1000000000 Due from 360 TV AZTECA, SAB DE CV $1000000000

TV AZTECA, S.A.B. DE C.V.
$1,000,000,000 Medium-Term
Term Note Programme
Due from 360 Days to 10 Years from the Date of Issue
Azteca may from time to time issue medium-term
term notes (the "Notes") under the programme (the "Programme
Programme") described in this offering circular
(the "Offering Circular").. All Notes having the same interest payment dates, issue price and maturity date, bearing interest at the same rate and the
terms of which are otherwise identical
dentical constitute a "Series."
The Notes will have the following characteristics:

The Notes may be issued in any currency.

The Notes will have maturities of not less than 36
360 days nor more than 10 years.

The maximum principal amount of all Notes from tim
timee to time outstanding under the Programme will not exceed $1,000,000,000 (or its
equivalent in other currencies calculated as described in the Programme Agreement (as defined below)).
below)

The Notes may be issued at their nominal amount or at a premium over or discount to their nominal amount and/or may bear interest at a
fixed rate or floating rate.

The Notes will be issued in either registered or bearer form.

The Notes will be fully, unconditionally and jointly and severally guaranteed by Televisión Azteca, S.A.
S. de C.V., Azteca International
Corporation, Inversora Mexicana de Producción, S.A. de C.V., Estudios Azteca, S.A. de C.V., Azteca Novelas, S.A. de C.V., and
Operadora Mexicana de Televisión, S.A. de C.V. (the "Guarantors" and each a "Guarantor"). See "The
"
Guarantors."

The Notes may be issued as unsecured Notes or as secured Notes.
Any terms and conditions that differ from those contained herein which are applicable to a particular Series of Notes, including
includ
the interest rate, if
any, applicable to such Series, will be set forth in a pricing supplement relating to such Series (a "Pricing
Pricing Supplement"),
Supplement which for the purposes of
listing and trading, shall be deemed to be incorporated in, and to form part of, the Series Listing Particulars (as defined in
i such Pricing
Supplement).. The applicable Pricing Supplement relating to a particular Series of Notes may specify other terms and conditions which shall,
sha to the
extent so specified, replace or modify the terms and conditions set forth in this Offering Circular with respect to such Series of Notes.
Notes issued under the Programme may at any time, but are not required to, be listed on one or more stock exchanges. Application
Applicat
has been made
for this Offering Circular to be approved by the Irish Stock Exchange. Azteca may apply for any Series of Notes to be issued under the Programme
to be admitted to the Official List of the Irish Stock Exchange and trading on its Global Exchange Market, as set forth in the
th applicable Pricing
Supplement. This Offering Circular constitutes "Base
"
Listing Particulars" for the purpose of any such listing and trading.
THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE REGISTRO NACIONAL DE VALORES (THE "NATIONAL
SECURITIES REGISTRY")) MAINTAINED BY THE COMISION NACIONAL BANCARIA Y DE VALORES (THE NATIONAL BANKING AND
SECURITIES COMMISSION, OR "CNBV"),
), AND MAY NOT BE OFFERED OR SOLD PUBLICLY, OR OTHERWISE BE THE SUBJECT OF
BROKERAGE ACTIVITIES, IN MEXICO, EXCEPT PURSUANT TO A PRIVATE PLACEMENT EXEMPTION SET FORTH UNDER ARTICLE 8 OF
THE LEY DEL MERCADO DE VALORES, AS AMENDED (THE "MEXICAN SECURITIES MARKET LAW,"
" OR "LMV"). AS REQUIRED UNDER
THE LMV, AZTECA WILL NOTIFY THE CNBV OF THE ISSUANCE OF THE NOTES INCLUDING THE PRINCIPAL CHARACTERISTICS OF
THE NOTES AND THE OFFERING OF THE NOTES OUTSIDE OF MEXICO. SUCH NOTICE WILL BE DELIVERED TO THE CNBV TO
COMPLY WITH A LEGAL REQUIREMENT AND FOR INFORMATION PURPOSES ONLY, AND THE DELIVERY TO AND THE RECEIPT BY
THE CNBV OF SUCH NOTICE, DOES NOT CONSTITUTE OR IMPLY ANY CERTIFICATION AS TO THE INV
INVESTMENT QUALITY OF THE
NOTES, THE SOLVENCY, LIQUIDITY OR CREDIT QUALITY OF THE ISSUER OR THE GUARANTORS OR THE ACCURACY OR
COMPLETENESS OF THE INFORMATION PROVIDED IN THIS OFFERING CIRCULAR. THE INFORMATION CONTAINED IN THIS
OFFERING CIRCULAR IS EXCLUSIVELY
LY THE RESPONSIBILITY OF THE ISSUER AND HAS NOT BEEN REVIEWED OR AUTHORIZED BY
THE CNBV. IN MAKING AN INVESTMENT DECISION, ALL INVESTORS, INCLUDING ANY MEXICAN INVESTORS WHO MAY ACQUIRE
NOTES FROM TIME TO TIME, MUST RELY ON THEIR OWN REVIEW AND EXAMINATION OF THE ISSUER AND THE GUARANTORS.
The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any
securities regulatory authority of any state or other jurisdiction of the United States. The Notes may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act ("Regulation
(
S")).
This Offering Circular
ircular has been prepared by the Issuer for use
se in connection with the offer and sale of the Notes outside the United States
to non-U.S.
U.S. persons pursuant to Regulation S. For a description of these and certain further restrictions on offers and sales of the Notes
and distribution of this Offering Circular,
cular, see "Selling Restrictions."
The date of this Offering Circular is September 4, 2013
CPAM: 5509473.22
TABLE OF CONTENTS
Page
IMPORTANT NOTICE ................................................................................................................................................1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS ...................................................................3
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION ......................................................4
SUMMARY OF THE PROGRAMME .........................................................................................................................6
FORM OF PRICING SUPPLEMENT ..........................................................................................................................9
RISK FACTORS .........................................................................................................................................................12
USE OF PROCEEDS ..................................................................................................................................................22
THE BUSINESS .........................................................................................................................................................23
EXCHANGE RATES..................................................................................................................................................44
FINANCIAL INFORMATION...................................................................................................................................45
GOVERNANCE..........................................................................................................................................................62
RELATED PARTY TRANSACTIONS AND CONFLICTS OF INTEREST............................................................67
THE GUARANTORS .................................................................................................................................................69
TERMS AND CONDITIONS .....................................................................................................................................71
SELLING RESTRICTIONS .......................................................................................................................................85
TAXATION ................................................................................................................................................................90
AVAILABLE INFORMATION .................................................................................................................................93
LISTING AND GENERAL INFORMATION............................................................................................................94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ........................................................................... F-1
i
IMPORTANT NOTICE
In this Offering Circular, unless otherwise specified or the context otherwise requires, all references to
"Azteca" and the "Issuer" mean TV Azteca, S.A.B. de C.V. together with its consolidated subsidiaries.
The information contained in this Offering Circular relating to the Issuer, the Guarantors and their
subsidiaries and affiliates has been obtained from the Issuer and the Guarantors and is solely the responsibility of
Azteca. Azteca, having taken all reasonable care, confirms that the information contained in this Offering Circular is,
to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.
This Offering Circular contains summary information provided by the Issuer and the Guarantors in
connection with the Programme under which the Issuer may issue Notes from time to time, provided that the
aggregate principal amount of Notes outstanding at any time under the Programme will not exceed $1,000,000,000 (or
its equivalent in other currencies calculated as described in the Programme Agreement). The amount of the
Programme may be increased from time to time. The Trustee has not independently verified the information contained
herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or
liability is accepted by the Trustee as to the accuracy or completeness of this Offering Circular or any supplement
hereto.
The Issuer and the Guarantors may at any time and from time to time appoint one or more dealers to act as
such with respect to Notes issued under the Programme (the "Dealers"), and authorise and request them to circulate
this Offering Circular in connection therewith.
This Offering Circular is not intended to provide the basis of any credit, taxation, legal, investment or other
evaluation and should not be considered as a recommendation by the Issuer or any of the Guarantors that any recipient
of this Offering Circular should purchase any of the Notes. Each recipient contemplating the purchase of any of the
Notes is advised to consult its own tax adviser, attorney and business adviser as to tax, legal, business and related
matters concerning the purchase of Notes and to make, and shall be deemed to have made, its own independent
investigation in relation to the Programme, the Notes and the financial condition and affairs of, and its own appraisal
of the creditworthiness of, the Issuer and each of the Guarantors. None of the Issuer, any of the Guarantors or the
Trustee makes any comment about the treatment for taxation purposes of payments or receipts in respect of the Notes
to or by a holder of Notes or the legality of the purchase of Notes by an investor under applicable investment or
similar laws.
The Trustee accepts no responsibility, express or implied, for updating this Offering Circular. Neither the
delivery of this Offering Circular nor the offering, sale or delivery of any Notes shall, in any circumstances, create any
implication that the information contained herein is true subsequent to the date hereof or the date upon which this
Offering Circular has been most recently amended or supplemented or that there has been no adverse change in the
financial situation of the Issuer or any of the Guarantors since the date hereof or, as the case may be, the date upon
which this Offering Circular has been most recently amended or supplemented or that any other information supplied
in connection with the Programme is correct at any time subsequent to the date on which it is supplied or, if different,
the date indicated in the document containing the same. No person has been authorised to give any information or to
make any representation not contained in this Offering Circular or any supplement hereto, and if given or made, such
information or representation must not be relied upon as having been authorised.
This Offering Circular does not, and is not intended to, constitute or contain an offer or invitation to any
person to subscribe for or purchase the Notes. This Offering Circular does not obligate the Issuer to accept any offer to
subscribe for or purchase the Notes. The distribution of this Offering Circular and the offering, sale and delivery of the
Notes in certain jurisdictions is restricted by law. Any persons into whose possession this Offering Circular or any
Notes come must inform themselves of, and to observe, any such restrictions. In particular, such persons are required
to comply with the restrictions on offers or sales of Notes and on distribution of this Offering Circular and other
information in relation to the Notes set out under "Selling Restrictions" below. No person or entity shall have authority
to make any offer or invitation to subscribe for or purchase Notes in any jurisdiction in which such offer or invitation
is not authorised.
Unless otherwise noted, market data and other information used throughout this Offering Circular are based
on the Issuer's estimates, which are derived from its review of internal surveys and independent industry publications,
government publications, and reports by market research firms or other published independent sources. Although the
Issuer believes that its sources, including its estimates, are reliable, it has not independently verified the information
and cannot guarantee its accuracy or completeness. Any information contained in this Offering Circular that has been
1
sourced from a third party has been accurately reproduced and as far as the Issuer or the Guarantors are aware or able
to ascertain from information published by such third parties, no facts have been omitted which would render the
reproduced information inaccurate or misleading. Any information that is identified with its source in this Offering
Circular is third-party information.
NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA
This Offering Circular has been prepared on the basis that, except to the extent sub-paragraph (ii) below may
apply, any offer of Notes in any Member State of the European Economic Area which has implemented the
Prospectus Directive (2003/71/EC) (each, a "Relevant Member State") will be made pursuant to an exemption under
the Prospectus Directive, as implemented in that Relevant Member State, from the requirement to publish a prospectus
for offers of Notes. Accordingly, any person making or intending to make an offer in that Relevant Member State of
Notes which are the subject of a placement contemplated in this Offering Circular as completed by final terms in
relation to the offer of those Notes may only do so (i) in circumstances in which no obligation arises for the Issuer,
any Guarantor or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a
prospectus pursuant to Article 16 of the Prospectus Directive, in each case, in relation to such offer, or (ii) if a
prospectus for such offer has been approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant
Member State and (in either case) published, all in accordance with the Prospectus Directive, provided that any such
prospectus has subsequently been completed by final terms which specify that offers may be made other than pursuant
to Article 3(2) of the Prospectus Directive in that Relevant Member State and such offer is made in the period
beginning and ending on the dates specified for such purpose in such prospectus or final terms, as applicable. Except
to the extent sub-paragraph (ii) above may apply, no offer of Notes in circumstances in which an obligation arises for
the Issuer, any Guarantor or any Dealer to publish or supplement a prospectus for such offer, has been or is authorised.
The summary of the Programme included under "Summary of the Programme" must be read as an
introduction to this Offering Circular and any decision to invest in the Notes should be based on a consideration of the
Offering Circular as a whole. Following the implementation of the relevant provisions of the Prospectus Directive
(Directive 2003/71/EC) in each Member State of the European Economic Area no civil liability will attach to the
Responsible Persons in any such Member State solely on the basis of such summary, including any translation thereof,
unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Offering Circular.
Where a claim relating to the information contained in this Offering Circular is brought before a court in a Member
State of the European Economic Area, the plaintiff may, under the national legislation of the Member State where the
claim is brought, be required to bear the costs of translating the Offering Circular before the legal proceedings are
initiated.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM
This document is only being distributed to and is only directed at (i) persons who are outside the United
Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being
referred to as "relevant persons"). The Notes are only available to, and any invitation, offer or agreement to subscribe,
purchase or otherwise acquire such Notes will be engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any of its contents.
NOTICE TO PROSPECTIVE INVESTORS IN MEXICO
The Notes have not been and will not be registered with the National Securities Registry maintained by the
CNBV, and may not be offered or sold publicly, or otherwise be the subject of brokerage activities, in Mexico, except
pursuant to a private placement exemption set forth under Article 8 of LMV. As required under the LMV, the Issuer
will notify the CNBV of the issuance of the Notes including the principal characteristics of the Notes and the offering
of the Notes outside of Mexico. Such notice will be delivered to the CNBV to comply with a legal requirement and for
information purposes only, and the delivery to and the receipt by the CNBV of such notice, does not constitute or
imply any certification as to the investment quality of the Notes, the Issuer's solvency, liquidity or credit quality or the
accuracy or completeness of the information provided in this Offering Circular. The information contained in this
Offering Circular is exclusively the responsibility of the Issuer and has not been reviewed or authorized by the CNBV.
In making an investment decision, all investors, including any Mexican investors who may acquire Notes from time to
time, must rely on their own review and examination of the Issuer and the Guarantors.
2
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Offering Circular includes forward-looking statements. These forward-looking statements include,
without limitation, those regarding the Issuer's future financial position and results of operations, its strategy, plans,
objectives, goals and targets, future developments in the markets in which the Issuer participates or are seeking to
participate or anticipated regulatory changes in the markets in which it operates or intends to operate. In some cases,
forward-looking statements can be identified by terminology such as "aim," "anticipate," "believe," "continue,"
"could," "estimate," "expect," "forecast," "guidance," "intend," "may," "plan," "potential," "predict," "project,"
"should" or "will" or the negative of such terms or other comparable terminology.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events
and depend on circumstances that may or may not occur in the future. The Issuer cautions potential investors that
forward looking statements are not guarantees of future performance and are based on numerous assumptions and
that its actual results of operations, including its financial condition and liquidity and the development of the
Mexican media industry, may differ materially from (and be more negative than) those made in, or suggested by, the
forward-looking statements contained in this Offering Circular. In addition, even if its results of operations,
including its financial condition and liquidity and the development of the industry in which it operates, are
consistent with the forward-looking statements contained in this Offering Circular, those results or developments
may not be indicative of results or developments in subsequent periods. Important factors that could cause these
differences include, but are not limited to:

risks related to its competitive position;

risks related to the renewal of broadcast concessions;

changes in regulatory, administrative or economic conditions affecting the media industry;

risks related to the development of new technologies;

risks related to its business, strategy, expectations about growth in demand for its products and services
and business operations, financial condition and results of operations;

its ability to enter and integrate into new markets;

the termination of material advertising agreements;

the result of pending litigation involving it;

its ability to repay debt;

foreign currency exchange fluctuations relative to the U.S. dollar against the peso;

risks related to Mexico's social, political or economic environment;

risks associated with market demand for and liquidity of the Notes; and

risks related to the use of proceeds from this offering.
Potential investors should read the sections of this Offering Circular entitled "Risk Factors" and "The
Business" for a more complete discussion of the factors that could affect the Issuer's future performance and the
markets in which it operates. In light of these risks, uncertainties and assumptions, the forward-looking events
described in this Offering Circular may not occur. The Issuer undertakes no obligation to update or revise any
forward-looking statement, whether as a result of new information or future events or developments.
3
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
In this Offering Circular, all references to "$" and "U.S. dollars" refer to the lawful currency of the United
States of America (the "United States" or the "U.S."). All references to "Ps." or "pesos" refer to the lawful currency
of the United Mexican States ("Mexico").
This Offering Circular contains Azteca's unaudited consolidated financial statements as of and for the six
months ended June 30, 2013 and 2012, including the notes thereto and Azteca's audited consolidated financial
statements as of and for the years ended December 31, 2012 and 2011, including the notes thereto. Azteca's
consolidated financial statements as of and for the years ended December 31, 2012 and 2011 have been audited by
its independent auditors, Salles, Sáinz-Grant Thornton, S.C. ("Salles"), a member of Grant Thornton International.
Salles is a member of the Association of Public Accountants of Mexico (Colegio de Contadores Públicos de
México, A.C., or "CCPM").
Pursuant to the General Provisions Applicable to Securities Issuers and Other Participants in the Securities
Market (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a Otros Participantes del
Mercado de Valores), beginning with the year ending December 31, 2012, Mexican companies with securities
listed on the BMV were required to prepare and present their financial information in accordance with International
Financing Reporting Standards ("IFRS"), as adopted by the International Accounting Standards Board (the
"IASB"). Accordingly, Azteca's consolidated financial statements as of and for the years ended December 31, 2012
and 2011 were its first annual financial statements prepared in accordance with IFRS. Azteca's transition date to
IFRS was January 1, 2011, and therefore, the year ended December 31, 2011 was the comparative period
established by IFRS 1, First Time Adoption of International Financial Reporting Standards. In accordance with
IFRS 1, Azteca has applied applicable mandatory exceptions and certain optional exemptions to the retroactive
application of IFRS to the financial statements as of and for the year ended December 31, 2011 and 2010 that had
been prepared in accordance with Mexican Financial Reporting Standards (Normas de Información Financiera, or
"MFRS"), as issued by the Mexican Board of the Financial Reporting Standards (Consejo Mexicano de las Normas
de Información Financiera, A.C., or "CINIF") (see "Financial InformationManagement's OverviewCritical
Accounting Policies and EstimatesCritical Accounting PoliciesAdoption of IFRS" and Note 27 to Azteca's
audited consolidated financial statements as of and for the years ended December 31, 2012 and 2011 beginning on
page F-16).
Azteca's consolidated financial statements are stated in pesos. U.S. dollar amounts presented in this
Offering Circular have been translated from peso amounts solely for the convenience of the reader. Unless otherwise
indicated, the exchange rate used in converting pesos into U.S. dollars for amounts derived from the balance sheet
and cash flow statement as of June 30, 2013 and 2012 was determined by reference to the period end exchange rate
of Ps.13.0235 and Ps.13.6530 per U.S. dollar, respectively. Unless otherwise indicated, the exchange rate used in
converting pesos into U.S. dollars for amounts derived from the income statement for the six months ended June 30,
2013 and 2012 was determined by reference to the average of the daily exchange rate of Ps.12.5612 and Ps.13.2674
per U.S. dollar, respectively. Unless otherwise indicated, the exchange rate used in converting pesos into U.S.
dollars for amounts derived from the balance sheet and cash flow statement as of December 31, 2012 and 2011 was
determined by reference to the period end exchange rate of Ps.13.0101 and Ps.13.9787 per U.S. dollar, respectively.
Unless otherwise indicated, the exchange rate used in converting pesos into U.S. dollars for amounts derived from
the income statement for the years ended December 31, 2012 and 2011 was determined by reference to the average
of the daily exchange rate of Ps.13.1685 and Ps.12.4273 per U.S. dollar, respectively. The exchange rates used are
those published by the Banco de México in the Official Gazette as the rate for the payment of obligations
denominated in non-Mexican currency payable in Mexico. For additional information see "Exchange Rates." No
representation is being made that the peso or dollar amounts shown in this Offering Circular could have been or
could be converted into U.S. dollars or pesos at the rates shown in this Offering Circular or at any other rate.
Note Regarding Non-GAAP Financial Measures
A body of generally accepted accounting principles is commonly referred to as "GAAP." For this purpose,
a non-GAAP financial measure is generally defined as one that purports to measure historical or future financial
performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the
most comparable GAAP measure.
Azteca discloses in this Offering Circular certain non-GAAP financial measures, including EBITDA.
Azteca believes that EBITDA is useful for the purpose of understanding its financial performance as well as its
4
ability to satisfy principal and interest obligations under its indebtedness and to fund capital expenditures and
operations requirements. Even though commonly used as a financial indicator in Mexico and abroad, EBITDA is not
a measure of financial performance under IFRS.
Azteca calculates EBITDA by adding (i) depreciation and amortization and (ii) other expenses, net, to
operating income. Other expenses, net, may include legal expenses, charitable contributions and costs associated
with the impairment of assets. Azteca's calculation of EBITDA may include or exclude certain items that may be
included or excluded in calculations of EBITDA provided by other companies. Azteca's calculation of EBITDA
does not include any adjustments to exclude the impact of unusual or non-recurring events, restructuring or other
one-time charges or discontinued operations.
EBITDA is provided for information purposes only and should not be considered in isolation, or as a
substitute for net income, as a measure of operating performance, as a substitute for cash flows from operations or as
a measure of liquidity. EBITDA has material limitations that impair its value as a measure of a company's overall
profitability since it does not address certain financial figures. EBITDA and other non-GAAP financial measures
included in this Offering Circular are not a substitute for IFRS measures of financial performance.
5
SUMMARY OF THE PROGRAMME
The following summary of the Programme is only an introduction to this Offering Circular and any
decision to invest in the Notes should be based on a consideration of the Offering Circular as a whole.
1.
Issuer:
TV Azteca, S.A.B. de C.V.
2.
Description:
Medium-Term Note Programme.
3.
Guarantors:
(1) Televisión Azteca, S.A. de C.V., (2) Azteca International Corporation,
(3) Inversora Mexicana de Producción, S.A. de C.V., (4) Estudios Azteca,
S.A. de C.V., (5) Azteca Novelas, S.A. de C.V., and (6) Operadora
Mexicana de Televisión, S.A. de C.V.
4.
Trustee:
The Bank of New York Mellon.
5.
Principal Paying Agent,
Calculation Agent and Registrar:
The Bank of New York Mellon, London Branch.
6.
Amount of Programme:
Azteca may issue Notes from time to time under the Programme, provided
that the aggregate principal amount outstanding thereof at any time will not
exceed $1,000,000,000 (or its equivalent in other currencies calculated as
described in the Amended and Restated Programme Agreement dated
May 19, 2011 (as amended, supplemented and/or restated from time to
time, the "Programme Agreement"), by and among the Issuer, TV Azteca
Comercializadora, S.A. de C.V., Red Azteca Internacional, S.A. de C.V.,
the Guarantors, Geronimo Capital Markets, Ltd., BCP Securities, LLC, and
Jefferies LLC). The amount of the Programme may be increased from time
to time.
7.
Currency:
Subject to any applicable or regulatory restrictions, the Notes may be issued
in any currency specified in the relevant Pricing Supplement (the
"Specified Currency").
8.
Form and Delivery:
The Notes may be issued in bearer or fully registered form as a global note,
without coupons or receipts ("Global Note"), or as definitive Notes
("Definitive Notes"), with Coupons (if in bearer form) attached thereto
(except in the case of Zero Coupon Notes) and, in the case of bearer
Definitive Notes repayable in instalments, with Receipts at the time of issue
attached thereto, in the denominations specified in the applicable Pricing
Supplement.
Interests in a Global Note may be exchanged for Definitive Notes in
registered or bearer form only on the terms and conditions specified in the
relevant Global Note.
9.
Maturity of the Notes:
The Notes will have maturities of not less than 360 days nor more than 10
years.
10. Issue Price:
The Notes may be issued (i) at a discount and not bear interest (zero
coupon), (ii) at a discount and bear interest, payable on the interest payment
dates specified in the applicable Pricing Supplement, (iii) at par and bear
interest payable on the interest payment dates specified in the applicable
Pricing Supplement or (iv) at a premium and bear interest payable on the
interest payment dates specified in the applicable Pricing Supplement.
11. Ranking of the Notes:
If the Pricing Supplement specifies that the Notes are unsecured Notes, the
Notes will constitute direct, unsecured and unsubordinated obligations of
6
the Issuer and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Issuer, including any guarantees given
by the Issuer, other than obligations preferred by mandatory law. If the
Pricing Supplement specifies that the Notes are secured Notes, the Notes
will constitute direct and unsubordinated obligations of the Issuer that are
secured by the collateral identified in the Pricing Supplement (the
"Collateral").
12. Ranking of the Guarantees:
The Notes will benefit from the guarantees of each of the Guarantors (the
"Guarantees"), which will constitute full, unconditional, joint and several,
direct, unsecured and unsubordinated obligations of the Guarantors and will
rank pari passu with all other unsecured and unsubordinated obligations of
the Guarantors, other than obligations preferred by mandatory law.
13. Redemption:
Issuer Call. If the terms of a particular Note and the applicable Pricing
Supplement so provide, such Note shall be redeemable at the option of the
Issuer, on the date or dates, and on such terms, as are specified in such Note
and in such Pricing Supplement.
Noteholder Put. If the terms of a particular Note and the applicable Pricing
Supplement so provide, such Note shall be redeemable at the option of the
holder of such Note, on the date or dates, and on such terms, as are
specified in such Note and in such Pricing Supplement.
14. Denomination:
Notes will be issued in such denominations as may be specified in the
applicable Pricing Supplement save that the minimum denomination of
each Note will be such as may be allowed or required from time to time by
the relevant governmental authority or any laws, regulations or listing rules
applicable to the relevant Specified Currency.
15. Withholding Tax:
All payments under the Notes and the Guarantee will be subject to Mexican
withholding taxes, except as stated in the Notes. See "Taxation."
16. Additional Amounts:
The Issuer, or as the case may be, the Guarantors will pay such amounts as
may be necessary in order to ensure that the net amounts received by the
holders of Notes after any withholding or deduction for or on account of
any present or future taxes or duties of whatever nature imposed or levied
by Mexico or any authority in Mexico shall equal the respective amounts of
principal and interest which would have been received in respect of the
Notes in the absence of such withholding or deduction, subject to certain
exceptions. See "Terms and Conditions."
17. Events of Default:
The Notes contain certain events of default, including the failure by the
Issuer to pay any principal of or interest on the Notes (which in the case of
failure to pay any instalment of interest continues for a period of 3 days).
See "Terms and Conditions."
18. Listing:
Notes issued under the Programme may at any time, but are not required to,
be listed on one or more stock exchanges. Application has been made for
this Offering Circular to be approved by the Irish Stock Exchange. Azteca
may apply for any Series of Notes to be issued under the Programme to be
admitted to the Official List of the Irish Stock Exchange and trading on its
Global Exchange Market, as set forth in the applicable Pricing Supplement.
This Offering Circular constitutes "Base Listing Particulars" for the purpose
of any such listing and trading.
7
19. Rating:
The Notes issued under the Programme may, but are not required to be,
rated. Except as stated in a Pricing Supplement, Notes issued under the
Programme will not be rated.
20. Selling Restrictions:
The Notes have not been and will not be registered under the Securities
Act, or with any securities regulatory authority of any state or other
jurisdiction of the United States. The Notes may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
(as defined in Regulation S). This Offering Circular has been prepared by
the Issuer for use in connection with the offer and sale of the Notes outside
the United States to non-U.S. persons pursuant to Regulation S. For a
description of these and certain further restrictions on offers and sales of the
Notes and distribution of this Offering Circular, see "Selling Restrictions."
If a Note, Receipt, Talon or Coupon is held for the account or benefit of
U.S. persons (as defined in Regulation S under the U.S. Securities Act of
1933, as amended) or, for so long as any of the Notes are represented by a
Global Note, any person who is for the time being shown in the records of
Euroclear or of Clearstream, Luxembourg as the holder of a particular
nominal amount of Notes, holds such interest for the account or benefit of
U.S. persons, the Issuer may give notice to the holder(s) of the relevant
Note, Receipt, Talon or Coupon (or, in the case of a Global Note, the holder
of the relevant particular, nominal amount of Notes) that it requires the
relevant Note, Receipt, Talon, and/or Coupon (and/or, in the case of a
Global Note, the relevant particular interest in the nominal amount of
Notes), as the case may be, to be transferred provided however that the
relevant Note, Receipt, Talon or Coupon (or, in the case of a Global Note,
the relevant particular interest in the nominal amount of Notes) may not be
transferred to, or for the account or benefit of, U.S. persons. The relevant
holder(s) of the Note, Receipt, Talon or Coupon (or, in the case of a Global
Note, the relevant holder of the particular interest in the nominal amount of
Notes) shall be obligated to make the transfer referred to in the notice
referred to in this paragraph within 30 days after receipt of such notice if
the relevant Note, Receipt, Talon or Coupon (or, in the case of a Global
Note, the relevant particular nominal amount of Notes) is held for the
account or benefit of U.S. persons.
21. Governing Law:
England and Wales.
8
FORM OF PRICING SUPPLEMENT
1.
Series Number:
2.
Tranche Number:
(If fungible with an existing Series,
details of that Series, including the
date on which the Notes become
fungible)
3.
Specified Currency or Currencies:
4.
Principal Amount:
5.
Form:
[Global Note in bearer form exchangeable for Definitive Notes in
the limited circumstances specified in the Global Note]
[Registered Notes]
6.
Issue Price:
7.
Interest Rate:
7.
Day Count Fraction:
8.
Floating Rate Interest calculation for
a period of other than a full year:
9.
Interest Payment Dates:
10.
Issue Date:
% of the Principal Amount
[If the Interest Rate is a Floating Rate, a Floating Rate Annex is to
be attached to the Pricing Supplement setting forth the interest rate
formula and other terms relating to such Floating Rate, and in such
event, such Annex is to be referenced here with the notation "See
attached Floating Rate Annex".]
For a period of other than a full year: [
]
In the case of an incomplete month:
]
The Issue Date must:
(a)
be a day on which commercial
banks and foreign exchange
markets are open for business
and carrying out transactions
in London, any Additional
Business Centre specified in
the applicable Pricing
Supplement and the city where
each of the Agents is located;
(b)
a day on which Euroclear and
Clearstream, Luxembourg are
open for business; and
(c)
either (1) in relation to any
sum payable in a Specified
Currency other than euro, a
day on which commercial
9
[
banks and foreign exchange
markets are open for business
and carrying out transactions
in the principal financial
centre of the country of the
relevant Specified Currency or
(2) in relation to any sum
payable in euro, a day on
which the TARGET System is
open.
11.
Additional Business Centres:
12.
Net Proceeds:
13.
Redemption/Payment Basis:
14.
Maturity Date:
15.
Time and Date of Delivery:
16.
Name of Dealer or Dealers:
17.
Name of Relevant Lead Dealer:
18.
Denominations of Notes:
Notes (including Notes denominated
in Sterling) in respect of which the
issue proceeds are to be accepted by
the Issuer in the United Kingdom or
whose issue otherwise constitutes a
contravention of section 19 of the
Financial Services and Markets
Act 2000 and which must be
redeemed before the first
anniversary of the date issue must
have a minimum denomination of
£100,000 (or its equivalent in other
currencies).
19.
Zero Coupon Notes: [Yes/No]
20.
Additional Selling Restrictions (if
any):
21.
Use of Proceeds:
22.
Paying Agents:
23.
Specified Principal Amount for the
purposes of Condition 5(a):
[If the Notes are Zero Coupon Notes, a Zero Coupon Annex is to
be attached to the Pricing Supplement setting forth the terms
applicable thereto, and in such event, such Annex is to be
referenced here with the notation "See attached Zero Coupon
Annex".]
10
24.
Euroclear/Clearstream, Luxembourg
Common Code:
25.
ISIN Number:
26.
Issuer Call Applicable: [Yes/No]
Noteholder Put Applicable: [Yes/No]
[If Issuer Call and/or Noteholder Put is applicable, an Optional
Redemption Annex is to be attached to the Pricing Supplement
setting forth the terms applicable thereto, and in such event, such
Annex is to be referenced here with the notation "See attached
Optional Redemption Annex".]
27.
Notes Secured: [Yes/No]
[If Notes are secured a Security Annex is to be attached to the
Pricing Supplement setting forth the terms applicable thereto, and
in such event, such Annex is to be referenced here with the
notation "See attached Security Annex" and a description of the
security documents referred to as "Security Documents" should be
included.]
28.
Other Terms and Conditions:
[Yes/No]
[If there are other terms and conditions, an Other Terms and
Conditions of Notes—Annex to Pricing Supplement is to be
attached to the Pricing Supplement setting forth such other terms
and conditions, and in such event, such Annex is to be referenced
here with the notation "See attached Other Terms and Conditions
of Notes—Annex to Pricing Supplement".]
29.
Redenomination applicable:
Redenomination [not] applicable.
30.
Additional events (if any) in which
the Global Note may be exchanged
in whole for Definitive Notes and (if
applicable) Coupons:
[If there are other additional exchange events, an Additional
Exchange Events Annex is to be attached to the Pricing
Supplement setting forth such other events, and in such event,
such Annex is to be referenced here with the notation "See
attached Additional Exchange Events Annex".]
31.
Additional Events of Default:
[Yes/No]
[If there are additional Events of Default, an Additional Events of
Default Annex is to be attached to the Pricing Supplement setting
forth such additional Events of Default, and in such event, such
Annex is to be referenced here with the notation "See attached
Additional Events of Default Annex".]
32.
Delivery:
Delivery [against/free of] payment.
11
RISK FACTORS
Following are certain risks associated with Azteca's business and an investment in the Notes. The risks and
uncertainties described below are not the only risks that Azteca faces but represent some of the risks that Azteca's
management considers important. Should any of the following risks materialize, they may materially and adversely
affect Azteca's operations, financial condition or operating results and Azteca's ability to repay the Notes. If this
occurs investors may lose their investment in the Notes in whole or in part.
Risks Related to Azteca's Operations
Television broadcasting in Mexico is highly competitive.
Television broadcasting in Mexico is highly competitive and the popularity of television shows, an
important factor in advertising sales, is readily susceptible to change. Azteca faces competition from Televisa,
Azteca's principal competitor and the only other commercial broadcaster in Mexico, and other state-sponsored
television networks. Televisa is one of the leading producers of Spanish-language television programming in the
world and generated the majority of the Mexican television advertising sales in each of the last three years. Televisa
also has significant interests in other media, including pay television, publishing, radio, movies, soccer, music,
Internet, lotteries and gaming, which enable Televisa to offer its advertising clients competitive packages combining
advertising in various media.
While the current Mexican television market only has two commercial broadcasters, Azteca and Televisa, a
recently passed constitutional amendment relating to anti-trust issues in the radio, television and telecommunications
sectors (the "Telecom and Antitrust Bill") provides for the establishment of at least two new national over-the-air
television networks. The networks will be established pursuant to a public tender bid for the concessions, and
Azteca, as a current concession holder, will be ineligible from participating in the bid. These new television
networks, if established, and any other new entrants into the over-the-air broadcasting, cable, broadband and/or
telephony markets will compete with Azteca's business. See "The Business—Competition—Potential New
Networks."
Azteca cannot assure you that it will be able to maintain or improve its share of the Mexican television
advertising or viewing markets, nor can it assure you that the costs of acquiring or producing programming and, or
the prices at which it sells advertising time, will not be adversely affected by competition. In addition to competing
with conventional, over-the-air television stations, including certain government-run stations and those owned by or
affiliated with Televisa, Azteca also competes for Mexican television viewers with cable television providers. Cable
television, multi-channel multipoint distribution systems ("MMDS") and direct-to-home ("DTH") satellite services
represent a potential source of competition for Azteca's advertising sales, audiences and program rights. According
to data from the Federal Telecommunications Commission (Comisión Federal de Telecomunicaciones or
"COFETEL") and the projected population census from the National Institute of Statistics and Geography (Instituto
Nacional de Estadística y Geografía or "INEGI"), the penetration of cable television as of December 31, 2012 was
approximately 42.6% of all television households in Mexico (though COFETEL does not distinguish between
residential and commercial customers). Azteca cannot assure you that cable television services will not continue to
secure a more significant share of the Mexican television audience and television advertising market in the future.
Azteca's business is regulated by the Mexican government and its business would be harmed if its broadcast
concessions were not renewed or were taken away or applicable regulations are changed.
To broadcast commercial television in Mexico, a broadcaster must have a license from the Ministry of
Communications and Transportations (Secretaría de Comunicaciones y Transportes) ("SCT"). The SCT grants
concessions comprised of one or more transmission channels. These concessions must be renewed upon expiration
and may be revoked in very limited circumstances. Azteca does not expect any of its concessions to be revoked.
The Telecom and Antitrust Bill requires each expiring concession to be subject to a public tender bid process with
the incumbent concessionaire enjoying a preference over other bid participants, however the SCT has not yet
released specific information about the renewal process. Azteca has eleven concessions granting it the right to
broadcast on 179 channels throughout Mexico. All of these concessions expire on December 31, 2021. If the SCT,
or if established, the IFETEL (as defined below), fails to renew one or more of Azteca's concessions, Azteca will not
be able to operate the channels covered by the unrenewed concessions.
12
In September 2010, a decree was published in the Official Gazette of the Federation (Diario Oficial de la
Federación or the "Official Gazette") announcing the mandatory transition from analog to digital television and
radio broadcasting by the end of 2015. A subsequent decree released on June 11, 2013, along with the Telecom and
Antitrust Bill which became effective on June 12, 2013, re-affirmed this transition deadline. The Federal
Telecommunications Commission (Comisión Federal de Telecomunicaciones or "COFETEL") may make certain
adjustments to the analog to digital transition plan based on a pilot program that it is conducting in Baja California.
Azteca can provide no assurances that the transition from analog to digital broadcasting will be seamless, that the
transition will occur by the statutory deadline and that there is no risk of a broadcasting blackout for some or all of
its customers if Azteca or the third parties on which it relies fails to successfully implement the transition. See "The
Business—Regulation—Mexico—The Telecom and Antitrust Bill."
The new regulatory agency overseeing telecommunications and broadcasting may have an effect on Azteca's
operations.
The Telecom and Antitrust Bill that became effective on June 12, 2013 requires the creation of the Federal
Telecommunications Institute (Instituto Federal de Telecomunicaciones, or "IFETEL"), an independent regulatory
agency established with broad powers to oversee all matters relating to the Mexican telecommunications and
broadcasting industries, including antitrust matters. The Telecom and Antitrust Bill also provides that while
IFETEL rulings may be challenged in court and reversed by a final court order, temporary injunctions and other
interim judicial rulings are unenforceable against them.
The autonomy and authority granted to the IFETEL under the Telecom and Antitrust Bill may adversely
affect some of Azteca's activities, including its ability to introduce new products and services, enter into new or
complementary businesses, and complete acquisitions or joint ventures, and may adversely affect its ability to
determine the rates it charges for its services and products. IFETEL would also be authorized to impose limits on the
concentration of national and regional frequencies and the cross-ownership of telecommunications, television or
radio businesses that serve the same market or geographical region and may order the divestment of assets, rights or
investments. However, because these limits have not yet been established it is uncertain how they would affect
Azteca. See "The Business—Regulation—Mexico—The Telecom and Antitrust Bill."
The Telecom and Antitrust Bill and IFETEL, if established, may increase Azteca's cost of doing business
and may interfere with its ability to offer, or prevent it from offering, its current or future services.
Changes in consumer expectations and behavior driven by new technologies may adversely affect Azteca's business.
Azteca operates in a highly competitive, consumer-driven and rapidly changing environment. New
technologies, including alternative methods for the distribution, sale and viewing of content, many of which have
been beneficial to Azteca's business, have nonetheless increased the number of entertainment and information
delivery choices available to consumers and intensified the challenges posed by audience fragmentation.
Furthermore, due to consumer electronics innovations, consumers are more readily able to watch Internet-delivered
content on computers, television sets and mobile devices. The increasing number of choices available to audiences,
including low-cost or free choices, could negatively impact not only consumer demand for Azteca's products and
services, but also advertisers' willingness to purchase advertising from Azteca. Azteca's failure to effectively
anticipate or adapt to new technologies and changes in consumer expectations and behavior could have an adverse
effect on Azteca's competitive position and its business and results of operations.
A decline in advertising expenditures or changes in advertising markets could negatively impact Azteca's business.
According to the Mexican Media Agencies Association (Asociación de Agencias de Medios), for the year
2012, approximately 58% of total advertising expenditures in Mexico were allocated to broadcast television, a large
proportion compared with other countries. Azteca's business derives substantial revenue from the sale of advertising
on a variety of platforms, and a decline in advertising expenditures could negatively impact its results of operations.
Declines can be caused by the economic prospects of specific advertisers or industries, by increased competition for
the leisure time of audiences and increased audience fragmentation, by the growing use of new technologies, or by
the economy in general, any of which may cause advertisers to alter their spending priorities. In addition,
advertisers' willingness to purchase advertising from Azteca may be adversely affected by lower audience ratings.
The amount of advertising Azteca sells and the rates it is able to charge also depend on audience measurement,
13
which could be negatively affected by changes in audience measurement methodologies. For example, newer
methods of viewing content (such as viewing content on computers or smartphones) might not be counted in
audience measurements or may generate lower, if any, revenues than traditional distribution methods, which could
have an adverse effect on Azteca's advertising revenue. Further, natural disasters, wars, acts of terrorism or other
significant adverse news events could lead to a reduction in broadcast advertising revenue as a result of
uninterrupted news coverage and general economic uncertainty. Reductions in advertising expenditures could
adversely affect Azteca's businesses.
If Azteca loses one or more of its key advertisers, it could lose a significant amount of its revenues.
As of June 30, 2013, Azteca's ten largest advertisers, together with their subsidiaries, accounted for 21% of
Azteca's revenue, and its largest advertiser accounted for approximately 3% of its revenue. The termination of
Azteca's relationship with any one of its principal advertisers could negatively affect its operating results.
The seasonal and cyclical nature of Azteca's business affects Azteca's revenue and could impact Azteca's results of
operations.
Azteca's business has experienced and is expected to continue to experience seasonality due to, among
other things, seasonal advertising patterns and seasonal influences on people's viewing, reading, attendance and
listening habits, as well as cyclical patterns for certain events that attract significant audiences, such as the World
Cup, the Olympic Games and political elections. Azteca typically recognizes a disproportionately large percentage
of its revenue from advertising sales in the fourth quarter because of the high level of advertising during the holiday
season. The effects of such seasonality and cyclicality are expected to continue and make it difficult to estimate
future operating results, which may have an adverse impact on its business.
Azteca's revenue and profitability are affected by major broadcast events.
In the past, Azteca has generated substantial advertising revenue from broadcasting infrequently recurring
major broadcast events. Azteca's broadcast of the FIFA World Cup, the UEFA Champions League, the Mexican
national soccer team games, boxing world championships and La Academia (Azteca's reality musical television
show) substantially increased net sales for the applicable financial period. In addition, Azteca has experienced
increased revenue from government advertising during election seasons. The absence or cancellation of major
broadcast events, or Azteca's inability to obtain broadcast rights to any such event, may negatively affect Azteca's
financial condition and results of operations.
Azteca's failure to obtain, create or retain the rights related to popular programming could adversely affect its
revenues.
Azteca's revenue from its television business is partially dependent on its continued ability to anticipate and
adapt to changes in consumer tastes and behavior on a timely basis. Moreover, Azteca derives a portion of its
revenues from the exploitation of its extensive library of television programming. If the content of its television
programming library ceases to be widely accepted by audiences or is not continuously replenished with popular
content, its revenues could be adversely affected. Azteca obtains a significant portion of its popular programming
from third parties. For example, some of Azteca's most widely viewed broadcasts, including the FIFA World Cup,
the UEFA Champions League, the Mexican national soccer team games, boxing world championships and La
Academia are made available based upon programming rights of varying duration that Azteca has negotiated with
third parties. Competition for popular programming that is licensed from third parties is intense, and Azteca may be
outbid by its competitors for the rights to new popular programming or subsequent seasons of popular programming
currently licensed by Azteca. Azteca's failure to obtain or retain rights to popular content could adversely affect its
revenues.
Azteca creates and produces its telenovelas and certain other content well in advance of broadcasting. If such
content does not meet expected viewership levels, it may be cancelled, which would reduce or eliminate the value of
Azteca’s investment.
Azteca creates and produces its telenovelas and certain other content, the success of which depends
substantially on Azteca’s ability to meet both domestic and international consumer tastes and preferences that
change in often unpredictable ways. Azteca has invested, and will continue to invest, substantial amounts in the
production of original content before learning the extent to which it would earn consumer acceptance. If Azteca's
14
content does not achieve sufficient consumer acceptance and viewership levels, it may be cancelled, which would
reduce or eliminate the value of its investment, and its business may be adversely affected.
The cost of producing and acquiring Azteca's programming may increase.
Azteca's variable operating costs include the production and acquisition of programming. The cost of
producing original programming varies considerably depending on the type of program, and is generally more
expensive than acquiring broadcast rights to externally produced programming. In general, the production of
telenovelas is more expensive relative to the production of other types of programming.
If Azteca fails to effectively anticipate and manage the costs of producing its original programming or of
acquiring broadcast rights for externally produced programming, its programming costs may increase at a rate
higher than its advertising revenue. If high cost programming does not result in high audience ratings and attract
advertising revenue, Azteca's results of operations may be negatively affected.
Azteca is dependent on key personnel.
Azteca has no direct employees; all personnel in the administration and operations of Azteca's business are
supplied by Azteca's subsidiaries. Azteca's success depends in large part upon the abilities and efforts of the senior
management and key employees of its subsidiaries. Azteca's future success depends on its continuing ability to
identify, train and retain qualified management personnel. There is significant competition for qualified personnel
and there are no assurances that Azteca will be able to attract, integrate or retain them.
In addition, Azteca's broadcast business depends on the abilities and expertise of its on-air and creative
talent. Azteca operates the Center for Acting Studies and Development (Centro de Estudios y Formación Actoral)
whose graduates often become prominent media personalities in Mexico. Approximately 90% of the graduates of
this drama school have worked in Azteca's original productions. In recent years talented media personalities have
begun to relocate to the U.S. to produce programming for broadcasters focused on U.S. Hispanic audiences. If
Azteca fails to retain on-air or creative talent, if the costs to retain such talent increase materially, or if these
individuals lose their current appeal, Azteca's business may be adversely affected.
There is a risk that Azteca's U.S. television network fails to achieve profitability, which may have a negative effect
on Azteca's operating results.
Azteca develops specialized content aimed at U.S. Hispanic viewers of its Azteca America network, which
is operated by Azteca's subsidiary Azteca International Corporation. While Azteca's programming is broadcast in
markets throughout the U.S., it is generally broadcast on low-powered stations. These stations are generally located
significantly higher in the channel line up than other similar Spanish language channels such as Telemundo and
Univision, which are typically located lower in the channel line up and closer to each other. While Azteca has
attracted high viewership for major programming events, such as La Academia or certain soccer games, its location
in the channel line up makes it more difficult to attract casual television viewers who are browsing Spanish language
television channels. Azteca continues to negotiate distribution arrangements with U.S. cable providers in order to
achieve a more desirable location in the channel line up, and has recently succeeded in securing such contracts in
several important markets. However, if it fails to secure additional distribution agreements or otherwise fails to
attract or sustain viewership, Azteca International Corporation's profitability and Azteca's overall financial results
may be negatively affected.
Azteca's business depends on using and protecting certain intellectual property rights and on not infringing the
intellectual property rights of others.
Azteca relies on its intellectual property, such as patents, copyrights, trademarks and trade secrets, as well
as licenses and other agreements with its vendors and other third parties, to use various technologies, conduct its
operations and sell its products and services. Legal challenges to its intellectual property rights and claims of
intellectual property infringement by third parties could require Azteca to enter into royalty or licensing agreements
on unfavorable terms, incur substantial monetary liability, be temporarily or permanently barred from further use of
the intellectual property in question or change how it conducts business. Azteca may need to change its business
practices if any of these events occur, which may limit its ability to compete effectively and could have an adverse
effect on its results of operations. Even if Azteca believes any such challenges or claims are without merit, they can
15
be time-consuming and costly to defend and divert management's attention and resources away from its business.
Moreover, if Azteca is unable to obtain or continue to obtain licenses from its vendors and other third parties on
reasonable terms, its business could be adversely affected.
In addition, intellectual property constitutes a significant part of the value of Azteca's business, and its
success is highly dependent on protecting intellectual property rights in the content it creates or acquires against
third-party misappropriation, reproduction or infringement. The unauthorized reproduction, distribution or display of
copyrighted material negatively affects Azteca's ability to generate revenue from the authorized use of its content, as
well as from the sale of advertising on its content, and increases its costs due to its active enforcement of protecting
its intellectual property rights. Piracy and other unauthorized uses of content are made easier, and the enforcement of
intellectual property rights more challenging, by technological advances allowing the conversion of programming,
films and other content into digital formats, which facilitates the creation, transmission and sharing of high-quality
unauthorized copies. In particular, piracy of programming and films through unauthorized distribution on peer-topeer computer networks and other platforms continues to present challenges for its cable networks, broadcast
television and filmed entertainment businesses. If any laws intended to combat piracy and protect intellectual
property rights are repealed or weakened or are not adequately enforced, or if the legal system fails to adapt to new
technologies that facilitate piracy, Azteca may be unable to effectively protect its rights, the value of its intellectual
property may be negatively impacted and the costs of enforcing its rights may increase.
Possible conflicts of interest could adversely affect Azteca's business, results of operations and financial condition.
As of June 30, 2013, Azteca is 56.4% owned by Azteca Holdings, which is part of the Salinas Group and is
controlled by Ricardo B. Salinas Pliego and his family. Consequently, Mr. Salinas Pliego has the power to elect a
majority of Azteca's directors and determine the outcome of actions that require stockholder approval.
Azteca has engaged, and will likely continue to engage in the future, in a variety of transactions with Grupo
Elektra, S.A.B. de C.V. (hereinafter "Grupo Elektra"), Banco Azteca, S.A., Institución de Banca Múltiple
(hereinafter "Banco Azteca"), Iusacell, S.A. de C.V. (hereinafter, "Iusacell"), Arrendadora Internacional Azteca,
S.A. de C.V. (hereinafter "Arrendadora Internacional Azteca") and other entities it controls or in which Ricardo B.
Salinas Pliego and other shareholders who control Azteca holds shares.
Pursuant to Azteca's by-laws, which were amended to incorporate provisions required by the LMV and
adopted by Azteca's shareholders on August 19, 2010, Azteca's board of directors established an audit committee to
conduct an independent review of transactions with affiliates and determine whether these transactions are (i) related
to Azteca's business and (ii) consummated on terms that are at least as favorable to Azteca as terms that would be
obtained in a similar transaction entered into on an arm's-length basis with an unrelated third party. The audit
committee is required to make recommendations to the board of directors regarding transactions with related parties
that have a value equal to or greater than five percent of Azteca's consolidated assets, based on figures for the
immediately preceding quarter. Although it is not required by the LMV or Azteca's by-laws, Azteca's management
provides annual reports to the audit committee with respect to all related party transactions, whether or not they have
a value equal to or greater than five percent of Azteca's consolidated assets. There is no requirement under Mexican
law, listing rules or Azteca's governing documents that the audit committee or the board of directors review and
approve non-material transactions with related parties (defined in Azteca's by-laws as having a value equal to or less
than five percent of Azteca's consolidated assets). The LMV requires the audit committee to report all related party
transactions to the board of directors and requires that it obtain a fairness opinion from an independent advisor with
respect to certain related party transactions (for example, purchases or sales of assets, granting of guaranties or
incurrence of debt) that have a value that is equal to or greater than 10 percent of a company's consolidated assets
prior to board approval of such transaction. If the board of directors does not follow the audit committee's
recommendation with respect to any related party transaction, the LMV requires Azteca to publicly disclose this
information through the Mexican Stock Exchange. See "Related Party Transactions."
Although the LMV and Azteca's by-laws provide the foregoing protections, there can be no assurance that
Azteca will not be adversely affected by any related party transactions it may enter into.
Azteca faces risks arising from the outcome of various litigation matters.
Azteca is subject to a dispute relating to its majority shareholding of an entity that owns the concession to
Proyecto 40. See "The Business–Description of the Business–Azteca's Mexican Television Networks–Proyecto 40"
16
and "The Business—Legal Proceedings—Proyecto 40." While Azteca operates Proyecto 40 pursuant to an operating
agreement that is not currently in dispute, if Azteca does not prevail in this case it may lose its majority ownership in
the entity owning the Proyecto 40 concession.
Azteca is also subject to various legal proceedings and claims, including those referred to in "The
Business—Legal Proceedings," and those arising in the ordinary course of business, including regulatory and
administrative proceedings, claims and audits. While it does not expect that the final disposition of any of these
litigation matters will have a material effect on its financial condition, an adverse outcome in one or more of these
matters could be material to its consolidated results of operations and cash flows for any one period, and any
litigation resulting from any such legal proceedings could be time-consuming, costly and injure Azteca's reputation.
Further, no assurance can be given that any unfavorable outcome would not have an adverse effect on its business.
The failure or destruction of satellites, transmitter facilities and network and information systems and other
technology that Azteca operates or depends upon to distribute its programming could materially adversely affect its
businesses and results of operations.
Azteca uses satellite systems to transmit its broadcast and cable networks to affiliates. The distribution
facilities include uplinks, communications satellites and downlinks. Transmissions may be disrupted as a result of
local disasters including extreme weather that impairs on-ground uplinks or downlinks, or as a result of an
impairment of a satellite. Currently, there are a limited number of communications satellites available for the
transmission of programming. If a disruption occurs, Azteca may not be able to secure alternate distribution
facilities in a timely manner. Failure to secure alternate distribution facilities in a timely manner could have a
material adverse effect on its businesses and results of operations. Each of Azteca's television and radio stations and
cable networks uses studio and transmitter facilities that are subject to damage or destruction. Failure to restore such
facilities in a timely manner could have a material adverse effect on its businesses and results of operations. In
addition, network and information systems and other technologies are important to Azteca's business activities.
Network and information systems-related events, such as computer hacks, cyber attacks, computer viruses, worms
or other destructive or disruptive software, process breakdowns, malicious or other activities, power outages, natural
disasters, terrorist attacks or other similar events, or any combination of the foregoing, could result in the
degradation or disruption of Azteca's services and operations, damage to Azteca's property and equipment or the
improper disclosure of personal data or confidential information. These events also could result in large
expenditures to repair or replace the damaged properties, networks or information systems or to protect them from
similar events in the future. Further, any security breaches, such as misappropriation, misuse, leakage, falsification
or accidental release or loss of information maintained in our information technology systems, including customer,
personnel and vendor data, could damage our reputation and require us to expend significant capital and other
resources to remedy any such security breach. The occurrence of any of such network or information systemsrelated events or security breaches could have a material adverse effect on Azteca's business and results of
operations.
Risks Related to Doing Business in Mexico
Depreciation of the peso relative to the U.S. dollar could adversely affect its financial condition, its ability to repay
debt and other obligations and results of operations.
As of June 30, 2013, Azteca had approximately $430 million of monetary liabilities denominated in U.S.
dollars, which accounted for approximately 52% of its total debt (see "Financial InformationManagement's
Overview IndebtednessCritical Accounting Policies and EstimatesCritical Accounting PoliciesEffects of the
Devaluation of the Peso and Inflation" and Note 18 to the consolidated financial statements as of and for the years
ended December 31, 2012 and 2011). Declines in the value of the peso relative to the U.S. dollar will increase the
interest and repayment costs in pesos of Azteca's existing U.S. dollar-denominated indebtedness, including the
indebtedness incurred in this offering, and increase the cost in pesos of Azteca's other dollar-denominated
expenditures. Such declines could also cause Azteca to recognize foreign exchange losses and could adversely affect
its ability to meet its interest and principal obligations on its indebtedness. A significant portion of Azteca's
operating costs and other expenditures are dollar-denominated. These costs include the payments Azteca makes for
the programming broadcast rights, for the leasing of satellite transponders and for purchases of capital equipment.
Since nearly all of Azteca's revenue is denominated in pesos, the increased costs are not offset by any exchangerelated increase in revenue.
17
Furthermore, a severe devaluation or depreciation of the peso may also result in disruption of the
international foreign exchange markets and may limit Azteca's ability to transfer or to convert pesos into U.S.
dollars and other currencies for the purpose of making timely payments of interest and principal on its indebtedness.
While 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 pesos into U.S. dollars or to transfer other currencies out of
Mexico, the government could institute restrictive exchange rate policies in the future. Any such restrictive
exchange control policy could prevent or restrict access to U.S. dollars and limit Azteca's ability to service its debt.
To the extent that there are currency fluctuations, they are likely to continue to have an effect on Azteca's financial
condition, results of operations and cash flows in future periods.
Due to the significant economic relationship between Mexico and the U.S., the value of the peso has been
subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant
fluctuations in the future. Any future devaluations of the peso could adversely affect Azteca's results of operations.
Fluctuations in interest rates and inflation may adversely affect Azteca's business.
Any negative fluctuation in interest rates could have an adverse effect on Azteca's financial condition
because the amount of interest it owes may increase with regard to its present liabilities and indebtedness or any
liabilities and indebtedness incurred in the future. See "Financial InformationManagement's Overview
IndebtednessCritical Accounting Policies and Estimates Critical Accounting PoliciesEffects of the
Devaluation of the Peso and Inflation."
According to Banco de México, annual inflation was 4.1%, 3.6% and 3.8% for the six months ended June
30, 2013 and the years ended December 31, 2012 and 2011, respectively. Any significant increase in the inflation
rate in Mexico could adversely affect Azteca's financial condition and results of operations because inflation can
adversely affect consumer purchasing power, which may affect Azteca's advertisers and the sale by Azteca of
advertising time on its networks.
Azteca's financial results are dependent on the Mexican economy.
A decline in economic growth, high rates of inflation and high interest rates in Mexico generally have an
adverse effect on Azteca's operations. Slower growth in the Mexican economy will generally result in reduced
advertising spending. In the event that inflation returns to high levels while economic growth slows, Azteca's results
of operations, its financial condition and the market price of its securities will all be affected. In addition, high
interest rates and economic instability could increase Azteca's costs of financing.
Fluctuations in the U.S. economy or the global economy in general may adversely affect Mexico's economy and
Azteca's business.
Mexico's economy is vulnerable to market downturns and economic slowdowns in the U.S. and elsewhere
in the world. Financial problems or an increase in risk related to investment in emerging economies could limit
foreign investment in Mexico and adversely affect the Mexican economy. Mexico has historically experienced
uneven periods of economic growth and was adversely affected by the recent global economic crisis that started in
the late-2000s. Although Mexico, the U.S. and other governments have taken steps to increase liquidity in the
financial markets, there can be no assurance that such measures will lead to sustained growth of the overall business
environment in which Azteca operates, any future economic downturn in the U.S. or global economy could
adversely affect Azteca's results of operations and financial condition.
The Mexican government exercises significant influence over the economy.
The Mexican federal government has exercised, and continues to exercise, significant influence over the
Mexican economy. Accordingly, Mexican federal governmental actions and policies concerning the economy, stateowned enterprises and state controlled, funded or influenced financial institutions could have a significant impact on
private sector entities in general and on Azteca in particular. The Mexican federal government occasionally makes
significant changes in policies and regulations, and may do so again in the future. Actions to control inflation and
other regulations and policies have involved, among other measures, increases in interest rates, changes in tax
policies, price controls, currency devaluations, capital controls and limits on imports. Tax legislation, in particular, is
subject to continuous change and Azteca cannot provides assurances regarding whether the Mexican government
18
may maintain existing political, social, economic or other policies, or whether changes may have a material adverse
effect on its financial performance.
Enrique Peña Nieto, a member of the Partido Revolucionario Institucional, or PRI party, became president
of Mexico on December 1, 2012. As with any governmental change, this change to the country's government may
lead to significant changes in governmental policies, may contribute to economic uncertainty and to heightened
volatility of the Mexican economy.
Azteca's hedging strategies may not be successful in mitigating its risks associated with interest rates.
As of June 30, 2013, Azteca has interest-rate hedging arrangements extending through December 2016.
Azteca uses derivative financial instruments to provide a level of protection against interest rate fluctuation risks, but
no hedging strategy can provide complete protection. Hedging instruments involve risks, such as the risk that the
counterparties may fail to honor their obligations under these arrangements and that these arrangements may not be
effective in reducing Azteca's exposure to interest rate changes. In addition, the nature and timing of hedging
transactions may influence the effectiveness of its hedging strategies. Poorly designed strategies or improperly
executed transactions could instead have the effect of increasing risk and losses. Moreover, hedging strategies
involve transaction and other costs. Azteca cannot provide assurances that its hedging strategy and the derivatives
that it uses will adequately offset the risk of interest rate volatility.
Mexico is experiencing high levels of criminal activity, which could affect the economy and Azteca's financial
performance.
Mexican drug related violence and other organized crime have escalated since 2006, when the Mexican
federal government began increasing the use of the army and police to fight drug trafficking. Drug cartels have
carried out attacks largely directed at competing drug cartels and law enforcement agents; however, they also target
companies and their employees through extortion, theft from trucks or industrial sites, kidnapping and other forms
of crime and violence. This increase in violence and criminal activity has led to increased costs for companies in the
form of stolen products and added security and insurance. These activities, their possible escalation and the violence
associated with them, over which Azteca has no control, may have a negative impact on the business environment in
locations in which Azteca operates and therefore may adversely affect its financial performance.
Risks Related to the Notes
Payment on the Notes may not be made or may be limited if Azteca or one or more of the Guarantors is declared
bankrupt or if Azteca divests from one or more of the Guarantors.
If Azteca or any of the Guarantors is declared bankrupt by a Mexican Court or becomes subject to a
reorganization or concurso mercantil proceeding in a Mexican court, the obligations of Azteca or such Guarantor (as
the case may be) under the Notes would:

