for a better

Transcription

for a better

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GEO ANNUAL REPORT 2012
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GEO A
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2012
OUR COVER
Contact
GEO’s building today for a better tomorrow’ strategy has been the
Company’s main objective for many years, which is a sign that we
remaincommittedto offering GEO homebuyers an improved quality of
life atsustainable communities where they can build their own equity.
Corporate Headquarters
Corporación GEO, S.A.B. de C.V.
Margaritas 433
Ex-Hacienda Guadalupe Chimalistac
Ph. +(52) 55 5480 5000
Fax. +(52) 55 5554 6064
C.P. 01050, México, D.F.
Today we still maintain thiscommitment by offering all-inclusive housing developments that,while aligned with the federal housing policies,
are tailored to our clients’ needs.It is a reality that the housing
market has become increasingly more sophisticated
andthat clients therefore are better able to
appreciate our value proposition.
Investor Relations Contacts
and Further Information
Francisco Martínez García
Ph +(52) 55 5480 5071
Fax +(52) 55 5554 6064
fmartinezg@casasgeo.com
Marco Rivera Melo Forte
Tel. +(52) 55 5480 5115
Fax +(52) 55 5554 6064
mriveram@casasgeo.com
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12 13 14 17 20 22 24 25 30 32
signi.com.mx
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Financial Highlights
Key Events
Letter to Shareholdrers
we provide quality of life today for a
better tomorrow
We build today communities with
tomorrow´s needs in mind
Efficient construction today to
ensure a more profitable tomorrow
Selected Consolidated Financial
Information
Valuation Highlights
Operating Results MD&A
Financial Results MD&A
Corporate Profile
Board of Directors
Corporate Governance
Product Gallery
Glossary
Consolidated Audited Financial
Statements
design:
02
03
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Barbara Cano
Senior Vice-President
The Breakstone Group
Tel. +(1) 646 452 2334
bcano@breakstone-group.com
www.breakstone-group.com
Exchange Listings
Bolsa Mexicana de Valores: GEOB
Over the Counter, USA: ADR Level I
PORTAL, USA: ADR 144ª
Latibex: XGEO
Ticker Symbols
ADR (1: 4): CVGFY ; CUSIP: 21986V204
Latibex: XGEO
Bloomberg: GEOB MM
Reuters: GEOb.MX
Infosel: GEO
Depositary Bank
The Bank of New York Mellon
620 Avenue of the Americas, 6th Floor
New York, NY 10011
Natalia Castillo
natalia.castillo@bnymellon.com
Tel. +(1) 212 815 4372
www.adrbny.com
“One Share, One Vote”
100% B Voting Shares
84% Free Float
Tag-Along Rights
Shareholder Rights
Independent Auditors
Deloitte Touche Tohmatsu México
The information presented herein contains certain forward-looking statements and information relating to Corporación GEO, S.A.B. de C.V. and its
subsidiaries (collectively “GEO”) that are based on the beliefs of its management as well as assumptions made by and information currently available
to GEO. Such statements reflect the current views of GEO with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause actual results, performance, or achievements that may be expressed or implied by such forward-looking statements,
including among other changes in general economic, political, governmental, and business conditions globally and in the countries in which GEO
does business, changes in interest rates, changes in inflation rates, changes in exchange rates, mortgage availability, changes in housing demand
and amount of credits, changes in raw material and energy prices, changes in business strategy, and various other factors. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described
herein as anticipated, believed, estimated or expected. GEO 2012 Annual Report may contain certain forward-looking statements concerning GEO and
its subsidiaries’ future performance and should be considered as good faith estimates of GEO and its subsidiaries. GEO does not intend, and does not
assume any obligation to update these forward-looking statements. In addition, certain information presented herein was extracted form information
published by various official sources. This information includes statistical information relating the housing industry certain reported rates of inflation,
exchange rates, and information relating to the countries in which GEO operates. GEO has not participated in the preparation or compilation of any of
such information and accepts no responsibility therefore.
P
roviding homeowners with an improved quality of life has been
GEO’s mission since the Company
was created. This has inspired us to continuously improve upon our processes
and our products,andhas kept us at the
forefront of the industry. Standardizing
our value chain processes and therefore
reducing operating costshas allowed us
to offer clients a better product: a more
spacious and better-equipped home in a
sustainable community.This provides our
homeowners greater satisfaction, as they
are able to acquire a property that meets
their needs and can beconfident that
their investment will also appreciate over
time. This longstanding strategy, which is
in line with our mission, has enabledus to
quickly adapt to the new rulesthat were
recently introduced by the housing institutions, which will continue to guide our
industry in the future ahead.
In light of the changes derived from the
transition,GEO has chosen the conservative path of modest growth andplacing a
priority on financial equilibrium. This puts
us in an even stronger position relative
to our competitors as we continue to lead
the market while capitalizing on the new
administration’s efforts to ease Mexico’s
housing shortage, which continues to be
a pressing problem for our country.
Change
19,078.3
2012
4,288.2
2011
20,104.8
In million of Mexican pesos, unless otherwise stated.
2011 figures adjusted for comparison purposes..
4,527.2
Financial
Highlights
Homes Sold (units)
59,093 55,485 -6.1%
Revenues20,104.8
19,078.3-5.1%
Gross Profit
6,386.3
6,046.9-5.3%
Operating Profit
3,214.3
3,027.0-5.8%
EBITDA4,527.2
4,288.2-5.3%
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Profit before Taxes
2,183.2
1,981.9-9.2%
Net Profit
1,260.5
1,053.4-16.4%
Revenues
Cash & Cash Equivalents
2,721.2
2,276.8-16.3%
million of pesos
Accounts Receivable to Revenues
5.2%
6.7%
1.4 pp
Inventory Turnover (days)*
782
795
13 days
Accounts Receivable Turnover (days)
19
24
5 days
Accounts Payable Turnover (days)
133
99
-33 days
Operating Cycle (days)
668
720
52 days
Leverage (times)
3.1
2.7-0.4
Net Debt
10,834.6
11,953.210.3%
Net Debt / EBITDA (times)
2.4
2.80.4
Interest Coverage
2.5
2.1-0.4
Shares Outstanding End of Year (million)
549.4
554.30.9%
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Land Bank (units)
365,221
351,508-3.8%
EBITDA
*Includes Prepaid Expenses
2
million of pesos
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1,053.4
1,260.5
Key
events
2012
12
Net Profit
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351,508
365,221
million of pesos
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Land Bank
Units
January 2012 GEO FORMS A STRATEGIC ALLIANCE WITH THE IFC TOEXPAND ITS ALPHAPREFABRICATED CONSTRUCTION TECHNOLOGY
GEO has signed a joint venture agreement with
the International Finance Corporation (“IFC”, a
member of the World Bank) under which the IFC
will contribute $25 million dollars equity investment to ALPHA, GEO´s prefabricated construction technology.
These resources will help GEO expand its prefabricated construction business, building up to
45,000 affordable homes a year by 2015.The partnership gives IFC a 16.7% equity stake in the
GEO’s ALPHA subsidiary.
February 2012 GEO RECOGNIZED WITHINFONAVIT MORTGAGE ORIGINATIONAWARD
For the fourth year in a row, INFONAVITagain
recognized CorporaciónGEOfor originating the
most housing credit throughINFONAVITmortgages in 2011.GEOoriginated45,205 mortgages in the low-income segment; 60% more than
the Company’sclosest competitor andINFONAVIT
market share reached 13.75%, making GEOthe
Mexican housing industry’s undisputed leader.
March 2012 GGEO RECEIVES CEMEFI DISTINCTION
AS SOCIALLY RESPONSIBLE COMPANY FOR THE
SEVENTH CONSECUTIVE YEAR
Corporación GEO received the distinction as “Socially Responsible Company” by the Mexican Center for
Philanthropy (CEMEFI) for the seventh consecutive
year, for successfully incorporating sustainability at a
social, economical and environmental level within the
Company’s business strategy and corporate culture.
GEO continues to strive to maximize the positive impact its commercial activities have on itsmany stakeholders while benefiting the communities in which it
operates.
This award was given during the Fifth Annual Latin
American Conference for Socially Responsible Companies.
GEO SUCCESSFULLY PLACES $400 MILLION DOLLAR BOND IN INTERNATIONAL MARKETS
Corporación GEO successfully placed a $400 million dollar bond,which expires in 2022, with a fixed
coupon rate of 8.875%, a yield to maturity of 8.875%
and a 10 year term. The issuance received a Ba3 rating by Moody’s Investor Services and BB- by Standard & Poor’s and Fitch Ratings. The issue was more
than five times oversubscribed, further affirmation of
GEO’s success with this transaction.
October 2012 COMMUNITY DAY
Corporación GEO together with GEO´s Foundation
held the 2012 Community Day with the participation of its staff and clients.The purpose of the event
is to improve the environment and quality of life in
the states where the company has presence, to promote welfare with the satisfaction elements included
in each of the projects. It was attended by more than
20,000 volunteers nationwide, benefiting more than
300,000 people living in a GEO community.
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To Our Shareholders:
Letter to
Shareholders
The Mexican housing industry faced a number of new challenges in 2012, largely stemming from the Mexican housing
organizations’creation and application of new homebuilding guidelines. The changes were designedto regulate the development of
low-income and entry-level housing, and to promote better living
conditions for Mexican families.
GEO was able to quickly adapt to the learning curve that these new
requirements presented, largely due to the fact thathistorically we
have focused not only on our Company’s economic performance
but also on our work’s social and environmental implications. We
have therefore taken the lead with a strong market position and an
attractive range of sustainable housing options.
GEOhas always focused itsbusiness efforts on the Mexican entrylevel housing market,providing clients’ quality of life through innovation, which is in keeping with the vision and mission we have
maintained for many years. We buildharmonious developments
with integrated, sustainable services that invite homebuyers to
acquire a property they believe is worthy of their families, with-
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We neverthelessare confident that
our efforts will continue to bear fruit,
supported by our two core strengths:
our operationaland financial
strengthand dedicated team.
out the needto base their decision solely on pricedue to
the fact that they know they can afford a GEO home. Our
success has been madepossible byGEO’s dedicated team
of associates that putsourphilosophy to work every single day, continuously striving to offer our clients the best
home possible.
Due to the fact that we already had anticipated changes,
our projects met the government’s new homebuilding requirements and we were therefore able to obtain the necessary certificationsand continueparticipating in the public subsidy program.
GEO is dedicated to building a better tomorrow, today. Our
unflagging determination to stay one step ahead of the industrydrove us to strengthen our vertical housing construction capacity, resulting in more than 50 percent of
our total 2012productionin vertical construction. This confirmedGEO’s position asMexico’s leader in entry-level vertical housingconstruction.
Over the course of the year we have also continued to take
critical stepsthat willimprove operational efficiencies.
One suchstep was to implement an ERP platform that
wouldstandardizeGEO’sprocesses, which nowprovides real-time access to key information that facilitates immediatestrategic decision-making.
From left to right:
Adolfo Ceballos Cárdenas,
Daniel Gelové Gómez, Héctor
Caballero Ramírez, Rodrigo Moiño
Domínguez, Javier Sarro Cortina, Luis Pradillo
Movellan, Mario Orvañanos Conde, Alfonso García
Alcocer, Gabriel Gómez Castañares, Jorge Nieves Acosta
Raúl Zorrilla Cosio, Luis Abdeljalek Martínez, Iñigo Orvañanos
Corcuera, Luis Orvañanos Lascurain, Roberto Orvañanos Conde,
Saúl Escarpulli Gómez.
We also focused our efforts on reducing administrative
and sales expenses, negotiating with vendors and centralizing certain operations. This ensures a more streamlined organizational structure and provides greater control over core activities, thereby ensuring better results.
Due to the fact that 2012 was an important transition year
for the industry, GEO also made the decision to change its
growth strategy, adopting a more conservative approach
towards growth with a greater focus on profitability and
cash flow generation which will remain as our priority for
the future ahead.
Regarding our commercial strategies, we continue to
strengthen our distribution channels. Our “Socio GEO”
program hadexcellent results in 2012, as didmany of our
other innovative channels,such asthe GEO Stores. We will
continue to expand upon our existingsales channels in
2013 while also evaluating new opportunities that willposition Casas GEO as Mexico’s leading homebuilder.
We remain acutely aware of our corporate social responsibility, andwill therefore continue to promotecommunity
integration through our “tensatisfaction providers.” This
year we again received CEMEFI’s Socially Responsible
Company distinctionfor the seventh year in a row. We are
also proud of the fact that we are still included inthe Mexican Stock Exchange’sSustainability Index.
While we do expect GEO- and the industry- will experiencemore challengesin the year ahead, we neverthelessare confident that our efforts will continue to bear fruit,
supported by our two core strengths: our operationaland
financial strengthand dedicated team. The above is a brief
summary of just some of the many ways in which today we continuebuilding a better tomorrow for all of our
stakeholders: clients, employees and you, our shareholders, to whom I express my heartfelt gratitude for your
confidence and support.
Luis Orvañanos Lascurain
Chairman of the Board Of Directors
and Chief Executive Officer
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GEO improves our clients’quality of life
through our unique value proposition, offering them the best place to live.
The recent housing policies implemented in Mexico echo the criteria that GEO hasadhered to for many years: to offer the kind of satisfaction that provides
GEO homeowners with an improved quality of life.
Our client-focus- offering the best choice of
housing products- has been important factor in our ability to create sustainable communities. The company’s core strategy since
it was created has evolved intoten ‘satisfaction providers’, which, combined with
the industry’sbest construction processes, allowGEO to offer better-equipped and
more spacious homes and services that improvequality of life.
The market has responded to oursuperior
valueproposition,and our customers have rewardedus as their preferred homebuilder. In an increasingly
sophisticated market, homebuyerscan now shop and
compare, and price is no longer the only factor that
buyers take into account. That is why we remain at the
industry forefront, ending 2012 with a total of 55,485
homes delivered.
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GEO remains the industry
vanguard, not only developing
housing complexes but sustainable
communities whereresource
optimization andcare are a priority.
GEO had been focusing vertical housing in order to
take better advantage of the space and resources
needed to build a home before Mexico’s housing institutionsreleased their new criteria.
This means that the space previously occupied by horizontal constructioncan
nowbe used forcommon areas, such
asparks and gardens, as well as bike
and pedestrianpaths, among others.
GEO’sAlphatechnology is yet another operational strength. The Alphatechnologyis based on prefabricated
elements;a construction method that
isunique toLatin America. It is flexible
enough to be adapted to both horizontal and vertical construction, creating uniform, high-quality homes.
Our profitability is also supported by the ORACLE
platform, which allows our Companystandardize all
the processes in our value chain by providing precise real-time information.
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GEO’s financial strategy is based on
the pursuit of efficiency that promotes
sustainable growth, then translates
intoeconomic value for our many
stakeholders.
GEO’s success at becoming the market’s best-positioned low-income entry-level housing brand is the
result of many years of strongcommercial and financial strategies which have been in place for many
years, always focused on our target market.
GEO’s geographic diversification andmany years
of careful planninghave resulted in a presence in22Mexican States.GEO’sland reserves as of December 31, 2012 are sufficient for the construction of
351,508homes,maintaining our current pace of production for the next4.5 years.
We have also simplified our operations, redefined our
regional strategy and added another region to the six
in which we already maintain a presence: the Pacific region, which includes the states of Guerrero and
Morelos. This will give us more control over our operations and enable us to achieve better results.
Finally, we have modified our financial strategy to
now place a priority on profitability and cash flow
generation. This conservative focus will strengthen
our leadership position in the Mexican homebuilding
industry whiletranslatinginto conservative and sustainable growthwhich we believe will also continue to
strengthen our Company’sfuture.
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Selected Consolidated
Financial Information
In millions of pesos as of December of each year, unless otherwise stated
2011
2012
CAGR (%)
Income Statement Information
Homes Sold (units)
59,093 55,485 -6.1%
Revenues20,104.8
19,078.3-5.1%
Gross Profit
6,386.3
6,046.9-5.3%
Operating Profit
3,214.3
3,027.0-5.8%
EBITDA4,527.2
4,288.2-5.3%
EBITDA (in usd)
324.6
330.71.9%
Profit before Taxes
2,183.2
1,981.9-9.2%
Net Profit
1,260.5
1,053.4-16.4%
Balance Sheet Information
2,721.2
2,276.8-16.3%
Accounts Receivable
1,053.3
1,269.220.5%
Inventories28,465.3
27,982.0-1.7%
Current Assets
19,340.1
18,311.8-5.3%
Property, Plant & Equipment - Net
3,217.9
3,275.61.8%
TOTAL ASSETS
41,136.3
41,443.60.7%
Short-Term Debt
4,642.8
4,183.7-9.9%
Suppliers4,988.6
3,549.3-28.9%
Current Liabilities
18,467.8
15,713.6-14.9%
Long-Term Debt
8,912.9
10,046.312.7%
Deferred Income Taxes
2,147.8
2,801.430.4%
TOTAL LIABILITIES
31,030.1
30,113.6-3.0%
TOTAL SHAREHOLDERS’ EQUITY
10,106.1
11,330.012.1%
Other Financial Data
Accounts Receivable to Revenues
5.2%
6.7%27.0%
Net Debt
10,834.6
11,953.210.3%
Net Debt to EBITDA (times)
2.4
2.8NA
Net Debt to Equity
107.2%
105.5%-1.6%
Leverage (times)
3.1
2.7NA
Inventory Turnover (days)*
765
7953.9%
Accounts Receivable Turnover (days)
19
2427.0%
Accounts Payable Turnover (days)
133
99-25.1%
Working Capital Cycle (days)
651
72010.5%
Number of Employees
25,362
17,552-30.8%
Average price (pesos)
334,827
340,2361.6%
*Includes Prepaid Expenses related to Inventories
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In millions of pesos as of December of each year, unless otherwise stated
2011
2012
CAGR (%)
Revenues20,104.8
19,078.3-5.1%
EBITDA4,527.2
4,288.2-5.3%
EBITDA (in usd)
324.6
330.71.9%
Net Debt
10,834.6
11,953.210.3%
Outstanding Shares (average in millions) 550.6
552.0NA
Outstanding Shares (end of year in millions) 549.4
554.3NA
Share Price End of Year (pesos)
17.4
15.1-12.9%
EBITDA / Outstanding Shares
8.2
7.7-6.1%
Price / EBITDA (times)
2.1
2.0NA
EPS before taxes (pesos)
4.0
3.6-10.0%
EPS (pesos)
1.9
1.9-0.9%
Price / Earnings (times)
7.6
8.0NA
Book Value per Share (pesos)
18.4
20.411.1%
Price / Book Value (times)
0.9
0.7NA
Market Capitalization
9,537.4
8,381.2-12.1%
Enterprise Value
22,206.8
22,134.5-0.3%
EV / EBITDA (times)
4.9
5.2NA
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Operating
Results
MD&A
14
In 2012, the Company reaffirmed its leadership position
in the development of low-income housingby delivering
more than 55,485 units with a 13.1% new homes market
share within INFONAVIT. These results were possible due
to our commitment to deliver improved quality of life and
value added to thousands of Mexican families, which positions GEO one step ahead in the housing industry.
Sales
Total Sales in 2012 were 55,485 units, 75percent of which were associated with INFONAVIT
mortgages,25percent of which with FOVISSSTE, Banks
and SOFOLS.
GEO sold 55,485 units in 2012, a 6.1 percentdecrease in
delivered homes compared to 59,093 units sold in 2011.
Revenues decreased5.1 percent year-on-year to Ps.
19,078.3 million. Gross Profitdecreased5.3percent and
totaled Ps. 6,046.9 million.
Gross Margin for the year decreased7 basis pointsfrom
31.8 percent in 2011 to 31.7 percent in 2012.
Operating Profit for the year decrease 5.8 percent to
$3,027.0 million with an Operating Margin of15.9 percentdecreasing 12 basis points compared with 2011.
Full year 2012 EBITDA decreased 5.3percent to Ps.
4,288.2 million with an EBITDA Margin decrease of 4 basis points to 22.5percent year-on-year.
Profit before Taxes totaled Ps. 1,981.9 million and reflected a9.2percent decrease compared with 2011.
Consequently, full-year Net Profit decreased16.4percent
to Ps. 1,053.4 million while Net Margin declined 75 basis points to 5.5percent in the period. Earnings per
Share decreased 17.2percent to Ps. 1.90 from Ps. 2.29
in 2011.
A detailed explanation of our 2012 operating results is
provided in the following section:
The 2012 sales mix by price range broke down to:
16.3percent in the economic segment, 41.1percent low
affordable segment, 25.5percent affordable segment,
13.0percent affordable plus segment, 3.9percent middle
income segment and 0.2percent residential segment.
For 2012, the Company reached 82.8percent of sales
mix in the low affordable segments.
Average Price
Average Selling Price for 2012increased 1.6percent
year-on-year to Ps. 340,236.
In 2012, Average Selling Prices (ASP’s) for each segment were as follows:
Economic Segment
Low Affordable Segment
Affordable Segment
Affordable Plus Segment
Middle Income Segment
Residential Segment
Ps. 220,224
Ps. 254,676
Ps. 346,896
Ps. 570,032
Ps. 859,777
Ps. 1,591,641
Revenues
Revenues for 2012 decreased5.1percent compared with
the previous year and totaled Ps. 19,078.3 million. The
average selling price increased by 1.6percent compared
with 2011 to reach Ps. 340,236 at the end of 2012. GEO
reached 82.8percent of sales mix in the low affordable
segments compared with 82.2 percent in 2011.
15
Through its many commercial initiatives supporting
this strategy, GEO gained additional revenue in 2012
through the sale of 278 commercial properties, reaching Ps. 200.2 million.
Gross Profit
Gross Profit in 2012 totaled Ps. 6,046.9 million, a5.3% decrease compared with 2011. Gross Margin decreased 7
basis points to 31.7% from 31.8% versus the previous year.
Sales, General & Administrative Expenses
The Sales, General & Administrative (SG&A) expenses
decreased4.8percentyear-on-year to Ps. 3,019.9 million. However, the SG&A to Revenues ratio increased5
basis points to 15.8% in 2012.
Operating Profit
Operating Profit for the year decreased5.8percent to Ps.
3,027.0 million while the Operating Margin decreased
12 basis points to 15.9percent during the same period.
EBITDA
EBITDA for full year 2012 decreased 5.3percent to Ps.
4,288.2 million, with EBITDA Margindecreasing 4 basis
points to 22.5percent compared with 2011.
16
Comprehensive Result of Financing
The Comprehensive Result of Financing for the year increased 7.0percent to Ps. 1,010.1 million.
Net Profit
Net Profit for full year 2012decreased 16.4% to Ps.
1,053.4 million while Net Margin decreased75 basis
points to 5.5percent compared with last year. Moreover,
Earnings per Share (EPS) decreased17.2percent to Ps.
1.90 from Ps. 2.29 in 2011.
Share Repurchase Program
During 2012, GEO’s Share Buyback Fund did not buy or
sellany shares. Therefore, the number of shares in the
Fund at the end of the year was 341,924. In addition, total shares outstanding as of December 31, 2012 were
554,309,185..
Cash balance as of December 31, 2012 was Ps.
2,276.8 million, decreased 16.3percent versus
Ps. 2,721.2million as of December 31, 2011.
Accounts Receivable and Collections
Accounts Receivable as of December 31, 2012 increased 20.5percent against the previous year or Ps.
215.9 million, closing at Ps. 1,269.2 million.
