Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant To Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of September 2017

Commission File Number: 1-16269

 

 

AMÉRICA MÓVIL, S.A.B. DE C.V.

(Exact Name of the Registrant as Specified in the Charter)

 

 

America Mobile

(Translation of Registrant’s Name into English)

Lago Zurich 245

Plaza Carso / Edificio Telcel

Colonia Ampliación Granada

11529 México City, México

(Address of principal executive offices)

 

 

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

Form 20-F  ☒            Form 40-F  ☐

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

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

 

 

 

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TABLE OF CONTENTS

 

		Page
Unaudited Condensed Consolidated Statement of Financial Position			1
Unaudited Condensed Consolidated Statements of Comprehensive Income			2
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity			3
Unaudited Condensed Consolidated Statements of Cash Flows			5
Notes to Unaudited Interim Condensed Consolidated Financial Statements			6

We have prepared this report to provide our investors with disclosure and financial information regarding recent developments in our business and results of operations for the six months ended June 30, 2017.

The information in this report supplements information contained in our annual report on Form 20-F for the year ended December 31, 2016 (File No. 001-16269), filed with the U.S. Securities and Exchange Commission on April 24, 2017.

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Financial Position

(In thousands of Mexican pesos)

 

		Note				At June 30, 2017 Unaudited				At December 31, 2016 Audited
Assets
Current assets:
Cash and cash equivalents						Ps.	20,897,722			Ps.	23,218,383
Marketable securities and other short-term investments			3				49,421,153				54,857,157
Accounts receivable:
Subscribers, distributors, recoverable taxes and other, net							177,954,245				205,774,539
Related parties			4				861,455				740,492
Derivative financial instruments							1,031,765				909,051
Inventories, net							33,060,477				36,871,292
Other current assets, net							23,429,639				19,538,093
Total current assets						Ps.	306,656,456			Ps.	341,909,007
Non-current assets:
Property, plant and equipment, net			5			Ps.	615,502,880			Ps.	701,190,066
Intangibles, net							129,134,249				152,369,446
Goodwill							146,126,558				152,632,635
Investments in associated companies							3,169,123				3,603,484
Deferred income taxes							105,429,791				112,651,699
Accounts receivable, subscribers and distributors							9,233,837				11,184,860
Other assets, net							36,234,848				39,501,077
Total assets						Ps.	1,351,487,742			Ps.	1,515,042,274
Liabilities and equity
Current liabilities:
Short-term debt and current portion of long-term debt			8			Ps.	57,472,802			Ps.	82,607,259
Accounts payable							199,944,188				237,265,126
Accrued liabilities							65,478,942				70,479,230
Income tax							17,997,201				3,200,673
Other taxes payable							22,275,690				22,087,957
Derivative financial instruments							11,049,676				14,136,351
Related parties			4				2,074,328				2,971,325
Deferred revenues							31,840,321				37,255,328
Total current liabilities						Ps.	408,133,148			Ps.	470,003,249
Non-current-liabilities:
Long-term debt			8			Ps.	563,605,490			Ps.	625,194,144
Deferred income taxes							12,488,443				14,061,881
Income tax							2,522,214				2,348,069
Deferred revenues							1,386,494				1,625,270
Derivative financial instruments							3,234,277				3,448,396
Asset retirement obligations							14,729,277				16,288,631
Employee benefits							109,656,486				111,048,867
Total non-current liabilities						Ps.	707,622,681			Ps.	774,015,258
Total liabilities						Ps.	1,115,755,829			Ps.	1,244,018,507
Equity:
Capital stock			11				96,337,344				96,337,514
Retained earnings:
Prior years							137,371,735				149,065,873
Profit for the year							50,168,209				8,649,427
Total retained earnings							187,539,944				157,715,300
Other comprehensive loss items							(107,721,731	)			(45,137,571	)
Equity attributable to equity holders of the parent							176,155,557				208,915,243
Non-controlling interests							59,576,356				62,108,524
Total equity							235,731,913				271,023,767
Total liabilities and equity						Ps.	1,351,487,742			Ps.	1,515,042,274

The accompanying notes are an integral part of these consolidated financial statements.

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands of Mexican pesos, except for earnings per share)

 

						For the six-month periods ended June 30, Unaudited
		Note				2017				2016
Operating revenues:
Mobile voice services						Ps.	117,437,390			Ps.	118,607,447
Fixed voice services							46,402,890				47,236,415
Mobile data services							151,437,276				119,055,664
Fixed data services							70,426,383				59,185,920
Paid television							44,967,434				35,486,438
Sales of equipment, accessories and computers							66,378,820				62,257,118
Other related services							16,536,014				14,538,776
						Ps.	513,586,207			Ps.	456,367,778
Operating costs and expenses:
Cost of sales and services							247,168,484				225,073,702
Commercial, administrative and general expenses							123,434,679				106,869,918
Other expenses							2,116,818				1,707,091
Depreciation and amortization							79,340,756				68,916,561
						Ps.	452,060,737			Ps.	402,567,272
Operating income						Ps.	61,525,470			Ps.	53,800,506
Interest income							1,528,246				1,901,195
Interest expense							(15,340,831	)			(16,089,165	)
Foreign currency exchange gain (loss), net							35,259,925				(13,665,208	)
Valuation of derivatives, interest cost from labor obligations and other financial items, net			13				(4,333,533	)			(5,515,948	)
Equity interest in net income of associated companies							26,439				70,022
Profit before income tax							78,665,716				20,501,402
Income tax			7				26,652,279				6,770,070
Net profit for the year						Ps.	52,013,437			Ps.	13,731,332
Net profit for the year attributable to:
Equity holders of the parent						Ps.	50,168,209			Ps.	12,498,515
Non-controlling interests							1,845,228				1,232,817
						Ps.	52,013,437			Ps.	13,731,332
Basic and diluted earnings per share attributable to equity holders of the parent						Ps.	0.76			Ps.	0.19
Other comprehensive (loss) income items:
Net other comprehensive (loss) income that may be reclassified to profit or loss in subsequent years:
Effect of translation of foreign entities and affiliates						Ps.	(66,753,872	)		Ps.	73,650,211
Effect of fair value of derivatives, net of deferred taxes							6,904				24,742
Unrealized loss on available for sale securities, net of deferred taxes							(280,326	)			(2,238,657	)
Items that will not be reclassified to profit or (loss) in subsequent years:
Re-measurement of defined benefit plan, net of deferred taxes							1,707,376				(1,555,184	)
Total other comprehensive (loss) income items for the year, net of deferred taxes							(65,319,918	)			69,881,112
Total comprehensive (loss) income for the year						Ps.	(13,306,481	)		Ps.	83,612,444
Comprehensive (loss) income for the year attributable to:
Equity holders of the parent						Ps.	(12,415,951	)		Ps.	79,621,248
Non-controlling interests							(890,530	)			3,991,196
						Ps.	(13,306,481	)		Ps.	83,612,444

The accompanying notes are an integral part of these consolidated financial statements.

