share distributions, purchase rights, sales and stock splits    Up to U.S.$5.00 per 100 ADSs (or a fraction thereof)
Cash distributions    Up to U.S.$5.00 per 100 ADSs (or a fraction thereof)
Surrender, withdrawal or cancellation    Up to U.S.$5.00 per 100 ADSs (or a fraction thereof)
Share distributions other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares)    Up to U.S.$5.00 per 100 ADSs (or a fraction thereof)
ADS services    Up to U.S.$5.00 per 100 ADSs (or a fraction thereof) held on the applicable record date(s) established by the Depositary

 

Payments by the Depositary

The Depositary reimburses us for certain expenses we incur in connection with the ADR program, subject to a ceiling agreed between us and the Depositary from time to time. These reimbursable expenses currently include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADS holders. During the year ended December 31, 2017, the Depositary did not pay us for any reimbursable expenses.

 


 

63

 



Table of Contents

 

          PURCHASES OF EQUITY SECURITIES BY THE          ISSUER AND AFFILIATED PURCHASERS

 

 

 

We periodically repurchase our L Shares and A Shares on the open market using funds authorized by our shareholders specifically for the repurchase of L Shares and A Shares by us at our discretion. In the annual ordinary shareholders’ meeting held on April 16, 2018, our shareholders authorized an allocation of Ps.3.0 billion to repurchase L Shares and A Shares from April 2018 to April 2019.

 

 

The following tables set out information concerning purchases of our L Shares and A Shares by us and our affiliated purchasers in 2017. We did not repurchase our L Shares or A Shares other than through the share repurchase program. At the annual general shareholders’ meeting held on April 16, 2018, our shareholders approved the cancellation of all our treasury shares, except for 5 billion L Shares, acquired under our repurchase program.

 

Period   Total Number of
L Shares Purchased
 (1)  
    Average Price per 
L Shares
    Total Number of L Shares
Purchased as part of Publicly
Announced Plans or Programs 
    Approximate Mexican
Peso Value of L Shares
that May Yet Be Purchased
Under the Plans or Programs
 (2)  
 

January 2017

    6,600,000       13.50       6,600,000       22,672,144,564  

February 2017

    6,600,000       12.89       6,600,000       22,587,040,531  

March 2017

    7,900,000       13.18       7,900,000       22,482,929,951  

April 2017

    9,311,804       13.68       9,311,804       2,892,759,292  

May 2017

    6,950,000       14.66       6,950,000       2,790,870,064  

June 2017

    6,952,000       14.52       6,952,000       2,689,945,772  

July 2017

    6,650,000       15.11       6,650,000       2,589,496,895  

August 2017

    3,990,000       16.13       3,990,000       2,522,466,549  

September 2017

    3,082,000       16.30       3,082,000       2,472,243,828  

October 2017

    7,137,000       16.87       7,137,000       2,348,240,205  

November 2017

    2,958,773       16.36       2,958,773       2,299,158,766  

December 2017

    2,082,000       16.46       2,082,000       2,261,427,182  

Total

    70,213,577         70,213,577      

(1)  This includes purchases by us and our affiliated purchasers in 2017.

(2)  This is the approximate peso amount available at the end of the period for purchases of both L Shares and A Shares pursuant to our share repurchase program.

  

  

 

 

Period   Total Number of
A Shares Purchased
 (1)  
   

Average Price per 

A Shares

    Total Number of A Shares
Purchased as part of Publicly
Announced Plans or Programs 
    Approximate Mexican
Peso Value of A Shares
that May Yet Be Purchased
Under the Plans  or Programs 
(2)  
 

January 2017

                      22,672,144,564  

February 2017

                      22,587,040,531  

March 2017

                      22,482,929,951  

April 2017

    288,196       13.61       288,196       2,892,759,292  

May 2017

                      2,790,870,064  

June 2017

                      2,689,945,772  

July 2017

                      2,589,496,895  

August 2017

    160,000       16.60       160,000       2,522,466,549  

September 2017

                      2,472,243,828  

October 2017

    213,000       16.84       213,000       2,348,240,205  

November 2017

    41,227       16.30       41,227       2,299,158,766  

December 2017

    218,000       15.90       218,000       2,261,427,182  

Total

    920,423         920,423      

(1)  This includes purchases by us and our affiliated purchasers in 2017.

(2)  This is the approximate peso amount available at the end of the period for purchases of both L Shares and A Shares pursuant to our share repurchase program.

  

  

 


 

64

 



Table of Contents

 

          TAXATION OF SHARES AND ADSs

 

 

 

The following summary contains a description of certain Mexican federal and U.S. federal income tax consequences of the acquisition, ownership and disposition of L Shares, A Shares, L Share ADSs or A Share ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, hold or sell shares or ADSs.

 

 

This discussion does not constitute, and should not be considered as, legal or tax advice to holders. The discussion is for general information purposes only and is based upon the federal tax laws of Mexico (including the Mexican Income Tax Law ( Ley del Impuesto sobre la Renta ) and the United States in effect on the date of this annual report, including the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and the protocols thereto between the United States and Mexico currently in force (together, the “Tax Treaty”) and the agreement between the United States and Mexico concerning the exchange of information with respect to tax matters. The Tax Treaty is subject to change, and such changes may have retroactive effects. Holders of shares or ADSs should consult their own tax advisors as to the Mexican, U.S. or other tax consequences of the purchase, ownership and disposition of shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws.

MEXICAN TAX CONSIDERATIONS

The following is a general summary of the principal consequences under the Mexican Income Tax Law and the rules and regulations thereunder, as currently in effect, of an investment in shares or ADSs by a holder that is not a resident of Mexico and that will not hold shares or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment in Mexico (a “nonresident holder”).

For purposes of Mexican taxation, the definition of residence is highly technical and residence arises in several situations. Generally, an individual is a resident of Mexico if he or she has established his or her home or center of vital interests in Mexico, and a corporation is considered a resident if it has its place of effective management in

Mexico. However, any determination of residence should take into account the particular situation of each person or legal entity.

If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax purposes, all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws.

This summary does not purport to be a comprehensive description of all the Mexican tax considerations that may be relevant to a decision to purchase, own or dispose of the shares. In particular, this summary (i) does not describe any tax consequences arising under the laws of any state, locality, municipality or taxing jurisdiction other than certain federal laws of Mexico and (ii) does not address all of the Mexican tax consequences that may be applicable to specific holders of the shares, including a holder:

  whose shares were not acquired through the Mexican Stock Exchange or other markets authorized by the Ministry of Finance and Public Credit ( Secretaría de Hacienda y Crédito Público ) or the Mexican Federal Tax Code;
  of shares or ADSs that control us;
  that holds 10.0% or more of our shares;
  that is part of a group of persons for purposes of Mexican law that controls us (or holds 10.0% or more of our shares); or
  that is a resident of Mexico or is a corporation resident in a tax haven (as defined by the Mexican Income Tax Law).

Tax Treaties

Provisions of the Tax Treaty that may affect the taxation of certain U.S. holders (as defined below) are summarized below.

The Mexican Income Tax Law has established procedural requirements for a nonresident holder to be entitled to benefits under any of the tax treaties to which Mexico is a party, including on dispositions and dividends. These procedural requirements include, among others, the obligation to (i) prove tax treaty residence, (ii) file tax calculations made by an authorized certified public accountant or an informational tax statement, as the case may be, and (iii) appoint representatives in Mexico for taxation purposes. Parties related to the issuer may be subject to additional procedural requirements.

 

 


 

65

 



Table of Contents

 

         TAXATION OF SHARES AND ADSs

 

Payment of Dividends

Dividends, either in cash or in kind, paid with respect to L Shares, A Shares, L Share ADSs or A Share ADSs will generally be subject to a 10.0% Mexican withholding tax (provided that no Mexican withholding tax will apply to distributions of net taxable profits generated before 2014).

Taxation of Dispositions

The tax rate on income realized by a nonresident holder from a disposition of shares through the Mexican Stock Exchange is generally 10.0%, which is applied to the net gain realized on the disposition. This tax is payable through withholding made by intermediaries. However, such withholding does not apply to a nonresident holder who certifies that the holder is resident in a country with which Mexico has entered into an income tax treaty.

The sale or other transfer or disposition of shares not carried out through the Mexican Stock Exchange and not held in the form of ADSs will be subject to a 25% tax rate in Mexico, which is applicable to the gross proceeds realized from the sale. Alternatively, a nonresident holder may, subject to certain requirements, elect to pay taxes on the net gain realized from the sale of shares at a rate of 35%.

The sale or disposition of ADSs through securities exchanges or markets recognized under the Mexican federal tax code (which includes the NYSE) by non-residents who are residents of a country with which Mexico has entered into an income tax treaty is not subject to income tax in Mexico under the current tax rules. The tax treatment of such transfer of ADSs by non- residents who are also not residents of a country with which Mexico has entered into an income tax treaty is not clear under the current Mexican tax rules.

Pursuant to the Tax Treaty, gains realized by a U.S. resident that is eligible to receive benefits pursuant to the Tax Treaty from the sale or other disposition of shares or ADSs, even if the sale or disposition is not carried out under the circumstances described in the preceding paragraphs, will not be subject to Mexican income tax, provided that the gains are not attributable to a permanent establishment or a fixed base in Mexico, and further provided that such U.S. holder owned less than 25% of the shares representing our capital stock (including ADSs), directly or indirectly, during the 12-month period preceding such disposition. U.S. residents should consult their own tax advisors as to their possible eligibility under the Tax Treaty.

Gains and gross proceeds realized by other nonresident holders that are eligible to receive benefits pursuant to other income tax treaties to which Mexico is a party may be

exempt from Mexican income tax, in whole or in part. Non-U.S. holders should consult their own tax advisors as to their possible eligibility under such treaties.

Other Mexican Taxes

A nonresident holder generally will not be liable for estate, inheritance or similar taxes with respect to its holdings of shares or ADSs; provided, however, that gratuitous transfers of shares or ADSs may, in certain circumstances, result in the imposition of a Mexican tax upon the recipient. There are no Mexican stamp, issue registration or similar taxes payable by a nonresident holder with respect to shares or ADSs.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain U.S. federal income tax consequences to U.S. holders (as defined below) of the acquisition, ownership and disposition of shares or ADSs. The summary does not purport to be a comprehensive description of all of the tax consequences of the acquisition, ownership or disposition of shares or ADSs. The summary applies only to U.S. holders that will hold their shares or ADSs as capital assets and does not apply to special classes of U.S. holders, such as dealers in securities or currencies, holders with a functional currency other than the U.S. dollar, holders of 10.0% or more of our shares measured by vote or value (whether held directly or through ADSs or both), tax-exempt organizations, banks, insurance companies or other financial institutions, holders liable for the alternative minimum tax, securities traders electing to account for their investment in their shares or ADSs on a mark-to-market basis, entities that are treated for U.S. federal income tax purposes as partnerships or other pass-through entities or equity holders therein and persons holding their shares or ADSs in a hedging transaction or as part of a straddle or conversion transaction.

For purposes of this discussion, a “U.S. holder” is a holder of shares or ADSs that is:

  a citizen or resident of the United States of America,
  a corporation (or other entity taxable as a corporation) organized under the laws of the United States of America or any state thereof or
  otherwise subject to U.S. federal income taxation on a net income basis with respect to the shares or ADSs.

Each U.S. holder should consult such holder’s own tax advisor concerning the overall tax consequences to it of the ownership or disposition of shares or ADSs that may arise under foreign, state and local laws.

 

 


 

66

 



Table of Contents

 

 

Treatment of ADSs

In general, a U.S. holder of ADSs will be treated as the owner of the shares represented by those ADSs for U.S. federal income tax purposes. Deposits or withdrawals of shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. U.S. holders that withdraw any shares should consult their own tax advisors regarding the treatment of any foreign currency gain or loss on any pesos received in respect of such shares.

Taxation of Distributions

In general, a U.S. holder will treat the gross amount of distributions we pay, without reduction for Mexican withholding tax, as dividend income for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits. Because we do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions paid to U.S. holders generally will be reported as dividends. In general, the gross amount of any dividends will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder, in the case of shares, or by the depositary, in the case of ADSs.

Dividends will be paid in pesos and will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date that they are received by the U.S. holder, in the case of shares, or by the depositary, in the case of ADSs (regardless of whether such pesos are in fact converted into U.S. dollars on such date). If such dividends are converted into U.S. dollars on the date of such receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividends. U.S. holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any pesos received by a U.S. holder or depositary that are converted into U.S. dollars on a date subsequent to receipt. Dividends paid by us will not be eligible for the dividends- received deduction allowed to corporations under the U.S. Internal Revenue Code of 1986, as amended (the “Code”).

The amount of Mexican tax withheld generally will give rise to a foreign tax credit or deduction for U.S. federal income tax purposes. Dividends generally will constitute “passive category income” for purposes of the foreign tax credit (or, in the case of certain U.S. holders, “general category income”). The foreign tax credit rules are complex. U.S. holders should consult their own tax advisors with respect

to the implications of those rules for their investments in our shares or ADSs.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the shares or ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends.” Dividends paid on the shares or ADSs will be treated as qualified dividends if (i) (A) the shares or ADSs are readily tradable on an established securities market in the United States or (B) we are eligible for the benefits of a comprehensive tax treaty with the United States which the U.S. Treasury determines is satisfactory for purposes of this provision and which includes an exchange of information program, and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. In addition, the U.S. Treasury has determined that the Tax Treaty meets the requirements for reduced rates of taxation, and we believe we are eligible for the benefits of the Tax Treaty. Based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to the 2016 or 2017 taxable year. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2018 taxable year. Holders of shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

Distributions of additional shares or ADSs to U.S. holders with respect to their shares or ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Taxation of Dispositions

A U.S. holder generally will recognize capital gain or loss on the sale or other disposition of the shares or ADSs in an amount equal to the difference between the U.S. holder’s basis in such shares or ADSs (in U.S. dollars) and the amount realized on the disposition (in U.S. dollars, determined at the spot rate on the date of disposition if the amount realized is denominated in a foreign currency). Gain or loss recognized by a U.S. holder on such sale or other disposition generally will be long-term capital gain or loss

 

 


 

67

 



Table of Contents

 

         TAXATION OF SHARES AND ADSs

 

if, at the time of disposition, the shares or ADSs have been held for more than one year. Long-term capital gain recognized by a U.S. holder that is an individual is taxable at reduced rates. The deductibility of a capital loss is subject to limitations.

Gain, if any, realized by a U.S. holder on the sale or other disposition of the shares or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if a Mexican withholding tax is imposed on the sale or disposition of the shares, a U.S. holder that does not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of such Mexican taxes. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, the shares or ADSs.

Information Reporting and Backup Withholding

Dividends on, and proceeds from the sale or other disposition of, the shares or ADSs paid to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the holder:

  establishes that it is an exempt recipient, if required, or
  provides an accurate taxpayer identification number on a properly completed Internal Revenue Service Form W-9 and certifies that no loss of exemption from backup withholding has occurred.

The amount of any backup withholding from a payment to a holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the Internal Revenue Service.

U.S. Tax Consequences for Non-U.S. holders

DISTRIBUTIONS. A holder of shares or ADSs that is, with respect to the United States, a foreign corporation or a non- resident alien individual (a “non-U.S. holder”) will generally not be subject to U.S. federal income or withholding tax on dividends received on shares or ADSs, unless such income is effectively connected with the conduct by the holder of a U.S. trade or business.

DISPOSITIONS. A non-U.S. holder of shares or ADSs will not be subject to U.S. federal income or withholding tax on gain realized on the sale of shares or ADSs, unless:

  such gain is effectively connected with the conduct by the holder of a U.S. trade or business or
  in the case of gain realized by an individual holder, the holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

INFORMATION REPORTING AND BACKUP

WITHHOLDING . Although non-U.S. holders generally are exempt from backup withholding, a non-U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.

 

 


 

68

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          MANAGEMENT

 

 

 

DIRECTORS

Our Board of Directors has broad authority to manage our company. Our bylaws provide for the Board of Directors to consist of between five and 21 directors and allow for the election of an equal number of alternate directors. Directors need not be shareholders. A majority of our directors and a majority of the alternate directors must be Mexican citizens and elected by Mexican shareholders. A majority of the holders of the AA Shares and A Shares voting together elect a majority of the directors and alternate directors, provided that any holder or group of holders of at least 10.0% of the total AA Shares and A Shares is entitled to name one director and one alternate director. Two directors and two alternate directors, if any, are elected by a majority vote of the holders of L Shares. Each alternate director may attend meetings of the Board of Directors and vote in the absence of the corresponding director. Directors and alternate directors are elected or reelected at each annual general meeting of shareholders and each annual ordinary special meeting of holders of L Shares, and each serves until a successor is elected and takes office. In accordance with the Mexican Securities Market Law ( Ley del Mercado de Valores ), the determination as to the independence of our directors is made by our shareholders, though the CNBV may challenge this determination. Pursuant to our bylaws and the Mexican Securities Market Law, at least 25.0% of our directors must be independent. In order to have a quorum for a meeting of the Board of Directors, a majority of those present must be Mexican nationals.

At the annual general shareholders’ meeting held on April 16, 2018, 14 of the current members of the Board of Directors, as well as all current members of the Executive Committee and the Audit and Corporate Practices Committee, were reelected, and the Corporate Secretary and the Corporate Pro-Secretary were reappointed, with 14 directors elected by the AA Shares and A Shares voting together and two directors elected by the L Shares. At such meeting, Vanessa Hajj Slim was elected to the Board of Directors, and Juan Antonio Pérez Simón was replaced by Francisco Medina Chavez.

Our bylaws provide that the members of the Board of Directors are elected for a term of one year. Pursuant to Mexican law, members of the Board continue in their positions after the expiration of their terms for up to an additional 30-day period if new members are not elected. Furthermore, in certain circumstances provided under the Mexican Securities Market Law, the Board of Directors may elect temporary directors who then may be elected or replaced at the shareholders’ meetings.

 

 


 

72

 



Table of Contents

 

 

The names and positions of the members of the Board reelected or elected for the first time at the annual general shareholders’ meeting held on April 16, 2018, their year of birth, and information concerning their committee membership and principal business activities outside América Móvil are set forth below:

Directors elected by holders of Series AA and Series A Shares:

 

  CARLOS SLIM DOMIT

  Chairman of the Board and the Executive

  Committee

  Born:   1967
  First elected:   2011
  Term expires:   2019
  Principal occupation:   Chairman of the Board of Telmex
  Other directorships:   Chairman of the Board of Grupo Carso, Grupo Sanborns, S.A.B. de C.V. (“Grupo Sanborns”) and U.S. Commercial Corp, S.A. de C.V.
  Business experience:   Chief Executive Officer of Sanborn Hermanos, S.A. de C.V. (“Sanborn Hermanos”)

 

  PATRICK SLIM DOMIT

  Vice Chairman and Member

  of the Executive Committee

  Born:   1969
  First elected:   2004
  Term expires:   2019
  Principal occupation:   Vice Chairman of our Board of Directors
  Other directorships:   Director of Grupo Carso, Impulsora del Desarrollo y el Empleo en América Latina, S.A.B. de C.V. (“IDEAL”) and Telmex
  Business experience:   Chief Executive Officer of Grupo Carso and Vice President of Commercial Markets of Telmex

 

  DANIEL HAJJ ABOUMRAD

  Director and Member of the Executive Committee

  Born:   1966
  First elected:   2000
  Term expires:   2019
  Principal occupation:   Chief Executive Officer of América Móvil
  Other directorships:   Director of Grupo Carso and Telmex
  Business experience:   Chief Executive Officer of Compañía Hulera Euzkadi, S.A. de C.V.

 

  CARLOS SLIM HELÚ

  Director

  Born:   1940
  First elected:   2015
  Term expires:   2019
  Principal occupation and Business experience:   Chairman of the Board of Minera Frisco, S.A.B. de C.V. and Carso Infraestructura y Construcción, S.A. de C.V.; Director of IDEAL, Grupo Sanborns and Inmuebles Carso, S.A.B. de C.V. (“Inmuebles Carso”)

 


 

73

 



Table of Contents

 

 

         MANAGEMENT

 

 

 

  LUIS ALEJANDRO SOBERÓN KURI

  Director

  Born:   1960
  First elected:   2000
  Term expires:   2019
  Principal occupation:   Chief Executive Officer and Chairman of the Board of Serinem México, S.A. de C.V. (a subsidiary of Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (“CIE”))
  Other directorships:   Director of CIE; Director of Banco Nacional de México, S.A.
  Business experience:   Various positions at CIE

 

  CARLOS BREMER GUTIÉRREZ

Director and Member of the Audit and Corporate Practices Committee

  Born:   1960
  First elected:   2004
  Term expires:   2019
  Principal occupation:   Chief Executive Officer of Value Grupo Financiero, S.A.B. de C.V. and Value S.A. de C.V., Casa de Bolsa
  Other directorships:   Chairman of Value Grupo Financiero, S.A.B. de C.V.
  Business experience:   Chief Operating Officer of Abaco Casa de Bolsa, S.A. de C.V.

 

  FRANCISCO MEDINA CHÁVEZ

  Director

  Born:   1956
  First elected:   2018
  Term expires:   2019
  Principal occupation:   Chief Executive Officer and Chairman of Grupo Fame, S.A. de C.V., and Chairman of Grupo Altozano
    Other directorships:   Director of Banamex Citigroup México and Telmex
    Business experience:   Director of Aeromexico and Mitsui Mexico

 

  ERNESTO VEGA VELASCO

  Director, Chairman of the Audit and Corporate   Practices Committee

  Born:   1937
  First elected:   2007
  Term expires:   2019
  Principal occupation:   Retired. Member of the board of directors and audit and corporate practices, planning and finance and evaluation and compensation committees of certain companies.
    Other directorships:   Director of Kuo, S.A.B. de C.V., Dine, S.A.B. de C.V., Inmuebles Carso, IDEAL; Alternate Director of Industrias Peñoles, S.A.B. de C.V.
    Business experience:   Various positions in Desc Group, including Corporate Vice-President

 


 

74

 



Table of Contents

 

 

 

  RAFAEL MOISÉS KALACH MIZRAHI

Director and Member of the Audit and Corporate Practices Committee

  Born:   1946
  First elected:   2012
  Term expires:   2019
  Principal occupation:   Chairman and Chief Executive Officer of Grupo Kaltex, S.A. de C.V. (“Grupo Kaltex”)
  Other directorships:   Director of Telmex and Grupo Carso
  Business experience:   Various positions in Grupo Kaltex

 

  ANTONIO COSÍO PANDO

  Director

  Born:   1968
  First elected:   2015
  Term expires:   2019
  Principal occupation:   Vice President of Grupo Hotelero las Brisas, S.A. de C.V. (“Grupo Brisas”), Compañía Industrial Tepeji del Río, S.A. de C.V., and Bodegas de Santo Tomás, S.A. de C.V.
  Other directorships:   Director of Grupo Financiero Inbursa, Grupo Carso, Grupo Sanborns, Corporación Actinver S.A.B. de C.V., Grupo Aerromexico S.A.B. de C.V., Kimberly Clark de México, S.A.B. de C.V. (“Kimberly Clark de México”) and Telmex
  Business experience:   Various positions in Grupo Brisas and Compañía Industrial Tepeji del Río, S.A. de C.V.

 

  ARTURO ELÍAS AYUB

  Director

  Born:   1966
  First elected:   2011
  Term expires:   2019
  Principal occupation:   Head of Strategic Alliances, Communications and Institutional Relations of Telmex; Chief Executive Officer of Fundación Telmex
  Other directorships:   Chairman of the Board of Publicidad y Contenido Editorial, S.A. de C.V.; Director of Grupo Sanborns, Grupo Carso, Sears and TM&MS LLC
  Business experience:   Chief Executive Officer of Sociedad Comercial Cadena, President of Pastelería Francesa (El Globo) and President of Club Universidad Nacional, A.C.

 


 

75

 



Table of Contents

 

 

         MANAGEMENT

 

 

 

  OSCAR VON HAUSKE SOLÍS

  Director

  Born:   1957
  First elected:   2011
  Term expires:   2019
  Principal occupation:   Chief Fixed-line Operations Officer of América Móvil
  Other directorships:   Alternate Director of Telmex, Claro Brasil; Member of Telekom Austria’s Supervisory Board
  Business experience:   Chief Executive Officer of Telmex Internacional, Chief Systems and Telecommunications Operators Officer of Telmex and member of KPN’s supervisory board

 

LOUIS C. CAMILLERI

Director

  Born:   1955
  First elected:   2011
  Term expires:   2019
  Principal occupation:   Chairman of Philip Morris International
  Other directorships:   Director of Ferrari N.V.
  Business experience:   Chairman and Chief Executive Officer of Altria and various positions in Philip Morris International

 

VANESSA HAJJ SLIM

Director

  Born:  

1997

  First elected:   2018
  Term expires:   2019

Directors elected by holders of Series L Shares:

 

PABLO ROBERTO GONZÁLEZ GUAJARDO

Director and Member of the Audit and Corporate Practices Committee

  Born:   1967
  First elected:   2007
  Term expires:   2019
  Principal occupation:   Chief Executive Officer of Kimberly Clark de México
  Other directorships:   Director of Kimberly Clark de México, Sistema Integral de Abasto Rural, S.A.P.I de C.V., Grupo Sanborns, and Grupo Lala, S.A.B. de C.V.
  Business experience:   Various positions in the Kimberly Clark Corporation and Kimberly Clark de México, as well as Director of Acciones y Valores Banamex S.A. de C.V. Casa de Bolsa

 

 


 

76

 



Table of Contents

 

 

 

DAVID IBARRA MUÑOZ

Director

  Born:   1930
  First elected:   2000
  Term expires:   2019
  Principal occupation:   Retired
  Other directorships:   Director of Grupo Financiero Inbursa, IDEAL and Grupo Carso
  Business experience:   Chief Executive Officer of Nacional Financiera, S.N.C., served in the Mexican Ministry of Finance and Public Credit

 

The annual ordinary general shareholders’ meeting held on April 16, 2018, determined that the following directors are independent: Messrs. Ernesto Vega Velasco, Carlos Bremer Gutiérrez, Pablo Roberto González Guajardo, David Ibarra Muñoz, Antonio Cosío Pando, Louis C. Camilleri, Rafael Moisés Kalach Mizrahi and Francisco Medina Chávez.

Alejandro Cantú Jiménez, our General Counsel, serves as Corporate Secretary and Rafael Robles Miaja as Corporate Pro- Secretary.

Daniel Hajj Aboumrad and Arturo Elías Ayub are sons-in-law of Carlos Slim Helú and brothers-in-law of Patrick Slim Domit and Carlos Slim Domit. Patrick Slim Domit and Carlos Slim Domit are sons of Carlos Slim Helú. Vanessa Hajj Slim is the daughter of Daniel Hajj Aboumrad and the granddaughter of Carlos Slim Helú.

EXECUTIVE COMMITTEE

Our bylaws provide that the Executive Committee may generally exercise the powers of the Board of Directors, with certain exceptions. In addition, the Board of Directors is required to consult the Executive Committee before deciding on certain matters set forth in the bylaws, and the Executive Committee must provide its views within 10 calendar days following a request from the Board of Directors, the Chief Executive Officer or the Chairman of the Board of Directors. If the Executive Committee is unable to make a recommendation within ten calendar days, or if a majority of the Board of Directors or any other corporate body duly acting within its mandate determines in good faith that action cannot be deferred until the Executive Committee makes a recommendation, the Board

of Directors is authorized to act without such recommendation. The Executive Committee may not delegate its powers to special delegates or attorneys-in-fact.

The Executive Committee is elected from among the directors and alternate directors by a majority vote of the holders of common shares (AA Shares and A Shares). The Executive Committee currently has three members. The majority of its members must be Mexican citizens and elected by Mexican shareholders. Three members of the Executive Committee were appointed by our Mexican controlling shareholders. See “Major Shareholders” under Part IV of this annual report. The current members of the Executive Committee are Messrs. Carlos Slim Domit, Patrick Slim Domit and Daniel Hajj Aboumrad appointed by the Mexican controlling shareholders.

AUDIT AND CORPORATE PRACTICES COMMITTEE

Our Audit and Corporate Practices Committee is comprised of independent members of the Board of Directors. The Audit and Corporate Practices Committee consists of Messrs. Ernesto Vega Velasco (Chairman), Rafael Moisés Kalach Mizrahi, Pablo Roberto González Guajardo and Carlos Bremer Gutiérrez. The mandate of the Audit and Corporate Practices Committee is to assist our Board of Directors in overseeing our operations, establish and monitor procedures and controls in order to ensure that the financial information we distribute is useful, appropriate and reliable and accurately reflects our financial position. In particular, the Audit and Corporate Practices Committee is required to, among other things:

 

 


 

77

 



Table of Contents

 

         MANAGEMENT

 

  provide opinions to the Board of Directors on certain matters as provided by the Mexican Securities Market Law;

 

  call shareholders’ meetings and recommend inclusion of matters it deems appropriate on the agenda;

 

  inform the Board of Directors of our internal controls and their adequacy;

 

  select our auditors, review and pre-approve the scope and terms of their engagement and determine their compensation;

 

  monitor the performance of our auditors and re-evaluate the terms of their engagement;

 

  recommend procedures for preparing financial statements and internal controls;

 

  monitor internal controls and accounting for specified types of matters;

 

  propose procedures for the preparation of financial statements for internal use that are consistent with the published financial statements;

 

  assist the Board of Directors in preparing reports as provided by the Mexican Securities Market Law;

 

  discuss with our auditors the annual financial statements and the accounting principles being applied in the annual and the interim financial statements and, based on such discussions, recommend their approval to the Board of Directors;

 

  resolve disagreements between our management and auditors relating to our financial statements;

 

  request the opinion of independent experts when deemed appropriate or when required by law;

 

  approve services to be provided by our auditors or establish policies and procedures for the pre-approval of services by our auditors;

 

  obtain from our auditors a report that includes a discussion of critical accounting policies used by us, any alternative accounting treatments for material items that have been discussed by management with our auditor and any other written communications between our auditors and management;

 

  report to the Board of Directors on its activities;
  develop procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, including for the confidential submission of concerns regarding such matters by employees;

 

  evaluate the performance of the external auditors;

 

  review and discuss our financial statements and advise the Board of Directors of the committee’s recommendations for approval of such financial statements;

 

  receive and analyze recommendations and observations to its functions from shareholders, members of the Board of Directors and senior management and receive the authority to act upon such recommendations and observations;

 

  recommend to the Board of Directors procedures for the selection and succession of our Chief Executive Officer and our other principal executives;

 

  propose criteria for evaluating executive performance;

 

  analyze the proposals of the Chief Executive Officer concerning the structure and amount of compensation for our senior executives and raise them with the Board of Directors;

 

  review new executive compensation programs and the operations of existing programs;

 

  establish contracting practices to avoid excessive payments to executives;

 

  assist the Board of Directors in developing appropriate personnel policies;

 

  participate with the Board of Directors in developing a plan for employees to invest in our L Shares and review the implementation of such plan; and

 

  perform any other functions the Board of Directors may delegate to the Audit and Corporate Practices Committee.

Under certain circumstances specified in our bylaws, the Audit and Corporate Practices Committee is required to provide its opinion to the Board of Directors. The Company is required to make public disclosure of any Board action that is inconsistent with the opinion of the Audit and Corporate Practices Committee.

 

 


 

78

 



Table of Contents

 

 

In addition, pursuant to our bylaws, the Audit and Corporate Practices Committee is in charge of our corporate governance functions under the Mexican securities laws and regulations and is required to submit an annual report to the Board of Directors with respect to our corporate and audit practices. The Audit and Corporate Practices Committee must request the opinions of our executive officers for purposes of preparing this annual report. The Board of Directors must seek the

opinion of the Audit and Corporate Practices Committee regarding any transaction with a related party that is outside the ordinary course of our business as defined under the Mexican Securities Market Law. Each member of the Audit and Corporate Practices Committee is independent, as determined by our shareholders pursuant to the Mexican Securities Market Law and as defined under Rule 10A-3 under the Exchange.

 

 

SENIOR MANAGEMENT

The names, responsibilities and prior business experience of our senior officers are as follows:

 

DANIEL HAJJ ABOUMRAD

Chief Executive Officer

   Appointed:    2000
   Business experience:    Director of Telmex; Chief Executive Officer of Compañía Hulera Euzkadi, S.A. de C.V.

 

CARLOS JOSÉ GARCÍA MORENO ELIZONDO

Chief Financial Officer

   Appointed:    2001
  

Business experience:

   General Director of Public Credit at the Ministry of Finance and Public Credit; Managing Director of UBS Warburg; Associate Director of Financing at Petróleos Mexicanos (Pemex); Member of Telekom Austria’s Supervisory Board; Member of KPN Supervisory Board

 

ALEJANDRO CANTÚ JIMÉNEZ

General Counsel

   Appointed:    2001
   Business experience:    Member of Telekom Austria’s Supervisory Board; Attorney at Mijares, Angoitia, Cortésy Fuentes, S.C.

 

OSCAR VON HAUSKE SOLÍS

Chief Fixed-line Operations Officer

   Appointed:    2010
   Business experience:    Chief Executive Officer of Telmex Internacional; Chief Systems and Telecommunications Officer of Telmex; Head of Finance at Grupo Condumex, S.A. de C.V.; Director of Telmex, Telmex Internacional, Empresa Brasileira de Telecomunicações S.A. (“Embratel”), and Net Serviços de Comunicação S.A. (“Net Serviços”); Member of Telekom Austria’s Supervisory Board

 

ANGEL ALIJA GUERRERO

Chief Wireless Operations Officer

   Appointed:    2012
   Business experience:   

Various positions in América Móvil

AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Ernesto Vega Velasco qualifies as an “audit committee financial expert,” and Mr. Vega Velasco is independent under the definition of independence applicable to us under the rules of the NYSE.

 


 

79

 



Table of Contents

 

          MANAGEMENT COMPENSATION

 

 

 

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

The aggregate compensation paid to our directors (including compensation paid to members of our Audit and Corporate Practices Committee) and senior management in 2017 was approximately Ps.5.1 million and Ps.66.7 million, respectively. None of our directors is a party to any contract with us or any of our subsidiaries that provides for benefits upon termination of employment. We do not provide pension, retirement or similar benefits to our directors in their capacity as directors. Our executive officers are eligible for retirement and severance benefits required by Mexican law on the same terms as all other employees, and we do not separately set aside, accrue or determine the amount of our costs that is attributable to executive officers.

SHARE OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT

Carlos Slim Domit, Chairman of our Board of Directors, holds 647 million (or 3.1%) of our AA Shares and 1,567 million (or 3.5%) of our L Shares directly. Patrick Slim Domit, Vice Chairman of our Board of Directors, holds 323 million (or 1.6%) of our AA Shares and 859 million (or 1.9%) of our L Shares directly. Carlos Slim Helú, member of our Board of Directors, holds 1,879 million (or 9.1%) of our AA Shares and 3,072 million (or 6.8%) of our L shares directly. In addition, according to beneficial ownership reports filed with the SEC, Patrick Slim Domit and Carlos Slim Domit are beneficiaries of a trust that owns shares of the Company. See “Major Shareholders” under Part IV and “Bylaws—Share Capital” under Part IV of this annual report.

Except as described above, according to information provided to us by our directors and members of senior management, none of our directors or executive officers is the beneficial owner of more than 1.0% of any class of our capital stock.

 

 


 

80

 



Table of Contents

 

          CORPORATE GOVERNANCE

 

 

 

Our corporate governance practices are governed by our bylaws, the Mexican Securities Market Law and the regulations issued by the CNBV. We also comply with the Mexican Code of Best Corporate Practices ( Código de Mejores Prácticas Corporativas ). On an annual basis, we file a report with the Mexican Banking and securities Commission and the Mexican Stock Exchange regarding our compliance with the Mexican Code of Best Corporate Practices.

The table below discloses the significant differences between our corporate governance practices and those required for U.S. companies under the NYSE listing standards.

 

 

NYSE Standards

 

   

 

Our Corporate Governance Practices

 

DIRECTOR INDEPENDENCE

 

Majority of board of directors must be independent. §303A.01. “Controlled companies” are exempt from this requirement. A controlled company is one in which more than 50.0% of the voting power is held by an individual, group or another company, rather than the public. §303A.00. As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.

     

Pursuant to the Mexican Securities Market Law, our shareholders are required to appoint a board of directors of no more than 21 members, 25% of whom must be independent. Certain persons are per se non-independent, including insiders, control persons, major suppliers and any relatives of such persons. In accordance with the Mexican Securities Market Law, our shareholders’ meeting is required to make a determination as to the independence of our directors, though such determination may be challenged by the CNBV. There is no exemption from the independence requirement for controlled companies.

 

Currently, the majority of our Board of Directors in independent.

         

 

EXECUTIVE SESSIONS

 

Non-management directors must meet at regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03.

 

      Our non-management directors have not held executive sessions without management in the past, and they are not required to do so.
         

 

NOMINATING/CORPORATE GOVERNANCE COMMITTEE

 

Nominating/corporate governance committee composed entirely of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04.

 

“Controlled companies” are exempt from these requirements. §303A.00. As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.

     

Mexican law requires us to have one or more committees that oversee certain corporate practices, including the appointment of directors and executives. Under the Mexican Securities Market Law, committees overseeing certain corporate practices must be composed of independent directors. However, in the case of controlled companies, such as ours, only a majority of the committee members must be independent.

 

Currently, we do not have a nominating committee, and we are not required to have one. Our Audit and Corporate Practices Committee, which is composed of independent directors, oversees our corporate practices, including the compensation and appointment of directors and executives.

 


 

81

 



Table of Contents

 

 

         CORPORATE GOVERNANCE

 

 

 

NYSE Standards

 

   

 

Our Corporate Governance Practices

 

 

 

COMPENSATION COMMITTEE

 

Compensation committee composed entirely of independent directors is required, which must evaluate and approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.02(a)(ii) and §303A.05. “Controlled companies” are exempt from this requirement. §303A.00.

      We currently do not have a compensation committee, and we are not required to have one. Our Audit and Corporate Practices Committee, which is comprised solely of independent directors, evaluates and approves the compensation of management (including our CEO) and directors.
         

 

AUDIT COMMITTEE

 

Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the additional requirements under the NYSE standards is required. §§303A.06 and 303A.07.

      We have an audit and corporate practices committee of four members. Each member of the Audit and Corporate Practices Committee is independent, as independence is defined under the Mexican Securities Market Law, and also meets the independence requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended. Our Audit and Corporate Practices Committee operates primarily pursuant to (1) a written charter adopted by our Board of Directors, which assigns to the Committee responsibility over those matters required by Rule 10A-3 (2) our bylaws and (3) Mexican law. For a more detailed description of the duties of our audit and corporate practices committee, see “Management” under Part V of this annual report.
         

 

EQUITY COMPENSATION PLANS

 

Equity compensation plans and all material revisions thereto require shareholder approval, subject to limited exemptions. §§303A.08 and 312.03.

      Shareholder approval is expressly required under Mexican law for the adoption or amendment of an equity compensation plan. Such plans must provide for similar treatment of executives in comparable positions.
         

 

SHAREHOLDER APPROVAL FOR ISSUANCE OF SECURITIES

 

Issuances of securities (1) that will result in a change of control of the issuer, (2) that are to a related party or someone closely related to a related party, (3) that have voting power equal to at least 20.0% of the outstanding common stock voting power before such issuance or (4) that will increase the number of shares of common stock by at least 20.0% of the number of outstanding shares before such issuance requires shareholder approval. §§312.03(b)-(d).

      Mexican law requires us to obtain shareholder approval for any issuance of equity securities. Under certain circumstances, however, we may sell treasury stock subject to the approval of our Board of Directors.

 


 

82

 



Table of Contents

 

 

 

 

NYSE Standards

 

   

 

Our Corporate Governance Practices

 

 

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

Corporate governance guidelines and a code of business conduct and ethics are required, with disclosure of any waiver for directors or executive officers. The code must contain compliance standards and procedures that will facilitate the effective operation of the code. §303A.10.

      We have adopted a code of ethics, which applies to all of our directors and executive officers and other personnel. For more information, see “Corporate Governance—Code of Ethics” under Part V of this annual report.
         

 

CONFLICTS OF INTEREST

 

Determination of how to review and oversee related party transactions is left to the listed company. The audit committee or comparable body, however, could be considered the forum for such review and oversight. §314.00. Certain issuances of common stock to a related party require shareholder approval. §312.03(b).

      In accordance with Mexican law, an independent audit committee must provide an opinion to the board of directors regarding any transaction with a related party that is outside of the ordinary course of business, which must be approved by the board of directors. Pursuant to the Mexican Securities Market Law, our Board of Directors may establish certain guidelines regarding related party transactions that do not require specific board approval.
         

 

SOLICITATION OF PROXIES

 

Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations are to be provided to NYSE. §§402.01 and 402.04.

      We are not required to solicit proxies from our shareholders. In accordance with Mexican law and our bylaws, we inform shareholders of all meetings by public notice, which states the requirements for admission to the meeting. Under the deposit agreement relating to our ADSs, holders of our ADSs receive notices of shareholders’ meetings and, where applicable, instructions on how to instruct the depositary to vote at the meeting. Under the deposit agreement relating to our ADS, we may direct the voting of any ADS as to which no voting instructions are received by the depositary, except with respect to any matter where substantial opposition exists or that materially and adversely affects the rights of holders.

 


 

83

 



Table of Contents

 

          CONTROLS AND PROCEDURES

 

 

 

(A) DISCLOSURE CONTROLS AND PROCEDURES. We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2017. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(B) MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and other personnel, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of the inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

Mancera, S.C. (“Mancera”), a member practice of Ernst & Young Global Limited, an independent registered public accounting firm, our independent auditor, issued an attestation report on our internal control over financial reporting on April 26, 2018.

(C) ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM.

 


 

84

 



Table of Contents

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of América Móvil, S.A.B. de C.V.

OPINION ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We have audited América Móvil, S.A.B. de C.V. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, América Móvil, S.A.B. de C.V. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of three years in the period ended December 31, 2017, and the related notes, and our report dated April 26, 2018 expressed an unqualified opinion thereon.

BASIS FOR OPINION

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company´s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

DEFINITIONS AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ MANCERA, S.C.

Mexico City, Mexico

April 26, 2018

(D) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There has been no change in our internal control over financial reporting during 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 


 

85

 



Table of Contents

 

          CODE OF ETHICS

 

 

 

Our Code of Ethics codifies the ethical principles that govern our business and promotes, among other things, honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics and accountability for adherence to the Code of Ethics. We revised our Code of Ethics in early 2018. Our Code of Ethics applies to all of our officers, senior management, directors and employees.

The full text of our Code of Ethics may be found in Exhibit 14.1 of this annual report or on our website at www.americamovil.com.

Along with the updates to our Code of Ethics, we have created a new whistleblower portal, as well as an ethics committee which will follow investigations regarding violations to the Code of Ethics. The ethics committee will also coordinate training programs for employees to enhance the ethical culture in the Company.

 


 

 

          CORPORATE SUSTAINABILITY REPORT

 

 

We have created a corporate sustainability committee, which is composed of senior management, to define our corporate sustainability objectives and oversee their implementation. Our corporate sustainability objectives were developed following an extensive assessment of various sustainability factors on the basis of their materiality and impact and have been further tailored to enhance the dialogue between us and our constituents. Through the creation of a corporate sustainability committee, we seek to foster greater operational efficiencies, promote social responsibility and adopt environmentally friendly initiatives.

Our corporate sustainability reports are available on our website at www.americamovil.com.

 


 

86

 



Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          REGULATION

 

 

 

MEXICO

Legal Framework

Over the last five years, a new legal framework for the regulation of telecommunications and broadcasting services has been developed in Mexico. This legal framework is based on constitutional amendments passed in June 2013, the Federal Law on Telecommunications and Broadcasting ( Ley Federal de Telecomunicaciones y Radiodifusión ) enacted in July 2014 and the Federal Law on Economic Competition ( Ley Federal de Competencia Económica ) enacted in May 2014.

Under the current legal framework, the IFT may determine whether there is a “preponderant economic agent” in the telecommunications sector, based on number of customers, traffic or network capacity. In 2014, the IFT determined that an “economic interest group” consisting of us and our Mexican operating subsidiaries (Telcel, Telmex and Teléfonos del Noroeste, S.A. de C.V. (“Telnor”)), as well as Grupo Carso and Grupo Financiero Inbursa, constitutes the “preponderant economic agent” in the telecommunications sector, based on a finding that we serve more than half of the customers in Mexico, as measured by the IFT on a national basis.

The 2013 constitutional amendments authorize the IFT to impose on any preponderant economic agent a special

regulatory regime, as supplemented by the 2014 implementing legislation. The special regime is referred to as “asymmetric” regulation because it applies to one market participant and not to the others. Pursuant to the IFT’s determination that we are part of a group constituting a preponderant economic agent, we are subject to extensive asymmetric regulations in our Mexican fixed-line and wireless businesses. See “—Asymmetric Regulation of the Preponderant Economic Agent” and “—Functional Separation of Telmex and Telnor” under this Part VI.

This legal framework has had a substantial impact on our business and operations in Mexico. The long-term effects will depend on further regulations and other actions by the IFT, how we and our competitors adapt, how customers behave in response and how the telecommunications and media markets develop.

Principal Regulatory Authorities

The IFT is an autonomous authority that regulates telecommunications and broadcasting. It is headed by seven commissioners appointed by the President, and

ratified by the Senate, from among candidates nominated by an evaluation committee.

The IFT has authority over the application of legislation specific to telecommunications and broadcasting, and also over competition legislation as it applies to those sectors.

While most of the powers previously exercised by the Mexican Ministry of Communications and Transportation ( Secretaría de Comunicaciones y Transportes ) were transferred to the IFT, there are a few specific public policy matters over which it retains authority.

The Mexican government has certain powers in its relations with concessionaires, including the right to take over the management of an operator’s networks, facilities and personnel in cases of imminent danger to national security, public order or the national economy, natural disasters and public unrest, as well as to ensure continuity of public services.

Telecommunications operators are also subject to regulation by the Federal Consumer Bureau ( Procuraduría Federal del Consumidor ) under the Federal Consumer Protection Law ( Ley Federal de Protección al Consumidor ), which regulates publicity, quality of services and information required to be provided to consumers.

Asymmetric Regulation of the Preponderant Economic Agent

Based on the IFT’s determination that we, our Mexican operating subsidiaries (Telcel, Telmex and Telnor) and certain affiliates constitute a preponderant economic agent in the telecommunications sector, we are currently subject to extensive specific asymmetric measures. Below is a summary of what we believe are the most important measures.

 

  INTERCONNECTION RATES . Since the enactment of the Federal Law on Telecommunications and Broadcasting, we were not permitted to charge other carriers for the termination services we provide in our networks. In August 2017, such provisions of the law were declared unconstitutional by the Mexican Supreme Court ( Suprema Corte de Justicia de la Nación ). As a result, the IFT ruled that, starting in January 1, 2018, Telcel would be able to charge such carriers Ps. 0.028562 per minute for calls to our network. On April 18, 2018, the Mexican Supreme Court issued a similar resolution regarding fixed interconnection rates, and as a result, starting in January 1, 2019, Telmex will be able to charge other carriers for termination services at a rate to be determined by the IFT. We continue to pay such carriers for their interconnection services in accordance with the fixed and mobile rates set by the IFT.
 

 


 

89

 



Table of Contents

 

         REGULATION

 

 

  SHARING OF WIRELESS INFRASTRUCTURE AND SERVICES. We must provide other carriers access to (i) passive infrastructure, including towers, sites, ducts and rights of way, (ii) elements of our network that allow other carriers and mobile virtual network operators (“MVNOs”) to resell those services we provide to our customers and (iii) domestic roaming services, in each case, pursuant to IFT pre-approved reference terms ( ofertas públicas de referencia ). If we cannot reach an agreement with other carriers or MVNOs, our rates may be determined by the IFT using, as applicable, a long-run average incremental costs methodology or, in the case of MVNOs, a “retail-minus” methodology.

For mobile services, the IFT has the right to verify the economic replicability of the end user rates with respect to rates applicable to services provided by mobile virtual network operators.

 

  SHARING OF FIXED INFRASTRUCTURE AND SERVICES. We must provide other carriers access to (i) passive infrastructure, including towers, sites, ducts and rights of way, (ii) elements of our network that allow other carriers to resell those services we provide to our customers and (iii) our dedicated links. The IFT will determine the rates applicable to all wholesale regulated fixed services based on long-run average incremental cost methodologies.

For fixed services, the IFT has the right to verify the economic replicability of the end user rates.

 

  ACCESS TO LOCAL LOOP. We must offer other carriers access to elements of our local network separately on terms and conditions pre-approved by the IFT. In March 2017, the IFT ordered the legal and functional separation of the provision of wholesale regulated fixed services related to local loop (acceso local) and shared access and use of passive infrastructure. On March 5, 2018, the IFT approved a separation plan. See “Functional Separation of Telmex and Telnor” under this Part VI.

 

  CERTAIN OBLIGATIONS RELATING TO RETAIL SERVICES. Certain rates for the provision of telecommunications services to our customers are subject to the IFT’s prior authorization, in the case of fixed-line and wireless services, and to rate controls, in the case of fixed-line services only, using historical cost methodologies to determine the maximum prices Telmex may charge its customers. We are also subject to certain obligations and restrictions relating to the sale of our services and products; such obligations include
   

unlocking mobile devices for our customers and offering individually all services that we previously offered under a bundled scheme.

 

  CONTENT. We are subject to specific limitations on acquisitions of exclusive transmission rights to “relevant” content ( contenidos audiovisuales relevantes ), as determined from time to time by the IFT, including, but not limited to, certain Mexican national soccer matches, the opening and closing ceremonies of the Summer Olympics, the opening and closing ceremonies and certain matches of the FIFA World Cup and the finals of the Liga MX soccer tournament.

 

  REPORTING OF SERVICE OBLIGATIONS. We are subject to obligations related to reporting of service, including the publication of reference terms for wholesale and interconnection services that are subject to asymmetric regulation.

The measures are transitory and may be terminated if the IFT declares that effective competition conditions exist in the telecommunications sector or if we cease to be considered a preponderant economic agent. The IFT reviews the impact of the asymmetrical measures every two years and may modify or eliminate measures or set forth new measures, including the structural or functional separation or divestiture of assets of the preponderant economic agent. In March 2017, the IFT issued a resolution that modified and added asymmetrical regulations for mobile and fixed services, including the legal and functional separation of Telmex and Telnor, among other measures.

In March 2014, the Company, Telcel, Telmex and Telnor filed challenges ( juicios de amparo ) against the declaration by the IFT that Telcel, Telmex and Telnor, together with certain affiliates, constitute an economic interest group that is a “preponderant economic agent” ( agente económico preponderante ) in the Mexican telecommunications market and imposed certain specific asymmetrical regulations. These challenges were denied in the case of Telmex, Telnor and the Company, and a final resolution is still pending in the case of Telcel. We have also challenged the 2017 resolution. However, given that, under the new regulatory framework, IFT’s determinations are not suspended while legal challenges against them are resolved, the enforceability of the IFT’s declaration cannot be suspended.

 

 


 

90

 



Table of Contents

 

 

 

 

 

 

 

Functional Separation of Telmex and Telnor

On March 5, 2018, we received notice of an IFT resolution directed to the Company setting forth the terms under which we are required to separate the provision of wholesale regulated fixed services by Telmex and Telnor (the “Separation Plan”). The Separation Plan differs substantially from the proposed plan presented by Telmex and Telnor pursuant to the IFT’s separation order of March 2017. We are currently reviewing the Separation Plan and analyzing its possible effects on us and our subsidiaries.

The Separation Plan establishes, among other provisions, the following:

 

  WHOLESALE UNIT. Telmex and Telnor must establish a business unit to provide certain wholesale services to other concessionaires, including interconnection, co-location for interconnection, intercity and international long-distance dedicated links, resale of telephone lines, broadband and bundles, as well as certain passive infrastructure services, including shared use of towers.

 

  NEW COMPANIES. Telmex and Telnor are required to establish separate new corporations (the “New Companies”) to provide wholesale services related to the elements of the access network, including local access dedicated links, as well as those services related to passive infrastructure associated with the access network, such as ducts, poles and rights of way. The New Companies will be direct subsidiaries of Telmex. The main features of the New Companies are as follows:

 

      Financial Viability. The Separation Plan contemplates that the New Companies will be financially viable. The implementation and consequences of this requirement are uncertain, both with respect to the initial composition of the New Companies’ assets and resources and with respect to their subsequent operations. The prices and terms of the services to be provided are generally subject to IFT regulation, which could affect the viability and financial requirements of the New Companies.

 

      Corporate Governance. The New Companies will have their own corporate governance, including: (i) a board of directors with at least seven members, of which a majority (including the Chairman) must be independent; (ii) a Chief Executive Officer and senior officers appointed by the boards of directors, different and independent from those of our Mexican concessionaire subsidiaries; (iii) an independent external auditor; (iv) an Audit Committee chaired by an
 

independent member of the board of directors; and (v) a Regulatory Compliance Committee entirely composed of independent members. The bylaws of the New Companies must be previously approved by the IFT. Independence for these purposes is used as defined under Mexican Securities Market Law.

 

      Personnel. The New Companies must have the personnel necessary to operate their assets and to provide wholesale services required by the Separation Plan.

 

      Systems and Procedures. The New Companies must have procedures, operating and management systems that are independent from those of América Móvil and its other subsidiaries.

 

      Branding. The New Companies must have their own branding distinct from América Móvil’s concessionaire subsidiaries. The brands must be dissociated from those of Telmex and Telnor within four years.

 

      Principal Offices. The New Companies must have their own principal offices distinct from those of América Móvil’s concessionaire subsidiaries.

We have up to two years to implement the Separation Plan. The implementation will be complex, and many features remain uncertain and will require further development in consultation with the IFT. As a result, we are not yet able to identify all the possible consequences, but some of the consequences could have a material adverse impact on us.

We have challenged the resolution in Mexican courts. However, legal challenges will not suspend the implementation of the Separation Plan and may not be finally determined before the Separation Plan is fully implemented.

Substantial Market Power Investigations

In 2007, the Federal Antitrust Commission ( Comisión Federal de Competencia , or “Cofeco”) initiated two substantial market power investigations against Telcel and determined that Telcel had substantial market power in the mobile termination services market and in the nationwide wireless voice and data services market. Telcel filed challenges against both decisions, and a final resolution of these challenges is still pending. If upheld, these decisions would allow the IFT to impose additional requirements as to rates, quality of service and information, among other matters.

In 2007, Cofeco initiated various investigations to evaluate whether Telmex and its subsidiary Telnor have substantial

 

 


 

91

 



Table of Contents

 

 

         REGULATION

 

power in the markets for termination, origination, transit and wholesale dedicated-link circuits. Cofeco issued final resolutions concluding that Telmex and Telnor have substantial power in all four markets, which were challenged by Telmex and Telnor. The challenges related to each one of these markets have been denied, effectively upholding Cofeco’s findings. Consequently, the IFT may impose specific tariff requirements or other special regulations with respect to the matters for which the challenges were denied, such as additional requirements regarding disclosure of information or quality of service.

In the case of the market for wholesale dedicated-link leasing, the IFT’s predecessor, Cofetel, published an agreement in the Official Gazette, establishing requirements regarding tariffs, quality of service and information for dedicated-link circuits. Telmex and Telnor have filed petitions for relief against such resolutions, which are still pending. However, an adverse resolution could have an impact on the Company’s future revenues in this market.

Concessions

Under the current legal framework, a carrier of public telecommunications networks, such as Telcel or Telmex, must operate under a concession. The IFT is an autonomous federal agency that grants new or extends existing concessions, which may only be granted to a Mexican citizen or corporation that has agreed to the concession terms and may not be transferred or assigned without the approval of the IFT. There are two types of concessions:

 

  NETWORK CONCESSIONS. Telcel, Telmex and its subsidiary Telnor hold network concessions, granted under the previous regulatory framework, to provide specified types of services. Their ability to migrate to the new regime of unified concessions and, consequently, to provide any and all telecommunications and broadcasting services, is subject to conditions, as described under “Migration of Concessions and Additional Services” below.

 

  SPECTRUM CONCESSIONS. Telcel holds multiple concessions, granted under the previous regulatory framework, to provide wireless services that utilize frequencies of radio-electric spectrum. These concessions have terms of 15 to 20 years and may be extended for an additional term of equal length.

A public telecommunications concessionaire is required by law to establish an open-network architecture that permits interconnection and interoperability.

Termination of Concessions

Mexican legislation provides that under certain circumstances, some assets of a concessionaire may be acquired by the federal government upon termination of these concessions.

There is no specific guidance or precedent for applying these provisions, so the scope of assets covered, the compensation to the concessionaire and the procedures to be followed would depend on the type of concession, the type of assets and the interpretation of applicable legislation by the competent authorities at the time.

Migration of Concessions and Additional Services

The new legislative framework established the unified concession ( concesión única ), which allows the holder to provide all types of telecommunications and broadcasting services, and a regime under which an existing concession can be migrated to the new unified concession at the end of its term or upon request by the concession holder. A unified concession has a term of up to 30 years, extendable for up to an equal term. Also, under this new framework a current concession may be modified to add services not previously contemplated therein.

However, as a result of our preponderant economic agent status, Telmex and Telnor are subject to additional conditions for the migration to a unified concession or the addition of a service, such as Pay TV, to a current concession, including (i) payment of any new concession fee to be determined by the IFT, (ii) compliance with current requirements under the network concession, the 2013 constitutional amendments, the 2014 legislation and any additional measures imposed by the IFT on the preponderant economic agent and (iii) such other requirements, terms and conditions as the IFT may establish in the concession itself. We expect the process of migration or additional services to be lengthy and complex. Consequently, Telmex and Telnor may not be able to provide additional services, such as broadcasting, in the near term.

Telcel’s Concessions

Telcel operates under several different network and spectrum concessions covering particular frequencies and regions, holding an average of 129.5 MHz of capacity in Mexico’s nine regions in the 850 MHz, 1900 MHz and 1.7/2.1 GHz bands. The following tables summarize Telcel’s concessions.

 

 


 

92

 



Table of Contents

 

 

 

 

 

 

Frequency

 

 

Region in Mexico

 

 

Initial Date

 

 

Termination Date

 

  

Fee Structure  

 

Band A (1900 MHz)   Nationwide   Sep.1999   Oct. 2039    Upfront
Band B (850 MHz)   Regions 1, 2, 3   Aug. 2011   Aug. 2026    Annual
Band B (850 MHz)   Regions 4, 5   Aug. 2010   Aug. 2025    Annual
Band B (850 MHz)   Regions 6, 7, 8   Oct. 2011   Oct. 2026    Annual
Band B (850 MHz)   Region 9   Oct. 2015   Oct. 2030    Annual
Band D (1900MHz)   Nationwide   Oct. 1998   Oct. 2018 (1)    Upfront
Band F (1900MHz)   Nationwide   Apr. 2005   Apr. 2025    Annual
Bands A and B (1.7/2.1 GHz)   Nationwide   Oct. 2010   Oct. 2030    Annual
Bands H, I and J (1.7/2.1 GHz)   Nationwide   May 2016   Oct. 2030    Annual

(1)  Request for renewal have been submitted and is currently subject to approval.

 

In 2017, Telcel received the required regulatory approval to close its indirect acquisition of approximately 60 MHz of spectrum owned by Grupo MVS, S.A. de C.V. in the 2.5 GHz band. Following this acquisition, Telcel holds approximately 60 MHz in the 2.5 GHz band in several municipalities, representing approximately 75% of Mexico’s population.

Concession Fees

In addition to the upfront concession fees applicable to all of the 1900 MHz (Bands A, D and F) concessions, all 1.7/2.1 GHz (Bands A, B, H, I and J), 850 MHz (Regions 1 to 8) and 2.5 GHz concessions, owners of concessions granted or renewed on or after January 1, 2003 are also required to pay annual fees for the use and exploitation of radio spectrum bands. The amounts payable are set forth by the annual Federal Fees Law ( Ley Federal de Derechos ) and vary depending on the relevant region and radio spectrum band. Currently, Telcel is not required to pay these fees for its 1900 MHz concessions (Band A) since they were awarded prior to 2003.

Telmex’s Concessions

Telmex’s concession was granted in 1976 and is currently set to expire in 2026. In December 2016, the IFT granted Telmex a 30-year extension of this concession, which will become effective in 2026 and will be valid until 2056. The new terms of this concession will be issued in early 2023.

Telmex’s subsidiary, Telnor, holds a separate concession, which covers one state and two municipalities in northwestern Mexico and will expire in 2026. The IFT also granted Telnor a 30-year extension of its concession, which will be effective in 2026 and will be valid until 2056. The material terms of Telnor’s concession are similar to those of Telmex’s concession.

In addition, Telmex currently holds concessions for the use of frequencies to provide wireless local access, as well as

point-to-point and point-to-multipoint transmission. Telmex obtained these concessions from the now-defunct Federal Commission of Telecommunications ( Comisión Federal de Telecomunicaciones , or “Cofetel”) through a competitive bidding process for a term of up to 20 years that may be extended for additional 20-year terms with the IFT.

Wireless Rates

Wireless services concessionaires are generally free to establish the prices they charge customers for telecommunications services. Wireless rates are not subject to a price cap or any other form of price regulation. The interconnection rates concessionaires charge other operators are also generally established by agreement between the parties and, if the parties cannot agree, may be imposed by the IFT, subject to certain guidelines, cost models and criteria. The establishment of interconnection rates has resulted, and may in the future result, in disputes between carriers and with the IFT.

As a result of the preponderance determination, Telcel’s retail prices are subject to pre-approval by the IFT before they can take effect. In addition, the 2014 legislation established that preponderant economic agents may not charge termination rates. See “— Asymmetric Regulation of the Preponderant Economic Agent” under this Part VI.

The IFT is also authorized to impose specific rate requirements on any carrier that is determined by the IFT to have substantial market power under the Federal Antitrust Law ( Ley Federal de Competencia Económica ) and the 2014 legislation. For more information on litigation related to the Federal Antitrust Law and the 2014 legislation, see “—Substantial Market Power Investigations” under this Part VI.

 

 


 

93

 



Table of Contents

         REGULATION

 

 

Fixed Rates

Telmex’s concessions subject its rates for basic retail telephone services in any period, including installation, monthly rent, measured local-service and long-distance service, to a ceiling on the price of a “basket” of such services, weighted to reflect the volume of each service provided by Telmex during the preceding period. Telmex is required to file a survey with the IFT every four years with its projections of units of operation for basic services, costs and prices. Telmex is free to determine the structure of its own rates, with the exception of domestic long-distance rates, which were eliminated in 2015 under the 2014 legislation, and of the residential fixed-line rates, which have a cap based on the long-run average incremental cost. As a result of the preponderance determination, Telmex’s retail prices are subject to pre-approval by the IFT before they can take effect.

The price ceiling varies directly with the Mexican National Consumer Price Index ( Indice Nacional de Precios al Consumidor ), allowing Telmex to raise nominal rates to keep pace with inflation (minus a productivity factor set for the telecommunications industry), subject to consultation with the IFT. Telmex has not raised its nominal rates since March 2001, for local services and since March 1999 for international long- distance services. Under Telmex’s concession, the price ceiling is also adjusted downward periodically to pass on the benefits of Telmex’s increased productivity to its customers. The IFT sets a periodic adjustment for every four-year period to permit Telmex to maintain an internal rate of return equal to its weighted average cost of capital.

In addition, basic retail telephone services, as well as broadband services and “calling party pays” charges, are subject to a separate price ceiling scheme based on productivity indicators. In each case, Telmex is required to submit a survey on productivity indicators to the IFT every two years, including a total factor productivity. The IFT establishes the productivity factor that will apply over the next two years, and, based on this, the IFT will approve the customer prices before they can take effect.

Prices for Telmex’s wholesale services are established by the IFT; all of which are based on the long-run average incremental cost model methodology.

BRAZIL

Legal Framework and Principal Regulatory Authorities

The Brazilian Telecommunications Law ( Lei Geral das Telecomunicações Brasileiras ) provides the framework for telecommunications regulation. The primary telecommunications regulator in Brazil is the Telecommunications Agency ( Agência Nacional de Telecomunicações , or “Anatel”), which has the authority to grant concessions and licenses in connection with telecommunications services and the use of orbits, except broadcasting, and to adopt regulations that are legally binding on telecommunications services providers. Additionally, Claro Brasil is subject to regulation by the Brazilian National Cinema Agency ( Agência Nacional do Cinema ).

As of the date of this annual report, Brazilian lawmakers are considering the passage of a revamped legal telecommunications framework aimed at modernizing the current concession-based model to an authorization-based model. The telecom reform bill under review would allow fixed-line concessionaires, such as Claro Brasil, to provide services under an authorization instead of a concession, as long as certain investment-related obligations are met.

Licenses

In 2014, we simplified our corporate structure, and our subsidiaries Embratel, Embratel Participações S.A. (“Embrapar”) and Net Serviços were merged into Claro Brasil. As a result, all licenses previously granted to Embratel and Net Serviços were transferred to Claro Brasil. Embrapar held no licenses to transfer.

Following its acquisition of Brasil Telecomunicações S.A. in 2016, Claro Brasil was transferred an additional cable TV license. This license has the same terms and conditions as Claro Brasil’s other cable TV license.

 

 


 

94

 



Table of Contents

 

 

 

 

 

 

 

Our Brazilian subsidiaries hold licenses for the telecommunications services listed below:

 

Subsidiary

 

 

License

 

 

Termination Date

 

Claro Brasil   Fixed Local Voice Services   Indefinite
  Domestic and International Long Distance Voice Services   2025
  Personal Communication Services   Indefinite
  Data Services   Indefinite
  Cable TV Services   Indefinite
  Mobile Maritime Services   Indefinite
  Global Mobile Satellite Services   Indefinite
Claro TV   DTH TV Services   Indefinite
    Data Services   Indefinite
Americel S.A.   Data Services   Indefinite
Star One   Data Services   Indefinite
  Satellite Exploitation   See table below
Primesys   Data Services   Indefinite
Telmex do Brasil   Data Services   Indefinite

Our Brazilian subsidiary Star One has the following authorizations for satellite exploitation:

 

Authorization Type    Contract Number    Orbital Position    Issue Date      Expiration Date (1)
Orbital Position    PVSS/SPV 007/2006    63°W, 65°W, 68°W, 70°W and 84°W – C Band    Jan. 2006      Dec. 2020
Orbital Position    PVSS/SPV 001/2003    65°W – Ku Band    Feb. 2003      Feb. 2033
Orbital Position    PVSS/SPV 12/2007    92°W – C and Ku Band    Nov. 2007      Nov. 2022
Orbital Position    PVSS/SPV 002/2003    70°W – Ku Band    Oct. 2003      Oct. 2018 (2)
Orbital Position    PVSS/SPV 001/2007    75°W – C and Ku Band    Feb. 2007      Feb. 2022
Orbital Position    PVSS/SPV 156/2012    70°W – Ka and Ku Band    Mar. 2012      Mar. 2027
Orbital Position    PVSS/SPV 076/2012    84°W – Ka and Ku Band    Feb. 2012      Feb. 2027
Landing Rights    PVSS/SPV 002/2009    37.5°W – C Band    May 2009      May 2019 (3)

(1)  Unless otherwise noted, the standard license term is 15 years.

(2)  Request for renewal have been submitted and is currently subject to approval.

(3)  Expiration date to the landing rights coincides with the end of C12 Satellite’s lifetime.

 


 

95

 



Table of Contents

 

         REGULATION

 

Our Brazilian subsidiaries expect to continue acquiring spectrum should Anatel conduct additional public auctions, although Claro Brasil, like all of its peer competitors, is subject to a cap on the additional spectrum it may acquire per frequency band.

The following table sets forth the regions in Brazil in which Claro Brasil holds licenses to provide PCS as well as their termination dates:

 

Frequency and Geographic Block    Termination Date
2500 MHZ:
Nationwide    Oct. 2027
Regional    Feb. 2024
Regional    Oct. 2027
Regional(1)    Oct. 2031
700 MHZ:
Nationwide    Dec. 2029
1900-2100 MHZ:
Nationwide    Mar. 2023
1800 MHZ:
Regional    Apr. 2020
Regional    Dec. 2022
Regional    Mar. 2023
Regional    July 2027
Regional    Aug. 2027
Regional    Apr. 2028
Regional    Mar. 2028
Regional    Dec. 2032
900 MHZ:
Regional    Apr. 2020
Regional    Dec. 2022
Regional    July 2027
Regional    Aug. 2027
Regional    Apr. 2028
Regional    Mar. 2028
Regional    Dec. 2032
850 MHZ:
Regional    Mar. 2023
Regional    July 2027
Regional    Aug. 2027
Regional    Apr. 2028
Regional    Mar. 2028
450MHZ:
Regional    Oct. 2027

 

(1)  This is Claro Brasil’s most recent license acquisition from a spectrum auction held by Anatel in 2015, in which it acquired 19 licenses (10+10 MHz—Band P) in different regional blocks.

 

Concessions

Claro Brasil holds two fixed-line concessions to provide domestic and international long-distance telephone services. The remaining telecommunications services provided by Claro Brasil are governed by a system of licenses instead of concession arrangements.

Concession Fees

Claro Brasil is required to pay a biennial fee equal to 2.0% of net revenues from wireless services, except for the final year of the 15-year term of its PCS authorizations, in which the fee equals 1.0% of net revenues from wireless services.

Claro Brasil is also required to pay a biennial fee during the term of its domestic and international long-distance concessions equal to 2.0% of the revenues from long-distance telephone services, net of taxes and social contributions, for the year preceding the payment.

Termination of Concessions

Our domestic and international long-distance fixed-line concessions provide that certain of our assets deemed “indispensable” for the provision of these services will revert to the Brazilian state upon termination of these concession. Compensation for those assets would be their depreciated cost. See Note 16 to our audited consolidated financial statements included in this annual report.

Regulation of Rates

Anatel regulates rates (tariffs and prices) for all telecommunications services, except for fixed-line broadband services, Pay TV and satellite capacity rates, which are not regulated. In general, PCS license-holders and fixed local voice services license-holders are authorized to increase basic plan rates annually. Domestic long-distance concession-holders may adjust rates annually only for inflation (less a factor determined by Anatel based on the productivity of each operator during the year). Claro Brasil may set international long-distance and mobile rates freely, provided that it gives Anatel and the public advance notice.

 

 


 

96

 



Table of Contents

 

 

 

 

 

 

Regulation of Wholesale Market Competition

In November 2012, Anatel approved the General Competition Plan ( Plano Geral de Metas da Competição , or “PGMC”), a comprehensive regulatory framework aimed at increasing competition in the telecommunications sector. The PGMC imposes asymmetric measures upon economic groups determined by Anatel to have significant market power in any of the five wholesale markets in the telecommunications sector, on the basis of several criteria, including having over 20.0% of market share in the applicable market.

In 2012, Claro Brasil and three of its primary competitors were determined to have significant market power in the mobile wireless termination and national roaming markets. As a result, Claro Brasil was required to reduce mobile termination rates to 75.0% of the 2013 rates by February 2014, and to 50.0% of the 2013 rates by February 2015. In July 2014, Anatel established termination rates for mobile services applicable to operators with significant market power through 2019. Claro Brasil is also required to publish, and Anatel must approve, its reference roaming prices for voice, data and SMS on a semi-annual basis, among other measures.

In addition, Embratel was determined to have significant market power in the market for long-distance leased lines, Claro Brasil and Embratel were determined to have significant market power in the telecommunications infrastructure market, and Net Serviços was determined to have significant market power in the local coaxial transmissions market, together with several of their mobile and fixed-line competitors. Following the merger of Embratel and Net Serviços into Claro Brasil in 2014, Claro Brasil is required to publish, and Anatel must approve, its reference offers in each of these markets. Moreover, wholesale contracts entered into by operators determined to have significant market power for the sale of such operators’ services are overseen for compliance purposes by independent third-party companies.

Anatel has approved Claro Brasil’s most recent wholesale reference offers with respect to national roaming, telecommunications infrastructure, long-distance leased lines, wireless termination rates, internet network interconnection and internet links, which it reviews on a biennial basis.