Inventories and Land Bank
Inventories as of December 31,
2012decreased1.7percent to Ps 27,982.0 million
against 2011.
Construction in Progress and Materials at the
end of December 2012 grew year-on-year by
Ps. 688.8 million, a 3.1percent increase.
Financial
Results
MD&A
Total land bank inventories decreased Ps.
1,172.1 million, or 18.2percent, compared to
the previous year.As of December 31, 2012,
GEO’s land bank was equivalent to 351,508
units, through a combination of owned land,
land outsourcing, optioned land and joint ventures with Prudential Real Estate Investors and
Banorte’sSólida. Through these JVs, GEO controls a
land bank representing 4.5 years of continued annual
unit production growth.
17
Debt and Structure of Financial Liabilities
Total Debt as of December 31, 2012 increased by 5.0percent or Ps. 674.3 million year-on-year and totaled Ps.
14,230.0 million. The Net Debt to EBITDA ratio was 2.8.
For this period, GEO’s short term debt was 29.4 percent
compared to 34.2% at December 31 2011. It is important
to mention that bridge loans represented 14.7percent of
total debt and were used to finance the construction of
approximately 48,924 homes at GEO’s 96developments.
Bridge loan structures are based on project cycles, with
their maturity always exceeding the period required for
each project’s completion and payment collection. Bridge
18
loan payment is also linked to housing sales, not to a
specific date, and GEO obtains a new bridge loan for each
project with the physical project acting as collateral.
GEO has unused available lines of credit in excess of Ps.
7,718 million pesos of which Ps. 3,591 million correspond
to bridge loans, Ps. 4,127 to credits for land purchase, direct credits and leasing. This access to capital provides
the Company with financial resources necessary to guarantee the long-term continuity of its operations.
Total US dollar denominated debt for 2012 amounted to
US 717 million, of which US 12 million are capital lease
agreements for the acquisition of machinery and equipment and US 705 million of which is related to three se-
nior guaranteed notes.The first issuance of US 250 million comes due September 2014 and has an 8.875%
semi-annual coupon with a 9% yield to maturity. US 196
million was paid during the first quarter of 2012, leaving a remaining US 54 million. The second US 250 million senior guaranteed note, due June 2020, has a 9.25%
semi-annual coupon and a 9.5% yield to maturity. Finally, the third US 400 million senior guaranteed note, due
March 2022, has a semi-annual coupon and a 8.875%
yield to maturity.The 2014 and 2020 bonds are fully
hedged in order to mitigate FX and interest rate volatility. The 2022 bond is hedged for the first five years of the
coupons and management is currently analyzing alternatives to hedge the remaining coupons and principal.
The fair value of these derivatives was negative US 17.6
million as of December 31, 2012.
The average cost of debt in the fourth quarter 2012 was
8.89%, which takes into account equivalent Peso exchange
rates for total US dollar denominated long term debt.
Financial Liabilities as of
December 31, 2012
Amount
Mortgage Bridge Loans
Loans for Land Purchases
Direct Loans
Leasing for Machinery
Certificado Bursatil (notes) – Long Term
Revolving Credit
Senior Guaranteed Notes
TOTAL
2,146.6 697.3 1,184.8 97.8 400.0 1,200.0 8,503.5 14,230.0 % of
Averange
Averange
Total CostRate
15.09%
4.90%
8.33%
0.69%
2.81%
8.43%
59.76%
100%
TIIE + 3.5 TIIE + 3.3 TIIE + 4.3 TIIE + 3.1 TIIE + 3.2 TIIE + 4.9
TIIE + 4.1 TIIE + 4.1
8.37%
8.17%
9.17%
8.00%
8.04%
9.80%
8.96%
8.89%
19
Corporate Profile
Corporación GEO (BMV: GEOB; Latibex: XGEO) is the largest low-income housing developer of sustainable communities in Mexico. Through its subsidiaries located in the most
dynamic cities of the country, GEO is engaged in all aspects
of design, development, construction, marketing, sales and
delivery of mainly low-income with a less exposure in the
middle and residential housing segments. GEO is one of
the most geographically diversified homebuilders in Mexico with operations in 22 states. In its more than 39 years of
experience, GEO has sold more than 600,000 homes which
currently provide housing to more than 2,200,000 people.
GEO’s solid business model is focused mainly in the affordable entry level and economic segments, which are supported by government policies and by the Mexican Housing
Institutions INFONAVIT and FOVISSSTE.
The Company reaffirms its commitment to the market by
providing quality of life and property appreciation developing sustainable communities as well as providing innovative services that add value to each and every GEO homeowner. Overall brand awareness and positive recognition
of Casas GEO are evidence of our continued effort to provide quality products and services.
For the last 39 years, GEO has focused on the economic and affordable segment which encompasses approximately 80% of the Mexican population. In 2012, the Company affirmed its position within the lower income sector; GEO
sold 91 percent of its total homes with mortgages granted by INFONAVIT or FOVISSSTE. GEO is one of the largest
homebuilders with 10.1 percent share of a highly fragmented market where the 6 publicly-traded housing developers
account for 22 percent of the total volume, and the remain20
ing 78 percent is diluted among several small and medium builders. The fact that GEO has sold more than 600,000
houses since the Company’s inception is testament to the
fact that the market prefers a GEO home; more than 2.2 million Mexicans call one of GEO’s houses “home”.
GEO’s operational success is the result of a proven business
model and a highly-qualified work force providing value-added products of the highest quality and functionality focused
on the generation of property appreciation to its clients.
GEO was established in Mexico City in 1973 and has been
listed on the Mexican Stock Exchange (BMV, or “Bolsa”)
since 1994. It is part of a select group of issuers within the
Mexican Stock Exchange’s IPC index. GEO has also been
listed on Madrid’s Latin American Euro Securities Market
(Latibex) since September 14, 2005. GEO has a single series of shares and minority shareholder Tag-Along Rights.
It is one of the Mexican Stock Exchange most liquid stocks,
with 85 percent free float, and is one of the most widely
held shares in Mexico. It also has one of the best corporate
governance practices in the Mexican market - according to
Mexican Standards of Practice.
GEO’s Socially Responsible Management style is reflected in the Company’s overall corporate culture and strategy, as is demonstrated by management’s commitment to
a positive work environment, outstanding customer service, community-oriented projects and environmental pro-
tection. In 2012, GEO was recognized as a Socially Responsible Company (ESR) by the Mexican Philanthropic Center
(CEMEFI) for the seventh consecutive year.
Mission
To be the leaders in value-added properties and quality of
life for our customers and our employees while maintaining
profitability.
Vision
To be the leader Company that generates wealth in the economic, social and environmental through revolutionizing social housing in sustainable communities .
· provides welfare focused in the clients´ needs “Everything for the Client”
· Is recognized for its world-renowned practices
· Trains its employees to be leaders and embody GEO’s
culture.
Corporate Values
· People: Maintain the number one position in your area of
·
·
·
·
expertise, be passionate, innovative, client-oriented, upstanding, socially responsible, and a dedicated team player
Product: Offer the best home within everyone’s reach
Service: Ensure clients’ satisfaction at each point of contact with the organization
Profitability: Maximize our Company’s in economic, social
and environmental areas
Responsible: Meet expectations by delivering high-quality
results on time and at the right cost.
21
Board of
Directors
Corporación GEO’s Board of Directors is comprised
of seven independent directors and eight executive
directors. With a 47 percent independent directors,
GEO significantly exceeds the 25 percent standard
set forth by the Mexican Stock Exchange Law.
The Board of Directors is elected annually at
GEO’s Annual Shareholders’ Meeting, responsible for management and corporate strategy
of the Company.
The following table lists the members of the
Board of Directors as of the end of 2012.
22
BOARD MEMBERS Luis Orvañanos Lascurain
Emilio Cuenca Friederichsen
Roberto Orvañanos Conde
Íñigo Orvañanos Corcuera
Luis Abdeljalek Martínez
Raúl Zorrilla Cosío
Andrés Caire Obregón
Gabriel Gómez Castañares
José Carral Escalante
Francisco Gil Díaz
Roberto Alcántara Rojas
Manuel Weinberg López
Tomás Lozano Molina
Alberto Guillermo Saavedra Olavarrieta
Álvaro Gasca Neri
Juan Pablo Rosas Pérez
TITLE
Chairman
Director
Director
Director
Director
Director
Director
Director
Independent Director
Secretary
AUDIT COMMITTEE
Álvaro Gasca Neri
José Carral Escalante
TITLE
Chair
Director
Director
Director
CORPORATE PRACTICES COMMITTEE
Alberto Guillermo Saavedra Olavarrieta
TITLE
Chair
Director
Director
23
Corporate
Governance
Corporación GEO, S.A.B. de C.V. is a leader among Mexican companies in corporate governance. Since 1999,
the Company has been in the process of implementing a Code of Best Corporate Governance Practices
based on the Mexican Banking & Securities Commission’s (CNBV) and the Mexican Stock Exchange’s (BMV)
recommendations. GEO has fully implemented the Code
of Best Practices, resulting in improved integration of
GEO’s Board of Directors with the Audit Committee and
Corporate Practice Committee. These committees are
primarily responsible for establishing GEO’s strategy,
safeguarding its operations and approving the Company’s management
GEO’s main Corporate Governance achievements are:
· Full implementation of a Code of Best Corporate Governance Practices throughout our operations as advised
by the Mexican Banking & Securities Commission (CNBV) and the Mexican Stock Exchange (BMV)
24
· Adherence to a Disclosure Policy that ensures complete
·
·
·
·
·
·
·
management transparency, guaranteeing the integrity of
information disseminated to our customers, shareholders
and the market
Commitment to Social Responsibility guidelines
Implementation of an Ethical Code of Conduct among employees
Maintain a single shareholding series: One Share, One Vote
First Mexican Company to implement the Tag-Along
Rights Program, protecting minority shareholders’ rights
47% of GEO’s Board of Directors are independent directors
Audit and Corporate Practices Committees are comprised of independent directors only
Audit and Corporate Practices Committees meet at least
every three months
ry
Galle
Rancho San Juan, Estado de México
Produ
ct
Marina
Diamante,
Guerrero
25
Hacienda del Jardín, Estado de México
Hacienda del Jardín,
Estado de México
26
Puerto Esmeralda, Veracruz
La Noria, Coahuila
27
Las Plazas, Estado de México
Hacienda Las Delicias, Baja California
28
La Rueda, Querétaro
Pueblos Mágicos, Puebla
Hacienda Las Delicias, Baja California
29
Villa de Juárez,
Nuevo León
Glossary
BMV Bolsa Mexicana de Valores.
Accounts Receivable Turnover (days) Accounts Receivable
divided by the total revenues and multiplied by 365.
Accounts Payable Turnover (days) Suppliers divided by the
total COGS and multiplied by 365.
Average Selling Price Represents the weighted average price
of houses sold in the period.
BMV Mexican Stock Exchange.
Capitalized Interest According to US GAAP and IAS, GEO includes within the COGS the banking and interest expenses related to production.
CAGR Compounded Annual Growth Rate.
30
Los Tulipanes, Guerrero
IFRS International Financial Reporting Standards
INFONAVIT National Housing Mortgage Institute for Private
Workers.
Inflation Accumulated 3.57% in 2012.
CETES Mexican Treasury Bills. 3.91% as of December 31, 2012.
CNBV Mexican Securities Exchange Commission.
Comprehensive Result of Financing Is the amount obtained
by adding the Company’s financial products and expenses, the
monetary profit or loss and the exchange rate profit or loss.
CONAVI National Housing Commission.
Earnings per Share Net income divided by the average
weighted number of shares outstanding during the year, according to Mexican accounting principles.
EBITDA Earnings Before Interests, Taxes, Depreciation and
Amortization. It is calculated by adding depreciation and capitalized interest expenses for the period to the operating profits.
ERP Enterprise Resource Planning.
FOVISSSTE Housing Fund for the Security and Social Services
Institute of Government Workers.
Housing Segments (prices in Mexican Pesos)
• Economic Segment: less than $242,539;
• Low Affordable Segment: $242,539 - $299,383
• Affordable Segment: $299,383 - $435,811
• Affordable Plus Segment: $435,811 - $710,562
• Middle Income Segment: $710,562 - $1,400,281
• Residential Segment: $1,400,281 and above
IETU Corporate Flat Tax.
Inventory Turnover (days) Sum of Inventory and Real Estate
Inventory divided by the total COGS and multiplied by 365.
ISR Income Tax.
LATIBEX Latin American Stock Market in Euros within the Madrid Stock Exchange.
Minimum Wage According to the Mexican law, it refers to the
minimum wage that a worker has to receive for a day of work.
As of December 31, 2012 it was Ps. 1,870 per month, equivalent
to US$144 monthly.
Net Debt Balance sheet short-term and long-term debt less
cash and cash equivalents.
NGO Non - Governmental Organization
Operating Cycle Sum of Inventory turnover and Accounts Receivable turnover less Accounts Payable turnover.
PREI® Prudential Real Estate Investors, a Prudential Financial
Inc. subsidiary, it provides global real estate investment management services to institutional clients.
PTU Employees profit sharing.
SHF Mexican Federal Housing Bank.
SOFOLES Non-bank Banks.
TIIE Interbank Lending Rate. 4.85% as of December 31, 2012.
UDIS Inflation adjusted units.
Working Capital Difference between current operating assets
and current operating liabilities.
31
Consolidated
Audited Financial
Statements
33
34
35
36
37
38
32
Independent Auditors’
Report
Consolidated Statement of
Financial Position
Consolidated Statements of
Comprehensive Income
Changes in Stockholders’
Equity
Cash Flows
Notes to Consolidated
Financial Statements
Corporación Geo, S.A.B. de C.V. y Subsidiarias
Report to the Board of Directors and Stockholders of Corporación Geo, S.A. B. de C.V. and Subsidiaries
Report of Consolidated Financial Statement
We have audited the accompanying financial statements of Corporación Geo, S.A. B. de C.V. and Subsidiaries (the “Entity”), which comprise the consolidated balance sheets as of December 31, 2012 and 2011
and January 1, 2011 (Transition Date), and the related consolidated Statements of Comprehensive Income, Changes in Stockholders’ Equity and cash flows for the year ended December 31, 2012 and 2011, and a
summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Corporación Geo, S.A. B. de C.V. and its subsidiaries as at 31 December 2012 and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.
Other matters
As described in Note 2, the Entity adopted International Financial Reporting Standards (“IFRS”) on January 1, 2011. Such adoption affected the amounts previously reported in the Entity’s consolidated financial
statements, which were prepared in conformity with Mexican Financial Reporting Standards. A reconciliation of such effects is presented in Note 35. This paragraph does not modify our conclusion with respect
to the accompanying consolidated financial statements.
The accompanying consolidated financial statements have been translated into English for the convenience of readers.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Miembro de Deloitte Touche Tohmatsu Limited
C. P. C. Juan José Mondragón Martínez
February 18, 2013
33
Consolidated statements of financial position
As of December 31, 2012, 2011 and January 1, 2012 (Transition date January 1, 2011)
(In thousands of Mexican pesos)
Note
Assets
Current assets
Cash, cash equivalents and restricted cash
7
$
Accounts receivable – Net
8
Real estate inventories
9
Prepaid expenses and other assets
10
Total current assets
Non current assets
9
Investment properties
11
Investments in associated companies and trusts
12
Property, plant, machinery and equipment 13
Other assets 14
Derivative financial instruments
21
Total non current assets
Total assets
$
Liabilities and stockholders’ equity
Current liabilities:
Notes payable to financial institutions
15
$
Current portion of long-term debt
18
Current portion of finance leases
19
Current portion of deferred incentives in machinery
32
Obligations under sale of receivables contracts
17
Direct employee benefits
Amounts payable to suppliers of land - current portion
Trade accounts payable
Advances from customers
Accrued expenses, taxes payable and other current liabilities
16
Income tax payable
Total current liabilities
Long term
Long-term debt
18
Amounts payable to suppliers of land
Finance leases
19
Incentive related to unaccrued machinery service
32
Employee benefits
22
21
Long-term income taxes payable
Deferred income taxes
29
Total non current liabilities
Total liabilities
Stockholders’ equity
24
Common stock
Additional paid-in capital
Reserve for repurchase of shares
Retained earnings
Controlling interest
Non controlling interest
25
Total stockholders’ equity
Total Liabilities and stockholders’ equity
$
Arq. Luis Orvañanos Lascurain
Chairman of the Board of Directors and Chief Executive Officer
34
Las notas adjuntas son parte de los estados financieros consolidados.
2012
2011
Transition date
2,276,838
$
1,269,192
13,118,356
1,647,393
18,311,779
2,721,166
$
1,053,315
14,182,833
1,382,828
19,340,142
2,228,429
525,299
13,893,782
1,172,734
17,820,244
14,863,608
3,223,022
337,849
3,275,577
1,431,743
-
23,131,799
41,443,578
$
14,282,502
1,967,772
441,694
3,217,908
1,456,457
429,778
21,796,111
41,136,253
$
9,546,181
1,689,087
492,387
2,838,075
1,018,856
15,584,586
33,404,830
3,526,490
$
657,201
162,063
71,388
4,651,599
17,256
223,707
3,325,557
1,176,368
1,807,292
94,686
15,713,607
3,985,688
$
657,135
70,535
76,720
3,353,372
37,665
797,145
4,191,437
2,678,725
2,490,741
128,590
18,467,753
2,486,571
296,647
42,335
2,983,396
67,129
894,747
3,155,070
2,955,128
1,899,976
45,165
14,826,164
10,046,332
68,956
418,325
472,368
33,483
317,080
242,124
2,801,351
14,400,019
30,113,626
8,912,915
194,727
327,028
639,335
20,610
-
319,952
2,147,785
12,562,352
31,030,105
6,297,622
555,303
157,764
50,023
681,760
443,286
1,532,979
9,718,737
24,544,901
124,502
1,054,690
991,445
7,315,277
9,485,914
1,844,038
11,329,952
41,443,578
$
124,502
933,723
867,918
6,261,858
8,188,001
1,918,147
10,106,148
41,136,253
$
123,475
817,486
974,434
5,001,368
6,916,763
1,943,166
8,859,929
33,404,830
C. P. Daniel Alejandro Gelové Gómez
C. P. Saúl H. Escarpulli Gómez
Lic. Jorge Isaac Garcidueñas de la Garza
Deputy Director of Administration
Deputy Director of Finance
Deputy Legal Director
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2012 and 2011
(In thousands of Mexican pesos, except for earning per share that expressed in Mexican pesos)
Note2012 2011
Revenues from real estate development activities
$
Costs from real estate development activities
Gross margin
19,078,310
$
(13,031,420)
6,046,890
20,104,821
(13,718,533)
6,386,288
Selling expenses
General and administrative expenses
Other income
28
(1,583,732)
(1,554,870)
118,746
(3,019,856)
(1,624,125)
(1,574,665)
26,832
(3,171,958)
3,027,034
3,214,330
49,662
(1,198,086)
195,582
(57,301)
(1,010,143)
90,569
(924,340)
(40,759)
(69,531)
(944,061)
(35,000)
(87,034)
Income from operations
Interest income
Interest expense (net of capitalized interest by $952,626 and $938,700, respectively)
27
Unrealized exchange gain (loss) - Net
Effects of valuation of derivative financial instruments
21
Equity in loss of associated companies, trusts and others
Income before income taxes
1,981,891
2,183,235
Income taxes
(653,566)
(599,286)
29
Consolidated net income and comprehensive income
$
1,583,949
Comprehensive income:
$
Non-controlling interest
1,053,419
$
274,906
1,260,490
323,459
Consolidated net income and comprehensive income
$
1,328,325
$
1,583,949
Earnings per share
Basic and diluted earnings per common share
$
2.40
$
2.88
$
1,328,325
35
Consolidated Statements of Changes in Stockholders’ Equity
Retained earnings
Additional
Reserve for
Common
paid-in
repurchase of
Retained
Total controlling
Non-controlling
stock capital sharesearnings interest interest Total
Balances as of January 1, 2011 (transition date)
$ 123,475
$
817,486
$
974,434
$ 5,001,368
$
6,916,763
$
1,943,166
$ 8,859,929
Additional capital contribution of non-controlling interest
-
-
-
-
-
700,392
700,392
Reimbursements of capital of non-controlling interest
-
-
-
-
- (1,048,870) (1,048,870)
Additional stock issuance for officer incentive plan
1,027
-
-
-
1,027
-
1,027
Fair value from officer incentive plan
-
116,237
-
-
116,237
-
116,237
Repurchase of shares
-
-
(1,027)
-
(1,027)
-
(1,027)
-
-
(105,489)
-
(105,489)
-
(105,489)
Comprehensive income
-
-
-1,260,490 1,260,490 323,4591,583,949
Balances as of December 31, 2011
124,502
Additional capital contribution of non-controlling interest
Reimbursements of capital of non-controlling interest
Comprehensive income
36
933,723
867,918
6,261,858
8,188,001
1,918,147 10,106,148
-
120,967
-
-
120,967
-
120,967
-
-
-
-
-
632,803
632,803
-
-
-
-
-
(981,818)
(981,818)
-
-
123,527
-
123,527
-
123,527
-
-
-1,053,419 1,053,419 274,9061,328,325
$ 124,502
$ 1,054,690
$
991,445
$ 7,315,277
$ 9,485,914
$ 1,844,038
$ 11,329,952
Consolidated Statements of Cash Flows
Note2012 2011
Cash flows of operating activities:
Income before income taxes
$
Adjustment for:
Gain from valuation of investment properties
28
Depreciation and amortization
Accrued revenue from incentive related to machinery services
Gain on sale of fixed assets
Effects from valuation of derivative financial instruments
Finance costs recognized in income
Fair value of officer incentive plan
Gain on repurchase of shares
Gain on sale off associate
Equity in loss of associated companies
Unrealized exchange loss
Changes in working capital
(Increase) decrease in:
Accounts receivable
6
6
Prepaid expenses and other assets
(Decrease) increase in:
6
Accrued expenses, taxes payable and other current liabilities
6
Incentives related to unaccrued machinery services
Income tax paid
Recoverable provisional income tax payments
Employee benefits
Net cash (used in) provided by operating activities
1,981,891
$
2,183,235
(65,805)
422,873
(72,915)
-
57,301
1,198,086
-
-
(1,225)
35,000
64,920
3,620,126
397,710
(93,182)
(74,340)
69,531
924,340
116,237
(1,027)
87,034
24,353
3,633,891
(374,594)
(1,611,804)
(78,943)
(526,913)
(4,667,277)
130,955
(645,643)
(1,502,357)
458,607
-
(77,828)
(233,052)
12,873
(432,615)
859,191
(278,261)
485,997
809,237
(45,445)
(318,087)
(29,413)
53,875
Cash flow of investing activities:
Purchases of other assets
Purchases of properties, plant and equipment
Investments in associated companies and trusts
Reimbursements from associated companies and trust
Acquisition of subsidiary – Net of cash
(Disposals) sales of properties, plant and equipment and other Net cash used in investing activities
(20,466)
(182,925)
(2,799)
1,939
-
(47,407)
(251,658)
(556,566)
(700,785)
(155,179)
16,643
37,013
765,739
(593,135)
Cash flow of financing activities:
Proceeds from borrowings and loans
Repayments of borrowings and loans
Interest paid
Proceeds from obligations under sale of receivable contracts
Repayments of obligations under sale of receivables contracts
Repayment of liabilities from finance leases
Reimbursement of capital of non-controlling interest
Additional contribution of non-controlling interest
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
15,455,430
(14,156,508)
-
123,527
-
(2,070,679)
13,642,673
(12,344,446)
(182,004)
(981,818)
632,803
120,967
239,945
(444,328)
2,721,166
2,276,838
$
16,761,709
(13,722,219)
1,027
(105,489)
(26,943)
(1,796,687)
7,719,664
(7,349,688)
(100,899)
(1,048,870)
700,392
1,031,997
492,737
2,228,429
2,721,166
37
Notes to Consolidated Financial Statements
For the years ended December 31, 2012, 2011 and January 1, 2011 (transaction date)
1. Nature of business
Corporación Geo, S.A. B de C.V. (“GEO”) is a holding company that, together with its subsidiaries (collectively, the “Entity”), is incorporated as a Sociedad Anónima Bursátil de Capital Variable (Public Stock Company with
Variable Capital). The Entity is a fully integrated developer mainly of affordable housing projects built in Mexico.
