UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of April , 2004
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Commission File Number: 001-13196
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DESC, S.A. DE C.V.
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(Translation of registrant's name into English)
PASEO DE LOS TAMARINDOS 400-B, BOSQUES DE LAS LOMAS, 05120 MEXICO, D.F., MEXICO
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(Address of principal executive office)
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 |X| 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 |X|
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________
The following is included in this report on Form 6-K:
Item
----
1. English translation of a summary of the resolutions adopted
at the Registrant's annual ordinary shareholders' meeting
2. Consolidated Financial Statements of Desc Automotriz, S.A.
de C.V. for the years ended December 31, 2003 and 2002,
together with the independent auditors' report
3. Consolidated Financial Statements of the Registrant for the
years ended December 31, 2003 and 2002, together with the
independent auditors' report
4. English Translation of a Press Release, dated April 27,
2004, announcing Registrant's First Quarter 2004 results
5. Consolidated Financial Statements of Registrant, at March
31, 2004 and 2003, in the format required to be filed with
the Mexican Stock Exchange
Item 1
desc
SUMMARY OF THE RESOLUTIONS ADOPTED AT THE ANNUAL ORDINARY
SHAREHOLDERS' MEETING OF DESC, S.A. DE C.V.,
HELD ON APRIL 26, 2004.
I. PRESENTATION OF THE REPORT OF THE BOARD OF DIRECTORS, AS PROVIDED IN ARTICLE
172 OF THE GENERAL CORPORATIONS LAW AND THE REPORT OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS, REGARDING THE FISCAL YEAR ENDED DECEMBER 31, 2003 AND
RESOLUTIONS REGARDING SUCH REPORTS.
The Report referred to in the general provision of Article 172 of the General
Law of Commercial Companies was deemed submitted, as was the Report of the Board
of Directors Audit Committee, for the fiscal year from January 1 and December
31, 2003, which were available to the shareholders in advance of the meeting in
accordance with the applicable provisions, together with the consolidated and
unconsolidated Financial Statements of the Company and of the subsidiaries where
the Company's investment exceeds 20% of its consolidated net worth, as well as
those that contribute more than 10% to the total assets or profits of DESC, S.A.
de C.V., duly audited by the external auditors (Desc Automotriz, S.A. de C.V.
and Cantiles de Mita, S.A. de C.V.)
II. RATIFICATION OF THE ACTIONS UNDERTAKEN BY THE BOARD OF DIRECTORS AND THE
BOARD COMMITTEES DURING SAID FISCAL YEAR.
Any and all of the actions taken by the Board of Directors of DESC, S.A. de C.V.
and its Committees during the fiscal year ended December 31, 2003 were
unanimously approved and ratified.
III. DISCUSSION, APPROVAL OR MODIFICATION, IF APPROPRIATE, OF THE FINANCIAL
STATEMENTS OF THE CORPORATION AS OF DECEMBER 31, 2003, WITH THE PRIOR READING OF
THE REPORT OF THE STATUTORY EXAMINER.
The consolidated and unconsolidated financial statements of the Company through
December 31, 2003, were unanimously approved, consisting of the General Balance
Sheet, the Profit and Loss Statement, the Statement of Stockholders Equity and
the Statement of Changes in the Financial Situation of DESC, S.A. de C.V., with
their Notes, audited by the company's external auditors, in the form that they
were presented at the Shareholders' Meeting, upon prior reading of the Statutory
Auditor's Report.
IV. RESOLUTIONS ON THE APPLICATION OF RESULTS.
The net loss for the fiscal year, which is in the amount of $2,240'386,163.23
pesos, Mexican Currency, was applied against the Accumulated Profit Account.
V. ELECTION OR REELECTION, AS THE CASE MAY BE, OF THE MEMBERS OF THE BOARD OF
DIRECTORS, AS WELL AS THE BOARD COMMITTEE MEMBERS, AND THE STATUTORY EXAMINERS.
a) Pursuant to Clause Twenty-Sixth of the bylaws, it was resolved that the Board
of Directors will be comprised of 11 Directors, of which 6 Directors shall be
elected by majority vote of the Series "A" shares represented at the
Shareholders' Meeting and 5 Directors shall be elected by majority vote of the
Series "B" shares represented at the Shareholders' Meeting.
b) By unanimous vote of those present, the following persons were elected
members of the Board of Directors of DESC, S.A. de C.V., who being present or
having had knowledge of their possible election, have given their acceptance of
their appointments.
BOARD OF DIRECTORS
SERIES "A" DIRECTORS
FERNANDO SENDEROS MESTRE Patrimonial/ Related
ALBERTO BAILLERES GONZALEZ Related
PABLO JOSE CERVANTES BELAUSTEGUIGOITIA Independent
FEDERICO FERNANDEZ SENDEROS Patrimonial/ Related
CARLOS GOMEZ Y GOMEZ Patrimonial/ Related
ERNESTO VEGA VELASCO Related
SERIES "B" DIRECTORS
RUBEN AGUILAR MONTEVERDE Independent
VALENTIN DIEZ MORODO Independent
CARLOS GONZALEZ ZABALEGUI Independent
PRUDENCIO LOPEZ MARTINEZ Independent
LUIS TELLEZ KUENZLER Related
c) For purposes of the provisions of the Code of Better Corporate Practices, it
was recorded that of the 11 Directors elected at the Shareholders' Meeting, that
the company to date has 3 Related Patrimonial Directors; 5 Independent
Directors; and 3 Related Directors.
2
d) It was resolved that the Evaluation and Compensation Committee be composed of
3 Directors; the Audit Committee, by 3 Directors; and the Finance and Planning
Committee, by 4 Directors.
e) The following Directors were appointed members to the Executive, Evaluation
and Compensation, Audit, and Finance and Planning Committees:
EVALUATION AND COMPENSATION COMMITTEE
VALENTIN DIEZ MORODO
CARLOS GONZALEZ ZABALEGUI
ERNESTO VEGA VELASCO Chairman
AUDIT COMMITTEE
RUBEN AGUILAR MONTEVERDE
PRUDENCIO LOPEZ MARTINEZ Chairman
ERNESTO VEGA VELASCO
FINANCE AND PLANNING COMMITTEE
FERNANDO SENDEROS MESTRE Chairman
FEDERICO FERNANDEZ SENDEROS
CARLOS GOMEZ Y GOMEZ
ERNESTO VEGA VELASCO
f) Messrs. Jose Manuel Canal Hernando and Daniel del Barrio Burgos were,
respectively, appointed to the offices of Statutory Examiner and Alternate
Statutory Examiner.
g) The dissolution of the Executive Committee was approved by the shareholders,
and the Chief Executive Officer will assume the Committee's duties.
VI. RESOLUTION ON THE COMPENSATION TO THE DIRECTORS AND THE STATUTORY EXAMINERS.
It was resolved that the members of the Board of Directors, and the Statutory
Auditors, whether or not Alternates, of DESC, S.A. de C.V., will continue
receiving a fee of $25,000.00 Mexican Currency (TWENTY-FIVE THOUSAND AND 00/100
PESOS, MEXICAN CURRENCY) for each Board of Directors Meeting that they attend,
and for each meeting that they attend of the Evaluation and Compensation, Audit,
and Finance and Planning Committees.
Further, the Committees were authorized to incur, as applicable, additional
expenses on studies or work required to fulfill their functions, provided that
any such expenses must be duly explained and approved by the Chairman of the
Board of Directors.
3
The aforesaid remuneration and additional expenses shall be paid by charging the
General Expense Account corresponding to the fiscal year when they are actually
paid.
VII. REPORT OF THE BOARD OF DIRECTORS, AS PROVIDED IN ARTICLE 60, SECTION III OF
THE GENERAL RULES APPLICABLE TO SECURITIES' ISSUERS AND OTHER PARTICIPANTS OF
THE SECURITIES MARKET ISSUED BY THE NATIONAL BANKING AND SECURITIES COMMISSION.
The Secretary of the Board of Directors reported that, in accordance with
Article 60, Section III of the General Provisions Applicable to Securities'
Issuers and Other Participants in the Securities Market issued by the National
Banking and Securities Commission, no repurchase operations of the Desc's shares
were completed during fiscal year 2003.
VIII. DESIGNATION OF DEPUTIES TO FORMALIZE THE RESOLUTIONS ADOPTED AT THE
MEETING.
Messrs. Fernando Senderos Mestre, Ernesto Vega Velasco, Juan Marco Gutierrez
Wanless, Arturo D'Acosta Ruiz, Ramon F. Estrada Rivero y Fabiola G. Quezada
Nieto were named as Delegates of this Shareholders Meeting in order that,
jointly or severally, they carry out the acts necessary to formalize and
effectuate the resolutions adopted by this Shareholders Meeting, and process the
formalization before a Notary Public of these minutes in relevant part, signing
the relevant instrument, and process themselves or through a third party, their
recording with the Public Registry of Commerce.
IX. READING AND APPROVAL OF THE MINUTES OF THIS MEETING.
The minutes were approved in all their terms, which were prepared and read by
the Secretary. The Chairman, the Secretary and the Statutory Examiner are
authorized to sign them for the record.
4
Item 2
Desc Automotriz, S. A. de C. V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Consolidated Financial Statements
For the Years Ended December 31, 2003 and 2002, and Independent Auditors' Report
Dated January 23, 2004
Desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Independent Auditors' Report and Consolidated
Financial Statements 2002 and 2003
Table of contents Page
Independent Auditors' Report 1
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Changes in Financial Position 6
Notes to Consolidated Financial Statements 8
2
Independent Auditors' Report to the
Board of Directors and Stockholders of
Desc Automotriz, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of Desc Automotriz,
S.A. de C.V. and subsidiaries (the "Company") as of December 31, 2002 and 2003,
and the related consolidated statements of operations, changes in stockholders'
equity and changes in financial position for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements of the Company as of December
31, 2001 and for the year then ended was audited by other auditors who expressed
an unqualified opinion in their report dated January 24, 2002.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico and United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and that they are prepared in
accordance with accounting principles generally accepted in Mexico. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the accompanying consolidated financial statements, as
of December 31, 2003, the Company early adopted the provisions of new Bulletin
C-15, "Impairment in the Value of Long-lived Assets and their Disposal", which
establishes that an impairment loss has occurred if the present value of
estimated net future cash flows of a cash generating unit is less than the book
value of long-lived assets, tangible or intangible. The effect in thousands of
Mexican pesos derived from the application of this principle was the recognition
of Ps.676,312, of impairment in the value of certain property, plant and
equipment. The charge to 2003 results was Ps.446,366, net of a reduction of
Ps.229,946 in the deferred income tax liability.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Desc Automotriz, S.A. de C.V. and
subsidiaries as of December 31, 2002 and 2003, and the results of their
operations, changes in their stockholders' equity and changes in their financial
position for the years then ended in conformity with accounting principles
generally accepted in Mexico.
Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with accounting principles generally
accepted in Mexico but do not conform with accounting principles generally
accepted in the United States of America (US GAAP). A description of these
differences and a reconciliation of majority net income and stockholders' equity
to US GAAP as permitted by the regulations of the US Securities and Exchange
Commission, which allows omission of the requirement to quantify, in the US GAAP
reconciliation, the differences attributable to the effects of comprehensive
inflation adjustments recorded locally, are set forth in Notes 25 and 26.
2
Our audit also comprehended the translation of the Mexican peso amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2. The translation of the financial
statement amounts into US dollars and the translation of the financial
statements into English have been made solely for the convenience of readers in
the United States of America.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member firm of Deloitte Touche Tohmatsu
/s/ Luis Javier Fernandez Barragan
C. P. C. Luis Javier Fernandez Barragan
Mexico City, Mexico
January 23, 2004
2
desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Consolidated Balance Sheets
As of December 31, 2002 and 2003
(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2003
and thousands of U.S. dollars ($))
Assets
2002 2003 2003
Current assets:
Cash and temporary investments Ps. 721,881 Ps. 145,098 $ 12,955
Accounts and notes receivable, net 780,856 1,013,732 90,513
Accounts receivable from parent company and related
parties 30,536 972,458 86,828
Inventories, net 1,106,852 1,086,928 97,049
Prepaid expenses 16,659 10,548 942
Discontinued operations 4,319 4,199 375
-------------- -------------- --------------
Total current assets 2,661,103 3,232,963 288,662
Property, plant and equipment, Net 6,528,678 5,550,909 495,627
Noncurrent assets of discontinued operations 111,331 16,402 1,464
Other assets, net 237,402 144,678 12,918
Employee retirement obligation intangible asset 13,124 12,010 1,072
-------------- -------------- --------------
Ps. 9,551,638 Ps. 8,956,962 $ 799,743
============== ============== ==============
Liabilities and stockholders' equity
2002 2003 2003
Current:
Bank loans and current portion of long-term debt Ps. 1,134,264 Ps. 173,186 $ 15,463
Current portion due to Desc, .S.A. de C.V -- 349,294 31,188
Notes and accounts payable to suppliers 718,420 432,739 38,639
Accounts payable to related parties 166,782 86,703 7,741
Other payables and accrued liabilities 382,536 361,514 32,279
Income taxes, asset taxes and employee profit sharing 280,610 164,129 14,655
Discontinued operations 31,193 4,915 439
-------------- -------------- --------------
Total current liabilities 2,713,805 1,572,480 140,404
Long-term debt 5,455 -- --
Due to Desc, S. A. de C. V. (parent company) -- 1,262,681 112,741
Employee retirement obligations -- 28,599 2,553
Deferred income tax 1,074,046 539,977 48,213
Additional liability for employee retirement obligations 170,374 156,306 13,956
-------------- -------------- --------------
Total liabilities 3,963,680 3,560,043 317,867
-------------- -------------- --------------
Stockholders' equity:
Common stock 2,825,547 2,825,547 252,286
Earned surplus from restructuring of subsidiary 68,438 68,438 6,110
Retained earnings 2,261,659 1,810,797 161,681
Cumulative initial effect of deferred income taxes (1,144,105) (1,144,105) (102,154)
Cumulative effect of restatement (434,047) (301,887) (26,955)
Adjustment of additional liability for employee
retirement obligations (87,164) (81,658) (7,291)
-------------- -------------- --------------
Majority stockholders' equity 3,490,328 3,177,132 283,677
Minority interest 2,097,630 2,219,787 198,199
-------------- -------------- --------------
Total stockholders' equity 5,587,958 5,396,919 481,876
-------------- -------------- --------------
Ps. 9,551,638 Ps. 8,956,962 $ 799,743
============== ============== ==============
See accompanying notes to consolidated financial statements.
3
desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Consolidated Statements of Operations
For the years ended December 31, 2001, 2002 and 2003
(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2003
and thousands of U.S. dollars ($) except per share information)
2001 2002 2003 2003
Net sales Ps. 10,158,203 Ps. 8,732,651 Ps 7,820,304 $ 698,254
Cost of sales 7,675,805 6,878,401 6,500,085 580,375
-------------- -------------- -------------- --------------
Gross profit 2,482,398 1,854,250 1,320,219 117,879
Operating expenses:
Administrative 1,115,157 1,019,583 911,236 81,362
Selling 222,761 190,522 182,313 16,278
-------------- -------------- -------------- --------------
1,337,918 1,210,105 1,093,549 97,640
-------------- -------------- -------------- --------------
Income from operations 1,144,480 644,145 226,670 20,239
Other expenses (income):
Special item - severance indemnities 137,005 -- 85,653 7,648
Income earned on trust funds (37,020) (29,117) (23,828) (2,128)
Loss for sale and impairment of fixed assets 6,699 10,388 9,596 857
Clean-up of accounting records -- 29,702 -- --
Other, net 53,631 41,239 8,258 737
-------------- -------------- -------------- --------------
160,315 52,212 79,679 7,114
Integral financing cost:
Interest income (61,315) (51,500) (34,057) (3,041)
Interest expense 197,577 107,361 84,211 7,519
Exchange loss, net (65,818) 130,764 121,097 10,812
Monetary position gain (69,128) (3,689) 4,061 363
-------------- -------------- -------------- --------------
1,316 182,936 175,312 15,653
-------------- -------------- -------------- --------------
Income (loss) from continuing operations before provisions 982,849 408,997 (28,321) (2,528)
Provisions for:
Current income taxes 484,436 463,830 297,286 26,544
Deferred income taxes (210,146) (228,494) (422,072) (37,686)
Asset taxes 1,116 -- 4,675 417
Employee profit sharing 119,927 95,151 68,719 6,137
-------------- -------------- -------------- --------------
395,333 330,487 (51,392) (4,588)
-------------- -------------- -------------- --------------
Income from continuing operations 587,516 78,510 23,071 2,060
Income (loss) from discontinued operations (17,150) (81,325) 31,430 2,806
Extraordinary item -- (40,637) -- --
Cumulative effect of change in accounting principle -- -- (446,366) (39,855)
-------------- -------------- -------------- --------------
Consolidated net income (loss) Ps. 570,366 Ps. (43,452) Ps (391,865) $ (34,989)
============== ============== ============== ==============
Allocation of consolidated net income:
Majority interest Ps. 374,611 Ps. (101,574) Ps (415,033) $ (37,058)
Minority interest 195,755 58,122 23,168 2,069
-------------- -------------- -------------- --------------
Ps. 570,366 Ps. (43,452) Ps. (391,865) $ (34,989)
============== ============== ============== ==============
Earning per share:
Income from continuing operations Ps. 0.5589 Ps. 0.0291 Ps. (0.0001) $ (0.0000)
Income (loss) from discontinued operations (0.0244) (0.1160) 0.0448 0.0040
Extraordinary item -- (0.0580) -- --
Cumulative effect of change in accounting principle -- -- (0.6368) (0.0569)
-------------- -------------- -------------- --------------
Majority net income (loss) Ps. 0.5345 Ps. (0.1449) Ps. (0.5921) $ (0.0529)
============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
4
desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 2001, 2002 and 2003
(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2003
and thousands of U.S. dollars ($))
Earned Surplus
Common Stock from
Number -------------------------------- Restructuring Retained
of Shares Historical Restatement of Subsidiary Earnings
Balances as of January 1, 2001 700,968,216 Ps. 700,968 Ps. 2,124,579 Ps. -- Ps. 2,306,108
Dividends declared and paid -- -- -- -- (118,000)
Earned surplus from restructuring of
subsidiary -- -- -- 68,438 --
Decrease in equity of minority stockholders
from restructuring of subsidiary -- -- -- -- --
Consolidated comprehensive income -- -- -- -- 374,617
--------------- --------------- --------------- --------------- --------------
Balances as of December 3, 2001 700,968,216 700,968 2,124,579 68,438 2,562,725
Dividends declared and paid -- -- -- -- (199,492)
Consolidated comprehensive income -- -- -- -- (101,574)
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2002 700,968,216 700,968 2,124,579 68,438 2,261,659
Dividends declared and paid -- -- -- -- (35,829)
Consolidated comprehensive income (loss) -- -- -- -- (415,033)
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2003 700,968,216 Ps. 700,968 Ps. 2,124,579 Ps. 68,438 Ps. 1,810,797
=============== =============== =============== =============== ==============
Balances as of December 31, 2002 700,968,216 $ 62,588 $ 189,698 $ 6,110 $ 201,937
Dividends declared and paid -- -- -- -- (3,199)
Consolidated comprehensive income (loss) -- -- -- -- (37,057)
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2003 709,968,216 $ 62,588 $ 189,698 $ 6,110 $ 161,681
=============== =============== =============== =============== ==============
Adjustment of
Additional
Cumulative Liability for
Initial Effect Cumulative Employee Total
of Deferred Effect of Retirement Minority Stockholders'
Income Taxes Restatement Obligations Interest Equity
Balances as of January 1, 2001 Ps. (1,144,105) Ps. (372,356) Ps. -- Ps. 2,661,953 Ps. 6,277,147
Dividends declared and paid -- -- -- (402,094) (520,094)
Earned surplus from restructuring of
subsidiary -- -- -- -- 68,438
Decrease in equity of minority stockholders
from restructuring of subsidiary -- -- -- (250,087) (250,087)
Consolidated comprehensive income -- (204,484) -- 63,362 233,495
--------------- --------------- --------------- --------------- --------------
Balances as of December 3, 2001 (1,144,105) (576,840) -- 2,073,134 5,808,899
Dividends declared and paid -- -- -- (121,085) (320,577)
Consolidated comprehensive income -- 142,793 (87,164) 145,581 99,636
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2002 (1,144,105) (434,047) (87,164) 2,097,630 5,587,958
Dividends declared and paid -- -- -- -- (35,829)
Consolidated comprehensive income (loss) -- 132,160 5,506 122,157 (155,210)
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2003 Ps. (1,144,105) Ps. (301,887) Ps. (81,658) Ps. 2,219,787 Ps. 5,396,919
=============== =============== =============== =============== ==============
Balances as of December 31, 2002 $ (102,154) $ (38,755) $ (7,782) $ 187,292 $ 498,934
Dividends declared and paid -- -- -- -- (3,199)
Consolidated comprehensive income (loss) -- 11,800 491 10,907 (13,859)
--------------- --------------- --------------- --------------- --------------
Balances as of December 31, 2003 $ (102,154) $ (26,955) $ (7,291) $ 198,199 $ 481,876
=============== =============== =============== =============== ==============
See accompanying notes to consolidated financial statements.
5
Desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Consolidated Statements of Changes in Financial Position
For the years ended December 31, 2001, 2002 and 2003
(In thousands of Mexican pesos (Ps.) of purchasing power of December 31, 2003
and thousands of U.S. dollars ($))
2001 2002 2003 2003
Operating activities:
Income from continuing operations Ps. 587,516 Ps. 78,510 Ps. 23,071 $ 2,060
Add (deduct)- Items which did not require (generate)
resources-
Depreciation and amortization 737,420 778,200 750,105 66,975
Deferred income taxes (210,146) (228,494) (422,072) (37,686)
Net cost of employee benefits for the year 79,948 51,441 93,961 8,389
Loss for sale and impairment of fixed assets 6,699 10,388 7,109 635
Non-cash items from discontinued operations 1,493 (8,635) 3,014 269
----------- ----------- ----------- ---------
Net resources obtained from results 1,202,930 681,410 455,188 40,642
Change in working capital-
(Increase) decrease in-
Accounts and notes receivable, net 446,745 53,381 (232,876) (20,793)
Accounts receivable from parent company and related
parties (169,224) 542,510 (941,922) (84,102)
Inventories, net 595,345 (29,413) 126,731 11,315
Prepaid expenses 18,072 19,381 6,111 546
Trust funds (58,284) 291,969 -- --
Current asset from restructuring of subsidiary 104,646 -- -- --
Current assets of discontinued operations 25,659 65,775 120 11
Increase (decrease) in-
Notes and accounts payable to suppliers, other
payables and accrued liabilities (182,688) (191,480) (306,703) (27,385)
Accounts payable to related parties (17,945) 141,406 (80,079) (7,150)
Income taxes, asset taxes and employee profit sharing 175,409 (50,134) (116,481) (10,400)
Short-term liability from restructuring of subsidiary (38,617) -- -- --
Current liabilities of discontinued operations (31,286) 3,061 (26,278) (2,346)
----------- ----------- ----------- ---------
867,832 846,456 (1,571,377) (140,304)
----------- ----------- ----------- ---------
Net resources generated by (used in) operations
before other effects 2,070,762 1,527,866 (1,116,189) (99,662)
----------- ----------- ----------- ---------
Income (loss) from discontinued operating activities (17,150) (81,325) 31,430 2,806
Extraordinary item -- (40,637) -- --
Cumulative effect of change in accounting principle -- -- (446,366) (39,855)
----------- ----------- ----------- ---------
(17,150) (121,962) (414,936) (37,049)
----------- ----------- ----------- ---------
Net resources generated by (used in) operating
activities 2,053,612 1,405,904 (1,531,125) (136,711)
----------- ----------- ----------- ---------
Financing activities:
Variance in bank loans and current portion of long-term
debt in real terms (479,091) (483,718) (917,662) (81,936)
Variance in bank loans and current portion of long-term
debt from restructuring of subsidiary (148,418) -- -- --
Decrease in bank loans and current portion of long-term
debt due to restatement in constant Mexican pesos (104,304) (93,705) (43,416) (3,876)
Repayment of long-term debt (429,296) (138,005) (5,246) (468)
Decrease in long-term debt from restructuring of
subsidiary (37,944) -- -- --
Monetary effect on long-term debt (27,280) (8,177) (209) (19)
Due to Desc, S.A. de C.V. (Parent Company) -- -- 1,611,975 143,929
Dividends paid to majority stockholders (118,000) (199,492) (35,829) (3,199)
Dividends paid to minority stockholders of subsidiaries (402,094) (121,085) -- --
(Continued)
6
2001 2002 2003 2003
Decrease in minority interest from restructuring of
subsidiary (250,087) -- -- --
Earned surplus from restructuring of a subsidiary 68,438 -- -- --
Adjustment of additional liability for employee
retirement obligations -- (87,164) 5,506 492
Adjustment to additional liability for employee
retirement obligations - minority interest -- (13,058) (3,415) (305)
Deferred income taxes (214,846) 38,767 (111,997) (10,000)
Deferred income taxes from restructuring of subsidiary (94,661) -- -- --
Financing activities of discontinued operations (9,003) (720) -- --
----------- ----------- ----------- ---------
Net resources generated by (used in) financing
activities (2,246,586) (1,106,357) 499,707 44,618
----------- ----------- ----------- ---------
Investing activities:
Additions to property, plant and equipment (333,104) (806,046) (556,810) (49,716)
Net book value of retirements of property, plant and
equipment 200,867 169,368 264,796 23,644
Cumulative effect of change in accounting policy in
property, plant and equipment -- -- 676,312 60,386
Decrease in property, plant and equipment from
restructuring of subsidiary 269,327 -- -- --
Other assets (128,040) 101,715 (8,624) (770)
Other assets from restructuring of subsidiary 11,431 -- -- --
Decrease in employee retirement obligation intangible
asset -- 157,489 (12,954) (1,157)
Investing activities of discontinued operations (2,243) 5,499 91,915 8,207
----------- ----------- ----------- ---------
Net resources generated by (used in) investing
activities 18,238 (371,975) 454,635 40,594
----------- ----------- ----------- ---------
Net increase (decrease) in cash and temporary
investments (160,866) (72,428) (576,783) (51,499)
Decrease in cash and temporary investments from
restructuring of subsidiary (13,870) -- -- --
(Increase) decrease in cash and temporary investments
of discontinued operations 32,533 8,024 -- --
Cash and temporary investments at the beginning of the
year 928,489 786,286 721,881 64,454
----------- ----------- ----------- ---------
Cash and temporary investments at the end of the
year Ps. 786,286 Ps. 721,881 Ps 145,098 $ 12,955
=========== =========== =========== =========
Supplemental cash flow disclosures:
Income and asset taxes paid Ps. 419,982 Ps. 421,083 Ps 250,626 $ 22,378
=========== =========== =========== =========
Employee profit sharing paid Ps. 104,638 Ps. 111,063 Ps 78,921 $ 7,047
=========== =========== =========== =========
Interest paid Ps. 197,519 Ps. 104,945 Ps 69,895 $ 6,241
=========== =========== =========== =========
(Concluded)
See accompanying notes to consolidated financial statements.
7
Unil, S.A. de C.V.y Subsidiarias
Notas a los estados financieros consolidados al 31 de diciembre de 1998, 1999 y
2000 Expresadas en miles de pesos (Ps.) de poder adquisitivo del 31 de diciembre
de 2000 y miles de dolares americanos ($)
Desc Automotriz, S.A. de C.V. and Subsidiaries
(A Wholly-Owned Subsidiary of Desc, S.A. de C.V.)
Notes to Consolidated Financial Statements
For the years ended December 31, 2001, 2002 and 2003
(In thousands of Mexican pesos (Ps.) of purchasing power of
December 31, 2003 and thousands of U.S. dollars ($))
1. Activities and significant events
Activities - Desc Automotriz, S.A. de C.V. (DESC AUTOMOTRIZ or the Company)
is a subsidiary of Desc, S.A. de C.V. (DESC), representing the automotive
parts segment, and is the majority stockholder of a group of companies
engaged mainly in the manufacturing and distribution of pick-up truck
bodies, pistons, axles, transmissions, constant velocity and propeller
shafts, universal joints, gears, cardans joints, steel wheels and other
parts, as well as the manufacture of spare parts and accessories for the
automotive industry.
Significant events -
a. The economic decline experienced by the automotive industry in the
United States of America and Mexico in 2001, 2002 and 2003 resulted in
a decrease in customer demand for original equipment and spare parts,
as well as the termination of some contractual agreements. A decrease
in sales to Daimler Chrysler contributed to a significant decrease in
sales and operating margins of the Company. During 2002 and 2003 DESC
began two new programs "Evolucion" and "Evolucion II". The objectives
of these programs are to i) review the company's investment portfolio
to maximize profitable investments and ii) to align the operating
structure of the Company with market demands. Consequently, the
Company decided to shut down the spark plug and electrical part plants
due to the low profitability of those businesses and began a personnel
reduction program that continues during 2003 (see Notes 19 and 20).
b. In the Extraordinary General Stockholder Meeting held on November 27,
2002, the stockholders approved a change in the name of the Company
from Unik, S.A. de C.V. to Desc Automotriz, S.A. de C.V. effective as
of that date.
c. On October 18, 2001, a shareholder restructuring took place at Moresa,
S.A. de C.V. (MORESA) a Subsidiary which engages in the manufacturing
of pistons, bolts and followers/valve lifters, and the sale of
automotive engine components. Such restructuring consisted of the
exchange of MORESA equity in Forjas y Maquinas, S.A. de C.V. (FOMASA),
representing 60% of the capital stock, for 40% of the equity in
Pistones Moresa, S.A. de C.V., Morestana, S.A. de C.V. and
Comercializadora Moresa, S.A. de C.V. held by TRW, Inc. (TRW). This
resulted in the Company increasing its current equity holdings in
MORESA to 96.3%, and the termination of the Company's
association/joint venture with TRW. Additionally, in this transaction
the Company recognized a capital surplus of Ps. 68,438, resulting from
the increase in its participation in the equity of MORESA and a
reduction in TRW's minority shareholding of Ps. 250,086.
8
2. Basis of presentation
The consolidated financial statements of the Company are presented on the
basis of accounting principles generally accepted in Mexico ("MEX GAAP"),
which differ in certain significant aspects from the accounting principles
generally accepted in the United States of America ("US GAAP"). See Note 25
for an explanation of the differences and Note 26 for the reconciliation of
MEX GAAP to US GAAP.
a. Convenience translation - The translation of Mexican pesos into US
dollars is included exclusively for the convenience of the reader,
using the exchange rate at December 31, 2003 of 11.1998 Mexican pesos
per US dollar. The convenience translations should not be construed as
representations that the amounts in Mexican pesos have been, could
have been or could in the future be translated into US dollars at this
or any another rate of exchange. The statement of operations in U.S.
dollars that is prepared monthly by the Company is presented in
nominal Mexican pesos and converted at the average exchange rate of
the corresponding month. Therefore, they differ from the accompanying
financial statements.
b. Consolidation of financial statements - The accompanying consolidated
financial statements include those of DESC AUTOMOTRIZ and its
subsidiaries, whose shareholding percentage in their capital stock is
shown below for the more significant subsidiaries. Intercompany
balances and transactions have been eliminated in these consolidated
financial statements.