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the six period ended June 30, 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, 2016 (audited)		Ps.	96,337,514			Ps.	358,440			Ps.	157,356,860			Ps.	(12,292	)		Ps.	(6,669,720)			Ps.	(68,005,050	)		Ps.	29,549,491			Ps.	208,915,243			Ps.	62,108,524			Ps.	271,023,767
Net profit for the period											50,168,209																				50,168,209				1,845,228				52,013,437
Effect of fair value of derivatives, net of deferred taxes															6,815																6,815				89				6,904
Unrealized income on available for sale securities, net of deferred taxes																			(280,326	)											(280,326	)							(280,326	)
Re-measurement of defined benefit plan, net of deferred taxes																							1,677,746								1,677,746				29,630				1,707,376
Effect of translation of foreign entities and affiliates																											(63,988,395	)			(63,988,395	)			(2,765,477	)			(66,753,872	)
Comprehensive loss(income) for the period											50,168,209				6,815				(280,326	)			1,677,746				(63,988,395	)			(12,415,951	)			(890,530	)			(13,306,481	)
Dividends declared											(19,730,192	)																			(19,730,192	)			(1,630,812	)			(21,361,004	)
Repurchase of shares			(170	)							(612,268	)																			(612,438	)							(612,438	)
Other acquisitions of non-controlling interests											(1,105	)																			(1,105	)			(10,826	)			(11,931	)
Balance at June 30, 2017 (unaudited)		Ps.	96,337,344			Ps.	358,440			Ps.	187,181,504			Ps.	(5,477	)		Ps.	(6,950,046	)		Ps.	(66,327,304	)		Ps.	(34,438,904	)		Ps.	176,155,557			Ps.	59,576,356			Ps.	235,731,913

The accompanying notes are an integral part of these consolidated financial statements.

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the six period ended June 30, 2016

(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, 2015 (audited)		Ps.	96,338,477			Ps.	358,440			Ps.	171,972,999			Ps.	(60,788	)		Ps.	4,011			Ps.	(82,844,947	)		Ps.	(73,490,197	)		Ps.	112,277,995			Ps.	48,576,191			Ps.	160,854,186
Net profit for the period											12,498,515																				12,498,515				1,232,817				13,731,332
Effect of fair value of derivatives, net of deferred taxes															24,423																24,423				319				24,742
Unrealized loss on available for sale securities, net of deferred taxes																			(2,238,657	)											(2,238,657	)							(2,238,657	)
Re-measurement of defined benefit plan, net of deferred taxes																							(1,418,208	)							(1,418,208	)			(136,976	)			(1,555,184	)
Effect of translation of foreign entities and affiliates																											70,755,175				70,755,175				2,895,036				73,650,211
Comprehensive income (loss) for the period											12,498,515				24,423				(2,238,657	)			(1,418,208	)			70,755,175				79,621,248				3,991,196				83,612,444
Dividends declared											(18,405,802	)																			(18,405,802	)			(566,945	)			(18,972,747	)
Repurchase of shares			(1,817	)							(5,293,281	)																			(5,295,098	)							(5,295,098	)
Other acquisitions of non-controlling interests											(2,424,710	)																			(2,424,710	)			62,067				(2,362,643	)
Balance at June 30, 2016 (unaudited)		Ps.	96,336,660			Ps.	358,440			Ps.	158,347,721			Ps.	(36,365	)		Ps.	(2,234,646	)		Ps.	(84,263,155	)		Ps.	(2,735,022	)		Ps.	165,773,633			Ps.	52,062,509			Ps.	217,836,142

The accompanying notes are an integral part of these consolidated financial statements.

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands of Mexican pesos)

 

		For the six-month periods ended June 30, Unaudited
		2017				2016
Operating activities
Profit before income tax		Ps.	78,665,716			Ps.	20,501,402
Items not requiring the use of cash:
Depreciation			68,786,964				60,324,651
Amortization of intangible and other assets			10,553,792				8,591,910
Equity interest in net income of associated companies			(26,439	)			(70,022	)
Gain (loss) on sale of property, plant and equipment			56,066				(20,707	)
Net period cost of labor obligations			6,850,893				6,854,668
Foreign currency exchange (gain) loss, net			(38,391,072	)			15,852,960
Interest income			(1,528,246	)			(1,901,195	)
Interest expense			15,340,831				16,089,165
Employee profit sharing			1,068,183				1,465,011
Gain in valuation of derivative financial instruments, capitalized interest expense and other, net			(3,511,735	)			(924,384	)
Working capital changes:
Accounts receivable from subscribers, distributors and other			(5,448,042	)			(12,321,997	)
Prepaid expenses			(4,088,533	)			(6,602,457	)
Related parties			(1,017,960	)			(600,784	)
Inventories			876,130				1,397,319
Other assets			(3,292,609	)			(1,725,048	)
Employee benefits			(4,095,050	)			(1,911,560	)
Accounts payable and accrued liabilities			(7,457,995	)			(11,776,006	)
Employee profit sharing paid			(1,413,207	)			(3,245,446	)
Financial instruments and other			(2,141,643	)			28,713,685
Deferred revenues			(1,800,626	)			(690,733	)
Interest received			310,115				2,314,740
Income taxes paid			(11,706,782	)			(21,972,555	)
Net cash flows provided by operating activities			96,588,751				98,342,617
Investing activities
Purchase of property, plant and equipment			(49,145,322	)			(52,505,460	)
Acquisition of intangibles			(1,885,492	)			(4,813,709	)
Dividends received from associates			1,777,999				5,527,226
Proceeds from sale of plant, property and equipment			46,267				97,415
Acquisition of businesses, net of cash acquired			(3,735,978	)			(778,798	)
Net cash flows used in investing activities			(52,942,526	)			(52,473,326	)
Financing activities
Loans obtained			28,045,199				34,711,056
Repayment of loans			(55,911,402	)			(57,200,483	)
Interest paid			(14,285,380	)			(15,869,777	)
Repurchase of shares			(795,065	)			(5,172,021	)
Dividends paid			(1,678,614	)			(319,047	)
Derivative financial instruments			(54,117	)			(205,792	)
Acquisition of non-controlling interests			(11,931	)			(2,362,644	)
Net cash flows used in financing activities			(44,691,310	)			(46,418,708	)
Net decrease in cash and cash equivalents			(1,045,085	)			(549,417	)
Adjustment to cash flows due to exchange rate fluctuations, net			(1,275,576	)			2,298,855
Cash and cash equivalents at beginning of the year			23,218,383				45,160,032
Cash and cash equivalents at end of the year		Ps.	20,897,722			Ps.	46,909,470