except in the case of secured Notes, be converted into pesos at the exchange rate prevailing at the time
of a declaration of bankruptcy or reorganization or concurso mercantil and from pesos into inflation
indexed units at the exchange rate prevailing at that time and would not be adjusted to take into
account any devaluation of the peso to the U.S. dollar after such conversion;

be dependent upon the outcome of the bankruptcy or reorganization proceedings, and payment, if any,
would be made after all of its unsecured creditors have properly filed claims and to the extent funds are
sufficient;

cease to accrue interest against the Issuer or the relevant Guarantor, as the case may be, except that in
the case of secured Notes, interest may accrue up to the value of the collateral; and

be subject to certain statutory preferences including tax, social security and labor claims and, except
that in the case of secured Notes, claims of secured creditors.
There is a limited market for the Notes.
There is currently no active secondary market for the Notes and such a market may not develop once the
offer has been made. The price at which the Notes are traded may be subject to various factors, such as interest rates,
market conditions for similar instruments, macroeconomic conditions in Mexico and abroad and Azteca's and the
19
Guarantors' financial situation. If this secondary market does not develop, the liquidity of the Notes may be
negatively affected, the holders of the Notes may not be able to sell the Notes in the market and either (i) may be
unable to recover all or part of the price initially paid for the Notes or (ii) may have to sell the Notes at prices far
below the price initially paid.
Azteca is leveraged and its leverage and debt service obligations could adversely affect its business.
Azteca has refinanced most of its debt by issuing (i) in the last quarter of 2006, Ps.6,000 million ($551.7
million) of certificados bursátiles fiduciaries (securitized Mexican debt instruments) due in 2020, and (ii) in the
second quarter of 2011, $300 million 7.5% Senior Notes due in 2018 under the Programme (see "Financial
InformationManagement's OverviewIndebtedness"). As of June 30, 2013, Azteca had Ps.10,341 million
($799.5 million) of indebtedness. Azteca may not be able to generate enough cash to pay the principal, interest and
other amounts due under its new indebtedness, and there is no assurance that market conditions will permit Azteca
to repay or refinance its existing indebtedness at maturity. Azteca's leverage could have negative consequences,
including:

requiring the dedication of a substantial portion of its cash flow from operations to service
indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital
expenditures, marketing efforts, future growth plans and distributions payable to its shareholders;

limiting its ability to obtain additional financing or to refinance its existing indebtedness;

placing it at a possible competitive disadvantage relative to less leveraged competitors and competitors
with greater access to capital resources;

increasing its vulnerability to downturns in its business or the Mexican economy generally; and

limiting its ability to make cash distributions to its shareholders.
Service of process must be effected in person.
In connection with the Notes to be issued under the Programme, Law Debenture Corporate Services
Limited has been appointed, designated and empowered as agent for service of process to be notified of any legal
action related to the issuance of the Notes. This type of notification must be made in person to be valid under
Mexican law. Notice of legal action by mail does not constitute personal notification under Mexican law. Therefore,
if any notification of legal action is made by mail or other means, other than in person, a final judgment rendered in
the legal action may not be enforced in the courts of Mexico.
Payment of judgments may be made in pesos.
Under the Mexican Monetary Law (Ley Monetaria de los Estados Unidos Mexicanos), in the event that any
proceedings are brought in Mexico seeking performance of Azteca's obligations under the Notes Azteca may
discharge its obligations denominated in any currency, other than pesos, by paying pesos converted at the prevailing
exchange rate on the date payment is made. This rate is currently determined by Banco de México and published in
the Official Gazette. If payment is made in Mexico and Azteca elects to make payments due on the Notes in pesos
in accordance with the Mexican Monetary Law, the amounts paid may be converted by the payee into the U.S.
dollars or any other currency and, if converted, such amounts may not be sufficient at such time to purchase U.S.
dollars or any other currency equal to the amount of the principal, interest or additional amounts due on the Notes.
As a result, there may be a shortfall for judgments obtained in Mexico. No separate action exists or is enforceable in
Mexico for compensation of any shortfall.
It may be difficult to enforce civil liabilities against Azteca, the Guarantors or Azteca's or the Guarantors' directors,
officers and controlling persons.
Azteca and the Guarantors other than Azteca International Corporation (a wholly owned Delaware
subsidiary of the Issuer) ("Azteca International") are organized under the laws of Mexico, and most of Azteca's and
the Guarantors' directors, officers and controlling persons reside in Mexico. In addition, a substantial portion of the
assets of Azteca, the Guarantors and the directors, officers and controlling persons of Azteca and the Guarantors, are
located outside of the United Kingdom. As a result, it may not be possible for investors to effect service of process
within the United Kingdom on such persons or to enforce any judgments rendered against them. There is doubt as to
20
the enforceability against such persons in original actions in Mexican courts, of liabilities predicated solely on
English law and as to the enforceability in Mexican courts of judgments obtained in courts of England.
To the extent any particular Series of Notes includes the requirement of Azteca to make an offer to purchase such
Notes upon a change of control, Azteca may not be able to pay its indebtedness payable upon change of control.
To the extent any particular Series of Notes includes the requirement of Azteca to make an offer to
purchase such Notes upon a change of control, Azteca will be required to offer to repurchase all such outstanding
Notes upon a change of control. A change of control could result in non-compliance under existing or future debt of
Azteca or its subsidiaries, if the debt matured and were payable. The source of funds for any payment will be
Azteca's available cash or cash generated from other sources, including borrowings, sales of assets or sales of equity.
However, Azteca cannot guarantee that it will have sufficient funds to pay all of the debts that may be due and
payable at that time. Azteca may not be able to repurchase the Notes upon a change of control because it may not
have sufficient financial resources to purchase all of the Notes that are tendered upon a change of control. There can
be no assurance that sufficient funds will be available when necessary to make the required purchase of the Notes.
Azteca's failure to repurchase the Notes upon a change of control would be a default under the Notes.
The Notes and the guarantees by the Guarantors will be effectively subordinated to Azteca's secured debt and to
certain claims preferred by statute.
Azteca's obligations under the Notes and the obligations of the Guarantors under the guarantees are
unsecured. As a result, the Notes and the guarantees will be effectively subordinated to all of Azteca's and the
Guarantors' secured debt to the extent of the value of the collateral securing such debt. Further, the terms of the
Programme permit Azteca to incur additional secured debt in the future. In the event that Azteca or the Guarantors
are not able to repay amounts due under any existing or future secured debt obligations, creditors could proceed
against the collateral guaranteeing such indebtedness. In that event, any proceeds upon a realization of the collateral
would be applied first to amounts due under the secured debt obligations before any proceeds would be available to
make payments on the Notes. If there is a default, the value of this collateral may not be sufficient to repay both
Azteca's secured creditors and the holders of the Notes.
To the extent that certain of Azteca's subsidiaries are not Guarantors, Azteca's obligations with respect to the Notes
will be effectively subordinated to all liabilities of these non-guarantor subsidiaries.
Currently, not all of Azteca's subsidiaries are Guarantors. To the extent Azteca acquires other subsidiaries
that are not Guarantors or Azteca's current Guarantors are released from their guarantees, any right that Azteca or
the Guarantors have to receive assets of any of the non-guarantor subsidiaries upon the liquidation or reorganization
of those subsidiaries, and the consequent rights of holders of Notes to realize proceeds from the sale of any of those
subsidiaries' assets, will be effectively subordinated to the claims of that subsidiary's creditors, including trade
creditors and holders of debt of that subsidiary.
The guarantees may not be enforceable.
The guarantees provide a basis for a direct claim against the Guarantors; however, it is possible that the
guarantees may not be enforceable. In the event that a Guarantor becomes subject to a reorganization or concurso
mercantil or similar proceeding or to bankruptcy, the relevant guarantee may be deemed to have been a fraudulent
transfer and declared void, based upon the Guarantor being deemed not to have received fair consideration or a
direct benefit in exchange for such guarantee, or similar principles.
21
USE OF PROCEEDS
Azteca expects to use the net proceeds from the sale of Notes issued under the Programme for general
corporate purposes, unless otherwise specified in the applicable Pricing Supplement. General corporate purposes
may include the repayment of existing indebtedness, additions to working capital, capital expenditures, investments
in subsidiaries and the financing of possible acquisitions.
22
THE BUSINESS
General
Azteca is one of the two largest producers of Spanish-language television content in the world and the
second largest television broadcasting company in Mexico based on broadcast advertising market share.
Azteca's owns and operates two national television networks, Azteca 7 and Azteca 13, which together
broadcast over-the-air programming that reaches an average of 96% of the Mexican population across 179 channels
and captures 32% of the Mexican television broadcast advertising market. Azteca also operates Proyecto 40, a local
channel that is broadcast over-the-air in Mexico City, and six other non-broadcast cable channels that are available
for distribution to cable television subscribers domestically and internationally.
Azteca is widely recognized for its high quality original content, which represents approximately 64% of its
total programming. It owns 20 television studios, seven of which are state-of-the-art multi-level television studios,
and produces more than 13,000 hours of television content each year, including soap operas (telenovelas), reality
shows, talk shows and news, sports, music and variety programs. Azteca's original content is aired on its networks in
the United States and Guatemala and is also exported to more than 70 countries in the Americas, Europe, Asia and
Africa.
In addition to its content and broadcasting operations, Azteca owns a drama school, a soccer team, a
musical production company and a website. Azteca is also engaged in other businesses through joint ventures or
strategic partnerships, including a project in Colombia to build and operate the largest fiber optic network in Latin
America. The project is currently on budget and ahead of its construction schedule and is expected to be complete
and operational by late 2014 or early 2015.
Corporate Structure
The following select structure chart shows Azteca's organizational structure as of June 30, 2013, including
its main subsidiaries, all of which are Guarantors and wholly owned by Azteca, and a description of their main
business activities:
Controlling Shareholders
65%
Televisión
Azteca, S.A. de
C.V.
Azteca
International
Corporation
Owns Azteca’s
television
concessions and
operates
transmission
equipment
Operates the
Azteca
America
network
Public Float
35%
Inversora
Mexicana de
Producción, S.A.
de C.V.
P rovides
technical, legal,
administrative,
financial and
treasury services
to Azteca
23
Estudios Azteca,
S.A. de C.V.
Azteca Novelas,
S.A. de C.V.
Operates and is
the principal
advertising sales
agent for the
Azteca 7 and
Azteca 13
networks
Owns or leases
facilities and
equipment for the
production of
Azteca’s original
programming
Operadora Mexicana
de Televisión, S.A. de
C.V.
Operates and is the
principal advertising
sales agent for P royecto
40
Business Strengths
One of the Most Recognized Brands in Mexico, with a Strong, Stable Market Position
Azteca has one of the most recognized brands in Latin America. Azteca believes it is a leading producer of
some of the most popular soap operas (telenovelas) in the world and the second largest television broadcasting
company in Mexico for at least the last five years, based on broadcast advertising market share. Azteca believes its
popular programming helps it cultivate large and loyal audiences and attract diverse advertisers, which will continue
to bolster its brand throughout the world and help it maintain its strong, stable position in the market.
One of the Two Largest Spanish-Language Content Producers in the World
Azteca is one of the two largest content producers of Spanish-language television content in the world. It
produces a variety of programs, including telenovelas, reality shows, talk shows and news, sports, music and variety
programs. In the twelve months ended June 30, 2013, Azteca produced approximately 14,229 hours of original
content. In each of 2012 and 2011, Azteca produced approximately 64% of the national weekday primetime
program hours aired on its networks, including its ten highest rated, regularly scheduled weekday programs. In 2012
and 2011, Azteca sold approximately 13,346 and 12,461 hours, respectively, of originally produced content.
Large Scale and Geographically Diversified Infrastructure
Azteca's 346 transmission sites located throughout Mexico allow it to reach approximately 96% of the
Mexican population at least 23.5 hours a day, seven days a week. Unlike any of its competitors in the Mexican
market, Azteca dedicates 101 of its 509 television transmitters to the transmission of mixed national and local
advertising. This technology allows Azteca to offer local advertisers the option to target the transmission of its
advertisements to a particular city or cities, or within a particular region. No other television competitor in Mexico
is able to offer its advertisers the same level of geographic customization of its target audience.
In addition to its extensive and sophisticated transmission technology, Azteca also has 20 television studios
in Mexico City, including seven state-of the-art multilevel sound stages custom-designed for high definition
television production, and 35 additional studios located in other cities throughout Mexico, which enables Azteca to
produce a high volume of quality programming efficiently.
Dynamic Industry Structure with Substantial Barriers to Entry
The media and broadcasting industries require significant capital investment and technical expertise, which
makes it difficult for new competitors to enter these businesses. Barriers to entry for potential broadcasters include
an already-established and extensive infrastructure, the limited availability of land to construct transmission sites,
the existence of highly customized station facilities and a scarcity of engineers to design, operate and maintain
television broadcast facilities. In addition, Azteca's position as one of the world's leading producers of Spanishlanguage programming, its over 300 exclusive contracts with creative talent and other long-term contractual
relationships with major content providers such as Fox, Sony, Disney the Mexican national soccer team and
Mexican Soccer League, create significant obstacles for potential content providers. Azteca benefits from a strong
brand and an established operating history, which enable it to work effectively within the complex regulatory
framework of the telecommunications industry.
Fully Integrated Company
Azteca is a fully integrated telecommunications company with a complete array of resources to source,
produce and distribute television content. Azteca has resources dedicated to every stage of the television business.
From the cultivation of creative talent at its drama school to the production of national and local original content at
its television studios throughout Mexico, to the broadcast of its networks to viewers through its transmission
infrastructure, Azteca is able to cost effectively control each stage of the television production, sale and distribution
process.
24
Large, Diversified Client Base
Azteca's client base is large, diverse and distributed across a wide range of industries, allowing it to better
withstand downward swings in the economy. As of June 30, 2013, Azteca's ten largest clients accounted for
approximately 21% of its advertising revenues. See "The BusinessDescription of the BusinessTelevision
Advertising Sales."
Strong Financial and Liquidity Profile
Azteca maintains significant cash positions and a preference for long-term over short-term debt, which
allows it to maintain financial stability while being nimble in a fast moving market. Its liquidity allows it to capture
market opportunities that arise and create market opportunities that may require an initial cash investment, such as
promotional packages for its advertising clients. As of the twelve months ended June 30, 2013 and the years ended
Decembers 31, 2012 and 2011, Azteca's net debt to EBITDA ratio was 1.0x, 0.9x and 0.7x, respectively, and its total
debt to EBITDA ratio was 2.5x, 2.4x and 2.5x, respectively.
Proven and Experienced Management Team
Over the last 20 years, Azteca's management has helped guide the company to a leading market position in
Mexico and throughout the Spanish-speaking world. Azteca's senior management is comprised of professionals with
an average of ten years of experience in the telecommunications industry. While Azteca actively recruits lateral
talent to manage the business, it also focuses on cultivating in-house talent by training and mentoring Azteca
personnel to meet Azteca's future management needs.
Business Strategies
Assert Azteca's Identity as an Integrated and Multifaceted Telecommunications Company
Azteca continues to broaden its media business and changed its brand name from "TV Azteca" to "Azteca"
in 2012. This new public identity presents Azteca as a diversified, integrated and multifaceted telecommunications
company becoming a major provider of a variety of telecommunications services, including television, internet and
telephone, and a major content producer for a variety of media platforms, including television, personal computers
and mobile devices.
Focus on High Quality Television Content
Azteca believes the key to revenue generation in the television industry is a combination of the ability to
anticipate and adapt to changes in consumer preferences and behavior on a timely basis and to consistently carry
high quality content that is responsive to consumer tastes and behavior. Azteca's driving strategy to maintain and
increase revenues is to produce and purchase the highest quality content.
In 2012, Azteca built seven state-of the-art multilevel sound stages custom-designed for high definition
television production, which enable it to produce large volumes of high quality and cost-efficient content. As a
component of its strategy to produce high quality television content and to increase its market share, Azteca operates
the Center for Acting Studies and Development (Centro de Estudios y Formación Actoral), whose graduates often
become prominent media personalities in Mexico. Approximately 90% of the graduates from this drama school
have participated in Azteca productions.
Azteca's content strategy also includes a focus on acquiring the broadcast rights to television blockbusters
and major special events, such as the FIFA World Cup and other soccer championships, Mexican national soccer
team games and Mexican Soccer League games. Azteca also has long-term agreements with major content providers
such as Sony, Fox and Disney, which grant the right to broadcast film and television programs that have proven
popular outside Mexico. Azteca believes it can improve profit margins by making partial purchases of certain sports
broadcast rights at reduced rates and producing innovative and cost-efficient programming that is appealing to
viewers.
25
Expand its International Footprint through the Sale of Content and Cable Networks
Azteca licenses its content and cable networks in over 70 countries in the Americas, Europe, Asia and
Africa, however, this constitutes only 1% of its aggregate revenues. Azteca aims to increase its content sales, both
of full season programming and show concepts, throughout the world. Its La Academia show concept, for example,
has been licensed to producers in Asia and elsewhere in Latin America, and Azteca believes it can continue to
develop innovative content that appeals to broad and diverse audiences. Azteca plans to capitalize on its facilities,
talent and other resources to grow its cable network options, which it plans to make available to cable distributors
around the world. Lastly, in countries such as Guatemala or the United States where Azteca has a local presence, it
plans to continue to develop compelling content produced locally and tailored to local audiences in order to attract a
loyal brand following and diverse advertising clients.
Improve Margins by Increasing Local Advertising Sales in Mexico
Local and regional advertising markets in Mexico are smaller and less competitive than the national
market. Azteca is able to charge higher rates to clients that advertise locally compared to clients that advertise
nationally. In spite of the price differentiation, Azteca typically still offers local advertisers the most economical
way to reach the largest number of potential customers. Azteca plans to increase local advertising sales by
leveraging both its local presence in cities and towns across Mexico to produce popular local content and its
technological capability to geographically customize the transmission of local programming and advertisements.
Expand its Telecommunications Infrastructure Business
Azteca's construction and operation of Colombia's national fiber optic network, which is expected to be
complete and operational by late 2014 or early 2015, represents the launch of a significant new line of business for
Azteca in line with its strategy of becoming an integrated and multifaceted telecommunications company. Azteca
expects to leverage its experience and the high profile of its operation in Colombia to expand this line of business
into other countries throughout Latin America.
Develop Networks that Complement Rather than Compete
Azteca's concessions grant it broadcasting rights to 179 different over-the-air channels across Mexico, yet it
continues to maintain only two national networks, Azteca 7 and Azteca 13, and one Mexico City network, Proyecto
40, each of which focus on a different audience demographic. Azteca believes it should continue to focus its
resources on developing, maintaining and improving the high quality of its core over-the-air networks rather than
diluting their market share by dividing the attention of Mexican television audiences. While Azteca has the talent,
production and other resources to develop substantially more content than can be broadcast on Azteca 7 and Azteca
13, it expects to use those resources for the development of specialized cable networks such as Azteca Novelas, the
24-hour telenovelas channel, or Azteca Mexico News, its 24-hour news channel, which can attract loyal audiences
and advertising revenues without diverting the viewership of its core over-the-air networks.
Description of the Business
Azteca's Mexican Television Networks
Azteca's core business in Mexico is the production and operation of its over-the-air television networks,
which are broadcast on 179 channels throughout Mexico.
Azteca 7
Azteca 7 primarily targets young adults across Mexico with programming consisting mainly of telenovelas,
news, entertainment and sports programs. In 2012, Azteca produced 29.4% of the Azteca 7 network's weekday
primetime programming hours and 23.1% of its total programming hours.
Azteca 13
Azteca 13 is a family channel that carries more original content than any of Azteca's other networks. In
2012, Azteca produced all of Azteca 13's weekday primetime programming hours and 71.1% of its total
26
programming hours. The network's programming consists primarily of telenovelas, reality shows, news programs,
talk shows, musical variety programs and sports broadcasts, principally soccer.
Proyecto 40
Azteca operates Proyecto 40, which primarily targets middle and upper income adults in the Mexico City
metropolitan area, where a majority of Mexico's wealthy and educated elite reside. Azteca produces a majority of
the content on Proyecto 40, which consists primarily of educational, cultural, documentary and interview
programming.
Non-Broadcast Networks
In addition to its over-the-air television networks, Azteca produces two non-broadcast cable networks that
are available in Mexico. Cable distributors can acquire the broadcast rights to include any of these 24-hour
networks in its channel lineup, but Azteca does not broadcast them on any of its channels. These networks are Az
Mix, a 24-hour music channel, Azteca Mexico News, a 24-hour news channel, and Azteca Novelas, a 24-hour soap
opera channel that carries Azteca telenovelas. While Az Mix and Azteca Mexico News are only available in
Mexico, Azteca Novelas is also available in Latin America and Spain. Azteca only licenses broadcast rights for its
cable networks on terms that require the cable distributor to broadcast the full schedule of 24-hour programming on
the licensed channel, including all Azteca's advertisements. The cable distributor is also not permitted to edit,
supplement or otherwise alter the programming or advertisements.
Local Stations
Of the 179 channels Azteca has to broadcast its networks throughout Mexico, 35 channels also carry local
programming and advertisements. Each of these local channels carry Azteca 7 or Azteca 13 programming,
including national advertisements, with certain time slots designated for local programming. Approximately 20% of
the programming on these channels is local, including programs that are produced and financed by Azteca's local
stations or by local producers. Locally produced programs include news programs, game shows and sporting events.
In 2012 and 2011, Azteca's local television stations produced approximately 9% and 8%, respectively, of the local
programming broadcast on local channels, respectively.
Azteca's Mexican television networks provided Azteca with revenues of Ps.10,873 million ($848.2 million)
and Ps.11,448 million ($869.3 million) in the twelve months ended June 30, 2013 and the year ended December 31,
2012, respectively.
Azteca's International Television Networks
Azteca exports its programming to countries outside of Mexico in three different ways. In Guatemala, for
example, Azteca has a television concession through which it operates three television networks. Azteca also
produces cable networks that are available for distribution by cable providers throughout the world. Azteca also
licenses original content and related intellectual property relating to specific programs such as La Academia to
television producers throughout the world.
United States
Azteca operates the Azteca America network through its subsidiary, Azteca International Corporation.
Azteca America is a Spanish-language over-the-air television network broadcast throughout the United States. The
network broadcasts telenovelas, reality programs, sports and news broadcasts, and other entertainment
programming, including specialized content aimed at U.S. Hispanic audiences. Azteca America is available overthe-air through television broadcast stations and cable and satellite television distributors that operate in 72 markets
throughout the United States, reaching an aggregate of 90% of the U.S. Hispanic population in 2012.
While Azteca's programming is broadcast in markets throughout the United States, it is generally broadcast
on low-powered stations located significantly higher in the channel lineup compared to other similar Spanish
language channels such as Telemundo and Univision, which are typically located lower in the channel lineup and
closer to each other. While Azteca has attracted high viewership for major programming events such as La
27
Academia or certain soccer games, its location in the channel lineup makes it more difficult to attract casual
television viewers who are browsing the Spanish language television channels. Azteca continues to negotiate
distribution arrangements with U.S. cable providers in order to achieve a more desirable location in the channel
lineup, and has recently succeeded in securing such contracts in several important markets, such as Los Angeles,
Houston, Dallas and San Francisco.
Azteca also operates Azteca Mexico Canal, a cable channel that reaches 2.1 million viewers and is
available by subscription through Direct TV.
Guatemala
Azteca has a television concession in Guatemala through which it operates three networks broadcast in
several cities throughout Guatemala. The three channels, 31 Azteca Guate, Canal 35 and Canal 22, each broadcast
local programming produced by Azteca, including La Academia Guatemala.
Other International Operations
Azteca operates three cable networks that are available for distribution by cable providers throughout the
world. Azteca Internacional is Azteca's most widely distributed network, reaching nine million subscribers on more
than 780 cable networks in over 70 countries in the Americas, Europe, Asia and Africa. Azteca Novelas, a 24-hour
soap opera channel broadcasting Azteca telenovelas exclusively, reaches seven million subscribers on more than 704
cable systems in Mexico, Latin America and Spain. In June 2012, Azteca launched Azteca Internacional HD, which
broadcasts high definition programming throughout Latin America. In 2012, these cable networks provided Azteca
with revenues of Ps.45 million ($3.4 million).
In addition to selling broadcast rights to its television networks around the world, Azteca licenses original
content and related intellectual property, such as the La Academia show concept, to television producers in over 100
countries throughout the world. The sale of the rights to broadcast or develop its original content allows Azteca to
leverage its library of programming already broadcast in Mexico. In 2012 and 2011, Azteca exported 6,879 and
5,994 hours of programming, respectively.
Television Content
Programming
Azteca is one of the two largest producers of Spanish-language television content in the world. Azteca
believes that its ability to provide a diverse mixture of quality programs has been and will continue to be one of the
principal factors in maintaining and increasing its global ratings. Azteca focuses on producing and acquiring
programs that appeal to its different target audiences. Azteca also believes that developing separate identities for its
networks has helped it capture a growing share of Mexican television viewers and has provided its advertisers with
the opportunity to tailor their advertising to specific demographic groups.
To maintain the high quality of its programs, Azteca convenes focus groups and conducts surveys to assess
the expected popularity of new program ideas. Azteca also uses portions of its unsold advertising time to
aggressively market programs produced in-house, and uses purchased programs to create and sustain viewer interest.
Programs Produced by Azteca
Azteca produces a variety of programs, including telenovelas, reality shows, news, sports, music, contests,
talk shows and variety programs. In each of 2012 and 2011, Azteca produced approximately 64%, of the weekday
primetime program hours aired on its networks (excluding programs produced by its local stations), including its 10
highest rated regularly scheduled weekday programs broadcast in 2012 and 2011.
28
Below is a chart showing the type of content Azteca produced in the twelve months ended June 30, 2013.
Telenovelas
11%
Sports
13%
News
44%
Entertainment
32%
On average, Azteca's original programming costs more per program than its purchased programs. Azteca
seeks to offset its production costs by selling its original content outside of Mexico. In the twelve months ended
June 30, 2013, Azteca produced approximately 14,229 hours of original content.
Azteca and its subsidiaries are the sole owners of all copyrights and trademarks relating to its original
content. However, Azteca does obtain the license to some third party content production and/or broadcasting. In this
case, Azteca may develop original derivative works, including program scripts, designs and formats, to which it will
retain certain intellectual property rights alongside the rights of the original intellectual property owner.
Azteca has been producing telenovelas since 1996. This program genre is the most popular in Mexico and
in all of Latin America. In 2012 and 2011, Azteca invested an aggregate of approximately Ps.206 million ($16.1
million) in production equipment mainly dedicated to producing telenovelas. Azteca produced five telenovelas in
2012, representing 645 hours of programming and six telenovelas in 2011 representing 719 hours of programming.
In 2002, Azteca launched its first reality show, La Academia (The Academy), a musical reality television
show. This show features a competition among Mexican and Mexican-American contestants who are trained by a
professional team of music producers and based on their performance, and are gradually eliminated from the show
by votes of the broadcast viewers. During the show's run, live concerts are aired every Sunday. In 2012 La
Academia premiered its tenth season with an anniversary edition named La Academia 10 Años (10 Years of the
Academy).
Azteca's news programming includes broadcasts during the evening primetime schedule. The daily news
program News at Seven on the Azteca 7 network includes a dynamic summary of national and international news in
a format targeted primarily at young adults. The Azteca 7 network also transmits an interview program with
questions for high profile political figures, businessmen and journalists about issues that affect Mexico. The
program Events in the News on Azteca 13 presents a more in-depth analysis of daily national and international
news.
Sports programming produced in-house by Azteca consists mainly of broadcasts of Mexico First Division
soccer games, as well as sports commentary programs and programs of different sporting events such as
international soccer games and the Olympics, among others. Soccer is the most popular sport in Mexico and the
broadcasts of First Division games generate ratings at a level comparable with Azteca's highest ratings. During both
29
the 2012 opening and closing seasons, Azteca had the broadcast rights for the home games of seven teams in the
First Division, including Monarcas Morelia, the soccer team owned by Azteca. During both the 2011 opening and
closing seasons, Azteca had broadcast rights for the home games of eight teams in the First Division.
Purchased Programs
Azteca has various licenses, the most significant of which are for sports programming, including the FIFA
World Cup, other FIFA tournaments, Mexican national soccer team games, Mexican Soccer First Division League
games, U.S. National Football League games and WWE wrestling events such as Smackdown.
Azteca also has broadcast rights to films and television series programs from approximately 81 different
distributors. However, a substantial part of its acquired programming comes from major studios, such as The Walt
Disney Company, 20th Century Fox, Sony Pictures, and independent suppliers, such as Gussi, Telemovies, Morgan
Creek. Azteca focuses on acquiring the broadcast rights to films and television series that have been widely viewed
in one or more markets outside Mexico. Programs not produced in Spanish are dubbed prior to delivery to Azteca.
Azteca pays the distributor an additional fee for this service.
Acquired programs account for an aggregate of approximately 36% of combined weekday primetime hours
of programming aired on Azteca's two networks in 2012 and 2011.
Television Advertising Sales
General
In the twelve months ended June 30, 2013, approximately 79% of Azteca's revenues was derived from the
sale of national advertising in Mexico, approximately 8% from the sale of local advertising in Mexico,
approximately 10% from the sale of advertising in the U.S. and approximately 3% from barter arrangements, which
are discussed in further detail below. In setting advertising rates, Azteca considers, among other factors, the rates
offered by its competitors and the likely effect of rate increases on advertising volume.
National Advertising
Azteca sold an aggregate of 91% and 92% of the total available advertising time on its networks during
primetime in 2012 and 2011, respectively. Azteca utilizes unsold advertising time in a variety of ways. Azteca has
entered into advertising contracts with some of its affiliates under which Azteca agreed to make a certain amount of
otherwise unsold advertising time available to these affiliates each year. In addition, in order to improve its
operating results and cash flow, Azteca sells a portion of otherwise unsold advertising time to shared-risk advertisers
and to companies that produce infomercials. Azteca also uses the unsold advertising time to broadcast promotional
spots for its programming and to broadcast government and public service announcements.
As of June 30, 2013, Azteca's ten largest advertisers, together with their subsidiaries, accounted for 21% of
Azteca's revenue, and its largest advertiser accounted for approximately 3% of its revenue. The percentage that each
industry represents in Azteca's advertising revenues is set forth in the chart below.
Industry
2012
2011
2010
2009
2008
Commercial Consumption
Government
Food
Beverages
Chemical Pharmaceutical
Telecommunications / Media
Telemarketing
Insurances / Financial
Automotive
Education
Footwear and Clothing
Tourism and Transporation
29.8%
18.9%
15.8%
9.1%
7.5%
6.0%
4.2%
3.8%
3.5%
0.7%
0.3%
0.4%
30.6%
15.1%
12.6%
8.9%
14.9%
5.6%
2.2%
4.4%
4.0%
0.5%
0.6%
0.6%
31.9%
8.7%
12.8%
10.8%
12.0%
11.4%
1.7%
4.4%
2.8%
1.5%
1.0%
1.0%
35.0%
9.8%
12.5%
8.8%
11.1%
9.2%
1.7%
4.8%
4.0%
1.3%
0.8%
1.0%
35.0%
7.8%
14.8%
9.8%
8.5%
10.0%
1.5%
3.8%
4.8%
1.0%
1.0%
1.0%
30
Others
Total
0.0%
100.0%
0.0%
100.0%
0.0%
100.0%
0.0%
100.0%
1.0%
100.0%
Advertising Advances and Spot Sales
A significant component of Azteca's advertising sales consists of pre-sales for advertising slots in the
following calendar year, for which Azteca usually collects advertising advances during the fourth quarter of each
calendar year. These advertising advances are recognized as revenue only when and if the commercials are aired
(see "Financial InformationManagement's OverviewCritical Accounting Policies and EstimatesCritical
Accounting PoliciesRecognition of Revenue"). Azteca's remaining advertising time is sold in spot sales. At
December 31, 2012, Azteca's balance of advertising advances was Ps.5,421 million ($416.7 million), substantially
all of which is to be aired in 2013. At December 31, 2011, Azteca's balance of advertising advances was Ps.7,534
million ($538.9 million), which represents approximately 63% of its net advertising revenue in 2012.
Payment Plans
Azteca offers two basic advertising payment plans: the Azteca Plan and the Mexican Plan. Under the
Azteca Plan, advertisers generally are required to pay in full within four months of the date they sign an advertising
contract. Alternatively, the Mexican Plan offers flexibility by allowing advertisers to pay for advertising by making
a cash deposit ranging from 10% to 20% of the advertising commitment, with the balance payable in installments
over the term of the advertising contract, which is typically one year. Advertising rates offered to advertisers are
lower under the Azteca Plan than under the Mexican Plan. No adjustments are made for inflation during the term of
a contract.
Once deposited, Azteca has full use of funds advanced under the Mexican Plan and the Azteca Plan. Azteca
generally requires advertisers paying under the Mexican Plan to deliver non-interest bearing, short-term notes in
respect of each installment payment. Any Azteca advertiser is able to choose during which television programs and
at what times, based on availability, its advertisements will appear. With the exception of infomercial contracts, no
unused advertising commitments are carried beyond the expiration of the period covered by the contract.
The following tables set forth the percentage of Azteca's advertising sales and pre-sales under the Azteca
Plan and the Mexican Plan for the years ended December 31, 2012 and 2011.
Azteca Plan
Mexican Plan
Percentage of Total Advertising Sales
Year Ended December 31
2012
2011
53%
55%
47%
45%
Azteca Plan
Mexican Plan
Percentage of Total Pre-Sales
Year Ended December 31
2012
2011
50%
35%
50%
65%
Local Sales
Azteca's local channels carry local advertisements that are primarily sourced by Azteca. However, Azteca
also sells blocks of local time to local partners during which the local partner may broadcast programming of its
choice, including local advertisements, for which it collects all revenue. National advertisers are restricted from
advertising during these time slots.
Because the local advertising market is a niche market with little competition, Azteca is able to generate
higher returns from its clients in comparison to the returns generated from national advertisers. In addition, Azteca,
unlike any of its competitors in the Mexican market, is currently able to offer local advertisers the option to transmit
31
their advertisements in a particular city or within a particular region. Television advertising, particularly with the
customized options that Azteca offers, is typically the most economical way for local advertisers to reach the largest
number of people in their markets.
Infomercials, Shared-Risk Advertisements and Integrated Advertising
Azteca sells a portion of otherwise unsold advertising time to producers of infomercials and to shared-risk
advertisers. With respect to infomercials, Azteca charges a fee for the time slot in which the advertisement runs.
Azteca does not, however, receive any proceeds from the sale of the products shown during the infomercial. With
shared-risk advertisements, however, Azteca does not receive any advertising fees up-front to broadcast the
advertisement, but instead receives a percentage of the gross sales of the advertised product over a negotiated period
of time. For example, Azteca airs advertisements for music recordings at little or no up-front charge pursuant to
agreements that entitle Azteca to receive a share of the sales of the recordings for a number of months following the
airing of the advertisements.
Azteca also receives revenue from integrated advertising in the form of product placements during the
broadcast of Azteca's internally produced programming.
Revenue from Shared-Risk Advertisements, Infomercials and Integrated Advertising
for the Year Ended December 31
(in millions)
2012
2011
(Ps.)
($)
(Ps.)
($)
Shared Risk
1
0.1
Infomercials
164
12.4
157
12.6
Integrated Advertising
2,527
192.3
2,146
172.7
Total
2,691
204.7
2,304
185.4
Total advertising revenues from shared risk advertising, infomercials and integrated advertising accounted
for approximately 21% and 19% in 2012 and 2011, respectively.
Advertising Barter Arrangements
From time to time, Azteca enters into transactions with third parties pursuant to which it exchanges
advertising time for goods and services, a substantial portion of which it uses in its operations. These types of
advertising sales accounted for approximately 3% of Azteca's revenues for each of the years ended December 31,
2012 and 2011, respectively. Azteca has engaged in advertising exchanges, particularly with some of its affiliates, in
order to realize value from otherwise unsold advertising time.
Advertising Sales on Cable Networks
Azteca requires cable distributors licensing its cable networks to broadcast the full schedule of 24-hour
programming of the licensed channel, including all Azteca's advertisements. The cable distributor is also not
permitted to edit, supplement or otherwise alter the programming. Advertising revenues on Azteca's cable networks
grew 30% from 2010 to 2012.
Advertising Sales on Azteca America
For every hour of programming on Azteca America, there are 12 minutes of advertising time. Azteca's
distribution and licensing agreements to broadcast Azteca America provide that six minutes of that advertising time
may be sold by Azteca and the other six minutes may be sold by the local distributor. In the years ending December
31, 2012 and 2011, revenues from advertising sales on Azteca America was $58 million and $59 million,
respectively.
32
Other Operations
Azteca operates several other businesses, including an internet business called Azteca Web, a record
company called Azteca Records. S.A. de C.V. ("Azteca Records") and an events planning and production company
called Multimedia, Espectáculos y Atracciones, S.A. de C.V. ("Multimedia"). Azteca also owns Monarcas Morelia,
a Mexican professional First Division soccer team and operates the Centro de Estudios y Formación Actoral drama
school.
Azteca Web
Azteca Web is a business that sells and produces advertising content primarily on Azteca's website, located
at www.azteca.com with over six million unique visitors every month. Azteca Web also sells Azteca–branded
products, such as images and ring tones, to customers on mobile devices and personal computers.
Music
Azteca's record label, Azteca Records and Multimedia Espectaculos y Atracciones S.A. de C.V., promotes
new artistic talent through concerts, producing records and incorporating talent in advertising and Azteca's original
programming.
Centro de Estudios y Formación Actoral
As a component of its strategy to produce high-quality television content in order to increase its market
share, Azteca operates the Centro de Estudios y Formación Actoral drama school, whose graduates often become
prominent media personalities in Mexico. Approximately 90% of the graduates from this drama school have
participated in Azteca's productions.
The Soccer Team
In May 1996, Azteca acquired a majority shareholding interest in Monarcas Morelia, a soccer team in the
First Division of the professional league in Mexico, which gives Azteca sole ownership of the team's broadcasting
rights. In ten of the last twenty tournaments, Monarcas Morelia reached the final round; the team won the league
championship for the first time in its history in the Winter 2000 tournament. Monarcas Morelia played in two
additional finals, the Opening 2002, Closing 2003 and the Closing 2011. It was the runner-up in the CONCACAF
Champions' Cup in 2002 and 2003. In 2002 it reached the quarter-finals in the Libertadores de América Cup. In
April 2002 the FIFA Statistical and Historical Institute named it the Best Team in the Month. In April 2004, it
achieved ISO 9001:2000 certification for the fields of Administration and Finance, the Morelos Stadium, Basic
Strengths, Marketing and Communication and First Team, achieving re-certification in September 2009. The most
recent achievement of this team was winning the Super League Championship (campeonato de superliga) in 2010.
Fiber Optic Project in Colombia
In November 2011, the Unión Temporal Fibra Óptica Colombia ("UT"), a joint venture of Azteca and Total
Play Telecomunicaciones, S.A. de C.V., entered into an agreement with the Ministry of Information of Technologies
and Communications of the Republic of Colombia (Ministerio de Tecnologías de la Informacíon y las
Comunicaciones de Colombia, or "MINTIC") to build (over a 30 month period) and operate (for a 15 year period) a
fiber optic network that would cover 753 municipalities and 2,000 institutions. It is expected that once construction
is complete, it will cover almost 80% of Colombia and will be the largest fiber optic network in Latin America.
Pursuant to the agreement, the government of Colombia is required to commit $235 million for construction of the
network, and UT will be responsible for all maintenance and other capital expenditures relating to the network
during the 15 years that UT operates it. Upon completion, Azteca expects to offer a variety of services including
both lit and dark fiber communication transport services to telecommunications carriers and government agencies. In
addition, the network will potentially allow UT to expand in the future and offer cable television, broadband internet
and basic telephone services. In many of the areas where Azteca plans to offer these three services, only one of
these services is currently available on the existing infrastructure. As of June 2013, UT has completed construction
in 452 out of a total of 753 municipalities in accordance with the construction schedule. Azteca expects the network
33
to be complete and operational by late 2014 or early 2015. Azteca also operates Azteca Comunicaciones, S.A.S. in
connection with services related to its concession in Colombia.
Competition
General Information
Broadcast television stations compete for advertising revenue and viewers with other television stations in
their markets and other advertising media, such as radio, newspapers, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail, the Internet and home entertainment systems (including
videocassette recorders, DVDs and television game devices). Broadcast television stations also face competition
from cable television, MMDS and DTH satellite services. These other programming, entertainment and video
distribution systems can increase competition for broadcast television stations by bringing into their market distant
broadcast signals not otherwise available to a station's audience.
Televisa
Azteca's principal competitor in Mexico is Televisa. Televisa owns and operates Channels 2, 4, 5 and 9 in
Mexico City, each of which, to varying degrees of coverage, is broadcast throughout Mexico. Televisa is one of the
leading producers of Spanish-language television programming worldwide and has over 30 years of experience
producing telenovelas and other entertainment shows. Televisa also has significant interests in other media,
including pay television, publishing, radio, movies, soccer, music, Internet, lotteries and gaming, which enable
Televisa to offer its customers attractive rates for packages combining advertising in various media.
Direct-to-Home ("DTH") Providers
Pay television services generally require an initial connection fee, as well as a periodic subscription fee, but
offer both a higher quality picture than traditional, over-the-air television broadcasts and a larger number of channels
to choose from. Under current Mexican law, cable television services, but not DTH or wireless cable services, are
required to include over-the-air television channels in a basic package of channels offered to subscribers. SKY, a
DTH service provider, carries the signals of the Azteca 7 and Azteca 13 networks throughout Mexico pursuant to an
arrangement with Azteca. Many pay television services are offered by companies that are affiliated with large
multinational media conglomerates. Televisa is a partner in a multinational company to provide DTH services in
Mexico and elsewhere. According to data provided by COFETEL and INEGI, the penetration of pay television as of
December 31, 2012 was approximately 43% of all television households in Mexico. Azteca believes most customers
of DTH services are in the Mexico City metropolitan area, and the states located on the border between Mexico and
U.S.
Univision and Telemundo
Univision and Telemundo are the main competitors to the Azteca America network in the U.S. Spanishlanguage television market. Both Univision and Telemundo have already established networks in the U.S. television
markets that Azteca America targets or intends to target. In addition, in January 2002, Univision launched the
Telefutura network, a Spanish-language network which can be seen on many over-the-air television broadcast
stations in addition to cable systems nationwide.
In 2002, NBC acquired Telemundo. As part of the acquisition, NBC provides Telemundo with the rights to
broadcast certain NBC programming in the U.S. Spanish-language television market. Univision has long-term
program license agreements with Televisa and Corporación Venezolana de Televisión, C.A., another prominent
producer of Spanish-language programming. These agreements provide Univision with a significant amount of
quality programming that can be used to attract and retain U.S. Hispanic viewers.
Azteca America also competes with some English-language networks that broadcast in Spanish and
simulcast certain programming in English and Spanish for their U.S. Hispanic viewers.
34
Potential New Networks
The Telecom and Antitrust Bill, a recently approved Mexican constitutional amendment relating anti-trust
issues in the radio, television and telecommunications sectors, provides for the establishment of at least two new
national over-the-air television networks. The networks will be established pursuant to a public tender bid for the
concessions, and Azteca, as a current concession holder, will be ineligible from participating in the bid. These new
networks, if established, and any other new entrants into the over-the-air broadcasting, cable, broadband and/or
telephony markets, will at least double the number of commercial television broadcasters in Mexico, and will
compete with Azteca's business.
Azteca is one of the two largest producers of Spanish language television content in the world and believes
it will take significant time and resources for any new entrants into the market to establish a network of the same
scale, content and success as its networks.
The experience, talent and programming resources that Azteca has built over the last 20 years have
provided a strong foundation for its continued market dominance and will be difficult to replicate. It has strong
brand recognition, a robust pipeline of high quality original and third party content, and a large and diverse network
of on-the-air talent, many of whom are party to long term exclusivity agreements with Azteca. Azteca also has an
extensive transmission network that will be difficult to replicate over a short period of time. One of the barriers to
the construction of a transmission infrastructure is the scarcity of land suitable for transmission towers. The
mountainous terrain of Mexico's most populous regions requires transmission towers that are strategically placed to
overcome signal disruptions. As long as most Mexicans continue to receive television broadcasting over-the-air and
Azteca and Televisa continue to be the dominant television networks, a majority of television viewers' antennas will
be directed towards Azteca's and Televisa's signals, most of which are broadcast from towers that are intentionally
located close to each another. Television broadcast signals travel in a straight line, and the transmission can only be
received by an antenna directly within the line of the signal. Even if the tower of a new entrant is properly
transmitting its signal, if the signal is not being transmitted in the same direction as the Azteca and Televisa signals,
fewer viewers are likely to receive the signal and it will be difficult for the new entrant to gain viewers. See "Risk
Factors—Risks Related to Azteca's Operations Television broadcasting in Mexico is highly competitive" and "The
BusinessRegulation—Mexico—The Telecom and Antitrust Bill."
Regulation
Mexico
The Telecom and Antitrust Bill
The Telecom and Antitrust Bill became effective on June 12, 2013 and, among other things,

allows foreign ownership of businesses relating to the public telecommunications networks,
frequencies of the radio electric spectrum and satellite transmission;

restricts the participation of foreign investments over 49% in radio broadcasting, subject to the
reciprocity of the originating foreign investment country (for example, if the foreign investor's
country of origin were to restrict foreign investments over 20% in radio broadcasting, then a
reciprocal 20% restriction will apply);

re-affirms the 2015 deadline for the transition from analog to digital television broadcasting;

expands the applicability of the constitutional right of free speech from print media to all forms of
media; and

provides for the creation of a state-owned national broadband internet network.
The Mexican Congress is required to pass derivative legislation containing specific information about the
implementation of the Telecom and Antitrust Bill by December 9, 2013. Until then, there is uncertainty about how
the Telecom and Antitrust Bill will be interpreted and applied.
35
The Telecom and Antitrust Bill contemplates the creation of a new independent regulatory agency, the
Federal Telecommunications Institute (Instituto Federal de Telecomunicaciones or "IFETEL"), with oversight over,
among other things, the efficient development of telecommunications and radio broadcasting and the regulation of
concessions and licenses. IFETEL would also have exclusive discretionary power to decide antitrust and
competition matters in telecommunications and broadcasting.
IFETEL, if established, may also be empowered to set limits on the use of national and regional frequencies
by a concession holder, set limits on the cross-ownership of telecommunications, television or radio businesses that
serve the same market or geographical zone, revoke concessions and order the divestment of certain assets to foster
competition. IFETEL may also implement measures to prevent spectrum concentration by one person or group of
affiliated persons.
The Telecom and Antitrust Bill provides for the creation of specialized federal courts empowered to review
all matters relating to telecommunications, radio and broadcasting matters, including rulings, actions and omissions
of the IFETEL. These rulings would not be able to be suspended by any stays or injunctions from other courts.
The Telecom and Antitrust Bill creates a "must-offer" rule, whereby holders of concessions authorized to
broadcast over-the-air TV signals will be required to offer use of their transmissions to certain cable television
concession holders on a nondiscriminatory basis and free of charge. It further creates a "must-carry" rule, whereby
holders of cable television concessions must carry certain over-the-air TV signals broadcast in their region on a
nondiscriminatory basis and free of charge and DTH cable television concession holders must carry over-the-air TV
signals broadcast in at least 50% of Mexico. The must-offer and must-carry obligations will cease to free when
IFETEL declares that competitive conditions have been met in the telecommunications and broadcasting markets.
Until legislation is enacted to implement the Telecom and Antitrust Bill, the COFETEL and the Federal
Antitrust Commission (Comisión Federal de Competencia) will continue to oversee broadcasting and
telecommunication and related antitrust matters pursuant to existing legislation.
Applicable Law Until Enabling Legislation for the Telecom and Antitrust Bill is Passed
Concessions
The television broadcast concessions of Azteca were granted by the SCT pursuant to the Federal Law on
Radio and Television (Ley Federal de Radio y Televisión) ("LFRT"), which will continue to be in effect until the
enactment of the new legislation resulting from the Telecom and Antitrust Bill.
Generally, concessions are made up of one or more channels for broadcasting, each of which gives the
licensee the right to operate television transmitters in a particular location. Each concession specifies, among other
things, the assigned channel, the power of the broadcasting signal authorized and the main areas covered by the
broadcasting signal. Furthermore, the COFETEL may grant to the licensee, additional separate authorizations to
operate transmitters within areas covered by the assigned channels in the concession. These additional authorizations
allow the licensee to broadcast its signal to areas that may not be reached by transmitters located where the channels
assigned in the concession require them. Additional authorization is also granted upon a request from local residents
in an area within the concession area.
Azteca has 11 concessions for 179 channels. Nine of these concessions are part of the Azteca 7 network
and consist of a set of 88 channels for primary broadcasting locations throughout Mexico. Azteca has also obtained
125 additional authorizations related to the Azteca 7 network. For the Azteca 13 network, Azteca has a single
concession comprised of 90 licenses for primary broadcasting locations throughout Mexico and has 171 additional
related licenses. Azteca also has one separate concession for a single primary broadcasting location in the state of
Chihuahua.
The SCT granted Azteca authorizations to install secondary digital broadcasting channels, as ancillary to
the primary concessions, to comply with the policy for transitioning from analog to digital television in Mexico.
36
Television channel concessions are granted by means of public tender bids. The term of a concession may
be for up to twenty years and may be given to the same concession holder, which is ranked preferentially over third
parties.
Concessions may be revoked if the concessionaire:

transfers, pledges or assigns to the benefit of any foreign person in any manner, in full or in part, the
concession or any rights arising thereunder or any broadcasting equipment relating thereto;

provides goods or services related to the concession to enemies in time of war;

changes its jurisdiction to a foreign jurisdiction, or solicits the protection of a government or foreign
individual or legal entity;

changes the location of its equipment without COFETEL's approval;

broadcasts on a frequency other than the one assigned to it, without COFETEL's approval;

transfers or assigns the concession or rights arising thereunder or any broadcasting equipment relating
thereto without COFETEL's approval;

suspends broadcasting from its principal station for a period greater than 60 days;

changes its by-laws without COFETEL's approval or breaches the LFRT;

does not regularly provide the service for which the concession was granted;

transfers shares of its capital stock and enters into contracts that affect or encumber the concession,
without prior approval from COFETEL;

unjustifiably refuses to effectuate broadcasts of the Mexican government's allocated airtime;

denies without justifiable cause to allow access to its facilities by COFETEL inspectors and the
Department of the Interior (Secretaría de Gobernación) ("SEGOB");

is sanctioned three times for failure to: (i) cover social matters pursuant to condition Three of the Legal
Instrument of Concession; (ii) transition to digital television in accordance with ATSC standard A/53;
(iii) contribute to research and development work in the country; (iv) give the SCT and SEGOB within
the time limits specified under law, all data, reports and documents that are requested by the SCT and
SEGOB; (v) maintain in good condition the equipment needed to run the stations or abide by SCT
arrangements for the elimination of interference with other systems or (vi) use signal carrier systems
authorized by the SCT for sending and receiving radio broadcasting signals;

is sanctioned three times in one year for breaches of the same obligation, in the following cases:
(i) failure to facilitate station inspection by SEGOB and COFETEL inspectors; (ii) failure to transmit
official government broadcasts using its allotted time with the same quality as that of its normal
broadcasts; (iii) selling/marketing in any way the government's broadcasting time, or in the election
area, failure to abide by the provisions of the Federal Code on Electoral Institutions and Procedures
(Código Federal de Instituciones y Procedimientos Electorales) ("COFIPE"); (iv) failure to broadcast
government announcements during its "fiscal airtime" ("tiempo fiscal") or pay the 12.5% tax on
revenues; (v) in the event of a disaster, failure to coordinate broadcasts with the competent authorities
for the purpose of preventing greater damage or remedying what has already been caused; (vi)
broadcasting of programs or advertising inappropriate for children or young people without
announcing them as such when broadcasted; (vii) broadcasting publicity regulated by the General
Health Law without prior authorization from the Department of Health; (viii) broadcasting religious
advertising or programs without authorization from SEGOB; (ix) broadcasting advertising or programs
constituting discrimination that violates human dignity and the purpose of which is to do away with or
diminish personal rights and liberties or (x) failure to grant a right to respond.
If a concession is revoked on the grounds of the first three reasons mentioned above, the concessionaire
legally forfeits all of its assets to the Mexican government. If a concession is revoked for any other reason, the
concessionaire must disable and remove all of its transmission assets, and the Mexican government will become
37
entitled to purchase all such assets at a fair value determined by an independent appraiser. None of Azteca's
concessions has ever been revoked.
In order to facilitate the transition to digital television, the SCT through the COFETEL has granted each
concessionaire an additional channel to broadcast digital transmissions simultaneously with analog ones, and at the
end of transition to digital, the concessionaire shall return the analog channel to the Mexican government. Azteca
shall also be entitled to 179 additional anchor channels to transmit the digital broadcasts in areas with poor
reception.
Regulatory Oversight
COFETEL and the SEGOB may perform inspections for broadcasting operations of a concessionaire.
Television programming is not subject to judicial or administrative censorship in Mexico. Nevertheless,
Mexican law and regulations prohibit programs that:

are offensive to civic life;

are discriminatory on the basis of race;

