MEXICAN ECONOMIC DEVELOPMENT INC | CIK:0001061736 | 3

  • Filed: 4/24/2018
  • Entity registrant name: MEXICAN ECONOMIC DEVELOPMENT INC (CIK: 0001061736)
  • Generator: Donnelley Financial Solutions
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    • ifrs-full:DisclosureOfOtherProvisionsContingentLiabilitiesAndContingentAssetsExplanatory

    Note 25. Other Liabilities, Provisions, Contingencies and Commitments

    25.1 Other current financial liabilities

     

         December 31,
    2017    		      December 31,
    2016    		  

    Sundry creditors

    		    Ps.  9,116      Ps.  7,244  

    Derivative financial instruments (see Note 20)

    		      3,947        264  

    Others

    		      16        75  
      

     

     

    		     

     

     

    		  

    Total

    		    Ps.  13,079      Ps. 7,583  
      

     

     

    		     

     

     

    		  

    The carrying value of short-term payables approximates its fair value as of December 31, 2017 and 2016.

    25.2 Provisions and other long term liabilities

     

         December 31,
    2017    		      December 31,
    2016    		  

    Provisions

    		    Ps.  12,855      Ps.  16,428  

    Taxes payable

    		      458        508  

    Others

    		      1,233        1,457  
      

     

     

    		     

     

     

    		  

    Total

    		    Ps. 14,546      Ps. 18,393  
      

     

     

    		     

     

     

    		  

     

    25.3 Other financial liabilities

     

         December 31,
    2017    		      December 31,
    2016    		  

    Derivative financial instruments (see Note 20)

    		    Ps.  1,769      Ps.  6,403  

    Security deposits

    		      1,028        917  
      

     

     

    		     

     

     

    		  

    Total

    		    Ps. 2,797      Ps. 7,320  
      

     

     

    		     

     

     

    		  

    25.4 Provisions recorded in the consolidated statement of financial position

    The Company has various loss contingencies, and has recorded reserves as other liabilities for those legal proceedings for which it believes an unfavorable resolution is probable. Most of these loss contingencies are the result of the Company’s business acquisitions. The following table presents the nature and amount of the loss contingencies recorded as of December 31, 2017 and 2016:

     

         December 31,
    2017    		      December 31,
    2016    		  

    Indirect taxes

    		    Ps.  6,836      Ps.  11,065  

    Labor

    		      2,723        2,578  

    Legal

    		      3,296        2,785  
      

     

     

    		     

     

     

    		  

    Total

    		    Ps.  12,855      Ps. 16,428  
      

     

     

    		     

     

     

    		  

    25.5 Changes in the balance of provisions recorded

    25.5.1 Indirect taxes

     

         December 31,
    2017    		      December 31,
    2016    		      December 31,
    2015    		  

    Balance at beginning of the year

    		    Ps.  11,065      Ps.  1,725      Ps.  2,271  

    Penalties and other charges

    		      362        173        21  

    New contingencies (see Note 19)

    		      91        768        84  

    Contingencies added in business combination (1)

    		      861        7,840        —    

    Cancellation and expiration

    		      (796 )       (106 )       (205 ) 

    Payments

    		      (947 )       (6 )       (214 ) 

    Brazil amnesty adoption

    		      (3,321 )       —          —    

    Effects of changes in foreign exchange rates

    		      (479 )       671        (232 ) 
      

     

     

    		     

     

     

    		     

     

     

    		  

    Balance at end of the year

    		    Ps. 6,836      Ps.  11,065      Ps. 1,725  
      

     

     

    		     

     

     

    		     

     

     

    		  

     

    25.5.2 Labor

     

         December 31,
    2017    		      December 31,
    2016    		      December 31,
    2015    		  

    Balance at beginning of the year

    		    Ps.  2,578      Ps.  1,372      Ps.  1,587  

    Penalties and other charges

    		      56        203        210  

    New contingencies

    		      283        397        44  

    Contingencies added in business combination (1)

    		      —          500        —    

    Cancellation and expiration

    		      (32 )       (186 )       (102 ) 

    Payments

    		      (92 )       (336 )       (114 ) 

    Effects of changes in foreign exchange rates

    		      (69 )       628        (253 ) 

    Venezuela deconsolidation effect

    		      (1 )       —          —    
      

     

     

    		     

     

     

    		     

     

     

    		  

    Balance at end of the year

    		    Ps. 2,723      Ps. 2,578      Ps. 1,372  
      

     

     

    		     

     

     

    		     

     

     

    		  

    25.5.3 Legal

     

         December 31,
    2017    		      December 31,
    2016    		      December 31,
    2015    		  

    Balance at beginning of the year

    		    Ps.  2,785      Ps.  318      Ps.  427  

    Penalties and other charges

    		      121        34        —    

    New contingencies

    		      186        196        —    

    Contingencies added in business combination (1)

    		      783        2,231        —    

    Cancellation and expiration

    		      (16 )       (46 )       (33 ) 

