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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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Form 6-K

 

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REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR

15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of July , 2004

 

Commission File Number: 001-13196

 

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Desc, S.A. de C.V.

(Translation of registrant’s name into English)

 

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Paseo de los Tamarindos 400-B, Bosques de las Lomas, 05120 Mexico, D.F., Mexico

(Address of principal executive office)

 

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Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F      ü            Form 40-F              

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.    Yes  ¨    No  þ

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            

 

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The following is included in this report on Form 6-K:

 

		Item
1.		English Translation of a Press Release, dated July 21, 2004, announcing Registrant’s Second Quarter 2004 results
2.		Consolidated Financial Statements of Registrant, at June 30, 2004 and 2003, in the format required to be filed with the Mexican Stock Exchange

 

2

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Item 1

 

 

DESC ANNOUNCES SECOND QUARTER 2004 RESULTS

 

Mexico City, July 21, 2004 - Desc, S.A. de C.V. (NYSE: DES; BMV: DESC) announced today its results for the second quarter ended June 30, 2004 (2Q04). Except as noted below, all figures were prepared according to generally accepted accounting principles in Mexico (Mexican GAAP). Unless otherwise noted below, the 2Q03 results have been adjusted to exclude the financial figures for Desc’s aluminum wheel and adhesive and sealant businesses and the Chiluca real estate project, which were sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without these divested businesses and real estate project and, thus, unless otherwise noted comparisons below are to the adjusted 2Q03 figures.

 

The results for 2Q04 demonstrate Desc’s efforts under a strict expense control to return to profitability by following its strategic plan and focusing on its core businesses. This is reflected in the strength of Desc’s balance sheet as well as in the stabilization of cash flows.

 

Highlights

 

•	Sales and exports were 11.7% and 15.3% higher, respectively, when compared to 2Q03.

 

•	Operating expenses reached 14.6% of sales, which represents a reduction of 9.9% when compared to 2Q03.

 

•	EBITDA reached US$50 million, which represents an increase of 58.1% when compared to 2Q03.

 

•	Volume and sales prices increased, which partially offset the rise in raw material costs.

 

•	There were significant improvements in Desc’s financial situation, such as a reduction in the debt level and an optimization of its average cost of financing.

 

•	Desc prepaid US$279 million of its debt, thereby reducing its total debt by approximately 26.6%.

 

•	Internal cash flow generation completely financed working capital and part of the debt reduction.

 

DESC, S.A. DE C.V. and SUBSIDIARIES

Table 1. Consolidated Figures

(Figures in millions of constant Pesos (Ps.) and U.S. dollars (US$))

 

Desc, S.A. de C.V. And Subsidiaries

 

		2Q04			Adjusted 2Q035			2Q04 vs. Adjusted 2Q035			Actual 2Q03		2Q04 vs. Actual 2Q03			1Q04			2Q04 vs. 1Q04
Sales (Ps.) 3		5,680			4,862			16.8	%		5,999		-5.3	%		5,360			6.0	%
Sales (US $) 1		498			446			11.7	%		550		-9.3	%		486			2.6	%
Exports (US $) 2		241			209			15.3	%		212		13.7	%		232			4.0	%
Operating Income (Ps.) 3		243			23			960.2	%		461		-47.3	%		248			-1.8	%
Operating Income (US $) 1		21			2			858.1	%		42		-49.6	%		23			-5.2	%
Operating Margin		4.3	%		0.5	%										4.6	%
EBITDA (Ps.) 3, 4		572			351			62.8	%		805		-29.0	%		564			1.3	%
EBITDA (US $) 1, 4		50			32			58.1	%		74		-32.0	%		51			-1.7	%
Net Majority Income (Ps.) 3		-140			-163			-14.1	%		131		-207.6	%		-117			19.7	%
Net Majority Income (US $) 1		-12			-15			-20.0	%		12		-204.4	%		-11			9.1	%

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1	Figures in U.S. dollars for sales, operating income, EBITDA and net income are calculated using monthly figures in current pesos divided by the average monthly exchange rate.

2	All export figures are based on real sales invoiced in U.S. dollars.

3	All figures in this report are expressed in constant pesos as of June 30, 2004.

4

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

5

The Adjusted 2Q03 totals exclude the financial figures for Desc’s aluminum wheel and adhesive and sealant businesses and the Chiluca real estate project, which were sold. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without these divested businesses and real estate project.

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Second Quarter 2004 Results

 

EBITDA

 

Consolidated EBITDA¹ in dollars totaled US$50 million in 2Q04. This represents a significant increase of 58.1% when compared to 2Q03² and a 27.3% increase in the first half of 2004 compared to the same period in 2003, which reflects the improvement in all of the sectors’ results. In addition, it demonstrates that results have stabilized during the last two quarters.

 

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1

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

2

The adjusted 2003 information excludes the financial figures for Desc’s aluminum wheel and adhesive and sealant businesses and the Chiluca real estate project, which were sold. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without these divested businesses and real estate project.

 

Operating Expenses

 

During 2Q04, there was a marked reduction in operating expenses of 9.9% when compared to 2Q03¹, which is in-line with the goals established at the beginning of 2004.

 

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1

The adjusted 2003 information excludes the financial figures for Desc’s aluminum wheel and adhesive and sealant businesses and the Chiluca real estate project, which were sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without these divested businesses and real estate project.

 

2

 

www.desc.com.mx

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Second Quarter 2004 Results

 

Debt Structure

 

During 2Q04, Desc’s total debt declined by US$279 million, or 26.6%, when compared to 1Q04, from US$1,048 million to US$769 million.

 

Table 2. Debt Breakdown

(Figures in millions of U.S. dollars)

 

		Mar-31-03		Jun-30-03		Sep-30-03		Dec-31-03		Mar-31-04		Jun-30-04
Cash		103		82		117		62		61		36
Total Debt		1,082		1,069		1,084		1,052		1,048		769
Net Debt		979		987		967		990		987		733
Interest Coverage		2.6x		2.45x		2.7x		2.9x		2.9x		2.7x
Leverage Ratio*		4.9x		4.8x		5.5x		4.9x		4.9x		4.1x

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*	The Leverage Ratio is equal to (Total Debt less Cash plus US$50 million) / EBITDA for the last 12 months.

As of 4Q03, the way of calculating the Leverage Ratio changed, and in order for all the figures to be comparable, all previous quarters were recalculated.

 

As a result of the proceeds from the capital increase and cash generated by Desc’s businesses, Desc made debt prepayments totaling US$279 million. The prepayments reduced net debt by approximately 25.7%, leaving a balance of US$733 million. Notably, in the last 18 months, the total debt has decreased by US$409 million.

 

These prepayments were applied in the following manner: US$162 million towards long-term bank credit agreements, US$40 million towards revolving bank credit agreements (both were part of the credit agreements restructured last December), US$74 million towards Desc’s 8.75% coupon bond due October 2007, and US$3 million towards other credit agreements.

 

The following is a breakdown of Desc’s total debt:

 

 

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Second Quarter 2004 Results

 

As of June 30, 2004, the total debt mix was 67% dollar-denominated, 9% peso-denominated and 24% in UDIS and the debt maturity profile was 95% long-term and 5% short-term. The average cost of debt as of that date was 5.17% for the dollar-denominated debt and 8.86% for the peso-denominated debt.

 

 

Financing expenses were US$15.3 million in 2Q04, which represents a decline of 16.8% when compared to 1Q04. In addition, due to debt prepayments, the new interest rate for Desc’s credit agreements restructured last December, applicable as of 2Q04, are as follows: LIBOR + 250 basis points for the dollar debt facility, TIIE + 250 basis points for the peso debt facility, and LIBOR + 250 basis points for the revolving credit facility.

 

Sales and Exports

 

During 2Q04, dollar-denominated sales increased 11.7% compared to 2Q03, from US$446 million to US$498 million. Similarly, there was an increase of 10.1% in dollar-denominated sales during the first half of 2004 when compared to the first half of 2003.

 

 

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Second Quarter 2004 Results

 

Total exports totaled US$241 million in 2Q04, which represents an increase of 15.3% when compared to 2Q03. The main drivers were the increases in export sales in the Automotive, Chemical and Food sectors, which were 4.0%, 33.4% and 18.6%, respectively, higher than in 2Q03. For the first half of 2004 compared to 2003, the increase was 12.2%.

 

Operating Income

 

Consolidated operating income in dollars posted a notable increase in 2Q04 totaling US$21 million, which is US$19 million higher than in 2Q03 and US$23 million higher than in the first half of 2003.

 

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Second Quarter 2004 Results

 

Results by Sector

 

Automotive Sector

 

Table 3 shows the figures obtained for the Automotive Sector.

 

Table 3. Automotive Sector Results

(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))

 

Automotive Sector

 

		2Q04			Adjusted 2Q032			2Q04 vs. Adjusted 2Q032			Actual 2Q03		2Q04 vs. Actual 2Q03			1Q04			2Q04 vs. 1Q04
Sales (Ps.)		2,067			1,889			9.4	%		1,924		7.4	%		2,177			-5.1	%
Sales (US $)		181			173			4.7	%		176		2.8	%		197			-7.9	%
Exports (US $)		122			117			4.0	%		120		1.6	%		133			-8.4	%
Operating Income (Ps.)		34			55			-37.3	%		44		-21.5	%		141			-75.7	%
Operating Income (US $)		3			5			-39.8	%		4		-24.8	%		13			-76.7	%
Operating Margin		1.7	%		2.9	%					0					6.5	%
EBITDA (Ps.) 1		216			237			-8.9	%		234		-7.6	%		319			-32.3	%
EBITDA (US $) 1		19			22			-12.8	%		21		-11.5	%		29			-34.5	%

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1

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

2	The Adjusted 2Q03 totals exclude the financial figures for Desc’s aluminum wheel business, which was sold. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested business.

 

During the second quarter of 2004 sales reached US$181 million, an increase of 4.7% compared to 2Q03. This is attributed to a higher sales volume (i) from the Tractor Project related to the cardan shaft, forge and axle businesses and (ii) in the gear business for Dana related to the BMW X5 platform.

 

Revenues for this period decreased 7.9% compared to 1Q04 due primarily to the unplanned strike at a Volkswagen plant, which impacted Desc’s constant velocity joint business, and a contraction in the aftermarket.

 

Operating income in dollars decreased by 39.8% in 2Q04 compared to 2Q03, which is attributed to sharp increases in the prices of raw materials (steel and scrap, including transportation costs payable by Desc) that affected Desc’s transmission, wheel, forging and foundry businesses.

 

The negative effect of steel prices has been partially offset by a reduction in expenses resulting from Desc’s administrative and operating restructuring implemented at the end of 2003. In addition, negotiations with customers continue in an effort to pass on these cost increases to customers.

 

Export sales were US$122 million, which represents a 4.0% increase compared to the same period last year. This was due to increased sales stemming from the Tractor Project and increased gear sales.

 

Average capacity utilization during 2Q04 was 59%. However, there were plants operating at 80% capacity or in some cases, above capacity, such as Desc’s axle, gear, cardan shaft and foundry businesses.

 

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Second Quarter 2004 Results

 

Chemical Sector

 

Table 4 shows the figures for the Chemical Sector.

 

Table 4. Chemical Sector Results

(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))

 

Chemical Sector

 

		2Q04			Adjusted 2Q032			2Q04 vs. Adjusted 2Q032			Actual 2Q03		2Q04 vs. Actual 2Q03			1Q04			2Q04 vs. 1Q04
Sales (Ps.)		2,196			1,681			30.7	%		1,956		12.3	%		1,867			17.6	%
Sales (US $)		193			154			25.5	%		179		7.4	%		169			13.8	%
Exports (US $)		88			66			33.7	%		66		33.7	%		71			23.9	%
Operating Income (Ps.)		73			7			885.1	%		56		31.6	%		32			128.1	%
Operating Income (US $)		6			1			475.2	%		5		25.4	%		3			119.4	%
Operating Margin		3.3	%		0.4	%										1.7	%
EBITDA (Ps.) 1		157			86			81.7	%		143		9.6	%		112			40.2	%
EBITDA (US $) 1		14			8			79.4	%		13		4.7	%		10			35.2	%

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1

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

2

The Adjusted 2Q03 totals exclude the financial figures for Desc’s adhesive and sealant businesses, which was sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested business.

 

Sales reached US$193 million in 2Q04, representing an increase of 25.5% compared to 2Q03 and 13.8% with respect to 1Q04, due mainly to higher sales volumes in all of Desc’s chemicals businesses, as well as increased prices.

 

The principal raw material costs continue to increase due to rising oil and butadiene monomer prices (as result of a scarcity of butadiene monomer in the international market, because the main suppliers of this raw material continue with allocation plans due to the imbalance that exists between supply and demand. This plan has been aggravated by the temporary exit of one of Repsol’s production units, a situation that has further increased prices.

 

The higher operating margins are fundamentally due to the rise in sales volume, an improved performance of the plants through greater installed capacity utilization, as is the case with phosphates, laminates and particle boards, as well as stricter controls in operating expenses.

 

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Second Quarter 2004 Results

 

Food Sector

 

Table 5 shows the figures obtained in the Food Sector.

 

Table 5. Food Sector Figures

(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))

 

Food Sector

 

		2Q04			2Q03			2Q04 vs. 2Q03			1Q04			2Q04 vs. 1Q04
Sales (Ps.)		1,084			932			16.3	%		1,017			6.5	%
Sales (US $)		95			85			11.4	%		92			3.0	%
Exports (US $)		31			26			18.6	%		27			12.7	%
Operating Income (Ps.)		87			26			236.2	%		58			51.6	%
Operating Income (US $)		8			2			219.8	%		5			48.1	%
Operating Margin		8.1	%		2.8	%					5.7	%
EBITDA (Ps.) 1		127			68			88.5	%		95			33.5	%
EBITDA (US $) 1		11			6			80.0	%		9			30.2	%

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1

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

 

Branded Products

 

During 2Q04, sales increased 4.7% in comparison to 2Q03, which is principally due to higher sales in most of Desc’s food product lines, including: “Del Fuerte” brand tomato paste, a 16% increase in sales in comparison to 2Q03 and a market share of 65.9%; “Embasa” brand ketchup with a market share of 23%; and “Zuko” and “Livean” brand powdered beverage mix continue growing successfully with increases in volume of 80% and 97%, respectively, in comparison to 2Q03.