cause corruption of language;

are contrary to civility;

constitute an apology for violence or crime; or

threaten national security or public order, or cause an audience to panic or be alarmed.
According to Mexican regulations, the Office for Radio, Television and Cinematography (Dirección
General de Radio, Televisión y Cinematografía), a department of SEGOB, reviews all television programming
(except live broadcasts) prior to broadcast and classifies the programs by age group appropriateness. Unless
otherwise authorized by SEGOB, programs classified as adult programs may only be broadcast after 10:00 p.m.;
programs classified as teen and adult programs may only be broadcast after 9:00 p.m.; programs classified as
programs for teens over the age of fifteen may be broadcast after 8:00 pm; and programs classified as appropriate for
all audiences (including children) may be broadcast at any time. Breaches of these regulations are punishable by
fines that vary from 20 to 5,000 days-worth of minimum wage in force in Mexico City on the day of the violation.
Mexican regulations also require that broadcasts in foreign languages be approved in advance by SEGOB.
Every concessionaire must broadcast up to 30 minutes of government programming per day and that
contains educational, cultural, social and socially-oriented subjects. During political campaigns, under the
administration of the Federal Electoral Institute (Instituto Federal Electoral) ("IFE"), all registered political parties
are entitled to use the government's allotted time to broadcast political messages.
Restrictions on Advertising
Mexican law regulates the type and quantity of advertising that may be broadcast on television. The
concessionaires are prohibited from broadcasting deceptive commercials. Commercials for alcoholic beverages
(except beer) may only be broadcast after 10:00 p.m. and commercials for tobacco products are forbidden by the
General Law on Health. The advertising of alcoholic beverages must not be excessive in amount, submit to minors
or present real or apparent consumption of alcoholic beverages, and must be balanced by public service
announcements that promote good nutrition and hygiene. Commercials for certain products and services, including
medications, medical equipment and services, foodstuffs, food supplements, and personal hygiene and beauty
products, require the approval of the Mexican government prior to being broadcast, and when broadcast, must
include captions indicating the federal authority. Furthermore, the Mexican government must approve all contests,
drawings and other games-of-chance programs. Religious programs also require approval. The COFIPE prohibits (i)
the contracting of radio and television advertising for the purpose of influencing the electoral preference of citizens,
(ii) the contracting of radio and television advertising from political parties, candidates, pre-candidates and others
who aspire to political office through elections and (iii) the promotion of public servants in institutional advertising
for the government. The COFIPE also provides that during election times, the IFE has 30 minutes per day of
government airtime and 18 minutes of government fiscal time ("tiempo fiscal") for political announcement.
38
Mexican law also regulates the quantity of advertising that a concessionaire may broadcast. No more than
18% of broadcast time may be used for commercials on any one day, there being a stimulus that makes it possible to
increase this advertising broadcasting time by 5% if domestic production accounts for 20% of what is broadcast.
Station identification lasts a maximum of two minutes and may only appear every half hour, except during events
the interruption of which would inconvenience television viewers. A concessionaire may obtain a limited
authorization from the SEGOB to extend the duration of commercial breaks. In the past, Azteca has obtained this
authorization for broadcasts during the Christmas season. COFETEL establishes minimum advertising rates. There
are no restrictions on maximum advertising rates.
There is an obligation to comply with information requests from the IFE.
All radio and television stations in the country are obligated to bind when transmitting information that is
important for the country in the judgment of SEGOB.
Applicable law prohibits broadcasts that lead to corruption of language and are contrary to civility, whether
through the use of malicious expressions, words or shameless images, phrases or scenes with two meanings,
apologies for violence or crimes. Also prohibited is anything that denigrates or is offensive to civic admiration of
heroes and religious beliefs or is racially discriminatory. The use of resources of low comic level and offensive
sound are also prohibited. In addition, news, messages or propaganda of any type that are contrary to the security of
the state or public order are prohibited.
The rebroadcast of programs developed abroad and received by any means by the broadcasting stations, or
the broadcast of programs that sponsor a foreign government or international body, may only occur with prior
authorization from the SEGOB.
With respect to commercial advertising, applicable law prohibits advertising of vice centers of any nature;
advertising or commercials about industrial or commercial products or activities that deceive the public or cause it
harm through exaggeration or falsehood regarding the indication of their uses, application or properties.
Additionally, programs that incite violence, as well as programs relating to food products that distort good
nutritional habits, should not be broadcast during children's programming times.
Even where the law establishes that broadcasting stations must make use of the national language, SEGOB
may authorize, in special cases, the use of other languages, so long as a long or short Spanish version is shown.
Broadcasting Tax
In addition to paying income tax, all concessionaires are subject to a tax that is payable by giving the
Mexican government the right to use up to 18 minutes daily of the concessionaire's broadcast time. If the
government does not use all its airtime in a particular day, that airtime expires and ceases to be available for future
use. In any event, the use of this time must be distributed proportionately throughout the daily programming of the
concessionaire, but it should not have a significantly adverse effect on the concessionaire's operations.
Stations on the Border
Broadcasts from television stations located on the Mexican-United States border are governed by a bilateral
treaty signed by the governments of both countries. The Agreement Relating to Assignments and Usage of
Television Broadcasting Channels in the Frequency Range 470-806 MHz Along the United States-Mexico Border
established criteria that all stations on the border must comply with regarding broadcasting power, antenna height
and the allowable distance from the border. Azteca believes that it is in compliance with all aspects of the treaty.
United States
The U.S. communications industry, including the operation of broadcast television networks and stations, is
subject to federal regulation, particularly pursuant to the Communications Act of 1934, as amended, and the rules
and regulations promulgated thereunder by the FCC (the "Communications Act"). This Communications Act
empowers the FCC to, among other things, regulate certain aspects of broadcast programming and the relationship
between broadcast television networks and their affiliated broadcast television stations.
39
Foreign Ownership of Broadcast Television Stations in the United States
The Communications Act prohibits the issuance of a broadcast license to, or the holding of a broadcast
license by, a foreign corporation, which is any corporation of which more than 20% of the capital stock is
beneficially or nominally owned or voted by non-U.S. citizens or their representatives or by a foreign government or
a representative thereof, or by any corporation organized under the laws of a foreign country. The Communications
Act also authorizes the U.S. Federal Communications Commission (the "FCC"), if the FCC determines that it would
be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by,
any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital
stock is beneficially or nominally owned or voted by foreign entities. The FCC has issued interpretations of existing
law under which these restrictions in modified form apply to other forms of business organizations, including
partnerships.
Other Broadcast Television Regulation in the United States
The FCC regulates television broadcast stations, which generally must apply to the FCC for renewal of
their licenses every eight years. Renewal will be granted to the extent that the FCC finds that (i) the station has
served the public interest; (ii) there have been no serious violations by the licensee under the Communications Act
described above or the FCC rules; and (iii) there have been no other violations by the licensee of the
Communications Act or the FCC rules which, taken together, indicate a pattern of abuse. The FCC also administers
other aspects of broadcast television regulation, including the following: restrictions on the ownership of multiple
media outlets in one market, or on a national basis; limits on the amount of commercial advertising during children's
programming; requirements that stations air a certain amount of informational or educational programming directed
at children; restrictions on "indecent" programming; and requirements affecting the availability and cost of political
advertising time. In addition, FCC rules governing network affiliation agreements mandate that a television
broadcast station licensee retain the right to reject or refuse network programming under certain circumstances, or
substitute programming that the licensee reasonably believes to be of greater local or national importance.
Violations of FCC rules and regulations can result in substantial monetary forfeitures, periodic reporting conditions,
short-term license renewal and, in egregious cases, denial of license renewal or revocation of license.
Other Regulatory Considerations in the United States
The foregoing does not purport to be a complete discussion of all provisions of the Communications Act
referenced or other acts of the U.S. Congress or of the rules, regulations and policies of the FCC. For further
information, reference should be made to the Communications Act itself, to other congressional acts, and rules,
regulations and public notices promulgated periodically by the FCC. There are additional regulations and policies of
the FCC and other federal agencies that govern political broadcasts, public affairs programming, broadcast
advertising and other matters affecting Azteca's U.S. business and operations.
Property
Azteca's properties include two television stations in Mexico City and 35 television stations in other urban
areas throughout Mexico, including Monterrey, Guadalajara and Veracruz, where it produces and broadcasts
television content. Azteca's national networks are broadcast from one of the two Mexico City television stations
through satellite transponders and then to Azteca's 346 transmission sites (each of which is comprised of a
transmission tower, antennas and transmitters) located throughout Mexico. These transmission sites in turn
broadcast the signals to viewers nationwide.
Television Stations
Azteca owns its two Mexico City television stations: the Ajusco station and the Azteca Novelas station,
which are comprised of offices and production facilities.
The Ajusco station includes Azteca's corporate offices, eight television studios that are mainly used for the
production of live content and the transmission facilities where national content is broadcast from.
The Azteca Novelas station includes a total of 12 television studios seven of which are new state-of the-art
television studios with multilevel sound stages for high definition television production, which were constructed in
2012.
40
The Ajusco and Azteca Novelas stations comprise an aggregate of approximately 72,595 square meters of
land and 96,119 square meters of constructed space.
Most of Azteca's other 35 television stations in other urban areas are leased for terms ranging from three to
five years.
Transmission Sites
Azteca owns and operates all of its 346 transmission sites (each of which is comprised of a transmission
tower, antennas and transmitters). Approximately 28% of the property on which these transmission sites are located
is owned by Azteca. Approximately 60% are used by Azteca pursuant to leases with terms ranging from five to ten
years. The remaining are used by Azteca pursuant to easements granted by owners of the land.
On each of Azteca's 346 transmission sites is one transmission tower. Of these towers, 275 have a total of
464 analog transmitters installed on them and 23 have a total of 45 digital transmitters installed on them. All of
these towers and transmitters are owned and operated by Azteca. In accordance with Mexican law, Azteca began the
transition from analog to digital in 2004 and from 2004-2012 has invested approximately Ps.286 million
($21.9 million) in the acquisition of digital transmitters and other related equipment. Azteca expects to complete the
transition to digital technology by 2015, and has budgeted $150 million for related capital expenditures.
In February 2000, Azteca entered into a transmission tower space lease agreement (the "ATC Towers
Lease") with a Mexican subsidiary of American Tower Company ("ATC"). Pursuant to the ATC Towers Lease,
Azteca has leased unused space in its transmission towers to ATC (which ATC then rents to third-parties, including,
on occasions, Azteca or its affiliates) for a 20-year term that expires in 2020. Unless the lease is terminated by the
parties, it will automatically be extended for an additional 50-year term. In consideration for the lease, ATC is
required to make annual payments of $1.5 million to Azteca. ATC also granted Azteca a $91.8 million unsecured
loan (see "Financial InformationManagement OverviewLiquidityATC Long-Term Credit Facility"), under
which Azteca must make yearly principal payments of $1.5 million, that are offset with the payments due by ATC to
Azteca under the ATC Towers Lease. The loan is due in 2020 and will automatically be extended for an additional
50-year term, to the extent that the ATC Towers Lease remains in effect. If Azteca terminates the lease, in whole or
in part after 2020, the termination triggers a mandatory prepayment (total or partial, as the case may be) under the
loan agreement.
Satellites
To broadcast content from its Mexico City television station to its transmission sites throughout Mexico,
Azteca uses satellite transponders which receive the signal from the Mexico City television station and reroute it to
the transmission sites.
Azteca has entered satellite capacity agreements with two satellite operators, Panamsat de México, S. de
R.L., de C.V. ("Panamsat") and Satelites Mexicanos, S.A. de C.V. ("SatMex").
Under the agreement with Panamsat, Azteca has access to signal line services through two satellite
transponders: a 15 MHz satellite transponder for a term that expires in April 2015 and a 36 MHz satellite
transponder for a term that expires in August 2024. In 2012, Azteca paid approximately $1.7 million for these
services.
Under the agreement with SatMex, Azteca has access to signal line services through a 7 MHz satellite
transponder. The agreement expires in January 2021. In 2012, Azteca paid approximately $0.9 million for this
service.
Upon expiration of these agreements, Azteca will either negotiate an extension or find another satellite
capacity services provider in its ordinary course of business.
Patents, Licenses, Brands and Other Contracts
Azteca owns a large number of brands. Among those that Azteca considers the most important are the
institutional brands such as Azteca, Azteca Novelas, Azteca Trece, Azteca Siete, Fundacion Azteca, Azteca Internet,
Proyecto 40, Grupo Salinas and Monarcas Morelia.
41
Likewise, Azteca owns diverse reservations of rights of exclusive use of television program titles and
fictional characters, as well as musical works and television programs. Additionally, all the programs and
telenovelas produced by Azteca have their own brands and music.
Employees
As of December 31, 2012, 5,193 persons provided services to Azteca. Of these, 1,826 were independent
contractors, of whom 1,649 worked in production. 2,005 of Azteca's personnel performed administrative duties, 286
were managers or executive managers, 381 worked in sales and 695 were union members. Approximately 41% of
new hires in 2012 were hired as independent contractors.
Approximately 13% of Azteca's employees are represented by a television union, with a smaller number
represented by the actors' guild or musicians' union. According to Mexican law, the terms of compensation for
contracts entered into by Azteca and its unionized employees are subject to annual renegotiation. All other contract
terms are renegotiated every two years.
Azteca has not experienced any labor strikes and it maintains good relationships with the unions
representing its employees.
Environmental Performance
Azteca's business operations and activities are not materially subject to environmental regulations.
Legal Proceedings
Proyecto 40
Azteca has engaged in a number of disputes with Mr. Javier Moreno Valle ("Moreno Valle"), Corporación
de Noticias e Información, S.A. de C.V. ("CNI") and Televisora del Valle de México ("TVM") , the company that
holds the Proyecto 40 concession, in connection with the operation of Proyecto 40 and various shareholders
meetings of TVM.
Azteca currently operates Proyecto 40 pursuant to an operating agreement dated December 10, 1998,
among Azteca, CNI and TVM.
In 2000, CNI suspended Azteca´s broadcasting rights on Proyecto 40. Azteca sued CNI, TVM and Moreno
Valle for breach of the operating agreement. In 2005, a final and non-appealable ruling was made in favor of
Azteca. Azteca currently operates Proyecto 40 pursuant to the operating agreement.
In connection with a credit agreement entered into in 1998 between Azteca as creditor and CNI as
borrower, Moreno Valle pledged over 51% of the shares of TVM capital stock to Azteca.
When TVM failed to hold an annual shareholders’ meeting for four consecutive years, Azteca sued for the
right, as creditor of CNI and potential future shareholder of TVM, to convene a TVM shareholders’ meeting. A
court ruled in favor of Azteca, and in one of the TVM shareholders’ meetings, shareholders authorized a capital
increase by means of which Azteca acquired a controlling interest in TVM.
In 2007, TVM, CNI and Moreno Valle sued Azteca and other individuals and entities in an ordinary
commercial proceeding (juicio ordinario mercantil) seeking the nullification of certain of TVM's shareholders’
meetings. To date, the case has not been set for trial because not all of the defendants have been served.
Although there can be no assurance that Azteca will prevail in its disputes with CNI, TVM and Moreno
Valle regarding Azteca’s controlling interest in TVM, Azteca's management believes that its position will ultimately
be upheld and therefore, Azteca has not set aside any related reserves.
IBOPE
In 2012, Azteca filed two lawsuits against IBOPE AGB Mexico, SA de CV ("IBOPE"). IBOPE and Azteca
had entered into an agreement pursuant to which IBOPE provided Azteca with ratings services of Azteca
programming.
42
The agreement required IBOPE to provide and maintain ratings information that was impartial, objective,
accurate, timely and representative. However in June 2012, IBOPE widely disseminated two emails containing the
identity of a significant number of participants in Azteca's ratings panels, which should have remained confidential.
Azteca filed an initial claim with Mexican authorities requesting the criminal investigation and prosecution
of IBOPE for the disclosure of this confidential information. Azteca also filed a civil suit against IBOPE seeking
damages arising from this disclosure and other breaches by IBOPE of its agreement with Azteca and an injunction
requiring IBOPE to continue to provide ratings services pursuant to the agreement.
IBOPE countersued, seeking to terminate the contract with Azteca and damages arising from Azteca’s
claims. The Sixty Second Civil Court is conducting evidentiary hearings on this case.
IFE Fines
The IFE, the regulatory agency overseeing government and electoral campaign advertising, imposed
several fines on Azteca for alleged breaches of the COFIPE, all of which Azteca has appealed. During certain
blackout periods, only political advertisements authorized by the IFE may be broadcast and television broadcasters
must air certain political advertising authorized by the IFE. The fees imposed by the IFE relate to Azteca's (i)
failure to broadcast on its over the air networks mandatory government and campaign advertising due to technical
issues, resulting in a fine of Ps.200 million ($15.4 million), (ii) alleged unauthorized campaign advertising through
the broadcasting of an advertisement for a political magazine that featured campaign advertising on its cover,
resulting in a fine of Ps.16.5 million ($1.3 million), (iii) alleged failure to broadcast on its cable networks mandatory
government and campaign advertising, resulting in a fine of Ps.22 million ($1.7 million) and (iv) other alleged
violations resulting in fines totaling Ps.1.7 million ($0.1 million). While Azteca cannot predict the outcome of its
appeals, it does not believe that the aggregate amount of fines on appeal is materially adverse to its results of
operations.
43
EXCHANGE RATES
Mexico has a free market for foreign exchange, and the Mexican government allows the peso to float
freely against the U.S. dollar. There can be no assurance that the Mexican government will maintain its current policies
with regard to the peso or that the peso will not depreciate or appreciate significantly in the future.
The following table sets forth, for the periods indicated, the period-end and average exchange rate
published by Banco de México expressed in pesos per U.S. dollar. The rates shown below are in nominal pesos
that have not been restated in constant currency units. No representation is made that the peso amounts referred to in
this Offering Circular could have been or could be converted into U.S. dollars at any particular rate or at all.
Exchange Rate (1)
Average (2)
Period End
Year Ended December 31
2010 ................................................................................
2011 ................................................................................
2012 ................................................................................
12.3571
13.9787
13.0101
12.6367
12.4273
13.1685
Six Months Ended
June 30, 2012..................................................................
June 30, 2013..................................................................
13.6530
13.0235
13.2674
12.5612
12 Months Ended
June 30, 2012..................................................................
June 30, 2013..................................................................
13.6530
13.0235
13.1016
12.8181
Monthly
March, 2013....................................................................
April, 2013......................................................................
May, 2013.......................................................................
June, 2013.......................................................................
July, 2013 .......................................................................
August, 2013...................................................................
12.3546
12.1550
12.6328
13.0235
12.7321
13.3104
12.5490
12.2156
12.2394
12.9502
12.7692
12.8835
_____________________
(1) The exchange rates are the exchange rates published by the Banco de México in the Official Gazette as the rate for
the payment of obligations denominated in non-Mexican currency payable in Mexico. The exchange rate is
determined by Banco de México on banking days, by an average of quotations of the exchange market of wholesale
operations to be settled on the second banking day of its determination. Banco de México announces the F/X
exchange rate after 12 noon Mexico City time on each banking day. Each listed exchange rate is published by
Banco de México in the Official Gazette of the Federation on the next banking day of its determination as a reference
to settle operations the second working day following the settlement date.
(2) The average rate means the average of the daily exchange rate during the relevant period.
44
FINANCIAL INFORMATION
Selected Financial and Other Information
The following tables present Azteca's selected consolidated financial and other information as of the dates
and for the periods indicated. The selected consolidated financial information as of and for the six months ended
June 30, 2013 and 2012 has been derived from Azteca's unaudited consolidated financial statements as of and for the
six months ended June 30, 2013 and 2012. The selected consolidated financial information as of and for the years
ended December 31, 2012 and 2011 has been derived from Azteca's audited consolidated financial statements as of
and for the years ended December 31, 2012 and 2011. See Azteca's consolidated financial statements beginning on
page F-1. The selected consolidated financial information on Azteca's consolidated income statement for the year
ended December 31, 2010 has been derived from Azteca's audited consolidated financial statements as of and for the
year ended December 31, 2011 and 2010, which have been prepared in accordance with MFRS, and is provided for
information purposes only. Azteca's consolidated financial statements as of and for the years ended December 31,
2012 and 2011 have been audited by its independent auditors, Salles, a member of Grant Thornton International.
Salles is a member of the CCPM.
Pursuant to the General Provisions Applicable to Securities Issuers and Other Participants in the Securities
Market (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a Otros Participantes del
Mercado de Valores), beginning with the year ending December 31, 2012, Mexican companies with securities listed
on the BMV were required to prepare and present their financial information in accordance with IFRS, as adopted
by the IASB. Accordingly, Azteca's consolidated financial statements as of and for the years ended December 31,
2012 and 2011 were its first annual financial statements prepared in accordance with IFRS. Azteca's transition date
to IFRS was January 1, 2011, and therefore, the year ended December 31, 2011 was the comparative period
established by IFRS 1, First Time Adoption of International Financial Reporting Standards. In accordance with
IFRS 1, Azteca has applied applicable mandatory exceptions and certain optional exemptions to the retroactive
application of IFRS to the financial statements as of and for the year ended December 31, 2011 and 2010 that had
been prepared in accordance with MFRS, as issued by the CINIF (see "Financial InformationManagement's
OverviewCritical Accounting Policies and EstimatesCritical Accounting PoliciesAdoption of IFRS" and Note
27 to Azteca's audited consolidated financial statements as of and for the years ended December 31, 2012 and 2011
beginning on page F-16).
Azteca's consolidated financial statements are stated in pesos. U.S. dollar amounts presented in this
Offering Circular have been translated from peso amounts solely for the convenience of the reader. Unless otherwise
indicated, the exchange rate used in converting pesos into U.S. dollars for amounts derived from the balance sheet
and cash flow statement as of June 30, 2013 and 2012 was determined by reference to the period end exchange rate
of Ps. 13.0235 and Ps. 13.6530 per U.S. dollar, respectively. Unless otherwise indicated, the exchange rate used in
converting pesos into U.S. dollars for amounts derived from the income statement for the six months ended June 30,
2013 and 2012 was determined by reference to the average of the daily exchange rate of Ps.12.5612 and Ps.13.2674
per U.S. dollar, respectively. Unless otherwise indicated, the exchange rate used in converting pesos into U.S.
dollars for amounts derived from the balance sheet and cash flow statement as of December 31, 2012 and 2011 was
determined by reference to the period end exchange rate of Ps.13.0101 and Ps.13.9787 per U.S. dollar, respectively.
Unless otherwise indicated, the exchange rate used in converting pesos into U.S. dollars for amounts derived from
the income statement for the years ended December 31, 2012 and 2011 was determined by reference to the average
of the daily exchange rate of Ps.13.1685 and Ps.12.4273 per U.S. dollar, respectively. The exchange rates used are
those published by the Banco de México in the Official Gazette as the rate for the payment of obligations
denominated in non-Mexican currency payable in Mexico. For additional information see "Exchange Rates." No
representation is being made that the peso or dollar amounts shown in this Offering Circular could have been or
could be converted into U.S. dollars or pesos at the rates shown in this Offering Circular or at any other rate.
For additional information regarding financial information presented in this Offering Circular, see
"Presentation of Certain Financial and Other Information."
The selected financial and other information included herein is qualified in its entirety and should be read
together with the other sections of this Offering Circular and the financial statements included herein and their
related notes.
45
The following tables present selected consolidated financial and other information of Azteca as of and for
the periods indicated:
Six months ended
Year ended
June 30
December 31
2013
2013
2012
2012
2012
2011
(IFRS
(IFRS
Unaudited)
Audited)
($)
(Ps.)
(Ps.)
($)
(Ps.)
(Ps.)
(in millions, except as otherwise indicated)
Income Statement:
Revenues ...................................................................................416.8
Costs of programming, production and broadcasting ............240.6
Selling and administrative expenses................................
60.0
Depreciation and amortization.................................................23.2
Other expenses, net (1) ..............................................................16.6
Operating income ................................................................ 76.3
Other expenses, net (1) .............................................................. Share of profit from equity accounted investments................(0.7)
Comprehensive gain or loss on financing...............................
(36.5)
Income before taxes on earnings .............................................39.1
Taxes on earnings ................................................................ (34.4)
Net income ................................................................................ 4.7
Balance Sheet:
Current Assets:
Cash and cash equivalents........................................................464.6
Trade and other receivables .....................................................432.5
Performance rights................................................................ 170.8
Other current assets (2) ..............................................................121.0
Total current assets ................................................................1,189.0
Non-current Assets:
Trade long-term ................................................................
37.7
Performance rights................................................................ 137.6
Property and equipment, net ....................................................261.9
Television concessions, net......................................................592.9
Deferred tax assets................................................................ 358.7
Other non-current assets (3) ......................................................137.6
Total non-current assets ...........................................................
1,526.4
2,715.4
Total assets...............................................................................
Short-term liabilities
Trade and other payables .........................................................144.2
Financial debt............................................................................51.2
Deferred revenue (4) ................................................................466.8
Other short-term liabilities (5) ...................................................45.7
Total short-term liabilities........................................................707.9
Long-term liabilities
Stock exchange certificates......................................................328.5
Loans from American Tower Corporation -ATC- .................119.8
Medium Term Note Program -MTN-................................ 294.5
Deferred revenue (4) ................................................................ 66.9
Deferred tax liabilities..............................................................265.9
Employee benefits ................................................................ 12.7
Total long-term liabilities.........................................................
1,088.3
Total liabilities................................................................ 1,796.2
Total stockholders' equity .....................................................919.2
Cash Flow:
Net cash from/(used) in:
Operating activities................................................................ 74.5
Investing activities (6) ...............................................................
(33.9)
Financing activities................................................................ (70.9)
2010
(MFRS
Audited)
(Ps.)
5,236
3,022
754
292
209
959
(9)
(459)
491
(432)
59
5,745
3,205
724
269
152
1,395
1
(500)
896
(425)
471
954.6
499.4
114.7
42.2
25.2
273.0
2.7
(54.3)
221.4
(47.0)
174.4
12,570
6,577
1,510
556
332
3,595
36
(715)
2,916
(619)
2,297
12,199
6,056
1,466
509
289
3,879
57
(1,206)
2,730
(548)
2,182
6,051
5,633
2,225
1,576
15,485
7,764
5,327
1,990
782
15,863
495.5
409.8
139.1
97.8
1,142.1
6,446
5,331
1,810
1,272
14,859
8,318
5,970
1,601
364
16,253
-
491
1,792
3,411
7,721
4,672
1,792
19,879
35,364
1,622
1,367
3,480
7,721
4,286
1,211
19,687
35,550
36.9
115.7
266.3
593.5
359.1
113.8
1,485.3
2,627.4
480
1,505
3,465
7,721
4,672
1,481
19,324
34,183
1,432
1,328
3,339
7,721
4,286
1,022
19,128
35,381
-
1,878
667
6,079
595
9,219
1,897
667
5,809
634
9,007
142.5
51.3
378.7
39.0
611.4
1,854
667
4,927
507
7,955
1,492
667
5,934
632
8,725
-
4,278
1,560
3,836
871
3,463
166
14,174
23,393
11,971
4,944
1,635
4,010
1,856
3,106
141
15,692
24,699
10,851
354.5
119.8
294.0
38.0
266.2
12.8
1,085.2
1,696.6
930.8
4,612
1,558
3,825
494
3,463
166
14,118
22,073
12,110
5,246
1,674
4,116
1,600
3,106
141
15,883
24,608
10,773
-
970
(441)
(924)
928
(495)
(987)
138.1
(80.6)
(137.9)
1,797
(1,049)
(1,794)
46
3,007
(586)
895
11,554
5,646
1,185
528
4,196
621
(768)
2,807
(489)
2,318
-
Twelve months ended
June 30(7)
2013
2013
2012
(IFRS Unaudited)
($)(8)
(Ps.)
(Ps.)
Year ended
December 31
2012
2012
2011
(IFRS Audited)
($)
(Ps.)
(Ps.)
Other Information:
EBITDA (9) ................................................................................322.0
Total debt (10) .............................................................................799.5
Net debt (11) ................................................................................334.9
Interest expense ................................................................
74.0
Total debt / EBITDA................................................................
Net debt / EBITDA ................................................................
EBITDA / interest expense.......................................................
-
4,128
10,341
4,290
949
2.5
1.0
4.3
4,815
11,256
3,492
1,013
2.3
0.7
4.8
340.4
819.5
324.1
74.0
-
4,483
10,662
4,216
974
2.4
0.9
4.6
4,677
11,703
3,385
931
2.5
0.7
5.0
Reconciliation of EBITDA:
Operating income ................................................................ 246.5
(+) Depreciation and amortization ........................................... 45.2
(+) Other expenses, net ............................................................. 30.3
EBITDA.....................................................................................322.0
3,160
579
389
4,128
3,951
529
335
4,815
273.0
42.2
25.2
340.4
3,595
556
332
4,483
3,879
509
289
4,677
____________________
(1) Under MFRS, the line item "other expenses, net" is not included in the calculation of operating income, whereas under IFRS
it is included.
(2) Amounts listed for "other current assets" are the sum of the following line items on Azteca's balance sheet: (i) current tax
assets, (ii) related parties, (iii) other financial assets, and (iv) inventories.
(3) Amounts listed for "other non-current assets" are the sum of the following line items on Azteca's balance sheet: (i) other
intangible assets, and (ii) investments accounted for using the equity method and other.
(4) Figures included herein correspond to advertising advances. See "Management's OverviewCritical Accounting Policies
and EstimatesCritical Accounting PoliciesRecognition of Revenue" and "Management's OverviewAdvertising
Advances."
(5) Amounts listed for "other short-term liabilities" are the sum of the following line items on Azteca's balance sheet: (i)
performance rights, (ii) related parties, and (iii) current tax liabilities.
(6) Includes net cash used for the acquisition of property, furniture and equipment as of June 30, 2013 and 2012, and December
31, 2012 and 2011, of Ps. 152 million ($11.7 million), Ps. 290 million, Ps.562 million ($43.2 million) and Ps. 518 million,
respectively.
(7) Figures as of and for the twelve months ended June 30, 2013 and 2012 have been derived from Azteca's internal unaudited
financial data.
(8) The exchange rate used in converting pesos into U.S. dollars for amounts derived from the income statement for the twelve
months ended June 30, 2013 and the balance sheet as of June 30, 2013 included herein was determined by reference to the
average of the daily exchange rate of Ps.12.8181 per U.S. dollar and Ps.13.0235 per U.S. dollar, respectively, except for
"total debt" and "net debt," which amounts includes the face value of the Series I Notes ($300 million). The exchange rates
used are those published by the Banco de México in the Official Gazette as the rate for the payment of obligations
denominated in non-Mexican currency payable in Mexico.
(9) EBITDA is provided for information purposes only and should not be considered in isolation, or as a substitute for net
income, as a measure of operating performance, as a substitute for cash flows from operations or as a measure of liquidity.
Azteca calculates EBITDA by adding depreciation and amortization to operating income.
(10) Amounts listed for "total debt" in U.S. dollars are the sum of (a) the following line items on Azteca's balance sheet: (i)
financial debt, (ii) stock exchange certificates and (iii) loans from American Tower Corporation -ATC-, and (b) the face
value in U.S. dollars of the Series I Notes ($300 million). Amounts listed for "total debt" in pesos are the sum of the
following line items on Azteca's balance sheet: (i) financial debt, (ii) stock exchange certificates, (iii) loans from American
Tower Corporation ("ATC"), and (iv) Medium Term Note Program ("MTN").
(11) Amounts listed for "net debt" are equal to the result of netting total debt (see footnote 10 above) with the cash and cash
equivalents on Azteca's balance sheet.
47
Management's Overview
Critical Accounting Policies and Estimates
Azteca's critical accounting policies and estimates are described in detail in the notes to its financial
statements (see Note 6 to the consolidated financial statements as of and for the years ended December 31, 2012 and
2011).
Critical Accounting Policies
Azteca believes that the following are some of the most critical accounting policies applied in the
preparation of its consolidated financial statements.
Adoption of IFRS
Beginning January 1, 2012, Azteca adopted IFRS for the preparation of its financial statements, to comply
with the regulations established by the CNBV. Accordingly, Azteca's consolidated financial statements as of and for
the years ended December 31, 2012 and 2011 were its first annual financial statements prepared in accordance with
IFRS. The use of the IFRS has an impact on Azteca's critical accounting policies and estimates.
Azteca's transition date to IFRS was January 1, 2011, and therefore, the year ended December 31, 2011 was
the comparative period established by IFRS 1, First Time Adoption of International Financial Reporting Standards.
In accordance with IFRS 1, Azteca has applied applicable mandatory exceptions and certain optional exemptions to
the retroactive application of IFRS to the financial statements prepared in accordance with MFRS (see "Presentation
of Certain Financial and Other Information" and Note 27 to the audited consolidated financial statements as of and
for the years ended December 31, 2012 and 2011). As a result, figures as of and for the year ended December 31,
2011 included in Azteca's consolidated financial statements as of and for the years ended December 31, 2012 and
2011, have been modified from those included in the consolidated financial statements as of and for the year ended
December 31, 2011 and 2010, to reflect the corresponding results.
Recognition of Revenue
Azteca's revenue is derived primarily from the sale of advertising time at the national and local levels
minus sales commissions.
Most advertising agreements are entered into during the last quarter of each year for commercials to be
broadcasted in the next year. Upon signing (or tacit acceptance by the clients, as the case may be) of the advertising
agreements, Azteca records the cash or other assets, as the case may be, received as advertising advances (see "The
BusinessDescription of the BusinessTelevision Advertising Sales" and "Results of OperationsAdvertising
Advances") as an asset in its balance sheet, and its obligation to broadcast the advertisement as deferred revenue in
its balance sheet. Advertising advances are non-monetary liabilities, as they represent Azteca's obligation to provide
services in the future.
The advertising advances registered in the balance sheet as deferred revenue at the end of each year, are
recognized as revenue in the income statement for the following year, only when, and to the extent that, the
commercials are broadcasted.
Azteca maintains reserves for doubtful accounts that are the result of clients' inability to make the required
payments. Each client is analyzed individually. If the financial condition of Azteca's clients worsens, thus affecting
their ability to make payments, additional estimates may be required.
For the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011, approximately
66%, 63%, and 38%, respectively, of Azteca's net income, was attributable to advertising advances made before the
relevant year.
Broadcast Rights
The cost of broadcast rights is amortized in different ways, depending on the license period, the use of the
programs, and management's estimate of revenues that will be re-obtained by each on-air broadcast of the programs.
48
The cost of acquired broadcast rights is amortized as the program and events are aired, and in advance when the
rights pertain to multiple broadcasts. Until August 2011, the costs of internally produced contents, including
programming of reality shows, were amortized in their entirety when the programs first aired, except in the case of
the costs of soap operas, which were amortized as follows: (a) 70% when the soap opera was aired for the first time,
(b) 20% when it was aired in the United States or within a maximum six-month period, and (c) 10% when it was
sold to other countries. Since September 2011, broadcast rights for internally produced contents are amortized in
their entirety as they are broadcasted, except in the case of soap operas, which are amortized 90% when they air in
Mexico and the remaining 10% when they are sold in other countries, and specials, which are amortized 80% when
they air in Mexico and 20% when they are sold in the United States. See "The BusinessDescription of the
Business Principal Business, Distribution Channels."
Intangible Assets
Initial recognition. The costs attributed directly to the development phase of a project are recorded as
intangible assets, to the extent that they meet the following requirements for recognition:

the costs can be measured reliably;

the project is technically and commercially viable;

there are sufficient resources to complete the project;

the intangible asset can be used or sold; and

the intangible asset is likely to produce future economic benefits.
Development costs that do not meet these criteria for capitalization are recorded as costs of programming,
production and broadcasting as they are incurred.
Costs directly attributable to the development phase include employee costs incurred during software
development, in addition to the appropriate percentage of overhead expenses and the cost of loans.
Subsequent calculations. Intangible assets with a definite life are amortized over the course of the period in
which future economic benefits are expected to be obtained, using the straight-line method. The residual value and
the estimated useful life are reviewed annually. Intangible assets with an undefined shelf life are not amortized,
given that it is not possible to specify when future economic benefits will end. These assets are subject to evaluation
for potential impairment on an annual basis or earlier if circumstances warrant it.
Deferred Taxes
As part of the process of preparing the consolidated financial statements, both the assessed and deferred
income tax, and the single-rate corporate tax, anticipated or deferred, need to be determined. This process is
conducted by applying the relevant tax rate to all the time differences between the accounting and tax balances of
assets and liabilities expected to be materialized in the future. These differences produce deferred tax assets and
liabilities that are included in the consolidated balance sheet. Azteca must then determine the possibility that its
deferred tax assets may be recovered from future taxable income and, to the extent recovery is not deemed possible,
establish a valuation reserve. As a valuation reserve is established or increased during a period, an expenditure
within the reserve for deferred tax income must be included in the income statement.
Contingent Liabilities
Contingent liabilities may not evolve as expected. Therefore, they are subject to constant assessment in
order to determine the likelihood of an actual future expense. If it is likely that resources will be spent on an item
treated as a contingent liability, the corresponding provision must be recorded in the financial statements for the
period in which the change in likelihood of occurrence has occurred.
Azteca is a party in various legal proceedings and lawsuits during the normal course of its operations.
Based on the legal advice that Azteca has received from its legal counsel, as well as from additional information,
49
Azteca has not identified any provision in its financial statements as a result of the aforementioned legal
proceedings.
Effects of the Devaluation of the Peso and Inflation
General Information. Inflation for the six months ended June 30, 2013 and the years ended December 31,
2012 and 2011 was 4.1%, 3.6% and 3.8%, respectively.
In 2011, the peso depreciated by 13.1% with respect to the U.S. dollar. In 2012, the peso appreciated by
6.9% with respect to the U.S. dollar. As of June 30, 2013, the peso depreciated by 0.1% with respect to the U.S.
dollar.
Operating Costs in U.S. Dollars. Azteca has significant operating costs in U.S. dollars, attributable largely
to the cost of purchased programming and the rental of satellite transponder capabilities, which for the six months
ended June 30, 2013 and the years ended December 31, 2012 and 2011, accounted for approximately 18%, 21%, and
19%, respectively, of Azteca's total costs and expenses.
Comprehensive gain or loss on financing. Azteca registers a foreign exchange gain or loss on its monetary
assets and liabilities denominated in U.S. dollars when the peso appreciates or depreciates in relation to the U.S.
dollar. As of June 30, 2013 and December 31, 2012 and 2011, Azteca had approximately $430 million, $430 million
and $435 million, respectively, of monetary liabilities denominated in U.S. dollars, which accounted for
approximately 52%, 50% and 49%, respectively, of its total debt. See note 18 to the consolidated financial
statements as of and for the years ended December 31, 2012 and 2011.
Azteca's interest income is positively affected by inflation, as Azteca receives higher returns on its
temporary investments, which are primarily short-term fixed deposits in pesos at Mexican banks.
Other Sales
Advertising barter arrangements. Advertising barter arrangements (see "The BusinessDescription of the
BusinessTelevision Advertising Sales") are accounted for in the same way as other advertising advances, and the
amounts owed to Azteca are determined based on the fair market value of the goods, services, or other assets
received by Azteca. For the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011,
revenue from advertising barter arrangements represented Ps.84 million, Ps.314 million, and Ps.397 million,
respectively, which represented approximately 2% of Azteca's net sales for the same periods.
Infomercials, Shared-Risk Advertisements and Integrated Advertising. Azteca sells part of the unsold
advertising time to infomercial producers and shared-risk advertisers (see "The BusinessDescription of the
BusinessTelevision Advertising Sales"). In the case of infomercials, Azteca charges a fee for the advertisement air
time but does not participate in the proceeds of the sale of the products shown during the infomercial; whereas in the
case of shared-risk advertising, Azteca charges no (or a minimum) advertising fee, but instead receives a percentage
of the gross sales of the product or products offered occurred within a specific period after the advertisement is
aired. Azteca also receives revenues from "integrated advertising," which consists in the exhibition of products
during the transmission of internally produced contents.
Infomercials, shared-risk advertisements and integrated advertising accounted, on an aggregate basis, for
approximately 16%, 21% and 19% of Azteca's net income for the six months ended June 30, 2013 and the years
ended December 31, 2012 and 2011, respectively.
Seasonality of Sales
Azteca's television broadcasting operations are seasonal. Advertising revenues, which are accrued when the
advertising airs, are usually higher in the fourth quarter due to the high level of advertising that is broadcasted as a
result of the Christmas season.
Regularity of Important Broadcast Events
Azteca's net income fluctuates as a result of the frequency with which Azteca broadcasts important events.
Historically, the broadcasting of important events by Azteca has increased advertising sales during the period in
50
which these were on air. This reflects the larger audiences during the hours that these important events are broadcast
and the fact that advertisers pay a premium related to these important broadcast events.
Critical Accounting Estimates
The preparation of its consolidated financial statements requires Azteca to make critical estimates that
affect the amount of assets, liabilities, income, and expenditures reported, as well as disclosure related to co
contingent
assets and liabilities. Azteca considers an accounting estimate critical if:

it requires to make assumptions about the information, due to the fact that the relevant information
was not available on time or because it included matters that were highly
hi ghly uncertain at the time that
it was made; and

there are changes in the estimates or there are different estimates that could have been selected and
that would have had a material impact on the financial condition or results of operations.
Azteca makes estimates
stimates in order to calculate, for example, internally generated costs of software and
development, deferred taxes on earnings, impairment, useful lives of depreciable assets, broadcast rights, business
combinations, allowances for doubtful accounts, defined
defined benefit obligations, fair value of financial instruments, and
fair value of derivative financial instruments. Azteca continually evaluates its estimates based on historical
experience and other factors that are believed to be reasonable under the circumstances.
circu mstances. Actual results may differ,
perhaps significantly, from these estimates under different assumptions or conditions.
Key Factors Affecting Azteca'ss Results of Operations
Revenue Generation
Azteca's revenue is mainly generated by its sales of advertising
advert ising air time and its exports of original
programming.
The following chart depicts Azteca's revenue generation breakdown for the six months ended June 30,
2013:
Television
Advertising
Sales
92%
Television
Content Sales
3%
Other Sources
5%
Advertising sales accounted for 92%, 93% and 95% of Azteca'ss consolidated revenues for the six months
ended June 30,, 2013 and the years ended December 31, 2012 and 2011, respectively.
Television content sales accounted for 3%, 5% and 2% of Azteca'ss consolidated revenues for the six
months ended June 30, 2013 and the
he years ended December 31, 2012 and 2011, respectively.
51
Other sources of revenue for Azteca accounted, on an aggregate basis, for 5%, 2% and 3% of Azteca's
consolidated revenues for the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011,
respectively. See "The BusinessDescription of the BusinessOther Operations"
Key Factors Affecting Azteca's Revenue Generation
Key factors affecting Azteca's revenue generation include content quality and programming decisions and
strategies. High-quality contents combined with effective programming strategies generally translate into higher
ratings and therefore, increased revenue generation. Conversely, if Azteca's television contents cease to be widely
accepted by audiences or are not continuously replenished with popular content, Azteca's revenues could be
adversely affected.
In addition, Azteca's business has experienced and is expected to continue to experience seasonality due to,
among other things, seasonal advertising patterns and seasonal influences on people's viewing, reading, attendance
and listening habits. Azteca typically recognizes a disproportionately large percentage of its revenue from
advertising sales in the fourth quarter because of the high level of advertising during the holiday season.
Azteca's revenue generation is also affected by infrequently recurring major broadcast events, such as the
FIFA World Cup, the UEFA Champions League, the Mexican national soccer team games and boxing world
championships, major political events such as elections and other extraordinary events. These events tend to have a
positive effect on Azteca's revenue generation during the period in which they occur, to the extent that Azteca is able
to acquire the relevant broadcast rights. On the other hand, the lack of special events in a given period or the
inability to acquire the relevant broadcast rights may translate into decreased revenue generation. In order to
increase revenue generation during periods where there are no major special events or when Azteca is not able to
avail itself of the relevant broadcast rights, Azteca manages programming strategies by introducing alternative new
high-quality content, including telenovelas, series, blockbuster movies and reality shows.
Azteca's revenues are affected by competition for advertising revenues with other television broadcasters
and other advertising media. Azteca's principal competitor in Mexico is Televisa. Azteca's revenues are also
affected by changes in clients' advertising expenditures related to economic prospects of advertisers or industries,
increased competition for the leisure time of audiences and audience fragmentation, the growing use of new
technologies, or the economy in general. Any of these or other factors may cause advertisers to alter their spending
priorities. In addition, advertisers' willingness to purchase advertising from Azteca may be adversely affected by
lower audience ratings. Advertising sales and rates also are dependent on audience measurement and could be
affected by changes in audience measurement methodologies.
Cost of Operations
For the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011, cost of
programming, production and broadcasting accounted for 80%, 81% and 81% of Azteca's consolidated total
operating costs and expenses.
Azteca's most significant variable operating costs relate to the production and acquisition of content.
52
The following chart depicts Azteca's cost of programming, production and broadcasting for the six months
ended June 30, 2013:
Production
Costs
78%
Broadcasting
Costs
1%
Content
Purchases
21%
Costs related to content production accounted for 78%,
%, 74% and 77% of Azteca's consolidated total costs
of programming, production and broadcasting for the six months ended June 30,, 2013 and the years ended
December 31, 2012 and 2011, respectively.
Costs related to acquisition content accounted for 21%, 25% and 22% of Azteca's
zteca's consolidated total cost of
programming, production and broadcasting for the six months ended June 30,, 2013 and the years ended December
31, 2012 and 2011, respectively.
Costs related to broadcasting accounted for 1% of Azteca's
zteca's consolidated total cost of programming,
production and broadcasting in each of the six months ended June 30,, 2013 and the years ended December 31, 2012
and 2011.
Key Factors Affecting Azteca's
Azteca Costs of Operations
The cost of producing original programming varies considerably depending on the type of program, and is
generally more expensive than acquiring broadcast rights to externally produced programming. In addition,
producing telenovelas is more expensive than other types of programming. Increased
ncreased competition for talent
translates into increased contracting costs.
costs Azteca manages the impact of these production costs on its operating
margin mainly by increasing sales efforts to ensure
nsure sufficient advertising revenue for costly productions and
reducing its production costs on other productions.
With respect to content purchased from other producers
producers, even if Azteca is not outbid by its competitors for
the rights to new, popular programming
amming or in connection with the renewal of popular programming currently
licensed by Azteca, intense competition
ompetition for popular programming licensed from third parties puts pressure on
license prices which increases costs.
53
Results of Operations
The following table sets forth, for the periods indicated, results of operations data for Azteca as a
percentage of Azteca's revenues.
Six months ended
June 30
2013
2012
(IFRS Unaudited)
Revenues ................................................................................................
100%
Costs of programming, production and broadcasting...........................
58%
Selling and administrative expenses......................................................
14%
Total costs and expenses ................................................................ 76%
Depreciation and amortization ...............................................................
6%
Operating income....................................................................................
18%
Year ended
December 31
2012
2011
(IFRS Audited)
100%
56%
13%
71%
5%
24%
100%
52%
12%
60%
4%
29%
100%
50%
12%
60%
4%
32%
Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012
Revenues
Revenues for the six months ended June 30, 2013 decreased by 9% or Ps.509 million ($16.2 million), to
Ps.5,236 million ($416.8 million) from Ps.5,745 million ($433.0 million) for the same period in 2012. The decrease
was mainly due to the fact that 2012 was an election year in Mexico (where Enrique Peña Nieto was elected
President for a six year term), and governmental advertising for Mexican presidential elections resulted in higher
revenues for the six months ended June 30, 2012. In line with historical tendencies in Mexico, Azteca believes that
revenues derived from political advertising will increase during the rest of 2013 and subsequent periods, as the
government approves official advertising expenses and the private sector gains confidence in future political
stability.
Costs of programming, production and broadcasting
Costs of programming, production and broadcasting for the six months ended June 30, 2013 decreased by
6% or Ps.183 million ($1.0 million), to Ps.3,022 million ($240.6 million) from Ps.3,205 million ($241.6 million) for
the same period in 2012. This reduction in costs was achieved by the use of less expensive programs and contents,
as a result of an effective cost efficiency strategy implemented by Azteca to face a period with an expected decrease
in revenues.
Selling and administrative expenses
Selling and administrative expenses for the six months ended June 30, 2013 increased by 4% or Ps.30
million ($5.4 million), to Ps.754 million ($60.0 million) from Ps.724 million ($54.6 million) for the same period in
2012. This increase was mainly due to an increase in payroll after March 31, 2012, required to cover special events
such as presidential elections in Mexico, the change of Pope and the Olympic Games, which continued through the
beginning of 2013.
Depreciation and amortization
Depreciation and amortization for the six months ended June 30, 2013 increased by 9% or Ps.23 million
($2.9 million), to Ps.292 million ($23.2 million) from Ps.269 million ($20.3 million) for the same period in 2012,
due largely to acquisitions of equipment necessary to migrate from analog to high-definition technology during 2012
and the construction of 15 television production studies that were capitalized in May 2012.
Other expenses, net
Other expenses, net for the six months ended June 30, 2013 increased by 38% or Ps.57 million ($5.1
million), to Ps.209 million ($16.6 million) from Ps.152 million ($11.5 million) for the same period in 2012, due
54
primarily to the sale of the franchise of the first division soccer team, Toros Neza, at a sale price lower than the
acquisition price.
Operating income
Azteca's operating income for the six months ended June 30, 2013 decreased by 31% or Ps.436 million
($28.8 million), to Ps.959 million ($76.3 million) from Ps.1,395 million ($105.1 million) for the same period in
2012.
Comprehensive gain or loss on financing
Comprehensive financing loss for the six months ended June 30, 2013 decreased by 8% or Ps.41 million
($1.2 million), to a Ps.459 million ($36.5 million) loss from a Ps.500 million ($37.7 million) loss for the same
period in 2012. This change was mainly due to a Ps.24 million ($0.1 million) decrease in interest paid and a Ps.62
million ($4.4 million) decrease in other financial expenses which was offset by a Ps.33 million ($2.1 million)
decrease in interest earned due to a period-to-period decrease in cash and cash equivalents, a Ps.12 million ($1.0
million) increase in net foreign exchange losses derived from a net liability position in U.S. dollars and a
depreciation of the peso against the U.S. dollar at the end of June 2013 (see " Critical Accounting Policies and
EstimatesCritical Accounting PoliciesEffects of the Devaluation of the Peso and Inflation").
Income before taxes on earnings
Income before taxes on earnings for the six months ended June 30, 2013 decreased by 45% or Ps.405
million ($28.4 million), to Ps.491 million ($39.1 million) from Ps.896 million ($67.5 million) for the same period in
2012.
Taxes on earnings
Taxes on earnings for the six months ended June 30, 2013, increased by 2% or Ps.7 million ($2.4 million),
to Ps.432 million ($34.4 million) from Ps.425 million ($32.0 million) for the same period in 2012. See " Critical
Accounting Policies and EstimatedCritical Accounting PoliciesDeferred Taxes."
Net income
Azteca's net income for the six months ended June 30, 2013 decreased by 87% or Ps.412 million ($30.8
million), to Ps.59 million ($4.7 million) from Ps.471 million ($35.5 million) for the same period in 2012.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues
Revenues for the year ended December 31, 2012 increased by 3.0% or Ps.371 million ($27.1 million), to
Ps.12,570 million ($954.6 million) from Ps.12,199 million ($981.6 million) for 2011. The increase was due mainly
to the fact that 2012 was an election year in Mexico (where Enrique Peña Nieto was elected President for a six year
term), and governmental advertising for Mexican presidential elections resulted in higher than usual revenues for the
year ended December 31, 2012. To a lesser extent, major sport events such as the Olympic Games in London, a
number of soccer tournaments and new entertainment content ("La Isla" and "La Teniente"), also contributed to this
increase in revenues in 2012.
Costs of programming, production and broadcasting
Costs of programming, production and broadcasting for the year ended December 31, 2012 increased by
8.6% or Ps.521 million ($12.1 million), to Ps.6,577 million ($499.4 million) from Ps.6,056 million ($487.3 million)
for 2011. The increase was mainly due to the incurrence of significant costs in 2012 in connection with broadcast
rights for the abovementioned sports events, as well as production costs for the coverage of those events and the
presidential elections in Mexico.
55
Selling and administrative expenses
Selling and administrative expenses for the year ended December 31, 2012 increased by 2.9% or Ps.44
million ($3.3 million), to Ps.1,510 million ($114.7 million) from Ps.1,466 million ($118.0 million) for the year
ended December 31, 2011. This increase was mainly due to an increase in payroll during 2012 required to cover a
number of events including, among others, presidential elections in Mexico and the Olympic Games in London. In
addition, the coverage of many of the aforementioned events increased related expenses, such as travel expenses.
Administrative costs incurred for the adoption of IFRS also contributed to this increase in selling and administrative
expenses.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2012 increased by 9.2% or Ps.47 million
($1.3 million), to Ps.556 million ($42.2 million) from Ps.509 million ($41.0 million) for 2011, due largely to the
acquisition of equipment necessary to migrate from analog to high-definition technology during 2012 and to the
construction of 15 television production studies that were capitalized in May 2012.
Other expenses, net
Other expenses, net for the year ended December 31, 2012 increased by 14.8% or Ps.43 million
($2 million), to Ps.332 million ($25.2 million) from Ps.289 million ($23.3 million) for 2011, primarily due to
impairment losses recognized on transfer rights (cartas-pase) of players of the Monarcas Morelia squad as a result
of differences between the nominal value of the transfer right and the actual market price of the players.
Operating income
Azteca's operating income for the year ended December 31, 2012 decreased by 7.3% or Ps.284 million
($39.1 million), to Ps.3,595 million ($273.5 million) from Ps.3,879 million ($312.1 million) for 2011.
Comprehensive gain or loss on financing
Comprehensive loss on financing for the year ended December 31, 2012 decreased by 41% or Ps.491
million ($42.7 million), to a Ps.715 million ($54.3 million) loss from a Ps.1,206 million ($97.0 million) loss for
2011. This change was primarily due to a foreign exchange gain of Ps.132 million ($10.0 million) in 2012,
compared to a foreign exchange loss of Ps.328 million ($26.4 million) in 2011, derived from a net liability position
in U.S. dollars and an appreciation of the peso against the dollar at the end of 2012 (see "Critical Accounting
Policies and EstimatesCritical Accounting Policies Effects of the Devaluation of the Peso and Inflation"). The
change was also attributable, to a lesser extent, to a positive period-to-period net interest result due to increased cash
and cash equivalents and other financial assets through most part of 2012 compared to 2011.
Income before taxes on earnings
Income before taxes on earnings for the year ended December 31, 2012 increased by 6.8% or Ps.186
million ($1.7 million), to Ps.2,916 million ($221.4 million) from Ps.2,730 million ($219.7 million) for 2011.
Taxes on earnings
Taxes on earnings for the year ended December 31, 2012 increased by 13% or Ps.71 million ($2.9 million),
to Ps.619 million ($47.0 million) from Ps.548 million ($44.1 million) for the year ended December 31, 2011.
Net income
Azteca's net income for the year ended December 31, 2012 increased by 5.3% or Ps.115 million ($1.2
million), to Ps.2,297 million ($174.4 million) from Ps.2,182 million ($175.6 million) for 2011.
56
Liquidity and Capital Resources
Factors that may influence Azteca's liquidity and capital resources as discussed below include:

Azteca's ability to generate sufficient free cash flow;

the ability of Azteca's subsidiaries to make distributions;

factors that affect the results of operations of Azteca, including general economic conditions,
demand for commercial advertising, the competitive environment, the relative popularity of
Azteca's programs, demographic changes in Azteca's market areas and regulation; and

factors that affect Azteca's access to bank financing and capital markets, including interest rate
fluctuations, availability of credit and operational risks of Azteca.
Liquidity
Azteca's principal sources of liquidity include cash and marketable securities on hand, advance sales of
advertising time (see "Advertising Advances") and uncommitted sources of short-term financing. Since 2011,
Azteca has covered its short-term and medium-term financing requirements through the MTN Programme to which
this Offering Circular relates (see "MTN Programme") and the Certificates Programme (see " Certificates
Programme"), and its long-term financing requirements through the ATC Long-Term Credit Facility (see " ATC
Long-Term Credit Facility").
The following chart sets forth Azteca's generation and application of cash for the periods indicated:
Six months ended
June 30
2013
($)
Net cash provided by (used in):
Operating activities ................................
74.5
Investing activities..............................................
(33.9)
Financing activities ................................ (70.9)
Cash and cash equivalents at period end...............
464.6
2013
2012
(IFRS Unaudited)
(Ps.)
($)
970
(441)
(924)
6,051
68.0
(36.3)
(72.3)
568.7
Year ended
December 31
2012
2012
(Ps.)
($)
(in millions)
928
138.1
(495)
(80.6)
(987) (137.9)
7,764
495.5
2012
2011
(IFRS Audited)
(Ps.)
($)
1,797
(1,049)
(1,794)
6,446
215.1
(41.9)
64.0
595
2011
(Ps.)
3,007
(586)
895
8,318
Net cash provided by operating activities for the six months ended June 30, 2013 increased by 4.6% or
Ps.42 million ($6.5 million), to Ps.970 million ($74.5 million) from Ps.928 million ($68.0 million) for the same
period in 2012. This increase was mainly due to the combination of an increase in advertising advances (most of
which, although usually received during the last quarter of each year, were received during the first half of 2013 as a
result of the general decrease in commercial activity that usually follows presidential elections).
Net cash used in investing activities for the six months ended June 30, 2013 decreased by 10.9% or Ps.54
million ($2.4 million), to Ps.441 million ($33.9 million) from Ps.495 million ($36.3 million) for the same period in
2012. This decrease was mainly due to expenditures made during 2012 for the construction of 15 television
production studios during May 2012 and, to a lesser extent, to less acquisitions of equipment necessary to migrate
from analog to high-definition technology in 2013.
Net cash used in financing activities for the six months ended June 30, 2013 decreased by 6.4% or Ps.63
million ($1.4 million), to Ps.924 million ($70.9 million) from Ps.987 million ($72.3 million) for the same period in
2012. This decrease was mainly due to a decrease in interest payments for the six months ended June 30, 2013, as a
result of principal amortization payments made under the stock exchange certificates during 2012 (see " Stock
Exchange Certificates Programme").
Net cash provided by operating activities for the year ended December 31, 2012 decreased by 40% or
Ps.1,210 million ($77.0 million), to Ps.1,797 million ($138.1 million) from Ps.3,007 million ($215.1 million) for
2011. This decrease was mainly due to the combination of a decrease in advertising advances (which are usually
received during the last quarter of the year) as a result of the general decrease in commercial activity that usually
57
follows presidential elections, and an increase in total costs and expenses related to, among other, broadcasting
rights, production costs and increases in payroll, incurred during 2012 to cover special events such as the
presidential elections and the Olympic Games.
Net cash used in investing activities for the year ended December 31, 2012 increased by 79% or Ps.463
million ($38.7 million), to Ps.1,049 million ($80.6 million) from Ps.586 million ($41.9 million) for 2011. This
increase was mainly due to the acquisition of equipment necessary to migrate from analog to high-definition
technology, the construction of 15 television production studios during 2012 and the development of the Fiber Optic
Project in Colombia (see "The BusinessDescription of the BusinessOther OperationsColombia").
Net cash from financing activities for the year ended December 31, 2012 decreased to a Ps.1,794 million
($137.9 million) net cash use from a Ps.895 million ($64.0 million) generation for 2011. This change was mainly
due to a decrease in proceeds from borrowings as no additional indebtedness was incurred during 2012 whereas in
2011 Azteca borrowed $300 million in Series I Notes (see " MTN Programme"), and repaid $147.8 million of
existing indebtedness with the proceeds of such borrowing.
For more detail, see "Consolidated Statements of Cash Flows" set forth in Azteca's consolidated financial
statements.
Advertising Advances
Under Azteca's Azteca Plan, advertisers generally are required to pay their advertising commitment in full
within four months of the date they sign an advertising contract. Azteca's Mexican Plan, on the other hand, generally
allows advertisers to pay for advertising by making a cash deposit ranging from 10% to 20% of their advertising
commitment, with the balance payable in instalments over the term of the advertising contract, typically one year.
Advertising rates are generally lower under the Azteca Plan than under the Mexican Plan.
Since pre-sales of advertising time are generally made in the last quarter of the year, Azteca's cash and
marketable securities are normally at their highest level in December. Generally, as the proceeds generated from
pre-sales of advertising time are depleted (together with other sources of cash flow), Azteca relies upon sources of
short-term financing, which are subsequently repaid, typically in the fourth quarter of a calendar year with the
proceeds from the pre-sales of advertising time for the following year. As of December 31, 2012, Azteca had
generated Ps.4,927 million ($378.7 million) in pre-sales of advertising time to be aired in 2013, of which 50% were
made under the Azteca Plan, and the remainder under the Mexican Plan.
Indebtedness
The following chart sets forth Azteca's indebtedness as of June 30, 2013:
Description
Stock Exchange Certificates
Series I Notes
ATC Long-Term Credit Facility
Total Indebtedness
___________________
Azteca Indebtedness
as of June 30, 2013
($)(1)
(Ps.)
(in millions)
379.7
4,945
300.0
3,836(3)
119.8
1,560
799.5
10,341
Rate
Maturity
TIIE(2) + 145 bps
7.5%
13.1 US%
Nov-16-2020
May-25-2018
Feb-11-2069
(1) The exchange rate used in converting pesos into U.S. dollars for amounts derived from the balance sheet as of June 30,
2013 was determined by reference to the exchange rate for the end of such period of Ps.13.0235 per U.S. dollar, except for the
Series I Notes, which are presented at face value ($300.0 million), and Total Indebtedness, which includes the face value of the
Series I Notes ($300.0 million).
(2) TIIE is the 28-day Mexican interbank rate, or Tasa de Interés Interbancario.
(3) The aggregate principal amount of the Series I Notes is $300.0 million. In accordance with IFRS, Azteca's balance sheet
includes Ps.3,836 million ($294.5 million) for the Series I Notes, which is the principal amount, net of unamortized financing
costs of $5.5 million.
58
Azteca's total debt as of June 30, 2013 matures on the dates set forth below:
Date Due
2013
2014
2015
2016
2017
2018
2019
2020
2069
Total
Total Azteca Indebtedness
as of June 30, 2013
($)(1)
(in millions)
25.0
50.1
50.1
50.1
50.1
356.2
51.2
46.9
119.8
799.5
(Ps.)
326
652
652
652
652
4,569
667
611
1,560
10,341
(1) The exchange rate used in converting pesos into U.S. dollars for amounts derived from the
balance sheet as of June 30, 2013 was determined by reference to the exchange rate for the end of
such period of Ps. 13.0235 per U.S. Dollar, except for Total Azteca Indebtedness due 2018,
which amount reflects the face value of the Series I Notes ($300.0 million).
MTN Programme
On June 1, 2005, Azteca established the Programme. The initial amount of the Programme was $200
million and was increased to $500 million in May 2011. The current amount of the Programme is $1 billion.
According to the terms of the Programme, Azteca may issue additional Notes from time to time, provided
that the aggregate principal amount of Notes outstanding at any time under the Programme will not exceed $1
billion (or its equivalent in other currencies calculated as described in the Programme Agreement), with due dates
varying from 365 days to 10 years.
As of June 30, 2013, Azteca had issued an aggregate principal amount of $300 million 7.5% senior
unsecured Notes due 2018 (the "Series I Notes") under the Programme, which are currently outstanding. The Series
I Notes accrue interest at a 7.5% per annum rate, which is payable on May 25 and November 25 of each year until
the maturity date. Principal on the Series I Notes is payable in one full payment on the maturity date (May 25,
2018). Pursuant to the terms and conditions of the Series I Notes, Azteca shall comply with certain restrictive
covenants, among others, in connection with: (i) limitations with respect to the incurrence of additional
indebtedness, (ii) limitations on guarantees, (iii) limitations on certain restricted payments, (iv) limitations on the
sale of assets or capital stock of its subsidiaries, (v) limitations on the establishment of liens or other encumbrances
on its assets, (vi) limitations on mergers, spin-offs or the transfer of all or a substantial part of its assets, and (vii)
limitations on transactions with related parties. In addition, the terms of the Series I Notes prevent Azteca from
engaging in business activities that are not similar or complementary to those conducted before the issuance.
ATC Long-Term Credit Facility
In February 2000, Azteca entered into a credit agreement with a Mexican subsidiary of ATC (the "ATC
Long-Term Credit Facility"), pursuant to which Azteca was granted two long-term loans for an aggregate amount of
$119.8 million.
The ATC Long-Term Credit Facility consists of a $91.8 million unsecured loan and a $28.0 million loan
secured by certain Azteca properties, including five Azteca Novelas television studios and two local television
stations (Cancun and Monterrey). Both facilities accrue interest at a 13.109% per year and are guaranteed by certain
subsidiaries of Azteca.
The unsecured loan is due in 2020 and will automatically be extended for an additional 50-year term to the
extent that the ATC Towers Lease remains in effect (see "The BusinessPropertyTransmission Sites"). Azteca
may only prepay the loan after 2020, in whole or in part, and with no applicable penalty. The loan is subject to a
59
total or partial mandatory prepayment in the event Azteca terminates all or some of the leases under the ATC
Towers Lease.
The secured loan has a one year maturity that can be extended by Azteca for additional one year terms. In
the event Azteca chooses not to extend the maturity date at any time within the first 20 years of the loan, the loan
becomes due and payable and the following penalties apply on the outstanding principal: (i) a 35% penalty if the
loan's final maturity date occurs within the first ten years of the loan term, (ii) a 17.5% penalty if the loan's final
maturity date occurs within years 11 through 15 of the loan term and (iii) a 10% penalty if the loan's final maturity
date occurs within years 16 through 20 of the loan term.
Stock Exchange Certificates Programme
Azteca established a stock exchange certificates (certificados bursátiles fiduciarios or "CEBURES")
programme (the "Certificates Programme") with Banco Invex, SA, as Trustee, which allowed Azteca to structure
trusts backed by a variety of assets and issue stock exchange certificates thereunder for up to an aggregate principal
amount of Ps.6,000 million.
On November 16, 2006, Azteca structured the La Fiduciaria 2006 trust under the Certificates Programme,
the underlying assets of which were certain collection rights of Azteca through Banco Invex, S.A. (the "2006
Trust"). Under the 2006 Trust, Azteca issued two tranches of trust certificates for an aggregate principal amount of
Ps.6,000 million.
The certificates are due in 2020. Interest thereon is payable monthly at an interest rate equal to TIIE plus
145 bps. Principal is payable monthly, and the first scheduled amortization payment was made on December 2011.
As of June 30, 2013, Ps.1,055 million ($81.0 million) in principal had been paid.
Azteca may not issue additional certificates under the Certificates Programme, as the maximum amount
authorized thereunder has already been issued.
Capital Expenditures
Capital expenditures for the six months ended June 30, 2013 was Ps.253 million ($19.4 million), and for
the years ended December 31, 2012 and 2011 was Ps.926 million ($71.2 million) and Ps.710 million ($50.8 million),
respectively. Such capital expenditures were primarily related to the expansion and improvements made to the
television production and broadcasting facilities of Azteca (see "The BusinessProperty"). Most of the capital
expenditures made by Azteca are payable in U.S. dollars.
Budgeted Capital Expenditures for 2013
Azteca had an approximate Ps.390 million ($29.9 million) budget for capital expenditures as of June 30,
2013, of which Ps.211 million ($16.2 million) have been expended through June 30, 2013, primarily for the
maintenance, expansion and improvements on Azteca's television production and broadcasting facilities, and the
acquisition of equipment, mainly in connection with the transition from analog to digital technology required by
Mexican law (see "The BusinessPropertyTransmission Sites"). Azteca expects to use cash from its operations to
fund these capital expenditures. As a result of Azteca's operating strategy, Azteca will not, for the foreseeable future,
make major capital expenditures outside the scope of its core television broadcasting business, which would include
loans, credit support and capital investments in its affiliates.
60
Contractual and Other Obligations
The following summarises Azteca's contractual obligations as of June 30, 2013, and the effect such
obligations are expected to have on its liquidity and cash flows in future periods (dollars in millions):
Description
Contractual Obligations
Payments due by year
2013
2014
Total
(Ps.)
($)
(Ps.)
($)
(Ps.)
($)
2015
2016
(Ps.)
($)
(Ps.)
($)
652
702
35
2
127
1,518
50.1
53.9
2.7
0.2
9.8
116.7
652
663
29
2
34
1,380
50.1
50.9
2.2
0.2
2.6
106.0
(in millions)
Principal amount of indebtedness
Interest payable
Satellite transponders
Equipment lease
Exhibition rights
Total
2,282
2,492
116
11
334
5,235
175.3
191.3
8.9
0.7
25.7
401.9
326
386
17
3
65
797
61
25.0
29.6
1.3
0.2
5.0
61.1
652
741
35
1
108
1,537
50.1
56.9
2.7
0.1
8.3
118.1
GOVERNANCE
Board of Directors
Azteca's board of directors (the "Board") is comprised of 12 members who are elected for one-year terms
by Azteca's annual ordinary shareholders' meeting. The current term of office of each director will expire on April
29, 2014. The address of each director is Periférico Sur 4121, Col. Fuentes del Pedregal, Tlalpan, 14141, Mexico
City, Mexico.
The following table sets forth the names of Azteca's current directors, their ages as of June 30, 2013 and
their positions and year of appointment:
Name
Age
Position
Director
Since
Ricardo B. Salinas Pliego (1)(2)
57
Chairman of the Board/Non-independent
Director/Significant Shareholder
1993
Pedro Padilla Longoria (1)
47
Non-independent Director
1993
53
Non-independent Director
1998
54
Non-independent Director/Director General
2004
68
Non-independent Director
1999
56
Non-independent Director
1998
48
Non-independent Director
2004
Francisco Murguía Díaz
73
Independent Director
2004
Ignacio Cobián Villegas
49
Independent Director
2006
Luis Francisco Arteaga González de la Vega
52
Independent Director
2006
Sergio Gutiérrez Muguerza
62
Independent Director
2000
58
Independent Director
2010
Guillermo E. Salinas Pliego
Mario San Román Flores
(2)
(1)
Luis Jorge Echarte Fernández
(1)
Joaquín Arrangoiz Orvañanos
(1)
Francisco X. Borrego Hinojosa Linage
José Ignacio Sánchez Conde
_________________________________
(1)
(1) Alternate directors for these persons are: Carlos Díaz Alonso and Rodrigo Fernández Capdevielle.
(2) Ricardo B. Salinas Pliego and Guillermo E. Salinas Pliego are brothers.
The following provides biographical information about the directors of Azteca.
Ricardo B. Salinas Pliego. Mr. Salinas Pliego has been Chairman of the Board of Azteca since 1993 and
Chairman of the Board of Grupo Elektra since 1993. Mr. Salinas Pliego also serves on the board of directors of
numerous other Mexican companies including GSF Telecom Holdings, S.A.P.I. de C.V. ("GSF") the parent
company of Iusacell, Azteca Holdings, Universidad CNCI (formerly Grupo Dataflux, a Mexican public company)
and Salinas y Rocha. Mr. Salinas Pliego received a degree in accounting from the Instituto Tecnológico de Estudios
Superiores de Monterrey and received an MBA from the Freeman School of Business at Tulane University.
Pedro Padilla Longoria. Mr. Padilla has served as a director of Azteca since 1993 and was the Chief
Executive Officer of Grupo Elektra between 1993 and 2000. Mr. Padilla served as Chief Executive Officer of
Azteca from October 2001 to July 2004, and from July 14, 2004 as Chief Executive Officer of Grupo Salinas. Mr.
Padilla also serves on the board of directors of Azteca Holdings, Grupo Elektra and GSF. Mr. Padilla received a
degree in law from the Universidad Nacional Autónoma de Mexico.
Guillermo E. Salinas Pliego. Mr. Salinas has served as director of Azteca since 1998. He also co-founded
the Universidad CNCI (formerly Grupo Dataflux, a Mexican public company) and has been its President since 1982.
He also sits on the board of directors of Grupo Elektra. Mr. Salinas is a Certified Public Accountant, holding an
undergraduate degree in accounting from the Instituto Tecnológico de Estudios Superiores de Monterrey in
Monterrey, Mexico.
62
Mario San Román Flores. Mr. San Román has been the Chief Executive Officer of Azteca since July 14,
2004. Mr. San Román previously served as Operations Director of Azteca from 2002 to July 2004, as Marketing
Vice President from August 1998 to March 1999, as Director of Azteca 13 from March 1999 to June 2000 and as
Director of Channels from June 2000 to 2002. Mr. San Román received a bachelor's degree in communication
sciences from the Universidad Iberoamericana.
Luis Jorge Echarte Fernández. Mr. Echarte has served as a director of Azteca since November 1999. Prior
to joining Azteca as Chief Financial Officer, he was Vice President of Finance and Administration at Grupo Elektra,
which he joined in 1994. He is Director of International Relations for Grupo Salinas, Chairman of the Board of
Azteca International and Director of the Fundación Azteca America. Mr. Echarte holds undergraduate degrees from
Memphis State University and the University of Florida and has completed the Executive Management Program at
Stanford University.
Joaquín Arrangoiz Orvañanos. Mr. Arrangoiz has served as a director of Azteca since 1998 and as Azteca's
Co-Director of Sales since 1993. Mr. Arrangoiz received a degree in administration from Anáhuac University.
Francisco X. Borrego Hinojosa Linage. Mr. Borrego has served as the General Counsel and Legal Director
of Azteca since August 1993. Mr. Borrego also serves on the board of directors of Azteca Holdings. Mr. Borrego
received a degree in law from the Escuela Libre de Derecho.
Francisco Murguía Díaz. Mr. Murguía has served as a director of Azteca since April 2004. Mr. Murguía is
a leading producer of commercial and short-length films in Latin America, and has served as President of the
Mexican Association of Filmmakers, the National Council of Advertising and the Mexican Association of
Advertising.
Luis Francisco Arteaga González de la Vega. Mr. Arteaga has served as an independent director of the
Board since 1999. Mr. Arteaga previously served as Deputy Chief Executive Officer at Bancrecer from 1996 until
1999, as Managing Partner at Somoza, Cortina y Asociados, S.A. de C.V., a securities company, from 1995 until
June 1996 and as Deputy Director General of the Banco de México from 1992 until 1995. Mr. Arteaga received a
degree in Industrial Engineering from the Universidad Anáhuac and studied for a Diploma in Finance at the Instituto
Tecnológico Autónomo de México.
Ignacio Cobián Villegas. Mr. Cobián is the founding member and has been Chief Executive Officer of
TIMBERMART, S.A., a company specializing in marketing timber products, from 1999 to the present. Mr. Cobián
formerly served as founding member and Chief Executive Officer of CORTEZA, S.A. de C.V., a company
specialising in producing and marketing timber furniture and other timber products from 1998 to 1999. Mr. Cobián
received a bachelor's degree in Business Administration from the Universidad de las Américas and obtained a
professional certificate in Business Administration from the University of California in San Diego.
Sergio Gutiérrez Muguerza. Mr. Gutiérrez has served as a director of Azteca since April 2000. He has
served as Chief Executive Officer of Deacero, S.A., a steel and wire company, since 1981. Mr. Gutiérrez has also
served as a director of Alpek, S.A. de C.V., a petrochemical company, and ING Comercial América, an insurance
company, since 1997. Mr. Gutiérrez received a degree in Industrial Engineering from Purdue University.
José Ignacio Sánchez Conde. Mr. Sánchez Conde is Chief Executive Officer of the lighting company
Sánchez Conde Iluminación; he formerly served as Director of Advertising and Marketing for the Grupo CIFRA
(Aurrera) from 1979 to 1982, as Chief Executive Officer General of LSI de Mexico, a lighting company, from 1982
to 1991 and as Finance Officer for Grupo ARSACO from 1992 to 2001. He is currently a member of the board of
GMD Resorts and the Grupo Mexicano de Desarrollo. Mr. Sánchez Conde has a bachelor's degree in
Communication Sciences from the Universidad Anáhuac, with Advertising and Television as his special subject.
Board Practices
Azteca's by-laws require at least 25% of the Board to be independent directors who are not employed by or
affiliated with Azteca's controlling shareholders. Mr. Sergio Gutiérrez Muguerza, Francisco Murguía Díaz, Ignacio
Cobián Villegas, Luis Francisco Arteaga González de la Vega and José Ignacio Sánchez Conde are Azteca's current
independent directors. Holders of Azteca's A Shares are entitled to elect at least 60% of Azteca's directors and each
holder or group of holders of 10% of Azteca's limited vote capital stock (class D-A shares and class D-L shares, and
after conversion, the class L shares) is entitled to appoint one director to the Board.
63
Azteca's by-laws require the Board to maintain committees comprised of at least three directors, a majority
of whom must be independent, to cover each of the following matters: related party transactions, capital
transactions, audit and compensation. All members of the audit committee must be independent.
The audit committee operates independently from any other committee that the Board may decide to form.
In addition to any functions granted to it by the Board, Azteca's by-laws and the LMV, it has, among others, the
following functions:

Opining on all transactions that require Board approval, provided that the value of each transaction
under review is equal to or greater than five percent of Azteca's consolidated assets, as reported in the
immediately previous quarter.

Recommending the appointment of independent experts as and when it is considered appropriate, for
their opinion on transactions that require Board approval, provided that the value of each transaction
under review is equal to or greater than five percent of Azteca's consolidated assets.

Reviewing the financial statements and the internal control and internal audit systems, as well as the
work and independence of the external auditors and the work of the Committee itself.

Referring to Azteca's Legal Director any legal proceedings of which they have knowledge that may
have been initiated against Azteca's employees.

Recommending to the Board the appointment, compensation and maintenance of an accounts
department, supervising such accounts department and establishing procedures to resolve any disputes
between Azteca's Board and its external auditors about the preparation of Azteca's financial statements.

Notifying the Board of material irregularities detected relating to the exercise of their functions and, if
applicable, of the appropriate corrective action, or recommending the action to be taken.

Ensuring that the Chief Executive Officer carries out the resolutions passed at the shareholders'
meetings and the Board meetings, in accordance with any instructions provided by such resolutions.