The Company's principal subsidiaries are:
% of
Ownership
Spicer, S. A. de C. V. and subsidiaries 51.19
Moresa, S. A. de C. V. and subsidiaries 96.31
Hayes Wheels de Mexico, S. A. de C. V. and subsidiaries 59.99
Velcon, S. A. de C. V. 51.05
Pintura, Estampado y Montaje, S. A. de C. V. 99.99
Desc Automotriz Comercializadora, S. A. de C. V. 99.99
The equity in results of operations and changes in equity of the
subsidiaries acquired or sold during the year are included in the
financial statements through or from the date on which the
transactions were carried out and are restated in terms of the
purchasing power of the Mexican pesos as of the latest year presented.
c. Translation of financial statements of foreign subsidiaries - To
consolidate the financial statements of the foreign subsidiaries,
Transmissions Technologies Corporation (TTC) and Uniko, Inc, whose
operations are an integral part of the Company, the foreign currency
financial statements are remeasured into Mexican pesos with the
resulting remeasurement gain or loss included in integral financing
cost within the consolidated statements of operations. For
remeasurement purposes, amounts are converted into Mexican pesos using
the following exchange rates: (i) the closing exchange rate in effect
at the balance sheet date for monetary assets and liabilities (ii) the
historical exchange rate for nonmonetary assets and liabilities (iii)
the exchange rate in effect at the date the contributions were made
for common stock (iv) the average exchange rate of each month and
restated at year-end for revenues and expenses. The resulting
translated Mexican peso amounts are then restated to Mexican pesos of
purchasing power of the most recent balance sheet date presented using
the National Consumer Price Index (NCPI). The effects of the
conversion, which are not considered significant in 2003, 2002 and
2001, are included in the statements of operations as part of the
exchange gain or loss in the integral financing cost.
9
d. Comprehensive income (loss) - Comprehensive income (loss) presented in
the accompanying consolidated statement of changes in stockholders'
equity is comprised of the net income (loss) of the year, plus other
comprehensive income (loss) items of the same period which, in
accordance with MEX GAAP, are recorded directly in stockholders'
equity without affecting the consolidated statements of operations. In
2001, 2002 and 2003, other comprehensive income (loss) includes the
effect of gain or loss from holding nonmonetary assets and, in 2002
and 2003, the adjustment of the additional liability for employee
retirement obligations.
e. Reclassifications - Certain amounts in the financial statements as of
and for the year ended December 31, 2001 and 2002 have been
reclassified to conform to the presentation of the consolidated
financial statements as of and for the year ended December 31, 2003.
3. Summary of significant accounting policies
The accounting policies followed by the Company and subsidiaries are in
conformity with MEX GAAP, which require that management make certain
estimates and use certain assumptions to determine the valuation the some
of the balances included in the consolidated financial statements and to
make the disclosures required for inclusion therein. Although these
estimates are based on management's best knowledge of current events,
actual results may differ. The significant accounting policies of the
Company are as follows:
a. New accounting policies - The Company early adopted the provisions of
new Bulletin C-15, "Impairment of Long-lived Assets and Their
Disposal" ("C-15"). C-15 establishes, among other issues, new rules
for the calculation and recognition of impairment losses for
long-lived assets and their reversal. It also provides guidance as to
indicators of potential impairment in the carrying amount of tangible
and intangible long-lived assets in use, including goodwill. Entities
must determine the possible loss from impairment unless they have
conclusive evidence that the indicators are temporary. The calculation
of such loss requires the determination of the recoverable value,
which is now defined as the greater of the net selling price of a
cash-generating unit and its value in use, which is the net present
value of discounted future net cash flows. The accounting principles
issued prior to this new Bulletin used future net cash flows, without
requiring the discounting of such cash flows. The Company performed
impairment tests on certain of its long-lived assets and determined
that the net present value of certain property, plant and equipment
was less than its carrying amount. Accordingly, the Company recorded
and impairment of the value of such property, plant and equipment in
the amount of Ps. 676,312 of the value of such property, plant and
equipment of certain subsidiaries, a decrease in the deferred income
tax liability of Ps.229,946, and a net charge to results of the period
of Ps.446,366, which is presented as a "Cumulative effect of change in
accounting principle" in the consolidated statements of operations.
Beginning January 1, 2003, the Company adopted the provisions of new
Bulletin C-8, "Intangible Assets" ("C-8"), which establishes that
project development costs should be capitalized if they fulfill the
criteria established for recognition as assets; preoperating costs
that are not considered development costs should be recorded as a
period expense; and intangible assets considered to have indefinite
useful lives are not amortized, but instead are subject to impairment
tests. The unamortized balance of capitalized preoperating costs up to
December 31, 2002, under the former Bulletin C-8 will continue to be
amortized according to the provisions of that Bulletin. The adoption
of C-8 did not have a material effect on the Company's financial
position, results of operations or cash flow.
Beginning January 1, 2003, the Company also adopted the provisions of
new Bulletin C-9, "Liabilities, Provisions, Contingent Assets and
Liabilities and Commitments" ("C-9"), which establishes additional
guidelines clarifying the accounting for provisions, accruals and
contingent liabilities, and establishes new standards for the use of
present value techniques to measure liabilities and accounting for the
early settlement or substitution of obligations. The adoption of C-9
did not have a material effect on the Company's financial position,
results of operations or cash flow.
10
b. Recognition of the effects of inflation - The Company restates its
consolidated financial statements to Mexican pesos purchasing power of
the most recent balance sheet date presented. Accordingly, the
consolidated financial statements of the prior years have been
restated to Mexican pesos of purchasing power of December 31, 2003
and, therefore, differ from those originally reported in the prior
year.
c. Temporary investments - Temporary investments are stated at the lower
of acquisition cost plus accrued yields, or market value, yields are
recorded in the statement of operations.
d. Inventories and cost of sales - Inventories are originally recorded at
direct acquisition or production cost adjusted at the end of each year
to the full absorption costing method through the capitalization of
fixed expenses applicable to the inventories and subsequently restated
to the lower of replacement cost or market, without exceed their fair
value. Cost of sales is restated using replacement cost at the time of
the sale.
e. Property, plant and equipment - Property, plant and equipment are
initially recorded at acquisition cost and restated using the NCPI.
For fixed assets of foreign origin, restated acquisition cost
expressed in the currency of the country of origin is converted into
Mexican pesos at the market exchange rate in effect at the balance
sheet date.
If the restatement of all property, plant and equipment of foreign
origin had been calculated using the NCPI, the net value of fixed
assets as of December 31, 2002 and 2003 would have increased by
Ps.287,763 and Ps.70,251, respectively, and the depreciation for the
years ended December 31, 2001, 2002 and 2003 would have increased by
Ps.95,164, Ps.87,722 and Ps.31,307, respectively.
Depreciation of property, plant and equipment is calculated based on
the assets' average restated value of the year, using the
straight-line method (considering a salvage value that fluctuated
between 5% to 10%) based on the estimated remaining useful lives of
the related assets.
f. 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 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.
g. Goodwill - Goodwill results from acquisitions made by the Company at
prices greater than the recorded value at the date of acquisition. It
is restated using the NCPI, and is being amortized over four years.
The amortization recorded in operating expenses in 2001 and 2002 it
was Ps.19,212 and in 2003 was Ps.16,223.
h. Other assets - Costs incurred in the development phase that meet
certain requirements and that the Company has determined will have
future economic benefits are capitalized and amortized based on the
straight-line method over five years. Those disbursements that do not
meet such requirements are recorded in results of the period in which
they are incurred. Intangible assets with indefinite lives are not
amortized because they can be renewed at a reduced cost. However,
their value is subject to impairment tests. Preoperating costs
incurred after January 1, 2003, are recorded directly in results of
the period in which they are incurred. Preoperating expenses incurred
and capitalized up to December 31, 2002 are amortized using the
straight-line method over ten years.
11
i. Impairment of long-lived assets in use - The Company reviews potential
impairments to its long-lived assets in use, when ever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability is defined as the greater of
the net present value of the future net cash flows or the net selling
price upon disposal. Impairment is recorded when the carrying amounts
of assets exceeds their recoverable value.
j. Warranties - The Company has established warranty reserves that are
estimated as a function of the contractual obligations arising at the
time sales are made over an average period of two years and based on
the experience of warranties granted.
k. Start-up costs - These relate to expenses incurred in connection with
the acquisition of new production lines and are amortized over a
four-year period, the term over which the benefit from the investment
is expected to be realized. The amount amortized in 2001 and 2003
amounted to Ps.16,462 and Ps.7,202, respectively.
l. Provisions - Provisions are recognized for obligations that result
from a past event, that are probable to result in the use of economic
resources and that can be reasonably estimated. Such provisions are
recorded at net present values when the effect of the discount is
significant.
m. Income tax, asset tax and employee statutory 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 reduced by any benefits about which
there is uncertainty as to their realizability. Deferred PTU is
derived from temporary differences between the accounting 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.
n. Employee retirement obligations - Seniority premiums, pension plans
and payments that are similar to pensions, are recognized as costs
over employee years of service calculated by independent actuaries
using the projected unit credit method using real interest rates.
Accordingly, the liability accrued at present value will cover the
obligation from benefits projected to the estimated retirement date of
the Company's employees. Severance is charged to results when the
liability is determined to be payable.
o. Foreign currency balances and transactions - Foreign currency
transactions are recorded at the applicable exchange rate in effect at
the transaction date. Monetary assets and liabilities denominated in
foreign currency are translated into Mexican pesos at the applicable
exchange rate in effect at the balance sheet date. Exchange
fluctuations are recorded as a component of integral financing cost in
the consolidated statements of operations.
p. Cumulative effect of restatement - The insufficiency in the
restatement of stockholders' equity represents the accumulated
monetary position result through the initial restatement of the
consolidated financial statements and the gain (loss) from holding
nonmonetary assets, which resulted from restating certain nonmonetary
assets above (below) inflation, less the related deferred income tax
effect.
q. Revenue recognition - Revenues are recognized when the products are
shipped or delivered to the client and the client assumes title to the
products.
12
r. Integral financial result - This represents the net effect of interest
earned and incurred, exchange gains and losses and monetary position
gain on, which is the result of maintaining monetary assets and
liabilities whose real purchasing power is modified by the effects of
inflation.
s. Earnings per share - Basic earnings (loss) per share is calculated by
dividing the net income (loss) of majority stockholders' by the
weighted average number of shares outstanding during the year.
4. Cash and temporary investments
2002 2003
Cash Ps. 146,068 Ps. 104,373
Investments with maturities of less than three
months 259,050 40,725
Technology and training trust funds to be used
within three months 316,763 --
----------- -----------
Ps. 721,881 Ps. 145,098
=========== ===========
As of December 31, 2002, the technology and training trust funds held in
trust, which would be exercised within three months during 2003 were
classified as cash.
5. Accounts and notes receivable
2002 2003
Customers Ps. 604,152 Ps. 803,291
Allowance for doubtful accounts (4,639) (3,358)
----------- -------------
599,513 799,933
Creditable value-added taxes 46,333 59,219
Recoverable income and asset taxes 93,384 98,071
Other debtors 36,111 54,465
Officers and employees 5,515 2,044
----------- -------------
Ps. 780,856 Ps. 1,013,732
=========== =============
The movements of the allowance for doubtful accounts are as follows:
2002 2003
Balance at the beginning of the year Ps. 6,345 Ps. 4,639
Provision for the year -- 1,576
Provision used in the year (1,365) (2,679)
Restatement of initial balance (341) (178)
----------- ----------
Balance at the end of the year Ps. 4,639 Ps. 3,358
=========== ==========
13
During 2002 and 2003, certain subsidiaries sold commercial paper without
recourse at an average financial cost of 4.5% and 4.77%, respectively, and
terms ranging between 20 and 26 days in 2002 and 15 and 52 days in 2003,
with two financial institutions. As of December 31, 2002 and 2003, the
balances of commercial paper sold without recourse amounted to $34.7 and
$30.4 millions, respectively.
6. Inventories
2002 2003
Finished goods and work-in-process Ps. 513,692 Ps. 478,762
Raw materials an indirect materials 556,478 580,323
------------- -------------
1,070,170 1,059,085
Allowance for slow-moving and obsolete items (12,445) (21,622)
------------- -------------
1,057,725 1,037,463
Advances to suppliers 856 1,051
Merchandise-in-transit 48,271 48,414
------------- -------------
Ps. 1,106,852 Ps. 1,086,928
============= =============
The movements of the allowance for slow-moving and obsolete inventories are
as follows:
2002 2003
Balance at the beginning of the year Ps. 21,788 Ps. 12,445
Provision for the year 2,291 13,514
Provision used in the year (10,461) (3,860)
Restatement of the initial balance (1,173) (477)
---------- ----------
Balance at the end of the year Ps. 12,445 Ps. 21,622
========== ==========
7. Property, plant and equipment
Annual
depreciation
2002 2003 rates
Buildings and installations Ps. 2,820,204 Ps. 2,851,550 5%
Machinery and equipment 10,062,806 9,950,994 8%
Transportation equipment 53,717 44,854 25%
Furniture and fixtures 234,650 197,287 10%
------------- -------------
13,171,377 13,044,685
Accumulated depreciation (7,916,908) (8,410,733)
------------- -------------
5,254,469 4,633,952
Projects in progress 571,672 363,828
Land 424,106 418,311
Investment properties 277,431 134,818
------------- -------------
Ps. 6,528,678 Ps. 5,550,909
============= =============
14
The Company continues to evaluate all idle assets, to determine their
possible use or disposal in the short-term.
Temporarily idle assets amounted to Ps. 257,709 and Ps.41,142 in 2002 and
2003, respectively, and permanently idle assets amounted to Ps. 121,327 and
Ps.457,171 in 2002 and 2003, respectively.
During 2001, 2002 and 2003, certain subsidiaries entered into machinery
sales agreement without the obligation to repurchase with a financial
institution. On that same date, a machinery lease agreement (see note 21)
covering the same machinery was entered into, as follows:
Date of
transaction Maturity Amount Lease payments Interest rate
June 29, 2001 5 years $18.7 millions Quarterly 1.5%
December 19, 2002 7 years $11.8 millions Quarterly 3.7%
March 27, 2003 7 years $3.1 millions Quarterly 3.7%
August 19, 2003 7 years $12.2 millions Quarterly 3.4% to 3.7%
Below is a summary of investment properties at their estimated realizable
value at December 31, 2002 and 2003:
2002 2003
Buildings Ps. 273,143 Ps. 172,380
Land 176,093 67,390
Accumulated depreciation (171,805) (104,952)
----------- -----------
Ps. 277,431 Ps. 134,818
=========== ===========
The annual average depreciation rate of buildings in 2002 and 2003 was 5%.
At December 31, 2002 and 2003, the fair value of investment properties
determined by an external appraiser amounts to Ps. 322,396 and Ps.153,931,
respectively.
As of December 31, 2003, property, machinery and equipment of certain
subsidiaries, are designated as collateral for the long term-debt of Desc,
S.A. de C.V. (holding company). See Note 16.
8. Other assets
Annual
Amortization
2002 2003 Rate
Contributions to the technology trust
fund Ps. -- Ps. 3,351 --
Prepaid contribution of employee
benefits (see Note 12) 55,142 -- --
Installation and preoperating expenses,
net 45,721 39,573 10%
Development expenses and start-up cost,
net 24,681 39,969 20% to 25%
Goodwill 31,664 14,564 25%
Other assets to be amortized 37,119 3,065 20% to 25%
Other assets not amortized 43,075 44,156 --
----------- -----------
Ps. 237,402 Ps. 144,678
=========== ===========
15
9. Trust funds
The Company has a trust fund with Banco Santander Mexicano, S.A. as
trustee, to earmark funds for research and development of technology. The
Company is authorized to make use of these funds for specific purposes, and
the fund may be increased by future contributions in accordance with the
provisions in the contract, or by interest, dividends and capital gains
earned by the fund. At December 31, 2002 and 2003, the unused amounts of
the fund were Ps.179,225 and Ps.3,351, respectively.
The Company also had a similar trust fund through a contract with Banco
Santander Mexicano, S.A., whose funds were utilized for the training of
personnel. The terms governing this trust were similar to those of the
technology trust. As of December 31, 2002 unused amounts of the fund were
Ps.137,538, which were disposed of in full during 2003.
10. Other payables and accrued liabilities
2002 2003
Taxes payable Ps. 143,850 Ps. 107,670
Other debtors 138,260 120,966
Royalties 31,480 15,321
Guarantee reserves 21,300 91,845
Interest payable 7,900 2,720
Other accounts payable 39,746 22,992
------------- -------------
Ps. 382,536 Ps. 361,514
============= =============
11. Long-term debt
The current portion of the long-term debt and short-term bank loans are
comprised as follows:
2002 2003
Current portion of the long-term debt for loans,
payable in pesos at Libor plus 1.00% interest
rate. The three month Libor rate as of December
31, 2002 was 1.38% Ps. 11,177 Ps. --
Other bank loans in payable in US dollars with
variable interest rates from 2.18% to 7.75% at
December 31, 2003 and 2002, respectively 1,123,087 173,186
------------- -------------
Ps. 1,134,264 Ps. 173,186
============= =============
Since most agreements establish variable interest rates (monthly, quarterly
and semiannually) and there has been no significant variance with respect
to the fixed interest rate on agreements, it is considered that the loans
are recorded at fair value.
12. Employee retirement obligations
The employee benefit obligation relates to the pension plan that will cover
the pension and seniority premiums due upon retirement. The amount
resulting from the actuarial calculations prepared by external actuaries is
being funded using the projected unit credit method. The amount of the
pension liability is as follows:
16
2002 2003
Projected benefit obligation (PBO) Ps. 495,292 Ps. 552,981
Plan assets at fair value 274,023 293,204
------------- -------------
Unfunded projected benefit obligation (221,269) (259,777)
Unrecognized net transition obligation (114,423) (110,020)
Unrecognized variances in assumptions 390,834 341,198
------------- -------------
Net projected asset (liability) Ps. 55,142 Ps. (28,599)
============= =============
As of December 31, 2002 and 2003, the amount of the accumulated benefit
obligation (ABO) (equal to the PBO without projecting the salaries at the
retirement date) exceeds the amount of current funds by Ps.170,373 and
Ps.156,306 respectively, which was recognized as an additional liability
under the heading of "Other long-term liabilities" as well as a deferred
asset charge, net of the deferred income tax, of Ps.87,164 and Ps.81,658,
respectively. As of December 31, 2002 and 2003, the amount of the
additional liability exceeds the sum of the transition liability to be
amortized plus the prior services and the modifications to the plan, for
which excess was recorded in the account "adjustment of additional
liability for employee retirement obligations" in stockholders' equity.
The net periodic pension cost is as follows:
2001 2002 2003
Service cost Ps. 40,084 Ps. 27,033 Ps. 22,942
Amortization of transition assets 36,823 28,324 25,245
Amortization of variances
in assumptions (6,439) (6,500) (6,626)
Interest cost 31,799 24,382 21,018
------------- ------------- -------------
102,267 73,239 62,579
------------- ------------- -------------
Less- Actual return on plan assets (22,319) (21,798) (19,554)
Effect of reduction and
anticipated extinguishments of
employee retirement obligation -- -- 49,881
------------- ------------- -------------
Net periodic cost Ps. 79,948 Ps. 51,441 Ps. 92,906
============= ============= =============
The real rates used in calculations of the actuarial present value during
2001, 2002 and 2003 are as follows:
Funds rate yield 7%
Interest rate 5%
Salary increase rate 5.7%
The changes in the PBO for the pension liability are show below:
2002 2003
Opening balance Ps. 565,160 Ps. 495,292
Service cost 27,033 22,942
Financial cost 28,324 25,243
Actuarial gain (loss) (125,225) 9,504
------------- -------------
Final balance Ps. 495,292 Ps. 552,981
============= =============
17
The changes in the net projected asset (liability) is as follows:
2002 2003
Opening balance Ps. 91,234 Ps. 55,142
Provision for the year (51,441) (92,906)
Contributions to the fund 23,244 --
Actuarial (loss) gain (7,895) 9,165
------------- -------------
Final balance Ps. 55,142 Ps. (28,599)
============= =============
The changes in the plan assets are shown below:
2002 2003
Opening balance Ps. 325,537 Ps. 274,023
Contributions to the fund 23,244 --
Actual return on plan assets 21,798 19,554
Special payments for the reduction of personnel (50,507) (51,483)
Actuarial (loss) gain (46,049) 51,110
------------- -------------
Final balance Ps. 274,023 Ps. 293,204
============= =============
The amortization period for unamortized items is as follows:
Remaining Years
2002 2003
Transition liability 19 18
Variances in assumptions 18 17
13. Stockholders' equity
In the General Ordinary Stockholders' Meeting held on July 3, 2001, the
shareholders approved the payment of dividends of Ps.118,000 (Ps.105,145 at
nominal value) on July 13, 2001, through a partial reduction of the account
receivable from DESC.
In the General Annual Ordinary Stockholders' Meeting held on July 1, 2002,
dividends of Ps.125,799 (at nominal value of Ps. 117,810) were declared and
approved, paid in cash on July 23, 2002.
In the General Annual Ordinary Stockholders' Meeting held on October 23,
2002, dividends of Ps.73,693 (at nominal value of Ps. 70,000) were declared
and approved, paid in cash on the same date.
In the General Ordinary Stockholders' Meeting held on June 15, 2002, the
shareholders approved payment of dividends from the subsidiary Velcon, S.A.
de C.V. Dividends were paid, in cash on the same date, from majority and
minority stockholders' equity in the amounts of Ps.126,289 and Ps.121,085
respectively, (Ps.117,930 and Ps.113,070 at nominal value).
In the General Annual Ordinary Stockholders' Meeting held on April 9, 2003,
dividends of Ps.35,829 (at nominal value of Ps.35,000) were declared and
approved, paid in cash on the same date.
18
As of December 31, 2002 and 2003, the capital stock is comprised as
follows:
Shares Amount
Fixed
Nominative Series "A" shares with a par value
of one Mexican peso each, which may only be
acquired by Mexican companies or individuals 25,500 Ps. 26
Nominative Series "B" shares with a par value
of one Mexican peso each, which are of
unrestricted subscription 24,500 24
Variable-
Nominative Sub-series "A" shares with a par
value of one Mexican peso each, which may only
be acquired by Mexican companies or
individuals 357,468,291 357,468
Nominative Sub-series "B" shares with a par
value of one Mexican peso each, which are of
unrestricted subscription 343,449,925 343,450
----------- -------------
700,968,216 Ps. 700,968
----------- -------------
Stockholders' equity, except restated paid-in capital and tax retained
earnings, will be subject to a tax at the rate in effect when the dividend
is distributed. In 2003, the rate was 34% and will be reduced by one
percentage point each year until reaching 32% in 2005. Any tax paid on such
distribution, may be credited against the income tax payable of the year in
which the tax on the dividend is paid and the two fiscal years following
such payment.
The annual net income of each Company is subject to the legal requirement
that 5% thereof be transferred to a legal reserve each year, until the
reserve equals 20% of capital stock. This reserve may not be distributed to
stockholders' during the existence of the Company, except in the form of a
stock dividend. At December 31, 2002 and 2003, the legal reserve of DESC
AUTOMOTRIZ has a nominal value of Ps.126,143, respectively, and is included
in retained earnings.
The balances of the stockholders' equity tax accounts as of December 31,
are:
2002 2003
Contributed capital account Ps. 2,737,661 Ps. 2,846,346
Net tax income account 291,988 267,588
------------- -------------
Total Ps. 3,029,649 Ps. 3,113,934
============= =============
14. Foreign currency balances and transactions
The Company valued its foreign currency assets and liabilities, represented
mainly by US dollars, at the exchange rates effective at December 31, 2002
and 2003 of 10.3613 and 11.1998 Mexican pesos per US dollar, respectively,
as the Company expects to use foreign currency assets to settle foreign
currency liabilities.
19
a The foreign currency position at the end of 2002 and 2003 consists of
the following:
US Dollars
----------------------------
2002 2003
Current assets $ 60,117 $ 127,014
------------- -------------
Current liabilities
Interest free 58,563 54,230
Interest bearing 118,488 15,794
Long-term liability (interest bearing) 506 143,929
------------- -------------
177,557 213,953
------------- -------------
Net monetary liability position in foreign
currency $ 117,440 $ 86,939
============= =============
At January 23, 2004, date of the issuance of the consolidated
financial statements, the unaudited foreign exchange position was
similar to that at year-end, and the sale exchange rate was 10.8213
Mexican pesos per US dollar.
b Nonmonetary assets of foreign origin at December 31, 2001 and 2002 are
as follows:
2002 2003
Inventories $ 35,123 $ 60,087
Machinery and equipment 282,117 248,252
------------- -------------
$ 317,240 $ 308,339
============= =============
c During the years ended December 31, 2001, 2002 and 2003, the Company
had the following significant transactions in foreign currency, which
are recorded at the exchange rate as of the date the transaction took
place. Foreign currency transactions, which include those executed in
Mexico and denominated in US dollars, as well as those of foreign
subsidiaries, are as follows:
U.S. Dollars
2001 2002 2003
Direct export sales $ 444,618 $ 293,798 $ 321,994
Indirect export sales under
agreement 119,234 181,728 105,356
Sales of foreign subsidiaries 67,255 49,962 47,410
------------- ------------- -------------
631,107 525,488 474,760
Less-
Raw material purchases (287,161) (240,873) (187,701)
Purchases and expenses of foreign
subsidiaries (45,002) (29,281) (36,354)
------------- ------------- -------------
$ 298,944 $ 255,334 $ 250,705
============= ============= =============
Interest income $ 4,148 $ 4,238 $ 49
Interest expense (15,096) (5,147) (4,435)
------------- ------------- -------------
Net $ (10,948) $ (909) $ (4,386)
============= ============= =============
Technical assistance $ (6,997) $ (3,132) $ (8,187)
============= ============= =============
Other expense, net $ (8,413) $ (2,412) $ (7,763)
============= ============= =============
20
15. Balances and transactions with holding company and related parties
The Company had the following transactions with related parties, carried
out in the ordinary course of business at market value.
2001 2002 2003
Income-
Sales Ps. 473,294 Ps. 435,433 Ps. 1,165,824
============= ============= =============
Interest Ps. 30,945 Ps. 33,048 Ps. 28,489
============= ============= =============
Rent Ps. 1,496 Ps. 1,477 Ps. 1,490
============= ============= =============
Other Ps. -- Ps. 5,073 Ps. 2,412
============= ============= =============
Expenses-
Purchases Ps. 643,781 Ps. 388,658 Ps. 255,366
============= ============= =============
Technical assistance Ps. 25,605 Ps. 36,625 Ps. 30,486
============= ============= =============
Services Ps. 59,492 Ps. 122,808 Ps. 172,693
============= ============= =============
Other Ps. 23,364 Ps. 20,918 Ps. 34,839
============= ============= =============
Balances receivable and payable with related parties are as follows:
2002 2003
Accounts receivable-
Desc, S.A. de C.V. (parent company) Ps. -- Ps. 972,458
Dana Corporation 21,643 --
GKN Automotive International GMBH 8,601 --
Other 292 --
------------- -------------
Ps. 30,536 Ps. 972,458
============= =============
Accounts payable -
Desc S.A. de C.V. (parent company) Ps. 114,870 Ps. --
Desc Corporativo, S.A. de C.V.
(formerly Promocion y Control, S.A. de C.V.) 10,241 --
Dana Corporation -- 40,844
Hayes Lemmerz International, Inc. 17,009 41,767
Glaezner Spicer, S.A. 5,519 --
Delphi Energy 6,121 --
GKN & affiliated 9,072 2,619
Other 3,950 1,473
------------- -------------
Ps. 166,782 Ps. 86,703
============= =============
21
16. Long-term liability with Desc, S.A. de C.V. (parent company)
On December 23, 2003, DESC restructured approximately $720 million, the
majority of its financial liabilities. As part of the negotiated
conditions, the Company and several of its subsidiaries became jointly and
severally liable for and guarantors of such liabilities. The agreement
designates certain fixed assets and the shares of the Company and certain
other subsidiaries as guarantees.
Consequently, the Company and its subsidiaries are now subject to a series
of obligations and restrictions, including limitations regarding
fundamental changes, the sale of and investment in property, plant and
equipment, lease transactions and the payment of dividends, among others.
Similarly, at that date, the Company signed a debt assignment contract with
DESC, through which it undertook to settle the liabilities of DESC under
their original terms and conditions contracted with creditor banking
institutions.
The main terms and conditions are:
Thousands of
US Interest
Maturity Dollars Rate
2004 (current portion) Ps. 349,294 $ 31,188 5.12%
============= =============
Long-term
2005 Ps. 126,278 $ 11,275 4.16% to 5.17%
2006 378,801 33,822 4.16% to 5.17%
2007 378,801 33,822 4.16% to 5.17%
2008 378,801 33,822 4.16% to 5.17%
------------- -------------
Ps. 1,262,681 $ 112,741
============= =============
17. Income taxes, tax on assets and employee statutory profit-sharing
The Company is subject to income taxes (ISR) and tax on assets (IMPAC). ISR
is computed taking into consideration the taxable and deductible effects of
inflation, such as depreciation calculated on restated constant prices, and
the deduction of purchases in place of cost of sales, which permit the
deduction of current costs, and taxable income is increased or reduced by
the effects of inflation on certain monetary assets and liabilities through
the annual adjustment for inflation, which is similar to the result from
monetary position. Until 2001, the income tax rate was 35%, with the
obligation, through that date, to pay this tax each year at a rate of 30%,
with the remainder payable upon distribution of earnings. This remainder is
recorded as a short-term liability.
The tax rate was 35% in 2001 and 2002 and 34% in 2003 and will be reduced
by one percentage point each year until reaching 32% in 2005. As well, in
2002, the deduction for employee statutory profit sharing (PTU) and the
obligation to withhold taxes on dividends paid to individuals or foreign
residents were eliminated.
IMPAC is calculated by applying 1.8% to the Company's asset position, as
defined in the law, and is payable only to the extent that it exceeds ISR
payable for the same period. If in any year IMPAC exceeds the ISR payable,
the IMPAC payment for such excess may be reduced by the amount by which ISR
exceeded IMPAC in the three preceding years and any required payment of
IMPAC is creditable against the excess of ISR over IMPAC of the following
ten years.
22
As of December 31, 2003, certain subsidiary companies had tax loss
carryforwards for ISR purposes and recoverable IMPAC, indexed through
December 31, 2003, which will be further indexed for inflation through the
year in which they are applied or recovered, as follows:
Restated
Tax Loss Recoverable
Maturity Carryforwards Asset Taxes
2004 Ps. 140,433 Ps. 5,060
2005 141,601 2,747
2006 1,045 7,560
2007 5,946 1,473
2008 102,067 7,870
2009 40,493 27,572
2010 89,737 45,720
2011 459,591 49,657
2012 199,167 44,846
2013 356,082 36,845
------------- -------------
Ps. 1,536,162 Ps. 229,350
============= =============
Income for employee profit sharing purposes excludes the annual
inflationary adjustment and unrealized exchange gains or losses, and
depreciation is based on historical rather than restated values.