Anatel also reviews its determination of which operators have significant market power on a biennial basis. Anatel began its first review of all telecom operators in 2014, but this first review has not been completed. In addition to the review, Anatel has proposed modifications to the asymmetric measures applicable under the PGMC, which has been made available for public comment, although the new regulation has not yet been published.

Network Usage Fees and Fixed-Line Interconnection Rates

In July 2014, Anatel approved a resolution establishing the reference terms for fees charged by operators in connection with the use of their mobile network and leased lines and set a price cap on fees charged for fixed network usage by operators deemed to have significant market power. Such fees, based on costs of allocation services ( coubicación ), have been applicable since February 2016.

Fixed-line operators determined by Anatel to have significant market power in the local fixed-line market may freely negotiate interconnection rates, subject to a price cap established by Anatel. Claro Brasil was not determined to have significant market power in the local fixed-line market and thus may set interconnection rates up to 20.0% higher than such cap.

Other Obligations

Under applicable law and our concessions, Claro Brasil has an obligation to (i) comply with certain coverage obligations to ensure universal access to its fixed-line voice services, (ii) contribute to the funding of the country’s transition from analogue to digital TV, (iii) meet quality-of-service targets and (iv) comply with applicable telecommunications services consumer rights.

 

 


 

97

 



Table of Contents

 

         REGULATION

 

COLOMBIA

Legal Framework and Principal Regulatory Authorities

The Information and Communications Ministry ( Ministerio de Tecnologías de la Información y las Comunicaciones ,

or “ICT Ministry”) and the Communications Regulatory Commission ( Comisión de Regulación de Comunicaciones , or “CRC”) are responsible for overseeing and regulating the telecommunications sector. The main audiovisual regulatory authority in Colombia with respect to Pay TV services is the National Television Authority ( Autoridad Nacional de Televisión , or “ANTV”). We are also subject to supervision by other government entities responsible for enforcing other regulations, such as antitrust rules or those protecting consumer rights.

Concessions

Comunicación Celular S.A. (“Comcel”) is qualified to provide fixed and mobile services and was included in the register of networks and services administered by the ICT Ministry. Such general authorization superseded all of Comcel’s former concession contracts, and, consequently, such former concessions were terminated.

As a result of the termination of Comcel’s former concessions, the ICT Ministry and Comcel began discussions with respect to the liquidation of the agreements governing those concessions. In light of the decision of the Colombian Constitutional Court ( Corte Constitucional de Colombia ) holding that certain laws limiting the reversion of assets of telecommunications providers did not apply to concessions granted prior to 1998 and, consequently, that reversion of assets under those earlier concessions would be governed by their contractual terms, the ICT Ministry obtained a domestic award ordering Comcel to revert assets under its earlier concessions to the Colombian government. Comcel challenged such award and the Company filed an international arbitration claim against Colombia arising from Colombia’s measures. For further information on these proceedings, see Notes 1 and 16 to our audited consolidated financial statements included in this annual report.

Licenses and Permits

Comcel holds licenses to provide mobile services in the spectrum frequency bands shown in the table below.

 

 Frequency   Bandwidth   Termination Date
 850 MHz   25 MHz   Mar. 2024
 1900 MHz   10 MHz   Dec. 2019
    5 MHz   Sept. 2021
    15 MHz   Apr. 2024
    5 MHz   June 2018 (1)
 2.5 GHz   30 MHz   Aug. 2023

(1)  Refers to a temporary license, which we renew on an annual basis.

In 2013, Telmex Colombia S.A. obtained permission to provide Pay TV services under any available technology, pursuant to ANTV’s unified licensing system. The permission will expire in 2020 and may be renewed at the appropriate time for another 10-year term.

In 2017, the ICT Ministry issued a decree approving a higher cap on spectrum acquisitions by operators in low and high frequency bands. This new cap allows Comcel to participate in future spectrum auctions. The ICT Ministry has yet to release its final announcement regarding the upcoming spectrum auctions in the 700 MHz and 1900 MHz bands.

Asymmetric Charges

In 2012, the CRC issued resolutions seeking to correct an alleged market failure and imposing the following measures on Comcel: (i) asymmetric charges for mobile and incoming long distance call terminations by other operators on Comcel’s wireless network, with access rates lower than the rates we pay our competitors, and (ii) restrictions on the rates we charge our users for calls outside our network (off-net calls), which must not exceed the rates we charge for calls within our network (on-net calls).

These asymmetric access charges ended in December 2016. In January 2017, the Colombian government approved symmetrical access charges among established operators like Comcel, Movistar and Tigo. However, under current regulation, new market entrants continue to receive a higher access rate than established operators for a limited period.

In 2017, the CRC issued a resolution updating the list of relevant telecommunication markets by adding the mobile services market (including bundled mobile voice and data services) and by also including the mobile service market in the list of relevant markets subject to ex-ante regulation. In connection with the mobile services market, the CRC initiated a proceeding to evaluate Comcel’s substantial market power in this new market and, if applicable, the imposition of asymmetric regulatory measures that could affect Comcel. As of the date of this annual report, a resolution is pending.

 

 


 

98

 



Table of Contents

 

 

 

 

SOUTHERN CONE

ARGENTINA

Following the election of President Mauricio Macri in 2015, the Argentine government issued a Decree of Necessity and Urgency ( Decreto de Necesidad y Urgencia , or “DNU”) to create a new communications ministry and regulator to oversee the telecommunications and media sectors. The National Communications Agency ( Ente Nacional de Comunicaciones , or “Enacom”) is now the main telecommunications regulatory authority in Argentina and became operational in 2016.

As part of the measures passed under the DNU, fixed and mobile services providers are prohibited from providing DTH technology, which is currently the fastest way to provide Pay TV services. In 2017, the Argentine government issued a decree allowing telecommunications providers, including AMX Argentina S.A. (“AMX Argentina”), to provide Pay TV services via cable within a limited number of territories as of January 2018. The start date for providing such Pay TV services to the rest of the country is to be determined by Enacom. AMX Argentina has obtained the permissions necessary to provide Pay TV services via cable in accordance with the decree to the territories approved by Enacom.

AMX Argentina holds licenses in the 700 MHz, 900 MHz, 1700/2100 MHz (AWS), 1900 MHz and 2600 MHz frequency bands, some of which expire in 15 years and some of which have no expiration date. Each license also contains certain coverage parameters, reporting and service requirements and provides Enacom a revocation right upon a material breach of the license terms.

All telecommunications providers in Argentina must contribute approximately 1.0% of their monthly revenues to finance the provision of telecommunications services in underserved areas and to underserved persons. All providers must also meet certain quality-of-service requirements.

CHILE

The General Telecommunications Law ( Ley General de Telecomunicaciones ) established the legal framework for telecommunications services in Chile, including the regulation of concessions, permits, rates and interconnection. The main regulatory agency of the telecommunications sector is the Chilean Transportation and Communications Ministry ( Ministerio de Transportes y Telecomunicaciones ), which acts primarily through the Undersecretary of Telecommunications ( Subsecretaría de Telecomunicaciones ).

Claro Chile S.A. (“Claro Chile”) holds concessions to provide mobile and fixed-line services in the 700 MHz, 850 MHz, 1900 MHz, 2.6 GHz, 3.4 to 3.6 GHz and 5.8 GHz frequency bands. Additionally, Claro Chile holds a 10-year license to provide DTH technology services and a license with an indefinite term to provide Pay TV services.

Some of Claro Chile’s concessions impose additional requirements, such as coverage, reporting and service quality requirements. The Chilean Transportation and Communications Ministry is authorized to terminate any concession in the event of specified breaches under the terms of such concessions. Additionally, Claro Chile’s concession in the 700 MHz band imposes certain obligations to expand mobile and data services in rural areas. In 2017, the Undersecretary of Telecommunication approved Claro Chile’s expansion project in connection with its obligations under its concession in the 700 MHz band.

PARAGUAY

The National Telecommunications Commission of Paraguay ( Comisión Nacional de Telecomunicaciones de Paraguay ) is in charge of supervising the telecommunications industry in Paraguay. It is authorized to cancel licenses in the event of specified breaches of the terms of a license.

AMX Paraguay, S.A. (“AMX Paraguay”) holds licenses to operate in the 1900 MHz and the 1700/2100 MHz bands. AMX Paraguay also holds a nationwide internet access and data transmission license. In addition, AMX Paraguay holds licenses to provide DTH services and cable TV services. Additionally, in January 2018, AMX Paraguay participated in a spectrum auction and was awarded a license to provide telecommunications services in the 700 MHz band. These licenses are renewable, subject to regulatory approval, and contain coverage, reporting and service requirements.

 

 


 

99

 



Table of Contents

 

         REGULATION

 

URUGUAY

The Regulatory Unit of Communications Services ( Unidad Reguladora de Servicios de Comunicaciones ) is in charge of the regulation of the telecommunications industry in Uruguay.

AM Wireless Uruguay, S.A. holds licenses to operate in the 1900 MHz, 1700/2100 MHz and 700 MHz frequency bands that expire in 2024, 2033 and 2037, respectively, and Telstar, S.A. holds licenses to provide international long distance communications and mobile data services that have no expiration date.

The license initially granted to Flimay S.A. (“Flimay”) to provide DTH technology services in Uruguay has been contested by the government since 2012. In 2017, the executive branch of Uruguay held under a new ruling that Filmay does not have a valid license provide DTH services in the country. As of the date of this annual report, our challenge to such decision is pending.

ANDEAN REGION

ECUADOR

The primary regulatory authorities for our mobile and fixed-line operations are the National Telecommunications, Regulation and Control Agency ( Agencia de Regulación y Control de las Telecomunicaciones , or “Arcotel”) and the Telecommunications and Information Society Ministry ( Ministerio de Telecomunicaciones y Sociedad de la Información , or “Mintel”). Arcotel is responsible for the licensing and oversight of radio-electric spectrum use and telecommunications services provisions. Mintel is responsible for the promotion of equal access to telecommunications services.

The Telecommunications Law ( Ley Orgánica de Telecomunicaciones ), adopted in 2015, serves as the legal framework for telecommunications services. It established new regulations for operators with significant market power, new penalties based on their gross incomes as well as additional fees also based on an operator’s gross income, but that can vary depending on the size of their market share. Consorcio Ecuatoriano de Telecomunicaciones, S.A. (“Conecel”) has been deemed to have significant market power in the advanced wireless services market, and as a result, such fee payments are made on a quarterly basis on the dates established by Arcotel.

For fiscal year 2017, Conecel has an obligation to pay the Ecuadorian government 5.0% of its advance wireless services for 2017, which represents approximately Ps.1.0 billion (U.S.$51.6 million). As of the date of this annual report, Conecel has paid the Ecuadorian government Ps.0.8 billion (U.S.$38.9 million), which represents 5.0% of such revenues generated in the first three quarters of 2017. Conecel has made a provision for Ps.0.3 billion (U.S.$12.7 million), which corresponds to the approximate amount owed for the fourth quarter of 2017 and will be paid in due course. The regulator’s decision to enact such penalties and the fee paid by Conecel are under dispute and subject to an arbitration proceeding.

Conecel holds concessions to operate in the 850MHz, 1900 MHz and AWS bands, which include concessions for PCS that expire in 2023. The PCS concession contains quality-of- service requirements for successful call completions, SMS delivery times, customer service, geographic coverage and other service conditions. Conecel also holds licenses to provide internet value-added services, Pay TV Services (through DTH technology) and bearer services, expiring in 2021, 2023 and 2027, respectively.

Conecel, following the acquisition of Ecuador Telecom, S.A. in 2016, also holds a concession to offer fixed-line voice, public telephone and domestic and international long-distance wholesale services, as well as a license to provide Pay TV (through DTH technology) that expires in 2031.

In 2017, Arcotel eliminated the asymmetry in termination rates between Conecel and Telefónica S.A. starting in the second quarter of 2018 and reduced the asymmetry from 21.78% to 6.54%.

Recalculation of Concession Fees

Arcotel has initiated several proceedings to recalculate the variable portion of the concession fees payable under Conecel’s concessions, which, as of the date of this annual report, is equivalent to 2.93% of Conecel’s annual revenues. In 2016, Conecel paid Ps.0.6 billion (U.S.$31.3 million) in connection with such variable fees for the 2009 to 2011 period and Ps.0.3 billion (U.S.$13.8 million) for the 2012 to 2014 period. The recalculations in connection with the 2015 and 2016 fiscal years continue to be under review by Arcotel.

 

 


 

100

 



Table of Contents

 

 

 

 

PERU

The Supervisory Agency for Private Investment in Telecommunication ( Organismo Supervisor de la Inversión Privada en Telecomunicaciones , or “OSIPTEL”) is in charge of the regulation of the telecommunications industry in Peru. The Ministry of Transport and Communications ( Ministerio de Transportes y Comunicaciones ) grants concessions, permits and licenses. The Telecommunications Law ( Decreto Supremo 013-93-TCC Ley de Telecomunicaciones ), adopted in 1993, serves as the legal framework for telecommunications services.

América Móvil Perú, S.A.C. (“Claro Perú”) holds nationwide concessions to provide wireless, PCS, fixed-line, local wholesale, domestic and international long-distance, Pay TV services (through DTH and HFC technologies), public telephone and value-added services (including internet access). The concessions allow Claro Perú to operate on the 450 MHz, 700 MHz, 850 MHz, 1900 MHz, 3.5 GHz and 10.5 GHz bands. As part of Claro Perú’s acquisition of Olo del Perú S.A.C., TVS Wireless S.A.C. and their respective subsidiaries in 2016, Claro has a resale agreement with such companies to operate on the 2.5 GHz band.

Each of the concessions was awarded by the MTC and covers a 20-year period. The concessions contain coverage, reporting, service requirement and spectral efficiency goals. The MTC is authorized to cancel any of the concessions in the case of specified breaches of its terms.

In 2015, new mobile termination rates were issued for 2015 through 2017, establishing two different rates, one for Claro Perú and Telefónica del Perú and a different one for our competitors, Viettel Perú S.A.C. and Entel. In 2017, the OSIPTEL announced the new mobile termination rate for the period 2018 to 2021, establishing a single rate for all operators.

    

 

 


 

101

 



Table of Contents

 

 

         REGULATION

 

 

EUROPE

Legal Framework and Principal Regulatory Authorities

The telecommunications regulatory framework in the EU is comprised of a set of directives and regulations that apply to all EU member countries and cover fixed and wireless services, internet, broadcasting and transmission services. Austria, Bulgaria, Croatia and Slovenia are EU member countries. Macedonia and Serbia, candidates for accession to the EU, are expected to gradually harmonize their regulatory frameworks with the EU’s framework.

In 2015, the EU enacted Regulation (EU) 2015/2120, also known as the Telecoms Single Market Regulation, concerning retail roaming charges and net neutrality. The regulation (i) implemented additional regulations on net neutrality to protect the right of every European to non-discriminatory access to the internet, which came into effect in 2016 and (ii) ended most retail roaming surcharges in 2017. The net neutrality rules in the EU were similar to those enacted in the United States prior to their repeal by the Federal Communications Commission (“FCC”) in 2017. In the EU, all internet traffic must to be treated equally, subject to strict and clearly identified exceptions. Telecommunications providers are still able to offer specialized services, so long as these services are not supplied at the expense of the quality of the open internet.

In 2016, the EU Commission initiated its second review of such framework (the first was in 2009) and presented a proposal for a new legal framework in the form of a European Electronic Communications Code (EECC), along with new connectivity policy objectives for Europe up to 2025, a draft regulation for internet access in public places and a 5G action plan. The draft proposal remains under negotiation between the European Parliament and the Council on the European Union.

In each European country in which we operate, we are also subject to a domestic telecommunications regulatory framework and to oversight by one or more local regulators.

Licenses

 

Country    Frequency   Termination Date  

AUSTRIA

   800 MHz     Dec. 2029  
   900 MHz     Dec. 2034  
   1800 MHz     Dec. 2034  
   2100 MHz     Dec. 2020  
   2600 MHz     Dec. 2026  

BULGARIA

   900 MHz     June 2024  
   1800 MHz     June 2024  
   2100 MHz     Apr. 2025  

CROATIA

   800 MHz     Oct. 2024  
   900 MHz     Oct. 2024  
   1800 MHz     Oct. 2024  
   1900 MHz     Oct. 2024  
   2100 MHz     Oct. 2024  

BELARUS

   900 MHz     Dec. 2020  
   1800 MHz     Dec. 2020  
   2100 MHz     Dec. 2020  

SLOVENIA

   800 MHz     May 2029  
   900 MHz     Jan. 2031  
   1800 MHz     Jan. 2031  
   2600 MHz     May 2029  
   2100 MHz     Sept. 2021  

SERBIA

   800 MHz     Jan. 2026  
   900 MHz     Nov. 2026  
   1800 MHz     Nov. 2026  
   2100 MHz     Nov. 2026  

MACEDONIA

   800 MHz     Dec. 2033  
   1800 MHz     Dec. 2033  
   900 MHz     Sept. 2023  
   2100 MHz     Feb. 2028  
 

 


 

102

 



Table of Contents

 

 

 

 

OTHER JURISDICTIONS

 

Country   Principal Regulatory Authorities   Concession and Licenses
COSTA RICA  

Superintendency of Telecommunications ( Superintendencia de Telecomunicaciones )

 

Ministry of Science, Technology and Telecommunications ( Ministerio de Ciencia, Tecnología y Telecomunicaciones )

 

•  Concessions in the AWS and 1800 MHz bands that expire in 2032

•  Concessions in the 2100 MHz band that expire in 2026

•  License to operate Pay TV services using DTH technology that will expire in 2027

EL SALVADOR   Electricity and Telecommunications Superintendency ( Superintendencia General de Electricidad y Telecomunicaciones )  

•  Concession of 50 MHz in the 1900 MHz band of which 30 MHz that expire in 2037, 10 MHz that expire in 2021 and 10 MHz that expire in 2028

•  Concession to provide public telephone service that expires in 2027

•  Licenses to provide Pay TV Services through HFC and DTH technologies have an indefinite term

GUATEMALA   Guatemalan Telecommunications Agency ( Superintendencia de Telecomunicaciones )  

•  Licenses to use 12 MHz in the 900 MHz band and 40 MHz in the 1900 MHz band that all expire in 2033

NICARAGUA   Nicaraguan Telecommunications and Mailing Institute ( Instituto Nicaragüense de Telecomunicaciones y Correos )  

•  Concessions in the 700 MHz, 850 MHz, 1900 MHz and 1700/2100 MHz bands that all expire in 2032

•  Concession of 50 MHz in the 3.5 GHz band that will expire in 2042

•  Licenses to provide DTH technology that will expire in January 2028 (for which an application for renewal has been submitted) and Pay TV services that has an indefinite term

HONDURAS   Honduran National Telecommunications Commission ( Comisión Nacional de Telecomunicaciones )  

•  Concessions to use 80 MHz in the 1900 MHz PCS band and 40 MHz in the LTE-4G 1700/2100 MHz band that all expire in 2033

•  Licenses to operate Pay TV services through (i) HFC technology that will expire in 2027 and (ii) DTH technology that will expire in 2020

PANAMA   National Authority of Public Services ( Autoridad Nacional de los Servicios Públicos )  

•  License to use 40 MHz in the 1900 MHz and 20 MHz in the 700 MHz bands that all expire in 2028

•  Licenses to provide fixed local and long distance services that expire in 2030

•  Licenses to provide international long-distance, value-added services, interactive television, and Pay TV service through DTH and IPTV technologies, which expire in 2028, 2030, 2037 and 2034, respectively

UNITED STATES   The FCC  

•  Not required to hold wireless licenses to carry out its business

 


 

103

 



Table of Contents

 

         REGULATION

 

 

 

Country   Principal Regulatory Authorities   Concession and Licenses
DOMINICAN REPUBLIC   Dominican Institute of Telecommunications ( Instituto Dominicano de las Telecomunicaciones )  

•  Concessions to use 25 MHz in the 800 MHz band, 30 MHz in the 1900 MHz band, 30 MHz in the 3.5 GHz band and 40 MHz in the 1.7/2.1 GHz (AWS) band that expire in 2030

•  Licenses to provide Pay TV Services through DTH and IPTV technologies that expire in 2030

PUERTO RICO   FCC and the Telecommunications Regulatory Board of Puerto Rico  

•  Concessions to use the 700 MHz, 1900 MHz and the 30 GHz bands that expire in 2021, 2027 and 2019, respectively

•  Concessions to use the 800 MHz that expire in March 2018 (for which an application for renewal has been submitted), 2020, 2021 and 2026

•  Concessions to use the 1.7/2.1 GHz bands that expire in 2026 and 2028

•  Long-term transfer lease concessions to use 35.6 MHz of the 2.5 GHz EBS band that expire in 2020, 2022, 2023, 2025 and 2026

•  Franchise to operate Pay TV Services using IPTV technology that expires in 2030

 


 

104

 



Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

 

          EMPLOYEES

 

Many of our employees are members of labor unions with which we conduct collective negotiations on wages, benefits and working conditions. We believe that we have good current relations with our workforce.

 

 

The following table sets forth the total number of employees and a breakdown of employees by main category of activity and geographic location, as of the end of each year in the three-year period ended December 31, 2017.

 

     DECEMBER 31,  
     2015      2016            2017  
NUMBER OF EMPLOYEES      195,475        194,431                191,851  
CATEGORY OF ACTIVITY:                            
Wireless      77,701        78,887                78,910  
Fixed      101,077        97,104                94,496  
Other businesses      16,697        18,440                18,445  
GEOGRAPHIC LOCATION:                            
Mexico      88,446        90,306                88,417  
South America      69,269        65,817                64,619  
Central America      9,581        9,767                9,694  
United States      902        848                852  
Caribbean      9,605        9,488                9,311  
Europe      17,672        18,205                18,958  

 


 

 

          LEGAL PROCEEDINGS

 

 

In each of the countries in which we operate, we are party to various legal proceedings in the ordinary course of business. These proceedings include tax, labor, antitrust, contractual matters and administrative and judicial proceedings concerning regulatory matters such as interconnection and tariffs. We are party to a number of proceedings regarding our compliance with administrative rules and regulations and concession standards.

Our material legal proceedings are described in Note 16 to our audited consolidated financial statements included in this annual report and in “Regulation” under Part VI.

 


 

107

 



Table of Contents

 

          PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

 

AUDIT AND NON-AUDIT FEES

The following table sets forth the fees billed to us and our subsidiaries by our independent registered public accounting firm, Mancera, during the fiscal years ended December 31, 2016 and 2017:

 

     YEAR ENDED DECEMBER 31,  
     2016      2017  
      (in millions of Mexican pesos)  

Audit fees (1)

     Ps.         241        Ps.         245  

Audit-related fees (2)

     15        31  

Tax fees (3)

     31        34  

Total fees

     Ps.         287        Ps.         310  

(1)  Audit fees represent the aggregate fees billed by Mancera and its Ernst & Young Global affiliated firms in connection with the audit of our annual financial statements and statutory and regulatory audits.

(2)  Audit-related fees represent the aggregate fees billed by Mancera and its Ernst & Young Global affiliated firms for the review of reports on our operations submitted to IFT and attestation services that are not required by statute or regulation.

(3)  Tax fees represent fees billed by Mancera and its Ernst & Young Global affiliated firms for tax compliance services, tax planning services and tax advice services.

 

  

 

AUDIT AND CORPORATE PRACTICES COMMITTEE APPROVAL POLICIES AND PROCEDURES

Our audit and corporate practices committee has established policies and procedures for the engagement of our independent auditors for services. Our audit and corporate practices committee expressly approves any engagement of our independent auditors for audit or non-audit services provided to us or our subsidiaries. Prior to providing any service that requires specific pre-approval, our independent auditor and our Chief Financial Officer present to the audit committee a request for approval of services in which they confirm that the request complies with the applicable rules.

 


 

  

 

          EXCHANGE RATES

 

  

 

Mexico has had a free market for foreign exchange since 1991, and the government has allowed the peso to float freely against the U.S. dollar since December 1994.

The following table sets forth, for the periods indicated, the high, low, average and period-end rate reported by Banco de México for December 31, 2017 as published in the Official Gazette, expressed in pesos per U.S. dollar.

 

 PERIOD    HIGH      LOW      AVERAGE  (1)      PERIOD END  
 2013      13.4394        11.9807        12.8210        13.0765  
 2014      14.7853        12.8462        13.3580        14.7180  
 2015      17.3776        14.5559        16.0379        17.2065  
 2016      21.0511        17.1767        18.6567        20.6640  
 2017      21.9076        17.4937        18.9066        19.6629  

October

     19.2188        18.2113        18.8161        19.1478  

November

     19.2268        18.5190        18.9158        18.6229  

December

     19.7867        18.6399        19.1812        19.6629  
 2018                                    

January

     19.4899        18.4672        18.9074        18.6069  

February

     18.8949        18.3447        18.6592        18.8381  

March

     18.8508        18.1869        18.6027        18.1869  

April (through April 24)

     18.9429        18.0115        18.2956        18.8188  

(1)  Average of month-end rates.

  

On April 24, 2018 the rate published by the Official Gazette was Ps.18.8188 to U.S.$1.00.

 


 

108

 



Table of Contents

 

          ADDITIONAL INFORMATION

 

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its public reference rooms in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

 

 

Any filings we make electronically will be available to the public over the internet at the SEC’s web site at www.sec.gov and at our website at www.americamovil.com. This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report.

The following documents have been filed with the SEC as exhibits to this annual report:

 

1.1    Amended and Restated Bylaws ( estatutos sociales ) of América Móvil, S.A.B. de C.V., dated as of April 16, 2018 (together with an English translation).
7.1    Computation of Ratios of Earnings to Fixed Charges.
8.1    List of certain subsidiaries of América Móvil, S.A.B. de C.V.
12.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1    Certification pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
14.1    Code of Ethics.
15.1    Consent of independent registered public accounting firm.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Document.

Omitted from the exhibits filed with this annual report are certain instruments and agreements with respect to long-term debt of América Móvil, none of which authorizes securities in a total amount that exceeds 10% of the total assets of América Móvil. We hereby agree to furnish to the SEC copies of any such omitted instruments or agreements as the Commission requests.

 


 


 

109

 



Table of Contents

 

          FORWARD-LOOKING STATEMENTS

 

Some of the information contained or incorporated by reference in this annual report constitutes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we have based these forward-looking statements on our expectations and projections about future events, it is possible that actual events may differ materially from our expectations. In many cases, we include, together with the forward-looking statements themselves, a discussion of factors that may cause actual events to differ from our forward-looking statements. Examples of forward-looking statements include the following:

 

  projections of our commercial, operating or financial performance, our financing, our capital structure or our other financial items or ratios;
  statements of our plans, objectives or goals, including those relating to acquisitions, competition and rates;
  statements concerning regulation or regulatory developments;
  statements about our future economic performance or that of Mexico or other countries in which we operate;
  competitive developments in the telecommunications sector;
  other factors and trends affecting the telecommunications industry generally and our financial condition in particular; and
  statements of assumptions underlying the foregoing statements.

We use words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and other similar expressions to identify forward-looking statements, but they are not the only way we identify such statements.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed under “Risk Factors,” include economic and political conditions and government policies in Mexico, Brazil, Colombia, Europe and elsewhere, inflation rates, exchange rates, regulatory developments, technological improvements, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. You should evaluate any statements made by us in light of these important factors.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

 


 

110

 



Table of Contents

 

          GLOSSARY

 

 

 

 

 

Term    Definition
AWS    Advanced Wireless Services. This is a wireless telecommunications spectrum band used for wireless voice and data services, video and messaging.
Broadband    High-speed data transmission in which a single cable (coaxial cable or optical fiber) can carry a large amount of data at once.
Bundle or bundling    The marketing of different services as one combined service.
Churn rate    Disconnection rate. The ratio of wireless subscribers disconnected during a given period to the number of subscribers at the beginning of that period.
Covered population    Population covered by our wireless networks, expressed as the population count or as a percentage of the total population.
Cloud services    Internet-based services providing users with on-demand access to resources, data and information.
Data administration    Services that plan, organize and control data resources for customers according to their needs.
Data center    A facility used to house computer systems and associated components. We use our data centers to manage a number of cloud solutions.
DTH    Direct-to-home broadcasting is a method for transmitting satellite signals directly to the subscriber’s home.
Fixed-line    Telephone services requiring the use of a metal wire or fiber optic telephone line for transmission.
Fixed RGUs    RGUs from fixed voice, fixed data and Pay TV services.
GSM    Global System for Mobile Communications. A standard used to describe the protocols for certain digital cellular networks.
GSM EDGE    Enhanced Data Rates for GSM Evolution is a 3rd generation (“3G”) standard for wireless communication of data for mobile phones and data terminals.
HFC    Hybrid fiber-coaxial is a broadband network that combines optical fiber and coaxial cable.
Hosting services    Services allowing customers to provide content on the internet, either through maintaining a webpage, an email address or other services.
IAAS    Infrastructure as a service is a cloud-service model offering virtual machines and other resources.
IMT-2000    International Mobile Telecommunciations-2000 is a set of global standards by the International Telecommunication Union for 3G wireless telecommunications services and equipment.
Interconnection rates    The charges that one telecommunications network operator charges another network operator for allowing customers to access its network.
IPTV    Internet Protocol television, which refers to the use of Internet technology to deliver television programs “on demand”
Licensed population    Population covered by the licenses that each of our subsidiaries manages.
Long-distance    Long-distance calls are calls made outside a defined area and may incur additional charges or be subject to specific regulations.
LTE/4G    Long-term evolution is a 4th generation (“4G”) standard for wireless communication of high-speed data for mobile phones and data terminals.
Machine-to-machine services    Services allowing direct communication between devices over a network, including fixed and wireless devices.
Market share    A company’s subscriber base in a given country divided by the total number of subscribers in that country.
Mobile payment    Refers to payment services and applications operated and performed on a mobile device.

 


 

111

 



Table of Contents

 

         GLOSSARY

 

 

Term    Definition
MHz    Megahertz. The unit of frequency to measure one thousand cycles per second that is used to determine radio frequencies.
MVNO    Mobile Virtual Network Operator. A wireless communications services provider that does not own the wireless network infrastructure but enters into agreements with other mobile service providers for the use of their networks.
Net debt    Total debt minus cash and cash equivalents, minus marketable securities or other short-term investments.
On-demand    Describes services providing customers with the ability to stream content over our network immediately upon their request.
OTT services    Over-the-top Services. The provision of content, including videos, television and other information, directly from the content provider to the viewer or end user.
Pay TV    Pay Television. This refers to television services we offer to subscribers through cable and satellite networks.
PCS    Personal Communications Service refers to a wide range of wireless communication technologies, including cellular, mobile data, Internet or paging services. Similar but distinct from cellular telephone services in the frequencies on which they operate and the power levels each uses to transmit signals, among other differences.
Prepaid subscriber    A subscriber who does not hold a contract with the company for voice and data services but pays in advance for specific use of services.
Postpaid subscriber    A subscriber who has a contract with the company for voice and data services and is billed recurrently for use of services.
RGU    Revenue Generating Unit. This is an individual subscriber who provides recurring revenue.
Roaming    Allows wireless subscribers to access networks other than our own, enabling them to use their devices, including for voice and data transmission. Typically refers to using accessing a network while abroad.
SMS    Short Message Service. A text messaging service component of a fixed or wireless communication system.
SAAS    Software as a service is a cloud-service model offering users access to software applications and databases.
Subscriber acquisition cost    The sum of handset subsidies, marketing expenses and commissions to distributors for handset activation. Handset subsidy is the difference between equipment cost and equipment revenues.
Total RGUs    Fixed RGUs and wireless subscribers.
UMTS    Universal Mobile Telecommunications System is a 3G mobile cellular system for networks based on the GSM standard.
VPN    Virtual private network grants users access to a private network virtually across a public network.
Wireless penetration    Total wireless subscribers in a given country divided by the total population in that country.

 


 

112

 



Table of Contents

 

          FORM 20-F CROSS REFERENCE GUIDE

 

 

 

ITEM   FORM 20-F CAPTION   LOCATION IN THIS REPORT    PAGES
1   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   Not applicable   
2   OFFER STATISTICS AND EXPECTED TIMETABLE   Not applicable   
3   KEY INFORMATION         
  3A Selected financial data   Selected financial data    1
    Exchange rates    108
          
  3B Capitalization and indebtedness   Not applicable   
  3C Reasons for the offer and use of proceeds   Not applicable   
  3D Risk factors   Risk factors    43
4   INFORMATION ON THE COMPANY         
  4A History and development of the Company   Information on the Company    5
    Note 10—Property, Plant and Equipment, Net    F-38
    Liquidity and capital resources    34
  4B Business overview   Information on the Company    5
    Regulation    88
  4C Organizational structure   Exhibit 8.1   
  4D Property, plant and equipment   Information on the Company    5
    Note 10—Property Plant and Equipment, Net    F-38
    Liquidity and capital resources    34
    Regulation    88
4A   Unresolved staff comments   None   
5   OPERATING AND FINANCIAL REVIEW AND PROSPECTS         
 

5A Operating results

  Overview    18
    Results of operations    20
    Regulation    88
    Liquidity and capital resources    34
  5B Liquidity and capital resources   Note 14—Debt    F-50
  5C Research and development, patents and licenses, etc.   Not applicable   
  5D Trend information   Overview    18
    Results of operations    20
  5E Off-balance sheet arrangements   Off-balance sheet arrangement    34
  5F Tabular disclosure of contractual obligations   Contractual obligations    34
6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES         
  6A Directors and senior management   Management    72
  6B Compensation   Management compensation    80
  6C Board practices   Management    72
    Management compensation    80
  6D Employees   Employees    107
  6E Share ownership   Major shareholders    56
    Management compensation    80
7   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS         
  7A Major shareholders   Major shareholders    56
  7B Related party transactions   Related party transactions    57
  7C Interests of experts and counsel   Not applicable   

 


 

113

 



Table of Contents

 

          FORM 20-F CROSS REFERENCE GUIDE

 

 

ITEM   FORM 20-F CAPTION    LOCATION IN THIS REPORT    PAGES
8   FINANCIAL INFORMATION          
  8A Consolidated statements and other financial information    Consolidated Financial Statements    118
     Dividends    57
     Note 16—Commitments and Contingencies    F-57
  8B Significant changes    Not applicable   
9   THE OFFER AND LISTING          
  9A Offer and listing details    Trading markets    58
  9B Plan of distribution    Not applicable   
  9C Markets    Trading markets    58
  9D Selling shareholders    Not applicable   
  9E Dilution    Not applicable   
  9F Expenses of the issue    Not applicable   
10   ADDITIONAL INFORMATION          
  10A Share capital    Bylaws    60
  10B Memorandum and articles of association    Bylaws    60
  10C Material contracts    Information on the Company    5
     Results of operations    20
     Related party transactions    57
     Regulation    88
  10D Exchange controls    Additional information    106
  10E Taxation    Taxation of shares and ADSs    65
  10F Dividends and paying agents    Not applicable   
  10G Statement by experts    Not applicable   
  10H Documents on display    Additional information    106
  10I Subsidiary information    Not applicable   
11   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Risk management    37
         Note 2 w)—Basis of Preparation of the Consolidated Financial Statements and Summary of Significant Accounting Policies and Practices    F-25
12   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES          
  12A Debt securities    Not applicable   
  12B Warrants and rights    Not applicable   
  12C Other securities    Not applicable   
  12D American Depositary Shares    Depositary shares    63
13   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES    Not applicable   
14  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY

HOLDERS AND USE OF PROCEEDS

   Not applicable   
15   CONTROLS AND PROCEDURES    Controls and procedures    84
16A   AUDIT COMMITTEE FINANCIAL EXPERT    Management    72
16B   CODE OF ETHICS    Code of ethics    86
16C   PRINCIPAL ACCOUNTANT FEES AND SERVICES    Principal accountant fees and services    108
16D   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES    Not applicable   
16E   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFIIATED PURCHASERS    Purchases of equity securities by the issuer and affiliated purchasers    64
16F   CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT    Not applicable   
16G   CORPORATE GOVERNANCE    Corporate governance    71
16H   MINE SAFETY DISCLOSURE    Not applicable   
17   FINANCIAL STATEMENTS    Not applicable   
18   FINANCIAL STATEMENTS    Consolidated Financial statements    118
19   EXHIBITS    Additional Information    109

 


 

114

 



Table of Contents

 

          SIGNATURES

 

 

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Dated: April 26, 2018

AMÉRICA MÓVIL, S.A.B. DE C.V.

 

By:   /s/ Carlos José García Moreno Elizondo
Name:     Carlos José García Moreno Elizondo
Title:   Chief Financial Officer

 

By:   /s/ Alejandro Cantú Jiménez
Name:     Alejandro Cantú Jiménez
Title:   General Counsel

 


 

115

 



Table of Contents

 

 
 

 

 

 

 

 

 


 

 


 


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Financial Statements

Years Ended December 31, 2015, 2016 and 2017

with Report of Independent Registered Public Accounting Firm


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Financial Statements

Years Ended December 31, 2015, 2016, and 2017

Contents:

 

Report of Independent Registered Public Accounting Firm

     F-1  

Audited Consolidated Financial Statements:

  

Consolidated Statements of Financial Position

     F-2  

Consolidated Statements of Comprehensive Income

     F-3  

Consolidated Statements of Changes in Shareholders’ Equity

     F-4  

Consolidated Statements of Cash Flows

     F-5  

Notes to Consolidated Financial Statements

     F-6  


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

América Móvil, S.A.B. de C.V.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of América Móvil, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company´s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated April 26, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company´s management. Our responsibility is to express an opinion on the Company´s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ MANCERA, S.C.

We have served as the Company´s auditor since 1993.

Mexico City, Mexico

April 26, 2018

 

F-1


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands of Mexican pesos)

 

          At December 31,  
       Note      2016     2017     2017
Millions of
U.S. dollars
 

Assets

         

Current assets:

         

Cash and cash equivalents

   3    Ps. 23,218,383     Ps. 24,270,473     US$ 1,227  

Marketable securities and other short-term investments

   4      54,857,157       59,120,676       2,988  

Accounts receivable:

         

Subscribers, distributors, recoverable taxes and other, net

   5      205,774,539       193,776,144       9,793  

Related parties

   6      740,492       868,230       44  

Derivative financial instruments

   7      909,051       8,037,384       406  

Inventories, net

   8      36,871,292       38,809,565       1,961  

Other current assets, net

   9      19,538,093       17,352,746       877  
     

 

 

   

 

 

   

 

 

 

Total current assets

      Ps. 341,909,007     Ps. 342,235,218     US$ 17,296  

Non-current assets:

         

Property, plant and equipment, net

   10    Ps. 701,190,066     Ps. 676,343,198     US$ 34,182  

Intangibles, net

   11      152,369,446       143,539,626       7,254  

Goodwill

   11      152,632,635       151,463,232       7,655  

Investments in associated companies

        3,603,484       3,735,172       189  

Deferred income taxes

   13      112,651,699       116,571,349       5,891  

Accounts receivable, subscribers and distributors

   5      11,184,860       9,786,581       495  

Other assets, net

   9      39,501,077       42,537,476       2,150  
     

 

 

   

 

 

   

 

 

 

Total assets

      Ps.   1,515,042,274     Ps.   1,486,211,852     US$   75,112
     

 

 

   

 

 

   

 

 

 

Liabilities and equity

         

Current liabilities:

         

Short-term debt and current portion of long-term debt

   14    Ps. 82,607,259     Ps. 51,745,841     US$ 2,615  

Accounts payable

   15a      237,265,126       212,673,407       10,749  

Accrued liabilities

   15b      70,479,230       67,752,758       3,425  

Income tax

        3,200,673       9,362,009       473  

Other taxes payable

        22,087,957       24,387,484       1,233  

Derivative financial instruments

   7      14,136,351       10,602,539       536  

Related parties

   6      2,971,325       2,540,412       128  

Deferred revenues

        37,255,328       34,272,047       1,732  
     

 

 

   

 

 

   

 

 

 

Total current liabilities

      Ps. 470,003,249     Ps. 413,336,497     US$ 20,891  

Non-current-liabilities:

         

Long-term debt

   14    Ps. 625,194,144     Ps. 646,139,058     US$ 32,655  

Deferred income taxes

   13      14,061,881       11,997,364       606  

Income tax

        2,348,069       8,622,500       436  

Deferred revenues

        1,625,270       3,183,727       161  

Derivative financial instruments

   7      3,448,396       3,756,921       190  

Asset retirement obligations

   15c      16,288,631       18,245,129       922  

Employee benefits

   17      111,048,867       120,297,139       6,080  
     

 

 

   

 

 

   

 

 

 

Total non-current liabilities

      Ps. 774,015,258     Ps. 812,241,838     US$ 41,050  
     

 

 

   

 

 

   

 

 

 

Total liabilities

      Ps. 1,244,018,507     Ps. 1,225,578,335     US$ 61,941  
     

 

 

   

 

 

   

 

 

 

Equity:

         

Capital stock

   19    Ps. 96,337,514     Ps. 96,338,508     US$ 4,869  

Retained earnings:

         

Prior years

        149,065,873       141,761,677       7,164  

Profit for the year

        8,649,427       29,325,921       1,482  
     

 

 

   

 

 

   

 

 

 

Total retained earnings

        157,715,300       171,087,598       8,646  

Other comprehensive loss items

        (45,137,571     (73,261,794     (3,703
     

 

 

   

 

 

   

 

 

 

Equity attributable to equity holders of the parent

        208,915,243       194,164,312       9,812  

Non-controlling interests

        62,108,524       66,469,205       3,359  
     

 

 

   

 

 

   

 

 

 

Total equity

        271,023,767       260,633,517       13,171  
     

 

 

   

 

 

   

 

 

 

Total liabilities and equity

      Ps. 1,515,042,274     Ps. 1,486,211,852     US$ 75,112  
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-2


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands of Mexican pesos, except for earnings per share)

 

        For the year ended December 31  
    Note   2015     2016     2017     2017
Millions of U.S.
dollars, except
for earnings
per share
 

Operating revenues:

         

Mobile voice services

    Ps.   256,146,766     Ps.   242,302,380     Ps.   221,751,600     US$   11,207  

Fixed voice services

      95,470,187       95,299,154       89,856,743       4,541  

Mobile data services

      226,723,039       256,936,895       308,526,994       15,593  

Fixed data services

      109,257,140       126,278,206       139,277,613       7,039  

Pay television

      66,050,857       78,268,778       86,882,606       4,391  

Sales of equipment, accessories and computers

      115,938,623       143,527,123       143,222,212       7,238  

Other related services

      24,151,127       32,799,952       32,115,767       1,623  
   

 

 

   

 

 

   

 

 

   

 

 

 
    Ps. 893,737,739     Ps. 975,412,488     Ps.  1,021,633,535     US$ 51,632  
   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

         

Cost of sales and services

      420,263,931       485,060,579       496,335,746       25,084  

Commercial, administrative and general expenses

      201,360,956       228,101,116       240,634,431       12,161  

Other expenses

      4,984,956       4,114,562       24,345,113       1,230  

Depreciation and amortization

  9,10 and 11     125,714,735       148,525,921       160,174,942       8,095  
   

 

 

   

 

 

   

 

 

   

 

 

 
    Ps. 752,324,578     Ps. 865,802,178     Ps. 921,490,232     US$ 46,570  
   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    Ps. 141,413,161     Ps. 109,610,310     Ps. 100,143,303     US$ 5,062  
   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

      4,853,012       4,192,595       2,925,648       148  

Interest expense

      (31,197,372     (33,862,012     (30,300,781     (1,531

Foreign currency exchange loss, net

      (78,997,988     (40,427,407     (13,818,951     (698

Valuation of derivatives, interest cost from labor obligations and other financial items, net

  21     21,496,316       (16,225,841     (1,943,760     (98

Equity interest in net (loss) income of associated companies

      (1,426,696     189,950       91,385       5  
   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

      56,140,433       23,477,595       57,096,844       2,888  

Income tax

  13     19,179,651       11,398,856       24,941,511       1,261  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit for the year

    Ps. 36,960,782     Ps. 12,078,739     Ps. 32,155,333     US$ 1,627  
   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit for the year attributable to:

         

Equity holders of the parent

    Ps. 35,054,772     Ps. 8,649,427     Ps. 29,325,921     US$ 1,482  

Non-controlling interests

      1,906,010       3,429,312       2,829,412       145  
   

 

 

   

 

 

   

 

 

   

 

 

 
    Ps. 36,960,782     Ps. 12,078,739     Ps. 32,155,333     US$ 1,627  
   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per share attributable to equity holders of the parent

    Ps. 0.52     Ps. 0.13     Ps. 0.44     US$ 0.02  
   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) items:

         

Net other comprehensive (loss) income that may be reclassified to profit or loss in subsequent years:

         

Effect of translation of foreign entities

    Ps. (35,606,320   Ps. 107,498,708     Ps. (18,309,877   US$ (925

Effect of fair value of derivatives, net of deferred taxes

      37,495       49,129       12,292       1  

Unrealized gain (loss) on available for sale securities, net of deferred taxes

      4,011       (6,673,731     622,424       31  

Items that will not be reclassified to (loss) or profit in subsequent years:

         

Re-measurement of defined benefit plan, net of deferred taxes

      (17,980,418     14,773,399       (7,046,089     (356
   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income items for the year, net of deferred taxes

  20     (53,545,232     115,647,505       (24,721,250     (1,249
   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income for the year

    Ps. (16,584,450   Ps. 127,726,244     Ps. 7,434,083     US$ 378  
   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income for the year attributable to:

         

Equity holders of the parent

    Ps. (16,750,963   Ps. 120,974,842     Ps. 1,201,698     US$ 62  

Non-controlling interests

      166,513       6,751,402       6,232,385       316  
   

 

 

   

 

 

   

 

 

   

 

 

 
    Ps. (16,584,450   Ps. 127,726,244     Ps. 7,434,083     US$ 378  
   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

For the year ended December 31, 2015, 2016 and 2017

(In thousands of Mexican pesos)

 

    Capital
stock
    Legal
reserve
    Retained
earnings
    Effect of
derivative
financial
instruments
acquired for
hedging
purposes
    Unrealized
gain (loss) on
available
for sale
securities
    Re-measurement
of defined
benefit plans
    Cumulative
translation
adjustment
    Total equity
attributable to
equity holders
of the parent
    Non-
controlling
interests
    Total
equity
 

Balance at December 31, 2014

  Ps.   96,382,631     Ps.   358,440     Ps.   191,975,968     Ps.   (1,556,693   Ps. —     Ps.   (62,992,683   Ps. (39,783,387   Ps.   184,384,276     Ps.   50,254,772     Ps.   234,639,048  

Net profit for the year

    —         —         35,054,772       —         —         —         —         35,054,772       1,906,010       36,960,782  

Effect of fair value of derivatives, net of deferred taxes

    —         —         —         37,011       —         —         —         37,011       484       37,495  

Unrealized gain on available for sale securities, net of deferred taxes

    —         —         —         —         4,011       —         —         4,011       —         4,011  

Remeasurement of defined benefit plan, net of deferred taxes

    —         —         —         —         —         (17,791,354     —         (17,791,354     (189,064     (17,980,418

Effect of translation of foreign entities

    —         —         —         —         —         —         (34,055,403     (34,055,403     (1,550,917     (35,606,320
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) for the year

    —         —         35,054,772       37,011       4,011       (17,791,354     (34,055,403     (16,750,963     166,513       (16,584,450

Dividends declared

    —         —         (37,192,594     —         —         —         —         (37,192,594     (447,085     (37,639,679

Repurchase of shares

    (9,154     —         (33,942,627     —         —         —         —         (33,951,781     —         (33,951,781

Effect of spin-off

    (35,000     —         16,193,640       —         —         —         —         16,158,640       —         16,158,640  

Derecognition of the equity method investment in KoninKlijke KPN, with retained available for sale financial interest

    —         —         —         1,458,894       —         (2,060,910     348,593       (253,423     —         (253,423

Other acquisitions of non-controlling interests and others

    —         —         (116,160     —         —         —         —         (116,160     (1,398,009     (1,514,169
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

    96,338,477       358,440       171,972,999       (60,788     4,011       (82,844,947     (73,490,197     112,277,995       48,576,191       160,854,186  

Net profit for the year

    —         —         8,649,427       —         —         —         —         8,649,427       3,429,312       12,078,739  

Effect of fair value of derivatives, net of deferred taxes

    —         —         —         48,496       —         —         —         48,496       633       49,129  

Unrealized loss on available for sale securities, net of deferred taxes

    —         —         —         —         (6,673,731     —         —         (6,673,731     —         (6,673,731

Remeasurement of defined benefit plan, net of deferred taxes

    —         —         —         —         —         14,771,770       —         14,771,770       1,629       14,773,399  

Effect of translation of foreign entities

    —         —         —         —         —         —         104,178,880       104,178,880       3,319,828       107,498,708  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) for the year

    —         —         8,649,427       48,496       (6,673,731     14,771,770       104,178,880       120,974,842       6,751,402       127,726,244  

Dividends declared

    —         —         (18,339,294     —         —         —         —         (18,339,294     (652,341     (18,991,635

Stock dividend (Note 19)

    1,512       —         4,606,274       —         —         —         —         4,607,786       —         4,607,786  

Repurchase of shares

    (2,475     —         (7,213,397     —         —         —         —         (7,215,872     —         (7,215,872

Partial sale of shares of Telekom Austria
(Note 12)

    —         —         —         —         —         68,127       (1,139,192     (1,071,065     7,394,401       6,323,336  

Other acquisitions of non-controlling interests (Note 12)

    —         —         (2,319,149     —         —         —         —         (2,319,149     38,871       (2,280,278
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

    96,337,514       358,440       157,356,860       (12,292     (6,669,720     (68,005,050     29,549,491       208,915,243       62,108,524       271,023,767  

Net profit for the year

    —         —         29,325,921       —         —         —         —         29,325,921       2,829,412       32,155,333  

Effect of fair value of derivatives, net of deferred taxes

    —         —           12,292     —         —         —         12,292         12,292  

Unrealized loss on available for sale securities, net of deferred taxes

    —         —         —         —         622,424     —         —         622,424     —         622,424

Remeasurement of defined benefit plan, net of deferred taxes

    —         —         —         —         —         (7,075,606     —         (7,075,606     29,517     (7,046,089

Effect of translation of foreign entities

    —         —         —         —         —         —         (21,683,333     (21,683,333     3,373,456     (18,309,877
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) for the year

    —         —         29,325,921     12,292     622,424     (7,075,606     (21,683,333     1,201,698     6,232,385     7,434,083

Dividends declared

    —         —         (19,815,470     —         —         —         —         (19,815,470     (1,848,108     (21,663,578

Stock dividend (Note 19)

    1,264     —         4,902,818     —         —         —         —         4,904,082     —         4,904,082

Repurchase of shares

    (270 )       —         (1,040,686     —         —         —         —         (1,040,956     —         (1,040,956

Other acquisitions of non-controlling interests (Note 12)

    —         —         (285     —         —         —         —         (285     (23,596     (23,881
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

  Ps. 96,338,508     Ps. 358,440     Ps. 170,729,158     Ps.     Ps.   (6,047,296)     Ps. (75,080,656   Ps. 7,866,158     Ps. 194,164,312     Ps.   66,469,205   Ps. 260,633,517  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands of Mexican pesos)

 

        For the year ended December 31
    Note   2015   2016     2017     2017
Millions of U.S.
dollars
 

Operating activities

         

Profit before income tax

    Ps. 56,140,433     Ps. 23,477,595     Ps. 57,096,844     US$ 2,888  

Items not requiring the use of cash:

         

Depreciation

  10     110,155,403       127,662,344       135,206,080       6,833  

Amortization of intangible and other assets

  9 and 11     15,559,332       20,863,577       24,968,862       1,262  

Equity interest in net loss (income) of associated companies

      1,426,696       (189,950     (91,385     (5

Gain on derecognition of equity method investment

      (11,988,038     —         —         —    

Loss on sale of property, plant and equipment

      127,379       8,059       145,225       7  

Net period cost of labor obligations

  17     9,278,081       14,240,271       13,636,182       689  

Foreign currency exchange loss, net

      59,251,486       34,049,726       11,699,985       591  

Interest income

      (4,853,012     (4,192,595     (2,925,648     (148

Interest expense

      31,197,372       33,862,012       30,300,781       1,531  

Employee profit sharing

      3,311,887       2,235,267       1,751,312       89  

Loss on partial sales of shares of associated company

      545       —         —         —    

(Gain) loss in valuation of derivative financial instruments, capitalized interest expense and other, net

      (18,313,877     85,216       (19,010,851     (961

Working capital changes:

         

Accounts receivable from subscribers, distributors, recoverable taxes and other, net

      (17,641,833     (14,192,651     1,799,095       91  

Prepaid expenses

      (1,765,071     792,979       4,588,584       232  

Related parties

      113,662       829,632       (558,651     (28

Inventories

      (83,902     3,076,159       (2,991,009     (151

Other assets

      (8,378,977     (2,944,581     (4,763,394     (241

Employee benefits

      (3,058,536     (5,384,944     (14,692,218     (743

Accounts payable and accrued liabilities

      (6,269,338     18,196,349       5,190,137       262  

Employee profit sharing paid

      (4,055,711     (3,297,439     (1,471,946     (74

Financial instruments and other

      (1,882,540     28,878,632       1,515,668       77  

Deferred revenues

      782,803       (972,376     (452,913     (23

Interest received

      5,275,303       3,239,845       819,940       41  

Income taxes paid

      (50,602,556     (44,525,073     (23,988,305     (1,211
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Net cash flows provided by operating activities

    Ps. 163,726,991     Ps. 235,798,054     Ps. 217,772,375     US$ 11,008  
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Investing activities

         

Purchase of property, plant and equipment

      (128,039,913     (138,707,157     (119,185,137     (6,024

Acquisition of intangibles

      (23,532,826     (16,316,738     (17,538,541     (886

Dividends received

  21     1,645,712       5,740,092       2,385,559       121  

Proceeds from sale of plant, property and equipment

      27,329       115,600       133,349       7  

Acquisition of businesses, net of cash acquired

      (3,457,153     (1,823,813     (6,878,793     (348

Partial sale of shares of associated company

      633,270       —         340,040     17

Proceeds from repayment of related party loan

      21,000,000       —         —         —    

Investments in associate companies

      (177,965     (3,487     —         —    
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Net cash flows used in investing activities

    Ps.  (131,901,546   Ps.  (150,995,503   Ps.  (140,743,523)     US$ (7,113
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Financing activities

         

Loans obtained

      189,073,791       64,281,631       143,607,726       7,258  

Repayment of loans

      (133,110,776     (125,672,444     (171,041,215     (8,644

Interest paid

      (32,830,432     (32,125,872     (31,196,441     (1,577

Repurchase of shares

      (34,443,084     (7,021,247     (1,233,371     (62

Dividends paid

      (37,359,600     (13,809,957     (16,091,390     (813

Derivative financial instruments

      (503,444     (351,213     (71,474     (4

Partial sale of shares in subsidiary

      —         6,323,336       —         —    

Acquisition of non-controlling interests

      (1,031,049     (2,280,278     (11,930     (1
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Net cash flows used in financing activities

    Ps. (50,204,594   Ps. (110,656,044   Ps. (76,038,095   US$ (3,843
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

    Ps. (18,379,149   Ps. (25,853,493   Ps. 990,757     US $ 52  
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Adjustment to cash flows due to exchange rate fluctuations, net

      (2,934,522     3,911,844       61,333       3  

Cash and cash equivalents at beginning of the year

      66,473,703       45,160,032       23,218,383       1,172  
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the year

    Ps. 45,160,032     Ps. 23,218,383     Ps. 24,270,473     US$ 1,227  
   

 

 

 

 

 

 

   

 

 

   

 

 

 

Non-cash transactions related to:

         

Acquisitions of property, plant and equipment in accounts payable at end of year

    Ps. 12,785,347     Ps. 13,497,804     Ps. 18,869,210     US$ 954  
   

 

 

 

 

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


Table of Contents

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years ended December 31, 2015, 2016 and 2017

(In thousands of Mexican pesos [Ps.] and thousands of

U.S. dollars [US$], unless otherwise indicated)

1. Description of the Business and Relevant Events

I. Corporate Information

América Móvil, S.A.B. de C.V. and subsidiaries (hereinafter, the “Company”, “América Móvil” or “AMX”) was incorporated under laws of Mexico on September 25, 2000. The Company provides telecommunications services in 25 countries throughout Latin America, the United States, the Caribbean and Europe. These telecommunications services include mobile and fixed-line voice services, wireless and fixed data services, internet access and Pay TV, over the top and other related services. The Company also sells equipment, accessories and computers.

 

  Voice services provided by the Company, both wireless and fixed, mainly include the following: airtime, local, domestic and international long-distance services, and network interconnection services.

 

  Data services include value added, corporate networks, data and Internet services.

 

  Pay TV represents basic services, as well as pay per view and additional programming and advertising services.

 

  AMX provides other related services to advertising in telephone directories, publishing and call center services.

 

  The Company also provides video, audio and other media content that is delivered through the internet directly from the content provider to the end user.

In order to provide these services, América Móvil has licenses, permits and concessions (collectively referred to herein as “licenses”) to build, install, operate and exploit public and/or private telecommunications networks and provide miscellaneous telecommunications services (mostly mobile and fixed voice and data services) and to operate frequency bands in the radio-electric spectrum for point-to-point and point-to-multipoint microwave links. The Company holds licenses in the 24 countries where it has networks, and such licenses have different dates of expiration through 2046.

Certain licenses require the payment to the respective governments of a share in sales determined as a percentage of revenues from services under concession. The percentage is set as either a fixed rate or in some cases based on certain size of the infrastructure in operation.

The corporate offices of América Móvil are located in Mexico City, Mexico, at Lago Zurich 245, Colonia Ampliación Granada, Delegación Miguel Hidalgo, 11529, Mexico City, Mexico.

The accompanying consolidated financial statements were approved for their issuance by the Company’s Chief Financial Officer on April 26, 2018, and subsequent events have been considered through that date.

II. Relevant events in 2017

 

a)

On July 25, 2017, an arbitration tribunal, constituted at the request of Colombia’s Ministry of Information Technologies and Communications (the “ITC Ministry”) to implement a decision of the Colombian

 

F-6


Table of Contents
  Constitutional Court, ordered the reversion of certain assets of our subsidiary Comunicación Celular, S.A. (“Comcel”) to the ITC Ministry. Such asset reversion was ordered under Comcel’s original concession agreements granted in 1994 and extended through 2013 without applying laws 422 of 1998 and 1341 of 2009 which had eliminated such reversion. In lieu of surrendering the assets, the arbitration tribunal ordered Comcel to pay the ITC Ministry an amount of 3,155 billion Colombian pesos (Ps.18,547,629). On that date Comcel booked the obligation as part of other expenses in the Consolidated Statement of Comprehensive Income. As required by the ITC Ministry, on August 29, 2017, Comcel made such payment under protest reserving all of its rights and those of its shareholders. The Company and Comcel have challenged the legality of the decisions of the Constitutional Court and the arbitration tribunal before all competent national and international fora. See Note 16 c).

 

b) During 2017, there was a currency depreciation of the Mexican peso against the Euro and the Great Britain Pound (GBP). Because a significant portion of the Company´s debt is denominated in Euros and in GBPs, even when the portion of the debt denominated in US dollars reported a foreign exchange gain due to the appreciation of the Mexican peso against the US dollar, the currency depreciation adversely affected the results of the Company as part of the foreign currency exchange loss of the period.

 

c) In addition, during 2017 the Mexican peso appreciated against the Brazilian real. Due to the fact that a significant portion of the Company´s subsidiary operations has the Brazilian real as functional currency, the Company recognized an adverse effect in the Cumulative Translation adjustment in the Shareholders’ Equity.

2. Basis of Preparation of the Consolidated Financial Statements and Summary of Significant Accounting Policies and Practices

a) Basis of preparation

The accompanying consolidated financial statements have been prepared in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IASB”) (hereafter referred to as IFRS).

The consolidated financial statements have been prepared on the historical cost basis, except for the derivative financial instruments, the trust assets of post-employment and other employee benefit plans and the investments in marketable securities which are presented at their market value.

The preparation of these consolidated financial statements under IFRS requires the use of critical estimates and assumptions that affect the amounts reported for certain assets, liabilities, income and expenses. It also requires that management exercise judgment in the application of the Company’s accounting policies. Actual results could differ from these estimates and assumptions.

The Mexican peso is the functional currency of the Company’s Mexican operations and the consolidated reporting currency of the Company.

i) Basis of consolidation

The consolidated financial statements include the accounts of América Móvil, S.A.B. de C.V. and those subsidiaries over which the Company exercises control. The consolidated financial statements for the subsidiaries were prepared for the same period as the Company´s and applying consistent accounting policies. All of the subsidiary companies operate in the telecommunications sector or related.

Subsidiaries are entities over which the Company has control. Control is achieved when the Company has power over the investee, when it is exposed to, or has rights to, variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries

 

F-7


Table of Contents

are consolidated on a line by line basis from the date which control is achieved by the Company. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control.

Changes in the Company’s ownership interests in a subsidiary that do not result in the Company losing control over the subsidiary are accounted for as equity transactions. The carrying amounts of the equity attributable to owners of the parent and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the carrying amount of the non-controlling interests and the fair value of the consideration paid or received in the transaction is recognized directly in the equity attributable to the owners.

Subsidiaries are deconsolidated from the date which control ceases. When the Company ceases to have control over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts, derecognizes the carrying amount of non-controlling interests in the former subsidiary and recognizes the fair value of any consideration received from the transaction. Any retained interest in the former subsidiary is then remeasured to its fair value.

All intra-Company balances and transactions, and any unrealized gains and losses arising from intra-Company transactions, are eliminated in preparing the consolidated financial statements.

Non-controlling interests represent the portion of profits or losses and net assets not held by the Company. Non-controlling interests are presented separately in the consolidated statements of comprehensive income and in equity in the consolidated statements of financial position separately from América Móvil’s own equity.

Associates:

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those decisions.

The Company’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment losses.

The investments in associated companies in which the Company exercises significant influence are accounted for using the equity method, whereby América Móvil recognizes its share in the net profit (losses) and equity of the associate.

The results of operations of the subsidiaries and associates are included in the Company’s consolidated financial statements beginning as of the month following their acquisition and its share of other comprehensive income after acquisition is recognized directly in other comprehensive income.

The Company assesses at each reporting date whether there is objective evidence that investment in associates is impaired. If so, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value.

 

F-8


Table of Contents

The equity interest in the most significant subsidiaries at December 31, 2016 and 2017, is as follows:

 

        Equity interest at
December 31
 

Company name

  Country     2016          2017    

Subsidiaries:

      

América Móvil B.V. a)

  Netherlands     100.0%        100.0%  

Compañía Dominicana de Teléfonos, S.A. (“Codetel”) b)

  Dominican Republic     100.0%        100.0%  

Sercotel, S.A. de C.V. a)

  Mexico     100.0%        100.0%  

Radiomóvil Dipsa, S.A. de C.V. and subsidiaries (“Telcel”)  b)

  Mexico     100.0%        100.0%  

Puerto Rico Telephone Company, Inc. b)

  Puerto Rico     100.0%        100.0%  

Servicios de Comunicaciones de Honduras, S.A. de C.V.
(“Sercom Honduras”) b)

  Honduras     100.0%        100.0%  

TracFone Wireless, Inc. (“TracFone”) b)

  USA     100.0%        100.0%  

Claro S.A. (Claro Brasil) b)

  Brazil     97.7%        97.7%  

Telecomunicaciones de Guatemala, S.A. (“Telgua”) b)

  Guatemala     99.3%        99.3%  

Empresa Nicaragüense de Telecomunicaciones, S.A. (“Enitel”)  b)

  Nicaragua     99.6%        99.6%  

Compañía de Telecomunicaciones de El Salvador, S.A. de C.V. (“CTE”) b)

  El Salvador     95.8%        95.8%  

Comunicación Celular, S.A. (“Comcel”) b)

  Colombia     99.4%        99.4%  

Telmex Colombia, S.A. b)

  Colombia     99.3%        99.3%  

Consorcio Ecuatoriano de Telecomunicaciones,
S.A. (“Conecel”) b)

  Ecuador     100.0%        100.0%  

AMX Argentina, S.A. b)

  Argentina     100.0%        100.0%  

AMX Paraguay, S.A. b)

  Paraguay     100.0%        100.0%  

AM Wireless Uruguay, S.A. b)

  Uruguay     100.0%        100.0%  

Claro Chile, S.A. b)

  Chile     100.0%        100.0%  

América Móvil Perú, S.A.C b)

  Peru     100.0%        100.0%  

Claro Panamá, S.A. b)

  Panama     100.0%        100.0%  

Teléfonos de México, S.A.B. de C.V. b)

  Mexico     98.7%        98.8%  

Telekom Austria AG b)

  Austria     51.0%        51.0%  

 

a) Holding companies
b) Operating companies of mobile and fixed services

ii) Basis of translation of financial statements of foreign subsidiaries and associated companies

The operating revenues of foreign subsidiaries jointly represent approximately 69%, 72% and 74% of consolidated operating revenues of 2015, 2016 and 2017, respectively, and their total assets jointly represent approximately 83% and 81% of consolidated total assets at December 31, 2016 and 2017, respectively.

The financial statements of foreign subsidiaries have been prepared under or translated to IFRS in the respective local currency (which is their functional currency) and then translated into the Company´s reporting currency as follows:

 

    all monetary assets and liabilities were translated at the closing exchange rate of the period;

 

    all non-monetary assets and liabilities at the closing exchange rate of the period;

 

    equity accounts are translated at the exchange rate at the time the capital contributions were made and the profits were generated;

 

    revenues, costs and expenses are translated at the average exchange rate of the period;

 

F-9


Table of Contents
    the resulting difference from the translation process is recognized in equity in the caption Cumulative translation adjustment;

 

    the consolidated statements of cash flows presented using the indirect method were translated using the weighted-average exchange rate for the applicable period, and the resulting difference is shown in the consolidated statement of cash flows under the heading “Adjustment to cash flows due to exchange rate fluctuations, net”.

The difference resulting from the translation process is recognized in equity in the caption “Effect of translation of foreign entities”. At December 31, 2016 and 2017, the cumulative translation adjustment was Ps. 29,549,491 and Ps. 7,866,158, respectively.

b) Revenue recognition

Revenues are recognized at the time the related service is rendered or the equipment is delivered to the customer, provided that the revenue can be measured reliably, it is probable that the entity will receive the economic benefits associated with the transaction, the stage of completion of the transaction may be reliably measured and there is high certainty of its collectability.

For some postpaid plans, the amount billed to customers combines a fixed tariff for a specific quantity of services, plus the rates for the use above the specified quantities (minutes and Mega Bytes included in each plan). Revenues billed for services to be rendered in the future are initially recorded as deferred revenues. Costs related to these services are recognized when the service is rendered.

The Company accounts separately for multiple elements. To recognize the multi-elements or multiple services at its fair value, the Company assigns its fair value to each type of element.

c) Cost of sales

The cost of mobile equipment and computers is recognized at the time the client and distributor receives the device that is when all significant risks and rewards of ownership are transferred to the customer. The costs related to the sale of such equipment are recognized in the ¨cost of sales and services¨ line in the consolidated statements of comprehensive income.

d) Cost of services

The cost of services represents the costs incurred to properly deliver the services to the customers, it includes the network operating costs and licenses related costs and is accounted at the moment in which such services are provided.

e) Comissions to distributors

The Company pays commissions to its distribution network mainly for acquiring and retaining customers for the Company. Such commissions are recognized in “commercial, administrative and general expenses” in the consolidated statements of comprehensive income at the time in which the distributor either reports an activation or reaches certain number of lines activated or obtained at a certain point of time.

f) Cash and cash equivalents

Cash and cash equivalents represent bank deposits and liquid investments with maturities of less than three months. These amounts are stated at cost plus accrued interest, which is similar to their market value.

 

F-10


Table of Contents

The Company also maintains restricted cash held as collateral to meet certain contractual obligations. Restricted cash is presented as part of “Other assets” within other non-current financial assets given that the restrictions are long-term in nature (See Note 9).

g) Marketable securities and other short term investments

Marketable securities and other short term investments are primarily composed of investment securities available for sale and other short-term financial investments. Amounts are initially recorded at cost and adjusted to their estimated fair value. Fair value adjustments for available for sale securities are recorded through other comprehensive income, while fair value adjustments for other short-term investments are recorded in the Consolidated Statement of Comprehensive Income as they occur. An available-for-sale equity security is considered to be impaired if there is objective evidence that the cost may not be recovered and if there is a significant or prolonged decline in the fair value of an investment below its cost to determine if such impairment exists.

h) Allowance for bad debts

The Company periodically recognizes a provision for doubtful accounts based mainly on its past experience, the aging of its accounts receivable, the delay in resolving its disputes with other carriers, and the market segments conditions (government, business and mass market).

Collection policies and procedures vary depending on the credit history of the customer, the credit granted and the age of the unpaid balances among other reasons.

Cash deposits from customers in default are deducted from the account balance to be impaired once the deposit has been identified.

i) Inventories

Inventories are initially recognized at historical cost and are valued using the average cost method without exceeding their net realizable value.

The estimate of the realizable value of inventories on-hand is based on their age and turnover.

j) Business combinations and goodwill

Business combinations are accounted for using the acquisition method, which in accordance with IFRS 3, “ Business acquisitions ”, consists in general terms as follows:

 

(i) Identify the acquirer

 

(ii) Determine the acquisition date

 

(iii) Value the acquired identifiable assets and assumed liabilities

 

(iv) Recognize the goodwill or a bargain purchase gain

For acquired subsidiaries, goodwill represents the difference between the purchase price and the fair value of the net assets acquired at the acquisition date. The investment in acquired associates includes goodwill identified on acquisition, net of any impairment loss.

Goodwill is reviewed annually to determine its recoverability or more often if circumstances indicate that the carrying value of the goodwill might not be fully recoverable.

 

F-11


Table of Contents

The possible loss of value in goodwill is determined by analyzing the recovery value of the cash generating unit (or the group thereof) to which the goodwill is associated at the time it was originated. If this recovery value is lower than the carrying value, an impairment loss is charged to the results of operations.

For the years ended December 31, 2015, 2016 and 2017, no impairment losses were recognized for the goodwill shown in the Company’s consolidated statements of financial position.

k) Property, plant and equipment

i) Property, plant and equipment are recorded at acquisition cost, net of accumulated depreciation. Depreciation is computed on the cost of the assets using the straight line method, based on the estimated useful lives of the related assets, beginning the month after they become available for use.

Borrowing costs that are incurred for general financing for construction in progress for periods exceeding six months are capitalized as part of the cost of the asset. During 2015, 2016 and 2017 the borrowing costs that were capitalized amounted to Ps. 3,524,841, Ps. 2,861,307 and Ps. 2,875,034, respectively.

In addition to the purchase price and costs directly attributable to preparing an asset in terms of its physical location and condition for operating as intended by management, when required, the cost also includes the estimated costs of dismantling and removal of the asset and for restoration of the site where it is located (See Note 15c).

ii) The net book value of property, plant and equipment is removed from the consolidated statements of financial position at the time the asset is sold or when no future economic benefits are expected from its use or sale. Any gains or losses on the sale of property, plant and equipment represent the difference between net proceeds of the sale and the net book value of the item at the time of sale. These gains or losses are recognized as either other operating income or other operating expenses upon sale.

iii) The Company periodically assesses the residual values, useful lives and depreciation methods associated with its property, plant and equipment. If necessary, the effects of any changes in accounting estimates is recognized prospectively, at the closing of each period, in accordance with IAS 8, “ Accounting Policies, Changes in Accounting Estimates and Errors ”.

For property, plant and equipment made up of several components with different useful lives, the major individual components are depreciated over their individual useful lives. Maintenance costs and repairs are expensed as incurred.

Annual depreciation rates are as follows:

 

Network infrastructure

   5%-33%

Buildings and leasehold improvement

   2%-33%

Other assets

   10%-50%

iv) The carrying value of property, plant and equipment is reviewed if there are indicators of impairment in such assets. If an asset’s recovery value is less than the asset’s net carrying value, the difference is recognized as an impairment loss.