Preparing an annual report on its work, to be submitted to the Board and circulated to the Azteca
shareholders at the general ordinary shareholders' meeting.
The members of the audit committee are Mr. Luis Francisco Arteaga González de la Vega, Ignacio Cobián
Villegas and Francisco Murguía Díaz.
Oversight
Oversight of management and the conduct and performance of Azteca's business is the responsibility of the
audit committee and the third party auditor that conducts Azteca's external audit.
64
Executive Officers
The following table sets forth the names of Azteca's executive officers, their ages as of June 30, 2013 and
their positions and year of appointment as an executive officer:
Name
Age
Position
Executive
Officer Since
Ricardo B. Salinas Pliego
57
Chairman
1993
Mario San Román Flores
54
Chief Executive Officer
2004
Carlos Hesles Flores
47
Chief Financial Officer
2002
Luis Ontiveros Sandoval
45
Director of Finance
2000
Rafael Rodríguez Sánchez
37
General Counsel and Legal Director
2013
Joaquín Arrangoiz Orvañanos
56
Co-Director of sales
1997
Carlos Díaz Alonso
47
Director of Sales
2004
The following provides biographical information about Azteca's executive officers. See " Directors" for
biographical information on Ricardo B. Salinas Pliego, Joaquín Arrangoiz and Mario San Román.
Carlos Hesles Flores. Mr. Hesles has served as Azteca's Chief Financial Officer since 2002. Mr. Hesles
received a bachelor's degree in public accounting with a specialization in finance from the Instituto Tecnológico
Autónomo de Mexico.
Luis Ontiveros Sandoval. Mr. Ontiveros has served as Azteca's Director of Finance since 2000. Prior to
that, he worked as an investment banker in Grupo Financiero INVEX and Casa de Bolsa Invelat in Mexico City. Mr.
Ontiveros received his accounting degree from Universidad La Salle. He also completed an MBA program at
Instituto Panamericano de Alta Dirección de Empresas in Mexico City.
Rafael Rodríguez Sánchez. Mr. Rodríguez has served as Azteca's General Counsel since May 1, 2013.
From July 2003 until April 2013, he served as legal counsel for corporate, regulatory and special projects at Grupo
Iusacell. From December 2000 to July 2003, Mr. Rodríguez was a legal manager for Azteca's Sports, news and
entertainment division. Prior to that, he worked in the area of corporate law at PricewaterhouseCoopers in Mexico
City. Mr. Rodríguez received his Law degree from the Universidad La Salle. He also completed a seminar program
on telecommunications at the Instituto Tecnológico Autónomo de México in Mexico City and a seminar program on
International Sports Law at the Institute of Directors in London, UK.
Carlos Díaz Alonso. Mr. Díaz has served as Azteca's Director of Sales since 2004. Mr. Díaz received a
bachelor's degree in business administration from the Universidad Anáhuac.
Capital Stock
Azteca's capital stock is comprised of class A shares, class D-A shares and class D-L shares. Holders of
class A shares have voting rights at Azteca's general shareholders' meetings. Holders of classes D-A and D-L shares
have voting rights only in limited circumstances, and have a preferential dividend right. The rights of all holders of
all classes of capital stock are identical, except for the limitations with respect to class A and D-A shares held by
persons other than eligible Mexican holders.
In August 2017, class D-A shares will become eligible to be exchanged for class A shares, and class D-L
shares will become eligible to be exchanged for class L shares. Class L shares will be granted voting rights under
limited circumstances.
65
Authorized, issued, and paid-in capital stock of Azteca as of December 31, 2012 is summarized as follows:
Shares
class
Authorized
(in thousands)
Paid
(in thousands)
Total
($)
A
5,318,079
4,630,353
355,904
D-A
2,613,878
2,160,471
166,061
D-L
2,613,878
2,160,471
166,061
10,545,835
8,951,295
688,026
Total
As of December 31, 2012, Azteca's shares were listed on the following securities exchanges:
Characteristics of the securities
Class A, class D-A, class D-L and
Certificates of Common Participation
(CPOs), each one represents one A Share,
one D-A share, and one D-L share.
Class A, class D-A, class D-L, CPOs and 10
CPO Units.
Country of Stock
Exchange
Ticker symbol
Mexico
TVAZTCA
Spain
XTZA
Stock Exchange
Mexican Stock
Exchange
Latin American
Securities Market
Dividends
The declaration, amount and payment of dividends are approved by shareholders at Azteca's general
shareholders' meeting. Resolutions shall be valid only if adopted by the affirmative vote of the majority of the class
A shares. Resolutions are generally, but not necessarily, proposed based on the recommendation of the Board.
Dividends are declared in the second quarter of each fiscal year based on the audited financial statements of Azteca
for the preceding fiscal year. The amount of any such dividend would depend on, among other things, Azteca's
operating results, financial condition and capital requirements, and on general business conditions. Under Azteca's
by-laws and the LGSM, the gross profits of Azteca are applied as described below.
At the annual general ordinary shareholders' meeting of Azteca, the Board submits the financial statements
of Azteca for the previous fiscal year, together with the report thereon by the Board, to the holders of the class A
shares that are represented at the annual general ordinary shareholders' meeting for approval. If the annual general
ordinary shareholders' meeting approves the financial statements, then it will determine the allocation of Azteca's net
profits for the preceding year. Azteca is required by law to allocate at least 5% 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% of Azteca's historical capital stock. Thereafter, the annual general ordinary shareholders' meeting may
determine and allocate a certain percentage of net profits to any general or special reserve, including a reserve for
open-market purchases of Azteca's shares. The remainder of net profits is available for distribution in the form of
dividends to all the shareholders.
Holders of class D-A shares and class D-L shares are entitled to receive an annual, cumulative preferential
dividend. Following payment in full of this preferential dividend, dividends are paid on a pro rata basis to holders of
class A shares, class D-A shares and class D-L shares. After the conversion of the class D-A shares into class A
shares and the class D-L shares into class L shares, all shares of Azteca will participate on a pro rata basis in
dividend distributions.
66
RELATED PARTY TRANSACTIONS AND CONFLICTS OF INTEREST
Historically, Azteca has engaged, and expects to continue to engage, in a variety of transactions with its
affiliates, including entities owned or controlled by Azteca or its controlling shareholders. Azteca has an audit
committee comprised of three independent directors who review certain of its proposed transactions, including
transactions with affiliates, to determine whether these transactions are related to its business and, in the case of a
transaction with an affiliate, to determine whether such transaction is consummated on terms that are at least as
favorable to Azteca as terms that would be obtainable at the time for a comparable transaction or series of similar
transactions in arm's-length dealings with an unrelated third person. The LMV requires the audit committee to
review and make recommendations on any transaction with an affiliate with the exception of (i) transactions that do
not involve a material amount, (ii) transactions entered into in the ordinary course of business and (iii) transactions
made on an arm's-length basis. Notwithstanding the foregoing, the transactions described in (i) to (iii) require audit
committee and Board approval if they relate to the purchase or sale of assets, granting of a guarantee or incurrence
of debt involving an amount equal to or greater than 5% of Azteca's consolidated assets. For further information on
the role of the audit committee, see "Governance—Board of Directors—Board Practices." In addition, the
provisions of the LMV require that prior to Board approval of the transaction, a fairness opinion must be delivered
with respect to the purchase or sale of assets, granting of a guarantee or incurrence of debt involving an amount
equal to or greater than 10% of its consolidated assets. The fairness opinion must be provided by an independent
advisor that meets the criteria set forth in the LMV, which includes being financially and economically independent
from Azteca, providing no other services except audit services to Azteca and other criteria that generally result in a
requirement that the advisor to be a partner of a recognized audit firm. If the Board does not follow the
recommendations of the audit committee with regard to a related party transaction, the LMV requires Azteca to
disclose this information to the public through the Mexican Stock Exchange. The LMV also requires a majority
shareholder approval of any transaction valued at 20% or more of its consolidated assets, regardless of whether the
transaction is with an affiliate.
Azteca has outstanding receivables and payables, and undertook transactions with related parties as
described below:
Six months ended
Year ended
June 30
December 31
2013
2012
2012
2011
($)
(Ps.)
($)
(Ps.)
($)
(Ps.)
($)
(Ps.)
(in millions)
Accounts Receivable:
Azteca Holdings, S.A. de C.V. (Holding Company) (1) ....................
13.5
Fórum Per Terra, S.A. de C.V. and Subsidiary (2)...............................
4.6
Grupo Elektra and Subsidiaries (3) .......................................................
6.9
GSF Telecom Holdings, S.A.P.I de C.V. and subsidiaries ...............
2.1
Comunicaciones Avanzadas, S.A. de C.V. ................................ 0.2
Other................................................................................................ 2.8
Total................................................................................................ 30.1
Accounts Payable:
Grupo Elektra (3)......................................................................................Arrendadora Internacional Azteca, S.A. de C.V.................................
0.2
Globo Re, S.A. (4)....................................................................................
9.5
Other related parties ...............................................................................
2.8
Total................................................................................................ 12.4
_______________________________
176
60
90
27
3
36
392
12.2
4.3
5.7
1.5
0.2
3.7
27.6
167
58
78
20
3
50
376
12.8
4.5
1.2
1.2
0.2
0.6
20.5
167
59
16
15
3
7
267
11.5
4.1
2.1
0.3
0.1
1.6
19.7
161
57
29
4
2
23
276
2
123
36
162
0.9
11.6
12.5
12
158
170
0.4
9.5
3.0
12.9
5
124
39
168
1.1
8.9
1.0
11.0
16
124
14
154
(1) During 2012 and 2011, Azteca advanced certain amounts for the purchase of financial assets (activos financieros).
These amounts as of December 31 were Ps.98 million ($7.5 million) and Ps $.98 million ($7.0 million),
respectively. Additionally, loans were made to it in the amounts of Ps.69 million ($5.3 million) and Ps.63 million
($4.5 million), respectively.
(2) These amounts correspond to loans granted as of December 31, 2012 and 2011 in amounts of Ps.59 million ($4.5
million) and Ps $57 million ($4.1 million), respectively.
(3) In 2012 and 2011, the balance corresponded mainly to administrative services.
(4) As of December 31, 2012 and 2011, these amounts are comprised mainly of loans granted by Azteca.
67
Azteca's most significant related party transactions are described below:
Advertising revenue
Azteca's advertising revenue from related parties amounted to Ps.584 million ($44.3 million) and Ps.531 million
($42.7 million) for the years ending December 31, 2012 and 2011, respectively.
Grupo Elektra
Azteca and Grupo Elektra have annual advertising contracts; the rights under these contracts may not be
assigned by Grupo Elektra to third parties. At December 31, 2012 and 2011 revenue from Grupo Elektra amounted
to Ps.453 million ($34.4 million) and Ps.399 million ($32.1 million), respectively.
GSF Telecom Holdings, S.A.P.I. de C.V. and subsidiaries ("GSF")
In each of 2012 and 2011, Azteca and GSF had one year advertising contracts on terms that were
negotiated on an arm's-length basis. As of December 31, 2012 and 2011, income from Iusacell amounted to Ps.132
million ($10.0 million) and Ps.132 million ($10.6 million), respectively.
Banco Azteca
Azteca and Banco Azteca are party to an agreement pursuant to which Azteca produces non-television
advertising for Banco Azteca. As of December 31, 2012 and 2011 revenue from these contracts was Ps.7 million
($0.5 million) and Ps.0.4 million ($0.03 million), respectively.
Interest Income
In the years ended December 31, 2012 and 2011, Azteca made short-term loans to related parties. At year
end, interest income for these loans amounted to Ps.8 million ($0.6 million) and Ps.11 million ($0.9 million),
respectively.
Income on Property Leasing
Azteca has leased property to Operadora Unefon, a subsidiary of GSF, pursuant to a lease agreement that
expires in 2018. As of December 31, 2012 and 2011, income from leased property amounted to Ps.24 million ($1.8
million) and Ps.18 million ($1.4 million), respectively.
Equipment Leasing Contracts
Azteca has leased from Arrendadora Internacional Azteca transportation and computing equipment with an
option to buy. Most of the terms of the lease agreements are three to four years. At the end of the term, Azteca may
opt to acquire the leased goods, extend the leasing term or return the leased goods, by notification at least 90 days
prior to the expiration of the contract. For the years ended December 31, 2012 and 2011, assets acquired under these
contracts amounted to Ps.3 million ($0.2 million) and Ps.3 million ($0.2 million), respectively.
Donations
In the years ended December 31, 2012 and 2011, Azteca donated funds to the Fundación TV Azteca, A. C.,
a related party, in the amount of Ps.144 million ($10.9 million) and Ps.103 million ($8.3 million), respectively.
68
THE GUARANTORS
Guarantors
The Notes will be fully, unconditionally and jointly and severally guaranteed by Televisión Azteca, S.A. de
C.V., Azteca International Corporation, Inversora Mexicana de Producción, S.A. de C.V., Estudios Azteca, S.A. de
C.V., Azteca Novelas, S.A. de C.V., and Operadora Mexicana de Televisión, S.A. de C.V. As of and for the year
ended December 31, 2012, Azteca, together with the Guarantors, accounted for approximately 89% of Azteca's total
consolidated net assets of Ps.12,110 million ($930.8 million) and 94% of its total consolidated EBITDA of Ps.4,483
million ($340.4 million), as indicated in the table below.
Televisión
Azteca
Azteca
International
Corporation
Inversora
Mexicana
de
Producción
Estudios
Azteca
Azteca
Novelas
(Ps. in millions)
-955
1,103
Net assets
% of total
consolidated
net assets
5,565
3,094
1,112
46%
26%
9%
-8%
EBITDA
% of total
consolidated
EBITDA
244
369
0
5%
8%
0%
Operadora
Mexicana
de
Televisión
Azteca
Azteca and
Guarantor
Total
NonGuarantors
269
554
10,742
1,368
9%
2%
5%
89%
11%
837
80
278
2,415
4,223
260
19%
2%
6%
54%
94%
6%
Televisión Azteca, S.A. de C.V.
Televisión Azteca is a corporation with variable capital (sociedad anónima de capital variable) organized
under the laws of Mexico. The public deed containing Televisión Azteca's deed of incorporation was executed on
September 7, 1992, and was registered with the Public Registry of Commerce (Registro Público de Comercio) of
Mexico City on September 24, 1992 under the commercial file 165577. Televisión Azteca's deed has a duration of
ninety-nine years beginning as of the date on the legal instrument creating it. The headquarters (main offices) of
Televisión Azteca are located at Periférico Sur 4121, Colonia Fuentes del Pedregal, Delegación Tlalpan, C.P. 14141,
Mexico City The telephone number of Televisión Azteca is (5255) 1720-1313.
Televisión Azteca is a 99.99% owned subsidiary of Azteca.
Televisión Azteca owns Azteca's television concessions and operates Azteca's transmission equipment.
Azteca International Corporation
Azteca International Corporation is a corporation organized under the laws of Delaware, U.S. The
certificate of incorporation of Azteca International Corporation is dated June 21, 2001, and was registered with the
Secretary of the State of Delaware on June 22, 2001. Azteca International Corporation's identification number is 743009452. Azteca International Corporation's certificate of incorporation has an indefinite duration as of the date on
the legal instrument creating it. The headquarters (main offices) of Azteca International Corporation are located at
1139 Grand Central Ave., Glendale, CA 91201. The telephone number of Azteca International Corporation is (818)
241-5400.
Azteca International Corporation is a wholly-owned (100%) subsidiary of Azteca.
Azteca International Corporation operates the Azteca America channel.
Inversora Mexicana de Producción, S.A. de C.V.
Inversora Mexicana de Producción is a corporation with variable capital (sociedad anónima de capital
variable) organized under the laws of Mexico. The public deed containing Inversora Mexicana de Producción's deed
of incorporation was executed on February 25, 1997, and was registered with the Public Registry of Commerce
(Registro Público de Comercio) of Mexico City on March 17, 1997 under the commercial file 219244. Inversora
Mexicana de Producción's deed has a duration of ninety-nine years beginning as of the date on the legal instrument
69
creating it. The headquarters (main offices) of Inversora Mexicana de Producción are located at Periférico Sur 4121,
Colonia Fuentes del Pedregal, Delegación Tlalpan, C.P. 14141, Mexico City The telephone number of Inversora
Mexicana de Producción is (5255) 1720-1313.
Inversora Mexicana de Producción is a 99.99% directly or indirectly owned subsidiary of Azteca.
Inversora Mexicana de Producción provides technical, legal, administrative, financial and treasury services
to Azteca.
Estudios Azteca, S.A. de C.V.
Estudios Azteca is a corporation with variable capital (sociedad anónima de capital variable) organized
under the laws of Mexico. The public deed containing Estudios Azteca's deed of incorporation was executed on
November 3, 2003, and was registered with the Public Registry of Commerce (Registro Público de Comercio) of
Mexico City on March 24, 2004 under the commercial file 316090. Estudios Azteca's deed has an indefinite
duration as of the date on the legal instrument creating it. The headquarters (main offices) of Estudios Azteca are
located at Calz. de Tlalpan No. 2818, Col. San Pablo Tepetlapa, C.P. 04840, Distrito Federal, Mexico. The
telephone number of Estudios Azteca is (5255) 1720-1313.
Estudios Azteca is a 99.99% directly or indirectly owned subsidiary of Azteca.
Estudios Azteca operates and is the principal advertising sales agent of the Azteca 7 network and the
Azteca 13 network.
Azteca Novelas, S.A. de C.V.
Azteca Novelas is a corporation with variable capital (sociedad anónima de capital variable) organized
under the laws of Mexico. The public deed containing Azteca Novelas' deed of incorporation was executed on
January 18, 1996, and was registered with the Public Registry of Commerce (Registro Público de Comercio) of
Mexico City on February 4, 1997 under the commercial file 218450. Azteca Novelas' deed has a duration of ninetynine years beginning as of the date on the legal instrument creating it. The headquarters (main offices) of Azteca
Novelas are located at Calz. de Tlalpan No. 2818, Col. San Pablo Tepetlapa, C.P. 04840, Distrito Federal, Mexico.
The telephone number of Azteca Novelas is (5255) 1720-1313.
Azteca Novelas is a 99.99% directly or indirectly owned subsidiary of Azteca.
Azteca Novelas owns or leases facilities and equipment for the production of Azteca's original
programming.
Operadora Mexicana de Televisión, S.A. de C.V.
Operadora Mexicana de Televisión is a corporation with variable capital (sociedad anónima de capital
variable) organized under the laws of Mexico. The public deed containing Operadora Mexicana de Televisión's deed
of incorporation was executed on June 2, 1993, and was registered with the Public Registry of Commerce (Registro
Público de Comercio) of Mexico City on July 13, 1993 under the commercial file 167344. Operadora Mexicana de
Televisión's deed has a duration of ninety-nine years beginning as of the date on the legal instrument creating it. The
headquarters (main offices) of Operadora Mexicana de Televisión are located at Periférico Sur 4121, Colonia
Fuentes del Pedregal, Delegación Tlalpan, C.P. 14141, Mexico City The telephone number of Operadora Mexicana
de Televisión is (5255) 1720-1313.
Operadora Mexicana de Televisión is a 99.99% owned subsidiary of Azteca.
Operadora Mexicana de Televisión operates and is the principal advertising sales agent of Proyecto 40.
Additional Information
Prospective investors in the Notes may obtain additional information regarding the Guarantors by
contacting: Periférico Sur 4121, Col. Fuentes del Pedregal, Mexico City 14141, Mexico (Attention: Luis Ontiveros
Sandoval) Tel: (52) 55 1720-9122.
70
TERMS AND CONDITIONS
The following are the terms and conditions (the "Conditions") of the Notes which (subject to completion
and amendment) will be attached to or incorporated by reference into each of the Notes, provided that the relevant
Pricing Supplement (the "Pricing Supplement") in relation to a particular Series of Notes may specify other terms
and conditions which shall, to the extent so specified, replace or modify the following Conditions for the purpose of
such Series of Notes.
The Notes to which these Conditions pertain are issued and will be issued in one or more Series with the
benefit of an amended and restated trust deed dated 25 May 2011 (such trust deed as amended and/or supplemented
and/or restated from time to time the "Trust Deed"), by and among the Issuer, the Guarantors and The Bank of New
York Mellon, as trustee (the "Trustee" which term includes any additional or successor trustee under the Trust
Deed). The Notes are constituted by, and in accordance with, the Trust Deed and have the benefit of an amended and
restated agency agreement dated 25 May 2011 (such agency agreement as amended and/or supplemented and/or
restated from time to time the "Agency Agreement") by and among the Issuer, the Guarantors, the Trustee and The
Bank of New York Mellon as issuing and principal paying agent (the "Principal Paying Agent" which term includes
any additional or successor principal paying agent appointed under the Agency Agreement) and as calculation agent
and, where applicable, registrar. Notes having the same Interest Payment Dates, Issue Price and Maturity Date,
bearing interest at the same rate and the terms of which are otherwise identical, are hereinafter together referred to as
a "Series" of Notes, and the particular Note to which these Conditions are attached or incorporated by reference is
referred to herein as this "Note," and this Note, together with the other Notes of the same Series, are hereinafter
together referred to as "this Series" or the "Notes of this Series."
The Pricing Supplement applicable to a Series of Notes may specify other terms and conditions which
shall, to the extent so specified or to the extent inconsistent with these Conditions, amend, vary, replace, add to or
modify these Conditions for the purposes of such Series of Notes, in which event, these Conditions as so amended,
varied, replaced, added to or modified by such Pricing Supplement shall be referred to herein as the or these
"Conditions" with respect to such Series of Notes.
Copies of the Trust Deed, the Agency Agreement and the Pricing Supplement are on file and available for
inspection at the offices of the Trustee and the Principal Paying Agent, being as of the date hereof One Canada
Square, London E14 5AL, England. The holders of the Notes and the holders of any Coupons (if any) appertaining
to the Notes and the holders of any Receipts (if any) appertaining to the Notes (the "Noteholders") are deemed to
have notice of, and are entitled to the benefit of, all the provisions of the Trust Deed and the Agency Agreement.
Words and expressions defined in the Trust Deed or used in the applicable Pricing Supplement shall have
the same meanings where used in these Conditions unless the context otherwise requires or unless otherwise stated.
1.
Form and Title of Notes
The Notes are issuable in bearer or fully registered form ("Notes") as a global note, without coupons or
receipts ("Global Note"), or as definitive notes ("Definitive Notes"), with Coupons (if in bearer form) at the time of
issue attached thereto (except in the case of Zero Coupon Notes (as defined below)) and, in the case of bearer
Definitive Notes repayable in instalments, with Receipts at the time of issue attached thereto, in the denominations
specified in the applicable Pricing Supplement (the "Authorised Denominations"). The Definitive Notes will be
serially numbered. The Notes may be issued (a) to bear interest on a fixed rate basis ("Fixed Rate Notes"), (b) to
bear interest on a floating rate basis ("Floating Rate Notes"), or (c) on a non-interest bearing basis ("Zero Coupon
Notes") or any combination, in each case as specified in the applicable Pricing Supplement.
Each Definitive Note in bearer form will be issued with Coupons attached unless it is a Zero Coupon Note,
in which case reference to interest (other than in relation to interest due after the Maturity Date) and Coupons in
these Conditions are not applicable.
Title to Notes, Receipts, Talons and Coupons in bearer form shall pass by delivery. The Issuer, the Trustee,
the Principal Paying Agent and any agent of the Issuer or the Trustee or the Principal Paying Agent except as
required by law shall deem and treat the bearer of a Note, Receipt, Talon or Coupon in bearer form as the owner
thereof for all purposes, whether or not such Note or, in the case of a Definitive Note, such Receipt, Talon or
Coupon, be overdue, and neither the Issuer nor the Trustee nor the Principal Paying Agent nor any such agent shall
be affected by notice to the contrary, any writing on it, or its theft or loss and shall incur no liability for so doing.
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Title to Notes in registered form passes upon registration of transfers in the Register in accordance with the
provisions of the Agency Agreement and the Trust Deed. Notes in registered form will be transferable only on the
books of the Issuer and the Agents. The registered holder of any Note in registered form will (except as otherwise
required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any
notice of ownership, trust or any interest in it, any writing on it, or its theft or loss) and no person will be liable for
so treating the holder.
If a Note, Receipt, Talon or Coupon is held for the account or benefit of U.S. persons (as defined in
Regulation S under the U.S. Securities Act of 1933, as amended) or, for so long as any of the Notes are represented
by a Global Note, any person who is for the time being shown in the records of Euroclear or of Clearstream,
Luxembourg as the holder of a particular nominal amount of Notes, holds such interest for the account or benefit of
U.S. persons, the Issuer may give notice to the holder(s) of the relevant Note, Receipt, Talon or Coupon (or, in the
case of a Global Note, the holder of the relevant particular, nominal amount of Notes) that it requires the relevant
Note, Receipt, Talon, and/or Coupon (and/or, in the case of a Global Note, the relevant particular interest in the
nominal amount of Notes), as the case may be, to be transferred provided however that the relevant Note, Receipt,
Talon or Coupon (or, in the case of a Global Note, the relevant particular interest in the nominal amount of Notes)
may not be transferred to, or for the account or benefit of, U.S. persons. The relevant holder(s) of the Note, Receipt,
Talon or Coupon (or, in the case of a Global Note, the relevant holder of the particular interest in the nominal
amount of Notes) shall be obligated to make the transfer referred to in the notice referred to in this paragraph within
30 days after receipt of such notice if the relevant Note, Receipt, Talon or Coupon (or, in the case of a Global Note,
the relevant particular nominal amount of Notes) is held for the account or benefit of U.S. persons.
2.
Status of Notes and Guarantee
(a)
Status of Notes
If the Pricing Supplement specifies that the Notes are unsecured Notes, the Notes and the relevant Receipts
(if any) and the relevant Coupons (if any) are unsecured, unsubordinated and unconditional obligations of the Issuer
ranking pari passu with all other outstanding unsubordinated and unsecured obligations of the Issuer, and constitute
valid and legally binding obligations of the Issuer, enforceable in accordance with their respective terms (subject to
general equitable principles and bankruptcy, concurso mercantil and insolvency laws and other similar laws
affecting creditors' rights generally), and are entitled to the benefits provided by the Trust Deed and the Agency
Agreement. If the Pricing Supplement specifies that the Notes are secured Notes, the Notes will constitute direct and
unsubordinated obligations of the Issuer that are secured by the collateral identified in the Pricing Supplement.
(b)
Status of the Guarantee
The payment of principal and interest in respect of the Notes, the Receipts and the Coupons and all other
monies payable by the Issuer under or pursuant to the Trust Deed has been unconditionally and irrevocably
guaranteed by the Guarantors in the Trust Deed (the "Guarantee"). The obligations of the Guarantors under the
Guarantee are unsecured, unsubordinated and unconditional obligations of the Guarantors ranking pari passu with
all other outstanding unsubordinated and unsecured obligations of the Guarantors, and constitute valid and legally
binding obligations of the Guarantors, enforceable in accordance with their respective terms (subject to general
equitable principles and bankruptcy, concurso mercantil and insolvency laws and other similar laws affecting
creditors' rights generally).
3.
Interest
(a)
Interest on Fixed Rate Notes
(i)
Each Fixed Rate Note bears interest from and including the Issue Date, at the Interest Rate(s) per
annum specified in the applicable Pricing Supplement payable in arrears on the Interest Payment Date(s) in each
year and on the Maturity Date so specified if such Maturity Date does not fall on an Interest Payment Date. The first
payment of interest will be made on the Interest Payment Date next following the Issue Date.
(ii)
Interest will be paid, in respect of Fixed Rate Notes subject to and in accordance with the
provisions of Condition 5 of these Conditions.
(iii)
If Interest is required to be computed for a period of other than a full year, such interest shall be
computed on the basis specified in the applicable Pricing Supplement.
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(iv)
Interest will cease to accrue on each Fixed Rate Note on the due date for payment thereof unless,
upon due presentation thereof, payment of principal is improperly withheld or refused, in which event interest will
continue to accrue (as well after as before any judgment) as provided in the Trust Deed.
(b)
Interest on Floating Rate Notes
Interest on each Floating Rate Note will be determined by such interest rate formula as may be agreed to by
the Relevant Lead Dealer for the relevant Series and the Issuer and specified in the applicable Pricing Supplement.
The amount of interest payable in respect of any Floating Rate Note for any period shall be calculated by
multiplying the product of the Interest Rate(s) per annum as specified in the applicable Pricing Supplement and the
outstanding principal amount thereof by the Day Count Fraction. "Day Count Fraction" means, in respect of the
calculation of an amount for any period of time ("Calculation Period"), such day count fraction as may be specified
in the Pricing Supplement and:
(i)
if "Actual/365 (Fixed)" is so specified, means the actual number of days in the Calculation Period
divided by 365;
(ii)
if "Actual/360" is so specified, means the actual number of days in the Calculation Period divided
by 360;
(iii)
if "Actual/365" or "Actual/Actual" is so specified, means the actual number of days in the
Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a leap year, the sum of
(A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and
(B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365);
(iv)
if "Actual/365 (Sterling)" is so specified, means the actual number of days in the Calculation
Period divided by 365, or in the case of a Calculation Period falling in a leap year, 366.
4.
Redemption And Purchase
The Notes shall not be subject to redemption by the Issuer or the holder of a Note except as specified in the
Pricing Supplement and as provided in this Condition 4.
(a)
At Maturity
Unless otherwise specifically specified in the applicable Pricing Supplement and unless previously
redeemed or purchased and cancelled, each Note will be redeemed by the Issuer at its final redemption amount on
the Maturity Date specified in the applicable Pricing Supplement (which final redemption amount shall, if not
otherwise specified in the Pricing Supplement, be the nominal amount of such Note).
(b)
Redemption for Tax Reasons
Unless otherwise specifically indicated in the applicable Pricing Supplement, if as a result of any change in
or amendment to the laws (or any regulations or rulings promulgated thereunder) of Mexico or of any political
subdivision or taxing authority thereof or therein affecting taxation, or any change in official position regarding
application or interpretation of such laws, regulations or rulings (including a holding by a court of competent
jurisdiction), which change or amendment becomes effective on or after the relevant Issue Date, the Issuer has or
will become obligated to pay additional amounts as described under Condition 6 of these Conditions in excess of the
additional amounts the Issuer would be obligated to pay if payments made on the Notes were subject to withholding
or deduction at a rate of 4.9 per cent. as a result of the taxes, duties, assessments and other governmental charges
described under Condition 6 of these Conditions or if a Guarantor would be unable for reasons outside of its control
to procure payment by the Issuer and in making payment itself would be obligated to pay additional amounts as
described under Condition 6 of these Conditions in excess of the additional amounts that Guarantor would be
obligated to pay if payments made on the Notes were subject to withholding or deduction at a rate of 4.9 per cent. as
a result of the taxes, duties, assessments and other governmental charges described under Condition 6 of these
Conditions, such Note will be subject to a one-time redemption by the Issuer, in whole but not in part, at any time
thereafter, upon giving of irrevocable notice in accordance with Condition 13 of these Conditions, on such
redemption date as the Issuer shall select but which shall in the case of Floating Rate Notes be an Interest Payment
Date, at a redemption price equal to 100 per cent. of the outstanding principal amount thereof together with accrued
and unpaid interest. Moreover, the Issuer shall not have the right to redeem the Notes pursuant to the provisions set
forth in this Condition 4(b) unless the Issuer or, as the case may be, the relevant Guarantor has taken all reasonable
73
measures (to the extent permitted by applicable law) to avoid the obligation to pay additional amounts described
under Condition 6 of these Conditions. In the event that the Issuer elects to redeem Notes pursuant to the provisions
set forth in this Condition 4(b), the Issuer will deliver to the Trustee and the Principal Paying Agent (i) a certificate,
signed by an authorised representative, stating that the Issuer is entitled to redeem such Notes pursuant to their terms
in accordance with the terms of the Agency Agreement and specifying the date of redemption and the principal
amount of Notes to be redeemed (and the Trustee shall be entitled to accept such certificate delivered with an
opinion as referred to in (ii) below as sufficient evidence of the satisfaction of the conditions precedent set out above
(without liability to any person) in which event it shall be conclusive and binding on the Trustee, Noteholders,
Receiptholders and the Couponholders that the Issuer is entitled to effect such redemption) and (ii) an opinion of
independent legal advisors of recognised standing to the effect that the Issuer or, as the case may be, the relevant
Guarantor has or will become obligated to pay any amounts as described under Condition 6 of these Conditions such
that the Issuer has the right to redeem such Notes. In rendering such opinion, such independent legal advisors shall
be entitled to rely on certificates of the Issuer, the relevant Guarantor, the Issuer's independent accountants and the
relevant Guarantors' independent accountants as to factual matters and as to calculations relating to such additional
amounts. The foregoing provisions in this paragraph are applicable regardless of whether "Issuer Call" is indicated
as being applicable in the Note or the relevant Pricing Supplement.
(c)
Redemption at the Option of Issuer (Issuer Call)
If Redemption at the Option of the Issuer (i.e., Issuer Call) is specified in the applicable Pricing
Supplement, the Issuer may, having given not more than 60 nor less than 30 days notice (or such other notice period
as may be specified in the applicable Pricing Supplement) to the Trustee and the Principal Paying Agent, and, in
accordance with Condition 13 of these Conditions, to the holders of the Notes of the Series to be redeemed, redeem
all or some only of the Notes of such Series then outstanding on any Optional Redemption Date and at the Optional
Redemption Amount(s) specified in, or determined in the manner specified in, the applicable Pricing Supplement
together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date. Any such
redemption must be of a nominal amount not less than the Minimum Redemption Amount or not more than a Higher
Redemption Amount, in each case as may be specified in the applicable Pricing Supplement. In the case of a partial
redemption of Notes of a Series, the Notes of the Series to be redeemed ("Redeemed Notes") will be selected by the
Issuer individually by lot, in the case of Redeemed Notes represented by definitive Notes of the Series, and in
accordance with the rules of Euroclear and/or Clearstream, Luxembourg, in the case of Redeemed Notes represented
by a Global Note, not more than 30 days prior to the date fixed for redemption. In the case of Redeemed Notes
represented by definitive Notes, a list of the serial numbers of such Redeemed Notes will be published in accordance
with Condition 13 not less than 15 days prior to the date fixed for redemption.
(d)
Notices to Redeem
Notices to redeem Notes pursuant to Condition 4(b) or 4(c) of these Conditions shall be published in
accordance with the provisions of Condition 13 of these Conditions and shall specify the date fixed for redemption,
which shall be not less than 30 nor more than 60 days after such notification, the applicable redemption price, the
place or places of payment, that payment will be made upon presentation and surrender of the Notes to be redeemed
in the case of bearer Notes, that interest accrued to the date fixed for redemption will be paid as specified in such
notice, and that on and after such date interest thereon will cease to accrue. With respect to notices relating to
redemption pursuant to Condition 4(b), such notice shall also state that the conditions precedent to such redemption
have occurred and state that the Issuer has elected to redeem all the Notes in accordance with Condition 4(b) of
these Conditions.
(e)
Redemption at the Option of the Noteholders (Noteholder Put)
If Redemption at the Option of the Noteholder (i.e., Noteholder Put) is specified in the applicable Pricing
Supplement, upon a Noteholder giving to the Issuer not more than 60 nor less than 30 days' notice (or as otherwise
specified in the Pricing Supplement) (which notice shall be irrevocable) the Issuer will redeem subject to, and in
accordance with, the terms specified in the applicable Pricing Supplement in whole, but not in part, a Definitive
Note or Global Note on an Optional Redemption Date at the Optional Redemption Amount each specified and
defined in the applicable Pricing Supplement with respect to such a redemption, together with any accrued interest.
(f)
Cancellation
All Notes which are redeemed will forthwith be cancelled (together with all unmatured Receipts, Coupons
and Talons attached thereto or surrendered therewith at the time of redemption). All Notes so cancelled (together
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with all unmatured Receipts, Coupons and Talons cancelled therewith) shall be forwarded to the Principal Paying
Agent and cannot be reissued or resold.
(g)
Purchase of Notes by the Issuer and the Guarantors
The Issuer, any of the Guarantors, any of the Issuer's Subsidiaries and any of the Guarantors' Subsidiaries
may, directly or indirectly, to the extent permitted by applicable law, purchase Notes (provided that, in the case of
Definitive Notes in bearer form, all unmatured Receipts, Coupons and Talons appertaining thereto are purchased
therewith) in the open market or by tender at any price and at any time. Any Note purchased by the Issuer, any
Guarantor, any of the Issuer's Subsidiaries or any of the Guarantors' Subsidiaries, directly or indirectly, shall be
surrendered to the Principal Paying Agent for cancellation. Any Notes surrendered as aforesaid may not be reissued
or resold and will be cancelled promptly. "Issuer's Subsidiaries" means any corporation or other entity of which at
least a majority of the outstanding securities or other ownership interests having by the terms thereof ordinary voting
power to elect a majority of the board of directors or other persons performing similar functions of such corporation
or other entity (irrespective of whether or not at the time securities or the ownership interests of any other class or
classes of such corporation or entity shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by the Issuer and/or one or more of the Issuer's
Subsidiaries. "Guarantors' Subsidiaries" means any corporation or other entity of which at least a majority of the
outstanding securities or other ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions of such corporation or other entity
(irrespective of whether or not at the time securities or the ownership interests of any other class or classes of such
corporation or entity shall have or might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by a Guarantor and/or one or more of the Guarantors' Subsidiaries.
5.
Payments
(a)
Method of Payment
Subject as provided below, payments in respect of the Notes will be made in the Specified Currency by
cheque. Holders of at least the Specified Principal Amount of Notes, upon receipt by the Paying Agent of
appropriate wiring instructions at least 10 days prior to the relevant payment date, may receive payment by wire
transfer to a Specified Currency account located outside of the United States and its possessions specified by the
holder. Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the
place of payment, but without prejudice to the provisions of Condition 6 of these Conditions.
(b)
Payments
(i)
Payments of principal and interest (if any) in respect of the Definitive Notes in bearer form (if
issued) will (subject as provided below) be made against presentation or surrender of such Notes, Receipts or
Coupons, as the case may be, at any specified office of any Paying Agent outside the United States and its
possessions. If any Definitive Notes in bearer form are redeemed or become repayable prior to the Maturity Date in
respect thereof, principal will be payable on surrender of each such Note together with all unmatured Coupons
appertaining thereto. All payments of interest and principal with respect to Definitive Notes in bearer form will be
made to accounts located outside the United States and its possessions except as otherwise provided below.
Payments of instalments of principal (if any) in respect of Definitive Notes in bearer form, other than the final
instalment, will (subject as provided below) be made in the manner provided in accordance with this paragraph
against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the relevant
Receipt in accordance with this paragraph. Payment of the final instalment will be made in the manner provided in
this paragraph only against presentation and surrender (or, in the case of part payment of any sum due, endorsement)
of the relevant Definitive Note in bearer form in accordance with this paragraph. Each Receipt must be presented for
payment of the relevant instalment together with the Definitive Note in bearer form to which it appertains. Receipts
presented without the Definitive Note in bearer form to which they appertain do not constitute valid obligations of
the Issuer. Upon the date on which any Definitive Note in bearer form becomes due and repayable, unmatured
Receipts (if any) relating thereto (whether or not attached) shall become void and no payment shall be made in
respect thereof.
(ii)
Payments of principal and interest (if any) in respect of the Definitive Notes in registered form (if
issued) will (subject as provided below) be made by cheque in the Specified Currency and posted on the Business
Day immediately preceding the relevant due date to the holder (or to the first named of joint holders) of the
Definitive Note in registered form appearing on the Register at the close of business on the Business Day prior to the
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relevant date for the payment of principal and interest (the "Record Date") at his address shown on the Register on
the Record Date.
(iii)
Payments of principal and interest (if any) in respect of Notes represented by any Global Note will
(subject as provided below) be made in the manner specified above and otherwise in the manner specified in the
relevant Global Note. A record of each payment made on such Global Note distinguishing between any payment of
principal and any payment of interest, will be made, or caused to be made, on such Global Note by the Paying Agent
to which such Global Note is presented for the purpose of making such payment or on the Register applicable to
such Global Note, and such record shall be prima facie evidence that payment in question has been made.
(iv)
No payment of principal or interest in respect of Global Notes and Definitive Notes shall be made
at an office or agency of the Issuer in the United States or its possessions and no cheque in payment thereof which is
mailed shall be mailed to an address in the United States or its possessions, nor shall any transfer made in lieu of
payment by cheque be made to an account maintained by the payee with a bank in the United States or its
possessions. Notwithstanding the foregoing, such payments may be made at an office or agency located in the
United States or its possessions (a) if such payments are to be made in U.S. dollars and if payment of the full amount
so payable at the office of any Paying Agent outside the United States and its possessions appointed and maintained
pursuant to the Agency Agreement is illegal or effectively precluded because of the imposition of exchange controls
or other similar restrictions on the full payment or receipt of such amount in U.S. dollars, and (b) at the option of the
relevant holder, if such payments are then permitted under United States law without involving, in the opinion of the
Issuer, any adverse tax consequences to the Issuer.
(v)
The bearer or registered holder of the relevant Global Note shall be the only person entitled to
receive payments in respect of Notes represented by such Global Note and the Issuer, or as the case may be, the
Guarantors will be discharged by payment to, or to the order of, the bearer or registered holder of such Global Note
in respect of each amount so paid. No person, other than the bearer or registered holder of the relevant Global Note,
shall have any claim against the Issuer in respect of any payments due on that Global Note.
(vi)
If notice of redemption has been given in accordance with Condition 13 of these Conditions, the
Notes shall be paid and redeemed by the Issuer at the places and in the manner herein specified, together with
accrued interest on the Notes to the redemption date; provided, however, that interest due on or prior to the
redemption date on Definitive Notes in bearer form shall be payable only upon the presentment and surrender of
Coupons for such interest. If any Definitive Note in bearer form surrendered for redemption shall not be
accompanied by all appurtenant Coupons maturing after the redemption date, such Note may be paid after deducting
from the amount otherwise payable an amount equal to the face amount of all such missing Coupons, or the
surrender of such missing Coupon or Coupons may be waived by the Issuer if they are furnished with such security
or indemnity as they may require. From and after the redemption date, if monies for the redemption of Notes called
for redemption shall have been made available at the main office of the Principal Paying Agent for redemption on
the redemption date, the Notes called for redemption shall cease to bear interest, the Coupons appertaining to the
Definitive Notes in bearer form maturing subsequent to the redemption date shall be void, and the only right of the
holders of such Notes shall be to receive payment of the appropriate redemption amount, together with accrued
interest on the Notes to the redemption date as aforesaid. If monies for the redemption of the Notes are not made
available for payment until after the redemption date, the Notes called for redemption shall not cease to bear interest
until such monies have been so made available.
(c)
Payment Business Day
If the date for payment on any amount in respect of any Note is not a Payment Business Day (as defined
below), the holder thereof shall not be entitled to payment until the next following Payment Business Day and shall
not be entitled to further interest or other payment in respect of such delay if such payment is made on such next
succeeding Payment Business Day. For these purposes unless otherwise specified in the applicable Pricing
Supplement, "Payment Business Day" means any day which is a day on which banks and foreign exchange markets
are open for business in London and any Additional Business Centre specified in the applicable Pricing Supplement,
and on which Euroclear and Clearstream, Luxembourg are open for business.
(d)
Applicable Laws
All payments are subject in all cases to any applicable fiscal or other laws and regulations, but without
prejudice to the provisions of Condition 6 of these Conditions. No commissions or expenses shall be charged to the
Noteholders, Receiptholders or Couponholders in respect of such payments.
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6.
Taxation
(a)
The Issuer, or as the case may be, the Guarantors will pay such amounts ("Additional Amounts")
as may be necessary in order to ensure that the net amounts received by the holders of Notes, Receipts and Coupons
after any withholding or deduction for or on account of any present or future taxes or duties of whatever nature
imposed or levied by Mexico or any authority in Mexico shall equal the respective amounts of principal and interest
which would have been received in respect of the Notes, Receipts and Coupons in the absence of such withholding
or deduction, and the delivery by the Issuer or, as the case may be, the Guarantors of any such Additional Amounts
to the appropriate Mexican authorities shall constitute receipt by the relevant Noteholders of such Additional
Amounts so delivered; except that no such Additional Amounts shall be payable with respect to:
(i)
taxes or duties with respect to any Note, Receipt or Coupon presented for payment by or on behalf
of a holder who is liable for such taxes or duties by reason of such holder having some connection with Mexico
other than the mere holding of such Note, Receipt or Coupon;
(ii)
any Note, Receipt or Coupon presented for payment more than 15 days after the Relevant Date (as
defined herein) except to the extent that the holder would have been entitled to such Additional Amounts on
presenting such Note for payment on the last day of such 15-day period (as used in this Condition 6 "Relevant Date"
in respect of any payment means the date on which such payment first becomes due except that, if the full amount of
the monies payable has not been received by the Principal Paying Agent on or prior to such due date, it means the
date on which, the full amount of such monies having been so received, notice to that effect is duly given to the
Noteholders in accordance with Condition 13);
(iii)
any tax or duty required to be deducted or withheld by any Paying Agent from a payment on a
Note, Receipt or Coupon if such payment can be made without such deduction or withholding by any other Paying
Agent who can make such payment in accordance with the terms of the Agency Agreement and these Conditions;
(iv)
any tax, assessment or other governmental charge which is payable otherwise than by withholding
from payments on or in respect of any Note, Receipt or Coupon (other than stamp, transfer or other similar taxes);
(v)
any estate, inheritance, gift, sales, stamp, transfer or personal property tax;
(vi)
any taxes imposed on, or withheld or deducted from, payments made to a holder or beneficial
owner of a Note at a rate in excess of the 4.9 per cent. rate of tax in effect on the date hereof and uniformly
applicable in respect of payments made by the Issuer to all holders or beneficial owners eligible for the benefits of a
treaty for the avoidance of double taxation to which Mexico is a party without regard to the particular circumstances
of such holders or beneficial owners (provided that, upon any subsequent change in the rate of tax that would be
applicable to payments to all such holders or beneficial owners without regard to their particular circumstances, such
changed rate shall be substituted for the 4.9 per cent. rate for purpose of this clause (vi)), but only to the extent that
(x) such holder or beneficial owner has failed to provide on a timely basis, at the reasonable request of the Issuer or,
as the case may be, the relevant Guarantor (subject to the conditions set forth below), information, documentation or
other evidence concerning whether such holder or beneficial owner is eligible for benefits under a treaty for the
avoidance of double taxation of which Mexico is a party if necessary to determine the appropriate rate of deduction
or withholding of taxes under such treaty or under any statute, regulation, rule, ruling or administrative practice, and
(y) at least 60 days prior to the payment date with respect to which the Issuer or, as the case may be, the relevant
Guarantor shall make such reasonable request, the Issuer or, as the case may be, the relevant Guarantor shall have
notified the holders of the Notes, in writing, that such holders or beneficial owners of the Notes will be required to
provide such information, documentation or other evidence;
(vii)
any taxes that are imposed on, or withheld or deducted from, payments made to the holder or
beneficial owner of a Note to the extent such taxes would not have been so imposed, deducted or withheld but for
the failure by such holder or beneficial owner to comply with any certification, identification, information,
documentation or other reporting requirement concerning the nationality, residence, identity or connection with
Mexico (or any political subdivision or territory or possession thereof or area subject to its jurisdiction) of such
holder or beneficial owner if (x) such compliance is required or imposed by a statute, treaty, regulation, rule, ruling
or administrative practice in order to make any claim for exemption from, or reduction in the rate of, the imposition,
withholding or deduction of any taxes, and (y) at least 60 days prior to the first payment date with respect to which
the Issuer or a Guarantor shall apply this clause, the Issuer or, as the case may be, the relevant Guarantor shall have
notified the holder of such Note, in writing, that such holder or beneficial owner will be required to provide such
information or documentation;
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(viii)
any taxes that are payable otherwise than by deduction or withholding from a payment on a Note;
(ix)
any payment on a Note to any holder who is a fiduciary or partnership or other than the sole
beneficial owner of any such payment, to the extent that a beneficiary or settlor with respect to such fiduciary, a
member of such a partnership or the beneficial owner of such payment would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner been the holder of such Note; or
(x)
any combination of the aforementioned.
(b)
Any reference in the Notes to principal and/or interest shall be deemed also to refer to any
Additional Amounts which may be payable under the undertakings referred to in this Condition 6.
(c)
The Issuer shall pay all stamp and other duties, if any, which may be imposed by Mexico or any
political subdivision thereof or taxing authority of or in the foregoing with respect to the execution and delivery of
the Trust Deed, the Agency Agreement or the issuance of this Note.
(d)
Any reference in these Conditions to principal, premium and/or interest shall be deemed to include
any additional amounts which may be payable under this Condition or any undertaking given in addition to or
substitution for it under these presents.
7.
Events of Default
If any of the following events shall occur while any Notes of this Series issued pursuant to the Programme
are outstanding:
(i)
default by the Issuer in the payment of any principal due on any Note of this Series on the due date
for payment thereof; or
(ii)
default by the Issuer in the payment of any interest due on any Note of this Series for a period of
more than three (3) days after the due date for payment thereof; or
(iii)
default in the performance of any other covenant of the Issuer or any of the Guarantors in the Trust
Deed, the Agency Agreement or in the Notes, which, if (in the opinion of the Trustee) capable of being remedied,
continues for 45 days after written notice of such default has been given, by the Trustee, to the Issuer or the relevant
Guarantor (as the case may be); or
(iv)
the validity of the Notes of any Series or the Trust Deed or the Agency Agreement is contested by
the Issuer or any of the Guarantors, or any final decision by any court having jurisdiction from which no appeal
(which term "appeal" shall include the bringing of an action in the form of a juicio de amparo with respect to such
final decision) may be or is taken shall purport to render any material (in the opinion of the Trustee) provision of the
Notes of any Series or any material (in the opinion of the Trustee) provision of the Trust Deed or the Agency
Agreement invalid or unenforceable or purport to prevent or materially (in the opinion of the Trustee) delay the
performance or observance by the Issuer or any of the Guarantors of any of its obligations under such Notes or any
of its material (in the opinion of the Trustee) obligations under the Trust Deed or the Agency Agreement; or
(v)
a decree or order by a court having jurisdiction shall have been entered adjudging the Issuer or any
of the Guarantors as bankrupt, or in concurso mercantil or otherwise insolvent, or approving as properly filed a
petition seeking reorganisation or concurso mercantil of the Issuer or any of the Guarantors and such decree or order
shall have continued unanswered by the Issuer or the relevant Guarantor (as the case may be) for a period of nine (9)
days after notice is delivered to the Issuer or the relevant Guarantor (as the case may be) or undischarged for a
period of 120 days from the date of such decree or order; or a decree or order of a court having jurisdiction for the
appointment of a receiver, liquidator, síndico, interventor or trustee or assignee in bankruptcy, concurso mercantil or
insolvency of the Issuer or any of the Guarantors or in relation to the property of the Issuer or any of the Guarantors
or for the winding up or liquidation of the affairs of the Issuer or any of the Guarantors shall have been entered, and
such decree or order shall have continued unanswered by the Issuer or the relevant Guarantor (as the case may be)
for a period of nine (9) days after notice is delivered to the Issuer or the relevant Guarantor (as the case may be) or
undischarged for a period of 120 days from the date of such decree or order; or
(vi)
the Issuer or any of the Guarantors shall institute proceedings to be adjudicated a voluntary
bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or
consent seeking reorganisation or concurso mercantil, or shall consent to the filing of any such petition, or shall
consent to the appointment of a receiver or liquidator, síndico, interventor or trustee or assignee in bankruptcy,
78
concurso mercantil or insolvency of it or its property, or shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts generally as they become due; or
(vii)
all or a substantial (in the opinion of the Trustee) part of the assets of the Issuer and the Issuer's
Subsidiaries taken as a whole or any of the Guarantors and the relevant Guarantors' Subsidiaries taken as a whole or
substantially all of the shares of the Issuer or any of the Guarantors shall be nationalised or expropriated by any
governmental authority, or any license, permit or other authorisation material (in the opinion of the Trustee) to the
conduct of the business of the Issuer or any of the Issuer's Subsidiaries or any of the Guarantors or any of the
Guarantors' Subsidiaries shall have been revoked and not reinstated within 120 days; or
(viii)
Supplement;
any other event specified as an "Additional Event of Default" in the applicable Pricing
then the Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in
aggregate principal amount of the Outstanding Notes of the relevant Series or if so directed by an Extraordinary
Resolution of the Noteholders of such Series shall (subject in any such case to being secured and/or indemnified
and/or prefunded to its satisfaction), give notice to the Issuer that the Notes of such Series are, and they shall
accordingly immediately become, due and payable at 100 per cent. of the outstanding principal amount thereof
together with accrued and unpaid interest thereon.
At any time after the Notes become due and payable, the Trustee may, at its discretion and without further notice,
institute such actions, steps or proceedings against the Issuer and/or the Guarantors as it may think fit to enforce the
terms of the Trust Deed, the Notes, the Receipts and the Coupons, but it need not take any such proceedings unless
(a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding
at least one-quarter in aggregate principal amount of the Outstanding Notes of the relevant Series and (b) it shall
have been indemnified and/or secured and/or prefunded to its satisfaction. No Noteholder, Receiptholder or
Couponholder may proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so
to proceed, fails to do so within a reasonable time and such failure is continuing.
The Trustee shall not be obliged to take any action in relation to the enforcement or realisation of any security or
collateral or security or collateral document unless an Event of Default or Potential Event of Default has occurred
and directed to do so by the holders of at least one quarter in aggregate principal amount of the Outstanding Notes
and indemnified and/or secured and/or prefunded to its satisfaction.
8.
Meetings of Noteholders
The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting
their interests, including the modification by Extraordinary Resolution of these Conditions or other provisions of the
Trust Deed. The quorum at any such meeting for passing an Extraordinary Resolution will be one or more persons
holding or representing not less than 75 per cent. in principal amount of the Outstanding Notes of the relevant
Series, or at any adjourned such meeting one or more persons being or representing Noteholders whatever the
principal amount of the Notes of the relevant Series so held or represented. An Extraordinary Resolution passed at
any meeting of Noteholders will be binding on all Noteholders, whether or not they are present at the meeting, and,
if applicable, on all Receiptholders and Couponholders. The Trust Deed provides that meetings of more than one
Series may be held where in the opinion of the Trustee there is no conflict of interests between the holders of the
Notes of such Series.
Except as may be provided in the Conditions of a particular Series of Notes in respect of such Series of
Notes and subject always to such Conditions in respect of such Series of Notes, in relation to each Series, the
Trustee may agree, without the consent of the Noteholders to (i) any modification of, or to any waiver or
authorisation of any breach or proposed breach of, any of these Conditions or any provision of the Trust Deed or, in
the case of modification, the Agency Agreement which, in the opinion of the Trustee, is not materially prejudicial to
the interests of the Noteholders, or (ii) any modification to any of the same which is of a formal, minor or technical
nature or to correct a manifest error. Any such modification, waiver, authorisation or substitution shall be binding on
all Noteholders and, if applicable, all Receiptholders and all Couponholders and any such modification or
substitution shall be notified to the Noteholders by the Issuer in accordance with Condition 13 as soon as practicable
thereafter unless, in the case of modification, the Trustee agrees otherwise.
In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including,
without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have
79
regard to the interests of the Noteholders as a class (but shall not have regard to any interests arising from
circumstances particular to individual Noteholders, Receiptholders or Couponholders of the relevant Series whatever
their number) and, in particular but without limitation, shall not have regard to the consequences of any such
exercise for individual Noteholders, Receiptholders or Couponholders of the relevant Series (whatever their number)
resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the
jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to
require, nor shall any Noteholder, Receiptholder or Couponholder of the relevant Series be entitled to claim, from
the Issuer, any Guarantor, the Trustee or any other person any indemnification or payment in respect of any tax
consequences of any such exercise upon individual Noteholders, Receiptholders or Couponholders of the relevant
Series.
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from
responsibility including for the exercise of any voting rights in respect of any collateral and for the validity,
sufficiency and enforceability (which the Trustee has not investigated) of any security which may be granted in
respect of any Series. The Trustee is exempted from liability with respect to any loss or theft or reduction in value
of any collateral, from any obligation to insure or to procure the insuring of any collateral and from any claim
arising from the fact that any collateral will be held in safe custody by any custodian selected by the Trustee. The
Trustee is not responsible for supervising the performance by any other person of its obligations to the Issuer or any
of the Guarantors.
9.
Covenants of the Issuer
The Issuer agrees to comply with the following covenants for so long as any Note issued under the
Programme remains outstanding:
(i)
Payment of Principal and Interest. It will duly and punctually pay or cause to be paid the principal
of and interest (and any Additional Amounts) on each of the Notes and any other payments to be made by the Issuer
under the Notes, the Trust Deed and the Agency Agreement, at the place or places, at the respective times and in the
manner provided in the Notes, the Trust Deed and the Agency Agreement.
(ii)
Authorisation and Consents. It will forthwith take, fulfil or do any action, condition or thing
(including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, license,
order, recording, registration or translation) at any time required to be taken, fulfilled or done in order (1) to enable
the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations under the Trust
Deed, the Agency Agreement or the Programme Agreement, (2) to ensure that those obligations are legally binding
and enforceable and (3) to enable a Spanish translation, prepared by a court approved translator, of the Trust Deed,
the Agency Agreement, the Programme Agreement and the Notes to be admissible in evidence in the courts of
Mexico.
(iii)
Payment of Taxes. It will pay all stamp and other duties, if any, which may be imposed by
Mexico, the United States, Luxembourg, Belgium or any political subdivision thereof or taxing authority of or in the
foregoing with respect to the execution and delivery of the Trust Deed or the Agency Agreement or the issuance of
the Notes (other than taxes on income imposed in the jurisdiction where the relevant taxpayer is incorporated or
qualified to do business).
(iv)
Continued Existence of the Issuer. It shall not dissolve or liquidate in whole or in part, except as
permitted under the Trust Deed.
10.
Replacement of Notes, Exchange and Transfer
Subject to the succeeding paragraph, if any mutilated Note is surrendered to the Principal Paying Agent, the
Issuer shall execute, and the Principal Paying Agent shall authenticate and deliver in exchange therefor, a new Note
of like tenor and principal amount, bearing (with respect to Definitive Notes) a serial number not
contemporaneously outstanding.
If there be delivered to the Issuer and the Principal Paying Agent (i) evidence to their reasonable
satisfaction of the destruction, loss or theft of any Note, and (ii) such security or indemnity as may be reasonably
required by them, then, in the absence of notice to the Issuer or the Principal Paying Agent (with respect to Notes)
that such Note has been acquired by a bona fide purchaser, the Issuer shall execute, and upon its request the
Principal Paying Agent shall authenticate and deliver in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a serial number not contemporaneously outstanding.
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Upon the issuance of any new Note under this Condition 10, the Issuer may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and the expenses of the Trustee or the Principal Paying Agent, as the case may be)
connected therewith.
Every new Note issued pursuant to this Condition 10 in lieu of any destroyed, lost or stolen Note shall
constitute an original contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Note shall be at
any time enforceable by anyone. Any new Note delivered pursuant to the provisions of this Condition 10 shall be so
dated that neither gain nor loss of interest shall result from such exchange. The provisions of this Condition 10 and
the provisions of the Agency Agreement regarding the replacement or payment of mutilated, destroyed, lost or
stolen Notes are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes,
and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes.
11.
Paying Agents
The names of the initial Paying Agents and their initial specified offices are set out below.
The Issuer and the Guarantors (acting together) are entitled, with the prior written consent of the Trustee, to
vary or terminate the appointment of any Paying Agent and/or appoint additional or other Paying Agents and/or
approve any change in the specified office through which any Paying Agent acts, provided that the Issuer and the
Guarantors will at all times appoint at least one Paying Agent in a Member State of the European Union that will not
be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing
or complying with, or introduced in order to conform to such Directive. In addition, the Issuer and the Guarantors
(acting together) shall forthwith appoint a Paying Agent having a specified office in New York City in the
circumstances described in Condition 5(b)(iii). Any variation, termination, appointment or change shall only take
effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than
45 days' prior notice thereof shall have been given to the Noteholders in accordance with Condition 13.
In acting under the Agency Agreement, the Paying Agents act solely as agents of the Issuer and the
Guarantors and, in certain circumstances specified therein, the Trustee, and do not assume any obligation to, or
relationship of agency or trust with, any Noteholders, Receiptholders or Couponholders. The Agency Agreement
contains provisions permitting any entity into which any Paying Agent is merged or converted or with which it is
consolidated or to which it transfers all or substantially all of its assets to become the successor paying agent.
12.
Prescription
The Notes, Receipts and Coupons shall be prescribed and become void unless presented for payment within
a period of 10 years (in the case of principal) and five years (in the case of interest) after the Relevant Date therefor.
"Relevant Date" means the date on which payment of principal and interest first becomes due, except that,
if the full amount of the moneys payable has not been duly received by the Trustee or the Principal Paying Agent, as
the case may be, on or prior to such due date, it means the date on which, the full amount of such moneys having
been so received, notice to that effect is duly given to the Noteholders in accordance with Condition 13.
13.
Notices
All notices regarding the Notes shall be given to holders of Definitive Notes and interests in a Global Note
by publication at least once in a leading daily newspaper in the English language of general circulation in London. It
is expected that such publication will be made in the Financial Times in London. Neither the failure to give notice
nor any defect in any notice to any particular Noteholder shall affect the sufficiency of any notice with respect to
other Notes. Such notices will be deemed to have been given on the date of such publication or, if published in such
newspapers on different dates, on the date of the first such publication.
Notice to be given by any Noteholder shall be in writing and given by forwarding the same, together (in the
case of Definitive Notes) with the relative Note or Notes, to the Principal Paying Agent. While any Notes are
represented by a Global Note, such notice may be given by any holder of an interest in such Global Note to the
Principal Paying Agent via Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the
Principal Paying Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this
purpose.
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14.
Currency Indemnity
The relevant Specified Currency is the sole currency of account and payment for all sums payable by the
Issuer or the Guarantors under or in connection with the Notes, including damages. Any amount received or
recovered in a currency other than in the relevant Specified Currency (whether as a result of, or of the enforcement
of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Issuer or the Guarantors
or otherwise) by any Noteholder in respect of any sum expressed to be due to it from the Issuer or the Guarantors
shall only constitute a discharge of the Issuer or the Guarantors to the extent of the relevant Specified Currency
amount which the recipient is able to purchase with the amount so received or recovered in that other currency on
the first date on which it is practicable for such Noteholder to so purchase the relevant Specified Currency with the
amount so received or recovered in that other currency (such date with respect to such a receipt or recovery by a
Noteholder in a currency other than the relevant Specified Currency being referred to herein as the "First Practicable
Conversion Date"). If that relevant Specified Currency amount is less than the relevant Specified Currency amount
expressed to be due to the recipient under any Note, the Issuer or the Guarantors shall indemnify such recipient
against any loss sustained by it as a result. In any event, the Issuer or the Guarantors shall indemnify the recipient
against the cost of making any such purchase. For the purposes of this Condition 14, it will be sufficient for the
Noteholder to demonstrate that it would have suffered a loss had an actual purchase been made on the First
Practicable Conversion Date. These indemnities constitute a separate and independent obligation from the Issuer's
and/or the Guarantors' other obligations, shall give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any Noteholder and shall continue in full force and effect despite any
other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note or any other
judgment or order. If any amount is received or recovered by a Noteholder in a currency other than the relevant
Specified Currency and if the actual conversion of such amount to the relevant Specified Currency by such
Noteholder results in a net surplus (after deductions of all costs and expenses of such conversion), such surplus must
be returned to the Issuer within 30 days of such conversion.
15.
Governing Law
The Trust Deed, the Agency Agreement, the Notes, the Receipts and the Coupons and any non-contractual
obligations arising out of or in connection with the Trust Deed, the Agency Agreement, the Notes, the Receipts and
the Coupons are governed by, and shall be construed in accordance with, English law.
16.
Jurisdiction
The Issuer irrevocably agrees for the benefit of the holders of the Notes that the courts of England shall
have jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise
out of or in connection with the Notes (respectively, "Proceedings" and "Disputes") and, for such purposes,
irrevocably submits to the jurisdiction of such courts.
The Issuer irrevocably waives any objection which it might now or hereafter have to the courts of England
being nominated as the forum to hear and determine any Proceedings and to settle any Disputes and agrees not to
claim that any such court is not a convenient or appropriate forum.
Nothing contained in this Condition 16 shall limit any right to take Proceedings against the Issuer in any
court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking
of Proceedings in any other jurisdiction, whether concurrently or not.
The Issuer appoints, designates and empowers Law Debenture Corporate Services Limited at its office at
100 Wood Street, Fifth Floor, London EC2V 7EX as its agent for service of process, and undertakes that, in the
event of such person ceasing so to act or ceasing to be domiciled in England, it will appoint, designate and empower
another person domiciled in England as its agent for service of process in England in respect of any Proceedings.
Nothing herein shall affect the right to serve process in any other manner permitted by law.
17.
Descriptive Headings
The descriptive headings appearing in these Conditions are for convenience of reference only and shall not
alter, limit or define the provisions hereof.
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18.
Further Issues of Notes
The Issuer may from time to time without the consent of the Noteholders create and issue further notes,
bonds or Notes having the same terms and conditions as the Notes of a Series in all respects (or in all respects except
for the payment of interest on the Notes (i) scheduled and paid prior to the date of issuance of such notes, bonds or
Notes or (ii) payable on the first Interest Payment Date following such date of issuance) so that such further issue
shall be consolidated and form a single Series with the outstanding Notes of such Series; provided that nothing in
this Condition shall prevent the Issuer from creating and issuing further notes, bonds or Notes that do not have the
same terms and conditions as the Notes and which are not consolidated with any of the Notes to form a single
Series. Any further notes, bonds or Notes forming a single Series with the outstanding Notes of any Series
constituted by the Trust Deed shall, and any other notes, bonds or Notes may (with the consent of the Trustee), be
constituted by the Trust Deed.
19.
Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of
Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart
from the Contracts (Rights of Third Parties) Act 1999.
20.
Redenomination
Where redenomination is specified in the applicable Pricing Supplement as being applicable, the Issuer
may, without the consent of the Noteholders, the Receiptholders and the Couponholders, on giving at least 30 days'
prior notice to the Principal Paying Agent, the Trustee, Euroclear and Clearstream, Luxembourg and to the
Noteholders in accordance with Condition 13 elect that, with effect from the Redenomination Date specified in the
notice, the Notes shall be redenominated in euro.
The election will have effect as follows:
(i)
the Notes and the Receipts shall be deemed to be redenominated into euro in the denomination of
EUR 0.01 with a principal amount for each Note and Receipt equal to the principal amount of that Note or Receipt
in the Specified Currency, converted into euro at the Established Rate, provided that, if the Issuer determines, with
the agreement of the Principal Paying Agent that the then market practice in respect of the redenomination into euro
of internationally offered securities is different from the provisions specified above, such provisions shall be deemed
to be amended so as to comply with such market practice and the Issuer shall promptly notify to the Noteholders, the
Trustee and the Agents of such deemed amendments;
(ii)
save to the extent that an Exchange Notice has been given in accordance with paragraph (iv)
below, the amount of interest due in respect of the Notes will be calculated by reference; (x) in the case of Notes in
bearer form, to the aggregate principal amount of Notes presented (or, as the case may be, in respect of which
Coupons are presented) for payment by the relevant holder; or (y) in the case of Notes in registered form, the
Outstanding Notes, and the amount of any such payment shall be rounded down to the nearest EUR 0.01;
(iii)
if definitive Notes are required to be issued after the Redenomination Date, they shall be issued at
the expense of the Noteholders in the denominations of EUR 1,000, EUR 10,000, EUR 100,000 and (but only to the
extent of any remaining amounts less than EUR 1,000 or such smaller denominations as the Principal Paying Agent
may approve) EUR 0.01 and such other denominations as the Principal Paying Agent shall determine after
consultation with Euroclear and Clearstream, Luxembourg and notify the Noteholders but subject to any
requirement for minimum denomination under applicable law;
(iv)
if issued prior to the Redenomination Date, all unmatured Coupons denominated in the Specified
Currency (whether or not attached to the Notes) will become void with effect from the date on which the Issuer
gives notice (the "Exchange Notice") that replacement euro-denominated Notes, Receipts and Coupons are available
for exchange (provided that such securities are so available) and no payments will be made in respect of them. The
payment obligations contained in any Notes and Receipts so issued will also become void on that date although
those Notes and Receipts will continue to constitute valid exchange obligations of the Issuer. New certificates in
respect of euro-denominated Notes, Receipts and Coupons will be issued in exchange for Notes, Receipts and
Coupons denominated in the Specified Currency in such manner as the Principal Paying Agent may specify and as
83
shall be notified to the Noteholders in the Exchange Notice. No Exchange Notice may be given less than 15 days
prior to any date for payment of principal or interest on the Notes;
(v)
after the Redenomination Date, all payments in respect of the Notes, the Receipts and the
Coupons, other than payments of interest in respect of periods commencing before the Redenomination Date, will be
made solely in euro as though references in the Notes to the Specified Currency were to euro. Payments will be
made in euro by credit or transfer to a euro account (or any other account to which euro may be credited or
transferred) specified by the payee or, at the option of the payee, by a euro cheque;
(vi)
if the Notes are Fixed Rate Notes and interest for any period ending on or after the
Redenomination Date is required to be calculated for a period ending other than on an Interest Payment Date, it will
be calculated by applying the Interest Rate to each Specified Denomination, multiplying such sum by the applicable
Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half
of any such sub-unit being rounded upwards or otherwise in accordance with applicable market conventions;
(vii)
if the Notes are Floating Rate Notes, the applicable Pricing Supplement will specify any relevant
changes to the provisions relating to interest; and
(viii)
such other changes shall be made to these Conditions as the Issuer may decide, with the consent of
the Trustee and the Principal Paying Agent, and as may be specified in the notice, to conform them to conventions
then applicable to instruments denominated in euro.
In this Condition 20, the following expressions have the following meanings:
"Established Rate" means the rate for the conversion of the Specified Currency (including compliance with
rules relating to roundings in accordance with applicable European Community regulations) into euro
established by the Council of the European Union pursuant to Article 123 of the Treaty;
"euro" and "EUR" mean the currency introduced at the start of the third stage of economic and monetary
union pursuant to the Treaty;
"Redenomination Date" means (in the case of interest-bearing Notes) any date for payment of interest
under the Notes or (in the case of Zero Coupon Notes) any date, in each case specified by the Issuer in the
notice given to the Noteholders pursuant to paragraph (i) above and which falls on or after the date on
which the country of the Specified Currency first participates in the third stage of European economic and
monetary union or otherwise participates in European economic and monetary union in a manner with
similar effect to such third stage; and
"Treaty" means the Treaty establishing the European Community, as amended.
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SELLING RESTRICTIONS
General
No action has been or will be taken in any jurisdiction that would permit a public offering of the Notes, or
the possession, circulation or distribution of this Offering Circular or any other material relating to the Issuer, the
Guarantors or the Notes in any jurisdiction where action for that purpose is required. Accordingly, the Notes may
not be offered or sold, directly or indirectly, and neither this Offering Circular, nor any other offering material or
advertisement in connection with the Notes, may be distributed or published in, or from, any country or jurisdiction,
except under circumstances that will result in compliance with any applicable rules and regulations of any such
country or jurisdiction. Purchasers of Notes may be required to pay stamp taxes and other charges in accordance
with the laws and practices of the country of purchase in addition to the purchase price.
United States
The Notes have not been and will not be registered under the Securities Act, or with any securities
regulatory authority of any state or other jurisdiction of the United States. The Notes may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S).
Each purchaser of Notes outside the United States pursuant to Regulation S and each subsequent purchaser
of such Notes, by accepting delivery of this Offering Circular and the Notes, will be deemed to have represented,
agreed and acknowledged that:
1.
it is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (a) it is not
a U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not an
affiliate of the Issuer or a person acting on behalf of one of the Issuer's affiliates;
2.
it understands that such Notes have not been registered under the Securities Act and that, prior to
the expiration of the distribution compliance period, it will not offer, sell, pledge or otherwise transfer such Notes
except (a) to us, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) if
such Notes have been registered pursuant to an effective registration statement under the Securities Act, in each case
in accordance with any applicable securities laws of any State of the United States;
3.
it understands that such Notes, unless the Issuer determines otherwise in accordance with
applicable law, will bear a legend to the following effect:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES EXCEPT (A) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
4.
it understands that the Issuer, the Registrar, the Dealers and the Issuer's and their affiliates, and
others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements;
and
5.
(a) either (i) it is not, and is not acting on behalf of, an employee benefit plan (as defined in
Section 3(3) of ERISA) or other plan (as defined in Section 4975(e)(1) of the Code) subject to the prohibited
transaction provisions of ERISA, or Section 4975 of the Code, or any entity which may be deemed to hold assets of
any such employee benefit plan or plan, or a governmental, church or non-U.S. plan which is subject to any federal,
state, local or non-U.S. law that is substantially similar to the prohibited transaction provisions of Section 406 of
ERISA or Section 4975 of the Code, and no part of the assets to be used by it to purchase or hold the Notes or any
interest therein constitutes the assets of any such employee benefit plan or plan, or (ii) its acquisition, holding and
disposition of the Notes or any interest therein does not and will not constitute or otherwise result in a non-exempt
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental,
church or non-U.S. plan, a violation of any substantially similar federal, state, local or non-U.S. law); and (b) it
agrees not to sell or otherwise transfer any interest in the Notes otherwise than to a purchaser or transferee that is
deemed to make these same representations, warranties and agreements with respect to its acquisition and holding of
such Notes.
85
THE ISSUER, THE GUARANTORS AND THE DEALERS WILL RELY UPON THE TRUTH AND
ACCURACY OF THE FOREGOING ACKNOWLEDGMENTS, REPRESENTATIONS AND AGREEMENTS.
Mexico
The Notes may not be publicly offered or traded in Mexico unless the same are offered or traded pursuant
to the provisions of Article 8 of the LMV and regulations issued thereunder. The information contained in this
Offering Circular is solely the responsibility of the Issuer and the Guarantors and has not been reviewed or
authorized by the CNBV. The terms of the offering have been notified to the CNBV for information purposes only
which does not constitute a certification as to the investment quality of the Notes or of the solvency of the Issuer or
the Guarantors.
United Kingdom
Each Dealer has represented and agreed that:
(i)
in relation to any Notes which have a maturity of less than one year, (a) it is a person whose ordinary
activities involve it in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell any
Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is
reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for
the purposes of their businesses where the issue of the Notes would otherwise constitute a
contravention of Section 19 of the Financial Services and Markets Act 2000 ("FSMA") by TV
Azteca;
(ii)
it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in
circumstances in which Section 21(1) of the FSMA would not apply to TV Azteca; and
(iii)
it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a "Relevant Member State"), each Dealer has represented and agreed that with effect from and
including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant
Implementation Date) it has not made and will not make an offer of Notes which are the subject of the offering
contemplated by this Offering Circular as completed by the final terms in relation thereto to the public in that
Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make
an offer of such Notes to the public in that Relevant Member State:
(i)
if the final terms in relation to the Notes specify that an offer of those Notes may be made other than
pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a Non-exempt
Offer), following the date of publication of a prospectus in relation to such Notes which has been
approved by the competent authority in that Relevant Member State or, where appropriate, approved
in another Relevant Member State and notified to the competent authority in that Relevant Member
State, provided that any such prospectus has subsequently been completed by the final terms
contemplating such Non-exempt Offer, in accordance with the Prospectus Directive, in the period
beginning and ending on the dates specified in such prospectus or final terms, as applicable;
(ii)
at any time to legal entities which are authorized or regulated to operate in the financial markets or, if
not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(iii)
at any time to any legal entity which has two or more of (1) an average of at least 250 employees
during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual
net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
(iv)
at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant
provisions of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified
86
investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant
Dealer nominated by TV Azteca for any such offer; or
(v)
at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Notes referred to in (ii) to (v) above shall require TV Azteca or any Dealer to
publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant
to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in
any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to
purchase or subscribe the Notes, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and the expression "Prospectus Directive"
means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the
extent implemented in the Relevant Member State) and includes any relevant implementing measure in
each Relevant Member State and the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
Hong Kong
No Notes have been offered or sold, and no Notes may be offered or sold, in Hong Kong, by means of any
document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal
or agent; or to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong
and any rules made under that Ordinance; or in other circumstances which do not result in the document being a
"prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to
the public within the meaning of the Companies Ordinance (Cap.32) of Hong Kong. No document, invitation or
advertisement relating to the Notes has been issued or may be issued or may be in the possession of any person for
the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of
which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of
Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside
Hong Kong or only to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of
Hong Kong and any rules made under that Ordinance.
This Offering Circular has not been registered with the Registrar of Companies in Hong Kong.
Accordingly, this Offering Circular may not be issued, circulated or distributed in Hong Kong, and the Notes may
not be offered for subscription to members of the public in Hong Kong. Each person acquiring the Notes will be
required, and is deemed by the acquisition of the Notes, to confirm that he is aware of the restriction on offers of the
Notes described in this Offering Circular and the relevant offering documents and that he is not acquiring, and has
not been offered any Notes in circumstances that contravene any such restrictions.
Singapore
This Offering Circular has not been and will not be lodged or registered with the Monetary Authority of
Singapore. Accordingly, this Offering Circular and any other document or material in connection with the offer or
sale, or the invitation for subscription or purchase of the Notes, may not be issued, circulated or distributed, nor may
the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or
indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person as
defined under Section 275(2), or any person pursuant to Section 275(1A) of the SFA, and in accordance with the
conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions
of any other applicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a)
a corporation (which is not an accredited investor as defined under Section 4A of the SFA) the sole
business of which is to hold investments and the entire share capital of which is owned by one or
more individuals, each of whom is an accredited investor; or
(b)
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and
each beneficiary is an accredited investor,
87
shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in
that trust shall not be transferable for six months after that corporation or that trust has acquired the Offer Shares
under Section 275 of the SFA except:
(i)
to an institutional investor under Section 274 of the SFA or to a relevant person defined in
Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such
shares, debentures and units of shares and debentures of that corporation or such rights and interest in
that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign
currency) for each transaction, whether such amount is to be paid for in cash or by exchange of
securities or other assets, and further for corporations, in accordance with the conditions, specified in
Section 275 of the SFA;
(ii)
where no consideration is given for the transfer; or
(iii)
where the transfer is by operation of law.
Switzerland
This Offering Circular as well as any other material relating to the Notes does not constitute an issue
prospectus pursuant to Articles 652a and/or 1156 of the Swiss Code of Obligations. The Notes will not be listed on
the SIX Swiss Exchange and, therefore, the documents relating to the Notes, including, but not limited to, this
document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and
corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The Notes are being
offered in Switzerland by way of a private placement, i.e. to a small number of selected investors only, without any
public offer and only to investors who do not purchase the Notes with the intention to distribute them to the public.
The investors will be individually approached by TV Azteca from time to time. This Offering Circular as well as
any other material relating to the Notes are personal and confidential and do not constitute an offer to any other
person. This Offering Circular may only be used by those investors to whom it has been handed out in connection
with the offering described herein and may neither directly nor indirectly be distributed or made available to other
persons without the express consent of TV Azteca. It may not be used in connection with any other offer and shall
in particular not be copied and/or distributed to the public in (or from) Switzerland.
Argentina
The Notes will not be marketed in Argentina by means of a public offer of securities, as such term is
defined under Section 2 of Argentine Law No. 26,831, as amended. No application has been or will be made with
the Argentine Comisión Nacional de Valores, the Argentine securities governmental authority, to offer the Notes in
Argentina.
Brazil
The offering of the Notes will not be carried out by any means that would constitute a public offering in
Brazil under Law 6,385 of December 7, 1976, as amended, and under CVM Rule No. 400 of December 29, 2003, as
amended. Accordingly, this Offering Circular and any supplements thereto have not been, and will not be, delivered
for registration to the Comissão de Valores Mobiliários ("CVM"), the Brazilian Central Bank ("BCB") or other
Brazilian authorities and the issue of the Notes has not been authorized by the CVM, BCB or any other Brazilian
authority and this Offering Circular and any supplement thereto shall not be construed as being a public offering of
securities or an offering in the financial and capital markets in Brazil. Documents relating to the offering, as well as
the information contained herein and therein, may not be supplied or distributed to the public in Brazil, as the
offering of the Notes pursuant to this Offering Circular and any supplements thereto will not be a public offering of
securities in Brazil, nor be used in connection with any offer for subscription or sale of Notes to the public in Brazil.
Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in Brazil is not
legal without prior registration with the CVM.
Chile
The Notes have not and will not be registered with the Chilean Securities Commission (Superintendencia
de Valores y Seguros) under Law 18,045, as amended, of Chile, and, accordingly, may not be offered to persons in
Chile except in circumstances that do not constitute a public offering under Chilean law.
88
Colombia
Neither this Offering Circular nor any supplement thereto will be delivered for registration to the National
Registry of Securities and Issuers ("NRSI") in Colombia and the issue of the Notes will not be authorized by the
Colombian Superintendence of Finance, and neither this Offering Circular nor any supplement thereto shall be
construed as being a public offering of securities in Colombia. Accordingly, this document and accompanying
supplements may not be issued, circulated or distributed in Colombia, nor may the Notes be marketed, offered or
sold, other than in circumstances which do not constitute an offer of the Notes to the public in Colombia pursuant to
Decree 2555 of 2010 issued by the Ministry of Finance and other applicable and concordant regulations.
Furthermore, the terms Decree 2555 of 2010 must be abided to offer privately and to market the Notes in Colombia
or to Colombian residents.
Panama
The Notes will not be registered with the National Securities Commission of the Republic of Panama under
Decree Law No. 1 of July 8, 1999 (the "Panamanian Securities Act") and may not be publicly offered or sold within
Panama, except in certain limited transactions exempt from the registration requirements of the Panamanian
Securities Act. The Notes do not benefit from the tax incentives provided by the Panamanian Securities Act and are
not subject to regulation or supervision by the National Securities Commission of the Republic of Panama.
Peru
The Notes will not be subject to a public offering in the Republic of Peru. Therefore, this Offering Circular
has not been, and will not be, registered with the Peruvian Superintendency of Securities Market (Superintendencia
del Mercado de Valores or "SMV"). This Offering Circular and other offering materials relating to the offer of the
Notes may be supplied only to those Peruvian Institutional Investors who expressly requested it. They are strictly
confidential and may not be distributed to any person or entity other than the recipients hereof. The Notes may be
offered in Peru only to Institutional Investors as a private offering in accordance with Peruvian Law and are subject
to limitations as to their transferability as detailed therein and in this Offering Circular. In order for Peruvian
pension funds to invest in the Notes, all necessary registrations with the Superintendency of Banking, Insurance and
Peruvian Private Pension Funds Administrators (Superintendencia de Banca, Seguros y Administradoras Privadas
de Fondos de Pensiones or "SBS") have been made or will have to be made. Other Institutional Investors, as defined
by Peruvian legislation, must rely on their own examination of the Issuer and the terms of the offering of the Notes
in order to determine their legal ability to invest in them. The Issuer strongly recommends that each investor seeks
independent advice from local counsel in connection with the acquisition of the Notes.
Uruguay
In Uruguay the Notes are being placed relying in a private placement ("oferta privada") pursuant to Section
2 of Law N° 18,627. The Notes are not and will not be registered with the Financial Services Superintendence of the
Central Bank of Uruguay to be publicly offered in Uruguay.
Bermuda
The Notes being offered in this offering memorandum may be offered or sold in Bermuda only in
compliance with the provisions of the Investment Business Act 2003 of Bermuda (as amended). Additionally, nonBermudian persons may not carry on or engage in any trade or business in Bermuda unless such persons are
authorized to do so under applicable Bermuda legislation. Engaging in the activity of offering or marketing the
Notes offered hereby to persons in Bermuda may be deemed to be carrying on business in Bermuda.
89
TAXATION
This summary is general information only. Prospective purchasers of Notes should consult their tax
advisors as to the Mexican or other tax consequences of the purchase, ownership and disposition of the Notes,
including the effect of any foreign, state or local tax laws to which they are subject.
Mexican Taxation
This summary of certain Mexican tax considerations deals only with holders of the Notes that are not
residents of Mexico for Mexican tax purposes and that do not conduct a trade or business through a permanent
establishment in Mexico (a "Foreign Holder"), but does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a decision to purchase the Notes.
This summary is based on the federal tax laws of Mexico as in effect on the date of this Offering Circular
(including the Tax Treaty described below), as well as on rules and regulations of Mexico and regulations available
on or before such date and now in effect. All of the foregoing are subject to change, which change could apply
retroactively and could affect the continued validity of this summary.
For purposes of Mexican taxation, an individual is a resident of Mexico if he has established his domicile in
Mexico, unless he has another domicile in a foreign country and his personal and economic relations (centre of vital
interest) are not in Mexico (except for Mexican public officers or governmental employees). Under the Código
Fiscal de la Federación (the Mexican Tax Code, or "MTC"), the centre of vital interest of an individual is deemed
to be located in Mexico if: (i) the source of wealth of more than 50% of the total income obtained by the individual
in a calendar year comes from Mexico, or (ii) the individual's principal place of business is located within Mexican
territory. An individual of Mexican nationality is presumed to be a resident of Mexico for tax purposes unless such
person demonstrates otherwise. A legal entity is a resident of Mexico if its main administration or effective
management is located in Mexico. If a non-Mexican tax resident has a permanent establishment (i.e., a place of
business) in Mexico, such permanent establishment shall be required to pay taxes in Mexico on taxable income
attributable to such permanent establishment in accordance with relevant Mexican tax provisions.
Taxation of Interest and Principal
Under the Ley del Impuesto Sobre la Renta (the Mexican Income Tax Law, or "MITL"), payments of
interest made by TV Azteca or any Guarantor in respect of the Notes (including payments of principal in excess of
the issue price of such Notes, which, under Mexican law, are deemed to be interest) to a Foreign Holder will
generally be subject to Mexican Income Tax (the "Withholding Tax") assessed at a rate of 4.9% if (i) the relevant
Notes are placed among the public-at-large or (ii) the Notes are placed, through banks or brokerage houses, in a
country which has entered into a treaty to avoid double taxation with Mexico and provided that (x) the notice set
forth in Article 7, paragraph two, of the LMV has been filed with the CNBV describing the most relevant terms and
conditions of the offer of the Notes (the "CNBV Notice") and (y) the relevant requirements set forth by the Servicio
de Administración Tributaria (the Mexican Tax Administration Service, or "SAT") through general rules (the
"Rules") are complied with.
The requirements established by the SAT are as follows: (i) TV Azteca must file before the SAT a copy of
the CNBV Notice, (ii) TV Azteca must file before the SAT within the first 15 business days after the placement date
of the Notes, a tax notice describing certain tax information relating to TV Azteca and financial information relating
to the Notes; (iii) TV Azteca must file before the SAT within the first 15 business days of each July, October,
January and April of the following year, information regarding the amount of interest paid on the Notes and the date
of such payment, and a statement representing that the persons or entities referred to in sections (x) and (y) below
are not the effective beneficiaries of 5.0% or more of the aggregate amount of each such interest payment, and
(iv) TV Azteca maintains such notices and records required by the Rules. TV Azteca and each Guarantor expects
that such requirements will be met. If the requirements under such Rules are not complied with, withholding tax on
the payment of interest on the Notes will be assessed at a rate of 10% for holders other than parties related to TV
Azteca or the relevant Guarantor, as the case may be, as defined above, in which case payments of interest will be
assessed at a rate of 30%. The Rules, together with other tax regulations, are enacted on an annual basis, and
therefore, no assurances can be given that the Rules will be extended or that equivalent Rules will be enacted.
The withholding tax rates of 4.9% and 10% above mentioned will not be applicable if the effective
beneficiaries receive, either directly or indirectly, individually or in conjunction with related parties, more than 5%
of the interest derived from the Notes and such beneficiaries are: (x) shareholders of TV Azteca or the relevant
90
Guarantor, as the case may be, that own, directly or indirectly, individually or collectively, with related persons
more than 10% of TV Azteca's or the relevant Guarantor's, as the case may be, voting stock or (y) corporations more
than 20% of the stock of which is owned, directly or indirectly, individually or collectively, with related persons of
TV Azteca or the relevant Guarantor, as the case may be. For such purposes, parties are considered to be related
parties when one of them holds interest in the business of the other, when they have common interests, or when a
third person has an interest in their business or assets. In this case, the interest will be subject to Withholding Tax at
a general tax rate of 30%.
Payments of interest made by TV Azteca or any Guarantor with respect to the Notes to non-Mexican
pension or retirement funds will be exempt from Mexican withholding taxes, provided that any such fund (i) is the
effective beneficiary of the interest, (ii) is duly incorporated pursuant to the laws of its country of origin (regardless
of the type of organization), (iii) is exempt from income tax in such country, and (iv) is registered at the Registry of
Foreign Banks, Financing Entities, Pension, Retirement Funds and Investment Funds in accordance with the Rules
issued by the SAT.
TV Azteca and the Guarantors have agreed, subject to specified exceptions and limitations, to pay
additional amounts to the holders of the Notes in respect of the Withholding Tax mentioned above.
Under existing Mexican law and regulations, a Foreign Holder will not be subject to any Mexican taxes in
respect of payments of principal made by TV Azteca or any Guarantor with respect to the Notes (except to the
extent such payments of principal are in excess of the issue price of the Notes).
Taxation of Dispositions of Notes
Payments in excess of the issue price of the Notes resulting from the sale made by Foreign Holders of the
Notes, are deemed to be interest for Mexican tax purposes to the extent the purchaser of the Notes is a Mexican
resident or a foreign resident with a permanent establishment in Mexico. The corresponding withholding tax rate
would depend on the beneficial owner of the gain. In addition, purchases of the Notes by a non-Mexican tax
resident below par value may be subject to Withholding Tax if the seller of the Notes is either a Mexican individual
or a Mexican company.
Capital gains resulting from the sale or other disposition of the Notes by a Foreign Holder to another
Foreign Holder will not be subject to Mexican income or other similar taxes.
Transfer and Other Taxes
There are no Mexican stamp, registration of similar taxes payable by a Foreign Holder in connection with
the purchase, ownership or disposition of any Notes. A Foreign Holder of Notes will not be liable for Mexican
estate, gift, inheritance or similar tax with respect to the Notes.
Payments of Interest
Under Council Directive 2003/48/EC on the taxation of savings income (the "Savings Directive"), each
Member State of the European Union, or EU, is required to provide to the tax authorities of another Member State
details of payments of interest or other similar income paid by a person within its jurisdiction to, or secured by such
a person for, an individual beneficial owner resident in, or certain limited types of entities established in, that other
Member State; however, for a transitional period, Austria and Luxembourg will (unless during such period they
elect otherwise) instead apply a withholding system in relation to such payments. Under such withholding system,
the beneficial owner of the interest payment must be allowed to elect that certain provision of information
procedures should be applied instead of withholding. The current rate of withholding is 35%. The transitional period
is to terminate at the end of the first full fiscal year following the conclusion of agreements by certain non-EU
countries to exchange of information procedures relating to interest and other similar income.
A number of non-EU countries, and certain dependent or associated territories of certain Member States,
have adopted or agreed to adopt similar measures (either provision of information or transitional withholding) in
relation to payments made by a person within its jurisdiction to, or secured by such a person for, an individual
beneficial owner resident in, or certain limited types of entities established in, a Member State. In addition, the
Member States have entered into provision of information or transitional withholding arrangements with certain of
those dependent or associated territories in relation to payments made by a person in a Member State to, or secured
by such a person for, an individual beneficial owner resident in, or certain limited types of entities established in,
one of those countries or territories.
91
A proposal for amendments to the Savings Directive has been published, including a number of suggested
changes which, if implemented, would broaden the scope of the rules described above. No Additional Amounts will
be payable with respect to a note where withholding or deduction is imposed or levied on a payment pursuant to the
Savings Directive or any other EU directive implementing the conclusions of the ECOFIN Council meeting of
November 26-27, 2000 on the taxation of savings income, or any law implementing or complying with, or
introduced in order to conform to, such a directive. If any Definitive Notes are issued, the Issuer will, to the extent
permitted by law, maintain a paying agent in a Member State that will not be obliged to withhold or deduct tax
pursuant to the Savings Directive or any such directive or law. Holders should consult their tax advisors regarding
the implications of the Savings Directive in their particular circumstances.
92
AVAILABLE INFORMATION
For so long as Notes are listed on the Global Exchange Market of the Irish Stock Exchange, copies of the
following items will be available in physical form at the offices of Azteca, located at Periférico Sur 4121, Col.
Fuentes del Pedregal, Mexico City, C.P. 14141, Mexico:

this Offering Circular;

the applicable Pricing Supplement(s);

the constitutional documents of Azteca;

consolidated audited financial statements of Azteca and its subsidiaries as of and for the years ended
December 31, 2012 and 2011, in each case together with the audit reports prepared in connection
therewith;

consolidated unaudited interim financial statements of Azteca and its subsidiaries as of and for the six
months ended June 30, 2013 and 2012;

the most recently published audited consolidated financial statements (if any) of Azteca and its
subsidiaries, in each case together with any audit reports prepared in connection therewith;

the most recently published unaudited interim financial statements (if any) of Azteca and its
subsidiaries, in each case together with any review reports prepared in connection therewith;

