2004 - Grupo Carso

Transcription

2004 - Grupo Carso

Grupo Carso
Annual Report 2004
Doménikos Theotokópoulos, El Greco
The Tears of St. Peter
1587–96
oil on canvas
The beautiful canvas of the artist at Museo Soumaya
represents the Saint with a profound pain for his contrition.
From his arm hang two great keys, iconographic attribute to
guard Heaven’s Doors.
His hands come together in an imploring way, and he gives
a moving glance towards Christ.
Table of Contents
• Financial Highlights
1
• Relevant Businesses
2
• Letter from the Chairman of the Board
4
• Industrial Division
6
• Grupo Condumex
8
• Porcelanite
9
• Infrastructure and Construction
10
• Carso Infraestructura y Construcción
12
• Commercial and Consume Division
14
• Grupo Sanborns
16
• Sanborns/Sanborns Café
17
• Sears
18
• Mix Up/El Globo
19
• Cigatam
20
• Board of Directors
21
• Report of the Auditing, Finance and Planning Committee 22
• Report of the Evaluation and Compensation Committee
23
• Consolidated Financial Statements
24
Financial Highlights
Thousands of pesos as of December 31, 2004,
except for shares outstanding and earnings per share
2002
2004
56,748,792
59,627,609
69,721,304
Operating Income
7,651,411
7,587,855
9,035,114
Majority Net Income
2,230,573
2,071,620
6,708,580
EBITDA
9,915,790
9,942,998
11,506,471
Total Assets
68,764,099
69,369,695
76,231,140
Total Liabilities
38,698,256
38,002,297
39,997,467
Stockholders’ Equity
30,065,843
31,367,398
36,233,673
Shares Outstanding
910,987,905
837,460,500
797,436,418
Earnings per Share
2.4485
2.4737
8.4127
69,721
Sales
2003
80,000
64,000
48,000
Grupo Sanborns
31.9%
Grupo Sanborns
36.3%
Condumex
39.1%
Condumex
35.7%
Carso Infraestructura
y Construcción
4.1%
y Construcción
3.6%
Porcelanite
Cigatam
Others
Sales Contribution by
Subsidiary (percentage)
32,000
5.1%
17.9%
2.4%
Porcelanite
7.4%
Cigatam
9.1%
Others
7.4%
16,000
0
02
03
04
Operating Income by Subsidiary
Sales
(percentage)
(million pesos)
17%
Increase
in consolidated
sales
1
Grupo Carso
Industrial
Grupo Carso plays an important
role in various sectors of the
domestic economy. Although
Companies
• Condumex
• Porcelanite
its primary business divisions
Services / Products
are: Industrial, Construction
2
and Infrastructure, and
Commercial and Consumer,
Carso also operates in other
sectors such as automotive,
railroad and mining industries.
• Fiber optic cable
• Design and installation
of telecommunication networks
• Installation of mobile phone radio bases
• Construction cables
• Installations
• Copper products (strips, sheets, coils,
tubes, pipes, valves)
• Aluminum products (strips, coils, extruded
shapes, etc.)
• PVC (tubes, joints, water tanks, etc.)
• Power Cable
• Transformers
• Magnet Wire
• Power Plants
• Ceramic tile
Markets
• Fixed and mobile phone companies in
Mexico and Latin America
• Construction industry, from housing
to heavy construction.
• Home Remodeling Domestic
• Energy Related Companies
Main Brands
Relevant Businesses
Construction and Infrastructure
Companies
•
•
•
•
•
Carso Infraestructura y Construcción
Swecomex
Grupo PC Constructores
Aguatl
Precitubo
Services / Products
• Oil platform construction
• Shopping Center, Industrial facilities,
Corporate Buildings and Construction
• Water treatment plants
• Steel tubes
Markets
• Domestic oil related companies
• Retail and Industrial Companies
Main Brands
Commercial and Consumer
Companies
•
•
•
•
Grupo Sanborns
Sanborns Hermanos
Sanborns Café
Controladora y Administradora
de Pastelerías
• Promotora Musical
• Dorian’s
• Cigatam
Services / Products
•
•
•
•
•
•
Department Stores
Store and Restaurant
Restaurant
Bakeries
Music Stores
Cigarettes
Markets
• Middle and high end segments
• Low and high end segments
Main Brands
3
Letter from the Chairman of the Board
Economic Overview
In 2004, the Gross Domestic Product rose by 4.4%, to
stand at 7 trillion 635 billion current Pesos at year end.
The growth of the GDP was mainly the result of the
activities of the construction and communications and
transportation sectors, with growth rates of 5.3% and
9.7% respectively.
Mexico benefited from the recovered economy in the
United States of America, which reflected a 3.9%
increase in its Gross Domestic Product, contributing to
a real 3.8% increase of the Mexican manufacturing
industry.
A strengthened economy resulted in the generation of jobs.
In 2004, the total number of insured in the Mexican
Social Security Institute rose by close to 539 thousand,
but this growth did not offset the entry of new potential workers into the labor market, situation that
reflected in a higher General Open Unemployment Rate,
which rose from 3.3% in 2003 to 3.7% in 2004.
4
The exchange rate increased by 0.2% during the year, from
11.24 Pesos per Dollar at the close of 2003 to 11.26 at
the close of 2004. The average parity presented a
growth of 4.6%, rising from 10.78 Pesos per Dollar in
2003 to 11.28 in 2004. 2004 was characterized by a
weak Dollar in respect to currencies of the rest of the
world, owing mainly to the high fiscal and commercial
deficit of the United States of America.
Direct foreign investment rose by 57.3% in comparison
with last year, reaching a record level for Mexico of 17
billion 688 million Dollars. The remittances to national
territory in 2004 rose by 24.0% in comparison with last
year, to reach 16 billion 613 million Dollars. The deficit
in the current account stood at 8 billion 712 million
Dollars, equivalent to 1.3% of the GDP.
The Commercial Balance registered a deficit of 8 billion
530 million Dollars, 47.5% over the 2003 deficit. This
increased deficit in commercial balance is explained by
the 17.9% and 15.8% increase of imports of
Consumables and Intermediate Goods, respectively,
partially offset by the 27.2% rise of oil exports, particularly the Mexican Oil Mixture. The average price of
the Mixture rose by 24.7% in 2004, from 24.83 Dollars
per barrel in 2003 to 30.96 in 2004.
In 2004, Banco de Mexico continued its restrictive monetary policy and the regimen of daily balances, moving
the amount of the restriction a total of 9 times during
the year, raising it from 25 million Pesos daily at the
close of 2003 to a total of 69 million Pesos daily at the
close of 2004.
Banco de Mexico did not meet its inflation goal for 2004.
The National Consumer’s Price Index rose 5.19% during the year, 121 basis points higher than the inflation
registered in 2003. The maintenance by the Banco de
Mexico of its restrictive monetary policy could not offset the higher prices of government services, which
reflected in the 7.51% managed inflation in 2004. The
underlying inflation was 3.80% during the year, an
increase of 14 basis points with respect to the same
indicator in 2003.
The rate of CETEs at 28 days reflected an average level of
6.83% in 2004, 57 basis points higher than last year’s
rate. The 28-day CETE closed the year 2004 at a rate of
8.61%, responding mainly to inflationary pressures prevailing at yearend.
Relevant Economic Figures
2003
2004
1.3%
4.4%
3.98%
5.19%
Dollar*
10.78
11.28
CETE*
6.26
6.83
PIB
INPC
*Annual average
2004 was a better year for Mexico in the economic scenario. For the future, the Nation must consolidate the
macroeconomic stability it has reached and impel the
economy’s internal sector.
Grupo Carso
Throughout 2004, Grupo Carso maintained the same
dynamic as in the second semester of 2003, reporting
growth in practically all its subsidiaries. The Mexican
economy improved during the year and as previously
mentioned, the macroeconomic variables continued to
reflect solidity and stability. Nevertheless, we consider that it is imperative for Grupo Carso to adhere to
and continue working on the strategy designed some
years ago when we determined that the Group, given
is characteristics, infrastructure and experience,
should focus on four sectors: Telecommunications,
Construction, Energy and Commercial. These sectors
offer a sound diversification for the Group, and have
been reflecting a growth rate higher than that of the
economy. Moreover, from our point of view, they
offer an interesting development potential for the
future.
As part of this strategy, this year we concluded the sale
of the chemical division, disposing of 100% of
Química Flúor and 40% of Grupo Primex.
Grupo Carso continued restructuring its business in order
to adhere more closely to the designed strategy and
present the Group’s assets in a more orderly fashion
through an industrial division that comprises
Porcelanite and the new Grupo Condumex, which
resulted from the acquisition of Nacobre and the
merger with Empresas Frisco. A new division, headed
up by the recently incorporated Carso Infraestructura
y Construcción, S.A. de C.V., focus on infrastructure.
The Group also has its Commercial and Consumer
division, formed by Grupo Sanborns and Cigatam.
The Group’s financial structure was strengthened not only
by the higher generation of flow or EBITDA, but also
by the continued reduction of liabilities, which resulted in a 3.9% reduction of the net debt. We continue
working on the refinancing of the Group’s liabilities.
In 2004, liabilities were refinanced via syndicated
loans of approximately 600 million Dollars, extending
the terms of the debt and reducing the costs of funding to the lowest level in the history of Grupo Carso.
The finance programs via commercial paper and stock
market certificates remained on course in the stock
market.
Consolidated sales amounted to 69 billion 721 million
Pesos, a 16.9% increase over last year. Operating profit was 9 billion 035 million Pesos, a 19.1% increase
over the previous year. Operating flow was 11 billion
506 million Pesos, 15.7% higher than in 2003. The
higher operating results are due to the consolidated
recovery of the industrial subsidiaries, the entry into
new niches, mainly in the infrastructure sector and the
orderly growth of the consumer section.
The commercial and consumer sector subsidiaries maintained a stable dynamic, which was observed not only
with the same store sales growth observed at the commercial formats, but with the increased expansion in
national territory, through organic growth and acquisitions. Grupo Dorian’s was incorporated in the Grupo
Sanborns investment portfolio in December 2004, contributing to the Grupo Carso portfolio a total of 71
stores through 4 formats well positioned in northwest
Mexico, and approximately 167 thousand square
meters of sales space. Moreover, Cigatam maintains its
leadership in the cigarette industry, reflecting a moderate increase in volume and sales, despite the price raises that were implemented during the year.
Industrial subsidiaries engaged in the manufactured products and service sectors reflected higher production
volumes in general, particularly those related to the
construction and telecommunications industries.
Greater activity was observed in the energy sector with
the announcement of public sector investment programs related to petroleum, energy generation and
other infrastructure projects.
The markets in which we participate represent interesting
challenges and demand more efficiency every day.
Once again, I express my appreciation to all our staff;
the human capital of Grupo Carso is undoubtedly one
of its most important assets. I again invite you, as I do
every year, to use our best efforts to maintain our leadership position and remain as one of the nation’s most
important industrial and commercial groups. I again
express my appreciation to our shareholders for the
trust they deposit in us, and reiterate to you my commitment to continue working for the benefit of our
Grupo Carso.
Thank you very much,
Lic. Carlos Slim Domit
Chairman of the Board
5
6
Industrial Division
Carso Industrial showed a sales
growth in its main divisions
Grupo Carso’s industrial division is formed basically by
two subsidiaries: Grupo Condumex, a company that
resulted from the restructuring of the Group’s principal assets, and Porcelanite.
In 2004, Condumex acquired the remainder of
Industrias Nacobre shares, becoming the owner of
100% of said shares; subsequently it merged with
Empresas Frisco. Grupo Condumex concentrates the
divisions of the former Condumex, Nacobre and the
mining and railroad divisions which were part of
Frisco. Today, Grupo Condumex comprises the main
manufacturing companies except for Porcelanite,
which continues to be a direct subsidiary of Grupo
Carso. The regrouping of the companies had no
material effect on the level of the controlling company; its purpose is simply to obtain greater efficiency and take advantage of synergies.
During the year, as part of the strategy to disincorporate non-strategic businesses and concentrate on the
Grupo Carso divisions, Grupo Condumex sold 100%
of its stake in Química Flúor and its 40% stake in
Grupo Primex to Grupo Industrial Camesa.
7
35,000
21,000
14,000
7,000
03
04
Sales
16.4
27,260
20
28,000
0
Grupo Condumex
16
Grupo Condumex reported consolidated
annual sales of 27 billion 260 million Pesos which, compared with 21
12
billion 784 million pesos last year,
represented a 25% growth. The higher price of metals combined with
8
higher volumes, mainly in installations, fiber optics, copper cables and
4
mining helped to increase sales. The
operating and EBITDA margins rose
by approximately one percentage
04
0 point 03in comparison
with 2003
results.
year; the EBITDA margin, in turn,
rose by 280 basis points. Volumes in
the copper and PVC divisions
increased by 4.1% and 8.1% in 2004.
On the other hand, the aluminum
division reported a 26.9% reduction
in volume, but with better operating
results.