During the years ended December 31, 2015, 2016 and 2017, no impairment losses were recognized.

v) Inventory for network operation is valued using the average cost method, without exceeding its net realizable value.

 

F-12


Table of Contents

The valuation of inventory for network considered obsolete, defective or slow-moving, is reduced to their estimated net realizable value. The estimate of the recovery value of inventories is based on their age and turnover.

l) Intangibles

i) Licenses

Licenses to operate wireless telecommunications networks granted by the governments of the countries in which the Company operates are recorded at acquisition cost or at fair value at their acquisition date, net of accumulated amortization. Certain licenses require payments to the goverments, such payments are recognized in the cost of service and equipment.

The licenses that in accordance with government requirements are categorized as automatically renewable, for a nominal cost and with substantially consistent terms, are considered by the Company as intangible assets with an indefinite useful life. Accordingly, they are not amortized. Licenses are amortized when the Company does not have a basis to conclude that they are indefinite lived. Licenses are amortized using the straight-line method over a period ranging from 3 to 30 years, which represents the usage period of the assets.

The Company has conducted an internal analysis on the applicability of the International Financial Reporting Interpretation Committee (“IFRIC”) No. 12 (Service Concession Agreements) and has concluded that its concessions are outside the scope of IFRIC 12. To determine the applicability of IFRIC 12, the Company analyzes each concession or group of similar concessions in a given jurisdiction. As a threshold matter, the Company identifies those government concessions that provide for the development, financing, operation or maintenance of infrastructure used to render a public service, and that set out performance standards, mechanisms for adjusting prices and arrangements for arbitrating disputes.

With respect to those services, the Company evaluates whether the grantor controls or regulates (i) what services the operator must provide, (ii) to whom it must provide them and (iii) the applicable price (the “Services Criterion”). In evaluating whether the applicable government, as grantor, controls the price at which the Company provides its services, the Company looks at the terms of the concession agreement according to all applicable regulations. If the Company determines that the concession under analysis meets the Services Criterion, then the Company evaluates whether the grantor would hold a significant residual interest in the concession’s infrastructure at the end of the term of the arrangement.

In some of the jurisdictions where the Company operates and under certain circumstances, the Company may be required to transfer certain assets covered by some of its concessions to the government pursuant to valuation methodologies that vary in each jurisdiction. In Brazil, for example, Claro Brasil is required to maintain and file before the Brazilian Agency of Telecommunications ( Agência Nacional de Telecomunicações , or “Anatel”) a list of assets potentially subject to reversion. The list of potentially reversible assets, delivered in 2017 (referring to the base year 2016) identified an estimated gross book value of Ps. 20,637,743 (3,450,100 Brazilian reals). The Company believes that this list significantly overstates the extent of assets that would as a legal matter be subject to reversion, but there is no regulatory requirement or legal basis for a more refined analysis. See also Notes 10 and 16c).

ii) Trademarks

Trademarks are recorded at their fair value at the valuation date when acquired. The useful lives of trademarks are assessed as either definite or indefinite. Trademarks with finite useful lives are amortized using the straight-line method over a period ranging from 1 to 10 years. Trademarks with indefinite useful lives are not amortized, but are tested for impairment annually at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable, if not, the change in useful life from indefinite to definite is made on a prospective basis.

 

F-13


Table of Contents

iii) Rights of use

Rights of use are recognized according to the amount paid for the right and are amortized over the period in which they are granted.

The carrying values of the Company’s licenses and trademarks are reviewed annually and whenever there are indicators of impairment in the value of such assets. When an asset’s recoverable amount, which is the higher of the asset’s fair value, less disposal costs and its value in use (the present value of future cash flows), is less than the asset’s carrying value, the difference is recognized as an impairment loss.

iv) Customer relationships

The value of customer relations is determined and valued at the time that a new subsidiary is acquired, as determined by the Company with the assistance of independent appraisers, and is amortized on a 5 year period.

During the years ended December 31, 2015, 2016 and 2017, no impairment losses were recognized for licenses, trademarks, rights of use or customer relationships.

m) Impairment in the value of long-lived assets

The Company assesses the existence of indicators of impairment in the carrying value of long-lived assets, investments in associates, goodwill and intangible assets according to IAS 36 “ Impairment of assets ”. When there are such indicators, or in the case of assets whose nature requires an annual impairment analysis (goodwill and intangible assets with indefinite useful lives), the Company estimates the recoverable amount of the asset, which is the higher of its fair value, less disposal costs, and its value in use. Value in use is determined by discounting estimated future cash flows, applying a pre-tax discount rate that reflects the time value of money and taking into consideration the specific risks associated with the asset. When the recoverable amount of an asset is below its carrying value, impairment is considered to exist. In this case, the carrying value of the asset is reduced to the asset’s recoverable amount, recognizing the loss in results of operations for the respective period. Depreciation and/or amortization expense of future periods is adjusted based on the new carrying value determined for the asset over the asset’s remaining useful life. Impairment is computed individually for each asset. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets.

In the estimation of impairments, the Company uses the strategic plans established for the separate cash-generating units to which the assets are assigned. Such strategic plans generally cover a period from 3 to 5 years. For longer periods, beginning in the fifth year, projections are based on such strategic plans while applying a constant or declining expected growth rate.

Key assumptions used in value in use calculations

The forecasts are made in real terms (net of inflation) and in the functional currency of the subsidiary as of December 31, 2017.

Financial forecasts, premises and assumptions are similar to what any other market participant in similar conditions would consider.

Local synergies, that any other market participant would not have taken into consideration to prepare similar forecasted financial information, have not been included.

The assumptions used to develop the financial forecasts were validated for each of the cash generating units (“CGUs”), typically identified by country and by service (in the case of Mexico) taking into consideration the following:

 

    Current subscribers and expected growth.

 

F-14


Table of Contents
    Type of subscribers (prepaid, postpaid, fixed line, multiple services)

 

    Market environment and penetration expectations

 

    New products and services

 

    Economic environment of each country

 

    Expenses for maintaining the current assets

 

    Investments in technology for expanding the current assets

 

    Market consolidation and synergies

The foregoing forecasts could differ from the results obtained through time; however, América Móvil prepares its estimates based on the current situation of each of the CGUs.

The recoverable amounts are based on value in use. The value in use is determined based on the method of discounted cash flows. The key assumptions used in projecting cash flows are:

 

    Margin on EBITDA is determined by dividing EBITDA (operating income plus depreciation and amortization) by total revenues.

 

    Margin on CAPEX is determined by dividing capital expenditures (“CAPEX”) by total revenues.

 

    Pre-tax weighted average cost of capital (“WACC”) used to discount the projected cash flows.

As discount rate, the Company uses the WACC which was determined for each of the cash generating units and is described in the following paragraphs.

The estimated discount rates to perform the IAS 36 “ Impairment of assets ”, impairment test for each CGU consider market participants assumptions. Market participants were selected taking into consideration size, operations and characteristics of the business that were similar to those of América Móvil.

The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Company and its operating segments. The WACC takes into account both debt and equity costs. The cost of equity is derived from the expected return on investment by América Móvil’s investors. The cost of debt is based on the interest bearing borrowings América Móvil is obliged to service. Segment-specific risk is incorporated by applying individual beta factors.

The beta factors are evaluated annually based on publicly available market data.

Market participant assumptions are important because, not only do they include industry data for growth rates, but also management assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.

 

F-15


Table of Contents

The most significant forward looking estimates used for the 2016 and 2017 impairment evaluations are shown below:

 

    Average margin on
EBIDTA
  Average margin on
CAPEX
  Average pre-tax
discount rate
(WACC)

2016:

     

Europe (7 countries)

  23.61% - 51.58%   8.29% - 20.72%   8.74% - 20.07%

Brazil (fixed line, wireless and TV)

  31.65%   18.21%   9.70%

Puerto Rico

  28.91%   9.08%   11.29%

Dominican Republic

  45.83%   10.55%   19.70%

Mexico (fixed line and wireless)

  33.38%   10.75%   14.34%

Ecuador

  35.80%   7.92%   22.84%

Peru

  28.92%   14.18%   14.20%

El Salvador

  39.43%   23.69%   21.95%

Chile

  25.92%   8.61%   7.87%

Colombia

  38.34%   14.40%   13.93%

Other countries

  10.1% - 48.92%   0.5% - 21.39%   7.39% - 23.79%

 

    Average margin on
EBITDA
    Average margin on
CAPEX
    Average pre-tax
discount rate
(WACC)
 

2017:

     

Europe (7 countries)

    25.59% - 52.46%       7.34% - 14.97%       9.06% - 19.04%  

Brazil (fixed line, wireless and TV)

    35.28%       22.13%       11.71%  

Puerto Rico

    23.31%       8.31%       4.42%  

Dominican Republic

    45.79%       15.55%       19.23%  

Mexico (fixed line and wireless)

    35.48%       8.72%       16.13%  

Ecuador

    37.83%       10.07%       23.57%  

Peru

    29.64%       16.75%       13.61%  

El Salvador

    40.36%       17.99%       25.14%  

Chile

    22.04%       12.45%       6.15%  

Colombia

    41.93%       19.88%       19.06%  

Other countries

    9.16% - 48.18%       0.43% - 23.43%       7.89% - 24.28%  

Sensitivity to changes in assumptions:

The implications of the key assumptions for the recoverable amount are discussed below:

Margin on CAPEX- The Company performed a sensitivity analysis by increasing its CAPEX by 5% and maintaining all other assumptions the same. The sensitivity analysis would require the Company to adjust the amount of its long-lived assets in its CGUs with potential impairment of approximately Ps. 2,386,782.

WACC- Additionally, should the Company increase by 50 base points in WACC per CGU and maintain all other assumptions the same, the carrying amount of the long-lived assets in its CGUs with potential impairment, would be impaired by approximately Ps. 3,517,584.

 

F-16


Table of Contents

n) Leases

The determination of whether an agreement is, or contains, a lease is based on the substance of the agreement and requires the Company to assess if performance of the agreement is dependent on the use of a specific asset and whether the agreement transfers the right of use of the asset to the Company.

Operating leases

Leases under which the lessor retains a significant portion of the risks and benefits inherent to the ownership of the leased asset are considered operating leases. Payments made under operating lease agreements are charged to results of operations on a straight-line basis over the rental period.

Finance leases

Lease agreements that substantially transfer all the risks and benefits of ownership of the leased assets to the Company are accounted for as finance leases. Accordingly, upon commencement of the lease, the asset, which is classified based on its nature, and its associated debt are recorded at the lower of the fair value of the leased asset or the present value of the lease payments. Finance lease payments are apportioned between the reduction of lease liability and the finance cost so that a constant interest rate is determined on the outstanding liability balance. Finance costs are charged to results of operations over the life of the agreement.

o) Financial assets and liabilities

Financial assets

Financial assets are categorized, at initial recognition, as (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) held-to-maturity investments, (iv) available-for-sale financial assets, or as (v) derivatives designated as hedging instruments in an effective hedge, as appropriate.

Initial recognition and measurement

Financial assets are initially recognized at fair value, plus directly attributable transactions costs, except for financial assets designated upon initial recognition at fair value through profit or loss.

– Subsequent measurement

The subsequent measurement of assets depends on their categorization as either financial assets and liabilities measured at fair value through profit and loss, loans and receivables, held to maturity or available for sale financial assets, or derivatives designated as hedging instruments in an effective hedge.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading if they are acquired for the purpose of selling or repurchasing in the short term. Derivatives, including separated embedded derivatives, are also classified as held for trading fair value through profit or loss, unless they are designated as effective hedging instruments as defined in IAS 39. Financial assets at fair value through profit or loss are recorded in the consolidated statements of financial position at fair value with net changes in fair value in the consolidated statements of comprehensive income within “Valuation of derivatives, interest cost from labor obligations and other financial items”.

Held-to-maturity investments

Held-to-maturity investments are those that the Company has the intention and ability to hold to maturity and are recorded at cost which includes transaction costs and premiums or discounts related to the investment that are amortized over the life of the investment based on its outstanding balance, less any impairment. Interest and dividends on investments classified as held-to-maturity are included within interest income.

 

F-17


Table of Contents

Available-for-sale financial assets

Available-for-sale financial assets are recorded at fair value, with gains and losses, net of tax, reported in other comprehensive income. Interest and dividends on investments classified as available-for-sale are included in “valuation of derivatives, interest cost from labor obligations and other financial items”. The fair value of investments is readily available based on market value. The foreign exchange gain or losses of securities available for sale are recognized in the caption ¨Foreign currency exchange loss, net¨ of the consolidated statement of comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Loans and receivables with a relevant period (including accounts receivable to subscribers, distributors and other receivables) are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for accounts receivable from subscribers, distributors and other in the short term when the recognition of interest would be immaterial.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the consolidated statement of financial position) when: the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Company has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Impairment of financial assets

The Company assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indicators that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost

For financial assets carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment

 

F-18


Table of Contents

exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

Financial liabilities

Financial liabilities are classified into the following categories based on the nature of the financial instruments contracted or issued: (i) financial liabilities measured at fair value, and (ii) financial liabilities measured at amortized cost. The Company’s financial liabilities include accounts payable to suppliers, deferred revenues, other accounts payable, loans and derivative financial instruments. Derivative financial instruments are measured at fair value; short- and long-term debt and accounts payable are accounted for as financial liabilities and measured at amortized cost.

Initial recognition

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39, “ Financial Instruments: Recognition and Measurement ”. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on financial liabilities held for trading are recognized in the consolidated statements of comprehensive income in the line “valuation of derivatives, interest cost from labor obligations and other financial items”.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition only if the criteria in IAS 39 are satisfied.

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statements of comprehensive income when the liabilities are derecognized as well as through the effective interest rate (“EIR”) amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in interest income in the consolidated statements of comprehensive income.

This category generally applies to interest-bearing loans and borrowings. For more information refer to Note 14.

 

F-19


Table of Contents

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or when it expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of comprehensive income.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statements of financial position if, and only if, there is:

 

(i) a current legally enforceable right to offset the recognized amounts, and

 

(ii) the intention to either settle them on a net basis, or to realize the assets and settle the liabilities simultaneously.

Fair value of financial instruments

At each financial statement reporting date, the fair value of financial instruments traded in active markets is determined based on market prices, or prices quoted by brokers (purchase price for asset positions and sales price for liability positions), without any deduction for transaction costs.

For financial instruments that are not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, references to the current fair value of another financial instrument that is substantially similar, a discounted cash flow analysis or other valuation models.

Notes 7 and 18 provide an analysis of the fair values of the Company’s financial instruments.

p) Transactions in foreign currency

Transactions in foreign currency are initially recorded at the prevailing exchange rate at the time of the related transactions. Foreign currency denominated assets and liabilities are subsequently translated at the prevailing exchange rate at the financial statement reporting date. Exchange differences determined from the transaction date to the time foreign currency denominated assets and liabilities are settled or translated at the financial statement reporting date are charged or credited to the results of operations.

 

F-20


Table of Contents

The exchange rates used for the translation of foreign currencies against the Mexican peso are as follows:

 

          Average exchange rate      Closing exchange rate at
December 31,
 

Country or Zone

  

Currency

   2015      2016      2017          2016              2017      

Argentina (1)

   Argentine Peso (AR$)      1.7152        1.2632        1.1489        1.3047        1.0610  

Brazil

   Real (R$)      4.8068        5.3868        5.9346        6.3611        5.9815  

Colombia

   Colombian Peso (COP$)      0.0058        0.0061        0.0064        0.0069        0.0066  

Guatemala

   Quetzal      2.0704        2.4548        2.5755        2.7561        2.6940  

U.S.A. (2)

   US Dollar      15.8504        18.6529        18.9400        20.7314        19.7867  

Uruguay

   Uruguay Peso      0.5810        0.6206        0.6606        0.7066        0.6869  

Nicaragua

   Cordoba      0.5813        0.6515        0.6307        0.7071        0.6428  

Honduras

   Lempira      0.7171        0.8109        0.8007        0.8759        0.8330  

Chile

   Chilean Peso      0.0243        0.0276        0.0292        0.0310        0.0322  

Paraguay

   Guaraní      0.0031        0.0033        0.0034        0.0036        0.0035  

Peru

   Sol (PEN$)      4.9746        5.5232        5.8054        6.1701        6.0976  

Dominican Republic

   Dominican Peso      0.3515        0.4048        0.3983        0.4438        0.4095  

Costa Rica

   Colon      0.0293        0.0338        0.0331        0.0369        0.0346  

European Union

   Euro      17.3886        20.6334        21.3649        21.8032        23.7539  

Bulgaria

   Lev      9.3785        10.5483        10.9223        11.1561        12.1406  

Belarus (3)

   New Belarusian Ruble      9.9808        9.3929        9.8087        10.5622        9.9882  

Croatia

   Croatian Kuna      2.4096        2.7392        2.8619        2.8886        3.1954  

Macedonia

   Macedonian Denar      0.2984        0.3350        0.3471        0.3546        0.3861  

Serbia

   Serbian Denar      0.1517        0.1676        0.1762        0.1768        0.2009  

 

(1) In the years ended December 31, 2016 and 2017, the Argentine peso depreciated against the US dollar by 21.8% and 17.4%, respectively. The Company considers on the basis of the quantitative and qualitative indicators in IAS 29, that Argentina should not be considered a hyperinflationary economy as of December 31, 2017. However, it is possible that certain market participants and regulators could have varying views on this topic during 2018 as Argentina’s economy evolves. The Company will continue to carefully monitor the situation and make appropriate changes if and when necessary.
(2) Includes U.S.A., Ecuador, El Salvador, Puerto Rico and Panama.
(3) In July 2016, a new ruble was introduced, at a rate of 1 BYN = 10,000 BYR. Old and new rubles circulated in parallel from July 1 to December 31, 2016.

On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a joint venture that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in other comprehensive income in respect of that operation attributable to the owners of the Company are recognized in the consolidated statements of comprehensive income.

As of April 26, 2018, the exchange rate between the US dollar and the Mexican Peso was $18.8139.

q) Accounts payable, accrued liabilities and provisions

Liabilities are recognized whenever (i) the Company has current obligations (legal or assumed) resulting from a past event, (ii) when it is probable the obligation will give rise to a future cash disbursement for its settlement, and (iii) the amount of the obligation can be reasonably estimated.

When the effect of the time value of money is significant, the amount of the liability is determined as the present value of the expected disbursements to settle the obligation. The discount rate is determined on a pre-tax basis and reflects current market conditions at the financial statements´ reporting date and, where appropriate, the risks specific to the liability. Where discounting is used, an increase in the liability is recognized as finance expense.

 

F-21


Table of Contents

Contingent liabilities are recognized only when it is probable they will give rise to a future cash disbursement for their settlement. Also, contingencies are only recognized when they will generate a loss.

r) Employee benefits

The Company has defined benefit pension plans for its subsidiaries Puerto Rico Telephone Company, Teléfonos de Mexico, Claro Brasil, and Telekom Austria. Claro Brasil also has medical plans and defined contribution plans and Telekom Austria provides retirement benefits to its employees under a defined contribution plan. The Company recognizes the costs of these plans based upon independent actuarial computations and are determined using the projected unit credit method. The latest actuarial computations were prepared as of December 31, 2017.

Mexico

Mexican subsidiaries have the obligation to pay seniority premiums to personnel based on the Mexican Federal labor law which also establishes the obligation to make certain payments to personnel who cease to provide services under certain circumstances. Pensions (for Telmex) and seniority premiums are determined based on the salary of employees in their final year of service, the number of years worked at and their age at the moment of retirement.

The costs of pensions, seniority premiums and severance benefits, are recognized based on calculations by independent actuaries using the projected unit credit method using financial hypotheses, net of inflation.

Telmex has established an irrevocable trust fund and makes annual contributions to that fund.

Puerto Rico

In Puerto Rico, the Company has noncontributing pension plans for full-time employees, which are tax qualified as they meet Employee Retirement Income Security Act of 1974 requirements.

The pension benefit is composed of two elements:

(i) An employee receives an annuity at retirement if they meet the rule of 85 (age at retirement plus accumulated years of service). The annuity is calculated by applying a percentage times years of services to the last three years of salary.

(ii) The second element is a lump-sum benefit based on years of service ranging from 9 to 12 months of salary. Health care and life insurance benefits are also provided to retirees under a separate plan (post-retirement benefits).

Brazil

Claro Brasil provides a defined benefit plan and post-retirement medical assistance plan, and a defined contribution plan, through a pension fund that supplements the government retirement benefit for certain employees.

Under the defined benefit plan, the Company makes monthly contributions to the pension fund equal to 17.5% of the employee’s aggregate salary. In addition, the Company contributes a percentage of the aggregate salary base for funding the post-retirement medical assistance plan for the employees who remain in the defined benefit plan. Each employee makes contributions to the pension fund based on age and salary. All newly hired employees automatically adhere to the defined contribution plan and no further admittance to the defined benefit plan is allowed. For the defined contribution plan, see Note 17.

 

F-22


Table of Contents

Austria

Telekom Austria provides retirement benefits to its employees under defined contribution and defined benefit plans.

The Company pays contributions to publicly or privately administered pension or severance insurance plans on mandatory or contractual basis. Once the contributions have been paid, the Company has no further payment obligations. The regular contributions are recognized as employee expenses in the year in which they are due.

All other employee benefit obligations provided in Austria are unfunded defined benefit plans for which the Company records provisions which are calculated using the projected unit credit method. The future benefit obligations are measured using actuarial methods on the basis of an appropriate assessment of the discount rate, rate of employee turnover, rate of compensation increase and rate of increase in pensions.

For severance and pensions, the subsidiary recognizes actuarial gains and losses in other comprehensive income. The re-measurement of defined benefit plans relates to actuarial gains and losses only as Telekom Austria holds no plan assets. Interest expense related to employee benefit obligations is reported in the Valuation of derivatives, interests cost from labor obligation and other financial item, net.

Other subsidiaries

For the rest of the Company’s subsidiaries, there are no defined benefit plans or compulsory defined contribution structures. However, certain subsidiaries make contributions to national pension, social security and severance plans in accordance with the percentages and rates established by the applicable social security and labor laws of each country. Such contributions are made to the entities designated by the countries legislation and are recorded as direct labor expenses in the consolidated statements of comprehensive income as they are incurred.

Remeasurements of defined benefit plans, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statements of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognized in profit or loss on the earlier of:

 

(i) The date of the plan amendment or curtailment, and

 

(ii) The date that the Company recognizes restructuring-related costs

Net interest on liability for defined benefits is calculated by applying the discount rate to the net defined benefit liability or asset and it is recognized in the “valuation of derivatives, interest cost from labor obligations and other financial items” in the consolidated statements of comprehensive income. The Company recognizes the changes in the net defined benefit obligation under “Cost of sales and services” and “Commercial, administrative and general expenses” in the consolidated statements of comprehensive income.

Paid absences

The Company recognizes a provision for the cost of paid absences, such as vacation time, based on the accrual method.

s) Employee profit sharing

Employee profit sharing is paid by certain subsidiaries of the Company to its eligible employees. The Company has employee profit sharing in Mexico, Ecuador and Peru. In Mexico, employee profit sharing is computed at the rate of 10% on the individual subsidiaries taxable base adjusted for employee profit sharing purposes as provided by law.

 

F-23


Table of Contents

Employee profit sharing is presented as an operating expense in the consolidated statements of comprehensive income.

t) Taxes

Income taxes

Current income tax payable is presented as a short-term liability, net of prepayments made during the year.

Deferred income tax is determined using the liability method based on the temporary differences between the tax values of the assets and liabilities and their book values at the consolidated financial statements reporting date.

Deferred tax assets and liabilities are measured using the tax rates that are expected to be in effect in the period when the asset will materialize or the liability will be settled, based on the enacted tax rates (and tax legislation) that have been enacted or substantially enacted at the financial statements reporting date. The value of deferred tax assets is reviewed by the Company at each financial statements reporting date and is reduced to the extent that it is more likely that the Company will not have sufficient future tax profits to allow for the realization of all or a part of its deferred tax assets. Unrecognized deferred tax assets are revalued at each financial statements reporting date and are recognized when it is more likely that there will be sufficient future tax profits to allow for the realization of these assets.

Deferred taxes relating to items recognized in Other Comprehensive Income are recognized together with the concept that generated such deferred taxes. Deferred taxes consequence on unremitted foreign earnings are considered as temporary differences, except to the extent that the Company is not able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future. Taxes withheld on remitted foreign earnings are creditable against Mexican taxes, thus to the extent that a remittance is to be made, the deferred tax would be limited to the incremental difference between the Mexican tax rate and the rate of the remitting country. As of December 31, 2016 and 2017, the Company has not provided for any deferred taxes related to unremitted foreign earnings.

The Company offsets tax assets and liabilities if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

Sales tax

Revenues, expenses and assets are recognized net of the amount of sales tax, except:

 

    When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable.

 

    Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the tax authorities is included as part of the current receivables or payables in the consolidated statements of financial position unless they are due in more than a year in which case they are classified as non-current.

u) Advertising

Advertising expenses are recognized as incurred. For the years ended December 31, 2015, 2016 and 2017, advertising expenses were Ps. 24,673,557, Ps. 28,180,538 and Ps. 28,718,563, respectively, and are recorded in the consolidated statements of comprehensive income in the caption “Commercial, administrative and general expenses”.

 

F-24


Table of Contents

v) Earnings per share

Basic and diluted earnings per share are determined by dividing net profit of the year by the weighted-average number of shares outstanding during the year. In determining the weighted average number of outstanding shares, shares repurchased by the Company have been excluded.

w) Financial risks

The main risks associated with the Company’s financial instruments are: (i) liquidity risk, (ii) market risk (foreign currency exchange risk and interest rate risk) and (iii) credit risk and counterparty risk. The Board of Directors approves the policies submitted by management to mitigate these risks.

i) Liquidity risk

Liquidity risk is the risk that the Company may not meet its financial obligations associated with financial instruments when they are due. The Company’s financial obligations and commitments are included in Notes 14 and 16.

ii) Market risk

The Company is exposed to certain market risks derived from changes in interest rates and fluctuations in exchange rates of foreign currencies. The Company’s debt is denominated in foreign currencies, mainly in US dollars and euros, other than its functional currency. In order to reduce the risks related to fluctuations in the exchange rate of foreign currency, the Company uses derivative financial instruments such as cross-currency swaps and forwards to adjust exposures resulting from foreign exchange currency. The Company does not use derivatives to hedge the exchange risk arising from having operations in different countries.

Additionally, the Company occasionally uses interest rate swaps to adjust its exposure to the variability of the interest rates or to reduce their financing costs. The Company’s practices vary from time to time depending on judgments about the level of risk, expectations of change in the movements of interest rates and the costs of using derivatives. The Company may terminate or modify a derivative financial instrument at any time. See Note 7 for disclosure of the fair value of derivatives as of December 31, 2016 and 2017.

iii) Credit risk

Credit risk represents the loss that could be recognized in case the counterparties fail to comply with their contractual obligations.

The financial instruments that potentially represent concentrations of credit risk are cash and short-term deposits, trade accounts receivable and financial instruments related to debt and derivatives. The Company’s policy is designed in order to limit its exposure to any one financial institution; therefore, the Company’s financial instruments are contracted with several different financial institutions located in different geographic regions.

The credit risk in accounts receivable is diversified because the Company has a broad customer base that is geographically dispersed. The Company continuously evaluates the credit conditions of its customers and generally does not require collateral to guarantee collection of its accounts receivable. The Company monitors on a monthly basis its collection cycle to avoid deterioration of its results of operations.

A portion of the Company’s cash surplus is invested in short- term deposits with financial institutions with high credit ratings.

 

F-25


Table of Contents

iv) Sensitivity analysis for market risks

The Company uses sensitivity analyses to measure the potential losses based on a theoretical increase of 100 basis points in interest rates and a 5% fluctuation in exchange rates:

Interest rate

In the event that the Company’s agreed-upon interest rates at December 31, 2017 increased/(decreased) by 100 basis points, the increase in net interest expense would increase/(decrease) by Ps. 8,221,411 and Ps. (8,002,209), respectively.

Exchange rate fluctuations

Should the Company’s debt at December 31, 2017 of Ps. 697,884,899, suffer a 5% increase/(decrease) in exchange rates, the debt would increase/(decrease) by Ps. 36,079,857 and Ps. (33,821,548), respectively.

v) Concentration of risk

The Company depends on several key suppliers and sellers. During the years ended December 31, 2015, 2016 and 2017, approximately 67%, 73% and 69%, respectively, of the total cost of the cellular phones of the Company represented purchases made from three suppliers. If any of these suppliers were to cease to provide equipment and services to the Company, or to provide them in a timely manner and at a reasonable cost, the Company’s business and results of operations might be adversely affected.

vi) Capital management

The Company manages its capital to ensure that its subsidiaries continue as going concerns while maximizing the return to stakeholders through the optimization of their balances and debt capital to maintain the lowest cost of capital available. The Company manages its capital structure and makes adjustments according to economic conditions. To maintain the capital structure, the Company may adjust the dividend payment to shareholders or its share buyback program for which the Company holds a reserve. In addition, the Company creates a legal reserve, as required by law (See Note 19).

x) Derivative financial instruments

Derivative financial instruments are recognized in the consolidated statement of financial position at fair value. Valuations obtained by the Company are compared against those of the financial institutions with which the agreements are entered into, and it is the Company’s policy to compare such fair value to a valuation provided by an independent pricing provider in case of discrepancies. Changes in the fair value of derivatives that do not qualify as hedging instruments are recognized immediately in the line “Valuation of derivatives, interest cost from labor obligations and other financial items, net”.

The Company is exposed to interest rate and foreign currency risks, which tries to mitigate through a controlled risk management program that includes the use of derivative financial instruments. The Company principally uses cross-currency swaps and foreign currency forwards to offset the risk of exchange rate fluctuations. For purposes of reducing the risks from changes in interest rates, the Company utilizes interest rate swaps through which it pays or receives the net amount resulting from paying or receiving a fixed rate, and from receiving or paying cash based on a variable rate. Additionally, for the years ended December 31, 2016 and 2017, certain of the Company’s derivative financial instruments had been designated, and had qualified, as cash flow hedges. The effective portion of gains or losses on the cash flow derivatives is recognized in equity under the heading “Effect for fair value of derivatives”, and the ineffective portion is charged to results of operations of the period.

The change in fair value recognized in results of operations, corresponding to derivatives that qualify as hedges, is presented in the same caption of the consolidated statements of comprehensive income as the gain or loss of the hedged item (interests and foreign exchange rate).

 

F-26


Table of Contents

The policy of the Company in this regard comprises: (i) the formal documentation of all transactions between the hedging instruments and hedged positions, (ii) risk management objectives, and (iii) the strategy for executing hedging transactions. This documentation also includes the relationship between the cash flows of the derivatives with those of the Company’s assets and liabilities recognized in the consolidated statement of financial position.

The hedge effectiveness of the Company’s derivatives is evaluated prior to their designation as hedges, as well as during the hedging period, which is performed at least quarterly based on recognized statistical techniques. Whenever it is determined that a derivative ceases to be a highly effective hedge, the Company ceases to apply hedge accounting for the derivative on a prospective basis.

y) Current versus non-current classification

The Company presents assets and liabilities in its consolidated statements of financial position based on current/non-current classification.

An asset is current when it is either:

 

(i) Expected to be realized or intended to be sold or consumed in the normal operating cycle.

 

(ii) Held primarily for the purpose of trading.

 

(iii) Expected to be realized within twelve months after the reporting period.

 

(iv) Cash and cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

A liability is current when:

 

    It is expected to be settled in the normal operating cycle.

 

    It is held primarily for the purpose of trading.

 

    It is due to be settled within twelve months after the reporting period.

 

    There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Company classifies all other assets and liabilities, including deferred tax assets and liabilities, as non-current.

z) Presentation of consolidated statements of comprehensive income

The costs and expenses shown in the consolidated statements of comprehensive income are presented in combined manner (based on both their function and nature), which allows a better understanding of the components of the Company’s operating income. This classification allows a comparison to the telecommunications industry.

The Company presents operating income in its consolidated statements of comprehensive income since it is a key indicator of the Company’s performance. Operating income represents operating revenues less operating costs and expenses.

The employee benefits expense recognized in 2015, 2016 and 2017 of Ps. 41,366,183, Ps. 46,759,415 and Ps. 48,696,331, respectively is presented as “Cost of sales and services” and of Ps. 58,977,212, Ps. 63,691,855 and Ps. 66,920,537 is presented respectively in “Commercial, administrative and general expenses”.

aa) Operating Segments

Segment information is presented based on information used by management in its decision-making processes. Segment information is presented based on the geographic areas in which the Company operates.

 

F-27


Table of Contents

The management of the Company is responsible for making decisions regarding the resources to be allocated to the Company’s different segments, as well as evaluating the performance of each segment. Intersegment revenues and costs, intercompany balances as well as investments in shares in consolidated entities are eliminated upon consolidation and reflected in the “eliminations” column in Note 22.

None of the segments records revenue from transactions with a single external customer amounting to at least 10% or more of the revenues.

ab) Convenience Translation

At December 31, 2017, amounts in U.S. dollars have been included in the financial statements solely for the convenience of the reader and have been translated from Mexican pesos at December 31, 2017 at an exchange rate of Ps. 19.7867 per U.S. dollar, which was the exchange rate at that date. Such translation should not be construed as a representation that the Mexican peso can be converted to U.S. dollars at the exchange rate in effect on December 31, 2017 or any other exchange rate.

ac) Significant Accounting Judgments, Estimates and Assumptions

In preparing its consolidated financial statements, América Móvil makes estimates concerning a variety of matters. Some of these matters are highly uncertain, and its estimates involve judgments it makes based on the available information. In the discussion below, América Móvil has identified several of these matters for which its financial statements would be materially affected if either (1) América Móvil uses different estimates that it could have reasonably used or (2) in the future América Móvil changes its estimates in response to changes that are reasonably likely to occur.

The following discussion addresses only those estimates that América Móvil considers most important based on the degree of uncertainty and the likelihood of a material impact had it used a different estimate. There are many other areas in which América Móvil uses estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to the financial presentation for those other areas.

Fair Value of Financial Assets and Liabilities

América Móvil has substantial financial assets and liabilities that it recognizes at their fair value, which is an estimate of the amount at which the instrument could be exchanged in a current transaction between willing parties. The methodologies and assumptions América Móvil uses to estimate an instrument’s fair value depend on the type of instrument and include (i) recognizing cash and cash equivalents, trade receivables, trade payables and other current liabilities at close to their carrying amount, (ii) recognizing quoted instruments at their price quotations on the reporting date, (iii) recognizing unquoted instruments, such as loans from banks and obligations under financial leases, by discounting future cash flows using rates for similar instruments and (iv) applying various valuation techniques, such as net present value calculations. Using different methodologies or assumptions to estimate the fair value of América Móvil’s financial assets and liabilities could materially impact the reported financial results. See Note 18.

The Company maintains investments in available for sale securities that are valued at market prices obtained from the stock exchange where these shares are listed. At each reporting date, the Company evaluates whether impairment exists on its available for sale securities according to the accounting policy outlined in Note 2. This analysis first involves an evaluation of the objective measures of impairment as described in IAS 39. The Company will then evaluate whether the loss recognized in other comprehensive income on its available for sale securities is either prolonged or significant, as described in the accounting policies in Note 2. At December 31, 2017, the Company has not observed an objective measure of impairment on its available for sale securities, nor has significant or prolonged unrealized losses on its available for sale securities.

 

F-28


Table of Contents

Estimated useful lives of plant, property and equipment

América Móvil currently depreciates most of its network infrastructure based on an estimated useful life determined upon the expected particular conditions of operation and maintenance in each of the countries in which it operates. The estimates are based on AMX’s historical experience with similar assets, anticipated technological changes and other factors, taking into account the practices of other telecommunications companies. América Móvil reviews estimated useful lives each year to determine, for each particular class of assets, whether they should be changed. América Móvil may shorten/extend the estimated useful life of an asset class in response to technological changes, changes in the market or other developments. This results in increased/decreased depreciation expense. See Notes 2k) and 10.

Impairment of Long-Lived Assets

América Móvil has large amounts of long-lived assets, including property, plant and equipment, intangible assets, investments in affiliates and goodwill on its consolidated statements of financial position. América Móvil is required to test long-lived assets for impairment when circumstances indicate a potential impairment or, in some cases, at least on an annual basis. The impairment analysis for long-lived assets requires the Company to estimate the recovery value of the asset, which is the higher of its fair value (minus any disposal costs) and its value in use. To estimate the fair value of a long-lived asset, América Móvil typically takes into account recent market transactions or, if no such transactions can be identified, América Móvil uses a valuation model that requires making certain assumptions and estimates. Similarly, to estimate the value in use of long-lived assets, América Móvil typically makes various assumptions about the future prospects for the business to which the asset relates, considers market factors specific to that business and estimates future cash flows to be generated by that business. Based on this impairment analysis, including all assumptions and estimates related thereto, as well as guidance provided by IFRS relating to the impairment of long-lived assets different assumptions and estimates could materially impact the Company’s reported financial results. More conservative assumptions of the anticipated future benefits from these businesses could result in impairment charges, which would decrease net income and result in lower asset values on the consolidated statements of financial position. Conversely, less conservative assumptions could result in smaller or no impairment charges, higher net income and higher asset values. The key assumptions used to determine the recoverable amount for the Company’s CGUs, are further explained in Notes 2m), 10 and 11.

Deferred Income Taxes

América Móvil is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves the jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of temporary differences resulting from the differing treatment of certain items, such as accruals and amortization, for tax and financial reporting purposes, as well as net operating loss carry-forwards and other tax credits. These items result in deferred tax assets and liabilities as discussed in Note 2 t). The analysis is based on estimates of taxable income in the jurisdictions in which América Móvil operates and the period on which the deferred tax assets and liabilities will be recovered or settled. If actual results differ from these estimates, or América Móvil adjusts these estimates in future periods, its financial position and results of operations may be materially affected.

In assessing the future realization of deferred tax assets, the Company considers future taxable income, ongoing planning strategies and future results in its operations. In the event that the estimates of projected future taxable income are lowered, or changes in current tax regulations are enacted that would impose restrictions on the timing or extent of the ability to utilize the tax benefits of net operating loss carry-forwards in the future, an adjustment to the recorded amount of deferred tax assets would be made, with a related charge to income. See Note 13.

 

F-29


Table of Contents

Accruals

Accruals are recorded when, at the end of the period, the Company has a present obligation as a result of past events, whose settlement requires an outflow of resources that is considered probable and can be measured reliably. This obligation may be legal or constructive, arising from, but not limited to, regulation, contracts, common practice or public commitments, which have created a valid expectation for third parties that the Company will assume certain responsibilities. The amount recorded is the best estimation performed by the Company’s management in respect of the disbursement that will be required to settle the obligations, considering all the information available at the date of the financial statements, including the opinion of external experts, such as legal advisors or consultants. Accruals are adjusted to account for changes in circumstances for ongoing matters and the establishment of additional accruals for new matters.

If América Móvil is unable to reliably measure the obligation, no accrual is recorded and information is then presented in the notes to its consolidated financial statements. Because of the inherent uncertainties in these estimations, actual expenditures may be different from the originally estimated amount recognized. See Note 15.

América Móvil is subject to various claims and contingencies related to tax, labor and legal proceedings as described in Note 16(c).

Labor Obligations

América Móvil recognizes liabilities on its consolidated statement of financial position and expenses in its statement of comprehensive income to reflect its obligations related to its post-retirement seniority premiums, pension and retirement plans in the countries in which it operates and offer defined contribution and benefit pension plans. The amounts the Company recognizes are determined on an actuarial basis that involves estimations and accounts for post-retirement and termination benefits.

América Móvil uses estimates in four specific areas that have a significant effect on these amounts: (i) the rate of return América Móvil assumes its pension plans will earn on its investments, (ii) the salaries increase rate that the Company assumes it will observe in future years, (iii) the discount rates that the Company uses to calculate the present value of its future obligations and (iv) the expected inflation rate. The assumptions applied are further disclosed in Note 17. These estimates are determined based on actuarial studies performed by independent experts using the projected unit-credit method.

Allowance for Bad Debts

América Móvil maintains an allowance for bad debts for estimated losses resulting from the failure of its customers, distributors and telecommunications operators to make required payments. The Company bases these estimates on the individual conditions of each of the markets in which it operates that may impact the collectability of accounts. In particular, in making these estimates, the Company takes into account the number of days invoices are overdue and with telecommunications operators, both the number of days since the invoices are due and any disputes with respect to such invoiced traffic. The loss that América Móvil actually experiences with respect to these accounts may differ from the amount of the estimated allowance maintained in connection with them. See Note 5.

3. Cash and Cash Equivalents

Cash and cash equivalents are comprised of short-term deposits with different financial institutions. Cash equivalents only include instruments with purchased maturity of less than three months. The amount includes the amount deposited, plus any interest earned.

 

F-30


Table of Contents

4. Marketable securities and other short-term investments

As of December 31, 2016 and 2017, marketable securities and other short-term investments includes an available for sale investment in KPN for Ps. 41,463,511 and Ps. 46,682,657, respectively, and other short-term investments for Ps. 13,393,646 and Ps. 12,438,019, respectively.

The investment in KPN is carried at fair value with changes in fair value being recognized through other comprehensive (loss) items (equity) in the Company’s consolidated statements of financial position. When the Company changed the classification of its KPN investment, the Company recorded a pre-tax gain of approximately Ps. 11,988,038 in its 2015 consolidated statements of comprehensive income. As of December 31, 2016 and 2017, the Company has recognized in equity changes in fair value of the investment of Ps. (6,673,731) and Ps. 622,424, respectively, net of deferred taxes, through other comprehensive (loss) gain items (equity).

At December 31, 2017, the Company has not observed an objective measure of impairment on its available for sale securities, nor has unrealized losses on its available for sale securities been considered either significant or prolonged.

During the years ended December 31, 2015, 2016 and 2017, the Company received dividends from KPN for an amount of Ps. 1,645,712, Ps. 5,740,092 and Ps. 2,370,559, respectively; which are included within “Valuation of derivatives, interest cost from labor obligations, and other financial items, net” in the consolidated statements of comprehensive income. Another short-term investment item of Ps. 12,438,019, as of December 31, 2017 (Ps. 13,393,646 in 2016) represents a cash deposit used to guarantee a short term obligation for one of the Company’s foreign subsidiaries and are presented at their carrying value, which approximates fair value.

5. Accounts receivable from subscribers, distributors, recoverable taxes and other, net

a) An analysis of accounts receivable by component at December 31, 2016 and 2017 is as follows:

 

     At December 31,  
     2016     2017  

Subscribers and distributors

   Ps. 186,744,954     Ps. 178,722,706  

Telecommunications carriers for network interconnection and other services

     9,649,849       8,671,416  

Recoverable taxes

     41,899,517       40,477,188  

Sundry debtors

     16,016,756       14,736,340  
  

 

 

   

 

 

 
     254,311,076       242,607,650  

Less: Allowance for bad debts

     (37,351,677     (39,044,925
  

 

 

   

 

 

 

Net

   Ps. 216,959,399     Ps. 203,562,725  
  

 

 

   

 

 

 

Non-current subscribers and distributors

     11,184,860       9,786,581  
  

 

 

   

 

 

 

Total current Subscribers, distributors, recoverable taxes and other, net

   Ps.  205,774,539     Ps.  193,776,144  
  

 

 

   

 

 

 

 

F-31


Table of Contents

b) Changes in the allowance for bad debts were as follows:

 

     For the years ended December 31,  
     2015      2016      2017  

Balance at beginning of year

     Ps. (25,685,528      Ps. (27,495,158      Ps. (37,351,677

Increases recorded in expenses

     (13,171,120      (16,987,769      (20,744,242

Write-offs

     9,555,734        12,587,567        17,713,992  

Business combination

           (22,120

Translation effect

     1,805,756        (5,456,317      1,359,122  
  

 

 

    

 

 

    

 

 

 

Balance at end of year

     Ps. (27,495,158      Ps. (37,351,677      Ps. (39,044,925
  

 

 

    

 

 

    

 

 

 

c) The following table shows the aging of accounts receivable at December 31, 2016 and 2017, for subscribers and distributors:

 

    Past due  
    Total     Unbilled services
provided
    1-30 days     31-60 days     61-90 days     Greater than
90 days
 

December 31, 2016

    Ps. 186,744,954       Ps. 113,014,706       Ps. 19,175,008       Ps. 5,835,162       Ps. 4,209,456       Ps. 44,510,622  

December 31, 2017

    Ps. 178,722,706       Ps.   78,384,174       Ps. 46,758,825       Ps. 6,780,671       Ps. 4,375,188       Ps. 42,423,848  

In accordance with the Company’s accounting policy for the allowance for bad debts, as of December 31, 2016 and 2017, there are certain accounts receivable greater than 90 days that are not impaired as they are primarily due from government institutions and distributors for which the Company has a collateral. To estimate the recoverability of accounts receivable, the Company considers any change in the credit quality of the subscribers and distributors from the date the credit was granted until the end of period.

d) The following table shows the accounts receivable from subscribers and distributors included in the allowance for doubtful accounts, as of December 31, 2016 and 2017:

 

     Total      61-90 days      Greater than
90 days
 

December 31, 2016

     Ps. 37,351,677        Ps. 3,970,770        Ps. 33,380,907  

December 31, 2017

     Ps. 39,044,925        Ps. 3,807,945      Ps. 35,236,980

 

F-32


Table of Contents

6. Related Parties

a) The following is an analysis of the balances with related parties as of December 31, 2016 and 2017. All of the companies were considered affiliates of América Móvil since the Company’s principal shareholders are either direct or indirect shareholders in the related parties.

 

     2016      2017  

Accounts receivable:

     

Sears Roebuck de Mexico, S.A. de C.V.

   Ps. 230,974      Ps. 211,491  

Sanborns Hermanos, S.A.

     119,423        91,233  

Carso Infraestructura y Construcción, S.A. de C.V and Subsidiaries

     112,834        89,585  

Enesa, S.A. de C.V. and Subsidiaries

     93,360        33,208  

Grupo Condumex, S.A. de C.V. and Subsidiaries

     41,057        47,269  

Operadora de Sites Mexicanos, S.A. de C.V.

     22,629        14,252  

Patrimonial Inbursa, S.A.

     9,299        246,874  

Other

     110,916        134,318  
  

 

 

    

 

 

 

Total

   Ps. 740,492      Ps. 868,230  
  

 

 

    

 

 

 
     2016      2017  

Accounts payable:

     

Carso Infraestructura y Construcción, S.A. de C.V and Subsidiaries

   Ps. 1,291,062      Ps. 947,761  

Grupo Condumex, S.A. de C.V. and Subsidiaries

     753,603        812,427  

Fianzas Guardiana Inbursa, S.A. de C.V.

     409,293        276,633  

PC Industrial, S.A. de C.V. and Subsidiaries

     117,841        136,859  

Grupo Financiero Inbursa, S.A.B. de C.V.

     40,737        38,847  

Enesa, S.A. de C.V. and Subsidiaries

     53,670        50,609  

Other

     305,119        277,276  
  

 

 

    

 

 

 

Total

   Ps.  2,971,325      Ps.  2,540,412  
  

 

 

    

 

 

 

For the years ended December 31, 2015, 2016 and 2017, the Company has not recorded any impairment of receivables in connection with amounts owed by related parties.

 

F-33


Table of Contents

b) For the years ended December 31, 2015, 2016 and 2017, the Company conducted the following transactions with related parties:

 

    2015     2016     2017  

Investments and expenses:

     

Construction services, purchases of materials, inventories and property, plant and equipment (i)

  Ps. 5,975,677     Ps. 9,917,280     Ps. 11,030,944  

Insurance premiums, fees paid for administrative and operating services, brokerage services and others (ii)

    4,332,331       4,118,469       4,135,578  

Rent of towers (iii)

    927,678       4,748,503       5,326,366  

Other services

    1,379,269       1,899,818       2,802,667  
 

 

 

   

 

 

   

 

 

 
  Ps.  12,614,955     Ps.  20,684,070     Ps.  23,295,555  
 

 

 

   

 

 

   

 

 

 

Revenues:

     

Telecommunications services

  Ps. 271,196     Ps. 411,076     Ps. 416,047  

Sale of materials and other services

    2,398,994       2,679,591       2,313,840  
 

 

 

   

 

 

   

 

 

 
  Ps. 2,670,190     Ps. 3,090,667     Ps. 2,729,887  
 

 

 

   

 

 

   

 

 

 

 

i) In 2017, this amount includes Ps. 9,829,991 (Ps. 9,547,530 in 2016 and Ps. 5,823,537 in 2015) for network construction services and construction materials purchased from subsidiaries of Grupo Carso, S.A.B. de C.V. (Grupo Carso).
ii) In 2017, this amount includes Ps. 789,253 (Ps. 812,247 in 2016 and 721,416 in 2015) for network maintenance services performed by Grupo Carso subsidiaries; Ps. 15,695 in 2017 (Ps. 705,074 in 2016, and Ps. 216,910 in 2015) for software services provided by an associate; Ps. 3,330,038 in 2017 (Ps. 2,406,058 in 2016 and Ps. 2,635,342 in 2015) for insurance premiums with Seguros Inbursa S.A. and Fianzas Guardiana Inbursa, S.A., which, in turn, places most of such insurance with reinsurers.
iii) In October 2015, following the approval of the Federal Telecommunications Institute ( Instituto Federal de Telecomunicaciones , or “IFT”) and confirmation by the Mexican Tax Administration Service ( Servicio de Administración Tributaria ) of its tax implications the Company completed the spin-off process of its telecom towers located in Mexico creating the company Telesites, S.A.B. de C.V. (“Telesites”). Such spin-off was approved in an extraordinary meeting of shareholders held in April 2015. The National Securities and Banking Commission ( Comisión Nacional Bancaria y de Valores ) authorized the registration of the shares of Telesites in December 2015, and the Company concluded the listing process on December 21, 2015.

c) During 2017, the Company paid Ps. 1,229,442 (Ps. 1,255,326 and Ps. 915,135 in 2016 and 2015, respectively) for short-term direct benefits to its executives.

The aggregate compensation paid to the Company’s, directors (including compensation paid to members of the Audit and Corporate Practices Committee), and senior management in 2017 was approximately Ps. 5,100 and Ps. 66,700, respectively. None of the Company’s directors is a party to any contract with the Company or any of its subsidiaries that provides for benefits upon termination of employment. The Company does not provide pension, retirement or similar benefits to its directors in their capacity as directors. The Company’s executive officers are eligible for retirement and severance benefits required by Mexican law on the same terms as all other employees.

d) Österreichische Bundes- und Industriebeteiligungen GmbH (ÖBIB) is considered a related party due to it is a significant non-controlling shareholder in Telekom Austria. Through Telekom Austria, América Móvil is related to the Republic of Austria and its subsidiaries, which are mainly ÖBB Group, ASFINAG Group and Post Group

 

F-34


Table of Contents

as well as Rundfunk und Telekom Reguliegungs-GmbH, all of which these are related parties. In 2017, 2016 and 2015, none of the individual transactions associated with government agencies or government-owned entities of Austria are considering significant to América Móvil.

7. Derivative Financial Instruments

To mitigate the risks of future increases in interest rates and foreign exchange rates for the servicing of its debt, the Company has entered into interest-rate swap contracts in over-the-counter transactions carried out with financial institutions. No collateral is given as security in connection with these transactions. In 2017 the weighted-average interest rate of the total debt including the impact of interest rate derivatives held by the Company is 4.0% (3.7% and 3.9% in 2016 and 2015, respectively).

An analysis of the derivative financial instruments contracted by the Company at December 31, 2016 and 2017 is as follows:

 

     At December 31,  
     2016      2017  

Instrument

   Notional amount in
millions
     Fair value      Notional amount in
millions
     Fair value  

Assets:

           

Swaps US Dollar-Mexican peso

   US$ —          —        US$ 2,800      Ps.  4,766,102  

Swaps Euro-Mexican peso

   70      Ps.  479,007      —          —    

Swaps Yen-US Dollar

   ¥   13,000        430,044      ¥ 13,000        521,270  

Forwards US Dollar-Mexican peso

   US$ —          —        US$ 1,744        1,600,666  

Forwards US Dollar-Brazilian real

   US$ —          —        US$ 100        44,280  

Swaps Swiss Franc-US Dollar

   CHF —          —        CHF 475        178,710  

Swaps Euro-Brazilian real

   —          —        450        359,671  

Interest rate swap

   Ps. —          —        Ps. 200        916  

Forwards Euro-Brazilian real

   —          —        400        330,427  

Forwards US Dollar-Swiss franc

   CHF —          —        CHF 75        121,981  

Forwards Euro-US Dollar

   —          —        204        113,361  
     

 

 

       

 

 

 

Total Assets

        Ps. 909,051           Ps. 8,037,384  
     

 

 

       

 

 

 

 

     At December 31,  
     2016      2017  

Instrument

   Notional amount
in millions
     Fair value      Notional amount
in millions
     Fair value  

Liabilities:

           

Interest rate swaps in Mexican peso

   Ps. 15,750      Ps.      (131,998    Ps. —        Ps. —    

Forwards US Dollar-Mexican peso

   US$ 80        (99,228    US$ —          —    

Forwards Euro-US Dollar

   460        (1,142,155    —          —    

Swaps Euro-US Dollar

   500        (1,807,332    —          —    

Swaps US Dollar-Euro

   US$ 2,192        (698,917    US$ 2,092        (8,340,970

Swaps Swiss franc-US Dollar

   CHF 745        (745,263    CHF —          —    

Swaps Pound sterling-Euro

   £ 740        (2,585,890    £ 740        (3,376,091

Swap Pound sterling-US Dollar

   £ 2,010        (5,961,324    £ 2,010        (1,676,636

Call spread option

   750        (155,950    750        (48,422

Put option

   374        (2,379,434    374        (482,645

Call spread option

   3,000        (1,877,256    3,000        (434,696
     

 

 

       

 

 

 

Total liability

      Ps.  (17,584,747       Ps.  (14,359,460
     

 

 

       

 

 

 

Non-current liability

      Ps.    (3,448,396       Ps.    (3,756,921
     

 

 

       

 

 

 

Total current liability

      Ps.  (14,136,351       Ps.  (10,602,539
     

 

 

       

 

 

 

 

F-35


Table of Contents

The changes in the fair value of these derivative financial instruments for the years ended December 31, 2015, 2016 and 2017 amounted to a gain (loss) of Ps. 15,128,269, Ps. (9,622,233) and Ps. 8,192,567, respectively, and such amounts are included in the consolidated statements of comprehensive income as part of the caption “Valuation of derivatives interest cost from labor obligations and other financial items, net” and Ps. 37,011, Ps. 48,496 and Ps. 12,292, net of tax, respectively, that are accounted for as “Effect of derivative financial instruments acquired for hedging purposes” in equity.

The maturities of the notional amount of the derivatives are as follows:

 

Instrument

   Notional
amount in
millions
     2018      2019      2020      2021      2022
Thereafter
 

Assets

                 

Swaps US Dollar-Mexican peso

   US$ 2,800        —          —          —          —          2,800  

Swaps Yen-US Dollar

   ¥ 13,000        —          —          —          —          13,000  

Forwards US Dollar-Mexican peso

   US$ 1,744        1,744        —          —          —          —    

Forwards US Dollar-Brazilian real

   US$ 100        100        —             —          —    

Swaps Swiss franc-US Dollar

   CHF 475        475        —          —          —          —    

Swaps Euro-Brazilian real

   450        150        300        —          —          —    

Interest rate swap

   Ps. 200        —          200        —          —          —    

Forwards Euro-Brazilian real

   400        400        —          —          —          —    

Forwards US Dollar-Swiss franc

   CHF 75        75        —          —          —          —    

Forwards Euro-US Dollar

   204        204        —          —          —          —    

Liabilities

                 

Swaps US Dollar-Euro

   US$ 2,092        67        25        —          —          2,000  

Swaps Pound sterling-Euro

   £ 740        —          —          —          —          740  

Swap Pound sterling-US Dollar

   £ 2,010        —          —          550        —          1,460  

Call spread option

   750        750        —          —          —          —    

Put option

   374        —          —          —          —          374  

Call spread option

   3,000        —          —          3,000        —          —    

8. Inventories, net

An analysis of inventories at December 31, 2016 and 2017 is as follows:

 

     2016      2017  

Mobile phones, accessories, computers, TVs, cards and other materials

     Ps. 41,020,172        Ps. 42,262,511  

Less: Reserve for obsolete and slow-moving inventories

     (4,148,880      (3,452,946
  

 

 

    

 

 

 

Total

     Ps. 36,871,292        Ps. 38,809,565  
  

 

 

    

 

 

 

For the years ended December 31, 2015, 2016 and 2017, the cost of inventories recognized in cost of sales was Ps. 145,491,598, Ps. 172,495,376 and Ps. 170,154,336, respectively.

 

F-36


Table of Contents

9. Other assets, net

An analysis of other assets at December 31, 2016 and 2017 is as follows:

 

     2016      2017  

Current portion:

     

Advances to suppliers (different from PP&E and inventories)

   Ps.  12,078,114      Ps. 9,536,654  

Costs of mobile equipment and computers associated with deferred revenues

     5,914,166        6,182,010  

Prepaid insurance

     786,683        683,091  

Other

     759,130        950,991  
  

 

 

    

 

 

 
   Ps.  19,538,093      Ps.  17,352,746  
  

 

 

    

 

 

 

Non-current portion:

     

Recoverable taxes

   Ps. 9,971,482      Ps.  12,249,372  

Prepayments for the use of fiber optics

     4,262,387        4,361,668  

Prepaid expenses and judicial deposits  (1)

     25,267,208        25,926,436  
  

 

 

    

 

 

 

Total

     Ps. 39,501,077        Ps. 42,537,476  
  

 

 

    

 

 

 

For the years ended December 31, 2015, 2016 and 2017, amortization expense for other assets was Ps. 558,457, Ps. 1,340,609 and Ps. 620,680, respectively.

 

(1) Judicial deposits represent cash and cash equivalents pledged in order to fulfill the collateral requirements for tax contingencies mainly in Brazil. At December 31, 2016 and 2017, the amount for these deposits is Ps. 20,030,041 and Ps. 20,288,382, respectively. Based on its evaluation of the underlying contingencies, the Company believes that such amounts are recoverable.

 

F-37


Table of Contents

10. Property, Plant and Equipment, net

a) An analysis of property, plant and equipment, net at December 31, 2015, 2016 and 2017 is as follows:

 

    At
December 31,
2014
    Additions     Retirements     Business
combinations
    Spin-off
effects
(Note 12)
    Effect of
translation of
foreign
subsidiaries
    Depreciation
of
the year
    At
December 31,
2015
 

Cost

               

Network in operation and equipment

  Ps.  642,617,237     Ps. 78,632,899     Ps. (16,061,956   Ps. 4,293,671     Ps. —     Ps. (68,097,149   Ps. —     Ps.  641,384,702  

Land and buildings

    56,463,536       2,559,088       (2,492,288     54,902       —         (1,790,852     —         54,794,386  

Other assets

    105,550,807       27,711,493       (10,169,829     820,329       (12,643,381     (4,800,817     —         106,468,602  

Construction in process and advances plant suppliers  (1)

    39,107,185       72,899,705       (68,666,020     160,311       (348,395     (4,302,010     —         38,850,776  

Inventories for operation of the network

    20,848,714       44,423,898       (43,911,307     —         —         (1,018,916     —         20,342,389  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    864,587,479       226,227,083       (141,301,400     5,329,213       (12,991,776     (80,009,744     —         861,840,855  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

               

Network in operation and equipment

    234,527,131       —         (31,529,529     —         (7,403,656     (51,082,202     92,219,984       236,731,728  

Buildings

    3,728,405       —         (433,368     —         —         (1,334,962     2,607,513       4,567,588  

Other assets

    38,276,028       —         (4,533,893     —         —         (1,995,119     15,310,068       47,057,084  

Inventories for operation of the network

    (50,265     —         (13,405     —         —         1,409       17,838       (44,423
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  276,481,299     Ps. —     Ps. (36,510,195   Ps.         —     Ps. (7,403,656   Ps. (54,410,874   Ps. 110,155,403     Ps.  288,311,977  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Cost

  Ps.  588,106,180     Ps.  226,227,083     Ps.  (104,791,205   Ps.  5,329,213     Ps. (5,588,120   Ps.  (25,598,870   Ps.  (110,155,403   Ps.  573,528,878  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    At
December 31,
2015
    Additions     Retirements     Business
combinations
    Effect of
translation of
foreign
subsidiaries
    Depreciation
of
the year
    At
December 31,
2016
 

Cost

             

Network in operation and equipment

    Ps. 641,384,702     Ps. 101,794,197       Ps.     (8,963,076)     Ps. 1,873,445       Ps. 235,186,745     Ps.             —       Ps. 971,276,013  

Land and buildings

    54,794,386       2,900,511       (2,845,298     3,839       7,281,973       —         62,135,411  

Other assets

    106,468,602       24,368,918       (10,717,096     69,937       24,736,655       —         144,927,016  

Construction in process and
advances plant suppliers  (1)

    38,850,776       70,517,319       (70,911,593     11,255       11,252,127       —         49,719,884  

Inventories for operation of the network

    20,342,389       34,010,751       (27,641,919     5,520       1,566,307       —         28,283,048  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    861,840,855       233,591,696       (121,078,982)       1,963,996       280,023,807       —         1,256,341,372  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

             

Network in operation and equipment

    236,731,728                     —         (1,968,376                 —         153,147,349       107,976,385       495,887,086  

Buildings

    4,567,588       —         (975,284     —         3,709,952       3,179,066       10,481,322  

Other assets

    47,057,084       —         (25,099,710     —         10,396,438       16,105,885       48,459,697  

Inventories for operation of the network

    (44,423     —         (54,280     —         20,896       401,008       323,201  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Ps. 288,311,977     Ps.              —       Ps.    (28,097,650   Ps.             —       Ps. 167,274,635     Ps. 127,662,344       Ps. 555,151,306  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Cost

    Ps. 573,528,878     Ps.  233,591,696       Ps.    (92,981,332   Ps. 1,963,996       Ps. 112,749,172     Ps.  (127,662,344     Ps. 701,190,066  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-38


Table of Contents
    At
December 31,
2016
    Additions     Retirements     Business
combinations
    Effect of
translation of
foreign
subsidiaries
    Depreciation
of
the year
    At
December 31,
2017
 

Cost

             

Network in operation and equipment

  Ps.  971,276,013     Ps.    78,272,882     Ps.  (21,657,715   Ps. 599,306     Ps.  (38,824,540   Ps.                —       Ps. 989,665,946  

Land and buildings

    62,135,411       2,858,996       (415,219     27,686       (2,022,685     —         62,584,189  

Other assets

    144,927,016       19,287,525       (8,112,571     80,734       (5,866,897     —         150,315,807  

Construction in process and advances plant suppliers  (1)

    49,719,884       66,383,381       (41,279,573     34,705       (737,023     —         74,121,374  

Inventories for operation of the network

    28,283,048       27,013,148       (27,979,816     3,576       (728,358     —         26,591,598  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,256,341,372       193,815,932       (99,444,894     746,007       (48,179,503     —         1,303,278,914  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation

             

Network in operation and equipment

    495,887,086       —         (21,214,724)       —         (32,860,339     110,533,486       552,345,509  

Buildings

    10,481,322       —         (1,568,542     —         (940,054     2,682,559       10,655,285  

Other assets

    48,459,697       —         (4,572,509     —         (2,251,958     21,724,299       63,359,529  

Inventories for operation of the network

    323,201       —         (9,205     —         (4,339     265,736       575,393  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Ps.  555,151,306     Ps.                           Ps.  (27,364,980   Ps.       Ps.  (36,056,690   Ps.   135,206,080     Ps. 626,935,716
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Cost

  Ps.  701,190,066     Ps.  193,815,932     Ps.  (72,079,914   Ps.  746,007     Ps.  (12,122,813   Ps.  (135,206,080 )   Ps. 676,343,198
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Construction in progress includes fixed and mobile network facilities as well as satellite developments and fiber optic which is in the process of being installed.

The completion period of construction in progress is variable and depends upon the type of fixed assets under construction.

b) At December 31, 2016 and 2017, property, plant and equipment include the following assets under capital leases:

 

     2016      2017  

Assets under capital leases

     Ps.  8,210,557        Ps.  8,116,532  

Accumulated depreciation

     (4,839,007      (3,475,014
  

 

 

    

 

 

 
     Ps.  3,371,550        Ps.  4,641,518  
  

 

 

    

 

 

 

c) At December 31, 2017, Claro Brasil has land and buildings and other equipment that are pledged in guarantee of legal proceedings in the amount of Ps. 3,521,082 (Ps. 3,530,845 as of December 31, 2016).

d) Relevant information related to the computation of the capitalized borrowing costs is as follows:

 

     Years ended December 31,  
     2015      2016      2017  

Amount invested in the acquisition of qualifying assets

     Ps. 52,922,105            Ps. 52,974,400            Ps. 49,642,370       

Capitalized interest

     3,524,841          2,861,307            2,875,034       

Capitalization rate

     6.7%        5.4%        5.8%  

Capitalized interest is being amortized over a period of seven years, which is the estimated useful life of the related assets.

e) On October 20, 2017, our subsidiary Star One signed a contract with SSL — Space Systems Loral for construction of the Star One D2 satellite, which will be equipped with transponders 52 in the C and Ku bands,

 

F-39


Table of Contents

20 Gbps of capacity in Band Ka and a certain capacity in X-band. The cost of this Project is estimated to be approximately Ps. 6,391,104 (US$ 323,000) and the launch will take place at the end of 2019. At December 31, 2017 the amount recorded in Construction in progress amounts to Ps. 916,240 (R$153,179).

f) The Company’s concessions in Brazil establish certain conditions under which assets may be reverted to the government, as discussed in Note 16(c).

g) During 2016, Claro Brasil reviewed the useful life of its set top boxes. Such review was supported by historical data, change in the economic environment in which Claro Brasil operates and based on a professional technical evaluation. Based on the review the Company shortened such useful lives and recorded an increase in depreciation expense for Ps. 2,468,415 (R$458,234).

In some of the jurisdictions where the Company operates and under certain circumstances, the Company may be required to transfer certain assets covered by some of their concessions to the government pursuant to valuation methodologies that vary in each jurisdiction (assets reversion). It is uncertain whether reversion would ever be applied and how reversion provisions would be interpreted in practice.

11. Intangible assets, net and goodwill

a) An analysis of intangible assets at December 31, 2015, 2016 and 2017 is as follows:

 

    For the year ended December 31, 2015  
    Balance at
beginning of
year
    Acquisitions     Acquisitions
in business
combinations
    Disposals
and other
    Amortization
of the year
    Effect of
translation of
foreign
subsidiaries
    Balance at
end
of year
 

Licenses and rights of use

  Ps. 174,795,094     Ps. 19,507,462     Ps. 448,364     Ps. 1,109,172     Ps. —     Ps.  (20,564,317   Ps. 175,295,775  

Accumulated amortization

    (91,231,249     —         —         (25,976     (7,419,551     13,830,252       (84,846,524
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    83,563,845       19,507,462       448,364       1,083,196       (7,419,551     (6,734,065     90,449,251  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trademarks

    22,274,991       —         252,728       207,251       —         89,043       22,824,013  

Accumulated amortization

    (10,829,402     —         —         —         (936,606     242,301       (11,523,707
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    11,445,589       —         252,728       207,251       (936,606     331,344       11,300,306  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Customer relationships

    15,306,167       —         949,915       791,548       —         1,346,777       18,394,407  

Accumulated amortization

    (485,951     —         —         —         (3,452,760     (24,164     (3,962,875
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    14,820,216       —         949,915       791,548       (3,452,760     1,322,613       14,431,532  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software licenses

    7,297,177       2,245,027       42,760       (307,955     —         (494,241     8,782,768  

Accumulated amortization

    (1,510,514     —         —         1,434,129       (2,921,767     573,554       (2,424,598
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    5,786,663       2,245,027       42,760       1,126,174       (2,921,767     79,313       6,358,170  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Content rights

    1,862,030       768,888       —         —         —         3,609       2,634,527  

Accumulated amortization

    (158,555     —         —         —         (270,191     —         (428,746
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    1,703,475       768,888       —         —         (270,191     3,609       2,205,781  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of intangibles, net

  Ps. 117,319,788     Ps.  22,521,377     Ps.  1,693,767     Ps.  3,208,169     Ps.  (15,000,875   Ps. (4,997,186   Ps. 124,745,040  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill (Note 12)

  Ps.  140,903,391     Ps. 220,124     Ps. 711,723     Ps. —     Ps. —     Ps. (4,721,522   Ps.  137,113,716  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-40


Table of Contents
    For the year ended December 31, 2016  
    Balance at
beginning of
year
    Acquisitions     Acquisitions
in business
combinations
    Disposals
and other
    Amortization
of the year
    Effect of
translation of
foreign
subsidiaries
    Balance at
end
of year
 

Licenses and rights of use

  Ps. 175,295,775     Ps. 9,129,949     Ps. 360,144     Ps. 1,269,478     Ps. —     Ps. 56,684,016     Ps. 242,739,362  

Accumulated amortization

    (84,846,524     —         —         —         (10,255,271     (31,606,303     (126,708,098
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    90,449,251       9,129,949       360,144       1,269,478       (10,255,271     25,077,713       116,031,264  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trademarks

    22,824,013       —         101,655       (13,820     —         4,877,302       27,789,150  

Accumulated amortization

    (11,523,707     —         —         —         (330,576     (3,367,974     (15,222,257
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    11,300,306       —         101,655       (13,820     (330,576     1,509,328       12,566,893  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Customer relationships

    18,394,407       —         1,904,503       —         —         5,946,598       26,245,508  

Accumulated amortization

    (3,962,875     —         —         —         (3,231,518     (5,240,681     (12,435,074
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    14,431,532       —         1,904,503       —         (3,231,518     705,917       13,810,434  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software licenses

    8,782,768       3,854,066       26,871       (829,680     —         1,040,771       12,874,796  

Accumulated amortization

    (2,424,598     (41,185     (8,367     829,680       (3,469,461     (9,809     (5,123,740
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    6,358,170       3,812,881       18,504       —         (3,469,461     1,030,962       7,751,056  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Content rights

    2,634,527       2,242,556       —         (217,057     —         216,272       4,876,298  

Accumulated amortization

    (428,746     —         —         (1,612     (2,236,141     —         (2,666,499
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    2,205,781       2,242,556       —         (218,669     (2,236,141     216,272       2,209,799  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of intangibles, net

  Ps. 124,745,040     Ps.  15,185,386     Ps. 2,384,806     Ps. 1,036,989     Ps. (19,522,967   Ps.  28,540,192     Ps. 152,369,446  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill (Note 12)

  Ps.  137,113,716     Ps.            —     Ps.  3,953,023     Ps.  (356,832)     Ps.                —     Ps.  11,922,728     Ps. 152,632,635  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    For the year ended December 31, 2017  
    Balance at
beginning of
year
    Acquisitions     Acquisitions
in business
combinations
    Disposals
and other
    Amortization
of the year
    Effect of
translation of
foreign
subsidiaries
    Balance at
end
of year
 

Licenses and rights of use

  Ps. 242,739,362     Ps.  12,347,051     Ps. 53,923     Ps.  (1,037,458   Ps.                —     Ps.  (6,689,054   Ps. 247,413,824  

Accumulated amortization

    (126,708,098     —         —         244,564       (11,879,489     4,233,585       (134,109,438
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    116,031,264       12,347,051       53,923       (792,894     (11,879,489     (2,455,469     113,304,386  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Trademarks

    27,789,150       127,823       82,868       (29,804     —         809,175       28,779,212  

Accumulated amortization

    (15,222,257     —         —         34,464       (3,179,461     (474,151     (18,841,405
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    12,566,893       127,823       82,868       4,660       (3,179,461     335,024       9,937,807  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Customer relationships

    26,245,508       —         512,667       (882,338     —         1,109,877       26,985,714  

Accumulated amortization

    (12,435,074     —         —         882,338       (3,769,777     (806,982     (16,129,495
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    13,810,434       —         512,667       —         (3,769,777     302,895       10,856,219  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Software licenses

    12,874,796       3,351,200       —         (1,698,118     —         527,720       15,055,598  

Accumulated amortization

    (5,123,740     —         —         1,212,669       (3,699,363     (204,727     (7,815,161
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    7,751,056       3,351,200       —         (485,449     (3,699,363     322,993       7,240,437  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Content rights

    4,876,298       2,099,084       —         (63,137     —         (194,803     6,717,442  

Accumulated amortization

    (2,666,499     —         —         (195,658     (1,820,092     165,584       (4,516,665
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net

    2,209,799       2,099,084       —         (258,795     (1,820,092     (29,219     2,200,777  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of intangibles, net

  Ps. 152,369,446     Ps. 17,925,158     Ps.  649,458     Ps. (1,532,478   Ps. (24,348,182   Ps. (1,523,776   Ps. 143,539,626  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill (Note 12)

  Ps. 152,632,635     Ps. —     Ps. 951,348     Ps. (134,525   Ps.                —     Ps. (1,986,226   Ps. 151,463,232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

F-41


Table of Contents

b) The aggregate carrying amount of goodwill is allocated as follows:

 

     December 31,  
     2016      2017  

Europe (7 countries)

   Ps. 52,207,877      Ps. 53,143,542  

Brazil (Fixed, wireless and TV)

     26,106,623        24,708,740  

Puerto Rico

     17,463,393        17,463,394  

Dominican Republic

     14,186,724        14,186,723  

Mexico (includes Telmex)

     9,936,857        9,852,912  

Ecuador

     2,155,385        2,155,385  

Peru

     3,792,950        3,958,110  

El Salvador

     2,510,596        2,510,577  

Chile

     2,758,653        2,834,134  

Colombia

     14,659,892        13,981,033  

Other countries

     6,853,685        6,668,682  
  

 

 

    

 

 

 
   Ps.  152,632,635      Ps.  151,463,232  
  

 

 

    

 

 

 

c) The following is a description of the major changes in the”Licenses and rights of use” caption during the years ended December 31, 2015, 2016 and 2017:

2015 Acquisitions

i) In October 2015, Radiomóvil Dipsa renewed a license to provide cellular service in the 800 MHz frequency band. The frequency band expires in 2030. The amount paid was Ps. 1,007,410.

ii) In May 2015, Claro Ecuador acquired licenses related to 4G/LTE services. The frequency band expires in 2023. The amount paid was Ps. 2,861,060.

iii) In 2015, Claro Brasil obtained renewals related with the frequency bands of national 700Mhz. Funding for these procedures must be transmitted by operators in four annual installments adjusted by the IGP-ID of Ps. 4,412,730 (R$ 1,001,414) for which the corresponding renewal was performed.

iv) In November 2015, Vipnet located in Croatia acquired 2 x 3 MHz and 2 x 4.8 MHz in the 1.800 MHz spectrum for EUR 18,513. Vipnet already holds 2 x 29.4 MHz in the lower frequency band (below 1 GHz), 2 x 25.0 in the higher frequency band (above 1 GHz) as well as 5.0 MHz TDD spectrum. The amount paid was Ps. 321,915.

v) In November 2015, Vip mobile, the Serbian subsidiary acquired 2 x 5 MHz of the 800 MHz spectrum. The new spectrum will be used by VIP mobile for the LTE rollout and will enhance the high-speed data service in rural areas as well as data usage in connection with smartphones. Vip mobile already holds a 2 x 4.2 MHz in the lower frequency band (below 1 GHz) as well as 2 x 45.0 MHz in the higher frequency band (above 1 GHz). The amount paid was Ps. 1,129,988 (EUR 60,942).