Address
The main address of the Entity is Margaritas 433, Ex-Hacienda de Guadalupe Chimalistac, 01050 in Mexico City. The Entity’s main phone number is (55) 5480-5000, fax number is (55) 5554-6064, and internet addresses
are www.casasgeo.com and www.corporaciongeo.com.
Consolidated financial statements of the Entity for the year ended December 31, 2011 were previously issued in accordance with the Mexican Financial Reporting Standards (“MFRS”) and are available at the aforementioned
address.
2. Basis of presentation
Explanation for translation into English - The accompanying consolidated financial statements have been translated from Spanish into English for use outside of Mexico. These consolidated financial statements
are presented on the basis of Mexican Financial Reporting Standards (“MFRS”), which are comprised of accounting standards that are individually referred to as Normas de Información Financiera, or “NIFs”). Certain
accounting practices applied by the Entity that conform with MFRS may not conform with accounting principles generally accepted in the country of use.
Adoption of International Financial Reporting Standards
As of January 1, 2012 the Entity adopted the International Financial Reporting Standards (“IFRS, IAS o NIC”) and their adaptations and interpretations issued by the International Accounting Standards Board (“IASB”) with
force at December 31, 2012. The Entity applied the IFRS 1 First time Adoption of International Financial Reporting Standards. The consolidated financial statements have been prepared in accordance with the standards
and interpretations issued and in effect, or issued and adopted in advance of the date of their preparation.
- Transition to IFRS
The consolidated financial statements as of and for the year ended December 31, 2011, were the Entity’s last set of consolidated financial statements prepared in accordance with MFRS. In the preparation of the
consolidated financial statements as of December 31, 2012 and 2011 and for the years then ended , the Entity’s management have modified some accounting presentations methods and valuations applied in
accordance with Mexican Financial Reporting Standards (“MFRS” individually referred to as Normas de Información Financiera or “NIF”) for IFRS requirements. The comparative figures as of December 31, 2011 and
for the year then ended were modified for reflecting these adoptions.
The reconciliations and descriptions of the effects related with the transition from NIF to IFRS in the consolidated statements of financial position, comprehensive income and cash flow are explaining in Note 35.
3. Basis of measurement
The accompanying consolidated financial statements have been prepared on a historical cost basis, except for a) investment properties, b) and certain long-term debt denominated in foreign currency which is hedged
by a fair value hedging instrument, which are measured at a fair value. Historical cost is generally based on the fair value, which are explaining in more detail in the accounting policies of the Entity as follows:
i. Historical Cost
Historical cost is generally based on the fair value of the consideration given in exchange for assets.
ii. Fair Value
The fair value is defined as the price that will receive for selling an asset or that will pay for transferring a liability in an ordinary transaction between two or more participants in the market to the date of valuation.
a. Consolidated financial statements
The consolidated financial statements include those of GEO and its trusts and subsidiaries over which it exercises control and whose shareholding percentage in their capital stock is shown below. Significant
intercompany balances and transactions have been eliminated in these consolidated financial statements. Control is determined to exist when the Entity has the power to govern the financial and operating policies
of an Entity in order to obtain profits from its activities.
The result of affiliates acquired or sold during the year are included in the consolidated statements of comprehensive income from the date of acquisition or up to the date of sale, as the case may be.
In the case where had been necessary, some adjustments were made in the financial statements of the subsidiaries for ensuring that their accounting policies are aligned with those used by GEO.
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Changes in investment in subsidiaries of GEO which do not give rise to a loss of control are recorded as equity transactions. The carrying value of the non-controlling interest is adjusted to reflect the changes made
by the Entity in the respective investment in subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized
directly in stockholders’ equity and is attributed to the Entity’s stockholders.
The investment in associated companies and trusts are recognized using the equity method.
Trust - The Entity executed trust contracts to develop a series of real estate projects. These entities are considered as Specific Purpose Entities (SPEs) in which the Entity holds variable equity and exercises control; it
therefore consolidates these trusts in its financial statements. The investment in the non-controlling interest of these SPEs is presented in the consolidated financial statements under the heading of “non-controlling
interest”. The most significant trusts presented in the consolidated financial statements are shown in Note 38
Changes in investments in associated companies, trusts and others
On April 30, 2012, the Entity executed a joint venture with International Finance Corporation (IFC), a member of the World Bank, to manufacture the prefabricated concrete elements required by Alpha plants. Based
on this joint venture, IFC made cash contribution of $342,876, which entitles it to hold 16.7% of the equity of the subsidiary Administradora Alpha, S.A.P.I. de C.V.; this transaction generated a share issuance premium
of $120,967. Furthermore, on June 22, 2012, the Entity changed its legal regime to that of Public Stock Entity with Variable Capital.
To increase housing sales in the Federal District, on November 30, 2011, the Entity acquired an additional 50% of the voting stock of GEO ICASA, S.A. de C.V. (GEO ICASA), of which it already held 50%.
The acquisition cost of GEO ICASA was $58,913, which the Entity covered by exchanging 685 ordinary shares of Grupo Punta Condesa, S.A. de C.V. (an associated company prior to the transaction), valued at $58,913.
The value of these shares was determined based on their fair value at the acquisition date of GEO ICASA.
The others revelations required for the IFRS 3 “Business Combinations”, were not consider significant.
b. Functional and reporting currency - These consolidated financial statements are presented in thousands of Mexican pesos, which is the functional and reporting currency of the Entity.
c. Income before income taxes - Income before income taxes are included in the consolidated statements of income due to contribute to best understanding of the economic and financial performance of the Entity.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Entity’s accounting policies, management must make judgments, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and related assumptions are
based on historical experience and other factors considered relevant. Actual results may differ from such estimates.
The estimates and underlying assumptions are revised periodically. The adjustments to accounting estimates are recognized in the period of revision and future periods if the revision affects both the current and
subsequent periods.
The following are transactions in which management has exercised professional judgment, apart from those involving estimates, during the application of accounting policies, and which have a material impact on the
amounts recorded in the consolidated financial statements:
Book value of real estate inventories
To evaluate the book value of the real estate inventories, GEO prepares estimates of the selling prices, costs and profit margins of the different projects or promotions that it is developing to determine any impairment of
such inventories and ensure that they are valued at the lower of cost or net realizable value. At the date of these consolidated financial statements GEO has prepared these estimates and has not recorded any impairment
beyond that of normal business conditions.
Revenue recognition
• The Entity recognizes revenues when transferring to its customers the significant risks and rewards inherent to the ownership of real estate properties. Management considers the criteria detailed in IAS 18, Revenue.
Hedge accounting and fair value of Derivative financial instruments
• GEO recognized certain derivatives that are entered into to hedge risks, and such derivatives meet all hedging requirements, their designation is documented at the beginning of the hedging transaction, describing
the transaction’s objective, characteristics, accounting treatment and how the effectiveness of the instrument will be measured.
• The Entity recognizes all assets or liabilities that arise from transactions with derivative financial instrments at fair value in the consolidated statement of financial position, regardless of its intent for holding them.
Fair value is determined using prices quoted on recognized markets. If such instruments are not traded, fair value is determined by applying valuation techniques recognized in the financial sector.
Estimated Cost to Complete
• Management makes an estimate to determine and recognize the provision required for maintenance and dismantling expenses, which affect profit or loss of the periods.
• Management makes an estimate to determine and recognize the obligation required for the construction of different projects benefitting local communities, such as schools, parks, clinics, etc., where its projects are
included as part of the permits and authorizations, in accordance with the regulations in effect in each location. These provisions are established in the budget of each project.
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The key sources of uncertainty in estimates made at the date of the statement of financial position, and which have a significant risk of generating an adjustment in the carrying value of assets and liabilities during the
subsequent accounting period, are as follows:
• The Entity has accrued tax loss carryforwards; however, it must evaluate their recoverability before recognizing a deferred income tax asset. Likewise, as the Entity has adopted a series of uncertain positions, it must
determine whether to record a liability for them.
• To calculate deferred income taxes, the Entity must prepare tax projections to determine whether it will incur the business flat tax (IETU) or income tax (ISR) in order to determine the base over which to calculate
deferred income taxes.
• The Entity recognizes all assets or liabilities that arise from transactions with derivative financial instruments at fair value in the consolidated statement of financial position, regardless of its intent for holding them.
Fair value is determined using prices quoted on recognized markets. If such instruments are not traded, fair value is determined by applying valuation techniques recognized in the financial sector.
5. Summary of significant accounting policies
The accompanying consolidated financial statements have been prepared in conformity with MFRS, which require that management make certain estimates and use certain assumptions that affect the amounts reported
in the consolidated financial statements and their related disclosures; however, actual results may differ from such estimates. The Entity’s management, upon applying professional judgment, considers that estimates
made and assumptions used were adequate under the circumstances (see note 4). The significant accounting policies of the Entity are as follows:
Financial assets
Financial assets are recognized when the Entity becomes in a part of the contractual dispositions of instruments.
Financial assets are initially valued at fair value, plus transactions costs that are directly attributable to the acquisition of the financial asset, except for those financial assets classified as fair value through profit or loss,
which are initially valued at fair value and their related transaction costs are recognized immediately in profit or loss.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss (FVTPL). The classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the time frame established by regulation or convention in the market place. The financial assets that the Entity has are categorized in account receivable and notes
receivable.
Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments, highly liquid and easily convertible into cash, which are subject to insignificant value change risks. Cash
is stated at nominal value and cash equivalents are valued at fair value; any fluctuations in value are recognized in comprehensive financing (cost) income of the period. Cash equivalents are represented mainly by
investments in Treasury Certificates (CETES), investment funds and money market funds. Restricted cash represents funds held with respect to a trust and funds with respect to margin calls on derivatives.
Account receivable
Trade receivables and other accounts receivable with fixed and determinable payments, which are not traded in an active market, are classified as accounts receivable. Accounts receivable aged by more than one year
are valued at amortized cost using the effective interest method, less impairment, if any. Interest income is recognized by applying the effective interest rate, except for short-term accounts receivable if the recognition
of interest is insignificant.
The Entity derecognizes an account receivable only when the contractual rights to the financial asset’s cash flows expire or when substantially all risks and rewards inherent to the ownership of the financial asset are
transferred to another party. If the Entity does not substantially transfer or retain the risks and rewards inherent to the ownership and continues to control the transferred asset, the Entity will recognize its retained interest
in the asset as well as the associated obligation for the amounts that it may have to pay. If the Entity retains substantially all the risks and rewards inherent to the ownership of a transferred financial asset, the Entity
continues to recognize the financial asset and also recognizes a liability for the resources received.
Effective interest method
The effective interest method is used to calculate the applied cost of a financial instrument and the distribution of income or financial cost throughout the period it covers. The effective interest rate is that which exactly
discounts the future cash flows which are expected to be collected or paid (including commissions and expenses paid or received and which form a comprehensive part of the effective interest rate, transaction and other
premium costs or discounts) throughout the expected life of the financial instrument or, when applicable, during a shorter period, based on the net book value of the financial asset or liability at the initial recognition date.
Income or cost is recognized according to effective interest for financial instruments other than financial assets and liabilities classified at fair value with changes recorded in results..
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Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result
of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For the available- for sale financial assets equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
• Significant financial difficulty of the issuer or counterparty; or
• Breach of contract, such as a default or delinquency in interest or principal payments; or
• It becoming probable that the borrower will enter bankruptcy or financial re-organization; or
• The disappearance of an active market for that financial asset because of financial difficulties.
The Entity has the policy of recording an allowance for doubtful accounts based on an analysis of the aging of accounts. For accounts receivable aged by between 90 and 120 days, an allowance is recognized based
on unrecoverable amounts determined based on the past history of nonperformance by the counterparty and an analysis of its current financial position through prospective cash flows. The amount of the loss from
impairment recognized is the difference between the carrying value of the asset and the present value of future collections, discounted at the original effective interest rate of the financial asset.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at
the financial asset’s original effective interest rate.
For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted
at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance
account. When trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss
The Entity derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the
asset to another party. If the Entity neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Entity recognizes its retained interest in the asset
and an associated liability for amounts it may have to pay. If the Entity retains substantially all the risks and rewards of ownership of a transferred financial asset, the Entity continues to recognize the financial asset and
also recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized
in other comprehensive income and accumulated in equity is recognized in profit or loss On derecognition of a financial asset other than in its entirety (e.g. when the Entity retains an option to repurchase part of a
transferred asset), the Entity allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of
the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no
longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other
comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.
a. Real estate inventories - Real estate inventory in progress and real estate inventory substantially completed are valued at the lower of cost or net realizable value. Undeveloped plots of land are subject to
impairment tests if indicators that their value will not be recoverable are present. Real estate inventory includes direct costs of land and materials, development and construction costs, including subcontract costs
and indirect costs related to development, such as indirect labor, procurement, repairs and depreciation, and other costs related to the construction process.
The Entity capitalizes interest cost from mortgage bridge loans and other financing credits related to the construction process. Cost of sales of real estate inventories is determined on a prorate basis, considering
the total cost of the development or related projects, which is applied to profit or loss as the related revenue is recognized.
The construction time of real estate developments varies according to the type of housing (low-income and medium-income housing).
b. Investment in associated companies trust – An associate or trust is an Entity over which the Entity has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence
is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in
which case it is accounted for in accordance with IFRS 5 Non-current Assets held for sale and discontinued operation. Under the equity method, an investment in an associate is initially recognized in the consolidated
statement of financial position at cost and adjusted thereafter to recognize the Entity’s share of the profit or loss and other comprehensive income of the associate. When the Entity’s share of losses of an associate
exceeds the Entity’s interest in that associate (which includes any long-term interests that, in substance, form part of the Entity’s net investment in the associate), the Entity discontinues recognizing its share of
further losses. Additional losses are recognized only to the extent that the Entity has incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Entity’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as
goodwill, which is included within the carrying amount of the investment. Any excess of the Entity’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition,
after reassessment, is recognized immediately in profit or loss.
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The requirements of IAS 39 “Recognition and Measurement” are applied to determine whether it is necessary to recognize any impairment loss with respect to the Entity’s investment in an associate. When necessary,
the entire carrying amount of the investment (including good will) is tested for impairment in accordance with IAS 36 “Impairment of Assets” as a single asset by comparing its recoverable amount (higher of value in
use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance
with IAS 36 “Impairment of assets” to the extent that the recoverable amount of the investment subsequently increases.
Upon disposal of an associate that results in the Entity losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value
on initial recognition as a financial asset in accordance with IAS 39. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the
determination of the gain or loss on disposal of the associate. In addition, the Entity accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as
would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate would be reclassified
to profit or loss on the disposal of the related assets or liabilities, the Entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that
associate.
When an Entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the consolidated financial statements only to the extent of interests in the associate
that are not related to the Group.
c. Other permanent investments - Permanent investments made by the Entity in entities where it has no control, joint control, or significant influence, are initially recorded at acquisition cost and any dividends
received are recognized in current earnings.
d. Property, plant, machinery and equipment – Property, plant, machinery and equipment are initially recorded at acquisition cost. Depreciation and amortization are calculated using the straight-line method based
on the useful lives of the related component or item of property, plant, machinery and equipment, considering the carrying values of the assets less their residual values.
“Alpha Plants” - The depreciation of the “Alpha plants” is calculated based on units produced (completed units), identifying the components in accordance with their estimated useful lives. The average useful lives
of the components ranges between 35 and 40 years.
“Installation costs” – Mainly are all attributable location cost of the asset which are necessary for operating in the place installed, the costs include the physical movement and pre-operating asset cost.
Work in-progress on properties that will be used internally for production, supply, administration or for which such use has not yet been determined, is recorded at cost and subject to impairment tests. Cost includes
those attributable to acquisition or construction, such as materials, labor, professional fees and others, in the case of qualifying assets, capitalized interest. Depreciation of these assets commences when the assets
are ready for their intended use.
Assets held under finance leases are depreciated at the lower of: 1) their estimated useful life or 2) the lease contract term.
Gains or losses from the sale or retirement of property, plant and equipment are calculated as the difference between the consideration exchanged for such assets and their carrying value at the time of sale or
retirement, which such gain or loss is recognized in profit or loss of the year.
e. Leases - The Entity classifies the lease contracts it executes as finance or operating leases, while also evaluating the extent to which it is affected by the risks and rewards of asset ownership, as follows:
– The Entity as tenant
Finance leases are those which substantially transfer the risks and rewards derived from ownership of the leased good to the Entity. When a lease starts, the Entity recognizes it in the consolidated statement
of changes in financial position, together with the fair or current value of minimum lease payments, if lower. Financial charges are reflected in the statement of income, while any direct, initially incurred lease
costs are added to the amount recognized as an asset, in accordance with the Entity’s polices related with the cost for loan. The corresponding liability related with the tenant is included in the statement of
financial positions as liability for finance leases.
Operating lease payments are directly recognized in results during the lease period based on the straight line method. The contingencies rents are recorded as expenses in the period in which they are incurred.
f. Investment properties - Investment properties are valued initially at cost, including transaction costs. After the initial recognition, investment properties are valued at fair value at the end of each reporting period.
Fair values are based on market values, which are the estimated amounts for which a property may be exchanged at the valuation date. Gains and losses derived from changes in the fair values of investment
properties are included in the statement of comprehensive income in the period in which they occur. Fair values are determined at each reporting period by a recognized independent appraiser.
The Entity’s criteria for the classification of the land as investment properties are as follows: i) land which it has been decided will not be used for development of real estate inventories; ii) land whose use is not
yet defined; and iii) land for capital appreciation.
For this reason, the Entity’s investment properties will generate cash flows which are largely independent from those derived from other assets owned by the Entity.
Investment properties are derecognized either when they are sold or when the investment property is no longer permanently used, and future economic benefits are not expected. The difference between the net
proceeds from the sale and the carrying value of the asset is recognized in the statement of comprehensive income in the period in which the asset was derecognized.
Transfers are made to or from investment property only when there is a change in the use of the asset. In a change from an investment property to a component of property, plant and equipment, or real estate
inventories, the attributed cost for its subsequent accounting is the fair value of the asset at the date of the change in use.
If a component of property, plant and equipment or real estate inventories is transferred to an investment property, the Entity does not account for the asset until the date of change of use, at which time the fair value
of the property is determined, with any loss recognized in profit or loss and any gain recognized either in profit or loss or in other comprehensive income to the extent applicable.
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g. Impairment of long-lived assets in use - At the end of each reporting, the Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets
have suffered an impairment loss. If any such indications exists, the recoverable amount of the assets is estimated in order to determinate then extent of the impairment loss (if any). When it is not possible to
estimate the recoverable amount of an individual asset, the Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the assets may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risk specific to the asset for which the estimates to future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than it carrying amount, the carrying amount of the assets (or cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognized immediately in profit of loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the assets (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that increased carrying amount
does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized
immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
h. Financial liabilities and equity instruments
Financial liabilities are recognized when the Entity becomes a party to the contractual provisions of the instruments.
Financial liabilities are valued initially at fair value. Transaction costs which are directly attributable to the acquisition or issuance of financial liabilities (different from financial liabilities at fair value through profit
or loss) are added to or deducted from the fair value of the financial liabilities, as the case may be, in the initial recognition. The transaction costs directly attributable to the acquisition of financial liabilities at fair
value through profit or loss are recognized immediately in results.
– Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements.
– Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an Entity after deducting all of its liabilities. Equity instruments issued by Entity are recognized at the proceeds received,
net of direct issue costs.
Repurchase of the Entity’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Entity’s own equity
instruments.
– Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit and loss “FVTPL” or other financial liabilities.
– Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL:
A financial liability is classified as held for trading if:
• it has been acquired principally for the purpose of repurchasing it in the near term; or
• On initial recognition it is part of a portfolio of identified financial instruments that the Entity manages together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:
• Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
• The financial liability forms part of an Entity of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Entity’s
documented risk management or investment strategy, and information about the grouping is provided internally on that basis; o
• it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.
– Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on
the financial liability and is included in the ‘other gains and losses’ line item. Fair value is determined in the manner described in Note 20D.
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– Other financial liabilities
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life
of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
– Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance
with the terms of a debt instrument.
Financial guarantee contracts issued by an Entity are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of
• The amount of the obligation under the contract, as determined in accordance with IAS 37 “Provision, Contingent liabilities and Contingent Assets”; and
• The amount initially recognized less, where appropriate, cumulative amortization recognized in accordance with the revenue recognition policies.
– Derecognition of financial liabilities
The Entity derecognizes financial liabilities when, and only when, the Entity’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized
and the consideration paid and payable is recognized in profit or loss
i. Financial risk management policy –The activities carried out by the Entity expose it to a number of financial risks, including market risk (which encompasses foreign exchange, interest rate business and price
risks), credit risk and liquidity risk. The Entity seeks to minimize the potential negative effects of these risks on its financial performance through an overall risk management program. The Entity uses derivative
and non-derivative financial instruments to hedge against some exposures to financial risks embedded in the statement of financial position (recognized assets and liabilities). Both, financial risk management and
the use of derivative and non-derivative financial instruments are ruled by Entity policies approved by the Board of Directors and are carried out by the Entity’s treasury. The Entity identifies, assesses and hedges
financial risks centrally. The Board of Directors has approved written policies of a general nature with respect to the management of financial risks, as well as policies and limits associated with other specific risks,
guidelines for permissible losses, when the use of certain derivative financial instruments are approved, or when such instruments can be designated as hedges, or when they do not qualify for hedge accounting,
but rather for trading, and certain interest rate and / or foreign currency forwards and swaps that have been entered into. See Note 19. Compliance by Entity’s management of established policies and exposure limits
is reviewed by internal audit on an ongoing basis. Corporate treasury reports quarterly to the Audit Committee, which is part of the Board of Directors, responsible for monitoring risks and the policies implemented
to mitigate risk exposures
j. Derivative financial instruments - The Entity obtains financing under different conditions. If the rate is variable and with the purpose of reducing the foreign exchange risk and variable interest, derivative financial
instruments are entered into to reduce exposure to the risk of rate volatility, thus converting the interest payment profile from variable to fixed. These instruments are negotiated only with institutions of recognized
financial strength. The Entity’s policy is not to carry out transactions with derivative financial instruments for the purpose of speculation.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss
is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge
relationship.
– Hedge accounting
The Entity designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or
hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges
At the inception of the hedge relationship, the Entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking
various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Entity documents whether the hedging instrument is highly effective in offsetting changes in fair values or
cash flows of the hedged item attributable to the hedged risk.