Ferrosur reported sales of 2 billion 245
million Pesos, 8.3% higher than
2003. Increased sales can be
explained by the growth in volumes
of the petrochemical, intermodal
and industrial sectors. Operating
profit rose by 11% in comparison
with 2003, reaching 473 million
Pesos with an operating margin of
21.1%, 60 basis points higher than
2003.
(million pesos)
Individually, Condumex reported sales
of 18 billion 204 million Pesos, 25%
above the 2003 figure, with operating and EBITDA margins of 10.9%
and 13.9% respectively, 17% y 16%
higher than last year’s results.
35,000
12
28,000
16.4
16
9
21,000
12
6
14,000
8
3
7,000
4
0
03
04
0
03
04
0
03
04
Operating
Margin (%)
Volume grew significantly in the
Telecommunications division, particularly in fiber optics and installations, due to the demand of this
division’s principal customers.
20
16.4
8
20
27,260
11.8
15
16
The Construction and Energy divisions
reflected stable volumes in the power
cables and metals divisions, while
the volume of transformers and integrated projects diminished in comparison with last year.
Milling volumes in the mining division
rose by 59.6% over 2003. Minera
Tayahua continued performing well,
with higher production volumes and
better ore grades. Sales of this division increased by 99% during the
year, while the operating margin
rose from 14.7% in 2003 to 17.3% in
2004. Greater volumes, combined
with higher prices of metals, resulted
in higher sales and improved operating results.
12
Volumes of auto parts rose by 23.5%,
while volumes of automotive cable
remained stable. There was a 5.3%
reduction in the volume of harnesses
in comparison with 2003.
8
4
0
03
04
EBITDA
Margin (%)
Nacobre reported a 23% increase of
sales in comparison with 2003, with
an operating margin of 8.8%, 230
basis points higher than the previous
Capital investments during the year
were approximately 99 million
Dollars.
2004 was for Porcelanite a year of consolidation in the domestic market; it
fortified its market presence which
today is higher than 40%.
Simultaneously, this year Porcelanite
laid the foundation for strengthening
the presence of its products outside
national territory, by opening a new
plant in northwestern Mexico which
will allocate its production to the
export market.
20
4,000
3,200
15
2,400
10
1,600
5
800
0
3,538
25
18.8
Porcelanite
02
03
04
0
02
03
04
Sales
Sales of Porcelanite in 2004 rose by 3
billion 538 million Pesos, a 3.5%
increase over last year. Operating
profit was 664 million Pesos, a
decrease of 13.3%, due to a 364
basis points lower sales margin in
comparison with 2003. Operating
flow (EBITDA) was 985 million
Pesos, a 10.0% reduction, while the
EBITDA margin stood at 27.8%. A
more competitive environment as
well as expenses related to the
expansion of this subsidiary had a
negative impact on the operating
results of Porcelanite.
(million pesos)
The adhesive line produced by Solutec, a
subsidiary of Porcelanite Holding,
continues gaining an image and
increasing its market participation.
In 2004, Porcelanite made capital
investments of approximately 56
million Dollars.
18.8
25
20
15
9
10
5
0
02
03
04
20
3,200
28
15
2,400
21
10
1,600
14
800
7
5
million Pesos
of total sales
02 03 throughout
04
0 02 03 04
the year
3,538
$
35
27.8
4,000
18.8
25
3,538
Operating
Margin (%)
0
0
02
03
EBITDA
Margin (%)
04
2,501
$
million pesos, total income
obtained by CICSA
during 2004
Carso Infraestructura y Construcción was incorporated in September 2004. It is a subsidiary that
incorporates Grupo PC Constructores, a construction company already owned by Grupo Carso;
Swecomex, which was a subsidiary of Condumex
that in 2003 became involved in the PEMEX oil
platform program; Precitubo, a steel pipe supplier;
and finally Aguatl, a company that belonged to
Empresas Frisco and that has been developing
technology for water treatment plants.
10
The regrouping of the industrial businesses has no
material effect at the consolidated level. Its purpose is to achieve a greater integration of the
industrial companies, which will allow for
greater efficiency of the Group and the possibility of taking advantage of synergies and new
market opportunities in infrastructure and construction projects.
11
Infrastructure and Construction
2,400
20
16
1,800
1,200
600
0
y Construcción
15.5
2,501
3,100
03
04
Sales
two largest projects will not be concluded until 2006. Bids will be submitted this year for Swecomex to
participate in other oil platforms.
Carso
Infraestructura y Construcción
12
reported consolidated annual sales of
2 billion 501 million Pesos. Operating
8 profit was 372 million Pesos during
the year, and operating margin in
respect to sales was 14.9%, while the
4 EBITDA stood at 15.5%. The infrastructure division will aim at continued participation in various types
0 of projects,
03 04
seeking to maintain its
profitability levels at the 2004 figures.
Grupo PC Constructores reported a significant backlog in December 2004.
Among the projects being developed
by the company are a 90,000 square
meter building located in downtown
Mexico City, at an estimated cost of 1
billion 200 million Pesos to be delivered in 4Q05.
(million pesos)
As to operating results of subsidiaries,
Swecomex continues working on its
existing projects. The first oil platform was completed and PEMEX has
started to use it for its transportation
needs. Another two platforms are
scheduled to be delivered in mid3,100
2005, while it is expected that 20the
16
12
1,800
12
8
1,200
8
4
600
4
0
03
04
0
03
04
0
03
04
Operating
Margin (%)
20
15.5
12
2,400
15.5
16
2,501
14.9
20
The Tepic – Villa Unión highway, consisting on the rehabilitation of an
existing section of the road, and the
construction of an additional one, at
a total estimated cost of 2 billion 500
million Pesos.
16
12
8
388
$
4
million pesos
0
03
EBITDA
Margin (%)
04
Operating Flow
of CICSA
Regarding the water treatment plant
business, the company obtained a
contract in October to construct a
water treatment plant in Saltillo,
Coahuila at an approximate price of
435 million Pesos, a 2-year construction period and an 18-year
operation period.
Capital investments made during the year
were approximately 10 million Dollars.
At the end of 2004, CICSA
completed the construction of the
first oil platform
13
14
Commercial and Consumer
Grupo Sanborns
reported growth in all
its commercial formats
The commercial and consumer division of Grupo
Carso is formed by Grupo Sanborns and its subsidiaries that altogether run almost 550 sale
points, with more than 770 thousand square
meters of sales area, and by Cigatam and Philip
Morris Mexico, that respectively are the top cigarrette fabricant and seller in the national market.
In 2004, consumption was more dynamic than the
previous year due to a recovering economy, and
notwithstanding that unemployment levels
remained high and interest rates tended to rise
throughout the year.
15
24,000
22,224
6,000
02
03 04
Sales
(million pesos)
14.8
22,224
17.6
20
16
12
8
12,000
4
6,000
0
02 03 04
Operating
Margin (%)
0
16
17.6
20
16
12
8
4
0
17.6
The annual sales of Grupo Sanborns
amounted to 22 billion 224 million
12
Pesos, a 10.7% growth over the previous year. Operating profit was 3 billion 280 million Pesos, a 4.7%
8
growth. Operating margin was 14.8%,
a reduction of 85 basis points in com4
parison with 2003. Operating flow
(EBITDA) reached 3 billion 916 million
during the year, a 4.3% rise
0 02 03 Pesos
04
over 2003. The EBITDA margin was
17.6%, 108 basis points below the
2003 margin. The greater consumption dynamism contributed to higher
20
30,000
sales, although increased promotional
activity, necessary to maintain the
24,000
consumer’s 16preference for the Grupo
Sanborns’ formats, was a factor that
reduced the operating margin and
12
18,000
EBITDA in comparison with the previous year.
12,000
0
Grupo Sanborns
16
18,000
04
04
20
22,224
14.8
30,000
02 03 04
EBITDA
Margin (%)
Sears
48.5%
Sanborns
37.5%
Music
Stores
7.4%
El Globo
4.5%
Other
2.1%
Contribution to
Total Sales
8
In an effort to fortify its position in the
segments in4 which it participates, in
December 2004, Grupo Sanborns
acquired the Dorian’s Tijuana chain of
02 03 department
04
0stores,
02 with
03 04a significant
presence in northwestern Mexico.
Dorian’s operates 71 stores under the
formats Dorian’s, Dax, Mas and Solo
un Precio, which in the aggregate represent approximately 167 thousand
square meters of sales floor.
In 2004, Grupo Sanborns sustained the
organic growth rhythm observed
during recent years, expanding its
principal formats and emphasizing the
location of its new units.
During the year, Grupo Sanborns maintained a solid financial structure,
despite the increase in capital investments resulting from the acquisitions
mentioned above. At yearend, the
Company reflected a total debt of 4
billion 021 million Pesos. The net debt
was reduced by 1 billion 134 million
Pesos; at the close of 2004 it stood at
3 billion 295 million Pesos.
In 2004, Grupo Sanborns made capital
investments of 127 million US Dollars,
represented mainly by the opening of
new sale points as well as the acquisitions effected during the year.
Sanborns and Sanborns Café
15
10,000
12
8,000
9
6,000
6
4,000
3
2,000
0
02
03
04
0
02
03
04
Sales
(million pesos)
15
Same store sales grew 4.2%
in the year
12
9
Combined sales of Sanborns and Sanborns
Café were 8 billion 335 million Pesos,
7.0% higher than last year. Same store
sales rose by 4.2% during the year. The
operating profit was 849 million Pesos,
an 11.0% growth over 2003. The operating margin increased by 36 basis points
in comparison with the previous year.
The 1 billion 83 million Pesos operating
flow was 9.0% higher than that of 2003,
with a 13.0% margin on sales, an
increase of 24 basis points in comparison
with last year. The improved operating
results are a consequence of a change
observed in the sales mixture, with a
greater participation of exclusive products of Sanborns stores.
3
0
02
03
04
Operating
Margin (%)
15
Sanborns maintained the growth trend in its
credit cardholder base, reporting at the
end of 2004 a 47.3% increase in the
12
number of active accounts.
In 2004, four Sanborn Hermanos stores were
9
opened, totaling 130 units at the end of
2004. Moreover, 31 Sanborns Café were
operating at yearend, with the opening 6of
1 new one and the closing of 4 units in
2004.
10,000
15
8,000
12
6,000
9
4,000
6
9%
3
0
17
6
2,000
02
03
04
02 03 04
Operating Flow0 growth
3
0
02
03
EBITDA
Margin (%)
04
Sears
25
8,600
20
6,200
15
4,800
10
2,400
5
0
02
03
04
0
02
03
19.9
10,782
12,000
04
Sales
12
8
4
0
02
03
04
19.9
Operating
Margin (%)
25
20
15
10
5
0
25
Same store sales
rose up to 5.3%
16
18
12,000
19.9
17.7
20
10,782
(million pesos)
02
03
04
EBITDA
Margin (%)
8,600
20
6,200
15
The recovery observed in domestic consumption in 2004 was reflected
4,800
10 in
sales of Sears, which rose by 9.6%
during the year, while same store
2,400
5
sales recovered by 5.3% in comparison with 2003. Operating profit
increased by 7.3%, reaching
0 1 billion
02 03 904
04 million Pesos, while
0 02 03
During the year, 3 Sears stores were
remodeled, while 2 new Sears stores
were inaugurated, one in Ciudad
Juárez, Chihuahua, and the other in
Guadalajara, Jalisco.
04
operating flow of 2 billion 143 million Pesos represented a 5.3%
growth. The reduction observed in
operating margins is due mainly to
the intense promotional activity
required to compete in the department store sector.
The Sears credit card continues to be an
extraordinary sales instrument for
this department store chain. At
yearend, the number of active
accounts was 1,103,880, a 25.5%
increase over last year. The credit
portfolio had a value at the close of
2004 of 5 billion 527 million Pesos,
while the level of overdue portfolio
remained low and stable throughout
the year, closing at 1.28%. In 2004,
approximately 63.3% of total Sears
sales were made with the store’s
Credit Card.
26%
of growth in
active accounts
Mix-Up and El Globo
MixUp
Music Stores.
1,600
In 2004, the Grupo Sanborns music
store division gained in strength as
the distributor of the greatest and
most varied musical offer in the
country, which is complemented
with the wide range of entertainment
products, particularly video movies
and video games.
1,200
800
400
0
03
04
11.6
(million pesos)
12.5
8.5
10.0
7.5
At yearend, this division operated 65 stores
under the Mixup, No Problem, Tower
Records and Discolandia formats.
5.0
2.5
0
02
19
El Globo
1,100
880
660
800
440
400
220
02
03
04
(%)
Operating
mixup
EBITDA
1,200
0
03
Margins
994
2,000
At the end of 2004, Controladora y
Administradora de Pastelerías
1,600 had
191 sale points distributed throughout the Country.
1,649
In 2004, 34 new sale points were added,
which represented a much higher
growth rhythm than that of previous
years. The expansion of El Globo
was observed mainly in northern
Mexico, where an important growth
potential exists. As another part of
the El Globo expansion program, a
franchise program was formally
launched in 2004.
04
0
02
03
04
Sales
11.6
(million pesos)
12.5
20
17.1
10.0
25
8.5
7.5
15
5.0
10
2.5
5
11.8
Sales of this subsidiary in 2004 were 994
million Pesos, an 11.5% growth over
last year, resulting mainly from the
organic growth of El Globo.
