Corporación Interamericana de Entretenimiento, S.A.B. de C.V.

Transcription

(BMV: CIE B)
Av. Industria Militar s/n, Puerta 2, Acceso A
Colonia Residencial Militar, C.P. 11600, Delegación Miguel Hidalgo, Mexico, Federal District
As of June 20, 2011, CIE’s subscribed and paid-in capital was Ps. 3,398,401,343.00 (THREE
BILLION, THREE HUNDRED AND NINETY-EIGHT MILLION, FOUR HUNDRED AND ONE THOUSAND, THREE HUNDRED AND FORTY-THREE
00/100 HISTORICAL MEXICAN PESOS), comprised of a total of 559,330,813 common nominal Series B
shares with full voting rights and no par value, fully subscribed and paid in, of which 30,955,386
are Series B Class I shares, representing the fixed share capital, and 528,375,427 are Series B
Class II shares, representing the variable portion of CIE’s share capital.
AND
CIE’s outstanding shares are listed on the Mexican Stock Exchange under the ticker symbol
“CIE B.” CIE has been listed on the Mexican Stock Exchange (Bolsa Mexicana de Valores –
BMV) since December 1995, and its shares are registered in the National Securities Registry
(Registro Nacional de Valores – RNV) that the National Banking and Securities Commission
(Comisión Nacional Bancaria y de Valores – CNBV) maintains. Registration with the RNV does
not imply certification of the value of the security, the solvency of the issuer, or the accuracy or
truthfulness of the information contained in this report, nor does it validate any acts that may
have occurred in violation of the law.
This Annual Report is submitted pursuant to Article 33 of the General Provisions Applicable to
Securities Issuers and Other Participants in the Securities Market for the fiscal year ended
December 31, 2010.
Registration of the securities does not imply certification of the value of the security, the
solvency of the issuer, or the accuracy or truthfulness of the information contained in
this document, nor does it validate any acts that may have occurred in violation of the
law.
This Document is a translation prepared in free English from the original Annual Report
produced and reviewed in Spanish, which has been previously delivered to the Mexico
Securities and Exchange Commission and the Mexican Stock Exchange on June 30th,
2011.
1
TABLE OF CONTENTS
Forward-Looking Statements ...............................................................................................
4
Notes on Presentation of Financial Information ....................................................................
6
I. GENERAL INFORMATION
1. Glossary of Terms and Definitions ...................................................................................
7
2. Executive Summary ........................................................................................................
10
3. Recent Events .................................................................................................................
17
4. Risk Factors ....................................................................................................................
20
5. Other Securities Registered in the National Securities Registry ......................................
28
6. Public Documents ...........................................................................................................
30
II. THE COMPANY
1. History and Development of the Company ......................................................................
31
1.1.
General Information ...............................................................................................
31
1.2.
Evolution of the Company .....................................................................................
33
1.3.
Main Capital Expenditures of the Company (2008-2010)........................................
35
2. Description of the Business .............................................................................................
36
2.1.
Main Activity ..........................................................................................................
36
2.2.
Distribution Channels ............................................................................................
53
2.3.
Patents, Licenses, Trademarks and Other Contracts .............................................
54
2.4.
Major Clients .........................................................................................................
56
2.5.
Applicable Legislation and Tax Regulation .............................................................
56
2.6.
Human Resources .................................................................................................
58
2.7.
Environmental Matters ..........................................................................................
59
2.8.
Market Information ................................................................................................
61
2.9.
Corporate Structure ...............................................................................................
69
2.10. Description of Principal Assets ..............................................................................
71
2.11. Judicial, Administrative and Arbitration Proceedings ..............................................
72
2
2.12. Shares Representing Capital Stock .......................................................................
76
2.13. Dividends ..............................................................................................................
78
III. FINANCIAL INFORMATION
1. Selected Financial Information ........................................................................................
79
2. Financial Information by Business Lines, Geographical Area and Export Sales ..............
80
3. Report on Significant Indebtedness .................................................................................
82
4. Management’s Discussion and Analysis of the Company’s Operating Results and
Financial Position .................................................................................................................
83
4.1.
Operating Results for Fiscal Year 2010 .................................................................
83
4.2.
Operating Results for Fiscal Years 2009 and 2008 ................................................
85
4.3.
Financial Position, Liquidity and Capital Resources ...............................................
85
4.4.
Devaluation and Inflation .......................................................................................
89
4.5.
Internal Control ......................................................................................................
90
5. Critical Accounting Policies .............................................................................................
92
IV. ADMINISTRATION
1. External Auditors .............................................................................................................
96
2. Transactions with Related Parties and Conflicts of Interest .............................................
97
3. Directors and Shareholders .............................................................................................
98
4. By-Laws and Agreements ............................................................................................... 111
V. STOCK MARKET
1. Shareholder Structure ..................................................................................................... 139
2. Share Performance on the Securities Market .................................................................. 142
3
VI. MANAGERS .................................................................................................................. 143
VII. ANNEXES
Audited Consolidated Financial Statements as of December 31, 2010 and 2009 .................
4
FORWARD-LOOKING STATEMENTS
This Document includes and incorporates forward-looking statements as reference. These
forward-looking statements relate to analyses and information that is based on forecasts of
future results and estimates of amounts not yet determinable. These statements also relate to
the future prospects, developments and business strategies of the Company. The reader is
cautioned not to place undue reliance on these forward-looking statements. These forwardlooking statements are identified by their use of terms such as “consider,” “believe,” “estimate,”
“expect,” “intend,” “may,” “plan,” “predict,” “project,” among many other terms, including references to assumptions. Forward-looking statements in this annual report include, among others,
the following projects and capabilities of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO
and its subsidiaries and affiliated companies:

Geographic expansion through acquisitions, joint ventures and strategic alliances;

Expansion of the vertically integrated model;

Continued expansion of its product and service offerings;

Successful production of “live” events, and attaining its financial and other goals;

Continued development of its remote sports betting and numbers-based lottery network
in Mexico, concepts known as Sports Books and Yaks, respectively;

Continued management of its business and corporate units, in terms of their financial
and operational profitability;

Adaptation to changes in the regulatory environment; and

Maintaining or improving its competitive position in each of its different lines of business,
including the partial or total sale of assets that the Company believes are not strategic
for its future plans.
In addition to other industry-related risks, the operations and jurisdictions in which the Company
participates or is located are described in greater detail in the section “Risk Factors” in this
chapter. If one or more of these risks materialize, or if certain underlying assumptions prove to
be incorrect, the actual results of CIE and/or its subsidiaries and affiliated companies may vary
materially from the expected, estimated or projected results. Accordingly, the Company does not
undertake to update its forward-looking statements or the risk factors described in this Document, or other additional risk factors, in order to reflect future events or certain circumstances.
5
The use of registered trademarks and trade names in this Document is exclusively for illustrative
purposes and is not intended to violate copyrights and/or intellectual property laws applicable in
the countries where CIE, its affiliated companies, its subsidiaries, and those companies with
which CIE has or has had any type of business or trade relationship, operate.
This Document does not constitute an offer to sell securities in the United States of America or
in the United Mexican States, or in any other country. The sources of information used to create
this Document are considered to be trustworthy and reliable in terms of reference to certain
information contained herein.
In order to make it easier for the reader to understand certain information and facts discussed
throughout this Document, the reader is advised to use the references made herein with regard
to such information and facts, which are an integral part of this Document. In addition, and for
the same purpose, the Company suggests that the reader refer to relevant events and other
information and documentation that CIE has given to the BMV and the CNBV, which information
is published on their web pages at www.bmv.com.mx and www.cnbv.gob.mx, respectively.
This Document is a translation prepared in free English from the original Annual Report produced and reviewed in Spanish, which has been previously delivered to the Mexico Securities
and Exchange Commission and the Mexican Stock Exchange on June 30th, 2011.
6
NOTE ON PRESENTATION OF FINANCIAL INFORMATION
The financial information contained in this annual report has been prepared in accordance with
Mexican Financial Reporting Standards (Normas de Información Financiera – NIF).
Pursuant to the guidelines of NIF B-10 “Effects of Inflation,” the Mexican economy is in a noninflationary environment, as its accumulated inflation for the last three years has been less than
26.0% (the maximum limit for defining an economy as non-inflationary), accordingly, as of
January 1, 2008, recognition of the effects of inflation on financial information was suspended
(discontinuation of inflation accounting).
Consequently, the numbers at December 31, 2010 and 2009 disclosed in the financial statements, included herein, are shown in historical Mexican pesos, adjusted for the effects of
inflation on the financial information, recognized through December 31, 2007.
(For a more detailed explanation of the above, the reader is referred to the section “Critical
Accounting Policies” in Chapter III, “Financial Information,” of this Document).
Unless otherwise indicated, the financial information expressed in US dollars in this Document
was converted to US dollars from Mexican pesos solely for the convenience of the reader. The
exchange rate used for this purpose at December 31, 2010, was Ps. 11.8322 per US$ 1.00.
The monetary amounts or percentages, as well as the monetary variations and percentages
presented throughout this Document, may vary due to rounding. Furthermore, unless otherwise
indicated, all monetary sums are expressed in millions of Mexican pesos.
The Audited Consolidated Financial Statements (and their respective Notes) at December 31,
2010 and 2009, attached to this Document, were prepared by the Company and audited by the
accounting firm of PricewaterhouseCoopers S.C., and are an integral part hereof. The information included in this Document should always and to the extent possible, be read in conjunction
with the accompanying Audited Consolidated Financial Statements.
7
I. GENERAL INFORMATION
1. GLOSSARY OF TERMS AND DEFINITIONS
Unless otherwise specified, the terms “CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO,”
“the Group,” “CIE,” “the Company,” “the Corporation,” “CIE Group,” “the Issuer” and/or the
“Company” always refer to CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, S.A.B. DE C.V.
and its subsidiaries and affiliated companies. Other terms contained in this Document may be
defined in the sections in which they appear, and their meaning may be applied generally
throughout this Document, unless otherwise specified.
A glossary of certain terms and definitions used throughout this Annual Report is presented
below, with the understanding that some terms that appear with an initial capital letter are
defined in other sections herein. The terms defined in this Document may be used in the singular or plural, interchangeably.
“AMH”
Administradora Mexicana de Hipódromo, S.A. de C.V., a
subsidiary of CIE.
“Banamex”
Banco Nacional de México, S.A., a member of the Banamex
Financial Group.
“bingo”
A game of chance based on numbers and/or symbols.
“BMV”
The Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A.
de C.V.)
“BTL”
A marketing technique that consists of using non-mass forms of
communication, directed to specific segments.
“By-Laws”
The Company’s By-Laws.
“CCF”
Comprehensive cost of financing.
“Centro Banamex”
The exhibition and convention center located in the Las Américas Complex in Mexico City.
“CIE,” “the Company” or “the Group”
“CIE Entertainment,” “CIE Las Américas,” “CIE Amusement Parks,” “CIE
Commercial” and “CIE International
These terms will have the meaning given to them individually in
Chapter I, “General Information” in the “Executive Summary”
section of this Document.
8
“CINIF”
Mexican Council for Research and Development of Financial
Information Standards (Consejo Mexicano para la Investigación
y Desarrollo de Normas de Información Financiera)
“CNBV”
The Mexican National Banking and Securities Commission
(Comisión Nacional Bancaria y de Valores), or the competent
authority or authorities in Mexico that may succeed or replace it.
“Col.”
The Colombian peso, the legal currency in Colombia
“CPC”
The Accounting Principles Commission (Comisión de Principios
de Contabilidad).
“D.F.”
The Federal District of Mexico.
“Document” or “Annual Report”
The Annual Report of CORPORACIÓN INTERAMERICANA DE
ENTRETENIMIENTO, S.A.B. DE C.V. for fiscal year 2010.
“Dollars,” “dollar,” “U.S. dollar” or “US$” The legal currency of the United States of America.
“EBITDA”
Earnings before Interest, Taxes, Depreciation and Amortization.
“EMISNET”
The Electronic Communication System with Securities Issuers of
the BMV (Sistema Electrónico de Comunicación con Emisoras
de Valores de la BMV).
“Entertainment venues”
Amphitheaters, arenas, theaters, automobile racetracks, rooms
or any other area within which live events are held. Known
generically as “Show Venues.”
“Foundation”
The CIE Foundation (Fundación CIE), a not-for-profit civil
association within the Group.
“Gossler”
Means Gossler, S.C., an external auditing firm.
“Government” or “Mexican government” The federal government of Mexico.
“Grupo Mágico” or “Mágico”
Grupo de Mantenimiento de Giros Comerciales Internacional,
S.A. de C.V.; a subsidiary of CIE.
“IFRS” or “NIIF”
International Financial Reporting Standards.
“IGT”
International Game Technology, a company that specializes in
the design, manufacture and marketing of electronic terminals
and gaming systems.
“INBA”
The National Institute of Fine Arts (Instituto Nacional de Bellas
Artes).
9
“INDEVAL”
S.D. INDEVAL, Instituto para el Depósito de Valores S.A. de C.V.
of Mexico.
“Las Américas Complex”
This term will have the meaning assigned to it in Chapter I,
“General Information” in the “Executive Summary” section of this
Document.
“Las Américas Racetrack”
The horseracing track authorized to operate by the Mexican
government, located in Mexico City and operated by AMH.
“Live Nation”
Live Nation, Inc., a company that is a global leader in live
entertainment, and the owner of Ticketmaster Corp.,” a ticketing
company.
“LMV”
The Securities Market Law in effect in Mexico (Ley del Mercado
de Valores).
“Mexico”
The United Mexican States.
“NIF”
Financial Reporting Standards (Normas de Información Financiera).
“Ocesa”
Ocesa Entretenimiento, S.A. de C.V., a subsidiary of CIE.
“Out-of-home entertainment”
Entertainment that cannot be provided in the home, not related
to television, videogames and other recreational activities.
“Peso,” “Ps.,” “MXP” or “$”
The legal currency of Mexico, or National Currency.
“PwC”
PricewaterhouseCoopers, S.C.; an external auditing firm.
“RNV”
The Mexican National Securities Registry (Registro Nacional de
Valores).
“Sports Book”
One of the trade names owned by AMH designating the parlors
operated by AMH where sports betting takes place under the
license granted to this subsidiary by the Mexican government.
“Souvenirs”
Promotional objects that are mementos of live events, marketed
at CIE’s show venues during those events.
“T4F”
T4F Entretenimiento S.A. is the largest live entertainment
company in Latin America, currently with operations in Brazil,
Chile and Argentina.
“Theme Park”
An amusement center with specific features of a particular type.
“Ticketmaster”
The registered trademark owned by Ticketmaster Corp.
10
“TIIE”
The Interbank Equilibrium Interest Rate in Mexico (Tasa de
Interés Interbancaria de Equilibrio).
“UDIs”
Investment Units (Unidades de Inversión): Units specified by the
Mexican government in 1995, indexed to the National Consumer
Price Index.
“Unsecured Bonds” or “unsecured
bonds”
Credit securities called unsecured bonds issued by CIE (Certificados Bursátiles).
“USA” or “the United States”
The United States of America, or the US.
“Wannado City”
The children’s theme park operated by Mágico in Fort Lauderdale, Florida, USA.
“Yak”
One of the trade names owned by AMH, designating the parlors
operated by AMH where numbers-base and symbols-based
games take place under the license granted to this subsidiary by
the Mexican government.
11
2. EXECUTIVE SUMMARY
General
CIE considers itself to be the leading company in the out-of-home entertainment market in
Mexico, and through its association with T4F, a leader in the main Spanish- and Portuguesespeaking markets in Latin America, it offers a wide range of entertainment options for a variety
of budgets. That gamut of options includes concerts, theatrical productions, amusement parks,
remote betting on sports and numbers-based raffles, trade fairs and expositions, sporting and
other live events. CIE operates its live entertainment business through a unique vertically
integrated model that allows it to maximize revenues at each event or concert that it produces.
For the year ended December 31, 2010, CIE reported consolidated revenues and EBITDA of
Ps. 10,193.7 and Ps. 1,963.8, respectively. CIE conducts its activities through five strategic
business units:

CIE ENTERTAINMENT promotes and produces musical concerts, theatrical productions,
family shows and other forms of live entertainment. It also operates entertainment
venues in Mexico (including food, beverage, souvenir and merchandise concessions),
and it sells automated tickets for live entertainment events and entertainment venues
using the Ticketmaster system.

CIE LAS AMÉRICAS focuses on the operation and development of the Las Américas
Complex in Mexico City, which includes the Las Américas Racetrack (the only professional horseracing track authorized by the Mexican government to operate in Mexico
City), and the operation of remote sports-betting parlors and numbers-based gaming
outlets. This division also includes the Granja Las Américas children’s theme park and
the Centro Banamex convention and exposition center. Future development will include
a hotel and an entertainment-based commercial street.

CIE COMMERCIAL provides corporate clients (companies, organizations, governments)
with a wide array of promotional and advertising channels for their advertising campaigns, including naming rights, advertising space at CIE’s amusement parks, and at
field level in professional soccer stadiums in Mexico, and advertising space on pedestrian overpasses, airports, and in movie theaters in Mexico. This division also develops
telemarketing programs for clients in Mexico and abroad, and it supports client campaigns through the use and application of state-of-the-art technology and BTL.

CIE AMUSEMENT PARKS operates one amusement complex known as El Salitre, in Bogotá, Colombia, which includes an amusement park and a water part. (For a more de-
12
tailed explanation, see Chapter I, “General Information – Recent Events” of this Document.)

CIE INTERNATIONAL represents the operation of radio stations that CIE had in Argentina,
which were sold in the first two months of 2010.
In 2010, approximately 4 million people attended 4,011 events that CIE produced. Approximately 1.4 million people visited the amusement parks in Colombia and Granja Las Américas, and an
estimated 427,000 people attended the 1,871 horse races held at the Las Américas Racetrack.
Also in 2010, CIE’s Sports Books and Yaks parlors received an estimated 13.4 million visitors.
The following table shows CIE’s relevant financial information for the fiscal years ended December 31, 2008, 2009 and 2010:
13
2008
2009
2010
(Numbers stated in millions of Mexican pesos)
(1)
Income Statement:
Net Sales ...........................................................................
EBITDA ..............................................................................
EBITDA Margin ..................................................................
Depreciation and Amortization ...........................................
Operating Income ...............................................................
Operating Margin ...............................................................
Comprehensive Cost of Financing ....................................
Interest Paid, net ................................................................
Discontinued Operations ....................................................
Minority Interest...................................................................
Net Income .........................................................................
Net Margin .........................................................................
Ps. 9,461.7
1,666.3
17.6%
825.0
841.2
8.9%
(657.0)
687.5
(42.2)
(106.4)
(954.6)
NA
Ps. 9,283.6
1,633.1
17.6%
812.4
820.7
8.8%
(820.7)
697.6
47.3
(145.8)
(956.8)
NA
Ps. 10,193.7
1,963.8
19.3%
871.1
1,092.7
10.7%
(549.1)
503.4
275.6
108.8
1.1%
Cash and Cash Equivalents ...............................................
Other Current Assets
Property, Plant and Equipment, net ....................................
Deferred and Other Assets .................................................
Total Assets ........................................................................
(2)
Short-Term Liabilities ......................................................
(3)
Debt with Cost ................................................................
Other Liabilities ..................................................................
Total Liabilities ....................................................................
Majority Interest ..................................................................
Minority Interest ..................................................................
Shareholders’ Equity ..........................................................
(3)
Loss per share before discontinued operations ...............
(3)
Net loss per share
..........................................................
Ps. 1,076.8
5,327.0
6,978.0
2,509.6
15,891.5
3,335.1
6,298.6
954.6
10,588.3
2,637.9
2,665.3
5,303.2
(2.48)
(2.36)
Ps. 1,646.7
5,681.0
6,540.9
2,301.4
16,170.0
2,892.4
7,033.2
792.3
10,717.9
811.0
(145.8)
5,452.0
(1.72)
(1.78)
Ps. 1,268.9
5,648.4
6,564.8
1,965.0
15,447.1
2,698.3
6,807.2
588.8
10,094.3
(166.8)
275.6
5,352.8
NA
(0.30)
Other Information and Relevant Financial Ratios
(4)
Number of Compounded Average Shares ......................
(5)
Price per Share at year end ............................................
(6)
Capitalization Value ........................................................
(7)
Company Value ..............................................................
(8)
EBITDA to Interest Paid, net ...........................................
(9)
Company Value to EBITDA .............................................
359.3
9.45
3,395.7
8,617.5
2.42
5.17
454.7
6.75
3,069.0
8,455.5
2.34
5.18
559.3
6.86
3,837.0
9,375.3
3.90
4.77
Balance Sheet:
(1) The numbers in this table corresponding to fiscal years 2009 and 2010, are stated in millions of nominal
pesos, and the numbers corresponding to 2008 are stated in millions of constant pesos at December 31,
2008, and have been prepared in accordance with current Financial Reporting Standards in Mexico.
(2) Bank commissions are not included in this line.
(3) Includes the expiration of short-term bank loans recorded in Short-Term Liabilities of the Audited Consolidated Financial Statements for the year in reference, as well as expiration of bank loans recorded in Long-Term
Liabilities in the same financial statements.
(4) Includes expiration of short- and long-term bank loans recorded on the Audited Consolidated Financial
Statements for the fiscal year in reference.
(5) Numbers in Mexican pesos.
14
(6) Information, stated in Mexican pesos, taken from the section “Shareholder Structure” in Chapter V, “Stock
Market” of this Document.
(7) Calculated based on the compounded average number of shares multiplied by the share price at the close
of the year. This information is in this table for each indicated fiscal year.
(8) Calculated based on the Capitalization Value minus the mathematical difference between Debt with Cost,
and the account Cash and Cash Equivalents, for each fiscal year indicated in this table.
(9) Mathematic ratio, stated in times, obtained by dividing the EBITDA and Net Interest Paid, which accounts
are in this table.
(10) Mathematical ratio obtained by dividing the Company Value and EBITDA, expressed in times, which information is in this table.
CIE’s consolidated revenues during 2010 increased 9.8% with respect to revenues in 2009. In
2010, however, the Group reported EBITDA that was 20.3% higher than EBITDA reported in
2009, mainly attributable to the increase attendance levels and growth in average expenditures
by visitors to Sports Books halls, along with greater profitability from the mixture of live sales
events produced by CIE Entretenimiento during the year. (For a more in-depth explanation of
the financial performance in the fiscal years ended December 31, 2008, 2009 and 2010, refer
the Chapter III “Financial Information,” and to the Audited Consolidated Financial Statements
included in this Annual Report, as well as the Audited Consolidated Financial Statements
included in the 2009 Annual Report).
In recent years, the Group began the process of divesting the amusement park assets it had
operated in the region. Thus, through sales at the end of 2009, it sold the operation of its
Mexican parks La Feria de Chapultepec, CICI, and Selva Mágica, which were located in Mexico
City, Acapulco and Guadalajara. Similarly, in the first few months of 2011, the Company formally
ceased operating the theme park Wannado City in Fort Lauderdale, Florida, which, at this time,
is not held by any subsidiary of CIE. Today the Group only operates amusement parks in
Bogotá, Colombia, with the El Salitre complex, which is comprised of the amusement park El
Salitre Mágico, and the water park CICI Aquapark.
The Company’s Series B shares have been listed on the Mexican Stock Exchange since
December 1995 under the ticker symbol CIE B. (For a more detailed explanation, see “Share
Performance in the Stock Market” in Chapter V, “Stock Market” of this Document.
CIE has a 10-year, US$ 200 million bond that was issued in 2005 and matures in 2015 listed on
the Luxembourg Stock Exchange (“Senior Unsecured Notes”), of which US$ 13.7 million is in
circulation upon CIE acquiring a significant part of it in the market in the past. The Company
also has long-term debt-denominated securities listed on the BMV, whose amounts in circulation
at the close of 2010 were Ps. 1,400.0, Ps. 500.0 and Ps. 650.0, maturing in 2014, under the
tickers CIE05, CIE06 and CIE08, and also at December 31, 2010 it had a short-term debtdenominated security for Ps. 280.0 maturing in 2011, with the ticker symbol CIE00110. Note that
due to the funds obtained from the T4F transaction, the amount in circulation of these debtdenominated securities was decreased due to the abovementioned prepayment. (For a more indepth explanation, see the section “Report on Relevant Credits” of Chapter III, “Financial
Information,” in this Document).
15
Competitive Advantages
Market position
CIE considers itself to be the leading out-of-home entertainment company in Mexico, and based
on the association it maintains with T4F, it is the leader in the major Spanish- and Portuguesespeaking markets in Latin America, based on the number of events that it promotes and produces, and on the performance venues that it operates, whether direct or indirect, and through
strategic association schemes and/or joint ventures in businesses.
The Company is a major operator of remote sports-book and numbers-based gaming centers in
Mexico in terms of the number of outlets operated. CIE also operates the only horse racetrack
authorized by the Mexican government to operate in Mexico City.
Diversified operations
The Group offers a wide variety of out-of-home entertainment options to a broad range of socioeconomic classes, demographic groups and budgets, which gives it great flexibility to adapt to
changing economic conditions and to the varying demands of its customers in the markets in
which it operates.
Geographic scope
CIE regularly organizes and presents live entertainment events in Mexico and in several countries in Latin America through alliances and joint ventures, and to a lesser degree, in certain
Spanish-speaking markets in the United States. This geographic scope gives CIE an advantage
in producing tours of performing artists to large swaths of the Spanish- and Portuguesespeaking world, making CIE a particularly attractive company to the most popular international
artists.
Broad range of promotional and advertising channels
CIE offers its corporate clients a wide variety of promotional and advertising channels, including
venue-naming rights, advertising sponsorships for live events, advertising at performance
venues, advertising in entertainment guides and on tickets, advertising on pedestrian walkways,
advertising on movie screens, and telemarketing services, among many others. CIE believes
that this broad range of promotional and advertising channels, along with the experience and
reputation it has obtained, allow it to position itself as a company that is particularly attractive to
clients that want to develop major advertising and promotional campaigns.
16
Strategic partnerships and alliances
CIE has created joint ventures and strategic alliances with highly reputable partners, including
Ticketmaster Corp., the global leader in automated ticket sales; Codere, a Spanish multinational
company active in private gaming whose business focuses on managing gaming terminals,
bingo halls, betting parlors, casinos and racetracks; T4F, the leading out-of-home entertainment
company in Brazil, Chile and Argentina; and Grupo Televisa, the largest Spanish-language
media company in the world. (For a more detailed explanation, see the section “Description of
the Business – Corporate Structure” in Chapter II, “The Company” in this Document).
Through these vehicles CIE has been able to gain access to top theatrical productions, artists,
events and performance venues, and it has also benefited from the reputation, technology,
operating experience and financial strength of its partners, among other attributes.
The following table shows the principle collaborative arrangements with third parties that have
led to joint ventures (as of May 31, 2011):
Company Created
Partner
Partner Description
Purpose of the Association
OCESA
Entretenimiento
Impulsora de Centros
de Entretenimiento
de las Américas
Televisa
The largest Spanish-language
media Company in the world.
Spanish multinational, a leader
in the private gaming sector that
manages recreational machines,
bingo halls, casinos, racetracks
and sports betting parlors.
Promotion and production of live
entertainment events in Mexico.
Development and expansion of
the Sports Books and Yaks
business, as well as the Las
Américas complex.
Automated Ticket
(1)
Sales
T4F Entretenimiento
Codere
Ticketmaster
Corporation
A.D.T.S.P.E.
Empreendimento
s e Participacões,
S.A. and GIF-II
Fundo de
Investimento em
Participacões,
S.A
CIE’s
Equity
Stake
60.00%
51.00%
Global leader in automated sales Computerized ticket sales for
events and entertainment
of tickets to events and
performance venues.
venues in Mexico and other
Latin American markets.
40.20%
One of the leading operators of
live entertainment venues and
event promoters in Brazil. The
second partner is a major
investment fund.
9.81%
Promotion of live events in
Brazil, Chile and Argentina.
__________
(1)
Subsidiaries of OCESA Entretenimiento, S.A. de C.V. As of August 2005, OCESA Entretenimiento, S.A. de C.V. owns 67% of
the shares of Venta de Boletos por Computadora, S.A. de C.V.
17
Operation of and access to the main performance venues
CIE operates the main performance venues for concerts, theatrical events, family shows and
live events, among others, in Mexico City, Guadalajara and Monterrey. CIE’s access to these
performance venues allows it to plan live events more easily than its competitors.
Growth potential due to favorable demographic development in Mexico and due to the lower
expected cost of capital.
According to the Mexican National Population Council, the group of individuals in the 20-49 age
range, which is CIE’s main target market, grew approximately 7% in Mexico from 2005-2010. If
this projected growth continues, it will increase the audience that is CIE’s main market segment.
At the same time, the capital investment requirements for CIE’s current asset base are expected
to be lower in the near future, in comparison with the amount invested in the past. CIE believes
that this combination will allow it to increase its net cash flow in the future.
Vertical integration in live event operations
The unique vertically integrated model that CIE uses to conduct its live event operations allows
the Group to capture a greater percentage of the total revenues generated by events, and to
obtain a lower break-even point in terms of attendance, which differentiates CIE from its competitors, who generally act only as promoters of live events. In addition, CIE’s ability to provide a
greater number of services, such as ticket sales and the operation of performance venues,
allows CIE to take advantage of events to which the Company does not hold promotional rights.
Experience, reputation and successful trajectory
Experience, reputation and a successful trajectory are key factors for success in the out-ofhome entertainment industry. CIE has been part of the out-of-home entertainment business
since 1990, and since that time it has remained at the forefront of nearly all aspects of the
industry in Mexico and the region. The Company believes that its strong reputation and operating history make it the preferred promoter for the most outstanding artists touring the region,
and for the government authorities that own the major performance venues.
Strategies
CIE’s expansion into its markets in order to consolidate its leadership is based on the following
strategies:
18
To continue the expansion of its Sports Books and Yaks Centers in Mexico
As of May 31, 2011, CIE operated 53 Sports Books (remote betting centers) and Yaks (electronic number-based lotteries) locations throughout Mexico, including greater Mexico City. The
permit that CIE holds from the Mexican government to operate this business allows the Company to operate up to 65 such outlets. Within the scope of that same permit, in the second half of
2005 the Company began incorporating the concept known as the Electronic Yak, and more
recently, other gaming formats allowed by current regulation.
To continue developing the Las Américas Complex
CIE plans to develop an entertainment-based shopping mall and a hotel within the Las Américas
Complex in Mexico City. These projects will complement the existing Las Américas Racetrack,
the Banamex Center, the Sports Books and Yaks halls, and the Granja Las Américas Theme
Park. The Group’s strategy regarding these two future projects is to limit its capital investment
costs by establishing joint ventures with partners who either have the experience or the financial
capacity to implement these projects.
To expand advertising and promotional channels for its clients
The Company seeks to provide its advertisers with an increasing variety of promotional and
advertising channels, such as advertising on tickets and in entertainment guides, on billboards
on pedestrian walkways, on field-level rotating signage at soccer stadiums, onscreen at movie
theaters, in airports, through telemarketing services, and novel marketing proposals from BTL,
among others. The Group plans to continue expanding its advertising and promotional channels
in order to offer its advertisers better products and greater geographic coverage.
To expand its product offering for live entertainment events
The Group is always seeking to expand the content of its live entertainment events. Since its
creation, CIE has entered into alliances with content-production companies and with other third
parties, which has given the Company access to Broadway-type theatrical content, sports car
racing, and to special international events, among many other productions. The Company
believes that its reputation and experience have facilitated its efforts to introduce these new
products to its markets.
To expand the vertically integrated model to live entertainment events
CIE seeks to consolidated its vertically integrated model by continuing to obtain the operating
rights for performance venues, which allows the Company to develop related businesses, such
19
as marketing sponsorship rights, naming rights, and advertising spaces, as well as concession
stands to sell food, beverages, souvenirs and general merchandise.
To continue exploring opportunities in the out-of-home entertainment business that complement
our current line of business activities
In order to continue taking advantage of attractive opportunities that are a good fit with our
existing operations, CIE has been expanding its out-of-home entertainment offerings from a
business perspective. CIE plans to continue exploring opportunities as they arise. With this goal
in mind, CIE has considered forming associations with highly reputable partners with which it
can create operational and financial synergies. The alliances and joint ventures that CIE has
established in the past have been beneficial, thanks to the reputation, technology, operating
experience and financial strength of its partners, among other factors.
20
3. RECENT EVENTS
The following is a discussion of the events that occurred at the Company in 2009, 2010 and the
first months of 2011 and that, we believe, due to their level of significance, may directly or
indirectly have or could have a significant impact on CIE’s activity, financial situation or operating results, among other business variables affecting the Company and the industry in which it
operates. Other recent events related to the Company, its finances, the business or other
matters that, from the reader’s viewpoint might constitute recent events of interest, are discussed in more general terms throughout this Document, essentially in Chapters I, II and III
(“General Information,” “The Company,” and “Financial Information,” respectively), as well as in
the audited financial statements that are an integral part of this Document.
Debt-Denominated Securities
Three debt-denominated securities have been issued: (i) the issuance in October 2005 of
14,000,000 debt-denominated securities with par value of Ps. 100 each; (ii) the issuance in
June 2008 of 6,500,000 debt-denominated securities with par value of Ps. 100 (Mexican pesos)
each, and (iii) the issuance in December 2006 of 5,000,000 debt-denominated securities with
par value of Ps. 100 each, with quarterly amortization payments starting in December 2011, and
maturing in September 2014. (For more detail go to the section “Recent Events,” “Financial
Restructuring” in Chapter I “General Information” of this Document.
Through Official Document No. 153/89360/2010 dated December 15, 2010, the Company
obtained authorization from the CNBV to establish a program to place short-term debtdenominated securities for up to Ps. 600.0, with program maturity of two years from the date of
authorization by the CNBV. Under that program, the Group issued Ps. 280.0 expiring in May
2011, with the ticker symbol CIE001100, which amount was paid back early with the net funds
obtained by the Company from its divestment from T4F, and the debt-denominated securities
mentioned in the prior section of this Document expiring in 2014, in the amounts of Ps. 1,400.0,
Ps. 500.0 and Ps. 650.0 were also partially paid down. (For more detail, see the section “Divestment from Time For Fun Entretenimiento, S.A.” in this section).
Sale of Radios in Argentina
In January 2010, CIE concluded the sale of the radio stations the Company operated in Argentina to a local investor for US $12.0 million. CIE retains certain rights to sell airtime on those
frequencies for a period of six years, starting in 2010.
21
Financial Restructuring
In December 2009, CIE finished restructuring its debt with the majority of its bank and stock
market creditors, with the same terms and conditions for both:
(i) The total amount of restructured debt was Ps. 5,555 million pesos, which is equal to
97.0% of the Holding Company's debt, and to 84% of the Group's consolidated debt.
(ii) The period is five years with quarterly amortization payments beginning in 2011, and
the rate is TIIE +3% for peso-denominated debt, and LIBOR +3% for dollar-denominated debt.
(iii) Granting guarantees on the shares of certain of CIE’s subsidiaries was included, as
well as the incorporation of covenants, which are common for operations of this type.
(iv) The banks that led the operation were Banco Nacional de México, S.A. and Banco
Inbursa, S.A.
(v) Due to the mentioned financial restructuring, the Company created a guarantee trust
whose purpose is to ensure compliance with each and every payment obligation.
Due to the debt restructuring, and in reference to the covenants regarding that restructuring,
CIE must comply with the conditions listed below. Prior to December 31, 2010, however, it
obtained the consent of its bank and stock market creditors to abstain from demanding fulfillment of these conditions:
1.
To perform certain divestments
2.
To make early debt payments
3.
Additional debt contracts
4.
To make capital investments up to an established amount
In reference to the credit contract entered into by Banco Inbursa, S.A. and Administradora
Mexicana de Hipódromo, S.A. de C.V., in which CIE acts as guarantor and in which certain
22
covenants are established, one of those covenants establishes a minimum amount of shareholders’ equity of the borrower, and its guarantee, however neither entity has fulfilled this
obligation. The creditor gave the corresponding waiver.
Sale of Parks in Mexico and Closure of Park in Florida
In recent years the Group began the process of divesting assets from the amusement parks it
operated in the region. At the end of 2009, it divested the operation of its Mexican parks La
Feria de Chapultepec, CICI and Selva Mágica, located in Mexico City, Acapulco and Guadalajara, respectively. Also in the first months of 2011, the Company formally ceased operations of the
Wannado City theme park in Fort Lauderdale, Florida, which at this time is not held by any
subsidiary of CIE. Today the Group only operates amusement parks in Bogotá, Colombia, with
the El Salitre complex, which is comprised of the amusement park El Salitre Mágico, and the
water park CICI Aquapark. This complex received nearly one million visitors in 2010.
Sale of Estudio México Films, S.A. de C.V.
In April 2009, CIE sold its stake in its partner Estudio México Films, S.A. de C.V.
Divestment from Time For Fun Entretenimiento, S.A.
In April 2011, T4F began the process of placing shares through a public tender on the BM&F
BOVESPA market in São Paulo, with placement efforts in international markets for qualified
investors. This transaction, which concluded last May, allowed T4F to obtain funds for the
expansion and development of its activity in its markets, and to advance in its institutionalization
strategy. T4F place approximately 31.4 million common shares, equal to 45.4% of its capital, at
a placement price of R$ 16.00 (sixteen and 00/100 Brazilian reais) per share. The ticker symbol
assigned to T4F on the São Paulo stock exchange is SHOW3.
Because of this operation, CIE goes from holding a minority interest of 24.00%, which it held
since 2007, to a minority shareholder stake of 9.81% in the capital of T4F, after the share
placement was finalized last May. CIE obtained net resources of Ps. 638.0, which were directly
applied to early payment of the bank and stock market debt of its holding company, pursuant to
the terms and conditions of agreements with its creditors, which are the product of restructuring
the debt from December 2009, and the agreement subsequent to 2010. For more information,
see the section “Financial Restructuring” in this section).
23
The Company will continue recording the results of T4F in its financial statements using the
participation method, pursuant to current Financial Reporting Standards.
24
4. RISK FACTORS
In addition to the forward-looking concepts in this Document and included in the section “Forward-Looking Statements,” whose interpretation by the reader may cause them to be interpreted as further risk factors in addition to those mentioned below, the risk factors mentioned in
this section are not the only ones that could directly or indirectly affect the Company’s operations, strategies and other business variables.
Unforeseen additional risks, or those that are believed will not have an adverse material affect
may damage the operating, financial and/or managerial performance of the Company’s business, as well as the performance of its securities, among others.
Factors Related to CIE
Dependence on distributions and cash flows from the Company’s subsidiaries
CIE is a holding company with no independent operations or assets other than those of its
subsidiaries or affiliates. Because its operations are conducted primarily by its subsidiaries and
affiliates, the Company depends on distributions and other cash flows from its operating subsidiaries and affiliates in order to meet its obligations. In general, Mexican corporations may only
pay dividends out of their retained earnings after their shareholders have approved the related
financial statements that reflect those retained earnings. Shareholders may also approve
dividend payments only after the mandatory legal reserves have been funded and the losses
incurred in prior fiscal years have been covered. In addition, dividend payments by any of the
Group’s subsidiaries and affiliates that have a joint venture requires the consent of the partner,
and in some cases dividend payment is subject to complying with certain covenants under
certain loans taken by the Group. (For a more detailed explanation, see the section entitled
“Dividends” in Chapter II, “The Company,” as well as “Recent Events” In Chapter I “General
Information,” both in this Document).
Dependence on strategic alliances and/or joint ventures
Some of the Group’s key subsidiaries maintain strategic alliances or have entered into joint
ventures with certain companies and individuals in Mexico and abroad. The Company depends
on the operating experience, technology, financing and access to content and entertainment
venues of these companies and individuals, among other attributes.
25
If any of the partners with which CIE has entered into strategic alliances and/or joint ventures
decides to terminate its relationship with the Company, there is the chance that the originally
planned goals and their respective strategies may not be met and/or implemented either alone
or with another partner. Some of CIE’s strategic partners also have certain rights under the jointventure agreements relating to the operation and financing of certain subsidiaries. Therefore,
any disagreements that might arise between the Company and any of its strategic partners
under this arrangement could affect the operation of certain areas of the Group. If CIE is unable
to continue any strategic alliance and/or joint venture, it could suffer material adverse effects to
its activity, financial situation and operating results. (For a more detailed explanation, see
“Executive Summary” in Chapter I, “General Information” of this Document).
Closure of entertainment venues and amusement parks due to possible actions by the
government
CIE’s role as an operator of entertainment venues is an integral component of its vertically
integrated strategy for its live event operations. It allows CIE to have a lower break-even point
for the events that it produces and promotes in comparison with the break-even points of its
competitors, which usually act only as promoters. Consequently, the Group receives a higher
level of earnings from those live entertainment events that it does not promote. (For a more
detailed explanation, see “Recent Events” and “Description of the Business” in Chapter I “General Information,” and Chapter II “The Company” in this Document).
If CIE is unable to secure or maintain the operating rights to those performance venues and the
amusement parks that it operates in the markets in which it has a presence (whether these
rights are expressed in the form of leases, concessions, permits, strategic associations or
otherwise), there may be an adverse material affect to its activity, financial situation, and to the
Company’s operating results). In addition, some of the rights held by the Company may be
terminated early, either because certain terms and conditions were not properly met, or for
reasons of public policy.
CIE is currently negotiating the renewal of the lease agreements for two theater complexes in
Mexico City located inside the Telmex Cultural Center.
CIE cannot guarantee that in the future it will be able to obtain or renew the rights to operate the
performance venues and amusement parks that it operates in the region under terms that are
favorable to it. (For a more detailed explanation, see the section entitled “Description of the
Business” in Chapter II, “The Company” in this Document).
26
Termination, expropriation and revocation of concessions and permits
Under Mexican law, the concession granted to the Group to operate the Las Américas Racetrack in Mexico City may be revoked for reasons of public interest. In that case, even though
Mexican law provides a right to indemnification and specifies the basis on which this indemnity
would be calculated, no specific terms for payment of the indemnity have been established.
Furthermore, the concession for the Racetrack may be revoked due to failure to comply with the
obligations imposed by the concession. Moreover, the permit granted to the Group to operate its
Sports Books and Yaks outlets may be canceled by the Mexican government in the event of
failure to comply with the obligations specified in that permit.
Both the revocation of the concession for the Las Américas Racetrack, and cancellation of the
permit for remote sports betting and numbers-based gaming in Mexico, could cause a material
adverse effect on the Company’s activity, financial situation and operating results. (For a more
detailed explanation, see the section entitled “Judicial, Administrative or Arbitration Proceedings”
in Chapter II, “The Company” in this Document).
Difficulty in properly integrating new businesses
The expansion strategies of the vertically integrated model and its line of products and services
require the integration of new businesses into CIE’s existing operations. This strategy poses
several risks to the Company, particularly in businesses in which it has not had prior experience,
such as the case, at the time, of the Buenos Aires City Zoo, the thematic concept of Wannado
City in Florida (both of which are discontinued operations), the Las Américas Racetrack in
Mexico City, and operation of its Sports Books and Yaks outlets in Mexico. Although the Company seeks to minimize these risks through certain strategic alliances or joint ventures with
experienced partners, it cannot guarantee the complete elimination of all risks, including:

The inability to integrate, among other factors, different organizational cultures, business
practices, information and communication systems, accounting methodologies, business
philosophies and management strategies;

The inability to hire and retain qualified administrative and operating personnel with the
necessary timeliness;

The difficulty of managing and controlling businesses that are geographically distant
from the corporate offices in Mexico; and
27

The probability that capital investment costs could exceed the projected investment
amounts and/or that earnings and cash flows could be significantly less than expected.
If any of these situations were to occur, it could have a material adverse effect on the Company’s activity, financial situation, and operating results.
Risks inherent to CIE’s international operations
Although the majority of CIE’s business is conducted in Mexico, the Company also engages in
activities in several other Latin American countries, and to a lesser degree, in some Spanishspeaking communities in the United States.
The Company’s international operations may be materially affected by trade barriers, currency
fluctuations and exchange rate controls, domestic labor stoppages and increases in taxes,
rights and government contributions. Furthermore, changes in the laws and governmental
policies that regulate the Company’s operations abroad could have a material adverse effect on
the Company’s international operations. The governments of the countries in which CIE operates, or in which it intends to establish operations in the future, could take steps that materially
affect its operating and financial performance.
Close of performance venues and amusement parks due to force majeure
An instance of force majeure, such as an earthquake, fire, flood, epidemic, etc., may render any
of CIE’s performance venues and/or the amusement park in Colombia unable to operate, either
temporarily or permanently. If such a situation were to occur, the Company could suffer the
temporary closure or interruption of those venues’ activities, which could consequently have a
materially adverse effect on the Company’s activity, financial situation and operating results.
Dependence on key personnel
The Company’s operations are conducted by key personnel whose loss could have a material
adverse effect on CIE. The Company believes that the Group’s success depends in part on its
ability to hire and retain highly qualified and experienced personnel. The competition to hire this
type of personnel is particularly intense in the out-of-home entertainment industry, therefore, the
Company cannot guarantee that it can adequately hire and retain the necessary qualified
operating and management personnel to ensure that its activities are properly conducted.
28
Factors Related to the Entertainment Industry
Significant increase in the level of competition
CIE faces both formal and irregular competition in each market in which it is active, fundamentally competition from companies and individuals that specialize in one or more specific activities. The Company believes that a significant increase in competition could lead to lower
revenues and an increase in capital investment costs, which could have a material adverse
effect on the Company’s activity, financial situation and operating results.
Some of the areas in which the risk of facing greater competition and its possible impact are
mentioned below:

In the primary business of promoting and producing live entertainment events, there is a
risk that local competitors with operations in one or more of the cities in which the Company operates might gain access to major performance venues. Moreover, there is a
possibility that these local competitors might expand by successfully overcoming some
of the obstacles to entering the out-of-home entertainment business, such as financial
resources, experience in the operation of performance venues, and in some cases,
technology;

In the remote sports betting and numbers-based gaming area, CIE could face additional
competition if the Mexican government were to issue new operating permits, as was the
case with the issuance in 2005 of permits authorizing other groups to engage in these
types of activities, in which those groups have initiated operations in different cities
throughout Mexico;

The primary risk for operating the amusement park in Colombia is the entry of new participants into markets in which CIE operates in Bogotá and its metropolitan area; and,

In the trade show and convention sector, an established promoter or a new participant
could build a major convention and trade show complex using state-of-the-art technology
in Mexico City.
29
(For a more detailed explanation, see the section entitled “Market Information” in Chapter II,
“The Company” in this Document).
Dependence on the people’s purchasing power
A decline in economic conditions in any of the markets in which CIE operates could reduce the
amount of income that consumers typically allocate to their expenditures on out-of-home
entertainment activities, which could in turn materially affect the Group’s earnings. Furthermore,
any monetary devaluation or inflationary effect could increase and make ticket prices for performances by international artists unaffordable to certain sectors of the population, such that
presentation of this type of performance might be temporarily suspended, thereby affecting
CIE’s earnings, or the betting amounts placed at the Sports Books and Yaks outlets could fall as
a result of economic conditions.
The Latin American markets in which the Company operates have experienced, and may again
experience, economic crises, which have had and may again have, a material adverse effect on
the Company’s activities, financial situation and operating results. Even though CIE has developed strategies to diversify its entertainment offerings to overcome economic crises, CIE cannot
guarantee that these strategies will be successful in preventing a material adverse effect on its
activities, financial situation and operating results.
Dependence on the availability of artists and events
The Company’s success and ability to sell tickets are highly dependent on the availability of
well-known musical artists and other popular artists who put on live shows, and also on producing and touring Broadway and other types of shows. The Company believes it is unlikely that
these artists, theatrical productions or other live entertainment events will not be available in the
future. The lack of availability of these artists and productions could have a material adverse
effect on the Company’s activities, financial situation and operating income.
Dependence on the availability of locations to open Sports Books and Yaks parlors
Success in the number of people visiting CIE’s Sports Books and Yaks network depends on the
location of the parlors. The Group’s strategy has always been to find safe locations with parking
facilities, preferably inside shopping malls. As developers of these types of properties take
longer to complete construction, it may take longer for CIE to find locations that meet all of its
requirements.
30
Risk of accidents and disturbances
Due to the high concentration of people at many of CIE’s live events and in the operations of the
Group’s affiliates and subsidiaries, and considering the risks inherent to operating CIE’s different
business lines and units, there is the chance that contingencies might occur that would harm
both those attending the events and those inside the facilities operated by CIE and their assets,
and that the level of intensity of such contingencies might have a material adverse effect on the
Group’s image. Attendance at the Company’s events and amusement parks could decrease if
such accidents were to occur, which would in turn lead to a reduction in CIE’s revenues and
cash flow.
Although the Company has not experienced any significant disturbances or accidents at its
events or amusement parks, the possibility that such incidents might occur in the future cannot
be ruled out. In view of the foregoing, and to supplement the Company’s safety and prevention
programs and reduce the possible impact of a contingent event, the Group carries civil liability
insurance that meets authorities’ requirements and strengthens CIE’s image and operation.
Weather and seasonality
Because some of the performance venues are outdoors, adverse weather conditions could
decrease attendance levels to live events. If such adverse weather conditions were to persist for
prolonged periods of time or on weekends, which is when the Company records the highest
attendance levels, CIE’s revenues and cash flow could be negatively affected.
In particular, the business of promoting musical concerts is somewhat seasonal, with less
activity during the summer months in the northern hemisphere (from June to August). This is
because international artists are usually on tour in the United States and Europe during this
period.
Operation of amusement parks in Colombia may experience seasonality because of their
location in regions where the weather conditions are usually stable. However, attendance levels
tend to increase from June to August and during the Christmas and Easter holidays because of
school vacations. Furthermore, although the horseracing season at the Las Américas Racetrack
is nearly the entire year, events are held on certain days, mainly toward the end of the week.
However, Sports Books and Yaks parlors operate 365 days per year, with varying hours that
cover a wide range of time.
31
The number of corporate events tends to increase in the latter part of the year, as companies
and organizations choose these dates to launch new products and services, and to hold their
year-end events. Advertising in movie theaters, however, is directly affected by the summer
season, which is when blockbuster films tend to be released. Trade shows and conventions are
rarely held in August because of the summer vacation, or during the Easter holiday. Moreover,
the number of social events associated with certain trade shows and conventions tends to
increase during the last months of the year.
Due to the seasonal nature of some of CIE’s activities, the occurrence of adverse events, such
as a reduction in the demand for the Company’s products and services at certain times of the
year, nay have a disproportionate effect on the Group’s revenues, cash flow and operating
results. These seasonal variations that affect the Group may also increase working capital and
financing requirements at certain times during the year. Operating results could also be adversely affected if the Company finds it necessary to substantially increase its liabilities, or if it is
unable to accurately predict its working capital requirements due to the seasonal nature of some
of its business activities.
Factors Related to Mexico
Political and economic factors
CIE is a Mexican company that conducts the vast majority of its business activities in Mexico.
Consequently, its businesses, financial condition and operating results may be significantly
affected by certain general conditions of the Mexican economy, such as a devaluation of the
Mexico peso, inflation and interest rates in Mexico, or by other political and economic issues in
Mexico.
The Mexican government has exercised and continues to exercise significant influence over the
Mexican economy. Actions by the Mexican government regarding the economy and state-owned
businesses may have a significant impact on the Mexican business sector in general and on
CIE in particular, as well as on market conditions, pricing systems and returns on the securities
of Mexican entities, including those of the Company.
In the past Mexico has experienced economic crises caused by internal and external factors,
which have been characterized by unstable exchange rates, high inflation and interest rates,
economic contraction, reduced streams of international capital, liquidity in the banking sector
and unemployment. These economic conditions considerably reduce the purchasing power of
the Mexican population, and as a result, the demand for out-of-home entertainment in general.
32
Crises such as these could adversely affect CIE’s financial condition and its operating results,
as well as the market value of its securities.
Exchange rate fluctuation
In the past, the value of the Mexican peso has depreciated substantially in relation to the US
dollar, and it could do so again in the future, despite the exchange rate stability of recent years.
Declines in the value of the Mexican peso against other currencies could adversely affect CIE’s
business and financial condition, including its ability to make principal and interest payments on
its debt. Among other things, a decline in the value of the Mexican peso relative to the US dollar
could affect the feasibility of CIE presenting certain international artists in Mexico because
payment for these artists’ services must be remitted in US dollars, and a devaluation of the
Mexican peso increases the amount in pesos of CIE’s dollar-denominated obligations. Although
the Company has implemented exchange-related hedge policies to cover the risk of monetary
devaluation, which policies cover a substantial portion of its dollar-denominated debt, CIE
cannot guarantee that these policies can be maintained or that they will be effective. The
Company regularly hedges the exposure of its obligations in foreign currencies, mainly US
dollars.
The proportion of bank and stock market liabilities contracted by CIE in United States dollars,
euros and Colombian pesos in relation to the Company’s total bank and stock market debt at
the end of 2010 was 12.3%, while in the prior year the proportion was almost 13.0%. This
number was 18.0% at the close of fiscal year 2008.
(For a more detailed explanation, see the section “Management’s Discussion and Analysis on
the Company’s Operating Results and Financial Situation” in Chapter III “Financial Information,”
in this Annual Report).
Evolution of inflation
In the past, Mexico has experienced high inflation rates. In periods of high inflation, the Company may not be able to increase the price of its tickets in line with inflation rates, which could lead
to a decline in its gross margins.
(For a more detailed explanation, see “Devaluation and Inflation” in Chapter III “Financial
Information” of this Annual Report).
33
Events in other countries
Certain events in other countries may have a material adverse effect on the Company’s securities, especially events in the United States and in emerging economies. In particular, the Mexican securities and financial markets are significantly influenced, to varying degrees, by the
financial and economic conditions of other countries. Although economic conditions are different
in every country, the reaction of investors in securities and financial markets to events in each
country has had, and may continue to have a significant impact on the prices of securities
issued in other countries, including Mexico.
Factors related to CIE’s shares on the Mexican Stock Exchange
The shares that represent CIE’s capital are listed on the BMV and are registered in the RNV,
with the understanding that this registration does not imply any certification of the worth of the
stock or the solvency of the issuer. Furthermore, even if the Company has fully complied with
the requirements to continue its listing on the BMV and registration in the RNV, it cannot guarantee that in the future it will be able to continue to do so, nor can it guarantee that its securities
will not be affected by price volatility, lack of liquidity, adverse economic cycles and/or changes
in applicable legislation.
Factors related to accounting standards in Mexico
Mexican companies are required to prepare and release their financial information in conformance with Mexican Financial Reporting Standards, which may differ materially from the
accounting standards in other countries, including those of the United States. Consequently, the
presentation of CIE’s financial statements may differ from the financial statements of other
companies.
According to the general provisions that apply to securities issuers and to other stock market
participants, which establish that in issuers will be required to present their financial information
according to the IFRS in 2012, the Company is in the process of evaluating and revising the
effects that the entry into effect of these standards might have on its financial information. (For a
more detailed explanation on the process of implementing these standards, please see the
section “Critical Accounting Estimates” in Chapter III, “Financial Information,” of this Annual
Report.
34
5. OTHER SECURITIES REGISTERED IN THE NATIONAL SECURITIES REGISTRY (RNV)
BILLION, THREE HUNDRED AND NINETY-EIGHT MILLION, FOUR HUNDRED AND ONE THOUSAND, THREE
HUNDRED AND FORTY-THREE AND 00/100 HISTORICAL MEXICAN PESOS), comprised of a total of
559,330,813 common nominal Series B shares with full voting rights and no par value, fully
subscribed and paid in, of which 30,955,386 are Series B Class I shares, representing the fixed
share capital, and 528,375,427 are Series B Class II shares, representing the variable portion of
CIE’s share capital.
At the Ordinary General Shareholders’ Meeting held on July 10, 2009, an increase to the
variable portion of the Company’s capital was approved in the amount of Ps. 1,200,000,000.00
(ONE BILLION, TWO HUNDRED MILLION AND 00/100 MEXICAN PESOS), through the issuance of
200,000,000 (TWO HUNDRED MILLION) Series B Class II shares, no par value, at a subscription
price of Ps. 6.00 (SIX AND 00/100 MEXICAN PESOS) per share.
At the Extraordinary General Shareholders’ Meeting held on April 29, 2009, a decrease in the
fixed portion of the Company’s capital was approved in the amount of Ps. 405,879,249.79 (FOUR
HUNDRED AND FIVE MILLION, EIGHT HUNDRED AND SEVENTY-NINE THOUSAND, TWO HUNDRED AND
FORTY-NINE AND 79/100 MEXICAN PESOS) and for the variable portion, the amount of Ps.
4,305,576,159.21 (FOUR BILLION, THREE HUNDRED AND FIVE MILLION, FIVE HUNDRED AND SEVENTYSIX THOUSAND, ONE HUNDRED AND FIFTY-NINE AND 21/100 MEXICAN PESOS), which reduction was
made by writing off Company losses and not through cancellation of shares, as those shares
have no par value.
In July 2009, application was made to the National Banking and Securities Commission to
update CIE’s share capital, and we are now awaiting that approval.
CIE’s outstanding shares have been listed on the Mexican Stock Exchange under the ticker
symbol “CIE B” since December 1995, and its capital is registered with the National Securities
Registry, which is overseen by the National Banking and Securities Commission. Registration
with the RNV does not imply certification of the value of the security, the solvency of the issuer,
or the accuracy or truthfulness of the information contained in this report, nor does it validate
any acts that may have occurred in violation of the law.
Through official communication no. 153/89360/2010 dated December 15, 2010, the Company
obtained authorization from the CNBV to implement a program to place short-term debt35
denominated securities for up to Ps. 600.00, with a program maturity period of two years from
the authorization date by the CNBV.
On February 2, 2011, the Company received authorization from the CNBV, through official
communication no. 153/30304/2011 to update the registration in the National Securities Registry
for CIE 05 debt-denominated securities underlying 14 million debt-denominated securities, each
with a value of Ps. 100.00 (ONE HUNDRED MEXICAN PESOS). These debt instruments were placed
on the Mexican securities market on October 20, 2005, and expire on September 30, 2014. The
rate is based on the 28-day TIIE plus an applicable margin of 300 basis points.
Through official communication number 153/516231/2006 dated August 17, 2006 issued by the
CNBV, the registration of a Dual Debt-Denominated Securities Program (short and long term)
was authorized for an amount up to Ps. 3,000.00 million or its equivalent in Investment Units,
using the value of these securities on each issuance date as the reference, on a revolving basis,
provided that the amount of the issues in effect on any given date does not exceed the authorized amount. The amount of the short-term debt-denominated securities issues may not
exceed Ps. 500 million.
Under this Dual Program, on February 2, 2011, the Company received authorization from the
CNBV through official communication number 153/30305/2011 to update the registration in the
National Securities Registry for CIE 06 debt-denominated securities underlying 5 million debtdenominated securities, each with a value of Ps. 100.00 (ONE HUNDRED MEXICAN PESOS). These
debt instruments were placed on the Mexican securities market on December 8, 2006, expiring
on September 30, 2014. The rate is based on the 28-day TIIE plus an applicable margin of 300
basis points.
Also under the Dual Program, on February 2, 2011, the Company received authorization from
the CNBV through official communication number 153/30306/2011, to update the registration in
the National Securities Registry for CIE 08 debt-denominated securities underlying 6.5 million
debt-denominated securities, each with a value of Ps. 100.00 (ONE HUNDRED MEXICAN PESOS).
These debt instruments were placed on the Mexican securities market on June 27, 2008,
expiring on September 30, 2014. The rate is based on the 28-day TIIE plus an applicable
margin of 300 basis points.
CIE has filed complete reports on a timely basis regarding relevant facts, quarterly and annual
reports, with the BMV and the CNBV since its inscription, in compliance with the bulletins issued
36
by the CNBV. Furthermore, as a result of the registration on the Luxembourg Stock Exchange of
the abovementioned securities (“Senior Unsecured Notes”) issued in 2005 in a public offering
for a total of US$ 200.00 (which is only US$ 13.7 in circulation today) and expiring in 2015, CIE
must file quarterly and annual reports with that exchange, as well as with The Bank of New
York, which is the Company’s depositary bank for the issuance. These reports are first filed with
the BMV and the CNBV.
37
6. PUBLIC DOCUMENTS
CIE is making this Document available to the financial community and to other interested parties
by placing it on the Company’s website www.cie.com.mx, and on the website of the Mexican
Stock Exchange (www.bmv.com.mx). This Document may also be obtained by means of an oral
or written request submitted to Jaime J. Zevada Coarasa, Corporate Finance Director, Ricardo
Rodríguez Vázquez, Corporate Director of Financial Planning, or to Conrado M. Ramírez Sordo,
Investor Relations and Compliance Director. All three are located at the Company’s corporate
offices in Mexico City, and at telephone number (01-55) 5201-9000 and e-mail address investor.relations@cie.com.mx.
38
II. THE COMPANY
1. HISTORY AND DEVELOPMENT OF THE COMPANY
1.1. General Information
Name and company purpose
The name of the Company is CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, SOCIEDAD
ANÓNIMA BURSÁTIL DE CAPITAL VARIABLE.
In accordance with Article II of its By-Laws, CIE’s main business purpose is:
a) To promote, create, organize, develop, acquire and participate in the capital or assets of
all types of trade or civil entities, associations or companies, whether they are industrial,
commercial, service or any other type of company, either Mexican or foreign, and to take
part in the management or liquidation thereof.
b) To acquire, in any legal capacity, shares, interest, holdings or ownership interest of any
type in trade or civil companies, whether taking part in their creation or through subsequent acquisition, as well as to sell, dispose of and trade those shares, interests, holdings or ownership interests, including any other security.
c) To receive from other companies and individuals, and to provide other companies and
individuals with the services necessary to achieve their corporate ends or objectives,
services such as the following: administrative, financial, treasury, auditing, marketing,
accounting, program and manual development, analysis of operating results, assessment of productivity information and possible financing, preparation of studies regarding
the availability of capital, technical assistance, and advisory and consulting services,
among others.
d) To obtain, acquire, develop, improve upon, use, grant and receive or dispose of licenses,
all types of patents, trademarks, utility models, industrial designs, industrial secrets, certificates of invention, notices and trade names, and any other industrial property rights or
copyrights, whether in Mexico or abroad.
39
e) To obtain all types of financing, loans or credits, issue liabilities, bonds and commercial
paper, and any other debt instruments or debt securities, whether or not secured by
pledge, mortgage, trust or any other legal instrument, for any purpose the Company may
determine, including but not limited to the Company’s own operations and those of its
subsidiaries to purchase own stock, to finance dividend payments, to reduce its capital,
or to make any other type of distribution to its shareholders.
f)
To grant any type of financing or loans to individuals, civil or trading companies, corporations and institutions with which the Company does business or in which the Company
owns interests, whether or not secured by tangible securities.
g) To grant all kinds of real guarantees, personal guarantees and commitment bonds, credit
securities instruments or debt instruments payable by individuals, companies, associations and institutions in which the Company has an interest or stake, or with which the
Company has business relationships as a warrantor, joint and several obligor, guarantor
or sponsor of those entities.
h) To subscribe, issue, draw on, accept, endorse and guarantee all types of credit securities or debt instruments, and to carry out credit transactions and related financial transactions.
i)
To carry out, supervise or contract, on its own behalf or on the behalf of third parties, all
types of constructions, buildings or facilities for offices or establishments of any kind.
j)
To carry out training and development programs and research projects on its own behalf,
or on behalf of third parties.
k) To lease, as lessor or lessee, and to acquire, possess, exchange, dispose of, transfer,
dispose of or burden the property or ownership of all types of personal and real property,
including any real or personal rights related thereto, which may be necessary or appropriate for achieving its corporate purpose or for the operations or corporate objectives of
trade or civil companies and institutions in which the Company has an interest or stake
of any type.
40
l)
To act as broker, mediator, representative or intermediary for any individual or company.
m) The production, transformation, adaptation, marketing, import, export, purchase, sale or
disposal of machinery, parts, raw materials, industrial products, effects and goods of any
type, in any legal capacity.
n) To place its own shares, the securities they represent, credit or debt instruments, in domestic or foreign securities markets upon prior authorization of the competent authorities, including on stock markets or foreign trading systems.
o) To acquire its own shares pursuant to the Law of Securities Markets, and general provisions that may apply.
p) In general, to carry out all related, ancillary or incidental acts and transactions that may
be necessary or appropriate to achieve the abovementioned objectives, and to enter into
all types of contracts and agreements with third parties, including with the Company’s
shareholders, creating rights and obligations to be performed by the Company and the
other parties.
Incorporation and duration of the Company
CIE was incorporated by public instrument number 38,183 dated August 21, 1995, executed
before Roberto Núñez y Bandera, Notary Public Number 1 of the Federal District. The first
official copy of this instrument was recorded with the Public Registry of Commerce of the
Federal District on commercial page number 201,055 on October 25, 1995. The duration of the
Company, in accordance with Article Four of its corporate By-Laws, is 99 years from the date of
signature of the amendment to its By-Laws.
Address and telephone numbers
The Company’s principal place of business is Av. Industria Militar s/n, Puerta 2, Acceso A, Col.
Residencial Militar, Del. Miguel Hidalgo, C.P. 11600, in Mexico City, in the Federal District. The
Company’s telephone number is (01-55) 5201-9000 and its fax number is (01-55) 5201-9401.
CIE’s corporate website is www.cie.com.mx, and contains general, operating, financial and
business information about the Company.
41
1.2. Evolution of the Company
In 1990, the Company commenced operations through its predecessor as a live events promoter and operator of the Sports Palace in Mexico City, a 12,000-seat indoor arena. It also began
selling food, beverages and souvenirs, and marketing advertising sponsorships for its live
events.
The following year, the Company entered into an agreement with Ticketmaster Corp., the United
States ticket-selling company, to sell tickets to live events and entertainment venues in Mexico
and the rest of Latin America, using the Ticketmaster name and its system. CIE currently has a
67% ownership interest in the ticketing operation in Mexico.
To maximize its unique, vertically integrated model, from 1993 to 1997, CIE built and began
operating a 22,000-seat amphitheater in Monterrey, Nuevo León, it secured the rights to operate
two theaters in Mexico City, which added seating capacity of 5,335, it built a 60,000-seat forum
in Mexico City, which it later adapted to also serve as a baseball stadium, and it acquired a
theater in Buenos Aires, Argentina, with seating capacity for 2,001.
In 1996, CIE entered into a licensing agreement with Walt Disney Theatrical Worldwide, Inc., to
stage Disney productions in Latin America, Spain and Portugal. This business venture resulted
in the staging of “Beauty and the Beast” in Mexico City in 1997. Since that time, CIE has staged
13 of the most important Broadway shows in Mexico, Argentina, Brazil and Spain.
Also in 1996, the Group leveraged its commercial experience to market field-level advertising
space at professional soccer stadiums in Mexico through Unimarket, S.A. de C.V., of which the
Company currently owns 100%. Since that time, it has expanded its operations through: (i)
billboard advertising on pedestrian overpasses in Mexico through Publitop, S.A. de C.V. (“Publitop”), which is 100% owned by CIE; (ii) marketing advertising space at airports in Mexico
through Publitop; and (iii) exclusive agreements with Organización Ramírez, S.A. de C.V. and
Cinemark de México, S.A. de C.V., two major operators of movie theaters in Mexico, to market
advertising space inside the complexes they operate, including cineminutos.
In 1997 and 1998, CIE continued expanding its out-of-home entertainment options through: (i)
acquiring the assets and operation of the largest promoter of rock events in Argentina and Chile;
(ii) creating a joint venture with Divertido, S.A. de C.V., the largest amusement park operator in
Mexico with five parks at that time; (iii) securing the rights for 20 years to develop and operate
42
an eight-hectare amusement park in Bogotá, Colombia; and (iv) acquiring the operations of the
Buenos Aires City Zoo.
The Company subsequently added the amusement parks La Feria de Chapultepec to its
operations, one of the largest and most traditional amusement parks in Mexico City, as well as
other popular parks in Mexico. In 2004, it began operating the Wannado City park, a children’s
theme park located in Fort Lauderdale, Florida. In 2009, however, the Group sold Feria de
Chapultepec, CICI Aquapark and Selva Mágica, and formally closed the theme park in Florida in
the first months of 2011, retaining the El Salitre complex (an amusement and water park) as
CIE’s only participation in this industry. (For a more detailed explanation of this transaction, see
“Recent Events” in Chapter I “General Information” of this Document).
Also in 1998, it obtained a 25-year concession from the Mexican government, renewable for an
equal period of time upon expiration, to operate the Las Américas Racetrack in Mexico City, and
a 25-year permit to develop 45 remote betting and numbers games outlets (as of December 31,
2010, CIE had 52 Sports Books and Yaks outlets). It also obtained a 50-year concession,
renewable for an equal period upon expiration, to develop 41.4 hectares surrounding the
Racetrack, where it has since developed the Banamex Center, which is a 34,000-square meter
state-of-the-art convention and exhibition center, and Granja Las Américas, a theme park for
children. In the future, CIE is considering the operation of an entertainment-based commercial
street and hotel to be built with the financial resources and proven experience of third parties. In
2007, the Company obtained 20 licenses in addition to the 45 it already had from the Mexican
government to operate remote betting and numbers games outlets.
In 1999, the Company expanded its out-of-home entertainment operations to Brazil by acquiring
Stage Empreendimentos, S.A., the concession holder for three performance venues in São
Paulo, Brazil. Two years later, the Group commenced operations in Rio de Janeiro by acquiring
the operating rights to Claro Hall (today Citibank Hall), a major performance venue in Rio, with
capacity for 6,500 people.
In 2002, CIE entered into a joint venture with Televisa, the largest Spanish-language media
company in the world, which acquired 40% of the live entertainment operation in Mexico.
CIE has continued to expand and consolidate its out-of-home entertainment products, which it
has continued to drive through its strategic alliance with IGT to operate numbers-based games,
43
using new technology in Mexico as part of the development of the Sports Books and Yaks
network.
In 2007, the Company announced the sale of a portion of its majority stake in its live entertainment businesses in Brazil, Argentina and Chile. With this transaction, CIE went from an original
shareholder stake of 85% in Brazil, 100% in Chile and 100% of live entertainment operations in
Argentina, to a 24% financial interest in that business segment, which was grouped into a new
company. As a result of this transaction, CIE and the new company (which is called Time For
Fun Entretenimiento, S.A.) have a strategic alliance to capitalize on the existing synergies and
to strengthen the live entertainment business in South America. Between April and May 2011,
T4F completed a public offering of shares on the São Paulo stock market, with placement efforts
in international markets.
Also in 2007, Codere, S.A. acquired a 49% interest in CIE Las Américas to continue developing
the gaming industry in Mexico. That same year, the Mexican authorities modified the permit
given to Administradora Mexicana de Hipódromo, S.A. de C.V., a subsidiary of CIE, to install,
operate and develop 20 centers for remote betting and numbers-based games, in addition to the
already-existing 45 centers, under the same conditions of the initial permit.
In 2008, CIE entered into an exclusive five-year distribution agreement with the largest live
music company in the world, Live Nation. The agreement provides exclusive rights to promote
the tours of Live Nation’s artists in Mexico and Central America for CIE, and in South America
for T4F.
Continuing with its strategy to focus on its most profitable businesses, in 2009 the Company
divested its parks in Mexico, and in recent months it formally ceased operations of its park in
Florida. At the start of 2010, CIE sold the radio stations that it operated in Argentina.
However, CIE has continued expanding and consolidating its out-of-home entertainment products, which it has also driven through strategic alliances with several providers of gaming
terminals and systems for the operation of number- and symbol-based games, and through new
technologies in Mexico as part of the expansion of the Sports Books and Yaks network.
Following this stage of growth and starting in 2005, the Group’s priority was to strengthen its
existing businesses. To do this it reorganized the Company’s internal management model,
44
initially restructuring it into its five current business units, thus eliminating administrative redundancies, divesting secondary or underperforming assets, and implementing a more efficient
internal control system. This new structure also seeks to improve management of market
segments, and to consolidate parallel functions within the Company. CIE has also shored up its
financial structure by obtaining new long-term financing instruments that have improved the
maturity profile and decreased the average cost of its liabilities.
While investing in specific segments to further the Company’s growth, the priorities to ensure
sustainable and lasting growth were redefined. In the last stage of this phase, the Company
conducted an exhaustive analysis of each area and business line, based on which it has developed several actions that will improve the operating and financial profit of CIE’s business units.
A result of the sale of shares, whose purpose was to obtain funds to expand the T4F business in
South America, is that CIE’s ownership stake is today 9.81%, and the Company obtained net
funds that it applied in full to early payment of the debt of its holding company. For a more indepth explanation of this transaction, see the section “Recent Events” in Chapter I, “General
Information” of this Document. (For a more detailed explanation, see the section “Statements on
Future Consequences” and “Recent Events” in Chapter I, “General Information” of this Document).
1.3 The Company’s Major Investments 2008-2010
The Company made investments in fiscal years 2008, 2009 and 2010, respectively, as shown
below.
Main Investments
2008
2009
2010
(79.8)
Investment in associates ……………………………...
Acquisition of property, furniture and equipment …...
(290.3)
(297.8)
(628.7)
Investment in intangible assets and other
unamortizable assets ………………………………….
(195.7)
(153.1)
(274.5)
Total .......................................................... ………….
(486.0)
(530.7)
(903.2)
The Group’s investments during these years were mainly to expand its Sports Books and Yaks
in Mexico. Investments were also made to remodel the property located in Monterrey, general
property maintenance, and creativity equipment and infrastructure for the Commercial division.
45
46
2. DESCRIPTION OF THE BUSINESS
The following section should be read in conjunction with the sections “Executive Summary,”
“History and Development of the Issuer,” and “Management’s Discussion and Analysis of the
Company’s Operating Results and Financial Situation” in Chapter I “General Information,”
Chapter II “The Company,” and Chapter III “Financial Information,” respectively, in this Document.
2.1. Main Activity
CIE considers itself to be the leading company in the out-of-home entertainment market in
Mexico and the main Spanish- and Portuguese-speaking markets, offering a wide range of
entertainment options for every budget. That gamut of options includes concerts, theatrical
productions, amusement parks, remote betting on sports and numbers-based gaming, trade
fairs and expositions, sporting and other live events. CIE operates its live entertainment business through a unique vertically integrated model that allows it to maximize revenues at each
event or concert that it produces.
CIE does not significantly depend on any particular supplier. Certain of the Group’s operations
show a certain seasonality during the year, and may be affected by weather conditions. (For a
more detailed explanation, see the section “Factors Related to the Entertainment Industry” in
Chapter I, “General Information” of this Document). For the year ended December 31, 2010, CIE
reported consolidated revenues and EBITDA of Ps. 10,193 and Ps. 1,963.8, respectively.
(For further explanation about revenues, EBITDA, Operating Income and Total Assets for each of
CIE’s strategic business units in fiscal years 2010 and 2009, please see the Audited Consolidated
Financial Statements at December 31, 2010 and 2009, attached to this Document; and for the
financial statements for fiscal year 2008, see the 2008 Annual Report at www.cie.com.mx).
In 2010, approximately four million people attended the 4,011 events that CIE promoted and
produced in Mexico. Of those events, 274 were music concerts, 3,217 were theatrical events, and
520 were family, sporting, cultural, special and corporate events. Some of the events CIE has
produced in recent years include the following:
47
♦
Musical concerts, presenting international and Latin artists such as: KISS, PIXIES, Metallica, Bon Jovi, Massive Attack, Iron Maiden, Keane, Cut Copy, Simply Red, Peter Gabriel, Goldfrapp, Scorpions, AIR, Placebo, Kings of Leon, The Killers, Depeche Mode,
Kenny G, Jonas Brothers, Moby, AC/DC, Pet Shop Boys, The Ting Tings, Moderatto,
Edith Marquez y Maria Jose, Belanova, PXDX, La Barranca, Chayanne, Moenia, Cecilia
Toussaint, Alejandro Sanz, El Gran Silencio, Enrique Iglesias, Yuri, Wisin y Yandel,
Bunbury, Raphael, La Quinta Estación, Ricardo Arjona, Los Fabulosos Cadillacs, HaAsh, Gloria Trevi, Silvio Rodriguez, Marco Antonio Solís, Paty Cantú, Gustavo Cerati,
Laura Pausini, Joan Sebastian, Rodrigo y Gabriela, Juan Luis Guerra, Jarabe de Palo,
Jaguares, the Latin music festival “Vive Latino,” and the Corona Capital festival, among
others.
♦
Broadway-type theater shows, such as “La Línea del Coro” and “Mamma Mia.” Smallerformat productions included “Catholic Girls,” “The Vagina Monologues,” “Defending the
Caveman,” “Confessions of Women in their 30s,” “Orgasms–The Comedy,” “El pelón in
sus tiempos de cólera,” “Mentiras,” “Toc Toc,” “Gorda,” among others.
♦
Family and special productions, such as “WWE Wrestling,” the Cirque du Soleil tour,
“Dralion,” Cirque Eloise “Rain,” “Xtreme Fights Society,” “Mundial de Baseball,” “Slavas
Snow Show,” “Nascar Corona Series,” “Disney on Ice Cars,” “La Fura dels Baus,” “Momias de Guanajuato,” “Monster Jam,” “Yamato Drummers of Japan,” among others.
Nearly 1.4 million people visited the amusement parks and Granja Las Américas, operated by
CIE, and an estimated 427,000 people attended the 1,872 horse races held at the Las Américas
Racetrack. Furthermore, in 2010, CIE’s Sports Books and Yaks parlors received an estimated
13.4 million visitors.
Event booking and promotion
CIE books and promotes musical concerts, family-oriented shows, and other live entertainment
events, mainly in Mexico, in some Latin American territories, and to a lesser degree in certain
Spanish-speaking markets in the United States. The Group’s offices are in constant contact with
artistic talent agents, so that CIE can be in the loop about possible artists’ tours and their
availability. Once the opportunity to book an artist arises, market research is performed on the
potential audience in order to determine the artist’s likelihood of success in a specific market. If
the research results are favorable, the corresponding contractual negotiations are undertaken.
Once the artist has been booked and the appropriate performance venue has been obtained, a
two-part advertising campaign is launched. The first part consists of the sale of event sponsor48
ship rights to interested companies, which must agree to provide part of the advertising for the
event or performance. The second part consists of a mass-media advertising campaign, mainly
using radio stations, television and billboards. The advertising effort is also supported by a
monthly entertainment guide that has its own website, which in turn is linked to the Ticketmaster
site. Each site is designed to promote the sale of tickets to live events and performance venues.
Generally speaking, the business of promoting musical concerts is seasonal to some extent,
with less activity during the summer months in the northern hemisphere (from June to August).
This is because international artists are usually on tour in the United States and Europe during
this period. The Company believes that it can partially reduce the negative impact of that
seasonality by booking family-oriented, Latin and other types of shows during the summer.
CIE has the ability to offer artists an integrated line of promotional and production services that
cover some of the major Spanish- and Portuguese-speaking cities in Latin America. This service
gives the Company a significant competitive advantage, since artists generally prefer to book
their tours with as few promoters as possible in a determined geographic area.
The primary source of income from booking and promoting live events is the sale of tickets and
marketing advertising sponsorships for those events. Conversely, the highest costs are talent
fees, production costs, operating expenses (which includes rent when the Company uses thirdparty facilities), advertising and insurance costs.
Event production
THEATER. The Company has obtained licenses to stage theatrical works in Latin America from
several theatrical producers, presenting them in both Spanish and Portuguese. This staging
involves hiring talent, the theatrical director and his team, as well as all of the workers for
production design, set construction and costumes. The production is staged under the close
monitoring and supervision of the original producer, who seeks to preserve the quality of the
production. The Group’s first production, Beauty and the Beast, an original work of Walt Disney
Theatrical Worldwide, Inc., ran for 14 months in Mexico, and was subsequently presented in
Spain, Argentina and Brazil from 1999 to 2002. Since that time, the Company has established
licensing agreements with theatrical producers such as Cameron Mackintosh and Andrew Lloyd
Webber, among others, to stage their various works in the region. In addition to Beauty and the
Beast, the Company has presented productions such as Fiddler on the Roof, Joseph and the
Amazing Technicolor Dreamcoat, Les Miserables, Bésame Mucho, My Fair Lady, Rent, Chicago, Man of La Mancha, Cats, Phantom of the Opera, Jesus Christ Superstar, Cabaret, Mamma
Mia, Hoy No Me Puedo Levantar, The Producers, and Sweet Charity, among others.
49
The Group also produces several smaller-scale theatrical productions on a regular basis in
Mexico. These productions are characterized by their dramatic and musical content,
representing a new trend in theater. The production budgets are also smaller, the pre-production
periods are shorter, and the operating costs are lower. These productions generally serve as a
major training ground for local actors who subsequently participate in the Broadway-type shows
that CIE presents. Some of these smaller-scale productions that the Company has staged
include Confessions of Women in their 30s, Defending the Caveman, The Grönholm Method,
The Vagina Monologues, Orgasms, Catholic Girls, etc. Revenues from theatrical operations are
mainly generated through ticket sales and marketing advertising sponsorships.
CIE also obtains additional income from concession stands that sell food, beverages and
souvenirs. The costs associated with theatrical tours involve artistic talent, rents, advertising and
royalties. The costs of talent are generally fixed once the theatrical production is under way.
Royalties are usually paid as a percentage of gross box-office revenues, net of certain expenses.
Performance venue operation
As part of its vertically integrated strategy, CIE seeks to operate the main venues in the cities
where its principal markets are located. This key element of vertical integration allows it to have
a lower break-event point than its competitors, who generally act only as promoters. This also
allows CIE to receive revenues from events to which it has no promotion rights.
The Company seeks to operate performance venues over the long term, so it enters into leases
or obtains permits or concessions. It has also entered into agreements with owners in which it
agrees to build the performance venues in exchange for more favorable leasing terms (this was
the case with its open-air forums with seating for a very large number of people in Mexico City,
Guadalajara and Monterrey), or to remodel or refurbish properties in exchange for better leasing
terms, which has been the case with the Metropolitan Theater in Mexico City. Its current operating agreements range from 1 to 50 years.
Since a number of artists perform in certain specific markets that are available during their tours,
CIE competes with various performance venues in the region for available dates for the most
popular tours.
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It should be noted that the favorable cost structure of venues and their ability to draw fans are
often important success factors in this area of the business, and in artists’ decisions to choose
to perform in a certain venue. CIE believes that it operates one of the largest networks of
performance venues in Mexico, used primarily for musical concerts and other live events. The
aggregate seating capacity of its performance venues has grown steadily in recent years.
The following tables show information on the performance venues operated by CIE in Mexico:
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Type of Venue
Maximum
Capacity
Amphitheater /
Baseball stadium
Soccer stadium
60,000
26,180
36,000
Car Racetrack
59,248
Palacio de los Deportes
Indoor arena
21,000
José Cuervo Salón (2)
Teatro Metropólitan
Centro Cultural Telmex I
Teatro Blanquita
Centro Cultural Telmex II
Pabellones Feriales
del Palacio de los Deportes
Amphitheater
Amphitheater
Theater
Theater
Theater
3,500
3,400
2,251
1,944
1,190
Fair Pavilion
N/A (4)
Ten-year exclusive temporary revocable
administrative permit (expires in April 2013)
Five-year operating agreement (expires in
December 2013)
Ten-year exclusive temporary revocable
administrative permit (expires in April 2013)
Ten-year temporary revocable administrative
permit (expires in April 2013)
Ten-year lease (expires in May 2013)
Five-year lease (expires in December 2013)
Lease terminated (3)
Three-year lease (expires in October 2012)
Lease terminated (3)
Automatic renewals as long as CIE has use of
Palacio de los Deportes
Foro Scotiabank (5)
Teatro de los Insurgentes
Theater
Theater
4,000
950
Ten-year lease (expires in August 2015)
Lease (expires in December 2011)
Auditorio Plaza Condesa
Amphitheater
2,500
Lease (expires in March 2029)
Theater
389
Amphitheater
10,096
Stadium
25,000
Amphitheater
22,000
Market and Performance Venue
CIE’s Rights
Mexico City
Foro Sol
Estadio Azul (1)
Autódromo Hermanos Rodríguez
Teatro Banamex Santa Fe (6)
Lease (expires in July 2011)
Guadalajara, Mexico
Arena VFG
Estadio 3 de Marzo
Operating rights for 10 years (expires in August
2016), extendable for 10 additional years.
Exclusive scheduling rights for musical events
and events other than soccer
Monterrey, Mexico
Auditorio Banamex(7)
Operating rights for 50 years (expires in October
2048).
__________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
This stadium is used mainly for professional soccer games, and occasionally for other special and corporate events.
Previously Vive Cuervo Salón or Salón 21.
Lease contract in the process of renegotiation.
The two fair pavilions together cover an area of 9,000 square meters.
Previously known as Foro Polanco.
Previously Zentrika
Previously Auditorio Coca-Cola Fundidora.
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The revenues from operating performance venues come mostly from marketing advertising
space and concession stands for selling food, beverages and souvenirs, as well as parking and
other similar services. As a performance venue operator, for each event CIE typically receives a
fixed percentage of the box office revenues for use of the performance venue. The operating
costs for performance venues include fixed costs related to leasing and concession payments,
and variable costs and expenses related to repairs, cleaning, and payments to part-time workers (security, ushers and ticket sellers).
Sale of advertising sponsorships
The Company sells local, regional and national advertising sponsorships to companies in a
variety of business lines for the live events that it promotes to companies in various sectors.
When a company purchases these rights, it becomes an official sponsor for the event or tour,
which allows the sponsor to associate its trademark with the artist and the event. Sponsorship
advertising rights are particularly attractive for companies whose products or services are
directed to the same audience that attends a CIE event.
The sponsor generally pays a commission for advertising sponsorship rights. The sponsor must
also assume certain promotion and advertising expenses for the live entertainment events.
Some of the Company’s sponsors for live events or tours include beverage producers (i.e.
Coca-Cola, Cervecería Cuauhtémoc-Moctezuma, Cervecería Modelo), cigarette producers (i.e.
Cigarrera la Moderna or Cigatam), banks (i.e. Banamex BBVA-Bancomer, HSBC, Scotiabank
Inverlat), telephone and energy companies (i.e. Telmex, Telcel, Telefónica, Petroleos Mexicanos), airlines (i.e. Aeroméxico), department stores, cement producers (i.e. Cemex and Cruz
Azul), electronics companies (i.e. Honeywell, Samsung, Daewoo, Panasonic, Motorola) automobile companies (i.e. Ford, General Motors, Toyota, Volkswagen, Daimler Chrysler), and radio
stations, among others.
Automated ticket sales
In 1991, CIE entered into a joint venture with Ticketmaster Corp., Inc. to sell tickets in Mexico
and the rest of Latin America, exclusively using the name "TicketmasterTM" and its computerized
ticketing system. The Company also established a strategic association with Ticketmaster
Corp., Inc. through which it acquired 50.01% of the Mexican operation, and in 2005 CIE increased its ownership share to 67% through its subsidiary Ocesa Entretenimiento. (For a more
detailed explanation, see Chapter I, “General Information – Recent Events” in this Document).
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At the end of 2010, CIE was selling tickets through Ticketmaster’s automated system, as well as
through Ticketmaster’s Internet portals in Mexico. In 2010, CIE sold approximately 18.6 million
tickets through the Ticketmaster system, both for its own events as well as for third-party events.
CIE manages automated ticket sales and their distribution to performance venues and live event
promoters. It receives and fills orders through operators in call centers, at outlets in remote
centers, and through Ticketmaster’s Internet portals. Revenues come from fees received for
sales made by telephone, online, and at outlets that are set up in commercial and department
stores, as well as advertising sales during telephone sales, or advertisements that are printed
on tickets and in entertainment guides.
The Company also markets tickets to the vast majority of live event promoters and entertainment and performance venues.
Sale of food, beverages and promotional articles
As part of its vertically integrated strategy, CIE operates concessions and local businesses to
sell food, beverages and souvenirs at its performance venues, amusement parks and live
events in the areas in which it operates.
Las Américas Complex
Pursuant to the Company’s objective to participate in a wide range of recreational and entertainment businesses, in 1998 CIE obtained a 25-year concession renewable for another 25
years to operate the Las Américas Racetrack, an entertainment center with horse racing and
betting. The complex covers an area of 10.3 hectares in Mexico City. CIE also has a 25-year
permit from the Mexican government to operate up to 65 outlets for remote betting and numbers-based gaming. Also, and in conformance with the strategy to ensure the best entertainment venues, CIE also obtained a concession for 50 years, renewable for another 50 years, as
long as – just as with the racetrack – it complies with the terms and conditions of the concession, which authorizes the use of 41.4 hectares that surround the racetrack.
In this area, which is located in a zone that has great potential in Mexico City, the Company has
developed a top-tier exhibition and convention center, a Sport Book, an electronic Yak (a
concept known as “Royal Yak”), and a children’s theme park. CIE is also considering developing
a hotel and entertainment-based commercial street in the coming years, using the resources
and proven experience of specialized corporate groups.
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LAS AMÉRICAS RACETRACK. The Las Américas Racetrack is the only horse racetrack authorized by the Mexican government to operate regularly in Mexico City. As it is the main attraction
at the Las Américas Complex, CIE has improved the racetrack and refurbished the seating
areas, both preferred seating and general admission, and it has also refurbished the stables.
CIE reinaugurated the Las Américas Racetrack in March 2000. In 2010, the Las Américas
Racetrack held 1,872 horse races and received nearly 427,000 visitors during the regular
horseracing season, which ran from January 23, 2010, to December 19, 2010.
Revenues from the Las Américas Racetrack come mainly from betting and entry tickets, and
from the sale and marketing of concessions for food and beverages, marketing of advertising
sponsorships, as well as transfer rights for the horse races that are run at its facilities, and from
commissions from remote betting at third-party locations. The latter does not present a financial
risk to CIE.
SPORTS BOOKS AND YAKS. Sports Books are establishments where clients’ bets are placed on
national and international horse racing, greyhound racing and other professional sporting events
such as soccer, American football, baseball, basketball, car racing and boxing, among others.
The electronic Yak is an electronic numbers-based lottery-type game. In November 2007, CIE
announced an association with CODERE S.A., in which CODERE acquired 49% of CIE Las
Américas in exchange for the 50% that it held in the association to operate Sports Books and
Yaks. CODERE is a Spanish company that specializes in gaming in different territories in
Europe and the United States.
CIE initiated its Sports Books and Yaks operations in 1999. As of December 31, 2010, CIE had
52 Sports Books and Yaks in operation (of the 65 licenses it has been granted) throughout
Mexico, including in Mexico City and the greater metropolitan area. The Sports Books and Yaks
permit does not establish requirements regarding where and when these outlets should be
opened, which gives the Company the flexibility to expand its network and maximize revenues.
CIE has entered into contracts with professional sports betting audio and video signal transmitters for its Sports Books. These service contracts include the provision of specialized software
and hardware to operate Sports Books, and to provide value-added services such as advising
on betting limits for clients, which helps to considerably reduce operating risks and associated
financial risks. It has also entered into game terminal leasing agreements with several of the
55
largest equipment providers. These professional providers are recognized in the industry, and
they are properly regulated and certified by the proper authorities.
Revenues from the Sports Books and Yaks come mainly from: (i) the commission paid by third
parties, known as sports book runners, on the amounts operated in the remote betting rooms of
CIE (Sports Books); and (ii) from a portion that is retained on the amounts operated during
numbers-based gaming at the Yaks; plus (iii) the sale of food and beverages at Sports Books
and Yaks outlets. The main expenses for these operations are mostly for payroll, audio, video
and data transmission rights, rents from locations leased, and gaming.
In order to minimize the risks associated with money laundering and financing illegal activities at
the Las Américas Racetrack and its Sports Books and Yaks network, beginning in 2004, the
Company hired the professional services of Kroll, a global consulting firm that specializes in
corporate security. (For a more detailed explanation, see “Internal Control” in Chapter III,
“Financial Information” of this Document).
ORGANIZATION AND PROMOTION OF TRADE FAIRS AND EXPOSITIONS. CIE’s trade fair and exposition activities are primarily focused on leasing the space out for those events, rather than on
promoting them. These productions are generally related to specific industries, thus Company
personnel are divided into specialized teams in certain specific industries. As a general rule, a
certain exposition must be put on three times before that trade fair or exposition reaches its
desired level of profitability. However, events are generally reserved up to one year in advance,
and provide relatively predictable cash flow and earnings through the advance sale of space.
CIE has also organized events for several companies. Some events of this type that the Company has organized and promoted include those related to yachts, automobiles, tourism,
management, food, the automobile sector, concrete, image, bread-making, logistics, electricity,
furniture, advertising and safety. Its main location is the Banamex Center, which is a leading
convention and exposition center, with 34,000 square meters of surface exposition area, located
inside the Las Américas Complex, where its central exposition area may be divided into up to
four independent areas. That space has another 6,700 square meters that can be divided into
25 independent rooms for events, congresses and conventions. The kitchen at the Banamex
Center can serve up to 6,000 meals simultaneously. The Banamex Center is the largest, most
modern exposition space of its type in Mexico. In 2010, it housed 78 expositions and 874
conventions and social events. The second most important exhibition space is Palacio de los
Deportes, comprised of the “Domo,” which operates as an arena for live shows, and as an
exposition and convention center; followed by the Pabellones Feriales, with a combined exposition area of 9,000 square meters.
56
As the host of trade fairs and conventions, the revenues from this activity come mainly from
leasing exhibition spaces or property rental, and selling advertising sponsorships, advertising
and tickets, which are all paid in advance. CIE receives additional revenues from the sale of
food and beverages. Variable costs, which are recorded as costs for services, mainly include
marketing expenses and salaries that are directly related to the trade fair or exposition. Operating expenses include administrative, maintenance and salary expenses.
GRANJA LAS AMÉRICAS. Granja Las Américas is an educational theme park where children
learn in a fun and interactive way how different products from the field are prepared. The park,
which opened its doors in July 2004, currently has more than 150 animals of 15 different species, a zoo of mascots, a farm, and an extreme sports zone. It is located inside the Las Américas Complex, and covers an area of approximately 1.4 hectares, with nearly 9,740 square
meters of built-out area. In 2010, Granja received more than 434,000 visitors.
The revenues from operation of the theme park come mainly from the sale of entry tickets, food
and beverages, as well as marketing advertising space and sponsorships in the pavilions that
comprise Granja Las Américas, which are vehicles that are normally sold to companies. The
costs associated with this operation are relatively fixed, and essentially include the payroll,
maintenance, consumable items and insurance.
OTHER PROJECTS. CIE plans to continue developing the Las Américas Complex in the coming
years. Its strategy includes limiting its capital investment program, which it intends to do through
establishing strategic alliances and joint ventures with partners who have the experience and/or
the financial capacity, among other attributes, to undertake the projects listed below:

Family Entertainment Center. The project known as the Entertainment Street is
planned to consist of a family center with restaurants, cafeterias, movie theaters, etc.;
the principal source of revenues from that area will be from renting commercial spaces.

Hotel. CIE plans to enter into agreements to build a hotel by charging a fee; that
project will not represent any investment by the Group.
57
In particular, none of CIE’s concessions impose minimum construction and investment requirements. Therefore, the scheduling and focus of units at the Las Américas Complex, as well as
their returns on capital, may vary significantly depending on market conditions and the availability of adequate financing sources.
Amusement parks
In recent years, the Company began the process of divesting the assets of the amusement
parks it operated in the region. Thus, through a sale at the end of 2009, it sold the operation of
its Mexican parks La Feria de Chapultepec, CICI and Selva Mágica, which are located in
Mexico City, Acapulco and Guadalajara. The Company also formally ceased operating the
Wannado City theme park in Fort Lauderdale, Florida, which is not part of this or any subsidiary
of CIE. Today the Group operates the El Salitre Complex in Bogotá, Colombia, which is comprised of the amusement park El Salitre Mágico, and the CICI Aquapark. This complex received
nearly one million visitors in 2010.
Amusement park operations may experience seasonality due to weather conditions and vacation periods.
The Company has made major improvements to its parks in order to provide a family environment, and improvements to its rides, attractions and promotional activities to increase attendance levels. In addition, in an effort to keep its capital expenditures low, it has acquired rides
and second-hand attractions from international markets that have the necessary characteristics
to ensure the safety of the users. The expenses related to operating the amusement parks are
basically for investment in and maintenance of the various attractions.
The following table shows information regarding the amusement and theme parks that the
Company operates:
Market and Park
Type of Park
Rights
Bogotá, Colombia
El Salitre Mágico / CICI Aquapark
(1)
(1)
Amusement parks and water park
Fifteen-year lease (expires in
2017)
These parks adjoin each other.
In 2007, CIE exchanged its stake in the companies Prodein Comercial, S.A. de C.V. and Promotora y Desarrolladora de Espectáculos Internacionales, S.A. de C.V., which operated the park
“Valle Fantástico” in the city of Puebla, Mexico.
58
In 2008, CIE purchased 20% of the capital of Grupo Mágico from ZN México II, L.P., and in
2009 it exchanged the operation of the parks La Feria de Chapultepec, CICI and Selva Mágica,
located in Mexico City, Acapulco and Guadalajara, respectively. (For a more detailed explanation of this transaction, see “Recent Events” in Chapter I “General Information” of this Document.
Revenues from parks come mainly from entry tickets, rides, activities and attractions, parking
services, marketing to corporate sponsors, and the sale of food, beverages, merchandise and
souvenirs. The main costs, which include salaries, advertising, maintenance, consumable items
and insurance, are relatively fixed and do not vary significantly depending on the attendance
level. As a result, an increase in the attendance level results in a decrease in fixed costs per
visitor and greater profit, while a reduction in the attendance level results in higher fixed costs
and lower profitability.
Commercial operations
The Company is able to offer several promotional and advertising vehicles to its clients, including naming rights for performance venues, sponsorships to live entertainment events, signage
rights at performance venues and airports, advertising in entertainment guides and on tickets,
outdoor advertising, and advertising at movies and soccer games, and the provision of telemarketing services and BTL alternatives for its clients. CIE believes that this wide offer makes it an
attractive option for its clients that seek to develop effective marketing campaigns or reach
specific market segments for their products and services.
CIE’s ability to offer these services expands its vertically integrated model, which allows it to
capture a higher percentage of the total revenues generated at an event, and to have a lower
break-event point than its competitors, who generally act only as promoters. In addition, this
organization allows the Group to obtain earnings from events put on by third parties.
Revenues from the Group’s commercial operations come mainly from the sale of sponsorship
packages. The most important cost is sales commission, along with costs related to executing
programs for clients. Other operating costs related to marketing and advertising include office
and equipment rental, professional services, and research and development of applications that
are tailor-designed for clients.
59
EVENT SPONSORSHIPS. The Company sells local, regional and national corporate sponsorship
rights for the events that it promotes to companies in various lines of business. When a company purchases these rights, it becomes an official sponsor for the live event or tour, which allows
the sponsor to associate its trademark with the artist and the presentation. Sponsorship rights
are particularly attractive for companies whose products or services are directed to the same
audience that attends a CIE event.
NAMING RIGHTS. The Company sells its corporate clients the right to associate their names or
trademarks with the entertainment venues that CIE operates. Payment for naming rights may be
made in one or several payments. Naming rights contracts prohibit the sale of advertising space
in the performance center to competitors of companies that have purchased those rights.
However, naming rights do not include trademark exclusivity rights to the sale of the purchaser’s
products. These rights must be acquired separately.
The following table shows information on the naming rights that have been sold in Mexico:
Venue
Sponsor
Term
Foro Sol
(Mexico City, D.F.)
Cervecería Cuauhtémoc-Moctezuma,
for its trademark “Sol”
3 years
(expires in December 2013)
Centro Banamex
(Mexico City, D.F.)
Banamex, a Mexican financial institution
12 years
(expires in November 2014)
Centro Cultural Telmex I
(Mexico City, D.F.)
Telmex, a Mexican telecommunications
company
1 year
Centro Cultural Telmex II
(Mexico City, D.F.)
Telmex, a Mexican telecommunications
company
1 year
Vive Cuervo Salón
(Mexico City, D.F.)
Cuervo, a Mexican beverages company
3 years
Auditorio Banamex
(Monterrey, N.L.)
Banamex, a Mexican financial institution
10 years
(expires in June 2020)
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ADVERTISING SPACE. CIE sells advertising space at its events, entertainment venues and
amusement parks, on field-level rotating advertising panels at professional soccer stadiums, on
pedestrian overpasses, buses, on tickets and entertainment guides, and through other promotional and advertising channels, such as mobile and digital advertising. The sale of advertising
space through these channels generates additional revenues to the Company’s main activities.
The following is a brief description of these advertising channels:

Performance venues and events. The network of performance venues and the promotion of live events offer significant opportunities for the sale of advertising space in the
performance venues where those events are held, whether they are operated by CIE or
by third parties. Advertising space at the performance venues operated by CIE is generally sold for a minimum of one year, payable in advance.

Advertising at soccer stadiums. CIE sells advertising space on rotating panels, which
allows advertisements to be strategically placed at field level in soccer stadiums. These
panels are in full view of the television cameras during the sporting events at those stadiums, as well as product launches and promotional events.

Outdoor advertising. CIE builds and installs pedestrian overpasses over streets with
heavy traffic volumes in certain cities in Mexico. On the pedestrian overpasses that CIE
installs at no charge to the municipalities where they are located, the Company obtains
the long-term right to use and market the upper side sections of the bridges for advertising placards based on the agreements made with the different municipalities. CIE has
also begun to market urban furniture at bus stations.

Airport advertising. In 2002, CIE entered into long-term contracts with several airports, which are subsidiaries of Grupo Aeroportuario Centro Norte, S.A.B. de C.V., to
market indoor and outdoor advertising at the airports. Among the products that CIE markets in airports are digital advertising, fixed advertising, passenger walkways, billboards
and stands.

Movie theaters. In partnership with the most important chains, CIE offers the most
complete platform for advertising products integrated with the movie experience, meeting the needs of any communication and marketing strategy through the concept known
as “cineminutos,” which is advertising projected onto movie screens prior to projection of
the feature film.
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
Advertising on tickets and other materials. CIE, through its strategic association
with Ticketmaster Corp., is responsible for marketing and operating an automated ticket
sales and distribution system in Mexico. Through this mechanism, CIE can offer companies the chance to advertise on tickets and envelopes issued by Ticketmaster, and in the
entertainment guides that come with the tickets purchased by clients.
 Digital and mobile advertising. CIE offers its clients novel media platforms, using the
most advanced technology to promote their advertising campaigns. The services include
the production of original digital content, including grants and other marketing concepts
and design, and other tailored promotional and advertising channels, and application in
traditional and non-traditional entertainment venues and spaces. CIE also markets digital
screens at OXXO, one of the leading convenience store chains in Mexico.

Telemarketing Services. CIE provides telemarketing service programs, call center consulting, outsourcing, human resources outsourcing, databases, document collection, etc.
International operations
The international expansion of CIE’s activities commenced in 2008 with acquisition of the assets
and operations of the largest promoter of live rock concerts in Argentina and Chile, and the
concession holder of the Buenos Aires City Zoo. The following year, CIE acquired the concession holder of the main performance venues in São Paulo, Brazil, and it subsequently began
operating Claro Hall in Rio de Janeiro, Brazil. It also began developing theater operations in
Spain, which today are discontinued. These acquisitions gave CIE the ability to produce tours
for international artists in the largest markets in Latin America.
In 2007, CIE announced the sale of a portion of the majority shareholder stake that it held in the
live entertainment business in Brazil, Argentina and Chile. With this transaction, CIE went from
an original stake of 85% in Brazil, 100% in Chile and 100% of live entertainment operations in
Argentina, to a 24% financial interest in that business segment, which was grouped into a new
company. As a result of the transaction, CIE and the new company (which is called Time For
Fun Entretenimiento, S.A.) have a strategic alliance to capitalize on existing synergies and to
strengthen the live entertainment business in South America.
Between April and May 2011, T4F completed a public offering of shares on the São Paulo stock
market, with placement efforts in international markets. A result of the sale of shares, whose
purpose was to obtain funds to expand the T4F business in South America and which institutionalizes the Company, is that CIE’s ownership stake is today 9.81%, and CIE obtained net funds
in the amount of Ps. 638.0 that it applied in full to early payment of the debt of its holding
62
company. For a more in-depth explanation of this transaction, see the section “Recent Events”
in Chapter I, “General Information” of this Document.
Radio operations
CIE sold the operation of the radio stations that it had in Argentina at the beginning of 2010. For
more detail, see the “Recent Events” section in Chapter I “General Information” of this Document.
CIE FOUNDATION
The CIE Foundation is a civil association that belongs to Corporación Interamericana de Entretenimiento. It was created in 2005 to develop a platform that conceptualizes and develops
support projects for institutions that assist the population, adding the philanthropic tendencies of
national and international artists to institutional social responsibility efforts of leading companies,
thus causing a multiplier effect.
At the CIE Foundation, “Creamos Alegrías” (We Create Joy) by placing the magic of emotions,
entertainment and the transformational power of joy within reach of the sectors of society that
need it most.
1. Creamos Alegrías
This is the central program of our Foundation through which we bring unforgettable moments of
fun and recreation to those who need it most, through different dynamics and free entry to
concerts, plays, amusement parks, exhibitions and conferences in rehabilitation centers, among
other activities.
CIE has professionally and efficiently joined with hundreds of civil organizations that for years
have been working diligently to address various problems that affect children, young people,
seniors, people with disabilities, the sick, and indigenous children, seeking to provide them with
better opportunities. To this effort we added the participation of our strategic allies, with donations in cash and kind.
• Creamos Alegrías at concerts
• Creamos Alegrías in hospitals, theme parks and welfare institutions
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• Creamos Alegrías for the elderly
• Creamos Alegrías, celebrating the birthdays of 15-year-old girls
Since the start of the Foundation’s activities, more than 223,781 people from 1,636 institutions
have been invited to 273 "Creamos Alegrías" events, benefiting battered children, orphans,
children with HIV, homeless children, addicted adolescents in recovery programs, abandoned
mothers, battered women, seniors, the Raramuri, Mazahua, Otomi, Zapoteca, Chinanteca and
Mixes indigenous peoples, and people with different abilities.
2. Fondo de las Estrellas Program (Stars Fund Program)
This is a program that the CIE Foundation offers to artists who promote social awareness; it
serves as a platform for them to be able to undertake philanthropic activities, with the objective
of them choosing their own cause that they would like to support.
The CIE Foundation monitors the progress of selected projects, and follows up on the results to
ensure the total transparency of resources, reporting on the social impact of each one to the
artists involved in those projects.
3. Ludotecas Program (Children’s Playrooms)
Playrooms are built in hospitals, community centers and assistance institutions so that during
their stay children can find motivation through play. There are currently 19 playrooms in hospitals, shelters and community centers.
4. Cuenta Cuentos Program (Tell A Story Program)
CIE Foundation answers the wish of many artists to get more deeply involved with the causes
they support, presenting the opportunity to interact with children, involving them in reading
stories through Teaching Stories for at-risk communities. We have formed a network of artiststorytellers to come with us twice a month to tell stories at community centers, homes, orphanages and hospitals.
5. Indigenous Schools Shelter Program
As a philanthropic platform, CIE Foundation combines socially responsible companies that are
64
interested in raising the quality of life of indigenous children in Mexico through School Shelters
that provide a dignified space with sustainable projects for their future, with Miguel Bosé acting
as the godfather for each one.
Mobilizing funds
In 2010, the CIE Foundation raised approximately Ps. 1.2 through donations in cash, and Ps.
3.2 through donations in kind. The CIE Foundation supplements the effort to experience the
magic of out-of-home entertainment with the quality with which the CIE Group has operated
over the last 18 years, inviting the most vulnerable groups of Mexican society to participate.
Executive Committee and Operating Team
Name
Position
Luis Alejandro Soberón Kuri ........................................
Rodrigo Humberto González Calvillo ..........................
Federico González Compeán .....................................
Alejandro Valdespino Rivera .......................................
Mónica Lorenzo Gutiérrez ...........................................
Guillermina Pilgram Santos..........................................
Francisco Velásquez Córdova .....................................
Beatriz G. Crispín Gámez ...........................................
Karen Argüello Hernández ..........................................
Felipe Mendoza Atriano ..............................................
Chairman
Vice Chairman
Board Member
Treasurer
Secretary
Executive Director
Director of Project Development
Management of Institutional Affairs
Manager of Public Relations
Controller
Socially responsible company
CIE has been recognized as a Socially Responsible Company since February 28, 2007. The
Company was awarded this distinction for the fifth year on March 30, 2010, in a special ceremony held at Hotel Camino Real in Mexico City.
Obtaining the Socially Responsible Company Award is based on a process of self-evaluation of
120 indicators, verified by the Mexican Philanthropy Center (Centro Mexicano de la Filantropía
– CEMEFI), an organization with more than 676 member organizations and supported by the
Alliance for Corporate Social Responsibility in Mexico (Alianza por la Responsabilidad Social
Empresarial en Mexico – AliaRSE).
The Socially Responsible Company Award is granted when the standards proposed in the
following areas of Corporate Social Responsibility are met: quality of life at the company,
65
corporate ethics, the Company's connection to the community, and care and preservation of the
environment. The award is currently given to only 572 companies.
Quality of life
Particularly worth noting under Quality of Life and Human Resources training is the CIE Group’s
effort to train its personnel so they have the skills required to foster teamwork and cooperation;
thus, training plans for each business unit were formally developed in 2009 to standardize a
global training process to provide courses that focus on the requirements of business units and
their divisions. This year we had an average of 18.8 man-hours of training, for a grand total of
564 courses.
Since 2007, CIE’s Human Resources area has implemented the Yearly Performance Planning
(Planeación Annual del Desempeño – PAD). PAD is a tool that allows us to align our business
strategy and the objectives of all of CIE’s personnel, year after year. It also helps division heads
plan developments and monitor plans with their employees.
The environment
Aware of the overarching importance of environmental protection, CIE designed its Corporate
Environmental Policy, which formally establishes the commitment to respect the environment
while conducting all of its activities. To comply with this policy, CIE has carried out specific
actions in the areas of Environmental Education, Dissemination and Protection, and it undertakes specific projects to protect the environment and minimize the consumption of natural
resources.
In response to this concern, the Company designed the Comprehensive Environmental Program, which includes various activities such as: the campaign Cuidar El Agua es lo de Hoy
(Saving Water is Cool), the Environmental Awareness Program, the Educational Program and
the Waste Recovery Program, as well as specific projects to produce energy from solid waste
and to recover rainwater for use in services, among others, inviting its employees, providers,
clients and the general public to protect this precious liquid.
Objectives: To encourage every employee, client and provider to understand, be responsible,
act and commit to considering how important caring for and protecting the environment is,
protecting water sources and saving energy in their working activities, and taking that commitment home and putting it into practice around them.
66
Since 2006, the Group has implemented a series of permanent policies to save and protect the
environment, which have contributed to the efficient use of resources and created awareness
among its members, clients, and the general public.
Other recognition received: Cemefi and AliaRSE recognize CIE
The Mexican Philanthropic Center ("Cemefi"), and the Alliance for Corporate Social Responsibility in Mexico ("AliaRSE"), an entity of which Coparmex, Aval, Usem, Impulsa, Concamin and the
Corporate Coordination Board (Consejo Coordinador Empresarial) are members, has distinguished us with the Best Corporate Social Responsibility Practices award since 2006.
•
In 2007, OCESA was distinguished with the award for the Best Corporate Social Responsibility Practices in Quality of Life at the Company for the PAE Program (Programa
de Antención al Empleado – PAE).
•
In 2008, the CIE Group also received the award for Best Corporate Social Responsibility
Practices, this time in the Environmental Area, for its CIE Comprehensive Environmental
Program.
•
In 2009, CIE received the Socially Responsible Company Award for the fourth consecutive year, and Ticketmaster received it for the third consecutive year.
2.2. Distribution Channels
Taking advantage of the diversity and critical mass of content and entertainment venues
throughout the region, CIE has consolidated a group of businesses that are fully focused on
providing an alternative promotional and advertising vehicle for any type of advertiser, so that
they can connect with their various audiences. The advertisers enter into agreements with CIE
under which the Company develops these types of services and related products in its advertisers’ markets, based on the advertisers’ individual business needs. These agreements involve
investments that will be made in the future, based on the actual execution of these products and
services. The programs are paid to CIE in advance on a monthly or yearly basis.
As a result, the Group believes that it operates the largest network of entertainment venues in
Mexico, through leases, permits, concessions or other rights. These are the means whereby all
of the Company’s products and services are provided, including musical concerts and other live
entertainment events, such as theatrical productions, special and corporate events, family,
sports and cultural events, among others.
67
The performance venues operated by CIE are:

In Mexico City: Foro Sol, Estadio Azul, Palacio de los Deportes, Pabellones Feriales del
Palacio de los Deportes, Centro Cultural Telmex I, Centro Cultural Telmex II, Teatro Metropólitan, Teatro Blanquita, Autódromo Hermanos Rodríguez, José Cuervo Salón (previously Vive Cuervo Salón), Foro Scotiabank, Teatro de los Insurgentes, Auditorio Plaza
Condesa, and Teatro Banamex Santa Fe (previously Teatro Zéntrica)