 

In the domestic market, sales volume increased by 10% in comparison to the previous year. The products with the greatest growth are: tomato paste 17%, ketchup 18%, jellies 9%, tuna 19%, powered beverage mix 79%, gelatin 10% and coffee 7%.

 

In our U.S. business (Authentic Specialty Foods), sales to supermarkets increased 4.3% in comparison to 2Q03; sales to restaurants increased by 14.6% in comparison to 2Q03; and sales to fast food restaurants grew by 9.4% in comparison to 2Q03.

 

Desc has increased the prices for some of its food products, which has been offset in part by an increase in raw material costs. Tuna prices have increased 21% year-to-date to counteract the increases in fish, packaging and soybean oil.

 

In comparison to 2Q03, operating income in 2Q04 increased by 137.1% due to improved sales, improved costs from plant efficiency and the use of fresh tomatoes, in addition to positive changes in operations and the strict control of expenses that compensated for the increases in raw material and packaging costs.

 

At the Santa Rosa Plant, Desc invested in a project to develop healthy vegetable products in a new and modern container. The new plant for processing and packing foods was equipped in a record time for Desc of 5 months by Corfuerte and Tetra Pak, which is a leader in the food processing and packing field. In the first phase, a new line of vegetables was introduced to the market: potato cubes, chayote, zucchini and carrots, which complement an existing line of vegetable salads, baby corn, peas and carrots, and baby peas.

 

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Second Quarter 2004 Results

 

The launching of the new line of Del Fuerte vegetables in innovative packaging, Tetra Recart by Tetra Pak, marks the beginning of a new era for Desc of a healthy foods category. Its weight and shape brings several advantages to retailers during its distribution and display. For the consumer, it provides safety, ease in opening, and convenience in its handling and use. For Corfuerte, this is an extremely important step towards becoming a modern, leading company in its field.

 

Pork Business

 

Pork prices continued the upward trend through 2Q04, increasing 23.2% compared to 2Q03, which offset the increases in grain and soy paste costs. This resulted in an improved operating margin which rose from 2.7% in 2Q03 to 10.5% in 2Q04. Another positive effect was the improved sales in the export market due to higher export sales to Japan.

 

Sales volume for the quarter decreased by 14.9% in comparison to the same period last year due to the closing of the Bajío operations in May.

 

The capacity utilization rate remains 100% in the southeast region given the strong demand levels.

 

The following table provides the operating margins of Desc’s branded products and pork businesses:

 

Table 6. Food Sector – Relevant Figures

 

		2Q04			2Q03			2Q04 vs. 2Q03
Branded Products
Sales (millions of US$)		57			55			4.7	%
Operating Margin		6.5	%		2.9	%
Pork Business
Sales (millions of US$)		38			31			23.2	%
Operating Margin		10.5	%		2.7	%

 

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Second Quarter 2004 Results

 

Real Estate Sector

 

Table 7 shows figures for the Real Estate Sector.

 

Table 7. Real Estate Sector Figures

(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))

 

Real Estate Sector

 

		2Q04			Adjusted 2Q032			2Q04 vs. Adjusted 2Q032			Actual 2Q03		2Q04 vs. Actual 2Q03			1Q04			2Q04 vs. 1Q04
Sales (Ps.)		332			347			-4.2	%		1,173		-71.7	%		292			13.7	%
Sales (US $)		29			32			-9.9	%		107		-72.9	%		27			9.4	%
Operating Income (Ps.)		69			-42			NA			458		-85.0	%		41			66.2	%
Operating Income (US $)		6			-4			NA			33		-85.7	%		4			55.3	%
Operating Margin		20.7	%		-12.1	%										14.2	%
EBITDA (Ps.) 1		74			-35			NA			464		-84.0	%		47			58.5	%
EBITDA (US $) 1		6			-3			NA			33		-84.8	%		4			48.8	%

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1

“EBITDA”, as used in this press release, is Operating Income (Loss) plus the sum of Depreciation and Amortization, all of which are presented under generally accepted principles in Mexico. EBITDA is presented herein because Desc believes it provides useful information regarding Desc’s ability to service its debt. “EBITDA” should not be considered in isolation or as a substitute for Desc’s consolidated income statements or other financial statements prepared in accordance with Mexican GAAP or as a measure of profitability or liquidity. Please refer to the section entitled Non-GAAP Financial Reconciliation Tables for a reconciliation of EBITDA to Operating Income.

2

The Adjusted 2Q03 totals exclude the financial figures for the Chiluca real estate project, which was sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested real estate project.

 

Sales in 2Q04 reached US$29 million, equivalent to a 9.4% increase compared to the previous quarter. 2Q04 revenue decreased 9.9% in comparison to 2Q03.

 

Sales for 2Q04 were attributable to the following projects:

 

•

Punta Mita 74.8%

 

•

Santa Fe Shopping Center Reserve 20.4%

 

•

Bosques de Santa Fe 4.8%

 

Operating income totaled US$6 million in 2Q04, compared to the loss recorded in 2Q03.

 

The Punta Mita project continues enjoying excellent acceptance in the market. During the second quarter, Desc sold a beachfront lot, three golf course lots and six villas. In addition, negotiations were completed for the sale of land in front of the golf course for the development of 125 villas, which will be developed over the next five years.

 

The three remaining lots in the Santa Fe Shopping Center Reserve were sold, leaving no remaining lots for sale.

 

In Bosques de Santa Fe, practically no single-family lots remain in inventory, while 18 residential lots and approximately 200 multi-family units remain for sale.

 

Contacts:		Marisol Vázquez-Mellado Mollón/Jorge Padilla Ezeta
		Tel.: (5255) 5261 8000
		investor.relation@desc.com.mx

 

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Second Quarter 2004 Results

 

àà Financial Tables Follow àà

 

FINANCIAL INDICATORS

 

		2Q04			1Q04			4Q03			3Q03			2Q03			1Q03
Interest Coverage		2.7x			2.9x			2.9x			2.7x			2.45x			2.6x
Short-Term Debt		5	%		3	%		3	%		29	%		27	%		23	%
Long-Term Debt		95	%		97	%		97	%		71	%		73	%		77	%
Peso & Udi-denominated debt		33	%		31	%		30	%		30	%		32	%		31	%
Dollar-denominated debt		67	%		69	%		70	%		70	%		68	%		69	%

 

TOTAL OUTSTANDING SHARES

 

“A” Shares		1,166,108,597		51.10	%
“B” Shares		1,115,690,363		48.90	%
Total		2,281,798,960		100.00	%

 

Non-GAAP Financial Reconciliation Tables¹

 

Desc, S.A. de C.V. And Subsidiaries

Figures in millions of constant pesos (Ps.) and U.S. Dollars (US$)

 

		2Q04		Adjusted 2Q031		2Q04 vs Adjusted 2Q031			Actual 2Q03		2Q04 vs Actual 2Q03			1Q04		2Q04 vs. 4Q03
Operating Income (Ps.)		243		23		960.2	%		461		-47.3	%		248		-1.8	%
Operating Income (US $)		21		2		858.0	%		42		-49.6	%		23		-5.2	%
Depreciation and Amortization (Ps.)		329		328		0.3	%		344		0.3	%		316		4.1	%
Depreciation and Amortization (US $)		29		30		-0.3	%		32		-3.3	%		28		3.6	%
EBITDA (Ps.)		572		351		62.8	%		805		-29.0	%		564		1.3	%
EBITDA (US $)		50		32		55.1	%		74		-32.0	%		51		-1.7	%

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1

The Adjusted 2Q03 totals exclude the financial figures for Desc’s aluminum wheel and adhesive and sealant businesses and the Chiluca real estate project, which were sold. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without these divested businesses and real estate project.

 

---

1	2003 Figures do not include operations from the Aluminum Wheel, Adhesive and Sealant businesses, as well as real estate projects sold.

 

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Second Quarter 2004 Results

 

Automotive Sector

 

Figures in millions of constant pesos (Ps.) and U.S. Dollars (US$)

 

		2Q04		Adjusted 2Q031		2Q04 vs Adjusted 2Q031			Actual 2Q03		2Q04 vs Actual 2Q03			1Q04		2Q04 vs. 1Q04
Operating Income (Ps.)		34		55		-37.3	%		44		-21.5	%		141		-75.7	%
Operating Income (US $)		3		5		-39.8	%		4		-24.8	%		13		-76.7	%
Depreciation and Amortization (Ps.)		182		182		0.0	%		190		0.0	%		178		2.2	%
Depreciation and Amortization (US $)		16		17		-5.9	%		17		-5.9	%		16		0.0	%
EBITDA (Ps.)		216		237		-8.9	%		234		-7.6	%		319		-32.3	%
EBITDA (US $)		19		22		-12.8	%		21		-11.5	%		29		-34.5	%

---

1	The Adjusted 2Q03 totals exclude the financial figures for Desc’s aluminum wheel business, which was sold. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested business.

 

Chemical Sector

 

Figures in millions of constant pesos (Ps.) and U.S. Dollars (US$)

 

		2Q04		Adjusted 2Q031		2Q04 vs Adjusted 2Q031			Actual 2Q03		2Q04 vs Actual 2Q03			1Q04		2Q04 vs. 1Q04
Operating Income (Ps.)		73		7		885.1	%		56		31.6	%		32		128.1	%
Operating Income (US $)		6		1		475.2	%		5		25.4	%		3		119.4	%
Depreciation and Amortization (Ps.)		84		79		6.3	%		87		6.3	%		80		5.0	%
Depreciation and Amortization (US $)		8		7		14.3	%		8		14.3	%		7		14.3	%
EBITDA (Ps.)		157		86		81.7	%		143		9.6	%		112		40.2	%
EBITDA (US $)		14		8		79.4	%		13		4.7	%		10		35.2	%

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1

The Adjusted 2Q03 totals exclude the financial figures for Desc’s adhesive and sealant businesses, which was sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested business.

 

Food Sector

 

Figures in millions of constant pesos (Ps.) and U.S. Dollars (US$)

 

		2Q04		2Q03		2Q04 vs 2Q03			1Q04		2Q04 vs. 1Q04
Operating Income (Ps.)		87		26		236.2	%		58		51.6	%
Operating Income (US $)		8		2		219.8	%		5		48.1	%
Depreciation and Amortization (Ps.)		40		42		-4.8	%		37		8.1	%
Depreciation and Amortization (US $)		3		4		-25.0	%		4		-25.0	%
EBITDA (Ps.)		127		68		88.5	%		95		33.5	%
EBITDA (US $)		11		6		80.0	%		9		30.2	%

 

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Second Quarter 2004 Results

 

Real Estate Sector

 

Figures in millions of constant pesos (Ps.) and U.S. Dollars (US$)

 

		2Q04		Adjusted 2Q031		2Q04 vs Adjusted 2Q031			Actual 2Q03		2Q04 vs Actual 2Q03			1Q04		2Q04 vs. 1Q04
Operating Income (Ps.)		69		-42		NA			458		-85.0	%		41		66.2	%
Operating Income (US $)		6		-4		NA			33		-85.7	%		4		55.3	%
Depreciation and Amortization (Ps.)		5		7		-28.6	%		6		-28.6	%		6		-16.6	%
Depreciation and Amortization (US $)		0		1		-28.5	%		0		-100.0	%		0		0.0	%
EBITDA (Ps.)		74		-35		NA			464		-84.0	%		47		58.5	%
EBITDA (US $)		6		-3		NA			33		-84.8	%		4		48.8	%

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1

The Adjusted 2Q03 totals exclude the financial figures for the Chiluca real estate project, which was sold in 2003. Management believes that investors can better evaluate and analyze Desc’s historical and future business trends if they consider results of operations without this divested real estate project.

 

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Second Quarter 2004 Results

 

Desc, S.A. de C.V. and Subsidiaries

 

Consolidated Balance Sheets

(In millions of constant pesos, as of June 30, 2004).

 

		2004		2003		%
Assets
Current Assets:
Cash and Short Term Investments		410		889		-53.8	%
Account Receivable (net)		5,454		4,842		12.6	%
Inventories and Other Assets		3,231		3,165		2.1	%
Total Current Assets		9,095		8,896		2.2	%
Long-term Accounts Receivable		1,201		1,115		7.7	%
Land held for development and real estate projects		3,619		3,755		-3.6	%
Fixed Assets		11,384		13,567		-16.1	%
Deferred Assets (net)		630		1,586		-60.3	%
Other Assets		1,222		1,135		7.7	%
Total Assets		27,151		30,054		-9.7	%
Liabilities
Current Liabilities:
Banks Loans		433		3,087		-86.0	%
Suppliers		2,130		2,210		-3.6	%
Taxes to be paid		261		683		-61.9	%
Other Liabilities		1,664		1,605		3.7	%
Total Current Liabilities		4,488		7,585		-40.8	%
Long-Term Debt		8,428		8,541		-1.3	%
Deferred Taxes		817		1,458		-44.0	%
Other		812		593		37.0	%
Total Liabilities		14,545		18,177		-20.0	%
Stockholders’ Equity
Capital Stock		30		18		66.7	%
Paid-in Surplus		3,810		1,170		225.5	%
Restatement of Paid-In Capital Stock		11,913		11,242		6.0	%
Cumulative effect of restatement, net		-6,774		-4,455		52.0	%
Total Majority Interest		8,979		7,975		12.6	%
Minority Interest		3,627		3,902		-7.1	%
Total Stockholders’ Equity		12,606		11,877		6.1	%
Total Liabilities and Stockholders’ Equity		27,151		30,054

 

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Second Quarter 2004 Results

 

Desc, S.A. de C.V. and Subsidiaries

 

Consolidated Income Statements

(In millions of constant pesos, as of June 30, 2004)

 

The financial figures below have not been adjusted to exclude

the operations and businesses divested in 2003.