As a part of the business combinations, the Company recognized licenses for an amount of Ps. 448,364. The Company holds licenses provided by the regulatory authorities in those jurisdictions. These licenses are estimated to have a remaining useful life of 10 years.

vi) In 2015, Argentina paid Ps. 5,599,745 (AR$ 3,269,312) for the acquisition of 4G licenses to increase the service throughout the country.

vii) Additionally the Company acquired other licenses in Puerto Rico, Panama and others countries in the amount of Ps. 4,174,614.

 

F-42


Table of Contents

2016 Acquisitions

i) In February 2016, the Company´s subsidiary in Paraguay was granted with the use of 30 MHz of spectrum in the 1700/2100 Mhz frequency. The total cost was Ps. 830,719 (US$ 46,000).

ii) In February 2016, the Company through its subsidiary Radiomóvil Dipsa, S.A. de C.V. (Telcel), acquired through an auction a total of 20MHz in the national wide AWS-1 band and 40 MHz in the AWS-3 band. The concession expires in October 2030. The Company paid an amount of Ps. 2,098,060.

iii) In May 2016, Mtel, located in Bulgaria, acquired 2 x 5 MHz in the 1,800-MHz spectrum for Ps. 135,441 (EUR 6,212). During 2016, Telekom Austria paid Ps. 410,713 (EUR 18,837) for the renewals referring to an obligation obtained from concessions granted in previous years.

iv) On May 26, 2016, the Company’s subsidiary in Peru acquired spectrum in a public auction of the 700 MHz band. The frequency band expires in 2036. The cost of the spectrum was Ps. 5,627,316 (PEN$. 1,002,523).

v) In July 2016, Ecuador Telecom acquired a license to operate TV in Ecuador for a period that ends in 2031. The amount paid was Ps. 27,700 (US$ 1,500).

2017 Acquisitions

i) In 2017, Claro Brasil increased its licenses value by Ps. 3,592,034 due to the cleaning process of the 700 MHz national frequency acquired in September 2014.

ii) On February 24, 2017 Radiomóvil Dipsa renewed its 8.4 MHz national license by paying Ps. 917,431, and on July 14, 2017, it acquired 43 concession titles for frequencies of 2.5 GHz in the amount of Ps. 5,305,498.

iii) Additionally in 2017, the Company acquired other licenses in Chile, Europe, Uruguay and others countries in the amount of Ps. 2,532,088.

Amortization of intangibles for the years ended December 31, 2015, 2016 and 2017 amounted to Ps. 15,000,875, Ps. 19,522,968 and Ps. 24,348,182, respectively.

In September 2017, the Company decided to consolidate the brands in Telekom Austria Group. Depending on the respective markets, the Austrian brand “A1” will be rolled out to all the subsidiaries through the third quarter 2019, at the latest, and the local brands are amortized accordingly.

Some of the jurisdictions in which the Company operates can revoke their concessions under certain circumstances such as imminent danger to national security, national economy and natural disasters.

12. Business combinations, acquisitions, sale and non-controlling interest

a) The following is a description of the major acquisitions of investments in associates and subsidiaries during the years ended December 31, 2015, 2016 and 2017:

Acquisitions — 2015

 

  a) In February 2015, the Company acquired throughout its Telmex and Consertel subsidiaries an additional 35% of Hitss Solutions, S. A. de C.V. (Hitss) increasing its equity interest in this entity to 68.9%. Hitss offers information technology service. This acquisition was valued at is fair value at the purchase date. The Company started consolidating this subsidiary beginning March, 2015. The amount paid for the additional equity interest was Ps. 472,481, net of cash, and the goodwill recorded as part of this acquisition was Ps. 205,141. The identified goodwill has been allocated to the Mexico segment. The goodwill recognized is not deductible for income tax purposes.

 

F-43


Table of Contents
  b) The following entities were acquired by Telekom Austria:

 

  i) In June 2015, acquired 100% of eight cable operators in the Republic of Macedonia through its subsidiary Blizoo.

 

  ii) In September 2015, acquired 100% of Amisco NV (‘Amis’), the holding entity of Amis Slovenia and Amis Croatia. Amis operates as a fixed-line reseller in Slovenia and owns a fiber network in Croatia. The companies offer internet, IPTV and telephone services.

 

  iii) In September 2015, acquired 100% of Bultel Cable Bulgaria EAD (‘Blizoo Bulgaria’).

The acquired companies were consolidated beginning October 2015. The amount paid was Ps. 2,864,968, net of cash, and the goodwill recognized as part of these acquisitions was Ps. 711,723. The identified goodwill has been allocated to the Europe segment. The goodwill recognized is not deductible for income tax purposes.

 

  c) During 2015, the Company acquired throughout its Mexican and Brazil subsidiaries other entities for which they paid Ps. 119,704, net of cash.

 

  d) The Company acquired an additional non-controlling interest in its Mexican and Brazil entities for an amount of Ps. 1,031,049.

Acquisitions and sale 2016

a) In January 2016, in order to expand and strengthen its operations in Brazil, the Company through its Brazilian subsidiary, acquired a controlling interest of 99.99% in Brazil Telecomunicações S.A. (“BRTel”), a company operating in the market for Pay TV, Internet and broadband services and serving various municipalities of Brazil under the BLUE brand. The amount paid for the business acquisition was Ps. 1,088,668, net of acquired cash. The goodwill recognized amounted to Ps. 1,046,253.

b) In May 2016, the Company acquired an additional non-controlling interest of 1.8% in Tracfone Wireless Inc. thereby obtaining 100% of its capital stock. The amount paid was Ps. 2,300,553 (US$ 124,673). This transaction was recorded as an equity transaction, and therefore, no gain or loss was recognized.

c) In May 2016, the Company through his subsidiary, América Móvil Perú, S.A.C. acquired 100% of the capital stock of Olo del Perú S.A.C. (“Olo”), and TVS Wireless S.A.C. (“TVS”). Olo and TVS provide telecommunications services throughout Peru and hold radio spectrum in the 2.5 GHz band. The transaction was conditioned to the obtention of the approval of the Peruvian regulator, such approval was finally obtained in December 2016. The amount of the transaction was Ps. 1,854,379 (US$. 102,343) net of acquired cash. In May 2016 the Company paid Ps. 152,214 (US$ 7,554) and in January 2017, after the approval, Ps. 2,079,095 (US$ 94,789). The goodwill recognized amounted to Ps. 1,454,333 in December 2016 and Ps. 188,452 in December 2017.

d) Based on a 2014 shareholder agreement, the Company agreed to ensure a minimal free float of Telekom Austria shares in the market. Consequently, in July 2016, the Company sold shares corresponding to 7.8% of the outstanding common stock of Telekom Austria AG. This sale reduced the overall shareholding of América Movil in Telekom Austria AG from 59.70% to 51.89%. Additionally, in August 2016, the Company sold 0.89% of the outstanding common stock of Telekom Austria AG. Following the successful completion of this transaction, AMX’s stake was reduced to 51.0%. The amount of cash received for these transactions was Ps. 6,323,336. As América Móvil still retains control over Telekom Austria AG, these transactions were recorded as equity transactions.

e) In September 2016, the Company, through his subsidiary Tracfone, acquired certain assets of T-Mobile, that represented a business, which included the brands known as Walmart Mobile and Go Smart. These assets were acquired in order to expand the Company’s distribution channels, add an incremental revenue stream, and assist in the growth of subscribers. There was no cash exchanged in the acquisition. The goodwill recognized amounted to Ps. 1,251,464.

 

F-44


Table of Contents

f) In November 2016, Telekom Austria Group acquired 100% of the Belarusian fixed-line operator Atlant Telecom (Atlant) and its subsidiary TeleSet. After the acquisition, Atlant was renamed velcom ACS. Both companies are the leading privately owned fixed-line operators in Belarus offering fixed-line broadband, IPTV and cable TV as well as a video and audio library. The acquisition of Atlant and TeleSet is a further step in Telekom Austria Group’s convergence strategy. The final allocation of consideration transferred will be determined once all necessary information regarding identifiable assets is available. The amount paid for the business acquisition was Ps. 582,931, net of acquired cash. The goodwill recognized amounted to Ps. 200,973.

Acquisitions 2017

a) In February 2017, Telekom Austria Group acquired 97.68% of Metronet telekomunikacije through its Croatian subsidiary Vipnet. Metronet is one of the leading alternative fixed business solutions provider in Croatia. The fair values of the assets acquired and liabilities assumed at the acquisition date are reported in the Europe segment. The amount paid for the business acquisition was Ps. 1,550,534, net of acquired cash. The goodwill recognized amounted to Ps. 502,574.

b) During 2017, the Company acquired through its subsidiaries, other entities for which if paid Ps. 3,249,164, net of acquired cash. The identified goodwill has been allocated to the Europe segment. The goodwill recognized amounted to Ps. 260,355.

c) The Company acquired an additional non-controlling interest in its Mexican entities for an amount of Ps. 23,881.

 

b) Consolidated subsidiaries with non-controlling interests

The Company has a material non-controlling interest in Telekom Austria. Set out below is summarized information as of December 31, 2016 and 2017 of TKA’s consolidated financial statements. The amounts disclosed for this subsidiary are before inter-company eliminations and using the same accounting policies of América Móvil.

Selected financial data from the statements of financial position

 

     December 31,  
     2016      2017  

Assets:

     

Current assets

   Ps. 31,371,809      Ps. 29,128,486  

Non-current assets

     143,708,470        150,225,260  
  

 

 

    

 

 

 

Total assets

   Ps. 175,080,279      Ps. 179,353,746  
  

 

 

    

 

 

 

Liabilities and equity:

     

Current liabilities

   Ps. 40,961,299      Ps. 30,192,384  

Non-current liabilities

     80,966,903        89,048,150  
  

 

 

    

 

 

 

Total liabilities

     121,928,202        119,240,534  

Equity attributable to equity holders of the parent

     23,527,370        25,808,318  

Non-controlling interest (1)

     29,624,707        34,304,894  
  

 

 

    

 

 

 

Total equity

   Ps. 53,152,077      Ps. 60,113,212  
  

 

 

    

 

 

 

Total liabilities and equity

   Ps.  175,080,279      Ps.  179,353,746  
  

 

 

    

 

 

 

 

(1) In 2017 this amount includes Ps. 14,942,886 (Ps. 13,715,747 in 2016) for the undated subordinated fixed rate bond (see Note 19).

 

F-45


Table of Contents

Summarized statements of comprehensive income

 

     For the year ended December 31,  
     2015      2016      2017  

Operating revenues

   Ps.  73,159,960      Ps.  85,185,177      Ps.  93,644,173  

Operating costs and expenses

     66,913,434        81,590,233        86,920,692  
  

 

 

    

 

 

    

 

 

 

Operating income

     6,246,526        3,594,944        6,723,481  
  

 

 

    

 

 

    

 

 

 

Net income

     6,157,758        7,065,770        5,656,132  
  

 

 

    

 

 

    

 

 

 

Total comprehensive income

   Ps. 4,968,909      Ps. 8,450,837      Ps. 7,737,797  
  

 

 

    

 

 

    

 

 

 

Net income attributable to:

        

Equity holders of the parent

   Ps. 3,674,886      Ps. 3,241,556      Ps. 2,884,627  

Non-controlling interest

     2,482,872        3,824,214        2,771,505  
  

 

 

    

 

 

    

 

 

 
   Ps. 6,157,758      Ps. 7,065,770      Ps. 5,656,132  
  

 

 

    

 

 

    

 

 

 

Comprehensive income attributable to:

        

Equity holders of the parent

   Ps. 2,967,698      Ps. 4,311,801      Ps. 3,978,263  

Non-controlling interest

     2,001,211        4,139,036        3,759,534  
  

 

 

    

 

 

    

 

 

 
   Ps. 4,968,909      Ps. 8,450,837      Ps. 7,737,797  
  

 

 

    

 

 

    

 

 

 

 

13. Income Taxes

As explained previously in these consolidated financial statements, the Company is a Mexican corporation which has numerous consolidated subsidiaries operating in different countries. Presented below is a discussion of income tax matters that relates to the Company’s consolidated operations, its Mexican operations and significant foreign operations.

 

i) Consolidated income tax matters

The composition of income tax expense for the years ended December 31, 2015, 2016 and 2017 is as follows:

 

     2015     2016     2017  

In Mexico:

      

Current year income tax

   Ps. 17,156,638     Ps. 14,316,005     Ps.  16,568,274  

Deferred income tax

     (4,095,128     (12,086,232     2,582,287  

Foreign:

      

Current year income tax

     17,775,360       15,367,903       13,524,729  

Deferred income tax

     (11,657,219     (6,198,820     (7,733,779
  

 

 

   

 

 

   

 

 

 
   Ps. 19,179,651     Ps. 11,398,856     Ps.  24,941,511  
  

 

 

   

 

 

   

 

 

 

Deferred tax related to items recognized in OCI during the year:

 

     2015     2016     2017  

Remeasurement of defined benefit plans

   Ps. 7,786,292     Ps. (7,734,732   Ps. 3,032,403  

Effect of financial instruments acquired for hedging purposes

     (16,069     (21,046     (5,337

Available for sale securities

     169,529           2,858,452       (266,753

Other

     (4,019     136,879       —    
  

 

 

   

 

 

   

 

 

 

Deferred tax benefit (expense) recognized in OCI

   Ps.    7,935,733     Ps. (4,760,447   Ps.   2,760,313  
  

 

 

   

 

 

   

 

 

 

 

F-46


Table of Contents

A reconciliation of the statutory income tax rate in Mexico to the consolidated effective income tax rate recognized by the Company is as follows:

 

     Year ended December 31,  
         2015             2016             2017      

Statutory income tax rate in Mexico

     30.0%       30.0%       30.0%  

Impact of non-deductible and non-taxable items:

      

Tax inflation effects

     6.2%       15.9%       17.8%  

Derivatives

     0.5%       8.0%       1.0%  

Employee benefits

     1.7%       4.4%       2.2%  

Other

     (0.1%     9.8%       2.6%  
  

 

 

   

 

 

   

 

 

 

Effective tax rate on Mexican operations

     38.3%       68.1%       53.6%  

Use of tax credits in Brazil

     0.4%       (0.6%     (0.4%

Equity interest in net loss (income) of associated companies

     0.8%       (0.2%      

Gain on derecognition of equity method investment

     (6.4%            

Dividends received from associates

     (0.9%     (7.9%     (1.2%

Foreign subsidiaries and other non-deductible items, net

     2.0%       (10.8%     (8.3%
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     34.2%       48.6%       43.7%  
  

 

 

   

 

 

   

 

 

 

An analysis of temporary differences giving rise to the net deferred tax liability is as follows:

 

     Consolidated statement of financial position     Consolidated statement of comprehensive income  
                 2016                             2017                 2015     2016     2017  

Provisions

   Ps. 25,850,131     Ps. 26,268,666     Ps. (126,330   Ps. 1,622,132     Ps. 1,579,604  

Deferred revenues

     8,222,412       7,461,802       1,065,242       (12,128     (965,010

Tax losses carry forward

     38,208,079       38,332,408       (1,222,172     12,706,245       (323,506

Property, plant and equipment

     (9,716,615     (9,929,129     7,110,085       2,445,783       1,974,753  

Inventories

     1,522,739       2,003,049       (1,527,453     (229,571     519,046  

Licenses and rights of use

     (2,530,747     (2,455,877     2,548,353       54,182       348,201  

Employee benefits

     28,243,207       33,253,071       2,614,932       3,616,952       1,225,310  

Other

     8,790,612       9,639,995       5,289,690       (1,918,543     793,094  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net deferred tax assets

   Ps.  98,589,818     Ps.  104,573,985        
  

 

 

   

 

 

       

Deferred tax expense in net profit for the year

 

  Ps.  15,752,347     Ps.  18,285,052     Ps.  5,151,492  
      

 

 

   

 

 

   

 

 

 

 

F-47


Table of Contents

Reconciliation of deferred tax assets and liabilities, net:

 

     2015     2016     2017  

Opening balance as of January 1,

   Ps. 52,310,097     Ps. 69,817,147     Ps. 98,589,818  

Deferred tax benefit

     15,752,347       18,285,052       5,151,492  

Effect of translation

     (6,259,252     15,273,228       (1,687,276

Deferred tax benefit (expense) recognized in OCI

     7,935,732       (4,760,447     2,760,313  

Deferred taxes acquired in business combinations

     78,223       (25,162     (240,362
  

 

 

   

 

 

   

 

 

 

Closing balance as of December 31,

   Ps. 69,817,147     Ps. 98,589,818     Ps. 104,573,985  
  

 

 

   

 

 

   

 

 

 

Presented in the consolidated statements of financial position as follows:

      

Deferred income tax assets

   Ps. 81,407,012     Ps.  112,651,699     Ps. 116,571,349  

Deferred income tax liabilities

     (11,589,865     (14,061,881     (11,997,364
  

 

 

   

 

 

   

 

 

 
   Ps. 69,817,147     Ps. 98,589,818     Ps.  104,573,985  
  

 

 

   

 

 

   

 

 

 

The deferred tax assets are in tax jurisdictions in which the Company considers that based on financial projections of its cash flows, results of operations and synergies between subsidiaries, will generate sufficient taxable income in subsequent periods to utilize or realize such assets.

The Company does not recognize a deferred tax liability related to the undistributed earnings of its subsidiaries, because it currently does not expect these earnings to be taxable or to be repatriated in the near future. The Company’s policy has been to distribute the profits when it has paid the corresponding taxes in its home jurisdiction and the tax can be accredited in Mexico.

At December 31, 2016 and 2017, the balance of the contributed capital account (“CUCA”) is Ps. 478,087,224 and Ps. 510,832,194, respectively. On January 1, 2014, the Cuenta de Utilidad Fiscal Neta (“CUFIN”) is computed on an América Móvil’s stand-alone basis. The balance of the América Móvil’s stand-alone basis CUFIN amounted to Ps. 191,795,991 and Ps. 225,105,342 as of December 31, 2016 and 2017, respectively.

Corporate tax rate

The income tax rate applicable in Mexico from 2015 through 2017 was 30%.

 

ii) Significant foreign income tax matters

a) Results of operations

The foreign subsidiaries determine their taxes on profits based on their individual taxable income, in accordance with the specific tax regimes of each country.

The combined income before taxes and the combined provision for taxes of such subsidiaries in 2015, 2016 and 2017 are as follows:

 

     2015      2016      2017  

Combined income before taxes

   Ps.  27,933,182      Ps.  45,697,258      Ps.  38,286,046  

Combined tax provision differences not deductible-not cumulative in the foreign subsidiaries

   Ps. 6,118,142      Ps. 9,169,083      Ps. 5,790,950  

 

F-48


Table of Contents

The effective income tax rate for the Company’s foreign jurisdictions was 22% in 2015, 20% in 2016 and 15% in 2017 as shown in the table above. The statutory tax rates in these jurisdictions vary, although many approximate 22% to 40%. The primary difference between the statutory rates and the effective rates in 2015 was attributable to the gain on derecognition of the equity method investment in KPN. The primary difference between the statutory rates and the effective rates in 2016 and 2017 was attributable to dividends received from KPN and other non-deductible items and non-taxable income.

 

iii) Tax losses

a) At December 31, 2017, the available tax loss carryforwards recorded in deferred tax assets are as follows on a country by country basis:

 

Country

   Balance of available tax
loss carryforwards at
December 31, 2017
     Tax loss carryforward
benefit
 

Brazil

     Ps.78,617,318        Ps.26,729,887  

Mexico

     1,850,216        555,065  

Colombia

     11,221,937        4,488,775  

Peru

     421,788        124,427  

Austria

     25,733,966        6,433,492  

Nicaragua

     2,536        762  
  

 

 

    

 

 

 

Total

     Ps. 117,847,761        Ps. 38,332,408  
  

 

 

    

 

 

 

b) The tax loss carryforwards in the different countries in which the Company operates have the following terms and characteristics:

bi) The Company has accumulated Ps. 78,617,318 in net operating loss carryforwards (NOL’s) in Brazil as of December 31, 2017. In Brazil there is no expiration of the NOL’s. However, the NOL´s amount used against taxable income in each year may not exceed 30% of the taxable income for such year. Consequently, in the year in which taxable income is generated, the effective tax rate is 25% rather than the 34% corporate tax rate.

The Company believes that it is more likely than not that the accumulated balances of its net deferred tax assets are recoverable, based on the positive evidence of the Company to generate taxable temporary differences related to the same taxation authority which will result in taxable amounts against which the available tax losses can be utilized before they expire. Positive evidence includes the Company’s recent restructure in 2017 of its operations in Brazil, resulting in an organizational structure that is anticipated to be more efficient and profitable.

bii) The Company has accumulated Ps. 25,733,966 in NOL’s in Austria as of December 31, 2017. In Austria, the NOL´s have no expiration, but its annual usage is limited to 75% of the taxable income of the year. The realization of deferred tax assets is dependent upon the expected generation of future taxable income during the periods in which these temporary differences become deductible.

biii) The Company has accumulated Ps. 11,221,937 in NOL’s in Colombia that in accordance with the Colombian tax law can be carried forward with no time limitation. The Company expects to generate operating tax profits in the following years and realize the deferred tax asset. NOL’s were generated in 2017 by the transaction described in Note 1.II.a)

 

F-49


Table of Contents
14. Debt

a) The Company’s short- and long-term debt consists of the following:

 

At December 31, 2016

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Senior Notes

                       

U.S. dollars

       
  Fixed-rate Senior notes (i)   5.625%     2017     Ps.  12,088,686  
  Fixed-rate Senior notes (i)   5.000%     2019       15,548,550  
  Fixed-rate Senior notes (i)   5.500%     2019       7,823,657  
  Fixed-rate Senior notes (i)   5.000%     2020       44,050,390  
  Fixed-rate Senior notes (i)   3.125%     2022       33,170,240  
  Fixed-rate Senior notes (i)   6.375%     2035       20,344,345  
  Fixed-rate Senior notes (i)   6.125%     2037       7,654,551  
  Fixed-rate Senior notes (i)   6.125%     2040       25,914,250  
  Fixed-rate Senior notes (i)   6.125%     2040       15,548,550  
  Fixed-rate Senior notes (i)   4.375%     2042       23,841,110  
       

 

 

 
  Subtotal U.S. dollars       Ps.  205,984,329  
       

 

 

 

Mexican pesos

       
  Domestic Senior notes (ii)   8.390%     2017     Ps. 2,000,000  
  Domestic Senior notes (ii)   8.110%     2018       1,750,000  
  Domestic Senior notes (ii)   8.270%     2018       1,160,109  
  Domestic Senior notes (ii)   8.600%     2020       7,000,000  
  Domestic Senior notes (ii)   0.000%     2025       4,133,793  
  Domestic Senior notes (ii)   8.360%     2037       5,000,000  
  Fixed-rate Senior notes (i)   6.000%     2019       10,000,000  
  Fixed-rate Senior notes (i)   6.450%     2022       22,500,000  
  Fixed-rate Senior notes (i)   7.125%     2024       11,000,000  
  Fixed-rate Senior notes (i)   8.460%     2036       7,871,700  
       

 

 

 
  Subtotal Mexican pesos       Ps. 72,415,602  
       

 

 

 

Euros

       
  Fixed-rate Senior notes (i)   4.250%     2017     Ps. 10,962,292  
  Fixed-rate Senior notes (i)   3.750%     2017       21,803,213  
  Fixed-rate Senior notes (i)   1.000%     2018       13,081,928  
  Fixed-rate Senior notes (i)   4.125%     2019       21,803,213  
  Exchangeable Bonds (i)   0.000%     2020       61,961,244  
  Fixed-rate Senior notes (i)   3.000%     2021       21,803,213  
  Fixed-rate Senior notes (i)   3.125%     2021       17,399,163  
  Fixed-rate Senior notes (i)   4.000%     2022       18,067,554  
  Fixed-rate Senior notes (i)   4.750%     2022       16,352,410  
  Fixed-rate Senior notes (i)   3.500%     2023       7,047,557  
  Fixed-rate Senior notes (i)   3.259%     2023       16,352,410  
  Fixed-rate Senior notes (i)   1.500%     2024       18,532,731  
  Fixed-rate Senior notes (i)   1.500%     2026       10,901,607  
  Fixed-rate Senior notes (i)   2.125%     2028       14,172,089  
       

 

 

 
  Subtotal Euros       Ps.  270,240,624  
       

 

 

 

 

F-50


Table of Contents

At December 31, 2016

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Pound sterling

       
  Fixed-rate Senior notes (i)   5.000%     2026     Ps. 12,791,274  
  Fixed-rate Senior notes (i)   5.750%     2030       16,628,656  
  Fixed-rate Senior notes (i)   4.948%     2033       7,674,764  
  Fixed-rate Senior notes (i)   4.375%     2041       19,186,911  
       

 

 

 
  Subtotal Pound sterling       Ps.  56,281,605  
       

 

 

 

Swiss francs

       
  Fixed-rate Senior notes (i)   2.000%     2017     Ps. 5,493,109  
  Fixed-rate Senior notes (i)   1.125%     2018       11,189,666  
       

 

 

 
  Subtotal Swiss francs       Ps. 16,682,775  
       

 

 

 

Other currencies

                       

Japanese yen

       
  Fixed-rate Senior notes (i)   2.950%     2039     Ps. 2,306,643  
       

 

 

 
  Subtotal Japanese yen       Ps. 2,306,643  
       

 

 

 

Chilean pesos

       
  Fixed-rate Senior notes (i)   3.961%     2035     Ps. 4,079,443  
       

 

 

 
  Subtotal Chilean pesos       Ps. 4,079,443  
       

 

 

 
  Subtotal other currencies       Ps. 6,386,086  
       

 

 

 

Hybrid Notes

                       

Euros

       
  Euro NC5 Series A Capital Securities (iv)   5.125%     2073     Ps. 19,622,892  
  Euro NC10 Series B Capital Securities (iv)   6.375%     2073       11,991,767  
       

 

 

 
  Subtotal Euros       Ps. 31,614,659  
       

 

 

 

Pound sterling

       
  GBP NC7 Capital Securities (iv)   6.375%     2073     Ps. 14,070,401  
       

 

 

 
  Subtotal Pound sterling       Ps. 14,070,401  
       

 

 

 
  Subtotal Hybrid Notes       Ps. 45,685,060  
       

 

 

 

 

F-51


Table of Contents

At December 31, 2016

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Lines of Credit and others

                       

U.S. dollars

       
  Lines of credit (iii)   1.500% - 8.500%     2017     Ps. 14,929,806  

Mexican pesos

       
  Lines of credit (iii)   TIIE + 0.150% - TIIE + 2.000%     2017     Ps. 15,111,048  

Euros

       
  Lines of credit (iii)   3.525%     2018     Ps. 491,144  

Brazilian reals

       
  Lines of credit (iii)   3.000% - 9.500%     2018 - 2021     Ps. 3,467,091  

Chilean pesos

       
  Financial Leases   8.700% - 8.970%     2018 - 2027     Ps. 126,233  
       

 

 

 
  Subtotal lines of credit and others       Ps. 34,125,322  
       

 

 

 
  Total debt       Ps.  707,801,403  
       

 

 

 
  Less: Short-term debt and current portion of long-term debt         82,607,259  
  Long-term debt       Ps.  625,194,144  
       

 

 

 

 

At December 31, 2017

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Senior Notes

                       

U.S. dollars

       
  Fixed-rate Senior notes (i)   5.000%     2019     Ps. 14,840,025  
  Fixed-rate Senior notes (i)   5.500%     2019       7,467,145  
  Fixed-rate Senior notes (i)   5.000%     2020       42,043,077  
  Fixed-rate Senior notes (i)   3.125%     2022       31,658,720  
  Fixed-rate Senior notes (i)   6.375%     2035       19,417,282  
  Fixed-rate Senior notes (i)   6.125%     2037       7,305,744  
  Fixed-rate Senior notes (i)   6.125%     2040       39,573,400  
  Fixed-rate Senior notes (i)   4.375%     2042       22,754,705  
       

 

 

 
  Subtotal U.S. dollars       Ps. 185,060,098  
       

 

 

 

Mexican pesos

       
  Domestic Senior notes (ii)   8.110%     2018     Ps. 1,750,000  
  Domestic Senior notes (ii)   8.270%     2018       1,160,110  
  Domestic Senior notes (ii)   8.600%     2020       7,000,000  
  Domestic Senior notes (ii)   0.000%     2025       4,409,873  
  Domestic Senior notes (ii)   8.360%     2037       5,000,000  
  Fixed-rate Senior notes (i)   6.000%     2019       10,000,000  
  Fixed-rate Senior notes (i)   6.450%     2022       22,500,000  
  Fixed-rate Senior notes (i)   7.125%     2024       11,000,000  
  Fixed-rate Senior notes (i)   8.460%     2036       7,871,700  
       

 

 

 
  Subtotal Mexican pesos       Ps. 70,691,683  
       

 

 

 

 

F-52


Table of Contents

At December 31, 2017

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Euros

       
  Fixed-rate Senior notes (i)   1.000%     2018     Ps. 14,252,360  
  Fixed-rate Senior notes (i)   4.125%     2019       23,753,933  
  Exchangeable Bonds (i)   0.000%     2020       67,504,878  
  Fixed-rate Senior notes (i)   3.000%     2021       23,753,933  
  Fixed-rate Senior notes (i)   3.125%     2021       18,727,775  
  Fixed-rate Senior notes (i)   4.000%     2022       19,333,685  
  Fixed-rate Senior notes (i)   4.750%     2022       17,815,450  
  Fixed-rate Senior notes (i)   3.500%     2023       7,594,262  
  Fixed-rate Senior notes (i)   3.259%     2023       17,815,450  
  Fixed-rate Senior notes (i)   1.500%     2024       20,190,843  
  Fixed-rate Senior notes (i)   1.500%     2026       17,815,450  
  Fixed-rate Senior notes (i)   2.125%     2028       15,440,057  
       

 

 

 
  Subtotal Euros       Ps. 263,998,076  
       

 

 

 

Pound sterling

       
  Fixed-rate Senior notes (i)   5.000%     2026     Ps. 13,368,884  
  Fixed-rate Senior notes (i)   5.750%     2030       17,379,549  
  Fixed-rate Senior notes (i)   4.948%     2033       8,021,330  
  Fixed-rate Senior notes (i)   4.375%     2041       20,053,326  
       

 

 

 
  Subtotal Pound sterling       Ps. 58,823,089  
       

 

 

 

Swiss francs

       
  Fixed-rate Senior notes (i)   1.125%     2018     Ps. 11,169,748  
       

 

 

 
  Subtotal Swiss francs       Ps. 11,169,748  
       

 

 

 

Brazilian reals

       
  Domestic Senior notes (ii)   102.9% of CDI     2020     Ps. 8,972,204  
  Domestic Senior notes (ii)   102.4% of CDI     2019       5,981,469  
  Domestic Senior notes (ii)   103.9% of CDI     2019       5,981,469  
       

 

 

 
  Subtotal Brazilian reals       Ps. 20,935,142  
       

 

 

 

Other currencies

                       

Japanese yen

       
  Fixed-rate Senior notes (i)   2.950%     2039     Ps. 2,282,608  
       

 

 

 
  Subtotal Japanese yen       Ps. 2,282,608  
       

 

 

 

Chilean pesos

       
  Fixed-rate Senior notes (i)   3.961%     2035     Ps. 4,312,424  
       

 

 

 
  Subtotal Chilean pesos       Ps. 4,312,424  
       

 

 

 
  Subtotal other currencies       Ps. 6,595,032  
       

 

 

 

Hybrid Notes

                       

Euros

       
  Euro NC5 Series A Capital Securities (iv)   5.125%     2073     Ps. 21,378,540  
  Euro NC10 Series B Capital Securities (iv)   6.375%     2073       13,064,663  
       

 

 

 
  Subtotal Euros       Ps. 34,443,203  
       

 

 

 

 

F-53


Table of Contents

At December 31, 2017

 

Currency

 

Loan

 

Interest rate

  Maturity     Total  

Pound sterling

       
  GBP NC7 Capital Securities (iv)   6.375%     2073     Ps. 14,705,772  
       

 

 

 
  Subtotal Pound sterling       Ps. 14,705,772  
       

 

 

 
  Subtotal Hybrid Notes       Ps. 49,148,975  
       

 

 

 

Lines of Credit & others

                       

U.S. dollars

       
  Lines of credit (iii)   L + 0.020% & 1.500% -7.250%     2018 - 2019     Ps. 14,474,350  

Mexican pesos

       
  Lines of credit (iii)   TIIE + 0.040% -TIIE + 0.175%     2018 - 2019     Ps. 12,500,000  

Brazilian reals

       
  Lines of credit (iii)   107.000% of CDI -TJLP + 3.500% & 3.000% -9.500%     2018 - 2027     Ps. 4,389,260  

Chilean pesos

       
  Financial Leases   8.700% - 8.970%     2018 - 2027     Ps. 99,446  
       

 

 

 
  Subtotal Lines of Credit and others       Ps. 31,463,056  
       

 

 

 
  Total debt       Ps. 697,884,899  
       

 

 

 
  Less: Short-term debt and current portion of long-term debt         51,745,841  
       

 

 

 
  Long-term debt       Ps. 646,139,058  
       

 

 

 

L = LIBOR (London Interbank Offer Rate)

TIIE = Mexican Interbank Rate

EURIBOR = Euro Interbank Offered Rate

CDI = Brazil Interbank Deposit Rate

TJLP = Brazil Long Term Interest Rate

Interest rates on the Company’s debt are subject to variances in international and local rates. The Company’s weighted average cost of borrowed funds at December 31, 2016, and December 31, 2017 was approximately 4.2% and 4.3%, respectively.

Such rates do not include commissions or the reimbursements for Mexican tax withholdings (typically a tax rate of 4.9%) that the Company must pay to international lenders.

 

F-54


Table of Contents

An analysis of the Company’s short-term debt maturities as of December 31, 2016, and December 31, 2017, is as follows:

 

     2016      2017  

Domestic Senior Notes

     Ps.    2,000,000        Ps.      2,910,110  

International Senior Notes

     50,955,191        26,084,386  

Lines of credit

     29,619,908        22,714,383  

Financial Leases

     32,160        36,962  
  

 

 

    

 

 

 

Total

     Ps. 82,607,259        Ps.    51,745,841  
  

 

 

    

 

 

 

Weighted average interest rate

     5.1%        4.0%  
  

 

 

    

 

 

 

The Company’s long-term debt maturities as of December 31, 2017 are as follows:

 

Years

   Amount  

2019

   Ps.  76,492,210  

2020

     126,769,569  

2021

     42,453,673  

2022 and thereafter

     400,423,606  
  

 

 

 

Total

   Ps.     646,139,058  
  

 

 

 

(i) Senior Notes

The outstanding Senior Notes at December 31, 2016, and December 31, 2017, are as follows:

 

Currency*

   2016      2017  

U.S. dollars

     Ps. 205,984,329        Ps.    185,060,098  

Mexican pesos

     72,415,602        70,691,683  

Euros**

     270,240,624        263,998,076  

Pound sterling**

     56,281,605        58,823,089  

Swiss francs

     16,682,775        11,169,748  

Japanese yens

     2,306,643        2,282,608  

Brazilian reals

     —          20,935,142  

Chilean pesos

     4,079,443        4,312,424  

 

* Thousands of Mexican pesos
** Includes secured and unsecured senior notes.

(ii) Domestic Senior Notes

At December 31, 2016, and December 31, 2017, debt under Domestic Senior Notes aggregated to Ps. 21,044 million and Ps. 40,255 million, respectively. In general these issues bear a fixed-rate or floating rate determined as a differential on the TIIE and CDI rate.

(iii) Lines of credit

At December 31, 2016, and December 31, 2017, debt under lines of credit aggregated to Ps. 33,999 million and Ps. 31,364 million, respectively.

The Company has two undrawn revolving syndicated facilities –one for the Euro equivalent of U.S. 2,000 million and the other for U.S. 2,500 million maturing in 2021 and 2019, respectively. These loans bear interest at variable rates based on LIBOR and EURIBOR. Telekom Austria has also an undrawn revolving syndicated facility in Euros for 1,000 million at a variable rate based on EURIBOR that matures in 2019.

 

F-55


Table of Contents

(iv) Hybrid Notes

In September 2013 the Company issued three series of Capital Securities (hybrid notes) maturing in 2073: two series denominated in Euros for €1,450 million with a coupon of 5.125% and 6.375% respectively, and one series denominated in pound sterling in the amount of £550 million with a coupon of 6.375%. The Capital Securities are deeply subordinated, and when they were issued the principal rating agencies stated that they would treat only half of the principal amount as indebtedness for purposes of evaluating our leverage (an analysis referred to as 50.0% equity credit). The Capital Securities are subject to redemption at our option at varying dates beginning in 2018 and 2023, respectively, for the euro-denominated series and beginning in 2020 for the sterling-denominated series.

Restrictions

A portion of the debt is subject to certain restrictions with respect to maintaining certain financial ratios, as well as restrictions on selling a significant portion of groups of assets, among others. At December 31, 2017, the Company was in compliance with all these requirements.

A portion of the debt is also subject to early maturity or repurchase at the option of the holders in the event of a change in control of the Company, as defined in each instrument. The definition of change in control varies from instrument to instrument; however, no change in control shall be considered to have occurred as long as its current shareholders continue to hold the majority of the Company’s voting shares.

Covenants

In conformity with the credit agreements, the Company is obliged to comply with certain financial and operating commitments. Such covenants limit in certain cases, the ability of the Company or the guarantor to: pledge assets, carry out certain types of mergers, sell all or substantially all of its assets, and sell control of Telcel.

Such covenants do not restrict the ability of AMX’s subsidiaries to pay dividends or other payment distributions to AMX. The more restrictive financial covenants require the Company to maintain a consolidated ratio of debt to EBITDA (defined as operating income plus depreciation and amortization) that does not exceed 4 to 1, and a consolidated ratio of EBITDA to interest paid that is not below 2.5 to 1 (in accordance with the clauses included in the credit agreements).

Several of the financing instruments of the Company may be accelerated, at the option of the debt holder in the case that a change in control occurs.

At December 31, 2017, the Company was in compliance with all the covenants.

15. Accounts Payable, Accrued Liabilities and Asset Retirement Obligations

a) The components of the caption accounts payable and accrued liabilities are as follows:

 

     At December 31,  
     2016      2017  

Suppliers

     Ps. 132,796,101        Ps. 106,483,848  

Sundry creditors

     89,494,976        91,842,929  

Interest payable

     9,971,959        8,930,561  

Guarantee deposits from customers

     1,258,065        1,460,286  

Dividends payable

     3,744,025        3,955,783  
  

 

 

    

 

 

 

Total

     Ps. 237,265,126        Ps. 212,673,407  
  

 

 

    

 

 

 

 

F-56


Table of Contents

b) The balance of accrued liabilities at December 31, 2016 and 2017 are as follows:

 

     At December 31,  
     2016      2017  

Current liabilities

     

Direct employee benefits payable

     Ps. 19,713,160        Ps. 16,673,627  

Contingencies

     50,766,070        51,079,131  
  

 

 

    

 

 

 

Total

     Ps. 70,479,230        Ps. 67,752,758  
  

 

 

    

 

 

 

The movements in contingencies for the years ended December 31, 2016 and 2017 are as follows:

 

    Balance at
December 31,
2015
    Business
combination
    Effect of
translation
    Increase of
the year
    Applications     Balance at
December 31,
2016
 
            Payments     Reversals    

Contingencies

    Ps. 34,611,091       Ps. 30,333       Ps. 15,397,279       Ps. 12,199,311       Ps. (8,959,551     Ps. (2,512,393     Ps. 50,766,070  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Balance at
December 31,
2016
    Business
combination
    Effect of
translation
    Increase of
the year
    Applications     Balance at
December 31,
2017
 
            Payments     Reversals    

Contingencies

    Ps. 50,766,070       Ps. 115,971       Ps. (648,685     Ps. 10,510,473       Ps. (7,618,520     Ps. (2,046,178     Ps. 51,079,131  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contingencies include tax, labor, regulatory and other legal type contingencies. See Note 16 c) for detail of contingencies.

c) The movements in the asset retirement obligations for the years ended December 31, 2016 and 2017, are as follows:

 

    Balance at
December 31,
2015
    Effect of
translation
    Increase of
the year
    Applications     Balance at
December 31,
2016
 
          Payments     Reversals    

Asset retirement obligations

  Ps.  11,569,897     Ps.  2,806,374     Ps. 2,510,635     Ps. (121,317   Ps. (476,958   Ps. 16,288,631  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Balance at
December 31,
2016
    Effect of
translation
    Increase of
the year
    Applications     Balance at
December 31,
2017
 
          Payments     Reversals    

Asset retirement obligations

  Ps.  16,288,631     Ps. (119,928   Ps.  3,160,320     Ps.  (126,088   Ps.  (957,806   Ps.  18,245,129  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The discount rates used for the asset retirement obligation are based on market rates that are expected to be undertaken by the dismantling or restoration of cell sites, and may include labor costs.

16. Commitments and Contingencies

a) Leases

At December 31, 2016 and 2017, the Company has entered into several lease agreements with related parties and third parties for the buildings where its offices are located (as a lessee), as well as with the owners of towers and or premises where the Company has installed radio bases. The lease agreements generally have terms from one to fourteen years.

An analysis of the minimum rental payments for the next five years is shown below. In some cases, rental amounts are increased each year based on the National Consumer Price Index.

 

F-57


Table of Contents

The Company has the following non-cancelable commitments under finance leases:

 

Year ended December 31,

      

2018

     Ps. 45,355  

2019

     10,244  

2020

     10,244  

2021

     10,244  

2022

     10,244  

2023 and thereafter

     47,812  
  

 

 

 

Total

     134,143  

Less: amounts representing finance charges

     (34,697
  

 

 

 

Present value of net minimum lease payments

     99,446  

Less current portion

     (36,965
  

 

 

 

Long-term obligations

     Ps. 62,481  
  

 

 

 

An analysis of non-cancellable operating leases is as follows:

 

Year ended December 31,

      

2018

   Ps. 20,385,429  

2019

     19,465,817  

2020

     17,828,512  

2021

     11,868,287  

2022

     11,698,510  

2023 and thereafter

     44,304,913  
  

 

 

 

Total

   Ps.  125,551,468  
  

 

 

 

Rent expense for the years ended December 31, 2015, 2016 and 2017 was Ps. 22,015,761, Ps. 32,300,963 and Ps. 35,571,283, respectively.

b) Commitments

At December 31, 2017, there were commitments in certain subsidiaries for the acquisition of equipment for incorporation into their 4G networks for an amount up to approximately Ps. 13,186,926 (US$ 666,454). The completion period of these projects depends upon the type of fixed assets under construction. In the case of telephone plant (switching transmission), it takes six months on average; for others, it may take more than 2 years.

These commitments will be paid as follows:

 

Less than 1 year

     Ps. 11,920,981  

1 to 3 years

     1,265,945  
  

 

 

 

Total

     Ps. 13,186,926  
  

 

 

 

As of December 31, 2017, the Company has purchase commitments with telephone manufacturers for cellular phones for resale for approximately Ps. 12,307,327 (US$622,000), for delivery through March 2018.

 

F-58


Table of Contents

In addition, Tracfone has entered into long-term contracts with wireless carriers for the purchase of airtime minutes and data at current market prices. The purchase commitments are with two carriers and at December 31, 2017, these commitments are expected to be paid as follows:

 

Year ended December 31,

      

2018

   Ps .   72,201,668  

2019

     53,621,957  

2020

     16,027,227  
  

 

 

 

Total

   Ps . 141,850,852  
  

 

 

 

c) Contingencies

I. MEXICO

a. América Móvil

Tax Assessment

In December 2014, the Mexican Tax Administration Service ( Servicio de Administración Tributaria , or “SAT”) notified the Company of a Ps. 529,700 tax assessment related to the Company’s tax return for the fiscal year ended December 31, 2005, and reduced the Company’s consolidated tax loss for that year from Ps. 8,556,000 to zero. The Company has challenged this assessment in federal tax court, and the challenge is still pending. The Company has not established a provision in the accompanying consolidated financial statements for a loss arising from this assessment, which it does not consider probable.

ICSID (Additional Facility) Arbitration Proceedings

In August 2016, AMX initiated an arbitration claim against the Republic of Colombia (the “ICSID Arbitration”) on behalf of itself and its subsidiary Comcel under the ICSID Additional Facility Rules pursuant to the investment chapter of the Mexico-Colombia Free Trade Agreement (the “Mexico-Colombia FTA”). The claim relates to certain measures adopted by Colombia since August 2013, including the Colombian Constitutional Court’s decision of 2013 holding that certain laws eliminating the reversion of telecommunication assets did not apply to concessions granted prior to 1998, among them, Comcel’s concessions. As a result, the Ministry of Information Technology and Communications ( Ministerio de Tecnologías de la Información y las Comunicaciones or “ITC Ministry”) refused to recognize Comcel’s property rights over its assets following the termination of its concession contracts and decided that Comcel must pay a fee to rent those assets. Moreover, the ITC Ministry initiated an arbitration proceeding pursuant to the concession contracts seeking the reversion of all assets related to those contracts. This has prevented Comcel from using or disposing of its assets freely. AMX has requested compensation on the basis of Colombia’s breach of the Mexico-Colombia FTA and other international legal obligations.

In September 2017, the tribunal issued the first procedural order setting out the procedural calendar. AMX submitted its memorial on jurisdiction and the merits of its claim in December 2017. The parties to the arbitration will exchange further written pleadings in 2018. No hearing date has yet been fixed.

b. Telcel

Mobile Termination Rates

The mobile termination rates between Telcel and other operators have been the subject of various legal proceedings. As of the date of this report, all proceedings arising from interconnection disagreements in which the IFT set the tariffs applicable for 2014 have been resolved, confirming the IFT’s rates. As such resolutions were not subject to suspension, there was no contingency at the expense of the Company.

 

 

F-59


Table of Contents

All proceedings related to the interconnection rates between 2015 and 2016 were resolved by the IFT. Telcel has contested the fact that the rates set by the IFT were not determined as of the date of the applicable resolutions but since January, 2015, and such challenge was resolved in favor of the Company by the Mexican Supreme Court ( Suprema Corte de Justicia de la Nación or “SCJN”). As a consequence, Telcel has a balance it may collect from other operators, due to the difference between the amount actually paid and the amount that should have been paid in accordance with the applicable rates.

With respect to the termination rates for 2017, Telcel has challenged the applicable resolutions and such challenges are still pending.

Given the fact that the “zero rate” that prevented Telcel from charging interconnection rates in its mobile network was held unconstitutional by the SCJN, the IFT has determined asymmetric interconnection rates for the termination of traffic in Telcel’s and other operators’ networks for 2018. The resolutions setting said rates have been challenged by Telcel and such challenges are still pending.

The Company expects that mobile termination rates, as well as other rates applicable to mobile interconnection (such as transit), will continue to be the subject of litigation and administrative proceedings in Mexico. The Company cannot predict when or how these matters will be resolved or the financial effects of any such resolution. As of December 31, 2017, the Company has a provision of approximately Ps. 494,488 in the accompanying consolidated financial statements to cover the losses considered probable.

Class Action Lawsuits

The Federal Consumer Bureau ( Procuraduría Federal del Consumidor , or “Profeco”) initiated a proceeding before Mexican courts in 2011 on behalf of customers who alleged deficiencies in the quality of Telcel’s network in 2010 and breach of customer agreements. In June 2017, this proceeding was resolved in favor of Telcel, as Profeco failed to prove any breach by Telcel of the standard contract form executed by Telcel’s customers.

Telcel is also subject to two class action lawsuits initiated by customers allegedly affected by Telcel’s quality of service and wireless and broadband rates. The Company does not currently have enough information on these proceedings to determine whether any of the class action lawsuits could have an adverse effect on the Company’s business and results of operations in the event that they are resolved against Telcel. Consequently, the Company has not established a provision in the accompanying consolidated financial statements for a loss arising from these proceedings.

c. Telmex and Telnor

Monopolistic Practices Investigation

During 2007, Cofeco initiated one investigation into alleged monopolistic practices of Telmex and Telnor related to the fixed-network interconnection services market. Telmex and Telnor have filed legal proceedings in connection with this ruling, including an appeal for relief, which was resolved against Telmex and Telnor on April 16, 2018.

IFT Proceedings Against Telmex

In November 2008, Telmex entered into certain commercial agreements with Dish México Holdings, S. de R.L. de C.V. and its related companies (“Dish”), involving billing, collection services, distribution and equipment leasing. In addition, Telmex had an option that allowed it to purchase shares representing 51% of the capital stock of Dish México, S. de R.L. de C.V. (“Dish México”). In July 2014, Telmex waived its rights under such option.

 

F-60


Table of Contents

In January 2015, the IFT imposed a fine on Telmex for an amount of Ps. 14,414 on the grounds that an alleged merger ( concentración ) between Telmex and Dish was not notified in November 2008. Telmex filed an appeal for relief against this resolution ( amparo ) and the case is pending. The Company cannot predict the outcome of such proceedings.

In August 2015, in relation with some Dish operations, the IFT initiated several proceedings in order to determine potential violations of (i) Telmex’s concession, with respect to an alleged indirect exploitation of a public television services concession and (ii) certain provisions of the Mexican Constitution ( Constitución Política de los Estados Unidos Mexicanos ) and the Federal Telecommunications and Broadcasting Law ( Ley Federal de Telecomunicaciones y Radiodifusión ) regarding the cost-free rule of re-transmission of television broadcast signals (commonly known as “must offer”), through other operators.

d. America Central Tel

Tax Assessment

In August 2016, the SAT notified the Company’s subsidiary América Central Tel, S.A. de C.V. (“ACT”) of a tax assessment of approximately Ps. 1,244,000, for alleged tax improprieties for the fiscal year ended December 31, 2008. The SAT alleged that certain taxes paid by ACT in Guatemala in relation to dividends received in Mexico could not be applied as tax credits for income tax purposes in Mexico. ACT has challenged the SAT’s assessment though an administrative appeal and a resolution is still pending. The Company has not established a provision in the accompanying consolidated financial statements for a loss arising from this assessment, which the Company does not consider probable.

e. Sercotel

Tax Assessment

In March 2012, the SAT notified the Company and its subsidiary Sercotel, S.A. de C.V. (“Sercotel”) of a fine of approximately Ps. 1,400,000 for alleged tax improprieties arising from the transfer of certain accounts receivable from one of the Company’s other subsidiaries to Sercotel. In July 2014, the Company challenged the fine before the federal tax court, and the challenge is still pending. The Company has not established a provision in the accompanying consolidated financial statements for a loss arising from this fine, which the Company does not consider probable.

II. BRAZIL

Following the merger in 2014 of the Company’s subsidiaries Empresa Brasileira de Telecomunicações S.A. (“Embratel”), Embratel Participações S.A. (“Embrapar”) and Net Serviços de Comunicação S.A. (“Net Serviços”) into Claro S.A. (“Claro Brasil”), Claro Brasil became the legal successor of Embratel, Embrapar and Net Serviços.

a. Tax Matters

ICMS

As of December 31, 2017, the Company’s Brazilian subsidiaries Claro Brasil, Star One S.A. (“Star One”), Primesys Soluções Empresariais S.A. (“Primesys”), Telmex Do Brasil Ltda. (“TdB”), Americel S.A. (“Americel”), Brasil Telecomunicações S.A. (“BrTel”) and TVSAT Telecomunicações S.A. (“TV SAT”), had aggregate tax contingencies related to value-added tax (“ICMS”) of approximately Ps. 64,749,404 (R$10,825 million). As of December 31, 2017, the Company has established a provision of Ps. 3,541,030 (R$ 592 million) in the accompanying consolidated financial statements for the losses arising from these contingencies that the Company considers probable. Such ICMS contingencies include:

 

   

Tax assessments against Star One in the amount of Ps. 23,668,673 (R$ 3,957 million) based on allegations that the provision of satellite capacity by Star One is subject to ICMS. The Company is

 

F-61


Table of Contents
 

contesting these tax assessments in separate proceedings at different litigation stages and has obtained favorable judicial decisions in two proceedings. The Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from these assessments, which the Company does not consider probable.

 

    Tax assessments against Claro Brasil and Americel in the amount of Ps. 7,363,189 (R$ 1,231 million), due to a decision that held certain benefits granted by the Brazilian states unconstitutional. The Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from these assessments, which the Company does not consider probable.

 

    A tax assessment against Primesys in the amount of Ps. 4,510,028 (R$ 754 million), related to ICMS over certain activities not deemed as part of data communication services. The Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from this assessment, which the Company does not consider probable.

CSLL/IRPJ

As of December 31, 2017, Claro Brasil, Americel, BrTel and Star One had aggregate tax contingencies related to social contribution on net income (“CSLL”) and corporate income tax (“IRPJ”) in an amount of Ps. 20,929,161 (R$ 3,499 million). As of December 31, 2017, the Company has established a provision of Ps. 3,158,216 (R$ 528 million) in the accompanying consolidated financial statements for the losses arising from these contingencies that the Company considers probable.

The aforementioned CSLL/IRPJ contingencies include a tax assessment against Claro Brasil in the amount of Ps. 12,728,566 (R$ 2,128 million) alleging the undue amortization of goodwill amounts between 2009 and 2012, and charging CSLL, IRPJ and penalties due to the late payment of taxes. Claro Brasil has challenged this assessment at the administrative level and the challenge is still pending. The Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from this assessment, which the Company does not consider probable.

PIS/COFINS

As of December 31, 2017, Claro Brasil, Americel, Star One, TdB and Brasil Center Comunicações Ltda. (“Brasil Center”) had aggregate tax assessments related to social integration program (“PIS”) and contribution for social security financing (“COFINS”) in the amount of Ps. 32,999,765 (R$ 5,517 million). As of December 31, 2017, the Company has established a provision of Ps. 20,743,735 (R$ 3,468 million) in the accompanying consolidated financial statements for the losses arising from the PIS/COFINS assessments that the Company considers probable. With respect to such PIS/COFINS assessments:

 

    Claro Brasil and Americel have commenced lawsuits against the Brazilian Federal Revenue Service seeking a ruling on constitutional grounds to exclude ICMS payments and interconnection fees from the base used to calculate PIS and COFINS tax obligations. Pending a final ruling and pursuant to applicable Brazilian procedure, the companies have paid the tax based on their position in the lawsuits, and have established a provision for the disputed amounts. As of December 31, 2017, the total amount in dispute was approximately Ps. 20,636,069 (R$ 3,450 million).

 

    Tax assessments against Claro Brasil and Americel related to the offset of PIS and COFINS credits recorded in the non-cumulative method in an amount of Ps. 9,426,795 (approximately R$ 1,576 million) as of December 31, 2017. The Company has not established a provision in the accompanying consolidated financial statements to cover the losses arising from this contingency, which the Company does not consider probable.

FUST/FUNTTEL

Anatel has initiated administrative proceedings against Claro Brasil, Americel, Primesys, TdB, Star One, BrTel and TVSAT in an aggregate amount of Ps. 17,107,002 (R$ 2,860 million) mainly based on an allegedly improper

 

F-62


Table of Contents

exclusion of interconnection revenues and costs from the basis used to calculate its fund for universal telecommunication services (“FUST”) obligations. The companies are contesting these assessments. As of December 31, 2017, the Company has established a provision of Ps. 11,963 (R$ 2 million) in the accompanying consolidated financial statements to cover the losses arising from these assessments that the Company considers probable.

In addition, the Brazilian Ministry of Communications ( Ministério das Comunicações ) has initiated administrative proceedings against Claro Brasil, Americel, Primesys, TdB, Star One, BrTel and TVSAT totaling an amount of Ps. 5,736,229 (R$ 959 million) as of December 31, 2017, due to an alleged underpayment of their obligations to telecommunications technology development fund (“FUNTTEL”). The companies have challenged these assessments, which are still pending. As of December 31, 2017, the Company has established a provision of Ps. 5,981 (R$ 1 million) in the accompanying consolidated financial statements to cover the losses arising from these assessments that the Company considers probable.

ISS

The Municipal Revenue Services have issued tax assessments against Claro Brasil, Brasil Center and Primesys, totaling an aggregate amount of approximately Ps. 3,535,048 (R$ 591 million) due to the alleged nonpayment of Brazilian services tax (“ISS”) over several telecommunication services, including Pay TV services, considered as taxable for ISS by these authorities. The companies have challenged the tax assessments on the grounds that the services cited are not subject to ISS tax and these challenges are still pending. As of December 31, 2017, the Company has established a provision of Ps. 29,907 (R$ 5 million) in the accompanying financial statements for the losses arising from these assessments that the Company considers probable.

TFI

As of December 31, 2017, Anatel has fined Claro Brasil and Americel a total of Ps. 13,793,268 (R$ 2,306 million), for an unpaid installation inspection fee ( Taxa de Fiscalização de Instalação, or “TFI”) allegedly due for the renovation of radio base stations. Claro Brasil and Americel have challenged the fine, arguing that there was no new equipment installation that could lead to this charge, and the challenges are still pending. The Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from these proceedings, which the Company does not consider probable.

Other Tax Contingencies

There are several other tax contingencies involving Claro Brasil, Americel, Star One, TdB and Primesys in an aggregate amount of Ps. 12,620,900 (R$ 2,110 million) related to a variety of taxes and government programs. As of December 31, 2017, the Company has established a provision of Ps. 5,084,249 (R$ 850 million) in the accompanying consolidated financial statements for the losses arising from these contingencies that the Company considers probable.

b. Regulatory Matters

Inflation-Related Adjustments

Anatel has challenged the calculation of inflation-related adjustments due under the concession agreements with Tess S.A. (“Tess”), and Algar Telecom Leste S.A. (“ATL”), two of the Company’s subsidiaries that were previously merged into Claro Brasil. Anatel rejected Tess and ATL’s calculation of the inflation-related adjustments applicable to 60% of the concessions price (which was due in three equal annual installments, subject to inflation-related adjustments and interest), claiming that the companies’ calculation of the inflation-related adjustments resulted in a shortfall of the installment payments. The companies have filed declaratory and consignment actions seeking resolution of the disputes and have obtained injunctions from a federal appeals court suspending payment until the pending appeals are resolved.

 

F-63


Table of Contents

The amount of the alleged shortfall as well as the method used to calculate monetary correction are subject to judicial disputes. If other methods or assumptions are applied, the amount may increase. In January 2018, Anatel calculated the monetary correction in a total amount of Ps. 20,336,995 (R$ 3.4 billion). As of December 31, 2017, the Company has established a provision of Ps. 3,983,658 (R$ 666 million) in the accompanying consolidated financial statements for the losses arising from these contingencies that the Company considers probable.

Reversible Assets

Claro Brasil’s long-distance fixed-line concessions provide that the concessionaire’s assets that are “indispensable” for the provision of domestic and international long-distance fixed-line services cannot be disconnected, replaced or sold without the prior regulatory approval of Anatel. Upon expiration of these concessions, those assets that are “indispensable” to provide domestic and international long distance fixed-line services will revert to the Brazilian government, in which case any compensation for investments made in those assets would be the depreciated cost of such assets. Brazilian law does not provide any guidance as to which assets would be subject to reversion under these concessions, and there is no precedent establishing: (i) which assets are “indispensable” under these concessions at the time of their expiration or (ii) the treatment of assets that are also used for telecommunications services not regulated by the concessions. Those assets Claro Brasil uses exclusively in the provision of wireless and Pay TV services are not subject to reversion. See Note 2.

In the second half of 2015, Anatel fined Claro Brasil approximately Ps. 59,815 (R$ 10 million) and imposed the obligations listed below on Claro Brasil in connection with the alleged non-compliance with requirements set out in the Reversible Assets Regulation ( Regulamento de Bens Reversíveis ).

 

    To make a deposit within 180 days of approximately Ps. 5,203,878 (R$ 870 million) in an escrow account to buy other assets which would be subject to reversion and thereby replace the assets removed. However, if the assets were replaced, Claro Brasil may instead deposit the difference between their sale price and the price of assets purchase to replace them. According to Anatel, such amount represents the value of the assets that were being allegedly removed from the assets list reported to Anatel without a justification for the alleged removal.

 

    Within 180 days following Anatel’s decision, the inclusion in all agreements executed after the Reversible Assets Regulation ( Regulamento de Bens Reversíveis ) came into effect, of mandatory provisions related, among others, to the indispensability of those assets for the provision of the services under the concessions, Anatel’s subrogation rights under those agreements and the obligation of their counterparty not to encumber the assets used by Claro Brasil thereunder.

 

    To file an appeal against any order imposing a lien on any Claro Brasil’s reversible assets within 30 days from the date Claro Brasil received notice of the decision.

In 2015, Claro Brasil appealed the decision, causing a temporary suspension of its obligations. On January 18, 2018, Anatel issued a new decision eliminating the obligation to deposit the Ps. 5,203,878 (R$ 870 million) in an escrow account and reducing the fine from Ps. 59,815 (R$ 10 million) to Ps. 14,954 (R$ 2.5 million).

Other regulatory disputes

Claro Brasil is party to other judicial disputes with Anatel in an aggregate amount of Ps. 12,267,993 (R$ 2,051 million). As of December 31, 2017, the Company has established a provision of Ps. 645,999 (R$ 108 million) in the accompanying consolidated financial statements for the losses arising from these disputes that the Company considers probable.

c. Other Civil, Environmental and Labor Contingencies

Claro Brasil and its subsidiaries are party to other civil, environmental and labor claims, as described below. In each case, the Company is contesting the claims at different stages. As of December 31, 2017, the Company has

 

F-64


Table of Contents

established the following provisions for those losses arising from these claims that the Company considers probable.

 

    Civil : Claims for Ps. 29,458,736 (R$ 4,925 million), including those filed by its Pay TV, internet access and telephone service customers and a provision of Ps. 939,091 (R$ 157 million) in the accompanying consolidated financial statements.

 

    Environmental : Claims for Ps. 4,019,547 (R$ 672 million) and a provision of Ps. 65,796 (R$ 11 million) in the accompanying consolidated financial statements.

 

    Labor : Claims for Ps. 53,952,852 (R$ 9,020 million) filed by current and former employees and a provision of Ps. 2,667,735 (R$ 446 million) in the accompanying consolidated financial statements.

d. Third-Party Disputes

Claro Brasil, Americel, TdB, Primesys, Brasil Center and their subsidiaries are parties to certain disputes with third parties in connection with former sales agents, outsourced companies’ contract cancellation, increases in monthly subscription rates and channel transmission, class actions, real estate issues, disputes with former employees regarding health care payments and other matters. The cases, which are in advanced stages of litigation, are for claims in an aggregate amount of Ps. 25,307,596 (R$ 4,231 million). As of December 31, 2017, the Company has established a provision of Ps. 2,350,717 (R$ 393 million) in the accompanying consolidated financial statements for the losses arising from these disputes that the Company considers probable.

III. COLOMBIA

Local Arbitration Proceedings (Bogotá Chamber of Commerce)

In 2013, the Colombian Constitutional Court rendered a decision holding that certain laws eliminating the reversion of telecommunication assets in Colombia did not apply to concessions granted prior to 1998 and that the reversion of assets under those earlier concession agreements would be governed by their contractual terms. Following the termination of Comcel’s concession contracts, Comcel and the ITC Ministry initiated discussions with respect to the liquidation of Comcel’s concession contracts. However, as a result of the Constitutional Court’s decision, the ITC Ministry took the position that assets under Comcel’s concession contracts should revert to the Colombian government. Comcel disputes the ITC Ministry’s interpretation of the Constitutional Court’s decision and contends that the reversion of assets should not apply.

In February 2016, the ITC Ministry initiated an arbitration claim against Comcel before the Bogotá Chamber of Commerce pursuant to the concession contracts. In its claim, the ITC Ministry requested (a) the liquidation of the concession contracts, (b) the reversion of all assets related to the concession contracts and (c) monetary compensation in case the assets cannot be reverted without affecting the continuity of the mobile services.

In July 2017, the arbitral tribunal ordered the reversion of certain assets of Comcel to the ITC Ministry. Such asset reversion was ordered under Comcel’s original concession agreements granted in 1994 and extended through 2013 without applying laws 422 of 1998 and 1341 of 2009 which had eliminated such reversion. In lieu of surrendering the assets, the arbitration tribunal ordered Comcel to pay Ps. 18,547,629 (approximately COP$ 3,155 billion). As required by the ITC Ministry, in August 2017, Comcel made such payment under protest reserving all of its rights and those of its shareholders. Comcel has challenged the decision of the arbitral tribunal in accordance with Colombian legislation.

IV. ECUADOR

a. Conecel

Tax Assessments

In 2011 and 2012, the Ecuadorian Internal Revenue Services ( Servicios de Rentas Internas del Ecuador, or “SRI”) notified Conecel of tax assessments of Ps. 2,354,617 (US$ 119,000) relating to income tax for fiscal years

 

F-65


Table of Contents

2007 through 2009, which were challenged by Conecel. Following an amnesty law enacted by the National Assembly ( Asamblea Nacional ) in May 2015, that granted the remission of interest and penalties from tax obligations, Conecel applied for amnesty pursuant this new law in connection with the tax assessments for the 2007 and 2009 fiscal years and paid a total amount of Ps. 1,278,221 (US$ 64,600) in connection with such fiscal years. In October 2015, the National Court of Justice ( Corte Nacional de Justicia ) ruled in favor of SRI with regard to the tax assessment for the fiscal year 2008. As of December 31, 2017, Conecel has made payments in the amount of Ps. 892,499 (US$ 45,106), in connection with the 2008 tax assessment, representing the total amount owed in connection with such assessment.

Monopolistic Practices Proceedings

In February 2014, following a regulatory claim filed in 2012 by state-owned operator Corporación Nacional de Telecomunicaciones (“CNT”), the Superintendency of Control of Market Power ( Superintendencia de Control del Poder del Mercado, or “SCPM”) imposed a fine on Conecel of Ps. 2,738,479 (US$ 138,400) for alleged monopolistic practices. CNT alleged that Conecel had exclusive rights to deploy its network in five locations and was thereby preventing CNT from deploying its own network in the same locations. In March 2014, Conecel challenged the fine and posted a guarantee for 50% of its value. Through a judicial order issued the same month, the fine was suspended while it is pending. Conecel denies any wrongdoing and contends that CNT had other alternative sites in the same locations where it could have deployed its network. As of December 31, 2017, the Company has not established a provision in the accompanying consolidated financial statements to cover losses arising from this proceeding that the Company does not consider probable.

Conecel was also subject to one proceeding initiated by the SCPM to assess Conecel’s compliance with the administrative injunction issued by the SCPM as part of its decision that admitted the claim filed by CNT in 2012. In August 2016, the SCPM, imposed a fine on Conecel of Ps. 1,622,509 (US$ 82 million). Conecel challenged this decision and posted a guarantee for Ps. 817,191 (US$ 41.3 million). On September 1, 2017, the District Court ruled in favor of Conecel overruling the SCPM’s decision. The SCPM filled several challenges against this ruling all of which have been ruled in favor of Conecel. On January 5, 2018, Conecel was notified of a definitive and unappealable ruling by the Constitutional Court and a as consequence thereof, the guarantee posted by Conecel was returned in full and the proceeding is considered terminated.

V. BULGARIA

a. Mobiltel

Tax Assessments

In June 2014, the Bulgarian tax authorities issued a tax assessment against Mobiltel EAD (“Mobiltel”) in connection with the amortization of its brand name and customer base for fiscal year 2007, in an amount of approximately Ps. 539,214 (€ 22.7 million), including interest as of December 31, 2017. In 2015, Mobiltel challenged this assessment. In October 2015, the Administrative Court LOGO issued a ruling favorable to Mobiltel, which was subsequently challenged by the tax authorities and forwarded to the Supreme Administrative Court. In February 2017, the Supreme Administrative Court ruled in favor of Mobiltel with respect to Mobiltel’s customer base and rejected the appeal related to the brand name.

In September 2015, the tax authorities issued a second tax assessment based on the same allegations for fiscal year 2008, in October 2016 for the year 2009 and in September 2017 for the year 2010. All three tax assessments covering the years 2008 – 2010 were challenged before the higher tax authority. In July 2017, Mobiltel received tax assessments for the years 2008 and 2009 and in November 2017, for the year 2010. All of these assessments once again included Mobiltel’s brand name and customer base as item not tax deductible in an amount totaling Ps. 1,482,245 (€ 62.4 million), including interest calculated as of December 31, 2017.