In Monterrey: Auditorio Banamex

In Guadalajara: Arena VFG
CIE is also developing the Las Américas Complex in Mexico City, which is operating regularly,
and comprises the Las Américas Racetrack, the Banamex Center, which is an exhibition and
convention center, and Granja Las Américas, which is a theme park for children. In the future,
this complex will be expanded to include a family recreation center and a hotel. As part of the
development of this complex, and based on acquisition of a permit from the Mexican government to operate up to 65 Sports Books and Yaks centers in Mexico, at the end of 2010 CIE had
52 Sports Books and Yaks outlets operating throughout Mexico.
Furthermore, at the end of 2010, CIE operated the El Salitre Mágico and CICI Aquapark (both in
the same complex) amusement parks in Bogotá, Colombia. Note that the Company sold the
operations in Mexico of its amusement parks in 2009, and that recently it formally ceased
activities at the Wannado City theme park located in Fort Lauderdale, Florida, which is not
longer held by any subsidiary of CIE.
CIE organizes and promotes trade fairs and expositions. It sells sponsorships to live events,
naming rights to performance venues and amusement parks, signage rights, advertising space,
advertising sponsorships, food, beverages and souvenirs, as well as field-level rotating advertisements in professional soccer stadiums, advertising in movie theaters in Mexico, advertising
in airports in Mexico, and on pedestrian overpasses in Mexico, among other vehicles based on
BTL and telephone services, and digital advertising.
2.3. Patents, Licenses, Trademarks and Other Contracts
Trademarks and designs
The Company owns several registered trademarks and designs that provide it with brand-name
recognition in the markets in which it operates. Among the most important trademarks are the
following: “Sports Book,” “Yak,” “AMH Hipódromo de las Américas,” “Granja Las Américas,” “La
Triple Corona,” “CIE,” “Make Pro,” “Ocesa,” “Vive Latino,” “Lobo,” “Remex,” “Unimarket,” “Fun68
dación CIE,” “Creamos Alegrías,” “C-Móvil,” “CIE Comercial,” “CIE Entretenimiento,” “CIE Las
Américas” and “CIE Internacional.” It also holds a license to use and develop various trademarks, such as the “Ticketmaster” trademark.
Licenses and patents
The Company has entered into several licensing contracts with the producers of medium- and
large-scale Broadway-type theater productions in order to present them in Latin American
markets, including: Beauty and the Beast, Les Misèrables, Joseph and the Technicolor Dreamcoat, Phantom of the Opera, Cabaret, Fiddler on the Roof, Hoy No Me Puedo Levantar, and A
Chorus Line. The Company has also entered into consulting and licensing contracts with
developers of management systems for horse racing.
Through these contracts, CIE owns the development rights to the works mentioned in the
preceding paragraph, as well as to use production-design elements and development of promotional items in exchange for royalties based on box-office results or on other types of previously
established consideration, and they are renewable through the exercise of options for development in other geographic areas, provided that the conditions agreed upon in these licenses are
met. These licenses are important because it is through them that the Company’s theatrical
offerings can be developed and exploited.
CIE also participates in the staging of various locally produced theatrical pieces, such as: The
Vagina Monologues, The Producers, and Defending the Caveman, to name a few.
Because the sale of technology is not CIE’s core activity, the Company has not applied to
register any patents, and therefore it currently does not have patents registered in any country.
Contracts
CIE maintains trademark-use licensing agreements, franchise agreements, technology exchange or technical assistance agreements with Ticketmaster Corp., which basically consist of
licenses to use Ticketmaster’s computer systems, brand name and trademark. This license
authorizes the computerized sale of tickets through this system in all of its territories.
The Company does not have, nor has it entered into other relevant contracts that would conflict
with its normal business activities. Regarding the contracts that are consistent with its line of
business, it should be noted that the lease contract for Centro Cultural Telmex, a facility that
69
consists of two theater auditoriums with combined capacity of 3,441 people, is currently under
negotiation.
Regarding discounting and factoring transactions, as of the date of publication of this Document,
the Group is a party to the following contracts, exclusively with Mexican financial institutions:
•
On March 29, 2006, the subsidiary Make Pro, S.A. de C.V. entered into a factoring contract
with recourse with Banco Santander Serfin, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Serfin, for up to Ps. 110.4, in effect for 12 months, with automatic annual renewals and its Amendments thereto dated June 15, July 4 and December 8, 2006.
•
On December 20, 2010, the subsidiary Make Pro, S.A. de C.V. entered into a contract to
open a line of discount credits with IXE Banco, S.A. Institución de Banca Múltiple, IXE Grupo Financiero, for up to Ps. 34.7, in effect for one year.
The Group has entered into the following contracts for financial derivatives transactions with
Mexican financial entities:
•
On March 4, 2008, Corporación Interamericana de Entretenimiento, S.A.B. de C.V. entered
into a master derivatives financial transaction agreement with IXE Banco, S.A. Institución de
Banca Múltiple, IXE Grupo Financiero, for an undetermined period.
•
On January 10, 2008, Corporación Interamericana de Entretenimiento, S.A.B. de C.V.
entered into a master derivatives financial transaction agreement with Banco Santander,
S.A. Institución de Banca Múltiple, Grupo Financiero Santander, for an undetermined period.
•
On January 4, 2008, the subsidiary Unimarket, S.A. de C.V. entered into a master derivatives financial transaction agreement with Banco Santander, S.A. Institución de Banca
Múltiple, Grupo Financiero Santander, for an undetermined period.
CIE and certain of its subsidiaries have established and continue to maintain the following credit
contracts with Mexican and foreign financial institutions:
•
On December 26, 2002, Corporación Interamericana de Entretenimiento, S.A. de C.V.
entered into an agreement with Banco Nacional de México, S.A. Integrante del Grupo Finan70
ciero Banamex, to open a simple credit line for an amount of up to Ps. 180.0 effective for
nine years, and the corresponding Amendment dated May 2, 2005.On February 6, 2009, the
Second Amendment was signed.
•
On January 24, 2008, the subsidiary Unimarket, S.A. de C.V. entered into a foreign buyer
loan agreement with Banco Santander, S.A. for nearly 1.5 euros, expiring on December 12,
2012.
•
On September 18, 2007, the subsidiary Reforestación y Parques entered into a credit
agreement with Banco de Bogotá for the amount of Col. 10,146.3, expiring on August 13,
2013.
•
On January 21, 2007, the subsidiary Reforestación y Parques entered into a credit agreement with Banco de Bogotá for the amount of Col. 270.0, expiring on December 26, 2011.
•
On May 30, 2008, AMH entered into a credit agreement with Banco Inbursa, S.A., Institución
de Banca Múltiple, Grupo Financiero Inbursa, for an amount up to Ps.1,300.0, expiring on
May 30, 2015. On February 23, 2009, the First Amendment to the agreement was signed.
•
On December 3, 2009, Corporación Interamericana de Entretenimiento signed a credit
contract with several domestic and foreign institutions, consolidating and restructuring its
bank and stock market debt, expiring on September 30, 2014.
•
On December 3, 2009, Corporación Interamericana de Entretenimiento signed an irrevocable
trust contract for surety and source of payment with reversal rights with the Bank of New
York, expiring on September 30, 2014.
As a result of the process of restructuring its liabilities, which it has been doing since the end of
2009, the Company is limited in the disposal of the abovementioned lines of credit. (For a more
in-depth explanation, see the section “Recent Events” in Chapter I, “General Information” of this
Document).
Several of the Company’s subsidiaries have established leasing contracts with the lessors The
Capita Corporation de México, GE Capital CEF México, Facileasing, Sinergia Soluciones
Integrales, Arrendadora Financiera Inbursa and Leasing Operations de México. The terms and
conditions of each contract vary.
71
2.4. Major Clients
Through its subsidiaries and affiliates in Mexico and abroad, the Company provides services to
the general public, such that a high percentage of its income is derived from direct sales to the
public, consisting primarily of tickets for its live performances, as well as CIE’s amusement
parks, performance venues and other out-of-home entertainment offerings.
Nevertheless, the Company also obtains sizeable income from its commercial activities on
behalf of various clients, some of which have a strong presence in the markets in which the
Company operates. However, CIE’s client base is highly fragmented, and historically the Company has not been considered in any way dependent on any individual client or group of clients.
Some of the clients that CIE has worked with over the last few years include the following
companies and brands: Banamex, Telmex, Telcel, Coca-Cola, Cervecería Modelo, Cervecería
Cuauhtémoc Moctezuma, Visa, Philip Morris, Cemex, Toyota, Ford, Banorte, Sony, General
Motors, Renault, Nestlé, Volkswagen, Operadora Wal-Mart, Grupo Salpro, Centro Impulsor de
la Construcción y la Habitación, Expo Comm Events de México, Management Focus, Messe
Frankfurt México, Expo Pak, Exposiciones Gav, HSBC, CTI, Grupo Telefónica, Fiat, Zurich
Seguros, La Caja, Daimler Chrysler, Microsoft, Blockbuster, Novartis, Grupo Telecom, Cencosud, Continental Airlines, American Express, Heineken, Fravega, Burger King, Hewlett Packard,
Peugeot, Epson, Gillette, Bayer, Aeroméxico, Bacardí y Cía, Banco Santander Serfín, BBVABancomer, Bimbo, Citibank, Comercial Mexicana, Danone, FedEx, Grupo Posadas, Hérdez,
Hilton, Honda, Honeywell, Kellog’s, LALA, Liverpool, Maruchan, Mexicana de Aviación, Motorola, Nextel, Nissan, Nokia, Panasonic, PepsiCo, Pfizer, Pirelli, Quaker State, Sabritas, Samsung,
SKY, Sony, Unilever, ITESM, Ferrero Roche, UVM, Office Depot, Petroleos Mexicanos, and
Oxxo, among many others.
2.5. Applicable Legislation and Tax Status
CIE’s operations are subject to local laws and regulations in matters regarding the operation
and functioning of the venues that it runs, and laws and regulations regarding putting on shows.
Particularly notable is the legislation governing civil protection and safety, as well as federal and
state legislation in matters of consumer protection and health.
Pursuant to applicable legal provisions, CIE and its subsidiaries must and do have licenses to
run and operate the performance venues and properties that it operates, and to develop and
apply the civil protection rules and plans necessary for the safety of those attending the shows
promoted during the course of its activities. In those cases in which CIE has built and/or remo72
deled public performance venues, it has also been required to comply with the applicable
construction regulations. These regulations are similar to those described, in general terms, in
the foreign jurisdictions in which CIE operates. CIE is also subject to provisions in the areas of
civil, commercial, industrial property and intellectual property law, copyrights, criminal, labor and
social security law that are applicable in the various regions where the Company has operations. Moreover, CIE is subject to the various provisions that regulate the functioning of the
Mexican Securities Market, and by foreign regulations regarding the Company’s securities that
are registered in markets outside of Mexico. CIE is also subject to various provisions in matters
of foreign investment applicable in the geographic areas in which it operates or where it maintains investments outside of Mexico.
Some of the concessions, licenses and permits that the Company has obtained may terminate
in the event that certain conditions of public utility or other conditions arise. Even if CIE is
indemnified for the termination of any of its concessions, licenses or permits, CIE cannot
guarantee that such indemnity will be paid in a timely manner or that it will be sufficient to cover
the damages arising from that termination.
Tax System
Regarding the tax system, CIE and its subsidiaries domiciled in Mexico are subject to payment
of income tax, the value-added tax, the corporate flat-rate tax, and other general tax provisions
that are binding upon taxpaying legal entities. The Company’s principal activities, namely those
conducted by CIE Las Américas and CIE Entertainment have taxes levied on them; the former
is taxed locally on raffles and gaming at a rate that varies between 2% and 12%, depending on
the city, and the latter is taxed locally on public shows at a rate that varies between 3% and 8%,
depending on the city and gross box-office revenues, but they are exempt from paying the
added-value tax. Note that the Company does not consolidate its results for tax purposes.
Value-Added Tax (VAT Cost)
According to Mexican Legislation, in tax matters, the goods and services invoiced inside the
country have different Value-Added Tax (VAT) rates levied on them, depending on the region of
the country and the type of goods or services exchanged. Furthermore, certain sales, and the
provision of certain services are subject to this tax, while others are exempt from the VAT. This
is the case with the provision of services relating to admission tickets for public performance,
and for the sale of tickets and other vouchers enabling participation in lotteries, raffles, drawings, or betting games and contests of all types, among others. The VAT levied on the costs and
expenses related to this type of revenue cannot be credited, thus the VAT Cost occurs.
73
In addition, for fiscal year 2010, the tax rates increased, from 10% to 11%, and from 15% to
16%.
Special Tax on Games and Lotteries (Impuesto Especial sobre Juegos y Sorteos – IEPS)
At CIE Las Américas, betting and lottery games have the Special Tax on Games and Lotteries
tax levied on them. On December 31, 2009, the rate was 20%, and as of January 1, 2010, that
tax rate increased by 10% to 30%.
Tax on Cash Deposits (Impuesto sobre Depósitos en Efectivo – IDE)
The Special Tax on Cash Deposits was approved for fiscal year 2008. Under this law, deposits
made with institutions in the financial system totaling more than Ps. 25,000 must have 2%
withheld and paid to the Public Treasury. That tax may be credited against income tax.
In fiscal year 2010, the rate increased to 3%, and the deposit amount decreased from Ps.
25,000 (pesos) to Ps. 15,000 (pesos).
2.6. Human Resources
As of December 31, 2008, 2009 and 2010, the Company employed 9,840, 8,605 and 10,892
employees, respectively. The following three tables show the number of personnel employed by
CIE at December 31, 2008, 2009 and 2010, broken down by strategic business unit and country:
2008
Country
Employee
s
CIE
CIE
Entertainment Las Américas
Mexico ........................
Argentina ....................
Colombia ....................
United States ..............
9,117
320
44
359
757
Total .....................
9,840
757
4,374
CIE
Amusement
Parks
Commercial
1,282
2,296
9
320
2,296
330
CIE
44
358
4,374
1,684
74
CIE
International
Corporate
399
1
399
2009
Country
Employee
s
CIE
CIE
Mexico ........................
Argentina ....................
Colombia ....................
8,026
242
50
287
773
Total .....................
8,605
773
5,080
CIE
Amusement
Parks
132
CIE
Commercial
CIE
Corporate
1,762
7
242
272
1,762
250
272
50
286
5,080
468
2010
Country
Employee
s
Mexico ........................
Argentina ....................
Colombia ....................
10,550
Total .....................
10,892
CIE
CIE
800
6,727
CIE
Amusement
Parks
5
44
298
CIE
Commercial
CIE
Corporate
2,846
6
166
2,846
7
166
44
297
800
6,727
346
The variation in the base number of employees between 2009 and 2010 is basically explained
by: (i) hiring personnel at B-Connect, the CIE subsidiary in charge of operating and developing
value-added telephone services for clients, as well as expansion of the staff at the Sports Books
and Yaks parlors due to the incorporation of new business lines and the opening of new parlors;
and by (ii) releasing personnel in amusement park operations due to the termination of operating activities at the theme park in Florida, and the sale of the operation of amusement parks in
Mexico; in addition to (iii) release of personnel from operation of radio stations in Argentina,
since that business was sold. In turn, the marginal variation in the Group’s employee base
between 2008 and 2009, was basically explained by the sale of the Parks division in Mexico, as
mentioned in several sections of this Annual Report, as well as a restructuring of the corporate
workforce in September 2009.
In 2010, 55.1% of the Group’s employees were white-collar workers, while 44.3% were
unionized personnel, and only 0.5% were temporary personnel. In 2009, 56.5% of the Group’s
payroll was white collar, while 43.2% were unionized personnel, and 0.3% were temporary. In
2008, 57.7% were white collar, and the remaining 42.3% were unionized.
As of December 31, 2010, the Company had collective bargaining agreements in the areas
where it maintained operations at the close of the year. Those contracts are filed with the
competent labor authorities of each country. As in prior years, salary and contractual reviews
established by the regulatory labor framework were conducted satisfactorily, with increases
75
according to the situation in each country, and with no incidents that affect the good relationships between CIE and the union leaders.
The agreements that the Company has established with the unions do not include terms and
conditions that are substantially different from those that are standards within the industries in
which CIE participates. Under the agreements with the unions, salaries are negotiated on an
annual basis, while the other terms and conditions are negotiated every two years. The Company has never experienced a strike or labor stoppage, and believes that the relationships it has
with its employees are satisfactory.
2.7. Environmental Performance
As has been mentioned previously, Corporación Interamericana de Entretenimiento is aware of
the paramount importance of environmental protection, and in 2006 it approved its Corporate
Environmental Policy, which formally establishes the Company’s commitment to respect the
environment while conducting all of its activities.
To comply with this policy, the Company designed its Comprehensive Environmental Program,
which includes various activities and projects, which have the following objectives:
•
To prevent, reduce or, if applicable, mitigate and compensate for adverse environmental impacts that may arise from the entertainment activities provided by
CIE or by the construction, expansion or maintenance of its facilities.
•
To strive for sustainability by minimizing adverse environmental impacts that the
Company creates in its activities, by applying the Three “Rs” formula: REDUCE,
REUSE, RECYCLE; and
•
To develop Environmental Sensitization Campaigns, using internal communication media, the Group’s various properties, and the daily bulletin that is published
in newspapers to promote events.
Since the start of the Comprehensive Program, to date the following achievements are worth
noting:
•
In relation to water savings, operation of the wastewater treatment plant of the
Las Américas Complex continues, resulting in the consumption of approximately
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160,000 fewer cubic meters of potable water per year, and urinals have been replaced by Water Less equipment at the Group’s main properties.
•
Regarding energy savings, the electricity supply to the Las Américas Complex
through a high-voltage substation considerably reduces physical losses in comparison to medium-voltage supply. The automated climate control of the Banamex Center, changing ballast and lighting for new generation equipment, and activation of the automatic hibernation option on computer equipment, all
contributed to energy savings.
•
Paper has been saved through the incorporation of information systems applications that include workflows for managing transactions, introducing electronic
consulting of payroll receipts through the implantation of a solution to digitalize
documents (which has decreased photocopies by up to 40% in some business
units), and by using both sides of a piece of paper for printing. All of this has resulted in annual savings of approximately two million pieces of paper, thus directly contributing to conserving forests.
•
At the properties of the CIE Group, trash collection has been professionalized
and the different types of waste are separated from each other, and then delivered to companies that are certified for their disposal and/or recycling.
•
Regarding atmospheric emissions, the Ticketmaster program called Ticket Fast
(printing tickets on the Internet) does away with hundreds of thousands of messenger trips per year, and Ticketmaster’s Ticket to Ride programs reduce vehicle
use by promoting the use of buses to go to events. CIE has a program called CIE
Bus, which helps transport people by bus to its main facilities.
•
Education and increasing a culture of respect for the environment have been
achieved by conducting ongoing campaigns for the rational and careful use of
water, called “Saving water is cool,” and “Saving the environment is cool,” using
its own media and hiring third parties. Other institutional programs that include
components to encourage people to take care of the environment have been
“Your Ideas Matter,” “CIE Community Day,” the campaign “Save your World,”
and in conjunction with SEMARNAP, the distribution of 50,000 copies of the brochure “More than 100 ideas on how to take care of the environment from home.”
77
•
In addition, inclusion of clauses regarding respect for the environment in the contracts that the CIE Group signs with its goods and services providers has encouraged the influence of our environmental policies to be extended to other
segments of society.
•
Finally, other notable actions that favor the care and preservation of the environment are encouraging the use of biodegradable containers and products at the
various centers where food and beverages are consumed and prepared, reusing
tarps and materials at events, and incorporating ecologically friendly equipment
and technologies into the design, remodeling or construction of new properties.
As a special mention, during 2010 the Banamex Center organized a program called Green
Attitude, in which the leaders of this business unit of the CIE Group created a working team that
converted the Banamex Center into the first Latin American organization to obtain the prestigious Earthcheck international certification for sustainable tourism.
Note that Earthcheck is recognized as the largest program in the world for certification specifically designed for companies in the tourism sector, such as hotels, spas, golf courses, theme
parks, convention centers, etc. Its methodology is trusted by more than 1,000 organizations in
60 countries, and is used by some of the largest international tourism companies. Earthcheck
also operates as an independent company, and performs its own benchmarking to determine
the level of certification in each case, which it does considering by best practices, auditing
indicators related to the care of resources and the environment, and considering that legislation
and local standards are complied with in the country in which it is performing certifications.
Environmental Policy
Aware of the importance and significance of protecting the environment, CIE has a Corporate
Environmental Policy that formally establishes the commitment to respect nature.
Repercussions of the policy among Company personnel including encouraging every employee,
client and provider to understand, be responsible, act and consider how important it is to care
for and protect the environment, protect water sources and save energy in their working activities, and to take that commitment home and put it into practice around them.
78
The impact on the Company translates into the responsible consumption of natural resources
such as water, paper, energy and fuel, using them efficiently and in moderation, and inviting
others to protect and preserve them.
The impact on the community consists of raising awareness regarding the use of water and
energy, and the search for friendly practices for a healthier environment, such as proper handling of waste and decreasing contaminant emissions.
Since 2006, the CIE Group has implemented a series of environmental policies and a comprehensive environmental program with actions to save, educate people and protect the environment. These actions are ongoing, and have contributed to advancing the sustainability of the
organization and the ecological awareness of all of its members, clients, and the general public.
2.8. Market Information
Industry
The out-of-home entertainment industry provides the market with entertainment alternatives for
free time that may be devoted to, among other things, movies, cultural events and locations, trade
fairs and conventions, theater performances, concerts, attractions and amusement parks, and
sporting events. The out-of-home entertainment industry is subject to many factors, such as
general economic conditions, and changes in consumers’ discretionary spending habits.
CIE’s activities are generally directed toward providing a wide variety of out-of-home entertainment options. The main markets in which CIE currently operates are Mexico City, Monterrey and
Guadalajara, as well as some cities in the interior of Mexico.
Corporación Interamericana de Entretenimiento currently participates in some of the most
significant segments of the out-of-home entertainment industry. The following is a description of
these segments.
Concert Promotion
The concert promotion industry in Latin America consists primarily of regional promoters who
generally focus on one or two cities. These promoters generally do not have a long operating
history or substantial financial strength. These factors, together with significant economic and
foreign exchange uncertainty over many years, have deterred top international artists from
79
including Latin America in their tours. This trend began to change in the 1990s, as artists began
to discover a significantly large untapped demand in the region.
In order to schedule a musical concert or other live event or tour, an agent typically contracts
with an artist to arrange a venue and date, or series of venues and dates, for the artist’s performance. The agent in turn contacts one or several promoters in the location or region regarding
relevant venues for the event. The promoter markets the event, sells the tickets, rents or otherwise provides the event venue for the performance, and makes the necessary arrangements for
the services that will be required for the local production (such as staging, light and sound).
The agent generally receives a fixed fee from the artist for its services, or in some cases, a fee
based on the success of the event. The promoter normally will agree to pay the artist a guaranteed amount, or a share in the earnings from ticket sales to the event, whichever is greater. As a
result, the promoter often assumes the risk of the event. The promoter sets ticket prices and
advertises the event to be able to cover its expenses and generate a profit. If the event is
unprofitable, the promoter will sometimes renegotiate a lower guarantee to lessen its losses. In
some instances the promoter accepts a fee from the agent to pay its services, and the agent is
the one that assumes the risks of the event.
Theater
Attendance levels at professional theater productions vary significantly. Professional theater
generally consists mainly of dramatic productions and musicals, and the development of new
plays. Local productions often have small budgets, short pre-production periods, and low
operating costs. They also tend to have shorter runs. It is rare for local theatrical productions to
tour in other countries within the region.
Broadway-type shows are not common. A producer of a Broadway-type show first acquires the
rights to the work from the owners, who receive royalty payments in return. The producer then
assembles the cast of the play, hires a director and arranges for the design and construction of
sets and costumes. The owners of the rights to the work generally supervise the production
closely to ensure that the integrity of the play is maintained.
The producer will then contact a local promoter to stage the production in a specific market. The
local promoter must obtain the venue and provide all the local services, such as ticket sales,
hiring local personnel, advertising for the show, and paying a fixed guarantee to the producer of
the live show. The promoter may then recover the amount of the guarantee plus the local costs
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from the revenues from ticket sales. Any excess earnings from ticket sales will be apportioned
between the producer and the promoter.
Corporación Interamericana de Entretenimiento does not face significant competition in the
sector of Broadway-type musicals, as it holds the exclusive rights to produce the majority of
these events in Mexico. In the non-Broadway-type theater sector, CIE has competition from
several small producers.
Performance Venue Operation
A venue operator is normally contracted by a promoter to rent its venue for a specific event on
one or several determined dates. The venue operator provides services such as food and
beverage sales, parking, security and ticketing, and it receives revenues from the sale of food
and beverages, souvenirs, sponsorships and parking. The venue operator normally receives a
fixed fee, or a percentage of ticket sales for use of the venue, as well as a percentage of total
sales from food, beverages and souvenirs.
Fixed-fee agreements between the operator and the promoter are more common for smaller
events, while arrangements based on a percentage of ticket sales are more commonly used for
larger events. The venue format most used by promoters to put on their events are stadiums,
amphitheaters, arenas and theaters, and their size will generally depend on the estimated
number of attendees and the nature of each event.
Since few artists will play in every available market during a tour, there is competition among
venues for dates for those tours. A favorable cost structure, as well as the ability to attract fans,
will be deciding factors for an artist to choose to perform in one venue over another. Therefore,
there is competition in markets in which the Group participates in venue operation, which is
based on the location, quality of the venue, and the services it provides.
The prime venues are generally owned by government authorities, non-profit or private organizations. In Mexico City, the venues that compete with Foro Sol, a performance venue with
seating for 60,000 people, and with Palacio de los Deportes, with capacity for 21,000 people,
are the Auditorio Nacional, with capacity for 10,000 people, owned and operated by the federal
government, and the Plaza de Toros México, with capacity for 45,000 people, owned by a
private group.
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Automated Ticket Sales
The automated ticket sales industry involves the receipt and filling of orders through operatorstaffed call centers, websites, outlets in malls, and box offices. Revenues are generated from
convenience fees charged by the service provider for tickets sold on its clients’ behalf. Revenues are also received from the sale of sponsorships and advertising, which are delivered
during telephone calls, or on tickets and envelopes.
The service provider owns inventory control, and the management and ticketing system, which
includes both hardware and software and is installed in the box office of a client’s facility. This
provides a centralized inventory control management system that is capable of tracking total
ticket inventory for all events, whether sales are made on a seasonal, subscription, group or
individual ticket basis.
The automated ticketing business has been developed in Mexico, where the service has now
been available since the 1990s. There are currently other automated ticketing services, and
box-office sales continue for the various events.
Call Center Services
CIE’s activities regarding the offer of call center services in Mexico include customer service
programs, such as technical support, responding to billing inquiries, answering customer
questions on product information and services, credit card fraud protection, as well as sales
support to handle purchase orders for products, credit card activation, and order requests.
The industry has grown substantially with the proliferation of toll-free numbers and direct marketing, the development of new databases, communication systems and technologies, as well
as the reduction in telecommunications costs, and the quality of services in the United States.
Much of the industry’s recent growth has also resulted from higher expectations from consumers for accessible customer support and service. At the same time, the companies have recognized the benefits of communicating directly with their consumers.
The industry in Mexico has grown significantly since the Company began its telemarketing
operations in 1993, as companies have found it more efficient to shift their in-house operations
to outsourced providers of this service. As a result, competition for this outsourced call-center
service in Mexico has also grown significantly.
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Advertising Services in Mexico
The advertising services industry in Mexico is highly segmented and is marketed through a
large number of channels, from traditional advertising in mass media such as radio and television, to printed media, movie theaters, outdoor advertising, digital advertising, product launches
and activations, etc.
Remote Sports Betting and Numbers-Based Games in Mexico
The gaming industry in Mexico includes remote betting, jai alai, numbers-based games, and
other games based on numbers, symbols and lotteries. The Mexican government has regulated
the industry. The Ministry of the Interior is the government entity that has the authority to issue
licenses for the operation of Sports Books and numbers-based gaming in Mexico.
Like other regular participants in the industry in Mexico, CIE operates its remote sports-betting
rooms and numbers-based gaming locations throughout the country, reaching audiences from
various socio-economic segments. In 2005, the Mexican government granted other groups
permits to carry out these types of activities, and these new groups have commenced operations, formally entering the industry. CIE may face greater competition as a result of the foregoing.
Horse Racing in Mexico
The operation of horse racetracks in Mexico requires a government concession. The Las
Américas Racetrack operated by CIE is the only professional horse racetrack authorized and
regulated by the Mexican government to operate in Mexico City. There are other horse racetracks in the country, but none in Mexico City.
Trade Fairs and Expositions in Mexico
The trade fair and exposition industry in Mexico is made up of companies that offer services to
promote and organize these types of events. The companies, associations and other organizations related to specific industries or activities or event sponsors, frequently have events. These
events are designed to create contact with their clients, employees and members, among
others. The aforementioned parties may promote their own events or they may promote them
through third parties, who can provide promotional and organizational services, such as CIE.
Examples of these events include trade fairs, expositions and special events that create a place
for face-to-face interaction and communication, usually between buyers and sellers.
The trade fairs and expositions may be owned by one or more operators. They earn their
income from renting space for the exhibition, selling sponsorships, and ticket sales, all paid in
advance. When third-party managers are involved, they receive a management fee, normally for
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multi-year contracts, plus a portion of the revenues collected the event’s owners. As a general
rule, for these annual events to achieve an adequate level of income, they must be presented
on at least three occasions.
The success of an exposition center is defined as a function of the amount of space it sells and
the importance of the events held in it. Gallup TNS (in a market study performed by the companies D.F. and AMCM in March 2005) places Centro Banamex at the top of the market for trade
fairs and expos, as it is the location where the most important events are held, with the largest
number of square meters occupied in its exposition halls. This study shows that 99% of top
executives surveyed who have visited Centro Banamex are completely satisfied with the service, and 98% would recommend leasing it since it is the best-known site in Mexico City.
Amusement Parks
The amusement park industry in Latin America is generally divided into traditional amusement
parks and modern theme parks. Traditional amusement parks are primarily family owned, and
consist basically of rides in a carnival-type atmosphere. In contrast, modern amusement parks
are designed around one or several central themes that are consistently applied to all areas,
including the rides, attractions, entertainment, food and beverages, and the general atmosphere. Modern theme parks also typically present a variety of free entertainment and extended
operating hours, including nighttime operation, which are features not found at traditional parks.
Theme parks also offer the visitor a wide variety of food and beverage options in order to extend
the time that visitors stay at the park, and to position the park as a comprehensive entertainment venue that operates the entire day.
As a result of these differences, the theme parks draw attendance from a wider geographic
area, and they attract a larger number of people within a specific market. The theme parks also
attract more families and groups, and the average length of stay and amount spent per person
is greater than in traditional parks.
Competition
(For a more detailed explanation of the information and facts related to Competition, please see
the section “Market Information” in this Chapter).
General
CIE believes that it is the only company in Mexico that offers such a diversified range of highquality recreational and out-of-home services. Therefore, it only faces direct competition in a
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fragmented manner, that is, at the level of the different business segments in which it participates. Direct competition is comprised of a large number of competitors that are specialized in
certain specific activities. CIE also competes indirectly with all types of recreational facilities and
types of entertainment that exist in its geographic markets, such as museums, sporting events,
restaurants and travel, among others.
Promotion and Production of Live Events
In activities to promote and produce live events, including musical concerts, theater productions,
sporting events and family shows, among others, the Company currently faces competition from
small market participants, because when new competitors enter the market, they require
significant sources of financing, experience and knowledge of the medium and access to prime
venues.
In the musical concert sector in Mexico and the rest of Latin America, the competition is highly
fragmented, and CIE competes with the local promoters in each location. The leading promoters
in Mexico are Showtime, Merensal, Iguana Producciones and Hard Rock.
In the theater production sector, CIE faces almost no competition in the production of Broadwaytype musicals, as CIE has the exclusive rights to produce those shows in Latin America.
In the non-musical theater production sector, CIE faces competition from numerous small
producers in each market in which it participates. In Mexico, CIE’s major competitors are
Instituto Nacional de Bellas Artes (“INBA”), Teatralidades, Visión Azteca, and Trupeteatros.
In cultural events, the competition faced in the region is heavily driven by government entities,
and to a lesser degree, by theater companies. In family events, CIE competes with promoters
that hold the rights to international family events for children and adults. Those promoters
include Gou Productores, Internacional Sociedad de Artistas Latinos, Tycoon Entertainment,
and various circuses in Mexico. CIE entered the sporting events sector in Mexico through
Ocesa Entretenimiento in a 2005 joint venture with As Deporte, and competes with different
promoters that are focused on specific sports. These promoters include Mextenis, Deportes
Martí, Sport Marks and Sinergia Deportiva.
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CIE does not face competition in the international car racing market in Mexico because CIE
holds the rights to present the Champ Car World Series (formerly known as CART) and the
Nascar Series. In the local car racing market in Mexico, CIE organized the Desafío Corona
Series, and competes with various well-positioned local series such as Copa Super Karts, Copa
Roshfrans, Copa Volks Sports, Copa Turismo México and the Campeonato Mexicanos de
Rallies.
Performance Venues
Since during tours artists perform in all markets available, CIE competes in its own markets as
well as in other markets for popular tour dates. The Company competes in its own markets with
other performance venues based on location, quality of the facilities, and the services. Competition is segmented according to the size of the audience.
In Mexico City, CIE’s properties Foro Sol, with seating capacity for 60,000, and Palacio de los
Deportes with seating capacity for 21,000, compete mainly with Auditoria Nacional, which is
owned and operated by the Mexican federal government, and which is often rented by CIE to
stage live concerts. CIE also faces competition, although to a lesser extent, from Plaza de Toros
México, with seating capacity for 45,000. It is privately owned and is used for live concerts. CIE
is aware of plans and efforts by the corporate group that operates Arena Monterrey, in Nuevo
León, to build and operate a modern arena for more than 20,000 people, which will be developed in the northern part of Mexico City. If this plan materializes, it will increase the supply of
entertainment venues in this market, and it will compete directly with the entertainment venues
operated by CIE in Mexico City. The three theaters that CIE owns, which have various seating
capacities, compete with other theaters for smaller concerts and theatrical productions.
In Monterrey, Auditorio Banamex, with seating capacity for 22,000, faces competition from
Arena Monterrey, a performance venue for musical, sporting and cultural events, which recently
started operations.
Automated Ticketing
In the automated ticketing business for live events and public performance venues, CIE faces
competition from venue operators that sell tickets through their own box offices, as well as from
smaller competitors. CIE is sure that, based on its technological advantages from its alliance
with Ticketmaster and its existing business relationship with the majority of venue operators and
promoters in Mexico, its current competition in Mexico is Pazale, Súper Boletos, Smarticket, and
E-Ticket, among others.
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Horse Racing
The operation of horse racetracks in Mexico requires a concession from the Mexican government. The Las Américas Racetrack, operated by CIE under a long-term federal concession
granted in the 1990s, is the only professional horse racetrack authorized and regulated by the
Mexican government to operate in Mexico City. There are other horse racetracks in the country,
but none located in Mexico City. As content for remote betting centers, the Las Américas Racetrack competes with other horse and greyhound racetracks, mainly in the United States.
Remote Sports Betting and Numbers- and Symbols-Based Games in Mexico
In the remote sports betting and numbers- and symbols-based gaming business, CIE faces
competition from certain permit holders that obtained permits from the Mexican government to
operate similar concepts, under specific terms and conditions, throughout the country. CIE also
competes with illegal gambling operations. Starting in 2005, when the Mexican government
granted various groups permits to carry out this type of activity, CIE began to experience more
competition; however, the majority of the permit-holders have few licenses or locations, little
infrastructure and the know-how necessary to increase their share in this market.
Trade Fairs and Expositions
In the trade fair and expositions sector, there is competition from promoters that operate venues
in Mexico City. CIE believes it is unlikely that significant competition will develop given the need
to have access to adequate locations; however, new complexes may be developed in the future.
Recognized competitors in terms of portfolios of own and third-party events are E.J. Krause, a
specialized international group, and Tradex, M.S. Frankfurt e Internacional de Exhibiciones,
among others.
Amusement Parks
Competition in this sector is fragmented, and in Colombia, the competition comes mainly from
family businesses, traditional parks, and temporary and state fairs. The main factors affecting
the competition in this sector are the location, price, quality of food and services, and the quality
of the rides and attractions.
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Until 2009, the operation of CIE’s parks was located in Mexico, with parks in Mexico City,
Acapulco and Guadalajara; in Colombia, with El Salitre in Bogotá; and in Fort Lauderdale,
Florida, with the theme park Wannado City. Due to the sale of assets of the Mexican parks in
2009, plus formal conclusion of operations of the park in Florida, which is not a part of any
subsidiary of the Group, the Company only operates its parks in Colombia, where its main
competitor is the Mundo Aventura park. This park is owned by the Bogotá Chamber of Commerce, which features similar attractions. This park also faces competition from smaller-scale
amusement parks, which are distributed throughout Colombia.
Marketing and Advertising
CIE believes that there are no competitors in Mexico in the area of non-traditional marketing and
promotion that can offer the wide variety of advertising channels that CIE offers, thus CIE faces
competition based on specific advertising segments.
In the pedestrian overpass sector, CIE faces competition mainly from other operators such as
Imágenes de Impacto, Publirex, Publicidad Rentable, Monumentos Espectaculares and De
Haro Publicidad. CIE also competes with Clear Channel, which sells advertising on large trucks
in the state of Mexico, and with Vendor, which operates billboards across Mexico.
In airport advertising, CIE faces competition at the Mexico City Airport from Unidad de Diseño y
Comunicación and from ISA Corporativo, two small marketing groups that sell advertising space
on walkways, baggage claims, and on airport benches. In field-level rotating advertising at
soccer stadiums, CIE mainly competes with Publicidad Virtual.
Call Center Services
In the call services sector, CIE mainly competes in Mexico with Atento, Teleperformances,
Telemark, Top Tel, Megadirecta and Teletech. Competitors generally operate their own call
centers in Mexico City.
2.9. Corporate Structure
At December 31, 2010, Corporación Interamericana de Entretenimiento had 123 subsidiaries
through which it performs operations in its main markets.
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The Company’s main subsidiaries are shown below, with the shareholder structure as at May
31, 2011:
CIE Entertainment
(35.6% of revenues and23.7% of consolidated EBITDA margin in 2010)
Name
Shareholder
structure of CIE
or subsidiaries
Ocesa Entretenimiento, S.A. de C.V.
("OCEN”) .................................................
60.00%
Operadora de Centros
de Espectáculos, S.A. de C.V. .................
Ocesa Anfiteatro, S.A. de C.V. ....................
Grupo Automovilístico Nacional
y Deportivo, S. de R.L. de C.V. ................
Venta de Boletos por Computadora,
S.A. de C.V. (“VBC”) ................................
Main Activity
Principal
Market
Holder of 40% of convertible shares with
Televisa Entretenimiento, S.A. de C.V.
Mexico
100.00%
through OCEN
100.00%
through OCEN
Manager of event facilities and shareholder.
Mexico
Shareholder and operator of performance
venues.
Mexico
50.01%
through OCEN
Promotion and operation of sports races.
Mexico
67.00%
through OCEN
Automated ticket sales.
Mexico
CIE International
(Participation in the revenues and consolidated EBITDA of this division are grouped in CIE Commercial in the Audited
Consolidated Financial Statements attached to this Document)
Name
Shareholder
structure of CIE
or subsidiaries
CIE Internacional, S.A. de C.V. ...................
100.00%
T4F Entretenimiento, S.A (previously CIE
Brasil, S.A.) ................................................
9.81%
Main Activity
Holder of shares in various subsidiaries,
including the Buenos Aires City Zoo.
Promotion and operation of live entertainment
events in Argentina, Brazil and Chile.
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Principal
Market
Latin America
and the USA
Brazil, Chile
and Argentina
CIE Las Américas
(41.7% of revenues and 54.0% of consolidated EBITDA in 2010)
Shareholder
structure of CIE or
subsidiaries
Name
Impulsora de Centros de Entretenimiento
de las Américas, S.A. de C.V.
(“ICELA”) .................................................
51.00%
Main Activity
Shareholder of the companies that operate
racetracks, exhibition centers, numbers-based
games (Yaks and Sports Books) and
performance venues with sports betting.
Principal
Market
Mexico
CIE Amusement Parks
Shareholder
structure of CIE or
subsidiaries
Name
Grupo Mantenimiento de Giros
Comerciales Internacional,
S.A. de C.V(1). ...........................................
100.00%
Main Activity
Amusement parks operator.
Principal
Market
Colombia
CIE Commercial
Name
Shareholder
structure of CIE or
subsidiaries
Main Activity
B-Connect, S.A. de C.V. (previously Grupo
Sitel de México, S.A. de C.V.) ......................
Publitop, S.A. de C.V.(2) ................................
100.00%
Provider of telemarketing services.
100.00%
Unimarket, S.A. de C.V. ..............................
100.00%
Builds pedestrian overpasses and markets
advertising for those pedestrian overpasses.
Markets fixed and static advertising in soccer
stadiums.
Make Pro, S.A. de C.V. ...............................
100.00%
Markets sponsorship rights and advertising
promotion rights.
Principal
Market
Mexico
Mexico and
Panama
Mexico
Mexico
__________
(1)
(2)
In November 2009, the Group sold the companies operating its amusement parks in Mexico, only retaining the operation of the
parks in Colombia (which it still retains) and the USA (it ceased operating Wannado City in the first half of 2011, which is no
longer under Company management).
In July 2008, the subsidiary Ventas de Publicidad de Impacto, S.A. de C.V. purchased 24.99% of the capital of its subsidiary
Publitop, S.A. de C.V. from AOF Negocios, S.A. de C.V., thus becoming the owner of 100% of the capital of that company.
The principal financial operations transacted directly by CIE with its subsidiaries are through
current account and loan agreements. In addition, as part of their normal course of business,
several of CIE’s subsidiaries conduct transactions among themselves, such as the provision of
administrative services, advertising services, technical assistance, equipment leasing, commercial intermediation and licensing or sub-licensing of rights, which are performed and evaluated
according to market criteria as stipulated in the tax laws currently in effect.
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2.10. Description of Main Assets
The Company’s fixed assets, which represent approximately 42.5% of the total assets recorded
at the end of 2010, consist mainly of construction and improvements made to those performance venues and amusement parks over which the Company maintains some type of operating rights, whether as the concession holder, temporary administrative permit holder or lessor. In
addition, CIE’s fixed asset base includes office furniture and equipment, computer and related
equipment, radio and telephony equipment, advertising structures, and transportation equipment, among others. (For a more detailed explanation of the characteristics of the performance
venues and amusement parks operated by the Company, and its remote sports betting halls,
and numbers- and symbols-based gaming, see the section “Description of the Business” in
Chapter II “The Company,” in this Document).
The following table, which is based on the financial statements for fiscal years 2010 and 2009,
attached to this Annual Report, and which reflects accounting based on Financial Report
Standards shown at the start of this Document, breaks down the investments in fixed assets
that the Group had at the close of 2008, 2009 and 2010, including depreciation or amortization
rates, as applicable:
Annual
depreciation or
amortization rate
(%)
December 31
2008
Buildings, mainly buildings at venues under concessions
and permits .....................................................................
Leasehold improvements and improvements to venues
under concession (2) ........................................................
Electronic gaming terminals and Amusement park
equipment and rides .......................................................
Furniture and equipment ..................................................
Computer and peripheral equipment ................................
Billboard and related structural equipment ......................
Transportation equipment ................................................
Radio and telephone communications equipment ............
Other assets ....................................................................
Accumulated depreciation (1) ...........................................
Construction in process ...................................................
2009
2010
Ps. 5,265.6
Ps. 5,360.2
Ps. 5,281.5
(1)
2,078.2
2,079.2
2,114.7
(1)
477.2
823.6
712.1
123.0
75.7
82.8
320.5
9,958.7
(3,091.9)
6,866.8
111.2
Ps. 6,978.0
335.7
798.9
707.6
84.7
100.3
77.5
367.6
9,911.7
(3,460.9)
6,450.8
90.1
Ps. 6,540.9
625.8
932.3
676.3
81.2
75.4
81.3
633.7
10,502.3
(3,952.2)
6,550.1
14.7
Ps. 6,564.8
__________
(1)
(2)
Depreciation is determined according to the terms of the leasing or concession agreement.
Includes a reserve for impairment of long-term assets of Ps. 347.4 in 2010 and 2009, and for Ps. 160.6 in 2008.
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2.5 to 10
10
30
14 to 33
20 and 25
10 and 8
Various
One of the Company’s most important expansion projects is its Sports Books and Yaks network
in Mexico, which it started in 1999 with the opening of its first remote sports betting parlors and
numbers- and symbols-based lottery games at the Las Américas Racetrack in Mexico City. At
the end of 2010 it had 52 outlets of this type in different cities throughout Mexico. There are
future plans to develop an entertainment-based commercial street (family center) and a hotel
with third-party resources inside the facilities of the Las Américas Complex, taking advantage of
the proven experience in managing and developing these concepts by those possible strategic
allies. (For more information, see the sections “History and Development of the Company” and
“Description of the Business,” both in Chapter II “The Company” of this Document).
CIE’s policy is to take out insurance policies with well-known companies with good reputations,
solvency and financial liquidity in the markets in which it operates, and through these policies
CIE covers the risks associated with its asset base. Specifically, CIE holds insurance policies of
the type and for the amounts that it believes to be commercially reasonable, and that are
available in the industry in which it participates. These policies are purchased through companies with proven experience and that have a reasonable ability to cover the risks inherent in the
Company’s operations and management. Seguros Inbursa, S.A. de C.V. is the main company
with which the Group has historically taken out its insurance policies.
2.11. Judicial, Administrative or Arbitration Proceedings
Regulations
The business is subject to extensive regulation by federal, state and municipal authorities with
regard to licenses, approvals and permits, including those related to the operation of public
facilities, consumer protection, and the protection of health and public safety. CIE complies with
the applicable regulations.
Many of the Company’s concessions, licenses and permits are subject to early termination in
the event of any violation or breach of the conditions established in each case, as well as for
reasons of public good or due to government acts.
Consumer Complaints
Although the Company is subject to legal proceedings during the ordinary course of its business, particularly in relation to consumer complaints, these proceedings, whether individual or
collective, are not expected to have a material adverse effect on CIE’s activity, financial situation
or operating results.
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Labor Lawsuits
As of May 2011, CIE and some of its subsidiaries had been sued before the Settlement and
Arbitration Boards. Those proceedings deemed to be relevant are specifically mentioned in this
Annual Report, and the remaining 266 cases are estimated to have a joint contingency of up to
Ps. 80.0. CIE and its subsidiaries have established a provision for contingencies arising from
labor lawsuits of approximately Ps. 14.6.
Lease of the Teatro Orfeón
On September 13, 1996, Operadora de Centros de Espectáculos, S.A. de C.V. (“OCESA”), the
subsidiary that participates in operation of performance venues, entered into an operating
contract with Servicios y Estacionamientos Públicos, S.A. de C.V. in relation to the Teatro
Orfeón, a theater in Mexico City with seating capacity for 2,126. The operating contract granted
OCESA the authority to operate for one year, extendable for one additional six-year period,
subject to OCESA complying with certain conditions, including renovation of the theater.
OCESA invested approximately Ps. 30.0 in theater renovation. After the first year, the owner
moved to evict OCESA, alleging that the operating contract had expired because the parties did
not execute the extension. Due to the foregoing, on May 21, 1998, OCESA filed a lawsuit
against the owner with Superior Court of Justice No. 46 of the Federal District, arguing that the
terms of the extension had already been negotiated, and that the extension was in effect even if
it had not been signed. The extension expired in 2003. Due to this lawsuit, on August 8, 1998,
OCESA obtained an injunction against eviction from the Superior Court of Justice of the Federal
District.
Pending final resolution of this dispute, CIE has chosen not to use Teatro Orfeón since June
1998, although the operating agreement establishes payment of rent based on a percentage of
box office revenues. The Company expects the ruling from the legal authority to be in favor of
OCESA.
Proceedings for Revocation of Two Concessions of the Las Américas Racetrack
On March 10, 2006, Order DGPIF/DCAR-1016/2006 was issued and signed by the General
Directorate of Federal Real Property Heritage, which determines that the two 50-year concessions granted in favor of the company Calle de Entretenimiento Las Américas, S.A. de C.V., a
CIE subsidiary, are appropriate, for a surface area of 2,305.72 m2 and another for 94.22 m2
located inside the federally owned property, identified as the Las Américas Racetrack.
In order to specify the amount that will serve as the basis to determine the rights that the
mentioned company must pay to the federal government for the use and development of the
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assets granted in concession to it, two valuation reports were issued, providing the amount of
Ps. 62.0 as the value of the real property where the store/restaurant/bar Sanborns is located,
and Ps. 3.4 with respect to the real property where the Banamex S.A. branch is located.
Because the Company believes that those amounts were too high and unrealistic, on September 11, 2006, it filed a Review Appeal under the Federal Law for Administrative Procedure.
By Order P/159/2007 dated October 17, 2007, the President of the Institute for Administration
and Valuation of National Assets decided to set aside the valuations in question and ordered
that new, duly founded valuations be issued.
Through the resolutions dated May 27, 2008, the new values of the property in question were
determined for the purpose of paying for the rights provided for in Article 232 of the Federal Law
of Rights in the amounts of Ps. 62.0 for Sanborns, and Ps. 3.4 for the Banamex branch.
Calle de Entretenimiento Las Américas filed another appeal for review on July 14, 2008 against
the valuations listed in the preceding paragraph, with the President of the Institute for Administration and Valuation of National Assets.
On June 29, 2009, the company Calle de Entretenimiento Las Américas was notified of the
ruling confirming the valuations listed above.
On September 15, 2009, the company filed a complaint for dismissal against the ruling listed in
the preceding paragraph, with the Federal Court of Tax and Administrative Proceedings, which
was transferred to the Sixth Regional Metropolitan Court under case number 23894/09-17-06-2.
By means of an agreement dated September 18, 2009, the Sixth Regional Metropolitan Court of
the Federal Court of Tax and Administrative Proceedings admitted the complaint for dismissal
for transfer, and the opposing party responded to it. The authorities being sued already responded, we expert evidence is currently being heard.
94
Various Actions for Dismissal Filed by the Subsidiary, Servicios Compartidos en Factor
Humano, S.A. de C.V. (SECOFAC).
Sixteen dismissal proceedings filed by SECOFAC from October 2003 to October 2007, through
which various credits issued by the IMSS were challenged, which in total represented employer
contributions payable and fines of Ps. 34 (historical value), of which 14 have been favorably
resolved, which represents a total of Ps. 28,8 in debt cancelled to the benefit of SECOFAC, and
the remaining two are still pending in the Regional Metropolitan Courts.
On October 15, 2009, SECOFAC filed two dismissal proceedings for periods 7 and 8 of 2004,
as well as the fourth two-month period of 2004, and the respective fines. These two credits
combined represent Ps. 3, and one of the complaints is pending a response from the IMSS, and
in the other complaint the IMSS has yet to present documentation.
Action for Dismissal Filed by Servicios Administrativos División Comercial, S.A. de C.V.
(SADCOM)
On October 7, 2008, SADCOM filed a Complaint for Dismissal against the change of classification issued by the IMSS for the purpose of worker compensation insurance coverage for April to
June 2008, which was filed with the Eleventh Regional Metropolitan Court under case number
27590/08-17-11-5. The change in classification would entail a payment to be made by
SADCOM for approximately Ps. 4.2 on December 11, 2009. The ruling issued by the Regional
Court was notified, stating nullity of the reclassification issued, and in June 2010 SADCOM was
notified that the ruling stands, thus this case is fully concluded.
Champ Car World Series Complaint
On January 1, 2005, Grupo Automovilístico Nacional y Deportivo, S. de R.L. de C.V. (“GRAND”)
entered into a contract with the United States company Champ Car World Series LLC
(“CCWS”). The objective of the contract was to put on various car races in the Global Series
“Champ Car World Series” in Mexico City from 2005 to 2009. On March 8, 2008, CCWS presented its request for suspension of payments with the US Bankruptcy Court for the Southern
District of Indiana, and subsequently initiated its bankruptcy proceeding, through which CCWS
suspended putting on the races for the years 2008 and 2009, and the process of reviewing the
amounts payable by GRAND for the races in 2007 that CCWS and GRAND had initiated in the
last quarter of 2007. On August 19, 2009, GRAND received notification of a complaint filed by
95
CCWS against GRAND with a court in Indiana for the amount of US$ 812,500 plus interest, as
amounts due for the race held in 2007. GRAND responded to that complaint, alleging that the
court in Indiana is not qualified to hear the case (since the contract that was entered into established the federal courts as the competent courts for resolving differences), and alleging certain
breaches by CCWS, and some withholdings made, and clearance of the burden of taxes to the
Mexican treasury authorities by CCWS, in compliance with the contract that was entered into.
The parties are currently in the stage of analysis and presentation of evidence, and a proposal
by CCWS is being discussed to reach an agreement that would resolve this dispute. The parties
reached a settlement to end the dispute, through which GRAND will pay CCWS the amount of
US$ 75,000 (seventy-five United States dollars).
Hazard and Performance Tax (Review of Reforestación y Parques, S.A.)
On May 13, 2009, the Office of Taxation of the Department of Taxes on Production and Consumption, of the District Taxation Department initiated a review of Reforestación y Parques,
S.A., a Colombian subsidiary (“RyP”), in order to verify that the Hazard and Performance Tax
had been correctly determined from January to December for the years 2005, 2006, 2007 and
2008, and from January to April 2009. On September 15, 2009, an agreement was issued
merging the hazard tax, the public performance tax, and the fund for the disadvantaged, setting
it at 10%. On October 29, 2009, the District Treasury Secretary (“SDH”) imposed a penalty on
RyP for not declaring and paying the tax; on December 11, 2009, the District Treasury Secretary issued official liquidation of capacity, determining that RyP should pay the Hazard and
Performance Tax for the years 2005, 2006, 2007 and 2008 and from January to April 2009; on
February 12, 2010, an appeal for reconsideration was filed in relation to the collection proceeding initiated by the SDH. However, the rulings on penalties and liquidation of capacity were
confirmed, and on February 14, 2011, a complaint for nullity and re-establishment of the right
against the rulings issued by the District Tax Department was filed.
Arbitration proceeding against Reforestación y Parques (RyP), a Colombian subsidiary
In June 2009, the Colombian companies Recrear Ltda. (“RECREAR”) and Esparcimiento, S.A.
(“ESPARCIMIENTO”) (previous shareholders of RyP) initiated an arbitration proceeding against
Reforestación y Parques, S.A. de C.V. (“RyP”) and Mágico, demanding, among other actions,
declaration of breach of the share purchase agreement of RyP, because the agreed number of
tickets for entry to the water park had not been delivered, to pay those tickets in cash, and,
subsidiarily, to repay 1,383 shares of RyP to RECREAR and 928 shares of RyP to
ESPARCIMIENTO. On September 15, 2009, the arbitration complaint was answered, and on
February 2, 2010 the settlement hearing was held, but the parties were unable to reach an
96
agreement, thus the arbitration continued. On September 20, 2010, the arbitration report was
issued, which determined that RyP had to comply with the obligation to deliver the agreed
number of tickets, but it did not have to pay this amount in cash, and it did not have to pay delay
interest. RyP has delivered the tickets for CICI Aquapark to RECREAR and ESPARCIMIENTO,
with an expiration date two years from December 31, 2010.
Complaint of Promotora Turística de Guerrero against Operadora Nacional de Parques Recreativos
Promotora Turística de Guerrero, a decentralized public entity (“PROTUR”), has sued Operadora Nacional de Parques Recreativos, S.A. de C.V. (“ONPR”), the Government of the State of
Guerrero, the Municipality of Acapulco, and Notary Public Number 10 of the District of Tabares.
ONPR was subpoenaed on November 27, 2009, and answered the complaint on December 9,
2009; PROTUR demands dismissal of the operation and administration contract for the CICI
Aquapark, as well as its restitution and possession, plus losses and damages. At this time the
Government of the State of Guerrero has not been subpoenaed.
Complaint by Jorge Javier Noble Gómez against Opera Show, S.A. de C.V. (“Opera Show”)
On May 4, 2011, Opera Show was sued by Jorge Javier Noble Gómez, who claims moral and
equity damages for the adaptation and “improper” use of the work La Pulquería, which was
staged in 1999. The response to the complaint was filed in a timely manner.
Bankruptcy Proceedings
As of the date this Annual Report is filed, none of the situations described in Articles 9 and 10 of
the Commercial Bankruptcy Law of Mexico are applicable to Corporación Interamericana de
Entretenimiento, nor has it declared bankruptcy.
2.12. Shares Representing Shareholders’ Equity
559,330,813 common nominative Series B shares with full voting rights and no par value, fully
subscribed and paid in, of which 30,955,386 are Series B Class I shares, representing the fixed
97
capital, and 528,375,427 are Series B Class II shares, representing the variable portion of CIE’s
capital.
Mexican pesos (ONE BILLION, TWO HUNDRED MILLION AND 00/100 MEXICAN PESOS), through the
issuance of 200,000,000 (TWO HUNDRED MILLION) Series B Class II shares, no par value, at a
subscription price of Ps. 6.00 Mexican pesos (SIX AND 00/100 MEXICAN PESOS) per share.
fixed portion of the Company’s capital was approved in the amount of Ps. 405,879,249.79
Mexican pesos (FOUR HUNDRED AND FIVE MILLION, EIGHT HUNDRED AND SEVENTY-NINE THOUSAND,
TWO HUNDRED AND FORTY-NINE AND 79/100 MEXICAN PESOS) and for the variable portion, the
amount of Ps. 4,305,576,159.21 Mexican pesos (FOUR BILLION, THREE HUNDRED AND FIVE
MILLION, FIVE HUNDRED AND SEVENTY-SIX THOUSAND, ONE HUNDRED AND FIFTY-NINE AND 21/100
MEXICAN PESOS), which reduction was made by writing off Company losses and not through
cancellation of shares, as those shares have no par value.
update CIE’s share capital, and we are now awaiting that approval.
As of this date, there are 559,330,813 shares in circulation, of which 30,955,386 shares are
Series B Class I, no par value, representing the fixed portion, and the remainder of the shares,
528,375,427, are Series B Class II, with no par value, representing the variable portion of CIE’s
capital. Also as of this date, 223,040 shares are deposited as treasury shares, and on January
10, 2010, five employees were assigned 126,910 Series B Class II shares of the 349,950 Series
B Class II shares deposited in the Company’s treasury, which were subscribed and paid in by
the Fiduciary at the same price, that is, at Ps. 19.76 (NINETEEN AND 76/100 MEXICAN PESOS), and
they constitute a second assignment in accordance with the same Executive Stock Option Plan,
established in 2002.
At December 31, 1997, CIE’s capital was Ps. 5,508,911.80 (FIVE MILLION, FIVE HUNDRED AND
EIGHT THOUSAND, NINE HUNDRED AND ELEVEN AND 80/100 HISTORICAL MEXICAN PESOS), comprised
of 63,065,764 shares, of which 4,843,850 shares are Series BI shares (representing fixed
capital), 51,071,914 are Series BII (*) shares (representing variable capital) and 7,150,000 are
Series L (*) (shares with restricted voting rights, representing variable capital). At June 30, 2011,
98
24 acts that have affected CIE’s capital have been verified. They have been duly approved at
the General Shareholders’ Meeting and are summarized below:
Series BI
Shares
Act Modifying Shareholders’ Equity
Series BII
Shares (*)
Series L
Shares (*)
Total Shares
Formation of capital on December 31, 1997 ..............................
4,843,850
51,071,914
7,150,000
63,065,764
Split (1 x 2.42) on February 27, 1998 .........................................
11,722,117
123,594,032
17,303,000
152,619,149
Increase of Series L shares on April 24, 1998 ............................
11,722,117
123,594,032
19,303,000
154,619,149
11,722,117
123,594,032
36,973,374
172,289,523
Conversion of shares from Series BII to Series BI on May 22,
1998 ..........................................................................................
17,012,819
118,303,330
36,973,374
172,289,523
17,012,819
118,303,330
40,673,374
175,989,523
Cancellation of Series L shares on July 15, 1999 .......................
17,012,819
118,303,330
38,495,371
173,811,520
Conversion of shares from Series BII to Series BI on July 15,
1999 ..........................................................................................
18,679,870
116,363,279
38,495,371
173,811,520
Increase of Series B shares on July 15, 1999 ............................
18,679,870
146,636,279
38,495,371
203,811,520
Increase of Series BI shares on February 15, 2000 ...................
20,381,152
146,636,279
38,495,371
205,512,802
Reduction of Series BII shares on February 15, 2000 ................
20,381,152
144,934,997
38,495,371
203,811,520
Conversion of Series L shares to Series BII on February 15,
2000 ..........................................................................................
20,381,152
183,430,368
-
203,811,520
Conversion of Series BII shares to Series BI on September 18,
2000 ..........................................................................................
23,888,752
179,922,768
-
203,811,520
Increase of Series BII shares on September 18, 2000 ...............
23,888,752
214,998,768
-
238,887,520
Increase of Series BII shares on April 26, 2001 .........................
23,888,752
218,665,101
-
242,553,853
Reduction of Series BII shares on April 26, 2001 .......................
23,888,752
218,298,468
-
242,187,220
Increase of Series BI shares on April 26, 2001 ..........................
24,255,385
218,298,468
-
242,553,853
Increase of Series BII shares on October 24, 2001 ....................
24,255,385
285,298,468
-
309,553,853
Conversion of Series BII shares to Series BI shares on October
24, 2001 ....................................................................................
30,955,386
278,598,467
-
309,553,853
Increase of Series BII shares on May 27, 2005 ..........................
30,955,386
328,598,467
Increase of the fixed portion of shareholders’ equity in the
amount of Ps. 564,310,244.51 without issuance of shares on
April 25, 2006 ............................................................................
30,955,386
328,598,467
-
359,553,853
Increase of the variable portion in the amount of Ps.
5,986,215,694.49 without issuance of shares on April 25, 2006 .
30,955,386
328,598,467
-
359,553,853
Decrease of the fixed portion for the amount of Ps.
405,879,249.79 without cancellation of shares on April 29, 2009
30,955,386
328,598,467
359,553,853
Decrease of the variable portion for the amount of Ps.
4,305,576,159.21 without cancellation of shares on April 29,
2009 ..........................................................................................
30,955,386
328,598,467
359,553,853
Increase of the variable portion in the amount of Ps.
1,200,000,000 through the issuance of 200,000,000 shares ......
30,955,386
528,598,467
559,553,853
99
359,553,853
variable portion of the Company’s shareholders’ equity was approved in the amount of Ps.
1,200,000,000.00 Mexican pesos (ONE BILLION, TWO HUNDRED MILLION AND 00/100 MEXICAN
PESOS), through the issuance of 200,000,000 (TWO HUNDRED MILLION) Series B Class II shares,
no par value, at a subscription price of Ps.6.00 Mexican pesos (SIX AND 00/100 MEXICAN PESOS)
per share.
Series and Class
Shares
Capital
BI (fixed capital) ................................................
30,955,386
BII (variable capital) ..........................................
528,375,427
BII Treasury ......................................................
223,040
Total............................................................
559,553,853
Ps.
Exhibitions
189,386,380.72
Fully subscribed and paid in
Ps. 3,209,014,962.28
Fully subscribed and paid in
Not subscribed and paid in
Ps. 3,398,401,343
In July 2009, application was made to the CNBV to update CIE’s share capital, and we are now
awaiting that approval.
2.13. Dividends
The Mexican General Law of Corporations states that Mexican companies may only pay dividends with their retained earnings included in their financial statements after all the losses from
prior years have been absorbed, and at least 5.0% of the net income of the Company is set
aside every year to form a legal reserve fund until that reserve reaches an amount equal to at
least 20% of the paid-in capital of the Company. The amount to set aside for the legal reserve is
determined without reference to inflationary adjustments to the capital.
Subject to approval at a General Shareholders’ Meeting, Mexican companies have the authority
to distribute or not distribute dividends from net earnings (including retained earnings) after
losses from prior years have been absorbed in full, and after setting aside the funds required for
the legal reserve. The declaration, amount and distribution of dividends is determined by the
100
majority vote of the Company’s shareholders, summoned to a General Shareholders’ Meeting,
and in general, but not necessarily, upon the recommendation of the Board of Directors.
To date, the Shareholders’ Meeting of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO,
S.A.B. DE C.V. has not declared any dividend.
101
III. FINANCIAL INFORMATION
1. SELECTED FINANCIAL INFORMATION
(For a more detailed explanation, see the table in the section “Executive Summary” in Chapter I,
“General Information” of this Document. Also see the section “Risk Factors” in Chapter I “General Information” of this Document).
102
2. FINANCIAL INFORMATION BY BUSINESS LINES, GEOGRAPHICAL AREA AND
EXPORT SALES
Revenues by Business Unit
(For a more detailed explanation regarding incorporating revenues and EBITDA from each of
the Group’s five business units, see the section “Description of the Business” in Chapter II, “The
Company,” of this Document).
Revenues by Country
CIE maintains regular and permanent operations in Mexico, the United States and Colombia,
and it operates in Argentina, Chile and Brazil through the minority stake that it holds in its
associated company T4F, whose results are reported using the participation method. (For a
more detailed explanation regarding what is mentioned here, see the section “Recent Events” in
Chapter I, “General Information” of this Document).
The following table shows the contribution to the Group’s consolidated revenues by country for
the fiscal years ended December 31, 2008, 2009 and 2010 (due to the sale of five radio stations
in Argentina at the start of 2010, the revenues generated at the start of this fiscal year are not
reported, considering the discontinued operation, including 2009):
Country
2008
2009
2010
Mexico ..................................
United States ........................
Argentina ..............................
Colombia ...............................
Ps. 8,849.1
207.4
270.8
134.3
Ps. 9,069.8
91.1
Ps. 9,954.7
92.7
122.8
146.4
Total ...............................
9,461.7
9,283.6
10,193.8
103
3. REPORT ON SIGNIFICANT LOANS
At year-end 2010, the Company’s short- and long-term bank and stock market liabilities were
Ps. 6,807.2, while CIE’s level of debt at December 31, 2009 was Ps. 7,033.2. CIE’s level of
interest-bearing debt amounted to Ps. 6,298.6 at the end of 2008. In general, the Company
maintains a portion of its liabilities at a fixed rate. The bank liabilities referred herein represent:
(i) the use of revolving lines of credit with expiration dates of less than one year intended to
finance working capital; and (ii) other credits with short-term expiration dates as well as longer
periods.
At year-end 2010, the Company’s consolidated debt included four debt-denominated securities:
(i) the issue in October 2005 of 14,000,000 in debt-denominated securities with par value of Ps.
100 each; (ii) the issue in June 2008 of 6,500,000 in debt-denominated securities with par value
of Ps. 100 each, and (iii) the issue in December 2006 of 5,000,000 in debt-denominated securities with par value of Ps. 100 each, all three with quarterly capital payments starting in December 2011 and expiring in September 2014. There was also the issue of 2,800,000 debtdenominated securities, each with par value of Ps. 100.00, equal to Ps. 280.0 million, issued in
December 2010 and coming due in March 2011, along with the circulating portion for US$ 13.7
of the bond issued by CIE in international markets in 2005, and expiring in 2015.
(For a more detailed explanation of the Group’s bank and stock market debt, see Note 10
“Analysis of Bank Loans and Financial Instruments” in the Audited Consolidated Financial
Statements at December 31, 2010 and 2009 attached to this Document, and Note 10 of the
Audited Consolidated Financial Statements at December 31, 2008 and 2007, which are an
integral part of the 2008 Annual Report). The following table shows the composition of the
Company’s bank and stock market debt at December 31, 2008, 2009 and 2010:
Item
2008
2009
2010
Pesos .....................................
Foreign Currency ....................
5,162.7
1,135.9
6,119.8
913.5
5,967.7
839.5
Total .................................
6,298.6
7,033.2
6,807.2
Bank .......................................
Stock Market ...........................
3,200.4
3,098.2
4,304.9
2,728.4
4,360.7
2,446.5
Total .................................
6,298.6
7,033.2
6,807.2
DENOMINATION:
TYPE:
TERM:
104
Short Term ..............................
Long Term ...............................
1,674.8
4,623.8
311.4
6,721.8
959.2
5,849.0
Total .................................
6,298.6
7,033.2
6,807.2
CIE .........................................
Subsidiaries ............................
5,085.5
1,213.1
5,752.5
1,280.7
5,554.9
1,252.2
Total .................................
6,298.6
7,033.2
6,807.2
CONTRACTED BY:
(For further explanation regarding the status of credits in relation to the Company, as well as
further explanation regarding the restructuring of CIE’s debt, which was concluded in December
2009, and its update, see the section “Recent Events” in Chapter I, “General Information” in this
Document).
(For further explanation regarding tax credits or debts, see the Audited Consolidated Financial
Statements at December 31, 2010 and 2009 attached to this Annual Report, and to the Audited
Consolidated Financial Statements at December 31, 2008 and 2007, which form an integral part
of the 2008 Annual Report).
105
4. MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE COMPANY’S OPERATING
RESULTS AND FINANCIAL POSITION
Unless otherwise indicated, the annual financial figures for fiscal years 2009 and 2010 in this
section have been prepared in accordance with Mexican Financial Reporting Standards, and
are based on the Audited Consolidated Financial Statements for December 31, 2010 and 2009,
which form an integral part of this Document. The monetary amounts or percentages, as well as
the monetary variations and percentages presented throughout this section may vary due to
rounding. The numbers in this section are stated in millions of pesos.
According to the guidelines of NIF B-10 “Effects of Inflation,” (NIF B-10), starting on January 1,
2008, recognition of inflationary impacts on the financial information was suspended (a departure from inflationary accounting). Consequently, the numbers at December 31, 2009 and 2010
are presented in nominal.
(For more information on how CIE’s financial information is presented, see the section “Note on
Presentation of Financial Information.” Also see the sections “Forward-Looking Statements” and
“Notes on Presentation of Financial Information,” as well as the “Risk Factors” section in Chapter I “General Information,” and other information in this section).
The terms the “period,” the “fiscal year” or the “year” always refer to fiscal year 2010, unless
otherwise indicated.
4.1. Operating Results for Fiscal Year 2010
General
CIE’s consolidated revenues during 2010 were Ps. 10,193.7, which is an improvement over the
Ps. 9,283.6 recorded in 2009. This 9.8% improvement in the Group’s consolidated revenues is
due to the increased attendance levels and growth in average expenditures by visitors to the
Sports Books and Yaks network, whose number of parlors increased in 2010 in comparison with
the previous year. In addition, the increase in the number of people who attended live
entertainment events that the Company produced in Mexico in 2010 contributed to the change
in this line.
106
The Group reported EBITDA of Ps. 1,963.8, which is 20.3% higher than EBITDA in 2009. This
change can be mainly attributed to the increased attendance levels to the Sports Books and
Yaks parlors run by CIE Las Américas, plus higher profitability in the mix of live events produced
by CIE Entertainment during the year, as mentioned in the previous paragraph.
Revenues and EBITDA by division
During 2010, CIE Entertainment had a calendar of events characterized by a mix of higher
operating profit, which translated into a 3.8% increase in revenues over the same period of the
prior year and a 24.3% increase in EBITDA, to end the year with Ps. 466.2.
Revenues at CIE Las Américas during 2010 increased 10.3% to Ps. 3,628.6, compared with
revenues of Ps. 3,497.4 recorded in 2009. This is explained by an increase in the number of
visitors to the Sports Books and Yaks network, as well as to the increase in the average expenditures by visitors to existing and new parlors. As a result of diversification in the technological
mix plus the operating efficiencies implemented, and the progress made in adapting some
outlets of our Sports Books and Yaks network, an increase of 30.7% was recorded in EBITDA
for this division, increasing from Ps. 810.6 in 2009 to Ps. 1,059.8.
In 2010, CIE Commercial’s revenues of Ps. 2,062.0 were 10.3% higher during the period,
compared with revenues during the prior year. EBITDA in 2010 dropped 15.3% to Ps. 425.6,
compared with Ps. 502.5 reported in the prior year.
Operation of the Group’s amusement parks took in revenues of Ps. 248.0 during the year, which
is an improvement over the Ps. 236.4 reported during the same period of the prior year. EBITDA
for the division was Ps. 12.2, which compares favorably with the negative results of Ps. (52.5)
seen in 2009.
CCF
The Comprehensive Cost of Financing, which was Ps. (820.7) in 2009, dropped Ps. 271.6 to Ps.
(549.1), which is the result of recognizing lower net interest paid in comparison with 2009. This
is due to a decrease in the interest rate the Company pays, and to a lesser extent, to the
Group’s lower level of indebtedness, along with a decrease in the exchange rate loss due to the
variation in the exchange rate and the Company’s positions in foreign currency.
107
Tax provision
The tax provision for 2010 includes the Flat-Rate Corporate Tax (Impuesto Empresarial a la
Tasa Única – IETU) levied and deferred for approximately Ps. 149.6. The amount provisioned
as of December 31, 2009 was Ps. 167.9. The Income Tax levied and deferred for 2010 was Ps.
274.7, compared with Ps. 126.7 in 2009.
Minority interest
The minority stake recorded in 2010 was a profit of Ps. 275.6, which compares with a loss in
2009 of Ps. (145.8), which was a product of the net results attributable to third-party shareholder
participation in CIE Entertainment and CIE Las Américas divisions.
Majority interest
In 2010, the Company’s majority interest account was a net majority loss of Ps. (166.8), compared with the Ps. (811.0) reported in 2009. This was mainly due to a larger tax provision during
the year.
108
4.2
Operating Results for Fiscal Years 2009 and 2008
(For a more detailed explanation regarding the financial results for 2009 and 2008, see the
Audited Consolidated Financial Statements at December 31, 2009 and 2008, as well as those at
December 31, 2008 and 2007, which are part of the 2009 and 2008 annual reports. Also see the
sections with the annual reports for the related fiscal years published at www.cie.com.mx and
on the BMV’s web page).
4.3. Financial Position, Liquidity and Capital Resources
Historically, the Company’s sources of liquidity have been: (i) internal generation of resources
through its own operations, including financing through working capital; (ii) assuming bank debt,
(iii) issuing market liabilities, and (iv) issuing capital.
The principal liquidity and capital resources requirements consist of:

Capital investment expenses for current and future operations;

Debt service requirements for present and future needs; and

Costs and expenses related to running CIE’s businesses.
The Company believes that the funds obtained through its operations, together with those
obtained through the use of lines of credit and other financing methods are adequate to meet its
needs related to servicing its debt, working capital and short-term capital investment expenses.
This situation may change, however, if the Company enters into new strategic partnerships or
joint ventures. In addition, the future performance of CIE’s operations, and its capacity to service
and repay its debt are subject to certain economic conditions and relative to its competition, in
addition to other business and financial factors that may arise in the future.
For the fiscal year ended December 31, 2010, the Company recorded net cash flows from
operating activities of Ps. 1,302.2, net cash flows from investment activities for Ps. 606.3, and
net cash flows from financing activities for Ps. (377.9).
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For the fiscal year ended December 31, 2009, the Company recorded funds generated by
operations in the amount of Ps. (170.7), net cash flows from investment activities in the amount
of (450.7), and net cash flows from financing activities for Ps. 587.7.
(For a more detailed explanation, see the section “The Company’s Principal Investments” in
Chapter II the “Company”).
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Indebtedness
(For a more detailed explanation, see the section “Report on Significant Loans” in Chapter III
“Financial Information.” In addition, for more information regarding the Company’s tax credits or
debts, see the Audited Consolidated Financial Statements at December 31, 2010 and 2009,
attached to this Document).
Lines of Credit
(For a more detailed explanation on lines of credit, see the section “Recent Events” in Chapter I,
“General Information” of this Annual Report).
Derivative Financial Instruments
The Company's derivative financial instruments at December 31, 2010, are the following:
Notional amount:
$24.0
Contract:
Swap
Contracted:
February 29, 2008
Expiration:
December 19, 2012
Market value:
($2.7) at December 31, 2010
($1.8) at December 31, 2009
As of this date, the Company has complied with all of its obligations under the current instrument. If the Company were to require financial resources in relation to this instrument, it may
use internal resources and not any external financial source.
Management's discussion on the policies regarding the use of derivative financial instruments,
explaining if those policies allow them to be used only for hedging purposes, or if there are other
goals, such as trading.
CIE has internal control practices and criteria that are applied to operations with derivative
financial instruments. In general, the Company has entered into these operations with the
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objective of reducing the volatility of the currency exchange rates to which it is exposed. CIE
only uses derivative financial instruments for hedging purposes, and does not contract derivative instruments for trading purposes, however, during their period of effectiveness, and given
the requirements to be able to comply with hedge accounting criteria, the instruments may not
qualify as hedge accounting instruments.
The practice that Management has been following consists of derivative financial instrument
operations, as required, being discussed in CIE's Audit and Corporate Practices Committee,
and/or in the Board of Directors Meetings.
The derivative financial instruments that the Company has used are mainly foreign currency
forward contracts, and contracts through which the bilateral obligation to exchange cash flows
on pre-established future dates is established over a nominal or reference currency value
(Cross Currency Swap), to convert the currency in which both the principal and interest of a
financial liability with cost is denominated.
Framework contracts are entered into for derivative financial instruments transactions with
domestic and foreign financial institutions. When contracting derivative financial instruments
with foreign parties, the Company uses the master contract approved by the International
Swaps and Derivatives Association, Inc. ("ISDA"), and in the cases in which Mexican companies are contracted with, the Company has used the format approved by the ISDA and the
format recommended by Banco de México. In both cases, the main conditions or terms are
standard in this type of transaction, including mechanisms to designate calculation or valuation
agents. Also entered into are standard guarantee contracts that determine the policies regarding
margins, collateral and lines of credit that must be granted at certain times. The credit limits that
the financial institutions with which the Company enters into derivative framework contracts are
established in these contracts, and they apply in the case of possible negative fluctuations in the
market value of the open positions in derivative financial instruments. In conformance with the
contracts entered into by the Company, financial institutions establish margin calls in the event
that certain limits are exceeded. Both at December 31, 2010 and the date of this document, the
Company has no margin calls.
The established operations have followed the practice of designating the other party as the
calculation or assessment agent. To date, a specific independent third party has not been hired
to review those procedures. Nevertheless, the control processes and corresponding records are
worked on internally.
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Generic description of assessment techniques, distinguishing the instruments that are assessed
at cost or at fair market value in terms of applicable accounting rules, as well as assessment
methods and techniques with relevant reference variables and the assumptions used. There is
also a description of the policies and frequency of assessment, and the actions established as a
function of the assessment obtained.
The assets or liabilities resulting from the rights and obligations established in the Company's
derivative financial instruments are recognized at their fair market value, which is initially
represented by the agreed consideration, and subsequently the fair market value of financial
assets and liabilities is represented by the market price. The market price is determined by an
independent third party, which is the party with which the derivative financial instruments have
been agreed.
The result of that valuation is recognized in the results for the period, unless it is in relation to a
cash flow hedge in which the effective portion of the gains or losses is recognized within the
integral income account in accounting capital, and the ineffective portion is immediately recognized in the results for the period.
To evaluate the effectiveness of the hedge, the Company verifies that the characteristics of the
hedge instrument and the primary position are equal (notional amount, reference rates for
payment and collection, and the related bases, the effectiveness of the contract, the date of
establishing the price and payment, dates of settlement and liquidation, among others).
Management's discussion on the internal and external sources of liquidity that could be used to
meet the requirements related to derivative financial instruments.
To date the Company has complied with all the obligations to which it has committed in relation
to current derivative financial instruments. If necessary, the Company could use internal funds,
but it is not expected that any external funds will have to be used. However, the Company
keeps lines of credit with financial institutions open and qualified, which would allow it to meet
the obligations arising from derivative financial instruments and other obligations.
Explanation of changes in exposure to the main risks identified and in managing those risks, as
well as contingencies and events that are known of or expected by Management, which may
have an impact on future reports.
The financial risks to which the Company is exposed include third party, exchange parity and
interest rate risk. CIE’s Board of Directors and the Management and Finance Board periodically
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and specifically monitor those risks. Changes in the exposure of various risks are made in
accordance with the instructions of the Company's Board of Directors, as well as the Management and Finance Board. At this time, the Company has no knowledge of any event that may
modify exposure in future reports. In addition, it has no knowledge of any movement that
significantly impacts our reference variables and that could be recognized and revealed in our
financial statements.
The effects due to changes in the fair market value of derivative financial instruments at December 31, 2010, are detailed at the start of this Document, and are recognized in the breakdown of the main lines on the income statement.
Rotation of Working Capital
Furthermore, for the purpose of making the working capital of certain of CIE’s subsidiaries more
efficient, whose activities are related to marketing advertising sponsorships for events and
performance venues in Mexico, and field-level rotating advertising at professional soccer
stadiums in Mexico, at the end of 2009 discount operations for accounts receivable were
recorded with some Mexican banks for Ps. 158.9. At the end of 2010, the Company had no
balance whatsoever for this type of transaction.
Treasury Operations
At present, CIE manages a system of centralized shared services in Mexico (payroll, investment
of surpluses, obtaining and managing lines of credit, purchase and sale of foreign currency and
other securities, as well as payments and taxes, among other specialized items), at all times
under the control and oversight of the Group’s Corporate Division. For this purpose, general
policies and procedures are established and validated by the internal auditing unit of the Corporate Treasurer’s Office for each and every service and product used by the Company’s different
treasury offices.
In order to adequately manage its investments, CIE uses the practice of investment pools, by
which it obtains and selects the best investment rates. The goal of these investment transactions is to obtain the highest return while reducing risk, thus investments are made exclusively in
government paper and bank acceptances from AAA banks, through auctions of cash surpluses
by means of a multi-dealer system, thus ensuring the best available return at that time.
CIE operates with solid financial institutions, both local and international, and believes that it has
the best available services dedicated to corporate treasury activities. In addition it has an
Electronic Treasury System comprised of modules (revenues, expenditures, investments,
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reconciliations, inter-company operations, financing and cash flow) that allow the Company to
automatically manage, control and record transactions on a single platform.
In particular, the Company holds cash positions both in Mexican pesos and in foreign currency,
mainly United States dollars.
4.4. Devaluation and Inflation
Mexico is the Company’s main market. The Mexican peso has recently experienced substantial
exchange rate volatility against foreign currencies, and Mexico has experienced significantly
high inflation. These factors affect Mexico’s economy in general, which could translate into a
negative impact on the Group’s operations:

A devaluation of the Mexican peso generally results in a significant decrease in the purchasing power of the Mexican consumer, which translates into a contraction in the demand for live entertainment services and products. CIE seeks to mitigate that impact on
demand by modifying the mix of its products, including a greater number of smaller-scale
events performed with local artistic talent.

Due to market conditions as well as the overall state of the Mexican economy, the Company does not always have the capacity to increase its prices in line with inflation, which
has historically been significant during certain periods. This negatively affects the
Group’s gross margin. However, that effect is mitigated by the fact that the increase in
the royalties for artistic talent (which is paid in Mexico pesos) generally lags behind inflation.

CIE’s costs and income denominated in United States dollars are generally not substantial when compared to the Group’s consolidated totals. In a period of significant devaluation of the Mexican peso, this ratio may negatively affect CIE’s margins, and the Company seeks to mitigate that effect through the natural coverage provided by the advance
sale of entry tickets to its live events, and the respective income that is obtained in foreign currency to pay for the artistic talent that is hired. CIE also seeks to mitigate this effect through the sale of certain advertising sponsorships to clients in United States dollars for live international events.