 

		2Q04			2Q03			Var.
Net Sales		5,680			5,999			-5.3	%
Cost of Sales		4,607			4,587			0.4	%
Gross Profit		1,073			1,412			-24.0	%
Operating Expenses
Administrative and Selling Expenses		830			951			-12.7	%
Operating Income		243			461			-47.3	%
Interest Expense		174			189			-7.9	%
Interest Income		(9	)		(5	)		80.0	%
Exchange Gain (loss), net		120			(175	)		NA
Gain on Monetary Position		4			(43	)		NA
Others		63			85			-25.9	%
Comprehensive Financial Result		352			51			590.2	%
Other Expenses		(33	)		(24	)		37.5	%
Income before Provisions		(76	)		434			NA
Provisions for:
Income and Asset Tax		45			95			-52.6	%
Employee Profit Sharing		16			16			0.0	%
Deferred Income Taxes		(29	)		117			NA
Total Taxes		32			228			-86.0	%
Net Consolidated Income		(108	)		206			NA
		32			75			-57.3	%
Minority Interest		—			—
Majority Net Income		(140	)		131			NA
12 months Net Income per Share		(1.57	)		(0.74	)
Number of shares outstanding:		2,282			1,369
(Thousands of shares)
Operating Income+Depreciation		572			805			-29.0	%

 

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Second Quarter 2004 Results

 

This press release contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that reflect the current views of Desc’s management with respect to future events. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” and “should” and similar expressions generally are intended to identify forward-looking statements. These statements are subject to risks, uncertainties and changes in circumstances. Actual results may differ materially from present expectations as a result of many factors, including, but not limited to, changes in global and domestic political, economic, business, competitive, market and regulatory factors, the cyclicality of the autoparts and chemicals industries and other factors which are described under the heading “Risk Factors” in Desc’s most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission. Desc does not assume any obligation to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made.

 

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Item 2

 

CONSOLIDATED BALANCE SHEET

AT JUNE 31 OF 2004 AND 2003

(Thousands of Pesos)

 

REF S		CONCEPTS		SECOND QUARTER OF PRESENT YEAR					SECOND QUARTER OF LAST YEAR
				Amount		%			Amount		%
1		TOTAL ASSETS		27,151,029		100	%		30,053,694		100	%
2		CURRENT ASSETS		9,095,899		34	%		8,896,265		30	%
3		CASH AND SHORT-TERM INVESTMENTS		410,327		2	%		889,109		3	%
4		ACCOUNTS AND DOCUMENTS RECEIVABLE (NET)		4,315,397		16	%		3,210,043		11	%
5		OTHER ACCOUNTS AND DOCUMENTS RECEIVABLE		1,138,904		4	%		1,631,972		5	%
6		INVENTORIES		3,231,271		12	%		3,165,141		12	%
7		OTHER CURRENT ASSETS		0		0	%		0		0	%
8		LONG-TERM		5,014,730		18	%		4,933,724		18	%
9		ACCOUNTS AND DOCUMENTS RECEIVABLE (NET)		1,201,117		4	%		1,114,568		4	%
10		INVESTMENT IN SHARES OF SUBSIDIARIES AND NON-CONSOLIDATED ASSOCIATED		194,767		1	%		64,531		0	%
11		OTHER INVESTMENTS		3,618,846		13	%		3,754,625		14	%
12		PROPERTY, PLANT AND EQUIPMENT		11,383,968		42	%		13,567,342		45	%
13		PROPERTY		6,213,991		23	%		7,165,834		26	%
14		MACHINERY AND INDUSTRIAL EQUIPMENT (NET)		15,931,791		59	%		17,025,203		57	%
15		OTHER EQUIPMENT		3,205,217		12	%		2,038,840		8	%
16		ACCUMULATED DEPRECIATION		-14,352,452		-53	%		-13,673,523		-45	%
17		CONSTRUCTION IN PROGRESS		385,421		1	%		1,010,988		4	%
18		DEFERRED ASSETS (NET)		629,524		2	%		1,585,676		5	%
19		OTHER ASSETS		1,026,908		4	%		1,070,687		4	%
20		TOTAL LIABILITIES		14,545,163		100	%		18,176,868		100	%
21		CURRENT LIABILITIES		4,487,785		31	%		7,585,060		42	%
22		SUPPLIERS		2,129,715		15	%		2,209,928		12	%
23		BANK LOANS		432,832		3	%		3,087,291		17	%
24		STOCK MARKET LOANS		0		0	%		0		0	%
25		TAXES TO BE PAID		260,536		2	%		683,277		4	%
26		OTHER CURRENT LIABILITIES		1,664,702		11	%		1,604,564		9	%
27		LONG-TERM LIABILITIES		8,428,230		58	%		8,540,851		47	%
28		BANK LOANS		6,106,382		42	%		6,216,861		34	%
29		STOCK MARKET LOANS		2,321,848		16	%		2,323,990		13	%
30		OTHER LOANS		0		0	%		0		0	%
31		DEFERRED LOANS		816,768		6	%		1,457,860		8	%
32		OTHER LIABILITIES		812,380		6	%		593,097		3	%
33		CONSOLIDATED STOCK HOLDERS’ EQUITY		12,605,866		100	%		11,876,826		100	%
34		MINORITY INTEREST		3,627,089		29	%		3,902,319		33	%
35		MAJORITY INTEREST		8,978,777		71	%		7,974,507		67	%
36		CONTRIBUTED CAPITAL		15,752,956		125	%		12,430,641		105	%
37		PAID-IN CAPITAL STOCK (NOMINAL)		29,663		0	%		17,798		0	%
38		RESTATEMENT OF PAID-IN CAPITAL STOCK		11,913,228		95	%		11,242,453		95	%
39		PREMIUM ON SALES OF SHARES		3,810,065		30	%		1,170,390		10	%
40		CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES
41		CAPITAL INCREASE (DECREASE)		-6,774,179		-54	%		-4,456,134		-38	%
42		RETAINED EARNINGS AND CAPITAL RESERVE		17,525,927		139	%		18,348,606		154	%
43		REPURCHASE FUND OF SHARES		907,079		7	%		907,079		8	%
44		EXCESS (SHORTFALL) IN RESTATEMENT OF HOLDER’S EQUITY		-24,950,088		-198	%		-23,504,957		-198	%
45		NET INCOME FOR THE YEAR		-257,097		-2	%		-206,862		-2	%

 

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CONSOLIDATED BALANCE SHEET

BREAKDOWN OF MAIN CONCEPTS

(Thousands of Pesos)

 

REF S		CONCEPTS		SECOND QUARTER OF PRESENT YEAR					SECOND QUARTER OF LAST YEAR
				Amount		%			Amount		%
3		CASH AND SHORT-TERM INVESTMENTS		410,327		100	%		889,109		100	%
46		CASH		251,337		61	%		359,870		40	%
47		SHORT-TERM INVESTMENTS		158,990		39	%		529,239		60	%
18		DEFERRED ASSETS (NET)		629,524		100	%		1,585,676		100	%
48		AMORTIZED OR REDEEMED EXPENSES		0		0	%		0		0	%
49		GOODWILL		629,524		100	%		1,585,676		100	%
50		DEFERRED TAXES		0		0	%		0		0	%
51		OTHERS		0		0	%		0		0	%
21		CURRENT LIABILITIES		4,487,785		100	%		7,585,060		100	%
52		FOREIGN CURRENCY LIABILITIES		2,095,229		47	%		4,445,223		59	%
53		MEXICAN PESOS LIABILITIES		2,392,556		53	%		3,139,837		41	%
24		STOCK MARKET LOANS		0		0	%		0		0	%
54		COMMERCIAL PAPER		0		0	%		0		0	%
55		CURRENT MATURITIES OF MEDIUM TERM NOTES		0		0	%		0		0	%
56		CURRENT MATURITIES OF BONDS		0		0	%		0		0	%
26		OTHER CURRENT LIABILITIES		1,664,702		100	%		1,604,564		100	%
57		OTHER CURRENT LIABILITIES WITH COST		0		0	%		0		0	%
58		OTHER CURRENT LIABILITIES WITHOUT COST		1,664,702		100	%		1,604,564		100	%
27		LONG-TERM LIABILITIES		8,428,230		100	%		8,540,851		100	%
59		FOREIGN CURRENCY LIABILITIES		5,215,237		62	%		5,040,093		59	%
60		MEXICAN PESOS LIABILITIES		3,212,993		38	%		3,500,758		41	%
29		STOCK MARKET LOANS		2,321,848		100	%		2,323,990		100	%
61		BONDS				0	%				0	%
62		MEDIUM TERM NOTES		2,321,848		100	%		2,323,990		100	%
30		OTHER LOANS
63		OTHER LOANS WITH COST		0		0	%		0		0	%
64		OTHER LOANS WITHOUT COST		0		0	%		0		0	%
31		DEFERRED LOANS		816,768		100	%		1,457,860		100	%
65		NEGATIVE GOODWILL		0		0	%		0		0	%
66		DEFERRED TAXES		816,768		100	%		1,457,860		100	%
67		OTHERS		0		0	%		0		0	%
32		OTHER LIABILITIES		812,380		100	%		593,097		100	%
68		RESERVES		0		0	%		0		0	%
69		OTHERS LIABILITIES		812,380		100	%		593,097		100	%
44		EXCESS (SHORTFALL) IN RESTATEMENT OF STOCK HOLDERS’ EQUITY		-24,950,088		100	%		-23,504,957		100	%
70		ACCUMULATED INCOME DUE TO MONETARY POSITION		0		0	%		0		0	%
71		INCOME FROM NON-MONETARY POSITION ASSETS		-24,950,088		100	%		-23,504,957		100	%

 

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CONSOLIDATED BALANCE SHEET

OTHER CONCEPTS

(Thousands of Pesos)

 

REF S		CONCEPTS		SECOND QUARTER OF PRESENT YEAR		SECOND QUARTER OF LAST YEAR
				Amount		Amount
72		WORKING CAPITAL		4,608,114		1,311,205
73		PENSIONS FUND AND SENIORITY PREMIUMS		405,503		579,269
74		EXECUTIVES (*)		0		0
75		EMPLOYERS (*)		4,257		5,794
76		WORKERS (*)		9,482		10,262
77		CIRCULATION SHARES (*)		2,281,798,960		1,369,079,376
78		REPURCHASED SHARES (*)		0		0

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(*)	THESE AMOUNTS ARE EXPRESSED IN UNITS

 

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CONSOLIDATED INCOME STATEMENT

FROM JANUARY THE 1ST TO JUNE 30 OF 2004 AND 2003

(Thousands of Pesos)

 

REF R		CONCEPTS		SECOND QUARTER OF PRESENT YEAR					SECOND QUARTER OF LAST YEAR
				Amount		%			Amount		%
1		NET SALES		11,039,893		100	%		11,345,785		100	%
2		COST OF SALES		8,898,956		81	%		8,780,722		77	%
3		GROSS INCOME		2,140,937		19	%		2,565,063		23	%
4		OPERATING EXPENSES		1,650,044		15	%		1,876,196		17	%
5		OPERATING INCOME		490,893		4	%		688,867		6	%
6		TOTAL FINANCING COST		487,853		4	%		502,916		4	%
7		INCOME AFTER FINANCING COST		3,040		0	%		185,951		2	%
8		OTHER FINANCIAL OPERATIONS		-5,922		0	%		59,761		1	%
9		INCOME BEFORE TAXES AND WORKERS’ PROFIT SHARING		8,962		0	%		126,190		1	%
10		RESERVE FOR TAXES AND WORKERS’ PROFIT SHARING		164,571		1	%		324,684		3	%
11		NET INCOME AFTER TAXES AND WORKERS’ PROFIT SHARING		-155,609		-1	%		-198,494		-2	%
12		SHARE IN NET INCOME OF SUBSIDIARIES AND NON-CONSOLIDATED ASSOCIATES		905		0	%		0		0	%
13		CONSOLIDATED NET INCOME OF CONTINUOUS		-156,514		-1	%		-198,494		-2	%
14		INCOME OF DISCONTINUOUS OPERATIONS		12,333		0	%		-73,317		-1	%
15		CONSOLIDATED NET INCOME BEFORE EXTRAORDINARY ITEMS		-168,847		-2	%		-125,177		-1	%
16		EXTRAORDINARY ITEMS NET EXPENSES (INCOME)		0		0	%		0		0	%
17		NET EFFECT AT THE BEGINNING OF THE YEAR BY CHANGES IN ACCOUNTING PRINCIPLES		0		0	%		0		0	%
18		NET CONSOLIDATED INCOME		-168,847		-2	%		-125,177		-1	%
19		NET INCOME OF MINORITY INTEREST		88,250		1	%		81,685		1	%
20		NET INCOME OF MAJORITY INTEREST		-257,097		-2	%		-206,862		-2	%

 

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CONSOLIDATED INCOME STATEMENT

BREAKDOWN OF MAIN CONCEPTS

(Thousands of Pesos)

 