In July 2017, Mobiltel challenged the 2008 and 2009 tax assessments before the administrative court in Sofia. The accounting expertise appointed has confirmed that Mobiltel correctly treated and booked both trade name

 

F-66


Table of Contents

and customer base. In December 2017, Mobiltel challenged the 2010 tax assessment. As of December 31, 2017 Mobiltel has issued bank guarantees covering up to Ps. 1,496,498 (€ 63 million) to secure the tax liability in connection with these tax assessments.

A subsequent tax audit covering the years 2011 to 2013 has already finished and the audit reports were received in December 2017. However, these reports did not take into consideration the Supreme Administrative Court ruling with respect to the 2007 fiscal year and additional tax was imposed in connection with the amortization of brand name and customer base in an amount equal to Ps. 581,971 (€ 24.5 million). These tax assessments have also been challenged by Mobiltel and a resolution is still pending. Tax and interests for brand name for the years 2008 to 2012 have been provided for.

17. Employee Benefits

An analysis of the net liability and net period cost for employee benefits is as follows:

 

     At December 31,  
     2016      2017  

Liability:

     

Mexico

   Ps.  70,073,351        Ps.   84,821,197  

Puerto Rico

     17,736,616        13,962,128  

Brazil

     7,222,762        6,276,780  

Europe

     15,748,433        14,833,840  

Ecuador

     267,705        403,194  
  

 

 

    

 

 

 

Total

     Ps. 111,048,867        Ps. 120,297,139  
  

 

 

    

 

 

 

 

     For the year ended December 31,  
     2015     2016      2017  

Net period cost (benefit)

       

Mexico

     Ps. 8,962,953       Ps. 12,281,154        Ps. 11,586,065  

Puerto Rico

     (455,117     1,058,131        776,238  

Brazil

     451,353       633,159        735,855  

Austria

     260,850       226,447        385,689  

Ecuador

     58,042       41,380        152,335  
  

 

 

   

 

 

    

 

 

 

Total

     Ps. 9,278,081       Ps. 14,240,271        Ps. 13,636,182  
  

 

 

   

 

 

    

 

 

 

a) Defined benefit plans

The defined benefit obligation (DBO) and plan assets for the pension and other benefit obligation plans, by country, are as follows:

 

    At December 31  
    2016     2017  
    DBO     Plan Assets     Effect of asset
celling
    Net employee
benefit liability
    DBO     Plan Assets     Effect of asset
celling
    Net employee
benefit liability
 

Mexico

    Ps. 249,101,141       Ps. (179,871,258)       Ps.                     Ps. 69,229,883       Ps. 266,304,948       Ps. (182,539,376)       Ps.                       Ps. 83,765,572  

Puerto Rico

    39,909,853       ( 22,173,237)         17,736,616       38,711,695       ( 24,749,567)         13,962,128  

Brazil

    19,752,908       ( 20,301,126)       7,083,218       6,535,000       19,369,664       ( 20,399,661)       6,519,560       5,489,563  

Europe

    4,366,245           4,366,245       4,554,912           4,554,912  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Ps. 313,130,147       Ps. (222,345,621)       Ps. 7,083,218       Ps. 97,867,744       Ps. 328,941,219       Ps. (227,688,604)       Ps. 6,519,560       Ps. 107,772,175  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-67


Table of Contents

Below is a summary of the actuarial results generated for the pension and retirement plans as well as the medical services in Puerto Rico and Brazil; the pension plans and seniority premiums related to Telmex; the pension plan, the service awards plan and severance in Austria corresponding to the years ended December 31, 2015, 2016 and 2017:

 

     At December 31, 2015  
     DBO     Plan Assets     Effect of asset
celling
    Net employee
benefit liability
 

Balance at the beginning of the year

   Ps. 309,639,799     Ps. (242,360,329   Ps.  6,257,074     Ps. 73,536,544  

Current service cost

     4,540,925           4,540,925  

Interest cost on projected benefit obligation

     25,811,047           25,811,047  

Expected return on plan assets

       (20,710,965       (20,710,965

Changes in the asset ceiling during the period and others

         601,540       601,540  

Past service costs and other

     (1,365,096     118,725         (1,246,371

Actuarial gain for changes in experience

     (27,949         (27,949

Actuarial loss from changes in financial assumptions

     30,285           30,285  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net period cost

   Ps. 28,989,212     Ps. (20,592,240   Ps. 601,540     Ps. 8,998,512  

Actuarial gain for changes in experience

     (2,021,790         (2,021,790

Actuarial gain from changes in demographic assumptions

     (685,110         (685,110

Actuarial gain from changes in financial assumptions

     (2,502,344         (2,502,344

Changes in the asset ceiling during the period and others

         (754,357     (754,357

Return on plan assets greater than discount rate

       31,026,539         31,026,539  
  

 

 

   

 

 

   

 

 

   

 

 

 

Recognized in other comprehensive income

   Ps. (5,209,244   Ps. 31,026,539     Ps. (754,357   Ps. 25,062,938  

Contributions made by plan participants

     231,619           231,619  

Contributions to the pension plan made by the Company

       (2,954,839       (2,954,839

Benefits paid

     (22,321,686     22,149,262         (172,424

Payments to employees

     (19,929         (19,929

Effect of translation

     2,739,958       497,167       (1,281,110     1,956,015  
  

 

 

   

 

 

   

 

 

   

 

 

 

Others

   Ps. (19,370,038   Ps. 19,691,590     Ps. (1,281,110   Ps. (959,558

Balance at the end of the year

     314,049,729       (212,234,440     4,823,147       106,638,436  

Less short-term portion

     (118,411         (118,411
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-current obligation

   Ps.  313,931,318     Ps.  (212,234,440   Ps. 4,823,147     Ps.  106,520,025  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

F-68


Table of Contents
     At December 31, 2016  
     DBO     Plan Assets     Effect of asset
celling
    Net employee
benefit liability
 

Balance at the beginning of the year

   Ps. 314,049,729     Ps. (212,234,440   Ps. 4,823,147     Ps.  106,638,436  

Current service cost

     4,606,856           4,606,856  

Interest cost on projected benefit obligation

     27,275,363           27,275,363  

Expected return on plan assets

       (18,972,042       (18,972,042

Changes in the asset ceiling during the period and others

         875,192       875,192  

Past service costs and other

       165,851         165,851  

Actuarial gain for changes in experience

     (28,867         (28,867

Actuarial loss from changes in financial assumptions

     7,784           7,784  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net period cost

   Ps. 31,861,136     Ps.  (18,806,191   Ps. 875,192     Ps. 13,930,137  

Actuarial gain for changes in experience

     (20,976,837         (20,976,837

Actuarial loss from changes in demographic assumptions

     397,985           397,985  

Actuarial loss from changes in financial assumptions

     1,718,189           1,718,189  

Changes in the asset ceiling during the period and others

         (754,535     (754,535

Return on plan assets greater than discount rate

       (4,724,041       (4,724,041
  

 

 

   

 

 

   

 

 

   

 

 

 

Recognized in other comprehensive income

   Ps. (18,860,663   Ps. (4,724,041   Ps. (754,535   Ps. (24,339,239

Contributions made by plan participants

     255,760       (255,760       —    

Contributions to the pension plan made by the Company

       (2,756,519       (2,756,519

Benefits paid

     (25,694,301     25,517,599         (176,702

Payments to employees

     (525,612         (525,612

Effect of translation

     12,196,546       (9,086,269     2,139,414       5,249,691  
  

 

 

   

 

 

   

 

 

   

 

 

 

Others

   Ps. (13,767,607   Ps. 13,419,051     Ps. 2,139,414     Ps. 1,790,858  

Balance at the end of the year

     313,282,595       (222,345,621     7,083,218       98,020,192  

Less short-term portion

     (152,448         (152,448
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-current obligation

   Ps.  313,130,147     Ps.  (222,345,621   Ps.  7,083,218     Ps. 97,867,744  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

F-69


Table of Contents
     At December 31, 2017  
     DBO     Plan Assets     Effect of asset
celling
    Net employee
benefit liability
 

Balance at the beginning of the year

   Ps.  313,282,595     Ps. (222,345,621   Ps.  7,083,218     Ps. 98,020,192  

Current service cost

     4,285,693           4,285,693  

Interest cost on projected benefit obligation

     28,922,385           28,922,385  

Expected return on plan assets

       (20,916,104       (20,916,104

Changes in the asset ceiling during the period and others

         716,330       716,330  

Past service costs and other

       53,032         53,032  

Actuarial gain for changes in experience

     (35,145         (35,145

Actuarial gain from changes in demographic assumptions

     (85         (85

Actuarial gain from changes in financial assumptions

     (4,294         (4,294
  

 

 

   

 

 

   

 

 

   

 

 

 

Net period cost

   Ps. 33,168,554     Ps. (20,863,072   Ps. 716,330     Ps. 13,021,812  

Actuarial loss for changes in experience

     11,671,860           11,671,860  

Actuarial gain from changes in demographic assumptions

     (381,172         (381,172

Actuarial loss from changes in financial assumptions

     2,438,078           2,438,078  

Changes in the asset ceiling during the period and others

         (856,188     (856,188

Return on plan assets greater than discount rate

       (2,483,430       (2,483,430
  

 

 

   

 

 

   

 

 

   

 

 

 

Recognized in other comprehensive income

   Ps. 13,728,766     Ps. (2,483,430   Ps. (856,188   Ps. 10,389,148  

Contributions made by plan participants

     198,713       (198,713       —    

Contributions to the pension plan made by the Company

       (2,697,621       (2,697,621

Benefits paid

     (18,841,754     18,841,754         —    

Payments to employees

     (9,843,743         (9,843,743

Effect of translation

     (2,579,506     2,058,099       (423,800     (945,207
  

 

 

   

 

 

   

 

 

   

 

 

 

Others

   Ps. (31,066,290   Ps. 18,003,519     Ps. (423,800   Ps.  (13,486,571

Balance at the end of the year

     329,113,625       (227,688,604     6,519,560       107,944,581  

Less short-term portion

     (172,406         (172,406
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-current obligation

   Ps. 328,941,219     Ps.  (227,688,604   Ps. 6,519,560     Ps.  107,772,175  
  

 

 

   

 

 

   

 

 

   

 

 

 

In the case of other subsidiaries in Mexico, the net period cost of other employee benefits for the years ended December 31, 2015, 2016 and 2017 was Ps. 160,835, Ps. 200,455 and Ps. 165,884, respectively. The balance of other employee benefits at December 31, 2016 and 2017 was Ps. 843,467 and Ps. 1,055,625 respectively.

In the case of Brazil, the net period cost of other benefits for the years ended December 31, 2015, 2016 and 2017 was Ps. 23,121, Ps. 65,101 and Ps. 93,742, respectively. The balance of employee benefits at December 31, 2016 and 2017 was Ps. 522,221 and Ps. 650,815, respectively.

In the case of Ecuador, the net period cost of other benefits for the years ended December 31, 2015, 2016 and 2017 was Ps. 58,042, Ps. 41,380 and Ps. 152,335, respectively. The balance of employee benefits at December 31, 2016 and 2017 was Ps. 267,705 and Ps. 403,194, respectively.

 

F-70


Table of Contents

Plan assets are invested in:

 

     At December 31  
     2016      2017  
     Puerto Rico      Brazil      Mexico      Puerto Rico      Brazil      Mexico  

Equity instruments

     30%        4%        65%        37%        6%        61%  

Debt instruments

     68%        90%        35%        61%        88%        39%  

Others

     2%        6%        —          2%        6%        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
             100%            100%            100%                100%            100%            100%  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the Telmex’s net pension plan liability are plan assets of Ps. 179,871,258 and Ps. 182,539,376 as of December 31, 2016 and 2017, respectively, of which 31.6% and 32.0% during 2016 and 2017, respectively, were invested in equity and debt instruments of both América Movil and also of related parties, primarily entities that are under common control of the Company’s principal shareholder. The Telmex pension plan recorded a re-measurement of its defined pension plan of Ps. (26,940,226) and Ps. 12,394,617 during 2016 and 2017, respectively, attributable to a change in actuarial assumptions, and also a decline in the fair value of plan investments from December 31, 2016 to December 31, 2017. The increase (decrease) in fair value of the aforementioned related party pension plan investments approximated Ps. 3,071,275 and Ps. (437,663) during the year ended December 31, 2016 and 2017, respectively.

The assumptions used in determining the net period cost were as follows:

 

    2015     2016     2017  
    Puerto
Rico
    Brazil     Mexico     Europe     Puerto
Rico
    Brazil     Mexico     Europe     Puerto
Rico
    Brazil     Mexico     Europe  

Discount rate and long-term rate return

    4.42     12.57%       9.20%      

1.25% &

2.25%    

 

 

    4.16%       10.84     10.70%      


1.0%,   

1.5% &
1.75%   

 

 
 

    3.61%       10.18     10.70%      


1.0%,   

1.5% &
2.00%   

 

 
 

Rate of future salary increases

    3.50     5.00%       4.50%      


4.9%,     

3.0% &  
4.5%      

 

 
 

    3.50%       4.85     4.50%      

3.0.%,   

3.9% &

4.4%    


 

 

    2.75%       4.50     4.50%      

3.0.%,   

3.5% &

4.4%    


 

 

Percentage of increase in health care costs for the coming year

    5.70     11.50%           4.20%       11.35         3.57%       11.00    

Year to which this level will be maintained

    2027             N/A         2017           N/A         2028      

Rate of increase of pensions

          1.60%               1.60%                 1.60%     

Employee turnover rate*

          0.0%-2.06%               0.0%-1.88%                 0.0%-1.72%  
* Depending on years of service

Biometric

 

Puerto Rico:   

Mortality:

Disability:

  

RP 2014, MSS 2017 Tables.

1985 Pension Disability Table

Brazil:   
Mortality:   

2000 Basic AT Table for gender

Disability for assets:   

UP 84 modified table for gender

Disability retirement:   

80 CSO Code Table

Rotation:   

Probability of leaving the Company other than death, Disability and retirement is zero

 

F-71


Table of Contents

Austria

Life expectancy in Austria is base on “AVÖ 2008-P- Rechnungsgrundlagen für die Pensionsversicherung-Pagler & Pagler”.

 

Telmex   
Mortality:   

Mexican 2000 (CNSF) adjusted

Disability:   

Mexican Social Security adjusted by Telmex experience

Turnover:   

Telmex experience

Retirement:   

Telmex experience

For the year ended December 31, 2017, the Company conducted a sensitivity analysis on the most significant variables that affect the DBO, simulating independently, reasonable changes to roughly 100 basis points in each of these variables. The increase (decrease) would have resulted in the DBO pension and other benefits at December 31, 2017 are as follows:

 

     -100 points     +100 points  

Discount rate

   Ps.  24,711,314     Ps.  (33,606,469

Health care cost trend rate

   Ps. (635,289   Ps. 738,685  

Telmex Plans

Part of the Telmex´s employees are covered under defined benefit pension plans and seniority premiums. Pension benefits and seniority premiums are determined on the basis of compensation received by the employees in their final year of employment, their seniority, and their age at the time of retirement. Telmex has set up an irrevocable trust fund to finance these employee benefits and has adopted the policy of making contributions to such fund when it is considered necessary.

Defined benefits plan in Austria

Telekom Austria Group provides defined benefits for certain former employees in Austria. All such employees are retired and were employed prior to 1 January 1975. This unfunded plan provides benefits based on a percentage of salary and years employed, not exceeding 80% of the salary before retirement, and taking into consideration the pension provided by the social security system. Telekom Austria Group is exposed to the risk of development of life expectancy and inflation because the benefits from pension plans are lifetime benefits.

Service awards in Austria

Civil servants and certain employees (together ‘employees’) are eligible to receive service awards. Under these plans, eligible employees receive a cash bonus of two months’ salary after 25 years of service and four months’ salary after 40 years of service. Employees with at least 35 years of service when retiring (at the age of 65) or who are retiring based on specific legal regulations are eligible to receive four monthly salaries. The compensation is accrued as earned over the period of service, taking into account the employee turnover rate. The risk Telekom Austria Group is exposed to is mainly the risk of development of salary increases and changes of interest rates.

Severance in Austria

Employees starting to work for Telekom Austria Group in Austria on or after 1 January 2003 are covered by a defined contribution plan. Telekom Austria Group paid Ps. 44,217 and Ps. 46,084 (1.53% of the salary) into this defined contribution plan (BAWAG Allianz Mitarbeitervorsorgekasse AG) in 2016 and 2017, respectively.

 

F-72


Table of Contents

Severance benefit obligations for employees hired before 1 January 2003, excluding civil servants, are covered by defined benefit plans. Upon termination by Telekom Austria Group or retirement, eligible employees receive severance payments equal to a multiple of their monthly compensation which comprises fixed compensation plus variable elements such as overtime or bonuses. Maximum severance is equal to a multiple of twelve times the eligible monthly compensation. In case of death, the heirs of eligible employees receive 50% of the severance benefits. Telekom Austria Group is exposed to the risk of development of salary increases and changes of interest rates.

b) The defined contribution plans (DCP)

Brazil

Claro makes contributions to the DCP through Embratel Social Security Fund – Telos. Contributions are computed based on the salaries of the employees, who decide on the percentage of their contributions to the plan (participants enrolled before October 31st, 2014 is from 3% to 8% and, for those subscribed after that date, the contribution is from 1% to 7% of their salaries). Claro contributes the same percentage as the employee, capped at 8% of the participant’s balance for the employees that are eligible to participate in this plan.

The unfunded liability represents Claro’s obligation for those participants that migrated from the DBP to the DCP. This liability is being paid over a term of 20 years as of January 1, 1999. Unpaid balances are adjusted monthly based on the yield of the asset portfolio at that date and is increased based on the General Price Index of Brazil plus 6 percentage points per year.

At December 31, 2016 and 2017, the balance of the DCP liability was Ps. 165,541 and Ps. 136,402, respectively.

For the years ended December 31, 2015, 2016 and 2017 the cost (income) of labor were Ps. 198, Ps. (935) and Ps. 374, respectively.

Austria

In Austria, pension benefits generally are provided by the social security system, for employees, and by the government, for civil servants. Telekom Austria Group contributed for its employees 12.55% to social security amounting to Ps. 657,563 and Ps. 667,077 in 2016 and 2017, respectively. Contributions for active civil servants amount to 12.55% and 15.75%. In 2016 and 2017, these contributions to the government amounted to Ps. 836,655 and Ps. 642,080, respectively.

Additionally, Telekom Austria Group sponsors a defined contribution plan for employees of some of its Austrian subsidiaries. Telekom Austria Group’s contributions to this plan are based on a percentage of the compensation not exceeding 5%. The annual expenses for this plan amounted to Ps. 252,368, Ps. 258,891 and Ps. 256,507 in 2015, 2016 and 2017, respectively.

As of December 31, 2016 and 2017 the liability related to this defined contribution plan amounted to Ps. 130,689 and Ps. 120,892, respectively.

Other countries

For the rest of the countries where the Company operates and that do not have defined benefit plans or defined contribution plans, the Company makes contributions to the respective governmental social security agencies which are recognized in results of operations as they are incurred.

 

F-73


Table of Contents

Long-term direct employee benefits

 

    Balance at
December 31,
2015
                Applications     Balance at
December 31,
2016
 
      Effect of
translation
    Increase of
the year
    Payments     Reversals    

Long-term direct employee benefits

  Ps. 11,116,581     Ps.  1,856,606     Ps.  2,210,026     Ps. (1,832,675)     Ps.  (2,099,039)     Ps. 11,251,499  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Balance at
December 31,
2016
                Applications     Balance at
December 31,
2017
 
      Effect of
translation
    Increase of
the year
    Payments     Reversals    

Long-term direct employee benefits

  Ps.  11,251,499     Ps. 795,581     Ps. 771,274     Ps.  (2,077,632)     Ps.  (582,686)     Ps.  10,158,036  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In 2008, a comprehensive restructuring programme was initiated in the segment Austria. The provision for restructuring includes future compensation of employees who will no longer provide services for Telekom Austria Group but who cannot be laid off due to their status as civil servants. These employment contracts are onerous contracts under IAS 37, as the unavoidable cost related to the contractual obligation exceeds the future economic benefit. The restructuring programme also includes social plans for employees whose employments will be terminated in a socially responsible way. In 2009 and every year from 2011 to 2017, new social plans were initiated which provide for early retirement, special severance packages and golden handshake options. Due to their nature as termination benefits, these social plans are accounted for according to IAS 19.

18. Financial Assets and Liabilities

Set out below is the categorization of the financial instruments, excluding cash and cash equivalents, held by the Company as of December 31, 2016 and 2017:

 

     December 31, 2016  
     Loans and
Receivables
     Fair value
through
profit or loss
     Fair value
through OCI
 

Financial Assets:

        

Available for sale marketable securities and other short term investments

   Ps. 13,393,646      Ps. —      Ps.  41,463,511  

Accounts receivable from subscribers, distributors,
and other, net

     175,059,881        —          —    

Related parties

     740,492        —          —    

Derivative financial instruments

     —          909,051        —    
  

 

 

    

 

 

    

 

 

 

Total

   Ps. 189,194,019      Ps. 909,051      Ps. 41,463,511  
  

 

 

    

 

 

    

 

 

 

Financial Liabilities:

        

Debt

   Ps. 707,801,403      Ps. —      Ps. —  

Accounts payable

     237,265,126        —          —    

Related parties

     2,971,325        —          —    

Derivative financial instruments

     —          17,504,910        79,837  
  

 

 

    

 

 

    

 

 

 

Total

   Ps.  948,037,854      Ps.  17,504,910      Ps. 79,837  
  

 

 

    

 

 

    

 

 

 

 

F-74


Table of Contents
     December 31, 2017  
     Loans and
Receivables
     Fair value
through
profit or loss
     Fair value
through OCI
 

Financial Assets:

        

Available for sale marketable securities and other short term investments

   Ps. 12,438,019      Ps. —      Ps.  46,682,657  

Accounts receivable from subscribers, distributors,
and other, net

     163,085,537        —          —    

Related parties

     868,230        —          —    

Derivative financial instruments

     —          8,037,384     
  

 

 

    

 

 

    

 

 

 

Total

   Ps. 176,391,786      Ps. 8,037,384      Ps. 46,682,657  
  

 

 

    

 

 

    

 

 

 

Financial Liabilities:

        

Debt

   Ps. 697,884,899      Ps. —      Ps. —  

Accounts payable

     212,673,407        —          —    

Related parties

     2,540,412        —          —    

Derivative financial instruments

     —          14,359,460        —    
  

 

 

    

 

 

    

 

 

 

Total

   Ps.  913,098,718      Ps.  14,359,460      Ps.
  

 

 

    

 

 

    

 

 

 

Fair value hierarchy

The Company’s valuation techniques used to determine and disclose the fair value of its financial instruments are based on the following hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Variables other than quoted prices in Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices); and

Level 3: Variables used for the asset or liability that are not based on any observable market data (non-observable variables).

The fair value for the financial assets (excluding cash and cash equivalents) and financial liabilities shown in the consolidated statements of financial position at December 31, 2016 and 2017 is as follows:

 

     Measurement of fair value at December 31, 2016  
     Level 1      Level 2      Level 3      Total  

Assets:

           

Available for sale marketable securities and other short term investments

   Ps. 41,463,511      Ps. 13,393,646      Ps. —      Ps. 54,857,157  

Derivative financial instruments

     —          909,051        —          909,051  

Pension plan assets

     214,051,693        8,175,469        118,459        222,345,621  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps. 255,515,204      Ps. 22,478,166      Ps.  118,459      Ps. 278,111,829  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Debt

   Ps. 666,457,233      Ps. 80,214,836      Ps.    Ps. 746,672,069  

Derivative financial instruments

     —          17,584,747        —          17,584,747  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps.  666,457,233      Ps.  97,799,583      Ps.    Ps.  764,256,816  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-75


Table of Contents
     Measurement of fair value at December 31, 2017  
     Level 1      Level 2      Level 3      Total  

Assets:

           

Available for sale marketable securities and other short term investments

   Ps. 46,682,657      Ps. 12,438,019      Ps.  —      Ps. 59,120,676  

Derivative financial instruments

     —          8,037,384        —          8,037,384  

Pension plan assets

     218,518,358        9,039,270        130,976        227,688,604  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps. 265,201,015      Ps. 29,514,673      Ps.  130,976      Ps. 294,846,664  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Debt

   Ps. 691,769,785      Ps. 63,147,153      Ps. —      Ps. 754,916,938  

Derivative financial instruments

     —          14,359,460        —          14,359,460  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Ps.  691,769,785      Ps.  77,506,613      Ps. —      Ps.  769,276,398  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of derivative financial instruments is valued using valuation techniques with market observable inputs. To determine its Level 2 fair value, the Company applies different valuation techniques including forward pricing and swaps models, using present value calculations. The models incorporate various inputs including credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. Fair value of debt Level 2 has been determined using a model based on present value calculation incorporating credit quality of AMX. The Company’s investment in available for sale securities, specifically the investment in KPN, is valued using the quoted prices (unadjusted) in active markets for identical assets. The net realized losses related to derivative financial instruments for the years ended December 31, 2016 and 2017 was Ps. 28,878,632 and Ps. 1,515,668, respectively.

For the years ended December 31, 2015, 2016 and 2017, no transfers were made between Level 1 and Level 2 fair value measurement hierarchies.

Changes in liabilities arising from financing activities

 

    At January 1,
2016
    Cash flow     Foreing currency
exchange and
other
    At December 31,
2016
 

Total liabilities from financing activities

  Ps. 683,216,744     Ps. (61,390,813   Ps. 85,975,472     Ps. 707,801,403  
 

 

 

   

 

 

   

 

 

   

 

 

 
    At January 1,
2017
    Cash flow     Foreing currency
exchange and
other
    At December 31,
2017
 

Total liabilities from financing activities

  Ps.  707,801,403     Ps.  (27,433,489   Ps.  17,516,985     Ps.  697,884,899  
 

 

 

   

 

 

   

 

 

   

 

 

 

19. Shareholders’ Equity

a) Pursuant to the Company’s bylaws, the capital structure of the Company consists of a minimum fixed portion of Ps. 362,873 (nominal amount), represented by a total of 95,489,724,196 shares (including treasury shares available for placement in accordance with the provisions of the Ley del Mercado de Valores ), of which (i) 23,384,632,660 are “AA” shares (full voting rights); (ii) 642,279,095 are “A” shares (full voting rights); and (iii) 71,462,812,441 are “L” shares (limited voting rights).

b) As of December 31, 2017 and 2016, the Company’s capital structure was represented by 66,069,035,539 (20,601,632,660 “AA” shares, 566,661,526 “A” shares and 44,900,741,353 “L” shares), and 65,798,000,000 (20,634,632,660 “AA” shares, 592,084,871 “A” shares and 44,571,282,469 “L” shares), respectively.

 

F-76


Table of Contents

c) As of December 31, 2017 and 2016, the Company’s treasury held for placement in accordance with the provisions of the Ley del Mercado de Valores and the Disposiciones de carácter general aplicables a las emisoras de valores y a otros participantes en el Mercado de valores issued by the Comisión Nacional Bancaria y de Valores, a total amount of (i) 29,420,688,657 shares (29,419,120,359 “L” shares and 1,568,298 “A” shares); and 29,691,724,196 shares (29,691,076,321 “L” shares and 647,875 “A” shares), respectively, all acquired pursuant to the Company’s share repurchase program.

d) The holders of “AA” and “A” shares are entitled to full voting rights. The holders of “L” shares may only vote in limited circumstances, and they are only entitled to appoint two members of the Board of Directors and their respective alternates. The matters in which the holders of “L” shares who are entitled to vote are the following: extension of the Company’s corporate life, dissolution of the Company, change of Company’s corporate purpose, change of nationality of the Company, transformation of the Company, a merger with another company, any transaction representing 20% or more of the Company’s consolidated assets, as well as the cancellation of the registration of the shares issued by the Company in the Registro Nacional de Valores and any other foreign stock exchanges where they may be registered, except for quotation systems or other markets not organized as stock exchanges. Within their respective series, all shares confer the same rights to their holders.

The Company’s bylaws contain restrictions and limitations related to the subscription and acquisition of “AA” shares by non-Mexican investors.

e) Pursuant to the Company’s bylaws, “AA” shares must at all times represent no less than 20% and no more than 51% of the Company’s capital stock, and they also must represent at all times no less than 51% of the common shares (entitled to full voting rights, represented by “AA” and “A” shares) representing said capital stock.

“A” shares, which may be freely subscribed, must not represent more than 19.6% of capital stock and must not exceed 49% of the common shares representing such capital. Common shares (entitled to full voting rights, represented by “AA” and “A” shares), must represent no more than 51% of the Company’s capital stock.

Lastly, “L” shares which have limited voting rights and may be freely subscribed, and “A” shares may not exceed 80% of the Company’s capital stock. For purposes of determining these restrictions, the percentages mentioned above refer only to the number of the Company’s shares outstanding.

Dividends

On April 5, 2017, the Company’s shareholders approved, among others resolutions, the payment of a dividend of Ps. 0.30 (thirty peso cents) per share to each of the shares series of its capital stock “AA”, “A” and “L”, such dividend was payable, at each share holders’ election, in cash, “L” series shares or a combination thereof, in two installments of Ps. 0.15 (fifteen peso cents) each, on July 17, 2017 and November 13, 2017 respectively. As a result of the shareholders’ elections, on July 17, 2017 and November 13, 2017, AMX placed into circulation 325,264,125 and 16,905,414 “L” shares, respectively.

On April 18, 2016, the Company’s shareholders approved, among others resolutions, the payment of a

dividend of Ps. 0.28 (twenty eight peso cents) per share to each of the shares of its capital stock “AA”, “A” and “L”, such dividend was payable in two installments of Ps. 0.14 (fourteen peso cents) each. On October 8, 2016, the company’s shareholders approved the simultaneous grant to company’s shareholders of a right, at each shareholders’ election, to receive the dividend payment in either cash, “L” series shares or a combination thereof, as a result, 397,909,031 “L” shares were placed into circulation.

Legal Reserve

According to the Ley General de Sociedades Mercantiles , companies must allocate from the net profit of each year, at least 5% to increase the legal reserve until it reaches 20% of its capital stock. This reserve may not be

 

F-77


Table of Contents

distributed to shareholders during the existence of the Company, except as a stock dividend. As of December 31, 2016 and 2017, the legal reserve amounted to Ps. 358,440.

Restrictions on Certain Transactions

Pursuant to the Company’s bylaws any transfer of more than 10% of the full voting shares (“A” shares and “AA” shares), effected in one or more transactions by any person or group of persons acting in concert, requires prior approval by our Board of Directors. If the Board of Directors denies such approval, however, the Company by laws require it to designate an alternate transferee, who must pay market price for the shares as quoted on the Bolsa Mexicana de Valores, S.A.B. de C.V.

Payment of Dividends

Dividends, either in cash or in kind, paid with respect to the “A” Shares, “L” Shares, “A” Share ADSs or “L” Share ADSs will generally be subject to a 10% Mexican withholding tax (provided that no Mexican withholding tax will apply to distributions of net taxable profits generated before 2015). Nonresident holders could be subject to a lower tax rate, to the extent that they are eligible for benefits under an income tax treaty to which Mexico is a party.

Earnings per Share

The following table shows the computation of the basic and diluted earnings per share:

 

     For the years ended December 31,  
     2015      2016      2017  

Net profit for the period attributable
to equity holders of the parent

   Ps.  35,054,772      Ps.  8,649,427      Ps.  29,325,921  

Weighted average shares (in millions)

     66,869        65,693        65,909  
  

 

 

    

 

 

    

 

 

 

Earnings per share attributable to
equity holders of the parent

   Ps. 0.52      Ps. 0.13      Ps. 0.44  
  

 

 

    

 

 

    

 

 

 

Undated Subordinated Fixed Rate Bond

In January 2013, Telekom Austria issued an Undated Subordinated Fixed Rate Bond with a face value of 600 million euros, which is subordinated with indefinite maturity and which is, based on its conditions, classified as stockholders equity according to IFRS.

The bond pays an annual coupon of 5.625%. Telekom Austria has the right (call), to redeem the bond on February 1, 2018. Telekom Austria has an early termination right under certain conditions. After that period (2018), the bond establishes conditions and increases the coupon rate every five years. After analyzing the conditions of the issuance, Telekom Austria recognized the instrument in equity, since it does not meet the criteria for classification as financial liability, not because it does not represent an obligation to pay.

On the consolidated statements of financial position, the Company recognized this bond as a component of equity (non-controlling interest), as financial instruments issued by its subsidiary are classified as equity in the subsidiary’s financial statements and are thus considered non-controlling interest in the Company’s consolidated financial statements. See Note 24.

 

F-78


Table of Contents

20. Components of other comprehensive (loss) income

The movement on the components of the other comprehensive (loss) income for the years ended December 31, 2015, 2016 and 2017 is as follows:

 

    2015     2016     2017  

Controlling interest:

     

Valuation of the derivative financial instruments, net of
deferred taxes

  Ps. 37,011     Ps. 48,496     Ps. 12,292  

Available for sale securities, net of deferred taxes

    4,011       (6,673,731     622,424  

Translation effect of foreign entities

    (34,055,403     104,178,880       (21,683,333

Remeasurement of defined benefit plan, net of deferred taxes

    (17,791,354     14,771,770       (7,075,606

Non-controlling interest of the items above

    (1,739,497     3,322,090       3,402,973  
 

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

  Ps.  (53,545,232   Ps.  115,647,505     Ps.  (24,721,250
 

 

 

   

 

 

   

 

 

 

21. Valuation of derivatives, interest cost from labor obligations and other financial items, net

For the years ended December 31, 2015, 2016 and 2017, valuation of derivatives and other financial items are as follows:

 

     2015     2016     2017  

Gain (loss) in valuation of derivatives, net

   Ps. 15,128,269     Ps. (9,622,233   Ps. 8,192,567  

Capitalized interest expense
(Note 10 d)

     3,524,841       2,861,307       2,875,034  

Commissions

     (1,399,479     (2,034,972     (1,263,701

Interest cost of labor obligations
(Note 17)

     (5,701,622     (9,178,513     (8,722,611

Interest expense on taxes

     (135,569     (245,922     (1,503,981

Dividend received

     1,645,712       5,740,092       2,385,559  

Loss on partial sale of shares in associated Company

     (545     —         —    

Gain on de-recognition of equity method investment (Note 12)

     11,988,038       —         —    

Other financial cost

     (3,553,329     (3,745,600     (3,906,627
  

 

 

   

 

 

   

 

 

 
   Ps.  21,496,316     Ps.  (16,225,841   Ps.  (1,943,760
  

 

 

   

 

 

   

 

 

 

22. Segments

América Móvil operates in different countries. As mentioned in Note 1, the Company has operations in Mexico, Guatemala, Nicaragua, Ecuador, El Salvador, Costa Rica, Brazil, Argentina, Colombia, United States, Honduras, Chile, Peru, Paraguay, Uruguay, Dominican Republic, Puerto Rico, Panama, Austria, Croatia, Bulgaria, Belarus, Macedonian, Serbia and Slovenia. The accounting policies for the segments are the same as those described in Note 2.

The Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), analyzes the financial and operating information by operating segment. All operating segments that (i) represent more than 10% of

 

F-79


Table of Contents

consolidated revenues, (ii) more than the absolute amount of its reported 10% of profits or loss or (iii) more than 10% of consolidated assets, are presented separately.

The Company presents the following reportable segments for the purposes of its consolidated financial statements: Mexico (includes Telcel and Corporate operations and Assets), Telmex (Mexico), Brazil, Southern Cone (includes Argentina, Chile, Paraguay and Uruguay), Colombia, Andean (includes Ecuador and Peru), Central-America (which aggregates the operating segments of Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama), U.S.A. (excludes Puerto Rico), Caribbean (which aggregates the operating segments of Dominican Republic and Puerto Rico), and Europe (includes Austria, Bulgaria, Croatia, Belarus, Slovenia, Macedonia and Serbia).

The Company considers that the quantitative and qualitative aspects of any aggregated operating segments (that is, Central America and Caribbean reportable segments) are similar in nature for all periods presented. In evaluating the appropriateness of aggregating operating segments, the key indicators considered included but were not limited to: (i) the similarity of key financial statement measures and trends, (ii) all entities provide telecommunications services, (iii) similarities of customer base and services, (iv) the methods to distribute services are the same, based on telephone plant in both cases, wireless and fixed lines, (v) similarities of governments and regulatory entities that oversee the activities and services of telecom companies, (vi) inflation trends, and (vii) currency trends.

 

F-80


Table of Contents
    Mexico     Telmex     Brazil     Southern
Cone
    Colombia     Andean     Central
America
    U.S.A.     Caribbean     Europe     Eliminations     Consolidated
total
 

At December 31 2015 (in Ps.):

                       

External revenues

    191,750,997       93,657,944       174,722,286       68,520,541       65,871,301       51,738,731       34,515,781       110,653,812       29,625,274       72,681,072       —         893,737,739  

Intersegment revenues

    13,073,782       7,420,418       3,451,846       427,609       265,474       220,094       235,779       —         32,699       —         (25,127,701     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    204,824,779       101,078,362       178,174,132       68,948,150       66,136,775       51,958,825       34,751,560       110,653,812       29,657,973       72,681,072       (25,127,701     893,737,739  

Depreciation and amortization

    14,261,516       15,416,456       38,219,152       8,608,518       9,279,871       6,368,233       9,699,082       741,038       5,315,349       17,938,198       (132,678     125,714,735  

Operating income

    70,726,013       15,947,164       10,878,548       9,185,471       13,361,859       7,853,311       1,750,027       1,293,706       3,891,263       6,205,426       320,373       141,413,161  

Interest income

    19,094,408       272,284       1,616,356       3,505,616       366,533       743,028       227,590       232,856       396,314       474,826       (22,076,799     4,853,012  

Interest expense

    27,023,466       1,413,686       16,450,388       2,599,901       577,440       713,895       349,449       —         48,751       2,861,655       (20,841,259     31,197,372  

Income tax

    7,976,111       2,896,465       (4,846,932     2,621,598       3,997,944       2,944,548       2,257,695       605,809       1,483,187       (756,774     —         19,179,651  

Equity interest in net (loss) income of associated companies

    (1,512,226     65,033       (5,243     21,856       —         —         —         —         —         3,884       —         (1,426,696

Net profit (loss) attributable to equity holders of the parent

    28,660,395       5,852,674       (12,785,017     (6,806,573     3,468,029       3,766,425       (680,599     1,142,975       2,073,287       6,157,757       4,205,419       35,054,772  

Assets by segment

    955,534,316       163,955,665       311,838,555       118,217,618       81,170,568       87,619,264       68,425,540       36,072,729       76,084,634       182,087,483       (784,519,559     1,296,486,813  

Plant, property and equipment, net

    57,048,006       105,177,653       147,884,562       52,735,563       44,811,656       30,254,858       37,930,783       1,783,612       29,063,549       66,838,636       —         573,528,878  

Goodwill

    27,067,441       392,523       17,931,543       2,672,724       11,612,051       4,396,090       5,213,703       1,903,762       14,186,723       51,737,156       —         137,113,716  

Trademarks, net

    826,446       346,566       341,750       —         522       —         —         686,052       242,175       8,856,795       —         11,300,306  

Licenses and rights, net

    4,395,698       72,557       28,442,759       8,318,161       3,661,838       6,256,297       3,660,240       —         6,443,439       29,198,262       —         90,449,251  

Investment in associated companies

    10,818,612       1,955,186       700       115,452       371       —         16,259       —         —         908,995       (10,705,005     3,110,570  

Liabilities by segments

    723,559,636       139,362,960       221,907,486       101,601,641       31,254,646       33,048,503       33,514,380       31,170,822       31,727,281       121,586,194       (333,100,922     1,135,632,627  

At December 31, 2016 (in Ps.):

                       

External revenues

    187,127,903       93,343,612       193,796,237       71,553,356       67,330,768       55,825,972       42,131,666       140,856,365       36,467,781       86,978,828       —         975,412,488  

Intersegment revenues

    16,438,858       8,872,248       3,560,388       776,719       257,767       304,834       289,465       —         30,210       —         (30,530,489     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    203,566,761       102,215,860       197,356,625       72,330,075       67,588,535       56,130,806       42,421,131       140,856,365       36,497,991       86,978,828       (30,530,489     975,412,488  

Depreciation and amortization

    16,451,496       17,150,013       47,170,935       9,739,634       11,283,749       7,764,474       10,474,681       1,073,623       5,225,498       22,525,050       (333,232     148,525,921  

Operating income

    48,219,505       12,275,892       6,325,323       8,317,053       11,209,959       6,086,638       3,830,974       1,220,601       6,143,183       5,388,595       592,587       109,610,310  

Interest income

    28,659,372       303,915       3,747,684       2,649,539       104,304       944,945       462,779       239,797       691,132       286,784       (33,897,656     4,192,595  

Interest expense

    32,004,944       1,135,552       22,970,335       5,049,457       1,079,989       1,147,380       411,597       —         143,322       2,953,033       (33,033,597     33,862,012  

Expenses (income) tax

    2,502,242       921,803       (4,294,040     2,021,090       4,456,750       1,768,066       3,291,776       767,295       2,542,080       (2,578,206     —         11,398,856  

Equity interest in net income (loss) of associated companies

    67,472       116,368       (270     (23,319     —         —         171       —         —         29,528       —         189,950  

Net profit (loss) attributable
to equity holders of the parent

    378,150       902,282       (10,357,493     3,765,015       4,022,633       3,621,863       538,890       987,790       3,318,960       7,065,769       (5,594,432     8,649,427  

Assets by segment

    1,070,598,204       161,133,722       461,831,754       140,617,162       103,361,235       113,839,981       80,832,029       42,812,349       93,941,695       227,288,156       (981,214,013     1,515,042,274  

Plant, property and equipment, net

    64,893,242       112,220,236       203,270,555       67,023,143       59,690,886       37,716,772       41,808,573       1,949,166       33,854,428       78,763,065       —         701,190,066  

Goodwill

    27,186,328       213,926       26,106,622       3,006,448       14,659,891       5,948,335       5,652,268       3,464,217       14,186,723       52,207,877       —         152,632,635  

Trademarks, net

    615,318       307,881       366,727       —         194       —         —         788,228       284,665       10,203,880       —         12,566,893  

Licenses and rights, net

    5,887,092       42,867       41,496,209       8,760,860       4,603,793       12,882,210       3,993,120       —         7,694,798       30,670,315       —         116,031,264  

Investment in associated companies

    7,605,220       2,218,824       699       81,284       470       —         17,390       —         —         1,072,778       (7,393,181     3,603,484  

Liabilities by segments

    798,044,609       117,663,161       349,915,118       124,149,687       40,811,337       52,949,608       38,095,161       41,369,767       44,790,656       121,928,202       (485,698,799     1,244,018,507  

 

F-81


Table of Contents

At December 31, 2017 (in Ps.):

                       

External revenues

    190,022,612       89,731,238       210,536,673       81,092,885       72,435,460       56,393,595       44,094,835       148,589,487       35,092,578       93,644,172       —         1,021,633,535  

Intersegment revenues

    16,748,428       8,753,525       4,785,601       1,250,983       304,555       177,856       187,086       44       122,656       —         (32,330,734     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    206,771,040       98,484,763       215,322,274       82,343,868       72,740,015       56,571,451       44,281,921       148,589,531       35,215,234       93,644,172       (32,330,734     1,021,633,535  

Depreciation and amortization

    17,030,251       18,902,238       51,486,652       10,639,591       12,373,790       8,328,705       9,668,439       1,594,727       5,349,757       25,222,962       (422,170     160,174,942  

Operating income (loss)

    50,666,028       7,921,524       11,601,369       11,676,427       (4,704,165     5,650,477       5,252,401       2,915,123       4,752,168       4,523,857       (111,906     100,143,303  

Interest income

    30,083,437       619,748       3,792,242       2,884,613       211,521       1,793,974       1,064,992       394,196       1,111,980       307,021       (39,338,076     2,925,648  

Interest expense

    32,185,868       1,028,593       23,578,083       4,637,989       1,955,688       1,573,929       485,684       —         377,727       2,035,716       (37,558,496     30,300,781  

Expenses (income) tax

    18,142,482       387,145       (2,991,377     3,535,302       (1,874,594     1,806,085       2,025,618       1,803,555       3,529,253       (1,417,358     (4,600     24,941,511  

Equity interest in net income (loss) of associated companies

    99,044       16,564       (232     (9,801     —         —         —         —         —         (14,190     —         91,385  

Net profit (loss) attributable
to equity holders of the parent

    26,321,442       184,387       (6,617,381     4,421,938       (6,209,530     1,595,382       3,713,301       1,793,875       1,262,073       5,656,132       (2,795,698     29,325,921  

Assets by segment

    1,033,036,406       170,402,561       428,281,963       133,136,177       108,362,023       113,478,626       81,529,691       40,761,830       88,672,466       203,858,243       (915,308,134     1,486,211,852  

Plant, property and equipment, net

    59,137,555       109,713,770       187,459,628       69,006,093       57,060,931       35,930,966       39,050,481       1,693,642       32,173,524       85,116,608       —         676,343,198  

Goodwill

    27,102,384       213,926       24,708,739       3,073,444       13,981,033       6,113,495       5,597,990       3,341,956       14,186,723       53,143,542       —         151,463,232  

Trademarks, net

    406,723       274,786       246,557       —         —         —         —         631,024       262,641       8,116,076       —         9,937,807  

Licenses and rights, net

    11,457,720       13,175       35,662,305       8,885,086       4,197,498       11,295,202       3,376,106       —         7,276,039       31,141,255       —         113,304,386  

Investment in associated companies

    469,662       546,872       640       63,110       451       —         16,999       —         —         806,950       1,830,488       3,735,172  

Liabilities by segments

    794,598,013       133,428,178       322,620,030       119,123,646       54,756,152       48,656,628       35,501,900       38,249,957       43,978,410       119,240,533       (484,575,112     1,225,578,335  

 

F-82


Table of Contents

23. Recently Issued Accounting Standards

New standards and amendments effective from January 1, 2017

The following new standards and amendments applicable from January 1, 2017 were adopted by America Movil:

Amendments to IAS 12 — Income Taxes that clarify how to account for deferred tax assets related to debt instruments measured at fair value. There was no effect to the consolidated financial statements from the adoption of these amendments.

Amendments to IAS 7 — Statement of Cash Flows introducing additional disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The required disclosures have been included in Note 18 to the consolidated financial statements.

Amendments to IFRS 12 — Disclosure of Interests in Other Entities, included within the Annual Improvements to IFRS Standards 2014–2016 Cycle. There was no effect to the Company’s consolidated financial statements from the adoption of these amendments.

New standards, amendments and interpretations not yet effective

The estimated impact and evaluation of the recently issued accounting standards not yet in effect as of December 31,2017 are as follow:

IFRS 9, Financial Instruments

IFRS 9, Financial Instruments, was issued in July 2014 and relates to the classification and measurement of financial assets and financial liabilities, hedge accounting and impairment of financial assets. The new standard became effective on January 1, 2018. The Company does not expect significant changes to its existing accounting policies surrounding classification and measurement for available-for-sale securities as they are currently recognized at fair value on the consolidated statement of financial condition with changes in fair value recognized in other comprehensive income. As for the recognition of impairment of financial assets as they would relate to trade accounts receivable, the Company currently adopted the simplified approach of IFRS 9 in order to account for the expected loss of accounts receivable. Based on currently available information on the assessment undertaken to date, the Company effect of adopting this standard in the consolidated financial statements is approximately between Ps. 2,500,000 and Ps. 2,750,000 reflecting an adjustment to the net fair value of trade accounts receivables and beginning of the year retained earnings.

IFRS 15, Revenue from Contracts with Customers

In May 2014, the IASB issued the new standard IFRS 15 “Revenue from Contracts with Customers”. The new standard for revenue recognition aims at standardizing the multitude of regulations previously included in various standards, and may require more judgment and estimates than with the revenue recognition processes that are required under the existing revenue recognition standards. The amount of revenue recognized and its timing is determined based on a five-step model. IFRS 15 contains additional qualitative and quantitative disclosure obligations. These are aimed at enabling users of the financial statements to understand the nature, amount, timing and uncertainties of revenue and the resulting cash flows arising from contracts with customers. Under IFRS 15, revenue is recognized for an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or providing services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue.

IFRS allows two adoption methods under IFRS 15: retrospectively to each reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the standard in beginning retained earnings. The Company will adopt the new standard on the required effective date as of January 1, 2018, using the “modified retrospective method”.

 

F-83


Table of Contents

IFRS 15 provides presentation and disclosure requirements which are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and increases the volume of disclosures required in Company’s consolidated financial statements.

Under that method, the Company will apply the rules to all contracts existing as of January 1, 2018, recognizing in retained earnings an adjustment for the cumulative effect of the change and it will be providing additional disclosures comparing results to previously recorded revenue on its 2018 consolidated financial statements.

During 2017 the Company performed an impact assessment and analysis of the new standard IFRS 15. The most significant judgements and impacts upon the adoption of IFRS 15 include the following topics:

a) Service revenues and sale of equipment

The Company provides fixed and mobile services. These services are offered independently in contracts with customers or together with the sale of handsets (mobile) under the postpaid model. Before 2018, the Company accounted for equipment and service as separated performance obligations and assigned the consideration to both performance obligations using the fair value for each element.

In accordance with IFRS 15, the transaction price should be assigned to the different performance obligations based on their relative standalone selling price.

The Company concluded that regarding the provided services, it has market observable information, to determine the standalone selling price of the services. On the other hand, in the case of the sale of bundled mobile phones sold (including service and handset) by the Company, the allocation of the sales will be done based on their relative standalone selling price of each individual component related to the total bundled price. The result is that more equipment revenue will be recognized at the moment of a sale and, therefore, less service revenue from the monthly fee will be recognized under the new standard.

The Company concluded as well that the provided services are satisfied over the time of the contract period, given that the customer simultaneously receives and consumes the benefits provided by the Company.

In connection with the sale of handsets, the Company will recognize the revenue at the moment in which it transfers control of such devices to the customer, which is the time of the physical delivery, and accordingly a higher revenue will be recognized at the beginning of the contract.

Additionally, the Company sells to its customers bundles of different services (fixed line, mobile, broad band internet, streaming and pay TV, among others). Such service bundles accomplish the criteria mentioned in IFRS 15 of being substantially similar and of having the same transfer pattern which is why the Company concluded that the revenue from these different services offered to its customers will be considered as a single performance obligation with revenue being recognized over the time.

b) Revenue from goods sold

Under IFRS 15, for those contracts with customers in which generally the sale of equipment and other electronic equipment is a single performance obligation, the Company recognizes the revenue at the moment when it transfers control to the customer which generally occurs when such goods are delivered. The latter is consistent with the previous accounting policy.

c) Contract costs

The Company pays commissions to its distributors for obtaining new customers, such commissions are expensed as incurred under the previous accounting. Under IFRS 15, are considered incremental contract acquisition costs that will be capitalized and will be amortized over the expected period of benefit, during the average duration of customer contracts.

 

F-84


Table of Contents

d) Significant financial component

The Company frequently sells equipment under a financing model ranging from 12 to 36 months. According to IFRS 15, if the price of the product on credit is higher than the one paid upfront, the existence of an interest component is considered. Such amount will be recognized by the Company as a separate line in revenue as long as it is significant.

e) Contract completion costs

The Company charges installation costs to its customers, such costs are currently recognized as expenses in the moment in which control to the customer is transferred, however, if the installation costs are part of a single performance obligation together with the telecommunication services, these costs will amortized during the average lifetime of the contracts.

As a result of the analysis prepared by the Company of the impact of the adoption of the new criteria for revenue recognition, required by IFRS 15, the Company estimated that the initial recognition will increase its equity between Ps. 30,000,000 and Ps. 32,000,000, approximately, primarily related to the deferral of contract costs.

The Company has also identified and implemented changes to its accounting policies and practices, systems and controls, as well as designated and implemented specific controls over its evaluation of the impact of the new guidance the company, including the cumulative effect calculation, disclosure requirements and the collection of relevant data into the reporting process.

IFRS 16, Leases

In January 2016, the IASB issued the new accounting standard, IFRS 16 Leases. The fundamental changes in this new standard affect the lessees’ recognition of leases in the financial statements. Generally, all leases have to be recognized based on the “right of use approach”.

The new standard is effective for fiscal years beginning on or after January 1, 2019, with early adoption permitted. The standard includes two recognition exemptions for lessees — leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

IFRS 16 also requires lessees to make more extensive disclosures than under IAS 17.

According to the initial assessment made by the Company, the primary effect of the new standard will be to require the Company to establish a liability and a right of use asset equal to the value of most of the Company’s leases that are currently accounted for as operating leases.

Based on a preliminary analysis in process and subject to changes, the Company may need to record on the consolidated statement of financial position, liabilities and right of use assets of operating leases as disclosed in Note 16a under non-cancellable operating leases. However this preliminary analysis has not been finalized and is subject to change.

 

F-85


Table of Contents

In December 2016, the IASB issued IFRIC Interpretation 22 — Foreign Currency Transactions and Advance Consideration which addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. The interpretation is effective January 1, 2018. Company does not expect a material impact to our consolidated financial statements upon adoption of the interpretation.

In May 2017, the IASB issued IFRS 17 — Insurance Contracts (“IFRS 17”) , which replaces IFRS 4 Insurance Contracts . IFRS 17 requires all insurance contracts to be accounted for in a consistent manner and insurance obligations to be accounted for using current values, instead of historical cost. The new standard requires current measurement of the future cash flows and the recognition of profit over the period that services are provided under the contract. IFRS 17 also requires entities to present insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses, and requires an entity to make an accounting policy choice of whether to recognize all insurance finance income or expenses in profit or loss or to recognize some of those income or expenses in other comprehensive income. The standard is effective for annual periods beginning on or after January 1, 2021 with earlier adoption permitted. Company is currently evaluating the impact of adoption on its consolidated financial statements.

In June 2017, the IASB issued IFRIC Interpretation 23 — Uncertainty over Income Tax Treatment , (the “Interpretation”), which clarifies application of recognition and measurement requirements in IAS 12 — Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses the following: (i) whether an entity considers uncertain tax treatments separately, (ii) the assumptions an entity makes about the examination of tax treatments by taxation authorities, (iii) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and (iv) how an entity considers changes in facts and circumstances. The Interpretation does not add any new disclosure requirements, however it highlights the existing requirements in IAS 1 — Presentation of Financial Statements , related to disclosure of judgments, information about the assumptions made and other estimates and disclosures of tax-related contingencies within IAS 12 — Income Taxes . The Interpretation is applicable for annual reporting periods beginning on or after January 1, 2019 and it provides a choice of two transition approaches: (i) retrospective application using IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors , only if the application is possible without the use of hindsight, or (ii) retrospective application with the cumulative effect of the initial application recognized as an adjustment to equity on the date of initial application and without restatement of the comparative information. The date of initial application is the beginning of the annual reporting period in which an entity first applies this Interpretation. Company is currently evaluating the implementation and the impact of adoption of the interpretation on our consolidated financial statements.

In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9) , allowing companies to measure particular prepayable financial assets with so-called negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss, effective January 1, 2019. Company is currently evaluating the impact of adoption on the consolidated financial statements.

In October 2017, the IASB issued Long-term interests in associates and joint ventures (Amendments to IAS 28) , which clarifies that companies account for long-term interests in an associate or joint venture, to which the equity method is not applied, using IFRS 9, effective January 1, 2019. Company is currently evaluating the impact of adoption on the consolidated financial statements.

In December 2017, the IASB issued the Annual Improvements to IFRS’ 2015-2017 , a series of amendments to IFRS’ in response to issues raised mainly on IFRS 3 — Business Combinations , which clarifies that a company remeasure its previously held interest in a joint operation when it obtains control of the business, on IFRS 11 — Joint Arrangements , a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business, on IAS 12 — Income Taxes , which clarifies that all income tax consequences of dividends (i.e. distribution of profits) should be recognized in profit or loss, regardless of how the tax arises, and on IAS 23 — Borrowing Costs , which clarifies that a company treats as part of general

 

F-86


Table of Contents

borrowing any borrowing originally made to develop an asset when the asset is ready for its intended use or sale. The effective date of the amendments is January 1, 2019. Company is currently evaluating the impact of adoption on the consolidated financial statements.

In February 2018, the IASB issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) which specifies how companies determine pension expenses when changes to a defined benefit pension plan occur. IAS 19 Employee Benefits specifies how a company accounts for a defined benefit plan. When a change to a plan-an amendment, curtailment or settlement-takes place, IAS 19 requires a company to remeasure its net defined benefit liability or asset. The amendments require a company to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments are effective on or after 1 January 2019. The Company is currently evaluating the impact of adoption on the consolidated financial statements.

24. Subsequent Events

a) On January 3, 2018, the Company decided to call and redeem the Telekom Austria undated subordinated Fixed Rate Bond (hybrid bond) amounting to 600 million of Euros, according to the terms and conditions of the bond, at its nominal value plus all interest on February 1, 2018, the first call date. See Note 19.

b) On March 5, 2018 América Móvil received the resolution issued by the Federal Telecommunications Institute (“IFT”) in which it provides the final terms of implementation under which its subsidiaries Telmex and Telnor must legally and functionally separate the provision of regulated wholesale fixed services, through the creation of (i) new wholly-owned subsidiaries with an independent corporate structure, bodies and governance and (ii) a wholesale unit within Telmex and Telnor. The resolution provides for a 2-year implementation period with specific events and dates regarding the separation to be achieved during such 2-year period. We have presented a series of appeals to the separation order issued by the IFT. However, given that under Mexican law IFT’s determinations are not subject to a stay or suspension pending a final resolution to our legal challenges, the separation ordered by the IFT shall be complied with and therefore the separation shall be implemented as ordered under the resolution. The Company is in the process of evaluating the impact of the resolution and can not yet estimate its impact on its consolidated financial statements.

25. Supplemental Guarantor Information

Condensed Consolidating Financial Information

The following consolidating information presents condensed consolidating statements of financial position as of December 31, 2016 and 2017 and condensed consolidating statements of comprehensive income and cash flows for each of the three years in the period ended December 31, 2017 of the Company and Telcel (the “wholly-owned Guarantor Subsidiary”). The unconsolidated financial statements of América Móvil and Telcel reflect their investments in subsidiaries on the basis of the equity method. These unconsolidated entities are the Guarantors of most of América Móvil’s consolidated obligations. The guarantees of the Guarantor are full and unconditional.

 

F-87


Table of Contents

The Company’s consolidating condensed financial information for the (i) Company; (ii) its wholly-owned guarantor subsidiary Telcel (on standalone basis), which is a wholly and unconditional guarantor under the Senior Notes; (iii) the combined non-guarantor subsidiaries; iv) eliminations and v) the Company’s consolidated financial statements are as follows:

Condensed consolidating statements of financial position

 

    As of December 31, 2016  
    Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Assets:

         

Cash and cash equivalents

  Ps. 4,107,645     Ps. 1,948,159     Ps. 17,162,579     Ps. —     Ps. 23,218,383  

Marketable securities

    11,716,039       —         43,141,118       —         54,857,157  

Accounts receivable, net

    41,086,859       23,541,672       142,056,406       (1,347     206,683,590  

Related parties

    271,373,391       14,461,731       379,358,127       (664,452,757     740,492  

Inventories, net

    323,642       10,246,083       26,575,972       (274,405     36,871,292  

Other current assets

    —         951,739       18,586,354       —         19,538,093  

Property, plant and equipment, Net

    2,774,540       24,124,644       674,290,882       —         701,190,066  

Investments in associated companies

    704,272,725       134,150,348       59,589,480       (894,409,069     3,603,484  

Intangible assets and other non-current assets, net

    11,734,707       25,653,093       430,951,917       —         468,339,717  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  Ps.   1,047,389,548     Ps.   235,077,469     Ps.   1,791,712,835     Ps.  (1,559,137,578   Ps.   1,515,042,274  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Short-term debt and current portion of long-term debt

  Ps. 57,213,648     Ps. —     Ps. 25,393,611     Ps. —     Ps. 82,607,259  

Current liabilities

    222,336,894       178,205,640       643,759,333       (656,905,877     387,395,990  

Long-term debt

    555,475,368       —         69,718,776       —         625,194,144  

Other non-current liabilities

    3,448,396       885,834       152,707,752       (8,220,868     148,821,114  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  Ps. 838,474,306     Ps. 179,091,474     Ps. 891,579,472     Ps. (665,126,745   Ps. 1,244,018,507  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to equity holders of the parent

    208,915,242       55,985,995       714,469,820       (770,455,814     208,915,243  

Non-controlling interests

    —         —         185,663,543       (123,555,019     62,108,524  

Total equity

    208,915,242       55,985,995       900,133,363       (894,010,833     271,023,767  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  Ps. 1,047,389,548     Ps. 235,077,469     Ps. 1,791,712,835     Ps.  (1,559,137,578   Ps. 1,515,042,274  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-88


Table of Contents
    As of December 31, 2017  
    Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Assets:

         

Cash and cash equivalents

  Ps. 7,018,559     Ps. 3,553,352     Ps. 13,698,562     Ps. —     Ps. 24,270,473  

Marketable securities

    10,303,535       —         48,817,141       —         59,120,676  

Accounts receivable, net

    9,874,652       24,064,936       167,873,940       —         201,813,528  

Related parties

    208,240,067       957,704       503,895,549       (712,225,090     868,230  

Inventories, net

    264,649       16,700,837       21,844,079       —         38,809,565  

Other current assets

    17,805,747       922,245       (1,375,246     —         17,352,746  

Property, plant and equipment, Net

    1,996,721       24,287,904       650,058,573       —         676,343,198  

Investments in associated companies

    747,771,790       35,569,788       3,457,152       (783,063,558     3,735,172  

Intangible assets and other non-current assets, net

    4,104,268       73,557,904       386,236,092       —         463,898,264  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  Ps.   1,007,379,988     Ps.   179,614,670     Ps.   1,794,505,842     Ps.   (1,495,288,648   Ps.   1,486,211,852  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

         

Short-term debt and current portion of long-term debt

  Ps. 34,345,398     Ps. —     Ps. 17,400,443     Ps. —     Ps. 51,745,841  

Current liabilities

    161,940,198       41,304,845       797,880,314       (639,534,701     361,590,656  

Long-term debt

    547,728,176       —         98,410,882       —         646,139,058  

Other non-current liabilities

    69,201,904       132,728,838       40,909,234       (76,737,196     166,102,780  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  Ps. 813,215,676     Ps. 174,033,683     Ps. 954,600,873     Ps. (716,271,897   Ps. 1,225,578,335  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity attributable to equity holders of the parent

    194,164,312       5,580,987       741,988,231       (747,569,218     194,164,312  

Non-controlling interests

    —         —         97,916,738       (31,447,533     66,469,205  

Total equity

    194,164,312       5,580,987       839,904,969       (779,016,751     260,633,517  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  Ps. 1,007,379,988     Ps. 179,614,670     Ps. 1,794,505,842     Ps. (1,495,288,648   Ps. 1,486,211,852  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-89


Table of Contents

Condensed consolidating statements of comprehensive income

For the year ended December 31, 2015

 

     Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Total revenues

   Ps.   173,615,615     Ps.   157,930,068     Ps.   743,147,639     Ps.   (180,955,583   Ps.   893,737,739  

Total cost and operating expenses

     126,724,721       142,902,403       663,102,125       (180,404,671     752,324,578  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     46,890,894       15,027,665       80,045,514       (550,912     141,413,161  

Interest (expense) income, net

     (16,668,472     (9,031,432     (872,237     227,781       (26,344,360

Foreign currency exchange (loss) gain, net

     (51,209,235     (2,060,917     (25,727,836     —         (78,997,988

Other financing cost, net

     14,115,563       —         7,380,753       —         21,496,316  

Income tax

     1,150,992       1,747,302       16,281,357       —         19,179,651  

Equity interest in net income of associated companies

     43,077,014       (4,722,363     (2,534,350     (37,246,997     (1,426,696
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss) for year

   Ps. 35,054,772     Ps. (2,534,349   Ps. 42,010,487     Ps. (37,570,128   Ps. 36,960,782  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distribution of the net profit (loss) to:

          

Equity owners of holding company

   Ps. 35,054,772     Ps. (2,534,349   Ps. 41,711,424     Ps. (39,177,075   Ps. 35,054,772  

Non-controlling interest

     —         —         299,063       1,606,947       1,906,010  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

   Ps. 35,054,772     Ps. (2,534,349   Ps. 42,010,487     Ps. (37,570,128   Ps. 36,960,782  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) items:

          

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent years:

          

Effect of translation of foreign entities

   Ps. (34,224,932   Ps. (4,664,901   Ps. (34,129,089   Ps. 37,412,602     Ps. (35,606,320

Effect of fair value of derivatives, net of deferred taxes

     37,011       —         22,482       (21,998     37,495  

Items not to be reclassified to profit or loss in subsequent years:

          

Remeasurement of defined benefit plan, net of income tax effect

     (17,791,354     —         (10,750,136     10,561,072       (17,980,418

Available for sale

     173,540       —         (169,529     —         4,011  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income items for the period

     (51,805,735     (4,664,901     (45,026,272     47,951,676       (53,545,232
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

   Ps. (16,750,963   Ps. (7,199,250   Ps. (3,015,785   Ps. 10,381,548     Ps. (16,584,450
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income for the period attributable to:

          

Equity holders of the parent

   Ps. (16,750,963   Ps. (7,199,250   Ps. (10,304,830   Ps. 17,504,080     Ps. (16,750,963

Non-controlling interests

     —         —         7,289,045       (7,122,532     166,513  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Ps. (16,750,963   Ps. (7,199,250   Ps. (3,015,785   Ps. 10,381,548     Ps. (16,584,450
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-90


Table of Contents

Condensed consolidating statements of comprehensive income

For the year ended December 31, 2016

 

     Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Total revenues

   Ps.   137,236,301     Ps.   173,714,225     Ps.   857,137,822     Ps.  (192,675,860   Ps.   975,412,488  

Total cost and operating expenses

     117,835,634       160,949,691       778,483,079       (191,466,226     865,802,178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     19,400,667       12,764,534       78,654,743       (1,209,634     109,610,310  

Interest (expense) income, net

     (12,331,095     97,314       (17,207,855     (227,781     (29,669,417

Foreign currency exchange (loss) gain, net

     (46,625,392     (5,853,669     12,051,654       —         (40,427,407

Other financing cost, net

     (10,475,673     (11,203,533     5,453,365       —         (16,225,841

Income tax

     (7,712,179     1,139,631       17,971,404       —         11,398,856  

Equity interest in net income of associated companies

     50,968,741       (1,342,073     (6,677,059     (42,759,659     189,950  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss) for year

   Ps. 8,649,427     Ps. (6,677,058   Ps. 54,303,444     Ps. (44,197,074   Ps. 12,078,739  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distribution of the net profit (loss) to:

          

Equity owners of holding company

     8,649,427       (6,677,058     50,049,280       (43,372,222     8,649,427  

Non-controlling interest

     —         —         4,254,164       (824,852     3,429,312  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

   Ps. 8,649,427     Ps. (6,677,058   Ps. 54,303,444     Ps. (44,197,074   Ps. 12,078,739  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income items:

          

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent years:

          

Effect of translation of foreign entities

     104,178,880       755,978       108,291,984       (105,728,134     107,498,708  

Effect of fair value of derivatives, net of deferred taxes

     48,496       —         30,206       (29,573     49,129  

Items not to be reclassified to profit or loss in subsequent years:

          

Remeasurement of defined benefit plan, net of income tax effect

     14,771,770       (12,300     7,477,926       (7,463,997     14,773,399  

Available for sale

     (6,673,731     —         (6,673,731     6,673,731       (6,673,731
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income items for the period

   Ps. 112,325,415     Ps. 743,678     Ps. 109,126,385     Ps. (106,547,973   Ps. 115,647,505  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

   Ps. 120,974,842     Ps. (5,933,380   Ps. 163,429,829     Ps. (150,745,047   Ps. 127,726,244  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income for the period attributable to:

          

Equity holders of the parent

   Ps. 120,974,842     Ps. (5,933,380   Ps. 150,900,984     Ps. (144,967,604   Ps. 120,974,842  

Non-controlling interests

     —         —         12,528,845       (5,777,443     6,751,402  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Ps. 120,974,842     Ps. (5,933,380   Ps. 163,429,829     Ps. (150,745,047   Ps. 127,726,244  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-91


Table of Contents

Condensed consolidating statements of comprehensive income

For the year ended December 31, 2017

 

    Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Total revenues

  Ps.   160,057,511     Ps.   170,991,493     Ps.   887,951,615     Ps.  (197,367,084   Ps.   1,021,633,535  

Total cost and operating expenses

    123,548,341       163,152,868       832,429,198       (197,640,175     921,490,232  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    36,509,170       7,838,625       55,522,417       273,091       100,143,303  

Interest (expense) income, net

    (16,779,235     (12,365,116     1,810,523       (41,305     (27,375,133

Foreign currency exchange (loss) gain, net

    (15,223,111     1,320,667       83,493       —         (13,818,951

Other financing cost, net

    6,775,455       —         (8,719,215     —         (1,943,760

Income tax

    14,201,399       1,386,519       9,353,593       —         24,941,511  

Equity interest in net income of associated companies

    32,245,041       (8,977,146     (13,466,845     (9,709,665     91,385  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss) for year

  Ps. 29,325,921     Ps. (13,569,489   Ps. 25,876,780     Ps. (9,477,879   Ps. 32,155,333  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distribution of the net profit (loss) to:

         

Equity owners of holding company

    29,325,921       (13,569,489     21,417,549       (7,848,060     29,325,921  

Non-controlling interest

    —         —         4,459,231       (1,629,819     2,829,412  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

  Ps. 29,325,921     Ps. (13,569,489   Ps. 25,876,780     Ps. (9,477,879   Ps. 32,155,333  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income items:

         

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent years:

         

Effect of translation of foreign entities

    (21,683,333     (1,897,936     (18,309,877     23,581,269       (18,309,877

Effect of fair value of derivatives, net of deferred taxes

    12,292       —         12,292       (12,292     12,292  

Items not to be reclassified to profit or loss in subsequent years:

         

Remeasurement of defined benefit plan, net of income tax effect

    (7,075,606     (8,439     (7,046,089     7,084,045       (7,046,089

Available for sale

    622,424       —         622,424       (622,424     622,424  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income items for the period

  Ps. (28,124,223   Ps. (1,906,375   Ps. (24,721,250   Ps. 30,030,598     Ps. (24,721,250
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

  Ps. 1,201,698     Ps. (15,475,864   Ps. 1,155,530     Ps. 20,552,719     Ps. 7,434,083  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income for the period attributable to:

         

Equity holders of the parent

  Ps. 1,201,698     Ps. (15,475,864   Ps. (5,076,855   Ps. 20,552,719     Ps. 1,201,698  

Non-controlling interests

    —         —         6,232,385       —         6,232,385  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Ps. 1,201,698     Ps. (15,475,864   Ps. 1,155,530     Ps. 20,552,719     Ps. 7,434,083  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-92


Table of Contents

Condensed consolidating statements of cash flows

For the year ended December 31, 2015

 

     Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Operating activities:

          

Profit before taxes

   Ps. 36,205,763     Ps. (787,047   Ps. 58,291,845     Ps. (37,570,128   Ps. 56,140,433  

Non-cash items

     (4,256,606     20,449,298       141,713,565       37,246,997       195,153,254  

Changes in working capital:

     (72,746,155     (1,580,787     (13,562,885     323,131       (87,566,696
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows (used in) provided by operating activities

   Ps.  (40,796,998   Ps. 18,081,464     Ps. 186,442,525     Ps. —     Ps. 163,726,991  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Purchase of property, plant and equipment

     1,498       (6,894,071     (121,147,340     —         (128,039,913

Acquisition of intangibles

     —         (3,292,490     (20,240,336     —         (23,532,826

Dividends received from associates

     74,901,349       —         —         (73,255,637     1,645,712  

Proceeds from sale of plant, property and equipment

     —         —         27,329       —         27,329  

Acquisition of business, net of cash acquired

     —         —         (3,457,153     —         (3,457,153

Partial sale of shares of associate company

     —         —         633,270       —         633,270  

Spin of company

     —         (216,626     21,216,626       —         21,000,000  

Investment in associates companies

     (2,213,277     (1,404,489     3,439,801       —         (177,965
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by (used in) investing activities

   Ps. 72,689,570     Ps.  (11,807,676   Ps.  (119,527,803   Ps.  (73,255,637   Ps.  (131,901,546
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Bank loans, net

     50,879,779       —         5,083,236       —         55,963,015  

Acquisition of no controlling interest

     (34,970     —         (996,079     —         (1,031,049

Interest paid

     (23,379,273     (6,200,848     (3,250,311     —         (32,830,432

Repurchase of shares and others

     (34,684,520     —         241,436       —         (34,443,084

Payment of dividends

     (36,524,317     —         (74,090,920     73,255,637       (37,359,600

Derivative financial instruments

     —         —         (503,444     —         (503,444
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows (used in) financing activities

   Ps. (43,743,301   Ps. (6,200,848   Ps. (73,516,082   Ps. 73,255,637     Ps. (50,204,594
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (11,850,729     72,940       (6,601,360     —         (18,379,149

Adjustment to cash flow for exchange rate differences

     —         —         (2,934,522     —         (2,934,522

Cash and cash equivalents at beginning of the period

     25,654,313       1,395,096       39,424,294       —         66,473,703  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   Ps. 13,803,584     Ps. 1,468,036     Ps. 29,888,412     Ps. —     Ps. 45,160,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-93


Table of Contents

Condensed consolidating statements of cash flows

For the year ended December 31, 2016

 

     Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Operating activities:

          

Profit before taxes

   Ps. 937,247     Ps. (5,537,427   Ps. 28,077,775     Ps. —     Ps. 23,477,595  

Non-cash items

     (997,587     19,800,396       209,821,118       —         228,623,927  

Changes in working capital:

     74,520,320       9,130,768       (93,359,195     (6,595,361     (16,303,468
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by operating activities

   Ps. 74,459,980     Ps. 23,393,737     Ps. 144,539,698     Ps. (6,595,361   Ps. 235,798,054  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Purchase of property, plant and equipment

     —         (7,860,232     (130,846,925     —         (138,707,157

Acquisition of intangibles

     —         (4,947,506     (11,369,232     —         (16,316,738

Dividends received from associates

     21,950       —         5,988,938       (270,796     5,740,092  

Proceeds from sale of plant, property and equipment

     20,078       —         95,522       —         115,600  

Acquisition of business, net of cash acquired

     —         (2,796,254     (1,823,813     2,796,254       (1,823,813

Partial sale of shares of associate company

     756,444       —         2,796,254       (3,552,698     —    

Investment in associates companies

     —         663,203       (666,690     —         (3,487
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by (used in) investing activities

   Ps. 798,472     Ps.  (14,940,789   Ps.  (135,825,946   Ps.  (1,027,240   Ps.  (150,995,503
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Bank loans, net

     (39,598,698     —         (21,792,115     —         (61,390,813

Acquisition of no controlling interest

     —         —         (2,280,278     —         (2,280,278

Interest paid

     (24,826,139     (7,972,827     (5,922,267     6,595,361       (32,125,872

Paid-In capital

     —         —         (756,444     756,444       —    

Sale of shares of subsidiaries

     —         —         6,323,336       —         6,323,336  

Repurchase of shares and others

     (7,092,385     —         71,138       —         (7,021,247

Payment of dividends

     (13,437,168     —         (643,585     270,796       (13,809,957

Derivative financial instruments

     —         —         (351,213     —         (351,213
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows (used in) financing activities

   Ps.  (84,954,390   Ps. (7,972,827   Ps. (25,351,428   Ps. 7,622,601     Ps. (110,656,044
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (9,695,938     480,121       (16,637,676     —         (25,853,493

Adjustment to cash flow for exchange rate differences

     —         —         3,911,844       —         3,911,844  

Cash and cash equivalents at beginning of the period

     13,803,584       1,468,036       29,888,412       —         45,160,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   Ps. 4,107,645     Ps. 1,948,159     Ps. 17,162,579     Ps. —     Ps. 23,218,383  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-94


Table of Contents

Condensed consolidating statements of cash flows

For the year ended December 31, 2017

 

     Parent     Wholly-owned
Guarantor
Subsidiary
    Combined
non-guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Operating activities:

          

Profit before taxes

   Ps. 43,527,320     Ps.  (12,182,970   Ps. 35,230,373     Ps. (9,477,879   Ps. 57,096,844  

Non-cash items

     (17,017,287     30,000,109       171,062,158       11,635,563       195,680,543  

Changes in working capital:

     (18,973,478     (9,486     (66,062,629     50,040,581       (35,005,012
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by operating activities

   Ps. 7,536,555     Ps. 17,807,653     Ps. 140,229,902     Ps. 52,198,265     Ps. 217,772,375  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Purchase of property, plant and equipment

     16,526       (5,571,410     (113,630,253     —         (119,185,137

Acquisition of intangibles

     —         (3,053,345     (14,485,196     —         (17,538,541

Dividends received from associates

     21,465,687       970,000       2,385,559       (22,435,687     2,385,559  

Proceeds from sale of plant, property and equipment

     —         —         133,349       —         133,349  

Acquisition of business, net of cash acquired

     —         (3,381,505     (3,497,288     —         (6,878,793

Investment in associates companies

     —         1,925,898       —         (1,925,898     —    

Sale of associated company

     —         —         340,040       —         340,040  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by (used in) investing activities

   Ps. 21,482,213     Ps. (9,110,362   Ps.  (128,753,789   Ps.  (24,361,585   Ps.  (140,743,523
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Bank loans, net

     13,548,138       —         16,382,838       (57,364,465     (27,433,489

Acquisition of no controlling interest

     —         —         (11,930     —         (11,930

Interest paid

     (24,009,216     (7,092,098     (7,187,225     7,092,098       (31,196,441

Repurchase of shares and others

     (1,240,028     —         6,657       —         (1,233,371

Payment of dividends

     (14,406,748     —         (24,120,329     22,435,687       (16,091,390

Derivative financial instruments

     —         —         (71,474     —         (71,474
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in financing activities

   Ps.  (26,107,854   Ps. (7,092,098   Ps. (15,001,463   Ps.  (27,836,680   Ps. (76,038,095
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     2,910,914       1,605,193       (3,525,350     —         990,757  

Adjustment to cash flow for exchange rate differences

     —         —         61,333       —         61,333  

Cash and cash equivalents at beginning of the period

     4,107,645       1,948,159       17,162,579       —         23,218,383  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   Ps. 7,018,559     Ps. 3,553,352     Ps. 13,698,562     Ps. —     Ps. 24,270,473  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-95


Table of Contents

 

 

 

 

 


Table of Contents

LOGO

Exhibit 1.1

UNOFFICIAL TRANSLATION | IN THE EVENT OF CONFLICT BETWEEN THE

ENGLISH AND SPANISH VERSION, THE SPANISH VERSION WILL PREVAIL

BYLAWS OF AMÉRICA MÓVIL, SOCIEDAD

ANÓNIMA BURSÁTIL DE CAPITAL VARIABLE

ARTICLES

ONE. The name of the Company shall be “AMÉRICA MÓVIL”, which shall be followed by the words “SOCIEDAD ANÓNIMA BURSÁTIL DE CAPITAL VARIABLE” or its abbreviation, “S.A.B. DE C.V.”