The accompanying notes are an integral part of these consolidated financial statements.

 

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AMÉRICA MÓVIL, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(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 the United States, Latin America, the Caribbean and Europe. These telecommunications services include mobile and fixed-line voice services, wireless and fixed data services, internet access and Pay TV, sales of equipment, accessories, computers as well as other related services and over the top services.

 

•

The 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.

 

•

The data services provided by the Company include the following: 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.

 

•

Equipment, accessories and computer sales.

 

•

Other related revenues from advertising in telephone directories, publishing and call center services.

 

•

Sell video, audio and other media content that is delivered through the internet directly from the content provider to the viewer or 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 telephony services), as well as to operate frequency bands in the radio-electric spectrum to be able to provide fixed wireless telephony 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 a presence, 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, México.

The accompanying condensed consolidated financial statements were approved for their issuance by the Company’s Chief Financial Officer on September 22, 2017, and subsequent events have been considered through that date.

 

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II. Relevant events in 2017

On June 27, 2017 the Company announced that a business unit dedicated to out-of-home advertising belonging to CMI, AMX’s advertising division, entered into a joint venture with JCDecaux by merging their respective out-of-home advertising operations in Mexico. Upon the closing of the transaction JCDecaux will own 60% of the joint venture shares and the remaining 40% shares will be owned by AMX. The transaction is subject to the satisfaction of certain conditions, and is expected to close later this year.

On June 30, 2017 the Company notified our shareholders that the dividend corresponding to the 2016 results would be Ps. 0.30 per share, to be paid in two installments of Ps. 0.15 each in cash, series L shares or a combination thereof, according to the election of each shareholder. On July 17, we made the first partial dividend payment that included 4.9 billion pesos paid in cash to the holders of 51.52% of the eligible shares and 325.3 million AMX Series L shares.

2. Basis of Preparation of the Consolidated Financial Statements and Summary of Significant Accounting Policies and Practices

a) Basis of preparation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with the International Accounting Standard No. 34, Interim Financial Reporting (“IAS 34”), and using the same accounting policies applied in preparing the annual financial statements, except as explained below.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Company’s audited annual consolidated financial statements as of December 31, 2015 and 2016, and for the three-year period ended December 31, 2016, as included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 (the “2016 Form 20-F”).

The preparation of these unaudited interim condensed consolidated financial statements in accordance with IAS 34 requires the use of critical estimates and assumptions that affect the amounts reported for certain assets and liabilities, as well as certain income and expenses. It also requires that management exercise judgment in the application of the Company’s accounting policies.

The Mexican peso is the functional and reporting currency of the Company and the ones used in these unaudited interim condensed consolidated financial statements.

3. Marketable securities and other short-term investments

As of June 30, 2017 and December 31, 2016, marketable securities and other short-term investments includes an available for sale investment in KPN for Ps. 38,709,386 and Ps. 41,463,511, respectively, and other short-term investments for Ps. 10,711,767 and

Ps. 13,393,646, respectively.

As of June 30, 2017 and 2016, the Company has recognized changes in fair value of the investment of Ps. (280,326) and Ps. (2,238,657), respectively, net of deferred taxes, through other comprehensive loss (equity).

At June 30, 2017, the Company has not observed an objective measure of impairment on its available for sale securities, nor have unrealized losses on its available for sale securities been considered either significant or prolonged.

During the six month periods ended June 30, 2017 and 2016, the Company received dividends from KPN for an amount of Ps. 1,546,258 and Ps. 5,597,816, 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. The other short-term investments of Ps. 10,711,767 and Ps.13,393,646, as of June 30, 2017 and December 31, 2016, respectively, 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.

 

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4. Related Parties

a) The following is an analysis of the balances with related parties as of June 30, 2017 and December 31, 2016. All of the companies were considered affiliates of América Móvil since the Company or the Company’s principal shareholders are also direct or indirect shareholders in the related parties.

 

		2017				2016
Accounts receivable:
Sears Roebuck de México, S.A. de C.V.		Ps.	158,838			Ps.	230,974
Sanborns Hermanos, S.A.			143,173				119,423
Carso Infraestructura y Construcción, S.A. de C.V and Subsidiaries			90,676				112,834
Enesa, S.A. de C.V. and Subsidiaries			48,710				93,360
Grupo Condumex, S.A. de C.V. and Subsidiaries			46,018				41,057
Operadora de Sites Mexicanos, S.A. de C.V.			—				22,629
Patrimonial Inbursa, S.A.			214,827				9,299
Other			159,213				110,916
Total		Ps.	861,455			Ps.	740,492
		2017				2016
Accounts payable:
Carso Infraestructura y Construcción, S.A. de C.V and Subsidiaries		Ps.	850,570			Ps.	1,291,062
Grupo Condumex, S.A. de C.V. and Subsidiaries			487,544				753,603
Fianzas Guardiana Inbursa, S.A. de C.V.			165,846				409,293
PC Industrial, S.A. de C.V. and Subsidiaries			88,806				117,841
Grupo Financiero Inbursa, S.A.B. de C.V.			41,633				40,737
Enesa, S.A. de C.V. and Subsidiaries			26,102				53,670
Other			413,827				305,119
Total		Ps.	2,074,328			Ps.	2,971,325

b) For the six-month periods ended June 30, 2017 and 2016, the Company conducted the following transactions with related parties:

 

		2017				2016
Investments and expenses:
Construction services, purchases of materials, inventories and property, plant and equipment (i)		Ps.	6,272,322			Ps.	5,813,738
Insurance premiums, fees paid for administrative and operating services, brokerage services and others (ii)			1,988,061				818,228
Rent of towers and sites and sites			2,626,676				2,244,442
Other services			733,578				600,641
		Ps.	11,620,637			Ps.	9,477,049
Revenues:
Sale of long-distance services and other telecommunications services		Ps.	215,463			Ps.	184,232
Sale of materials and other services (iii)			790,250				475,400
Voice services			16,343				—
		Ps.	1,022,056			Ps.	659,632

 

i)	In 2017, this amount includes Ps. 5,571,419 (Ps 3,024,211 in 2016) for network construction services and construction materials purchased from subsidiaries of Grupo Carso, S.A.B. de C.V. (Grupo Carso).

 

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ii)	In 2017, this amount includes Ps. 1,650,425 in 2017 (Ps. 818,228 in 2016) 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 2017, this amount includes Ps. 790,250 for the sale of inventories for distribution to Sanborns Hermanos, S.A. and Sears Operadora de México, S.A. de C.V. (Ps.460,826 in 2016).

5. Property, Plant and Equipment, net

During the six-month periods ended June 30, 2017 and 2016, the Company made cash payments related to investments in plant and equipment in order to increase and update its transmission network and other mobile and fixed assets for an amount of Ps.49,145,322 and Ps. 52,505,460, respectively.

6. Business combinations

On February 2017, the Company through its subsidiary Telekom Austria acquired 97.68% of Metronet telekomunikacije via its Croatian subsidiary Vipnet. Metronet is a leading alternative fixed business solutions provider in Croatia and delivers a diverse product offering, focused on delivering services to the business segment. The fair values of the assets acquired and liabilities assumed at the acquisition date were determined based on the preliminary. The amount paid for the business acquisition was Ps. 1,656,880, net of acquired cash. The goodwill recognized amounted to Ps. 422,846.

In the second quarter 2017, the Company acquired the non-controlling interest of Metronet of 2.32%. The excess of the purchase price over the book value of the non-controlling interest is recorded in retained earnings.

7. Income Taxes

As explained previously in these consolidated financial statements, the Company is a Mexican corporation which has numerous consolidated subsidiaries operating throughout the world. 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 six-month periods ended June 30, 2017 and 2016 is as follows:

 

		2017				2016
Current period income tax		Ps.	28,807,039			Ps.	14,542,961
Deferred income tax			(2,154,760	)			(7,772,891	)
		Ps.	26,652,279			Ps.	6,770,070

Deferred tax related to items recognized in OCI during the six-month periods ended June 30, 2017 and 2016 is as follows:

 

		2017				2016
Effect of financial instruments acquired for hedging purposes		Ps.	6,375			Ps.	10,595
Unrealized loss (gain) on available for sale securities			289,669				(957,705	)
Other			161,711				(109,768	)
Deferred tax charged to OCI		Ps.	457,755			Ps.	(1,056,878	)

The Company’s effective tax rate was 33.9% and 33.0% for the six months ended June 30, 2017 and 2016, respectively. Significant differences between the effective tax rate and the statutory tax rate for such interim periods relates to the tax inflation effects and non- deductible.

 

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8. Debt

a) The Company’s short- and long-term debt consists of the following:

 

At June 30, 2017
Currency		Loan		Interest rate		Maturity				Total
U.S. dollars
		Fixed-rate Senior notes (i)		3.125% - 6.375%			2042			Ps.	177,825,103
		Lines of credit (iii)		1.5% - 7.25%			2019				12,288,030
		Subtotal U.S. dollars								Ps.	190,113,133
Mexican pesos
		Fixed-rate Senior notes (i) (ii)		6.00% - 8.60%			2037			Ps.	72,557,917
		Lines of credit (iii)		TIIE + 0.40% - TIIE + 2.00%			2017				4,311,048
		Subtotal Mexican pesos								Ps.	76,868,965
Euros
		Fixed-rate Senior notes (i)		1.00% - 4.750%			2028			Ps.	222,445,249
		Series A and B Capital Securities (iv		5.125% and 6.375%			2073				29,651,710
		Commercial Paper (v)		-.05%			2017				2,453,935
		Lines of credit (iii)		.010%			2017				1,574,608
		Subtotal Euros								Ps.	256,125,502
Sterling pounds
		Fixed-rate Senior notes (i)		4.375% - 5.750%			2041			Ps.	51,284,713
		Capital Securities (iv)		6.375%			2073				12,821,178
		Subtotal Sterling pounds								Ps.	64,105,891
Swiss francs
		Fixed-rate Senior notes (i)		1.125% and 2.00%			2018			Ps.	15,320,791
		Subtotal Swiss francs								Ps.	15,320,791
Brazilian reals
		Local Bonds		103.9% of CDI			2019			Ps.	5,409,981
		Lines of credit (iii)		3.00% - 12.30%			2021			Ps.	7,387,162
		Subtotal Brazilian reals								Ps.	12,797,143
Other currencies
		Fixed-rate Senior notes (i)		2.95% - 3.96%			2039			Ps.	5,662,211
		Financial Leases		8.70% - 8.97%			2027				84,656
		Subtotal other currencies								Ps.	5,746,867
		Total debt								Ps.	621,078,292
		Less: Short-term debt and current portion of long-term debt									57,472,802
		Long-term debt								Ps.	563,605,490

 