Note 21 sets out details of the fair values of the derivative instruments used for hedging purposes.
– Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in profit or loss in the line item
relating to the hedged item
44
Hedge accounting is discontinued when the Entity revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that.
– Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash
flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the “other gains and losses” line item.
Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line
as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in other
comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Entity revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
Any gain or loss recognized in other comprehensive income and accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss.
When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.
• Strategy and objectives regarding risk management
The purpose of hedges is to reduce the variability of the: i) fair value of an obligation denominated in a currency other than a functional currency of the Entity, ii) interest rate risk and, iii) exchange rate risk. The risk
in interest rate comes from the changes in the London Interbank Offered Rate (“LIBOR”), and in risk of the exchange rate between the Mexican peso and the US dollar. The strategy is to have financial derivatives
contracted which also permit changes in the frequency of payment.
• Primary positions subject to hedges
(In thousands of US dollars except where are mentioned)
1) “Senior guaranteed note for U.S.250,000 at 887.5 basis points maturity in 2014, issued by GEO on September 18, 2009.
2) Senior guaranteed note for U.S.250,000 at 925 basis points maturity in 2020, issued by GEO on June 30, 2010.
3) Three U.S. dollar-denominated fixed asset loans of for U. S.18,546, redeemable and issued for the purchase of machinery.
4) Long-term bond denominated in Chilean Development Units (UF), for the amount of 342,000 UF equal to 650 basis points, with maturity in 2022, issued by GEO on August 15, 2012.
• Financial derivatives used for hedging purposes
Two Cross Currency Swaps (CCS) in which GEO receives the same fixed rate as the primary position being hedged and pays the 28-day Mexican Interbank Equilibrium Offered Rate (“TIIE”) plus 6.40%. The swaps are
non-redeemable with exchange of principal at the beginning and at the end of the term of the instrument.
Three CCS in which GEO receives the same fixed rate as the primary position being hedged and paid the 28-day TIIE plus 3.88% for the first five years and plus 5.3% for the last five years. The swaps are nonredeemable with exchange of principal at the beginning and end of the term of the instrument.
Three CCS in which GEO receives the same variable rate for the primary position pays the 28-day TIIE rate plus 2.20%. The swaps have the same redemption scheme as the primary position being hedged.
A Cross Currency Rate Swap (CCRS); receives the same fixed rate as the primary position being rate TIIE plus 508 bases points for 10 years.
k. Others assets - Cost incurred in the development phase that meet certain requirements and that the Entity has determined will have future economic benefits are capitalized and amortized based on the straightline method over five years. All internal and external software costs (“ERP”) incurred in the development phase are capitalized by the Entity. Disbursements that do not meet such requirements, as well as research
costs, are recorded in profit or loss of the period in which they are incurred.
The Entity has concessions to operate a portion of a lagoon in Acapulco, Guerrero, and in turn must maintain the facilities subject of the concession in optimal condition. When the concession expires, the facilities
will be handed over to the State and municipal governments. The investment will be amortized as of the facility completion date and throughout a period of approximately 10 to 20 years.
l. Advances from customers - Represent deposits for contracts of future sales of homes and commercial premises, which will be recognized in profit or loss once the sale is completed.
m. Provisions - Provisions are recognized for current obligations that result from a past event, that are probable to result in the future use of economic resources, and that can be reasonably estimated.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When the Entity expects to recover some or all of the economic benefits required to eliminate a provision, an account receivable is recognized as an asset if it is virtually certain that the disbursement will be received
and the amount of the account receivable can be reliably measured.
i. Warranties – The Entity grants its customers a two year warranty, which may be applied to damages derived from operations or defects in the materials supplied by third parties (electrical installations, gas
plumbing work, residential water systems, etc.), or other circumstances beyond its control.
However, the Entity is covered by an insurance policy that covers any hidden or visible defect, which occurs during construction, and could also cover a warranty period. Also, contractors are asked to provide
a bond for performance and hidden flaws, which has the same warranty term for the final customer. Furthermore, the Entity withholds certain amounts from its contractors as a warranty fund, which may be
used to cover eventual claims by customers, and is reimbursed to the contractor once the warranty period ends.
45
ii. Provision for obligations of delivery of infrastructure and donated works - These obligations arise when the Entity is granted permits for housing construction, in return for which the Entity is required to
invest and deliver to state and municipal governments certain urbanization and infrastructure works. The Entity recognizes a provision when it has a present obligation (either legal or assumed), based on the
required investment related to the projects, which is reviewed as housing construction is carried out.
iii. Provisions for dismantling and withdrawal from service - The provision recognized for costs of dismantling and withdrawal from service arose in relation to the construction of the Alpha plants, which
produces panels to build houses. The costs of dismantling and withdrawal from service are accrued at present value of the expected costs to cancel the obligation, using estimated cash flows and are recognized
as an integral part of the cost of that particular asset. Cash flows are discounted at current market rates before taxes, which reflect the specific risks of the liability. The unwinding of the discount is accounted
for as an expense as it is incurred and is recognized in the statement of comprehensive income as a financial cost. The estimated future costs of dismantling and withdrawal from service are revised annually
and are adjusted, as the case may be. The changes in these estimated future costs or in the discount rate applied are added to or subtracted from the cost of the related asset.
n. Share-based payment- Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the
determination of the fair value of equity-settled share-based transactions are set out in Note 25.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Entity’s estimate of equity instruments that will
eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Entity revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the
original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate.
o. Direct employee benefits - Direct employee benefits are calculated based on the services rendered by employees, considering their most recent salaries. The liability is recognized as it accrues. These benefits
include mainly statutory employee profit sharing (PTU) payable, compensated absences, such as vacation and vacation premiums, and incentives.
p. Retirement benefit costs -Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period.
Actuarial gains and losses that exceed 10% of the greater of the present value of the Group’s defined benefit obligation and the fair value of plan assets as at the end of the prior year are amortized over the expected
average remaining working lives of the participating employees. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis
over the average period until the benefits become vested.
The retirement benefit obligation recognized in the consolidated statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses
and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value
of available refunds and reductions in future contributions to the plan.
q. Statutory employee profit sharing - PTU is recorded in the profit or loss of the year in which it is incurred and presented under other income and expenses in the accompanying consolidated statements of
comprehensive income.
r. Income taxes - The Entity is subject to the provisions of the Income Tax Law (LISR) and the Business Flat Tax Law (LIETU).
Income tax expense represents the sum of the tax currently payable and deferred tax
– Current tax
Income tax (“ISR”) and the Business Flat Tax (“IETU”) are recorded in the results of the year they are incurred.
– Deferred income taxes
To recognize deferred income taxes, based on its financial projections, the Entity determines whether it expects to incur ISR or IETU and, accordingly, recognizes deferred taxes based on the tax relative to the
applicable tax bases and rates based on such projections.
46
Deferred income tax liability is recognized for taxable temporary differences related to investments in subsidiaries and associated companies and participations in joint business, except when the Entity is able
to control the reversal of the temporary difference and when it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets which arise from the temporary
differences associated with such investments and participations are recognized only if it is probable that there will be sufficient future taxable profits against which such temporary differences can be used,
and it is expected that they will reverse in the foreseeable future.
The carrying value of a deferred income tax asset is subjected to review at the end of each reporting period and is reduced when it is deemed probable that there will not be sufficient future taxable profits to
allow for the recovery of all or part of the asset.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Entity expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
Current and deferred taxes on income are recognized as revenue or expense in the statement of comprehensive income, except when they refer to items that are recognized outside profit or loss, either in other
comprehensive income or directly in stockholders’ equity, in which case the tax is also recognized outside profit or loss, or when they arise from the initial recognition of a business combination. In the case of
business combinations, the tax effect is included within the recognition of the business combination.
s. Foreign currency transactions - Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currency are
translated into Mexican pesos at the applicable exchange rate in effect at the date of the consolidated statements of comprehensive income. At the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
t. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale,
are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs
are recognized in profit or loss in the period in which they are incurred.
u. Recognition of revenues and costs- Revenues are recognized when: 1) The Entity transfers the risks and rewards inherent to its ownership of real property inventories to customers; 2) these inventories can be
reliably valued; 3) it is likely that the Entity will receive the economic benefits associated with the transaction; 4) the Entity does not control real property inventories, and 5) incurred costs and those to be incurred
can be reliably measured, which usually occurs when housing is delivered.
v. Revenue for construction contract and construction - Revenue for construction contracts are recognized on the percentage-of-completion method, revenue and costs are recognized by reference to the stage of
completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs in accordance
with the NIC 11 “Construction contracts”.
w. Interest income - Interest income is recognized when it is probable that the economic benefits will flow to the Entity and the amount of income can be measured reliably. Interest income is accrued on a time basis,
by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
x. Incentives related to unaccrued machinery services - These refer to cash incentives received in advance under the irrevocable Trust number F/00762 machinery services contract, which was entered into between
the subsidiary Entity Maquinaria Especializada MXO, S.A. de C.V. and The Bank of New York Mellon, S.A., Institución de Banca Múltiple, for a ten-year term. The incentive is amortized to profit as the machinery services
are rendered to the Entity over the term of the contract, as a reduction of the cost of the services received.
y. Earnings per share - Basic and diluted earnings per common share are calculated by dividing net income attributable to GEO by the weighted average number of shares outstanding during the year.
6. Nonmonetary transactions
During the year, the Entity realized the following financial and investment nonmonetary transaction which are not reflected into the consolidated statements of cash flow:
2012
2011
Transition date
Purchase to suppliers of land
$
9,410
$
3,728
$
11,734
Acquisition of machinery and equipment through leases
103,247
240,110
87,316
Lieu of payments agreements (1)229,647195,578 35,558
(1)
Are mainly exchange between finished work subcontracts and services provided by suppliers.
7. Cash, cash equivalents, and restricted cash
In the consolidated statements of cash flows, cash and cash equivalents include cash and banks and investment in money market instruments, net of outstanding banks overdrafts. Cash and cash equivalents at the end
of the period is reported as shown in the consolidated statement of cash flow, it can be reconciled with the figures related in the consolidated statement of financial position as follows:
2012
2011
Transition date
Cash and cash equivalents
$
2,225,327
$
2,711,166
$
2,089,141
139,288
Restricted cash (1) and (2)51,51110,000
$
2,276,838
$
2,721,166
$
2,228,429
(1)
Restricted cash of $51,511 and $10,000 as of September 30, 2012 and December 31, 2011, respectively, relates to funds held in a trust established between GEO and Nacional Financiera, S.N.C. Institución de Banca de Desarrollo (Nafinsa).
Nafinsa provided a revolving line of credit for $1,000,000 to GEO, with the purpose of financing a portion of its accounts payable to suppliers.
(2)
As of January 1, 2011, due to the revaluation of the exchange rate between the Mexican peso and the US dollar, hedging instruments entered into by the Entity required margin calls, which were deposited in an Entity investment account
presented as restricted cash herein for $139,288. This restricted cash represented a guarantee as if the hedge were liquidated as of that date. This restricted cash was reclassified into unrestricted cash, due to the revaluation of the exchange
rate between the Mexican peso and the US dollar during 2011.
47
8. Accounts receivable
2012
2011
Transition date
Institutos de Vivienda y Sofoles (Limited purpose finance companies)
$
770,063
$
521,720
$
286,241
Accounts receivable (1)453,000430,055339,555
Estimated earnings in excess of billing
153,285
226,533
Allowance for doubtful accounts
(107,156)
(124,993)
(100,497)
$1,269,192 $1,053,315 $ 525,299
The accounts receivable which are mentioned above are classified as trade receivable and account receivable and are valued at amortized cost.
Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period for which the Entity has not recognized an allowance for doubtful debts because there
has not been a significant change in credit quality and the amounts (which include interest accrued after the receivable is more than 60 days outstanding) are still considered recoverable. The Entity has not collateral or
financial benefits about this amounts, also the Entity has not legal rights for compensating with other amount or liability that the Entity has been had with its clients.
The original maturity day of notes receivable are under 12 months, for this reason the Entity has classified them as short term.
(1)
Age of receivables that are past due but not impaired
20122011
30-60 days
$
90-over 360 days
Total
$
Average age (days)
196,047
$
290,628
486,675
$
173
83,300
287,491
370,791
180
Concentration of credit risk - The Entity develops and sells housing mainly for the low-income economic segment. Therefore, the customer portfolio is concentrated among mortgages granted by the National Workers’
Housing Fund Institute (INFONAVIT) and the Housing Fund of the Social Security and Services Institute for State Workers (FOVISSSTE), representing 93.74%, 90.53% and 66.8% of the portfolio as of, December 31, 2012,
2011 and January 1, 2011, respectively.
9. Real estate inventories
2012
2011
Transition date
Land held for development
$
5,262,598
$
6,434,729
$
5,897,310
Construction in - progress of real estate developments
21,573,894
20,680,056
16,618,775
Construction materials1,145,4721,350,550 923,878
27,981,96428,465,33523,439,963
Less: Non - current real estate inventory
Land2,909,5045,059,5334,076,439
Construction in - progress of real estate developments
11,954,104
9,222,969
5,469,742
14,863,60814,282,502 9,546,181
$13,118,356
$14,182,833
$13,893,782
As of late 2010, and due to the government trend of authorizing and granting subsidies through housing bodies or vertical housing projects and to the Entity’s decision of changing certain horizontal housing projects
to vertical housing, the Entity revisited the classification of construction. As a result of this change in the construction process, there are significant investments in infrastructure and land that was shifted to short and
long-term.
Some of these inventories are pledged as guarantees for the loans from financial institutions and the long-term debt discussed in Notes 13 and 16.
Some of these inventories are pledged as guarantees for the loans from financial institutions and the long-term debt discussed in Notes 15 and 18, with value in the registers of approximately is $6,963,901 (December
31, 2011 de $7,307,513 ).
During 2012 and 2011 the Entity has recognized real estate inventories as cost of sales with respect with its normal operations were $12,931,855 and $12,688,953, respectively.
48
10. Prepaid expenses and other assets
2012
Advances to Rentals, advertising and insurance $
Advances to land suppliers
Advances to suppliers
Total prepaid expenses and other assets
2011
464,802
$
156,386
241,733
862,921
Transition date
516,618
$
181,042
103,854
801,514
306,929
120,043
198,001
624,973
Recoverable taxes, mainly income tax (1)347,989305,938223,425
Debtors332,095179,372128,710
Commission y others
104,388
96,004
195,626
Total others784,472581,314547,761
Total
$1,647,393 $1,382,828 $1,172,734
(1)
At December 31, 2012, this item includes recoverable value added tax of $66,910, which is aged more than three months.
11. Investment properties
Investment properties are mainly comprised of land held for capital appreciation, these properties will be used for developing tourist center, industrial center or among other uses, The properties will be transferred to
investment property inventories once the administration has been designated them as land reserve.
Fair value of the investment properties
2012
$
3,223,022
2011
$
Fair Value
Balances at the beginning of year
$
Transfers
Fair value adjustments Balances at end of year
$
1,967,772
Transition date
$
1,689,087
20122011
1,967,772
$
1,189,445
65,805
3,223,022
$
1,689,087
278,685
1,967,772
The fair value of the Group’s investment property at 31 December 2012 and 31 December 2011 has been arrived at on the basis of a valuation carried out on the respective dates by independent values not related to
the Entity independent values have appropriate qualifications and recent experience in the valuation of properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction
prices for similar properties.
The Entity has no restrictions on its ability to dispose of or sell its investment properties, and has not assumed any contractual obligations to buy, construct or develop investment properties or to perform repairs,
maintenance work and extensions.
49
12. Investments in associated companies and trusts
The ownership percentage in associated companies, trusts and others are as follows:
Participation rate
2012
2011
Transition date
-
-
-
-
-
45.60
50.00
50.00
45.60
Associated :
Grupo Punta Condesa, S.A. de C.V.
Telecapital, S.A. de C.V.
Servicios de Autoalmacenaje, S.A. de C.V.
Others:
Grupo su Casita, S.A. de C.V.
Others
Trusts:
Fideicomiso maestro Mexicano número 371
Fideicomiso número 647
Fideicomiso maestro Mexicano 412
3.60
3.50
3.60
3.50
7.11
3.50
4.96
17.00
1.27
4.96
17.00
1.85
4.96
1.85
2012
2011
Transition date
The following investments in associated companies, trusts and others are as follows:
Associated companies:
$
Servicios de Autoalmacenaje, S. A de C.V. (1)
Grupo Punta Condesa, S.A. de C.V. GEO ICASA, S.A. de C.V.
-$
69,705$
67,330
-
-
60,982
-
-
17,462
Other permanent investments::
Fideicomiso maestro número 850
111,528
109,530
70,620
Fideicomisos Sólida Temixco83,75983,75990,906
77,535
77,535
162,508
Grupo su Casita, S.A. de C.V. (5)33,00068,000
Fideicomiso Maestro Mexicano número 371
3,709
3,709
4,391
Fideicomiso Maestro México número 412
1,208
3,141
7,531
6,000
6,000
Fideicomiso Multiva 1,119 1,1261,126
5,808
5,009
Others14,18314,180 9,531
$337,849 $441,694 $492,387
(1)
Self-storage services: On December 12, 2012 sold the total investment for $70,930, obtaining earns for $1,225.
(2)
Sólida Temixco Trust: Its main activity is to negotiate purchase contracts for acquiring properties; the trustee manages the total properties that integrate the trust’s equity.
(3)
Trust 850: Its main activity is to celebrate project trusts through it or hold another contract or agreement that considers the service provider, acquire, develop, urbanized, manage, improve, sell, renew, lease, retain for your appreciation and
market, in the event that the settlor instruct it to dispose of properties.
(4)
Trust 647: The main activity is to negotiate and sign contracts for transmitting in its behalf the all properties acquired as part of trust ‘equity.
(5)
50
Grupo su Casita, S.A. de C.V.: This investment is valued at liquidation value, during 2012 and 2011 the total value was write of in $35,000 and $94,508, respectively.
13. Property, plant, machinery and equipment (Includes leased property, plant and equipment)
2012
2011
Transition date
Land
$428,289 $394,751 $226,156
Buildings342,346337,772234,295
Machinery and vehicles
1,439,697
1,417,614
1,672,679
Furniture, fixtures, tools and equipment
475,199
392,221
385,322
2,257,2422,147,6072,292,296
Buildings(57,225)(50,458)(40,136)
(854,445)
(813,674)
(1,036,776)
(307,341)
(234,696)
(213,916)
Accumulated depreciation(1,219,011)(1,098,828)(1,290,828)
1,038,2311,048,7791,001,468
Alpha plants:
Completed1,319,6101,262,6761,310,544
1,319,6101,262,6761,310,544
Accumulated depreciation
(58,526)
(31,564)
1,261,0841,231,1121,310,544
2,727,6042,674,6422,538,168
1,021,901
957,843
676,271
Installation costs (1)
Accumulated amortization
(473,928)
(414,577)
(376,364)
547,973543,266299,907
$3,275,577 $3,217,908 $2,838,075
(1)
To corresponding mainly to leasehold improvements and installation of Alpha plants.
51
Reconciliation of beginning and ending carrying values as of December 31, 2012 and 2011, are as follows:
Balances as of
Property, plant, machinery and equipment
December 31, 2011
Additions
Disposals
Transfer to from real
estate inventory to
fixed assets
Balances as of
December 31, 2012
Investment:
Land
$
290,520
$ -
$-
$-
$
290,520
Building
159,622
2,900 (26,144)
- 136,378
1,326,820
42,505
(20,422)
-
1,348,903
284,318
60,062
(19,155)
-
325,225
1,770,760
105,467 (65,721)
- 1,810,506
Accumulated depreciation:
Building
(47,778)
(802,019)
(182,987)
(1,032,784)
737,976
(18,042)
(109,534)
(71,740)
(199,316)
(93,849)
15,075
73,590
37,347
126,012
60,291
- (50,745)
-
(837,963)
-
(217,380)
- (1,106,088)
- 704,418
Alpha plants:
Completed 1,262,676
-
-
56,934 1,319,610
1,262,676
-
-
56,934 1,319,610
(31,564)
(24,201)
-
(2,761)
(58,526)
1,231,112
(24,201)
-
54,173 1,261,084
2,259,608(118,050)60,29154,173
2,256,022
Installation costs
957,843
77,458
(13,400)
-
1,021,901
(414,577)
(59,867)
516
-
(473,928)
543,266
17,591 (12,884)
- 547,973
Total
$ 2,802,874 $ (100,459) $ 47,407 54,173 $2,803,995
Finance leases
Investment
Land
$
104,231
$
33,538
$-
$-
$
137,769
Building
178,150
27,818--
205,968
90,794
-
-
-
90,794
107,903
42,071
-
-
149,974
376,847
69,889--
446,736
Building
(2,680)
(3,800)--
(6,480)
(11,655)
(4,827)
-
-
(16,482)
(51,709)
(38,252)
-
-
(89,961)
(66,044)
(46,879)--
(112,923)
310,803
23,010--
333,813
Property, plant, machinery and equipment under finance leasing
415,034
56,548--
471,582
Net investment
$3,217,908
$ (43,911)$47,407 $54,173 $
3,275,577
52
Balances as of
Additions from
January1, business
Transfers to
2011
Additions
acquisitions
Disposals related assets
Transfer to from
real estate
inventory to
fixed asset
Balances as of
December 31,
2011
Investment:
Land
$ 152,898$
-$
-$
- $
Buildings 187,784
693
- (28,855)
1,622,001
742,274
9,675
(1,047,130)
314,802
1,102
1,017
(32,603)
2,124,587 744,069 10,692(1,108,588)
- $137,622 $290,520
-
- 159,622
-
-
1,326,820
-
-
284,318
-
-1,770,760
Building (39,642) (11,076)
(1,029,562)
(156,066)
(191,442)
(8,152)
Accumulated depreciation (1,260,646) (175,294)
863,941 568,775
-
2,940
(7,354)
390,963
(827)
17,434
(8,181) 411,337
2,511 (697,251)
-
-
-
-
-
Alpha plants:
Completed 1,310,544
-
1,310,544
-
Accumulated depreciation of alpha plants
-
(31,564)
1,310,544 (31,564)
2,327,383 537,211
Installation costs 676,271 281,572
Accumulated amortization (376,364) (38,213)
299,907 243,359
Total
$2,627,290$ 780,570$
-
- (97,491) 49,6231,262,676
-
- (97,491) 49,6231,262,676
-
-
-
-
(31,564)
-
- (97,491)
49,623 1,231,112
2,511 (697,251) (97,491) 187,2452,259,608
-
-
-
- 957,843
-
-
-
- (414,577)
-
-
-
- 543,266
2,511$ (697,251) $ (97,491) $187,245 $
2,802,874
- (47,778)
-
(802,019)
-
(182,987)
-(1,032,784)
- 737,976
Finance leases
Investment
Land
$
Building
73,258$ 30,973$
46,511 131,639
50,678
40,116
70,520
37,383
167,709 209,138
Building
(494)
(7,214)
(22,474)
Accumulated depreciation (30,182)
137,527
under finance leasing
Net investment
(2,186)
(4,441)
(29,235)
(35,862)
173,276
210,785 204,249
$2,838,075$ 984,819$
-$
-
-
-
-
- $
-
-
-
-
- $
-
-
-
-
- $104,231
- 178,150
-
90,794
-
107,903
- 376,847
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- (2,680)
-
(11,655)
-
(51,709)
- (66,044)
- 310,803
-
-
-
- 415,034
2,511$ (697,251) $ (97,491) $187,245 $
3,217,908
53
The straight-line method based on the lives of the related assets, as follows:
Building and Alpha plants
35-40
Machinery and equipment
3-7
Vehicles3-4
Computers3
Furniture and fixtures
5-10
Installation cost, improvements and show home
5-15
Tools and minor equipment
3-5
Edificios y Plantas Alpha
35-40
Maquinaria y equipo
3-7
Vehículos3-4
Equipo de cómputo
3
Mobiliario y equipo
5-10
Gastos de instalación y mejoras en locales arrendados y casas muestra
5-15
Herramientas y equipo menor
3-5
a. Pledged assets
Furthermore, the Entity’s obligations in relation to capital leases (see Note 19) are guaranteed by the ownership titles of the lessor to the leased assets, which come to $580,388 (December 31, 2011, $397,564).