REF R		CONCEPTS		SECOND QUARTER OF PRESENT YEAR					SECOND QUARTER OF LAST YEAR
				Amount		%			Amount		%
1		NET SALES		11,039,893		100	%		11,345,784		100	%
21		DOMESTIC		5,733,754		52	%		6,584,851		58	%
22		FOREIGN		5,306,139		48	%		4,760,933		42	%
23		TRANSLATED INTO DOLLARS (***)		473,262		4	%		427,862		4	%
6		TOTAL FINANCING COST		487,853		100	%		502,916		100	%
24		INTEREST PAID		476,147		98	%		526,319		105	%
25		EXCHANGE LOSSES		117,317		24	%		77,536		15	%
26		INTEREST EARNED		11,434		2	%		-17,052		-3	%
27		EXCHANGE PROFITS		0		0	%		0		0	%
28		GAIN DUE TO MONETARY POSITION		-134,138		-27	%		-121,567		-24	%
42		LOSS IN UDI’s ACTUALIZATION		39,961		8	%		37,680		7	%
43		PROFIT IN UDI’s ACTUALIZATION		0		0	%		0		0	%
8		OTHER FINANCIAL OPERATIONS		-5,922		100	%		59,761		100	%
29		OTHER NET EXPENSES (INCOME) NET		-5,922		100	%		59,761		100	%
30		(PROFIT) LOSS ON SALE OF OWN SHARES		0		0	%		0		0	%
31		(PROFIT) LOSS ON SALE OF SHORT-TERM INVESTMENTS		0		0	%		0		0	%
10		RESERVE FOR TAXES AND WORKERS’ PROFIT SHARING		164,571		100	%		324,684		100	%
32		INCOME TAX		114,227		69	%		186,987		58	%
33		DEFERRED INCOME TAX		6,748		4	%		97,904		30	%
34		WORKERS’ PROFIT SHARING		43,596		26	%		39,793		12	%
35		DEFERRED WORKERS’ PROFIT SHARING		0		0	%		0		0	%

 

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CONSOLIDATED INCOME STATEMENT

OTHER CONCEPTS

(Thousands of Pesos)

 

REF R		CONCEPTS		SECOND QUARTER OF PRESENT YEAR		SECOND QUARTER OF LAST YEAR
				Amount		Amount
36		TOTAL SALES		11,472,901		11,925,242
37		NET INCOME OF THE YEAR		0		0
38		NET SALES (**)		21,803,153		21,235,403
39		OPERATION INCOME (**)		658,198		900,252
40		NET INCOME OF MAJORITY INTEREST (**)		-2,486,697		-1,168,694
41		NET CONSOLIDATED INCOME (**)		-2,286,450		-1,286,431

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(**)	BASED ON INFORMATION FOR THE LAST TWELVE MONTHS

 

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CONSOLIDATED INCOME STATEMENT

FROM APRIL THE 2ND TO JUNE THE 30th OF 2004 AND 2003

(Thousands of Pesos)

 

REF R		CONCEPTS		SECOND QUARTER PRESENT YEAR						SECOND QUARTER OF LAST YEAR
				Amount			%			Amount		%
1		NET SALES		5,680,059			100	%		5,999,042		100	%
2		COST OF SALES		4,607,230			81	%		4,586,583		76	%
3		GROSS INCOME		1,072,829			19	%		1,412,459		24	%
4		OPERATING EXPENSES		829,556			15	%		951,054		16	%
5		OPERATING INCOME		243,273			4	%		461,405		8	%
6		TOTAL FINANCING COST		351,765			6	%		51,038		1	%
7		INCOME AFTER FINANCING COST		-108,492			-2	%		410,367		7	%
8		OTHER FINANCIAL OPERATIONS		-45,052			-1	%		53,744		1	%
9		INCOME BEFORE TAXES AND WORKERS’ PROFIT SHARING		-63,440			-1	%		356,623		6	%
10		RESERVE FOR TAXES AND WORKERS’ PROFIT SHARING		32,406			1	%		228,313		4	%
11		NET INCOME AFTER TAXES AND WORKERS’ PROFIT SHARING		-95,846			-2	%		128,310		2	%
12		SHARE IN NET INCOME OF SUBSIDIARIES AND NON-CONSOLIDATED ASSOCIATES		(479	)		0	%		0		0	%
13		CONSOLIDATED NET INCOME OF CONTINUOUS		-96,325			-2	%		128,310		2	%
14		INCOME OF DISCONTINUOUS OPERATIONS		12,038			0	%		-77,487		-1	%
15		CONSOLIDATED NET INCOME BEFORE EXTRAORDINARY ITEMS		-108,363			-2	%		205,797		3	%
16		EXTRAORDINARY ITEMS NET EXPENSES (INCOME)		0			0	%		0		0	%
17		NET EFFECT AT THE BEGINNING OF THE YEAR BY CHANGES IN ACCOUNTING PRINCIPLES		0			0	%		0		0	%
18		NET CONSOLIDATED INCOME		-108,363			-2	%		205,797		3	%
19		NET INCOME OF MINORITY INTEREST		32,111			1	%		75,269		1	%
20		NET INCOME OF MAJORITY INTEREST		-140,474			-2	%		130,528		2	%

 

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CONSOLIDATED INCOME STATEMENT

BREAKDOWN OF MAIN CONCEPTS

(Thousands of Pesos)

 

REF R		CONCEPTS		SECOND QUARTER OF PRESENT YEAR					SECOND QUARTER OF LAST YEAR
				Amount		%			Amount		%
1		NET SALES		5,680,059		100	%		5,999,042		100	%
21		DOMESTIC		2,932,984		52	%		3,684,672		61	%
22		FOREIGN		2,747,075		48	%		2,314,370		39	%
23		TRANSLATED INTO DOLLARS (***)		241,175		4	%		212,180		4	%
6		TOTAL FINANCING COST		351,765		100	%		51,038		100	%
24		INTEREST PAID		236,979		67	%		274,969		539	%
25		EXCHANGE LOSSES		117,621		33	%		-167,681		-329	%
26		INTEREST EARNED		9,181		3	%		5,419		11	%
27		EXCHANGE PROFITS		0		0	%		0		0	%
28		GAIN DUE TO MONETARY POSITION		4,222		1	%		-43,325		-85	%
29		LOSS IN UDI’s ACTUALIZATION		2,124		1	%		0		0	%
		PROFIT IN UDI’s ACTUALIZATION		0		0	%		7,506		15	%
8		OTHER FINANCIAL OPERATIONS		-45,052		100	%		53,744		100	%
29		OTHER NET EXPENSES (INCOME) NET		-45,052		100	%		53,744		100	%
30		(PROFIT) LOSS ON SALE OF OWN SHARES		0		0	%		0		0	%
31		(PROFIT) LOSS ON SALE OF SHORT-TERM INVESTMENTS		0		0	%		0		0	%
10		RESERVE FOR TAXES AND WORKERS’ PROFIT SHARING		32,406		100	%		228,313		100	%
32		INCOME TAX		44,886		139	%		91,653		40	%
33		DEFERRED INCOME TAX		-29,063		-90	%		120,308		53	%
34		WORKERS’ PROFIT SHARING		16,583		51	%		16,352		7	%
35		DEFERRED WORKERS’ PROFIT SHARING		0		0	%		0		0	%

 

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CONSOLIDATED CASH FLOW STATEMENT

FROM JANUARY THE 1ST TO JUNE 30 OF 2004 AND 2003

(Thousands of Pesos)

 

REF C		CONCEPTS		SECOND QUARTER OF PRESENT YEAR		SECOND QUARTER OF LAST YEAR
				Amount		Amount
1		CONSOLIDATED NET INCOME		-168,847		-125,177
2		+(-) ITEMS ADDED TO INCOME WHICH DO NOT REQUIRE USING CASH		722,226		692,252
3		CASH FLOW FROM NET INCOME OF THE YEAR		553,379		567,075
4		CASH FLOW FROM CHANGE IN WORKING CAPITAL		-597,137		-561,445
5		CASH GENERATED (USED) IN OPERATING ACTIVITIES		-43,758		5,630
6		CASH FLOW FROM EXTERNAL FINANCING		-3,131,518		-1,273,166
7		CASH FLOW FROM INTERNAL FINANCING		2,649,128		0
8		CASH FLOW GENERATED (USED) BY FINANCING		-482,390		-1,273,166
9		CASH FLOW GENERATED (USED) IN INVESTMENT ACTIVITIES		204,793		-385,874
10		NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS		-321,355		-1,653,410
11		CASH AND SHORT-TERM INVESTMENTS AT THE BEGINNING OF PERIOD		731,682		2,542,519
12		CASH AND SHORT-TERM INVESTMENTS AT THE END OF PERIOD		410,327		889,109

 

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CONSOLIDATED CASH FLOW STATEMENT

BREAKDOWN OF MAIN CONCEPTS

(Thousands of Pesos)

 

REF C		CONCEPTS		SECOND QUARTER OF PRESENT YEAR		SECOND QUARTER OF LAST YEAR
				Amount		Amount
2		+ (-) ITEMS ADDED TO INCOME WHICH DO NOT REQUIRE		722,226		692,252
13		DEPRECIATION AND AMORTIZATION FOR THE YEAR		645,440		692,252
14		+ (-) NET INCREASE (DECREASE) IN PENSIONS FUND AND SENIORITY PREMIUMS		0		0
15		+ (-) NET LOSS (PROFIT) IN MONEY EXCHANGE		0		0
16		+ (-) NET LOSS (PROFIT) IN ASSETS AND LIABILITIES ACTUALIZATION		0		0
17		+ (-) OTHER ITEMS		76,786		0
4		CASH FLOW FROM CHANGE IN WORKING CAPITAL		-597,137		-561,445
18		+ (-) DECREASE (INCREASE) IN ACCOUNT RECEIVABLE		-654,773		-975,479
19		+ (-) DECREASE (INCREASE) IN INVENTORIES		81,268		80,262
20		+ (-) DECREASE (INCREASE) IN OTHER ACCOUNT RECEIVABLE		-44,519		159,020
21		+ (-) INCREASE (DECREASE) IN SUPPLIER ACCOUNT		194,732		1,419
22		+ (-) INCREASE (DECREASE) IN OTHER LIABILITIES		-173,845		173,333
6		CASH FLOW FROM EXTERNAL FINANCING		-3,131,518		-1,273,166
23		+ SHORT-TERM BANK AND STOCK MARKET FINANCING		-14,890		-1,080,126
24		+ LONG-TERM BANK AND STOCK MARKET FINANCING		-3,116,628		-193,040
25		+ DIVIDEND RECEIVED		0		0
26		+ OTHER FINANCING		0		0
27		(-) BANK FINANCING AMORTIZATION		0		0
28		(-) STOCK MARKET AMORTIZATION		0		0
29		(-) OTHER FINANCING AMORTIZATION		0		0
7		CASH FLOW FROM INTERNAL FINANCING		2,649,128		0
30		+ (-) INCREASE (DECREASE) IN CAPITAL STOCKS		2649128
31		(-) DIVIDENDS PAID		0		0
32		+ PREMIUM ON SALE OF SHARES		0		0
33		+ CONTRIBUTION FOR FUTURE CAPITAL INCREASES		0		0
9		CASH FLOW GENERATED (UTILIZED) IN INVESTMENT ACTIVITIES		204,793		-385,874
34		+ (-) DECREASE (INCREASE) IN STOCK INVESTMENTS OF A PERMANENT NATURE		-128,255		0
35		(-) ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT		84,646		-205,837
36		(-) INCREASE IN CONSTRUCTIONS IN PROGRESS		308,820		-180,037
37		+ SALE OF OTHER PERMANENT INVESTMENTS		0		0
38		+ SALE OF TANGIBLE FIXED ASSETS		0		0
39		+ (-) OTHER ITEMS		-60,418		0

 

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RATIOS

CONSOLIDATED

 

REF P		CONCEPTS		SECOND QUARTER OF PRESENT FINANCIAL YEAR				SECOND QUARTER OF PREVIOUS FINANCIAL YEAR
		YIELD
1		NET INCOME TO NET SALES		-1.53		%		-1.1		%
2		NET INCOME TO STOCK HOLDERS’ EQUITY (**)		-27.7		%		-14.66		%
3		NET INCOME TO TOTAL ASSETS (**)		-8.42		%		-4.28		%
4		CASH DIVIDENDS TO PREVIOUS YEAR NET INCOME		0		%		0		%
5		INCOME DUE TO MONETARY POSITION TO NET INCOME		-79.44		%		-97.12		%
		ACTIVITY
6		NET SALES TO NET ASSETS (**)		0.8		TIMES		0.71		TIMES
7		NET SALES TO FIXED ASSETS (**)		1.92		TIMES		1.57		TIMES
8		INVENTORIES ROTATION (**)		5.48		TIMES		5.22		TIMES
9		ACCOUNTS RECEIVABLE IN DAYS OF SALES		61		DAYS		44		DAYS
10		PAID INTEREST TO TOTAL LIABILITIES WITH COST (**)		8.75		%		0		%
		LEVERAGE
11		TOTAL LIABILITIES TO TOTAL ASSETS		53.57		%		60.48		%
12		TOTAL LIABILITIES TO STOCK HOLDERS’ EQUITY		1.15		TIMES		1.53		TIMES
13		FOREIGN CURRENCY LIABILITIES TO TOTAL LIABILITIES		50.26		%		52.18		%
14		LONG-TERM LIABILITIES TO FIXED ASSETS		74.04		%		62.95		%
15		OPERATING INCOME TO INTEREST PAID		1.03		TIMES		1.31		TIMES
16		NET SALES TO TOTAL LIABILITIES (**)		1.5		TIME		1.17		TIME
		LIQUIDITY
17		CURRENT ASSETS TO CURRENT LIABILITIES		2.03		TIME		1.17		TIME
18		CURRENT ASSETS LESS INVENTORY TO CURRENT LIABILITIES		1.31		TIME		0.76		TIME
19		CURRENTS ASSETS TO TOTAL LIABILITIES		0.63		TIME		0.49		TIME
20		AVAILABLE ASSETS TO CURRENT LIABILITIES		9.14		%		11.72		%
		CASH FLOW
21		CASH FLOW FROM NET INCOME TO NET SALES		5.01		%		5		%
22		CASH FLOW FROM CHANGES IN WORKING CAPITAL TO NET SALES		-5.41		%		-4.95		%
23		CASH GENERATED (USED) IN OPERATING TO INTEREST PAID		-0.09		TIME		0.01		TIME
24		EXTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING		649.17		%		100		%
25		INTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING		-549.17		%		0		%
26		ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT TO CASH GENERATED (USED) IN INVESTMENT ACTIVITIES		41.33		%		53.34		%