In accordance with the Mexican Income Tax Law, the Company files its income
and asset taxes in the consolidated income and asset tax returns of DESC.
Deferred income taxes - The tax effects of the temporary differences that
generated deferred tax liabilities (assets), in accordance with Bulletin
D-4, are the following:
2002 2003
Property, plant and equipment Ps. 1,130,357 Ps. 833,915
Inventories 351,925 333,566
Reserves (41,132) (83,745)
Tax loss carryforwards (302,571) (515,806)
Recoverable tax on assets (214,865) (229,350)
Other 26,530 (1,241)
Allowance for tax losses and recoverable asset
taxes that may not be applied or recovered 123,802 202,638
------------- -------------
Ps. 1,074,046 Ps. 539,977
============= =============
The favorable effect derived from the decrease in the income tax rate in
2002 and 2003 was Ps.74,502 and Ps.41,234, respectively, which was recorded
as reduction to the provision for the year.
The reconciliation of the statutory and effective ISR rates expressed as a
percentage of income before ISR and employee statutory profit-sharing is as
follows:
2001 2002 2003
Statutory rate 35.0% 35.0% 34.0%
Add (deduct) the effect of
permanent differences.
Non - deductible items 5.1% 16.6% (339.8)%
Non-taxable income 0.3% (15.1)% 424.3%
Allowance for tax loss
carryforwards and
recoverable asset tax -- 15.3% 278.4%
Income tax rate reduction
effect (7.5)% (0.2)% 145.6%
Others (4.8)% 5.9% (118.5)%
---------- ---------- ----------
Effective rate 28.1% 57.5% 424.1%
========== ========== ==========
23
18. Contingencies
At December 31, 2002, the subsidiary Hayes Wheels Acero, S.A. de C.V. and
partner Hayes Lemmerz Int. were negotiating claims made by its customer
Nissan Mexicana, S.A. de C.V. (NISSAN) regarding defective steel wheel
rims. Accordingly, at that date, the Company recorded a provision of $2.1
million to cover the payment proposed by the Company to settle this
contingency.
During 2003, the Company and Hayes Lemmerz Int. reached an agreement with
NISSAN to settle this contingency, whereby the Company agreed to pay $7.0
million under an established payment plan. At December 31, 2003, the
outstanding balance was recorded as a warranty liability of $2.7 million,
with the final expiration date in May 2004.
19. Discontinued operations
On June 30, 2002, the management of the Company decided to shut down the
plants dedicated to the manufacture of spark plugs and automotive
electrical parts. A summary of statements of income for the years ended of
December 31, 2001, 2002 and 2003 is as follows:
2001 2002 2003
Revenues from discontinued
operations Ps. 170,767 Ps. 69,045 Ps. --
Costs and expenses 180,597 95,386 8,728
Integral financing cost 2,045 2,908 3,292
Gain on sale of property -- -- (72,638)
Other expenses (income) 12,368 73,243 (1,403)
Current and deferred income tax
and employee statutory profit-
sharing (7,093) (21,167) 30,591
------------- ------------- -------------
Income (loss) from discontinued
operations Ps. (17,150) Ps. (81,325) Ps. 31,430
============= ============= =============
As of December 31, 2003, the Company is still in the process of selling a
facility and certain machinery and equipment related to these discontinued
operations. Such property is recorded at a carrying value less than the
selling price.
20. Analysis of extraordinary items
2001 2002 2003
Severance indemnities from
restructuring Ps. -- Ps. (62,848) Ps. --
Less related income tax effect -- 21,211 --
------------- ------------- -------------
Ps. -- Ps. (40,637) Ps. --
============= ============= =============
24
21. Lease commitments
As of December 31, 2002 and 2003, the Company had operating lease for
equipment commitments amounting to Ps. 308,865 and Ps.487,240, whose
maturity dates are as follows:
Maturity 2002 2003
2003 Ps. 46,750 Ps. --
2004 53,966 107,415
2005 67,010 110,521
2006 61,905 97,968
2007 16,536 46,158
2008 16,536 45,894
2009 46,162 45,894
2010 -- 33,390
------------- -------------
Ps. 308,865 Ps. 487,240
============= =============
22. Financial instruments
The Company and its subsidiaries entered into option contracts for risk
coverage with Pemex Gas and Petroquimica Basica to hedge against the price
volatility of natural gas for the period from January 2002 to December
2003.
The Company acquired insurance that covers the rise in market price of gas
over a maximum price through the payment of a premium. The maximum price
was $8.705 US dollars per "MMBTU" (one million energy units) and the
minimum price was 4.245 US dollars per "MMBTU". In the event the referred
price exceeds the maximum price, a discount will be applied to the invoice;
if it is below the minimum price, the invoice will be issued in the amount
of the corresponding minimum price. Since this insurance policy represents
a contractual obligation, which is guaranteed with the fixed price of gas
at 4 US dollars per MMBTU, the Company records the corresponding effects in
results upon consumption of the committed MMBTU'S amount, and has not
recorded the potential effect of a gain or loss from settling the premium
on the gas price at present value. As of December 31, 2002 and 2003, the
net (loss) income recorded from this transaction was Ps. (12,210) and
Ps.10,393, respectively.
23. Subsequent event
On January 15, 2004, Desc Automotriz, S.A. de C.V. concluded its joint
investment with Hayes Lemmerz Int. (HLI). This was achieved by selling to
HLI the aluminum plant assets and by acquiring 40% of the shares held by
HLI for one dollar. Accordingly, Desc Automotriz, S.A. de C.V. now holds
100% of the shares of the steel wheel rim manufacturing company. At
December 31, 2003, the Company adjusted the realizable value of the fixed
assets of the aluminum plant based on the selling price to HLI, generating
a charge to results of the year of Ps.114.2 million, net of taxes. In 2004,
the dissolution of the aforementioned joint investment will be recorded as
an item of stockholder's equity.
25
24. New accounting principles
In May 2003, the Instituto Mexicano de Contadores Publicos ("IMCP")
(Mexican Institute of Public Accountants) issued Bulletin C-12, "Financial
Instruments of a Debt or Equity Nature or a Combination of Both" (C-12),
whose application is mandatory for financial statements of periods
beginning on or after January 1, 2004, although early adoption is
encouraged. C-12 is the compilation of the standards issued by the IMCP
with respect to the issue of debt or equity financial instruments, or a
combination of both, and includes additional standards on the accounting
recognition for these instruments. Consequently, C-12 indicates the basic
differences between liabilities and stockholders' equity and establishes
the rules for classifying and valuing the components of debt and equity of
combined financial instruments in the initial recognition. Subsequent
recognition and valuation of liabilities and stockholders' equity of the
financial instruments is subject to the standards issued previously in the
applicable bulletins. Since the Company has not issued financial
instruments of a debt or equity nature, management believes this new
accounting principle will not have significant effects on its financial
situation and results of operations.
25. Differences between Mexican GAPP and US GAPP
The consolidated financial statements of the Company are prepared in
accordance with MEX GAAP, which differs in certain significant respects
from US GAAP. A reconciliation of the reported majority net income (loss),
net stockholder's equity and comprehensive income to US GAAP is presented
in Note 26. It should be noted that this reconciliation to US GAAP does not
include the reversal of the restatement of the financial statements for
inflation effects as required by Bulletin B-10, "Recognition of the Effects
of Inflation in the Financial Information", of MEX GAAP. The application of
this bulletin represents a comprehensive measure of the effects of
price-level changes in the Mexican economy and, as such, is considered a
more meaningful presentation than historical cost-based financial reporting
in Mexican pesos for both Mexican and US accounting purposes.
The principal differences between MEX GAAP and US GAAP included in the
reconciliation that affect the consolidated financial statements of the
Company are described as follow:
a. Restatement of Prior Year Financial Statements- As explained in Note 2
b) and 3 b), in accordance with Mexican GAAP, the financial statements
for Mexican subsidiaries for prior years was restated using inflation
factors, and for foreign subsidiaries and affiliated companies for
prior years was restated using the inflation rate of the country in
which the foreign subsidiary or affiliated company is located, then
translated to Mexican pesos at the year-end exchange rate.
Under US GAAP, the Company applies the regulations of the Securities
and Exchange Commission of the United States of America ("SEC"), which
require that prior year financial statements be restated in constant
units of the reporting currency, in this case the Mexican peso, which
requires the restatement of such prior year amounts using inflation
factors.
Additionally, all other US GAAP adjustments for prior years have been
restated based upon the SEC methodology.
b. Classification differences - Certain items require a different
classification in the balance sheet or income statement under US GAAP.
These include the following:
- Under Mexican GAAP advances to suppliers are recorded as
inventories. Under US GAAP, advances to suppliers are classified
as prepaid expenses.
- The impairment of goodwill and other long-lives assets, the gain
or loss on the disposition of fixed assets, all severance
indemnities, and employee profit sharing must be included in
operating expenses under US GAAP.
26
c. Statement of Cash Flows - Under Mexican GAAP, the Company presents a
consolidated statement of changes in financial position in accordance
with Bulletin B-12, "Statement of Changes in Financial Position",
which identifies the generation and application of resources by the
differences between beginning and ending financial statement balances
in constant Mexican pesos. Bulletin B-12 also requires that monetary
and foreign exchange gains and losses be treated as cash items for the
determination of resources generated by operations.
In accordance with US GAAP the Company follows Statement of Financial
Accounting Standards (SFAS) No. 95, "Statement of Cash Flows",
excluding the effects of inflation.
A cash flow statement in accordance with US GAAP is presented in Note
26e.
d. Deferred Income Taxes and Employee Profit Sharing - The Company
follows SFAS No. 109, "Accounting for Income Taxes", for US GAAP
purposes, which differs from Mexican GAAP as follows:
- Under Mexican GAAP, deferred taxes are classified as non-current,
while under US GAAP the classification is based on the
classification of the related asset or liability.
- Under Mexican GAAP the effects of inflation on the deferred tax
balance generated by monetary items are recognized in the result
on monetary position. Under US GAAP the deferred tax balance is
classified as a nonmonetary item. As a result, the consolidated
income statement differs with respect to the presentation of the
gain (loss) on monetary position and deferred income tax
provision.
- Under Mexican GAAP, the change in statutory income tax rate
approved early in 2002 was considered in the calculation of
deferred taxes at December 31, 2001. Under US GAAP, a change in
statutory tax rate may not be considered until the enactment
date, which was January 1, 2002.
- Under Mexican GAAP deferred employee profit sharing is calculated
considering only those temporary differences that arise during
the year and which are expected to turn around within a defined
period, while under US GAAP the same liability method as used for
deferred income taxes is applied. Also, for US GAAP purposes,
employee profit sharing must be classified as an operating
expense.
The differences in the restatement of imported machinery and equipment
and the pension plan under Mexican GAAP have a different treatment
than under US GAAP. As a consequence, the related deferred income tax
presented under Mexican GAAP is different from the effect calculated
under US GAAP.
The tax effect of temporary differences that generated deferred tax
liabilities (assets) under SFAS No. 109 are as follows:
27
Deferred income taxes -
2002 2003
Property, plant and equipment Ps. 1,225,593 Ps. 882,216
Inventories 351,925 333,566
Reserves (41,132) (83,745)
Tax loss carryforwards (302,571) (515,806)
Recoverable asset taxes (214,865) (229,350)
Other 55,527 (25,539)
Add- Allowance for tax loss carryforwards and
recoverable asset taxes that may not be applied
or recovered 123,803 202,638
------------- -------------
Ps. 1,198,280 Ps. 563,980
============= =============
Deferred employee profit sharing -
2002 2003
Property, plant and equipment Ps. 290,689 Ps. 204,620
Inventories 100,588 103,312
Reserves (8,703) (19,858)
Unrealized exchange losses (4,820) (7,694)
Other 46,418 17,137
------------- -------------
Ps. 424,172 Ps. 297,517
============= =============
e. Cost of pension plans and other employee benefits - Under Mexican
GAAP, the liabilities for employee benefits are determined using
actuarial computations in accordance with Bulletin D-3, "Labor
Obligations", which is substantially the same as US GAAP SFAS No. 87,
"Employers' Accounting for Pensions".
The Company has no post-retirement health care insurance or other
benefit plans, other than the pension plans referred to in Note 12.
Therefore, SFAS No. 106, "Employers' Accounting for Post-retirement
Benefits other than Pensions", would have no effect on the Company's
financial position.
During 1992, the Company withdrew Ps.26,952 (at nominal value) from
plan assets covering pension and seniority premiums for employees of
certain subsidiaries, as the plans were overfunded. The amount of the
withdrawal was recorded as income under MEX GAAP; however, for
purposes of SFAS No. 87, the amount must be amortized over the average
remaining working life of the employees, which is approximately 17
years.
f. Minority interest - Under MEX GAAP, Bulletin B-8, minority interest in
subsidiaries must be included as a component of stockholders' equity.
Consequently, minority interest in the income of subsidiaries is not
presented as an expense in the statement of income. Under US GAAP,
minority interest in subsidiaries is presented below liabilities on
the balance sheet, and is not part of stockholders' equity.
g. Property, plant and equipment restatement - As explained in Note 3 e),
the Company restates its fixed assets of foreign origin based on the
internal rate of inflation of the country of origin and the
fluctuation of the Mexican peso against the currency of the country of
origin for the period. According to SEC regulations, these fixed
assets would be restated using the NCPI.
28
h. Financial instruments - In accordance with MEX GAAP beginning in
January 2001, Bulletin C-2 of the MEX GAAP became effective.
Under US GAAP, SFAS No.133, "Accounting for Derivative Instruments and
Hedging Activities", became effective in 2001. This statement requires
the recognition of all derivative financial instruments together with
the hedge items as either assets or liabilities in the statement of
financial position and the measurement of those instruments at fair
value.
The changes in the fair value of derivative financial instruments are
recognized either in the results for the year or in the other
components of comprehensive income if it is demonstrated through
statistical effectiveness calculations that such instruments are
closely related to the hedged items. Subsequently, upon maturity of
the derivative instruments, the corresponding gain or loss is
recognized in the results for the year.
Under Mexican GAAP, the financial instruments were classified and
valued using the same valuation criteria applied to the underlying
asset or liability, which are recognized in the income statement when
the consumption or payment takes place.
i. VELCON goodwill - In 2001, the Company increased its share ownership
in VELCON, its subsidiary, at a cost above its book value. The
resulting goodwill from this acquisition will be amortized over four
years according to MEX GAAP. Under US GAAP, in accordance with SFAS
No. 142, effective January 1, 2002 goodwill is no longer subject to
amortization, but rather it is subject to periodic assessment for
impairment by applying a fair-value-based test.
In connection with the transition provisions for adopting this
standard, the Company performed a transitional impairment test during
2002 and 2003, and found no impairment.
In accordance with SFAS No. 142, for US GAAP purposes the Company
discontinued the amortization of goodwill effective January 1, 2002.
The financial statement impact was to reduce amortization expense and
increase net income under US GAAP by Ps.16,520 and Ps.16,223,
respectively, for the year ended December 31, 2002 and 2003.
j. Capitalization of preoperating expenses - According to MEX GAAP, in
2001, certain subsidiaries capitalized preoperating expenses related
to a new lines of products in the amounts of Ps.42,222. These expenses
will be amortized over the term it takes for this business to be fully
operational. According to US GAAP, these expenses should be reflected
in results as required by Statement of Position (SOP) 98-5
"Recognition on the Costs of Start-Up Activities" issued by the
American Institute of Certified Public Accountants (AICPA).
k. Other pronouncements - Since the Company has a simple capital
structure, SFAS No.128, "Earnings per Share", has no impact on the
calculation of the approximate majority net income per share.
Beginning in 1998, SFAS No.130, "Comprehensive Income", became
effective, which requires presenting comprehensive income under US
GAAP. Note 26 d) presents a reconciliation of majority net income
under US GAAP to comprehensive income also under US GAAP, where the
main reconciling item is the result from holding nonmonetary assets.
Therefore, other accumulated comprehensive income is included in the
balance sheet under cumulative effect of restatement.
30
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that the bases to report the financial
information be the same as those used to internally evaluate the
performance of the business segments. Since the Company operates as
only one segment of auto parts, the consolidated figures provide a
basis of evaluation and analysis as only one business segment for
DESC, its holding company. Therefore, no additional disclosures are
required to comply with this SFAS.
l. Future Impact of Recently Issued Accounting Standards Not Yet in
Effect-
In Mexican GAAP:
Bulletin C-12, "Instrumentos Financieros con Caracteristicas de
Pasivo, de Capital o de Ambos" ("Financial Instruments with
Characteristics of Debt, Equity or Both") ("C-12") - In April 2003,
the IMCP issued Bulletin C-12, whose application is mandatory for
financial statements of periods beginning on or after January 1, 2004,
although early application is encouraged. C-12 establishes the more
significant differences between debt and equity, as the basis for the
development of the criteria necessary to appropriately identify,
classify and record, upon initial recognition, the debt and equity
components, of compound financial instruments. The Company does not
anticipate that this new standard will have a significant impact on
its financial position or results of operations.
In US GAAP:
SFAS No 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS No. 149") - In April 2003 the FASB issued
SFAS No. 149, which amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities
under SFAS No. 133. The changes in this statement improve financial
reporting by requiring that contracts with comparable characteristics
be accounted for similarly. The new standard will be effective for
contracts entered into or modified after June 30, 2003, except as
stated below and for hedging relationships designated after June 30,
2003. In addition, except as stated below, all provisions of this
statement should be early applied.
The provisions of this statement that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters
that began prior to June 15, 2003, should continue to be applied in
accordance with their respective effective dates. The Company does not
anticipate that this new standard will have a significant impact on
its financial position or results of operations.
FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46") - In January 2003, the FASB issued FIN 46. FIN 46
clarified the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain entities in which
equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 was effective immediately
for all variable interests held by the Company in a variable interest
entity created after January 31, 2003. For a variable interest held by
the Company in a variable interest entity created before February 1,
2003, the Company will be required to apply the provisions of FIN 46
as of December 31, 2004. The Company does not currently have any
variable interests in a variable interest entity.
31
Unit, S.A. de C.V.y Subsidiarias
Notas a los estados financieros consolidados al 31 de diciembre de 1998, 1999 y
2000 Expresadas en miles de pesos (Ps.) de poder adquisitivo del 31 de diciembre
de 2000 y miles de dolares americanos ($)
26. Reconciliation of MEX GAAP to US GAAP
a. Reconciliation of majority net income (loss)-
2001 2002 2003 2003
Majority net income (loss) under MEX GAAP Ps. 374,611 Ps. (101,574) Ps. (415,033) $ (37,058)
US GAAP adjustments:
Deferred income taxes under US GAAP 176,344 232,496 634,300 56,635
Deferred income taxes under MEX GAAP (210,146) (228,494) (422,072) (37,686)
Deferred employee profit sharing under US GAAP 32,406 32,663 126,655 11,308
Additional depreciation of fixed assets of foreign origin
restated through the NCPI method (95,164) (87,722) (31,307) (2,795)
Withdrawal of pension fund assets and amortization of gains
under SFAS No. 87 1,609 1,523 1,464 131
Effects of inflationary accounting on the US GAAP adjustments 68,356 137,626 3,510 313
Effects of the US GAAP adjustments on the minority
interest 5,338 (21,129) (34,185) (3,051)
Decapitalization of preoperating expenses (3,715) (16,002) 7,202 643
Effect from the difference in amortization of goodwill (1,322) 16,521 16,223 1,449
Effect of adjustments under US GAAP by discontinued operations 4,319 57,950 49,483 4,418
-------------- -------------- -------------- -----------
Net income (loss) under US GAAP Ps. 352,642 Ps. 23,858 Ps. (63,760) $ (5,693)
============== ============== ============== ===========
Weighted average number of outstanding common shares
(000) 700,968 700,968 700,968 700,968
============== ============== ============== ===========
Net income (loss) per share under US GAAP Ps. 0.5031 Ps. 0.0340 Ps. (0.0909) $ (0.0081)
============== ============== ============== ===========
32
b. Reconciliation of majority stockholders' equity -
2001 2002 2003 2003
Majority stockholders equity under MEX GAAP Ps. 3,735,765 Ps. 3,490,328 Ps. 3,177,132 $ 283,678
US GAAP adjustments:
Deferred income taxes under US GAAP (1,585,195) (1,198,280) (563,980) (50,356)
Deferred income taxes under MEX GAAP 1,263,773 1,074,046 539,977 48,213
Deferred employee profit sharing under US GAAP (482,874) (424,172) (297,517) (26,564)
Adjustment for changes to the NCPI method used to restate
machinery of foreign origin 777,198 287,958 70,251 6,272
Withdrawal of pension fund assets and amortization of under
SFAS No. 87 (11,303) (9,172) (7,356) (657)
Effects of the US GAAP adjustments on the minority
interest 22,715 87,758 233,623 20,860
Decapitalization of preoperating expenses (38,979) (32,199) (24,524) (2,190)
VELCON goodwill 3,855 20,167 36,390 3,249
Effect of adjustments under US GAAP by discontinued
operations 3,099 4,020 (6,420) (573)
-------------- -------------- -------------- -----------
Majority stockholders' equity under US GAAP Ps. 3,688,054 Ps. 3,300,454 Ps. 3,157,576 $ 281,932
============== ============== ============== ===========
33
c. Changes in majority stockholders' equity under US GAAP-
2001 2002 2003 2003
Majority Stockholders' equity at beginning of year Ps. 3,451,923 Ps. 3,688,054 Ps. 3,300,454 $ 294,688
Net income (loss) under US GAAP 352,642 23,858 (63,760) (5,693)
Result from holding nonmonetary assets (75,105) (124,802) 38,428 3,427
Dividends declared and paid (118,000) (199,492) (35,829) (3,199)
Adjustment of additional liability for employee retirement
obligations -- (87,164) (81,717) (7,291)
Earned surplus from restructuring of subsidiary 76,594 -- -- --
-------------- -------------- -------------- -----------
Majority stockholders' equity at end of year Ps. 3,688,054 Ps. 3,300,454 Ps. 3,157,576 $ 281,932
============== ============== ============== ===========
d. Comprehensive income under US GAAP -
2001 2002 2003 2003
Majority net income (loss) under US GAAP Ps. 352,642 Ps. 23,858 Ps. (63,760) $ (5,693)
Other comprehensive income (loss):
Result from holding nonmonetary assets (75,105) (124,800) 38,428 3,431
Adjustment of additional liability for employee retirement
obligations -- (87,164) 5,447 486
-------------- -------------- -------------- -----------
Comprehensive income (loss) under US GAAP Ps. 277,537 Ps. (188,106) Ps. (19,885) $ (1,776)
============== ============== ============== ===========
e. Cash flow statement in accordance with US GAAP
2001 2002 2003 2003
Income from continuing operations under US GAAP Ps. 369,792 Ps. 145,820 Ps. 351,176 $ 31,356
Income (loss) from discontinued operations (17,150) (81,325) 31,430 2,806
Extraordinary item -- (40,637) -- --
Cumulative effect of change in accounting principle -- -- (446,366) (39,855)
-------------- -------------- -------------- -----------
Consolidated net income (loss) for the year 352,642 23,858 (63,760) (5,693)
-------------- -------------- -------------- -----------
Add (deduct)- Items which did not require (generate) resources-
Depreciation and amortization 832,584 865,922 781,412 69,770
Goodwill amortization reversion (1,322) 16,521 16,223 1,449
Exchange gain (loss) (112,255) 188,763 134,022 11,966
Impairment of fixed asset 6,699 10,388 7,109 635
Allowance for doubtful accounts 2,857 (1,365) (1,103) (98)
Change in accounting principle -- -- 676,312 60,386
Deferred income taxes (208,750) (235,762) (760,954) (67,944)
Non-cash items from discontinued operations 1,493 (8,634) 3,014 269
Inflationary effect 124,097 (162,762) (28,087) (2,508)
Decapitalization of preoperating expenses -- -- (7,202) (643)
Net cost of employee benefits for the year 78,339 49,917 92,497 8,259
-------------- -------------- -------------- -----------
1,076,382 746,846 849,483 75,848
-------------- -------------- -------------- -----------
Change in working capital-
Current assets 829,797 879,193 (1,040,853) (92,935)
Current assets for restructuring of subsidiary 104,646 -- -- --
Current assets of discontinued operations 25,659 65,775 120 11
Accounts payable to related parties (17,945) 141,406 (81,552) (7,282)
Notes and accounts payable to suppliers and accrued
liabilities (182,688) (191,480) (305,230) (27,253)
(Continued)
34
2001 2002 2003 2003
Short-term liability from restructuring of subsidiary (38,617) -- -- --
Income taxes, asset taxes and employee profit sharing 175,409 (50,134) (116,481) (10,400)
Current liabilities of discontinued operations (31,286) 3,061 (26,278) (2,346)
-------------- -------------- -------------- -----------
Net resources generated by (used in) operating activities 1,941,357 1,594,667 (720,791) (64,357)
-------------- -------------- -------------- -----------
Financing activities:
Variance in bank loans and current portion of long-term debt
in real terms (366,836) (672,481) (1,051,684) (93,902)
Variance in bank loans and current portion of long-term debt
from restructuring of subsidiary (148,418) -- -- --
Decrease in bank loans and current portion of long-term debt
due to restatement in constant Mexican pesos (104,304) (93,705) (43,416) (3,876)
Repayments of long-term debt (429,296) (138,005) (5,246) (468)
Decrease in long-term debt from restructuring of subsidiary (37,944) --
Monetary effect on long-term debt (27,280) (8,177) (209) (19)
Due to Desc, S.A. de C.V. (parent company) -- -- 1,611,975 143,929
Dividends paid to majority stockholders (118,000) (199,492) (35,829) (3,199)
Dividends paid to minority stockholders of subsidiaries (402,094) (121,085) -- --
Adjustment of additional liability for employee retirement
obligations -- (87,164) 5,506 492
Adjustment to additional liability for employee retirement
obligations minority interest -- (13,058) (3,415) (305)
Earned surplus from restructuring of a subsidiary 68,438 -- -- --
Decrease in minority interest from restructuring of subsidiary (250,087) -- -- --
Deferred income taxes (214,846) 38,767 (111,997) (10,000)
Deferred income taxes from restructuring of subsidiary (94,661) -- -- --
Financing activities of discontinued operations (9,003) (720) -- --
-------------- -------------- -------------- -----------
Net resources (used in) generated by financing activities (2,134,331) (1,295,120) 365,685 32,652
-------------- -------------- -------------- -----------
Investing activities:
Additions to property, plant and equipment (333,104) (806,046) (556,810) (49,716)
Net book value of retirements of property, plant and equipment 200,867 169,368 264,796 23,643
Decrease in property, plant and equipment from restructuring of
subsidiary 269,327 -- -- --
Decrease in employee retirement obligation intangible asset,
liability net -- 157,489 (12,954) (1,157)
Investing activities of discontinued operations (2,243) 5,499 91,915 8,207
Other assets (128,040) 101,715 (8,624) (770)
Other assets from restructuring of subsidiary 11,431 -- -- --
-------------- -------------- -------------- -----------
Net resources generated by (used in) investing activities 18,238 (371,975) (221,677) (19,793)
-------------- -------------- -------------- -----------
Net increase (decrease) in cash and temporary investments (174,736) (72,428) (576,783) (51,498)
(Increase) decrease in cash and temporary investments of
discontinued operations 32,534 8,024 -- --
-------------- -------------- -------------- -----------
Cash and temporary investments at the beginning of the
year 928,489 786,286 721,881 64,455
-------------- -------------- -------------- -----------
Cash and temporary investments at the end of the year Ps. 786,287 Ps. 721,882 Ps. 145,098 $ 12,955
============== ============== ============== ===========
Supplemental cash flow disclosures:
Income and asset taxes paid Ps. 419,982 Ps. 421,083 Ps. 250,626 $ 22,378
============== ============== ============== ===========
Employee profit sharing paid Ps. 104,638 Ps. 111,063 Ps. 78,921 $ 7,047
============== ============== ============== ===========
Interest paid Ps. 177,519 Ps. 104,945 Ps. 69,895 $ 6,241
============== ============== ============== ===========
(Concluded)
35
Item 3
Desc, S.A. de C.V. and Subsidiaries
Consolidated financial statements for
the years ended December 31, 2002 and 2003
and Independent Auditors' Report
Dated March 26, 2004
Desc, S. A. de C. V. and Subsidiaries
Independent auditors' report and consolidated financial statements 2002 and 2003
Table of contents Page
Independent auditors' report 1
Consolidated balance sheets 3
Consolidated statements of income (loss) 5
Consolidated statements of stockholders' equity 7
Consolidated statements of changes in financial position 8
Notes to consolidated financial statements 10
Independent Auditors' Report to the Board of Directors and Stockholders of
Desc, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of Desc, S.A de
C.V. and subsidiaries (collectively referred to as the "Company") as of December
31, 2002, and 2003, and the related consolidated statements of income (loss),
changes in stockholders' equity and changes in financial position for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements of the
Company for the year ended December 31, 2001, were audited by other auditors who
expressed an unqualified opinion in their report dated March 12, 2002.
We did not audit the financial statements of the chemical and food segments,
which statements reflect total assets constituting 42% of consolidated total
assets as of December 31, 2002, and 2003, and total revenues constituting 53%
and 54%, respectively, of consolidated total revenues for the years then ended.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the reports of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico (and in the United States of America). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.
As mentioned in Notes 1b. and 11 to the accompanying consolidated financial
statements, in December 2003 the Company satisfactorily concluded negotiations
to restructure a significant portion of its short and long-term debt.
As mentioned in Note 4a. to the accompanying consolidated financial statements,
as of December 31, 2003 the Company early adopted the provisions of new Bulletin
C-15, "Impairment of the Value of Long-lived Assets and their Disposal", which
establishes that an impairment loss has occurred if the present value of
estimated net future cash flows of a cash generating unit is less than the book
value of long-lived assets, tangible or intangible. The effect in thousands of
pesos derived from the application of this principle was the recognition of
Ps.712,457 of impairment in the value of certain property, plant and equipment
and Ps.898,891 of impairment in the value of the goodwill of certain
subsidiaries. The charge to 2003 results was Ps.1,384,294, net of a reduction of
Ps.227,054 in the related deferred income tax liability.
In our opinion, based on our audit and the reports of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Desc, S.A. de C.V. and subsidiaries as of December 31,
2002, and 2003, and the results of their operations, changes in their
stockholders' equity and changes in their financial position for the years then
ended in conformity with accounting principles generally accepted in Mexico.