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At December 31, 2016
Currency		Loan		Interest rate		Maturity				Total
U.S. dollars
		Fixed-rate Senior notes (i)		3.125% - 6.375%			2042			Ps.	205,984,329
		Lines of credit (iii)		1.5% - 8.5%			2019				14,929,806
		Subtotal U.S. dollars								Ps.	220,914,135
Mexican pesos
		Fixed-rate Senior notes (i) (ii)		6.00% - 8.60%			2037			Ps.	72,415,602
		Lines of credit (iii)		TIIE + 0.15% - TIIE + 2.00%			2017				15,111,048
		Subtotal Mexican pesos								Ps.	87,526,650
Euros
		Fixed-rate Senior notes (i)		1.00% - 4.750%			2028			Ps.	270,240,624
		Series A and B Capital Securities (iv)		5.125% and 6.375%			2073				31,614,659
		Lines of credit (iii)		3.52%			2018				491,144
		Subtotal Euros								Ps.	302,346,427
Sterling pounds
		Fixed-rate Senior notes (i)		4.375% - 5.750%			2041			Ps.	56,281,605
		Capital Securities (iv)		6.375%			2073				14,070,401
		Subtotal Sterling pounds								Ps.	70,352,006
Swiss francs
		Fixed-rate Senior notes (i)		1.125% and 2.00%			2018			Ps.	16,682,775
		Subtotal Swiss francs								Ps.	16,682,775
Brazilian reals
		Lines of credit (iii)		3.00% - 9.50%			2021			Ps.	3,467,091
		Subtotal Brazilian reals								Ps.	3,467,091
Other currencies
		Fixed-rate Senior notes (i)		2.95% - 3.96%			2039			Ps.	6,386,086
		Financial Leases		8.70% - 8.97%			2027				126,233
		Subtotal other currencies								Ps.	6,512,319
		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

L = LIBOR (London Interbank Offer Rate)

TIIE = Mexican Interbank Rate

EURIBOR= Euro Interbank Offered Rate

CDI = Brazil Interbank Deposit Rate

Except for the fixed-rate notes, 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 June 30, 2017, and December 31, 2016 was approximately 4.3% and 4.2% 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.

 

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An analysis of the Company’s short-term debt maturities as of June 30, 2017, and December 31, 2016, is as follows:

 

		2017				2016
Domestic Senior Notes		Ps.	4,910,109			Ps.	2,000,000
International Senior Notes			28,320,565				50,955,191
Commercial Paper			2,453,935
Lines of credit			21,757,567				29,619,908
Financial Leases			30,626				32,160
Total		Ps.	57,472,802			Ps.	82,607,259
Weighted average interest rate			4.9	%			5.1	%

The Company’s long-term debt maturities are as follows:

 

Years		Amount
2018		Ps.	11,755,421
2019			58,557,472
2020			104,127,376
2021 and thereafter			389,165,221
Total		Ps.	563,605,490

(i) Senior Notes

The outstanding Senior Notes at June 30, 2017, and December 31, 2016, are as follows:

 

Currency*		2017				2016
U.S. dollars		Ps.	177,825,103			Ps.	205,984,329
Mexican pesos			72,557,917				72,415,602
Euros**			222,445,249				270,240,624
Sterling pounds**			51,284,713				56,281,605
Swiss francs			15,320,791				16,682,775
Japanese yens			2,070,157				2,306,643
Chilean pesos			3,592,054				4,079,443

 

*	Thousands of Mexican pesos

**	Includes secured and unsecured senior notes.

In May 2015, the Company placed 5 year bonds for an amount of EUR $3,000 million which may be exchanged for ordinary shares of KPN, at an exercise price of €4.9007, 45% higher than the reference price on the date of issuance. In December 31, 2015, the closing price of the stock of KPN was €3.4920. Given the terms of the bond, we have identified an embedded option with a fair value of EUR $51.3 million reflected as a liability within derivative financial instruments on the Consolidated Statement of Financial Position as of June 30, 2017. Under the terms of the exchangeable bond agreement, none of the exchanged property (specifically, the KPN shares) has been or will be charged or otherwise placed in custody or set aside to secure or satisfy the Company’s obligations. At any time, the Company may or may not be the owner of the whole or any part of this property and may sell or otherwise dispose of the same or take any action or exercise any rights or options in respect of the same at any time.

In September 2015, the Company completed the placement of EUR $750 million principal amount of exchangeable bonds that will be mandatorily exchangeable into ordinary shares of KPN at maturity. The bonds have a maturity of 3 years and will pay a coupon of 5.5% per year payable quarterly in arrears, as well as the corresponding cash dividends paid by KPN net of withholding taxes. The reference price of the KPN shares for its exchange was set at €3.3374 but could be as high as €4.2552 (reference price plus 27.5%). As a result of the Company’s mandatory exchangeable bond, the Company placed 224.7 million of ordinary shares of KPN in a trust in favor of the bond trustee and the bond holders. The aforementioned conditions allowed the Company to derecognize a portion of its investment in shares in KPN corresponding to the 224.7 million of ordinary shares on its Consolidated Statement of Financial Position as of December 31, 2015.

The exchangeable bonds described above have provisions that will allow for their settlement in cash if AMX wishes to retain ownership of the shares.

 

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In March 2016, AMX placed an international bond for a total amount of EUR $1,500 million divided in two tranches, the first one for EUR $850 million with a coupon of 1.5% and maturity in 2024, and a second one for EUR $650 million with a coupon of 2.125% and maturity in 2028.

In December 2016, Telekom Austria placed an international bond for a total amount of EUR $500 million with a coupon of 1.5% and maturity in 2026, issued to cover a bond amortization in January 2017.

(ii) Domestic Senior Notes

At June 30, 2017, and December 31, 2016, debt under Domestic Senior Notes aggregated to Ps. $21,186.2 million and

Ps. $21,043.9 million, respectively. In general these issues bear a fixed-rate or floating rate determined as a differential on the TIIE rate.

(iii) Lines of credit

At June 30, 2017, and December 31, 2016, debt under lines of credit aggregated to Ps. $28,014.8 million and Ps. $33,999.1 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.

(iv) Hybrid Notes

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 sterling pounds 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.

(v) Commercial Paper

At June 30, 2017, debt under commercial paper aggregated to Ps. $2,453.9 million.

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 June 30, 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, as of June 30, 2017 no change in control is considered to have occurred.

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.

 

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At June 30, 2017, the Company was in compliance with all the covenants.

