United states securities and exchange commission

Basic earnings per share (“EPS”) amounts are calculated by dividing the net income for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares, if any), by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares (to the extent that their effect is dilutive).

The following table shows the calculations of the basic and diluted earnings per share for the years ended December 31, 2016, 2015 and 2014.

 

		At December 31,
		2016				2015				2014
Net income for the period		Ps.	3,519,489			Ps.	2,463,870			Ps.	605,184
Weighted average number of shares outstanding (in thousands):
Basic			1,011,877				1,011,877				1,011,877
Diluted			1,011,877				1,011,877				1,011,877
EPS:
Basic			3.478				2.435				0.598
Diluted			3.478				2.435				0.598

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorization of these financial statements.

 

c)	In accordance with the Mexican Corporations Act, the Company is required to allocate at least 5% of the net income of each year to increase the legal reserve. This practice must be continued until the legal reserve reaches 20% of capital stock.

At an ordinary general shareholders’ meeting held on April 7, 2011, the shareholders approved to allocate the legal reserve by an amount of Ps.38,250.

As of December 31, 2016 and 2015, the Company’s legal reserve has not reached the 20% of its capital stock.

 

d)	Any distribution of earnings in excess of the net tax profit account ( Cuenta de utilidad fiscal neta or “CUFIN”) balance will be subject to corporate income tax, payable by the Company, at the enacted income tax rate at that time.

 

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e)

Shareholders may contribute certain amounts for future increases in capital stock, either in the fixed or variable capital. Said contributions will be kept in a special account until the shareholders meeting authorizes an increase in the capital stock of the Company, at which time each shareholder will have a preferential right to subscribe and pay the increase with the contributions previously made. As it is not strictly regulated in Mexican law, the shareholders meeting may agree to return the contributions to the shareholders or even set a term in which the increase in the capital stock has to be authorized.

 

19.	Income tax

a) In accordance with the MITL, the Company and its Mexican subsidiaries are subject to income tax and each files its tax returns on an individual entity basis and the related tax results are included in the accompanying consolidated financial statements. The income tax is computed taking into consideration the taxable and deductible effects of inflation, such as depreciation calculated on restated assets values. Taxable income is increased or reduced by the effects of inflation on certain monetary assets and liabilities through the annual inflation adjustment.

 

(i)	Based on the approved law corporate income tax rate for 2016 and thereafter is 30%.

 

(ii)

As of 2014, the tax rules include limits in the deductions of the exempt compensation amount certain items, as follows: Wages and benefits paid to workers 47% of income paid to workers and in certain cases up to 53% (holiday bonus, savings fund, employee profit sharing, seniority premiums) will be deductible for employers. As a result, certain wage and salary provisions have difference between tax and book values at year-end.

 

(iii)

The MITL sets forth new criteria and limits for applying some deductions, such as: the deduction of payments which, in turn, are exempt income for workers, contributions for creating or increasing provisions for pension funds, contributions to the Mexican Institute of Social Security payable by the worker that are paid by the employer, as well as the possible non-deduction of payments made to related parties in the event of failing to meet certain requirements.

 

(iv)	Starting 2014, taxable income for purposes of the employee profit sharing is the same used for the Corporate Income Tax except for certain items.

 

(v)	A new 10% withholding tax is imposed on dividends distributions to individuals and foreign shareholders from earnings as of January 1, 2014.

The income tax rates for 2016 in Guatemala and Costa Rica are 25% and 30%, respectively.

b) For the years ended December 31, 2016, 2015 and 2014, the Company reported on a consolidated basis tax income of Ps.2,702,355, Ps.2,751,813 and Ps.472,630, respectively, which was partially offset by tax losses from prior years.

In accordance with the MITL and CRITL, tax losses may be carried forward against taxable income generated in the succeeding ten and three years, respectively. Carryforward tax losses are restated based on inflation.

 

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c) An analysis of consolidated income tax expense for the years ended December 31, 2016, 2015 and 2014 is as follows:

Consolidated statements of operations

 

		2016				2015				2014
Current year income tax expense		Ps.	(706,244	)		Ps.	(337,997	)		Ps.	(17,345	)
Deferred income tax expense			(750,938	)*			(700,351	)			(21,375	)
Total income tax expense		Ps.	(1,457,182	)		Ps.	(1,038,348	)		Ps.	(38,720	)

 

*	Includes translation effect by Ps.1,242