Operating profit was 117 million
Pesos, a 14.4% reduction during the
year. The EBITDA reached 170 million
Pesos, a 7.1% drop in comparison
with 2003. This drop in the operating
results is the consequence of expenses
incurred in preparing the expansion
of El Globo to new regions.
02
Sales
Total sales of this division were 1 billion
649 million Pesos during the year, an
8.4% increase in real terms, while
same store sales rose by 5.2% over
2003. The operating profit increased
by 19.7%, while the EBITDA grew by
14.5% in real terms in 2004.
Controladora y Administradora
de Pastelerías
1,649
2,000
0
02
03
04
0
02
03
Margins
mixup
04
(%)
Operating
elglobo
EBITDA
Cigatam
10
12,000
8
9,000
6
6,000
4
3,000
2
0
02
03
04
0
7.6
12,501
15,000
02
03
04
Sales
6.6
15,000
6.4
12,000
4.8
9,000
3.2
1.6
0
02
03
04
Operating
Margin (%)
10
8
Grupo Carso consolidates Cigatam’s
0 results
02 03 at04100%.
0 02
03
During 2004, Cigatam maintained its
leadership position in the market,
focused in the high price and low
price segments. While market volumes
decreased 1.6% during the year,
Cigatam increased its estimated market share from 59.4% to 60.2%, 80
basis points higher than the previous
year. Marlboro remained as the leading brand of the Mexican market,
with a 100 basis points market share
increase reaching over 45%.
Expenditures and administered by the
Secretary of Health. This contribution
will be exempt of VAT and IEPS, and
deductible from Income tax. The manufacturing company is responsible for
the collection and payment of the
contribution to the Fund, in this case
Cigatam.
04
Cigatam posted sales of $12,501 million
pesos, a 7.5% increase when compared to 2003; operating margin was
6.6%, 20 basis points lower than the
previous year.
During 2004, Cigatam’s fixed asset
investments reached approximately
US$18.0 million dollars, basically
from investment in machinery and
equipment, and building.
As of January 1, 2004, excise tax rates
increased for both filter and non-filter
cigarettes from 107% to 110% and
from 80% to 100% respectively.
6
4
2
0
8
Cigatam, a subsidiary of which Grupo
6
Carso owns 50.01%, is the cigarette
manufacturer company that sells all
6,000 its production to Philip Morris
4
Mexico, an affiliate of which Grupo
Carso owns 49.99%, for further com3,000 mercialization.
2
7.6
20
10
Cigatam increased
its market share
7.6
8.0
12,501
(million pesos)
02
03
04
EBITDA
Margin (%)
The cigarette industry and the Federal
Government entered into an agreement establishing the payment of a
fee of 2.5 cents per cigarette sold in
Mexico, starting in October 2004, to
be contributed to the Fund for
Protection Against Catastrophic
7.5%
sales growth
Board of Directors
YEARS AS BOARD
MEMBER*
TYPE OF
BOARD MEMBER**
BOARD MEMBERS
POSITION**
CARLOS SLIM HELU
COB Emeritus - Teléfonos de México
COB Emeritus - Carso Global Telecom
COB Emeritus - Grupo Financiero Inbursa
COB Emeritus - America Móvil
COB Emeritus - America Telecom
COB Emeritus - Grupo Carso
FIFTEEN
Patrimonial
Related
CARLOS SLIM DOMIT
COB -Grupo Carso
COB - Grupo Sanborns
CEO - Sanborn Hermanos
COB - Teléfonos de México
Vicechairman - Carso Global Telecom
FOURTEEN
Patrimonial
Related
ANTONIO COSIO ARIÑO
CEO - Cía. Industrial de Tepeji del Río
THIRTEEN
Independent
JAIME CHICO PARDO
Vicechairman and CEO - Teléfonos de México
COB - Carso Global Telecom
FIFTEEN
Related
ARTURO ELIAS AYUB
Director of Strategical Alliances, Comunication
and Institutional Relations - Teléfonos de México
SEVEN
Related
CLAUDIO X. GONZALEZ LAPORTE
COB - Kimberly Clark de México
FOURTEEN
Independent
RAFAEL MOISES KALACH MIZRAHI
COB and CEO - Grupo Kaltex
ELEVEN
Independent
JOSE KURI HARFUSH
COB – Janel
FIFTEEN
Independent
JUAN ANTONIO PEREZ SIMON
COB - Sanborn Hermanos
Vicechairman - Teléfonos de México
FIFTEEN
Independent
BERNARDO QUINTANA ISAAC
COB - Ingenieros Civiles Asociados (ICA)
THIRTEEN
Independent
AGUSTIN SANTAMARINA VAZQUEZ
Board Member - Santamarina y Steta
THIRTEEN
Independent
PATRICK SLIM DOMIT
Director of Retail - Teléfonos de México
COB - America Móvil
Vicechairman - Grupo Carso
COB - Ferrosur
COB - America Telecom
NINE
Patrimonial
Related
MARCO ANTONIO SLIM DOMIT
COB - Grupo Financiero Inbursa
FOURTEEN
Patrimonial
Related
DANIEL HAJJ ABOUMRAD
CEO - Carso Global Telecom
CEO - America Móvil
TEN
ANTONIO COSIO PANDO
General Manager - Cía. Industrial de Tepeji del Río
THREE
FERNANDO G. CHICO PARDO
CEO - Promecap, S.C.
FIFTEEN
Independent
EDUARDO VALDES ACRA
CEO - Inversora Bursátil
Vicechairman - Grupo Financiero Inbursa
THIRTEEN
Independent
DAVID IBARRA MUÑOZ
CEO - Despacho David Ibarra Muñoz
THREE
Independent
ALEJANDRO ABOUMRAD GABRIEL
COB - Porcelanite
FOURTEEN
Independent
IGNACIO COBO GONZALEZ
COB - Grupo Calinda
THREE
Independent
ANTONIO GOMEZ GARCIA
CEO - Porcelanite
ONE
Independent
CARLOS HAJJ ABOUMRAD
CEO - Artes Gráficas Unidas - Galas de México
SEVEN
Independent
ALFONSO SALEM SLIM
CEO - Hoteles Calinda
CEO - PC Construcciones
FOUR
Independent
JOSE HUMBERTO GUTIERREZ-OLVERA ZUBIZARRETA
CEO - Grupo Carso
CEO - Condumex
FOURTEEN
ALTERNATE BOARD MEMBERS
STATUTORY AUDITOR
CARLOS FRIAS LOPEZ
ONE
Member - PricewaterhouseCoopers
Member - Colegio de Contadores Públicos de México, A.C.
Board Member - Patronato del Museo de la Ciudad de México
ALTERNATE STATUTORY AUDITOR
CARLOS SERGIO CASAÑA ESPERON
Member - PricewaterhouseCoopers
ONE
Comptroller - Grupo Condumex
TWO
Secretary of Board Members - Teléfonos de México
FIFTEEN
Secretary of Board Members - Grupo Condumex
THREE
TREASURER
QUINTIN HUMBERTO BOTAS HERNANDEZ
SECRETARY
SERGIO F. MEDINA NORIEGA
PRO-SECRETARY
ALEJANDRO ARCHUNDIA BECERRA
* Years as board member are considered since 1990, year of inscription in the Bolsa Mexicana de Valores.
** Based on board members information
Related
Independent
Related
21
Report of the Auditing, Finance
and Planning Committee
February 21st, 2005
To the Board of Directors:
As required by the Securities Market Law, the National Banking and Securities Commission’s general rules applicable to
issuers and other participants in the securities market and the recommendations contained in the Code of Best Corporate
Practices, we present the following activities report to the Board of Directors for the 2004 fiscal year.
Audit
The audit covered a review of the company’s accounting policies, procedures and practices as well as the financial
information filed by Grupo Carso, S.A. de C.V. with the Bolsa Mexicana de Valores, S.A. de C.V. and with the Comisión
Nacional Bancaria y de Valores, all supported by the internal audit department and external auditors. It was concluded
that: (i) there is no need to submit to the consideration of the Board any change in the accounting policies, and (ii) the
intermediate public financial information is prepared under the same accounting principles, criteria and practices as those
used in preparing the annual report.
The performance of the external auditors was analyzed, and it was determined that: a) the partner of the external auditing
firm who certified the results of the company has been doing so for less than six years; b) the person who certified the
audited financial statements of Grupo Carso, S.A. de C.V. is someone other than the company examiner; and c) the fees
paid to the external auditing firm are adequate and account for less than 20% of its total income.
In line with the internal control standards of Grupo Carso, S.A. de C.V., the group is permanently supervised through its
internal audit departments, which review and verify that any deviations are duly and promptly corrected. On the other
hand, the external auditors presented to the company a letter of recomendations as a result of the revision they made; to
date they have not requested any significant corrections. Additonally, we encomended the company’s administration to
define and negotiate with the external auditors an evaluation about the internal controls implemented by Grupo Carso,
S.A. de C.V. and its subsidiaries. The result of this evaluation must be presented to this auditing committee.
22
Therfore, we can conclude that the internal control system implemented by Grupo Carso, S.A. de C.V. has been found to
satisfy the purpose for which it was created.
The Group has implemented a control system, under which the internal auditors and the legal department verify at least once
a year that all applicable legal precepts and regulations are complied with. There have been no adverse changes in the
Group’s legal situation.
Lastly, the financial statements at December 31, 2004 of Grupo Carso, S.A. de C.V. and its subsidiaries were studied and
found to be satisfactory.
Finance and Planning
In the 2004 fiscal year, Grupo Carso, S.A. de C.V. and some of its subsidiaries made significant investments, financed in accordance
with the Group’s medium- and long-term strategies. Periodic evaluations were made of the Group’s position to verify that it
conformed to its strategic plan.
The 2005 fiscal year budget was analyzed along with the financial projections considered for preparing it, which include major
investments and financial transactions. They are considered to be viable and consistent with the Group’s investment and
finance policies and strategies.
As the intermediate support body of the Board of Directors, this Committee has prepared this report on the basis of information
provided by Grupo Carso, S.A. de C.V. management and its external auditors.
José Kuri Harfush
Chairman
Antonio Cosío Ariño
Claudio X. González Laporte
Rafael Moisés Kalach Mizrahi
Juan Antonio Pérez Simón
Report of the Evaluation
and Compensation Committee
March 7th, 2005
To the Board of Directors:
In compliance with the rules of the National Banking and Security Commission’s applicable to issuers and to
other participants in the securities market and the recommendations contained in the Code of Best Corporate
Practices, we present our activities report to the Board for the 2004 fiscal year.
On the basis of information provided to us by company management, we verified that in the 2004 fiscal period,
Grupo Carso, S.A. de C.V. hired no top level officials. We also verified that the criteria for evaluating the
performance of the director general and probable payments in the event of his separation from the Group
conform to the guidelines approved by the Board of Directors, determining that no changes are needed in
this respect.
On the other hand, inasmuch as the company does not contemplate granting compensation packages to
company directors and officers, there is no structure or policy of any kind to determine them; consequently
we performed no activities in this respect.
As the authorized intermediate support body of the Board of Directors, we present this activities report on the
basis of information provided by company management and the Board itself.
Carlos Slim Domit
Chairman
Jaime Chico Pardo
Agustín Santamarina Vázquez
23
Report of External Auditors
Mexico City, March 2, 2005
To the Stockholders of
Grupo Carso, S. A. de C. V. and subsidiaries
We have examined the consolidated balance sheets of Grupo Carso, S. A. de C. V. and subsidiaries (the “Company”)
at December 31, 2004 and 2003, and the related consolidated statements of income, of changes in stockholders’
equity and of 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 financial statements of certain subsidiaries whose assets and revenues
represent 28% and 34% in 2004, and 28% and 37% in 2003, respectively, of the consolidated totals, were examined
by other auditors, and our opinion, insofar as it relates to the amounts included for those subsidiaries, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in Mexico, which require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement and that they were prepared in accordance with Mexican generally accepted
accounting principles. 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.
24
In our opinion, based on our examinations and on the reports of the other auditors referred to in the first
paragraph above, the aforementioned consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Grupo Carso, S. A. de
C. V. and subsidiaries at December 31, 2004 and 2003,
and the consolidated results of their operations, the changes in their consolidated stockholders’ equity and the
changes in their consolidated financial position for the years then ended, in conformity with accounting principles
generally accepted in Mexico.
PricewaterhouseCoopers
L.C. Alberto Del Castillo V. Vilchis
Audit Partner
Report of Statutory Auditor
(This report is a free translation from the original prepared in Spanish, which was issued
to have effect only in Mexico)
Mexico City, March 2, 2005
To the Stockholders of
Grupo Carso, S. A. de C. V.
In my capacity as Statutory Auditor and in compliance with Article 166 of the Mexican General Companies Law
and of the Grupo Carso, S. A. de C. V. (the “Company”) by-laws, I hereby submit my report on the veracity,
sufficiency and reasonableness of the balance sheet and the statements of income, of changes in stockholders’
equity and of changes in financial position, prepared by and under the responsibility of the Company’s
Management, presented to you by the Board of Directors concerning the Company’s operations for the year ended
December 31, 2004.