9. Contingencies

Included in Note 16 on pages F-65 to F-75 of the Company’s 2016 Form 20-F is a disclosure of material contingencies outstanding as of December 31, 2016. As of June 30, 2017, and other than in connection with the following matters, there has not been any other material change in the status of such contingencies:

 

I.

Colombia – Comcel

Local Arbitration Proceedings (Bogotá Chamber of Commerce)

In 2013, the Constitutional Court (Corte Constitucional) ruled that certain laws eliminating the reversion of telecommunication assets do not apply to concessions granted prior to 1998, including Comcel’s concessions. Following the termination of Comcel’s concession contracts, Comcel and the Ministry of Information Technology and Communications (Ministerio de Tecnologías de la Información y las Comunicaciones) (“ITC Ministry”) initiated discussions with respect to the liquidation of such concessions. However, the ITC Ministry took the position that pursuant to the Constitutional Court decision assets under Comcel’s concession contracts should revert to the Colombian government and in February 2016, initiated a local arbitration claim against Comcel before the Bogotá Chamber of Commerce pursuant to the concession contracts.

On July 25, 2017, Comcel was notified of an award issued by the arbitral tribunal convened to resolve such claim declaring the validity of the reversion clause in the concessions contracts and ordering Comcel to pay Ps.18,327,087 (approximately COP$3.155.432 million). Comcel has challenged the award in accordance with Colombian legislation and on August 29, 2017, fulfilled its obligations, as required by the ITC Ministry, under protest reserving all of its rights and those of its shareholders.

 

II.

Mexico – AMX

ICSID (Additional Facility) Arbitration Proceeding

In July 2017, the tribunal was constituted in the arbitration claim initiated in August 2016 by AMX against the Republic of Colombia on behalf of itself and its subsidiary Comcel under the ICSID Additional Facility Rules and pursuant to the investment chapter of the Mexico-Colombia Free Trade Agreement (the “Mexico-Colombia FTA”). AMX has requested compensation on the basis of Colombia’s breach of the Mexico-Colombia FTA in connection with certain measures adopted by Colombia since August 2013, including the Constitutional Court’s decision of 2013 regarding the non-applicability of certain laws eliminating the reversion of telecommunication assets to concessions granted prior to 1998, and the obligatory payment by Comcel to the ITC Ministry of the amounts established by the local arbitration proceeding previously initiated by the ITC Ministry pursuant to the concession contracts.

On September 13, 2017, the tribunal issued the first procedural order setting out the procedural calendar.

10. 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 June 30, 2017 and December 31, 2016:

 

		June 30, 2017
		Loans and Receivables				Fair value through profit or loss				Fair value through OCI
Financial Assets:
Marketable securities and other short term investments		Ps.	10,711,767			Ps.	—			Ps.	38,709,386
Accounts receivable from subscribers, distributors, and other, net			155,306,958				—				—
Related parties			861,455				—				—
Derivative financial instruments			—				1,031,765				—
Total		Ps.	166,880,180			Ps.	1,031,765			Ps.	38,709,386

 

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		June 30, 2017
		Loans and Receivables				Fair value through profit or loss				Fair value through OCI
Financial Liabilities:
Debt		Ps.	621,078,292			Ps.	—			Ps.	—
Accounts payable			199,944,188				—				—
Related parties			2,074,328				—				—
Derivative financial instruments			—				14,263,297				20,656
Total		Ps.	823,096,808			Ps.	14,263,297			Ps.	20,656
		December 31, 2016
		Loans and Receivables				Fair value through profit or loss				Fair value through OCI
Financial Assets:
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

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 June 30, 2017 and December 31, 2016 is as follows:

 

		Measurement of fair value at June 30, 2017
		Level 1				Level 2				Level 3				Total
Assets:
Marketable securities and other short term investments		Ps.	38,709,386			Ps.	10,711,767			Ps.	—			Ps.	49,421,153
Derivative financial instruments			—				1,031,765				—				1,031,765
Pension plan assets			209,144,153				7,057,836				102,265				216,304,254
Total		Ps.	247,853,539			Ps.	18,801,368			Ps.	102,265			Ps.	266,757,172

 

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		Measurement of fair value at June 30, 2017
		Level 1				Level 2				Level 3				Total
Liabilities:
Debt		Ps.	625,180,709			Ps.	36,164,418			Ps.	—			Ps.	661,345,127
Derivative financial instruments			—				14,283,953				—				14,283,953
Total		Ps.	625,180,709			Ps.	50,448,371			Ps.	—			Ps.	675,629,080
		Measurement of fair value at December 31, 2016
		Level 1				Level 2				Level 3				Total
Assets:
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

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 gains (losses) related to derivative financial instruments for the periods ended June 30, 2017 and 2016 was Ps. 2,141,643, and Ps. ( 28,713,685), respectively.

For the periods ended June 30, 2016 and 2017, no transfers were made between Level 1 and Level 2 fair value measurement hierarchies.

11. Shareholders’ Equity

a) Pursuant to the Company’s bylaws, the capital stock 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 y las 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), 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), all of them fully subscribed and paid.

b) As of June 30, 2017 and December 31, 2016, the Company’s capital stock was represented by 65,753,398,000 (20,634,632,660 shares “AA” shares, 577,494,494 “A” shares and 44,541,270,846 “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.

c) As of June 30, 2016 and December 31, 2016, the Company’s treasury held for placement in accordance with the provisions of the Ley del Mercado de Valores y las 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 29,736,026,196 shares (29,735,090,125 “L” shares and 936,071 “A” shares), and 29,691,724,196 (29,691,076,321 “L” shares and 647,875 “A” shares), respectively.

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 holders of “L” shares are entitled to vote are the following: extension of the term of the Company, early dissolution of the

 

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Company, change of corporate purpose of the Company, change of nationality of the Company, transformation of the Company, a merger with another company, and 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 where they may be registered. 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.