Our audits also comprehended the translation of the Mexican peso amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2a. The translation of the financial
statement amounts into U.S. dollars and the translation of the financial
statements into English have been made solely for the convenience of readers in
the United States of America.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member firm of Deloitte Touche Tohmatsu
/s/ Luis Javier Fernandez Barragan
CPC Luis Javier Fernandez Barragan
March, 26, 2004
2
Desc, S.A. de C.V. and Subsidiaries
Consolidated balance sheets
As of December 31, 2002 and 2003
Expressed in thousands of constant Mexican pesos (Ps.) and thousands of U.S.
dollars ($)
2002 2003 2003
Assets
Current assets:
Cash and cash equivalents Ps. 2,501,563 Ps. 719,967 $ 64,284
Notes and accounts receivable, net 3,825,351 4,270,341 381,287
Inventories, net 3,193,122 3,120,436 278,615
Prepaid expenses 56,777 78,212 6,983
Discontinued operations 102,009 8,346 745
----------------- ----------------- -----------------
Total current assets 9,678,822 8,197,302 731,914
Land held for development and real estate projects 4,290,528 3,828,312 341,820
Trade receivables - long-term - 1,048,481 93,616
Property, plant and equipment, net 13,684,423 11,813,121 1,054,762
Goodwill, net 1,381,563 594,673 53,097
Other assets, net 1,286,888 1,222,279 109,134
Discontinued operations 147,481 30,822 2,752
----------------- ----------------- -----------------
Total Ps. 30,469,705 Ps. 26,734,990 $ 2,387,095
================= ================= =================
Liabilities and stockholders' equity
Current liabilities:
Bank loans and current portion of long-term debt Ps. 3,641,828 Ps. 440,553 $ 39,336
Notes and accounts payable to suppliers 2,087,713 1,617,571 144,429
Income taxes and employee profit sharing 106,412 225,117 20,105
Other payables and accrued liabilities 1,777,136 1,731,975 154,643
Discontinued operations 62,482 13,366 1,193
----------------- ----------------- -----------------
Total current liabilities 7,675,571 4,028,642 359,706
Long-term debt 9,051,649 11,360,011 1,014,305
Deferred income taxes 1,339,115 880,749 78,640
Related parties - long-term - 183,762 16,408
Other long-term liabilities 577,887 375,609 33,537
----------------- ----------------- -----------------
Total liabilities 18,644,222 16,828,773 1,502,596
(Continued)
3
Stockholders' equity:
Capital stock 11,715,914 11,715,914 1,046,082
Paid-in surplus 1,170,390 1,170,390 104,501
Retained earnings 19,766,314 17,525,927 1,564,843
Reserve for repurchase of shares 996,847 996,847 89,006
Cumulative effect of initial recognition of
deferred income taxes (1,887,308) (1,887,308) (168,513)
Cumulative effect of restatement (23,690,416) (23,036,402) (2,056,859)
Adjustment of additional employee retirement
liability (154,105) (147,158) (13,139)
------------------ ------------------ ------------------
Majority stockholders' equity 7,917,636 6,338,210 565,921
Minority interest 3,907,847 3,568,007 318,578
------------------ ------------------ ------------------
Total stockholders' equity 11,825,483 9,906,217 884,499
------------------ ------------------ ------------------
Total Ps. 30,469,705 Ps. 26,734,990 $ 2,387,095
================== ================== ==================
(Concluded)
The accompanying notes are part of these consolidated financial statements.
4
Desc, S.A. de C.V. and Subsidiaries
Consolidated statements of income (loss)
For the years ended December 31, 2001, 2002 and 2003
Expressed in thousands of constant Mexican pesos (Ps.) and thousands of U.S.
dollars ($), except per share information
2001 2002 2003 2003
Net sales Ps. 22,092,872 Ps. 20,360,380 Ps. 21,755,055 $ 1,942,450
Cost of sales 16,284,573 15,572,154 17,024,252 1,520,050
-------------- -------------- -------------- ------------
Gross income 5,808,299 4,788,226 4,730,803 422,400
Operating expenses:
Administrative 2,229,370 2,222,587 2,318,689 207,029
Selling 1,616,673 1,484,339 1,569,650 140,150
-------------- -------------- -------------- ------------
3,846,043 3,706,926 3,888,339 347,179
-------------- -------------- -------------- ------------
Operating income 1,962,256 1,081,300 842,464 75,221
Other (expenses) income:
Impairment of fixed assets (101,205) (50,988) (14,140) (1,263)
Depreciation of idle plant (75,515) (7,539) (2,631) (235)
Amortization of goodwill (85,418) (79,992) (95,097) (8,491)
Goodwill write-off from Club Ecuestre Chiluca, S.A. de C.V. - - (59,280) (5,293)
Amortization of preoperating expenses and patents (112,077) (37,496) - -
Loss on sale of shares (12,324) (6,073) (18,086) (1,615)
Special item - severance payments (250,708) - (121,131) (10,815)
Income from the technology fund 37,016 29,114 23,336 2,084
Income (loss) on sale of assets 4,544 (27,494) (69,575) (6,212)
Recovery of taxes 13,991 51,434 47,474 4,239
Other, net (39,199) (6,272) (69,639) (6,218)
-------------- -------------- -------------- ------------
(620,895) (135,306) (378,769) (33,819)
Integral financial result:
Interest income 126,211 68,192 42,136 3,762
Interest expense (1,076,283) (865,104) (1,076,072) (96,079)
UDIS variation (109,282) (120,648) (93,847) (8,379)
Exchange gain (loss), net 336,046 (770,354) (529,668) (47,293)
Monetary position gain 374,976 414,082 305,978 27,320
-------------- -------------- -------------- ------------
348,332) (1,273,832) (1,351,473) (120,669)
-------------- -------------- -------------- ------------
Income (loss) from continuing operations before provisions
and equity in associated companies and unconsolidated
subsidiaries. 993,029 (327,838) (887,778) (79,267)
(Continued)
2001 2002 2003 2003
Provisions for:
Current income taxes 478,682 226,091 341,958 30,532
Deferred income taxes (572,760) (83,149) (279,890) (24,990)
Employee profit sharing 159,161 108,783 103,918 9,279
------------- --------------- --------------- ----------
65,083 251,725 165,986 14,821
Equity in associated companies and unconsolidated subsidiaries (125,376 (5,406) 11,252 1,005
------------- --------------- --------------- ----------
Income (loss) from continuing operations 802,570 (584,969) (1,042,512) (93,083)
Income (loss) form discontinued operations (253,863) (629,868) 22,896 2,044
Change in accounting principle - - (1,384,294) (123,600)
Extraordinary item (309,998) - - -
------------- --------------- -------------- ----------
Net consolidated income (loss) for the year Ps. 238,709 Ps. (1,214,837) Ps. (2,403,910) $ (214,639)
============= ============== ============== ==========
Allocation of consolidated net income:
Majority stockholders' interest Ps. 45,446 Ps. (1,084,545) Ps. (2,240,387) $ (200,038)
Minority stockholders' interest 193,263 (130,292) (163,523) (14,601)
------------- --------------- --------------- ----------
Ps. 238,709 Ps. (1,214,837) Ps. (2,403,910) $ (214,639)
============= ============== ============== ==========
Income (loss) per share:
Income (loss) from continuing operations Ps. 0.59 Ps. (0.43) Ps. (0.76) $ (0.07
============= ============== ============== ==========
Discontinued operations Ps. (0.19) Ps. (0.46) Ps. 0.02 $ -
============= ============== ============== ==========
Change in accounting principle Ps. - Ps. - Ps. (1.01) Ps. (0.09)
============= ============== ============== ==========
Extraordinary items Ps. (0.23) Ps. - Ps. - Ps. -
============= ============== ============== ==========
Majority net income (loss) Ps. 0.03 Ps. (0.79) Ps. (1.64) $ (0.15)
============= =============== ============== ==========
Weighted average shares outstanding (000's) 1,369,006 1,369,079 1,369,079 1,369,079
============= =============== =============== ==========
(Concluded)
The accompanying notes are part of these consolidated financial statements.
Desc, S.A. de C.V. and Subsidiaries
Consolidated statements of stockholders' equity
For the years ended December 31, 2001, 2002 and 2003
Expressed in thousands of constant Mexican pesos (Ps.) and thousands of U.S.
dollars ($)
Capital Stock
Number of Paid-in Retained
shares Historical Restatement surplus earnings
Balances, January 1, 2001 1,368,998,270 Ps. 17,797 Ps. 11,698,057 Ps. 1,169,800 Ps. 21,682,534
Increase in capital stock
due to merger 81,106 1 59 590 -
Dividends declared - - - - (448,185)
Decrease in minority interest
due to restructuring and sales - - - - -
Comprehensive income (loss) - - - - 45,446
--------------- ------------ -------------- -------------- ---------------
Balances, December 31, 2001 1,369,079,376 17,798 11,698,116 1,170,390 21,279,795
Dividends declared - - - - (428,936)
Comprehensive income (loss) - - - - (1,084,545)
--------------- ------------ -------------- -------------- ---------------
Balances, December 31, 2002 1,369,079,376 17,798 11,698,116 1,170,390 19,766,314
Purchase of minority shareholding
interests - - - - -
Comprehensive income (loss) - - - - (2,240,387)
--------------- ------------ -------------- -------------- ---------------
Balances, December 31, 2003 1,369,079,376 Ps. 17,798 Ps. 11,698,116 Ps. 1,170,390 Ps. 17,525,927
=============== ============ ============== ============== ==============
Balances, December 31, 2002 1,369,079,376 $ 1,589 $ 1,044,493 $ 104,501 $ 1,764,881
Purchase of minority shareholding
interests - - - - -
Comprehensive income (loss) - - - - (200,038)
--------------- ------------ -------------- -------------- ---------------
Balances, December 31, 2003 1,369,079,376 $ 1,589 $ 1,044,493 $ 104,501 $ 1,564,843
=============== ============ ============== ============== ==============
Cumulative
effect Adjustment
of initial of
Reserve recognition additional
for of deferred Cumulative employee Majority
repurchase income effect of retirement stockholders' Minority
of shares taxes restatement liability equity interest
Balances, January 1, 2001 Ps. 996,847 Ps. (1,887,308) Ps. (23,338,038) Ps. - Ps. 10,339,689 Ps. 5,426,438
Increase in capital stock
due to merger - - - - 650 -
Dividends declared - - - - (448,185) (402,055)
Decrease in minority interest
due to restructuring and sales - - - - - (625,094)
Comprehensive income (loss) - - (768,530) - (723,084) (356,039
----------- -------------- --------------- ------------ -------------- -------------
Balances, December 31, 2001 996,847 (1,887,308) (24,106,568) - 9,169,070 4,016,250
Dividends declared - - - - (428,936) (121,073)
Comprehensive income (loss) - - 416,152 (154,105) (822,498) 12,670
----------- -------------- --------------- ------------ -------------- -------------
Balances, December 31, 2002 996,847 (1,887,308) (23,690,416) (154,105) 7,917,636 3,907,847
Purchase of minority shareholding
interests - - - - - (314,101)
Comprehensive income (loss) - - 654,014 6,947 (1,579,426) (25,739)
----------- -------------- --------------- ------------ -------------- -------------
Balances, December 31, 2003 Ps. 996,847 Ps. (1,887,308) Ps. (23,036,402) Ps. (147,158) Ps. 6,338,210 Ps. 3,568,007
=========== ============== =============== ============ ============== =============
Balances, December 31, 2002 $ 89,006 $ (168,513) $ (2,115,254) $ (13,758) $ 706,945 $ 348,921
Purchase of minority shareholding
interests - - - - - (28,045)
Comprehensive income (loss) - - 58,395 619 (141,024) (2,298)
----------- -------------- --------------- ------------ -------------- -------------
Balances, December 31, 2003 $ 89,006 $ (168,513) $ (2,056,859) $ (13,139) $ 565,921 $ 318,578
=========== ============== =============== ============ ============== =============
Total
Stockholders'
equity
Balances, January 1, 2001 Ps. 15,766,127
Increase in capital stock
due to merger 650
Dividends declared (850,240)
Decrease in minority interest
due to restructuring and sales (652,094)
Comprehensive income (loss) (1,079,123)
--------------
Balances, December 31, 2001 13,185,320
Dividends declared (550,009)
Comprehensive income (loss) (809,828)
Balances, December 31, 2002 11,825,483
Purchase of minority shareholding
interests (314,101)
Comprehensive income (loss) (1,605,165
--------------
Balances, December 31, 2003 Ps. 9,906,217
==============
Balances, December 31, 2002 $ 1,055,866
Purchase of minority shareholding
interests (28,405)
Comprehensive income (loss) (143,322)
--------------
Balances, December 31, 2003 $ 884,499
==============
The accompanying notes are part of these consolidated financial statements.
6
Desc, S.A. de C.V. and Subsidiaries
Consolidated statements of changes in financial position
For the years ended December 31, 2001, 2002 and 2003
Expressed in thousands of constant Mexican pesos (Ps.) and thousands of U.S.
dollars ($)
2001 2002 2003 2003
Operating activities:
Income (loss) from continuing operations Ps. 802,570 Ps. (584,969) Ps. (1,042,512) $ (93,083)
Add (deduct)-Items which do not require (generate) resources-
Depreciation and amortization 1,310,465 1,319,529 1,380,750 123,283
Depreciation of idle plant 75,517 7,539 2,631 235
Impairment of fixed assets 101,205 50,988 14,140 1,263
Capitalized integral financial cost (5,838) - - -
Equity in associated companies and unconsolidated subsidiaries 125,376 5,406 (11,252) (1,005)
Amortization and write-off of goodwill 85,418 79,992 154,377 13,784
Deferred income taxes (572,760) (83,149) (279,890) (24,991)
Non-cash items from discontinued operations 114,055 57,813 20,634 1,842
------------ ----------- -------------- ------------
2,036,008 853,149 238,878 21,328
Changes in operating assets and liabilities-
Notes and accounts receivable 1,147,934 (53,954) (617,634) (55,147)
Inventories 604,575 53,604 29,530 2,637
Prepaid expenses 24,718 20,869 (21,435) (1,914)
Real estate assets available for sale (19,610) 19,610 - -
Decrease in current assets due to sale of assets of Industrias
Resistol, S.A. de C.V. - - 270,216 24,127
Current assets from discontinued operations 79,055 281,360 93,663 8,363
Notes and accounts payable to suppliers, other payables and
accrued liabilities 71,941 (140,601) (308,988) (27,588)
Income taxes and employee profit sharing 196,350 (291,010) 118,765 10,604
Current liabilities from discontinued operations (31,511) (34,037) (69,750) (6,228)
------------- ----------- -------------- ------------
2,073,452 (144,159) (505,633) (45,146)
------------- ----------- -------------- ------------
Discontinued operations (253,863) (629,868) 22,896 2,044
Change in accounting principle - - (1,384,294) (123,600)
Extraordinary items (309,998) - - -
------------ ----------- -------------- ------------
Net resources generated by (used in) operations 3,545,599 79,122 (1,628,153) (145,374)
------------ ----------- -------------- ------------
(Continued)
2001 2002 2003 2003
Financing activities:
Proceeds from debt (1,384,338) 4,852,720 7,097,310 633,700
Payments of debt (508,058) (2,654,645) (7,505,534) (670,149)
Effect of the variance on short-term bank loans,
current portion of long-term debt and long-term debt (558,659) (598,238) (484,689) (43,277)
Related parties - long-term - - 124,482 11,115
Other long-term liabilities (231,462) 322,197 (202,278) (18,061)
Deferred income taxes (516,591) 252,283 (178,476) (15,936)
Increase in capital stock due to merger 650 - - -
Dividends paid (228,323) (440,469) (206,315) (18,420)
Dividends paid to minority interest (402,055) (121,073) - -
Adjustment of additional employee retirement liability - (154,105) 6,947 619
Decrease in minority stockholders' interest due to
restructuring and sale (652,094) - - -
------------- -------------- ------------- -------------
Net resources (used in) generated by financing activities (4,480,930) 1,458,670 (1,348,553) (120,409)
------------- -------------- ------------- -------------
Investing activities:
Land acquisition (7,154) (3,142) - -
Cost of land sold 282,278 64,777 987,434 88,165
Investment in real estate projects (761,902) (405,757) (518,224) (46,271)
Cost of real estate projects sold 137,552 368,978 232,085 20,722
Trade receivables - long-term - - (1,048,481) (93,616)
Investments in shares (260,854) 29,137 - -
Cumulative effect of change in accounting policy of goodwill - - 898,891 80,260
Sale of shares of subsidiaries 1,574,561 - - -
Cash and cash equivalents of subsidiaries sold (79,368) - - -
Purchase of minority shareholdings - - (314,101) (28,045)
Acquisitions of property, plant and equipment (785,151) (1,117,412) (802,625) (71,664)
Net book value of retirements of property, plant and equipment 666,375 262,445 401,998 35,893
Net book value of retirements of property, plant and equipment of
Industrias Resistol, S.A. de C.V. - - 453,156 40,462
Cumulative effect of change in accounting policy in property
plant and equipment - - 712,457 63,614
Net increase of investment properties (28,349) - -
Other assets (94,961) 242,140 75,861 6,773
Investing activities of discontinued operations 3,718 66,469 116,659 10,416
------------- -------------- ------------- -------------
Net resources generated by (used in) investing activities 675,094 (520,714) 1,195,110 106,709
------------- -------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (260,237) 1,017,078 (1,781,596) (159,074)
Net decrease in cash and cash equivalents from
discontinued operations (13,919) (8,288) - -
Cash and cash equivalents:
Balance at beginning of year 1,766,929 1,492,773 2,501,563 223,358
------------- -------------- ------------- -------------
Balance at end of year Ps. 1,492,773 Ps. 2,501,563 Ps. 719,967 $ 64,284
============= ============== ============= =============
(Concluded)
The accompanying notes are part of these consolidated financial statements.
Desc, S.A. de C.V. and Subsidiaries
Notes to consolidated financial statements
As of December 31, 2001, 2002 and 2003
Expressed in thousands of constant Mexican pesos (Ps.) and thousands of U.S.
dollars ($)
1. Principal activities and significant events
Activities- Desc, S.A. de C.V. ("DESC") is the controlling stockholder of a
group of companies engaged mainly in the manufacture and sale of autoparts,
chemicals and food. It is also engaged in the acquisition, sale and
development of real estate.
Significant events-
a. The economic slowdown recorded in the last few years had a significant
impact in the United States of America and Mexico, with adverse
consequences on the results of DESC, primarily in the automotive and
chemical sectors. For this reason, during 2002 and 2003 DESC decided to
reviewing its investment portfolio and realigning its operating
structure to reflect market conditions. Therefore, during 2002 DESC
decided to close the following non-strategic businesses: spark plugs
and electric parts from the automotive sector, the natural pigments
business in the chemicals sector, and in the food sector the hog
raising operation in the Bajio region and the shrimp farming business,
which was donated to the Instituto Tecnologico de Estudios Superiores
de Monterrey; it also began a downsizing program which continued during
2003, during which period the group's work force was reduced by 15.1%
(see Notes 17 and 18).
b. In December 2003 the Company satisfactorily concluded the agreement
with bank creditors to refinance syndicated loans and a significant
part of the Company's short-term debt. The total amount of the
restructured debt was approximately $667,000 ($445,700 and Ps.1,223,000
of long-term loans and $112,000 of revolving credit and letters of
credit), which represents around 63% of the Company's consolidated
debt. The terms of the negotiation include maturity of the debt after
five years and a grace period of 30 months as of January 2004 for
payment of principal. The interest rates obtained for the dollar debt
are LIBOR rate plus a variable interest margin, while the rate for the
Mexican peso debt is TIIE (Interbank interest rate) plus a variable
interest margin (see Note 11).
c. Continuing with the programs mentioned in subsection a) above, the
following resolutions were adopted at the Stockholders' Ordinary
General and Special Meeting held on April 28, 2003:
i. Merge DESC with Industrias Resistol, S.A. de C.V. with DESC
surviving as the merged company. Such merger went into effect for
accounting and tax purposes as of September 29, 2003, DESC sold
basically all of the assets of the aforementioned subsidiary
engaged in the manufacture and sale of adhesives and waterproofing
materials as of September 30, 2003. As a result of such asset sale,
the Company generated a loss of Ps.11,013 which is recorded in the
statement of income (loss) under the heading "Other expenses".
ii. Merge DESC with Industrias Ruiz Galindo, S.A. de C.V., with DESC
surviving as the merged company. Such merger went into effect for
accounting and tax purposes as of May 1, 2003, for which reason as
of this date Industrias Ruiz Galindo, S.A. de C.V. ceased to exist
as a legal entity.
10
2. Basis of presentation
a. Convenience translation - U.S. dollar amounts shown in the financial
statements have been included solely for the convenience of users and
are translated at the exchange rate for December 31, 2003 of 11.1998
Mexican pesos per U.S. dollar. Such translation should not be
interpreted as a representation that the Mexican peso amounts have
been, could have been, or could in the future be, translated into U.S.
dollars at this or any other exchange rate. The statements of income in
US dollars generated monthly by the Company for local purposes are
determined based on historical amounts for each month and are converted
at the average exchange rates of the respective months, for which
reason they differ from the accompanying consolidated statement of
income (loss).
b. 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 Company's principal subsidiaries are:
2002 2003
Automotive segment-
Desc Automotriz, S.A. de C.V. and Subsidiaries 99.9% 99.9%
Chemical segment ("GIRSA")-
Industrias Negromex, S.A. de C.V. 99.9% 99.9%
Paratec, S.A. de C.V. 99.9% -
Industrias Resistol, S.A. de C.V. 99.9% -
Quimir, S.A. de C.V. 99.9% 99.9%
Resirene, S.A. de C.V. 99.9% 99.9%
Rexcel, S.A. de C.V. 99.9% 99.9%
Nhumo, S.A. de C.V. 60% 60%
Dynasol Elastomeros, S.A. de C.V. 50.1% 50.1%
Food sector-
Agroken, S.A. de C.V. and subsidiaries 99.9% 99.9%
Corfuerte, S.A. de C.V. and subsidiaries ("CORFUERTE") 77.6% 96.1%
Authentic Acquisition Corporation and Subsidiaries 81.3% 99.9%
Real estate segment ("DINE")-
Cantiles de Mita, S.A. de C.V. 96% 96%
Canada Santa Fe, S.A. de C.V. 73% 73%
Promociones Bosques, S.A. de C.V. 100% 100%
Inmobiliaria Dine, S.A. de C.V. 100% 100%
Club Ecuestre Chiluca, S.A. de C.V. 77.26% -
To simplify the Company's administrative structure, DESC was merged with
GIRSA and DINE on November 29, 2001 and April 25, 2002, respectively, with
DESC surviving as the merged company. Additionally Club Ecuestre Chiluca,
S.A. de C.V. and Paratec, S.A. de C.V. were merged into Cantiles de Mita,
S.A. de C.V. and Industrias Negromex, S.A. de C.V. in June and September
2003, respectively.
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 of the
Mexican peso as of December 31, 2003.
Investments in shares of associated companies and unconsolidated
subsidiaries are recorded using the equity method based on the financial
statements prepared using same accounting policies as the Company, and are
included under the "Other assets" heading in the balance sheets.
11
c. Sale of certain assets of Industrias Resistol, S.A. de C.V. - As
mentioned in Note 1c, on September 29, 2003 the merger of Industrias
Resistol, S.A. de C.V. into DESC went into effect for accounting and
tax purposes. On September 30, 2003 DESC sold basically all the assets
of such subsidiary engaged in the manufacture and sale of adhesives and
mortar proofing materials suspending its operations in such businesses.
Consequently, the consolidated financial statements include the results
of the subsidiary Industrias Resistol, S.A. de C.V. as of December 31,
2001 and 2002, and for the period from January 1 through September 30,
2003. Following is a summary of the condensed statements of income of
such subsidiary for the aforementioned periods:
2001 2002 2003
Net sales Ps. 938,193 Ps. 916,097 Ps. 694,173
Cost of sales (447,531) (479,852) (389,837)
Operating expenses (246,094) (268,414) (183,665)
Integral result of financing (108,069) (111,259) (73,056)
Other expenses (43,223) (101,387) (89,795)
Income tax provision 30,920 23,306 (68,565)
-------------- --------------- ---------------
Net income (loss) Ps. 124,196 Ps. (21,509) Ps. (110,745)
============== =============== ===============
d. Purchase of minority interests of CORFUERTE and AAC - As mentioned in
Note 20, on November 11, 2003 the minority shareholders of the
subsidiaries CORFUERTE and AAC formally notified their decision to
exercise the sale option of their shares to DESC, which was formalized
on January 29, 2004. Consequently, as of that date the shareholding of
DESC in such subsidiaries increased from 77.6% to 96.1% and from 81.3%
to 99.9%, respectively. The amount paid was $14,311 (Ps.156,194) and is
recorded as a liability in "Other payables and accrued liabilities".
e. Conversion of financial statements of foreign subsidiaries- The
financial statements of foreign subsidiaries, whose operation is not
integrated into that of the Mexican companies (foreign entity), are
restated using the national inflation index of the respective country
and are converted to Mexican pesos at the exchange rate in effect at
the end of the year. The financial statements in local currency of
foreign companies whose operations are integrated with those of the
Mexican companies are converted at the exchange rates in effect at the
transaction closing or origin, depending on whether they are monetary
or nonmonetary items, and are restated by using the Mexican National
Consumer Price Index (NCPI). The conversion effects of the foreign
entity are recorded in stockholders' equity in the "Cumulative
restatement effect" account. Additionally, the conversion effects of
the integrated transactions are recorded in results of the year in net
comprehensive financing cost, within the "Monetary position gain"
account. Such effects are not material.
f. Comprehensive income (loss)- Comprehensive income (loss) is comprised
of the net consolidated income for the period plus (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. In 2001, 2002 and 2003 other comprehensive income
is comprised of the gain or loss from holding nonmonetary assets and
the effect of translation of foreign subsidiaries and, in 2002 and
2003, the adjustment of additional employee retirement liability.
g. Reclassifications- Certain amounts in the consolidated financial
statements at December 31, 2001 and 2002 have been reclassified in
order to conform to the presentation of the consolidated financial
statements at December 31, 2003.
12
1. Summary of financial data by business segment
The presentation below sets forth certain financial information regarding
the Company's industry segments. Intersegment transactions have been
eliminated.
Total assets by industry are those assets that are used in the operations
of each industry segment. Corporate assets are principally cash and
long-term investments.
Net
Net Operating consolidated Total Total Capital
2001 Sales income income (Loss) assets liabilities expenditures
Automotive Ps. 10,157,225 Ps. 1,144,371 Ps. 570,316 Ps. 10,230,142 Ps. 4,976,365 Ps. 333,071
Chemicals 7,334,118 549,791 30,725 7,535,897 3,399,607 261,237
Food 3,693,349 174,927 (143,282) 5,920,482 1,679,157 185,422
Real estate 887,107 159,438 (48,583) 5,578,556 1,152,632 771,809
Corporate 21,073 (66,271) (170,467) 950,479 5,822,473 2,668
-------------- ------------- ------------- -------------- -------------- -------------
Ps. 22,092,872 Ps. 1,962,256 Ps. 238,709 Ps. 30,215,556 Ps. 17,030,234 Ps. 1,554,207
============== ============= ============= ============== ============== =============
2002
Automotive Ps. 8,731,810 Ps. 644,084 Ps. (43,445) Ps. 9,550,708 Ps. 3,838,190 Ps. 776,994
Chemicals 7,211,861 341,415 (228,835) 7,457,870 3,552,223 278,867
Food 3,581,989 102,380 (576,144) 5,379,833 886,477 31,358
Real estate 799,283 84,913 (38,193) 6,202,016 268,089 433,876
Corporate 35,437 (91,492) (328,220) 1,879,278 10,099,243 5,216
-------------- ------------- ------------- -------------- -------------- -------------
Ps. 20,360,380 Ps. 1,081,300 Ps.(1,214,837) Ps. 30,469,705 Ps. 18,644,222 Ps. 1,526,311
============== ============= ============= ============== ============== =============
2003
Automotive Ps. 7,820,304 Ps. 226,670 Ps. (391,865) Ps. 7,984,504 Ps. 1,948,068 Ps. 750,105
Chemicals 7,868,456 202,924 (493,956) 6,942,505 3,174,673 354,575
Food 3,883,594 123,985 (1,059,688) 4,338,087 306,617 176,773
Real estate 1,968,953 412,329 (68,383) 6,124,230 1,262,428 38,775
Corporate 213,748 (123,444) (390,018) 1,345,664 10,136,987 63,153
-------------- ------------- ------------- -------------- -------------- --------------
Ps. 21,755,055 Ps. 842,464 Ps.(2,403,910) Ps. 26,734,990 Ps. 16,828,773 Ps. 1,383,381
============== ============= ============= ============== ============== ==============
Depreciation Change in Provision for
and Impairment of Interest Interest accounting Extraordinary current income
2001 amortization fixed assets expense income principle item taxes
Automotive Ps. 737,349 Ps. 6,699 Ps. 197,558 Ps. 61,309 Ps. - Ps. - Ps. 484,389
Chemicals 398,191 49,859 382,988 30,245 - 13,609 292,829
Food 182,281 7,559 147,205 11,781 - - 3,201
Real estate 39,112 - 125,155 42,871 - - 35,475
Corporate 29,049 37,088 223,377 (19,995) - 296,389 (337,212)
-------------- -------------- ------------- -------------- ------------ ------------ --------------
Ps. 1,385,982 Ps. 101,205 Ps. 1,076,283 Ps. 126,211 Ps. - Ps. 309,998 Ps. 478,682
============== ============== ============= ============== ============ ============ ==============
2002
Automotive Ps. 738,041 Ps. 10,387 Ps. 84,585 Ps. 22,187 Ps. - Ps. - Ps. 463,785
Chemicals 357,598 32,294 134,176 9,085 - - 71,844
173,306 8,307 53,474 6,721 - - 4,071
Food
23,407 - 99,932 15,660 - - -
Real estate
34,716 - 492,937 14,539 - - (313,609)
-------------- -------------- ------------- -------------- ------------ ------------ --------------
Corporate Ps. 1,327,068 Ps. 50,988 Ps. 865,104 Ps. 68,192 Ps. - Ps. - Ps. 226,091
============== ============== ============= ============== ============ ============ ==============
2003
Automotive Ps. 750,105 Ps. - Ps. 56,498 Ps. 5,568 Ps. (482,280) Ps. - Ps. 297,286
Chemicals 354,575 - 135,380 10,782 (3,123) - 121,517
Food 79,968 14,097 33,726 6,533 (898,891) - 4,978
Real estate 438,223 - 74,920 2,873 - - 41,910
Corporate 86,623 43 775,548 16,380 - - (123,733)
-------------- -------------- ------------- -------------- -------------- ------------ --------------
Ps. 1,383,381 Ps. 14,140 Ps. 1,076,072 Ps. 42,136 Ps.(1,384,294) Ps. - Ps. 341,958
============== ============== ============= ============== ============== ============ ==============
2. Significant accounting policies
The accounting policies followed by DESC and subsidiaries (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:
a. Adoption of accounting principles- The Company early adopted the provisions
of new Bulletin C-15, "Impairment in the value of long-lived assets and
their disposal" ("C-15"). C-15 establishes, among other issues, that in the
presence of indicators of impairment of a long-lived asset in use, whether
tangible or intangible, including goodwill, entities must determine the
possible loss from impairment, unless they have evidence clearly
demonstrating that such indicators are of a temporary nature. To calculate
the loss from impairment requires the determination of the recovery value,
now defined as the higher of the net selling price of a cash generating
unit and its use value, which is the present value of future net cash
flows, at an appropriate discount rates. In the provisions prior to C-15,
net future cash flows referenced to the purchasing power in effect at the
evaluation date were used, without requiring the discounting of such flows.
The effect derived from the application of this new principle was the
recognition of Ps.712,457 of impairment in the value of certain property,
plant and equipment and Ps.898,891 of impairment in the value of the
goodwill of certain subsidiaries. The charge to 2003 results was
Ps.1,384,294, net of a reduction of Ps.227,054 in the related deferred
income tax liability, presented in the statement of income under the
heading "Change in accounting principle".