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(**)	BASED ON INFORMATION FOR THE LAST TWELVE MONTHS

 

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DATA PER SHARE

 

REF D		CONCEPTS		SECOND QUARTER OF PRESENT FINANCIAL YEAR					SECOND QUARTER OF PREVIOUS FINANCIAL YEAR
				Amount					Amount
1		BASIC PROFIT PER ORDINARY SHARE (**)			-1.57					-0.74
2		BASIC PROFIT PER PREFERENT SHARE (**)			0					0
3		DILUTED PROFIT PER ORDINARY SHARE (**)			0					0
4		CONTINUOUS OPERATING PROFIT PER COMMON SHARE(**)			0					0
5		EFFECT OF DISCONTINUOUS OPERATING ON CONTINUOUS OPERATING PROFIT PER SHARE (**)		$	0.00				$	0.00
6		EFFECT OF EXTRAORDINARY PROFIT AND LOSS ON CONTINUOUS OPERATING PROFIT PER SHARE (**)			0					0
7		EFFECT BY CHANGES IN ACCOUNTING POLICIES ON CONTINUOUS OPERATING PROFIT PER SHARE (**)			0					0
8		CARRYING VALUE PER SHARE			3.93					5.82
9		CASH DIVIDEND ACCUMULATED PER SHARE			0					0
10		DIVIDEND IN SHARES PER SHARE			0		SHARES			0		SHARES
11		MARKET PRICE TO CARRYING VALUE			3.26		TIME			0.72		TIME
12		MARKET PRICE TO BASIC PROFIT PER ORDINARY SHARE (**)			0		TIME			0		TIME
13		MARKET PRICE TO BASIC PROFIT PER PREFERENT SHARE (**)			0					0

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(**)	TO CALCULATE THE DATA PER SHARE USE THE NET INCOME FOR THE LAST TWELVE MONTHS

 

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Auditor Notes

 

[ENGLISH TRANSLATION]

 

SIGNIFICANT ACCOUNTING POLICIES

 

THE ACCOUNTING POLICIES FOLLOWED BY THE COMPANY ARE IN CONFORMITY WITH MEXICAN GAAP, WHICH REQUIRE MANAGEMENT TO MAKE CERTAIN ESTIMATES AND USE CERTAIN ASSUMPTIONS TO DETERMINE THE VALUATION OF SOME OF THE BALANCES INCLUDED IN THE FINANCIAL STATEMENTS AND TO MAKE THE DISCLOSURES REQUIRED FOR INCLUSION THEREIN. ALTHOUGH ACTUAL RESULTS MAY DIFFER FROM THOSE ESTIMATES, MANAGEMENT BELIEVES THAT THE ESTIMATES AND ASSUMPTIONS USED WERE APPROPRIATE IN THE CIRCUMSTANCES.

 

THE SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE COMPANY ARE AS FOLLOWS:

 

CHANGES IN ACCOUNTING POLICIES – IN 2001 THE NEW BULLETIN C-2 “FINANCIAL INSTRUMENTS”, WENT INTO EFFECT. THIS BULLETIN ESTABILSHES THE METHODOLOGY FOR VALUING AND RECORDING FINANCIAL INSTRUMENTS, AND REQUIRES RECOGNITION OF ALL EFFECTS OF THE FINANCIAL INSTRUMENTS CONTRACTED ON THE BALANCE SHEET AS EITHER ASSETS OR LIABILITIES, UNDER NET COMPREHENSIVE FINANCIAL RESULT. THE FINANCIAL INSTRUMENTS THAT HAVE BEEN DESIGNATED AND EFFECTIVELY FUNCTION AS HEDGING OF ASSETS AND LIABILITIES OR FUTURE TRANSACTIONS WILL AFFECT THE ASSETS, LIABILITIES OR THE RESPECTIVE TRANSACTIONS WHEN THEY ARE REALIZED, SETTLED OR TAKE PLACE, RESPECTIVELY.

 

AS OF 2001, INTERNATIONAL ACCOUNTING STANDARD 40, “INVESTMENT PROPERTIES,” ENTERED INTO EFFECT ON A SUPPLEMENTAL BASIS, ESTABLISHING VALUATION CRITERIA FOR PROPERTIES WHOSE PURPOSE IS TO GENERATE PROFITS OR INCREASE VALUE OR BOTH. PURSUANT TO CIRCULAR 55 ISSUED BY THE MEXICAN INSTITUTE OF PUBLIC ACCOUNTANTS, THE VALUATION MODEL APPLICABLE TO MEXICO IS THE COST MODEL, WHICH ESTABLISHES THAT SUCH PROPERTIES MUST BE VALUED AT ACQUISITION AND/OR CONSTRUCTION COST AND ARE RESTATED BY APPLYING THE NPCI, LESS THE RESPECTIVE ACCUMULATED DEPRECIATION.

 

BEGINNING JANUARY 2000, THE COMPANY ADOPTED THE PROVISIONS OF NEW BULLETIN D-4, “ACCOUNTING FOR INCOME AND ASSET TAXES AND EMPLOYEE PROFIT SHARING”. THE EFFECT OF THE ADOPTION WAS TO RECOGNIZE, AN INITIAL LONG-TERM LIABILITY FOR DEFERRED INCOME TAXES AFFECTING STOCKHOLDERS’ EQUITY UNDER “CUMULATIVE EFFECT OF INITIAL RECOGNITION OF DEFERRED INCOME TAXES”.

 

AS A RESULT OF THE IMPLEMENTATION OF THE ADOPTION OF BULLETIN D-4 MENTIONED ABOVE, THE COMPANY CHANGED ITS METHOD FOR RECORDING THE EFFECT FROM TAX CONSOLIDATION. UNTIL 1999, IT WAS RECORDED IN THE YEAR IN WHICH THE RESPECTIVE ANNUAL CONSOLIDATED TAX RETURN WAS FILED. BEGINNING IN 2000, THIS BENEFIT IS RECORDED IN RESULTS OF THE YEAR IN WHICH THE BENEFIT IS GENERATED.

 

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BASIS OF CONSOLIDATION – THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THOSE OF DESC AND THE SUBSIDIARIES IN WHICH THERE IS STOCKHOLDING AND ADMINISTRATIVE CONTROL. ALL SIGNIFICANT INTERCOMPANY TRANSACTIONS AND BALANCES HAVE BEEN ELIMINATED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS.

 

THE EQUITY IN NET INCOME (LOSS) AND CHANGES IN STOCKHOLDERS’ EQUITY OF THOSE SUBSIDIARIES THAT WERE ACQUIRED OR SOLD, HAS BEEN INCLUDED IN THE FINANCIAL STATEMENTS AS OF OR UP TO THE DATE ON WHICH THE TRANSACTIONS TOOK PLACE AND WAS RESTATED IN TERMS OF THE PURCHASING POWER AS OF THE END OF THE LATEST PERIOD.

 

INVESTMENTS IN SHARES OF ASSOCIATED COMPANIES AND UNCONSOLIDATED SUBSIDIARIES ARE RECORDED USING THE EQUITY METHOD.

 

TRANSLATION OF FINANCIAL STATEMENTS OF SUBSIDIARIES – THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES, WHOSE OPERATIONS ARE NOT AN INTEGRAL PART OF THE MEXICAN COMPANIES (“FOREIGN ENTITIES”), ARE RESTATED FOR THE INFLATION RATE OF THE RESPECTIVE FOREIGN COUNTRY AND ARE TRANSLATED INTO MEXICAN PESOS AT THE EXCHANGE RATE IN EFFECT AT THE END OF THE YEAR. THE FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES, WHOSE OPERATIONS ARE AN INTEGRAL PART OF THE MEXICAN COMPANIES (“INTEGRATED FOREIGN OPERATIONS”), ARE TRANSLATED USING YEAR-END EXCHANGE RATES FOR MONETARY ITEMS AND HISTORICAL EXCHANGE RATES FOR NONMONETARY ITEMS, AND THE TRANSLATED FINANCIAL STATEMENTS ARE THEN RESTATED USING THE NATIONAL CONSUMER PRICE INDEX (NCPI) OF MEXICO. THE EFFECTS OF TRANSLATING FOREIGN ENTITIES ARE RECORDED DIRECTLY IN STOCKHOLDERS’ EQUITY IN THE “CUMULATIVE EFFECT OF RESTATEMENT” ACCOUNT. THE EFFECTS OF TRANSLATING INTEGRATED FOREIGN OPERATIONS ARE INCLUDED IN THE “INTEGRAL FINANCING RESULT” OF THE YEAR IN THE “MONETARY POSITION GAIN” ACCOUNT. SUCH EFFECTS ARE NOT SIGNIFICANT.

 

RECOGNITION OF THE EFFECTS OF INFLATION – THE COMPANIES RESTATE ALL OF THEIR FINANCIAL STATEMENTS IN TERMS OF THE PURCHASING POWER OF THE MEXICAN PESO AS OF THE END OF THE LATEST PERIOD, THEREBY COMPREHENSIVELY RECOGNIZING THE EFFECTS OF INFLATION. THE PRIOR YEAR AMOUNTS PRESENTED HEREIN DIFFER FROM THOSE ORIGINALLY REPORTED IN TERMS OF MEXICAN PESOS OF THE RESPECTIVE YEAR. CONSEQUENTLY, ALL FINANCIAL STATEMENT AMOUNTS ARE COMPARABLE, BOTH FOR THE CURRENT AND THE PRIOR YEAR, BECAUSE ALL ARE STATED IN TERMS OF MEXICAN PESOS OF THE SAME PURCHASING POWER.

 

CASH EQUIVALENTS – INVESTMENTS IN MARKETABLE SECURITIES CONSIST MAINLY OF ACCEPTANCES, BANK PROMISSORY NOTES, AND PAPER ISSUED BY THE MEXICAN AND UNITED STATES OF AMERICA GOVERNMENTS, AT MARKET (COST PLUS ACCRUED INTEREST).

 

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INVENTORIES AND COST OF SALES – INVENTORIES ARE ORIGINALLY RECORDED AT THEIR ACQUISITION OR MANUFACTURING COST AND RESTATED TO THEIR SPECIFIC NET REPLACEMENT COST WITHOUT EXCEEDING NET REALIZABLE VALUE. SUBSTANTIALLY ALL SUBSIDIARIES COMPUTE COST OF SALES USING THE REPLACEMENT COST AT THE TIME OF SALE.

 

LAND HELD FOR DEVELOPMENT AND REAL ESTATE PROJECTS – UNDEVELOPED LAND REPRESENTS LAND RESERVES THAT, TOGETHER WITH DEVELOPED LAND AND ONGOING AND COMPLETED PROJECTS, ARE CONSIDERED NON-CURRENT INVENTORIES, SINCE THEY ARE HELD FOR SALE. THEY INCLUDE ACQUISITION, DEVELOPMENT AND CONSTRUCTION COSTS AND ARE RESTATED IN U.S. DOLLARS BASED ON THE SLIPPAGE OF THE MARKET EXCHANGE RATE FOR THE PURPOSE OF SHOWING VALUES IN ACCORDANCE WITH THE CURRENT SITUATION OF THE REAL ESTATE MARKET.

 

THE COMPANY CAPITALIZES THE NET COMPREHENSIVE FINANCING COST ON DEBT USED TO FINANCE REAL ESTATE PROJECTS IN PROGRESS, IN ADDITION TO THEIR CONSTRUCTION AND DEVELOPMENT COSTS.

 

INVESTMENT IN SHARES – INVESTMENT IN SHARES HAS BEEN RECORDED USING THE EQUITY METHOD, BASED ON THE FINANCIAL STATEMENTS PREPARED ON THE SAME BASIS AS THOSE OF THE COMPANY, AND IS PRESENTED UNDER OTHER ASSETS IN THE BALANCE SHEET.

 

PROPERTY, PLANT AND EQUIPMENT – THESE ITEMS IS RECORDED AT ACQUISITION COST AND IS RESTATED BY USING NCPI FACTORS. FOR FOREIGN FIXED ASSETS, THEIR ACQUISITION COST IS RESTATED FOR INFLATION OF THE COUNTRY OF ORIGIN AND THE FLUCTUATION OF THE MEXICAN PESO AGAINST SUCH CURRENCY IS CONSIDERED.

 

DEPRECIATION IS CALCULATED BY THE STRAIGHT-LINE METHOD BASED ON THE REMAINING USEFUL LIVES OF THE ASSETS.

 

THE COMPANIES CAPITALIZE THE NET COMPREHENSIVE FINANCING COST ON DEBT USED TO FINANCE CONSTRUCTION IN PROGRESS AND THE INSTALLATION OF EQUIPMENT, UNTIL THEY ARE PLACED IN SERVICE.

 

IMPAIRMENT OF FIXED ASSETS – THE AMOUNTS SHOWN IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF INCOME BASICALLY REFER TO THE REDUCTION IN VALUE OF PROPERTY AND EQUIPMENT OF SOME PRODUCTION FACILITIES, IN ORDER TO REFLECT THEIR REALIZABLE VALUE IN ACCORDANCE WITH THE CURRENT SITUATION OF SUCH BUSINESSES.