14. Other assets
2012
2011
Transition date
Investment in concessions
$
193,537
$
162,479
$
101,292
Enterprise Resource Planning (“ERP”)
586,693
597,285
435,474
780,230759,764536,766
Accumulated amortization(312,701)(220,091)(127,698)
467,529539,673409,068
660,598
628,608
314,297
Commitment deposits283,364288,176295,491
Others
20,252
- $1,431,743 $1,456,457 $1,018,856
A roll forward of intangible assets is as follows:
Balance as of Balance as of
December 31, Addition
Disposals
December 31,
2011 2011 20112012
$
162,479
$
31,058
$
-
$
193,537
597,285
-
(10,592)
586,693
759,764
31,058 (10,592) 780,230
(220,091)
(92,610)
-
(312,701)
539,673(61,552)(10,592)467,529
628,608
31,990
-
660,598
Commitment deposits
288,176
39,681
(44,493)
283,364
Others
- 20,252
-20,252
$ 1,456,457 $ 30,371
$ (55,085) $ 1,431,743
Balance al 31
Addition DisposalsDecember
Transition date
2011
2011
2011
$
101,292
$
435,474
536,766
(127,698)
409,068
314,297
Commitment deposits
295,491
$ 1,018,856 $
54
61,187
$
161,811
222,998
(92,393)
130,605
314,311
-
444,916
$
-
$
162,479
-
597,285
- 759,764
-
(220,091)
- 539,673
-
628,608
(7,315)
288,176
(7,315) $ 1,456,457
15. Notes payable to financial institutions
2012
2011
Transition date
Mexican pesos with mortgage guarantee
Bridge loans with real estate inventories pledged as collateral, bearing interest at average variable rates
ties to the TIIE plus 363 average basis points as of December 31, 2012, 343 basis points as of
December 31, 2011 and January 1, 2011, respectively. $
2,146,639
$
2,782,383
$
2,336,825
Unsecured loans, bearing interest at average fixed rates of 280 to 375 basis points and bearing variable
interest at the TIIE plus 330 with maturity dates of 180 days.
363,162
-
Mortgage loans for purchases of land with real estate inventories pledged as collateral, bearing
variable interest at the TIIE plus 196 basis points as of December 31, 2010.
-
- 19,463
Mexican pesos without mortgage guarantee
Unsecured loans, bearing interest at variable rates ties to the TIIE plus 330 and 500 basis points with
maturity dates in 2013. 897,008
-
Unsecured loans, bearing interest at a variable rate from 789 to 889 basis points, maturity
on January and May 2013 96,390
-
Mortgage loans, bearing interest at a fixed rate of 983 basis points, maturity on March 2013.
23,135
12,398
Mortgage loans, bearing interest at a fixed rate of 1200 basis points, maturity in July 2013.
156
- Unsecured loans, bearing interest at average fixed rates of 1197 basis points, maturity during 2011
-
1,188,798
26,231
Mortgage loans, bearing interest at a fixed rate of 858 basis points, maturity in August 2012.
-
2,109
Unsecured loans, bearing variable interest at the TIIE plus 500 basis points, maturity in April 2011.
-
- 43,626
Mortgage loans, bearing interest at the TIIE plus 500 basis points, maturity in October 2011.
-
- 35,000
Unsecured loans, bearing variable interest at the TIIE plus 450 basis points, maturity in September 2011.
-
- 25,000
Mortgage loans, bearing interest at a fixed rate of 140 basis points, maturity in April 2011.
- - 426
$3,526,490 $3,985,688 $2,486,571
TIIE. - Mexican Interbank Equilibrium Offered rate established by Banco de México, which as of December 31, 2012 and 2011 and transition date, were 4.84%, 480% and 4.87%, respectively.
All interest rates mentioned above represent their annual rate.
Basis points- every 100 points is equivalent to one percentage point
55
16. Accrued expenses, taxes payable and other current liabilities
2012
2011
Transition date
Taxes other than income taxes
$
619,468
$
390,268
$
208,713
Provisions161,758475,318452,371
Services payable1,026,0661,625,1551,238,892
$1,807,292 $2,490,741 $1,899,976
As of Decemeber31, 2012 and 2011, the mains provisions and accruals are integrated as follows:
December31, 2011 Provisions :
Dismantling of Alpha plants and others
$
Infrastructure and equipment donated
$
Increases
December 31,2012
189,233
$
(189,233)
$
-
$
286,085
(286,085)
161,758
161,758
475,318 $ (475,318)
$ 161,758 $ 161,758
Transition date
Provisions :
Dismantling of Alpha plants and others
$
Infrastructure and equipment donated
$
Applications
Applications
Increases
December 31,2011
101,373
$
-
$
87,860
$
189,233
350,998
(284,365)
219,452
286,085
452,371 $ (284,365)
$ 307,312 $ 475,318
17. Obligations under sale of receivables contracts
2012
2011
Transition date
Program:
Issuance
$964,871 $877,665 $
1,273,686
Factoring3,686,7282,475,7071,709,710
$4,651,599 $3,353,372 $2,983,396
Fiduciary Securitization Certificates – GEO’s subsidiaries established a revolving program for the securitization of future credit rights (Rights) derived from their housing purchase/sale agreements, which are applied to
a trust established for such purposes in Nacional Financiera, S. N. C. The program in effect is for up to $1,000,000 or its equivalent in investment units. Through public offerings of Securitization Certificates (SCs), which
include the issuance of preferred and subordinated SCs, which are acquired by the investing public and GEO, respectively, the trust obtains the necessary resources to invest in the acquisition of the Rights. Once the
Rights are collected in the trust, new purchases may be made considering the maturity of the SC issuance or its early amortization. As of September 30, 2012, the Entity has three outstanding issuances as follows: a)
$337,616 maturing on October 25, 2013, at an initial rate of 734 basis points; b) $540,050, maturing on May 7, 2014, at initial rate of 749 basis points and c) $313,820, maturing on August 14, 2014, at an initial rate of
794 basis points.
GEO has the obligation to complete the construction of the housing units related to the Rights and is responsible for the collection of the Rights and for depositing the proceeds daily in the trust. Preferred SC’s are paid
at nominal value.
Early amortization of preferred SCs, as established with the trust and subject to prior instructions from the Technical Committee to the trustee, will be made at face value, among other reasons, when:
1) The Trustors for any reason refuse to or cannot assign additional future Rights to the trust to make permitted investments, and such eventuality results in an accumulation of cash held in trust of 50% over the
principal of the preferred SCs, and such situation remains in effect for 120 calendar days;
2) When Additional Collection Rights cannot be assigned to the Trustee to carry out the allowed investments due to causes not attributable to the Trustor subsidiaries derived from significant changes in the policies,
processes and/or requirements of the Housing Institutes, which result in the inability to comply with the eligibility requirements;
3) When at any given time the collection of the Rights is 40% lower than the cash flow expected for the Issuance, under the understanding that the accumulated cash flow will be adjusted by early collection and/or
the reacquisition of Rights by the Trustors through GEO.
Factoring program - The subsidiaries of GEO have established factoring programs with different credit institutions based on the contracts signed by their customers to buy a home and the promissory notes originated by
these sales. The average interest rate is the TIIE rate plus 3.32%. The maximum term for transactions with Infonavit and Fovissste are 60 and 180 days, respectively. These programs have legal recourse.
56
18. Long term debt
2012
2011
Transition date
Mexican pesos with guarantee:
Revolving credit line up to $1,200,000 with a fiduciary guarantee, maturing on November 17, 2014,
bearing variable interest at the 91-day TIIE plus 500 basis points.
$
1,200,000
$
994,500
$
217,500
Mortgage loans with real estate inventory as collateral, bearing variable interest at the TIIE plus 338
average basis points, maturity dates in 2013 and 2014.
334,124
857,454
294,975
Mexican pesos without guarantee
Mortgage loans, bearing variable interest at the TIIE plus 320 basis points, maturity on July 18, 2014.
400,000
400,000
Ten-year Huaso Bond for the amount of 342,000 UF (Chilean Development Units), with maturity on
July 19, 2022, and a coupon rate equal to 650 basis points.
211,982
- Mortgage loans, with interest at 1200 basis points, maturity in September, 2014.
63,374
-
Mortgage loans, with interest at 816 basis points, maturity in March, 2013 and 2014.
54,549
35,000
Mortgage loans, with interest at 1,053 basis points, maturity in January and May, 2014.
42,104
70,284
Mortgage loans, with interest at 1,010 basis points, maturity in October, 2013.
6,900
14,211
20,824
Mortgage loans, with interest at 1400 basis points, maturity in January, 2013. 1,19414,49817,316
Mortgage loans, bearing interest at the TIIE plus 350 basis points, maturity in December, 2012.
-
200,764
60,000
Finance leases for the acquisition of machinery and equipment bearing variable interest at the TIIE
plus 231 basis points, as of different maturities.
-
224,134
196,377
Mortgage loans, bearing variable interest at the TIIE plus 400 basis points, maturity in November, 2012.
-
4,965
9,507
Mortgage loans, bearing variable interest at the TIIE plus 1400 basis points, maturity in January, 2013 2013. -
-
8,757
Mortgage loans, bearing variable with interest at 400 basis points, maturity on November 1, 2012.
-
-
7,162
In thousands US dollars with guarantee, except where mentioned
“Senior guaranteed note” for 400,000 maturing on March 27, 2022, bearing interest at 887.5 basis points,
guaranteed with third-party security of GEO’s operating subsidiaries. (1 and 2)
5,186,320 - “Senior guaranteed note” for 250,000 maturing on June 30, 2020, bearing interest at 925 basis points, guaranteed
with third-party security of GEO’s operating subsidiaries. (1 and 2)3,158,0683,158,0683,158,068
“Senior guaranteed note” for 250,000 maturing on September 25, 2014, bearing interest at 887.5 basis points,
721,393
3,330,095
3,330,095
guaranteed with third-party security of GEO’s operating subsidiaries. (1 and 2)
(1)
Fixed asset loan for 13,754, maturing on May 22, 2017, bearing variable interest at LIBOR plus 220 basis points. 112,340138,872160,638
Fixed asset loan for 3,593, bearing variable interest at LIBOR plus 220 basis points, maturity on April 29, 2016. (1)26,82334,62641,345
Fixed asset loan for 1,198, bearing variable interest at LIBOR plus 220 basis points, maturity on September 30, 2016. (1)10,27412,83715,049
11,529,445
9,490,308
7,537,613
Less:
(657,201)
(657,135)
(296,647)
10,872,244
8,833,173
7,240,966
Debt issuance costs
(665,027)
(378,734)
(227,624)
Accumulated amortization198,498128,302108,232
(466,529)(250,432)(119,392)
10,405,715
8,582,741
7,121,574
Change in fair value (Nota 21)
(359,383)
330,174
(823,952)
$
10,046,332$
8,912,915$
6,297,622
(1)
Given that exchange rate hedging derivatives were entered into to hedge these obligations, the balance of each obligation is valued at the exchange rate in effect as of the contracting date of each derivative.
(2)
On March 27, 2012, GEO issued a “Senior Guaranteed Note” for the amount of US$ 400 million on foreign stock markets, with a fixed interest rate of 8.875% for a 10-year period and with maturity in March 2022. A portion of the resources
obtained from this issuance was utilized to repurchase approximately 78% of the debt represented by the “Senior Guaranteed Note” for the amount of US$ 250 million, with maturity in 2014 for an approximate amount of US$ 195 million.
57
Maturities of long-term debt as of December 31, 2012, are:
2014
$1,506,938
2015766,034
201631,560
201711,342
2018 and thereafter
8,556,370
$10,872,244
LIBOR - London Inter-Bank Offer Rate; As of September 30, 2012, December 31, 2011, and January 1, 2011(Unaudited), the 180-day LIBOR rate was 0.63590%, 0.80850% and 0.45594%,respectively to 180 days
19. Finance leases
2012
2011
Transition date
Mexican pesos:
Finance leases for the acquisition of machinery and equipment, bearing variable interest at the TIIE plus 332
and 231 basis points, maturiting in 2015.
$
153,207
$
-
$
Finance leases for industrial equipment, maturiting on September 2016, with purchase option at fair value,
bearing average interest at 146.6 basis points.
186,088
179,869
Finance leases for a property in Guerrero, maturiting on August, 2015 and 2017, with purchase option at
fair value, bearing average interest at 127.5 133,395
93,594
113,545
Finance leases equipment maturiting on 2016, with purchase option at fair value, bearing interest at 170 basis points 64,274
59,174
51,307
Finance leases of machinery and equipment, maturiting on 2014 and 2016, with purchase option at fair value,
bearing interest at 170 basis points.
43,424
61,091
31,310
Finance leases of administrative buildings with maturity on November 30, 2012, without purchase option and
bearing interest at 70 basis points.
-
3,835
3,937
580,388397,563200,099
Less:
Current portion of long-term finance leases
(162,063)
(70,535)
(42,335)
$418,325 $327,028 $157,764
Finance lease obligations are as follows:
Finance leases
From one to five years
$
Until one year
$
58
December 31, 2012
Minimum
Present value of
future lease
minimum future
payments
lease payments
384,718
$
104,117
488,835
$
418,325
162,063
580,388
20. Financial instruments
a. Administration of the Entity’s leverage position
The Entity administers its capital to ensure that its subsidiaries will be able to continue as a going concern in order to maximize shareholder returns through optimal use of the debt and equity balances. The Entity’s
general strategy has not changed as of December 31, 2012 compared to December 31, 2011.
The Entity manages its level of indebtedness to ensure that it will continue as a going concern. As of December, 31 2012, the level of indebtedness is $14,230,023, net of the fair value of the debt and debt issuance
costs of $(359,383) and $(466,529); respectively. This debt is composed of $2,146,639 million (14%) of financing through bridge loans whose contracts expire in less than 12 months $1,379,851 (9%) of financing
through short-term corporate lines and $11,529,445 (77%) in long-term corporate lines. And the stockholder´s equity (compound of common stock, reserves and retained earnings as mentioned in Notes 15, 18 y
24 respectively).
The Entity is not subject to any externally imposed requirement for the management of its capital.
The Entity’s operations committee reviews the Entity’s capital structure on a half yearly basis. As part of this review, the committee considers the cost of capital and the risks associated with the class of capital.
The Entity has a specified indebtedness ratio of 20% to 25% determined as the proportion of net debt and equity. The indebtedness ratio of 7.20% (see below) as of December 31, 2011 was in the lowest part of the
target range and has returned to a more normal level of 5.50% since the end of the reporting period.
The indebtedness ratio of the reporting period is as follows:
Debt (i)
$
Cash and equivalents
Net debt
$
$
Stockholder’s equity (ii)
Index n net debt to equity
Balances as of
December 31, 2011
14,230,023
$
(2,276,838)
11,953,185
$
11,329,952 $
105.50%
13,555,738
(2,721,166)
10,834,572
10,106,148
107.21%
(i) The debt including notes payable to financial institution and long term debt.
(ii) The stockholder´s including common stock, additional paid in capital, reserve for repurchase of shares and retained earnings.
b. Categories of financial instruments
2012 Carrying value
Fair Value
2011
Level of v
aluation
Financial assets:
$
2,276,838 $
2,276,838 $
(2)
Accounts receivable
1,269,192 1,269,192 Total
$
3,546,030 $
3546,030 $
Financial liabilities
Senior guaranteed note $
Accounts payable to suppliers of land Obligations under sale of receivables contracts
Customer advances
Total
$
(14,230,023) $
(292,663) (4,651,599)
(317,080)
(3,325,557) (1,176,368) (23,993,290) $
Carrying value
Fair value
2,721,166 $
429,778
1,053,315
4,204,259
$
2,721,166
429,778
1,053,315
4,204,259
(14,589,406) (2)
$ (13,555,738)
$
(292,663) (3)
(991,872)
(4,651,599)
(3,353,372)
(317,080)
(2)
-
(3,325,557) (4,191,437)
(1,176,368)
(2,678,725)
(24,352,673)
$ (24,771,144)
$
(13,225,564)
(797,145)
(3,353,372)
(4,191,437)
(2,678,725)
(24,246,243)
At the end of the reporting period, there are no significant concentrations of credit risk for loans and receivables designated at FVTPL, except for mentioned in Note 21. The carrying amount reflected above represents
the Group’s maximum exposure to credit risk for such loans and receivables.
59
c. Fair value of financial instruments
The fair value of the financial instruments presented above has been determined by the Entity using the information available in the market or other valuation techniques which require judgment to develop and
interpret the estimates of fair values. The Entity has also considered market conditions at each of the statement of financial position dates. The use of different assumptions or estimation methods could have a
material effect on the estimated fair value amounts.
The determination of fair value is based on a hierarchy which levels from 1 to 3, based on the degree to which the inputs to the calculation of fair value are observable, as described below:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices).
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Except for that outlined in the above table, management believes that the carrying values of the financial assets and liabilities recognized at amortized cost in the accompanying consolidated financial statements
approximate their fair value.
d. Financial risk management objectives
The Entity’s Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Entity
through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
The Entity seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Entity’s policies approved by the board
of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity.
Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The Entity does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
The Corporate Treasury function reports quarterly to the Entity’s risk management committee, an independent body that monitors risks and policies implemented to mitigate risk exposures.
e. Interest rate risk management- The Entity is exposed to interest rate risk because the majority of its debt incurs interest at variable rates. Assuming an unfavorable variance of 100 base points in the TIIE rate and
LIBOR rate, assuming all other variables remain constant, consolidated statement of comprehensive income, stockholders’ equity and cash outflows from financing activities would have decreased by $156,363 and
$137,008 as of December, 31 2012 and December 31, 2011 and for the periods then ended, respectively.
60
The sensitivity analyses of interest rates have been decreased during the year for decreasing in derivatives instruments and increase in rates used in swaps for interchanging variable rate to fixed rate. The following
table provides additional detail.
Balances at December 31, Percentage
Interest expense
2012
%
Interest rate Average rate
for the period
Current portion of long-term debt::
Bridge loans
$
Mortgage loans to purchase land
Mortgage loans
Unsecured loans
2,146,639 363,162
23,291
993,398
Long term debt::
Senior guaranteed note (1)
Huaso Bond
Bridge loans to purchase inventories
Revolving credit lines
Securitized certifícate
Mortgage loans
Fixed asset loans
Finance leases
$
9,065,781
211,982
334,124
1,200,000
400,000
168,121
149,437
15,055,935
580,388
15,636,323
14
2
-
6
TIIE + 3.63
TIIE + 3.30
10.92%
TIIE + 3.71
58
TIIE + 5.03
1
TIIE + 5.08
2
TIIE + 3.38
8
TIIE + 5.00
3
TIIE + 3.20
1
10.15%
1
TIIE + 2.19
96
4
TIIE + 3.39
100
8.47
$
8.14
10.92
8.55
181,820
29,561
2,543
84,936
9.87
894,460
9.92
21,029
8.22
27,465
9.84
118,080
8.04
32,160
10.15
17,064
7.03
10,505
8.35 1,419,623
8.23
47,766
8.29 $1,467,389
Balances at December 31, Percentage
Interest expense
2011
%
Interest rate Average rate
for the period
Current portion of long-term debt:
Bridge loans
$
Mortgage loans
2,782,383
1,203,305
Long term debt:
6,488,163
Senior guaranteed note (1)
Bridge loans to purchase inventories
857,454
994,500
Securitized certifícate
400,000
Mortgage loans
563,856
Fixed asset loans
186,335
13,475,996
Finance leases
397,563
$ 13,873,559
20
9
TIIE + 3.20
TIIE + 4.00
47
TIIE + 6.39
6
TIIE + 3.50
9
TIIE + 4.25
3
TIIE + 3.70
2
10.16%
1
TIIE + 2.30
97
3
TIIE + 2.80
100
8.32
$
9.42
231,494
113,351
11.89
571,443
8.12
69,625
8.54
84,930
7.91
31,640
10.16
34,516
7.15
13,323
8.46 1,150,322
7.63
34,251
8.46 $1,184,573
Increase assuming
hypothetical increase
in interest rate (%)
Hypothetical
interest expense
9.47
$
9.14
11.29 9.55
10.87
10.92
9.22
10.84 9.04
11.15
8.03
9.35
9.23
9.29 $
Increase assuming
hypothetical increase
in interest rate (%)
203,287
$
33,193
2,776
94,870
21,466
3,632
233
9,934
985,118
23,148
30,806
130,080
36,160
18,745
12,000
1,570,183
53,570
1,623,753 $
90,658
2,120
3,341
12,000
4,000
1,681
1,494
150,559
5,804
156,363
Hypothetical
interest expense
9.32
$
10.42
Variation
259,318
$
125,384
Variation
27,824
12,033
12.89
836,324
64,882
9.12
78,200
8,575
9.54
94,875
9,945
8.91
35,640
4,000
11.16
37,913
3,397
8.15
15,186
1,863
9.94 1,482,840 132,519
8.63
38,740
4,489
9.46 $ 1,521,580 $ 137,008
(1) Excluding effect of DFI and issuance costs.
f. Credit risk - The Entity’s maximum credit exposure risk is represented by the carrying values of accounts receivable recognized in the consolidated statement of financial position.
The Entity’s main credit risk is generated by customers.
Credit risk stems from the potential insolvency of clients for which the Entity has recognized accounts receivable, preventing the Entity’s clients from paying the difference between the sale price of the housing
sold and the loans granted by housing institutes. However, the Entity maintains a customer portfolio with indebtedness levels and credit level studies determined for each customer. Additionally, the portfolio is not
concentrated by any single or significant customer.
Virtually all financing involving low-income housing in Mexico is granted by the INFONAVIT and Government-sponsored housing funds like the Federal Mortgage Society (SHF) and FOVISSSTE. GEO depends on the
availability of the mortgage financing granted by mortgage loan providers for most of its sales. The Entity’s counterparty credit exposure is continuously monitored.
61
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
g. Foreign currency risk - Foreign currency risk related to the Entity’s foreign currency-denominated debt is mitigated by entering into derivative financial instruments.
h. Price risk - In the case of inputs, the increased cost of construction materials including steel, concrete and labor, among others, can affect project results. Consequently, to minimize this effect, the Entity has
established the strategy of setting the price of its main inputs with suppliers.
i. Liquidity risk - Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the
Entity’s short-, medium- and long-term funding and liquidity management requirements. The Entity manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
Financing facilities
Credit lines available
2012
2011
Transition date
Bridge loans
$3,590,535 $3,416,419 $4,501,365
Unsecured loans218,748297,978972,300
Mortgage loans 5,42042,500
157,500
Financing sources are comprised by unsecured loans with mortgage guarantees involving the land, work and housing developments financed with the resources obtained under the loans as well as corporate loans
guaranteed by real property assets or the Entity’s guarantor subsidiaries. The Entity’s main cash requirements involve financing for housing development and construction and to acquire land. For this purpose, the Entity
obtains financing through bank loans and the resources generated by its operations; in the future, it will also obtain resources through securitized debt financing.