I have attended the Stockholders’ and Board of Directors’ meetings of which I have been notified, and I have
obtained from the directors and administrators the operating information, documentation and accounting records
that I considered necessary to examine. My review was carried out in accordance with auditing standards generally
accepted in Mexico.
I have carefully reviewed the audit report of date March 2, 2005, issued by the Company’s external auditors,
PricewaterhouseCoopers, S. C., in connection with the examination which they carried out, in accordance with
auditing standards generally accepted in Mexico, of the consolidated financial statements prepared by the
Company’s Management.
In my opinion, the accounting and reporting policies and criteria followed by the Company and applied by
Management in preparing the financial statements mentioned above, presented to this board are appropriate and
adequate and have been applied on a basis consistent with that of the previous year; therefore, such information
correctly, fairly and adequately presents the financial position of Grupo Carso, S. A. de C. V. at December 31, 2004
and the results of its operations, the changes in its stockholders’ equity and the changes in its financial position for
the year then ended, in conformity with accounting principles generally accepted in Mexico.
C.P. Carlos Frías López
Statutory Auditor
25
Consolidated
Balance Sheets
Grupo Carso, S. A. de C. V. and Subsidiaries
(Note 1)
Amounts expressed in thousands of Mexican pesos (“Ps”) of December 31, 2004 purchasing power
December 31,
2004
ASSETS
CURRENT ASSETS:
Cash and temporary investments
Accounts receivable - Net (Note 4)
Related parties (Note 5)
Inventories - Net (Note 6)
Advance payments
Total current assets
LONG-TERM ACCOUNTS RECEIVABLE
INVESTMENT IN SHARES OF ASSOCIATED
COMPANIES (Note 2d.)
26
PROPERTY, MACHINERY AND EQUIPMENT:
Buildings and leasehold improvements
Machinery and equipment
Transportation equipment
Furniture and equipment
Computer equipment
Accumulated depreciation
Land
Construction in process
OTHER ASSETS - Net:
Concession to exploit and rehabilitate railways (Note 2g.iii)
Valuation of convertible obligations (Note 1)
Projected net asset derived from labor obligations (Note 9)
Others
Total assets
The accompanying notes are an integral part of these consolidated financial statements.
Ps
3,504,597
13,027,565
1,394,485
13,872,529
520,797
2003
Ps
2,265,830
9,529,634
1,357,069
11,341,627
170,085
32,319,973
24,664,245
38,023
11,155
2,938,553
2,705,732
21,171,882
35,501,413
1,167,085
2,537,992
1,687,621
62,065,993
20,490,137
37,735,254
1,124,379
2,364,255
1,732,600
63,446,625
(34,003,964)
28,062,029
(34,835,948)
28,610,677
7,835,819
1,034,590
7,710,451
1,231,995
36,932,438
37,553,123
2,764,389
439,045
314,926
483,793
4,002,153
Ps 76,231,140
2,950,808
122,823
1,361,811
4,435,442
Ps 69,369,697
December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term financing and current portion of
long-term debt (Note 7)
Suppliers
Related parties (Note 5)
Accounts payable and other accrued expenses
Tax on processed tobacco
Taxes payable
Employees’ statutory profit sharing (Note 11)
Total current liabilities
LONG-TERM LIABILITIES:
Long-term debt (Note 7)
Deferred income tax (Note 11)
Deferred income - Net
Total long-term liabilities
Total liabilities
2004
Ps
7,701,875
5,851,513
351,345
3,527,187
1,445,365
306,441
445,113
19,628,839
11,487,621
8,683,660
197,347
20,368,628
39,997,467
2003
Ps
7,439,736
4,636,682
142,597
2,667,352
1,411,424
339,234
356,402
16,993,427
11,147,592
9,441,808
419,472
21,008,872
38,002,299
27
STOCKHOLDERS’ EQUITY (Note 10):
Capital stock
Net premium on placement of shares
Retained earnings
Accumulated effect of deferred income tax
Deficit in restatement of stockholders’ equity
5,946,707
1,936,770
59,098,699
(7,497,790)
(30,498,626)
5,994,255
1,936,770
54,887,336
(7,497,790)
(30,442,767)
Total majority interest
Minority interest
28,985,760
7,247,913
24,877,804
6,489,594
Total stockholders’ equity
36,233,673
31,367,398
Ps 76,231,140
Ps 69,369,697
COMMITMENTS (Note 13)
CONTINGENCIES (Note 14)
Total liabilities and stockholders’ equity
Consolidated Statements
of Income
(Note 5)
Year ended
December 31,
2004
2003
Ps 69,721,304
(51,293,079)
Ps 59,627,609
(43,135,304)
18,428,225
16,492,305
Sales and administration expenses
(9,393,111)
(8,904,451)
Operating income
9,035,114
7,587,854
946,498
(2,461,284)
28,493
847,175
864,092
(2,643,310)
(489,716)
771,573
(639,118)
(1,497,361)
749,381
(136,609)
(415,919)
(141,057)
(489,203)
(382,976)
(144,806)
(46,203)
55,796
(1,063,188)
8,451,792
5,027,305
714,060
683,677
2,010,618
328,144
1,397,737
2,338,762
Net sales
Cost of sales
Gross profit
Comprehensive financing cost:
Interest income
Interest expense
Exchange income (loss) - Net
Gain on monetary position
28
Other income (expenses) - Net
Amortization of goodwill - Net (Note 2h.)
Impairment of assets (Note 2i.)
Special item - Reorganization of productive plants (Note 1)
Income before provisions for income tax, employees’
statutory profit sharing and equity in the income
of associated companies
Provisions for (Note 11):
Income tax
Employees’ statutory profit sharing
Year ended
December 31,
Income before equity in the income of
associated companies
Equity in the income of associated companies
(Note 2d.)
Income from continuing operations
2004
2003
7,054,055
2,688,543
987,593
930,225
8,041,648
3,618,768
Loss from discontinued operations (Note 1)
(347,209)
Effect at beginning of the year for changes in accounting
principles - Net (Note 2i.)
(316,053)
Consolidated net income for the year
Ps
8,041,648
Ps
2,955,506
Net income of majority interest
Net income of minority interest
Ps
6,708,580
1,333,068
Ps
2,071,620
883,886
Ps
8,041,648
Ps
2,955,506
Net income per common share (Note 2p.)
Ps
8.22
Ps
2.44
29
Consolidated Statements of Changes in
Stockholders’ Equity
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(Note 10)
Net premium
on placement
of shares
Capital
stock
Balances at December 31, 2002
Repurchase of own shares
Reduction in minority interest of subsidiaries due to share purchase
Capital reduction and dividends in cash to majority and minority
shareholders, and minority of subsidiaries
Ps 6,029,875
Ps
1,936,770
(35,620)
(35,620)
Translation adjustment of the financial statements of subsidiaries resident abroad
Gain on holding non-monetary assets of subsidiaries
Effect at beginning of the year for changes in accounting
principles - Net (Note 2j.)
Comprehensive income (Note 2n.)
30
Reduction in minority interest of subsidiaries due to share purchase
Dividends in cash to majority and minority shareholders, and
minority of subsidiaries
5,994,255
1,936,770
(47,548)
(47,548)
Translation adjustment of the financial statements of subsidiaries resident abroad
Loss on holding non-monetary assets of subsidiaries
Comprehensive income (Note 2n.)
Ps 5,946,707
Ps
1,936,770
Retained
earnings
Ps 54,461,445
Accumulated
effect of deferred
income tax
Ps
(7,497,790)
Deficit in
restatement of
stockholders’ equity
Ps (30,984,043)
Minority
interest
Ps
Total
stockholders’ equity
6,120,468
Ps 30,066,725
(188,815)
(929,081)
(188,815)
(639,442)
(465,485)
(1,104,927)
(1,532,903)
(654,300)
(2,222,823)
142,559
(18,490)
702,325
(3,019)
883,886
(115,845)
2,955,506
541,276
1,023,426
3,523,496
(30,442,767)
6,489,594
31,367,398
(112,542)
(1,959,163)
(112,542)
(585,602)
(406,432)
(992,034)
(2,497,217)
(518,974)
(3,063,739)
(55,775)
1,333,068
5,017
(116,651)
8,041,648
1,277,293
7,930,014
7,247,913
Ps 36,233,673
(893,461)
(18,490)
559,766
(112,826)
2,071,620
1,958,794
54,887,336
(7,497,790)
(1,911,615)
5,017
(60,876)
6,708,580
6,708,580
Ps 59,098,699
(55,859)
Ps
(7,497,790)
Ps (30,498,626)
Ps
31
Consolidated Statements of Changes
in Financial Position
Year ended
December 31,
Loss from discontinued operations
Effect at beginning of the year for changes in
accounting principles
Income from continuing operations
Ps
Charges (credits) to income not affecting resources
provided by operation:
Depreciation and amortization
Amortization of goodwill - Net
Labor obligations
Equity in the income of associated companies
Deferred income tax and employees’ statutory profit sharing
Impairment of assets
Other non-cash items
32
Net change in working capital, except cash and temporary
investments, and short and long term debts
Resources provided by operations
Financing:
Increase (decrease) in short and long-term debts - Net
Capital reduction and dividends in cash to majority and
minority shareholders, and minority of subsidiaries
Resources used in financing activities
Investment:
Increase in permanent investments
Acquisition of property, machinery and equipment - Net
Acquisition of other assets - Net
Dividends received from associated companies
Reduction in minority interest of subsidiaries due to
share purchase
Translation adjustment of the financial
statements of subsidiaries resident abroad
Resources used in investment activities
Increase (decrease) in cash and temporary investments
Cash and temporary investments at beginning of year
Cash and temporary investments at end of year
2003
2004
Operations:
Ps
8,041,648
Ps
2,955,506
347,209
8,041,648
316,053
3,618,768
2,471,357
136,609
101,164
(987,593)
(731,676)
415,919
(9,969)
1,395,811
2,355,143
382,976
103,017
(930,225)
53,072
144,806
166,636
2,275,425
(3,702,387)
5,735,072
(2,266,294)
3,627,899
976,292
(1,959,163)
(399,621)
(929,081)
(992,034)
(1,974,905)
(1,104,927)
(2,433,629)
(336,010)
(2,501,775)
(439,045)
862,955
(231,919)
(1,745,935)
(238,799)
843,229
(112,542)
(188,815)
5,017
(2,521,400)
(18,490)
(1,580,729)
1,238,767
2,265,830
(386,459)
2,652,289
3,504,597
Ps
2,265,830
Notes to the Consolidated
Financial Statements
DECEMBER 31, 2004 AND 2003
Amounts expressed in thousands of Mexican pesos (“Ps”) of December 31, 2004
purchasing power, and in thousands of US dollars (“US$”), except for exchange rates and forwards and swaps prices
NOTE 1 - HISTORY, NATURE AND OPERATIONS OF THE COMPANY:
The accompanying consolidated financial statements and their notes are a free translation from the originals prepared
in Spanish, which were issued to have effect only in Mexico.
Grupo Carso, S.A. de C.V. (“Grupo Carso”) is a controlling company incorporated under Mexican law on October 22,
1980, for a duration of 99 years. Grupo Carso operates mainly through its subsidiaries, of which it directly or indirectly
holds most of the common nominative shares. Grupo Carso also has investments in associated companies in which it
has significant management influence, although not out right control. The most representative being Philip Morris de
México, S.A. de C.V. (“Philip Morris”) (49.99% shareholding).
The accompanying consolidated financial statements include those of Grupo Carso and its subsidiaries (collectively the
“Company”). The most significant of those subsidiaries are as follows:
Percentage
shareholding (%)
2004
2003
Operation of department stores, gift shops,
record stores, restaurants, cafeterias, cake shops,
and administration of commercial centers,
through the following commercial brands,
mainly: Sanborns, Sears, El Globo, Mixup. (1)
83.68
83.55
Manufacture and sale of products for the
following industries: construction, automobile,
energy, telecommunications, mining-metallurgy
and chemicals (until June 2004) and railway
transportation. (2)
99.57
99.74
Manufacture and sale of products derived from
copper and aluminum and the respective alloys,
as well as flexible tubes manufactured with
vinyl polychloride. (3)
-
99.75
99.96
99.96
50.01
50.01
Holder of shares of companies of the following
sectors: property leasing, hotel, lithography and
binding, printing and manufacturing of flexible
packaging. (6)
100.00
100.00
Grupo Calinda, S. A. de C. V.
and subsidiaries (“Calinda”)
Hotel services. (6)
100.00
100.00
Carso Infraestructura y Construcción,
S. A. de C. V. (“Cicsa”)
Exploitation of different engineering branches,
including projection and construction of all
types of civil, industrial and electromagnetic
works and installations. (7)
90.21
100.00
Comapany
Grupo Sanborns, S. A. de C. V. and
subsidiaries (“Sanborns”)
Grupo Condumex, S. A. de C. V.
[before Empresas Frisco, S. A. de C. V.