Beginning January 2003, the Company adopted the provisions of the following
Mexican bulletins:
. Bulletin C-8, "Intangible Assets" (C-8), went into effect. This
bulletin establishes that project development costs should be
capitalized if they fulfill the criteria established for recognition
as assets. Any preoperating costs incurred after the effective date of
this Bulletin should be recorded as an expense, unless they meet
certain criteria. The unamortized balance of capitalized preoperating
costs under the former Bulletin C-8 will continue to be amortized.
During the year ended December 31, 2003, there was no adverse effect
derived from the application of new Bulletin C-8.
. Bulletin C-9, "Liabilities, Provisions, Contingent Assets and
Liabilities and Commitments" (C-9), which establish additional
guidelines clarifying the accounting for liabilities, provisions and
contingent assets and liabilities, and establish new standards for the
use of present value techniques to measure liabilities and accounting
for the early settlement of obligations. During the year 2003, there
was no adverse effect derived from the application of new Bulletin
C-9.
. Bulletin E-1, "Agriculture" (E-1), which establishes the rules for
valuing, presenting and disclosing biological assets and agricultural
products, which includes the administration carried out by a related
party with the respect to biological transformation of live animals or
plants (biological assets) that are destined to be sold as an
agricultural product or as a comprehensive part of a biological asset.
Bulletin E-1 requires biological assets and agricultural products to
be valued at their fair market value, less the estimated costs at the
point of sale. Bulletin E-1 also states that when the fair market
value cannot be determined in a reliable and objective manner, the
aforementioned assets should be valued at production cost, less
accumulated depreciation. Crop production in progress as of December
31, 2003 is valued at cost. The effects derived from the application
of E-1 in the consolidated financial statements as of December 31,
2003 were not material.
b. 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.
c. Temporary investments- Temporary investments are stated at the lower of
acquisition cost plus accrued yields, or at market value, yields are
recorded in the statement of income (loss).
14
d. 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.
e. Land held for development and real estate projects- Undeveloped land
represents land reserves that, together with developed land and ongoing and
completed projects held for sale, are considered non-current inventories.
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.
If the Mexican NCPI had been used to restate land held for development,
developed land and real estate projects, their net value at December 31,
2002 and 2003 would have increased by Ps.873,621 and Ps.609,431,
respectively, and the cost of land sold for the years ended December 31,
2001, 2002 and 2003 would have increased by Ps.143,681, Ps.121,277 and
Ps.159,621, respectively.
The Company capitalizes the integral financing cost on debt used to finance
real estate projects in progress, in addition to their construction and
development costs. During 2001, 2002 and 2003, the Company did not have
real estate projects whose integral financing cost was subject to
capitalization.
f. Property, plant and equipment- This item 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.
If the restatement of all property, plant and equipment had been calculated
using the NCPI, the net value of fixed assets as of December 31, 2002 and
2003 would have increased by Ps.1,905,377 and Ps.174,565, respectively, and
the depreciation as for the years ended December 2001, 2002 and 2003 would
have increased by Ps.212,913, Ps.210,416 and Ps.44,702, respectively.
The companies capitalize the integral financing cost on debt used to
finance construction in progress and the installation of equipment, until
they are placed in service. During 2001 the integral financing cost
capitalized was Ps.5,838 During 2002 and 2003, the Company did not have
construction in progress whose net comprehensive financing cost was subject
to capitalization.
Depreciation of property, plant and equipment is calculated using the
straight-line method applied to month-end balances based on the average
restated value of the year deducted from a salvage value, which, depending
on the heading, fluctuates between 5% and 10% of its restated value, and
their estimated useful lives.
g. Impairment of fixed assets- The amounts shown in the accompanying
consolidated statements of income (loss) basically refer to the reduction
in value of property and machinery of some productive facilities, in order
to reflect their realizable value in accordance with the current situation
of such businesses.
h. 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 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.
i. Derivative financial instruments - These instruments are traded only with
authorized institutions and trading limits have been established for each
institution. The Company does not carry out transactions with derivative
financial instruments for the purpose of speculation.
15
The derivative financial instruments currently used by the Company are
primarily hedge contracts to reduce its exposure to exchange rate and
interest 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.
j. Goodwill- Up to 2003, the goodwill resulting from acquisitions made in
excess of book value is restated by applying the NCPI amortized over
periods ranging from five to 20 years, the terms over which the
benefits from the investment will be realized. Due to the early
adoption of new Bulletin C-15, goodwill is subject to the impairment
of long-lived assets calculation.
k. Other assets - Costs incurred in the development phase that meet
certain requirements and that the Company has determined will have
future economic benefits are capitalized and amortized based on the
straight-line method over five years. Those disbursements that do not
meet such requirements are recorded in results of the period in which
they are incurred. Intangible assets with indefinite lives are not
amortized because they can be renewed at a reduced cost, however,
their value is subject to impairment tests. Preoperating costs
incurred after January 1, 2003, are recorded directly in results of
the period in which they are incurred. Preoperating expenses incurred
and capitalized up to December 31, 2002 are amortized using the
straight-line method over five years.
l. Impairment of long-lived assets in use- The Company reviews the book
value of long-lived assets in use tangible and intangible, in the
presence of any indicator of impairment that might indicate that such
book value might not be recoverable, considering the higher of the
present value of future net cash flows or the net selling price, in
the event of their eventual disposal. The impairment is recorded
considering the amount by which the book value exceeds the higher of
the aforementioned values.
m. Provisions - Provisions are recognized for obligations that result
from a past event, that are probable to result in the use of economic
resources and that can be reasonably estimated. Such provisions are
recorded at net present values when the effect of the discount is
significant.
n. 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 reduced 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.
o. 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
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.
16
p. Foreign currency balances and transactions - Foreign currency
transactions are recorded at the applicable exchange rate in effect at
the transaction date. Monetary assets and liabilities denominated in
foreign currency are translated into Mexican pesos at the applicable
exchange rate in effect at the balance sheet date. Exchange
fluctuations are recorded as a component of net comprehensive
financing cost (income) in the consolidated statements of income.
q. 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.
r. 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 latest estimated costs determined exceed the total
revenues contracted, the respective provision is charged to results of
the year.
s. 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.
t. Income per share- Basic income (loss) per ordinary share is calculated
by dividing net income (loss) of majority stockholders by the weighted
average number of shares outstanding during the year.
5. Cash and cash equivalents
2002 2003
Cash Ps. 436,715 Ps. 243,663
Restricted cash - 16,400
Cash equivalents 1,748,116 459,904
Technology and trust funds to be used within three months 316,732 -
------------- -------------
Ps. 2,501,563 Ps. 719,967
============= =============
As part of the sale of the assets of Industrias Resistol, S.A. de C.V., the
Company received Ps.53,539 in cash with formal restrictions as to its
availability, of which Ps.16,400 represents short-term restricted cash, and
Ps.37,139 on a long term basis, recorded under the heading "Other assets".
As of December 31, 2002 the technology and training funds held in trust,
which would be exercised within three months during 2003 were classified as
cash.
17
6. Notes and accounts receivable
2002 2003
Trade Ps. 2,882,150 Ps. 3,492,644
Less- Allowance for doubtful accounts (58,847) (109,596)
------------- -------------
2,823,303 3,383,048
Other debtors 84,467 109,665
Recoverable taxes 301,969 412,578
Other receivables 615,612 365,050
------------- -------------
Ps. 3,825,351 Ps. 4,270,341
============= =============
The movements of the allowance for bad debts are as follows:
2002 2003
Balance at the beginning of the year Ps. 56,080 Ps. 56,600
Provision for the year 15,377 68,306
Provision used in the year (15,808) (17,557)
Restatement of initial balance 3,198 2,247
------------- -------------
Balance at the end of the year Ps. 58,847 Ps. 109,596
============= =============
During 2002 and 2003, certain subsidiaries sold commercial paper without
recourse at an average financial cost of 9.23% and 9.08% for Mexican pesos,
respectively, and 3.62% and 3.86% for U.S. dollars, respectively, and terms
ranging between 4 and 89 days in 2002 and between 4 and 74 days in 2003,
with two financial institutions. As of December 31, 2002 and 2003, the
balances of commercial paper sold without recourse were Ps.520,883, and
Ps.493,486, respectively (equivalent to $46.5 and $44.1 million,
respectively).
Trade receivables - long-term - Certain real estate sector have long-term
trade receivables in US dollars, which are recorded at present value at a
3% discount rate with the following maturities:
2005 Ps. 295,399
2006 311,312
2007 and thereafter 441,770
-------------
Ps. 1,048,481
=============
7. Inventories
2002 2003
Finished goods and work-in-process Ps. 1,978,504 Ps. 2,001,478
Raw materials, supplies and other 1,236,041 1,153,483
------------- -------------
3,214,545 3,154,961
Less- Allowance for slow-moving items (55,568) (61,416)
------------- -------------
3,158,977 3,093,545
Advances to suppliers 34,145 26,891
------------- -------------
Ps. 3,193,122 Ps. 3,120,436
============= =============
18
Movements in the reserve for obsolete and slow-moving inventories are as
follows:
2002 2003
Balance at the beginning of the year Ps. 73,050 Ps. 53,447
Provision for the year 33,770 53,049
Provision used in the year (52,428) (47,201)
Restatement of the initial balance 1,176 2,121
------------- -------------
Balance at the end of the year Ps. 55,568 Ps. 61,416
============= =============
8. Land held for development and real estate projects
2002 2003
Land held for development Ps. 982,148 Ps. 1,035,260
Real estate projects-in-progress 1,462,090 1,511,118
Developed land 1,817,782 1,254,485
Advances to contractors 23,274 26,283
Other 5,237 1,166
------------- -------------
Ps. 4,290,528 Ps. 3,828,312
============= =============
9. Property, plant and equipment
Annual
Depreciation
2002 2003 Rate (%)
Buildings and installations Ps. 6,121,907 Ps. 6,056,109 2 to 31.5
Machinery and equipment 17,110,130 16,758,770 3.8 to 31.8
Vehicles 283,735 413,807 9 to 33.3
Furniture and fixtures 427,064 402,681 10 to 30
Other 527,123 536,749 3.5 to 33
-------------- --------------
24,469,959 24,168,116
Accumulated depreciation (12,908,484) (13,845,357)
-------------- --------------
11,561,475 10,322,759
Projects-in-progress 916,816 462,993
Land 1,206,132 1,027,369
-------------- --------------
Ps. 13,684,423 Ps. 11,813,121
============== ==============
Temporarily idle assets amount Ps.332,316 and Ps.66,800 in 2002 and 2003,
respectively, and permanently idle assets Ps.198,378 and Ps.544,458 in 2002
and 2003, respectively.
19
Certain subsidiaries entered into a machinery sale agreement (without
obligation to repurchase) with a financial institution. On that date, a
machinery lease agreement covering the same machinery was executed (see
Note 19).
Date of contract Term Amount Leases payment Interest rate
June 29, 2001 5 years $ 18.7 million Quarterly 1.5%
December 19, 2002 7 years $ 11.0 million Quarterly 3.7%
March 27, 2003 7 years $ 3.1 million Quarterly 3.7%
August 19, 2003 7 years $ 21.2 million Quarterly 3.4% to 3.7%
Investment properties as of December 31, 2002 and 2003 are comprised as
follows:
2002 2003
Buildings Ps. 340,079 Ps. 217,500
Accumulated depreciation (171,788) (104,952)
Land 190,734 77,997
-------------- --------------
Ps. 359,025 Ps. 190,545
============== ==============
The annual average rate of depreciation of buildings in 2002 and 2003 was
2.4%. As of December 31, 2003 the fair value of investment properties is
Ps.209,658.
As of December 31, 2003, property, plant and equipment of certain
subsidiaries are pledged against the Company's long-term bank debt (see
Note 11).
10. Other payables, accrued liabilities and business reserves and contingencies
2002 2003
Accounts and notes payable
to contractors Ps. 24,606 Ps. 36,365
Other debtors 322,317 366,110
Account payable to minority
investors -- 156,194
Warranty reserves 38,213 91,845
Business reserves and
contingencies 438,359 92,125
Expense provisions 166,065 162,611
Advances from customers 14,465 56,291
Royalties and technical
assistance 31,447 15,384
Dividends payable 208,328 2,013
Taxes payable 229,590 407,253
Interest payable 105,886 116,941
Other 197,830 228,843
-------------- --------------
Ps. 1,777,136 Ps. 1,731,975
============== ==============
20
Movements of the restructuring and contingencies reserve are as follows:
2002 2003
Balance at the beginning of the year Ps. 665,443 Ps. 421,621
Reserve for the year 108,741 100,961
Reserve used in the year (373,756) (447,195)
Restatement of the initial balance 37,931 16,738
-------------- --------------
Balance at the end of the year Ps. 438,359 Ps. 92,125
============== ==============
a. The Company recorded a restructuring reserve in the year ended
December 31, 2001 which has been increased and used in accordance with
the project for realigning its operating restructure. The balance as
of December 31, 2003 will be exercised during 2004, for the
termination of the project mentioned above and the definitive close of
Bioquimex, S.A. de C.V. (natural pigments business)
b. On January 7, 2003, the Company's subsidiary Fenoquimia, S.A. de C.V.
was notified of a new ancillary claim filed by Sales Nacionales, S.A.
de C.V., in which the latter quantifies the aforementioned damages and
monetary losses in the amount of Ps.159,804. Such claim was answered
by Fenoquimia, S.A. de C.V.; however, on December 11, 2003, the
Company reached an agreement with its counterparty to conclude this
dispute, with a one-time payment of Ps.54,480 in cash and real estate
assets, for which there was a provision recorded in prior years within
the restructuring and contingencies reserve..
c. Certain subsidiaries are engaged in lawsuits as plaintiffs and
defendants in the regular course of operations. These lawsuits always
involve uncertainty, and some of them may result in adverse judgments
for the companies. While it is impossible to determine the amount
involved in pending lawsuits, management believes that based on the
facts any resulting liability would not materially affect the
financial position or results of operations of the companies.
11. Bank loans and long-term debt
Bank loans and long-term debt are as follows:
2002 2003
Maturity Interest Rate Amount Maturity Interest Rate Amount
Syndicated loan-
DESC $445.7 million -- -- -- 2006 to 2008 LIBOR + 1.625 to Ps. 4,992,311
LIBOR +4
DESC Ps.1,223 million -- -- -- 2006 to 2008 TIIE + 1.125 to 1,222,553
TIIE + 4.5
DESC $100 million -- -- -- 2006 LIBOR + 1.375 to 1,119,980
LIBOR +4
DESC $97.17 million 2005 LIBOR + 1.375 Ps. 1,046,778 -- -- --
DESC $177.83 million 2007 LIBOR + 1.625 1,915,699 -- -- --
DESC Ps.1,300 million 2007 TIIE + 0.9 1,351,610 -- -- --
Medium-term promissory notes-
DESC 680,569 million UDIS 2006 and 2007 9% and 8.20% 2,282,519 2006 and 2007 9% and 8.20% 2,281,268
21
2002 2003
Maturity Interest Rate Amount Maturity Interest Rate Amount
International Finance
Corporation-
Chemical segment
$6.57 million 2003 to 2006 Variable 204,681 2004 to 2006 LIBOR + 2.125 73,599
Chemical segment
$90 million 2003 to 2009 Variable and fixed 1,131,128 2004 to 2009 Variable and fixed 1,007,982
Loans-
DESC $15 million 2003 and 2004 3.85% 161,590 -- -- --
DESC $35 million 2003 and 2004 3.75% 377,043 -- -- --
Secured bonds-
DESC (formerly DINE)
$73 million 2007 8.75% 786,952 2007 8.75% 818,157
Secured syndicated loans-
Desc Automotriz $4.23
million 2003 7.34% 45,527 -- -- --
Desc Automotriz $0.5
million 2004 LIBOR + 1 16,159 2004 LIBOR + 1 5,600
Other loans payable in-
Mexican pesos 2003 to 2010 Variable 31,179 2004 to 2010 Variable 24,189
Foreign currency 2003 to 2010 Variable 362,995 2004 to 2010 Variable 61,038
------------- --------------
9,713,860 11,606,677
Less- Current portion 662,211 246,666
------------- --------------
Ps. 9,051,649 Ps. 11,360,011
============= ==============
As of December 31, 2002 and 2003, the LIBOR rate was 1.38% and 1.46%
respectively, and the Mexican Interbank rate (TIIE) was 8.45% and 7.9%
respectively.
Long-term debt maturities as of December 2003 are as follows:
2005 Ps. 198,918
2006 4,469,882
2007 4,264,706
2008 2,258,496
2009 and thereafter 168,009
--------------
Ps. 11,360,011
==============
The current portions of long-term debt and short-term bank loans are as
follows:
2003 2002
Current portion of long-term debt Ps. 662,211 Ps. 246,666
Other loans payable in-
Foreign currency 2,979,617 193,887
------------- -----------
Ps. 3,641,828 Ps. 440,553
============= ===========
Debt refinancing- As mentioned in Note 1, during December 2003, an
agreement was satisfactorily reached with the bank creditors to refinance
the Company's syndicated loans and most of its short-term debt. The most
important terms of the financial restructuring signed on December 23, 2003
are indicated below:
a. Syndicated loan of $445.7 million at the LIBOR interest rate plus a
variable margin depending on the index obtained in the consolidated
debt to operating profit financial ratio, less depreciation and
amortization, which fluctuates between 1.625 and 4.000, with
maturities between 2006 and 2008. As of December 31, 2003, the
variable margin is 3.5. The interest will be payable on a monthly or
quarterly basis.
22
b. Syndicated loan of Ps.1,223 million, at an interest rate equal to TIIE
plus a variable margin depending on the index obtained in the
consolidated debt to operating profit financial ratio, less
depreciation and amortizations, which fluctuates between 1.125 and
4.000, with maturities from 2006 to 2008, respectively. As of December
31, 2003 the variable margin determined is 3.5. The interest will be
payable on a monthly basis.
c. Credit of $112 million, divided into two tranches, (i) $100 million
revolving credit, at the LIBOR interest at rate plus a variable margin
depending on the index obtained in the consolidated debt to operating
profit financial ratio, less depreciation and amortization, which
fluctuates between 1.375 and 3.50, and (ii) $12 million credit
letters, both with maturity in 2006. As of December 31, 2003 the
Company has applied dispositions against the tranche of $100 million,
and the variable interest margin determined is 3.0. The interest will
be payable on a monthly or quarterly basis.
As part of the conditions negotiated, the operating subsidiaries and
certain holding subsidiaries were considered jointly and severally
liable and guarantors for the debt, and a package of concrete
guarantees was created consisting of fixed assets, accounts receivable
of the real estate sector and stock in certain subsidiaries.
The financing received establishes certain restrictions for the Company,
with which the Company has complied. The most important restrictions are:
- Maintain the interest coverage ratio in excess of 2.25. At the close
of 2003 the ratio is 2.91.
- Maintain the ratio of total debt of subsidiaries to consolidated debt
below 0.20. At the close of 2003 the ratio is 0.11.
- Maintain the ratio of consolidated debt to operating profit, plus
depreciation to amortization, at below 5.35 based on nominal pesos and
U.S. dollars. At the close of 2003 the ratio is 4.96.
- Maintain the ratio of consolidated debt to total capitalization below
0.55. At the close of 2003 the ratio is 0.53.
- Certain restrictions on the establishment of new liens.
- Restriction on the sale and investments in assets, as well as lease
transactions.
- Restriction on the sale of assets, except when performed at market
value and the proceeds obtained are used to pay the debt.
- Certain restrictions applicable to dividend declarations.
Medium-term promissory notes- In October 1999 and July 2000, the Company
issued medium-term promissory notes equivalent to 324,000,000 and
356,568,600 units of investment ("UDIS"), respectively. The UDI value as of
December 31, 2003 was 3.352003, which is equal to Ps.1,086,049 and
Ps.1,195,219, respectively. The issues bear quarterly interest of 9% and
8.20%, respectively, and mature in 2006 and 2007, respectively. There are
no restrictions on the promissory notes.
International Finance Corporation- As a result of the merger between DESC
and GIRSA, on December 14, 2001, a contract to transfer the debt was
executed by the subsidiaries of the chemical sector of DESC and
International Finance Corporation (IFC), through which GIRSA transferred to
the subsidiaries of the chemical sector the loans obtained from IFC, as
follows:
a. Loan of $6.57 million executed between GIRSA and IFC subdivided into
two (A and C) loans bearing semiannual interest at LIBOR plus 2.125.
The repayment of loan A will have the following installment on
February 15, 2004 and loan C in semiannual payments for two years as
of the payment date of loan A.
23
b. Loan of $90 million executed between GIRSA and IFC subdivided into two
loans, generating interest at LIBOR plus 3.75 for the $38.6 million
loan and 10.35% for the $51.4 million loan. Payments on such loans
will be made in equal semiannual installments for six years beginning
March 15, 2003.
The financing received establishes certain restrictions for GIRSA, with
which the Company has complied. The most important restrictions are:
- Maintaining a liquidity ratio equal to or higher than 1.1.
- Limitations on the disposal of property, plant and equipment.
- Consolidated short-term debt shall not exceed 20% of the consolidated
net sales of the immediately preceding year.
Issuance of secured bonds - On October 9, 1997, DINE issued long-term bonds
guaranteed by DESC in international markets at 8.75% annual interest, with
principal and interest due and payable on October 9, 2007. As a result of
the merger between DESC and DINE, DESC acquired the obligations related to
the issue of such bonds.
At December 31, 2003 the book value of the bonds issued by DINE is $73
million and fair value $70.8. million.
12. Related parties
Club Ecuestre Chiluca, S.A. de C.V., a 77.26% subsidiary of the Company,
sold all of its territorial reserves for $79.4 million. Prior to the sale
of such reserves, the Company acquired the remaining 22.74% interest from
minority shareholders (which in turn are the Company's main shareholders)
at their commercial value, which will be paid on the same terms and
conditions as the realization of the account receivable; i.e., four annual
payments from December 2004 to 2007. Therefore, such balance is presented
in the balance sheets as a long-term liability.
13. Employee retirement benefits
The liability for employee benefit obligations relates to the pension plan,
which will cover the pension and seniority premiums due upon retirement of
the Company's employees. The amount resulting from independent actuarial
calculations using the projected unit credit method, is as follows:
2002 2003
Projected benefit obligation ("PBO") Ps. 1,028,836 Ps. 1,063,475
Plan assets 577,885 615,686
-------------- --------------
(450,951) (447,889)
Unrecognized transition liability (303,849) (279,753)
Unrecognized variances in assumptions 824,288 659,718
-------------- --------------
7
Net projected benefit asset (liability) Ps. 69,488 Ps. (67,924)
============== ==============
As of December 31, 2002 and 2003, the amount of the accumulated benefit
obligation ("ABO"), (equal to the PBO without projecting the wages to the
retirement date) in certain subsidiaries, exceeds the amount of current
funds by Ps.255,487 and Ps.252,649, respectively. Consequently, this amount
was recognized as an additional liability under the heading of "Other long
term liabilities" creating a deferred asset charge and the difference net
of deferred income tax of Ps.154,105 and Ps.147,158, which was recorded in
the "Adjustment to the additional liability for employee retirement
obligations" account, within stockholders' equity, because as of December
31, 2002 and 2003, the amount of the additional liability exceeds the
algebraic sum of the unrecognized transition liability, plus previous
services rendered and plan modifications.
24
The subsidiaries have established irrevocable trust funds to cover accrued
employee benefits. The contributions made in 2001 and 2002, based on
actuarial computations, were Ps.143,207 and Ps.23,241, respectively. The
Company follows the funding recommendations of its actuaries. At December
31, 2003 the balance of these funds is Ps.615,586, which consists of the
Company's common stock shares and certain fixed-rate investments.
The number and series of common stock shares of the Company held by the
trusts at December 31, 2003 were as follows:
Series A 32,917,520
Series B 2,381,315
Series C 20,147,735
The market value of the Company's shares held at December 31, 2003 was
Ps.191,229. During 2003 the trusts sold 267,400 shares of the Company's
stock.
The cost of employee benefits is as follows:
2001 2002 2003
Service cost Ps. 73,776 Ps. 59,055 Ps. 53,900
Financial cost 62,078 51,738 51,459
Amortization of transition liability 8,773 13,926 5,304
Amortization of variances in
assumptions 34,907 26,406 22,449
-------------- -------------- --------------
179,534 151,125 133,112
Effect of early personnel reduction -- -- 74,881
Less- Actual return on plan assets 45,607 41,413 31,485
-------------- -------------- --------------
Net result for the period Ps. 133,927 Ps. 109,712 Ps. 176,508
============== ============== ==============
Interest rates utilized in the actuarial calculations recommended by the
Mexican Association of Consultant Actuaries for 2001, 2002 and 2003 were as
follows:
Investment yield rate 7.0%
Interest rate 5.0%
Salary increase rate 1.5%
The changes in the projected benefit obligation are as follows:
2002 2003
Opening balance Ps. 1,101,629 Ps. 1,028,836
Service cost 59,055 53,900
Financial cost 51,738 51,459
Actuarial result (183,586) (70,720)
-------------- --------------
Final balance Ps. 1,028,836 Ps. 1,063,475
============== ==============
25
The changes in the net projected asset (liability) were as follows:
2002 2003
Opening balance Ps. 156,479 Ps. 69,488
Provision for the year (109,712) (176,508)
Contributions to the fund 23,241 --
Payments for reduction of personnel (77,404) --
Actuarial gain 76,884 39,096
-------------- --------------
Final balance Ps. 69,488 Ps. (67,924)
============== ==============
The changes in the fund were as follows:
2002 2003
Opening balance Ps. 652,873 Ps. 577,885
Contributions to the fund 23,241 --
Yield on fund assets 41,413 31,485
Variation in the value of fund assets (62,238) 6,216
Payments for reduction of personnel (77,404) --
-------------- --------------
Final balance Ps. 577,885 Ps. 615,586
============== ==============
The amortization periods are as follows:
Remaining
Years
Transition liability 15 to 21
Variances in assumptions 16 to 28
14. Stockholders' equity
During a Stockholders' Ordinary and Extraordinary General Meeting held on
April 28, 2003, the stockholders approved the following:
1. The merger of DESC and Industrias Resistol, S.A. de C.V., with DESC as
the surviving company. Such merger became effective for accounting and
tax purposes on September 29, 2003.
2. The merger of DESC and Industrias Ruiz Galindo, S.A. de C.V., with
DESC as the surviving company. Such merger became effective for
accounting and tax purposes on May 1, 2003; therefore, as of such date
Industrias Ruiz Galindo, S.A. de C.V. ceased to exist as a legal
entity
During a Stockholders' Ordinary and Extraordinary General Meeting held on
April 25, 2002, the stockholders approved the following:
1. Payment of cash dividends of 29 Mexican cents for each of the
outstanding shares, equivalent to Ps.397,033, whose restated amount is
Ps.428,936, payable in four quarterly payments in July and October
2002 and January and April 2003.
2. Merger of DESC and DINE, with DESC as the surviving company. Such
merger became effective for accounting and tax purposes on May 1,
2002; therefore, as of such date DINE ceased to exist as a legal
entity.
26
As of December 31, 2001, 2002, and 2003 capital stock is represented by:
Number of
Shares Amount
Fixed portion-
Nominative Series "A" shares
(without withdrawal rights and
which must represent at least 51%
of voting stock) 587,479,900 Ps. 7,637
Variable portion-
Nominative Series "B" shares (with
withdrawal rights and which may not
represent more than 49% of
voting stock) 506,257,866 6,581
Series "C" shares (with voting
restrictions) 275,341,610 3,580
-------------- --------------
1,369,079,376 Ps. 17,798
============== ==============
Series "A" and "B" shares may only be acquired by Mexican citizens or
Mexican entities with an exclusion clause for foreign investors. Series "C"
shares may be freely subscribed.
This shareholding structure was modified on March 8, 2004, as indicated in
Note 21.
Stockholders' equity, except restated paid-in capital and tax retained
earnings, will be subject to a tax at the rate in effect when the dividend
is distributed. In 2003, the rate was 34% and will be reduced by one
percentage point each year until reaching 32% in 2005. Any tax paid on such
distribution, may be credited against the income tax payable of the year in
which the tax on the dividend is paid and the two fiscal years following
such payment.
The annual net income of each Company is subject to the legal requirement
that 5% thereof be transferred to a legal reserve each year, until the
reserve equals 20% of capital stock. This reserve may not be distributed to
stockholders during the existence of the Company, except in the form of a
stock dividend.
During the years ended 2001 and 2002 the Company distributed restated
retained earnings of Ps.448,185 and Ps.428,936, respectively as dividends,
reducing total equity to an amount lower than restated capital stock, which
for accounting purposes represents a capital reduction.
The balances of the stockholders' equity tax accounts as of December 31
are:
2002 2003
Contributed capital account Ps. 9,105,963 Ps. 9,105,963
Net tax income account 4,394,401 4,190,160
-------------- --------------
Total Ps. 13,500,364 Ps. 13,296,123
============== ==============
15. Transactions and balances in foreign currency
The Company valued its foreign currency assets and liabilities, represented
mainly by U.S. dollars, at the exchange rates effective at December 31,
2002 and 2003 of 10.3613 and 11.1998 Mexican pesos per U.S. dollar,
respectively, as the Company expects to use foreign currency assets to
settle foreign currency liabilities.
27
As of December 31, 2002 and 2003, monetary assets and liabilities
denominated in foreign currency were as follows:
2002 2003
Monetary assets
Current $ 351,852 $ 263,297
Long-Term -- 93,616
-------------- --------------
351,852 356,913
Current monetary liabilities-
Interest-free 136,047 137,618
Interest-bearing 344,786 38,826
-------------- --------------
480,833 176,444
Long-term liabilities 521,120 716,223
-------------- --------------
1,001,953 892,667
-------------- --------------
Net monetary liability position in
foreign currency $ (650,101) $ (535,754)
============== ==============
During the years ended December 31, 2001, 2002 and 2003, the Company had
the following transactions in foreign currency, which were translated into
Mexican pesos at the exchange rate in effect at the date of each
transaction. Foreign currency transactions were as follows:
2001 2002 2003
Direct export sales $ 706,150 $ 597,601 $ 595,227
Indirect export sales under agreement 119,234 181,728 141,973
Sales of foreign subsidiaries 132,640 122,710 123,271
-------------- -------------- --------------
958,024 902,039 860,471
Less-
Purchases of inventories (439,051) (405,591) (394,403)
Purchases and expenses of foreign
subsidiaries (92,770) (104,281) (102,690)
-------------- -------------- --------------
(531,821) (509,872) (497,093)
-------------- -------------- --------------
426,203 392,167 363,378
-------------- -------------- --------------
Interest earned 5,150 4,359 1,012
Less- Interest expense (77,691) (32,893) (52,652)
-------------- -------------- --------------
(72,541) (28,534) (51,640)
-------------- -------------- --------------
Technical assistance (6,997) (5,307) (8,187)
-------------- -------------- --------------
Net $ 346,665 $ 358,326 $ 303,551
============== ============== ==============
As of March 26, 2003, the unaudited foreign exchange position was similar
to that at yearend, and the exchange rate was 11.0130 Mexican pesos per
U.S. dollar.