The Entity administers its treasury liquidity risk by maintaining a position in recorded cash and cash equivalents for up to eight weeks, which is composed by amounts denominated in Mexican pesos deposited in bank
checking accounts, while cash surpluses are invested in highly liquid instruments.
At 1 year
At 2 years
At 3 years
At 4 years
Current portion of long-term debt:
Bridge loans
$
2,146,639
$-
$-
$ Mortgage loans to purchase land
363,162
-
-
Unsecured loans
993,398--
Mortgage loans
23,291--Long-term debt:
“Senior guaranteed note”
-
721,393
-
8,344,388
Huaso bond ---
211,982
Bridge loans to purchase real estate inventories
263,425
60,176
10,523
240,000
240,000
720,000
Securitized certificate
-
400,000
-
Mortgage loans
118,265
49,856
-
Fixed asset loans
35,511
35,512
35,512
42,902
Total debt
4,183,691
1,506,937
766,035
8,599,272
Accounts payable to suppliers of land suppliers
223,707
-
-
68,956
Total of contractual obligations
$
4,407,399
$ 1,506,937
$
766,035
$ 8,668,228
a. Market and housing business risk management -- In the real estate business, plans and policies issued by government regulators affect performance of the sector and have a direct effect on residential and
commercial construction. Accordingly, the land where projects will be developed is one of the key variables considered for the real estate business. Plan modifications made by regulatory agencies can affect
investments and generate risks. Similarly, changes to government policies and strategies, adjustments to the housing development programs and budgets of housing institutes and the modification of housingrelated tax policies could affect the Entity’s operations or its final buyers
62
21. Derivative financial instruments (DFI)
(In Thousands of US dollars)
In accordance with Entity’s policies, management has entered into the following DFI:
a) First hedge relationship - The Entity issued a five year Senior Guaranteed Note which matures on September 25, 2014, for USD 250,000, with a fixed coupon of 887.5 basis points and a rate of return upon maturity
of 900 basis points. With the aim of decreasing its exposure to exchange rate fluctuations, on September 23, 2009 the Entity contracted Cross Currency Swaps (CCS) with two different financial agents. The purpose
of these hedge instruments is to eliminate the exchange rate fluctuations related to the payments of coupons and principal upon maturity attributable to the issuance of the Senior Guaranteed Note. The term of the
hedging instrument covers the semiannual payments beginnings of September 25, 2009 and the payment of principal on September 22, 2014.
On April 2012, the Entity made a partial notional amount cancellation of USD 195,843, remaining USD 54,156. This cancelation has been associated to senior guaranteed note.
As of December, 31, 2012, details of the hedge are as follows:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
27,078
Sep-09
sep-14
TIIE plus 639 basis points
8.875%
(464)
$
(6,013)
27,078
Sep-09
sep-14
TIIE plus 642.5 basis points
8.875%
(480)
(6,221)
$
(12,234)
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
125,000
Sep-09
sep-14
TIIE plus 639 bases points
8.875%
7,915
$
110,294
125,000
Sep-09
sep-14
8.875%
7,807
108,781
$
219,075
At transition date, details of the hedge are as follows:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
125,000
Sep-09
sep-14
8.875%
(3,731)
$
(48,750)
125,000
Sep-09
sep-14
8.875%
(3,666)
(48,164)
$
(96,914)
b) Second hedge relationship - The Entity issued a 10 year Senior Guaranteed Note maturing on June 30, 2020, for USD 250,000, with a fixed coupon of 925 basis points and a rate of return upon maturity of 950 basis
points. With the aim of decreasing its exposure to exchange rate fluctuations, on July 9, 2010 the Entity contracted three Cross Currency Swaps (CCS) with three different financial agents. The objective of these hedge
instruments is to eliminate the exchange rate fluctuations of the payments of coupons and principal upon maturity attributable to the issuance of the senior guaranteed note. The term of the hedging instruments
covers the semiannual payments beginning July 13 for the first instrument and June 30 for the other two instruments, and the payment of principal as of June 30, 2020 for each instrument.
63
As December, 31, 2012, details of the hedge are as follows:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
100,000
July-10
June-15
9.25%
1,040
$
13,481
TIIE plus 900
basis points until
December 2012,
411.5 basis points from January
2013 to June 2015 and 525
basis points from
100,000
June -10
June -20 July 2015 to 2020
9.25%
(4,811)
(62,373)
38 basis points until 2015
and 565.4 basis points
(1)
100,000 may-2011
jun-20, to 2020
9.25%
(8,443)
(109,465)
TIIE plus 386.5 to 2015
and 500 basis points to
50,000
June -10
June -20
2020
9.25%
(1,578)
(20,462)
$
(178,819)
As of December, 31 , 2011, details of the hedge are as:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
100,000
July-10
June -15
9.25%
2,372
$
33,046
TIIE plus 905 basis points until
to June 2012, 411.5 basis points
to 2015 and 525
100,000
June -10
June -20
basis points 9.25%
8,118
113,119
38 basis points until 2015
(1)
100,000 May-2011
June -20
and 565.4 basis points
9.25%
2,979
41,508
TIIE plus 386.5 to 2015
50,000
June -10
June -20
and 500 basis points
9.25%
4,923
68,600
$
256,273
As transition date, details of the hedge are as follows:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
TIIE plus 388.9 basis points to
December, 2010 and from
January, 2011 TIIE plus 413.9
100,000
July-10
June -20 basis points
9.25%
(14,889)
$
(183,875)
100,000
June -10
June -20
TIIE plus 388.5 and 502 basis points
9.25%
(14,856)
(183,476)
TIIE plus 386.5 until 2015
50,000
June -10
June -20
and then 500 basis points
9.25%
(7,384)
(91,190)
$
(458,541)
(1)
In May 2011, the Entity executed an agreement with Deutsche Bank whereby it assumes and settles the second period of the derivative originally contracted with Santander, which goes from June 30, 2015 to June 30, 2020.
c) Third hedge relationship- On September 14, 2010 the Entity contracted Cross Currency Swaps (CCS) with a financial agent for notional amounts of USD 13,754, USD 3,593 and USD 1,199 with terms beginning
September 15, 2010 for the first two and September 30, 2010 for the third one, and with maturities on May 22, 2017, and April 29, 2016 and September 30, 2016, respectively. The purpose of the hedge instruments
is to eliminate the exchange rate fluctuations from the payments of coupons attributable to the fixed asset loans denominated in US dollars described above. The term of the hedging instrument covers the monthly
payments as well as for the repayment of principal.
64
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
8,842
Sep-10
May-17
LIBOR plus 220 basis points
(117)
$
(1,511)
2,095
Sep-10
Apr-16
(18)
(229)
799
Sep-10
Sep-16
(10)
(124)
$
(1,864)
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
10,807
Sep-10
May-17
658
$
9,162
2,695
Sep-10
Apr-16
120
1,668
999
Sep-10
Sep-16
31
438
$
11,268
As transition date, details of the hedge are as follows:
National
Amount USD
Inception Date
Maturity
Rate paid
Rate
received
Fair value
USD
Fair value
12,772
Sep-10
May-17
(662)
$
(8,178)
3,293
Sep-10
Apr-16
(154)
(1,904)
1,198
Sep-10
Sep-16
(59)
(731)
$
(10,813)
d) Fourth hedge relationship - The Entity issued 684 long-term Series A bonds through the Bank of Chile, which are denominated in 10-year Development Units (UF), with maturity on July 19, 2022, for the amount
of 342,000 UF and fixed coupons equal to 650 basis points. In order to reduce its exposure to interest rate fluctuations, on August 27, 2012, the Entity contracted a derivative financial instrument designated as an
interest rate hedge (Cross-Currency Rate Swap or CCRS). This hedge instrument is intended to eliminate interest rate fluctuations involving coupon and principal payments at maturity. The hedge period covers the
rates applicable to the half-yearly cash flows considered as of September 19, 2012, together with the cash flow derived from principal maturity on July 19, 2022.
$
Notional
Amount MXN
Inception
211,982
Aug-12
Date
Maturity
Rate paid
July-22
Rate receivable
USD
6.5%
Fair value
$
(10,024)
e) Others DFI
a) The Entity issued a “Senior Guaranteed Note” guaranteed for 10 years with maturity on March 27, 2022, for the amount of US$ 400,000, with fixed coupons equal to 887.5 basis points. In order to reduce its exposure
to exchange rate fluctuations, on July 31 and August 3, 2012, the Entity performed transactions with seven different brokers to contract derivative financial instruments designated as exchange rate hedges (Cross
Currency Swap or CCS). These hedges are intended to eliminate coupon payment variances derived from the issuance of the “Senior Guaranteed Note”. The hedge period covers the half-yearly cash flows considered
as of October 24, 25 and 26, 2012, respectively. On March 27, 2017, the Entity will be able to totally or partially exchange these coupons by paying the notional amount of the “Senior Guaranteed Note” plus a premium
and the interest accrued until the release date.
65
National
Amount USD
Inception Date
Maturity
Rate paid
Rate received
Fair value
USD
Fair value
100,000
July-12
Mar-17
8.875%
(2,255)
$
(29,242)
100,000
July -12
Mar-17
8.875%
(2,988)
(38,741)
50,000
July -12
Mar -17
8.875%
(1,385)
(17,963)
50,000
Aug -12
Mar -17
8.875%
(946)
(12,265)
50,000
Aug -12
Mar -17
8.875%
(949)
(12,305)
25,000
Aug -12
Mar -17
8.875%
(501)
(6,498)
25,000
Aug -12
Mar -17
TIIxE plus 448 basis points
8.875%
(432)
(5,598)
$
(122,612)
b) European option coverage of USD 122,882 to hedge the exposure to risk of the future payments for the machinery services. The initial and maturity dates are November 2011 and 2014, respectively. The Entity paid
a premium of USD 1,950. Fair value as of December, 31, 2012 and December 31, 2011 are $1,067 and $3,539, respectively.
c) Collar of USD 250,000 associated to the bond that matures in 2014. Fair value as of September 30, 2012 and December 31, 2011 are $7,405 and $(60,250), respectively. On April 2012, the Entity made a partial
notional amount cancellation of USD 195,843, remaining USD54,157. This cancelation has been associated to senior guaranteed 2014 note. In December, 2012 the Entity canceled the notional for US 27,078 dollars
the remaining in the same date was US27,078 dollars.
d) Hedge of $700 at fixed rate of 7.17%, maturing in January 6, 2012; at the beginning of the transaction the Entity paid a premium of $6,860. The corresponding fair value as of, December 31, 2011 is $(127).
Summary of the effects of the DFI recorded within comprehensive income under effects of valuation of derivative financial instruments are as follows:
First
Second
Third
Fourth
relationship relationshiprelationship relationship
Change in fair value of derivative (1) – gain (loss)
$
(231,309)
$
231,309
Change in fair value of derivative (1) – gain (loss)
$
- $
(435,092) $
435,092
- $
DFI with no
designation
Total
(13,132)
$
(10,024)
$
(57,301)
$
(746,858)
13,132
10,024
-
689,557
- $
-
$ (57,301) $ (57,301)
(1)
The change in fair value of the derivative instrument includes unpaid accrued interest of $156,571.
Summary of the effects of the DFI recorded within comprehensive income under effects of valuation of derivate financial instruments are as follows:
Change in fair value of derivative – gain (loss)
$
Change in fair value to debt as a result of the net effect of DFI – gain (loss)
$
First
Second
Third
relationshiprelationship relationship
423,759
$
(897,937)
(474,178) $
714,815
$
(259,089)
455,726 $
DFI with no
designation
Total
22,082
$
(76,059)
$ 1,084,597
2,898
- (1,154,128)
24,980
$ (76,059) $ (69,531)
Reconciliation of the fair value adjustment to debts of December 31, 2012 and 2011:
2012
Opening balance resulting from change in the fair value of the debt
$
Change in fair value as a result of the net effect of DFI in the profit or loss
Final balance resulting from change in the fair value of the debt
$
330,174
$
(689,557)
(359,383)
$
2011
(823,952)
$
1,154,126
330,174
$
Transition date
135,511
(959,463)
(823,952)
22. Labor obligations
The costs, obligations and other elements of pension plans and seniority premiums were determined based on calculations prepared by independent actuaries at December 31, 2012 and 2011, January 1, 2011
Retirement benefit obligations recognized in the statement of financial position represent the present value of the obligation derived from defined benefits adjusted for unrecognized actuarial gains and losses and the
cost of prior services, less the fair value of plan assets. Any asset resulting from this calculation is limited to the amount of unrecognized actuarial losses and the cost of prior services plus the present value of available
refunds and reductions in future contributions to the plan.
66
Period cost for obligations derived from seniority premiums was $9,545 and $5,659 for the periods ended December, 31, 2012 and 2011 respectively.
Severance payments are recorded in profit or loss when paid to employees upon the Entity’s decision to rescind their employment contracts prior to the normal retirement age and when there is no related legal obligation.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at 31 December 2012 by independent. The present value of the defined benefit obligation, and
the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Valuation as of
20122011
%%
Discount rate (s)
Expected rate (s) of salary increase
Inflationary effects
5.9
5.1
3.6
7.3
6.5
3.6
Change in the fair value for defined benefit obligation:
20122011
Balances at the beginning of defined benefit obligation
$
Current service cost
Interest on obligation
Actuarial (gains)/losses Losses/(gains) arising from curtailments
Liabilities extinguished for settlements
Liabilities assumed in a business combination
Balances at the ending of defined benefit obligation
$
20,610
$
4,683
1,636
8,475
2,251
(4,172)
-
33,483
$
20,423
3,743
1,268
17
(4,878)
37
20,610
23. Transactions with related parties
a. Employee benefits granted to Entity key management (and/or prominent executives) were as follows:
December, 31, 2012
Salaries and benefits
$
Statutory year and benefits
Bonus
Total
$
December, 31, 2011
320,714
$
26,726
81,643
429,083
$
303,622
25,788
147,870
477,280
b. Trading transactions
During the year, group entities entered into the following trading transactions with related parties that are not members of the Entity.
Balances as
of December 31, 2012
Purchase of land
$
141,302
$
4,726
Balances as o
f December 31, 2011
$
-
The following balances were outstanding at the end of the reporting period:
c. Loans to related parties
Loans to key management personnel
2012
$
14,658
2011
Transition date
$
4,699
The Entity has provided several of its key management personnel with short-term loans at rates comparable to the average commercial rate of interest.
The loans to key management personnel are unsecured.
The loans to Entity key management aren´t have guarantee.
67
24. Stockholder’s equity
As December, 31, 2012 and 2011 and transition date, the authorized common stock are follows
Shares outstanding
Share held in treasury
Balances at the beginning, 2011 549,442,784
624,700
Movements (55,175)4,638,800
549,387,609
5,263,500
Movements 4,921,576(4,921,576)
Balances at December 31, 2012 554,309,185
341,924
Authorized common stock
Share outstanding
Share held in treasury
Balances as of
December 31, 2011
555,396,540
554,309,185
341,924
555,396,540
549,387,609
5,263,500
Transition date
555,396,540
549,442,784
624,700
a. Stockholders’ equity, except restated paid-in capital and tax retained earnings, will be subject to income tax at the rate in effect when the dividend is distributed. The tax paid on this distribution can be credited
against the income tax paid on dividends and the tax of the year and estimated tax payments of the following two fiscal years.
b. The balances of the tax accounts of stockholders’ equity as of December 31, 2012, December 31, 2011 and January 1, 2011, are follows:
Balances as of
December 31, 2011
Transition date
Contributed capital account
$
4,052,287
$
3,912,985
$
3,769,372
Net tax income account
659,016
829,662
752,287
$4,711,303 $4,742,647 $4,521,659
c. Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of net income of the year be transferred to the legal reserve until the reserve equals 20% of capital stock
at par value (historical pesos). The legal reserve may be capitalized but may not be distributed unless the Entity is dissolved. The legal reserve must be replenished if it is reduced for any reason. As of December 31,
2012, 2011 and 2010 the legal reserve, in historical pesos, was $25,712.
At the stockholders’ ordinary meetings held on March 28, 2012, $1,000,000 was approved as the maximum amount for the reserve fund for the repurchase of the Entity’s own shares for fiscal years 2012.
25. Non-controlling interest
Balances as of
December 31, 2011
Transition date
Equity consolidated trusts and others
$
4,389,264
$
3,756,461
$
3,056,069
Retained earnings
1,033,904
758,998
435,539
Payments of non-controlling interest (3,579,130)
(2,597,312)
(1,548,442)
$1,844,038 $1,918,147 $1,943,166
68
26. Earnings per share
a. At the stockholders’ and Board of Directors’ extraordinary meetings held in April, May and August, 2001, the creation of an employee and executive incentive plan was approved, which is subject to the following
conditions:
I. Participants must act as an Entity officer during the established periods and under the respective terms, while recognizing that the value of shares will be $0.224 Mexican pesos.
II. Acquisition rights for shares will not have proportional effects based on the completed periods of the year; as such rights will only be generated on specifically established dates..
The shares of the officer and employee incentive plan were released on the following dates and at the following market values:
On July 31, 2012, the Entity made a transfer from the share buyback fund to a trust for the employees and officers incentive plan as follows; the release date refers to the notice to the Mexican stock market and the
value allocated is that which was disbursed at the repurchase date:
2012
Market
Stock
value per Released date
released
share
Market value Issued
value per
share
Issued value
Fair value of
officer incentive
plan
July 31, 2012 4,500,000
13.98
$
62,910
0.224
25.02
April 27, 2010 421,576
16.77
7,070
0.224
25.02
Total4,921,576
$ 69,980
$
112,801
10,726
123,527
2011
Market
Stock
value per Released date
released
share
Market value Fair value of
officer incentive
plan
Issued
value per
share
Issued value
June 15,2011
1,369,956
25.85
$
35,413
0.224
$
January, 14 2011
1,959,929
41.81
81,569
0.224
Total3,329,885
$ 116,982
$
307
$
35,106
437
81,131
744
$116,237
The difference between the original issuance value and the market value as of the release date generated a charge to results in 2011, 2010 and 2009, of $123,527, $116,237 and $142,983, respectively, generating a share
issuance premium credit for the same.
On May 27, 2011, 4,583,625 convertible debt securities of the “Employee and Officer Incentive Plan” were issued. They were acquired by a trust fund and on May 30, 2011 were converted into shares at par value of $0.224,
representing an increase in common stock of $1,027
On July 5, 2010, 5,005,234 convertible debt securities of the “Employee and Officer Incentive Plan” were issued. They were acquired by a trust fund and on July 6, 2010 were converted into shares at par value of $0.224,
representing an increase in common stock of $1,121.
27. Loan cost
Assets subject to capitalization
$
Total assets subject to capitalization
Reconciliation of borrowing cost for the year
Loan cost
$
Capitalized attributable to real estate inventories
Interest expenses recognized in results
$
20122011
16,011,333
$
16,011,333
15,916,339
15,916,339
2,150,712
$
(952,626)
1,198,086
$
1,863,040
(938,700)
924,340
During 2011, 2010 and 2009, cumulative capitalized amounts (before their transfer to cost of sales) in the development of real estate inventories were $16,011,333, $15,916,339, respectively
The annualized capitalization rate in 2011, 2010 and 2009, was 7.51% and 5.81%, respectively.
69
28. Other income
Changes in fair value of investment properties $
Recoverable Income
Gain on sales of mortgage Gain on sales of associated companies Loss (income) on sale of fixed assets
Loss in stockholder’s equity
Statutory employee profit sharing
Loss in purchase of row material Penalties and others
$
20122011
65,805
$
52,291
6,351
1,225
(849)
-
(10,033)
(494)
4,450
118,746
$
74,340
(27,591)
(26,126)
6,209
26,832
29. Income taxes
The Entity is subject to ISR and IETU.
The ISR rate is 30% for 2012 and 2011; it will be 29% for 2013, and 28% for 2014.
On December 7, 2009, amendments to the ISR Law were published, to become effective beginning in 2010. These amendments state that: a) ISR relating to tax consolidation benefits obtained from 1999 through 2004
should be paid in installments beginning in 2010 through 2014, and b) ISR relating to tax benefits obtained in the 2005 tax consolidation and thereafter, should be paid during the sixth through the tenth year after that
in which the benefit was obtained. Payment of ISR in connection with tax consolidation benefits obtained from 1982 (tax consolidation starting year) through 1998 may be required in those cases provided by law IETU Revenues, as well as deductions and certain tax credits, are determined based on cash flows of each fiscal year. Beginning in 2010, the IETU rate is 17.5%. The Asset Tax (IMPAC) Law was repealed upon enactment of the
IETU Law; however, under certain circumstances, IMPAC paid in the ten years prior to the year in which ISR is paid for the first time, may be recovered, according to the terms of the law.
Income tax incurred will be the higher of ISR and IETU.
Based on its financial projections the Entity determined that it will basically pay ISR. Therefore, it only recognizes deferred ISR.
a. Income tax expense recognized in the current year
Deferred income tax
$
Adjustments attributable to consolidation and excess in carryforwards Total
$
20122011
653,566
$
-
653,566
$
614,806
(15,520)
599,286
b. The reconciliation of the statutory and effective ISR rates expressed as a percentage of income before income taxes, are:
Statutory rate
Add the effect in permanent differences, mainly nondeductible expenses Other
Inflationary effect
Effective rate
70
20122011
%%
30.00
2.69
0.77
(0.49)
32.97
30.00
1.11
1.36
(5.03)
27.44
c. Deferred income tax in the consolidated statement of financial position:
The analysis of the deferred income tax assets/liabilities analyzing in the consolidated statement of the financial position is as follow:
20122011
Deferred income tax assets
$
Deferred income tax liabilities
$
(671,189)
$
3,472,540
2,801,351
$
(304,476)
2,452,261
2,147,785
c.
The benefits of restated tax loss carryforwards and recoverable IMPAC for which the deferred ISR asset has been recognized, can be recovered subject to certain conditions. Restated amounts as of December
31, 2012 and expiration dates are:
Year of expiration
Tax loss
Recoverable
carryforwardsIMPAC
2016
$
2018
2022
$
-
$
330,666
173,348
504,014
$
23,340
23,340
For determining the deferred ISR that is mentioned above, have been including the effect of loss carryforwards and recoverable IMPAC for $504,014 y $23,340, respectively.
d. Balances of the deferred income tax
2011
Balances at the
beginning
of the year
Balances
in statements
income
Balances
at the ending
of the year
Temporary differences
Accounts receivable
$
865,585
$
(2,273,314)
$
(1,407,729)
(398,376)
1,065,447
667,071
793,346
1,480,663
2,274,009
Investment properties221,144445,468666,612
Provisions(63,928)
(211,120)
(275,048)
Prepayments 309,998 (57,700)252,298
(63,687)
(41,278)
(104,965)
1,664,082
408,166
2,072,248
Tax loss carryforwards and tax credits no used
Tax loss carryforward (109,843)
(18,383)
(128,226)
Change in valuation allowance for unrecoverable deferred tax asset
-
225,023
225,023
Recoverable IMPAC
(21,260)
-
(21,260)
(131,103)
206,640
75,537
1,532,979
614,806
2,147,785
2012
Balances at the
beginning
of the year
Balances
in statements
income
Balances
at the ending
of the year
Temporary differences
Accounts receivable
$
(1,407,729)
$
1,500,843
$
93,114
667,071
(307,084)
359,987
2,274,009
(492,254)
1,781,755
Investment properties666,612300,295966,907
Provisions(275,048)(124,285)(399,333)
Prepayments
252,29818,479
270,777
(104,965)
8,852
(96,113)
2,072,248
904,846
2,977,094
71
2012
Balances at the
beginning
of the year
Balances
in statements
income
Balances
at the ending
of the year
Tax loss carryforwards and tax credits no used
Tax loss carryforward (128,226)
(24,177)
(152,403)
Change in valuation allowance for unrecoverable deferred tax asset
225,023
(225,023)
Recoverable IMPAC(21,260) (2,080)(23,340)
75,537
(251,280)
(175,743)
2,147,785
653,566
2,801,351
e. Tax Consolidation
The Entity performed mergers with its subsidiary companies; for the differences in the records of the net tax income accounts and reinvested net tax income accounts in the consolidated company it will be subject to
ISRD due to consolidation for up to $649,790, which it will pay as established in applicable tax provisions when it is determined.