(“Frisco”)] and subsidiaries
(“Condumex”)
Industrias Nacobre, S. A. de C. V.
and subsidiaries (“Nacobre”)
Porcelanite Holding, S. A. de C. V.
and subsidiaries (“Porcelanite”)
Principal activity
Production and sale of coverings for floors, walls
and similar surfaces. (4)
Cigarros la Tabacalera Mexicana, S. A. Sharecropping of tobacco and manufacture
de C. V. and subsidiary (“Cigatam”)
of cigarettes. (5)
Inmuebles Cantabria, S. A. de C. V.
and subsidiaries (“Cantabria”)
33
(1) On December 1, 2003, Sanborns acquired 100% of the shares of JC Penny, S.A. de C.V. (“JC Penney”) for a total
of Ps236,652. JC Penney is mainly engaged in operating six department stores that sell clothes, cosmetics,
household and electrical appliances. At December 31, 2004, the investment is included in the figures shown in
the consolidated financial statements. At December 31, 2003, Company Management decided to show the
acquisition of the JC Penney shares as an investment in shares at their historical value (Ps224,976), since it was
in the process of determining their book value.
On December 17, 2004, Sanborns acquired 100% of the shares of the companies operating as an economic unit
known as “Dorian’s”, for a total of Ps855,242. At December 31, 2004, Company Management decided to show
the acquisition of the Dorian’s shares as an investment in shares at historical value, since it is in the process of
determining their book value.
(2) At the General Extraordinary meetings held on November 15, 2004, the Stockholders approved the merger of
Condumex and Frisco (affiliated companies), in effect as from December 1, 2004. Since both companies operate
under the common control, the merger was recorded under the same method as would a pooling of interests.
Given the drop in the international prices of the minerals produced, in the last few years two subsidiaries engaged
in the mining-metallurgic industry went into temporary suspension of operations until the results of the respective
exploration derive in exploitable reserves. Given the foregoing, there are currently idle assets in the mining
segment for an approximate total of Ps171,219 and Ps266,120 in 2004 and 2003, respectively.
On June 9, 2004, Frisco formalized the sale of 100% of the Química Flúor, S.A. de C.V. (“Química”) shares to Grupo
Industrial Camesa, S.A. de C.V. (“Camesa”). Said operation was paid to Frisco through issuance of seven years
obligations, which are subject to conversion into Camesa shares for a total of 12% of that company’s capital stock,
at any given time within the term of the obligations. The nominal amount of convertible obligations is Ps288,000
and the fair value at the date of acquisition was Ps399,290. Additionally, Frisco reduced its debt by US$31,000,
which is the amount of bank loans contracted by Química at that date. The above transaction generated a profit
of Ps95,128, which is included in other income (expenses) - Net caption in the statement of income. Condumex
subsequently sold the obligations in question in September 2004 to Grupo Carso. The value of such obligations
at December 31, 2004 is Ps439,045.
In September 2004, Condumex sold the shares of its subsidiaries Swecomex, S.A. de C.V., Aguatl, S.A. de C.V. and
Precitubo, S.A. de C.V. to Cicsa, and as from that date they were no longer subsidiaries of Condumex. Those
operations had no effect at the consolidated level, since it is an operation performed under common control.
On December 29, 2004, Condumex sold the Grupo Primex, S.A. de C.V. (associated company) shares to Camesa,
thus giving rise to income of Ps600,622, which is included in the statement of income under the other income
(expenses) - Net caption.
34
(3) In 2004 and 2003, Grupo Carso sold Condumex 99.88% of the Nacobre shares. Said operation had no effect at
the consolidated level, since it is an operation performed under common control.
In the year ended December 31, 2003, production of primary aluminum for the Veracruz plant was discontinued
- said plant is the property of a Nacobre subsidiary. The effect on the value of fixed assets due to discontinuation
of said operation totaled Ps347,209, net of Income Tax and Employees’ Statutory Profit Sharing. Said amount is
shown in the statement of income under the “Loss from discontinued operations” caption. Given the immateriality
of said discontinuation on the enclosed consolidated financial statements, the financial statements were not
restructured and therefore include no additional disclosures.
In 2003, Nacobre recorded a Ps104,534 loss for the drop in the value of machinery and equipment no longer in
use at some of the copper segment subsidiaries - said loss is included in the statement of income under the caption
“impairment of assets” (see Note 2i.). The Company also had to make severance payments for reorganization of
the Celaya and Tulpetlac plants totaling Ps46,203, which is included as a special item in the statement of income.
(4) In February 2004, Porcelanite decided to suspend operations at its Santa Clara plant in the State of Mexico, thus
transferring said operations to the State of Sonora plant. As a result of this, the Company recorded the respective
restructuring expenses (mainly severance payments made to personnel and the drop in the value of its fixed assets)
for a total of Ps74,880 in the statement of income as a special item.
(5) In 2004 and 2003, Cigatam transferred its production operations of the Lerma plant in the State of Mexico to its
Mexico City and Guadalajara plants. Restructuring expenses of Ps66,177 incurred in 2004 (mainly severance
payments for personnel and extensions made to the plant) were recorded in income for the year as a special item,
while Ps22,158 incurred in 2003 for the drop in the value of fixed assets is shown in the statement of income
under the caption for “Effect at beginning of the year for changes in accounting principles” (see Note 2i.).
(6) In 2003 Cantabria and Calinda made disbursements and sold fixed assets located in the Cancún hotel zone for a
total of Ps482,555, thus giving rise to a Ps221,216 loss that is included under the caption other income (expenses)
- Net in the statement of income.
(7) In September 2004, through the acquisition of Swecomex, S. A. de C. V., Aguatl, S. A. de C. V. and Precitubo, S.
A. de C. V. of Condumex and Grupo PC Constructores, S. A. de C. V. by PC Construcciones, S. A. de C. V. (a
subsidiary of Cantabria), a new group was created for the construction of oil platforms, exploitation of the
different engineering branches (which includes projecting and constructing all types of civil, industrial and
electromechanical installations), and manufacturing, assembling, selling, repairing and servicing all types of heat
exchangers and general industrial equipment. Construction of the oil platforms started in late 2003 by the
Swecomex subsidiary (at that time a Condumex’s subsidiary).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements have been prepared based on Accounting Principles Generally
Accepted in Mexico (“Mexican GAAP”). Mexican GAAP require that financial statements be expressed in constant
pesos of the most recent date shown in the financial statements, in this case December 31, 2004, based on factors
derived from the National Consumer Price Index (“NCPI”) published by the Banco de Mexico for domestic companies,
and the NCPI of the country of origin of independent foreign companies, as well as at the exchange rate in effect on
the latest close.
The NCPI factor used to recognize the effects of inflation on the consolidated financial statements was 5.19% and
3.98% at December 31, 2004 and 2003, respectively.
Below is a summary of the main accounting policies followed by the Company in preparing the consolidated financial
statements, including the concepts, methods and criteria pertaining to recognition of the effects of inflation on the
financial information.
a.
Consolidation - Significant balances and transactions carried out between the consolidating companies have been
eliminated in consolidation. The consolidation was carried out on the basis of audited financial statements of all
the significant subsidiaries.
For consolidation purposes, translation of the financial statements of the subsidiaries resident abroad is made on
the basis of Statement B-15 of Mexican GAAP, issued by the Mexican Institute of Public Accountants (“MIPA”).
The translation effect is shown in the statement of changes in stockholders’ equity, under the caption deficit in
restatement of stockholders’ equity.
b.
Investment in securities - The investments in securities include investments in debt and capital securities, which
are initially recorded at acquisition cost, and subsequently restated to fair value, which approximates market
value.
Fair value is the amount for which a financial asset can be exchanged or a financial liability can be settled
between interested willing parties in a freely competitive transaction.
Investments in securities are subject to different types of risks, mainly those related to operating markets, interest
rates, exchange rates and inherent credit and market liquidity risks.
At December 31, 2004 and 2003, Company investments are mainly comprised of: investments in shares, Brems
bonds, derivative credit instruments (see Note 8), government papers and other security instruments.
c.
Derivative financial instruments - Derivative financial instruments for negotiation or hedging purposes are used
mainly to reduce the risk of adverse movements in a) interest rates, b) exchange rates for long-term debts, c)
copper and aluminum prices, and d) gas prices. Realized and non-realized results on said investments, in the case
of hedging operations, are recorded using the valuation method applied to hedged assets or liabilities and, in
negotiation operations, are recorded at their realization value or fair value at the date of the sale or at the close
of the period, respectively (see Note 8).
d.
Investment in shares of associated companies - The investment in shares of associated companies is valued by
the equity method. Under that method, the acquisition cost of the shares is modified for the proportionate part
of changes in stockholders’ equity accounts of investees occurring subsequent to the date of purchase. Company’s
equity in the results of associated companies is shown separately in the statement of income.
At December 31, 2004 and 2003, the most significant associated firm was Philip Morris, which contributed 84%
and 90%, respectively, to associated company results.
e.
Inventories - Inventories and cost of sales are recorded at replacement cost based on the lastly purchases or
production costs of the period. Values thus determined do not exceed market value (see Note 6).
Statement E-1, “Agriculture” issued by MIPA went into effect as from January 1, 2004, requires that biological
and agricultural assets be valued at their fair value, less estimated sales point costs at the time of harvesting. Said
fair value is determined based on the market price for the respective region. Adoption of the Statement had not
significant effects on the Company’s consolidated financial statements.
f.
Property, machinery and equipment - Property, machinery and equipment of Mexican origin are stated at
restated value, determined by applying factors derived from the NCPI to acquisition or construction cost.
Machinery and equipment of foreign origin are restated by applying factors reflecting inflation for the country of
origin at the date of valuation to historical cost stated in the currency of origin, and subsequently converted to
Mexican pesos at the rate of exchange in effect at the close of the period.
Depreciation is calculated by the straight-line method, based on the useful lives of the assets estimated by
Management, on both acquisition or construction cost and on restatement increments. These useful lives are not
mentioned, since they vary significantly due to the diversification of the business segments in which the group
operates.
The value of those assets is subject to an annual impairment evaluation (see Note 2i.).
35
g.
Intangible assets - Intangible assets are recognized in the balance sheet provided they are identifiable, provide
expected economic benefits and the Company has control over such benefits. Intangible assets with an indefinite
useful life are not amortized and intangible assets with a definite life are amortized systematically, based on the
best estimate of their useful life determined in accordance with the expected future economic benefits. The value
of these assets is subject to an annual evaluation for impairment. (See Note 2i.).
Intangible assets recorded by the Company are as follows:
i. Research costs are recognized as expenses for the year in which they are incurred. Development costs (or
incurred in the development phase of a project) are recorded as an intangible asset when they bear certain
features. There are no significant assets in this regard.
ii. Patents and trademarks represent payments made for use rights. There are no significant assets in this regard.
iii. Ferrosur, S.A. de C.V. (“Ferrosur”), a subsidiary of Condumex, was issued a concession by the Federal
Government in December 1998 to exploit the general South East railway route for a term of 50 years (with
exclusivity rights in the first 30 years). Said period is renewable for an equal period of time provided certain
conditions are met. The concession is amortized based on the straight-line method in the period the concession
was granted, and is updated through application of NCPI factors to its award cost.
iv. Exploration expenses and payments for assignment of rights over mining concessions are charged to income
in the year in which they are paid. Development expenses incurred in mining lots for exploitation purposes
are included in operating costs.
h.
Goodwill - Goodwill represents the excess of cost of shares of subsidiaries and associated companies over book
value and negative goodwill represents the excess of book value over the cost of shares of subsidiaries and
associated companies, both are expressed at restated value determined by applying NCPI factors to the original
value, less accumulated amortization. Amortization (of goodwill or negative goodwill) is calculated by the
straight-line method, applying the rates of 10% and 20% to restated balances, respectively; and their value are
subject to an annual impairment evaluation (see Note 2i.).
i.
Impairment in the value of long-lived assets and their disposal - The Company Management implemented in
advance the provisions of Statement C-15, “Impairment in the Value of Long- Lived Assets and their Disposal”,
issued by the MIPA. This statement establishes, among other issues, the general criteria for identification and, if
applicable, recording of impairment losses or the decrease in the value of long-lived tangible and intangible assets,
including goodwill. The initial effect of adoption of the guidelines established in this Statement at December 31,
2003 generated a reduction in the value fixed assets of Ps462,199, which, after deducting income tax, amounts
to Ps316,053 and is shown in the statement of income in the “Effect at beginning of the year for changes in
accounting principles”. The effect for the year of impairment of fixed assets amounted to Ps415,919 and Ps144,806
in 2004 and 2003, respectively, and is shown as a separate item in the income statement.
j.
Liabilities, provisions, contingent assets and liabilities and commitments - The Company’s liabilities and the
liability provisions recognized in the balance sheet represent present obligations whose settlement will probably
require the use of economic resources. These provisions have been recorded based on Management’s best
estimated of the amount needed to liquidate the present liability; however, actual results could differ from the
provisions recognized.