16. Income and asset taxes and employee statutory profit sharing
The Company is subject to income taxes ("ISR") and tax on assets ("IMPAC").
ISR is computed by taking into consideration the taxable and deductible
effects of inflation, such as depreciation calculated on restated constant
prices and the deduction of purchases instead of cost of sales, which
permit the deduction of current costs, and taxable income is increased or
reduced on certain monetary assets and liabilities through the annual
adjustment for inflation, which is similar to the monetary position result.
ISR is calculated in terms of currency when the transactions occurred and
not in terms of the currency at yearend. Up to 2001, the income tax rate
was 35%, with the obligation to pay this tax each year at the 30% rate,
with the remaining 5% payable when income is distributed.
28
The tax rate was 35% in 2002 and 34% in 2003 and reduces by one percentage
point each year until reaching 32% in 2005. The deduction for employee
statutory profit-sharing ("PTU") and the obligation to withhold taxes on
dividends paid to individuals or foreign residents were also eliminated.
IMPAC is calculated by applying 1.8% to the Company's asset position, as
defined in the law, and is payable only to the extent that it exceeds ISR
payable for the same period. If in any year IMPAC exceeds the ISR payable,
the IMPAC payment for such excess may be reduced by the amount by which ISR
exceeded IMPAC in the three preceding years and any required payment of
IMPAC can be credited against the excess of ISR over IMPAC during the next
10 years
Some subsidiaries in the agribusiness sector have authorization to pay
income and asset taxes under a simplified scheme based on cash receipts and
disbursements. Other subsidiaries have the right to a 50% reduction in
their taxable income depending on their activities.
DESC is subject to ISR and IMPAC with its subsidiaries on a consolidated
basis in the proportion in which the Company holds the voting stock of its
subsidiaries at the balance sheet date. As of January 1, 2002, the
proportion is calculated based on the average daily equity percentage that
DESC holds of its subsidiaries during the year. The tax results of the
subsidiaries are consolidated at 60% of such proportion. Estimated payments
of ISR and IMPAC of both DESC and its subsidiaries are made as if the
Company did not file a consolidated tax return.
Employee profit sharing has been determined based on the individual results
of each operating company, rather than on a consolidated basis.
Tax loss carryforwards and recoverable asset tax- As of December 31, 2003,
the Company has tax loss carryforwards for income tax purposes and
recoverable asset taxes, which will be indexed for inflation through the
year applied or recovered, in the following restated amounts:
Tax
Loss Recoverable
Maturity Carryforwards Asset Taxes
2004 Ps. 315,781 Ps. 27,231
2005 196,277 21,289
2006 32,039 24,084
2007 98,881 22,713
2008 88,875 20,619
2009 144,859 50,850
2010 1,387,334 63,858
2011 669,858 72,864
2012 333,727 67,266
2013 1,072,752 141,161
--------------- -------------
Ps. 4,340,383 Ps. 511,935
=============== =============
On December 12, 2003, the Company won the lawsuit involving the deduction
of the loss from the sale of shares obtained in 2000, as an operating tax
loss; consequently, as of that date such loss is presented within tax loss
carryforwards.
29
Deferred income taxes- The tax effects of the temporary differences that
generated deferred tax liabilities (assets) are as follows:
2002 2003
Property, plant and equipment Ps. 1,865,513 Ps. 1,466,891
Inventories 539,177 400,042
Land held for development and real
estate projects 677,907 659,391
Reserves and provisions (186,313) (147,103)
Tax loss carryforwards (1,446,973) (1,388,923)
Recoverable asset tax (409,432) (511,935)
Allowance for doubtful tax loss
carryforwards and recoverable
asset taxes 325,693 519,289
Other (26,457) (116,903)
-------------- --------------
Ps. 1,339,115 Ps. 880,749
============== ==============
The reconciliation of the statutory and effective ISR rates expressed as a
percentage of income before provisions, discontinued operations and
extraordinary items is as follows:
2001 2002 2003
Statutory rate 35.0% 35.0% 34.0%
Add (deduct) the effect of permanent
differences-
Nondeductible items 15.0% (30.8%) (26.2%)
Non-taxable income (12.8%) 29.0% 20.2%
Monetary gain position (8.7%) 63.4% 10.0%
Adjustment for inflation 10.6% (81.1%) (10.6%)
Income related to subsidiaries subject
to the simplified tax system 1.8% 2.0%
Allowance for tax loss carryforwards
and asset tax -- (98.8%) (21.8%)
Other (31.4%) 39.7% (14.6%)
-------- -------- -------
Effective rate (9.5%) (43.6%) (7.0%)
======== ======== =======
17. Discontinued operations
As mentioned in Note 1, the Company decided to shut down the spark plugs
and automotive electrical parts businesses of the autoparts segment, the
natural pigments business in the chemicals sector, in the food sector the
hog raising operation located in the Bajio region, and the shrimp business
was disposed of by means of donation. A summary of the combined statements
of income of the discontinued operations for the years ended December 31,
2001, 2002 and 2003 is as follows:
2001 2002 2003
Revenues from discontinued
operations Ps. 588,732 Ps. 405,814 Ps. 124,771
Costs and expenses 717,309 948,433 153,225
Integral financial result (11,560) 26,835 (1,364)
Other (income) expense 39,664 115,430 (107,372)
Current and deferred income tax and
employee profit sharing 97,184 (55,016) 57,386
------------ ------------ -----------
Net income (loss) from discontinued
operations Ps. (253,863) Ps. (629,868) Ps. 22,896
============ ============ ===========
30
18. Extraordinary item
The extraordinary item, net of the related income tax effects, represents a
provision for restructuring expenses.
19. Lease commitments
As of December 31, 2002 and 2003, the Company had operating leases for
equipment commitments equal to Ps.447,797 and Ps.623,875 whose maturity
dates are as follows:
Maturity 2002 2003
--------
2003 Ps. 108,195 Ps. --
2004 96,743 149,892
2005 82,626 142,943
2006 68,871 125,041
2007 23,386 68,938
2008 21,816 57,759
2009 46,160 45,894
2010 -- 33,390
------------ ------------
Ps. 447,797 Ps. 623,857
============ ============
Lease expenses recorded in the statements of income (loss) during 2001,
2002 and 2003 amounted Ps.42,853, Ps.30,673 and Ps.108,195 respectively.
20. Financial instruments
The Company has contracted exchange rate forwards and calls on U.S. dollar
debts, fixing the exchange rate to hedge against exchange losses on U.S.
dollar loans. The exchange result of the forward or call is recorded in the
integral financing result, by offsetting the exchange result from the
liability hedged, while the asset generated is deducted from the hedged
liability. As of December 31, 2003 the Company has four contracts to buy
and sell U.S. dollars for a total amount of $2,141 maturing during 2004.
The Company also has interest rate swaps to manage the interest rate risk
on its variable interest debt. The Company has entered into interest rate
swaps in which it pays amounts calculated based on fixed interest rates and
receives amounts calculated based on variable interest rates. The
difference between such amounts is recorded in the integral financing
result, offsetting the effect of the variable interest rate on the hedged
loans. The asset generated in the swap is deducted from the payable
interest hedged.
Some of the Company's subsidiaries contracted forwards with Pemex Gas y
Petroquimica Basica to protect themselves from natural gas price volatility
for the period from January 2002 to December 2003.
The Company purchased insurance coverage against natural gas market prices
increases above the maximum price it selected by paying a premium. The
maximum price level was 8.705 U.S. dollars per million units of energy
"MMBTU" and the minimum price was 4.245 U.S. dollars per "MMBTU". If the
reference price exceeds the maximum price a discount will be included in
its invoice, while if it is below the minimum price, the invoice will be
issued for the respective minimum price. Given that the insurance contract
represents a contractual obligation, guaranteed with the fixed gas price of
4.00 U.S. dollars per MMBTU, the Company records the respective effects in
results as the MMBTU amounts committed are consumed, and it has not
recorded the effect of the potential gain or loss if the gas price premium
were settled at present value. At December 31, 2003, the net loss recorded
for this transaction was Ps.10,393.
31
The market value of the derivative contracts mentioned above is estimated
based on quoted market prices to terminate the contracts at the reporting
date. As of December 31, 2003 the market value of the financial instruments
is Ps.47,405, and the net loss recorded during the year for the forwards,
calls and swaps was Ps.124,928.
Sales options in the food sector- With regard to the 1998 acquisition of
CORFUERTE and AAC, companies in the food sector, the Company executed
contracts known as "puts" with its minority shareholders so that at a given
date and amount, DESC would undertake to acquire the shareholding packages
of such minority shareholders.
On November 11, 2003, the minority shareholders of CORFUERTE and AAC
formally notified their decision to exercise their put options to DESC,
which was formalized on January 29, 2004. Accordingly, as of the date, the
shareholding percentage of DESC in such subsidiaries increased from 77.6%
to 96.1% and from 81.3% to 99.9%, respectively. The amount paid was $14,311
(Ps.156,194) and is recorded in the consolidated balance sheets as a
liability under the heading of "Other payables and accrued liabilities.".
21. Subsequent events
Resolutions adopted at stockholders' meetings- At a Stockholders' Special
Meeting and a Stockholders' Ordinary and Extraordinary Meeting held on
March 8, 2004, the following resolutions were adopted:
a. The mandatory conversion of the totality of the Series "C" shares into
Series "B" shares, and the cancellation of the inscription of the
Series "C" shares in the National Securities Registry. This agreement
went into effect on March 16, 2004. As of that date, the American
Depositary Shares (ADS), which are registered with the Securities and
Exchange Commission (SEC), and are traded in the New York Stock
Exchange, Inc. (NYSE), will represent 20 Series "B" shares.
b. The voluntary conversion of the Series "A" shares into Series "B"
shares and the voluntary conversion of Series "B" shares into Series
"A" shares, by those shareholders who so request. The Series "A"
shares have not been and will not be registered under the 1933
Securities Act, or under any other applicable law in jurisdictions
other than Mexico. Consequently, the voluntary conversion will be
offered only in Mexico and the US shareholders of DESC will not be
able to participate.
c. The amendments to the corporate bylaws of DESC, which include the
elimination of the restrictions on foreigners holding Series "B"
shares.
d. Proposal to perform a capital stock increase in the amount of Ps.2,738
million ($248 million), through the issuance of 912,719,584 new
ordinary shares at a subscription price of three pesos per share.
With regard to the proposed capital increase, DESC entered into a Share
Subscription Collaboration Agreement with Inversora Bursatil, S.A. de C.V.
Casa de Bolsa, Grupo Financiero Inbursa ("Inbursa"). Such agreement
establishes that, if the shareholders do not exercise their entire right of
first refusal regarding the shares subject to the increase, DESC will be
obligated to offer, and Inbursa will be obligated to subscribe, subject to
certain conditions, for itself or on account of third parties, up to the
equivalent of Ps.2,000 million, in unsubscribed shares at the same price of
three pesos per share. The rights of first refusal to such subscription
will be offered only in Mexico.
Close of operations of Fenoquimia, S.A. de C.V. - On February 17, 2004, the
Company decided to begin closing down the operation of Fenoquimia, S. A. de
C. V., which is engaged in the production and sale of phenol.
32
The condensed financial position Fenoquimia, S. A. de C. V. as of December
31, 2002 and 2003, and the results of its operations for the years ended
December 31, 2001, 2002 and 2003, are shown below:
2002 2003
Current assets Ps. 5,156 Ps. 34,217
Property, plant and equipment 38,433 36,436
Other assets 42,869 46,782
------------ -----------
86,458 117,435
Current liabilities 316,465 384,429
Long-term debt 16,150 15,533
------------ -----------
332,615 399,962
------------ -----------
Net Ps. (246,157) Ps.(282,527)
============ ===========
2001 2002 2003
Net sales Ps. 313,277 Ps. 91,454 Ps. 109,447
Cost of sales (431,489) (129,623) (83,656)
Operating expenses (50,216) (15,812) (10,014)
Net comprehensive financing cost (4,822) (29,374) (30,039)
Other revenues and expenses- Net (102,898) (10,944) (66,459)
Income tax (4,804) 7,735 8,001
------------ ------------ -----------
Net loss Ps. (280,952) Ps. (86,564) Ps.(172,720)
============ ============ ===========
Joint investment with Hayes Lemmerz, Int. - On January 15, 2004 Desc
Automotriz, S.A. de C.V. concluded its joint investment with Hayes Lemmerz,
Int. ("HLI"). To do this, the assets of the aluminum wheel rim plant were
sold to HLI and 40% of the shares owned by HLI, were acquired for $1.00, so
that now Desc Automotriz, S.A. de C.V. owns 100% of the shares of the
Company that manufactures steel wheel rims. As of December 31, 2003, the
Company adjusted the net realizable value of the fixed assets of the
aluminum plant, which generated a charge to results for the year of
Ps.114,200, net of taxes. In 2004 the dissolution of the joint investment
will be recorded as an item of stockholders' equity.
22. New accounting principles
In May 2003, the IMCP issued Bulletin C-12, "Financial Instruments of a
Debt or Equity Nature or a Combination of Both" (C-12), whose application
is mandatory for financial statements of periods beginning on or after
January 1, 2004, although early adoption is encouraged. C-12 is the
compilation of the standards issued by the IMCP with respect to the issue
of debt or equity financial instruments, or a combination of both, and
includes additional standards on the accounting recognition for these
instruments. Consequently, C-12 indicates the basic differences between
liabilities and stockholders' equity and establishes the rules for
classifying and valuing the components of debt and equity of combined
financial instruments in the initial recognition. Subsequent recognition
and valuation of liabilities and stockholders' equity of the financial
instruments is subject to the standards issued previously in the applicable
bulletins. The Company believes that the effects of adopting this new
accounting principle will not have significant effects on its consolidated
financial position and results of operations.
* * * * * *
33
Item 4
[LOGO OF DESC]
DESC ANNOUNCES FIRST QUARTER 2004 RESULTS
-----------------------------------------
\Mexico City, April 27, 2004 - Desc, S.A. de C.V. (NYSE: DES; BMV: DESC)
announced today its results for the first quarter ended March 31, 2004 (1Q04).
All figures were prepared according to generally accepted accounting principles
in Mexico.
Highlights
----------
. Sales and exports were 3.1% and 7.6% higher, respectively, when
compared to 1Q03.
. Operating income was 12.4% higher than in 1Q03.
. Desc successfully concluded a capital increase for approximately US
$248 million.
. The funds generated by the capital increase will be used to reduce the
Company's debt.
DESC, S.A. DE C.V. and SUBSIDIARIES
-----------------------------------
Table 1. Consolidated Figures
(Figures in millions of constant Pesos (Ps.) and U.S. dollars (US$))
Desc, S.A. de C.V. and Subsidiaries
-------------------------------------------------------------------------------
1Q04 vs. 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
-------------------------------------------------------------------------------
Sales (Ps.)/3/ 5,357 5,343 0.2% 5,322 0.7%
Sales (US$)/1/ 486 471 3.1% 466 4.3%
Exports (US$)/2/ 232 216 7.6% 216 7.5%
Operating Income (Ps.)/3/ 247 227 8.9% 17 NA
Operating Income (US$)/1/ 22 20 12.4% 2 NA
Operating Margin 4.6% 4.2% 0.3%
EBITDA/4/ (Ps.)/3/ 564 576 -2.0% 371 52.1%
EBITDA/4/ (US$)/1/ 51 51 1.0% 32 57.7%
Net Majority Income (Ps.)/3/ -117 -337 -65.4% -1,671 -93.0%
Net Majority Income (US$)/1/ -11 -30 -65.2% -146 -92.8%
/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 March 31,
2004.
/4/ "EBITDA" as used in this Press Release is Operating Income (Loss) plus the
sum of Depreciation and Amortization (these under Mexican GAAP), and is
presented because we believe that this term provides useful information
regarding our debt service ability and other internal financial analysis.
"EBITDA" should not be considered in isolation or as a substitute for our
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 end of this release to the Non-GAAP Financial
Reconciliation Schedule.
First Quarter 2004 Results
--------------------------------------------------------------------------------
Sales
-----
During 1Q04 total sales in dollars increased 3.1% compared to 1Q03, from US$471
million to US$486 million, primarily due to higher revenue from the Automotive,
Food and Real Estate Sectors.
GRAPH 1 - NET SALES 1Q04
Sector New Sales 1Q04(%)
------ -----------------
Autoparts 41%
Chemical 35%
Food 19%
Real Estate 5%
The Automotive Sector registered a 10.2% recovery in dollar sales when compared
to 1Q03 due to higher requirements from the Tractor Project, higher part sales
in the gear business for BMW North America, higher export sales volumes in the
transmission business and the integration of new products in the domestic parts
market.
In the Food Sector, sales volume increased 10.7% in the domestic market when
compared to 1Q03. This resulted from higher sales in practically all our product
lines, primarily "Del Fuerte" brand tomato paste, "Zuko" brand powdered beverage
mix and "Blason" brand coffee, as well as higher export sales to the U.S. and
the increase in sales in the pork business due to higher prices.
In the Real Estate Sector, sales reached US$27 million mainly due to sales in
the North C building project, within the Arcos Bosques development, and the
Punta Mita project.
Exports
-------
Total exports for the first quarter of 2004 reached US$232 million, which
represented an increase of 7.6% when compared to 1Q03. This result was primarily
due to the increase in export sales of the Automotive and Food Sectors, which
were 14.5% and 5.9% higher, respectively, when compared to 1Q03.
Operating Income
----------------
Consolidated operating income in dollars was US$22 million in 1Q04, which
represent an increase of 12.4% with respect to 1Q03. This result is attributable
to the improvements in the Automotive and Food Sectors.
EBITDA
------
Consolidated EBITDA in dollars reached US$51 million in 1Q04, an increase of
1.0% compared to 1Q03. This result is attributed to the improvements in the
Automotive and Food Sectors.
2
www.desc.com.mx
First Quarter 2004 Results
--------------------------------------------------------------------------------
However, after divesting the aluminum wheel and adhesive and waterproofing
material businesses, EBITDA was US$48 million in 1Q03, therefore the increase is
actually 6.25%.
Taxes
-----
During the quarter, US$8.7 million was provisioned for income tax, asset tax and
employee profit sharing, which was below the US$1.5 million reported in 1Q03. In
addition, US$3.2 million in deferred taxes was reported.
Debt Structure
--------------
In 1Q04 the Company registered a net debt decrease of US$3 million when compared
to 4Q03 reaching US$987 million, mainly due to the depreciation of the Mexican
peso against the dollar, which partially offset the US$11 million payment
realized to International Finance Corporation during the period.
Table 2. Debt Breakdown
-----------------------
(Figures in millions of U.S. dollars)
--------------------------------------------------------------------------------
Dec-31-02 Mar-31-03 Jun-30-03 Sep-30-03 Dec-31-03 Mar-31-04
--------------------------------------------------------------------------------
Cash 232 103 82 117 62 61
Total Debt 1,178 1,082 1,069 1,084 1,052 1,048
Net Debt 946 979 987 967 990 987
Interest
Coverage 2.8x 2.6x 2.45x 2.7x 2.9x 2.9x
Leverage Ratio* 4.8x 4.9x 4.8x 5.5x 4.9x 4.9x
*Total debt - Cash + US $50 million / EBITDA 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.
At the close of 1Q04, the debt mix was 69% dollar-denominated, 11%
peso-denominated and 20% in UDIS. The maturity profile at the close of 1Q04 was
97% long-term and 3% short-term. The average cost of debt on March 31, 2004 was
5.58% for dollar-denominated debt and 8.72% for peso-denominated debt.
Desc successfully concludes capital increase
--------------------------------------------
On April 20, 2004, Desc announced that it had successfully completed the capital
increase approved at the Annual Ordinary and Extraordinary Shareholders Meeting
held on March 8.
100% of the 912,719,584 ordinary shares were subscribed and issued for this
capital increase, equivalent to Ps. 2,738,158,752. The funds generated by the
capital increase will be used during 2Q04 to reduce the Company's debt.
Upon expiration of the rights offering, 502,544,745 shares or 55% of the total
shares issued were subscribed, and the actions taken by the shareholders show
their commitment with the future of the Company.
3
www.desc.com.mx
First Quarter 2004 Results
--------------------------------------------------------------------------------
Subsequent to and in accordance with the Stock Subscription Cooperation
Agreement with Inversora Bursatil, S.A. de C.V. Casa de Bolsa, 410,174,839
shares were placed which corresponded to the number of shares unsubscribed in
the rights offering. Therefore, due to the response from shareholders in the
rights offering, only Ps. 1,230 million of the Ps. 2,000 million established in
this Agreement with Inbursa were utilized.
Results by Sector
----------------- [LOGO OF DESC]
--------------
automotriz
Automotive Sector
Table 3 shows the figures obtained in the Automotive Sector.
Table 3. Automotive Sector Results
----------------------------------
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
Automotive Sector
------------------------------------------------------------------
1Q04 vs. 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------
Sales (Ps.) 2,176 2,029 7.2% 2,018 7.8%
Sales (US$) 197 179 10.2% 177 11.7%
Exports (US$) 133 117 14.5% 118 13.5%
Operating Income (Ps.) 141 121 16.4% 63 123.1%
Operating Income (US$) 13 11 20.0% 6 132.0%
Operating Margin 6.5% 6.0% 3.1%
EBITDA/1/ (Ps.) 319 313 1.7% 252 26.2%
EBITDA (US$) 29 28 5.1% 22 30.9%
/1/ All EBITDA figures used in this report are calculated as Operating Income
(Loss) plus the sum of Depreciation and Amortization (according to Mexican
GAAP). This information is included since it is useful for our credit contracts.
EBITDA should not substitute income or cash flow in our Consolidated Income
Statement or any other Financial Statement prepared according to Mexican GAAP.
* Please refer to the end of this release to the Non GAAP Financial
Reconciliation Schedule.
During the first quarter of 2004 sales and operating income in dollars increased
by 10.2% and 20%, respectively, compared to the first quarter of 2003 due to:
a) Higher requirements from the Tractor Project in the forge, cardan
shaft and axle businesses whose application is in light trucks and
SUVs.
b) Higher part sales in the gear business to BMW North America for the X5
platform.
c) Increase in the export sales volume of the transmission business.
d) Integration of new products in the domestic parts business.
These factors helped offset:
a) Lower sales in the constant velocity joint business due to lower
production by VW in Mexico.
b) The decline in sales in the valve lifters business in the export
market.
During the quarter increases were registered in the prices of raw materials
which were offset by new contracts, additional volumes and plans for reduction
of costs, thereby achieving results above those obtained in 4Q03, with operating
income 132% higher and EBITDA 30.9% higher. Additionally, the Company is working
on plans for productivity, the replacement of suppliers and the passing on of
increases to clients so that the impact is distributed along the chain.
4
www.desc.com.mx
First Quarter 2004 Results
--------------------------------------------------------------------------------
In recent weeks the price of steel has increased significantly. Nevertheless,
this did not significantly affect the Automotive Sector during 1Q04.
Export sales were US$133 million, 14.5% higher than the first quarter of 2003,
in-line with the expansion in demand, primarily in the US market.
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First Quarter 2004 Results
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Average capacity utilization during the first quarter was 63%, an increase of
10.5% compared to 1Q03. Sales per employee reached US$113 thousand, above the
US$111 thousand reported in the first quarter of 2003, thanks to the combined
effect of the increase in sales and the lay-off of 663 employees.
The Tractor I and II Project, which consist of the production and sale of parts
for axles, semiaxles and output-shafts for Dana, increased its sales by over
100% when compared to 1Q03, to US$29 million due to the successful conclusion of
the project.
The US $4.5 million investment in assets were allocated to the following
projects:
1. Gears - Enco (US $1.6 million)
2. Tractor I and II Project (US$0.70 million)
3. Pistons (US$0.40 million)
4. Constant Velocity Joints (US$0.19 million)
5. Other minor projects (US$1.61 million)
The divestitures completed during the quarter reached US$15.7 million, primarily
in the aluminum wheel business.
Other Events
Divestiture of the Aluminum Wheel Business
------------------------------------------
On January 16, 2004, Desc announced the sale of assets in the aluminum wheel
business to Hayes Lemmerz International, Inc. and the simultaneous purchase of
their stake in Hayes Wheels Acero, S.A. de C.V. Through this transaction, the
association with Hayes Lemmerz International, Inc. was concluded.
Awards
------
During February, 6 companies in the Autoparts Sector were presented the
following award by Nissan:
.. Velcon "The Most Improvement Award"
.. Pemsa y Etrac "Zero Defects" & "Quality Master"
.. Morestana y Tremec "Zero Defects"
.. Cardanes "Quality Master"
These awards represent our commitment to maintain a leading position as
suppliers of autoparts at th international level, as well as a commitment to our
clients for quality, efficiency and technology.
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First Quarter 2004 Results
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First Quarter 2004 Results
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Chemical Sector
Table 4 shows the figures obtained in the Chemical Sector. [LOGO]
Table 4. Chemical Sector Results
--------------------------------
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
Chemical Sector
----------------------------------------------------------------------------
1Q04 vs. 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
----------------------------------------------------------------------------
Sales (Ps.) 1,866 2,122 -12.1% 1,879 -0.7%
Sales (US$) 169 187 -9.5% 164 2.9%
Exports (US$) 71 73 -2.8% 73 -2.9%
Operating Income (Ps.) 32 42 -23.1% 55 -41.0%
Operating Income (US$) 3 4 -20.5% 5 -38.8%
Operating Margin 1.7% 2.0% 2.9%
EBITDA (Ps.)/1/ 112 138 -18.7% 138 -18.8%
EBITDA (US$)/1/ 10 12 -16.3% 12 -15.8%
1 "EBITDA" as used in this Press Release is Operating Income (Loss) plus the sum
of Depreciation and Amortization (these under Mexican GAAP), and is presented
because we believe that this term provides useful information regarding our debt
service ability and other internal financial analysis. "EBITDA" should not be
considered in isolation or as a substitute for our 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 end of this release to the Non-GAAP Financial
Reconciliation Schedule.
Given that the adhesives and waterproofing business, which generated sales of
US$19.3 million in 1Q03, is no longer a part of Desc, the results that stand out
during 1Q04 include the sales growth in the carbon black, rubber solution and
acrylics businesses, mainly due to the recovery experienced in these markets in
Mexico and the U.S.
These factors helped offset:
a) The decline in sales of synthetic rubber as a result of the strength
of the Euro against the dollar and the increased level of competition
in the European market by both local producers as well as Asian
producers.
b) The decline in sales in the phosphate business due to the adverse
effect of over-stocked levels at some clients, a situation which
occurred at the end of 2003.
c) Lower sales in the polystyrene business where there was lower volume
compared to the previous year due to lower demand associated with the
decline in economic activity, which continues to be observed in
Mexico, and oversupply conditions stemming from international
producers.
These operations reached average production levels above 90% of installed
capacity.
The behavior of monomer prices was highly linked to the behavior of oil and
equivalents; the price of butadiene monomer, the main raw material for producing
synthetic rubber, has remained flat for 10 months without any important changes
while styrene and acrylonitile monomers have suffered significant increases
compared to what was seen in 2003. In addition, the supply has been affected by
higher demand and operating problems at the most important suppliers in the
world. While a low supply level is expected in 2Q04, the Company is guaranteed a
continuous supply without contingencies by its contractors.
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First Quarter 2004 Results
--------------------------------------------------------------------------------
The sales prices at the beginning of 2004 were greatly pressured by the global
economic situation and the continuing presence of competition, offering very low
prices, in our markets, resulting in the oversupply at a global level, which we
expect will begin to level out in the immediate future. Additionally, the
unexpected increase in monomer prices during the first part of the year and the
resistance of our clients to absorb these differences, great affected the
operating margin of many of our businesses, thus creating a significant lag in
the transfer of these increases the markets. However, prices have reached
historical highs, which is why we expect them to decline in the medium term.
Since the adhesive and waterproofing material business no longer forms part of
the Company, the adopted measures in terms of savings and costs and expenses, as
well as the achievement of higher productivity levels, have allowed operating
income and EBITDA for the quarter to reach levels equivalent to those of the
same period of the previous year, which was even reached with lower sales
volumes.
Investment in fixed assets reached US$2.7 million, of which the majority was
allocated towards meeting future demand in the elastomer sector as well as
maintenance measures in the phosphate plants.
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First Quarter 2004 Results
--------------------------------------------------------------------------------
Food Sector
Table 5 shows the figures obtained in the Food Sector. [LOGO]
Table 5. Food Sector Figures
----------------------------
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
Food Sector
------------------------------------------------------------------------------
1Q04 vs. 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Sales (Ps.) 1,017 949 7.2% 1,079 -5.8%
Sales (US$) 92 83 10.7% 95 -2.4%
Exports (US$) 27 26 5.9% 25 10.2%
Operating Income (Ps.) 57 10 484.1% 49 17.1%
Operating Income (US$) 5 1 509.8% 4 21.2%
Operating Margin 5.7% 1.0% 4.6%
EBITDA (Ps.)/1/ 95 50 88.7% 103 -8.0%
EBITDA (US$)/1/ 9 4 95.7% 9 -4.5%
1 "EBITDA" as used in this Press Release is Operating Income (Loss) plus
the sum of Depreciation and Amortization (these under Mexican GAAP), and is
presented because we believe that this term provides useful information
regarding our debt service ability and other internal financial analysis.
"EBITDA" should not be considered in isolation or as a substitute for our
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 end of this release to the Non-GAAP Financial
Reconciliation Schedule.
Branded Products
During 1Q04 sales increased 10.7% in the domestic market compared to 1Q03, due
to higher sales in practically all our product lines, primarily "Del Fuerte"
brand tomato paste, "Zuko" brand powdered beverage mix and coffee "Blason", as
well as higher export sales to our affiliate in the U.S. The increase in the
U.S. market is due mainly to the foodservice segment.
The operating results had significant increases due to the improved utilization
of the plants and the correction of problems in the U.S. plant operations, as
well as the use of fresh tomatoes intead of tomato paste, which has generated an
improvement in costs and in the operating margin.
Another relevant factor was the acquisition of 40% of the shares of the
companies that make up Grupo Nair, which focus on the fishing and canning of
tuna, whereby the ownership of Grupo Corfuerte in Nair is 100%. Through this,
Desc expects to obtain greater economies of scale and synergies throughout the
group.
On November 11, 2003, the minority partner in the branded products business
formally notified the Company that they would exercise their put option to sell
their shares. As a result, the Company paid US$12.3 million and US$2 million for
18.6% of Corfuerte and of ASF, respectively, on January 30, 2004. Consequently,
Desc increased its shareholder stake to 96.1% in Corfuerte and 99.9% in ASF.
Pork Business
Pork prices have demonstrated a favorable trend during 1Q04, increasing over
4Q03. On the other hand, the price of the main raw materials, such as grain and
soy paste, have also increased during the period. The increases in sales and
margins was mainly derived from the price level realized.
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First Quarter 2004 Results
--------------------------------------------------------------------------------
The sales volume for the quarter suffered a decline of 16.3% when compared to
the same period of the previous year due to the effects of the closing of three
Bajio locations.
The capacity utilization rate remains 100% in the southeast region given the
strong demand levels.
Capex for the quarter reached US$0.11 million, allocated to farm equipment and
infrastructure.