The balances as of December 31, 2012 are as follow:
Year of payment
Amount
2013
$94,686
201477,954
201569,517
201653,906
201717,481
201811,191
201910,750
20201,324
20211
336,810
Current94,686
$242,124
30.Contingencies
a. During 2010, as a result of the publication of the reform to the tax law, the Entity determined a deferred tax liability, due to the decrease in the long-term liability and the increase in retained earnings of $649,798.
Based on the terms of such ruling, the Entity decided to revalue the premises used in the determination of the due and payable liability for ISRD; the calculations used on such bases are described below
b. The Entity has taken certain tax positions in its annual tax returns, classified as uncertain tax positions for financial reporting purposes, specifically those related to the Income Tax Law (LISR), in relation to the
position which should be added to the consolidated tax profit or deducted from the consolidated tax loss, under the terms of article 68, section II of the LISR. The effect of such deduction is approximately $235,457
at face values. According to the Entity’s legal advisers, there are sufficient legal grounds to uphold the deduction position. On January 3, 2010, the SAT began to exercise its official inspection powers, for which
reason it could eventually assess fines, surcharges and adjustments for inflation.
c. The Mexican Tax Authorities (“SAT”) notified the Entity of a tax liability it assessed due to improper offsetting of asset tax against income tax of 2007 for a historical amount of $195,595 (the restated amount plus
fines and surcharges is $385,896). Entity management and legal advisers believe that there are sufficient bases to uphold the offsetting made by the Entity
d. Due to its activities, the Entity is subject to several environmental provisions, waste water consumption and disposal regulations and other laws to conserve the environment and protected areas; therefore, it may
be subject to environmental audits and reviews. Management believes that there are no related known liabilities that are not included in the financial statements.
e. On February 15, 2010, the Entity filed an action for annulment with the tax authorities challenging the reforms to the tax consolidation regime included in the ISR Law effective as of 2010, specifically the following
72
aspects which adversely affect the Entity:
1. The transition regime (the years 2004 and previous years): Future obligations arising from tax losses for such years, obligations arising from the comparison of net tax income accounts (CUFIN) aggregated for
each subsidiary when compared to the consolidated CUFIN accounts, obligations arising from accounting dividends and other special consolidation items resulting in additional obligations for the Entity.
2. The regime applied as of the years 2005 through 2009: Future obligations arising from tax losses for such years, obligations arising from the comparison of net tax income accounts (CUFIN) aggregated for each
subsidiary when compared to the consolidated CUFIN accounts and additional obligations arising from accounting dividends.
During the plenary sessions of October 8 and 9, 2012, the Supreme Court ruled that, based on a joint interpretation of the articles in question, holding companies must reverse tax loss carryforwards at December
31, 2004 at the consolidated level based on their application of the procedure detailed in section IV of Article Third of the Degree to reform, augment, annul and establish different provisions of the Income Tax Law.
Likewise, the Magistrates of the Supreme Court ruled that Article Third of the aforementioned Decree, pursuant to articles 61 and 68, section II of the Income Tax Law in effect in 2005 did not violate the principles of
tax legality, proportionality and equity or the principle of non-retroactivity of laws, pursuant to articles 14 and 31, section IV of the Federal Constitution.
In this regard, the Entity’s legal advisers are unable to determine and evaluate the reasons why the Supreme Court ruled that the guarantee of non-retroactivity had not been violated. Accordingly, they are also unable
to determine whether the Supreme Court specifically ruled on tax losses generated prior to 1999. The Entity and its legal advisers therefore consider that, at the date of this report, and until such time as a verdict
is issued by the Supreme Court, they are unable to determine the potential effect of this verdict on the consolidated financial statements. However, at the date of this report, they also consider that the Entity need
not create a provision for this situation.
Furthermore, on December 17, 2012, the Federal Official Gazette published the “Decree to issue the Federal Incomes Law for fiscal year 2013”, which went into effect on January 1 this year.
With this Decree, a transitory provision is added that grants the tax authorities the power to forgive 80% of certain unpaid tax liabilities incurred prior to the year 2007 and 100% of the additional charges on such
liabilities, as well as 100% of the additional charges on the unpaid liabilities incurred in the year 2007 and thereafter.
In this specific case, the unpaid tax liability assessed on the Entity, issued on December 20, 2010 by the Central Administration for Tax Audits of Consolidating Companies, refers to those unpaid tax liabilities incurred
before January 1, 2007, which may therefore be partially forgiven as established in such Decree, subject to proper compliance. As a result, the maximum amount of that contingency as of December 31, 2012 would
be $ 73,554. However, at the date of issuance of this report the respective rules have not been published.
The loans and debts detailed in Notes 15 and 18 establish certain affirmative and negative covenants which may not be fulfilled because the Entity has since adopted IFRS, while these obligations were based on
Mexican Financial Reporting Standards (NIF). However, management of GEO is currently working with financial institutions to adapt these obligations to its current accounting framework.
31.Commitments
On August 19, 2003, an agreement was signed between Prudential Investment Management, Inc. (“Prudential”) and GEO, described as the “Residential Investment Program”.
The general purpose of the agreement is to establish an investment program for developing real estate projects that includes, among others, the purchase of land, the construction of housing, which may be affordable,
medium-income and upper-income housing, and shopping malls. The structure defined for the program includes the creation of a trust under the laws of the State of New York, U.S.A. (“NY Trust”), whose principal
participants will be the Entity, Prudential and other institutional investors, with GEO holding a minority interest. Phase I of the program contemplates contributions for a total of U.S.$175 million and Phase II, U.S.$280
million. The participation of GEO pursuant to the terms of the Master Trust allows it to exert significant influence on the projects, but not control them.
In accordance with the program, in each specific trust contract GEO or its subsidiaries must make a deposit (“Significant Deposit”) to the Master Trust equal to 10% of the acquisition cost of any land which will be
contributed to the specific trust. The deposit guarantees the trust the recovery of its investment, in order to construct the houses or develop the land.
GEO has no liability for any financing obtained by the Master Trust to finance these transactions. Accordingly, the risks and benefits for GEO in relation to the trusts are limited to the amount of its contribution, any
development cost it incurs and the respective allocation of income or loss to GEO, and any significant deposits which it has to make.
As of transition date, the Entity has 4 in Phase I of this program; respectively. The balance of work completed by the Entity is presented under the heading of real estate inventory with a value of $136,953
The commitment deposits under Phase I have been made for the amounts of $20,510 The Phase I was finish during 2011
73
As of December 31, 2012, 2011 and transition date, the Entity has 10, 15 and 19 projects in Phase II of this program, respectively. The balance of work completed by the Entity is presented under the heading of real estate
inventory with a value of $290,728, $278,733 and $247,781, respectively. As of December 31, 2012, 2011 and transition date, commitment deposit have been made for the amounts of $172,084, $164,632, and $190,406
Phase IV, a new investment phase, was implemented in June 2009 with Prudential for U.S.$545 million. This is a revolving program contracted for a seven-year period. Work completed by GEO will be presented under the
heading of real estate inventories. Prudential has purchased land with a value of $575,665, $1,997,598, and $973,813 as of December 31, 2012, 2011 and transition date respectively, and that refer to 6, 11an 4 projects
with commitment deposit have been made for the amounts$48,116, $288,176 and $84,718, as of December 31, 2012, 2011 and date transition, respectively.
In June 2010 a new strategic program was implemented with Prudential to create the Macro Project or Integrally-Planned and Sustainable Cities Project with a capital investment of up to U.S.$1,000 US Dollars over the
next 10 years. Fund capital will be used to acquire large extensions of land and develop infrastructure, urbanization and the equipment needed to generate “Macro Lots” with land use rights, residential, commercial,
industrial and equipment services.
In June 2010, the initial stage was executed in which the Fund invested in the first phase of Valle de Las Palmas, located in Tijuana, B.C., with an area of 347 hectares and a value of U.S.$108.3 million. The project is based
on land that will be used to develop more than 18,000 homes, as well as industrial and commercial properties. The principal characteristics of this program are:
Works Contract Payment: GEO receives a 15% advance 12 months after project startup, 85% based on work completion and a 5% withholding against the delivery of the “Macro Lots”.
Work and Budget Supervision: GEO will receive work and budget supervision fees.
GEO Fees: 3% of the total investment budget based on each partial payment and 2% of sales, excluding GEO residential areas.
Additional costs: any cost in addition to those approved in the Master Plan must be paid by GEO.
GEO areas: GEO maintains purchase options for at least 50% of saleable land.
32. Commitments for rentals
a) Machinery services:
1) On April 20, 2011, the Entity entered into a contract machinery services with Trust number F/00762 and The Bank of New York Mellon, S.A. Institución de Banca Múltiple (acting as the trust’s fiduciary) for a
10-year period. The Trust paid the Entity the amount of US $55,059 as an incentive to perform the contract. As of December 31, 2011, the Entity has accrued US $12,847, leaving US $5,505 and US $36,706 to be
accrued ($71,376 y $475,923, in the short-term and long-term, respectively), which will be accrued as the machinery services are rendered over the contract term. The payments expected from such contract,
assuming that the services equivalent to approximately 720,000 hours each quarter were effectively provided, are as follows:
Thousands of U.S.
dollars
201344,043
201447,787
201551,849
201656,256
201761,037
2018 and thereafter
246,241
507,213
74
2) On April 20, 2011, Geo Importex subsidiary of the Entity signed a machinery services contract with Trust F/00762 and The Bank of New York Mellon, S.A. Institución de Banca Multiple (as Trustee of the Trust) to
operate and maintain the machinery sold to a trust for a period of ten years. The minimal expected payments to be made by the Entity under the contract for the machinery services to be provided are as follows:
Thousands of U.S.
dollars
201317,798
201418,421
201519,065
201619,733
201720,423
2018 and thereafter
100,552
195,992
b)Leases:
Leases
Aircraft(1)
Buildings
Machinery and equipment
Sales expenses
Minimum term
2012
2011
10 years$8,367$7,715
15 years37,77338,131
1 year
7,441
7,444
(1)
The basic rental payment is US$673 and is adjusted by an adjustment factor consisting of the LIBOR rate in effect at the beginning of each quarterly period, plus 1.11%.
c) Other compromises:
The Entity has assumed the commitment to construct different construction works benefiting the local communities where its projects are located, such as schools, parks, clinics, etc., as part of the licenses and
authorizations, in accordance with the regulations in effect in each location. These expenses are already integrated on each project budget.
75
33. Business segment information
Operating segment information is presented according based on management’s focus when making decisions regarding resource allocation and evaluation of performance. The business segment information is
presented for the periods ending December 31, 2012 and 2011. The Entity has identified eight segments, based on the regions in which it operates: Center region (Estado de México, Hidalgo and Distrito Federal), South
(Veracruz, Puebla, Tamaulipas, Oaxaca, Chiapas and Tabasco), Pacific (Guerrero and Morelos), West (Jalisco, Nayarit, Sinaloa and Sonora), Northeast (Nuevo León, Tamaulipas, Coahuila and Durango), Northwest (Baja
California Norte), Southeast (Querétaro, Guanajuato and Aguascalientes), and Holding Company and others (Corporate services, equipment and logistics services).
a. Analytic information by operating segment in the consolidated statement of comprehensive income.
Statement of Income
Center
South
Pacific
Units sold 19,230 15,081 5,877
Average prices
$ 349$
271 $ 469
7,206,401
4,293,756
2,478,376
(4,839,442)
(3,096,462)
(1,489,330)
Gross margin2,366,9591,197,294989,046
Selling, general and administrative expenses and other income (expenses)
(787,996)
(522,200)
(376,675)
1,578,963
675,094
612,371
Financing cost (158,585) (92,885) (94,682)
Gain (loss) of associated companies, trusts and others
20,684
(40,991)
12,494
Income taxes (315,912) (183,041) (162,969)
Consolidated net income
$1,125,150 $ 358,177 $ 367,214
Statement of Income
Center
South
Pacific
Units sold 18,733 11,257 8,849
Average prices
$ 342$
286 $ 460
6,896,539
3,555,778
4,157,680
(4,443,420)
(2,192,055)
(2,727,815)
Gross margin 2,453,119 1,363,723 1,429,865
Selling, general and administrative expenses and other income (expenses)
(1,149,595)
(795,896)
(559,722)
1,303,524
567,827
870,143
Comprehensive financing cost
(225,222)
(88,300)
(37,197)
Gain (loss) of associated companies, trusts and others
15,323
(22,654)
4,728
Income taxes (129,881) (138,925) (241,153)
Consolidated net income
$
963,744
$
317,948
$
596,521
Statement of Income
Center
$
10,299,972
$
Investment properties1,679,452
Investments in associated companies, trusts and others
1,100,372
Other assets – Net
2,953,101
Total
$16,032,897 $
South
Pacific
4,109,725
$
4,577,489
4,8041,013,877
164,923
398,991
1,100,203
3,252,916
5,379,655 $ 9,243,273
Liabilities by segments (1) 8,424,835 4,056,727 6,697,459
Investment capital stock (2)(20,572) (13,483)(33,168)
38,518
4,050
252,734
Statement of Income
Center
South
Pacific
$
10,197,892
$
4,465,934
$
4,570,407
Investment properties1,671,777
4,804 175,991
362,486
229,982
387,215
Other assets – Net
13,700,551
5,298,557
8,062,808
Total
$25,932,706 $ 9,999,277 $13,196,421
Liabilities by segments (1) 7,858,379 3,831,339 5,941,190
Investment capital stock(2) (61,289) (43,344) (67,228)
36,961
706
89,936
(1)
Segment liabilities include operating liabilities for each segment
Investments of capital stock include acquisition of property, plant and equipment investment in concessions, investment property and others assets.
(2)
76
West
Northeast
Northwest
Southeast
Holding Company
Eliminations
Total
5,308 5,040 4,422 4,097-- 59,055
$ 286$ 261$ 249$ 277$
-$
-$ 315
1,766,025
1,212,388
1,228,283
1,263,219
2,267,528
(2,637,666)
19,078,310
(1,347,666)
(970,962)
(832,299)
(947,191)
(1,475,867)
1,967,799
(13,031,420)
418,359241,426395,984
316,028791,661
(669,867)
6,046,890
(253,390)
(266,103)
(284,463)
(160,593)
(869,837)
501,401
(3,019,856)
164,969
(24,677)
111,521
155,435
(78,176)
(168,466)
3,027,034
687 (57,714) (52,355) (4,583) (524,575) (25,451)(1,010,143)
9,672
-
-
-
1,257,519
(1,294,378)
(35,000)
(33,364) 16,779 (17,738)(28,792) 83,573(12,102)(653,566)
$ 141,964$ (65,612)$ 41,428$122,060$ 738,341$
(1,500,397)$
1,328,325
West
Northeast
Northwest
Southeast
Holding Company
Eliminations
Total
4,271 5,673 5,871 3,369
-
- 58,023
$ 302$ 274$ 258$ 315$
-$
-$ 329
1,448,714
1,105,466
2,196,431
1,108,502
1,797,095
(2,161,384)
20,104,821
(963,056)
(746,923)
(1,491,299)
(779,870)
(591,339)
217,244
(13,718,533)
485,658 358,543 705,132 328,632 1,205,756
(1,944,140)6,386,288
(329,717)
(322,214)
(437,248)
(213,174)
(470,099)
1,105,707
(3,171,958)
155,941
36,329
267,884
115,458
735,657
(838,433)
3,214,330
(24,859)
(10,053)
(61,789)
(14,845)
(634,071)
152,275
(944,061)
10,482
-
-
-
1,419,459
(1,514,372)
(87,034)
(22,616) (4,074) (20,344) (18,025) (9,010) (15,258)(599,286)
$
118,948
$
22,202
$
185,751
$
82,588
$
1,512,035
$
(2,215,788)
$
1,583,949
West
Northeast
Northwest
Southeast
Holding Company
Eliminations
Total
$
1,965,847
$
1,960,332
$
3,921,113
$
750,312
$
397,174
$
27,981,964
244,730
- 157,245110,914 12,000
-3,223,022
246,602
-
-
-
13,129,909
(14,702,948)
337,849
1,605,889
720,867
913,765
619,807
17,893,381
(19,159,186)
9,900,743
$ 4,063,068 $2,681,199 $4,992,123 $1,481,033 $31,432,464 $
(33,862,134) $
41,443,578
2,815,7552,428,9823,772,085 903,04119,856,177
(18,841,435)
30,113,626
(24,603) (4,831) (3,113)(2,268)(149,620) -
(251,658)
3,350
21,094
2,636
-
100,491
-
422,873
West
Northeast
Northwest
Southeast
Holding Company
Eliminations
Total
$
2,181,830
$
1,887,836
$
3,999,544
$
946,156
$
215,736
-
$
28,465,335
-
- 6,461108,739
-
-1,967,772
237,518
3,515
-
-
10,334,657
(11,113,679)
441,694
3,517,311
2,539,211
5,150,354
1,383,363
24,989,141
(54,379,844)
10,261,452
$ 5,936,659 $ 4,430,562 $ 9,156,359 $2,438,258 $35,539,534 $
(65,493,523) $41,136,253
2,226,4882,085,7033,773,555 755,46215,663,628
(11,105,639)
31,030,105
(70,501)(11,760)(40,561)(4,801)(293,651)
-
(593,135)
3,638
18,866
2,587
1,249
243,767
-
397,710
77
34. Subsequent event
On February 11, 2013, the national housing policy was announced, which is based on four strategies: (i) achieve better inter-institutional coordination, (ii) move towards a sustainable, smart urban development model,
(iii) reduce the housing deficit and (iv) provide appropriate housing for all Mexicans.
The four strategies will be coordinated by the Department of Agrarian, Territorial and Urban Development (Sedatu) through the National Housing Commission (Conavi), the Commission for Landholding Regularization
(Corett) and the public trust named National Budget Housing Fund (Fonhapo).
The aforementioned policy establishes that a transition period of up to 24 months will be established to enable all the participants to make the necessary changes.
Consequently, at the date of this report the Entity’s management is still waiting to ascertain the actions and effects of such policy, so they cannot be quantified at this moment.
35. Explanation of adopting International Financial Reporting Standards
a. Adoption of International Financial Reporting Standard
The consolidated financial statements as of and for the year ended December 31, 2011, were the Entity’s last set of consolidated financial statements prepared in accordance with MFRS. The Entity’s transition date
to IFRS is January 1, 2011. In the preparation of the accompanying consolidated financial statements under IFRS, transition rules have been applied to the figures previously reported in conformity with MFRS. IFRS
1 generally requires the retrospective application of the standards and interpretations applicable to the date of transition. However, IFRS 1 allows for certain mandatory exceptions and voluntary exemptions to the
retrospective application of certain standards, in order to assist entities in the transition process.
The Entity has applied the following mandatory exceptions to retrospective application of IFRS, as required by IFRS 1, as follows:
1. Calculations of estimates - Estimates at the date of transition are consistent with estimates at the same date under Mexican Financial Reporting Standards (MFRS), unless there is evidence of error in these
estimates.
2. Hedge accounting - Hedge accounting will be applied only if the hedge relationship meets the criteria established by IAS 39 as of the date of transition.
3. Non-controlling interests - Certain requirements to recognize and present non-controlling interests will be applied prospectively as of the date of transition. According IAS 27 (2008) “Separated financial
statement”.
The Entity chose the following optional exemptions to the retroactive application of IFRS as following:
Fair value measurement of financial assets recognition - The Entity will not apply the exemption.
Classification and measurement of financial assets- Since the entry into force of this exception is mandatory for periods beginning on or after January 1, 2013, shall not apply to the Entity.
Fair value or assumed cost - The Entity is assessing the application of the assumed cost exemption for certain assets of the property, plant, and equipment line item and the possibility of using the amount restated
under the NIF as of the transition date.
Leases - The lease exemption will be applied; therefore, the Entity determined whether an agreement in effect at the date of transition contains a lease based on facts and circumstances existing as of that date.
Employee benefits -The employee benefits exemption will be applied; therefore, all actuarial gains (losses) cumulative as of the date of transition are recognized.
Business combinations -The business combinations exemption will be applied; therefore, no reformulations have been made to business combinations that took place before the date of transition.
Loan costs - The Entity will apply the exemption to apply the requirements of IAS 23 Loan Costs, as of the transition date.
b. Consolidated statement of comprehensive income
The Entity elected a single-statement presentation of its comprehensive income, which includes a line item for consolidated net income; for the years ended as of December 31, 2012 and 2011, the Entity did not
generate any other comprehensive income or loss items other than net income of the periods. The unaudited condensed consolidated statements of comprehensive income present a separate line item for income
from operations; costs and expenses were classified in accordance with their function due to the different economic and business activities of the Entity.
The following reconciliations provide quantification of the effects of transition and the impact on stockholders’ equity at December 31, 2011 and transition date, and the consolidated statement of comprehensive
income at December 31, 2011.
The explanation about adjustments determined between IFRS and MFRS are as follows:
a) Under MFRS, the Entity recognized revenues from the sale of real estate when the respective public deeds were issued. However, under IAS 18, revenues must be recognized when, aside from the risks and
rewards inherent to ownership transferring to the customer, the control of the real estate must also transfer to the buyer, which occurs when previously notarized property is delivered. The Entity therefore
modified its accounting policy under IFRS to recognize revenues when real estate is delivered, as this is the point in time where it has no continuous involvement with such property and control is transferred.
Additionally, this change to affect the amount of real estate inventory and its classification between short and long term.