a copy of the trust deed and agency agreement governing the Notes; and

any other documents relating to the offering of Notes referred to herein.
93
LISTING AND GENERAL INFORMATION
The information contained in this Offering Circular is solely the responsibility of Azteca. Azteca, having
taken all reasonable care, confirms that the information contained in this Offering Circular is, to the best of its
knowledge, in accordance with the facts and contains no omission likely to affect its import.
Since June 30, 2013, there has been no significant change in the financial or trading position of Azteca or
Azteca and its consolidated subsidiaries (including each of the Guarantors) ("Azteca's Group") and since December
31, 2012 there has been no material adverse change in the financial position or prospects of Azteca or Azteca's
Group which is not otherwise disclosed in this Offering Circular or any supplemental offering circular.
Notes issued under the Programme may at any time, but are not required to, be listed on one or more stock
exchanges. Application has been made for this Offering Circular to be approved by the Irish Stock Exchange.
Azteca may apply for any Series of Notes to be issued under the Programme to be admitted to the Official List of the
Irish Stock Exchange and trading on its Global Exchange Market, as set forth in the applicable Pricing Supplement.
This Offering Circular constitutes "Base Listing Particulars" for the purpose of any such listing and trading.
The Global Notes will be deposited upon issuance with a common depositary for Euroclear and
Clearstream, Luxembourg.
Azteca estimates that it will incur approximately 1,940 euros in costs related to the approval of this
Offering Circular by the Irish Stock Exchange.
Except as disclosed in this Offering Circular, within the 12 months preceding the date of this Offering
Circular neither Azteca nor Azteca's Group is or has been involved in any governmental, legal or arbitration
proceedings (including any such proceedings which are pending or threatened of which Azteca or Azteca's Group is
aware) which may have, or have in such period had, significant effects on the financial position or profitability of
Azteca and/or Azteca's Group.
Except as disclosed herein, there are no potential conflicts of interest between any duties of any of the
members of the administrative, management or supervisory bodies of Azteca towards Azteca and their private
interests and/or other duties.
The price and amount of Notes to be issued under the Programme will be determined by Azteca and the
relevant Dealers at the time of issue in accordance with prevailing market conditions.
Azteca has obtained all necessary consents, approvals and authorisations in connection with the
Programme.
Azteca's financial information (including the financial statements included in the Base Listing Particulars)
is presented on a consolidated basis and includes both Guarantor and non-Guarantor subsidiaries.
Azteca's consolidated financial statements as of and for the years ended December 31, 2012 and 2011 have
been audited by its independent auditors, Salles, a member of Grant Thornton International. Salles is a member of
the CCPM and its address is Periférico Sur 4348, Colonia Jardines del Pedregal, 04500, Mexico, D.F.
Azteca is a publicly held corporation with variable capital (sociedad anónima bursátil de capital variable)
organized under the laws of Mexico. The public deed containing Azteca's deed of incorporation was executed on
June 2, 1993 and the same was registered in the Public Registry of Commerce (Registro Público de Comercio) of
Mexico City on July 13, 1993 under the commercial file 167346. The term of Azteca's incorporation is 99 years
beginning on the date of Azteca's incorporation. Azteca's principal executive offices are located at Av. Periférico Sur
4121, Col. Fuentes del Pedregal, Mexico D.F. 14141. Azteca's telephone number at that location is +5255-30991313. Azteca's Internet addresses are www.irtvazteca.com and www.tvazteca.com. Information available on
Azteca's websites is not a part of, nor is it incorporated by reference into, this Offering Circular.
94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Unaudited Condensed Consolidated Financial Statements of Azteca as of June 30, 2013 and 2012
Condensed consolidated balance sheets as of June 30, 2013 and 2012................................................................
F-2
Condensed consolidated statements of income for the six months ended June 30, 2013 and 2012 .....................
F-3
Condensed consolidated statements of changes in stockholders' equity for the
six months ended June 30, 2013 and 2012 .......................................................................................................
F-4
Condensed consolidated statements of cash flows for the six months ended June 30, 2013 and 2012 ................
F-5
Notes to condensed consolidated financial statements ........................................................................................
F-6
F-16
Audited Consolidated Financial Statements of Azteca as of December 31, 2012 and 2011.............................
Consolidated balance sheets as of December 31, 2012 and 2011 ........................................................................
F-21
Consolidated statements of income for the years ended December 31, 2012 and 2011 ................................F-22
Consolidated statements of changes in stockholders' equity for the years ended
December 31, 2012 and 2011 ...........................................................................................................................
F-23
Consolidated statements of cash flows for the years ended December 31, 2012 and 2011................................
F-24
Notes to consolidated financial statements .........................................................................................................
F-25
F-1
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated balance sheets
As of June 30, 2013 and 2012
(Stated in thousands of Mexican pesos)
Junio
Junio
Diciembre
2013
2012
2012
Assets
Current Assets
Cash and cash equivalents
$
Trade and other receivables
6,050,582
$
7,764,156
$
6,446,077
5,633,363
5,326,803
5,330,736
Current tax assets
Related parties
Other financial assets
Perfomance rights
Inventories
Total current assets
222,210
391,934
919,239
2,225,485
42,302
15,485,115
321,773
376,356
68,540
1,989,763
15,204
15,862,595
82,984
266,551
889,457
1,809,681
33,711
14,859,197
Trade long-term
Perfomance rights
Property and equipment, net
Television concessions, net
Other assets
Investments accounted for using the equity method and other
Deferred income tax
Total non-current assets
Total assets
491,475
1,791,532
3,411,317
7,720,810
1,488,936
303,361
4,671,868
19,879,299
35,364,414
1,621,845
1,367,104
3,479,792
7,720,810
996,877
215,038
4,285,989
19,687,455
35,550,050
480,000
1,505,385
3,465,097
7,720,810
1,167,903
312,785
4,671,868
19,323,848
34,183,045
$
$
$
Liabilities
Current liabilities
Trade and other payables
Perfomance rights
Related parties
Current tax liabiities
Financial debt
Deferred revenue
Total short-term liabilities
$
Long term financial debt
Stock exchange certificates
Loans from American Tower Corporation -ATCMedium Term Note Program -MTN
Deferred revenue
Employee benefits
Deferred income tax
Total long term liabilities
Total liabilities
1,878,402
89,653
161,951
343,620
666,648
6,079,458
9,219,732
$
1,897,332
92,900
170,229
371,130
666,648
5,808,667
9,006,906
$
1,853,714
136,770
167,507
203,655
666,648
4,926,883
7,955,177
4,277,826
1,559,588
3,836,221
871,424
165,461
3,463,473
14,173,993
23,393,725
4,944,474
1,634,972
4,010,089
1,855,837
141,237
3,105,941
15,692,550
24,699,456
4,611,580
1,557,983
3,824,666
494,451
165,461
3,463,473
14,117,614
22,072,791
715,122
207,418
83,229
594,983
(724,227)
11,027,725
11,904,250
66,439
11,970,689
35,364,414
715,335
207,418
83,229
603,232
(285,332)
9,450,421
10,774,303
76,291
10,850,594
35,550,050
715,080
207,419
83,229
594,175
(842,859)
11,279,535
12,036,579
73,675
12,110,254
34,183,045
Shareholders Equity
Controlling share
Capital stock
Premium on s tock issued
Legal reserve
Reserve for stock repurchases
Other components of equity
Retained earnings
Controlling interest
Non controlling interest
Total shareholder's equity
Total liabilities and shareholder´s equity
$
F-2
$
$
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated incomes statements
For the periods ended June 30, 2013 and 2012
(Stated in thousands of Mexican pesos)
2013
Revenue
$
Cost of programming, production and broadcasting
Selling and administrative expenses
5,236,496
2012
$
5,744,931
Total costs and expenses
3,022,350
753,926
3,776,276
3,204,886
724,149
3,929,035
Operating income before depreciation and amortization
1,460,220
1,815,896
208,957
292,379
958,884
151,601
269,543
1,394,752
Other expenses, net
Depreciation and amortization
Operating Income
Integral cost of financing
Interest paid
Other financial expenses
Interest earned
Exchange (loss) gain, net
(488,834)
(122,342)
120,069
(8,778)
(499,885)
(464,455)
(60,477)
86,742
(20,496)
(458,686)
Equity in unconsolidated subsidiaries and associates
Income before provision for income tax
Provision for income tax
Net income of the year
Other comprehensive (loss) income:
Effect from translation
Loss on financ ial ass ets available-for-sale
Other comprehensive (loss) for the year
Total comprehensive income for the year
Non-controlling income participation
Controlling income participation
(431,942)
(424,532)
59,396
$
166,651
(48,019)
118,632
178,028
$
470,907
$
(43,892)
(43,892)
427,015
(7,234)
66,630
59,396
$
$
(7,234)
185,262
$
(7,131)
434,146
$
178,028
$
427,015
$
F-3
572
895,439
$
$
Total comprehensive income for the year attributable to:
Non-controlling interest
Owners of the parent
(8,860)
491,338
$
(7,131)
478,038
470,907
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of changes in equity
For the periods ended June 30, 2013 and 2012
(Stated in thousands of Mexican pesos)
Capital stock
Balances as of Jan uary 1, 2012
$
715,486
Premium on
stock issued
$
207,418
Legal
Reserve
$
83,229
Reserve for
stock
repu rchases
Oth er
components
of equity
$
$
609,227
(241,439)
Preferred dividends paid
-
-
-
-
-
Sale of treasury stock
356
-
-
10,523
-
Stock repurchas e
(507)
-
-
(16,518)
-
Non-controlling interest
-
Trans actions with owners
(151)
-
-
-
-
-
-
(5,995)
-
Net income for the period
-
-
-
-
-
Other comprehensive loss
-
-
-
-
(43,892)
Total comprehensive income for the period
-
-
-
-
(43,892)
Retained
earning
$
9,315,825
To tal
attributable to
ow ners of
parent
$
(343,442)
$
Total equity
83,421
$
10,773,167
(343,442)
-
-
10,879
-
10,879
-
(17,025)
-
(17,025)
-
-
-
10,689,746
noncontro lling
interest
343,442.00
(349,588)
478,038
478,038
(343,442)
-
(349,588)
478,038
(7,131)
(43,892)
-
470,907
(43,892)
434,146
(7,131)
427,015
Balances as of June 30, 2012
$
715,335
$
207,418
$
83,229
$
603,232
$
(285,331)
$
9,450,421
$
10,774,304
$
76,290
$
10,850,594
Balances as of Jan uary 1, 2013
$
715,080
$
207,418
$
83,229
$
594,175
$
(842,859)
$
11,279,539
$
12,036,582
$
73,673
$
12,110,255
Preferred dividends paid
-
-
-
-
-
Sale of treasury stock
211
-
-
7,377
-
-
7,588
-
7,588
Stock repurchas e
(169)
-
-
(6,569)
-
-
(6,738)
-
(6,738)
42
-
-
808
-
(317,594)
-
(317,594)
66,630
(7,234)
59,396
118,632
-
118,632
Trans actions with owners
Net income for the period
-
-
-
-
Other comprehensive loss
-
-
-
-
Total comprehensive income for the period
Balances as of June 30, 2013
$
715,122
$
207,418
$
83,229
F-4
594,983
-
(318,444)
318,444.00
66,630
118,632
$
(318,444)
118,632
$
(724,227)
66,630
$
11,027,725
-
185,262
$
11,904,250
(318,444)
(7,234)
$
66,439
178,028
$
11,970,689
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of cash flows
For the periods ended June 30, 2013 and 2012
(Stated in thousands of Mexican pesos)
2012
2013
Operating activities:
Income before taxes on earnings
$
Related parties wi th investing activities:
Depreciation and amortization
Equity in unconsolidated subs idiaries and associates
Provision and estimates
Loss and sale on property, furniture and equipment
Net unrealized foreign exchange gain
Interest payable
491,338
$
895,439
292,379
8,860
(84,689)
(11,438)
62,032
464,455
1,222,937
269,543
(572)
82,844
(2,932)
(180,273)
488,834
1,552,883
339,052
(130,939)
(8,591)
(749,068)
282,548
658,126
(643,815)
970,250
316,308
(83,417)
(3,674)
(531,217)
82,279
130,901
(536,185)
927,878
Acquisition of property, furniture and equipment
(151,785)
(289,778)
Proceeds from sale property, furniture and equipment
Other assets
Net cash flows from investing activities
14,188
(303,434)
(441,031)
22,483
(227,475)
(494,770)
(333,324)
(431,250)
42
(159,222)
(923,754)
(333,324)
(475,582)
(6,141)
(171,721)
(986,768)
(394,535)
6,446,077
(960)
$ 6,050,582
(553,660)
8,317,816
7,764,156
Accounts receivable
Related parties
Inventories
Perfomance rights
Accounts payable and accrued expenses
Advances from advertisers
Taxes on earnings
Net cash flow from operating activities
Investing activities:
Financing activities:
Bank loans paid, net
Interest paid
Stock repurchases
Sale of treasury stock
Preferred dividends paid
Net cash flows from financing activities
Increase in cash and cash equival ents
Cash and cash equivalents at begining of year
Available for sale investments
Cash and cash equivalents at end of period
F-5
$
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
TV. Azteca, S. A. B. de C. V. and subsidiaries
(subsidiary of Azteca Holdings, S. A. de C. V.)
Notes to the interim consolidated condensed financial statements
June 30, 2013 and 2012
(monetary amounts stated in thousands of pesos and US dollars)
except exchange rates and values per shares)
Note 1 - Nature of operations
TV Azteca, S. A. de C. V. (the Company) was acquired by its present stockholders in July 1993,
pursuant to the executive order of the Mexican Government for the privatization of certain
television stations and their respective assets.
The main business of TV Azteca, S.A.B. de C. V. and its subsidiaries (the Group) includes: (i)
the transmission and production of television programs; (ii) sale of advertising time; and (iii)
operating an optic fiber network in Colombia.
Note 2 - General Information and basis of preparation
The interim consolidated condensed financial statements ("the interim financial statements")
apply to the six months ended at June 30, 2013 and presented in Mexican pesos, the Company's
functional currency. These interim financial statements have been prepared in accordance with
International Accounting Standard (IAS) 34 "Interim Financial Reporting" and do not include
all the information required for annual financial statements, in accordance with International
Financial Reporting Standards (IFRS). They should be taken as a whole with the consolidated
financial statements ended at December 31, 2012.
TV Azteca, S.A.B.de C.V. is the parent of the Group in the final analysis. The Company is a
publicly held company (S.A.B. de C.V.). Its main offices are located at: Periferico Sur 4121
Colonia Fuentes del Pedregal, Mexico City, Mexico Postal Code 14141.
The interim financial statements are unaudited and have been approved and authorized to be
issued by the Board of Directors on July 18, 2013.
Note 3 - Significant accounting policies
The interim financial statements have been prepared in accordance with the accounting policies
described in Note 5 to the financial statements at December 31, 2012, except for the following
standards beginning January 1, 2013:
IFRS 10 Consolidated financial statements (IFRS 10)
IFRS 11 Joint arrangements (IFRS 11)
IFRS 13 "Fair value measurements" (IFRS 13)
Amendments to IAS 19 "Employee benefits" (Amendments to IAS 19)
2009 - 11 Annual Improvements (Annual Improvements)
Adoption of the above exceptions had no impact on the consolidated financial statements of the
Group.
F-6
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Note 4 - Estimates
Upon preparing the financial statements, Management realizes several judgments, estimates,
and assumptions for the recognition and measurement of assets, liabilities, revenues, and
expenses. Actual results can differ from judgments, estimates, and assumptions made by
Management, and they will seldom be equal to estimated results.
The judgments, estimations, and assumptions used in the interim financial statements are the
same criteria used by Management in applying accounting policies and uncertainty in estimates
in the annual financial statements ended at December 31, 2012, except for those used in the
estimate of the provision of taxes on earnings, which were determined in the interim financial
statements using the best information available for their calculation.
Note 5- Main events and transactions
During the first semester, net sales decreased 9% with respect to the prior semester, which was
due mainly to the change of government that redefines communication projects. the Company
foresees that those projects will be recovered during 2013.
Moreover, there was a 4% decrease in costs and expenses, resulting from increasing efficiency
the production of successful content, derived from solid strategies that effectively control
disbursements, whereas the performance of selling and administrative expenses is largely
related to operating and personnel expenses in the period.
Note 6 - Accounts receivable
Accounts receivable at June 30:
2013
Trade and other receivables
Related parties
Taxes recoverable
Total
2012
$ 5,633,363
391,934
222,210
$ 6,247,507
5,326,803
376,356
321,773
6,024,932
Note 7 - Summary of related party balances
2013
2012
Accounts receivable at June 30:
Azteca Holdings S.A. de C.V.(Parent)
$ 175,807
Fundacion Azteca S.C.
32,192
Grupo Elektra SA de C.V. and subsidiary companies
89,707
Grupo Iusacell, S.A. de C.V.
27,116
Grupo Desarrollo Inmobiliario, S.A. de C.V.
59,857
Comunicaciones Avanzadas S.A. de C.V.
2,766
Others
4,489
Total
$ 391,934
F-7
$ 167,012
28,071
78,536
20,056
58,194
2,630
21,857
$ 376,356
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
2013
2012
$ 123,243
2,344
36,364
$ 161,951
$ 157,963
12,266
$ 170,229
Accounst payable:
Globo Re
Arrendadora Internacional Azteca, S.A. de C.V.
Other
Total
Note 8 - Summary of property and equipment
At June 30, 2013 and December 31, 2012, property and equipment are summarized as follows:
Balances at
31-Dec-12
additions
Land
675,011
Bldgs and construc
1,211,599
Mach. equip operation
899,438
Furn. office equip
42,965
Transportation equipment
366,766
Computer equipment
167,383
Investment in progress
101,935
Total
3,465,097
1,302
46,914
114,530
9,057
61,800
38,462
272,065
depreciation
retirements for the year
(990)
(265)
(18,697)
(4,256)
(24,012)
(48,220)
(35,818)
(152,068)
(3,810)
(43,973)
(41,956)
(277,625)
balances at
30-June-13
676,313
1,221,705
861,635
48,212
365,896
159,633
77,923
3,411,317
Note 9 - Equity
-Stockholders resolutionsAt the general annual ordinary stockholders' meeting held on April 30, 2013, the stockholders
resolved to approve the consolidated financial statements as of December 31, 2012. Further, a
preferential dividend was declared for series D-A and series D-L stockholders. That dividend
represents a total amount of $318,445, which was paid on May 31, 2013, in the amount of
$159,223, and on November 31, 2013, payment will be made in the amount of $159,222.
At the general annual ordinary stockholders' meeting held on April 27, 2012, the stockholders
resolved to approve the consolidated financial statements as of December 31, 2011. Further, a
preferential dividend was declared for series D-A and series D-L stockholders. That dividend
represents a total amount of $343,442, which was paid on May 31, 2012, in the amount of
$171,721, and on December 7, 2012, payment was made in the amount of $171,721.
At the annual ordinary stockholders meeting held on April 29, 2011, the consolidated financial
statements as of Friday, December 31, 2010 were approved. In addition, a unit preferential
dividend was declared for Series D-A shares and Series D-L shares. That dividend accounts for
a total amount of $18,590, which was paid on May 28, 2011.
F-8
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
At June 30, 2013, capital stock, premium on stock issued, legal reserve, reserve for stock
repurchases, and retained earnings in the restatement of capital are summarized as shown below:
Total
Share capital
Premium on stock issued
Legal reserve
Reserve for stock repurchasesCumulative effect on translation
Retained earnings
Income for the year
Other comprehensive income
Total capital of the parent
$ 715,122
207,418
83,229
594,983
(166,866)
10,961,095
66,630
(557,361)
$ 11,904,250
Stock repurchase
For the period ended June 30, 2013, the company decreased its capital stock in the amount of
169 for the repurchase of 48 shares, which were purchased for $6,569. The par value thereof
was charged to share capital and the difference to the reserve for stock repurchases.
As of June 30, 2013, the company increased its capital stock in the amount of $211, pursuant to
the sale of 2,466 shares, which had a selling value of $7,377.Share capital was credited at
original value, and the difference was restored to the reserve for stock repurchases.
Note 10 - Segment information
As of June 30, 2013 and 2012, information on income and assets by operating segments of the
Company is summarized as follows:
National television
These segments are comprised of television services in Mexican territory, including local
stations. Income is derived mainly from the sale of time on screen nationwide and locally, lesscommissions on sales.
Azteca America
This segment consists of television services in the territory of the United States of America,
directed primarily for the Hispanic community that resides in that territory.
Programming rights
This segment is comprised mainly of the exports of programs that were of wide interest for
global audiences primarily in the countries of Latin America and Europe.
Other segments
This segment consists mainly of operations relative to the promotion of billboard
advertisements, soccer teams, concerts, and Internet, among other things.
F-9
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
At June 30, 2013
National
Azteca Programming Others
television America
rights
segments
Net sales
$4,342,643 $461,987
Cost and expense 3,366,568 304,471
Dep and amort
267,741
8,259
Operating income
708,334 149,257
$143,722
25,269
5,403
113,050
Total
consolidated
$288,144 $5,236,496
288,925
3,985,233
10,976
292,379
(11,757)
958,884
At June 30, 2012
National
Azteca Programming
television America
rights
Others
segments
Net sales
$4,812,698 $489,849 $176,931 $265,454
Cost and expense 3,492,300 313,589
26,186
248,561
Dep and amort
256,411
5,799
4,668
2,665
Operating income 1,063,987
170,461
146,077
14,228
Total
consolidated
$5,744,931
4,080,636
269,543
1,394,752
Note 11 - Discontinued operations
No discontinued operations were recognized for the twelve months ended June 30, 2013 and
2012.
Note 12 - Seasonality and semiannual net results
The Company's television transmission operations are seasonal. Advertising revenues, which
are recognized when the advertisement comes out on the air, are generally higher in the fourth
quarter, due to the high level of advertising that comes out on the air as a result of the Christmas
season.
The Company's revenues fluctuate as a result of the frequency with which the Company
transmits significant events (Olympic Games, World Soccer Cups, presidential elections, among
other things).
Historically, the transmission of significant events by the Company has increased advertising
sales during the periods in which they came out on the air. This reflects higher audiences during
the hours in which those significant events were transmitted, and the fact that advertisers pay a
premium related to those significant transmission events.
F-10
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Note 13 - Financial assets and liabilities
The fair values of financial instruments, which were determined by the Company using
information available on the market and other valuation techniques that require judgment by
Management, are shown below: Moreover, the use of different assumptions and valuation
methods can have a material effect on the estimated amounts of fair value.
The financial instruments which, after their initial recognition, are quantified at their fair value
are grouped in Levels from1 to 3 based on the degree to which fair value is observed, as shown
below:
Level 1 – valuation based on prices quoted on the market (unadjusted) for identical
assets or liabilities;
Level 2 – valuation with indicators other than the quoted prices included in Level 1, but
include observable indicators for an asset or liability, either directly (quoted prices) or
indirectly (derivations of these prices); and
Level 3 – valuation techniques are applied that include indicators for assets and
liabilities that are not based on observable market information (unobservable
indicators).
a. Financial assets and liabilities are classified as follows:
Loans and
accounts
receivable
and other
liabilities
at amortized
cost
Derivatives
for trading
purposes
Availablefor-sale
at fair value
Total
At June 30, 2013
Financial Assets:
Cash and cash equivalents.
Trade and other receivables
Related parties
Available-for-sale assets
Derivative financial instruments
$
$
_
–
–
826,179
–
826,179
Financial liabilities:
Short-term debt
Accounts payable
Long-term debt
–
–
–
–
$
F-11
$
$
–
–
–
–
93,060
93,060
$ 6,050,582
5,995,078
229,983
–
–
$ 12,275,643
$ 6,050,582
5,995,078
229,983
826,179
93,060
$ 13,194,882
$
–
–
–
–
666,648
1,968,055
9,673,635
$ 12,308,338
666,648
1,968,055
9,673,635
$ 12,308,338
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
b. Derivative financial instruments
At June 30, 2013 and 2012, the Company had interest rate caps as follows:
Type of
derivative
Interest rate cap
Interest rate cap
Interest rate cap
Interest rate cap
Underlying
EIIR at 28 days
EIIR at 28 days
EIIR at 28 days
EIIR at 28 Days
Notional
amount
$5,222,244
4,555,596
3,888,948
3,222,300
Fair Value at june 30
2013
2012
$ 1,781
$ 5,084
19,298
23,849
37,245
39,607
34,736
$ 93,060
$ 8,540
Strike
price
7.50%
6.75%
5.50%
5.50%
Due dates
Amount
Year
$5,222,244
2013
4,555,596
2014
3,888,948
2,015
3,222,300
2016
These instruments do not require "margin" calls. Exercising the derivative is the Company's power and a early
premium is paid.
c. Financial Debt
Loans include the following short and long term financial liabilities:
Short-term
Financial liabilities:
Stock Exchange Certificates
American Tower Corporation -ATCProgram Medium Term Note -MTNTotal carrying value
2013
2012
$ 666,648
$ 666,648
$ 666,648
$ 666,648
Long-term
2013
$ 4,277,826
1,559,588
3,836,221
$ 9,673,635
2012
$ 4,944,474
1,634,972
4,010,089
$ 10,589,535
The fair values have been determined of the long-term financial liabilities by calculating
their present values at the reporting date, by using fixed effective market interest rates
available to the Group. Changes in fair value in income or losses for the period have not
been included since financial assets are carried at amortized cost in the balance sheets.
Note 14 - Earnings per share
Earnings per share
All basic earnings per share such as diluted shares have been calculated by using earnings
attributable to the stockholders of the parent (TV Azteca, S.A.B. de C.V.) as the numerator,
that is, it was not necessary to make adjustments to earnings in 2013 or 2012.
The weighted average number of shares for purposes of diluted earnings per share can be
reconciled with the weighted number of ordinary shares used in the calculation of basic earnings
per share as follows:
F-12
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
2013
Amounts stated in thousands of shares:
Weighted average of the number of shares used in the
base of earnings per share
Shares considered issued without taking into account
stock based payments
Weighted average of the number of shares used in
diluted earnings per share
$
8,950,891
2012
$
1,594,943
$
10,545,834
8,954,286
1,591,548
$
10,545,834
Twelve months ended
June 30
2013
2012
Net earnings per common share
Net earnings per diluted share
0.21
0.18
0.24
0.20
Note 15 - Commitments and contingencies
Commitments:
a) Leases
The company rents the use of satellite transponders. The total expense for the rent of these
satellites amounted to $44,573 and $42,349, which are included in operating costs and expenses
for the period ended Sunday, June 30, 2013 and 2012, respectively. Expenses include a monthly
fixed payment and others based on the use thereof. The lease agreement has a duration of
mandatory year, automatically renewable and successively for identical periods up to June 21,
2014.
b) Performance rights
The Company has entered into license agreements with its performance rights suppliers for the
long-term acquisition of materials of programs when such programs are available for their first
broadcast. As of June 30, 2013, the commitments for the acquisition of materials amount to $ 5,
with due dates in 2013 and $25 US dollars with due dates in 2018.
c) Advertising rights
In June 2010, the Company entered into an advertising rights assignment contract with Super
Publicidad, S. A. de C. V., which sets forth that effective 2012 and up to 2022, the rights of
spaces are obtained for exhibiting advertising, as well as the use of part of the facilities of the
Mexico City Arena. The total value of the consideration amounts to 3,500 US dollars, which
have been paid in their entirety at the date of this report.
d) COFECO
On April 7, 2011, GSF Telecom Holdings, S.A.P.I. de C.V. (“GSF”), which is the majority
stockholder of Grupo Iusacell, S.A. de C.V. and related party of TV Azteca, S.A.B. de C.V.,
together with Grupo Televisa, S.A.B. (“GTV”) and Corporativo Vasco de Quiroga, S.A. de
C.V. (“CVQ”) petitioned the Federal Commission of Competence (“CFC”) for its authorization
to have CVQ become the holder of 50.00% of the voting shares of GSF. The CFC resolved to
deny the authorization on January 24, 2012, upon considering that the concentration might
decrease, damage or impede competition and free concurrence on the television and restricted
F-13
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
audio markets, as well as on the markets related to content/programming (open TV channels)
and advertising on open television.
Pursuant to the foregoing, both GSF and CVQ filed the necessary motions for reconsideration
provided for in the Federal Law of Economic Competition to process the authorization of the
notified concentration.
On June 13, 2012, the CFC resolved the motions for reconsideration filed in the sense of
authorizing the notified concentration subject to the realization of various conditionings.
As a consequence of the foregoing, the CFC established various conditionings for the parties
involved, applicable to TV Azteca, S. A. B. de C. V. ("TVA") the obligation of indiscriminately
offering its open TV and restricted TV signals (if any), as well as offering advertising spaces in
terms and market conditions to the concessionaires of telecommunications of public networks.
Those conditionings have been complied with in conformity with the resolution referred to
above as of the issue date of this report.
e) Colombia Project
In September 2011, the Ministry of Information Technology and Communications of Colombia
(MINTIC) published the terms of reference of the National Optic Fiber Project (“the Project”).
The purpose of this technology is to spread or extend this technology to at least 400
municipalities of that country, in order to reach the goal of 700 municipalities connected to
2014. The Project will have an investment in the amount of $415 billion Colombian pesos
(equivalent to approximately $2 billion Mexican pesos) by the government of Colombia.
In order to participate in that bidding, the Company, together with its related party Total Play
Telecomunicaciones, S. A. de C. V., formed the Union Temporal Fibra Optica Colombia (the
UT). On November 4, 2011, the MINTIC decided to award the contract to the UT to undertake
the Project.
The characteristics of that contract are the following:
1.
Signatories:
UT and the Information Technology and Telecommunications Fund (TIC Fund).
2.
Subject matter of the contract:
The UT will develop an optic fiber network, operate it, maintain, and assume the
management of the services in at least seven hundred and fifty-three (753)
municipalities and 2,000 public institutions group into 4 groups. Toward that end, the
TIC Fund will contribute certain resources (“Development Resources”) .
3.
Value of the Contract:
Co$415,837,649,402 (four hundred and fifteen billion eight hundred and thirty-seven
million six hundred and forty-nine thousand four hundred and two Colombian pesos,
including Value Added Tax). The budget items allocated by the Colombian government
are distributed as follows:
F-14
TV Azteca, S.A.B. de C.V. and Subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Year
Maximum
amount
(billions
of
Colombian pesos)
Co$196.2
2011
2012
109.6
2013
99.6
2014
29.9
4.
Term:
Seventeen years and six months.
5.
Trust:
Trust: A management and payment trust was created between the MINTIC (trustor and
primary beneficiary), the UT (secondary beneficiary), and Bancolombia S.A. (trustee).
The purpose of the trust agreement is to create an autonomous patrimony for the
management and administration of: (i) the Development Resources that the TIC Fund
allocated to the UT in the conditions and for the purposes related to the execution of the
agreement and the Project Documents; and (ii) the assets acquired with the
Development Resources or with proprietary resources of the trustor for the execution of
the contract.
6.
General scheme of the project:
The construction will last 30 months (2.5 years), and the network will operate for 180
months (15 years). During the construction stage, the trust will reimburse the UT for
the amount of the costs and expenses incurred, subject to the authorization of the
inspector designated by the MINTIC.
7.
Stages and Time Schedule of the Project:
The Project will be executed in three stages, with three groups of municipalities for its
execution that will determine the maximum performance terms of the stages included in
the Project Time Schedule.
At June 30, 2013, the Company still is in the construction stage, and there is no knowledge of
any nonperformance of its obligations derived from the Project.
f) Contingencies:
For the periods ended at June 30, 2013 and 2012, there have been no significant changes in the
legal course of the litigations.
Note 16 - Events subsequent to the date of the report
There has been no event that requires an adjustment or that does not require an adjustment, but
is significant between the date of the report and date of authorization.
F-15
Consolidated Financial Statements and Independent
Auditor’s Report
TV Azteca, S.A.B. de C.V. and subsidiaries
(Subsidiary of Azteca Holdings, S.A. de C.V.)
December 31, 2012 and 2011
(Translation of the independent auditor’s report and the financial
statements originally issued in Spanish)
F-16
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Table of Contents
Independent auditor’s report
1
Consolidated statements of financial position
3
Consolidated statements of comprehensive income
4
Consolidated statements of changes in equity
5
Consolidated statements of cash flows
6
Notes to the consolidated financial statements
7
1
Method of presentation and translation into English
7
2
Nature of operations
7
3
General Information
7
4
Basis of preparation and statement of compliance with IFRS
8
5
Changes in accounting policies
8
6
Summary of accounting policies
13
7
Cash and cash equivalents
32
8
Trade and other receivables
32
9
Property and equipment
33
10 Other intangible assets
34
11 Investments accounted for using the equity method and other permanent investments
37
12 Trade and other payables
37
13 Related parties balances and transactions
38
14 Financial debt
40
15 Employee benefits
42
16 Income Tax
43
17 Financial assets and liabilities
47
18 Financial instrument risk
49
19 Equity
51
20 Earnings per share and dividends
54
21 Capital management policies and procedures
55
22 Finance income and costs
55
23 Other expenses, net
55
F-17
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
24 Financial information by segment
56
25 Contingent liabilities
57
26 Commitments
60
27 Adoption of International Financial Reporting Standards (IFRS)
63
28 Seasonality
66
29 Post-reporting date events
66
F-18
F-19
F-20
TV Azteca, S.A.B. de C.V. and subsidiaries
3
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of financial position
As of December 31, 2012 and 2011, and January 1, 2011
(Stated in thousands of Mexican pesos)
Notes
2012
2011
January 1, 2011
Assets
Current
Cash and cash equivalents
7
Trade and other receivables
8
5,330,736
Related parties
13
Other financial assets
17
889,457
36,062
36,971
1,809,681
1,601,030
1,404,532
$
Current tax assets
Performance rights
Inventories
6,446,077
$
$
$
5,002,401
5,970,433
4,397,340
82,984
40,045
100,750
266,551
276,744
252,854
33,711
Total current assets
8,317,817
14,859,197
11,357
$
16,253,488
170,371
$
11,365,219
Non-current
Trade long-term
8
Performance rights
Property and equipment, net
9
Television Concessions, net
Other intangible assets
10
Goodwill, net
480,000
1,431,857
1,505,385
1,328,304
865,093
3,465,097
3,338,583
2,990,922
7,720,810
7,720,810
7,720,810
1,167,903
743,673
284,559
-
Investments accounted for using the equity method and other
11
Deferred tax assets
16
320,500
-
312,785
19,397
278,043
4,671,868
493,809
4,285,989
4,455,496
Total non-current assets
$
19,323,848
$
19,127,259
$
17,150,586
Total assets
$
34,183,045
$
35,380,747
$
28,515,805
$
1,853,714
$
1,491,689
$
1,574,942
Liabilities
Short-term
Trade and other payables
12
Performance rights
6l
136,770
148,620
124,278
Related parties
13
167,507
154,189
213,714
203,655
330,212
430,220
666,648
666,648
1,769,201
Current tax liabiities
Financial debt
14
Deferred revenue
4,926,883
Total short-term liabilities
$
7,955,177
5,933,767
$
8,725,125
4,079,646
$
8,192,001
Long-term
Stock exchange certificates
14
4,611,580
5,245,860
5,865,202
Loans from American Tower Corporation -ATC-
14
1,557,983
1,673,975
1,479,785
Medium Term Note Program -MTN
14
3,824,666
4,115,610
Bank loans
-
Deferred revenue
-
-
266,331
494,451
1,599,837
Employee benefits
15
165,461
141,237
321,000
119,277
Deferred tax liabilities
16
3,463,473
3,105,941
3,549,837
Total long-term liabilities
$
14,117,614
$
15,882,460
$
11,601,432
Total liabilities
$
22,072,791
$
24,607,585
$
19,793,433
Equity
Capital stock
19
715,080
715,486
719,298
Premium on stock issued
19
207,419
207,419
207,419
Legal reserve
19
83,229
83,229
83,229
Reserve for stock repurchases
19
594,175
609,227
712,769
Other components of equity
19
(842,859)
Retained earnings
(241,439)
11,279,535
Equity attributable to owners of the parent
$
Non-controlling interest
12,036,579
(236,167)
9,315,817
$
73,675
10,689,739
7,135,755
$
8,622,303
83,423
100,069
Total Equity
$
12,110,254
$
10,773,162
$
8,722,372
Total liabilities and equity
$
34,183,045
$
35,380,747
$
28,515,805
The accompanying notes are an integral part of these consolidated financial statements.
F-21
TV Azteca, S.A.B. de C.V. and subsidiaries
4
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of comprehensive income
For the years ended December 31, 2012 and 2011
(Stated in thousands of Mexican pesos, except per share amounts)
Notes
Revenue
2012
$
2011
12,570,400
$
12,199,196
Cost of programming, production, and broadcasting
Selling and administrative expenses
6,577,122
6,055,832
1,509,634
1,466,523
Total costs and expenses
8,086,756
7,522,355
Operating income before amortizations and other expenses
4,483,644
4,676,841
Depreciation and amortization
556,389
508,931
331,754
289,336
3,595,501
3,878,574
11
36,062
57,450
Interest expense
22
(973,610)
(931,408)
Interest earned
22
223,961
149,359
Other financial items
22
(98,278)
(96,532)
132,431
(327,737)
Other expenses, net
23
Operating income
Share of profit from equity accounted investments
Comprehensive gain or loss on financing:
Exchange gain(loss), net
(715,496)
Income before taxes on earnings
(1,206,318)
2,916,067
Taxes on earnings
16
Net income for the year
2,729,706
(618,655)
$
2,297,412
(547,948)
$
2,181,758
Other comprehensive (loss) income:
Effect from translation
19
(92,078)
Loss on financial assets available-for-sale
19
(509,342)
-
(601,420)
(5,272)
Other comprehensive loss for the year
Total comprehensive income for the year
(5,272)
1,695,992
2,176,486
Net income for the year attributable to:
Non-controlling interest
(9,748)
Owners of the parent
(16,894)
2,307,160
$
2,297,412
2,198,652
$
2,181,758
Total comprehensive income for the year attributable to:
Non-controlling interest
(9,748)
Owners of the parent
(16,894)
1,705,740
$
1,695,992
Earnings per share
2,193,380
$
2,176,486
Mexican
Basic earnings per share
Pesos
Income from continuing operations
Pesos
20
$
0.26
$
0.24
20
$
0.22
$
0.21
Diluted earnings per share
Income from continuing operations
The accompanying notes are an integral part of these consolidated financial statements.
F-22
TV Azteca, S.A.B. de C.V. and subsidiaries
5
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of changes in equity
For the years ended December 31, 2012 and 2011
(Stated in thousands of Mexican pesos)
Notes
Balances as of January 1, 2011
Preferred dividends paid
Capital stock
$
19
719,298
Premium on
stock issued
$
207,419
Legal
reserve
$
83,229
Reserve for
stock
repurchases
Other
components
of equity
$
$
712,769
(236,167)
Retained
earnings
$
7,135,755
Total
attributable to
owners of
parent
$
8,622,303
Noncontrolling
interest
$
100,069
Total equity
$
8,722,372
-
-
-
-
-
(18,590)
(18,590)
-
1,164
-
-
37,431
-
-
38,595
-
38,595
Stock repurchase
Non-controlling interest
(4,976)
-
-
(140,973)
-
-
(145,949)
-
(145,949)
-
-
-
Transactions with owners
(3,812)
-
-
Sale of treasury stock
Net income for the year
Other comprehensive loss
19
Total comprehensive income for the year
Balances as of December 31, 2011
Balances as of January 1, 2012
Preferred dividends paid
-
-
(18,590)
-
-
-
-
-
-
-
-
(5,272)
-
-
-
-
(5,272)
-
248
(125,944)
2,198,652
2,198,652
-
(125,696)
(16,894)
(5,272)
2,198,652
248
248
2,181,758
-
2,193,380
(5,272)
(16,894)
2,176,486
715,486
$
207,419
$
83,229
$
609,227
$
(241,439)
$
9,315,817
$
10,689,739
$
83,423
$
10,773,162
$
715,486
$
207,419
$
83,229
$
609,227
$
(241,439)
$
9,315,817
$
10,689,739
$
83,423
$
10,773,162
19
Stock repurchase
Transactions with owners
Net income for the year
18
Total comprehensive income for the year
Balances as of December 31, 2012
-
$
Sale of treasury stock
Other comprehensive loss
(103,542)
(18,590)
$
-
-
-
-
-
1,153
-
-
36,080
-
(1,559)
-
-
(51,132)
-
(406)
-
-
(15,052)
-
-
-
-
-
-
-
-
-
(601,420)
-
-
-
-
(601,420)
715,080
$
207,419
$
83,229
The accompanying notes are an integral part of these consolidated financial statements.
F-23
$
594,175
(343,442)
(343,442)
-
-
37,233
-
37,233
-
(52,691)
-
(52,691)
(358,900)
-
(358,900)
(343,442)
2,307,160
$
(842,859)
2,307,160
(9,748)
(601,420)
2,307,160
$
11,279,535
12,036,579
2,297,412
-
1,705,740
$
(343,442)
(601,420)
(9,748)
$
73,675
1,695,992
$
12,110,254
TV Azteca, S.A.B. de C.V. and subsidiaries
6
(Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated statements of cash flows
For the years ended December 31, 2012 and 2011
(Stated in thousands of Mexican pesos)
2011
2012
Operating activities:
Income before taxes on earnings
$
Items related to investing activities:
Depreciation and amortization
Share of profit from equity accounted investments
Provisions and estimates
Income on sale of property and equipment
Net unrealized foreign exchange gain
Goodwill
Other comprehensive (loss) income
Items related to financing activities:
Interest paid
2,916,067
$
556,389
(36,062)
357,866
21,662
(405,230)
(601,420)
2,729,706
512,931
(57,450)
491,967
21,573
(182,190)
19,397
370,164
972,424
3,781,696
898,636
4,804,734
1,186,864
23,511
(22,354)
(397,582)
(377,790)
(1,632,272)
(708,686)
(56,877)
1,796,510
(1,598,634)
(63,904)
159,525
(587,403)
(252,265)
1,482,321
(545,268)
(392,121)
3,006,985
(562,373)
1,320
(518,323)
-
42,445
(530,334)
(1,048,942)
81,822
(149,662)
(586,163)
Proceeds from borrowings
Repayment of borrowings, net
Interest paid
Stock repurchases
Sale of treasury stock
Capital reimbursements paid
Preferred dividends paid
Incorporation of the consolidation effect of non-controlling interest
Net cash flows from financing activities
(666,648)
(768,541)
(52,691)
37,233
(343,442)
(1,794,089)
4,239,894
(2,063,646)
(845,973)
(145,949)
38,595
(309,986)
(18,590)
249
894,594
(Decreaset) Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Available-for-sale investments
Cash and cash equivalents at end of year
(1,046,521)
8,317,817
(825,219)
6,446,077
3,315,416
5,002,401
8,317,817
Accounts receivable
Related parties
Inventories
Performance rights
Accounts payable and accrued expenses.
Deferred revenue
Taxes on earnings
Other assets
Net cash flows from operating activities
Investing activities:
Acquisitions of property and equipment
Investments accounted for using the equity method and other
Proceeds from disposals of property and equipment
Investments in intangibles
Net cash flows from investing activities
Financing activities:
$
The accompanying notes are an integral part of these consolidated financial statements.
F-24
$
7
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
(Translation of the notes to the consolidated financial statements originally issued in
Spanish)
Notes to the consolidated financial statements
As of December 31, 2012 and 2011
(Stated in thousands of Mexican pesos and
thousands of U.S. dollars, except where stated
otherwise, as well as per share amounts and
exchange rates)
1.
Method of presentation and translation into English:
The accompanying consolidated financial statements were originally issued in Spanish for use in Mexico.
They have been translated into English for convenience of users in certain other countries. As indicated in
note 4 below, these financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS), and certain accounting practices do not conform with generally accepted
accounting principles in the United States or other countries.
2.
Nature of operations:
TV Azteca, S.A.B. de C.V. (the Company) was acquired by its present stockholders in July 1993, upon the
executive order of the Mexican Government for the privatization of certain television stations and their
respective assets.
The main business of TV Azteca, S.A.B. de C. V. and its subsidiaries (the Group) include: (i) the
transmission and production of television programs; (ii) sale of advertising time; and (iii) operating an optic
fiber network in Colombia.
3.
General information:
Azteca, S.A.B. de C.V. (the Company) is the holding company of the Group ultimately. The Company is a
publicly held company (S.A.B. de C.V.). Its main offices are located at: Periferico Sur 4121, Colonia Fuentes
del Pedregal, Mexico City, Mexico Postal Code 14141.
F-25
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
The common shares of the Company (AZTECA.CPO) are listed on the Mexican Stock Exchange (BMV)
and on Latibex, an international market dedicated to Latin American shares in Euros, regulated by the
currently enacted laws of the Spanish Stock Market.
4.
Basis of preparation and statement of compliance with IFRS:
The accompanying consolidated financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board
(IASB). These are the first consolidated financial statements of the Group prepared in conformity with
IFRS.
The Companies registered on the Mexican Stock Exchange are required to present their financial statements
under IFRS beginning 2012. The Group adopted them beginning that date. (See Note 27)
IFRS are comprised of: a) IFRS and International Accounting Standards (IAS), their Improvements and
Interpretations of IFRS and IAS (IFRIC and SIC).
The consolidated financial statements for the year ended December 31, 2012 (including comparative
financial statements) were approved and authorized to be issued by the Board of Directors on February 21,
2013.
The General Corporate Law and the by-laws of the Company, grant stockholders the possibility to amend
the financial statements after issuing them. The accompanying consolidated financial statements will be
submitted for approval at the General Stockholders’ Annual Meeting.
5.
Changes in accounting policies:
a. New standards, interpretations, and amendments that went into effect beginning January 1, 2012
IAS 12 “Taxes on earnings" currently requires an entity to measure deferred taxes relative to an asset, based
on whether the entity expects to recover the book amount of the asset by using or selling it. It can be
difficult and subject to assess whether recovery will be through use or sale when it is measured by using the
fair value model in IAS 40 "Investment property". Therefore, this amendment introduces an exception to
the principle of the current standard by its fair value. As a result of the amendments, IAS 21 "Taxes on
earnings - recovery of non-depreciable assets" will no longer be applied to investment values by their fair
value. The amendments also incorporate the remaining orientations into IAS 12 that appeared previously in
IAS 21. Application of this standard is mandatory, beginning January 1, 2012. This amendment has not had
a significant effect on the Group's consolidated financial information.
b. Adoption of "Presentation of items of Other Comprehensive Income" (Amendments to IAS 1)
The Group has early adopted “Presentation of Items of Other Comprehensive Income" (Amendments to
IAS 1). The amendment requires entities to separate the elements presented in other items of
comprehensive income into two groups, based on whether or not they can be reclassified to income in the
future. The entities that decide to present the elements of other items of comprehensive income before
F-26
9
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
taxes should disclose the taxes related to the two groups separately. The amendment is is effective for
annual periods beginning on or after July 1, 2012.
c. New standards and amendments and interpretations to existing standards that are not in effect yet
and have not been adopted early by the Group.
As of the authorization date of these consolidated financial statements, some new standards and
amendments and interpretations of existing standards have been issued by the IASB, but they are not in
effect yet, and they have not been adopted early by the Group (except for the Modifications to IAS 1
referred to in paragraph b above). Management anticipates that all significant pronouncements will be
adopted in the Group's accounting policies in the first period after the date on which that pronouncement
goes into effect. Information about the new standards, amendments, and interpretations expected to be
relevant to the Group's consolidated financial statements is provided in detail below. Other new standards
and interpretations have been issued, but are not expected to have a material impact on the Group's
consolidated financial statements.
d. IFRS 9 Financial Instruments (IFRS 9)
IFRS 9 "Financial instruments" requires financial assets to be classified in either of the two following
categories: those assets measured at fair value and those measured at amortized cost. The determination
must be made at the time of the initial recognition of those assets. The classification is dependent upon the
entity's business model for handling its financial instruments and contractual characteristics of the cash
flows of the instruments. For financial liabilities, the main change is that in the event the fair value option is
used, the effect of revaluation related to the inherent credit risk should be recognized as part of
comprehensive income, unless an accounting mismatch is caused. Adoption of this standard is mandatory
beginning January 1, 2015.
e. Consolidation standards
The IASB issued a package of new consolidation standards effective for annual periods beginning on or
after January 1, 2013. The information about those new standards is presented below: Management has not
completed its evaluation of the impact of these new, reviewed standards in the Group's consolidated
financial standards.
i.
IFRS 10 Consolidated financial statements (IFRS 10)
IFRS 10 "Consolidated financial statements", revises the definition of control and provides extensive new
guidance for the determination of control in more complex situations. The standard supersedes IAS 27
"Consolidated and separate financial statements" and SIC 12 "Consolidation - special purpose entities".
Management's provisional analysis is that IFRS 10 will not change the classification (as subsidiaries or
otherwise) of the existing investees of the Group as of December 31, 2012.
F-27
10
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
ii.
IFRS 11 Joint arrangements (IFRS 11)
IFRS 11 "Joint arrangements" is a more realistic reflection that centers on the rights and obligations of the
arrangement instead of its legal form. Joint operations arise when a co-organizer has the right to net assets
of the disposition and, therefore, the capital accounts for its interests. Proportionate consolidation of mixed
companies is no longer permitted. IFRS 11 now requires the use of the equity method that is currently used
for investments in associates. Management does not expect a material impact on net assets and earnings of
the Group.
iii.
IFRS 12 "Disclosure of Interests in Other Entities" (IFRS 12)
The objective of IFRS 12 "Disclosure of Interests in Other Entities" is to require the disclosure of
information that permits users of financial information to evaluate the nature and risk associated with their
interests in other entities (structured entities), including joint arrangements, associates, special purpose
entities, and other off-balance sheet vehicles, in addition to the effects of those interests on their position
and financial performance, as well as on their cash flows.
iv.
Transition guidance for IFRS 10, 11 and 12
Subsequent to issuing the new standards, the ISAB made some changes to the transitional provisions in
IFRS 10, IFR 11, and IFRS 12. The guidance confirms that the entity is not required to apply IFRS 10
retrospectively in certain circumstances, and clarifies the requirements to present adjusted comparatives.
The guidance also makes changes to IFRS 11 and IFRS 12, which provide similar relief to the presentation
or adjustment of comparative information for periods prior to the immediately preceding period. Further, it
provides additional relief by removing the requirement of present comparatives for the disclosures relating
to unconsolidated structured entities for any period before the first annual period for which IFRS 12 is
applied. The new guidance is also effective for annual periods beginning on or after January 1, 2013.
v.
Amendments consistent with IAS 27 “Separate financial statements” (IAS 27) and IAS 28
“Investments in associates and joint ventures” (IAS 28)
Amendments to IAS 27 “Separate financial statements” are intended to establish standards applicable to
accounting for investments in subsidiaries, associates, and joint ventures when an entity elects or is required
by local regulations to present unconsolidated financial statements. Separate financial statements are those
presented by a holding company, an investor with joint control or significant influence in which investments
are accounted for at cost, in accordance with IFRS 9 “Financial instruments”.
Amendments to IAS 28 “Investments in associates and joint ventures” are intended to prescribe the
requirements for the application of the equity method for investments in associates and joint ventures. The
Standard supersedes the prior version of IAS 28 “Investment in associates” and its application is mandatory
beginning January 1, 2013.
F-28
11
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
vi.
IFRS 13 “Fair value measurements” (IFRS 13)
The objective of IFRS 13 “Fair value measurement” is to define fair value and establish a conceptual
framework in a single standard for measuring that fair value and the disclosure requirements about those
measurements. This standard applies when other IFRS require or permit measuring fair value, but it is not
considered as such, as well as the net realization value under the scope of IAS 2 “Inventories” or the value
in use of IAS 36 “Impairment of long-lived assets”.
f.
Amendments to IAS 19 “Employee benefits” (Amendments to IAS 19)
Amendments to IAS 19 include a number of targeted improvements throughout the standard.
The main changes relate to defined benefit plans, among other things:
•
•
•
•
•
It eliminates the “corridor method”, requiring entities to recognize all actuarial profit or loss arising
in the reporting period.
Past service for modification or introduction of the plan will be recognized in income for the year
in which it is generated.
There will no longer be an unamortized item.
The use of the expected rate of return of the fund disappears and only the discount rate will be
considered for estimated expected return on assets.
Changes to measurement and presentation of certain components of the defined cost of benefits.
It improves disclosure requirements, including information about the characteristics of defined
benefit plans and the risks to which entities are exposed through equity therein.
Amendments to IAS 19 are effective for annual periods beginning on or after January 1, 2013. Early
application is permitted and should be disclosed in this case. The application of these amendments must be
retrospective, in terms of IAS 8. At the date of the independent auditor’s opinion, Management is working
with its actuarial consultants to quantify the impact of these changes on the Group's consolidated financial
statements.
g. Offsetting of Financial Assets and Liabilities (Amendments to IAS 32)
IAS 32 “Financial instruments”, the amendments do not change the current offsetting model of the
Standard to offset a financial asset and a financial liability in the statement of financial position when the
entity currently has a legal right to offset and the intent to liquidate the asset and liability in net terms or to
realize the asset and write off the liability simultaneously. The amendments clarify that the right to offset
must be available at present, that is, it is not dependent upon a future financial event. It must also be legally
binding for all the counterparties in the normal course of business, as well as in the event of nonpayment,
insolvency or bankruptcy. Application of this amended standard is mandatory, beginning January 1, 2014,
and early application is required. Management does not expect a material effect on the Group's consolidated
financial statements due to these amendments.
F-29
12
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
h. 2009 - 2011 Annual Improvements (Annual Improvements)
The 2009 - 2011 Annual Improvements (Annual Improvements) make various minor amendments to
various IFRS. The relevant amendments to the Group are summarized below:
Clarifications about the requirements of the opening statement of financial position:
• It clarifies that the appropriate date for the opening statement of financial position is the beginning
of the prior period.
• It considers comparative requirements for an opening statement of financial position when an
entity changes accounting policies or makes retrospective reissuances or reclassifications, in
conformity with IAS 8.
The Annual Improvements described above are effective for annual periods beginning on or after January 1,
2013. The Company has considered applying the Annual Improvement early, thus not presenting the notes
to the statement of financial position as of January 1, 2011, due to the retrospective application of the
accounting change.
Clarifications of the comparative information requirements that furnish additional minimum requirements:
• It clarifies that additional information to the financial statements need not be presented in the form
of a complete set of financial statements for periods beyond minimum requirements.
• It requires that any additional information presented should be in conformity with IFRS, and that
the entity must present comparative information in the notes related for that additional information.
Tax effect on distributions to holding companies of capital instruments:
• It corrects the inconsistency perceived between IAS 12 “Tax on earnings” (IAS 12) and IAS 32
“Financial Instruments: Presentation” (IAS 32) in connection with the recognition of the effects of
tax on earnings related to distributions to holders of capital instruments and transaction costs of a
capital transaction.
• It clarifies that the intent of IAS 32 is to follow the requirement of IAS 12 in order to account for
income tax related to distributions to holders of capital instruments and transaction costs of a
capital transaction.
Segment information for total assets and liabilities
• It clarifies that the total assets and liabilities of a particular reportable segment is required to be
disclosed if and only if: (i) a measurement of the total assets and total liabilities (or both) is regularly
furnished to the director of operations who makes the decisions; (ii) there has been a material
change in the measurements disclosed in the last financial statements of that reportable segment.
The Annual Improvements described above are effective for annual periods beginning on or after January 1,
2013. Management does not expect a material impact on the Group's consolidated financial statements due
to these improvements.
F-30
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Summary of accounting policies:
6.
a.
General considerations
The significant accounting policies used by the Company to prepare these consolidated financial
statements are summarized below: They were used in all the periods presented in the financial statements,
except when the Group has applied certain accounting policies and exemptions in the transition to IFRS
(See Note 27).
An overview of the standards, amendments and interpretations of the IFRS issued, but not yet effective
that have not been adopted early by the Company is presented in note 5.
b. Basis for consolidation
The Group's financial statements consolidate those of the holding company and all its subsidiaries as of
December 31, 2012 and 2011. Subsidiaries are all those entities on which the Group has control power over
the financial and operating policies. The Group obtains and exercises control through more than half of the
voting power. All the subsidiaries present their financial information for consolidation purposes as of
December 31, 2012 and 2011, in compliance with the policies adopted by the Group.
All significant transactions and balances of the Group are eliminated in consolidation, including unrealized
profit or loss in operations between them. In the cases in which there are unrealized losses on the sale of
assets between the Group, consolidation is reversed so that the asset involved is also tested for impairment
from a Group perspective. The amounts reported in the financial statements of the subsidiaries have been
adjusted when necessary to assure consistency with the Group's accounting policies.
The profit or loss and other comprehensive income items of the subsidiaries acquired or sold during the
year are recognized as of the effective date of the acquisition or up to the effective date of the disposition, as
applicable.
Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss
and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of
subsidiaries between the owners of the parent and the non-controlling interests based on their respective
ownership interests.
The main subsidiaries included in the consolidated financial statements are as follows:
Televisión Azteca, S.A. de C.V.
TV Azteca Comercializadora, S.A. de C.V.
Red Azteca Internacional, S.A. de C.V.
Estudios Azteca, S.A. de C.V.
Atlético Morelia, S.A de C.V.
Comerciacom, S.A. de C.V.
Comercializadora en Medios de Comunicación de TV Azteca, S.A. de C.V.
Azteca Novelas, S.A. de C.V.
F-31
14
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Servicios Especializados TAZ, S.A. de C.V.
Producciones Especializadas, S.A. de C.V.
Corporación de Asesoría Técnica y de Producción, S.A. de C.V.
Operadora Mexicana de Televisión, S.A. de C.V.
Comercialización y Desarrollo Azteca, S.A. de C.V.
Inversora Mexicana de Producción, S.A. de C.V.
Servicios Aéreos Noticiosos, S.A. de C.V.
SCI de México, S.A. de C.V.
Servicios Locales de Producción, S.A. de C.V.
Servicios Foráneos de Administración, S.A. de C.V.
Servicios y Mantenimiento del Futuro en Televisión, S.A. de C.V.
Lasimex, S.A. de C.V.
Azteca International Corporation (foreign subsidiary)
KAZA Azteca America, Inc. (foreign subsidiary)
TVA Guatemala (foreign subsidiary)
Incotel (foreign subsidiary)
TV Azteca Global, S. L. U. (foreign subsidiary)
Televisora del Valle de México, S.A. de C.V.
c. Business combinations
Business acquisitions are recognized by using the acquisition method. The acquisition method requires
evaluating that a business is being acquired, identifying the acquirer, determining the date of acquisition,
valuing the identifiable assets and liabilities assumed of the acquired business in the initial recognition, as
well as non-controlling equity, valuing the consideration at its fair value and recognizing goodwill acquired
or unusually recognizing a gain on a bargain purchase.
Goodwill represents the excess of the consideration transferred over the amount of the net assets of the
business acquired.
When the net assets of the acquired business exceed the value of the consideration paid, those net assets of
the acquired business are adjusted in the following order: a) values of intangible assets; b) the value of
property, machinery and equipment, by applying the prorated adjustment to the assigned values, except for
assets available-for-sale; and (c) the value of permanent investments. Once the above assets have been
exhausted, the remaining balance, if any, is recognized as a gain on the purchase, as a not ordinary item in
the statement of comprehensive income.
If the business combination is realized in stages, the carrying value of the prior interest of the acquirer in
the acquiree as of the date of acquisition is adjusted to fair value as of the date of acquisition, and any
difference is recognized in income.
At the date of acquisition, the acquired identifiable assets and assumed liabilities are recognized at fair
value, except for:
F-32
15
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
-
Deferred tax assets or liabilities and assets or liabilities related to employee benefit agreements,
which are recognized and measured in accordance with IAS 12 and IAS 19, respectively.
-
A liability or equity instrument related to transactions with share based payments of the acquiree
or substitution of transactions with share based payments of the acquiree for share based
transactions of the acquirer, which will be measured based on the method established by IFRS 2
“Share based payments” on the date of acquisition; and
-
A noncurrent asset acquired (or a group of assets for their disposition) classified as held for sale as
of the date of acquisition will be measured in accordance with IFRS 5 “Noncurrent assets held for
sale and discontinued operations”.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling equity in the acquiree and the fair value on the date of acquisition of the equity formerly held
by the acquirer in the equity of the acquiree, on the net of the amounts on the date of the acquisition of the
acquired identifiable assets and assumed liabilities. If the net of the amounts of the acquired identifiable
assets and assumed liabilities exceeds the sum of the consideration transferred, the amount of any noncontrolling equity in the acquiree and the fair value of the equity formerly held by the acquirer in the equity
of the acquiree, the resulting gain will be recognized in income as of the date of acquisition for a bargain
purchase at a bargain price.
When the consideration transferred by the Company in a business combination includes any asset or
liability derived from a contingent consideration agreement, the fair value of the contingent consideration
will be recognized at the date of acquisition. The changes in fair value of the contingent consideration that
qualify as adjustments of the measurement period will be adjusted retroactively with the applicable
adjustment against goodwill. The measurement period will end when the acquirer receives the information
about events and circumstances existing on the date of acquisition or conclude that more information can
not be obtained. However, the measurement period will not exceed one year, as of the date of acquisition.
Changes in fair value of a contingent consideration that do not qualify as adjustments of the measurement
period will be accounted for dependent upon how they have been classified, since they are derived from
evens occurred prior to the date of acquisition. The contingent consideration classified as equity should not
be measured again, and its subsequent liquidation should be accounted for in patrimony. The contingent