36
As a result of adopting the aforementioned Statement, the Company recorded an ecological liability reserve
amounting to Ps174,679, at December 31, 2003, to repair the environment in areas destined for mining
exploitation, and a Ps115,845 charge to retained earnings net of taxes, as part of the accrued effect at the
beginning of the year for previous obligations; Ps14,180 to deferred income tax and Ps49,076 to fixed assets, for
future obligations, which is subject to depreciation rules based on the estimated life of the mine and to applicable
impairment rules. In 2004, expenses totaling Ps6,612 were made to repair the environment, of which Ps5,274
were applied against the ecological liability reserve and Ps1,338 to results for future obligations.
k.
Deferred taxes - Income tax is recorded by the comprehensive method of assets and liabilities, which consists of
recording deferred tax for all temporary differences between the book and tax values of assets and liabilities (see
Note 11).
Deferred employees’ statutory profit sharing is recorded only on the basis of temporary differences between the
net book and tax profit for the period applicable for employees’ statutory profit sharing, which can be reasonably
assumed to give rise to a liability or a benefit in the future.
l.
Labor obligations - The seniority premiums, which employees are entitled to receive upon termination of
employment after 15 years of service, as well as obligations under employee retirement plans for certain
subsidiaries, to which they do not contribute, are recorded as cost for the years in which the respective services
are rendered, based on actuarial studies using the projected unit credit method (see Note 9).
Other compensation based on seniority to which employees may be entitled in the event of dismissal or death, in
accordance with the Federal Labor Law, is applied to income in the year in which it becomes payable.
m. Stockholders’ equity - The capital stock, the net premium on the placement of shares, retained earnings and the
accumulated effect of deferred tax represent the value of those items in terms of purchasing power at the close of
the most recent period, and are determined by applying NCPI factors to the historical amounts.
The deficit in restatement of stockholders’ equity mainly comprises the initial accumulated gain or loss on
monetary position and the gain or loss from holding nonmonetary assets, stated in pesos of purchasing power at
the close of the most recent period.
n.
Comprehensive income - The comprehensive income is represented by the net income plus the gain or loss from
holding non-monetary assets, the translation adjustment arising in connection with foreign subsidiaries, and items
required by specific accounting standards to be reflected in stockholders’ equity but which do not constitute
capital contributions, reductions or distributions. It is restated on the basis of NCPI factors.
o.
Gain on monetary position -The gain on monetary position represents the inflationary gain, measured in terms
of the NCPI, on net monthly monetary assets and liabilities for the year, stated in pesos of purchasing power for
the most recent period.
p.
Earning per share - The earnings per share is the result of dividing the consolidated net profit for the year by the
weighted average of shares outstanding. Average outstanding shares were 816,600,349 and 849,779,059 in 2004
and 2003, respectively.
q.
Recognition of income - Sales are recorded in the period in which the risks and benefits of inventories are
transferred to the customers acquiring said items, which generally occurs when the goods are shipped to customers
and they assume responsibility for them. Service income is recorded as services are rendered. Construction
income is recorded as the work progresses.
r.
Foreign currency transactions and exchange differences - Foreign currency transactions are recorded at the rates
of exchange prevailing on the dates on which operations are entered into. Foreign currency assets and liabilities
are translated at the exchange rates in effect at the balance sheet date; the related exchange differences between
the date on which transactions are entered into and those on which they are settled are charged or credited to
income (see Note 3).
s.
Use of estimations - Preparation of the consolidated financial statements as per Mexican GAAP required that
Company Management prepare certain estimations that might affect the amounts reported in the consolidated
financial statements. Actual results may differ in such estimations. Estimations are determined based on
reasonable bases.
t.
Reclassifications - Certain reclassifications have been made to 2003 figures in order to adapt them to the actual
disclosures.
u.
New accounting pronouncements - The following Statements issued by the MIPA went into effect on January 1,
2005.
- Statement B-7, “Business Acquisitions”. The provisions of this statement establish, among others, the purchase
method as the only method of accounting for the acquisition business, changes to the accounting treatment
of goodwill, eliminating its amortization as from the date on which that statement goes into effect and subjects
it to deterioration rules on an annual basis. It also provides specific rules for acquisitions of minority interest
and transfer or exchange of shares between entities of the same group.
- Amendments to Statement C-2, “Financial Instruments”. The provisions contained in this statement require
that the effects for valuation of instruments available for sale be recorded in stockholders’ equity and not in
income for the year, and incorporates the rules to determine the effects of impairment in the value of financial
instruments.
- Statement C-10, “Derivative Financial Instruments and Hedging Operations”, which, aside from specifying
recording, valuation and disclosure criteria applicable to derivative financial instruments, requires that
effectiveness of risk hedging over cash flows and the net investment in subsidiaries located abroad be recorded
under the comprehensive profit caption.
- Amendments to Statement D-3, “Labor Obligations”, which establish the rules for valuing and recording
liabilities generated by other compensation upon termination of the labor relationship.
At the date of issuance of the consolidated financial statements, Company Management has not determined the
effect of adopting the aforementioned Statements, which could have a significant effect on the Company’s results.
37
NOTE 3 - FOREIGN CURRENCY POSITION:
At December 31, 2004 and 2003, the Company had the following foreign currency assets and liabilities whose
replacement cost is determined based primarily on US dollars:
December 31,
2003
2004
Assets
Liabilities
Net short position
US$
315,110
(1,181,142)
US$ (866,032)
US$
312,868
(1,131,391)
US$ (818,523)
At December 31, 2004 and 2003, the exchange rates were Ps11.2648 and Ps11.2360 per US dollar, respectively. At
March 2, 2005, date of issuance of the audited consolidated financial statements, the exchange rate was Ps11.0965 per
US dollar.
At December 31, 2004 and 2003, the Company had contracted hedging against exchange risks (see Note 8).
At December 31, 2004 and 2003, approximately 21% of inventories and machinery and equipment are of foreign
origin.
In 2004 and 2003, the Company performed operations in foreign currency, the most important of which are:
Year ended
December 31,
2004
38
Sales
Interest income
Other income
Purchases
Interest expense
Others
Net
US$
US$
556,703
818
415
(826,284)
(27,865)
(137,137)
(433,350)
2003
US$
453,879
1,211
32,984
(560,395)
(25,584)
(195,489)
US$ (293,394)
The Company has several subsidiaries abroad; however, their financial statements are not significant in relation to the
Company’s consolidated financial statements.
NOTE 4 - ANALYSIS OF ACCOUNTS RECEIVABLE:
December 31,
2004
Customers
Sundry debtors
Allowance for doubtful accounts
Recoverable taxes
Others
Ps
11,184,195
1,407,474
12,591,669
(289,724)
12,301,945
566,242
159,378
Ps 13,027,565
2003
Ps
Ps
8,345,483
701,675
9,047,158
(301,388)
8,745,770
503,262
280,602
9,529,634
NOTE 5 - ANALYSIS OF BALANCES AND TRANSACTIONS WITH RELATED PARTIES:
December 31,
2003
2004
Accounts receivable:
Teléfonos de México, S. A. de C. V.
Sinergia Soluciones Integrales de Energía, S. A. de C. V.
América Movil, S. A. de C. V.
Philip Morris
Teléfonos del Noroeste, S. A. de C. V.
Delphi Packard Electric
Compañía de Teléfonos y Bienes Raíces, S. A. de C. V.
Others
Ps
Ps
Accounts payable:
Grupo Primex, S. A. de C. V.
Radiomóvil Dipsa, S. A. de C. V.
Banco Inbursa, S. A.
Seguros Inbursa, S. A. de C. V.
Dana Corporation, Inc.
Others
908,826
182,838
137,735
180
31,435
76,108
21,173
36,190
1,394,485
Ps
Ps
Ps
Ps
Ps
72,278
249,729
12,437
16,901
351,345
Ps
919,827
185,277
90,009
51,418
12,747
68,126
29,665
1,357,069
57,086
51,544
4,352
10,831
18,784
142,597
The principal transactions with related parties were as follows:
Year ended
December 31,
Income:
Sales*
Disbursements:
Purchases
Expenses
Interest
*
2004
2003
Ps 19,334,889
Ps 17,692,098
Ps
Ps
1,195,179
341,851
308,277
1,420,154
536,992
358,088
Includes sales of the subsidiary Cigatam to the associated company Philip Morris, which sells and distributes its
products, amounting to Ps12,476,954 and Ps11,606,565 in 2004 and 2003, respectively.
NOTE 6 - ANALYSIS OF INVENTORIES:
December 31,
2003
2004
Raw materials
Production in process
Finished product
Merchandise in stores
Merchandise in transit
Spare parts and other inventories
Allowance for obsolete inventories
Ps
5,025,381
828,805
1,375,753
4,204,045
256,710
2,489,406
14,180,100
(307,571)
Ps 13,872,529
Ps
3,900,280
817,628
1,431,539
4,071,987
217,048
1,164,747
11,603,229
(261,602)
Ps 11,341,627
39
NOTE 7 - SHORT TERM FINANCING AND LONG-TERM DEBT:
Short-term debt is subject to variable interest rates. Interest rates at the close of December 2004 and 2003 were a
weighted average of 9.28% and 6.09%, respectively, for local currency debt and 3.89% and 2.48%, respectively, for
dollar debt.
The short-term debt was comprised as follows:
December 31,
2004
Commercial paper (1)
Unsecured loans and other (2)
Current portion of long-term debt
Ps
Ps
2,276,545
3,412,878
2,012,452
7,701,875
2003
Ps
Ps
1,208,902
2,948,969
3,281,865
7,439,736
The long-term debt is subject to variable interest rates. Interest rates at the close of December 2004 and 2003 were a
weighted average of 8.02% and 7.48% for local currency debt, respectively, and 2.77% and 2.64% for dollar debt,
respectively.
The long-term debt was comprised as follows:
December 31,
2004
Syndicated loans in Mexican pesos and US Dollars at
variable rates, expiring on a quarterly basis (3)
Stock certificates and unsecured loans (2) and (4)
Other long-term loans
Less - Current portion
Long-term debt
40
Ps
8,512,668
4,618,523
368,882
13,500,073
(2,012,452)
Ps 11,487,621
2003
Ps
3,662,027
10,075,111
692,319
14,429,457
(3,281,865)
Ps 11,147,592
The long term debt at December 31, 2004 matures as follows:
Year ended
December 31,
2006
2007
2008
2009 and after
Ps
Ps
3,565,107
3,876,801
3,076,768
968,945
11,487,621
(1) Includes promissory notes in Mexican pesos at short-term variable rates basically to finance working capital.
Average discount rates were 8.92% and 8.25% for 2004 and 2003, respectively.
(2) Includes short-term financing from Banco Inbursa, S.A. (related party) in Mexican pesos and foreign currencies
at December 31, 2004 and 2003 of Ps1,156,698 and Ps346,495, and Ps1,552,591 and Ps1,837,099, respectively;
and long-term financing of Ps225,165 and Ps461,432 and Ps1,183 and Ps1,772,062, respectively. The last maturity
date is 2013.
(3) Grupo Carso had contracted a syndicated loan of Ps1,800,000 in August 2001. The last maturity date for said
loan was in August 2006. At the 2003 close, there was a balance payable of Ps1,050,000, which was fully prepaid
in the first semester of 2004.
In September 2002, Grupo Carso had contracted a syndicated loan of US$225,000, of which US$128,750 was
contracted for a three-year term, with the last maturity date in September 2005, while the remaining US$96,250
were set for a five-year term with the last maturity date in September 2007. At the 2004 close, the balance payable
for the three-year portion of the loan is US$109,438, and the balance for the five-year portion is US$96,250.
In May 2004, Grupo Carso signed a syndicated three-year loan agreement for US$300,000, maturing in May 2007.
In October 2004, Grupo Carso contracted a syndicated five-year loan for US$250,000, maturing in October 2009.
(4) At December 31, 2004, Grupo Carso had set up a trust for the purposes of issuing stock certificates for up to
Ps5,000,000. Revenue earned through the different issuance of such certificates, were used to cover obligations
derived from unsecured loans.
The four stock certificates are subject to the CETES average interest rate plus 1.27 percentage points. At the 2004
close, the balance of the Grupo Carso debt owed to the trust is Ps3,550,000, with the last maturity date in October
2008. The interest Grupo Carso is subject to is equal to that payable by the trust to holders of the stock certificates.
The Grupo Carso subsidiaries have contracted variable rate and short/long term unsecured loans and loans for
promoting exportations, with the last maturity date being 2013.
The loan agreements establish the obligations to do and not to do, and require that, based on the Company’s
consolidated financial statements, certain financial ratios be kept. All of those requirements are complied with at
the date of issuance of these consolidated financial statements.
NOTE 8 - OPERATIONS WITH DERIVATIVE FINANCIAL INSTRUMENTS:
Grupo Carso carried out operations with derivative financial instruments as coverage for its exposure risk. Those
operations are summarized as follows:
Exchange-rate forwards At December 31, 2004, the Company had signed dollar futures purchase - sale agreements, whose purchase position
was US$945,000 at the agreed exchange rate of Ps11.3324 (weighted average) and a sale position US$25,000 at the
agreed exchange rate of Ps11.4888 (weighted average). Said operations mature on March 16, 2005. The net effect of
this type of operations carried out in 2004 and 2003 was for (Ps27,882) and Ps76,655, respectively, and is shown under
the “Exchange income (loss) - Net” caption in the statement of income. At December 31, 2003, the Company had no
contracts of this type in effect.