“AA” shares may only be subscribed to or acquired by Mexican investors, Mexican corporations and/or trusts expressly empowered for such purposes in accordance with the applicable legislation in force. “A” shares, which may be freely subscribed, may not represent more than 19.6% of capital stock and may not exceed 49% of the common shares representing such capital. Common shares (entitled to full voting rights, represented by “AA” and “A” shares), may 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

a) On April 05, 2017, the Company’s shareholders approved, among other resolutions, i) the payment of an ordinary dividend of Ps.0.30, per share to each of the shares of its capital stock series (“AA”, “A” and “L”), payable in two equal installments of Ps.0.15 each, in July and November 2017. Shareholders entitled to the dividend will have an option to receive it in cash, as Series L shares or a combination thereof; ii) to allocate an amount equal to Ps. 3 billion for the Company’s buyback program.

b) On April 18, 2016, the Company’s shareholders approved, among other resolutions, i) The payment of a cash dividend of Ps.0.28 pesos, per share to each of the shares of its capital stock series (“AA”, “A” and “L”), payable in two equal installments of Ps.0.14. On October 6, 2016, the Company’s shareholders approved a concession for the shareholders, under which the second installment of the dividend would be paid, at each shareholder election, in cash, as L Shares or a combination thereof; ii) to allocate an amount equal to Ps. 12 billion for the Company’s buyback program.

12. Components of other comprehensive (loss) income

The movement on the components of the other comprehensive (loss) income for the six-month periods ended June 30, 2017 and 2016 is as follows:

 

		2017				2016
Controlling interest:
Valuation of the derivative financial instruments, net of deferred taxes		Ps.	6,815			Ps.	24,423
Available for sale securities, net of deferred taxes			(280,326	)			(2,238,657	)
Translation effect of foreign subsidiaries and associates			(63,988,395	)			70,755,175
Re-measurement of defined benefit plan, net of deferred taxes			1,677,746				(1,418,208	)
Non-controlling interest of the items above			(2,735,758	)			2,758,379
Other comprehensive (loss) income		Ps.	(65,319,918)			Ps.	69,881,112

 

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13. Valuation of derivatives, interest cost from labor obligations and other financial items, net

For the six month periods ended June 30, 2017 and 2016, valuation of derivatives and other financial items was as follows:

 

		2017				2016
Loss in valuation of derivatives, net		Ps.	(111,358	)		Ps.	(5,833,663	)
Capitalized interest expense			1,530,975				1,162,107
Commissions			(358,623	)			(851,441	)
Interest cost of labor obligations			(4,471,662	)			(4,458,880	)
Interest expense on taxes			(943,517	)			(498,948	)
Dividend received			1,546,258				5,597,816
Other financial cost			(1,525,606	)			(632,939	)
		Ps.	(4,333,533	)		Ps.	(5,515,948	)

14. Segments

América Móvil operates in different countries. 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 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 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 Perú), Central-América (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 that telecom companies, (vi) inflation trends, and (vii) currency trends.

 

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		Mexico				Telmex				Brazil				Southern Cone				Colombia				Andean				Central America				U.S.A.				Caribbean				Europe				Eliminations				Consolidated total
At June 30, 2017 (in Ps.):
External revenues			90,704,323				45,187,241				108,645,224				40,302,892				37,176,023				28,981,248				22,275,422				76,461,178				18,685,592				45,167,064				—				513,586,207
Intersegment revenues			8,266,716				4,700,370				2,507,217				517,665				170,552				94,294				118,060				—				18,472				—				(16,393,346	)			—
Total revenues			98,971,039				49,887,611				111,152,441				40,820,557				37,346,575				29,075,542				22,393,482				76,461,178				18,704,064				45,167,064				(16,393,346	)			513,586,207
Depreciation and amortization			7,768,460				9,324,676				26,872,538				5,414,667				6,286,784				4,227,563				5,053,810				656,150				2,604,292				11,340,295				(208,479	)			79,340,756
Operating income (loss)			24,474,626				4,749,573				4,750,356				5,906,427				7,251,433				2,685,913				2,509,415				2,650,837				3,387,551				3,390,039				(230,700	)			61,525,470
Interest income			15,721,611				209,944				2,010,996				1,541,920				59,700				800,826				504,029				154,122				530,957				154,301				(20,160,160	)			1,528,246
Interest expense			16,235,685				521,296				12,685,960				2,488,884				543,005				811,610				239,456				—				118,108				1,018,955				(19,322,128	)			15,340,831
Income tax			20,506,307				900,650				(2,496,022	)			2,183,814				2,147,350				604,876				896,928				1,055,123				1,148,277				(292,205	)			(2,819	)			26,652,279
Equity interest in net income (loss) of associated companies			38,104				5,337				(129	)			(3,245	)			—				—				—				—				—				(13,628	)			—				26,439
Net profit (loss) attributable to equity holders of the parent			35,968,538				1,203,484				(4,712,280	)			1,875,707				5,863,419				1,963,201				1,786,227				1,896,883				2,291,219				3,624,075				(1,592,264	)			50,168,209
Assets by segment			996,182,141				163,309,332				389,771,219				120,650,725				87,027,375				102,030,700				72,440,629				42,024,833				85,207,942				179,856,555				(887,013,709	)			1,351,487,742
Plant, property and equipment, net			64,837,768				109,050,515				165,415,431				57,769,820				49,153,819				32,216,340				34,011,621				1,573,540				28,009,905				73,464,121				—				615,502,880
Goodwill			27,039,084				213,926				22,604,245				2,723,218				12,420,163				5,902,303				5,375,882				3,097,448				14,186,723				52,563,566				—				146,126,558
Trademarks, net			511,017				290,402				272,738																—				647,433				241,307				9,412,019				—				11,374,916
Licenses and rights, net			6,484,056				28,020				32,604,997				7,067,688				3,598,634				10,716,263				3,181,736				—				6,610,908				28,042,279				—				98,334,581
Investment in associated companies			(172,278	)			529,463				578				70,515				400				—				15,395				—				—				889,715				1,835,335				3,169,123
Liabilities by segments			757,412,027				116,852,163				301,920,108				103,807,557				30,346,406				42,493,559				30,890,114				38,709,997				35,976,015				105,629,394				(448,281,511	)			1,115,755,829
At June 30, 2016 (in Ps.):
External revenues			88,536,299				46,398,283				88,217,305				32,864,152				31,247,737				26,722,756				20,094,100				63,731,816				17,436,231				41,119,099				—				456,367,778
Intersegment revenues			7,697,673				4,147,343				1,577,853				344,463				130,957				155,608				148,130				—				11,186				—				(14,213,213	)			—
Total revenues			96,233,972				50,545,626				89,795,158				33,208,615				31,378,694				26,878,364				20,242,230				63,731,816				17,447,417				41,119,099				(14,213,213	)			456,367,778
Depreciation and amortization			6,844,107				8,346,247				21,568,626				4,548,377				5,089,279				3,672,565				4,902,200				410,694				2,725,512				10,958,884				(149,930	)			68,916,561
Operating income (loss)			25,745,554				6,801,932				2,743,980				3,831,439				5,047,070				3,274,809				2,013,130				(601,112	)			2,462,400				2,411,129				70,175				53,800,506
Interest income			12,540,643				121,493				817,624				1,292,982				30,460				404,062				182,317				120,448				297,166				127,066				(14,033,066	)			1,901,195
Interest expense			14,820,536				621,737				9,548,015				2,255,986				522,848				446,574				206,557				—				53,084				1,206,299				(13,592,471	)			16,089,165
Income tax			2,513,042				579,470				(1,664,380	)			584,690				2,285,393				782,689				1,146,706				(195,258	)			1,018,596				(280,878	)			—				6,770,070
Equity interest in net (loss) income of associated companies			31,954				43,628				(117	)			(9,407	)			—				—				(4,182	)			—				—				8,146				—				70,022
Net profit (loss) attributable to equity holders of the parent			4,527,658				951,703				(3,583,698	)			2,760,079				1,824,000				2,597,622				715,753				(126,451	)			1,415,615				2,577,753				(1,161,519	)			12,498,515
Assets by segment			1,013,863,039				170,123,085				418,457,512				129,890,240				95,201,272				95,430,140				72,946,040				37,724,559				84,327,867				213,777,744				(892,250,988	)			1,439,490,510
Plant, property and equipment, net			58,097,980				109,798,017				188,557,335				58,992,502				52,765,754				33,142,662				38,425,202				2,054,843				30,543,932				74,557,632				—				646,935,859
Goodwill			27,105,647				213,926				24,470,177				2,845,646				13,766,309				4,457,484				5,407,571				2,015,003				14,186,723				51,976,392				—				146,444,878
Trademarks, net			718,904				327,223				391,543				—				401				—				—				722,606				263,853				9,770,583				—				12,195,113
Licenses and rights, net			6,218,000				57,712				39,202,123				8,683,538				4,463,966				6,473,439				3,836,896				—				7,052,630				30,650,886				—				106,639,190
Investment in associated companies			4,882,723				1,930,271				795				89,608				441				—				15,624				—				—				1,018,839				(4,454,478	)			3,483,823
Liabilities by segments			821,066,707				144,459,982				304,322,386				107,597,465				33,809,001				33,550,472				33,015,613				37,716,246				37,509,339				115,718,257				(447,111,100	)			1,221,654,368