consideration classified as an asset or liability should be measured at fair value, and any resulting gain or
loss should be recognized in income for the period or in other comprehensive income, in accordance with
IFRS 9 or IAS 37, as applicable.
As of December 31, 2012 and 2011, the Company did not realize any business acquisitions.
d. Investments accounted for using the equity method and other permanent investments
Associates are those entities on which the company can exercise significant influence, but they are neither
subsidiaries nor joint ventures.
F-33
16
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Investments in associates are initially recognized based on the amount invested. Those investments are
subsequently valued under the equity method, which consists of adjusting the value of the investment,
determined based on the purchase method for the proportionate part of comprehensive income or losses,
and the distribution of earnings for capital reimbursements subsequent to the date of acquisition. Losses in
associates that are not derived from decreases in the percentage of equity are recognized in the applicable
proportion as follows: a) in the permanent investment until it shows a zero balance; b) if there is any excess
after applying the issue described in the preceding paragraph a), it is recognized in asset accounts until they
show a zero balance; c) if there is any excess, it is recognized as a liability for legal obligations or those
assumed in the name of the company; and d) any excess of losses not recognized in accordance with the
foregoing is not recognized by the parent.
Other permanent investments in which there is no significant influence for decision-making are valued at
their cost of acquisition, including those investments in which despite having an interest exceeding twentyfive percent of the voting power or potential voting power, there is no significant influence.
In the event that there is objective evidence that the investment of an associated has been impaired, the
carrying amount of the investment is subject to impairment tests. Impairment is defined as the difference
between the recovery value and the carrying value of an investment, and it is recognized jointly with the
equity in earnings (loss) of the associates.
e. Translation of foreign currency
Functional and presentation currency
The consolidated financial statements are presented in the “peso” currency, which is also the functional
currency of the holding company.
Foreign currency balances and transactions
Foreign currency operations are translated into the entity's functional currency, in this case, that of the
Group, by using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign
exchange profit or loss resulting from the liquidation of such transactions and valuation of monetary items
at the year-end exchange rate are recognized in income.
Nonmonetary captions are measured at historical cost (translated by using the exchange rates at the date of
the transaction), except for nonmonetary captions measured at fair value, which are translated by using the
exchange rates as of the date on which fair value was determined.
Foreign transactions
In the Group's financial statements, all assets, liabilities, and transactions of the entities of the Group
realized with a functional currency other than the peso (Group's presentation currency) are translated into
pesos at the time of consolidation. The functional currency of the entities of the Group has remained
unchanged during the reporting period.
At the time of consolidation, assets and liabilities have been translated into pesos at the closing exchange
rate at the date of the report. Revenues and expenses have been translated into the Group's presentation
currency at an average exchange rate during the reporting period. Foreign exchange differences are
F-34
17
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
charged /credited to other items of comprehensive income, and they are recognized as an effect of
translation in other capital accounts. At the time of disposing of a foreign currency operation, the
cumulative effects of translation recognized in capital are reclassified to income and recognized as part of
the gain or loss on disposal. Goodwill and adjustments to fair value arising from the acquisition of a
foreign entity have been treated as assets and liabilities of the foreign entity, and have been translated into
pesos at the closing exchange rate.
f.
Financial information by segment
Operating segments are defined as the components of an entity, geared toward developing business
activities on which revenues, costs, and expenses are generated. Moreover, its operating income or loss is
reviewed regularly by the entity's maximum governing body to decide on the resources that should be
allocated to the segment and evaluate their performance in connection with the segment itself by using
specific financial information.
In connection with the years in which they are presented, the Company has operated in the following
business segments: National television, Azteca America, Performance rights, and others. (See Note 24)
g. Cash and cash equivalents.
Cash and cash equivalents comprise cash on hand and bank deposits in checking accounts and investments
available, highly liquid that are readily convertible into cash and which are subject to an insignificant risk of
changes in value.
h. Trade and other receivables
Trade receivables
Accounts receivable represent amounts owed by customers, derived mainly from sales of advertising
services rendered in the normal course of the Group's operations. When they are expected to be collected
in a period of one year or less from the closing date (or in the normal cycle of business operations in the
event that this cycle should exceed this period), are presented as current assets. In the event that the above
should not be complied with, they are presented as noncurrent assets.
Other receivables
Other receivables apply mainly to loans and others that give the right to collect fixed or determinable
amounts that are not listed on an active market. The assets of this category are classified as current assets;
except if they are expected to be collected after a year has elapsed from the closing date. In that case, they
are classified as noncurrent assets.
i.
Financial instruments
Recognition, initial measurement and de-recognition
Financial assets and liabilities are recognized at the trading date, which is the date on which the Group
commits itself to buy or sell the financial asset of liability. They are initially measured at fair value adjusted
for operating costs, except financial assets and financial liabilities carried at fair value through profit or loss
(FVTPL) that are initially measured at fair value.
F-35
18
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Financial assets are de-recognized when contractual rights to the cash flows of a financial asset expire or
when the financial asset and all the substantial risks and benefits have been transferred.
A financial asset is de-recognized when it is extinguished, discharged, written off or it expires. Financial
assets and financial liabilities are potentially measured as described below:
Classification and subsequent measurement of financial assets
For purposes of subsequent measurements, financial assets that are not those designated and effective as
hedging instruments are classified in the following categories, at the time of their initial recognition:
•
•
•
•
loans and receivables
financial assets at fair value through profit or loss
investments held-to-maturity
available-for-sale financial assets
The category determines the subsequent measurement, as well as if any resulting revenue or expense is
recognized in income or other items of comprehensive income.
All financial assets except those that are carried at fair value through income or losses are subject to an
impairment test at least on every report date. Financial assets become impaired when there is objective
evidence that the financial asset or the group of financial assets has become impaired. Different criteria are
applied to determine the impairment of each category of financial assets, as described below:
All revenues and expenses related to financial assets recognized in income are presented in 'financial costs',
'financial revenues' or 'other financial items', except for the impairment of trade accounts receivable which is
presented in 'other expenses'.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
listed on an active market. After the original recognition, they are assessed at amortized cost, by using the
effective interest method, less the provision for impairment. The discount is omitted in the cases in which
the effect of the discount is immaterial. The Group's cash and cash equivalents, as well as trade accounts
receivable and most of the other accounts receivable are placed in this category of financial instruments.
Significant accounts receivable are considered individually for impairment when they are past due or when
there is objective evidence that a specific payment will fall into non-performance. Accounts receivable not
considered impaired individually are reviewed for impairment in groups, which are determined by reference
to the industry and region of the counterparty and other shared credit risk characteristics. The estimate of
the impairment loss is then determined based on recent historical non-performance rates of the
counterparty for each group identified.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets at fair value through profit or loss include financial assets that are classified as held for
trading or that meet certain conditions and are designated to FVTPL at the time of the initial recognition.
F-36
19
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
All derivative financial instruments enter into this category, except those designated and effective as hedging
instruments, to which hedge accounting requirements are applied.
Assets in this category are measured at fair value with the profit or loss recognized in the statement of
income. Fair values of derivative financial instruments are determined by reference to active market
operations or by using a valuation technique when there is no active market.
Investments held-to-maturity
Investments held-to-maturity are non-derivative financial assets with fixed or determinable payments, and
fixed maturities other than loans and accounts receivable. Investments are classified as held-to-maturity if
the Group has the intent and capacity to hold them to maturity. As of December 31, 2012 and 2011, the
Group has no investments classified with these characteristics.
Investments held-to-maturity are subsequently measured at amortized cost by using the effective interest
method. In the event that there should be objective evidence that the investment is impaired, determined by
reference to external credit classifications, the financial asset is measured at the present value of estimated
future cash flows. Any change in the carrying amount of the investment including impairment losses is
recognized in income or loss.
Available-for-sale financial assets
Financial assets available-for-sale are non-derivative financial assets that are designated in this category and
do not qualify for being included in any of the other categories of financial assets.
All other financial assets available-for-sale are measured at fair value. Profit or loss are recognized in other
items of comprehensive income, and they are reported in other capital accounts, except for impairment
losses and foreign exchange differences in monetary assets, which are recognized in profit or loss. When an
asset is disposed of or it is determined to be impaired, the accrued gain or loss that was recognized in other
items of comprehensive income is reclassified from equity to income, and it is presented as a reclassification
adjustment in other items of comprehensive income. Interest is calculated by using the effective interest
method, and dividends are recognized in income under 'financial revenues' (see Note 6aa).
The reversal of impairment losses is recognized in other items of comprehensive income, except financial
assets that are debt securities, whose recognition in income is realized only if the reversal can be objectively
related to an event that occurs after having recognized the impairment loss.
As of December 31, 2012 and 2011, the Group maintains investments in securities listed on the stock
exchange as discussed in Note 17. The effects of the changes in fair value of these investments are
presented in other comprehensive income.
Classification and subsequent measurement of financial liabilities
The Group's financial liabilities include loans, trade payables, and other payables and derivative financial
instruments.
Financial liabilities are subsequently measured at amortized cost by using the effective interest method,
except financial liabilities that are held for trading or have been designated at fair value through profit or
F-37
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
loss, which are subsequently kept in books at fair value with the profit or loss recognized in income. As of
December 31, 2012 and 2011, the Group does not maintain financial liabilities for trading or subsequently
measured at fair value.
All derivative financial instruments not designated or ineffective as hedging instruments are accounted for at
fair value through profit or loss. The effects of evaluation and assessment of the hedged item in fair value
hedges are recorded in the statement of financial position in assets or liabilities, as applicable.
All charges related to interest and, if applicable, any change in the fair value of an instrument are reported in
income and included in 'financial costs' or 'financial revenues'.
Derivative financial instruments
A specific accounting treatment is required for derivatives designated as hedging instruments in all cash flow
hedges. In order to qualify as hedge accounting, the hedge must meet certain strict conditions, with respect
to the documentation, likelihood of occurrence of the hedge operation and hedge effectiveness. The
remaining derivative financial instruments are accounted for at fair value through profit or loss.
As of December 31, 2012 and 2011, the Group maintains interest rate hedging contracts in order to hedge
cash flow risks due to the increases in the equilibrium interbank interest rate (EIIR) derived from the
financing program, by placing trust securities exchange certificates (CBF). These financial instruments were
classified for trading purposes and are measured at their fair value through profit or loss. Fair value is
presented in the caption of other financial assets.
j.
Bank loans and other loans
Net fair value is initially recognized net of any operating cost attributable directly to the issue of the
instrument. Interest generating liabilities are subsequently calculated at amortized cost, by using the effective
interest rate method, which assures that any interest expense during the period up to the complete payment
is at a constant rate on the balance of the liability recorded in the statement of financial position. Interest
expense includes initial operating costs and premiums payable at the time when they are amortized, as well
as any interest or coupon payable while the liability is unpaid.
k. Costs on loans
The costs on loans directly attributable to the acquisition, construction or production of an asset that
qualifies are capitalized during the time period required to complete and prepare the asset for its intended
use or sale. Other loan costs are expensed in the period in which they occur and reported in 'financial costs'
(See Notes 14 and 22). During fiscal years 2012 and 2011, the Group has not capitalized costs since they are
not identified directly with the acquisition of assets.
l.
Performance rights
Performance rights represent the right acquired for broadcasting programs and events under license
agreements, as well as the cost of internal productions.
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Performance rights and obligations are originally recorded as an asset at their cost of acquisition when
contracts are signed and the material is available. A liability is recognized on the unpaid part, if applicable.
The portion of performance rights that is going to be used in the next twelve months is classified as a
current asset. The cost of performance rights is amortized as programs and events are broadcasted.
As of December 31, 2012 and 2011 the provision for performance rights that will not be used prior to their
expiration amounts to $25,360 and $22,494, respectively.
As of December 31, 2012 and 2011, the balances of performance rights include internal productions in the
amount of $419,739 and $540, 223, respectively, as well as advances for performance rights in the amount
of $1,954,687 and $1,843,659, respectively. Third party rights are amortized at the time they are used which
normally occurs in the current month. Performance rights of internal productions are amortized as
broadcasted for the first time, except in the case of soap operas, of which 70% are amortized as broadcasted
in Mexico, 20% as broadcasted in the United States or over a maximum six-year term, and the remaining
10% as sold in other countries. Effective September 2011, performance rights of internal productions are
amortized totally, except in the case of soap operas, of which 90% are amortized as broadcasted in Mexico,
and the remaining 10% as sold in other countries.
m. Inventories
Inventories of merchandise and materials are originally valued at the lower of their acquisition cost or their
net realization value. The costs of exchangeable items are ordinarily assigned by using the average cost
formula. The net realization value is the estimated selling price in the normal course of business, less any
applicable selling expense.
n. Property and equipment
Buildings, computer equipment and other operating equipment
Buildings, computer equipment and other operating equipment (including accessories and furniture) are
recorded at the cost of acquisition or manufacturing cost, including any cost directly attributable for
transferring the assets to the location and necessary conditions for operating in the manner provided for
by Group Management. All other repair and maintenance costs are recognized in the statement of
comprehensive income during the period in which they are incurred.
Computer equipment and other equipment that are owned under leases are also included in property and
equipment if the Group has them as part of a financial lease agreement. (See Note 6o)
These assets are measured by using the cost model that consists of cost less accumulated depreciation and
impairment losses.
Depreciation is recognized on a straight-line basis to write off the cost less the estimated residual value of
property and equipment. Depreciation percentages based on estimated useful lives are:
•
•
Buildings
Operating equipment
3%
5% y 16%
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
•
•
•
Furniture and office equipment
Transportation equipment
Computer equipment
10%
20%
25%
Significant residual values and estimated useful lives are restated as required at least once a year.
Gains or losses derived from the disposal of property, plant and equipment are determined as differences
between the proceeds of the disposal and the recorded value of assets, and recognized in income as part of
'other revenues and expenses', as the case may be.
o. Leased assets
Finance leases
The economic ownership of the leased asset is transferred to the lessee if the lessee substantially assumes
all the risks and compensations related to the ownership of the leased asset. The pertinent asset is
recognized in the statement of financial position as an asset and a liability in the same amount, the lower
between the fair value of the leased asset and the present value of the minimum lease payments. Payments
are distributed in two parts, financial charges and debt reduction. That financial cost will be distributed
among the periods comprising the lease term, so that a consistent interest rate is obtained in each period
on the balance of the unamortized debt.
The Group maintains computer and transportation equipment under financial lease agreements entered
into with related companies as described in Note 13. As of December 31, 2012 and 2011, the net carrying
value of such equipment amounts to $1,330 and $15,026, respectively. Equipment is depreciated during
the lower between the useful life of the asset and the lease term.
Operating Leases
Payments of operating lease agreements are recognized as an expense based on the straight-line method
over the term of the lease. The associated costs such as maintenance and insurance are expensed as
incurred.
During 2012 and 2011, payments were made on this item in the amount of $293,014 y $284,074, which are
included in the caption of cost of programming, production, and transmission of the accompanying
consolidated statement of comprehensive income.
p. Television concessions
For purposes of applying IFRS 1 “First-time adoption”, the Group took the option of using the fair value
of concessions as a deemed cost in the statement of financial position, in conformity with IFRS 1.30. That
fair value was determined by independent experts. (See Note 27)
As a result of the analysis performed, “Intangible assets”, which television concessions qualify as indefinite
useful life intangible assets, were determined in conformity with IAS 38. Accordingly, they are not subject
to amortization. Instead, concessions are subject to impairment tests if there are indicators that such
impairment exists.
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Red Azteca Concession; channels 7 and 13
In complying with the provisions set forth in the Mexican Federal Radio and Television Law and through
the Ministry of Communications and Transportation (SCT), on August 25, 2004, all television concessions
were extended through certificates of concession renewal for transmission of frequencies, which expire on
December 31, 2021.
These certificates of renewal set forth the obligation of implementing land digital technology at television
stations in an equal number to analogical stations, in conformity with the standards and policies set forth
by the SCT, and in the period, terms and conditions set forth in those certificates of renewal, as part of the
transition process of analogous transmissions to those of high definition. That term expires on December
31, 2021. The certificates of renewal include calendars for the implementation described above, which
have been complied with by the Company as of December 31, 2012. As discussed in Note 25 below, this
term has been extended to 2015.
Azteca America Concession
The ownership, operation, and sale of television stations are subject to the jurisdiction of the Federal
Communications Commission (FCC) of the United States of America, which acts under the authority
granted by the Communications Act of 1934 (the “Communications Act”).
Television stations are governed by the broadcast licenses granted by the FCC for maximum eight year
terms and are subject to renewal, upon petition filed with the FCC. During certain periods in which
applications for renewal are in the pipeline, petitions can be filed by interested parties, including members of
the public, to deny the renewal of licenses. The FCC will generally grant one application for renewal if it is
proven: (i) that the station has served the public interest, advisability, and need; (ii) that there have been no
serious violations by the licensee of the Communications Act or the standards and regulations of the FCC;
and (iii) that there have been no other violations by the licensee of the Communications Act or the overall
standards and regulations of the FCC, that constitute a pattern of bad behavior.
The Communications Act prohibits the assignment of a broadcast license or transfer of control of a
broadcast license without prior approval of the FCC. In order to determine if the assignment or transfer of
control is permitted of the concession or renewal of a broadcasting license, the FCC considers a series of
factors related to the licensee, including the performance of various standards that limit the common
ownership of means of communication assets, the “character” of the licensee and those persons who hold
attributable interests in this licensee and the performance of the limitations of the Communications Act to
unrelated ownership. The Communications Act prohibits the issuance of a broadcast license or holding a
broadcast license by any company of which more than 20% of the capital stock belongs to non US citizens,
a foreign government or any company organized under the laws of a foreign country.
As of December 31, 2012, there is no knowledge of any violation of the Communications Act.
Management considers concessions as a single cash generating unit. The value amounts to $8,095,000 and
consists of the concessions of channel 7, 13, Guatemala and Azteca America in the amount of $7,720,000
and disbursements in the acquisition of channel 40 amounting to $375,000.
F-41
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
In the opinion of the Company's legal advisors, the right of expropriation of the Concession of Channel 40
is owned by the Company. Pursuant to the foregoing, the disbursements realized to acquire Channel 40
were considered as part of the value of the Concessions. Pursuant to the issue described in Note 10, the
disbursements in the amount of $375,000 made for the acquisition of Channel 40 are presented as part of
other intangible assets.
q. Government Subsidies
Government subsidies are initially recognized as deferred income when there is reasonable certainty that
they will be received and that the Company will meet the obligations associated with the subsidy. The
subsidies that offset expenses incurred by the Company are recognized in income systematically in the same
period in which expenses were recognized. Subsidies whose primary condition is for the Company to build
or acquire noncurrent assets are recognized as deferred income and transferred to income systematically and
rationally over the useful life of the assets.
Subsidies related to assets are presented as deductions of the carrying amount of the asset in the statement
of financial position. By the same token, the recognition of deferred revenue from subsidies is shown as a
decrease in the depreciation expense of the asset in the statement of comprehensive income.
r.
Other intangible assets
Initial recognition
Costs attributed directly to the development stage of a project are recognized as intangible assets as they
meet the following recognition requirements:
•
•
•
•
•
costs can be measured reliably
the project is technically and commercially viable
the Group intends and has sufficient resources to complete the project
the Group has the capacity to use or sell the intangible asset
the intangible asset will generate probable future economic benefits
Development costs that do not meet these criteria for capitalization are expensed as incurred.
Costs directly attributable to the development stage include employee costs incurred in the development of
software, in addition to the adequate portion of the pertinent fixed expenses and costs of loans.
Optic fiber Colombia
Costs and expenses incurred for the development of the project not reimbursable by the optic fiber Trust
directly attributable to the preparation of the asset for its use in accordance with Management's expectations
are capitalized. As of December 31, 2012, the project is in progress and is expected to be concluded in 2014.
It will be amortized when expected future economic benefits start to be received.
Letters from players
Letters from players are recorded as a noncurrent asset at their acquisition cost. As of December 31, 2012
and 2011 a valuation allowance was recognized in the amount of $54,000 and $11,000, respectively which is
presented in the statement of comprehensive income line of other expenses.
F-42
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Letters from players whose acquisition is considered final are amortized in accordance with the time that
comprises the duration of their contract, when the offer of their services on the domestic soccer market
merits it as such, and the estimated time of the “Professional Life” of the player, which in no case exceeds
the duration of the contract. This is why the latter is the maximum amortization time. Letters from players
acquired on loan (temporary) are amortized during the time comprising that loan. The cost for transferring
players is not recognized until the time of the sale or retirement thereof.
Affiliation rights
The right of affiliation with the Mexican Soccer Federation (Federacion Mexicana de Futbol) by franchise of
the First Division “A” was recognized at its acquisition cost. As of December 31, 2012 and 2011, the value
of the right of affiliation does not exceed its recovery value. These affiliation rights are not amortized due to
the impossibility of defining the termination of future economic benefits accurately. Those assets are subject
to an annual assessment for possible impairment or before if merited by circumstances.
Acquisition of software
Software licenses acquired are capitalized on a cost incurred basis for acquiring and installing specific
software.
Software developed internally
Expenses of the research stage for computer and telecommunications systems are recognized as an expense
when incurred, and expenses identified in the development stage are capitalized.
Subsequent measurement
Intangible assets including capitalized software developed internally are accounted for by using the cost
model whereby capitalized costs are amortized on a straight-line basis over their estimated useful lives,
since these assets are considered definite-lived assets. Residual values and useful lives are reviewed on each
reporting date. They are currently subject to impairment tests as described in the following paragraph.
s.
Impairment of the value of assets
The Group periodically evaluates the recovery value of tangible and long-lived intangible assets, including
goodwill to determine the existence of indicators that those values exceed their recovery value.
For purposes of evaluating impairment, assets are grouped on the lowest levels for which there is an
independent adequate cash inflow (cash generating units). As a result, assets are tested individually for
impairment and some are tested at a cash generating unit level.
Cash generating units to which goodwill is assigned are tested for impairment at least once a year. The rest
of the individual assets or cash generating units are tested for impairment, provided that there is an event or
change in circumstances which indicates that the amount recorded cannot be recovered.
An impairment loss is recognized in the amount in which the recorded value of the asset or cash generating
unit exceeds its recovery value, which applies to the higher amount between fair value less cost to sell and
value in use. To determine the value in use, Management estimates the expected future cash flows of each
cash generating unit and determines an adequate interest rate to be able to calculate the present value of
F-43
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
those cash flows. The data used for impairment testing procedures are directly linked to the most recent
budget approved by the Group, adjusted as necessary to exclude the effects of future reorganizations and
improvements of assets. Discount factors are determined individually for each cash generating unit and
reflect their respective risk profiles, as evaluated by Management.
Impairment losses for cash generating units reduce the amount recorded first of any goodwill assigned to
that cash generating unit. The remaining impairment loss is charged to other long-lived assets on a prorated
basis in the cash generating unit. Except for goodwill, all assets are evaluated subsequently to identify events
that any impairment loss that has been previously recognized no longer exists. An impairment charge is
reversed if the recoverable value of the cash generating unit exceeds the carrying book value.
As of December 31, 2012, the Company shows no signs of impairment in its assets of property and
equipment and intangibles.
t.
Income tax
In conformity with the provisions in effect set forth in IAS 12 “Taxes on earnings”, the tax due is
determined based on currently enacted tax legislation and is recorded in income for the period to which it is
attributable. The effects of deferred taxes consist of applying the tax rate applicable to all those temporary
differences between book and tax balances of assets and liabilities that are expected to materialize in the
future, related to: (i) deductible and taxable temporary differences; (ii) the offsetting of prior period tax loss
carryforwards; and (iii) the offsetting of unused prior year credits (unused tax credit carryforwards).
Deferred income tax assets are recognized if it is likely that future tax benefits will be obtained against those
that can be offset.
Deferred income tax liabilities derived from investments in subsidiaries and associates are recognized except
when the investment of those temporary differences can be controlled by the Group, and it is likely that the
temporary difference will be reversed in the foreseeable future.
u. Noncurrent assets and liabilities classified as held for sale and discontinued operations
When the Group intends to sell a noncurrent asset or a group of assets (a group for disposal), and if the sale
is highly likely in the next 12 months, the assets or group for disposal are classified as 'held for sale' and they
are presented separately in the statement of financial position. Liabilities are classified as 'held for sale' and
presented as such in the statement of financial position if they are directly associated with a group for
disposal.
Assets classified as 'held for sale' are measured at their carrying value immediately before their classification
as the lower of held for sale or their fair value, less their cost to sell. However, some assets 'held for sale'
such as financial assets of deferred tax assets continue to be measured in conformity with the Group's
accounting policy for those assets. No asset classified as 'held for sale' is subject to depreciation or
amortization after they are classified as 'held for sale'.
As of December 31, 2012, the Group does not intend to dispose of any asset or set of assets.
F-44
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
v. Employee benefits
Termination and retirement benefits
The Group grants a benefit to personnel after their employment relationship is terminated either by
dismissal or voluntary separation. In accordance with IAS 19 “Employee benefits”, this practice constitutes
an obligation assumed by the Company with its personnel, which is recorded based on annual calculations
prepared by independent actuaries.
Benefits for seniority bonuses and pensions
The Group does not operate pension plans and seniority bonuses. However, it has a provision that is
recognized as a cost during the years of service of personnel, which was determined based on actuarial
calculations.
The liability also considers the Group's specific expectation of future salary increases. Discount factors are
determined close to every fiscal year end in reference to the high quality government paper that is
denominated in the currency in which benefits will be paid.
The liability also considers the Group's specific expectation of future salary increases. Discount factors are
determined close to every fiscal year end in reference to the high quality government paper that is
denominated in the currency in which benefits will be paid.
These assumptions were developed by Management considering the expert advice furnished by independent
actuarial appraisers. Other assumptions are based on Management's experience.
Actuarial gains and losses are not recognized as an expense, unless the total unrecognized gain or loss
exceeds 10% of the majority of the obligation and related plan assets. The amount exceeding this 10%
margin is charged or credited to income or losses over the remaining expected productive life of employees.
Actuarial gains or losses in this 10% margin are disclosed separately. The prior service balance has been
amortized on a 5 year basis up to 2012 year end. Beginning 2013, recognition is immediate.
w. Provisions, contingent liabilities, and contingent assets
Provisions are recognized when current obligations as a result of a past event are likely to lead to an outflow
of economic resources by the Group and the amounts can be estimated with certain reliability. The time or
amount of that outflow can still be uncertain. A current obligation is derived from the presence of any legal
or constructive commitment that has resulted from past events, for example, product warranties granted,
legal disputes or onerous contracts.
Provisions are measured based on the estimated expense required to cancell the current obligation, pursuant
to the most reliable evidence available at the date of presentation of the financial statements, including risks
and uncertainties associated with the current obligation. In the cases in which there is a similar number of
obligations, the possibility that a disbursement may be required for cancellation is determined through the
consideration of that type of obligations as a whole. Provisions are discounted at their present values in the
cases in which the value in time of the money is material.
F-45
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Any reimbursements that the Group considers that it is going to be collected from a third party in
connection with an obligation are recognized as an asset separately. However, this asset cannot exceed the
amount of the relative provision.
In those cases in which an outflow of economic resources is considered unlikely or remotely probable as a
result of current obligations, no liability is recognized unless it is presumed in the course of a business
combination (See Note 6c). Contingent liabilities are recognized in a business combination at the date of
acquisition when there is a current obligation that is derived from past events, and fair value can be
recognized reliably, even if the outflow of economic resources is unlikely. They are subsequently measured
based on the higher amount between a comparable provision as described above and the amount
recognized at the date of acquisition, less any amortization.
x. Equity, capital reserves and dividends payment
Capital stock represents the par value of shares issued.
The premium on stock issued includes any premium received for the issue of share capital. Any operating
cost associated with the issue of shares is deducted from the premium on stock issued, net of any benefit
from the related tax on earnings.
Other components of capital include the following:
•
•
Effects of translation - these include the effect of translation of currencies from the Group's foreign
entities into pesos (See Note 6e).
The reserve for financial assets and liabilities available-for-sale and cash flow hedges -these include
gains and losses related to this type of financial instruments (See Note 6i).
Retained earnings include all current and prior period earnings reduced by dividends paid and transfers to
other capital accounts.
All operations with owners of the parent are recorded separately in equity.
Distributions of dividends payable to stockholders are charged to retained earnings and included in
'other liabilities' when dividends have been declared, but have not been paid at the reporting date. As of
December 31, 2012 and 2011, dividends declared were fully paid.
Reserve for stock repurchases
In accordance with the Securities Market Law, the Company created a capital reserve by appropriating a
Reserve for stock repurchases from retained earnings, in order to strengthen the offer and demand for its
shares on the Securities Market. Shares acquired and temporarily withdrawn from the market are considered
as treasury sotck that are presented as a capital stock decrease, until placed again on the market.
F-46
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
y. Revenue recognition
Revenues are measured by reference to the fair value of the payment received or receivable by the Group of
goods provided or services rendered, without counting sales taxes, rebates and commercial discounts.
Revenues on advertising contracts are recognized as the advertising contracted is broadcasted. Revenue
consists of revenues obtained from advertisers less sales commissions. Sales commissions amounted to
$761,211 and $771,600, for the years ended December 31, 2012 and 2011, respectively.
Revenues from advertising contracts
Revenues from advertising contracts are recognized as the advertising contracted is broadcasted.
Income from unsold advertising time
The Company recurrently markets unsold advertising time to infomercials, shared risk advertisers, and
through integrated advertising. Infomercials are charged at a fee contracted for the time that the
advertisement lasts. For shared risk advertisements, a percentage is received of gross sales of the products
offered during the period of time negotiated after the advertisement is broadcasted. Integrated advertising
revenue applies to the presentation and use of products during the broadcasting of internal programming.
Revenue for these items accounted for 21.41% and 19.35% of net sales as of December 31, 2012 and 2011,
respectively.
Deferred income from advertising time
The Group essentially handles two types of advertising advance contracts with its customers. The Plan
Azteca (Aztec Plan) generally requires payment in full within four months following the date on which the
contract is signed. The Plan Mexicano (Mexican Plan) permits customers to make payments in installments,
which are generally supported by notes over the period in which advertising is broadcasted. In both plans,
the Company enters into some contracts with its customers for terms exceeding one year.
The Company records cash or other assets received and the balance due from customers, as well as the
obligation to provide advertising under either of the two types of contracts referred to above, when those
contracts are signed or the customer has tacitly accepted. Advertising advances or deferred obligations are
credited to revenue when the advertising contracted is broadcasted. Revenue recognition is based on
systems that are fed with programming data that is transferred daily, as well as audience measurements,
amounts of contracts, and other information.
Advances from advertisers or deferred obligations are valued at selling prices of services. Company’s
Management estimates that approximately 54% of those obligations represent the cost of the service to be
rendered.
Barter transactions
Barter operations represent transactions that do not imply any cash flow in which the Company sells
advertising time to third or related parties, in exchange for certain assets or services. These transactions are
originally recorded at the market value of the assets or services agreed upon in barter contracts in the
caption of receivables from advertisers. In the years ended December 31, 2012 and 2011, net revenue
derived from barter transactions amounted to $313,609 and $396,856, respectively.
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TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
z. Operating expenses
Operating expenses are recognized in income at the time services are rendered.
aa. Interest and dividends received
Interest income and expenses are reported on an accrual basis, by using the effective interest method.
Dividend income that is not from investments in associates is recognized at the time at which the Group is
eligible to receive the payment.
bb. Earnings per share
Ordinary basic earnings per share are calculated by dividing the Holding Company's equity by the weighted
average of ordinary shares outstanding during the fiscal year. Diluted earnings per share are determined by
adjusting the Holding Company's equity, under the assumption that the entity's commitments would be
realized to issue or exchange its own shares. Basic earnings are equal to diluted earnings, since there are no
transactions that might potentially dilute the earning.
cc. Comprehensive income
Comprehensive income consists of net income, the effects of translation, the effects of valuation of
financial instruments available-for-sale, which are reflected in equity and do not represent capital
contributions, reductions and distributions. The amounts of comprehensive income of 2012 and 2011 are
stated in historical pesos. Comprehensive income includes net income for the year, plus items which, in
accordance with IFRS, are required to be recorded directly in equity, and they are neither capital
contributions nor capital decreases.
dd. Management's significant criteria upon applying accounting policies and uncertainty in estimates
Upon preparing the financial statements, Management realizes several judgments, estimates, and
assumptions for the recognition and measurement of assets, liabilities, revenues, and expenses.
Management's significant criteria
Internally generated costs of software and development
Significant judgment is required to distinguish the research stage from the development stage and determine
if they meet the capitalization requirements of development costs. After capitalization, Management
monitors to see if those requirements continue to be met and if there are indicators that such capitalized
costs can be impaired.
Deferred tax assets
The amount on which a deferred tax asset can be recognized is based on the evaluation of the likelihood of
having future taxable income, on which the Group's deferred tax assets can be used. Significant judgment
can further be required upon evaluating the impact of certain legal or economic limits or uncertainty in
different tax jurisdictions.
F-48
31
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Uncertainty of estimate
Information on significant judgements, estimates and assumptions that have more significance on the
recognition and measurement of assets, liabilities, revenues, and expenses is provided below. Actual results
can be substantially different.
Impairment
In the evaluation of impairment, Management determines the recoverable value of each asset or cash
generating unit, based on the expected cash flows and determines an adequate interest rate to be able to
calculate the present value of those cash flows. Uncertainty of the estimate is related to the assumptions on
future operating income and the determination of an adequate discount rate.
Useful lives of depreciable assets
Management reviews the useful lives of depreciable assets on each reporting date, based on the expected use
of each asset. Uncertainty in these estimates is derived from the technical obsolescence that can modify the
expected use of the asset, including software and computer equipment.
Performance rights
Management periodically evaluates the validity of the licenses of the titles for transmission.
Inventories
Management estimates the net realizable values of inventories, taking into consideration the most reliable
evidence available at the reporting date. Future realization of these inventories can be affected by future
technology or other changes on the market that can reduce selling prices.
Business combinations
Management uses valuation techniques to determine the fair values of the elements of a business acquisition.
The fair value of the contingent payment is particularly dependent upon various results that can affect future
earnings.
Allowance for doubtful accounts
The Company determines the allowance for doubtful accounts by studying factors such as: (i) the customer's
financial position; (ii) the delay in collection; (iii) guarantees or warranties granted by the customer; and (iv)
historical uncollectibility trends. This implies that Management makes allowances for uncollectibility at the
date of preparation of the financial statements that will not necessarily behave as such in reality.
Defined benefit obligation
Management determines the DBO based on the number of critical assumptions, such as standard inflation
rates, trends of health care service costs and mortality, discount rates, and future increases in expected
salaries. There is uncertainty, especially with respect to the trends of medical service costs. Variations of
these assumptions can impact the amount of the DBO and the pertinent annual expense on defined benefits
(the analysis is furnished in Note 15).
Fair value of financial instruments
Management uses valuation techniques to measure the fair value of financial instruments in which there are
no active market quotes available. Consequently, Management considers estimates and assumptions based
F-49
32
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
on market information and observable data that might be used by market participants upon setting a price
on the instrument. In the cases in which there are no observable data, Management uses the best estimate
on the assumptions that might be made by market participants. These fair value estimates of financial
instruments can vary from actual prices that can be reached in arm's length transactions at the date of the
report (See Note 17).
Fair value of derivative financial instruments
The Group has entered into operations with derivative financial instruments, which are used mainly to
reduce exposure to the primary position in dealing with adverse changes in interest rates and exchange rates
that affect it. There are also trading operations whose objective is to take advantage of the possibilities of
arbitration that arise on the main financial markets within the authorized global risk limits.
In some cases, there is an observable market that provides estimated fair value. In the absences of that
market, the value is determined through valuation techniques such as the present net value of cash flow
projections or mathematical valuation models.
Estimated fair values of derivative instruments are supported by confirmations of those values received by
the Group from the counterparties of those financial instruments. Notwithstanding the foregoing, an indepth evaluation is required to account for the effects of derivative operations appropriately in the financial
statements.
Cash and cash equivalents:
7.
Cash and cash equivalents are summarized as follows:
Cash in hand and in banks
Short-term investments
$
$
2012
1,574,420
4,871,657
6,446,077
$
$
2011
1,468,223
6,849,594
8,317,817
As of December 31, 2012 and 2011, due to the stock exchange certificate issue program discussed in Note
14, the cash subject to restrictive covenants and applicable to that program amounts to $844,085 and
$723,815, respectively.
8.
Trade and other receivables:
Trade and other receivable balances are summarized as follows:
a.
Classification of financial and non-financial reports
Trade receivables
Estimate for uncollectible accounts
Trade receivables, net
$
Other receivables
Financial assets
2012
4,960,986
(323,685)
4,637,301
1,071,183
5,708,484
F-50
$
2011
6,947,042
(264,428)
6,682,614
661,469
7,344,083
33
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Prepaid expenses
Non-financial assets
58,207
58,207
102,252
102,252
Trade and other receivables
$
5,810,736
$
7,402,290
The net carrying value of short-term and long term receivables is considered to approximate their fair value.
Trade accounts receivable include barter transactions in the amounts of $262,462 and $248,888 as of
December 31, 2012 and 2011, respectively.
As of December 31, 2012 and 2011 future flows of advertising sales are secured by the stock exchange
certificates issued by the Company (See Note 14).
Changes in the allowance for doubtful accounts were as follows:
Opening balance January 1
Increases
Applications
Ending balance December 31
$
$
2012
264,428
78,157
(18,900)
323,685
$
$
2011
319,369
93,135
(148,076)
264,428
All trade accounts receivable and other receivables have been reviewed with respect to impairment
indicators. Certain accounts receivable were found to be impaired. Consequently, an allowance for doubtful
accounts has been recorded in the amount of $78,157 in net revenues of the Company.
As of December 31, 2012, the non-performing portfolio is adequately covered by the allowance for doubtful
accounts. (See Note 18)
9.
Property and equipment:
Property and equipment are summarized as follows:
Buildings
Operating equipment
Furniture and office equipment
Transportation equipment
Other fixed assets
$
Less – Accumulated depreciation
Land
Construction-in-progress
$
F-51
2012
2,237,350
5,418,393
341,579
912,047
1,001,049
9,910,418
(7,222,266)
2,688,152
675,011
101,934
3,465,097
$
$
2011
1,951,990
5,148,175
343,463
864,214
942,344
9,250,186
(6,893,933)
2,356,253
656,563
325,767
3,338,583
34
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Reconciliation as of December 31, 2012
Balance at
beginning of
year, net of
accumulated
depreciation
Buildings
Operating equipment
Furniture and Office Equipment
Transportation Equipment
Other fixed assets
Land
Construction-in-progress
Additions
$ 997,116
$ 292,577
802,421
43,911
356,088
156,716
656,563
325,768
$3,338,583
373,647
7,270
149,327
95,956
18,848
673,673
$1,611,298
Depreciation
for the year
Retirements
3,894
16,321
430
53,940
6,345
400
897,506
$ 978,836
$
$
$
Balance at
end of year,
net of
accumulated
depreciation
74,200
260,309
7,786
84,709
78,944
505,948
Estimated
useful life
(years)
$1,211,599
33
6 y 20
10
5
4
-
899,438
42,965
366,766
167,383
675,011
101,935
$3,465,097
Reconciliation as of December 31, 2011
Balance at
beginning of
year, net of
accumulated
depreciation
Buildings
Operating equipment
Furniture and Office Equipment
Transportation Equipment
Other fixed assets
Land
Construction in progress
Additions
$ 937,305
$ 118,219
695,940
44,020
414,219
103,662
648,386
147,390
$2,990,922
388,747
11,729
96,407
106,934
8,177
213,949
$ 944,162
Depreciation
for the year
Retirements
6,132
228
64,741
34,058
35,571
$ 140,730
$
Balance at
end of year,
net of
accumulated
depreciation
$ 58,408
$ 997,116
276,134
11,610
89,797
19,822
$ 455,771
802,421
43,911
356,088
156,716
656,563
325,768
$3,338,583
Estimated
useful life
(years)
33
6 y 20
10
5
4
-
Components under construction:
In June 2012, the new forums of Azteca were inaugurated which are considered to be the most modern of
Latin America. The investment thereof amounted to $263,488.
All charges for depreciation and impairment are included as part of depreciation, amortization, and
impairment of non-financial assets.
10.
Other intangible assets:
As of December 31, 2012 and 2011, this caption is summarized as follows:
2012
Payments to Corporación de Noticias e Información, S.A. de
C.V.
Letters from players and affiliation rights
Optic fiber Colombia
Other assets, net
$
$
The reconciliation of operations is as follows
F-52
374,852
213,684
322,722
256,645
1,167,903
2011
$
$
337,254
246,999
159,420
743,673
35
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
CNI
Gross carrying amount
Balance as of January 1, 2011
Transfers
Increases
Sale of players
Balance as of December 31, 2011
Amortization and impairment
Balance as of January 1, 2011
Amortization
Balance as of December 31, 2011
Book balance as of December 31, 2011
Gross carrying amount
Balance as of January 1, 2012
Increases
Sale of players
Balance as of December 31, 2012
Amortization and impairment
Balance as of January 1, 2012
Amortization
Transfers
Applications
Balance as of December 31, 2012
Book balance as of December 31, 2012
$ 321,482
$
$
$
Optic Fiber
Colombia
15,772
337,254
-
337,254
-
337,254
37,598
374,852
374,852
$
$
$
$
Letter from
players
$
397,035
55,227
(9,708)
442,554
(148,226)
(47,329)
(195,555)
$ 246,999
Total
Others
$
$
111,303
73,080
184,383
$
432,785
397,035
144,079
(9,708)
964,191
(24,963)
(24,963)
159,420
(148,226)
(72,292)
(220,518)
$ 743,673
322,722
322,722
$
442,554
136,674
(102,675)
476,553
$ 184,383
136,015
320,398
964,191
633,009
(102,675)
1,494,525
322,722
(195,555)
(51,029))
(45,246)
28,961
(262,869)
$ 213,684
(24,963)
(38,790)
(63,753)
$ 256,645
(220,518)
(89,819)
(45,246)
28,961
(326,622)
$ 1,167,903
$
Corporacion de Noticias e Informacion, S. A. de C. V. (CNI)
On December 10, 1998, the Company and its subsidiary Operadora Mexicana de Television, S. A. de C. V.
(OMT) signed a Joint Venture Agreement with CNI and Televisora del Valle de Mexico, S. A. de C. V.
(TVM), which establishes the bases for: (i) the possible acquisition by TVA of shares issued by TVM; (ii) the
operation and marketing of Channel 40 by OMT; (iii) the programming of Channel 40; and (iv) a credit
granted by TVA to CNI and the documents discussed below, among other things, were signed:
a) A Loan Agreement signed on October 9, 1998, whereby the Company granted a loan in the amount of
10,000 US dollars in favor of CNI over a ten year term, with a 3-year grace period as of the drawdown
of the loan. Interest accrued will bear the highest rate paid by the Company plus 0.25 points. To secure
the loan, a pledge was created applicable to 51% of the shares representative of the capital stock of
TVM, held by Mr. Javier Moreno Valle Suarez. Those shares will be pledged until the loan and its
related costs are paid in full. As of July 2000, CNI had drawn down 10,000 dollars of this loan.
b) The Company entered into an assignment of rights and obligations contract (the “Assignment
Contract”) with CNI that CNI had with TVM under which the Company would market, program, and
operate television Channel 40. Under that Contract, TVA delivered 15,000 US dollars to CNI, which
were considered as a 50% prepayment of the EBITDA for the first three years of the Contract. As of
December 31, 1999, the Company delivered the total 15,000 dollars described, which will be amortized
against the EBITDA generated in operating Channel 40 over a maximum 10-year period.
F-53
36
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
In July 2000, CNI suspended the transmission of the Company's signal, which was an obligation set forth in
the joint venture agreement. As an answer to this and other actions, the Company has filed various lawsuits
against CNI, TVM, and Mr. Moreno Valle.
In September 2005, the Seventh Civil Court handed down a ruling whereby; a) TVM and CNI
nonperformed the Assignment Contract; b) TVM and CNI were ordered to perform the Assignment
Contract; and c) TVM and CNI were ordered to pay damages and harm, as well as (legal) expenses and
costs. The Fourth Civil Court confirmed the ruling handed down by the court of original jurisdiction, TVM
and CNI filed appeals for constitutional relief against the rulings handed down by the fourth division in the
appeal filed by the defendant, on which the final ruling was handed down by the First Civil Three-Judge
Court, in the sense of confirming the judgment for the plaintiff that sentenced TVM and CNI, except for
the sentence of the payment of expenses and costs.
In execution and performance of the final ruling handed down by the Seventh Civil Judge, Channel 40 again
started to broadcast the programming furnished by the Company, in reliance on the contracts signed
between TVM and the Company in 1998, which were restored and recognized by the person who acts as
sole Director.
In spite of a lack of certainty, the Company’s Management considers that it will prevail in the various
disputes it has with CNI, TVM, and Mr. Moreno Valle and, therefore, no provision has been made for this
matter.
Optic fiber Colombia
During fiscal 2011, the branch in Colombia was awarded the bid for the construction of an optic fiber
network in 753 municipalities and 2,000 public institutions in Colombia (the Network). The objective of this
company is to design, install, put into service, operate, manage, and maintain that telecommunications
network. The Colombian Subsidiary has a 2.5 year period to build the Network, and it has the concession to
be operated for a 15 year period.
It is estimated that the project will represent an investment amounting to USD 216,843. The resources for
the construction of the Network are from a subsidy granted by the Government of Colombia,
complemented by the Group's own resources. The Colombian branch is subject to certain conditions for
obtaining the subsidy, among other things, is highlighted by the free service rendered for the use of the
optic fiber network to 2,000 public institutions of the government of Colombia for a five year period, the
construction in due time and proper form of the network and the operation thereof for fifteen years.
All the stipulated conditions have been complied with during the validity of the contract.
As of December 31, 2012, the subsidy received for the construction of the optic fiber network is recorded
net in the statement of financial position between the asset related to the construction of the optic fiber
network and the applicable deferred revenue.
F-54
37
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
11.
Investments accounted for using the equity method and other permanent
The balance of the investment in associated companies is summarized as shown below:
Súper Espectáculos, S.A. de C.V. (Arena Monterrey)
Globo Re, S.A. (foreign resident)
Other investments
2012
147,969
104,721
60,095
312,785
$
$
2011
117,522
104,045
56,476
278,043
$
$
The equity of TV Azteca in earnings of its main associates and its equity in assets and liabilities are as
follows:
Name
December 31, 2012
Súper Espectáculos, S.A. de C.V.
(Arena Monterrey)
Globo Re, S.A. (Foreign resident)
December 31, 2011
Súper Espectáculos, S.A. de C.V.
(Arena Monterrey)
Globo Re, S.A. (Foreign resident)
Assets
$
3,716,892
Liabilities
$
527,943
$ 3,094,616
722,134
2,947,542
$
133,530
$
2,483,450
345,569
Income/
(Loss)
Revenues
$
% of equity
1,197,343
$ 158,183
20%
527,943
16,453
27%
576,129
$ 207,236
20%
251,412
59,270
27%
Globo Re, S.A. (Associated Company) –
As of December 31, 2011, the Company holds the 27% interest in Globo Re, S. A. de C. V. The income or
loss thereof is recognized by using the equity method.
As of December 31, 2012 and 2011, the Group holds other investments where it has no significant
influence with a net book value amounting to $60,095 and $56,476, whose carrying value is substantially
similar to fair value.
12.
Trade and other payables:
Trade and other payables recognized in the statement of financial position are summarized as follows
2012
Trade payables and creditors
Interest payable
Operating costs and expenses
Provisions
Other payables
Total other payables
$
$
F-55
596,863
51,245
668,634
43,867
493,105
1,853,714
2011
$
$
666,956
58,105
648,411
30,000
88,217
1,491,689
38
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
The provisions apply to production costs.
13.
Related parties balances and transactions:
The main related party balances as of December 31, 2012 and 2011 are as follows:
2011
2012
Accounts receivable:
Azteca Holdings, S.A. de C.V. (Parent)
Fórum Per Terra, S.A. de C.V. and subsidiaries
Grupo Elektra, S.A.B. de C.V. and subsidiaries
GSF Telecom Holdings, S.A.P.I. de C.V. and subsidiaries
Comunicaciones Avanzadas, S.A. de C.V.
Others
$
$
Accounts payable:
Globo Re, S.A.
Arrendadora Internacional Azteca, S.A. de C.V.
Others
$
$
167,165
59,051
15,715
15,070
2,766
6,784
266,551
$
123,460
4,865
39,182
167,507
$
$
$
160,761
57,314
28,810
3,819
2,631
23,409
276,744
123,990
15,790
14,409
154,189
During the years ended December 31, 2012 and 2011, the following related party transactions were carried
out as if the terms of the considerations for related party transactions were equivalent to similar transactions
carried out with independent third parties. The most significant transactions carried out are described below:
Advertising income
Income from advertising broadcasted contracted with related parties amounted to $584,478 and $530,928
for the years ended December 31, 2012 and 2011, respectively.
Grupo Elektra, S.A.B. de C.V. and subsidiaries (Grupo Elektra)
During 2012 and 2011, the Company and Grupo Elektra entered into annual advertising; the rights under
the terms of these contracts cannot be assigned by Electra to third parties. As of December 31, 2012 and
2011, revenues from Grupo Elektra amounted to $452,850 and $399,326, respectively.
GSF Telecom Holdings, S.A.P.I. de C.V. and subsidiaries (GSF)
During 2012 and 2011, the Company and GSF entered into annual advertising contracts; the contracts
generally have an annual duration, and they are signed in conditions similar to those of unrelated customers.
As of December 31, 2012 and 2011, income from Iusacell amounted to $131,628 and $131,602,
respectively.
Service income 01 900
The Company and a subsidiary of GSF offer services of controlling and identifying telephone calls through
the 01 900 service of television viewers who participate in the contests conducted by the Company. As of
December 31, 2012 and 2011, under the terms of the contracts for that service, net revenues amounted to
$101 and $20,636, respectively. During 2012 the Company became the sole provider of these services.
F-56
39
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Revenues on productions and promotions
Banco Azteca, S.A. (Affiliated Company, subsidiaries of Grupo Elektra)
The Company and Banco Azteca have entered into various production and promotion contracts of the
products and services of Banco Azteca on open television channels 7 and 13. As of December 31, 2012 and
2011, revenues from these contracts amounted to $6,557 and $441, respectively.
Interest earned
During the years ended December 31, 2012 and 2011, the Company granted short-term loans to related
parties. In the years then ended, interest earned pursuant to these loans amounted to $7,863 and $10,677,
respectively.
Income from leasing property
The Company (as a lessor), entered into a lease agreement of real property with a subsidiary of GSF, which
has a duration of 10 compulsory years for both parties, effective June 1998. On September 1, 2008, that
contract was renewed and the amount of the rent is increased based on inflation, every year. As of
December 31, 2012 and 2011, the lease revenue set forth in this agreement amounted to $23,535 and
$17,965, respectively.
Leased equipment under operating leases
The Company has entered into true leasing agreements with an option to purchase with Arrendadora
Internacional Azteca, S. A. de C. V. (AIA), an affiliated company. The Company is the lessee and AIA is the
lessor. To date exhibits have been signed for leasing transportation equipment and computer equipment.
Those agreements will be in effect over the terms set forth in each one of the exhibits of the equipment
leased, which are generally from 3 to 4 years. The terms computed in those exhibits will be binding for both
parties, except in the event that the lessor should terminate those agreements early if any of the assumptions
set forth in the agreements should occur. At the end of the duration of every exhibit, the Company may
choose to acquire the assets under lease agreements, extend the term or return the leased assets, with a
notification of at least 90 calendar days prior to its expiration. The monthly rent under the terms of the
agreement is fixed, in conformity with each one of the exhibits.
Pursuant to the characteristics of the lease agreements discussed above and in conformity with currently
enacted standards, they may be capitalized. For the years ended December 31, 2012 and 2011, the assets
acquired under these agreements amounted to $3,498 and $2,945 respectively. The net balances payable to
AIA as of December 31, 2012 and 2011, shown above include the amounts of $6,333 and $18,530.
Donations
In the years ended December 31, 2012 and 2011, the Company delivered donations to Fundacion TV
Azteca, A. C., a related party, in the amounts of $144,316 and $102,699, respectively. This related party is
authorized by the tax authorities to receive donations and issue the respective supporting documentation
(receipts).
Recovery of other receivables from related parties
The Company periodically evaluates the recoverability of other receivables from related parties; when it is
determined that these accounts which not derived from operation, are not recoverable they are charged to
F-57
40
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
other expenses. As of December 31, 2012 and 2011, it has not been necessary to create an allowance for this
item.
Employee benefits granted to key management personnel
The benefits granted to the Company’s executive personnel amounted to $65,000 in 2012 and 2011.
14.
Financial debt
As of December 31, 2012 and 2011, the company had the following bank loans:
Current portion of Stock Exchange Certificates
Long-term trust certificates
Long-term line of credit with ATC
Program MTN
Total debt
$
$
2012
666,648
4,611,580
1,557,983
3,824,666
10,660,877
$
$
2011
666,648
5,245,860
1,673,975
4,115,610
11,702,093
Stock Exchange Certificates
During the third quarter of 2006, the Company established a structural Trust Stock Exchange Certificates