A net liability position denominated in United States dollars could lead to material exchange rate losses during periods of devaluation of the Mexican peso against the US
dollar. This is because the appreciation of the US dollar results in an increase in the
amount of Mexican pesos to be converted to US dollars earmarked to pay dollardenominated liabilities.
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
Until 2010, the inflationary effect on CIE’s net monetary position denominated in Mexican
pesos could have resulted in a non-monetary gain or loss, depending on CIE’s asset or
liability position. For example, a gain on monetary position results from holding net monetary liabilities in Mexican pesos during inflationary periods, as the purchasing power of
the Mexican peso declines over time.
The economic conditions resulting from the factors described above have affected and may
negatively affect the Group’s financial condition. At December 31, 2010, 12.3% of CIE’s bank
and stock market liabilities were denominated in foreign currency (mainly US dollars). At the
close of 2009, the percent of bank and market liabilities in foreign currency was 10.0%. Specifically, the Group holds its debt in foreign currencies, mainly in United States dollars, and to a
lesser extent, in euros and Colombian pesos. If anything were to occur to devaluate the Mexican peso, the Company’s debt in Mexican pesos would increase, due to an increase in CIE’s
debt service that is denominated in Mexican pesos.
During 2008, 2009 and 2010, there were no relevant unregistered transactions.
4.5. Internal Control
General
Through its Corporate Office of Administration and Finance, CIE has focused its efforts on
updating the existing rules, and making the appropriate adjustments to its information systems.
Policies are updated on an ongoing basis in an effort to adapt them to new requirements,
improve their efficiency, mitigate risks, and ensure compliance with prevailing legislation on
corporate governance.
The Group has an Internal Audit area that reports to CIE’s Audit and Corporate Practices
Committee, which in turn reports to the Company’s Board of Directors, which is presided over
by an independent board member.
The fundamental purpose of the Internal Audit area is to provide advice, consulting and support.
Through its independent, objective assessments, it provides added value in attaining the
Group’s goals. It provides a systematic and disciplined focus for assessing and improving the
efficiency of the processes of risk management, control, and corporate governance. Internal
Audit is aligned with the Group’s structure (by Divisions), and it seeks to create a culture of selfcontrol within the Group.
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Prevention and detection of money laundering and operations with funds from illegal sources at
CIE Las Américas
The following is an operating report on the remote betting and numbers-based gaming centers
of CIE Las Américas, and the internal controls implemented to prevent and detect moneylaundering activities and operations with funds from illegal sources.
Administradora Mexicana de Hipódromo, S.A. de C.V. (“AMH”), as the leader in the Mexican
market as part of the Las Américas division, develops its competitive advantages through the
generation and distribution of value to each direct and indirect participant in the legal gaming
industry in Mexico, as well as with other business activities, such as Centro Banamex and
Granja Las Américas. These participants include providers, creditors, customers, government
entities, society in general, shareholders and strategic allies, as well as employees, workers and
corporate officers, and those in the Division. For all of these participants, building up the image
and reputation of the Sports Books and Yaks operations and of the Las Américas Racetrack is a
way of strengthening the Company’s out-of-home entertainment products and services.
Capturing legal remote sports-betting, numbers-based and symbols-based games has an
increasingly significant weight in the businesses of AMH and CIE, as a result of larger operating
volumes, visitor flow, and cash managed for a market that demands professional entertainment
alternatives in this category. Numerous players in Mexico have entered into this segment in
recent years, with growing operations that are spread throughout the entire country.
Businesses of this type are traditionally associated with engaging in dishonest, illegal or unethical behavior through which financial or legal benefits are attained that affect the gaming companies’ business models, strategies, objectives, organizational climates, image and reputation, and
ethical infrastructures, tainting those associated with the value chains. Examples of the foregoing are the theft of physical assets, robbery, loss of or attacks on information, managing
conflicts of interest, financial embezzlement, fraud among suppliers, internal collusion, breach of
internal rules (policies, processes, procedures) and external rules (laws, codes, regulations),
piracy, internal financial theft, and money laundering.
AMH’s upper management works proactively and is aware of its responsibility to prevent money
laundering and terrorism financing. Thus it has installed a Compliance Program that is built on a
series of policies and procedures that are applied to the products and services it offers. Its
Compliance Program is formalized through: (i) a Compliance Area, (ii) a person appointed to
monitor execution of the Compliance Program; and (iii) policies for preventing money laundering.
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(i) The Compliance Unit of CIE Las Américas has gone through a phase of improving its internal
operating regulations, innovation, and implementation of internal monitoring systems and
entities, and corporate governance, together with standardization of operating, financial and
administrative processes and procedures, and the incorporation of the phase to correct the
Unit’s basic activity processes.
(ii) In terms of the ability of the Office of Compliance to perform its functions and obligations, it is
properly formed to perform compliance activities.
(iii) To ensure the implementation of its policies and controls to prevent money laundering and
the financing of terrorism, the Compliance Unit reports to the Audit Committee of the Company’s
Board of Directors, and to the General Management Team of CIE Las Américas in project
requests, and it also maintains communication with CIE’s Corporate Director of Administration
and Finance, thus creating a transparent procedure both for the supervisory position, as well as
its own prevention activities.
The Compliance Unit analyzes the reasonability of operations in order to determine the level of
unusualness and the viability of reporting to the authorities. The functions of the Compliance
Unit include, but are not limited to, carrying out the training program, developing updates to
standards, designing new procedures, implementing corrective actions formulated by SEGOB,
as well as the recommendations issued through internal audits and independent reviews, as a
commitment to continuous improvement to control aspects detected.
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5. CRITICAL ACCOUNTING POLICIES
The Group’s financial information is prepared in conformance with Financial Reporting Standards in Mexico (Normas de Información Financiera – NIF). The NIF establishes that International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretation of International Financial Reporting Standards (IIFRS), and the Interpretations Committee
(SIC) are supplemental to the NIF when the NIF so requires.
In January 2009, the National Banking and Securities Commission published modifications to
General Provisions Applicable to Securities Issuers and Other Securities Market Participants, to
establish the requirement that Issuers must prepare and release their information based on the
IFRS, starting in 2012, and allowing early adoption of those standards.
CIE and its subsidiaries are in the process of determining the effects of adopting the IFRS.
The most significant accounting policies are summarized below, which policies have been
applied consistently.
NIF requires certain estimates and the application of certain criteria by CIE’s management.
Those estimates and application of criteria are based on the Group’s prior experience, current
trends, and other factors that CIE’s management believe have a certain importance in preparation of financial information.
CIE believes that the following accounting policies are highly complex, and require the use of
judgment by its management. These Critical Accounting Policies have had the same criteria for
application throughout all of the Group’s businesses.
Property, Plant and Equipment
CIE’s fixed assets are mainly comprised of buildings and improvements to entertainment
centers, including those properties to which the Company holds a right of use under concession,
revocable temporary administrative permits, and leases.
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Property, plant and equipment is stated as follows: (i) acquisitions made as of January 1, 2008
at historical cost, and (ii) acquisitions made until December 31, 2007, at their actualized values
determined by applying factors arising from the INPC to their acquisition costs until December
31, 2007. The depreciation of buildings, equipment and other depreciable assets is basically
determined using the straight-line method according to the useful life of the assets or the terms
of the concessions, temporary revocable permits, or lease periods. The expenses that substantially improve or increase the useful life of buildings are capitalized. Maintenance and repair
costs are recorded when they are incurred. Gains and losses from writing off fixed assets are
recognized in the income statement when they occur.
Long-term tangible and intangible assets are subject to a deterioration assessment in light of
events or changes in certain circumstances that indicate that the amount of a group of assets
may not be recoverable. Asset recovery is measured by comparing the actual amount of a
group of assets and the current estimate of their future net discounted cash flows. If the value of
a group of assets exceeds the value of its future discounted cash flows, impairment is recognized
for the amount by which the value of the assets exceeds their adjusted value.
Key factors in the fixed asset policy include estimating the useful life of the various types of
assets that CIE has, the choice of using the straight-line method to record depreciation, the
Group’s criteria regarding capitalization or recognition of expenses related to the fixed asset,
and determining the impairment of a fixed asset or assets of the Company. Estimating the useful
life of fixed assets impacts the level of expense for the annual depreciation that is recorded.
The assessment of whether an expense related to the fixed asset substantially improves or
increases the useful life of an asset, and which is appropriately capitalized in addition to the
asset’s cost basis, or if it is recorded as a consequence of maintenance or repair activities, may
also significantly affect the operating results in a given period, as well as the Company’s financial position.
Intangible Assets
Other assets represent intangible assets recognized on the balance sheet, since they are
identifiable, provide future economic benefits, and there is control over those benefits. Intangible
assets with a defined life are systematically amortized based on the best estimate of their useful
life, which is determined according to the expectation of future economic benefits. The value of
these assets is subject to an annual evaluation over their recoverable value to determine the
existence of losses due to impairment in their value. Amortization is calculated using the
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straight-line method based on the useful life of the assets. The value of these assets is subject
to an annual evaluation of impairment.
Trademarks and patents represent payments made for usage rights to them, and amortization is
calculated as described above.
CIE frequently hires outside experts to validate the methodology and assumptions considered in
assessing the abovementioned analyses.
Deferred Income Tax and the Deferred Flat-Rate Corporate Tax
With respect to the deferred Income Tax and the Deferred Flat-Rate Corporate Tax, the Company complies with the criteria in NIF D-4 (“Income Tax”), upon which basis the Deferred Income
Tax and the Deferred Flat-Rate Corporate Tax are determined and recorded based on the
comprehensive assets and liabilities method, which requires that a deferred tax be recognized
for all temporary differences between the accounting and tax values of the assets and liabilities
that are expected to materialize in the future. These differences result in the creation of deferred
assets and liabilities, which have been included in our consolidated financial statements. A
valuation reserve has also been determined that is based on our estimates of the taxes that will
be levied in the future and the on the period for which they will be recoverable.
CIE believes that certain criteria must be applied to determine the provisions for Income Tax, the
Flat-Rate Corporate Tax, Deferred Income Tax, and the Deferred Flat-Rate Corporate Tax.
Valuation of reserves is based on the Company’s estimates of earnings before taxes, and on the
period for which the active deferred tax is recoverable. If actual results differ from these estimates, or if the Company makes adjustments in future periods, it will be necessary to establish
additional valuation provisions, which could materially affect the Company’s financial position
and results.
Employee Profit-Sharing
The Company is subject to payment of Employee Profit-Sharing (Participación de los Trabajadores en la Utilidad – PTU), which is calculated according to the procedures established by the
Income Tax Law. The taxable base of the PTU defers the accounting result mainly so that for
accounting purposes, actualized depreciation and the exchange fluctuation is recognized, while
for PTU purposes, historical depreciation and the exchange rate fluctuation are recognized
when required, for time differences in which some lines are accumulated or deducted in the
books for PTU purposes, as well as for those lines that only affect the accounting result or the
PTU for the year.
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Consolidation Method and Valuation of Permanent Investments in Shares
In accordance with NIF B-8 (“Consolidated or Combined Financial Statements”) issued by the
CINIF, the companies in which CIE has direct or indirect control are incorporated via financial
statement consolidation. The conclusion about whether or not the Company has control with
respect to a Specific Purpose Company or Specific Purpose Entity (SPC) depends on the
assessment of various factors that require, in certain cases, Management’s judgment regarding
the terms and conditions of the investment, including analysis of the majority representation in
the Board of Directors of the Company and the shareholder structure.
The entities over which CIE exercises significant influence but not control are recognized using
the equity accounting method in conformance with NIF C-7 “Investments in Associated Companies and Other Permanent Investments” issued by the CINIF. The condition for determining
whether or not CIE exercises significant influence over a certain company depends on several
factors, including, among others, its representation on the Board of Directors of that company
and the shareholder structure.
The financial statements of foreign subsidiaries are updated using the National Consumer Price
Index of the country in which the entity reports its operations and, subsequently, they are
converted at the exchange rate in effect at year-end. The effect of exchange rate fluctuations is
included directly in the shareholders’ equity in the line “Accumulated effect due to conversion of
foreign entities.”
Liabilities, Provisions, Contingencies and Commitments
CIE’s liabilities represent a current obligation, and the liability provisions recognized on the
balance sheet represent current obligations for which the outlay of financial resources to liquidate them is probable. These provisions have been recorded for accounting purposes using the
best reasonable estimate made by Management to liquidate the current obligation. However,
actual results may differ from the provisions recognized.
Derivative Financial Instruments
All derivative financial instruments classified for trading or hedges for market risk are recognized
on the balance sheet as assets and/or liabilities at their fair market value.
Fair market value is determined based on recognized market prices.
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Changes to the fair market value of those derivative financial instruments is recognized in the
comprehensive cost of financing, except when they are contracted in order to hedge risks and
they comply with all hedging requirements, and their designation is documented at the beginning of the hedge operation, describing the objective, primary position, risks to the hedge, type
of derivatives and measurement of effectiveness of the ratio, characteristics, accounting recognition, and the manner in which the effectiveness applicable to that operation will be measured.
In hedging fair values, both the derivative and the hedged item are valued at their fair market
value, and fluctuations in valuation are recorded in the results on the same line as that for the
hedged position; in cash-flow hedges, the effective portion is temporarily recorded in total profits
in shareholders’ equity, and it is reclassified to results when the position that it hedges affects
results, and the ineffective portion is recognized immediately in the results.
Changes in the fair market value of derivative financial instruments used for trading are recognized in the comprehensive cost of financing.
The Company suspends recording hedges for accounting purposes when the derivative has
expired, has been sold, is cancelled or exercised, when the derivative is not highly effective in
offsetting the changes in fair market value or effective cash flows of the hedged item, or when
the entity decides to cancel designation of the hedge.
Upon suspension of recording hedges for accounting purposes, in the case of hedges of cash
flow, the amounts accumulated in shareholders’ equity as part of total profits remain in shareholders’ equity until the time that the effects of the projected transaction or firm commitment
affect the results.
Recognition of income
(See Note 3 “Summary of Significant Accounting Policies” in the Financial Statements for
December 31, 2010 and 2009, attached to this Document).
Adopting International Financial Reporting Standards
The Company recently reported the relevant event regarding the advance of its program to
implement International Financial Reporting Standards, pursuant to the request made by the
CNBV to issuing companies that trade on the BMV. Therefore, the Company has regularly, and
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at with the proper frequency, revealed those advances in its quarterly financial statements, for
the benefit and interest of the investing public. (For more information, see the “Investors” section
on the Company’s web page www.cie.com.mx, or on the web pages of the BMV and the CNBV).
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IV. MANAGEMENT
1. EXTERNAL AUDITORS
After analyzing and assessing the external audit function and considering the amount of fees
paid for the fiscal year from January 1 to December 31, 2010, CIE’s Audit and Corporate
Practices Committee recommended that the Board of Directors of CORPORACIÓN
INTERAMERICANA DE ENTRETENIMIENTO hire the Companies PwC and Gossler, which performed
the outside auditing work for fiscal year 2010.
That Committee also confirmed that the requirements of independence and rotation of supervisory staff had been met. It also reviewed the procedures and scope of audit tests, as well as the
auditors’ comments regarding internal control. It reviewed the Group’s financial statements at
December 31, 2010, the auditor’s report, and the accounting policies used to prepare them, and
it complied with the Securities Market Law. After hearing the comments of the external auditors,
it recommended to CIE’s Board of Directors that it approve the financial statements for consideration at the Shareholders’ Meeting.
For fiscal years 2008, 2009 and 2010, PwC invoiced and charged the Group for accounting
auditing services and services other than auditing services, the amounts of Ps. 13.4, Ps. 15.6
and Ps. 17.6. Of these amounts, approximately 24.9%, 33.0% and 49.0% were for services
other than auditing services performed in the three mentioned fiscal years, respectively, fundamentally in tax and business consulting, and for collaborating in implementation of the IFRS and
training regarding IFRS in 2010.
Gossler invoiced and collected from CIE for accounting auditing services and tax services, the
amounts of Ps. 3.9, Ps. 3.8 and Ps. 3.8 in relation to fiscal years 2008, 2009 and 2010, respectively, of which 9.5%, 2.9% and 1.6% are for services other than accounting auditing services.
During the Company’s existence, no qualified or negative opinion has been issued by either of
the abovementioned firms that perform auditing work for CIE, nor has either firm refrained from
issuing an opinion regarding the Company’s financial statements.
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2. TRANSACTIONS WITH RELATED PARTIES AND CONFLICTS OF INTEREST
As part of its activities during the normal course of business, the Company carries out, and
plans to continue carrying out, a series of transaction with related parties, all of which are done
according to prevailing market conditions, therefore the terms of these transactions are deemed
to be no less favorable than those that could be applied to transactions with unrelated third
parties. The main transactions between CIE and third parties are current account credit agreements that CIE maintains with its subsidiaries. Based on these agreements, as well as other
non-significant transactions the Company carries out with its subsidiaries, as of December 31,
2010, there were several accounts payable between CIE and its subsidiaries.
During 2010, Company regularly hired the law firm González Calvillo, S.C. to provide legal
advisory services. Mr. Enrique Arturo González Calvillo, the brother of Mr. Rodrigo Humberto
González Calvillo, who is the Chief Executive Officer of CIE Las Américas and Vice President of
CIE’s Board of Directors, is a partner at that law firm. In 2010, this law firm billed the Group
approximately Ps. 3.5. Mr. Enrique Arturo González Calvillo currently serves as a non-member
Regular Secretary of the Board of Directors.
It is important to note that in operations with related parties related to companies with an interest
in the Company, the only relevant transactions are those with Grupo Financiero Inbursa, S.A. de
C.V. and some of its affiliated companies, which, through Arrendadora Inbursa S.A., Seguros
Inbursa S.A., and Fianzas Guardiana Inbursa S.A., affiliated companies that provide the Group
with various banking and financial services, represented an approximate billing volume of Ps.
51.9 and US$ 132.7, which does not include the credits obtained by the Company with Banco
Inbursa. Seguros Inbursa and Fianzas Guardiana Inbursa are the Group’s main insurance and
bonding companies.
In compliance with the Securities Market Law, the Company has taken the necessary measures
to report transactions with related parties, both those related to its Board of Directors, as well as
to the Audit and Corporate Practices Committee.
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3. BOARD MEMBERS AND SHAREHOLDERS
Pursuant to the provisions of the Securities Market Law published in the Official Gazette of
Mexico on December 30, 2006, administration of companies listed on the stock exchange
(Sociedades Anónimas Bursátiles – SAB) will be entrusted to a Board of Directors and a Chief
Executive Officer.
Board Members
CIE’s Board of Directors is currently comprised of nine regular members (there are no alternate
members), of whom one is an owning board member, four are related members, and four are
independent board members. Their functions are stipulated in Clause Twenty-One and TwentyTwo of the Company’s By-Laws, and form part of this Document. (For further explanation, see
the section “Corporate By-Laws and Agreements” in Chapter IV, “Administration” of this Document).
The Board of Directors is elected annually at the General Annual Ordinary Shareholders’
Meeting. The current members of the Board of Directors were appointed and approved at the
General Annual Ordinary Shareholders’ Meeting held on April 14, 2011. The members of the
Board of Directors do not have to be shareholders and remain in their position for one year, and
may be reelected. The following is information on CIE’s current board members:
Name
Position
Date of Birth
Luis Alejandro Soberón Kuri ...................................
Chairman
5 / 31 / 1960
Rodrigo Humberto González Calvillo .....................
Vice Chairman
9 / 13 / 1963
Juan Manuel Pérez Díaz ........................................
Related Board Member
9 / 17 / 1960
Federico González Compeán .................................
8 / 11 / 1963
Leopoldo Escobar Latapí .......................................
Independent Board Member
Member of the Audit and Corporate
Practices Committee
4 / 21 / 1961
Jorge Fernández de Miguel ...................................
President of the Audit and Corporate
Practices Committee
4 / 13 / 1950
Carlos Elizondo Mayer-Serra .................................
Alternate President of the Audit and
Corporate Practices Committee
2 / 23 / 1962
Bernardo Malpica Hernández .................................
1 / 27 / 1966
Víctor Manuel Murillo Vega ....................................
Member of the Audit and Corporate
Practices Committee
4 / 05 / 1959
Enrique Arturo González Calvillo ............................
Non-Member Regular Secretary of the
9 / 21 / 1959
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Board of Directors
Mónica Lorenzo Gutiérrez ......................................
Non-Member Alternate Secretary of the
Board of Directors
4 / 26 / 1976
The following is a brief biography of the members of CIE’s Board of Directors:
Luis Alejandro Soberón Kuri is the founder of CIE and has been the Chairman of the Board of
Directors and Executive President of the Group since its inception. Since December 2006 he
has served as CIE’s Chief Executive Officer. Prior to working as a businessman in the entertainment industry, Luis Alejandro Soberón Kuri was a film producer. Mr. Soberón Kuri was a
member of the Board of Directors of Teléfonos de México, S.A.B. de C.V. (Telmex) and Grupo
Aeroportuario del Sureste, S.A.B. de C.V. He is currently a member of the Board of Directors of
Banco Nacional de México, S.A., and América Móvil, S.A.B. de C.V. Mr. Soberón graduated
with a degree in Business Administration from Universidad Iberoamericana in Mexico City.
Rodrigo Humberto González Calvillo has been the Vice President of the Board of Directors of
CIE since 2001, and is currently the Chief Executive Officer of the CIE Las Américas Division.
Mr. González Calvillo joined the Group in 1990 when he started up the operations of Venta de
Boletos por Computadora, S.A. de C.V., the company in a joint venture with Ticketmaster
Group, Inc., where he served as Chief Executive Officer until 1994. From 1994 to 2000 he was
the Group’s Director of Business Development for the Entertainment Division. Subsequently,
from 2000 to 2006, he served as Chief Executive Officer of the CIE Group, and from 2006 to
2008 he acted as Deputy Chief Executive Officer of the CIE Group. Rodrigo González Calvillo
holds a degree in Business Administration from the University of Southern California.
Juan Manuel Pérez Díaz has been a CIE Board Member since 2009, and he is the Commercial
Director of CIE Commercial. Mr. Pérez Díaz joined the Group in 1996, taking over the position of
Commercial Director, and subsequently acting as Chief Executive Officer of Make Pro, S.A. de
C.V. Previously, between 1985 and 1994, he acted in various management positions in companies such as Productos Nacobre, S.A., where he was responsible for the Human Resources
and International Sales areas. He also worked at The American Express Company (Mexico),
acting as the Manager of Key Accounts and the Senior Manager of National Sales. In 1994,
Manuel Pérez Díaz was the Commercial Director of Organización Britania. Manuel Pérez Díaz
holds a degree in Industrial Relations from Universidad Iberoamericana, where he regularly
lectured in the Business Department between 1983 and 1991.
Federico González Compeán has been a CIE Board Member since 1995. Prior to joining CIE,
Mr. González was a television producer, he won the National Journalism Prize in 1987 for the
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show Hoy en la Cultura on Channel 11, he was Director of Teatro de la Ciudad, the Auditorio
Nacional and Palacio de los Deportes, and he also acted as Director of Ocesa Presenta,
producing the Broadway musicals Beauty and the Beast, Phantom of the Opera, Les
Misèrables, and Mentiras, among others. He was the Chief Executive officer of CIE España. He
also occupied the post of Director of CIE’s Contents Division, which produced several films for
AltaVista Films, such as Arráncame la Vida. He is currently the Director of CIE’s International
Division. Mr. González holds a Communications degree from Universidad Autónoma Metropolitana in Mexico City, a degree in Photography from the University of California at Los Angeles
(“UCLA”), and he has taken various refresher and study courses at the Panamerican Institute of
Upper Management for Companies (Instituto Panamericano de Alta Dirección de Empresas –
IPADE).
Leopoldo Escobar Latapí has been a CIE Board Member since April 2009. He was named by
the Company’s Shareholders’ Meeting on April 14, 2001 to act as President of CIE’s Audit and
Corporate Practices Committee. He graduated from Instituto Tecnológico Autónomo de México
(“ITAM”), is a partner at the Instituto Mexicano de Contadores Públicos, A.C., the Colegio de
Contadores Públicos de México, A.C., and a member of the International Tax Association. He
has 26 years of experience in tax consulting, both at international firms and as an independent
consultant, heading the firm Escobar Latapí Consultores, S.C. He has been a member of the
Executive Committee of the Colegio de Contadores Público de México A.C., and was a member
of the Honor Board and the Governing Board of that institution. He is currently the President of
the By-Laws Commission.
Jorge Fernández de Miguel has been a CIE Board Member and a member of the Audit and
Corporate Practices Committee since 2011. Mr. Fernández has been working in academia in
recent years, and is currently a professor in the Department of Corporate Studies, and a member of the Technical Degrees Board in Business Management. He is an independent consultant,
has worked on strategic planning projects, managing change, design and development of talent
development programs, among others. He was the Director of the Center for Development of
the Coca-Cola System of Mexico, the Director of Entertainment and Development for Latin
America at The Coca-Cola Company, and Corporate Director of Human Capital, Planning and
Quality of Grupo Kaltex. He has a Business Degree in Business Management from Universidad
Iberoamericana.
Carlos Elizondo Mayer-Serra is a research professor at Centro de Investigaciones y Docencia
Económicas, A.C. (“CIDE”). He has been a CIE Board Member since 2001. On April 14, 2011,
CIE’s Shareholders’ Meeting named him Alternate President of the Company’s Audit and
Corporate Practices Committee. Mr. Elizondo holds a Master’s Degree and a Doctorate in
Political Science from Oxford University.
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Bernardo Malpica Hernández has been a CIE Board Member since 2009, and a partner at
Praemia, S.C., an investment banking firm, since the start of 2004. From 2001 to 2003, he
headed merger and acquisition activities in Mexico at ING Bank. Before joining ING Bank, Mr.
Malpica acted as the Finance Director at Artikos, an e-commerce joint venture business between Banamex and Commerce One, and previously he was Director of Investment Banking at
Operadora de Bolsa Serfin, where he was responsible for public offers for shares made by that
firm. He has a degree in Business Administration from Universidad Iberoamericana, and he has
an MBA from the Kellogg Graduate School of Management at Northwestern University in the
United States.
Víctor Manuel Murillo Vega has been the Chief Financial Officer at CIE since 2001, and a
Board Member since 2010. He previously served as Executive Vice President and Regional
Director of Banco Nacional de México for its North America and Latin America Division. He also
occupied several director positions both in Mexico and in the United States and Europe with the
same financial institution. Víctor Murillo has been a member of the Boards of Directors of Afore
Banamex and Seguros Banamex since 2004. Mr. Murillo has a degree in Business Administration from Universidad Iberoamericana, with a specialty in the Finance area at that same institution.
The independence of the independent Board Members was qualified in the General Annual
Ordinary Shareholders’ Meeting held on April 13, 2011. It is important to note that the
independent Board Members do not fall under any of the assumptions stated in Article 26 of the
Securities Market Law. In addition, the biographies of the Regular Secretary and the Alternate
Secretary of the Board of Directors of CORPORACIÓN INTERAMERICANA DE ENTRETENIMIENTO, are
shown below:
Enrique Arturo González Calvillo is the non-member Regular Secretary of CIE’s Board of
Directors. He holds a degree from Universidad Iberoamericana and a Master’s in Comparative
Law from the University of Texas at Austin. Mr. González Calvillo is a founding partner of
González Calvillo, S.C. He is Vice President of Instituto Mexicano de la Mediación, A.C. Since
2000, he has been a member of the Advisory Committee for Settlement of Private Commercial
Disputes under the Free Trade Agreement with North America. He is a member of the Mediation
and Arbitration Commission of the National Chamber of Commerce of Mexico City. He is Chairman of COMCE’s Mexico-Brazil Corporate Committee, he has acted as the Vice President of
the Mexico-United States Chamber of Commerce (Southeastern Chapter) based in Dallas, as a
special representative of the International Association of Franchises headquartered in Washington, D.C., and as Vice President of the Sub-Committee for Foreign Investments and Technology
Transfers of the American Bar Association (Mexico Committee). Mr. González Calvillo is the
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brother of Mr. Rodrigo Humberto González Calvillo, Deputy Chief Executive Officer of the
Company and Vice Chairman of the Company’s Board of Directors.
Mónica Lorenzo Gutiérrez is the Non-member Alternate Secretary of CIE’s Board of Directors;
her appointment was ratified at the Annual Ordinary General Shareholders’ Meeting held on
April 26, 2007. During 2006, she served as non-member Secretary of the Board of Directors,
and prior to that she served as the Alternate Secretary of the Board between 2003 and 2005.
She has worked for CIE’s Corporate and International Divisions since March 2002. She has a
law degree from Universidad La Salle, and has taken courses related to Corporate Law and
Intellectual Property at Universidad Panamericana and Universidad Iberoamericana. The
courses taken at Universidad Iberoamericana were in conjunction with Georgetown University.
Regarding the Audit and Corporate Practices Committee of the Company, presided over by Mr.
Leopoldo Escobar Latapí, see the section “Company By-Laws and Other Agreements” in
Chapter IV “Administration” of this Document.
Mr. Leopoldo Escobar Latapí substitutes Mr. Roberto Albarrán Campillo, as per authorization of
the Annual Ordinary General Shareholders’ Meeting held on April 14, 2011, as President of the
Audit and Corporate Practices Committee, which functions as one single committee in conformance with the Securities Market Law.
Chief Executive Officer
Mr. Luis Alejandro Soberón Kuri currently holds the position of Chief Executive Officer.
Pursuant to the new Securities Market Law and the Company’s current By-Laws, the functions
of the Chief Executive Officer will include the following:
(a) To submit for approval by the Board of Directors, the business strategies of the Company and the legal entities that the Company controls, based on the information that they
provide.
(b) To comply with the resolutions adopted at the Shareholders’ and Board of Directors
Meetings, according to the instructions provided in each case by the Shareholders’
Meeting or the Board.
(c) To propose to the committee that will perform audit duties, the guidelines of the internal
control and audit system of the Company and the legal entities that the Company controls, and to enforce the guidelines adopted by the Board of Directors to that effect.
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(d) To endorse the significant information of the Company together with the Directors responsible for preparing that information, in the area of their competence.
(e) To distribute the relevant information and events that must be disclosed to the public, in
compliance with the provisions of the Securities Market Law.
(f) To comply with the provisions regarding transactions to purchase and place the Company’s shares, approved by the Board of Directors.
(g) To file, either itself or through an authorized representative, within the scope of their authority or upon the instruction of the Board of Directors, the appropriate actions for remediation and liability.
(h) To verify that the capital contributions are made by the partners.
(i) To comply with established legal and statutory requirements, to declare dividend payments to shareholders.
(j) To ensure that the accounting, recording, archiving or information of the Company are
maintained.
(k) To prepare and present to the Board of Directors the report indicated in Article 172 (ONE
HUNDRED AND SEVENTY-TWO) of the General Law of Corporations, with the exception of
the report indicated in section (b) thereof.
(l) To establish the internal mechanisms and controls that will allow monitoring that the actions and activities of the Company and legal entities controlled thereby are in compliance with applicable rules, and to track the results of those internal mechanisms and
control and to take the measures necessary, as applicable.
(m) To bring any liability lawsuit prescribed by the Securities Market Law against related parties or third parties that would have presumably damaged the Company or the legal
companies controlled by the Company or over which it has significant influence, unless
the damage caused is not significant, as determined by the Board of Directors with the
prior opinion of the Audit Committee.
(n) To coordinate the performance of all activities inherent to the Company’s purpose, and
the companies controlled by it.
(o) To create management committees to assist him in the discharge of his duties, which
committees shall be formed in the manner determined by the Chief Executive Officer.
(p) To grant and revoke general, limited and/or special powers of attorney as directed by the
Board of Directors.
(q) To perform any other duty provided in the By-Laws, the shareholders’ meeting, the Board
of Directors, or the special committees.
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TWENTY-NINE. POWERS OF THE CHIEF EXECUTIVE OFFICER. The Company’s Chief Executive
Officer shall be vested with the following general powers in order to perform his duties:
(a) General powers for litigation and collection purposes, including but not limited to, any
general or special authority that must be vested by a special clause pursuant to the law
as prescribed by the first paragraph of Article 2554 (TWO THOUSAND FIVE HUNDRED AND
FIFTY-FOUR) of the Civil Code for the Federal District, the relevant Civil Codes of the
Federal Entities of the United Mexican States, and the Federal Civil Code; the Chief Executive Officer will be empowered, including but not limited to, bringing criminal actions,
filing criminal reports and granting acquittals to becoming a complainant or cocomplainant in criminal proceedings, to abandon actions filed and lawsuits regarding
protection of constitutional rights (juicios de amparo); to transact, to submit to arbitration,
to pose and answer requests for admission, to make assignments of property; to see the
recusal of judges, to receive payments and perform any actions expressly prescribed by
the law, including representation of the Company before judicial and administrative authorities, whether civil or criminal, and before labor authorities and courts;
(b) General powers for acts of administration and ownership pursuant to paragraphs two
and three of Article 2554 (TWO THOUSAND, FIVE HUNDRED AND FIFTY-FOUR) of the Civil
Code for the Federal District, the relevant Civil Codes of the Federal Entities of the United Mexican States, and the Civil Federal Code, pursuant to the following:
(i) In the case of general powers for acts of administration entailing the exercise of voting rights for shares, membership interests or securities or rights representing capital, the Chief Executive Officer must obtain prior authorization from, or act in accordance with the policies established by the Board of Directors; and
(ii) To exercise acts of ownership, the powers conferred will be limited as follows: (A) In
the case of the sale of real property owned by the Company and shares or membership interests of companies controlled by the Company, he must sign either jointly
with those designated by the Board of Directors or with the prior authorization of the
Board of Directors or the Shareholders’ Meeting; (B) In the case of the transactions
referred to in Sub-section (c) of Item III (THREE) of Article 28 (TWENTY-EIGHT) of the
Securities Market Law, he will sign with the prior authorization of the Board of Directors; and/or (C) When the transaction involves an amount equal to, or in excess of,
20.0% (TWENTY PERCENT) of the Company’s shareholders’ equity, he will sign with
the prior authorization of the Ordinary General Shareholders’ Meeting;
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(c) Powers for acts of administration with specific powers in labor matters, pursuant to Article 2554 (TWO THOUSAND FIVE HUNDRED AND FIFTY-FOUR), paragraphs two and four of
the Civil Code for the Federal District, the corollary Civil Codes of the Federal Entities of
the United Mexican States and the Federal Civil Code, and pursuant to Sections 11
(ELEVEN), 692 (SIX HUNDRED AND NINETY-TWO) parts II (TWO) and III (THREE), 786 (SEVEN
HUNDRED AND EIGHTY-SIX), 876 (EIGHT HUNDRED AND SEVENTY-SIX) and relevant provisions
of the Federal Labor Law, to appear in his capacity as administrator and thus as a legal
representative of the Company, before any labor authority, related to Article 523 (FIVE
HUNDRED AND TWENTY-THREE) of the Federal Labor Law, as well as before the Workers’
National Housing Fund Institute, the Mexican Social Security Institute, and the National
Workers’ Compensation Fund in all matters related to those institutions and other public
entities, and he is empowered to file any lawsuits and exercise any rights to which the
Company may be entitled, with all general and special powers that must be vested by a
special clause pursuant to the law, and he is empowered to reach settlements in conciliation proceedings on behalf of the Company, and to conduct the Company’s labor negotiations;
(d) Powers to execute, deliver, endorse and guarantee as surety all types of commercial
paper, provided this furthers the Company’s purpose pursuant to Article 9 (NINE) of the
General Law of Securities and Credit Transactions in those cases that do not require authorization from the Board of Directors or the Shareholders’ Meeting; and
(e) Authority to grant and delegate general and special powers of attorney, to revoke them
and substitute them, in whole or in part, in accordance with the powers vested in him,
expressly including the authority for those people who have been granted those powers
to, in turn, grant, delegate, substitute or revoke them, in whole or in part, in favor of third
parties.
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Officers and Directors
The following table shows the nine principal officers and directors of CORPORACIÓN
INTERAMERICANA DE ENTRETENIMIENTO:
Name
Position
Date of Birth
Luis Alejandro Soberón Kuri ..............................
5 / 31 / 1960
Rodrigo Humberto González Calvillo ................
Chief Executive Officer of CIE Las Américas
9 / 13 / 1963
Víctor Manuel Murillo Vega ...............................
Chief Financial Officer
4 / 05 / 1959
Federico González Compeán ............................
Chief Executive Officer of CIE International
8 / 11 / 1963
Alejandro Garza Díaz ........................................
Corporate Director of Planning and
Promotion
2 / 27 / 1953
Jaime José Zevada Coarasa ............................
Corporate Finance Officer
11 / 12 / 1969
Juan Manuel Pérez Díaz ...................................
Commercial Director of CIE Commercial
9 / 17 / 1960
Eduardo Martínez Garza…………………………
Director of Operations of CIE Commercial
1 / 17 / 1965
George González Alvarado ...............................
Chief Executive Officer of CIE Entertainment
1 / 06 / 1960
The following are short biographies of the Company’s officers listed above, with the exception of
the biographies of Mr. Soberón Kuri, Mr. González Calvillo, Mr. González Compeán, and Mr.
Murillo Vega, whose biographies appear in the prior section:
Alejandro Garza Díaz is the Chief Executive Officer of OCESA Comercial. Mr. Garza began
his career as a production coordinator for the television program Siempre en Domingo, working
for Promovisión Mexicana, a subsidiary of Grupo Televisa, between 1974 and 1985, and from
1985 to 1994 he acted as the Chief Executive Officer of Canto Nuevo, S.A. de C.V. In 1995,
Alejandro Garza joined and acquired a majority stake in RAC Producciones, S.A. de C.V., a live
entertainment promoter in Mexico, which company CIE acquired in 1997. He subsequently
served as Corporate Director for the Company’s Entertainment Division from 1997 to 2001. Mr.
Garza holds a degree in Communication from Universidad Iberoamericana.
Jaime José Zevada Coarasa has been the Group’s Corporate Finance Officer since 2002.
He was in charge of CIE’s Investor Relations Department from 1998 to 2001. At the start of his
professional career, Mr. Zevada ran his own marketing business, later working with Bufete
Industrial, a Mexican construction company, in the Investor Relations and Corporate Communications Area between 1995 and 1998. Jaime Zevada studied International Relations at Universidad Nacional Autónoma de México, and has taken continuing education programs and
courses in Upper Management from Instituto Panamericano de Alta Dirección de Empresas.
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Juan Manuel Pérez Díaz has been a board member and the Commercial Director of CIE
Commercial since 2009. Mr. Pérez Díaz joined the Group in 1996, taking over the position of
Commercial Director, and subsequently acting as Chief Executive Officer of Make Pro, S.A. de
C.V. Previously, between 1985 and 1994, he acted in various management positions in companies such as Productos Nacobre, S.A., where he was responsible for the Human Resources
and International Sales areas. He also worked at The American Express Company (Mexico),
acting as the Manager of Key Accounts and the Senior Manager of National Sales. In 1994,
Juan Manuel Pérez Díaz became the Commercial Director of Organización Britania. He holds a
degree in Industrial Relations from Universidad Iberoamericana, where he regularly lectured in
the Business Department between 1983 and 1991.
Eduardo Martínez Garza is the Director of Operations of CIE Commercial. Since joining CIE in
1996, he has worked at different business units within the Group as the General Director of BConnect Services and Video on Demand, Director of Services for Ticketmaster, and Director for
Centro Banamex. He currently heads Operations at CIE Commercial, which includes the
business units dedicated to alternative media, producing special-BTL events, call centers, and
the Group’s mobile advertising. Mr. Martínez holds a degree in Systems from Universidad
Iberoamericana, and a post-graduate degree in Systems and Procedures from the same
university, and he is also a graduate of Instituto Panamericano de Alta Dirección de Empresas.
George González Alvarado has been the Commercial Director of CIE Entertainment since
2002. From 1991 to 1993, he acted as the Director of Palacio de los Deportes; from 1993 to
1996 he was the Chief Executive Officer of Operadora de Centros de Espectáculos, S.A. de
C.V.; from 1996 to 1998 he was the Chief Executive Officer of CIE-R&P, S.A.; from 1998 to 2001
he acted as Regional Director for CIE in Argentina, Brazil and Chile. Prior to joining the Group,
from 1982 to 1991, Mr. González worked at the Los Angeles Coliseum in California, working in
various operating and administrative positions, and acting as a General Manager. George
González is a United States citizen.
Executive Compensation
For the year ended December 31, 2010, Luis Alejandro Soberón Kuri, Rodrigo Humberto
González Calvillo, Víctor Manuel Murillo Vega, Federico González Compeán, Alejandro Garza
Díaz, Jaime José Zevada Coarasa, Juan Manuel Pérez Díaz, Eduardo Martínez Garza and
George González Alvarado received total aggregate compensation of approximately Ps. 59.7.
This gross amount includes salaries, bonuses, the Christmas bonus, vacation premiums,
vouchers, a savings fund, and additional compensation paid for the professional services they
provided the Group.
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The average age of the Group’s employees and workers is approximately 31 years old, and
their average seniority at the Company is three years. The average age of CIE’s management
team is 49 years old, with average seniority of 13 years with the Company.
Stock Plan
The 1999 Plan
The Company has had an executive stock option plan since 1999, which is run under a trust
created for that purpose. Under this plan, the Company issued 882,791 Series B Class II shares
at a price of Ps. 4.27 (FOUR PESOS AND 27/100) per share, and 1,573,874 shares for purchase at
a price per share of Ps. 32.20 (THIRTY-TWO PESOS 20/100).
All options to acquire shares under this plan were assigned and distributed to employees, and
the vast majority has already been exercised. To date, only 1,369,197 Series B Class II shares
remain in the trust, which will be distributed to the Company’s executives.
Mr. Luis Alejandro Soberón Kuri, Chairman of the Board of Directors of CIE, controls distribution of
those shares by the trust, and has to vote directly on those shares.
The 2001 Plan
On April 26, 2001, CIE’s shareholders approved the issuance of 3,666,333 Series B Class II
shares as part of a new executive stock option plan. Of those shares, 3,310,280 Series B Class
II shares were issued and acquired by a trust created for that purpose, and to benefit 41 elected
executives, with a subscription price of Ps. 19.76 (NINETEEN AND 76/100 MEXICAN PESOS) per
share. Of the 3,310,280 shares mentioned above, 185,800 shares were sold due to the resignation of six of the Company’s employees.
Until those shares are distributed to the employees, Mr. Alejandro Soberón Kuri has the right to
vote for the 3,124,480 shares that are currently still in the trust.
Under this same plan, in January 2006 there was a second assignment through another trust
created for that purpose, of 126,910 Series B Class II shares to five employees at the same
price; that is, Ps. 19.76 (NINETEEN AND 76/100 MEXICAN PESOS) per share.
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Principal Shareholders
Based on CIE’s information, its principal shareholder is its founder, Chief Executive Officer and
Chairman of the Board of Directors, Luis Alejandro Soberón Kuri, who has the authority to vote
for the shares representing 15.44% of the Company’s capital. Mr. Rodrigo Humberto González
Calvillo and Mr. Federico González Compeán, who are also founding shareholders, board
members and Senior Directors of CIE, each own approximately 1.25% of CIE’s capital.
According to the information provided by INDEVAL and by the brokers that are depositors with
INDEVAL for the purpose of the Company’s most recent Ordinary General Shareholders’ Meeting,
which was held on April 6, 2011, two different financial brokers, acting on behalf of third parties,
appeared with approximately 80.0% of CIE’s shares at that Meeting. It was not possible to establish who the beneficiary shareholders are for whom those agents are acting and who hold 5% or
more of the capital stock of CIE. (For more information, see the section “Executive Authority,
Control and Significant Influence”).