Investment in fixed assets during the quarter reached US$0.21 millions and was
allocated to to farm equipment and infrastructure.
Sales prices in Mexico improved when compared to the previous year to Ps. 19.98
per Kg., which represents an increase of 26.5%.
The following table provides the operating margins of the branded products and
pork businesses:
Table 6. Food Sector - Relevant Figures
---------------------------------------
-------------------------------------------------------
1Q04 1Q03 1Q04 vs. 1Q03
-------------------------------------------------------
Branded Products
Sales (millions of US$) 57 53 7.2%
Operating Margin 1.9% 1.0%
Pork Business
Sales (millions of US$) 35 30 16.4%
Operating Margin 11.50% 1.20%
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First Quarter 2004 Results
--------------------------------------------------------------------------------
Real Estate Sector
[LOGO]
Following are the results for the real estate sector for the first quarter of
2004:
Table 7. Real Estate Sector Figures
-----------------------------------
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
Real Estate Sector
------------------------------------------------------------------------------
1Q04 vs. 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Sales (Ps.) 292 243 20.2% 179 63.6%
Sales (US$) 27 21 24.3% 16 69.4%
Operating Income (Ps.) 41 60 -31.5% -102 NA
Operating Income (US$) 4 5 -28.8% -9 NA
Operating Margin 14.2% 24.7% -57.4%
EBITDA (Ps.)/1/ 47 67 -29.9% -83 NA
EBITDA (US$)/1/ 4 6 -27.2% -7 NA
1 "EBITDA" as used in this Press Release is Operating Income (Loss) plus the sum
of Depreciation and Amortization (these under Mexican GAAP), and is presented
because we believe that this term provides useful information regarding our debt
service ability and other internal financial analysis. "EBITDA" should not be
considered in isolation or as a substitute for our 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 end of this release to the Non-GAP Financial
Reconciliation Schedule.
Sales in 1Q04 reached US$27 million, a 24.3% increase when compared to the sales
for 1Q03, primarily due to the increase in sales of the North C Building
project, within the Arcos Bosques development, and the Punta Mita project.
Sales within the Punta Mita project represented 64%, while the North C building
within the Arcos Bosques development represented 22%, the Bosques de Santa Fe
project 9%, and the remaining 5% was related to the sale of commercial lots and
finished inventory.
During the period, operating income reached US$4 million, which was US$1 million
below the figure obtained in 1Q03, mainly as a result of an increase in the
selling expenses of the North C Building within the Arcos Bosques development,
where 2,829 m2 was sold during the quarter, thereby achieving the sale of 69% of
available space. During the quarter, the construction of the building was
completed within budget and the Company invested US$1.7 million in this project.
In Bosques de Santa Fe, the exclusive residential development in western Mexico
City, 4 residential lots were sold. With these, the sale of 89% of the
residential lots and 57% of apartment units have closed. The construction of the
club house continues according to schedule and within budget and is expected to
be inaugurated in October 2004. Investment in this project reached US$2.7
million during 1Q04.
Lastly, at Punta Mita, the tourist development located at Bahia de Banderas in
the state of Nayarit, the sale of 5 beachfront lots, 3 golf course lots and 3
villas were completed. The commercialization and urbanization of the remaining
residential beachfront and golf course lots and the villas under construction
continues. Investment in this project reached US $1.4 million during 1Q04.
********************************************************************************
Contacts: Marisol Vazquez-Mellado Mollon/Jorge Padilla Ezeta
Tel.: (5255) 5261 8044
jorge.padilla@desc.com.mx
-------------------------
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First Quarter 2004 Results
--------------------------------------------------------------------------------
.. Financial Tables Follow ..
-----------------------------------------------------------------------------
FINANCIAL INDICATORS
1Q04 4Q03 3Q03 2Q03 1Q03
-----------------------------------------------------------------------------
Interest Coverage 2.93x 2.9x 2.7x 2.45x 2.6x
Short-term debt 3% 3% 29% 27% 23%
Long-term debt 97% 97% 71% 73% 77%
Peso-denominated debt 31% 30% 30% 32% 31%
Dollar-denominated debt 69% 70% 70% 68% 69%
------------------------------------------------
SHARES OUTSTANDING
------------------------------------------------
Series "A" Shares 587,479,900 42.90%
Series "B" Shares 781,599,476 57.10%
Total 1,369,079,376 100.00%
The shares outstanding correspond to March 31, 2004. However, due to the
approval of the capital increase as well as the voluntary share conversion,
these figures have changed.
To reconcile all Non-GAAP items the following tables, which include Depreciation
and Amortization figures, are provided:
Non GAAP Reconciliation Schedule Tables
---------------------------------------
Desc, S.A. de C.V. and Subsidiarias
Figures in millions of constant pesos (Ps.) and U.S. dollars (US$)
------------------------------------------------------------------------------
1Q04 vs 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Operating Profit/ (Loss) pesos 247 227 8.9% 17 NA
Operating Profit US$ 22 20 12.4% 2 NA
Depreciation and Amortization pesos 317 349 -9.0% 354 -10.5%
Depreciation y Amortization US$ 29 31 -6.5% 30 -7.3%
EBITDA pesos 564 576 -2.0% 371 52.1%
EBITDA US$ 51 51 1.0% 32 57.7%
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First Quarter 2004 Results
--------------------------------------------------------------------------------
Automotive Sector
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
------------------------------------------------------------------------------
1Q04 vs 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Operating Profit/ (Loss) (Ps.) 141 121 16.4% 63 123.1%
Operating Profit (US$) 13 11 20.0% 6 132.0%
Depreciation and Amortization (Ps.) 178 193 -7.7% 189 -6.1%
Depreciation y Amortization (US$) 16 17 -4.4% 16 -2.7%
EBITDA (Ps.) 319 313 1.7% 252 26.2%
EBITDA (US$) 29 28 5.1% 22 30.9%
Chemical Sector
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
------------------------------------------------------------------------------
1Q04 vs 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Operating Profit/ (Loss) (Ps.) 32 42 -23.1% 55 -41.0%
Operating Profit (US$) 3 4 -20.5% 5 -38.8%
Depreciation and Amortization (Ps.) 80 96 -16.8% 84 -4.3%
Depreciation y Amortization (US$) 7 8 -14.4% 7 -0.8%
EBITDA (Ps.) 112 138 -18.7% 138 -18.8%
EBITDA (US$) 10 12 -16.3% 12 -15.8%
Food Sector
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
------------------------------------------------------------------------------
1Q04 vs 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Operating Profit/ (Loss) (Ps.) 57 10 484.1% 49 17.1%
Operating Profit (US$) 5 1 509.8% 4 21.2%
Depreciation and Amortization (Ps.) 38 40 -7.1% 54 -30.6%
Depreciation and Amortization (US$) 4 3 3.5% 5 -27.7%
EBITDA (Ps.) 95 50 88.7% 103 -8.0%
EBITDA (US$) 9 4 95.7% 9 -4.5%
Real Estate Sector
(Figures in millions of constant pesos (Ps.) and U.S. dollars (US$))
------------------------------------------------------------------------------
1Q04 vs 1Q04 vs.
1Q04 1Q03 1Q03 4Q03 4Q03
------------------------------------------------------------------------------
Operating Profit/ (Loss) (Ps.) 41 60 -31.5% -102 NA
Operating Profit (US$) 4 5 -28.8% -9 NA
Depreciation and Amortization (Ps.) 6 7 -14.5% 19 -72.7%
Depreciation and Amortization (US$) 0 1 -12.1% 2 -71.7%
EBITDA (Ps.) 47 67 -29.9% -83 NA
EBITDA (US$) 4 6 -27.2% -7 NA
14
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First Quarter 2004 Results
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Desc, S.A. de C.V. and Subsidiaries
Consolidated Balance Sheet
(In millions of constant pesos as of March 31, 2004)
2004 2003 %
Assets
Current Assets:
Cash and Short Term Investments 687 1,153 -40.4%
Account and Documents Receivable 6,230 5,152 20.9%
Inventories and Other Assets 2,995 2,964 1.0%
Total Current Assets 9,912 9,269 6.9%
Land held for development and real estate
projects 3,978 4,614 -13.8%
Fixed Assets 11,522 13,969 -17.5%
Other Assets 1,530 2,742 -44.2%
Total Assets 26,942 30,594 -11.9%
Liabilities
Current Liabilities:
Banks Loans 400 2,820 -85.8%
Suppliers 1,831 2,051 -10.8%
Taxes to be paid 245 834 -70.6%
Other Liabilities 1,908 1,586 20.3%
Total Current Liabilities 4,384 7,291 -39.9%
Long-Term Debt 11,350 9,248 22.7%
Deferred taxes 893 1,317 -32.2%
Other 681 605 12.6%
Total Liabilities 17,308 18,461 -6.2%
Stockholders' Equity
Capital Stock 18 18 0.0%
Paid-in Surplus 1,170 1,170 0.0%
Retained Earnings and Capital Reserve 18,316 18,792 -2.5%
Other -13,406 -11,883 12.8%
Total Majority Interest 6,098 8,097 -24.7%
Minority Interest 3,536 4,036 -12.4%
Total Stockholders' Equity 9,634 12,133 -20.6%
Total Liabilities and Stockholders' Equity 26,942 30,594 -11.9%
-------------------------------------------------------------------------------
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First Quarter 2004 Results
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Desc, S.A. de C.V. and Subsidiaries
Consolidated Income Statement
(In millions of constant pesos as of March 31, 2004)
1Q04 1Q03 %
Net Sales 5,356 5,343 0.2%
Cost of Sales 4,289 4,191 2.3%
Gross Profit 1,067 1,152 -7.3%
Operating Expenses:
Administrative and Selling Expenses 820 925 -11.3%
Operating Income 247 227 8.9%
Interest Expense 202 210 -3.7%
Interest Income (5) (12) -53.2%
Exchange Gain (loss), net 37 290 -87.1%
Gain on Monetary Position (138) (78) 76.8%
Others 40 41 -3.1%
Comprehensive Financial Result 136 451 -69.8%
Other Extraordinary Income or Expenses 39 10 284.3%
Income before Provisions 72 (234) NA
Provisions for:
Income and Asset Tax 69 91 -24.3%
Employee Profit Sharing 27 23 15.2%
Deferred Income Taxes 36 (19) NA
Total Taxes 132 96 37.1%
Net Consolidated Income (60) (330) -81.8%
Minority Interest 56 7 774.8%
Other Non-consolidated 0 0
Majority Net Income (116) (337) -65.4%
Net Income per Share (last 12 months) (1.67) (1.12)
Number of shares outstanding: 1,369 1,369
(in millions of shares)
EBITDA 564 576 -2.0%
-------------------------------------------------------------------------------
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First Quarter 2004 Results
--------------------------------------------------------------------------------
Acum.
1Q04 2003 4Q03 3Q03 2Q03 1Q03
-------------------------------------------------------------------------------
Sales (US$)
Consolidated 486 1,975 466 488 550 471
Automotive Sector 197 709 177 177 176 179
Chemical Sector 169 714 165 183 179 187
Food Sector 92 352 95 89 85 83
Real Estate Sector 27 180 16 36 107 21
Exports (US$)
Consolidated 232 860 215 217 212 216
Automotive Sector 133 475 117 121 120 117
Chemical Sector 71 282 74 69 66 73
Food Sector 27 104 25 27 26 26
Operating Income (US$)
Consolidated 22 77 2 13 42 20
Automotive Sector 13 20 5 0 4 11
Chemical Sector 3 18 4 5 5 4
Food Sector 5 11 4 4 2 1
Real Estate Sector 4 38 -9 9 33 5
Operating Margin
Consolidated 4.6% 3.9% 0.3% 2.8% 7.7% 4.2%
Automotive Sector 6.5% 2.9% 3.1% 0.1% 2.3% 6.0%
Chemical Sector 1.7% 2.6% 2.9% 2.7% 2.9% 2.0%
Food Sector 5.7% 3.2% 4.6% 4.1% 2.8% 1.0%
Real Estate Sector 14.2% 21.1% -57.3% 24.9% 30.5% 24.7%
EBITDA (US$)
Consolidated 51 202 32 45 74 51
Automotive Sector 29 88 22 17 21 28
Chemical Sector 10 50 12 13 13 12
Food Sector 9 27 8 8 6 5
Real Estate Sector 4 42 -7 10 33 6
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
17
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Item 5
CONSOLIDATED BALANCE SHEET
AT MARCH 31 OF 2004 AND 2003
(Thousands of Pesos)
FIRST QUARTER OF PRESENT FIRST QUARTER OF PREVIOUS
REF S CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount % Amount %
1 TOTAL ASSETS 26,942,326 100% 30,594,429 100%
2 CURRENT ASSETS 8,885,212 33% 9,268,670 30%
3 CASH AND SHORT-TERM INVESTMENTS 686,862 3% 1,153,144 4%
4 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 4,322,251 16% 3,512,624 11%
5 OTHER ACCOUNTS AND DOCUMENTS RECEIVABLE 806,570 3% 1,639,196 5%
6 INVENTORIES 3,021,568 11% 2,963,706 10%
7 OTHER CURRENT ASSETS 47,961 0% 0 0%
8 LONG-TERM 5,005,174 19% 4,613,951 15%
9 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 1,101,944 4% 0 0%
10 INVESTMENT IN SHARES OF SUBSIDIARIES AND
NON-CONSOLIDATED ASSOCIATED 183,695 1% 114,196 0%
11 OTHER INVESTMENTS 3,719,535 14% 4,499,755 15%
12 PROPERTY, PLANT AND EQUIPMENT 11,522,435 43% 13,968,968 46%
13 PROPERTY 6,325,435 23% 7,234,675 24%
14 MACHINERY AND INDUSTRIAL EQUIPMENT (NET) 15,671,898 58% 17,142,200 56%
15 OTHER EQUIPMENT 3,136,517 12% 2,112,658 7%
16 ACCUMULATED DEPRECIATION 13,991,371 52% 13,528,247 44%
17 CONSTRUCTION IN PROGRESS 379,956 1% 1,007,682 3%
18 DEFERRED ASSETS (NET) 507,062 2% 1,622,252 5%
19 OTHER ASSETS 1,022,443 4% 1,120,588 4%
20 TOTAL LIABILITIES 17,308,405 100% 18,461,416 100%
21 CURRENT LIABILITIES 4,384,066 25% 7,290,591 39%
22 SUPPLIERS 1,830,680 11% 2,051,437 11%
23 BANK LOANS 400,099 2% 2,820,287 15%
24 STOCK MARKET LOANS 0 0% 0 0%
25 TAXES TO BE PAID 245,398 1% 834,191 5%
26 OTHER CURRENT LIABILITIES 1,907,889 11% 1,584,677 9%
27 LONG-TERM LIABILITIES 11,350,116 66% 9,247,561 50%
28 BANK LOANS 9,030,393 52% 6,932,974 38%
29 STOCK MARKET LOANS 2,319,723 13% 2,314,587 13%
30 OTHER LOANS 0 0% 0 0%
31 DEFERRED LOANS 892,639 5% 1,316,583 7%
32 OTHER LIABILITIES 681,584 4% 606,680 3%
33 CONSOLIDATED STOCK HOLDERS' EQUITY 9,633,921 100% 12,133,013 100%
34 MINORITY INTEREST 3,536,131 37% 4,035,587 33%
35 MAJORITY INTEREST 6,097,790 63% 8,097,426 67%
36 CONTRIBUTED CAPITAL 13,101,416 136% 13,127,465 108%
37 PAID-IN CAPITAL STOCK (NOMINAL) 17,798 0% 17,798 0%
38 RESTATEMENT OF PAID-IN CAPITAL STOCK 11,913,228 124% 11,939,277 98%
39 PREMIUM ON SALES OF SHARES 1,170,390 12% 1,170,390 10%
40 CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES
41 CAPITAL INCREASE (DECREASE) -7,003,626 -73% -5,030,039 -41%
42 RETAINED EARNINGS AND CAPITAL RESERVE 17,525,927 182% 18,227,286 150%
43 REPURCHASE FUND OF SHARES 907,079 9% 907,079 7%
44 EXCESS (SHORTFALL) IN RESTATEMENT OF HOLDER'S
EQUITY -25,320,079 -263% -23,827,227 -196%
45 NET INCOME FOR THE YEAR -116,553 -1% -337,177 -3%
CONSOLIDATED BALANCE SHEET
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
FIRST QUARTER OF PRESENT FIRST QUARTER OF
REF S CONCEPTS FINANCIAL YEAR PREVIOUS FINANCIAL YEAR
Amount % Amount %
3 CASH AND SHORT-TERM INVESTMENTS 686,862 100% 1,153,144 100%
46 CASH 211,424 31% 408,259 35%
47 SHORT-TERM INVESTMENTS 475,438 69% 744,885 65%
18 DEFERRED ASSETS (NET) 507,062 100% 1,622,252 100%
48 AMORTIZED OR REDEEMED EXPENSES 0% 0%
49 GOODWILL 507,062 100% 1,622,252 100%
50 DEFERRED TAXES 0% 0%
51 OTHERS 0% 0%
21 CURRENT LIABILITIES 4,384,066 100% 7,290,592 100%
52 FOREIGN CURRENCY LIABILITIES 1,737,933 40% 4,103,022 56%
53 MEXICAN PESOS LIABILITIES 2,646,133 60% 3,187,570 44%
24 STOCK MARKET LOANS 0 100% 0 100%
54 COMMERCIAL PAPER 0% 0 0%
55 CURRENT MATURITIES OF MEDIUM TERM NOTES 0% 0 0%
56 CURRENT MATURITIES OF BONDS 0% 0 0%
26 OTHER CURRENT LIABILITIES 1,907,889 100% 1,584,677 100%
57 OTHER CURRENT LIABILITIES WITH COST 0% 0%
58 OTHER CURRENT LIABILITIES WITHOUT COST 1,907,889 100% 1,584,677 100%
27 LONG-TERM LIABILITIES 11,350,116 100% 9,247,561 100%
59 FOREIGN CURRENCY LIABILITIES 7,760,575 68% 5,552,317 60%
60 MEXICAN PESOS LIABILITIES 3,589,541 32% 3,695,244 40%
29 STOCK MARKET LOANS 2,319,723 100% 2,314,587 100%
61 BONDS 0% 0%
62 MEDIUM TERM NOTES 2,319,723 100% 2,314,587 100%
30 OTHER LOANS 0 100% 0 100%
63 OTHER LOANS WITH COST 0% 0 0%
64 OTHER LOANS WITHOUT COST 0% 0 0%
31 DEFERRED LOANS 892,639 100% 1,316,583 100%
65 NEGATIVE GOODWILL 0% 0%
66 DEFERRED TAXES 892,639 100% 1,316,583 100%
67 OTHERS 0% 0%
32 OTHER LIABILITIES 681,584 100% 606,680 100%
68 RESERVES 0% 0%
69 OTHERS LIABILITIES 681,584 100% 606,680 100%
44 EXCESS (SHORTFALL) IN RESTATEMENT OF STOCK
HOLDERS' EQUITY -25,320,079 100% -23,827,227 100%
70 ACCUMULATED INCOME DUE TO MONETARY POSITION 0% 0%
71 INCOME FROM NON-MONETARY POSITION ASSETS -25,320,079 100% -23,827,227 100%
CONSOLIDATED BALANCE SHEET
OTHER CONCEPTS
(Thousands of Pesos)
FIRST QUARTER FIRST QUARTER
OF PRESENT OF PREVIOUS
REF S CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount Amount
72 WORKING CAPITAL 4,501,146 1,978,078
73 PENSIONS FUND AND SENIORITY
PREMIUMS 416,251 599,820
74 EXECUTIVES (*) 0 0
75 EMPLOYERS (*) 4,384 5,787
76 WORKERS (*) 9,789 10,336
77 CIRCULATION SHARES (*) 1,369,073,376 1,369,079,376
78 REPURCHASED SHARES (*) 0 0
(*) THESE FIGURES ARE EXPRESSED IN UNITS
CONSOLIDATED INCOME STATEMENT
FROM JANUARY 1ST TO MARCH 31 OF 2004 AND 2003
(Thousands of Pesos)
FIRST QUARTER OF FIRST QUARTER OF PREVIOUS
REF R CONCEPTS PRESENT FINANCIAL YEAR FINANCIAL YEAR
Amount % Amount %
1 NET SALES 5,356,630 100% 5,343,349 100%
2 COST OF SALES 4,289,160 80% 4,191,477 78%
3 GROSS INCOME 1,067,470 20% 1,151,872 22%
4 OPERATING EXPENSES 819,999 15% 924,555 17%
5 OPERATING INCOME 247,471 5% 227,317 4%
6 TOTAL FINANCING COST 136,007 3% 451,590 8%
7 INCOME AFTER FINANCING COST 111,464 2% -224,273 -4%
8 OTHER FINANCIAL OPERATIONS 39,118 1% 10,179 0%
9 INCOME BEFORE TAXES AND WORKERS' PROFIT
SHARING 72,346 1% -234,452 -4%
10 RESERVE FOR TAXES AND WORKERS' PROFIT SHARING 132,087 2% 96,312 2%
11 NET INCOME AFTER TAXES AND WORKERS' PROFIT
SHARING -59,741 -1% -330,764 -6%
12 SHARE IN NET INCOME OF SUBSIDIARIES AND
NON-CONSOLIDATED ASSOCIATES -426 0% 0 0%
13 CONSOLIDATED NET INCOME OF CONTINUOUS -60,167 -1% -330,764 -6%
14 INCOME OF DISCONTINUOUS OPERATIONS 282 0% 0 0%
15 CONSOLIDATED NET INCOME BEFORE EXTRAORDINARY
ITEMS -60,449 -1% -330,764 -6%
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%
18 NET CONSOLIDATED INCOME -60,449 -1% -330,764 -6%
19 NET INCOME OF MINORITY INTEREST 56,104 1% 6,413 0%
20 NET INCOME OF MAJORITY INTEREST -116,553 -2% -337,177 -6%
CONSOLIDATED INCOME STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
FIRST QUARTER OF FIRST QUARTER OF
REF R CONCEPTS PRESENT FINANCIAL YEAR PREVIOUS FINANCIAL YEAR
Amount % Amount %
1 NET SALES 5,356,630 100% 5,343,349 100%
21 DOMESTIC 2,799,096 52% 2,898,339 54%
22 FOREIGN 2,557,534 48% 2,445,010 46%
23 TRANSLATED INTO DOLLARS (***) 232,087 4% 215,682 4%
6 TOTAL FINANCING COST 136,007 100% 451,590 100%
24 INTEREST PAID 242,214 178% 251,191 56%
25 EXCHANGE LOSSES -305 0% 245,073 54%
26 INTEREST EARNED 5,439 4% 11,626 3%
27 EXCHANGE PROFITS 0 0% 0 0%
28 GAIN DUE TO MONETARY POSITION -138,278 -102% -78,192 -17%
29 LOSS IN UDI's ACTUALIZATION 37,815 16% 45,144 10%
29 PROFIT IN UDI's ACTUALIZATION 0 0% 0 0%
8 OTHER FINANCIAL OPERATIONS 39,118 100% 10,179 100%
29 OTHER NET EXPENSES (INCOME) NET 39,118 100% 10,179 100%
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 132,087 100% 96,312 100%
32 INCOME TAX 69,178 52% 91,836 95%
33 DEFERRED INCOME TAX 35,911 27% -18,951 -20%
34 WORKERS' PROFIT SHARING 26,998 20% 23,427 24%
35 DEFERRED WORKERS' PROFIT SHARING 0 0% 0 0%
CONSOLIDATED INCOME STATEMENT
OTHER CONCEPTS
(Thousands of Pesos)
FIRST QUARTER FIRST QUARTER
OF PRESENT OF PREVIOUS
REF R CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount Amount
36 TOTAL SALES 5,553,383 5,623,451
37 NET INCOME OF THE YEAR 0 0
38 NET SALES (**) 22,112,551 20,924,751
39 OPERATION INCOME (**) 875,963 935,357
40 NET INCOME OF MAJORITY INTEREST (**) -2,286,450 -1,648,013
41 NET CONSOLIDATED INCOME (**) -2,171,463 -1,824,474
(**) THE INFORMATION IS BASED ON THE LAST TWELVE MONTHS
CONSOLIDATED INCOME STATEMENT
FROM JANUARY 1st TO MARCH 31th OF 2004 AND 2003
(Thousands of Pesos)
FIRST QUARTER OF FIRST QUARTER OF
REF R CONCEPTS PRESENT FINANCIAL YEAR PREVIOUS FINANCIAL YEAR
Amount % Amount %
1 NET SALES 5,356,630 100% 5,343,349 100%
2 COST OF SALES 4,289,160 80% 4,191,477 78%
3 GROSS INCOME 1,067,470 20% 1,151,872 22%
4 OPERATING EXPENSES 819,999 15% 924,555 17%
5 OPERATING INCOME 247,471 5% 227,317 4%
6 TOTAL FINANCING COST 136,007 3% 451,590 8%
7 INCOME AFTER FINANCING COST 111,464 2% -224,273 -4%
8 OTHER FINANCIAL OPERATIONS 39,118 1% 10,179 0%
9 INCOME BEFORE TAXES AND WORKERS' PROFIT
SHARING 72,346 1% -234,452 -4%
10 RESERVE FOR TAXES AND WORKERS' PROFIT
SHARING 132,087 2% 96,312 2%
11 NET INCOME AFTER TAXES AND WORKERS'
PROFIT SHARING -59,741 -1% -330,764 -6%
12 SHARE IN NET INCOME OF SUBSIDIARIES AND
NON-CONSOLIDATED ASSOCIATES (426) 0% 0 0%
13 CONSOLIDATED NET INCOME OF CONTINUOUS -60,167 -1% -330,764 -6%
14 INCOME OF DISCONTINUOUS OPERATIONS 282 0% 0 0%
15 CONSOLIDATED NET INCOME BEFORE
EXTRAORDINARY ITEMS -60,449 -1% -330,764 -6%
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%
18 NET CONSOLIDATED INCOME -60,449 -1% -330,764 -6%
19 NET INCOME OF MINORITY INTEREST 56,104 1% 6,413 0%
20 NET INCOME OF MAJORITY INTEREST -116,553 -2% -337,177 -6%
CONSOLIDATED INCOME STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
TRIMESTER PRESENT TRIMESTER PREVIOUS
REF R CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount % Amount %
1 NET SALES 5,356,630 100% 5,343,349 100%
21 DOMESTIC 2,799,096 52% 2,898,339 54%
22 FOREIGN 2,557,534 48% 2,445,010 46%
23 TRANSLATED INTO DOLLARS (***) 232,087 4% 215,632 4%
6 TOTAL FINANCING COST 136,007 100% 451,590 100%
24 INTEREST PAID 242,214 178% 251,191 56%
25 EXCHANGE LOSSES -305 0% 245,073 54%
26 INTEREST EARNED 5,439 4% 11,626 3%
27 EXCHANGE PROFITS 0 0% 0 0%
28 GAIN DUE TO MONETARY POSITION -138,278 -102% -78,192 -17%
29 LOSS IN UDI's ACTUALIZATION 37,815 28% 45,144 10%
PROFIT IN UDI's ACTUALIZATION 0 0% 0 0%
8 OTHER FINANCIAL OPERATIONS 39,118 100% 10,179 100%
29 OTHER NET EXPENSES (INCOME) NET 39,118 100% 10,179 100%
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 132,087 100% 96,312 100%
32 INCOME TAX 69,178 52% 91,836 95%
33 DEFERRED INCOME TAX 35,911 27% -18,951 -20%
34 WORKERS' PROFIT SHARING 26,998 20% 23,427 24%
35 DEFERRED WORKERS' PROFIT SHARING 0 0% 0 0%
CONSOLIDATED CASH FLOW STATEMENT
FROM JANUARY 1ST TO MARCH 31 OF 2003 AND 2002
(Thousands of Pesos)
FIRST QUARTER FIRST QUARTER
OF PRESENT OF PREVIOUS
REF C CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount Amount
1 CONSOLIDATED NET INCOME -60,449 -330,764
2 +(-) ITEMS ADDED TO INCOME WHICH DO NOT
REQUIRE USING CASH 219,470 348,195
3 CASH FLOW FROM NET INCOME OF THE YEAR 159,021 17,431
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL -84,655 -375,570
5 CASH GENERATED (USED) IN OPERATING ACTIVITIES 74,366 -358,139
6 CASH FLOW FROM EXTERNAL FINANCING -235,194 -825,271
7 CASH FLOW FROM INTERNAL FINANCING 0 0
8 CASH FLOW GENERATED (USED) BY FINANCING -235,194 -825,271
9 CASH FLOW GENERATED (USED) IN INVESTMENT
ACTIVITIES 116,448 -204,351
10 NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS -44,380 -1,387,762
11 CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF PERIOD 731,242 2,540,905
12 CASH AND SHORT-TERM INVESTMENTS AT THE END OF
PERIOD 686,862 1,153,144
CONSOLIDATED CASH FLOW STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
FIRST QUARTER FIRST QUARTER
OF PRESENT OF PREVIOUS
REF C CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
Amount Amount
2 + (-) ITEMS ADDED TO INCOME WHICH DO NOT
REQUIRE 219,470 348,195
13 DEPRECIATION AND AMORTIZATION FOR THE YEAR 316,700 348,195
14 + (-) NET INCREASE (DECREASE) IN PENSIONS
FUND AND SENIORITY PREMIUMS
15 + (-) NET LOSS (PROFIT) IN MONEY EXCHANGE
16 + (-) NET LOSS (PROFIT) IN ASSETS AND
LIABILITIES ACTUALIZATION
17 + (-) OTHER ITEMS -97,230 0
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL -84,655 -375,570
18 + (-) DECREASE (INCREASE) IN ACCOUNT
RECEIVABLE -923,251 -876,248
19 + (-) DECREASE (INCREASE) IN INVENTORIES 194,289 228,349
20 + (-) DECREASE (INCREASE) IN OTHER ACCOUNT
RECEIVABLE 201,725 108,339
21 + (-) INCREASE (DECREASE) IN SUPPLIER ACCOUNT 187,771 -155,671
22 + (-) INCREASE (DECREASE) IN OTHER
LIABILITIES 254,811 319,661
6 CASH FLOW FROM EXTERNAL FINANCING -235,194 -825,271
23 + SHORT-TERM BANK AND STOCK MARKET FINANCING -47,355 -877,130
24 + LONG-TERM BANK AND STOCK MARKET FINANCING -187,839 51,858
25 + DIVIDEND RECEIVED
26 + OTHER FINANCING 0
27 (-) BANK FINANCING AMORTIZATION
28 (-) STOCK MARKET AMORTIZATION
29 (-) OTHER FINANCING AMORTIZATION
7 CASH FLOW FROM INTERNAL FINANCING 0 0
30 + (-) INCREASE (DECREASE) IN CAPITAL STOCKS
31 (-) DIVIDENDS PAID 0 0
32 + PREMIUM ON SALE OF SHARES
33 + CONTRIBUTION FOR FUTURE CAPITAL INCREASES
9 CASH FLOW GENERATED (UTILIZED) IN INVESTMENT
ACTIVITIES 116,448 -204,351
34 + (-) DECREASE (INCREASE) IN STOCK
INVESTMENTS OF A PERMANENT NATURE -108,864
35 (-) ACQUISITION OF PROPERTY, PLANT AND
EQUIPMENT -81,340 -182,497
36 (-) INCREASE IN CONSTRUCTIONS IN PROGRESS 116,622 -69,608
37 + SALE OF OTHER PERMANENT INVESTMENTS 0 0
38 + SALE OF TANGIBLE FIXED ASSETS 190,030 47,754
39 + (-) OTHER ITEMS 0
RATIOS
CONSOLIDATED
FIRST QUARTER OF FIRST QUARTER OF
PRESENT FINANCIAL PREVIOUS FINANCIAL
REF P CONCEPTS YEAR YEAR
YIELD
1 NET INCOME TO NET SALES -1.13 % -6.19 %
2 NET INCOME TO STOCK HOLDERS' EQUITY (**) -37.5 % -20.35 %
3 NET INCOME TO TOTAL ASSETS (**) -8.06 % -5.96 %
4 CASH DIVIDENDS TO PREVIOUS YEAR NET INCOME 0 % 0 %
5 INCOME DUE TO MONETARY POSITION TO NET INCOME -228.75 % -23.64 %
ACTIVITY
6 NET SALES TO NET ASSETS (**) 0.82 times 0.68 times
7 NET SALES TO FIXED ASSETS (**) 1.92 times 1.5 times
8 INVENTORIES ROTATION (**) 2.77 times 5.19 times
9 ACCOUNTS RECEIVABLE IN DAYS OF SALES 63 days 51 days
10 PAID INTEREST TO TOTAL LIABILITIES WITH
COST (**) 6.6 % 6.39 %
LEVERAGE
11 TOTAL LIABILITIES TO TOTAL ASSETS 64.24 % 60.34 %
12 TOTAL LIABILITIES TO STOCK HOLDERS' EQUITY 1.8 times 1.52 times
13 FOREIGN CURRENCY LIABILITIES TO TOTAL
LIABILITIES 5488 % 52.3 %
14 LONG-TERM LIABILITIES TO FIXED ASSETS 98.5 % 66.2 %
15 OPERATING INCOME TO INTEREST PAID 1.02 times 0.9 times
16 NET SALES TO TOTAL LIABILITIES (**) 1.28 times 1.13 times
LIQUIDITY
17 CURRENT ASSETS TO CURRENT LIABILITIES 2.03 times 1.27 times
18 CURRENT ASSETS LESS INVENTORY TO CURRENT
LIABILITIES 1.34 times 0.86 times
19 CURRENTS ASSETS TO TOTAL LIABILITIES 0.51 times 0.5 times
20 AVAILABLE ASSETS TO CURRENT LIABILITIES 15.67 % 15.82 %
CASH FLOW
21 CASH FLOW FROM NET INCOME TO NET SALES 2.97 % 0.33 %
22 CASH FLOW FROM CHANGES IN WORKING CAPITAL TO
NET SALES -1.58 % -7.03 %
23 CASH GENERATED (USED) IN OPERATING TO
INTEREST PAID 0.31 times -1.43 times
24 EXTERNAL FINANCING TO CASH GENERATED (USED)
IN FINANCING 100 % 100 %
25 INTERNAL FINANCING TO CASH GENERATED (USED)
IN FINANCING 0 % 0 %
26 ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
TO CASH GENERATED (USED) IN INVESTMENT
ACTIVITIES -69.85 % 65.94 %
(**) THESE RATIOS ARE BASED ON DATA FROM THE LAST TWELVE MONTHS
DATA PER SHARE
FIRST QUARTER OF FIRST QUARTER OF
REF D CONCEPTS PRESENT FINANCIAL YEAR PREVIOUS FINANCIAL YEAR
Amount Amount
1 BASIC PROFIT PER ORDINARY SHARE (**) -1.67 -1.12
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 4.45 5.67
9 CASH DIVIDEND ACCUMULATED PER SHARE 0 0
10 DIVIDEND IN SHARES PER SHARE 0 shares 0 shares
11 MARKET PRICE TO CARRYING VALUE 3.84 times 3.66 times
12 MARKET PRICE TO BASIC PROFIT PER ORDINARY
SHARE (**) 0 times 0 times
13 MARKET PRICE TO BASIC PROFIT PER PREFERRED
SHARE (**) 0 times 0 times
(**) TO CALCULATE THE DATA PER SHARE USE THE NET INCOME FOR THE LAST TWELVE
MONTHS
Annex 1: [Press Release Announcing First Quarter Results*]
[*Filed as an Exhibit with the Form 6-K to which this document is included]
Annex 2: Auditor Notes
ANNEX 2
PRINCIPAL 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:
NEW ACCOUNTING POLICIES - IN JANUARY 2003, THE NEW BULLETIN C-9 "LIABILITIES,
PROVISIONS, CONTINGENT ASSETS AND LIABILITIES AND COMMITMENTS" WENT INTO EFFECT,
WHICH ESTABLISH ADDITIONAL GUIDELINES CLARIFYING THE ACCOUNTING FOR LIABILITIES,
PROVISIONS AND CONTINGENT ASSETS AND LIABILITIES, AND ESTABLISH NEW STANDARDS
FOR THE USE OF PRESENT VALUE TECHNIQUES TO MEASURE LIABILITIES AND ACCOUNTING
FOR THE EARLY SETTLEMENT OF OBLIGATIONS.