(2006 Certificates) based on the collection rights of the Company and its subsidiaries, Red Azteca with
Banco Invex, S.A. Institucion de Banca Multiple, Invex Grupo Financiero as a Trustee, in the amount of up
to $6,000,000 (nominal).
a) First 2006 tranche
On November 16, 2006, the Company realized the first tranche of 2006 Certificates up to the amount of
$4,000,000 (nominal), in reliance on the 2006 Certificate program. The duration of the Certificates is of
5,114 days, equivalent to approximately 14 years, counted as of the issuance date. The amortization of the
certificates will be every month beginning December 2011, through the cancellation of certificates. The
amortizations of fiscal years 2012 and 2011 amounted to $444,432 and $37,036, respectively. Accrued
interest is liquidated monthly at a rate equivalent to EIIR plus 1.48 points
At December 31, 2012 and 2011, the balance outstanding of this issuance amounts to $3,518,883 and
$3,962,964, respectively.
b) Second 2006 tranche
On December 11, 2006, the Company realized the second tranche of 2006 Certificates through the Trustee
up to the amount of $2,000,000 (nominal), in reliance on the 2006 Certificate program. The duration of the
Certificates is of 5,089 days, equivalent to approximately 14 years, counted as of the issuance date. The
certificates will be redeemed every month starting on December 2011. Accrued interest will be paid on a
monthly basis. The amortizations of fiscal years 2012 and 2011 amounted to $222,216 and $18,581,
respectively. Accrued interest is liquidated monthly at a rate equivalent to EIIR plus 1.38.
At December 31, 2012 and 2011, the balance outstanding of this issuance amounts to $1,759,345 and
$1,949,544, respectively.
In accordance with this trust certificate program, the amounts generated on the assigned collection rights
for the year should be deposited in the account of the Trust Issuer to make the payment on principal and
F-58
41
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
interest of those certificates. As of December 31, 2012 and 2011, restricted cash applicable to this program
amounts to $844,085 and $723,815, respectively.
Loans from ATC
On February 11, 2000, the Company entered into a long-term loan agreement up to 119,800 US dollars with
a Mexican company, subsidiary of ATC (“ATC Long-Term Loan”). The loan is comprised of 91,752 US
dollars with no guarantee, and 28,000 US dollars for working capital, secured by certain real property owned
by the Company. In June 2003, the Company and the Mexican Subsidiary ATC amended the original
agreement. Pursuant to the terms of the amended agreement, the annual interest rate of each of the loans is
13.109%. The Company’s payment obligations pursuant to the ATC Long-Term Loan are secured by three
of the main subsidiaries of the Company. The initial maturity of the 91,752 US dollar loan, pursuant to the
ATC Long-Term Loan is February 11, 2020, which can be extended while the contract of the overall tower
project (which is described herein below) remains in effect. The maturity of the 28,000 US dollars is on
February 11, 2069.
As of December 31, 2012 and 2011, the balance of the ATC Long-Term Loan amounts to 119,752 US
dollars.
In February 2000, the Company, together with Television Azteca, S. A. de C. V., a subsidiary company,
signed an overall tower project contract with a Mexican subsidiary company of ATC for duration of 70
years, for renting space not used by the Company in its operations up to 190 broadcasting towers of the
Company. As a consideration of the payment of 1,500 US dollars as an annual lease and, in turn, the
Company granted ATC the right to market and lease the unused space in the Company’s broadcasting
towers to third parties, as well as to the Company’s affiliated companies, and guaranteed the collection of all
the relative revenues for account of ATC. The Company has the title deeds of the towers and is responsible
for its operation and maintenance. The SCT approved this contract on February 10, 2000. After the
expiration of the 20 initial years of the ATC Long-Term Loan, the Company has the right to purchase the
total or a portion of the revenues and assets relative to marketing the rights at any time from ATC at fair
market value, with the proportionate amount of the remaining principal of the ATC Long-Term Loan
MTN Program:
On June 1, 2005, TV Azteca established the Medium Term Notes Program (MTN) in the amount of 200
million US dollars with Geronimo Capital Markets Ltd. as the arranger and main operator. The MTN
Program permitted TV Azteca to issue and have unpaid balances up to 200 million US dollars in promissory
notes at any date with a duration from one to seven years.
On May 25, 2011, TV Azteca amended the MTN Program existing, among other things, to increase its
capacity up to 500 million US dollars and include BCP Securities, LLC and Jefferies and Company, INC. as
arrangers and operators together with Geronimo Capital Markets, Ltd. On the same day, TV Azteca made
an issuance under the Program in the amount of 300 million US dollars at a 7.5% annual rate, whose dates
of interest payments are May 25 and November 25 every year up to its maturity on May 25, 2018.
The maturities of portions of loans contracted by the Group as of December 31, 2012 are shown below:
F-59
42
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
2013
2014
2015
2016
2017 onwards
$
$
15.
2012
666,648
666,648
666,648
666,648
7,994,285
10,660,877
Employee benefits:
a.
Employee benefits expense
The expense recognized for employee benefits are as follows:
2012
Production cost:
Employee benefits expense
Selling and administrative expense:
Employee benefits expense
Total employee benefit plan expense
b.
2011
$
1,062,700
$
982,197
$
746,577
1,809,277
$
695,679
1,677,876
Seniority premium
2012
Defined benefit obligations (DBO)
Projected net liability
$
Labor cost of present service
Financial cost
Prior service recognized in the period
Actuarial immediate recognition (gains/losses)
Net cost for the period
c.
$
2011
52,103
52,103
4,045
3,300
369
1,670
9,384
$
45,828
45,828
3,877
3,107
228
(1,866)
5,346
$
Separation upon retirement
2012
$
101,147
( 12,211)
Defined benefit obligations (DBO)
Unamortized items
Projected net liability
Labor cost of present service
Financial cost
Amortizations
Early decreases and liquidations
F-60
$
2011
104,248
8,839
113,358
95,409
8,781
7,616
4,350
(2,869)
8,000
6,774
4,418
-
43
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Prior Service recognized in the period
Actuarial immediate recognition (gains/losses)
Net cost for the period
4,175
22,053
$
2,273
24
21,489
$
The projected net liability is summarized below:
2012
Seniority Premium
Separation upon retirement
$
52,103
113,358
2011
$
45,828
95,409
Employee benefits
$
165,461
$
141,237
As of December 1, 2012, the amendments to the new Federal Labor Law went into effect in Mexico. These
reforms contemplate the following aspects:
The concept of subcontracting and conditions that should be met therefor is incorporated, and further sets
forth, among other aspects, that subcontracting should not cover the total activities undertaken at the
workplace. In the event that all the above conditions should fail to be met, the contractor will be considered as
an employer for all purposes of the Law, including social security obligations.
On the other hand, the workers of the establishment of a company are considered to form part thereof for
purposes of employee profit sharing.
As of December 31, 2012 and as of the date of the independent auditor's opinion, the Group is in the process
of analyzing these reforms to determine their possible effects.
Tax on earnings:
16.
a.
Income tax:
Tax consolidation:
The Company is authorized to determine Income Tax under the tax consolidation regime, together with its
direct and indirect subsidiaries, in accordance with the authorization of the Ministry of Finance and Public
Credit, beginning the year ended December 31, 2000, in accordance with the provisions set forth in the law
on that subject.
During the year ended December 31, 2012, the Company generated consolidated taxable income in the
amount of $1,304,665 (consolidated taxable income in the amount of $1,830,343 in 2011). Consolidated
taxable income differs from book income, due mainly to those items that accrue over time and are deducted
differently for book and tax purposes for the recognition of the impact of inflation for tax purposes, as well
as those items that only affect book or taxable income.
Companies that do not consolidate for tax purposes are not subject to taxes on earnings for fiscal 2012,
whereas in 2011 they were subject to taxes on earnings in the amount of $2,213.
F-61
44
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
As of December 31, 2012 and 2011, the provision for taxes on earnings is summarized as follows:
Income tax due
Deferred taxes on earnings
Taxes on earnings due to Reform
IETU due in subsidiary companies
Taxes on earnings
2012
391,399
(145,438)
372,694
618,655
$
$
$
$
2011
551,316
(9,000)
5,632
547,948
Deferred income tax:
As of December 31, 2012 and 2011, the asset on cumulative deferred income tax effect is summarized as
follows:
Excess of tax over book value of assets and liabilities, net
Add - Tax loss carryforwards
Income tax rate
Deferred income tax asset
Less - Valuation allowance
2010 Tax reform
Deferred income tax asset
2012
4,060,280
1,287,558
5,347,838
30%
1,604,351
(281,081)
1,323,270
$
$
$
$
2011
2,483,081
2,048,999
4,532,090
30%
1,359,627
(146,188)
1,1213,439
This deferred Income Tax asset is due basically to accumulated tax loss carryforwards, the net effect of
advances from advertisers, and the excess of tax over book value of property and equipment. Due to the
uncertainty that part of the total of this deferred asset may not be recovered in its entirety, the Company has
assumed a conservative position and has decided to create a valuation allowance of the deferred income tax
asset, as shown in the above chart.
As of December 31, 2012 and 2011, the effective tax rate is as follows:
Income tax rate
Expenses and other nondeductible items
Differences between book and tax inflation
Equity in earnings (losses) of associated
companies
Effective tax rate
2012
%
30
(18)
8
2011
%
30
(11)
2
1
21
2
22
Tax loss carryforwards for income tax purposes:
For income tax purposes, tax loss carryforwards can be offset in the following ten fiscal years against taxable
income related to income tax. Those tax loss carryforwards may be restated by using the National
Consumers Price Index (NCPI), as of the first month of the second half of the fiscal year in which the loss
was incurred and up to the last month of the first half of the fiscal year in which the tax loss carryforward is
realized.
F-62
45
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Based on its financial and tax projections, the company has determined that the tax that will essentially be
paid by the Company in the future will be Income Tax; therefore, it has recognized deferred income tax.
The tax loss carryforwards of the controlled Companies obtained before being incorporated into the tax
consolidated regime with TV Azteca as the holding company can be reduced from consolidated taxable
income for the year, up to the amount of the taxable income obtained in the same controlled company
involved. As of December 31, 2012, the tax loss carryforwards that some controlled Companies have,
restated at that date and obtained prior to being incorporated into the tax consolidation regime, are
summarized as shown below:
Year incurred
2003
2004
2006
2007
2008
2009
2010
2011
2012
Restated amount
270
17,838
178,186
101,315
755,114
88,236
73,817
68,152
4,630
$
1,287,558
$
Year of expiration
2013
2014
2016
2017
2018
2019
2020
2021
2022
Recognition of the effects of the Fiscal Reform in Taxes on earnings
The executive order that amends, aggregates and repeals various tax provisions was published on December
7, 2009, and it went into effect on January 1, 2010
The 2010 Fiscal Reform amends the tax consolidation scheme to set forth that the payment of Income Tax
related to the benefits of tax consolidation gained effective 1999 should be paid in partial payments during
the sixth to the tenth year, subsequent to the year in which those benefits were used.
The benefits of prior year consolidation are derived from:
-
Tax losses used in tax consolidation.
-
Losses on sales of shares not yet deducted individually by the entity that incurred them.
-
Special consolidation items derived from transactions carried out between companies that
consolidate.
-
Dividends paid by the subsidiaries that consolidate that were not paid out of the CUFIN
balance distributed effective 1999.
This provision should be applied to the benefits accumulated from the tax consolidations from 1999 to
2004 for the first time in 2010. The payment of the pertinent tax is required to be paid from 2010 up to
2015.
F-63
46
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
At 2009 year end, the Company has made estimated calculations of the Income Tax liability generated by
the benefits of consolidation, thereby determining a net Income Tax liability as of December 31, 2009 in the
amount of $248,560, out of which a partial payment has been made applicable to fiscal 2010 and 2012
Reconciliation of deferred income tax assets and liabilities due to the 2010 tax reform
2012
2011
Assets:
Opening balance
( + ) Effect of restated losses subject to tax
( - ) Credit of CUFIN
( - ) Tax loss carryforwards realized
Ending balance
$
$
3,072,550
648,742
(51,111)
(321,583)
3,348,598
$
3,105,941
648,742
(291,210)
3,463,473
114,875
$
$
3,365,166
(292,616)
3,072,550
Liabilities:
Opening balance
( + ) Effect of restated losses subject to tax
( - ) Loss carryforwards realized
( - ) Payments realized
Ending balance
Net effect
$
$
$
3,549,837
(298,789)
(145,107)
3,105,941
33,391
b. Corporate flat tax (IETU):
The Corporate Flat Tax (IETU for its Spanish acronym) for the period is calculated using the rate of 17.5% to
income determined based on cash flows, which is calculated by reducing authorized deductions from the
total revenue received from qualifying activities. The so-called IETU credits are reduced from the above
income, as provided for in currently enacted legislation.
IETU credits are amounts that can be reduced from the IETU itself, which include, among other things,
IETU loss carry forwards, credits on salaries, social security contributions, and deductions of some assets
such as inventories and fixed assets, during the transition period as a result of the effectiveness of the IETU.
The IETU is a tax that co-exists with Income Tax; therefore, it will be subject to the following:
i. If the IETU exceeds Income Tax of the same period, the Company will pay IETU. Pursuant to the
foregoing, the Company will reduce Income Tax paid in the same period from the IETU of the
period
ii. If the IETU is less that Income Tax of the same period, the company will not pay IETU in the
period.
iii. If the IETU base is negative due to deductions that exceed taxable income, there will be no IETU
due. The amount of that base multiplied by the IETU rate will be the amount of the applicable tax
credit, in terms of the Corporate Flat Tax Law. Effective fiscal 2010, the credit of the negative base
can only be credited against IETU of the immediately subsequent ten fiscal years.
F-64
47
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
During the year ended December 31, 2012 and 2011 the Company was subject to IETU in the amount of
$54,002 and $175,106, respectively which was lower than income tax for the year. Consequently, Income
Tax was considered as the final tax.
Further, some subsidiary companies paid IETU in the amount of $1,004 and $5,632 for the years referred to
in the above paragraph.
On February 11, 2008, the Company filed an appeal for constitutional applications with the proper
authorities against the IETU Law. On October 22, 2008, the proper authorities, through a ruling, decided to
deny the company the appeal for constitutional relief and protection of Federal Justice against that ruling.
The Company filed an appeal for review which is in the process of being reviewed at the date of the external
auditors’ opinion.
c. Assets Tax:
Effective January 1, 2008, the assets tax was abrogated.
During 2007, the Company filed an appeal for constitutional relief with the authorities with competent
jurisdiction, the Asset Tax Law discussed above. At the date of the external auditors’ report, this litigation
continues in process. Company’s Management estimates that the result of this litigation will not have
adverse effects thereon.
Financial assets and liabilities:
17.
The fair values of financial instruments, which were determined by the Company using information
available on the market and other valuation techniques that require judgment by Management, are shown
below: Moreover, the use of different assumptions and valuation methods can have a material effect on the
estimated amounts of fair value.
The financial instruments which, after their initial recognition, are quantified at their fair value are grouped
in Levels from1 to 3 based on the degree to which fair value is observed, as shown below:
•
Level 1 – valuation based on prices quoted on the market (unadjusted) for identical assets or
liabilities;
•
Level 2 – valuation with indicators other than the quoted prices included in Level 1, but include
observable indicators for an asset or liability, either directly (quoted prices) or indirectly (derivations
of these prices); and
•
Level 3 – valuation techniques are applied that include indicators for assets and liabilities that are
not based on observable market information (unobservable indicators).
F-65
48
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
a.
Financial assets and liabilities are classified as follows:
Note
Available-forsale
Loans and
accounts
receivable
and other
liabilities
at amortized cost
Derivatives
for trading
purposes
at fair value
Total
As of December 31, 2012
Financial Assets:
Cash and cash equivalents
Trade and other receivables
Related parties
Available-for-sale assets
Derivative financial instruments
Financial liabilities:
Short-term debt
Accounts payable
Long-term debt
7
8
13
6i
6i y17b
$
_
–
–
825,219
–
825,219
$
–
–
–
–
$
14
12 y 6l
14
Note
Available-forsale
$
–
–
–
–
64,238
64,238
$
–
–
–
–
$
6,446,077
5,708,484
99,044
–
–
$ 12,253,605
5,708,484
99,044
825,219
64,238
$ 13,143,062
666,648
1,990,484
9,994,229
$ 12,651,361
666,648
1,990,484
9,994,229
$ 12,651,361
$
Loans and
accounts
receivable
and other
liabilities
at amortized cost
Derivatives
for trading
purposes
at fair value
$ 6,446,077
Total
As of December 31, 2011
Financial Assets:
Cash and cash equivalents
Trade and other receivables
Related parties
Derivative financial instruments
Financial liabilities:
Short-term debt
Accounts payable
Long-term debt
7
8
13
6i y 17b
$
–
–
–
–
–
$
–
–
–
–
$
14
12 y 6l
14
$
–
–
–
36,062
36,062
$
–
–
–
–
$
8,317,817
7,344,083
122,555
–
$ 15,784,455
$ 8,317,817
666,648
1,640,309
11,035,445
13,342,402
666,648
1,640,309
11,035,445
$ 13,342,402
$
$
7,344,083
122,555
36,062
$ 15,820,517
b. Derivative financial instruments
As of December 31, 2012 and 2011, the Company had interest rate layers as follows:
Type of
derivative
Interest rate
cap
Interest rate
cap
Interest rate
cap
Underlying
asset
EIIR at 28
days
EIIR at 28
days
EIIR at 28
days
Fair Value as of December
31
2012
2011
$ 5,115
$ 8,695
Maturities
Amount
Year
2013
$5,222,244
Notional
amount
$5,222,244
strike price
7.50%
4,555,596
6.75%
20,190
24,924
4,555,596
2014
3,888,948
5.50%
38,933
2,443
3,888,948
2015
$ 64,238
$ 36,062
F-66
49
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
These instruments do not require "margin" calls. Exercising the derivative is the Company's power and an
early premium is paid.
c. Financial Debt
Loans include the following short and long term financial liabilities:
Short-term
2012
Financial liabilities:
Securities Exchange Certificates
American Tower Corporation -ATCProgram Medium Term Note -MTNTotal carrying value
$ 666,648
$ 666,648
2011
Long-term
2012
2011
$ 666,648
$ 4,611,580
$ 5,245,860
$ 666,648
1,557,983
3,824,666
$ 9,994,229
1,673,975
4,115,610
$ 11,035,445
The fair values have been determined of the long-term financial liabilities by calculating their present values
at the reporting date, by using fixed effective market interest rates available for the Group. Changes in fair
value in income or losses for the period have not been included since financial assets are carried at
amortized cost in the statement of financial position.
Financial Instrument Risk:
18.
Activities with financial instruments presume the assumption or transfer of one or various types of risks by
the entities that trade with them. The main risks associated with financial instruments are:
• Credit risk: likelihood that one of the parties to the financial instrument contract fails to meet his
contractual obligations due to reasons of insolvency of inability to pay and results in a financial loss for
the other party.
• Market risk: likelihood that losses are generated in the value of the positions maintained, as a result of
changes in the market prices of financial instruments. In turn, it includes three types of risks:
- Interest rate risk: this arises as a consequence of variations in market interest rates.
- Interest rate risk: this arises as a consequence of variations in exchange rates between currencies.
- Price risk: this arises as a consequence of changes in market prices, or due to specific factors of
the instrument itself, or due to factors that affect all instruments traded on a concrete market.
• Liquidity risk: likelihood that an entity cannot meet its payment commitments or, in order to meet
them, it has to resort to obtaining funds in encumbering conditions or placing its image and reputation
at risk.
a.
Credit risk management – it is caused mainly by liquid funds and trade accounts receivable.
The Company's policy is to operate with banks and financial institutions with the highest credit
ratings granted by credit rating agencies to reduce the possibility of counterparty non-performance.
With respect to trade accounts receivable, the Company grants commercial credit to companies or
F-67
50
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
governmental entities that are financially sound, have a good reputation on the market, and many of
them are recurring customers.
The Company periodically evaluates the financial conditions of its customers and does not believe
that there is a significant risk of loss, due to a concentration of credit in its customer portfolio. The
allowance for doubtful accounts is considered to cover its potential credit risk adequately, which
represents a calculation of losses incurred due to impairment of its accounts receivables. As of
December 31, 2012, the receivables more than 90 days old amounts to $139,160, which is covered
by the allowance for doubtful accounts.
b. Market risk management
i.
Interest rate risk - the Company is exposed to risks due to fluctuations in the interest rates
of the debt contracted at variable EIIR rates. The risk is managed through caps (the
variable rate to liquidate is limited; the premium is paid at the time of contracting).
ii.
Exchange rate risk management - the Company realizes foreign currency transactions;
therefore, it is exposed to fluctuations in the different exchange rates with which it
operates. As of December 31, 2012 and 2011, the Company had not contracted hedging
instruments against foreign exchange risks.
At December 31, the company had the following US dollar denominated assets and liabilities:
Short-term
December 31, 2012
Financial assets
Financial liabilities
Total Exposure
December 31, 2011
Financial assets
Financial liabilities
Total Exposure
Long-term
$
243,488
22,761
$ 220,727
$
298,754
18,203
$ 280,551
$
$
18,810
419,752
$ (400,942)
168,876
419,752
$ (250,876)
As of February 21, 2013, date of the independent auditor’s opinion, the unaudited foreign currency
position is similar to the position held as of December 31, 2012.
As of December 31, 2012 and 2011, and as of February 21, 2013, the exchange rates for the US
dollar were $13.0101, $13.9787 y $12.6694, respectively.
As of December 31, 2012, the Company presents a net short position in dollars; therefore, if the
peso had strengthened (weakened) 10% against the dollar, and the rest of the variables had
remained constant, after income tax for the year, would have increased (decreased) in the amount of
$ 234,279 as a result of the net exchange gain (loss) in the translation of monetary assets and
liabilities in dollars not hedged in a derivative financial instrument.
F-68
51
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
c.
19.
Liquidity risk management - The Company has established appropriate policies to mitigate the
liquidity risk through: (i) the follow-up on working capital; (ii) the review of their real and projected
cash flows; and (iii) the reconciliation of profiles of maturities of their financial assets and liabilities.
This allows the Group’s Management to manage short and long-term financing requirements, by
maintaining reserves of cash and the disposition of credit lines.
Equity
a.
Capital stock
The Company’s capital stock is comprised of Series “A” shares, Series “D-A” shares, and Series “D-L”
shares. Holders of Series “A” shares have voting rights at the Company’s General Stockholders’ Meetings.
Holders of Series “D-A-” and “D-L” have voting rights only in limited circumstances, and have a
preferential dividend right. The rights of all holders of all series of capital stock are identical, except for the
limitations with respect to Series “A” and “D-A” shares held by persons other than eligible Mexican
holders. Series “A” shares cannot be exchanged for any other type of securities of the Company. Series “DA” shares may be exchanged for Series “A” shares on the tenth anniversary of their original issue, and will
have the same characteristics of current Series “A” shares outstanding. Series “D- L” shares may be
exchanged for Series “L” shares on the tenth anniversary of their original issue. Series “L” shares, which will
be exchanged for Series “D-L” shares, will grant voting rights to their holders, only in limited circumstances.
The tenth anniversary for the exchange or swap of Series “D-A” and “D-L” shares for Series “A” and “L”
shares, respectively, was completed in August 2007. However, on April 30, 2007, at the General
Extraordinary Stockholders’ Meeting, the stockholders resolved to extend the term referred to above to 20
years, as of their issuance date. Consequently, the date for the exchange or swap of stock will be in August
2017. This extension was authorized by the NBSC on November 9, 2007, subject to meeting all the
pertinent requirements.
Authorized, issued, and paid-in capital stock of the Company as of December 31, 2012 and 2011 is
summarized as follows:
Serie “A”
Serie “D-A”
Serie “D-L”
Authorized shares
(thousands)
5,318,079
2,613,878
2,613,878
10,545,835
Shares
paid
(thousands)
4,630,353
2,160,471
2,160,471
8,951,295
$
$
Capital
Stock
371,356
171,862
171,862
715,080
As of December 31, 2012, the Company’s shares are listed on the following securities exchanges:
Characteristics of the
securities
Certificates
of
common
participation (CPOs), each one
represents one A Share, one DA Share, and one D-L Share
Country listed in
Mexico
F-69
Ticker symbol
AZTECACPO
Stock Exchange
Mexican Stock
Exchange
52
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
10 CPO Units
Spain
XTZA
Latin American
Securities Market
Resolutions adopted on the year ended December 31, 2012
At the General Annual Ordinary Stockholder’s Meeting held on April 27, 2012, the stockholders resolved to
approve the consolidated financial statements as of December 31, 2011. A preferential dividend was
declared for series D-A and series D-L stockholders. That dividend represents a total amount of $343,442,
which was paid on May 31, 2012, in the amount of $171,721, and on December 7, 2012, payment was made
in the amount of $171,721.
Resolutions adopted on the year ended December 31, 2011
At the Annual Ordinary Stockholders’ Meeting held on April 29, 2011, the consolidated financial statements
as of December 31, 2010 were approved. Moreover, a unit preferential dividend was declared for Series D-A
shares and Series D-L shares. That dividend accounts for a total amount of $18,590, which was paid on May
28, 2011.
Resolutions adopted on the year ended December 31, 2010
On April 30, 2010, a cash reimbursement was approved in proportion to the stockholdings of each
stockholder at the General Extraordinary Stockholders’ Meeting, up to the amount of $322,000, payable in
the amounts and on the dates determined by Management, in accordance with the Company’s economic
capacity. This reimbursement implied a fixed minimum capital stock decrease of the Company in the
amount of $9,944. As of December 31, 2011, the balance payable of this reimbursement amounts to
$238,358, and it is presented in the consolidated balance sheet in accounts payable and accrued liabilities.
Resolutions adopted in the year ended December 31, 2007
At the General Extraordinary Stockholders’ Meeting held on September 27, 2007, a cash reimbursement
was approved proportionately on the shareholdings of every stockholder up to the amount of $761,325
($750,000 at par value). This reimbursement implied a fixed minimum capital reduction of the Company in
the amount of $61,743 ($60,825 at par value). As December 31, 2010, the unpaid balance of such repayment
amounts to $ 226,344, and is presented in the consolidated balance sheet under the heading of accounts
payable and accrued expenses. This was paid entirely in May 2011.
b. Stock repurchase
During the year ended December 31, 2012, the Company decreased its capital stock in the amount of $1,559
for the repurchase of 18,261 thousand shares. Shares were repurchased in the amount of $52,691. The value
thereof was charged to capital stock, and the difference was charged to the reserve for stock repurchases.
During the year ended December 31, 2011, the Company decreased its capital stock in the amount of $4,976
for the repurchase of 58,290 thousand shares. Shares were repurchased in the amount of $145,949. The
value thereof was charged to capital stock, and the difference was charged to the reserve for stock
repurchases.
F-70
53
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
As of December 31, 2011, the Company increased its capital stock in the amount of $1,164, pursuant to the
sale of 13,650 thousand treasury shares, which had a selling value of $38,595. Capital stock was credited at
original value, and the difference was restored to the reserve for stock repurchases.
c. Legal Reserve
Net income for the year is subject to the legal provision which requires that 5% of such income be
appropriated to a legal reserve until that reserve equals 20% of the capital stock. As of December 31, 2012,
the balance of the legal reserve accounts for 22% of capital stock. The balance of the legal reserve may not
be distributed to the stockholders during the existence of the Company, except as stock dividends.
d. Distribution of earnings
Net taxable income account (CUFIN):
As of December 31, 2012, the restated balance of the “consolidated net taxable income account”
(CUFINCO) amounts to $2,498,945.
No income tax will be assessed in connection with the distribution of dividends or earnings to stockholders
up to the CUFINCO amount. Legal entities that distribute dividends or earnings that are not paid out of the
CUFIN should calculate and pay the applicable tax. Toward that end, the tax that should be paid on
dividends or earnings distributed should be aggregated thereto.
The tax that should be aggregated in terms of the foregoing paragraph will be determined by multiplying the
amount of the dividends or earnings by the 1.4286 factor, and a 30% tax rate will be applied to the result.
The tax determined is considered final and it may be credited against income tax for the year in which such
a tax is paid and in the two following fiscal years. This balance may be restated up to the date earnings are
distributed by using the NCPI.
During 2012 and 2011, the Company declared annual preferential dividends in the amount of $343,442 and
$18,590, respectively. Dividends paid in 2012 were subject to tax in the amount of $147,182, since they
were not paid out of the CUFIN. Dividends paid in 2011 are tax free, since they were paid out of the
CUFIN.
e. Capital reductions
As of December 31, 2012, the restated balance of the “restated contributed capital account” (CUCA)
amounts to $4,544,827. In the case of a reimbursement or capital decreases in favor of the stockholders, the
excess of that reimbursement over this amount will be treated as a distributed earning for tax purposes.
Likewise, in the event that stockholders’ equity should exceed the balance of the CUCA, the spread will be
considered as a dividend or distributed earning subject to the payment of income tax. If the earnings
referred to above are paid out of the CUFIN, there will be no corporate tax payable due to the capital
decrease or reimbursement. Otherwise, it should be treated as dividends or earnings distributed, as set forth
in the Income Tax Law.
F-71
54
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
f.
Employee stock option plan
Effective the fourth quarter of 1997, the Company adopted an employee stock option plan (ESOP) that was
granted to employees who render their services to the Company and its subsidiaries, whereby options were
granted to all employees contracted as of December 31, 1996. Prices set fluctuated from 0.29 US dollars to
0.39 US dollars per CPO, with a higher number of options for executive level employees, as well as the most
creative actors, presenters, and creative personnel.
No options were exercised for this plan during fiscal years 2012 and 2011. As of December 31, 2012,
options not yet exercised amount to 19 million CPOs of the 241 authorized.
g. Other capital components
An analysis of other capital components is shown below:
Effect on translation
Balance as of January 1, 2012
Exchange differences on translating foreign
operations
Loss on investment available-for-sale
Balance as of December 31, 2012
$
(241,439)
$
(92,078)
–
(335,517)
$
Effect on translation
Balance as of January 1, 2011
Exchange differences on translating foreign
operations
Loss on investment available-for-sale
Balance as of December 31, 2011
20.
$
(236,167)
$
(5,272)
(241,439)
$
Available-for-sale
financial assets
$
-
$
$
(509,342)
(509,342)
Available-for-sale
financial assets
$
-
-
$
$
Total
$
(241,439)
$
(92,078)
(509,342)
(842,859)
$
Total
$
(236,167)
$
(5,272)
(241,439)
$
Earnings per share and dividends:
Earnings per share
Both basic and diluted earnings per share have been calculated by using earnings attributable to the
stockholders of the parent company (TV Azteca, S.A.B. de C.V.) as the numerator, that is, it was not
necessary to make adjustments to earnings in 2011 or 2012.
The weighted average number of shares for purposes of diluted earnings per share can be reconciled with
the weighted number of ordinary shares used in the calculation of basic earnings per share as follows:
2012
Amounts stated in thousands of shares:
Weighted average of the number of shares used in the base of
earnings per share
Shares considered issued without taking into account share based
payments
Weighted average of the number of shares used in diluted
earnings per share
F-72
2011
8,951,295
8,983,407
1,594,539
1,589,777
10,545,834
10,545,843
55
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Dividends
During 2012, TV Azteca, S. A. B. de C. V. paid dividends in the amount of $ 343,442 to its stockholders
(2011: $18,590), which represented a payment of $ 0.00427 per D-A and D-L share, respectively.
21.
Capital management policies and procedures:
The objectives of the Group's capital management are to:
• guarantee the Group's ability to continue as a going concern
• provide an adequate return to stockholders by setting prices on products and services commensurate
with the level of risk.
The Group's objective in capital management is to maintain a financial proportion of capital to financing.
The Group establishes the amount of capital in proportion with its general financial structure, that is, equity
and financial liabilities that are not a loan. The Group manages capital structure and makes adjustments
thereto, due to changes in economic conditions and risk characteristics of the assets involved. In order to be
able to maintain or adjust capital structure, the Group can adjust the amount of dividends paid to the
stockholders, return capital to the stockholders, issue new shares or sell assets to reduce the debt.
22.
Financial income and costs:
Interest paid applies to amortizations of the financial debt. Interest income applies to investments in
marketable securities listed on the stock exchange.
The caption of other expenses is summarized as shown below:
2012
Placement expenses of Stock Exchange Certificates (Cebures) and
ATC
$
Administration (Cebures, Trusts)
Fees on Financial Operations
MTN (Issue of bonds)
Others
Total financial expenses and income
$
23.
2011
17,606
16,402
13,366
8,759
42,145
98,278
$
$
65,761
13,118
2,525
6,024
9,104
96,532
Other expenses, net:
This caption is summarized as shown below:
Legal advisory services (lawsuit expenses)
Donations
Other
$
$
F-73
2012
121,573
124,371
85,810
331,754
$
$
2011
124,955
155,714
8,667
289,336
56
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
24.
Financial information by Segment:
Management currently identifies three lines of service of the Group as operating segments (See Note 6f).
These operating segments are supervised by the person who makes strategic decisions, which are made
based on the adjusted operating results of the segment.
National Television
These segments are comprised of television services in Mexican territory, including local stations. Income is
derived mainly from the sale of time on screen nationwide and locally, less commissions on sales.
Azteca America
This segment consists of television services in the territory of the United States of America, directed
primarily for the Hispanic community that resides in that territory.
Programming rights
This segment is comprised mainly of the exports of programs that were of wide interest for global audiences
primarily in the countries of Latin America and Europe.
Other segments
This segment consists mainly of operations relative to the promotion of billboard advertisements, soccer
teams, concerts, and Internet, among other things.
Net Sales
Costs and
Expenses
Depreciation
and
amortization
Operating
income
National
Television
$ 10,648,770
Depreciation
and
amortization
Operating
income
Consolidated
total
$ 12,570,400
7,277,233
604,852
494,622
41,802
8,418,509
506,883
12,863
5,227
31,416
556,389
2,900,654
355,951
148,918
189,979
3,595,502
National
Television
Net Sales
Costs and
Expenses
As of December 31, 2012
Azteca
Programming
Other
America
rights
segments
648,767
$ 973,666
$
$ 263,197
As of December 31, 2011
Azteca
Programming
America
rights
$ 10,560,563
$ 1,001,496
6,681,921
Other
segments
Total
Consolidated
274,992
$ 362,145
$ 12,199,196
511,974
200,671
417,125
7,811,691
480,084
24,170
-
4,677
508,931
3,398,558
465,352
74,321
(59,657)
3,878,574
F-74
$
57
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Contingent liabilities:
25.
Various legal lawsuits and guarantee proceedings were filed against the Group during the year. Unless it has
been recognized as a provision (See Note 23), management considers that these lawsuits are unjustified and
that the likelihood that they will require a liquidation to be made by the Group is remote. This evaluation is
consistent with the independent advice of external advisors. The main contingencies are described below:
a
Servicio Hi-Tv
On May 2009, the Ministry of Communications and Transportation (SCT) notified TV Azteca of the
beginning of an administrative proceeding, since the service denominated Hi-Tv (understanding Hi-Tv as
new programming options by using part of the capacity of channels for the transmission of Land Digital
Television (hereinafter Hi-Tv)), is supposedly a telecommunications service, which is rendered without
having the pertinent concession, permit or authorization, in conformity with the provisions of the Federal
Telecommunications Law.
In contrast with the issue sustained by the SCT, the Federal Telecommunications Commission handed
down a ruling on December 2009, whereby it considered Hi-Tv as a radio broadcasting service, which is
permitted in the Title Concession of TV Azteca.
In spite of the foregoing, on February 2010, the resolution issued by the SCT was notified in the sense of
considering the Hi-Tv service as a telecommunications services different from broadcasting. Rendering that
service would require a telecommunications concession. Consequently, various sanctions and a penalties
were imposed on TV Azteca.
Azteca filed appeals for constitutional relief against those resolutions. Final rulings were handed down in the
review of the appeal for constitutional relief in July and August 2012, whereby the Federal Judicial Branch
determined to grant constitutional protection and relief to Azteca against the rulings handed down by the
SCT, thereby rendering the rulings that impose sanctions null and void.
b
Federal Electoral Institute (IFE)
Legal actions and proceedings filed against the Federal Code of Electoral Institutions and
Procedures
The Executive Order whereby the Federal Code of Electoral Institutions and Procedures (COFIPE),
amended in 2007, was published in the Official Daily Gazette in January 2008.
The Company filed a series of appeals for constitutional relief against various provisions of that Code, for
considering that it affected its legal jurisdiction by violating a series of individual guarantees, as well as
imposing additional charges on the Company which it has maintained and operated as a radio and television
licensee. The Supreme Court of Justice resolved to dismiss those appeals for constitutional relief.
Subsequently, the IFE filed special punishable special proceedings against the Company for presumed
nonperformances in the transmission of various promotional spots of political parties and Electoral
F-75
58
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Authorities which, at the issue date of these financial statements, amount to approximately $200 million.
These fines were confirmed by the Federal Electoral Court, the Supreme Court, and District Courts.
On the other hand, the IFR has imposed two sanctions on the Company in punishable special proceedings
that amount to a total of $16,5 million approximately, for considering that they violated various provisions
of the COFIPE by telecasting spots advertised in political magazines on television and for considering that
those spots contained political propaganda. These fines were confirmed by the Federal Electoral Court.
Further, the IFE imposed a sanction in the amount of $22 million approximately for considering that the
COFIPE was being violated for not telecasting promotion of political parties and electoral authorities in the
restricted television systems of SKY and Cablevision. These fines were challenged in an appeal for
constitutional relief and the complaints were dismissed by those Judges.
Finally, the IFE has imposed sanctions on Azteca in special sanctioning proceedings in an amount
approximating $1.7 million, for various behaviors considered as violations in the COFIPE. These
resolutions were confirmed by the Electoral Court of the Federal Judicial Branch.
Due to the nature of the matters that have been discussed, it is not possible to anticipate the final result.
However, Azteca Management and its legal advisors estimate that they do not represent an adverse
economic effect for the company with the legal elements and means of defense that Azteca has for bringing
action. Therefore no provision has been created for these items.
c
News and Information Cooperation.
The Company has filed various lawsuits against CNI, TVM and Mr. Moreno Valle. In spite of a lack of
certainty, Company’s Management considers that it will prevail in the various disputes it has with CNI,
TVM and Mr. Moreno Valle and, therefore, no provision has been made for this matter.
d
Ibope AGB México
On May 9, 2008, TVA and IBOPE AGB MEXICO, S.A. DE C.V. (IBOPE) signed Ratings Database Use
and Advertising Investment and Computer Programs License, retroactively effective as of January 1, 2006.
Pursuant to this contract, IBOPE supplied TVA, among other data bases and software licenses, the ratings
databases.
IBOPE was contractually bound to have the information that it produces comply with principles of
impartiality, accuracy, opportunity, and representativeness.
It is the case that factors and dependents of TVA and other television companies, radio, advertising
agencies, and advertising customers of the industry to which TVA belongs were disclosed to various
addressees through two e-mails in 2012, which disclosed the identity of a significant number of participants
on the ratings measurement panel in 28 cities of Mexico.
F-76
59
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Due to these events, in the judgment of TVA, the ratings measurements generated by IBOPE cease to be
objective, accurate, impartial, timely, and reliable. By making the related information public and losing the
anonymity of the participants of the panel, it became vulnerable and exposed to the intervention of third
parties, to the degree that a significant number of the sample has been contacted, as recognized by the
IBOPE itself. This, in addition to the fact that since January 2012, TVA has considered that the television
audience reports generated by IBOPE stopped complying with the principle of representativeness.
Due to such reasons, TVA has filed various lawsuits:
a) During the same month of June, it filed a criminal complaint against IBOPE, in which it reports the
events occurred and asks to have an investigation performed of a possible crime committed to the
detriment of TVA, which continues in proceedings; and
b) In December 2012, it demanded specific performance from IBOPE through ordinary mercantile
proceedings, in order for IBOPE to continue to license the audience measurement databases or
"ratings" to us that contain reliable, timely, accurate, objective, representative, and relevant
information, obtained from a panel of participants whose data is confidential, anonymous, and
secret. Accordingly, IBOPE must carry out various actions that guarantee a methodological rigor
and comply with the characteristics referred to above, as well as the payment of damages.
In the proceedings, IBOPE filed a responsive pleading to the lawsuit on January 31, 2013, and filed a
counterclaim against TVA, whereby it demanded a rescission of the contract and presumed pain and
suffering (non-monetary damage) for the presumed disclosure of false information about IBOPE. The trial
is being decided before the sixty-second civil court of ordinary jurisdiction.
e
Transition to Digital Television
In November 2010, both Television Azteca, S. A. de C. V. and Televisora del Valle de Mexico, S. A.P.I de
C. V. (formerly S.A. de C.V.) (Subsidiary Company) filed Appeals for Annulment with the Federal Court of
Tax and Administrative Justice against the Decree, which set forth the actions that should be carried out by
the Federal Public Administration to complete the transition to Land Digital Television (2010 TDT Decree)
published in the Official Daily Gazette on September 2, 2010.
At the date of the financial statements, these appeals do not represent a contingency for the Company, since
the process for transition to Land Digital Television is in the process of being carried out at present, in
compliance with the Agreement whereby the land digital television technological standard is adopted, and a
policy is set forth for the transition to Land Digital Television in Mexico (2004 TDT Agreement), taking
into consideration the calendar established in the Agreement published in the Official Daily Gazette on May
4, 2012, whereby various provisions of the Agreement are amended, aggregated, and repealed, on which the
technological land digital television standard is adopted, and it sets forth the policy for the transition to land
digital television in Mexico, published in the Official Daily Gazette on July 2, 2004 (TDT Agreement 2012),
and the official letter of re-programming of stations by which the Federal Telecommunications Commission
notified Television Azteca, S. A. de C. V. on January 13, 2013 (Official Letter of Re-Programming).
F-77
60
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Both the Federal Chamber of Deputies and Senate filed constitutional challenges against Executive Order
TDT 2010. On November 15, 2011, the Supreme Court (SCJN) dismissed both challenges and declared
Executive Order TDT 2010 in effect. As soon as the SCJN notifies the TFJFA of its ruling, the
administrative proceedings filed will be reactivated and will be in a stage of admission.
On June 6, 2012, Television Azteca, S.A. de C.V. filed petition for annulment with the Federal Court of Tax
and Administrative Justice of some points of the TXT 2012 Agreement, which is in the evidentiary stage. As
of the date of the financial statements, this legal proceeding does not represent any contingency for the
Company, and it does not affect the transition process to Land Digital Television, since it is complying with
the calendar set forth in the TDT 2012 Agreement and in the Official Letter of Re-programming.
f
Other litigations and lawsuits
The Company and its subsidiaries are parties to various legal actions and lawsuits during the normal course
of their operations. The Company’s legal advisors indicate that there are various trials and contingent
demands at the issue date of these financial statements, whose related amounts cannot be reasonable
estimated to date.
The proceedings and litigations involved that are quantified amount to $1,811,400. The Company’s
Management and its legal advisors consider that none of these legal actions against the Company, including
those not quantifiable individually or on a consolidated basis, will have any significant adverse impact on
their businesses or financial position. Consequently, no provision has been made for these purposes.
26.
Commitments:
a
Leases
The Company rents the use of satellite transponders for the service of receipt and conduction of the satellite
signal. It has the commitment of paying US$25 thousand (IS21 satellite), US45 thousand (Galaxy25
satellite), and US$74 thousand (Galaxy 19 satellite) every month, for the three contracts entered into with
Panamsat de Mexico, S. de R. L. de C. V.. The expenses include a monthly fixed payment and others based
on the use thereof. The lease agreements have a one year mandatory duration, automatically and successively
renewable for identical periods up to 2015, 2021, and 2024, respectively.
The Company has entered into a contract with Satelites Mexicanos, S. A. de C. V., for the rental and use of
satellite transponders (Satmex 6 satellite) for the service of receipt and conduction of the signal. It has the
commitment of paying a monthly amount of US$72 thousand every month. This amount will increase 5%
annually up to the date of expiration of the contract which is not until 2021.
As of December 31, 2012, the Group had the following minimum annual commitments for the use of
satellite transponders:
Thousands of dollars
US$
2,608
2,651
2,334
2013
2014
2015
F-78
61
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
2016
2017 and thereafter
US$
b
2,198
14,192
23,983
Performance rights
The Company has entered into license agreements with its performance rights suppliers for the long-term
acquisition of materials of programs when such programs are available for their first broadcast. As of
December 31, 2012, the commitments for the acquisition of materials amount to 12,399 US dollars, with
due dates in 2013 and 18,300 US dollars with due dates in 2018.
c
Advertising rights
In June 2010, the Company entered into an advertising rights assignment contract with Super Publicidad,
S.A. de C.V., which sets forth that effective fiscal 2012 and up to 2022, the rights of spaces are obtained for
exhibiting advertising, as well as the use of part of the facilities of the Mexico City Arena. The total value of
the consideration amounts to 3,500 US dollars, which have been paid in their entirety at the date of the
opinion on the financial statements.
d
COFECO
On April 7, 2011, GSF Telecom Holdings, S.A.P.I. de C.V. (“GSF”), which is the majority stockholder of
Grupo Iusacell, S.A. de C.V. and related party of TV Azteca, S.A.B. de C.V., together with Grupo Televisa,
S.A.B. (“GTV”) and Corporativo Vasco de Quiroga, S.A. de C.V. (“CVQ”) petitioned the Federal
Commission of Competence (“COFECO”) for its authorization to have CVQ become the holder of
50.00% of the voting shares of GSF. The COFECO resolved to deny the authorization on January 24, 2012,
upon considering that the concentration might decrease, damage or impede competition and free
concurrence on the television and restricted audio markets, as well as on the markets related to
content/programming (open TV channels) and advertising on open television.
Pursuant to the foregoing, both GSF and CVQ filed the necessary motions for reconsideration provided for
in the Federal Law of Economic Competition to process the authorization of the notified concentration.
On June 13, 2012, the CFE resolved the motions for reconsideration filed in the sense of authorizing the
notified concentration subject to the realization of various conditionings.
As a consequence of the foregoing, the CFE established various conditionings for the parties involved,
applicable to TV Azteca, S. A. B. de C. V. ("TVA") the obligation of indiscriminately offering its open TV
and restricted TV signals (if any), as well as offering advertising spaces in terms and market conditions to
the concessionaires of telecommunications of public networks. Those conditionings have been complied
with in conformity with the resolution referred to above as of the issue date of this report.
F-79
62
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
e
Colombia Project
In September 2011, the Ministry of Information Technology and Communications of Colombia (MINTIC)
published the terms of reference of the National Optic Fiber Project (“the Project”). The purpose of this
technology is to spread or extend this technology to at least 400 municipalities of that country, in order to
reach the goal of 700 municipalities connected to 2014. The Project will have an investment in the amount
of $415 billion Colombian pesos (equivalent to approximately $2 billion Mexican pesos) by the government
of Colombia.
In order to participate in that bidding, the Company, together with its related party Total Play
Telecomunicaciones, S. A. de C. V., formed the Union Temporal Fibra Optica Colombia (the UT). On
November 4, 2011, the MINTIC decided to award the contract to the UT to undertake the Project.
The characteristics of that contract are the following:
1.
Signatories:
UT and the Information Technology and Telecommunications Fund (TIC Fund).
2.
Subject matter of the contract:
The UT will develop an optic fiber network, operate it, maintain, and assume the management of
the services in at least seven hundred and fifty-three (753) municipalities and 2,000 public
institutions forming 4 groups. Toward that end, the TIC Fund will contribute certain resources
(“Development Resources”).
3.
Value of the Contract:
Co$415,837,649,402 (four hundred and fifteen billion eight hundred and thirty-seven million six
hundred and forty-nine thousand four hundred and two Colombian pesos, including Value Added
Tax). The budget items allocated by the Colombian government are distributed as follows:
Year
Maximum amount
(billions of
Colombian pesos)
196.2
2011
2012
109.6
2013
99.6
2014
29.9
4.
Term:
Seventeen years and six months.
5.
Trust:
A management and payment trust was created between the MINTIC (trustor and primary
beneficiary), the UT (secondary beneficiary), and Bancolombia S.A. (trustee). The purpose of the
trust agreement is to create an autonomous patrimony for the management and administration of:
(i) the Development Resources that the TIC Fund allocated to the UT in the conditions and for the
purposes related to the execution of the agreement and the Project Documents; and (ii) the assets
F-80
63
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
acquired with the Development Resources or with proprietary resources of the trustor for the
execution of the contract.
6.
General scheme of the project:
The construction will last 30 months (2.5 years), and the network will operate for 180 months (15
years). During the construction stage, the trust will reimburse the UT for the amount of the costs
and expenses incurred, subject to the authorization of the inspector designated by the MINTIC.
7.
Stages and Time Schedule of the Project:
The Project will be executed in three stages, with three groups of municipalities for its execution
that will determine the maximum performance terms of the stages included in the Project Time
Schedule.
As of June 30, 2012, the Company still is in the construction stage, and there is no knowledge of any
nonperformance of its obligations derived from the Project.
27.
Adoption of International Financial Reporting Standards (IFRS)
The first financial statements in accordance with IFRS are issued as of December 31, 2012, as discussed in
Note 4.
The accounting policies described in Note 6 have been applied consistently in the preparation of the
consolidated financial statements to fiscal years ended as of December 31, 2012 and 2011. The Group has
applied IFRS 1 First-Time adoption of International Financial Reporting Standards in the preparation of its
first consolidated financial statements, whose transition date is January 1, 2011.
In preparing the opening statement of financial position, the Group adjusted the amounts previously
reported in the financial statements prepared in accordance with Mexican FRS. The following charts and
notes explain the impacts of the transition from Mexican FRS to IFRS in the Group's statement of financial
position, the statement of comprehensive income, and in the statement of cash flows.
Mandatory exceptions:
The following mandatory obligations were applicable to the Company:
1.
Calculation of estimates - Estimates made under IFRS at the date of transition are consistent with
the estimates at that same date under Mexican Financial Reporting Standard (MFRS).
2.
Non-controlling participations – The Company prospectively applied certain requirements of IAS
27 (2008) “Investment in Associates” beginning as of the transition date.
Optional exemptions:
The Company has selected the following optional exemptions to the retrospective application of IFRS as
follows:
1. Exemptions referring to business combinations – IFRS 1 gives the option of applying IFRS 3
“Business Combinations” prospectively from the transition date or from the specific date prior to
F-81
64
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
the transition date. The Group will apply the business combinations exemption. Therefore, it has
not reissued the business combinations that occurred prior to the transition date.
2. Deemed cost – The Group used the values that it had been reporting in accordance with Mexican
FRS as deemed cost of property and operating equipment.
3. Employee benefits – IFRS 1 provides the option of applying IAS 19 "Employee benefits"
retrospectively, for the recognition of actuarial losses and gains. The Company applied the
employee benefits exemption. Therefore, it recognizes all the accumulated actuarial gains and losses
at the transition date.
4. Accumulated differences from the effect of conversion – The Group applied the exemption for
cumulative translation differences. Therefore, it adjusts the effect from conversion to zero as of the
transition date. This exemption will be applied to all the subsidiaries, in accordance with IFRS 1.
5. Assets and liabilities of subsidiaries, associates and joint ventures – The exemption of assets
and liabilities of subsidiaries, associates, and joint ventures was applied by the Group, since some
subsidiaries have already adopted IFRS prior to the Company's transition date.
6. Costs of loans – The Group decided to apply certain requirements of IAS 23 cost of loans
prospectively, beginning as of the transition date.
7. Reconciliation between IFRS and MFRS- The following reconciliation provides the
quantification of the effects of transition and impact on equity as of the transition date (January 1,
2011) and December 31, 2011.
The main effects as of January 1, 2011 are presented below:
•
Concession at fair value In accordance with MFRS C-8 "Intangible Assets", the concession is
classified as an indefinite-lived intangible asset, which is subject to impairment tests in the event of
presenting impairment indicators, in accordance with Bulletin C-15 "Impairment of long-lived
assets and their disposition". In accordance with IFRS 1, the entity used fair value as a cost
attributed to the concession in its opening statement of financial position on the transition date.
Based on IAS 38 "Intangible assets", the concession is considered as an indefinite-lived asset and
recognized subsequent to the cost model. In accordance with IAS 36 "Impairment of asset value",
the concession is subject to reviewing its recovery value annually or at any time there is an
impairment indicator. The amount recognized for the fair value of the concession as of the
transition date amounts to $1,037,436. As a result of the above, as of December 31, 2011, the effect
of the exchange rate of the concession of Azteca America was written off in the amount of
$375,436.
•
Elimination of the effects of hyperinflation: For purposes of MFRS B-10, "Impact of inflation", the
environment is considered to be inflationary when accumulated inflation of the three prior annual
fiscal years equals or exceeds 26%. In addition, and in accordance with the economic forecasts of
official agencies, a trend is expected in this same sense. Of the various characteristics presented in
IAS 29, "Financial information in hyperinflationary economies", the most objective parameter
considered for rating an economy as hyperinflationary is when accumulated inflation approximates
F-82
65
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
or exceeds 100% in three years. Inflation recorded as of fiscal 2007 in accordance with the Mexican
standard was reversed up to fiscal 1998, since this last period was considered as hyperinflationary in
accordance with the international standard. The reversal of the impact of inflation of consolidated
assets against retained earnings amounted to approximately $227,784. Moreover, the impact of
inflation of various equity accounts was reclassified to retained earnings in the amount of $807,921.
•
Pursuant to MFRS, derivative financial instruments were recognized at their cost of acquisition and
subsequently measured at their amortized cost. IFRS 39 "Financial instruments" requires that
derivative financial instruments held for trading purposes are measured at their fair value. The
Group recognized fair value as of the transition date, thereby generating effects on retained
earnings and the statement of financial position in the amount of $139,000.
•
In accordance with IAS 19, "Employee benefits", a liability is recognized and, therefore, the relative
expense for employee benefits for termination of the employer-employee relationship prior to the
date of retirement until the entity has a demonstrable commitment for terminating the relationship
with the employee or having made an offer to encourage voluntary retirement. With respect to
MFRS D-3, "Employee benefits", a provision and the applicable expense are recorded when the
entity estimates that it will terminate the employer-employee relationship prior to the date of
retirement or estimates that it will pay benefits as a result of an offer made to employees to
encourage voluntary separation. Prior existence of a formal plan is not required as set forth in IAS
19. Likewise, there are other differences that jointly show a decrease in the consolidated liability and
an increase in retained earnings in an amount approximating $7,091.
•
Reclassification of debt placement expenses. Bulletin C-9, "Liabilities, provisions, contingent assets
and liabilities", sets forth that the amount of issuance expenses, such as legal fees, issuance costs,
printing, placement expenses, etc., should be recognized as a deferred charge and amortized in the
period in which the obligations will be outstanding. IAS 39 sets forth that at the time of the
opening recognition of the financial instrument (lending or borrowing), the entity should measure it
at its fair value, as well as considering the costs of the transaction that are directly attributable to the
acquisition of the asset or issuance of the liability. Accordingly, the Group reclassified the foregoing
against its liabilities with a cost approximating $78,364 that were presented previously as an asset.
•
Upon having changed the book balances, the recalculation of deferred taxes shows an increase in
consolidated assets and equity in an amount approximating $26,608.
•
The Group changed the presentation of the statement of comprehensive income to include the
caption of other expenses, net, in its operating income, in accordance with IAS 1, "Presentation of
financial statements".
There are also various provisions that expanded the disclosures in the Group's financial statements.
The summary of the effects of adoption in the statement of financial position is shown below:
F-83
66
TV Azteca, S.A.B. de C.V. and subsidiaries (Subsidiary of Azteca Holdings, S.A. de C.V.)
Consolidated Financial Statements
December 31, 2012 and 2011
Date of transition
IFRS (January 1,
2011)
Item
Stockholders' equity under MFRS
Concession at fair value
Impact of inflation
Effect of foreign currency translation
Financial instruments
Labor Obligations
Deferred taxes
Equity under IFRS
Year ended
December 31, 2011
8,018,021
1,037,436
(227,784)
(139,000)
7,091
26,608
$ 8,722,372
$ 10,464,247
1,037,436
(223,784)
(375,436)
(172,000)
7,091
35,608
$ 10,773,162
$
The summary of the effects of adoption in the statement of income is shown below:
Net income of
2011
Item
Book income under MFRS
Impact of inflation
Effect of foreign currency translation
Financial instruments
Deferred taxes
Book income under IFRS
28.
2,201,757
4,001
(33,000)
9,000
$ 2,181,758
$
Comprehensive
income of 2011
$ 2,571,921
4,001
(375,436)
(33,000)
9,000
$ 2,176,486
Seasonality:
The Company's television transmission operations are seasonal. Advertising revenues, which are recognized
when the advertisement comes out on the air, are generally higher in the fourth quarter, due to the high level
of advertising that comes out on the air as a result of the Christmas season.
The Company's revenues fluctuate as a result of the frequency with which the Company transmits
significant events (Olympic Games, World Soccer Cups, among other things). Historically, the transmission
of significant events by the Company has increased advertising sales during the periods in which they came
out on the air. This reflects higher audiences during the hours in which those significant events were
transmitted, and the fact that advertisers pay a premium related to those significant transmission events.
29.
Events subsequent to the reporting date:
There has been no event that requires any adjustment or that does not require an adjustment, but is
significant between the reporting date and authorization date.
F-84
ISSUER
TV Azteca, S.A.B. de C.V.
Periférico Sur 4121
Col. Fuentes del Pedregal
Tlalpan, 14141, Mexico City, Mexico
GUARANTORS
Azteca International Corporation
1139 Grand Central Ave.
Glendale, CA 91201, United States
Azteca Novelas, S.A. de C.V.
Calz. de Tlalpan No. 2818
Col. San Pablo Tepetlapa
04840, Mexico City, Mexico
Estudios Azteca, S.A. de C.V.
Calz. de Tlalpan No. 2818
Col. San Pablo Tepetlapa
04840, Mexico City, Mexico
Inversora Mexicana de Produccción,
S.A. de C.V.
Periférico Sur 4121
Col. Fuentes del Pedregal
Tlalpan 14141, Mexico City, Mexico
Operadora Mexicana de Televisión,
S.A. de C.V.
Periférico Sur 4121
Col. Fuentes del Pedregal
Tlalpan 14141, Mexico City, Mexico
Televisión Azteca, S.A. de C.V
Periférico Sur 4121
Col. Fuentes del Pedregal
Tlalpan 14141, Mexico City, Mexico
PRINCIPAL PAYING AGENT, CALCULATION AGENT AND REGISTRAR
The Bank of New York Mellon, London Branch
One Canada Square, Canary Wharf
London E14 5AL, United Kingdom
TRUSTEE
The Bank of New York Mellon
101 Barclay Street 4 E
New York, NY 10286, United States
LEGAL ADVISERS
To the Issuer
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112, United States
To the Trustee
Linklaters LLP
One Silk Street
London EC2Y 8HQ, United Kingdom
To the Issuer and the Guarantors
as to Mexican Law
Jáuregui, Navarrete y Del Valle, S.C.
Paseo de los Tamarindos 400 B, Bosques de las Lomas
Cuajimalpa, 05120 Mexico City, Mexico