Luis Alejandro Soberón Kuri, Rodrigo Humberto González Calvillo and Federico González
Compeán are founding shareholders, board members and Senior Directors of CIE. They have
had and continue to have control, executive authority and significant influence with respect to
CIE, both individually and through the exercise of the right to vote their shares with other
shareholders. They do not own the majority of the Company’s shares, but in the past, in conjunction with other shareholders, they have exercised effective control of CIE, and several of the
Company’s shareholders have voted their shares in accordance with the proposals made by the
Board, or one or several of the people indicated.
The Annual Ordinary General Shareholders’ Meeting held on April 14, 2011, approved the
payment of Ps. 30 per meeting to external board members and to members of the Audit and
Corporate Practices Committee who attended the respective meetings.
During fiscal year 2010, the Company paid the board members approximately Ps. 1.0 for
attending ordinary and extraordinary sessions of CIE’s Board of Directors. In addition, the main
officers of the Group received total aggregate compensation (including bonus) of approximately
Ps. 59.7. This gross amount includes salaries, bonuses, Christmas bonus, vacation premiums,
vouchers, savings fund and additional compensation paid. (For a more detailed explanation, see
the section “Executive Compensation” in Chapter III “Administrators and Shareholders” of this
Document).
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Committees that Aid the Board of Directors in its Duties
The Board of Directors is aided by the Audit and Corporate Practices Committee, which acts as
a single Committee, as permitted by the Securities Market Law.
Audit Functions
(a) The Audit Committee will have the general duty to oversee and supervise the integrity of
the financial information, the accounting process and systems, control and registration of
the Company and the legal entities that it controls, to supervise the technical capacity,
independence and function of the legal entity that performs external auditing duties, the
efficiency of the Company’s internal control, and assessment of financial risks.
(b) Additionally, the committee performing audit duties will have the following duties, including, but not limited to:
(i)
To advise management on relevant matters according to the Securities Market
Law.
(ii)
To evaluate the performance of the external auditor, and to analyze the advice,
opinions, reports or statements prepared by the external auditor. To that end, the
Committee may require the presence of that auditor whenever it deems advisable,
without prejudice to the fact that it must meet with the auditor at least once per
year.
(iii)
To discuss the information in the financial statements with those responsible for its
preparation and review, and to give an opinion on that information prior to its presentation to the Board of Directors.
(iv)
To inform the Board of Directors on the status of the internal control and internal
auditing systems, or of the legal entities controlled thereby, including any irregularities that it may detect.
(v)
To provide support to the Board of Directors in preparing the reports mentioned in
Article 28, Section IV, subsections (d) and (e) of the Securities Market Law.
(vi)
To ensure that the transactions listed in section III (THREE) of Clause Twenty-One
of the corporate By-Laws, and Article 47 (FORTY-SEVEN) of the Securities Market
Law are conducted in compliance with the provisions contained therein as well as
with the authorizations or guidelines approved by the Board of Directors or at the
General Shareholders’ Meeting.
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(vii) To ensure compliance with generally accepted accounting rules and procedures
that have been authorized by the stock exchange authorities.
(viii) To request regular meetings with the Directors, and to deliver any type of information regarding internal control and internal auditing of the Company and the legal
entities that it controls.
(ix)
To retain legal consulting and advisory, accounting, and financial services, and any
other type of specialty professional service as deemed appropriate to comply with its
duties and responsibilities.
(x)
To nominate and determine, for approval by the Board of Directors, the external
auditor and their fees; to supervise the work performed by the external auditor, and
if applicable, to approve their removal if the circumstances so justify; and to approve the services that the external auditor provides other than auditing services.
(xi)
To establish a confidential and anonymous denunciation system for the workers
and employees with respect to irregular or possibly illegal accounting and auditing
matters.
(xii) To receive and handle any denunciations that are received in relation to accounting
matters, internal accounting control, or auditing matters.
(xiii) To prepare an annual report of its activities and present it to the Board of Directors
in conformance with Article 43 of the Securities Market Law.
(xiv) To draft the opinion indicated in Article 28, Section IV, subsection (c) of the Securities Market Law, regarding the contents of the report from the Chief Executive Officer that must be prepared in conformance with Article 44, Section XI of the Securities Market Law, and to submit it for consideration by the Board of Directors, for
its subsequent presentation at the Shareholders’ Meeting, based, among other
items, on the report of the external auditor. That opinion must at least indicate the
following:
1. Whether the accounting policies and information policies and criteria followed
by the Company are adequate and sufficient, considering its specific circumstances.
2. If those policies and criteria have been applied consistently to the information
presented by the Chief Executive Officer.
3. If, as a consequence of numbers 1 and 2 above, the information presented by
the Chief Executive Officer reasonably reflects the financial situation and the
results of the Company.
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(xv) To ensure that the transactions referred to in Article 28, Section III and Article 47 of
the Securities Market Law, are conducted in compliance with those provisions, as
well as the policies arising therefrom.
(xvi) To seek the opinion of independent experts whenever deemed appropriate, for the
proper performance of its duties or whenever required by the Securities Market
Law or general legal provisions.
(xvii) To request from the senior managers and other employees of the Company or legal entities that it controls, reports regarding the preparation of the financial information and any other type of information it may deem necessary to perform its
functions.
(xviii) To summon the Shareholders’ Meetings and include any item of business it may
deem relevant in the agendas of those meetings.
(xix) To ensure that the Chief Executive Officer complies with the agreements adopted
at the Shareholders’ Meetings and the Board of Directors, according to the instructions provided in each case by the Shareholders’ Meeting or the Board.
(xx) Any other duties provided for under the Securities Market Law, the administrative
provisions issued in compliance with that law, the corporate By-Laws, or by resolution of the Shareholders’ Meeting or the Board of Directors.
(c) In order to support the performance of duties vested in the Audit Committee, the Company, through the Board of Directors, will allocate funds as appropriate and requested by
the committee in order to pay the fees of the external auditor, the fees for external advisers retained, and the regular administrative expenses that the committee incurs in the
discharge of its duties, when so requested.
Corporate Practice Functions
(a) The general functions of the Corporate Practices Committee will be to oversee and reduce any risks in the execution of business or to the benefit of a certain group of shareholders, subject to the authorizations or policies issued by the Board of Directors; to supervise compliance with legal provisions and stock exchange regulations that are
mandatory for the Company.
(b) Additionally, the Corporate Practices Committee will have the following functions and
responsibilities, including, but not limited to:
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(i)
To summon the Shareholders’ Meetings and include any item of business it may
deem relevant to the agendas of those meetings.
(ii)
To approve, for ratification or correction by the Board, policies for the use or enjoyment of property owned by the Company.
(iii)
To prepare an annual report on the activities conducted, and to present it to the
Board of Directors. The annual report must contain at least the following: (A) Observations on the performance of the Directors; (B) Transactions entered into with
related parties during the fiscal year being reported; (C) Full compensation or remuneration packages payable to the Chief Executive Officer and the Company’s
Directors; and (D) The waivers granted by the Board of Directors for an adviser, Directors or any other person with management powers in terms of the Securities
Market Law to benefit from the opportunities of a business for himself or third parties, pursuant to Article Twenty-One of the Company’s By-Laws.
(iv)
To support the Board of Directors in preparing the reports mentioned in Article 28,
Section IV, subsections (d) and (e) of the Securities Market Law.
(v)
To issue an opinion on the transactions entered into with related parties.
(vi)
To authorize, for ratification or correction by the Board, the compensation package
of the Chief Executive Officer and the policies for determining remuneration of the
Directors.
(vii) To provide opinions to the Board of Directors on matters under the scope of its authority pursuant to the Securities Market Law.
(viii) To seek the opinion of independent experts whenever deemed appropriate, for the
(ix)
Any other duties provided for under the Securities Market Law, the administrative
The Audit and Corporate Practices Committee is currently comprised as follows:
Member of the Audit and Corporate Practices
Committee
Position
Leopoldo Escobar Latapí ....................................
Carlos Elizondo Mayer-Serra .............................
Jorge Fernández Miguel .....................................
Chairman
Member
Member
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In our opinion, all three members of the Committee have proven and sufficient professional
training and experience to act as financial experts, understanding that category to be the one
denoted by their experience and professional training (i.e. external auditor, public accountant,
finance director, controller, or any other position related to the discharge of similar duties).
Furthermore, Mr. Carlos Elizondo Mayer-Serra may replace Mr. Leopoldo Escobar Latapí, if
necessary. The Issuer does not have any intermediary bodies other than the aforementioned.
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4. BY-LAWS AND AGREEMENTS
Amendment to the By-Laws and Other Agreements
On December 22, 2006, the Extraordinary General and Ordinary Shareholders’ Meeting of the
Company resolved to completely revise the Company’s By-Laws in order to adapt them to the
new provisions of the Securities Market Law and to the provisions generally applicable to
securities issues and other stock market participants, issued by the National Banking and
Securities Commission, which was initially published on March 19, 2003, with modifications
published on September 22, 2006 in the Official Gazette of Mexico.
The text of the Company’s current By-Laws is transcribed below:
BY-LAWS
SECTION ONE – NAME AND ALTERNATE PROVISIONS, PURPOSE, DURATION, NATIONALITY AND
FOREIGN SHAREHOLDERS
One. Name and Alternate Provisions
(a) Name. The name of the company is “CORPORACIÓN INTERAMERICANA DE
ENTRETENIMIENTO,” which must be used followed by the words “SOCIEDAD ANÓNIMA BURSÁTIL DE
CAPITAL VARIABLE,” or its abbreviation “S.A.B. de C.V.” (the “Company”).
(b) Alternate provisions. In all matters not provided for in these By-Laws, (the “By-Laws”),
the Company will be governed by the provisions of the Securities Market Law, the administrative
provisions issued according to that law, and alternatively, by the provisions of the General Law
of Corporations.
Two. Purpose
The purpose of the Company is:
(a) To promote, create, organize, develop, acquire and participate in the capital or equity of all
types of trade or civil entities, associations or companies, whether they are industrial, commer144
cial, service or any other type of company, either Mexican or foreign, and to take part in the
management or liquidation thereof.
(b) To acquire, in any legal capacity, shares, interest, holdings or ownership interest of any type
in trade or civil companies, whether taking part in their creation or through subsequent acquisition, as well as to sell, dispose of and trade those shares, interests, holdings or ownership
interests, including any other security.
(c) To receive from other companies and individuals, and to provide other companies and
individuals with the services necessary to achieve their corporate ends or objectives, services
such as the following: administrative, financial, treasury, auditing, marketing, accounting,
program and manual development, analysis of operating results, assessment of productivity
information and possible financing, preparation of studies regarding the availability of capital,
technical assistance, and advisory and consulting services, among others.
(d) To obtain, acquire, develop, improve upon, use, grant and receive or dispose of licenses, all
types of patents, trademarks, utility models, industrial designs, industrial secrets, certificates of
invention, notices and trade names, and any other industrial property rights or copyrights,
whether in Mexico or abroad.
(e) To obtain all types of financing, loans or credits, to issue liabilities, bonds and commercial
paper, and any other debt instruments or debt securities, whether or not secured by pledge,
mortgage, trust or any other legal instrument, for any purpose the Company may determine,
including but not limited to the Company’s own operations and the operations of its subsidiaries,
to purchase own stock, to finance dividend payment, to reduce its capital, or to make any other
type of distribution to its shareholders.
(f) To grant any type of financing or loans to individuals, civil or trading companies, corporations
and institutions with which the Company does business or in which the Company owns interests, whether or not secured by tangible securities.
(g) To grant all types of real guarantees, personal securities and commitment bonds, securities
instruments or debt instruments payable by individuals, companies, associations and institutions
in which the Company has an interest or stake, or with which the Company has business
relationships as a warrantor, joint and several obligor, guarantor or sponsor of those entities.
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(h) To subscribe, issue, draw on, accept, endorse and guarantee all types of credit securities or
debt instruments, and to carry out credit transactions and related financial transactions.
(i) To carry out, supervise or contract, on its own behalf or on behalf of third parties, all types of
constructions, buildings or facilities for offices or establishments of any kind.
(j) To carry out training and development programs and research projects on its own behalf, or
on behalf of third parties.
(k) To lease, as lessor or lessee, and to acquire, possess, exchange, dispose of, transfer,
dispose of or burden the property or ownership of all types of personal and real property,
including any real or personal rights related thereto, which may be necessary or appropriate for
achieving its corporate purpose or for the operations or corporate objectives of trade or civil
companies and institutions in which the Company has an interest or stake of any type.
(l) To act as broker, mediator, representative or intermediary for any individual or company.
(m) The production, transformation, adaptation, marketing, import, export, purchase, sale or
disposal of machinery, parts, materials, raw materials, industrial products, effects and good of
any type, in any legal capacity.
(n) To place its own shares, the securities they represent, credit or debt instruments, in domestic
or foreign securities markets upon prior authorization by the competent authorities, including on
stock markets or foreign trading systems.
(o) To acquire its own shares pursuant to the Securities Market Law, and general provisions that
may apply.
(p) In general, to carry out all related, accessory or incidental acts and transactions that may be
necessary or appropriate to achieve the abovementioned objectives, and to enter into all types
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of contracts and agreements with third parties, including with the Company’s shareholders,
creating rights and obligations to be performed by the Company and the counter parties.
Three. Corporate Domicile
The Company’s corporate domicile is in Mexico City, in the Federal District, but it may set up
agencies or branches inside and outside Mexico and agree to conventional domiciles, understanding that this does not constitute a change of its corporate domicile.
Four. Duration of the Company
The duration of the Company is 99 (NINETY-NINE) years, counted from the registration of the
amendments of the By-Laws in the Public Registry of Commerce.
Five. Nationality and Foreign Shareholders
(a)
Nationality of the Company. The Company’s nationality is Mexican.
(b)
Foreign Shareholders.
(i)
Foreigners who become shareholders of the Company, due to that sole fact, must
be considered as Mexican citizens with the Secretary of Foreign Affairs with respect to the shares they acquire or that they may own, as well as with respect to
the assets, rights, concessions, authorizations, stakes or interests held by the
Company, or the rights and obligations that arise from the contracts to which the
Company is a party, entered into with Mexican authorities, and therefore, not to
claim the protection of the governments, otherwise they run the risk of losing those
shares to the benefit of the Mexican government.
(ii) Unless required, through authorization by the National Foreign Investments Commission, pursuant to Article 9 (NINE) of the Foreign Investment Law, anyone who is
considered to be a foreign investor according to applicable legislation on the matter, may not acquire more than 49% (FORTY-NINE PERCENT) of the Company’s
common shares. This includes investors from other countries treated as Mexican
nationals under international treaties that Mexico enters into or that it has entered
into.
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SECTION TWO – SHAREHOLDERS’ EQUITY AND SHARES
Six. Integration of Shareholder’s Equity
(a) The Company’s Shareholders’ Equity is variable. Fixed capital without withdrawal rights is
Ps. 189,386,380.72, backed by 30,955,386 common, nominative shares with no par value, fully
subscribed and paid in, which will be identified as Series B, Class I.
(b) The variable portion of the Shareholders’ Equity is unlimited, and will also be represented
by common, nominative shares with no par value, which will be identified as Series B, Class II.
(c) Subject to the provisions in this Clause Nine of these By-Laws, all common shares will
confer equal rights and obligations to their holders.
(d) Except in the cases and with the requirements stated in Articles 57 (FIFTY-SEVEN), 366
(THREE HUNDRED AND SIXTY-SIX) and 367 (THREE HUNDRED AND SIXTY-SEVEN) of the Securities
Market Law, legal entities controlled by the Company may not acquire, directly or indirectly,
shares representing the Company’s Shareholders’ Equity, or credit securities that represent
them.
Seven. Changes to Shareholders’ Equity
(a) Shareholders’ Equity may be increased or decreased upon the agreement of the General
Shareholders’ Meeting, whether extraordinary or ordinary, according to the manner in which
increases or decreases of fixed or variable capital are handled, with the exception indicated in
section (h), which will always be upon the authority of the Extraordinary General Meeting.
(b) Increases or decreases to the Company’s minimum fixed capital must be decided by
resolution of the Extraordinary General Shareholders’ Meeting, which also approves the corresponding amendment to the Company’s By-Laws.
(c) Increases or decreases to the variable portion of shareholders’ equity need only be approved by a resolution of the Ordinary General Shareholders’ Meeting, except as established in
Section (h) below, and the minutes that contain those resolutions must be formalized by a
federal notary public, although it is not necessary to record the respective instrument in the
Public Registry of Commerce.
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(d) Decreases to the minimum fixed or variable shareholders’ equity that are decreased to
absorb losses, will be made without the need to cancel shares, as these shares do not have a
par value.
(e) If shareholders’ equity is reduced through reimbursement to shareholders, that reduction
will apply to all shareholders in the proportion that corresponds to their shareholding, with
respect to all shares in circulation.
(f) Shareholders that own the variable portion of the Company’s shareholders’ equity will not
have the withdrawal rights stated in Article 220 (TWO HUNDRED AND TWENTY) of the General Law
of Corporations.
(*) Clause Six, Section (a) of CIE’s By-Laws, was amended at the Extraordinary General Shareholders’ Meeting held on April 29,
2009, in order to decrease the fixed portion of shareholders’ equity.
(g) No capital increase may be declared if the shares issued previously are not already fully
paid in. When adopting the respective agreements, the General Shareholders’ Meeting that
declares an increase, or any subsequent General Shareholders’ Meeting, will set the terms and
conditions on which such an increase will be carried out.
(h) The shares issued through an increase in the fixed or variable portion of shareholders’
equity, and that, by resolution of the Extraordinary General Shareholders’ Meeting are to be
placed in a public offering, must remain deposited with the Company, to be delivered as they are
subscribed, in accordance with Article 53 (FIFTY-THREE) of the Securities Market Law, and they
may be offered for subscription and payment by the Board of Directors, according to the powers
that the Extraordinary General Shareholders’ Meeting has granted to the Board.
(i) Capital increases may be made through capitalization of retained earnings or surplus
pending application, or through payment in cash or kind, or capitalization of any other portion of
shareholders’ equity. In increases by capitalizing reserves, unapplied profits or surplus, or any
other portion of shareholders’ equity, all holders of shares that are subscribed and paid in and in
circulation at the time of that increase will have the right to their proportional share of the new
shares that are issued as a consequence of the capitalization.
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(j) In capital increases made through payment in cash or in kind, except as stated in Section
(h) above, holders of shares that are subscribed, paid in, and in circulation at the time the
increase is determined, will have the right of first refusal to subscribe the new shares that are
issued or placed in circulation, for a period of 15 (FIFTEEN) calendar days, calculated as of the
day following the date the corresponding notice is published in the Official Gazette of Mexico,
which the shareholders designate as the “official newspaper” of the Company’s corporate
domicile, or calculated as of the date that the Extraordinary General Shareholders’ Meeting is
held, in the event that all the shares into which the shareholders’ equity is divided has been
represented at that meeting.
(k) If, after expiration of the period during which the shareholders must exercise the right of
first refusal granted to them in Section (j) of this Clause, there are still unsubscribed shares,
these shares may be offered for subscription and payment, according to the conditions and
terms established by the General Shareholders’ Meeting that declared the capital increase, or
pursuant to the terms indicated by the Board of Directors, if applicable, at a price that may not
be less than the price at which those shares were offered to the Company’s shareholders for
subscription and payment.
(l) Shareholders will not have the right of first refusal indicated in the previous sections in the
event of: (i) merger of the Company; (ii) conversion of debentures or other debt instruments;
(iii) a public offering pursuant to the provisions of Article 53 (FIFTY-THREE) of the Securities
Market Law; and (iv) placement of shares acquired by the Company, pursuant to Clause Eight
of these By-Laws.
Eight. Acquisition of Own Shares
(a) The Company may acquire shares representing its own shareholders’ equity without the
prohibition established in the first paragraph of Article 134 (ONE HUNDRED AND THIRTY-FOUR) of
the General Law of Corporations applying, as long as the shares are acquired pursuant to
Article 56 (FIFTY-SIX) and other provisions of the Securities Market Law, and the administrative
provisions issued in relation to that law.
(b) The Ordinary General Shareholders’ Meeting must, each year, expressly agree to the
maximum amount of resources that may be allocated to the purchase of own shares, with the
only limiting factor being that the sum of the funds that may be used for that purpose may not in
any case exceed the Company’s total net profits, including retained earnings.
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(c) As long as the shares are owned by the Company, they may not be represented or voted
on at the General Shareholders’ Meetings, nor may corporate or financial rights of any type be
exercised.
(d) The Company’s own shares, or unsubscribed shares that are kept as Treasury shares,
may be placed with the investing public without the corresponding shareholders’ equity increase
for these cases requiring a resolution by the General Shareholders’ Meeting for any class, or
agreement of the Board of Directors regarding placement of the shares.
(e) Under no circumstance may the operations of acquiring and placing shares result in the
percentages established in Article 54 (FIFTY-FOUR) of the Securities Market Law being exceeded, or in breach of the requirements for maintaining registration on the stock exchange on
which those shares are traded.
(f) The purchase and placement of shares provided for in this Clause, the reports that must be
presented to the Ordinary General Shareholders’ Meeting regarding those shares, the rules of
disclosure regarding financial information, as well as the manner and terms in which these
operations are reported to the National Banking and Securities Commission (the “Commission”)
to the respective stock exchange and to the investing public, will be subject to the general
provisions that the Commission issues.
Nine. Shares with Limited Voting Rights
(a) The General Shareholders’ Meeting may decide on the issuance of shares with limited
voting, restricted or no voting rights, including those discussed in Articles 112 (ONE HUNDRED
AND TWELVE) and 113 (ONE HUNDRED AND THIRTEEN) of the General Law of Corporations, as long
as the Company has obtained express authorization from the Commission, and the issuance
meets the requirements of the Securities Market Law and the administrative provisions that are
issued in that regard.
(b) Shares with no voting rights will not be included for the purposes of determining a quorum
at shareholder meetings, while shares with restricted or voting rights will only be included to
determine a quorum, and the resolutions at shareholder meetings to which the holders of those
shares must be summoned in order to exercise their voting rights.
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Ten. Stock Certificates
(a) Shares will be backed by certificates, which must contain the requirements established in
Article 125 (ONE HUNDRED AND TWENTY-FIVE) of the General Law of Corporations, and indicate
the corresponding series. The certificates may represent one or more shares, they will be
numbered sequentially, and they will be signed by 2 (TWO) members of the Board of Directors,
manually or by facsimile, in which case the original of their signatures must be filed with the
Public Registry of Commerce.
(b) In the event of loss, destruction or theft of one or more certificates or stock certificates, the
owner may request that new ones be issued, subject to the General Law of Securities and
Credit Operations. The expenses related to issuing a new certificate will be borne by the interested party.
(c) Stock certificates must contain a summary of the applicable stipulations from these corporate By-Laws.
(d) Shares may be backed by one or several global certificates deposited with a securities
depositary institution in accordance with the Securities Market Law.
Eleven. Stock Ledger
(a) The Company will maintain a share registry pursuant to Article 128 (ONE HUNDRED AND
TWENTY-EIGHT) of the General Law of Corporations, whether directly or according to Section VII
(SEVEN) of Article 280 (TWO HUNDRED AND EIGHTY) and other applicable provisions of the Securities Market Law, which may be maintained by the Secretary of the Company’s Board of Directors, by a securities depositary institution, or by a lending institution.
(b) The Company will recognize whoever is recorded as the legal owner of the shares in the
registry indicated in the preceding paragraph, as the legal owner of the shares. At the request of
any interested party and upon any requested verification, the Company must record the share
transactions and conversions made in the mentioned ledger, as stated in Clause Five of these
By-Laws. The ledger will remain closed from the day prior to each shareholders’ meeting, until
the day following that meeting, during which no registration whatsoever will be made in that
ledger.
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Twelve. Cancellation of Registration in the National Securities Registry
Registration of the Company’s shares in the Securities Section of the National Securities
Registry may be cancelled: (i) by agreement at the Extraordinary General Shareholders’ Meeting with the affirmative vote of shareholders, with or without voting rights, representing 95%
(NINETY-FIVE PER CENT) of shareholders’ equity; or (ii) by resolution of the Commission. In both
cases, the procedure will be subject to the Securities Market Law and the regulatory or administrative provisions issued in relation to that law.
Section Three – Administration and Supervision of the Company
Chapter One – The Board of Directors
Thirteen. Members of the Board
(a) Administration of the Company will be entrusted to a Board of Directors and to a Chief
Executive Officer, acting within their respective spheres of competence.
(b) The Board of Directors will be comprised of no fewer than 5 (FIVE) and a maximum of
21 (TWENTY-ONE) board members, as determined at the Ordinary General Shareholders’ Meeting, of whom at least 25% (TWENTY-FIVE PER CENT) must be independent, as “independent board
member” is defined in the Securities Market Law, as well as in the stock market regulations that
the Company must follow.
(c) The General Shareholders’ Meeting or the Board of Directors will have the authority to
appoint the Chairman of the Board from among their members. The Vice Chairman of the Board
of Directors will replace the Chairman of the Board in the event of temporary absence, as
considered appropriate for the best performance of the Board.
(d) The Board of Directors will meet in the event of resignation or permanent absence of the
Chairman, and the respective meeting will be summoned and presided over by the board
member who substitutes for the Chairman in his temporary absences, in order to appoint the
board member who will occupy the position of Chairman of the Board of Directors.
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(e) The Secretary of the Board of Directors and their alternate will be named by the Board.
The appointees will not be members of the Board of Directors, regardless of the position or
duties that the appointees have inside or outside the Company.
Fourteen. Appointment of Board Members
(a) Members of the Board of Directors will only be appointed, or their appointments ratified, at
the Ordinary General Shareholders’ Meeting that is held to discuss and approve the report
indicated in Article 172 (ONE HUNDRED AND SEVENTY-TWO) of the General Law of Corporations,
and that Meeting may appoint a maximum of one-third of the members of the Board of Directors.
(b) The members of the Board of Directors will hold office for a minimum period of three years,
or for a different period if so decided at the Shareholders’ Meeting, with the approval of 75%
(SEVENTY-FIVE PERCENT) of the shares in circulation with full voting rights, and they may not be
removed in advance, except in the following cases: (i) death or disability of the board member;
(ii) resignation of the board member; (iii) a supervening impediment as defined by applicable
law; or (iv) due to a serious reason at the judgment of the Shareholders’ Meeting that so resolves with the vote of 75% of the shares in circulation with full voting rights.
(c) The board members will continue to perform their functions even after expiration of the
term for which they have been appointed, or due to resignation of the position, for a period of up
to 30 (THIRTY) calendar days, failure to appoint an alternate, or when the alternate does not
assume their position, without being subject to Article 154 (ONE HUNDRED AND FIFTY-FOUR) of the
General Law of Corporations.
(d) In any of the circumstances described in sections (i) to (iii) of sub-section (b) above, the
person named by the Board of Directors will occupy the position of board member as a provisional regular board member until the Ordinary General Shareholders’ Meeting meets to ratify
the provisional board member, or appoints a new regular board member who is to replace him
until the end of the term of the board member in question.
(e) In the event that the provisional board member also falls under one of the assumptions of
sections (i) to (iii) mentioned in section (b) above, the Board of Directors will appoint an interim
board member to replace him, and that person will remain in that position until the next Ordinary
General Shareholders’ Meeting to ratify or designate the new board member who must replace
him until the end of the term of the board member who no longer forms part of the Board of
Directors.
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(f) If the number of members of the Board of Directors varies within the limits allowed by these
By-Laws, any increase or decrease must be proportional among the groups of board members
according to the term for which they were appointed, in order to maintain the proportion indicated in section (b) of this Clause. The new members of the Board of Directors who are appointed to maintain the mentioned proportion will hold office for the remainder of the term of the
group of board members they were elected to replace, but in no case will a decrease in the
number of members on the Board of Directors result in reducing the term of the members of the
Board of Directors who are performing their duties at that time.
(g) The Ordinary General Shareholders’ Meeting will be responsible for the staggered appointment of members of the Board of Directors, pursuant to this Clause, and no shareholder or
group of shareholders will be prevented from exercising their rights as stated in Clause Fifteen
of these By-Laws. (h) When board members are appointed, Articles 24 (TWENTY-FOUR) and 26
(TWENTY-SIX) of the Securities Market Law must be observed at all times.
Fifteen. Right of the minority to appoint board members
(a) At any Ordinary General Shareholders’ Meeting that is held to appoint board members, any
minority of shareholders with shares with voting rights, including limited or restricted voting
rights, who represent at least 10% (TEN PERCENT) of the shareholders’ equity in one or more
series or classes of shares will have the right to name a board member. Those who exercise
this right may not participate in appointing the remaining board members.
(b) The appointment of a board member or members named by minority shareholders may
only be revoked if the appointment of all other board members is revoked, or if the minority
shareholders determine that the board member they have appointed should be revoked. In the
latter case, the people who are replaced may not be named in that capacity for 12 (TWELVE)
months immediately following the date on which their appointment was revoked.
Sixteen. Meetings of the Board of Directors; Integration and Voting
(a) The Board of Directors must meet at least 4 (FOUR) times per year. The Board of Directors
will hold valid meetings with the attendance of the majority of its members and its resolutions
will be passed by the majority of votes.
(b) In the event of a tie, the Chairman will have the tie-breaking vote.
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Seventeen. Meetings of the Board of Directors; Summons and Meeting Location
(a) The Chairman of the Board of Directors, 25% (TWENTY-FIVE PER CENT) of the board members or the Chairman of the Corporate Practices and Audit Committee or Committees of the
Company may summon meetings of the Board of Directors.
(b) The meetings will be held in Mexico City or elsewhere in Mexico, at the location that the
Board designates. The summons for those meetings must be sent to the members who should
attend at least 5 (FIVE) calendar days in advance of the date of the meeting, without prejudice to
the fact that the Board must annually agree to a calendar of ordinary meetings, in which case a
prior summons will not be required. The agenda or the list of matters to be discussed and
resolved must be sent with the summons, and if it is not sent with the summons, the agenda
must be distributed sufficiently in advance of the meeting.
Eighteen. Chairman and Secretary of the Meetings of the Board of Directors
(a) The Chairman of the Board of Directors will preside over the meetings of the Board of
Directors, and in his absence, the designated board member will preside according to the terms
established by the Board to better run those meetings.
(b) The Secretary of the Board will act as secretary for the meetings. In his absence, he will be
replaced by his alternate, and if both are absent, by the person appointed by the member
chairing the meeting.
Nineteen. Minutes of the Meetings of the Board
Minutes of all meetings of the Board of Directors will be drafted by whoever is acting as Secretary of the meeting, and the minutes will contain the matters discussed and the agreements
reached. Those minutes will be recorded in the respective book of minutes and signed by those
who acted as Chairman and Secretary of the Meeting.
Twenty. Board Resolutions Made Without a Meeting
(a) The Board of Directors may adopt resolutions unanimously without the need for a meeting.
(b) Board members may give their verbal consent to the Chairman or to the members who
assist the Chairman. A board member who gives his consent verbally must confirm it in writing.
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(c) Written confirmation must be sent to the Chairman and to the Secretary using any means
that ensures that they will receive it.
(d) The resolutions that are adopted pursuant to this Clause will be transcribed in the respective book of minutes, and these minutes must be authorized with the signature of the Chairman
and the Secretary, adding the documents that contain the resolutions that were adopted.
Twenty-One. Powers of the Board of Directors
The Board of Directors will be responsible for defining the general strategy of the Company’s
businesses and the legal entities that it controls, it will supervise the management and running
of the businesses, as well as the performance of the Chief Executive Officer and the Directors,
for which it will have the most far-reaching powers that are not reserved by legal provision or
By-Laws for another entity, including but not limited to the following:
(a) To supervise the management and running of the operations related to the purpose of the
Company or that are a direct or indirect consequence thereof, and of the legal entities that it
controls, considering the relevance that the latter have in the financial, administrative and legal
situation of the Company, through the Corporate Practices and Audit Committee or Committees,
within the scope of their respective authority;
(b) To oversee the performance of the Chief Executive Officer and the other Senior Managers
through the Corporate Practices and Audit Committee or Committees, within the scope of their
respective authority;
(c) To approve, with the prior opinion of the appropriate committee:
(i)
The policies and guidelines for the use or enjoyment of the assets that are a part of
the Company’s equity and the legal entities that it controls, by related persons, according to the definition of that term in the Securities Market Law.
(ii)
Each individual transaction with related parties that the Company or the legal entities that it controls, intends to enter into. The approval of the Board of Directors will
not be required to enter into the transactions indicated below when the policies and
guidelines approved by the Board are followed:
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(iii)
(A)
Transactions that, because of their amount, are not relevant for the Company
or for the legal entities that it controls;
(B)
Transactions between the Company and the legal entities that it controls or
over which it has a significant influence, or between any of those companies,
provided they are within the regular or habitual course of the business and
are deemed to have been made at market prices or supported by valuations
made by specialist external agents; and
(C)
Transactions made with employees, provided they are carried out under the
same conditions as they have been with any client, or as the result of general
employee benefits.
The transactions entered into, whether simultaneously or successively, which, due
to the characteristics, are considered to be a single operation and that the Company or the legal entities that it controls intends to carry out within the period of one
year, if they are unusual or non-recurring, or if their amount represents any of the
following, based on the corresponding numbers at the close of the immediately
prior quarter:
(A)
The acquisition or disposal of goods whose value is greater than or equal to
5% (FIVE PERCENT) of the Company’s consolidated assets; and
(B)
Granting guarantees or assuming liabilities for an amount greater than or
equal to 5% (FIVE PERCENT) of the Company’s consolidated assets. Investments in debt securities or bank instruments are excluded, as long as these
transactions are conducted according to the policies that the Board approves
to that effect.
(iv) The appointment, election and, where applicable, removal of the Chief Executive
Officer of the Company, full payment, as well as the policies to appoint and pay the
other Directors. The Chief Executive Officer must be a Mexican citizen, he may be
a shareholder, board member, member of other management entities, or a person
outside of the Company. He will have the powers and duties granted to him under
the law and these By-Laws, or those that are granted to him in the act of his appointment;
(v)
The policies for binding the Company or granting loans, or any type of credit or
guarantees to related parties.
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(vi) The waivers to allow a board member, senior manager or attorney-in-fact to take
advantage of business opportunities for himself or in favor of third parties related to
the Company or to the entities that it controls or in which it has a significant influence. Waivers for transactions whose amount is lower than the amount mentioned
in number (iii) above may be delegated to the Corporate Practices Committee.
(vii) Guidelines regarding matters of internal control and internal auditing of the Company and the legal entities that it controls.
(viii) The accounting policies of the Company, complying with generally accepted accounting principles or those issued by the competent stock exchange authorities
through general provisions.
(ix) The Company’s financial statements.
(x)
Hiring a legal entity designated by the Audit Committee that provides external audit
services, and where applicable, the additional or complementary services to external auditing services.
(d) To submit at the General Shareholders’ Meeting that is held in order to close the fiscal
year:
(i)
The reports from the presidents of the Corporate Practices and Audit Committee or
Committees in connection with the performance of their duties.
(ii)
The report prepared by the Chief Executive Officer pursuant to letter (k) of Clause
Twenty-Eight of these By-Laws, with the report of the external auditor attached.
(iii)
The opinion of the Board of Directors on the content of the report of the Chief Executive Officer.
(iv) The report mentioned in section (b) of Article 172 (ONE HUNDRED AND SEVENTY-TWO)
of the General Law of Corporations, which contains the main accounting policies
and criteria and information followed in preparation of the financial information.
(v)
The report on the transactions and activities in which it has participated pursuant to
the provisions of the Securities Market Law.
(e) To monitor the principal risks to which the Company and the legal entities that it controls
are exposed, identified by the committees, the Chief Executive Officer and the external auditor,
as well as the accounting systems, internal control and internal audit systems, registration, filing
and information of the Company and its subsidiaries for the conduct of the Audit Committee.
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(f) To approve the information and communication policies with shareholders and the market,
and with the board members and Directors, to comply with the provisions of the Securities
Market Law.
(g) To determine the actions that need to be taken in order to correct the irregularities of which
it has knowledge and to implement the corresponding corrective measures.
(h) To establish the terms and conditions that the Chief Executive Officer must comply with
when exercising his powers to perform acts of domain.
(i) To order the Chief Executive Officer to disclose to the public relevant events of which he
knows.
(j) To decide, upon the proposal of the Chairman of the Board or the Chief Executive Officer,
regarding the matters related to the Company’s acquisition or sale of shares, bonds or securities, or its participation in other firms or companies, and the acquisition, construction or sale of
property.
(k) To decide on the policy and guidelines for acquisition and placement of own shares.
(l) To create the special committees that it deems necessary or appropriate to develop the
Company’s operations, including the Corporate Practices and Audit Committee or Committees
pursuant to the terms of the applicable provisions of the Securities Market Law.
(m) Such committees may consist of equity advisers, independent board members or employees of the Company, with the exception of the audit and Corporate Practices Committee or
committees, which are exclusively comprised of independent board members. The members of
those committees will be named when proposed by the Chairman of the Board.
(n) To approve the appointment of the internal auditor upon the suggestion of the Chairman of
the Board.
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(o) To approve the annual operating expenses of the special committees, and from time to
time the internal regulations of each committee.
(p) To approve payment of bonuses granted under employee stock option plans created for
the Company’s workers and employees and the entities the Company controls, charged to the
results of those entities and the Company, according to the rules approved at the General
Shareholders’ Meeting and the rules of procedure established by the Board of Directors.
(q) To carry out the agreements made at Shareholder Meetings, to delegate the powers that
may be delegated under applicable legislation to the committees determined by the Board of
Directors, or to any of the board members, the Chairman of the Board, the Chief Executive
Officer, the attorneys-in-fact appointed so that they will conduct the business or businesses
pursuant to the terms and conditions that the Board indicates; and
(r) To perform any other function set forth in the Securities Market Law, in the Company’s ByLaws, or entrusted to it at the Shareholders’ Meeting.
Twenty-Two. Additional Powers of the Board of Directors
In addition to the powers listed in the previous Clause, the Board of Directors will have the
authority to guide the Chief Executive Officer in regard to granting or revoking every type of
general, special and/or limited power by the Company, in favor of one of more members of the
Board of Directors, employees and/or workers of the Company and/or its subsidiaries, and in
general, any other third party, whether that third party is an individual or a legal entity, and the
authority to delegate and/or replace one of them may be included in those powers.
Twenty-Three. Powers and Duties of the Chairman of the Board of Directors
The Chairman of the Board of Directors will have the following powers:
(a) To represent the Board to any person and authority;
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(b) To propose to the Board the strategies for running the business of the Company and the
entities that it controls, as well as the actions that further the Company’s purpose;
(c) To ensure that the Board meets at least once every 3 (THREE) months. He may also
summon Board meetings, in which he will have the tie-breaking vote;
(d) To propose for approval by the Board, the appointment of interim board members pursuant
to the terms of Article 24 (TWENTY-FOUR) of the Securities Market Law;
(e) To propose, for approval by the Board, the appointment of the independent board members
who must comprise the Corporate Practices and Audit Committee or Committees, and other
committees determined by the Board;
(f) To propose to the Board, for approval by the General Shareholders’ Meeting, the person or
persons who will occupy the position of President of the Corporate Practices and Audit Committee or Committees;
(g) To propose to the Board of Directors the creation of special committees, the members of
those committees, and the people who will preside over those committees;
(h) To summon Board and Shareholders’ Meetings, and include the points that he determines
to be important in the Order of the Day;
(i) To propose, for approval by the Board, the appointment and removal of the Chief Executive
Officer;
(j) To propose to the Board for approval at the General Shareholders’ Meeting, with back-up
information, where applicable, the respective committee prepares, the remuneration or compensation of the members of the Board;
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(k) To propose for approval by the Board and to coordinate the system to select the successor
of the President of the Board and the Chief Executive Officer; and
(l) The other powers and responsibilities attributed to him by the law, these By-Laws, or that
are granted to him by the Board of Directors or the Shareholders’ Meeting.
Twenty-Four. Powers and Duties of the Secretary of the Board of Directors
The following will be the powers and duties of the Secretary of the Board of Directors or his
alternate:
(a) To act as Secretary at meetings of the Board and in General Shareholders’ Meetings, or
Special Shareholders’ Meetings;
(b) To keep the corporate books required by law and other books that are necessary, according to these By-Laws, which are not specifically entrusted to another worker or employee of the
Company or to another entity;
(c) To formalize the minutes of the Shareholders’ Meetings and Board Meetings before a
notary public when these Company entities so decide, and when applicable in conformance with
the law; to issue certifications, unauthenticated copies, evidence or extracts of minutes of the
Shareholders’ and Board Meetings, as well as the entries that appear in the books of which he
is in charge, authorizing them with his signature; and
(d) The other powers and responsibilities attributed to him by the law, these By-Laws, or that are
granted to him by the Board of Directors or the Shareholders’ Meeting.
Twenty-Five. Indemnity Payments to Board Members and Employees
The Company will indemnify and hold harmless the board members, Chief Executive Officer,
Deputy Chief Executive Officer, and Directors mentioned in Article 2, Section IV of the Securities
Market Law, as well as the Corporate Secretary for damages that their actions cause to third
parties, to the Company, or to legal entities that the Company controls or in which it has a
significant influence, unless such acts were committed fraudulently or in bad faith, or if they are