IN JANUARY 2003, THE NEW BULLETIN C-8 "INTANGIBLE ASSETS" WENT INTO EFFECT. THIS
BULLETIN ESTABLISHES THAT PROJECT DEVELOPMENT COSTS SHOULD BE CAPITALIZED IF
THEY FULFILL THE CRITERIA ESTABLISHED FOR RECOGNITION ASSETS. ANY PREOPERATING
COSTS INCURRED AFTER THE EFFECTIVE DATE OF THIS BULLETIN SHOULD BE RECORDED AS
AN EXPENSE, UNLESS THEY MEET CERTAIN CRITERIA. THE UNAMORTIZED BALANCE OF
CAPITALIZED PREOPERATING COSTS UNDER THE FORMER BULLETIN C-8 WILL CONTINUE TO BE
AMORTIZED.
IN MARCH 2003, BULLETIN C-15 "IMPAIRMENT OF LONG-LIVED ASSETS AND THEIR RELATED
DISPOSAL" WAS ISSUED, WHICH MUST BE APPLIED TO FINANCIAL STATEMENTS FOR PERIODS
BEGINNING JANUARY 1, 2004. ALTHOUGH EARLY APPLICATION IS ENCOURAGED, THIS
BULLETIN HAS BEEN APPLIED BY THE COMPANY SINCE 2003. BULLETIN C-15 ESTABLISHES,
AMONG OTHER THINGS, NEW RULES FOR THE CALCULATION AND RECOGNITION OF LOSSES FROM
IMPAIRMENT AND THEIR REVERSAL AND, PRIOR TO THE PRESENCE OF INDICIA OF THE
DETERIORATION OF LONG-LIVED ASSETS, INTANGIBLE OR TANGIBLE ASSETS, INCLUDING
GOODWILL. COMPANIES MUST TEST FOR IMPAIRMENT UNLESS THERE IS CONCLUSIVE EVIDENCE
THAT THE INDICATORS OF IMPAIRMENT ARE TEMPORARY.
IN DECEMBER 2002, THE NEW BULLETIN E-1 "AGRICULTURE" WENT INTO EFFECT, WHICH IS
COMPULSORY FOR FISCAL YEARS BEGINNING ON OR AFTER JANUARY 1, 2003. BULLETIN E-1
ESTABLISHES THE RULES FOR VALUING, PRESENTING AND DISCLOSING BIOLOGICAL ASSETS
AND AGRICULTURAL PRODUCTS, WHICH INCLUDES THE ADMINISTRATION CARRIED OUT BY A
RELATED PARTY WITH RESPECT TO BIOLOGICAL TRANSFORMATION OF LIVE ANIMALS OR
PLANTS (BIOLOGICAL ASSETS) THAT ARE INTENDED TO BE SOLD AS AN AGRICULTURAL
PRODUCT OR AS A COMPREHENSIVE PART OF A BIOLOGICAL ASSET. BULLETIN E-1 REQUIRES
BIOLOGICAL ASSETS AND AGRICULTURAL PRODUCTS TO BE VALUED AT THEIR FAIR MARKET
VALUE, LESS THE ESTIMATED COSTS AT THE POINT OF SALE. BULLETIN E-1 ALSO STATES
THAT WHEN THE FAIR MARKET VALUE CANNOT BE DETERMINED IN A RELIABLE AND OBJECTIVE
MANNER, THE AFOREMENTIONED ASSETS SHOULD BE VALUED AT PRODUCTION COST, LESS
ACCUMULATED DEPRECIATION.
IN 2001, THE NEW BULLETIN C-2 "FINANCIAL INSTRUMENTS", WENT INTO EFFECT. THIS
BULLETIN ESTABLISHES 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".
2
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.
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.
3
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 VALUE (COST PLUS ACCRUED INTEREST).
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 - THIS 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.
4
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
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.
5
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 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.
6
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 (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.
7
STOCK EXCHANGE CODE:DESC QUARTER:1 YEAR: 2004
Annex 3
SHARE OWNERSHIP
NUMBER OF TOTAL AMOUNT
COMPANY NAME MAIN ACTIVITIES SHARES OWNERSHIP (Thousands of Pesos)
ACQUISITION PRESENT
SUBSIDIARIES COST VALUE
BOSQUES DE LAS LOMAS, S.A. DE C.V. Real Estate Sector 34,051,500 100.00 70,611 70,611
OPERADORA NAYARIT, S.A. DE C.V. Real Estate Sector 49 78.00 114,927 114,927
PROMOCIONES BOSQUES, S.A. DE C.V. Real Estate Sector 100,402,106 100.00 406,490 406,490
CORPORATIVO DINE, S.A. DE C.V. Real Estate Sector 2,344,119,922 100.00 17,495 17,495
HOLDING DICOMEX, S.A. DE C.V. Real Estate Sector 70,870,000 50.00 91,590 91,590
TURISTICA AKKO, S.A. DE C.V. Real Estate Sector 9,998 100.00 (1,777) (1,777)
BOSQUES DE SANTA FE, S.A. DE C.V. Real Estate Sector 1,361 98.00 (51,126) (51,126)
CANA DE SANTA FE, S.A DE C.V. Real Estate Sector 202,939,999 73.00 889,377 889,377
INMOBILIARIA DINE, S.A. DE C.V. Real Estate Sector 36,710,199 100.00 87,531 87,531
CANTILES DE MITA Real Estate Sector 115,003,237 95.90 2,006,390 2,006,390
CLUB DE GOLF PUNTA MITA, S.A. DE C.V. Real Estate Sector 12,410,869 87.69 129,266 129,266
DESC AUTOMOTRIZ, S.A. DE C.V. Autoparts Sector 700,968,215 100.00 3,101,703 3,101,703
CORFUERTE, S.A. DE C.V. Food Sector 872,193,685 95.90 466,268 466,268
AGROKEN, S.A. DE C.V. Food Sector 703,480,668 100.00 565,010 565,010
AUTHENTIC SPECIALITY FOODS Food Sector 316,004 99.93 372,325 372,325
AGROBIOS CORPORATIVO Food Sector 550,000 100.00 34,710 34,710
CID CENTRO DE INVESTIGACION Y
DESARROLLO Chemicals Sector 190,386,960 100.00 20,100 20,100
DIRECCION IRSA, S.A. DE C.V. Chemicals Sector 4,201,800 100.00 (62,682) (62,682)
FENOQUIMIA, S.A. DE C.V. Chemicals Sector 5,000,000 100.00 (293,465) (293,465)
FORESTACIONES OPERATIVAS DE MEXICO, S.A. Chemicals Sector 31,658 100.00 11,381 11,381
GIRSA CORPORATIVO, S.A. DE C.V. Chemicals Sector 41,510,000 100.00 8,785 8,785
GIRSA CONCENTRADORA, S.A. DE C.V. Chemicals Sector 615,124,721 100.00 903,730 903,730
H2ORIZONTES, S.A. DE C.V. Chemicals Sector 50,000 100.00 (10,146) (10,146)
QUIMIR, S.A. DE C.V. Chemicals Sector 1,930,987 100.00 105,714 105,714
RESIRENE, S.A. DE C.V. Chemicals Sector 236,058,979 100.00 188,561 188,561
TECNO INDUSTRIA RF, S.A. DE C.V. Chemicals Sector 10,675,000 100.00 9,086 9,086
REXCEL, S.A. DE C.V. Chemicals Sector 1,001,000 100.00 98,022 98,022
INDUSTRIAS NEGROMEX, S.A. DE C.V. Chemicals Sector 585,833,830 99.99 630,868 630,868
DYNASOL ELASTOMEROS, S.A. (ESPANA) Chemicals Sector 1 50.00 430,106 430,106
DYNASOL GESTION, S.A. Chemicals Sector 1 50.00 2,166 2,166
DYNASOL, L.L.C. Chemicals Sector 1 50.00 17,049 17,049
PARATEC ELASTOMERS, L.L.C. Chemicals Sector 1 100.00 38,455 38,455
PLASTIGLAS DE MEXICO, S.A. DE C.V. Chemicals Sector 200,778,201 95.00 88,790 88,790
AEROPYCSA, S.A. DE C.V. Chemicals Sector 458,329,279 100.00 112,545 112,545
CORPORATIVO ARCOS, S.A. DE C.V. Chemicals Sector 260,524,996 100.00 57,949 57,949
DESC CORPORATIVO, S.A. DE C.V. Service Company 266,253,830 100.00 (171,559) (171,559)
BIG SOFT, S.A. DE C.V. Service Company 8,612,508 100.00 7,557 7,557
PACIFIC INTERNATIONAL AIRWAYS, S.A. DE C.V. Service Company 244,498 100.00 1,276 1,276
SERVICIOS CORPORATIVOS ARCOS, S.A.DE C.V. Service Company 449 100.00 427 427
BIOQUIMEX Service Company 419,841,899 100.00 9,634 9,634
OTHER SUBSIDIARIES+A78 (4) Service Companies 1 100.00 25,047 25,047
Associates
1. Others 10,530,186 10,530,186
SERVICES 1 0 183,695 183,695
Other Permanent Investments 3,719,535
Total 14,433,416
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
Annex 5
CREDITS BREAKDOWN
(Thousands of Pesos)
----------------------------------------------------------------------------------------------------------------------------
Amortization Rate of Amortization of Credits in Foreign Currency with
Credit Type / Institution Date Interest Denominated in Pesos National Entities (Thousands of $)
-------------------------------------------------------------------------
Time Interval
------------------------- -------------------------------------------------------------------------
Banks Until More Than Current Until Until Until Until Until
1 Year 1 Year Year 1 Year 2 Years 3 Years 4 Years 5 Years
----------------------------------------------------------------------------------------------------------------------------
LT ST LP
----------------------------------------------------------------------------------------------------------------------------
WITH WARRANTY
----------------------------------------------------------------------------------------------------------------------------
DEUTSCHE BANK 15-Oct-07 8.75000
Financial Institutions
IFC 15-Feb-06 3.30000 0 0 0 0 0 0 0 0
IFC 15-Sep-09 4.90000 0 0 0 0 0 0 0 0
IFC 15-Sep-09 10.35000 0 0 0 0 0 0 0 0
DEG 28-Dec-06 4.12500 0 0 0 0 0 0 0 0
CITIBANK NA (SIND) 23-Jun-06 4.14630 0 0 0 0 0 0 0 0
CITIBANK NA (SIND) 23-Dec-08 4.64630 0 0 0 0 0 0 0 0
BBVA BANCOMER (SIND) 23-Dec-08 8.71110 0 1,222,553 0 0 0 0 0 0
Various Suppliers 31-Dec-10 8.40000 0 0 0 0 0 0 0 0
BANCO SANTANDER MEXICANO 31-Jan-07 10.02350 3,261 6,513 0 0 0 0 0 0
INBURSA 31-Aug-04 12.54000 15,000 0 0 0 0 0 0 0
INBURSA 28-Feb-07 12.90000 5,000 30,000 0 0 0 0 0 0
BANCO SANTANDER MEXICANO 31-Jan-07 7.79670 1,038 1,892 0 0 0 0 0 0
BANAMEX-CITIBANK 16-May-08 8.06140 1,550 8,860 0 0 0 0 0 0
COMERICA BANK 26-Apr-04 2.62000 0 0 0 0 0 0 0 0
COMERICA BANK 9-Apr-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 21-Dec-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 20-Apr-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 7-May-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 18-May-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 9-Apr-04 3.21880 0 0 0 0 0 0 0 0
COMERICA BANK 20-Apr-04 3.21880 0 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
TOTAL BANKS 25,849 1,269,818 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Credit Type / Institution Amortization of Credits in Foreign Currency with foreign entities
(Thousands of $)
------------------------------------------------------------------
Time Interval
---------------------------------------------------------------------------------------------
Until 1 Until 2 Until 3 Until 4 Until 5
Banks Current Year Year Years Years Years Years
---------------------------------------------------------------------------------------------
ST LP
---------------------------------------------------------------------------------------------
WITH WARRANTY
---------------------------------------------------------------------------------------------
DEUTSCHE BANK 818,924 0
Financial Institutions
IFC 8,007 8,007 16,015
IFC 36,033 36,033 72,066 72,066 72,066 108,099
IFC 48,044 48,044 96,088 96,088 96,088 144,132
DEG 3,487 583 2,346 1,763 0 0
CITIBANK NA (SIND) 0 0 0 1,121,030 0 0
CITIBANK NA (SIND) 0 0 0 1,665,660 1,665,660 1,665,660
BBVA BANCOMER (SIND) 0 0 0 0 0 0
Various Suppliers 4,683 0 8,002 7,149 7,878 23,795
BANCO SANTANDER MEXICANO 0 0 0 0 0 0
INBURSA 0 0 0 0 0 0
INBURSA 0 0 0 0 0 0
BANCO SANTANDER MEXICANO 0 0 0 0 0 0
BANAMEX-CITIBANK 0 0 0 0 0 0
COMERICA BANK 56,052 0 0 0 0 0
COMERICA BANK 4,088 0 0 0 0 0
COMERICA BANK 89,682 0 0 0 0 0
COMERICA BANK 1,432 0 0 0 0 0
COMERICA BANK 10,284 0 0 0 0 0
COMERICA BANK 5,470 0 0 0 0 0
COMERICA BANK 9,567 0 0 0 0 0
COMERICA BANK 4,754 0 0 0 0 0
---------------------------------------------------------------------------------------------
TOTAL BANKS 281,583 92,667 194,517 2,963,756 2,660,616 1,941,686
---------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
LISTED IN THE MEXICAN Amortization Rate of Amortization of Credits in Foreign Currency with
STOCK EXCHANGE Date Interest Denominated in Pesos National Entities (Thousands of $)
-------------------------------------------------------------------------
Time Interval
-------------------------------------------------------------------------
Until More Than Current Until Until Until Until Until
1 Year 1 Year Year 1 Year 2 Years 3 Years 4 Years 5 Years
----------------------------------------------------------------------------------------------------------------------------
UNSECURED DEBT
UDIBONOS 10/21/2006 9.00 0 1,104,356 0 0 0 0 0 0
UDIBONOS 7/13/2007 8.20 0 1,215,367 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------
0 2,319,723 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCK EXCHANGE
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
SUPPLIERS 806,907 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
OTHERS 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
TOTAL SUPPLIERS 806,907 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
OTHERS 1,567,979 0 0 0 0 0 0 0
-------------------------
OTHER CURRENT LIABILITIES
AND OTHER CREDITS 2,400,735 3,589,541 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
LISTED IN THE MEXICAN Amortization of Credits in Foreign Currency with foreign entities
STOCK EXCHANGE (Thousands of $)
------------------------------------------------------------------
Time Interval
------------------------------------------------------------------
Until 1 Until 2 Until 3 Until 4 Until 5
Current Year Year Years Years Years Years
---------------------------------------------------------------------------------------------
UNSECURED DEBT
UDIBONOS 0 0 0 0 0 0
UDIBONOS 0 0 0 0 0 0
--------------------------------------------------------------------
0 0 0 0 0 0
---------------------------------------------------------------------------------------------
TOTAL STOCK EXCHANGE
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
SUPPLIERS 0 1,023,773 0 0 0 0
---------------------------------------------------------------------------------------------
OTHERS 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
TOTAL SUPPLIERS 0 1,023,773 0 0 0 0
---------------------------------------------------------------------------------------------
OTHERS 0 339,910 0 0 0 0
-------------------------
OTHER CURRENT LIABILITIES
AND OTHER CREDITS 281,583 1,456,350 194,517 2,963,756 2,660,616 1,941,686
---------------------------------------------------------------------------------------------
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
Annex 6
MONETARY POSITION IN FOREIGN EXCHANGE
(Thousands of Pesos)
DOLLARS (1) OTHER CURRENCIES TOTAL
THOUSANDS THOUSANDS THOUSANDS THOUSANDS THOUSANDS OF
TRADE BALANCE OF DOLLARS OF PESOS OF DOLLARS OF PESOS PESOS
TOTAL ASSETS 353,792 3,966,117 0 0 3,966,117
LIABILITIES POSITION 871,174 9,766,121 0 0 9,766,121
SHORT TERM LIABILITIES POSITION 155,030 1,737,933 0 0 1,737,933
LONG TERM LIABILITIES POSITION 716,144 8,028,188 0 0 8,028,188
NET BALANCE -517,382 -5,800,004 0 0 -5,800,004
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
Annex 7
INTEGRATION AND INCOME CALCULATION BY MONETARY POSITION
(Thousands of Pesos)
(ASSET)
LIABILITIES MONTHLY
MONETARY MONETARY MONETARY MONTHLY (PROFIT)
MONTH ASSETS LIABILITIES POSITION INFLATION AND LOSS
JANUARY 6,873,121 16,828,773 -9,955,652 0.62 61,725
FEBRUARY 8,188,190 17,075,138 -8,886,948 0.6 53,322
MARCH 9,368,558 18,263,161 -8,894,603 0.34 30,242
APRIL 0 0 0 0 0
MAY 0 0 0 0 0
JUNE 0 0 0 0 0
JULY 0 0 0 0 0
AUGUST 0 0 0 0 0
SEPTEMBER 0 0 0 0 0
OCTOBER 0 0 0 0 0
NOVEMBER 0 0 0 0
DECEMBER 0 0 0 0 0
CURRENT AMOUNT 0 0 0 0 -7,011
CAPITALIZATION 0 0 0 0 0
FOREIGN CORP. 0 0 0 0 0
OTHER 0 0 0 0 0
TOTAL 138,277
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
Bonds and Medium Term Notes Listing in Stock Market (1)
Annex 8
Financial Limitations Based on Issuances or Instruments
-1 Interest Coverage Ratio
Shall mean, for any period, the ratio of (i) Consolidated EBITDA for such period
to (ii) Consolidated Interest Expense for such period. The borrower will not
permit the ratio to be less than 2.25 to 1.00 (for each period of four
consecutive fiscal quarters)
-2 Consolidated Net Indebtedness to Consolidated EBITDA Ratio
Shall mean, at any time, the total amount of cash and cash equivalents to
Consolidated EBITDA for the then most recently concluded period of four
consecutive fiscal quarters or the Borrower. The borrower will not permit the
ratio to be higher than 5.35 to 1.00
-3 Consolidated Net Indebtedness to Total Capitalization Ratio
Shall mean, at any time, the ratio of (i) Consolidated Net Indebtedness at such
time to (ii) Total Capitalization at such time. The borrower will not permit the
ratio to be higher than .55 to 1.00
Current Status of
Financial Limitations
(1) Interest Coverage. 2.93
(2) Capitalization. 0.54
(3) Leverage Ratio. 4.92
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS
ANNEX 9 CONSOLIDATED
---------------------------------------------------------------------------------------------------------------------
PLANT
CAPACITY UTILIZATION
PLANT OR CENTER ECONOMIC ACTIVITY (1) %
---------------------------------------------------------------------------------------------------------------------
EJES TRACTIVOS, S.A. DE C.V. REAR AXLES ASSEMBLY (PIECES) 320 25%
EJES TRACTIVOS, S.A. DE C.V. REAR AXLES TRACTOR LINE (PIECES) 565 97%
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 40%
MORESTANA, S.A. DE C.V. TAPPETS (PIECES) 14,238 72%
PISTONES MORESA, S.A. DE C.V. PISTON PINS (PIECES) 23,500 41%
ENGRANES CONICOS, S.A. DE C.V. GEARS (SETS) 850 90%
PRODUCTOS ESTAMPADOS DE MEXICO, S.A. DE C.V. STAMPED (A) (STROKES) 330 25%
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 26%
TREMEC, S.A. DE C.V. TRANSMISSIONS (LIGHT TRANSMISSIONS) 282 72%
TREMEC, S.A. DE C.V. TRANSMISSIONS (HEAVY DUTTY COMPOMENTS) 2,267 45%
CARDANES, S.A. DE C.V. PROPELLER SHAFTS ASSEMBLY (PIECES) 585 47%
CARDANES, S.A. DE C.V. PROPELLER SHAFTS TRACTOR LINE (PIECES) 756 94%
HAYES WHEELS ACERO, S.A. DE C.V. STEEL WHEELS (PIECES) 6,100 33%
AUTOMETALES, S.A. DE .CV. IRON FOUNDRY (TONS) 24 77%
TF VICTOR, S.A. DE C.V. GASKETS, SEALS, MOTOR PARTS (PIECES) 24,275 39%
FORJAS SPICER, S.A. DE C.V. PRECISION FORGES (TONS) 50 67%
1 COATZACOALCOS, VER. POLYSTYRENE (TONS) 75,000 94%
2 XICOHTZINGO,TLAX. POLYSTYRENE (TONS) 65,000 48%
3 ALTAMIRA, TAMPS. (Dynasol) SYNTHETIC RUBBER (TONS) 84,000 100%
4 ALTAMIRA, TAMPS. (INSA) SYNTHETIC RUBBER (TONS) 96,000 85%
5 ALTAMIRA, TAMPS. (PARATEC) SYNTHETIC RUBBER (TONS) 24,000 64%
6 COATZACOALCOS, VER. PHOSPHATE (TONS) 100,000 100%
7 TULTITLAN, EDO. MEX. PHOSPHATE (TONS) 85,000 61%
8 LECHERIA, EDO. MEX. PHOSPHATE (TONS) 40,000 33%
9 ALTAMIRA, TAMPS. CARBON BLACK (TONS) 120,000 100%
10 OCOYOACAC, EDO. MEX. ACRYLC SHEET (TONS) 7,740 103%
11 SAN LUIS POTOSI. S.L.P. ACRYLC SHEET (TONS) 5,807 100%
12 LERMA, EDO. MEX. MELAMINE LAMINATES (K M2) 4,700 81%
13 ZITACUARO, MICH. PARTICLE BOARD (K M3) 164 100%
14 LECHERIA, EDO. MEX. ORTHOPHOSPHATE (TONS) 120,000 43%
---------------------------------------------------------------------------------------------------------------------
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS
ANNEX 9
---------------------------------------------------------------------------------------------------------
PLANT
CAPACITY UTILIZATION
PLANT OR CENTER ECONOMIC ACTIVITY (1) %
---------------------------------------------------------------------------------------------------------
1 MERIDA MILL (ton/month) 25,000 85%
2 IRAPUATO MILL (ton/month) 12,000 15%
3 PENINSULA HOG (thousands) 35 100%
4 MERIDA SLAUGHTER HOUSE 222 90%
5 PENJAMO SLAUGHTER HOUSE 125 100%
7 MOCHIS (SANTA ROSA) FRESH TOMATO PROCESSING (TONS/DAY IN 100 DAYS) 3,000 5%
8 TOMATO PRODUCTS IN TETRABRIK CONTAINER (MILLION OF CASES) 6 97%
TOMATO PASTE (TONS IN 100 DAYS) 44,500 0%
MOCHIS (LA CORONA) CANNED VEGETABLES (TONS) 72,567 59%
CANNED VEGETABLES (MILLIONS OF CASES) 7 59%
9 MAZATLAN TUNA (thousands boxes) 2,500 70%
OAXACA COFEE (TONS/MONTH) 212 39%
10 ROSEMEAD, CALIFORNIA SALSA & CANNED VEGETABLES (thousands lb) 166,226 14%
---------------------------------------------------------------------------------------------------------
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
MAIN RAW MATERIALS
ANNEX 10 CONSOLIDATED
------------------------------------------------------------------------------------------------------------------------
MAIN MAIN DOM. COST
DOMESTIC SUPPLIERS FOREIGN SUPPLIERS SUBST. 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,
15 BP CHEMICAL, 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 JALAPENO 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
-------------------------------------------------------------------------------------------------------------------------
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
Annex 11
SALES DISTRIBUTION BY PRODUCT
DOMESTIC SALES
--------------------------------------------------------------------------------------------------
Total Production SALES MAIN
------------------------------------ ---------------------
MAIN PRODUCTS VOLUME AMOUNT VOLUME AMOUNT MARKET SHARES (%) TRADEMARKS CUSTOMERS
--------------------------------------------------------------------------------------------------
AUTOPARTS SECTOR 0 0 705,239
CHEMICAL SECTOR 0 0 1,081,410
FOOD SECTOR 0 0 714,428
REAL ESTATE SECTOR 0 0 292,226
COMPANIES OF
OTHER SERVICES 0 0 5,793
--------------------------------------------------------------------------------------------------
TOTAL 2,799,096
--------------------------------------------------------------------------------------------------
SALES DISTRIBUTION BY PRODUCT
FOREIGN SALES
-------------------------------------------------------------------------------------------------
Total Production SALES MAIN
------------------------------------ ---------------------
MAIN PRODUCTS VOLUME AMOUNT VOLUME AMOUNT MARKET SHARES (%) TRADEMARKS CUSTOMERS
-------------------------------------------------------------------------------------------------
AUTOPARTS SECTOR 0 0 1,470,319
CHEMICAL SECTOR 0 0 784,758
FOOD SECTOR 0 0 302,457
-------------------------------------------------------------------------------------------------
TOTAL 2,557,534
-------------------------------------------------------------------------------------------------
STOCK EXCHANGE CODE:DESC QUARTER: 1 YEAR: 2004
COMPOSITION OF THE PAID SOCIAL CAPITAL STOCK
CHARACTERISTICS OF THE SHARES
--------------------------------------------------------------------------------------------------
Capital Stock
Number of Shares (Thousands of Pesos)
-------------------------------------------------------------------------
Nominal Valid Fixed Variable
Series Value Coupon Portion Portion Mexican Unrestricted Fixed Variable
--------------------------------------------------------------------------------------------------
A 0.01300 20 766,462,085 766,462,085 9,964
B 0.01300 20 602,617,291 602,617,291 7,834
Total 766,462,085 602,617,291 0 1,369,079,376 9,964 7,834
--------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES REPRESENTING THE PAID-IN CAPITAL STOCK ON THE DATE THE
INFORMATION IS SENT: 1,369,079,376
SHARES PROPORTION BY:
CPO'S:
UNITS:
ADRS's:
GDRS's:
ADS's:
GDS's:
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
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: April 29, 2004 By /s/ Arturo D'Acosta Ruiz
-------------------- ---------------------------------
(Signature)
Name: Arturo D'Acosta Ruiz
Title: Chief Financial Officer