    Payments

    		      (417 )       (81 )       —    

    Brazil amnesty adoption

    		      7        —          —    

    Effects of changes in foreign exchange rates

    		      (151 )       133        (76 ) 

    Venezuela deconsolidation effect

    		      (2 )       —          —    
      

     

     

    		     

     

     

    		     

     

     

    		  

    Balance at end of the year

    		    Ps. 3,296      Ps.  2,785      Ps. 318  
      

     

     

    		     

     

     

    		     

     

     

    		  

     

    (1) Coca-Cola FEMSA recognized an amount of Ps. 7,840 corresponding to tax claims with local Brazil IRS (including a contingency of Ps. 5,321 related to the deductibility of a tax goodwill balance). The remaining contingencies relate to multiple claims with loss expectations assessed by management and supported by the analysis of legal counsels as possible, the total amount of contingencies guaranteed agreements amounts to Ps. 8,081. During 2017, Coca-Cola FEMSA took advantage of a Brazilian tax amnesty program. The settlement of certain outstanding matters under that amnesty program generated a benefit of Ps. 1,874 which has been offset against the corresponding indemnifiable assets.

    While provision for all claims has already been made, the actual outcome of the disputes and the timing of the resolution cannot be estimated by the Company at this time.

     

    25.6 Unsettled lawsuits

    The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve Coca-Cola FEMSA and its subsidiaries. These proceedings have resulted in the ordinary course of business and are common to the industry in which the Company operates. The aggregate amount being claimed against the Company resulting from such proceedings as of December 31, 2017 is Ps. 70,830. Such contingencies were classified by legal counsel as less than probable but more than remote of being settled against the Company. However, the Company believes that the ultimate resolution of such several proceedings will not have a material effect on its consolidated financial position or result of operations.

    Included in this amount Coca-Cola FEMSA has tax contingencies, most of which are related to its Brazilian operations, amounting to approximately Ps. 51,014, with loss expectations assessed by management and supported by the analysis of legal counsel consider as possible. Among these possible contingencies, are Ps. 12,346 in various tax disputes related primarily to credits for ICMS (VAT) and Ps. 33,217 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus. Possible claims also include Ps. 4,787 related to compensation of federal taxes not approved by the IRS (Tax authorities) and Ps. 664 related to the requirement by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for the period 1994-1996. Coca-Cola FEMSA is defending its position in these matters and final decision is pending in court. In addition, the Company has Ps. 6,272 in unsettled indirect tax contingencies regarding indemnification accorded with Heineken Group over FEMSA Cerveza. These matters are related to different Brazilian federal taxes which are pending final decision.

    In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding possible monopolistic practices. These requests are commonly generated in the ordinary course of business in the soft drink industry where this subsidiary operates. The Company does not expect any material liability to arise from these contingencies.

    25.7 Collateralized contingencies

    As is customary in Brazil, Coca-Cola FEMSA has been required by the tax authorities there to collateralize tax contingencies currently in litigation amounting to Ps. 9,433, Ps. 8,093 and 3,569 as of December 31, 2017, 2016 and 2015, respectively, by pledging fixed assets and entering into available lines of credit covering the contingencies (see Note 13).

    25.8 Commitments

    As of December 31, 2017, the Company has contractual commitments for finance leases for computer equipment and operating leases for the rental of production machinery and equipment, distribution and computer equipment, and land for FEMSA Comercio’s operations.

    The contractual maturities of the operating lease commitments by currency, expressed in Mexican pesos as of December 31, 2017, are as follows:

     

         Mexican
    Pesos    		      U.S.
    Dollars    		      Others  

    Not later than 1 year

    		    Ps.  6,553      Ps.  426      Ps.  5,700  

    Later than 1 year and not later than 5 years

    		      21,922        3,145        22,104  

    Later than 5 years

    		      29,307        280        10,226  
      

     

     

    		     

     

     

    		     

     

     

    		  

    Total

    		    Ps.  57,782      Ps.  3,851      Ps.  38,030  
      

     

     

    		     

     

     

    		     

     

     

    		  

     

    Rental expense charged to consolidated net income was Ps. 9,468, Ps. 8,202 and Ps. 6,088 for the years ended December 31, 2017, 2016 and 2015, respectively.

    Future minimum lease payments under finance leases with the present value of the net minimum lease payments are as follows:

     

         2017
    Minimum
    Payments    		      Present Value
    of Payments    		      2016
    Minimum
    Payments    		      Present Value
    of Payments    		  

    Not later than 1 year

    		    Ps.  41      Ps.  34      Ps.  32      Ps.  (68)  

    Later than 1 year and not later than 5 years

    		      91        82        103        83  

    Later than 5 years

    		      —          —          —          97  
      

     

     

    		     

     

     

    		     

     

     

    		     

     

     

    		  

    Total mínimum lease payments

    		      132        116        135        112  

    Less amount representing finance charges

    		      16        —          23        —    

    Present value of minimum lease payments

    		      116        116        112        112