 

GOODWILL – THE GOODWILL RESULTING FROM ACQUISITIONS MADE IN EXCESS OF BOOK VALUE IS AMORTIZED OVER PERIODS RANGING FROM FIVE TO 20 YEARS, THE TERMS OVER WHICH THE BENEFITS FROM THE INVESTMENT WILL BE REALIZED.

 

FINANCIAL INSTRUMENTS – FINANCIAL ASSETS AND LIABILITIES RESULTING FROM ANY TYPE OF FINANCIAL INSTRUMENT, EXCEPT FOR INVESTMENTS IN FINANCIAL INSTRUMENTS HELD TO MATURITY, ARE PRESENTED IN THE BALANCE SHEET AT FAIR VALUE. THE EFFECTS OF THE

 

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VALUATION OF A FINANCIAL ASSET OR LIABILITY ARE RECOGNIZED IN RESULTS OF OPERATIONS OF THE RESPECTIVE PERIOD. INVESTMENTS IN FINANCIAL INSTRUMENTS HELD TO MATURITY ARE VALUED AT ACQUISITION COST. THE COSTS AND YIELDS OF FINANCIAL INSTRUMENTS ARE RECOGNIZED IN RESULTS OF THE PERIOD IN WHICH THEY OCCUR.

 

DERIVATE FINANCIAL INSTRUMENTS – THE INTERNAL CONTROL SYSTEM ESTABLISHED BY THE COMPANY INCLUDES POLICIES AND PROCEDURES TO MANAGE ITS EXPOSURE TO FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES USING DERIVATIVE FINANCIAL INSTRUMENTS. THESE INSTRUMENTS ARE TRADED ONLY WITH AUTHORIZED INSTITUTIONS AND READING LIMITS HAVE BEEN ESTABLISHED FOR EACH INSTITUTION. THE COMPANY DOES NOT CARRY OUT TRANSACTIONS WITH DERIVATIVE FINANCIAL INSTRUMENTS FOR THE PURPOSE OF SPECULATION.

 

THE DERIVATIVE FINANCIAL INSTRUMENTS CURRENTLY USED BY THE COMPANY ARE PRIMARILY HEDGE CONTRACTS TO REDUCE ITS EXPOSURE TO EXCHANGE RATE FLUCTUATIONS. PREMIUMS PAID ARE AMORTIZED OVER THE TERM OF THE DERIVATIVE FINANCIAL INSTRUMENT USING THE UNPAID BALANCE OF THE LIABILITY BEING HEDGED.

 

DERIVATIVE FINANCIAL INSTRUMENTS IDENTIFIED AS HEDGES ARE VALUED BY APPLYING THE SAME VALUATION CRITERIA USED FOR THE ASSETS OR LIABILITIES HEDGED, AND THE EFFECTS OF THEIR VALUATION ARE RECOGNIZED IN RESULTS OF OPERATIONS, NET OF COSTS, EXPENSES, OR REVENUE FROM THE ASSETS OR LIABILITIES WHOSE RISKS ARE BEING HEDGED. THE FINANCIAL ASSETS OR LIABILITIES GENERATED BY THESE INSTRUMENTS ARE PRESENTED IN THE BALANCE SHEET AS A REDUCTION OF THE LIABILITIES OR ASSETS WHOSE RISKS ARE BEING HEDGED.

 

INCOME TAX, ASSET TAX AND EMPLOYEE PROFIT SHARING – INCOME TAX (ISR) AND EMPLOYEE STATUTORY PROFIT-SHARING (PTU) ARE RECORDED IN RESULTS OF THE YEAR IN WHICH THEY ARE INCURRED. DEFERRED INCOME TAX ASSETS AND LIABILITIES ARE RECOGNIZED FOR TEMPORARY DIFFERENCES RESULTING FROM COMPARING THE BOOK AND TAX VALUES OF ASSETS AND LIABILITIES, PLUS ANY FUTURE BENEFITS FROM TAX LOSS CARRYFORWARDS DEFERRED INCOME TAX ASSETS ARE REDUCES BY ANY BENEFITS THAT, IN THE OPINION OF MANAGEMENT, WILL PROBABLY NOT BE REALIZED. DEFERRED PTU IS DERIVED FROM TEMPORARY DIFFERENCES BETWEEN THE BOOK RESULT AND INCOME FOR PTU PURPOSES AND IS RECOGNIZED ONLY WHEN IT CAN BE REASONABLY ASSUMED THAT THEY WILL GENERATE A LIABILITY OR BENEFIT, AND THERE IS NO INDICATION THAT THIS SITUATION WILL CHANGE IN SUCH A WAY THAT THE LIABILITIES WILL NOT BE PAID OR BENEFITS WILL NOT BE REALIZED.

 

THE ASSET TAX PAID THAT IS EXPECTED TO BE RECOVERABLE IS RECORDED AS AN ADVANCE PAYMENT OF INCOME TAX AND IS PRESENTED ON THE BALANCE SHEET WITH DEFERRED ISR.

 

EMPLOYEE RETIREMENT OBLIGATIONS – THE LIABILITY FROM SENIORITY PREMIUMS, PENSIONS AND RETIREMENT PAYMENTS, WHICH IS SIMILAR TO A PENSION, IS RECORDED AS ACCRUED, AND IS CALCULATED BY INDEPENDENT

 

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ACTUARIES BASED ON THE PROJECTED CREDIT UNIT METHOD, AT REAL INTEREST RATES. THEREFORE, THE LIABILITY IS BEING RECOGNIZED WHICH, AT PRESENT VALUE, IS EXPECTED TO COVER THE OBLIGATION FOR THESE BENEFITS AT THE ESTIMATED RETIREMENT DATE OF ALL THE COMPANIES’ EMPLOYEES. SEVERANCE PAYMENTS ARE CHARGED TO RESULTS WHEN THEY ARE DETERMINED TO BE PAYABLE.

 

RESTATED STOCKHOLDERS’ EQUITY – THIS ITEM CONSISTS OF MONETARY POSITION RESULT ACCUMULATED THROUGH THE FIRST RESTATEMENT OF THE FINANCIAL STATEMENTS AND THE GAIN (LOSS) FROM HOLDING MONETARY ASSETS, BECAUSE PRICE LEVELS INCREASED ABOVE (BELOW) INFLATION.

 

REVENUE RECOGNITION – REVENUES OF THE SUBSIDIARIES OF THE AUTOPARTS, CHEMICAL AND FOOD SECTORS ARE RECOGNIZED WHEN THE INVENTORIES ARE DELIVERED OR SHIPPED TO CUSTOMERS AND CUSTOMERS ASSUME RESPONSIBILITY FOR THEM.

 

THE REAL ESTATE SECTOR RECOGNIZES THE REVENUES AND COSTS FROM SALES OF URBANIZED PLOTS OF LAND IN RESULTS WHEN THE SALES ARE FORMALIZED AND THE DEPOSITS SECURING THE TRANSACTION ARE RECEIVED. THE INDIVIDUAL ASSIGNMENT OF THE COST OF THE LAND AND REAL ESTATE PROJECT TAKES INTO CONSIDERATION THE RELATIVE SELLING PRICE OF THE TOTAL PROJECT SO AS TO MAINTAIN THE SAME PROFIT MARGIN THROUGHOUT THE PROJECT.

 

REVENUES AND COSTS FROM REAL ESTATE PROJECTS ARE RECORDED ORIGINALLY AS A DEFERRED CREDIT FOR CONSTRUCTION COMMITMENTS AND AS REAL ESTATE PROJECTS IN PROCESS, AND ARE RECOGNIZED IN RESULTS BASED ON THE “PERCENTAGE OF COMPLETION” METHOD. THEREFORE, REVENUE IS MATCHED WITH COSTS INCURRED TO REACH THE STAGE OF COMPLETION TO TERMINATE THE PROJECT. IF THE LAST ESTIMATED COSTS DETERMINED EXCEED THE TOTAL REVENUES CONTRACTED, THE RESPECTIVE PROVISION IS CHARGED TO RESULTS OF THE YEAR.

 

INTEGRAL FINANCIAL RESULT – THIS REPRESENTS THE NET EFFECT OF INTEREST EARNED AND INCURRED, EXCHANGE GAINS AND LOSSES AND MONETARY POSITION GAIN OR LOSS ON, WHICH IS THE RESULT OF MAINTAINING MONETARY ASSETS AND LIABILITIES WHOSE REAL PURCHASING POWER IS MODIFIED BY THE EFFECTS OF INFLATION.

 

FOREIGN CURRENCY TRANSACTIONS ARE RECORDED AT THE EFFECTIVE EXCHANGE RATE AT THE DATE THE TRANSACTIONS ARE CARRIED OUT AND FOREIGN CURRENCY ASSETS AND LIABILITIES ARE ADJUSTED TO THE EXCHANGE RATE EFFECTIVE AT YEAR-END.

 

INCOME PER SHARE – BASIC INCOME (LOSS) PER ORDINARY SHARE IS CALCULATED BY DIVIDING CONSOLIDATED NET INCOME (LOSS) OF MAJORITY STOCKHOLDERS BY THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE YEAR.

 

COMPREHENSIVE INCOME (LOSS) – COMPREHENSIVE INCOME (LOSS) IS COMPRISED OF THE NET CONSOLIDATED INCOME FOR THE PERIOD PLUS

 

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(LESS) ANY GAINS OR LOSSES THAT UNDER SPECIFIC ACCOUNTING REGULATIONS ARE RECORDED DIRECTLY IN STOCKHOLDERS’ EQUITY, SUCH AS THE GAIN OR LOSS FROM HOLDING NONMONETARY ASSETS.

 

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STOCK EXCHANGE CODE: DESC		QUARTER: 2		YEAR: 2004

 

Annex 3

SHARE OWNERSHIP

 

COMPANY NAME		MAIN ACTIVITIES		NUMBER OF SHARES		OWNERSHIP		TOTAL AMOUNT (Thousands of Pesos)
SUBSIDIARIES								ACQUISITION COST		PRESENT VALUE
BOSQUES DE LAS LOMAS, S.A. DE C.V.		Real Estate Sector		34,051,500		100.00		71,069		71,069
OPERADORA DE NAYARIT, S.A. DE C.V.		Real Estate Sector		49		78.12		115,392		115,392
PROMOCIONES BOSQUES, S.A. DE C.V.		Real Estate Sector		100,402,106		99.99		411,021		411,021
CORPORATIVO DINE, S.A. DE C.V		Real Estate Sector		2,344,119,922		99.99		10,460		10,460
HOLDING DICOMEX, S.A. DE C.V		Real Estate Sector		70,870,000		50.00		89,140		89,140
TURISTICA AKKO, S.A. DE C.V.		Real Estate Sector		9,998		99.98		-1,844		-1,844
BOSQUES DE SANTA FE, S.A. DE C.V.		Real Estate Sector		1,361		99.92		-52,591		-52,591
CAÑA DE SANTA FE, S.A DE C.V.		Real Estate Sector		202,939,999		73.00		905,958		905,958
INMOBILIARIA DINE, S.A. DE C.V.		Real Estate Sector		36,710,199		99.99		93,143		93,143
CANTILES DE MITA		Real Estate Sector		115,003,237		98.09		2,106,739		2,106,739
CLUB DE GOLF PUNTA MITA, S.A. DE C.V.		Real Estate Sector		12,410,869		87.69		126,657		126,657
DESC AUTOMOTRIZ, S.A. DE C.V.		Autoparts Sector		700,968,215		100.00		3,180,400		3,180,400
CORFUERTE, S.A. DE C.V.		Food Sector		901,413,494		99.34		456,187		456,187
AGROKEN, S.A. DE C.V.		Food Sector		584,434,261		99.99		579,412		579,412
AUTHENTIC SPECIALITY FOODS		Food Sector		316,236		99.93		388,070		388,070
AGROBIOS CORPORATIVO		Food Sector		550,000		99.99		34,813		34,813
CID CENTRO DE INVESTIGACION Y DESARROLLO		Chemicals Sector		190,386,960		99.99		23,354		23,354
DIRECCION IRSA, S.A. DE C.V.		Chemicals Sector		4,201,800		99.99		-63,383		-63,383
FENOQUIMIA, S.A. DE C.V.		Chemicals Sector		5,000,000		99.97		-316,523		-316,523
FORESTACIONES OPERATIVAS DE MEXICO, S.A.		Chemicals Sector		31,658		99.98		10,030		10,030
GIRSA CORPORATIVO, S.A. DE C.V.		Chemicals Sector		41,510,000		99.99		10,801		10,801
GIRSA CONCENTRADORA S.A. DE C.V.		Chemicals Sector		615,124,721		99.99		827,537		827,537
H2ORIZONTES, S.A. DE C.V.		Chemicals Sector		50,000		99.89		-14,666		-14,666
QUIMIR, S.A. DE C.V.		Chemicals Sector		1,930,987		99.99		125,686		125,686
RESIRENE, S.A. DE C.V.		Chemicals Sector		236,058,979		99.99		180,842		180,842
TECNO INDUSTRIA RF, S.A. DE C.V.		Chemicals Sector		10,675,000		99.99		7,575		7,575
REXCEL, S.A. DE C.V.		Chemicals Sector		1,001,000		99.99		94,017		94,017
DYNASOL ELASTOMEROS, S.A. (ESPAÑA)		Chemicals Sector		1		50.00		435,515		435,515
DYNASOL GESTION, S.A.		Chemicals Sector		1		50.00		2,323		2,323
DYNASOL, L.L.C.		Chemicals Sector		1		50.00		18,552		18,552
INDUSTRIAS NEGROMEX, S.A. DE C.V.		Chemicals Sector		585,833,830		99.99		727,988		727,988
PLASTIGLAS DE MEXICO, S.A. DE C.V.		Chemicals Sector		200,778,201		94.99		102,331		102,331
BIOQUIMEX NATURAL, S.A. DE C.V.		Chemicals Sector		470,328,749		99.99		-10,240		-10,240
AEROPYCSA, S.A. DE C.V.		Service Companies		458,329,279		99.99		109,548		109,548
CORPORATIVO ARCOS DESC, S.A. DE C.V.		Service Companies		260,524,996		99.99		57,680		57,680
DESC CORPORATIVO, S.A. DE C.V.		Service Companies		266,253,830		99.99		-180,977		-180,977
BIG SOFT, S.A. DE C.V.		Service Companies		8,612,508		99.99		7,445		7,445
PACIFIC INTERNATIONAL AIRWAYS, S.A. DE C.V.		Service Companies		244,498		99.99		1,486		1,486
SERVICIOS CORPORATIVOS ARCOS, S.A.DE C.V.		Service Companies		449		99.77		1,653		1,653
OTHER SUBSIDIARIES (4) (NO. OF SUBS.:)				1		0		0		0
Associates
1. Others								10,672,600		10,672,600
OTHERS		SERVICE		1		100		194,767		194,767
				0		0		0		0
Other Permanent Investments										3,618,846
Total										14,486,213