78
Related with the change in revenue recognition policy mentioned above, have been reclassified real estate inventory from short term to long term for $3,817,267 and $3,185,393, as of December 31, 2011 and
transition date.
b) Under MFRS, the Entity valued land acquired for speculation purposes, rather than for housing development, at cost. Under IFRS, as this land fulfills the definition of investment property, the Entity has opted to
value its investment properties at fair value, as permitted by IAS 40, Investment Property.
c) Under MFRS, account receivable securitization and factoring programs in which there were no claims against the Entity were recorded as sales; the accounts receivable subject to these programs were therefore
eliminated from the statement of financial position at the transfer date. According to IFRS, the Entity must not only evaluate whether it is subject to claims based on these transfers, but must also consider the
consolidation of program vehicles and the extent to which the risks, rewards and control of accounts receivable have been transferred to its counterpart. Based on an analysis, the Entity concluded that the
accounts receivable subject to these portfolio sale programs must not be eliminated from the statement of financial position according to IAS 39, Financial Instruments: Recognition and Measurement, and
subsequently recorded them, together with obligations under future credit right contracts.
d) Under MFRS, the Entity amortized debt issuance costs by using the straight-line method. However, IFRS require that these costs be applied based on the effective interest method. Additionally, IFRS requires their
presentation net of the related debt as opposed to within other assets. Additionally the net presentation of loan is required, to contrary of other assets
e) Under MFRS, the consideration of credit risk was not required for the valuation of derivative financial instruments at fair value. However, according to IFRS, credit risk must be considered as one of the inputs in
the determination of fair value of derivative financial liabilities.
f) The Entity reviewed and identified components of fixed assets to be depreciated separately, according to IFRS, while also assigning useful lives to new components and adjusting their depreciation. This
separation of components and the adjustment of their depreciation were not required by the accounting policy established under MFRS.
g) Under MFRS, the Entity valued its land acquisition obligations without including an explicit interest rate based on the fair value of these goods. However, under IFRS, the Entity values its long-term land
acquisition commitments at present value.
h) At January 1, 2011, the Entity recorded its labor obligations according to IAS 19, Employee Benefits. Consequently, the severance liability recorded in conformity with the MFRS was eliminated because it did not
reflect the definition of a severance payment liability established by IAS 19; additionally, all cumulative actuarial gains (losses) as of the transition date were recognized.
i) The Entity recognized certain finance leases according to the criteria in IAS 17, Leases.
j) The Entity recognized obligations contracted with state and municipal governments derived from the granting of construction permits and licenses according to IAS 37, Provisions, Contingent Liabilities and
Contingent Assets.
k) The Entity recalculated deferred taxes according to IAS 12, Income Taxes, based on asset and liability values adjusted in conformity with IFRS.
Reconciliation between IFRS and MFRS - The following reconciliations provide quantification of the effects of transition and the impact on stockholders’ equity as transition date at December 31, 2011, and January
1, 2011, all unaudited, as follows:
1) Stockholders’ equity effects for the adoption
Adjustment
Description
December 31, 2011
January 1, 2011, transition date
Stockholders’ equity under MFRS
$
10,737,512
$
9,324,453
a. Revenue recognition upon housing delivery and transfer of legal title
(1,730,919)
(1,441,516)
b. Valuation of investment properties
738,147
824,871
d. Recognition of the application of debt issuance costs using the effective interest rate method
(104,855)
(104,855)
h. Labor obligations
90,807
53,819
k. Deferred income tax effects
349,002
277,439
f, g and j. Recognition of machinery, depreciation by component, land acquisition obligations and obligations contracted
26,454
(74,282)
(631,364) (464,524)
Stockholders’ equity under IFRS
$
10,106,148
$
8,859,929
2) Comprehensive income
Adjustment
Description
Balances as of
December 31,
2011
Net comprehensive income under MFRS
$
1,750,789
a. Revenue recognition upon housing delivery and transfer of legal title
(289,403)
k. Deferred income tax effects
71,563
h. Labor obligations
36,988
f, g and j.Recognition of machinery, depreciation by component, land acquisition, obligations and obligations contracted
14,012
Total adjustments l(166,840)
Net comprehensive income according to IFRS
$
1,583,949
79
3) Effects of adoption in the consolidated statement of financial position as of December 31, 2011
Adjustment
MFRS
Current assets:
$
a y c. Accounts receivable – Net
a, b, g y j. Real estate inventories
I Prepayments and other
Current assets
2,721,166
$
2,682,782
15,440,576
2,002,453
22,846,977
IFR Transition
effects -
$
(1,629,467)
(1,257,743)
(619,625)
(3,506,835)
IFRS
2,721,166
1,053,315
14,182,833
1,382,828
19,340,142
10,465,235
3,817,267
14,282,502
b.
Investment properties -
1,967,772
1,967,772
441,694
-
441,694
f. Property, plant, machinery and equipment – Net
2,938,674
279,234
3,217,908
d. Prepayments and other
1,183,136
273,321
1,456,457
429,778
-
429,778
Total assets
$
38,305,494$
2,830,759$
41,136,253
Notes payable to financial institutions
$
3,985,688
$
-
$
3,985,688
657,135
-
657,135
i Current portion of long-term finance leases
-
70,535
70,535
c. Obligations under sale of receivables contracts
1,633,016
1,720,356
3,353,372
Employee benefits37,665 -37,665
g. Amounts payable to suppliers of land held for development
1,016,314
(219,169)
797,145
Accounts payable to suppliers
4,191,437
-
4,191,437
a. Advance from customers
579,246 2,099,479
2,678,725
j. Accrued expenses, taxes payable and other current liabilities
2,204,656 286,085
2,490,741
Current portion of incentive related to unaccrued machinery service 76,720 -
76,720
g. Deferred income taxes
128,590 -
128,590
Total current liabilities
14,510,467 3,957,286 18,467,753
d. Long-term debt
9,163,347
(250,432)
8,912,915
326,677 (131,950)
194,727
i.
Finance leases -
327,028
327,028
Incentive related to unaccrued machinery service
639,335 -
639,335
h.
Employee benefits111,417(90,807)20,610
-
-
Long-term income tax payable
319,952 -
319,952
k. Deferred income taxes
2,496,787 (349,002)
2,147,785
Total liabilities
27,567,982 3,462,123
31,030,105
Stockholders’ equity:
Common stock
Additional paid in capital
Retained earnings
Total
$
80
124,502 933,723 867,918 7,011,197 8,937,340 1,800,172 10,737,512 38,305,494 $
-
-
-
(749,339)
(749,339)
117,975
(631,364)
2,830,759
$
124,502
933,723
867,918
6,261,858
8,188,001
1,918,147
10,106,148
41,136,253
4) Effects of adoption in the consolidated statement of financial position as of January 1, 2011
Adjustment
MFRS
IFR Transition
effects IFRS
$
2,228,429
$
-
$
2,228,429
a y c. Accounts receivable - Net
1,079,241
(553,942)
525,299
14,768,422
(874,640)
13,893,782
I Prepayments and other
1,485,275
(312,541)
1,172,734
Total current assets
19,561,367
(1,741,123)
17,820,244
6,360,788
3,185,393
9,546,181
b.
Investment properties -
1,689,087
1,689,087
492,387
-
492,387
f. Property, plant, machinery and equipment - Net
2,763,090
74,985
2,838,075
d. Other assets – Net
928,806
90,050
1,018,856
Total
$
30,106,438$
3,298,392$
33,404,830
Notes payable to financial institutions $
2,486,571
$
-
$
2,486,571
Current portion of long-term debt 296,647
-
296,647
i. Current portion of finance leases
-
42,335
42,335
c. Obligations under sale of receivables contracts
1,316,832
1,666,564
2,983,396
Employee benefits67,129 -67,129
1,007,510
(112,763)
894,747
Accounts payable to suppliers
3,155,070
-
3,155,070
a. Advance from customers
784,480
2,170,648
2,955,128
j. Accrued expenses, taxes payable and other current liabilities
1,548,978
350,998
1,899,976
Income tax payable
45,165
-
45,165
10,708,382
4,117,782
14,826,164
d. Long-term debt
6,417,014
(119,392)
6,297,622
617,283
(61,980)
555,303
i.
Finance leases -
157,764
157,764
h. Direct employee benefits
103,842 (53,819) 50,023
681,760
-
681,760
Long-term income tax payable
443,286
-
443,286
k. Deferred income taxes 1,810,418 (277,439)
1,532,979
Total liabilities
20,781,985
3,762,916
24,544,901
Stockholders’ equity:
Common stock
123,475 -
123,475
Additional paid in capital
817,486 -
817,486
974,434 -
974,434
Retained earnings
5,574,154
(572,786)
5,001,368
7,489,549
(572,786)
6,916,763
1,834,904
108,262
1,943,166
9,324,453 (464,524)
8,859,929
Total
$
30,106,438$
3,298,392$
33,404,830
81
5) Effects of adoption in the consolidated statement of financial position as of December 31, 2011
Adjustment
MFRS
Cash in operating activities
a, i and h Income before income taxes
$
i and b Transactions that did not affect cash flow
Changes in assets and liabilities
a, d,f,h, i, j and k Net cash in operating activities
i and d Net cash in investing activities
I and d Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
2,421,638
$
2,444,392
(5,085,097)
(219,067)
(600,101)
1,311,905
492,737
2,228,429
2,721,166
$
36. New and revised IFRSs that are available for early application
Management does not apply the new IFRS that have been tested but not yet implement:
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities
Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures
Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance
IAS 19 Employee Benefits (as revised in 2011)
IAS 27 Separate Financial Statements (as revised in 2011)
IAS 28 Investments in Associates and Joint Ventures (as revised in 2011)
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
82
IFR Transition
effects (238,403)
$
(993,736)
1,505,081
272,942
6,966
(279,908)
-
-
-
$
IFRS
2,183,235
1,450,656
(3,580,016)
53,875
(593,135)
1,031,997
492,737
2,228,429
2,721,166
IFRS 9, Financial Instruments
IFRS 9 issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 amended in October 2010 includes the requirements for the classification and
measurement of financial liabilities and for recognition.
Key requirements of IFRS 9 are described as follows:
• IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, debt
investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal
outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent
accounting periods.
• The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability (designated as at fair value
through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of changes in the
fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability´s credit
risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability´s credit risk are not subsequently reclassified to profit
or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.
IFRS 9 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.
Management anticipate that IFRS 9 will be adopted in the Entity’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of IFR 9 may have significant impact on
amounts reported in respect of the Entity’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.
IFRS 10, Consolidated Financial Statements
IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements. SIC-12 Consolidation-Special Purpose Entities has been withdrawn upon the
issuance of IFRS 10. Under IFRS 10, there is only one basis for consolidation that is control. In addition, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure,
or rights, to variables returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor´s returns. Extensive guidance has been added in IFRS 10 to
deal with complex scenarios.
IFRS 11, Joint Arrangements
IFRS 11 replaces IAS 31 Interests in Joint Ventures. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should classify. SIC-13 Jointly Controlled Entities-Non –monetary
Contributions by Ventures has been withdrawn upon the issuance of IFRS 11.Under IFRS 11, joint arrangements. In contrast, under IAS 31, there are there types of joint arrangements: jointly controlled entities, jointly
controlled assets and jointly controlled operations.
In addition, joint ventures under IFRS 11 are required to be accounted for using the method of accounting, whereas jointly controlled entities under IAS 31 can be accounted for using the equity method of accounting or
proportionate accounting.
IFRS 12, Disclosure of Interests in Other Entities
IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS
12 are more extensive than those in the current standards.
These five standards are effective for annual periods beginning on or after January 1, 2013. Earlier application provided that all of these five standards are applied early at the same time.
Management anticipate that these five standards will be adopted in the GEO’s consolidated financial statements for the annual period beginning January 1, 2013.The application of these five standards may have
significant impact on amounts reported in the consolidated financial statements. The application of IFRS 10 may result that GEO no longer consolidating some of its investees, and consolidating investees that were
not previously consolidated. Under IFRS 11, a jointly controlled company may be classified as a joint operation or joint venture, depending on the rights and obligations of the parties to the joint arrangement. However,
management has not yet performed a detailed analysis of the impact of the application of these standards and hence has not yet quantified the extent of the impact.
83
IFRS 13, Fair Value Measurement
IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The Standard defines fair value, establishes a framework for measuring fair value, and
requires disclosures about fair value measurements. The scope or IFRS 13 is broad; it applies to both financial instruments items and non-financial instrument items for which other IFRSs require or permit fair value
measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in IFRS 13 are more extensive than those required in the current standards.
For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only under IFRS 7 Financial Instruments: Disclosures will be extended by
IFRS 13 to cover all assets and liabilities within its scope.
IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted.
Management anticipate that IFRS 13 will be adopted in the GEO´s consolidated financial statements for the annual period beginning January 1, 2013 and that the application of the new Standard may affect the amounts
reported in the financial statements and results in more extensive disclosures in the financial statements.
IAS 1, Presentation of Items in Other Comprehensive Income
The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1
require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories (a) items that will not be reclassified subsequently
to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis.
The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in
the future accounting periods.
IAS 12, Deferred Tax – Recovery of Underlying Assets
The amendments to IAS 12 provide an exception to the general principles in IAS 12 that the measurement of deferred tax assets and deferred tax liabilities should reflect the tax consequences that would follow from
the manner in which the Entity expects to recover the carrying amount of an asset. Specifically, under the amendments, investment properties that are measures using the fair value model in accordance with IAS 40
Investment Property are presumed to be recovered through sale for the purposes of measuring deferred taxes, unless the presumption is rebutted in certain circumstances.
IAS 19, Employee Benefits
The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets.
The amendments require the recognition of changes in defined benefit obligations and in fair value of plan asset when they occur, and hence eliminate the “corridor approach” permitted under the previous version of
IAS19 and accelerate the recognition of past service costs.
The amendments require all actuarial gains and losses to be recognized immediately through other comprehensive income in order for the net pension assert or liability recognized in the consolidated statement of
financial position to reflect the full value of the plan deficit or surplus.
The amendments to IAS 19 are effective for annual periods beginning on or after January, 1, 2013 and require retrospective application with certain exceptions. The directors anticipate that the amendments to IAS 19 will
be adopted in the Entity’s consolidated financial statements for the annual period beginning January, 1, 2013 and that the application of the amendments to IAS 19 may have impact on amounts reported in respect of the
GEO´s defined benefit plans. However, management has not yet performed a detailed analysis of the amendments and hence has not yet quantified the extent or the impact.
Amendments to IAS 1 Presentation of Financial Statements as part of the Annual Improvements to IFRSs 2009-2011Cycle, which provide guidance on when the statement of financial position as at the beginning
of the earliest comparative period and the related notes are required to be disclosed (effective 1 January 2013).
• Amendments to IAS 16 Property, Plant and Equipment, and
• Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities.
The amendments clarify that spare parts, stand-by equipment and servicing equipment should be classified as property, plant and equipment when they meet the definition of property, plant and equipment in IAS 16
and as inventory otherwise.
The amendments clarify that income tax on distributions to holders of an equity instrument and on transaction costs of an equity transaction should be accounted for in accordance with IAS 12.
84
37. Consolidated financial statement issuance authorization
On February 18, 2013, the issuance of the consolidated financial statements was authorized by Luis Orvañanos Lascurain, Chairman of the Board of Directors and Chief Executive Officer; Daniel Gelové Gómez, Deputy
Director of Administration; Saúl H Escarpulli Gómez, Deputy Director of Finance and Jorge Issac Garcidueñas de la Garza, Deputy Legal Director. These consolidated financial statements are subject to approval at the
stockholders’ ordinary general meeting, where they may be modified, based on the provisions of the Mexican General Companies Law.
38. Subsidiaries and trust
As of December 31, 2012, 2011 transition date, the Entity consolidates the following investments in associated companies and trusts:
2012
Percentage of participation
2011
Transition date
Subsidiaries
Consolidado de Nuevos Negocios, S.A. de C.V.
Construcciones BIPE, S.A. de C.V.
Crelam, S.A. de C.V.
Evitam, S.A. de C.V.
Geo Baja California, S.A. de C.V.
Geo Edificaciones, S.A. de C.V.
Geo Urbanizadora Valle de las Palmas, S.A. de C.V.
Geo Guerrero, S.A. de C.V.
Geo Hogares Ideales, S.A. de C.V.
Geo Importex, S.A. de C.V.
Geo Jalisco, S.A. de C.V.
Geo Noreste, S.A. de C.V.
Geo Monterrey, S.A. de C.V.
Geo Morelos, S.A. de C.V.
Geo Oaxaca, S.A. de C.V.
Geo Puebla, S.A. de C. V
Geo Casas del Bajío, S.A. de C.V.
Geo Tamaulipas, S.A. de C.V.
Tiendas Geo, S.A. de C.V. Geo Veracruz, S.A. de C.V.
Inmobiliaria Anso, S.A. de C.V.
Geo Producción Industrial, S.A. de C.V.
Maquinaria Especializada MXO, S.A. P. I. de C.V. Lotes y Fraccionamientos, S.A. de C.V.
Administradora Profesional de Inmuebles Bienestar, S.A. de C.V.
Promotora Turística Playa Vela, S.A. de C.V.
Sinergeo, S.A. P. I. de C.V.
Geo D. F., S.A. de C.V. Geopolis, S.A. de C.V.
La Tienda de Don Eco, S.A. de C.V.
Opciones a tu Medida TG, S.A. de C.V. (formerly Geopolis Zumpango, S.A. P. I. de C.V.) (1)
K-be Diseño y Funcionalidad, S.A. de C.V.
Geo Alpha Baja California, S.A. de C.V. (2)
Administradora Alpha, S.A. P. I. de C.V. (2)
Geo del Noroeste, S.A. de C.V.
GEO ICASA, S.A. de C.V.
Sociedad Financiera Equípate, S.A. de C.V., SOFOM, E. N. R.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
99
99
100
100
100
100 100100
100
100
100
- 100100
83.33100 100
100
100
100
100
100
75
75
75
(1)
On May 30, 2012, subsidiary Geopolis Zumpango, S.A. P. I. de C.V., changed its business name to Opciones a tu Medida T. G., de S.A. de C.V., in order to expand its corporate purpose.
(2)
The Entity merged with Administradora Alpha, S.A. P. I. de C.V., formerly Administradora Alpha, S.A. de C.V., on April 30, 2012.
85
Trust – The most important trusts in the consolidated financial statement are:
86
Trust
2012
Percentage of participation
2011
Banamex (F-168082) Macro Crédito
HSBC (F-257966) Pocitos
Bank of New York (F-00669) Calimaya II
JP Morgan (F-00370) Chalco
JP Morgan (F-00470) La Florida
HSBC (F-262170) Acolman
HSBC (F-262200) Pachuca
JP Morgan (F-00471) Mata de Pita
JP Morgan (F-00596) San Gabriel
HSBC (F-262552) Arco Antiguo
HSBC (F-257508) Loma Alta
JP Morgan (F-00426) Joyas Ixtapa
HSBC (F-254185) El Porvenir
HSBC (F-256048) Senderos del Lago
Bank of New York (F-00622) Las Delicias III
HSBC (F-254614) Salinas Victoria
HSBC (F-255955) Ozumbilla
HSBC (F-305490) Hacienda del Bosque
Bank of New York (F-00658) San Juan del Río
HSBC (F-262080) Tequisquipa
HSBC (F-304409) Arvento II
HSBC (F-262145) Cayaco
HSBC (F-304395) Nuevo Vallarta
HSBC (F-262153) Lobato
HSBC (F-300217) Salinas Victoria II
HSBC (F-254622) San Miguel
JP Morgan (F-00389) Los Quemados
JP Morgan (F-00416) Valle de San Miguel
JP Morgan (F-00533) Vallarta
HSBC (F-232092) Los Cenizos
HSBC (F-231118) San Juan de las Vegas
HSBC (F-262218) Morrocoy II
HSBC (F-302694) Iztacalco
HSBC (F-254630) San Rafael
HSBC (F-302686) Talisman
Bank of New York (F-00648) San Francisco Ocotlán
Bank of New York (F-880) Portal de Xaltipa
Bank of New York (F-881) Tenango del Valle
100
91
88
90
92
88
91
91
90
89
94
88
88
88
87
87
87
85
86
86
89
85
85
84
85
80
82
80
83
77
77
74
73
72
71
-
78
77
100
94
94
93
92
91
91
91
90
89
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86
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78
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73
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71
50
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-
Transition date
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89
100
91
90
85
91
90
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94
87
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89
88
88
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79
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81
76
76
90
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50
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OUR COVER
Contact
GEO’s building today for a better tomorrow’ strategy has been the
Company’s main objective for many years, which is a sign that we
remaincommittedto offering GEO homebuyers an improved quality of
life atsustainable communities where they can build their own equity.
Corporate Headquarters
Corporación GEO, S.A.B. de C.V.
Margaritas 433
Ex-Hacienda Guadalupe Chimalistac
Ph. +(52) 55 5480 5000
Fax. +(52) 55 5554 6064
C.P. 01050, México, D.F.
Today we still maintain thiscommitment by offering all-inclusive housing developments that,while aligned with the federal housing policies,
are tailored to our clients’ needs.It is a reality that the housing
market has become increasingly more sophisticated
andthat clients therefore are better able to
appreciate our value proposition.
Investor Relations Contacts
and Further Information
Francisco Martínez García
Ph +(52) 55 5480 5071
Fax +(52) 55 5554 6064
fmartinezg@casasgeo.com
Marco Rivera Melo Forte
Tel. +(52) 55 5480 5115
Fax +(52) 55 5554 6064
mriveram@casasgeo.com
10
12 13 14 17 20 22 24 25 30 32
signi.com.mx
08
Financial Highlights
Key Events
Letter to Shareholdrers
we provide quality of life today for a
better tomorrow
We build today communities with
tomorrow´s needs in mind
Efficient construction today to
ensure a more profitable tomorrow
Selected Consolidated Financial
Information
Operating Results MD&A
Financial Results MD&A
Corporate Profile
Board of Directors
Product Gallery
Glossary
Consolidated Audited Financial
Statements
design:
02
03
04
06
Barbara Cano
Senior Vice-President
The Breakstone Group
Tel. +(1) 646 452 2334
bcano@breakstone-group.com
www.breakstone-group.com
Exchange Listings
Over the Counter, USA: ADR Level I
PORTAL, USA: ADR 144ª
Latibex: XGEO
Ticker Symbols
ADR (1: 4): CVGFY ; CUSIP: 21986V204
Latibex: XGEO
Bloomberg: GEOB MM
Reuters: GEOb.MX
Infosel: GEO
Depositary Bank
The Bank of New York Mellon
620 Avenue of the Americas, 6th Floor
New York, NY 10011
Natalia Castillo
natalia.castillo@bnymellon.com
Tel. +(1) 212 815 4372
www.adrbny.com
“One Share, One Vote”
100% B Voting Shares
84% Free Float
Tag-Along Rights
Shareholder Rights
Deloitte Touche Tohmatsu México
The information presented herein contains certain forward-looking statements and information relating to Corporación GEO, S.A.B. de C.V. and its
subsidiaries (collectively “GEO”) that are based on the beliefs of its management as well as assumptions made by and information currently available
to GEO. Such statements reflect the current views of GEO with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause actual results, performance, or achievements that may be expressed or implied by such forward-looking statements,
including among other changes in general economic, political, governmental, and business conditions globally and in the countries in which GEO
does business, changes in interest rates, changes in inflation rates, changes in exchange rates, mortgage availability, changes in housing demand
and amount of credits, changes in raw material and energy prices, changes in business strategy, and various other factors. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described
herein as anticipated, believed, estimated or expected. GEO 2012 Annual Report may contain certain forward-looking statements concerning GEO and
its subsidiaries’ future performance and should be considered as good faith estimates of GEO and its subsidiaries. GEO does not intend, and does not
assume any obligation to update these forward-looking statements. In addition, certain information presented herein was extracted form information
published by various official sources. This information includes statistical information relating the housing industry certain reported rates of inflation,
exchange rates, and information relating to the countries in which GEO operates. GEO has not participated in the preparation or compilation of any of
such information and accepts no responsibility therefore.
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GEO ANNUAL REPORT 2012
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GEO A
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2012

for a better

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