TWO. The domicile of the Company is Mexico City, Federal District; provided, however, that the Company shall be authorized to establish offices, branches or agencies in any other jurisdiction within the United Mexican States and abroad; to submit itself, for purposes of any act, contract or agreement, to any foreign laws or the laws of any other State of the United Mexican States, and to the respective jurisdiction of the competent courts thereof; to submit itself, for purposes of receiving all types of notices or service of any court or out-of-court proceedings, to any contractual domicile in the United Mexican States or abroad; and to appoint, to such or any other effect, any general or special attorneys-in-fact outside the United Mexican States, without any of the foregoing being construed as a change of domicile.

THREE. The purposes of the Company are:

 

  (a) To promote, incorporate, organize, exploit, acquire and participate in the capital stock or assets of all types of civil or commercial companies, partnerships and industrial, commercial, service or other entities, whether domestic or foreign, and to participate in the management or liquidation thereof.

 

  (b) To acquire, by any legal means, any shares of stock of and rights, participations or partnership interests in, all types of civil or commercial companies, whether upon their incorporation or at any time thereafter; to sell, transfer and negotiate with such shares, participations and partnership interests, including any other negotiable instruments; and, for as long as the shares of stock of the Company are registered with the National Securities Registry, to acquire its own shares of stock in accordance with the general provisions issued by the National Banking and Securities Commission.

 

  (c) To build, install, maintain, operate and exploit public telecommunication networks, in order to provide any telecommunication services and any services involving the transfer of video, voice, data or any other type of content, provided that the Company has obtained the concessions and permits required to such effect pursuant to the law.

 


  (d) To acquire the direct ownership of any real property, subject to the provisions of Article 27 (twenty-seven) of the Political Constitution of the United Mexican States and the Foreign Investment Law and its Regulations.

 

  (e) To lease, whether as lessor or lessee, all types of real property and rights thereto, and to enter into all types of legal transactions to obtain or permit the use and/or enjoyment of such property.

 

  (f) To acquire, sell and enter into any legal transaction relating to, any personal property, personal rights, machinery, equipment and tools, as may be necessary or convenient to achieve its corporate purposes.

 

  (g) To carry out any legal acts with respect to any credits or rights.

 

  (h) To carry out any legal acts with respect to any patents, trademarks and trade names, or to any other intellectual property rights.

 

  (i) To provide and receive all types of advisory and technical, scientific and administrative assistance.

 

  (j) To issue bonds and debentures.

 

  (k) To establish branches, agencies and offices within the United Mexican States or abroad.

 

  (l) To act as agent, representative or commission agent for any Mexican or foreign individuals or entities.

 

  (m) To lend or borrow money.

 

  (n) To accept, issue, guarantee and endorse all types of credit instruments.

 

  (o) To grant all types of guaranties in respect of third party obligations, including the obligations of its subsidiaries or any unrelated domestic or foreign corporation, including through the creation of liens on real property or the pledge of any trust beneficiary rights, as may be necessary or convenient to achieve its corporate purposes.

 

  (p) To guarantee, by any legal means, including through the creation of liens on real property and the pledge of trust beneficiary rights, with or without consideration, the performance of the obligations of any unrelated domestic or foreign individual or entity, and to act as co-obligor of any unrelated domestic or foreign individual or entity.

 

  (q) To carry out any action or enter into any agreement which is related to its corporate purposes and is permitted for a limited liability company.

 

- 2 -


FOUR. The duration of the Company shall be indefinite.

FIVE. The Company is of Mexican nationality. No foreign individual or entity may hold any shares of or interest in the Company. If for any reason any such person should acquire by any means any one or more such shares or any such interest in violation of the prohibition contained in the preceding sentence, it is hereby agreed that such acquisition shall be null and void and, accordingly, the relevant interest and the certificates representing it shall be cancelled and rendered without any value, and the capital stock shall be reduced in an amount equal to that of the interest so cancelled. All the capital shall at all times be subscribed for by Mexican individuals or entities.

SIX. The capital of the Company is variable. The minimum fixed portion of the capital is $270,049,805.29 (two hundred seventy million forty-nine thousand eight hundred five pesos and twenty-nine cents), divided into 71,063,212,170 (seventy-one billion sixty-three million two hundred twelve thousand one hundred seventy) shares, of which 20,601,632,660 (twenty billion six hundred one million six hundred thirty-two thousand six hundred sixty) are Series “AA” registered shares of common stock, no par value; 558,677,704 (five hundred fifty-eight million six hundred seventy-seven thousand seven hundred four) are Series “A” registered shares of common stock, no par value; and 49,902,901,806 (forty-nine billion nine hundred two million nine hundred one thousand eight hundred six) are Series “L” registered, limited-voting shares, no par value, all of which are fully paid and non-assessable.

The Series “AA” registered shares of common stock, no par value, shall represent no less than 20% (twenty-percent) and no more than 51% (fifty-one percent) of the capital stock) and may only be subscribed or acquired by Mexican nationals; and the Series “L” registered, limited-voting shares, no par value, which are subject to no ownership restrictions, shall represent no more than 80% (eighty percent) of the capital stock.

In the event of an increase in the capital stock, such increase shall be represented by Series “AA” and Series “L” shares in proportion to the number of shares of each such series then outstanding. The Company may issue unsubscribed shares of any series of stock, for their delivery upon subscription.

All of the common shares of the Company, which consist of the Series “AA” shares, must be held at all times by Mexican investors.

The Series “AA” shares may not represent more than 51% (fifty one percent) of the capital stock.

The Series “L” shares shall have no ownership restrictions and, accordingly, may be held by Mexican investors, foreign individuals, entities or economic units, or Mexican corporations where the majority of the capital stock is held by foreign investors or in which such investors have the power, by whichever means, to direct the management of the corporation. The Series “L” shares shall be considered as a neutral investment within the meaning of Article 18 and other applicable provisions of the Foreign Investment Law and, thus, shall not be taken into account for purposes of determining the percentage of the capital stock that is held by foreign investors.

 

- 3 -


The Series “AA” shares, which may only be held by Mexican investors, must represent at all times at least 20% (twenty percent) of the capital stock. The Series “L” shares, which have no ownership restrictions, may not represent at any time more than 80% (eighty percent) of the capital stock.

The Series “AA” shares may only be subscribed or acquired by:

(a) Mexican individuals.

(b) Mexican corporations the bylaws of which preclude foreign investors from participating therein and in which only Mexican individuals and/or Mexican entities the bylaws of which, in turn, preclude foreign investors from participating therein, may participate as shareholders.

(c) Trusts expressly authorized by the competent authorities to hold Series “AA” shares pursuant to the Foreign Investment Law and its Regulations, where (i) a majority of the trust beneficiary rights are held by Mexican individuals or entities that satisfy the requirements set forth in paragraphs (a), (b) and (d) above, or (ii) the Series “AA” shares held in trust represent a minority of the outstanding shares of such series and are required to be voted by the trustee in the same manner as the majority of the Series “AA” shares.

The shares of stock of the Company may not be acquired by any foreign state or government and, in the event of any such an acquisition, the relevant shares shall be rendered null and without value for the holder as of the date of acquisition.

SEVEN. Within their respective series, all shares of stock entitle their holders to the same rights. Each Series “AA” share of common stock entitles its holder to cast one vote during any general shareholders meeting. Series “L” shares shall be entitled to vote only with respect to the limited matters set forth in these bylaws and the relevant stock certificates. All stock certificates shall be manually signed by one (1) or more Directors or, if authorized by the board of directors, shall bear the facsimile signature(s) of such Director(s). In the latter event, an original of the relevant signatures shall be filed with the applicable Public Registry of Commerce. The stock certificates shall bear consecutive numbers, may represent one or more shares and shall have dividend coupons attached. The stock certificates, as well as any provisional certificates, must satisfy the requirements set forth in Article 125 (one hundred twenty five) of the General Law of Business Corporations and Article Five of these bylaws.

EIGHT. Series “L” shares, which shall be issued pursuant to Article 113 of the General Law of Business Corporations, shall have limited voting rights and shall be entitled to a preferred dividend. The Series “L” shares shall be entitled to vote only with respect to the following matters: the extension of the duration of the Company, the early dissolution of the Company, any change in the corporate purpose of the

 

- 4 -


Company, any change of nationality of the Company, the transformation of the Company, any merger with another entity and the cancellation of the registration of the shares of stock of the Company with the National Securities Registry or any foreign stock exchange, excluding any quotation system or other market not organized as a stock exchange.

Holders of a minority of limited voting shares other than those referred to in Article 113 of the General Law of Business Corporations, representing at least ten percent of one or both series of the capital stock, shall be entitled to appoint one Director and his alternate. The appointment of the directors elected by the shareholders referred to in this paragraph may be revoked only if the appointment of all other Directors is also revoked. The right set forth herein must be exercised by means of a written notice to the Chairman or the Secretary of the board of directors, at least two business days prior to the date of the ordinary shareholders meeting that will consider the election, reelection or revocation of the appointment of the members of the board of directors.

If no appointment is made by the minority referred to in the preceding paragraph, the Series “L” shares, voting as a class during a special meeting held to that effect, shall be entitled to appoint two members of the board of directors and their respective alternates; provided, that the aggregate number of directors appointed pursuant to the preceding paragraph and this paragraph may in no event exceed the aggregate percentage of the capital stock that is represented by the Series “L” shares, divided by 10. The person authorized to such effect by the special meeting, shall give to the Chairman of the ordinary shareholders meeting written notice of the names of the individuals appointed as members and alternate members of the board of directors by the holders of the Series “L” shares.

Lastly, the Series “L” shares shall be entitled to attend and cast one vote per share at any extraordinary shareholders meeting called to consider the amendment of Article Twelve of these bylaws, which refers to the cancellation of the registration of the shares of stock of the Company with the National Securities Registry.

All shares entitle their holders to the same financial rights and, accordingly, all shares shall be entitled to participate equally and without any distinction in any dividend, reimbursement, redemption or distribution of whatever nature, subject only to the following:

 

  (a)

Pursuant to Article One Hundred Thirteen of the General Law of Business Corporations, no dividend may be paid in respect of the Series “AA” shares until after an annual dividend equal to five percent of the theoretical value of the Series “L” shares, which is $0.00833 Mex.Cy. (eight point thirty three thousandths of one Peso) per share, or an annual dividend of $0.00042 Mex.Cy. (four point two tenths of a thousandth of one Peso) per share, has been paid to the holders of the Series “L” limited voting shares. Such dividend shall be paid out of the retained earnings of the Company as reflected in the financial statements for its previous fiscal years, as approved by the shareholders meeting pursuant

 

- 5 -


  to Article Nineteen of the General Law of Business Corporations. If no dividends are approved during a given fiscal year, or if the dividends approved during a given fiscal year are less than the aforementioned five percent, the dividend referred to herein shall be paid over subsequent fiscal years in the order set forth above.

 

  (b) If following the payment of the dividend referred to in subparagraph (a) above to the holders of the Series “L” shares, the general shareholders meeting approves any additional dividends, the holders of the Series “AA” shares shall be entitled to receive dividends in an amount equal to the dividends paid to the holders of the Series “L” shares pursuant to subparagraph (a) above during the current fiscal year or any previous year, so as to enable all shareholders to receive the same amount of dividends.

 

  (c) If following the payment of the dividend referred to in subparagraph (b) above to the holders of the Series “AA” shares, and following the receipt or scheduled receipt of dividends in the same amount by all shareholders, the Company approves any additional dividends during the then current fiscal year, then the holders of all Series “AA” and Series “L” shares shall be entitled to receive the same amount of dividends per share and, accordingly, each Series “L” shall receive additional dividends in the same terms, amounts and dates as the dividends paid in respect of the Series “AA” shares.

 

  (d) In the event of liquidation of the Company, the holders of the Series “L” shares shall be entitled to receive any accrued but unpaid preferred, cumulative dividends amounting to five percent of the theoretical value of such shares, as set forth in subparagraph (a) above, prior to the distribution of any available proceeds among all shares of stock. Following payment of the dividend referred to in the preceding sentence, the holders of the Series “AA” shares shall be entitled to receive a dividend per share equal to the dividend paid in respect of the Series “L” shares.

 

  (e) In the event of an increase in the capital stock through the issuance of new Series “L” shares for their subscription and payment in cash or kind, the holders of the outstanding Series “L” shares shall have the right to subscribe such new shares in proportion to their holdings, in accordance with the terms set forth in these bylaws.

 

  (f) The Series “L” shares shall be entitled to participate in any stock dividends approved by the Company on the same terms as the shares of all other series.

NINE. Subject to the provisions contained in these bylaws, the Series “A” shares may be exchanged for Series “L” shares on a one-for-one basis at the request of their holders, upon surrender of the corresponding stock certificates to the Treasurer of the Company for their cancellation.

 

- 6 -


TEN. [Reserved.]

ELEVEN. Subject to the provisions contained in these bylaws, the Series “AA” shares may be exchanged for Series “L” shares on a one-for-one basis at the request of their holders, upon surrender of the corresponding stock certificates to the Treasurer of the Company for their cancellation, provided that such exchange does not result in the Series “AA” shares representing less than 20% (twenty percent) of the capital stock.

TWELVE. The Company shall maintain a stock registry and shall recognize as shareholders only those persons registered as such therein. The Company shall record in such registry, at the request of any interested party and following any necessary verification, any transfer of shares carried out in accordance with these bylaws and the applicable laws.

Pursuant to Article 48 (forty eight) of the Securities Market Law and Article 130 (one hundred thirty) of the General Law of Business Corporations, in order to prevent the direct or indirect acquisition by any shareholder or third party, of any control shares within the meaning of the Securities Market Law, any acquisition of shares, other securities or instruments representing shares, or any rights with respect to shares of the Company, through a single transaction or a series of related transactions carried out over any period of time, shall be subject to the prior approval of the board of directors, in its sole discretion, if the number of shares or the rights subject matter of the proposed acquisition represent or involve a group of related shareholders representing 10% (ten percent) or more of the voting shares of the Company.

For purposes of the above, the person or group of persons interested in acquiring 10% (ten percent) or more of the voting stock of the Company, shall be required to submit a written request for authorization to the Chairman and the Secretary of the board of directors of the Company. Such request shall include, at least, the following information: (i) a statement as to their acceptance of and intent to abide by the bylaws of the Company and the discretional authorization process set forth in the foregoing article; (ii) the number and class of shares currently owned by the person or group of persons intending to acquire the relevant shares; (iii) the number and class of shares subject matter of the proposed acquisition; (iv) the identity and nationality of each prospective buyer; and (v) a statement as to whether they intend to acquire a significant influence in or the control of the Company within the meaning of the Securities Market Law; provided, that the board of directors may request such additional information as it may deem necessary or convenient as a basis for any decision concerning the above.

If the board of directors denies the authorization required pursuant to the foregoing article, it shall designate one (1) or more alternative buyers and such buyers shall be required to pay to the relevant party the price quoted for the shares by the stock exchange. If the shares are not registered with the National Securities Registry, then the price shall be determined in accordance with Article 130 of the General Law of Business Corporations.

 

- 7 -


The board of directors shall issue its decision within not more than 3 (three) months from the date of receipt of the relevant request or, as the case may be, the date of receipt of any additional information, taking into consideration (i) such criteria as may be in the best interest of the Company, its business activities and its long-term prospects and those of its subsidiaries, (ii) that not one (1) or more shareholders of the Company, other than the persons who intend to acquire the control thereof, is precluded from receiving any financial benefits arising as a result of the enforcement of this article; and (iii) that the acquisition of the control of the Company is not restricted in an absolute manner.

The Company may not take any action intended to render ineffective the exercise of the financial rights of the prospective buyer or which violates the provisions contained in the Securities Market Law concerning mandatory tender offers. Notwithstanding the above, any person who acquires shares, other securities or instruments representing shares, or any rights with respect to shares of the Company in violation of the provisions contained in the preceding paragraph, will be required to pay to the Company a penalty in an amount equal to the aggregate price of all the shares or other securities or instruments representing shares of the Company owned by such person, directly or indirectly, or of all the shares subject matter of the prohibited transaction. If the transactions resulting in the acquisition of shares or other securities, instruments or rights representing more than 10% (ten percent) of the capital stock of the Company, do not provide for the payment of any consideration in exchange therefor, the amount of the penalty shall be equal to the market value of such shares or other certificates, instruments or rights if such transactions were carried out without the authorization referred to in the foregoing article.

For purposes of the requirements set forth above, for so long as the shares of stock of the Company are registered with the National Securities Registry, any transaction carried out through the stock exchange shall also be subject to the provisions contained in the Securities Market Law and the rules issued thereunder by the National Banking and Securities Commission. For clarification purposes, any transfer of shares of the Company that does not result in the acquisition of an interest equal to or greater than 10% (ten percent) of the voting stock by a single person or a group of persons acting in a concerted fashion, and which is carried out through a stock exchange, shall not be subject to the prior authorization of the board of directors of the Company.

Any person or group of persons that acquires or increases a material interest in the Company without first conducting a public offering to purchase such shares as required by the Securities Market Law, will not be entitled to exercise the corporate rights pertaining to the relevant voting shares, and the Company may refuse to register such shares in the registry referred to in articles 128 (one hundred twenty eight) and 129 (one hundred twenty nine) of the General Law of Business Corporations.

Consequently, in the event of any acquisition required to be carried out through a public tender offer pursuant to the Securities Market Law, the buyer shall be required to obtain the authorization of the board of directors prior to the commencement of the relevant offering period. In any event involving the acquisition of 10% (ten percent) or more of the shares of stock of the Company, the buyer shall be required to disclose the existence of the prior board approval process set forth herein.

 

- 8 -


In addition, any change of control of the Company shall be subject to the prior written authorization of the board of directors, as evidenced by a resolution adopted by the affirmative vote of a majority of the directors that were elected to their positions prior to the occurrence of any fact which may result in the change of control, during a board meeting held in the terms set forth in these bylaws to consider, expressly, such change.

The provisions contained in the foregoing article do not preclude, but are in addition to, any notice, communication and/or authorization required to be given, delivered or obtained by the prospective buyer pursuant to the applicable law.

For purposes of the foregoing article, the board of directors shall determine, in its own discretion, if various persons are acting as a group or in a concerted fashion. In the event of such determination, such persons shall be considered as a single person for purposes of the foregoing article.

No entity which is controlled by the Company may acquire, directly or indirectly, any shares of stock of the Company or other instruments representing such shares, unless such acquisition (i) is carried out through an investment fund, or (ii) is carried out by an entity in which the Company is the majority shareholder, for purposes of a stock option or stock purchase plan established or designed for the benefit of the officers or employees of such entity or the Company itself, provided that the number of shares so acquired may not exceed 25% (twenty five percent) of the aggregate number of shares of the Company that are then outstanding.

Pursuant to the Securities Market Law and the general rules issued by the National Banking and Securities Commission, for so long as the shares of the Company are registered with the National Securities Registry, in the event of cancellation of such registration, whether at the request of the Company or by resolution of the National Banking and Securities Commission in accordance with the law, the Company shall be required to conduct a public offer in the terms set forth in Article 108 (one hundred eight) of the Securities Market Law, to purchase all the outstanding shares of stock thereof. Such offer shall be addressed exclusively to those persons other than the members of the controlling group of shareholders, who were shareholders or holders of other securities representing such shares (i) as of the date set forth by the National Banking and Securities Commission, if the registration is cancelled by resolution thereof, or (ii) as of the date of the resolution adopted by the general extraordinary shareholders meeting, if the registration is cancelled voluntarily.

If upon completion of the public offering and prior to the cancellation of the registration of the shares of stock of the Company or other securities representing such shares with the National Securities Registry, the Company does not acquire 100% of its outstanding shares of stock, the Company shall be required to transfer to a trust, for a period of at least 6 (six) months as of the date of cancellation of the registration, such amount as may be necessary to purchase, at the same offering price, the shares held by those shareholders that did not tender their shares in connection with the offering.

 

- 9 -


The tender offer described herein shall be made for a price that is at least equal to the highest of (i) the trading price, and (ii) the book value of the shares or other securities representing such shares pursuant to the most recent quarterly report filed with the Commission and the stock exchange prior to the commencement of the offering, provided that such value may be adjusted to the extent of any changes in the criteria applicable to the calculation of the relevant information, in which case such value shall be determined based on the most recent information available to the Company, which shall be accompanied by a certificate as to the basis for the determination of the book value, issued by an authorized officer of the Company.

For purposes hereof, the trading price shall be the weighted average price per volume of all transactions carried out during the last thirty days on which the shares of the Company or other securities representing such shares were quoted prior to the commencement of the offering, within a period not to exceed 6 (six) months. If the number of days on which the shares of the Company or other securities representing such shares were quoted during such period is less than 30 (thirty), only those days on which such shares or other securities were quoted shall be taken into consideration. If no price was quoted during such period, the book value shall apply.

The National Banking and Securities Commission, taking into consideration the financial condition of the Company, may authorize the offering price to be determined pursuant to another basis, provided that such circumstance is approved by the board of directors based on an opinion issued by the corporate governance committee, which opinion shall state the reasons that justify the use of such other price and shall be supported by a report issued by an independent expert.

In any event, the voluntary cancellation of the registration of the shares with the National Securities Registry shall be subject, in addition to the requirements set forth in the Securities Market Law and other applicable laws, to (i) the prior authorization of the National Banking and Securities Commission, and (ii) the authorization of not less than 95% (ninety five percent) of the outstanding shares during a general extraordinary shareholders meeting.

THIRTEEN. Except for any increase or reduction in the capital stock as a result of any repurchase of shares conducted pursuant to the Securities Market Law, the variable portion of the capital stock may be increased or reduced without the need to amend these bylaws, provided, only, that such increase or reduction must be approved by the ordinary shareholders meeting and the minutes of such meeting must be formalized by a notary public without the need to file the relevant public instrument with the applicable Public Registry of Commerce.

The minimum fixed portion of the capital stock may not be increased or reduced except by resolution of the general extraordinary shareholders meeting, subject to the amendment of these bylaws, unless such capital increase or reduction results from the placement of any shares previously repurchased by the Company pursuant to this article. All capital increases and reductions shall be recorded in a book maintained to such effect by the Company.

 

- 10 -


In the event of a capital increase, the shareholders shall have a preemptive right to subscribe the new shares issued or placed by the Company, in proportion to the number of shares of each series held by them. The right set forth in this paragraph must be exercised within 15 (fifteen) days from the publication of the relevant resolution in the Official Gazette of the Federation and a newspaper of general circulation in Mexico City, Federal District. Such right will not be available to the shareholders in the event of a merger, a conversion of convertible debentures, a public placement pursuant to Article 53 (fifty three) of the Securities Market Law and these bylaws, or a sale of shares previously repurchased pursuant to Article 56 (fifty six) of the Securities Market Law.

If any shares remain unsubscribed after the expiration of the period for the exercise of the preemptive rights available to the shareholders pursuant to this article, such shares may be offered to any person for their subscription and payment in the terms and over the periods authorized by the shareholders meeting that approved the capital increase, by the board of directors or by the persons authorized to such effect by the shareholders meeting; provided, that the subscription price offered to any third party may not be lower than subscription price offered to the shareholders.

The variable portion of the capital stock may be reduced by means of a redemption of shares on a pro-rata basis among all series of shares representing such capital, a redemption of such shares as a whole, or a reimbursement of shares to the shareholders, at the price quoted by the stock exchange on the date of the capital reduction. During the shareholders meeting, the shareholders may request that the shares be redeemed on a pro-rata basis, and in the event of an impasse the shares to be redeemed shall be selected by means of a raffle conducted before a notary public or broker.

Following the selection of the shares to be redeemed, the Company will publish in the Official Gazette of the Federation and a newspaper of general circulation in Mexico City, Federal District, a notice indicating the number of shares to be redeemed, the numbers of the stock certificates that will be cancelled or exchanged as a result, and the name of the financial institution where the Company will deposit the redemption price, which shall be available to the shareholders as of the date of publication of the aforementioned notice, without interest.

Pursuant to Article 56 (fifty six) of the Securities Market Law, the Company shall be authorized to repurchase its own shares through the stock exchange, at the then prevailing market price.

Notwithstanding the provisions contained in the General Law of Business Corporations, any repurchased shares held by the Company, as well as any treasury shares, may be publicly offered without the need, in the latter event, for the relevant capital increase to be approved by the shareholders meeting or for such placement to be authorized by the board of directors.

 

- 11 -


The Company may issue unsubscribed shares of any series of its capital stock, which shall be kept in its treasury for their delivery upon subscription.

The Company may also issue unsubscribed shares to be held in its treasury for their placement among the investing public, provided that (i) the general extraordinary shareholders meeting must determine the maximum amount of the capital increase and the conditions for the relevant issue, (ii) the shares issued pursuant hereto must be placed through a public offering, subject to the prior registration of such shares with the Public Registry of Securities, and (iii) the Company must disclose the amount of its paid-in capital together with the amount of its authorized capital that is represented by treasury shares, and provided, further, that the conditions set forth to such effect in the Securities Market Law are satisfied.

FOURTEEN. [Reserved.]

GENERAL SHAREHOLDERS MEETINGS

FIFTEEN. The general shareholders meeting shall be the supreme authority of the Company, and all other corporate bodies shall be subordinated thereto.

SIXTEEN. General shareholders meetings may be ordinary or extraordinary, and shall be held in the domicile of the Company. Extraordinary shareholders meetings shall be those called to consider any of the matters set forth in Article 182 (one hundred eighty two) of the General Law of Business Corporations or the cancellation of the registration of the shares of stock of the Company with the National Securities Registry or with any foreign stock exchange in which such shares may be listed. Shareholders meetings may consider only those matters set forth in the agenda therefor.

Each year, the board of directors shall call a special meeting of the holders of the Series “L” shares to appoint the 2 (two) members of the board of directors that such holders are entitled to appoint, which meeting shall be held prior to the general annual ordinary shareholders meeting. Special meetings of the holders of the Series “L” shares called solely to appoint the aforementioned members of the board of directors, shall be governed by the provisions applicable to general ordinary shareholders meetings held upon second notice, as set forth in Article Twenty Three of these bylaws.

SEVENTEEN. A general ordinary shareholders meeting shall be held at least once a year, on such date as the board of directors may determine but within 4 (four) months following the end of each fiscal year, to consider, in addition to the matters included in the relevant agenda, the matters set forth in Article 181 (one hundred eighty one) of the General Law of Business Corporations.

In addition, pursuant to Article 47 (forty seven) of the Securities Market Law, the ordinary shareholders meeting must approve any proposed transaction by the Company or any entity controlled thereby, involving, during any given year, 20% (twenty percent) or more of the consolidated assets of the Company based on its financial information as of the end of the most recent quarter, regardless of whether such transaction is carried

 

- 12 -


out through a series of simultaneous or successive acts, if by reason of their characteristics such acts may be considered as a single transaction. Holders of the Series “L” shall be entitled to vote during such shareholders meeting.

EIGHTEEN. Shareholders meetings shall be called by the board of directors, the statutory auditors, the Chairman of the board of directors, the Secretary, the members of any committee authorized to such effect, or a competent judge. Pursuant to Article 184 (one hundred eighty four) of the General Law of Business Corporations, holders of at least 10% (ten) percent of the voting shares stock, including any limited voting shares, may request that a general shareholders meeting be called to consider the matters indicated in such request.

NINETEEN. Notices of shareholders meetings shall be published in the Official Gazette of the Federation or a newspaper of general circulation in Mexico City, Federal District, at least 15 (fifteen) days prior to the date of the meeting. All the information and documents pertaining to each of the matters included in the agenda shall be made available to the shareholders, free of charge, as of the date of publication of the notice of the meeting.

TWENTY. Notices of shareholders meetings must indicate the place, date and time of the meeting, must include the agenda therefor, which agenda may not include any item designated as “general matters” or other similar designation, and must be signed by the person or persons issuing such notice.

TWENTY ONE. Shareholders meetings may be held without prior notice if all shares entitled to vote with respect to the matters to be discussed thereat are represented at the meeting.

TWENTY TWO. The quorum for an ordinary shareholders meeting held upon first notice shall be one-half of the shares of common stock, and the resolutions of such meeting shall be valid if approved by a majority of the shares present.

TWENTY THREE. If an ordinary shareholders meeting is not held on the date set therefor, a second notice disclosing such circumstance shall be published, setting a date not earlier than 7 (seven) calendar days from the date set in the first notice, and the new meeting shall take action with respect to the matters set forth in the agenda, by majority of votes, regardless of the number of common shares present.

TWENTY FOUR. The quorum for an extraordinary shareholders meeting held upon first notice to consider any matter with respect to which the holders of the Series “L” shares are not entitled to vote, shall be three-quarters of the common shares entitled to vote with respect to such matters, and the resolutions of such meeting shall be valid if approved by a majority of the common shares present that are entitled to vote thereon.

The quorum for an extraordinary shareholders meeting held to consider any matter with respect to which the holders of the Series “L” shares are entitled to vote, shall be three-quarters of the outstanding shares of stock, and the resolutions of such meeting shall be valid if approved by a majority of the outstanding shares of stock.

 

- 13 -


The quorum for an extraordinary shareholders meeting held upon second or subsequent notice to consider any matter with respect to which the holders of the Series “L” shares are not entitled to vote, shall be a majority of the common shares entitled to vote with respect to such matters, and the resolutions of such meeting shall be valid if approved by a majority of the outstanding shares that are entitled to vote thereon.

The quorum for an extraordinary shareholders meeting held upon second or subsequent notice to consider any matter with respect to which the holders of the Series “L” shares are entitled to vote, shall be a majority of the outstanding shares of stock, and the resolutions of such meeting shall be valid if approved by a majority of the outstanding shares of stock present.

The resolutions of an extraordinary shareholders meeting held upon first or subsequent notice to consider any matter with respect to which the holders of the Series “L” shares are entitled to vote, shall be valid taken if approved by the majorities set forth in the preceding paragraphs, including a majority of the outstanding Series “AA” shares.

Subject to the terms and conditions set forth in Article 199 (one hundred ninety nine) of the General Law of Business Corporations and Article 50 (fifty) of the Securities Market Law, any holder of at least 10% of the voting shares present at a meeting, including any holder of limited voting shares, may request that voting on any matter with respect to which such shareholder does not consider himself to be sufficiently informed, be deferred.

TWENTY FIVE. In order to be entitled to attend and vote during a shareholders meeting, shareholders shall be required to deposit with the Secretary of the Company, at least one (1) day prior to the shareholders meeting, their stock certificates or, as the case may be, any provisional certificates, and to obtain therefrom an admission pass. Stock certificates may also be deposited with a Mexican or foreign credit institution or a Mexican brokerage firm, and in such event the shareholders shall be required to submit to the Secretary of the Company, as a condition for the issuance of the admission pass, evidence of the deposit of such stock certificates with such institution and evidence of the agreement of the relevant credit institution, brokerage firm or securities depositary institution to hold in deposit such stock certificates until it has received a notice from the Secretary of the board of directors to the effect that the relevant shareholders meeting has been held. The Secretary of the Company shall deliver to the relevant shareholders and admission pass stating the name of the shareholder, the number of shares deposited thereby and the number of votes that such shareholder is entitled to cast.

TWENTY SIX. Shareholders may be represented at any meeting thereof by attorneys-in-fact appointed by proxy, provided that the members of the board of directors may not serve as attorneys-in-fact.

 

- 14 -


Pursuant to Article 49 (forty nine) of the Securities Market Law, shareholders may also be represented at any meeting thereof by holders of powers of attorney granted through the special forms prepared to such effect by the Company, which forms shall contain (i) the name of the Company and a copy of the agenda for the meeting, provided that such agenda may not include under the caption “general matters” any matter referred to in the applicable law, and (ii) a blank space for the inclusion of any instructions from the shareholder to the attorneys-in-fact.

The Secretary of the board of directors shall ensure that the provisions contained in the preceding paragraph are complied with, and shall submit to the shareholders meeting a report thereon, which circumstance shall be evidenced in the minutes of the relevant meeting.

TWENTY SEVEN. Shareholders meetings shall be presided by the Chairman of the board of directors or, in his absence, by one (1) Vice Chairman or, in the absence of both such persons, by one (1) of the Mexican directors present or, in the absence of all such persons, by the person appointed by the attendants. The Secretary or the

Alternate Secretary of the board of directors, or in the absence of such two (2) persons, the person appointed by the chairman of the meeting, shall act as secretary of the meeting.

TWENTY EIGHT. Upon commencement of the shareholders meeting, the chairman thereof shall appoint two (2) tellers of inspection who shall determine the number of shares present and shall prepare a list of attendance containing the names of the shareholders present or represented at the meeting and the number of shares deposited by each of them prior to the meeting.

TWENTY NINE. If the time allotted for a shareholders meeting at which a quorum is present, is not sufficient to consider all the matters for which the meeting was called, the meeting may be adjourned and continued at a later date without further notice, provided that such adjournment must be approved by the majority required to take action at such meeting.

The resolutions adopted during the continuance meeting shall be valid if approved by the majority required pursuant to these bylaws.

THIRTY. The proceedings of the shareholders meetings shall be evidenced in the minutes thereof, which shall contain the resolutions approved thereby, shall be recorded in the relevant book of minutes and shall be signed by the chairman and the secretary of the meeting.

THIRTY ONE. Any holder of at least 20% (twenty percent) of the voting shares of stock, including any holder of limited voting shares, may have any resolution adopted by the general shareholders meeting with respect to any matter on which such holder was entitled to vote, set aside by a court through the procedures set forth in Articles 201 (two hundred one) and 202 (two hundred two) of the General Law of Business Corporations.

 

- 15 -


Pursuant to the Securities Market Law, any holder of at least 5% (five percent) of the outstanding shares of stock shall have the right to bring any directors’ liability action.

MANAGEMENT

THIRTY TWO. The management of the Company shall be entrusted to a board of directors and a Chief Executive Officer, who shall have the duties set forth in the Securities Market Law.

The board of directors shall consist of not less than 5 (five) and not more than 21 (twenty one) directors of which at least 25% (twenty five percent) shall be appointed by the ordinary shareholders meeting. The shareholders meeting may also appoint up to an identical number of alternate directors, in which case it shall establish the rules pursuant to which the alternate directors may replace the directors; provided, that if no such rules are established by the shareholders meeting, each alternate director shall be authorized to replace any director, except that the alternate directors appointed by the holders of the Series “L” shares shall be authorized to replace only any of the directors appointed by such holders, and except, further, that the alternate directors appointed by any minority shareholders shall be authorized to replace only the directors appointed by such shareholders. A majority of the directors and alternate directors must be Mexican citizens and must be appointed by Mexican shareholders. The directors and alternate directors shall be appointed by a majority of the Series “AA” shares, and the other 2 (two) directors and alternate directors shall be appointed by a majority of the Series “L” shares.

The members of the board of directors may or may not be shareholders and must satisfy the requirements set forth in the Securities Market Law. Any shareholder or group of shareholders representing at least 10% (ten percent) of the common shares shall be entitled to appoint one (1) director and one (1) alternate director, in which case such shareholder or group of shareholders shall not be entitled to vote with respect to the appointment of the directors and alternate directors required to be appointed by the majority of the shareholders. If any shareholder or group of shareholders representing at least 10% (ten percent) of the common shares, exercises the right to appoint one (1) director and his alternate, then the majority of the shareholders shall be entitled to appoint only the remaining number of directors.

The board of directors shall appoint a Secretary, who will not be a board member and will have the duties and responsibilities set forth in the Securities Market Law.

The directors shall be appointed to a one (1) year term, but shall continue in their positions for up to an additional 30 (thirty) day period following the expiration of such term if their successors have not been appointed or have not taken office, without being subject to Article 154 (one hundred fifty four) of the General Law of Business Corporations. The directors may be reelected and shall receive such compensations as the general shareholders meeting may determine.

Alternate directors shall replace the corresponding directors in the event of absence.

 

- 16 -


In the events set forth in the preceding paragraph and in Article 155 (one hundred fifty five) of the General Law of Business Corporations, the board of directors may appoint provisional directors without the need for shareholder authorization. Shareholders may ratify the appointment of any such director or appoint a replacement director during the first shareholders meeting held after such occurrence.

The Company must satisfy the requirements of the Securities Market Law as to the composition, authority, and operation of the board of directors, including, without limitation, the rules governing the appointment and certification of the independent directors.

For the performance of its duties, the board of directors shall receive support from one (1) or more committees. Pursuant to Article 25 (twenty five) of the Securities Market Law, the corporate governance and audit committee(s) shall consist of at least 3 (three) members appointed by the board of directors, all of whom must be independent directors.

The appointment of the independent directors shall be subject to Article 26 of the Securities Market Law.

THIRTY THREE. Irrespective of the Company’s obligation to comply with the provisions set forth in the preceding article, and for so long as such article remains in effect, no failure to comply with such article, for whatever reason, shall entitle any third party to challenge the validity of any legal act, contract, understanding, agreement or other transaction executed by the Company through its board of directors or other intermediate corporate body, representative or attorney-in-fact thereof, and no such provision shall be construed as constituting a requirement for the validity or legal existence of any such act.

For purposes of the Securities Market Law, and considering that the members of the board of directors are appointed by the shareholders meeting and, consequently, are deemed for all legal purposes to have obtained all requisite waivers from the Company, no such person shall be deemed to have taken advantage of or exploited a business opportunity pertaining to the Company or to any entity controlled by the Company or in which the Company exercises a significant influence, if such person, directly or indirectly, carries out any act within the ordinary course of the Company’s business or the business of any entity controlled by the Company or in which the Company exercises a significant influence.

THIRTY FOUR. Unless otherwise determined by the shareholders meeting, the directors, alternate directors, committee members, executive officers and managers shall not be required to post any guaranty in respect of the liabilities in which they may incur during the performance of their duties.

Pursuant to the Securities Market Law, the obligation of the members of the board of directors, the secretary or the alternate secretary, to indemnify the Company or any entity controlled by the Company or in which the Company exercises a significant influence, for any damages and losses suffered thereby as a result of a breach of the directors’ duty of care in connection with any act carried out or any resolution adopted by the board of directors, any resolution not adopted by the board of directors due to the inability to legally hold a meeting thereof and, generally, any other breach of such duty

 

- 17 -


of care, shall in no event exceed, in one or more instances, an amount equal to the aggregate net fees paid to such persons by the Company, any entity controlled by the Company or any entity in which the Company exercises a significant influence, during the previous 12 (twelve) month period; provided, that the limit set forth herein with respect to such liability shall not be applicable in the event of any act involving bad faith or which violates the provisions of the Securities Market Law and other applicable laws. The Company shall indemnify and hold its executive officers, directors, secretary and alternate secretary free and harmless from any liability in which they may incur with third parties as a result of the performance of their duties, and shall pay the amount of any indemnification for any damages suffered by any third party as a result of such performance, except in the event of any act involving bad faith or which violates the provisions of the Securities Market Law of other applicable laws.

THIRTY FIVE. The board of directors shall meet at least every 3 (three) months, either in Mexico City or in such other jurisdiction within the United Mexican States as may be designated for such purpose, on such dates as the board of directors itself may determine. Meetings of the board of directors may be called by at least 25% (twenty five percent) of the members of the board of directors or of any committee thereof, by the chairmen thereof, or by the secretary or the alternate secretary.

In addition to the regular meetings of the board of directors referred to above, the chairman or at least 25% (twenty five percent) of the members of the board of directors or any committee thereof, the secretary or the alternate secretary, may at any time call a meeting of the board of directors by written notice to its members at least 5 (five) days prior to the date of the meeting.

Notices of the meetings of the board of directors shall contain the agenda for the relevant meeting. The quorum for any meeting of the board of directors shall be a majority of the directors, provided that the majority of the directors present must be Mexican citizens, and action shall be validly taken by a majority of the directors present. In the event of a tie, the chairman of the board of directors shall cast the deciding vote.

Any action with respect to any of the matters set forth in paragraphs (1) through (12) of Article Forty One of these bylaws shall be subject to the favorable opinion of the executive committee. To such effect, the executive committee shall be required to issue its opinion within 10 (ten) days following the request of the board of directors, the chairman of the board or the chief executive officer of the Company. If the executive committee does not issue an opinion within the aforementioned term, or if the members thereof are unable to reach an agreement with respect to the relevant matter during a meeting of such committee, then the board of directors shall take action on such matter without the opinion of the executive committee.

Notwithstanding the above, if a majority of the members of the board of directors or any other corporate body, or the chief executive officer of the Company, determines in good faith that action on a matter subject to the favorable opinion of the executive committee is of the essence and cannot wait until the next scheduled meeting thereof, then action on the specific matter may be taken by the board or directors or any other corporate body, or by the chief executive officer of the Company, without the opinion of the executive committee.

 

- 18 -


THIRTY SIX. The proceedings of the meetings of the board of directors shall be evidenced in the minutes thereof, which shall contain the resolutions approved thereby, shall be recorded in the relevant book of minutes and shall be signed by the chairman and the secretary of the meeting.

Pursuant to the last paragraph of Article 143 (one hundred forty three) of the General Law of Business Corporations, action by the board of directors or any committee thereof may be taken without a meeting. Any resolution adopted without a meeting must be unanimously approved by all members of the relevant corporate body or, in the event of permanent absence or incapacitation of any such member, with the consent of the relevant alternate member, and shall be further subject to the following provisions:

 

  I. The chairman, acting either in his own discretion or at the request of any 2 (two) members of the board of directors or any committee thereof, shall give to all the members and alternate members of the relevant corporate body notice, by oral or written communication or by such other means as he may deem convenient, of any action proposed to be taken without a meeting, explaining the reasons thereof. The chairman shall deliver to all such members, upon their request, all such documents and notes as such members may require. In giving the notices referred to herein, the chairman may seek the assistance of any 1 (one) or more members of the board of directors or the relevant committee, or of the secretary or the alternate secretary.

 

  II. If all members of the board of directors or relevant committee, or, as the case may be, all the alternate members whose vote is required, give to the chairman or his assistants oral notice their consent for the adoption of the resolutions submitted to their consideration, such persons shall be required to confirm such consent in writing within 2 (two) business days from the date on which they gave oral notice of their consent, in the manner set forth in the following subparagraph. Such written confirmation shall be delivered to the chairman and the secretary by mail, telex, facsimile, telegram, courier service or any other means that ensures its delivery within the next 2 (two) business days.

 

  III. For purposes of the preceding subparagraph, the chairman, either directly or through his assistants, shall deliver to each member of the relevant corporate body an official draft of the minutes containing the resolutions to be adopted without a meeting, together with such other documents as he may deem convenient, and following any necessary revisions such official draft, duly signed by each member of the board of directors or, as the case may be, the relevant committee, shall be returned to the chairman and the secretary.

 

- 19 -


  IV. Upon receipt by the chairman and the secretary of the written confirmations of all the members of the relevant corporate body, the chairman and the secretary shall immediately record in the corresponding book of minutes the minutes containing all the relevant resolutions, and shall both sign such minutes. The minutes shall be dated as of the date on which the oral or written consent of all the members was obtained, regardless of whether or not all such consents had been confirmed in writing as of such date; provided, that upon their receipt all such written confirmations shall be filed in the records maintained by the secretary of the Company. Such records shall also include the written comments to the draft minutes by the audit committee, if any.

THIRTY SEVEN. Unless the shareholders meeting that appointed the members of the board of directors shall have also appointed the persons referred to herein, the board of directors, at its first meeting following such shareholders meeting or at any subsequent meeting, shall designate from among its members a chairman, who must be a Mexican citizen, and may also designate one or more vice chairmen, a secretary and an alternate secretary, provided that the secretary and the alternate secretary may not be members of the board of directors. Except for the positions of chairman, vice chairman, secretary and alternate secretary, all positions may be held by the same person. In the event of temporary or permanent absence of the chairman, such person shall be replaced by one (1) vice chairman who is a Mexican citizen, and in the event of temporary or permanent absence of the secretary, such person shall be replaced by the alternate secretary or, if no person has been appointed to such position, by such person as the board of directors may determine.

POWERS AND AUTHORITY OF THE BOARD OF DIRECTORS

THIRTY EIGHT. The board of directors shall have the broadest authority to manage the affairs of the Company, with general powers of attorney for lawsuits and collections, for administration matters and for acts of domain, without any limitation and with all the general powers and those special powers required to be expressly contained in a special clause pursuant to the first 3 (three) paragraphs of Article 2,554 (two thousand five hundred fifty four) of the Civil Code for the Federal District, including the powers referred to in Article 2,587 (two thousand five hundred eighty seven) thereof. Such powers shall include, but not be limited to, the following:

 

  I.

Power to represent the Company before all types of federal, state or municipal authorities; to represent the Company before all types of individuals or entities; to represent the Company before any federal or local labor board and labor arbitration board, with express powers for purposes of Sections II and III of Article 692 (six hundred ninety two) and articles 786 (seven hundred eighty six) and 876 (eight hundred seventy six) of the Federal Labor Law, with power to file and argue any motion in the name and on behalf of the Company; to submit to arbitration; to agree to settlements; to enter into any agreements; to file criminal claims and complaints; to file and withdraw from any action or recourse, including

 

- 20 -


  amparo proceedings; to represent the Company before all types of judicial, administrative or other authorities having jurisdiction over labor and employment matters; to file and withdraw from any amparo proceedings; to file criminal claims and, if applicable, grant pardons in connection therewith; to file criminal complaints and cooperate with the Attorney General’s office; to withdraw from any proceedings; to agree to any settlement; to submit to arbitration; to file and argue all types of motions; to file petitions for the recusation of judges; and to receive any payments.

 

  II. Power to issue, subscribe, endorse and guarantee all types of credit instruments.

 

  III. Power to appoint the officers, employees, managers and attorneys-in-fact of the Company, and to determine the duties, obligations and compensations thereof.

 

  IV. Power to establish or close any offices, branches or agencies.

 

  V. Power to acquire any shares, partnership interests or securities issued by third parties, and to exercise the voting rights pertaining thereto.

 

  VI. Power to enter into, amend, terminate and rescind all types of agreements.

 

  VII. Power to accept, on behalf of the Company, any mandate from any Mexican or foreign individuals or corporations.

 

  VIII. Power to open bank accounts and withdraw deposits therefrom, appoint authorized signatories therefor, make deposit therein and withdraw funds therefrom, subject to such limitations as the board of directors may determine.

 

  IX. Power to grant all types of real, personal and trust guaranties in respect of the obligations of the Company; to act as co-obligor, guarantor and generally, obligor in respect of the obligations of any third party; and to encumber real property and convey in trust any assets as security for such obligations.

 

  X. Power to grant, substitute and delegate general and special powers of attorney for acts of domain, provided that such powers shall in all events be exercised jointly by at least two individuals; to grant, substitute and delegate general and special powers of attorney for administration matters and for lawsuits and collections, provided that such powers shall not supersede the powers of the board of directors; and to revoke any powers of attorney.

 

- 21 -


  XI. Power to grant powers of attorney to issue, subscribe, endorse and guarantee all types of credit instruments; provided, that the power to guarantee credit instruments shall in all events be exercised jointly by at least two individuals.

 

  XII. Power to call shareholders meetings and enforce the resolutions thereof.

 

  XIII. Powers pursuant to the Securities Market Law.

 

  XIV. Power to carry out any legal acts and take such other action as may be necessary or convenient in the pursuit of the corporate purposes.

CHAIRMAN AND VICE CHAIRMEN

THIRTY NINE. The chairman, who must be a Mexican citizen, shall preside over all shareholders meetings and meetings of the board of directors; shall represent the board of directors; shall enforce the resolutions adopted by the shareholders meeting and the board of directors, unless such bodies shall have appointed one (1) or more special delegates for such purpose; and shall oversee the affairs of the Company and ensure the compliance of the provisions contained in these bylaws, in any applicable regulations, in the resolutions adopted by the shareholders meeting and the board of directors or in the law, and shall, together with the secretary, sign the minutes of all shareholders meetings and meetings of the board of directors. In the event of temporary or permanent absence of the chairman, the duties thereof shall be fulfilled by 1 (one) of the vice chairmen or, in the event of absence of a vice chairman, by such person as the board of directors may appoint to temporarily replace the chairman, provided that such person must be a Mexican citizen and must have been appointed by the holders of a majority of the common shares.

SECRETARY

FORTY. The secretary shall have such powers and authority as the board of directors may determine, and shall keep the books of minutes and record in such books the minutes of all shareholders meetings and meetings of the board of directors, which shall be signed by such secretary and the chairman. In the event of his absence, the secretary shall be replaced by the alternate secretary or, in the event of absence of an alternate secretary, by such person as the chairman may appoint to such effect.

EXECUTIVE COMMITTEE

FORTY ONE. The shareholders meeting, by the affirmative vote of a majority of the common shares, shall appoint from among the members of the board of directors an executive committee formed by such number of members and their alternates as the shareholders meeting may determine. A majority of the members of the executive committee must be Mexican citizens and must be appointed by the holders of a majority of the common shares.

 

- 22 -


The executive committee shall be subordinated to the board of directors and shall have the powers and authority set forth in Article Thirty Six of these bylaws, except for the powers set forth in Section XIII thereof; provided, that the powers and authority of the executive committee shall not include those powers and authority expressly reserved to any other corporate body pursuant to the law of these bylaws. The executive committee shall not be authorized to delegate in full to any 1 (one) or more attorneys-in-fact, the powers and authority vested therein. Subject to the provisions contained in these bylaws, the executive committee shall review and approve or, as the case may be, submit to the board of directors for its approval, any proposed action with respect to the following matters:

1. Any amendment, change or other modification in full of these bylaws.

2. Any issuance, authorization, cancellation, amendment, modification, reclassification and redemption of or change in any securities of the capital stock of the Company or any of its subsidiaries.

3. Any sale or other transfer (other than any sale or transfer of inventories or obsolete assets, or any transfer made in the ordinary course of business of the Company or any of its subsidiaries) of, or the creation of any lien (other than any lien mandated by law) on, any asset of the Company or its subsidiaries with a value in excess of $175 (one hundred seventy five) million U.S. dollars or its equivalent in Mexican pesos.

4. Any new line of business, or any acquisition by the Company or any of its subsidiaries of any interest in any other entity or corporation, with a value in excess of $100 (one hundred) million U.S. dollars or its equivalent in Mexican pesos.

5. The annual budget for capital expenditures of the Company.

6. Any transaction with respect to any additional net debt of or any new loan or financing to the Company or its subsidiaries in excess of $150 (one hundred fifty) million U.S. dollars or its equivalent in Mexican pesos; or any new revolving credit facility which enables the Company or its subsidiaries to borrow, through a single disposition, an aggregate amount of funds in excess of $150 (one hundred fifty) million U.S. dollars or its equivalent in Mexican pesos;

7. The annual business plan or budget of the Company;

8. The appointment of the chief executive officer of the Company;

9. Any merger or similar transaction involving the Company or its subsidiaries;

10. The execution of any agreement or transaction with or for the benefit of any holder of Series “AA” shares or any Affiliate thereof, which is not included in the policies issued by the executive committee;

11. The dividend policy of the Company; and

 

- 23 -


12. Any transfer of any material trade name or trademark, or of the goodwill attributable thereto.

Action with respect to the aforementioned matters may be taken either by the board of directors or by the executive committee.

The quorum for a meeting of the executive committee shall be a majority of its members, provided that such majority includes a majority of the members appointed by the Mexican shareholders, and action shall be validly taken by a majority of the members present. The members of the executive committee shall make their best efforts to reach a consensus on the matters submitted to such committee for its consideration.

In the event of a tie, the chairman of the committee shall cast the deciding vote.

The executive committee shall meet as frequently as necessary to be constantly involved in the matters entrusted thereto. The executive committee shall meet whenever it may deem convenient, but shall always meet prior to each meeting of the board of directors. Notice of the meetings of the executive committee shall be given (by facsimile and courier service) to all members thereof at least 5 (five) days prior to the date set for the meeting; provided, that such period may be reduced or the notice requirement waived with the consent of all such members. Such notice shall include, among other things, the agenda for the meeting, with reasonable detail of all the matters to be considered, and shall be accompanied by copies of the documents to be discussed at the meeting. In the event that a matter not included in the relevant agenda is brought before the executive committee, and that the members of the committee have not received all the necessary documents pertaining to such matter, if such members are unable to reach a consensus with respect to such matter, then action on such matter shall be postponed until the next scheduled meeting of the committee, or until approved by the unanimous consent of all the members, or until all of the aforementioned requirements have been satisfied.

Notwithstanding the above, if a majority of the members of the executive committee determines in good faith that action on a matter submitted thereto is of the essence and cannot wait until the next scheduled meeting thereof, then action on the specific matter may be taken by simple majority of the members present and shall be discussed with all other members prior to any formal action, and the opinion of each member shall be included in the minutes of the next scheduled meeting of the executive committee.

The executive committee shall issue its own operating rules based upon these bylaws, and such rules shall be subject to the approval of the board of directors.

 

- 24 -


AUDIT COMMITTEE

FORTY TWO. The oversight of the performance, conduction and execution of the Company’s business shall be entrusted to the board of directors, which for such purposes shall act through an audit committee and an external auditor. The Company shall not be subject to Section V of Article 91 (ninety one), Article 164 (one hundred sixty four), Article 171 (one hundred seventy one), to the last paragraph of Article 172 (one hundred seventy two), Article 173 (one hundred seventy three), and Article 176 (one hundred seventy six) of the General Law of Business Corporations.

The chairman of the audit committee shall be appointed and/or removed exclusively by the general shareholders meeting, shall not be authorized to also act as chairman of the board of directors, shall be selected based on his experience, recognized ability and professional reputation, and shall prepare and submit to the board of directors an annual report with respect to the activities of such committee. Such report shall include, at least, the following information: (i) with respect to the Company’s corporate practices, (a) any observations concerning the performance of the executive officers, (b) any related party transactions carried out during the year, including a detailed description of the most relevant such transactions, (c) the compensation and overall benefits package of the chief executive officer, and (d) any waiver granted by the board of directors pursuant to Section III (f) of Article 28 (twenty eight) of the Securities Market Law, in order for any director, executive officer or other person in a commanding position to take advantage of a business opportunity for his own benefit or the benefit of third parties; (ii) with respect to the Company’s audit practices, (a) the status of the internal control and internal audit systems of the Company and any entity controlled thereby, including, if applicable, a description of any deficiency therein, any deviation therefrom, and any aspect thereof that requires improvement, taking into consideration the opinions, reports, communications and certifications issued by the external auditor, and the reports issued by any independent expert who may have rendered services during the year, (b) a description of and progress report on the preventive and corrective measures implemented as a result of any investigation concerning the violation of the operating and accounting guidelines and policies of the Company or any entity controlled thereby, (c) an evaluation of the performance of the entity responsible for the external audit services, and of the external auditor in charge thereof, (d) a description of and the amount represented by any additional or supplemental services provided by the entity responsible for the external audit duties and by any independent experts, (e) the principal results of the review of the financial statements of the Company and all entities controlled thereby, (f) a description and the effects of any change in the accounting policies approved during the year to which the report is related, (g) any measures implemented as a result of any significant comments received from the shareholders, executive officers, employees and, generally, third parties with respect to the accounting, internal controls and other matters associated with the internal or external audit duties, or of any complaint regarding any action on the part of the management which is deemed irregular, and (h) a status report regarding the implementation of the resolutions adopted by the shareholders meeting and the board of directors.

 

- 25 -


For purposes of the preparation of the reports referred to in this article, and of the opinions referred to in Article 42 (forty two) of the Securities Market Law, the audit committee shall request the opinion of the executive officers of the Company and, in the event of a discrepancy of opinions therewith, shall include a description of such differences in the aforementioned reports and opinions.

In addition, the audit committee shall be responsible for:

 

  (a) Providing to the board of directors opinions with respect to the matters entrusted thereto pursuant to the Securities Market Law.

 

  (b) Requesting the opinion of independent experts in such instances as it may deem it convenient to adequately perform its duties or as required by the Securities Market Law and/or any general rules.

 

  (c) Calling shareholders meetings and requesting the inclusion in the agenda therefor, of any matter as it may deem convenient.

 

  (d) Providing assistance to the board of directors in connection with the preparation of the reports referred to in Section IV (e) and (f) of Article 28 (twenty eight) of the Securities Market Law.

 

  (e) Evaluating the performance of the entity responsible for the external audit duties, and analyzing the reports and opinions issued and signed by the external auditor. To such effect, the committee may require the attendance of such auditor in such instances as it may deem convenient, provided that it shall meet with the external auditor at least one a year.

 

  (f) Discussing the Company’s financial statements with the individuals responsible for their preparation and review and, based on such discussions, recommending to the board of directors their approval or rejection.

 

  (g) Submitting to the board of directors a report concerning the status of the internal control and internal audit systems of the Company and all entities controlled thereby, including any irregularities detected therein.

 

  (h) Preparing the opinion referred to in Section IV (c) of Article 28 (twenty eight) of the Securities Market Law, with respect to the contents of the report submitted by the chief executive officer, and submitting such opinion to the board of directors for its subsequent review by the shareholders meeting, taking into consideration, among others, the report of the external auditor. Such opinion shall state, at least:

 

  1. If the accounting and information policies and criteria followed by the Company are adequate and sufficient in light of its specific circumstances.

 

- 26 -


  2. If such policies and criteria have been applied consistently in the information submitted by the chief executive officer.

 

  3. If as a result of subparagraphs 1 (one) and 2 (two) above, the information submitted by the chief executive officer reasonably reflects the Company’s financial condition and results.

 

  (i) Providing assistance to the board of directors in connection with the preparation of the reports referred to in Section IV (d) and (e) of Article 28 (twenty eight) of the Securities Market Law, with respect to the principal accounting and information policies and criteria, and the report with respect to the transactions and activities carried out thereby during the performance of its duties under these bylaws and the Securities Market Law.

 

  (j) Ensuring that the transactions referred to in Section III of Article 28 (twenty eight) and Article 47 (forty seven) of the Law, are carried out in accordance with the provisions contained therein and the policies derived therefrom.

 

  (k) Requesting the opinion of independent experts in such instances as it may deem it convenient to adequately perform its duties or as required by the Securities Market Law and/or any general rules.

 

  (l) Requesting form the executive officers and employees of the Company or any entity controlled thereby, any report with respect to the preparation of the financial or other information thereof as it may deem convenient for the performance of its duties.

 

  (m) Investigating any potential violation of the transactions, operating guidelines and policies, internal control and internal audit systems and accounting systems of the Company or any entity controlled thereby, and reviewing any documents, records and other evidence thereof to such level and extent as it may deem convenient to oversee the above.

 

  (n) Receiving comments from the shareholders, directors, executive offices, employees and, generally, third parties with respect to the matters referred to in the preceding paragraph, and implementing any actions as it may deem appropriate in response to such comments.

 

  (o) Requesting periodic meetings with the executive officers, and requesting therefrom any information with respect to the internal control and internal audit of the Company or any entity controlled thereby.

 

  (p) Reporting to the board of directors any significant deviation encountered thereby during the course of its duties and, if applicable, any corrective measures adopted or proposed to be adopted thereby.

 

- 27 -


  (q) Overseeing the execution by the chief executive officer, of the resolutions adopted by the shareholders meeting and the board of directors in accordance with the instructions provided thereby.

 

  (r) Overseeing the establishment of internal procedures and controls so as to ensure that all acts and transactions carried out by the Company and the entities controlled thereby are in compliance with the applicable laws, and implementing procedures to facilitate such oversight.

 

  (s) Any other duties provided for in the Securities Market Law or these bylaws.

EXTERNAL AUDITOR

FORTY THREE. The Company shall have an external auditor who may be called to participate in and address the meetings of the board of directors, without being entitled to vote thereat, and who shall refrain from participating in any discussion regarding any item of the agenda with respect to which he may have a conflict of interest or which may affect his independent status.

The external auditor of the Company shall issue a report in connection with the financial statements prepared in accordance with generally accepted audit procedures and accounting principles.

CHIEF EXECUTIVE OFFICER

FORTY FOUR. The performance, conduction and execution of the business activities of the Company and its controlled entities shall be entrusted to the chief executive officer, subject to the strategies, policies and guidelines approved by the board of directors.

For purposes of the performance of his duties, the chief executive officer shall have broad powers of attorney for administration matters and lawsuits and collections, including any power that must be expressly provided for through a special clause. For purposes of any acts of domain, the chief executive officer shall have such powers of attorney, which shall be subject to such terms and conditions, as the board of directors of the Company may determine.

Without prejudice of the above, the chief executive office shall be responsible for:

 

  I. Submitting to the board of directors, for its approval, the business strategies of the Company and the entities controlled thereby, based on the information received therefrom.

 

  II. Executing the resolutions of the shareholders meeting and the board of directors in accordance with the instructions provided thereby.

 

- 28 -


  III. Recommending to the committee responsible for performing the audit duties, the internal control and internal audit guidelines of the Company and the entities controlled thereby, and implementing any guidelines approved by the board of directors of the Company.

 

  IV. Signing, together with the executive offices responsible for its preparation within their respective duties, any relevant information concerning the Company.

 

  V. Disclosing any relevant information or event that is required to be publicly disclosed pursuant to the Securities Market Law.

 

  VI. Complying with the provisions applicable to any transaction involving the acquisition and placement of the Company’s own shares of stock.

 

  VII. Implementing, either directly or through an authorized representative, any corrective measure or liability action within the scope of its duties or as directed by the board of directors.

 

  VIII. Verifying the payment of all capital contributions by the shareholders.

 

  IX. Complying with the requirements set forth in the law and these bylaws with respect to the payment of dividends to the shareholders.

 

  X. Ensuring that all of the Company’s accounting, record keeping and information systems are adequately maintained.

 

  XI. Preparing and submitting to the board of directors the report referred to in Article 172 (one hundred seventy two) of the General Law of Business Corporations, except as provided in subparagraph (b) thereof.

 

  XII. Establishing internal procedures and controls so as to ensure that all acts and transactions carried out by the Company and the entities controlled thereby are in compliance with the applicable laws, following up on the results of such internal procedures and controls and, if necessary, adopting any necessary measures in connection therewith.

 

  XIII. Bringing liability actions pursuant to the Securities Market Law and these bylaws, against any related or third party alleged to have caused a damage to the Company or any entity controlled by the Company or in which the Company exercises a significant influence, unless the board of directors, based on the opinion of the audit committee, shall determine that such damage is immaterial.

FORTY FIVE. For purposes of the performance of his duties and activities, and in order to adequately comply with his obligations, the chief executive officer will be assisted by those executive officers designated to such effect, and by any other employee of the Company or any entity controlled thereby.

 

- 29 -


FISCAL YEARS; FINANCIAL INFORMATION

FORTY SIX. The fiscal years of the Company shall consist of 12 (twelve) months and shall run from January 1 (one) through December 31 (thirty one) of each year.

FORTY SEVEN. Within 3 (three) months following the end of each fiscal year, the board of directors shall prepare a report containing, at a minimum, the information set forth in Article 172 (one hundred seventy two) of the General Law of Business Corporations. The board of directors shall deliver such report, together with any relevant support documentation, at least one month prior to the date of the shareholders meeting that will be held to consider such report. The report of the board of directors referred to in this article must be completed and made available to the shareholders at least 15 (fifteen) days prior to the date of the shareholders meeting that will consider such report. Shareholders will be entitled to receive, free of charge, a copy of such report.

In addition, during the annual ordinary shareholders meeting referred to in Article Twenty Seven hereof, the Company shall disclose a report with respect to the satisfaction of its tax obligations under Section XX of Article 86 (eighty six) of the Income Tax Law. Such report may be included within the report referred to in the preceding paragraph or within any other report provided for in the applicable laws.

LEGAL RESERVE; DISTRIBUTION OF PROFITS AND LOSSES

FORTY EIGHT. The net profits of the Company, as reflected by the balance sheet approved by the annual ordinary shareholders meeting, shall be allocated as follows:

 

  (a) First, at least 5% (five percent) shall be allocated to create or replenish a legal reserve, until the amount of such legal reserve amounts to at least one-fifth of the capital stock.

 

  (b) Thereafter, the amounts determined by the shareholders meeting shall be allocated to create any extraordinary, special or additional reserves that may be deemed convenient.

 

  (c) Thereafter, the amounts determined by the shareholders meeting shall be allocated to create or increase any general or special reserves, including, if applicable, the reserve for the repurchase of shares referred to in Article 56 (fifty six) of the Securities Market Law.

 

  (d) Thereafter, any amount as may be necessary shall be allocated to pay the preferred dividend payable to the holders of the Series “L” shares in respect of the relevant fiscal year or, as the case may be, any dividend accrued during previous fiscal years which remains unpaid.

 

  (e) The remainder of the net profits may be distributed as dividends to the shareholders, in proportion to the paid amount of their shares.

 

- 30 -


Unless otherwise approved by the shareholders meeting, dividends shall be paid only upon surrender of the corresponding dividend coupons. Dividends not collected within 5 (five) years from the date on which they became payable, shall be forfeited to the Company.

The annual shareholders meeting shall determine the compensations of the members of the board of directors.