Interest-rate swaps At December 31, 2004 and 2003, Grupo Carso had swap agreements amounting to Ps9,000,000 and Ps9,946,000,
respectively, which means that it was subject to the exchange of interest every 28 days, paying average fixed rates of
9.85% and 10.08%, respectively, and collecting variable rates based on the twenty-eight-day Interbank Compensation
Rate (“ICR”). Amounts under those contracts mature from January 2007 to March 2014, and the ICR at December 31,
2004 and 2003 was 8.95% and 6.29%, respectively. During 2004 and 2003, Grupo Carso paid Ps279,866 and
Ps347,512, respectively, corresponding to net differences in rates, included under “Interest expense caption” in the
statement of income.
The effect of valuation at market prices of the agreements in which the counter-party has no hedging , totaling
Ps1,791,592 and Ps3,353,200 at December 31, 2004 and 2003, respectively, and required recording an asset and a
liability of Ps113,070 and Ps124,178, respectively, and are shown in the “Accounts receivable, accounts payable and
other accrued expenses” caption of the balance sheet. The net credit (charge) to income for the years ended December
31, 2004 and 2003 was of Ps240,757 and (Ps90,385), respectively, and is shown under the “Interest income” and
“Interest expense” captions, respectively, in the statement of income.
During the years ended December 31, 2004 and 2003, Grupo Carso recorded Ps143,227 and Ps176,626 charged to
income, corresponding to the present value of expected swap contract flows, which were cancelled in advance in order
to negotiate new contracts with fixed rates suitable for current market conditions. That amount is included under
“Interest expense” in the statements of income.
At December 31, 2004, Grupo Carso had no such agreements in dollars, and at December 31, 2003 it had contracted
swap agreements for a total of US$155,000. In 2004 and 2003, the Company had to change its interest rates every
three months, thus paying average fixed rates of 2.96% and 2.84%, respectively, and collecting variable three-month
LIBOR. In March 2004, the Company contracted a US$330,000 swap that was paid in advance in April 2004 - the
original maturity date was March 2009. Contracts in effect at December 31, 2003 maturing in June and October 2008
were paid in advance in January and April 2004. The LIBOR at December 31, 2004 and 2003 was 2.56% and 1.15%,
respectively. In 2004 and 2003, Grupo Carso paid net rate differences of Ps14,027 and Ps61,869, respectively, which
are shown under the “Interest expense” caption in the statement of income.
In the years ended December 31, 2004 and 2003, Grupo Carso recorded a profit in income of Ps109,505 and Ps262,959,
respectively, which corresponded to the present value of expected flows of LIBOR swap agreements, which it then
cancelled in advance. Said amount is shown under the “Interest income” caption in the statement of income.
In 2004 and 2003, no assets or liabilities were recorded for market valuation, nor any effects in income derived from
dollar swap agreements in effect on those dates, since the counterpart had been covered.
At December 13, 2004, the Company cancelled two swaps in advance with a reference value of US$10,000 subject to
the 4.38% interest rates (one for Fixed Interest Rates and the other for hedging), maturing on June 1, 2006. The
Company paid a net exchange premium for cancellation of Ps3,038. At December 31, 2004 and 2003, said instruments
gave rise to a charge to income of Ps9,803 and Ps43,116, respectively, which is included in the statement of income
under the comprehensive financing cost caption.
41
Natural gas futures The Company has signed swap agreements for natural gas prices with Petróleos Mexicanos (“PEMEX”), at the average
price of 4.5 US dollars per million British thermal units. Under those agreements, the Company acquires benefits or
assumes costs based on natural gas consumption and on the difference between the price of natural gas in Southern
Texas and the value covered under the agreement. The market value of such agreements is of approximately Ps1,108
million (Ps831 million nominal).
Metal futures and swaps In 2004 and 2003, the Company signed futures and swap agreements, which were used to reduce the risk of adverse
fluctuations in the price of copper and aluminum and to establish sales prices for certain customers. At December 31,
2004 and 2003, said derivative financial instruments gave rise to a credit to income of Ps21,243 and Ps1,498,
respectively, which was included in the cost of sales.
Additionally, futures agreements have been signed for the sale of silver, lead, zinc and lead swaps, which at December
31, 2004 gave rise to a charge to income of Ps189,439 that is included in the comprehensive financing cost. At
December 31, 2004 and 2003, the Company recorded an unrealized loss for open negotiation futures agreements of
Ps19,538 and Ps58,319, respectively.
At December 31, 2004, the Company has the following open futures and swap agreements:
Instrument
Metal
Futures:
Copper
Lead
Zinc
Aluminum
Silver
Swaps:
Copper
Aluminum
Lead
42
Volume
Average cost
in US $
Fair value at
close in US$
Maturity date
9,513,995 (Tons)
9,375 (Tons)
11,875 (Tons)
25 (Tons)
2,910,000 (Oz)
1.33-1.40 (Lbs)
943.48-956.78 (Tons)
1068.75-1109.82 (Tons)
1805.00 (Tons)
6.75-7.70 (Oz)
1.43-1.45 (Lbs)
1018.75-1030.00 (Tons)
1245.50-1245.99 (Tons)
833.00 (Tons)
6.83-7.76 (Oz)
January-November 2005
January-February 2005
January 2005
March-December 2005
840 (Tons)
976 (Tons)
14.400 (Tons)
1.19-1.45 (Lbs)
1704.00 (Tons)
865.00-938.00 (Tons)
1.19-1.22 (Lbs)
1834.43-1849.55 (Tons)
869.71-971.29 (Tons)
January 2005-January 2006
January 2005-December 2006
Credit derivatives In March 2004, the Company contracted a credit derivative financial instrument (“Credit Linked OTL Deposit
Transaction” or “Credit Default Swap” or “CDS”) related to an initial investment of US$50,000 maturing in March 2009,
subject to the LIBOR plus 2.65 percentage points. Said credit derivative allows the CDS counterpart to transfer to the
Company the risk of failing to comply with a specific credit portfolio issued by related parties. Therefore, at the
maturity date of the CDS, the counterpart will pay the Company the initial investment, less the amount of the portfolio
that may have not been complied with. At December 31, 2004, the Company estimates there will be no unfavorable
effects.
NOTE 9 - LABOR OBLIGATIONS:
The Company had established non-contributory employee retirement plans for certain subsidiaries employees. The
benefits under those plans are mainly based on years of service and remuneration upon retirement. The respective
obligations and costs, as well as those corresponding to seniority premiums to which employees may be entitled upon
termination of employment after 15 years of service, are recorded based on actuarial studies prepared by independent
experts, in most cases, through contributions to an irrevocable trust fund.
The plans are based on actuarial calculations using the projected unit credit method under the following guidelines:
-
Use of real rates to determine the liabilities and costs of pension plans and seniority premium.
-
Retirement benefits are based mainly on years of service, age and salary of employee at retirement date.
-
Re-expression of the net cost for the period and existing liability, as per inflation recorded in the period.
Following is a summary of the principal financial data pertaining to those plans:
December 31,
Projected benefit obligations
Plan assets at market value
Fund position
Unamortized transition (liability) asset
Unamortized variations in assumptions and adjustments
Unamortized plan modifications
Additional liability
Projected net asset derived from labor obligations
Ps
Ps
2004
2003
(1,696,411)
2,159,976
463,565
(35,007)
(193,914)
83,306
(3,024)
314,926
Ps (1,794,749)
1,751,101
(43,648)
18,966
(34,211)
344,111
(162,395)
Ps
122,823
The net cost for the period as recorded in income is as follows:
Year ended
December 31,
2004
Financial cost
Labor cost
Interest on plan assets
Amortization of the transition item and others
Ps
Ps
83,895
98,626
(94,979)
13,622
101,164
2003
Ps
Ps
76,084
89,964
(77,255)
14,224
103,017
In 2004 and 2003, the Company contributed Ps44,499 and Ps50,604 to the funds, respectively. Amendments to the
plans, variations in assumptions and adjustments for experience, as well as the transition liability are amortized over
the average remaining labor life of employees who are expected to receive the benefits of the plan, which varies
depending on each Company entity.
NOTE 10 - STOCKHOLDERS’ EQUITY:
At the General Ordinary Meetings held on April 21, 2004 and April 28, 2003, the stockholders agreed to:
a.
Dividend payments in cash of Ps585,602 and Ps639,442, respectively, for which purposes Ps0.70 was paid per each
share to nominal value (adjusted for the number of shares at the time of payment for repurchase of own shares),
payable in two installments at Ps0.35 per share, on May 20 and November 18, 2004 and 2003, respectively, from
the Reinvested After-tax Earnings Account (“CUFINRE”) and the After-tax Earnings Account (“CUFIN”).
b.
It was agreed to establish a maximum of Ps3,000,000 and Ps2,000,000 (nominal) as from the date of the meeting
for the purchase of own shares over the remaining part of 2004 and 2003, respectively.
At the Extraordinary Meeting of April 28, 2003, the stockholders agreed to reformulate articles VII, VIII, IX, XIII, XIV,
XX, XXII, XXIV and XXV of the Company’s by-laws, and add Transitory article XX Bis and a heading in Article
XXXVI, mainly to amend the respective texts in regard to the “General rules applicable to acquisitions of securities
that must be disclosed and public biddings for security purchases” and to the “General provisions applicable to issuers
of securities and the other participants of the stock market”, both issued by the National Banking and Securities
Commission.
43
At December 31, 2004, Grupo Carso’s subscribed and paid-in capital stock was composed as follows:
Description
Shares*
915,000,000
(117,563,582)
797,436,418
Amount
Series “A1”, representing the fixed portion of
the capital stock with no withdrawal rights
Repurchased shares in treasury
Historical capital
Restatement increment
Capital stock
Ps
Ps
1,058,036
(135,941)
922,095
5,024,612
5,946,707
* Ordinary nominative shares, with no par value.
The profit for the period is subject to the legal provision requiring that at least 5% of the profit for each period be set
aside to increase the legal reserve until it is the equivalent of 20% of the capital stock. At December 31, 2004, Grupo
Carso’s legal reserve was Ps381,635 (nominal value) and covers the aforementioned parameter. This amount is included
in “Retained earnings”.
Dividends are free of income tax if paid from the CUFIN. Dividends exceeding the CUFIN are subject to a tax
equivalent to 42.85%, 40.84% or 38.91% if paid in 2005, 2006 or 2007 and after, respectively. That tax is payable by
the Company and may be credited against its income tax for the period or for the following two periods. Dividends
paid from previously taxed profits are not subject to tax withholding.
In the event of a capital reduction, the excess of capital over capital contributions, the latter restated in accordance
with the provisions of the Income Tax Law, are accorded the same tax treatment as dividends. At December 31, 2004
and 2003, the CUFIN and the capital contributions account amounted to Ps19,120,486 and Ps5,635,175; and
Ps18,202,250 and Ps6,124,728, respectively, determined in accordance with the current tax provisions.
NOTE 11 - INCOME TAX (“IT”), ASSET TAX (“AT”), EMPLOYEES’ STATUTORY PROFIT SHARING (“ESPS”) AND
EXCISE TAX (“IEPS”):
44
Grupo Carso has been authorized to consolidate for IT and AT purposes as the controlling company since 1994. In
2004 and 2003, Grupo Carso determined a consolidated tax profit of Ps702, 657 and Ps2,403,585, respectively. The
taxes corresponding to said tax profits were covered with advance payments made by the controlling and controlled
companies. The IT provision shown in the statement of income differs from the amount determined by applying the
33% and 34% rates for 2004 and 2003, respectively, to the profit before IT and ESPS provisions in the consolidated
statement of income, basically due to: i) permanent differences derived from recognition of the effects of inflation on
different bases and non-deductible expenses, ii) certain active temporary differences, whose reversion is uncertain,
arising from the amortization of active goodwill; and additionally in 2004, iii) for the benefit of a deferred asset derived
from recognition of the tax loss on the sale of shares dating back to 2004 and prior years, as per the favorable ruling
handed down to the Company and some of its subsidiaries on June 30, 2004 as a result of the request for an injunction
filed at the First Chamber of the Supreme Court of Justice in relation to the unconstitutionality of not being able to
credit tax losses from the sale of shares, iv) for the benefit of deducting ESPS paid by certain subsidiaries and v) for
the percentages that will be applicable in the years the items giving rise to deferred IT will be deductible and/or accrued,
as per the amendments to the IT Law approved on November 13, 2004, which specifies that in 2005, the general rate
is to be 30% and will be gradually reduced by 1% a year until it reaches 28% in 2007.