 

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15. Future Impact of Recently Issued Accounting Standards not yet in Effect

The Company has not adopted the following standards and interpretations that have been issued, but are not effective, up to the date of issuance of the Company’s financial statements. The Company intends to adopt these standards, if applicable, when they become effective.

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 currently plans to adopt the standard using the “modified retrospective method”. Under that method, it expects to 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 providing additional disclosures comparing results to previously recorded revenue.

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 financial statements. Many of the disclosure requirements in IFRS 15 are completely new.

The Company initiated a group wide two-phase project for the implementation of IFRS 15. In phase I, certain employees were first trained, then deviations in revenue recognition, based on contractual agreements, were identified for individual business transactions and the possibility of establishing portfolios was assessed. In phase II, the analysis of contracts will be continued with a special focus on the adaption of IT and system processes.

Based on work performed to date, we believe the key changes in the standard that may impact our revenue recognition relate to the allocation of contract revenue services between various services and equipment and the timing when such revenues are recorded. We also expect a change in the timing of the recognition of the commissions we pay which were approximately Ps.35,141,660 in 2016 and were expensed when paid and may be deferred and amortized over future periods under the new standard. Additionally, the requirement to defer incremental contract acquisition costs and recognize them over the contract period or expected customer life may result in an amortizable deferred asset on the Company’s consolidated statement of financial position.

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.

 

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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.

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 is effective on or after January 1, 2018, with early adoption permitted. 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 accounts receivable trade, the Company currently expects to adopt the simplified approach of IFRS 9. Although management does not expect major measurement changes in financial instruments, the possible impact on the consolidated financial statements of the Company from the initial adoption of IFRS 9 cannot currently be estimated.

16. Subsequent Events

On July 2017, Radiomóvil Dipsa, S.A. de C.V.(Telcel) acquired the right to use and exploit approximately 60 MHz of spectrum in the 2.5 GHz band, in different regions of the country, pursuant to the November, 2016 agreement between Telcel and Grupo MVS.

On July 2017, as a result of the spectrum auction carried by Superintendence of Telecommunications (“SUTEL”) in Costa Rica, its subsidiary Claro CR Telecomunicaciones, S.A. (“Claro”) gained a total of 20MHz in the 1800 MHz band and 10 MHz in the 1900/2100 MHz (AWS) band. The concessions will expire on 2032. These concessions will be granted upon compliance of certain requirements provided under the auction rules issued by SUTEL.

On August 16, 2017, the Second Chamber (Sala Segunda) of the Mexican Supreme Court of Justice (Suprema Corte de Justicia de la Nación), resolved to grant an injunction (amparo) to Telcel against a series of provisions of the Federal Telecommunications and Broadcasting Law (Ley Federal de Telecomunicaciones or “Implementing Legislation”) in relation to the prohibition imposed on Telcel to charge other carriers for termination services on its network, commonly referred to as the “Zero Rate”. The Supreme Court ruling restored the authority of the Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones or “IFT”) to determine the interconnection rate that other carriers shall pay Telcel for the termination of services on its network, which shall be based on international best practices, cost oriented methodologies, transparency and rationality.

Notwithstanding the unconstitutionality of the “Zero Rate”, the Second Chamber of the Supreme Court resolved (i) that other carriers shall not restore Telcel for the adverse effects caused by the “Zero Rate” since August 2014; and (ii) that the interconnection rate that other carriers shall pay Telcel for termination services on its network as established by the IFT shall be effective on January 1, 2018.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: September 27, 2017