Losses, if any, shall be covered by the shareholders in proportion to their respective holdings of shares; provided, that the obligations of the shareholders pursuant hereto shall be limited to the amount of their respective capital contributions and that the shareholders shall not be required to pay any amounts in excess thereof.

EVENTS OF DISSOLUTION

FORTY NINE. The Company shall be dissolved:

 

  I. In the event of impossibility to achieve its corporate purpose.

 

  II. By resolution of the shareholders pursuant to the law and these bylaws.

 

  III. If the number of shareholders of the Company decreases to less than the minimum of 2 (two) shareholders required pursuant to Section I of Article 89 (eighty nine) of the General Law of Business Corporations.

 

  IV. In the event of a loss amounting to two-thirds of the capital stock.

LIQUIDATION

FIFTY. Following its dissolution, the Company shall be liquidated. The general extraordinary shareholders meeting, by affirmative vote of a majority of the holders of the shares of common stock, shall appoint 1 (one) or more liquidators. The liquidators shall hold the legal representation of the Company, shall have the powers and obligations set forth in Article 242 (two hundred forty two) of the General Law of Business Corporations and shall, in due course, distribute any remaining funds to the shareholders, all in accordance with the provisions contained in articles 247 (two hundred forty seven) and 248 (two hundred forty eight) of the General Law of Business Corporations and the following rules:

 

  I. They shall conclude all pending matters in such manner as they may deem most convenient;

 

  II. They shall collect all the accounts receivable and pay off all the debts, and shall sell any the assets of the Company as may be necessary to such effect.

 

  III. They shall prepare the final balance, and

 

- 31 -


  IV. Following the approval of the final balance, they shall distribute any remaining assets among the shareholders as follows:

 

  1. The holders of the Series “L” shall receive payment of the preferred dividend equal to 5% (five percent) of the capital attributable to such shares, accrued by such shares but which remains unpaid;

 

  2. The holders of the Series “AA” shares of common stock shall receive payment of a dividend equal to the dividend paid to the holders of the Series “L” shares pursuant to subparagraph 1 of this Section IV.

 

  3. Following the payment of the dividends referred to in paragraphs 1 (one) and 2 (two) above, the holders of the Series “L” shares shall receive the reimbursement of the capital attributable to their shares;

 

  4. Thereafter, the holders of the Series “AA” shares shall receive payment of an amount equal to the amount paid to the holders of the Series “L” shares pursuant to paragraph 3 (three) above, and

 

  5. The balance, if any, shall be distributed among all the shareholders in proportion to the number of shares owned by each of them and in proportion also to the paid-in value of each such share. In the event of dissent among the liquidators, the statutory auditor shall call a general extraordinary shareholders meeting, which shall resolve any matter under dispute.

FIFTY ONE. The founding shareholders do not reserve themselves any right whatsoever.

FIFTY TWO. Any matter not expressly contemplated in these bylaws shall be subject to the provisions contained in the General Law of Business Corporations.

FIFTY THREE. Any dispute arising in connection with the execution, interpretation and performance of these bylaws, to which the Company is a party, shall be submitted to the jurisdiction of the federal courts of the United Mexican States. In the event of any dispute between the Company and its shareholders, or among the shareholders in connection with any matter pertaining to the Company, the Company and the shareholders, upon the subscription or acquisition of any shares, shall expressly submit to the applicable laws of and the competent courts sitting in Mexico City, Federal District, and waive any other jurisdiction to which they may be entitled by reason of their present or future domiciles.

INTERIM PROVISIONS

ONE. The capital of the Company is variable. The minimum fixed portion of the capital is $270,049,805.29 (two hundred seventy million forty-nine thousand eight hundred five pesos and twenty-nine cents), divided into 71,063,212,170 (seventy-one billion sixty-three million two hundred twelve thousand one hundred seventy) shares, of

 

- 32 -


which 20,601,632,660 (twenty billion six hundred one million six hundred thirty-two thousand six hundred sixty) are Series “AA” registered shares of common stock, no par value; 558,677,704 (five hundred fifty-eight million six hundred seventy-seven thousand seven hundred four) are Series “A” registered shares of common stock, no par value; and 49,902,901,806 (forty-nine billion nine hundred two million nine hundred one thousand eight hundred six) are Series “L” registered, limited-voting shares, no par value, all of which are fully paid and non-assessable.

It is hereby certified that the Company holds as treasury shares, which are available for resale pursuant to the Securities Market Law and the general rules issued by the National Banking and Securities Commission, 5,000,000,000 (five billion) Series “L”, limited-voting shares, no par value.

TWO. It is hereby certified that the Company has 558,677,704 (five hundred fifty-eight million six hundred seventy-seven thousand seven hundred four) Series “A” shares of common stock outstanding, which may be converted into Series “L” shares in accordance with Article Nine of the Company’s bylaws. The Series “A” shares are currently held by Mexican investors, and/or by non-Mexican individuals, legal entities and economic units, and/or by Mexican corporations a majority of whose shares of stock are held by non-Mexican investors or in which non-Mexican investors have the ability to determine the course of the management. For as long as any Series “A” shares may be outstanding, such shares shall confer the same rights and impose the same obligations provided for in these bylaws in respect of the Company’s other series of common stock, that is, the Series “AA” shares, with the exception that the Series “A” currently outstanding may be held by non-Mexican individuals, legal entities and economic units, and/or by Mexican corporations a majority of whose shares of stock are held by non-Mexican investors or in which non-Mexican investors have the ability to determine the course of the management. Without limitation, for as long as any Series “A” shares may be outstanding, such shares shall confer the same rights and impose the same obligations set forth as with respect to the Series “AA” shares in (i) Article Seven of the Company’s bylaws; (ii) items (a), (b), (c) and (d) of the fifth paragraph of Article Eight of the Company’s bylaws; (iii) the fifth paragraph of Article Twenty-Four of the Company’s bylaws; (iv) the second paragraph of Article Thirty-Two of the Company’s bylaws; and (v) items 2 and 4 of Section IV of Article Fifty of the Company’s bylaws.

As of the date hereof and for so long as there may be any Series “A” shares outstanding, the Company’s capital structure shall be subject to the following:

 

  (a)

The Company’s capital stock shall be represented by Series “AA” common shares, issued in registered form, no par value, which may only be subscribed or acquired by Mexican investors and shall represent not less than 20% (twenty percent) and not more than 51% (fifty one percent) of the capital stock, and not less than 51% (fifty one percent) of the common shares of stock; by Series “A” common shares, issued in registered form, no par value, which may not represent more than 19.6% (nineteen point six percent) of the capital stock or more than 49% (forty nine percent) of

 

- 33 -


  the common shares and may only be held by Mexican nationals; and by Series “L” limited voting shares, with no ownership restrictions, which, together with the Series “A” shares, may not represent more than 80% (eighty percent) of the capital stock.

 

  (b) The Series “AA” and Series “A” shares of common stock may not represent, in the aggregate, more than 51% (fifty one percent) of the capital stock.

 

  (c) The Series “AA” shares, which may only be subscribed by Mexican nationals, shall at all times represent not less than 20% (twenty percent) of the capital stock. The Series “A” and Series “L” shares may not represent, in the aggregate, more than 80% (eighty percent) of the capital stock.

This Interim Article Two shall be in effect until such time as there remain no Series “A” shares outstanding.

 

- 34 -


ESTATUTOS SOCIALES DE AMÉRICA MÓVIL, SOCIEDAD

ANÓNIMA BURSÁTIL DE CAPITAL VARIABLE

CLÁUSULAS

PRIMERA. La denominación de la Sociedad es “AMÉRICA MÓVIL”, e irá seguida de las palabras “SOCIEDAD ANÓNIMA BURSÁTIL DE CAPITAL VARIABLE” o de sus abreviaturas “S.A.B. de C.V.”

SEGUNDA. El domicilio de la Sociedad es la Ciudad de México, Distrito Federal, sin embargo la Sociedad podrá establecer oficinas, sucursales o agencias en cualquier parte de los Estados Unidos Mexicanos y en el extranjero, o someterse convencionalmente para cualquier acto, contrato o convenio a la aplicación de leyes extranjeras o de cualquier estado de los Estados Unidos Mexicanos y a las respectivas jurisdicciones de los tribunales, o a domicilios convencionales en los Estados Unidos Mexicanos o en el extranjero con objeto de recibir toda clase de notificaciones o emplazamientos judiciales o extrajudiciales, designando apoderados especiales o generales en el extranjero, para dichos efectos, o para cualquier otro efecto, sin que se entienda por ello que ha cambiado su domicilio social.

TERCERA. Los objetos de la Sociedad son los siguientes:

 

  (a) Promover, constituir, organizar, explotar, adquirir y tomar participación en el capital social o patrimonio de todo género de sociedades mercantiles o civiles, asociaciones o empresas, ya sean industriales, comerciales, de servicios o de cualquier otra índole, tanto nacionales como extranjeras, así como participar en su administración o liquidación.

 

  (b) Adquirir, bajo cualquier título legal, acciones, intereses, participaciones o partes sociales de cualquier tipo de sociedades mercantiles o civiles, ya sea formando parte de su constitución o mediante adquisición posterior, así como enajenar, disponer y negociar tales acciones, participaciones y partes sociales, incluyendo cualquier otro título-valor, asimismo, conforme a las disposiciones de carácter general que expida la Comisión Nacional Bancaria y de Valores, y, siempre que las acciones de la Sociedad estén inscritas en el Registro Nacional de Valores, la Sociedad podrá adquirir acciones representativas de su capital social.

 

  (c) Construir, instalar, mantener, operar y explotar redes públicas de telecomunicaciones para prestar cualquier servicio de telecomunicaciones y cualquier servicio de transmisión o conducción de señales de video, voz, datos o cualquier otro contenido, siempre y cuando la Sociedad cuente con las concesiones y permisos que legalmente se requieren para ello.

 

  (d) Adquirir el dominio directo sobre bienes inmuebles, sujeto a lo previsto en el artículo 27 (veintisiete) de la Constitución Política de los Estados Unidos Mexicanos y en la Ley de Inversión Extranjera y su Reglamento.

 

- 35 -


  (e) Arrendar y tomar en arrendamiento toda clase de bienes inmuebles y derechos reales y celebrar toda clase de actos jurídicos por los que se obtenga o se conceda el uso y/o el goce de bienes inmuebles.

 

  (f) Adquirir, enajenar y celebrar cualesquiera otros actos jurídicos que tengan por objeto bienes muebles, derechos personales, maquinaria, equipo y herramientas que sean necesarios o convenientes para alcanzar los objetos sociales.

 

  (g) Celebrar cualesquiera actos jurídicos que tengan por objeto créditos o derechos.

 

  (h) Celebrar cualesquiera actos jurídicos relacionados con patentes, marcas y nombres comerciales o con cualquier otro derecho de propiedad intelectual.

 

  (i) Prestar y recibir toda clase de servicios de asesoría y asistencia técnica, científica y administrativa.

 

  (j) Emitir bonos y obligaciones.

 

  (k) Establecer sucursales, agencias y oficinas en los Estados Unidos Mexicanos o en el extranjero.

 

  (l) Obrar como agente, representante o comisionista de personas o empresas, ya sean mexicanas o extranjeras.

 

  (m) Dar o tomar dinero a título de préstamo.

 

  (n) Aceptar, suscribir, avalar y/o endosar toda clase de títulos de crédito.

 

  (o) Otorgar toda clase de garantías, respecto a obligaciones de terceros incluyendo de sociedades subsidiarias o terceras empresas, nacionales o extranjeras, incluyendo la constitución de derechos reales y afectaciones fiduciarias que sean necesarias o convenientes para alcanzar los objetos sociales.

 

  (p) Garantizar, por cualquier medio legal, en forma gratuita u onerosa, incluyendo la constitución de derechos reales y afectaciones fiduciarias, el cumplimiento de obligaciones de terceras personas, físicas o morales, nacionales o extranjeras y constituirse como deudor solidario de terceras personas, físicas o morales, nacionales o extranjeras.

 

  (q) Celebrar cualquier acto o contrato que se relacione con los objetos sociales y que sea lícito para una sociedad anónima.

CUARTA. La duración de la Sociedad será indefinida.

 

- 36 -


QUINTA. La Sociedad es de nacionalidad mexicana. Ninguna persona extranjera, física o moral, podrá tener participación social alguna o ser propietaria de acciones de la Sociedad. Si por algún motivo, alguna de las personas mencionadas anteriormente, por cualquier evento llegare a adquirir una participación social o a ser propietaria de una o más acciones, contraviniendo así lo establecido en la oración que antecede, se conviene desde ahora en que dicha adquisición ser nula y, por tanto, cancelada y sin ningún valor la participación social de que se trate y los títulos que la representen, teniéndose por reducido el capital social en una cantidad igual al valor de la participación canelada. La totalidad del capital social estará siempre suscrito por personas físicas o morales de nacionalidad mexicana.

SEXTA. El capital social es variable, con un mínimo fijo de $270’049,805.29 M.N. (doscientos setenta millones cuarenta y nueve mil ochocientos cinco pesos 29/100 Moneda Nacional), representado por un total de 71,063’212,170 (setenta y un mil sesenta y tres millones doscientas doce mil ciento setenta) acciones, de las cuales 20,601’632,660 (veinte mil seiscientos un millones seiscientas treinta y dos mil seiscientas sesenta) son acciones comunes, de la Serie “AA”, nominativas, sin valor nominal; 558’677,704 (quinientos cincuenta y ocho millones seiscientas setenta y siete mil setecientas cuatro) son acciones comunes de la Serie “A”, nominativas, sin valor nominal; y 49,902’901,806 (cuarenta y nueve mil novecientos dos millones novecientas un mil ochocientas seis) son acciones nominativas de la Serie “L”, sin valor nominal, de voto limitado; todas ellas íntegramente suscritas y pagadas.

El capital social estará representado por acciones de la Serie “AA”, en un porcentaje no menor de 20% (veinte por ciento) y no mayor al 51% (cincuenta y uno por ciento) del capital social las cuales serán acciones comunes, nominativas y sin valor nominal, que sólo podrán ser suscritas, y adquiridas por inversionistas mexicanos y por acciones de la Serie “L”, de voto limitado y de libre suscripción, en un porcentaje no mayor de 80% (ochenta por ciento) del capital social.

Cada vez que se incremente el capital social, el aumento correspondiente estará representado proporcionalmente por acciones de la Serie “AA” y “L” en circulación. La Sociedad podrá emitir acciones no suscritas, de cualquiera de las series que integren su capital social, para entregarse a medida que se realice la suscripción.

Las acciones comunes en que se divida el capital social deberán estar suscritas en su totalidad por inversionistas mexicanos, las cuales estarán representadas por acciones de la Serie “AA”.

Las acciones comunes de la Serie “AA”, no podrán representar más del 51% (cincuenta y uno por ciento) de las acciones en que se divida el capital social.

Las acciones de la Serie “L” serán de libre suscripción y, en consecuencia con ello, podrán ser adquiridas por inversionistas mexicanos y por personas físicas o morales y unidades económicas extranjeras o por empresas mexicanas en las que participe mayoritariamente el capital extranjero o en las que los extranjeros tengan, por cualquier título, la facultad de determinar el manejo de la empresa. Las acciones de la Serie “L” serán consideradas como inversión neutra en los términos de lo previsto por el artículo 18 y demás aplicables de la Ley de Inversión Extranjera, por lo que no se computarán para determinar el porcentaje de inversión extranjera en el capital social.

 

- 37 -


Las acciones de la Serie “AA”, que sólo podrán ser suscritas por inversionistas mexicanos, representarán en todo tiempo un porcentaje que no sea menor al 20% (veinte por ciento) del capital social. Las acciones de la Serie “L”, de libre suscripción no podrán representar un porcentaje mayor al 80% (ochenta por ciento) del capital social.

Las acciones de la Serie “AA” sólo podrán ser suscritas o adquiridas por:

 

  (a) Personas físicas de nacionalidad mexicana.

 

  (b) Sociedades mexicanas cuya escritura social contenga cláusula de exclusión de extranjeros de la que solo puedan ser socios o accionistas personas físicas mexicanas y/o sociedades mexicanas cuya escritura social contenga, a su vez, cláusula de exclusión de extranjeros.

 

  (c) Fideicomisos que fueren expresamente aprobados para adquirir acciones de la Serie “AA” por las autoridades competentes de conformidad con la Ley de Inversión Extranjera y su Reglamento, en los que (i) la mayoría de los derechos de fideicomisario la tengan personas físicas o morales que reúnan los requisitos establecidos en los incisos a), b), y d) que anteceden o, (ii) las acciones de la Serie “AA” materia del fideicomiso representen una minoría de las acciones representativas de dicha serie y tengan que ser votadas por el fiduciario en el mismo sentido que la mayoría de las acciones Serie “AA”.

Las acciones que emita la sociedad no podrán ser adquiridas por Gobiernos o Estados extranjeros y, en caso de que esto sucediere, quedarán sin efecto ni valor alguno para su tenedor desde el momento de la adquisición.

SEPTIMA. Dentro de su respectiva serie, las acciones conferirán iguales derechos. Cada acción común de la Serie “AA” da derecho a un voto en las Asambleas Generales de Accionistas. Las acciones de la Serie “L” sólo tendrán derecho a voto en los asuntos que limitativamente para ellas se establecen en estos estatutos sociales y se transcribirán en los títulos de las mismas. Los títulos representativos de las acciones llevarán la firma autógrafa de uno (1) o más de los Consejeros Propietarios o bien su firma impresa en facsímil, si así lo autorizara el Consejo de Administración. En este último caso, los originales de las firmas respectivas se depositarán en el Registro Público de Comercio correspondiente. Los títulos de las acciones estarán numerados progresivamente y podrán amparar una o varias acciones y llevarán adheridos cupones para el pago de dividendos. Los títulos de las acciones o los certificados provisionales deberán contener toda la información requerida por el artículo 125 (ciento veinticinco) de la Ley General de Sociedades Mercantiles y además de la cláusula quinta de estos estatutos sociales.

 

- 38 -


OCTAVA. Las acciones de la Serie “L” serán de voto limitado y con derecho a un dividendo preferente, emitidas al amparo del artículo 113 de la Ley General de Sociedades Mercantiles. Las acciones de la Serie “L” sólo tendrán derecho de voto en los siguientes asuntos: prórroga de la duración de la Sociedad, disolución anticipada de la Sociedad, cambio de objeto de la Sociedad, cambio de nacionalidad de la Sociedad, transformación de la Sociedad, fusión con otra sociedad, así como la cancelación de la inscripción de las acciones que emita la sociedad en el Registro Nacional de Valores y en otras bolsas de valores extranjeras, en las que se encuentren registradas, excepto de sistemas de cotización u otros mercados no organizados como bolsas de valores.

Toda minoría de tenedores de acciones con derecho a voto restringido distintas a las que prevé el artículo 113 de la Ley General de Sociedades Mercantiles o de voto limitado a que alude dicho precepto, que represente cuando menos un diez por ciento del capital social en una o ambas series accionarias, tendrá el derecho de designar a un Consejero Propietario y su respectivo Suplente. Sólo podrán revocarse los nombramientos de los consejeros designados por los accionistas a que se refiere este párrafo, cuando se revoque el de todos los demás. Este derecho deberá de ejercitarse mediante notificación por escrito dirigida al Presidente del Consejo de Administración o al Secretario del propio Consejo que se presente con cuando menos dos días hábiles de anticipación a la fecha en que hubiese sido convocada la Asamblea Ordinaria de Accionistas para designar, ratificar o revocar nombramientos a miembros del Consejo de Administración.

A falta de designación de minorías a que se refiere el párrafo anterior, las acciones de la Serie “L”, como clase, por resolución que sea adoptada en Asamblea Especial convocada para tal propósito, tendrán derecho a designar dos Consejeros Propietarios y sus respectivos Suplentes para integrar el Consejo de Administración de la sociedad, siempre que, la suma de los consejeros a que se refiere el párrafo anterior y este párrafo, en ningún caso exceda del porcentaje total del capital social que represente la Serie “L” dividido entre un factor de 10. Quien para ello sea autorizado por la Asamblea Especial, notificará por escrito al Presidente de la Asamblea Ordinaria que corresponda, los nombres de las personas que hubieren sido electas por la Serie “L” de acciones, para desempeñar los cargos de miembros Propietarios y miembros Suplentes del Consejo de Administración.

Finalmente, las acciones de la Serie “L” podrán asistir y votar, a razón de un voto por acción, en las Asambleas Extraordinarias de Accionistas que se reúnan para resolver sobre la reforma al Artículo Decimosegundo de estos Estatutos relativo a la cancelación de la inscripción de la acciones de la Sociedad en la Sección de valores del Registro Nacional de Valores.

Respecto a los derechos patrimoniales o pecuniarios, cada acción otorgará a su tenedor los mismos derechos, por lo que todas las acciones participarán por igual, sin distinción, en cualquier dividendo, reembolso, amortización o distribución de cualquier naturaleza, estando sujeto, en todo caso, a lo siguiente:

 

- 39 -


  (a) En los términos del Artículo Ciento Trece de la Ley General de Sociedades Mercantiles no podrán asignarse dividendos a las acciones de la Serie “AA”, sin que se pague a las acciones de la Serie “L”, de voto limitado, un dividendo anual del cinco por ciento sobre el valor teórico de las acciones de la Serie “L” que asciende a la cantidad de $0.00833 M.N. (ochocientos treinta y tres diezmilésimos de un peso) por acción, o sea, un dividendo anual de $0.00042 M.N. (cuarenta y dos cienmilésimos de un peso) por acción, el cual se efectuará con cargo a la cuenta de utilidades retenidas de la Sociedad, que derive de los estados financieros de ejercicios anteriores debidamente aprobados por la Asamblea de Accionistas en los términos del Artículo Diecinueve de la Ley General de Sociedades Mercantiles. Cuando en algún ejercicio social no se decreten dividendos o sean inferiores a dicho cinco por ciento, éste cubrirá en los años siguientes con la prelación indicada.

 

  (b) Una vez que se hubiere cubierto el dividendo previsto en el subinciso a). anterior a las acciones de la Serie “L”, si la Asamblea General de Accionistas decretare el pago de dividendos adicionales, los propietarios de acciones de la Serie “AA” deberán de recibir el mismo monto de dividendos que hubieren recibido los tenedores de las acciones de la Serie “L”, conforme al subinciso a). anterior en el ejercicio de que se trate o en ejercicios anteriores, con el propósito de que todos los accionistas reciban el mismo monto de dividendo.

 

  (c) Una vez cubierto a los accionistas de la Serie “AA”, el dividendo a que se refiere el subinciso b)., anterior y que, en consecuencia, todos los accionistas hubiesen recibido o estén por recibir el mismo monto de dividendo, si la Sociedad realizare el pago de dividendos adicionales en el mismo ejercicio social, los tenedores de todas las acciones de las Series “AA” y “L” recibirán, por acción, el mismo monto de dividendo, con lo que cada acción de la Serie “L” recibirá el pago de dividendos adicionales en forma, monto y plazos idénticos al que recibiere cada una de las acciones de la Serie “AA”.

 

  (d) En caso de que se liquidare la Sociedad, se deberá cubrir a las acciones de la Serie “L”, el dividendo preferente, acumulativo, equivalente al cinco por ciento sobre el valor teórico de las acciones que les correspondiere y que no hubiere sido cubierto conforme a lo previsto en el subinciso a) anterior antes de distribuir a todas las acciones el remanente distribuible. En tal caso, una vez pagado el dividendo indicado en la oración anterior, se deberá pagar a las acciones de la Serie “AA”, un dividendo por acción equivalente al que hubieren recibido las acciones de la Serie “L”.

 

- 40 -


  (e) En el caso de aumento de capital social mediante la emisión de nuevas acciones de la Serie “L” que se emitan para pago en efectivo o en especie, los tenedores de las acciones de la Serie “L” en circulación tendrán derecho a suscribir dichas nuevas acciones en la proporción que les corresponda en los términos previstos por estos estatutos.

 

  (f) Las acciones de la Serie “L” participarán en iguales términos que las acciones de las demás series de acciones en todos los dividendos en acciones que fueren decretados por la Sociedad.

NOVENA. Sujeto a lo previsto en estos estatutos sociales, a solicitud de los accionistas correspondientes las acciones en que se divide la serie “A” de acciones de la sociedad podrán ser canjeadas a la par en acciones de la Serie “L”, mediante la entrega de aquellas a la Tesorería de la sociedad y su cancelación.

DECIMA. [Reservada]

DECIMO PRIMERA. Sujeto a lo previsto en estos estatutos, a solicitud de los accionistas titulares de las acciones que representen la Serie “AA”, éstas podrán ser canjeadas a la par por acciones de la Serie “L”, siempre que con ello las acciones de la Serie “AA” no representen un porcentaje menor al 20% (veinte por ciento) del capital social, mediante la entrega de aquéllas a la Tesorería de la sociedad.

DECIMO SEGUNDA. La Sociedad llevará un libro de registro de accionistas y considerará como dueño de las acciones a quien aparezca como tal en dicho libro. A solicitud de cualquier interesado, previa la comprobación a que hubiere lugar, la Sociedad deberá inscribir en el citado libro las transmisiones que se efectúen, siempre que cumplan con lo previsto en estos estatutos sociales y en las disposiciones legales aplicables.

En los términos del artículo 48 (cuarenta y ocho) de la Ley del Mercado de Valores, se establece como medida tendiente a prevenir la adquisición de acciones que otorguen el control, según dicho término se define en la Ley del Mercado de Valores, de la Sociedad, por parte de terceros o de los mismos accionistas, ya sea en forma directa o indirecta, y conforme al artículo 130 (ciento treinta) de la Ley General de Sociedades Mercantiles, que la adquisición de las acciones emitidas por la Sociedad, o de títulos e instrumentos emitidos con base en dichas acciones, o de derechos sobre dichas acciones, solamente podrá hacerse previa autorización discrecional del Consejo de Administración, en el caso de que el número de acciones, o de derechos sobre dichas acciones que se pretenden adquirir, en un acto o sucesión de actos, sin limite de tiempo, o de un grupo de accionistas vinculados entre sí y que actúen en concertación, signifiquen el 10% (diez por ciento) o más de las acciones con derecho a voto emitidas por la Sociedad.

Para los efectos anteriores, la persona o grupo de personas interesadas en adquirir una participación accionaria igual o superior al 10% (diez por ciento) de las acciones con derecho a voto emitidas por la Sociedad, deberán presentar su solicitud de autorización por escrito dirigida al Presidente y al Secretario del Consejo de Administración de la Sociedad. Dicha solicitud, deberá contener al menos la información siguiente: (i) su declaración de consentimiento y adhesión a los términos

 

- 41 -


de los estatutos sociales de la Sociedad y al procedimiento de autorización discrecional previsto en la presente cláusula; (ii) el número y clase de las acciones emitidas por la Sociedad que sean propiedad de la persona o grupo de personas que pretenden realizar la adquisición; (iii) el número y clase de las acciones materia de la adquisición; (iv) la identidad y nacionalidad de cada uno de los potenciales adquirentes; y (v) manifestación sobre si existe la intención de adquirir una influencia significativa o el Control de la Sociedad, según dichos términos se definen en la Ley del Mercado de Valores. Lo anterior en el entendido que el Consejo de Administración podrá solicitar la información adicional que considere necesaria o conveniente para tomar una resolución.

Si el Consejo de Administración, en los términos de la presente cláusula niega la autorización, designará a uno (1) o más compradores de las acciones, quienes deberán pagar a la parte interesada el precio registrado en la bolsa de valores. Para el caso de que las acciones no estén inscritas en el Registro Nacional de Valores, el precio que se pague se determinará conforme al propio artículo 130 (ciento treinta) citado de la Ley General de Sociedades Mercantiles.

El Consejo de Administración deberá emitir su resolución en un plazo no mayor a 3 (tres) meses contados a partir de la fecha en que se le someta la solicitud correspondiente o de la fecha en que reciba la información adicional que hubiere requerido, según sea el caso, y deberá de considerar: (i) los criterios que sean en el mejor interés de la Sociedad, sus operaciones y la visión de largo plazo de las actividades de la Sociedad y sus Subsidiarias; (ii) que no se excluya a uno (1) o más accionistas de la Sociedad, distintos de la persona que pretenda obtener el control, de los beneficios económicos que, en su caso, resulten de la aplicación de la presente cláusula; y (iii) que no se restrinja en forma absoluta la toma de control de la Sociedad.

La Sociedad no podrá tomar medidas que hagan nugatorio el ejercicio de los derechos patrimoniales del adquirente, ni que contravenga lo previsto en la Ley del Mercado de Valores para las ofertas públicas forzosas de adquisición. No obstante, cada una de las personas que adquieran acciones, títulos, instrumentos o derechos representativos del capital social de la Sociedad en violación a lo previsto en el párrafo anterior, estarán obligadas a pagar una pena convencional a la Sociedad por una cantidad equivalente al precio de la totalidad de las acciones, títulos o instrumentos representativos del capital social de la Sociedad de que fueren, directa o indirectamente, propietarios o que hayan sido materia de la operación prohibida. En caso de que las operaciones que hubieren dado lugar a la adquisición de un porcentaje de acciones, títulos, instrumentos o derechos representativos del capital social de la Sociedad mayor al 10% (diez por ciento) del capital social, se hagan a título gratuito, la pena convencional será equivalente al valor de mercado de dichas acciones, títulos, instrumentos o derechos, siempre que no hubiera mediado la autorización a que alude la presente cláusula.

 

- 42 -


Mientras la Sociedad mantenga las acciones que haya emitido, inscritas en el Registro Nacional de Valores, la exigencia anterior, para el caso de las operaciones que se realicen a través de la bolsa de valores, estará adicionalmente sujeta a las reglas que en su caso establezca la Ley del Mercado de Valores o las que conforme a la misma, emita la Comisión Nacional Bancaria y de Valores. Para efectos de claridad se estipula que las transmisiones de acciones de la Sociedad que no impliquen que una misma persona o grupo de personas actuando de manera concertada adquieran una participación igual o superior al diez por ciento (10%) de las acciones con derecho a voto de la Sociedad y que sean realizadas a través de una bolsa de volares no requerirán de la autorización previa del Consejo de Administración de la Sociedad.

Las personas o grupo de personas adquirentes que obtengan o incrementen una participación significativa de la Sociedad, sin haber promovido previamente una oferta pública de adquisición de conformidad con la Ley del Mercado de Valores, no podrán ejercer los derechos societarios, derivados de los valores con derecho a voto respectivos, quedando la Sociedad facultada para abstenerse de inscribir dichas acciones en el registro a que se refieren los artículos 128 (ciento veintiocho) y 129 (ciento veintinueve) de la Ley General de Sociedades Mercantiles.

Consecuentemente, tratándose de adquisiciones que deban ser realizadas a través de ofertas públicas de adquisición conforme a la Ley del Mercado de Valores, los adquirentes deberán obtener la autorización del Consejo de Administración para la transacción de forma previa al inicio del periodo para la oferta pública de adquisición. En todo caso, los adquirentes deberán revelar en todo momento la existencia del presente procedimiento de autorización previa por parte del Consejo de Administración para cualquier adquisición de acciones que implique el 10% (diez por ciento) o más de las acciones representativas del capital social de la Sociedad.

Adicionalmente a lo anterior, una mayoría de los miembros del Consejo de Administración que hayan sido elegidos para dicho cargo antes de verificarse cualquier circunstancia que pudiera implicar un cambio de control, deberá otorgar su autorización por escrito a través de una resolución tomada en Sesión de Consejo convocada expresamente para dicho efecto en términos de estos estatutos sociales, para que pueda llevarse a cabo un cambio de control en la Sociedad.

Las estipulaciones contenidas en la presente cláusula no precluyen en forma alguna, y aplican en adición a, los avisos, notificaciones y/o autorizaciones que los potenciales adquirentes deban presentar u obtener conforme a las disposiciones normativas aplicables.

El Consejo de Administración podrá determinar a su discreción si cualquiera de las personas se encuentra actuando de una manera conjunta o coordinada para los fines regulados en esta cláusula. En caso de que el Consejo de Administración adopte tal determinación, las personas de que se trate deberán de considerarse como una sola para los efectos de esta cláusula.

Las personas morales que sean controladas por la Sociedad no podrán adquirir, directa o indirectamente, acciones representativas del capital social de la Sociedad o títulos de crédito que representen dichas acciones, salvo que (i) dicha adquisición se realice a través de sociedades de inversión, o (ii) en el caso de que las sociedades en

 

- 43 -


las que la Sociedad participe como accionista mayoritario adquieran acciones de la Sociedad, para cumplir con opciones o planes de venta de acciones que se constituyan o que puedan otorgarse o diseñarse a favor de empleados o funcionarios de dichas sociedades o de la propia Sociedad, siempre y cuando, el número de acciones adquiridas con tal propósito no exceda del 25% (veinticinco por ciento) del total de las acciones en circulación de la Sociedad.

Mientras las acciones de la Sociedad se encuentren inscritas en el Registro Nacional de Valores, en los términos de la Ley del Mercado de Valores y de las disposiciones de carácter general que expida la Comisión Nacional Bancaria y de Valores, en el caso de cancelación de la inscripción de las acciones de la Sociedad en dicho Registro, ya sea por solicitud de la propia Sociedad o por resolución adoptada por la Comisión Nacional Bancaria y de Valores en términos de Ley, la Sociedad se obliga a realizar una oferta pública de adquisición en términos del artículo 108 (ciento ocho) de la Ley del Mercado de Valores, la cual deberá dirigirse exclusivamente a los accionistas o tenedores de los títulos de crédito que representen dichas acciones, que no formen parte del grupo de personas que tengan el control de la Sociedad: (i) a la fecha del requerimiento de la Comisión Nacional Bancaria y de Valores tratándose de la cancelación de la inscripción por resolución de dicha Comisión; o (ii) a la fecha del acuerdo adoptado por la Asamblea General Extraordinaria de Accionistas tratándose de la cancelación voluntaria de la misma.

La Sociedad deberá afectar en un fideicomiso, por un período de cuando menos 6 (seis) meses contados a partir de la fecha de la cancelación, los recursos necesarios para comprar al mismo precio de la oferta pública de compra las acciones de los inversionistas que no acudieron a dicha oferta, en el evento de que una vez realizada la oferta pública de compra y previo a la cancelación de la inscripción de las acciones representativas del capital social de la Sociedad u otros valores emitidos con base en esas acciones en el Registro Nacional de Valores, la Sociedad no hubiera logrado adquirir el 100% (cien por ciento) del capital social pagado.

La oferta pública de compra antes mencionada deberá realizarse cuando menos al precio que resulte más alto entre: (i) el valor de cotización y (ii) el valor contable de las acciones o títulos que representen dichas acciones de acuerdo al último reporte trimestral presentado a la propia Comisión y a la bolsa de valores antes del inicio de la oferta, el cual podrá ser ajustado cuando dicho valor se vaya modificando de conformidad con criterios aplicables a la determinación de información relevante, en cuyo caso, deberá considerarse la información más reciente con que cuente la Sociedad acompañada de una certificación de un directivo facultado de la Sociedad respecto de la determinación de dicho valor contable.

Para los efectos anteriores, el valor de cotización será el precio promedio ponderado por volumen de las operaciones que se hayan efectuado durante los últimos treinta días en que se hubieren negociado las acciones de la Sociedad o títulos de crédito que representen dichas acciones, previos al inicio de la oferta, durante un periodo que no podrá ser superior a 6 (seis) meses. En caso de que el número de días en que se hayan negociado dichas acciones o títulos que amparen dichas acciones, durante el periodo señalado, sea inferior a 30 (treinta), se tomarán los días en que efectivamente se hubieren negociado. Cuando no hubiere habido negociaciones en dicho periodo, se tomará el valor contable.

 

- 44 -


La Comisión Nacional Bancaria y de Valores podrá autorizar el uso de una base distinta para la determinación del precio de la oferta, atendiendo a la situación financiera de la Sociedad, siempre que se cuente con la aprobación del Consejo de Administración, previa opinión del comité que desempeñe funciones en materia de prácticas societarias, en las que se contengan los motivos por los cuales se considera justificado establecer precio distinto, respaldado de un informe de un experto independiente.

En todo caso, la cancelación voluntaria de la inscripción de las acciones de la Sociedad en el Registro Nacional de Valores requiere, además de cualquier otro requisito señalado en la Ley del Mercado de Valores y demás disposiciones aplicables al efecto: (i) de la aprobación previa de la Comisión Nacional Bancaria y de Valores y (ii) del acuerdo de la Asamblea General Extraordinaria de Accionistas adoptado con un quórum de votación mínimo del 95% (noventa y cinco por ciento) del capital social.

DECIMO TERCERA. Con excepción de los aumentos o disminuciones derivados de la recompra de acciones a que se refiere la Ley del Mercado de Valores, el capital variable de la Sociedad podrá aumentarse o disminuirse sin necesidad de reformar los estatutos sociales, con la única formalidad de que los aumentos o disminuciones sean acordados en Asamblea Ordinaria de Accionistas y que se protocolice la misma por notario público, sin que sea necesario la inscripción del testimonio de la escritura respectiva en el Registro Público de Comercio correspondiente.

El capital mínimo fijo de la Sociedad no podrá aumentarse o disminuirse si ello no es acordado en Asamblea Extraordinaria de Accionistas y se reforman consecuentemente los estatutos sociales salvo que derive de colocación de acciones propias adquiridas conforme a esta cláusula. Todo aumento o disminución del capital social deberá inscribirse en el libro que a tal efecto llevará la Sociedad.

Cuando se aumente el capital social todos los accionistas tendrán derecho preferente en proporción al número de sus acciones de la serie correspondiente para suscribir las que se emitan o las que se pongan en circulación. El derecho que se confiere en este párrafo deberá ser ejercitado dentro de los 15 (quince) días naturales siguientes a aquél en que se publiquen los acuerdos correspondientes en el Diario Oficial de la Federación y en otro periódico de los de mayor circulación en la Ciudad de México, Distrito Federal. Este derecho no será aplicable con motivo de la fusión de la Sociedad, en la conversión de obligaciones, para oferta pública en los términos del artículo 53 (cincuenta y tres) de la Ley del Mercado de Valores y estos estatutos y para la colocación de acciones propias adquiridas en los términos del artículo 56 (cincuenta y seis) de la Ley del Mercado de Valores.

 

- 45 -


En el caso de que quedaren sin suscribir acciones después de la expiración del plazo durante el cual los accionistas hubieren gozado del derecho de preferencia que se les otorga en esta cláusula, las acciones de que se trate podrán ser ofrecidas a cualquier persona para suscripción y pago en los términos y plazos que disponga la propia Asamblea de Accionistas que hubiere decretado el aumento de capital, o en los términos y plazos que disponga el Consejo de Administración o los delegados designados por la Asamblea a dicho efecto, en el entendido de que el precio al cual se ofrezcan las acciones a terceros no podrá ser menor a aquél al cual fueron ofrecidas a los accionistas de la Sociedad para suscripción y pago.

La reducción del capital social en su parte variable se efectuará por amortización proporcional de las series de acciones en que se divida dicho capital social, por amortización de acciones íntegras, mediante reembolso de las mismas a los accionistas a su valor en bolsa de valores al día en que se decrete la correspondiente reducción del capital social. Los accionistas tendrán derecho a solicitar en la Asamblea respectiva la amortización proporcional de las acciones a que haya lugar y, en caso de que no se obtenga acuerdo para dicho propósito, las acciones que hayan de amortizarse serán determinadas por sorteo ante notario o corredor público.

Hecha la designación de las acciones que habrán de amortizarse, se publicará un aviso en el Diario Oficial de la Federación y en otro periódico de los de mayor circulación en la Ciudad de México, Distrito Federal, expresando el número de las acciones que serán retiradas y el número de los títulos de las mismas que como consecuencia deberán ser cancelados o, en su caso, canjeados y la institución de crédito en donde se deposite el importe del reembolso, el que quedará desde la fecha de la publicación a disposición de los accionistas respectivos sin devengar interés alguno.

La Sociedad podrá adquirir acciones representativas de su propio capital social a través de la bolsa de valores, al precio corriente en el mercado, en los términos del artículo 56 (cincuenta y seis) de la Ley del Mercado de Valores.

Las acciones propias que pertenezcan a la Sociedad o, en su caso, las acciones de tesorería, sin perjuicio de lo establecido por la Ley General de Sociedades Mercantiles, podrán ser colocadas entre el público inversionista, sin que para este último caso, el aumento de capital social correspondiente, requiera resolución de Asamblea de Accionistas de ninguna clase, ni del acuerdo del Consejo de Administración tratándose de su colocación.

La Sociedad podrá emitir acciones no suscritas de cualquier serie o clase que integren el capital social, las cuales se conservarán en la tesorería de la Sociedad para ser entregadas en la medida que se realice su suscripción.

Asimismo, la Sociedad podrá emitir acciones no suscritas que se conserven en tesorería para su colocación en el público, siempre que: (i) la Asamblea General Extraordinaria de Accionistas apruebe el importe máximo del aumento de capital y las condiciones en que deban de hacerse las correspondientes emisiones de acciones; (ii) la suscripción de las acciones emitidas se efectúe mediante oferta pública, previa inscripción en el Registro Nacional de Valores; y (iii) el importe del capital suscrito y pagado se anuncie cuando se de publicidad al capital autorizado representado por las acciones emitidas y no suscritas y se cumplan las condiciones previstas al efecto por la Ley del Mercado de Valores.

 

- 46 -


DECIMO CUARTA. [Reservada]

DE LAS ASAMBLEAS GENERALES DE ACCIONISTAS

DECIMO QUINTA. La Asamblea General de Accionistas es el órgano supremo de la Sociedad, estando subordinados a él todos los demás.

DECIMO SEXTA. Las Asambleas Generales de Accionistas serán Ordinarias o Extraordinarias y se celebrarán en el domicilio de la Sociedad. Serán Extraordinarias aquéllas en que se trate cualquiera de los asuntos enumerados en el Artículo 182 (ciento ochenta y dos) de la Ley General de Sociedades Mercantiles o la cancelación de la inscripción de las acciones que emite y emita la Sociedad en el Registro Nacional de Valores o en bolsas de valores extranjeras en las que estuvieren registradas las acciones en que se divida el capital social y serán Ordinarias todas las demás. Las Asambleas sólo se ocuparán de los asuntos incluidos en el orden del día.

Las Asambleas Especiales que celebren los titulares de acciones de la Serie “L”, con el propósito de designar a los 2 (dos) miembros del Consejo de Administración a los que tienen derecho, deberán ser convocadas anualmente por el Consejo de Administración para que sean celebradas con anterioridad a la celebración de la Asamblea General Anual Ordinaria de Accionistas. Las Asambleas Especiales de los titulares de acciones de la Serie “L” que se reúnan exclusivamente con el propósito de designar a los miembros del Consejo de Administración a los que tienen derecho, se regirán por las normas establecidas en estos estatutos sociales para las Asambleas Generales Ordinarias de Accionistas convocadas en virtud de segunda convocatoria, en los términos de la cláusula vigésima tercera de estos estatutos sociales.

DECIMO SEPTIMA. La Asamblea Ordinaria se reunirá por lo menos una vez al año, dentro de los 4 (cuatro) meses siguientes a la clausura del ejercicio social correspondiente, en la fecha que fije el Consejo de Administración de la Sociedad y se ocupará, además de los asuntos incluidos en el orden del día, de los enumerados en el artículo 181 (ciento ochenta y uno) de la Ley General de Sociedades Mercantiles.

En adición a lo anterior y de conformidad a lo previsto en el artículo 47 (cuarenta y siete) de la Ley del Mercado de Valores, la Asamblea Ordinaria se reunirá para aprobar las operaciones que pretenda llevar a cabo la Sociedad o las personas morales que ésta controle, en el lapso de un ejercicio social, cuando representen el 20% (veinte por ciento) o más de los activos consolidados de la Sociedad con base en cifras correspondientes al cierre del trimestre inmediato anterior, con independencia de la forma en que se ejecuten, sea simultánea o sucesiva, pero que por sus características puedan considerarse como una sola operación. En dichas Asambleas los titulares de acciones de la Serie “L” de la Sociedad estarán facultados para votar.

 

- 47 -


DECIMO OCTAVA. La convocatoria para las Asambleas deberá hacerse por el Consejo de Administración, por el Presidente del Consejo o el Secretario, o en su caso, por los miembros de los comités facultados para ello, o por la autoridad judicial. Los accionistas con acciones con derecho a voto, incluso en forma limitada o restringida, que representen cuando menos el 10% (diez por ciento) del capital social, podrán solicitar se convoque a una Asamblea General de Accionistas en los términos señalados en el artículo 184 (ciento ochenta y cuatro) de la Ley General de Sociedades Mercantiles y en la Ley del Mercado de Valores.

DECIMO NOVENA. La convocatoria para las Asambleas se hará por medio de la publicación de un aviso en el Diario Oficial de la Federación o en uno de los periódicos de mayor circulación en la Ciudad de México, Distrito Federal, siempre con una anticipación no menor de 15 (quince) días naturales a la fecha señalada para la reunión. Desde el momento en que se publique la convocatoria para las Asambleas de Accionistas, deberán estar a disposición de los accionistas, de forma inmediata y gratuita, la información y los documentos disponibles relacionados con cada uno de los puntos establecidos en el orden del día.

VIGESIMA. La convocatoria para las Asambleas deberá contener la designación de lugar, fecha y hora en que haya de celebrarse la asamblea, el orden del día, el cual no deberá incluir asuntos bajo el rubro de generales o equivalentes, y la firma de quien o quienes la hagan.

VIGESIMA PRIMERA. Podrá celebrarse Asamblea sin previa convocatoria siempre que se encuentren debidamente representadas la totalidad de las acciones con derecho de voto en los asuntos para los que fue convocada.

VIGESIMA SEGUNDA. Las Asambleas Ordinarias de Accionistas reunidas en virtud de primera convocatoria se considerarán legalmente instaladas cuando esté representada, por lo menos, la mitad de las acciones comunes que representen el capital social y sus resoluciones serán válidas si se adoptan por mayoría de los votos presentes.

VIGESIMA TERCERA. Si la Asamblea Ordinaria de Accionistas no pudiere celebrarse el día señalado para su reunión, se publicará una segunda convocatoria con expresión de esta circunstancia, en la que se citará para una fecha no anterior a 7 (siete) días naturales de aquél para el que fue señalada en primera convocatoria y en la Asamblea se resolverá sobre los asuntos indicados en el orden del día, por mayoría de votos, cualquiera que sea el número de acciones comunes representadas.

VIGESIMA CUARTA. Las Asambleas Extraordinarias de Accionistas reunidas por virtud de primera convocatoria, para tratar asuntos en los que las acciones de la Serie “L” no tengan derecho de voto, se considerarán legalmente instaladas si están presentes, por lo menos, las tres cuartas partes de las acciones comunes con derecho de voto en los asuntos para los que fue convocada, de aquellas en que se divida el capital social y sus resoluciones serán válidas si se adoptan, cuando menos, por mayoría de las acciones comunes que tengan derecho de voto, de aquéllas en que se divida el capital social.

 

- 48 -


Las Asambleas Extraordinarias de Accionistas que sean convocadas para tratar alguno de los asuntos en los que tengan derecho de voto las acciones de la Serie “L” serán legalmente instaladas si están representadas, por lo menos, las tres cuartas partes del capital social y las resoluciones se tomarán por el voto de las acciones que representen la mayoría de dicho capital social.

Las Asambleas Extraordinarias de Accionistas reunidas por virtud de ulteriores convocatorias, para tratar alguno de los asuntos en los que las acciones de la Serie “L” no tengan derecho de voto, se considerarán legalmente instaladas si está representada, por lo menos, la mayoría de las acciones comunes con derecho de voto en los asuntos para los que fue convocada y sus resoluciones serán válidas si se adoptan, cuando menos, por el número de acciones comunes que representen la mayoría de dicho capital social con derecho de voto en los asuntos para los que fue convocada.

En ulteriores convocatorias para Asambleas Extraordinarias de Accionistas, convocadas para resolver asuntos en los que las acciones de la Serie “L” tengan derecho de voto, éstas se considerarán legalmente instaladas si está representada, por lo menos, la mayoría del capital social y sus resoluciones serán válidas si se adoptan, cuando menos, por el número de acciones que representen la citada proporción de acciones de aquellas en que se divida dicho capital social.

Para que las resoluciones adoptadas en las Asambleas Extraordinarias de Accionistas reunidas por virtud de primera o ulteriores convocatorias para tratar alguno de los asuntos en los que tengan derecho de voto las acciones de la Serie “L” sean legalmente acordadas, se requerirá, además de los requisitos que se establecen en los párrafos que anteceden, que las mismas sean aprobadas por la mayoría de las acciones comunes de la Serie “AA”, en que se divida el capital social.

Los accionistas con acciones con derecho de voto, incluso en forma limitada o restringida, que representen cuando menos el 10% (diez por ciento) de las acciones representadas en una Asamblea, podrán solicitar que se aplace la votación de cualquier asunto respecto del cual no se consideren suficientemente informados, ajustándose a los términos y condiciones señalados en el artículo 199 (ciento noventa y nueve) de la Ley General de Sociedades Mercantiles y en el artículo 50 (cincuenta) de la Ley del Mercado de Valores.

VIGESIMA QUINTA. Para que los accionistas tengan derecho de asistir a las Asambleas y a votar en ellas, deberán depositar los títulos de sus acciones o, en su caso, los certificados provisionales, en la Secretaría de la Sociedad, cuando menos un (1) día antes de la celebración de la Asamblea, recogiendo la tarjeta de admisión correspondiente. También podrán depositarlos en una institución de crédito de los Estados Unidos de México o del extranjero o en una casa de bolsa de los Estados Unidos Mexicanos y en este caso, para obtener la tarjeta de admisión, deberán

 

- 49 -


presentar en la Secretaría de la Sociedad un certificado de tal institución que acredite el depósito de los títulos y la obligación de la institución de crédito, de la casa de bolsa o de la institución de depósito de valores respectiva de conservar los títulos depositados hasta en tanto el Secretario del Consejo de Administración de la Sociedad le notifique que la Asamblea de Accionistas ha concluido. La Secretaría de la Sociedad entregará a los accionistas correspondientes una tarjeta de admisión en donde constará el nombre del accionista, el número de acciones depositadas y el número de votos a que tiene derecho por virtud de dichas acciones.

VIGESIMA SEXTA. Los accionistas podrán hacerse representar en las Asambleas por medio de mandatarios nombrados mediante simple carta poder, en la inteligencia de que no podrán ejercer tal mandato los miembros del Consejo de Administración de la Sociedad.

En adición a lo anterior y en términos de lo dispuesto por el artículo 49 (cuarenta y nueve) de la Ley del Mercado de Valores, los accionistas podrán hacerse representar en las Asambleas por medio de mandatarios nombrados mediante poder otorgado en formularios elaborados por la propia Sociedad que: (i) señalen de manera notoria la denominación de la Sociedad así como el respectivo orden del día, sin que puedan incluirse bajo el rubro de asuntos generales los puntos que se refieren las disposiciones legales aplicables, y (ii) contengan espacio para la instrucciones que señale el otorgante para el ejercicio del poder.

El Secretario del Consejo de Administración de la Sociedad, estará obligado a cerciorarse de la observancia de lo dispuesto en el párrafo anterior e informará sobre ello a la Asamblea, lo que se hará constar en el acta respectiva.

VIGESIMA SÉPTIMA. Las Asambleas serán presididas por el Presidente del Consejo de Administración y a falta de éste indistintamente por uno (1) de los Vicepresidentes y a falta de ellos, por uno (1) de los consejeros mexicanos presentes y, faltando todos éstos, por la persona que designen los mismos concurrentes a la Asamblea. Fungirá como Secretario de la Asamblea, el del Consejo o el Pro-Secretario y faltando éstos dos (2), la persona que el Presidente de la Asamblea designe para ello.

VIGESIMA OCTAVA. Al iniciarse la Asamblea, quien la presida nombrará dos (2) escrutadores para hacer el recuento de las acciones representadas en la misma, quienes deberán formular una lista de asistencia en la que anotarán los nombres de los accionistas en ella presentes o representados y el número de acciones que cada uno de ellos hubiere depositado para comparecer a la correspondiente Asamblea.

VIGESIMA NOVENA. Si instalada una Asamblea legalmente no hubiere tiempo para resolver sobre todos los asuntos para los que fuere convocada, siempre que ello así sea resuelto por el número de votos que para adoptar válidamente resoluciones en esa Asamblea se requiera, podrá suspenderse y continuarse los días siguientes, sin necesidad de nueva convocatoria.

 

- 50 -


Las resoluciones que sean adoptadas en la continuación de la Asamblea serán válidas si se aprueban por el número de votos que para ello se requiera en estos estatutos sociales.

TRIGESIMA. De cada Asamblea de Accionistas se levantará acta, en la cual se consignarán las resoluciones adoptadas, deberá ser asentada en el libro de actas correspondiente y será firmada por quien haya presidido la reunión y por la persona que haya actuado como Secretario.

TRIGESIMA PRIMERA. Los accionistas con acciones con derecho de voto, incluso en forma limitada o restringida, que representen cuando menos el 20% (veinte por ciento) del capital social, podrán oponerse judicialmente a las resoluciones de las Asambleas Generales de Accionistas, respecto de las cuales tengan derecho de voto, siempre que se satisfagan los requisitos del artículo 201 (doscientos uno) de la Ley General de Sociedades Mercantiles, siendo igualmente aplicables el artículo 202 (doscientos dos) de dicha Ley.

En los términos de lo previsto en la Ley del Mercado de Valores, los accionistas que representen cuando menos el 5% (cinco por ciento) del capital social, podrán ejercitar directamente la acción de responsabilidad civil contra los administradores.

ADMINISTRACION

TRIGESIMA SEGUNDA. La Administración de la Sociedad estará encomendada a un Consejo de Administración y a un Director General, quienes desempeñarán las funciones que establece la Ley del Mercado de Valores.

El Consejo de Administración de la Sociedad estará compuesto por un mínimo de 5 (cinco) y un máximo de 21 (veintiún) consejeros, de los cuales cuando menos el 25% (veinticinco por ciento) debiendo ser nombrados por la Asamblea Ordinaria de Accionistas. La Asamblea podrá designar suplentes hasta por un número igual al de los miembros propietarios y, si así lo hiciese, tendrá la facultad de determinar la forma en que los suplentes suplirán a los propietarios, en el concepto de que, si la Asamblea no determina lo anterior, cualquier suplente podrá suplir a cualquiera de los propietarios, salvo los suplentes designados por los accionistas de la Serie “L”, los cuales sólo podrán suplir a los consejeros propietarios designados por dicha Serie, en forma indistinta y los suplentes designados por accionistas en ejercicio de su derecho de minoría, los cuales sólo podrán suplir a los consejeros propietarios designados por dicha minoría. La mayoría de los miembros propietarios y suplentes del Consejo de Administración deberán ser en todo tiempo de nacionalidad mexicana y designados por accionistas mexicanos. Los miembros propietarios y suplentes serán designados, por el voto mayoritario de las acciones comunes de la Serie “AA” en que se divide el capital social y los dos (2) miembros propietarios y suplentes restantes, por el voto mayoritario de las acciones de la Serie “L” del capital social.

 

- 51 -


Los miembros del Consejo de Administración no necesitarán ser accionistas y deberán de cumplir con lo previsto en la Ley del Mercado de Valores. Cualquier accionista o grupo de accionistas que represente, cuando menos, un 10% (diez por ciento) de las acciones comunes en que se divida el capital social, tendrá derecho a nombrar un (1) Consejero Propietario y un (1) Consejero Suplente y en este caso ya no podrá ejercer sus derechos de voto para designar los Consejeros Propietarios y sus Suplentes que corresponda elegir a la mayoría. Si cualquier accionista o grupo de accionistas que represente, cuando menos, un 10% (diez por ciento) de las acciones comunes en que se divide el capital social, ejercita el derecho de nombrar un (1) Consejero Propietario y su Suplente, la mayoría solo tendrá derecho a designar el número de Consejeros faltantes que corresponda nombrar a dicha mayoría.

Asimismo, el Consejo de Administración designará a un Secretario que no formará parte de dicho órgano social, quedando sujeto a las obligaciones y responsabilidades previstas en la Ley del Mercado de Valores.

Los Consejeros serán elegidos por un (1) año y continuarán en el desempeño de sus funciones aún cuando hubiere concluido el plazo para el que hayan sido designados, hasta por un plazo de de 30 (treinta) días naturales, a falta de la designación del sustituto o cuando éste no tome posesión de su cargo, sin estar sujetos a lo dispuesto por en el artículo 154 (ciento cincuenta y cuatro) de la Ley General de Sociedades Mercantiles. Los Consejeros podrán ser reelectos y percibirán la remuneración que determine la Asamblea General de Accionistas.

Los Consejeros Suplentes designados substituirán a sus respectivos Consejeros Propietarios que estuvieren ausentes.

El Consejo de Administración podrá designar Consejeros Provisionales, sin intervención de la Asamblea de Accionistas, cuando se actualice alguno de los supuestos señalados en el párrafo anterior o en el artículo 155 (ciento cincuenta y cinco) de la Ley General de Sociedades Mercantiles. La Asamblea de Accionistas podrá ratificar dichos nombramientos o designar a los Consejeros Sustitutos en la Asamblea siguiente a que ocurra tal evento.

La Sociedad cumplirá con lo previsto en la Ley del Mercado de Valores respecto a la integración, facultades y funcionamiento del Consejo de Administración incluyendo, sin limitación, las normas de designación y calificación de consejeros independientes.

El Consejo de Administración para el desempeño de sus funciones contará con el auxilio de uno (1) o más Comités. El o los Comités que desarrollen las actividades en materia de Prácticas Societarias y de Auditoría estarán integrados por Consejeros Independientes y por un mínimo de 3 (tres) miembros designados por el propio Consejo de Administración, de conformidad a lo dispuesto en el artículo 25 (veinticinco) de la Ley del Mercado de Valores.

Para la selección de los consejeros independientes, se estará a lo dispuesto en el artículo 26 (veintiséis) de la Ley del Mercado de Valores.

 

- 52 -


TRIGESIMA TERCERA. Independientemente de la obligación de la Sociedad de cumplir con los principios establecidos en la cláusula anterior de los presentes estatutos, y mientras dicha cláusula esté en vigor, la falta de observancia de lo previsto en mencionada cláusula, por cualquier causa, no generará ni le otorgará el derecho a terceros de impugnar la falta de validez, en relación con los actos jurídicos, contratos, acuerdos, convenios o cualquier otro acto que celebre la Sociedad por medio de, o a través de su Consejo de Administración o cualquier otro órgano intermedio, delegado, mandatario o apoderado, ni se considerarán requisitos de validez o existencia de tales actos.

Para los efectos de lo previsto en la Ley del Mercado de Valores, no se considerará, que se aprovecha o explota una oportunidad de negocio que corresponde a la Sociedad o personas morales que ésta controle o en las que tenga una influencia significativa, cuando un miembro del Consejo de Administración, directa o indirectamente, realice actividades que sean del giro ordinario o habitual de la propia Sociedad o de las personas morales que ésta controle o en las que tenga una influencia significativa, toda vez que, si dichos miembros son electos por la Asamblea de Accionistas, se considerará para todos los efectos legales que cuentan con la dispensa necesaria de la Sociedad.

TRIGESIMA CUARTA. Ni los miembros del Consejo de Administración y sus suplentes, ni, en su caso, los miembros de los Comités, ni los administradores y gerentes deberán de prestar garantía para asegurar el cumplimiento de las responsabilidades que pudieren contraer en el desempeño de sus encargos, salvo que la Asamblea de Accionistas que los hubiere designado establezca dicha obligación.

En términos de lo previsto en la Ley del Mercado de Valores, la responsabilidad consistente en indemnizar los daños y perjuicios ocasionados a la Sociedad o a las personas morales que ésta controle o en las que tenga una influencia significativa, por falta de diligencia de los miembros del Consejo de Administración, del Secretario o Pro-Secretario de dicho órgano de la Sociedad, derivada de los actos que ejecuten o las decisiones que adopten en el Consejo de Administración o de aquellas que dejen de tomarse al no poder sesionar legalmente dicho órgano social, y en general por falta del deber de diligencia, no podrá, en ningún caso, en una o más ocasiones, exceder del monto equivalente al total de los honorarios netos que dichas personas físicas hayan recibido por parte de la Sociedad o de las personas morales que ésta controle o en las que tenga una influencia significativa en los últimos 12 (doce) meses. Lo anterior, en el entendido que, la limitación al monto de la indemnización contenida en este párrafo, no será aplicable cuando se trate de actos dolosos o de mala fe, o bien, ilícitos conforme a la Ley del Mercado de Valores u otras leyes. La Sociedad, en todo caso, indemnizará y sacará en paz y a salvo a los directivos relevantes, miembros del Consejo de Administración y el Secretario y el Pro-Secretario de cualquier responsabilidad que incurran frente a terceros en el debido desempeño de su encargo y cubrirá el monto de la indemnización por los daños que cause su actuación a terceros, salvo que se trate de actos dolosos o de mala fe, o bien, ilícitos conforme a la Ley del Mercado de Valores u otras leyes.

 

- 53 -


TRIGESIMA QUINTA. El Consejo de Administración se reunirá cuando menos una vez cada 3 (tres) meses en la Ciudad de México o en cualquier otro lugar de los Estados Unidos Mexicanos que para tal efecto se señale, y en las fechas que para tal propósito establezca el propio Consejo. Estas Sesiones deberán ser convocadas por al menos el 25% (veinticinco por ciento) de los miembros del Consejo o de los miembros de los Comités de la Sociedad, por el Presidente de los mismos, o por el Secretario o Pro-Secretario del Consejo.

Además de las Sesiones regulares a que se alude anteriormente, el Consejo de Administración se reunirá siempre que por cualquier medio escrito fehaciente sean citados para tal efecto sus miembros con una anticipación no menor de 5 (cinco) días naturales, por el Presidente o por al menos el 25% (veinticinco por ciento) de los Consejeros o de los miembros de los Comités de la Sociedad o por el Secretario o Pro-Secretario del Consejo.

Las convocatorias para las Sesiones del Consejo de Administración deberán contener el orden del día a la que la reunión respectiva deberá sujetarse. El Consejo funcionará válidamente siempre que concurran la mayoría de los miembros que lo integran y siempre que los asistentes sean mexicanos en su mayoría y sus resoluciones serán válidas si se adoptan por mayoría de votos de los Consejeros que asistan a la Sesión. En caso de empate, el Presidente del Consejo de Administración tendrá voto de calidad.

Para resolver respecto de cualquiera de los asuntos que se relacionan en los puntos (1) a (12) de la cláusula cuadragésima primera, el Consejo de Administración consultará previamente al Comité Ejecutivo. Para este efecto el Comité Ejecutivo estará obligado a hacer llegar su recomendación en un plazo no mayor a 10 (diez) días naturales contados a partir del requerimiento del Consejo, del Presidente del Consejo de Administración o del Director General de la Sociedad. En caso de que el Comité Ejecutivo no haga llegar su recomendación en el plazo indicado o bien si sus miembros no llegan a un acuerdo en una Sesión debidamente convocada de dicho Comité, entonces el Consejo resolverá sobre cualquier punto, aún sin contar con recomendación alguna del Comité Ejecutivo.

No obstante lo anterior, si se determina por la mayoría de los miembros del Consejo de Administración o cualquier órgano de la Sociedad, incluyendo al Director General, de buena fe que el asunto sujeto a revisión por el Comité Ejecutivo no puede esperar hasta la siguiente Sesión para su revisión y consideración, porque el tiempo sea esencial, entonces ese asunto en particular podrá ser resuelto por el Consejo y/o por cualquier órgano de la Sociedad incluyendo al Director General, sin la recomendación del Comité Ejecutivo.

TRIGESIMA SEXTA. De cada Sesión del Consejo se levantará acta, en la que se consignarán las resoluciones aprobadas, deberá ser asentada en el libro de actas correspondientes y será firmada por quien haya presidido la Sesión y por la persona que haya actuado como Secretario.

 

- 54 -


De conformidad con lo previsto en el último párrafo del artículo 143 (ciento cuarenta y tres) de la Ley General de Sociedades Mercantiles, el Consejo de Administración podrá válidamente tomar resoluciones sin ser necesario que se reúnan personalmente sus miembros en Sesión formal; de igual forma lo podrán hacer los Comités de la Sociedad. Los acuerdos que se tomen fuera de Sesión deberán ser aprobados, en todos los casos, por el voto favorable de la totalidad de los miembros propietarios del órgano de que se trate o, en caso de ausencia definitiva o incapacidad de alguno de ellos, con el voto favorable del miembro suplente que corresponda, de conformidad con las siguientes disposiciones:

 

  I. El Presidente, por su propia iniciativa o de cualesquiera 2 (dos) miembros propietarios del consejo de Administración o de los Comités, deberá comunicar a todos los miembros propietarios o, en su caso, suplentes del órgano social de que se trate, en forma verbal o escrita y por el medio que estime conveniente, de los acuerdos que se pretendan tomar fuera de Sesión y las razones que los justifiquen. Asimismo, el Presidente deberá proporcionar a todos ellos, en caso de que lo solicitaren, toda la documentación y aclaraciones que requieran al efecto. El Presidente podrá auxiliarse de uno (1) o más miembros del Consejo o de los Comités que él determine, o del Secretario o su suplente, para realizar las comunicaciones referidas.

 

  II. En el caso de que la totalidad de los miembros propietarios del Consejo o de los Comités o, en su caso, los suplentes cuyo voto se requiera, manifestaren verbalmente al Presidente o a los miembros que lo auxilien su consentimiento con los acuerdos o resoluciones que se les hubieren sometido a consideración, deberán confirmar por escrito su consentimiento a más tardar el segundo día hábil siguiente a la fecha en que lo hubieren manifestado en la forma que se establece en la fracción inmediata siguiente. La confirmación escrita se deberá enviar al Presidente y al Secretario a través del correo, telex, telefax, telegrama, correo electrónico o mensajería, o a través de cualquier otro medio que garantice que la misma se reciba dentro de los 2 (dos) días hábiles siguientes.

 

  III. Para los efectos de lo previsto en la fracción inmediata anterior, el Presidente deberá enviar por escrito a cada uno de los miembros del órgano de que se trate, ya sea directamente o a través de las personas que lo auxilien, un proyecto formal de acta que contenga los acuerdos o resoluciones que se pretendan adoptar fuera de Sesión y cualquier otra documentación que estime necesaria, con el propósito de que, en su caso, una vez hechas las modificaciones que se requieran, el proyecto de acta de que se trate sea reenviado al Presidente y al Secretario, debidamente firmado de conformidad al calce, por cada uno de los miembros del Consejo o de los Comités, según sea el caso.

 

  IV.

Una vez que el Presidente y el Secretario reciban las confirmaciones por escrito de la totalidad de los miembros del órgano de que se trate, procederán de inmediato a asentar el acta aprobada en el libro de actas respectivo, la cual contendrá la totalidad de las resoluciones tomadas, misma que se legalizará con la firma del Presidente y del Secretario. La fecha del acta señalada será aquélla en la cual se obtuvo el consentimiento verbal o escrito de todos los miembros de

 

- 55 -


  que se trate, aún cuando en tal momento no se hubieren recibido las confirmaciones por escrito, mismas que una vez recibidas deberán integrarse a un expediente que al efecto deberá llevar la Secretaría de la Sociedad. Asimismo, deberán integrarse a dicho expediente las observaciones por escrito que en su caso hubiere hecho el Comité de Auditoria de la Sociedad al proyecto de resoluciones respectivo.

TRIGESIMA SEPTIMA. El Consejo de Administración, en la primera Sesión que celebre después de verificarse la Asamblea de Accionistas que lo hubiere nombrado y si esta Asamblea no hubiere hecho las designaciones o en cualquier otra Sesión que celebre, nombrará de entre sus miembros un Presidente, que deberá ser mexicano y podrá designar, si lo estima pertinente, uno o varios Vicepresidentes, un Secretario, así como un Pro-Secretario, en el concepto de que el Secretario y el Pro-Secretario no podrán ser miembros del Consejo de Administración. Estos cargos, salvo los de Presidente y Vicepresidente, los de Secretario y Pro-Secretario podrán ser desempeñados por una sola persona. Las faltas temporales o definitivas del Presidente serán suplidas indistintamente por 1 (uno) de los Vicepresidentes mexicanos, si los hubiere y, faltando éstos, por cualquier Consejero mexicano y las del Secretario, por un Pro-Secretario, si lo hubiere, o faltando éstos por la persona que el Consejo designe.

DE LAS FACULTADES DEL CONSEJO

TRIGESIMA OCTAVA. El Consejo de Administración tendrá las más amplias facultades para la administración de los negocios de la Sociedad, con poder general amplísimo para pleitos y cobranzas, para administrar bienes y para ejercer actos de dominio, sin limitación alguna, o sea con todas las facultades generales y las especiales que requieran cláusula especial conforme a la Ley, en los términos de los 3 (tres) primeros párrafos del artículo 2554 (dos mil quinientos cincuenta y cuatro) del Código Civil para el Distrito Federal, incluidas las facultades que enumera el artículo 2587 (dos mil quinientos ochenta y siete) del mismo ordenamiento. De una manera enunciativa y no limitativa, se le fijan de una manera expresa las siguientes facultades:

 

  I.

Representar a la Sociedad ante toda clase de autoridades, sean estas Federales, Estatales o Municipales; representar a la Sociedad ante toda clase de personas físicas o morales, nacionales o extranjeras; representar a la Sociedad ante Juntas de Conciliación y ante Juntas de Conciliación y Arbitraje, sean éstas Federales o Locales, con facultades expresas para todos los efectos previstos en las fracciones II y III del artículo 692 (seiscientos noventa y dos) de la Ley Federal del Trabajo, en concordancia con los artículos 786 (setecientos ochenta y seis) y 876 (ochocientos setenta y seis) del mismo ordenamiento normativo, por lo que queda expresamente facultado para absolver y articular posiciones a nombre y en representación de la Sociedad, conciliar, transigir, formular convenios, presentar denuncias y querellas, presentar y desistirse de toda clase de juicios y recursos, aún el de amparo, y representar a la Sociedad ante toda clase de autoridades, ya sean judiciales, administrativas y cualesquiera otras que se aboquen al conocimiento de conflictos laborales; presentar

 

- 56 -


  demandas de amparo y, en su caso, desistirse de las mismas; presentar querellas y, en su caso, conceder el perdón; presentar denuncias y constituirse en coadyuvante del Ministerio Público; desistirse; transigir; comprometer en árbitros; absolver y articular posiciones; recusar y recibir pagos.

 

  II. Otorgar, suscribir, endosar y avalar toda clase de títulos de crédito.

 

  III. Designar a los funcionarios, empleados, gerentes y apoderados de la Sociedad, a quienes deberá señalar sus deberes, obligaciones y remuneración.

 

  IV. Establecer o clausurar oficinas, sucursales o agencias.

 

  V. Adquirir acciones, participaciones sociales y valores emitidos por terceros y ejercitar el derecho de voto sobre tales acciones o participaciones sociales de otras empresas.

 

  VI. Celebrar, modificar, terminar y rescindir contratos.

 

  VII. Aceptar a nombre de la sociedad mandatos de personas físicas y morales, mexicanas o extranjeras.

 

  VIII. Establecer cuentas bancarias y retirar depósitos de la misma y designar las personas autorizadas para uso de la firma social, para depositar en las referidas cuentas bancarias y retirar depósitos de éstas, con las limitaciones que el Consejo tuviere a bien establecer.

 

  IX. Constituir garantías reales y personales y afectaciones fiduciarias para garantizar obligaciones de la sociedad y constituirse en deudor solidario, fiador y, en general, obligado al cumplimiento de obligaciones de terceras personas y establecer las garantías reales y afectaciones fiduciarias para asegurar el cumplimiento de estas obligaciones.

 

  X. Conferir, substituir y delegar poderes generales y especiales para actos de dominio, que deberán ser otorgados para que sean ejercitados conjuntamente por cuando menos dos personas y conferir, substituir y delegar poderes generales y especiales para actos de administración y para pleitos y cobranzas, siempre que con ello no se substituya totalmente al Consejo en sus funciones y revocar poderes.