 

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STOCK EXCHANGE CODE:DESC		QUARTER: 2		YEAR: 2004

 

Annex 5

CREDITS BREAKDOWN

(Thousands of Pesos)

 

Credit Type / Institution		Amortization Date		Rate of Interest		Denominated in Pesos
Banks						Until 1 Year		More Than 1 Year
								LT
Financial Institutions
IFC		15-Feb-06		3.300		0		0
IFC		15-Sep-09		4.900		0		0
IFC		15-Sep-09		10.350		0		0
DEG		28-Dec-06		4.125		0		0
CITIBANK NA (Syndicate)		23-Jun-06		3.820		0		0
CITIBANK NA (Syndicate)		23-Dec-08		3.800		0		0
BBVA BANCOMER (Syndicate)		23-Dec-08		9.609		0		845,755
Varios Arrend.		31-Dec-10		8.400		0		0
BANCO SANTANDER MEXICANO		31-Jan-07		10.024		3,263		5,697
BANCO SANTANDER MEXICANO		31-Jan-07		7.797		1,029		1,640
INBURSA		31-Aug-04		12.540		15,000		0
INBURSA		28-Feb-07		12.900		5,004		29,996
BANAMEX-CITIBANK		16-May-08		8.061		1,603		8,057
COMERICA BANK		26-Jul-04		2.670		0		0
COMERICA BANK		13-Dec-04		3.895		0		0
COMERICA BANK		9-Jul-04		2.630		0		0
COMERICA BANK		19-Jul-04		2.630		0		0
COMERICA BANK		9-Aug-04		2.830		0		0
COMERICA BANK		20-Jul-04		2.630		0		0
COMERICA BANK		9-Jul-04		2.600		0		0
COMERICA BANK		20-Jul-04		2.830		0		0
TOTAL BANKS						25,899		891,145

 

Credit Type / Institution		Amortization Date		Rate of Interest		Amortization of Credits in Foreign Currency with National Entities (Thousands of $)
						Time Interval
Banks						Current Year		Until 1 Year		Until 2 Years		Until 3 Years		Until 4 Years		Until 5 Years
						ST				LP
Financial Institutions
IFC		15-Feb-06		3.300		0		0		0		0		0		0
IFC		15-Sep-09		4.900		0		0		0		0		0		0
IFC		15-Sep-09		10.350		0		0		0		0		0		0
DEG		28-Dec-06		4.125		0		0		0		0		0		0
CITIBANK NA (Syndicate)		23-Jun-06		3.820		0		0		0		0		0		0
CITIBANK NA (Syndicate)		23-Dec-08		3.800		0		0		0		0		0		0
BBVA BANCOMER (Syndicate)		23-Dec-08		9.609		0		0		0		0		0		0
Varios Arrend.		31-Dec-10		8.400		0		0		0		0		0		0
BANCO SANTANDER MEXICANO		31-Jan-07		10.024		0		0		0		0		0		0
BANCO SANTANDER MEXICANO		31-Jan-07		7.797		0		0		0		0		0		0
INBURSA		31-Aug-04		12.540		0		0		0		0		0		0
INBURSA		28-Feb-07		12.900		0		0		0		0		0		0
BANAMEX-CITIBANK		16-May-08		8.061		0		0		0		0		0		0
COMERICA BANK		26-Jul-04		2.670		0		0		0		0		0		0
COMERICA BANK		13-Dec-04		3.895		0		0		0		0		0		0
COMERICA BANK		9-Jul-04		2.630		0		0		0		0		0		0
COMERICA BANK		19-Jul-04		2.630		0		0		0		0		0		0
COMERICA BANK		9-Aug-04		2.830		0		0		0		0		0		0
COMERICA BANK		20-Jul-04		2.630		0		0		0		0		0		0
COMERICA BANK		9-Jul-04		2.600		0		0		0		0		0		0
COMERICA BANK		20-Jul-04		2.830		0		0		0		0		0		0
TOTAL BANKS						0		0		0		0		0		0
Credit Type / Institution		Amortization Date		Rate of Interest		Amortization of Credits in Foreign Currency with foreign entities (Thousands of $)
						Time Interval
Banks						Current Year		Until 1 Year		Until 2 Years		Until 3 Years		Until 4 Years		Until 5 Years
						ST				LP
Financial Institutions
IFC		15-Feb-06		3.300		8,232		8,232		16,479		0		0		0
IFC		15-Sep-09		4.900		37,056		37,056		74,124		74,124		74,124		111,169
IFC		15-Sep-09		10.350		49,416		49,416		98,821		98,821		98,821		148,247
DEG		28-Dec-06		4.125		2,383		1,211		2,410		1,226		0		0
CITIBANK NA (Syndicate)		23-Jun-06		3.820		0		0		691,782		0		0		0
CITIBANK NA (Syndicate)		23-Dec-08		3.800		0		0				251,774		1,713,117		1,713,117
BBVA BANCOMER (Syndicate)		23-Dec-08		9.609		0		0		0		0		0		0
Varios Arrend.		31-Dec-10		8.400		3,110		0		6,676		7,356		8,105		24,944
BANCO SANTANDER MEXICANO		31-Jan-07		10.024		0		0		0		0		0		0
BANCO SANTANDER MEXICANO		31-Jan-07		7.797		0		0		0		0		0		0
INBURSA		31-Aug-04		12.540		0		0		0		0		0		0
INBURSA		28-Feb-07		12.900		0		0		0		0		0		0
BANAMEX-CITIBANK		16-May-08		8.061		0		0		0		0		0		0
COMERICA BANK		26-Jul-04		2.670		57,649		0		0		0		0		0
COMERICA BANK		13-Dec-04		3.895		92,238		0		0		0		0		0
COMERICA BANK		9-Jul-04		2.630		18,217		0		0		0		0		0
COMERICA BANK		19-Jul-04		2.630		12,567		0		0		0		0		0
COMERICA BANK		9-Aug-04		2.830		17,675		0		0		0		0		0
COMERICA BANK		20-Jul-04		2.630		5,938		0		0		0		0		0
COMERICA BANK		9-Jul-04		2.600		3,793		0		0		0		0		0
COMERICA BANK		20-Jul-04		2.830		2,744		0		0		0		0		0
TOTAL BANKS						311,018		95,915		890,292		433,301		1,894,167		1,997,477

 

LISTED IN THE MEXICAN STOCK EXCHANGE		Amortization Date		Rate of Interest		Denominated in Pesos
						Until 1 Year		More Than 1 Year
UNSECURED DEBT
UDIBONOS		10/21/2006		9.00		0		1,105,368
UDIBONOS		7/13/2007		8.20		0		1,216,480
						0		2,321,848
TOTAL STOCK EXCHANGE
SUPPLIERS
OTHERS						852,066		0
TOTAL SUPPLIERS						852,066		0
OTHERS						1,254,055		0
OTHER CURRENT LIABILITIES AND OTHER CREDITS						1,254,055		0
						2,132,020		3,212,993

 

LISTED IN THE MEXICAN STOCK EXCHANGE		Amortization Date		Rate of Interest		Amortization of Credits in Foreign Currency with National Entities (Thousands of $)
						Time Interval
						Current Year		Until 1 Year		Until 2 Years		Until 3 Years		Until 4 Years		Until 5 Years
UNSECURED DEBT
UDIBONOS		10/21/2006		9.00		0		0		0		0		0		0
UDIBONOS		7/13/2007		8.20		0		0		0		0		0		0
						0		0		0		0		0		0
TOTAL STOCK EXCHANGE
SUPPLIERS
OTHERS						0		0		0		0		0		0
TOTAL SUPPLIERS						0		0		0		0		0		0
OTHERS						0		0		0		0		0		0
OTHER CURRENT LIABILITIES AND OTHER CREDITS						0		0		0		0		0		0
						0		0		0		0		0		0
LISTED IN THE MEXICAN STOCK EXCHANGE		Amortization Date		Rate of Interest		Amortization of Credits in Foreign Currency with foreign entities (Thousands of $)
						Time Interval
						Current Year		Until 1 Year		Until 2 Years		Until 3 Years		Until 4 Years		Until 5 Years
UNSECURED DEBT
UDIBONOS		10/21/2006		9.00		0		0		0		0		0		0
UDIBONOS		7/13/2007		8.20		0		0		0		0		0		0
						0		0		0		0		0		0
TOTAL STOCK EXCHANGE
SUPPLIERS						0
OTHERS						0		1,277,649		0		0		0		0
TOTAL SUPPLIERS						0		1,277,649		0		0		0		0
OTHERS						0		410,647		0		0		0		0
OTHER CURRENT LIABILITIES AND OTHER CREDITS						0		410,647		0		0		0		0
						311,018		1,784,211		890,292		433,301		1,894,167		1,997,477

 

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Annex 6

MONETARY POSITION IN FOREIGN EXCHANGE

(Thousands of Pesos)

 

		DOLLARS (1)				OTHER CURRENCIES				TOTAL THOUSANDS OF PESOS
TRADE BALANCE		THOUSANDS OF DOLLARS		THOUSANDS OF PESOS		THOUSANDS OF DOLLARS		THOUSANDS OF PESOS
TOTAL ASSETS		373,716		4,308,835		0		0		4,308,835
LIABILITIES POSITION		671,242		7,739,214		0		0		7,739,214
SHORT TERM LIABILITIES POSITION		182,173		2,100,395		0		0		2,100,395
LONG TERM LIABILITIES POSITION		489,069		5,638,819		0		0		5,638,819
NET BALANCE		-297,525		-3,430,379		0		0		-3,430,379

 

21

 

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STOCK EXCHANGE CODE:DESC		QUATER:2		YEAR: 2004

 

Annex 7

INTEGRATION AND INCOME CALCULATION BY MONETARY POSITION

(Thousands of Pesos)

 

MONTH		MONETARY ASSETS		MONETARY LIABILITIES		(ASSET) LIABILITIES MONETARY POSITION		MONTHLY INFLATION		MONTHLY (PROFIT) AND LOSS
JANUARY		8,510,174		17,409,609		-8,899,435		0.62		55,176
FEBRUARY		8,113,410		16,999,728		-8,886,318		0.60		53,318
MARCH		8,464,305		17,284,129		-8,819,824		0.34		29,987
APRIL		8,433,157		17,308,405		-8,875,248		0.15		13,313
MAY		8,971,625		15,240,257		-6,268,632		-0.25		-15,672
JUNE		9,046,923		15,147,581		-6,100,658		0.16		9,761
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
UPDATED INFORMATION
CAPITALIZATION										-11,745
FOREIGN CORP.
OTHER
TOTAL										134,138

 

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STOCK EXCHANGE CODE:DESC		QUATER:1		YEAR: 2004

 

Bonds and Medium Term Notes Listing in Stock Market (1)

 

Annex 8

 

Financial Covenants Based on Issuances or Instruments

 

-1 Interest Coverage.

 

The amount obtained by dividing the sum of (i) the consolidated operating profit plus depreciation and amortization during the immediately prior 4 full fiscal quarters by (ii) consolidated financial expense during such period. The borrower will not permit the ratio to be less than 2.25 for such period.

 

-2 Capitalization.

 

The amount obtained by dividing, (i) total debt with cost minus cash plus fifty million dollars, by (ii) net assets plus total debt with cost minus cash plus fifty million dollars. The borrower will not permit the ratio to be higher than .55 times.

 

-3 Leverage Ratio.

 

The amount obtained by dividing (i) total debt with cost minus cash plus fifty million dollars, by (ii) the sum of the consolidated operating profit plus depreciation and amortization during the immediately prior 4 full fiscal quarters. The borrower will not permit the ratio to exceed 4.35 times.