The income tax provision was as follows:
Year ended
December 31,
2004
Income tax currently payable
Deferred income tax
Total provision
Ps
Ps
1,504,694
(790,634)
714,060
2003
Ps
Ps
1,920,421
90,197
2,010,618
The main temporary differences on which deferred income tax was recorded were as follows:
December 31,
2003
2004
Temporary investments in shares
Accounts receivable from installment sales
Inventories - Net
Property, machinery and equipment - Net
Goodwill amortized
Asset revaluation allowances
Tax loss carry forwards
Others
Applicable income tax rate
Recoverable AT
Deferred income tax (CUFIN reinvested over the long term)
Deferred income tax liability - Net
Ps
18,508
2,702,604
12,926,540
17,942,872
123
(847,112)
(3,311,002)
2,111,200
31,543,733
30%
9,463,120
(875,211)
8,587,909
95,751
Ps 8,683,660
Ps
34,038
3,775,918
10,336,256
18,165,957
1,438,387
(1,119,838)
(1,608,628)
(818,920)
30,203,170
33%
9,967,046
(718,234)
9,248,812
192,996
Ps 9,441,808
From the deferred IT balance payable recorded on December 31, 2004 and 2003, Ps32,486 and Ps28,664, respectively,
has been charged directly to the deficit in restatement of stockholders’ equity, since said amounts derive from
temporary differences that are identified with the result of holding non-monetary assets of the subsidiaries (inventories
and real property, machinery and equipment).
AT is subject to 1.8% on the net amount of certain assets and liabilities, only when it exceeds IT payable.
Certain subsidiaries have incurred in AT under applicable tax provisions - said tax is expected to be recovered in future
years. AT may be recovered up to the excess of IT over AT in the following ten years.
ESPS is calculated by applying the procedures established in the IT law. In calculating that item, no consideration is
given to the effects of inflation of tax purposes or to the unamortized tax losses.
The provisions for ESPS were as follows:
December 31,
2004
ESPS currently payable
Deferred ESPS
Total provision
Ps
Ps
624,719
58,958
683,677
2003
Ps
Ps
365,269
(37,125)
328,144
Cigarettes sales are subject to IEPS tax. Cigatam paid the respective monthly 110% and 107% tax rates for cigarettes
with filters and 100% and 80% for cigarettes without filters in 2004 and 2003, respectively. As from January 1, 2005,
it must pay the respective monthly tax at the 110% rate for both types of cigarettes (with and without filters).
45
NOTE 12 - INFORMATION BY SEGMENT:
The Company administers and evaluates its operations through a number of operating segments, the most
representative of which are: tobacco, ceramic covering, copper and aluminum derivatives, products for the automobile,
construction and telecommunications industries, commercial, mining and infrastructure and construction. Those
operating segments are administered and controlled independently, since they operate with different products in several
markets.
Following is certain condensed financial information at December 31, 2004 and 2003, for the business segments
operated by Grupo Carso.
Tobacco
Products for
the automobile,
construction and
telecommunications
industries
Copper and
aluminum
derivatives
Ceramic covering
2004
46
Net sales
Ps 12,501,478
Ps 3,538,265
Ps 6,524,422
Ps 18,203,973
Operating income
Ps
Ps
Ps
575,265
Ps
1,977,218
823,501
664,274
Ps
484,248
Ps
364,904
Ps
146,904
Ps
1,871,782
Ps
124,099
Ps
320,944
Ps
351,647
Ps
554,941
Ps
Ps
27,675
Ps
Ps
75,200
Investments in shares of associated
companies
Ps
Ps
Ps
145
Ps
Total assets
Ps 4,048,909
Ps 6,784,608
Ps 9,032,601
Ps 17,540,864
Total liabilities
Ps 2,748,857
Ps 3,889,349
Ps 4,396,941
Ps 10,016,580
Net sales
Ps 11,631,954
Ps 3,417,485
Ps 5,309,953
Ps 14,137,921
Operating income
Ps
791,795
Ps
765,964
Ps
349,487
Ps
1,651,286
Consolidated net income (loss) for the year
Ps
403,190
Ps
356,573
Ps
(389,216)
Ps
585,455
Ps
152,529
Ps
329,300
Ps
264,148
Ps
489,122
Ps
Ps
18,248
Ps
Ps
53,443
Investments in shares of associated
companies
Ps
Ps
Ps
Ps
692,083
Total assets
Ps 4,057,573
Ps 6,346,176
Ps 9,060,947
Ps 15,596,902
Total liabilities
Ps 2,794,707
Ps 3,674,427
Ps 4,670,733
Ps
2003
153
The Company operates in different geographical zones and has distribution channels in Mexico, the US and other
countries though industrial plants, sales offices or representatives.
Below is a breakdown of net sales per geographical area:
Year ended December 31
2004
Geographical zone
North America
Central, South America and Caribbean
Europe
Rest of the world
Total Exportation
Mexico
Net sales
2003
Amount
Sales %
Amount
Sales %
Ps 4,817,417
1,391,699
486,084
18,501
6.91
2.00
0.70
0.02
Ps 4,175,145
746,970
404,552
19,441
7.00
1.25
0.68
0.03
6,713,701
9.63
5,346,108
8.96
63,007,603
90.37
54,281,501
91.04
Ps 69,721,304
100
Ps59,627,609
100
The Company has a great variety of customers, based on type of product and service. Cigatam recorded sales made
to Philip Morris (associated company) equivalent to 17.9% and 19.5% of the Company’s consolidated net sales in 2004
and 2003, respectively (see Note 5). No other customer represents more than 10% of net sales; however, the Company
offers its products and services to the following industries: Energy, Automobile, Telecommunications, Mining,
Chemicals, Cement, Grains, Construction, Electronics and to the general public.
5,797,516
Commercial
Mining
Infrastructure and
construction
Other and
eliminations
Total
Ps 22,224,128
Ps
3,516,200
Ps
2,500,694
Ps
712,144
Ps 69,721,304
Ps
3,280,137
Ps
679,200
Ps
371,744
Ps
663,775
Ps
9,035,114
Ps
2,628,927
Ps
168,100
Ps
208,428
Ps
2,168,355
Ps
8,041,648
Ps
636,210
Ps
263,200
Ps
16,170
Ps
204,146
Ps
2,471,357
Ps
(78,375)
Ps
36,100
Ps
Ps
76,009
Ps
136,609
Ps
1,558,979
Ps
95,648
Ps
Ps
1,283,781
Ps
2,938,553
Ps 25,998,126
Ps
7,255,300
Ps
2,067,149
Ps
3,503,583
Ps 76,231,140
Ps 13,716,201
Ps
4,226,000
Ps
1,670,580
Ps
(667,041)
Ps 39,997,467
Ps 20,070,143
Ps
2,713,872
Ps
645,164
Ps
1,701,117
Ps 59,627,609
Ps
3,131,878
Ps
319,080
Ps
54,952
Ps
523,412
Ps
7,587,854
Ps
1,777,855
Ps
(503,618)
Ps
18,622
Ps
706,645
Ps
2,955,506
Ps
621,910
Ps
311,681
Ps
8,460
Ps
177,993
Ps
2,355,143
Ps
131,679
Ps
64,400
Ps
Ps
115,206
Ps
382,976
Ps
942,894
Ps
105,710
Ps
Ps
964,892
Ps
2,705,732
Ps 23,903,422
Ps
7,420,411
Ps
696,947
Ps
2,287,319
Ps 69,369,697
Ps 13,999,636
Ps
5,038,179
Ps
453,243
Ps
1,573,858
Ps 38,002,299
NOTE 13 - COMMITMENTS:
Under an agreement signed on December 20, 2001, Sears extended its trademark licensing agreement for a period of
10 years as from April 17, 2002. That license specifies the payment of 1% on all income from the sale of merchandise
for which use of the Sears name is permitted, both in its company name and in its stores, as well as for exploitation
of trademarks owned by Sears Roebuck and Company, principally Craftsman and Kenmore.
At December 31, 2004 and 2003, Sanborns has signed agreements with suppliers for the remodeling and construction
of some of its stores. The amount of commitments contracted for the foregoing purposes is approximately Ps258,861
and Ps118,214, respectively.
Sanborns has signed leasing agreements for 411 of its stores (Sears, Sanborn Hermanos, Sanborns Café, Mix-up,
Discolandia and Pastelerías El Globo). Those leasing agreements have been set for compulsory terms of 2 to 20 years.
Total rent paid in 2004 and 2003 was Ps463,572 and Ps581,167, respectively. Also, Sanborns has signed agreements
as lessor with terms fluctuating between 1 to 15 years, while rent income in 2004 and 2003 was Ps363,158 and
Ps331,569, respectively.
The new provisions of the agreement signed by the Ministry of Health and the Tobacco Industry went into effect as
from August 1, 2004. That agreement establishes that 2.5 cents of one peso per cigarette sold as from October 1 to
December 31, 2005 is to be contributed to the Trust of the Social Health Protection System. As from January 1, 2006,
the ratio will be 3.5 cents per cigarette sold until September 30, 2006, and from October 1, 2006, 5.0 cents per cigarette
sold until December 31, 2006, on which the contributions to the Trust will stop. At December 31, 2004, contributions
to the Trust total Ps187,037.
47
In 2004 and 2003, the Company made temporary importations of raw materials under the program for temporary
importation of goods for the production of items for export (“PITEX”) authorized by the Ministry of Commerce, whose
customs duties have been guaranteed by the Company under the above program. The Company must and is complying
with the requirements of the program.
At December 31, 2004, Condumex signed as collateral for loans contracted by Sinergia Soluciones Integrales de
Energía, S.A. de C.V. (associated company) for US$19,228 and US$3,446, maturing in 8 and 5 years, respectively.
Under the Ferrosur concession, the Government has the right to receive a payment by the Company equal to 0.5% of
its gross income in the first 15 years of the concession period and 1.25% in the remaining years of the concession
period. In 2004 and 2003, expenses in this regard totaled Ps10,973 and Ps7,875, respectively.
Ferrosur has investment commitments in connection with the terms of the “Business Plan” forming part of the
concession agreement that include, among others, compliance with the investment budget for rolling equipment,
machinery and equipment, signs and communications, railroads, different structures and maintenance. In 2004 and
2003, Ps286,450 and Ps377,632, respectively, were invested in the rehabilitation of railroads and in the acquisition of
rolling equipment. Under the business plan, investments of Ps342,678 should be made in 2005.
In 2004, Condumex, Nacobre and Porcelanite signed a natural gas purchase agreement with Pemex Gas and
Petroquímica Básica, whereby the subsidiaries must purchase, based on an annual consumption program, the necessary
gigacalories for their production. Said agreements will be in effect until conclusion of the Transitory Regime of
General Terms and Conditions for First-hand Sales of Natural Gas; in the meantime, they will be automatically renewed
for yearly periods, except when any of the parties issues notification of cancellation to the other, at least 90 days in
advance before December 31, of the year in question. The price per gigacalory of natural gas is determined monthly
as per specific procedures stated in an Exhibit to the agreement based on the arithmetical average of the estimates of
the Texas Eastern Transmission Corp. South Texas Index or the EPGT Texas Pipeline, L.P. - Texas. In connection with
these agreements, the companies signed master agreements for coverage of the price of natural gas (see Note 8).
NOTE 14 - CONTINGENCIES:
48
In January 2000, COC Services, LTD (“COC Services”) filed a lawsuit against CompUSA, Inc. (“CompUSA”) in Dallas,
Texas, for a number of contractual and civil liability claims derived from a letter of intention related to franchises in
Mexico. Parties also sued in this connection are Grupo Carso, Sanborns and Carlos Slim Helú, among others (“Co-sued
parties”). After legal procedures finalized on May 18, 2001, the judge handed down a sentence of US$121.5 million
against the sued parties.
On August 26, 2004, the appeals court handed down a unanimous sentence of three judges in favor of the Co-sued
parties. The appeals court revoked the 2001 decision issued by the judge and resolved that COC Services has no right
to any compensations whatsoever. The appeals court disallowed the argument of COC Services to the effect that
CompUSA failed to comply with its commitment to open stores in Mexico, and concluded there was never an
agreement between COC Services and CompUSA and found no evidence that the Co-sued parties had participated in
any form of an agreement. COC Services requested a reconsideration of said decision from the appeals court, which
was rejected; and may also seek other resources of defense in the supreme court of the State of Texas.
Certain subsidiaries have filed legal procedures with the respective authorities for different reasons, mainly for
contributions and for recovery of long-term accounts receivable. It is the opinion of the Company’s officers and
attorneys that a large portion of those matters will be resolved favorably; otherwise, the result would not substantially
affect the financial position or the result of operations.
Investor Relations
Jorge Serrano Esponda
jserranoe@inbursa.com
Jesús Granillo Rodríguez
jgranill@inbursa.com.mx
Design: SIGNI, S.C. / Printing: Artes Graficas Panorama
ADR’s Information
Symbol: GPOVY
Change: 2 stocks: 1 ADR
CUSIP Number: 400485207
Market: OTC
Depositary Bank:
The Bank of New York
Investor Relations
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
Phone: 1-888-BNY-ADRS (269-2377)
Phone: (International) 1-610-312-5315
E-mail: shareowner-svcs@bankofny.com
Grupo Carso
Miguel de Cervantes Saavedra 255
Col. Ampliación Granada
México, D.F. 11520
gcarso.com.mx

2004 - Grupo Carso

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