 

  XI. Conferir facultades para otorgar, suscribir, endosar y avalar toda clase de títulos de crédito, en el entendido de que la facultad para avalar títulos de crédito, deberá ser siempre conferida para que sea ejercitada conjuntamente por cuando menos 2 (dos) personas.

 

  XII. Convocar a Asambleas de Accionistas y ejecutar las resoluciones que se adopten en las mismas.

 

- 57 -


  XIII. Aquellas previstas en la Ley del Mercado de Valores.

 

  XIV. Celebrar cualesquiera actos jurídicos y adoptar cualesquiera determinaciones que sean necesarias o convenientes para lograr los objetos sociales.

DEL PRESIDENTE Y DEL VICEPRESIDENTE

TRIGESIMA NOVENA. El Presidente del Consejo de Administración, que deberá ser mexicano, presidirá las Asambleas de Accionistas y las Sesiones del Consejo, será el representante del Consejo, ejecutará las resoluciones de las Asambleas y del Consejo de Administración, a menos que aquélla o éste designen 1 (uno) o más Delegados para la ejecución de las mismas, vigilará en general las operaciones sociales, cuidando del exacto cumplimiento de estos estatutos sociales, de los reglamentos y de los acuerdos y disposiciones de las Asambleas, del Consejo y de la Ley y firmará en unión del Secretario las actas de las Asambleas y del Consejo. En caso de ausencia temporal o definitiva del Presidente, sus funciones serán desempeñadas con las mismas facultades por 1 (uno) de los Vicepresidentes; faltando el o los Vicepresidentes, la mayoría de los Consejeros designará a quien deba substituir temporalmente al Presidente del Consejo, que deberá ser mexicano y de entre los designados por la mayoría de los acciones comunes.

DEL SECRETARIO

CUADRAGESIMA. El Secretario tendrá las facultades que el Consejo le asigne y llevará los libros de actas, en uno de los cuales asentará y firmará con el Presidente todas las actas de las Asambleas de Accionistas y en otro todas las actas del Consejo de Administración. En caso de ausencia hará sus veces el Pro-Secretario, si lo hubiere, y en ausencia de éste la persona que el Presidente en funciones designe.

DEL COMITE EJECUTIVO

CUADRAGESIMA PRIMERA. La Asamblea de Accionistas, por el voto favorable de la mayoría de las acciones comunes representativas del capital social, nombrará de entre los miembros del Consejo de Administración a un Comité Ejecutivo que estará integrado por el número de miembros propietarios y, en su caso, los suplentes que determine la Asamblea. La mayoría de los miembros del Comité Ejecutivo deberán ser de nacionalidad mexicana y designados por accionistas mexicanos por el voto favorable de la mayoría de las acciones comunes representativas del capital social.

El Comité Ejecutivo es un órgano delegado del Consejo de Administración y tendrá las facultades que se establecen en la cláusula trigésima octava de estos estatutos sociales, en el concepto de que las facultades conferidas al Comité Ejecutivo no comprenderán las reservadas privativamente por la Ley o los estatutos sociales a otro órgano de la Sociedad. El Comité Ejecutivo no podrá delegar la totalidad de sus facultades en 1 (uno) o más apoderados o delegados. Sujeto a lo previsto en estos estatutos sociales, específicamente, el Comité Ejecutivo deberá examinar inicialmente y, aprobar o, en su caso, proponer al Consejo de Administración, para la aprobación de éste, recomendaciones acerca de los siguientes asuntos:

 

  1. Cualquier reforma, cambio y otra modificación o reforma integral a estos estatutos sociales.

 

- 58 -


  2. La emisión, autorización, cancelación, alteración, modificación, reclasificación, amortización o cualquier cambio en, a, o respecto a cualquier valor que represente el capital social de la Sociedad o cualquiera de sus Subsidiarias.

 

  3. La venta u otra disposición (salvo inventarios, activos obsoletos o transferencias en el curso ordinario de negocios de la Sociedad, o de cualquiera otra Subsidiaria) de, o el imponer un gravamen (salvo gravámenes derivados de Ley) en, cualquier activo de la Sociedad o sus Subsidiarias con valor en exceso del equivalente en moneda nacional de $175 (ciento setenta y cinco) millones de Dólares moneda de curso legal en los Estados Unidos de América.

 

  4. Comenzar una nueva línea de negocios, o la compra de un interés en, otra persona o entidad por la Sociedad, o sus Subsidiarias por o en un monto en exceso del equivalente en moneda nacional de $100 (cien) millones de Dólares moneda de curso legal en los Estados Unidos de América.

 

  5. Discusión del presupuesto anual de gastos de capital.

 

  6. Revisión y consideración de cualquier transacción relacionada con deuda neta adicional, préstamos o empréstitos de la Sociedad o sus Subsidiarias, nuevos, en exceso del equivalente en moneda nacional de $150 (ciento cincuenta) millones de Dólares moneda de curso legal en los Estados Unidos de América, o una nueva facilidad de crédito revolvente de la Sociedad o cualquiera de sus Subsidiarias permitiendo un monto agregado de préstamos en una sola ocasión en exceso del equivalente en moneda nacional de $150 (ciento cincuenta) millones de Dólares Moneda de Curso legal en los Estados Unidos de América.

 

  7. Discusión del plan de negocios o presupuesto anual.

 

  8. Revisión y consideración del Director General de la Sociedad.

 

  9. Fusión u otra transacción similar que afecte a la Sociedad o sus Subsidiarias.

 

  10. Celebrar contratos o transacciones, en o para beneficio directo de algún accionista de la Serie “AA” o de su afiliadas, sin que dicha transacción esté contemplada dentro de las políticas adoptadas por el Comité Ejecutivo.

 

  11. Discusión de la política de dividendos de la Sociedad.

 

  12. La transferencia de nombres comerciales y marcas importantes o el crédito mercantil asociado a ellas.

 

- 59 -


Los asuntos anteriores, podrán ser resueltos indistintamente por el Consejo de Administración o por el Comité Ejecutivo.

El Comité Ejecutivo funcionará válidamente siempre que concurran la mayoría de los miembros que lo integren y siempre que la mayoría de los miembros designados por accionistas mexicanos estén presentes, y sus resoluciones serán válidas si se adoptan por mayoría de votos de los asistentes. Los miembros del Comité Ejecutivo utilizarán sus mejores esfuerzos para llegar a posiciones comunes en los temas que se les presenten.

En caso de empate, el Presidente del Comité Ejecutivo tendrá voto de calidad.

El Comité Ejecutivo, se reunirá con la frecuencia que sea necesaria a fin de estar involucrado permanentemente en los asuntos de su competencia. En todo caso, el Comité se reunirá cuando se considere necesario pero al menos antes de cada Sesión del Consejo de Administración. Deberá de convocarse a sus miembros con al menos 5 (cinco) días naturales de anticipación (a través de telefax y mensajería), en el entendido de que un plazo más corto podrá utilizarse o podrá omitirse el requisito si todos los miembros del Comité Ejecutivo lo aprueban. La convocatoria deberá contener, entre otros aspectos, un orden del día identificando con detalle razonable todas las materias a ser discutidas en la Sesión y será acompañada de copias de los papeles relevantes a ser discutidos en la misma. En caso de que se convoque a la reunión del Comité y se discuta un asunto no contenido en la convocatoria respecto del cual no se hubieren entregado a los miembros del Comité los papeles relevantes a ser discutidos, y no se llegue a una resolución por unanimidad, entonces, el desahogo del asunto se diferirá hasta la siguiente Sesión regular del Comité, o hasta que se resuelva por unanimidad o se subsanen los requisitos indicados.

No obstante lo anterior, si se determina por la mayoría de los miembros del Comité Ejecutivo de buena fe que el asunto sujeto a revisión por el Comité Ejecutivo no puede esperar hasta la siguiente Sesión regular del Comité Ejecutivo, para su revisión y consideración, porque el tiempo sea esencial, entonces ese asunto en particular podrá ser resuelto por mayoría simple de presentes y deberá de ser discutido con todos los miembros del Comité antes de que se tome una resolución y la perspectiva de cada miembro del Comité se reflejará en el acta de la siguiente Sesión regular del Comité.

El Comité Ejecutivo formulará su propio reglamento de trabajo, en base a estos estatutos sociales, el cual deberá ser sometido para su aprobación al Consejo de Administración.

 

- 60 -


COMITÉ DE AUDITORÍA

CUADRAGESIMA SEGUNDA. La vigilancia de la gestión, conducción y ejecución de los negocios de la Sociedad estará a cargo del Consejo de Administración a través del Comité de Auditoría, así como del Auditor Externo de la Sociedad. La Sociedad no esta sujeta a lo previsto en el artículo 91 (noventa y uno), fracción V de la Ley General de Sociedades Mercantiles ni a los artículos 164 (ciento sesenta y cuatro), 171 (ciento setenta y uno), 172 (ciento sesenta y dos) último párrafo, 173 (ciento sesenta y tres) y 176 (ciento sesenta y seis) de la citada Ley.

El Presidente del Comité de Auditoría, será designado y/o removido de su cargo exclusivamente por la Asamblea General de Accionistas y no podrá presidir el Consejo de Administración y deberá ser seleccionado por su experiencia, por su reconocida capacidad y por su prestigio profesional y deberá elaborar un informe anual sobre las actividades que corresponda a dicho órgano y presentarlo al Consejo de Administración. Dicho informe, al menos, contemplará los aspectos siguientes: (i) En materia de prácticas societarias: (a) las observaciones respecto del desempeño de los directivos relevantes de la Sociedad, (b) las operaciones con personas relacionadas, durante el ejercicio que se informa, detallando las características de las operaciones significativas, (c) los paquetes de emolumentos o remuneraciones integrales del Director General de la Sociedad, (d) las dispensas otorgadas por el Consejo de Administración para que un consejero, directivo relevante o persona con poder de mando en términos de la Ley del Mercado de Valores aproveche oportunidades de negocio para sí o a favor de terceros, en términos de lo establecido en el artículo 28 (veintiocho), fracción III, inciso f) de la Ley del Mercado Valores; (ii) En materia de auditoría: (a) el estado que guarda el sistema de control interno y auditoría interna de la Sociedad y personas morales que ésta controle y, en su caso, la descripción de sus deficiencias y desviaciones, así como de los aspectos que requieran una mejoría, tomando en cuenta las opiniones, informes, comunicados y el dictamen de auditoría externa, así como los informes emitidos por los expertos independientes que hubieren prestado sus servicios durante el periodo que cubra el informe, (b) la mención y seguimiento de las medidas preventivas y correctivas implementadas con base en los resultados de las investigaciones relacionadas con el incumplimiento a los lineamientos y políticas de operación y de registro contable, ya sea de la propia Sociedad o de las personas morales que ésta controle, (c) la evaluación del desempeño de la persona moral que proporcione los servicios de auditoría externa, así como del Auditor Externo encargado de ésta, (d) la descripción y valoración de los servicios adicionales o complementarios que, en su caso, proporcione la persona moral encargada de realizar la auditoría externa, así como los que otorguen los expertos independientes, (e) los principales resultados de las revisiones a los estados financieros de la Sociedad y de las personas morales que ésta controle, (f) La descripción y efectos de las modificaciones a las políticas contables aprobadas durante el periodo que cubra el informe, (g) las medidas adoptadas con motivo de las observaciones que consideren relevantes, formuladas por accionistas, consejeros, directivos relevantes, empleados y, en general, de cualquier tercero, respecto de la contabilidad, controles internos y temas relacionados con la auditoría interna o externa, o bien, derivadas de las denuncias realizadas sobre hechos que estimen irregulares en la administración, (h) El seguimiento de los acuerdos de las Asambleas de Accionistas y del Consejo de Administración.

 

- 61 -


Para la elaboración de los informes a que se refiere esta cláusula, así como de las opiniones señaladas en el artículo 42 (cuarenta y dos) de la Ley del Mercado de Valores, el Comité de Auditoría deberá escuchar a los directivos relevantes de la Sociedad; en caso de existir diferencia de opinión con estos últimos, incorporarán tales diferencias en los citados informes y opiniones.

El Comité de Auditoría tendrá a su cargo las siguientes actividades, además de las mencionadas anteriormente:

 

  (a) Dar opinión al Consejo de Administración sobre los asuntos que le competan conforme a la Ley del Mercado de Valores.

 

  (b) Solicitar la opinión de expertos independientes en los casos en que lo juzgue conveniente, para el adecuado desempeño de sus funciones o cuando conforme a la Ley del Mercado de Valores y/o a las disposiciones de carácter general se requiera.

 

  (c) Convocar a Asambleas de Accionistas y hacer que se inserten en el orden del día de dichas Asambleas los puntos que estimen pertinentes.

 

  (d) Apoyar al Consejo de Administración en la elaboración de los informes a que se refiere el artículo 28 (veintiocho), fracción IV, incisos d) y e) de la Ley del Mercado de Valores.

 

  (e) Evaluar el desempeño de la persona moral que proporcione los servicios de auditoría externa, así como analizar el dictamen, opiniones, reportes o informes que elabore y suscriba el Auditor Externo. Para tal efecto, el Comité podrá requerir la presencia del citado Auditor cuando lo estime conveniente, sin perjuicio de que deberá reunirse con este último por lo menos una vez al año.

 

  (f) Discutir los estados financieros de la Sociedad con las personas responsables de su elaboración y revisión, y con base en ello recomendar o no al Consejo de Administración su aprobación.

 

  (g) Informar al Consejo de Administración la situación que guarda el sistema de control interno y auditoría interna de la Sociedad o de las personas morales que ésta controle, incluyendo las irregularidades que, en su caso, detecte.

 

  (h) Elaborar la opinión a que se refiere el artículo 28 (veintiocho), fracción IV, inciso c) de la Ley del Mercado de Valores, respecto del contenido del informe presentado por el Director General y someterla a consideración del Consejo de Administración para su posterior presentación a la Asamblea de Accionistas, apoyándose, entre otros elementos, en el dictamen del Auditor Externo. Dicha opinión deberá señalar, por lo menos:

1. Si las políticas y criterios contables y de información seguidas por la Sociedad son adecuados y suficientes tomando en consideración las circunstancias particulares de la misma.

 

- 62 -


2. Si dichas políticas y criterios han sido aplicados consistentemente en la información presentada por el Director General.

3. Si como consecuencia de los numerales 1 (uno) y 2 (dos) anteriores, la información presentada por el Director General refleja en forma razonable la situación financiera y los resultados de la Sociedad.

 

  (i) Apoyar al Consejo de Administración en la elaboración de los informes a que se refiere el artículo 28 (veintiocho), fracción IV, incisos d) y e) de la Ley del Mercado de Valores respecto de las principales políticas y criterios contables y de información, así como el informe sobre las operaciones y actividades en las que hubiera intervenido en ejercicio de sus facultades conforme a estos estatutos sociales y a la Ley del Mercado de Valores.

 

  (j) Vigilar que las operaciones a que hacen referencia los artículos 28 (veintiocho), fracción III y 47 (cuarenta y siete) de esta Ley, se lleven a cabo ajustándose a lo previsto al efecto en dichos preceptos, así como a las políticas derivadas de los mismos.

 

  (k) Solicitar la opinión de expertos independientes en los casos en que lo juzgue conveniente, para el adecuado desempeño de sus funciones o cuando así lo requieran las disposiciones de carácter general.

 

  (l) Requerir a los directivos relevantes y demás empleados de la Sociedad o de las personas morales que ésta controle, reportes relativos a la elaboración de la información financiera y de cualquier otro tipo que estime necesaria para el ejercicio de sus funciones.

 

  (m) Investigar los posibles incumplimientos de los que tenga conocimiento, a las operaciones, lineamientos y políticas de operación, sistema de control interno y auditoría interna y registro contable, ya sea de la propia Sociedad o de las personas morales que ésta controle, para lo cual deberá realizar un examen de la documentación, registros y demás evidencias comprobatorias, en el grado y extensión que sean necesarios para efectuar dicha vigilancia.

 

  (n) Recibir observaciones formuladas por accionistas, consejeros, directivos relevantes, empleados y, en general, de cualquier tercero, respecto de los asuntos a que se refiere el inciso inmediato anterior, así como realizar las acciones que a su juicio resulten procedentes en relación con tales observaciones.

 

  (o) Solicitar reuniones periódicas con los directivos relevantes, así como la entrega de cualquier tipo de información relacionada con el control interno y auditoría interna de la Sociedad o personas morales que ésta controle.

 

- 63 -


  (p) Informar al Consejo de Administración de las irregularidades importantes detectadas con motivo del ejercicio de sus funciones y, en su caso, de las acciones correctivas adoptadas o proponer las que deban aplicarse.

 

  (q) Vigilar que el Director General dé cumplimiento a los acuerdos de las Asambleas de Accionistas y del Consejo de Administración de la Sociedad, conforme a las instrucciones que, en su caso, dicte la propia Asamblea o el referido Consejo.

 

  (r) Vigilar que se establezcan mecanismos y controles internos que permitan verificar que los actos y operaciones de la Sociedad y de las personas morales que ésta controle, se apeguen a la normativa aplicable, así como implementar metodologías que posibiliten revisar el cumplimiento de lo anterior.

 

  (s) Las demás establecidas por la Ley del Mercado de Valores o que estén previstos en estos estatutos sociales.

AUDITOR EXTERNO

CUADRAGESIMA TERCERA. La Sociedad deberá de contar con un Auditor Externo, mismo que podrá ser convocado a las Sesiones del Consejo de Administración, en calidad de invitado con voz y sin voto, debiendo abstenerse de estar presente respecto de aquéllos asuntos del orden del día en los que tenga un conflicto de interés o que puedan comprometer su independencia.

El Auditor Externo de la Sociedad deberá de emitir un dictamen sobre los estados financieros, elaborados con base en normas de auditoría y en principios de contabilidad generalmente aceptados.

DIRECTOR GENERAL

CUADRAGESIMA CUARTA. Las funciones de gestión, conducción y ejecución de los negocios de la Sociedad y de las personas morales que ésta controle, serán responsabilidad del Director General, sujetándose para ello a las estrategias, políticas y lineamientos aprobados por el Consejo de Administración.

El Director General, para el cumplimiento de sus funciones, contará con las más amplias facultades para representar a la Sociedad en actos de administración y pleitos y cobranzas, incluyendo facultades especiales que conforme a las leyes requieran cláusula especial. Tratándose de actos de dominio, el Director General tendrá las facultades en los términos y condiciones que el Consejo de Administración de la Sociedad determine.

 

- 64 -


El Director General, sin perjuicio de lo señalado con anterioridad, deberá:

 

  I. Someter a la aprobación del Consejo de Administración las estrategias de negocio de la Sociedad y personas morales que ésta controle, con base en la información que estas últimas le proporcionen.

 

  II. Dar cumplimiento a los acuerdos de las Asambleas de Accionistas y del Consejo de Administración, conforme a las instrucciones que, en su caso, dicte la propia Asamblea o el referido Consejo.

 

  III. Proponer al Comité que desempeñe las funciones en materia de auditoría, los lineamientos del sistema de control interno y auditoría interna de la Sociedad y personas morales que ésta controle, así como ejecutar los lineamientos que al efecto apruebe el Consejo de Administración de la Sociedad.

 

  IV. Suscribir la información relevante de la Sociedad, junto con los directivos relevantes encargados de su preparación, en el área de su competencia.

 

  V. Difundir la información relevante y eventos que deban ser revelados al público, ajustándose a lo previsto en la Ley del Mercado de Valores.

 

  VI. Dar cumplimiento a las disposiciones relativas a la celebración de operaciones de adquisición y colocación de acciones propias de la Sociedad.

 

  VII. Ejercer, por sí o a través de delegado facultado, en el ámbito de su competencia o por instrucción del Consejo de Administración, las acciones correctivas y de responsabilidad que resulten procedentes.

 

  VIII. Verificar que se realicen, en su caso, las aportaciones de capital hechas por los accionistas.

 

  IX. Dar cumplimiento a los requisitos legales y estatutarios establecidos con respecto a los dividendos que se paguen a los accionistas.

 

  X. Asegurar que se mantengan los sistemas de contabilidad, registro, archivo o información de la Sociedad.

 

  XI. Elaborar y presentar al Consejo de Administración el informe a que se refiere el artículo 172 (ciento setenta y dos) de la Ley General de Sociedades Mercantiles, con excepción de lo previsto en el inciso b) de dicho precepto.

 

  XII. Establecer mecanismos y controles internos que permitan verificar que los actos y operaciones de la Sociedad y personas morales que ésta controle, se hayan apegado a la normativa aplicable, así como dar seguimiento a los resultados de esos mecanismos y controles internos y tomar las medidas que resulten necesarias en su caso.

 

  XIII.

Ejercer las acciones de responsabilidad en términos de los establecido en la Ley del Mercado de Valores y en estos estatutos sociales, en contra de personas relacionadas o terceros que presumiblemente hubieren ocasionado un daño a la

 

- 65 -


  Sociedad o las personas morales que ésta controle o en las que tenga una influencia significativa, salvo que por determinación del Consejo de Administración y previa opinión del Comité de Auditoria, el daño causado no sea relevante.

CUADRAGESIMA QUINTA. El Director General, para el ejercicio de sus funciones y actividades, así como para el debido cumplimiento de las obligaciones se auxiliará de los directivos relevantes designados para tal efecto y de cualquier empleado de la Sociedad o de las personas morales que ésta controle.

EJERCICIOS SOCIALES Y BALANCE

CUADRAGESIMA SEXTA- Los ejercicios sociales serán de 12 (doce) meses y comprenderán del 1 (uno) de enero al 31 (treinta y uno) de diciembre de cada año.

CUADRAGESIMA SEPTIMA. Al finalizar cada ejercicio social, el Consejo de Administración elaborará un informe que por lo menos incluya la información a que se refiere el artículo 172 (ciento setenta y dos) de la Ley General de Sociedades Mercantiles, que deberá quedar concluido dentro de los 3 (tres) meses siguientes a la clausura del correspondiente ejercicio social. El Consejo de Administración entregará el informe por lo menos un mes antes de la fecha de la Asamblea de Accionistas que haya de discutirlo, junto con los documentos justificativos. Cuando menos con 15 (quince) días de anticipación a la fecha en que se celebrará la Asamblea de Accionistas que discutirá el informe de los administradores, el informe del Consejo de Administración a que se refiere esta cláusula, deberá quedar terminado y ponerse a disposición de los accionistas por lo menos 15 (quince) días antes de la fecha de la Asamblea de Accionistas que lo discutirá. Los accionistas tendrán derecho a que se les entregue de forma gratuita una copia del informe correspondiente.

Asimismo, la Sociedad deberá dar a conocer en la Asamblea Anual Ordinaria de Accionistas a que se refiere la cláusula décima séptima de estos estatutos sociales un reporte en el que se informe sobre el cumplimiento de las obligaciones fiscales a su cargo de conformidad con lo previsto en el artículo 86 (ochenta y seis), fracción XX de la Ley del Impuesto Sobre la Renta. Dicho reporte podrá contenerse dentro del informe a que se refiere el párrafo anterior o en cualquier otro previsto en las disposiciones normativas aplicables.

FONDO DE RESERVA Y MANERA DE DISTRIBUIR

LAS UTILIDADES Y PÉRDIDAS

CUADRAGESIMA OCTAVA. Las utilidades líquidas que en su caso arroje el balance general, después de ser aprobado por la Asamblea Anual Ordinaria de Accionistas, se distribuirán en la siguiente forma:

 

  (a) Se separará en primer término un 5% (cinco por ciento) para la constitución o reconstitución del fondo legal de reserva, hasta que represente una cantidad igual a la quinta parte del capital social.

 

- 66 -


  (b) Luego se separará la cantidad que, en su caso, acuerde la Asamblea para constituir los fondos extraordinarios, especiales o adicionales que se estimen convenientes.

 

  (c) Se separarán las cantidades que la Asamblea acuerde aplicar para crear o incrementar reservas generales o especiales, incluyendo, en su caso, la reserva para adquisición de acciones propias a que se refiere el Artículo 56 (cincuenta y seis) de la Ley del Mercado de Valores.

 

  (d) Se aplicará la cantidad que fuere necesaria al pago del dividendo preferente por el ejercicio de que se trate a que tienen derecho los accionistas de la Serie “L” o, en su caso, al pago de dividendos preferentes de ejercicios anteriores acumulados.

 

  (e) El remanente de las utilidades líquidas podrá ser distribuido como dividendo entre los accionistas, en proporción a sus respectivos pagos de las acciones de que sean titulares, de aquéllas en que se divida el capital social.

Los pagos de dividendos se harán contra los cupones respectivos, a no ser que la Asamblea acuerde otra forma de comprobación. Los dividendos no cobrados por los accionistas en un plazo de 5 (cinco) años contados a partir de la fecha que se fije para su pago prescribirán a favor de la Sociedad.

La Asamblea Anual Ordinaria de Accionistas fijará la remuneración de los miembros y funcionarios del Consejo de Administración de la Sociedad.

Si hubiere pérdidas, éstas serán soportadas por los accionistas en proporción al respectivo número de sus acciones, pero limitada siempre la obligación de los accionistas al pago del importe de sus suscripciones, sin que pueda exigírseles ningún pago adicional.

DE LAS CAUSAS DE LA DISOLUCION

CUADRAGESIMA NOVENA. La Sociedad se disolverá:

 

I. Por imposibilidad de seguir realizando el objeto principal de la Sociedad.

 

II. Por acuerdo de los accionistas tomado de conformidad con estos estatutos sociales y con la Ley.

 

III. Porque el número de accionistas llegue a ser inferior a 2 (dos), mínimo previsto en el artículo 89 (ochenta y nueve), fracción I de la Ley General de Sociedad Mercantiles.

 

IV. Por la pérdida de dos terceras partes del capital social de la Sociedad.

 

- 67 -


DE LAS BASES PARA LA LIQUIDACION

QUINCUAGESIMA. Acordada la disolución, se pondrá en liquidación la Sociedad y la Asamblea General Extraordinaria de Accionistas designará por mayoría de votos de las acciones comunes 1 (uno) o varios liquidadores, que serán los representantes de la Sociedad y tendrán las facultades y obligaciones señaladas en el artículo 242 (doscientos cuarenta y dos) de la Ley General de Sociedades Mercantiles, debiendo proceder en su oportunidad a la distribución del remanente entre los accionistas, de acuerdo con lo previsto en los artículos 247 (doscientos cuarenta y siete) y 248 (doscientos cuarenta y ocho) de la citada Ley, y como sigue:

 

I. Concluirán los negocios de la manera que juzguen más conveniente.

 

II. Cobrarán los créditos y pagarán las deudas enajenando los bienes de la Sociedad que fueren necesarios para tales efectos.

 

III. Formularán el balance final de liquidación.

 

IV. Una vez aprobado el balance final de liquidación, distribuirán el activo líquido repartible entre todos los accionistas como sigue:

 

  1. Se pagará a los accionistas tenedores de las acciones de la Serie “L”, el dividendo preferente equivalente al 5% (cinco por ciento) sobre el valor teórico de las acciones que les correspondiere y que no hubiere sido cubierto;

 

  2. Se pagará a los accionistas tenedores de las acciones comunes u ordinarias de la Serie“AA”, un dividendo equivalente al dividendo pagado a los accionistas de la Serie “L”, a que se refiere el punto 1 (uno) anterior de esta fracción IV.

 

  3. Una vez pagados los conceptos referidos en los puntos 1 (uno) y 2 (dos) de esta fracción, se deberá pagar a los tenedores de las acciones de la Serie “L”, el reembolso por acción equivalente a su valor teórico;

 

  4. Del remanente se pagará a los accionistas de la Serie “AA”, una cantidad igual a la que se refiere el punto 3 (tres) anterior; y

 

  5. El remanente se distribuirá por igual entre todos los accionistas y en proporción al número de las acciones y a su importe exhibido, de que cada uno de ellos fuere tenedor. En caso de discrepancia entre los liquidadores, se deberá convocar a la Asamblea General Extraordinaria de Accionistas para que ésta resuelva las cuestiones sobre las que existiesen divergencias.

QUINCUAGESIMA PRIMERA. Los accionistas fundadores no se reservan derecho alguno.

 

- 68 -


QUINCUAGESIMA SEGUNDA. Las disposiciones de la Ley del Mercado de Valores y Ley General de Sociedades Mercantiles regirán en todo aquello sobre lo que no haya cláusula expresa en estos estatutos sociales, en el orden citado.

QUINCUAGESIMA TERCERA. Cualquier controversia que se surja con motivo de la celebración, interpretación y cumplimiento de estos estatutos sociales, en que sea parte la Sociedad, se someterá a los tribunales federales de los Estados Unidos Mexicanos. Para el caso de cualquier controversia entre la Sociedad y sus accionistas, o bien, entre los accionistas por cuestiones relativas a la Sociedad, la primera y los segundos al suscribir o adquirir las acciones, se someten expresamente a las leyes aplicables en, y a la jurisdicción de los tribunales competentes por territorio en la Ciudad de México, Distrito Federal, renunciando al fuero que les pudiere corresponder por razón de domicilio presente o futuro.

CLÁUSULAS TRANSITORIAS

PRIMERA. El capital social es variable, con un mínimo fijo de $270’049,805.29 M.N. (doscientos setenta millones cuarenta y nueve mil ochocientos cinco pesos 29/100 Moneda Nacional), representado por un total de 71,063’212,170 (setenta y un mil sesenta y tres millones doscientas doce mil ciento setenta) acciones, de las cuales 20,601’632,660 (veinte mil seiscientos un millones seiscientas treinta y dos mil seiscientas sesenta) son acciones comunes, de la Serie “AA”, nominativas, sin valor nominal; 558’677,704 (quinientos cincuenta y ocho millones seiscientas setenta y siete mil setecientas cuatro) son acciones comunes de la Serie “A”, nominativas, sin valor nominal; y 49,902’901,806 (cuarenta y nueve mil novecientos dos millones novecientas un mil ochocientas seis) son acciones nominativas de la Serie “L”, sin valor nominal, de voto limitado; todas ellas íntegramente suscritas y pagadas.

Se hace constar que se encuentran en la tesorería de la Sociedad para su recolocación en los términos de lo previsto en la Ley del Mercado de Valores y de las disposiciones de carácter general emitidas por la Comisión Nacional Bancaria y de Valores, un total de 5,000,000,000 (cinco mil millones) de acciones nominativas de la Serie “L”, sin valor nominal, de voto limitado.

SEGUNDA. Se hace constar que existen 558,677,704 (quinientos cincuenta y ocho millones seiscientas setenta y siete mil setecientas cuatro) acciones comunes de la Serie “A” en circulación, las cuales podrán convertirse, conforme a lo establecido por la cláusula novena de estos estatutos sociales, en acciones de la Serie “L”. Las acciones comunes de la Serie “A” actualmente se encuentran detentadas por inversionistas mexicanos, y/o por personas físicas o morales y unidades económicas extranjeras, y/o por empresas mexicanas en las que participe mayoritariamente el capital extranjero o en las que los extranjeros tengan, por cualquier título, la facultad de determinar el manejo de la empresa. Hasta en tanto existan acciones comunes de la Serie “A” en circulación, éstas tendrán los mismos derechos y las mismas obligaciones que se establecen en estos estatutos sociales para el restante de las acciones comunes de la Sociedad, representadas por las acciones de la Serie “AA”, con la única excepción de que las acciones de la Serie “A” actualmente emitidas y en circulación pueden ser

 

- 69 -


detentadas por personas físicas o morales y unidades económicas extranjeras, y/o por empresas mexicanas en las que participe mayoritariamente el capital extranjero o en las que los extranjeros tengan, por cualquier título, la facultad de determinar el manejo de la empresa. De manera enunciativa y no limitativa, y mientras existan acciones de la Serie “A” en circulación, éstas tendrán los mismos derechos y las mismas obligaciones que se establecen para las acciones de la Serie “AA” en: (i) la cláusula séptima; (ii) los incisos (a), (b), (c) y (d), párrafo quinto de la cláusula octava; (iii) el párrafo quinto de la cláusula vigésimo cuarta; (iv) el párrafo segundo de la cláusula trigésima segunda; y (v) los numerales 2 y 4, fracción IV de la cláusula quincuagésima de estos estatutos sociales.

A partir de la presente fecha y hasta en tanto existan acciones comunes de la Serie “A” en circulación, la integración del capital social de la Sociedad se sujetará a lo siguiente:

 

  (a) el capital social de la Sociedad estará representado por acciones de la Serie “AA”, en un porcentaje no menor de 20% (veinte por ciento) y no mayor al 51% (cincuenta y uno por ciento) del capital social y que representarán en todo tiempo no menos del 51% (cincuenta y uno por ciento) de las acciones comunes que representen dicho capital social, que serán acciones comunes, nominativas y sin valor nominal, que sólo podrán ser suscritas, y adquiridas por inversionistas mexicanos; por acciones de la Serie “A”, en un porcentaje que no exceda del 19.6% (diecinueve punto seis por ciento) del capital social y en un porcentaje que no exceda del 49% (cuarenta y nueve por ciento) de las acciones comunes en que se divida el capital social, que serán acciones comunes, nominativas y sin valores nominal, que sólo podrán ser adquiridas por inversionistas mexicanos; y por acciones de la Serie “L”, de voto limitado y de libre suscripción, en un porcentaje que, junto con las acciones de la Serie “A”, no excedan del 80% (ochenta por ciento) del capital social;

 

  (b) Las acciones comunes de las Series “AA” y “A”, en su conjunto, no podrán representar más del 51% (cincuenta y uno por ciento) de las acciones en que se divida el capital social.

 

  (c) Las acciones de la Serie “AA”, que sólo podrán ser suscritas por inversionistas mexicanos, representarán en todo tiempo un porcentaje que no sea menor al 20% (veinte por ciento) del capital social. Las acciones de la Serie “A” y de la Serie “L”, en su conjunto, no podrán representar un porcentaje mayor al 80% (ochenta por ciento) del capital social.

La presente cláusula segunda transitoria estará vigente hasta el momento en que no exista ninguna acción de la Serie “A” en circulación.”

 

- 70 -

Exhibit 7.1

AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

 

            2015
      As adjusted      
                      2016                                2017            
     ( in thousands of Mexican  pesos, except ratios )  

IFRS

                                                    

Earnings:

 

                                                    

Profit before income tax

 

     Ps.        56,140,433        Ps.        23,477,595       Ps.        57,096,844  

Plus:

 

                                                    

Interest expense

 

              32,596,851                 35,896,985                31,564,482  

Interest implicit in operating leases

 

              777,378                 1,024,874                1,368,126  

Current period amortization of
interest capitalized in prior periods

 

              3,026,890                 3,169,558                3,217,301  

Less:

 

                                                    

Equity interest in net income of affiliates

 

              1,426,696                 (189,950              (91,385
       Ps.        93,968,248        Ps.        63,379,062       Ps.        93,155,368  

Fixed Charges:

 

                                                    

Interest expense

 

              32,596,851                 35,896,985                31,564,482  

Interest implicit in operating leases

 

              777,378                 1,024,874                1,368,126  

Interest capitalized during the period

 

              3,524,841                 2,861,307                2,875,034  
     Ps.        36,899,070        Ps.        39,783,166       Ps.        35,807,642  
                

Ratio of Earnings to Fixed Charges

 

              2.5                 1.6                2.6  

Exhibit 8.1

LIST OF CERTAIN SUBSIDIARIES OF AMÉRICA MÓVIL, S.A.B. DE C.V.

As of March 31, 2018

 

Name of Company

  

Jurisdiction

   Ownership
Interest
    

Main Activity

AMX Tenedora, S.A. de C.V.

   Mexico      100.0      Holding Company

Compañía Dominicana de Teléfonos, S. A. (Codetel)

   Dominican Republic      100.0      Fixed-line/Wireless

Sercotel, S.A. de C.V.

   Mexico      100.0      Holding Company

Radiomóvil Dipsa, S.A. de C.V. and subsidiaries (Telcel)

   Mexico      100.0      Wireless

Puerto Rico Telephone Company, Inc.

   Puerto Rico      100.0      Fixed-line/Wireless

Servicios de Comunicaciones de Honduras, S.A. de C.V. (Sercom Honduras)

   Honduras      100.0      Wireless

TracFone Wireless, Inc.

   USA      100.0      Wireless

Claro Telecom Participacões, S.A.

   Brazil      100.0      Holding Company

Americel S.A.

   Brazil      99.9      Wireless

Telecomunicaciones de Guatemala, S.A.

   Guatemala      99.3      Fixed-line/Wireless

Empresa Nicaragüense de Telecomunicaciones, S.A.

   Nicaragua      99.6      Fixed-line/Wireless

Estesa Holding Corp.

   Panama      100.0      Holding Company

Cablenet, S.A.

   Nicaragua      100.0      Cable TV

Estaciones Terrenas de Satélite, S.A. (Estesa)

   Nicaragua      100.0      Cable TV

Compañía de Telecomunicaciones de El Salvador (CTE), S.A. de C.V.

   El Salvador      95.8      Fixed-line

Cablenet, S.A. (Cablenet)

   Guatemala      95.8      Fixed-line

Telecomoda, S.A. de C.V. (Telecomoda)

   El Salvador      95.8      Directories Provider

CTE Telecom Personal, S.A. de C.V.

   El Salvador      95.8      Wireless

Comunicación Celular S.A. (Comcel)

   Colombia      99.4      Wireless

Telmex Colombia, S.A.

   Colombia      99.3      Fixed-line/Cable TV

Consorcio Ecuatoriano de Telecomunicaciones, S.A. (Conecel)

   Ecuador      100.0      Wireless

AMX Argentina, S.A.

   Argentina      100.0      Wireless

Telstar, S.A.

   Uruguay      99.9      Fixed-line

Flimay, S.A.

   Uruguay      99.9      DTH

Ertach, S.A.

   Argentina      99.8      Wireless

Telmex Argentina, S.A.

   Argentina      99.7      Services to Corporate Customers

AMX Paraguay, S.A.

   Paraguay      100.0      Wireless

AM Wireless Uruguay, S.A.

   Uruguay      100.0      Wireless

Claro Chile, S.A.

   Chile      100.0      Wireless

Claro Servicios Empresariales, S.A.

   Chile      99.6      Fixed-line/Wireless

América Móvil Perú, S.A.

   Peru      100.0      Wireless

Claro Panamá, S.A.

   Panama      100.0      Wireless

Exhibit 12.1

CEO CERTIFICATION

I, Daniel Hajj Aboumrad, certify that:

 

  1. I have reviewed this annual report on Form 20-F of América Móvil, S.A.B. de C.V.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

  4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: April 26, 2018

 

/s/ Daniel Hajj Aboumrad
Daniel Hajj Aboumrad
Chief Executive Officer

Exhibit 12.2

CFO CERTIFICATION

I, Carlos José García Moreno Elizondo, certify that:

 

  1. I have reviewed this annual report on Form 20-F of América Móvil, S.A.B. de C.V.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

  4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: April 26, 2018

 

/s/ Carlos José García Moreno Elizondo
Carlos José García Moreno Elizondo
Chief Financial Officer

Exhibit 13.1

OFFICER CERTIFICATIONS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of América Móvil, S.A.B. de C.V., a sociedad anónima bursátil de capital variable organized under the laws of Mexico (the “Company”), does hereby certify to such officer’s knowledge that:

The annual report on Form 20-F for the fiscal year ended December 31, 2017 (the “Form 20-F”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 26, 2018

 

/s/ Daniel Hajj Aboumrad
Daniel Hajj Aboumrad
Chief Executive Officer

Dated: April 26, 2018

 

/s/ Carlos José García Moreno Elizondo
Carlos José García Moreno Elizondo
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 14.1

 

LOGO

Code of Ethics América Móvil


LOGO

INDEX
01 Our Company
02 Our Mission
03 Our Strategy
04 Values and Principles
07 Why Do We Have a Code of Ethics?
08 What is Expected of Me?
10 Why Do We Have to Comply With this Code?
11 Non-discrimination and Respect for Human Rights
13 Security in the Work Place
15 Treatment of Customers
17 Personal Information
19 Privacy of Communications
20 Freedom of Expression
21 Confidential Information
24 Non-Public Information and Operations Involving Securities Issued by the Company
26 Files and Records
27 Computer Systems and IT Security
28 Anti-Corruption Measures
32 Conflicts of Interest
33 Treatment of Our Suppliers
34 Competition
36 Use of the Company’s Assets
37 Financial Resources
38 Political Activities
39 Environment
39 Social Responsibility
40 We are All Responsible
41 Our Duty to Report Concerns
43 Help us Improve this Code


LOGO

Our Company
América Móvil, including all its subsidiaries (“América Móvil” or the “Company”) has always distinguished itself as a company that is true to its values and principles, and this has allowed us to achieve success as the preferred choice of millions of telecommunication users in the countries in which we operate.
We have transformed our Company from being a local communications operator to becoming the best option for fixed and mobile telephone services operating with high-speed broadband connection and offering additional services such as cable television, data transmission services, as well as many innovative connectivity solutions to improve the lifestyle of our clients. América Móvil is the leading telecommunications company in Latin America and one of the world’s largest telecom companies.
1
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

2
CODE OF ETHICS AMÉRICA MÓVIL
Our Mission
Our mission is to ensure that we provide access to the latest technologically advanced telecommunications products and services, at affordable prices, connecting as many people as we can in the countries in which we operate.
One of our main goals is to use the benefits and applications offered by the new digital era to transform economic, social and cultural activities , and reduce the digital gap by including as many people as possible in this digital environment. We believe that connectivity gives empowerment and we strive to promote development and inclusion.
As a leading company in the telecommunications industry, we aim for our name to remain synonymous with excellence in this industry.
We remain committed to our employees, commercial partners and shareholders.


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
Our Strategy
To achieve our Mission we implement new strategies to maintain our leadership position in each of the markets in which we operate.
We offer our customers innovative products and services of the highest quality and most advanced technology and therefore we invest in our networks to optimize their capacity and coverage. We also implement new technologies that allow us to be more efficient, take care of the environment and improve the daily experience of our users.
3


LOGO

Values and Principles
Our values and ethical principles are the qualities that differentiate and guide us. We always keep them in mind and put them into practice on a daily basis: they are an essential foundation of our culture of excellence, productivity and leadership. These basic elements of our corporate culture are:
Honesty. We are committed to maintaining the highest ethical standards. We must act honestly and with integrity at all times.
By conducting ourselves with integrity we foster confidence and trust among ourselves and in our relations with our customers, suppliers, and other business partners. Such conduct also promotes respect towards our organization, which ultimately contributes to the success of our business.
Personal Development. We believe in the unlimited potential for the personal and professional growth of all people. This is why we respect and promote human rights in all of our activities.
4
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
Respect. We value all our employees, clients, suppliers and commercial partners. We respect human rights and the equal value of every person. We do not tolerate any form of discrimination, and we value the various cultures, customs, and ways of thinking. This diversity adds value to our business community.
Business Creativity. We foster corporate creativity as a means to provide solutions to the social problems affecting the countries in which we operate, and we put this creativity in practice in our daily activities.
Productivity. We remain committed to improving quality, streamlining and optimizing our productive processes, and controlling costs and expenses by adhering to the highest worldwide standards for our industry.
Optimism and a Positive Attitude. We believe that when faced with adversity, a positive attitude and an optimistic perspective are essential for solving problems.
Compliance with the Law. Our activities are also governed by the applicable laws and regulations in every country where we operate. We strictly abide by and comply with all of these laws, regulations, and rules in effect in each of our markets. We aim to be regarded as a Company that strictly adheres to the law. We also abide by our internal policies.
5


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
Cost Management. We take care of our Company’s assets as if they were our own. They are the product of our work, and they are intended for the benefit of our customers and our society.
Social Responsibility. We take a leadership role in always working for the sustained development of the communities that we serve in the areas of education, the environment, health, sports, the arts and culture. We seek to ensure that our activities foster the well-being of our communities.
Sustainability. We use resources in a rational manner, in order to strike a balance among productivity, efficiency, and respect for the environment. We comply with both local and international environmental laws, standards, and best practices.
6


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
Acting in a way that upholds our Company’s values is essential for the continuity of our operations, and the expression of a culture of integrity.
We know that respecting and expressing our Company’s solid values and principles is a way of adding value. We have updated our Code of Ethics to ensure that this ethical culture can be maintained over time.
Although we realize that it is impossible to anticipate all of the situations that could arise during our day-to-day operations, we use this Code of Ethics as a guide to make the best ethical decisions related to our work, and to know what to do in cases where we may be uncertain of how to act.
Why Do We Have a Code of Ethics?
7


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
What is Expected of Me?
Our Code of Ethics represents the values of our company and therefore applies to employees, executives and board members.
It is very important to us that our shareholders, suppliers, distributors, commercial partners, and any other person who acts on behalf of the Company assumes and complies with these principles and values.
This Code establishes your responsibilities and duties as one of our Company’s employees or partners. The success of our Company depends upon compliance with the standards laid out in this document.
You are an important member of this business community, and your support is essential if we are to achieve our defined goals.
8


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
You must understand and comply with the Code of Ethics. We therefore require that you:
Read the Code carefully. Understand its full scope and know what is expected of you.
Comply with all of the principles found in this Code when carrying out your work and during all of the activities you perform. You must make these principles your own; they are the basis for our business philosophy and culture.
Behave in an ethical manner at all times, and be proud of your conduct and actions. You are responsible for complying with the principles and expectations for conduct described in this document.
Report any employee, supplier, contractor, or other outside party working for the Company if you become aware of any unethical behavior or violation of the principles established in this Code.
It is your responsibility to report any cases where you have knowledge or reasonable suspicion regarding any illegal or unethical situation.
For more information regarding raising a claim, please consult the “Our Duty to Report Concerns” section at the end of this document.
If a situation occurs that is not covered by the Code, please request guidance by emailing codeofethics@americamovil.com
Thank you for your cooperation, and for making these basic principles of professionalism and responsibility your own. We are convinced that this Code will help all of us grow, on both a personal and professional level.
IF A SITUATION OCCURS THAT IS NOT COVERED BY THE CODE, PLEASE REQUEST GUIDANCE BY EMAILING codeofethics@americamovil.com
Report any suspected misconduct or violations of this Code at https://denuncias.americamovil.com
9


LOGO

CODE OF ETHICS AMÉRICA MÓVIL
Why Do We Have to Comply With this Code?
Failure to comply with this Code affects the image and reputation of América Móvil as well as the individuals who work in our Company.
As members of a business community, we must all be concerned about our Company’s image, which can be seriously harmed if we fail to comply with the basic standards of ethics and behavior outlined in this Code. This can also affect the perception that people from outside of the Company will have of us, or damage the trust that so many people have shown in us.
10


LOGO

Non-discrimination and Respect for Human Rights
At América Móvil we treat each person with respect and dignity. We work as a team to generate trust and support for each other within our working community.
Our operations are now taking place in a globalized world, one with many different cultures and traditions. We believe that these differences enrich our Company, and we show full respect for them. We also believe that different ways of thinking allow us to have a broader perspective and to be more creative when it comes to solving problems.
We promote diversity and inclusion, and are committed to the following standards:
We do not tolerate any sort of discrimination and we promote a culture of healthy cooperation, mutual respect, teamwork, and solidarity.
We promote respect and inclusion in the workplace and do not discriminate based upon disability, ethnic origin, religion, gender, marital status, pregnancy, nationality, sexual orientation, economic status, age, or political viewpoint, among others. In general terms, this means treating each person with dignity and professionalism.
We do not allow any type of harassment, intimidation, insults, threats, unfair accusations, bullying, or other acts of physical or psychological violence that could have a negative impact on a person’s dignity or cause them to feel uncomfortable or under attack. We prohibit any display in the workplace of images or objects with sexual content, as well as images or objects that could promote hatred, discrimination or stereotyping.
11
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

We promote equal opportunities between sexes and prohibit any gender violence, sexual or other types of harassment.
We base all decisions on hiring, promotions and other employment-related benefits on job performance.
We ensure that our employees have the opportunity to exercise their freedom of association and collective bargaining.
We strive to have all companies in our supply chain respect human rights. We strive to have our suppliers, distributors and other commercial partners respect their employees’ human rights, and comply with all employment-related legislation in force.
We promote a culture of transparent, honest and responsible advertising. By doing so, we ensure that our customers are receiving accurate information.
We implement awareness-raising campaigns to promote the importance of respecting human rights, inclusiveness in the workplace, diversity, and gender equality.
These are the basic principles of our Human Rights’ policy.
If you detect any conduct inconsistent with these principles, please report it using our portal at https://denuncias.americamovil.com If you have questions please email humanrights@americamovil.com
We promote a healthy and suitable work environment for the well being of our employees.
WE INVITE YOU TO BECOME AWARE OF THE FULL POLICY AVAILABLE AT
Human Rights Policy
Policy of Inclusion and Diversity
12
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Safety in the work place
Security is a top priority for us. All employees, suppliers and contractors must respect the Company’s policies on personal and corporate security at all times. The failure to comply with these policies may put at risk the health and safety of employees and the public.
América Móvil complies with the highest domestic and international standards in terms of occupational security. One of our goals is to minimize work-related incidents.
Therefore, we are committed to:
Providing a safe work environment, including providing the training, equipment and other tools necessary to maintain health and safety, and adopting all measures necessary to prevent or minimize occupational risks.
13
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Maintaining a safe and healthy environment for our employees. The consumption of alcoholic beverages is strictly prohibited when working. It is also strictly prohibited to come to work while under the influence of alcohol or any other type of narcotic or stimulant drug, or to possess, transport, or sell any such substances during working hours or using Company assets. The carrying of any type of weapon is prohibited in the workplace, while traveling for the Company, or in any other situation where a person is representing the Company (except for authorized weapons for security personnel to protect employees and Company assets).
Prohibiting the employment of children or forced labor at our facilities. We adopt preventive measures against such practices, including verification of compliance with legal minimum age requirements, payment of competitive salaries, and establishment of work schedules as prescribed by law.
Complying with all civil protection regulations and training employees on how to respond to emergencies.
It is your responsibility to take care of yourself as well as your colleagues to avoid work-related incidents.
If you detect any situation that may represent a risk to our Company’s security, please report this immediately to your supervisor or contact: security@americamovil.com
14
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Treatment of Customers
Our customers are the primary reason why we are in business. Catering to them and treating them with utmost courtesy and respect is essential to retaining their loyalty and achieving our mission. In servicing our customers’ demands, among other things, we must:
Provide fair treatment for our customers and respect their human rights. We must not discriminate against any person based on upon their gender, age, social class, disabilities, sexual preference,
Make available products and services that meet their needs in an efficient and timely manner; and be transparent regarding the terms and conditions set forth in our customer contracts.
Provide customers with adequate, precise, clear and reliable information about our products and services, including the specific products and services they have already purchased.
Address their inquiries, problems and concerns, whether of a general, technical or administrative nature, using highly-trained personnel with a focus on customer service.
Provide the maximum quality possible when serving our customers.
15
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

These requirements, which have a significant effect on our customers’ preferences, translate into a single word: quality.
Our success depends on our ability to develop and offer innovative, high-quality telecommunications products and services, and we are judged by our customers accordingly.
We must never give false or misleading information or condition any sale.
Our customers’ rights are protected in the countries where we operate by the applicable consumer protection laws, which are designed to safeguard their rights, ensure their equitable treatment and foster confidence in the relations between customers and suppliers.
Our failure to maintain adequate customer care and service standards or our participation in illegal or improper commercial practices, may harm our reputation, give rise to an investigation, create legal liability for the Company or the individuals involved, and cause losses for our Company, and damage to our reputation.
América Móvil does not tolerate any deviation from our customer care and service standards.
If you have any concerns, please email customers@americamovil.com
16
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Personal Information
At América Móvil we protect and safeguard the personal information that our customers entrust to us, and use the same level of care that we apply to our own confidential corporate information. We must use customer information solely and exclusively for the purposes for which it was obtained.
In order to maintain the integrity and confidentiality of all personal data, América Móvil possesses the most advanced systems for data storage and processing. Various processes, controls, and security measures of a technical, physical, and administrative nature are designed to protect personal information.
Access to personal information is limited to those employees who have a need to view it in order to carry out their assigned tasks.
We are committed to protecting and safeguarding all personal information entrusted to us by our customers. We do this by adhering to all laws in effect in the countries where we maintain a presence, as well as by promoting and offering employee training on the following principles:
17
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Integrity: We preserve the integrity of personal information we receive, against accidental or fraudulent alteration, loss, theft, hacking, intervention, or destruction.
Availability: We have procedures in place to assure that the information related to our users is available to them at all times.
Confidentiality: All personal data is used only by authorized personel and for the purposes of the services rendered.
We comply with all laws in effect regarding privacy for personal information and telecommunications in the countries where we operate and provide our services.
If you have any concerns regarding the handling of personal information related to our customers and/or application of these guidelines, you should contact your immediate supervisor. If following your contact with your supervisor, you still have doubts about how to handle personal data, please email privacy@americamovil.com
FURTHER INFORMATION ON DATA PRIVACY IS FOUND IN OUR INFORMATION PRIVACY POLICY, AND WE ENCOURAGE YOU TO CONSULT THE FULL POLICY AT
Privacy Policy
We are committed to protecting and safeguarding all personal information entrusted to us by our customers.
18
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Privacy of Communications
Privacy of communications is a fundamental principle that guides the conduct at América Móvil and in our entire industry, not just because of the laws in effect, but also because it is the basis for the trust that the public has shown in us.
For this reason, it is strictly prohibited to interfere with any communications or transmissions carried out by our customers, such as listening to, manipulating, or monitoring conversations, interfering with data transmissions, or revealing the existence or contents of customer communications, except in cases required by law and/or following appropriate requests from competent authorities.
It is also prohibited to use any type of information contained in our customers’ communications for your personal benefit or for the benefit of others.
FOR MORE INFORMATION PLEASE CONSULT AMÉRICA MÓVL’S INFORMATION PRIVACY POLICY Privacy Policy
If you have any questions, please email privacy@americamovil.com
19
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Freedom of Expression
At América Móvil we provide landline, mobile and data telecommunications services to our customers. Our network and infrastructure serve the customers and others who make use of them. These parties have the right to:
Express opinions or ideas without restriction.
Freely carry out communications with individuals, organizations, and entities, without being subject to investigations or scrutiny.
Create or communicate contents, and share this information via our networks or services.
We do not put any restrictions on the contents of our customer communications, and we do not interfere with the freedom our users have to create and communicate information, except in cases required by law and/or following appropriate requests from competent authorities.
20
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Confidential Information
We develop, generate, and manage sensitive information that represents a competitive advantage for our Company and which must therefore be treated as confidential.
TIP
If you are in possession of confidential information, make sure that you safeguard it in a secure location; do not leave photocopies or printed copies in common areas; do not discuss such information with co-workers who do not have a need to know it; do not leave confidential information visible on your computer screen; never discuss this information with friends or family members; and do not make phone calls or engage in conversations involving confidential information in public places.
You must refrain from divulging confidential information, such as that based upon information of a financial and legal nature; information related to our products and services, including our current and future plans in relation to these; market information developed internally by the Company; information obtained via our telecommunications networks; and business information in general, including information related to current and future plans, programs, and expectations.
21
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Disclosure of confidential information could provide third parties with an unfair business advantage, expose us to damages and losses and jeopardize the privacy of our customers’ and commercial partners’ communications.
Accordingly, we have established the following guidelines regarding the use of such information:
Access to our proprietary, non-public information is reserved to those who need to know it. No employee may discuss any such information with any other person, including his or her colleagues, except where the person receiving such information requires it for business reasons.
The disclosure of confidential information by any employee is generally prohibited. In limited cases, where the circumstances so warrant, confidential information may be disclosed to third parties with the prior authorization of the person or department assigned by the Company to perform such duties and in accordance with confidentiality agreements or other protective measures, such as those provided by law.
Any request or demand for confidential information from a governmental authority must be forwarded to our Legal Department in order to enable that office to take any appropriate measures for its protection and ensure that all applicable requirements are complied with.
22
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

If as a result of our work we inadvertently obtain confidential information from another person, whether it be from a competitor, customer, supplier, government agency or other entity or individual, that was not intended to be delivered to the Company, we must keep such information confidential in accordance with the above criteria. To the extent possible, this information should be returned to the sender without reviewing its content. If you have questions about receiving confidential information from third parties, you may email confidentialinfo@americamovil.com
If your employment relationship with the Company ends for any reason, you must return to your immediate supervisor all documents and/or work tools that you have been given that contain confidential information. The obligation to maintain confidentiality with respect to information from the Company remains in effect even after termination of any contractual or employment relationship with the Company or the Company’s contractors.
If you have any questions or concerns about how to handle confidential information, you must consult with your immediate supervisor or contact our Legal Department at confidentialinfo@americamovil.com
23
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Non-Public Information and Operations Involving Securities Issued by the Company
Our Company’s securities are traded on multiple stock exchanges, and we are therefore subject to a series of specific rules regarding non-public information regarding the Company and the obligation to refrain from sharing it.
As a general rule, you cannot share non public information about the Company that has not yet been made public. Information is considered public once the general public has been made aware of it via some means of América Móvil communication, such as through the media or on the América Móvil website, among other things.
24
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

You are specifically prohibited from using or transferring non-public information to a third party for your benefit or the benefit of a family member, friend or other party. For example, buying or selling securities (or having your friend buy or sell securities) based on non-public information is prohibited and likely illegal. These laws are very strict and can result in criminal penalties.
Even if you are not trading securities based on non-public information, there may be restrictions on your ability to trade, or the timing of your trading of América Móvil securities.
More information on the misuse of non-public Company information can be found in our Guidelines for trading in AMX shares and other securities, and our Summary of the Control Policies applicable to operations involving stocks and other securities. We encourage you to become familiar with these policies.
If you have any questions or concerns regarding confidential information, non-public information, or when and whether you are allowed to invest in any of América Móvil’s companies, please email securities@americamovil.com
25
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Files and Records
All accounting and other business books and records must be carefully produced and maintained and must be accurate, complete and reliable in every respect.
Significant financial, legal and administrative obligations are based on these records, and they cannot be misleading or confusing. Employees must maintain all books and records in a manner that complies with the law and Company policies and procedures.
Any employee who has knowledge of any alteration or falsification of the Company’s financial information must immediately report it via the Company’s portal https://denuncias.americamovil.com
If you have questions or concerns regarding the accuracy or retention of Company records, please email codeofethics@americamovil.com
26
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Computer Systems and IT Security
Our IT systems are critical for our day-to-day operations. The Company has internally developed or acquired the requisite licenses to use all the software installed in its systems. Accordingly, all rights to such software are the Company’s sole and exclusive property.
Any copying, appropriation, or improper use of the corporate software is prohibited, as is installation into Company systems of any unauthorized software from outside the Company.
We have adopted security measures to protect our networks, IT systems and electronic information. Each of us is individually responsible for protecting the Company’s IT systems and the information stored in them. You must also understand and comply with the policies and guidelines concerning the use of our IT systems.
The use of personal email or any other external platform when handling work-related information is prohibited, since the lack of appropriate security measures for protecting and safeguarding such information may put that information at risk.
IF YOU HAVE QUESTIONS EMAIL US
informationsecurity@americamovil.com
27
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Anti-Corruption Measures
América Móvil is firmly committed to eliminating corruption, complying with local anti-corruption laws, and living up to the standards found in international anti-corruption conventions.
TIP
When in doubt regarding whether it is appropriate to give or accept a gift or some other benefit, consider how it would look in the eyes of someone from outside of the Company, or on the front page of a newspaper.
Corruption means any abuse of power to gain some benefit for the Company, ourselves, or an outside party. A prominent form of corruption is bribery.
América Móvil prohibits indirectly or directly making or receiving bribes, offering or requesting a bribe, or authorizing or aiding the payment or receipt of a bribe. Bribes include making a payment to obtain or retain business or some improper advantage (e.g., obtaining a tax rate lower than allowed by law).
Bribes are often paid with money, but they can take the form of gifts, entertainment, travel, loans, payment of fees for another person, vacations, a job offer, special personal services or anything else of value.
Giving or receiving gifts, meals or entertainment is generally acceptable, as long as there is no expectation that the person receiving the benefit will provide something in return. These courtesies must be reported to and authorized in advance by your immediate supervisor or, when a public official is involved, our Legal Department, and reasonable under the circumstances (not lavish), and infrequent.
28
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Note that gifts, meals, entertainment or other types of payments to or from public officials carry relatively higher risk, and these types of payments may be limited or prohibited by local laws. For the purposes of this Code, public officials include employees of state-owned enterprises.
If you are unsure whether you should accept or provide gifts, meals or entertainment, especially in your interactions with public officials, you must consult with your immediate supervisor or email our Legal Department at anticorruption@americamovil.com
América Móvil also prohibits, directly or on its behalf:
1. Entering into agreements with consultants, lobbyists, contractors, agents or other third parties who pose a bribery risk. In other words, we should not do business with, and you should not make payments to, third parties if there is some warning sign that those third parties will engage in bribery.
2. Making payments for the travel expenses of public officials or their family members.
3. Making facilitating payments, which are generally defined as small payments to expedite the performance of a government service to which one is legally entitled such as a visa.
4. Making political or campaign donations or payments with Company funds or on behalf of América Móvil. You are free to make your own political contributions as long as they otherwise comply with the law.
29
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

América Móvil also bans any unethical conduct, including, fraud, embezzlement, extortion, use of false information, and money laundering, among others.
These activities are prohibited regardless of whether a public official is involved.
Finally, América Móvil bars any attempt to aid or conceal corruption of any type, regardless of whether you are obtaining any benefit from the corrupt activity.
To combat corruption, we are committed to:
1. Complying with all applicable anti-bribery laws in all countries in which we operate.
2. Complying with all laws and rules regarding accurate and complete recordkeeping. Deliberate falsification of our books and records is strictly prohibited and a crime.
3. Carrying out all negotiations, purchases, and financial transactions in accordance with our own internal procedures, while also maintaining, to the extent appropriate, all related records so that they can be reviewed in the event of an audit.
4. Ensuring that all payments we make, as well as those made on our behalf, are only to pay for goods or services that are provided to the Company.
5. Adopting appropriate internal controls and, when appropriate, reporting to the appropriate authorities acts of corruption by our employees or third parties.
30
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

6. Promoting anti-corruption procedures and practices throughout our supply chain, including training personnel on preventive measures and conducting awareness-raising campaigns.
If you have knowledge that any person has or may possibly commit a corrupt act, you must immediately report the matter to your supervisor or anonymously report the matter via our portal: https://denuncias.americamovil.com
Note that if you do not report suspicious activity, you may be viewed as having aided or concealed an act of corruption, which could have serious consequences for you. For more information on reporting such acts, please consult our section entitled “Our Duty to Report Concerns” at the end of this document.
Additional information regarding our Anti-Corruption policy can be found at Anticorruption Policy. If you have any questions, contact anticorruption@americamovil.com
It is your responsability to report any suspicious activity.
31
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Conflicts of Interest
A conflict of interest arises when an employee’s or a third party’s interest is inconsistent with the interests of the Company.
Whenever we are acting on behalf of América Móvil we must always put the interests of our Company above our own personal interests. This means that we must not allow our own interests, or those of our family members or other people we have some relationship with, to influence the decisions we are making on behalf of our Company.
Conflicts of interest can affect our judgment, harm the reputation and image of América Móvil, and expose the Company to potential risks. We must avoid actual or perceived conflicts on matters concerning hiring, promotions, contracting with the Company, or our dealings with other business interests outside the Company.
We must not accept gifts, favors or entertainment that may influence our decisions or affect the Company’s business relationships.
If you have any questions or concerns, please email conflictofinterest@americamovil.com
TIP
When determining whether or not a conflict of interest exists, imagine explaining your actions to a friend or colleague, or to a reporter from the media: would you feel comfortable when doing this?
32
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Treatment of Our Suppliers
As discussed in the Conflicts of Interest section above, if you have a personal relationship with any of our suppliers or commercial partners, this must not create conflicts of interest, affect your objectivity, or give the appearance of impropriety.
If this is the case, you must abstain from taking any decisions that could be viewed as being influenced by that relationship.
These risks often arise when we represent América Móvil, in business relations with family, friends, or third parties, or when we receive or give gifts, meals or other payments from or to suppliers, especially when the supplier is a state-owned company.
Any conflicts that may arise must be reported to your supervisor immediately. We must maintain a professional relationship with our suppliers or other commercial partners, while ensuring that we comply with the value and principles described in this Code, and endeavor to have our suppliers share, promote and adhere to them, as well.
We must select our suppliers based upon the merits of their products and services. We must clearly and precisely inform actual and potential suppliers of the Company’s needs, and ensure that we receive appropriate value for the compensation paid. Furthermore, all interactions with suppliers must follow our procurement procedures, which include all applicable recordkeeping and legal requirements.
If you have questions or want further information regarding potential conflicts of interest, please email conflictofinterest@americamovil.com
33
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Competition
The impact of our business activities on the market are regulated by the laws in effect in each country where we operate.
We have the obligation to understand these laws, comply with them, and to avoid creating the appearance of prohibited misconduct, as violation of these laws can have serious consequences for the Company.
We must always compete based upon the merits of our products and services and our ability to provide them in an innovative and efficient manner, and not on the basis of any collusion with a competitor or any practice that restricts competition in the relevant market. We must not discuss any subject with a competitor if this could be, or seen to be, an effort to impact free competition, except in cases permitted by law and/ or following appropriate requests from competent authorities.
34
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Please consult with the Legal Department, before exchanging information, discussing commercial subjects, or negotiating with or entering into contracts with a competitor.
We encourage you to become familiar with the toolkit offered by the International Chamber of Commerce (ICC) regarding compliance with the regulations on economic competition¹, and the Guide to Exchanges of Information Among Economic Agents produced by Mexico’s Federal Commission on Economic Competition, which can be found at ².
Any employee who becomes aware of a violation or possible breach of the competition laws must immediately report the matter by emailing competition@americamovil.com. You may reach out to the same email if in doubt about complying with any competition requirements.
1 © International Chamber of Commerce (ICC), 2015.
2 Federal Commission on Economic Competition (COFECE), 2015.
35
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Use of the Company’s Assets
We must always take proper care of all tangible and intangible assets belonging to our Company.
This includes its properties and facilities, fixtures and furnishings, tools and equipment, supplies, vehicles, inventories, telephone systems, telecommunications networks and equipment (including all components and computer hardware and software, such as the email and voicemail systems and software developed internally), financial resources, investments, concessions and other authorizations for operating telecommunications networks, industrial and intellectual property rights, information about products and services, and financial information and business information, among other elements, as required in order to carry out our activities and operations.
We must use the Company’s property appropriately for our work, not for personal benefit or for unauthorized purposes.
Moreover, we must protect Company property, comply with all applicable procedures for the operation, safety and security of that property, and avoid any intentional or negligent conduct that could cause them to be lost, damaged, destroyed, stolen, or wasted.
36
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Financial Resources
All persons who have control over the Company’s financial resources, such as cash or cash equivalents, securities, negotiable instruments, and credit cards, are personally responsible for their safekeeping and ensuring that they are only used in the conduct of América Móvil’s business. We must also ensure that income and payments are properly recorded and supported by appropriate documentation in accordance with the law.
37
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Political Activities
América Móvil has no ideological or political affiliation whatsoever, but respects its employees’ right to participate in not-for-profit professional associations and citizens’ organizations devoted to the promotion of the lawful and responsible exercise of political rights.
At América Móvil, all employees are entitled to exercise their political rights without being pressured, directly or indirectly, to favor any given political party or candidate.
However, to ensure that we comply at all times with the laws to which we are subject, any such political activity must be undertaken solely on a personal basis, during non-business hours and without making any express or implied reference to América Móvil. This activity may under no circumstance involve the use of any of América Móvil’s resources or assets.
In addition, some laws make it unlawful for América Móvil, its subsidiaries and their respective employees to make contributions, donations or any other payments, whether in cash or kind, to political parties, employees of political parties, and candidates to public office, including in any foreign country. América Móvil does not make political contributions to individual candidates or parties. Employees may not use América Móvil assets to personally support political candidates.
38
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Social Responsibility
As stated in our Mission, our fundamental commitment is to provide services that are available to everyone in all communities and enable people to form closer relationships.
Given our commitment to our customers and the countries where we operate, América Móvil is supporting efforts to launch a variety of social programs focused on topics such as education and culture. We encourage you to participate in these activities in your free time.
Environment
América Móvil is committed to the protection and preservation of our environment. We must comply with all applicable environmental laws and regulations.
In addition, we must be aware of the importance of protecting our natural surroundings. Initiatives such as saving energy, conserving paper, using timer-enabled engines and machinery, and refraining from making excessive noise, among others, reflect our desire to collaborate with the communities where we operate and a commitment to the protection of our environment.
Any activities that could damage the environment must be reported by emailing environment@americamovil.com
39
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

We are All Responsible
Our Code of Ethics reaffirms América Móvil’s commitment to achieving the highest standards of ethics, workplace conduct and corporate practices. However, each individual is ultimately responsible for his or her actions.
No guidelines or code of ethics can provide rules that cover every situation or potential misconduct that may arise. Therefore, the contents of this Code of Ethics should be considered together with laws, regulations, policies, practices and procedures, applicable to América Móvil. Being a global company, América Móvil must comply with all laws in each of the countries in which it operates. We are therefore all responsible for knowing and complying with all applicable laws and regulations.
We must also act in a way that upholds the spirit and intention of the law. Whenever the contents of this Code of Ethics, or any other guidelines from América Móvil, differ from the local laws or regulations, we must always apply the strictest and highest standards. If you think that any of the provisions contained in this document are in conflict with the local laws, or if you have any uncertainties regarding the application of the Code of Ethics, please email codeofethics@americamovil.com
40
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Our Duty to Report Concerns
We maintain an “open door” policy where all are at liberty to approach any of our executive officers with any issue of an ethical nature, without fear of retaliation or of being judged for expressing their opinions.
Each of us have an obligation to report to our immediate supervisor or to the Legal Department (or, as described below, anonymously) any instance of actual or potential violation of this Code of Ethics, any applicable law or regulation, or any of América Móvil’s policies and procedures.
We must all cooperate with any internal or external investigation and keep it confidential. Employees who make a false or misleading claim may be subject to disciplinary actions Remember that failure to report a serious breach of ethics can have disciplinary consequences for you, since you may be concealing an unethical or criminal act.
Reports can be made anonymously if the person filing the report wishes to do so. We do however encourage informants to leave anonymized contact information for any follow-up during the investigation.
41
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

América Móvil will make every effort to protect any person making good faith reports of misconduct and ensure that no retaliation whatsoever will be taken against that person for reporting the conduct.
To the extent possible, the Company will maintain the confidentiality of those making reports.
Nothing in this Code is meant to discourage employees or others from reporting misconduct related to América Móvil to law enforcement authorities, and no employee will be penalized for doing so. In such cases, it is suggested to report to the Legal Department, so that the office can help with any investigations, if necessary.
All instances of misconduct will be investigated by the local Ethics Committee present in each of the countries where we operate, which will take appropriate measures.
You can always go to the portal https://denuncias.americamovil.com to report any illegal or improper activity.
42
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

Help us Improve this Code
This Code of Ethics establishes the minimum standards to which our Company is committed. We realize that it is impossible to include or regulate all possible ethical or other conduct matters that may arise. To share any suggestions or comments that will help us improve this Code, please email codeofethics@americamovil.com
At América Móvil we know that your compliance with this Code of Ethics is essential for the continued development and success of our Company. Thank you in advance for making the effort to read and understand the contents of this Code, and we encourage you to put its rules into practice during all of your work activities.
43
CODE OF ETHICS AMÉRICA MÓVIL


LOGO

AMÉRICA MÓVIL

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form F-3 No. 333-207092) of América Móvil, S.A.B. de C.V. and subsidiaries of our reports dated April 26, 2018, with respect to the consolidated financial statements of América Móvil, S.A.B. de C.V. and subsidiaries, and the effectiveness of internal control over financial reporting of América Móvil, S.A.B. de C.V. and subsidiaries, included in this Annual Report on Form 20-F for the year ended December 31, 2017.

 

/s/ Mancera, S.C.

Mexico City, Mexico

April 26, 2018