 

Current Status of Financial Covenants

 

(1) Interest Coverage.		2.67
(2) Capitalization.		0.40
(3) Leverage Ratio.		4.09

 

23

 

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MEXICAN STOCK EXCHANGE

SIFIC / ICS

 

STOCK EXCHANGE CODE:DESC		QUARTER:2		YEAR: 2004

 

PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS

 

ANNEX 9		CONSOLIDATED

 

		PLANT OR CENTER		ECONOMIC ACTIVITY		PLANT CAPACITY (1)		UTILIZATION %
		EJES TRACTIVOS, S.A. DE C.V.		REAR AXLES ASSEMBLY (ENSAMBLADO)		320		22	%
		EJES TRACTIVOS, S.A. DE C.V.		REAR AXLES TRACTOR LINE (PIECES)		565		92	%
		PISTONES MORESA, S.A. DE C.V. (SALTILLO)		PISTONS (PIECES)		1,200		72	%
		PISTONES MORESA, S.A. DE C.V. (CELAYA)		PISTONS (PIECES)		11,800		35	%
		MORESTANA, S.A. DE C.V.		TAPPETS (PIECES)		14,238		51	%
		PISTONES MORESA, S.A. DE C.V.		PISTON PINS (PIECES)		23,500		46	%
		ENGRANES CONICOS, S.A. DE C.V.		GEARS (SETS)		933		91	%
		PRODUCTOS ESTAMPADOS DE MEXICO, S.A. DE C.V.		STAMPED (A) (STROKES)		32,000		24	%
		VELCON, S.A. DE C.V.		CONSTANT VELOCITY JOINTS (PIECES)		2,900		64	%
		TRANSMISIONES TSP, S.A DE C.V.		TRANSMISSIONS (MEDIUM & HEAVY TRANSMISSIONS)		69		34	%
		TREMEC, S.A. DE C.V.		TRANSMISSIONS (LIGHT TRANSMISSIONS)		282		57	%
		TREMEC, S.A. DE C.V.		TRANSMISSIONS (HEAVY DUTTY COMPOMENTS)		2,267		55	%
		CARDANES, S.A. DE C.V.		PROPELLER SHAFTS ASSEMBLY (ENSAMBLE) (PIECES)		585		50	%
		CARDANES, S.A. DE C.V.		PROPELLER SHAFTS TRACTOR LINE (PIECES)		756		84	%
		HAYES WHEELS ACERO, S.A. DE C.V.		STEEL WHEELS (PIECES)		6,100		38	%
		AUTOMETALES, S.A. DE .CV.		IRON FOUNDRY (TONS.)		24		82	%
		TF VICTOR, S.A. DE C.V.		GASKETS, SEALS, MOTOR PARTS (PIECES)		24,275		42	%
		FORJAS SPICER, S.A. DE C.V.		PRECISION FORGES (TONS.)		50		72	%
1		COATZACOALCOS, VER.		POLYSTYRENE (TONS)		75,000		94	%
2		XICOHTZINGO,TLAX.		POLYSTYRENE (TONS)		75,000		63	%
3		ALTAMIRA, TAMPS. (Dynasol)		SYNTHETIC RUBBER (TONS)		84,000		99	%
4		ALTAMIRA, TAMPS. (INSA)		SYNTHETIC RUBBER (TONS)		96,000		82	%
5		ALTAMIRA, TAMPS. (PARATEC)		SYNTHETIC RUBBER (TONS)		24,000		57	%
6		COATZACOALCOS, VER.		PHOSPHATE (TONS)		100,000		100	%
7		TULTITLAN, EDO. MEX.		PHOSPHATE (TONS)		85,000		68	%
8		LECHERIA, EDO. MEX.		PHOSPHATE (TONS)		40,000		42	%
9		ALTAMIRA, TAMPS.		CARBON BLACK (TONS)		120,000		99	%
10		OCOYOACAC, EDO. MEX.		ACRYLIC SHEET (TONS)		7,740		100	%
11		SAN LUIS POTOSI. S.L.P.		ACRYLIC SHEET (TONS)		5,007		100	%
12		LERMA, EDO. MEX.		MELAMINE LAMINATES (K M2)		4,700		81	%
13		ZITACUARO, MICH.		PARTICLE BOARD (K M2)		10,270		100	%

 

OBSERVACIONES:

 

MEXICAN STOCK EXCHANGE

SIFIC / ICS

 

STOCK EXCHANGE CODE:DESC		QUARTER:2		YEAR: 2004

 

PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS

ANNEX 9

 

		PLANT OR CENTER		ECONOMIC ACTIVITY		PLANT CAPACITY (1)		UTILIZATION %
1		MERIDA		MILL (ton/month)		25,000		85	%
2		IRAPUATO		MILL (ton/month)		12,000		15	%
3		PENINSULA		HOG (thousands)		35		100	%
4		MÉRIDA		SLAUGHTER HOUSE		222		90	%
5		PENJAMO		SLAUGHTER HOUSE		125		100	%
7		MOCHIS (SANTA ROSA)		FRESH TOMATO PROCESSING (TONS/DAY IN 100 DAYS)		3,000		6	%
8				TOMATO PRODUCTS IN TETRABRIK CONTAINER (MILLION OF CASES)		6		93.0	%
		MOCHIS (LA CORONA)		CANNED VEGETABLES (TONS)		72,567		40	%
				CANNED VEGETABLES (MILLIONS OF CASES)		7		40	%
9		MAZATLAN		TUNA (thousands boxes)		2,500		74.0	%
		OAXACA		COFEE (TONS/MONTH)		212.00		56.8	%
10		ROSEMEAD, CALIFORNIA		SALSA & CANNED VEGETABLES (thousands lb)		166,226		23.0	%
11
12

 

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MEXICAN STOCK EXCHANGE

SIFIC / ICS

 

STOCK EXCHANGE CODE:DESC		QUARTER: 2		YEAR: 2004

 

MAIN RAW MATERIALS

 

ANNEX 10		CONSOLIDATED

 

DOMESTIC

MAIN SUPPLIERS

FOREIGN

MAIN SUPPLIERS

DOM. SUBST.

COST PRODUCTION %

1

LAMINATE

HYLSA, S. A. DE C.V.

STEEL

MC STEEL

NO

2

STEEL

INDUSTRIAS CH, S. A.

STEEL

MITSUBISHI

YES

3

ALUMINUM

NACOBRE

LAMINATE

NISHO OWAI

NO

4

COLOR PAINTS

P.P.G. INDUSTRIAS DE MEXICO, S. A. DE C.V.

STEEL

TOTH INDUSTRIES

NO

5

LAMINATE

AHMSA

AUTOMOTIVE PARTS

DANA CO.

NO

6

COLOR PAINTS

DUPONT DE MEXICO

FORGE

GSB FORJA

NO

7

RODAMIENTOS

KOYO DE MEXICO

LAMINATE

DAEWOO CORP.

NO

8

RODAMIENTOS

TIMKEM

ALUMINUM

REYNOLDS METAL

YES

9

LAMINATE

GENERAL MOTORS

RODAMIENTOS

THE TIMKEN CO.

NO

10

FORGE

THYSSEN PRECISION FORGE

NO

11

12

13

STYRENE

PEMEX

STYRENE

STERLING, MITSUI

14

BUTADIEN

BUTADIEN

SHELL, POLIMERI EUROPA, BP CHEMICAL,

15

EQUISTAR, SABIC, REPSOL QUIMICA

16

METHANOL

PEMEX

METHANOL

CELANESE, PETROCEL

17

TOLUEN

PEMEX

18

19

NATURAL GAS

PEMEX

20

PHOSPHORIC ACID MERCANTILE

RHODIA MEXICANA

21

PHOSPHORIC ACID (TECHNICAL)

RHODIA MEXICANA

22

ACETOCYANOHIDRINE

BP CHEMICAL

23

24

FRESH JALAPEÑO

OWN PRODUCTION & FRESH MARKET ( VARIOUS )

25

FRESH TOMATO

OWN PRODUCTION & FRESH MARKET ( VARIOUS )

26

FRESH TOMATILLO

OWN PRODUCTION & FRESH MARKET ( VARIOUS )

27

TETRABRIK CONTAINER

TETRAPAK

28

METALLIC CAN

GRUPO ZAPATA

29

METALLIC CAN

ZAPATA ENVASES

30

CORN OIL

ARANCIA CORN PRODUCTS

31

SHIPPING CARTON

CELULOSA Y CORRUGADOS

32

SHIPPING CARTON

EMPAQUE DE CARTON TITAN

33

TOMATO PASTE

MORNING STAR

OK

34

REYNOLD´S ITEMS

REYNOLDS

35

VARIOUS

36

METALLIC CAN

ENVASES DE SINALOA

37

DIESEL

PEMEX

38

VEGETABLES

RIO FARMS

39

VEGETABLES

WOOLF ENTERPRISES

40

PACKAGING MATERIAL - GLASS

OWENS BROCKWAY

41

PACKAGING MATERIAL - CANS

PECHINEY PLASTIC

42

HOG GENETIC

PIC

GRAIN

CARGILL

OK

 

25

 

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STOCK EXCHANGE CODE:DESC		QUARTER: 2		YEAR: 2004

 

Annex 11

 

SALES DISTRIBUTION BY PRODUCT

DOMESTIC SALES

 

MAIN PRODUCTS		Total Production				SALES				MARKET SHARES (%)		MAIN
		VOLUME		AMOUNT		VOLUME		AMOUNT				TRADEMARKS		CUSTOMERS
AUTOPARTS SECTOR				0		0		1,384,499
CHEMICAL SECTOR				0		0		2,272,167
FOOD SECTOR				0		0		1,445,463
REAL ESTATE SECTOR				0		0		624,691
COMPANIES OF OTHER SERVICES				0		0		6,934
TOTAL								5,733,754

 

SALES DISTRIBUTION BY PRODUCT

FOREIGN SALES

 

MAIN PRODUCTS		Total Production				SALES				MARKET SHARES (%)		MAIN
		VOLUME		AMOUNT		VOLUME		AMOUNT				TRADEMARKS		CUSTOMERS
AUTOPARTS SECTOR				0		0		2,858,922
CHEMICAL SECTOR				0		0		1,791,182
FOOD SECTOR				0		0		656,035
TOTAL								5,306,140

 

26

 

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STOCK EXCHANGE CODE:DESC		QUARTER: 2		YEAR: 2004

 

INTEGRATION OF THE PAID SOCIAL CAPITAL STOCK

CHARACTERISTICS OF THE SHARES

 

Series		Nominal Value		Valid Cupon		Number of Shares								Capital Stock (Thousands of Pesos)
						Fixed Portion		Variable Portion		Mexican		Unrestricted		Fixed		Variable
A		0.01300		20		1,166,108,597				—		1,166,108,597		15,159
B		0.01300		20				1,115,690,363		—		1,115,690,363				14,504
								—
Total						1,166,108,597		1,115,690,363		—		2,281,798,960		15,159		14,504

 

TOTAL NUMBER OF SHARES REPRESENTING THE PAID-IN CAPITAL STOCK ON THE DATE THE INFORMATION IS SENT:

 

2,281,798,960

 

SHARES PROPORTION BY:

CPO´S:

UNITS:

ADRS´s:

GDRS´s:

ADS´s:

GDS´s:

 

				Repurchased own shares
				Market value of the share
Series		Number of Shares		At repurchase		At Quarter

 

27

 

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---

General Data of the Issuer:
Corporate Name:		Desc, S.A. de C.V.
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		eloy.vega@desc.com.mx
Internet Address		www.desc.com.mx
Fiscal Data of the Issuer:
RFC of Company:		DES9405182F1
Domicile:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Responsibility for Payments:
Name:		Lic. Jorge Francisco Padilla Ezeta
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		jorge.padilla@desc.com.mx
Data with respect to officers:
Mexican Stock
Exchange equivalent:		Chairman of the Board of Directors
Title at company:		Chairman and Chief Executive Officer
Name:		Mr. Fernando Senderos Mestre
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
Mexican Stock
Exchange equivalent:		General Manager
Title at company:		Chief Executive Corporate Area
Name:		Ing. Juan Marco Gutierrez Wanless
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		juan.gwanless@desc.com.mx
Mexican Stock
Exchange equivalent:		Chief Financial Officer
Title at company:		Director of Finance
Name:		Lic. Arturo D’Acosta Ruiz
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		arturo.dacosta@.desc.com.mx
Mexican Stock
Exchange equivalent:		Officer in Charge of Sending Quarterly Financial Information
Title at company:		Corporate Manager of Financial Information
Name:		Lic. Jorge Francisco Padilla Ezeta
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		jorge.padilla@desc.com.mx
Mexican Stock
Exchange equivalent:		Alternate Officer in Charge of Sending Quarterly Financial Information
Title at company:		Corporate Comptroller
Name:		Lic. Eduardo Philibert Garza
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-96
E-Mail:		eduardo.philibert@desc.com.mx
Mexican Stock
Exchange equivalent:		Officer Responsible for Legal Affairs
Title at company:		General Counsel
Name:		Lic. Ramon Estrada Rivera
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-97
E-Mail:		ramon.estrada@desc.com.mx
Mexican Stock
Exchange equivalent:		Secretary of the Board of Directors
Title at company:		Secretary of the Board of Directors
Name:		C.P. Ernesto Vega Velasco
Address:		Bosque de Ciruelos No. 130 Room 1203
City:		Bosques de las Lomas
Zip Code:		11700
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-60
E-Mail:		ernesto.vega@desc.com.mx
Mexican Stock
Exchange equivalent:		Officer in Charge of Providing Information to Investors
Title at company:		Corporate Manager of Financial Information
Name:		Lic. Jorge Francisco Padilla Ezeta
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-97
E-Mail:		jorge.padilla@desc.com.mx
Mexican Stock
Exchange equivalent:		Officer Authorized to Send Information via Emisnet
Title at company:		Chief Financial Officer
Name:		Lic. Arturo D’Acosta Ruiz
Address:		Paseo de los Tamarindos 400-B
City:		Bosques de las Lomas
Zip Code:		5120
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-98
E-Mail:		arturo.dacosta@desc.com.mx
Mexican Stock
Exchange equivalent:		Officer Authorized to Send Relevant Events via Emisnet
Title at company:		Secretary of the Board of Directors
Name:		C.P. Ernesto Vega Velasco
Address:		Bosque de Ciruelos No. 130 Room 1203
City:		Bosques de las Lomas
Zip Code:		11700
State:		Mexico, D.F.
Telephone:		52-61-80-00
Fax:		52-61-80-60
E-Mail:		ernesto.vega@desc.com.mx

 

28

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				Desc, S.A. de C.V.
				(Registrant)
Date: July 28, 2004		By		/s/ Arturo D’Acosta Ruiz
				(Signature)
		Name:		Arturo D’Acosta Ruiz
		Title:		Chief Financial Officer