Business Context and Reporting Period
This Form 6-K, filed on May 18, 2010, by América Móvil, S.A.B. de C.V., presents Unaudited Pro Forma Condensed Combined Financial Statements. The filing details the financial impact of two concurrent offers announced on January 13, 2010: the CGT Offer (acquiring Grupo Carso Telecomunicaciones) and the TII Offer (acquiring non-controlling interests in Telmex Internacional). The pro forma balance sheet assumes completion as of December 31, 2009, while the income statements assume the CGT Offer occurred on January 1, 2007, and the TII Offer on January 1, 2009.
Key Financial Metrics (Pro Forma Combined)
The following metrics reflect the combined entity under US GAAP for the years ended December 31, 2009, 2008, and 2007 (in thousands of Mexican pesos, unless noted).
| Metric | 2009 | 2008 | 2007 |
|---|---|---|---|
| Operating Revenues | Ps. 578,474,099 | Ps. 517,484,093 | Ps. 482,190,530 |
| Operating Income | Ps. 149,898,813 | Ps. 144,740,319 | Ps. 139,898,857 |
| Net Income (US GAAP) | Ps. 98,112,870 | Ps. 71,446,761 | Ps. 88,127,308 |
| Controlling Interest EPS (US GAAP) | Ps. 2.11 | Ps. 1.51 | Ps. 1.68 |
| Total Assets (Dec 31, 2009) | Ps. 820,614,060 | - | - |
| Total Liabilities (Dec 31, 2009) | Ps. 517,884,560 | - | - |
| Shareholders' Equity (US GAAP) | Ps. 420,519,993 | - | - |
Material Changes and Pro Forma Adjustments
- Revenue Growth: Pro forma operating revenues increased 11.8% from 2008 to 2009, driven by the inclusion of Telmex and Telmex Internacional operations.
- Profitability: Pro forma net income (US GAAP) rose 37.3% from 2008 to 2009, reaching Ps. 98.1 billion.
- Capital Structure: The pro forma balance sheet reflects the issuance of approximately 7.1 billion shares for the CGT Offer and 2.6 billion shares for the TII Offer (assuming 100% share exchange). Total pro forma capital stock is Ps. 150.4 billion.
- Accounting Adjustments: Significant US GAAP adjustments were made to reconcile Mexican FRS, primarily regarding the purchase accounting for non-controlling interests and treasury share purchases by Telmex and Telmex Internacional. These adjustments reduced pro forma net income by Ps. 3.1 billion in 2009 due to increased depreciation and amortization on goodwill and trademarks.
Outlook, Risks, and Contingencies
- Transaction Structure: The TII Offer allows shareholders to elect cash (Ps. 11.66 per share) or shares. The pro forma statements assume 100% share exchange. If 100% cash election occurs, América Móvil would pay approximately Ps. 82.5 billion (US$6.7 billion).
- Debt and Derivatives: CGT holds significant debt (Ps. 29.5 billion total) and utilizes derivatives (interest rate swaps, cross-currency swaps, and forwards) to manage risk. CGT has contingent collateral obligations related to forward share purchase agreements, though no collateral was posted as of December 31, 2009.
- Regulatory Risks: Mexican regulators may require the establishment of a "TII Repurchase Trust" to purchase remaining TII shares post-delisting.
- Limitations: The pro forma statements do not reflect operating synergies, transaction expenses, or future results. They are for informational purposes only.
Investor Verification Checklist
- Cash vs. Share Election: Verify the actual percentage of TII shareholders electing cash versus shares, as this significantly impacts liquidity and share count.
- Regulatory Approval: Confirm the status of regulatory approvals required for the CGT and TII Offers in Mexico and other jurisdictions.
- Derivative Exposure: Review the specific terms of CGT's forward contracts and the potential for future collateral calls if share prices decline.
- US GAAP Reconciliation: Examine the detailed US GAAP adjustments (Note 5) to understand the impact of purchase accounting on future depreciation and amortization expenses.
- Non-Controlling Interest: Note that approximately 40.57% of Telmex remains as non-controlling interest post-transaction, affecting consolidated net income attribution.