unlawful according to applicable legislation. To that end, the Company will take out, and the
Board of Directors will ensure that the Company takes out, insurance, sureties or bonds that
cover the respective amounts of indemnity payments included, where applicable, the commitment to cover any remaining indemnity payments that exceed the insurance amount in favor of
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board members, the Executive President, the Chief Executive Officer, and Directors mentioned
in Article 2, Section IV of the Securities Market Law, as well as the Corporate Secretary.
Twenty-Six. Qualification Bond for the Board Members, Chief Executive Officer and Directors
(a) Unless otherwise required by the Ordinary General Shareholders’ Meeting appointing
them, the board members, Chief Executive Officer and Directors will not be required to post a
qualification bond.
(b) If the Shareholders’ Meeting decides that any or several positions are to provide a qualification bond, it will also establish the amount and conditions of the bond. The determination of
the Shareholders’ Meeting must be the same for each type of office.
Chapter Two – Chief Executive Officer
Twenty-Seven. Appointment and Mandate of the Chief Executive Officer
(a) Subject to the policies and guidelines governing the general business plan of the Company
approved by the Board of Directors, the management, running and performance of the Company’s businesses and the legal entities that it controls, will be the responsibility of the Chief
Executive Officer, who may be a Company employee or a person outside of the Company.
(b) The Chief Executive Officer will remain in that position for an undefined period of time, until
revocation of his appointment.
Twenty-Eight. Powers and Duties of the Chief Executive Officer
To perform his duties, the Chief Executive Officer will have the powers and obligations established in the corporate By-Laws and in the other applicable legal systems, including, but not
limited to, the following:
(a) To submit for approval by the Board of Directors, the business strategies of the Company
and the legal entities that the Company controls, based on the information that they provide.
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(b) To comply with the resolutions adopted at the Shareholders’ Meetings and the Board of
Directors Meetings according to the instructions provided in each case by the Shareholders’
Meeting or the Board.
(c) To propose to the Audit Committee the guidelines for the Company’s internal control and
audit systems and for the legal entities that the Company controls, and to enforce the guidelines
adopted by the Board of Directors to that effect.
(d) To endorse the significant information of the Company together with the Directors in charge
of preparing that information, in the area of their competence.
(e) To disseminate the relevant information and events that must be disclosed to the public, in
compliance with the provisions of the Securities Market Law.
(f) To comply with the provisions regarding transactions to purchase and place the Company’s
shares, approved by the Board of Directors.
(g) To file, either itself or through an authorized representative, within the scope of their authority
or upon the instruction of the Board of Directors, the appropriate actions for remediation and
liability.
(h) To verify that the capital contributions are made by the partners, where applicable.
(i) To comply with established legal and statutory requirements, to declare dividend payments to
shareholders.
(j) To ensure maintenance of the accounting, recording, archiving or information systems of the
Company.
(k) To prepare and present to the Board of Directors the report indicated in Article 172 (ONE
HUNDRED AND SEVENTY-TWO) of the General Law of Corporations, with the exception of the
report indicated in section (b) thereof.
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(l) To establish the internal mechanisms and controls that will allow monitoring that the actions
and activities of the Company and legal entities controlled thereby are in compliance with
applicable rules, and to track the results of those internal mechanisms and control and to take
the measures necessary, as applicable.
(m) To bring any liability lawsuits set forth in the Securities Market Law against related parties or
third parties that would have presumably damaged the Company or the legal entities controlled
by the Company or over which it has significant influence, unless the damage caused is not
significant, as determined by the Board of Directors, and with the opinion of the Audit Committee.
(n) To coordinate the performance of all activities inherent to the Company’s purpose, and the
companies controlled by it.
(o) To create management committees to assist him in the discharge of his duties, which
committees shall be formed in the manner determined by the Chief Executive Officer.
(p) To grant and revoke general, limited and/or special powers of attorney as directed by the
Board of Directors.
(q) To perform any other duty provided in the By-Laws, the Shareholders’ Meeting, the Board of
Directors, or the special committees.
Twenty-Nine. Powers of the Chief Executive Officer
The Chief Executive Officer of the Company will have the following general powers in order to
perform his functions:
(a) General powers for litigation and collection purposes, including but not limited to, any
general or special authority that must be vested by a special clause pursuant to the law as
defined in the first paragraph of Article 2554 (TWO THOUSAND FIVE HUNDRED AND FIFTY-FOUR) of
the Civil Code for the Federal District, the relevant Civil Codes of the Federal Entities of the
United Mexican States, and the Federal Civil Code; the Chief Executive Officer will be empowered to, including but not limited to, bring criminal actions, file criminal reports and grant
acquittals to becoming a complainant or co-complainant in criminal proceedings, to abandon
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actions filed and lawsuits to protect constitutional rights (juicios de amparo); to transact, to
submit to arbitration, to pose and answer requests for admission, to make assignments of
property; to see the recusal of judges, to receive payments and perform any actions expressly
prescribed by the law, including representation of the Company before judicial and administrative authorities, whether civil or criminal, and before labor authorities and courts;
(b) General powers for acts of administration and domain according to the second and third
paragraphs of Article 2554 (TWO THOUSAND, FIVE HUNDRED AND FIFTY-FOUR) of the Civil Code for
the Federal District, the corollary Civil Codes of the Federal Entities of the United Mexican
States, and the Federal Civil Code, as follows:
(i)
In the case of general powers for acts of administration entailing the exercise of
voting rights to shares, membership interests or securities or rights representing
capital, the Chief Executive Officer must obtain prior authorization from, or act in
accordance with the policies established by the Board of Directors; and
(ii)
To exercise acts of ownership, the powers conferred will be limited as follows:
(A) In the case of the sale of real property owned by the Company and shares or
membership interests of companies controlled by the Company, he must sign either jointly with those designated by the Board of Directors or with the prior authorization of the Board of Directors or the Shareholders’ Meeting; (B) In the case of
the transactions referred to in Sub-section (c) of Item III (THREE) of Article 28
(TWENTY-EIGHT) of the Securities Market Law, he will sign with the prior authorization of the Board of Directors; and/or (C) When the transaction involves an amount
equal to, or in excess of, 20% (TWENTY PERCENT) of the Company’s shareholders’
equity, he will sign with the prior authorization of the Ordinary General Shareholders’ Meeting;
(c) Powers for acts of administration with specific powers in labor matters, pursuant to Article
2554 (TWO THOUSAND FIVE HUNDRED AND FIFTY-FOUR), paragraphs two and four of the Civil Code
for the Federal District, the corollary Civil Codes of the Federal Entities of the United Mexican
States and the Federal Civil Code, and pursuant to Sections 11 (ELEVEN), 692 (SIX HUNDRED AND
NINETY-TWO) parts II (TWO) and III (THREE), 786 (SEVEN HUNDRED AND EIGHTY-SIX), 876 (EIGHT
HUNDRED AND SEVENTY-SIX) and relevant provisions of the Federal Labor Law, to appear in his
capacity as administrator and thus as a legal representative of the Company, before any labor
authority, related to Article 523 (FIVE HUNDRED AND TWENTY-THREE) of the Federal Labor Law, as
well as before the Workers’ National Housing Fund Institute, the Mexican Social Security
Institute, and the National Workers’ Compensation Fund, in all matters related to those institutions and other public entities, and he is empowered to file any lawsuits and exercise any rights
to which the Company may be entitled, with all general and special powers that must be vested
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by a special clause pursuant to the law, and he is empowered to reach settlements in conciliation proceedings on behalf of the Company, and to conduct the Company’s labor negotiations;
(d) Powers to execute, deliver, endorse and guarantee as surety all types of commercial paper,
provided they further the Company’s purpose, pursuant to Article 9 (NINE) of the General Law of
Securities and Credit Transactions in those cases that do not require authorization by the Board
of Directors or the Shareholders’ Meeting; and
(e) The power to grant and delegate general and special powers, to revoke and replace them
in whole or in part, according to the powers that he has, expressly including the authority to
delegate to those to whom such powers of attorney have been conferred, the right to grant,
delegate, replace or revoke them, in whole or in part, in favor of third parties.
Thirty. Indemnity of the Chief Executive Officer
The Company will indemnify and hold harmless the Chief Executive Officer for the damages that
his actions cause to the Company or to the entities that the Company controls or in which it has
a significant influence, unless those acts are fraudulent or conducted in bad faith, or if they are
unlawful in accordance with applicable legislation. To that end, the Board of Directors will ensure
that the Company takes out insurance, sureties or bonds that cover the respective amounts of
that indemnity, including, where applicable, the commitment to cover any remaining indemnity
payments that exceed the insurance amount in favor of the Chief Executive Officer and the
Directors, as defined in Article 2, Section IV of the Securities Market Law.
Chapter Three – Board Committees
Thirty-One. Composition of the Committees
(a) The Board of Directors, at the proposal of its Chairman, will be assisted by one or more
committees that are established for the purpose of performing the functions assigned to them
under these By-Laws and applicable legislation.
(b) When the decision is made to create a committee, the Board of Directors must establish
the rules regarding its composition, powers and obligations, operation and other matters related
to that committee.
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Thirty-Two. Supervision of the Company
Supervision of operations and compliance with the resolutions of Shareholders’ Meetings and
the Board of Directors will be entrusted to one or two committees that perform audit and corporate practices functions, as well as to the legal entity that performs the external audit.
Thirty-Three. Formation and Operation of the Audit and Corporate Practices Committees
(a) The Corporate Practices and Audit Committee or Committees will be comprised exclusively
of independent board members, and by a minimum of 3 (THREE) members appointed by the
Board of Directors upon the proposal of its Chairman.
(b) The Chairman of the Corporate Practices and Audit Committee or Committees will be
appointed and removed exclusively by the General Shareholders’ Meeting at the proposal of the
Board of Directors. Additionally, the people who preside over the Corporate Practices and Audit
Committee or Committees must comply with Article 43 (FORTY-THREE) of the Securities Market
Law and applicable legal systems.
(c) The Shareholders’ Meeting may at any time determine that the audit and corporate practices functions be performed by an independent committee for each, or by one single committee
that performs both functions.
(d) The internal rules of each committee and, where applicable, the modifications and additions thereto, must be prepared and proposed by the committee in question, for approval by the
Board of Directors, which will have the final authority to ratify or rectify the rules and changes
that are proposed.
(e) The Corporate Practices and Audit Committee or Committees must meet at least 4 (FOUR)
times per year, or as often as the circumstances of its functions require. Each work meeting will
be attended by the managers who are summoned and the independent auditor, who will participate as guests with right to voice, but no right to vote. The Audit Committee must meet periodically with the internal auditor and the independent auditor in meetings in which Company
employees or the legal entities that the Company controls or over which it has significant
influence may participate.
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Thirty-Four. Audit functions
(a) The Audit Committee will have the general duty to oversee and supervise the integrity of the
financial information, the accounting process and systems, control and registration of the
Company and the legal entities that it controls, to supervise the technical capacity, independence and function of the legal entity that performs external audit functions, the efficiency of the
Company’s internal control, and assessment of financial risks.
(b) In addition, the Audit Committee will have the following functions, including but not limited
to:
(i)
To provide advice to the Board of Directors on matters under the scope of its authority pursuant to the Securities Market Law.
(ii)
To evaluate the performance of the external auditor, and to analyze the advice,
opinions, reports or statements prepared by the external auditor. To that end, the
Committee may require the presence of that auditor whenever it deems advisable,
without prejudice to the fact that it must meet with the auditor at least once per
year.
(iii)
To discuss the information in the financial statements with those responsible for its
preparation and review, and to give an opinion on that information prior to its presentation to the Board of Directors.
(iv) To inform the Board of Directors on the status of the internal control and internal
auditing systems, or of the legal entities that it controls, including any irregularities
that it may detect.
(v)
To provide support to the Board of Directors in preparing the reports mentioned in
(vi) To ensure that the transactions listed in section III (THREE) of Clause Twenty-One
of the corporate By-Laws, and Article 47 (FORTY-SEVEN) of the Securities Market
Law, are conducted in compliance with the provisions contained therein as well as
with the authorizations or guidelines approved by the Board of Directors or at the
General Shareholders’ Meeting.
(vii) To ensure compliance with generally accepted accounting rules and procedures
that have been authorized by the stock exchange authorities.
(viii) To request regular meetings with Directors, and to deliver any type of information
regarding internal control and internal auditing of the Company and the legal entities that it controls.
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(ix) To retain legal consulting and advisory, accounting, and financial services, and any
other type of specialty professional service as deemed appropriate to comply with
its duties and responsibilities.
(x)
To nominate and determine, for approval by the Board of Directors, the external
auditor and their fees; to supervise the work performed by the external auditor, and
if applicable, to approve their removal if the circumstances so justify; and to approve the services that the external auditor provides other than auditing services.
(xi) To establish a confidential and anonymous denunciation system for the workers
and employees with respect to irregular or possibly illegal accounting and auditing
matters.
(xii) To receive and handle any denunciations that are received in relation to accounting
matters, internal accounting control, or auditing matters.
(xiii) To prepare an annual report of its activities and present it to the Board of Directors
in conformance with Article 43 of the Securities Market Law.
(xiv) To draft the opinion indicated in Article 28, Section IV, subsection (c) of the Securities Market Law regarding the contents of the report from the Chief Executive Officer that must be prepared in conformance with Article 44, Section XI of the Securities Market Law, and to submit it for consideration by the Board of Directors, for
its subsequent presentation at the Shareholders’ Meeting, based, among other
items, on the report of the external auditor. That opinion must indicate a minimum
of the following:
1. Whether the accounting policies and information policies and criteria followed
by the Company are adequate and sufficient, considering its specific circumstances.
2. If those policies and criteria have been applied consistently to the information
presented by the Chief Executive Officer.
3. If, as a consequence of numbers 1 and 2 above, the information presented by
the Chief Executive Officer reasonably reflects the financial situation and the
results of the Company.
(xv) To ensure that the transactions referred to in Article 28, Section III and Article 47 of
the Securities Market Law are conducted in compliance with those provisions, as
well as the policies arising therefrom.
(xvi) To seek the opinion of independent experts whenever deemed appropriate, for the
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(xvii) To request from the senior managers and other employees of the Company or legal entities that it controls, reports regarding the preparation of the financial information and any other type of information it may deem necessary to perform its
functions.
(xviii)To summon the Shareholders’ Meetings and include any item of business it may
deem relevant in the agendas of those meetings.
(xix) To ensure that the Chief Executive Officer complies with the agreements adopted
at the Shareholders’ Meetings and the Board of Directors, according to the instructions provided in each case by the Shareholders’ Meeting or the Board.
(xx) Any other duties provided for under the Securities Market Law, the administrative
(c) In order to support the performance of the Audit Committee, the Company, through the
Board of Directors, will allocate funds as appropriate and requested by the Committee in order
to pay the fees of the external auditor, the fees for external advisers retained, and the regular
administrative expenses that the Committee incurs in the discharge of its duties, when so
requested.
Thirty-Five. Corporate Practices Functions
(a) The Corporate Practices Committee will have the general duty of overseeing and attenuating risks during the course of business or to the benefit of a determined group of shareholders,
subject to the authorizations or policies issued by the Board of Directors; to supervise compliance with the legal provisions and stock market regulations that the Company must respect.
(b) Additionally, the Corporate Practices Committee will have the following functions and
liabilities, including but not limited to:
(i)
To summon the Shareholders’ Meetings and include in the Order of the Day, any
points that it deems to be pertinent.
(ii)
To approve, for ratification or correction by the Board, policies for the use or enjoyment of property owned by the Company.
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(iii)
To prepare an annual report on the activities conducted, and to present it to the
Board of Directors. The annual report must contain a minimum of the following:
(A) Observations on the performance of the Directors; (B) Transactions entered into with related parties during the reporting year; (C) The full compensation or remuneration packages of the Chief Executive Officer and the Directors of the Company; and (D) The waivers granted by the Board of Directors so that a board
member, Director or person with mandate powers according to the Securities Market Law can take advantage of business opportunities for himself or in favor of third
parties, as established in Clause Twenty-One of these By-Laws.
(iv) To provide support to the Board of Directors in preparing the reports mentioned in
(v)
To issue an opinion on the transactions entered into with related parties.
(vi) To authorize, for ratification or correction by the Board, the compensation package
of the Chief Executive Officer and the policies for determining remuneration of the
Directors.
(vii) To provide opinions to the Board of Directors on matters under the scope of its authority pursuant to the Securities Market Law.
(viii) To seek the opinion of independent experts whenever deemed appropriate, for the
(ix) Any other duties provided for under the Securities Market Law, the administrative
Thirty-Six. Hiring External Auditors and Advisers
(a) The Corporate Practices and Audit Committee or Committees will have the authority to hire
legal counsel and assistance, accounting, financial and any other type of professional specialty
that is deemed necessary or appropriate to comply with their duties and responsibilities. The
Audit committee will also have the authority to designate, compensate, retain and supervise the
work performed by the independent auditor, including their removal if the circumstances so
justify, as required.
(b) In order to support the performance of the Audit Committee, the Company, through the
Board of Directors, will allocate funds as appropriate and requested by the Committee in order
to pay the fees of the independent auditor, the fees for external advisers retained, and the
regular administrative expenses that the committee incurs in the discharge of its duties, when so
requested.
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SECTION FOUR – SHAREHOLDERS’ MEETINGS
Thirty-Seven. Summons to Shareholders’ Meetings
(a) General Shareholders’ Meetings, whether ordinary or extraordinary, will be held as indicated in the General Law of Corporations, and the respective summons must be published
indicating the location, date and time of the meeting and the matters to be discussed, in accordance with the Order of the Day, in a newspaper with major distribution in the city where the
Company has its domicile, no fewer than 15 (FIFTEEN) calendar days in advance. Meetings may
be held without prior notice when all shareholders are present at the time of voting. As of the
date the summons to the Shareholders’ Meeting is published, the information and documents
related to each point in the Order of the Day must be immediately and freely available to the
shareholders.
(b) Shareholders who hold shares with voting rights, including limited or restricted voting
rights, who individually or jointly have 10% (TEN PERCENT) of the Company’s Shareholders’
Equity, will have the right to request the Chairman of the Board of Directors or the presidents of
the Corporate Practices and Audit Committees, at any time, to summon a General Shareholders’ Meeting, and the percentage indicated in Article 184 (ONE HUNDRED AND EIGHTY-FOUR) of the
General Law of Corporations will not apply.
(c) Special Shareholders’ Meetings will be subject to the same requirements that apply to the
Extraordinary General Shareholders’ Meetings.
Thirty-Eight. Supremacy of the General Shareholders’ Meetings
The General Shareholders’ Meeting is the highest body of the Company, and all other entities
will be subject to the resolutions or agreements it reaches.
Thirty-Nine. Ordinary General Shareholders’ Meetings
(a) Ordinary General Shareholders’ Meetings will be held on the date that the Board of Directors indicates, but in all cases they must meet once per year within 4 (FOUR) months following
the close of each fiscal year.
(b) Ordinary General Shareholders’ Meetings will handle the following matters:
174
(i)
To discuss and resolve the matters listed in Article 181 (ONE HUNDRED AND EIGHTYONE) of the General Law of Corporations, with inclusion of the report referring to
the Company’s consolidated and unconsolidated financial statements listed in the
general paragraph in Article 172 (ONE HUNDRED AND SEVENTY-TWO) of the General
Law of Corporations, regarding the Company’s immediately prior fiscal year, when
the Company holds 50% (FIFTY PERCENT) or more of the capital of other companies, or by any other means has the authority to determine its management, as
long as that investment is greater than or equal to 20% (TWENTY PERCENT) of the
Company’s Shareholders’ Equity;
(ii)
To appoint and remove those who preside over the audit and Corporate Practices
Committees;
(iii)
To rate the independence of the members of the Board of Directors proposed as
independent, and to establish, if applicable, additional requirements to qualify a
board member as independent, in addition to what is stated in the Securities
Market Law;
(iv) To approve the transactions that the Company or the legal entities that it controls
intend to carry out during a one-year period, whose amount represents 20%
(TWENTY PERCENT) or more of the Company’s consolidated assets, based on the
numbers for the close of the quarter immediately prior to the date on which it intends to enter into the transaction, simultaneously or successively, or in any other
manner that, due to its characteristics, may be considered a single transaction;
(v)
To approve, upon the proposal of the Board of Directors, taking out liability insurance for losses or damages for the members of the Board of Directors, the Chief
Executive Officer and Directors. The approval must include the commitment to
make any remaining indemnity payments that the corresponding insurance does
not cover, charged to the results of the Company;
(vi) To approve the reports issued by the Audit and Corporate Practices Committees
listed in Article 43 of the Securities Market Law;
(vii) To approve the report prepared by the Chief Executive Officer as indicated in Article
44, Section XI of the Securities Market Law, attaching the report of the external auditor;
(viii) To approve the opinion of the Board of Directors on the content of the report of the
Chief Executive Officer mentioned in the previous section.
(xix) To approve the report on the transactions and activities in which it has participated
pursuant to the provisions of the Securities Market Law; and
(x)
Any other matter not expressly reserved for the competence of the Extraordinary
Shareholders’ Meeting or the Special Shareholders’ Meeting.
175
(c) Ordinary General Shareholders’ Meetings will meet the requirements for holding and
voting, as indicated in the General Law of Corporations, with the exceptions set forth in these
By-Laws.
Forty. Extraordinary General Shareholders’ Meetings
(a) Extraordinary General Shareholders’ Meetings will convene to discuss any matter indicated
in Article 182 (ONE HUNDRED AND EIGHTY-TWO) of the General Law of Corporations, and any
other matter that, according to the law or these By-Laws, requires the presence of a qualified
majority of shareholders.
(b) Extraordinary General Shareholders’ Meetings will meet the requirements for holding and
voting, as indicated in the General Law of Corporations, with the exceptions set forth in these
By-Laws.
Forty-One. Rights of Minority Shareholders
(a) Shareholders who individually or jointly hold shares with voting rights, including limited or
restricted voting rights, or shares without voting rights that represent 5% (FIVE PERCENT) or more
of the Company’s Shareholders’ Equity, may bring liability lawsuits against the directors. The
liability resulting from acts by directors will be the exclusive responsibility of the Company.
(b) Shareholders who hold shares with voting rights, including those with limited or restricted
voting rights, who have at least 10% (TEN PERCENT) of shareholders’ equity at a meeting, may
make a one-time request to adjourn for three calendar days without the need for a new summons, to vote on any matter regarding which they do not believe they are sufficiently informed,
without the percentage indicated in Article 199 (ONE HUNDRED AND NINETY-NINE) of the General
Law of Corporations being applicable.
(c) Shareholders who hold shares with voting rights, including limited or restricted voting
rights, who represent at least 20% (TWENTY PERCENT) of shareholders’ equity, may legally
oppose the resolutions reached at General Shareholders’ Meetings at which they have the right
to vote, without the percentage referred to in Article 201 (TWO HUNDRED AND ONE) of the General
Law of Corporations being applicable.
176
Forty-Two. Attendance at Shareholders’ Meetings
(a) Shareholders who are recorded in the stock registry kept by the Company as owners of
one or more shares will be admitted to Shareholders’ Meetings. So that the shareholders who
are recorded in the Company’s stock ledger have the right to attend the meetings, they must
deposit their shares with a Mexican institution that is authorized for the deposit of securities, or
they must leave them with the Secretary of the Board at their offices established at the corporate domicile or at any financial institution in Mexico or abroad.
They must also provide sufficient evidence, in the opinion of the Secretary of the Board of
Directors, or the person designated by him, that the shareholder in question, or where applicable, the beneficiary of the stock brokerage agreement or respective analogous instrument,
complies with the requirements listed in these By-Laws, or if dealing with credit institutions
acting as fiduciaries in trusts formed by the Company for the benefit of its employees or the
employees of its subsidiaries, or with altruistic purposes, and credit institutions acting as fiduciaries in a neutral investment trust formed by the Company and to which shares of the Company
had been contributed as underlying assets to issue securities in Mexico or abroad. If what is
stated in this Clause is not verified, the person in question will not have the right to participate in
the meeting, and consequently may not exercise the corporate rights corresponding to those
shares, and the corresponding provisions of these By-Laws will apply.
(b) A deposit held by the Company and verification of compliance with nationality requirements
referred to in the preceding paragraph must be made at least one day prior to the date specified
for the Shareholders’ Meeting. An admission card to the Shareholders’ Meeting will be delivered
against the deposited shares; it will state the number and class of underlying shares, the
shareholder’s name, and the number of votes to which that shareholder is entitled. If the deposit
is made with a financial institution, an admission card for the Shareholders’ Meeting will be
delivered against the relevant evidence to submitted to the Company at least one day prior to
the date specified for the Shareholders’ Meeting. Once the Shareholders’ Meeting has been
held, the shares and any evidence produced will be returned against delivery of any ticket that
may have been issued.
(c) In addition, those who attend the Company’s Shareholders’ Meetings in representation of
other shareholders may prove their capacity by means of a power of attorney granted in forms
prepared by the Company, which forms must comply with the following requirements:
(i)
The name of the Company and the Order of the Day must be written conspicuously;
177
(ii)
It must contain space for instructions given by the grantor to exercise the proxy; and
(iii)
Any other requirement or information established by the Board of Directors.
(d) Any false information or omission in the form will result in the votes issued by the shareholder being nullified.
(e) During the period indicated in Article 173 (ONE HUNDRED AND SEVENTY-THREE) of the General Law of Corporations, the Company must make proxy forms available to securities brokers
who provide evidence that they represent shareholders of the Company, so that they may
forward them in a timely manner to their clients.
(f) At least 15 (FIFTEEN) calendar days prior to the Shareholders’ Meeting, the Company must
make the information and documents related to each item on the Order of the Day of the
relevant Shareholders’ Meeting freely available at its offices to the securities brokers who
provide evidence that they represent Company shareholders.
(g) The Secretary of the Company’s Board of Directors must monitor compliance with the
preceding paragraphs and report that information to the Shareholders’ Meeting, which will be
recorded in the respective minutes.
Forty-Three. Officers of the Meeting; Minutes
(a) Shareholders’ Meetings will be presided over by the Chairman of the Board, and in his
absence, by whoever is appointed by the Meeting. The Secretary of the Board of Directors will
serve as Secretary for the Meeting, and in his absence, by whomever the Chairman or the
Meeting appoints.
(b) The Chairman will appoint the inspectors he deems advisable in order to prepare the
relevant attendance list and to calculate the corresponding shares.
(c) Minutes of each Shareholders’ Meeting will be prepared and signed by the Chairman of the
Meeting, the person acting as Secretary, and by the inspectors.
178
(d) The copies, evidence or extracts of the minutes of the Shareholders’ Meetings that must be
prepared for any reason will be authorized by the Secretary of the Board or his alternate, and in
his absence by the Secretary of the Shareholders’ Meeting or by the special delegate appointed
by the Shareholders’ Meeting for that purpose.
SECTION FIVE – FISCAL YEAR AND FINANCIAL STATEMENTS
Forty-Four. Fiscal Year
The Company’s fiscal year will be from January 1 to December 31 of each year.
Forty-Five. Financial Statements.
(a) At the end of each fiscal year, an audited balance sheet and income statement will be
prepared, containing all the necessary data to verify the financial status of the Company at the
close of the fiscal year.
(b) The balance sheet and the documents referred to in Article 172 (ONE HUNDRED AND
SEVENTY-TWO) of the General Law of Corporations must be completed within 4 (FOUR) months of
the close of each fiscal year, and they must be made available to shareholders within the period
established in Article 173 (ONE HUNDRED AND SEVENTY-THREE) of the General Law of Corporations and as indicated in these corporate By-Laws, and they must be published in the Official
Gazette of Mexico as provided in Article 104 (ONE HUNDRED AND FOUR) of the Securities Market
Law.
Forty-Six. Profit-Sharing
After setting aside the necessary amounts to pay taxes, to create or increase the legal reserve
up to one-fifth of shareholders’ equity, where applicable, the remaining amount will be applied to
forming the reserve for the repurchase of shares or other items that are required, or as decided
at a Ordinary General Shareholders’ Meeting.
SECTION SIX – DISSOLUTION AND LIQUIDATION OF THE COMPANY
Forty-Seven. Dissolution
The Company will be dissolved in the event of occurrence of any item set forth in the General
Law of Corporations.
179
Forty-Eight. Liquidation
If the Company is dissolved, it will then be liquidated, which will be conducted by one or several
liquidators to be named by the Shareholders’ Meeting.
Forty-Nine. Powers of the Liquidator
Unless otherwise provided by the General Shareholders’ Meeting, the liquidator or liquidators
will have the powers assigned to them in Article 242 (TWO HUNDRED AND FORTY-TWO) of the
General Law of Corporations, and they will distribute what remains among the shareholders,
subject to the rules established in Articles 113 (ONE HUNDRED AND THIRTEEN), 247 (TWO HUNDRED
AND FORTY-SEVEN) and 248 (TWO HUNDRED AND FORTY-EIGHT) of that same Law and by these ByLaws.
Fifty. Registration of Liquidators
Pending registration in the Public Registry of Commerce of the appointment of liquidators, and
as long as they have not commenced their duties, the Board of Directors and the Chief Executive Officer of the Company will continue performing their duties, but they may not initiate new
operations after the resolution to dissolve the Company has been approved by the General
Shareholders’ Meeting, or the existence of a legal cause for dissolution has been proven.
TRANSITORY CLAUSE
Sole Paragraph
With the exception of what is stated in Clause Fourteen of these By-Laws, in the Shareholders’
Meeting that is called to approve modifications to these By-Laws, and in its related Ordinary
General Shareholders’ Meeting, the people who will act as board members will be named, even
though it is not an Annual Ordinary General Shareholders’ Meeting as defined in section (a) of
Clause Fourteen.
180
V. STOCK MARKET
1. SHAREHOLDER STRUCTURE
559,330,813 common nominative Series B shares with full voting rights and no par value, fully
subscribed and paid in, of which 30,955,386 are Series B Class I, representing the fixed share
capital, and 528,375,427 are Series B Class II shares, representing the variable portion of CIE’s
share capital.
Mexican pesos (ONE BILLION, TWO HUNDRED MILLION AND 00/100 MEXICAN PESOS), through the
issuance of 200,000,000 (TWO HUNDRED MILLION) Series B Class II shares, no par value, at a
subscription price of 6.00 Mexican pesos (SIX AND 00/100 MEXICAN PESOS) per share.
update CIE’s share capital, and the Company is now awaiting that approval.
The Ordinary General and Extraordinary Shareholders’ Meetings of the Company held on April
25, 2006, approved an increase to the variable portion of capital in the amount of Ps.
5,986,215,694.49 (FIVE BILLION, NINE HUNDRED AND EIGHTY-SIX MILLION, TWO HUNDRED AND
FIFTEEN THOUSAND, SIX HUNDRED AND NINETY-FOUR AND 49/100 MEXICAN PESOS) and an increase
to the fixed portion in the amount of Ps. 564,310,244.51 (FIVE HUNDRED AND SIXTY-FOUR MILLION,
181
THREE HUNDRED AND TEN THOUSAND, TWO HUNDRED AND FORTY-FOUR AND
51/100 MEXICAN
PESOS), without issuing shares through the capitalization of a premium in subscription of shares
that were reflected in the Company’s financial statements on December 31, 2005.
The Ordinary General and Extraordinary Shareholders’ Meeting of the Company held on May
27, 2005, approved an increase to the variable portion of capital in the amount of Ps.
50,000,000.00 (FIFTY MILLION AND 00/100 HISTORICAL MEXICAN PESOS) through the issuance of
50,000,000 common nominative shares, Series B, Class II, at a subscription price of Ps. 1.00
(ONE MEXICAN PESO AND 00/100) plus payment of a share subscription premium of Ps. 21.00
(TWENTY-ONE MEXICAN PESOS AND 00/100) per subscribed share.
The Ordinary General and Extraordinary Shareholders’ Meeting held on April 26, 2001, approved an increase to the variable portion of capital in the amount of Ps. 3,666,333.00 (THREE
MILLION, SIX HUNDRED AND SIXTY-SIX THOUSAND, THREE HUNDRED AND THIRTY-THREE HISTORICAL
MEXICAN PESOS) through the issuance of 3,666,333 Series B Class II shares, earmarked for the
Executive Stock Option Plan. The Ordinary General and Extraordinary Shareholders’ Meetings
of the Company held on October 24, 2001, approved an increase to the variable portion of
capital in the amount of Ps. 67,000,000.00 (SIXTY-SEVEN MILLION AND 00/100 HISTORICAL
MEXICAN PESOS) through the issuance of 67,000,000 Series B, Class II shares, and increase to
the fixed portion of the capital in the amount of Ps. 6,700,001.00 (SIX MILLION, SEVEN HUNDRED
THOUSAND AND ONE AND 00/100 HISTORICAL MEXICAN PESOS) through the conversion of
6,700,001 Series B Class II shares representing the variable portion of the capital, for the same
number of Series B, Class I shares, which represent the fixed portion of shareholders’ equity.
Consequently, the variable capital was decreased by Ps. 6,700,001.00 (SIX MILLION, SEVEN
HUNDRED THOUSAND AND ONE AND 00/100 HISTORICAL MEXICAN PESOS).
Regarding the capital increase by virtue of which the 3,666,333 shares were issued, as resolved
at the Ordinary General and Extraordinary Shareholders’ Meeting held on April 26, 2001 mentioned above, on May 30, 2002, the Notice of Subscription to Shareholders was published in the
Official Gazette of Mexico, so that, in conformance with Article 132 of the General Law of
Corporations, the shareholders could exercise their right of first refusal to subscribe the shares
issued due to the increase mentioned above. When the period for exercising that right elapsed,
those shares were made available to participants in the Executive Stock Option Plan, for
subscription and payment at the same price that the shareholders exercising their right of first
refusal paid; that is, Ps. 19.76 (NINETEEN AND 76/100 MEXICAN PESOS) per share; which was
published in the newspaper “El Economista” on June 14, 2002.
182
On June 14, 2002, INDEVAL reported in writing to the Company’s Secretary that subscriptions by
exercise of the aforementioned right of first refusal were for a total of 6,103 Series B Class II
shares.
Similarly, at a meeting of the Company’s Board of Directors on June 17, 2002, the Chairman of
the Board reported the number of subscription requests received from participants in the Executive Stock Option Plan, due to which assignment of 3,310,280 shares was made to executives
and managers, likewise resolving that the remaining shares, meaning the 349,950 Series B
Class II shares that were not subscribed by shareholders in their right of first refusal and by the
employees, will remain deposited in the Company’s treasury.
Also as of this date, there are 559,330,813 shares in circulation, and 223,040 in the Company’s
treasury, and on January 10, 2006, the 126,910 of the 349,950 Series B Class II shares deposited in the Company’s treasury were assigned to five employees, which were subscribed and
paid in by the Fiduciary at the same price, that is, at Ps. 19.76 (NINETEEN AND 76/100 MEXICAN
PESOS), and they constitute a second assignment in accordance with the same Plan for Subscribing Shares and Options for Workers and Employees of the Company, established in 2002.
183
The shares that currently represent the Company’s shareholders’ equity are distributed as
follows:
BI
30,955,386
BII
528,598,467
In addition, there are 223,040 Series B Class II shares that are not subscribed, which are
deposited in the Company’s Treasury.
184
2. SHARE PERFORMANCE ON THE SECURITIES MARKET
The following table (with information obtained from several information distributors) shows the
performance on the Mexican Stock Exchange of CIE Series B shares for the period indicated,
including maximum, minimum and closing prices (stated in nominal Mexican pesos), as well as
the volumes traded for the periods indicated:
Series B Shares
Period
Maximum
Price
Minimum
Price
Closing
Price
Volume
(thousands of
shares)
2006
2007
2008
2009
2010
..........................
..........................
..........................
..........................
..........................
33.50
34.90
30.52
9.45
6.75
16.80
26.00
9.45
5.50
5.71
33.50
30.50
9.45
6.75
6.86
32,738
22,000
3,651
14,678
949
1Q 09 .........................
2Q 09 .........................
3Q 09 .........................
4Q 09 .........................
1Q10 ..........................
2Q10 ..........................
3Q10 ..........................
4Q10 ..........................
9.45
9.00
7.80
7.50
6.75
6.67
6.50
6.72
8.50
5.80
5.50
6.19
6.10
6.01
5.75
5.71
8.50
6.63
6.95
6.75
6.63
6.50
6.10
6.86
15
1,092
11,188
2,383
155
176
184
434
Dec 10 .......................
Jan 11 ........................ 1
Feb 11 ........................
Mar 11 ........................
Apr 11 .........................
May 11 .......................
6.89
6.79
6.03
6.00
6.05
6.10
6.20
6.40
5.72
5.90
6.00
6.00
6.86
6.40
5.85
5.97
6.00
6.98
142
34
115
33
25
31
Between 1998 and 2000, CIE listed its Series L shares on the BMV. These shares were later
merged with the Series B shares, thus Series L shares are no longer listed.
185
VI. MANAGERS
“The undersigned state under oath that, within the scope of our respective responsibilities, we
have prepared the information related to the issuer contained in this Annual Report, which, to
the best of our knowledge and understanding, reasonably reflects its situation. We also state
that we have no knowledge of relevant information that has been omitted or falsified in this
annual report, or that it contains information that might be misleading for investors.”
Sincerely,
LUIS ALEJANDRO SOBERÓN KURI
VÍCTOR MANUEL MURILLO VEGA
Chief Financial Officer and Legal Representative
cc: Bolsa Mexicana de Valores, S.A. de C.V.
186
Mexico, Federal District, June 29, 2011
“The undersigned state under oath that the financial statements of CORPORACIÓN
INTERAMERICANA DE ENTRETENIMIENTO, S.A.B. DE C.V. at December 31, 2010 and 2009, contained in this Annual Report, were audited according to generally accepted auditing principles in
Mexico. We also state that, within the scope of the auditing work performed on the aforementioned financial statements, we have no knowledge of relevant information that has been
omitted or falsified in this annual report, or that it contains information that might be misleading
for investors. The undersigned do not state any opinion whatsoever regarding any financial
information corresponding to any interim period included in the Annual Report.”
Sincerely,
ROBERTO VARGAS FLORES, CPA
Partner
PricewaterhouseCoopers, S.C.
HUMBERTO PACHECO SORIA, CPA
Partner and Legal Representative
PricewaterhouseCoopers, S.C.
cc: Bolsa Mexicana de Valores, S.A. de C.V.
187
188
Mexico City, Federal District, Mexico, April 14, 2011
To the Board of Directors of Corporación Interamericana
de Entretenimiento, S.A.B. de C.V.
Dear Board Members:
I, Roberto Albarrán Campillo, in my capacity as President of the Audit and
Corporate Practices Committee of Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (hereinafter "CIE" or the "Company"), submit for your
consideration this report on the operations and activities performed by the
Audit and Corporate Practices Committee of the Company (hereinafter the
"Committee"), during the fiscal year ended December 31, 2010, pursuant to
Article 43 of the Securities Market Law.
Among the Committee's functions and responsibilities is that of reporting the
state of the internal control system of the Company and its subsidiaries. The
Committee must describe its deficiencies and deviations, as well as the areas
that need improvement, considering the opinions, reports, communications
and the external auditor's report, as well as reports issued by independent
experts. Thus, during fiscal year 2010, the Committee met on four (4) occasions on the following dates: February 22, April 23, June 28 and October 27
(hereinafter the "Committee Meetings"). The Committee President, or in his
absence, his Alternate, presided over those Meetings, and the majority of the
members of that Committee were present, assisted by the Secretary and/or
the Alternate Secretary of the Company's Board of Directors, who prepared
minutes containing the resolutions adopted by the Committee. Also present at
those Committee Meetings were representatives from PricewaterhouseCoopers, S.C. (hereinafter "PWC"), and Gossler, S.C. (hereinafter "Gossler"), independent external auditors of the Company, as well as certain Company directors, as well as the head of CIE's Internal Audit area, and on occasion
third parties were invited to the Committee Meetings. It is noted that the reso189
lutions adopted in the Committee Meetings were duly transcribed in the corresponding book, which is kept by the Corporate Secretary.
190
Company management has the basic responsibility of issuing the financial
statements based on Mexican financial information standards, preparing the
financial information and other information to be released to the stock market
on which the Company is currently listed in a timely and proper manner, and
implanting internal control systems. On behalf of the Board of Directors, the
Committee has reviewed the audited consolidated financial statements of the
Company and its subsidiaries at December 31, 2010. That review included
analysis and approval of the Company's accounting policies, procedures and
practices.
Regarding the functions of the Company's Audit Committee, during the fiscal
year the following activities were undertaken:
i.
We reviewed the state of the internal control system and the internal audit
system of the Company and its subsidiaries, considering the relevance of the
latter in the overall state of the former, for which we reviewed the external
auditor's report, and we interviewed the external auditors and several members of management, the head of CIE's Internal Audit, and certain directors of
the Company. In that regard we did not find material deficiencies or deviations to report in addition to those for which the corresponding measures
have already been taken, and regarding which the Board of Directors has already been informed, as applicable;
ii.
The main accounting policies followed by the Company were reviewed, analyzed and approved. It is noted that during fiscal year 2010, the Company's
accounting policies were not modified.
iii.
We have made comments and suggestions to management and those responsible for the Company's Internal Audit area regarding taking appropriate
preventative and corrective measures in order to avoid breaching operating
and accounting guidelines and policies of the Company and its subsidiaries;
iv.
The Activities Report prepared by PWC and Gossler, the Company's external
auditors, was evaluated, and it was concluded that it was satisfactory, and
the additional services provided were reviewed and approved, which services
191
are listed in Annex "A," which forms an integral part of this document. The
Committee agreed that it would only approve the additional services that
were significant because of their amount, and those for which Management
considers it necessary to have the Committee’s approval.
v.
PWC and Gossler were approved as the Company's external auditors, and
their respective fees were also approved;
vi.
We met periodically with the Company's internal and external auditors to hear
their comments and observations in advance of their work, promoting coordination between the work of the external auditors and Company management;
vii.
The reports on the results of the external audit of December 31, 2010, presented by the Company's external auditor, were reviewed and commented
on;
viii.
Certain fees for additional services submitted for consideration by PWC and
Gossler, the Company's external auditors, were authorized, and in that regard the external auditors stated that those fees did not present an obstacle
to their independence;
ix.
We reviewed the remuneration packages of the CEO and the remuneration
policies of the Directors, which, during 2010, totaled $59,728,132.00 (fiftynine million, seven hundred and twenty-eight thousand, one hundred and thirty-two and 00/100 Mexican pesos), and in this act we state that there are no
observations regarding the performance of the Directors.
x.
The various reports presented by the Company's Department of Administration and Finance on implementation of internal control mechanisms and the
tests conducted on them were reviewed;
xi.
The financial statements of the Company and its subsidiaries at December
31, 2010, the auditors' reports, and the accounting policies used in preparing
the mentioned financial statements were reviewed. After hearing the com192
ments of the external auditors, who are responsible for stating their opinion
on the reasonability of the financial statements and their conformance with
Mexican financial information standards, the Committee recommended to the
Board of Directors of the Company that it approve the financial statements so
that those financial statements could be presented for approval at the Company's General Shareholders Meeting;
xii.
Various transactions that the Company or its subsidiaries entered into during
the ordinary course of business at market prices were reviewed;
xiii.
Agreements to the resolutions adopted in the Company's Shareholder Meetings and in Meetings of the Board of Directors were reviewed; and
xiv.
No waiver whatsoever was recommended to the Board of Directors or
granted in use of the faculties delegated to board members, directors, managers or those with executive authority, pursuant to the terms of Article 28,
section III, sub-section (f) of the Securities Market Law.
Sincerely,
Roberto Albarrán Campillo
President of the Audit and Corporate Practices Committee
193
I, Mónica Lorenzo Gutiérrez, in my capacity as a non-member, Alternate Secretary of the Board of Directors of Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (“CIE”), certify that this document is a true copy of
the report of the activities undertaken by CIE’s Audit and Corporate Practices
Committee, which report was recently presented to the Board of Directors and
the General Annual Ordinary and Extraordinary Shareholders’ Meeting of
CIE, held on April 14, 2011.
Mexico, Federal District
April 14, 2011
____________________________
Non-Member Alternate Secretary of
the Board of Directors
194
VII. ANNEX
195

Corporación Interamericana de Entretenimiento, S.A.B. de C.V.

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